Public Law Podcast: Regulatory Disputes in the Consumer Sector

Businesses who deal with consumers will generally wish to have a good relationship with Government, regulators and other public authorities. However, there are times when a company’s interests are such that they come into conflict. At those times companies may wish to consider how that conflict might be resolved if it were to reach court. Last June, we created a guide to Regulatory Disputes in the Consumer Sector. This guide is designed for businesses that interact with consumers, for example, selling products to the public direct or through retailers, who might have to consider how to proceed when regulatory matters become contentious, and indeed those who work at regulators themselves.

The guide collates a number of significant cases from recent years to demonstrate how administrative law principles work in practice within this sector. However, since we published the guide, there have been additional and significant developments, in particular due to the impact of the UK leaving the EU. Andrew Lidbetter, Jasveer Randhawa and Hannah Lau have therefore recorded a podcast giving an update on the post-Brexit landscape and other important developments, to build on the guide.

This podcast can be listened to on SoundCloudApple and Spotify and don’t forget to subscribe to the channel to receive updates on future episodes.

In addition, the June 2020 guide can be viewed by clicking the following link: Regulatory Disputes in the Consumer Sector England and Wales – June 2020.

Please feel free to contact us using the details below.

Andrew Lidbetter
Andrew Lidbetter
Partner
+44 20 7466 2066
Nusrat Zar
Nusrat Zar
Partner
+44 20 7466 2465
Jasveer Randhawa
Jasveer Randhawa
Of Counsel
+44 20 7466 2998
Hannah Lau
Hannah Lau
Associate
+44 20 7466 2314

Climate change and the role of regulators

In November 2020, the government announced an ambitious ten-point plan to boost green jobs and reach net-zero. The plan was a recent recognition at a national-level of the pressing need to combat climate change. It addresses an expansive set of topics: from offshore wind to walking and cycling; from carbon capture to finance. The proposals suggest regulatory changes in respect of nuclear power, buildings and finance form part of the plan.

The Climate Change Committee expects that businesses will be the primary drivers of the net-zero emissions target and provide the majority of investment required for the green transition. Therefore, any new regulations and regulatory action in this area must take into account the reality for businesses and consumers. This will provide the most effective means of switching to low-carbon solutions in circumstances where businesses are expected to be significant contributors to reach net-zero.

We have prepared a paper focusing on the extent to which regulators are currently obliged to take into account climate change policy when making decisions to better inform businesses of the direction of travel in this area. We provide an overview of the general legislative landscape in respect of climate change, considering whether and how regulators are impacted by that high-level legislation. We then consider the variety of tools that regulators are using in respect of climate change in the energy, transport, finance and construction sectors.

Please click here to read our paper on these issues.

Andrew Lidbetter
Andrew Lidbetter
Partner
+44 20 7466 2066
Nusrat Zar
Nusrat Zar
Partner
+44 20 7466 2465
Jasveer Randhawa
Jasveer Randhawa
Of Counsel
+44 20 7466 2998
Shameem Ahmad
Shameem Ahmad
Associate
+44 20 7466 2621

Tribunal holds that regulator must take proactive steps to investigate impact of COVID-19

In JD Sports Fashion plc v Competition and Markets Authority [2020] CAT 24, the Competition Appeal Tribunal (“CAT”) quashed the Competition and Markets Authority’s (“CMA”) final report on the Phase 2 investigation into the completed acquisition by JD Sports Fashion plc (“JD Sports”) of Footasylum plc (“Footasylum”) on the basis that the CMA had not sought to inform itself sufficiently on the impact of the coronavirus pandemic on the relevant market, the merging parties and their competitors and suppliers, resulting in the CMA having insufficient evidence for its conclusions.

Key points

  • The CAT’s decision re-iterates that a regulator may be under a positive duty to take proactive steps to conduct further enquiries and ensure they have robust evidence on which to base their decisions, particularly in relation to a matter the regulator has explicitly indicated should be taken into account.
  • A regulator cannot escape its duty to make informed decisions based on reliable evidence merely by reason of the fact that it is administratively constrained or that evidence already available to it is speculative or unreliable.

Facts

JD Sports and Footasylum are both UK-based retailers of sports-fashion footwear and clothing, conducting sales through their stores and online.

In 2019, JD Sports acquired Footasylum in a £90m deal. The CMA’s Phase 1 investigation concluded that the merger had the potential to remove one of JD Sports’ closest competitors, resulting in a worse deal for customers, through higher prices, reduced product ranges or lowering in service quality.

In September 2019, the CMA announced that it would refer the acquisition for a Phase 2 investigation unless suitable undertakings in lieu (“UILs”) were offered. JD Sports informed the CMA of its refusal to offer the UILs demanded.

In May 2020, the CMA published its final report, concluding that the merger would result in a substantial lessening of competition (“SLC”) in the retail supply of sportswear and footwear apparel in the UK. The CMA decided that only a full divestiture of JD Sports and Footasylum would avoid a SLC.

In reaching its decision, the CMA acknowledged that the coronavirus outbreak was clearly impacting the sports-fashionwear and footwear markets, but did not see evidence to suggest that either of the parties was more negatively impacted by COVID-19 relative to each other or to other market actors. It also did not consider that COVID-19 would reduce materially the extent to which Sports Direct and Footasylum are close competitors, or decrease the probability that the merger would result in an SLC.

However, taking into account the real economic pressures brought about by COVID-19, the CMA tempered its remedies process by not including overly prescriptive conditions for divestiture and by allowing for an extension of the divestiture period beyond the usual six months. In June 2020, JD Sports made an application under section 120 of the Enterprise Act 2002 for a review of the CMA’s decision on three grounds, alleging that:

  • Ground 1: the CMA erred in law and/or acted irrationality in the manner in which it conducted its assessment of the aggregate constraints posed by suppliers and retail rivals on the combined JD Sports-Footasylum group and of whether the merger was likely to result in a SLC.
  • Ground 2: the CMA erred in law and/or acted irrationally in excluding COVID-19 from the counterfactual of Footasylum’s competitive constraints, in particular by failing to seek more information from the principal suppliers and Footasylum’s primary lender.
  • Ground 3: the CMA failed, inter alia, to provide adequate reasons and made irrational findings in concluding that the ability and incentives of suppliers (in particular Nike and Adidas) to increase their direct-to-consumer (“DTC”) operations were not so significant as to disadvantage or sufficiently discipline the merged entity.

Section 120(4) states that in determining such an application, the CAT shall apply the same principles as would be applied by a court on an application for judicial review.

Judgment

On the first ground, the CAT dismissed JD Sport’s argument that the CMA erred in the manner in which it conducted its assessment of aggregate constraints and the likelihood of a SLC. The CAT noted that the CMA had very substantial evidence on which to base a reasonable decision relating to the aggregate effects of the competitive constraints and the question of SLC, and provided substantial reasons for its assessment.

The CAT reiterated in considering this ground that where there is a rationality challenge against a merger decision of the CMA, the hurdle which the applicant has to overcome is a high one and that the CAT must be wary of a challenge which is “in reality an attempt to pursue a challenge to the merits of the Decision under the guise of a judicial review.”

On the second ground, the CAT ruled that the CMA acted irrationally in that it came to conclusions as to the likely effects of COVID-19 that were of material importance to its overall decision, without having the necessary evidence from which it could properly draw those conclusions.

Although the CMA was acting within its wide margin of appreciation in finding that the evidence it had received from the applicants and third parties was insufficiently robust to form a view on the possible or likely effects of COVID-19, the CMA’s decision not to conduct further enquiries with suppliers or Footasylum’s primary lender to see if sufficiently reliable evidence had become available prior to the publication of the final report was found to be irrational. The CMA’s decision not to conduct further enquiries was rooted in administrative constraints and the perceived futility of searching for reliable and specific evidence. However the CAT considered that it had “closed its mind to the possibility that robust information on possible impacts was available”.

The decision was also irrational judged against the CMA’s own COVID-19 guidance, which required the impacts of the COVID-19 outbreak to be factored into the substantive assessment of a merger where appropriate. The guidance mirrored the general obligation in relation to conduct of CMA investigations to ensure that there is a sufficient basis for decisions in light of the totality of the evidence available, including evidence of some probative value on the basis of which the CMA could reasonably reach the conclusion it did.

The CAT concluded that the CMA, faced with uncertainty about the impact of the pandemic, failed to make reasonable inquiries, as they were required to do. Although the CMA has a wide margin of appreciation concerning its assessment of the predictive value of the information it received, that did not absolve the CMA from ensuring that it had sufficient information available before it made predictive judgments. JD Sports’ challenge in this regard did not therefore concern the quality or correctness of the CMA’s judgement in its assessment of the relevant information. It was that the CMA had not sought to inform itself sufficiently in order to exercise its judgement.

On the last ground, the CAT reached a similar conclusion. It found that the CMA had failed to investigate fully whether, and to what extent, COVID-19 would strengthen the suppliers’ DTC offer as a result of consumers shifting towards online shopping. As with the second ground, the CMA did not have the necessary evidence from which it could properly draw such a conclusion.

It is worth noting that the CMA has applied for permission to appeal the ruling.

Comment

In the context of uncertainty surrounding the longer term impact of COVID-19, it is perhaps understandable that the CMA took the view that the evidence available to it was too generalised and speculative to shed light on its regulatory assessment.

However, this decision makes clear that public bodies must have sufficient evidence on which to base their decisions. This arises from the well-established principle of administrative law that a decision maker has to ask himself the right question and take reasonable steps to acquaint himself with the relevant information to enable him to answer it correctly (known as the Tameside duty). In circumstances where sufficient information has not been provided by third parties, particularly in relation to a matter the regulator has explicitly indicated should be taken into account, the public body may be required to take proactive steps to conduct further enquiries in order to reach a rational decision. Falling short of this obligation to ensure that their decisions are properly based on evidence provides scope to challenge the findings of a public authority decision maker.

However, as with other irrationality heads of challenge, the court will not interfere with a regulatory decision lightly and will not intervene simply because it considers that further enquiries would have been sensible or desirable. A judicial review on this ground will generally only be successful if no reasonable authority could have been satisfied on the basis of the enquiries made that it possessed the information necessary for its decision. This case must therefore be viewed in its particular context of attempting to assess the impacts of COVID-19.

Andrew Lidbetter
Andrew Lidbetter
Partner
+44 20 7466 2066
Nusrat Zar
Nusrat Zar
Partner
+44 20 7466 2465
Jasveer Randhawa
Jasveer Randhawa
Of Counsel
+44 20 7466 2998

Court of Appeal upholds regulatory judgment in technical field

Recently, the Court of Appeal gave its decision in R (Cotter) v NICE [2020] EWCA Civ 103. The case challenged a decision by NICE which made it harder for a patient to obtain a particular medicine than would have been the case had NICE taken a different approach.

Background

The Claimant sought judicial review of NICE’s decision to assess the use of Kuvan to treat phenylketonuria (“PKU“) under the Health Technology Appraisal (“HTA“) procedure instead of the Highly Specialised Technology (“HST“) procedure. Under the HTA Procedure NICE will only recommend a health technology for use in the NHS if it will not cost more than £30,000 for each Quality Adjusted Life Year whereas under the HST procedure, NICE will recommend a drug costing up to £100,000 per QALY gained. Therefore, the test for a favourable recommendation is easier to satisfy under the HST procedure because a drug can be less cost effective than under the HTA procedure. However, the Court of Appeal agreed with the High Court that NICE was entitled to assess whether Kuvan should be recommended on the NHS using the HTA procedure.

The HST Procedure is reserved for highly specialised technologies which meet seven criteria set out in a document entitled ‘Interim Process and Methods of the Highly Specialised Technologies Programme‘ issued by NICE in April 2017 (the “2017 Guidance“). NICE determined that four of the seven criteria set out in the 2017 Guidance were satisfied but three criteria referred to below were not satisfied. Since the requirement under the 2017 Guidance was that all the criteria needed to be satisfied for appraisal under the HST procedure, NICE concluded that Kuvan should be assessed under the HTA procedure.

The Claimant’s case was that all seven criteria were satisfied in the case of Kuvan and the decision to use the HTA procedure was therefore unlawful. At first instance the Court concluded that the application of the guidance to the particular facts was a matter for the judgment of NICE and was susceptible to challenge only on irrationality grounds. The judge concluded that the criteria required the exercise of expert judgment and the use of expert knowledge and that there is always a high threshold for irrationality cases. The Court of Appeal agreed with this general approach. However, its interpretation of Criterion 1 and 2 in the 2017 Guidance and their application to the facts was different.

Grounds of Appeal and Court of Appeal’s Decision

The Claimant had five grounds of appeal.

Ground 1 – The statutory context

The Claimant argued that the judge had failed to have proper regard to the statutory context. While Males LJ accepted that it was necessary to have regard to the statutory context, he found that once it is conceded that not all technologies falling within the definition of “highly specialised health technologies” have to be appraised under the HST procedure, NICE was entitled to establish criteria to determine which health technologies should be appraised under that procedure and that the seven criteria set out in the 2017 Guidance were lawful. He saw no scope for any refutable presumption in interpreting the Guidance that all the health technologies intended for use in the treatment of rare or very rare diseases should be appraised under the HST procedure.

Ground 2 – The objective interpretation

The Claimant argued that the judge had failed to recognise that interpretation of the Guidance was an objective matter to be determined by the Court but the Court of Appeal found that the judge had not fallen into that error.

Ground 3 – “the target patient group is distinct for clinical reasons” (Criterion 2)

The Court held that PKU sufferers who are responsive to Kuvan are distinct from PKU sufferers who are not responsive and that this distinction was clinical. The fact that the licensing application recognised that not all patients with PKU would respond to Kuvan, allowed a degree of judgment to the treating physician, so that the drug was only prescribed to those who are responsive to it and this did not detract from the conclusion that patients who were responsive could be regarded as a distinct group for clinical reasons. Therefore, whilst the Court of Appeal did not reach a final decision on the point, the better view was that Criterion 2 was satisfied in the present circumstances.

Ground 4 – “the technology is expected to be used exclusively in the context of a highly specialised service” (Criterion 4)

The Court of Appeal accepted NICE’s argument that the reference to highly specialised service in Criterion 4 had a specific meaning and was distinct from “highly specialist” in the context of NHS terminology. The primary readership of the 2017 Guidance was expert decision-making groups together with medical professionals and persons engaged in the pharmaceutical industry. When viewed in this context, reference to “highly specialised service” in Criterion 4 is a reference to a service which is not only commissioned nationally by NHS England but is listed in the Highly Specialised Services List.

Ground 5 – “the target patient group … is so small that treatment will usually be concentrated in very few centres in the NHS” (Criterion 1)  

The Court found that given the decision made on Criterion 4, there was no need to decide whether this criterion had been applied properly, though if Criterion 1 had been decisive, it would probably have been necessary to remit this issue to NICE so that a decision could be made on the correct legal basis.

The Court finally suggested that all of the criteria for appraisal of a “highly specialised health technology” under the HST procedure should be set out in plain language so that it is readily understood by patients and those caring for them.

Conclusion

The case is therefore an example of a patient seeking to use judicial review to make a medicine more freely available by seeking to require NICE to adopt a different procedure but also demonstrates that a Court will not lightly find that a regulator such as NICE has misapplied the statutory criteria. In this case the difficulty for the claimant was that they needed to show that NICE had been wrong on three out of seven criteria. The Court of Appeal was inclined to agree on one or two of those three but was not persuaded on all three.

 

Andrew Lidbetter
Andrew Lidbetter
Partner
+44 20 7466 2066
Nusrat Zar
Nusrat Zar
Partner
+44 20 7466 2465
Jasveer Randhawa
Jasveer Randhawa
Of Counsel
+44 20 7466 2998
Sanam Zulfiqar Khan
Sanam Zulfiqar Khan
Senior Associate
+44 20 7466 2014

COVID-19: Pressure Points: Regulatory tolerance in an age of COVID-19 – Can regulators revise concessions they have offered?

In the latest episode of our public law podcast, Andrew Lidbetter, Nusrat Zar and Anna Eliasson discuss the scope for regulators to go back on concessions they have suggested to those they regulate.

In doing so, they look at the nature of these statements; how they might amount to obligations; when they can be frustrated; and three key things businesses can do to preserve their positions.

 

Listen to the latest episode on SoundCloudApple and Spotify and don’t forget to subscribe to the channel to receive updates on future episodes.

We will continue to develop insights to keep you abreast of legal issues arising from COVID-19 that are affecting your business now and those you may face next. You can find further resources on our COVID-19 Hub.

We welcome feedback so please do contact us (using the details below) if you’d like to discuss any of the topics in this podcast or to suggest topics for future episodes.

Andrew Lidbetter
Andrew Lidbetter
Partner
+44 20 7466 2066
Nusrat Zar
Nusrat Zar
Partner
+44 20 7466 2465
Jasveer Randhawa
Jasveer Randhawa
Of Counsel
+44 20 7466 2998
Anna Eliasson
Anna Eliasson
Senior Associate
+44 20 7466 2620

Regulatory disputes in the consumer sector

Businesses who deal with consumers will generally wish to have a good relationship with Government, regulators and other public authorities. However, there are times when a company’s interests are such that they come into conflict. At those times companies may wish to consider how that conflict might be resolved if it were to reach court (or in the context of certain competition disputes in the consumer sector, the Competition Appeal Tribunal). To that end, we have created a guide to Regulatory Disputes in the Consumer Sector which can be viewed by clicking the link below.

Regulatory Disputes in the Consumer Sector

 

This guide is designed for businesses that interact with consumers, for example, selling products to the public direct or through retailers, who might have to consider how to proceed when regulatory matters become contentious, and indeed those who work at regulators themselves. We have sought to collate a number of significant cases from recent years to demonstrate how administrative law principles work in practice within this sector. The guide has been written by members of our leading administrative and public law team which is routinely placed in the top tier in the legal directories. Please feel free to contact us using the details below.

Andrew Lidbetter
Andrew Lidbetter
Partner
+44 20 7466 2066
Susan Black
Susan Black
Partner
+44 20 7466 2055
Nusrat Zar
Nusrat Zar
Partner
+44 20 7466 2465
Jasveer Randhawa
Jasveer Randhawa
Of Counsel
+44 20 7466 2998

Important decision on privilege in a regulatory context

In a judgment handed down yesterday, the Court of Appeal found that an audit client could not be compelled to produce its privileged documents to its auditor’s regulator: Sports Direct International plc v The Financial Reporting Council [2020] EWCA Civ 177.

The case concerned the construction of the Financial Reporting Council’s (“FRC“) information-gathering powers (specifically those set out in paragraph 1 of Schedule 2 to the Statutory Auditors and Third Country Auditors Regulations 2016 (“SATCAR“)). The FRC has the power under SATCAR to require both auditors and audit clients to provide it with information, with the carve out that it cannot compel the production of documents which the auditor or client could refuse to provide in High Court proceedings on the grounds of legal professional privilege.

As is explained in our litigation notes blog post on the first instance decision, the High Court had relied on Parry-Jones v Law Society [1969] 1 Ch 1 (and Lord Hoffmann’s comments on that decision in R(Morgan Grenfell & Co Ltd) v Special Commissioners of Income Tax [2002] UKHL 21) and found that privilege belonging to the audit client (Sports Direct International, “SDI“) would not be infringed by requiring production of the privileged material to the FRC as the auditor’s regulator.

The Court of Appeal overturned the High Court’s decision and found that the “no infringement”  principle arising from Parry-Jones had no relevance to the construction of the FRC’s information-gathering powers under SATCAR given the clear words of that statute. The effect was that neither SDI (nor, for that matter, its auditor) could be compelled to hand over privileged documents, regardless of whether the person entitled to the privilege is the auditor or audit client. Our Litigation Notes blog post sets out more detail on the judgment.

This decision has largely been welcomed by those who might be compelled to disclose documents to regulators on the basis that it reinforces the protection of privilege in a regulatory context. However it is not without its difficulties. In particular it may prejudice those under investigation if they (or their client) hold privileged documents which might help their defence as they will be unable to produce that material to their regulator (even on a confidential basis) without the consent of the privilege holder.

Andrew Lidbetter
Andrew Lidbetter
Partner
+44 20 7466 2066
Nusrat Zar
Nusrat Zar
Partner
+44 20 7466 2465
Jasveer Randhawa
Jasveer Randhawa
Of Counsel
+44 20 7466 2998
James Wood
James Wood
Senior Associate
+44 20 7466 2306

Artificial Intelligence in the Public Sector – a new regulatory field?

The Committee on Standards in Public Life (the “Committee”) has published a report on artificial intelligence (“AI”) and its impact on public standards following the Committee’s review into this fast-developing field (the “Report”).  The Report sets out the Committee’s recommendations for the governance and regulation of AI in the public sector, aimed at ensuring high standards of conduct across all areas of public sector practice.

The Report comes at a time when public bodies continue to increasingly seek to adopt technologically assisted and data-driven decision-making in varied sectors. This trend looks set to continue, albeit with many potential uses of AI in the public sector still at the development or ‘proof-of-concept’ stage. Although work on the ethical use of data is already being carried out by various organisations such as The Alan Turing Institute, the Centre for Data Ethics and Innovation (CDEI) and the Information Commissioner’s Office, the Report identifies “significant deficiencies” in the UK’s existing regulatory and governance framework for AI in the public sector and a pressing need for practical guidance and enforceable regulatory standards.

The recommendations in the Report, addressed in more detail below, suggest broad, overarching changes to the regulatory and governance framework and environment that will need buy-in from government if they are to result in a tangible impact on the approach to AI across the public sector. In addition to these systemic proposals, several of the recommendations of the Committee are directed at providers of public services, both public and private. These relate to both the planning stages of projects involving the use of AI and also the implementation stages, including in relation to monitoring and evaluation and also appeal and redress routes that are available to individuals impacted by automated and AI-assisted decisions.

What exactly counts as AI?

As the Report recognises, there is not one, universally accepted definition of what counts as AI. The term can be used to describe a broad range of processes, from simple automated data analysis to complex deep neural networks. Machine learning is an important subset of AI – machine learning systems are trained on existing datasets and identify patterns in the data. The systems employ inference to make predictions, and can automatically hone how they function and learn from experience, without explicit programming instructions.

Why is regulation needed?

The increased use of AI by public bodies has the potential to provide quick, efficient and accurate solutions to challenges faced in the delivery of public services. However, the potential benefits of AI in public administration come with potential challenges – in particular, the Committee identifies that certain key principles of public life such as openness, accountability and objectivity could be threatened by the use of AI, if it is not correctly implemented. Key issues that arise in the use of AI in both private and public settings are issues of transparency and data bias, and these issues, amongst others, have the potential to have significant implications in the context of public decision-making.

If AI is going to be successfully integrated into public sector life, the Report suggests it is essential that the regulatory framework inspires public confidence in the deployment of new technologies. In addition to reassuring the public, the Report notes that implementing clear standards around AI may actually increase the rate of adoption by public bodies, as it will assist organisations to grow their confidence in using AI. ‘A guide to using artificial intelligence in the public sector’ has been published by the Government Digital Service and Office for Artificial Intelligence and is intended to serve as comprehensive guidance for public bodies to use. Nonetheless, the Committee considers that guidance alone is insufficient and that well-established regulation is needed.

Are existing legal tools relevant?

In part, yes. The use of AI in the public sector has the potential to engage several existing legal frameworks. This includes human rights law under the European Convention on Human Rights, which is incorporated into domestic law by the Human Rights Act 1998; equality and non-discrimination law, for example under the Equality Act 2010; data protection regimes, including the General Data Protection Regulation; the Freedom of Information Act 2000; and also common law grounds of judicial review such as illegality and irrationality.

The relevance of existing frameworks is evidenced by the fact that already the Administrative Court has seen challenges to the deployment of the use of algorithmic technologies, such as R (on the application of Edward Bridges) v Secretary of State for the Home Department [2019] EWHC 2341 (Admin) examining the use of automated facial recognition technology by South Wales. In other jurisdictions there is also an emerging body of case law that considers the use of AI by public bodies. For example, there are judgments on the high profile ‘Robodebt’ programme in Australia; COMPAS, a technology used in criminal sentencing in the United States; and the recent NJCM cs/ De Staat der Nederlanden decision in The Netherlands concerning the unlawful use of the SyRI programme, which used data compiled from various public bodies to identify individuals with a higher fraud risk in relation to welfare benefits.

If AI is deployed in the UK without a clear legal framework and in a manner which upholds existing principles of good public sector practice, the likelihood of there being further challenges by way of judicial review in the UK is high. Whilst such challenges have the potential to serve as an important safeguard against inappropriate use of AI by public bodies, the recommendations proposed by the Committee clearly envisage that a more robust regulatory framework is needed, in addition to existing tools, to ensure that high standards of public conduct are upheld. Even with such a framework in place, it is not difficult to envisage that challenges will nonetheless arise, in circumstances where public bodies are grappling with new technologies.

A role for a new AI regulator?

Although the report identifies the need for a regulatory body to have responsibility for identifying gaps in the regulatory landscape of the use of AI in the public sector, the Committee concluded that a new, separate AI regulator is not necessary. Instead it is suggested that the Centre for Data Ethics and Innovation (CDEI) be given an independent statutory footing to act as a central regulatory assurance body, providing advice to existing regulators and government on how to deal with emerging AI related issues in their respective fields (Recommendation 4). This proposal would allow existing regulators to continue to utilise their sector-specific experience whilst also having an expert regulatory body focused exclusively on AI. For this arrangement to function effectively however, it will be important for the regulatory assurance body to have a sufficiently broad remit and powers.

Combatting data bias

As mentioned above, a key issue in the field of AI, in both private and public sectors, is that of data bias. The Committee expresses concerns that the prevalence of data bias poses a threat to a key principle of public life – objectivity. In order to avoid the embedding and amplification of discrimination in public sector practice, the report calls for the application of anti-discrimination law to AI to be clarified. It is suggested that the Equality and Human Rights Commission should develop guidance in partnership with the Alan Turing Institute and the CDEI on how public bodies should best comply with the Equality Act 2010 (Recommendation 3). Another important method to manage data bias is ensuring diversity within AI teams who are designing or developing products. A further recommendation aimed at public and private providers of public services suggests that they must consciously tackle issues of bias and discrimination in order to provide a fair service (Recommendation 10).

Making private sector waves…

The evidence gathered in the course of the review by the Committee suggests that the majority of public bodies utilising AI will rely on external private sector providers to design, produce and even manage their systems. As a way of mitigating the potential issues which may arise from these arrangements, the Report suggests that public procurement requirements ensure that private companies appropriately address public standards when developing AI solutions for the public sector and that tenders and contractual arrangements explicitly deal with these issues (Recommendation 5).

The supply of AI systems by external private entities also poses a challenge for upholding transparency and accountability standards in the public sector. Private companies may seek to protect ‘trade secrets’ which may in turn prevent public bodies from disclosing the inner workings of the AI they are using, irrespective of their impact on the public. The Report recommends that clear guidelines for public bodies should be established as to what information they should disclose about the AI systems they use (Recommendation 8). This is particularly the case where the current proactive disclosure requirements under the Freedom of Information Act 2000 are of limited use in this novel context. Consideration of the introduction of mandatory, published AI impact assessments could also be a way in which transparency could be enhanced (Recommendation 7).

What next?

The discussion on the adoption of AI in the public sector will inevitably continue to develop following the publication of this Report. Government, public bodies, regulators, private companies, technology specialists, lawyers, academics and civil society groups are just some of the actors who have a role to play in the ongoing debate. Whilst the AI regulatory and governance framework may face widespread changes in the future, for the moment at least our existing legal frameworks will need to be applied in a manner which takes account of the specific and novel issues that arise as a result of the use of AI in the public sector.

Andrew Lidbetter
Andrew Lidbetter
Partner
+44 20 7466 2066
Nusrat Zar
Nusrat Zar
Partner
+44 20 7466 2465
Jasveer Randhawa
Jasveer Randhawa
Of Counsel
+44 20 7466 2998
Claire Hall
Claire Hall
Associate
+44 20 7466 2354