Commercial and tech update - October 2020

Placing products on the market in Great Britain and the EU in a post-Brexit world

Currently, the EU’s New Approach Directive requires certain goods to bear a CE mark when they are put on the market in the EU. The CE mark assures that the product has undergone conformity assessment and, therefore, meets various specific safety requirements.

Once the Brexit transition period ends on 31 December 2020, however, products from the UK placed on the EU market will be considered imports into the EU and vice versa. On 1 September 2020, the Department for Business, Energy and Industrial Strategy published guidance for businesses and manufacturers who are set to be impacted by the changes to conformity assessment.

The key change is that the UK Conformity Assessment (“UKCA”) mark, and not the CE mark, will be required for goods placed on the market in Great Britain from 1 January 2021.

With less than four months to go until the end of the transition period, the Guidance provides reassurance to manufacturers by confirming that businesses will have until 31 December 2021 to adjust the conformity assessment markings on their products. The new UKCA marking, however, will not be recognised on the EU market nor on the Northern Ireland market meaning that products currently required to have a CE mark for sale in the EU will continue to require a CE mark. Products for placement on the market in both Great Britain and the EU will therefore be required to have two conformity assessment marks by the end of 2021.

At present, the UK legislation around conformity assessment is identical to the EU Directive and so the requirements for obtaining a UKCA mark is the same as for the current CE mark. The new Guidance states that there are no current plans for UK legislation to diverge from EU requirements after the end of the transition period, but the possibility that UK and EU requirements could diverge before 1 January 2022 is not explicitly precluded.

The biggest imminent change is that from 1 January 2021 UK notified bodies will no longer be qualified to carry out conformity assessment for products being placed on the EU market. In order to obtain the necessary CE mark, therefore, manufacturers will have to be very careful to ensure their third-party assessor is EU-recognised. The Guidance does provide some flexibility for businesses as any existing stock does not have to be re-marked and can be placed on the Great Britain market after 1 January 2021 with existing markings and notified body numbers.

The Guidance does highlight an important change to the status of distributors. As of 1 January 2021, UK distributors will become exporters if placing their products on the EU market, or importers if bringing EU products to the UK. This new importer/exporter status comes with some enhanced responsibilities and some potential new verification requirements. The same applies to EU-based distributors. 

The Guidance is silent on products that are currently not subject to the CE mark conformity assessment, meaning that many industries must wait for further publications to shed light on the post-transition market for products such as automotive, pharmaceutical and chemical products.

One-nil to Liverpool in High Court sponsorship commission claim

Winlink Marketing Limited (“WML”) brought a £1.125 million claim in the High Court against Liverpool Football Club (“Liverpool”) where WML sought to claim commission for introducing Liverpool to BetVictor, who subsequently signed a training kit sponsorship deal with Liverpool in 2016, worth £15 million. The contract was concluded following extensive negotiations between BetVictor and a Liverpool employee, and WML did not play an active role in the negotiation of this sponsorship deal.

The facts of the case came down to His Honour Judge Pelling QC’s interpretation of an ambiguous introduction agreement entered into between WML and Liverpool in 2013. The key issues were: Did the contract require that the introduction of BetVictor to Liverpool was an “effective cause” of the agreement to give rise to the right of commission? And, if so, was the introduction by WML an “effective cause”?

The judge ultimately found that the express terms of the contract should be interpreted to mean that, in order for commission to be due to WML, the introduction by WML needed to be an “effective cause” of the subsequent commercial deal. He also ruled that, even if this was not the correct interpretation of the wording of the contract, there would be an implied term that there must be a causal link between the introduction by WML and the subsequent deal in order for commission to arise. On balance, the judge decided that the introduction was not an effective cause of Liverpool and BetVictor entering into the sponsorship deal, and therefore dismissed the claim.

This claim is a stark reminder of the importance of certainty in contracts, and it could easily have swung the other way if the terms of the contract had been clearly drafted in WML’s favour. Introducer intermediaries should be aware that the law is now clear that direct involvement in a deal will be required for commission to arise, unless there is a clear express term in the agreement saying the opposite.

Recent decision on the Quincecare duty brings banks’ duties to their customers into the spotlight

The Quincecare duty arose in a 1992 case (Barclays Bank Plc v Quincecare [1992] 4 ER 363) which established a duty owed by deposit-holding banks to their customers to refrain from executing a payment order where it knows or has reasonable grounds for believing that the payment instruction is an attempt to misappropriate the customer’s funds.

The case of Hamblin and another v World First Ltd and another [2020] EWHC 2383 (Comm) is the most recent of a number of cases which have looked at the interpretation of the Quincecare duty over the past few months.

In the Hamblin case, World First (“WF”) was a payment service provider. The second defendant (“D2”) was a limited company that had come under the control of fraudsters. It was alleged that WF had opened an account following instructions from D2 in the name of an individual who was supposedly a director at D2. The individual’s identity however had been stolen by fraudsters. The claimants, Mr and Mrs Hamblin, believed they were opening an account with an organisation that was engaged in high frequency foreign exchange dealing and accordingly transferred £140,000 into D2’s account with WF handling the payments. The money was misappropriated and the fraudsters never found. As WF had handled the payments, the claimants sought to bring a derivative action on behalf of D2 as the relevant contractual relationship was between WF and D2. The claimants claimed, among other things, that WF had breached the Quincecare duty it owed to D2. WF applied for summary judgment or to strikeout on the grounds that there was no reasonable prospect of the claims succeeding.

The court dismissed the application for summary judgment and strikeout on the grounds that D2 had reasonably arguable claims against WF for breach of the Quincecare duty. The court drew on the recent case of Singularis Holdings Limited v Daiwa Capital Markets Europe Limited [2019] UKSC 50, which was the first Supreme Court case to uphold a claim for breach of the Quincecare duty. In the Singularis judgment, Baroness Hale stated that a financial institution owes a Quincecare duty to a customer even in circumstances where the instructions which led to the loss were given by a person very closely connected with the company. The effect of this case widened the scope of the Quincecare duty. Another recent high court case, JP Morgan Chase Bank N.A. v The Federal Republic of Nigeria [2019] EWCA Civ 1641 looked at the Quincecare duty and the possibility to exclude the duty.

The Hamblin judgment (along with the other recent judgments on the topic) certainly suggests that the courts are willing to define the scope of the Quincecare duty broadly. The duty originally only applied to deposit-taking banks. In this case, it applies to PSPs and in the Singularis and JP Morgan case, it applied to investment banks. 

Finally, the judgment is likely to influence future cases on the duties owed by financial institutions when they act on instructions that prove to be fraudulent. During a time when highly sophisticated fraudsters are rife, it will be interesting to see what approach the courts take to claims concerning the application and interpretation of the Quincecare duty.

EC assessment of the Code on Disinformation published

The European Commission has published the results of the assessment of the Code of Practice on Disinformation; a self-regulatory standard signed by Facebook, Google, Twitter, Mozilla and the advertising sector in October 2018 that includes a broad range of commitments such as: transparency in political advertising, closing fake accounts and action against entities providing disinformation.

The assessment found that the Code has been very valuable, being the first instrument of its kind and providing a framework for the relevant stakeholders to communicate ways of ensuring greater transparency of online platforms’ policies against disinformation within the EU. However, it also identified several areas for improvement:

• The Code does not have relevant key performance indicators to assess the platforms’ policies effectiveness in countering disinformation.
• Procedures should be clearer and it would be beneficial to have a commonly shared definition as well as more precise commitments.
• It would be useful to have access to data allowing for emerging trends and threats posed by online disinformation to be independently evaluated.
• The Code should provide for structured co-operation between platforms and the research community.
• Other relevant stakeholders should be involved, particularly those from the advertising sector.

Along with the assessment, the European Commission also published the first baseline reports on actions taken by the Code’s signatories to counteract false and misleading information relating to COVID-19 up until 31 July this year. Initiatives reported on include:

• Promoting and giving visibility to authoritative content (e.g. giving prominence to content published by fact-checking organisations).
• Improving users’ awareness (e.g. by directing them to resources from health authorities).
• Detecting and hampering manipulative behaviour (e.g. by challenging suspicious accounts).
• Limiting advertising linked to coronavirus disinformation to avoid advertisers capitalising on such disinformation.

The European Commission will continue to gather specific indicators from the platforms on a monthly basis to monitor their policies’ effectiveness and impact in limiting the spread of disinformation relating to coronavirus. It will also present two additional initiatives by the end of the year: a European Democracy Action plan and a Digital Services Act package. Additional information can be found here: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_1568.