Month: April 2023

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A wholly subjective (but nonetheless definitive) guide to law firms from a $300m client on how to make a successful pitch*

David Burgess, publishing director of The Legal 500, asks David Stark, chief legal officer at Teva Pharmaceuticals, and Trevor Faure (pictured), chief executive of Smarter Law Solutions, for their views. Warning – this may make for uncomfortable reading

In 2020, Teva Pharmaceuticals conducted a law firm selection process unprecedented in scale and sophistication within the profession (see ‘On notice: Teva’s entire $330m legal spend could go to one law firm’, The Legal 500, Summer 2019). Despite deploying ground-breaking quality vs cost correlation analysis, selection also involved the traditional panel interview meetings when two dozen of the world’s top law firms met Teva’s legal management team to pitch their propositions, with surprising and salutary results. The cutting-edge, data-driven selection methodology Teva used is well-founded (see ‘Harvard Law The Practice – Smarter Relationships in Legal Services’, November/December 2019) so instead, here are a dozen entirely unscientific but equally compelling approaches for winning business at the face-to-face selection stage. These findings are not the result of rigorous research, merely the bemused observations about what actually took place in these decisive meetings, ie, this stuff really happens. Continue reading “A wholly subjective (but nonetheless definitive) guide to law firms from a $300m client on how to make a successful pitch*”

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Greece focus: Lap of the gods

Greece remains buoyant, despite the global pressures affecting jurisdictions worldwide. Major transnational corporations and huge global players are beginning to adjust their investment strategies and are viewing Greece as a major opportunity for inbound investment. Panagiotis Drakopoulos, managing partner of Drakopoulos Law, remarks: ‘It has been somewhat surprising that a lot of foreign investors (particularly non-EU) see Greece as a gateway not only to just the region, but to Europe itself.’

The country is strategically located geographically, economically, and politically, and is highly attractive to growing numbers of investors that view Greece as a potential hub for their operations. Drakopoulos attributes the shift in part to political factors, noting that ‘the current political climate is very friendly to foreign investment; Greece is in a growth mode.’ Elected in 2019, the Mitsotakis government is self-proclaimed to be avowedly pro-investment and has passed key investment legislation. Continue reading “Greece focus: Lap of the gods”

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Sponsored briefing: M&A in the Dominican Republic

Alburquerque discusses the creation of new M&A structures in the Dominican Republic

Upon overcoming the 2020 pandemic period, the Dominican Republic has experienced a significant increased activity in the creation of new M&A structures. These operations have been mainly motivated in growth seeking, as means of the businesses to diversify their activities; or in the search of resources, to speed up the post-covid recovery; and lastly to look for new ways of investment by shareholders seeking to change or expand their strategies.

Legal scenery

In the Dominican Republic, the processes for mergers and acquisitions are mainly regulated by the Commercial Societies Law No. 479-08 of 11 December 2008, modified by Law 31-11 of 9 February 2011. Law 479-08 establishes the possibility to transfer the patrimony of one or more company into a pre-existing company or within the creation of a new special purpose vehicle.

Other than defining the process, there are no specific provisions regulating, prohibiting, or restricting mergers and acquisitions in the Dominican Republic. Nevertheless, it is relevant to consider specific sectors and industries where special laws establish a previous authorisation or communication to be provided before the regulated authority, and define, either directly or indirectly, the management process thereto. Among them, we find the following regulations:

  • General Electricity Law No. 125-01, empowers the Superintendent of Electricity to authorise mergers and acquisitions for electric companies.
  • General Telecommunications Law No. 153-98, requires telecommunication providers, the authorisation of the INDOTEL for the transfers, use or ownership of the concessions and licenses granted for operation.
  • Financial Monetary Law No. 183-02, demands the prior authorisation of the Monetary Board for mergers, absorption, and excision of financial entities.
  • Insurance and Surety Law No. 146-02, requires companies to apply for authorisations, prior to any transfer or acquisition of shares, as well as for mergers before the Superintendence of Insurances.
  • Securities Law No. 19-00 and its modification by Law No. 249-17, where the National Council of the stock market must know and approve any process related to merger or change of control over the participants of the securities market. Concerning the investment funds, the Superintendency of Securities must approve the process.

Regardless of the industry or sector, in every M&A transaction, it is also recommended to consider Law 42-08 of Competition, which contemplates the basis of every transaction that must be executed within the terms of fair competition. This law, however, does not prevent companies from entering a process of reorganisation or acquisition.

On the other hand, it is mandatory to move forward under the magnifying glass of the recently approved and in force Law No. 155-17 against money laundering and financing of terrorism, which prohibits cash payment for probably every transaction that include the transfer of goods, and also demands the stakeholders involved in an M&A process, lawyers included, the proper execution of a due diligence.

Tax neutrality

As a result of this dynamism of transactions, the Dominican tax administration has recently provided General Norm No. 1 of 4 January 2022, related to reorganisation of companies. This legislative piece comes to complement the Dominican tax code, the Law of Companies and the decree No. 408-10 related to business reorganisation. In particular, the object of this law seeks to establish the conditions for the application of fiscal neutrality at the procedures of reorganisation of commercial societies, including the request of approval before the tax administration, the taxes to be exempted, the transfer of assets, and the criteria to be fulfilled to be considered a neutral operation, as well as the post-operation effects.

Of such relevance have become the M&A transactions in the country, that the norm also considers for the first time the establishment of special particularities to accept transnational business reorganisations considering the fiscal neutrality, in the case of assets and liabilities if the foreign company has a legally created permanent establishment in the country. Nevertheless, the transactions or reorganisation processes between companies, national or foreign, related to change of ownership, shall not be considered as neutral operations.

Due diligence

The performance of an adequate due diligence process is always recommended, before executing any transaction related to any merger or acquisition process. In our firm’s experience, some of the most relevant areas of analysis via a process of due diligence should include:

  • Corporate status of the companies involved. Including, not only the bylaws and fulfillment of formalities by the involved parties, but also a review of any shareholders agreement that may consider any restriction or a specific procedure for this type of operations.
  • Financial and tax situation of the companies and the assets involved.
  • Operational and contract relations, including their obligations and possible impact on the transaction (including licences or concessions).
  • Environmental issues, risks or contingencies, variable according to the type of business and transaction.
  • Ownership of real estate property and moveable assets, as well as their status, liens or encumbrances, warranties.
  • Litigation and conflict solution procedures, open or imminent.
  • Licenses, permits, concessions.

For these activities, it is necessary to count on local expert advisors, from legal to tax to special matters consultant in some cases, to secure a successful transaction and long-term tranquility on a post-operation business.

M&A perspectives

Despite the current panorama does not reveal major deals M&A transactions in the last couple of years, there has been a great dynamism in the country concerning M&A projects for medium-sized and big multinational companies, including mostly the execution of transactions to absorb or acquire shares and assets from locally established companies, and to expand activities in the country and the region.

The direct foreign investment during the last period of April 2021-September 2022 reflects a sustained increase in areas of energy tourism, industrial, mining, real estate and free zones according to our central bank statistics department. This dynamic reflects the implementation of M&A strategies and structures to make the investment a reality. As witnesses and part of transactions of this nature, we assure there is certainty and legal security for this type of operations to continue.

Authors


Jose Manuel Alburquerque Prieto
Managing Partner


Gina A. Hernandez Volquez
Corporate Business Partner

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Sponsored briefing: Navigating Romania’s dynamic energy landscape: an overview of M&A activity and trends

Lawyers from Suciu Popa (SPA) provide an overview of the energy M&A market in Romania

Market overview

Romania’s energy sectors have experienced significant growth and transformation in recent years, driven by a combination of technological advancements, policy changes, and geopolitical factors.

This dynamic landscape has given rise to numerous M&A transactions, with both domestic and international players eager to participate in the country’s burgeoning energy market. As a leading Romanian law firm, Suciu Popa has been at the forefront of these developments, providing expert legal advice and assistance in a part of such high-profile deals.

According to the most recent public data, the total value of M&A transactions in Romania in 2022 reached a record high of €5.5bn, despite a slowdown in activity during the latter part of the year. The energy, oil and gas, and renewables sectors were among the most active, accounting for a substantial portion of the market value.

Key deals

In the oil and gas sector, the most significant deal was the acquisition of ExxonMobil’s 50% stake in the Neptun Deep offshore gas project by SNGN ROMGAZ SA. This deal, worth approximately $1bn, is expected to significantly increase Romania’s domestic gas production and reduce its reliance on gas imports. Suciu Popa provided legal assistance to SNGN ROMGAZ SA in this transaction, advising on various aspects of the deal, including regulatory and environmental issues.

In the renewables sector, one of the most significant deals was the acquisition of by Rezolv Energy of a 1,000 MW solar park in Arad from Monsson Group. The project is planned to be the largest of this kind in Europe. It is emphasised that construction works will begin by June 2023, and the photovoltaic park will start producing in 2025 when it is planned to cover the energy needs of some 1 million people.

In addition to these primary deals, several other noteworthy M&A transactions occurred in Romania’s energy sector in 2022. These include Mass Global Energy’s acquisition of the Mintia thermal power plant and acquisitions made by Enel Green Power and Premier Energy in the renewables sector. Furthermore, Enel, a major player in Romania’s energy sector, recently agreed to sell its Romanian operations to PPC. The agreement entails the sale of Enel Group’s equity stakes in Romania to PPC for a total consideration of around €1,260m.

These deals demonstrate the increasing interest of investors in Romania’s energy sector, which is expected to grow significantly in the coming years.

Legislation and policy changes

The Romanian legislator introduced several significant legislative and policy changes in the energy and renewables sectors during 2022-2023, including:

  • The adoption of a new energy strategy for 2022-2030, aimed at increasing energy efficiency, reducing greenhouse gas emissions, and promoting renewable energy sources.
  • The implementation of the offshore law, which regulates the exploration and production of oil and gas resources in Romania’s exclusive economic zone in the Black Sea.
  • The introduction of a revised support scheme for renewable energy, providing more incentives for the development of solar and wind projects.

Geopolitical trends influencing the M&A sector

Several geopolitical trends have influenced the M&A sector in Romania in 2022 and are expected to continue shaping the landscape in 2023. These include:

  • European Green Deal: EU climate goals drive M&A activity towards renewable energy and sustainable technologies, making Romania’s wind, solar, and hydropower sectors attractive targets.
  • Supply chain resilience: global trade tensions and pandemic-related disruptions have increased interest in regional self-sufficiency, boosting M&A opportunities in Romania’s manufacturing and logistics industries.
  • Digitalisation and technology adoption: the growing tech sector and skilled IT talent in Romania make it an appealing market for investors pursuing innovative tech companies through M&A.
  • Energy diversification and security: given the ongoing geopolitical tensions surrounding energy supplies, particularly in the wake of the Russia-Ukraine crisis, European countries are seeking greater energy diversification and security. Romania’s domestic resources and its strategic location make it a potential energy hub, attracting M&A interest in the oil and gas sector, as well as investments in infrastructure projects.

These geopolitical trends will continue to shape the M&A sector in Romania in 2023, presenting opportunities for businesses and investors across various industries, particularly in the energy, technology, and manufacturing sectors.

Looking forward

It is challenging to forecast how the macroeconomic trends will unfold in 2023 however, we envisage that the importance of implementing an energy transition shall persist as a crucial agenda item for investors and management teams not just in the immediate future, but for a considerable duration thereafter. As a result, we anticipate that there shall be a notable deployment of capital towards M&A activity and other capital projects focused on Romania’s energy, renewables, and critical minerals sectors. Thus, it is an opportune time for interested parties to consider investment opportunities in these areas.

About us

At Suciu Popa, we have significant experience advising clients on M&A transactions in a variety of sectors with a focus on energy sector. Our team of lawyers has a deep understanding of the legal and regulatory framework governing the sector and can provide clients with the advice and support they need to navigate complex transactions. We have advised on several high-profile deals in the sector, including some of the ones highlighted above, and are well-positioned to help clients take advantage of the opportunities presented by Romania’s rapidly evolving energy landscape.

Authors


Miruna Suciu
Managing partner
E: miruna.suciu@suciupopa.ro


Luminita Popa
Managing partner
E: luminita.popa@suciupopa.ro


Cleopatra Leahu
Partner
E: cleopatra.leahu@suciupopa.ro


DAN Ciobanu
Partner
E: dan.ciobanu@suciupopa.ro

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Sponsored briefing: Evaluating sustainable investments in India: mitigating ESG risks through due diligence

Justin Bharucha and Vandana Pai examine how due diligence can be used to identify and address risks of non-compliance with ESG regulations

Investors the world over are increasingly structuring investments with lower environmental, social and governance (ESG) risks. One of the reasons for this is the growing regulatory scrutiny on ESG-related non-compliance. For instance, recently, the Securities and Exchange Commission fined BNY Mellon Investment Adviser for claiming that it had met all compliance requirements despite having failed to undertake an ESG quality review.

ESG is not an entirely new concept in India. There have been statutes on the books and bodies regulating ESG issues in India for decades – for instance, various environmental regulations, labour codes, corporate social responsibility (CSR) rules implemented in 20141 and quasi-judicial authorities like the National Green Tribunal.

Even the 2021 business responsibility and sustainability reporting (BRSR) issued by the Securities and Exchange Board of India (SEBI), India’s securities market regulator, is based on the principles set out in the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business issued by the Ministry of Corporate Affairs (MCA) in 2011 (and updated in 2019), and has replaced the business responsibility report first introduced by the SEBI in 2012.

In the past, Indian regulators have taken enforcement action against companies for failing to comply with regulatory ESG requirements. For instance, the National Green Tribunal, by its order dated 10 September 2020, directed the Central Pollution Control Board to undertake an environmental audit of Amazon Retail India Private Ltd due to its excessive use of plastic as packaging material.

Similar scrutiny may also be expected from other Indian regulators in the coming years given India’s target of net zero greenhouse gas emissions by 2070.

ESG reporting metrics and scope of diligence

In India, ESG reporting is neither objective nor standardised. As of 1 April 2023, the SEBI’s BRSR requires the top 1,000 listed companies by market capitalisation to make ESG-related disclosures in their annual reports against nine principles, including accountability and transparency, provision of sustainable goods and services, and responsiveness to stakeholders. However, BRSR compliance is not mandated for unlisted entities or smaller listed companies, and there is no format for ESG reporting in India for such entities. The only guidance available is the BRSR lite version of the reporting format suggested by the MCA in the Report of the Committee on Business Responsibility Reporting, which recommended changes to the MCA’s National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business.

Given the above, diligence undertaken by the investors becomes a key measure to evaluate target companies’ ESG compliance and commitment. Akin to a legal due diligence, an ESG due diligence should be structured based on the sector in which the target is engaged, and involves the assessment of compliance and liability. For instance, a plastics manufacturer would be more susceptible to risks associated with waste management, as opposed to a target in the IT/ITES sector where risks pertaining to data protection norms may be more relevant. Additionally, the ESG due diligence may also take into account: (i) whether the target has a dedicated ESG policy; (ii) how the target chooses to respond to ESG-related risks; (iii) the target’s governance structure, including decision making at the board and shareholder levels; (iv) oversight models adopted by the target; (v) evaluation of the target’s supply chain, and, to the extent possible, whether the target’s suppliers are compliant with ESG requirements; and (vi) the energy sources used by the target.

Mitigating ESG risks and next steps

Fundamental ESG risks identified through due diligence must be addressed either through pre-closing conditions or conditions subsequent. ESG compliance is increasingly likely to be an extremely important issue that may impact whether a transaction will actually progress.

Investors may also consider including tailored representations and warranties in the transaction documents. These may include representations and warranties pertaining to compliance with regulatory disclosure requirements – including compliance by the target’s suppliers, maintaining adequate sectoral licences, and incorporating a defined metric to measure future ESG goals. To address the adverse impact of issues such as greenwashing and social-washing (essentially, artificially inflating ESG compliance or portraying a higher level of compliance), investors may consider building specific indemnities into the deal documentation. To that end, market practice has been to either negotiate to hold back a portion of the investment amount – which can then be set off against any losses arising from known ESG risks – or deferring that portion of the payment until ESG compliance requirements have been met.

Globally, insurance providers are coming up with assessment tools for ESG risks that can measure a target’s ESG performance in accordance with internationally recognised methodologies and provide a score based on 18 ESG themes. Essentially, these ESG scores allow underwriters to make decisions on whether there can be any incentives or dynamic pricing on insurance products, depending upon contingent events, for eg, installation of solar energy panels. Once these products and services – tailored to the nine principles under the BRSR and the MCA’s guidelines – are available in India, investors may opt for the same to measure the target’s ESG performance and manage risks2.

Post closing, investors may require the target to build and follow voluntary industry group standards and best practices, undergo voluntary social audits and assurance from time to time, and benchmark its ESG performance against its competitors.

Given the rise in ESG concerns and the lack of objective regulations, ESG-based due diligence has become an essential tool for investors to unlock value and protect themselves against potential risks. Targets that embrace regular ESG due diligence and take proactive initiatives are better positioned to build trust with their potential investors and adapt to the expectations of sustainability.

Authors


JUSTIN BHARUCHA
Managing partner
E: justin.bharucha@bharucha.in


VANDANA PAI
Partner, head – investment funds practice
E: vandana.pai@bharucha.in

  1. India was the first country to legislate mandatory CSR requirements and compliance, and penalties for failure to comply. A company that fails to make the mandatory CSR contribution is liable to a penalty of twice the amount that was not contributed for CSR purposes, and its officers in default are liable to a penalty of one tenth of the CSR amount that was not contributed or INR 10m, whichever is lower.
  2. Although ESG ratings services are available in India, the ratings are usually restricted to entities whose securities are listed on a stock exchange as the ratings providers rely on publicly available information to evaluate these entities.

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Lawyers on social media: Winning friends and influencing people

Three years ago, as the outside world shut down, the legal profession faced an extraordinary challenge – staying connected to colleagues and clients with no in-person contact.

Lockdown saw a huge spike in social media use, and while personal use was a given for most lawyers, few had yet been convinced by its professional value, with most resisting the hype and leaving Twitter to their communications people. Continue reading “Lawyers on social media: Winning friends and influencing people”

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Revolving Doors: White & Case and Proskauer make antitrust plays as Paul Hastings raids A&O in New York

City of London

Leading several high-profile moves this week, White & Case has hired antitrust partner Michael Engel from Kirkland & Ellis in London. Engel, who is dual-qualified in the UK and Germany, had been a partner at Kirkland since January 2021 and, before that, was at Sullivan & Cromwell for a decade.

Engel advises on the full scope of EU, German and UK-governed competition issues. Continue reading “Revolving Doors: White & Case and Proskauer make antitrust plays as Paul Hastings raids A&O in New York”

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Sponsored briefing: Navigating cross-border data flow issues in the UAE

Alsuwaidi & Company discusses issues of personal data privacy as regulated by the Abu Dhabi Global Market (ADGM), particularly from a cross-border transfer perspective

The value of data

Worldwide, the intrinsic value of data is universally accepted, and its scale and value are on the increase: in 2017 the digitally transformed world was generating 2.5 quintillion bytes of data daily, digital technology in international trade was valued between US$800 and $1,500bn in 2019, and global spending on AI is forecast to accelerate from $50.1bn to $220bn in 2024.

The recent fine imposed on Amazon for $888m is a very sobering example of the financial cost of a data breach. However, the cost is not just limited to a fine. Other adverse considerations include damage to reputation and loss of consumer confidence. Marriot’s acquisition of Starwood in 2018 illustrates this point. Unbeknown to Marriot, Starwood had already been hacked resulting in the personal data of millions of customers being compromised. The United Kingdom (UK) privacy watch dog fined the hotel chain £18.4m. Had this issue been known prior to the merger, through the due diligence of data privacy issues, the whole deal could have been compromised once the magnitude of the breach was discovered because reports are that the breach had taken place as far back as 2014 and affected over 300 million customers. In 2018 Marriot had spent $28m because of the breach and is facing multiple actions for damages from aggrieved customers.

Whilst we only hear of the largest data breaches and most significant fines, these are alarm bells that start-ups and small companies in the ADGM cannot ignore. Firstly, because the ADGM data privacy regime makes it obligatory to protect personal data. Secondly, consumers are alive to these issues, and a failure to adequately deal with data protection will result in a loss of confidence. Thirdly, a failure to apply data privacy safety measures is an invitation to hackers. The unwitting sharing of data with cyber criminals is an unquantifiable loss but is certainly relevant in an age where the smallest competitive advantage converts to massive gains.

Cross-border transfer under the ADGM regulations

In 2021, the ADGM introduced its second version of its data protection regulations (regulations), and as with many other jurisdictions, they are closely based on the European Union’s General Data Protection Regulation (GDPR). Under part VI, the regulations establish an Office of Data Protection headed by a Commissioner of Data Protection who has a wide range of functions and powers to monitor and enforce compliance.

The coordination and regulation of cross-border transfer is by its nature a veritable minefield of uncertainty. It requires not only for different jurisdictions to be in sync with one another, but also their combined anticipation of the future impact of legislative and innovation changes.

The importance of cross-border transfers of data is recognised by the ADGM in its affiliation with the Global Privacy Enforcement Network (GPEN), an international organisation promoting the cooperation in cross-border enforcement of laws protecting privacy. On its website, the ADGM maintains a published list of jurisdictions it deems to have adequate data privacy and protection measures.

Under part V of the regulations there is a general prohibition on cross-border transfer unless certain preconditions are met. This general prohibition should be considered alongside article 3 which makes it clear that the regulations also apply to ADGM entities processing data outside its jurisdiction. An obvious example are entities who outsource telemarketing. For example, Etisalat have recently established a Do Not Call Registry governing and protecting individuals from unsolicited or malicious calls. ADGM entities utilising telemarketers in, for example the UK, calling a data subject with an Etisalat will be required to adhere to the Do Not Call Registry and will be in breach of the regulations if they do not. From a co-operation and enforcement perspective, the ADGM would in terms of article 46 of the regulations no doubt encourage and develop its international co-operation mechanisms with the UK to give effect to any transgression of the Do Not Call List, whether it took place within the ADGM or in the UK.

The regulations, under part VII, provide the Commissioner with authority to actively monitor compliance and secondly to sanction entities found wanting in compliance with the regulations, ranging from simply ordering the production of required information reasonably required to conduct its duties to a fine of up to $28m. These administrative decisions, if disputed can be scrutinised by the ADGM Court. At the time of writing this article the ADGM has not published any fines nor are there any cases concerning the administrative decisions of the Commissioner.

Cross-border transfer: the future

With the monetising of artificial intelligence (AI) gaining traction (Open AI Generative Pre-trained Transformer (ChatGPT) assisted in the drafting of this article), we can expect more changes to data privacy law regimes. Currently the most comprehensive on the issue of AI are the GDPR and the California Consumer Privacy Act (according to ChatGPT), but there are already questions arising that require attention.

For example, according to article 4(1)(b) and (c) of the regulations, personal data must be collected for a specific purpose and cannot be used for a purpose other than originally intended (this is in line with article 5 of the GDPR). This means that data cannot be collected for an unspecified reason on the gamble of its future potential. It also means that once the data is used for its specified purpose it cannot be used for another purpose. Under article 15(1)(a) of the regulations a data controller is obliged to erase the personal data once it is no longer necessary for its intended purpose.

The opinion of this author is that this is probably too regimental because it prohibits the collection of data before its benefit is understood, which is the antithesis of AI. Additionally, once the data is collected it can only be used for its original intended purpose, requiring a data controller to again ensure compliance before using the same data for another purpose. This will increase costs and delay the potential benefit of its new purpose, resulting in an unnecessary restriction of innovation.

Another example is the requirement for the human review of significant decisions made by automated decision making, which is a principle based on article 23 of the GDPA and found in the regulations at article 20. This is a significant barrier to innovation. This restriction may be linked to a distrust of automation in the field of personal data, which may or may not be justified, but could be balanced out by the simple understanding that the consequences of any error in the automated process lies at the feet of the data controller and processor.

The real value of data is found in its transformation into information and then to knowledge. Data becomes even more valuable when combined with other information. The regulations define this as ‘pseudonymisation’ which is comprehensively covered in the regulations.

What is less clear is a distinction between ‘automated process’, the use of technology to perform tasks that would otherwise be done manually and ‘artificial intelligence’ being the use of algorithms and machine learning. The regulations do not define either of these concepts. Perhaps this is so because the distinction is obvious but referring to AI as an automated decision maker has the ring of referring a calculator to an abacus.

In defence of the regulations, there is the argument that the definition of ‘processing’ is wide enough to cover AI, and it would be absurd to consider this definition to exclude AI. Article 30 is also relevant to the yet unknown changes that AI will bring. In the context of security of processing, it refers to the ‘State Of The Art’, which is a term also used in many patent laws. As defined in the regulations it means the ‘current state of technological development’. This together with the wide definition afforded to ‘processing’ could include a reference to AI.

Intellectual property issues aside, data used by one does not prevent its use by another. In this way, data is a unique asset to be exploited by multiple parties at the same time for the same or for varying reasons. It is non-rivalrous. Thus, the benefit of data to a particular controller or processor could be useless tomorrow, but may (through, for example the use of AI) have value the next day, but for a different reason. Currently, this potential advantage must be balanced with the obligation to erase data once it has served its purpose.

It remains to be seen how the ADGM will continue to strike a balance to protect privacy and at the same time not restrict innovation.

Author


Craig Cothill
Senior associate
E: c.cothill@alsuwaidi.ae

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Sponsored briefing: Romanian whistleblowing law and the corporate management of fraud

Liana Iacob and Florentina Frumușanu explore how companies can comply with the new Romanian whistleblowing obligations

The new Romanian Whistleblower Law no. 361/2022 (the ‘Whistleblower Law’) came into force on 22 December 2022, setting forth new obligations for the major employers. The law transposes with a one-year delay the Directive (EU) 2019/1937 of the European Parliament and of the Council of 23 October 2019 on the protection of persons who report breaches of Union law, and its scope is to facilitate whistleblower reports on potential breaches of EU law within private entities, as well as public authorities, institutions or other public entities.

The new piece of legislation is thus expected to impact the manner in which companies manage reported instances of fraud. From this perspective, we note that the latest Kroll Global Fraud and Risk Report (which does not cover Romania but covers important EU member states such as France, Germany and Italy) highlights an average 72% trust ratio in corporate internal control systems intended to detect fraud and corruption risks. Thus, the perceived likelihood of corporate control failure is, on average, 28%. Basically, based on data from well-developed European economies, prior to the Whistleblower Law coming into force, three out of ten instances of internal fraud risked going undetected.

This percentage may very well be higher in Romania, as a developing country, and, also, possibly higher than what a company may deem acceptable in terms of internal fraud risk when doing business locally. Second, awareness should exist that the decision to report a potential instance of internal fraud is not an easy one for the employee concerned, but is often made at considerable personal risk, such as alienation from colleagues and potential negative impact on reputation and career. So, there are serious incentives for the employee to keep silent, which is in fact detrimental for the company that will eventually bear the costs of corporate fraud.

These two reasons, and not necessarily the sanctions in the new Whistleblower Law, should steer corporate behaviour towards an effective implementation of the new regulation, rather than a merely formal compliance with the newly defined (and, again, generally well-known at this point) obligations set forth by the law, to decrease the risk of fraud going undetected and, ultimately, mitigate the company’s financial, reputational and potentially legal exposure.

As the addressees of the new law are medium and major companies, it is likely that internal control mechanisms are already in place. However, effective compliance with the Whistleblower Law should require a certain fine tuning of the current internal control systems. As a starting point, corporations should (re)assess their record-keeping systems with the aim of detecting and correcting any record-keeping weaknesses. Efficient and coherent internal record keeping is often paramount when investigating any instance of internal fraud, if at all possible endeavour, absent which investigation and corroboration risks becoming protracted and highly costly.

On the premise that the legal mechanisms defined by the Whistleblower Law have been properly put in place, when receiving a whistleblower report, clear rules and procedures should be set in place, eg, by defining and implementing a whistleblowing policy, the scope of which should match that of the Whistleblower Law, describing the reporting channels and processing systems, as well as the applicable roles and responsibilities in the organisation. Very importantly, such policy should deal with how an investigation should occur, and define at a minimum the appropriate, independent and free of conflict of interest people/departments to conduct such investigation; the safeguards in place to ensure the confidentiality of both the reporting person and those potentially accused of wrongdoing; the report acknowledgement timeframe; the prerogative of the investigating team to receive direct access to records (as well as the necessary corporate steps to redefine or adjust such accordingly, depending on the specific circumstances of each case), taking into account potential privacy and other legal restrictions that may be applicable; the type and structure of interviews (including whistleblower interviews) to be performed during the investigation; and, in all cases, the diligent follow-up on the findings and outcomes of the investigation (always within the maximum term set forth by the law). Finally, but equally importantly, the policy should deal with how to report suspected criminal activity, including matters such as assessment of reporting obligations and deadlines, and assistance by specialised outside counsel (where necessary). To conclude, given the new Whistleblower Law, fraud investigations should be carried out in accordance with a dedicated policy tailored to comply with the new regulations. Although the Whistleblower Law is a new regulation and defining the reports likely to be made on its basis calls for speculation, the pre-existing national legal framework in the field and the practice developed on its basis may provide certain insights into its potential practical effects. As a reasonable assumption, reports may concern internal fraud (eg, misuse/misappropriation of corporate assets, instances of collusion with third-party suppliers, customers, distributors to the detriment of the company or for illicit gain etc), workplace policy breaches, and even corruption.

A company facing a suspicion of fraud must consider a number of issues in order to become or remain compliant. A fraud allegation is a serious issue and fraudulent behaviour can create a multitude of problems for the company. However, the company should always keep in mind that all businesses, without exception, are vulnerable to fraud, and avoid the two extreme reactions, namely, overreacting or, to the contrary, having no reaction at all. One should keep in mind that the initial steps taken in addressing suspected fraud can either hinder or greatly help the company’s efforts, and from this perspective, preservation of evidence is key. We would like to go back to the point made above, and stress again the recommendation to periodically assess the record-keeping systems to detect and correct any blind spots, because fraud suspicions should be probed and scrutinised, with the focus of the investigation being to identify information that supports or disproves the fraud allegations. Securing all potential evidence can be done discreetly, without unnecessarily alerting the suspected perpetrator, when efficient record-keeping and back-up systems exists. Also, electronic evidence, which is in general easy to tamper with, should be preserved, including computers, corporate phones and other electronic devices. It goes without saying that access to data should have been secured by the already existing employment policies and contractual documents. Another common mistake that companies should avoid is collecting and assessing the evidence and subsequently acting without the assistance of a team of forensic specialists and legal professionals to mitigate and, where possible, avoid the concurrent risks that generally arise in the context of a suspected fraud: the risk of accusing an employee without sufficient evidence and the risks of breaching legal or statutory obligations on the reporting of suspected criminal activity. When faced with an allegation of fraud, a company needs to consider who is leading the investigation and what resources they need to complete the investigation, and determining an investigative team is an important step in the process.

Equally important is the company’s reaction to employees and managers potentially involved in the fraud. As a general safeguard, companies should make sure that internal policies on fraud detection, fraud investigation and whistleblowing have been notified to and accepted and acknowledged by the entire company staff and that job descriptions contain the professional obligation to comply with such. While the way a company should deal with a suspected employee or manager should normally be determined on a case-by-case basis, depending on the specific circumstances of each matter, as a general recommendation, the company should avoid disclosing the suspicion to the person of interest in the initial stages of discovery and investigation (to avoid potential evidence-tampering behaviours).

Immediate termination of employment or management contract (or immediate initiation of legal procedures with this aim, if applicable) may make gathering evidence more difficult. The company may, however, consider instating restrictions on the employee’s access to company data, including access to archives, irrespective of the way they are kept, as well as securing the relevant corporate premises (eg, offices) to ensure no relevant company items (eg, documents, computers, phones etc) are removed, altered or destroyed. Given the digital transformation of the last decade, the company should consider appropriate internal policies to ensure that such access restrictions on electronic systems and devices may also be set in place remotely, and that the staff acknowledge and accept such possibility as a prerogative of the company. All interactions with the people of interest should be governed by the applicable workplace policies defining appropriate conduct and best practices to mitigate the risk of countercharges on the part of such people, eg, that they were pressured by the company or that the fundamental rights of their employment (eg, reputation, privacy in general) have been infringed upon (which is often a common defence strategy).

In all instances, compliance monitoring is paramount. The mere allegation of fraud can be a daunting challenge for a business, and, as such, the roles and responsibilities of compliance officers as the people in charge of preventing, detecting and investigating fraud are of great importance. Perhaps the first challenge faced by compliance officers is a cultural one: while compliance should be an integral part of the organisation’s ethics, it sometimes tends to be seen as a burden rather than a benefit. As, under the current regulations, compliance has become more and more an integral part of the corporate structure and functioning, as opposed to a separate process, organisations should focus on ensuring a correct implementation of compliance elements not solely from a fraud-avoidance perspective, but also as a premise for a more effective investigation into suspected instances of fraud, should they occur. With these in mind, fraud investigations are often complicated, involving multiple disciplines and parties as well as complex financial data analysis. As the key objective of the investigation remains gathering and preserving evidence, the quality of available data is cardinal, and one of the major challenges to be overcome. When data and information is available, the huge volume of data compliance officers must review to find evidence may be problematic in our digital society, where massive packages of information travel instantly and communications are often encrypted, and/or password protected. The digital transformation has also led to transformation of fraud patterns, with new types of fraud appearing periodically. Ensuring staff co-operation may also be problematic, as staff generally have the same incentives to stay silent as highlighted above for the whistle-blowers. Finally, in addition to the high responsibility incumbent upon them in their professional capacity, it is not impossible for compliance officers to be subject to external pressures. Support and protection from the organisation of the professional and personal independence of the compliance officer, as well as access to reasonable resources and training, are constant requirements for the efficient fulfillment of professional duties. Companies can only evaluate the effectiveness of their compliance policies and employee performance through a compliance monitoring strategy. Thus, compliance monitoring is a crucial tool for a company to determine if its compliance policies are appropriate, up to date and responsive, as well as for identifying compliance risks and taking action to mitigate such.

Companies should be aware that white-collar crime prosecution is very common in Romania, where dedicated and even elite (for major crime cases) investigative and prosecution units have been functioning for decades now and have a rich practice in prosecuting fraud and corruption in the business environment, and business crime in general (eg, tax evasion, contraband, corporate environmental offences, abuse of professional duties etc). While gathering and interpreting the available pieces of evidence remains a prerogative of the prosecution, in the vast majority of cases, review of corporate records remains a starting or, at least, a crucial point in such judicial probes, and corporate co-operation, including in relation to or in the course of the forensic activity, is possibleand, in general, accepted in accordance with the applicable rules of procedure.

Author


LIANA IACOB
Partner

FLORENTINA FRUMUŞANU
Partner

Budusan & Associates SPARL
43 Calea Dorobantilor St, First Floor, Ap2,
Sector 1, Bucharest, 010553

Tel: +40 21 230 5088
E: office@budusan.ro

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Sponsored briefing: South Korea: the next hub for international dispute resolution?

Yulchon LLC’s insight on South Korea’s recent implementation efforts to further integrate international arbitration and mediation in its legal system

Following the emergence of arbitration as an alternative dispute resolution mechanism in consequence to the costly and time-consuming traditional method of litigation, it became more attractive and reliable, triggering the flourishment of the arbitral market in Asia. As more ongoing engagement in cross-border investments occurred in Asia, it led to the continuous growth and refinement of national arbitral rules and laws across many jurisdictions, resulting in the establishment of arbitral hubs and institutions. Among the arbitral institutions, the Hong Kong International Arbitration Centre (‘HKIAC’) and the Singapore International Arbitration Centre (‘SIAC’) grew exponentially in size, but also in popularity. Therefore, by successfully ranking globally and becoming the most preferred arbitral seats, it brought forth a substantial number of case filings.

On the other hand, as the ‘youngest’ and most recently established institution, the Korean Commercial Arbitration Board (‘KCAB’) is gradually progressing and steadily catching up with its neighbouring confreres. KCAB was established in 1966 with the main purpose of resolving disputes quickly and impartially through arbitration, mediation and conciliation. In South Korea, not only has the government and judiciary encouraged the use of arbitration to resolve disputes between domestic parties, but it has also amended and enacted the Korean Arbitration Act in 2016 by incorporating recent developments in international arbitration practice, in order to promote domestic and international arbitrations in South Korea. In particular, recent Korean court case precedents have demonstrated an ‘arbitration-friendly’ approach from the courts, which foster more organisations to consider South Korea as a potential arbitral seat, and to select KCAB as its arbitral institution of choice.

In 2017, the Arbitration Industry Promotion Act came into effect, providing for long-term planning and financial support by the Korean Government for the promotion of international arbitration in Korea. Article 3 of the Act, in particular, provides that the Minister of Justice shall establish and implement a master plan to promote the arbitration industry every five years. Accordingly, the Korean government has set up a plan for 2019-2023 to increase KCAB’s capabilities of handling international matters by providing a KRW2.4bn annual budget and to become the arbitration hub of Northeast Asia.

Moreover, in 2022, the South Korean Ministry of Justice collaborated with the Korean Council of International Arbitration (‘KOCIA’) by commissioning a research service report with the objective of revitalising Korea’s international arbitration industry to a global level through an overseas case study. The report was prepared by the research group, in which Ms Jeonghye Sophie Ahn, co-chair of the international dispute resolution team from Yulchon LLC participated together with other reputable and knowledgeable arbitration experts and practitioners in South Korea. The research group carefully examined overseas arbitral institutions, and in particular, it benchmarked SIAC while studying the background of Singapore and how it quickly became a world-class international arbitration hub.

With respect to the overall results of the report, the research group noted several key points. For one, while the Korean government made considerable and progressive efforts from a legislative standpoint, there were several unique features that KCAB can adapt by benchmarking Singapore’s international arbitration industry. In particular, there is the necessity in seamlessly involving the international arbitration community, such as lawyers and practitioners of various nationalities, and to get their input in order to continuously make changes to the existing system. But also, it is important to sufficiently promote Korea’s infrastructure and arbitration-friendly system by developing accessible resources in English, or to organise offline in-person events to actively publicise these resources. In contrast, some features were deemed solely unique to Singapore, making it more difficult to benchmark to the Korean system, such as the official language of the country and the different legal systems.

Therefore, it was suggested that by taking into consideration Korea’s language barrier issues and civil law characteristics, an independent international commercial court should be created, in which it would directly deal with arbitration-related cases while also recognising and enforcing any international arbitration awards seated in Seoul. At the same time, it was also proposed that KCAB establish a committee that can provide a choice to the parties of an arbitration to either resort to the courts or to proceed with the annulment of the arbitral award directly through the committee.

In conclusion, while some of Singapore’s features can be easily integrated into Korea’s international arbitration industry, others may need to be acclimatised and tailored uniquely to Korea. Nonetheless, based on the results of the report, it can be inferred that the Korean government is making great progress towards its objective in making Korea the next arbitral hub in Asia.
On another note, in 2019, Korea signed the UNCITRAL’s Convention on the Enforcement of Mediation Settlements (‘Singapore Convention’), and from 2021, it initiated a task force on domestic legislation, in order to implement the Singapore Convention. Moreover, in 2020, the Korea International Mediation Centre (‘KIMC’) was established, in which Mr Yun Jae Baek, co-chair of Yulchon LLC’s international dispute resolution team is actively participating as a mediator. Based on these recent developments, with Korea’s endeavours to concurrently promote international commercial mediation, it may ultimately strengthen KCAB’s capability to becoming the hub for international dispute resolution in Northeast Asia.

Yulchon LLC

Yulchon LLC is a full-service international law firm headquartered in Seoul, South Korea. It employs more than 600 professionals, including more than 60 licensed in jurisdictions outside of Korea, and has offices in Shanghai, Hanoi, Ho Chi Minh City, Moscow, Jakarta, and Yangon. An acknowledged market leader in the development and practice of law, it has been named as ‘the most innovative law firm in Korea’ by the Financial Times on three separate occasions. It is frequently retained to negotiate complex transactions, help draft new legislation and regulations, and represent clients in high-stakes adversarial proceedings. As one of Korea’s premier law firms, Yulchon maintains its high standards of excellence by valuing a culture of collaborative problem-solving.

Authors


Yun Jae BAEK
T: +82 2 528 5473
F: +82 2 528 5228
E: yjbaek@yulchon.com
Yun Jae Baek is a partner at Yulchon LLC and the co-chair of its international dispute resolution team. He received an LLB from Seoul National University and an LLM from Harvard Law School. Mr Baek has acquired unparalleled knowledge and experience for over three decades and is qualified to practice in both Korea and New York. He is considered one of Korea’s top lawyers in the areas of international arbitration, M&A, aviation, and general corporate practice. Currently, Mr Baek serves as arbitrator for many arbitral institutions including the KCAB, AIAC, and the ICC. His reputation has led to him being selected as a leading lawyer by renowned publications such as Chambers Global and Who’s Who Legal.


Jeonghye Sophie AHN
T: +82 2 528 5306
F: +82 2 528 5228
E: jhahn@yulchon.com
Jeonghye Sophie Ahn is a partner at Yulchon LLC and the co-chair of its international dispute resolution team. She received an LLB from Seoul National University and an LLM from Harvard Law School. Ms Ahn focuses on international disputes and has acted as counsel and arbitrator in international arbitrations administered under the SIAC, ICC, KCAB, and UNCITRAL Rules arising from a diverse range of commercial and corporate transactions including joint venture, intellectual property, media and telecommunication, and construction. She also specialises in arbitration-related proceedings in court and has represented both foreign and domestic corporations in seeking or resisting enforcement of awards, interim measures, and injunctions.


Hyunah PARK
T: +82 2 528 5747
F: +82 2 528 5228
E: hapark@yulchon.com
Hyunah Park is a partner in the international dispute resolution team at Yulchon LLC’s dispute resolution practice where her practice is mainly focused on domestic litigation as well as international arbitration and other types of international disputes. She also specialises in insurance law and has been dealing with many insurance-related cases, and regularly provides legal advice with regards to insurance disputes. Ms Park received an LLB from Korea University and an LLM from University College London. She is licensed to practice in Korea.


Seyoung CHOE
T: +82 2 528 5233
F: +82 2 528 5296
E: sychoe@yulchon.com
Seyoung Choe is a foreign attorney in the international dispute resolution team at Yulchon LL, licensed in Ontario, Canada. Her practice is mainly focused on international arbitration and cross-border litigation. Ms Choe received a JD from the University of Ottawa in 2016 and an LLB from the Université de Montréal in 2015.

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Sponsored briefing: Enforcement of foreign judgments in Ghana: Three tips for in-house counsel

Ferociter’s Augustine Kidisil on what to bear in mind when litigating with a view to enforcing in Ghana

There is hardly any point in expending money to litigate a claim only to get an empty judgment. Often, judgments requiring enforcement in foreign jurisdictions like Ghana result from disputes about payment rather than claims for specific performance or declaratory reliefs. Naturally, a plaintiff/claimant will invest money and resources in fighting its claims because it expects to secure payment at the end of the day.

Investing in litigation without assessing the chances of successful recovery will be particularly wasteful because, unlike arbitral awards, there is no universal convention on the recognition and enforcement of foreign judgments. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) has a global reach and prescribes a simple regime for enforcing foreign arbitral awards. The situation is compounded in the case of Ghana because Ghana is not a party to the Hague Convention on Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters. So, foreign judgments may be recognised and enforced in Ghana under one of two regimes: at common law or under statute (based on reciprocity).

There are several strategic steps that in-house counsel and their external legal advisers can take throughout the process to maximise the chances of recovery of payment in enforcement proceedings in Ghana. We highlight three of those strategic steps here.

1. Begin with the end in mind: a little paranoia helps

Enforcement issues should be taken into consideration well before a dispute arises. While the obvious starting point is to ensure there is an enforceable obligation, proper due diligence on the counterparty is paramount. Parties should undertake proper due diligence to identify what assets their counterparty has in Ghana and whether the counterparty is part of a group of companies. These factors will inform whether to obtain security for the counterparty’s payment obligations and the nature of the security.

It is not uncommon for a foreign supplier to find (belatedly) after labouring to obtain judgment in a foreign court, that it cannot obtain effective enforcement against the judgment debtor in Ghana because the Ghanaian entity does not have assets in Ghana. Considering whether the Ghanaian counterparty is part of a group of companies is equally important to ensure the company does not suddenly ‘disappear’ amid numerous ‘sister companies’ either by suddenly becoming a shell company or simply untraceable.

These issues can be avoided by conducting proper due diligence from the outset and obtaining appropriate security for the counterparty’s obligations. It is always a good idea to obtain personal guarantees from directors or shareholders. Getting the appropriate security in place is usually easier than endeavouring to use litigation to pierce the corporate veil at a later stage to reach the entity with assets of value. If security is not available, then this risk should be factored appropriately into the transaction structure.

As we note in point three, this due diligence exercise does not end after execution of the transaction documents. Consider the possibility of periodic confirmation of assets of the counterparty, especially at the earliest sign of a dispute or default.

2. Choose your forum with enforcement in mind

All too frequently, foreign counterparties prefer foreign courts to Ghanaian courts for disputes that may arise under contracts with Ghanaian counterparties. However, the judgment creditor (the successful party) will sometimes need to enforce the judgment in multiple jurisdictions where the judgment debtor/counterparty has assets. How foreign judgments are recognised and enforced domestically varies across jurisdictions. In Ghana, foreign judgments may be recognised and enforced under one of two regimes: under statute (based on reciprocity) or at common law.

Ghana is not a party to an international convention on the enforcement of foreign judgments, like the New York Convention which prescribes a simple regime for enforcing foreign arbitral awards and has limited grounds for challenging enforcement. The statutory regime for enforcing foreign judgments is quite straightforward, but it is limited to money judgments and is based on reciprocity. The reciprocity requirement means only judgments from a limited number of foreign courts will be enforced in Ghana under this procedure. A foreign judgment emanating from a jurisdiction which does not enjoy reciprocal enforcement of judgments with Ghana cannot be registered for enforcement under the statutory track.

Under the common law track, the party seeking enforcement of the foreign judgment must commence fresh proceedings and serve the writ and statement of claim on the judgment debtor. If the material facts are not in dispute, the foreign judgment may be enforced summarily. If enforcement is resisted on a basis that questions the credibility of the judgment or otherwise requires a trial, the court may require a trial to determine the issues in dispute. The length of time taken to enforce a foreign judgment can vary significantly, depending on whether the enforcement proceeding is opposed as well as the nature of the defences raised.

Generally, enforcement proceedings, especially under the statutory regime are more streamlined and efficient than regular lawsuits since the merits of the dispute are not relitigated. But complex matters, requiring a trial, will take longer and be subject to the lengthier delays associated with obtaining a trial date from the court system. It is therefore important to either opt for a foreign court whose judgment will be enforceable in Ghana under the statutory track or opt for the Commercial High Court (Accra) as your forum of choice.

3. Develop a comprehensive case strategy and secure assets once the dispute starts

Once a dispute has arisen or is imminent, it is always a good strategy to conduct a preliminary review of your case – both the merits and asset preservation. This will not only help to identify strengths and weaknesses in the case and the appropriate case strategy, but also address enforcement issues, such as the potential defences that the defendant might rely on in Ghana.

It is not uncommon for a Ghanaian judgment debtor to seek to resist enforcement proceedings on the basis that the entire transaction violated a Ghanaian statute and therefore went against the public policy of Ghana. Identifying an issue like that for the foreign court to address with the assistance of both parties – based on competing legal opinions from reputable Ghanaian lawyers – is always a good strategy against a possible resistance to enforcement in Ghana.

There might also be certain procedural steps that are required which can have a later impact on the ability to enforce the judgment in Ghana. For example, there should be proper documentation of proper service of the documents on the Ghanaian judgment debtor, especially if the judgment was obtained summarily. It is a defence to enforcement if the judgment debtor was not given notice of the proceedings.

Again, it is better to find out whether the defendant has assets before commencing proceedings. Don’t leave that to the enforcement stage. It may be too late by then. The financial status of the defendant will determine whether urgent measures, such as freezing injunctions, need to be taken in order to preserve the status quo or whether other relief such as security for costs should be sought.

Undertake a detailed tracing of the defendant’s assets, including tangible assets as well as receivables. The claimant should consider obtaining a freezing order over the assets to prevent dissipation. Freezing a defendant’s assets is often a very effective tactic to help achieve a post-judgment settlement. In some cases, it has even resulted in pre-trial consent judgments.

Information which can shed light on an adversary’s financial position is publicly available. For example, land registry and collateral registry searches can reveal the registered owners of real property and whether any encumbrances such as liens, or mortgages have been registered against the property.

Our disputes team:

Ferociter is an Accra-based corporate and commercial law firm with offerings tailored to the needs of businesses in Ghana and across the West African sub-region. The firm has a highly regarded litigation team with particular experience in multi-jurisdictional disputes, including all manner of financial recovery and enforcement related disputes. The team provides co-ordinated litigation, arbitration and enforcement services to clients nationally and internationally, including the ECOWAS Community Court. Their membership in TAGLaw (elite firm network) gives their clients access to over 90+ law firms across 90 countries.

Author:


AUGUSTINE KIDISIL
Managing partner
E: augustine@ferociterlaw.com

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Sponsored briefing: Tackling recalcitrant parties and guerrilla tactics in arbitration – an Indian perspective

Sneha Jaisingh discusses guerrilla tactics in Indian arbitral proceedings

Professor William Park compared arbitration to fine dining, which, unlike the messy hamburger of litigation, provides a balanced meal of efficiency, expediency, party autonomy and due process principles. Alas, today, arbitration in India is more messy mince and less fine dining, largely due to recalcitrant parties adopting guerrilla tactics.

‘Guerrilla tactics’ refers to deliberate attempts by certain parties – usually the respondents to arbitrations – to derail and obstruct arbitral proceedings, often as a ground to challenge the final award. While some argue that these tactics should not be categorised as guerrilla tactics as they are merely defensive in nature, one cannot deny their existence. Parties must, therefore, be mindful when dealing with counterparties in an arbitration. While there can never be a straitjacket formula to address guerrilla tactics, there are a few points that parties should bear in mind.

At the outset, to avoid a challenge to the existence of an arbitration agreement, when drafting and negotiating an arbitration clause or agreement, parties must ensure that the clause or agreement is easy to interpret and unambiguous. Where an institution is being chosen to administer the disputes and, or, govern the procedural law, parties must choose the institution that is most likely to suit their needs, and understand the nature of the potential disputes. The institution should also be cost effective. Next, when faced with a dispute, parties must exercise proper diligence when appointing arbitrators and ensure that relevant disclosures have been made with respect to any matters that may give rise to a justifiable doubt as to the independence or impartiality of an arbitrator.

Once the arbitral tribunal has been constituted, it must proceed with the first hearing and the first procedural order. This is particularly important as, under the Arbitration and Conciliation Act, 1996 (Act), a tribunal has wide discretion to determine how arbitral proceedings will be conducted, provided that each party is treated equally and given a full1 opportunity to present their case. Consequently, a robust first procedural order will likely pay dividends later. If issues such as place and applicable law of the arbitration have not already been agreed to, they must be addressed at the first hearing. Parties may also address whether there is any jurisdictional challenge, interim measure or other preliminary issue that needs to be determined. More procedural aspects such as length of pleadings, filing of documents, simultaneous exchanges of pleadings or documents, communications with parties and arbitrators, how to deal with impromptu applications, rules of evidence, costs including on account of adjournments should also be addressed. It is also good practice to try and obtain the consent of the counterparty on such issues so that the tribunal’s scope is narrow.

Guerrilla tactics often also include attempts to bring matters that are extraneous to the arbitration before the tribunal. Illustratively, a party may make allegations of oppression and mismanagement in the case of shareholder disputes, raise issues such as invalidity of patents in disputes pertaining to recovery of royalty fees, allege that the underlying agreement which is the subject matter of the dispute is anti-competitive, or is vitiated by fraud. As the same factual matrix may give rise to various causes of action, it is critical that parties ensure that the scope of the arbitration is well defined and that a party only raises claims which are arbitrable in nature. Equally, where a counterparty has sought to raise claims in respect of extraneous matters, a party may be able to establish that the extraneous proceedings filed by the counterparty are vexatious and designed to thwart the arbitration.

Other intimidation tactics may include the counterparty filing large volumes of pleadings or evidence which are irrelevant. In such cases the admission and denial of documents is crucial so that the onus of proving the existence and the relevance of extraneous documents is on the counterparty seeking to introduce them. To some extent, the filing of voluminous pleadings and, or, evidence may be obviated through the tribunal’s first procedural order.

Counterparties seeking to delay proceedings may also file for discovery or the production of documents as part of a fishing expedition or roving enquiry. Although the Act does not prescribe procedures for discovery and production of documents, Indian courts have held that principles of evidence and procedure for civil suits would apply to arbitral proceedings. Parties should, therefore, bear in mind that the discovery and production of documents sought must be relevant and material to the case. Discovery will not be allowed on matters which relate solely to a party’s own case. A party is entitled to inspection of all documents which do not constitute exclusively the other party’s evidence of their case.

Briefly, an arbitral tribunal has wide ranging powers to control proceedings. However, there is always a risk that, when faced with guerrilla tactics, the tribunal may fall prey to due process paranoia. It is, therefore, imperative that the party against whom such tactics are being employed provides the tribunal with adequate support to enable it to take takes steps against the recalcitrant party keeping in mind principles of equity and natural justice.

Authors


Sneha Jaisingh
Partner
E: sneha.jaisingh@bharucha.in

  1. Sohan Lal Gupta v. Asha Devi Gupta(2003) 7 SCC 492 holds that for a fair hearing each party must have: (i) notice of the hearing; (ii) a reasonable opportunity to be present at and throughout the hearing, together with advisers and witnesses; (iii) a reasonable opportunity to present evidence and arguments in support of its case and to test the opponent’s case by cross-examination, rebuttal evidence and oral arguments; and (iv) unless expressly agreed, presented the whole of their evidence and argument at the hearing.

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Sponsored briefing: Class actions defence

PLMJ on class action litigation and the future trends and potential pitfalls for businesses to keep in mind when facing a claim in Portugal

Who we are

We are a leading, national and independent law firm in Portugal that is focused on providing legal advice to the business sector, and we have one of the largest teams of lawyers in the country.

Our dispute resolution team supports our clients in highly complex disputes critical to their business and reputations, and we work consistently on the most sophisticated and sensitive Portuguese and international disputes.

Class action litigation in Portugal:a few points to note

Legal framework – the general legal framework for class actions is set out in the Class Action Act (83/95). There are also sector-specific class action rules (eg the Private Damages Act when there is a breach of competition law).

‘Opt-out’ representative basis – the general rule under Portuguese law is that all class actions proceed on an opt-out representative basis. If the class action is accepted by the court, class members will be served (i) to join and participate in the proceedings proactively if they wish; or (ii) to state that they do not agree to be represented by the claimant(s). The right to opt out may be exercised by class members until the end of the evidential stage of proceedings. Not opting out of an action by the deadlines set will result in automatic opt-in.

Absence of a separate certification stage – Portuguese law does not provide for a standalone class certification process. However, for a class action to proceed in Portugal, the court must carry out a preliminary analysis of the claim. In that assessment, the court can summarily reject the claim if it considers that it is manifestly unlikely to proceed. One of the grounds for such a decision can be the absence of a proper class. It is rare, however, for class actions to fail at this stage of proceedings. Notwithstanding the above, the parties to class action proceedings can make submissions regarding class membership prior to judgment. As a rule, the court will rule on all substantive issues – including class membership – in the final judgment.

Relatively low costs for bringing class actions – the general rule is the ‘loser-pay rule’. Costs comprise court fees and adverse costs, including the prevailing side counsel’s fees. Under the specific class action rules, if the court finds even just partially in favour of the claimant, the claimant will be exempt from court costs. If the claim is universally unsuccessful, claimants will be ordered to pay an amount to be fixed by the court as costs. This amount will range from 10% to 50% of the amounts due in ordinary civil claims. In determining the specific amount to be paid by an unsuccessful claimant, the court will consider the economic situation of the claimants and the reasons why the claim did not succeed. Conversely, defendants in class actions must pay court costs, as is the case in any other civil proceedings.

Third-party funding is not yet specifically regulated in Portugal – to date, there is no identifiable established case law on whether and to what extent third-party funding arrangements are lawful in Portugal. Until very recently, third-party funding was very rare. However, since December 2020, several class actions backed by litigation funding arrangements have been brought before the Portuguese courts. The extent to which litigation funding arrangements common in jurisdictions such as the US, the UK and Australia are permitted by Portuguese law is not yet clear.

Typically available defences – several procedural and substantive defences are available in class action proceedings in Portugal.

The key procedural defences brought in class action litigation include (i) lack of jurisdiction of the Portuguese courts; (ii) limitation; (iii) the absence of interests covered by the class action regime (diffuse interests); and, in class actions where the claim is brought by consumer associations, (iv) a defence as to whether the association in question meets the requirements as a class representative and therefore has standing to bring the claim.

The key substantive defences brought in class action litigation in Portugal include (i) the absence of any unlawful behaviour or, in the case of standalone competition litigation, any infringement of EU and/or domestic competition law; (ii) the absence of causation of any damage arising from the conduct at issue; (iii) the absence or miscalculation of any alleged damage to the claimant(s); and (iv) pass-on (in the case of competition law class actions).

There are a number of additional defences that are currently being run in Portuguese class action litigation. The extent to which these defences will remain available in the future will depend on the outcome of current litigation.

Compensation is set globally – the court has the discretion to set the compensation of unidentified claimants as a whole, considering the overall damage. This amount must be reduced by the amount of compensation due to claimants who opted out. Identified claimants will be compensated according to the general rules of civil liability (ie according to the damage they have actually sustained).

Class action landscape and future trends

The class action litigation landscape in Portugal is evolving rapidly. Since December 2020, self-proclaimed consumer associations have brought numerous class actions against both multinational and domestic firms, especially competition and consumer law class actions. Many of these actions are copycat cases of class actions brought in other jurisdictions. We expect the volume of class actions to continue to increase in the short to medium term and witness the rise in privacy/data breach, Big Tech and crypto class actions litigation. The ESG movement may lead to class litigation in the near future as well. It is to be expected that Portugal will soon have transition steps underway to implement the EU Directive on Representative Actions ((EU) 2020/1828).

Anticipating potential pitfalls

Businesses would be advised to keep the following key points in mind when facing a claim in Portugal:

  • Anyone can bring a class action and the general rule is that class actions are opt out.
  • There is no separate class certification stage. A decision on the class of potentially harmed consumers is only made on final judgment. This means that a claimant is not burdened by a procedural hurdle which in other jurisdictions can result in delays to a final hearing on the merits and final judgment.
  • The costs associated with bringing class actions are relatively low. Judicial costs are only due on final judgment and the claimant is exempt from any court costs if the claim is totally or partially upheld. If the claim fails entirely, judges have the discretion to cap cost orders against claimants. Based on past judicial practice, it is unlikely that a claimant will be burdened with an order to pay a large amount of the defendant’s costs in the event that the claim is dismissed in its entirety.
  • Portugal is a one-shot jurisdiction. This means that a defendant must present all of its procedural and substantive defences in its defence to a claim. This can often place a defendant on the back foot, as the deadlines for submitting a defence are very tight – a domestic defendant will need to respond to a claim within 30 calendar days of service on the last defendant, while a foreign defendant has 60 days to respond from service on the last defendant.

The combination of these reasons makes Portugal an attractive jurisdiction for class action claimants and can put Portuguese proceedings at or near the front of a defence strategy for a defendant facing similar/identical claims across jurisdictions. This is because, as noted, a defendant must submit all defences at a very early stage of litigation. As a result, while in other jurisdictions a defendant may be litigating class certification, in Portugal the same defendant will have to have developed all its arguments on the merits of the case in addition to presenting any procedural defences.

We are ready to help you navigate complex class actions

Our team has represented clients in defending high stakes class actions that require a multifaceted approach, including liability of directors of listed companies and manufacturers’ civil liability. We also have extensive experience representing clients in competition class action claims before the Portuguese Competition Court.

We are mindful that class actions are a rough sea for businesses: they entail significant risks, including high monetary exposure and reputational hazard. Our class actions defence lawyers are well placed to work with our clients facing class actions and employ their specialised skills and strategic experience to achieve positive outcomes. We have an in-depth knowledge of the substantive and procedural aspects of class actions in Portugal and keep a close eye on the international landscape to monitor emerging trends. We invest strongly in detailed case planning and assessments, especially in the case of multi-jurisdictional and cross-border actions. Last but not least, we do not overlook the importance of working with leading national and/or international economic experts and providing our clients with robust and cost-effective defences.

Authors


Petra Carreira
Managing associate in the dispute resolution practice


Rita Samoreno Gomes
partner and co-head of the dispute resolution practice

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Sponsored briefing: Mutual meetings of party-appointed experts: Key to procedural effectivity in arbitration proceedings?

It is a rule rather than an exception that the parties in significant arbitration proceedings present their case also by expert reports produced by party-appointed experts. However, such taking of expert evidence is frequently associated with unsolicited increase of time and costs in arbitration. SOUKENÍK – ŠTRPKA give their insights

Negative aspects of party-appointed experts may be prevented or mitigated by adoption of effective procedural measures.

Within this article, Slovak law firm SOUKENÍK – ŠTRPKA gives a closer view on mutual meetings of party-appointed experts as a procedural tool, which may assist the parties and the arbitral tribunal in saving time and costs when taking expert evidence.

Two experts, hundreds of views

When both parties appoint experts of the like discipline, these experts start to familiarise themselves with the case separately based on available scope and content of instructions, information and documents provided by the parties.

Although both party-appointed experts of the like discipline form their initial opinions on certain factual and expert matters individually, it is not uncommon that certain views of the experts would be aligned despite the fact that the experts were instructed by different parties of the dispute.

Unless the party-appointed expert is not aware of the position of the expert appointed by the counterparty on a certain matter, such expert would be obliged to deeply consider and explain all of the issues associated with expert discipline. Such a situation is ineffective and undesirable, as an expert cannot focus more on matters which are indeed contentious between the experts.

Therefore, in each arbitration with the presence of party-appointed experts, it should be duly considered, whether an early mutual experts’ meeting associated with production of joint expert statement would have the potential to narrow the uncontentious issues between party-appointed experts and consequently result in the saving of time and costs for taking of expert evidence.

Preparation makes perfect

Parties and their legal representatives should always identify appropriate experts for their case in the early stage of a dispute and provide appointed experts with information, relevant documents and reasonable instructions as soon as possible. Otherwise there would be a threat that discussions would be ineffective or unfavourable due to a shortage of the expert’s time for preparation for joint meeting with the expert appointed by the counterparty.

Discussions between experts

Identification of issues to be resolved by agreement between party-appointed experts is widely recognised between arbitration practitioners as an effective case management technique.

Joint meetings between party-appointed experts are a field for reaching agreement between experts over certain matters which fall into their area of specialisation.

From our practical experience, the sooner meetings of experts take place, the more effective the discussions are.

Adoption of two (or more) rounds of early expert meetings (by agreement of the parties or instruction of arbitral tribunal within procedural order) also represents good practice which may result in increased procedural effectivity regarding expert evidence.

Meetings of experts held before the issue of expert reports are less frequent. However, a first round of expert meetings before exchange of expert reports may assist the experts in clarifying agreements and disagreements particularly in respect to the methodology, terminology and units of measurement.

Second (core) round of expert meetings should be organised after first round of exchange of written expert reports, ie, in the procedural stage when initial complex positions of experts are clarified.

Discussions between experts after exchange of initial expert reports may assist the experts to narrow the scope of contentious issues before the production of final expert reports.

Prior to the meeting of experts, several issues should be clarified:

  • Format – in person/videoconference;
  • Agenda – should be notified in advance (to allow the experts to appropriately prepare for effective discussions)
  • List of participants – experts with/without their colleagues would attend the meeting. However, the presence of legal representatives is questionable. In the majority of arbitration cases, tribunals are of the view, that the presence of legal representatives would preclude the experts communicating without pressure. Since the role of experts is not to settle aspects of the dispute on behalf of the party of dispute and the experts shall focus on technical issues, we share the opinion that the presence of legal counsel at joint expert meetings is unnecessary, unless specific circumstances of the case require otherwise.
  • Minutes of meeting – are the basis for preparation of joint statements of experts and therefore it is advised, that MoM should be prepared by a third independent party.

Joint statements of experts

Provided that the discussions of the experts were effective and the experts were able to identify the areas of their agreement and disagreement, the experts should prepare a joint statement including a list of agreed and disagreed issues.

For the sake of effectivity of future hearing, any reasons for disagreement should be justified by both experts within a joint statement.

A joint statement should be afterwards submitted to the arbitral tribunal which would assist the tribunal in becoming familiar with the list of contentious matters between the party-appointed experts and with the reasons for disagreement of the experts in certain matters.

Although joint statements of experts are in general not binding on the parties and/or their experts, it would be extremely difficult for a party or its own expert to deviate from an opinion previously expressed in a joint statement. Therefore, the time and cost-effective party-appointed expert discussions require diligent preparation and consideration of possible risks.

Selected arbitration cases

  • Representing company operating in road sector in construction arbitration (2021 ICC Rules; case value: €400m; co-operation with Simmons & Simmons);
  • Representing Ministry of Transport and Construction of the Slovak Republic in ICC arbitration arising from delay of the PPP project, EOT and increased costs (2017 ICC Rules; case value: €1.9bn; co-operation with Eversheds Sutherland);
  • Counsel to a state-owned entity in respect to ICC arbitration arising from compensation for damage dispute (2012 ICC Rules; case value €700m);
  • Counsel to the Slovak Republic in investment treaty arbitration based on a BIT, arising from the investment in the textile sector (UNCITRAL rules; case value: €290m);
  • Local counsel to the major international law firm in investment treaty arbitration based on a BIT, arising from health insurance (UNCITRAL rules; case value: €1bn);
  • Representing of the National Council of the Slovak Republic in six major court disputes (partially linked to investment arbitration proceedings) with foreign investors (cases value in total: €600m).

Authors


David Soukeník
Partner


Peter Štrpka
Partner


Lukáš Štefánik
Head of litigation and arbitration

Tel: +421 2 322 02 111
E-mail: akss@akss.sk

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Sponsored briefing: Taking an important case to trial

MoloLamken LLP partners Steven Molo and Sara Margolis discuss how a party in a high-stakes trial might improve its chances of success, or, at least avoid disaster

It’s the rare businessperson who wants to have an important issue or, worse, a company’s fate decided by a judge or jury. The vast majority of lawsuits are settled before it comes to that. But trial happens, sometimes with billions or hundreds of millions of dollars at stake.

Given how unfamiliar this territory can be, we spoke with MoloLamken LLP partners Steven Molo, one of America’s leading trial lawyers, and Sara Margolis, a rising courtroom star, to learn how a party in a high-stakes trial might improve its chances of success, or, at least avoid disaster.

The overwhelming number of civil lawsuits in America, including high-stakes business disputes, settle given the risk and the expense. What is it that causes a party – plaintiff or defendant – to say we understand all that, but we’re going to trial?

Steven:Usually, it’s when the parties have fundamentally different views on the value of a case. A variety of factors influence those views. Certainly, the evidence developed in fact and expert discovery is important. But also important are the party’s financial circumstances, its view of what type of trial – and possibly decision – it will get from this judge, and if it’s a jury trial, what the jury research has shown.

Sara: Sometimes, too, a party will have great confidence in its position on a key legal issue it lost earlier in the case. It might be something decided on summary judgment or on a motion to dismiss. Or it could be on how the judge has said she will instruct the jury. A party might believe the risk of a trial loss is substantially mitigated by the likelihood of an appellate victory or at least a favourable settlement after trial in light of the appellate issue. It can be a big bet. But some clients are willing to make it.

Is there a type of case – in terms of the underlying dispute – that’s more likely to go to trial?

Sara: Not really. It can be an antitrust case, a fraud case, a contract dispute, shareholder or bondholder disputes, an IP dispute. You don’t see many class actions tried, but recently we won a nice jury verdict for the plaintiff class in a securities fraud suit.

I know sometimes you are brought in very late in a case, maybe after it’s been litigated for years, to represent a client at trial. How does that come about?

Steven: Sometimes a client will recognise that a case that’s been plodding along for three or four years with discovery and motions is actually going to be tried and there’s a lot at stake. They can look at their lead lawyer, who may have done a fine job up to that point, and realise this is not someone with much, if any, experience trying cases before a jury or a judge. That can be a sobering moment.

When you think about it, that makes sense. Not many cases get tried so not many lawyers have tried many cases.

Clients sometimes find us and say, can you come in and work with our existing lawyers who we love, but who just aren’t that experienced with trials. We do that regularly.

Sometimes the firm itself will approach us and say, we’ve gotten it this far but adding your firepower can make a real difference. Once in a while, a client will want to replace its law firm over a disagreement concerning trial strategy or whether the case should be settled.

Ultimately, a client has to feel comfortable and believe it’s got an experienced fighter leading the charge and a competent well-structured team that can take the case from where it is to a win.

You say a ‘competent well-structured team’. What do you mean?

Sara: You can have a great lead trial lawyer but in a complex, high-stakes case, there’s too much going on for that person to be effective without other strong players focusing on discrete aspects of the trial. For example, we might have a lawyer focused on damages, another focused on liability experts, another focused on legal issues and jury instructions. They need to go deep in their assigned areas but also have in mind the broad strategy and be aware of what’s going on in other aspects of the case.

Steven: And the team should be diverse.

Sara: Right. Diversity broadens your perspective and provides strength. Not everyone looks at the world, or the issues you are dealing with, the same way. Diversity isn’t some catchphrase. It leads to better outcomes.

What you describe sounds like a highly-structured, almost military approach. Can you provide a sense of what that actually looks like at a trial?

Steven: We believe the case should be tried before we ever set foot in the courtroom. By that I mean, we’ve mapped out the testimony of our witnesses and the cross-examination of opposing witnesses, including the exhibits we’ll use with each. We’ve thought through the evidentiary issues. And we do this collaboratively to capture the best thinking.

Sara: We have our own system for organising that. The same system carries over from trial to trial, so expectations of team members are clear. We’re not re-inventing the wheel with each case. We’re big on white boarding as a tool to spark creativity and collaboration but bring discussions to a concrete point.

Steven: We have dinner as a team in a conference room at 7 p.m. every day after court. There’s an agenda covering what needs to be done based on our plan and the day’s developments.

Wow. That sounds rather rigid. Aren’t trials supposed to be dynamic?

Steven: They are dynamic. But having an experience-based system and a plan, we can better address courtroom twists and issues as they arise.

You mentioned jury research. What exactly do you mean by that?

Sara: There are consultants who, under the confidentiality protections of the attorney-client privilege and work-product doctrine, run various exercises – surveys, focus groups, mock trials – and help develop themes and assess likely juror reactions. We’ve worked with many of the top people throughout the country.

Do you do that with bench trials?

Sara: Sometimes, in a fashion. We might bring in one or more retired judges to have a look and get their thoughts.

What about graphics? They seem to be used extensively at trials and hearings?

Steven: Good graphics are essential. There are studies showing 85% of communication is non-verbal. And we live in a smart phone/Twitter world. People’s brains are trained to receive and process information and form beliefs quickly – through displays of information, not just the spoken word. We account for that. We work with outstanding graphics consultants who we’ve known for years to hone our messaging.

Sara: Graphics are something most lawyers get wrong.
They use too many. They are jammed with too much information. They don’t understand color. It’s usually death by PowerPoint.

How important is subject matter expertise?

Sara: At this stage, advocacy skills are far more important than subject matter expertise. The legal issues have been fleshed out. We usually have a subject matter expert as part of the trial team. But the lawyers’ job now is to persuasively present the important evidence within the framework of the applicable law.

Are there aspects of a trial that lawyers without a lot of courtroom experience tend to struggle most with?

Steven: Cross-examination is probably the most difficult skill to develop. Preparation is critical, but an effective cross-examiner must respond and adjust in the moment. It takes lots of experience with inevitable failures along the way to excel at it. People think success as a prosecutor equates to success as a private lawyer. It helps, but prosecutors often are not required to cross-examine many witnesses, so that’s not necessarily true.

Another common struggle is seeing the forest for the trees. People become so immersed in facts developed over the years that they won’t focus on the few that matter most. Often, it’s a lack of confidence or a ‘cover-your-backside’ mentality – two documents can prove the point but let’s introduce 15, so we won’t be criticised. What’s lost is the 15 can confuse or bore the judge or jury. Less is often more.

Persuasion is about striking an empathetic chord with your audience and telling a simple story that has the equities as well as the facts favouring your side.

What about working with witnesses?

Sara: Many litigators are experienced in preparing witnesses for depositions. But depositions, at least those taken in discovery and not for the purpose of presenting trial testimony, are quite different from trial testimony. A trial witness will affirmatively tell the client’s story, or part of it, and different communication skills are required. An experienced courtroom advocate shapes the witness preparation to account for that.

Also, there’s a tendency among less experienced lawyers to want to tell the whole story – or at least a good part of it – with each witness. They fail to recognise that a well-presented case at trial is like a mosaic, with various pieces fitting together to form the big picture.

Other than the obvious benefit of courtroom expertise, are there advantages to using a litigation specialist firm like yours to try a major case?

Steven: Certainly, when we are hired it sends a message to the other side that the client is ratcheting things up and ready to do battle from the trial court all the way to the Supreme Court, if necessary. That can be one factor in reaching a favourable settlement.

Additionally, we are independent. A large percentage of our clients come to us to deal with a specific serious matter. Without a corporate practice, we lack the institutional ties that can sometimes – consciously or unconsciously – influence advice and strategy. Our advice about whether to proceed to trial or settle in a given range is based on our studied view of that case and the client’s articulated goals.

Authors


Steven Molo
Partner


Sara Margolis
Partner

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Sponsored briefing: Integrating and exploiting technology in our business activities

RDS Partnership discusses how the covid-19 pandemic has played a significance in exploiting and integrating technology in the legal sector.

One of the main lessons learned from the global lockdown is the significance of integrating and exploiting technology in our business activities. This applies to the legal field as well, where lawyers have had to adjust to the new reality of making arguments in front of a monitor and looking at a camera, rather than addressing the judge face-to-face.

The courts in Malaysia have also adapted to the digital era by allowing virtual hearings and trials even during the initial stages of the pandemic. The legislative branch made a commendable move by quickly amending the Rules of Court 2012 to establish regulations and best practices for electronic communication in serving legal documents and remote communication technology in court proceedings. As a result, it is not surprising that while most of the world was on hold, the courts persevered in their duty to dispense justice.

Statutory interpretation whilst often perceived as elementary and trite, is frequently the key to unlocking the Gordian knot in disputes. A case in point was the recent Federal Court decision in Tan Kah Fatt & Anor,1 where the interpretation of the term “issue” under theDistribution Act 1958 was fundamental to the appeal. The Federal Court acknowledged that the standard canon of construction has always been that the courts should, in usual cases, begin with the literal rule and that the purposive rule only ought to be relied on where there is ambiguity. Nevertheless, the recent trend of decisions seem to have taken a markedly different approach. In this recent case the Federal Court cited the decision ofBursa Malaysia Securities Bhd2 in approval and held that the purposive rule of construction prevails over the literal rule of construction in the interpretation of a statute given section 17A of theInterpretation Acts 1948 and 1967.

The pandemic years also saw landmark decisions in the housing industry. Regulation 11(3) of the Housing Development (Control and Licensing) Regulations 1989(“HDR”) was declared ultra vires its parent law, the Housing Development (Control and Licensing) Act 1966(“HDA”), by the Federal Court in the case of Ang Ming Lee.3 This means that only the Minister of Urban Wellbeing, Housing and Local Government, and not the Controller of Housing, can make amendments to the sales and purchase agreement that is statutorily provided. The Court of Appeal supported this decision in the case of Bludream City Development Sdn Bhd,4 and the purchasers’ motion for leave to appeal to the Federal Court was dismissed. Another issue in the housing industry was the calculation of liquidated damages for late delivery of vacant possession, which was resolved by the Federal Court in the case of PJD Regency Sdn Bhd.5 The court ruled in favor of the homebuyers and held that the starting date for calculating liquidated damages was the date of the purchaser’s payment of the booking fee, and emphasized that the HDA should be interpreted in favor of the homebuyers as it is a social legislation. These decisions resulted in a surge of cases filed by homebuyers to claim liquidated damages alleging that their sales and purchase agreement (where the date for delivery of vacant possession exceeded the 36-month prescribed timeline) was void. This slew of cases before the Malaysian Courts for liquidated damages are currently awaiting the decisions of the Federal Court in the cases of Obata-Ambak Holdings Sdn Bhd6 and Vignesh Naidu.7

In the field of intellectual property, there were several important cases that reached the Federal Court. In Mohammad Hafiz bin Hamidun,8 the court clarified the meaning of “goodwill” and who owns it, stating that “goodwill” is a flexible asset that can be generated in various ways. In Ortus Expert White Sdn Bhd,9 the court reiterated principles on trademark comparison and held that disclaimers should not be disregarded in the comparison exercise.

Regarding parallel imports, the Federal Court’s decision in Guangzhou Light Industry & Trade Group Ltd10 narrowed the applicability of the defense of parallel importation, holding that goods intended for sale in a specific jurisdiction (outside Malaysia) may infringe trademarks if imported into Malaysia.

The YKL Engineering Sdn Bhd11 case provided guidance on patent invalidation and copyright subsistence. The case dealt with practical aspects of patent invalidation and held that that prior arts relied on to invalidate a patent must be specifically pleaded, failing which may result in the litigant being deprived the ability to rely on said prior art in the invalidation action. The court also held that copyright law does not require a work to be new or unprecedented, but rather that sufficient effort has been expended to make the work original.

The trend of copyright owners taking a proactive approach in enforcing their intellectual property rights can also be discerned from the case of The Football Association Premier League Limited & 1 other.12 In that case, the copyright owner had painstakingly taken steps to protect their intellectual property associated with the Premier League by registering the ASTRO and ASTRO Supersport’s logos, promos and other interstitials only for the defendant to screen Premier League matches at its restaurant bar on a set-top box without the requisite subscription. The High Court handed a judgment against the restaurant owner which serves as a reminder to the masses that copyright owners will not stand idle while their intellectual property is misappropriated.

On the topic of data protection, the Minister of Communications and Multimedia announced in August 2022 that a draft amendment bill to the Personal Data Protection Act 2010 has been prepared. The proposed amendments seeks to introduce, among others, a mandatory data breach notification obligations for data users, which will require data users to report data breaches within 72 hours, a new obligation on data users, where they will be required to appoint data protection officers and a new right to data portability for data subjects. Cybersecurity in Malaysia too may see some significant changes. It was announced in Parliament that a draft standalone Cybersecurity Bill to regulate cybersecurity matters in Malaysia is in the works and the Malaysian government aims to table the Cybersecurity Bill for parliament’s approval in July 2023.

Authors


Alex Choo Wen Chun
Senior Associate


Bahari Yeow Tien Hong
Partner
E:bahari@rdslawpartners.com


Lim Zhi Jian
Partner
E:jian@rdslawpartners.com

  1. [2023] 2 CLJ 169
  2. [2022] 4 CLJ 657
  3. [2020] 1 MLJ 281
  4. [2022] 2 MLJ 241
  5. [2021] 2 MLJ 60
  6. W-02(IM)(NCvC)-1204-06/2021
  7. W-02(IM)(NCVC)-880-04/2021; W-02(IM)(NCVC)-881-04/2021
  8. [2021] 4 MLJ 878
  9. [2022] 2 MLJ 67
  10. [2022] MLJU 1135
  11. [2022] 6 MLJ 1
  12. [2023] 9 MLJ 16

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Sponsored briefing: Artificial intelligence challenged by law and regulations: an odd legislative blank

Afrique advisors discuss both the challenges and opportunities that AI brings to the legal system in Morocco

Artificial intelligence (AI) and robotics are rapidly growing fields that have the potential to transform various industries and sectors, including law. They have become the most outstanding technological trends of our century.

The ongoing process of digital transformation is being accomplished in part with the use of AI, an interdisciplinary technology that aims to use large data sets (Big Data), suitable computing power, and specific analytical and decision-making procedures in order to enable computers to accomplish tasks that approximate human abilities and even exceed them in certain aspects.

We are now 70 years beyond their inception1 and we can recognise that we have made tremendous progress as we are no longer dealing with simple programs that can interact with humans, or programs that can treat small diseases. Now we are approaching the so-called “Strong AI” capable of autonomous thinking, adaptation and making decisions the same way a human being would.

Thus, the rapid growth of their use and their development is bringing new challenges, sometimes difficult to cope with for our society. This situation requires different legal treatment of these technologies, as robots and AI are likely to increase their interaction with humans in a wide range of areas. Morocco, like many other countries, is grappling with the legal implications of AI and the need to regulate its use.

Undoubtedly, the statutory law cannot avoid the evolution that AI and robotics have induced and they will certainly have a significant consequence on its classical notions (liability, property rights, intellectual ownership, data protection, etc.). Nowadays law-makers endeavour to understand these new systems in their relationship with the human being2, however, their interactions are sometimes ambiguous, as the AI systems increasingly aims to gain autonomy over the human being to shape their own identity in a symbiotic manner.

Such situation recalls the need to consider the legal status of the artificial intelligence, as an emerged issue that should interest the public policies.

Indeed, the broadening of artificial intelligence’s capacity and the purposes for which it might be used is not merely fraught with the opportunity but also with the potential danger. The following is a short assessment of the regulatory and legal challenges posed by AI.

I- AI and robotics: A blurred legal status

Given the current progress of AI and robotics technologies dominated by techniques of “Machine Learning” and “Deep Learning”, their capacity to learn autonomously from their own experiences, and their interactions with the environment in a unique and unpredictable ways, one could enquire whether it is sufficient to consider the basis surrounding the principles of the laws of persons and property in order to ascertain the status of AI among the summa divisio of the law.

Generally speaking, the summa divisio of law has a binary vision. First, there are persons: the subjects of law who have legal personality. At the opposite end of the spectrum, we have property which does not have the so-called “legal personality”. Indeed, property is appropriable by the persons entitled thereto. Individuals include natural persons (human beings) and legal persons (states, corporations, international organizations, NGOs, etc.). Anything that is not a person is legally a property. However, this does not necessarily pertain to robotics and artificial intelligence.

As the result of an IT programming activity that expresses a transcription of coded information, AI and robotics are, above all, creations of the mind. As such, they are by definition an intangible asset. Hence the recognition by the World Intellectual Property Organization (WIPO) of the possibility of filing patents related to AI reveals its intellectual property nature.

According to the WIPO Technology Trends Report (February 2019), since “the 1960s, inventors and scientists have filed patent applications for nearly 340,000 inventions pertaining to artificial intelligence”. Such statistics seem to be an assertion of the legal status of these intelligent entities as subject matter, and far from being deemed to be its subject3.

However, this position has been called into doubt following a lengthy battle initiated by Stephen Thaler4 before different national patent offices throughout the world.

In the above 2018 case, two European patent applications have been filed by Thaler5, with the particularity that these two patent applications is that both designate as inventor an AI algorithm called by its creator, “DABUS” 6.

At the time, the European Patent Office (EPO) had refused to grant the status of inventor to an intelligent machine on the grounds of lack of legal personality. The same position has been upheld by the European Patent Office7, the Intellectual Property Office of the United Kingdom and the Patent and Trademark Office of the United States. Nevertheless, the South African Patent Office and the Australian Federal Court8 decided to grant this AI the status of inventor, thus adopting a completely different position and turning all standards upside down.

This worldwide debate is a perfect illustration of the fact that AI is no longer just an end in itself, but rather a tool for creation – and sometimes the creator as well – capable of learning from the introduced data and developing into an autonomous decision maker beyond any human involvement. Indeed, creations generated by intelligent entities have become a widespread reality and it has been difficult to distinguish between human creations and those created by an artificial intelligence.

In the same vein, a well-known painting, “The New Rembrandt”, was created by an AI which was able to extract the secret of the Dutch painter based on his existing art works. Experts have stated that, had they seen the AI created painting in a museum, they would have thought it painted by Rembrandt himself9.

Another field of example in which the AI was considered equal to persons was the attribution of citizenship rights. In 2017, Saudi Arabia announced that robot Sofia, who identifies herself as a woman, was granted the Saudi citizenship. In the same year, Japan granted a residence card to the Shibuya Mirai bot cat under a special regulation10.

All these examples provide a perfect illustration of the evolution of AI from an owned property to a subject that acts within the summa divisio. A reality that science and scientists acknowledge, yet the legal realm is quite distant.

II- Emergina AI is a New Subject of Tort Liabilities

The previous lines reveal that AI can represent a crucial contribution to the enhancement of the human capabilities in terms of generated creations or in carrying out functions that were previously the exclusive preserve of humans. However, the other side of the coins is that these intelligent entities can be involved in causing accidents or damage as well. For instance, one of Google’s cars has been the cause of an accident before11. Damage was also caused by an AI-assisted medical diagnosis (IBM’s Watson)12.

Hence the need to consider the tort liability framework for damage caused by an AI or robot, whereby their conduct may bear implications from both contractual and extra-contractual liability perspectives.

In practice, these technologies involve many actors such as the programmer, the data provider, the platform owner and the user. However, the positioning of the users at the front line of the process often makes them the first rank liable.

One could wonder if such positioning legitimate, particularly considering the development of certain autonomous and cognitive functionalities (such as the capacity to learn from experience or to make near-independent decisions), which make these robots more likely to be considered as actors who interact with their environment and can significantly alter it13.

In such a situation, the issue of the legal liability in case of a damaging action by a robot is a key concern.

Scientists generally agree to classify AI as two categories: soft AI, which merely imitates a pre-established behavior that a human would have had in a given situation, and strong AI, which is endowed with a high degree of autonomy in making decisions and which is similar – thanks to the progress of cognitive sciences – to human behavior in its most particular features.

As a matter of fact, intelligent entities based on soft AI technology does not raise any problem, insofar as it is considered merely as a tool that performs tasks or carries out operations according to the instructions of its programmer or its user, and therefore corresponds to the definition of “things” under the scope of positive law.

Consequently, the application of the liability for “things in possession”, embodied in Article 88 of the Moroccan Civil Code14, which provides that “everyone must be liable for damage caused by things in their possession”, remains a suitable approach.

However, the notion of legal guardianship, based on the theory of risk management, seems to bring up further issues since Moroccan law draws a distinction between legal guardianship, which belongs to the owner of the thing, and ordinary material guardianship, which belongs to the person who has the power of direction and control at the time of the damage. Therefore, no one can deny that in such a context, the notion of guardianship and risk management must be interpreted differently.

Regarding technologies based on so-called strong artificial intelligence, the issue gets much more complicated, considering their emerging autonomy and the immateriality and unpredictability of their actions, as they can cause damage regardless of any control or influence by a human. Indeed, the solutions provided by the theory of risk management and guardianship of things, appear unable to justify the faulty contribution of any human.

Therefore, it follows that the increasing autonomy of robots brings us back to the legal nature of these machines, which vary depending on their type. The more an intelligent machine is autonomous, the less it can be considered a “thing” under human control and must bear the responsibility for the damage it causes, according to the terms of the theory of guardianship of things as it is conceptualized under Moroccan law.

It seems that the current statutory liability rules are no longer sufficient in this regard and new policies and regulation are required to clarify both the legal nature of these entities and also the liability system of the various actors for the actions or inactions of a robot which cannot be attributed to a human factor.

Actually, these two issues of positive law, relating to the legal status of intelligent entities and the liability regime applicable in case of damage or injury they cause, are in all likelihood inter-related insofar as each one has an impact on the other and indeed on other legal fields, in particularly intellectual property rights and the protection of personal data.

At this point there is no doubt that the established law is naturally applied, although not by choice. Nevertheless, it must be enhanced by new and specific responses by the legislature, whether by creating appropriate regulations or by adapting and modulating existing provisions.

Recalling ultimately that in terms of the connections linking law and technology, it is technology that leads the process, as expressed by an eminent author, La Paradelle, who once said: “It is not the philosophers with their theories, nor jurists with their definitions, but rather engineers through their inventions and discoveries that establish the law and, above all, the progress of the law”.

The main challenge is therefore for the legislators to address an effective regulatory approach that combines the prevention of potential risks along with the preservation of innovation and its progress.

Overall, AI presents both challenges and opportunities for the legal system in Morocco. While the lack of specific regulations may hinder the development of AI, it also provides an opportunity for the country to shape its legal framework in a way that encourages the responsible and ethical use of the technology. It is therefore crucial that policymakers in Morocco take a proactive approach to developing a legal framework that addresses the unique challenges and opportunities presented by AI.

Authors


Rabab Ezzahiri
Attorney at Law, Casablanca Bar Association and PhD Candidate


Maroua Alouaoui
Associate

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