Lawyer Issue
Malta – an Island of Opportunities Injunctions in Canada Can Reach Far and Wide Resolving Real Estate Disputes in Indonesia Q&A
- Page 2: Contents Contact www.lawyerissue.co
- Page 6: Company Formations of Companies, in
- Page 10: Trusts The Bahamas - Protecting the
- Page 14: Corporate Governance listed compani
- Page 18: Intellectual Property Injunctions i
- Page 22: Intellectual Property various situa
- Page 26: Oil and Gas • destroying or sabo
- Page 30: Real Estate and Construction Law ma
- Page 34: Company Formations • the PSC sup
- Page 38: Company Formations Special challeng
- Page 42: Anti-trust/Competition Technology L
- Page 46: Franchise Law sections, including g
- Page 50: Mediation the representatives are f
Malta – an Island of<br />
Opportunities<br />
Injunctions in Canada Can<br />
Reach Far and Wide<br />
Resolving Real Estate Disputes in<br />
Indonesia Q&A
Contents<br />
Contact<br />
www.lawyerissue.com<br />
Malta – an Island of Opportunities 4<br />
The Bahamas – Protecting the Confidentiality of Trusts 10<br />
Developments and Critical <strong>Issue</strong>s of Corporate Governance in Italy 13<br />
Injunctions in Canada Can Reach Far and Wide 18<br />
Gas Regulations of Bangladesh 23<br />
Recent Change of Regulations and Practice in Construction and Energy<br />
in Japan 27<br />
People with Significant Control Register for UK companies 32<br />
Valuing a Component Technology of an Integrated Manufacturing Process 40<br />
Franchise Hong Kong and China 45<br />
Mediation – Practical Guidelines, Part 1: Basic principles and preparing for the<br />
mediation hearing 48<br />
Mediation – Practical Guidelines, Part 2: The mediator – role and limits as the<br />
moderator of the process of reaching an agreement 52<br />
Seabed Mining and the application of Maritime Law Concepts 59<br />
Recent Changes in the Competition Regulatory Framework in Latvia 66<br />
Resolving Real Estate Disputes in Indonesia Q&A 71<br />
50 Jurisdictions, 300 Million Potential Customers: Unlocking One of the<br />
World’s Biggest Markets, The United States of America 76<br />
Can Parents Contractually Select the Forum for A Custody Dispute? 80<br />
Quantum awards in international arbitration – how can arbitrators and<br />
experts get it right? 84<br />
Environmental Legal Risk in Mergers and/or Acquisitions 88<br />
Structuring European M&A activity: why Gibraltar? 91
Company Formations<br />
Malta – an Island of Opportunities<br />
By Dr. Tonio Ellul,<br />
Dr. Louise Ellul Cachia Caruana<br />
1. Corporate Vehicles<br />
Over the years, Malta has developed a<br />
strong reputation as a financial services<br />
centre offering an attractive and<br />
competitive environment for operators<br />
looking to set-up a business or invest in a<br />
European Union compliant jurisdiction.<br />
The benefits of selecting Malta are<br />
numerous, including a quick and efficient<br />
incorporation process, comparatively<br />
low running costs, a skilled and diverse<br />
workforce, and an extensive treaty network.<br />
The Maltese jurisdiction recognises a<br />
variety of legal vehicles taken from both the<br />
Civil and the Common law tradition thus<br />
allowing individuals a choice of structures to<br />
fit their specific needs, whether in relation<br />
to business structuring, estate planning or<br />
other purposes. The various forms include<br />
commercial partnerships, public and<br />
private limited liability companies, trusts,<br />
foundations and associations.<br />
2. Limited Liability<br />
Companies<br />
The defining feature of a Limited Liability<br />
Company is the fact that the liability of the<br />
shareholders is limited to the part unpaid (if<br />
any) on their shares.<br />
Form<br />
A limited liability company is the preferred<br />
means of doing business in Malta, due to<br />
its separate legal personality and limited<br />
liability. Limited liability companies can<br />
be classified as either of a private nature<br />
(Limited or Ltd) or of a public nature (Plc).<br />
With the exception of single member<br />
companies (discussed below), private and<br />
public companies must have a minimum of<br />
two shareholders.<br />
Private limited companies are formed<br />
by means of capital divided into shares<br />
and shareholder liability is limited to the<br />
amount of unpaid share capital. In a private<br />
company, the right to transfer shares must<br />
be restricted, for example through preemption<br />
rights, the number of members<br />
cannot exceed fifty and invitations to<br />
the public to subscribe to its shares or<br />
debentures are prohibited.<br />
It is possible to set-up a single member<br />
private company, however, such a company<br />
may only carry out one principal activity.<br />
In addition, it must satisfy the conditions<br />
of a private exempt company, being, that<br />
it cannot have more than fifty debenture<br />
holders and that no body corporate can act<br />
as a director.<br />
There are no restrictions regarding the<br />
nationality or the place of residence<br />
of the directors, shareholders or other<br />
officers of a Malta company. Furthermore,<br />
a Malta company may be set-up for any<br />
lawful purpose. There are, therefore, no<br />
restrictions regarding the type of activity of<br />
a company, provided that certain activities<br />
may render the company subject to license<br />
requirements such as, for example, gaming<br />
companies, telecommunications companies<br />
and financial services companies.<br />
Shareholders in Malta companies can be<br />
either individuals or bodies corporate. It<br />
is also possible for shares in a Maltese<br />
company to be held on a fiduciary basis<br />
by an entity authorised/ licensed for such<br />
purposes allowing the beneficial owners to<br />
retain confidentiality.<br />
The Memorandum and Articles of<br />
Association of both private and public<br />
companies must contain:<br />
• the name of the company; which is to<br />
include Plc, Limited or Ltd, subject to the<br />
public or private nature of the company<br />
respectively,<br />
• the name and residence of the<br />
subscribers (in the case that a fiduciary<br />
is appointed, the name and details of the<br />
fiduciary are specified),<br />
• the registered office of the company,<br />
which must be located in Malta,<br />
• objects of the company,<br />
• the authorised and issued share capital<br />
of the company divided into shares of<br />
fixed nominal value,<br />
• number of directors,<br />
• name and residence of first directors,<br />
and name and registered or principal<br />
office, if the director is a body corporate,<br />
• the manner in which the company is<br />
to be represented, and the chosen<br />
representative, and<br />
• name and residence of first company<br />
secretary.<br />
Share Capital Requirements<br />
The minimum share capital in private<br />
limited companies is €1,165 and the<br />
minimum percentage paid up is 20%,<br />
whereas in public companies the minimum<br />
share capital is €46,588 and minimum<br />
percentage paid up is 25%.<br />
Time<br />
Following satisfactory completion of the<br />
KYC/due diligence process, a company<br />
can be registered by submitting the<br />
necessary documentation to the Registrar<br />
4 | <strong>Lawyer</strong><strong>Issue</strong> 5
Company Formations<br />
of Companies, including therefore the<br />
• he is a minor who has not been<br />
the management of the property held under<br />
returns every quarter and pay the relative<br />
Memorandum of Association as well as an<br />
emancipated; or<br />
fiduciary obligation, and are duty bound<br />
VAT thereon. The company may also need to<br />
identification document of the subscribers<br />
and proof that the initial share capital was<br />
• he is the subject to a disqualification<br />
to return property held under a fiduciary<br />
obligation when their mandate terminates.<br />
submit recapitulative statements depending<br />
on its activities.<br />
deposited in favour of the company-information.<br />
The Memorandum and Articles<br />
of Association must be signed by the<br />
subscribers or their attorneys. Generally,<br />
order.<br />
Power<br />
Directors, as officers of the company, are<br />
entrusted with keeping statutory registers<br />
and minute books such as a register of<br />
5. Taxation of Malta<br />
Companies<br />
registration is completed within 24 hours of<br />
Company directors are generally vested<br />
members, a register of debentures, minutes<br />
Companies registered in Malta are very tax<br />
receipt of all documentation required.<br />
with the legal and judicial representation<br />
of board and general meetings’ and minute<br />
efficient vehicles which one can use to carry<br />
Cost<br />
of the company. This authority is however<br />
limited by the Companies Act, in that,<br />
directors may not:<br />
books as well as completing the annual<br />
returns and filing any changes in the<br />
company’s corporate structure with the<br />
out trading activities and / or hold overseas<br />
investments. A company is considered<br />
resident in Malta if it is incorporated in Malta<br />
A registration fee is to be paid to the<br />
Registrar of Companies, the value of which<br />
• act or enter into transactions which<br />
Registry of Companies.<br />
or, in the case of a foreign body of persons,<br />
if its management and control are exercised<br />
depends on the amount of authorised<br />
go beyond the company’s objects and<br />
Directors are personally liable in damages<br />
in Malta. Companies that are resident and<br />
share capital of the company being set-up<br />
powers;<br />
for any breach of duty committed as well<br />
domiciled in Malta are subject to income<br />
but ranges between a minimum of €245 (for<br />
a share capital that does not exceed €1,500)<br />
• disregard other limitations imposed by<br />
as liable to make a payment towards the<br />
company’s assets, as deemed fit by the<br />
tax in Malta on their worldwide income and<br />
capital gains at the rate of 35% which is the<br />
and a maximum of €2,250 (for a share<br />
the company’s Memorandum or Articles<br />
court, upon dissolution, if the company<br />
maximum rate of tax in Malta.<br />
capital exceeding €2,500,000).<br />
of Association; or<br />
continues to trade while said director knew,<br />
3. Directors (power,<br />
appointment, duties and<br />
liability)<br />
Appointment<br />
• disregard instructions properly issued by<br />
the company in relation to the exercise<br />
of their powers.<br />
• The Directors have the power to appoint<br />
and remove the company secretary.<br />
or ought to have known that there was<br />
no reasonable prospect that the company<br />
would avoid being dissolved due to<br />
its insolvency.<br />
The court may release the director from<br />
liability if it is satisfied that the director took<br />
However, in view of Malta’s full imputation<br />
system of taxation, any income tax<br />
paid by the company is credited in full<br />
to the shareholder upon a distribution<br />
of dividends, so as to avoid economic<br />
double taxation and, in addition, entitles<br />
shareholders to a refund of any tax paid<br />
The business of limited liability companies<br />
is conducted by its directors. The directors<br />
are appointed by the shareholders. A<br />
private company must have at least<br />
one director, two in the case of a public<br />
company. Directors may be individuals or<br />
Duties and Liabilities<br />
The directors must perform their duties<br />
with a degree of care, diligence and skill<br />
which is to be exercised by a reasonably<br />
every step he ought to have taken with a<br />
view of minimising the potential loss to the<br />
company’s creditors.<br />
4. Filing Obligations<br />
by the company which is in excess of the<br />
shareholders’ income tax liability.<br />
Tax Refunds<br />
Shareholders of Maltese resident companies<br />
corporate entities. The shareholder/s may<br />
diligent individual. They must not have a<br />
All companies registered in Malta must<br />
are also entitled to a refund with respect to<br />
be appointed as director/s. A person shall<br />
conflict of interest between the benefit of<br />
prepare financial statements which must be<br />
the corporate tax paid by the company on<br />
not be qualified for appointment or hold<br />
the company and their personal benefit and<br />
audited by a Certified Public Accountant who<br />
the profits distributed to the shareholders.<br />
office as director of a company if:<br />
they must not compete with the company.<br />
must also be a registered auditor. Audited<br />
The amount of refund varies depending on<br />
• he is interdicted or incapacitated or is an<br />
undischarged bankrupt;<br />
• he has been convicted of any of the<br />
crimes affecting public trust or of theft<br />
Furthermore, the Director qua fiduciaries<br />
owe fiduciary obligations towards the<br />
company which include the duty of loyalty<br />
and care of a bonus pater familias. They<br />
must keep property acquired under<br />
financial statements must be presented to<br />
the tax authorities and to the Registry of<br />
Companies on an annual basis.<br />
A company is also required to prepare and<br />
submit its annual tax return and make<br />
the type of income being distributed.<br />
Participation Exemption<br />
The participation exemption regime ensures<br />
that dividends and capital gains derived by<br />
or of fraud or of knowingly receiving<br />
fiduciary obligations separate from their<br />
payment of the annual tax due. If the<br />
companies registered in Malta from their<br />
property obtained by theft or fraud;<br />
own personal property, they must render<br />
company’s activities are subject to VAT,<br />
qualifying participating holdings in any<br />
an account and keep records in relation to<br />
the company will also need to submit VAT<br />
jurisdiction will not be subject to any tax<br />
6 | <strong>Lawyer</strong><strong>Issue</strong> 7
Company Formations<br />
in Malta, provided that the anti-avoidance<br />
measures are satisfied in case of dividend<br />
income.<br />
Alternatively at the option of the Malta<br />
Company, income or gains derived from<br />
a participating holding may be taxed at a<br />
flat rate of 35% less any available double<br />
taxation relief. In such circumstances,<br />
however, upon a subsequent distribution<br />
of dividends by the company out of the said<br />
taxed income or gains, the shareholders of<br />
the Malta company would be entitled to a<br />
full refund (100%) of the Malta tax paid.<br />
Double Taxation Relief in Malta<br />
Malta does not impose any withholding tax<br />
on outgoing dividends, interest and royalties<br />
irrespective of the recipient’s tax residence<br />
and status. However, income received from<br />
foreign sources may be subject to foreign<br />
withholding tax or other foreign taxes.<br />
Consequently Malta’s fiscal legislation offers<br />
different forms of double taxation relief<br />
to ensure that double taxation is avoided.<br />
Malta has concluded more than 70 double<br />
taxation agreements, mostly based on the<br />
OECD Model Convention, which provide for<br />
the relief of double taxation.<br />
Branches<br />
Maltese legislation provides for companies<br />
incorporated or constituted outside Malta<br />
to conduct business in or through Malta<br />
by using a branch or a place of business in<br />
Malta. This creates a viable alternative when<br />
companies opt not to register a separate<br />
legal entity, yet carry out business in Malta<br />
by an extension of their foreign corporate<br />
vehicle. As a result, a branch qualifies to be<br />
considered as a company registered in Malta<br />
and is taxed in Malta on any income and<br />
gains arising in Malta which are attributable<br />
to the branch at a rate of 35%. Tax refunds<br />
may still be claimed in relation to dividends<br />
distributed from such branch profits.<br />
6. Other Vehicles<br />
Other commercial partnerships<br />
Maltese law provides for partnerships<br />
en nom collectif where the liability of the<br />
partnership is guaranteed by the unlimited,<br />
joint and several liability of all the partners,<br />
and partnerships en commandite where<br />
the liability of the partnership is guaranteed<br />
by the unlimited, joint and several liability<br />
of the general partners, and by the liability,<br />
limited to the amount, if any, unpaid on the<br />
contribution, of one or more partners, called<br />
limited partners.<br />
The advantage with partnerships is that they<br />
can elect to be taxed as companies or can<br />
be tax transparent in which case the income<br />
of the partnership is taxed at the level of the<br />
partners.<br />
Trusts<br />
The Trusts and Trustees Act regulates the<br />
creation and administration of trusts. A<br />
Maltese trust may be created verbally, in<br />
writing (including by will), by operation of<br />
law or by a judicial decision. Trusts are an<br />
ideal instrument for estate planning as they<br />
allow flexibility and a degree of privacy.<br />
Foundations<br />
Maltese law also provides for the creation<br />
and administration of foundations (whether<br />
set-up for private or charitable purposes).<br />
A foundation, as opposed to a trust is a<br />
separate legal entity subject to registration<br />
with the Registrar of Legal Persons.<br />
Unlike the trust deed, which is kept by the<br />
trustee under confidentiality, the deed of<br />
foundation is registered with the Registrar of<br />
Legal Persons and is available for inspection having non-commercial aims.<br />
by the public. However, the identity of<br />
the beneficiaries may be specified in a<br />
The presence of such a wide variety of<br />
separate document which is not published. vehicles, together with an advantageous tax<br />
Foundations are the ideal structure for nonprofit<br />
organisations because they enjoy the set-up a business or within which to invest.<br />
regime makes Malta and ideal jurisdiction to<br />
benefit of separate legal personality while<br />
Dr. Tonio Ellul<br />
Partner at EMD Advocates<br />
T: +356 22030000<br />
Email: tellul@emd.com.mt<br />
Tonio is a Partner at EMD Advocates since 2003 and also holds directorships in various companies within the EMD<br />
group. He specialises in corporate law, gaming law, trusts and foundations, tax law and employment law.<br />
Prior to joining EMD, Tonio provided in house Counsel for one of the largest consultant firms in Malta and was a<br />
member of the Malta-EU Steering Action Committee (MEUSAC) Core Group. He has also been Visiting Lecturer and<br />
Examiner in company and commercial law at the University of Malta<br />
Dr. Louise Ellul Cachia Caruana<br />
Partner at EMD Advocates<br />
T: +356 22030000<br />
Email: lellulcachiacaruana@emd.com.mt<br />
Dr. Louise Ellul Cachia Caruana is a Partner at EMD Advocates since 2012. She previously held the position of a Senior<br />
Consultant with the same firm. Prior to joining EMD, between 1992 and 2006, Louise held the position of Head of the<br />
Legal Department of one of the four largest consultancy firms in Malta. Louise is a former member of the Board of<br />
Governors of the Malta Financial Services Authority. She specialises in corporate law, trusts and foundations, tax law<br />
and employment law.<br />
Louise is examiner of the Business and Corporate Law module for the Association of Chartered Certified Accountants<br />
(ACCA) and a Moderator and Examiner of the Trust Foundation Certificate run by Malta Institute of Financial Services<br />
Practitioners and is Senior/Visiting Lecturer at the Faculty of Law, University of Malta.<br />
8 | <strong>Lawyer</strong><strong>Issue</strong> 9
Trusts<br />
The Bahamas – Protecting the<br />
Confidentiality of Trusts<br />
By Sean N. C. Moree,<br />
Vanessa Lee<br />
Section 83 of the Trustee Act is an enactment<br />
unique to the Bahamian jurisdiction which<br />
attempts to codify the rights and obligations of<br />
trustees in relation to disclosure. The disclosure<br />
of trust information by trustees has been<br />
the subject of judicial debate for centuries;<br />
and as trusts have developed so too has the<br />
jurisprudence on the rights of beneficiaries<br />
and third parties to trust information and<br />
documentation. Recently, the trust has come<br />
under intense scrutiny from regulators and<br />
tax agencies alike, so the clarity Section 83<br />
provides not only assists the appointed trustee<br />
and designated beneficiaries, but provides<br />
comfort to settlors who wish to keep their wishes<br />
private and desire to shield his/her trustee from<br />
unwanted interference.<br />
Subsections (1) and (2) simply require the trustee<br />
to take reasonable steps to inform a beneficiary<br />
with a vested interest under the trust of its<br />
existence and general nature of their interest or<br />
in the event there is no beneficiary with a vested<br />
interest, a person who is capable of enforcing<br />
the trust and the general nature of the interest<br />
entitling him/her to enforce. This formalizes the<br />
long settled duty of a trustee to notify the objects<br />
of the trust of its existence, first discussed in<br />
Lloyd v Attwood (1859) 3 De G. & J. 614 at 649. The<br />
subsections clearly limit the notification to the<br />
existence of the trust and the general nature of<br />
that interest, which settles any doubt as to the<br />
scope of the duty to notify.<br />
However, the trustee may escape the aforesaid<br />
duty of notification in the event it deems, in its<br />
absolute discretion, that such notification would<br />
not be in the best interest of the beneficiary(s).<br />
Obviously the exercise of this discretion would<br />
need to be exercised properly and in accordance<br />
with the fiduciary obligation the trustee owes the<br />
beneficiaries under the settlement.<br />
Subsection (3) expressly prohibits disclosure of<br />
the existence of the trust to (a) any beneficiaries<br />
who are interested only contingently; (b) any<br />
persons who are only objects of discretionary<br />
powers; or (c) any other persons who are not<br />
entitled to vested interests under the trust.<br />
This does not prohibit disclosure to the class of<br />
persons aforesaid if it is necessary or convenient<br />
in connection with distributions or in the interest<br />
of the trust as a whole. The trustee retains the<br />
absolute discretion to disclose the existence<br />
of the trust in subsection (4); but the decision<br />
to make such disclosures should be made<br />
thoughtfully.<br />
Subsection (5) deals specifically with the<br />
disclosure of the trust instrument, financial<br />
statements of the trust and all financial<br />
statements of companies wholly owned by the<br />
trustees of the trust. This is helpful as there has<br />
been both judicial and academic discussion as to<br />
the scope of the term ‘trust documents’. With the<br />
burgeoning use of trusts for increasingly diverse<br />
purposes, so too has the type of documents<br />
attributed to trusts and their management.<br />
The disclosure of trust documentation to<br />
beneficiaries often causes trustees angst, as<br />
they must balance their duty to protect the<br />
confidentiality of trust information against the<br />
interests of the beneficiary and their desire to<br />
be informed. While beneficiaries who hold a<br />
vested interest in the trust are entitled to trust<br />
documents, all other persons are specifically<br />
excluded from access unless the trustee<br />
deems disclosure necessary for the proper<br />
administration of the trust and is for the trusts<br />
overall benefit. In the event a trustee wishes to<br />
disclose documentation, it must consider any<br />
request from a beneficiary which has requested<br />
confidentiality and determine if confidentiality is<br />
in the best interest of other beneficiaries.<br />
Notwithstanding the trustee’s ability to disclose<br />
trust documents to vested beneficiaries,<br />
subsection (8) prohibits the production of (i)<br />
any document revealing the wishes of the<br />
settlor; (ii) documents relating to the exercise<br />
of any discretion of the trustee; or (iii) any<br />
documents disclosing deliberations or reasons<br />
for the exercise of the trustee’s discretion.<br />
This prohibition extends to any process of<br />
discovery or inspection within litigation. One can<br />
understand Parliament’s sacrosanct treatment<br />
of a trustee’s exercise of its discretion but<br />
the provision severely limits the ability of a<br />
beneficiary trying to sustain a claim against<br />
a trustee for the wrongful exercise of a its<br />
discretion.<br />
Section 83 clarifies the common law principle<br />
established in In re Londonberry’s Trusts: Peat<br />
v. Walsh [1965] Ch. 918 which recognizes a<br />
beneficiaries’ entitlement to access trust<br />
documents, save for information or documents<br />
evidencing the deliberations of trustees when<br />
exercising his/her discretionary powers. The<br />
Act sets clear parameters as to the scope of<br />
the disclosures, the class of persons entitled to<br />
disclosure and the type of documents which are<br />
accessible.<br />
While the trust instrument can always prescribe<br />
additional entitlements of disclosure upon a<br />
beneficiary(s), the enactment of Section 83<br />
displays a Parliamentary intention to protect<br />
trustees from unwarranted disclosures, preserve<br />
the sanctity of the trustee’s discretion and to<br />
afford privacy to the settlor’s wishes. Although<br />
the Trustee Act was enacted in 1998, section 83<br />
has remained largely untested in the Bahamian<br />
Courts. There are no published Bahamian cases<br />
which consider the ambit of section 83.<br />
Recently, the English High Court considered the<br />
extent of Section 83 in the case of Dawson Damer<br />
& Others v. Taylor Wessing [2015] EWHC 2366<br />
(Ch). Here, the beneficiaries of a Bahamian trust<br />
sought the disclosure of legal advice provided<br />
to the trustee by its English solicitors. Judge<br />
Behrens found that the Bahamian Trustee Act<br />
differed from the English common law rules and<br />
the beneficiaries were not entitled to information<br />
that the Trustee was not required to disclose<br />
10 | <strong>Lawyer</strong><strong>Issue</strong> 11
under Section 83. He concluded:<br />
“I have great difficulty in following the concept that<br />
the principles of disclosure in relation to trustees<br />
and beneficiaries can in some way be separated<br />
from legal professional privilege…If and in so far<br />
as the exception in paragraph 10 of Schedule 7 is<br />
restricted to the English law of disclosure and if<br />
and in so far as the documents discoverable under<br />
English law are more extensive than those under<br />
Bahamian law it does not seem to me a proper<br />
use of the 1998 Act to enable the Claimants to<br />
obtain documents that they could not obtain in the<br />
Bahamian proceedings.”<br />
Judge Behrens’ decision is currently under appeal<br />
in England, but his affirmation of the protection<br />
afforded to trustees under section 83 and his<br />
comparison to the English common law position<br />
is noteworthy.<br />
Historically principles of disclosure by trustees<br />
were established by the common law. The<br />
clarification provided by Section 83 is sure to be<br />
challenged in the near future but there is little<br />
doubt that its enactment provides the settlor<br />
and trustee with a higher level of confidentiality<br />
and protection. Its exclusivity to the Bahamian<br />
jurisdiction continues to provide the Bahamas<br />
with an advantage over other jurisdictions as to<br />
the level of protection afforded to trustees of<br />
Bahamian trusts.<br />
Developments and Critical <strong>Issue</strong>s of Corporate<br />
Governance in Italy<br />
by Alberto Rittatore Vonwiller,<br />
Antonio Franchi<br />
Sean N. C. Moree<br />
Partner at McKinney, Bancroft & Hughes<br />
T: +1 242 322 4195<br />
Email: SNMoree@mckinney.com.bs<br />
Sean N. C. Moree is a partner in the Trusts & Private Client and Litigation & Dispute Resolution Practice<br />
Groups at McKinney, Bancroft & Hughes. While his practice includes corporate and commercial litigation,<br />
he specializes in trust and insolvency litigation. He received his Bachelor of Law Degree in 2002 from the<br />
University of Nottingham and completed the Bar Vocational Course at BPP Law School in 2003. Thereafter<br />
he was called to both the English and Bahamas Bars in 2003, Sean went on to complete his Masters of Law<br />
Degree at Wake Forest University, specializing in International Civil Litigation. Sean has been with McKinney,<br />
Bancroft & Hughes since 2005 and became a partner in 2012.<br />
Vanessa Lee<br />
Associate at McKinney, Bancroft & Hughes<br />
T: +1 242 322 4195<br />
Email: VLee@mckinney.com.bs<br />
Vanessa Lee is an associate in the Litigation & Dispute Resolution Practice Group and specializes in trust and<br />
insolvency litigation. She received a Bachelor’s Degree in International Studies and Political Science from the<br />
University of Miami in 2006 and completed a Juris Doctor from Nova Southeastern University in Florida in<br />
2010. She was called to the Florida Bar in 2010 and The Bahamas Bar in 2014.<br />
A summary of the most significant<br />
amendments to the Corporate Governance<br />
Code for Italian listed companies (the<br />
“Code”) approved on July 9, 2015 by the<br />
Corporate Governance Committee seated at<br />
the Italian Stock Exchange (the Committee) 1<br />
is indicated here in.<br />
1 The Committee, with seat at Borsa Italiana S.p.A., Milan,<br />
Piazza Affari 6 (the Italian Stock Exchange), was set up, in<br />
its current composition, in June 2011 on the initiative of<br />
the main Italian associations representing corporations<br />
and institutional investors (ABI, ANIA, Assonime, Confindustria,<br />
Assogestioni) and Borsa Italiana S.p.A. and it is<br />
composed of representatives of the promoters above and<br />
Italian listed companies.<br />
The Committee is in charge of promoting good corporate<br />
governance of Italian listed companies, pursued by a<br />
constant alignment of the Code with best practices and<br />
through initiatives which would enhance the credibility of<br />
the Code.<br />
Adherence to the Code (or any other<br />
corporate governance code) by Italian listed<br />
companies is voluntary and based on the<br />
so-called “comply or explain” principle 2 .<br />
For companies adhering to the Code, the<br />
changes (with the exclusion of changes<br />
regarding the statutory auditors, which<br />
2 As provided pursuant to Directive 2013/34/EU and<br />
Article 123-bis of the Consolidated Law on Finance (i.e.,<br />
Legislative Decree No. 58 of 24 February 1998, as subsequently<br />
amended), each listed company is required to<br />
include a “corporate governance statement” in its annual<br />
management report, indicating “the corporate governance<br />
code which the undertaking may have voluntarily decided<br />
to apply”. In case a listed company decides to depart<br />
from any provision of the corporate governance code to<br />
which it voluntarily adhered, it should provide a clear and<br />
exhaustive explanation thereof. A listed company should<br />
also adequately explain its decision not to adhere to any<br />
corporate governance code (see Article 20 of EU Directive<br />
2013/34/EU; see also the Commission Recommendation<br />
of April 9, 2014 “on the quality of corporate governance<br />
reporting (“comply or explain”)”.<br />
12 | <strong>Lawyer</strong><strong>Issue</strong> 13
Corporate Governance<br />
listed companies are invited to apply since<br />
new provision also seems to suggest<br />
of committees be recorded with specific<br />
pursuant to a voting-list mechanism,<br />
the first renewal of the Board of Statutory<br />
that sustainability matters (such as<br />
minutes has been integrated with the<br />
which is intended to grant to the minority<br />
Auditors occurring after the fiscal year<br />
environmental matters, social and<br />
recommendation that the chairman<br />
shareholders the right to designate their<br />
beginning in 2015) should be implemented<br />
employee-related matters, human rights<br />
should provide information to the board<br />
representatives on the Board. The voting-list<br />
by listed companies by the end of the<br />
concerns, anticorruption and bribery<br />
of directors regarding aforementioned<br />
mechanism, including the right to present<br />
fiscal year beginning in 2016, providing<br />
matters) 6 may have a relevant impact on the<br />
recording at the first available meeting (see<br />
a list of candidates, is regulated by each<br />
information about such implementation<br />
business and should be considered in the<br />
Criterion 4.C.1. of the Code).<br />
company’s by-laws.<br />
in the corporate governance report to be<br />
definition of the risk profile and strategic<br />
published in the following fiscal year.<br />
objectives of a company.<br />
The second and more relevant amendment<br />
Normally, the lists of candidates are<br />
Amendments<br />
The main amendments of the Code are<br />
Composition of the Board<br />
of Directors<br />
concerns the recommendation that the<br />
Boards of Directors of companies listed<br />
on the FTSE MIB index 7 evaluate the<br />
opportunity to establish a committee in<br />
presented by the shareholders. However,<br />
Comment to Article 5 of the Code<br />
provides that the Committee highlights<br />
the importance of an engagement of the<br />
indicated for each topic here below.<br />
The Committee recommends that the<br />
charge of matters regarding the corporate<br />
nomination committee (appointed internally<br />
Role of the Board of<br />
Directors<br />
corporate governance report (to be<br />
prepared by listed companies’ directors<br />
jointly with the management report and<br />
the financial statement) should state the<br />
social responsibility (see the Comment<br />
section of Article 4 of the Code).<br />
The sustainability issues related to<br />
to the Board and composed in majority<br />
of independent directors) “in case the<br />
Board itself, as far as it is consistent with<br />
applicable law, submits a slate for the<br />
The Committee extends the role of the<br />
type and the organizational methods of<br />
the business activities of the company<br />
renewal of the Board”9.<br />
Board of Directors in relation to the<br />
any initiatives which occurred during the<br />
and its interaction dynamics with all its<br />
sustainability of the business. In particular,<br />
relevant fiscal year with regard to the<br />
stakeholders would be supervised by this<br />
Furthermore, the Committee also<br />
the Board of Directors has to define the risk<br />
induction sessions dedicated to directors<br />
committee. As an alternative to the creation<br />
recommends that, if the listed company has<br />
profile of the company consistently with the<br />
and statutory auditors, which should be<br />
of a dedicated committee, the Board of<br />
adopted a plan for the executive directors’<br />
company’s strategic objectives, considering<br />
periodically organized by the chairman.<br />
Directors may choose whether to group<br />
succession, the plan’s procedure should<br />
the risks that may be relevant for the<br />
sustainability of the company’s business<br />
activities in the medium-long term 3 .<br />
The new provision expands the principle<br />
set out in Article 1 of the Code, whereby<br />
Independent Directors<br />
The Committee expands and clarifies the<br />
recommendation according to which the<br />
independent directors meet at least once a<br />
or to assign the tasks above to the other<br />
established committees, most significantly<br />
the Internal Control and Risk Committee.<br />
This second recommendation is not subject<br />
to the “comply or explain” principle, as it<br />
clearly outline the plan’s scope, instruments<br />
and timeline.<br />
Internal Control and Risk<br />
Management System<br />
the Board of Directors has to pursue the<br />
year separately from the other directors (see<br />
is included in the Comment section of the<br />
The Committee also passed changes<br />
overarching goal of “creating value for the<br />
Criterion 3.C.6. of the Code).<br />
Code 8 .<br />
regarding the system of internal control<br />
shareholders over a medium-long term<br />
period” 4.<br />
On the other hand, the new provision<br />
includes, among the interests that the<br />
Board should take care of, the principle<br />
Establishment and<br />
Functioning of the Internal<br />
Committees of the Board of<br />
Directors<br />
Appointment of Directors<br />
Under Italian law the Board of Directors of<br />
Italian listed companies governed by the socalled<br />
“traditional” governance mechanism<br />
and risk management, which significantly<br />
strengthen the effectiveness of internal<br />
controls.<br />
In particular, the revised Article 7 of the<br />
Code now explains that an effective system<br />
of sustainability, in compliance with the<br />
The Committee also adds two new<br />
is appointed by the shareholders,<br />
of internal controls and risk management<br />
most recent European legislation 5 . This<br />
3 Criterion 1.C.1, letter b), of the Code.<br />
4 Principle 1.P.2 of the Code.<br />
recommendations within the general<br />
recommendations on the establishment,<br />
composition and functioning of the internal<br />
committees of the Board of Directors.<br />
7 The FTSE-MIB is the primary benchmark index for the<br />
Italian equity markets, comprising 40 shares listed on the<br />
Italian Stock Exchange and capturing approximately 80%<br />
of the domestic market capitalization. The Index is comprised<br />
of highly liquid, leading companies in Italy.<br />
contributes to the reliability of the<br />
information provided to the corporate<br />
bodies and not only of the publicly disclosed<br />
5 Reference is especially made to Directive 2014/95/EU<br />
of 22 October 2014, providing new disclosure obligations<br />
for larger undertakings on “non-financial information” –<br />
and in particular on environmental, social and employee<br />
matters, respect of human rights, anti-corruption and<br />
bribery matters – and information on diversity policies.<br />
First, the recommendation that meetings<br />
6 See Whereas 6 of Directive 2014/95/EU of 22 October<br />
2014.<br />
8 However, since the sustainability matters should<br />
be included in the definition of the risk profile of each<br />
company pursuant to the new Criterion 1.C.1, letter b), of<br />
the Code, the Board of each company should reasonably<br />
supervise such sustainability matters (if appropriate, with<br />
the support of the Control and Risk Committee).<br />
9 Consider that under Italian law do not exist specific<br />
provisions on the subjects entitled to the formation of the<br />
lists of candidates to be voted by the shareholders and<br />
that, according to some scholars, the Board of Directors<br />
in office may decide to present such a list of candidates.<br />
The Code seems to support this interpretative position.<br />
14 | <strong>Lawyer</strong><strong>Issue</strong> 15
Corporate Governance<br />
financial information 10 . Particularly, this<br />
provision includes the reliability of the<br />
internal flow of information among the<br />
core tasks of an effective system of internal<br />
control and risk management.<br />
In this regards, in the Comment to Article<br />
1, the Code provides the following: “under<br />
relevant circumstances, the Board<br />
of Directors acquires any necessary<br />
information and adopt any suitable<br />
measure to protect the company and the<br />
information to the market”.<br />
The Control and Risk Committee 11 appointed<br />
within the Board may assist the Board in<br />
this respect. In fact, the Control and Risk<br />
Committee “supports, with adequate<br />
preliminary activities, the Board of<br />
Directors’ assessments and resolutions<br />
on the management of risks arising from<br />
detrimental facts that the Board may have<br />
been become aware of” 12 .<br />
The aforementioned amendment represents<br />
an important development as, pursuant to<br />
the Code, the Control and Risk Committee<br />
is composed by a majority, or exclusively, of<br />
independent directors 13 .<br />
According to the provisions of the Code,<br />
each company should provide for the<br />
10 Principle 7.P.2 of the Code.<br />
11 According to Principle 7.P.3. letter (ii) of the Code,<br />
the Board of Directors shall identify within the Board “a<br />
control and risk committee […] to be charged with the<br />
task of supporting, on the basis of an adequate control<br />
process, the evaluations and decisions to be made by the<br />
Board of Directors in relation to the internal control and<br />
risk management system, as well as to the approval of the<br />
periodical financial reports”.<br />
12 Criterion 1.C.2, letter g) of the Code.<br />
13 Pursuant to principle 7.P.4 of the Code, “The Control<br />
and Risk Committee is made up of independent directors.<br />
Alternatively, the committee can be composed of non-executive<br />
directors, the majority of which being independent;<br />
in this latter case, the chairman of the committee is<br />
selected among the independent directors. If an issuer is<br />
controlled by another listed company or is subject to the<br />
direction and coordination activity of another company,<br />
the committee shall be made up exclusively of independent<br />
directors”.<br />
coordination of the corporate bodies and<br />
functions with specific tasks in the context<br />
of the system of internal control and risk<br />
management “in order to enhance the<br />
efficiency of the internal control and risk<br />
management system and reduce activities<br />
overlapping”.<br />
In order to reinforce this provision, the Code<br />
now requires each company to describe in<br />
its annual Corporate Governance Report<br />
the instruments adopted to ensure the<br />
coordination among the corporate bodies<br />
and functions responsible for the system of<br />
internal control and risk management 14 .<br />
In the Comment to Article 7, the Code<br />
provides that an adequate internal control<br />
and risk management system – at least<br />
in the most significant companies (i.e.,<br />
companies included in the FTSE-MIB index) –<br />
should include a so-called “whistleblowing”<br />
system, consistently with domestic and<br />
international best practices and ensuring “a<br />
specific and confidential communication<br />
channel as well as the anonymity of the<br />
reporting person”.<br />
Statutory Auditors<br />
The last amendments to the Code<br />
approved by the Committee concern the<br />
recommendations applicable to statutory<br />
auditors.<br />
Pursuant to the “traditional” governance<br />
structure of Italian joint stock corporations,<br />
the shareholders appoint a Board of<br />
Statutory Auditors, vested with wide<br />
monitoring responsibilities within the<br />
supervisory system of a company.<br />
According to the amendments passed by the<br />
Committee, the results of the verification<br />
of the independence requirements of the<br />
statutory auditors, to be performed after<br />
14 Criterion 7.C.1, letter d) of the Code.<br />
their appointment and subsequently on<br />
Moreover, the Code now provides a<br />
an annual basis, shall be submitted to the<br />
new remuneration criteria, since the<br />
Board of Directors. The Board will then<br />
compensation of the member of the Board<br />
disclose such results through a press release of Statutory Auditors was not proportionate<br />
to the market relating to the first verification to their wide spectrum of responsibilities<br />
conducted after the first appointment and<br />
and potential liabilities (Criterion 8.C.3. of<br />
in the relevant corporate governance report the Code).<br />
with reference to the annual verification<br />
(Criterion 8.C.1. of the Code).<br />
Alberto Rittatore Vonwiller<br />
Partner at Carnelutti Studio Legale Associato<br />
T: +39 02 65585 1<br />
Email: alrittatore@carnelutti.com<br />
Alberto Rittatore Vonwiller is a partner in Carnelutti Studio Legale Associato. He is a member of the firm’s<br />
corporate and M&A department, where his practice focuses on mergers and acquisitions and corporate<br />
finance work, including joint ventures, shareholder agreements, securitizations, loans, and commercial<br />
contracts in Italy and abroad.<br />
Antonio Franchi<br />
Partner at Carnelutti Studio Legale Associato<br />
T: +39 02 65585 1<br />
Email: afranchi@carnelutti.com<br />
Antonio Franchi is a partner in Carnelutti Studio Legale Associato. He is a member of the corporate and<br />
M&A department, where his practice focuses on civil, commercial and corporate law.<br />
He advises Italian and foreign entities, including listed companies, in corporate and M&A matters, capital<br />
contributions in the form of transfers of businesses and shares, joint ventures, shareholders’ agreements,<br />
sale and purchase of real estate properties and commercial contracts.<br />
16 | <strong>Lawyer</strong><strong>Issue</strong> 17
Intellectual Property<br />
Injunctions in Canada Can Reach<br />
Far and Wide<br />
By Michael D. Crinson<br />
Intellectual property rights (IPRs) provide the holder with a monopoly and<br />
control over competitors use of a particular technology, trademark, creation or<br />
trade secret. Accordingly, injunctive relief for an IPR holder is an extremely<br />
useful and important remedy to prevent infringement of their IPRs. In<br />
Canadian Courts this is recognised and the Courts have shown a willingness<br />
and flexibility where necessary to use the power of the injunction to ensure<br />
compliance with IPRs. This includes the permanent injunction, interlocutory<br />
injunctions, injunctions that extend beyond the geographical bounds of<br />
Canada, and injunctions against entities that are not per se infringing IPRs<br />
but are, even inadvertently, facilitating that infringement.<br />
Most IPRs are embodied in statutes in<br />
Canada and those statutes include a<br />
statutory authority for the grant of an<br />
injunction in cases of infringement of the<br />
IPR. The Patent Act 1 authorises the Court,<br />
on the application of either a plaintiff or<br />
defendant in an action for infringement<br />
to “make such order as the Court…sees<br />
fit restraining or enjoining…further use,<br />
manufacture or sale”. Broad language<br />
to similar effect is found in the Industrial<br />
Design Act 2 . The Trademarks Act 3 seems<br />
broader since “any interested person” may<br />
apply for an injunction where something<br />
has been done contrary to the Act.<br />
The broad discretion of Courts is quite<br />
explicit in the wording of the Copyright Act<br />
which states that the owner of copyright<br />
is entitled to an injunction as a remedy<br />
for infringement of copyright and may be<br />
entitled to an injunction for infringement of<br />
moral rights 4 .<br />
The Copyright Act goes even further than<br />
other Canadian intellectual property<br />
statutes in that it authorises what are<br />
known as wide injunctions 5 , that is an<br />
injunction to prevent infringement of a<br />
copyright work that has not been infringed<br />
where it is granting an injunction in respect<br />
of a copyright work that has been infringed<br />
provided the other work that will be the<br />
subject of the wide injunction has the<br />
same copyright owner (or person with an<br />
interest) and the plaintiff satisfies the court<br />
that the defendant will likely infringe the<br />
copyright in those other works unless an<br />
injunction issues.<br />
1 section 57<br />
2 section 15.1<br />
3 section 53.2<br />
4 section 34<br />
5 section 39.1<br />
The wide injunction can even apply to<br />
works that were not owned by the plaintiff<br />
at the time proceedings were commenced<br />
and even to works that did not exist at the<br />
time the proceedings were commenced.<br />
Clearly, the Courts are granted a broad<br />
discretion to award the equitable remedy<br />
of an injunction in order to remedy a<br />
wrong in relation to an IPR.<br />
While injunctions are usually considered<br />
discretionary the Federal Court of Appeal<br />
(which most frequently hears intellectual<br />
property matters) has said that it is only<br />
conduct of the party claiming an injunction<br />
that can bar interlocutory relief.<br />
The refusal to grant a permanent injunction<br />
after a determination of infringement<br />
has been likened to “the imposition of a<br />
compulsory licence…[in] the absence of<br />
legislative authority” 6 . In one recent patent<br />
infringement lawsuit the Federal Court<br />
acknowledged the granting of an injunction<br />
is discretionary but the injunction “will be<br />
commonly granted for infringement or<br />
threatened infringement, unless there is<br />
some equitable reason not to do so, such<br />
as acquiescence, long delay, lack of clean<br />
hands, unconscionability, or triviality” 7 .<br />
The Court continued by acknowledging<br />
“the granting of injunctive relief is not only<br />
to the benefit of a successful party but it is<br />
issued by the Court in the public interest to<br />
ensure the enforceability of the Canadian<br />
patent system.<br />
While an injunction has almost always been<br />
granted following a finding of infringement<br />
there has been an exception in the Federal<br />
Court of Canada. In 1993, the Federal Court<br />
declined to grant a permanent injunction<br />
6 R. v. James Lorimer & Co., [1984] 1 F.C. 1065 at 1073<br />
(C.A.)<br />
7 Eurocopter v. Bell Helicopter Textron Canada, 2012 F.C.<br />
113 at para. 397<br />
18 | <strong>Lawyer</strong><strong>Issue</strong> 19
Intellectual Property<br />
in the unique circumstances faced by the<br />
that the plaintiff does not practice the<br />
defendants have the evidence and a real<br />
brought a second application for a Mareva<br />
Court in that case 8 .<br />
invention in Canada or North America.<br />
threat the evidence will be destroyed or<br />
injunction. In particular, the defendants<br />
dissipated 10 .<br />
had not produced the ordered information,<br />
In that case the Court was faced with<br />
Thus, it seems a permanent injunction will<br />
their websites did not comply with the<br />
allegations of a delay by the plaintiff of<br />
only be denied in exceptional situations<br />
Norwich orders, also known as equitable<br />
earlier order, carried on business or moved<br />
eight years in commencing the action.<br />
such as when the right holder has<br />
bills of discovery, are another form of<br />
outside the jurisdiction of the Court and<br />
While this delay was not mentioned by<br />
acquiesced or there has been long delay<br />
discretionary injunction. The Norwich<br />
had sold some of their assets within the<br />
the Court as a basis for refusal of the<br />
or it would be unconscionable to grant the<br />
order compels a non-party to produce<br />
Court’s jurisdiction.<br />
injunction.<br />
injunction.<br />
information to the applicant where an<br />
applicant has a bona fide claim against<br />
On this second application the Court<br />
The factors the Court did explicitly consider<br />
Injunctions prior to a final determination<br />
another party but requires the information<br />
considered not just the dissipation of the<br />
in its refusal of the injunction were: (1) the<br />
on the merits are more difficult to obtain<br />
from the non-party in order to identify the<br />
assets sought to be frozen but also the<br />
patent at issue had only eighteen months<br />
than a permanent injunction and must<br />
wrongdoer or violator of the IPR.<br />
protection of the court’s own process<br />
remaining on its term; (2) the plaintiffs<br />
satisfy a long standing three part test. The<br />
from abuse. The Court granted a Mareva<br />
had never practised the invention in<br />
three part test involves consideration of:<br />
Mareva injunctions have been used by the<br />
injunction in these new circumstances<br />
Canada nor employed anyone to practice<br />
(1) the strength of the plaintiff’s case; (2)<br />
Court to secure assets that may be used to<br />
“especially given the ephemeral nature<br />
the invention in Canada; and (3) the<br />
whether the plaintiff will suffer irreparable<br />
satisfy a judgment and prevent them from<br />
of intellectual property which once<br />
defendants would suffer hardship as would<br />
harm; and (3) the balance of convenience.<br />
being removed from the jurisdiction or<br />
disseminated likely cannot be retrieved<br />
their “innocent employees in these hard<br />
otherwise dissipated. Applications for such<br />
and whose value diminishes as a result”.<br />
economic times which still appear to be<br />
The Ontario Court of Appeal has explained<br />
orders are usually made ex parte and in<br />
The Mareva injunction prohibited the<br />
a full blown recession”. Clearly the Court<br />
that the purpose of this test is really to<br />
addition to requiring a showing of a strong<br />
defendants from dealing with any of their<br />
considered factors beyond either parties’<br />
balance the risks to the parties, i.e. if the<br />
prima facie case will also require from<br />
assets worldwide with the exception for<br />
control and considered the social effects of<br />
injunction is not granted will the plaintiff’s<br />
the applicant full and frank disclosure of<br />
retaining counsel and meeting ordinary<br />
the injunction.<br />
rights be so impaired that it will be<br />
relevant facts.<br />
living expenses.<br />
impossible to provide an adequate remedy<br />
Refusal of a permanent injunction in an<br />
at trial or if the interlocutory injunction<br />
In Equustek 11 the plaintiff applied to the<br />
That same Equustek 12 proceeding has<br />
intellectual property matter is extremely<br />
is granted will the defendant suffer such<br />
Court for an interlocutory injunction<br />
also led to a worldwide injunction against<br />
rare. While a factor in the above example<br />
harm from being enjoined in what proves<br />
prohibiting the defendants from using<br />
non-parties, Google Inc. and Google<br />
was the fact that the claimant did not<br />
to be unlawful conduct. It is for this<br />
certain confidential information and<br />
Canada Corporation, in a decision which<br />
practice the invention in Canada, more<br />
reason that if an interlocutory injunction<br />
trademarks of the plaintiff and for a limited<br />
is now scheduled to be appealed to the<br />
recent case law shows that a non-practicing<br />
is granted, ordinarily the plaintiff will be<br />
Mareva injunction.<br />
Supreme Court of Canada. The proceeding<br />
entity can obtain a permanent injunction<br />
required to provide an undertaking in<br />
had progressed such that the defendants<br />
in Canada. In the Uponor case 9 decided<br />
damages to the defendant to compensate<br />
Initially the court granted the interlocutory<br />
had failed to comply with various court<br />
this year the Court granted a permanent<br />
them in case the interlocutory injunction<br />
injunction but denied the Mareva<br />
orders, had moved their business from<br />
injunction to a non-practising entity.<br />
later turns out to have been inappropriate.<br />
injunction concluding that “the plaintiffs<br />
being in Vancouver to operating as a virtual<br />
have failed to show a good reason why the<br />
company and proliferated their network<br />
The permanent injunction was granted<br />
The Canadian Courts have utilised a series<br />
court should deprive the defendants of<br />
of websites through which they advertised<br />
notwithstanding evidence suggesting the<br />
of variations on the interlocutory injunction<br />
control of their assets before the plaintiffs<br />
and sold the allegedly infringing product.<br />
plaintiff was aware of the infringement<br />
in order to assist the resolution of IPR<br />
have succeeded at trial”. The defendants<br />
for about six years prior to commencing<br />
disputes. One form is the Anton Piller<br />
in that case promoted and sold their<br />
The application was for an injunction to<br />
a lawsuit, that the plaintiff was not a<br />
order which is tantamount to a civil search<br />
products exclusively over the internet.<br />
compel Google to remove the defendants’<br />
competitor for the product of the patented<br />
warrant to find and preserve evidence for<br />
websites from its Google search results.<br />
process in Canada or North America, and<br />
which there is a real threat of destruction<br />
When the defendants failed to comply<br />
Google resisted the injunction but admitted<br />
or dissipation. The party seeking the Anton<br />
with this interlocutory order the plaintiffs<br />
it could remove websites from its search<br />
8 Unilever PLC v. Proctor & Gamble Inc. et al, (1993) 47<br />
C.P.R. (3d) 479 F.C.T.D.)<br />
9 Uponor AB v. Heatlink Group Inc. et al., 2016 FC 320<br />
Piller order needs to establish an extremely<br />
strong prima facie case, clear evidence the<br />
10 Celanese Canada Inc. v. Murray Demolition Corp.,<br />
2006 SCC 36<br />
11 Equustek Solutions Inc. v. Jack, 2012 BCSC 1490<br />
engine results and routinely does so in<br />
12 Equustek Solutions Inc. v. Jack, 2014 BCSC 1063<br />
20 | <strong>Lawyer</strong><strong>Issue</strong> 21
Intellectual Property<br />
various situations.<br />
After concluding that the British Columbia<br />
court had jurisdiction and that California<br />
was not a more appropriate forum to<br />
hear the application, the Court went on to<br />
consider whether the injunction should be<br />
granted.<br />
The two main issues on whether an<br />
injunction should be granted were whether<br />
this injunction could be issued against a<br />
non-party, and whether the Court could<br />
make an order with worldwide effect.<br />
The Court after noting that there were<br />
exceptions in which injunctive relief can be<br />
granted against a non-party, concluded that<br />
injunctions can be issued when the court<br />
considers it just and convenient to do so on<br />
terms and conditions the court thinks just.<br />
The Court concluded that in order to<br />
preserve the effectiveness of their<br />
judgments, they must “adapt to<br />
new circumstances”. Applying this<br />
consideration, the Court commented that<br />
it must “adapt to the reality of e-commerce<br />
with its potential for abuse by those who<br />
would take the property of others and sell<br />
it through the borderless electronic web of<br />
the internet”. As a result the Court granted<br />
an interim injunction compelling Google<br />
to block the defendants’ websites from<br />
Google’s search results worldwide.<br />
While courts in Canada have always<br />
recognised their discretion to award an<br />
injunction to assist a holder of IPRs there<br />
appears to be a greater willingness to grant<br />
injunctive relief to preserve the integrity of<br />
the Court process (including fact finding,<br />
evidence and asset preservation) and the<br />
effectiveness of judgments. This includes<br />
injunctions against parties and non-parties<br />
and injunctions with worldwide effect.<br />
As commerce takes on a more global<br />
or international scale it seems likely the<br />
possibility of injunctive relief to facilitate a<br />
court’s process will increase in Canada.<br />
Gas Regulations of Bangladesh<br />
By Sharif Bhuiyan,<br />
Tanim Hussain Shawon<br />
Michael D. Crinson<br />
Partner at Dimock Stratton LLP<br />
T: +1 647 288 9529<br />
Email: MCrinson@Dimock.com<br />
The Gas Act, 2010 (“the Gas Act” or “the Act”) has been passed to regulate the<br />
transmission, distribution, marketing, supply and storage of natural gas and liquid<br />
hydrocarbon in the land territory of Bangladesh and in its determined sea boundaries<br />
and economic zones.The Act has been enacted in Bangla language and no official<br />
English translation is available yet.The objective, according to the preamble to the Act, is<br />
to ensure the proper and appropriate use of the regulated substance.The exploration and<br />
production of natural gas and the related resources are not regulated by the Gas Act.<br />
Michael D. Crinson is a Partner at Dimock Stratton LLP where he practises exclusively in the field<br />
of intellectual property, including patent, trademark, copyright and trade secrets. He is one of<br />
Canada’s most experienced patent trial counsel. He has significant experience coordinating litigation<br />
in Canada with related litigation in other jurisdictions and has been described in IAM Patent 1000<br />
as a versatile IP expert with more experience than some partners twice his age. His practice includes<br />
technology in the biotechnological, chemical, mechanical, electrical, bio-technical and bio-medical<br />
arts. He is also involved in the Intellectual Property Institute of Canada (IPIC) and AIPPI. In his spare<br />
time he is a soccer referee.<br />
The authority that has been empowered to apply<br />
the provisions of the Gas Act is the Bangladesh<br />
Energy Regulatory Commission (BERC), which has<br />
been established pursuant to the Bangladesh<br />
Energy Regulatory Commission Act, 2003.<br />
The term “gas” is defined in the Gas Act to<br />
include Natural Gas, Natural Gas Liquid (NGL),<br />
Liquefied Natural Gas (LNG), Compressed<br />
Natural Gas (CNG), Synthetic Natural Gas<br />
(SNG), Liquefied Petroleum Gas (LPG), Coal Bed<br />
Methane (CBM), Underground Coal Gasification<br />
(UCG), or such natural mixture of hydrocarbon<br />
which is formed by the transformation into<br />
gaseous elements due to normal temperature<br />
and pressure.<br />
22 | <strong>Lawyer</strong><strong>Issue</strong> 23
Oil and Gas<br />
According to the Gas Act, a licence from the BERC<br />
the power to limit or suspend or disconnect gas<br />
is required for conducting the following activities:<br />
supply if:<br />
• transmission, marketing and distribution,<br />
• the lives and properties of the people of the<br />
supply, storage, delivery to various classes of<br />
area concerned are in danger;<br />
customers, transportation, sale or transfer<br />
by any other approved method of gas and<br />
• an operational defect is discovered in the<br />
other commodities prepared by processing<br />
gas network;<br />
of gas or other associated substance;<br />
• there is a gas crisis at a national level;<br />
• any survey, test or research and<br />
development activities related to<br />
• unpaid arrears are not settled;<br />
transmission, marketing and distribution,<br />
supply and storage of gas or related to any<br />
• illegal use of gas is taking place;<br />
• the need to construct the proposed pipeline;<br />
may be up to 10 years and the maximum fine<br />
other work which is supplemental, relevant<br />
may be up to Taka one million. A person, who<br />
or is a consequence of the same.<br />
• gas meter is tampered or gas is used<br />
• whether sufficient gas can be supplied;<br />
is not the principal offender, but who has aided<br />
through a bypassed line;<br />
or abetted in the commission of an offence may<br />
• construction of pipelines for transmission,<br />
• the location of the proposed pipeline in<br />
also be punished under the Act.<br />
distribution, supply and storage of gas; and<br />
• need arises to establish priority between gas<br />
relation to the consumers;<br />
users; or<br />
The offences created under the Act include:<br />
• establishment and operation of a CNG<br />
• the timeline for construction of the pipeline;<br />
refuelling station, a factory to convert<br />
• gas is used in such a manner that the<br />
• using gas by bypassing the meter and<br />
vehicles to CNG-driven vehicles, a business<br />
efficiency of gas use prescribed by the<br />
• a plan/design of how the final consumer will<br />
creating a direct line between the supply line<br />
in LPG or LNG.<br />
Government or BERC is not satisfied.<br />
connect to the gas network;<br />
and the internal line;<br />
The Gas Act sets out the following obligations<br />
As gas crisis is common in Bangladesh from<br />
• the financial implications of installing the gas<br />
• tampering with the meter so as to show<br />
that a distributor of gas must adhere to:<br />
time to time, and particularly during the winter<br />
connection;<br />
underuse of the gas;<br />
season, the gas distribution companies (which<br />
• maintaining the quality, pressure,<br />
are wholly state-owned) invoke this provision<br />
• practical plans with regard to the cost of<br />
• using gas by using unauthorized supply line;<br />
environment and safety of gas in accordance<br />
to limit or suspend gas supply to industrial<br />
resettlement in case of acquisition of land,<br />
with the methods determined by the BERC;<br />
customers.<br />
environmental aspects and matters related<br />
• installing, without the written consent<br />
to security;<br />
of the licensee, any line for the purpose<br />
• following the principle of non-discrimination<br />
Regarding the business of supply and storage<br />
of extracting gas or accepting such a gas<br />
between customers of the same class;<br />
of gas, the Gas Act provides that except for<br />
(i) the technology and technical skills<br />
connection, using the gas connection for<br />
supply and storage of gas under a Production<br />
required;<br />
a purpose other than that for which the<br />
• installing meters for measuring gas quantity;<br />
Sharing Contract (PSC), the price for supply<br />
gas connection was given, exceeding the<br />
and storage of gas will be determined by the<br />
(j) the total cost of the project and details of<br />
stipulated monthly load of gas prescribed at<br />
• ensuring appropriate maintenance and<br />
BERC in accordance with the provisions of the<br />
the source of financing;<br />
the time of taking the connection or stealing<br />
repair of distribution pipeline, and regulating<br />
Bangladesh Energy Regulatory Commission Act,<br />
condensate in any way from a condensate<br />
and metering stations (RMS); and<br />
2003.<br />
• a loan repayment schedule; and<br />
pipeline;<br />
• installing distribution pipelines to<br />
The Gas Act provides that the following factors<br />
(l) matters related to socio-economic<br />
• establishing, without a licence, a CNG<br />
connect consumers to the main pipeline<br />
and increasing the capacity of existing<br />
must be considered before constructing or<br />
installation of a gas pipeline:<br />
development.<br />
refuelling station or a CNG conversion<br />
workshop; exceeding, on the part of a<br />
distribution pipelines;<br />
The Gas Act has created certain offences, which<br />
CNG refuelling station, the pressure of gas<br />
• an evaluation of the demand for gas of<br />
are punishable by imprisonment and fine. The<br />
specified by the Government or selling gas<br />
The Act provides that the licensee would have<br />
different classes of consumers;<br />
maximum period of imprisonment under the Act<br />
by tampering with the meter;<br />
24 | <strong>Lawyer</strong><strong>Issue</strong> 25
Oil and Gas<br />
• destroying or sabotaging a condensate,<br />
CNG or LPG establishment or a gas system<br />
management business or a gas industry<br />
business;<br />
• refusing entry to or restricting access to<br />
a representative of a gas distribution or<br />
supply authority in the performance of his<br />
duty, to the place where the gas connection<br />
is installed or to its equipment or confining<br />
him beyond the entrance;<br />
• stealing a pipeline, meter, regulator or<br />
any other object which belongs to an<br />
establishment that transmits, distributes or<br />
supplies gas, or intentionally causing harm<br />
to such objects;<br />
A person or organisation, even if convicted and<br />
punished for any offence under the Gas Act,<br />
will not be relieved of the debt owed to a gas<br />
distributor or supplier.<br />
Prior to the Gas Act, there was no statute<br />
specifically regulating transmission, distribution,<br />
marketing, supply and storage of natural gas and<br />
liquid hydrocarbon.<br />
These matters used to be regulated under<br />
the generally applicable petroleum laws and<br />
regulations. With the new gas regulations, it<br />
remains to be seen how they are applied by the<br />
regulator and how they impact the efficiency,<br />
governance and sustainability of the gas sector.<br />
Recent Change of Regulations and Practice<br />
in Construction and Energy in Japan<br />
By Miho Niunoya<br />
• buying or selling gas pipeline, meter,<br />
regulator or any such object.<br />
Sharif Bhuiyan<br />
Partner at Dr. Kamal Hossain & Associates<br />
T: +88 02 955 2946<br />
Email: sbhuiyan@khossain.com<br />
Practice Areas: Admiralty; Arbitration; Aviation; Banking; Competition; Corporate & Commercial;<br />
Employment; Energy; Intellectual Property; Securities; Taxation; Technology; Telecommunication;<br />
World Trade Organization<br />
Tanim Hussain Shawon<br />
Senior Associate at Dr. Kamal Hossain & Associates<br />
T: +88 02 955 2946<br />
Email: tshawon@khossain.com<br />
Practice Areas: Admiralty; Arbitration; Banking; Competition; Corporate & Commercial;<br />
Constitutional & Administrative; Employment; Energy; Intellectual Property; Telecommunication<br />
Introduction – Tightness in<br />
the Construction Industry<br />
Recently, a number of events have kept the<br />
construction industry very busy in Japan,<br />
including the clean-up and rebuilding after<br />
a number of large scale earthquakes and<br />
various construction activity in the build up<br />
to the 2020 Tokyo Olympics.<br />
The Olympics have spurred not only<br />
the construction of public facilities and<br />
infrastructure, but also many private<br />
projects planned for completion by 2020<br />
on the expectation of an influx of foreign<br />
visitors. Rehabilitation and reconstruction<br />
after the 2011 East Japan Earthquake and<br />
tsunami is still ongoing, but in April this year,<br />
half of the island of Kyushu, Japan’s fourth<br />
biggest island was also hit by series of large<br />
earthquakes. This has put pressure on an<br />
already tight construction industry with<br />
serious shortages of workers and materials.<br />
Industry insiders appear concerned about<br />
uncertainties related to the forecasting of<br />
construction cost. In these circumstances,<br />
some local governments are beginning to<br />
defer less urgent public works projects until<br />
after 2020, in order to avoid unexpected<br />
cost increases.<br />
The Japanese government has also taken<br />
measures to help relieve the shortage<br />
of construction workers, including by<br />
deregulation of foreign construction<br />
26 | <strong>Lawyer</strong><strong>Issue</strong> 27
Real Estate and Construction Law<br />
workers. Until one year ago, it was<br />
financial services group, and VINCI Airports,<br />
types of infrastructure. The most likely<br />
energy covered by the Act include<br />
not allowed to use foreign workers at<br />
a French airport concession company.<br />
candidates are water supply facilities,<br />
solar power, wind power, water power,<br />
construction sites except for training<br />
waste water treatment facilities, toll roads<br />
geothermal power and biomass energy.<br />
purposes and the training period was<br />
An interesting aspect of this tender project<br />
and sports facilities. Concession tender<br />
limited to three years at most.<br />
was that it was truly opened up to foreign<br />
projects have already commenced for a toll<br />
The Act and this system are supervised<br />
bidders, with efforts made to accommodate<br />
road in Aichi Prefecture and a waste water<br />
by the Agency of Natural Resources and<br />
However, as of April 1, 2015, the foreign<br />
and attract such bidders, something<br />
treatment facility in Hamamatsu City.<br />
Energy, an agency of the Ministry of<br />
workers who have completed training<br />
that has not been the case to-date for<br />
Economy, Trade and Industry (“METI”).<br />
to work at a construction site are now<br />
infrastructure projects in Japan. Following<br />
PFI projects are typically financed using<br />
The fixed purchase price and fixed period,<br />
allowed to continue working for several<br />
this airport concession tender project, we<br />
project finance, under which the project<br />
which are determined and announced by<br />
years beyond the three year limit. This<br />
expect there will be more PPP/PFI projects<br />
company procures finance from banks<br />
the Minister of METI every fiscal year based<br />
deregulation is, however, effective only until<br />
that are opened up for foreign companies to<br />
under limited recourse loans. The banks<br />
on the opinion of the committee specially<br />
March 31, 2021, which means that such<br />
more easily participate.<br />
obtain security on every asset and right<br />
established for calculation of purchase price.<br />
foreign workers will presently be allowed to<br />
owned by the project company. One of<br />
The fixed purchase price tends to decrease<br />
work on construction sites only until shortly<br />
The Japanese government has been taking<br />
the characteristics of Japanese PFI finance<br />
gradually over time. As an example, the<br />
after the Tokyo Olympics.<br />
many other measures to stimulate the<br />
schemes is that bankruptcy remoteness is<br />
purchase price for mega-solar electricity<br />
use of PPP/PFI projects in addition to<br />
not strongly emphasized.<br />
rapidly decreased from JPY 40/kWh in 2012<br />
Aside from construction related to the<br />
concessions. One effective measure was<br />
to JPY 24/kWh in 2016.<br />
Olympics and reconstruction following<br />
the request issued by the Cabinet Office<br />
In PFI project, a project company is usually<br />
earthquakes, there has also been a gradual<br />
in December of 2015, addressed to the<br />
formed as a stock company (kabushiki<br />
Project finance is regularly used to finance<br />
increase in PPP/PFI projects in Japan, a<br />
government authorities and the major local<br />
kaisha) and the major consortium members<br />
renewable energy projects. The project<br />
number of changes in the regulation of<br />
governments.<br />
are required to hold its shares throughout<br />
company is usually formed as godo kaisha,<br />
the renewable energy market, and a new<br />
the project period. Mezzanine finance is<br />
which offers an advantage over a kabushiki<br />
infrastructure fund market.<br />
It requested them to put a priority on PPP/<br />
rarely used in PFI projects. However, the<br />
kaisha in terms of bankruptcy remoteness.<br />
Increase of PPP/PFI<br />
PFI schemes when planning public projects<br />
and also for each authority and large local<br />
government to prepare and issue guidelines<br />
PFI Fund, which was established under the<br />
revised PFI Act tends to actively provide<br />
mezzanine finance to PFI projects.<br />
Investors commonly invest in the project<br />
company under a silent partnership<br />
(tokumei kumiai). For this reason,<br />
The Japanese government has been<br />
stipulating the procedure for utilizing PFI/<br />
renewable energy project financing is similar<br />
promoting PPP (Public Private Partnership)<br />
PPP schemes.<br />
This fund was established in 2013 by both<br />
to real estate finance rather than other PFI<br />
and PFI (Private Finance Initiative) projects<br />
government and private companies, for<br />
project financing schemes.<br />
since the PFI Act was enacted in 1999, with<br />
Under a PPP/PFI process, a private company<br />
the aim of procuring finance for concession<br />
limited success. In 2011, the government<br />
or consortium conducting PFI/PPP projects<br />
projects and other PFI projects in which the<br />
For the last three years, the number of<br />
introduced a concession scheme, under<br />
is chosen through a bid process in which<br />
project company is to be run independently.<br />
solar power projects has dramatically<br />
which a private project company may be<br />
proposals from bidders are evaluated for<br />
So far, the fund has provided or decided to<br />
increased mainly due to the ease with which<br />
granted with the right to operate publicly<br />
factors other than simply price, including<br />
fund a total of 15 PFI projects.<br />
photovoltaic plants can be constructed<br />
owned facility and to gain income from the<br />
operation. The first concession project was<br />
the project to operate two airports in the<br />
design, construction plan, operation plan,<br />
financial plan and risk mitigation measures.<br />
As a result of these measures, it is highly<br />
Renewable Energy<br />
compared with other types of renewable<br />
energy plants. The Japanese government<br />
appears to be attempting to now lead<br />
Osaka area for 44 years. Operation by the<br />
likely that we will see more public projects<br />
In Japan, the Feed-in Tariff (FIT) Act came<br />
production of renewable energy away<br />
private project company has commenced in<br />
taking this kind of bidding process.<br />
into force in July 2012. Since then, the<br />
from solar power projects to other types of<br />
April this year.<br />
number of renewable energy projects,<br />
renewable energy projects, such as wind<br />
Following the first concession project for<br />
especially solar power projects, has<br />
power, water power, geothermal power and<br />
Since the concession fee of this project<br />
was quite high (about 2.2 trillion yen) the<br />
the airports in Osaka, a number of other<br />
airport concession projects are currently<br />
increased tremendously. The key concept<br />
of the Act is that the local electric utility<br />
biomass energy.<br />
winning consortium included 30 large<br />
in the process of bidding or preparation<br />
companies are obliged to purchase<br />
One of the major issues of practice under<br />
companies in the Osaka area in addition to<br />
for tender. The Cabinet Office also plans<br />
renewable energy at a certain fixed<br />
the FIT Act is that the authorizations of<br />
Orix Corporation Group, a leading Japanese<br />
to expand the concession projects to other<br />
procurement price. The types of renewable<br />
renewable energy were granted by METI to<br />
28 | <strong>Lawyer</strong><strong>Issue</strong> 29
Real Estate and Construction Law<br />
many more solar power projects than was<br />
Infrastructure Fund Market<br />
this, the first IPO of an infrastructure fund,<br />
that rocked the construction world in Japan.<br />
originally anticipated, but many approved<br />
In order to introduce more private finance<br />
Takara Reven Infra Investment Company,<br />
One was that Toyo Tire & Rubber Co., Ltd.,<br />
projects have failed to reach operation.<br />
into infrastructure projects in Japan, in April<br />
was approved by the Tokyo Stock Exchange<br />
one of the world biggest tire and rubber<br />
2015, Tokyo Stock Exchange, Inc. established<br />
and is scheduled to be listed on June 2,<br />
companies, had used fraudulent data to<br />
A change in the Act has been proposed to<br />
a market specifically for infrastructure<br />
2016.<br />
obtain a certification of seismic isolation<br />
the Diet in order to more quickly eliminate<br />
funds. The projects to be listed with this<br />
rubber from a government authority.<br />
projects that are delayed and promote<br />
market are in principle limited to projects<br />
It has been announced that the Takara<br />
other projects that are able to come online<br />
that have been in operation for more than<br />
Reven Fund will invest primarily in solar<br />
The other was the news of piling work on<br />
sooner.<br />
one year and are producing a stable income.<br />
power projects. It is also predicted that<br />
a large multistory residential building built<br />
several other infrastructure funds dealing<br />
by Sumitomo Mitsui Construction Co., Ltd.,<br />
If the proposed change passes the Diet,<br />
The system of this market is similar to the<br />
mostly with solar power projects, such<br />
one of Japan’s largest general contractors,<br />
approvals already granted may be cancelled<br />
J-REIT (Japan Real Estate Investment Trust)<br />
as Ichigo Holdings and Sparks Group for<br />
together with its subcontractors, causing<br />
if the project company fails to execute a grid<br />
system, a market that opened on the Tokyo<br />
example, are to be listed within this year.<br />
the building to begin leaning. This will<br />
connection contract with the relevant utility<br />
Stock Exchange in 2001 specifically for<br />
undoubtedly result in greater scrutiny of<br />
company by April 1, 2018. It is also planned<br />
real estate investment. For both markets,<br />
It is anticipated that initially, at least, this<br />
supervision and compliance across the<br />
to decrease the burden of environmental<br />
investment corporations (toushi houjin)<br />
infrastructure market will be utilized mostly<br />
construction industry.<br />
assessment for other types of renewable<br />
and investment trusts (toushi shintaku)<br />
by solar power project funds. Over time,<br />
energy projects, such as wind power.<br />
established under Japanese law can<br />
however, it is expected that domestic and<br />
Environmental requirements are also<br />
be listed.<br />
foreign funds investing into various types of<br />
becoming increasingly strict in Japan. In<br />
The dramatic fall in the purchase price of<br />
infrastructure, including PFI/PPP projects,<br />
July 2015, a new piece of legislation was<br />
energy produced by mega-solar power<br />
However, one important difference<br />
will be listed before long.<br />
promulgated that require certain type of<br />
plants, from JPY 40/kW in 2012 to JPY 24/<br />
kW in 2016, also reflects this change in<br />
from the J-REIT market is that foreign<br />
infrastructure funds can also be listed on<br />
Closing – Other trends<br />
buildings, such as new non-residential<br />
buildings larger than 2,000m 2 , to meet<br />
government policy. Nevertheless, many<br />
this infrastructure market. Considering<br />
specified standards for energy consumption,<br />
still view solar power projects as viable<br />
the important role of the operator, timely<br />
Recently, there were two pieces of news<br />
without which, construction will not be<br />
financially, despite the removal of such<br />
disclosures are required of the operator of<br />
concerning defects of construction work<br />
approved.<br />
incentives.<br />
the assets.<br />
Many solar power projects that were<br />
approved in the first three years after the<br />
beginning of the FIT system, are moving<br />
from the development and construction<br />
stage to an operation stage. Some of these<br />
projects will be owned by infrastructure<br />
funds after commencement of operation,<br />
some of which will be listed.<br />
When the FIT Act first came into force, there<br />
were many unclear points and it was difficult<br />
to evaluate the potential risks during the<br />
development period and the following 20<br />
year operation period. Now, however, the<br />
situation has become much clearer and<br />
more stable, making the solar power market<br />
less risky and more suitable for fund-based<br />
investment in many ways.<br />
In the case of domestic funds, it is also<br />
required to disclose the criteria for selection<br />
of an operator. Foreign infrastructure funds<br />
may be listed to the Tokyo Stock Exchange<br />
only in conjunction with listing to a foreign<br />
financial instruments exchange.<br />
In the one year since the infrastructure<br />
market was opened, there has been no IPO<br />
yet. One of the major reasons for this is<br />
that tax incentives were afforded only for a<br />
period of 10 years to infrastructure funds,<br />
which invest more than 50% in renewable<br />
energy projects, while the life of solar power<br />
facilities under tax treatment is 17 years.<br />
In April 2016, however, tax reforms came<br />
into effect that extended the tax incentive<br />
period from 10 years to 20 years. After<br />
Miho Niunoya<br />
Partner at Atsumi & Sakai<br />
T: +81 3 5501 1163<br />
Email: miho.niunoya@aplaw.jp<br />
Miho Niunoya’s practice focuses on domestic and overseas construction, PPP (Public Private<br />
Partnership), energy, project finance and resolution of construction disputes. Recent transactions<br />
include a large scale national hospital, MICE (Meeting, Incentive Travel, Convention and Exhibition),<br />
urban development projects, various water supply and waste water treatment facilities, waste<br />
disposal plants, development and M&A in relation to solar power plants, and dispute settlement<br />
regarding an overseas power plant project. She has been consistently recognized in the fields of<br />
construction and energy by Chambers, Legal 500, IFLR, The Best <strong>Lawyer</strong>s, and Asialaw Profiles. She<br />
also has extensive experience acting a committee member for selection of winning bidders on PPP/<br />
PFI projects.<br />
30 | <strong>Lawyer</strong><strong>Issue</strong> 31
Company Formations<br />
PEOPLE WITH SIGNIFICANT CONTROL REGISTER<br />
FOR UK COMPANIES<br />
By Martin Palmer<br />
The United Kingdom has introduced, with effect from 6 April 2016, a new statutory<br />
register for UK companies called a PSC register. This is an acronym for “People with<br />
Significant Control”. Any individual who exercises or who has the right to exercise<br />
significant influence or control over a UK company must have his or her particulars<br />
entered on the PSC register.<br />
The new transparency rules are contained in<br />
s81 of and Schedule 3 to the Small Business<br />
Enterprise and Employment Act (SBEEA).<br />
Schedule 3 provides a core statutory framework<br />
for the transparency rules. However, this<br />
framework is in many respects an outline<br />
and requires the detailed embellishment<br />
and clarification of secondary legislation (or<br />
regulations). These regulations are now in final<br />
form and there is also statutory guidance on<br />
the meaning of “significant influence or control”,<br />
as well as general guidance to companies,<br />
Sociatates Europeae, Limited Liability<br />
Partnerships and PSCs themselves. There is<br />
no doubt about the purpose and intention of<br />
SBEEA’s transparency provisions. This is that<br />
the names and other particulars of beneficial<br />
owners with significant control of a UK company<br />
should be entered on the company’s PSC<br />
register, which will be available for more or<br />
less indiscriminate public inspection. PSCs will<br />
have very limited statutory protection from<br />
public disclosure, unless they can show to the<br />
satisfaction of the Registrar (or the High Court<br />
on appeal) that their disclosure on the PSC<br />
register puts them at serious risk of physical<br />
harm.<br />
Which UK Companies are Affected?<br />
SBEEA’s transparency rules apply to all UK<br />
companies that are not DTR 5 issuers. DTR<br />
5 issuers are essentially UK companies that<br />
are listed on a regulated market in the UK,<br />
including AIM. UK companies whose voting<br />
shares are listed on a regulated stock market<br />
in any EEA State and certain other specific<br />
countries are also excluded in the regulations.<br />
LLPs are also subject to the new transparency<br />
rules under the LLP regulations (the Limited<br />
Liability Partnerships (Register of People with<br />
Significant Control) Regulations 2016). This<br />
article considers the application of the primary<br />
and secondary legislation as it affects UK limited<br />
companies.<br />
Conditions of PSC Status<br />
Condition 1: X holds directly or indirectly more<br />
than 25% of the shares in the UK company;<br />
Condition 2: X holds directly or indirectly<br />
more than 25% of the voting rights in the UK<br />
company;<br />
Condition 3: X holds the right directly or<br />
indirectly to appoint or remove a majority of the<br />
board of directors;<br />
Condition 4: X has the right to exercise or<br />
actually exercises significant influence or control<br />
over the company;<br />
Condition 5: the trustees of a trust or the<br />
members of a firm not being a legal person<br />
meet any of Conditions 1 to 4 in their capacity<br />
as trustees or partners of a firm, in relation<br />
to a UK company (or would do so if they were<br />
individuals) and X has the right to exercise or<br />
actually exercises significant influence or control<br />
over the day to day activities of the trust or firm.<br />
Conditions 1-3 are essentially objective. Indirect<br />
ownership means ownership by companies that<br />
are not subject to the SBEEA or comparable<br />
transparency rules overseas. Such companies<br />
(e.g. offshore companies) are “looked through”<br />
by the new transparency rules, but this lookthrough<br />
has its limits, as will be illustrated<br />
towards the end of this article.<br />
Condition 4 is the flexible, subjective Condition.<br />
X is a PSC if he has the right to exercise, or<br />
actually exercises, significant influence or<br />
control over the UK company. The Secretary<br />
of State has issued statutory guidance on the<br />
meaning of “significant influence and control”<br />
in the context of this fourth Condition and<br />
also the fifth Condition. Regard must be had<br />
to this guidance in interpreting references to<br />
“significant influence or control” in Sch 1A to the<br />
Companies Act 2006.<br />
Condition 5 of PSC status is presumably not<br />
a “look-through” provision against trusts or<br />
firms, provided that the trustees or general<br />
partners are the only persons who exercise<br />
significant influence and control of the trust<br />
or partnership. But as will be shown in the<br />
examples at the end of this article, some<br />
uncertainty remains around Condition 5<br />
The PSC Register<br />
All UK companies have been required to keep a<br />
PSC register since 6 April 2016. The PSC register<br />
must contain all the particulars of the PSC<br />
required by SBEEA. There are eight particulars<br />
per PSC including name, service address,<br />
country of residence, nationality, date of birth,<br />
usual residential address, the date on which the<br />
individual became registrable and the nature of<br />
his or her control. Until a PSC’s particulars are<br />
“confirmed”, they cannot be entered in the PSC<br />
register.<br />
A PSC’s particulars are confirmed if:<br />
32 | <strong>Lawyer</strong><strong>Issue</strong> 33
Company Formations<br />
• the PSC supplied or confirmed them to the<br />
It is not enough for SBEEA to require companies<br />
time specified on the notice.”<br />
an order to deny the request. A UK court will<br />
company;<br />
• another person did so with the PSC’s<br />
to maintain and populate a PSC register. SBEEA<br />
must give the company investigatory duties and<br />
powers. A UK company must take ‘reasonable<br />
PSC’s Duties to Provide Information to<br />
the Company<br />
only order a UK company not to comply with<br />
the request if the court is satisfied that the<br />
inspection or copy is not sought for a proper<br />
knowledge; or<br />
steps’ to find out if anyone is registrable on the<br />
PSCs have reciprocal duties to notify UK<br />
purpose.<br />
PSC register.<br />
companies of their status, and supply their<br />
• they were included in a statement of<br />
particulars. They must also reply reasonably<br />
A court order requiring non-disclosure will<br />
initial significant control delivered to the<br />
A UK company does this by giving notices to<br />
promptly to notices issued by a UK company<br />
be a rare occurrence, given that the grain<br />
Registrar by the company’s subscribers on<br />
anyone it has reasonable cause to believe is a<br />
requesting their information or particulars.<br />
of the legislation is towards transparency of<br />
incorporation.<br />
registrable person or registrable RLE (s 790D).<br />
ownership. If the UK company fails to secure<br />
And a UK company may also give notice to<br />
SBEEA contains enforcement provisions<br />
such a UK court order, it must permit the<br />
Until all the individuals’ particulars have been<br />
anyone it thinks knows the identity of a PSC, RLE<br />
to support these disclosure requirements,<br />
inspection or copying immediately or it commits<br />
supplied or confirmed, none of the PSC’s<br />
or any legal entity who knows the identity of<br />
enabling a UK company to apply restrictions<br />
a criminal office. Inspection of the PSC register<br />
particulars must be entered on the PSC register.<br />
someone likely to have that knowledge.<br />
on share rights of PSCs, or any other person<br />
is free of charge. A company may charge £12 for<br />
But the PSC register must never be empty of<br />
with an interest in the company, who does not<br />
a copy of its PSC register.<br />
content. It must contain narrative (which is<br />
provided by the regulations and non-statutory<br />
Recipients of such notices must reply to the<br />
company within a month. A UK company<br />
respond to notices issued by the company.<br />
Possible sanctions include restrictions on the<br />
The Central Register<br />
guidance), describing the company’s progress<br />
also has a duty to keep PSC particulars up<br />
transfer of shares, or the exercise of share<br />
The Central Register is in effect a PSC register<br />
with its investigatory and information gathering<br />
to date, and must give notices to PSCs if it<br />
rights.<br />
maintained by the Registrar of Companies and<br />
obligations.<br />
has reasonable cause to believe that their<br />
can be unconditionally searched by anyone. UK<br />
particulars have become out of date (s 790E).<br />
It is important to note that the residential<br />
companies can choose between keeping their<br />
So, for example, if no one is a PSC or otherwise<br />
Again recipients must reply within a month.<br />
address of all people with significant control will<br />
PSC’s particulars on their own PSC register, or<br />
registrable on the PSC register – which is<br />
be kept by the company, but will never appear<br />
on the Central Register.<br />
possible – this fact must be stated in the PSC<br />
If s 790D or E notices are not replied to within<br />
on the PSC register (or the Central Register<br />
register. The prescribed narrative for this state<br />
the specified period of a month, the company<br />
maintained at Companies House) unless this is<br />
The Central Register will not be ready until<br />
of affairs is:<br />
must record this in the PSC register. For<br />
provided as the service address. Furthermore,<br />
30 June 2016, which means that on 6 April<br />
example, if after one month of the date of a<br />
the day of the date of birth will be suppressed<br />
2016 when the PSC register was launched,<br />
“The company knows or has reasonable cause<br />
s790D notice it has not been replied to by the<br />
on the Central Register as an anti-fraud<br />
all UK companies in existence and all new UK<br />
to believe that there is no registrable person or<br />
addressee, the following must be recorded in<br />
measure provided the company maintains its<br />
companies formed between 6 April 2016 and<br />
registrable relevant legal entity in relation to<br />
the PSC register:<br />
own PSC register (and does not elect for the<br />
29 June 2016 will have to create a PSC register.<br />
the company.”<br />
Registrar to maintain the register).<br />
Once the PSC register and the Central Register<br />
Circumstances in which a corporate can be<br />
“The company has given notice under s790D of<br />
the Act which has not been complied with.”<br />
Copying or Inspecting the PSC Register<br />
exist in tandem, i.e. from 30 June 2016, then UK<br />
companies can choose between maintaining<br />
entered on a PSC register<br />
The PSC register is a register maintained by<br />
their own PSC register or delegating this to the<br />
Where a s 790E notice has not been complied<br />
the company itself. The PSC register must<br />
Registrar. UK companies can ‘chop and change’<br />
The general rule is that corporate bodies are<br />
with, the prescribed wording is:<br />
be available for inspection or copying by any<br />
between the maintenance of a PSC register<br />
kept off the PSC register. But as with all rules,<br />
person at the registered office of the company,<br />
and a central register, although there is little<br />
there are exceptions. An important exception<br />
“The addressee has failed to comply with a<br />
or at some other specified place in England and<br />
advantage in doing so.<br />
is that a “Relevant Legal Entity” (RLE) is<br />
notice given under s790E of the Act.”<br />
Wales. A person wishing to inspect or copy the<br />
registrable on the PSC register, if it is a person<br />
PSC register must make a request to the UK<br />
Where a UK company that already has a PSC<br />
with significant control – i.e. would be a PSC if<br />
Where a notice given under s790D or s790E is<br />
company. This request must contain the name<br />
register makes an election to maintain PSC<br />
it were an individual. The hallmark of an RLE<br />
complied with after the time specified in the<br />
and address of the requesting party, and the<br />
particulars on the Central Register, any pre-<br />
is that it is subject to SBEEA or transparency<br />
notice, the company should record in its PSC<br />
purpose of the request.<br />
existing PSC register becomes ‘historic’. Third<br />
requirements equivalent to SBEEA. Therefore<br />
register, along with the date on which the notice<br />
party rights to inspect or copy the historic PSC<br />
all UK private companies are RLEs.<br />
complied with the following:<br />
The UK company then has five working days<br />
register will continue, and the historic PSC<br />
UK Companies Duty to Investigate<br />
“The notice has been complied with after the<br />
to comply with the request to inspect or copy<br />
the PSC register, or apply to the UK courts for<br />
register must notify inspectors or copiers that<br />
PSC particulars are maintained on the Central<br />
34 | <strong>Lawyer</strong><strong>Issue</strong> 35
Company Formations<br />
Register. Once the Central Register is launched,<br />
regime for all PSC particulars that would<br />
comply with SBEEA will result in the commission<br />
The psychological nuances may be unknowable<br />
every new incorporation must provide an initial<br />
otherwise normally be published on the PSC<br />
of criminal offences. Conviction on indictment<br />
and unquantifiable. This sort of uncertainty<br />
statement of significant control to the Central<br />
register and Central Register. To achieve this<br />
can result in a prison term of two years, or a<br />
is removed if the board of directors function<br />
Register and provide an annual statement<br />
complete confidentiality the PSC must be able<br />
fine, or both. Summary conviction can result<br />
individually and collectively in accordance with<br />
under the ‘check and confirm procedure’. If the<br />
to show that if his or her PSC particulars were<br />
in a prison term of one year, or a fine, or both.<br />
their statutory and fiduciary obligations.<br />
government keeps to its timeline, then after<br />
placed on the public register either the PSC or<br />
Some infractions of SBEEA involve only fines and<br />
30 June 2017 the details of the PSCs of all UK<br />
someone they live with would be at serious risk<br />
daily default fines. Criminal penalties also apply<br />
• What about 3.3 of the statutory guidance?“A<br />
companies should be recorded in the Central<br />
of violence or intimidation.<br />
to PSCs who fail to reply to investigatory notices<br />
person would exercise “significant influence<br />
Register at Companies House. Anyone can<br />
from the UK company without reasonable<br />
or control” if:a) They are significantly involved<br />
inspect the Central Register, without identifying<br />
In this case, the serious risk of violence or<br />
cause, or who fail to notify the company of<br />
in the management and direction of the<br />
themselves or declaring their purpose.<br />
intimidation need not have to arise solely from<br />
changes to particulars without reasonable<br />
company, for example: a person, who is not<br />
Protecting Residential Addresses<br />
the activities of the company, but may arise<br />
from a particular characteristic or attribute<br />
cause. In addition, UK companies can encourage<br />
disclosure by restricting a persons’ share rights.<br />
a member of the board of directors, but<br />
regularly or consistently directs or influences a<br />
There are statutory protections for PSCs at<br />
specific to the PSC, taken together with the<br />
significant section of the board, or is regularly<br />
serious risk of violence or intimidation, but<br />
activities of the company he or she exercises<br />
Some examples of PSC identification:<br />
consulted on board decisions and whose<br />
these are limited in scope. First, as already<br />
mentioned, residential address details of PSCs<br />
significant control over. This may assist PSCs<br />
from countries outside the UK who are resident<br />
Example 1<br />
views influence decisions made by the board.<br />
This would include a person who falls within<br />
will always be protected by the PSC and Central<br />
in countries with poor human rights records, or<br />
the definition of “shadow director” set out<br />
Registers. These are therefore suppressed from<br />
high corruption indices. Applications will be to<br />
in section 251 of the Act, but the situation<br />
public view, unless the PSC has nominated his<br />
the Registrar with a possible appeal to the High<br />
is not confined to shadow directors.b) Their<br />
residential address as his service address. But<br />
Court in the case of unsuccessful applications.<br />
recommendations are always or almost<br />
residential address information can still be<br />
always followed by shareholders who hold the<br />
made available to Credit Reference Agencies<br />
Unsuccessful appeals will lead to the PSC’s<br />
majority of the voting rights in the company,<br />
(CRAs) by the Registrar.<br />
particulars of already incorporated UK<br />
Comment<br />
when they are deciding how to vote. For<br />
companies being published, but there will be<br />
example: A company founder who no longer<br />
However, regulations will allow vulnerable<br />
a ‘grandfathering’ period for people who are<br />
• No-one is a PSC under PSC Conditions 1-3<br />
has a significant shareholding in the company<br />
PSCs to apply to Companies House to prevent<br />
PSCs on 6 April 2016, when the PSC register<br />
referred to above<br />
they started, but makes recommendations to<br />
their residential addresses being disclosed to<br />
is launched. They will have a limited period<br />
the other shareholders on how to vote and<br />
CRAs. UK company directors are already able<br />
of time – ending on 30 June 2016 to make an<br />
• What about the flexible and subjective<br />
those recommendations are always or almost<br />
to obtain this level of protection, and if the PSC<br />
application for protection.<br />
Condition 4? The statutory guidance<br />
always followed.”<br />
is or was a company director, or a member of<br />
suggests at 3.2:“All relationships that a person<br />
an LLP already receiving this protection it will<br />
If the application fails it will not lead to the<br />
has with the company or other individuals<br />
This provides firmer ground for assessment<br />
be possible to make an application on that<br />
automatic disclosure of the PSC on the Central<br />
who have responsibility for managing the<br />
and brings into play consideration of de facto<br />
individual’s behalf in his ‘PSC’ capacity without<br />
Register and PSC register, if the person in<br />
company, should be taken into account, to<br />
directors and shadow directors. Presumably<br />
having to evidence serious risk of violence or<br />
relation to whom the application was made<br />
identify whether the cumulative effect of<br />
business consultants are not PSCs where<br />
intimidation.<br />
notifies the Registrar in writing that he or she<br />
those relationships places the individual<br />
they are engaged to advise a board that is<br />
is no longer a PSC of the company concerned,<br />
in a position where they actually exercise<br />
functioning properly.<br />
To obtain this limited confidentiality protection,<br />
together with the date he ceased to be a PSC.<br />
significant influence or control. For example:<br />
a PSC must normally show that he or she or<br />
The PSC will have 12 weeks from notice that his<br />
A director who also owns important assets or<br />
Directors and other officers of UK companies<br />
somebody they live with would be at serious<br />
appeal for protection has been unsuccessful to<br />
has key relationships that are important to<br />
are required to take reasonable measures<br />
risk of violence or intimidation due to the<br />
divest himself of significant influence or control<br />
the running of the business (e.g. intellectual<br />
to identify people with significant control of<br />
activities of the company they are involved with,<br />
of the shares or rights that give rise to his PSC<br />
property rights), and uses this additional<br />
their UK companies. The difficult subjective<br />
were this information to be disclosed to CRAs.<br />
status.<br />
power to influence the outcome of decisions<br />
judgements and perceptions that may be<br />
Statutory Protection for Vulnerable<br />
PSCs<br />
Criminal Penalties for Noncompliance<br />
with SBEEA<br />
related to the running of the business of the<br />
company.”But in many cases such judgements<br />
may require subjective assessments that<br />
required to be taken account of under Condition<br />
4 may well in real life fall to be resolved by<br />
more practical assessments of the objective<br />
There is a much more fundamental protection<br />
Failure by UK companies and their officers to<br />
cannot be made with reasonable certainty.<br />
Conditions 1-3.<br />
36 | <strong>Lawyer</strong><strong>Issue</strong> 37
Company Formations<br />
Special challenges exist in assessing UK<br />
company.<br />
no such person as “X”? The RLE cannot be<br />
In the example it is therefore not apparently<br />
companies owned by offshore companies, or<br />
registered on the UK companies PSC register<br />
clear how to proceed. Assuming the Jersey<br />
offshore trusts. These are briefly considered here:<br />
The implication of this is that if Mr A in the<br />
under Condition 5, because Condition 5<br />
corporate trustee is a licensed professional<br />
example owns only 50% of the shares – perhaps<br />
admits of only an individual (“X”). Paragraph<br />
trustee it is likely to be diversely held with a<br />
Interests held through other legal entities<br />
with a co-venturer (Mr B) – and assuming BVI Co.<br />
5.2 of the Statutory Guidance (published<br />
board of at least three directors. In this scenario<br />
is genuinely “deadlocked”, then neither Mr A nor<br />
14 April 2016) supports this view. However<br />
it would be unlikely that there is a person X to fit<br />
Suppose Mr A holds an interest in “UK Co.” via<br />
his co-venturer, Mr B are PSCs of UK Co. in the<br />
such an analysis, if right, conflicts with the<br />
into Condition 5 of PSC status (this might even<br />
“BVI Co.”. Assume Mr A owns 51% of the shares<br />
example above.<br />
Guidance for Companies, SEs and LLPs on<br />
conflict with the trustee’s regulatory or fiduciary<br />
of BVI Co., which owns all the shares in UK Co. For<br />
page 15 which says:“You should consider<br />
obligations, were it to permit a non-trustee to<br />
clarity, this is shown in the diagram below:<br />
Many offshore trusts directly or indirectly own<br />
whether there is a trust or firm (without legal<br />
exercise such control). The primary legislation<br />
shares in UK companies. Consider the example<br />
personality) which would have met any of the<br />
says that a Jersey corporate is not an RLE and so<br />
below:<br />
conditions (i) to (iv) if it were an individual.<br />
cannot be registered as a PSC under conditions<br />
Where this is the case (sic), the trustees would<br />
(i) to (iv) under the “if it were an individual” test.<br />
be entered on the PSC register and shown<br />
That being so, the final result might be to record<br />
as meeting whichever of Conditions (i) to (iv)<br />
in the PSC register that no-one is a PSC.<br />
apply.”<br />
Conclusion<br />
Comment<br />
Mr A is a PSC of UK Co.<br />
This is because he owns a “majority stake” in BVI<br />
Co., and BVI Co. owns a “majority stake” in UK Co.<br />
The concept of the majority stake is contained in<br />
para 18 of Schedule 1A of CA 2006.<br />
BVI Co. is not a “relevant legal entity”, so it cannot<br />
be entered in UK Co’s PSC register.<br />
Mr A is regarded as having a majority stake in<br />
another company – (e.g. UK Co. In the example),<br />
if Mr A:<br />
1. holds a majority of the voting rights in the<br />
company;<br />
2. is a member of the company and has the<br />
right to appoint or remove a majority of the<br />
directors of the company;<br />
Condition 5 says that “X” is a PSC of “Y” (a UK Co.)<br />
if the trustees of the trust meet any of the other<br />
specified Conditions of PSC status i.e. Conditions<br />
1-4 (in their capacity as trustees) in relation to<br />
UK company “Y”, or would do so if they were<br />
individuals and “X” has the right to exercise, or<br />
actually exercises, significant influence or control<br />
over the activities of that trust.<br />
This seems to be the only test of PSC status<br />
where a trust owns directly or indirectly the<br />
shares of a UK company.<br />
Who is X? Presumably “X” could be:<br />
1. a sole individual trustee (although the<br />
statutory guidance suggests that Condition 5<br />
focuses on non-trustees); or<br />
2. a sole director of a corporate trustee; or<br />
Given that it is the trustees who own the share<br />
The new transparency legislation still has legal<br />
assets directly or indirectly (and not the trust)<br />
and administrative grey areas. Professional<br />
one wonders if the general guidance is correct in<br />
advice will be an important protection for UK<br />
saying that such trustees are registrable. RLEs<br />
company directors in light of the possible criminal<br />
are registrable on the PSC register, but not Jersey<br />
penalties for non-compliance with the new<br />
or other offshore corporate trustees, which are<br />
legislation.<br />
not RLEs.<br />
Martin Palmer<br />
Director and Principal at Jordans Trust Company Limited<br />
T: +44 (0) 117 918 1321<br />
Email: mpalmer@jordanstrustcompany.com<br />
Martin joined Jordans in 1984 and was appointed to the Jordans<br />
main board in 1995. He holds the Advanced Diploma in International<br />
Taxation from the chartered Institute of Taxation and graduated in<br />
Law with Honours from Nottingham University.<br />
3. is a member of the company and controls<br />
alone, pursuant to an agreement with other<br />
shareholders or members, a majority of the<br />
voting rights in it, or<br />
4. has the right to exercise or actually exercises<br />
dominant influence or control over the<br />
3. any other individual non-trustee. However, it<br />
is difficult to square “X’s” significant influence<br />
or control as a non-trustee with (for example)<br />
professional trustees who exercise sufficient<br />
control themselves to be would-be PSCs if<br />
they were individuals.What if the trustee<br />
is a corporate RLE of the trust and there is<br />
He has been a speaker at the ICAEW Annual Tax Conference, the<br />
INTAX Forum and The International Tax Planning Association. He is<br />
a contributing editor of “The Journal of International Tax Trust and<br />
Corporate Planning: UK Companies and Partnerships”. This is now in its<br />
4th edition and published by Lexis Nexis<br />
38 | <strong>Lawyer</strong><strong>Issue</strong> 39
Technology<br />
Valuing a Component Technology of<br />
an Integrated Manufacturing Process<br />
By Scott Vandervliet<br />
Valuing a technology that is part of a bundle of integrated technologies used in a<br />
manufacturing process presents additional challenges beyond those encountered<br />
when appraising a stand-alone technology. This additional complexity requires<br />
significant experience and judgment to properly apply current valuation best<br />
practices and conclude an appropriate and supportable value.<br />
Introduction<br />
The valuation of developing and recentlydeveloped<br />
technology can be challenging<br />
even when it is the only technology<br />
underlying a manufacturing process.<br />
Appraising a single component technology<br />
used in an integrated process that combines<br />
multiple technologies is even more complex.<br />
This incremental complexity arises because<br />
the benefits are derived from the total<br />
technology “bundle” and are realized from<br />
the inter-relatedness of the various pieces.<br />
In other words, the whole technology bundle<br />
provides more utility, and is therefore more<br />
valuable, than the sum of the individual<br />
component technologies.<br />
To place this issue in context, technology<br />
often has a direct, measurable benefit, such<br />
as cost savings. These savings can be in<br />
the form of requiring less raw material or<br />
allowing cheaper inputs. The cost savings<br />
can also manifest itself by automating or<br />
otherwise reducing the “human capital”<br />
required.<br />
The technology can also reduce fixed capital<br />
costs, for example, by reducing or eliminating<br />
certain undesirable byproducts like wastes<br />
that require treatment to comply with<br />
environmental, safety, or other regulatory<br />
constraints. In these circumstances, the value<br />
of the future benefits over the economic<br />
life of the technology can be quantified and<br />
reduced to present value by discounting the<br />
benefits using an appropriate rate of return.<br />
In other instances, the technology may<br />
yield benefits in a product, rather than the<br />
process used to manufacture the product.<br />
For example, in the realm of sporting goods,<br />
there have been technology cycles in golf and<br />
tennis where the equipment has incorporated<br />
new, advanced technology that resulted in<br />
lighter weight, better accuracy, or greater<br />
power. This gave rise to the perception that<br />
the average player could improve virtually<br />
overnight with this equipment. The economic<br />
benefits of such technology can be quantified<br />
based on unit price premiums or incremental<br />
market share.<br />
The Excess Earnings Method<br />
In circumstances where such direct economic<br />
benefits are not present, or cannot be readily<br />
quantified, one must resort to alternative<br />
means of valuing the technology. One such<br />
technique is the so-called “excess earnings”<br />
method, where the income stream associated<br />
with the technology is allocated to account<br />
for the contribution of all other assets that<br />
support the income stream.<br />
These contributory assets are often primarily<br />
working capital, machinery and equipment,<br />
and real property, but can include intangible<br />
assets such as trademarks or copyrights. Any<br />
earnings in excess of the fair rate of return<br />
on all contributory assets are deemed to be<br />
due to the technology. This method presents<br />
three fundamental issues:<br />
• Identifying all categories of contributory<br />
assets, which, in the case of new<br />
technology, typically comprise working<br />
capital and tangible assets. Overlooking<br />
the economic “rent” on such assets<br />
would otherwise overstate the benefit<br />
from, and the value of, the technology;<br />
• Estimating the values and appropriate<br />
rates of return for each contributory<br />
asset that are commensurate with the<br />
asset’s risk. Incorrectly estimating the<br />
portion of the total benefits allocable<br />
to the contributory assets results in<br />
a corresponding miss-measurement<br />
of the portion allocable to the subject<br />
technology; and<br />
• Estimating an appropriate rate of return<br />
for the subject technology, as that rate<br />
is used to discount any excess earnings<br />
to present value after accounting for the<br />
contributory assets.<br />
Risk Assessment<br />
The second issue can be particularly<br />
problematic, as the required risk assessment<br />
analysis poses its own set of challenges.<br />
For example, the risk analysis for property,<br />
plant and equipment entails an evaluation<br />
of possible alternative uses. The more<br />
alternative uses and the more active the<br />
secondary, or resale market, the lower the<br />
risk of the assets. Highly-specialized property<br />
with limited alternative use, or that cannot<br />
easily be sold, is inherently risky because if<br />
40 | <strong>Lawyer</strong><strong>Issue</strong> 41
Anti-trust/Competition Technology<br />
Law<br />
the technology fails, the entire investment in<br />
allocated the earnings between contributory<br />
front payment generally correspond with<br />
contribution of each technology to the total<br />
that asset may be lost. General use property<br />
assets and the total technology bundle, the<br />
higher running royalties.<br />
“excess” earnings.<br />
can more easily be re-purposed.<br />
appraiser must now allocate the excess<br />
earnings between the subject technology and<br />
The running royalty payments are typically<br />
Using a reasonable basis for this allocation,<br />
Once these first two issues are resolved and<br />
any other process technology used in the<br />
structured as a percentage of top line<br />
the appraiser must then allocate the<br />
the appraiser has estimated the portion<br />
manufacturing process.<br />
revenue, either gross or net sales. However,<br />
projected excess earnings between the<br />
of the aggregate earnings stream that<br />
represents a fair return on each contributory<br />
asset, the third issue presents its own<br />
Royalty Rates<br />
it is not uncommon for such royalties to be<br />
applied to a different base such as gross<br />
profit, operating profit, or pretax profit.<br />
subject and other technologies. Once this<br />
analysis is complete, the excess earnings<br />
allocated to the subject technology must<br />
challenges. Some of the questions that must<br />
In certain situations, this issue can be<br />
Royalty payments based on profit mitigate<br />
then be discounted to their present<br />
be answered include:<br />
circumvented. In some circumstances,<br />
risk to the licensee, as royalties are only<br />
value equivalents using an appropriate<br />
the output could be sold on the open<br />
payable if profits are actually realized.<br />
discount rate based on market participant<br />
• What alternative technologies are<br />
market, rather than serving its intended<br />
assumptions.<br />
available, if any?<br />
• What are the strengths and weaknesses<br />
purpose as the raw material input for other<br />
“downstream” processes.<br />
Royalty rates typically are lower when based<br />
on top-line revenue, and progressively higher<br />
based on the extent to which the licensee’s<br />
Discounting to Present Value<br />
of the alternatives compared to the<br />
If this notional approach is relevant, then<br />
costs are captured in a measure of profit.<br />
One useful frame of reference for gauging<br />
subject technology? This analysis<br />
a hybrid market-income method such as<br />
That is, royalties are typically stated as a<br />
appropriate discount rates is the venture<br />
should consider such factors as initial<br />
the “relief-from-royalty” method may be<br />
lower percentage of revenue and a higher<br />
capital market. Venture capital investments<br />
fixed capital cost, physical footprint of<br />
feasible. Unit prices for the products of the<br />
percentage of gross profit, and an even<br />
have a higher level of risk for an investor<br />
the plant; environmental “ footprint”;<br />
manufacturing process are projected based<br />
higher percentage of pretax profit.<br />
than most other forms of investment.<br />
conversion efficiency/yields; energy<br />
on market data, and a notional revenue<br />
efficiency; flexibility in terms of use of<br />
stream is developed.<br />
Once an appropriate royalty rate and<br />
Venture capital investments are typically<br />
alternative raw materials; permitting and<br />
base are established, the notional royalty<br />
early-stage or developmental companies, and<br />
regulatory requirements; and ramp-up<br />
This revenue is then converted into a<br />
payments are then computed using<br />
are privately owned with little or no collateral<br />
and deployment time.<br />
value estimate using market based royalty<br />
projections for the relevant royalty base<br />
security or liquidity. To compensate for this<br />
rates observed in arm’s-length licensing<br />
(revenue or profit). These projected notional<br />
higher risk, venture capitalists seek to achieve<br />
• What is the regulatory environment,<br />
transactions for comparable or “guideline”<br />
royalties must then be discounted to<br />
a higher rate of return than what is offered<br />
currently and prospectively?<br />
technologies. Value is based on these royalty<br />
their present value equivalents using a<br />
by more traditional and secure types of<br />
Environmental concerns must be<br />
payments that are avoided by owning the<br />
discount rate commensurate with the risk of<br />
investments.<br />
considered for virtually any type of<br />
asset or technology. The concept is similar to<br />
these payments. For unproven technologies,<br />
process technology.<br />
valuing a house by determining the rent that<br />
discount rates are usually much higher than<br />
This higher level of risk is similar to that of<br />
is avoided by owning the house.<br />
for proven technologies with demonstrated<br />
unproven technology. On an investment-by-<br />
• In what stage of development is<br />
commercial success.<br />
investment basis, venture capitalists target<br />
the subject technology? Has it been<br />
The royalty rates indicated by such arm’s-<br />
high rates of return, with an expectation<br />
patented and, if so, how extensive are<br />
length licensing transactions must be<br />
If such a hybrid market-income approach<br />
that certain investments will be unsuccessful<br />
the patent claims?<br />
evaluated based on a comparison of<br />
is not practical, an alternate method of<br />
and may result in a loss of some or all of<br />
the associated technologies and the<br />
allocating the total “excess” earnings<br />
the original investment amounts. Only by<br />
• Has the technology been tested on a<br />
subject technology. Terms of the licensing<br />
between the subject technology and other<br />
targeting high individual rates of return can<br />
bench-top or pilot plant basis? All else<br />
agreements are analyzed, such as exclusivity<br />
technologies in the manufacturing process<br />
venture capitalists achieve an acceptable<br />
equal, the closer the technology is to<br />
of use, the scope of the geographic markets,<br />
must be identified. The appropriate method<br />
risk-adjusted return on an overall portfolio of<br />
commercial scale deployment, the lower<br />
the duration of the agreement, and whether<br />
depends on the facts and circumstances of<br />
investments.<br />
its risk profile.<br />
an up-front payment is required in addition<br />
to the ongoing, or “running”, royalties.<br />
the particular technology and situation.<br />
The rates of return targeted by venture<br />
When the subject technology is not the only<br />
One possible option is to use the relative<br />
capitalists often range from 30 percent to<br />
technology employed in the manufacturing<br />
All else equal, exclusive rights, wide<br />
fixed capital costs associated with each<br />
70 percent. The lower end is applicable<br />
process, another step is required. Having<br />
geographic scope, longer term, and no up-<br />
technology as a proxy for the relative<br />
to entities that generate revenue and are<br />
42 | <strong>Lawyer</strong><strong>Issue</strong><br />
43
Technology<br />
profitable. The higher end corresponds to<br />
start-ups, where market penetration potential<br />
is unclear and business plans lack refinement.<br />
Conclusion<br />
Given the complexities discussed herein,<br />
one gains an appreciation for the crucial role<br />
of judgment and experience. There is often<br />
a lack of explicit market data for such key<br />
inputs as contributory asset rates of return<br />
and technology rates of return. Isolating the<br />
excess earnings from the subject technology<br />
is particularly challenging. As has been aptly<br />
stated, “Valuation is an art, not a science.”<br />
This is particularly true when appraising<br />
technology that is one part of a bundle,<br />
requiring judgment at virtually every step of<br />
the analysis.<br />
Appraisal Economics has over 25 years of<br />
experience appraising various technologies<br />
and the assets of technology firms. We have<br />
a seasoned staff of independent valuation<br />
experts, including engineers who have<br />
significant experience with technology<br />
and understand the unique valuation<br />
complexities.<br />
If you are looking for an appraisal firm that<br />
has a deep understanding of your industry<br />
and need a valuation for accounting, tax,<br />
transaction, or litigation purposes, please give<br />
us a call at +1 201 265 3333.<br />
Disclaimer: this article has content that is<br />
general and informational in nature. This<br />
document is not intended to be accounting,<br />
tax, legal, or investment advice. Data from<br />
third parties is believed to be reliable, but<br />
no assurance is made as to the accuracy or<br />
completeness.<br />
Franchise Hong Kong and China<br />
By Ella Cheong, JP<br />
Scott Vandervliet<br />
Hong Kong has been targeted as the regional franchising hub for many international<br />
brands. According to the Hong Kong Trade Development Council, many brands identify<br />
Hong Kong as the prime location to set up their franchise network as it is an ideal<br />
two-way springboard for gaining access to the Asian markets, and for Asian brands to<br />
venture into the global marketplace.<br />
Vice President at Appraisal Economics Inc<br />
T: +1 201 265 3333<br />
Email: svandervliet@ae-us.com<br />
Scott Vandervliet is a vice president for Appraisal Economics Inc., where he is primarily responsible<br />
for the valuation of business interests and intangible assets. He has over thirty years’ experience,<br />
completing valuations for a wide variety of purposes including: due diligence, mergers and<br />
acquisitions, joint ventures, corporate restructuring, litigation, and much more. Mr. Vandervliet<br />
holds a Bachelor of Engineering degree with High Honors from Stevens Institute of Technology,<br />
where he was a chemical engineering major. He also received a Master of Business Administration<br />
degree with Honors from New York University, where he majored in finance.<br />
Being one of the world’s freest economy, there<br />
is no specific legislation governing franchise<br />
operations in Hong Kong, nor are there any<br />
exchange controls, foreign equity participation or<br />
local management participation regulations.<br />
The realms of law that govern franchise<br />
agreements are common law, principles of<br />
contract law and any legislations relating<br />
to registration, licensing and protection of<br />
intellectual property rights such as Trade Marks<br />
Ordinance, Trade Descriptions Ordinance,<br />
Copyright Ordinance, Registered Designs<br />
Ordinance and Patents Ordinance.<br />
Despite the lack of regulations in Hong Kong,<br />
a non-legally binding association namely Hong<br />
Kong Franchise Association (HKFA) offers<br />
some guidance on franchising. HKFA defines<br />
franchising as a method of marketing goods and<br />
services. The basic features of typical franchising<br />
arrangement include:<br />
• the franchisor allowing the franchisee to use<br />
its name or brand;<br />
• the franchisor exercising continuing control<br />
over the franchisee;<br />
• the franchisor providing assistance to the<br />
franchisee; and<br />
• the franchisee making periodical payments<br />
to the franchisor.<br />
Additionally, HKFA published a code of ethics<br />
on their website as a reference for franchisors<br />
and franchisees. This code is divided into four<br />
44 | <strong>Lawyer</strong><strong>Issue</strong> 45
Franchise Law<br />
sections, including general provisions, provisions<br />
relating to franchisor, provisions relating to<br />
franchisee and code of ethics for franchise<br />
consultants. A copy of the code of ethics can<br />
be found at http://www.franchise.org.hk/<br />
codeofethics.asp.<br />
The lack of laws and regulations allows<br />
maximum flexibility for parties entering into a<br />
franchise relationship to freely negotiate their<br />
franchise agreements as well as operate the<br />
franchise business without the need of seeking<br />
approval from authorities. However, more<br />
difficulties arise when entering into the<br />
Chinese market.<br />
Unlike Hong Kong, franchising activities are<br />
overseen by authorities and is highly regulated<br />
in our Chinese counterpart. In China, the<br />
Ministry of Commerce (MOFCOM) and its<br />
commerce regulatory agencies of various level<br />
are the regulating authorities. Several laws and<br />
regulations govern franchise activities.<br />
The primary laws that are applicable includes:<br />
Measures for the Administration on Foreign<br />
Investment in Commercial Sector; Regulation on<br />
the Administration of Commercial Franchises;<br />
Administrative Measures for Information<br />
Disclosure of Commercial Franchises; and<br />
Administrative Measures for the Record Filing of<br />
Commercial Franchises (the “Franchise Laws and<br />
Regulations”).<br />
To file as a franchisor in China, the franchisor<br />
must provide trademark(s) and/ or patent(s)<br />
registration certificates issued by the Chinese<br />
authority as well as other business operation<br />
resources related to the franchise. A minimum<br />
of one such certificate is required from the<br />
potential franchisor by the Ministry of Commerce<br />
(MOFCOM). However, where the potential<br />
franchisor is unable to provide such certification,<br />
it may be sufficient to provide MOFCOM with<br />
a trademark license agreement or equivalent<br />
document indicating authorization to use the<br />
trademarks and to sub-license the same to<br />
franchisees. It is important that the trademark<br />
licence documents must indicate that only the<br />
licensor and potential franchisor can use the<br />
licensed trademarks and that the potential<br />
franchisor can sub-license the trademarks to its<br />
China franchisees.<br />
A further requirement specified by the Franchise<br />
Laws and Regulations is that a franchisor must<br />
have a minimum of two direct sales stores, and<br />
have undertaken the business for more than one<br />
year. This requirement is also known as the “two<br />
plus one” requirement. Only a franchisor or its<br />
direct subsidiary will be qua1ified for two plus<br />
one requirement but not its parent entity.<br />
Another requirement stipulated by the Franchise<br />
Laws and Regulations is that a franchisor<br />
must provide an exhaustive list of items to<br />
be disclosed prior to signing of the franchise<br />
agreement. At least 30 days before entering into<br />
the franchise agreement, the franchisor shall<br />
furnish the franchisee with the following:<br />
• franchisor’s name, domicile, legal<br />
representative, registered capital, business<br />
scope and the basic situation of franchising<br />
activities;<br />
• basic information of the franchisor’s<br />
registered trademarks, corporate logos,<br />
patents, proprietary technology and<br />
business model;<br />
• type, amount and method of payment of<br />
franchise fees;<br />
• price and prerequisites of products<br />
providing services and equipment to the<br />
franchisee;<br />
• provide specific methods for continuous<br />
business guidance, technical support and<br />
operation training to the franchisee;<br />
• specific methods of supervising and guiding<br />
the operation activities of the franchisee;<br />
• estimated budget of investment for the<br />
franchise outlets;<br />
• number, geographical distribution and<br />
business conditions assessment of the<br />
existing franchisees in China;<br />
• last two years’ briefs of financial accounting<br />
report and auditing report which are<br />
audited by accounting firm;<br />
• last five years of litigation and arbitration<br />
results related to franchising;<br />
• if there’s any serious illegal business records<br />
of the franchisor or its legal representative;<br />
• other information prescribed by the<br />
commercial administrative department of<br />
the State Council.<br />
Having met the preliminary requirements to be<br />
a franchisor in China, a franchisor must further<br />
register al1 relevant franchising materials with<br />
MOFCOM within 15 days after entering into a<br />
franchise agreement for the franchise to be valid.<br />
A franchisor will be fined from CNY 10,000 up<br />
to CNY 50,000 should they fail to register these<br />
documents. The materials include:<br />
• a photocopy of the business license or<br />
enterprise registration certificate;<br />
• a sample franchise contract;<br />
• a brochure for franchised operations;<br />
• a marketing plan;<br />
• a written commitment and relevant<br />
Ella Cheong, JP<br />
certification materials proving that<br />
provisions in Article 7 of the Regulation<br />
on the Administration of Commercial<br />
Franchises are followed; and<br />
• other documents and materials prescribed<br />
by the commercial administrative<br />
department of the state Council.<br />
Overall franchising in Hong Kong is relatively<br />
straightforward in comparison to China<br />
and franchising in China is very onerous on<br />
the franchisor while appears to benefit the<br />
franchisee. Notwithstanding the difficult and<br />
burdensome approval process for franchising in<br />
China, the rapid changing demographics, rising<br />
incomes and increased consumer spending are<br />
all attractive factors for franchisors to break into<br />
the Chinese market.<br />
As McDonald’s CEO Easterbrook revealed on 31<br />
March 2016, the goal is to make China become<br />
McDonald’s second largest market, moving it<br />
ahead of Japan and directly behind the U.S by<br />
opening 1,000 new franchise restaurants in China<br />
in the next five years!<br />
<strong>Lawyer</strong>, qualified HK (Roll of Honour of HK Law Society), UK,<br />
Singapore, and Australia. at Ella Cheong Law Office<br />
T: +852 2810 7400<br />
Email: ellacheong@ellacheonglaw.com<br />
Established ELLA CHEONG LAW OFFICE (HK) and agency ELLA CHEONG (HK/BJ). By invitation of Singapore<br />
Government also established ELLA CHEONG LLC in Singapore with support office in Malaysia, handling<br />
issues for ASEAN countries.<br />
Gives talks, authored articles, chaired IP Committee of Law Society, member of Government’s Patents<br />
Steering Committee, founded (President) APAA HK Group.<br />
Her international achievements:<br />
AAA – Life Founder Member<br />
AIPPI - Member of Honour<br />
APAA – APAA Enduring Award<br />
FICPI – Member of Honour<br />
INTA - President’s Award<br />
46 | <strong>Lawyer</strong><strong>Issue</strong> 47
Mediation<br />
Mediation – Practical Guidelines, Part 1: Basic<br />
principles and preparing for the mediation hearing<br />
By Dr. jur. Dirk Oldenburg<br />
Mediation is a subject of much discussion, spurred by the legislative initiative at the EU level<br />
(Directive 08/52/EC) and the transposition thereof by national laws. There are now also a number of<br />
different ways to obtain training as a mediator.<br />
But has mediation also made significant gains in<br />
terms of its importance in practice, outside the<br />
fields of law where it is traditionally employed<br />
(such as family law)? There is reason for doubt.<br />
Why has mediation evidently not yet achieved<br />
the prominence in practice that it should be<br />
accorded in the interests of all concerned?<br />
Successful mediation is not based on complex<br />
academic theory. Instead, it requires three things<br />
above all:<br />
• logistical preparations for the mediation<br />
that are appropriate to the case, including<br />
appropriate preparation of the subject<br />
matter of the conflict;<br />
• the specific craft of the mediator in<br />
conducting the discussion and leading the<br />
procedure; and, most important of all,<br />
• an experienced figure who has the<br />
qualities required of a mediator:<br />
integrity, natural authority, engagement,<br />
determination, and creativity.<br />
I. Methodology: strictness<br />
versus variety<br />
Article 3 of Directive 08/52/EC places the term<br />
“mediation” in quotation marks and defines it<br />
as any kind of voluntary attempt to resolve a<br />
dispute, “however named or referred to.” It is<br />
already apparent from this that there cannot be<br />
a strict methodology for mediation, but rather<br />
that the manner in which the attempt to reach a<br />
resolution is made is subject to the autonomy of<br />
the interested parties.<br />
Still, certain mediation principles have taken hold<br />
in doctrine and practice (especially the “Harvard<br />
concept”), so in simplified terms, the mediation<br />
process can be broken down into the following<br />
rough phases:<br />
• Preparing for the mediation, including<br />
setting down rules of procedure, logistics,<br />
etc.<br />
• “Opening” the mediation hearing, with an<br />
introduction to the basic principles and<br />
features of the mediation procedure, the<br />
facts of the matter, and the status of the<br />
dispute; under some circumstances, an<br />
informal meeting may be held ahead of<br />
time.<br />
• Jointly working out all subjects in dispute<br />
from a factual and legal standpoint and<br />
otherwise.<br />
• Jointly working out and identifying the<br />
actual underlying interests and needs<br />
of the parties to the conflict and their<br />
relative importance and significance to the<br />
respective parties.<br />
• Jointly working out, in creative form, all<br />
theoretically conceivable approaches that<br />
might be taken to achieve a resolution,<br />
initially without evaluating or assessing<br />
them at the same time.<br />
• Jointly working out all theoretically<br />
conceivable scenarios in which an amicable<br />
resolution is not reached, initially without<br />
evaluating or assessing them.<br />
• Evaluating and comparing all of the<br />
identified scenarios in which an amicable<br />
resolution is not reached on the one hand<br />
and all possible approaches for reaching<br />
an amicable resolution on the other.<br />
• Working toward realistic models of<br />
achieving an amicable resolution.<br />
This methodological approach is just one<br />
of many, and it affords as much leeway as<br />
desired for specific emphases appropriate to<br />
the individual case. In principle, mediation can<br />
be used to address any kind of difference of<br />
opinion; only non-waivable law (i.e. questions of<br />
status) sets boundaries for whether a conflict can<br />
undergo mediation.<br />
This paper cannot possibly address all of the<br />
challenges that can arise during mediation, nor is<br />
it intended to do so. Instead, it will focus on a few<br />
important aspects.<br />
II. The “who, where, how” of a<br />
mediation hearing<br />
Mediation’s eventual success or failure is<br />
determined to a large extent early on, during the<br />
planning and conceptualization of the mediation<br />
procedure.<br />
Who is the most important point for the<br />
mediation procedure—that is, determining<br />
the size and composition of the parties’<br />
representation. What are the crucial criteria<br />
when it comes to the question of who should<br />
participate as the parties’ representatives?<br />
• Under no circumstances should there<br />
be too many people involved. The most<br />
reasonable number is between one and<br />
five per side. The delegations should be at<br />
least roughly the same size.<br />
• There must be sufficient knowledge of<br />
the matter represented on all sides in the<br />
delegation, or this knowledge must be<br />
available to the delegation on short notice.<br />
• There must be persons with adequate<br />
decision-making authority at the table.<br />
The level of the hierarchy above the one<br />
where the case is being handled and, if at<br />
all possible, decision makers from outside<br />
the legal department should also be<br />
represented.<br />
The main decision makers should be able<br />
to view each other as equals in terms of<br />
the corporate hierarchy, so they can talk to<br />
each other as equals as well.<br />
Only if these conditions are met does the<br />
mediation have optimum prospects of success. A<br />
certain amount of distance from the matter itself<br />
and not having had too much prior involvement<br />
greatly enhance the parties’ objectivity in<br />
assessing their own prospects and risks. On the<br />
other hand, it is also necessary to ensure that<br />
48 | <strong>Lawyer</strong><strong>Issue</strong> 49
Mediation<br />
the representatives are familiar with all matters<br />
and aspects that are favorable to their party and<br />
can bring them into the proceedings so that they<br />
do not agree to a solution that unreasonably<br />
disadvantages their party for lack of awareness<br />
of these points.<br />
It should be pointed out that decision makers<br />
from outside legal departments often display a<br />
more pragmatic, more realistic view, basing their<br />
assessment on whether a potential approach<br />
to achieve a solution seems appropriate and<br />
reasonable on the whole rather than following a<br />
particular—and chiefly legal—analysis.<br />
Each party should have as many representatives<br />
in the mediation procedure as necessary, but<br />
as few as possible, as the development of a<br />
relationship of mutual trust between those who<br />
are conducting the negotiations for the opposing<br />
sides (and, of course, between the parties’<br />
representatives and the mediator) is critically<br />
important to the success of mediation. Without<br />
a certain level of mutual trust, it is much more<br />
difficult to talk about ways to bring the parties’<br />
positions together or bring up possible scenarios<br />
to resolve the matter.<br />
This means that the mediator must keep these<br />
circumstances—along with interpersonal<br />
compatibility—in mind early on in the process,<br />
during the considerations regarding the<br />
determination of the parties’ representatives.<br />
It is easier to foster and build trust between a<br />
modest number of representatives of the parties<br />
than if there is a large delegation on each side.<br />
And it is not uncommon—in fact, it is quite<br />
typical—for final talks between just two or three<br />
persons to be necessary in order to overcome<br />
the last obstacles to achieving an agreement.<br />
The mediator also needs to take great care<br />
with the aspects of where and how early on,<br />
reviewing where, in what physical setting, and<br />
on what schedule the mediation is to take place.<br />
Depending on the nature and subject matter of<br />
the dispute, a wide range of different concepts<br />
may be appropriate and promising in this regard.<br />
These outward circumstances must be<br />
appropriate to the complexity of the matter,<br />
the economic or other importance of the case,<br />
and the persons involved. Only if the critical<br />
persons on all sides view these conditions as<br />
being appropriate and comfortable is it possible<br />
to create a discussion atmosphere that permits<br />
and even fosters the building of trust between<br />
the relevant decision makers in a relatively<br />
short time—and without that, the prospects of<br />
successful mediation are poor.<br />
Not every conflict justifies spending several<br />
days in negotiations in an exclusive, isolated<br />
location—but for complex, highly important<br />
conflicts, this kind of setting often gives rise to<br />
the best prospects of success. In other cases,<br />
the prospects of success may be greatest if it is<br />
possible to bring the final decision makers on<br />
both sides together in person, even if only for<br />
three hours at an airport hotel.<br />
No two cases are alike. And yet, one common<br />
thread is that the participants should already<br />
perceive even the general framework of the<br />
mediation as representing more than just the<br />
logistical details of a business meeting. Deciding<br />
that one is willing to engage in a cooperative<br />
mediation procedure marks the first step toward<br />
achieving an amicable agreement; this is exactly<br />
where the mediator needs to meet the parties<br />
to the conflict and then bring them along by<br />
creating the framework for constructive talks in a<br />
spirit of mutual trust.<br />
It is definitely possible, especially in large<br />
organizations and in the case of largescale<br />
procedures, that not all of the parties’<br />
representatives will feel that pursuing mediation<br />
is the right approach. They may interpret a push<br />
to achieve an amicable resolution as criticism of<br />
their management of the conflict so far, or, in the<br />
case of large-scale matters, they may even see an<br />
agreement as jeopardizing the main thing they<br />
have been working on (possibly for years), their<br />
“raison d’être,” or even their economic livelihood. of the parties’ representatives to communicate<br />
This makes it all the more important for the<br />
in line with the cooperative principle behind<br />
mediator to strive to keep up the momentum<br />
mediation while putting a stop to any emerging<br />
formed by the decision to attempt mediation<br />
signs of aggressive communication behavior in<br />
and try to bring all delegation members fully on<br />
order to avoid jeopardizing the mutual trust that<br />
board for the procedure.<br />
has been built—or to be able to establish that<br />
trust in the first place.<br />
In principle, therefore, mediation starts with a<br />
positive initial situation. Immediately launching<br />
Setting down the details of who, where, and<br />
directly into the process of working on the<br />
how in a mediation agreement may be a good<br />
issues without allowing the persons involved<br />
idea, but it is not critically important. Rather it is<br />
to get a feel for one another beforehand<br />
important that a shared understanding on these<br />
should be avoided. If at all possible, the parties’<br />
points does exist or, even better, for them to be<br />
representatives should get to know one another left up to the mediator.<br />
first, without direct reference to the conflict. In<br />
this way, initial personal impressions are formed<br />
Part 2 of these guidelines will address preparing<br />
during discussion of general topics, not later on,<br />
for the conflict before the mediation hearing and<br />
during the discussion of the conflict, which is<br />
the specifics of conducting the hearing as such.<br />
naturally contentious.<br />
Ideally, even the very first round of discussion of<br />
the facts of the matter will be less contentious on<br />
both sides if this is done, with a greater sense of<br />
partnership. Throughout the mediation hearing,<br />
one of the mediator’s key tasks is to remind all<br />
Dr. jur. Dirk Oldenburg<br />
Attorney at Law at Dr. jur. Dirk Oldenburg<br />
T: +49 (0) 178 41 41 935<br />
Email: do@dirk-oldenburg.com<br />
Dr. Dirk Oldenburg (born 1957 Kiel, Germany; qualified German lawyer/Rechtsanwalt) has<br />
gathered more than 30 years experience as partner of an international law firm in Frankfurt<br />
(Puender pp; today part of Clifford Chance) on the one hand and thereafter in the corporate<br />
world as General Counsel, Management Board Member and Chief Compliance Officer of the<br />
global pharmaceutical company Aventis/Sanofi. Utilizing his expertise and experience both<br />
from the attorney´s point of view as well as from the perspective of a corporate lawyer and<br />
corporate executive Dirk Oldenburg has moved into the field of mediation of complex dispute<br />
situations - be it due to legal or factual issues, due to interpersonal or intercultural difficulties<br />
within a relationship or because of high sensitivity or urgency of a matter.<br />
50 | <strong>Lawyer</strong><strong>Issue</strong> 51
Mediation<br />
Mediation – Practical Guidelines, Part 2: The<br />
mediator – role and limits as the moderator of the<br />
process of reaching an agreement<br />
By Dr. jur. Dirk Oldenburg<br />
While part 1 of these guidelines addressed the basic principles of the mediation procedure in general<br />
and, above all, the logistical issues of “who, where, how,” part 2 deals mainly with preparing for the<br />
conflict before the mediation hearing and the specifics of conducting the hearing as such.<br />
I. Moderating the process of<br />
reaching an agreement<br />
Every mediator will have his or her own style<br />
and basic concept regarding the sequence<br />
and structure of a mediation hearing, which<br />
he or she is then required to adjust to the<br />
respective individual case.<br />
1. Written narrative summary by the<br />
parties to the conflict<br />
The mediator cannot reasonably be expected<br />
to work his or her way through what may<br />
be mountains of files on a lengthy conflict,<br />
nor is it certain that he or she would in fact<br />
discern the true core of the conflict even<br />
so. Both parties must therefore be asked to<br />
summarize the facts of the matter and the<br />
status of the dispute from their standpoints,<br />
in a manner appropriate to the complexity<br />
of the case. To this end, the mediator<br />
should, after consulting with the parties<br />
to the conflict, set out clear rules for the<br />
maximum scope and submission deadline<br />
and potentially establish an organizational<br />
structure that applies to all sides with regard<br />
to the subjects to be addressed. Within<br />
a further time limit after that, each party<br />
will then have the opportunity, after taking<br />
note of the opposing side’s submissions, to<br />
submit supplementary written remarks on<br />
the statements made therein within a certain<br />
time window and maximum scope.<br />
These clear and easily understood summaries<br />
– which are termed “narratives” hereinafter –<br />
form the basis for the mediator to familiarize<br />
himself or herself with the substance of the<br />
conflict and plan the mediation process.<br />
2. Opening phase of the mediation hearing<br />
At the start of the mediation hearing, the<br />
mediator should provide an introduction to<br />
mediation in general, the planned process of<br />
the talks, and the procedural rules that must<br />
be observed.<br />
After that, one option is to allow the parties<br />
to the conflict to present their respective<br />
standpoints orally within a certain speaking<br />
time. Instead of that, and often preferably,<br />
the mediator, who is now quite familiar with<br />
the matter from reading the written remarks,<br />
can outline his or her understanding of the<br />
status of the dispute and the issues that are<br />
especially relevant to the conflict and ask the<br />
parties to the conflict to add to or correct<br />
these remarks.<br />
This method has one major advantage in<br />
that it precludes potentially heated debate<br />
between the parties right at the start of<br />
the talks, instead offering an avenue of<br />
introduction to the subject matter of the<br />
conflict through the mediator’s presentation<br />
and with the mediator’s distance from the<br />
case.<br />
3. Looping and paraphrasing<br />
One factor that is absolutely crucial to the<br />
success of the mediator’s work is ensuring<br />
that all parties to the conflict have a firm<br />
sense at all times that the mediator is<br />
paying attention to and considering their<br />
submissions and actually understanding<br />
them as intended by the presenting party.<br />
The technique of “looping” or paraphrasing is<br />
an excellent way to do this. What this means<br />
is that the mediator repeats or paraphrases<br />
the parties’ submissions on an ongoing<br />
basis to ensure that he or she does in fact<br />
understand both parties’ submissions and<br />
arguments accurately. Having the mediator<br />
summarize the written narratives is another<br />
side of this same technique, which is why it<br />
is an excellent way to start the discussions<br />
and negotiations. In this way, the parties’<br />
representatives can build the necessary<br />
fundamental trust in the mediator’s<br />
impartiality and understanding of the facts of<br />
the matter.<br />
4. Interests/needs versus positions<br />
The positions and demands or denials<br />
expressed by the parties to the conflict<br />
are obvious and clearly apparent. They are<br />
generally quite easy to ascertain and name.<br />
In terms of looking for possible solutions<br />
that involve an amicable agreement later<br />
on, however, it is highly important to “see<br />
through” these positions and discern the<br />
actual interest or need on which the party to<br />
the conflict bases the position.<br />
Although a position is generally expressed in<br />
the form of a monetary amount, in the vast<br />
majority of cases even a monetary position is<br />
backed by an identifiable interest or concern<br />
that does not have to do primarily with<br />
money. Finding out these underlying interests<br />
or needs on the part of all of the parties to<br />
the conflict (not just the claimant) is very<br />
often the key to identifying the best possible<br />
alternative solution in the further course of<br />
the negotiations.<br />
5. Evaluating and weighing the parties’<br />
interests/needs<br />
In many cases, the matter concerns not just<br />
one need on the part of one of the parties<br />
to the conflict, but rather several, which<br />
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Mediation<br />
generally vary in their importance to that<br />
Where the conflict exists on a relationship<br />
process of weighing these factors. Holding<br />
the conflict to think about possible solutions<br />
party. But the other parties to the conflict<br />
level, achieving a certain level of satisfaction,<br />
open discussions to assess the various<br />
from the other side’s perspective as well,<br />
also have needs and interests of their<br />
or at least airing of concerns, on the part<br />
alternatives for reaching or not reaching an<br />
regardless of their own situations.<br />
own, and they also vary in relevance. For<br />
of the affected parties is even generally the<br />
amicable resolution means that in factual<br />
mediation purposes, it is important for the<br />
primary goal. Since relationship conflicts<br />
terms, part of the process of weighing the<br />
During this process, the interested parties<br />
true interests/needs of everyone involved<br />
are very difficult to categorize, it is nigh<br />
various factors takes place in the presence<br />
should be urged to be as creative as possible<br />
in the conflict to be identified through open<br />
impossible to generalize about how to handle<br />
of the opposing party, and most of all, in the<br />
so that no theoretically conceivable solutions<br />
discussion and then evaluated or categorized<br />
them, except to say that the most promising<br />
presence of the mediator.<br />
are overlooked. In this regard, the mediator<br />
jointly by the interested parties in terms<br />
path is generally to gently and carefully<br />
should act as a catalyst for the parties’<br />
of their importance and significance to the<br />
identify and name the deeper-seated areas of<br />
That means the mediator can more readily<br />
creativity.<br />
parties to the conflict. In many cases, the<br />
personal dissonance. It may be necessary to<br />
influence the evaluation of the alternatives<br />
interests of those involved in the conflict have<br />
hold a large number of individual discussions,<br />
and the process of weighing the options<br />
The mere fact that they are considering, at<br />
more aspects than is initially apparent.<br />
or even to call in an appropriate expert.<br />
than if these consultations were to take<br />
least in part, ways of arriving at an amicable<br />
In many cases, even simply allowing the<br />
place among the parties’ representatives<br />
agreement while taking the interests and<br />
This can open up possible avenues of<br />
affected parties to voice their concerns with<br />
themselves, confined to their own<br />
needs of the other side into account fosters<br />
reaching an agreement, as accommodating<br />
the mediator’s guidance can lead to a greater<br />
delegations, without the mediator taking part.<br />
greater understanding for the opposing<br />
a need that has been acknowledged as<br />
understanding of the opposing side’s views<br />
In particular, the mediator can ensure that all<br />
side’s concerns, whether they are purely<br />
being especially important to one party may<br />
and feelings.<br />
interested parties have a clear sense of the<br />
financial in nature or involve communication<br />
generate greater value for that party than<br />
scenarios in which an amicable resolution is<br />
challenges, financial problems, or something<br />
conceding the point “costs” the opposing side<br />
In addition, naming and identifying the<br />
not reached as they make their decisions.<br />
else. The important thing is to set down all<br />
– so a kind of added value with regard to one<br />
deeper-seated root causes of a conflict<br />
of the possible solutions so that they can be<br />
aspect or another can be generated through<br />
often points to ways that the parties could<br />
During the discussion that follows within<br />
referred to anytime later on.<br />
these kinds of elements of mutual agreement,<br />
consciously avoid or handle the problematic<br />
a negotiation delegation, there are often<br />
making it easier to reach an overall solution.<br />
relationship in the future, for example<br />
different assessments and perspectives,<br />
9. Assessing the possible solutions<br />
by agreeing to change the processes by<br />
and different personalities also affect the<br />
The process of designating and attaching<br />
which information is shared or matters<br />
process of forming an opinion. Holding an<br />
After all of the conceivable approaches to<br />
values to the interests and needs of other<br />
are coordinated, making changes in<br />
open discussion as a group beforehand may<br />
achieving a resolution have been found,<br />
interested parties (and not just one’s own)<br />
responsibilities, involving external persons of<br />
shift the dynamics within the delegation<br />
designated and set down, the next step is to<br />
openly and through shared discussion creates<br />
trust, and so on.<br />
and enhance the members’ willingness to<br />
identify the solution models that are realistic<br />
a negotiation atmosphere of consideration<br />
compromise, because the scenarios for what<br />
and merit discussion. In this situation, it is<br />
toward the other interested parties. It is<br />
7. Determining and evaluating the<br />
will happen if an agreement is not reached<br />
beneficial for all interested parties to have<br />
much more difficult to reach an amicable<br />
alternatives in case an amicable resolution<br />
are probably clearer to them at that point<br />
been involved in preparing the full overview<br />
agreement without this kind of cooperative<br />
is not reached<br />
than they usually are.<br />
of all possible approaches, so all sides are<br />
negotiation atmosphere.<br />
aware that resolving the conflict – if it is in fact<br />
Before beginning to look for approaches to<br />
8. Identifying possible solutions<br />
possible to do so – will require them to select,<br />
6. Separating the factual level from the<br />
achieve an amicable resolution, it is advisable<br />
adapt, and combine the various elements<br />
relationship level<br />
to openly discuss all of the conceivable<br />
The task in the next stage of the process is<br />
from this list.<br />
scenarios in which an amicable resolution is<br />
to identify as many conceivable approaches<br />
It is not uncommon for conflicts (such as<br />
not reached as a group and evaluate their<br />
that can be taken to achieve an amicable<br />
The list of possible solutions will very likely<br />
those between shareholders or partners in a<br />
effects on the interested parties. It is certainly<br />
resolution as possible. Aside from the obvious<br />
include approaches in which the added<br />
business) to be based not primarily on factual<br />
a good idea – and a matter of course before<br />
options, there are almost always less obvious<br />
value discussed above is created by giving<br />
issues, but rather to have their true roots on<br />
reaching an amicable settlement – to identify,<br />
ones, which are more likely to be found in<br />
something to one party that is more<br />
the relationship level. If the mediator is not<br />
assess, and weigh the prospects and risks<br />
joint brainstorming sessions. For all kinds<br />
important to that party than conceding it<br />
successful in identifying and understanding<br />
these root causes – which are often not clear<br />
associated with continuing the conflict.<br />
of brainstorming, the main point is to elicit<br />
as many thoughts and ideas as possible,<br />
costs the other. Special attention should be<br />
paid to seeking out these kinds of elements<br />
from the exchange of written narratives – it<br />
Although this sounds like it goes without<br />
refraining for the time being from making<br />
and including them in an overall concept.<br />
will be very difficult to resolve the conflict.<br />
saying, there are nonetheless many parties<br />
any value judgments or ruling anything out.<br />
who do not go through a clearly structured<br />
The mediator’s role is to ask the parties to<br />
If at all possible, a good overall solution<br />
54 | <strong>Lawyer</strong><strong>Issue</strong> 55
Mediation<br />
should address all of the matters involved<br />
agreement?<br />
entirely at any time, and events that form<br />
especially those concerning the facts of<br />
in the conflict and, beyond that, all other<br />
connecting factors between the parties, since<br />
a full package solution makes it much easier<br />
to balance out points of contention with<br />
concessions or promises made elsewhere,<br />
thereby crafting an overall solution that is<br />
suitable for consensus and advantageous for<br />
all of the parties involved.<br />
This means that all levels and topics, whether<br />
factual or personal in nature, should be<br />
included in the package in order to arrive at a<br />
That brings us to the question of what limits<br />
the mediator needs to observe. The goal<br />
of this section is to shed some light on the<br />
borderline issues that typically come up. In<br />
general, of course, any mediator who works<br />
close to the limits of his or her actual role<br />
makes himself or herself more vulnerable to<br />
attack, so one side or the other might assert<br />
that the mediator’s neutrality has been lost<br />
– with the result that the mediator should<br />
recuse himself or herself immediately.<br />
part of the mediation process cannot be used<br />
in court proceedings concerning the dispute<br />
(Article 7 of Directive 2008/52/EC). However, it<br />
must be clear to the mediator in such a case<br />
that he or she is playing with fire.<br />
There are two reasons for this. First,<br />
examining witnesses, for example, would<br />
pose an elevated risk that one of the parties<br />
could allege that the specific nature of the<br />
questioning constitutes the mediator’s taking<br />
sides; and second, it is questionable whether<br />
the matter, witness statements, matters of<br />
credibility, expert opinions, legal questions,<br />
and issues of solvency is a particular reason<br />
why it is possible to achieve solutions through<br />
agreement and compromise, and why these<br />
solutions should in fact logically be achieved<br />
in most cases.<br />
The mediator must resist any temptation<br />
to assume the role of deciding the matter<br />
or permitting others to place him or her in<br />
such a role; in principle, this applies even if<br />
solution that appeals to all sides and establish<br />
a relationship that is as free of tension as<br />
possible for the future.<br />
As part of this process of identifying a<br />
solution, it is occasionally a good idea to refer<br />
once again to the alternatives that have been<br />
However, the mediator can guard against this<br />
risk to a certain extent by coordinating any<br />
activities that could leave him or her open to<br />
attack with all of the parties to the conflict in<br />
advance and engaging in these activities only<br />
if all parties have agreed.<br />
clarifying factual issues (or supposedly<br />
clarifying them, at any rate, as they often<br />
remain disputed even afterward) would<br />
truly improve the prospects of reaching an<br />
amicable agreement or would actually tend to<br />
worsen them instead.<br />
all parties turn to the mediator with this in<br />
mind. Before acceding to such a request, the<br />
mediator would have to be firmly convinced<br />
that the mediation is unlikely to succeed<br />
otherwise.<br />
3. Individual discussions?<br />
identified in the event that no agreement<br />
is reached in order to maintain the parties’<br />
interest in achieving an amicable resolution<br />
and ensure that they do not give up their<br />
efforts prematurely. Mediation negotiations<br />
often seem to have failed conclusively,<br />
but can then be started back up again<br />
successfully, for example if the parties take a<br />
break so they can resume the discussion with<br />
renewed energy and after reconsidering the<br />
alternatives that will apply if an agreement is<br />
not reached.<br />
For the typical activities in question (such<br />
as individual discussions with one of the<br />
parties to the conflict), this can already be<br />
set out in general terms in the mediation<br />
agreement (agreement between the parties<br />
to implement mediation) or the mediator<br />
agreement (agreement between the<br />
parties and the mediator on various points,<br />
particularly describing the engagement,<br />
compensation, liability and possibly also the<br />
nature and limits of implementation).<br />
After all, uncertainty on certain issues<br />
– regardless of the nature thereof, and<br />
wherever possible, regarding as many open<br />
issues as possible – can be viewed as building<br />
blocks for an amicable resolution. It is<br />
therefore recommended that mediators not<br />
be available to clarify the facts of the matter<br />
as a basic principle. At most, the mediator<br />
should only state that he or she is willing to<br />
do this if there is pressure to do so from all<br />
of the parties to the conflict, and only if it is<br />
extremely unlikely that an agreement would<br />
Individual discussions should be an option,<br />
and for the sake of clarity, specific rules<br />
on this point should be set down in the<br />
mediation agreement or the agreement<br />
with the mediator. If one party suspects<br />
that a mediator would act unfairly during<br />
an individual discussion, that party would<br />
be best advised to reject the mediator<br />
immediately.<br />
Without violating his or her obligations in<br />
1. Clarification of facts by the mediator?<br />
be reached otherwise.<br />
any way, a mediator can address the risks<br />
In these kinds of situations, it is crucial for<br />
that arise for one party in a conflict better<br />
the mediator to retain firm control of the<br />
course of the hearing at all times, intervening<br />
in situations of escalating conflict or where<br />
a breakdown seems imminent and taking<br />
procedural measures to affect how the<br />
negotiations proceed. This is one reason that<br />
mediation involving a strong, experienced<br />
mediator has significantly better prospects<br />
of success than normal bilateral settlement<br />
negotiations.<br />
Can and should a mediator make himself or<br />
herself available to clarify disputed facts (e.g.<br />
by examining witnesses), and is the mediator<br />
even allowed to do this? This kind of activity<br />
clearly does not fall within the scope of the<br />
mediator’s role. If the parties wish it, however,<br />
it is not prohibited; the parties’ autonomy<br />
in determining the course of the mediation<br />
allows it.<br />
2. Assessment of factual, legal, evidentiary<br />
questions?<br />
In principle, the mediator should refrain from<br />
expressing any opinions of his or her own<br />
on these kinds of questions that are relevant<br />
to the conflict, but instead should view the<br />
mediator’s role as lying solely in pointing out<br />
which questions should be viewed as open<br />
and without a certain final answer.<br />
and with greater emphasis if the mediator is<br />
meeting one on one with that party. This kind<br />
of treatment could be viewed – possibly even<br />
correctly – as a violation of the obligation<br />
of neutrality if it occurred in a discussion<br />
attended by all parties. If the parties accept<br />
their mediator, they will assume that he or<br />
she applies the same standards on both<br />
sides. Naturally, the mediator must live up to<br />
these expectations and cannot allow himself<br />
II. A generator of limitless<br />
After all, the parties have the option of<br />
withdrawing from the mediation process<br />
Uncertainty in questions of all kinds,<br />
or herself to be made into a tool for one side.<br />
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Mediation<br />
4. Suggestions for reaching an agreement?<br />
These kinds of suggestions should exist –<br />
but only as a last resort. There is no doubt<br />
whatsoever that one of a mediator’s main<br />
tasks is to be creative in seeking out potential<br />
approaches to take in order to reach an<br />
agreement and introduce any approaches<br />
not identified or designated by the parties<br />
themselves into the discussion on a hypothetical<br />
basis.<br />
However, the mediator should fundamentally<br />
interpret his or her role as being merely that of<br />
a catalyst for the parties to reach an agreement<br />
between them, and not, like an arbitrator,<br />
making a suggestion that he or she perceives to<br />
be fair as an intermediary.<br />
As a precaution, it is a good idea to insert a<br />
provision in the mediation agreement and/or<br />
the agreement with the mediator stating that<br />
the mediator is entitled to make suggestions<br />
regarding possible agreement between the<br />
parties at his or her own discretion, but the<br />
mediator should not exercise this right except if<br />
all parties specifically wish it and if the mediator<br />
believes that in all likelihood, the parties would<br />
not reach an agreement otherwise.<br />
III. Outlook<br />
It appears that there is so far no widespread<br />
practice in Europe of using mediation to settle<br />
conflicts in economic matters. In the interests<br />
of the overloaded justice system and with an<br />
eye to settling conflicts faster and at lower cost<br />
and conserving resources in general, and in the<br />
fundamental interest of dealing with one another<br />
in a spirit of cooperation, this should be changed<br />
for the good of all.<br />
Seabed Mining and the application of<br />
Maritime Law Concepts<br />
By Wylie Spicer,<br />
Peter L’Esperance<br />
Dr. jur. Dirk Oldenburg<br />
Attorney at Law at Dr. jur. Dirk Oldenburg<br />
T: +49 (0) 178 41 41 935<br />
Email: do@dirk-oldenburg.com<br />
Dr. Dirk Oldenburg (born 1957 Kiel, Germany; qualified German lawyer/Rechtsanwalt) has<br />
gathered more than 30 years experience as partner of an international law firm in Frankfurt<br />
(Puender pp; today part of Clifford Chance) on the one hand and thereafter in the corporate<br />
world as General Counsel, Management Board Member and Chief Compliance Officer of the<br />
global pharmaceutical company Aventis/Sanofi. Utilizing his expertise and experience both<br />
from the attorney´s point of view as well as from the perspective of a corporate lawyer and<br />
corporate executive Dirk Oldenburg has moved into the field of mediation of complex dispute<br />
situations - be it due to legal or factual issues, due to interpersonal or intercultural difficulties<br />
within a relationship or because of high sensitivity or urgency of a matter.<br />
Introduction<br />
Seabed mining (SBM) is an emerging industrial<br />
activity involving the recovery of mineral<br />
resources from the ocean floor. As a form<br />
of resource extraction or mining, SBM is a<br />
predominantly industrial activity. Yet, as one<br />
which occurs in the marine environment, SBM<br />
may also be characterized as a maritime activity.<br />
This hybrid character creates uncertainty<br />
concerning which legal regime will govern SBM<br />
activities and for what purposes? This article<br />
engages with that uncertainty by asking to what<br />
extent is SBM a maritime activity subject to<br />
maritime law’s application? The authors suggest<br />
that as SBM evolves as a maritime industrial<br />
activity, clarity surrounding the applicable legal<br />
regime will not only be a necessary pre-condition<br />
for commercial certainty and investment, it will<br />
also be necessary to safeguard the values at the<br />
core of maritime law: protecting life, property<br />
and the environment at sea.<br />
Seabed Mining<br />
Rising prices for non-energy mineral resources<br />
coupled with depleting mineral reserves on<br />
land, has prompted mining companies to<br />
look seawards to satisfy the world’s persistent<br />
demand for minerals 1 . On the ocean floor,<br />
minerals occur in the form of polymetallic<br />
nodules, sulphides and ferromanganese crusts,<br />
containing manganese, copper, zinc, lead, iron,<br />
silver, gold, cobalt, platinum and rare earth<br />
metals in concentrations far richer than those<br />
available from scarce land-based sources.<br />
Presently, the International Seabed Authority<br />
(ISA), the intergovernmental body established<br />
1 European Commission, “Blue Growth: Opportunities for<br />
Marine and Maritime Sustainable Growth”, Brussels, 13.9.2012,<br />
COM (2012) 494, online: http://ec.europa.eu/maritimeaffairs/<br />
policy/blue_growth/documents/com_2012_494_en.pdf.<br />
58 | <strong>Lawyer</strong><strong>Issue</strong> 59
Anti-trust/Competition Shipping and Maritime Law<br />
by the 1982 United Nations Law of the Sea<br />
legal framework must address, including: the<br />
national jurisdictional boundaries, the exclusive<br />
• Mode of propulsion irrelevant.<br />
Convention (UNCLOS) to regulate seabed<br />
ownership, financing, classification and insurance<br />
application of maritime law for select aspects of<br />
Applying the above elements to the vessels,<br />
activities in areas beyond national jurisdiction,<br />
of SBM vessels, equipment and activities; SBM’s<br />
SBM activities, and the concurrent application of<br />
installations and equipment employed in current<br />
has issued exploration licenses to member states<br />
marine spatial footprint and interactions with<br />
maritime law for others.<br />
and proposed SBM activities suggests those<br />
to explore defined parcels of the Pacific, Indian<br />
and Atlantic Oceans.<br />
A Canadian company Nautilus Minerals Inc.<br />
other maritime uses; occupational health and<br />
safety; pollution and environment; and civil<br />
liability. Currently, those laws which do apply to<br />
the industry derive from a patchwork of legal<br />
The Application of Maritime<br />
Law Concepts<br />
vessels may meet the definition of “ship” for<br />
select purposes. Nautilus’ proposed PSV satisfies<br />
many of the common elements of “ships”,<br />
especially when independently navigating<br />
(“Nautilus”) is poised to commence commercial<br />
sources: national and international; private and<br />
In gauging maritime law’s application to the<br />
between extraction sites.<br />
extraction of copper and gold from seafloor<br />
public.<br />
SBM industry, an orienting question is what<br />
sulphide systems in the Solwara-1 concession<br />
qualifies as a ship, for what purposes and with<br />
This characterization aligns with case law from<br />
approximately 1600 metres beneath the<br />
Part XI of the UNCLOS authorizes the ISA to<br />
what consequences? Although an ostensibly<br />
the offshore oil and gas industry characterizing<br />
territorial waters of Papua New Guinea 2 . To fulfil<br />
regulate SBM activities in the seabed Area<br />
simple question, characterizing whether a vessel<br />
MODUs, drill ships and FPSO’s as ships or vessels<br />
this task, Nautilus intends to rely on technologies<br />
beyond the continental shelves of coastal States 3 .<br />
or an installation is a ship has and continues to<br />
while in transit between production sites. 6<br />
derived from the shipping, offshore oil and<br />
Presently, the ISA has adopted regulations on the<br />
generate controversy given the far-reaching legal<br />
However, when PSVs are permanently moored<br />
gas, land-based mining and sediment dredging<br />
exploration for and is developing regulations on<br />
consequences attending that designation.<br />
or positioned to engage in SBM activities for an<br />
industries, including:<br />
the exploitation of seabed minerals.<br />
extended period of time, their status as ships<br />
• Production Support Vessel (PSV): a ship<br />
featuring capabilities to navigate to and<br />
from the extraction site, equipped with the<br />
facilities necessary to process, store and<br />
transfer mineral resources recovered from<br />
the seabed;<br />
• Riser and Lifting System (RALS): a flexible<br />
pipe through which the materials recovered<br />
from the seabed are pumped to the PSV for<br />
processing; and<br />
• Sea-floor Production Tools: consisting of<br />
submersible remotely operated machines<br />
which prepare the sea floor, gather the<br />
excavated materials, and pump those<br />
materials through the RALS to the PSV for<br />
processing.<br />
Once developed, however, ISA instruments will<br />
only apply the seabed Area beyond coastal State<br />
jurisdiction. ISA instruments will only apply to<br />
State parties to the UNCLOS. ISA instruments are<br />
not anticipated to cover subject matter within<br />
the scope of traditional maritime law, such as<br />
the ownership, financing and insurance of SBM<br />
equipment and technologies.<br />
Finally, because certain technologies involved in<br />
SBM perform essentially maritime activities, such<br />
as the PSV navigating to or between production<br />
sites, those activities will be subject to the<br />
concurrent application of maritime law.<br />
The first step in this analysis is considering the<br />
definition of “ship” and evaluating whether SBM<br />
vessels, installations and submersibles fall within<br />
that definition. As a starting point, section 313<br />
of the U.K. Merchant Shipping Act 1995 defines<br />
“ship” to include “every description of vessel used<br />
in navigation” 4 .<br />
Canada’s Federal Courts Act defines ship more<br />
expansively as “any vessel or craft designed,<br />
used or capable of being used solely or partly for<br />
navigation, without regard to method or lack of<br />
propulsion, and includes a ship in the process<br />
of construction from the time that it is capable<br />
of floating, and a ship that has been stranded,<br />
becomes more tenuous.<br />
Whether Nautilus’s proposed submersible<br />
SPTs constitute ships, for what purposes, and<br />
with what consequences is a more ambiguous.<br />
Canadian case law has characterized a remotelyoperated<br />
submersible tree harvester tethered to<br />
and operated from a barge as a “ship”, albeit for<br />
purposes of grounding admiralty jurisdiction 7 .<br />
Whether such an argument is compelling or<br />
indeed relevant for the remotely operated<br />
submersible equipment employed in the SBM<br />
context and operating largely on the seafloor is<br />
an open question.<br />
Although SBM remains in its infancy as an<br />
wrecked or sunk and any part of a ship that has<br />
industry, sustained exploration and future<br />
SBM activities carried out in maritime zones<br />
broken up.” 5<br />
Fundamentally, characterizing an object as<br />
production activities suggest that the industry is<br />
subject to coastal State jurisdiction, including<br />
a “ship” triggers the application of the law of<br />
technically feasible and commercially lucrative,<br />
the territorial sea, exclusive economic zone<br />
Case law interpreting what constitutes a ship<br />
the flag and obligation to register that ship<br />
confirming the need for owners, operators,<br />
or continental shelf, will be governed by<br />
is voluminous. However, a cursory survey of<br />
in a national registry as a pre-condition to<br />
insurers, financiers and governments to turn<br />
national laws, subject to relevant international<br />
legislation and case law suggests that meeting<br />
the ship receiving the nationality and right to<br />
their mind to the legal framework governing this<br />
obligations. In these circumstances, coastal<br />
the definition of “ship” requires an object to<br />
fly the registering State’s flag. Significantly,<br />
evolving industry.<br />
States will be required to either craft new<br />
satisfy at least some of the following elements:<br />
possession of nationality is a pre-condition for<br />
The Current Legal Framework<br />
The technology and operations involved in SBM<br />
depict the complex issues which an effective<br />
2 Nautilus Minerals Website, “About Nautilus”, online: http://<br />
www.nautilusminerals.com/irm/content/overview.aspx-<br />
?RID=252.<br />
regulatory frameworks governing SBM activities<br />
or adapt existing ones.<br />
The above discussion highlights the complexities<br />
inherent in regulating SBM activities, resulting<br />
from the fragmented application of present<br />
and future regulations across international and<br />
3 UNCLOS, 1982, arts. 147–47.<br />
Partial navigational use;<br />
• Navigational capabilities;<br />
• Navigation through or above water;<br />
• Vessel under construction; and<br />
4 Merchant Shipping Act 1995, c 21, s 313 (UK).<br />
5 Federal Courts Act, RSC 1985, c F-7 (Canada).<br />
ships to exercise the rights and freedoms under<br />
international law, such as freedom of navigation<br />
and rights of innocent passage.<br />
6 See Bow Valley Husky (Bermuda) Ltd. v Saint John Shipbuilding<br />
Ltd, [1997] 3 SCR 2010 at para 85; see also Perks v Clark,<br />
[2001] 2 lloyd’s Rep 431 (Eng QB).<br />
7 Cyber Sea Technologies Inc v Underwater Harvester Remotely<br />
Operated Vehicle, Serial No. UHROV-101, [2003] 1 FC 569 at<br />
para 14.<br />
60 | <strong>Lawyer</strong><strong>Issue</strong><br />
61
Anti-trust/Competition Shipping and Maritime Law<br />
Applying this consideration to the vessels<br />
employed in SBM activities suggests that<br />
such vessels will be characterized as ships for<br />
purposes of ship registration, following the<br />
practice in the offshore oil and gas industry<br />
of registering a wide variety of offshore<br />
installations.<br />
Indeed, applying flag State jurisdiction to the<br />
SBM vessels through registration may be the only<br />
option consistent with maintaining legal order<br />
on the ocean – the objective at the heart of flag<br />
State jurisdiction as articulated by the PCIJ in the<br />
1927 S.S. Lotus Case. 8<br />
Once a vessel is characterized as a ship for<br />
purposes of vessel registration, it follows that<br />
such vessels may also be classed, mortgaged,<br />
insured (both hull insurance and protection<br />
and indemnity) and chartered in a manner akin<br />
to ships. 9 However, substantive differences in<br />
SBM vessels, equipment and activities and their<br />
use will likely render the blanket application of<br />
maritime law concepts inappropriate.<br />
By way of example, marine mortgages enable<br />
shipowners to finance the costs to build, operate<br />
and decommission a vessel. If the shipowner<br />
defaults, the lender forecloses on the mortgage<br />
and takes possession of and sells the mortgaged<br />
property through an in rem action and forced<br />
judicial sale. Financing an SBM vessel through<br />
a maritime mortgage, however, poses unique<br />
enforcement challenges for lenders. First, unlike<br />
ships, which may be intercepted or arrested in<br />
ports or territorial waters, SBM vessels may be<br />
moored outside territorial waters for extended<br />
periods of time making the practical enforcement<br />
of a mortgage difficult. Second, the primary<br />
value of SBM vessels resides in their capacity to<br />
produce. Accordingly, lenders may be reluctant<br />
to enforce a mortgage through taking possession<br />
of SBM vessels where it impairs the vessel’s<br />
ability to generate revenue. Third, the secondary<br />
8 The SS Lotus Case (France v Turkey), [1927] Permanent Court<br />
of International Justice, Ser. A, No. 9, p 53 (dissenting opinion by<br />
Lord Finlay).<br />
9 Canadian Maritime Law, supra at 281.<br />
market for SBM vessels will be smaller than<br />
that for ships, creating valuation difficulties and<br />
compounding challenges faced by lenders in<br />
determining whether to enforce the mortgage.<br />
Similar questions may be posed regarding<br />
the application of marine insurance – hull and<br />
machinery; protection and indemnity – to SBM<br />
vessels, equipment and activities. Many risks and<br />
liabilities present in the evolving SBM industry<br />
will be shared with the commercial shipping<br />
and offshore oil and gas industries, specifically<br />
those relating to operating in a hostile marine<br />
environment. Equally, however, the SBM<br />
industry’s development will reveal new risks<br />
and liabilities which insurers and P&I clubs must<br />
respond to in determining the application of and<br />
indemnity available under traditional marine<br />
insurance, such as:<br />
• long term exposure of SBM vessels to<br />
hostile environmental conditions distant<br />
from commercial repair facilities;<br />
• stresses induced by SBM submersible<br />
production tools associated with operating<br />
in estimated water depths of 6000 m;<br />
• collision risks with collection and support<br />
vessels;<br />
• pollution risks associated with the transfer<br />
of the recovered ore to collection vessels;<br />
and,<br />
• pollution risks associated with the<br />
disturbance of marine benthic<br />
communities.<br />
Further, characterizing an object as a “ship”<br />
may trigger the application of the constellation<br />
of maritime law instruments regulating areas<br />
ranging from collision avoidance to marine<br />
environmental protection to maritime labour<br />
to the limitation of liability. Ultimately, the<br />
application of many of these instruments will<br />
depend on the precise definition of “ship”<br />
provided within each and their underlying<br />
functional rationale.<br />
Conclusion<br />
Notwithstanding the SBM industry’s novel<br />
characteristics, marine classification, financing<br />
and insurance professionals are extrapolating<br />
from experiences in the shipping, offshore oil and<br />
gas, land-based mining and sediment dredging<br />
industries to develop new standards to apply to<br />
the vessels, equipments and activities engaged in<br />
SBM activities. Governments, independently and<br />
in concert with inter-governmental organizations<br />
such as the ISA, are in the process of crafting new<br />
regulatory frameworks and adapting existing<br />
ones to respond to and anticipate the unique<br />
challenges posed by the industry in areas such<br />
as accommodating SBM activities with other<br />
maritime uses, safeguarding occupational health<br />
and safety, protecting the environment, and<br />
addressing civil liability for pollution.<br />
Wylie Spicer<br />
Counsel at McInnes Cooper<br />
T:+1 403 585 1543<br />
Email: wylie.spicer@mcinnescooper.com<br />
Peter L’Esperance<br />
This article suggests that many concepts of<br />
maritime law are applicable to and indeed<br />
necessary for the emerging SBM activity. As<br />
vessel owners, operators, insurers, financiers<br />
and governments navigate the emerging SBM<br />
industry, practical and functional legal guidance<br />
will be essential to understand maritime law’s<br />
application and adaptation to the next generation<br />
of vessels equipment and activities. Such<br />
guidance will not only be a necessary condition<br />
for commercial certainty and responsible<br />
investment – it will also be necessary to<br />
safeguard the values at the core of maritime law:<br />
protecting life, property and the environment<br />
at sea.<br />
Wylie acts as Counsel at McInnes Cooper. As former Managing Partner of McInnes Cooper, and with<br />
40 years of industry experience, Wylie brings a strong presence to our firm. Wylie’s practice focuses on<br />
maritime law, as well as offshore and seabed mining. Highlighted through an extensive list of worldwide<br />
publications, Wylie exhibits a great breadth of knowledge – earning his title as a respected leader within<br />
his field. Throughout his career Wylie has handled complex litigation matters in Courts throughout<br />
Canada from the trial level to the Supreme Court of Canada.<br />
A past President of the Canadian Bar Association for Nova Scotia, Wylie is admitted to the Bar of three<br />
Canadian Provinces: Nova Scotia, Newfoundland & Labrador, and Alberta. Wylie has been awarded<br />
Martindale-Hubbell’s highest rating (“AV”) and is repeatedly named in various publications as a Leading<br />
Practitioner in Maritime Law in Canada and alternative dispute resolution, including Best <strong>Lawyer</strong>s 2010<br />
Halifax Best Maritime <strong>Lawyer</strong> of the Year. He was awarded the Queens Counsel designation in 1995.<br />
Wylie is an executive of the CBA National Maritime Law section, a member of the Canadian Maritime<br />
Law Association, the International Bar Association and a member of the International Association<br />
of Petroleum Negotiators. Through a sharing of knowledge, Wylie engaged students at Dalhousie<br />
University’s Schulich School of Law, where he previously taught part-time in the area of maritime law.<br />
Wylie currently acts as a Sessional Lecturer at the Faculty of Law, University Of Calgary on the topic of<br />
Law of the Sea.<br />
Articling Student at McInnes Cooper<br />
62 | <strong>Lawyer</strong><strong>Issue</strong><br />
63
GREEN SHIPPING LINE<br />
The story of Green Shipping Line (www.<br />
Greenshippingline.com). Our mission is to provide<br />
reliable, green, economical water transportation for<br />
containerized imports, exports, and domestic cargos<br />
on the “American Marine Highway”(AMH) fulfilling the<br />
mandate as set forth in the 2007 Security Law passed<br />
by Congress. Our Motto is: Sea, The Future.<br />
In short, we want to unlock the unlimited capacity<br />
of the American Marine Highway that costs “nothing<br />
to build and little to maintain”, to meet the future<br />
transportation needs of our growing population and<br />
economy. Note that the AMH touches 28 states and<br />
we have finally solved the complex and controversial<br />
issue of economical U.S. ship assembly.<br />
Now we can move forward. Without viable coast-wide<br />
water transport being added to the existing stressed<br />
land side rail and road infrastructure networks, we<br />
will be at a disadvantage trading in the evolving<br />
global economy.<br />
Is the Green Shipping Line initiative important to<br />
the nation? We believe so, and note that our selffunded<br />
companies have received 2 of only 14 Marine<br />
Highway Project designations issued by the Federal<br />
Government to date. That is one of the important<br />
reasons we have unfettered direct access to MARAD/<br />
DOT, the Washington decision makers who make the<br />
final determination on the CCF as well as the new<br />
building programs for non combat vessels as well as<br />
the RRF.<br />
A complete history and the vision of MARAD/DOT’s<br />
American Marine Highway program can be reviewed<br />
in detail at: http://www.marad.dot.gov/ships-andshipping/dot-maritime-administration-americasmarine-highway-program/<br />
The U.S. maritime industry is huge -- with hundreds<br />
of thousands of workers and mariners contributing<br />
billions to our economy while securing the safety<br />
and security of our coasts. However, we believe the<br />
industry and its potential has gone unnoticed for<br />
far too long. That is why in this election year, we,<br />
along with the unions, want the AMH elevated to the<br />
national stage.<br />
We are trying to shine a spotlight on the potential<br />
of the AMH and coalesce vocalized support that will<br />
energize the industry, financiers and to educate the<br />
population on one of our most valuable God-given<br />
natural resources.<br />
We are not advocating that the government give<br />
money or subsidize this sector. Once shipbuilding and<br />
coastal shipping distribution is re-discovered, nature<br />
will take its course.<br />
Percy R. Pyne IV<br />
Founding Partner of Green Shipping Line<br />
Founding Partner of Green Shipping Line, hails from a family with a legendary history in transportation.<br />
In the Nineteenth Century, the family owned and operated one of the largest fleets of Yankee Clippers,<br />
doing trade internationally. More recently, Mr Pyne’s family took the leading role in integrating the rail<br />
and bridge networks in Metropolitan New York City, creating a viable transport network known today<br />
as the Metropolitan Transportation Authority (MTA). In addition to transportation, the family have been<br />
prominent in real estate in Manhattan and the surrounding boroughs.<br />
Mr. Pyne has been involved in the shipping world for more than twenty years. He has invested his time and family’s resources<br />
toward recreating the US Short Sea/Feedering system that existed prior to 1956. American Feeder Lines, a precursor of GSL, was<br />
co-founded by Mr. Pyne and, on a trial basis, operated a short-sea feeder service between Halifax, Portland, and Boston. The<br />
enterprise provided invaluable experience and insight into the challenges facing the nascent short-sea feedering industry. AFL<br />
was awarded one of only eight licenses to operate in the United States. Concurrently, Mr Pyne has worked for over 40 years in<br />
property acquisition, dispositions, development, ownership, management, complex ground-lease negotiations, joint ventures, and<br />
consulting. His company owns and/or manages substantial properties in New York City, New York and in Alexandria, Virginia and<br />
Denver, Colorado.<br />
Mr. Pyne has advised on major US and international commercial transactions for Mobil Oil, USX Corporation, Chemical Bank,<br />
Goldman Sachs, Merrill Lynch, The Republic of Korea.<br />
Mr. Pyne has been featured, quoted, and published in The Wall Street Journal, Forbes, Bloomberg, Dow Jones, Thomas Reuters,<br />
Commercial Property, CNBC, Fox Business News, Financial Times, Boston Globe, National Real Estate Investor, Real Estate Weekly<br />
and other trade publications. He holds an MBA from Columbia University and is a member of the Real Estate Board of New York.<br />
Eleanor B. Ford<br />
Founding Partner of Green Shipping Line<br />
Eleanor B. Ford is a founding partner of the Green Shipping Line and a now-senior member of the<br />
family that revolutionized the automotive industry and US transportation system. Ms. Ford has been<br />
involved and exposed with the Ford Motor Company since childhood.<br />
Historically, The Fords played an important role in developing the US shipping industry. Until 1986, Ms.<br />
Ford‘s forbearers maintained the largest commercial lake shipping fleet in the country. These ships served as the primary means<br />
for distributing Ford cars and truck parts throughout the eastern half of the United States. The Ford pedigree in shipping goes<br />
further back to the First World War, when Mr. Henry Ford, Ms Ford’s great great grandfather, as part of his role as member of the<br />
US Shipping Board, developed and built the fleet of 16 Eagle-class Patrol craft (PE boats) for the US Navy. These vessels remained<br />
in service through World War II, in which conflict they protected merchant shipping in the Atlantic.<br />
Robert Somerville<br />
Senior Advisor<br />
Robert Somerville graduated from Maine Maritime Academy with a degree in marine engineering and<br />
has devoted his professional life to the marine industry. His early years were spent as a seagoing<br />
engineer and later in gaining experience at the Newport News shipyard. Following that, he began a<br />
thirty-five year career with the American Bureau of Shipping (ABS) holding increasingly senior positions<br />
as Field Surveyor, Senior Surveyor, Principal Surveyor, Regional Manager for Western Europe, and<br />
President and Chief Operating Officer of ABS Europe. For eleven years prior to his appointment to the position of Chairman, he<br />
served as President and Chief Operating Officer of ABS. He has received numerous awards in recognition of his contributions to<br />
maritime safety and currently serves as Vice Chairman of the International Association of Classification Societies.<br />
Colleen Robertson<br />
Managing Director<br />
Ms. Robertson comes to Green Shipping Line with experience at Ford Motor Company in engineering,<br />
manufacturing, finance and strategy as well as a wide variety of consulting assignments. She will focus on<br />
the financial and strategic sides of the business.<br />
At Ford Motor Company in finance, she was responsible for everything from vehicle line financials to Marketing and Sales profit<br />
reporting, to starting up Covisint (joint venture between Ford, General Motors and Daimler-Chrysler). Her most recent positions<br />
were in the Office of the Chairman and Chief Executive, working on corporate strategic initiatives as well as Operations Cost at Ford<br />
Motor Credit Company.<br />
She holds an Interdisciplinary Engineering degree from Purdue University as well as a Masters in Engineering Management from the<br />
University of Michigan.<br />
64 | <strong>Lawyer</strong><strong>Issue</strong> 65
Competition & Anti-trust<br />
Recent Changes in the Competition Regulatory<br />
Framework in Latvia<br />
By Jānis Loze, Līga Mence,<br />
Anna Kontere<br />
point to be newly opened;<br />
• taking back the unsold products, except<br />
goods of poor quality and new goods<br />
unknown to consumers, the initiator of the<br />
supply or increase in the amount of which<br />
is the supplier;<br />
• determining unfair and unjustified<br />
sanctions for the violation of contractual<br />
provisions.<br />
In case of retail of food products, in addition<br />
to the above, the food retailer is prohibited<br />
from obliging the supplier with the following:<br />
• compensating the profit not obtained by<br />
the retailer from selling the goods supplied<br />
by the supplier;<br />
examining complaints of consumers,<br />
except the case when justified complaints<br />
of consumers arise from circumstances,<br />
for which the supplier is responsible;<br />
• determining unfair and unjustified<br />
sanctions for the violation of contractual<br />
provisions;<br />
• performing unfair, unjustified payments<br />
(discounts) or payments (discounts) not<br />
provided for in the contract, except the<br />
case when the retailer has agreed with the<br />
supplier regarding bulk discount (discount<br />
applied depending on the amount of the<br />
goods ordered) or campaign discount<br />
(discount applied for a limited and<br />
indicated period of time for promoting the<br />
sale of goods);<br />
Recent changes in the competition regulatory<br />
in contradiction with a fair practice of economic<br />
• purchasing goods, services or property<br />
• compensating the costs of a retailer, which<br />
framework in Latvia by adopting a new Unfair<br />
activity and by which operational risk of a retailer<br />
from the third person indicated by the<br />
are related to the costs of logistics services<br />
Retail Trade Practices Prohibition Law 1 have<br />
is imposed on suppliers, additional duties are<br />
retailer, except the case when it has an<br />
of the retailer, except the case when<br />
raised many concerns of market participants.<br />
imposed or the possibility of free operation in<br />
objective justification and entered into<br />
the retailer has entered into a written<br />
the market is restricted.<br />
a separate written agreement regarding<br />
agreement with the supplier regarding<br />
The new law came into force on 1 January 2016<br />
purchase of such goods or services;<br />
distribution of goods;<br />
and since then (and also before) the Latvian<br />
In both situations the retailer is prohibited<br />
Competition Council has issued guidelines,<br />
from obliging the supplier with the following:<br />
• ensuring the lowest price by restricting<br />
• compensating the costs of a retailer, which<br />
organized seminars and meetings for the<br />
the freedom of the supplier to agree on a<br />
are related to its administration costs.<br />
affected parties, but nonetheless it seems that<br />
• paying directly or indirectly or otherwise<br />
lower price with another retailer;<br />
the new regulatory framework raises more<br />
reimbursing for entering into a contract;<br />
Furthermore, the new law prohibits<br />
questions and uncertainty in the business<br />
• changing the specifications of goods,<br />
determination of unfair and unjustifiably long<br />
environment than one could have expected and<br />
• paying directly or indirectly for the goods<br />
including assortment if the supplier has<br />
time period for settlement of accounts for the<br />
wanted.<br />
being present at a retail selling point,<br />
not been notified thereof within the time<br />
goods supplied. In case of food products, the<br />
including for placing of goods in store<br />
period specified in the contract, which may<br />
new law presumes that the settlement period<br />
Briefly, the Unfair Retail Trade Practices<br />
shelves, except the case when the retailer<br />
be not less than 10 days;<br />
for the delivered food products is unfair and<br />
Prohibition Law lists particular activities that may<br />
and the supplier have entered into a<br />
unjustifiably long if it exceeds 30 days from the<br />
not be carried out by (1) retailer of food products<br />
written agreement that it will be paid for<br />
• paying directly or indirectly to a retailer for<br />
day of delivery of such products whose term of<br />
with respect to the supplier and by (2) retailer<br />
additional arrangement of the goods in<br />
sales promotion measures or to otherwise<br />
validity is no longer than 25 days. In case of fresh<br />
of non-food products having significant effect in<br />
special places;<br />
reimbursing all costs of such measures<br />
vegetables and berries the new law provides<br />
retail with respect to the supplier.<br />
or part of them, except the case when<br />
additional specific regulations.<br />
Activities are regarded as prohibited if they are<br />
• compensating the costs of the retailer<br />
related to arranging new stores or<br />
the retailer has entered into a written<br />
agreement with the supplier regarding<br />
One might question why there is a need to have<br />
1 See the Unfair Retail Trade Practices Prohibition Law in<br />
Latvian here (http://likumi.lv/ta/id/274415) and in English here<br />
(http://vvc.gov.lv/export/sites/default/docs/LRTA/Likumi/Unfair_Retail_Trade_Practices_Prohibition_Law.pdf).<br />
restoring the old stores, including<br />
performing unfair and unjustified payment<br />
for the delivery of goods to a retail selling<br />
sales promotion measures;<br />
• compensating the costs related to<br />
such a sector specific and casuistic regulatory<br />
framework. In search of answer for this perhaps<br />
rhetorical question, it is worthwhile to highlight<br />
66 | <strong>Lawyer</strong><strong>Issue</strong> 67
Competition & Anti-trust<br />
briefly the historical and political aspects related<br />
Amendments 2008 to the Competition Law, it<br />
household goods under the Drogas brand<br />
of the amendments 2008 to the Latvian<br />
to the adoption of this law.<br />
was not preferable to change the definition of<br />
was fined EUR 14,034.11 (after the Latvian<br />
Competition Law stated that it is not advisable to<br />
“dominant position” known in EU competition<br />
Competition Council reduced the initial fine of<br />
introduce a new concept “significant influence”,<br />
Around the year 2007, two major retail<br />
law by merging it with a term “significant<br />
EUR 26,988.68). The fine was imposed because<br />
but at the same time the legislator introduced<br />
(supermarket) chains in Latvia (selling under<br />
influence” as these terms differs. In case of<br />
Drogas had applied unfair and ungrounded<br />
another new concept “dominant position in<br />
brands RIMI and Maxima) were expanding<br />
“dominant position” a market participant is acting<br />
(i) terms on (a) return of goods, (b) discounts<br />
retail trade”, now the new Unfair Retail Trade<br />
their businesses and there were concerns that<br />
independently of its competitors or consumers,<br />
(rebates), (c) payments for delivery of goods<br />
Practices Prohibition Law takes over all the<br />
they were using their significant and increasing<br />
but in case of “significant influence” the market<br />
to a new shop to be opened and (ii) sanctions<br />
previous provisions related with the “dominant<br />
bargaining power with respect to producers<br />
participant has a power to impose unfair<br />
for violation of such terms. It is worthwhile to<br />
position in retail trade”, only not naming it<br />
and suppliers dependant on them and thus<br />
contract terms, but it cannot act independently<br />
mention that all of these decisions of the Latvian<br />
any more “dominant position in retail trade”<br />
negatively affecting competition in Latvia, for<br />
of its competitors or consumers.<br />
Competition Council have been appealed in<br />
but introducing a new concept “retailer with a<br />
example, by imposing unfair and unjustified<br />
courts by the market participants, however,<br />
significant influence on the trade of non-food<br />
terms on returning of goods, for placing the<br />
Thus, the Latvian legislator back in 2008<br />
unsuccessfully, showing that courts are reluctant<br />
products” 5 .<br />
goods on supermarket shelves, for requesting<br />
supplemented the Latvian Competition Law with<br />
to adopt a different approach from the one<br />
payment for concluding an agreement, for<br />
a new concept “dominant position in retail trade”<br />
already taken by the Latvian Competition<br />
This clearly shows that the adoption of the<br />
providing lengthy terms of payment for delivered<br />
targeting it at the market participants having<br />
Council and thus making the fight of the market<br />
amendments to the Latvian Competition Law<br />
goods, for providing unfair and unjustified<br />
“significant influence” in retail business, however,<br />
participants fined very difficult and non-effective.<br />
back in 2008 and replacing this regime in<br />
sanctions (penalty clauses) for breaching the<br />
without mentioning the term “significant<br />
2016 with a new Unfair Retail Trade Practices<br />
agreement, etc.<br />
influence”.<br />
Around the year 2013, it became clear that<br />
Prohibition Law have not demonstrated a well-<br />
the new regulatory framework limiting the<br />
considered and convincing attitude from the<br />
It was not possible to tackle such activities by<br />
These amendments 2008 to the Latvian<br />
bargaining power of supermarket chains was<br />
legislator both in 2008 and now in 2016 and<br />
the Latvian Competition Law 2 effective at that<br />
Competition Law came into force on 1 October<br />
not sufficient, as there were other market<br />
most probably in future we might expect further<br />
time (as these market participants were not in<br />
2008 and had been effective until 1 January<br />
participants that although did not even qualify<br />
changes in this field again.<br />
a dominant position legally and thus were not<br />
2016 when the new Unfair Retail Trade Practices<br />
under the term “dominant position in retail<br />
abusing it), therefore the legislator decided to<br />
Prohibition Law came into force and took over<br />
trade” were able to impose unfair and unjustified<br />
For businesses it is important to be aware that<br />
change the existing regulatory framework and<br />
this regulation, along with introduction of new<br />
provisions on suppliers. Strangely enough, there<br />
the Latvian Competition Council may fine for<br />
supplement the Latvian Competition Law with a<br />
regulation specifically and more casuistically<br />
was also a political will to promote the use of<br />
violations of the new Law Prohibiting Unfair<br />
new concept “dominant position in retail trade”.<br />
directed to food retail business.<br />
food products produced in Latvia (you can read<br />
Retail Trade Practices a retailer of up to 0.2<br />
this from the annotation 4 to the Unfair Retail<br />
per cent of its net turnover for the previous<br />
In accordance with these Amendments 2008<br />
From 2009 until 2016, the Latvian Competition<br />
Trade Practices Prohibition Law).<br />
reporting year each, but no less than EUR 70.<br />
to the Competition Law, a market participant<br />
Council had adopted 6 decisions related to abuse<br />
Furthermore, the Latvian Competition Council<br />
was considered in a dominant position in retail<br />
of dominant position in retail trade, but only in<br />
But, taking into account recommendations<br />
may impose a fine on a retailer for non-fulfilment<br />
trade if taking into account its buying power for<br />
3 decisions the Latvian Competition Council had<br />
already received from the Directorate-General<br />
of legal obligation of the new Unfair Retail Trade<br />
a sufficient period of time and the suppliers’<br />
fined the market participants.<br />
for Competition in the course of adoption of the<br />
Practices Prohibition Law in the amount of up to<br />
dependency in the relevant market, it had the<br />
amendments to the Competition Law back in<br />
2 per cent of the average daily net turnover in<br />
capacity to apply or impose directly or indirectly<br />
For example, in the end of 2010, the RIMI<br />
2008, that additional amendments to the Latvian<br />
the last reporting year, but no less than EUR 70<br />
unfair and unjustified provisions, conditions or<br />
supermarket chain was fined EUR 88,609.34<br />
Competition Law, providing a casuistic regulatory<br />
for each calendar day, until the retailer fulfils its<br />
payments upon suppliers and thereby could<br />
for imposing such terms on suppliers, which<br />
framework for one particular micro sector in the<br />
legal obligation.<br />
hinder, restrict or distort competition in any<br />
provided payments (as promotion discount) for<br />
general macro regulation, were not advisable,<br />
relevant market in the territory of Latvia.<br />
placement of goods in shelfs of supermarkets<br />
the legislator consequently decided to adopt<br />
In the end, please note that on 15 June 2016, the<br />
selling under Supernetto brand. In early 2011,<br />
a sector specific law listing certain retail trade<br />
another amendments to the Latvian Competition<br />
As it was explained in the annotation 3 of the<br />
the Maxima supermarket chain was fined EUR<br />
practices which are regarded as unfair.<br />
2 See the Latvian Competition Law in Latvian here (http://likumi.<br />
lv/doc.php?id=54890) and in English here (http://www.vvc.gov.<br />
lv/export/sites/default/docs/LRTA/Likumi/Competition_Law.<br />
doc).<br />
3 Annotation of the Amendments 2008 to the Competition<br />
Law is available in Latvian only. See: http://titania.saeima.lv/<br />
64,029.23 for imposing too lengthy settlement<br />
terms for payment of delivered goods. In the<br />
end of 2012, a retailer selling cosmetics and<br />
LIVS/SaeimaLIVS.nsf/0/BB45DB7A5734A63DC2257333003E-<br />
B222?OpenDocument.<br />
If previously we mentioned that the annotation<br />
4 Annotation to the Unfair Retail Trade Practices Prohibition<br />
Law is available in Latvian only. See: http://titania.saeima.<br />
lv/LIVS11/saeimalivs11.nsf/0/6AF59FDD1FD653EDC-<br />
2257C66003BD8FB?OpenDocument#b.<br />
5 A performer of economic activity or several performers of<br />
economic activity who, considering their buying power for a<br />
sufficient period of time and the dependency of suppliers in the<br />
relevant market, have the capacity of directly or indirectly applying<br />
or imposing unfair and unjustified provisions, conditions<br />
or payments upon suppliers and may hinder, restrict or distort<br />
competition in retail trade in any relevant market of non-food<br />
products in the territory of Latvia.<br />
68 | <strong>Lawyer</strong><strong>Issue</strong> 69
Competition & Anti-trust<br />
Law came into force and these amendments<br />
abolish the existing market share threshold (of<br />
40%) and reduce turnover thresholds in case of<br />
mergers, regulate in more depth the rights of<br />
the Latvian Competition Council in investigating<br />
Jānis Loze<br />
the violations of competition rules, receiving<br />
courts permit for investigation activities, applying<br />
leniency regime, etc. This, however, could be a<br />
topic of another article and critical analysis.<br />
Resolving Real Estate Disputes in<br />
Indonesia Q&A<br />
By Dyah Soewito,<br />
Denny Rahmansyah<br />
Managing Partner at Loze & Partners Attorneys at Law<br />
T: +37 167744444<br />
Email: janis.loze@loze.lv<br />
Jānis Loze is the Managing Partner of Loze & Partners, one of the leading boutique law firms in<br />
Riga. He has considerable experience in the fields of Corporate Law, Intellectual Property and<br />
M&A. He has provided a variety of companies and individuals with legal advice and advised in<br />
significant M&A deals in Latvia. Experienced in corporate and business transactions, including<br />
company formations, shareholder agreements, his advice is often called upon by national and<br />
international companies.<br />
Līga Mence<br />
Attorney at Law at Loze & Partners Attorneys at Law<br />
T: +37 167744444<br />
Email: liga.mence@loze.lv<br />
Līga Mence is attorney at law at Loze & Partners. Her practice focuses on Commercial and<br />
Competition Law. She has advised many Latvian and foreign clients in corporate and M&A<br />
matters, been involved in various litigation processes related to shareholder disputes,<br />
intellectual property protection, etc. She has also specialised in Aviation Law and has provided<br />
legal services for notable aircraft transactions.<br />
Anna Kontere<br />
Legal Assistant at Loze & Partners Attorneys at Law<br />
T: +37 167744444<br />
Email: anna.kontere@loze.lv<br />
Anna Kontere is a legal assistant at Loze & Partners. She has assisted attorneys at law to<br />
advise companies in Competition, Commercial and Civil Law. She also deals with Intellectual<br />
Property Law and has provided advice on trade mark matters to a wide range of national and<br />
international clients in various industry sectors and assisted in real property transactions.<br />
1. Have there been any<br />
recent legislative changes or<br />
interesting developments in<br />
your jurisdiction on real estate?<br />
Regarding legal developments and issues in<br />
Indonesia’s real estate sector, two developments<br />
are particularly interesting and merit mention<br />
here.<br />
First, President Joko Widodo recently issued<br />
Presidential Instruction No. 3 of 2016 regarding<br />
Simplification of Licensing in Housing<br />
Construction (April 14, 2016) (“Presidential<br />
Instruction 3/2016”). This presidential<br />
instruction calls for ministers and heads of<br />
regional governments to simplify the policies,<br />
requirements, and process to obtain the licenses<br />
required for the construction of housing. The<br />
issuance of Presidential Instruction 3/2016<br />
follows the announcement of the government’s<br />
“one million housing” program, which, as the<br />
name suggests, is aimed at building a million<br />
houses for lower-income families. It will take<br />
70 | <strong>Lawyer</strong><strong>Issue</strong> 71
Resolving Real Estate Disputes<br />
time to evaluate the effect of Presidential<br />
subject that touches many aspects of Indonesian<br />
rules they wish to use in the event of a dispute.<br />
the prevailing regulation. But even when a land<br />
Instruction 3/2016, but in the months<br />
law, e.g., administrative law, environmental law,<br />
Indonesia recognizes the enforcement of foreign<br />
certificate is obtained from the BPN, the risk of<br />
immediately following its issuance, developers<br />
construction law, civil law, agrarian/land law,<br />
arbitral awards, as Indonesia is a party to the<br />
dispute still exists. Other parties could challenge<br />
reported the same difficulties and challenges in<br />
etc. Second, there is no arbitration facility or<br />
1958 New York Convention on the Recognition<br />
and seek the annulment of the land certificate if<br />
obtaining the necessary licenses, in particular<br />
process specifically designed to accommodate<br />
and Enforcement of Foreign Arbitral Awards,<br />
they deem its issuance unlawful, e.g. if another<br />
obtaining licenses from regional government<br />
real estate matters under Indonesian law. Having<br />
which has been ratified according to Presidential<br />
land certificate was previously issued to another<br />
authorities (which, due to regional autonomy,<br />
established this, disputes related to real estate<br />
Decree No. 34 of 1981 (August 5, 1981). Foreign<br />
party for the land, the previous land owner<br />
have broad authority and discretion in the<br />
are treated in a similar manner as any other<br />
arbitral awards must be registered at the<br />
committed fraud by selling the same land to<br />
issuance of licenses for activities within their<br />
dispute in Indonesia.<br />
Central Jakarta District Court for the purpose of<br />
more than one party, incorrect information was<br />
regions, including for real estate development).<br />
execution.<br />
used by the BPN for the land certificate, etc.<br />
Second, another development worth mentioning<br />
in the real estate sector relates to the<br />
controversy over reclamation work in and near<br />
Jakarta Bay. This reclamation work is essentially<br />
Concerning dispute settlement through<br />
arbitration, Indonesia has enacted Law No. 30<br />
of 1999 regarding Arbitration and Alternative<br />
Dispute Resolution (August 12, 1999) (“Arbitration<br />
& ADR Law”). Under the Arbitration & ADR Law,<br />
3. What are the most frequent<br />
disputes in your jurisdiction<br />
regarding real estate matters?<br />
Under the prevailing regulation, a land certificate<br />
cannot be challenged after five years from the<br />
issuance of the land certificate in the name of a<br />
landowner who obtained the land validly.<br />
aimed at creating a new land area in densely<br />
parties may resolve a dispute through arbitration<br />
Land disputes are the most common disputes<br />
Such land disputes are often settled either<br />
crowded Jakarta for real estate developments, be<br />
only after they have agreed to arbitration as the<br />
related to real estate matters. There are many<br />
by arbitration, as discussed in point 2 above,<br />
it housing or commercial development. However,<br />
dispute settlement mechanism. For agreements,<br />
reasons for this. Real estate developers often<br />
or court proceedings. For court proceedings,<br />
the reclamation work has raised a multitude<br />
including agreements related to real estate (e.g.,<br />
face difficulties in the land procurement process<br />
the type of land dispute determines to which<br />
of issues and concerns, including legal issues<br />
construction agreements or lease agreements<br />
for real estate developments. Land disputes<br />
court the matter is submitted for settlement,<br />
related to environmental law, administrative law,<br />
over building or office space), the parties will<br />
vary and include competing claims of ownership<br />
depending on the specific authorities of<br />
and anti-corruption law.<br />
usually insert an arbitration clause if they prefer<br />
over a portion of land, disputes with disgruntled<br />
Indonesian courts. For example, a challenge<br />
arbitration to settle any dispute arising from such<br />
local communities that oppose a development,<br />
to the lawfulness of a land certificate issued<br />
These issues, along with various political<br />
agreements.<br />
falsification of or incorrect information on a land<br />
by BPN will be submitted to the administrative<br />
intrigues, including a clash between the central<br />
certificate, and even issues of criminal liability.<br />
court, which has the authority to annul unlawful<br />
government and the Jakarta administration<br />
The most widely recognized national arbitration<br />
certificates and licenses. Equally, it is common<br />
over the authority to issue the permits and<br />
body in Indonesia is the Indonesian National<br />
In Indonesia, there are portions of land that are<br />
for land disputes to be brought for civil court<br />
licenses for reclamation work, and protests<br />
Arbitration Board (Badan Arbitrase Nasional<br />
already certificated and those that are not yet<br />
proceedings by tort.<br />
by environmental activists and residents and<br />
Indonesia or “BANI”). When a foreign counterpart<br />
certificated. The procurement of uncertificated<br />
fishermen near the reclamation site, have<br />
is involved, the parties often choose an<br />
land, commonly known as adat (customary)<br />
The above are only several examples of the<br />
resulted in the reclamation work progressing<br />
international arbitration body such as the<br />
land, is more prone to dispute. Due to the lack<br />
type of land disputes that frequently affect real<br />
very slowly (it is currently on hold), placing the<br />
Singapore International Arbitration Centre<br />
of a clear certificate from the National Land<br />
estate development in Indonesia and are far<br />
developers in an uncertain position.<br />
(“SIAC”) or the International Chamber of<br />
Office (Badan Pertanahan Nasional or “BPN”),<br />
from a comprehensive list. There are also, for<br />
Commerce (“ICC”) to settle their dispute.<br />
the authorized government agency in charge<br />
example, construction work disputes involving<br />
The above snapshot of recent developments<br />
of administering land in Indonesia, tracing the<br />
developers/contractors. Parties to a construction<br />
in Indonesia underlines a few of the prevalent<br />
The rules of the arbitration depend on the<br />
actual owner of adat land can be difficult and<br />
contract may choose foreign court proceedings<br />
issues in the country’s real estate sector, i.e., a<br />
parties’ agreement. As an illustration, if the<br />
more than one party may claim ownership of the<br />
for dispute settlement. However, Indonesia<br />
complex and lengthy licensing process at the<br />
parties choose BANI to resolve their dispute, the<br />
land. It is not uncommon, for example, for one<br />
does not recognize the enforcement of foreign<br />
regional level and a lack of legal certainty.<br />
process is (i) submission of an application for a<br />
party to claim ownership of land by inheritance<br />
court judgments as the country is not a party to a<br />
2. How would you describe<br />
arbitration facilities and<br />
processes in the real estate<br />
sector in your jurisdiction?<br />
Before addressing this question, two things<br />
notice of arbitration, (ii) response to the notice of<br />
arbitration, (iii) appointment of arbitrator(s), (iv)<br />
payment of the arbitration fees, (v) examination<br />
of the case, (vi) proceedings, and (vii) award.<br />
SIAC, ICC, and other arbitration bodies have<br />
different proceeding rules and the parties to<br />
and another party to claim ownership of the<br />
same land because he or she has occupied<br />
the land for a long time. Demarcation of the<br />
boundaries of adat land is another source of<br />
dispute.<br />
Adat land, when acquired by a party, including<br />
convention for such enforcement.<br />
4. Can you outline the benefits<br />
and drawbacks of typical court<br />
proceedings regarding real<br />
estate disputes?<br />
must be noted: first, “real estate” is a very broad<br />
an agreement are free to determine which<br />
a developer, is certificated in accordance with<br />
To clarify, there are three types of legal<br />
72 | <strong>Lawyer</strong><strong>Issue</strong> 73
Resolving Real Estate Disputes<br />
proceedings in Indonesia relevant to the real<br />
estate sector, namely civil court proceedings,<br />
administrative court proceedings, and criminal<br />
court proceedings. Civil court proceedings deal<br />
with issues related to either a breach of contract<br />
or tort. Administrative court proceedings deal<br />
with claims by parties concerning the issuance<br />
of a decree, permit, license, or other forms of<br />
approval by the government. Criminal court<br />
proceedings deal with the determination of<br />
criminal acts.<br />
Aside from the above, land inheritance disputes<br />
may also involve proceedings in<br />
(i) the religious court for inheritance under<br />
Islamic law and<br />
(ii) civil court for inheritance under non-<br />
Islamic law.<br />
The benefit of court proceedings is that court<br />
fees and expenses related to handling a dispute<br />
are low. Another benefit, particularly for civil<br />
court proceedings, is that the procedural<br />
mechanisms require the parties to enter a<br />
mediation process before the proceeding<br />
advances to its merits. This provides the<br />
opportunity for a dispute to be settled amicably<br />
between the parties without a court judgment.<br />
This does not fall under the category of<br />
benefit, but administrative court and criminal<br />
court proceedings are necessary because<br />
the issues these courts have jurisdiction over<br />
(administrative and criminal law) cannot be<br />
resolved by any other means, such as arbitration<br />
or alternative dispute resolution.<br />
As to drawbacks, court proceedings in Indonesia<br />
tend to be lengthy. It can take up to two years<br />
to reach a final and binding decision, bearing in<br />
mind that the decision of a lower court can be<br />
appealed to a high court, and a cassation can be<br />
filed for with the Supreme Court. For real estate<br />
developers, exposure of their involvement in<br />
court proceedings can cause damage to their<br />
reputation and good name.<br />
5. Can you outline the<br />
advantages and disadvantages<br />
of alternative dispute<br />
resolution for real estate<br />
matters?<br />
Under the Arbitration & ADR Law, alternative<br />
dispute resolution (“ADR”) is defined as a dispute<br />
resolution mechanism agreed to by the parties<br />
that does not involve court proceedings, as a<br />
result of consultation, negotiation, mediation,<br />
conciliation, or expert assessment. Unfortunately,<br />
the Arbitration & ADR Law does not define each<br />
of these ADR methods. The Arbitration & ADR<br />
Law tends to leave the mechanisms for ADR up to<br />
the parties involved, but it does stipulate that the<br />
result of any settlement through ADR must be<br />
made in a written agreement and be registered<br />
with the relevant district court within 30 days<br />
after the execution of such agreement.<br />
The advantage of ADR is that it allows a dispute<br />
to be settled without having to use the courts.<br />
The drawbacks of court proceedings as explained<br />
in point 4 above can be avoided if ADR is applied.<br />
Dispute settlement through ADR also respects<br />
the confidentiality of the parties related to the<br />
dispute.<br />
The disadvantage of ADR is that the rules of<br />
ADR are not well established in Indonesia. As<br />
an indication of this, only one out of 82 articles<br />
in the Arbitration & ADR Law, namely Article 6,<br />
regulates the mechanisms of ADR.<br />
However, as indicated in point 4 above, when<br />
a party submits a claim through a civil court it<br />
must first enter mediation in an attempt to reach<br />
a dispute settlement. This form of mediation is<br />
precisely regulated in Supreme Court Regulation<br />
No. 1 of 2016 regarding Mediation Procedure in<br />
Court (February 3, 2016).<br />
What are the main ADR methods used to settle<br />
large real estate disputes in your jurisdiction?<br />
It is rare for large real estate disputes to be<br />
resolved by ADR, simply because ADR methods<br />
are not well established in Indonesia (as<br />
discussed in point 5 above). Negotiation is of<br />
course first sought to prevent any dispute from<br />
occurring. But when negotiation fails, real estate<br />
disputes, especially land-related disputes, are<br />
often brought directly to court proceedings.<br />
Out-of-court mediation (mediation outside<br />
the required mediation process in a civil court<br />
proceeding) may be the best alternative dispute<br />
Dyah Soewito<br />
Founding Partner at SSEK<br />
T: +62 21 2953 2000 / 521 2038<br />
Email: dyahsoewito@ssek.com<br />
Dyah Soewito is a founding partner of SSEK, Indonesia’s largest independent law firm. She heads<br />
the firm’s highly regarded real estate and shipping practices. Dyah has deep ties to the Indonesian<br />
legal community and government offices, giving her unique insight into the country’s regulatory<br />
framework. Dyah is recognized by Asialaw and Chambers Asia-Pacific as a leading practitioner<br />
for real estate. She is also recognized for projects and energy, and shipping and maritime law<br />
by leading legal publications. Dyah is a graduate of the University of Indonesia Faculty of Law<br />
(1977) and was a visiting scholar at the University of California, Berkeley (Boalt Hall) School of Law<br />
(1988).<br />
Denny Rahmansyah<br />
Founding Partner at SSEK<br />
T: +62 21 2953 2000 / 521 2038<br />
Email: dennyrahmansyah@ssek.com<br />
resolution mechanism to prevent a dispute going<br />
to court. In a recent development, the Indonesian<br />
Minister of Agrarian Affairs, who is also the head<br />
of the BPN, has publicly promoted the use of<br />
mediation to settle land disputes. The BPN has<br />
recently put in place internal regulations and<br />
guidelines for the mediation of land disputes.<br />
These regulations and guidelines are silent as<br />
to whether there will be any fees involved for<br />
mediation of land disputes.<br />
Denny Rahmansyah, a partner at SSEK, is deeply involved in major transactions related to<br />
cross-border mergers and acquisitions, cross-border debt restructurings, banking and finance,<br />
plantations, private power, and infrastructure projects, with a particular emphasis on real estate<br />
and property, including hotels and villas. Denny is recognized by Asialaw as a leading lawyer for<br />
corporate/M&A. Denny received his Master of Laws in international economic and business law<br />
from the University of Groningen, the Netherlands, in 2009. In 2007, he attended the Academy<br />
of American and International Law in Dallas, Texas, where he studied American law from an<br />
international perspective.<br />
74 | <strong>Lawyer</strong><strong>Issue</strong> 75
Company Formations<br />
50 Jurisdictions, 300 Million Potential Customers:<br />
Unlocking One of the World’s Biggest Markets, The<br />
United States of America<br />
By Mark Schaeffer, Patrick J. O’Neill,<br />
Mary-Elizabeth O’Neill<br />
For the uninitiated, doing business in the United<br />
States can seem especially daunting. Each state<br />
has different laws and compliance requirements,<br />
meaning the United States is comprised of<br />
50 different jurisdictions, plus the District of<br />
Columbia! Not only that, US territories such as<br />
Puerto Rico, the US Virgin Islands, Guam and the<br />
Northern Mariana Islands have their intricate<br />
regimes and require a specialist to navigate the<br />
waters.<br />
Especially now in times of economic and political<br />
uncertainty, the US remains the ideal business<br />
partner for UK enterprise. Besides the common<br />
language and similar entrepreneurial culture,<br />
the United States is consistently ranked among<br />
the top countries in the world for its ease of<br />
doing business. US businesses, regardless of<br />
domestic or foreign ownership, can market<br />
freely to 300 million Americans as well as<br />
another 425 million consumers via free trade<br />
agreements. Furthermore, the US boasts a welleducated<br />
and productive workforce, an excellent<br />
university system with innovative research and<br />
development programs and a transparent legal<br />
system emphasizing intellectual property rights<br />
(not to forget its GDP of $16 trillion).<br />
In general, there are no citizenship or residency<br />
requirements for forming a company in the US.<br />
International often form LLCs to benefit from<br />
pass-through taxation, that is, the requirement<br />
to file and pay taxes only if they have US-source<br />
of income (other global income of the principals<br />
remains unaffected).<br />
There can be advantages and disadvantages to<br />
corporations, limited liability companies, and<br />
limited partnerships, so it is important to keep<br />
the following considerations in mind when in the<br />
early stages of planning an expansion to the US.<br />
The company’s business objectives are<br />
paramount: are you testing the waters, or<br />
thinking long-term? Sometimes establishing<br />
a branch is a good solution as it involves far<br />
less on-going compliance, but a branch has no<br />
separate legal identity from the parent company<br />
and thus has much more liability. Seeking the<br />
advice of a tax professional is imperative at<br />
this stage.<br />
The next consideration is the choice of the<br />
state. Many foreign businesses head straight to<br />
Delaware as it is internationally known for its<br />
business-friendly ethos and favorable tax rates.<br />
Still, many US jurisdictions outside of Delaware<br />
offer distinct advantages, and if a company plans<br />
to establish its headquarters or open an office in<br />
a particular state, it is often most cost-effective,<br />
to begin with that state.<br />
Many companies, especially those headquartered<br />
on the West Coast, appreciate doing business in<br />
Nevada (businesses should be aware, however,<br />
of the business license requirement that raises<br />
annual fees for Nevada registrations–all entities<br />
are required to maintain a business license,<br />
regardless of whether a company is doing<br />
business in Nevada).<br />
Other popular choices are New York and Florida<br />
because of their business-friendly environments<br />
and easy compliance requirements. Virtual<br />
offices are freely available in almost every major<br />
city, supplying services from mail and telephone<br />
forwarding to rented or shared ownership offices<br />
and conference facilities. If the company will be<br />
operating in 4 or 5 states, it makes sense to pick<br />
the most “business friendly” environment as<br />
the primary state, and then register in the other<br />
states. Income can be allocated proportionally<br />
to each of the states in which the company does<br />
business.<br />
An international company must remember that it<br />
is imperative to maintain good standing, as well<br />
as a registered agent, in each state in which it is<br />
doing business. This will become more important<br />
as a company grows. If a company is doing<br />
business in multiple states, they must register or<br />
“qualify” in each of these states.<br />
So what is doing business? In general, if<br />
a business has an office or employees in<br />
a jurisdiction, it is considered to be doing<br />
business there. (There are also more specific<br />
circumstances that constitute doing business—<br />
for example, if a company advertises on a<br />
local billboard in addition to national media<br />
campaigns, it could be considered to be doing<br />
business in the state in which the billboard is<br />
located.<br />
Again, it is recommended to seek professional<br />
advice in each particular case). Unlike in the<br />
UK, financial statements or accounts are not<br />
required to be submitted yearly to the registrar,<br />
but each state requires companies to file annual<br />
or biannual reports. If these reports are not<br />
filed, companies lose good standing, which can<br />
make previously entered into contracts void or<br />
voidable and precludes doing business.<br />
Because penalties and interest can accrue<br />
exponentially due to late filings, we recommend<br />
that companies entrust their compliance needs<br />
to specialists; for instance, we offer an annual<br />
report monitoring service which manages<br />
registered agents and annual reports in one<br />
place. For entities already doing business,<br />
our Corporate Health Check identifies gaps in<br />
compliance and is recommended in advance of a<br />
company’s expansion to new states.<br />
In addition to state requirements, in many states,<br />
76 | <strong>Lawyer</strong><strong>Issue</strong> 77
Company Formations<br />
businesses require licenses to operate. For<br />
instance, in the case of Nevada, as was previously<br />
mentioned. However, certain industries also<br />
require federal, county and municipal licenses,<br />
with provisions varying greatly from state to<br />
state. Services such as comprehensive license<br />
research and filings, as well as assessment and<br />
verification of current licenses (this includes<br />
identification of defaults and renewal dates), are<br />
helpful for international businesses in light of the<br />
complexities of licensing from state to state.<br />
With our home office in New York, International<br />
Business Company Formation has been helping<br />
international companies expand to the USA<br />
since 1998. Our expertise and unparalleled<br />
experience ensure that you have everything you<br />
need to operate confidently in the USA, especially<br />
in today’s business climate with its growing<br />
emphasis on transparency and compliance.<br />
We are proud to announce the opening of our<br />
London office – IBCF UK Ltd. IBCF provides<br />
corporate services to legal and tax professionals<br />
throughout the world and is confident that<br />
the London office will facilitate an easy flow of<br />
corporate work between companies in the US<br />
and the UK, and beyond.<br />
Contact us at either our New York or London<br />
offices, depending on your time zone. We are<br />
here to make doing business simple, across the<br />
globe.<br />
IBCF’s Services<br />
• Formation of all entities including<br />
Corporations and LLCs, for all 50 states<br />
and US territories<br />
• Registered Agent Services<br />
• Business License Research and Filing<br />
• Document Searches (such as UCC and lien)<br />
• Registered Officers and Directors<br />
• Nominee Shareholders (where available)<br />
• Representation by Private/Special<br />
Agreement<br />
• Patent and Trademark Searches<br />
Top 10 Reasons to do Business in the USA<br />
1. Ease of incorporating in the United<br />
States: many states can get you set up within<br />
a day!<br />
2. States like Delaware and Nevada pride<br />
themselves on their business-friendly ethos<br />
3. One of the biggest and most exciting<br />
markets in the world with over 300 million<br />
potential clients<br />
4. A common language and similar culture<br />
allows you to take your business global with<br />
ease<br />
5. A skilled and well-educated workforce<br />
6. Dependable infrastructure including<br />
communications and transport<br />
7. Free trade agreements with 20 countries<br />
8. Outstanding university system<br />
9. Gateway to emerging markets in Latin<br />
America<br />
IBCF UK<br />
13 Bayley Street<br />
London WC1B 3HD<br />
t: +44 (0)20 3002 0580<br />
e: ukorders@ibcf.com<br />
w: ibcf.uk<br />
Mark Schaeffer<br />
IBCF Headquarters<br />
101 Main Street, Suite 1<br />
Tappan, NY 10983<br />
t: +1 845 398 0900<br />
e: clientsupport@ibcf.com<br />
w: ibcf.com<br />
President at International Business Company Formation, Inc.<br />
T: +44 (0)20 3002 0580<br />
Email: ukorders@ibcf.com<br />
Mark Schaeffer is President of International Business Company Formation, Inc. His past<br />
work as a senior sales executive in the legal publishing industry as well as his ownership<br />
of manufacturing and retail businesses have served him well in building IBCF into a global<br />
brand.<br />
Patrick J. O’Neill<br />
Chief Executive Officer at International Business Company Formation, Inc.<br />
T: +44 (0)20 3002 0580<br />
Email: ukorders@ibcf.com<br />
Patrick J. O’Neill is Chief Executive Officer of International Business Company Formation,<br />
Inc., and an attorney admitted to the Bar in several US states and Federal courts. He has<br />
more than 35 years of experience in corporate law and company formation.<br />
Mary-Elizabeth O’Neill<br />
Managing Director at International Business Company Formation, Inc.<br />
T: +44 (0)20 3002 0580<br />
Email: ukorders@ibcf.com<br />
• Annual Report Maintenance and<br />
Compliance Checks<br />
• Authentication of Documents including<br />
Legalisations and Apostilles<br />
10. Ability to outsource almost any<br />
component, commodity or service your<br />
business requires<br />
Mary-Elizabeth O’Neill is Managing Director of IBCF UK Ltd. She joined IBCF as Marketing<br />
and Social Media Manager after her previous work in events and public relations. She<br />
is internationally orientated, having studied at New York University, the University of<br />
Westminster in London and the Sorbonne.<br />
78 | <strong>Lawyer</strong><strong>Issue</strong> 79
Family Law<br />
Can Parents Contractually Select<br />
the Forum for A Custody Dispute?<br />
By Kristin Barkett Pettey<br />
Where a custody dispute will be litigated can be a critical concern when<br />
voluntarily entering into an agreement regarding custody of children. Child<br />
custody issues can be further complicated when dealing with laws across state<br />
or country lines.<br />
UCCJEA<br />
“The National Conference of Commissioners<br />
on Uniform State Laws promulgated the<br />
UCCJEA [Uniform Child Custody Jurisdiction<br />
and Enforcement Act] in 1997 ‘to deal with the<br />
problems of competing jurisdictions entering<br />
conflicting interstate child custody orders, forum<br />
shopping, and the drawn out and complex child<br />
custody legal proceedings often encountered<br />
where multiple states are involved.’” Friedman<br />
v. Eighth Judicial District Court, 264 P.3d 1161,<br />
1165 (Nev. 2011) (quoting In re Custody of A.C.,<br />
200 P.3d 689, 691 (Wash. 2009)). In the U.S.,<br />
the UCCJEA (“the Act”) has been adopted by 49<br />
states, the District of Columbia, Guam, and the<br />
U.S. Virgin Islands, but not by Massachusetts or<br />
Puerto Rico.<br />
Under the Act, once a U.S. state has issued an<br />
initial child custody order, it will retain exclusive<br />
and continuing jurisdiction over future custody<br />
disputes so long as one parent continues to live<br />
there 1 . No other state has the authority to act<br />
and the original court’s authority does not end<br />
until one of two things happens: (1) the original<br />
1 Section 105(a) of the UCCJEA provides that a foreign country<br />
will be treated as if it is a state of the United States for the<br />
purposes of applying Articles I (cooperation principles) and II<br />
(jurisdiction provisions) of the UCCJEA.<br />
court finds that the child and both parents have<br />
moved out of the state, and, it no longer has<br />
subject matter jurisdiction, or (2) the original<br />
court determines that it is an inconvenient forum<br />
and a court of another state or country is a more<br />
appropriate forum This issue can be raised by<br />
either party, the original court, or the court of<br />
another state. However, the decision to decline<br />
or relinquish jurisdiction must be made by the<br />
original court. 2<br />
Pursuant to the Act, eight factors apply when<br />
considering an inconvenient forum motion.<br />
One factor is whether any agreement of the<br />
parties exists as to which state should assume<br />
jurisdiction. Other factors are: whether<br />
domestic violence issues exist; the length of<br />
time the child has resided outside the state,<br />
distance between possible courts, the parties’<br />
relative financial circumstances, the nature and<br />
location of the evidence required to resolve<br />
the pending litigation, the ability of each state’s<br />
court to decide the issues expeditiously and the<br />
procedures necessary to present the evidence,<br />
and the court’s familiarity with the pending<br />
litigation’s facts and issues. UCJEEA §207(b).<br />
If the original court decides it is an inconvenient<br />
forum, it will stay the proceedings so long as<br />
another state promptly commences a custody<br />
proceeding.<br />
Hogan v. McAndrew<br />
Is a marital settlement agreement’s negotiated<br />
forum-selection clause enough to select<br />
jurisdiction?<br />
A forum-selection clause was considered by the<br />
Rhode Island Supreme Court in the matter of<br />
Hogan v. McAndrew, 2016 WL 556297 (Feb. 12,<br />
2016) In Hogan, Father and Mother were dual<br />
citizens of the United States and the Republic<br />
of Ireland. The parties divorced in 2008. In<br />
accordance with their property settlement<br />
2 Exceptions in emergency situations apply and provide for<br />
temporary custody orders.<br />
agreement, they share joint custody of three<br />
children, and Mother has physical placement.<br />
The parties agreed that Mother could return<br />
to Ireland with the children. They stipulated<br />
that any future custody disputes would “remain<br />
under the jurisdiction of the [Parental Kidnapping<br />
Prevention Act, 28 U.S.C. § 1738A], [the Uniform<br />
Child Custody Jurisdiction and Enforcement Act<br />
(UCCJEA), G.L. 1956 chapter 14.1 of title 15,] and<br />
the Rhode Island Family Court.” (Hogan at *p. 2)<br />
The children stayed with Mother in Ireland and<br />
visited Father in Rhode Island each summer.<br />
Father continued to reside in Rhode Island and,<br />
in 2014, filed motions in the Rhode Island Family<br />
Court, including an ex parte emergency motion<br />
to modify custody and placement. The Court<br />
granted the ex parte order. Mother moved to<br />
vacate the order and sought to dismiss the action<br />
asserting Rhode Island lacked subject matter<br />
jurisdiction as the children had resided in Ireland<br />
continuously for more than five years.<br />
The Rhode Island Family Court heard the parties<br />
on the issue of jurisdiction. Excepting yearly<br />
visits with their father, the children resided in<br />
Ireland continuously with Mother from January<br />
2009 to July 2014 while Father resided in Rhode<br />
Island. Father spent multiple weeks with the<br />
children each year, with most of this time spent<br />
in Ireland.<br />
Father testified that the parties’ agreement that<br />
Rhode Island maintain jurisdiction was “vital” to<br />
his decision to assent to the children’s relocation<br />
to Ireland. He further testified that “without it”<br />
he would “never have agreed to let them go.<br />
After hearing, the Court issued a bench decision<br />
declaring that although Rhode Island retained<br />
exclusive, continuing jurisdiction pursuant to<br />
the UCCJEA, it declined to exercise jurisdiction<br />
on the ground of forum non conveniens, noting<br />
that Ireland was a more appropriate forum for<br />
the dispute to be heard. The Court noted that<br />
a forum- selection clause is one of eight factors<br />
and reasoned that its inclusion in the property<br />
80 | <strong>Lawyer</strong><strong>Issue</strong> 81
Family Law<br />
settlement agreement did not absolutely bind<br />
the Court, which must consider all of the factors<br />
set forth in the statute.<br />
Father appealed and argued that the hearing<br />
justice abused her discretion by failing to afford<br />
proper weight to (1) the mutually agreed upon<br />
forum-selection clause set forth in the property<br />
settlement agreement and in the final judgment<br />
of divorce, and, (2) additional factors enumerated<br />
under the UCCJEA.<br />
Rhode Island’s highest court vacated the lower<br />
court’s decision, holding that the hearing justice<br />
abused her discretion by declining jurisdiction<br />
on the ground of forum non conveniens. The<br />
Rhode Island Supreme Court explained that<br />
before the Family Court, vested with exclusive,<br />
continuing jurisdiction over the child-custody<br />
dispute, declines jurisdiction on the grounds of<br />
inconvenient forum, it must engage in a two-part<br />
inquiry. The Family Court justice must conclude<br />
both that the court “is an inconvenient forum<br />
under the circumstances and that a court of<br />
another state [or a foreign tribunal] is a more<br />
appropriate forum.” R.I. Gen. Laws §15-14.1-<br />
19(a); See UCCJEA §207. Before the Family Court<br />
can decide that Rhode Island is an inconvenient<br />
forum, it must address whether it would be<br />
“appropriate for a court of another state to<br />
exercise jurisdiction.”<br />
This determination is made by considering all<br />
relevant factors, including the eight factors<br />
enumerated in the UCCJEA. Then, if the court<br />
concludes based on the evidence that a more<br />
appropriate forum exists, the court proceeds to<br />
the second step of the analysis and considers<br />
whether it would be an inconvenient forum<br />
under the circumstances.<br />
The Rhode Island Supreme Court previously<br />
addressed the role of forum-selection clauses<br />
under the UCCJEA in the case of Sidell v. Sidell,<br />
18 A.3d 499, 504-08 (R.I. 2011). In Sidell, the<br />
defendant father and former resident of Rhode<br />
Island filed post-divorce motions regarding childcustody<br />
and support orders issued by the Rhode<br />
Island Family Court. At the time he filed his<br />
motions neither the parents nor the child resided<br />
in Rhode Island. Defendant father argued that<br />
the Rhode Island Family Court was vested with<br />
jurisdiction because the parties had stipulated in<br />
their marital settlement agreement that Rhode<br />
Island would retain exclusive jurisdiction over<br />
the matter. However since none of the parties<br />
resided in Rhode Island, the Court determined<br />
that Rhode Island courts lacked exclusive<br />
continuing jurisdiction under R.I. Gen. Laws §<br />
15-14.1-14(a)(2). Sidell at 508.The Sidell Court<br />
concluded a forum-selection clause does not<br />
confer a court with subject matter jurisdiction<br />
when such jurisdiction is otherwise absent. Id.<br />
However, in Hogan, the Rhode Island Supreme<br />
Court noted there are situations where a court<br />
is vested with subject matter jurisdiction and<br />
“an enforceable forum-selection clause…settles<br />
the proper venue for the cause and prevents<br />
‘a party that has agreed to be bound… [from…<br />
assert[ing] forum non conveniens as a ground<br />
for dismissing a suit brought in the chosen<br />
forum.’” Id at 507 (quoting American Biophysics<br />
Corp. v. Dubois Marine Specialties, 411 F.Supp.<br />
2d 61, 62 (D.R.I. 2006)).<br />
In vacating the Family Court’s decision in Hogan,<br />
the Supreme Court, noted that the trial justice<br />
overlooked Father’s testimony that the forumselection<br />
clause had been a predominant factor<br />
in his agreement to allow his children to move<br />
to Ireland with their mother and that the parties<br />
had entered into the agreement in anticipation of<br />
the relocation.<br />
The Supreme Court also noted that the trial<br />
justice failed to address the high value that is<br />
conferred on judgments by consent. Further,<br />
based on the dearth of information available,<br />
the Supreme Court concluded that the hearing<br />
justice improperly determined that the seventh<br />
factor – “the ability of the court of each state<br />
to decide the issue expeditiously and the<br />
procedures necessary to present the evidence”<br />
weighed equally in favour of Ireland and Rhode<br />
Island. R.I. Gen. Laws §15-14.1-19(b)(7); UCCJEEA<br />
§207(b).<br />
The Rhode Island Supreme Court remanded the<br />
matter back to the trial court, with the unstated<br />
implication that the trial court will retain<br />
jurisdiction.<br />
OTHER CASES –FORUM-<br />
SELECTION CLAUSE<br />
In Friedman v. Eighth Judicial Dist. Court of State,<br />
ex. Rel, 127 Nev. 842, 844 (2011), the Nevada<br />
Supreme Court declined to exercise jurisdiction<br />
over an interstate custody dispute in favour<br />
of California. In Friedman, the parties had<br />
stipulated in their divorce decree that Nevada<br />
would have exclusive jurisdiction over future<br />
child custody disputes. When the dispute arose,<br />
both parties and their children had moved to<br />
California. The Court concluded the parties’<br />
agreement to confer jurisdiction on a court<br />
that otherwise would not have jurisdiction was<br />
ineffective. Id. at 850.<br />
In Horgan v. Romans, 366 Ill.App.3d 180 (2006),<br />
the Appellate Court of Illinois, First District,<br />
Kristin Barkett Pettey<br />
Shareholder, Co-Chair of the Healthcare Group at Roberts, Carroll, Feldstein & Peirce<br />
T: +1 401 521 7000<br />
Email: Kpettey@rcfp.com<br />
Fourth Division, declined jurisdiction despite<br />
the parties’ forum-selection agreement and<br />
reasoned to allow such an agreement to trump<br />
the other factors to be balanced under the<br />
UCCJEA would contradict the statutory language<br />
of section 207 of the Act. Id at 185.<br />
In S.K.C. v. J.L.C., 94 A.3d 401, 418 (Pa. 2014), a<br />
Pennsylvania Superior Court held that a forumselection<br />
clause may not be considered when<br />
determining whether a court retains exclusive,<br />
continuing subject matter jurisdiction. Id.<br />
CONCLUSION<br />
A forum-selection clause and the circumstances<br />
surrounding its inclusion in a marital settlement<br />
agreement are among the factors to be<br />
considered when determining which of two<br />
competing forums is more appropriate and<br />
whether one is inconvenient relative to a child<br />
custody determination. Although some courts<br />
have afforded what appears to be greater weight<br />
to such agreements, forum-selection agreements<br />
alone are not dispositive and must be weighed<br />
against other factors and circumstances when<br />
the dispute arises.<br />
Kristin has over 18 years of civil litigation experience. She has successfully represented<br />
clients in state and federal courts in Rhode Island and Massachusetts and has tried<br />
numerous jury and bench trials, with several favourable verdicts. In addition to her<br />
courtroom practice, Kristin has experience with alternative dispute resolution, including<br />
mediation. Prior to joining Roberts, Carroll, Feldstein & Peirce, Kristin managed her own<br />
law office and handled a wide variety of litigation and transactional matters, specialising<br />
in domestic relations.<br />
82 | <strong>Lawyer</strong><strong>Issue</strong> 83
Forensic Accounting<br />
Quantum awards in international arbitration –<br />
how can arbitrators and experts get it right?<br />
By Gervase MacGregor,<br />
Andrew Maclay<br />
justify his own model rather than relying on the<br />
opposing expert to understand and explain it.<br />
As quantum awards have followed particular<br />
trends, such as increasingly being based on<br />
Discounted Cash Flow (DCF) and a Discount<br />
rate, based on the Capital Asset Pricing<br />
Model formula, so arbitrators have learnt the<br />
terminology that quantum experts use and have<br />
often tried to adjust the models themselves.<br />
However, it is still the quantum expert’s<br />
responsibility to explain in simple terms why<br />
they have adopted this or that methodology<br />
for calculating the quantum in a dispute, and to<br />
explain all the inputs and calculations in their<br />
model.<br />
The responsibility of arbitrators<br />
In their turn, given that they are making an<br />
award that may mean the payment of hundreds<br />
of millions of dollars from one company to<br />
another or from a country and its taxpayers to<br />
a company, arbitrators have a responsibility of<br />
ensuring that the quantum section of their award<br />
is properly calculated and is economically robust.<br />
types of error may arise – for example:<br />
(a) arithmetical errors that are apparent on the<br />
face of the award itself;<br />
(b) computational errors that arise where the<br />
arbitrators have calculated their own award by<br />
taking the quantum experts’ calculations and<br />
making their own changes; or<br />
(c) conceptual errors that arise where the<br />
arbitrators have recalculated the award<br />
themselves, but have misunderstood or<br />
overlooked some fundamental concept in the<br />
quantum experts’ reports.<br />
Clearly there can be disagreements between<br />
experts, or between one expert and the tribunal,<br />
on either the calculations or the economic<br />
theory, and the losing expert may complain that<br />
these are errors – but, if one expert has argued<br />
credibly for one methodology or valuation<br />
technique and the tribunal finds in his favour<br />
and against the other side, this is not something<br />
we refer to here as an error.<br />
Forensic accountants sometimes describe their skill and raison d’être as being to<br />
simplify complex accounting concepts for dispute resolution lawyers.Yet, at the<br />
recent ICCA commercial and investment arbitration conference, some of the<br />
world’s leading arbitrators said that they really found quantum experts’ reports<br />
very difficult to understand.<br />
Furthermore, it has been stated that the process<br />
of scrutinising draft arbitration awards at the ICC<br />
picks up errors in the calculation of damages in<br />
up to 40% of draft awards.<br />
As quantum experts have become a normal<br />
part of clients’ teams in international arbitration<br />
cases, what can be done to improve the situation<br />
as well as get awards right?<br />
The responsibility of quantum experts<br />
As quantum experts who regularly act in<br />
international arbitration, our view is that experts<br />
should have the responsibility of making their<br />
reports understandable and as simple as<br />
possible for both the lawyers on both sides and<br />
the arbitrators. How can we complain that an<br />
arbitration tribunal has made a mistake in its<br />
award simply because the tribunal could not<br />
understand the reports?<br />
For example, can a tribunal really be expected<br />
to understand 800 pages of spreadsheets in<br />
pdf format with no explanation that states<br />
the purpose of each page? It must be the<br />
responsibility of the expert to explain and<br />
We respect the fact that arbitrators do not tend<br />
to be accountants, and so they can be excused<br />
for finding the legal aspects of an award more<br />
interesting than the quantum element, and they<br />
can also be excused if they do not articulate the<br />
quantum section of their award in the same way<br />
that a forensic accountant might use.<br />
However, the parties surely have a right to expect<br />
that the award should be properly calculated<br />
and based on a logical and coherent argument,<br />
which includes the calculation of any damages<br />
awarded. Given the current dissatisfaction in<br />
some quarters with the Investor State Dispute<br />
Settlement System (“ISDS”), this could indeed<br />
provide an additional (and unnecessary) reason<br />
for dissatisfaction with ISDS in general.<br />
Types of quantum errors in<br />
arbitration awards<br />
Far be it from us to point to any awards which<br />
include errors, but in our experience, various<br />
Fortunately, we are not aware of any examples<br />
of type (a) errors, and this is the sort of error that<br />
should be picked up by review procedures such<br />
as the ICC’s scrutiny process; it is also the sort<br />
of error that is referred to as “manifest error” in<br />
expert determinations, and is extremely rare.<br />
However, it is the type (b) and (c) errors we want<br />
to focus on below, and to discuss possible ways<br />
in which tribunals could avoid them.<br />
Computational errors<br />
In the English High Court, it is common for<br />
judgments to be submitted to the parties’<br />
counsel immediately prior to publication, to<br />
enable them to correct any factual inaccuracies –<br />
such a mechanism could be used for the parties<br />
to review an arbitration award and correct for<br />
any computational error.<br />
Alternatively, we acted in one case where the<br />
judge gave the parties and their quantum<br />
experts a half hour recess to agree on the<br />
84 | <strong>Lawyer</strong><strong>Issue</strong> 85
Forensic Accounting<br />
quantum number between them – as by this<br />
stage both quantum experts had each other’s<br />
models on their laptops we were able to come to<br />
an agreed number.<br />
A principal argument put forward for not letting<br />
the parties or their quantum experts to check<br />
the award before it was finalised is that the<br />
tribunal has to be seen as the final arbiter of the<br />
case – and any submission of a “draft” award to<br />
the parties risks being taken by the party as an<br />
opportunity or a necessity for them to produce<br />
further submissions to argue their case after<br />
evidence has closed.<br />
However, if the tribunal is absolutely clear that<br />
the parties are only invited to comment on<br />
the arithmetical accuracy and logic of the draft<br />
award, that should be less of a problem. This<br />
process would have been very useful in one<br />
particular award that we have seen where the<br />
tribunal simply copied the wrong sequence of<br />
ten cells in a spreadsheet into its final award<br />
calculation.<br />
Had the parties seen the draft award in advance,<br />
both parties’ experts ought to have identified this<br />
and reached an agreement for the tribunal as to<br />
which were the correct cells to copy.<br />
In our experience, it is becoming increasingly<br />
common for the tribunal to request the experts’<br />
models in electronic form; this is done to enable<br />
the experts to save time and costs by testing<br />
each other’s models and thus being able to<br />
point out any errors before the hearing, and<br />
also so that the tribunal itself can take away the<br />
model for its deliberations, understand it and<br />
make appropriate modifications to it in order to<br />
generate a quantum number that is in line with<br />
the award on the merits.<br />
In theory, a younger generation of arbitrators<br />
is likely to have more experience of using Excel<br />
spreadsheets so they can manipulate the models<br />
themselves, but in practice, the models that we<br />
quantum experts use in our DCF calculations are<br />
still rarely simple enough for non-accountants to<br />
edit. A tribunal recently took us up on our offer<br />
to agree on a model with the opposing expert<br />
for the tribunal to use in coming to its award –<br />
but, even though less than ten accounting items<br />
remained in dispute, it was not easy to design a<br />
foolproof model for the tribunal to use. In this<br />
case, it was already simpler because the tribunal<br />
had directed us to prepare a joint statement,<br />
and that in itself had considerably narrowed the<br />
number of items remaining in dispute.<br />
Conceptual errors<br />
With respect to Russia’s challenge to the PCA<br />
award on the Yukos case, Russia’s expert seems<br />
to have been prepared to accept the tribunal<br />
finding in favour of the claimants on quantum<br />
if that finding had been based on sound<br />
economic argument – but he pointed out that<br />
what he found troubling was where the tribunal<br />
adopted its own non-standard method, which<br />
he considered to be based on flawed economic<br />
theory that would not have been accepted by<br />
either side’s quantum expert.<br />
This type of “error” is more difficult to deal with,<br />
as it is not simply arithmetical, but arises from a<br />
tribunal either straying outside its expertise, or<br />
deciding that it has a novel insight into economic<br />
theory that may not be supported by any body<br />
of economists or forensic accountants– even<br />
though if an expert was to adopt such a nonstandard<br />
theory, his report could justifiably be<br />
attacked for being outside of generally accepted<br />
accounting/economic/valuation parameters.<br />
Probably, the answer to this type of “error”<br />
is that tribunals simply need to be extremely<br />
careful when they arrive at quantum awards that<br />
are outside the parameters of the calculations<br />
put forward by the two opposing experts.<br />
It may not be unreasonable for a tribunal to<br />
award quantum on a basis that was not pleaded<br />
– but it is taking risks when it chooses a basis<br />
that was not tested at the hearing.<br />
Possibly one radical solution that would assist<br />
tribunals to avoid these conceptual errors would<br />
be more use of tribunal-appointed quantum<br />
experts or a form of tribunal quantum secretary,<br />
who would be able to check the tribunal’s<br />
calculations and advise on the accuracy and<br />
the logic of the tribunal’s deliberations in<br />
advance – or even the appointment of a forensic<br />
accountant as the third member of the tribunal,<br />
along the lines adopted by the UNCC Panels a<br />
decade ago.<br />
This, of course, raises other hot topics such as<br />
the role of a tribunal secretary – but is worthy of<br />
consideration in a situation where the quantum<br />
Gervase MacGregor<br />
Head of Forensic Services at BDO LLP<br />
T: +44 (0)20 7893 2665<br />
Email: gervase.macgregor@bdo.co.uk<br />
Gervase MacGregor is Head of Forensic Services at BDO. He has a Bachelor’s degree in geology from the<br />
University of Liverpool and a Master’s degree from HEC in Paris. He is a Chartered Accountant and a<br />
Certified Fraud Examiner. He joined BDO in 1982, qualified in 1986, was made a partner in BDO in 1991<br />
and became head of the London based Litigation Support and Forensic Accounting Department in 1994.<br />
His first forensic investigation, in 1985, was into a contested takeover by a client of his firm, Caparo Plc. His<br />
work into accounting irregularities gave rise to the Caparo case on auditors’ liability.<br />
He has a particular expertise in valuation and damages disputes and share purchase agreement disputes<br />
in the energy sector. He has given evidence in the High Court, in international arbitrations and before select<br />
committees of the UK Parliament.<br />
Andrew Maclay<br />
Forensic Accountant at BDO LLP<br />
T: +44 20 7893 3487<br />
Email: andrew.maclay@bdo.co.uk<br />
at stake is hundreds of times greater than the<br />
cost of a tribunal appointed expert or secretary.<br />
The ICC’s vetting procedures<br />
And one final thought –if the ICC’s scrutiny<br />
procedures are really picking up quantum errors<br />
in up to 40% of awards before they are issued,<br />
this scrutiny procedure is to be applauded – but<br />
maybe the other arbitral institutions should<br />
consider adopting a similar procedure, or even<br />
employing a forensic accountant to do the<br />
scrutinising in-house.<br />
www.bdo.co.uk<br />
Andrew Maclay is a forensic accountant who has specialised in all aspects of Forensic Accounting since<br />
1996. He has an MA in Economics from the University of Cambridge.<br />
He is a Chartered Accountant, a Certified Fraud Examiner and an accredited Accountant Expert Witness.<br />
He specialises in the quantification of damages in international arbitration, and has worked on disputes<br />
in many jurisdictions, particularly France, Switzerland, West and East Europe, Africa and the Middle East.<br />
Between 1991 and 1994, he worked in Burundi, Africa and is fluent in French.<br />
He has given evidence in international arbitration tribunals, the High court, a criminal court and by way of<br />
deposition in US proceedings.<br />
86 | <strong>Lawyer</strong><strong>Issue</strong> 87
Mitigating Environmental Risks in M&A<br />
Environmental Legal Risk in Mergers<br />
and/or Acquisitions<br />
By Humberto Celis Aguilar Alvarez<br />
extinguished. Subsisting are solely real<br />
liabilities, procte rem, as, for example, soil<br />
contamination.<br />
Therefore, environmental liability pursue<br />
the item, that is, the property.<br />
soil contamination, it does not deal with<br />
the scope and validity of the environmental<br />
permits required to operate nor with the<br />
risk of revocation and/or closure thereof.<br />
• Measurement of Risk and Liability<br />
It is of major importance to review the<br />
To resolve the environmental legal-risk<br />
possibility of assigning the rights of<br />
factor of operations, it is essential to do an<br />
the corresponding permits, licenses or<br />
exhaustive legal review of the permits the<br />
concessions so as to validate their transfer<br />
company and/or industry needs to operate.<br />
before the legal personality of the corporate<br />
entity in charge thereof is terminated.<br />
This will allow us to prepare an integral<br />
strategy, which, on the one hand, allows<br />
Once having distinguished between the<br />
us to reliably measure environmental<br />
modalities of transaction in question, I<br />
legal risk, and, on the other hand, with this<br />
list below the legal actions to be reviewed<br />
hard data, leads to an integral strategy of<br />
so as to carry out precise and proper<br />
regularization, should such be necessary.<br />
environmental due diligence.<br />
III. Analysis of the Legal<br />
Actions to be Follower<br />
• Measurable Costs<br />
After all is said and done, an integral legal<br />
report must provide us with the: i) legal<br />
• Ad Hoc Check List<br />
risk of the operation; ii) legal liability of the<br />
parties; iii) parameters of the fines and/<br />
It is quite common to see that the majority<br />
or administrative sanctions that might<br />
I. Background<br />
• Purchase-Sale of Stocks<br />
of our colleagues use standard forms<br />
applying to all merger and acquisition<br />
be levied for existing environmental<br />
irregularities; iv) approximate costs of the<br />
operations, thereby committing a big<br />
regularization of the company.<br />
As a consequence of the promulgation<br />
of Environmental Laws in México over<br />
the past five years, the topic of risk and<br />
In this case, past, present and future<br />
environmental liability is acquired fully by<br />
the purchaser, independently of the fact<br />
mistake, given the fact liability for the hotel<br />
industry is not the same as for the chemical<br />
industry.<br />
IV. Conclusions<br />
environmental liability has become a major<br />
that liability for the seller may be agreed to<br />
• The growing legal regime of<br />
issue of merger and acquisition operations.<br />
for past irregularities, such as the case of<br />
It is our opinion that a specific checklist<br />
environmental liability in Mexico<br />
soil contamination.<br />
must be worked out for the industry in<br />
makes it essential to do an<br />
Moreover, in this type of operation, it<br />
question.<br />
exhaustive review of compliance in<br />
is crucial to take into account the very<br />
Inasmuch as the legal personality of the<br />
the area applicable to all mergers<br />
nature of the transaction in question so<br />
corporation remains intact and, therefore,<br />
• Study Phase 1 vs. Legal Review<br />
and acquisitions.<br />
as to fully understand the risk and liability<br />
the new owner shall be liable for the facts<br />
corresponding to each project.<br />
and/or omissions implied by violations.<br />
In particular, it is often used for the parties<br />
• It is crucial to fully understand the<br />
II. Modalities<br />
• Purchase-Sale of Assets<br />
involved in this type of transaction to<br />
measure environmental risk by solely<br />
carrying out a Phase 1 study. The problem<br />
type of modality of the transaction<br />
in question.<br />
Basically, we have two main types of<br />
In this case, personal liability ends since<br />
lies in the fact that, though it is true the<br />
• An exhaustive legal review is<br />
modalities: A) the purchase-sale of stocks<br />
it is not acquired by the corporation<br />
aforementioned reports deals with the risk<br />
fundamental to measuring legal<br />
and B) the purchase-sale of assets.<br />
and, consequently, legal personality is<br />
level of the company´s operation vis-à-vis<br />
risk, as well as the scope of the<br />
88 | <strong>Lawyer</strong><strong>Issue</strong> 89
Mitigating Environmental Risks in M&A<br />
civil, environmental, administrative<br />
and/or criminal liability of the<br />
parties involved in the transaction.<br />
• The elaboration of a report at the<br />
level of compliance and limit of<br />
environmental liability is essential,<br />
as are parameters of the cost of<br />
regularization.<br />
• Finally, in the interest of avoiding<br />
lawsuits brought for unreviewed<br />
defects and unnecessary risk in<br />
mergers and acquisitions, the<br />
involvement of an environmental<br />
expert with more than 20 years<br />
knowledge and proven<br />
Structuring European M&A activity:<br />
why Gibraltar?<br />
By Ian Felice,<br />
Tania Rahmany<br />
• In the case, contamination is<br />
found in the site, there must be ex<br />
profeso clauses within the contract.<br />
Humberto Celis Aguilar Alvarez<br />
Managing Partner at Celis Aguilar Álvarez y Asociados<br />
T: +52 55 52 51 0775<br />
Email: hcaguilar@hcambiental.com<br />
Humberto Celis, a cutting-edge expert in energy, environmental, natural resources law,<br />
and areas thereof related, has been in the business for over 25 years. His work ranges<br />
from regulatory compliance, liability counselling, dispute resolution, litigation, class<br />
actions, enforcement and response to corporate, real estate transactions, climate change,<br />
green markets, oil/gas, power generation and renewables.<br />
The European M&A market saw record trends in<br />
2015, with Q4 2015 being the highest ever quarter<br />
for deal value in Europe, exceeding €420billion 1 . A<br />
weakening euro resulted in strong US investment<br />
playing an important role, and amounting to over<br />
US$ 208 billion. This seems to have particularly<br />
fuelled European M&A, which saw deal values<br />
increase 40% in the first quarter of 2016,<br />
compared to the same period in 2015, despite<br />
uncertainty in Europe in the lead-up to the UK<br />
referendum on retention of its EU membership 2 .<br />
The increasingly international nature of<br />
transactions is evidenced by the fact that cross-<br />
1 Deloitte“Impact of the EU referendum on M&A activity in the<br />
UK” accessed on 5th August 2016 on https://www2.deloitte.com/<br />
content/dam/Deloitte/uk/Documents/international-markets/deloitte-uk-impact-of-the-eu-referendum-on-ma-activity-in-the-uk.<br />
pdf<br />
2 Ibid<br />
border M&A represents significant proportions of<br />
overall activity. The key challenge in structuring<br />
deals of this nature is to minimise costs for<br />
the purchaser, both in terms of professional<br />
fees and importantly, tax liabilities. Gibraltar<br />
provides unique attributes which make it an ideal<br />
international financial centre for structuring M&A<br />
transactions.<br />
The recent decision of the UK to leave the EU will<br />
affect Gibraltar, which depends on the UK’s EU<br />
status for its own membership. While this has<br />
inevitably created a period of uncertainty, the<br />
EU methodologies discussed in this article will<br />
certainly remain available until such time as Article<br />
50 of The Lisbon Treaty is triggered by the UK<br />
government and EU law ceases to be applicable to<br />
the UK.<br />
90 | <strong>Lawyer</strong><strong>Issue</strong> 91
Mergers & Acquisitions<br />
1. Membership of the EU<br />
exchange regimes, resulted in Gibraltar scoring<br />
and no withholding tax is imposed on the<br />
an additional cost to a purchaser. Given that<br />
Companies looking to enter into the European<br />
“largely compliant” in its review by the OECD. This<br />
payment of interest or dividends. Interest<br />
cancellation schemes were the overwhelmingly<br />
single-market can use Gibraltar as a gateway to<br />
reputation facilitates dealings with third parties,<br />
income is generally not taxable, unless<br />
preferred structure for conducting high value<br />
Europe. In contrast with the other international<br />
ensuring lack of transparency does not hinder the<br />
it is inter-company loan interest that is<br />
acquisitions, the closure of this loophole has<br />
financial centres, it is often compared to, such as<br />
business.<br />
received by or accrues to a company and is<br />
resulted in a significant increase in costs involved<br />
Jersey or Guernsey, Gibraltar’s membership of<br />
the EU enables a Gibraltar company to passport<br />
services throughout Europe at low cost, with<br />
the support of a cooperative, easily accessible,<br />
responsive and business-focused regulator.<br />
These factors make Gibraltar an attractive location<br />
for inbound European M&A activity from the US<br />
and Asia.<br />
2. Flexible company law regime<br />
for modern-day transactions<br />
and business-focused tax laws<br />
• Corporate law and tax regime<br />
Gibraltar overhauled its Companies Act<br />
in 2014, to include some features which<br />
make Gibraltar companies attractive<br />
for structuring acquisition vehicles and<br />
in excess of £100,000 p.a. Furthermore, the<br />
transfer of shares in a Gibraltar company<br />
is not subject to any tax or duty, unless the<br />
company whose shares are transferred<br />
holds Gibraltar real estate.<br />
• Gibco as an investment vehicle<br />
Gibraltar Private Limited companies are<br />
able to convert to public companies, as well<br />
as a number of different forms. The shares<br />
in an acquisition. While the rate of stamp duty<br />
in the UK is currently only set at 0.5%, this can<br />
amount to a significant quantity in a high-value<br />
M&A deal. Purchasers of UK businesses may<br />
therefore consider whether the stamp duty saving<br />
could be retained by using Gibraltar to structure<br />
the deal.<br />
The UK prohibition on cancellation schemes does<br />
not prevent a cancellation scheme of arrangement<br />
A Gibraltar vehicle could also be used for the<br />
facilitating M&A activity. Gibraltar corporate<br />
of Gibraltar companies have been listed on<br />
from being used to insert a holding company over<br />
structuring of deals involving other EU member<br />
vehicles enjoy the flexibility of the English<br />
international recognised stock exchanges,<br />
the target company. It is possible therefore, to<br />
state companies, which is facilitated by the fact<br />
common law; a legal regime which is widely<br />
such as the London Stock Exchange. The<br />
insert a Gibraltar holding company over the UK<br />
that Gibraltar has transposed the Cross Border<br />
used and preferred by businesses around<br />
fact that capital gains are not taxed makes<br />
target, by cancelling the shares in the UK company<br />
Merger Directive (“the CBMD”).<br />
the world.<br />
an IPO for institutional investors and private<br />
in consideration for issuing to the shareholders,<br />
equity houses to be attractive.<br />
new shares in a Gibraltar company which will<br />
The CBMD facilitates cross-border M&A activity<br />
A Gibraltar company only requires one<br />
hold shares in the target. A purchaser could then<br />
for limited companies by providing a simple<br />
director and one secretary (which can be<br />
It is also possible for Gibraltar companies<br />
acquire the shares in the Gibraltar company by<br />
framework drawing largely on national laws<br />
corporate entities), with no requirements<br />
to return capital to shareholders (e.g.,<br />
way of a share transfer.<br />
applicable to domestic mergers. This avoids the<br />
for agents or resident directors (although<br />
by delivering redemption proceeds on a<br />
sometimes prohibitively high costs of cross-border<br />
the location of management and control can<br />
redemption of the shares) as opposed to<br />
The shares of a Gibraltar company with a share<br />
M&A deals, as well as avoiding the winding up<br />
determine the company’s tax residence).<br />
distributing profits by way of dividend.The<br />
register maintained outside the UK are not subject<br />
of the target company. A Gibraltar company can<br />
There is no limit on the number of<br />
fund industry in Gibraltar has been growing<br />
to stamp duty in the UK. In Gibraltar, no stamp<br />
merge with a company registered in any other EU<br />
shareholders a company can have, which<br />
at a rapid pace and continues to expand.<br />
duty is payable on shares (unless the transaction<br />
member state. Interestingly, the CBMD does not<br />
enables a Gibraltar company to be funded<br />
There are many types of fund in Gibraltar,<br />
involves real estate located in Gibraltar). In an<br />
operate between Gibraltar and the UK, which are<br />
easily with a large share capital, which would<br />
including private funds, Experienced<br />
increasingly cost-conscious market, this can<br />
not deemed to be the separate EU Member States<br />
be subjected to a fixed capital duty of only<br />
Investor Funds (EIFs), Non-UCITS Retail<br />
amount to a significant saving for the purchaser.<br />
for this purpose. The same result can be obtained,<br />
£10. It is also possible to have different<br />
funds and protected cell companies. This<br />
however, by undertaking two cross-border<br />
share classes, such as redeemable shares,<br />
makes Gibraltar a serious option for basing<br />
The proposal is illustrated below:<br />
mergers, one between the Gibraltar company<br />
or shares with preferential rights to dividend<br />
investment funds.<br />
and a company registered anywhere in the EU,<br />
and another between that company and the UK<br />
company.<br />
and/or a return of capital on a winding up.<br />
There are no minimum capital requirements<br />
and share capital can be denominated in<br />
3. Mergers and schemes of<br />
arrangement<br />
1. Shares in UKCo cancelled, in consideration for<br />
the issuing of shares in Gibraltar HoldCo<br />
Gibraltar’s EU membership and first class<br />
any lawful currency. Shares can be issued<br />
Mergers are possible for public companies,<br />
regulatory regime means that holding structures<br />
per any value and at a premium. Nominee<br />
and the Companies Act 2014 provides a<br />
or special purpose vehicles in Gibraltar will be<br />
shareholdings are also permitted.The<br />
framework for reconstructions and schemes<br />
fully compliant with the standards expected by<br />
the European Commission and applicable tax<br />
laws. This, coupled with Gibraltar’s adoption of<br />
EU standards of administrative co-operation in<br />
the field of taxation and other tax information<br />
taxation of companies are relatively simple,<br />
and also facilitate business needs. All<br />
companies are chargeable on taxable profits<br />
accrued and derived in Gibraltar, at a fixed<br />
rate of 10%. Capital gains are not taxed,<br />
of arrangement. The recent prohibition on<br />
cancellation schemes of arrangement in the UK<br />
(by virtue of the Companies Act (Amendment of<br />
Part 17) Regulations 2015) has resulted in stamp<br />
duty payments on the transfer of shares being<br />
92 | <strong>Lawyer</strong><strong>Issue</strong> 93
Mergers & Acquisitions<br />
2. BuyerCo purchases shares of Gibraltar HoldCo.<br />
be utilised. Similarly, after completing an M&A<br />
6. Conclusion<br />
services, gaming, shipping and tourism.<br />
No stamp duty is payable in the UK on shares in<br />
Gibraltar companies and no stamp duty on shares<br />
in Gibraltar.<br />
transaction, the new business may consider<br />
redomiciling to Gibraltar to take advantage of the<br />
competitive and flexible taxation and legal regime.<br />
Companies registered in any of the following<br />
jurisdictions may redomicile into Gibraltar:<br />
Any of the EEA States, Anguilla, Bermuda, British<br />
At a time where clients are more costconscious<br />
than ever, structuring a merger or<br />
acquisition effectively, while keeping costs and<br />
tax-liabilities at a minimum is key. Gibraltar<br />
offers a variety of mechanisms for M&A<br />
deal structures, as well as post-transaction<br />
corporate group structuring.<br />
Despite the uncertainty and instability resulting<br />
from the UK’s decision to exit the EU, the legal<br />
matrix in which the market operates remains<br />
unchanged. Following 2015 as a record year<br />
in the European M&A market, 2016 may<br />
see Gibraltar featuring increasingly on the<br />
radars of M&A professionals, indicating that<br />
notwithstanding its small size, Gibraltar has a<br />
Antarctic Territory, British Indian Ocean Territory,<br />
Cayman Islands, Falkland Islands, Guernsey, Isle of<br />
Man, Jersey, Montserrat, Pitcaim, St. Helena, Turks<br />
Gibraltar boasts a diversified economy which<br />
is rapidly growing in sectors such as financial<br />
lot to offer.<br />
and Caicos Islands, British Virgin Islands, States<br />
which are members of the British Commonwealth,<br />
Liberia, Panama, Singapore, Switzerland, Hong<br />
Kong and the USA.<br />
In addition, there would be no tax on the<br />
dividends received from the UK target to the<br />
Gibraltar HoldCo, and no withholding tax on<br />
dividends paid from Gibraltar HoldCo to the<br />
BuyerCo. Corporation tax would only be on profits<br />
accrued and derived in Gibraltar, at a flat rate<br />
of 10%.Furthermore, the lack of VAT provides<br />
significant savings on professional fees.<br />
4. Redomiciliation<br />
Gibraltar law permits redomiciliation of companies<br />
registered in a number of other countries to<br />
Gibraltar, as well as the redomiciliation of Gibraltar<br />
companies elsewhere. This can be vastly helpful<br />
in the context of M&A transactions. In the above<br />
example, for instance, companies incorporated<br />
and registered in jurisdictions which do not<br />
recognise the scheme of arrangement, who wish<br />
to take advantage of the benefits structuring the<br />
acquisition in this way can provide redomicile<br />
under the Companies Act 2014. Once redomiciled<br />
to Gibraltar, the scheme of arrangement<br />
provisions under Gibraltar corporate law can<br />
The arrangements are reciprocal, so a Gibraltar<br />
company is also able (subject to local laws)<br />
to redomicile into any of the above-listed<br />
jurisdictions.<br />
Upon a redomiciliation, a company continues<br />
in uninterrupted existence, so the assets and<br />
liabilities, rights and obligations of the company<br />
remain as they are in the original state, which<br />
further facilitates post-acquisition synergies.<br />
5. SocietasEuropaeas<br />
The Companies Registrar in Gibraltar recognises<br />
and registers SocietasEuropaeas, which also<br />
facilitates cross-border M&A activity.. Such entities<br />
are able to transfer their registered office from<br />
one EU member state to another, without having<br />
to comply with the more onerous procedure to<br />
migrate a company, which involves the transfer of<br />
assets and liabilities, dissolutions and<br />
re-incorporations.<br />
A SocietasEuropaeas can be formed by a merger<br />
between two public companies in different EU<br />
Member States. This may be of particular benefit<br />
to companies in the gaming sector, as many of the<br />
largest providers in the gambling market operate<br />
out of Gibraltar.<br />
Ian Felice<br />
Partner at Hassans<br />
T: +350 200 79000<br />
Email: ian.felice@hassans.gi<br />
Ian Felice commenced work with Hassans in 1999 and is a Partner of the Corporate<br />
and Commercial Team. During his time at Hassans, Ian has become deeply involved in<br />
transactional work relating to the use of Gibraltar-based structures, principally for UK<br />
and European commercial property investments, and regularly advises on corporate<br />
restructuring and acquisition, Joint Venture work and on the floatation of Gibraltar<br />
companies on recognised Stock Exchanges.<br />
An LLB (Hons) Graduate from the University of Nottingham, Ian completed his Bar<br />
Vocational Course at the Inns of Court School of Law in London. A member of the<br />
Honorable Society of the Middle Temple, Ian was called to the Bar in England and in<br />
Gibraltar in 1999 and in the BVI in 2010.<br />
Tania Rahmany<br />
Trainee Solicitor at Hassans<br />
Tania Rahmany joined Hassans as a Trainee Solicitor in October 2015 and is currently<br />
undertaking a seat in the firm’s Corporate & Commercial Team. She is an LLB graduate<br />
of Queen Mary College, University of London, and completed an LLM LPC in International<br />
Legal Practice at the University of Law, Guildford.<br />
94 | <strong>Lawyer</strong><strong>Issue</strong> 95
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