With judgment no. 2631 dated 29 March 2021, the Council of State rules on the services provided by Facebook: these services are not free since the users “pay” for them by giving up their own personal data.
The case derives from the provision issued by the Italian Antitrust Authority (AGCM) whereby in 2018 Facebook Inc. and Facebook Ireland Ltd. (jointly, hereinafter Facebook) were condemned for misleading and aggressive practice imposing two administrative pecuniary sanctions of € 5 million each also ordered Facebook to publish a corrective statement.
Facebook appealed against this measure before the Regional Administrative Court of Latium which cancelled one of the two sanctions in partial acceptance of the complaints raised. In fact, the judge of first instance did not acknowledge the existence of the aggressive practice, while confirming the misleading one. The judgment was subsequently appealed by both Facebook and AGCM, and the case has therefore reached the Council of State.
In the measure challenged in first instance, there were two practices contested by the AGCM:
i) the first for misleading activity. In particular: “the Authority had concluded that Facebook, in violation of articles 21 and 22 of the Consumer Code, deceptively induces consumer users to register with the social network without informing them adequately and immediately, throughout the account activation phase, of the commercial intent surrounding the collection of data users provide and, more in general, of the remunerative purposes underlying this social network service, emphasizing only its gratuitousness. The claim of gratuitousness proclaimed by Facebook according to which the use “is free of charge and will be forever” has been eliminated by Facebook. In this way, consumers have made a commercial decision that they would not otherwise have made (i.e., registering and remaining on the social network). The information provided is, in fact, generic and incomplete without adequately distinguishing between the use of data necessary for the personalization of the service (with the aim of facilitating socialization with other ‘consumer’ users) and the use of data to carry out targeted advertising campaigns“;
ii) the second for aggressive conduct (rejected by the Regional Administrative Court for Latium). In this case, the AGCM “ascertained that Facebook, in violation of articles 24 and 25 of the Consumers’ Code, implements an aggressive practice in that it unduly influences registered consumers, who without giving their express and prior consent, and therefore without their knowledge, are subjected to the transmission of their data from Facebook to third party websites/apps, and vice versa, for commercial purposes. The undue conditioning derives from the application of a pre-selection mechanism of the broader consent to data sharing. The user’s decision to limit consent in fact entails the prospect of significant limitations to the use of the social network and websites/apps of third parties; users are thus conditioned to maintain the choice pre-set by Facebook“.
With judgment no. 2631/2021, the Judges of the Council of State confirm the sanctioning measure issued by the AGCM in relation to the alleged deceptive commercial practice and therefore confirm the ruling of first instance. In fact, upon account activation, Facebook only informs the user of the free registration, but not that the personal data transferred shall be used for commercial purposes for the so-called profiling. According to AGCM, the transfer of data integrates a counter-performance, given that 98% of the company’s turnover derives from online advertising based precisely on user profiling.
The main point of the Council of State’s decision, which is actually very complex and well-articulated – establishes that it cannot adhere to Facebook’s argument according to which the nature of the fundamental right to privacy would consequently produce the inapplicability of the rules on unfair commercial practices to its own conduct and clarifies that, even if “one wanted to adhere to the notion of the appellant according to which the personal data is res extra commercium, the capitalization of personal data, which in this case occurs unknowingly, is the result of the intervention of companies through the provision of data and the profiling of the user, for commercial purposes“.
The Council of State states, in fact, that the question does not relate to the overlap between the right of the consumer and the protection of personal data, since the application of the legislation on privacy, contrary to what was stated by Facebook cannot be considered as exclusive.
It is clear, in fact, that such a reasoning would lead to exclude any legal discipline from the scope of personal data protection, given that every area of law and every aspect of everyday life necessarily involves the processing of personal data. For these reasons, the Court deemed that personal data are not properly commercialized but rather “exploited”, since the data subject makes them available to third parties who will then use them for commercial purposes.
For these reasons, since the right to the protection of personal data is a fundamental right of the individual, Facebook’s practice to “force” the user to give consent for the disclosure of personal data to third parties constitutes a breach of law, without any incompatibility between the various sets of rules protecting the individual.
In conclusion, the judgment is very important because it sanctions a key principle that should guide every company dealing with users’ personal data: proper processing of personal data to protect the fundamental rights and freedom of individuals must necessarily take place through informed and conscious choices by users which correspond to precise obligations of information and transparency by companies processing personal data.
The revocation of the company director as a precautionary measure.
Following the recent period of pandemic and the consequent market crisis, the issue of shareholders’ control over the management of the company has become even more topical, as well as the protection of shareholders in the event of serious irregularities in the management of the company by the administrative body. In this respect, the regulation of the interlocutory revocation of the director of a company is of particular interest, in respect of which two contrasting trends have recently been consolidated, especially with regard to the nature of the action itself.
The first issue to be considered with regard to the rules is whether or not the remedy of revocation of a director is connected, and to what extent, to the lawsuit for liability. On this point the answer is not uniform, although there is an opinion which may be considered as dominant.
In particular, a distinction must be made between two opinions. The first, which places the interlocutory measure in a strict relationship of instrumentality with the action under Article 2476, paragraph 3, of the Italian Civil Code based on the literal meaning of the provision in the part where it provides that the shareholder bringing the action “may also request, in the event of serious irregularities in the management of the company, that a interlocutory measure be adopted to revoke the directors themselves”
Therefore, the “ante causam” action can only be brought in connection with the subsequent case on the merits. This approach is supported mainly by the Court of Rome, see judgments of 20 February 2019 and 31 May 2018, but also by other courts, see Court of Catanzaro , Sez. spec. Impresa , 30/05/2017
The second approach, on the other hand, which can be considered predominant, rejects the relationship of instrumentality mentioned above , allows instead the use of said means with an advance on the ruling on the merits. Consequently, it is excluded that the anticipatory means must necessarily be used in connection with the subsequent action on the merits. The case law which considers the relationship of so-called “attenuated instrumentality” is mainly attributable to the Milano courts, but not only, ex multis Tribunale di Milano, see judgment Tribunale Milano Sez. spec. Impresa, 13/06/2017, no. 2476, but see also Tribunale di Firenze, 01/07/2019 and Tribunale di Bologna, 18 April 2017).
Obviously, the adoption of one or other approach and the legal solution offered with regard to the potential prosecution of the ante causam proceedings or necessarily in connection with the proceedings on the merits, leads to a different assessment of the nature of the interlocutory measure concerned, anticipatory in the first case and merely conservative in the second case.
Without prejudice to what has been said above in terms of the assessment of the nature of the measure of interlocutory revocation, it should however be noted that both the aforementioned opinions, although opposing in their appreciation of the nature of the measure, are similar in recognising ( although for different reasons, given that the possibility must be coordinated with the underlying legal reasoning, which we have seen is different) the eligibility of the ante causam revocation of the director.
Similarly, there is a consensus in the case law (albeit still on the basis of different arguments resulting from the nature of the proceedings in question) with regard to the parties to be sued and the issue of the company’s necessary participation. The joinder action is in fact necessary, as provided for the action on the merits (Civil cassation, section I , 04/07/2018 , no. 17493), both according to the orientation that ascribes to the interlocutory measure an instrumental function to the pursuit of the action under article 2476 of the Italian Civil Code, and this because the shareholder acts as a procedural substitute of the company the summoning of the latter is required under article 102 of the Italian Code of Civil Procedure, as well as for the case law that supports the “attenuated instrumentality” because ( even though it loosens the relationship between the interlocutory proceedings and the proceedings on the merits) it is a consequence of the application of the general principle that the limited liability company is a necessary joinder in the liability proceedings of the directors.
On the other hand, the conditions for granting the measure in the case of an instrumental action or an “attenuated instrumental” action will be different, given that in the first case, the granting of the measure will be subject to the positive outcome of a assessment of plausibility concerning the grounds of the future action for damages, whereas it will not be possible to grant the measure where such a requirement is lacking, where the damage is not actual, or where there is no danger of worsening the damage as a result of the administrator remaining in office. On the other hand, in the second case, the only condition to be assessed, in addition to the presumption of serious misconduct, is the “concrete and imminent risk of harm to the company’s interests arising from the continuation of such conduct”.
At the end of this brief overview, it is worth mentioning the issue related to the differences between the interlocutory proceedings “ante causam” pursued under Article 2476 of the Italian Civil Code, and the different action, but apparently common in purpose, under Article 2409 of the Italian Civil Code. In this regard, it should be noted that, as also made clear by case law, there is no risk of overlapping of these actions, since the procedure regulated by Art. 2409 of the Italian Civil Code. cannot be used to achieve purposes other than those provided for by the law, or to obtain results that can be achieved with other actions, and must concern irregularities characterised by the condition of actuality, while those facts, even if serious, whose effects have already ceased to exist are irrelevant, given that the judicial control regulated by this institution is temporarily located in a phase in which the management irregularities are still in place, and as only being potentially harmful. Otherwise, where the suspected management misconduct is no longer in place (but the damaging effects of such misconduct may still be in place), it will be necessary to bring a different action under Article 2476 of the Civil Code and the interlocutory proceedings ante causam (see recently Court of Catanzaro, 28/02/2020). Likewise, the procedure of voluntary jurisdiction, pursuant to Article 2409 of the Italian Civil Code, cannot be considered as a judgment on the merits of the interlocutory revocation of the directors pursuant to Article 2476 of the Italian Civil Code, which instead is necessarily litigious and is carried out in the action provided for therein.
Liability for defective products in the event of burned vehicle in absence of contractual protection against the vendor.
With regard to defective products, the Manufacturer has different liability under the law depending on whether the prejudice is caused to a Consumer or to a Professional [note 1]: in the first case, the famous rules of the Italian Consumer Code will apply (the transposition of the Directive 85/374/CEE included in the Decree of the President of the Republic n° 224/1998 and inserted in the Italian Legislative Decree n. 206/2005), whereas in the second, the laws of the Italian Civil Code will apply.
Usually, in the case of defective goods, the buyer is entitled to take action against the vendor on the condition that the deadline to act has not yet expired or the guarantee is still valid: in this hypothesis, the rules change depending on the person concerned (Consumer or Professional).
The difference between these two roles, well known and obvious among academics and legal practitioners, often tends to blur in the disputes related to fire damage caused by a defective product: the typical case is that of the vehicle that accidentally ignites while it has been moving or is parked in a garage or in an open-air parking: normally the owner has no qualms about suing the Manufacturer involved, believing that someone will always pay , sooner or later.
The possible legal avenues are various, ranging from the ordinary litigation to the summary proceedings according to article 702 bis of the Italian Civil Procedural Code or to the Preventive Technical Appraisal of articles 696 and 696 bis, and following sections, of the ICPC.
When the Consumer initiates proceedings to recover compensation for damage due to a defective product (for instance, not applying the responsibility under article 1495 Italian Civil Code or in absence of contractual guarantee, either because the time limit to take the legal action has expired or because the guarantee just ran out), the request shall be limited to three restorative applications, i.e. “… damages caused by death …” or “… damages caused by personal injury …” and “… damages caused by the destruction of an item of property different from the defective product… provided that the item is used for private use and consumption …” (see article 123 of the Italian Consumer Code).
Unfortunately, it often happens that a Consumer, devoid of rights against the vendor, sues the Manufacturer, applying for the reimbursement of the price of the damaged vehicle, ignoring that consumer law expressly excludes this kind of compensation for damages.
Conversely, when the Professional asks for similar compensation for his/her vehicle (for example, the truck of a professional driver damaged on the road), if the action against the vendor is forbidden it remains possible to take the legal action according to the Italian tort law (article 2043 ICC), but in this context, unlike the Consumer, the Professional will be entitled to apply for the reimbursement of the damaged vehicle.
That obviously does not preclude the possibility of the Consumer claiming against the Manufacturer employing the application of the Italian Tort Law as well. It is rather curious that the Consumer Code sets a period of prescription for compensation for defective product of three years (article 125 Consumer Code) while that term grows to five years in cases of torts according to the Italian Civil Code (article 2947 ICC).
A difference that the plaintiff usually does not consider when the dispute starts.
[note 1] Article 3 of the Italia Legislative Decree n° 206/2005 – definition: “professional: natural or legal persons acting on own business, commercial, handicraft o professional activities or as its intermediary”.
ESMA enters final stage in the registration of the first securitisation repositories.
On April 26th, 2021, the European Securities and Markets Authority (ESMA), reached the last stage in the process of applications received from Securitisation Repositories (SRs, namely those entities that centrally collects and maintains the records of securitisations transactions) under the Regulation (EU) 2017/2402 (Securitisation Regulation or SECR) laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisations (STS, i.e. traditional securitisations that meet the requirements relating to simplicity, transparency and standardisation set out in the SECR.
ESMA regulates securitisation activities, mainly by setting out reporting requirements, laying down the contents of the STS notifications and maintaining a list of STS securitisations, supervision of SRs and facilitating cooperation in supervision between competent authorities.
Pursuant to the SECR, the obligation to report securitisation transactions to an SR will apply as soon as the first SR is registered. ESMA will inform market participants when the registration of the SRs is completed. ESMA has 40 working days to finalise its assessment of the registration and, if favourable, the entity will be registered as a SR five working days after the registration decision is adopted.
On April 9th, 2021, ESMA published also the interim STS notification templates for synthetic securitisations following amendments to the SECR that were introduced by Regulation (EU) 2021/557 and entered into force on April 9th, 2021. The amended SECR extends the STS framework to synthetic securitisations (namely to those securitisations in which the transfer of risk is achieved by the use of credit derivatives or guarantees, and the exposures being securitised remain exposures of the originator). As with traditional securitisations, only those synthetic securitisations that meet pre-defined STS requirements will be published on ESMA’s website. For a synthetic securitisation to be designated as STS, it must meet all the requirements for “STS on balance sheet securitisations” set out in Articles 26 ter to 26 sexies under the SECR, as amended, and be notified to ESMA in accordance with the regulatory technical standards (RTS). However, until the date of the application of the RTS, originators shall make the necessary information available to ESMA in writing.
The interim templates allow originators of a securitisation transaction to notify ESMA of synthetic securitisations that meet the STS criteria. Until the date of the application of the RTS specifying the content and the format of STS notifications for synthetic securitisations, originators can report information to ESMA in writing during the interim period by means of the interim templates that ESMA published in April on its website.
The interim STS notification templates may be used by originators on a voluntary basis which may be subject to possible changes following the entry into force of the RTS.
Can instant messaging texts be used as evidence in tax proceedings?
While “at the upper floors” the question arises as to whether the prohibition on testimonial evidence in tax proceedings can be overcome, the First and Second Instance Tax Courts try to clarify whether WhatsApp can be used as evidence in tax proceedings. In the affirmative case, how can instant messaging texts be produced in court?
In this context, of particular interest is decision No. 105 filed on April 14, 2021 by the judges of the First Instance Tax Court of Reggio Emilia: in said case the tax administration had served the tax assessment notice to the de facto director of a company which was later declared bankrupt, qualifying him as such by virtue of some “messages”, included in the Tax Audit Report, exchanged with the Company’s administrative offices and customers.
In court, the taxpayer challenged the usability of such instant messaging texts included in the Tax Audit Report because they lacked the attestation of conformity of a notary or a public official document with respect to the originals present (only) on the telephone device of origin.
The judges of the Tax Court of Reggio Emilia upheld the taxpayer’s request, considering the objection of the unusability of instant messaging texts to be well founded: according to the court, such “messages” cannot be a source of evidence in litigation because their authenticity cannot be verified without a controlled and certified extraction of the information from the data carrier.
In other words, the unusability in litigation would seem to derive from the fact that, as regards the ‘instant messaging system’ type of messaging, the storage of the same takes place exclusively on the single telephone device leaving no trace, unlike common SMS messages which are stored by the telephone companies, and, therefore, without a controlled and certified extraction of the same from the data carrier.
However, reading this ruling leaves open a series of issues and questions: can chats constitute digital proof? What evidential value do they have?
Let us not forget that a file containing an instant messaging text can constitute digital proof, in the same way as a file containing an image, video, audio or text exchanged via e-mail. Data may in fact be processed through different media (such as computers) and stored in a space that is not under the direct control of the party.
In subiecta materia, of fundamental importance are the so-called Electronic Identification Authentication and Signature Regulation – eIDAS and the national regulations contained in Legislative Decree No. 82 of 7 March 2005 – Digital Administration Code: while the former defines “computer document” as any content stored in electronic form, the DAC identifies it as an electronic document that contains the computer representation of legally relevant deeds, facts or data. Moreover, pursuant to article 20, paragraph 1-bis of the DAC, in the event that a digital signature is not affixed, “the suitability of the electronic document to meet the requirement of written form and its probative value can be freely evaluated in court, in relation to the characteristics of security, integrity and immodifiability“, and pursuant to Article 2712 of the Italian Civil Code any “mechanical representation of facts and things shall form full proof of the facts and things represented, if the person against whom they are produced does not deny their conformity to the facts or to the things themselves”.
Not surprisingly, on several occasions the Court of Cassation has recognized that an electronic mail message (e-mail) or a “short message service” (SMS) constitute electronic documents that contain the computer representation of legally relevant deeds, facts or data which, although unsigned, fall within the computer reproductions and mechanical representations referred to in Article 2712 of the Italian Civil Code and therefore form full proof of the facts and things they represent, provided that the person against whom they are produced does not deny their conformity to the facts or things themselves.
In conclusion: there is still a long way to go on the issue of the usability of “modern” evidence in tax proceedings and it is of fundamental importance to distinguish the source (SMS, e-mail, WhatsApp). Technological progress will certainly find its way into the tax proceedings as well, at least we hope so.
BREXIT: the equivalence regime.
The agreement between the United Kingdom and the European Union, signed on 24 December 2020 and known as ‘The Trade & Cooperation Act’ (‘TCA’), left the financial services matter unresolved. In fact, although a commercial agreement has been reached, doubts and uncertainties still remain regarding the equivalence regime.
The UK’s exit from the European Union, completed on 31 December 2020, has had significant impact on the provision of services to European clients by UK financial intermediaries.
In the field of financial services, the trade and cooperation agreement between the United Kingdom and the European Union has set up a ‘Memorandum of understanding‘ which significantly reduced the freedom of market access, by eliminating the principle of mutual recognition. In fact, since the United Kingdom is presently considered a third country from Europe, the access arrangements are regulated by the “Equivalence regime”.
The consequences of this important change were the transfers of financial services companies based in London to various European cities such as Dublin, Paris, Milan, Luxembourg, Frankfurt and Amsterdam.
Amsterdam has become the most important financial center in Europe and, for the first time, the Amsterdam stock exchange is the largest in Europe, increasing the value of shares traded daily in 2020 by about four times in January 2021 and surpassing London which for decades was the largest European financial market.
What is the equivalence regime?
Since the UK was a member of the EU, UK financial institutions could operate in Europe, under the freedom to provide services or establishment, without the need to apply for additional regulatory authorisations in the Member State in which they wanted to operate. This system was called the financial services “passporting”.
This latter allowed companies based in the United Kingdom or the EU to sell their services, respectively in the EU or in the United Kingdom, operating under the freedom of establishment and freedom to provide services without restrictions, except for the compulsory notification (regarding the operations under the freedom to provide services) or the obtaining of the authorisation (in the case of an establishment regime) by the supervisory authority of the State in which the company has its registered office which – in turn – informed the supervisory authority of the host Member State.
From January 2021, since the application of the passport system ceases, in order to continue to have access to the single market, UK financial services companies will have to adapt to the different requirements of individual European States or to rely on equivalence decisions, i.e. European resolutions certifying that the regulatory regime of a specific country is equivalent to the EU regime.
Equivalence decisions are characterised by being unilateral and because allowing companies that carry out particular activities or services to continue to operate across the national border provided that the European Commission considers that they have a regulatory framework “sufficiently similar” to the Community one.
However, these decisions are not general and concern specific matters (currently they concern Irish derivatives and securities) and are temporary.
In addition, there are also some aspects of financial services where equivalence is not applicable. For example, core banking services such as loans, payments and deposit taking as well as retail banking services are excluded. This means that if UK banks want to continue to carry out these activities, they will be required to operate through separate legal entities (even if belonging to the same group) authorised to operate in the EU, or will have to obtain an authorisation to operate in the EU through a long authorisation procedure, which involves the verification of the assets and organisation requirement for the exercise of banking activities pursuant to the legislation of that State (as standardised by EU directives).
Finally, the granting of equivalence is not permanent. The EU can withdraw such decisions with 30 days’ notice.
At the beginning of 2021, The European Union and the United Kingdom, in a joint political declaration, promised to issue a memorandum of understanding by March 2021, discussing how reconcile their positions together, maintaining the principle of equivalence, in order to find a common ground for the regulation of financial services.
However, what has been achieved so far is the commitment to communicate and exchange information at least every six months. The term ‘at least’ suggests the possibility of a greater cooperation, but to date the situation is still uncertain.
The European Commission has taken only two temporary equivalence decisions: one for the clearing of derivatives (for 18 months) and one for the Irish securities settlement (for 6 months), while 28 areas remain open, including investment banking activities.
In addition, new licensing requirements are needed for those involved in trading.
Forex brokers, for example, dealing with online trading, will need to obtain the FCA license (a license granted by the Financial Conduct Authority, the body responsible for regulating financial services in the UK), in order to trade with UK clients with a site with the domain “.co.uk”. After obtaining this license, they will have to acquire a second license from a European country in order to operate via MiFID (‘Markets in Financial Instruments Directive‘) throughout Europe with a “.eu site”. Finally, brokers who want to expand outside Europe will need to have a” .com “site.
Forex brokers with an online trading platform devoid of a European license will no longer be visible on the European territory.
With regard to the British financial markets, it will no longer be possible to buy and sell securities ‘denominated in euros’, i.e. issued and traded in euros currency. These are the securities of almost all companies listed on a stock exchange in the euro zone.
The possibility of European companies to continue to use the London’s major clearinghouses for the trading of derivatives, energy and metals remains unchanged until June 2022.
It is not possible to quantify the damage that moving transactions will cause to the UK financial system. Some researchers argue that there will be no significant impact either on jobs in the financial sector or on the receipts resulting from financial transactions.
On the other hand, others argue that this change could be beneficial for the UK, because it would allow the financial market to be less dependent on the EU and to internationalise itself.
However, for the UK financial services companies without authorisation, the possibility of transfer, i.e. the establishment of a subsidiary company within an EU Member State in order to obtain, at a later stage, a local authorisation and apply for a passport to operate cross-border in other EU Member States remains actionable.
However, EU regulators have clarified that they will careful supervision in order to avoid the presence of ‘brass-plate’ (fictitious) offices, i.e. those companies which have only a basic structure in one of the Member States while all the relevant and major operations are in the UK.
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