Presentation on Company Law Reform in South Africa – Professor Irene-Marie Esser

The Edinburgh Centre for Commercial Law was delighted to welcome Professor Irene-Marie Esser to Edinburgh Law School on the 2nd of August 2010. Irene-Marie Esser is a Professor at the University of South Africa (UNISA) and lectures in Entrepreneurial Law, Company law and Corporate Governance to undergraduate and postgraduate students. Professor Esser is an active researcher in the areas of company law, mostly on corporate governance issues like directors’ duties and stakeholder protection and has published widely in these fields at a national and international level.

The title of Professor Esser’s presentation was 'Directors' Duties: The new Companies Act and King III – A South African Perspective’. The talk involved an exposition of recent Company Law and Corporate Governance reforms and initiatives in South Africa. In particular, Professor Esser offered some fascinating comparative perspectives on the approaches to the reform of the law of directors’ duties in both the UK and South Africa. The ‘Enlightened Shareholder Value’ approach which was adopted in the UK was contrasted with the position in South Africa and the wider stakeholder perspective.

Professor Esser’s presentation was well-received by the delegates in attendance and sparked a number of interesting questions and observations. A short wine reception followed in convivial surroundings in Old College. Bearing in mind that Edinburgh is currently awash with Festival attractions, the Edinburgh Centre for Commercial Law was particularly delighted with the turnout of fellow academics from Universities throughout the UK, as well as with the practitioner and student representation. A big thank you to all of our supporters.

More problems with corporate identity

The service by a tenant of a break notice in the context of a commercial lease is a tricky business.  Notice clauses are complex, and it is often not clear which of the requirements are mandatory and which are not.  A recent decision of Lord Hodge in the Outer House, Batt Cables plc v Spencer Business Parks Ltd [2010] CSOH 81, considers this issue, and contains interesting arguments relating to agency law.     

As is often the case, the landlords' interest in the property had been transferred between different companies within a company group.  In effect, the tenant served the break notice on a related company of the landlord (SH plc), rather than the landlord (SBP Ltd).  SBP Ltd and SH plc shared registered offices, and so the notice was served to the correct address, but was addressed to the wrong company within the group.  The confusion was perhaps not surprising.  The new landlords, SBP Ltd, had written to the tenants to welcome them as tenants of SBP Ltd, but had managed to do so on headed notepaper of SH plc.  The landlords argued that the break notice had been incorrectly served.  The tenants countered by arguing that the only mandatory requirement in the notice clause was that the notice be in writing and be served on the landlords.  The notice clause did not, the tenants argued, require the notice to be addressed to the landlords. 

Lord Hodge indicated that he was bound by the Inner House case of Ben Cleuch Estates Ltd v Scottish Enterprise [2006] CSOH 35; 2008 SC 252 (Inner House), leading him to conclude that, aside from any question of agency, the notice had not been properly served on the landlords.  This illustrates the strict test which notices of this type must comply with.  To quote Lord Hodge in para [24]:

   "First, when a contract confers on a party a right, such as an option, by notice unilaterally to alter the rights of the parties and imposes conditions or requirements as to its exercise, the party seeking to exercise that right must comply strictly with those agreed conditions or requirements. See Scrabster Harbour Trustees, Sir David Edward QC at para 43, Ben Cleuch (Outer House) Lord Reed at para 122. The reason for the rule is to enable the parties to be certain whether the event which alters the parties' rights or legal relationship has or has not occurred. See United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, Lord Diplock at p.929 and Lord Simon of Glaisdale at p.945; Muir Construction Ltd v Hambly Ltd 1990 SLT 830, Lord Prosser at pp.833-834."

To have any validity, the notice had to be served on SH plc acting as agent of the real landlord, SBP Ltd.  On the agency point Lord Hodge stated:

"To demonstrate that the agent was so authorised often means that the person seeking to uphold the notice has to show that the agent was a general agent in the sense that the agent has authority to do anything in relation to the subject-matter of the agency. See Townsends Carriers Ltd v Pfizer Ltd, Peel Developments (South) Ltd v Siemens plc and Lemmerbell Ltd v Britannia LAS Direct Ltd. I accept that in the absence of express authority creating a general agency, there must be clear evidence to support the inference of such agency."

This provides us with a helpful reminder of the concept of a general agent, i.e. an agent engaged to carry out all the business of a particular principal, or all the business of a particular type (Stair Memorial Encyclopaedia Reissue, Agency and Mandate, 2002, para 55). 

Lord Hodge's latter statement in the quote above is of especial interest.  He indicates that where one is seeking to make an inference of agency, this will require clear evidence.  This is in stark contrast to Lord Drummond Young's decisions a group of cases decided over recent years.  Lord Drummond Young had, in effect, created a concept which he called ad hoc agency.  This concept he applied in the following cases:  Whitbread Group plc v Goldapple Ltd 2005 SLT 281; Laurence McIntosh Ltd v Balfour Beatty Group Ltd and the Trustees of the National Library of Scotland, [2006] CSOH 1907; and John Stirling t/a M & S Contracts v Westminster Properties Scotland Limited [2007] CSOH 117; [2007] BLR 537.  Inferences of agency were made in those cases on very little evidence of intention to create an agency relationship.  Broadly, the problem in these cases resembled the problem in the case at issue: either the wrong company within a group had taken a particular legal step, or a newly incorporated company had taken a step which ought to have been taken by the previous incarnation of the company (a partnership).  Lord Hodge does not appear to have been addressed on ad hoc agency.  It may be that it will not flourish as a concept.  If that is the case, that is a welcome development.  Agency is sometimes referred to as a contract, or as a consensual relationship arising from contract.  Whichever method is used, its cornerstone is consent.  Real evidence of consent must be available in order to establish implied agency. 

Lord Hodge decided that the notice had been successfully served on a Mr Dempsey, acting as an agent of the true landlord, SBP Ltd.  He was the person charged with receiving letters on behalf of SBP and acting on them, either by himself or by referring them to others (para [39]).  He was an agent acting with express authority.  The fact that the notice was addressed to him at SH plc did not invalidate his power to receive the notice as an agent for SBP Ltd (para [39]).  

The value of this decision for agency lawyers does not end there.  Lord Hodge was addressed on the issue of apparent or ostensible authority.  Had SBP, by sending various letters and communications, held out Mr Dempsey or SH plc as their agents either generally or for the specific purpose of receiving break notices (para [41])?  This question was answered in the negative.  What is significant is Lord Hodge's search for either a manifestation or a representation by SBP Ltd that SH was so authorised.  As all students of the ordinary course in business entities at Edinburgh Law School will be aware, apparent authority requires a representation of the extent of the agent's authority from the principal (see Stair Memorial Encyclopaedia Reissue, Agency and Mandate, 2002, paras 75-81 or D Busch and L Macgregor, 'Apparent authority in Scots law: some international perspectives' (2007) Edin LR 349).  A representation from the agent as to the extent of his own authority is not sufficient.  Use of the word "manifestation" is also interesting, given that this is the language of the equivalent US concept in the Restatement (Third) Agency.  Apparent authority was not established.  No matter – the tenants were able to prove that the notice had been sufficiently served on an agent, acting with the express authority of the actual landlord.   

A classic case for agency teachers!    


Insurance contract law – the broker’s liability to pay premiums

Today sees the publication by the Law Commissions of England and Wales and Scotland of another joint Issues Paper (No. 8) on insurance contract law (available here:  Under scrutiny this time is the rule contained in s53 of the Marine Insurance Act 1906, subsection 1 of which, in effect, makes a broker directly liable to the insurer for payment of the premium, whilst subsection 2 provides the broker with a lien over the insurance policy, allowing it to recover any money it is owed by the policy holder.  Although this point is not entirely free from doubt, the section seems only to apply to cases of marine insurance.  As with many aspects of the law of insurance, this area of law is ripe for reform, and it is difficult to disagree with any of the recommendations contained in the Issues Paper. 

Readers of the blog will already be aware of the workshop held on 2nd June this year at Edinburgh Law School for discussion of a previous Issues Paper on Damages for late payment of insurance proceeds and the insurer's duty of good faith (commented on here: Reading the Issues Paper on broker's liability, similar themes emerge.  One is the fact that this area seems dogged with legal fictions.  On the issue of damages for late payment of insurance proceeds, s11 of the Issues Paper explained:     "The English courts have held that insurance is an exception to the rule that the party breaking a contract should pay damages for foreseeable losses. This is based on the fiction that an insurer’s primary obligation is to “hold the insured harmless”. In other words, the insurer is said to promise that the loss will not occur. If it does, the insurer is then liable to pay the amount of the claim as damages. Thus an insurance payment is not a primary obligation to pay money, but a secondary obligation to pay damages. It is said that English law does not recognise an obligation to pay damages for a failure to pay damages."

So equally in the context of the broker's liability in marine insurance cases, we find the area governed by a legal fiction.  This time the fiction is to the effect that: "…the broker had paid the premium to the insurer, thus discharging the policyholder’s liability to pay, and that the insurer had lent the money back to the broker. This created a personal debt obligation between the broker and the insurer" (s8 of the Issues Paper).  The extent to which this legal fiction was amended with the attempt to codify the law in the Marine Insurance Act 1906 seems also subject to doubt.  The end result is anomalous considering the issue from an agency law perspective: a disclosed agent is not normally treated as primarily liable on a contract which he has concluded on behalf of his principal.

The reasons for the legal fiction, and the customs which have led to its development, are considered in the Issues Paper.  Also, the comments of respondents to a Joint Scoping Paper on this issue published in 2006 are telling, see, in particular those contained in the Issues Paper at 6.23.  In the past there may have been logic in holding the broker liable where communication was more difficult and the broker was more likely than the insurer to have knowledge of the creditworthiness of the insured.  This justification is similar to that which applied in Scots law to situations where the agent acted on behalf of a disclosed principal resident abroad. The agent became personally liable.  this was thought to be necessary because of the difficulties experienced in communicating or indeed suing that principal.  That attitude applied even though the agent had disclosed the existence and identity of his principal.  In effect, the law treated principals resident abroad in the same was as it treated undisclosed principals, i.e. the agent was primarily liable.  Although the rules on undisclosed agents remain in place, they are strictly interpreted by the courts (particularly in South Africa, see Cullinan v Noorkaaplandse Aartappelkernmoerkwerkers Kooperasie Beperk 1972 (1) SA 761 (A)).  Francis Reynolds has been bold enough to suggest that the concept of the undisclosed principal ought to be abolished ((2005) ICC International Court of Arbitration Bulletin, Special Supplement, UNIDROIT Principles: New Developments and Applications, 9-16).  If s53 is indeed repealed, one further exception to the general rule that the agent acting for a disclosed principal is not personally liable will disappear.  It may be that the concept of the undisclosed principal too has had its day.      

For students of agency law, the Issues Paper contains a very useful discussion of the different types of authority an agent can possess, illustrating each type by reference to cases from insurance law.  At 5.5 there is a useful analysis of express, implied and apparent authority.  At 5.22 in a quote from LJ Moore-Bick in Pacific and General Insurance Co v Hazell ([1997] BCC 400 at 413 and 415) we find implied authority in agency law being analysed in much the same way as an implied term in contract law:  "The evidence in this case does not support the conclusion that these market rules were intended to create legal relations between brokers and underwriters where none previously existed so as to render the broker personally liable for premium, either in conjunction with, or in place of, the insured… .A party seeking to establish a binding custom is really seeking to demonstrate the existence of an implied term which is known to and accepted as part of the bargain by all those who regularly involve themselves in the trade or market in question. It is for that reason that the custom must be shown to be certain, uniform, notorious and reasonable, since if it fails any of these tests it cannot be a term which all those in the market would accept as invariably forming part of the legally binding terms on which they do business… The evidence in this case falls far short of what is required to prove a binding custom."

Reference should also be made to the Outer House case of Halifax v DLA Piper [2009] CSOH 74, in which Lord Hodge refused to find an agent personally liable where he acted on behalf of a non-existent principal.  Again, the general principle that an agent is not liable where he acts within the confines of his authority for a disclosed and named principal was upheld.  As an exception to this general rule, and lacking any obvious practical justification, s53(1) of the Marine Insurance Act ought to be repealed. 

Responses to the Issues Paper are invited prior to 19 October 2010. 



The Arbitration (Scotland) Act 2010: A New Beginning

A new era for arbitration in Scotland was celebrated on 23 June 2010 in the Playfair Library of the University of Edinbugh.  The event was an international arbitration conference entitled: the Arbitration (Scotland) Act 2010: A New Beginning.     


The event was jointly organised and sponsored by the University of Edinburgh, the Edinburgh Centre for Commercial Law, The Scottish Branch of the Chartered Institute of Arbitrators, the Faculty of Advocates, the Law Society of Scotland and the Royal Institution of Chartered Surveyors. The speakers included draftsmen of the Act, Scottish and international arbitration practitioners and academics.  Approximately 130 delegates attended, comprising not only qualified lawyers from all branches of the Scottish legal profession, but also chartered surveyors and other professionals involved in aribitration proceedings. 


The conference centred around the Arbitration (Scotland) Act 2010, which had come into force just a few days before, on 7th June 2010. The development of the Act, its essential features and the challenges ahead to make best use of the Act and its opportunities were presented. In time the new Act is to fully supersede the former Arbitration regime of Scotland with its rather difficult and complicated set up. In contrast, the new Act and the default Rules provide a system for arbitration that is clear and user-friendly, even where the parties have not chosen any procedural steps in detail. The Act, reflecting the best of arbitration practice around the world, has been commended for good draftsmanship.  It also includes new features which make it an outstanding instrument which is hoped to attract not only local but also international business. 


Some of the conference discussions focused on steps necessary to put Scotland on the international map of arbitration. The Minister for Community Safety, Mr Fergus Ewing MSP, in his keynote address had pledged the support of the Scottish Government to secure the success of the new Act. It was highlighted that another milestone in measuring the success of an Arbitration centre was the manner in which the courts supported arbitration by minimal interference, whilst upholding the foundations of justice.


Many papers were presented at the conference, and it would not be possible to provide a summary of them all here.  The conference programme can be found here:


Almost all of the speakers emphasised the role of the Act as the first step in progress towards the creation of a centre for arbitration in Scotland.  It was conceded that Scotland is not necessarily ahead of the game in this respect: Singapore, Paris, and Stockholm are locations which have all built a reputation as world-beating centres for arbitral business.   James Hope, Solicitor Advocate, Vinge, Sweden encouraged us to think of what Scotland could offer which differed from its competitors.  The mixed nature of Scots law could potentially be an asset.  We should compare ourselves not simply with our nearest neighbour, but internationally.  An aspect of Scots law which could work to our benefit is the lack of discovery.  This procedure is not part of Scots law, whereas it forms part of both English and US law.  Scots rules have developed in order to prevent “fishing diligence.”  This practice is unpopular and can add immeasurably to the time and cost of arbitral proceedings.  It is an aspect of Scots law which might be attractive to those seeking to arbitrate. 


Mr Hope also commended Edinburgh University Law School for its highly successful and popular LLM commercial law programme.  International Commercial Arbitration is studied at Edinburgh in a highly international context, with classes containing students from all round the globe.  Many of the speakers at the conference are teachers on this course.  This blogger can confirm that the LLM class in international commercial arbitration is one of the most popular LLM courses at Edinburgh Law School and this trend is set to continue in September 2010, with the beginning of the new academic term. 


Mr Hope also conceded that Scotland could attract business by offering low cost arbitration, but cautioned  against selling ourselves too cheaply.  We can offer high quality people and procedures.  We now have a world-beating Arbitration Act, which has been carefully drafted.  The drafters have left no stone unturned, a fact which was illustrated by another speaker, one of the drafters of the Act, Hew Dundas, Independent International Arbitrator and Mediator, Edinburgh, who explained that the comparative analysis of the drafters had extended as far as the Bolivian Arbitration Act. 


In the first panel discussion which ended the morning’s proceedings, attention was focussed inter alia on the short form arbitration rules which form part of the Act.  These are intended to operate in relatively low value proceedings (under £25,000).  They are intended to provide a cheaper and quicker alternative to full arbitral proceedings.  The short form rules have already attracted a good deal of attention. 


In the afternoon, Kaj Hober, Professor of International Law, CEPMLP, University of Dundee, and Mannheimer Swartling, Stockholm, provided further food for thought by suggesting that Scotland required to find a niche within the arbitration world.  He suggested that such a niche area could be energy.  Scotland has the opportunity to offer renewable energy on a world-leading scale.  It is perhaps only by developing a speciality such as this that Scotland could compete with the already-established arbitral centres.            


Finally, Michael Davison, Head of International Arbitration, Hogan Lovells, London, provided a thought-provoking and highly entertaining presentation.  He provided the perspective from England, emphasising the fact that he is, in fact, Scottish, and had been forced to listen to an entire day’s proceedings which focussed in large part on how Scotland could compete with England.  He suggested five reasons for choosing a seat of arbitration:

(1)   Neutrality, i.e. a system which is not the system of either of the parties to the dispute;

(2)   The perceived efficiency of arbitration in that legal system;

(3)   The perceived extent to which the judiciary interfere with the arbitral process;

(4)   The facilities of that arbitral centre;

(5)   The track record of that centre. 


By focussing on these reasons, Scotland might more meaningfully market itself as an arbitral centre to the rest of the world.


Mr Davison commended the drafters of the Act.  In particular he welcomed the express confidentiality clause and he thought that the aims and objectives were clearer than the 1996 Act.  Additionally, the issue of whether specific provisions are mandatory or non-mandatory is more clearly spelled out in the Scottish Act.  The issue of discovery also formed a focus for Mr Davison.  The increase of time and cost makes England less attractive in this respect than, for example, Paris.


He suggested that the existence of a split profession (between solicitors and barristers) might also increase costs, and this is an issue which the Scots should consider.  Finally, there is a perception outside the UK that the relatively complex English procedure means that arbitration in England is really nothing other than another form of litigation. 


Singapore was used as a model of a successful arbitral centre.  Mr Davison compared the state of the art premises in Singapore, Maxwell Chambers, with what is available in London.  This may have led delegates to consider whether the Scottish Government could be persuaded to invest in purpose-built premises in order to launch the Act.  In the current economic climate this seems unlikely, but it is hoped that the message might be conveyed to the keynote speaker, Fergus Ewing MSP, who had unfortunately left the conference by this stage. 


In common with several of the other speakers, Mr Davison identified the energy sector as an area where Scotland could most usefully find a niche in which to develop specialisation.  In a climate of reducing energy reserves, squabbles between commercial parties are likely to develop.  Carbon trading is also an area where a niche might be developed. 


The final panel of the afternoon was extremely interesting, focussing on arbitral and Scottish commercial court proceedings.  The panel involved both Lord Drummond Young as chair, and Lord Glennie, principal judge of the commercial court.  It seemed clear that many of the delegates were not entirely familiar with the procedures of the Scottish commercial court.  The old ways have changed, and the rules are less technical and more efficient than is generally perceived.  Examples include the use of witness statements and allowing experts to get together by themselves to resolve outstanding issues (a practice known as “hot-tubbing” in the US, according to Iain Clark, Solicitor Advocate, Young and Partners, Glasgow.  This expression did not seem to be within judicial knowledge in Scotland). 


A lively and interesting day was had by all.  Many of the significant actors in the arbitration scene in Scotland were present, and the insights provided by the speakers from other jurisdictions were extremely valuable.  With this excellent beginning for the new Act, one hopes that it will now go from strength to strength.         

Data Protection and FOI – further guidance from the Inner House

One of the quirks of data protection law is that it rarely arises in litigation as an issue in its own right:  in many cases, the point at stake concerns the interaction between data protection and freedom of information.  (The point where "two worlds collide", in the words of Professor Laurie and Dr Gertz, in a recent Edinburgh Law Review case note.)  One reason for this is that a freedom of information request (under the Freedom of Information Act 2000 or the Freedom of Information (Scotland) Act 2002) can be turned down where the data sought constitutes "personal data".   Under the Data Protection Act 1998, personal data is data which identify the individual, either alone or in conjunction with other information held (or potentially held) by the data controller.

Cases typically turn on whether the public authority is entitled to refuse the FOI request because the data in question are personal data and this of course requires an understanding of "personal data".  The leading case to reach the House of Lords on this issue is Common Services Agency v The Scottish Information Commissioner, (also known as SIC v CSA) from 2008.

The recent case of Craigdale Housing Association and others v The Scottish Information Commissioner has provided a fresh opportunity for the Inner House to consider the interaction between data protection and freedom of information. 

As with CSA v SIC, this case involved a request for statistics.  Here, housing associations in Strathclyde made a request for information from the Chief Constable of Strathclyde Police, seeking details of the number of Registered Sex Offenders (RSOs) residing in the Strathclyde Police area.  Specifically, the housing associations wanted to know the number of RSOs in each postcode area, to the fourth postcode digit.  The housing associations were keen to find out if the number of RSOs in their postcode areas was higher than the number in what they classed as more affluent areas. 

The Chief Constable refused the request under FOISA and, on appeal, this decision was upheld by the Scottish Information Commissioner ("SIC") (whose remit extends to matters under FOISA, but not to data protection issues per se).

The basis on which the request was refused was that the information sought was personal data of the RSOs: to release it would breach the data protection principles.  A conviction for any offence is treated as "sensitive personal data" and is generally subject to higher protection under the Data Protection Act 1998. 

Although the data sought were statistics and did not name any individual RSO, the SIC "considered that it was necessary to consider the statistics in conjunction with other information in the public domain, including all the means likely to be used by a determined prson with a particular reason to make an identification."  (para 3)  This approach was based in part upon advice from the Information Commissioner, that the means used to identify an individual should take into account not only the means of the "ordinary man in the street, but also the means that are likely to be used by a determined person with a particular reason to want to identify individuals.  Examples would include investigative journalists, estranged partners, stalkers or industrial spies."  (ICO guidance, Determining what is personal data, 21.08.07, at page 7.)     There was evidence that vigilantes and journalists would be determined persons with a reason to want to identify RSOs in a particular area – even if that would not be done by the housing associations.

The SIC therefore concluded that "the geographical and population size of the postcode districts meant it was unsafe to release the statistics and there was a risk of identification where they were combined with other publicly available information."  (para 3).

This conclusion was challenged by the housing associations on two grounds.  First, they argued that the SIC had erred in concluding that the statistics were "personal data"; secondly, he was wrong to assume that providing the statistics to the housing associations would place them in the public domain, where there was a risk they would be used by other parties, such as vigilantes or investigative journalists. 

In answering these points, the Court spent some time analysing the decision of the House of Lords in CSA v SIC (paras 13 -19).  Despite noting that Lady Hale's opinion was unsupported by the other Law Lords (albeit the bench all reached a unanimous decision, but by way of different routes), the Inner House focused on her "purposive, or even adventurous" route to an answer.  (para 17).  With reference to her speech, the Inner House concluded that there was nothing to help the housing associations' case: she did not limit the concept of personal data to that which identified individuals in the hands of the recipient only.  Instead, she "speaks of the particular data 'being anonymised in such a way that neither he nor anyone to whom he might pass them on could identify the infividual to whom they relate'."  (para 17).  The fact that there is nothing to stop the recipient under an FOI request passing the data on means that the data must be treated as being "at large" once they are released.  Accordingly, it may be relevant to take into account the actions of other parties in using those data – in this case, potentially to identify RSOs. 

To this extent, the Inner House agreed with the SIC that releasing the data to the housing associations would effectively place them in the public domain.  (para 18).   However, the Inner House did allow that the housing associations had a relevant ground of challenge in relation to whether the data were (or were not) personal data.  The Chief Constable would only be allowed to withhold them if they did constitute personal data, and the SIC agreed that the statistics were indeed personal data, since they could be used (with other information in the public domain) to identify individuals.

The Inner House were critical of this conclusion:

"The [SIC] does not, in paragraph 49 [of his judgment] or elsewhere, explain what "other factors" or "data from another source of publicly available information" he has in mind in relation to the risk of identification of individual RSOs. While we recognise that he may be concerned not to disclose in a potentially public document information which might be made use of by vigilantes, the appellants are, in our view, entitled to be told, at least in general terms, what these other factors or such other data are. Without that, the respondent's decision is unintelligible." (para 28)

While not stating conclusively whether the statistics were personal data, the Court remitted the issue back to the SIC to "consider of new his reasons for concluding that the statistics in question are personal data" (para 32) and to explain it in view of the above comments.

This appears to be a reasonable conclusion.  The SIC undoubtedly has a difficult job in trying to determine whether statistics could identify individuals, if combined with other information in the public domain by those with a vested interest in doing so – especially since the consequences of such identification could be far-reaching if disclosed in the press or used by vigilantes.  However, it is important for the precise basis upon which individuals could be identified from statistics aggregated by postcode area to be made explicit.  If there is no further information which could be combined with the statistics in order to identify individuals, then the statistics are not personal data and there can be no reason not to release them.

We therefore await with interest the SIC's new decision in due course.

One of the interesting features about the decision of the Inner House, which was delivered by the Lord President on behalf of the Court, is that it used the European Directive upon which the Data Protection Act is based to help interpret the UK Act.  It did so in preference to relying on the leading English Court of Appeal decision on data protection, Durant v FSA, from 2003, which has been the subject of some criticism.  This is arguably a (positive) signal that the influence of Durant is waning and, at least in Scotland, the courts will not be influenced by a decision which has considerably narrowed the concept of "personal data".  Instead, the Directive which forms the basis of European data protection law has more to offer to enable the courts to take a purposive approach to data protection in the UK.


Insurance Law Reform Seminar

On Wednesday, 2nd June, 2010, a seminar on “Insurance Contract Law: Damages for Late Payment and the Insurer's Duty of Good Faith” took place in the Raeburn Room, at the University of Edinburgh.  The seminar was jointly hosted by the Scottish Law Commission, the Edinburgh Centre for Commercial Law and the Centre for Private Law.

The aim of the seminar was to consider the possibilities for reform of insurance law arising out of the Law Commission’s and the Scottish Law Commission’s Issues Paper on Damages for Late Payment and the Insurer's Duty of Good Faith.

The conference was chaired by Lord Penrose (a former Court of Session judge and author of the report on Equitable Life).  It was well attended by a variety of persons including the Chairman of the Scottish Law Commission, Lord Drummond-Young (who also sits in the Commercial Court), Scottish Law Commissioners, practitioners, a representative from the insurance industry, academics and postgraduate students.

Three main papers were presented, followed by a lively discussion. The first paper was delivered by Mr David Hertzell, a Law Commissioner, who looked at “Post contractual duties and damages for late payment”.  The key case in this regard was Sprung v Royal Insurance (UK) Ltd [1999] 1 Lloyd’s Rep IR 111, a decision of the Court of Appeal, which effectively only allowed interest on a claim by Sprung where his insurers had declined to pay his claim, and, as a result of their non-payment, his business had collapsed.  The complex issues were synthesised with great clarity by Mr Hertzell.  The English law rule in Sprung is out of line with other jurisdictions, including Scotland, and the question was: should English law be amended to “fall into line”, and allow claims for damage arising from non-payment: not just interest? 

One issue of particular importance was the place of the London insurance market in an international context.  In a sense, London is two markets: the domestic market, and the international market through Lloyd’s of London. 

Mr Hertzell suggested that one option could be to impose on insurers the approach taken by the Financial Services Authority in their handbook (Insurance: Conduct Of Business sourcebook (“ICOBS”)), rule 8.1, in relation to the “nature of the duty” and handling claims.

After a vigorous debate, and taking into account the dual nature of the London market, the general view of the audience of about twenty seven was that the law should be changed by legislation.  To wait for the issue to be changed by case-law would be futile.  This is due to the low number of cases reaching the courts because of other dispute resolution mechanisms (such as, the Financial Ombudsman Service in consumer cases), and, potentially, deliberate out of court settlements, in order to avoid the issue being brought (and the law possibly being changed), as well as insurers taking a commercial view of matters regarding settlement.  (It is to be noted that the Financial Ombudsman has a broad jurisdiction to make awards (i.e., what is “just and appropriate”), under Part XVI (especially, s 229(2)) and Schedule 17 of the Financial Services and Markets Act 2000.)

The second paper was delivered by Professor Hector MacQueen, a Scottish Law Commissioner, who discussed “Private Law Aspects of Damages for Late Payment and the Insurer’s Duty of Good Faith”.  In a wide-ranging, and thoughtful, paper, Professor MacQueen supported the Scottish position, although acknowledged that the basis for doing so was not “clear cut”.  Professor MacQueen canvassed various options in relation to “good faith”, including the issue of whether good faith is “a shield or a sword”.  In conclusion, Professor MacQueen, after looking at solutions in contract, delict, so-called “Melville Monument” liability for pre-contractual expenses and unjustified enrichment, felt that the basis for liability was good faith.  He acknowledged that this was not a precise concept, and suggest a non-exclusive list of factors, not dissimilar to the list of “unfair terms” found in Schedule 2 of the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083).

This proposal met with general approval.  An interesting contribution in the debate came from a life assurer who noted that, owing to adverse press publicity regarding payment of claims, people in the United Kingdom, were, generally, underinsured.  He welcomed the idea of clarity in this area from an assurer’s/insurer’s perspective, which could also have positive effects in restoring faith in the insurance market and, thus, lead to an increase in life assurance cover being purchased.

The third paper was presented by Mr Lex Dowie, an insurance litigator of over thirty years’ experience, who is currently Director of Insurance Litigation for Eversheds LLP.  In a punchy, and very practical, talk, Mr Dowie noted the effect of fraudulent claims had in relation to insurers paying claims, and re-asserted that insurers should have the right to investigate claims.  Mr Dowie also observed that there can be genuine disputes between an insurer and an insured as to the scope of the policy, which is perfectly normal.  The problem was not one of “good faith” by insurers in relation to paying claims within a reasonable time, and giving reasons for refusal, but was one of how one proves “bad faith” by insurers.  Mr Dowie felt, in these circumstances, that interest only should be imposed where the insurer has genuine doubts about claims. 

During the discussion, in response to questions, Mr Dowie said that where the insurer has acted in “bad faith”, a long delay in paying a claim, or a cynical non-payment to wear down an insured, then they should be required to compensate the insured, and he did not rule out exemplary damages along the lines of Canadian case law.

The discussion followed the three papers and touched upon the issues raised above, as well as various others:

One point noted was that it seemed fraught with difficulty to use and extend the Marine Insurance Act 1906, which was a codification of the then common law, to non-marine cases, an issue that could be solved more appropriately by a separate codification of the law for these other areas of insurance.  It was also noted that whilst section 17 of the Marine Insurance Act 1906 gave discretion to the innocent party to avoid the contract, this would not by itself exclude the use of other remedies. A clarification however would be useful.

In discussing the appropriate remedy for late payment, the expectation of most people, including those in the insurance industry, seemed to be that the purpose of insurance is to pay a valid claim, rather than, according to the current English rule in the Sprung case, to prevent the loss occurring – a promise that cannot be fulfilled.  If the duty was to pay a valid claim, then the basis for damages for late payment would be breach of contract.  However, what would constitute breach of contract?  Surely, it is in the interest of all insured parties, the pool who has to pay any accepted claims ultimately, that claims are investigated to an appropriate level.  A balance would have to be stuck between the interests of the insured claiming and the pool of insured parties, so that payment of loss caused by justified investigations could be kept to a minimum. 

Thus, a claim for breach of contract for late payment would necessarily require some element of bad faith or an unreasonable or unjustifiable length of time by the insurer. In order to help with the classification of a breach, guidelines of best practice regarding investigation practices, timescales and information duties could be drawn up to be used as basis for an evaluation.  Whilst proper investigation should in no way be discouraged, it should not be a consideration that interruption cover could have been purchased, as many businesses may be able to self-insure a for short period of time of interruption.  Once a breach of contract was established, the normal rules as to remoteness of damages would have to be applied, requiring foreseability of damage at the time of contract, such that the time of contract could mean the annual renewal of cover.

A very helpful summary of proceedings was undertaken by Ms Lindy Paterson, a partner in Dundas & Wilson LLP.  Ms Paterson observed that whilst many different approaches and viewpoints had been advanced during the discussions, and it was clear that further debate was needed, some general consensus had crystallised:

(1) The general feeling of the delegates was that the law on the insurer's duty of good faith would be best served if it were replaced by codification in legislation – based on the greater accessibility and clarity arguments.

(2) Moreover, most delegates expressed the view that there was a gap in insurance law when it came to some aspects of the content of the insurer's duty of good faith. It was thought that it would be best to repeal section 17 of the Marine Insurance Act 1906, and to spell out the content of the insurer's good faith along the lines suggested by the Law Commission and Scottish Law Commission in their report.

(3) Finally, there was unanimous support for the proposition that the insurer's duty of good faith should be inderogable, i.e., that it should not be possible to contract out of it in the insurance contract.

The seminar, which last a full afternoon, was full of lively debate in an area which is going to be a very challenging one for the two Law Commissions.


David Cabrelli, Parker Hood, Simone Lamont-Black and Laura Macgregor

Security over moveable property

The Scottish law Commission in its eighth programme of law reform has committed itself to a review of the Scottish law of security over corporeal moveable property, and a look at securities over, and assignation of incorporeal moveable property. This is a development from the earlier proposal in the seventh programme of law reform where the assignation of incorporeal moveable property was identified as a subject for reform, work to commence following the completion of the substantial project on land registration.

Proposed reform of the law of moveable securities is not new. The rigidity of common law rules (which generally prohibited voluntary hypothecs – non-possessory securities – over moveable property) was in marked contrast to the approach in roman law, from which Scots law drew where hypothecs were common (although Scots law was not out of keeping with other jus commune systems on this). There are a number of explanations offered in the Institutional writers as to why Scots law did not follow the liberal regime of later Roman law.  Erskine suggests (III.1.34) that

“the impignoration [or pledge] of moveable goods without their delivery to the creditor cannot but prove a heavy weight on the free currency of trade, it being impracticable to keep a record of moveables, by which purchasers may be ascertained of their danger.”

Such a concern seems based on the general policy of a publicity principle – whereby rights affecting property are publicised in order to notify third parties (including prospective purchasers and creditors).

But, the lack of a readily available hypothec led to calls for reform, at least since the days of Gloag and Irvine who argued that the law should be liberalised, and for a model looked to the introduction of bills of sale legislation in England and Wales. 

Gloag writes,

“The law on the subject of security-rights over corporeal moveables is beset with difficulties; and is not, perhaps, in a very satisfactory state, as the result of its rules is often to deprive the owner of such property of the power to make use of it as a security for his debts.  It is open to question whether the rigidity of the law of Scotland on this subject should not now be relaxed by the adoption of a system analogous to the English bill of sale." (pp 187 – 8)

The difficulties inherent in the system can be seen from the discuission of the interviews with solicitors in the Central Research UNit report on Business Finance and Security over moveable property carried out in 2000 – 2001 by professor Jenny Hamilton, Andrea Coulson and myself. For example,

"If the prospective borrower owned the asset and was looking to raise finance on it they could not readily grant a security over the asset.  Such a problem could arise in the hotel industry, or in factories.  In both, assets (in the former tables and chairs, in the latter large items of plant) were already owned and possessed by the prospective borrower.  To give up possession of the asset would mean that the asset was no longer available as a means of producing profit for the borrower.  Accordingly, an alternative device was necessary.  Typically the borrower would look to sell the asset to the financier, and reacquire the asset on a lease or hire purchase agreement.  However, the solicitors noted that there was difficulty with this in Scots law.  Under section 62 (4) of the Sale of Goods Act 1979 “sham” sales that are truly securities are not covered by the 1979 Act.   If the 1979 Act does not apply then in order for the transaction to be legally effective it must be valid at common law.  In order to effect a sale at common law the seller had to deliver the asset to the purchaser.  This meant that to ensure the effectiveness of a sale and leaseback arrangement the business had to deliver the asset to the financier before the asset was leased back to the borrower.  The disapplication of the Sale of Goods Act 1979 means that to protect the financier by ensuring the efficacy of the sale and leaseback such delivery has to be made today.  One interviewee explained that in one transaction involving a bus company that wished to raise finance through a sale and leaseback of the buses owned, the financier had to let (or hire) a warehouse for one night so that the buses could be driven in and out of the warehouse in order to effect delivery to the financier."

Such difficulties are apparent even though the strict Scottish prohibitions were tempered somewhat following the introduction of the floating charge in 1961 (a non-possessory security available to company debtors – extended in recent years to limited liability partnerships too).

And Gloag and Irvine were not alone in calling for reform. In the past forty years there have been four substantial reports arguing in favour of the reform of Scots law. In 1971 the Crowther Committee  recommended United Kingdom wide proposals for securities.  They proposed that the system for regulation of security interests be based on the registration of information with a scheme largely based on Article 9 of the Uniform Commercial Code of the United States of America. To assist in determining whether or not to implement this a working party under the chairmanship of Professor J M Halliday was established.  This working party reported to the Scottish Law Commission in March 1986, recommending a new form of non-possessory security, designed primarily to address the existing inadequacies of Scots law.   The Committee recommended that

“There should be a new system of security over moveable property based upon the establishment of a register of security interests with notice filing.  There would be no requirement of possession of the security subjects by the creditor.  Certain categories of transactions would be excluded from the scheme and would continue to be regulated by existing law.  Apart from pledge in the case of corporeal moveable property, the new security would be the only competent form of security by agreement within its area of application.”

The Working Party recommended a number of exceptions to this general rule and made explicit their view that the new scheme should have restricted application.  The Working Party specifying that.

“The new scheme should … be restricted to the area where the existing law is unsatisfactory.”

The third report was a United Kingdom wide review of securities over moveable property.  This review was carried out by Professor A L Diamond and was published in 1989.   This review, like the Crowther Committee, proposed a new scheme of security creation across the United Kingdom.  He specifically noted that in Scotland the weight of consultation received suggested that

“Scots law makes it too difficult – in practical terms impossible – to utilise security to facilitate the obtaining of credit and has concentrated attention on the floating charge which tends to cover all assets rather than utilising specific categories of assets such as stock or specialist items of plant.”  

Professor Diamond proposed that there should be a new system for the creation of moveable securities.  He was of the view that this system should be simple and unified and, like Crowther, believed that it should “be based closely on Article 9 of the American Uniform Commercial Code with a similar approach to be taken in both Scotland and England and Wales.

He wrote

“[G]iven the economic, financial and business links there would in my view be substantial advantages to both legal systems, and to business, if the relevant branches of law could resemble each other more closely, so that, for example, a business with interests both sides of the border could enter into similar transactions in England and in Scotland.  It would be to Scotland’s disadvantage if Scottish companies have to form English subsidiaries as the vehicles for their credit activities, thus shifting their financial centres of gravity from Scotland to England.  But fundamental differences of principle between the two legal systems would make it impossible to unify the law so as to have a single piece of legislation applicable to both jurisdictions.”

While there was little enthusiasm in England and Wales for the Diamond proposals, following consultation there was broad support in Scotland.  The consultees argued that Scots law was relatively undeveloped, and Scottish enterprises were disadvantaged when seeking finance as compared to English enterprises.  Similar concerns had led to the introduction of floating charges in 1961.

Taking account of the consultation process the Department of Trade and Industry established an advisory group to prepare a consultation document on the introduction of a new form of security into Scots law.  The Department of Trade and Industry produced a paper, with draft bill annexed, on Security over Moveable Property in Scotland  in November 1994.   This paper rejected the Article 9 approach.  It was argued that a system of notice filing “would have borne no relationship to any part of our law on the creation of real rights in security, or, in particular, to the current law on the registration of company charges.”

The paper  proposed firstly, that the power to grant floating charges should be extended to other enterprises, specifically partnerships and individual businessmen.   It was perceived that this power would be a less radical solution to the perceived problems with current Scots law than the introduction of a system based on Article 9.   For firms and sole traders the floating charge could only be competently granted over moveable property, compared with the floating charge granted by companies that may be granted over heritable and moveable property. The second principal proposal of the Department of Trade and Industry’s advisory group was the introduction of a new moveable security.  This security would be a non-possessory real right in security over moveable property, whether corporeal or incorporeal, excepting consumer goods (that is, corporeal moveable property exempt from what is now attachment) .  This moveable security would be capable of being granted by any person.  To be constituted as a real right in security, the moveable security would require to be registered, meeting the necessity of publicity to give notice to third parties identified earlier. A number of special rules were proposed in relation to the moveable security including provisions to protect third parties acquiring property subject to the moveable security.  

This most recent paper explicitly identified the perceived problems that their proposals were intended to address.

“In evaluating the extent of the need for reform of the law on security over moveable property in Scotland, the perceived problems were identified as being that: 

(a) it is not possible to create a non-possessory, fixed security over corporeal moveable property (apart from certain categories of property where special statutory provision has been made, as in the case of ships and aircraft); and

(b) there are practical difficulties associated with the granting of securities over incorporeal moveable property.  For example, the creation of a fixed security over book debts requires not only assignation of the rights to the book debts to the creditor in the security agreement, but also the intimation of that assignation to the common debtors under those debts.  That not only is practically inconvenient, but also means that it is impossible to create a fixed security over future book debts, as intimation cannot be made to as yet unascertained common debtors.”

The perceived legal problems identified remain those identified by Gloag a century before, and have been echoed throughout the century. While these policy concerns remain they are not explicitly referred to in the Scottish law Commission's statement in the eighth programme of law reform. There justification is given for expanding the proposal in the seventh programme to the much wider remit today, while noting the importance of various comparative law developments – which indicate the extent to which Scotland is out of step with other systems.

"2.5 …[S]ince the publication of the Seventh Programme we have come to think that the subject of security over corporeal moveable property should also be included. It too is regarded by many as being outmoded. We do, however, recognise that the addition of corporeal moveables would bring with it a degree of asymmetry to the project, for whilst outright assignations would be covered, outright transfers of corporeal moveables would not be. (In most cases the outright transfer of corporeal moveables is covered by the Sale of Goods Act 1979.) This asymmetry may cause certain difficulties for the project. But the link, from a practical point of view, between security over corporeal moveable property and security over incorporeal moveable property is strong, and the link between security over incorporeal moveable property and outright assignation of incorporeal moveable property is likewise strong. Hence there exists some degree of unity in the expanded project.

"2.6 Article 9 of the Uniform Commercial Code has been adopted by all states in the USA and has been copied (with variations) in a number of other jurisdictions, for example New Zealand with its Personal Property Securities Act 1999. It is likely that something broadly on these lines would at least be an option worth considering for Scotland, though of course bearing in mind the differences between our background law and that of the common law tradition. We would also take account of such recent initiatives as (i) the Draft Common Frame of Reference (Book III Ch 5 and Book IX), (ii) the United Nations Convention on the Assignment of Receivables in International Trade, and (iii) the European Bank for Reconstruction and Development Model Law on Secured Transactions."

So this is a fifth project, but no reform has taken place in the last forty years. Is this down to legislation previously having been in the hands of the UK government and particularly the Department of trade and INdustry (its predecessors and successors)? Or is it simply that the policy questions are well-balanced and complex?

The various proposals over the past forty years would have served to make life easier for creditors to obtain security (and potentially for debtors to raise finance – although evidence is equivocal on that) but they must be set against the interests of other creditors. Those that can obtain security tend to be powerful creditors with loan finance. Those that end up as unsecured creditors are people who have carried out work, or other suppliers of services as well as some suppliers of goods. Each of these creditors will have a contractual relationship of some sort with the debtor. However, some creditors end up as creditors without any voluntary relationship with the debtor. Creditors in delict or unjustified enrichment, or those with unpaid local or national taxes do not have a choice about being a creditor. And any enhancement of the law of securities will potentially prejudice their position. The balance between the interests of these competing secured and unsecured creditors, and the balance between the interests of creditors and debtors makes this a challenging project. To assist the Commission has established an advisory group comprising experienced practitioners, and academics. That group met for the first time last week.

One wishes the Commission well.

ScoLaR Conference – legal debate on a summer’s day

On Friday 21 May the second ScoLaR conference took place in Edinburgh Law School.  The organisers should be congratulated for organising an excellent, highly enjoyable conference.  

Robin White gave the first presentation: “A spectre is haunting Europe – the spectre of Civil Penalties”.  He set a theme which arose at different points later in the day, i.e. the difficult boundary between civil and criminal law remedies. 

Many, if not most, of the remaining speakers were early career academics or legal practitioners (I’m sure Robin won’t mind being omitted from that description).  After the first coffee break, Stuart Kelly focussed on the role of the Lord Advocate, providing some food for thought on what it means to be, on the one hand, independent and on the other, impartial.  John MacLeod then provided us with an interesting comparative perspective on situations in which someone may be barred from inheriting.  He took us through para 2339 of the German BGB and the Parricide Act 1594. All this led again to a thoughtful exchange of views on the possible interaction of the development of the civilian and the Scottish rules. 

After lunch Lorraine Barrie and Lindsay Paterson from the Govanhill Law Centre took the floor to focus on the crime of Unlawful Eviction.  Their presentation focussed on the fact that, despite the frequency with which such evictions occur, there is an extremely small number of successful prosecutions.  There is evidence that the police fail to take reports of the crime seriously.  They presented some harrowing testimony from some of their clients who are clearly being failed on all sides by the legislation and those responsible for implementing it.  Their presentation provoked what I would suggest is the best type of legal debate, where each lawyer in the room draws on his or her very different background and knowledge in order to suggest ways in which to tackle this serious injustice.  The discussion ranged from interdict, breach of the peace, remedies against agents, to that old chestnut spuilzie and delictual damages.

This was followed by Jill Robbie on “The Development of Common Interest in Scotland.”  Again, the audience was treated to a presentation from someone immersed in her subject.  Jill’s searches amongst the Session Papers have clearly borne interesting fruit and should lead us to treat the short reports in Morison’s Dictionary with great caution.  We also heard about the role of Kames in the development of the law in this area: the gentleman farmer who is an authority but a wild one.

Sadly, this blogger had to leave the conference before the end and so can’t comment on the remaining papers, including a final presentation from the Rt Hon Lord Rodger.  Perhaps some of the other bloggers can fill this void?  What I can do is to provide some thoughts on the idea of the conference as a whole. 

Firstly, although the focus of each speaker was part of Scots law, that description should not be taken in a narrow sense.  An example was Stuart Kelly who took us through some interesting theoretical ideas which are, of course, not particular to the Scottish legal system.  The approach of other speakers was broad and comparative.  Those who may have decided not to attend, fearing a narrow “Scottish” perspective, should be encouraged to attend next year.

Secondly, it occurred to me that this conference fulfils a need which has been created by the departure of the Scottish Law Faculties Conference.  There is certainly a need for a venue in which early career academics working in Scotland can meet and take part in debate. 

Rarely have I attended a conference where, in each case, the chair was forced to stop the proceedings when so many members of the audience were still waiting to pose their questions.  The casual observer of the day’s proceedings would (correctly) conclude that the PhD environment in Scotland is a highly dynamic one.  I, for one, am very much looking forward to reading the fruits of the labours of these early-career academics.    

Data Protection: the new ‘Monetary Penalties’: Businesses Beware!

On 6th April, 2010, new powers were given to the Information Commissioner (the guardian of personal data), to impose ‘monetary penalties’, on data controllers, who do not comply with ‘the Data Protection Principles’, pursuant to the new sections of the 1988 Act: ss 55A – 55D of the Data Protection Act 1998.

Monetary Notice

Under s 55A of the 1998 Act, the Information Commissioner, in deciding whether to serve ‘a monetary penalty notice’ upon a data controller, has to satisfy himself of the following:
(i) ‘a serious breach of the data protection principles’, by the data controller has occurred;
(ii) the breach was such that it was ‘likely to cause substantial damage or substantial distress’; and
(iii) the breach was either: (a) ‘deliberate’, or (b) that the ‘risk’ of a breach of the type referred to, was ‘known’ or should ‘have [been] known’, and there was a failure to take ‘reasonable’ preventative action. 

(See s 55A((1)-(3) of the Data Protection Act 1998)

Size of Penalty

The amount of the penalty cannot exceed £500,000 (see s 55A(4) of the 1998 Act and reg 2 of the Data Protection (Monetary Penalties) (Maximum Penalty and Notices) Regulations 2010 (SI 2010 No 31)).  Payment of the penalty is ‘to the Information Commissioner’, within the time period stated ‘in the notice’.  [S 55A(6) of the 1998 Act]. 

Notice Information

The ‘prescrbed’ ‘information’, required in the notice, under s 55(7) of the 1998 Act, is set out in reg 4 of the 2010 Regulations (above).

‘Notice of Intent’

As a preliminary procedure, ‘a notice of intent’ has to be served on ‘the data controller’, by the Information Commissioner: see s 55B of the 1998 Act.  The purpose of this notice is to give ‘the data controller’ a chance to ‘make representations’ to the Information Commissioner, before an actual ‘penalty notice’ is issued: see ss 55(3), (4) of the 1998 Act.  Under s 55B(5) of the 1998 Act, a data controller has a right of ‘appeal to the Tribunal’ (this is either ‘the First-tier Tribunal’ or ‘the Upper Tribunal’: see article 2(3) of the Transfer of Tribunal Functions Order 2010 (SI 2010 No 22)).

‘Guidance’ Regarding Monetary Penalties

Under s 55C of the 1998 Act, there is a requirement that the Information Commissioner ‘prepare[s] and issue[s] guidance’ regarding ‘how he proposes to exercise his functions’ concerning ‘monetary penalties’ and ‘notices of intent’: see s 55C(1) of the 1998 Act.  Included in ‘the guidance’ there has to be statements concerning:
‘(a) the circumstances in which’ the Information Commissioner ‘would consider it appropriate to issue a monetary penalty’; and
(b) how the size of the penalties will be determined
(See s 55C(2) of the 1998 Act).

This guidance can be changed or ‘replaced, which the Information Commissioner has to ‘issue’: see s 55C(2) of the 1998 Act.  However, there is a requirement that before ‘guidance’ is issued by the Information Commissioner (which, seemingly, includes changed or ‘replacement guidance’), the Secretary of State’s ‘approval’ has to be obtained, and the Information Commissioner has to ‘lay any guidance issued under [s 55C] before’ both ‘House[s] of Parliament’: see ss 55C(4), (5) and (6). 

Information Commissioner's Guidance 

The Information Commissioner has issued such ‘guidance’: see ‘Information Commissioner’s guidance about the issue of monetary penalties prepared and issued under section 55C(1) of the Data Protection Act 1998’ (12th January, 2010)  (Crown copyright).  This ‘guidance’ is available on the Information Commissioner’s website:

Enforcement of Penalty Notices

Non-compliance with ‘a monetary penalty notice’ can result in the Information Commissioner commencing court proceedings to recover ‘the penalty’: see s 55D of the 1998 Act. 

Supplementary Powers

The Secretary of State, under s 55E of the 1998 Act, has power to ‘make further provision’ regarding ‘monetary penalty notices’ plus ‘notices of intent’: see s 55E(1).


The new ‘monetary penalties’ supplement, reinforce and add potency to the Information Commissioners’ other powers of enforcement, set out in Part V of the 1998 Act (ss 40-50). Given that there have been highly publicised instances of organisations in the private and public sectors disclosing or misplacing ‘personal data’, in circumstances which could breach ‘the data protection principles’, the new powers will be a strong incentive for commercial enterprises (and public sector entities) to make sure that customer data is stored and processed properly.  In the current economic circumstances, a penalty of up to £500,000 will not be welcomed by many commercial organisations, not only in pecuniary terms, but also in terms of their reputation.  A penalty at the upper end of the scale will indicate the breach was significant, and customers may take a view accordingly.

Commercial Agents Regulations: when does the relationship terminate?

The Commercial Agents Regulations, like any piece of legislation, can only be fully understood once its bare terms are “fleshed out” with case-law.  That process continues in the U.K., as is illustrated by the English case of Clarmoda Ltd v Zoomphase Limited [2009] EWHC 2857 (Comm), decided on 13 November 2009.

The informal nature of agency relationships poses particular challenges to those who seek to regulate this area of law.  Because agency is such a useful commercial concept, it would make no sense to burden it with formalities in relation to creation of the relationship.  This case is a useful illustration of the challenges which arise as a direct result of the informality which is characteristic of agency.  In the case there was no written contract establishing the agency relationship, and much of the crucial evidence of relations between principal and agent was oral, taking place in phone calls or meetings.  This is highly typical, especially in situations where the agency is a low-value one.  Either party can, under regulation 13(1), require the other party to provide a signed written document setting out the terms of the agency contract.  In many cases, such a document will not have been obtained before it is too late, and the parties are in dispute about the actual terms of the agency contract.    

In this case the agent sought compensation in terms of regulation 17(6).  Entitlement to either compensation or indemnity is time-limited: the agent has a year from termination to make a claim for compensation or indemnity (reg 17(9)).  Compensation is available where the agency contract is silent on this point, as was the case here where the parties had not entered into a written contract.  If the parties wish to opt for indemnity rather than compensation, they must make provision for the same in a written contract (reg 17(2)).  But if the principal/agent relationship is highly informal, it may be no easy matter to identify the date on which the relationship terminates, and on which the clock begins to tick through the one year period.  That was exactly the issue which came before Mr Justice Simon in this case.

In order to decide that the agent was in fact entitled to compensation and was not time-barred, Mr Justice Simon focussed on the definition of a commercial agent contained in reg 2(1).  An agent is only a commercial agent in terms of the regulations if he or she has “continuing authority to negotiate” on behalf of his or her principal.  The Parks v Esso Petroleum case ((2000) Eu LR 25) was referred to by Mr Justice Simon in order to understand the meaning of the word “negotiate.”  So the important question is whether the agent’s authority to negotiate has ceased.  If that is the case then the agent’s relationship may have terminated.  That is not the sole criterion by which termination will be judged, however.  The agent may carry out other work on behalf of the principal which does not involve negotiation.  That was the case here, where the agent “…was involved in dealing with customer’s concerns about their orders and confirming discrepancies in the paper-work” (para [44]).  Although not involving negotiation, these are activities which the agent was carrying out on behalf of his principal and which provided evidence that the relationship had not yet terminated. 

The lucky agent was thus able to prove that he had intimated his claim for compensation timeously.  Mr Justice Simon also indicated that there was no need for him to identify an actual date of termination: pinpointing “mid-January 2007” was sufficient (para 49(1)).   

Recently, the House of Lords case Lonsdale v Howard & Hallam ([2006] EWCA Civ 63; 2006 1 WLR 1847 (CA); [2007] UKHL 32, [2007] 1 WLR 2055, [2007] ICR 1338 (HL(E)) significantly eroded the agent’s ability to claim compensation where the principal’s business is failing at the time of termination.  This case goes some way towards redressing the balance in favour of the agent.  A principal must make the date of termination clear if he wishes later to rely on the argument that the agent’s claim is time-barred. 


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