The Budget and business rates relief

A quick glance at the news and you’ll know that shopping in the UK is changing. Online giants such as Amazon and Asos have been a death knell for the high street. Stores have been struggling and not just the small ones. Longstanding household names, House of Fraser, Toys ‘R’ Us and Debenhams, amongst many, have been affected. Acknowledging these difficulties, the Chancellor’s recent October budget includes business rates relief for small retailers and has now proposed tech giants ‘pay their fair share’ by announcing a new digital services tax.

Business rates are a tax on commercial property paid for (generally) by the occupier. The amount is based on the rateable value of the property and makes up a significant proportion of the occupier’s costs. In the current climate properties have been left vacant with tenants unable to pay the rent. This leaves landlords picking up the cost of business rates for empty premises. Landlords do get a concessionary 3 months free from when the property became vacant (6 for factories and warehouses), but after that they are liable for the full amount (though there are exemptions). Should the landlord be able to re-let the property (where such occupation qualifies as rateable occupation thereby passing the bill to the occupier) for a period of at least 6 weeks, they would be entitled to apply for another concessionary period.

Would a lease of a 13,000 square foot warehouse to a mouse for 6 weeks qualify as rateable occupation? Probably not (a mouse is not a legal entity). But a lease for short term storage of third party goods does, as confirmed in R (Principled Offsite Logistics Ltd) v Trafford Council and others. The landmark case re-examined whether storage occupation for the purpose of mitigating rates liability qualified as rateable occupation. It was found that occupation for the sole purpose of providing rates mitigation could qualify, if it provided a benefit to the occupier (however moral the reason for occupation). At the end of the lease a new concessionary period for the landlord would then be triggered.

Whilst the Chancellor’s budget is a positive step for roughly half a million small stores affected, the relief will not be available to properties with a rateable value of £51,000 or above. Large stores have argued that the ‘outdated’ business rates model needs an overhaul, so that all stores can benefit. The Chancellor’s budget also nodded towards relaxing planning rules for the high street to allow empty shops (like with offices) to be converted into housing. Whilst the finer details of the budget are still to be revealed, it seems like the high street we know won’t stop changing any time soon.

Ben Finley

Ben Finley
Commercial Property Team
0113 322 2805

Posted in Property Law | Leave a comment

Can we pre-empt a change in the law for assisted suicide in Lasting Powers of Attorney?

At present, a Lasting Power of Attorney (LPA) for health and welfare allows a donor to decide whether they give consent for their attorneys to make decisions regarding their life sustaining treatment. However, the Office of the Public Guardian (OPG) brought a case in front of the Court involving the possible registration of a series of nine cases where the Lasting Powers of Attorney also included instructions and preferences regarding euthanasia or assisted suicide.

The OPG confirmed they currently receive over 120 Lasting Powers of Attorney each year which reference euthanasia or assisted suicide and they were looking to the Court to provide guidance as to whether or not the Lasting Powers of Attorney should be registered.

The OPG must seek the Court’s approval to register a LPA if all or some sections would prevent the LPA from operating as a valid LPA.  The Court can either order the OPG to register the LPA, amend and register the LPA, or refuse the registration of the LPA.

The Court held that the instruction and preferences section of an LPA cannot be used to allow or instruct the attorneys to act illegally and if these preferences or instructions are included, then this will render the LPA as invalid.

At present, if a person acts or assists with assisted suicide, they will be committing an offence under the Suicide Act 1961. Section 2 of the 1961 Act defines assisted suicide as ‘(1) A Person (‘D’) commits an offence if (a) D does an act capable of encouraging, assisting the suicide or attempted suicide of another person, and (b) D’s act was intended to encourage or assist suicide or an attempt at suicide. (1A) The person referred to in subsection (1)(a) need not be a specific person (or a class of persons) known to, or identified by D and (1B) D may commit an offence under this section whether or not suicide, or attempt at suicide, occurs’.

The Court held that it would be ‘likely to cause uncertainty and confusion’ if a person includes in their LPA instructions or preferences that their attorneys may act in a certain way as long as the laws have been changed meaning the act would then be legal. Further to this, the Court held that including wording in the preferences section, which still provides an instruction, is held as an instruction regardless of which box it has been written in.

Examples of preferences or instructions which the Court ordered to be rejected include: “should a vegetative existence arise (i.e no prospect of a reasonable quality of life is possible) then life is to be terminated”. “At the time of writing these instructions, assisted dying is not permitted under UK law but my Attorney must be aware that it is my wish that, when the time comes, I can choose to end my life on my own terms, whether or not this means travelling outside of the UK to a country where assisted dying is legal”. In this case the Court held that this is clearly a statement of intention by the donor and not an instruction or preference; therefore the comment is ineffective as part of an LPA.

Taking into account the Courts refusal to order the registration of the LPA’s which state instructions and preferences in relation to assisted suicide, it is key to ensure that you do not include instructions or preferences within an LPA which instructs the Attorney to assist in an assisted suicide or act in a way which would be deemed as assisting in assisted suicide.

Annie Beaumont

Annie Beaumont


Annie Beaumont
Private Client Team
0113 227 9269

Posted in Wills and Probate | Leave a comment

Frustrating events

Another day, another article on Brexit. But this one is a little bit different.

It concerns a dispute between the Canary Wharf Group, a property development, investment and management company, and its tenant, the European Medicines Agency (“EMA”).

The EMA is, in simple terms, attempting to get out of the remaining term of its 25 year lease of substantial premises at Canary Wharf.  Their reason? Brexit has frustrated the lease. They say, at the time the lease was entered into, Brexit was an unforeseen event and renders the contract incapable of being performed.

What is the EMA, where is it located and why does it matter?

The EMA was established in the mid-90s to provide EU Member States with the best scientific advice regarding the quality, safety and efficacy of medicinal products.

The EMA has been located in Canary Wharf since 1995. Its workforce expanded rapidly in the early 2000s and, as a result, it started looking for larger premises.  In 2011, it entered into an Agreement for Lease in respect of a new building at Canary Wharf. The Lease was completed in 2014. The Lease will expire in 2039 and the annual rent payable is in the region of £11-13 million pounds.  There is no break clause which would enable EMA to terminate the lease prior to the end of its term.

As an agency of the EU, it is a requirement of EU law that the EMA should be located in an EU Member State.  This means that the EMA is protected by EU law and enjoys certain privileges and immunities which are extended and conferred by Member States. These include the protection of premises, assets and staff working conditions (i.e. outside national employment law) to ensure the proper functioning and independence of the EU and its institutions and agencies.  At the time at which the lease was agreed and entered into, the UK was a Member State. This will change once Brexit occurs.

As a result, in 2017, some months after the referendum result was announced, the remaining EU Member States decided to move the EMA headquarters from London to Amsterdam.

Unfortunately, for the EMA, it will still remain bound by its lease with its landlord and, over the course of the next 21 years, will be required to pay hundreds of millions of pounds in rent.


The EMA is arguing that Brexit is a frustrating event, in the legal sense.

Broadly, a contract (including a lease) may be frustrated if an unforeseen event occurs after the contract is formed and as a result of that event the contract becomes impossible to perform and/or the obligations under the contract are transformed into something so radically different than that which could have been contemplated at the outset, that it would be unjust to require the parties to continue.

The effect of frustration is that the contract is immediately brought to an end and both parties are released from any further performance under the contract.

If the EMA successfully argues that Brexit is a frustrating event, it will mean that its lease will terminate and it will not owe any more rent under the lease.

Was Brexit reasonably foreseeable?

The EMA is arguing that:

  1. Brexit was not reasonably foreseeable in 2011 when the Agreement for Lease was entered into. In support of this, their arguments include that: (a) UKIP had secured no seats in the general election on 6 May 2010 and its share of the popular vote was around 3%; and (b) on 20 May 2010, following the general election, the Coalition Government produced a document which affirmed its commitment to the EU.
  2. Nor was Brexit reasonably foreseeable in 2014 when the Lease was completed. In support of this, they say that: (a) there was no firm manifesto promise from any major political party that an in/out referendum would be held; (b) no referendum had been planned; and (c) the majority of expert commentators predicted that if a referendum were to be held, the UK would vote to remain in the EU.
  3. The parties did not regard Brexit as likely to occur or foresee it as a real possibility in 2011 or 2014. Although legal advice was provided to the landlord relating to the impact of EU law on the lease, it did not consider the possibility of Brexit because, it is argued, it was simply assumed by both parties that the UK would remain in the EU.
  4. The consequences of Brexit will so significantly change the nature of the parties’ outstanding obligations under the agreements from what the parties could have reasonably contemplated at the time that it would be unjust to uphold it in those circumstances. For example, under EU law, the EMA must be located in an EU Member State.  The EMA would not be able to remain at the premises and no other EU entity could relocate there either.

What next?

The trial is due to take place in January 2019, in advance of the UK’s planned exit from the EU on 29 March 2019.

Whilst the outcome will be specific to the facts of this particular case, if the EMA is successful, other tenants may well seek to use Brexit as a means of avoiding their contractual liabilities, which could lead to greater uncertainty for landlords and businesses alike.

Rachael Donnelly
Property Litigation Team
0113 207 1094

Posted in Commercial Dispute Resolution | Leave a comment

Budget 2018 – Pro-business…but No-Deal Brexit casts a shadow

The 2018 Budget has been received positively by business groups. Carolyn Fairburn, CBI Director-General said it was “a rock solid Budget, bringing more treats than tricks for business whilst the Federation of Small Businesses hailed it as “the most small-business-friendly budget that this Chancellor has delivered.”

So what could the Budget mean for your business? Here we break down the Chancellor’s key statements.

Entrepreneur’s Relief (“ER”)

  • Despite speculation prior to the Budget, no change has been made to the level of ER available, however:
    • as of 29 October 2018, shares held by a shareholder wishing to claim ER must entitle the shareholder to at least 5% of the distributable profits, and 5% of the net assets, of the relevant company; and
    • from 6 April 2019 the period of ownership required to claim ER on a disposal will double from one year to two years.

Annual Investment Allowance (“AIA”)

  • The AIA which provides 100% tax relief on assets qualifying as plant and machinery is to be increased from £200,000 to £1 million for two years. 

Business Rates Cut  

  • Business rates for firms with a rateable value of £51,000 or less will be cut by one third over two years – the measure will benefit 90% of independent shops, pubs and restaurants cutting rates by £8,000 on average.
  • Larger businesses will however “continue to suffer needlessly until there is a full, in-depth review” according to the CBI.

Apprenticeship Levy

  • The treasury has listened to appeals from the business community and reduced the Apprenticeship Levy from 10% to 5%. 

The High Street  

  • Coupled with the business rates cut, a £675 million Future High Streets Fund has been launched to invest in improvements to town centre infrastructure, reduce congestion, support redevelopment around high streets and enable housing and new workspaces to be created.
  • However, with high street giants like Debenhams and House of Fraser in turmoil and restaurants closing across our region, will this fund simply be a drop in the ocean as consumers move online?

Regions & Devolution  

  • The Chancellor announced a £770 million increase to the existing £1.7 billion Transforming Cities Fund but half the fund remains ring-fenced for city regions with devolution deals already in place. 
  • As the government continues to ignore calls for a “One Yorkshire” devolution deal for our region – despite the move being backed by 18 of the region’s 20 councils – there’s a risk Yorkshire may miss out on greater devolved powers and investment while rival Manchester thrives. 

Overall, Philip Hammond announced changes in tax, expenditure and public policy and promised that “austerity is coming to an end.” Yet, as Brexit remains the elephant in the Chancellor’s drawing room; the Chancellor has admitted that a ‘no-deal’ Brexit would mean a new emergency Budget next Spring, with many of his Budget pledges being ripped up and a return to austerity likely.

David Paterson

David Paterson
Corporate and Commercial Team
0113 227 9341

Posted in Company & Commercial Law | Leave a comment

5 Reasons to Get an EU Permanent Residence Document (Now!)

EU nationals, and family members, acquire a right of permanent residence (PR) after lawfully residing in the UK for a continuous period of five years. The EU Settlement Scheme will be fully operational by the time the UK leaves the EU and allows people to apply for indefinite leave to remain. However, for those eligible, there are compelling reasons why individuals should still apply for a PR document before 29 March 2019, and why they should do so now, without further delay.

Until recently, there was little point in getting a PR document. Under the rights-based system of EU law, the PR document does not confer any rights: you acquire PR on completing five continuous years and the document merely declares the fact you have PR. However, in November 2015 there was a change requiring any EU national (and their family member) to hold a PR document if they wanted to become British.  Furthermore, the uncertainty around Brexit led to a spike in the numbers of people seeking to have their rights confirmed through the PR document.

It remains a good idea to get a PR document. Without further ado, the top 5 reasons are:

  1. You need it to become British

As noted, there is now a legal requirement to hold a PR document before applying for citizenship. This requirement is not going away after Brexit.  And with British citizenship comes ultimate Brexit security (especially if you can retain your original EU nationality and be a dual national!).

  1. It will speed up the route to becoming British

This is where it gets a bit technical. To become British, there is a separate requirement to hold PR/indefinite leave to remain for a full year, unless married to a British citizen.  Importantly, there is no requirement to hold a PR document for a year, but simply to show the right of PR has been held for a year.  The requirement to hold a PR document is a separate criterion.

Therefore, if an individual applies for a PR document and has at least six years’ continuous residence,  then the individual acquired PR at least a year ago (PR would have been acquired after the fifth year of residence).  In this scenario, and under the present system, once the individual has the PR document then an immediate application for British citizenship can be made.

However, if that same individual were to wait until the EU Settlement Scheme opens, and then apply for Settled Status, he would then have to wait a full year before he can become British.  This author has been advised directly by the Home Office that those granted Settled Status will have to wait a full year before being able to apply for citizenship, regardless of how long they have lived here for. It’s also worth noting that the cost of citizenship increases annually, far above inflation (it’s increased by £550 over the past 7 years!). Missing out on a PR card could cost money as well as time.

  1. It’s only £65

Unlike with most exorbitantly priced immigration applications, PR documents are only £65. Furthermore, they are light on evidential requirements, for example, five P60s should suffice to prove PR if relying on being a ‘worker’.

  1. You can then exchange it free of charge for settled status

Although a PR document is £65, this can be exchanged free of charge for settled status later on. Those who register for settled status without a PR document are charged £65. So costs-wise there really is nothing to lose.

  1. Added security

Whilst the EU Settlement Scheme appears to be going ahead, regardless of whether there’s a deal or no deal, it still would not do any harm to have a document confirming your rights, given the on-going uncertainty, and given the low costs involved.

With still five months to go until Britain leaves the EU, there is still time to make this important decision and apply for a PR document today.

Louis MacWilliam

Louis MacWilliam

Louis MacWilliam
Associate Solicitor
Business Immigration Team
0113 322 2842

Posted in Business Immigration | Leave a comment

Naming and shaming – will #MeToo and Philip Green affect Non-disclosure Agreements?

Labour peer and long-standing human rights campaigner Lord Hain blasted through five Non-Disclosure Agreements (NDAs) when he named retail tycoon Sir Philip Green as the latest leading businessman at the centre of allegations of workplace abuse, including sexual and racial harassment, on 26 October.

Lord Hain’s actions are all the more dramatic as just two days prior to his intervention the Court of Appeal had overturned a High Court decision and granted Sir Philip an injunction preventing The Daily Telegraph from publishing details of the allegations by five former employees. Sir Philip had entered in to NDAs with each of the employees by which he agreed to pay them cash in return for their silence.

NDAs, or Confidentiality Agreements, have been a common tool used by businesses to protect commercially sensitive information. They can be used:

  • during negotiation of a merger, acquisition, or joint venture when companies necessarily need to share information;
  • by a service or licence provider to ensure any intellectual property it allows customers to use is protected; and
  • between companies and their employees.

But in the last year NDAs have been made famous, or infamous, by the #MeToo campaign, which followed a slew of allegations of sexual harassment and abuse against certain celebrities and individuals in high powered positions. It transpired that in many cases these individuals had entered in to NDAs with their alleged victims agreeing to pay them cash if they agreed to keep quiet about the allegations.

Critics of this use of NDAs claim that despite the cash payments, victims were forced to make a choice between signing the NDAs, or speaking up and facing the possibility that their careers could be ruined at the hands of their alleged abusers.

So has Lord Hain undermined the NDA and should businesses which rely on them be worried? In short, no; Lord Hain was only able to name Sir Philip without fear of being in contempt of court because as a Member of the House of Lords his free speech is guaranteed by the ancient right of parliamentary privilege.

Whilst the original High Court Judge, Justice Haddon-Cave, had agreed with The Daily Telegraph that publication of the allegations was in the public interest, in overturning the Judge’s decision the Court of Appeal commented that Justice Haddon-Cave had “left entirely out of account” the “important and legitimate role” played by NDAs and had failed to recognise that the information The Daily Telegraph wished to publish was “passed to it in breach of a duty of confidentiality” and further that the newspaper was aware of that breach. The Judgment made clear that:

  • NDAs did not stop the complainants from reporting criminal offences, or whistleblowing;
  • each complainant had been legally represented; and
  • each complainant had received “substantial payments”.

The basic contractual principles of the NDA remain intact. However businesses and individuals should take appropriate legal advice before entering in to a NDA to ensure their interests are protected, and agreements are valid.

David Paterson

David Paterson
Corporate and Commercial Team
0113 227 9341

Posted in Company & Commercial Law | Leave a comment

Demergers – Keeping it simple

Successful businesses are often built from the ground up, and companies often incorporate multiple subsidiaries or acquire other complimentary businesses to form part of their group, each carrying out their own duties alongside the core concept that started it all.

Frequently, successful businesses expand into different areas and carry out completely different sets of activities.  Whilst this may be a sensible business model, spreading the risk, it may lead to a complex business structure, which may not be tax efficient.

Fortunately, a company can simplify its group structure by demerging it; separating the business into two or more parts.  A demerger allows a group to transfer a company, or sub-group of companies, out of the wider group, so that it can be run under separate management, which may or may not involve the same shareholder(s) as the original group.

Types of Demerger

There are four main types of demerger:

  • Statutory Demergers (also known as dividend demergers): this type of demerger involves a parent company declaring a dividend in specie (a distribution to shareholders in a form other than cash, in this case, shares of the target (demerged) subsidiary) to its shareholders or to another separate newly incorporated company;
  • Capital Reduction Demergers: this type of demerger is used when sufficient distributable reserves are not available so a dividend in specie cannot be declared. Instead the holding company will reduce its capital, in consideration for which the target (demerged) subsidiary is transferred to a newly incorporated holding company, which in turn issues shares to the original holding company’s shareholder(s);
  • Scheme Demergers: here a newly incorporated holding company is inserted and the shares in the target (demerged) subsidiary are transferred to it that new company by way of a scheme of arrangement, a court approved agreement between a company and its shareholder(s) or creditor(s); and
  • Liquidation Demergers: here the business and assets of the parent company are distributed by the liquidator directly to the two newly incorporated companies; each of these new companies will then hold a distinct part of the demerged business and issue shares to the original shareholder(s).

 Why carry out a Demerger?

From a commercial perspective, the simplification of the group structure of a business often:

  • provides a focus or direction for each part of the business;
  • separates the different risk and/or commercial profiles of the various strands of the business;
  • provides a way to introduce new shareholders, investors and/or option holders to one part of business; and/or
  • facilitates the sale of a specific part of the business.

From a tax perspective, a demerger may aid a trading business and its shareholder(s) in qualifying for:

  • entrepreneurs’ relief;
  • the substantial shareholding exemption; and/or
  • inheritance tax business property relief.

Whatever the reason for a demerger it is important that you get expert legal advice from the outset.

Nigel Hoyle

Nigel Hoyle
Corporate and Commercial Team 
0113 227 9225

Posted in Company & Commercial Law | Leave a comment

They forgot about Drai

It’s fair to say that the bigger the brand, the more valuable it is; so it is no surprise that businesses will try their best to protect their brand even when, in hindsight, it may not have been the most commercially sound decision.

A perfect example of this is the recently reported case involving rap mogul and Beats inventor Dr Dre and renowned gynaecologist Dr Drai (real name Draion M Burch).

In brief, Dr Dre attempted to stop Draion M Burch from registering the name “Dr Drai” claiming that it was too similar and phonetically identical to his, and therefore it was likely to cause confusion amongst the general public.

Dr Drai responded by arguing that there was no risk of confusion “because Dr Dre is not a medical doctor nor is he qualified to provide any type of medical services or sell products specifically in the medical or healthcare industry”.

Ultimately the US Trademark Office sided with Dr Drai over Dr Dre because of the failure to show “that a connection would be presumed in the mind of the consuming public when Applicant’s Dr Drai marks are used in connection with its applied-for goods and services”.

Whilst the specifics of the case are not incredibly important given the judgment is based on US law, it does serve as a useful general point to highlight a similar concept in English law in respect of trademarks and their protection.  Under English law, there are 48 different classes of goods and services in which a trademark can be registered under and, if granted, this then stops anyone from registering a similar or identical name in that same class.

However, sometimes a trademark is not capable of being registered.  There are a number of reasons for this; one of which is that the trademark is too descriptive of the services that it provides, and so the owner of the brand needs to rely on the common law right of passing off.

In order for the owner of a brand or trademark to stop another party from using the brand or trademark, they traditionally need to establish three things:

  1. that there is goodwill or a reputation attached to the goods or services, i.e. the longer you have been operating under your brand, the better;
  2. that there has been some confusion, i.e. that the ordinary person in the street might think the services/goods are linked to the other brand; and
  3. that there has been some damage, i.e. you have suffered loss as a result of the other party’s actions.

As highlighted above, had Dr Dre attempted to take action against Dr Drai, it is likely that the UK Trademark Office would have come to a similar decision to its US counterpart.  There simply isn’t any evidence of confusion between the two widely contrasting areas of business.  If on the other hand Dr Drai decided to try his hand at rap, then Dr Dre would have had a very good argument.

Pete Konieczko-Hansom

Pete Konieczko-Hansom
Corporate and Commercial Team
0113 227 9384

Posted in Intellectual Property | Leave a comment

Addressing the ‘imbalance’ – Civil Partnerships for heterosexual couples

Theresa May, the Prime Minister has announced today that heterosexual couples in England and Wales will soon have the choice of a Civil Partnership stating that by “extending civil partnerships, we are making sure that all couples, be the same-sex or opposite-sex, are given the same choices in life”.

This will provide a significant change for heterosexual couples who previously, would only be able to marry providing them with legal protection. There are estimated to be at least 3.3 million unmarried couple families currently living together in the UK. The introduction of a civil partnership will offer couples the opportunity to make a personal choice and commit to either a civil partnership or a marriage, offering them more legal protection than they have as a cohabiting couple. The government’s proposals are therefore intended to provide greater security for unmarried couples and their families.

The move puts an end to the ‘blatant inequality’ that was identified by the Supreme Court in June this year where Miss Steinfeld and Mr Keidan won their legal bid when the Judge found that the Civil Partnerships Act 2004 was incompatible with the European Convention of Human Rights. Miss Steinfield and Mr Keidan wanted a civil partnership and the non-availability of civil partnerships for heterosexual couples was said to be a breach of human rights law. It is likely that this significant change has been announced now in response to this decision.

However, from a legal perspective there is no current difference between the financial claims that are available on either the breakdown of a civil partnership or a marriage and therefore deciding between the two is really a matter of personal preference. Martin Loat, chair of the Equal Civil Partnerships campaign group hailed the announcement an “important step forward” and we look forward to a firm date for the reform being set.

This decision will however not change anything about the legal rights of couples who simply cohabit but do not marry and do not have a civil partnership. Reform of that area of law remains long overdue.

Paul Lancaster

Paul Lancaster
Family Law Team
0113 227 9215

Posted in Family Law | Leave a comment

The reaction of Data Protection Commissioners throughout the EU to Facebook’s latest data breach


Last weekend news broke of a data breach at the Conservative Party conference via an app, prompting predictions of an embarrassing GDPR fine for the party currently in power. The limelight for this data breach was wholly stolen by Facebook who revealed news of the largest ever data breach in the history of its company on the morning of Friday 28 September 2018 (Pacific Standard Time).

The attackers exploited vulnerability in the site’s ‘View As’ feature to gain access to user accounts and control them. It was speculated that at least 50 million accounts could have been compromised. According to Facebook’s timeline, the disclosure on Friday came just before the 72-hour window under the GDPR, for disclosing the news to privacy commissioners throughout Europe.

Data Commissioners, Regulators and Courts

Ireland’s Data Protection Commission (DPC) stated Facebook’s initial notification to the regulator about the breach, sent on Thursday, “lacked detail” and it has requested further information from the company:

“The DPC is concerned at the fact that this breach was discovered on Tuesday and affects many millions of user accounts, but Facebook is unable to clarify the nature of the breach and the risk for users at this point,” the DPC said in an emailed statement to Forbes.

On the evening of Monday 1 October 2018 the DPC further mentioned that:

“…the number of potentially affected EU accounts is less than 10% of the 50 million accounts in total potentially affected by the security breach.”

The Information Commissioner’s Office (ICO) in the UK is still determining if its citizens were implicated:

“It’s always the company’s responsibility to identify when UK citizens have been affected as part of a data breach and take steps to reduce any harm to consumers.

“We will be making enquiries with Facebook and our overseas counterparts to establish the scale of the breach and if any UK citizens have been affected.”

The head of Germany’s antitrust watchdog Andreas Mundt told a conference on competition law in Berlin on Monday 1 October 2018 that he was “very optimistic” that his office would take action against Facebook this year after finding it had abused its market dominance to gather data on people without their consent:

“We are currently evaluating Facebook’s opinion on our preliminary assessment and I’m very optimistic that we are going to take further steps…”

Hours after it announced a massive security breach that affected at least 50 million of its users, Facebook faced a class action for the breach in a California court with two Claimants requesting relief and damages against Facebook, in the form of a fine under the California Civil Code.

On Tuesday 2 October 2018 the EU’s Justice and Consumer Affairs Commissioner Vera Jourova expressed concerns that Facebook had lost control of data security after the vast privacy breach:

“It is a question for the management, if they have things under control…The magnitude of the company… makes it very difficult to manage, but they have to do that because they are harvesting the data and they are making incredible money on using our privacy as the commodity,”

Jourova continued:

“I will know more … in hours or days but according to our knowledge, five million Europeans have been affected out of those 50, which is an incredible number…”

The size of Facebook’s potential fine

The GDPR states that companies must do enough to protect the data of their users or face the higher of a fine of 20 million Euros or 4% of their global annual revenue for the previous year. The latter, in Facebook’s case, would amount to $1.6 billion, according to an estimate from The Wall Street Journal.

A further dip in confidence and reputation

Facebook is still facing ICO (and in the United States – SEC, FBI, and FTC) probes due to the Cambridge Analytica scandal. Investors also seem to be walking away with share prices falling 3.4% after the company announced the breach on Friday.

Third party log-in data and the sale of personal data

Deakin University’s Cyber Security Research Institute professor Matt Warren said Facebook’s data breach meant users’ private conversations, photos and even check-ins could be exposed:

“Several users use a federated log in with Tinder, Spotify and Instagram, meaning their Facebook account can be used to log them in on those sites…The biggest risk with this is that users’ photos, data and location details could have been harvested in this breach…We could start seeing a trend of fake accounts using people’s posts and photos…On the dark net this data could be used as a potential way to make money by blackmailing users or it could be used as a harvest for email addresses to launch spam attacks.”

An investigation into the sale of personal data on the dark web marketplaces by Money Guru has revealed criminals can buy Facebook logins for just £3, and email logins for as little as £2.10. Money Guru also found hackers can purchase the majority of someone’s online life for £744.30 – details such as email addresses, usernames and details associated with accounts such as one’s true name, address and phone number.

What will the future bring

There have of course been other recent high profile breaches under the GDPR (such as British Airways’ disclosure in early September that hackers had for more than two weeks intercepted financial details of clients who made bookings) but none have been on the scale of Facebook’s breach.

Facebook will take comfort that no data breach has been litigated in an English Court since the GDPR came into force. At best, we have only a vague sense of what a strong or weak case would look like.

It is possible that Facebook will face a very large fine from the ICO and indeed other Data Commissioners, whose citizens have been affected. The question that a reasonable Data Commissioner will likely ask in the weeks ahead will be whether a company of Facebook’s size and reputation (who handle the personal data of EU citizens on a daily basis) had actually invested enough in security to avert a data breach of the size seen.

Tate Chakrabarty

Tate Chakrabarty
Associate Solicitor
Corporate and Commercial Team
0113 227 9260 

Posted in Company & Commercial Law | Leave a comment