Internet censorship

The Serious Organised Crime Agency have put forward a proposal to Nominet, the quasi-private body which administers internet domains with the .uk suffix, for an issue group to be established to consider enabling SOCA to cause nominet and its UK ISP members to take down any internet domain on request of "an identified UK Law Enforcement Agency", that is, the police. The proposal can be found here. The proposal would set out the grounds for UK internet service providers to do this without breaching their contracts with their customers, or as the SOCA draftsperson puts it:

"Nominet does not currently have any clear obligation in its registrant Terms and Conditions that a domain name should not be used in connection with any activity that would constitute an offence under UK Criminal law. The group will discuss whether proposals should be put forward to change Nominet’s Terms and Conditions to give a contractual basis to suspend domains where Nominet has reasonable grounds to believe they are being used to commit a crime (e.g. a request from an identified UK Law Enforcement Agency)."

This is a classic misdirection attack. It is hard to argue with the initial proposition that criminally operated internet domains should be taken down where there are "reasonable grounds to believe they are being used to commit a crime", at least where the crimes are serious ones, although the really obnoxious and nasty ones set up masquerading as, say, bank sites which proceed to extract login details for online bank accounts and then loot them, will not operate from a domain formally allocated to the criminals anyway.

But this outwardly reasonable introductory proposition is then followed by the remarkable suggestion that any request from the police for a take-down would, ipso facto, comprise such reasonable grounds: so, no need for any inconvenient independent supervision or validation of such requests by, say, an independent tribunal or court warrant. It could be used to circumvent, for example, what limited protections there are in the previous government's yet-to-be-implemented "three strikes and you are out" copyright infringement proposals for those running a personalised internet domain, since such copyright infringements will often also comprise offences. A letter or telephone call from the police would be enough to get the domain removed from the internet, unless the ISP concerned decides to stand up to the police.

It is highly unlikely that this suggestion will be accepted in the terms in which it is put. It would put UK internet domain purchasers on a similar footing with respect to the police and internet censorship as those in the People's Republic of China. What is surprising is that SOCA thought it appropriate to make this suggestion, and it shows what myopic vision organisations such as this possess.

This illustrates the aphorism that if a state allows the police to dictate public policy, it will end up as a police state.

The link above tells you how to make your views know to Nominet, should you wish to do so.

Don't blink

This article strays a little off the normal topic of this blog, but the current turmoils of the Eurozone require some comment.

These are worrying times both for those at the younger end looking for employment, and those at the older end who are not employed in the public sector and who hope to retire on pension policy savings which actually still have some value when they come to retire. From that point of view the question for those in the UK is whether there will be another global meltdown similar to the one of two years' ago, or whether it will be confined to the weaker Eurozone members. Who knows?

However, the current issue concerning Ireland is interesting as well as (in that wider context) alarming. I am reminded of the adage that if you owe your bank manager £100 you call him Sir, but when you owe him £1m, he calls you Sir. So it is with the Ireland: from the negotiating point of view the Irish government is in a strong position, possibly made even stronger by the doubt about whether it can actually pass its austerity budget at the beginning of next month. It seems difficult to believe even Eurozone ministers think the proposed bail-out package for Ireland will deal with the current situation faced by Ireland, notwithstanding what those ministers say, and certainly the markets don't believe it. The problem with Ireland is not an inadequately performing economy, but the fact that the Irish government has guaranteed the debts of the Irish banks which are in turn so large that the Irish economy cannot finance them. The flagrantly imprudent behaviour of the two Irish banks concerned, left uncontrolled by the Irish government, has brought the Irish economy to its knees.

Any further loans are just not repayable. Ireland either needs real rather than pretend capital to refinance its banks, that is gifts and/or equity stakes not loans (no private investor is going to put equity in), or for creditors to take a discount or 'haircut' on the banks' repayment obligations, by perhaps as much as 50%.

I would be surprised if the Irish government doesn't manage to achieve this in due course: that depends on whether other Eurozone ministers place a higher price on keeping the Eurozone in its present form intact, or on saving their own taxpayers' money, and in particular at what point German ministers lose their nerve when faced with a forthcoming election and electors unhappy with financing the deficits of Ireland, Portugal and Spain. We will probably have a combination in a year or two of both these new loans being written off or turned into notional equity, and compulsory creditor discounts.

Predictably, the Scottish bank RBS features prominently amongst those creditors who have made some of the past loans which are now likely to have to be discounted, as also does to a lesser degree Lloyds-HBOS. This is one of the reasons why the UK government is keen to help.

We also need the European Central Bank to stop accepting Eurozone sovereign debt at face value and start including a risk element in any further loans, so as to re-establish discipline and begin transferring sovereign debt funding (and the providing of equity to the banks concerned) back to the markets. I simply don't believe those who say the Eurozone is unsustainable. It is only unsustainable in the form in which it has so far been allowed to operate: and I fully expect that the UK in future decades will, or at least should, find its home in a reformed Eurozone.

The Irish government already knows how to play this: don't blink first.

The Woolas election judgement

On Friday, an Election Court composed of two judges of the High Court found Mr Woolas guilty of illegal election practice during the May general election, contrary to section 106 of the Representation of the People Act 1983. The automatic consequence of this, under section 159(1) of that Act, is that Mr Woolas's election is void and a by-election will have to be held to fill the vacancy. In addition, under section 173 of that Act as amended by section 136 of the Political Parties, Elections and Referendums Act 2000, Mr Woolas will not be able to stand again for 3 years.

Much has been said, some of it it must be said of a self-serving nature by politicians, that this judgement will stifle honest political debate at election time. That is unlikely. Very few matters are covered by section 106 of the 1983 Act, and none of them are concerned with things that could reasonably be described as political.

The relevant parts of section 106 provide as follows:

"(1) A person who ... —

(a) before or during an election,

(b) for the purpose of affecting the return of any candidate at the election,

makes or publishes any false statement of fact in relation to the candidate’s personal character or conduct shall be guilty of an illegal practice, unless he can show that he had reasonable grounds for believing, and did believe, that statement to be true."

The important point here is that not only must the candidate concerned have attacked a rival's personal character or conduct in order to affect the outcome of the election, but he or she must also either have not believed or had no reasonable grounds to believe the subject matter of the attack. In short, it is concerned with smearing opponents by telling lies which go to matters of fact and conduct rather than to politics and political views. The reasonable assumption behind section 106 is that we would not want to be represented by people who think that that kind of behaviour is acceptable.

The things done by or on behalf of Mr Woolas which the election court considered fitted this description were the distribution of an election leaflet called The Examiner, in which the court held Mr Woolas "made a statement of fact, the meaning of which was that the petitioner attempted to woo, that is to seek, the electoral support of Muslims who advocated violence, in particular violence to [Mr Woolas]", and the distribution of another leaflet called the Labour Rose, in which the court held that "he made a statement of fact the meaning of which was that the petitioner had refused to condemn extremists who advocated violence against [Mr Woolas]".

The election court considered that alleging that a rival candidate sought support from those who advocate violence against another candidate and refused to condemn such violence comprised an allegation concerning personal conduct and character, and that Mr Woolas neither believed these allegations nor had any reasonable grounds for believing them.

The election court also found that a third illegal statement had been made by Mr Woolas against his opponent, namely that in "an earlier election address the respondent had made a statement in fact, namely, that the petitioner had reneged on his promise to live in the constituency. ... It suggests that [the opponent] is untrustworthy. The statement was false and [Mr Woolas] had no reasonable ground for believing it to be true and did not believe it to be true."

The last matter (Mr Woolas's allegation that his opponent had reneged on a promise to live in the constituency) does not seem the most egregious of acts, even if it were to be a lie told in the heat of battle, and the first two falsehoods referred to by the election court were perhaps on the borderline of the distinction between illegal character assassination and robust political argument. Mr Woolas yesterday applied to the High Court for permission to proceed by judicial review against the election court's decision but this was rejected by the judge considering the application on the ground that the election court, constituted as it is by judges of the High Court on the election panel, was not subject to judicial review. It appears the matter will now be headed for the Court of Appeal.

However, the quashing of the election court's decision will be difficult to achieve. The findings of fact by the election court are ordinarily conclusive (section 144(1) of the 1983 Act), and the extent to which the Court of Appeal would be willing to consider this is unclear. Applying the principles of Anisminic v Foreign Compensation Commission [1969] 2 AC 147, Mr Woolas would probably have to persuade the Court of Appeal that either the election court erred on a substantial question of fact (about which it should be noted that the election court had access to the local labour party's e-mail records, so that is going to be a considerable ask) or on a substantial question of law, or that it reached a view on the facts concerning the illegal nature of the matters done by or on behalf of Mr Woolas that no reasonable election court could reach. This is going to be hard to do.

You'll never walk alone (even in Texas)

For those who love football, Liverpool FC's plight, although originally a source of amusement, is now a cause of sympathy from those, such as me, who follow a different colour. (Even though it is perhaps a welcome distraction from Tuesday's events, although in truth England are still in a very strong position and it is too early to wonder where you last put away the panic button.)

From that point of view my last article, about the conflict of laws was quite prescient.

So we have a judgment of Mr Justice Floyd in the High Court in London on Tuesday that it is within the power of the board of directors of Liverpool FC to proceed with a sale of the club (to John Henry who happens to be the current owner of the Boston Red Sox baseball franchise), and a temporary injunction from the District Court in Texas restraining the sale on amazingly lurid allegations stated in Hicks' and Gillett's application. On the grounds that extraordinary claims require extraordinary evidence, and that if true they would certainly have defeated the proceedings in London, those allegations probably require to be treated with considerable suspicion.

Then today we have an injunction from the High Court of England and Wales requiring Hicks and Gillett to withdraw their suit in Texas by 4pm tomorrow.

The main purpose of the temporary injunction in Texas appears to have been to delay the sale beyond the closing date for the Henry deal, which is tomorrow. Whilst the board of Liverpool FC can give a fan's two fingers to the injunction of the District Court in Texas, the American purchaser cannot since contempt of court warrants issued by the court in Texas can be executed in all of the states of the US.

However, it looks doubtful if this delaying tactic will now succeed. First, Henry has indicated that he will extend the closing date until the Texas injunction is discharged. Secondly, Gillett and Hicks are in a very weak position both for geographical reasons - Liverpool, and therefore their investment, is situated in England - and also for legal reasons - a judgment in proceedings to which they were parties and to which they have already submitted to jurisdiction (as in truth they had to) has been issued against them which will be recognised according to the principals of private international law. The board of Liverpool FC are very well advised (Slaughter and May are about the best you can get) and they have attacked this weakness.

Were Hicks and Gillett to fail to meet tomorrow's 4pm deadline given by the High Court in London, any warrant of arrest for contempt of court is unlikely to be executable in Texas, although it would preclude the pair attending further board meetings. Unfortunately for Hicks and Gillett however, any monetary penalty imposed on them, and any damages awarded for losses arising to the club caused by the continuation of the Texas injunction in defiance of the court in London, will be executable against their assets in the UK, and in particular against their interests in Liverpool FC. So they are going to lose on either count.

This regrettable saga does yet again show the folly of the vogue two and three decades ago for clubs to float themselves publicly on the stock exchange, thus making themselves vulnerable to highly "leveraged" take over bids ("highly leveraged" means "heavily indebted" to those who don't like euphemisms). It also again illustrates the dangers of foreign ownership of English football clubs, and of American owners in particular, who don't understand what they are getting into. Let us hope for Liverpool FC that this particular deal is not just jumping from the frying pan into the fire.

On the subject of American sport, what a fine display of bear-down pitching in this week's divisional series of the baseball play offs, particularly by Roy Halladay, Cliff Lee, Tim Lincecum and Derek Lowe, play-off pitching at its absolute best. We still have Halladay, Lee and Lincecum to enjoy in the championship series. My prediction? For the world series, Philadelphia representing the NL and New York representing the AL (but Texas taking them to the last game), and beyond that, too close to call.

Update (Friday 15th October)
Hicks and Gillett complied with the injunction issued by the English court, and apparently the deal with Henry has now been completed. That part of the proceedings now seems to be over, but the pair have indicated they intend to bring, or continue with, a $1billion lawsuit against the other directors of the club and RBS. Given that they bought the club originally for £174m in 2007 and have since done little more than increase the debt, that seems a somewhat preposterous figure, but everything comes big in Texas.

Now there will be disputes about venue no doubt, and whether that should be Dallas or London. If the directors are not resident in the US and do not have assets there, and do not submit to the jurisdiction of the court in Dallas, then they can ignore any judgment of the Dallas court as it would not be enforced in England, and the same would apply to the club itself if they do not have a place of business there. But that luxury would not apply to RBS. No doubt they will apply for proceedings to be removed to London, which is the natural forum for the matter, but American courts do have a tendency to think that there is nothing wrong with telling the rest of the world how to do their business, so that will be the next saga to have played out.

The Conflict of Laws (Eady v The World)

Every nation state has its own laws, and methods of enforcing them. Most federal countries, and some non-federal ones (such as the United Kingdom), have several versions of these applying in different parts of their territory, forming separate legal jurisdictions.

How these different legal systems interact at the level of civil law (as opposed to criminal law) forms what is known as private international law, also called the conflict of laws. Conflict of laws is perhaps a more accurate description because, as mentioned, conflict issues can arise within a nation state as well as between nation states.

Conflict of Laws

When considering contracts or wrong doing having substantive effects in more than one legal jurisdiction, it is necessary to determine three issues:

1. Which courts have jurisdiction on the matter? This is determined separately for each potential jurisdiction by applying the rules of that jurisdiction, and might be more than one, leading to the phenomenon of "forum shopping".

2. What system of law is to be applied in deciding the case? Again this is determined according to the rules of the court accepting jurisdiction in which the proceedings are brought. It need not be the same as the jurisdiction in which the particular case is tried. For example, a court in England may have jurisdiction in a matter but decide that, on the facts of the case, French law applies. It could be even more complicated than that, and can be self-referential: for example the English court in this example could further decide that under French law it would be decided that English law applied, so making English law the applicable law, a self-referencing called renvoi (sending back).

3. Are the judgments (say, for the payment of money) of the particular court which decides a matter enforceable in other jurisdictions within which the unsuccessful party has assets and so against which the judgment can be satisfied?

In the case of an alleged breach of contract, the contract can specify which courts have jurisdiction and which system of law applies, but in the case of other wrong doing, or in cases where a contract does not specify these things, there are complex rules to determine this, which as mentioned may be different in different jurisdictions. Within federal jurisdictions the rules are generally so far as relevant consistent between the federal entities (so the rules of conflict according to the legal system of the State of New York would generally be reciprocal with those of the legal system of the State of California, and necessarily so in the case of federal law itself). Within all of the European Union other than Denmark, it is decided in accordance with Council Regulation 44/2001.

Likewise, within the United Kingdom, the conflict rules are so far as relevant the same in the legal systems of England and Wales, Scotland and Northern Ireland, and each recognises and will enforce judgments of the courts of the others, notwithstanding that Scottish civil law is in some respects quite different from the common law in Northern Ireland and England and Wales. (The common law in Northern Ireland is to all intents and purposes the same as that in England and Wales unless a statutory provision has decreed otherwise, as indeed is the common law of the Republic of Ireland: to that extent the basic elements of the law of the Republic are substantially closer to those of England and Wales than is the civil law of Scotland.)

Defamation and freedom of speech

One area of tortious liability which can differ markedly between jurisdictions is that of defamation. Defamation law in the jurisdictions within the United Kingdom is more careful of people's reputation (and therefore more restrictive of the freedom to defame and so freedom of speech) than it is in some other countries, and particularly in the United States.

The wording of the 1st Amendment to the US constitution in the Bill of Rights concerning freedom of speech ("Congress shall make no law ... abridging the freedom of speech, or of the press") is not dissimilar in sentiment to Article 10 of the European Convention on Human Rights ("Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers"), which is a restatement of Article 19 of the Universal Declaration of Human Rights adopted by the UN General Council. No legal jurisdiction regards freedom of speech as entirely unfettered: all jurisdictions have some limitations on, say, incitement to violence or the deliberate dissemination of falsehoods. One key difference between jurisdictions is the extent to which either malice (improper motive) is required, or negligence in failing to take reasonable steps to find out whether an utterance is false before making it, in order for defamation proceedings to succeed.

Unlike some legal jurisdictions, in the UK malice or negligence on the part of the defamer need not be proved by the plaintiff in order to succeed in a claim of defamation: malice or improper motive is relevant only to whether certain defences may be defeated, such as the defence of fair comment (comment on matters of public interest which are reasonable statements of opinion based on stated matters of fact which can be shown to be true) or the qualified privilege attracted by "Reynolds" responsible journalism. In the UK, the plaintiff in the first instance need only prove that something was said or published to third parties by the defendant that is materially adverse to her reputation and so defamed her. After that, it is for the defendant to establish her defences (if she can) and the plaintiff to rebut them if such defences are offered.

The SPEECH Act

On Wednesday an Act of the US Congress entitled the Securing the Protection of our Enduring and Established Constitutional Heritage Act of 2010 (otherwise known as the SPEECH Act) came into law. It provides that "a domestic court shall not recognize or enforce a foreign judgment for defamation" unless the foreign law which was applied in giving judgment provides the same protection of freedom of speech and of the press as does US law, or the defamatory act concerned would also have been found defamatory according to the law of the US State in question (including under the 1st Amendment of the US Constitution).

This legislation of Congress was aimed at the United Kingdom, and Eady J in particular. Mr Justice Eady has become the high priest in English law of those arguing the cause of protecting reputation and privacy above most other considerations. The case which brought him into conflict with the US constitution, via private international law, was Mahfouz v Ehrenfeld. Dr Rachel Ehrenfeld, who is a US citizen and resident in the State of New York, wrote a book entitled "Funding Evil", which makes a number of claims about how international terrorism is funded.

A Mr Mahfouz and two of his sons were alleged in the book to be involved in financing terrorism (a matter which has never been proved in court and indeed, as mentioned below, in other legal proceedings has been accepted as being false), and they sued Ehrenfeld for libel in the High Court of England and Wales. They were resident in Saudi Arabia at the time and Saudi citizens, although they appear also to have acquired Irish citizenship. The book was not explicitly offered for sale by sellers within the United Kingdom, but 23 copies had been purchased by people in England from online booksellers situated in the US and a worldwide audience presumed to include people in England and Wales had visited an ABC news website in the US containing the first chapter of the book which included the allegations. That was sufficient to found jurisdiction within England according to English law. Ehrenfeld, not surprisingly, chose not to appear or defend herself, taking the view that being a US citizen and a resident of the State of New York selling a book marketed in the US, the English High Court could mind its own business.

One can speculate that the English courts had been chosen by Mr Mahfouz notwithstanding that vastly more copies of the book had been disseminated in the United States because, as mentioned, English law gives less scope to defame in public comment than does the 1st Amendment and, as importantly, by placing the burden of proof of the defence of fair comment or responsible journalism on the defendant, allows default judgments to be issued more readily; and also as a matter of course English courts normally award lawyers' fees to the successful party, whereas jurisdictions in the US generally do not. The Mahfouz's lawyers gave as their reasoning for their choice of venue that "they maintain residences, transact business and have reputations to protect in [the jurisdiction of England and Wales]", which is a fair point particularly as they did not appear to have any business or other interests in New York state, but hardly explains why proceedings were not also brought in New York state for an injunction in order to stop the flow at source.

Eady J made a default judgment as (having decided that the English courts had jurisdiction by virtue of the 23 copies finding their way to England) he was more or less obliged to do by way of a declaration of falsity on an undefended suit with a competent set of affidavits on the plaintiff's side, so one cannot necessarily criticise him for that. However, the further remedies he saw fit to impose appear to have been the point at which he overdid it. He awarded each plaintiff £10,000 (the maximum allowed on summary default judgment) and awarded £114,000 costs, when nominal damages and no legal costs may have been the choice of many other judges faced with forum shopping of this kind on events occurring almost entirely in the US. More oddly, he chose to continue an interim injunction prohibiting further copies of the defamatory material reaching England and Wales which, given the international nature of the internet and of online sellers, would have been impossible to comply with unless Ms Ehrenfeld and her publisher (Bonus Books inc) were to have retained the power to terminate or modify any sale agreements with US bookshops (about which no inquiry by the judge appears to have been made), and would have been incapable of complete achievement even if they had, particularly if suppression would have been unconstitutional in the US. Even if the injunction had been capable of being complied with and not unconstitutional, it would simply have been unenforceable in the US and so hypothetical. The correct remedy would have been against any UK importer, but of course there was none.

Yes, apart perhaps from the over-broad (and in effect unenforceable) injunction, Eady J had the power to do what he did (under section 8 of the Defamation Act 1996) but more regard, in determining remedies, to the kind of considerations which would have informed a decision on venue would have result in a more sane set of orders. Indeed, to have given weight to the fact that there were numerous hits on a US news website situated only in the US (ABC News) is I suggest absurd.

The other side of the argument

So far as concerns Mr Mahfouz, it should be noted on a point of fairness that he has succeeded amongst other matters in France in defamation proceedings against a publication entitled "Le Livre Noir de la CIA" which alleged amongst other matters that he was involved in funding terrorism, and has obtained an apology and a financial settlement from the University of Cambridge Press in respect of similar claims made in a book "Alms for Jihad" published in the UK, from the Mail on Sunday in respect an article in that paper, and from Pluto Books in respect of a book they published, which clearly were proper for the jurisdictions of France and of England and Wales respectively.

From his point of view, if your business interests and reputation are being damaged, you take your remedies where you can find them, which is what he has done. It must also be exceedingly tiresome to be subject to claims that you are involved in financing terrorism if in fact you are not, and if your charitable giving is represented as supporting terrorism. He has also donated all or part of his award in these cases to UNICEF.

I am not particularly opposed to the laws of defamation as applying in defamation proceedings; and Dr Ehrenfeld could have opposed England and Wales as the venue at the outset (but probably had good cause not to, as it would have conceded jurisdiction if that opposition had been decided against her by Eady J given his reputation and previous involvement in some of the other cases brought by Mr Mahfouz referred to above, and of course also cost her not insignificant sums of money). However in a world of world-wide electronic communication, some sanity has to prevail in the remedies awarded, particularly on default judgments. It is that point which the SPEECH Act is intended to address, but which one might have hoped with the application of a little more common sense would not have been necessary¹.

Forum shopping more generally

Lest anyone think that the UK is particularly blameworthy for exporting its version of defamation law to the world, it should be noted that, leaving defamation out of account, the US, with its litigation friendly culture, is by far the greatest haven of forum shopping, to sometimes remarkable degrees. Interested readers can consider the litigation involving Spamhaus LLC (an anti-spam email organisation), under which an Illinois court took upon itself the right to determine a case involving a company registered under English law with no offices or business activities in any part of Illinois, or indeed in any part of the the US. It became so serious that in a subsequent partly successful appeal the US government put to the court its own view on points of law on domain registration as an interested third party, because if the threatened decision on this had stood (an order of the court requiring ICANN to cancel Spamhaus's internet domain registration), international governments would no longer have accepted the function of ICANN in issuing domain names: that would have been transferred to the International Telecommunications Union, whether the US had liked it or not.

US "fishing expedition" type discovery, coupled with inattention to jurisdictional issues by US courts, has also led to bogus lawsuits being brought in the US for the purpose of acquiring evidence for proceedings elsewhere, so as to require the US Supreme Court to issue guidance on the matter.

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¹ On another decision of Eady J, this one overturned on appeal, see this article. Eady J's idiosyncratic views on the responsible journalism defence also received an unfavourable review by Lord Hoffman in another case, in paragraph 57 of Lord Hoffman's opinion.

The Final Holtham Commission Report

The final report of the Welsh Assembly's Independent Commission on Funding and Finance for Wales (the Holtham Commission) has been out for a week now, but was well trailed before then. I have refrained from commenting on it until having an opportunity to read it.

It follows on from its first report this time last year, and in view of the first report's themes, the conclusions and recommendations in the final report should come as no surprise. It's three main proposals are the introduction of a needs based block grant system for the UK to replace the Barnett formula; devolved income tax and other tax raising powers within Wales; and borrowing powers for the Welsh government and assembly.

This article does not deal with borrowing powers.

Needs based block grant

I will not say much about block grant and the Barnett formula, because I have commented on it before in the context of the report of the Richards Committee and on other occasions.

My prediction has always been that any government is going to struggle with the replacement of the Barnett formula, because a needs based formula would require reducing the Scottish block grant. Well in theory it wouldn't - the present Barnett system for Scotland could be retained and a needs based grant introduced for Wales - but the idea that those in England can always expect the worst outcome for them in order to further the interests of the devolved administrations may result in another (although more peaceable) Pilgrimage of Grace descending on London from the north of England, and this time perhaps from the south as well. (Although at first mainly to do with religion, in the Pilgrimage's second phase, feelings boiled over into insurrection partly because of fears of new taxes and economic favouritism and not just a love of the Old Church.)

There is also the problem of defining need. The Holtham Commission's proposals in its first report go to some pains to explain how this can be done, but different parts of the UK (and in particular those in England who have no one explicitly batting for them) are likely to harbour the suspicion that a needs criterion which is at heart subjective, whatever outward system of measurement may be devised for it, is being engineered against them.

Certainly the coalition seems to have put it on the back burner and I don't think the latest Holtham report is going to change this.

Devolved income tax

It is useful to compare the Calman Commission proposals on devolved taxation for Scotland with those of the Holtham Commission for Wales. Holtham can be thought of as a development of the Calman proposals. It is rather more "Calman-revised" rather than "Calman-plus".

In summary, under Calman the UK rate of income tax less 10% would apply in Scotland with a commensurate reduction in UK block grant (whether that grant comes from the Barnett formula or something else). The Scottish Parliament could then decide how much of the missing 10%, or more, is to be paid by Scottish tax payers. In effect they could set the income tax rate applying in Scotland to anything they want provided it is not more than 10% below the UK rate (and so either keep or suffer the difference), but cannot alter tax bands or differentials between bands. As well as tax bands and differentials remaining in UK government hands, so would the income thresholds for them, and allowances.

Under the Holtham Commission proposals, 50% of UK tax rates in each tax band would apply in Wales. The Welsh Assembly would then decide how much of the missing 50% in each band (or more) is to paid by Welsh tax payers, and could decide different rates for different bands (so they could decide to make Welsh tax less progressive or more progressive than UK tax), as long as the rates fixed by the Assembly are within 3% of the UK rate for the band. They could not alter the thresholds applying to each band, nor allowances.

Holtham also specifically deals with the key issue of how UK and Welsh growth would interconnect. The offset against the UK block grant contribution representing the 50% of income tax in Wales which is henceforward to be managed by the devolved institutions would be determined once and for all on the new system coming into effect, and would thence be indexed by reference to UK-wide growth of the tax base. So the Welsh Assembly and government would be rewarded or penalised for their own performance in financial management to the extent of the income tax levied in respect of that "missing" 50%. Something similar did not explicitly form part of Calman, and has since been one of the criticisms of the Calman report. However the Holtham Commission's proposal on this also has its consequences, which I deal with further towards the end of this article.

This is an interesting but odd mixture of concepts. Ostensibly 50% of income tax is to be "devolved", but so far as concerns rates of taxation it is only in fact devolved to the extent that the tax must be within 3% of the UK rate, so as a description this is somewhat misleading. This 50% really determines the amount of Welsh tax-take which is to be directly available to the Welsh Assembly and Government as a link to the economic performance of Wales.

It is interesting to see the report's reasoning behind enabling the Assembly to set different rates between tax bands. The example given in the report concerned higher rate payers migrating to England if they would otherwise be hit by the Assembly increasing the basic rate of tax, given the close proximity of most of Wales to England and that much of the tax base comes from the border areas of Wales: Holtham wants to allow less progressive taxation in Wales, which will surely be a difficult sell politically. (Holtham is persuaded by the "Laffer curve" for higher rates of income tax in areas where taxpayer mobility is a significant factor, under which increasing higher rates beyond the Laffer maximum can result in a reduction of the tax taken. It implies that those only on the basic rate of income tax are a "captive audience" unlikely to move to England if that rate is raised above the rate set by the UK Parliament for England and Northern Ireland.)

Other tax matters

Holtham also recommends consideration should be given to devolving rates of corporation tax, but this is complicated because of EU rules on state aid.

As in the case of Calman, it recommends that stamp duty land tax should be wholly devolved, and (unlike Calman) capital gains tax on property and land. By "property" it appears to mean things affixed to land rather than chattels or non-physical property. It also recommends as in the case of Calman that landfill tax and aggregates levy should be devolved.

The wider picture: (1) need and the block grant

I said I would comment further on how the block grant would work. The use of need as the determining factor in block grant allocation could be seen as the enemy of fiscal responsibility, the reinforcing of which the report states is one its aims. It means that if the devolved administration fails to administer the economy well and economic performance diminishes, then the UK tax payer is, through a needs based formula, there at least in part to soak up the consequences of the failure: so there is a contradiction at work here. The same could also of course be said about the benefits system, but few would want to argue against UK-wide benefits unless the UK were to be split into entirely separate economic units.

The report's recommendations would bring about some linkage between good financial management and an appropriate reward for the devolved administration, by freezing the 50% "offset" against the needs-based block grant to which I have referred, and then indexing it against the UK-wide tax base.

Of course a fixed formula such as the Barnett formula, with the application of local taxation on top of that and the same frozen offset, would reward performance just as well, leaving the workings of the Barnett formula and the UK benefit system as the UK's response to need. Any system may have to be rebased from time to time, even one following the Holtham approach. One could argue that Barnett can be rebased now on a one-off needs basis once devolved taxation is first introduced, with occasional rebasing as required thereafter, rather than making annual arguments about relative need between the constituent parts of the UK a permanent feature of the future government of the UK.

The wider picture: (2) the UK dimension

On its economic analysis, and its consideration of how that plays out in relation to devolution, the Holtham Commission is very thorough. It also makes much more of a nod to how its proposals affect the integrity of the UK as a whole than does Calman. It comments that "We have tried hard, both in this report and in our previous publications, to avoid any suspicion of special pleading", with a whole section elsewhere devoted to "The dimensions of the union between Wales and the rest of the UK". Although the latter section of the report considers, amongst other matters, what it describes as "negative spillovers", it does so only in the fields of economics and tax competition. It does not deal with the wider political consequences, nor dare I say it, the wider legal-constitutional aspects.

I am sure regular readers will have realised that this is still an area which worries me.

In whatever way the relationship between achievement/reward and devolved taxation may be managed, the outcome of these proposals would be that Scottish income tax would be set by the Scottish Parliament provided it is at a level not more than 10% below the UK rate, and Welsh income tax would be set by the Welsh Assembly provided it is within 3% of the UK rates. Since no Scottish Parliament is ever going to wish to set the income tax rate applying in Scotland which is at a level more than 10% below UK rates - it would be completely unrealistic unless there were to be fiscal autonomy giving rise to a wholesale redesign of the tax system in Scotland - the net effect is that the Scottish Parliament would henceforward set the rates of income tax applying in Scotland. The Welsh Assembly would be subject to the plus or minus 3% cap as against UK rates to which I have referred, should the Holtham recommendation on this be accepted, but any thought that an Assembly might want to set it outside those bounds anyway is somewhat illusory. The devolved institutions would also set their own rates of landfill tax and aggregates duty, and might in due course have areas of capital gains tax for which they set the rate.

Under these proposals, the other remaining links with UK rates of income tax would consist only of the thresholds applying to each income tax band (in effect, the "definitions" of the bands) and, for Calman and Scotland only, the differentials between these bands. This represents a substantial deepening of the West Lothian Question, given the constitutional link between representation and taxation. If income tax rates applying in Wales or Scotland were to be less than those in England, and the higher rates in England were only to be carried by virtue of the votes of Scottish and Welsh members, it is easy to see the trouble that this might cause.

In short, the present arrangement under which the devolved institutions are responsible for spending large sums of money from the UK Treasury whilst having limited responsibility for raising it (and none at all in Wales) can and should be viewed as an anomaly. However, is it an improvement to solve that anomaly by making another one worse, and is the union made more secure by doing so?

The answer to that may be yes, but this is a debate which has been completely lacking so far, yet one which needs to be had, and which will come back to bite us in due course if we don't.

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Update: An exchange of comments made on this article has led me to the conclusion that, as far as income tax is concerned, the Calman proposals and Holtham proposals do not significantly worsen the West Lothian question (although I still think eyebrows would be raised if higher rates were to exist in England only by virtue of the votes of members for Welsh and Scottish constituencies). To see why, it is necessary to think in big and implausible numbers. Let us say that the Westminster Parliament were to decide that income tax should go up by 5%, and the Scottish Parliament were to decide not to follow this but instead to keep rates in Scotland as they are. They would be entitled to do this, but would take a significant revenue hit. Only the top 5% of income tax they set would supplement the block grant, rather than 10%, so if they wanted to make up the difference they would have to think about raising local taxation (eg through non-domestic rates or domestic local taxation) or finding the money in some other way.

Of course, for taxes which are to be wholly devolved, such as landfill tax and stamp duty land tax, the West Lothian question does apply in full force, but these are not taxes likely to start pulses racing (although interestingly it was stamp duty which was one of the issues which finally drove the American colonies to rebellion).

Unicorns and trade marks

Here is a bit of humour to help lift World Cup gloom for those in England, following the last-16 stage.

The law of trade marks comprises one of the branches of the law of intellectual property. Unlike copyrights and patents, trade marks do not protect the implementation of an idea by the way of patentable invention, nor actual creative expression by way of copyright, but protect product reputation and goodwill. One of the other differentiating features of trade marks from patents and copyright is that if they are not enforced (leaving minor or inconsequential misuses out of account), they can lapse. This means that those who own valuable marks must be vigilant about whether others are misusing their marks in a consequential way, and enforcing the marks if they are.

A registered trade mark is an expression or symbol which identifies particular products or services as being those of a particular trader. The breach of a trade mark arises if another trader describes one of their own products or services in a way which might confuse it, in the eyes of a reasonable person, with those of the trader protected by the mark. If the trade mark is registered, this gives a separate right of action apart from the common law wrong of "passing off": the misusing of the mark becomes a cause of action of itself in the UK (including Scotland). US trade mark law is similar to that in the UK and many other countries, although in the US there is the additional concept of "trade mark dilution": that use of the mark by others might devalue it even if no product confusion results.

However vigilance can be taken too far. In the US there is a National Pork Board, an organisation representing those producing and trading in pork meat. The Board has a registered trade mark in the expression "The Other White Meat", which is widely used in the Board's advertising (presumably this is an attempt to make pork appeal to turkey-eaters).

ThinkGeek are an internet trading organisation selling weird products on the internet that most people wouldn't buy to save their lives, but that some people apparently like (I must confess that the Monty Python Killer Rabbit slippers look quite appealing). It is tempting to think that the whole site is a spoof but that is apparently not the case. However they do from time to time do spoofs, and on April 1st this year they advertised their unicorn meat product, under the buy-line "Pâté is passé. Unicorn - the new white meat". Apparently someone at the National Pork Board, zealously protecting their trade mark as required by law, thought that unicorns really existed, and that the use of the expression "the new white meat" might cause a reasonable consumer to confuse the product with pork, notwithstanding the sales information which included:

"Excellent source of sparkles!

"Unicorns, as we all know, frolic all over the world, pooping rainbows and marshmallows wherever they go. What you don't know is that when unicorns reach the end of their lifespan, they are drawn to County Meath, Ireland. The Sisters at Radiant Farms have dedicated their lives to nursing these elegant creatures through their final days. Taking a cue from the Kobe beef industry, they massage each unicorn's coat with Guinness daily and fatten them on a diet comprised entirely of candy corn."

The Board went as far as issuing a "cease and desist" letter via their lawyers. This must be one of the epic legal blunders of modern times.

Suffice to say, the spoof "product" remains advertised by ThinkGeek.

The 55% proposal

In my post here I commented adversely on the Conservative/Liberal Democrat coalition proposal, in my words, "to require any vote of no confidence to have a 55% majority against the government" in order to come into effect. This comment related to my reading of the provision in the coalition document which states, in relation to its legislation for a fixed term Parliament that "This legislation will also provide for dissolution if 55% or more of the House votes in favour."

The purpose of this proposal is not, it now appears, what I supposed. The convention requiring a government to resign in the event of a vote of no confidence being passed by a bare majority is, apparently, to remain. The 55% figure is the threshold that would require a new election before the conclusion of the proposed 5 year fixed term. What is intended to happen in the event of a vote of no confidence being passed by more than 50% of the those voting but not being followed by a 55% vote in favour of a dissolution, is that the parties which passed the motion of no confidence should get together and agree a new coalition to form a government which is able to command the confidence of the House.

In this respect, it mirrors the equivalent provision applying to the Scottish Parliament which requires a 66% vote to trigger an early election rather than the resignation of Alex Salmond's government, which would only require a 50% vote.

Put this way it does not comprise the act of constitutional violence that I supposed it did. The downside however is that a no confidence vote not leading to a dissolution would, without proportional representation (which gives rise to a more even spread of party representation than first-past-the-post or alternative vote), require a new coalition government with probably only a small majority. or maybe a minority government with no majority at all, to limp on to the conclusion of the original government's 5 year term, even though it would be likely to have difficulty completing its legislative programme. One could envisage a succession of no confidence votes resulting in increasingly ill-tempered attempts to form new groupings capable of forming a government. The thinking presumably is however that, were a government to be paralysed in this way, there would be sufficient cross-party consensus on the need for a new election as to enable the 55% vote for a dissolution to be passed.

Without proportional representation, it might be easier to require that an early dissolution may only occur following the passing of a vote of no confidence against the government in office, and in addition to provide (in order to prevent the government triggering its own downfall so as to provoke a new election at a time of its own choosing) that only the leader of the opposition may put down such a motion of no confidence.

A coalition with potential

I am surprised that the Conservatives managed to agree a coalition with the Liberal Democrats, but it is an interesting development, and in its form is one that shows considerable political generosity by the Conservatives towards the Liberal Democrats.

The Conservatives may benefit from this indirectly, beyond just being able to take power for the moment, by making the party more used to occupying the centre ground and by neutralising, for a while, the more swivel-eyed at the far right of the party. As a person in the centre of the party leaning towards, but not yet at one with, the one-nation Tories, David Cameron's talk of this being an opportunity as well as a challenge is probably something he actually feels as well as being a good sound bite. A dose of realism might well be good for the Tories, and in due course become a habit.

The Labour party's attack strategy is already becoming clear, and is a retreat to type: that this government is a government of cuts. If the coalition play their cards right, they may well be able to defeat this one. Gordon Brown was at his most unpopular and most derided when he was pushing his "Tories' 10% cuts" line, when everyone knew that a Labour government would have to do the same and cuts were inevitable. The coalition response needs to be in kind, namely that it is the same old dishonesty. If they play their cards correctly (and they may not), Cameron may be right that the coalition can bring a good portion of the electorate with them on cuts. Their stock response to a Labour attack of this kind should not be a quibble about numbers (nor even the ineffective Steve Hilton nicey-nicey big society stuff), but should work at the level of sentiment with one word: dishonest.

All this of course depends on the coalition surviving more than 12 months. It might or might not. But this is certainly a bold move by David Cameron. It seems that he lacks neither political instinct nor the decisiveness to lead the way and follow his instinct.

The coalition document

Two things of interest were in the coalition document. First, the proposal to require any vote of no confidence to have a 55% majority against the government looks like the same-old same-old political cynicism and seems very ill-advised. Its purpose is presumably to allow the government to continue even with a Liberal Democrat defection, as a minority government, but it simply won't work, and I am amazed the Conservatives had the balls to suggest it and the Liberal Democrats the lack of wisdom to agree it. To be effective it would require any Finance Act and Appropriation Act to be capable of being passed with a 45% vote, which would be outrageous. Update: it transpires that this is a misreading of the intentions of the coalition document: see this for further explanation.

Secondly, also of interest was the agreement, presumably at Liberal Democrats' insistence, that the West Lothian question should be put to a commission rather than implementing Ken Clarke's Democracy Taskforce proposal for an English Grand Committee.

Putting things to commissions is of course the standard way of kicking things to the long grass. In the 1970s we had the Kilbrandon Commission on the Constitution of the United Kingdom, which enumerated the arguments against an English Parliament and/or restricted voting at Westminster and/or regional bodies with legislative powers within England (the majority report recommended instead pseudo-devolution within England along the lines of the hopeless John Prescott proposals). As Ken Clarke is the new Justice Secretary and will therefore presumably be in charge of this project, it will be for him to move it along should he feel the urge to do so, and maybe his appointment to the office of Justice Secretary is an indication that he proposes to do so.

What we need though is a commission which looks for solutions and not for problems. In particular it needs to eschew the straw-man approach of those who advocate the "do-nothing" option, which I touch on here. I do not think "do-nothing" is going to work for a great deal longer.

Even better would be a commission which actually listens to what people in England would like, which is surely going to have to happen at some stage, or would that be too much like open government for the taste of this coalition? Probably, it would: the coalition is a bold step in government, but it will probably not turn out to be the start of a new kind of politics as claimed for it. However, let's keep hoping.

How much time is there

So it appears that the Conservative/Liberal Democrat talks have not so far yielded fruit. We were told this afternoon, after the days' talks had finished, what they have been discussing, but not whether the gap is unbridgeable.

William Hague said "We are agreed that a central part of any agreement that we make will be economic stability and the reduction of the budget deficit" apparently in an attempt to calm the markets, but it remains to be seen whether they will remain calmed once the main markets reopen tomorrow.

From that point of view, I am not convinced that there is a lot of time remaining. My view on Friday, which is here, was that the most likely outcome was a Liberal Democrat undertaking for the time being to vote with the Conservatives or abstain at the Queen's Speech and on budget/taxation matters, and I am a little surprised that the Liberal Democrats have not by now at least given some indication in that direction. If we do end up with another election in a few weeks' time, which seems the likely outcome were the Conservatives and the Liberal Democrats to fail to agree something, I suspect the Liberal Democrats will be significantly punished by the voters, as well as showing themselves as a party which prefers to bleat from the sidelines rather than to be taken seriously and accept the burdens of office.