DECRYPTING ETH MERGE: PRACTICAL INSIGHTS & LEGAL IMPLICATIONS.
On September 15th, 2022, the long-awaited ETH Merge has finally occurred, proclaimed to be “the most significant upgrade in the history of Ethereum”, which has determined a shift of Ethereum blockchain from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism.
PoW, the original blockchain consensus mechanism popularized by the advent of Bitcoin, is known to deploy large amounts of energy, as virtual miners around the world race to solve a complex cryptographic problem to secure the network and win the right to update the blockchain. Conversely, PoS consensus mechanism does not require high levels of computational power and is 99.9% less energy intensive than PoW. In addition, PoS is faster, more scalable, and can process more transactions per second than PoW. PoS “validators”, like PoW miners, are called upon to secure the network by temporarily “staking” a certain amount of cryptocurrency (32 ETH) in exchange for a reward. Provided, therefore, that less energy is required to secure the network, validators do not require as much compensation which results in lower fees and issuance.
On September 15th, at 6:42:42 UTC, a “difficulty bomb” has been triggered within the ETH system, an update inherent to the protocol which makes PoW calculations exponentially more complex and mining less profitable, on a quest to migrating nodes to PoS consensus algorithm. However, it is argued that if a significant number of users continue to use the PoW mechanism, ETH could fork into two separate blockchains – ETHPOS and ETHPOW (the Ethereum Merge will not directly affect the existing Ethereum Classic blockchain, based on PoW).
Considering that ETH is not only a virtual currency, but above all an ecosystem created for Decentralised Applications (Dapp) as well as all Decentralised Finance (DeFi) protocols, should both mechanisms remain in place, leading to the so-called “hard fork”, NFT (Non-fungible Token) tokenIDs of a skin, artwork, ETH Name Service – ENS (a dedicated protocol for easy-to-read crypto addresses and decentralised domain names), as well as governance tokens within a Decentralized Autonomous Organization (DAO) validated prior to the Merge, will be unduly duplicated, while new NFTs will either be minted on the ETHPOW or the ETHPOS blockchain. Such potential effect, which may look harmless from the outset, certainly raises an array of new unexpected questions for both end users and stakeholders, especially from a legal standpoint.
Many projects may only seek to grant rights to holders of tokens on the most widely adopted version of the chain post-fork, as granting rights to all versions of the tokens across forked chains could be seen as decreasing the uniqueness and corresponding value of such rights. Alternatively, ETH projects could either choose that token rights will only be granted to the less popular chain, or simply rely on DAOs for such determination, or to an external indicator of adoption. Finally, projects with particular business goals might be reluctant to the above solutions and ultimately grant rights to NFT holders horizontally on both the post-Merge ETHPOS and ETHPOW.
Regardless the adopted approach, it is of the utmost importance to provide for ad hoc Terms & Conditions in case of a fork, thus (i) clarifying within the contractual relationship if, for instance, the license of an NFT is stored on both chains, and (ii) allowing for easy mechanisms to determine in advance the ownership of the licence with respect to the purchase and sale of the NFT. Those clarifications would ultimately benefit either party involved in the NFT environment, to the sake of legal certainty.
ETH Merge is only one step in a roadmap of exciting opportunities and innovations to the ETH blockchain. The next scheduled step is named “Shanghai”, which could lead to significant decreases in gas fees relating to on-chain transactions, as well as allowing the withdrawal of ETH tokens staked on the blockchain. After Shanghai, Ethereum expects to go through the “surge”, by implementing a technology known as “sharding”, which is expected to increase ETH’s maximum transaction processing rate of 30 transactions per second (TPS) today to approximately 100,000 TPS. Next, the “verge”, foreseeing the implementation of a mathematical proof known as “Verkle trees”, which will allow nodes on the blockchain to operate without downloading the entire history of the chain. Finally, the “purge”, resulting in the deletion of legacy data on the chain. Those upgrades will deliver a smaller, easier to use and substantially faster blockchain.
m.baccarelli@macchi-gangemi.com
m.lonero@macchi-gangemi.com
INAPPLICABILITY OF THE PRINCIPLE OF ROTATION IN THE ABSENCE OF CONTINUITY BETWEEN CONTRACTUAL SERVICES: THE COUNCIL OF STATE CLARIFIES THE PREREQUISITES.
Recently the Council of State has threated the subject of the principle of rotation with an interesting decision of 7 September 2022, no. 7794 in which, once again, were indicated the prerequisites according to which this principle is not applicable to the individual tenders.
As is well known, article 36, paragraph 2, letter a) of Legislative Decree No. 50 of 18 April 2016, allows public administrations a wide margin of discretion in the awarding of contracts, which must be balanced by the timely application of the principles indicated in paragraph 1 of the same provision. The principle of rotation, in particular, constitutes a necessary counterbalance to the considerable discretion awarded to the public administrations) when deciding the economic operators that are to be invited in the event of a negotiated procedure; this in fact aims to avoid privileged positions and seeks effective competition, since it allows the rotation among the different operators in the performance of the service, enabling the public administrations to change in order to obtain better services (see Council of State, VI, 4 June 2019, no. 3755). The aim in fact is to avoid that the outgoing operator, who as a result of the previous appointment would be fully aware of the methods and structure of the services to be performed, can easily succeed over the other economic operators even though they too would have been invited by the contracting authority to submit a bid and, thus, placed in competition with each other (see Council of State, V, 12 June 2019, no. 3943; 5 March 2019, no. 1524; 13 December 2017, no. 5854). An unfailing logical prerequisite of the principle of rotation is therefore the uniformity of the service of the tender with respect to the service performed by the person against whom the inhibition operates. This principle, moreover, is already applicable during the initial phase when operators are invited to the tender procedure, and indeed, the abovementioned article 36(1) expressly requires the contracting entities to comply with the principle of rotation of invitations, when assigning sub-threshold contracts.
Well, the Council of State, in its decision no. 7794 of 7 September 2022, no. 7794, clarified that when a service or in any case the object of a contract, consists of a series of articulated, more complex and entirely new activities with respect to the previous one, it shall be considered as being not consistent to the first one and therefore, between the two services that are object of the contracts, there is a “substantial qualitative difference” such as to allow the contracting authority not to apply the principle of rotation with respect to the former contractor. Moreover, the rotation must be understood “not as an obligation to exclude the outgoing operator from the selection” of the new assignment, but only in the sense “of not favoring it, otherwise this principle would result in a cause of exclusion from the tenders that is not only not encoded, but in total contrast with the principle of protection of competition“.
This decision is in line with previous case law, which has highlighted how “article 36 contains a pro-competitive rule that favors the entry of small and medium-sized enterprises into restricted markets, and which confines, within the limits of proportionality, the equal treatment that must also be guaranteed to the outgoing operator, which – subject to justified exceptions – is only required to “skip” the first assignment, so that during the next tender it finds itself in an equal position with the other competitors”, thus guaranteeing the principles of article 97 of the Constitution, since “the increase in the chances of participation of external competitors (ensured by the principle of rotation) favors the efficiency and cost-effectiveness of the procurement of services” (thus, Council of State, Sec. VI, 31 August 2017, no. 4125).
From this point of view, the legislator’s choice to impose respect for the principle of rotation already during the stage of inviting operators to the tender procedure is not fundamental; the purpose, we repeat, is to prevent the outgoing operator – who as a result of the previous assignment will have inside knowledge of the way the service shall be provided – from easily prevailing over the other economic operators even if they too are invited by the contracting authority to submit a bid and are in competition with each other.
As a rule, therefore, this principle involves the prohibition of invitations to procedures aimed at awarding a contract to the outgoing contractor, unless the contracting authority provides adequate, punctual and rigorous justification of the reasons for derogating from such rule.
n.digiandomenico@macchi-gangemi.com
DOES THE GUARANTOR’S WITHDRAWAL EXTINGUISH THE GUARANTEE? A RECENT DECISION BY ABF.
The recent decision of the Banking and Financial Arbitrator (“ABF”) No. 9238 of 14 June 2022 addresses the issue concerning the possibility for a guarantor to withdraw from an omnibus-type guarantee provided in favour of a bank. The omnibus guarantee is a guarantee contract that is widespread in banking practice and which originates from Article 1938 of the Italian Civil Code, by means of which the guarantor undertakes to guarantee the performance of all obligations, present and future, that the principal debtor has undertaken or will undertake towards the bank.
In the present case, the applicants seised the ABF to ascertain that the amount they were requested to pay by the defendant bank pursuant to an omnibus guarantee provided by them for a debt of a limited liability company of which their father was a shareholder was not due.
The intermediary objected that the amount the applicants were requested to pay was correct, since it was calculated (notwithstanding the repayment of the principal amount) on the interest, fees and commissions that remained outstanding at the effective date of the withdrawal.
The omnibus guarantee signed by the applicants in the interest of the S.r.l. provided for their joint and several liability for the performance of the company’s obligations towards the bank arising from banking transactions of any nature up to the maximum amount guaranteed. The subject matter of the guarantee included the principal amount owed by the principal debtor and any other obligation owed by way of interest, including interest on arrears, and any other accessory and/or expense.
Subsequently, the guarantors communicated their withdrawal from the bank guarantee since the company had been sold to third parties outside their family. The bank reported that at the time the withdrawal took effect, i.e. 10 days after receipt of the applicants’ notice, the principal amount owed by the company to the bank was zero.
The subject matter of the dispute consists of the bank’s request to the applicants to pay the interest accrued after the revocation of the guarantee by submitting account statements from which it was not possible to discern the debt in respect of which interest had accrued at the time of the revocation.
The applicants complained that this claim was unlawful because it followed their withdrawal from the guarantee provided by them and was the result of a substantial wrongful grant of credit to the limited liability company, since the principal debt had been satisfied in full at the time of their withdrawal.
The intermediary objected that, under the terms of the guarantee provided, the applicants were in any event obliged not only for the debtor’s obligations existing at the time of the effectiveness of the termination, but also for any other obligations that might arise or accrue thereafter in connection with the agreements existing at the time of the termination.
The ABF, following its recent decisions, has held that the withdrawal from the bank guarantee does not have the effect of extinguishing the guarantee, but only of limiting its amount to the debt existing on the effective date of the withdrawal (see Board of Rome, decision no. 428 of 10.01.2019; Board of Milan, decision no. 2773 of 29.01.2019; Board of Rome, decision no. 7290 of 05.04.2018).
Therefore, the guarantee must be considered to be limited to the amount of the debt existing at the date of termination, both as to principal and interest and other accessory charges. In the present case, the principal debt having been satisfied in full, the bank should have proved the amount of the interest due and how it had been computed.
The intermediary, however, did not provide sufficient proof of the consistency of the debt beyond the principal exposure, and the ABF held that since the bank had not discharged its burden of proof, nothing was owed by the applicants.
m.patrignani@macchi-gangemi.com
m.dragone@macchi-gangemi.com
THE WITNESS EVIDENCE: A NEW KIND OF EVIDENCE IN TAX TRIALS.
One of the most important innovations brought by the law reforming the tax trials (Law no. 130 of 31 August 2022) is the possibility for the parties to request, upon certain conditions, witness evidence.
This is an absolute novelty since the old paragraph 4 of Article 7 of Legislative Decree 546/1992 (and before that the Presidential Decree 636/1972, as amended in 1981) provided that “Oath and witness evidence are not allowed“.
The case-law reduced the scope of that prohibition by allowing the taxpayer to introduce written statements from third parties into the tax trial. By doing so this case-law aimed at ensuring a better balance between the parties (as also considered essential by the case-law of the ECHR) since the tax authorities have the power to use declarations of third parties collected during the tax audits and convey them into the tax trial through the notice of assessment.
However, the value of such statements has always been that of clues, unsuitable by themselves to determine the decision of the tax court.
The reform just introduced, on the other hand, although with a whole series of procedural and substantive requirements, now introduces the written witness evidence as proper evidence.
Witness evidence may be admitted by a Court of Tax Justice (the new name of the former Tax Commissions), of both first and second degree, “where it considers it necessary for the purposes of the decision and even without the agreement of the parties“.
The requirement of the necessity of this evidence – which is similar to Article 58 of Legislative Decree 546/1992 which sets the limits for the admissibility of new evidences in second degree trials – implies that the witness evidence represents an exceptional kind of evidence to be used only when a given circumstance cannot be otherwise proven.
The rule provides that the witness evidence shall be given pursuant to Article 257-bis of the Code of Civil Procedure, i.e. in the form of written witness statements.
Witness evidence may be requested by both parties. However, the request by the tax authorities will in practice be a very rare phenomenon since they must adequately prove their tax claims in the notice of assessments.
Witness evidence cannot be requested to overcome the evidential effectiveness of facts attested by a public official.
This new rule applies to tax trials started from 16 September 2022; however, it is not clear if it applies also to second-degree trials started after that date.
FIRST CONSIDERATIONS ON THE EFFECTIVENESS OF THE REGISTER OF OPPOSITION AS AMENDED BY PRESIDENTIAL DECREE NO. 26/2022.
Against the so-called ‘aggressive telemarketing’, as of 27 July 2022 citizens can also register their mobile phone number in the Opposition Register (RPO). Thus, the business operator will have to check whether there are any users entered in the Register among the contacts at his/her/its disposal. These latter, having revoked their consent, will not have to receive promotional or commercial communications, either from the operator directly or from delegated third parties.
The Register of Oppositions (RPO) is a tool through which, already in the past, attempts have been made to curb ‘aggressive telemarketing’.
As of 27 July, citizens can also register their mobile phone number in the register. Registration has the effect of
– revoking any consents previously given for the receipt of calls or printed material for promotional and commercial purposes, respectively, on the number or address registered (limited to postal addresses in public telephone directories);
– also revoking any consents given for the transfer of their data to third parties.
The user may restrict the revocation to certain persons only. After registration, this may only receive calls from parties with whom there is an active contract or the same was terminated in the last 30 days.
Subscription requests become effective in 15 days for telephone marketing and in 30 days for postal marketing.
Registration is open-ended and can be renewed at any time. Thus, with the establishment of the Register it becomes the duty of the owner to consult the RPO monthly, or in any case before the start of each promotional campaign.
The check must also be carried out in the various cases where the business operator mandates a third party or where the third party carries out telemarketing on behalf of the operator, who will subsequently pay a commission for each contract concluded. In such a case, the operator will be always liable for any infringement since it falls to the latter to verify that all contacted users have validly given their consent.
If, despite registration, the user still receive communications, he/she may:
– exercise the rights provided for by the GDPR, in relation to processing related to marketing activity and, in the event that the exercise of the aforementioned rights does not have positive effects, may
– submit a report or a complaint directly to the Authority, attaching proof of the exercise of the rights provided for by the regulation and any other element that may prove useful for the purposes of initiating the investigation.
Despite the numerous and significant sanctions already imposed since July, there have been approximately 1,700 reports – about three times those issued in the same period last year.
It is hoped that the Code of Conduct for Business Process Outsourcers, which at present is at the stage of a mere proposal – put forward by Assocontact (National Association of Business Process Outsourcers) and OIC (Osservatorio Imprese e Consumatori) – will be adopted quickly.
The Code, if implemented, will strengthen the principle of accountability, as it will allow operators to have a set of principles, rules and prohibitions to comply with and refer to, and through which to truly protect the personal data of the users involved.
In conclusion, although one must recognise the positive impact that an instrument such as the Opposition Register can have in our legal system, at the same time one must admit the partial achievement of the initial intentions.
f.montanari@macchi-gangemi.com
l.laterza@macchi-gangemi.com
DISCLAIMER: This newsletter merely provides general information and does not constitute legal advice of any kind from Macchi di Cellere Gangemi. The newsletter does not replace individual legal consultation. Macchi di Cellere Gangemi assumes no liability whatsoever for the content and correctness of the newsletter.
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