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Development of Cybercrime Law in the United Kingdom

Development of cybercrime law in the United Kingdom

The enactment of computer crime specific legislation or cybercrime law in the United Kingdom can be attributed to a number of cases which highlighted the issue of absence of such legislation and the subsequent acquittal of individuals.

R v. Thompson

Firstly, in R v. Thompson,[1] the appellant in Kuwait, had fraudulently caused a bank to credit certain bank balances in England. The access was authorized, however, such access was used for an unlawful purpose. The Theft Act of 1968 was sought to be applied[2]. The primary issue was that of jurisdiction (Kuwait or England) as well as identifying the victim. The court held that for applying the Theft Act, the identification of a human victim is a prerequisite. However, in the present case, the computer system was deceived, rather than a human mind. This highlighted the inadequacy of the existing legal framework to deal with cases where computer was a victim of a crime, rather than a mere facilitator.

R v. Gold and Schifreen

Secondly, in R v. Gold and Schifreen,[3] certain individuals got access to the files contained in British Telecom Prestel Network by seeing the username and password entered by the authorized person, over his shoulders. The accused were charged under the Forgery and Counterfeiting Act of 1981. However, the court held that the accused cannot be prosecuted under the said Act as the use of recorded electronic information did not fall under the definition of ‘false instrument’[4]. Therefore, the act committed by the accused does not come under the ambit of the Forgery and Counterfeiting Act. The outcome of this case highlighted that new age crimes (cybercrimes) cannot be prosecuted under the traditional criminal laws.

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It is pertinent to note that there were a series of case laws wherein the court adopted a more liberal approach to include the new age crimes within the ambit of traditional laws. In Cox v. Riley,[5] the court held that ‘damage’ implies any injury impairing the value and usefulness. Such injury need not be apparent to the naked eyes. Therefore, deleting program from a computer-controlled machine, which renders it unusable, constitutes ‘damage’ under the Criminal Damages Act, 1971. A similar approach was adopted in R v. Whiteley[6].

The increasing instance of computer crimes, the failure of court to effectively prosecute individuals who committed computer crimes, and the significance of ensuring effective prosecution by broadening the scope of existing laws, had a combined effect which led to the enactment of the Computer Abuse Act of 1990[7] in the United Kingdom.

Originally, the 1990 Act brought within its ambit, three categories of offences-

  1. Unauthorized access to programs or data[8];
  2. Unauthorized access with further criminal intent[9] and
  3. Unauthorized modification of data[10].

In Ellis v. DPP,[11] section 1 of the Act was interpreted, and the court held that unauthorized access, even though in absence of damage, comes under the ambit of the 1990 Act.

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The 1990 Act addressed the issue of jurisdictional challenge in cases of computer crime by making it an offence to use a computer in the home country to commit a crime in another country and to commit a crime in the country from a computer in another country[12].

It is pertinent to note that the 1990 Act was not well equipped to deal with computer crimes per se in a comprehensive manner. The issue with respect to section 2 of the Act was highlighted in R v. Bedworth[13], wherein while proving intent, addiction was recognized as a defense. As a result, the Jury acquitted the accused.

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[1] R v. Thompson, (1984) 79 Cr App R 191.

[2] Theft Act, 1968, § 15.

[3] R v. Gold and Schifreen, CACD [1987] QB 1116.

[4] Forgery and Counterfeiting Act, 1981, s. 8(1)(d).

[5] Cox v. Riley, [1986] QBD.

[6] R v Whiteley, [1991] 93 CAR 25.

[7] Computer Abuse Act, 1990.

[8] Id., § 1.

[9] Supra note 18, § 3.

[10] Supra note 18, § 2.

[11] Ellis v. DPP, [2001] EWHC 362.

[12] Supra note 18, § 4.

[13] R v. Bedworth, 1991.

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Development of Telecommunication Law in British India

The communications system forms the basis of the economic development of a country and plays a key role in every aspect of an individual’s life. The communications system in India has come a long way from the use of telegrams in the 1850s to the extensive use of the Internet in the present times. It is pertinent to note that the foundation of telecommunications in India was laid by the British East India Company (referred to as ‘EIC’ hereafter), and was later developed by the British Government, under the British Crown.

  • Development of Telegraph services under the British regime

Research in the field of telegraph started in India way back in 1833 when a 24-year-old assistant surgeon with the East India Company (EIC), Mr. William O’Shaughnessy, started experimenting with electricity.[1] In 1839, he set up a 13.5-mile-long demonstration telegraph system near Calcutta.[2] During the same time, Samuel F.B. Morse was developing his own demonstration system back in the United States.[3] However, O’Shaughnessy was completely unaware of this development, and therefore, used a different code which was indigenously developed. On successful experimentation, he published a pamphlet about his work, but he was unable to catch the attention of the EIC.

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The state of affairs changed in 1847 when Lord Dalhousie was appointed as the Governor-General of India.[4] He showed real interest in developing public works like roads, canals, railways, and postal services in India. He also envisioned the potential of the telegraph invented by O’Shaughnessy and authorized him to build a 30 miles long line near Calcutta. This was the first experimental electric telegraph line in India which started between Calcutta and Diamond Harbour in 1851[5]. The success of this electric telegraph line incentivized Lord Dalhousie to authorize O’Shaughnessy to build telegraph lines across India.[6]

O’Shaughnessy completed the work assigned to him by 1854, and as a result, Calcutta was linked to Agra, Bombay and Madras by the telegraph network.[7] From 1851 till 1854, the telegraph was strictly limited to use by the EIC. In April 1854, first telegram was sent from Mumbai to Pune and electronic telegraph facilities were made open to use by the public[8]. Taking these developments and the subsequent need for legislation to regulate the establishment and management of electronic telegraphs in India into consideration, the Electronic Telegraphs Act of 1854[9] was enacted. The 1854 Act provided exclusive right to establishing telegraph lines in India to the EIC, however, the Governor-General of India in Council was given the power to grant the license to any person or company to establish a line[10]. The Act further established a separate Electric Telegraph Department[11]. The Act penalized the laying down of telegraph lines in contravention of the provisions of the Act.[12] It also penalized the persons who willfully caused interruption to the transmission of signals[13].

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The development of the telegraph system continued and by 1856, 4000 miles of Indian telegraph system was established connecting Calcutta, Agra, Bombay, Peshawar, and Madras.[14] It is believed that the Indian telegraph service played an instrumental role in suppressing the 1857 sepoy mutiny.[15] It proved to be a critical military tool by rapidly providing a reliable system of information which was used by the EIC to mobilize its troops. Owing to the significance of the telegraph network in suppressing the 1857 revolt, a number of Indians tried to destroy the same as an act of vengeance.[16]

The 1857 sepoy mutiny led to a significant change in power in the Indian colony. The Electric Telegraph Act of 1854 was repealed, and the Telegraph Act of 1860[17] was enacted to reflect the shift of power from British EIC to the British Crown. The 1860 Act brought two significant changes to its predecessor. Firstly, it gave the exclusive power previously enjoyed by the EIC to the Governor-General of India in Council[18]. The Governor-General also retained its power to grant licenses to private individuals and companies for establishing the telegraph lines. Secondly, considering the attempts of Indians to destroy the telegraph network post-1857 revolt, the Act of 1860 increased the number of penalties for intruding into the signal room[19] and cutting the line[20].

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The developments in the telegraph system in India were accelerated once submarine cables were completed between India and Britain in 1870.

The next significant step in the evolution of communications services in India was the enactment of the Indian Telegraph Act of 1876[21], which repealed the 1854 Act[22]. The 1876 Act was applicable to the whole of British India as well as British subjects in the Princely States[23]. The Act is considered as the first comprehensive legislation regulating telegraph services in India. It defined the terms like ‘telegraph’, ‘telegraph officer’ and ‘message’[24]. ‘Telegraph’ was defined as an electric or magnetic telegraph[25]. Just like the 1854 Act, the Governor-General retained his power of exclusive privilege and the right to grant a license under the 1876 Act.[26] The Act further increased the penalties for causing destruction to the telegraph network. The most peculiar feature of the 1876 Act was the provision for the deployment of additional police in places where mischief to telegraphs was repeatedly committed[27]. In such a scenario, the inhabitants of such a place were required to bear the cost of such deployment[28].

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After the 1876 Act came into force, in 1880, two private telephone companies namely Oriental Telephone Company Ltd. and The Anglo-Indian Telephone Company Ltd. approached the Governor-General of India to propose establishing telephone exchanges in India.[29] They were denied permission on the ground that the introduction of telephones was a Government monopoly and hence the Government itself would commence the work.[30] However, in 1881, the decision was reversed and Oriental Telephone Company Ltd. was granted a license for opening telephone exchanges at Kolkata, Mumbai, Chennai and Ahmedabad. The telephone came to India a little later in 1882.[31]

In 1883, the telegraph services were combined with postal services.[32] In the meanwhile, a Bill proposing the repeal of the 1876 Act was tabled to the Council. The Bill suggested modification of the definition of ‘telegraph’ to be in consonance with the developments in Britain. It also suggested the creation of a new category of penalties. This led to the enactment of the Telegraph Act of 1885[33]. The Act broadened the definition of ‘telegraph’ to include “appliances and apparatus for transmitting or making telegraphic, telephonic or other communications by means of electricity, galvanism or magnetism”[34]. The Act also created a Telegraph Authority, which meant the Director-General of Telegraphs and included any officer empowered by him[35]. Just like its 1860 and 1876 predecessors, the Governor-General enjoyed the exclusive privilege and the right to grant a license under the 1885 Act as well. The Act further granted the power to Government to take possession of licensed telegraphs to intercept messages[36].

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In 1888, overseas communications were merged with the Director-General of the Indian Telegraph Department.[37]

The next significant development took place in 1902 when cable telegraphs were changed to wireless telegraphs.[38] Therefore, in 1902, the Indian telegraph services went wireless. Furthermore, in 1914, a big administrative change happened. The Postal Department and the Telegraph Department were amalgamated under a single Director-General by amending the definition of ‘telegraph authority under the 1885 Act[39].

The 1885 Act underwent a number of changes in the years 1914, 1930 and 1937. As per the amendment of section 4 in 1914, the Government was given the power to establish and maintain wireless telegraphs on ships within Indian territorial waters and telegraphs other than wireless telegraphs[40]. This provision was further amended in 1930 to include the use of wireless telegraphy on aircraft[41].

  • Development of Radio broadcasting services under the British regime

Respect to radio broadcasting, broadcasting was introduced as a private venture through radio clubs in Calcutta, Madras, Bombay and Lahore in 1923 and 1924.[42] In June 1923, the Radio Club of Bombay made the first-ever broadcast in India. In 1927, Calcutta Radio Club was established. During this time period, there was a daily broadcast of 2-3 hours of music and talks. However, most of these stations faced liquidation within three years of their establishment due to insufficient finances.[43]

The year 1927 also witnessed an agreement between the Government and a private company named Indian Broadcasting Company Ltd. (IBC).[44] This agreement led to the setting up of the Broadcasting Service which began broadcasting in 1927 on an experimental basis in Bombay and later in Calcutta. However, IBC faced liquidation within 3 years of its establishment.[45] The government acquired its assets and established the Indian Broadcasting Service under the Department of Labour and Industries.[46] Since then, broadcasting has remained under the control of the Government in India.

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Following the establishment of the Indian Broadcasting Service, in 1935, Lionel Fielden was appointed the first Controller of Broadcasting.[47] In the same year, a private radio station, Akashvani Mysore, was set up.[48] In 1936, a radio station was commissioned in Delhi.

The next significant step in the development of radio broadcasting services in India was the renaming of the Indian State Broadcasting Service as ‘All India Radio’, or AIR in June 1936.[49] A new signature tune was added to AIR. The Delhi radio station, established in the same year, became the nucleus of broadcasting at the national level. In 1937, AIR was brought under the Department of Communications and in 1941, under the Department of Information and Broadcasting. The Department of Information and Broadcasting was again changed to the Department of Information and Broadcasting (I&B) on 10th September 1946.[50]

Radio broadcasting underwent considerable developments during World War II. By 1939, the entire country was covered by short-wave service. Taking into account the outbreak of World War, the programme structure of radio underwent a change to meet wartime contingencies. News and political commentaries were introduced and special broadcasts were made for the people on the strategic north-eastern and north-western borders.

  • Regulation of Wireless Telegraphy in the British regime

Wireless telegraphy in India developed in line with the development of radio services. One of the major sources of revenue for the Indian State Broadcasting Service was revenue from the licence fee for working of wireless apparatus under the Indian Telegraph Act, 1885. Owing to the lack of legislation dealing with the unlicensed use of wireless apparatus, the Indian State Broadcasting Service faced substantial revenue losses. To deal with the unlawful possession of wireless telegraphy apparatus, the Indian Wireless Telegraphy Act of 1933[51] was enacted.

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The 1933 Act defined terms like ‘wireless communication’ and ‘wireless telegraphy apparatus.[52] The Act prohibited the possession of wireless telegraphy apparatus without a license under section 4. The telegraph authority under the Indian Telegraph Act of 1885 was given the power to issue licenses to possess wireless telegraphy apparatus under the Act[53]. The act of possession of wireless telegraphy apparatus without a license was made a punishable offence[54].

  • The relevance of Communication Laws enacted in the British regime after the coming into force of the Constitution of India in 1950

When India became independent, there were over 7000 telegraph offices and about 300 state-owned telephone services, across the country. Furthermore, there were 6 AIR stations at Delhi, Bombay, Calcutta, Madras, Lucknow and Tiruchirapalli, with 18 transmitters, among which six were on the medium wave and the remaining were on short wave.

The legal regime governing the telecommunications sector in India developed to a considerable extent after independence owing to technological changes, however, it is pertinent to note that the government decided to adopt certain key legislation relating to the telecommunications sector which was in force during the British regime. The most significant adoption was the exclusive privilege over the telegraph service and right to grant a license, enjoyed by the Government over the telecommunications sector in the British regime. This status was adopted in the Constitution of India by virtue of Entry 31 of List I in Schedule 7 which puts ‘posts and telegraphs, telephones, wireless, broadcasting, and other like forms of communications’ in the exclusive domain of the Union List[55]. The then Prime Minister of India, Jawaharlal Nehru, was also of the opinion that the telecommunication sector should be retained by the Central Government owing to its criticality to the development of India.

The Telegraph Act of 1885 was amended in the year 1948 to substitute the word ‘Provinces’ with ‘India’[56]. Although the definition of ‘telegraph’ has been amended in the subsequent years to ensure that technological development does not leave out certain services from being regulated by the state, however, the basic premise of the 1885 Act has remained intact over the years.

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The Wireless Telegraphy Act, 1933 too is still in existence and retains most of the provisions of the original Act.

With respect to radio broadcasting services, All India Radio is in existence even today, under the control of the Ministry of Information and Broadcasting.

Therefore, the British regime did not only help India in laying the infrastructural foundations of communications, it also helped to develop a legal regime governing the same. This legal regime is still operational, with certain amendments aimed at adopting the dynamic nature of technology.

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[1] John H. Lienhard, Indian Telegraph, https://www.uh.edu/engines/epi1380.htm (last visited Apr. 20 2021).

[2] Id.

[3] Indian telegraph Service, INDIAN PHILATELY, http://www.indianphilately.net/indiantelegraph.html (last visited Apr. 20 2021).

[4] Lienhard, Supra note 1.

[5] Development of posts and telegraph during the British rule, https://madhyapradesh.pscnotes.com/modern-history/development-of-posts-and-telegraph-during-the-british-rule/ (last visited Apr. 20 2021).

[6] Lienhard, Supra note 1.

[7] Supra note 3.

[8] Maninder Dabas, Today in 1854, first telegrpoh was sent in India, INDIA TIMES (Apr, 27, 2017, 4:15 PM), https://www.indiatimes.com/news/today-in-1854-first-telegram-was-sent-in-india-between-mumbai-and-pune-here-is-all-about-the-telegraph-service-that-ende.

[9] Electronic Telegraphs Act, 1854, available at https://www.wipo.int/edocs/lexdocs/laws/en/in/in116en.pdf.

[10] Id, § 1.

[11] Supra note 9, § 7.

[12] Supra note 9, § 2.

[13] Supra note 9, § 9.

[14] Lienhard, Supra note 1.

[15] Michael Mann, The deep digital divide: The telephone in British India, 35(1) HISTORICAL SOCIAL RESEARCH 188, 200 (2010).

[16] Id.

[17] Telegraph Act, 1860, available at https://www.wipo.int/edocs/lexdocs/laws/en/in/in117en.pdf.

[18] Id, § 2.

[19] Supra note 17, § 9.

[20] Supra note 17, § 10.

[21] Indian Telegraph Act, 1876, available at https://www.wipo.int/edocs/lexdocs/laws/en/in/in118en.pdf.

[22] Id, § 2.

[23] Supra note 21, § 1.

[24] Supra note 21, § 3.

[25] Id.

[26] Supra note 21, § 4.

[27] Supra note 21, § 16.

[28] Id.

[29] Gopika G G, Growth and development of telecom sector in India- An overview, 16(9) IOSR-JBM 25, 26 (2014).

[30] Id.

[31] Id.

[32] Id.

[33] Telegraph Act, 1885, available at https://www.wipo.int/edocs/lexdocs/laws/en/in/in119en.pdf.

[34] Id, § 3(1).

[35] Supra note 33, § 3(6).

[36] Supra note 33, § 5.

[37] Id.

[38] Gopika G G, Growth and development of telecom sector in India- An overview, 16(9) IOSR-JBM 25, 33 (2014).

[39] Supra note 33, § 3(6).

[40] Act 7 of 1914.

[41] Act 27 of 1930.

[42] Growth and development, PRASAR BHARTI, https://prasarbharati.gov.in/growth-development-air/ (last visited 20 Apr. 2021).

[43] Id.

[44] Alasdair Pinkerton, Radio and the Raj: Broadcasting in British India (1920-1940), 18(2) JOURNAL OF THE ROYAL ASIATIC SOCIETY 167, (2008).

[45] Id. at 175.

[46] Id.

[47] Id.

[48] Supra note 42.

[49] K.C. Archana, 80 years of AIR: Remembering the golden days of All India Radio, INDIA TODAY (June 8, 2016, 3:51 PM), https://www.indiatoday.in/fyi/story/80-years-of-air-remembering-the-golden-days-of-all-india-radio-12987-2016-06-08.

[50] Id.

[51] Indian Wireless Telegraphy Act, 1933, available at https://www.wipo.int/edocs/lexdocs/laws/en/in/in037en.pdf.

[52] Id. § 2.

[53] Supra note 51, § 5.

[54] Supra note 51, § 6.

[55] Constitution of India, 1950, Schedule VII, List I, Entry 31.

[56] Act 45 of 1948.

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Development of Cybercrime Law in the European Union

At the European Union level, although the possibility of having a comprehensive legal framework dealing with cyber crimes was not a far stretched idea owing to the cooperation at the Union level, however, this idea was not considered until the late 1990s.

Taking into account the growing incidents of cyber crimes, their peculiar nature, and the essential element of international cooperation in this regard, a series of initiatives were taken at the EU level in the form of recommendations and Council conclusions. This was followed by the first legislative proposal by the Commission in early 1998 to deal with certain aspects of computer crimes, i.e. credit card frauds and forgery of non-cash means of payment. However, it was only in May 2001 that the Framework Decision on Combating Fraud and Counterfeiting of Non-Cash Means of Payment was adopted.[1]

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During the same time, the Council of Europe was taking a number of steps and engaging in negotiations, in collaboration with the G8 countries, USA, Canada, Japan, United Kingdom, Germany, France, Italy, and Russia, with respect to judicial cooperation in this field.  As a result, an agreement was reached in 1997 pertaining to an action plan to combat high-tech and computer-related crimes. One of the action plan’s initiatives is the 24/7 network of law enforcement contact points to combat cybercrime, which is now a part of the current legal framework at the EU level. This network furthers the objective of international cooperation, specifically with respect to the investigation of cybercrimes.

In October 1999, the G8 met again as a follow-up measure of the action plan. This follow-up concluded that the biggest roadblock in combating computer crimes is the identification and tracking of criminals in cyberspace. To overcome this roadblock, many principles were adopted to ensure transnational access to data, simplified mutual assistance, and general permission to access publicly available material in another state without express permission. These principles now form the basis of the current legal regime at the EU level[2].

Meanwhile, the European Committee on Crime Problems[3] (CDPC) decided to set up a committee of experts to deal with cyber-crime in November 1996. Subsequently, the Report submitted by Professor H.W.K. Kaspersen concluded that “it should be looked to another legal instrument with more engagement than a Recommendation, such as a Convention. Such a Convention should not only deal with criminal substantive law matters but also with criminal procedural questions as well as with international criminal law procedures and agreements”.[4]

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Taking into account the Report submitted to the CDPC, the Council of Europe was successful in formulating the Convention on Cybercrime[5], with an aim to bring minimum harmonization in the acts termed as ‘cybercrime’ in the Member States of the EU.

The Explanatory Report of the Cybercrime Convention highlights the changing nature of crimes and the subsequent need to develop a legal framework to prosecute such crimes exclusively. It states that-

“The technological developments have given rise to unprecedented economic and social changes, but they also have a dark side: the emergence of new types of crime as well as the commission of traditional crimes by means of new technologies.[6] Criminals are increasingly located in places other than where their acts produce their effects. However, domestic laws are generally confined to a specific territory. Thus, solutions to the problems posed must be addressed by international law, necessitating the adoption of adequate international legal instruments”.[7]

The Convention on Cybercrime adopts a holistic approach in dealing with both substantive and procedural aspects[8] of cybercrimes at the EU level. Section 1 of Chapter II covers both criminalization provisions and other connected provisions in the area of computer or computer-related crime by defining nine offences (illegal access, illegal interception, data interference, system interference, misuse of devices, computer-related forgery, computer-related fraud, offences related to child pornography and offences related to copyright and neighbouring rights) grouped into four different categories (offences against the confidentiality, integrity and availability of computer data and systems, computer-related offences, content-related offences and offences related to copyright and neighbouring rights)[9]. It further deals with ancillary liability and sanctions[10].

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Furthermore, the Convention also contains provisions for traditional as well as computer crime-related mutual assistance and extradition.[11] It also provides for transborder access to stored computer data without mutual assistance, either with consent or without consent, in the case of publicly available data. It also provides for the setting up of a 24/7 network to ensure speedy assistance among the Parties.

Lastly, at the Union level, to address the issue of cooperation at, the Union level, the European Network and Information Security Agency (ENISA) was established in 2004. ENISA was given the responsibility to develop expertise to enhance cooperation between public and private sectors and provide assistance to the Commission and Member States of the EU in their dialogue with industry for the purpose of addressing security-related problems in hardware and software products. It was also required to promote risk assessment activities as well as interoperable risk management routines.[12]

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[1] EUR-Lex, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32001F0413 (last visited May 3, 2021).

[2] These principles can now also be found in the Cybercrime Convention.

[3] Decision CDPC/103/211196.

[4] Salaheddin J. Juneidi, Council of Europe Convention on Cyber Crime, IPICS (2002).

[5] The Cybercrime Convention.

[6] Explanatory Report to the Cybercrime Convention, part I(5).

[7] Explanatory Report to the Cybercrime Convention, part I(6).

[8] Supra note 29, chapter II, § 2.

[9] Supra note 29, chapter II, § 1.

[10] Supra note 29, chapter II, §1, title 5.

[11] Supra note 29, art. 25.

[12] ENISA, https://www.enisa.europa.eu/ (last visited May 6, 2021).

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Rule Of Law in Globalising World

The concept of rule of law finds its origin in the rulings of Chief Justice Sir Edward Coke[1] wherein he emphasised the significance of the King being under the law. However, it was only later that A. V. Dicey in his book: Introduction to the study of the Law of the Constitution, 1885[2], tried developing the concept further. He identified three components of the rule of law[3]–

  1. The supremacy of law
  2. Equality before law
  • Constitution as a result of ordinary law of the land (signifying the relevance of judge-made laws in England)

These components ensured that the rule of law acted as a constraint on the arbitrary exercise of power by the sovereign over its subjects. Therefore, his primary focus was on the way in which the law was made, applied, and enforced (process-focused approach), rather than the actual content of the law (end-focussed approach). This creates a lot of confusion with respect to the applicability of the rule of law. Modern democracies are founded on this principle, however, there are contrasting convictions about what ‘law’ is/should be.

Previously, the concept of rule of law was limited in its application to the sovereign territory of the state as the interactions were primarily intranational. However, over a period of time, with the advent of technology and the movement of people, goods and services across borders, such interaction became international, leading to cross-border disputes. Through the process of globalization, “political, economic, and technological changes have had globalizing ramifications that penetrate state borders in ways that transformed the core rule of law values in the international legal order and have created a shift away from the previously prevailing state-centric system.”[4]

With respect to the applicability of rule of law at the international level, globalisation has made the world one single market where individual and state entities interact with other individuals and entities on a daily basis. Therefore, such interaction cannot be left unchecked with respect to the foundation principle of the legal system i.e. the rule of law. Hence, there is a need to transpose the principle of rule of law, internationally, in light of the globalized world. The significance of rule of law at the international level in the era of globalisation has been pointed out a number of times[5].

However, this transposition is easier said than done. There are some inherent issues in applying the principle globally. Firstly, with respect to whether such a principle, which was originally developed to be applicable to the national legal system, can be applied to the international legal system, in the absence of a central sovereign authority. Secondly, if the answer to the first issue is affirmative, does such international application require a reconceptualization of the original concept of rule of law in order to adapt it to the legal issues arising at the international level. Thirdly, should the international rule of law be limited in its application with respect to the relationship of different sovereign nation-states, or should it also be applied to the relationship of different individuals who are subjects of such nation-states?

The first roadblock towards the applicability of the principle of rule of law in the globalised world today encompasses the fact that there is no common sovereign power in the international arena. There is United Nations, however, the international law establishing such an institution, is a soft law in itself. Besides, it is left to the discretion of the nation-states to decide whether they wish to be a part of the U.N. Since there is no common sovereign, it is often contented by scholars that the rule of law cannot meaningfully exist in the international arena.[6] This further entails the difficulty in ascertaining what constitutes “law” in the international context since there is no “one” sovereign, and no “one” law regulating the conduct of individual nation-states.

Secondly, the Dicean concept of rule of law highlights a very narrow and process-focused approach. Such a framework will not satisfy the end objective of rule of law at the international level, with respect to acting as a constraint against the gross violation of the fundamental human rights of the individuals by the sovereign states. Therefore, the rule of law, when transposed to the international level, should not only be process-oriented but also end-oriented.

However, the nation-states, in light of the growing interaction in the globalized world and the common aim to attain international peace and order, have taken the necessary steps to address these roadblocks in the applicability of the principle internationally[7]. Globalization has a significant contribution to the development of both domestic and international legal frameworks governing and regulating transnational transactions and activities. This has led to the development of international institutions tasked with the implementation of international law to secure peace, order and respect for basic human rights in the international community.

In today’s world, however, the significance of the rule of law stretches far beyond its application to traditional inter-state relations. The second aspect of the rule of law at the international level is the increasing attention of the international community on the impact of the international rule of law on individuals, with respect to the need to protect the inalienable human rights of the individuals. The international humanitarian law and human rights law has ensured that the basic human rights of the “individuals” are brought at the centre stage[8], and that every nation-state is obligated to protect them. These developments have placed legal constraints on the conduct of sovereign states in the international community and prescribed international standards which ensure that substantive aspects of justice are also catered to, at the global level.

However, this individual-focused approach to rule of law at the international level is being implemented at the domestic level, by making the domestic legal system in line with the international standards. In light of this, it is important to keep a check on the discretion provided to the national legal system regarding the substantive rules as rule of law cannot be considered effective in its true essence if the laws are unjust and oppressive.

 

[1] LTJ, http://lawtimesjournal.in/rule-of-law/ (last visited Feb. 1, 2021).

[2] A V DICEY, INTRODUCTION TO THE STUDY OF THE LAW OF THE CONSTITUTION (1885).

[3] Id.

[4] Ruti G. Teitel, Humanity’s Law: Rule of Law for the New Global Politics, 35 CORNELL INT’L L.J. 355, 357 (2002).

[5] The Rio +20 Conference on Sustainable Development Outcome Document, 2012; UN Millennium Development Goals etc.

[6] Charles Sampford, Reconceiving the Rule of Law for a Globalizing World, GLOBALISATION AND THE RULE OF LAW 9, 10 (2005).

[7] UDHR, ICCPR, ICESCR, Convention against Terrorism, Human Trafficking etc.

[8] United Nations Human Rights Committee, the International Criminal Tribunals (ICTY, ICTR), and the International Criminal Court (ICC) etc.

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Comparative Study of Penal Laws in Australia, U.K. and Canada

By: Ankita Pachouri

Enactment of a particular legal system is designed to deal with from the stage of commencement of crime through its trial and right to its meaningful end, thus criminal laws or penal laws were framed. Penal Laws are the set of laws determining the action as legal or illegal and any behavior that is harmful to any person or society, aims to threaten to cause bodily or mental harm and thus sentencing with appropriate penance.

In Australia, like the British law, a mere intention in criminal attempt is not prescribed. In Australia as with India, when a criminal prosecution is commenced, the burden of proof lies with the prosecutor. The general rule is that the accused person is ‘innocent until proven guilty’. The standard of proof is ‘beyond reasonable doubt’ which is the highest standard in law. The criminal law gathers its roots from English common law, with one state even drawing its laws from 19th century criminal code operating in India. Additionally, the principles of ‘Double Jeopardy’[1] and ‘Right to remain Silent’ are also held as essential.

The States have more control over criminal law as compared to the Federal Government. Criminal Laws govern not only the nature of crimes and the penalties thereof but also the procedures of trial and nature of evidence. There are several legislations that make up the criminal law in each Australian state.  Australia has nine criminal jurisdictions—

  • six state governments,
  • two territory governments
  • the federal government.

Each state has a collection of Acts and regulations establishing criminal offences and regulating the operation of the criminal justice system. The Criminal Code Act, 1995 of the Federal Government is an exhaustive piece of legislation containing 261 divisions.

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Criminal law is primarily divided along ‘Indictable offences’[2] and ‘Summary Offences. The term ‘indictable offences’ represents grave offences, with some states choosing to bifurcate them further into ‘minor indictable’ and ‘major indictable’ while ‘summary offences’ refer to comparatively lighter offences. If the Offender pleads guilty, the court can order a fine or a sentence or suspended sentence or imposing a bond or a home detention or community service or orders of restraining, compensation, forfeiture and so on. The trial starts if the accused pleads not guilty. An indictment is a formal document that the prosecution files with a court to commence a ‘trial on indictment’. This document presents a brief description of the charges faced by an accused. All offences, except summary offences are able to be tried ‘on indictment’. The prosecutor acts on behalf of the Crown and the cases are mentioned as against ‘the Queen’, which is similar to the Indian way where criminal offences are said to be against the entire society and hence mentioned as against ‘The State’.

The Jury which consists of 12 citizens who are chosen from the electoral rolls play an important role in Criminal trials. The judge explains the relevant laws to the jury and it is the job of the jury to derive facts from the evidence presented to them. Crimes committed by people under the age of 18 years are dealt with either by a caution or by the Youth court. Serious crimes by minors are referred to the Supreme Court. Another important facet of the Australian criminal law pertains to Coroner’s Court. The Coroner[3] has the power to enquire into unnatural deaths, accidents, missing persons cases amongst others.

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The historical development of the penal law trace back to the English Reformation and the acts that gave supremacy to the crown which led to the development of the penal laws in United Kingdom. After the British reformation, the penal laws of the United Kingdom passed against the Roman Catholic of England and Ireland penalising their practice and hence imposed civil Penalties on them. During 16th and 17 the century, numerous acts were passed determining the imprisonment, fines in case of participation and also death penalty in case of practice by the Catholic priests in the territories of United Kingdom. Many rights were barred to them, like, right to vote, right to own land, right to teach their ideas, etc. But later all these discriminatory penal laws were removed especially during 1778-93 and other further corrections were made in the penal laws of the United Kingdom. Civil penalties were imposed on the people who developed the sacrament towards the Rome and not towards the king headship. The English Parliament passed the two most important acts, i.e., Clarendon Code[4], the Test Act[5] and the Toleration Act[6].

There is no penal code in the United Kingdom, rather there are three different criminal justice system:

  • Scotland
  • New England
  • Wales

The sources and explanation of the criminal laws are to be found in individual Acts such as:

  • Parliamentary and statutory laws
  • Decisions by judicial bodies, particularly, the Court of Appeal

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The definitions of various offences are found in the respective rule books, like, theft, burglary are defined in the Theft Act,1968. The introduction of new laws has to be done to both the House of Commons and also the House of Lords. Then on being successfully passed it becomes the Acts of the Parliament. Common law is also a major source of criminal law which is framed from the customs and laws people generally follow. The acts like Homicide Act 1957, Murder (abolition of Death Penalty) Act 1965 and the Criminal Justice Act 1991 are the statutes which set out the punishments and defences to them. The adversarial principle provides the logic in determining the nature of the crime and also its operations. After providing the evidence, the court forms a jury, stipendiary, magistrate or a panel of magistrates depending upon the seriousness of the crime. As said above about the adversarial system, it does not expect a person to be innocent or culprit but only whether guilty or not. Mostly crime is proven by the culprits on their own admission of the guilt. The abolition of the Criminal Act of 1967 demolished the difference major and minor crimes and further added the concept of:

  • arrestable crime: crime in which the punishment is fixed by law
  • non arrestable crimes: Crime in which finds no mention under the rule of law.

 

The laws of U.K., like Australian law, classifies offences into three categories for procedural purposes;

  • indictable only: offence requiring a formal document which sets out charges about a person and tried only in the crown court. E.g. kidnaping, robbery, rape, etc.
  • triable-either-way: offence which can be dealt infront of either magistrate’s court or crown court. E.g. theft, assault, etc.
  • Summary: offence whose proceedings are held in the magistrate’s court. E.g. drink and drive, less serious assault, etc.

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The criminal law of Canada finds its genesis in its founding document called as the Constitution Act 1867 which gave sole authority to Canadian parliament to make criminal laws. Section 91 of the Canadian Constitution describes criminal law in federal Parliament as the sole jurisdiction. In the year 1892 the government of Canada passed a law called as the criminal code as it amalgamated crimes and criminal law procedure into a single statue which has witnessed plethora of amendments in the past. The Canadian criminal law has certain fundamentals similar to that of India viz- ‘’presumed innocent until proven guilty’’. The Criminal Code, a wide-ranging Code which contains 28 ‘parts’ which contain offences under various heads including Terrorism, currency and Public Morals is the behemoth governing Canadian criminal justice. There are different statues to govern specifically on a subject matter. The Supreme Court, established under constitutional reform act 2005, is the highest and final court of appeal in the criminal cases from England, Wales and Ireland.

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There are two levels of crime in the system namely,

  • federal level crimes
  • regulatory or provincial offences

The former crimes are more serious in nature and deal with murder, arson, fraud etc. and the latter offences are comparatively of non-serious nature. All the levels however unanimously provide assistance in prosecution and investigation of the federal crimes. Offences which are relatively minor are referred to as ‘Regulatory Offences’. The Australian and British principle of ‘innocent until proven guilty’ is seen here along with the requisite standard of proof being to prove the guilt ‘beyond reasonable doubt’. Canadian criminal law looks at crime from two aspects- intent and action. It is essential to prove both in most of the cases.

The criminal code is comprehensive and elaborate however there are certain subjects which are not covered under the code for which there are separate federal statutes. E.g.-Controlled Drugs and Substances Act are enacted.

Canada displays ‘Supremacy of the Constitution’ and all laws which are inconsistent to the Constitution, be them of civil or criminal nature, are to the extent of the inconsistency, of no effect. The Rule of Retrospective application of criminal laws does not exist. Additionally, the Courts follow precedents laid down in previous rulings to ensure that the rule of law is applied justly across cases. There exists a two-tier federal polity structure with the powers divided between the Federal government and the provincial government. The Parliament was granted powers to legislate Criminal laws including the procedural aspect of it. Similarly, the provinces have authority to legislate their own laws. In case of a dispute between the two, the laws passed by the Parliament shall prevail over those of the State. The appointment of Judiciary at both the Supreme Court and for the Provincial Courts is done at the Federal level.

The federal government of Canada, unlike Australia, has exclusive jurisdiction to enact criminal law and the provinces have the authority to administer it. The provinces have their own regulations, authority and procedure for quasi-criminal offences (regulatory offences)[7]. During administration of criminal law each province has specific powers with regards to appointment of judges for provincial court, hiring prosecutors etc.

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As mentioned above the criminal code not only incorporates conduct which constitutes offences but also procedures to be complied during the process. The preliminary portion of the code consists of offences dealing against property, against person, offences relating to sexual nature etc. Post that the code describes the procedures dealing with the aforesaid offences and the sentencing options. A special Act for offenders who are aged 18 or younger- The Young Offenders Act exists which stated that a child younger than 12 years cannot commit a crime. The Canadian criminal code has in the recent past focused intensively in looking after the needs of the victims and also at alternatives to truly reform the criminal.

 

In the recent past, due to significant shift in the functioning of the society there has been a paradigm shift in the social, economical and technological arenas which consequently resulted in advent of new offences dealing with information technology, banking system, credit card system etc.  requisite amendments have been made routinely to be abreast with the changes.

As with the British and Australian laws, the Canadian criminal jurisprudence considers a crime as an act that is committed against the entire society. The concept of Mens Rea or guilty mind which is a mainstay of the Common law is seen here though not with as much power. The term itself is not defined in the Criminal Code, yet a substantial number of judgments have required that the proof of guilt with the perpetrator be proved.

The countries like Canada, Australia consists of a specific punishment for specific crime whereas in England there is no such specific code. Punishments are decided by the statutes and Parliament from time to time while others are supervised under common law.

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No precise line for distinguishing between non-punishable preparation and punishable attempt has been made in any criminal or penal law system of any country. They say that any behaviour that generates any suspicion or apprehension in the mind of an observer is likely to be punishable in the eyes of law too.

[1] Means an accused cannot be charged for the same offence twice (also “non bis in idem”)

[2] Offences where defendant has a right to trial by jury

[3] Is a public official

[4] Series of Parliamentary Acts aiming at establishing supremacy of Anglican Churches

[5] Religious test for public offices, imposing penalties on Roman Catholics

[6] Freedom of worship to all non-conformists

[7] E.g.: driving with undue care and attention, illegal dumping of waste, etc.

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Online legal courses

E-Commerce Contracts and the clauses covered under it

By: Alok Rao

Introduction: –
E-commerce is a form of business model, or segments of a larger business model, enabling a company or person to conduct business on an electronic network, typically the Internet. However, there is no specific meaning of the term e-commerce, which is usually used to denote a form of doing business by electronic means rather than by conventional physical means. E-commerce questioned companies’ traditional system trading with customers, putting together diverse business models that empowered consumers.

The most popular business models facilitated by e-commerce are:

  1. B2B: Business to Business (B2B) explains trade transactions between different companies, allowing foreign companies to develop new partnerships with other companies. As between the manufacturer and the wholesaler, or between the wholesaler and the retailer.
  2. B2C: Business to Consumer (B2C) defines companies’ operations providing end customers with goods and/or services. There has always been a direct interaction between companies and customers, but with e-commerce, the traction has been gained in such transactions.
  3. C2C: Business to Consumer (C2C) includes electronically facilitated transactions between consumers through third parties. Traditionally, customers have had interactions with other consumers, but only a handful of these practises have been of a commercial sort.
  4. C2B: Customer to Business (C2B) involves customers supplying goods/services to businesses and generating value for the company.
  5. B2B2C: This is an alternative to the B2C model, and there is an external intermediary sector in this form of the model to assist the first business transaction with the end customer. For example, Flipkart is one of the popular e-commerce portals and offers a stage for customers to buy a wide variety of items, such as books, music, CDs, etc.

As a result, the e-commerce world may appear uncomplicated and economical; there are several legal considerations that an e-commerce company must seriously consider and bear in mind before beginning and while carrying out its operations.

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E-commerce law in India: –

Information Technology Act, 2000
The first ever e-commerce legislation passed by India’s Government was the Information Technology (IT) Act 2000. It was an act to give effect to the UNCITRAL Model Law on Electronic Commerce, 1996. On 30 January 1997, the General Assembly of the United Nations adopted a resolution commending the Model Law on Electronic Commerce for favourable consideration by the Member States as a Model Law as they pass or amend their rules, given the need for uniformity of the law applicable to alternatives to paper-based methods of communication and storage of information.

The IT Act’s primary purpose was to include legal recognition of transactions carried out through electronic data exchange and other electronic means of communication, generally referred to as electronic commerce (e-commerce). The IT Act 2000 facilitates e-commerce and e-government in the region. It includes guidelines on the legal recognition of electronic records and digital signatures rules for the allocation of e-records, the process and manner of reception, the time and place of dispatch and the receipt of electronic documents. The Act also sets out a legal system which sets out penalties for various cyber offences and crimes. Significantly, under the Act, the Certification Authority is the focal point around which this Act revolves, as most of the provisions relate to the Regulation of Certification Authorities, i.e., the appointment of a CA Controller, the licensing of CAs and the recognition of international CAs. It has also punished crimes such as hacking, damage to the source code of the machine, publication of information that is obscene in electronic form, violation of confidentiality and privacy, and fraudulent granting and use of digital signatures. It also provides civil liability, i.e., cyber contraventions and criminal infringements, fines, the establishment of the Adjudicating Authority and the Cyber Regulatory Appeal Tribunals.

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The relevant provisions of the Indian Panel Code, 1860, the Indian Evidence Act, 1872, the Banker’s Book Evidence Act, 1891 and the Reserve Bank of India Act, 1934 were also amended to resolve the related issues.

Information Technology (Amendment) Act, 2008
India incorporated the Information Technology (Amendment) Act, 2008 to apply the UNCITRAL Model Law on Electronic Signatures, 2001 in India. The IT Act of 2000 was modified to make it technologically neutral and accepted electronic signatures over-restrictive digital signatures. The Act incorporated several amendments, such as implementing the principle of e-signature, the modification of the definition of intermediary, etc. Also, the State asserted unique powers to monitor websites in order, on the one hand, to protect the privacy and, on the other hand, to control potential misuse leading to tax evasion. It is important to note that this Act acknowledged the legal validity and enforceability of digital signatures and electronic records for the first time in India and concentrated on protected digital signatures and secure electronic documents. These reforms were implemented to reduce the occurrence of electronic forgeries and promote e-commerce transactions.

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Legal Validity of Electronic Transactions in India: –
There are numerous legal concerns related to the formation and legality of electronic transactions, such as online contracts and compliance issues, which are dealt with below.
Formation of an E-Contract
The most popular types of e-contracts are clickwrap, search wrap and shrink wrap contracts. The terms and conditions of such agreements shall be made available to the contracting party in a manner which is substantially different from the standard paper contracts. By clicking on the wrap contract, the party’s affirmative approval is made by checking the ‘I agree’ tab with a scroll box that allows the acceptance party to access the terms and conditions.
In the case of a browser wrap arrangement, the website’s mere use (or browsing) makes the terms binding on the contracting party.
In a Shrink-wrap agreement, the contracting party can read the terms and conditions only after opening the box inside which the product (usually a licence) is packed. Such contracts are important in the context of e-commerce, primarily because of the form of products associated with shrink-wrap agreements.

Online Contract Validity
The Indian Contract Act, 1872, regulates all e-contracts in India, inter alia, mandate specific pre-requisites for a valid contract, such as free consent and legal consideration. The concern to be considered is how the Indian Contract Act’s specifications can be met with e-contracts. Also, the Information Technology Act, 2000 (‘IT Act’) enhances the legitimacy of e-contracts.
According to the Indian Contract Act, 1872, some of the essential specifications of a legal contract are as follows:

  • The agreement should be entered into with the free consent of the parties.
  • The agreement should be considered lawfully.
  • The parties should have the authority to enter into contracts.
  • The purpose of the contract is to be lawful.
  • Terms and conditions associated with the e-commerce platform are of the utmost importance in ensuring that the e-commerce agreement meets a legal contract’s specifications.

Unless expressly forbidden, clickwrap agreements would be enforceable and legal if the provisions of a valid contract set out in the Indian Contract Act of 1872 were met.

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There is no provision under the Indian Contract Act that written contracts be physically signed. However, the unique statuses do include the criteria for signature. Furthermore, the very essence of e-commerce is that it is virtually impossible to verify the age of someone who is trading online and who presents problems and liabilities to e-commerce platforms because the situation under Indian law is that a minor is not qualified to enter into a contract and that such an agreement is not enforceable against a minor.
In India, any instrument under which rights are produced or transferred must be stamped. The stamping of the instrument also depends on relevant stamp duty legislation passed by different states in India.

Standard Type of Online Contracts is not appropriate.
There is no well-developed case law in India as to whether the traditional type of online agreements is unwise. However, Indian courts have previously dealt with cases where contract terms, including common form contracts, have been negotiated between parties in unequal negotiating positions. Specific provisions of the Contract Act deal with unenforceable agreements, such as when public policy is opposed to considering the contract or subject-matter of the contract. The agreement itself cannot be valid in such situations.
The courts may place the individual’s responsibility in the leading position to show that the contract was not caused by undue influence.
In the case of ‘LIC India Vs. Consumer Education & Research Centre’
L.I.C. Of India & Anr vs Consumer Education & Research Centre & Ors. Etc. 1995 SCC (5) 482, the Hon’ble Apex Court of India interpreted the insurance policy issued by India’s Life Insurance Corporation by adding certain public interest elements. The court observed that ” in dotted line contracts there would be no occasion for the weaker party to bargain as to assume to have equal bargaining power. He has either to accept or leave the service or goods in terms of the dotted line contract. His option would be either to accept the unreasonable or unfair terms or forgo the service forever.”

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It is essential to provide well-thought-out terms that shape online contracts to ensure that there is an ample opportunity for consumers to familiarise themselves with the terms of such agreements. In addition to the above, there is also a range of other legal, tax and regulatory concerns, in particular Security Issues, Consumer Protection Issues, Intellectual Property Issues, Content Control, Intermediate Liability, Jurisdictional Issues and Tax Issues, which need to be taken into account when dealing with e-commerce transactions.

Conclusion: –
Rapid growth in e-commerce has generated the need for vibrant and efficient regulatory frameworks to reinforce the legal framework crucial to the success of e-commerce in India. It has always been argued that poor cybersecurity laws in India and the lack of a proper regulatory system for e-commerce are why both Indians and the e-commerce industry face so many challenges in enjoying a consumer-friendly and business-friendly e-commerce climate in India. India does not have any dedicated e-commerce regulatory legislation other than the IT Act that governs India’s e-commerce and transactions. Therefore, the government should create a legal structure for e-commerce so that domestic and foreign trade in India will flourish so that fundamental rights such as privacy, intellectual property, the prevention of fraud, consumer protection, and so on are taken care of. The legal community in India needs the required expertise to direct entrepreneurs, customers, and even courts. The rapidly evolving market module can comply with existing legislation usually applicable to business transactions in standard modules. Simultaneously, it should ensure that the benefits of technology are unhindered by the judicious evolution of law by the learned interpretation of the court, and there is still a consensus that specialized law governing and controlling some aspects of e-commerce is an obligation and an exclusive requirement.

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Contracts in the Sports Industry and the Clauses Covered Under it

By: Tanisha Yadav

INTRODUCTION:

Sport is that social phenomenon that has existed from a very long time in all levels of society. It represents the country’s culture and affects people’s lifestyle, health, values, social status, country’s relation, fashion trends, etc.

It is a type of game or contest where people get involved and perform physical activities to compete against each other following definite rules and regulations. Cricket, football, basketball, and volleyball are played by the number of people in different parts of the world.

The sport has now taken the industry’s shape from the last few decades to which we often called the Sports industry. It is a market with an economic dimension, which offers products, services, places and ideas related to sport, fitness or leisure time to its consumers[1] which also involves people, organizations and businesses who facilitate, promote, and organize activities and events based on sports.

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Contract in the Sports Industry:

Sports Contracts are similar to those contracts we come across in our everyday life; they are the mutual agreements that legally bind two or more parties.

Generally speaking, the sports industry’s Contract occurs between the sports organization/sports Agent and player/Athlete.

It defines the rights and responsibilities of the various participants in the business of professional sports.[2]

All the sports contracts are express in which parties give their consensus by words either spoken or written to enter into the Contract by way of offer, acceptance and consideration in Contract. Virtually, in sports contracts, implied contracts are not considered as a real contract as its very hard to prove the implied Sports contract.

Apart from offer, acceptance and consideration, an athlete’s capacity, mutual agreement, mutual obligation and subject matter are the essential ingredients in forming the sports contract. If the athlete is an adult, he can sign the contract, but his legal guardian must sign the Contract if the athlete is minor.

In India, Sports Contracts are governed by The Indian Contract Act, 1872, and The Industrial Disputes Act of 1947.

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Following are the considerable areas/ subject matter in which sports contracts takes place[3]:

  • Endorsement and merchandising Contract
  • Contract of Sponsorship Rights
  • Contracts between Player and managers or Agency contracts.
  • Deal of Membership rights in sporting clubs or organizations.
  • Contract of Image rights
  • The contract for appearances by players
  • Contract of Participation Rights and Obligations.
  • Presenter’s Contract
  • Contract of sale of media rights with event managers, Broadcasters and promoters.
  • Endorsement and merchandising Contract
  • Contract of Player transfer
  • Contract of Brand rights.

Player-Agent Relationship:

The player-Agent relationship is significant in sports contracts, as the player is sometimes so occupied in his sports that he doesn’t get time to negotiate Contract and handle everything. Sometimes the player faces difficulty in understanding terms of the contracts too. In that scenario, the player needs a person to trust, who can look and manage a player’s commercial relationships.

Player: Player is a person who actively participates in any sports requires endurance.

Agent: A agent is a person who carries a fiduciary relationship with the player in which he serves a significant role in negotiating contracts of the professional player and handles finances and public relations.

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TYPES OF SPORTS CONTRACT:

Professional Service Contracts: These contracts are also known as standard player’s contracts. These contracts are usually in a “boilerplate” form. The boilerplate form is the standardized forms in which standard or generic language is used.

These boilerplate forms are used where a state of Contract that can be reused in a new context without having any substantial changes in it.[4] Thus, the wording of these contracts can be used again and again without any alteration or reformation. If a professional athlete is part of a team, usually the athlete receives a standard player’s contract.[5] Hence, the professional service contracts are the same for all the athletes except the differences in salary and athletes’ bonus and involve an employer-employee relationship. Furthermore, these contracts also leave the scope of modification that can be modified by introducing collateral agreements.

Endorsement Contracts: Endorsement contracts are the independent contracts which do not require employer-employee relationship. An endorsement contract is one that grants the sponsor the right to use (i.e., license) the athlete’s name, image, or likeness in connection with advertising the sponsor’s products or services.[6]

Appearance Contracts: The appearance contracts are those contracts which pay the player/athlete for his/her appearance in any public event of any organization, institute or company by way of Contract. Thus, it is a contract between the venue and the athlete. It includes Sports camp, sports tournament etc. It sets out the time and dates for the appearance of an athlete on the venue location.

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Besides, if under any of the kind of contract, the contracting party extends beyond the scope of the terms of the Contract, under section 27 of the Indian Contract Act, 1872, i.e., restraint of trade, it would be void and not enforceable.[7]

CLAUSES COVERED UNDER THE CONTRACT:

Title: Its always essential that there should be a title of the Contract, through which one can identify the very nature of the Contract.

Information Clause: Under this clause, the information of the contracting parties is mentioned. Such as the name and address of the parties to the Contract. It also includes the information that on which date the Contract was made.

Player services Clause[8]: What type of service provided by the player is being discussed under this clause.

Player obligations Clause: This clause contains the obligations of contracting parties towards each other. It elucidates the rights, duties and responsibilities of the parties.

Term clause: This clause specifies the Contract’s duration—the time of Contract from the beginning to the end date. After completing the due date, the Contract automatically terminates, although it is subject to the renewal option of Contract to the parties.

Revenue-sharing Clause: If any organization or a company is hiring the player on the promise of sharing revenue, this clause discloses the information about the percentage and related details shared between the parties to the Contract.

Bonus Clause: This clause states that the player would get a bonus amount on his/her exceptional performance in sport.

Arbitration Clause: This clause expounds that if any dispute, controversy or any claim arises or if the issue related to breach of contract, non-performance or interpretation of Contract occurs then in that case, the matter will be resolved by the arbitrator on request of any of the parties. If parties do not agree on an arbitrator in any case, then in that scenario, both the parties will select one arbitrator. Then both the arbitrators shall select a third, and then the third arbitrator shall arbitrate the dispute.

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Board, lodging, and travel expenses Clause: 

This clause deals with the board, lodging and travel expenses of the player. It states that all the costs mentioned above will be borne by the club or organization hiring the player.

Choice of Forum Clause: Under this clause, the choice of law is mentioned through which contracting parties would like to govern, construe and enforce the Contract. As most of the sports contracts affect the parties belongs to different states, choosing a common law or jurisdiction can save parties from any further jurisdictional issues.

Remuneration and other benefits Clause: This clause states the player’s remuneration for his services.

No-Tempering Clause:  A no-tampering clause which avers that one player cannot attempt to entice another employee to enter negotiations with another club while under Contract to a different team.[9]

Confidentiality clause: Most contracts come with the confidentiality clause; certain things need to be confidential between the contracting parties only. Therefore, under this clause, contracting parties agree to keep the Contract’s contents and related matter confidential. This clause binds the parties to the Contract even after the termination of the Contract.

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Player restrictions/Hazardous Activities Clause: Under this clause, the player agrees that during the duration of the Contract the player will not engage in any other sport or any activity which can involve the substantial risk of any personal injury or which can impair the skill of the player in his sport. Apart from that, this clause contains other restriction on the player by the organization or club for the effective enforcement of the Contract. If the player breaches any of the rules and regulation mentioned under the clause or if the player becomes injured as a direct result in taking part in the given activity, the team/organization can transfer the financial risk onto the player.[10]

Non-assignment Clause: Sports contracts are personal services contract, and therefore it cannot be assigned or transferred to any other person, firm, corporation, or other entity without the prior, express, and written consent of the other party.[11]

Termination Clause: A termination clause gives the right to the contracting parties to terminate the sports contract. Commonly, it is based on the failure of the parties’ performance, breach of any material condition, warranties, or the express agreement. Furthermore, in most cases, the contract is terminated because the player is no longer fit for the sport or cannot meet the team’s need.

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Usually, the party seeking to terminate the agreement must give the other advance written notice of his intention to terminate the Contract. As long as the party seeking to terminate the Contract complies with the notice provisions, termination of the Contract is permissible.[12]

Remedies Clause: A breach of Contract can be remedied through monetary damages, restitution or specific performance. Although, the parties seek for the remedial measures which were promised under the clause.

These were the few clauses present in almost every sports contract; there are some other clauses whose inclusion mainly depends on the nature of the sports contract.

CONCLUSION:

In India, the sports industry is at its boom. There are so many sports contracts that are signed every day in this industry. It is quintessential that the contract drafter should take exceptional care while drafting the policies, procedure and clauses under the Contract. Because it prevents the parties from any predicament.

But, it’s so sad that due to lack of proper sports law, Indian sports industry witnesses scandals and unfair dismissal of players. Today, there is a dire need for the introduction of sports legislation. Because it’s the only ray which can address this situation and bring fairness in this industry. Thus, for the Indian sports industry’s consistent growth, a healthy balance in the enforcement of Contract is required.

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[1] IGI Global, What is Sports Industry, IGI Global, https://www.igi-global.com/dictionary/concurrence-of-sports-and-entertainment-industries/43855 (last visited on Jul., 17, 2020).

[2] Avinandan Chattopadhyay, Regulation and Liabilities of Parties in Sports Contract, Social Science Research Network, file:///C:/Users/HP/Downloads/SSRN-id2145520.pdf (last visited on Jul., 17, 2020).

[3] Farleys: Solicitors LLP, Sports Contracts and Agreements, Farleys, https://www.farleys.com/solicitors-for-you/sports-law-for-individuals/sports-contracts-and-agreements/ (last visited on Jul., 19, 2020).

[4] James Chen, Boilerplate, Investopedia (Sep., 03, 2019), https://www.investopedia.com/terms/b/boilerplate.asp.

[5] US Legal, Sports Contracts – Basic Principles, US Legal, https://sportslaw.uslegal.com/sports-agents-and-contracts/sports-contracts-basic-principles/ (last visited on Jul., 19, 2020).

[6] Supra note 6.

[7] Supra note 3.

[8] Anirudh Rastogi and Vishak Ranjit, E-Sports Player Contracts: Common Clauses And Potential Legal Issues In India, Ikigai Law: Mondaq (Jun., 18, 2020), https://www.mondaq.com/india/gaming/955392/e-sports-player-contracts-common-clauses-and-potential-legal-issues-in-india.

[9] Supra note 2.

[10] Adam Epstein & Josh Benjamin, Unique Clauses in Sport Contracts, Sh10an: WordPress, https://sh10an.wordpress.com/2015/04/11/unique-clauses-in-sport-contracts/ (last visited on Jul., 19, 2020).

[11] US Legal, Drafting Suggestions for A Sports Contract, US Legal, https://sportslaw.uslegal.com/sports-agents-and-contracts/drafting-suggestions-for-a-sports-contract/ (last visited on Jul., 20, 2020).

[12] Roshan Gopalakrishna & Vidya Narayanaswamy, Sponsorship Contracts – Reasonableness of Contractual Restraints, The Sports Law and Policy Centre (Feb., 10, 2011), https://sportslaw.in/home/2011/02/10/sponsorship-contracts-reasonableness-of-contractual-restraints/.

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Analysis of Insolvency and Bankruptcy Laws in USA, UK and UAE

By: Anant Tyagi

Earlier, the Insolvency and Bankruptcy law was not very clear in UAE and was very divided into various areas, resulting in complexity and confusion. After 2016 the new bankruptcy law has been created with the strong base to resolve any insolvency issues that the businesses face to protect. The bankruptcy law 2016 was established under commercial companies law to aid enterprises to which range under the small and medium-sized companies based in UAE and are facing economic challenges. The features of the bankruptcy law are as follows:

  1. Financial Recognition

The act aims to boost the concept of Financial restructuring by establishing a regulatory body known as the committee of financial reconstructing. A list will approve this particular committee’s role of experts who are well-versed in bankruptcy and financial reorganization to carry on the task.

  1. Composition

Under the new bankruptcy law, composition approaches are also available to assist the debtor in settling with the creditor. It is up to the creditors to accept the settlement or any part payment. For this arrangement to be possible, a condition must be fulfilled, stating that a debtor must not have stopped payment for more than 30 consecutive days. When the debtor makes an offer of composition, it is submitted to the court, which appoints an expert to analyze whether the composition of finance is sufficient or not.

If the offer of competition is accepted, the court will select an official in charge who will prepare a record of debtor’s creditors to submit to a court. Any composition has to be passed by most creators, which is equal to two-thirds of the debt and equally approved by the court.

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  1. Restructuring and bankruptcy

This particular part of biography law 2016 deals with the restructuring process by aiding the debtors in applying for affection plan for a bankrupt business. It also provides for declaring the bankruptcy to fulfil the obligations. Either of debtor or creditor can request for the commencement of the bankruptcy process. It is required that bankruptcy should be declared within 30 days by the debtor.

When the court accepts the application, the official is selected for selling and reconstruction of business. Insolvency and bankruptcy code process of liquidation starts, the secured creditors are given more preference in the rank than ordinary creditors.

  1. Bounced cheques

Under the UAE law, any non-UAE national person signatory to a bounced cheque faces potential criminal liability. Similarly, in bankruptcy law penal provisions are to be stopped if it is proven that specified check was issued before the commencement of composition/ restructuring. The cheque amount will be added to the total debt of the debtor.

  1. Penalties

The complaint of the new bankruptcy law 2016 has to be backed by a variety of available penalties. The penalty aims to provide both imprisonment and substantial financial fines.

With the help of the new bankruptcy law that gives ample options to bypass bankruptcy, which earlier had a severe penalty for companies going through a bankruptcy is a welcome step in insolvency and bankruptcy. The new is debtor-friendly and provides a way for the companies to repay their debts while continuing the business instead of the older laws that forced companies to shut their operations completely whenever any financial difficulty arose. This law will encourage companies from around the world to enter the UAE market.

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“A new law called corporate information insolvency, and governance act 2020 has been introduced by the United Kingdom with major reforms like “free-standing moratorium” and New Restructure plans. Under the new law, free-standing Moratorium will aid the companies to take shelter from creditor’s action. Under the insolvency and bankruptcy code 2016, whenever a company goes into the Moratorium period, distributor action save the company is not predetermined. Under the new law, free-standing Moratorium will ensure that a company can choose the company’s rescuing. The company is not forced to stick to the formal process, but if there is an informal process to rescue the company, it can even be used. Moratorium period is time-based to ensure that no misuse is taking place and the Moratorium is cancelled if it is final that a company cannot be rescued.” [1]

“Another form that has been introduced under the CIGA is the restructuring plan. The act had introduced a process in which the restructuring plan between the company and creditor required the creditors to vote and sanction the court. However, the cross-class cram-down method has been mentioned that states that the court has the power to give a plan sanction, it requires even if the majority of the class is against it.” [2]A restructuring plan can be approved by the court even if all the creditors are against it if the court feels that the creditors would not be worse off with the suggested Restructure plan than when no Restructure plan was approved.

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The cross-class cram-down method’s possible effect is that the companies will have more flexibility whenever they are proceeding with the restructuring plan even in those situations where the consent of all creditor classes cannot be obtained. But this method also has its challenges because it is mentioned that the court can overrule the descending creditors and sanction the plan if they feel that under the proposed restructuring plan they would not be worse off if no restructuring plan was approved. It burdens court with the responsibility of doing valuations, which is very contentious because a market valuation keeps changing according to the market forces. With the new covid crisis, it will be very problematic for the courts to assume the economic market’s evaluation and outcomes.

One of the significant reforms is that earlier whenever the company was going through financial difficulties and bankruptcy process, the company’s supplier would always seek to get out of the contractual obligation and sever ties with the company rendering the company without any support. The present act will now prohibit the supplier from terminating the contract with the company when it goes into the restructuring plan. The company can focus on paying back their debts and keeping ongoing their business instead of just closing everything down.

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The United States of America constitution has provided the US Congress with the power and authority to enact the laws of bankruptcy in the country. While exercising their power and discretion, the lawmakers passed the bankruptcy Reform Act of 1978 which has largely governed the country’s current bankruptcy law’s bankruptcy issues. The United States bankruptcy code is also referred to as tight 11. It contains the business and individuals’ procedure and practices to follow whenever they are filing for the bankruptcy under the United States Bankruptcy court. Under the US bankruptcy code, both companies and the individuals are allowed to file a bankruptcy petition and seek relief. The most common form of bankruptcy in the United States is mentioned in chapter 7, which also covers the liquidation process. The court appoints the trustee, and the trustee must collect all the non-exempt assets of the debtor.

When the creditors come to know about the company’s condition, it will force a company to file for bankruptcy. Still, apart from the UK and UAE law, the day the petition of bankruptcy is filed in the court, the business will cease to exist. It is up to the court-appointed trustee whether he allows certain operations of the company or not. When it comes to large companies, the trustee may decide to sell the company’s property loss-making division to another flourishing company. The preference is given to the secured creditors, usually the first ones to be paid back. As mentioned before, the US bankruptcy law provides for companies to file bankruptcy and offers individuals to file for liquidation in which they are allowed to keep specific exam properties, but it varies from state to state. The trustee will sell the other assets which are not under the exempt class to pay back the creditors. In the 2005 bankruptcy abuse prevention and Consumer Protection Act, an amendment was made that barred consumer debtors filing bankruptcy because it was felt that this provision would be misused by the credit card companies from losses, resulting in the customers going bankrupt. The act also provides for cross border insolvency state code incorporate with foreign courts to solve cross border insolvency cases. United States of America’s bankruptcy code is one of the oldest coats and is still prevalent without any new law being drafted in present time.

As we can see that the UAE bankruptcy laws for very old and had regressive laws with penal provisions which decided the companies from investing in UAE or any running companies in the UAE. Still, with the new law, they have provided a well-defined process to form restructure plans while running the business remove regressive penal punishments which is a welcome step and encourages the companies to continue their business while also returning the amount in debt instead of just punishing the people running the company and suffering Loss which is the ultimate goal of insolvency and bankruptcy laws.

“On the other hand, the United Kingdom has also introduced a new law for the information c and governance by giving major reforms like a free-standing moratorium that gives the company the freehand to determine the course of action which helps to rescue the company instead of just following the formal procedures and not getting any result. The UK has also given major power to the court to bypass the creditor’s Ascent for the restructure plan in case a court feels that this is the best records available for the company and is being blocked by the creditors for their greed of larger returns which will further worsen the situation.” [3] Meta reforms have also been provided by the act to ensure that the business does not close down and keep ongoing.

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The bankruptcy code of The United States of America probably the oldest but the most reliable piece of legislation for dealing with insolvency but no significant amendments in the laws has made it behind the other laws. While the other laws understand the concept that that can only be paid when the company keeps on running the US law focuses on shutting down the company the day the petition of bankruptcy is filed which is a very regressive step because are not only the chances of getting the debt go down but also the economy suffers when the company closes down and incoming times the US government has to bring amendments to resolve this issue.

[1] corporate information insolvency and governance act 2020 by Andrew Mills and Paul Durban

[2] Pricewaterhouse coopers guide on UK Insolvency and Bankruptcy reforms

[3] Bankruptcy Reform Act of 1978

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Competition Law Issues in the Fashion Industry

By: Cheshta Tater 

When one thinks of the fashion industry, the first words which come into one’s head are “designer wear” and “exclusivity”. A small consumer share but a considerable revenue and profit share of the fashion industry comprises luxury fashion.[1] Luxury fashion thrives on exclusivity and brand value and is always a status symbol, never a need. Given its exclusive and expensive nature, one cannot help but wonder how it rarely ever comes under the lens of the Competition Commission of India (“CCI”) or any other anti-trust regulatory body.

The objective of competition law is to create a healthy market environment by protecting and balancing the interests of businesses, consumers, and the economy. Lower but competitive prices allow consumers to make informed decisions about the substitutive products they wish to purchase while ensuring that no business abuses its dominant position. However, in the luxury sector of the fashion industry, the prices of products are always sky-rocketing. The much affordable products can not substitute them since the cost of a product, and its brand carries high social standing value, and are often one of a kind.

In the past few years, there have been several mergers and acquisitions in the luxury fashion sector worldwide, leading to a few dominant players. However, none of them has come under the beat for violating provisions of competition law. Through this article, the author would elaborate upon regulatory authorities’ findings regarding the monopolies present in the luxury sector. After that, the intersection of Intellectual Property Rights (“IPR”) and Competition Laws concerning the fashion industry. Lastly, the author would present their views on the necessity to check on the dominant players in the luxury and high fashion sectors.

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  1. Escaping the Watchdogs

The 1990s saw the boom of luxury fashion houses as well as fast fashion houses across the globe. With India’s globalisation in 1991, these brands became household names for the affluent and aspirational products for the middle class. One such brand was “Louis Vuitton”, the first label of the world’s largest luxury fashion group, LVMH.[2]

Since 1987, LVMH has acquired many luxury labels, both within and outside the fashion sector. Today, the group owns 75 luxury houses[3] in the industry of, inter alia, clothing, cosmetics, bags, watches, wines and spirits, and perfumes. In 2000, the joint acquisition of the fashion house Prada by LVMH and Fendi was approved.[4] The European Commission allowed for such a merger since these companies’ market share did not exceed the 25% limit.[5] Even though the 25% mark was crossed in the luxury handbags sector and leather accessories, the Commission chose to look at the luxury sector as a whole rather than dividing it into segments such as luxury clothing, luxury handbags, and luxury wines, and the likes.[6] The Commission believed that despite the merger, the parties would not be a dominant player in the market,[7] and the same was reasoned by stating:

  • Luxury items have low to no substitutability with other similar but non-luxurious products[8]; and
  • The purchase of a luxury good is linked to prestige rather than consumption of a specific item,[9] indicating that one luxury label’s product can not be substituted by a similar effect of another luxury label.

The goodwill, brand name, and the trademark value of a luxury fashion group is the most significant factor in deciding the cost of its goods and its worth as a status symbol. The intersection of IPR and Competition law is discussed in the following segment. This will help understand the exorbitant prices and the Commission’s reasons behind allowing the joint acquisition.

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  1. The intersection of IPR and Competition Law

IPR refers to a bundle of rights which give the owner the right to exclude others from accessing the product, subject to a limited period, i.e., it aims towards providing a sort of monopoly to the owner of the said invention by giving them the sole right to use or distribute it. On the other hand, Competition Law strives for the exact opposite and actively works towards a non-monopolistic market. Hence, a tussle arises between the two–which while talking of similar subjects, are complementary to one another in nature in certain areas and balancing them is essential for having a near-perfect market.

The denotation of ‘competition’ in the IPR and Competition Law are contextually different. The primary objectives of granting IPR encourage fierce competition among the intending innovators and simultaneously restrict the competition in many ways. At the end of the specified duration, the rights go to the public domain ending the completion. The objective of Competition Law is to prevent abusive practices in the market, promote and sustain competition in markets and ensure that the consumers get the right products at a reasonable price and better quality.[10]

While competition in IPR is reward-based, it aims to regulate and eliminate the unfair advantages wielded by monopoly holders in Competition Law. Competition Law also does not recognise the concept of right, while IPR on the other hand, by way of competition, allows for exploitation of rights, albeit in a restricted manner. However, in both, the basic concept of competition is the main driving force of respective legislation. While it may seem that the objectives of both are poles apart, somewhere down the line, their ultimate goals are the same, i.e., to achieve consumer welfare.

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When it comes to luxury fashion, a dire need is seen to strike a balance between the two laws. While IPR is essential to luxury brands as more than anything, it is the brand’s uniqueness, which makes it a luxurious one. For example, it is the red sole of Christian Louboutin’s, which attribute them their high value. The principles of IPR must remain intact to promote innovation and cater to the public who may value uniqueness as an important factor while purchasing. For the same, evils such as Counterfeiting must be avoided and actively punished not to bring down the value of said luxury brands and in the background, the importance of innovation.

However, it is also crucial that these exclusive rights do not turn into Monopolies which in turn do not just turn exploitative to other producers, but are also unfair to the consumer as because of this exclusivity, not only can be charged exorbitant prices for said ‘unique products’, but also result in lesser variety for the consumer to choose from. And hence, the balance between Competition Law and IPR needs to be struck perfectly to neither take away from the Innovators and Owners, but also not hamper the consumer.

  • Bring them under the lens.

As discussed earlier, luxury brands are known for their exclusive goods and sometimes, even their exclusive customers. A luxury handbag label, Birkin, is so exclusive that bags aren’t available in retail stores and only a very few loyal customers are even offered to purchase a Birkin handbag.[11] This exclusivity of the brand and its reflection lies in the originality and sophistication of the product’s creation, the qualitative level of the materials used, and the products’ marketing.

Considering such exclusivity of the brand and its goods, presupposing luxury products’ interchangeability does not set a good precedent. For instance, no other label’s handbag is at par with a Birkin bag when it comes to exclusivity and status. As established earlier, luxury products are not purchased for their utility but their reputation. Even a product of the same fashion house cannot replace the more exclusive product at such a point. Taking the example of Birkin, a Birkin bag cannot be substituted by a bag of Hermès, which is the parent company of Birkin. Their cost indicates the same. While the cheapest Hermès bag sells for $540, the cheapest Birkin doesn’t trade for anything less than $12000.[12]

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Suppose the interchangeability of luxury products cannot be presumed. In that case, the entire luxury market cannot be created as a single competitive space, i.e., a more transparent and distinct division of products is necessary to correctly evaluate competitiveness and dominance in the luxury market. Wines and bags cannot be created in the same market. Once distinct relevant market needs are defined, it will be apparent that LVMH is a dominant player in two sectors: luxury handbags and luxury leather accessories.[13] The pertinent question in competition law now arises: Is this dominant position being abused?

In LVMH’s case, it is crucial to understand that the group owns 75 brands, many of which are “must-have” goods for retailers, i.e., an essential product that retailers have to stock and display to meet their customer’s requirements.[14] This leads to lower bargaining power in the hands of the retailer so that they have to stock more from the house, apart from the most-have. In turn, this leads to the absence or reduced presence of other dwellings in such a boutique because the retailer only has so much capital to invest.

Companies are free to enter the market in a competitive market to compete with existing players, without immediately devoured by more powerful rivals. It is becoming difficult for existing players to compete with LVMH; one can only imagine how new players will be slaughtered in the market. LVMH’s turnover of 53.7 billion euros in 2019 marked its dominance as the strongest player in the luxury market. Gucci, the second-largest luxury fashion house, has still not reached the 10 billion euro turnover landmark.[15]

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The numbers speak for themselves, indicating that the abuse of a dominant market position is not always active but is passive. If too much emphasis is placed on active abuse, there may be a risk that the market’s actual situation and concerns are overlooked.

[1] McKinsey and Company, The State of Fashion 2020 (2020) <https://www.mckinsey.com/~/media/mckinsey/industries/retail/our%20insights/the%20state%20of%20fashion%202020%20navigating%20uncertainty/the-state-of-fashion-2020-final.ashx> 90-91

[2] Deloitte, Global Powers of Luxury Goods 2019: Bridging the Gap between the Old and the New (2019) <https://www2.deloitte.com/content/dam/Deloitte/ar/Documents/Consumer_and_Industrial_Products/Global-Powers-of-Luxury-Goods-abril-2019.pdf> 15, 42

[3] LVMH, Houses, <https://www.lvmh.com/houses/#:~:text=LVMH%20is%20home%20to%2075,exquisite%20caliber%20of%20its%20products.&text=Our%20group%20of%20wines%20and,no%20other%20in%20the%20world> last accessed 22 December 2020

[4] Commission approves joint acquisition of Fendi by LVMH and PRADA (European Commission, 26 May 2000) <https://ec.europa.eu/commission/presscorner/detail/en/IP_00_535> last accessed 22 December 2000

[5] Commission of the European Communities, LVMH / PRADA / Fendi (2000) COMP/M.1780 [16]

[6] ibid

[7] ibid [22]

[8] ibid [11]

[9] ibid [10]

[10] Shubhodip Chakraborty, Interplay Between Competition Law And IPR In Its Regulation Of Market (Lawctopus, 15 November 2015) <https://www.lawctopus.com/academike/interplay-competition-law-ipr-regulation-market/#:~:text=Intellectual%20Property%20Rights%20(IPR)%20consists,adverse%20effect%20on%20the%20market> last accessed on 23 December 2020

[11] Sarah Lindig, This Iconic Bag is Still the Most Exclusive in the World (Harper’s Bazaar, 14 June 2015) <https://www.harpersbazaar.com/fashion/trends/a11201/hermes-birkin-bag-most-exclusive-in-the-world/> last accessed 22 December 2020

[12] Hermès <https://www.hermes.com> last accessed 23 December 2020

[13] LVMH / PRADA / Fendi (n 6)

[14] Commission of the European Communities, Coca-Cola/Amalgamated Beverages GB (1997) IV/M.794 [136-138]

[15] George Arnet, Gucci on Track to Hit €10 Billion in 2020 (Vogue Business, 26 April 2019) <https://www.voguebusiness.com/companies/gucci-sales-reach-euro-10-billion> last accessed 24 December 2020

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Impact Of Covid-19 On Foreign Direct Investment and Related Laws

By Deepakshi Aeran

ABSTRACT

Covid-19 has locked up the world over. For such a deadly virus, not a single nation is safe. This condition is not the first time in the world. Earlier world encountered this form of deadly virus known as “influenza / Spanish flu” in 1918. After battling and coming out of that situation after 100 years, here stands a new challenge in front of the world. The question is that how this crisis has turned out for various nations. Covid-19 has hit the nations hard irrespective of it being a developed or developing ones; in every aspect possible. Stock markets have plummeted and many companies have to struggle with the economic damage. There is a great deal of uncertainty in global chains.

This article aims to bring light on how the pandemic has affected the Foreign Direct Investments and how governments are handling the havoc to come out of it with minimal damage, and may be taking some advantages for future.

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INTRODUCTION

Over the years, every nation government is altering their policies with respect to Foreign Direct investment[1] to improve their economy and to enforce condition on their achievement. The Emerging trend of increasing Foreign Direct Investment is too focused on the national safety concerns, for example last year UK government involvement was in the future contract between Advent International and Cobham plc.

In recent years, countries such as the United States have interfered in proposed foreign direct investment (FDI) transactions to resolve national security issues, with a particular focus on China. The Covid-19 pandemic not only impacted on healthcare and critical infrastructure from an FDI viewpoint, but also undermined companies in other sectors and made them easy targets for creditors and opportunistic buyers[2].

Furthermore, due to Covid -19 many countries have amended their foreign direct investment polices to control or to protect their economy. Companies those who are interested in multinational business they have to be aware of these new polices

Similarly, the article further deals with how various countries are working out with their policies and guidelines, like EC, UK, AUSTRALIA, INDIA etc.

EUROPEAN UNION

Just at beginning of April 2020, Germany adopted legislation that would allow regulatory authorities to examine whether the acquisition would lead to a likely disorder of public order or security (instead of a real threat to public order or security). While this amendment was recommended prior to the spread of Covid-19, Germany also proposes to raise the number of sectors in which FDI will require a primary focus, a move that appears to be driven by the pandemic.

Spain[3] has also formally introduced a provision for prior governmental approval for:

  • Non-EU investors purchasing 10% or more of or gaining management rights in or controlling Spanish companies engaged in sectors such as telecommunications, data processing or storage, electoral or financial infrastructure and sensitive facilities, vital technologies and dual-use products (such as robots and semiconductors, as well as biotechnology) supply of key contributors (such as raw materials and food safety) and sectors with access to or ability to monitor sensitive information;
  • Foreign direct investment where the investor is owned explicitly or implicitly by the government of another country.

Italy – one of the worst impacted by Covid-19 – has also extended the scope of sectors in which FDI would require a prior government inspection.

Prior to the pandemic, there was a growing propensity for the Italian Government to use its powers to review the FDI. However, on 7 April 2020, the Italian Government dramatically expanded its authority, both to new sectors and to sectors already subject to the FDI rule.

Specially, prior approval is now needed for acquisitions of 10% or more by non-EU-controlled investors in new sectors – banking, insurance, food and health. The inclusion of health (and likely insurance) as a strategic field seems to be a necessary reaction to the pandemic. It is interesting that these tougher guidelines have also been applied to EU-controlled investors by the end of the year.

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The French FDI regime has already been greatly improved by introducing the pre-planned changes that followed the pandemic. These wholesale amendments took effect on 1 April 2020 and, in short, expanded the spectrum of investment protected by the scheme, increased the list of strategic sectors to which the scheme applied, required substantive details to be given for approval, and increased penalties for non-compliance.

However, it was announced on 28 April 2020 that France would reduce the control limit for acquisition of non-European investors’ share capital of strategic French listed companies to 10% by the end of the year (against 25% at present).

This represents a major step-change from the pre-1st April 2020 regime by further restricting the control threshold, which was reduced to 25% just a few days earlier by the pre-planned reforms previously mentioned.

The whole reform comes in the sense of the French Government’s declaration of its intention to shield national companies from the danger of overseas takeovers during the COVID-19 crisis. Moreover, the French government has recently highlighted its comprehensive use of FDI powers in barring the acquisition by the US Teledyne of the French company Photonis (which develops applications for military use) – although the decision was not linked to COVID-19, it nevertheless represents a significant milestone.

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UNITED KINGDOM

The National Security and Investment Bill was released in the Queen’s Speech on 19 December 2019. The latest legislation follows the introduction of an EU system that would replace the current powers of the UK Government to deal with mergers and acquisitions under the Enterprise Act 2002.

The UK government will have power to “scrutinise investments and consider the risks that can arise from hostile parties acquiring ownership of, or control over, businesses or other entities and assets that have national security implications.”[4]

New powers apply to transactions in any industry, irrespective of the profitability or market share of the parties. The United Kingdom Government’s proposals are currently lacking in detail, but appear to build on those set out in its 2018 White Paper, which was included in the Advent / Cobham Agreement Warning. The three main components of the proposed law are as follows:

  • A notification system allowing businesses to flag deals with potential security concerns to the government for quick, efficient screening.
  • Powers to mitigate risks to national security – by adding conditions to a transaction or blocking as a last resort, plus sanctions for non-compliance with the regime.
  • A safeguarding mechanism for parties to appeal where necessary.[5]

AUSTRALIA

Given that Europe was declared to be the epicentre of the Covid-19 pandemic in March, the above-mentioned steps may have been anticipated. However, countries in other continents have also taken serious measures – for example, Australia has temporarily amended its FDI legislation with effect from 29 March 2020 in the national interest to deal with the economic implications of the spread of Covid-19, Following which all potential foreign investments subject to the Foreign Acquisitions and Takeover Act 1975[6], where the other requirements for notification are met, would now require prior regulatory approval, irrespective of size or existence of the foreign investor.

A number of temporary but substantial changes to the Australian FDI system were announced on 29 March 2020. The Australian Government described these steps as “important to safeguard national interest as the outbreak of coronavirus exerts intense pressure on the Australian economy and businesses” and thus indirectly recognised the possibility of taking over the troubled Australian economy. These adjustments effectively make all FDI subject to review for the duration of the pandemic by reducing the financial criterion for review in terms of target valuation to AUS$0.

This represents a significant constriction of the system, especially when combined with the already relatively low cut-off for review (20 per cent or lower in some cases). Moreover, this is a particularly significant change for investors from countries that have free trade agreements with Australia (such as the USA) – those investors may initially benefit from a criterion of approx. AUS$1.2 billion for investments in some (non-sensitive) industries.

The Australian reforms are thus broadly extended to all international investors (to the possible advantage of domestic investors) and are in contrast to the more focused approach adopted in Spain, France and India.

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THE UNITED STATES OF AMERICA

In response to COVID-19, the United States Government has not proposed any new restrictions on foreign investment in U.S. companies or any amendments to the authority of the Committee on Foreign Investment in the United States (CFIUS), an interagency government committee approved to investigate such transactions involving foreign persons.

However, as a consequence of defaults on loans, debt restructuring and investment opportunities, the pandemic may put those forms of lending transactions into the public eye of the CFIUS review that would otherwise normally escape scrutiny.

In addition, international investors seeking opportunities in this environment should be conscious that investments made under the aegis of lending or funding transactions that still be subject to transactions or investments protected by the CFIUS assessment[7].

INDIA

The trajectory of history is always influenced by unpredictable shocks, and the outbreak of COVID-19 is one such epoch-defining occurrence that restores international trade order and global supply chains. In the framework of multinational firms, in particular Multi-National Corporations (MNCs), trying to hedge potential output shocks, India has emerged as a promising and significant alternative link in the current global supply chains. The larger geopolitical scenario, India ‘s liberal FDI policy, the government’s sectoral and institutional reforms, both at central and state level, and India ‘s wide and greater than the mean consumer market are among the many factors that underscore India ‘s attractiveness as an FDI destination.

In India, the development of the manufacturing sector has been largely hampered by the legacy of property, labour and logistics, the most critical factors of development. The Government is building a land pool of about 461,589 hectares for new projects, dramatically reducing transaction costs for investors. India is also pursuing wide-ranging reforms on labor issues. Reforms in these crucial factors of production have opened up several opportunities for foreign investors to invest in India by sending out positive signals.

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Creating a strong base is a sine qua non for the growth and stability of the manufacturing sector, and investment in the sector needs to expand significantly to the maximum. A good reward system is known to be effective in channelling new investments. Recently announced production-linked incentive schemes for cell phone manufacturing, pharmaceuticals and medical devices have created a high level of interest among investors attempting to steal opportunities in these sectors. These schemes were developed with the intention of creating scale and size, with vertically integrated units, in the Indian manufacturing sector. Similar, initiatives for other sectors of strength are underway, and once unveiled, these schemes would further improve India ‘s position as a feasible alternative to China[8].

India is among the most liberal FDI policies in the world, where foreign investment of up to 100 per cent is allowed on an automatic basis in most sectors of the economy.

Foreign investment in only a few economic sectors is subject to limits on approval conditions or foreign investment ceilings. The number of sectors that are not open to FDI is small, and there are only a few industries, such as agriculture, where foreign investment is only approved for a restricted set of activities.

In addition, in the recently launched ‘Atma Nirbhar’ scheme[9], the honourable Finance minister launched a range of FDI related reforms. A declaration of an rise of up to 74% in FDI investment in the defence manufacturing sector is reflective of the government’s positive intention in the sense of FDI.

Over the period, the liberal FDI policy framework has helped India reap benefits of a greater inflow of foreign investment, which has risen faster than the country’s GDP growth rate. India’s GDP was $479 billion in 2001, and it is now $2.72 trillion. Around the same time, FDI inflows in India increased from $4.03 billion to $73 billion[10].

It is said that opportunities lie in adversity India is trying to leverage its plan to drive economic growth with a powerful manufacturing engine fuelled by rewards to attract FDI, and a wide domestic market. Moreover, with a renewed drive for changes, India is signalling pathways to the world that we welcome businesses.

CONCLUSION

The changes and developments made by various countries highlight the need for investors to carefully consider foreign investment. There may be many more changes and additions to the FDI policies to come and what restrictions we see is might be just the tip of an iceberg. Countries are posing restrictions and along with it trying to protect their economic and national interests as the virus is continuously spreading.

FDI is a major part of every economy and Covid-19 has really shackled the economies to the core. It is important for the nations to protect the domestic markets before focusing on foreign investments. And therefore, it is possible that other countries also impose barriers to its FDI, may be stricter, in long term in order to navigate through the storm.

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[1] OECD (2008), Benchmark Definition of Foreign Direct Investment, 4th edition, www.oecd.org/investment/fdibenchmarkdefinition.htm

 

[2] https://taxguru.in/finance/corona-impact-indian-economy.html

[3]Royal Decree-Law 8/2020, 17 March 2020: https://www.lexology.com/library/detail.aspx?g=177aae39-e8f4-4916-912c-5d5f758f1367

[4] Available at, https://www.lexology.com/library/detail.aspx?g=b6dbafd1-2b1b-4610-9260-ebf535b834a6

[5] Available at, https://www.mayerbrown.com/en/perspectives-events/publications/2019/11/uk-government-remains-committed-to-adopting-new-national-security-review-legislation

[6] Available at ministers.treasury.gov.au.

[7] Available at, https://www.reedsmith.com/en/topics/coronavirus-covid-19-resource-center-need-to-know-business-legal-issues

[8] Available at, https://www.mondaq.com/india/financing/923078/covid-19-impact-government-of-indiaamends-foreign-direct-investment-policy-to-regulate-chinese-investments-into-india

[9] Available at, https://www.prsindia.org/report-summaries/summary-announcements-aatma-nirbhar-bharat-abhiyaan

[10] Available at, https://www.news18.com/news/opinion/india-to-emerge-as-favourable-fdi-destination-post-coronavirus-2732193.html