Commercial - looking ahead to 2017
This article was first published on Lexis®PSL Commercial on 5 January 2017. Click for a free trial of Lexis®PSL.
Commercial analysis: Our panel of experts considers what lies ahead for commercial lawyers in 2017.
David Thompson (DT), partner at Michelmores
Freya Lemon (FL), associate at Michelmores
Bruce Potter (BP), chairman at Blake Morgan
John Davidson-Kelly (JDK), partner at Osborne Clarke
Joanne Frears (JF), partner at Blandy & Blandy
Legal developments and practical impact
What are likely going to be the most important cases in 2017 and why?
DT & FL: Arguably the most talked-about case at present, and one that will potentially have far-reaching consequences for the field of commercial law, will be the government’s appeal to the Supreme Court in the ‘Brexit’ case, R(Miller) v The Secretary of State for Exiting the European Union). The Supreme Court has been asked to give a ruling on the following question—does the government have power to trigger Article 50, to withdraw the UK from the EU, without an Act of Parliament providing prior authorisation to do so?
In November, the High Court ruled that no such power exists ( EWHC 2768 (Admin),  All ER (D) 19 (Nov)). While the appeal has been heard in December 2016, judgment is unlikely to be delivered until early 2017.
The significance of this case is reflected, not least, by the record 11-strong panel of Supreme Court judges (the largest to hear a single Supreme Court appeal) drafted to hear the appeal. The outcome will influence how, when and, indeed, if Article 50 can be triggered by Theresa May’s administration. [For more information, see News Analysis: Article 50 litigation—examining the government’s appeal.]
In another landmark case, MasterCard is facing a multi-billion pound claim in the Competition Appeal Tribunal (Walter Hugh Merricks CBE v MasterCard Incorporated and Others) for damages arising on the back of a decision by the European Commission in 2007. MasterCard was held to have infringed EU law by imposing unfairly high multilateral interchange fees on cross-border MasterCard transactions.
This claim will be one of the first class-actions brought under the Consumer Rights Act 2015 (CRA 2015), which introduced a new ‘opt-out’ mechanism for claims (similar to the US model). This model allows any person (within the defined class of those who may have suffered a loss) to be automatically included in an action, unless they specifically opt-out.
The proposed class in this case is around 46 million UK consumers, meaning MasterCard is at risk of having to pay out an estimated £14bn in damages (if the claim is successful). [For more information, see News LNB News 24/11/2016 81: Specialist tribunal to hear £14bn MasterCard case in January 2017.]
2017 is also likely to see a number of other CRA 2015-based ‘test’ cases, with a number of consumer groups (including transport and passenger groups) preparing to hold businesses to account for consumer rights breaches.
JDK: The following are key:
Digital Single Market
The EU’s Digital Single Market initiative is going to have an effect on certain existing contractual agreements. For example, the proposed Cross-Border Portability Regulation would make unenforceable any contractual provisions between content owners and service providers that prevent portability.
Equally, the Commission’s Pay TV investigation may deem anti-competitive any agreements which require territorial exclusivity to be observed via implementing technical measures.
The draft Geoblocking Regulation [see LNB News 28/11/2016 96] proposes that companies cannot have different terms and conditions for consumers in different Member States for electronically provided services (such as cloud storage agreements), delivery of physical goods and services provided in the Member State of the trader (such as hotels and car hire). In addition, certain proposals require companies to enter into agreements with one another, for example the copyright proposals require information society services to enter into agreements with rightsholders. [For more information on the proposals, see News Analysis: New geo-blocking regulation on its way.]
We also expect the current trend of enforcement to continue across Europe, which has recently seen companies such as Virgin Media Ireland fined up to €225,000 for breaches of consumer law.
JF: The below cases will prove important:
- new cases around the sharing economy are likely to feature large in 2017—on the back of the Uber decision and the government’s review of working practices in the new sharing economy (due in Q1 of 2017) there will inevitably be changes to the law which will impact on businesses and commercial legal practice. [For more information, see News Analysis: Driving forward workers’ rights—Uber drivers prevail in holiday pay ruling.]
- the ICO might seem to be having a hard time keeping up with the plethora of cyber-breaches lately—it is likely that in 2017 big questions will be asked about contractual obligations imposed on companies to keep information secure and what level of privacy expectations data subjects are entitled to.
What are likely to be the most significant legislative and regulatory developments and why?
DT & FL: Significant developments include:
In October 2016, Theresa May announced plans for a ‘Great Repeal Bill’. This is intended to repeal the European Communities Act 1972 and incorporate EU law into UK domestic law. The Bill is due to be introduced in May 2017 and will need to be ready to take effect from the day the UK formally leaves the EU. [For more information, see News Analysis: The Great Repeal Bill—a copy and paste approach to Brexit?.]
There are a number of other ‘Brexit’-based Bills in the pipeline (with numerous more to follow, no doubt). For example, the Withdrawal from the EU (Article 50) Bill in its present form will require Her Majesty’s government to notify the European Council by 31 March 2017 of the UK’s intention to withdraw from the EU. [For more information, see Practice Notes: Brexit timeline and Brexit—exiting the EU under Article 50.]
Brexit-based legislation will, inevitably, be influenced by the outcome of the Supreme Court appeal (see above) and also heavily dictated by wider political agendas. These legislative and regulatory changes will shape commercial considerations throughout and beyond 2017 —not least due to the extent to which EU and domestic trade and business laws intertwine. Many UK laws and regulations, including those relating to international movement of goods and workers, product labelling and packaging, workplace health and safety and competition restrictions, are closely linked to EU law and regulation.
Departing from Brexit, 2016 marked one of the largest movements in data protection regulation, with the introduction of the EU General Data Protection Regulation (EU) 2016/679 (GDPR). As of 25 May 2018, the obligations set out in GDPR will be directly applicable to all EU Member States, including the UK. GDPR is more stringent that the UK’s current data protection laws (namely, the Data Protection Act 1998) and is far-reaching. Therefore, throughout 2017, anyone offering goods or services, or monitoring behaviour on anyone in the EU, will need to be aware of the changes and take steps to ensure compliance in readiness for the ‘go-live’ date in 2018. [For more information, see Practice Note:The General Data Protection Regulation.]
The Modern Slavery Act 2015 (MSA 2015) is a relatively recent piece of UK legislation designed to tackle slavery, exploitation and human trafficking. It mandates for larger companies (over £36m annual worldwide turnover) to increase supply chain transparency and due diligence. In 2017, the Modern Slavery (Transparency in Supply Chains) Bill will be considered in the House of Commons—if enacted, this legislation is set to extend the MSA 2015 principles to public procurement by requiring contracting authorities to exclude economic operators who have not complied with their MSA 2015 obligations from public contract tenders. Companies who bid for public contracts will, therefore, have even more reason to adhere to the MSA 2015 requirements, or risk missing out on contract bidding opportunities.
BP: The Digital Economy Bill will be looking to increase access to fast digital services alongside enhanced protection for consumers from direct marketing, including possible personal liability for directors of nuisance calling companies. Taken together, that promises increased corporate responsibility, support for digital infrastructure and better consumer protection, all important, post Brexit, themes.
Also if you look at support for SMEs through the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015) and the Enterprise Act 2016 (EA 2016)—key provisions of SBEEA 2015 became stalled after the general election, but regulations about payment practices and policies, including publication of payment performance in business to business contracts have been rescheduled for early 2017. Further regulations under SBEEA 2015, to nullify arcane bans on invoice assignment, to support funding of small businesses, also stalled after the election, but are expected to come through in late 2016/17. EA 2016 also looks to support small businesses and again has a heavy focus on redress to small businesses following late payment by big businesses, in the shape of a, still to be finalised, small business commissioner. These are measures which will encourage growth in key SME business sectors, a crucial part of a world trading post Brexit UK economy.
Where that continuity gets harder to see is in areas like trade secrets where the EU Trade Secrets Directive 2016/943/EU was adopted in June 2016, to be introduced to domestic law by June 2018. It is designed to harmonise the protection of trade secrets across the EU. At one level it is exactly the kind of legislation that businesses in or trading with the EU would want. However in a post 2019 world does the government turn its back on an imposed EU solution and say we will take our chances in every jurisdiction we want to trade in? [See, News Analysis: Shining a light on the Trade Secrets Directive.] For commercial lawyers perhaps the biggest and most obvious area where the ‘in or out’ dilemma, and the sheer confusion of agendas in 2017 will be demonstrated is the mighty GDPR. This is due to come into force in May, 2018, so 2017 will be a key year for planning and changing all the structures of data protection and the contracts that underpin them, including critically enforceable information security measures even with data processors, the mandatory reporting of data breaches to DP authorities and data subjects. The government has recognised it will have to ensure the UK meets the overarching requirements of GDPR for adequate personal data protection—it really has no choice.
The Insolvency Rules are due to be revised from April 2017 and will be a massive change to what has been a settled process for almost 30 years. While rules will be simplified, it will be an area to watch carefully. [See News Analysis: New Insolvency Rules laid before Parliament.]
Elsewhere, the details of the apprenticeship levy are due to be finalised in 2017 and the controversial Investigatory Powers Bill is expected to come into force in 2017.
JDK: The Digital Single Market proposals will constitute the most significant reforms.
JF: If anything, in the short-term, we are likely to see more regulation around doing business with Europe, and not less, as the UK is forced to jump through some extra hoops to do business in the EEA.
How is Brexit likely to affect these predictions?
DT & FL: Brexit is already playing a pivotal role in case law and in legislative and regulatory developments heading into 2017. The numbers of legislative and regulatory changes, in particular, appear only set to increase on the back of the UK’s decision to leave the EU.
The extent to which Brexit will affect GDPR and data protection regulation in the UK will depend to a certain extent on the nature of the UK’s relationship with the EU after the split. However, it is highly likely that, even if the GDPR does not directly apply post-Brexit (and the UK does not bilaterally adopt its terms) UK businesses will, to a large extent, need to continue to conform to its principles if they wish to process data relating to any person within the EU. We have previously considered the impact of Brexit on data protection in the UK.
With regard to other key developments such as those relating to consumer rights and modern slavery, Brexit should have less impact. Both CRA 2015 and MSA 2015 are UK Acts and, as it stands, will continue apply to businesses trading in the UK, notwithstanding Brexit.
JDK: Brexit could have a significant impact on the Digital Single Market proposals but how exactly they will be impacted will ultimately depend on the ‘flavour’ of Brexit. Some of the initiatives will be implemented into UK law before the UK leaves the EU so there may be little or no change to those, but there will be a question of whether the remaining 27 Member States will give reciprocity. In an extreme example, the UK could implement the Geoblocking Regulation such that UK companies are not permitted to geoblock websites from the 27 Member States, but they are permitted to geoblock UK websites.
JF: EU law has a pervasive effect on all business we do in the UK but our legal principles of forming contracts and fitness of goods and services provided under them predate the EEA. If British businesses want to continue to trade with Europe, they will have to continue to abide by its rules—which the remaining EU Member States have made abundantly clear. This should not be problematic for UK businesses, but the reality of having to continue to comply with EU regulations will be galling for those who voted to leave the EU.
Clients and business developments
How do you think the practice of commercial law is going to develop in 2017?
DT & FL: The following are important points:
International trade deals
Trade deals are likely to remain at the forefront of commercial discussions and developments in 2017. The Comprehensive Economic and Trade Agreement (CETA) was adopted by the European Council on 30 October 2016. Although not yet applied, CETA is intended to offer EU businesses more and better trade opportunities in Canada—including by removing custom duties, enhancing intellectual property rights and enforcement of those rights and ending restrictions on public contract access.
While the UK government is restricted from negotiating alternative trade agreements with other countries until it has withdrawn formally from the EU, UK businesses will be watching with interest to see if and how CETA benefits will be afforded to UK businesses post-Brexit.
The Transatlantic Trade and Investment Partnership (TTIP) is the trade deal currently being negotiated between the EU and the US. TTIP is, again, intended to promote international trade by reducing tariffs and regulatory barriers between the two trade-zones. However, many commentators predict that, following the UK’s Brexit vote and Donald Trump’s election in the US, TTIP may become grounded. Trump has been notoriously vocal in his objection to international trade deals that risk diluting the strength of American businesses.
It is important to note that, despite some trade uncertainty resulting from the UK’s impending EU departure, the UK in its own right remains a member of the World Trade Organisation (WTO), which facilitates a global multilateral trade agreement between its member countries (currently totalling 164 globally).
In 2017, as Brexit draws ever closer, it will become increasingly important for all businesses to consider the potential impact of the UK’s withdrawal from the EU in their contracts and wider business arrangements.
A significant volume of contracts being entered into over the next year are likely to be intended to run beyond the UK’s ‘exit’ date (the current date looks to be around March 2019). As such, businesses (particularly those trading internationally) should be reviewing their contract arrangements—to ensure potential changes resulting from Brexit are facilitated. while most core contractual principles, where contracts are subject to English law, will not be affected, elements such as termination triggers, pricing, shipping and duties and jurisdiction for bringing claims and enforcing judgments should be reviewed.
[For further guidance, see Practice Note: Brexit—the implications for contract risk management.]
As considered above, commercial focus in 2017 will also be on GDPR, and ensuring that businesses are ready for its implementation in 2018.
BP: Commercial law will need to develop in response to client needs for increased support as they seek to understand what leaving the EU means for their business and what action they need to take now to prepare. Commercial lawyers must be willing to keep the dialogue open with clients and to spend time exploring options ahead of any final decisions being announced.
What do you think the key challenges are going to be?
DT & FL: Much of the market and regulatory uncertainty, following the Brexit decision, looks set to continue into 2017. As the UK is currently somewhat in a position of limbo, a challenge for businesses will be keeping atop of commercial updates—to ensure that they are poised to act on changes as and when they happen.
Businesses also have to adjust to the weakened pound. For some, this means looking at increasing exports to counterbalance increased import costs (ie where a business imports from countries that have seen their currencies strengthened against the pound). Many export businesses have already seen benefits, with a rise in demand from countries such as the US and China.
For businesses and traders, the effects of CRA 2015 will also continue to act as a challenge. When CRA 2015 came into force on 1 October 2015, it streamlined previous consumer law and introduced a number of key changes, largely aimed at enhancing consumer rights.
Despite CRA 2015 having now been in force for over a year, businesses should not become complacent. Consumer watchdogs and forums are helping to facilitate widespread understanding among consumers of their enhanced rights under CRA 2015, and businesses must be prepared to act in accordance with the CRA 2015 requirements. In particular, familiarity with consumers’ rights relating to returns and refunds for defective goods and services will help businesses reduce the risk of fall-out, or action being taken against them.
As of 1 October 2016, the rights set out in CRA 2015 also apply to the public transport sector (namely air, rail and sea travel). Passenger groups have been vocal in their wish to present ‘test’ cases to challenge transport companies where, for example, train services promise wifi that then does not function properly, or where services are unreasonably delayed or over-crowded.
BP:: The biggest challenge will be the lack of clear answers about the future legal landscape. Lawyers will need to try to plot what mix of adjusted EU principles, revitalised domestic law and new international trade and tariff principles is likely to emerge as the new governing English and Welsh law—and what that will mean for our clients.
JF: I believe the following will be key challenges:
- foreign-qualified colleagues may choose to leave practice in England and Wales
- English law firms may have to retrench staff in foreign offices as both cooperation and visa uncertainties pervade
- a key challenge will be helping our clients to communicate the message that Britain remains open for business amid a changing legal landscape
Interviewed by Alex Heshmaty.