Monthly commercial law update: Top 5 developments in February

Here’s this month’s top 5 commercial law developments taken from our February LexisPSL Commercial monthly round-up:

Advertising and marketing: IAB issues new rules on identifying digital advertising

The Internet Advertising Bureau (IAB) has issued a new guidance to provide greater transparency in ‘native’ digital advertising.

The guidelines provide advertisers, publishers, agencies and advertising technology companies with clear and practical steps to make it easier for consumers to spot native advertising—digital advertising formats designed to look and feel like editorial content.

Two of the key guidelines for native advertising formats are:

1. provide consumers with prominently visible visual cues enabling them to immediately understand they are engaging with marketing content compiled by a third party in a native advertising format which is not editorially independent (eg brand logos or design, such as fonts or shading, clearly differentiating it from surrounding editorial content); and
2. it must be labelled using wording that demonstrates a commercial arrangement is in place (eg ‘paid promotion’ or ‘brought to you by’).

The guidelines were based on a study specifically commissioned by the IAB to understand consumer knowledge, attitudes and tolerance to content and native advertising.

The IAB plans to publish Part 2 of the guidelines later in 2015, which will cover online advertorial and sponsored content, including how digital can learn from good practice in print media.

Bribery and corruption: employees sentenced for foreign bribery offences

Two former employees of Smith & Ouzman Ltd (SO) have been sentenced at Southwark Crown Court for foreign bribery offences.

SO is a printing company that specialises in security documents, such as ballot papers. A jury found that between 1 November 2006 and 31 December 2010, corrupt payments totalling £395,074 were made to public officials in Kenya and Mauritania in return for contracts. The chairman of SO was found guilty of corruptly agreeing to make payments contrary to section 1(1) of the Prevention of Corruption Act 1906 and sentenced to 18 months’ imprisonment, suspended for two years, as well as 250 hours unpaid work and a three-month curfew. The sales and marketing director of SO was found guilty of corruptly agreeing to make payments and was sentenced to three years’ imprisonment. Both were disqualified from acting as company directors for six years. SO has also been found guilty of offences and will be sentenced at a later date.

The offences took place before the Bribery Act 2010 came into force, but the case is an important illustration of the perils of indulging in bribery.

Consumer protection: CMA seeks views on online reviews and endorsements

The CMA has launched a call for information on how information in online reviews and endorsements is used.

Online reviews and blogs are playing a growing role in helping consumers to make shopping decisions, including finding hotels, selecting tradespeople and choosing cosmetics. Research suggests that large numbers of consumers are using such online resources. They are also important to those businesses whose products and services are reviewed on them.

The CMA is aware of a number of potential concerns about the trustworthiness or impartiality of information in some reviews and endorsements that is being provided to consumers. It is therefore keen to look at whether these concerns are valid, as it is important that these sites work as well as they can for consumers and for businesses.

It will be looking at a range of online reviews and endorsements. These are found on web blogs, video blogs, social media, specialist review sites, trusted trader sites, retail platforms and retailers’ own websites. The CMA will also look at the roles that media companies, online reputation managers and search engine optimisers play in helping businesses to promote themselves and manage their image in relation to blogs and review sites.

The Consumer Protection from Unfair Trading Regulations 2008, SI 2008/1277, contain a general prohibition on unfair commercial practices, in particular misleading and aggressive practices. They also contain 31 banned practices which are prohibited in all circumstances. It is a banned practice to use editorial content in the media to promote a product where a trader has paid for the promotion without making that clear in the content, or by images or sounds clearly identifiable by the consumer. It is also a banned practice to falsely claim or create the impression that a trader is not acting for purposes relating to his or her trade, business or profession, or to falsely represent oneself as a consumer.

The deadline for responses to the call for information is 25 March 2015.

Contracts: High Court holds that upside fee held not to be unenforceable as a penalty

In Edgeworth Capital (Luxembourg) S.A.R.L and another v Ramblas Investments B.V. [2015] EWHC 150 (Comm), the claimants were claiming a sum to which they claimed to be entitled as a fee due under an upside fee agreement (UFA).

The UFA was entered into as part of the financing arrangements put together for the purpose of the purchase of a property. The claimants also had the benefit of rights under a junior loan and a personal loan to the property investors. The fee in the UFA was expressed to be payable following a Payment Event.

The points in dispute were whether a default under the personal loan (triggering the repayment of the junior loan) could qualify as a Payment Event given that the purpose of the UFA was to allow the bank to share in any upside following disposal, and whether the upside fee was unenforceable as a penalty.

In relation to the first point, the judge held that the wording was clear in the UFA that a Payment Event specifically included any repayment which is made or fails to be made following acceleration. He made the point that, although the fee was sizeable, it was still commercial given the market at the time.

In relation to the second point, the judge held that the rule against penalties only applies if the relevant clause is triggered by breach of duty.

However in this case, the fee was due in any event; when a Payment Event occurred, this merely accelerated payment. The judge commented that even if the rule against penalties was applied, it would not have constituted a penalty as the clause was commercially justifiable given the market at the time and its predominant function was not a deterrence.

Data protection: government announces action on nuisance calls

The government has announced measures to make it easier to fine companies making unwanted marketing calls and texts up to £500,000.

The Privacy and Electronic Communications Regulations, SI 2003/2426, currently require the Information Commissioner’s Office (ICO) to prove a company caused ‘substantial damage or substantial distress’ by their conduct before action can be taken.

Following a consultation, the government is now removing this legal threshold, giving the ICO the power to intervene in more cases. This change will come into effect from 6 April 2015.

The government also confirmed it will look at introducing measures to hold board level executives responsible for nuisance calls and texts. This follows a report from the Which?-led taskforce last December, which called for a review of the rules to act as a stronger deterrent to rogue companies.

In addition, the government is looking to introduce mandatory caller line identification so that all marketing callers will have to display their telephone numbers. Since January 2012, the ICO has taken enforcement action against nine companies for nuisance calls and text messages, imposing fines totalling £815,000. Separately, Ofcom has powers to deal with abandoned and silent calls by taking action against offenders that persistently misuse a network or service resulting in annoyance, inconvenience or anxiety. To date, Ofcom has fined seven companies totalling £1,618,000 for abandoned and silent calls.

So that's it for another month. In readiness for next month, why not enter your name and email address in the box on the right hand side of this page? If you do so, you will receive all of the developments highlighted in our larger monthly round-up for free along with other exclusive content courtesy of our new Comet newsletter.

If you have any burning thoughts in the meantime on the above developments, let us know below.