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Argentine New Statute On<br />
Civil And Commercial Law<br />
Cyprus – a direct route to<br />
EU citizenship<br />
Offshore energy projects<br />
in Denmark
Content<br />
Contact<br />
www.lawyerissue.com<br />
Debunking the Myth: Enforcement of Foreign<br />
Arbitral Awards in Indonesia 4<br />
Leasing companies and banks choose Norway over other Scandinavian jurisdictions<br />
for registration of aircraft 10<br />
Argentine New Statute On Civil And Commercial Law 12<br />
Cyprus – a direct route to EU citizenship 16<br />
Post-Sanction Era in Iran, Legal Challenges and<br />
Economic Opportunities 19<br />
Follow-on competition law litigation in<br />
Denmark – Cheminova vs. Akzo Nobel 23<br />
Review Panel calls for significant reforms to Australia’s competition laws 27<br />
Argentinean Federal Supreme Court clarifies when “substantial influence” implies<br />
“control” giving rise to an “economic concentration” subject to<br />
authorization as per the Competition Law. 32<br />
When can A non-party to an arbitration agreement<br />
be compelled to arbitrate A claim? 36<br />
CJEU potentially opens the back door to court ordered<br />
anti-suit injunctions in the EU 40<br />
The developing mining sector in the Republic of Macedonia 44<br />
Offshore energy projects in Denmark 48<br />
Joint Ventures: Legal and Practical Considerations in Latin America 53<br />
U.S. Agencies Take a Tough Approach to Merger Remedies 57<br />
What is Wrong with our Fiction? The Perceived Attack on Reverse Vesting 62<br />
Mergers and Acquisitions Regulations in Lebanon 66<br />
Austrian goodwill amortization: AG Kokott issues her opinion on a<br />
landmark case for the relation between state aid and treaty freedoms 70<br />
Excerpts from an Address to the STEP Caribbean Conference 76<br />
Do trusts have a future in the context of the 4th AML Directive? 86
Arbitration<br />
DEBUNKING THE MYTH:<br />
Enforcement of Foreign Arbitral<br />
Awards in Indonesia<br />
By Karen Mills<br />
The Myth<br />
The History<br />
1More than likely many readers have attended<br />
2<br />
conferences where self-styled experts on<br />
Southeast Asia, including Indonesia, (few of<br />
whom have any experience in the region at<br />
all) have blithely insisted that foreign awards<br />
cannot be enforced in Indonesia.<br />
That, dear readers, is a Myth. True, it was<br />
not a myth until 25 years ago, but one does<br />
not go to conferences, nor read professional<br />
notes, to be regaled with 25-year-old “news”.<br />
Indonesia ratified the New York Convention<br />
(1958 United Nations Convention on the<br />
Recognition and Enforcement of Foreign<br />
Arbitral Awards) in 1981. 1 Until that time,<br />
enforcement of arbitral awards was handled<br />
in the same manner as enforcement of final<br />
and binding court judgments.<br />
Arbitration, as well as civil litigation, were<br />
1 By Presidential Decree No 34 of 1981, published in<br />
the State Gazette (Berita Negara) of 1981, as No. 40, of 5<br />
August, 1981. Indonesia made both the commerciality and<br />
the reciprocity reservations in its accession.<br />
at that time regulated under the mid-19th<br />
Century Dutch Code of Civil Procedure,<br />
Reglement op de Rechtsvordering (generally<br />
known as the “RV”) 2 , which, together<br />
with other Dutch procedural laws, had<br />
been adopted by Indonesia upon her<br />
independence in 1945. The RV still governs<br />
litigation but since 1999 arbitration is<br />
governed by its own Arbitration Law, Law No.<br />
30 of 1999.<br />
Article 463 of the RV provides that, with<br />
virtually no exception, judgments of foreign<br />
courts cannot be enforced in Indonesia. Thus<br />
it was always assumed that the same applied<br />
to foreign-rendered arbitration awards<br />
and thus these could not be enforced in<br />
Indonesia.<br />
Although the ratification of the New York<br />
Convention clearly changed this, it was not<br />
until 1990 that the implementing regulation<br />
for New York Convention enforcement,<br />
Supreme Court Regulation No. 1 of 1990,<br />
was promulgated. And thus for the nine<br />
years following ratification, the courts had<br />
no mechanism to enforce foreign-rendered<br />
awards, even though they were aware that<br />
Article III of the New York Convention so<br />
required. 3<br />
Article 634 of the RV provided that<br />
registration and application for enforcement<br />
of arbitration awards was to be made in<br />
the District Court (Pengadilan Negeri) in the<br />
district in which the award is rendered, thus<br />
the Supreme Court members could not<br />
agree as to which court one would apply<br />
for enforcement of a foreign-rendered<br />
award, there being no District Court in<br />
2 State Gazette No. 52 of 1847, juncto No. 63 of 1849 (Arbitration<br />
was covered in Articles 615 through 651 of Title I ).<br />
3 Article III of the New York Convention provides that every<br />
contracting state must recognise and enforce awards<br />
rendered in other contracting states without imposing substantially<br />
more onerous conditions than are imposed upon<br />
recognition or enforcement of domestic awards.<br />
which to register, nor which would have<br />
had jurisdiction to grant enforcement of, an<br />
award rendered outside of the jurisdiction of<br />
any District Court.<br />
Some judges therefore believed that<br />
application should be made directly to the<br />
Supreme Court; others that the awards<br />
should be “self-executing”; and still others that<br />
a single District Court should be designated<br />
to take jurisdiction over New York Convention<br />
enforcement applications. But, as there was<br />
as yet no guidance from the legislature, those<br />
few awards that may have been rendered<br />
elsewhere had to lay dormant.<br />
Finally, Supreme Court Regulation No. 1 of<br />
1990 set out the necessary implementing<br />
regulations for enforcement of arbitral<br />
awards rendered in a country which, together<br />
with Indonesia, is party to an international<br />
convention regarding implementation of<br />
foreign arbitral awards. The District Court<br />
of Central Jakarta (Pengadilan Negeri Jakarta<br />
Pusat) was designated as the venue to which<br />
application for enforcement thereof was to<br />
be made.<br />
The Chairman of that court was then allotted<br />
14 days in which to transmit the request file<br />
to the Supreme Court, which was then the<br />
only court invested with jurisdiction to issue<br />
exequatur, the enforcement order, in cases of<br />
foreign-rendered awards.<br />
Once the order of exequatur was granted,<br />
the same was to be sent back down to the<br />
Chairman of the District Court of Central<br />
Jakarta for implementation.<br />
If execution was to be effected in a different<br />
district (i.e. that of the domicile of the losing<br />
party, or the location of its assets), the order<br />
was to be delegated to the appropriate<br />
District Court for implementation.<br />
Execution was effected on property and<br />
possessions of the losing party in accordance<br />
4 | <strong>Lawyer</strong><strong>Issue</strong> 5
Arbitration<br />
with the normal provisions of the RV relating<br />
The Buyer did not provide the necessary<br />
Today, 25<br />
Although the Supreme Court had issued the<br />
Court Regulation 1 of 1990, a law is superior<br />
to execution of court judgments.<br />
Letters of Credit, and subsequently cancelled<br />
years later, it is<br />
order of exequatur to enforce the London<br />
to a regulation in the legal hierarchy and thus<br />
the contract. As the initial purchase contract<br />
time to forget<br />
arbitral award against the Buyer before<br />
to the extent that the two are inconsistent<br />
Regulation 1 of 1990, however, did not set<br />
called for arbitration in London, the Seller<br />
the past and<br />
hearing the Seller’s appeal to the court<br />
the provisions of Law No. 30/99 will prevail.<br />
any time limit within which the Supreme<br />
commenced arbitration, obtaining an award<br />
recognize the<br />
verdict, the Seller was nonetheless unable to<br />
Court was required to rule on these<br />
applications and, for the most part, they<br />
were simply docketed into the Supreme<br />
against the Buyer for breach of contract.<br />
The Buyer then filed a suit in the High Court<br />
of London seeking a declaration that the<br />
current state<br />
of play.<br />
“<br />
execute the award because of the appeals<br />
still pending. Finally the Supreme Court<br />
found for the Buyer in both applications<br />
The primary difference between Law No.<br />
30/99 and Supreme Court Regulation No. 1<br />
of 1990 is the designation of the courts which<br />
Court’s normal case-load. Nonetheless, the<br />
contract was null and void as being contrary<br />
and therefore nullified its exequatur order<br />
have jurisdiction to issue exequatur, being<br />
initial nine applications, those filed between<br />
to law and public policy, since no permit had<br />
on the basis that it had now found that the<br />
the court with which the award must first be<br />
1991 and mid-1993, were acted upon with<br />
been issued by BULOG to import the sugar.<br />
original contract was null and void ab initio<br />
registered.<br />
reasonable promptness - some in less than<br />
and therefore so was the arbitration clause<br />
six months.<br />
The parties subsequently reached a<br />
(severability not applicable where a contract<br />
Domestic awards, being awards rendered in<br />
settlement agreement whereby the<br />
is void ab initio as being contrary to law).<br />
an arbitration held within the bounds of the<br />
However, no such orders were issued<br />
Buyer was to pay to the Seller a reduced<br />
nation’s archipelagic jurisdiction, must be<br />
after mid-1994, either of exequatur or<br />
compensation in installments, also calling for<br />
Whether this notorious decision was a<br />
registered with the clerk of the District Court<br />
rejection thereof, and thus the remaining<br />
arbitration in London in case of any disputes.<br />
product of undue influence, or only lack<br />
“having jurisdiction over the respondent”, 4<br />
seven applications filed prior to August,<br />
After meeting its obligation with regard to<br />
of understanding of the arbitral concept<br />
which would be that court sitting in the<br />
1999 remained pending at the time of<br />
the first installment, the Buyer defaulted on<br />
on the part of the court, has never been<br />
district in which the respondent is domiciled.<br />
promulgation of Law No. 30 of 1999, the<br />
subsequent installments and the Seller again<br />
determined, nor its reasoning followed<br />
Such registration must be effected within 30<br />
current Arbitration Law.<br />
brought arbitration in London, once again<br />
in any subsequent case. Nonetheless the<br />
days of rendering in order for the award to<br />
prevailing and obtaining an award against<br />
stigma of this 1991 case, the bad news of<br />
be enforceable. 5<br />
To make matters worse, although the<br />
the Buyer.<br />
which was spread throughout the world, has<br />
very first application for enforcement filed<br />
undoubtedly etched the Myth in the minds<br />
International awards are defined as<br />
after 1990 was granted exequatur without<br />
The Buyer did not satisfy the award but<br />
of much of the international legal profession.<br />
difficulty, actual execution was sabotaged<br />
instead brought an action in the District<br />
Today, 25 years later, it is time to forget the<br />
“. . . awards handed down by an arbitration<br />
by the respondent through other legal<br />
Court of Central Jakarta seeking annulment<br />
past and recognize the current state of play.<br />
institution or individual arbitrator(s) outside the<br />
action, a story which was widely published<br />
of the original contract on the basis that it<br />
jurisdiction of the Republic of Indonesia, or an<br />
and complained about internationally,<br />
was invalid ab initio, being in violation of the<br />
Between 1991 and the enactment of the new<br />
award by an arbitration institution or individual<br />
undoubtedly being the instrument of the<br />
law and public policy, and that therefore the<br />
Arbitration Law in 1999 only one application<br />
arbitrators(s) which under the provisions of<br />
spread of the Myth, which is still believed<br />
arbitration clause was also invalid.<br />
for enforcement of a foreign-rendered award<br />
Indonesian law are deemed to be International<br />
today.<br />
was rejected by the Supreme Court, and that<br />
arbitration awards”.<br />
The court apparently followed this logic,<br />
was on the ground that the parties had not<br />
The case of E.D. & F. Man (Sugar) Ltd. vs. Yani<br />
despite the fact that it was the Buyer that<br />
executed an agreement to arbitrate.<br />
As there has been no legislation to the<br />
Haryanto involved a long series of arbitral<br />
references and court applications. The<br />
subject matter of the dispute was a contract<br />
for provision of sugar by claimant Seller to<br />
respondent Buyer, FOB a port in Indonesia.<br />
As it happened, at the time certain staples,<br />
including sugar, could only be imported<br />
when authorized by only the Government<br />
Logistics Bureau (“BULOG”), but Buyer had<br />
violated the provisions of law and also that<br />
at this stage the parties were in dispute not<br />
over the original sale contract but under the<br />
subsequent settlement agreement.<br />
The settlement agreement was declared<br />
null and void by the District Court, and its<br />
decision was confirmed at the high court<br />
level. The Seller further appealed to the<br />
Supreme Court, and also brought action<br />
3The Current Situation<br />
Arbitration Law, Law No. 30 of 1999,<br />
covering arbitration.<br />
On 12 August, 1999, Indonesia promulgated<br />
its new, and in fact its first comprehensive,<br />
which went into effect immediately upon<br />
promulgation and rescinded and superseded<br />
Articles 615 - 651 of the RV, those previously<br />
contrary, an award rendered in an arbitration<br />
with venue within Indonesia will be domestic,<br />
regardless of the nationality of the parties<br />
or other factors. Unless the Republic of<br />
Indonesia itself is a party to the arbitrated<br />
dispute, applications for enforcement of<br />
international awards are no longer required<br />
to be submitted to the Supreme Court at all.<br />
Law No. 30/99 vests in the District Court of<br />
not obtained such authorisation. Between<br />
contracting and intended delivery date, the<br />
market price of sugar declined substantially.<br />
against the Buyer in the District Court for<br />
breach of its obligation to make payments<br />
under the settlement agreement.<br />
Although Law No. 30/99 does not also<br />
specifically rescind the provisions of Supreme<br />
4 Article 1 (4), Law No. 30/99<br />
5 Article 59 (1), Law No. 30/99.<br />
6 | <strong>Lawyer</strong><strong>Issue</strong> 7
Arbitration<br />
Central Jakarta (Pengadilan Negeri Jakarta<br />
Pusat) the jurisdiction to issue orders of<br />
exequatur to enforce international arbitral<br />
awards, as well as to execute such domestic<br />
awards as are rendered within its normal<br />
jurisdiction - central Jakarta.<br />
This shift of jurisdiction has expedited the<br />
process significantly. Except for a short hiatus<br />
during 2010 - 2011, the District Court of<br />
Central Jakarta has acted upon applications<br />
for enforcement of foreign awards quite<br />
promptly.<br />
Enforcement Procedure<br />
4But enforcement of foreign awards is not<br />
entirely without some difficulties, although<br />
these are primarily administrative and relate<br />
to registration, which is required for the<br />
award to be enforceable. Although for an<br />
international award there is no time limit for<br />
registration, as there is for domestic awards,<br />
the registration is required to be effected<br />
by the arbitrators or their duly authorised<br />
representatives. 6<br />
While this rarely causes a problem for<br />
domestic awards, as the arbitrators, or at<br />
least local counsel, are aware that a power<br />
of attorney for registration from the Tribunal<br />
is required, it has caused some delay in<br />
registration of international awards where<br />
neither the arbitrators nor the parties’<br />
counsel have familiarized themselves with<br />
the requirements of Indonesia’s law.<br />
Often more troublesome is the requirement,<br />
for registration of international awards only,<br />
that the award be accompanied by a<br />
“certification from the diplomatic representative<br />
of the Republic of Indonesia in the country in<br />
which the International Arbitration Award was<br />
rendered stating that such country and the<br />
6 Article 67 (1), Law No. 30 of 1999.<br />
Republic of Indonesia are bound by a bilateral<br />
or multilateral treaty on the recognition and<br />
implementation of International Arbitration<br />
Awards.” 7<br />
(This means New York Convention as<br />
Indonesia is not party to any other such<br />
treaty.) While this requirement seems quite<br />
straightforward, it has not been effectively<br />
communicated by the Foreign Ministry to its<br />
consulates, and thus often requires some<br />
administrative burden and attendant delay.<br />
Once the award has been registered, the<br />
applicant (invariably the claimant) may apply<br />
for the order of exequatur. Having issued<br />
the exequatur, the court (District Court of<br />
Central Jakarta for international awards) will<br />
summon the respondent (losing party) and<br />
give it the opportunity to comply with the<br />
award, usually within 8 days.<br />
If this order is not complied with, the court<br />
will issue the attachment order, which will<br />
then be sent to the court having jurisdiction<br />
over the respondent, which court will attend<br />
to execution against the identifiable assets of<br />
such party.<br />
Such execution may take some time, as<br />
each subject asset must be attached by a<br />
bailiff and sold through the state auction<br />
house, unless a private sale has been<br />
approved, and all of these steps will need to<br />
be closely supervised by counsel if it is to be<br />
accomplished in a timely manner.<br />
Rejection of exequatur for a foreign award<br />
can be appealed to the Supreme Court 8 ,<br />
which must decide upon the appeal within<br />
90 days. 9 Issuance of exequatur, however, is<br />
7 Article 76 (2), Law No. 30/1999.<br />
8 Article 68(1), Law No. 30/99.<br />
9 Article 68 (3), Law No. 30/99.<br />
not subject to appeal. 10 Nor may a decision<br />
In fact, Indonesia is a very arbitrationfriendly<br />
jurisdiction and, as clearly dictated<br />
of the Supreme Court either issuing or<br />
rejecting exequatur or execution, where<br />
by Law No. 30 of 1999, the courts may not<br />
the Government of Indonesia is a party,<br />
interfere, 12 except where they are required<br />
be appealed. 11<br />
to assist in the enforcement (as long as the<br />
parties did agree to arbitrate and the dispute<br />
The District Court of Central Jakarta keeps a<br />
is of a commercial nature). 13<br />
record not only of those awards registered,<br />
but also those for which exequatur has been Even an interim award on jurisdiction cannot<br />
requested, and issued.<br />
be appealed to the courts, as so often<br />
happens in common law jurisdictions thereby<br />
However, as most awards are complied<br />
greatly delaying the process, almost always<br />
with voluntarily and, where not, execution<br />
unnecessarily. The process may take a bit<br />
is carried out, for the most part, by one of<br />
longer than it does in some jurisdictions,<br />
the almost 300 other District Courts in the<br />
but it is much quicker and successful than in<br />
archipelago, there is no complete data.<br />
many others.<br />
However, to the knowledge of this firm, no<br />
application for exequatur of a registered<br />
Let us hope this note will serve to debunk<br />
foreign award has been rejected since<br />
the Myth, whose misinformation has been<br />
promulgation of the 1999 Arbitration Law.<br />
spread too widely and for too long.<br />
So much for the Myth!<br />
10 Article 68 (1) & (2), Law No. 30/99.<br />
12 Articles 3 and 11, Law No. 30/99.<br />
11 Article 68 (4), Law No. 30/99.<br />
13 Article 62 (2), Law No. 30/99<br />
Karen Mills<br />
Founder at KarimSyah Law Firm of Jakarta<br />
T: +62-21 2966 0001<br />
Email: kmills@cbn.net.id<br />
Karen Mills has practiced in Indonesia for over 30 years. A Chartered Arbitrator, Fellow of the Chartered Institute of<br />
Arbitrators (“CIArb”) and of the Singapore and Hong Kong Institutes, Ms. Mills founded and co-chairs the Indonesian Chapter<br />
of CIArb, is on the panel of arbitrators of most arbitral institutions in the region, including those in Indonesia, China,<br />
Malaysia, New Zealand, Singapore, Hong Kong, Korea, and the Philippines, as well as the AAA/ICDR panel. Ms. Mills has<br />
long been a Board Member of ArbitralWomen, sits on the first appointing authority of the Chinese-European Arbitration<br />
Institution, the IBA/IMI task force on investor-state mediation, as well as others, is an approved tutor for all CIArb courses and<br />
teaches and speaks widely on arbitration and ADR related topics throughout the Asia-Pacific region.<br />
Ms. Mills’s substantive fields of specialization include financing and restructuring, oil, gas, mining and energy matters,<br />
hotel and leisure management, insurance, maritime law, information technology and general cross-border investment and<br />
transactions. In recent years she has successfully represented the Indonesian Government in a number of investor-state<br />
disputes. Karen has published over 130 papers in international professional books and journals.<br />
8 | <strong>Lawyer</strong><strong>Issue</strong> 9
Aviation<br />
Leasing companies and banks choose Norway<br />
over other Scandinavian jurisdictions for registration<br />
of aircraft<br />
by Ingar Fuglevåg<br />
Being the only Scan di na vian juris dic tion which has rati<br />
fied the Cape Town Con ven tion, leas ing com pa nies and<br />
financiers have dis cov ered that the Nor we gian Civil Aircraft<br />
Reg istry pro vides for inter na tional secu rity which is<br />
not avail able in other Scan di na vian jurisdictions.<br />
Another rea son for need ing inter na tional rules on<br />
recog ni tion of rights in avi a tion finance is the fact<br />
that engines are removed and very often installed<br />
on other air crafts than the one they belong to, and<br />
in some instances also being sub ject to a pool ing<br />
arrange ment in which sev eral air lines may par tic i pate.<br />
Engines owned and financed by third par ties may<br />
there fore be oper ated by other air lines in other jurisdic<br />
tions than the one the engines were leased to in<br />
the first place. An inter na tional regime that pro tects<br />
the rights of the own ers and the financiers is therefore<br />
key to this industry.<br />
The CTC is the answer to these chal lenges. Even if it<br />
does not pro vide a solu tion to all chal lenges, it is the<br />
legal regime which is being embraced by the avi a tion<br />
finance com mu nity. The CTC pro vides for an inter national<br />
reg istry in which rights in air craft and engines<br />
may be reg is tered. Such reg is tra tion will then be<br />
recog nised and enforce able in juris dic tions hav ing<br />
rat i fied the CTC.<br />
The inter na tional reg istry is based in Ire land, but<br />
works on a web based solu tion in which the par ties<br />
make the nec es sary fil ings on line. As opposed to<br />
what is pos si ble in the Nor we gian Civil Air craft Registry,<br />
mort gages can be reg is tered both in the airframe<br />
and the engines separately.<br />
The CTC does also pro vide for an instru ment which<br />
may give leas ing com pa nies, banks or oth ers being<br />
appointed the pos si bil ity of quickly repos sess ing<br />
the air craft, e.g. in case of insol vency of the airline<br />
to which the air craft is being leased. Under the<br />
scheme of the Cape Town Con ven tion, an Irrev o cable<br />
De-registration and Export Request Autho ri sa tion<br />
(IDERA) can be issued, giv ing a spec i fied entity the<br />
pow ers to take the nec es sary steps in order to deregister<br />
an air craft from reg istry.<br />
The IDERA needs to be exe cuted by the reg is tered<br />
owner of the air craft, and will also be filed with the<br />
Nor we gian Civil Air craft Reg istry. In case of insolvency<br />
of an air line, this could be an effec tive rem edy<br />
as a preap proved entity, e.g. the financier, has been<br />
granted the sole rights of repos sess ing the Air craft,<br />
rights which will be acknowl edged by the Nor we gian<br />
Civil Air craft Reg istry due to the CTC being in force in<br />
Norway.<br />
For this rea son it was reported some time ago that<br />
the air line SAS was forced to move air craft on opera<br />
tional lease agree ments from other Scan di na vian<br />
air craft reg istries to Nor we gian reg istry in con nec tion<br />
with its restruc turing process.<br />
Hav ing the air craft on a CTC com pli ant reg istry<br />
does also affect the finance costs in today’s avi a tion<br />
finance mar ket. Norway is one of the few countries<br />
qualifying for the discount under the Aircraft Sector<br />
Understanding (ASU) of OECD export credit agencies.<br />
This shows the increas ing impor tance of the CTC.<br />
The Cape Town Con ven tion on Inter na tional Interests<br />
in Mobile Equip ment of 16 Novem ber 2001 and<br />
its Pro to col on Mat ters Spe cific to Air craft Equip ment<br />
(col lec tively referred to as the “CTC”) has been rat i fied<br />
by Nor way as the only Scan di na vian juris dic tion. The<br />
CTC is today rat i fied by 52 coun tries, and it entered<br />
into force in Nor way 1 April 2011.<br />
Avi a tion finance is a highly inter na tional busi ness,<br />
and the mobil ity of the equip ment being financed has<br />
always raised sev eral cross bor der chal lenges. These<br />
chal lenges relate among oth ers to differ ent laws in<br />
differ ent coun tries regard ing recog ni tion of rights<br />
and differ ent rules relat ing to insol vency. Hav ing the<br />
Ster ling Airways bank ruptcy in mind, the need for harmonised<br />
rules is obvi ous.<br />
When Ster ling Airways went into bank ruptcy in Denmark<br />
a few years ago, the repos ses sion and export of<br />
air craft from Den mark turned out to be a lengthy and<br />
com plex mat ter for leas ing companies.<br />
Ingar Fuglevåg<br />
Partner at Simonsen Vogt Wiig AS<br />
T: +47 22 31 32 85<br />
Email: ifu@svw.no<br />
Ingar Fuglevaag’s specialty is aviation law and aircraft financing.He also has extensive experience in maritime<br />
law and in litigating maritime law disputes, including matters related to the P & I insurance and cargo damage.<br />
10 | <strong>Lawyer</strong><strong>Issue</strong> 11
Civil and Commercial Law<br />
ARGENTINE NEW STATUTE ON<br />
CIVIL AND COMMERCIAL LAW<br />
by Martín Campbell<br />
Argentina is a federal republic with 23 provinces; the federal<br />
capital is the autonomous city of Buenos Aires.<br />
The Argentine Constitution provides for a political<br />
system organized into three independent bodies<br />
comprising an executive branch (government) headed<br />
by the President, a legislative branch (Congress) and a<br />
judiciary.<br />
The federal system adopted by the Argentine<br />
Constitution provides for a distribution of powers,<br />
depending on the subject matter, between the 23<br />
provinces, the autonomous city of Buenos Aires and<br />
the federal government. In principle, all powers are<br />
vested in the provinces. However, the provinces have<br />
divested power to the federal government in matters<br />
of national interest.<br />
The Argentine judicial system is divided into federal<br />
courts (those organised by the federal government)<br />
and provincial courts (those organised by each<br />
province and the autonomous city of Buenos Aires).<br />
The supreme judicial power of Argentina is vested<br />
in the Federal Supreme Court of Justice (court of<br />
last resort), which currently has four members. The<br />
provincial court systems are composed of lower<br />
courts, courts of appeal and a Provincial Supreme<br />
Court.<br />
Provincial courts deal either with cases based on local<br />
laws or non-federal laws. Within the territory of each<br />
province, there are also federal courts which decide<br />
exclusively upon federal matters and non-federal<br />
matters mainly when one of the parties is the federal<br />
government.<br />
Within the territory of the city of Buenos Aires, there<br />
are two types of courts: federal courts and those<br />
which are known as ‘national’ courts. Federal courts<br />
deal with federal matters while national courts hear in<br />
non-federal law disputes.There are also courts in the<br />
city of Buenos Aires that deal exclusively with local<br />
law matters.<br />
Pursuant to one of the classifications, Argentine laws<br />
may be divided into substantive and procedural,<br />
depending on the subject matter involved.<br />
Substantive laws determine the general rules of<br />
behaviour that must be followed in the Argentine<br />
territory. These rules can be classified as follows.<br />
a. Local laws: these are the laws enacted by each<br />
province, by the autonomous city of Buenos<br />
Aires and by the Federal Congress with effect<br />
on each local territory or federal territories.<br />
They are enforced by provincial courts, in the<br />
city of Buenos Aires by local city courts and in<br />
federal territories by the federal courts.<br />
b. Ordinary or [[non-]federal] laws: these<br />
laws are composed of the civil, commercial,<br />
criminal, labour and social security laws, which<br />
are applicable throughout the country in all<br />
territories. This article will refer to the recent<br />
enacted Civil and Commercial Code that<br />
amends the current Civil and the Commercial<br />
Code in force, which new code shall be in effect<br />
on August 1, 2015.<br />
c. International treaties: these are international<br />
conventions signed by the federal government<br />
and ratified by the Federal Congress with<br />
foreign states. International treaties are<br />
enforced by federal and by provincial courts.<br />
Procedural laws are those that refer to the<br />
organisation and activity of the judicial courts and<br />
judicial procedures and are enacted by the legislative<br />
power of each province. Procedural rules applicable<br />
to the federal and national courts located in the city<br />
of Buenos Aires (and federal courts located in the<br />
provinces) are enacted by the Federal Congress.<br />
Lastly, the Argentine Constitution grants to non-<br />
Argentine citizens the same rights as Argentine<br />
citizens, including unlimited access to Argentine<br />
courts for the resolution of legal disputes, subject,<br />
however, to non-residents having to post a bond, if<br />
required.<br />
Argentina has been governed by a Civil and a<br />
Commercial Code (and different complimentary laws)<br />
since 1871 regarding the Civil Code and 1862 by the<br />
Commercial Code which author in both cases was<br />
Dalmacio Velez Sarfield. The Civil Code was amended<br />
in 1968 and further on by different laws enacted by<br />
the Federal Congress.<br />
[The Commercial Code was itself never amended<br />
but different laws modified and/or replaced certain<br />
of its provisions.][Now in October 2014 by means<br />
of the Act 26,994 with effect on August 1, 2015, the<br />
Federal Congress repealed both the Civil Code and<br />
the Commercial Code, and enacted a unified Civil and<br />
Commercial Code (the “New Code”), that will havean<br />
important impact in the relations between the State,<br />
the individuals and corporations.<br />
The New Code has incorporated new principles<br />
in civil matters (family, marriage, the capacity of<br />
individuals, heritance, statute of limitation, liability,<br />
real estate,etc.) and in commercial matters.<br />
As the commercial matters are the principal scope of<br />
this article I shall make a brief reference to the ones<br />
scholars consider the most important changes in the<br />
legal regime.<br />
a. Payment of obligations agreed in foreign<br />
currency: the rule incorporated in the New<br />
Code allows the debtor to pay such obligations<br />
in Argentine currency. Argentina has a Single<br />
and Free Foreign Exchange Market through<br />
12 | <strong>Lawyer</strong><strong>Issue</strong> 13
Civil and Commercial Law<br />
which all foreign exchange transactions must<br />
be made. The Federal Government has<br />
restricted the access to the Single and Free<br />
Foreign Exchange Market and is artificially<br />
controlling the price of the foreign currency.<br />
Therefore, alternative markets for the purchase<br />
of foreign currency have developed with higher<br />
prices. As consequence, a creditor receiving a<br />
certain amount of local currency may not be<br />
able to acquire foreign currency at the official<br />
exchange rate and, therefore, in the actual<br />
amount agreed by the parties.<br />
This problem has been solved through the<br />
stipulation of a covenant to deliver a certain<br />
amount of foreign currency denominated<br />
securities which, once sold at a securities<br />
market outside Argentina would allow the<br />
creditor to receive the agreed amount of<br />
foreign currency. Scholars ask themselves if this<br />
contract stipulation is still possible under the<br />
New Code.<br />
b. The sole partner corporation: in the<br />
Corporate Act [ that was part of the commercial<br />
Code], corporations had to be formed at least<br />
by two members that could be individuals or<br />
holding companies.<br />
The main issue of a corporation was (and still<br />
is) the limited responsibility of the liabilities<br />
incurred during the ordinary business in head<br />
of the corporation. That requirement of having<br />
more than one partner has now been repealed<br />
by the New Code through the creation of the<br />
sole partner corporation.<br />
c. Arbitration: Although arbitration was ruled<br />
in different statutes (International Treaties,<br />
National Procedural Code, private entities such<br />
as de Stock Exchange Market) now the New<br />
Code establishes and rules the “Arbitration<br />
Agreement” with the aim of reducing conflicts<br />
between the contractual parties and avoiding<br />
the need of a judicial proceeding, which locally<br />
should mean a reduction of costs and time.<br />
d. Limitation of liability of the board members<br />
of corporation.<br />
e. Contracts: the New Code has incorporated<br />
rulings of the case law and scholars’ opinion.<br />
For example the Distribution Agreement,<br />
the Agency Agreement and the Concession<br />
Agreementthat were not previously regulated<br />
by the legislation and were only governed by<br />
case law.<br />
Also the New Code includes new requirements<br />
to the banking contracts in favour of banks’<br />
clients. Another important provision included in<br />
the New Code is the right of any of the parties<br />
of a contract to review its terms given certain<br />
facts with significant negative impact in the<br />
parties obligations under the agreement.<br />
f. Consumers: the New Code includes the<br />
“Consumers Agreements” to protect the relations<br />
between persons with different bargaining<br />
powers. It also partially amends the existing<br />
Consumers Law.<br />
g. International rules: the existing codes did not<br />
include extensive rules on international matters<br />
including civil and commercial relations.The<br />
New Code includes a chapter dedicated to rule<br />
the different matters relates to international<br />
matters both of civil and commercial relations.<br />
In that sense the New Code permits parties to<br />
a contract to select the laws that will govern<br />
their agreements as long as there exist some<br />
connection to the system of law that is chosen.<br />
Further, the choice of foreign law will only be<br />
valid to the extent that it does not contravene<br />
Argentine international public policy. Where<br />
Argentine international public policy is deemed<br />
applicable or the election has been agreed in<br />
fraud of the Argentine Law, an Argentine court<br />
will substitute the applicable rule of Argentine<br />
law for a foreign rule.<br />
h. International jurisdiction: Argentine courts<br />
currently acknowledge that parties to a contract<br />
may choose a jurisdiction other than Argentina<br />
for the settlement of any disputes arising under<br />
a contract, provided that the dispute relates to<br />
pecuniary rights. This right is now incorporated<br />
international treaties. Also the law must be<br />
construed taking into account its words, its<br />
purpose, the [analogous/like]laws and the legal<br />
values in a coherent manner with the rules of<br />
the New Code.<br />
to the New Code. In this respect the New<br />
Code includes jurisdictional rules in different<br />
relations that are mandatory for the parties in<br />
conflict, most of them in family matters but also<br />
in consumers’ relations and real estate conflicts,<br />
among others.<br />
These are examples of some of the many<br />
amendments of the New Code to the<br />
i. Statute of limitation: the New Code has<br />
amended many of the terms applicable to the<br />
statute of limitation. The general term has been<br />
reduced from 10 to five years. In contractual<br />
liability the term has also been reduce from<br />
ten years to three years. The New Code also<br />
prohibits the parties to modify the terms<br />
applicable to the statute of limitation.<br />
existing Civil Code and the Commercial<br />
Code, that will most probably raise conflicts<br />
in its interpretation that once it becomes<br />
into force will require the intervention of<br />
courts or arbitrators to build case law in the<br />
interpretation of the new rules. In this respect,<br />
the New Code establishes the need of a judicial<br />
decision reasonably grounded on a series of<br />
principles that exceed the own text of the New<br />
This means that in the coming future after August 1,<br />
2015 dispute resolutions will most probably increase<br />
in the need of interpretation of the amended rules of<br />
the New Code. And the first thing to determine will<br />
be whether these amended rules are applicable to<br />
the existing relations. In addition another important<br />
matter in this interpretation is that that case law<br />
seems not to constitute express sources of law.<br />
Code.<br />
In this matter the judge must take into<br />
account the National Constitution, laws and<br />
Martín Campbell<br />
Partner<br />
T: (54-11) 4310-0100<br />
Email: MCAM@marval.com.ar<br />
Martín Campbel graduated as a lawyer from the Universidad Católica Argentina in 1973. He<br />
specializes in commercial, business and financial litigation and bankruptcy law.<br />
He advises companies on matters in these areas of specialization and on restructuring of private debt.<br />
He also has vast experience in matters relating to the refinancing of bank loans.<br />
He is a member of the Colegio Publico de Abogados de la Ciudad de Buenos Aires, former member of<br />
the Latin America Committee Member and World Editorial) and International Bar Association (IBA)<br />
14 | <strong>Lawyer</strong><strong>Issue</strong> 15
Company Formations<br />
CYPRUS – a direct route to<br />
EU citizenship<br />
by Eleni Drakou<br />
Acquiring a second passport has proved to be of significant importance for people who want to travel<br />
with less restrictions, to secure their assets, or to enjoy the benefits of welfare and high standard of<br />
living of another country. A dual citizenship provides international diversification, which is a crucial<br />
element for people who seek personal liberty and financial prosperity. European citizenship has been<br />
very popular among non-EU nationals who wish to obtain a second passport. Many EU countries<br />
have adopted laws and regulations in order to grant to non-nationals their citizenship or residence<br />
permit through investment.<br />
Cyprus is one of the most popular EU<br />
jurisdictions, as the Cyprus naturalization<br />
by investment scheme is considered the<br />
most straightforward route to becoming a<br />
European citizen.<br />
Over the last few years, Cyprus has<br />
attracted many non-EU citizens from<br />
around the globe. Investors and<br />
entrepreneurs choose Cyprus over other<br />
jurisdictions for the fast track application,<br />
which grants the Cyprus passport in only<br />
90 days.<br />
Cyprus has become a popular choice for<br />
investors looking for asset protection,<br />
entrepreneurs looking to expand their<br />
international presence, and retired<br />
immigrants who seek a second passport.<br />
The scheme for “Naturalisation of<br />
investors in Cyprus by exception” was<br />
adopted on the basis of subsection (2)<br />
of section 111A of the Civil Registry Laws<br />
of 2000-2013 according to the Council<br />
of Ministers Decision (19.03.2014). The<br />
scheme allows for the dual citizenship of<br />
the applicant and the applicant’s family.<br />
Why Cyprus is so popular<br />
Cyprus is one of the few countries within<br />
the EU that offers direct citizenship<br />
without any residential requirements at<br />
any stage -before or after the applicationunlike<br />
other European countries.<br />
There are no language competence<br />
requirements for obtaining the citizenship<br />
and the English language is broadly<br />
spoken in the country.<br />
Wealthy individuals benefit from Cyprus’<br />
solid business infrastructure and the high<br />
standard of professional and multilingual<br />
services, the good quality of life, the<br />
relatively low cost of living, and the access<br />
to health-care and the educational system.<br />
Cyprus also enjoys a very low crime level.<br />
The strategic geographical location makes<br />
the country an ideal destination and the<br />
Cyprus passport offers ease of travel (visafree<br />
travel or visa-on-arrival) to more than<br />
150 countries in Europe, Asia, Middle East,<br />
Africa, and USA.<br />
Most importantly, Cyprus is a full member<br />
of the European Union since 2004. Hence<br />
Cypriot citizens enjoy all the privileges<br />
of EU citizens: free movement of people<br />
and capital within the countries of the EU<br />
and free establishment and movement of<br />
services and goods in all the EU countries.<br />
EU citizens enjoy the right to freely travel,<br />
reside, work and study in any EU country,<br />
purchase property, transfer funds, and<br />
invest in any member state.<br />
The Cyprus scheme has a transparent<br />
procedure as the examination is solely<br />
based on economic criteria and the<br />
submission of a clear criminal record.<br />
The Cyprus scheme also benefits the<br />
applicant’s family, since the spouse and<br />
children below the age of 18 (or 28 under<br />
certain conditions) are also able to obtain<br />
citizenship. As citizenship can be passed<br />
on to a next generation, grandchildren<br />
inherit the Cyprus citizenship.<br />
Tax incentives<br />
Cyprus offers a combination of tax<br />
incentives for investors who are granted<br />
citizenship. The investors do not become<br />
tax residents in Cyprus unless they spend<br />
more than 183 days in the country in one<br />
calendar year. Hence tax is not imposed<br />
on the investors’ personal income.<br />
No tax is imposed on wealth, gift,<br />
inheritance, foreign income or capital<br />
gains, and no restriction is made on the<br />
repatriation of profits and imported<br />
capital. Corporations are subject to one<br />
of the lowest corporate tax rates in EU<br />
(12.5 %). Cyprus has also signed numerous<br />
double tax treaties with other countries<br />
that offer tremendous possibilities for<br />
international tax planning.<br />
Naturalization scheme<br />
through investment<br />
The Cyprus government grants citizenship<br />
with various and often combined ways.<br />
Investors and entrepreneurs apply<br />
personally or through a corporation. The<br />
economic criteria are examined by the<br />
Ministry of Finance.<br />
The applicant may invest the amount of<br />
€5 million or the amount of €2.5 million<br />
in case of participation in a collective<br />
investment plan of €12.5 million. The<br />
16 | <strong>Lawyer</strong><strong>Issue</strong> 17
Company Formations<br />
investment can be made in (a) government<br />
bonds; (b) financial assets of Cyprus<br />
companies or organisations; (c) real estate,<br />
development and infrastructure projects; (d)<br />
purchase, incorporation of or participation<br />
in Cypriot businesses and companies; and/<br />
or (e) deposits in Cypriot banks or deposits<br />
of privately owned companies or trusts. The<br />
investor is also required to have a permanent<br />
privately-owned residence in Cyprus of at least<br />
€500.000 unless he/she chooses to invest the<br />
amount of €2.5 or €5 million in the purchase<br />
of a private residence.<br />
Investors often prefer to invest in real estate<br />
to benefit from the investment and growth<br />
potentials and to gain significant rental<br />
income. The most popular investment option<br />
for applicants who invest the amount of €2.5<br />
million in real estate is the purchase of one<br />
residential property, as applicants are not<br />
required to invest the additional amount of<br />
€500.000 for their residence.<br />
The fast track application<br />
procedure<br />
The application for the naturalization is<br />
submitted to the Ministry of Interior and<br />
examined both by the Ministries of Interior<br />
Eleni Drakou<br />
and Finance. If the applicant meets the criteria<br />
and conditions, the case is presented to the<br />
Council of Ministers for the final decision. Once<br />
the application is approved, the Certificate of<br />
Naturalization is issued by the Civil Registry<br />
and Migration Department within two weeks.<br />
Residence permit – the<br />
permanent and unlimited<br />
ticket to Cyprus<br />
Cyprus also offers to non-EU investors<br />
a permanent and unlimited in duration<br />
residence permit. The permanent residence<br />
is granted to applicants for the rest of their<br />
lives without any renewal requirements or<br />
residential requirements; a short visit to<br />
Cyprus once every two years is sufficient.<br />
The residence permit may be granted by<br />
purchasing a property in Cyprus of a minimum<br />
market value of €300.000.<br />
Interested investors should keep in mind that<br />
applying for the Cyprus citizenship requires<br />
professional legal advice. The guidance<br />
offered by a reputable law firm specialising<br />
in immigration law, banking and finance,<br />
corporate law, and immovable property will<br />
determine the success of the application.<br />
Director of Business Development at MICHAEL KYPRIANOU & CO.<br />
T: +357 22 447777<br />
Email: e.drakou@kyprianou.com.cy<br />
Eleni Drakou is the director of business development of MICHAEL KYPRIANOU & CO. LLC, a leading law firm<br />
based in Cyprus, Greece and Malta. Eleni is also an associate of the law firm and a member of the Cyprus Bar<br />
Association and the Nicosia Bar Association. She has experience in the professional services sector and she is<br />
specialized in Corporate Law, Investment and Immigration Law.<br />
Post-Sanction Era in Iran, Legal Challenges<br />
and Economic Opportunities<br />
by Dr. Behrooz Akhlaghi,<br />
Farhad Emam<br />
Executive summary<br />
The negotiations between Iran and P5+1 is getting<br />
closer to its final stage. If the parties get into a win-win<br />
deal, the first international action would be to lift the<br />
sanctions. This would ease the pressure on the Iranian<br />
economy and would boost the efforts to normalize the<br />
current staggering conditions. The other side of this<br />
coin is the plan of action of the Iranian government to<br />
renovate and internationalize the economic system of<br />
Iran. The final direction of the efforts on both sides of<br />
the table is to establish a free market economy in Iran.<br />
In this brief report, we will look at the actions to be<br />
taken internationally and locally in order to show how<br />
they can invigorate each other if in devising each plan<br />
of action, the needs and requirements of the other<br />
one could be kept in mind.<br />
AA. INTERNATIONAL PLAN OF ACTION<br />
1. Lifting and easing of sanctions<br />
According to the Guidance Relating to the April<br />
2, 2015 Announcement of Parameters for a Joint<br />
Comprehensive Plan of Action Regarding the Islamic<br />
Republic of Iran’s Nuclear Program:<br />
“The parameters announced on April 2, 2015 for a Joint<br />
Comprehensive Plan of Action (JCPOA) by the P5+1 and<br />
Iran do not immediately relieve, suspend or terminate<br />
any sanctions on Iran. The only sanctions relief in force<br />
is the relief provided pursuant to the Joint Plan of Action<br />
(JPOA) reached on November 24, 2013 and extended<br />
through June 30, 2015.” 1<br />
1 http://www.treasury.gov/resource-center/sanctions/Programs/pages/iran.aspx<br />
18 | <strong>Lawyer</strong><strong>Issue</strong> 19
Company Formations<br />
After June 30, 2015, some of the sanctions imposed<br />
on Iran shall be lifted, depending on the terms of the<br />
agreement expected to be concluded between Iran<br />
and the P5+1. For the sake of facilitating our analysis,<br />
we presume that the parties will agree on all of their<br />
issues of common interest. In that case, according<br />
to the US Fact Sheet 2 the main consequences of the<br />
agreement shall be:<br />
• “U.S. and E.U. nuclear-related sanctions will be<br />
suspended after the IAEA has verified that Iran<br />
has taken all of its key nuclear-related steps. If at<br />
any time Iran fails to fulfill its commitments, these<br />
sanctions will snap back into place.<br />
• The architecture of U.S. nuclear-related sanctions<br />
on Iran will be retained for much of the duration<br />
of the deal and allow for snap-back of sanctions<br />
in the event of significant non-performance.<br />
• All past UN Security Council resolutions on the<br />
Iran nuclear issue will be lifted simultaneous with<br />
the completion, by Iran, of nuclear-related actions<br />
addressing all key concerns (enrichment, Fordow,<br />
Arak, PMD, and transparency).<br />
• However, core provisions in the UN Security<br />
Council resolutions – those that deal with<br />
transfers of sensitive technologies and activities<br />
– will be re-established by a new UN Security<br />
Council resolution that will endorse the JCPOA<br />
and urge its full implementation. It will also create<br />
the procurement channel mentioned above,<br />
which will serve as a key transparency measure.<br />
Important restrictions on conventional arms and<br />
ballistic missiles, as well as provisions that allow<br />
for related cargo inspections and asset freezes,<br />
will also be incorporated by this new resolution.”<br />
2. Allowing Iran to join the international club<br />
Iran has been treated as a pariah state for more than<br />
35 years. Now time is ripe to open the doors to allow<br />
the Iranian State to become a full member of the<br />
following entities:<br />
a. WTO: The accession status of Iran, as explained on<br />
the website of WTO, is as follows:<br />
“The General Council established a Working Party to<br />
examine the application of the Islamic Republic of Iran<br />
on 26 May 2005. The Islamic Republic of Iran submitted<br />
its Memorandum on the Foreign Trade Regime in<br />
2 http://www.state.gov/e/eb/tfs/spi/iran/fs/240539.htm<br />
November 2009. The Working Party has not yet met.”<br />
The main reason for the current stand-still is political,<br />
according to the Iranian government. For this reason,<br />
Iran has taken few political steps to remove the<br />
existing barriers as reported by Tass, Russian News<br />
Agency, on November 30, 2014 :<br />
“Iran asks Russia to help it join the World Trade<br />
Organization (WTO), according to a memorandum on<br />
cooperation between Russia’s ministry of economic<br />
development and Iran’s ministry of industry, mining and<br />
trade signed on Sunday.”<br />
Almost five months have passed since then and Iran’s<br />
membership status has not budged a bit. This means<br />
that it would be impossible for Iran to join the WTO as<br />
long as its disagreements with the P5+1 lingers. But<br />
even after signing the agreement with the P5+1, there<br />
will be an expectation to see to it that Iran respects<br />
and abides by the international rules before allowing<br />
this country to become a full member of the WTO.<br />
b. Others: Becoming a member of an international<br />
organization is just the first step in direction of joining<br />
the international club. To become an active member,<br />
Iran needs to enter into the game of give and take.<br />
This means that Iran has to take the<br />
following steps:<br />
a. International policy of Iran, as far as its<br />
membership in international organizations<br />
is concerned, must be defined in clear and<br />
concise terms;<br />
b. Based on that policy, Iran needs to define its<br />
strategies in order to meet its objectives;<br />
c. Then a plan of action must be devised<br />
comprising the ways and means of initiating<br />
and maintaining an international cooperation<br />
while taking into account the capacities and<br />
capabilities of Iran; and<br />
d. Finally, Iran needs to look into the steps to<br />
be taken in order to put its plan of action into<br />
execution.<br />
3. Conclusion of new bilateral and multilateral agreements with Iran<br />
Iran has concluded many bilateral and multilateral international agreements with its economic partners.<br />
In practice, however, these agreements are often of no practical contribution to the Iranian economy. For<br />
example, the following list shows that Iran has entered into Bilateral Investment Treaties (BITs) with the<br />
following 46 countries:<br />
Countries Date of signature Date of entry into force<br />
1. Afghanistan 28 May 2006 2 February 2008<br />
2. Algeria 19 October 2003 5 December 2005<br />
3. Armenia 6 May 1995 26 February 1997<br />
4. Austria 15 February 2001 11 July 2004<br />
5. Azerbaijan 28 October 1996 20 June 2002<br />
6. Bahrain 19 October 2002 12 October 2004<br />
7. Bangladesh 29 April 2001 5 December 2002<br />
8. Belarus 14 July 1995 23 June 2000<br />
9. Bosnia &Herzegovina 27 July 1996 25 August 2002<br />
10. Bulgaria 13 November 1998 24 August 2003<br />
11. China 22 July 2000 1 July 2005<br />
12. Croatia 17 May 2000 2 August 2003<br />
13. Finland 4 November 2002 25 June 2004<br />
14. France 12 May 2003 12 November 2004<br />
15. Georgia 27 September 1995 22 June 2005<br />
16. Germany 17 August 2002 23 June 2005<br />
17. Indonesia 28 March 2009<br />
18. Italy 10 March 1999 27 July 2005<br />
19. Kazakhstan 16 January 1996 3 April 1999<br />
20. Kyrgyzstan 31 July 1996 27 June 2005<br />
21. Lebanon 28 October 1997 14 May 2000<br />
22. Macedonia 12 July 2000 19 August 2005<br />
23. Malaysia 22 July 2002 4 August 2006<br />
24. Morocco 21 January 2001 31 March 2003<br />
25. North Korea 30 September 2002 24 April 2005<br />
26. Oman 2 December 2001 8 April 2003<br />
27. Pakistan 8 November 1995 27 June 1998<br />
28. Poland 2 October 1998 26 October 2001<br />
29. Qatar 20 May 1999 5 November 2001<br />
30. Romania 26 January 2002 12 January 2005<br />
31. Serbia & Montenegro 5 December 2003 7 July 2006<br />
32. South Africa 3 November 1997 5 March 2002<br />
33. South Korea 31 October 1998 31 QQQ<br />
Some of the above BITs have been left inactive and useless for decades. It is now an appropriate time to look into<br />
each of them to see whether they are of any practical value and if so, to reactivate them after discussing the ways of<br />
reviving these treaties with the States whose economic partnership is of interest to Iran.<br />
20 | <strong>Lawyer</strong><strong>Issue</strong> 21
Company Formations<br />
BB. Domestic Plan of Action<br />
1. Internationalization of the domestic laws<br />
The economic laws of Iran are old and outdated. The<br />
government of Iran need to establish a working group<br />
to carry out a comparative study of these laws in<br />
order to adapt them to the current needs of potential<br />
international partners of Iran.<br />
The main laws that need to be reviewed<br />
are in the following fields:<br />
a. Competition (and restriction of competition);<br />
b. Public- Private Partnership (PPP);<br />
c. Concessions (based on Article 81 of the<br />
Constitution of Iran);<br />
d. Public markets;<br />
e. Oil and gas;<br />
f. Public property and public domain;<br />
g. Privatization; and<br />
h. Mining activities.<br />
2. Establishing “connecting entities”<br />
Foreign companies and firms need to learn about the<br />
applicable rules of the Iranian market. They also need<br />
to establish joint ventures with their Iranian partners.<br />
Furthermore, it is indispensable for them to keep<br />
themselves aware of the changes and developments<br />
in the Iranian market place. In handling all of these<br />
challenges, normally they have to rely on international<br />
law offices and their representatives in Iran. There<br />
is a dire need to have companies that are expert in<br />
gathering economic information on both public and<br />
private sectors of the economy of Iran and to carry<br />
out due diligence studies for foreign companies,<br />
if and when needed. Lack of ‘connecting entities’<br />
could delay the process of internationalization of the<br />
Iranian economy.<br />
3. Modern courts and arbitration centers<br />
It is trite to say that Iranian courts fall short of the<br />
expectations of the foreign companies that are in<br />
need of reliable judicial services. The Arbitration<br />
Center of the Iran Chamber of Commerce, Industries,<br />
Mines and Agriculture (ICCIMA) has taken serious<br />
steps in order to meet the international standards<br />
of commercial arbitration but despite all of the<br />
invaluable efforts of its managers, the Arbitration<br />
Center of the ICCIMA needs to take serious measures<br />
to meet the international expectations. In taking<br />
these measures, the Arbitration Center needs to avail<br />
itself of services of renowned experts of international<br />
commercial arbitration.<br />
CONCLUSION<br />
The agreement to be concluded between Iran and the<br />
P5+1 ushers in a new era in economic development<br />
of the country. The role of this agreement, however,<br />
must not be overemphasized. Iran needs to take<br />
other steps, both at international and at domestic<br />
level, to pave the way for implementing its new<br />
economic development plan. In this brief report, we<br />
tried to put emphasise on the main parts of this plan.<br />
A detailed version of this plan will be prepared as<br />
soon as Iran and P5+1 ink their final agreement.<br />
Follow-on competition law litigation in<br />
Denmark – Cheminova vs. Akzo Nobel<br />
by Martin André Dittmer,<br />
Sam MacMahon Baldwin,<br />
Søren Elmstrøm Sørensen,<br />
Gorrissen Federspiel<br />
Dr. Behrooz Akhlaghi<br />
Attorney at law, Founder at Dr.<br />
Behrooz Akhlaghi & Associates<br />
T: +98 21 22 66 93 81<br />
Email: akhlaghi@akhlaghi.net<br />
Farhad Emam<br />
Legal Counsel at Dr. Behrooz<br />
Akhlaghi & Associates<br />
T: +98 21 22 66 93 74 – 8<br />
Email: ounsel@akhlaghi.net<br />
In recent years, there has been considerable focus on private antitrust<br />
litigation based on a prior infringement decision by either the European<br />
Commission or a national competition authority – known<br />
as follow-on litigation. In January 2015, the Danish Maritime and<br />
Commercial Court awarded damages to Danish Cheminova A/S in a<br />
follow-on action against Akzo Nobel.<br />
22 | <strong>Lawyer</strong><strong>Issue</strong> 23
Competition & Anti-trust<br />
Cartelists and others who act in breach<br />
Akzo Nobel was in total fined EUR 84.38<br />
causality and foreseeability. Consequently,<br />
Cheminova had not<br />
of competition law are increasingly<br />
million by the European Commission for<br />
it was ’only’ for Cheminova to prove that<br />
suffered a loss. Akzo<br />
sued in private antitrust proceedings by<br />
its participation in the cartel.<br />
they had suffered a loss and not least the<br />
Nobel partly succeeded on this argument<br />
companies who claim to have suffered<br />
size of such a loss.<br />
and Cheminova’s claim for damages was<br />
a loss as a result of the anti-competitive<br />
behaviour. If such proceedings are<br />
initiated after a prior infringement<br />
decision has been rendered by a relevant<br />
The Danish company, Cheminova, which<br />
produces crop protection products, had<br />
bought MCAA-mixture, Azonol, from<br />
Akzo Nobel during the cartel period for<br />
Whether there was on<br />
overcharge<br />
reduced with a certain percentage.<br />
However, Cheminova argued successfully<br />
that the amount of damages should be<br />
competition authority the proceedings<br />
which Akzo Nobel was fined. In the view<br />
In order to verify whether Cheminova had<br />
adjusted in favour of Cheminova due to<br />
are commonly referred to as follow-on<br />
of Cheminova, Akzo Nobel overcharged<br />
suffered a loss – and the potential size of<br />
the fact that Cheminova had lost revenue<br />
litigation.<br />
Cheminova for such products due to the<br />
such loss – the parties submitted various<br />
since it sold products at a higher price<br />
cartel, and accordingly Cheminova had<br />
economic models to the court. These<br />
to its customers – known as the ‘volume<br />
In January 2015, the Danish Maritime and<br />
suffered a loss for which Akzo Nobel was<br />
models were heavily debated during<br />
effect’.<br />
Commercial Court rendered a decision in<br />
liable. Cheminova therefore initiated<br />
the case by the parties and an expert<br />
favour of the Danish company, Cheminova<br />
proceedings in Denmark before the<br />
economist was appointed by the court to<br />
Akzo Nobel then submitted that if Akzo<br />
A/S (“Cheminova”), in a follow-on action<br />
Danish Maritime and Commercial Court<br />
assess the applicability and viability of the<br />
Nobel was liable to Cheminova, the<br />
against the Dutch company Akzo Nobel.<br />
with a claim for damages against Akzo<br />
models.<br />
amount of damages should be adjusted<br />
The case is one of few court cases from<br />
Nobel.<br />
for saved tax. The rationale was that<br />
Denmark concerning actions for damages<br />
A rather important issue for Cheminova<br />
the tax rate for companies was higher<br />
for breach of competition law. However,<br />
Prior to the proceedings in Denmark Akzo<br />
was to persuade the court of a model<br />
during the period where Akzo Nobel had<br />
the judgment may well increase potential<br />
Nobel had settled the case with some of<br />
which could demonstrate and measure<br />
overcharged Cheminova than the current<br />
victims’ appetite for suing competition<br />
its American customers by paying 20% of<br />
Akzo Nobel’s actual contribution margin<br />
tax rate.<br />
law offenders on the back of infringement<br />
their purchases in damages.<br />
during the cartel period derived from<br />
decisions from the European Comission or<br />
the Danish Competition Council.<br />
Also in light of the recently adopted<br />
Directive 2014/104/EU on actions<br />
The legal basis for bringing<br />
an action for damages<br />
under Danish law<br />
the sale of Azonol and Akzo Nobel’s<br />
contribution margin if the cartel had not<br />
existed, i.e. the counterfactual scenario.<br />
Such a model would enable Cheminova<br />
to prove the amount which Cheminova<br />
According to Akzo Nobel this would<br />
entail that Cheminova would be<br />
overcompensated – if the amount of<br />
damages was not adjusted – since<br />
Cheminova would only have to pay tax of<br />
for damages for competition law<br />
Under Danish law claims for damages for<br />
had been overcharged by Akzo Nobel for<br />
the awarded damages based on the actual<br />
infringements which seeks to make it<br />
competition law infringements are not<br />
Azonol.<br />
and lower tax rate. This argument was,<br />
easier for companies and individuals<br />
governed by the Danish Competition Act<br />
however, rejected by the court.<br />
to claim damages from companies not<br />
but are subject to non-statutory torts law.<br />
Based primarily on the expert report,<br />
playing by the rules.<br />
Cheminova succeeded in persuading the<br />
In a split decision (3 against 2) the court<br />
The background of the<br />
case against Akzo Nobel<br />
In 2005 the European Commission fined<br />
six Akzo Nobel companies together with<br />
the companies EKA Chemicals AB, Atofina<br />
SA (now Arkema SA), Elf Aquitaine SA,<br />
Hoechst AG, Clariant GmbH and Clariant<br />
AG for their participation in a European<br />
Danish torts law provides that it is for<br />
the injured party to put forward and<br />
substantiate his case – in particular<br />
the basis for liability and the monetary<br />
loss sustained as consequence of the<br />
wrongdoing. Therefore, it generally<br />
falls upon the claimant to demonstrate<br />
causality between the wrongdoing and the<br />
loss suffered as well as foresee-ability.<br />
court of accepting such a model – and<br />
that Akzo Nobel had received a higher<br />
contribution margin than would have<br />
been the case in the absence of the cartel.<br />
The court applied his model as a starting<br />
point when measuring the damages.<br />
Whether the overcharge<br />
was passed on<br />
finally ordered Cheminova damages in the<br />
amount of approximately EUR 1.4 million<br />
for the period 1986 to 2000. A dissenting<br />
minority of 2 judges favoured damages of<br />
approximately EUR 1.3 million.<br />
Tendency towards more<br />
follow-on litigation<br />
The Cheminova/Akzo case illustrates that<br />
market-sharing and price-fixing cartel for<br />
MCAA chemicals (Monochloroacetic acid)<br />
which lasted between 1984 and 1999. 1<br />
1 Case No COMP/E-1/.37.773 – MCAA.<br />
During the proceedings before the<br />
Maritime and Commercial Court Akzo<br />
Nobel only disputed that Cheminova had<br />
suffered a loss – i.e. the issue of quantum.<br />
Akzo Nobel admitted the basis of liability,<br />
During the case Akzo Nobel argued that<br />
even if it had overcharged Cheminova<br />
during the cartel period, Cheminova in<br />
any case had passed this higher price<br />
on to its customers and accordingly<br />
it is not impossible to succeed in a claim<br />
for damages for breach of competition<br />
law and certainly the increasing focus on<br />
follow-on litigation – not least at EU-level<br />
– means that even more cases should be<br />
24 | <strong>Lawyer</strong><strong>Issue</strong> 25
Competition & Anti-trust<br />
expected in the future. Therefore, companies have<br />
to take into account when assessing their conduct<br />
in light of competition law that they might end up in<br />
private antitrust proceedings and at the end of the<br />
day will have to pay damages to their customers or<br />
even worse their competitors.<br />
Denmark has not yet implemented Directive<br />
2014/104/EU on antitrust damages actions. The<br />
Directive must be implemented latest December<br />
2016.<br />
Review Panel calls for significant reforms<br />
to Australia’s competition laws<br />
by Patrick Gay,<br />
Sarah Chubb<br />
Martin André Dittmer<br />
Head of EU & Competition law at Gorrissen Federspiel<br />
T: +45 33 41 41 41<br />
Email: mad@gorrissenfederspiel.com<br />
Martin André Dittmer has extensive practical experience within competition law including antitrust litigation. Martin<br />
André Dittmer handles merger applications to the Commission and Danish competition authorities, advice of clients on<br />
horizontal and vertical agreements under article 101 (including cartels), matters of abuse under article 102 and all types<br />
of problems within Danish competition law. Furthermore, Martin André Dittmer advises both contracting entities and<br />
tenderers in relation to public procurement issues.<br />
Sam MacMahon Baldwin<br />
Associate Attorney at Gorrissen Federspiel<br />
T: +45 33 41 41 41<br />
Email: sam@gorrissenfederspiel.com<br />
Sam MacMahon Baldwin has experience within all areas of competition law including anti-competitive agreements, abuse<br />
of dominance, merger control, and state aid. Sam has experience in handling cases before the EU Courts, state aid cases<br />
with the European Commission, and cases before the Danish competition authorities. Sam also has litigation experience<br />
before the Danish courts. In addition, Sam handles matters on public procurement as well as matters concerning stateowned<br />
and privileged companies and undertakings.<br />
Søren Elmstrøm Sørensen<br />
Assistant Attorney at Gorrissen Federspiel<br />
T: +45 33 41 41 41<br />
Email: SES@gorrissenfederspiel.com<br />
Søren Elmstrøm Sørensen is assistant attorney in Gorrissen Federspiel’s EU & Competition law practice group. Søren<br />
Elmstrøm Sørensen works within all areas of competition law including anti-competitive agreements, abuse of dominance<br />
and merger control.<br />
In March last year, the Australian Government commissioned an independent<br />
‘root and branch’ review of Australia’s competition law and policy – the first<br />
review of its type in over 20 years.<br />
The Review Panel’s Final Report was<br />
released on 31 March 2015. The Australian<br />
Government intends to respond to the Final<br />
Report in the second half of this year. We<br />
would not be surprised if it endorsed many<br />
of the suggested reforms.<br />
The Final Report considers three broad<br />
areas:<br />
• competition law: substantive changes<br />
to Australia’s key piece of competition<br />
legislation, the Competition and<br />
Consumer Act 2010 (Cth) (CCA);<br />
• competition policy: reforms to<br />
regulatory frameworks to open up<br />
competition in a number of sectors,<br />
including taxis, pharmacies and human<br />
services; and<br />
• institutions: among other things,<br />
the Panel advocates removing all<br />
access and pricing functions from the<br />
Australian competition regulator, the<br />
Australian Competition and Consumer<br />
Commission (ACCC), and transferring<br />
26 | <strong>Lawyer</strong><strong>Issue</strong> 27
Competition & Anti-trust<br />
them to a new access and pricing<br />
regulator.<br />
The Panel made over 50 specific<br />
recommendations. Below, we explore some<br />
of the key recommendations for the CCA.<br />
Merger review – a new formal<br />
process<br />
Under Australian competition law, there<br />
is no mandatory notification regime for<br />
mergers.<br />
The Panel has not recommended<br />
introducing a mandatory regime. But it has<br />
proposed several changes to the existing<br />
voluntary regimes.<br />
likely to harm competition. Between<br />
2007 (when the current process was<br />
introduced) and late 2013, no one<br />
applied for merger authorisation. But<br />
in recent years, there have been two<br />
applications – first by Murray Goulburn<br />
in relation to its proposed acquisition<br />
of Warrnambool Cheese & Butter, and<br />
then by AGL in relation to its proposed<br />
acquisition of Macquarie Generation’s<br />
electricity assets.<br />
The Panel has made a number of<br />
important recommendations about these<br />
processes:<br />
• in relation to informal clearance: the<br />
Panel believes that the process should<br />
be retained, but that there should<br />
be further consultation between the<br />
ACCC and business to help improve the<br />
timeliness of the ACCC’s decisions; and<br />
disappointing.<br />
Cartel laws – to be simplified<br />
International practitioners may be surprised<br />
by the length, complexity and reach of<br />
Australia’s current cartel laws, which pose<br />
serious challenges for both interpretation<br />
and application.<br />
The Panel expressed a range of concerns<br />
about Australia’s existing cartel laws, several<br />
of which stemmed from a recent court case<br />
where the laws were found to apply to:<br />
• a tender for the sale of a Canadian<br />
corporation, which had business<br />
operations outside Australia, where<br />
the seller was based outside Australia,<br />
and where the tender was conducted<br />
outside Australia 1 ; and<br />
the risks associated with their conduct. They<br />
may also benefit the regulator in bringing<br />
criminal prosecutions, in part because the<br />
simplified concepts will be easier for juries<br />
to understand and apply.<br />
Joint venture defence – to be<br />
simplified and expanded<br />
The CCA recognises the economic value of<br />
joint venture arrangements and includes<br />
exemptions from cartel laws for these<br />
arrangements.<br />
Currently, there are three merger review<br />
processes available in Australia:<br />
• informal clearance: under this process,<br />
the ACCC provides merger parties<br />
with an informal view about whether a<br />
merger is likely to substantially lessen<br />
competition. Merger parties almost<br />
invariably rely on this process, because<br />
it is flexible in terms of the information<br />
to be provided to the ACCC and the<br />
timeframes for assessment;<br />
• formal clearance: under the CCA,<br />
merger parties may apply to the ACCC<br />
for formal clearance. The ACCC can<br />
grant formal clearance if it is satisfied<br />
that the acquisition would not have the<br />
effect or likely effect of substantially<br />
lessening competition. Since the formal<br />
clearance process was introduced in<br />
2007, no one has elected to use it, in<br />
part because of the significant amount<br />
of information required to be provided<br />
to the ACCC upfront; and<br />
• authorisation: under the CCA, merger<br />
parties may apply to the Australian<br />
Competition Tribunal – a quasi-judicial<br />
body – for authorisation on the grounds<br />
that their merger will result in a net<br />
public benefit. This means that a<br />
merger may be allowed to proceed<br />
on public benefit grounds, even if it is<br />
• in relation to formal clearance<br />
and authorisation: the Panel has<br />
recommended combining these<br />
processes into a single formal regime<br />
which allows both competition<br />
and broader public interests to be<br />
considered. Under this process,<br />
applications would be made to<br />
the ACCC, with a right of review<br />
to the Tribunal. There would be<br />
strict timelines, and no prescriptive<br />
information requirements, although the<br />
ACCC would be empowered to require<br />
the production of business and market<br />
information from the parties involved.<br />
While the Panel’s suggestion of a single<br />
formal regime should make the process<br />
more ‘user-friendly’, it will also mean that<br />
parties lose the ability to apply directly<br />
to the Tribunal for merger authorisation.<br />
The AGL case showed that the Tribunal<br />
can, after testing the evidence, come to<br />
a very different view from the ACCC on<br />
competition issues. Further, the current<br />
merger authorisation process is quick,<br />
with a time limit of three months (absent<br />
complex or special circumstances). The<br />
loss of this merger approval option is<br />
• an arrangement between parties if<br />
there is ‘more than a remote possibility’<br />
that the parties are, or would be, in<br />
competition with each other.<br />
To address these concerns, the Panel has<br />
made recommendations about both the<br />
extraterritorial reach of the cartel laws and<br />
the level of competition needed in order for<br />
the laws to apply. In particular, the Panel<br />
recommended that the cartel laws only<br />
apply to:<br />
• conduct that affects trade or commerce<br />
within, to or from Australia; and<br />
• corporations who are actual<br />
competitors, or who are ‘more likely<br />
than not’ to be in competition with each<br />
other.<br />
More broadly, the Panel believes that the<br />
existing cartel laws are overly complex, and<br />
has recommended that they be substantially<br />
simplified. In our view, the Panel’s<br />
suggested changes should make it easier for<br />
commercial parties to identify and assess<br />
1 The cartel laws were found to apply because the relevant<br />
conduct was engaged in by parties incorporated in<br />
Australia and/or carrying on business in Australia.<br />
Submissions to the Panel emphasised the<br />
importance of ensuring that Australia’s<br />
competition laws do not frustrate the<br />
formation of pro-competitive joint ventures,<br />
and that they are drafted appropriately<br />
to differentiate between legitimate joint<br />
ventures and anti-competitive agreements<br />
‘dressed up’ as joint ventures.<br />
The Panel has recommended a simpler<br />
and broader exemption for joint venture<br />
activities that do not have the purpose or<br />
effect of substantially lessening competition.<br />
The joint venture defence proposed by<br />
the Panel:<br />
• removes the requirement for a<br />
joint venture contract, instead<br />
recommending that the defence be<br />
extended to apply to less formal joint<br />
venture arrangements;<br />
• removes the requirement for a<br />
production and/or supply joint venture,<br />
instead recommending that the defence<br />
be broadened to apply to any joint<br />
venture for the production, supply,<br />
acquisition or marketing of goods or<br />
services; and<br />
• includes a requirement that the relevant<br />
cartel provision under consideration:<br />
• be for the purpose of the joint venture<br />
(this is an existing requirement);<br />
28 | <strong>Lawyer</strong><strong>Issue</strong> 29
Competition & Anti-trust<br />
• relate to goods or services acquired,<br />
produced, supplied or marketed by or<br />
for the purpose of the joint venture; or<br />
• be reasonably necessary for<br />
undertaking the joint venture.<br />
This third suggestion seeks to ensure that<br />
the relevant conduct is sufficiently linked<br />
to the joint venture so that only genuine<br />
joint venture conduct will benefit from the<br />
defence. While that link is clearly important,<br />
there has been no judicial consideration of<br />
the phrases recommended by the Panel,<br />
and they remain open to a number of<br />
possible interpretations. In particular, it is<br />
still unclear whether a provision that is not<br />
strictly necessary for the operation of a joint<br />
venture, but furthers its objective or enables<br />
it to operate more efficiently, comes within<br />
the scope of the defence.<br />
Overall though, the Panel’s suggestions<br />
are to be welcomed. They address many<br />
of the concerns of joint venture parties,<br />
particularly those in the energy and<br />
resources sectors, where collaborative<br />
activities are common.<br />
Price signalling – to be replaced with a<br />
prohibition on ‘concerted practices’<br />
In 2011, the CCA was amended to include<br />
prohibitions against price signalling – the<br />
anti-competitive disclosure of information.<br />
They currently apply only to the banking<br />
sector.<br />
The prohibitions have been heavily<br />
criticised, and the Panel has recommended<br />
they be repealed.<br />
In their place, it has recommended dealing<br />
with anti-competitive information exchanges<br />
by extending the general prohibition against<br />
anti-competitive contracts, arrangements<br />
and understandings to include ‘concerted<br />
practices’. It has defined a concerted<br />
practice as ‘a regular and deliberate activity<br />
undertaken by two or more firms. It would<br />
include the regular disclosure or exchange of<br />
price information between two firms, whether<br />
or not it is possible to show that the firms<br />
had reached an understanding about the<br />
disclosure or exchange’.<br />
While the term ‘concerted practices’ is not<br />
currently used in the CCA, it is a familiar<br />
concept in Europe. It will be interesting to<br />
see whether Australian courts adopt the<br />
European approach to ‘concerted practices’,<br />
or develop their own approach as cases are<br />
brought before them.<br />
Unilateral conduct – introducing an<br />
‘effects’ test<br />
The current Australian prohibition regulating<br />
the conduct of firms with substantial market<br />
power considers the purpose of the relevant<br />
conduct rather than its effect. It also<br />
requires that there be a causal connection<br />
between the market power and the conduct<br />
(i.e. the market power must be ‘used’).<br />
Perhaps the most controversial of the<br />
Panel’s recommendations is the introduction<br />
of an ‘effects’ test to this prohibition. More<br />
specifically, the Panel recommends that the<br />
section be re-framed to prohibit:<br />
• a corporation that has a substantial<br />
degree of power in a market<br />
• from engaging in conduct that has<br />
the purpose, effect or likely effect of<br />
substantially lessening competition.<br />
This formulation – ‘purpose, effect or likely<br />
effect of substantially lessening competition’ –<br />
already exists in other sections of the CCA<br />
that apply to collective conduct. However,<br />
if the Panel’s recommendation is adopted,<br />
it will for the first time apply to unilateral<br />
conduct by a corporation with substantial<br />
market power.<br />
The re-framed section also appears to remove<br />
the causal link between substantial market<br />
power on the one hand, and conduct on the<br />
other.<br />
Many commentators have expressed serious<br />
concerns about this recommendation, arguing<br />
that it will create uncertainty and may chill<br />
legitimate competitive conduct. In addition, the<br />
case law regarding the existing prohibition, which<br />
has developed over many years, will, in essence,<br />
be abandoned.<br />
While the Panel has acknowledged that reframing<br />
this prohibition will lead to a period<br />
Patrick Gay<br />
Partner at Herbert Smith Freehills<br />
of uncertainty, in our view it has probably<br />
underestimated both the period of uncertainty<br />
and the consequences of that uncertainty on the<br />
conduct of firms with market power.<br />
Next steps<br />
Sarah Chubb<br />
Senior Associate at Herbert Smith Freehills<br />
The Australian Government has been consulting<br />
on the Panel’s recommendations, with<br />
submissions on the Final Report due by late May.<br />
It intends to formulate its response to the Final<br />
Report in the second half of this year.<br />
T: (54-11) 4310-0100<br />
Email: patrick.gay@hsf.com<br />
Patrick is a Partner in the Competition, Regulation and Trade group based in Sydney. His practice<br />
focusses on competition and consumer law issues. Patrick has advised clients in a variety of<br />
industries in relation to merger clearances, and ACCC investigation and enforcement matters. He<br />
also provides competition law advice in respect of issues arising in contract negotiations, including<br />
distribution arrangements and joint venture agreements. Patrick is a contributor to a recent<br />
publication on Australian joint venture law entitled ‘Before you tie the knot: Contemporary issues<br />
in joint venture law’.<br />
T: +61 2 9225 5688<br />
Email: sarah.chubb@hsf.com<br />
Sarah is a Senior Associate in the Competition, Regulation and Trade team in Sydney. Sarah<br />
specialises in competition and consumer law, and advises clients across a wide range of industries<br />
including media, groceries, pharmaceuticals, wagering, insurance, ports, energy and petrol. Before<br />
joining Herbert Smith Freehills, Sarah worked for several years at the Australian competition<br />
regulator, the Australian Competition and Consumer Commission.<br />
30 | <strong>Lawyer</strong><strong>Issue</strong> 31
Competition & Anti-trust<br />
Argentinean Federal Supreme Court clarifies when<br />
“substantial influence” implies “control” giving rise to<br />
an “economic concentration” subject to authorization<br />
as per the Competition Law.<br />
by Agustín Siboldi<br />
The configuration of “control” by means of the acquisition of “substantial<br />
or controlling influence” according to the Argentinean Federal<br />
Supreme Court:<br />
Argentinean Federal Supreme Court<br />
rendered issued a ruling 1 that according<br />
to our point of view is extremely<br />
important since it provides certainty<br />
about the interpretation of all economic<br />
1 Decision dated March 10, “Pirelli y CSPA y otros s/<br />
notificación art. 8 ley 25.156 incidente de apelación de la<br />
Resolución SCI n° 2/10 en concentración 741.”<br />
transactions in which no real “control”<br />
case arises as is the case provided by<br />
paragraphs a) and b) of Article 6 of Law<br />
25,156 (“merger” and “transfer of<br />
goodwill”, respectively), which provide<br />
no interpretative complexity. 2<br />
2 a) the merger between companies;<br />
b) the transfer of goodwill;”<br />
The decision of the Supreme Court shed<br />
light upon one of the two cases covered<br />
by paragraphs c) and d) of Article 6 of<br />
Law 25,156 (“Competition Act “), which<br />
undoubtedly recognize more difficulty due<br />
to the fact that are cases that refer to the<br />
special features of each transaction.<br />
It is worth transcribing literally both<br />
paragraphs, since the need for legislation<br />
on competition law is evidenced in order<br />
to appeal to broad precepts, essential to<br />
cover the different and innovative designs<br />
that economic transactions may acquire,<br />
to prevent that new ways may avoid the<br />
controls established by legislation in this<br />
matter: 3<br />
“c) The acquisition of property<br />
or any right to shares or equity<br />
or debt securities that give<br />
any right to be converted into<br />
shares or equity or having any<br />
influence on the decisions of the<br />
person who issued said shares<br />
where such acquisitions give<br />
the buyer control or substantial<br />
influence over an undertaking;<br />
d) Any other agreement or<br />
transaction that transfers, de<br />
jure or de facto, to a person or<br />
an economic group, the assets<br />
of an undertaking or gives a<br />
determinative influence over<br />
ordinary or extraordinary<br />
business decisions.”<br />
We outlined the phrases designed by<br />
3 This was the case in the past, where the law of antitrust<br />
recognized an impression of criminal law itself, with<br />
a thorough description of the factual requirement of the<br />
established legal type, whose satisfaction was practically<br />
impossible due to the evolution that recognized the way<br />
to carry out business, circumstance allowed to avoid the<br />
controls set forth by the first legislators in this matter.<br />
The current wording of sections 1st and 2nd of Law<br />
25,156 respond to the same logic.<br />
the legislator in order to understand the<br />
universe of cases in the world of business<br />
that cannot be thoroughly defined. The<br />
common denominator is given by the<br />
“influence” which is qualified in two<br />
ways: “substantial” or “intended”.<br />
The case under analysis highlights on the<br />
assumption of “substantial influence “ 4 over<br />
the following concepts:<br />
1. he universe of assumptions taken<br />
by the concept “substantial<br />
influence” includes the two cases<br />
covered by paragraphs 1) and 2) of<br />
Section 33 of the Companies Act . 5<br />
2. Defines the first case as “...<br />
internal or de iure control,<br />
which occurs when a<br />
partner holds a stake,<br />
for any reason, that gives<br />
the necessary votes to<br />
constitute the social will<br />
in corporate or ordinary<br />
meetings…” 6<br />
3. And the second as “... the socalled<br />
external or in fact<br />
control, which occurs when<br />
an individual exercises<br />
a dominant influence as<br />
a result of their shares,<br />
quotas or parts of interest<br />
held, or due to special<br />
4 The High Court, taking into account the opinion of the<br />
Attorney General, stated: “In the case, the interpretation<br />
of the concept of the acquisition of substantial influence<br />
over a company is at stake under Article 6, paragraph c,<br />
of Act 25,156.” (opinion of the Attorney General, page 8).<br />
5 “Both cases provided for in the argentine companies<br />
act are covered by Article 6, paragraph c, of the Law<br />
25,156 ... “(Opinion of the General Attorney, page 10).<br />
Subsections of article 33 of the Companies Act provide<br />
as follows: “1) Holds stake, on any capacity, that may to<br />
grant the necessary votes to constitute the social will in<br />
corporate or ordinary meetings; 2) Exercises a dominant<br />
influence as a result of the shares, quotas or parts of<br />
interest owned, or by special links between companies.”<br />
6 Opinion of the General Attorney, page 9 in fine.<br />
32 | <strong>Lawyer</strong><strong>Issue</strong> 33
Competition & Anti-trust<br />
existing relations …” 7<br />
order to be deemed verified . 10<br />
c. As such participation of 42.3% gave to its<br />
holder the possibility to veto decisions<br />
relating with the competitive strategy of the<br />
company, in all cases in which a qualified<br />
operate in this market . 15<br />
4. But additional case identified, other than<br />
those found in section 33 of the Companies<br />
Act, under the concept of “substantial<br />
influence”, when the possibility to<br />
effectively influence in the strategy and<br />
competitive behavior of a company is<br />
inferred, in the absence of the control<br />
procedures provided for in section 33 of<br />
the Companies Act. 8<br />
7. The Supreme Court understood that<br />
the arguments of the appellant did<br />
not touch the grounds of the decision,<br />
e. Finally, it was taken into account the<br />
conduct of the parties that arranged<br />
different contractual conditions in order to<br />
guarantee the independent administration<br />
of Telefonica S.A. and Telecom Italia SpA<br />
so that the operation would not affect<br />
competition, due to the understanding –<br />
on the one hand- that said conduct of the<br />
parties was considered as one´s act and that<br />
can only can only be explained to the extent<br />
that the parties have considered a potential<br />
imposition to competition and, on the other<br />
hand, that such “private” control of the<br />
absence of imposition to competition could<br />
not replace the “State” control”.<br />
so the Supreme Court concluded that<br />
the acquisition of “substantial<br />
influence” over the transaction´s<br />
“target company” was verified in the<br />
case 11 . The elements considered by the a<br />
quo and accepted by the Supreme Court<br />
are:<br />
majority is required, as would be the<br />
“approval and the amendment<br />
of Telco SpA´s budget or the<br />
decisions of the vote to be issued<br />
at the extraordinary meeting<br />
of Telecom Italia SpA” indirect<br />
controller of Telecom Argentina . 14<br />
5. This “third supposition” may be<br />
d. Along with its shareholding, it was also taken<br />
based upon the protected legal right by the<br />
Competition Act, in order to ensuring fair<br />
competition between economic operators,<br />
which would be essential for such actors<br />
that behave independently, free from<br />
interference by its competitors, regarding<br />
the strategy and the competitive behavior<br />
that may display, which in this case would<br />
be affected by an economic transaction<br />
that fails to be framed in the provisions of<br />
section 33 of the Companies Act . 9<br />
a. Although it was a minority stake, it<br />
reached 42.3% of the shares with voting<br />
rights, the remaining shareholders<br />
had less stake: one 28%, other 8.4%<br />
and two having 10.6%, making it the<br />
first of that minority stake as part<br />
of a shareholder agreement which<br />
provided that decisions were made by a<br />
simple majority, a fact that allowed the<br />
appointment -for example- of 4 out of<br />
10 directors . 12<br />
under consideration the fact that Telefonica<br />
S.A. was “... the sole shareholder<br />
of Telco SpA in the business of<br />
telecommunications, which is<br />
the activity of the company that<br />
Telco SpA was aimed at control”<br />
was taken into account. It also mentioned<br />
the contractual provisions aimed to control<br />
the entry of other shareholders that may<br />
14 Opinion of the General, page 12, 2nd paragraph.<br />
15 “In the shareholders´ agreement, Telco SpA´s partners agreed<br />
to that there would not enter new members that were telecommunication<br />
operator ... “defined as” ... any physical or legal entity that has<br />
more than 10 percent of the shares of a publicly traded company and<br />
operate in that business, or at least entitled to appoint one board<br />
member. Furthermore, the shareholders’ agreement, Telefonica<br />
S.A. reserved the right to request the corporate brake - up in case<br />
Telecom Italy SpA held a strategic alliance with a telecommunications<br />
operator.“ Opinion of the General Attorney, page 13, 1st paragraph.<br />
6. Such “interference” in the strategy<br />
and in the competitive behavior could be<br />
both positive –when can be established–<br />
as well as negative –when blocking its<br />
definition- and not necessarily exercised in<br />
7 Opinion of the General Attorney, page 9 in fine and 10.<br />
8 0020“...the latter extends the notion of control as a relevant<br />
element in order to determine the existence of an economic concentration<br />
within the field of antitrust by incorporating the figure of<br />
substantial influence. This situation is constituted when an individual<br />
acquires the possibility to interfere over the strategy and the competitive<br />
behavior of a company, through the acquisition of capital,<br />
although not having control under the terms set forth in Article 33,<br />
paragraphs 1st and 2nd, of Law 19,550.” (Opinion of the General<br />
Attorney, page 10).<br />
9 “You cannot forget that the purpose of the Antitrust Law is to ensure<br />
free competition among the different economic market operators.<br />
To that effect, it is important that the actors may behave as free<br />
competitors and this may be affected by economic concentrations<br />
so that imply that the controlled or participated company may lose<br />
autonomy to take their competitive decisions. This mission of the<br />
regimen of Law 25,156 explains the reasons why the concept of taking<br />
control in the area of antitrust exceeds the notion of corporate<br />
control of Article 33 of Law 19,550, to also include the supposition<br />
of substantial influence. In order to constitute substantial influence<br />
it is enough that the partner may influence to determine the<br />
competitive strategy of the company; Also, it is not necessary, that<br />
may influence in other decisions of the company.” (Opinion of the<br />
General Attorney, p. 10).<br />
b. According to the behavior of the<br />
remaining shareholders, such stake<br />
could allow its owner to positively<br />
determine the corporate will of the<br />
company, in case that the remaining<br />
shareholders did not vote on the same<br />
and only one sense . 13<br />
10 “…this possibility of interference can be exercised in a positive<br />
way -through the possibility of imposing its own will at the moment<br />
of adopting decisions- or in a negative way-through the possibility<br />
to veto decisions of the other partners-. The reason for this is that<br />
the loss of autonomy of a competitor can take place in all the<br />
mentioned cases. In addition, for the purposes of determining the<br />
existence of substantial influence, it is not required that the partner<br />
has actually exercised its ability to influence the determination of<br />
competitive behavior; being reasonable likely to be exercised taking<br />
into account all the circumstances of the case (Notari, Mario, “La<br />
nozione di “controlo” nella disciplina antitrust”, Published by Giuffré,<br />
Milán, 1996, page 258 and following.)” (Opinion of the General<br />
Attorney, page 11).<br />
11 This is the “Telco Operation” carried out by Telefónica S.A.<br />
regarding Telco SpA.<br />
12 Opinion of the General Attorney, page 12, 1st paragraph.<br />
13 Opinion of the General Attorney, page 12, 1st paragraph.<br />
Agustín Siboldi<br />
Partner at Estudio O´Farrell<br />
T: +54 11 4346 1087<br />
Email: SiboldiA@eof.com.ar<br />
Mr. Siboldi practice focuses on the following areas related with the economic regulation: antitrust<br />
law, either economic concentrations as well as the investigation of anticompetitive practices;<br />
telecommunication; hydrocarbons exploration, concession, exploitation, and distribution; gas<br />
generation, transport, distribution and commercialization; pharmaceutical products marketing; as<br />
well as other sector of the economy with a strong regulatory importance.<br />
34 | <strong>Lawyer</strong><strong>Issue</strong> 35
Dispute Resolution<br />
When can A non-party to an arbitration agreement<br />
be compelled to arbitrate A claim?<br />
by Colin Lockhart,<br />
Kirsty Sutherland<br />
INTRODUCTION<br />
1. The Convention on the Recognition and<br />
Enforcement of Foreign Arbitral Awards<br />
(the New York Convention) requires each<br />
Contracting State to recognise an agreement<br />
to arbitrate. 1<br />
2. The New York Convention also requires the<br />
court of a Contracting State, when seized of<br />
a matter in respect of which the parties have<br />
made such an agreement, to, at the request<br />
of one of the parties, refer the parties to<br />
arbitration, unless it finds the agreement<br />
is null and void, inoperative or incapable of<br />
1 Article II, r 1<br />
being performed. 2<br />
3. Contracting States have implemented these<br />
obligations in various ways. Australia has<br />
done so by the International Arbitration Act<br />
1974 (Cth), s 7(2), which requires a court<br />
to stay proceedings brought in the face of<br />
an arbitration agreement by a party to the<br />
agreement.<br />
4. By s 7(4), a ‘party’ to an agreement includes a<br />
party claiming ‘through or under a party’.<br />
5. The recent decision in Flint UK v Huhtamaki<br />
2 Article II, r 3<br />
Pty Ltd 3 held that s 7(4) can have the effect<br />
that a non-party to an arbitration agreement<br />
can be compelled by an Australian court to<br />
submit to arbitration a claim against a party<br />
to the agreement.<br />
THE FACTUAL BACKGROUND<br />
6. Flint concerned a claim by an Australian<br />
company, Lion Dairy & Drinks Pty Ltd<br />
(Lion) against another Australian company,<br />
Huhtamaki Australia Pty Ltd (HA) for<br />
damages for loss suffered by allegedly<br />
defective packaging supplied by HA.<br />
7. The packaging had been manufactured<br />
in New Zealand and supplied to HA by a<br />
company that was related to HA, Huhtamaki<br />
Australia Pty Ltd (HNZ).<br />
8. HA denied that the packaging was defective,<br />
but also claimed that any defect was a result<br />
of ink sold to HNZ by Flint Ink NZ Pty Ltd<br />
(Flint) and used by HNZ in the packaging it<br />
supplied to HA. HA sought to join Flint to the<br />
proceedings by way of third party claim.<br />
9. HA alleged that Flint owed HNZ, and HNZ’s<br />
customers, a duty of care which was<br />
breached by Flint providing negligent advice<br />
to HNZ that the ink to be supplied by Flint<br />
was suitable for the packaging HNZ supplied<br />
to HA.<br />
10. The agreement between HNZ and Flint<br />
contained a provision whereby any dispute,<br />
controversy or claim arising out of or related<br />
to the Agreement … shall be finally settled by<br />
arbitration’.<br />
11. There was no agreement between Flint and<br />
HA and Flint did not deal with HA.<br />
12. Flint sought a stay of the proposed third<br />
party proceedings against it, on the basis that<br />
HA was, in relation to the claim it sought to<br />
3 Flint UK v Huhtamaki Pty Ltd [2014] VSCA 166; 289 FLR 30<br />
make against Flint, claiming by or through a<br />
party to the arbitration agreement (i.e HNZ)<br />
and that the claim was capable of settlement<br />
by arbitration pursuant to the agreement.<br />
13. The claim for a stay was refused at first<br />
instance. Flint appealed to the Victorian<br />
Court of Appeal.<br />
THE STATUTORY BACKGROUND<br />
14. By s 7(2) of the International Arbitration Act<br />
1974 (Cth), where proceedings are instituted<br />
by a party to an arbitration agreement<br />
in relation to a matter that is capable of<br />
settlement by arbitration, an Australian court<br />
shall stay so much of the proceedings as<br />
involves the determination of that matter, on<br />
such conditions as it thinks fit, and refer the<br />
parties to arbitration.<br />
15. By s 7(4), for the purposes of s 7(2), a party<br />
‘includes a person claiming through or under a<br />
party’.<br />
16. In the Victorian Court of Appeal, it was said<br />
that s 7(4) ‘enlarges the definition of ‘a party to<br />
an arbitration agreement’ [in s 7(2)] by deeming<br />
persons claiming ‘through or under’ a party to<br />
themselves be parties to that agreement’ (at<br />
[11] per Warren CJ).<br />
THE MEANING OF ‘THROUGH<br />
OR UNDER’ A PARTY TO AN<br />
ARBITRATION AGREEMENT<br />
17. In that context, the meaning of ‘through or<br />
under’ is highly material to the scope of the<br />
Australian courts’ power to stay proceedings<br />
and refer the parties to arbitration.<br />
18. The words ‘through or under’ in s 7(4) had<br />
been previously considered by the High<br />
Court, Australia’s ultimate appellate court,<br />
in Tanning Research Laboratories v O’Brien<br />
(1990) 169 CLR 332.<br />
19. Tanning concerned an appeal against a<br />
36 | <strong>Lawyer</strong><strong>Issue</strong> 37
Dispute Resolution<br />
liquidator’s rejection of a proof of debt that<br />
allegedly arose from a contract containing an<br />
arbitration clause, giving rise to the question<br />
of whether the liquidator was claiming ‘by or<br />
through’ the company in liquidation.<br />
20. The High Court held that the liquidator,<br />
in resisting the claim, was claiming ‘by or<br />
through’ the company.<br />
21. Although the liquidator was not himself<br />
making a claim, it was held that ‘a person who<br />
claims through or under a party may be either a<br />
person seeking to enforce or a person seeking to<br />
resist the enforcement of an alleged contractual<br />
right’ (at 342 per Brennan and Dawson JJ<br />
(Toohey J agreeing).<br />
22. Brennan and Dawson JJ, with whom Toohey J<br />
agreed, reasoned that the words ‘through or<br />
under convey the notion of a derivative cause of<br />
action or defence … that is derived from the party<br />
[to the arbitration agreement]’ (at 342). Their<br />
Honours also commented that ‘an essential<br />
element of the cause of action or defence must<br />
be or must have been vested in or exercisable by<br />
the party [to the arbitration agreement] before<br />
the person claiming through or under that party<br />
can rely on the cause of action or defence’ (at<br />
342, emphasis added).<br />
23. The High Court held that an essential<br />
element of the liquidator’s defence to the<br />
creditor’s claim was vested in the company<br />
in liquidation, which was a party to a relevant<br />
arbitration agreement, as the liquidator stood<br />
‘in the same position vis-a-vis the creditor as …<br />
the company’ (at 342 per Brennan and Dawson<br />
JJ (Toohey J agreeing)). Accordingly, the<br />
creditor’s appeal against the rejection of its<br />
proof was stayed and referred to arbitration.<br />
24. In Flint, the Victorian Court of Appeal accepted<br />
that the ‘essential element’ test ought to<br />
determine whether HA was claiming against<br />
Flint ‘through or under’ HNZ.<br />
HA WAS CLAIMING ‘BY OR<br />
THROUGH’ HNZ?<br />
25. HA contended that ‘through or under’ in s<br />
7(4) ‘requires ‘standing in the same position’<br />
as the party to the [arbitration] agreement<br />
and is thus restricted to privies whose rights<br />
were derived from the party [to the arbitration<br />
agreement] via an assignment or other<br />
process of law’ (Flint at [18] per Warren CJ; see<br />
also at [69] per Nettle JA).<br />
26. The Victorian Court of Appeal held that the<br />
‘essential element test was not so limited (at<br />
[19]-[20] per Warren CJ, [60] per Nettle JA).<br />
27. Further, the court found that the ‘essential<br />
elements of [HA’s] claim against [Flint] are that<br />
[Flint] breached its agreement with [HNZ] or<br />
breached a duty of care to [HNZ] which is alleged<br />
to have arisen out of the agreement’ (at [74] per<br />
Nettle JA). HA’s claim was ‘critically dependant<br />
upon and derivative from the contractual and<br />
common law obligations alleged to have been<br />
owed by [Flint] to [HNZ]’ (at [76] per Nettle<br />
JA; see also at [26] per Warren CJ, at [148] per<br />
Mandie JA).<br />
28. In those circumstances, the court held that<br />
HA’s ‘rights against [Flint] are so closely related<br />
to [HNZ’s] rights against [Flint] that [HA] is<br />
claiming through or under [HNZ]’ (at [74] per<br />
Nettle J).<br />
29. Nevertheless, it was noted that a different<br />
result would follow where ‘a claimant relies on<br />
a duty of care owed directly to [it] which is not<br />
dependant upon or derived from any claim’ of<br />
another (at [76] per Nettle JA).<br />
THE STAY ORDER<br />
30. A peculiar feature of this case was that, as HA<br />
was not a party to the arbitration agreement,<br />
there was some doubt as to whether it could<br />
initiate an arbitration to pursue its claim<br />
against Flint.<br />
31. The stay power in s 7(2) of the International<br />
Arbitration Act, however, permits a court to<br />
compelling persons who are not parties to an<br />
order a stay ‘on such conditions as it thinks fit’.<br />
arbitration agreement to arbitrate claims that<br />
bear a close relation to the contract containing<br />
32. To address any concerns as to HA’s ability to<br />
that agreement.<br />
commence an arbitration, the Victorian Court<br />
of Appeal granted the stay on the condition<br />
35. In Australia, a person who is not a party to<br />
that Flint ‘use its best endeavours to refer<br />
an arbitration agreement will be required<br />
the [HA] claims to arbitration in accordance<br />
to arbitrate claims the essential elements of<br />
with the arbitration clause and pursue the<br />
which arise, or are derived, from the contract<br />
arbitration with due expedition’ (at [117] per<br />
containing an arbitration agreement, such as<br />
Nettle JA; see also at [41] per Warren CJ).<br />
the negligence claim in issue in Flint, which<br />
CONCLUSION<br />
33. The decision in Flint indicates the breadth<br />
of the judicial power in Australia to stay<br />
proceedings commenced in the face of<br />
an arbitration agreement, which includes<br />
referring to arbitration claims by a person who<br />
claims by or through a party to an agreement<br />
to arbitrate.<br />
34. In particular, the stay power extends to<br />
Colin Lockhart<br />
Counsel at Corrs Chambers Westgarth<br />
was dependant upon a finding that a duty of<br />
care was owed to a party to the agreement.<br />
36. No doubt there is room for much argument<br />
in particular cases as whether the essential<br />
elements of a claim are derived from those<br />
of a party to an arbitration agreement. Flint<br />
indicates, though, that the test may be more<br />
readily satisfied where a non-party’s claim<br />
arises out of the rights of a related company<br />
that is a party to an agreement to arbitrate.<br />
T: +61 8 9460 1713<br />
Email: colin.lockhart@corrs.com.au<br />
A leading authority on the law of misleading or deceptive conduct, Colin is the author of the only Australian<br />
text focussed solely on the subject, The Law of Misleading or Deceptive Conduct, now in its fourth edition. He<br />
has experience acting as counsel in significant disputes, including expert determinations and arbitrations,<br />
particularly in relation to energy and resources and infrastructure. Colin is also regularly called upon by<br />
commercial clients in relation to competition, access and regulatory matters.<br />
Kirsty Sutherland<br />
Partner at Corrs Chambers Westgarth<br />
T: +61 8 9460 1620<br />
Email: kirsty.sutherland@corrs.com.au<br />
Kirsty heads up the litigation and insolvency groups in Perth. Kirsty has extensive experience acting for<br />
financial institutions, insolvency practitioners and large corporation. She has been integrally involved<br />
in some of the largest insolvencies in Australia. Kirsty completed her Master of Laws at the University of<br />
Melbourne in 2000.<br />
38 | <strong>Lawyer</strong><strong>Issue</strong> 39
Dispute Resolution<br />
CJEU potentially opens the back door to court<br />
ordered anti-suit injunctions in the EU<br />
by Kate Davies<br />
The ability of the English courts to restrain court proceedings in another Member<br />
State in breach of an arbitration agreement was curtailed, following the infamous<br />
decision of the Court of Justice of the European Union (CJEU) in Allianz SpA<br />
(formerly Riunione Adriatica di Sicurtà SpA) v West Tankers Inc, (The Front Comor)<br />
(Case C-185/07). Earlier this year, there were hopeful signs that this decision<br />
might be reviewed following the referral to the CJEU by the Lithuanian Supreme<br />
Court of similar questions arising in a dispute between Gazprom OAO and Lithuania.<br />
The CJEU 1 ’s decision in that case was issued on 13 May 2015 and while it<br />
has declined to revisit The Front Comor, the CJEU has potentially opened up the<br />
back-door to court ordered, intra-EU anti-suit injunctions.<br />
1 The Court of Justice of the European Union was formerly known as the European Court of Justice (ECJ).<br />
In the West Tankers case, the CJEU found<br />
that it was incompatible with the Brussels<br />
Regulation 44/2001 (the original Brussels<br />
Regulation) for a court of a Member State<br />
to restrain a person from commencing<br />
or continuing proceedings before the<br />
courts of another Member State on the<br />
ground that the proceedings would be<br />
in breach of an arbitration agreement,<br />
in circumstances where the proceedings<br />
brought in the other Member State<br />
were within the scope of the Brussels<br />
Regulation.<br />
This decision meant that an anti-suit<br />
injunction could not be granted to restrain<br />
proceedings within the scope of the<br />
original Brussels Regulation brought in<br />
another EU Member State in breach of an<br />
arbitration clause.<br />
Since – and in part because of – the<br />
decision in West Tankers, the original<br />
Brussels Regulation has been replaced by<br />
Brussels Regulation 1215/2012 (the recast<br />
Brussels Regulation), which has applied<br />
since 10 January 2015.<br />
It is against this background that a<br />
dispute arose between Gazprom OAO<br />
and Lithuania concerning the running of<br />
Lithuania’s main natural gas provider, in<br />
which both parties were shareholders.<br />
The Lithuanian Ministry of Energy initiated<br />
court proceedings in Lithuania.<br />
Gazprom subsequently commenced<br />
arbitration under the rules of the<br />
Arbitration Institute of the Stockholm<br />
Chamber of Commerce (SCC) in<br />
Sweden. Gazprom argued that the<br />
Ministry’s claims were in breach of an<br />
arbitration agreement contained in the<br />
shareholders’ agreement to which they<br />
were both parties. The tribunal in the<br />
SCC arbitration issued an award ordering<br />
Lithuania to withdraw certain of its court<br />
claims (subsequently referred to by the<br />
Lithuanian court as an anti-suit injunction),<br />
which Gazprom then sought to have<br />
recognised and enforced in the Lithuanian<br />
Court of Appeal. The court refused and<br />
Gazprom appealed to the Supreme Court<br />
of Lithuania, where Lithuania argued<br />
that, in light of West Tankers, the anti-suit<br />
injunction issued by the arbitral tribunal<br />
was contrary to the original Brussels<br />
Regulation.<br />
The Supreme Court of Lithuania referred<br />
the matter to the CJEU, asking whether<br />
the court of a Member State could refuse<br />
to recognise and enforce an award<br />
containing an arbitral anti-suit injunction<br />
as being incompatible with the original<br />
Brussels Regulation.<br />
Advocate General opines that West<br />
Tankers should be reconsidered<br />
On 4 December 2014, Advocate-General<br />
Wathelet concluded that the original<br />
Brussels Regulation must be interpreted<br />
as not requiring the court of a Member<br />
State to refuse to recognise such an award<br />
(the conclusion); and (b) suggested,<br />
in the context of a discussion of the<br />
recast Brussels Regulation, that it is was<br />
possible that the CJEU might reconsider<br />
the approach taken in West Tankers, both<br />
in relation to the original and the recast<br />
Brussels Regulation (the suggestion).<br />
The decision of the CJEU<br />
The CJEU declined to follow the Advocate-<br />
General’s suggestion and has therefore<br />
avoided revisiting its earlier decision in<br />
West Tankers. Although it referred to<br />
West Tankers, the CJEU limited itself to<br />
considering the specific questions posed<br />
by the Lithuanian court. In this respect,<br />
the CJEU agreed with the Advocate<br />
General’s conclusion that the Brussels<br />
40 | <strong>Lawyer</strong><strong>Issue</strong> 41
Dispute Resolution<br />
Regulation must be interpreted such that<br />
a Member State court is not required to<br />
refuse to recognise or enforce an arbitral<br />
award containing an anti-suit injunction.<br />
In reaching this decision, the CJEU<br />
confirmed that arbitration is outside the<br />
scope of the original Brussels Regulation<br />
because the Regulation governs only<br />
conflicts of jurisdiction between courts<br />
of the Member States. The CJEU took the<br />
view that there was no such conflict in<br />
this case and no question of infringement<br />
of trust by the interference of the court<br />
of one Member State in the jurisdiction of<br />
the court of another Member State (the<br />
only court involved was the Lithuanian<br />
court).<br />
The arbitral award did not deny the<br />
party restrained from obtaining judicial<br />
protection because, in any proceedings<br />
for recognition and enforcement of the<br />
arbitral award, that party could contest<br />
recognition and enforcement and the<br />
Lithuanian court would have to determine,<br />
on the basis of national procedural law<br />
and international law, whether or not the<br />
award should be recognised and enforced.<br />
The CJEU therefore concluded that the<br />
original Brussels Regulation did not<br />
“preclud[e] a court of a Member State from<br />
recognising and enforcing, or from refusing to<br />
recognise and enforce, an arbitral award prohibiting<br />
a party from bringing certain claims<br />
before a court of that Member State, since that<br />
regulation does not govern recognition and enforcement,<br />
in a Member State, of an arbitral<br />
award issued by an arbitral tribunal in another<br />
Member State”.<br />
Comment<br />
The original Brussels Regulation is widely<br />
considered to have been a successful<br />
European instrument. However, there<br />
were concerns including in relation to the<br />
arbitration exception whose application<br />
in practice resulted in ambiguity about<br />
the boundaries between the jurisdiction<br />
of Member State courts to act in support<br />
of arbitration in accordance with national<br />
law and their jurisdiction to act under the<br />
Brussels Regulation.<br />
The CJEU sought to address this<br />
ambiguity in the West Tankers case.<br />
Unfortunately, this decision has had the<br />
no doubt unintended but unfortunate<br />
consequence of opening the door for<br />
parties to act abusively by bringing<br />
substantive proceedings within the scope<br />
of the Brussels Regulation in the courts<br />
of the Member State most likely to find<br />
the arbitration clause invalid (so-called<br />
“Italian torpedo” tactics), and rendering the<br />
party wishing to uphold the arbitration<br />
agreement and other Member State<br />
courts, including the courts of the seat of<br />
the arbitration, powerless to prevent this.<br />
It also means that the courts of those<br />
other Member States will subsequently<br />
have to enforce any judgment on the<br />
merits given by the Member State court<br />
that heard the substantive claim in breach<br />
of the arbitration clause.<br />
Recital 12 of the recast Brussels Regulation<br />
seeks to address this concern as it makes<br />
clear that the ruling by a court of one<br />
Member State on the effectiveness of an<br />
arbitration agreement is not subject to the<br />
rules of recognition and enforcement laid<br />
down in the recast Brussels Regulation.<br />
Following the Opinion of Advocate General<br />
Wathelet in Gazprom OAO in particular in<br />
respect of the recast Brussels Regulation,<br />
it was hoped that the CJEU might<br />
strengthen the effect of Recital 12 and<br />
revisit the approach taken in The Front<br />
Comor. The CJEU has not done so.<br />
While this might, at first glance, appear<br />
unsatisfactory for users of arbitration<br />
keen to quell the tide of the abusive Italian<br />
torpedo, the decision warrants closer<br />
review. The CJEU concluded that the<br />
original Brussels Regulation<br />
“does not govern recognition and enforcement,<br />
in a Member State, of an<br />
arbitral award issued by an arbitral<br />
tribunal in another Member State”.<br />
This at least suggests that the decision<br />
in Gazprom should be the same where<br />
the courts of more than one Member<br />
State are involved in the analysis. In<br />
other words, it is at least open to debate<br />
following this decision whether a party<br />
to an arbitration seated in one Member<br />
Kate Davies<br />
Counsel at Allen & Overy<br />
T: +44 203 088 2090<br />
Email: Kate.Davies@AllenOvery.com<br />
State could now obtain an arbitral award<br />
restraining a counterparty from continuing<br />
proceedings in another Member State<br />
which could then be recognised by the<br />
courts at the seat, effectively obtaining<br />
a court-ordered anti-suit injunction by<br />
the back door and circumventing the<br />
limitation imposed by West Tankers.<br />
Alternatively and possibly avoiding the<br />
inevitable risks involved in recognition<br />
and enforcement proceedings (and the<br />
question whether such an injunction could<br />
ever be issued as an award), a party may<br />
seek the arbitral injunction in the form of<br />
a peremptory order.<br />
If the arbitration were London seated, at<br />
least, that order could then be enforced<br />
by court order under section 42 of the<br />
Arbitration Act 1996. In either case, the<br />
party concerned would then have the<br />
benefit of a court order preventing their<br />
arbitral counter-party from pursuing<br />
proceedings in breach of the arbitration<br />
agreement in the court of another<br />
Member State with equivalent effect to a<br />
standard court-issued anti-suit injunction.<br />
Kate is a Counsel in the firm’s International Arbitration Group with expertise in both institutional and ad hoc<br />
arbitrations sited in multiple common and civil law jurisdictions and under the governing laws of multiple<br />
jurisdictions. She has experience in a wide range of commercial disputes across a range of industries including<br />
the energy, telecommunications, automotive, technology, construction, aero and pharmaceutical sectors. Kate<br />
has particular expertise in complex, cross-border commercial disputes with related proceedings in arbitration<br />
and litigation. Kate also has expertise in public international law matters, representing both states and<br />
investors in investor-state disputes as well as clients in state to state disputes (including in the infamous Abyei<br />
arbitration).<br />
42 | <strong>Lawyer</strong><strong>Issue</strong> 43
Energy & Natural Resources<br />
THE DEVELOPING MINING SECTOR<br />
IN THE REPUBLIC OF MACEDONIA<br />
by Jane Jakimovski,<br />
Andrej Belchovski<br />
In recent period one of the most dynamic and attractive business sectors<br />
in the Republic of Macedonia is the mining sector. The mining sector,<br />
as the third largest export sector has significant contribution to the<br />
Macedonian economy as it represents around 15% of the industrial<br />
production and contributes around 1.5% of the Country’s GDP.<br />
In regards to the increased business activities<br />
and investments in the mining sector, in 2012<br />
new legislation was passed in order to develop<br />
this dynamic sector. The new legislation<br />
introduced shorter, simpler and faster<br />
procedure for granting mining permits and<br />
concessions. Also the new mining legislation<br />
incorporated positive legal practices for further<br />
development of the mining sector and dealing<br />
with the modern challenges of working in this<br />
sector. One of the new developments in the mining<br />
legislation, which is incorporated with the new<br />
legislation in order to provide more legal possibilities<br />
for the concessioners to develop their mining project<br />
in the Republic of Macedonia, is the option for<br />
merging concessions.<br />
With this new stipulated possibility it is provided that,<br />
for the purpose of rational and effective exploration<br />
or exploitation of minerals, two neighbouring<br />
concessions can be merged or embedded.<br />
This merging or embedding of two neighbouring<br />
concessions is conducted upon a request from the<br />
concessionaire. With the placement of this option in<br />
the hands of the concessioners, the new legislation<br />
provides the investors-concessioners with the<br />
necessary tools to further develop their investments<br />
and mining projects in the Republic of Macedonia.<br />
In accordance with Macedonian legislation, a<br />
concession also can be expanded. Expansion of<br />
a concession for detailed geological exploration<br />
can be granted to a holder of such concession for<br />
further exploration on an area that borders with the<br />
exploration area from the existing concession.<br />
A concession for exploitation can be expanded for the<br />
purpose of increase of ore reserves and expansion<br />
of the period of exploitation and increase of the<br />
infrastructural capacities that are in function of<br />
rational exploitation. These legal solutions provide<br />
more flexibility in the planning and developing, as<br />
well as running the mines in Republic of Macedonia.<br />
This new legal framework resulted with increase in<br />
the submitted requests for mining concessions and<br />
also with increase in the granted mining concessions.<br />
In the past the investments in the mining sector were<br />
solely in acquisitions and expansions of the already<br />
existing mines in Republic of Macedonia.<br />
With the new legal framework in place the mining<br />
sector started to attract new investors ready to make<br />
green field investments in mining in Republic of<br />
Macedonia. Parallel with the process of developing<br />
a new mining legislation, the Government of the<br />
Republic of Macedonia had announced a public call<br />
for granting concessions for over 80 new locations for<br />
mine development.<br />
Today, several projects for opening new mining sites<br />
for exploitation of mineral ores are under way or in<br />
their final stage of development, including the Ilovitza<br />
project, a green field investment of the company<br />
Euromax Resources. This project should result in<br />
opening one of the largest by production mines in<br />
South-eastern Europe.<br />
Financing of mining projects, especially mining<br />
projects of such scale as the Ilovitza project, an<br />
investment estimated at more than $500 million<br />
for opening a new mine for exploitation of copper<br />
and gold, is not a simple task. All mining projects<br />
especially green field mines require significant<br />
investment.<br />
The required funds for such green field mining<br />
projects can be obtained partially by equity<br />
investments, but in the larger part it needs to be<br />
financed through loans from banks and other<br />
financial institutions and lenders. Naturally, the<br />
lenders and creditors will require their investment to<br />
be secured. Usually the security for the investment is<br />
done with the project company`s assets, but in the<br />
green field mining projects the value of the movable<br />
and immovable assets of the project company is<br />
not sufficient to cover the claims of all investors<br />
and creditors. In fact, the most valuable asset that a<br />
mining company has is its exploration or exploitation<br />
concession.<br />
The current Law on mineral raw materials which<br />
regulates mining and concession issues, regulates the<br />
transfer of concession, however it does not provide<br />
clear provisions regarding the possibility of assigning<br />
the concession as a mean of security or establishing<br />
pledge over the concession.<br />
Currently, according to the positive Macedonian<br />
mining legislation, concession means obtaining rights<br />
and obligations, so the concession cannot be pledged.<br />
44 | <strong>Lawyer</strong><strong>Issue</strong> 45
Energy & Natural Resources<br />
Having in mind that all investments in previous years<br />
were realized in the already existing mines through<br />
acquisitions of the mining companies, the question<br />
regarding security over the investment did not pose<br />
an issue.<br />
However, with the new dynamic changes and<br />
development in the mining sector and the newly<br />
appeared high interest for opening new mining<br />
sites in the Republic of Macedonia, the question for<br />
security of the investment gained on significance.<br />
The lack of provisions regarding the use of concession<br />
as a mean of security in the Law on mineral raw<br />
materials posed an issue for the investors regarding<br />
the completion and development of their mining<br />
sites in Republic of Macedonia. If this important issue<br />
was not to be resolved, the sustainability and further<br />
development of the green field projects would have<br />
been threatened.<br />
The answer to this newly appeared question and<br />
issue regarding green field mining investments can<br />
be found in the current Macedonian legislation. This<br />
issue about the security of the claims of the lenders<br />
and creditors can be resolved through the fact that<br />
to all the issues regarding concessions which are not<br />
regulated with the Law on Mineral Raw Materials<br />
(lex specialis) the Law on Concessions and Public<br />
Private Partnership shall apply as lex generalis. In<br />
accordance with this, the concession agreement<br />
which is concluded between the Government of<br />
Republic of Macedonia and the concessionaire may<br />
include a provision that allows transfer of the rights<br />
and obligations from the concession to the creditors –<br />
lenders as mean of security for their claims.<br />
Furthermore, regarding the transfer of the<br />
concession agreement, it is important to emphasize<br />
that the exploitation concession agreement can<br />
be transferred and the transfer procedure is fully<br />
regulated. Namely, the Law on mineral raw materials<br />
stipulates that the concessionaire can transfer his<br />
concession by concluding an agreement for transfer<br />
of the exploitation concession with the transferee to<br />
which the concession is to be transferred and upon<br />
written consent by the Government of Republic of<br />
Macedonia. Obviously, certain conditions that are<br />
subject to Government`s evaluation should be met<br />
by the transferor and the transferee.<br />
One more question regarding the mining legislation<br />
is pointed out by some of the investors and that is<br />
the legal provision determining the bankruptcy as<br />
a reason for termination of a concession. Namely,<br />
the Law on mineral raw materials stipulates that the<br />
concession is terminated in case of bankruptcy, but<br />
it does not prescribe exactly in which moment of the<br />
bankruptcy procedure.<br />
It is important to emphasise that according to<br />
the Macedonian legislation even if a bankruptcy<br />
procedure is opened, it doesn’t mean that the entire<br />
business shall be wound up, i.e. not every bankruptcy<br />
procedure ends up with liquidation of the company.<br />
Having in mind that in the case of a company that<br />
is a holder of a concession its` entire operations<br />
depend on the concession, and the fact that opening<br />
a bankruptcy procedure does not mean that the<br />
company necessarily shall be wound up, some of<br />
the investors have pointed out this question as<br />
a potential problem for their business and they<br />
proposed this issue to be resolved by precisely<br />
determining the moment when the concession shall<br />
be terminated in case of a bankruptcy procedure.<br />
Furthermore, there are suggestions for amending the<br />
current legislation in order for the termination of the<br />
concession to be possible only after the company is<br />
given the possibility to get through the reorganization<br />
procedure and after the same was either not<br />
accepted by the creditors or was not successful at the<br />
end.<br />
The Ministry of Economy is also considering this<br />
issue and they are working on solving this issue<br />
in alignment to the above mentioned suggestions<br />
through implementation of EU directives and<br />
international standards.<br />
Due to the above mentioned investment activities,<br />
and in order to further develop and harmonize<br />
Furthermore, the new investments in the mining<br />
the legislation regarding the mining sector, some<br />
industry are bringing international know-how and<br />
amendments to the legal framework that regulate the also the practice that is being established, as well<br />
area of mining and concessions are in sight in order<br />
as the Governmental support for this sector shall<br />
to keep the pace with recent developments.<br />
contribute for even more efficient regulation of this<br />
area and overcoming of all difficulties that occur in<br />
Also, there is an active process for harmonizing<br />
the course of work.<br />
and improving the by-laws with the contemporary<br />
methods of work and the applicable technological<br />
We, MENS LEGIS as a legal consulting firm, in synergy<br />
solutions. Having in mind that the mining sector<br />
with our clients, are working together on identifying<br />
in the Republic of Macedonia has been long time<br />
such and similar issues that derive from carrying on a<br />
underdeveloped, this new changes are welcomed.<br />
business in the Country, as well as on proposing the<br />
best legal solutions for solving the issues that arise<br />
The legal framework offers good opportunities and<br />
from the regular activities of the companies and the<br />
is a solid base for development of the mining sector,<br />
legal framework in which they operate.<br />
which tends to attract green field investments.<br />
Jane Jakimovski<br />
Junior Partner at MENS LEGIS<br />
T: +389 2 3126 462<br />
Email: mlegis@t-home.mk<br />
Jane Jakimovski is a Junior Partner with MENS LEGIS Law firm, the first Law firm in the Republic of<br />
Macedonia. As part of MENS LEGIS Jane Jakimovski specialized in corporate governance, contractual law,<br />
company law, merger & acquisitions, mining law, labor law, intellectual property and real estate matters.<br />
He has a Master degree in Business Law received form the Law Faculty „Iustinianus Primus“, in Skopje,<br />
Republic of Macedonia.<br />
Andrej Belchovski<br />
Junior Legal Advisor at MENS LEGIS<br />
T: +389 2 3126 462<br />
Email: mlegis@t-home.mk<br />
Andrej Belchovski is a Junior Legal Advisor at the law firm MENS LEGIS, the first Law firm in the Republic<br />
of Macedonia. Since his amployment at MENS LEGIS in 2014, he specialized in the areas of corporate<br />
governance, contractual law, company law, mergers & acquisitions, labor law, intellectual property, real<br />
estate matters and mining law.<br />
In 2013 he obtained his Master degree in Business law form the Law Faculty „Iustinianus Primus“, in<br />
Skopje, Republic of Macedonia.<br />
46 | <strong>Lawyer</strong><strong>Issue</strong> 47
Energy & Natural Resources<br />
Offshore energy projects<br />
in Denmark<br />
by Per Hemmer<br />
The Danish offshore industry has grown continuously larger in the past<br />
couple of years. Offshore industry growth is in line with the focus and ambitions<br />
of the Danish energy policy. This article explores the possibilities for<br />
joining Danish offshore energy projects and the related legal framework.<br />
1. OFFSHORE AND NEAR<br />
SHORE WIND FARMS<br />
In 2013, 24.6 % of the total Danish<br />
energy consumption was renewable<br />
energy.<br />
In recent years the use of wind power<br />
has increased, as it is a political aim that<br />
renewable energy in the longer term is<br />
to replace fossil energy completely. The<br />
establishment of wind turbines and wind<br />
farms has been especially popular in<br />
Denmark.<br />
There are currently 13 offshore wind<br />
farms in Denmark. The wind farms<br />
Anholt, Horns Rev I, Horns Rev II,<br />
Rødsand II and Nysted are large-scale<br />
wind farms.<br />
As it is a political aim to increase the<br />
use of renewable energy, the Danish<br />
government has authorised the Danish<br />
Energy Agency to launch several offshore<br />
wind farm projects, including the largescale<br />
wind farms Horns Rev III and<br />
Kriegers Flak.<br />
International companies are finding<br />
Danish wind power an attractive<br />
investment. E.ON Vind Sweden AB has<br />
established the Rødsand II wind farm,<br />
and Vattenfall AB owns 60% of the Horns<br />
Rev I wind farm.<br />
The Horns Rev III wind farm tender has<br />
just been concluded with Vattenfall AB as<br />
winner of the tender. The tender for the<br />
six near shore wind farms was published<br />
on 26 February 2015. The deadline for<br />
submission of applications is on 26<br />
May 2015.<br />
The contract notice for large-scale wind<br />
farm Kriegers Flak was published on 6<br />
May 2015.<br />
The application deadline regarding<br />
Kriegers Flak is 1 October 2015. The<br />
capacity of Kriegers Flak will be 600<br />
MW, making it the largest wind farm in<br />
Denmark. Sweden and Germany have<br />
also chosen the Kriegers Flak area in the<br />
Baltic Sea as sites for wind farms.<br />
If the cooperation between the countries<br />
is becoming a reality, Kriegers Flak will<br />
be the first international offshore grid in<br />
the world. Kriegers Flak is expected to<br />
be put into operation as of 31 December<br />
2018.<br />
The establishment of large-scale offshore<br />
wind farms and near shore wind farms<br />
can follow two different procedures:<br />
A governmental tendering procedure<br />
administrated by the Danish Energy<br />
Agency, or an open-door procedure.<br />
In the government tender procedure<br />
the Danish Energy Agency announces<br />
a tender for an offshore or near shore<br />
wind farm project of a specific size within<br />
a specifically defined geographical area.<br />
A government tender is carried out to<br />
execute a political decision to establish<br />
a new offshore wind farm at the lowest<br />
possible cost.<br />
In the open-door procedure, the project<br />
developer takes the initiative to establish<br />
an offshore or near shore wind farm of<br />
a chosen size in a specific area. The area<br />
and the size of the project are decided<br />
by the project developer. This is done<br />
by submitting an unsolicited application<br />
for a license to carry out preliminary<br />
investigations in the given area. The<br />
application must as a minimum include a<br />
description of the project, the anticipated<br />
scope of the preliminary investigations<br />
and the size and number of turbines.<br />
The most important legal frame<br />
regarding wind power is the Danish<br />
Renewable Energy Act. 1 The provisions of<br />
the act apply to both offshore and near<br />
shore wind farms.<br />
The act sets forward provisions<br />
regarding, inter alia, subsidies to<br />
wind farms, regulation of electricity<br />
production by wind farms established<br />
through tenders, and technical and<br />
safety standards of wind turbines.<br />
However, the Renewable Energy Act is<br />
supplemented by sections from several<br />
other Danish Acts.<br />
The Renewable Energy Act stipulates that<br />
an applicant must obtain the following<br />
licenses in other to establish an offshore<br />
or near shore wind farm:<br />
• Preliminary survey license<br />
The permission allows preliminary<br />
surveys concerning the possible<br />
establishment of a wind farm. It<br />
is usually valid for one year. With<br />
respect to tenders, the preliminary<br />
surveys will be conducted by the<br />
1 Act No. 122 of 6 February 2015<br />
48 | <strong>Lawyer</strong><strong>Issue</strong> 49
Energy & Natural Resources<br />
government-controlled Energinet.dk.<br />
venture), all the joining parties must<br />
consumption was hydrocarbon-based<br />
The quality and scope of the proposed<br />
submit their own documentation and<br />
(36.8% oil and 18.1% natural gas).<br />
work programme and the attendant<br />
• The applicant must often conduct<br />
information.<br />
documentation demonstrating the<br />
an EIA (“Environmental Impact<br />
The political aim for the Danish Minister<br />
applicant’s willingness and ability to<br />
Assessment”). With respect to<br />
Citizens aged 18 or more, living within a<br />
for Climate, Energy and Building is<br />
thoroughly explore for hydrocarbons in<br />
tenders, the EIA will be conducted<br />
4.5 km radius from a site where a wind<br />
to continue with the hydrocarbon<br />
the area comprised by the application, is<br />
by the governmental controlled<br />
turbine is about to be established, or<br />
extraction and production over the next<br />
also a selection criterion.<br />
Energinet.dk.<br />
who are living in a municipality where a<br />
10 years.<br />
wind turbine is about to be established,<br />
The applicant must describe what<br />
• Establishment license<br />
are entitled to purchase shares in the<br />
The Danish subsoil belongs to the<br />
he considers to be a complete work<br />
The establishment license allows the<br />
wind turbine at cost price.<br />
Danish state, and a license under the<br />
programme for the area, and on this<br />
establishment of the wind farm in<br />
Danish Subsoil Act 2 is a prerequisite<br />
basis he must expressly indicate whether<br />
question. The license can, and will<br />
At least 20% of the wind turbine project<br />
for the exploration and extraction of<br />
he is offering to perform the complete<br />
most likely, include conditions set by<br />
must be tendered to the local residents.<br />
hydrocarbons in the Danish subsoil. A<br />
work programme, or which parts of it he<br />
the Danish Energy Agency which the<br />
If a house is located close to a wind<br />
license can be obtained in two ways;<br />
intends to carry out.<br />
applicant must comply with.<br />
turbine, the house owner may be<br />
either through a tender or through the<br />
compensated for the depreciation of his<br />
open door procedure.<br />
The licensees’ liability for damages under<br />
• Exploitation license<br />
house.<br />
the Subsoil Act must be covered by<br />
The license must be granted prior<br />
The seventh licensing round regarding<br />
insurance. The insurance must provide<br />
to the initialisation of the wind<br />
A subsidy is paid to Danish-based wind<br />
hydrocarbon exploration in the North<br />
reasonable coverage, in light of the risks<br />
farm. Moreover, the applicant<br />
power. The size of the subsidy with<br />
Sea is in progress. 25 different oil and<br />
involved in the operation of the business<br />
must document that the conditions<br />
regard to tendered offshore wind farms<br />
gas companies have applied for licenses<br />
and the premiums to be paid.<br />
contained in the establishment<br />
may vary, as the size of the subsidy is<br />
in the North Sea. This is a record-high<br />
license are observed and complied<br />
calculated as the difference between the<br />
number. Licenses are expected to be<br />
If the licensee is a subsidiary, the<br />
with. If the capacity of the wind farm<br />
market price and the bidding price.<br />
issued at the beginning of 2015.<br />
ultimate parent company of the licensee<br />
is more than 25 MW, an additional<br />
must assume an unconditional and<br />
electricity production licence is<br />
required.<br />
It follows from the tender documents<br />
from the latest tenders that the applicant<br />
2. HYDROCARBON<br />
EXPLORATION IN THE<br />
NORTH SEA<br />
The Danish Energy Agency has<br />
announced that licensing rounds will<br />
be held annually in the coming years.<br />
Consequently, the Danish Energy Agency<br />
expects to invite to the eighth licensing<br />
irrevocable parent company guarantee<br />
as a surety with primary liability without<br />
any limitation in time, for the due<br />
satisfaction of all existing and future<br />
obligations and liabilities incurred by<br />
must document sufficient financial<br />
There are 55 platforms and 19 operating<br />
round during the second half of 2015.<br />
the licensee under activities carried out<br />
capacity to establish the wind farm.<br />
hydrocarbon fields in the Danish part of<br />
under the license.<br />
Subsequently, the applicant must submit<br />
the North Sea. Mærsk Oil and Gas A/S<br />
As licensing rounds will be held on an<br />
a statement of the applicant’s overall<br />
operates 15 fields, while DONG E&P A/S<br />
annual basis, the opportunity to apply<br />
The parent company guarantee is<br />
revenue for the last three financial<br />
operates three fields and Hess Denmark<br />
for licenses has improved. Oil and gas<br />
covering obligations and liabilities<br />
years and equity ratio as a percentage<br />
ApS operates a single field. In 2013, a<br />
companies now know approximately<br />
incurred by the Danish state and<br />
of total assets for the last financial<br />
total of 10.2 million cubic meters was<br />
when it is possible to do so.<br />
Nordsøfonden. The Danish Energy<br />
year as well as copies of the full annual<br />
extracted from the 19 fields.<br />
Agency has published a standard parent<br />
reports (including notes and appendices)<br />
A license is obtained by application to<br />
company guarantee for the purpose.<br />
and audited accounts for each of the<br />
More than 2/3 of the licensees are<br />
the Danish Energy Agency. In order to<br />
previous three financial years.<br />
international companies, for instance<br />
be awarded a license, applicants must<br />
Nordsøfonden, the Danish state’s oil and<br />
from France, the United Kingdom and<br />
document that they have the required<br />
gas company, must be party to all new<br />
If more than one economic operator<br />
Germany.<br />
expertise and financial resources.<br />
licenses in the Danish area of the North<br />
submits an application for pre-<br />
Sea with a 20% interest.<br />
qualification (e.g. a consortium, a joint<br />
In 2013, 54.9% of total Danish energy<br />
2 Act. No.960 of 13 September 2011<br />
50 | <strong>Lawyer</strong><strong>Issue</strong> 51
Energy & Natural Resources<br />
The licensees are not to pay any royalty<br />
or dividends to the Danish state besides<br />
taxes and duties. Taxes and duties are<br />
calculated as a 25% corporate income<br />
tax, which is deductible from the basis<br />
for assessing hydrocarbon tax, and a<br />
52% hydrocarbon tax. In determining the<br />
basis for assessing hydrocarbon tax, a<br />
5% hydrocarbon allowance is granted for<br />
investments over 6 years (a total of 30%).<br />
It is a condition for obtaining a license<br />
that the concession parties enter<br />
into a joint operating agreement<br />
that sets up the legal frames for the<br />
parties’ operations when carrying out<br />
exploration of hydrocarbons.<br />
The Danish Energy Agency has created a<br />
standard joint operating agreement that<br />
the concession parties must use. The<br />
concession parties must also appoint an<br />
operator among them.<br />
3. CONCLUSIONS<br />
The opportunity to invest in Danishbased<br />
energy projects is great. Wind<br />
farms are being established through<br />
tenders, and hydrocarbon licensing<br />
rounds regarding oil and gas are held<br />
annually.<br />
The license and compliance regime in<br />
relation to the establishment of wind<br />
farms and in relation to hydrocarbons<br />
might be seen as extensive.<br />
Subsequently, it is recommended to seek<br />
advice before entering into wind power<br />
projects.<br />
Bech-Bruun has vast experience in<br />
dealing with matters relating to wind<br />
farms and hydrocarbons. As an example,<br />
Bech-Bruun has been advising E.ON on<br />
their sale of 207 MW wind farm Rødsand<br />
2 to Seas-NVE.<br />
Joint Ventures: Legal and Practical<br />
Considerations in Latin America<br />
By Eric Scharf,<br />
José María Pacheco<br />
Per Hemmer<br />
Partner at Bech-Bruun<br />
T: +45 72273550<br />
Email: phe@bechbruun.com<br />
A few years ago, after the markets contracted and access to finance was reduced,<br />
companies throughout Latin America began exploring alternate means to jointly<br />
participate in projects that otherwise individually could not have been carried out.<br />
We began to see a trend. Clients started creating strategic partnerships to develop<br />
businesses through Joint Ventures, to benefit from their collective resources, information<br />
and know-how. Entrepreneurs began realizing that by pursuing the aggregated<br />
value that results from partnering with companies in other fields or markets,<br />
the risk, time and cost of acquiring know-how in-house or retaining services was<br />
mitigated, yielding quick, cost effective go to market solutions for their ventures by<br />
sharing a percentage of the proceeds.<br />
Per Hemmer heads Bech-Bruun’s energy group and is renowned among energy companies and<br />
peers as one of the most experienced lawyers in Denmark dealing with regulatory energy matters<br />
and energy related transactions. He has been the lead adviser on numerous acquisitions, mergers<br />
and divestiture involving energy companies. As one of many references, Per Hemmer advised<br />
Noreco Oil concerning the restructuring of the company. Per Hemmer is highly experienced in<br />
regulatory matters related to offshore wind and North Sea oil and gas exploration and production.<br />
Joint Ventures are not regulated in many<br />
Latin American countries, including Costa<br />
Rica. Because of this, most practices<br />
come from day to day transactions,<br />
mainly supported on the experience<br />
of attorneys interacting with other<br />
legislations or through their education in<br />
foreign universities.<br />
Also, because these agreements are<br />
unregulated, drafting and advising<br />
has a lot to do with performing a good<br />
assessment of the transaction, the<br />
client’s interests and complementary<br />
regulations that may be applicable.<br />
The first and most important practical<br />
52 | <strong>Lawyer</strong><strong>Issue</strong> 53
Joint Ventures<br />
To help<br />
build trust<br />
between the<br />
parties, it is<br />
essential that<br />
the terms<br />
are clearly<br />
defined<br />
from the<br />
beginning.<br />
consideration to enter into a Joint<br />
Venture is choosing whom to partner<br />
with. There are no easy go-to resources<br />
that provide incentives, tools or a pool of<br />
partners to those seeking to form Joint<br />
Ventures.<br />
Because of this, choosing a partner<br />
will depend heavily on the company’s<br />
network, contacts and counsel provided<br />
by advisors. This has a positive aspect<br />
to it, because when the parties have<br />
previous experience working together,<br />
a new target market. Other times both<br />
partners could have know-how that,<br />
combined, allows the business to be<br />
possible.<br />
The other key element that companies<br />
should look for in a partner is<br />
trustworthiness. Trust will grow as the<br />
business progresses, but many people<br />
don’t realize the importance of defining<br />
the terms of the partnership in a way<br />
that allows for it to be built up.<br />
thresholds of reinvestment and<br />
distribution. The agreements should<br />
at least provide for how reinvestment<br />
amounts will be determined by objective<br />
parameters.<br />
Also, because Joint Ventures often<br />
don´t have individual legal personality,<br />
it is important to define how the joint<br />
administration and control of the<br />
business will be carried out. If only<br />
one of the partners will be taking care<br />
of representing the business, which<br />
treatment, which should be examined<br />
in each jurisdiction. This is especially<br />
important because Joint Ventures are<br />
often not viewed as independent legal<br />
entities and may be treated differently to<br />
ordinary corporations or partnerships.<br />
For example, in Costa Rica Joint<br />
Ventures fall under the accounting<br />
rules and procedures of NIC (IFRS) 31,<br />
that regulates “Participation in Joint<br />
Businesses”, where the participations,<br />
assets, liabilities, expenses and incomes,<br />
its easier to perform a better assessment<br />
To help build trust between the parties,<br />
decisions will require both to agree? Will<br />
must be disclosed, regardless the<br />
of the convenience to partner.<br />
it is essential that the terms are clearly<br />
there be qualified decisions? Will one<br />
structures adopted.<br />
defined from the beginning. Documents<br />
partner be in charge of making technical<br />
Also, partners must aggregate value to<br />
must be negotiated and drafted<br />
decisions on account of its particular<br />
Costa Rican law doesn’t put a specific<br />
the projected buisness. Each of them<br />
transparently, addressing parameters of<br />
know-how?<br />
tax treatment for this type of agreement<br />
should be able to provide a distinctive<br />
authority and accountability, methods<br />
in place and, therefore, general tax<br />
and important contribution that would<br />
of consensus for decision making<br />
It will be critical that the transaction<br />
regulations apply. The companies in a<br />
otherwise not be easily atainable by the<br />
and employing meeting management<br />
is properly assessed to determine<br />
Joint Venture would assume tax burdens<br />
other party. In other words, synergy is<br />
techniques that support authentic<br />
these matters. There should be a<br />
together and proportionally. This could<br />
essential.<br />
participation by all partners.<br />
strong equilibrium of opinions among<br />
work differently along other jurisdictions<br />
the parties, but the value of their<br />
so the agreements should include tax<br />
Joint Ventures can be formed to<br />
Transparency and objectivity will be<br />
corresponding contributions should also<br />
treatment provisions that are consistent<br />
pursue business in four distinct ways:<br />
especially important when performing<br />
be taken into account.<br />
with each national legal system.<br />
a valuation of each of the party’s<br />
(i) combining existing buisineses, known<br />
contributions. To achieve this, one option<br />
When Joint Ventures operate on a<br />
Finally, because Joint Ventures have<br />
as consolidation;<br />
is to hire an expert that determines<br />
transnational basis, efforts must be<br />
a predetermined and limited term of<br />
the value of each contribution. In<br />
made to conciliate the interests of<br />
validity, as agreed among the parties,<br />
(ii) skill transfers, by which one partner<br />
specific cases, such as consolidation<br />
multinational companies in relation to<br />
exit strategies must be defined as part of<br />
acquires the know-how of another;<br />
Joint Ventures, another alternative is<br />
the operation and the business. Because<br />
the initial terms and conditions. This will<br />
calculating the value of each company<br />
each legislation establishes different<br />
provide for a more efficient dissolution.<br />
(iii) combination, by which partners take<br />
and determining the value added as<br />
limitations, certain business strategies<br />
advantage of thier mutual skills; or<br />
parameters.<br />
are viable in some countries but not in<br />
Regarding disputes, in absence of legal<br />
others.<br />
recourses specific to Joint Ventures, a<br />
(iv) to create a new business altogether.<br />
Adequate valuations will, in turn, aid<br />
well-drafted agreement with clear rules<br />
Because of this, synergy can result from<br />
in defining how each partner will be<br />
Implementation time may also vary<br />
between the partners may be useful to<br />
different qualities that partners have.<br />
compensated from utilities. Nonetheless,<br />
across different jurisdictions. Therefore,<br />
prevent conflicts or easily solve them if<br />
having a clear understanding of how<br />
the coordination of these different<br />
necessary. Also, the choice of arbitration<br />
For example, in one case a partnership<br />
these will be distributed is often not<br />
initiatives could be an important<br />
vs. judicial jurisdiction may be very<br />
could be beneficial to one party because<br />
enough.<br />
challenge. This is where the knowledge,<br />
relevant in Latin America, where court<br />
the other has a certain know-how<br />
creativity and proactivity of counsel plays<br />
proceedings often take years.<br />
required for skill transfers. In other<br />
For example, it may be important<br />
a very important role.<br />
cases, the benefit could be that the<br />
to agree on provisions regarding<br />
The main benefit of judicial<br />
partner has a distribution network in<br />
reinvestment of profits, setting<br />
Another important issue is tax<br />
jurisdiction is its lower cost. Because<br />
54 | <strong>Lawyer</strong><strong>Issue</strong> 55
Joint Ventures<br />
the government provides this service, it<br />
can be accessed with almost no costs or<br />
expenses other than attorney’s fees.<br />
On the other hand, its main drawback<br />
is time related, given that in Costa Rica<br />
a civil proceeding may take five years or<br />
more to be definitively concluded. Many<br />
Latin American countries have this same<br />
problem.<br />
Arbitration also has its benefits and<br />
drawbacks. The process is quick and<br />
confidential. Arbitrators are specialized<br />
and will likely be very qualified. Its<br />
main drawback is the higher cost, given<br />
that arbitrator’s fees and procedural<br />
expenses can add up, although in many<br />
cases such costs are not as high as many<br />
companies believe.<br />
In this complex scenario, it is crucial<br />
that attorneys carefully consider and<br />
draft the provisions of each Joint<br />
Venture agreement. The experience<br />
and knowledge of legal counsel will<br />
either make or break the possibility<br />
of a successful and fruitful business<br />
enterprise being formed.<br />
U.S. Agencies Take a Tough Approach to<br />
Merger Remedies<br />
by Ilene Knable Gotts<br />
Eric Scharf<br />
Partner at Sfera Legal<br />
T: +506 2201 00 00<br />
Email: est@sferalegal.com<br />
Eric is an attorney specialized in commercial, corporate and insurance law. He heads Sfera Legal’s corporate<br />
law department, advising clients on matters of commercial contracting, foreign investment and mergers &<br />
acquisitions. He has a J.D. in Law from the University of Costa Rica, Insurance Courses from the Practicing Law<br />
Institute and the College of Insurance in New York and an LL.M. from Columbia University School of Law. He is<br />
a member of the Costa Rican Bar Association.<br />
In the second term of the Obama Administration, both the U.S. Federal Trade Commission (“FTC”)<br />
and the U.S. Department of Justice, Antitrust Division (“DOJ”)—the two agencies charged with<br />
merger review—continued to press for broad divestiture packages.<br />
José María Pacheco<br />
Associate at Sfera Legal<br />
T: +506 2201 00 00<br />
Email: jmp@sferalegal.com<br />
José is an attorney specialized in commercial, corporate and financial law. He advises individual and<br />
corporate clients on business, investment banking, private equity, financial markets, mergers & acquisitions<br />
and corporate governance. He has a J.D. in Law and a Specialization in Commercial Law from the University<br />
of Costa Rica, an LL.M in Private Law from Carlos III University in Madrid, and a Master in Management<br />
Specialized in International Business from IE Business School. He is a member of the Costa Rican Bar<br />
Association.<br />
To support these efforts, the FTC has<br />
also announced plans to conduct a<br />
“merger retrospective” to determine the<br />
effectiveness of remedies imposed in<br />
some of the prior mergers. 1<br />
In total, the FTC proposes studying 92<br />
merger orders issued by the Commission<br />
between 2006 and 2012. The study<br />
1 Press Release, Fed. Trade Comm’n, FTC Proposes<br />
to Study Merger Remedies (Jan. 9, 2015), available<br />
at https://www.ftc.gov/news-events/press-releases/2015/01/ftc-proposes-study-merger-remedies.<br />
will include interviews of the buyers of<br />
divested assets, significant competitors<br />
in each market, and customers.<br />
The current antitrust enforcement<br />
environment means that merger parties<br />
should be prepared for the potential<br />
of prolonged review and protracted<br />
consent negotiations in transactions that<br />
raise concerns requiring relief.<br />
On June 17, 2011, the DOJ issued<br />
an updated policy guide to merger<br />
56 | <strong>Lawyer</strong><strong>Issue</strong> 57
Merger & Acqusitions<br />
remedies. As indicated in the Guide:<br />
include not only a license for technology,<br />
(2) requires Co-Star and Loopnet to<br />
to commercial health plans in two<br />
but the right to purchase the technology<br />
allow customers to terminate their<br />
geographic areas; the FTC, however,<br />
The touchstone principle for the Division<br />
or to transfer the license to a third party<br />
existing contracts, without penalty, with<br />
required that Community include in<br />
in analyzing remedies is that a successful<br />
later. 5<br />
one year’s prior notice; and (3) bars the<br />
the divestiture package the hospital<br />
merger remedy must effectively preserve<br />
merged firm from requiring customers<br />
facilities and all outpatient services and<br />
competition in the relevant market. . . .<br />
In addition, non-discrimination<br />
to buy any of its products as a condition<br />
operations that were affiliated with the<br />
provisions have been included to<br />
for receiving other products, and from<br />
hospital, regardless of whether those<br />
In horizontal merger matters, structural<br />
incorporate the concepts of equal<br />
requiring customers to subscribe to<br />
services were provided at the hospital.<br />
remedies often effectively preserve<br />
access, equal efforts, and equal terms.<br />
multiple geographic coverage areas to<br />
competition, including when used<br />
gain access to a single area in which they<br />
The FTC viewed the outpatient<br />
in conjunction with certain conduct<br />
For instance, the FTC’s CoStar/Loopnet<br />
are interested.<br />
business as necessary for the buyer<br />
provisions. Structural remedies may be<br />
consent contained what the FTC<br />
of each hospital to be as effective of a<br />
appropriate in vertical merger matters<br />
characterized as “conduct relief that is<br />
In addition, the consent requires, for<br />
competitor as HMA had been prior to<br />
as well, but conduct remedies often<br />
unusual in a merger settlement.” 6<br />
three years, that CoStar and LoopNet<br />
the transaction.<br />
can effectively address anticompetitive<br />
continue to offer their customers core<br />
issues raised by vertical mergers.<br />
In addition to requiring that the parties<br />
products on a stand-alone basis.<br />
In Sun Pharmaceutical/Ranbaxy, 9 the<br />
divest LoopNet’s Interest in Xceligent,<br />
FTC although the expressed concerns<br />
In all cases, the key is finding a remedy<br />
a competing database that the FTC<br />
A related provision prohibits the parties<br />
that the combination would impact<br />
that works, thereby effectively preserving<br />
considered to be the “most similar<br />
from limiting use of the REApplications<br />
future competition for three strengths of<br />
competition in order to promote<br />
competitor for information services”<br />
product, a software tool for managing<br />
generic minocycline tablets used to treat<br />
innovation and consumer welfare. 2<br />
to CoStar, the consent also “imposes<br />
market research in connection with<br />
a variety of infections, the Commission<br />
certain conduct requirements to assure<br />
customers’ purchase, lease, or license of<br />
required the firms to sell as well assets<br />
Recent precedent includes the agencies<br />
the continued viability of Xceligent as<br />
CRE database services from competitors.<br />
related to three dosages of generic<br />
imposing a variety of behavioral<br />
a competitor to the merged firm and to<br />
minocycline capsules.<br />
conditions to support a structural<br />
reduce barriers to competitive entry and<br />
There have also been situations recently<br />
divestiture. Transition services<br />
expansion. These additional provisions<br />
in which the agencies have required<br />
The FTC’s rationale for including the<br />
arrangements and supply arrangements<br />
will facilitate Xceligent’s geographic<br />
divestitures to include out-of-market<br />
capsules was that it would allow the<br />
have been more routinely included,<br />
expansion and prevent foreclosure of<br />
assets (i.e., a divestiture package that<br />
upfront buyer to use a shorter FDA<br />
beyond the pharmaceutical industry<br />
[the parties’] established customer<br />
goes beyond the assets in the relevant<br />
regulatory process because it would<br />
where they were the norm. 3<br />
base.”<br />
market). 7<br />
control both products and use the same<br />
ingredient (API) supplier.<br />
Mandatory licensing provisions may<br />
The consent, for five years, (1) prohibits<br />
In Community Health Systems<br />
also alleviate competitive concerns by<br />
CoStar and Loopnet from restricting<br />
(“Community”)/Health Management<br />
In Holcim/Lafarge, 10 the FTC conditioned<br />
enabling competitors access to a key<br />
customers’ ability to support Xceligent;<br />
Associates (“HMA”), 8 the FTC’s concerns<br />
clearance on the divestiture of plants<br />
input; 4 some of the consents, however,<br />
were focused on general acute care<br />
and terminals, including a terminal in<br />
2 U.S. Dep’t of Justice, Antitrust Division, Antitrust<br />
Division Policy Guide to Merger Remedies (Aug. 19,<br />
2010), available at http://www.justice.gov/atr/public/<br />
guidelines/hmg-2010.html<br />
3 See, e.g., Press Release, U.S. Dep’t of Justice, Justice<br />
Department Requires Divestitures in Order for Regal<br />
Beloit Corporation to Proceed with Its Acquisition<br />
of A.O. Smith Corporation’s Electric Motor Business<br />
(Aug. 17, 2011), available at http://www.justice.gov/<br />
opa/pr/2011/August/11-at-1056.html; Hold Separate<br />
Order United States v. Bemis Co., Inc., No. 1:10-<br />
cv-00295 (D. DC Feb. 28, 2010), available at http://<br />
www.justice.gov/atr/cases/f255700/255715.htm.<br />
4 See, e.g., Press Release, U.S. Dep’t of Justice, Justice<br />
Department Requires Google Inc. to Develop and<br />
License Travel Software in Order to Proceed with<br />
Its Acquisition of ITA Software Inc. (Apr. 8, 2011),<br />
available at http://www.justice.gov/opa/pr/2011/<br />
April/11-at-445.html; Press Release, U.S. Dep’t of Justice,<br />
Justice Department Allows Comcast-NBCU Joint<br />
Venture to Proceed with Conditions (Jan. 18, 2011),<br />
available at http://www.justice.gov/opa/pr/2011/<br />
January/11-at-061.html.<br />
5 See, e.g., United States v. Cameron Int’l Corp., No.<br />
1:09-cv-02165 (D. D.C. Nov. 17, 2009), available at<br />
http://www.justice.gov/atr/cases/f252000/252080.<br />
htm.<br />
6 Press Release, Fed. Trade Comm’n, FTC Places<br />
Conditions on CoStar’s $860 Million Acquisition of<br />
LoopNet (Apr. 26, 2012), available at http://www.ftc.<br />
gov/opa/2012/04/costar.shtm.<br />
hospital impatient services sold<br />
7 For a discussion of remedies including out-ofmarket<br />
assets from the FTC’s perspective see Dan<br />
Ducore, Divestitures may include assets outside<br />
the market (Apr. 24, 2015), available at https://<br />
www.ftc.gov/news-events/blogs/competition-matters/2015/04/divestitures-may-include-assets-outside-market.<br />
8 Press Release, Federal Trade Comm’n, FTC Requires<br />
Community Health Systems, Inc. to Divest Two<br />
Hospitals as a Condition of Acquiring Rival Hospital<br />
Operator (Jan. 22, 2014), available at http://www.<br />
ftc.gov/news-events/press-releases/2014/01/<br />
ftc-requires-community-health-systems-inc-divest-two-hospitals.<br />
Alberta, Canada and cement plant in<br />
Ontario, Canada. Canadian assets that<br />
9 Press Release, Fed. Trade Comm’n, FTC Puts Conditions<br />
on Sun Pharmaceutical’s Proposed Acquisition<br />
of Ranbaxy (Jan. 30, 2015), available at https://<br />
www.ftc.gov/news-events/press-releases/2015/01/<br />
ftc-puts-conditions-sun-pharmaceuticals-proposed-acquisition.<br />
10 Press Release, Fed. Trade Comm’n, FTC Requires<br />
Cement Manufacturers Holcim and Lafarge<br />
to Divest Assets as a Condition to Merger (May 4,<br />
2015) available at http://www.ftc.gov/news-events/<br />
press-releases/2015/05/ftc-requires-cement-manufacturers-holcim-lafarge-divest-assets.<br />
58 | <strong>Lawyer</strong><strong>Issue</strong> 59
Merger & Acqusitions<br />
are named in the FTC consent decree<br />
were included by the FTC as necessary<br />
to remedy competitive concerns in<br />
northern U.S. markets.<br />
Finally, in ZF Friedrichshafen AG/TRW<br />
Automotive Holdings Corp., 11 the FTC<br />
conditioned approval of the $12.4<br />
billion merger that creates the world’s<br />
second-largest auto parts supplier with<br />
the divestiture of TRW’s linkage and<br />
suspension business in North America<br />
and Europe, even though only suppliers<br />
that have production facilities in the<br />
United States, Canada, and Mexico were<br />
deemed capable of competing for U.S.<br />
business.<br />
The agencies have also taken a more<br />
expansive stance, particularly in<br />
transactions involving innovation and<br />
future generations of products. For<br />
instance, the DOJ recently announced<br />
that Applied Materials Inc. and Tokyo<br />
Electron Ltd. had abandoned their<br />
merger plans after the DOJ informed<br />
them that their remedy proposal failed<br />
to resolve the competitive concerns. 12<br />
Although the merger parties had<br />
reportedly offered to divest the<br />
overlapping etching and depositing<br />
business line of Tokyo Electron, the DOJ<br />
thought the package did not adequately<br />
address the future impact of the deal<br />
on innovation in future generations of<br />
semiconductor equipment.<br />
11 Press Release, Fed. Trade Comm’n, FTC Puts<br />
Conditions on Merger of Auto Parts Suppliers ZF<br />
Friedrichshafen and TRW Automotive Holdings Corp.<br />
(May 5, 2015) available at https://www.ftc.gov/newsevents/press-releases/2015/05/ftc-puts-conditionsmerger-auto-parts-supplier-zf<br />
12 Press Release, U.S. Dep’t of Justice, Applied Materials<br />
and Tokyo Electron Ltd. Abandon Merger Plans<br />
after Justice Department Rejected Their Proposed<br />
Remedy (Apr. 27, 2015), available at http://www.<br />
justice.gov/atr/public/guidelines/hmg-2010.html.<br />
Similarly, in the Nielson/Arbitron<br />
transaction, the FTC focused on<br />
protecting a future market for syndicated<br />
audience cross-platform measurement<br />
services.<br />
The consent conditioned that<br />
transaction’s approval on Nielsen’s<br />
obligation to:<br />
1. continue its cross-platform project<br />
with ESPN Inc. and Comscore Inc.;<br />
and<br />
2. license Arbitron’s people meter<br />
and related data, as well as<br />
software and technology being<br />
used in the ESPN project, to an<br />
FTC-approved third party for up to<br />
eight years. 13<br />
Both agencies have also increasingly<br />
required that the parties identify an<br />
acceptable “upfront buyer” before<br />
accepting divestiture packages. 14 The<br />
“upfront buyer” requirement is justified<br />
by the agencies as being necessary<br />
to ensure that the divestiture will be<br />
effective in maintaining competition at<br />
the same level as pre-transaction.<br />
13 Press Release, Fed. Trade Comm’n, FTC Puts Conditions<br />
on Neilsen’s Proposed $126 Billion Acquisition<br />
of Arbitron (Sept. 20, 2013), available at http://www.<br />
ftc.gov/opa/2013/09/nielsen.shtm. Commissioner<br />
Wright dissented from the decision on the basis that<br />
the future market theory shall be subject to a higher<br />
evidentiary standard. See Dissenting Statement of<br />
Commissioner Joshua D. Wright, In the Matter of Nielsen<br />
Holdings N.V. and Arbitron Inc. FTC No. 131-0058<br />
(Sept. 20, 2013), available at http://www.ftc.gov/os/<br />
caselist/1310058/130920nielsenarbitron-jdwstmt.<br />
pdf.<br />
14 The public attention on Advantage Rent A Car’s<br />
filing for bankruptcy four months after the FTC<br />
approved its divestiture to resolve concerns in the<br />
Hertz/Dollar Thrifty deal exemplifies the risk —<br />
though extremely rare—that can arise for an agency<br />
from accepting an antitrust remedy. See David Mc-<br />
Laughlin, Mark Clothier, and Sara Gay Forden, Hertz<br />
Fix in Dollar Thrifty Deal Fails as Insider Warned,<br />
Bloomberg (Nov. 29, 2013), available at http://www.<br />
bloomberg.com/news/articles/2013-11-29/hertzfix-in-dollar-thrifty-deal-fails-as-insider-warned.<br />
The transaction parties, however, can<br />
Transaction parties may be able to<br />
face substantial delay from the process:<br />
mitigate some of the harm by giving<br />
the need to identify a divestiture buyer,<br />
careful thought prior to the execution<br />
negotiate a divestiture agreement,<br />
of the definitive agreements regarding<br />
and have that buyer and the package<br />
the potential scope of relief and the<br />
vetted by the agencies before the main<br />
management of the review process<br />
transaction is permitted to proceed<br />
(including negotiation of remedies).<br />
can literally add months to the review<br />
process.<br />
To minimize delay, parties may consider<br />
approaching potential divestiture<br />
For transaction parties with overlapping buyers that are likely to be supportive<br />
products/services that are likely to<br />
of the package that will be offered to<br />
raise antitrust concerns, the recent<br />
the reviewing agency to address their<br />
enforcement activities and trends raise<br />
concerns while the investigation is still<br />
the potential for prolonged investigations ongoing.<br />
and protracted consent negotiations as<br />
well as the potential that the divestiture Absent such planning and initiative, the<br />
package required to satisfy the agency<br />
transaction’s consummation will, at best,<br />
may exceed the U.S. operations or<br />
be delayed, and could even potentially<br />
currently sold products/services.<br />
fail on antitrust grounds.<br />
Ilene Knable Gotts<br />
Partner at Wachtell, Lipton, Rosen & Katz<br />
T: +1 212 403 4357<br />
Email: IKGotts@wlrk.com<br />
Ilene focuses on mergers and acquisitions. She is regularly recognized as one of the world’s top antitrust<br />
lawyers, including in The International Who’s Who of Business <strong>Lawyer</strong>s, Chambers Guides, and PLC Which<br />
<strong>Lawyer</strong> Yearbook. Mrs. Gotts has served as the Chair of the American Bar Association’s Section of Antitrust<br />
Law (2009-2010) and Chair of the New York State Bar Association’s Antitrust Section (2006-2007). She is a<br />
frequent guest speaker, has had approximately 200 articles published, and has edited several books.<br />
60 | <strong>Lawyer</strong><strong>Issue</strong> 61
Merger & Acqusitions<br />
What is Wrong with our Fiction? The<br />
Perceived Attack on Reverse Vesting<br />
by Janet Levy Pahima<br />
talented individuals get together to form a<br />
company, sometimes they worry about this<br />
from the beginning. They may set up a type<br />
of reverse vesting which is basically a call<br />
option. If one founder leaves the company,<br />
the others can buy his or her shares usually<br />
for par value.<br />
They need another tool to safeguard their<br />
investment. A fine or penalty that the<br />
founders would have to pay if they leave<br />
the company? Not worth the wasted air<br />
expressing this out loud to a founder. It<br />
is the VC’s that are supposed to have the<br />
money, not the founders.<br />
The concern that this may raise tax<br />
implications is subdued. The value of the<br />
company and its shares in those early days<br />
are often low, and so the risk of a taxable<br />
transaction is by correlation also low.<br />
The more popular use of reverse vesting<br />
addresses when our young company needs<br />
an investment of millions of dollars from<br />
a financial investor. Venture capital firms<br />
(“VC’s”) are well versed in understanding<br />
the crucial role founders may play in<br />
the chances of success for their fragile<br />
investments.<br />
Reverse vesting is the obvious choice. If a<br />
founder refuses to keep working for the<br />
crucial first few years after the company<br />
has received a large investment, he or she<br />
should lose some of his or her shares and<br />
not benefit from the future success of the<br />
company.<br />
This is a penalty that sounds fair – it is<br />
in the control of the founder; it adjusts<br />
the equitable balance of ownership if the<br />
company is worth less because the founder<br />
left; and it does not impose an impossible<br />
financial burden on the founder.<br />
Tax advisors in Israel are scrambling to find the best solution to the unknown<br />
risk of adverse tax treatment of reverse vesting.<br />
Why the current increased interest in the<br />
topic? Paranoia or calculated anticipation<br />
of the Israeli tax authorities (the “ITA”)<br />
attacking a well established principle?<br />
Reverse vesting is a commonly used<br />
technique to address the concerns that<br />
a founder of a company who is key to its<br />
success and owns shares of the company<br />
might simply walk away from the company<br />
causing damage to the enterprise’s<br />
prospects for success.<br />
Using equity as a retention tool is nothing<br />
new. When an employee is granted stock<br />
options that are subject to a three or four<br />
year vesting period, the theory is that the<br />
employee is incentivized to stay at work<br />
for the full vesting period to receive the full<br />
benefit of the employee’s options.<br />
The shareholders are willing to share<br />
equity with the employees to align<br />
interests between the company and<br />
the employees, joining the level of the<br />
employees’ compensation with the success<br />
of the company and keeping the employee<br />
motivated during his or her period of<br />
employment.<br />
But founders who set up a company own<br />
their shares from day one. When a few<br />
The venture capitalists could space<br />
out their investments to correspond to<br />
milestones including the continuation of the<br />
employment of the founders, but that is not<br />
popular and often not practical; they may<br />
not be putting in nearly enough funds to<br />
keep the company going for the full period<br />
they wish the founders to commit and the<br />
funds invested up to the point of departure<br />
of a founder can be tremendous.<br />
The investors can’t force the founders to<br />
keep working. This is codified in Israel’s<br />
Basic Law: Freedom of Occupation. 1<br />
1 The Basic Law: Freedom of Occupation (1994). The<br />
Law was passed by the Knesset on 9th March, 1994 and<br />
published in the Book of Laws No. 1454 of 10th March,<br />
1994. It provides in part:<br />
a. Fundamental human rights in Israel are founded<br />
upon recognition of the value of the human being,<br />
the sanctity of human life, and the principle that all<br />
persons are free; these rights shall be upheld in the<br />
spirit of the principles set forth in the Declaration of<br />
the Establishment of the State of Israel.<br />
b. The purpose of this Basic Law if to protect freedom<br />
of occupation, in order to establish in a Basic Law the<br />
values of the State of Israel as a Jewish and democratic<br />
state.<br />
So far, so good. So why are tax advisors<br />
in Israel wary of the ITA spoiling this<br />
wonderful solution that is so common in<br />
the global high tech world?<br />
While there is no evidence that the ITA<br />
is about to challenge the arrangement,<br />
the ITA, obviously is not bound by the<br />
treatment of reverse vesting in the Silicon<br />
Valley for example 2 ; some lawyers and<br />
tax advisors fear that the ITA may look at<br />
shares subject to reverse vesting as being<br />
deemed given in exchange for work and<br />
therefore could categorize the shares as<br />
work related income, taxable as ordinary<br />
income and not as capital gains.<br />
c. Every Israel national or resident has the right to engage<br />
in any occupation, profession or trade.<br />
2 See for example Rev. Rul. 2007-49 from Internal<br />
Revenue Bulletin: 2007-31 dated July 30, 2007 specifying<br />
that Section 83 of the Internal Revenue Code does not<br />
apply to reverse vesting imposed by investors (changing<br />
“substantially vested stock” to “substantially nonvested<br />
stock”).<br />
62 | <strong>Lawyer</strong><strong>Issue</strong> 63
Merger & Acqusitions<br />
The ITA could take the position that when<br />
the founders eventually sell their shares<br />
in an exit event (a merger or acquisition),<br />
the income earned on the shares should<br />
be treated as ordinary income, even<br />
though this seems like a real stretch of the<br />
imagination.<br />
If a founder can lose shares of a company<br />
if he or she quits working for the company,<br />
the ITA could look at those shares as not<br />
really belonging to the founder until the<br />
reverse vesting lifts, as if the founders are<br />
actually receiving shares over time, in which<br />
case they should be taxed periodically at<br />
the time the shares were deemed to have<br />
been received; this translates into the<br />
dates that the shares are released from<br />
the threat of reverse vesting rather than<br />
the date of incorporation of the company<br />
when the company value was lower if not<br />
insignificant.<br />
To protect from this troublesome threat,<br />
reverse vesting is dressed up in colorful<br />
non-ordinary income terminology.<br />
For example, we don’t draft Reverse<br />
Vesting Agreements but rather Repurchase<br />
Agreements. We don’t state anywhere<br />
in the agreement that the rights to the<br />
founders’ shares vest over time but rather<br />
that the other shareholders will have the<br />
right to buy back some of the founders<br />
shares in decreasing amounts over time<br />
and for very little money if the founders<br />
stop working.<br />
Not that there seems to be evidence of the<br />
topic heating up at the ITA, but nonetheless,<br />
lately there has been much discussion in<br />
Israel, or at least in the hallways of Tel Aviv<br />
tax departments and law firms, of the risk<br />
that all reverse vesting clauses in high tech<br />
companies could be in jeopardy. That adds<br />
up to a lot of clauses in a lot of companies<br />
in a country dominated by its high tech and<br />
start up culture.<br />
Good advice is to distance the shares from<br />
employment. Make sure the founders’<br />
shares in an exit event are not worth<br />
more than any other shareholders’ shares.<br />
Include language that the purpose of the<br />
reverse vesting is to avoid the damage and<br />
harm that would be caused to the company<br />
if the founder quit rather than any type of<br />
compensation to the founder for staying.<br />
Make sure it is shareholders who have the<br />
right to buy the shares of the founders if<br />
their employment terminates and not the<br />
company itself. Do not include death or<br />
disability as grounds to trigger repurchase<br />
so that it is punishment to the founders for<br />
quitting rather than just the founders no<br />
longer working.<br />
To the extent the founders have paid some<br />
cash for their shares and the price to be<br />
paid upon exercise of the reverse vesting<br />
returns their capital, the shares look less<br />
like ordinary income to the founders.<br />
A more recent creative idea is to grant<br />
other shareholders anti dilution rights<br />
triggered if a founder leaves the company.<br />
To implement this concept, the other<br />
shareholders would be issued new shares<br />
or the conversion ratio of preferred shares<br />
would be adjusted to give the holders of<br />
preferred shares a larger percentage of<br />
the outstanding shares of the company;<br />
the founders’ shares of the capital of the<br />
company on a percentage basis would<br />
decrease.<br />
It is yet to be seen if this obvious new ploy<br />
can trick the ITA into believing that the<br />
additional shares received by the investors<br />
from the company are not the same as the<br />
additional shares the investors would have<br />
gotten if they were entitled to buy shares<br />
from the founders all with the same trigger<br />
and lack of price tag.<br />
In addition, if there is more than one<br />
founder, this smacks of collective<br />
punishment. If one leaves, all founders<br />
would be diluted including those that loyally<br />
stayed with the company.<br />
Morally it would be more appropriate to<br />
use this approach, if at all, if there is only<br />
one founder subject to reverse vesting so<br />
that other founders do not have to serve as<br />
guarantors of each other’s commitment to<br />
the company. But with only one founder,<br />
the net effect is just the same as the<br />
traditional reverse vesting.<br />
With multiple founders, there is more<br />
separation between the employment of a<br />
founder and the share ownership of the<br />
other shareholders.<br />
Janet Levy Pahima<br />
Partner at Herzog, Fox & Neeman<br />
T: +972 3 692 2097<br />
Email: pahima@hfn.co.il<br />
Whether this fiction would be acceptable<br />
in favor of traditional reverse vesting is<br />
unclear and untested.<br />
Until there is any clarity, some advice to<br />
investors. When you don’t need reverse<br />
vesting, don’t ask for it. Use it when you<br />
do not have plausible alternatives to keep<br />
founders motivated. If the founders have<br />
less than 10% of the shares of a company<br />
and do not have the right to appoint a<br />
director, consider using shares or options<br />
granted under Section 102 of the Tax<br />
Ordinance 3 .<br />
General advice of course may not be<br />
applicable to your particular situation so<br />
do visit your tax advisors for the latest<br />
developments.<br />
3 Section 102 of the Israeli Income Tax Ordinance [New<br />
Version] 5721-1961, as amended, is the regime for employee<br />
stock option plans granting favorable deferred tax<br />
status; it is not available for holders of more than 10% of<br />
a company’s share capital or to those that have a right to<br />
appoint a member of the board of directors.<br />
Janet is an International Mergers & Acquisitions partner at Herzog, Fox & Neeman, Israel’s leading<br />
international law firm. In addition to M&A, Janet specializes in joint ventures, investment funds,<br />
international trade, and advises in the general corporate field.<br />
Janet represents multinational corporations including General Electric, Microsoft, BMC Software and<br />
SunGard Data Systems, including in their acquisitions in Israel; venture capital funds such as Carmel<br />
Ventures in early and late stage investments; and high-tech companies in their earliest stages of<br />
development. Janet is recommended in PLC Which <strong>Lawyer</strong> and Chambers and has been described as an<br />
“outstanding corporate lawyer” by the Legal 500.<br />
Prior to moving to Israel, Janet was an associate at Shearman and Sterling in New York and Tokyo.<br />
64 | <strong>Lawyer</strong><strong>Issue</strong> 65
Merger & Acqusitions<br />
Mergers and Acquisitions Regulations in Lebanon<br />
by Christiane Ghneim<br />
M&A activity in Lebanon has been traditionally embryonic compared to its<br />
neighboring Gulf countries, considering the size of the Lebanese market which<br />
consists of SMEs and small family businesses, and that merger and acquisition<br />
transactions among such entities are usually carried out privately in the<br />
absence of any disclosure requirements or specific M&A regulations.<br />
Nonetheless, the banking sector was<br />
subject to a special treatment, as it<br />
benefitted from a dedicated law aiming at<br />
encouraging the mergers and acquisitions<br />
among banks in Lebanon, under the strict<br />
supervision of the Lebanese Central Bank.<br />
The purpose of such laws and regulations<br />
was to address the situation of banks in<br />
difficulty that showed good management,<br />
to maintain the rights of depositors and<br />
employees, and to preserve the stability<br />
of the market through incentives and soft<br />
loans granted to the acquiring banks.<br />
Consequently, this law contributed to the<br />
improvement of the sustainability and<br />
reliability of the banking sector in Lebanon.<br />
In 1996, the Beirut Stock Exchange (BSE)<br />
re-launched the trading activity in its hall,<br />
following a thirteen-year compulsory<br />
suspension. The Committee of the BSE,<br />
which is responsible for managing,<br />
regulating and developing the markets,<br />
protecting the interests of the investors<br />
trading at the Stock Exchange, monitoring<br />
the activities of the issuing companies and<br />
providing information to the issuers and<br />
traders at the Stock Exchange on an equal<br />
footing, organized part of the M&A for listed<br />
companies.<br />
Recently, a new Financial Markets Law was<br />
enacted and a Capital Market Authority<br />
(CMA) was established accordingly in<br />
August 2011. The CMA is an independent<br />
and autonomous regulatory body that aims<br />
to regulate and supervise the activities of<br />
capital markets in Lebanon and to create<br />
the adequate legal framework for the<br />
development of the Lebanese Financial<br />
Markets, including the issuance of all<br />
regulations pertaining to mergers and<br />
acquisitions (M&A) for listed companies.<br />
M&A REGULATIONS IN LISTED<br />
COMPANIES<br />
REGULATORY FRAMEWORK<br />
Public M&A is regulated by the Lebanese<br />
Commercial Law (articles 210 to 213 of<br />
Legislative Decree 304 of December 24,<br />
1942 and its modifications), and Decree<br />
7667 of December 16, 1995 regarding the<br />
implementation of the BSE by-laws.<br />
The CMA is the regulatory body and the<br />
enforcing authority in connection with<br />
acquisition of shares in public companies<br />
and the execution of M&A bids. Its control<br />
unit regulates the capital markets and its<br />
sanctions committee examines violation<br />
cases transmitted by the Board, investigates<br />
them and takes the necessary decisions<br />
further to proceedings involving all<br />
concerned parties, as specified in its rules<br />
of operation.<br />
STRUCTURAL<br />
CONSIDERATIONS<br />
Lebanese law does not mention structural<br />
differences between friendly acquisitions<br />
(in which the target is willing to be acquired)<br />
and hostile takeovers (where the target is<br />
opposed to the acquisition). An acquisition<br />
is structured as a tender offer by the bidder<br />
and regulated by article 161 of the decree<br />
7667 /1995 which states that:<br />
“Any investor or group of investors […]<br />
wishing to own more than 10% of the voting<br />
rights in a company quoted in the official or<br />
secondary market, or wishing to acquire the<br />
absolute or specified majority in this company,<br />
should present a draft for a tender public<br />
offer or bartering via a financial broker.”<br />
The period of the offer in a bidding<br />
transaction should not take less than ten<br />
Stock Exchange sessions, and there are<br />
no limitation of initial offer price limit.<br />
However, article 168 of decree 7667/1995<br />
states:<br />
“In the event an investor or another group<br />
of investors presents a counter-proposal, this<br />
counter-proposal cannot be accepted unless<br />
the counter-price exceeds the price of the<br />
current offer by more than 5%”.<br />
M&A REGULATIONS IN BANKS<br />
REGULATORY FRAMEWORK<br />
M&A of banks are regulated by the<br />
Lebanese Code of Money and Credit<br />
(articles 132/b-d and 133/b-d), the<br />
provisions of Law 192 of January 4, 1993<br />
and their amendments regarding the<br />
facilitation of banks’ M&A as well as<br />
66 | <strong>Lawyer</strong><strong>Issue</strong> 67
Merger & Acqusitions<br />
Law 308 of April 3, 2001 organizing the<br />
issuance and trade of stocks and bonds and<br />
acquisition of real estate by banks.<br />
The regulatory body is the Central Council<br />
of the Lebanese Central Bank which set all<br />
regulations concerning purchases of shares<br />
in banks, and those concerning the banks’<br />
M&A.<br />
The Central Council of the Lebanese<br />
Central Bank, after consultation with the<br />
Banking Control Commission, supervises<br />
all takeovers in the banking and financial<br />
services sector, ensures that all regulated<br />
entities comply with applicable laws and<br />
regulations, and has all discretionary<br />
powers to approve or reject any takeover<br />
within the banking and financial services<br />
sector.<br />
STRUCTURAL<br />
CONSIDERATIONS<br />
Any subscription or transaction in the<br />
Lebanese banks’ shares is subject to prior<br />
approval of the Central Council of the<br />
Lebanese Central Bank as follows:<br />
• if the subscriber acquires more<br />
than 5% of the bank’s shares or<br />
from the voting rights related to<br />
these shares, whichever is greater;<br />
• if the subscriber owns at the time<br />
of the subscription 5% or more<br />
of the bank’s shares or from the<br />
voting rights related to these<br />
shares whichever is greater.<br />
Any merger that includes a bank or a<br />
financial institution shall be contingent<br />
upon the approval of the Central Council of<br />
the Lebanese Central Bank. Consequently,<br />
the deals are governed by the Central<br />
Council of the Lebanese Central Bank.<br />
The Central Council shall take, after<br />
consultation with the Banking Control<br />
Commission, a provisional decision<br />
approving or rejecting the merger within<br />
sixty days from the filing of the bank’s<br />
application and the attachments specified<br />
by the Law.<br />
In case of approval, the Central Council<br />
shall specify the conditions, deadlines and<br />
guarantees required for its final decision.<br />
The Central Council shall take a final<br />
decision on the merger within thirty days<br />
from the submission date of documents<br />
that prove the fulfillment of conditions and<br />
guarantees required by the Council.<br />
In case the Central Council has not taken<br />
a final decision on the matter within the<br />
above-mentioned deadlines, the Central<br />
Bank shall be deemed to have taken an<br />
implicit decision of rejecting the merger<br />
request as submitted.<br />
TAX INCENTIVES<br />
In order to encourage M&A activity within<br />
the banking sector, the legislator granted<br />
the banks with several tax incentives,<br />
including the following:<br />
• Article 7 of Law 192 of January<br />
4, 1993 states that: “During the<br />
year that follows the year in which<br />
the Central Council took its final<br />
decision on approving the merger,<br />
the Council may exempt the<br />
merging bank from income tax for<br />
an amount equivalent to taxes due<br />
on a portion of its profits, provided<br />
this portion does not exceed the<br />
cost of the merging operation and<br />
a ceiling of two billion Lebanese<br />
pounds. […] The merged bank<br />
(s) shall also be exempted from<br />
the tax stipulated in article 45 of<br />
the Income Tax Code, in case of<br />
approval of the revaluation of its<br />
(their) fixed assets”.<br />
• Article 8 of Law 192 of January 4,<br />
1993 states that: “All formalities<br />
and procedures required by the<br />
merging operation, including the<br />
issuance of new shares, shall be<br />
exempted from stamp, transfer<br />
and notary public fees, and from<br />
all registration fees with public<br />
administrations.”<br />
• The new parent bank can benefit<br />
from payroll and capital gain tax<br />
exemptions. Employees to be<br />
dismissed as a result of the merger<br />
or acquisition also benefit from<br />
some tax exemptions and endof<br />
service indemnities between<br />
six and thirty six months’ salary<br />
depending on the duration of their<br />
employment. No income tax is<br />
deducted from this compensation.<br />
Christiane Ghneim<br />
Associate at Aziz Torbey Law Firm<br />
T: +961 1 616161<br />
Email: cghneim@torbeylaw.com<br />
CONCLUSION<br />
Despite the regional upheavals, Lebanon<br />
has witnessed M&A in the banking sector<br />
as well as in other sectors such as the<br />
insurance, information and communication<br />
technologies industries.<br />
We expect such activities to increase<br />
in the near future as a result of the<br />
establishment of the CMA and the<br />
enacting of new financial markets laws<br />
and regulations aiming to build confidence<br />
among the investors in Lebanon; as well<br />
as the prospect of privatizing some utility<br />
companies and governmental institutions,<br />
which will be a boosting factor for the Beirut<br />
Stock Exchange, and would consequentially<br />
lead to more M&A activity among listed<br />
companies.<br />
Christiane Ghneim is an associate at the Eptalex Beirut office of Aziz Torbey Law Firm where she works in<br />
the banking and corporate practices. Her transactional experience includes several acquisitions where she<br />
was involved in the due diligence phases and the drafting of transaction agreements.<br />
Christiane also works on the in¬cor¬po¬ra¬tion and re¬lo¬ca¬tion of com¬pa¬nies as well as the dai¬ly<br />
operations of busi¬ness¬es. She is a law graduate from Saint-Joseph University (USJ) and holds a Master<br />
of Advanced Studies (DEA) in Internal and International Business Law from the Lebanese University- french<br />
section.<br />
68 | <strong>Lawyer</strong><strong>Issue</strong> 69
Tax<br />
Austrian goodwill amortization: AG Kokott issues<br />
her opinion on a landmark case for the relation<br />
between state aid and treaty freedoms<br />
by Rudolf Krickl,<br />
Richard Jerabek,<br />
Nikolaus Neubauer<br />
On 16 April 2015, Advocate General Kokott („AG“) advised the CJEU<br />
to rule that the exclusion of foreign EU group members of an Austrian tax<br />
group from the goodwill amortization scheme is not in line with the freedom<br />
of establishment. The AG, furthermore, argued that the scheme does<br />
not constitute illegal State aid due to the lack of selectivity.<br />
Treaty Freedoms vs. State Aid Rules<br />
The case Finanzamt Linz vs.<br />
Bundesfinanzgericht, Außenstelle Linz (C-<br />
66/14) is expected to result in a landmark<br />
decision of the CJEU. The importance of<br />
the case is that it deals with an Austrian<br />
tax regulation which may simultaneously<br />
infringe the freedoms of the treaty<br />
(freedom of establishment) and the state<br />
aid rules of the EU.<br />
The mentioned combination of conflicts<br />
brings up fundamental questions, i.e.<br />
the interaction between treaty freedoms<br />
and state aid rules. The issues gives rise<br />
to a potential conundrum because in<br />
the context of alleged “aid” in relation<br />
to domestic transactions, the respective<br />
remedies for unlawful state aid and<br />
the breach of freedoms are, in effect,<br />
opposites.<br />
Unlawful state aid has to be repaid which<br />
– in the given situation – results in a nonapplication<br />
of the goodwill amortization<br />
scheme. However, the scope of a<br />
discriminatory rule has to be extended<br />
which would require the amortization<br />
scheme to be applied to all investments<br />
(domestic and foreign targets).<br />
The solution for this conflict cannot be<br />
derived from the already existing case law<br />
of the CJEU. Tax experts were therefore<br />
looking forward to the opinion of AG Kokott<br />
which is laid down in the following.<br />
Facts and Circumstances<br />
Group taxation system<br />
The Austrian Corporate Income Tax Act<br />
(KStG) offers legally independent companies<br />
belonging to a group of companies the<br />
opportunity to form a tax group, with the<br />
result that the income of all tax group<br />
members is taxed in an added up way at<br />
the level of the group parent. This has the<br />
effect that the income of all group members<br />
is taxed in the hands of the parent company<br />
of the tax group.<br />
The main requirement for two or more<br />
companies to establish a tax group is<br />
that the group parent company holds an<br />
investment in the subsidiaries of more than<br />
50%. Also foreign companies can take part<br />
in the tax group, if they are directly owned<br />
by a domestic group member. Therefore<br />
only first-tier foreign subsidiaries may<br />
become members of a tax group.<br />
The tax group scheme provides for the<br />
attribution of 100% of profits/losses of<br />
a domestic group member to the group<br />
parent even though the actual participation<br />
might be lower. In the case of foreign group<br />
members only losses are attributable<br />
to the parent company according to the<br />
percentage of the participation.<br />
There is a recapture of taxes when the<br />
foreign losses are set off against profits<br />
abroad in subsequent years or if the foreign<br />
group member ceases to be a group<br />
member.<br />
Goodwill amortization<br />
Fore share acquisitions prior to March 2014,<br />
tax groups could amortize the goodwill<br />
resulting from the purchase of Austrian<br />
group members with an active business. 1<br />
Following this scheme the goodwill inherent<br />
in the acquisition cost was amortized on a<br />
straight-line basis over a period of 15 years.<br />
In order to avoid constitutional concerns<br />
goodwill that resulted from acquisitions<br />
prior to March 2014 and which has not fully<br />
been amortized upon March 2014, can be<br />
further amortized if the possibility of the<br />
goodwill amortization had an impact on<br />
the purchase price of the participation. As<br />
the goodwill amortization was limited to<br />
domestic participations, foreign EU group<br />
members were excluded from the scheme.<br />
Litigation procedure<br />
An Austrian taxpayer (a tax group which<br />
acquired a non-privileged Slovak subsidiary)<br />
concerned by the goodwill amortization<br />
started a litigation process, because under<br />
its opinion it infringed the freedom of<br />
establishment.<br />
The court of first instance (=Federal Tax<br />
Court Linz) in its decision on 16 April 2013<br />
followed the taxpayer’s argumentation,<br />
classified the Austrian goodwill amortization<br />
as being not in line with the freedom of<br />
1 In 2014 the goodwill amortization concept was abolished<br />
for new acquisitions due to the possible infringement<br />
of EU-law.<br />
70 | <strong>Lawyer</strong><strong>Issue</strong> 71
Tax<br />
establishment and extended the goodwill<br />
the goodwill amortization provides a<br />
participations and companies which<br />
AG Kokott then states that the goodwill<br />
amortization also to foreign group<br />
temporary liquidity advantage only, while<br />
acquire foreign participations might be<br />
amortization scheme, by excluding foreign<br />
members. 2<br />
capital gains from foreign participations<br />
selective, one “normal” tax regime cannot<br />
EU group members, treats taxpayers in<br />
are, in most cases, tax exempt with the<br />
be identified. 6<br />
comparable legal and factual situations<br />
After the Austrian tax office involved has<br />
requested goodwill amortization resulting<br />
differently. Consequently the goodwill<br />
appealed against this decision, the Austrian<br />
in a permanent tax advantage which was<br />
Therefore it is solely important whether<br />
amortization constitutes an advantage<br />
Administrative High Court (VwGH) referred<br />
not the intention of the Austrian lawmaker.<br />
comparable legal and factual situations<br />
to companies, which acquire domestic<br />
two questions with regard to the goodwill<br />
are treated differently and whether this<br />
participations, compared to companies<br />
amortization scheme for preliminary ruling<br />
The AG rejected this justification on<br />
different treatment leads to a selective<br />
which acquire foreign participations.<br />
to the CJEU. 3<br />
the grounds of the coherence of the<br />
advantage for certain industries or<br />
Austrian tax system because the goodwill<br />
undertakings (“comparability approach”).<br />
This unequal treatment is not justified<br />
The Court raised the question whether (a)<br />
amortization scheme was even not open to<br />
by the basic or guiding principles of the<br />
the scheme constitutes illegal State aid for<br />
taxpayers who opted for tax liability of their<br />
The argumentation of the AG is in line with<br />
Austrian tax system. Therefore the goodwill<br />
the beneficiaries of the scheme as defined<br />
participations in foreign EU group members<br />
the present case law of the CJEU, which<br />
amortization scheme can be regarded<br />
under Article 107 TFEU and (b) the exclusion<br />
according to § 10 Par 3 Nr. 1 KStG. 4<br />
considers the selectivity examination also<br />
as a subsidy in the narrow sense (which<br />
of foreign EU group members from the<br />
as an examination of comparability. For<br />
cannot be justified by the basic or guiding<br />
scheme was in line with the freedom of<br />
Since there were no other justification<br />
example in the Gibraltar judgement the<br />
principles of the Austrian tax system). 9<br />
establishment.<br />
grounds the AG came to the conclusion that<br />
CJEU classified a tax-exemption to offshore<br />
Opinion of the AG<br />
the goodwill amortization scheme infringes<br />
the freedom of establishment. 5<br />
companies as selective, even though less<br />
than 1% of companies were actually taxed. 7<br />
However, as the scheme covers all sorts<br />
of domestic companies, it does not favor<br />
Freedom of establishment<br />
certain industries or undertakings and<br />
State aid assessment<br />
2. Assessment of the goodwill amortization<br />
therefore it is not qualified as being<br />
According to AG Kokott the exclusion<br />
scheme<br />
selective. The advantage is rather that all<br />
of foreign EU group members from the<br />
1. The concept of selectivity<br />
companies within a tax group irrespective<br />
amortization scheme restricts the freedom<br />
According to the AG the refusal to grant the<br />
of the economic sector they perform,<br />
of establishment. Since the AG found the<br />
With regard to the State aid assessment the<br />
goodwill amortization to individuals and<br />
receive a subsidy for acquiring domestic<br />
domestic and the cross-border scenario<br />
AG argued that the goodwill amortization<br />
to companies which are not part of a tax<br />
participations. 10<br />
comparable, she examined whether<br />
confers a tax advantage for its recipients<br />
group cannot be considered to be state aid,<br />
there was any justification for limiting the<br />
pursuant to Art 107 para 1 TFEU.<br />
since these persons are not in a comparable<br />
With this reasoning the AG follows the<br />
amortization scheme to just domestic<br />
factual and legal situation with companies,<br />
view taken by the European Court of First<br />
targets.<br />
The advantage was also granted through<br />
which are members of a tax group.<br />
Instance in two cases regarding the Spanish<br />
state resources. For the selectivity test<br />
goodwill amortization (Banco Santander<br />
The representatives of the Austrian<br />
of the measure the AG modified the<br />
The AG suggests a less stringent<br />
and Santusa/Commission, T-399/11 and<br />
Government argued that the exclusion of<br />
traditional selectivity examination scheme,<br />
comparability test for pure domestic<br />
Autogrill España/Commission, T-219/10). 11<br />
foreign participations is required in order to<br />
maintain the coherence of the Austrian tax<br />
system.<br />
They based the coherence argument on<br />
the fact that under Austrian corporate<br />
where one has to first identify the “normal”<br />
taxation approach (“derogation approach”).<br />
As the referring Court suspects that the<br />
different treatment of (a) companies and<br />
individuals, of (b) companies within a tax<br />
situations as compared to cross-border<br />
situations. This is due to that fact that only<br />
unfavorable treatment of cross-border<br />
cases compared to domestic cases are<br />
covered by the EU Treaties. 8<br />
There the Court concluded that the granting<br />
of a goodwill amortization only in relation<br />
with the acquisition of foreign participations<br />
was not selective since the scheme was in<br />
principle open to all companies and did not<br />
income tax law capital gains from domestic<br />
group and outside a tax group and of<br />
participations are taxable and therefore<br />
(c) companies which acquire domestic<br />
6 Opinion of AG Kokott, 16 April 2015, C-66/14, Finanzamt<br />
Linz, para. 88.<br />
9 Opinion of AG Kokott, 16 April 2015, C-66/14, Finanzamt<br />
Linz, para. 104.<br />
2 Federal Tax Court (former „UFS“, now “Bundesfinanzgericht”)<br />
Linz, 16 April 2013 (RV/0073-L/11).<br />
4 Opinion of AG Kokott, 16 April 2015, C-66/14, Finanzamt<br />
Linz, para. 61.<br />
7 Commission/Government of Gibraltar and United<br />
Kingdom, C-106/09 P and C-107/09 P.<br />
10 Opinion of AG Kokott, 16 April 2015, C-66/14, Finanzamt<br />
Linz, para. 111.<br />
3 Austrian Administrative High Court, 30 January 2014<br />
(Zl. 2013/15/0186).<br />
5 Opinion of AG Kokott, 16 April 2015, C-66/14, Finanzamt<br />
Linz, para. 69.<br />
8 Opinion of AG Kokott, 16 April 2015, C-66/14, Finanzamt<br />
Linz, para. 91.<br />
11 Banco Santander and Santusa/Commission, T-399/11<br />
and Autogrill España/Commission, T-219/10.<br />
72 | <strong>Lawyer</strong><strong>Issue</strong> 73
Tax<br />
exclude a specific group of undertakings.<br />
In order to confer a selective advantage,<br />
a tax rule would have to characterize the<br />
recipient undertakings, by virtue of the<br />
properties which are specific to them, as a<br />
privileged category. 12<br />
The mere fact that the tax rule/benefit<br />
is subject to conditions could not, alone,<br />
render it selective in favor of undertakings<br />
satisfying this conditions. Otherwise, any<br />
tax relief subject to conditions would be<br />
state aid.<br />
The AG furthermore argues that a too<br />
broad understanding of the terms ‘certain<br />
undertakings’ and ‘production of certain<br />
goods’ and ultimately ‘selectivity’ entails<br />
the risk to affect the distribution of<br />
competence between Member States and<br />
the EU as foreseen in Art 2 to 6 TFEU as<br />
well as between the European Parliament/<br />
Council of the European Union (Art 14<br />
TEU) and the European Commission (Art<br />
17 TEU). Consequently, the AG came to the<br />
conclusion that the goodwill amortization<br />
scheme does not constitute illegal State<br />
aid. 13<br />
12 Commission/Government of Gibraltar and United<br />
Kingdom, C-106/09 P and C-107/09 P.<br />
13 Opinion of AG Kokott, 16 April 2015, C-66/14, Finan-<br />
Way Forward<br />
The opinion of the AG provides an<br />
important indication on how the CJEU could<br />
qualify the Austrian goodwill amortization<br />
scheme. It is expected that the CJEU will<br />
render its decision still in 2015.<br />
Until then, Austrian tax groups with foreign<br />
EU group members, which were purchased<br />
before 1 March 2014 and where the holding<br />
company exercised the option for tax<br />
liability according to § 10 Par 3 Nr. 1 KStG<br />
should, if not already done, examine their<br />
tax positions and assess whether they could<br />
benefit from the goodwill amortization<br />
scheme or not.<br />
The prerequisite that the goodwill<br />
amortization had to have an impact on<br />
the purchase price of the participation<br />
is also likely to infringe the freedom of<br />
establishment and should therefore not<br />
prevent tax groups from obtaining the<br />
goodwill amortization for their foreign EU<br />
group members.<br />
zamt Linz, para. 117.<br />
Rudolf Krickl<br />
Partner at PwC Austria<br />
T: +43 1 501 88 3420<br />
Email: rudolf.krickl@at.pwc.com<br />
Rudolf is a partner at PwC Austria. He has more than 19 years experience in advising national and<br />
multinational companies. Rudolf’s areas of expertise are international tax planning, M&A, transfer pricing,<br />
cash pooling, taxation of private foundations and business valuations for tax purposes.<br />
Rudolf is a member of the Austrian Chamber of Chartered Accountants as Tax advisor, member of the Tax<br />
Expert Board of the Austrian Chamber of Chartered Accountants and several working groups thereof.<br />
Rudolf released publications in several professional journals and performs different lecture activities.<br />
Richard Jerabek<br />
Senior Manager at PwC Austria<br />
T: +43 1 501 88 3431<br />
Email: richard.jerabek@at.pwc.com<br />
Richard is Tax Senior Manager and leader of the Austrian PwC European Direct Tax Group (EUDTG).<br />
He joined the firm in 2003 and has more than 12 years of professional experience in advising domestic<br />
and multinational companies. Richard’s areas of expertise are international tax planning, domestic and<br />
international restructurings, corporate compliance and transfer pricing.<br />
Richard is a member of the Austrian Chamber of Chartered Accountants and Tax Advisors, member of the<br />
Tax Expert Board of the Austrian Chamber of Chartered Accountants and several working groups thereof.<br />
Richard released publications in several professional journals as well as performs different lecture activities.<br />
Nikolaus Neubauer<br />
PwC-research associate at WU Wien<br />
T: +43 1 313 36 5119<br />
Email: nikolaus.neubauer@wu.ac.at<br />
Nikolaus is PwC-research associate at the Institute for Austrian and International Tax Law, Vienna<br />
University for Economics and Business Administration (WU).<br />
Nikolaus released publications in several professional journals and performs different lecture activities.<br />
74 | <strong>Lawyer</strong><strong>Issue</strong> 75
International Finance Centres<br />
Excerpts from an Address to the STEP<br />
Caribbean Conference<br />
by Hélène Anne Lewis<br />
Characterising a successful “international finance centre” is probably trite,<br />
but it is perhaps necessary in order to determine what practical advice I<br />
could possibly give to any IFC to attain if not ensure success in the current<br />
and foreseeable environment. As much as we have come to abhor the term,<br />
I perceive that the topic is really directed at an examination of “offshore financial<br />
centres” rather than the well-established metropolitan finance centres<br />
such London, Zurich and New York – which hardly need my advice!<br />
Permit me then to paint a picture of a landscape that forms the back drop<br />
for this topic.<br />
The emergence of financial centres outside<br />
of Europe, North America and Japan, began<br />
of course with the Channel Islands, initially<br />
only because of issues over radio licenses<br />
that caused an entity known as “Radio<br />
Caroline” to set up offshore the UK (in<br />
waters closer to The Channel Islands than<br />
to Britain) for the purpose of broadcasting<br />
popular music and other content not<br />
offered by the government controlled BBC.<br />
The concept of “offshore” was born – and<br />
avoidance of licenses soon gave rise to<br />
avoidance of taxes. The post war explosion<br />
of wealth, simultaneous with the rise of<br />
trade unions and heightened concerns<br />
over equitable distribution, gave rise to<br />
concerns over protection of legacies and<br />
the necessity to pre-empt the squandering<br />
of resources by governments on so-called<br />
“socialist” programmes.<br />
The wealthy looked for different ways to<br />
protect their wealth for themselves and<br />
future generations – estate planning and<br />
tax minimisation became high priorities – so<br />
a growing number of professionals became<br />
expert in developing wholly legitimate ways<br />
and means of avoiding estate and other<br />
taxes at a time when international financial<br />
centres as we know them now didn’t yet<br />
quite exist.<br />
Initially it was as simple as a Swiss or<br />
Channel Islands bank account, but schemes<br />
became more sophisticated – no doubt<br />
lots of lawyers were involved – and by the<br />
late 60s people were being knighted for tax<br />
avoidance,<br />
International Finance Centres came to be<br />
recognised, in the words of Dr Rose Marie<br />
Belle Antoine, in her 2013 publication<br />
Offshore Financial Law, as jurisdictions<br />
which “have chosen as a main or important<br />
path to development, legislative, financial<br />
and business infrastructure which is more<br />
flexible than orthodox infrastructure and<br />
which caters more specifically, and often<br />
exclusively, to the needs of non-resident<br />
investors”.<br />
By the early 1970s the Bahamas, Bermuda<br />
and the Cayman Islands had gained<br />
recognition as niche markets offering a<br />
range of financial services attractive to<br />
increasingly mobile wealthy global citizens<br />
both individual and corporate. Perhaps it<br />
was the very mobility of such persons that<br />
ensured the emergence of island states<br />
as financial centres as “snow birds” took<br />
up residence in warmer climates for much<br />
of the “winter season”. The BVI came<br />
fairly late to the party, but soon achieved<br />
unimaginable success – due in no small way<br />
to the fall of Noriega in Panama in 1987.<br />
The trajectory from latecomer to what the<br />
GFCI characterised last month as the most<br />
successful of the Caribbean IFCs, has been<br />
well documented and indeed experienced<br />
by many of us in this room.<br />
But what were the hallmarks that<br />
catapulted the BVI from virtual obscurity as<br />
a place “fit only for a bird sanctuary” to a<br />
major contender for high honours on the<br />
Top 100 list of successful offshore finance<br />
centres?<br />
Of course the introduction of appropriate<br />
legislation was the beginning of the climb<br />
up the ladder, but legislation alone could<br />
not have ensured success. The government<br />
of the day and successive governments<br />
since then established and maintained<br />
close and productive working relationships<br />
with the private sector.<br />
By consulting widely with the technical<br />
experts who have first-hand commercial<br />
knowledge of clients and their needs,<br />
governments are able to develop and<br />
introduce attractive products facilitated<br />
by modern, innovative legislation and<br />
hospitable working environments for the<br />
plethora of experts needed to underpin the<br />
industry.<br />
While the islands of the Caribbean<br />
were playing catch up with the Channel<br />
Islands, their political status became a<br />
deeper cause for concern in Whitehall.<br />
Political correctness became imperative<br />
and the defences against increasingly<br />
unacceptable governance arrangements<br />
with former colonies, led to a restructuring<br />
76 | <strong>Lawyer</strong><strong>Issue</strong> 77
International Finance Centres<br />
of relationships with Britain that saw more<br />
attuned to the demands of the industry<br />
rapidity with which the provision of financial<br />
of the arguments in support of the most<br />
autonomy vested in local governments,<br />
and in most centres made the adaptations<br />
services from outside of the large Western<br />
dramatic measures – public registers of<br />
which were encouraged to develop financial<br />
necessary to sustain it. So, technology<br />
cities has become reviled and despicable<br />
beneficial owners – tend to cloud the<br />
services as an assured revenue stream and<br />
and infrastructure are added to the list of<br />
in the eyes of international organisations<br />
underlying issues and the practical realities.<br />
a path away from aid and grants from the<br />
requisite characteristics for a successful IFC.<br />
that have come in the last ten years or so<br />
In the Caribbean – particularly in Cayman,<br />
UK.<br />
to regard what was once the legitimate<br />
Bermuda and the BVI identification<br />
In the meantime they all became truly<br />
avoidance of taxation and the preservation<br />
evidence of beneficial ownership has long<br />
The new status of British Overseas<br />
international – providing products and<br />
of wealth for future generations as<br />
been the norm, although such information<br />
Territories brought with it tensions over<br />
services that were sought after and used by<br />
abominations.<br />
is confidentially held not publicly available.<br />
citizenship and control of finances. The<br />
global corporations and UNHWIs as parts of<br />
governments of BOTS were however<br />
complex cross-border transactions.<br />
International organisations have reacted<br />
There are very good reasons to maintain<br />
urged not to rock the boat as the tenuous<br />
with uncharacteristic speed and resolve to<br />
that position, but NGOs are not satisfied<br />
financial services industry could soon<br />
In most Caribbean financial centres there<br />
reverse well established tenets of privacy,<br />
with such reasons and revenue hungry<br />
evaporate if the perceived stability of British<br />
are significant developments in corporate<br />
confidentiality and legitimate succession<br />
jurisdictions have become the most ardent<br />
status and the presence of Her Majesty the<br />
and trust law not only at the legislative<br />
planning. Statutory provisions onshore that<br />
supporters of the positions adopted by the<br />
Queen as Head of State were threatened.<br />
level, but also in jurisprudence as a<br />
saw a flight of capital to emerging financial<br />
likes of Tax Justice Network and ICIJ.!<br />
So, political stability became an important<br />
result of litigation involving multinational<br />
centres and to “tax havens” have been<br />
characteristic of the successful IFC.<br />
corporations and individuals who choose<br />
repealed and criminal liabilities imposed on<br />
In the meantime the advisability of<br />
to litigate their causes in the well renowned<br />
actions that were once perfectly legitimate.<br />
maintaining an appropriate balance<br />
Easy access to markets and the<br />
courts of the region.<br />
between the need for regulation and<br />
development of niche products also<br />
! Disclosure of the identity of beneficial<br />
the benefits of international business, is<br />
became important with each of the<br />
Indeed, the establishment in the BVI of<br />
owners is now atop the agenda of all<br />
overlooked and decried as a tax dodger’s<br />
Caribbean sectors developing a specialist<br />
the Commercial Division of the Eastern<br />
political parties in Europe; meanwhile, the<br />
anthem.<br />
track. While competition was keen,<br />
Caribbean Supreme Court has become a<br />
real powerhouses of the Asian economy,<br />
specialisation afforded room at the table<br />
significant feature of the BVI offer winning<br />
Singapore and Hong Kong, having<br />
Professor Jim Hines, no stranger to this<br />
for everyone and, although proximity to<br />
accolades from prominent commercial<br />
outstripped the growth and development of<br />
Conference, published a significant work in<br />
the US east coast was a huge advantage<br />
litigators globally. So reliable judicial<br />
the Caribbean IFCs, have only now begun to<br />
2009 analysing the role of IFCs in the global<br />
to some, others found Asian markets very<br />
systems are yet another sought after<br />
emulate the regulatory provisions that have<br />
economy. He has concluded that:<br />
receptive to a cost effective product and<br />
feature of the successful IFC.<br />
been in place in the Caribbean for more<br />
the mobile expertise that resided in the<br />
than 15 years – and they deserve full credit<br />
“Offshore centres act as conduits for<br />
Caribbean but commuted frequently to<br />
Unfortunately, as with the larger and more<br />
for that, For the Caribbean IFCs, however, it<br />
global trade and ease international<br />
Hong Kong and Singapore which was then<br />
accepted financial centres such as London<br />
is a different story –no sooner is the ink dry<br />
capital flows. International joint ventures<br />
still called the Far East.<br />
and New York, there have been those who<br />
on one sanctioned agreement than another<br />
are often structured as companies in an<br />
abuse the systems for their own benefit<br />
imposition is pushed through the pipeline.<br />
offshore jurisdiction when neither party in<br />
The rapid advances of technology and<br />
and to conduct illicit activity. However, the<br />
Keeping pace with the international<br />
the venture wishes to form the company<br />
the flexible co-operative relationship with<br />
foresight of the region’s governments saw<br />
“common standards” is not for the<br />
in the other party’s home jurisdiction<br />
Cable & Wireless allowed Caribbean IFCs<br />
the introduction of regulation as early as<br />
fainthearted, nor for the unfit. Indeed we<br />
for fear of unwanted tax consequences.<br />
to capitalise on the modernisation of<br />
1990, such that some jurisdictions were<br />
may well have come to the point where only<br />
Although most offshore financial centres<br />
communications with the introduction of<br />
found to be ahead of the curve by the time<br />
the super-strong will survive.<br />
still charge little or no tax, the increasing<br />
the internet (which eliminated the arrival of<br />
Whitehall chose to become involved.<br />
sophistication of onshore tax codes has<br />
faxes stamped “Top Most Urgent” on the<br />
While the demands of stringent global and<br />
meant that there is often little tax benefit<br />
desks of lawyers all over the Caribbean).<br />
Since 1990 the introduction of appropriate<br />
some may say extra territorial regulation<br />
relative to the cost of moving a transaction<br />
regulation has been an increasingly<br />
have begun to impact the growth and<br />
structure offshore.”<br />
The burgeoning populations of the new IFCs<br />
important requirement for the preservation<br />
development of all IFCs, it is particularly<br />
put a strain on the islands’ infrastructure<br />
of the industry around the world. However<br />
true that allegations of over-regulation fall<br />
Where then are the benefits or advantages<br />
but governments remained sensitive and<br />
many people are still stunned by the<br />
on deaf ears while in fact the politicisation<br />
of doing business with IFCs in the<br />
78 | <strong>Lawyer</strong><strong>Issue</strong> 79
International Finance Centres<br />
foreseeable future? How can the success<br />
of corporate vehicles that were flexible<br />
those in Europe, the USA and Latin America<br />
niches that have come to define each of us.<br />
of the 90s and early millennium days<br />
enough to submit to jurisdictions other<br />
annually over the next five years.<br />
be sustained? Is there a demand for the<br />
than that of their domicile.<br />
Just as those service providers who<br />
services provided by these centres? Are<br />
predicted the present environment became<br />
the markets available and accessible? Can<br />
The International Business Company<br />
nimble enough to adapt whether by<br />
IFCs survive? What must IFCs do to ensure<br />
and the so called “offshore trust” were<br />
The VISTRA Group believes that:<br />
downsizing, outsourcing, consolidating or<br />
their survival? Of what value today are the<br />
devised as a means of providing just the<br />
even expanding, so too jurisdictions must<br />
characteristics that helped achieve their<br />
privacy, confidentiality and tax efficiency<br />
“Part of staying relevant means engaging<br />
become more nimble and proactive rather<br />
success? Does the new regulatory paradigm<br />
that such markets demanded. The wave<br />
with China, still the fastest-growing source<br />
than reactive to the winds of change.<br />
require “reinvention” of the IFC?<br />
was sustained right through to the<br />
of new business yet a constituency that<br />
Global Financial Crisis in 2007, but while<br />
is now looking to put capital to work<br />
The VISTRA Group says:<br />
The viability and success enjoyed by IFCs<br />
growth slowed, it can nowhere be said<br />
overseas as much as find ways to bring<br />
between 1984 and 2007 were in no small<br />
that demand has atrophied – it may have<br />
it in. This amounts to a more global<br />
“Jurisdictions face a similar battle to<br />
way due to the emergence of a class of<br />
mutated somewhat, but the real demand<br />
opportunity, which can be tapped by<br />
(service providers) to prove they are<br />
persons particularly in Asia and Latin<br />
for financial services has not dried up.<br />
industry participants almost irrespective<br />
relevant in an increasingly complex<br />
America who have come to be known as<br />
of their location.”<br />
commercial environment. A number of<br />
HNWIs or UHNWIs.<br />
A significant industry leader, the VISTRA<br />
offshore financial centres have already<br />
Group of Hong Kong, has for the last five<br />
Nor is China the only growth market.<br />
carved out niches for themselves… and it<br />
Being more commercially minded and<br />
years conducted a survey of the financial<br />
Most global economic indicators show a<br />
is difficult to see them being supplanted.<br />
business savvy than the wealthy of the 18th<br />
services industry in offshore financial<br />
great surge in wealth in Africa, the Middle<br />
Others must identify a unique selling point<br />
and 19th Century, they became increasingly<br />
centres. In their 2014 report “Looking<br />
East and Latin America. Notwithstanding<br />
and invest in it, or face extinction.”<br />
involved not only in cross border<br />
Forward: an industry on the move”,<br />
political instability, business development is<br />
transactions but in the movement away<br />
respondents were split 50/50 between<br />
progressing rapidly across Africa with clear<br />
I believe that deeper and closer<br />
from the “socialist” 60s and 70s, where<br />
Asia and the rest of the world. The report<br />
indications that burgeoning wealth will see<br />
collaboration with the private sector is<br />
Government raised taxes on the rich in<br />
asserts that:<br />
increased demand for financial services<br />
needed in order to assist governments to<br />
order to provide programmes for the poor.<br />
in those jurisdictions where legislation<br />
develop and introduce legislative regimes<br />
“When asked to name the top 10 locations<br />
does not yet provide the sort of flexible<br />
that will win new business and service the<br />
Tax efficiency became an imperative, and<br />
for client origination over the next five<br />
succession planning options with which<br />
demands of longstanding clients.<br />
the demand for financial services that<br />
years, 40% of respondents opted for China,<br />
most of us are familiar.<br />
facilitated such efficiencies as well as<br />
well ahead of the United States (US) and<br />
Collaboration must be real not cosmetic.<br />
the protection of assets from rapacious<br />
the United Kingdom (UK) in second and<br />
So there are markets, but the burning<br />
Legislators and civil servants must have<br />
governments willing not only to impose<br />
third, with 13% and 10%, respectively”.<br />
question is, can Caribbean IFCs provide<br />
significant buy in to the mission of every<br />
high taxes, but also to confiscate private<br />
what these markets want? Confidentiality is<br />
government to preserve and upgrade the<br />
wealth, increased exponentially.<br />
The report notes that the survey results<br />
gone, but notwithstanding the diminishing<br />
jurisdiction in order to ensure ongoing<br />
are not skewed because of a heavier Asian<br />
returns on selling confidentiality, the<br />
success. Facilitating the improved growth<br />
So far as wealthy private citizens especially<br />
response. It is clear from an analysis of the<br />
products and services of IFCs are still very<br />
and development of the financial services<br />
in Latin America were concerned, the threat<br />
respondents that industry practitioners<br />
much in demand and will continue to be.<br />
sector in any IFC will require a genuine<br />
of kidnapping – a measure adopted by<br />
from the Middle East as well as the<br />
effort that will involve the entire population.<br />
many “revolutionaries” for the purpose<br />
Caribbean share the views of their Asian<br />
It is undeniable that a wealth of technical<br />
of raising revenues –was a growing and<br />
colleagues that more and more business<br />
expertise resides in all the various facets of<br />
Governments must be willing to reach<br />
predominant concern.<br />
will come directly from China.<br />
the industry in Cayman, Bermuda, Bahamas<br />
across the aisles to embrace their<br />
and BVI, so perhaps then a key to success<br />
colleagues on the opposition benches in<br />
Legal and financial advisers in the Global<br />
Journalists from serious magazines such<br />
in the new paradigm is for that expertise<br />
order to solidify leadership in a common<br />
Financial Centres initiated, encouraged and<br />
as GQ, The Economist and Forbes all agree<br />
to be innovative and assertive – offering<br />
goal. Westminster model democracies<br />
supported the use of low tax jurisdictions<br />
that the number of new millionaires and<br />
new products, better quality services and<br />
do not tend to do that very well, but<br />
as banking options but also as sources<br />
billionaires in China will continue to outstrip<br />
generally diversifying from the narrow<br />
Caribbean IFCs (perhaps all the nations of<br />
80 | <strong>Lawyer</strong><strong>Issue</strong> 81
International Finance Centres<br />
the Caribbean) need only look eastwards to<br />
entire society and specialisation is not only<br />
three or four times in a career in order to<br />
on the value of integrity and a virtually<br />
Singapore for an example of how to ensure<br />
encouraged but fully supported.<br />
take advantage of opportunities offered<br />
corruption free society. One of them<br />
the success of an IFC.<br />
in every recognised jurisdiction from<br />
describes the secret of Singapore’s success<br />
IFCs wishing to be successful in the<br />
London to Uruguay and Zurich to Shanghai.<br />
this way:<br />
Taking advantage of such fortuitous factors<br />
coming decade need to do the same thing.<br />
Therefore the successful IFCs must do<br />
as location, opportunity and timing, the<br />
Emphasise education from the cradle to the<br />
everything to attract, empower and retain<br />
“What explains a willingness on the part of<br />
late Singaporean President Lee Kuan Yew<br />
grave. The general population must learn,<br />
highly trained work forces.<br />
so many foreigners to park their funds and<br />
built a nation from scratch – retaining<br />
know and understand the industry and its<br />
their wealth in Singapore? The explanation<br />
the fundamental legacies of colonialism<br />
significance to the jurisdiction and be willing<br />
The second characteristic that Singapore<br />
lies in an ability to trust Singapore as a<br />
that he found advantageous but ruling in<br />
to support their governments’ commitment<br />
emphasised was discipline – not only moral<br />
place where promises are kept, the rule<br />
a disciplined way, he emphasised a few<br />
to enhancing opportunities for the industry<br />
and ethical discipline, but fiscal discipline.<br />
of law maintained, justice is assured,<br />
things that made Singapore an enormous<br />
– especially where the industry is the<br />
Singapore began as a poor nation and Lee<br />
government policies are predictable.<br />
success, and solidified his legacy. Firstly he<br />
main revenue earner. Programmes must<br />
Kuan Yew taught his people to act poor. A<br />
Singapore offers reliability, integrity,<br />
took steps and made huge investments,<br />
be introduced at primary and secondary<br />
former head of the Singapore civil service<br />
quality, hard work and trustworthiness.<br />
as he put it, “to develop Singapore’s only<br />
school level that expose young people to<br />
and now a significant business leader in<br />
These are what make for long-term<br />
significant resource, its people”.<br />
the sector.<br />
Singapore, Lim Siong Guan spoke of Lee<br />
relationships.<br />
Kuan Yew’s legacy at a Business Times<br />
He invested in education. In eulogising<br />
In Singapore, teachers’ salaries are so<br />
conference on March 31st.<br />
Trust is the root of relationships, and<br />
Lee Kuan Yew recently, a former Executive<br />
structured as to attract only the best<br />
honour is the foundation of trust, where<br />
Vice-Dean of the Lee Kuan Yew School of<br />
graduates for the jobs on offer. In all IFCs,<br />
He told delegates that the starting mind<br />
the people, businesses and government<br />
Public Policy at the National University of<br />
Community Colleges must develop curricula<br />
set of Singapore in the 1960s was that of<br />
deliver on their word of honour.<br />
Singapore, said: “it should be emphasised<br />
that equip students for successful entry into<br />
a poor man: “life is uncertain, earn what<br />
Singapore’s place in the community of<br />
that Singapore’s education system was<br />
the industry.<br />
you can, save what you can, spend on what<br />
nations obviously depends not just on<br />
not designed de novo by Lee Kuan Yew<br />
you need, we never know what tomorrow<br />
trust, but on being able to mobilise talent,<br />
and his colleagues. Rather, it was built on<br />
Organisations like ICSA, CLT and STEP can<br />
will bring, so be prepared and save for the<br />
and to synergise the efforts of workers,<br />
the very solid foundations inherited from<br />
help with that. STEP certifications are now<br />
rainy day.”<br />
employers and government under superior<br />
Singapore’s British colonial past. I<br />
the gold standard for every employer in<br />
leadership. But honour has to be the<br />
the industry from Bermuda to Brazil and all<br />
The attitude to wealth persists even now<br />
starting point and the abiding foundation.”<br />
n contrast to many of his contemporaries<br />
points in between.<br />
that Singapore is perceived to be a rich<br />
among post-colonial leaders, Lee Kuan<br />
nation. Although Singaporeans may have<br />
Alongside Singapore at the top of the<br />
Yew was not afraid to embrace whatever<br />
The new realities that impact all IFCs<br />
become more relaxed in their consumer<br />
successful IFCs of the future sits Hong<br />
elements from that past that would prove<br />
demand highly specialised services. Clients<br />
habits, on the part of the government there<br />
Kong. Benefitting from its special<br />
useful to the nation-building enterprise.<br />
are no longer bound by old loyalties but<br />
is a fierce determination not to spend the<br />
relationship with and close proximity<br />
Nowhere is this approach more evident<br />
go shopping for jurisdictions that can offer<br />
country back in to poverty.<br />
to China, Hong Kong enjoys an enviable<br />
than in education.”<br />
such services not only at the right price, but<br />
position. It is the IFC most likely to benefit<br />
most often from a single shop.<br />
According to Mr Lim, they are<br />
most directly from the explosion of wealth<br />
Today, Singapore with a population of five<br />
“understandably, concerned that<br />
in China.<br />
million people, boasts among its several<br />
Service providers are increasingly becoming<br />
Singapore could be setting itself up to fall<br />
tertiary and specialist level institutions, two<br />
multi-jurisdictional so as to serve their<br />
into a situation where the country is in<br />
It has become the destination of choice<br />
universities that consistently rank among<br />
highly mobile global clients from wherever<br />
fact poor, but the Government provides<br />
for most expatriates seeking to work in<br />
the world’s top 75 institutions of higher<br />
they choose to reside.<br />
for the people as though they are rich”.<br />
offshore financial services and the last ten<br />
learning – the same as China, Japan and<br />
Perhaps Caribbean governments and IFCs<br />
years have seen unprecedented levels of<br />
Germany.<br />
Practitioners too have become more<br />
need to pay attention.<br />
migration from Europe and the Caribbean<br />
mobile and flexible. More and more people<br />
to Hong Kong.<br />
Singapore’s tertiary level institutions span<br />
are willing to step outside their inherent<br />
Finally in relation to Lee Kuan Yew, his<br />
the gamut of relevant training needs for the<br />
comfort zones and move across oceans<br />
eulogists have placed great emphasis<br />
Global trust corporations and law firms<br />
82 | <strong>Lawyer</strong><strong>Issue</strong> 83
International Finance Centres<br />
are making huge investments in their Asian<br />
operations and setting up in Hong Kong has<br />
become an imperative to success for many<br />
heretofore traditionally conservative and<br />
quintessentially Western entities such as<br />
the “magic circle” accounting and law firms.<br />
So globalisation is another key to success<br />
for IFCs.<br />
The global application of new and more<br />
inflexible regulatory standards affects all<br />
IFCs. Jurisdictions that were once secure<br />
in their niche markets must now re-invent<br />
themselves to create new attractiveness;<br />
. the things that worked for us all in<br />
the 90s are no longer the only reliable<br />
characteristics for the new millennium.<br />
Location, legislation, political stability, public<br />
private partnerships, and soft selling, must<br />
now all be supplemented and underpinned<br />
by expertise, dynamism, assertiveness,<br />
client focused products, synergies between<br />
governments and service providers,<br />
sophisticated infrastructure and superior<br />
leadership. It’s not enough simply to be<br />
user friendly.<br />
Jurisdictions now have to work much<br />
harder to motivate their populations both<br />
indigenous and expatriate to develop and<br />
maintain hospitable environments for<br />
healthy survival of their industry.<br />
It will not be enough to introduce<br />
innovative legislation, it will be necessary<br />
to train the resources that will support the<br />
management and sale of those products<br />
from within their jurisdictions.<br />
Ramping up educational opportunities at<br />
every level, insisting on high standards of<br />
qualifications for all industry practitioners<br />
and facilitating, genuinely and reliably<br />
facilitating, the transplanting of expertise<br />
into their jurisdictions in order to enhance<br />
the global offer – all these things must<br />
simultaneously impact the policies geared<br />
to sustaining growth and development of<br />
the financial services sectors of all IFCs.<br />
Success then will be defined not only by<br />
longevity but by the key indicators that<br />
keep an IFC recognised and recognisable as<br />
a “major player”:<br />
Is it a stable, reliable, honest environment in<br />
which to do business?<br />
Is the legislation modern, flexible and<br />
innovative?<br />
Is the expertise available to facilitate use of<br />
the jurisdiction?<br />
Are the “products” relevant and attractive?<br />
Is regulation appropriate and<br />
accommodating?<br />
Are services world class and efficient?<br />
Is the judicial system trustworthy and reliable?<br />
Can the jurisdiction provide everything the<br />
client needs?<br />
Competition is fierce. But imagine the<br />
possibilities if we faced adversity together<br />
rather than letting old school philosophies<br />
impact our policies. Is there really still room<br />
for “divide and rule” in the 21st Century?<br />
Caribbean IFCs so often allow themselves to<br />
be picked off hoping that winning brownie<br />
points with the FCO will ensure some<br />
secure position, But all that does is ensure<br />
that even harsher measures will be adopted<br />
sooner rather than later.<br />
Imagine if we’d all held hands and run the<br />
course together! We might have saved<br />
confidentiality! But again here we are:<br />
Recognisable brands cannot continue to<br />
rely on traditional trade ties.<br />
Everyone must engage in more direct<br />
interface with the leading players in the<br />
target markets –including the governments<br />
– in order to secure viable commercial<br />
relationships advantageous not only to the<br />
seller but to the buyers as well.<br />
Clients too will need to be educated to the<br />
need for substance over form. Advisers will<br />
need to become far more closely involved<br />
with all aspects of clients’ operations in<br />
order to deliver more comprehensive<br />
practical advice.<br />
Hélène Anne Lewis<br />
Partner at SimonetteLewis<br />
T: +1 284 494 4367<br />
Email: heleneannelewis@simonettelewis.com<br />
Cross disciplinary practices will continue to<br />
emerge as lawyers, accountants and estate<br />
planners will need to work closely together<br />
across disciplines as well as across borders.<br />
There is much work to be done but for<br />
those who are willing and able to reinvent<br />
themselves, the rewards are possibly larger<br />
than ever.<br />
Just remember: Hell is where the<br />
regulators are in Singapore the marketers<br />
are BVI and the products are from Gibraltar<br />
but Heaven is where the regulators are<br />
Guernsey, the products are BVI and the<br />
marketers are Bermuda.<br />
Hélène Anne Lewis is a national of Trinidad and Tobago and English qualified lawyer of more than twenty-five years<br />
who has been practising in the BVI since 1990. She is the Founding Partner of SimonetteLewis a boutique law practice<br />
that serves as BVI legal advisers to private banks in Europe and Asia as well as to private wealth advisers and high<br />
net worth individuals onshore. Mrs Lewis’ practice includes advising on property, trust, probate and corporate<br />
matters involving BVI structures.With her Litigation Partner, she has also appeared in several high value trust and<br />
civil litigation matters in the Supreme Court of the Virgin Islands and the OECS Court of Appeal. She has presented to<br />
several conferences on Trust, Compliance and Corporate issues and is a member of the organising committee of one<br />
of the trust industry’s most successful conferences – the STEP Caribbean Conference which she has chaired twice in<br />
her capacity as Chairman of the BVI Branchof the Society of Trust and Estate Practitioners (“STEP”). She is currently a<br />
member of the STEP Board of Directors and Chair of STEP Worldwide.<br />
After admission to the Bar at Gray’s Inn the former Hélène Anne Simonette returned to Trinidad where she was<br />
at various times, State Counsel in the Attorney General’s Chambers, Legal Advisor to the Ombudsman and to the<br />
Leader of the Opposition. After having been the Senior Crown Counsel and sometimes Acting Attorney General of<br />
the Turks and Caicos Islands, she joined a prominent BVI law firm but established her own practice (SimonetteLewis)<br />
in February 2007. Mrs Lewis has served as President of the B.V.I. Bar Association, of which she was previously<br />
Secretary for seven years and has also served as Vice President and Treasurer of the OECS Bar Association, a<br />
regional association of the Bar Associations of the nine countries which comprise the Organisation of Eastern<br />
Caribbean States. She has served as a member of the Council and Board of Directors of the Society of Trust and<br />
Estate Practitioners and has the distinction of being elected in November 2012 to be Chairman of the Society of Trust<br />
and Estate Practitioners. She was re-elected to the post in November 2013 and stood down in November 2014. She<br />
currently services as a Vice President of STEP Worldwide and Chairman of the Branch Development Committee.Mrs.<br />
Lewis is also admitted to practice in St. Kitts & Nevis.<br />
84 | <strong>Lawyer</strong><strong>Issue</strong> 85
Trusts<br />
DO TRUSTS HAVE A FUTURE IN THE<br />
CONTEXT OF THE 4TH AML DIRECTIVE?<br />
by Monica Galea John<br />
It is an undisputed fact that money laundering is a major hindrance to a<br />
stable EU market. Money laundering distorts economies by allowing the<br />
corrupt to legitimise the illegal. It has unfortunately become increasingly<br />
common to witness the world’s most corrupt to launder their funds derived<br />
from illicit sources into financial centres.<br />
The Fourth EU Anti Money Laundering<br />
Directive (the “Directive”), which has just<br />
made its way through the EU’s legislation,<br />
is designed to update and improve the EU’s<br />
Anti-Money Laundering (AML) and Counter-<br />
Terrorist Financing (CTF) laws.<br />
The changes are in line with the<br />
recommendations issued in 2012 by the<br />
Financial Action Task Force (FATF) which<br />
is the international global AML and CTF<br />
standard-setting body.<br />
What becomes immediately clear from<br />
an overview of the Directive is that it<br />
obliges, for the first time, EU member<br />
states to maintain central registers listing<br />
information on the ultimate beneficial<br />
owner of corporate and other legal entities,<br />
as well as trusts in certain cases.<br />
Interestingly enough, it appears that these<br />
central registers were only included by<br />
MEPs during the negotiations and were not<br />
envisaged in the European Commission’s<br />
initial proposal.<br />
Clearly, the aim is to enhance transparency<br />
and target those criminals in Europe who<br />
have for many years used the anonymity of<br />
offshore companies and accounts to hide<br />
their financial dealings.<br />
In the words of Krisjanis Karins (EPP,<br />
LV) (Economic and Monetary Affairs<br />
Committee rapporteur) “Creating registers<br />
of beneficial ownership will help to lift<br />
the veil of secrecy of offshore accounts<br />
and greatly aid the fight against money<br />
laundering and blatant tax evasion”.<br />
Essentially, a central register of an EU<br />
country would contain a list of the ultimate<br />
owners of companies which register<br />
would be accessible to the competent<br />
authorities and their financial intelligence<br />
units (without any restriction) as well<br />
as to “obliged entities” (such as banks<br />
conducting their “customer due diligence”<br />
duties).<br />
Additionally, any person or organisation<br />
who can demonstrate a “legitimate<br />
interest” (such as investigative journalists<br />
and other concerned citizens) with respect<br />
to money laundering, terrorist financing<br />
and the associated predicate offenses –<br />
such as corruption, tax crimes and fraud –<br />
are granted access to beneficial ownership<br />
information, such as the beneficial owner’s<br />
name, month and year of birth, nationality,<br />
residency and details on ownership. Timely<br />
access to beneficial ownership information<br />
should be ensured in ways which avoid any<br />
risk of tipping-off the company concerned.<br />
In terms of the Directive, any exemption<br />
to the access provided by member states<br />
would be possible only on a case by case<br />
basis in exceptional circumstances. Access<br />
to the information on beneficial ownership<br />
shall be in accordance with data protection<br />
rules and may be subject to online<br />
registration and to the payment of a fee. It<br />
is very dangerous that the Directive failed<br />
to define “legitimate interest” as this may<br />
give rise to confusion and uncertainty as<br />
well as potential room for abuse.<br />
The persons who are able to demonstrate<br />
a legitimate interest should have access to<br />
information on the nature and extent of<br />
the beneficial interest held consisting of its<br />
approximate weight. Member States may,<br />
under national law, allow for access that<br />
is wider than the access mandated under<br />
this Directive. The UK, for example, has<br />
opted for a publicly accessible register of<br />
corporate beneficial ownership.<br />
As far as trusts are concerned, the FATF<br />
recommendations have likewise obliged<br />
countries to take measures to prevent the<br />
misuse of legal arrangements for money<br />
laundering or terrorist financing. The<br />
FATF recommendations have specified<br />
that countries should ensure that there is<br />
adequate, accurate and timely information<br />
on express trusts, including information on<br />
the settlor, trustee and beneficiaries that<br />
can be obtained or accessed in a timely<br />
fashion by competent authorities.<br />
This was faithfully transposed in Articles<br />
30 of the directive which provides that<br />
Member States shall require that trustees<br />
of any express trust governed under their<br />
law obtain and hold adequate, accurate<br />
and current information on beneficial<br />
ownership regarding the trust.<br />
This information shall include the identity<br />
of the settlor, the trustee(s), the protector<br />
(if any), the beneficiaries or class of<br />
beneficiaries, and of any other natural<br />
person exercising effective control over the<br />
trust.<br />
86 | <strong>Lawyer</strong><strong>Issue</strong> 87
Trusts<br />
The Directive further provides that Member<br />
States shall ensure that trustees disclose<br />
their status and provide in a timely manner<br />
the information referred to above to<br />
obliged entities (such as banks in the course<br />
of undertaking customer due diligence<br />
measures), when, as a trustee, the trustee<br />
forms a business relationship or carries<br />
out an occasional transaction above the<br />
threshold set out in points (b), (c) and (d) of<br />
Article 111 and accessed in a timely manner<br />
by competent authorities and FIUs.<br />
This has inevitably triggered a debate as<br />
to how to reconcile this easy access to<br />
information with the right to confidentiality<br />
especially when once bears in mind that<br />
that trusts are widely used to protect the<br />
interests of vulnerable family members.<br />
As professionals, we all appreciate the<br />
importance of having measures in place to<br />
prevent the movement of illicit funds, and<br />
commit to ensuring that such measures are<br />
effective. We are experiencing on a daily<br />
basis the loss of human lives caused by<br />
terrorist attacks and we all feel this innate<br />
drive to do our part to curb the flow of<br />
funds to terrorist organisations and help<br />
curb these atrocities.<br />
Equally, as professionals, we have a<br />
commitment to preserve the legitimate<br />
confidentiality of our clients’ financial<br />
affairs. This will be an ongoing dilemma<br />
that most are confronted with.<br />
It is interesting to note that a much wider<br />
debate is under way in many countries<br />
on whether it is time to give power to<br />
governments to monitor email traffic to<br />
fight serious crime at the clear expense<br />
of the right of individuals to privacy. As a<br />
profession, we need to recognise that we<br />
are confronted by similar dilemmas and<br />
need to help develop effective solutions.<br />
Thankfully, the mandatory register of trusts<br />
applies only to taxable trusts and it will not<br />
be public. In terms of the Directive, Member<br />
States shall require that the information<br />
mentioned above is held in a central<br />
register only when the trust generates tax<br />
consequences.<br />
The central register shall ensure timely<br />
and unrestricted access by competent<br />
authorities and FIUs, without alerting the<br />
parties to the trust concerned. Moreover,<br />
information on trusts will only be available<br />
to competent authorities. Ultimately this<br />
information could nonetheless be collected<br />
by tax authorities as a result of automatic<br />
exchange of tax information agreements<br />
and therefore one does not envisage that<br />
the impact on the institute of trusts will be<br />
too major in this sense.<br />
The abovementioned strict limitations<br />
placed on access to trust registers were<br />
naturally welcomed by trust practitioners<br />
especially when one considers that trusts in<br />
common law countries are regularly used<br />
to protect vulnerable beneficiaries, some<br />
of whom could be at significant risk if their<br />
identities were published. Therefore said<br />
limitations allowed families to maintain<br />
their fundamental right to respect for a<br />
private family life.<br />
Whilst the focus is on the Directive and<br />
therefore the direct impact on EU countries,<br />
the pressure to allow public access to<br />
beneficial ownership information is<br />
spreading around the world in the wake<br />
of the revised FATF Recommendations.<br />
To mention a few, it appears that the<br />
government of the British Virgin Islands is<br />
planning to introduce some new measures<br />
whilst the government of the Cayman<br />
Islands said it will work on the Directive. It is<br />
clear to everyone that we’re living in an era<br />
where there’s nowhere to run to or hide!<br />
[i]<br />
(C) in the case of persons trading in goods,<br />
when carrying out occasional transactions<br />
1 Article 11 provides that “Member States<br />
in cash amounting to<br />
shall ensure that obliged entities apply<br />
customer due diligence measures in the<br />
Eur10,000 or more, whether the transaction<br />
following cases:<br />
is carried out in a single operation or in<br />
several operations which appear to be<br />
(b) when carrying out an occasional<br />
linked;<br />
transaction:<br />
(d) for providers of gambling services,<br />
(i) amounting to Eur15,000 or more,<br />
upon collection of winnings, the wagering<br />
whether that transaction is carried out in<br />
of a stake or both, when carrying out<br />
a single operation or in several operations<br />
transactions amounting to Eur2000 or<br />
which appear to be linked; or<br />
more, whether the transaction is carried<br />
out in a single operation or in several<br />
(ii) which constitutes a transfer of funds, as operations which appear to be linked.[i]<br />
defined in point (9) of Article 3 of Regulation<br />
(EU) 2015/847 of the European Parliament<br />
and of the Council exceeding Eur1000;<br />
Monica Galea John<br />
Partner at French & French Advocates<br />
T: +356 21 241 232<br />
Email: monica.galeajohn@fenlex.com<br />
Dr. Monica Galea John is a partner at French & French Advocates, a leading multi-disciplinary Maltese law firm<br />
established in 1891, where she heads the Compliance Team within the Financial Services Department. She graduated<br />
in 1999 as a Doctor of Laws from the faculty of Laws of the University of Malta and holds a masters of Arts in<br />
Financial Services from the same university. Her areas of practice include corporate law, corporate finance, mergers &<br />
acquisitions financial services and banking law, trusts & estate planning, prevention of money laundering & financial<br />
terrorism requisition, general commercial law and family mediation.<br />
She is a member of the institute of Financial Services Practitioners of Malta and sits on the Prevention of Money<br />
Laundering & Financial Terrorism Sub-Committee of the Institute. She acts as a Compliance Officer and Company<br />
Secretary for a number of financial services entities licensed by the Malta Financial Services Authority. Dr. Galea John’s<br />
other professional memberships include the Camera degli Avvocati of Malta and Member of the Society for Trust &<br />
estate Practitioners<br />
88 | <strong>Lawyer</strong><strong>Issue</strong> 89
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