“If men will have multiple injuries, actions must be multiplied too; for every man that is injured ought to have his recompense” (Chief Justice Holt, 1704)
The predictions of flood gates opening and US class actions coming to the English courts following the implementation of the General Data Protection Regulation (GDPR) have been exaggerated; there has not yet been one.
The GDPR was expected to empower the individual and demand greater transparency from data controllers. Following the availability of group remedies with the Consumer Rights Act 2015 and the rise in litigation funding there appeared to be a receptive environment for potential group actions. However, UK representative actions are subject to restrictions under the Rules of Court, which means that they cannot develop into anything resembling the nature and scale of US class actions.
In the US the class action is a social institution. It regulates conduct, it is a deterrent, it rewards lawyers who act as gate keepers, and it compensates the public. Culturally the UK has not shown acceptance of US Court practices, particularly the class action. “Compensation culture” has not been viewed with universal approbation in the UK, by the public or the courts. The popular reaction to PPI exemplifies this; huge efforts by claims management companies have only resulted in 12 million claims being brought even though regulators estimate there are some 64 million miss-sold policies. The British public is reluctant to pursue compensation.
The UK government’s decision not to adopt the opt-out option in the GDPR Article 80(2) reflects the lack of enthusiasm. Opting-in requires any qualifying representative body to collect signatories with all parties choosing to opt-in. The criteria to qualify as a representative body include that they must be not-for-profit, have “statutory objectives which are in the public interest” and be “active in the field of the protection of data subjects’ rights and freedoms”. In the US a single claimant can represent an entire group, resulting in a large class action as claimants have to opt-out.
English common law requires that damages should be limited to compensation for an actual loss. The US operates a punitive damages regime; juries hear the case and set the damages, which can then be trebled if the judge considers the defendant should be punished. None of this applies in the UK.
There is a commercial barrier in the UK, as small amounts historically awarded in this jurisdiction for data breaches are insufficient to support a group action. The prospect of scant financial reward means there is little incentive for claimants to opt-in to a group action. Even if sufficient claimants can be identified, their reticence means that trial lawyers would not have a critical mass of claimants to represent.
There are no successful test cases and no financial incentives to make such costly and time consuming cases appealing for claimant firms or litigation funders. There is little to entice lawyers to build a case. Also, ironically, the unsolicited direct communications that the GDPR seeks to limit actually hinder the ability of claimant lawyers to find signatories for group actions and the chances of one happening.
In the RBS Rights Issue Litigation last year, the court ordered the funder to pay £7.5 million security on account of soaring costs. This shows a court can take into account the fact that a party is funding litigation on a commercial basis and seeking to profit from it. The costs order caused the funder to re-evaluate the risks of continuing the litigation, which had an influence on the final settlement reached in June 2017.
The structure of group actions and the funding mean that proceeds go into the pockets of litigation funders and claimant lawyers, not to the claimants themselves. Lloyd v Google case was the first time a data misuse representative action was brought in the UK. The cause of action was for misuse of confidential information and damages under section 13(1) of the Data Protection Act 1998. It concerned a “cookie” attached to the Safari app used in Apple iPhones, which, without the user’s knowledge or consent tracked “visits by the device to any website displaying an advertisement from [Google’s] vast advertising network, and to collect considerable amounts of information.” In the US, there had been a substantial regulatory penalty and payments in consumer based claims brought by the Attorney-Generals of 37 States. In England there had not even been a regulatory penalty.
The claim for damages was negotiated, based on what would be a reasonable price for a license to use the data. Mr Justice Warby (Warby J) held that this was not available under English Law for the collecting and misuse of data.
Warby J stated that the claimant was seeking to represent individuals who “have not authorised the pursuit of the claim, nor indicated any concern about the matters to be litigated”. Even though Google’s actions were potentially a breach of duty, “the main beneficiaries of any award by the end of this litigation would be the funders and the lawyers by a considerable margin” and that the case would consume a “considerable amount of court time”. The claimant claimed to be a “representative claimant” under CPR 19.6 alleging a group with a shared grievance. However, loss would have to be assessed on an individual basis and there was not a “shared interest” between the individuals, a requirement for a representative action. The judge did not allow the case to proceed.
There is no track record for data abuse group claims being successful in the UK, no financial inducements for lawyers or funders, and nothing to whet the appetite for individual claimants to become involved. When the Consumer Rights Act 2015 was introduced with its opt-out clause relating to damages actions, there were similar predictions that there would be a wave of US-style class actions. Collective proceeding orders under section 47B of the Competition Act 1998 (which allows opt-out proceedings) were not granted by the Competition Appeal Tribunal on the facts in Dorothy Gibson v Pride Mobility Products Limited (mobility scooters) and Walter Hugh Merricks v MasterCard Incorporated (Credit Card charges). The GDPR does not provide as much scope as section 47B, as in the UK it is opt-in only.
The Morrisons data breach case might indicate that there could be certain group actions. Mr Justice Langstaffe held that although the supermarket was not the data controller and had no personal liability for a data leak affecting some 100,000 employees, it was vicariously liable for the data controller. The case provided employees with the opportunity to claim compensation against their employer for distress: Various Claimants v Wm Morrisons Supermarket Plc [2018] 3 W.L.R. 691. There is a strong policy argument for protecting employees and giving them an effective remedy against their employer for data leakage. Employees should receive compensation when the data controller, a person given that role and funded by the employer, is liable for data leakage.
Culturally, economically and legally the UK is not yet receptive to group actions on the scale of US class actions. Regulatory bodies can impose fines. The EU directive offered member states the opportunity to provide redress to individuals damaged through data abuse, on an opt out basis. That opportunity has not been taken, at least until 2020 when there is the opportunity for the UK Government to review implementation of Article 80. Roman law set the bar with its principle of ‘Ubi jus ibi remedium’ (where there is a right there is a remedy). This is a fundamental principle of the English common law; Chief Justice Holt said in 1704, “…It is no objection to say that it will occasion multiplicity of actions; for if men will have multiple injuries, actions must be multiplied too; for every man that is injured ought to have his recompense.” Data misuse is an area where the rights of the ordinary member of the public are yet to be protected with an effective remedy.
Companies are facing greater inconvenience and expense as the duration of HMRC investigations continues to grow. The average time large businesses can now expect inquiries to last is 39 months. The 2016-17 typical time was 34 months, up from 31 months in the previous financial year.
There are a number of possible explanations for this increase. Many businesses and private practice lawyers point to the more aggressive approach being taken by HMRC, including an unwillingness to settle cases and a real lack of resources to manage concurrent large-scale investigations. Some also suggest that having resolved simpler cases and dealt with the “low hanging fruit”, HMRC has now turned its attention to more complex multi-jurisdictional business entities, which necessarily entail longer investigations.
Whatever the cause, the consequences for large businesses remain the same: disruption to financial planning and budgeting and increases in cost, time and resources directed towards cooperating with HMRC. There is also greater risk of potential reputational damage caused by such enquiries, which unless carefully handled, can become public and have a knock-on effect on share price for listed companies.
HMRC’s Large Business Directorate leads investigations into the tax affairs of the UK’s biggest businesses. Its investigations enabled it to secure more than £8bn in additional tax revenue in 2017. It states that “at any one time, we will be actively investigating more than half of the UK’s 2,100 largest businesses.”
More companies are looking to specialist investigations and dispute resolution firms that have strong relations with HMRC to ensure such matters are managed as efficiently as possible and with minimum effect on their business.
JHA’s investigations team is made up of specialist and highly experienced solicitors and barristers, forensic accountants, former regulators and data scientists, uniquely sitting under one roof. JHA is also a leading firm in contentious tax, having achieved Band One rankings in both Legal 500 and Chambers & Partners for the fifth consecutive year.
Data in this article was originally published by the Financial Times.
In recognition of November being World Vegan Month.
Increasingly, companies are growing to understand and engage with the multiple benefits that a healthy diet such as veganism can bring to their businesses. Big names endorsing the practice of abstaining from the use of animal products include IBM, Qualcomm, PwC, Caterpillar, General Electric, Volkswagen, Google, Facebook and Dropbox, all of whom have embraced employee-led vegan initiatives in their workplaces with positive results.
Companies report that the greatest benefit is the improved health and wellbeing of their employees. Veganism has been linked to lower BMI, blood pressure and cholesterol, all of which reduce the risks of cardiovascular disease, cancer and Type Two Diabetes among other damaging or potentially fatal diseases.
The practice has also been shown to have a positive impact on mental health through improved mood and reduced anxiety because of the absence of arachidonic acid in a meat-free diet. Arachidonic acid is an inflammatory omega-6 fatty acid found in animal products.
The improved physical and mental health of employees has wide-ranging benefits for businesses. These include a reduced number of sick days, increased productivity and lower insurance and health care expenses, all of which cut company costs and increase profitability.
The focus on wellbeing goes beyond the bottom line; increasingly potential employees and clients are attracted to businesses that follow inclusive, environmentally friendly and sustainable practices. Veganism not only promotes animal welfare, it can also diminish an individual’s carbon footprint by up to 73%. This means a significant reduction in greenhouse gas emissions, which decreases air pollution, a significant contributor to climate change. A reduction in the amount of land used for agricultural purposes would decrease the threat to endangered species of wildlife.
Forward looking firms are those supporting and encouraging these kinds of employee-led initiatives, as they are concurrently helping their employees, their businesses, and the environment.
At JHA we are committed to supporting the wellness of our employees by supporting and encouraging positive diet and lifestyle choices.
Data in this article comes from articles published in the Independent and Forbes.
The Treasury has announced plans to introduce a Digital Services Tax (“DST”) from April 2020, which it anticipates will raise £1.5 billion over four years.
The introduction of the DST reflects the UK’s discontent with the taxation outcome of certain highly digitalised businesses under the current international tax framework. The view is that the DST will act as a short term solution to the tax challenges of digitalisation while a global consensus-based solution is designed and implemented within the EU, G20 and OECD. Due to its interim nature, the DST will be subject to formal review in 2025.
The DST will apply a 2% tax on the revenues of three specific in-scope digital business models: the provision of a search engine, social media platforms, and online marketplaces. The tax has a broad nexus rule focusing on the location of the user, not the business. This means that the DST will apply to the revenues of both resident and non-resident enterprises, irrespective of their level of physical presence in the UK, whenever they are linked to UK users. However, the DST is intended to target large tech companies only. As a result, only large businesses which generate at least £500m from in-scope business models will be subject to the DST.
The stated intention is for the DST to operate outside the scope of tax treaties. This hints at the view that the DST will not (either as matter of form or substance) be designed as a tax on income or any element of income covered by Article 2 (Taxes Covered) of the OECD Model Tax Convention. By operating outside tax treaties, major non-resident tech companies will be unable to credit the DST charge against income tax imposed by their country of residence.
Compliance with EU law will be required if the transition period proposed in the draft Brexit Withdrawal Agreement is agreed upon. In particular, the DST must be compliant with the fundamental freedoms set out in the TFEU and the prohibition on State aid. It should be noted that the CJEU currently has two requests for a preliminary ruling concerning the application of Hungary’s advertisement tax to Google (C-482/18) and Vodafone (C-75/18). Hungary’s advertisement tax is also a unilateral measure aimed at addressing the tax challenges of certain digitalised businesses (online advertising services) and, like the DST, the scope of Hungary’s advertisement tax is also ultimately dependant on the location of the targeted public.
Ongoing controversy continues to surround the “Beautiful Game” as some 70 million documents (3.4 terabytes of data), remain the subject of investigation by journalists from members of European Investigative Collaborations (EIC).
The current report of the investigation relates to possible financial fraud in relation to the Financial Fair Play rule of the Union of European Football Associations (UEFA). This rule, approved in 2010, aims to prevent professional football clubs from spending more than they earn in the pursuit of success. The aim is to prevent clubs from doing this and then getting into financial difficulties that could endanger their long-term survival.
In December 2016 findings from the first files disclosed how some of football’s most prominent figures, including Cristiano Ronaldo and José Mourinho, avoided tax on some earnings through their use of offshore accounts. Since then, both European and national regulators have been questioning representatives of European football bodies about their tax structures.
The latest information released concentrates on the activities of Middle Eastern individuals and organisations who have become increasingly influential in football. So far they have focused on Manchester City, owned by Sheikh Mansour, deputy-prime minister of the UAE, and Paris St Germain, which belongs to Qatar Sports Investments.
The documents raise questions about the arrangements between these clubs and the football authorities regarding sponsorship deals and Financial Fair Play. They suggest the authorities may have dealt unevenly with the application of the sport’s rules, making it difficult for club owners to navigate these already complex regulations.
The investigators say that they will also be turning the spotlight on tax avoidance arrangements entered into by clubs and players.
JHA is a leading authority in contentious tax and commercial litigation, having achieved Band One rankings in both Legal 500 and Chambers & Partners for the fifth consecutive year. A significant part of its practice is devoted to football-related tax disputes involving clubs, players and agents.
Reports on the investigation can be found in DER SPIEGEL and Reuters.
Article originally published in Civil Justice Quarterly, Volume 37 Issue 4 2018
The Civil Procedure Rules (CPR) permit proceedings against unnamed defendants. This is available where wrongdoers conceal their identities, such as on the internet, or hit and run drivers. Under the Sixth Motor Insurance Directive, compulsory insurance is on the vehicle. The insurers’ responsibility is in respect of civil liabilities of any driver whosoever, including when there is no right of indemnity under the policy. In Cameron v Hussain, on appeal to the Supreme Court, the victim has the number plate, and there is insurance of that vehicle by identified insurers. The case in the Court of Appeal overlooked art.18 of the Directive, which requires a direct right of action for the victim against insurers. The dissenting judgment agreeing with the court below: (1) misinterprets the Directive, the CPR and s.151 of the Road Traffic Act 1988, (2) disregards the legislative public policy underlying them, (3) is founded on considerations which are mistaken, and (4) reaches a deeply unsatisfactory result. There should be, and is, a general principle under the CPR that courts will do what they can to allow substantive rights to be determined and enforced. This underlies the established procedures in internet cases and for injunctions. It engages the overriding objective, enabling the courts to do good justice.
Sloane Street is lined with the outlets of retail brands. They own trade marks. They face competition from cheap imitations sold on the internet through web sites with addresses which change. No-one knows who the sellers are, or where they are. Their identity is concealed. No effective injunction can be obtained against them. The imitated brands obtained internet blocking injunctions against BT and other service providers requiring them to block access to identified web sites and addresses to which they migrate. At first instance and in the Court of Appeal the internet service providers resisted the injunctions because they committed no wrong and were entirely innocent. The case went to the Supreme Court on who should pay the expenses of implementing the injunctions.
Injunctions are granted for a purpose. The injunction jurisdiction rests on current policy. The Mareva injunction is a consequence of use of off shore companies, banks accounts and trust structures. The decisions in the time of Queen Victoria which denied Mareva jurisdiction were founded on policy which became out dated and unjust.
The internet blocking injunction is granted against the third parties to protect a copyright or trade mark right, and to promote the due administration of justice when no effective order can be made against the wrongdoer. The expenses of implementing them must be borne by the claimant and not imposed on the innocent party.
The same principles apply to cases, whether about Intellectual Property or not. Injunctions cannot and do not depend on case law on the limits to the jurisdiction exercised by the old High Court of Chancery over disclosure of documents in the time of Charles Dickens. That jurisdiction was not available against the innocent bystander, a mere witness. In Victorian England there was no internet. Times have changed.
The jurisdiction to grant injunctions against innocent bystanders is considered in The Jurisdiction to Grant Injunctions against Innocent Third Parties, published in The European Intellectual Property Review Volume 40 Issue 9 2018 , p 571, Steven Gee QC.
The European Commission has concluded that Luxembourg did not breach EU state aid rules by not taxing certain profits of McDonald’s in that jurisdiction.
The Commission’s investigation, launched in December 2015, focused on whether the non-taxation resulted from a misapplication of national laws as well as the Luxembourg-US Double Taxation Treaty. The Commission sought to establish whether such non-taxation amounted to state aid through illegal tax benefits, whereby McDonald’s was granted an advantage not available to other entities in a comparable situation.
McDonald’s Europe Franchising had not paid any corporate tax in Luxembourg since 2009, whilst recording substantial profits in that period, for instance in excess of €250 million in 2013. The profits originated from franchise royalties in Europe and Russia for the use of the McDonald’s brand and related services. These royalties were directed internally to McDonald’s US branch. The Luxembourg authorities held in 2009 that McDonald’s Europe Franchising did not owe any corporate tax in that jurisdiction, since the profits were due to be taxed in the US according to the Luxembourg-US Double Taxation Treaty. However, the profits were in fact not subject to taxation in the US as McDonald’s Europe Franchising was not a ‘permanent establishment’ and thus did not have a taxable presence in the US under US law. At the same time, the Luxembourg authorities viewed the US branch as a ‘permanent establishment’ and thus the place where most of the profits should be taxed under Luxembourg law. This conclusion led to the double non-taxation of the relevant profits in Luxembourg and the US.
The Commission concluded that the Luxembourg authorities had been correct in exempting McDonald’s US branch, since that branch was indeed a ‘permanent establishment’ under the Luxembourg tax code. That the Luxembourg authorities knew the US branch was simultaneously exempt from tax under US law when they decided not to tax that branch under Luxembourg law did not constitute illegal state aid. However, to prevent such double non-taxation in the future, Luxembourg has now drafted amendments to its tax code which are being discussed in the national parliament. The legislative proposals aim to tighten the rules on determining the existence of a permanent establishment, as well as requiring companies claiming to have a taxable presence abroad to submit confirmation that they are indeed subject to taxation in the other country.
Causation in a contractual dispute is governed by application of the contract. In law context is everything. These principles were of central importance to the decision of the UK Supreme Court in Navigators Insurance Co Ltd v Atlasnavios-Navegacao Lda (The B Atlantic) [2018] 2 WLR 1671. Persons unknown, probably associated with a drugs gang attached three bags of cocaine weighing 132 kg to the hull of the B Atlantic in Venezuela which was loading a cargo of coal for Italy. The drugs were discovered, the vessel detained and this led to the master and the chief officer being convicted by a local jury and sent to prison for 9 years, when they were innocent. This miscarriage also resulted in the confiscation of the vessel. The shipowners who had lost their vessel through no fault of their own or the crew, claimed on the War Risks Policy, which incorporated the Institute War and Strikes Clauses Hulls—Time (1/10/83):
“1. PERILS
Subject always to the exclusions hereinafter referred to, this insurance covers loss of or damage
to the vessel caused by
…
1.2 capture seizure arrest restraint or detainment, and the consequences thereof or any attempt
thereat
…
1.5 any terrorist or any person acting maliciously or from a political motive
1.6 confiscation or expropriation.
…
3. DETAINMENT
In the event that the Vessel shall have been the subject of capture seizure arrest restraint detainment
confiscation or expropriation, and the Assured shall thereby have lost the free use and disposal of the
Vessel for a continuous period of [6] months then for the purpose of ascertaining whether the Vessel
is a constructive total loss the Assured shall be deemed to have been deprived of the possession of
the Vessel without any likelihood of recovery ….
4. EXCLUSIONS
This insurance excludes
4.1 loss damage liability or expense arising from
…
4.1.5 arrest restraint detainment confiscation or expropriation … by reason of infringement of any customs or trading regulations
…”
These are standard terms used internationally which were the product of the reform by Lloyd’s of its marine insurance forms in 1983, using words from the earlier forms. The problem for the shipowners was the Exclusion. The case law, on the basis of which the parties are taken to have contracted, established that infringement of customs regulations included smuggling. The shipowners asserted that the persons unknown were persons “acting maliciously” and that the detention and confiscation of the vessel was not “by reason of….[the] infringement…”, it was caused by the malicious act .
In the lower courts it had been common ground that the persons unknown acted “maliciously”. Arnould on Marine Insurance (18th edition, 2013) stated its opinion that spite or ill will against the shipowners or their ship was not required.
The Supreme Court dismissed the owners’ claim holding: (1) contrary to the concession made by the insurers before the trial judge and Arnould’s opinion, that “maliciously” was governed by precedent decided nearly 50 years ago, deciding in this context that spite or ill will against owners or the vessel was required, that the Supreme Court should decide the case on the correct meaning, and that there was no malice by the drug smugglers, only the desire to make a profit out of smuggling; and (2) the loss arose from detention and confiscation of the vessel. Either was sufficient to decide the case, and so shipowners were not prejudiced by the Supreme Court disregarding the concession. It was important for the international insurance market that the correct meaning was applied.
On (1) textbook writers do not have the benefit of adversarial argument and can make mistakes. In this case the editors had misunderstood what had been decided by the case law. On (2), the causation issue had to be determined giving proper contractual scope and effect to the Exclusion, and not so as to disregard or emasculate it. What is insured against is given by the Perils and the Exclusions, read together.
The consequence is that a shipowner if he wants cover if his ship is lost because of a third party smuggling, will need special words to do this. Smuggling by the crew is covered under the Hull Policy as barratry, a wrongful act wilfully committed by the master or crew to the prejudice of the owner.
Shipowners had a labyrinth of points which were, or could have been, deployed. These are examined in “Smuggling,Marine Insurance, Causation and Interpretation” [2018] Lloyd’s Maritime and Commercial Quarterly 482 (Steven Gee QC).
The UK government is reportedly prepared to resist the European Commission’s challenge in the Court of Justice of the European Union (CJEU) over the UK’s VAT treatment of commodity derivatives trading.
The Commission has issued a formal notice of infraction proceedings (dated 8 March 2018) as well as a reasoned opinion (dated 19 July 2018) to the UK. Both communications are pursuant to Article 258 of the Treaty of the Functioning of the European Union (TFEU), and concern Article 394 of Directive 2006/112/EC (the VAT Directive) on derogations related to certain commodity derivatives trading under the Terminal Markets Order 1973. This Order is a statutory instrument that permits for exchange-traded derivative transactions in spots, futures and options on commodity contracts to be zero-rated for UK VAT. The zero-rating of these transactions is a permitted special measure under Article 394, which allows Member States to simplify VAT collecting rules. The Commission takes the view that the development of the UK’s zero-rating treatment of such transactions now contravenes EU VAT rules, and requests that the relevant UK VAT rules should be aligned with EU rules.
The March formal notice referred to the UK’s extension of the scope of a VAT derogation that consists of zero-rating transactions carried out on a number of commodity markets. The Commission contends that since the UK notified that derogation to the Commission in 1977, the UK has considerably extended the scope of the measure, which is no longer limited to trading in the commodities originally covered by the derogation. The Commission further holds that the extension of the scope of such a ‘standstill’ derogation is not permitted under EU law. The Commission adds that the derogation is also generating ‘major distortions of competition to the detriment of other financial markets within the EU’, following some informal complaints from other Member States.
As the UK did not act within the stipulated two months since the date of the formal notice, in line with procedure the Commission has now sent a reasoned opinion to the UK government. For the time being and pending any legislative changes, the UK’s tax treatment of commodity derivatives remains as before. However, if the Commission considers the UK’s response to its communications to be insufficient, it can bring the matter before the CJEU.
