OVATio, OVATio, wherefore art thou OVATio?

This article provides an insight into the case between HMRC and Insurancewide and was previously published as a three part serialisation on Insiders View

1. HMRC vs Comparison Sites, 2. HMRC The case continues, 3. HMRC The end

The full transcript follows:-

HMRC v Insurancewide the tribunal

Back in April 2007, immediately prior to the opening of the initial Tribunal in the case of Insurancewide v HMRC, I recall our counsel Roderick Cordara QC advising us as Appellants, that the Court could be likened to a Theatre and the proceedings likened to a play, albeit one in which the actors had different scripts. However, what Roderick did not advise was that the nature of the play was likely to be that of a farce, although in hindsight with such differing scripts and ones that, at least in so far as the Respondents were concerned, kept changing as the play progressed, the comic outcome was perhaps inevitable.

Nevertheless subsequently we have also been witness to intrigue, drama and alas tragedy as well, since as a direct result of the announcement by HMRC to take the battle to the Court of Appeal, without the funds to further the cause, the decision was taken that Insurancewide should cease trading. The battle with HMRC extends back to January 2005, when following a seemingly innocuous enough visit by two VAT inspectors we received a letter advising that Insurancewide was not deemed to be acting in an intermediary capacity and, therefore, would be subject to VAT at the standard rate on the entirety of its income extending back to inception in 1999.

At that stage the suggestion was that Insurancewide was simply a provider of software that facilitated a connection between individuals seeking insurance and providers of insurance, nothing more (my thoughts on this were contained in this email). Although, subsequently, on day five of the hearing the Commissioners proposed and were permitted to submit an amendment to their Statement of Case, which suggested that the services provided by Insurancewide consisted of supplies of market research, product design, advertising, promotional and/or similar services, which were not exempt supplies.

Unfortunately, it seems that the bench relied heavily on this revised submission in their determination of the activity of Insurancewide in what was termed the “Cox Period”, in that they ruled on the activity during that period, as follows:-

“…..Insurancewide was in our judgment nothing more than an introducer and its role at that time cannot be properly distinguished from that of an advertiser in that via its website it had no interaction with either party beyond making the one aware of the other and providing a means of the one contacting the other. Its activities during that period did not come within either the requirements of the Directive or the VATA, but came within those described in Note 7(a) to Group 2 of Schedule 9 of the VATA as a supply of ‘advertising…or similar services’ and as such are excluded from the exemption.”

The farce is that in making this ruling there was a complete lack of regard for the substantive amount of evidence presented as regards the “Cox Period” which showed not only that the whole process on the website from quote to sale and beyond was carried out in the name of Insurancewide but also the fact that all of the policy documentation was issued in the name of Insurancewide as were all subsequent communications, including amendments to policies, renewal notices and any correspondence with regard to claims. In that knowledge it was ludicrous to suggest that all we were doing was providing advertising, who exactly were we supposed to have been providing advertising for – Insurancewide?

That is just one example amongst many as to the farcical nature of that initial decision.

I will not go into detail with regard to the other anomalies, although it is amusing to relate an incident that occurred at a second meeting with the inspectors prior to the Tribunal at which the question was posed, given the facts described above, if they did not consider Insurancewide to be providing services that were VAT exempt to give an example of an insurance provider that was considered to be doing so. The answer that the inspector in question chose from personal experience was a policy taken out with the Nationwide Building Society. We pointed out that insurance policies issued by Nationwide were provided under an affinity arrangement with an insurance company where the documentation was simply branded as Nationwide. In effect no different to the arrangement between Insurancewide and Cox Insurance, although the inspectors were unable to see the correlation – they remained adamant that Nationwide were providing insurance but could not agree that Insurancewide were doing likewise.

However, this was not true of those representing the Commissioners at the Tribunal who became visibly uncomfortable in the face of the mounting evidence being submitted as the trial progressed and this is where the intrigue begins. In the lull between the first two days of the hearing, held in April of 2007 and the last three days in July of the same year we were invited to attend a meeting with HMRC Policy Branch. At that meeting a deal was proposed whereby the Commissioners would accept the appeal for VAT exemption in so far as the services provided by Insurancewide during the “Cox Period” were concerned on the basis that the Tribunal would then be able to consider each of the subsequent periods in isolation rather than as a whole. This offer was rejected and not least because, owing to the substantial start up costs incurred Insurancewide had been trading at a loss during its formative years and thus, the effect of losing on the latter periods whilst winning on the prior period would have been to significantly increase the potential liability to unpaid VAT. My own reaction to this meeting was contained in an email that I sent to James Harrison, which you can read here.

In the event the decision of the Tribunal, released in October of 2007, in dismissing the appeal came as a complete shock not only for Insurancewide and its advisors but also for others within the industry but, even more so, for the Commissioners. Despite the dismissive attitude of the bench within paragraph 78 of their judgement, the Commissioners were clearly concerned that Insurancewide could be seen as being treated unfairly as compared to its competitors (Confused, Go Compare, Comparethemarket and Moneysupermarket to name but a few.) HMRC were effectively left with a catch twenty two situation. On the one hand they were now convinced that some of the services that were being provided by Insurancewide were VAT Exempt services but on the other hand were unable to overturn the ruling of the Tribunal.

Of course we were keen to assist HRMC to overcome this dilemma since VAT exemption for IW Connect provided the opportunity to limit the potential liability going forward, which was necessary if the Company was to succeed in attracting additional investment. It so happened that as part of the ongoing development plans we were about to implement some changes to IW Connect, which whilst not materially changing the service that we supplied to the insurers (our customers) were nevertheless significant enough in the eyes of HMRC for them to grant the VAT exemption. Thus it was that HMRC provided Insurancewide with a letter bestowing VAT exemption for IW Connect with effect from 1^st January 2008. In return for providing this ruling the Commissioners would have preferred Insurancewide to have withdrawn the notice of appeal that had already been submitted to the High Court in December of 2007, but that was not on the cards and, therefore, they added a proviso instead. The proviso was in the form of an undertaking required of Insurancewide, by which it was agreed that the fact that HMRC had provided this ruling could not be submitted as evidence in any future appeal to the High Court or above concerning the liability of the services prior to 1^st January 2008.

This undertaking was incorporated within the letter from HMRC in which the ruling was provided, I presume so that any judge viewing it would know what had been agreed and thus be persuaded to disregard the letter should it be submitted as evidence. As it turns out it has not proved necessary for this arrangement to be revealed to the Courts, although I wonder what the Judiciary would actually have made of this seemingly rather clandestine approach by HMRC.

Then along came Trader Media

The Tribunal in Trader Media v HMRC was heard in March of 2008 and the decision, which was announced in May of that year, caused quite a stir from the point of view that the ruling was completely opposite to that in Insurancewide v HMRC, albeit that the services provided by Trader Media were in the same sphere as those being provided by Insurancewide. Moreover, it could be argued that the services provided by Trader Media were more akin to one of Insurancewide’s downstream distribution partners and indeed, along with Insuresupermarket and Confused, Insurancewide were cited in the contract between Trader Media and BISL as a competitor to Comparethemarket.

So what aspects of the Trader Media case were of significance in determining that the outcome should be so different to that of Insurancewide?

Firstly, Trader Media was a much simpler situation to look at in that the case concentrated on a relatively short period when there had been no change within the operations, governed by a single contract between the parties. This was in complete contrast to the complexity of the Insurancewide operations, with many more products involving numerous contracts between multiple parties (some of which encompassed advertising activities in addition to intermediary activities) and over a much longer period, during which time there were many changes brought about largely as a result of improvements in technology. It is interesting to note that Trader Media had been providing insurance “intermediary” services via its Autotrader website since 2001 but a prior ruling had been obtained from HMRC that those services were VAT Exempt and it was only when HMRC reviewed the operations in 2006 that questions were raised as to the correct VAT status.

Secondly, the argument in Trader Media had been more concerned with looking at Insurance Intermediation as being a VAT Exempt service, whereas in Insurancewide the emphasis was more on proving the role of Insurancewide as either an agent or broker. This difference was highlighted by Dr Kameel Khan within his summing up of the decision in Trader Media, thus:-

“The InsuranceWide decision sought to look at the definition of an insurance agent in Article 2(1)(b) of Directive 77/92 (now repealed).  In our case, it was necessary to look more closely at the meaning of insurance intermediary services.  It is the activities of the business concerned which must be looked at to see if the bringing together or introduction of the parties led to the conclusion of an insurance contract and formed an essential part in the chain leading to the conclusion of such a contract.”

Thirdly, as is evidenced by the comparison provided by the judge above, the case for the Respondent in Trader Media had relied too heavily on the decision in Insurancewide despite the fact that Counsel for the Commissioners must already have been aware that the decision in Insurancewide was flawed. It certainly would seem to be the case that Dr Kameel Khan was of this opinion.

A United Front

It was inevitable that the Commissioners would want to appeal the decision in Trader Media as it had the potential to open the floodgates to claims for VAT exemption from many different types of Companies that had previously been viewed as providing advertising and marketing services rather than intermediation services. What was not so inevitable was that they would ask for our appeal to be co-joined with their appeal in Trader Media. I think it fair to say that both Insurancewide and Trader Media had reservations about allowing this to happen and both submitted arguments as to why the cases should be heard separately, although it is perhaps fortunate that these arguments were rejected as it meant that there would now be a united front against HMRC.

The conjoined cases were heard at the High Court during March 2009 over three days, although the decision had all but been revealed in the opening session of the first day the course of which, we are told, was about as dramatic as they come in VAT cases. The drama was provided in the way that the Judge (Sir Edward Evans-Lombe) began the proceedings by addressing the court and asking some questions of the Counsel present that effectively outlined the direction of his thoughts as to the matters before him. Our Counsel later told us that what had transpired in those first few minutes could be likened to an occasion several years earlier in a case where he was acting on behalf of Lloyd’s of London and during which his opposite number, whilst proceeding with a line of questioning, in hearing the response came to the sudden realisation that he had been labouring under a misapprehension regarding the trading relationship between individual Members of Lloyd’s within a Syndicate and that the case for the Commissioners had effectively run aground at that point.

In our case, the drama of the Judge’s opening address was reflected in the actions of the Commissioner’s representative, who was witnessed seated at the back of the court room with, head in hands. However, after what had been a sensational start, it was back to the formalities and once the court had settled the remainder of that first day was spent listening to the eloquent tones of our Counsel (Roderick Cordara QC) as he delivered his well rehearsed and indeed fascinating insight into the history of VAT and cases precedent for the benefit and, at times, amusement of the Judge.

In what transpired next, it seems that the attention of the Commissioners, in part at least, was now focused on the possibility that the decision could go against them and, therefore, they were looking at how they might be able to recover the situation and in particular the course of any subsequent appeal should that prove necessary. In the recess that followed the first day there were further furtive negotiations with a view to an “out of court” settlement with Insurancewide that would have left the case against Trader Media as the determinant in creating the ground rules for the treatment of VAT in respect of insurance intermediation. However, those discussions foundered, because the Commissioners both to save face and to help their cause, would have required that Insurancewide concede defeat on the “Cox period”, whereas from our point of view that would have been not only absurd but the worst outcome for the Company financially.

Thus it was that the proceedings continued and in due course the ruling of Sir Edward Evans-Lombe, announced in May of that year, was in favour of the Taxpayers, Insurancewide and Trader Media.

However any feelings of relief and elation on the part of Insurancewide were to be short lived since, already strapped for cash, the future of the Company as a trading entity rested on the critical decision of HMRC as to whether they would concede defeat at that point or take the matter further to the Court of Appeal. Sadly, but not unexpectedly, that decision did not go the way that we had all hoped for and there followed the inevitable announcement by the Board that the Company would cease to trade with effect from 31^st August 2009, contained in the press release issued on 15^th July 2009.

So we move forward into 2010 and the Court of Appeal held in March. Due to the circumstances that prevailed Insurancewide had no legal representation at the hearing and, unfortunately, neither was I able to attend court and, therefore, I am unable to provide testimony as to the drama that may have been enacted during the course of those proceedings. Nevertheless, the decision announced on 22^nd April is dramatic enough in that the three Judges each found in favour of the Respondents in their unanimous dismissal of the appeal by HMRC.

In summing up the Judges set out what they saw as the key principles in the case, which included the following:-

“Whether or not a person is an insurance broker or an insurance agent, within Article 13(B) depends on what they do.”

“It is an essential characteristic of an insurance broker or an insurance agent, within Article 13B(a), that they are engaged in the business of putting insurance companies in touch with potential clients or, more generally, acting as intermediaries between insurance companies and clients or potential clients.”

And in deliberating on whether those principles had been met the judges found in favour of both Insurancewide and Trader Media, thus:-

“…..It is sufficient that they were providing services characteristic of an insurance broker or agent, and which were vital to the process of introducing those seeking insurance with insurers, even if they were only part of a chain of such persons…..” 

I sense a strange feeling of déjà vu in reading these conclusions – but wait isn’t that exactly what HMRC say within their own internal manuals on the matter of insurance intermediary services – as highlighted in the following extracts.

“VATINS5205 – Services of an insurance intermediary: Insurance brokers and insurance agents: General 

There is no definition of either insurance broker or insurance agent within UK or EC VAT law. Whereas the profession of an insurance broker is well recognised, however, this is not so true of an insurance agent and this can sometimes cause problems.

For the purposes of the VAT exemption we recognise an insurance agent as anyone who provides insurance related services in an intermediary capacity.”

“VATINS1310 – General Introduction and the law: Legal Notes to Group 2:

Legal Note 1: Services of an Insurance Intermediary

1 For the purposes of item 4 services are services of an insurance intermediary if they fall within any of the following paragraphs –

a. the bringing together, with a view to the insurance or reinsurance of risks, of –

(i) persons who are or may be seeking insurance or reinsurance, and
(ii) persons who provide insurance or reinsurance; ……………  ”

For the sake of brevity (ha! ha!), I have included only the relevant paragraph above but the other 3 can be seen by viewing the documents online here VATINS1310

“VATINS1320 – General Introduction and the law: Legal Notes to Group 2:

Legal Note 2: Acting in a intermediary capacity

2 For the purposes of item 4 an insurance broker or insurance agent is acting “in an intermediary capacity” wherever he is acting as an intermediary, or one of the intermediaries, between –

1. a.      a person who provides insurance or reinsurance and
2. b.      a person who is or may be seeking insurance or reinsurance or is an insured person.”

Given the correlation between the findings of the courts and HMRC’s own guidance notes on the matter of Insurance Intermediary Services and also given that, within the general guidance on their website, HMRC state that they are committed to “resolve disputes by exploring all reasonable possibilities of settlement locally”, it is extraordinary that this matter should even have got as far as Tribunal let alone the High Court and subsequently to the Court of Appeal. This has truly been a “Comedy of Errors” and whilst the courts are not necessarily to blame in this instance, it brought a smile to my face to find that this most farcical of Shakespeare’s plays was first performed at Gray’s Inn in 1598. Apparently, according to this article on Suite101, Shakespeare took the opportunity to revise the play and added two trial scenes, which he knew would amuse the audience of legal students.

So we have a Phyrric Victory for Insurancewide and a victory without Ovatio

It can but be hoped that after 5 years of unnecessary conflict sense will now prevail and that the Commissioners will be persuaded by the refusal of the Judges at the Court of Appeal to recommend a referral to the ECJ to finally let the matter rest.

Regrettably such a decision, if it comes at all, will arrive too late for Insurancewide but it will at least allow Trader Media to get on with its business without a distraction that is both unnecessary and expensive. It would also permit the Insolvency Practitioners to proceed with the distribution of such assets that remain of Insurancewide amongst the Company’s creditors, which includes all of the staff.

It is wrong that tax authorities in this country should be allowed to waste tax payer’s money in such futile cases, especially where they are acting in direct contradiction of their own published guidelines. In other countries the tax authorities are not immune from legal action against them in such situations and if that were to be the case in the UK also then perhaps those responsible would go to greater lengths to ensure that they have a better understanding of the facts before embarking on needless and expensive legal procedures.

As it is, despite having been awarded costs in this case, it transpires that those costs are only recoverable in part and even a recovery of 50% (say) is not without close scrutiny and contest by the lawyers acting for the Commissioners. Also, whereas the basis for the recovery of costs at Tribunal is relatively liberal, in that, the advice of the Company’s accountants in this matter is a recoverable expense, when it comes to the higher Courts, recovery is restricted to those costs incurred in the provision of legal representation only.

Of course the true cost of this case is far more than the hundreds of thousands of pounds expended in fighting the legal battle.

Excess Mileage can lead to Excesses – Insurance Small Print

Estimate of annual mileage

When obtaining a quote for car insurance most insurance companies require you to provide them with an estimate of your proposed annual mileage which can affect the premium – the lower the mileage the lower the premium.

A quick test on an insurance aggregator (comparison) website reveals that premiums quoted can vary by between £2 and £5 for each 1,000 miles proposed. Accordingly, the difference between an estimate of 8,000 miles and 15,000 miles could be as much as £35.00 on the final premium. Therefore, it is possible that some drivers will be tempted to propose an estimated annual mileage that is lower than they might usually travel in a year.

However, some insurance policies have clauses that are designed to guard against the potential abuse of drivers seeking to reduce the cost their premiums in this manner.

Not to be under estimated

The following special terms were contained in the small print of a car insurance quote that I obtained online via a insurance aggregator (comparison) website, where  , in the event of a claim, a sizeable increase in the policy excess will be incurred even if the estimate is only exceeded by a single mile.

Special Terms

Your premium has been reduced because you have agreed that you will not drive more than 8000 miles a year. If you go over this mileage, you will have to pay the following amounts towards any claim for accidental loss or damage to your vehicle: if you go over the mileage limit by up to 1000 miles you will have an additional £250 excess, if you go over the mileage limit by 1000 miles or more you will have an additional £500 excess. These amounts apply in addition to any other excesses that may apply.

It then occurred to me that I hadn’t supplied any details of my vehicles mileage so how would the insurer know that I had exceeded the 8,000 miles proposed.

On looking at the detail behind the quote I discovered that the insurer’s system included the question as to the current mileage of the vehicle, although this was not present on the aggregator’s system and thus the figure entered in this field was zero. Since the vehicle has already done well over 8,000 miles the concern would be that the policy excess would automatically be increased by £500 for having exceeded the annual mileage estimated.

One would hope that the insurer would realise that there had been an oversight as regards this aspect and apply some common sense although what certainty is there of this and in the circumstances how would they seek to confirm the true mileage of the vehicle at the time the policy was effected?

An obvious place to start would be the MOT certificate (assuming that the vehicle was over 3 years old of course) although this may not be concurrent with the policy and, therefore could be misleading.

Also, regardless of whether they have a reliable starting point for the mileage of the vehicle, what methodology would the insurer employ for assessing the overall annual mileage where, for instance, the policy had been taken out immediately prior to the annual vacation which involved a 2,000 mile round trip to the Dordogne (say.) Utilising a quarter of the total annual mileage proposed inside of the first two weeks of cover?

It seems that this clause is fraught with potential problems – what do you think?

Do you have knowledge of a motor insurance claim where the policy excess has been increased owing to the annual mileage having been exceeded or assumed to have been exceeded on a pro-rata basis?

Aviva developing a new car insurance for price comparison sites

Following in the footsteps of Direct Line who have taken the stance against inclusion of their products on insurance aggregator websites such as Moneysupermarket.com, Confused.com, Gocompare.com, Beatthatquote.com and Comparethemarket.com, Aviva (formerly Norwich Union) withdrew its Car Insurance from comparison websites in 2008 and its mantra of recent times has been “Go direct, get the Aviva deal!”.

In truth, Aviva have continued to have a presence on insurance comparison sites through RAC Insurance, as indeed have RBS Insurance (who own Direct Line) through their other brands such as Churchill and Privilege. However, the rumour, via FT.com, is that Aviva have put RAC up for sale and that they are working on a new internet-only car insurance product specifically for the online aggregator market.

So what will this new car insurance product offer? Will it follow the route taken by Allianz with Your Cover car insurance or RSA with eChoice car insurance, which both provide basic levels of cover with the option to add on “extra” items of protection that may previously have been included within a basic policy such as, contents cover, cover whilst driving other cars, windscreen cover, legal expenses and personal accident cover, as well as adding other erstwhile supplementary options such as roadside assistance (breakdown cover) and no claims discount protection. The basic or core cover provided under the Your Cover policy is comprehensive in that it includes the statutory third part cover as well as cover for damage to your own car in the event of either an accident, malicious intent, fire and theft it also provides for recovery of you vehicle in the event of an accident and initial legal advice as well as replacement locks and keys. eChoice continues to provide the option of selecting either third party cover only or comprehensive cover although they point out that some of the “extra” items are only applicable when comprehensive cover is selected.

It is not yet known whether the new Aviva car insurance will be branded as Aviva although I suppose that they will still be able to market their existing product using the slogan “Go direct, get the Aviva deal!” since the deal they will be offering is likely to be different to that available via price comparison sites.

The question is how long can Direct Line continue with its stance of not allowing its product to be included on price comparison sites, given that cover taken out via the comparison is already in excess of 50% and rising and that the RBS share of that market is much lower than their share of the overall market, which has been shrinking?

Half Baked Cookie Law to be ignored at your peril

The amended EU law on the use of cookies by websites came into force today and despite having had 19 months to prepare for the introduction of this half baked EU directive, it would seem that virtually all websites in the UK are now operating in contravention of the legislation which was approved by the Council in October 2009.

The Information Commissioner’s Office is responsible for regulating and ensuring compliance with the law but even the Commissioner’s own site (ICO.gov.uk) is not fully compliant.

The Commissioner (Christopher Graham) provides the following advice within the latest ICO news release on the matter.

“As the regulator, I’m conscious that my own website will be looked at for a model of how to comply. We’ve decided to place a header bar on our website giving users information about the cookies we use and choices about how to manage them. I am not saying that other websites should necessarily do the same. Every website is different and prescriptive and universal ‘to do’ lists would only hinder rather than help businesses to find a solution that works best for them and their customers. The initial advice that we issued earlier this month will continue to be supplemented with real-life examples as they come in.”

So what are cookies and what is the effect of the amendment in the law?

Cookies are small text files that are passed back and forth between a website and your computer and effectively enable them to communicate with each other in the background whilst you are browsing. Cookies are created by a website when you visit it and are then stored on your web browser (i.e. on your computer). The information they contain is not personally identifiable as such although it aids the website to recognise that you (or rather your browser) have visited the website previously and enable the website to collect data pertaining to its users’ habits. This could be as simple as recalling which pages are viewed most often but may also be used to recall a specific sequence of actions and requests as well as providing authentication for the retrieval of any data submitted on previous visits. To this end cookies provide an unobtrusive and extremely useful way of ensuring that the process of browsing the web is as easy as possible.

However, it is this inherent unobtrusiveness of cookies that opens them up to uses that are seen by many as highly intrusive. In particular, when you visit a website in addition to the cookies created by the website in question, there are often cookies served and saved on your browser by third parties such as from advertisers. More and more these tracking cookies are being used to follow your movements across the web enabling the advertisers to target the adverts delivered to you according to the websites you visit, the articles you read and the products you view.

Whilst, in essence cookies are benign and cannot be used to deliver viruses, sometimes they can be employed in a malicious manner and it is also possible for the data they contain to be intercepted during transmission between your computer and the website. More information about such security threats and how to protect against them is provided on the all about cookies website.

Since the passing of the original legislation in 2003 all websites have been required by law to provide you with information about the cookies they employ and to provide you with the opportunity to opt-out from having them stored on your computer. Hitherto the most common place for this information to be provided was within a websites privacy policy along with the details of how a decision to opt-out might be conveyed to the website owner which would of course be after the event.

The amendment to the law requires that a website owner, in addition to providing more up front and detailed information about their use of cookies as well of those delivered by third parties, must now also gain your consent before permitting a cookie to be stored on your computer. Indeed the website owner now needs to gain your consent before using any of the data contained in cookies that have already been stored on your computer following prior visits to their website.

The precise wording of the EU legislation to be found within article 5(3) of the directive 3674/09 reads as follows

Article 5(3) shall be replaced by the following: “3. Member States shall ensure that the storing of information, or the gaining of access to information already stored, in the terminal equipment of a subscriber or user is only allowed on condition that the subscriber or user concerned has given his or her consent, having been provided with clear and comprehensive information, in accordance with Directive 95/46/EC, inter alia about the purposes of the processing. This shall not prevent any technical storage or access for the sole purpose of carrying out the transmission of a communication over an electronic communications network, or as strictly necessary in order for the provider of an information society service explicitly requested by the subscriber or user to provide the service.”;

Whilst consent only needs to be obtained once and thereafter will remain in force until rescinded the manner in which that consent may be sought presents problems and is seen by many as entirely unworkable. Indeed, speaking today at the Incorporated Society of British Advertisers’ briefing on cookies, privacy and consumers, Information the Commissioner, Christopher Graham, said:

“I have said all along that the new EU rules on cookies are challenging. It would obviously ruin some users’ browsing experience if they needed to negotiate endless pop ups – and I am not saying that businesses have to go down that road.”

although he went on to say “Browser settings giving individuals more control over cookies will be an important contributor to a solution. But the necessary changes to the technology aren’t there yet. In the meantime, although there isn’t a formal transitional period in the Regulations, the government has said they don’t expect the ICO to enforce this new rule straight away. So we’re giving businesses and organisations up to one year to get their house in order. This does not let everyone off the hook. Those who choose to do nothing will have their lack of action taken into account when we begin formal enforcement of the rules.”

The detail within the header bar placed on the ICO site reads as follows:-

On 26 May 2011, the rules about cookies on websites changed. This site uses cookies. One of the cookies we use is essential for parts of the site to operate and has already been set. You may delete and block all cookies from this site, but parts of the site will not work. To find out more about cookies on this website and how to delete cookies, see our privacy notice.

This is accompanied by a tick box with the wording “I accept cookies from this site” which when checked and continue selected causes the header to disappear having presumably recorded the fact that I have agreed to accept cookies from their site.

Accordingly, whereas other commentators are advising that they will be relying on what they see as a get out clause within the recital to the directive suggesting that reliance can be placed upon the manual cookie settings within a users web browser (see comment by Ashley Freidlein CEO of Econsultancy), the advice must be for all websites to implement something along these lines rather than be accused of ignoring the requirement to comply with the law no matter how irritating and ill conceived it may seem.

What does seem entirely strange is that the recital to the EU directive (see below) in the following sentence “The methods of providing information and offering the right to refuse should be as user-friendly as possible.” appears to be entirely at odds with the article itself, in that, it talks of a ‘offering the right to refuse‘ rather than a ‘requirement to obtain consent‘. Therefore is it that the recital provides a poor interpretation of the article or is it that the recital reflects the original intent that has been incorrectly reflected in the final article?

“(66) Third parties may wish to store information on the equipment of a user, or gain access to information already stored, for a number of purposes, ranging from the legitimate (such as certain types of cookies) to those involving unwarranted intrusion into the private sphere (such as spyware or viruses). It is therefore of paramount importance that users be provided with clear and comprehensive information when engaging in any activity which could result in such storage or gaining of access. The methods of providing information and offering the right to refuse should be as user-friendly as possible. Exceptions to the obligation to provide information and offer the right to refuse should be limited to those situations where the technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user. Where it is technically possible and effective, in accordance with the relevant provisions of Directive 95/46/EC, the user’s consent to processing may be expressed by using the appropriate settings of a browser or other application. The enforcement of these requirements should be made more effective by way of enhanced powers granted to the relevant national authorities.“

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