Archive for August, 2010

Third Party Rights – Scots Law Stuck in the 17th Century

The Problem

Imagine you are a bank with a complex group structure, i.e. multiple companies in your group. A core computer system has gone wrong and most of the group companies have suffered loss as a result. So you sue the supplier.

The supplier’s defence is that it only has a contract with one member of the group, and while that group member can recover its loss, the supplier isn’t liable for loss suffered by the other group companies.

This is a fairly valid legal argument.

Third Party Rights as a Solution

There are various ways to reduce this “group loss v. single group contracting entity” problem. One way is to give all the group companies the right to enforce the contract against the supplier, so each of them can “kick” the supplier. These are called third party rights, because they give legal rights to a person who didn’t “sign” the contract (in legal terms a third party).

Since 1999 this has been fairly easy to do in English Law Agreements as a result of the Contacts (Rights of Third Parties) Act 1998 . (I say “easy”, but with my CYA head on I should note that there are some drafting traps for the unwary).

It has been possible to create such third party rights under Scots Law for quite a bit longer than that using the legal right “ius quaesitum tertio”, or “IQT”.  You can tell its really old because it has a Latin name! 

Moving Contracts between Scotland and England

As a lawyer working in England in the mid nineties I sometimes “moved” contracts to Scots Law in order to create third party rights using IQT.

However, since the English Act came into force I find myself doing the opposite, i.e. moving contracts to English Law in order to use the English third party rights legislation. 

Why?

Well because the IQT is massively inflexible when compared to the position under the English Act. For example, once you create a third party right under an IQT it can be very difficult to amend it or kill it. In contrast that is possible under the English Act (if you draft the clause correctly).

Recently I had a contract that had to be Scots law, but also needed to create flexible third party rights. The solution was to expressly apply the English Act to the third party rights clause, but have the rest of the Agreement subject to Scots law.  Very ugly – So ugly in fact that it prompted me to blog about it.

Let’s Update Scots Law

So I think the Scottish Law Commission  should look into updating the law in Scotland in order to mirror (or better) the English Act.

The Stig, confidentiality and trade marks

I’ve been following the recent story about a battle between the BBC and HarperCollins over whether or not The Stig’s real identity can be revealed in his planned autobiography. For the purposes of this blog, I’ll refer to him as “Mr X”.

For those that are not a fan of the BBC’s Top Gear programme, The Stig is the show’s “tamed racing driver” – known only by his white overalls and white helmet (which he never removes). The BBC maintains that revealing his identity would “spoil viewers’ enjoyment of the show.”

What’s the issue?
At play here is a conflict between the contractual obligation of confidence given by the Mr X in his contract with the BBC and Mr X’s attempt to cash in on the fame of the character that he plays. Top Gear and The Stig are very lucrative for the BBC, but newspaper reports suggest that Mr X does not do as well out of this as his fellow presenters.

However, an autobiography about being The Stig is likely to be hugely successful.

Psuedonyms and trade marks
Interestingly, there is no (legal) reason why The Stig could not publish his autobiography under a pseudonym. Section 77 of the Copyright, Designs and Patents Act 1998 specifically provides that moral rights (the right of an author to be named every time a work is published) can be asserted using a pseudonym. However, “The Stig” is a registered trade mark of the BBC, and therefore any attempt to publish an unauthorised book under that pseudonym would infringe that trade mark.

So Mr X is rather stuck. Contractually, he cannot publish his autobiography under his real name, and trade mark law is likely to prevent him from publishing his autobiography under his on-screen alter ego.

This may seem unfair, but The Stig brand is owned by the BBC, and Mr X is contracted to the BBC to play that role under a condition of anonymity. The BBC is therefore simply doing what any brand owner would do to prevent third parties from cashing in on, or damaging, its brand.

So what next?
It will be interesting to see how the battle between the BBC and HarperCollins pans out. A Google News search shows plenty of newspapers revealing Mr X’s suspected identity, and HarperCollins’ argument is that his identity is now no longer confidential. Whilst this might make a common law obligation of confidence no longer enforceable, it may not be as simple as that for a contractual obligation.

I see that the case has been adjourned for a week. I expect that those discussions will lead to the autobiography being published under the pseudonym of “The Stig” (with the BBC getting a cut of the royalties) or Mr X being allowed to publish his autobiography under his own name, but on the condition that (as with Mr X’s predecessor, The Black Stig) he leaves the show and is replaced by a new Stig.

Anyone want to have a guess at what colour he will be?

DPA – have your say!

Looking for things to do on those long, hot(ish) summer nights (or at least the few we have left)?

Why not take the time to read the Ministry of Justice’s recent call for evidence on the Data Protection Act – see http://www.justice.gov.uk/call-for-evidence-060710.htm.

Sounds too dull? Maybe – but for those of us who work with the DPA, it looks as if this is the long awaited opportunity to get some of that frustration off our collective chests by looking to contribute ideas as to how the legislation can be improved.

The MoJ have highlighted what they see as being the key themes and these are:

  • The definitions used in the DPA
  • Data subject rights
  • Data controller obligations
  • Powers and penalties of the Information Commissioner
  • The principles based approach
  • Exemptions under the DPA
  • International transfers

All pretty fundamental stuff.

One major inhibitor to any outcome will be the fact that the UK government can’t just do what it wants. The DPA implements a European Directive and it will be the shape of that Directive that ultimately drives the DPA. This exercise is being conducted as a precursor to a wider EU debate on the Directive and the UK’s views will simply be thrown into the melting pot along with the views of other member countries.

That said, there does seem to be a recognition that the Directive does need overhauled. The world has moved on massively since the current Directive was put on the statute book in the mid 1990’s and, as with all laws that regulate activity that is supported by technology, there is the constant challenge of making sure that the law keeps up with the pace of change and is relevant (and workable). For instance, how does data protection handle concepts like cloud computing where data is being hosted in a virtual environment where the physical location of the data (and, in many cases, who it is being hosted by) is very difficult to ascertain.

Coming back to the UK level, and leaving aside the bigger picture issues, from a personal perspective, I really do hope that the legislators take the opportunity to rework the DPA into piece of legislation that is easier to understand for everyone – not just specialist DPA practitioners. In my view –and for what it is worth – the legislation is overly technical in its drafting – being too focussed on the detail rather than the desired outcomes – and this means it is inaccessible to far too many. This leaves the DPA prone to misunderstanding, meaning that it is often misapplied in practice and that leads, in turn, to controversy which brings the legislation as a whole into disrepute with some even calling for wholesale repeal on the grounds that it is just unnecessary red tape. I don’t subscribe to that view. I think the DPA is a hugely important piece of legislation and the concepts that is seeks to underpin in terms of how our information is dealt with – fairness, transparency, respect to legitimate privacy interests, taking data security seriously etc – are even more relevant today than they were back in the 1990’s. In short, the legislation is worth saving; it just needs improving.

Which brings me back full circle. If you want to see change then don’t just grumble, take the time to read the Call for Evidence and send your views to the MoJ. The closing date for responses is 6 October 2010.

Goodwill payments to customers can be a direct loss

IT suppliers should be concerned at a recent court case involving Accenture and Centrica. Accenture supplied a faulty billing system to Centrica.  This disrupted Centrica’s business and caused hassle to its customers. In order to keep its customers sweet, and although it had no contractual obligation to do so, Centrica gave its customers payments to compensate them for their hassle. Those payments added up to 8m!

Centrica tried to recover those customer goodwill payments from Accenture. Accenture resisted because it thought those losses were covered by a clause in the IT supply contract that said that Accenture would not be liable for indirect or consequential losses. 

Lawyers love a good bun fight over whether a loss is direct or indirect.   Believe it or not (and you probably will), the landmark case on the subject was decided back in 1854.   

There is a lot of complex law behind the judgement – but the headline is that the Court found that the goodwill payments were not “indirect or consequential losses”, and thus were not excluded by the clause. 

It’s not the end of the line for Accenture as the court was only looking at points of principle. It is still to decide whether Centrica can actually recover these payments on the facts of the case.

So if you are an IT supplier working in the utility or banking (or similar) sectors you may want to specifically exclude or cap liability for goodwill payments (also known as “ex gratia” payments) made by your client to its customers. 

Although the article was mostly written by Fiona Murdoch – one of our professional support lawyers.

Vodkat Case Update – Is Vodka a premium product or just an alcohol delivery device?

 Eleanor previously wrote about the Vodkat/Vodka passing off case.

The result of an appeal in that case has just been published.

The makers of Vodkat argued that the right to prevent an imitation of a product category (such as Vodka or Champagne, as opposed to a particular brand such as “Smirnoff”) only exists for “premium” products. Its case was that Vodka is not a premium product but rather just an “alcohol delivery device”. Nice!

The Court agreed that Vodka is not a premium product, but said that didn’t matter, i.e. Vodka producers could prevent the sale of Vodkat because a punter might buy it thinking he/she was buying a “proper” Vodka.

During the case various examples were given such as whether a manufacturer of butter could prevent a margarine producer using the word “butter” in its product name. According to the Vodkat appeal the answer is “probably yes”.  This interested me.

What about the product “Utterly Butterly”. It’s not butter, but is that clear to all the punters who buy it? If not then a butter manufacturer could probably attack it.

Contrast that with “I Can’t Believe it’s not Butter”. That brand name makes it clear the product isn’t butter (thus removing any risk of passing off) while still making the average punter think of butter (at least by association). Genius.

So what the Vodkat people need to do is rebrand their product as “I can’t believe its not Vodka” and then make sure its retailers don’t put it too close to “real” Vodka on its shelves.

Douglas “I can’t believe he is not a High Court Judge” Mathie


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