LISBON TREATY ENTERS INTO FORCE
By Frederic Van den Berghe, Brussels & Eline Muyldermans, Brussels
Following its signature by the Czech Republic, which was the last EU Member State to sign the document into law, the Lisbon Treaty entered into force Dec. 1, 2009. It amends and renumbers the EU and EC Treaties, and renames the EC Treaty the "Treaty on the Functioning of the European Union" (TFEU).
Institutional Changes
The Lisbon Treaty abolishes the three-pillar structure1 and grants legal personality to the EU, which replaces the EC. It creates the permanent position of "President of the European Council," a post currently held by Herman Van Rompuy. The powers of the "High Representative of the Union for Foreign Affairs and Security Policy," who is also a vice president of the European Commission, a post currently held by Catherine Ashton, are also reinforced.
Decision Making
The treaty introduces qualified majority voting within the Council of Ministers in a number of policy areas, which include the protection of intellectual property, services of general economic interest, energy, control of comitology, and most former "Third Pillar" issues.
As of Nov. 1, 2014, a new double majority voting rule will apply within the Council of Ministers, requiring approval by at least 55% of the Member States representing 65% of the EU population. However, any blocking minority must consist of at least four Member States, even if the population requirement is not fulfilled.
The treaty further strengthens the European Parliament's powers. Co-decision between the European Parliament and the Council of Ministers becomes the "ordinary legislative procedure" and is almost generalized.
Division of Competences Between EU & Member States
The Lisbon Treaty divides EU competences into three categories: exclusive competences, shared competences, and competences "to support, coordinate or supplement the actions of the Member States." Pursuant to the principle of conferral, competences not conferred upon the EU in the treaties remain with the Member States.
Human Rights
Article 6 of the EU Treaty now refers to the Charter of Fundamental Rights of the EU, and grants it "the same legal value as the Treaties." It also provides that the EU shall accede to the Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR).
EU Court of Justice
The whole EU court system is renamed the "Court of Justice of the European Union," comprising three courts, the "Court of Justice" (formerly ECJ), the "General Court" (formerly CFI), and the Civil Service Tribunal.
The Lisbon Treaty extends the jurisdiction of the Court of Justice of the EU in a number of ways. First, it eases the conditions for the admissibility of actions brought by individuals against EU regulatory acts. To challenge such acts that do not entail implementing measures, individuals will no longer have to show they are individually concerned by the act in question, but only that it directly affects them. Second, it broadens the range of reviewable acts, which now include (1) decisions of the EU's bodies, offices or agencies, in addition to those of the EU's institutions; and (2) acts of the European Council, which the treaty recognizes as a separate institution. Third, through the abolition of the three-pillar structure, the treaty generalizes the court's prejudicial jurisdiction over the former Third Pillar.
Common Commercial Policy
The treaty yet again amends the scope of the EU's Common Commercial Policy (CCP), one of the five exclusive competences of the EU.
In the area of foreign direct investment (FDI), it creates considerable legal uncertainty by including FDI (traditionally considered to be primarily a Member State competence) in the EU's CCP, while stating that the division of competences between the EU and its Member States, including over FDI, is unaffected.
However, in the area of the commercial aspects of intellectual property, the Lisbon Treaty provides more clarity. By making clear that the EU is exclusively competent for agreements in the field of the commercial aspects of intellectual property, it finally settles an old debate concerning the scope of the EU's exclusive competence in that area.
Social & Environmental Policies
The treaty introduces a new "horizontal social clause," which calls for the mainstreaming of social goals into other EU policy areas. It also foresees an "emergency break" procedure, which enables a Member State to refer to the European Council a draft legislative act that "would affect important aspects of its social security system." Lastly, the objectives of the EU's environmental policy now also include combating climate change.
TERMINATING A CONTRACT – IF YOU WANT TO END IT, DO IT RIGHT!
By Dorothy C. McMahon, London | dmcmahon@mcguirewoods.com
Many reasons exist as to why a party might wish to terminate a contract when it comes up for renewal, or bring it to an end prior to the date originally included in the contract. In today's economic climate, many businesses have to find a way out of service and supply contracts they can no longer support. Negotiating out of these should be dealt with attentively to avoid the pitfalls and salutary lessons highlighted below.
Data Direct Technologies Limited v. Marks & Spencer Plc [2009] EWHC 6
In this case, the claimant (DD), a software licensor, sought payment of software maintenance fees allegedly due from the defendant (MS), licensee under the terms of a software licence. DD had made an agreement to licence software to MS for use in its business.
The agreement stated that maintenance and product schedules were to be incorporated into the agreement. The maintenance schedule provided that, following payment of a maintenance fee, MS would be entitled to receive extensions, enhancement, and other software changes without additional charge. The product schedule comprised a summary of orders for the supply of the licensed software, and was updated or varied as MS placed repeat orders. In the event of any conflict between the agreement and the schedules, the agreement had priority.
Subsequently, a dispute arose in relation to the wording of the clause that set out the payment terms for maintenance fees in an updated version of the product schedule. This relevant clause provided that "at the customer's option" annual maintenance for the relevant period would be a percentage of the licence fee. The issue for determination was whether the words "at the customer's option" meant that MS needed to elect whether to have maintenance and pay the charge and whether, if it did not so elect, any maintenance was payable.
It was DD's case that under the relevant clause in the product schedule, maintenance was payable in accordance with the maintenance schedule to the main agreement by virtue of which MS was obliged to pay for a maintenance fee, unless it gave 30 days written notice of its intention to cancel the maintenance service. MS contended it was only obliged to pay the maintenance fee if it exercised the option to have maintenance granted to it by the use of the words "at the customer's option" in the relevant clause to the product schedule.
It was decided by Mr. Justice Floyd that the combined effect of the relevant clauses in the maintenance schedule was that, if MS gave notice of cancellation at least 30 days before the due date, no maintenance fee was payable.
The clause in dispute related only to the licence extension to which the product schedule referred. However, upon proper construction, the nature of the software meant that the obligation to maintain it had to apply to all of the licensed software or to none of it, and this all-or-nothing nature of the maintenance obligation strongly supported DD's interpretation of the relevant clause.
On that basis, a reasonable reader of the wording in the relevant clause would understand it could not sensibly be read as creating a special option to elect for maintenance. Accordingly, in the absence of proper and timely notice being served under the contract, the maintenance fee was due and payable as claimed.
MS was liable to pay a year's maintenance of £13,844 plus VAT, which would not have been necessary had the termination provisions been considered thoroughly, and acted upon at the appropriate time.
Since this case was decided, I have already used it to win a claim for a U.S. client in the IT arena against a well known (household name) potential Defendant. Unfortunately it seems that good mileage will be obtained from this judgment going forward.
Tele 2 International Card Company SA v. Post Office Limited [2009] EWCA Civ 9
Where a party affirms a contract in the face of a material breach, notice would be required as per the contractual notice provisions in the normal way.
A clause in a contract providing that in no event would any delay, neglect or forbearance on the part of any party in enforcing any provision of the agreement be or be deemed to be a waiver thereof, or in any way prejudice any right of that party under the agreement, did not prevent the court from concluding that a party had by conduct elected to affirm the contract and abandon its contractual right to terminate for material breach.
In this case, the continued performance of the contract by the defendant of the agreement for almost a year without any protest or reservation of any kind in relation to the claimant's material failure indicated its intention to abandon the right to terminate for that breach.
Whether a party had elected to terminate or affirm a contract was a question of fact: either a party had affirmed the contract or it had not. The general law requires that a party which had a contractual right to terminate a contract had to elect whether to do so or not. If a material breach of contract is waived, and the contract is affirmed, notice would still have to be served at the appropriate time to effectively terminate the contract.
THE BELGIAN "STARTER" LIMITED LIABILITY COMPANY
By Arnaud Piens, Brussels | apiens@mcguirewoods.com
By a law of Jan. 12, 20101, the Belgian legislator established a new form of limited liability company (société privée à responsabilité limitée – besloten vennootschap met beperkte aansprakelijkheid), the "starter," with a reduced initial share capital, in order to facilitate access to credit and encourage small business creation.
Henceforth, an entrepreneur who wants to start his or her own company no longer has to provide an initial share capital of 12.500 or 18.550 EUR (as required to create a classic limited liability company in Belgium).
Incorporation Requirements
- Minimum share capital of 1 EUR.
- Founders must be individuals (to the exclusion of companies) who do not own more than 5% of the voting rights in another limited liability company.
- Financial plan must be established with the assistance of a professional (accountant or auditor). This requirement intends to prevent premature bankruptcy.
Obligations within the Five Years of Incorporation
From the fourth year of the starter's incorporation, in order to encourage the partners to reach the minimum share capital of a classic Belgian limited liability company as soon as possible, they may be held personally liable for the difference between the share capital of the starter and the amount required as initial share capital for a classic limited liability company.
Within the five years of its incorporation, or when it employs the equivalent of five full-time workers, the starter company must raise its capital (up to the amount required for a classic limited liability company). Afterward, the company loses its status of starter, and its bylaws must be modified accordingly in view of becoming a classic limited liability company.
To ensure this increase in capital, the law states that the general meeting must allocate annually at least 25% of net profits to the formation of a reserve fund. As long as it has the status of starter, the company is not allowed to carry out any reduction in capital, and the shares of a partner cannot be transferred to a company.
Conclusion
Although the possibility to create a limited liability company with a reduced share capital seems commendable, any starting company needs funds to expand its activities. It cannot be excluded that the banks will require personal guarantees from the founders that would make the granted limited liability illusory. Since the law has not yet entered into force (it is awaiting a Royal decree of implementation), any judgment on its effectiveness should be reserved.
NEW BELGIAN ANTI-MONEY LAUNDERING RULES
By Frederic Van den Berghe, Brussels | fvandenberghe@mcguirewoods.com
On Jan. 18, 2010, Belgium adopted a law implementing Directive 2005/60/EC of Oct. 26, 2005, "on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing" (the Third Anti-Money Laundering Directive).
This law follows two judgments by the ECJ in 2009 finding Belgium liable for failure to timely implement Directive 2005/60/EC and Commission Directive 2006/70/EC of Aug. 1, 2006, laying down implementing measures for Directive 2005/60/EC.
The new law entered into force Feb. 5, 2010. Its objective is threefold: (1) to implement Directive 2005/60/EC; (2) to apply the recommendations of the Financial Action Task Force on money laundering (FATF) following its audit of Belgian anti-money laundering legislation in June 2005; and (3) to take into account the Belgian Constitutional Court's decision Nr. 10/2008 of Jan. 23, 2008.
The new law also consolidates the law of Jan. 11, 1993, and renumbers its provisions. It imposes additional obligations on lawyers, and relaxes some obligations they are subject to.
Additional Obligations Imposed on Lawyers
- Obligation to put in place appropriate and adequate procedures for client due diligence, reporting, document retention, internal control, risk assessment and management, monitoring of compliance and communication.
- Obligation to designate one or more in-house compliance officer(s) (only for lawyers operating in large undertakings) (modalities to be defined by the bar authorities).
- Possible obligation to double third-party accounts.
- Obligation to prepare written reports on unusual transactions (modalities to be defined by the bar authorities).
Relaxed Obligations Imposed on Lawyers
- Where the obligation to identify a prospective client cannot be fulfilled, the lawyer may still enter into a business relationship with the prospective client.
- In line with the Belgian Constitutional Court's judgment No. 10/2008, information obtained or received by an attorney while acting as counsel, even when he or she assists his or her client with preparing or performing financial or real estate transactions, does not have to be communicated to the authorities, unless the advice is given or requested for money laundering purposes.
- In line with the Belgian constitutional court's judgment No. 10/2008, in law firms only lawyers or the compliance officer(s), but not employees, are under the obligation to report reportable information.
- The law introduces a number of exceptions to the obligation not to disclose the fact that reportable information was reported to the authorities. For instance, a lawyer who attempts to dissuade his or her client from participating in an illegal activity does not engage in such a prohibited disclosure. Neither does communication between lawyers of the same law firm constitute prohibited disclosure. Lawyers may also communicate with other professionals (notaries public, accountants) subject to a reporting obligation who advise the same client concerning the same transaction.
Footnote
1. The three pillars were: (i) the Community pillar, (ii) Common Foreign and Security Policy (CFSP), and (iii) Police and Judicial Co-operation in Criminal Matters (PJCC).
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