Lawyer Issue

Argentine New Statute On
Civil And Commercial Law
Cyprus – a direct route to
EU citizenship
Offshore energy projects
in Denmark

Content
Contact
www.lawyerissue.com
Debunking the Myth: Enforcement of Foreign
Arbitral Awards in Indonesia 4
Leasing companies and banks choose Norway over other Scandinavian jurisdictions
for registration of aircraft 10
Argentine New Statute On Civil And Commercial Law 12
Cyprus – a direct route to EU citizenship 16
Post-Sanction Era in Iran, Legal Challenges and
Economic Opportunities 19
Follow-on competition law litigation in
Denmark – Cheminova vs. Akzo Nobel 23
Review Panel calls for significant reforms to Australia’s competition laws 27
Argentinean Federal Supreme Court clarifies when “substantial influence” implies
“control” giving rise to an “economic concentration” subject to
authorization as per the Competition Law. 32
When can A non-party to an arbitration agreement
be compelled to arbitrate A claim? 36
CJEU potentially opens the back door to court ordered
anti-suit injunctions in the EU 40
The developing mining sector in the Republic of Macedonia 44
Offshore energy projects in Denmark 48
Joint Ventures: Legal and Practical Considerations in Latin America 53
U.S. Agencies Take a Tough Approach to Merger Remedies 57
What is Wrong with our Fiction? The Perceived Attack on Reverse Vesting 62
Mergers and Acquisitions Regulations in Lebanon 66
Austrian goodwill amortization: AG Kokott issues her opinion on a
landmark case for the relation between state aid and treaty freedoms 70
Excerpts from an Address to the STEP Caribbean Conference 76
Do trusts have a future in the context of the 4th AML Directive? 86

Arbitration
DEBUNKING THE MYTH:
Enforcement of Foreign Arbitral
Awards in Indonesia
By Karen Mills
The Myth
The History
1More than likely many readers have attended
2
conferences where self-styled experts on
Southeast Asia, including Indonesia, (few of
whom have any experience in the region at
all) have blithely insisted that foreign awards
cannot be enforced in Indonesia.
That, dear readers, is a Myth. True, it was
not a myth until 25 years ago, but one does
not go to conferences, nor read professional
notes, to be regaled with 25-year-old “news”.
Indonesia ratified the New York Convention
(1958 United Nations Convention on the
Recognition and Enforcement of Foreign
Arbitral Awards) in 1981. 1 Until that time,
enforcement of arbitral awards was handled
in the same manner as enforcement of final
and binding court judgments.
Arbitration, as well as civil litigation, were
1 By Presidential Decree No 34 of 1981, published in
the State Gazette (Berita Negara) of 1981, as No. 40, of 5
August, 1981. Indonesia made both the commerciality and
the reciprocity reservations in its accession.
at that time regulated under the mid-19th
Century Dutch Code of Civil Procedure,
Reglement op de Rechtsvordering (generally
known as the “RV”) 2 , which, together
with other Dutch procedural laws, had
been adopted by Indonesia upon her
independence in 1945. The RV still governs
litigation but since 1999 arbitration is
governed by its own Arbitration Law, Law No.
30 of 1999.
Article 463 of the RV provides that, with
virtually no exception, judgments of foreign
courts cannot be enforced in Indonesia. Thus
it was always assumed that the same applied
to foreign-rendered arbitration awards
and thus these could not be enforced in
Indonesia.
Although the ratification of the New York
Convention clearly changed this, it was not
until 1990 that the implementing regulation
for New York Convention enforcement,
Supreme Court Regulation No. 1 of 1990,
was promulgated. And thus for the nine
years following ratification, the courts had
no mechanism to enforce foreign-rendered
awards, even though they were aware that
Article III of the New York Convention so
required. 3
Article 634 of the RV provided that
registration and application for enforcement
of arbitration awards was to be made in
the District Court (Pengadilan Negeri) in the
district in which the award is rendered, thus
the Supreme Court members could not
agree as to which court one would apply
for enforcement of a foreign-rendered
award, there being no District Court in
2 State Gazette No. 52 of 1847, juncto No. 63 of 1849 (Arbitration
was covered in Articles 615 through 651 of Title I ).
3 Article III of the New York Convention provides that every
contracting state must recognise and enforce awards
rendered in other contracting states without imposing substantially
more onerous conditions than are imposed upon
recognition or enforcement of domestic awards.
which to register, nor which would have
had jurisdiction to grant enforcement of, an
award rendered outside of the jurisdiction of
any District Court.
Some judges therefore believed that
application should be made directly to the
Supreme Court; others that the awards
should be “self-executing”; and still others that
a single District Court should be designated
to take jurisdiction over New York Convention
enforcement applications. But, as there was
as yet no guidance from the legislature, those
few awards that may have been rendered
elsewhere had to lay dormant.
Finally, Supreme Court Regulation No. 1 of
1990 set out the necessary implementing
regulations for enforcement of arbitral
awards rendered in a country which, together
with Indonesia, is party to an international
convention regarding implementation of
foreign arbitral awards. The District Court
of Central Jakarta (Pengadilan Negeri Jakarta
Pusat) was designated as the venue to which
application for enforcement thereof was to
be made.
The Chairman of that court was then allotted
14 days in which to transmit the request file
to the Supreme Court, which was then the
only court invested with jurisdiction to issue
exequatur, the enforcement order, in cases of
foreign-rendered awards.
Once the order of exequatur was granted,
the same was to be sent back down to the
Chairman of the District Court of Central
Jakarta for implementation.
If execution was to be effected in a different
district (i.e. that of the domicile of the losing
party, or the location of its assets), the order
was to be delegated to the appropriate
District Court for implementation.
Execution was effected on property and
possessions of the losing party in accordance
4 | LawyerIssue 5

Arbitration
with the normal provisions of the RV relating
The Buyer did not provide the necessary
Today, 25
Although the Supreme Court had issued the
Court Regulation 1 of 1990, a law is superior
to execution of court judgments.
Letters of Credit, and subsequently cancelled
years later, it is
order of exequatur to enforce the London
to a regulation in the legal hierarchy and thus
the contract. As the initial purchase contract
time to forget
arbitral award against the Buyer before
to the extent that the two are inconsistent
Regulation 1 of 1990, however, did not set
called for arbitration in London, the Seller
the past and
hearing the Seller’s appeal to the court
the provisions of Law No. 30/99 will prevail.
any time limit within which the Supreme
commenced arbitration, obtaining an award
recognize the
verdict, the Seller was nonetheless unable to
Court was required to rule on these
applications and, for the most part, they
were simply docketed into the Supreme
against the Buyer for breach of contract.
The Buyer then filed a suit in the High Court
of London seeking a declaration that the
current state
of play.
“
execute the award because of the appeals
still pending. Finally the Supreme Court
found for the Buyer in both applications
The primary difference between Law No.
30/99 and Supreme Court Regulation No. 1
of 1990 is the designation of the courts which
Court’s normal case-load. Nonetheless, the
contract was null and void as being contrary
and therefore nullified its exequatur order
have jurisdiction to issue exequatur, being
initial nine applications, those filed between
to law and public policy, since no permit had
on the basis that it had now found that the
the court with which the award must first be
1991 and mid-1993, were acted upon with
been issued by BULOG to import the sugar.
original contract was null and void ab initio
registered.
reasonable promptness - some in less than
and therefore so was the arbitration clause
six months.
The parties subsequently reached a
(severability not applicable where a contract
Domestic awards, being awards rendered in
settlement agreement whereby the
is void ab initio as being contrary to law).
an arbitration held within the bounds of the
However, no such orders were issued
Buyer was to pay to the Seller a reduced
nation’s archipelagic jurisdiction, must be
after mid-1994, either of exequatur or
compensation in installments, also calling for
Whether this notorious decision was a
registered with the clerk of the District Court
rejection thereof, and thus the remaining
arbitration in London in case of any disputes.
product of undue influence, or only lack
“having jurisdiction over the respondent”, 4
seven applications filed prior to August,
After meeting its obligation with regard to
of understanding of the arbitral concept
which would be that court sitting in the
1999 remained pending at the time of
the first installment, the Buyer defaulted on
on the part of the court, has never been
district in which the respondent is domiciled.
promulgation of Law No. 30 of 1999, the
subsequent installments and the Seller again
determined, nor its reasoning followed
Such registration must be effected within 30
current Arbitration Law.
brought arbitration in London, once again
in any subsequent case. Nonetheless the
days of rendering in order for the award to
prevailing and obtaining an award against
stigma of this 1991 case, the bad news of
be enforceable. 5
To make matters worse, although the
the Buyer.
which was spread throughout the world, has
very first application for enforcement filed
undoubtedly etched the Myth in the minds
International awards are defined as
after 1990 was granted exequatur without
The Buyer did not satisfy the award but
of much of the international legal profession.
difficulty, actual execution was sabotaged
instead brought an action in the District
Today, 25 years later, it is time to forget the
“. . . awards handed down by an arbitration
by the respondent through other legal
Court of Central Jakarta seeking annulment
past and recognize the current state of play.
institution or individual arbitrator(s) outside the
action, a story which was widely published
of the original contract on the basis that it
jurisdiction of the Republic of Indonesia, or an
and complained about internationally,
was invalid ab initio, being in violation of the
Between 1991 and the enactment of the new
award by an arbitration institution or individual
undoubtedly being the instrument of the
law and public policy, and that therefore the
Arbitration Law in 1999 only one application
arbitrators(s) which under the provisions of
spread of the Myth, which is still believed
arbitration clause was also invalid.
for enforcement of a foreign-rendered award
Indonesian law are deemed to be International
today.
was rejected by the Supreme Court, and that
arbitration awards”.
The court apparently followed this logic,
was on the ground that the parties had not
The case of E.D. & F. Man (Sugar) Ltd. vs. Yani
despite the fact that it was the Buyer that
executed an agreement to arbitrate.
As there has been no legislation to the
Haryanto involved a long series of arbitral
references and court applications. The
subject matter of the dispute was a contract
for provision of sugar by claimant Seller to
respondent Buyer, FOB a port in Indonesia.
As it happened, at the time certain staples,
including sugar, could only be imported
when authorized by only the Government
Logistics Bureau (“BULOG”), but Buyer had
violated the provisions of law and also that
at this stage the parties were in dispute not
over the original sale contract but under the
subsequent settlement agreement.
The settlement agreement was declared
null and void by the District Court, and its
decision was confirmed at the high court
level. The Seller further appealed to the
Supreme Court, and also brought action
3The Current Situation
Arbitration Law, Law No. 30 of 1999,
covering arbitration.
On 12 August, 1999, Indonesia promulgated
its new, and in fact its first comprehensive,
which went into effect immediately upon
promulgation and rescinded and superseded
Articles 615 - 651 of the RV, those previously
contrary, an award rendered in an arbitration
with venue within Indonesia will be domestic,
regardless of the nationality of the parties
or other factors. Unless the Republic of
Indonesia itself is a party to the arbitrated
dispute, applications for enforcement of
international awards are no longer required
to be submitted to the Supreme Court at all.
Law No. 30/99 vests in the District Court of
not obtained such authorisation. Between
contracting and intended delivery date, the
market price of sugar declined substantially.
against the Buyer in the District Court for
breach of its obligation to make payments
under the settlement agreement.
Although Law No. 30/99 does not also
specifically rescind the provisions of Supreme
4 Article 1 (4), Law No. 30/99
5 Article 59 (1), Law No. 30/99.
6 | LawyerIssue 7

Arbitration
Central Jakarta (Pengadilan Negeri Jakarta
Pusat) the jurisdiction to issue orders of
exequatur to enforce international arbitral
awards, as well as to execute such domestic
awards as are rendered within its normal
jurisdiction - central Jakarta.
This shift of jurisdiction has expedited the
process significantly. Except for a short hiatus
during 2010 - 2011, the District Court of
Central Jakarta has acted upon applications
for enforcement of foreign awards quite
promptly.
Enforcement Procedure
4But enforcement of foreign awards is not
entirely without some difficulties, although
these are primarily administrative and relate
to registration, which is required for the
award to be enforceable. Although for an
international award there is no time limit for
registration, as there is for domestic awards,
the registration is required to be effected
by the arbitrators or their duly authorised
representatives. 6
While this rarely causes a problem for
domestic awards, as the arbitrators, or at
least local counsel, are aware that a power
of attorney for registration from the Tribunal
is required, it has caused some delay in
registration of international awards where
neither the arbitrators nor the parties’
counsel have familiarized themselves with
the requirements of Indonesia’s law.
Often more troublesome is the requirement,
for registration of international awards only,
that the award be accompanied by a
“certification from the diplomatic representative
of the Republic of Indonesia in the country in
which the International Arbitration Award was
rendered stating that such country and the
6 Article 67 (1), Law No. 30 of 1999.
Republic of Indonesia are bound by a bilateral
or multilateral treaty on the recognition and
implementation of International Arbitration
Awards.” 7
(This means New York Convention as
Indonesia is not party to any other such
treaty.) While this requirement seems quite
straightforward, it has not been effectively
communicated by the Foreign Ministry to its
consulates, and thus often requires some
administrative burden and attendant delay.
Once the award has been registered, the
applicant (invariably the claimant) may apply
for the order of exequatur. Having issued
the exequatur, the court (District Court of
Central Jakarta for international awards) will
summon the respondent (losing party) and
give it the opportunity to comply with the
award, usually within 8 days.
If this order is not complied with, the court
will issue the attachment order, which will
then be sent to the court having jurisdiction
over the respondent, which court will attend
to execution against the identifiable assets of
such party.
Such execution may take some time, as
each subject asset must be attached by a
bailiff and sold through the state auction
house, unless a private sale has been
approved, and all of these steps will need to
be closely supervised by counsel if it is to be
accomplished in a timely manner.
Rejection of exequatur for a foreign award
can be appealed to the Supreme Court 8 ,
which must decide upon the appeal within
90 days. 9 Issuance of exequatur, however, is
7 Article 76 (2), Law No. 30/1999.
8 Article 68(1), Law No. 30/99.
9 Article 68 (3), Law No. 30/99.
not subject to appeal. 10 Nor may a decision
In fact, Indonesia is a very arbitrationfriendly
jurisdiction and, as clearly dictated
of the Supreme Court either issuing or
rejecting exequatur or execution, where
by Law No. 30 of 1999, the courts may not
the Government of Indonesia is a party,
interfere, 12 except where they are required
be appealed. 11
to assist in the enforcement (as long as the
parties did agree to arbitrate and the dispute
The District Court of Central Jakarta keeps a
is of a commercial nature). 13
record not only of those awards registered,
but also those for which exequatur has been Even an interim award on jurisdiction cannot
requested, and issued.
be appealed to the courts, as so often
happens in common law jurisdictions thereby
However, as most awards are complied
greatly delaying the process, almost always
with voluntarily and, where not, execution
unnecessarily. The process may take a bit
is carried out, for the most part, by one of
longer than it does in some jurisdictions,
the almost 300 other District Courts in the
but it is much quicker and successful than in
archipelago, there is no complete data.
many others.
However, to the knowledge of this firm, no
application for exequatur of a registered
Let us hope this note will serve to debunk
foreign award has been rejected since
the Myth, whose misinformation has been
promulgation of the 1999 Arbitration Law.
spread too widely and for too long.
So much for the Myth!
10 Article 68 (1) & (2), Law No. 30/99.
12 Articles 3 and 11, Law No. 30/99.
11 Article 68 (4), Law No. 30/99.
13 Article 62 (2), Law No. 30/99
Karen Mills
Founder at KarimSyah Law Firm of Jakarta
T: +62-21 2966 0001
Email: kmills@cbn.net.id
Karen Mills has practiced in Indonesia for over 30 years. A Chartered Arbitrator, Fellow of the Chartered Institute of
Arbitrators (“CIArb”) and of the Singapore and Hong Kong Institutes, Ms. Mills founded and co-chairs the Indonesian Chapter
of CIArb, is on the panel of arbitrators of most arbitral institutions in the region, including those in Indonesia, China,
Malaysia, New Zealand, Singapore, Hong Kong, Korea, and the Philippines, as well as the AAA/ICDR panel. Ms. Mills has
long been a Board Member of ArbitralWomen, sits on the first appointing authority of the Chinese-European Arbitration
Institution, the IBA/IMI task force on investor-state mediation, as well as others, is an approved tutor for all CIArb courses and
teaches and speaks widely on arbitration and ADR related topics throughout the Asia-Pacific region.
Ms. Mills’s substantive fields of specialization include financing and restructuring, oil, gas, mining and energy matters,
hotel and leisure management, insurance, maritime law, information technology and general cross-border investment and
transactions. In recent years she has successfully represented the Indonesian Government in a number of investor-state
disputes. Karen has published over 130 papers in international professional books and journals.
8 | LawyerIssue 9

Aviation
Leasing companies and banks choose Norway
over other Scandinavian jurisdictions for registration
of aircraft
by Ingar Fuglevåg
Being the only Scan di na vian juris dic tion which has rati
fied the Cape Town Con ven tion, leas ing com pa nies and
financiers have dis cov ered that the Nor we gian Civil Aircraft
Reg istry pro vides for inter na tional secu rity which is
not avail able in other Scan di na vian jurisdictions.
Another rea son for need ing inter na tional rules on
recog ni tion of rights in avi a tion finance is the fact
that engines are removed and very often installed
on other air crafts than the one they belong to, and
in some instances also being sub ject to a pool ing
arrange ment in which sev eral air lines may par tic i pate.
Engines owned and financed by third par ties may
there fore be oper ated by other air lines in other jurisdic
tions than the one the engines were leased to in
the first place. An inter na tional regime that pro tects
the rights of the own ers and the financiers is therefore
key to this industry.
The CTC is the answer to these chal lenges. Even if it
does not pro vide a solu tion to all chal lenges, it is the
legal regime which is being embraced by the avi a tion
finance com mu nity. The CTC pro vides for an inter national
reg istry in which rights in air craft and engines
may be reg is tered. Such reg is tra tion will then be
recog nised and enforce able in juris dic tions hav ing
rat i fied the CTC.
The inter na tional reg istry is based in Ire land, but
works on a web based solu tion in which the par ties
make the nec es sary fil ings on line. As opposed to
what is pos si ble in the Nor we gian Civil Air craft Registry,
mort gages can be reg is tered both in the airframe
and the engines separately.
The CTC does also pro vide for an instru ment which
may give leas ing com pa nies, banks or oth ers being
appointed the pos si bil ity of quickly repos sess ing
the air craft, e.g. in case of insol vency of the airline
to which the air craft is being leased. Under the
scheme of the Cape Town Con ven tion, an Irrev o cable
De-registration and Export Request Autho ri sa tion
(IDERA) can be issued, giv ing a spec i fied entity the
pow ers to take the nec es sary steps in order to deregister
an air craft from reg istry.
The IDERA needs to be exe cuted by the reg is tered
owner of the air craft, and will also be filed with the
Nor we gian Civil Air craft Reg istry. In case of insolvency
of an air line, this could be an effec tive rem edy
as a preap proved entity, e.g. the financier, has been
granted the sole rights of repos sess ing the Air craft,
rights which will be acknowl edged by the Nor we gian
Civil Air craft Reg istry due to the CTC being in force in
Norway.
For this rea son it was reported some time ago that
the air line SAS was forced to move air craft on opera
tional lease agree ments from other Scan di na vian
air craft reg istries to Nor we gian reg istry in con nec tion
with its restruc turing process.
Hav ing the air craft on a CTC com pli ant reg istry
does also affect the finance costs in today’s avi a tion
finance mar ket. Norway is one of the few countries
qualifying for the discount under the Aircraft Sector
Understanding (ASU) of OECD export credit agencies.
This shows the increas ing impor tance of the CTC.
The Cape Town Con ven tion on Inter na tional Interests
in Mobile Equip ment of 16 Novem ber 2001 and
its Pro to col on Mat ters Spe cific to Air craft Equip ment
(col lec tively referred to as the “CTC”) has been rat i fied
by Nor way as the only Scan di na vian juris dic tion. The
CTC is today rat i fied by 52 coun tries, and it entered
into force in Nor way 1 April 2011.
Avi a tion finance is a highly inter na tional busi ness,
and the mobil ity of the equip ment being financed has
always raised sev eral cross bor der chal lenges. These
chal lenges relate among oth ers to differ ent laws in
differ ent coun tries regard ing recog ni tion of rights
and differ ent rules relat ing to insol vency. Hav ing the
Ster ling Airways bank ruptcy in mind, the need for harmonised
rules is obvi ous.
When Ster ling Airways went into bank ruptcy in Denmark
a few years ago, the repos ses sion and export of
air craft from Den mark turned out to be a lengthy and
com plex mat ter for leas ing companies.
Ingar Fuglevåg
Partner at Simonsen Vogt Wiig AS
T: +47 22 31 32 85
Email: ifu@svw.no
Ingar Fuglevaag’s specialty is aviation law and aircraft financing.He also has extensive experience in maritime
law and in litigating maritime law disputes, including matters related to the P & I insurance and cargo damage.
10 | LawyerIssue 11

Civil and Commercial Law
ARGENTINE NEW STATUTE ON
CIVIL AND COMMERCIAL LAW
by Martín Campbell
Argentina is a federal republic with 23 provinces; the federal
capital is the autonomous city of Buenos Aires.
The Argentine Constitution provides for a political
system organized into three independent bodies
comprising an executive branch (government) headed
by the President, a legislative branch (Congress) and a
judiciary.
The federal system adopted by the Argentine
Constitution provides for a distribution of powers,
depending on the subject matter, between the 23
provinces, the autonomous city of Buenos Aires and
the federal government. In principle, all powers are
vested in the provinces. However, the provinces have
divested power to the federal government in matters
of national interest.
The Argentine judicial system is divided into federal
courts (those organised by the federal government)
and provincial courts (those organised by each
province and the autonomous city of Buenos Aires).
The supreme judicial power of Argentina is vested
in the Federal Supreme Court of Justice (court of
last resort), which currently has four members. The
provincial court systems are composed of lower
courts, courts of appeal and a Provincial Supreme
Court.
Provincial courts deal either with cases based on local
laws or non-federal laws. Within the territory of each
province, there are also federal courts which decide
exclusively upon federal matters and non-federal
matters mainly when one of the parties is the federal
government.
Within the territory of the city of Buenos Aires, there
are two types of courts: federal courts and those
which are known as ‘national’ courts. Federal courts
deal with federal matters while national courts hear in
non-federal law disputes.There are also courts in the
city of Buenos Aires that deal exclusively with local
law matters.
Pursuant to one of the classifications, Argentine laws
may be divided into substantive and procedural,
depending on the subject matter involved.
Substantive laws determine the general rules of
behaviour that must be followed in the Argentine
territory. These rules can be classified as follows.
a. Local laws: these are the laws enacted by each
province, by the autonomous city of Buenos
Aires and by the Federal Congress with effect
on each local territory or federal territories.
They are enforced by provincial courts, in the
city of Buenos Aires by local city courts and in
federal territories by the federal courts.
b. Ordinary or [[non-]federal] laws: these
laws are composed of the civil, commercial,
criminal, labour and social security laws, which
are applicable throughout the country in all
territories. This article will refer to the recent
enacted Civil and Commercial Code that
amends the current Civil and the Commercial
Code in force, which new code shall be in effect
on August 1, 2015.
c. International treaties: these are international
conventions signed by the federal government
and ratified by the Federal Congress with
foreign states. International treaties are
enforced by federal and by provincial courts.
Procedural laws are those that refer to the
organisation and activity of the judicial courts and
judicial procedures and are enacted by the legislative
power of each province. Procedural rules applicable
to the federal and national courts located in the city
of Buenos Aires (and federal courts located in the
provinces) are enacted by the Federal Congress.
Lastly, the Argentine Constitution grants to non-
Argentine citizens the same rights as Argentine
citizens, including unlimited access to Argentine
courts for the resolution of legal disputes, subject,
however, to non-residents having to post a bond, if
required.
Argentina has been governed by a Civil and a
Commercial Code (and different complimentary laws)
since 1871 regarding the Civil Code and 1862 by the
Commercial Code which author in both cases was
Dalmacio Velez Sarfield. The Civil Code was amended
in 1968 and further on by different laws enacted by
the Federal Congress.
[The Commercial Code was itself never amended
but different laws modified and/or replaced certain
of its provisions.][Now in October 2014 by means
of the Act 26,994 with effect on August 1, 2015, the
Federal Congress repealed both the Civil Code and
the Commercial Code, and enacted a unified Civil and
Commercial Code (the “New Code”), that will havean
important impact in the relations between the State,
the individuals and corporations.
The New Code has incorporated new principles
in civil matters (family, marriage, the capacity of
individuals, heritance, statute of limitation, liability,
real estate,etc.) and in commercial matters.
As the commercial matters are the principal scope of
this article I shall make a brief reference to the ones
scholars consider the most important changes in the
legal regime.
a. Payment of obligations agreed in foreign
currency: the rule incorporated in the New
Code allows the debtor to pay such obligations
in Argentine currency. Argentina has a Single
and Free Foreign Exchange Market through
12 | LawyerIssue 13

Civil and Commercial Law
which all foreign exchange transactions must
be made. The Federal Government has
restricted the access to the Single and Free
Foreign Exchange Market and is artificially
controlling the price of the foreign currency.
Therefore, alternative markets for the purchase
of foreign currency have developed with higher
prices. As consequence, a creditor receiving a
certain amount of local currency may not be
able to acquire foreign currency at the official
exchange rate and, therefore, in the actual
amount agreed by the parties.
This problem has been solved through the
stipulation of a covenant to deliver a certain
amount of foreign currency denominated
securities which, once sold at a securities
market outside Argentina would allow the
creditor to receive the agreed amount of
foreign currency. Scholars ask themselves if this
contract stipulation is still possible under the
New Code.
b. The sole partner corporation: in the
Corporate Act [ that was part of the commercial
Code], corporations had to be formed at least
by two members that could be individuals or
holding companies.
The main issue of a corporation was (and still
is) the limited responsibility of the liabilities
incurred during the ordinary business in head
of the corporation. That requirement of having
more than one partner has now been repealed
by the New Code through the creation of the
sole partner corporation.
c. Arbitration: Although arbitration was ruled
in different statutes (International Treaties,
National Procedural Code, private entities such
as de Stock Exchange Market) now the New
Code establishes and rules the “Arbitration
Agreement” with the aim of reducing conflicts
between the contractual parties and avoiding
the need of a judicial proceeding, which locally
should mean a reduction of costs and time.
d. Limitation of liability of the board members
of corporation.
e. Contracts: the New Code has incorporated
rulings of the case law and scholars’ opinion.
For example the Distribution Agreement,
the Agency Agreement and the Concession
Agreementthat were not previously regulated
by the legislation and were only governed by
case law.
Also the New Code includes new requirements
to the banking contracts in favour of banks’
clients. Another important provision included in
the New Code is the right of any of the parties
of a contract to review its terms given certain
facts with significant negative impact in the
parties obligations under the agreement.
f. Consumers: the New Code includes the
“Consumers Agreements” to protect the relations
between persons with different bargaining
powers. It also partially amends the existing
Consumers Law.
g. International rules: the existing codes did not
include extensive rules on international matters
including civil and commercial relations.The
New Code includes a chapter dedicated to rule
the different matters relates to international
matters both of civil and commercial relations.
In that sense the New Code permits parties to
a contract to select the laws that will govern
their agreements as long as there exist some
connection to the system of law that is chosen.
Further, the choice of foreign law will only be
valid to the extent that it does not contravene
Argentine international public policy. Where
Argentine international public policy is deemed
applicable or the election has been agreed in
fraud of the Argentine Law, an Argentine court
will substitute the applicable rule of Argentine
law for a foreign rule.
h. International jurisdiction: Argentine courts
currently acknowledge that parties to a contract
may choose a jurisdiction other than Argentina
for the settlement of any disputes arising under
a contract, provided that the dispute relates to
pecuniary rights. This right is now incorporated
international treaties. Also the law must be
construed taking into account its words, its
purpose, the [analogous/like]laws and the legal
values in a coherent manner with the rules of
the New Code.
to the New Code. In this respect the New
Code includes jurisdictional rules in different
relations that are mandatory for the parties in
conflict, most of them in family matters but also
in consumers’ relations and real estate conflicts,
among others.
These are examples of some of the many
amendments of the New Code to the
i. Statute of limitation: the New Code has
amended many of the terms applicable to the
statute of limitation. The general term has been
reduced from 10 to five years. In contractual
liability the term has also been reduce from
ten years to three years. The New Code also
prohibits the parties to modify the terms
applicable to the statute of limitation.
existing Civil Code and the Commercial
Code, that will most probably raise conflicts
in its interpretation that once it becomes
into force will require the intervention of
courts or arbitrators to build case law in the
interpretation of the new rules. In this respect,
the New Code establishes the need of a judicial
decision reasonably grounded on a series of
principles that exceed the own text of the New
This means that in the coming future after August 1,
2015 dispute resolutions will most probably increase
in the need of interpretation of the amended rules of
the New Code. And the first thing to determine will
be whether these amended rules are applicable to
the existing relations. In addition another important
matter in this interpretation is that that case law
seems not to constitute express sources of law.
Code.
In this matter the judge must take into
account the National Constitution, laws and
Martín Campbell
Partner
T: (54-11) 4310-0100
Email: MCAM@marval.com.ar
Martín Campbel graduated as a lawyer from the Universidad Católica Argentina in 1973. He
specializes in commercial, business and financial litigation and bankruptcy law.
He advises companies on matters in these areas of specialization and on restructuring of private debt.
He also has vast experience in matters relating to the refinancing of bank loans.
He is a member of the Colegio Publico de Abogados de la Ciudad de Buenos Aires, former member of
the Latin America Committee Member and World Editorial) and International Bar Association (IBA)
14 | LawyerIssue 15

Company Formations
CYPRUS – a direct route to
EU citizenship
by Eleni Drakou
Acquiring a second passport has proved to be of significant importance for people who want to travel
with less restrictions, to secure their assets, or to enjoy the benefits of welfare and high standard of
living of another country. A dual citizenship provides international diversification, which is a crucial
element for people who seek personal liberty and financial prosperity. European citizenship has been
very popular among non-EU nationals who wish to obtain a second passport. Many EU countries
have adopted laws and regulations in order to grant to non-nationals their citizenship or residence
permit through investment.
Cyprus is one of the most popular EU
jurisdictions, as the Cyprus naturalization
by investment scheme is considered the
most straightforward route to becoming a
European citizen.
Over the last few years, Cyprus has
attracted many non-EU citizens from
around the globe. Investors and
entrepreneurs choose Cyprus over other
jurisdictions for the fast track application,
which grants the Cyprus passport in only
90 days.
Cyprus has become a popular choice for
investors looking for asset protection,
entrepreneurs looking to expand their
international presence, and retired
immigrants who seek a second passport.
The scheme for “Naturalisation of
investors in Cyprus by exception” was
adopted on the basis of subsection (2)
of section 111A of the Civil Registry Laws
of 2000-2013 according to the Council
of Ministers Decision (19.03.2014). The
scheme allows for the dual citizenship of
the applicant and the applicant’s family.
Why Cyprus is so popular
Cyprus is one of the few countries within
the EU that offers direct citizenship
without any residential requirements at
any stage -before or after the applicationunlike
other European countries.
There are no language competence
requirements for obtaining the citizenship
and the English language is broadly
spoken in the country.
Wealthy individuals benefit from Cyprus’
solid business infrastructure and the high
standard of professional and multilingual
services, the good quality of life, the
relatively low cost of living, and the access
to health-care and the educational system.
Cyprus also enjoys a very low crime level.
The strategic geographical location makes
the country an ideal destination and the
Cyprus passport offers ease of travel (visafree
travel or visa-on-arrival) to more than
150 countries in Europe, Asia, Middle East,
Africa, and USA.
Most importantly, Cyprus is a full member
of the European Union since 2004. Hence
Cypriot citizens enjoy all the privileges
of EU citizens: free movement of people
and capital within the countries of the EU
and free establishment and movement of
services and goods in all the EU countries.
EU citizens enjoy the right to freely travel,
reside, work and study in any EU country,
purchase property, transfer funds, and
invest in any member state.
The Cyprus scheme has a transparent
procedure as the examination is solely
based on economic criteria and the
submission of a clear criminal record.
The Cyprus scheme also benefits the
applicant’s family, since the spouse and
children below the age of 18 (or 28 under
certain conditions) are also able to obtain
citizenship. As citizenship can be passed
on to a next generation, grandchildren
inherit the Cyprus citizenship.
Tax incentives
Cyprus offers a combination of tax
incentives for investors who are granted
citizenship. The investors do not become
tax residents in Cyprus unless they spend
more than 183 days in the country in one
calendar year. Hence tax is not imposed
on the investors’ personal income.
No tax is imposed on wealth, gift,
inheritance, foreign income or capital
gains, and no restriction is made on the
repatriation of profits and imported
capital. Corporations are subject to one
of the lowest corporate tax rates in EU
(12.5 %). Cyprus has also signed numerous
double tax treaties with other countries
that offer tremendous possibilities for
international tax planning.
Naturalization scheme
through investment
The Cyprus government grants citizenship
with various and often combined ways.
Investors and entrepreneurs apply
personally or through a corporation. The
economic criteria are examined by the
Ministry of Finance.
The applicant may invest the amount of
€5 million or the amount of €2.5 million
in case of participation in a collective
investment plan of €12.5 million. The
16 | LawyerIssue 17

Company Formations
investment can be made in (a) government
bonds; (b) financial assets of Cyprus
companies or organisations; (c) real estate,
development and infrastructure projects; (d)
purchase, incorporation of or participation
in Cypriot businesses and companies; and/
or (e) deposits in Cypriot banks or deposits
of privately owned companies or trusts. The
investor is also required to have a permanent
privately-owned residence in Cyprus of at least
€500.000 unless he/she chooses to invest the
amount of €2.5 or €5 million in the purchase
of a private residence.
Investors often prefer to invest in real estate
to benefit from the investment and growth
potentials and to gain significant rental
income. The most popular investment option
for applicants who invest the amount of €2.5
million in real estate is the purchase of one
residential property, as applicants are not
required to invest the additional amount of
€500.000 for their residence.
The fast track application
procedure
The application for the naturalization is
submitted to the Ministry of Interior and
examined both by the Ministries of Interior
Eleni Drakou
and Finance. If the applicant meets the criteria
and conditions, the case is presented to the
Council of Ministers for the final decision. Once
the application is approved, the Certificate of
Naturalization is issued by the Civil Registry
and Migration Department within two weeks.
Residence permit – the
permanent and unlimited
ticket to Cyprus
Cyprus also offers to non-EU investors
a permanent and unlimited in duration
residence permit. The permanent residence
is granted to applicants for the rest of their
lives without any renewal requirements or
residential requirements; a short visit to
Cyprus once every two years is sufficient.
The residence permit may be granted by
purchasing a property in Cyprus of a minimum
market value of €300.000.
Interested investors should keep in mind that
applying for the Cyprus citizenship requires
professional legal advice. The guidance
offered by a reputable law firm specialising
in immigration law, banking and finance,
corporate law, and immovable property will
determine the success of the application.
Director of Business Development at MICHAEL KYPRIANOU & CO.
T: +357 22 447777
Email: e.drakou@kyprianou.com.cy
Eleni Drakou is the director of business development of MICHAEL KYPRIANOU & CO. LLC, a leading law firm
based in Cyprus, Greece and Malta. Eleni is also an associate of the law firm and a member of the Cyprus Bar
Association and the Nicosia Bar Association. She has experience in the professional services sector and she is
specialized in Corporate Law, Investment and Immigration Law.
Post-Sanction Era in Iran, Legal Challenges
and Economic Opportunities
by Dr. Behrooz Akhlaghi,
Farhad Emam
Executive summary
The negotiations between Iran and P5+1 is getting
closer to its final stage. If the parties get into a win-win
deal, the first international action would be to lift the
sanctions. This would ease the pressure on the Iranian
economy and would boost the efforts to normalize the
current staggering conditions. The other side of this
coin is the plan of action of the Iranian government to
renovate and internationalize the economic system of
Iran. The final direction of the efforts on both sides of
the table is to establish a free market economy in Iran.
In this brief report, we will look at the actions to be
taken internationally and locally in order to show how
they can invigorate each other if in devising each plan
of action, the needs and requirements of the other
one could be kept in mind.
AA. INTERNATIONAL PLAN OF ACTION
1. Lifting and easing of sanctions
According to the Guidance Relating to the April
2, 2015 Announcement of Parameters for a Joint
Comprehensive Plan of Action Regarding the Islamic
Republic of Iran’s Nuclear Program:
“The parameters announced on April 2, 2015 for a Joint
Comprehensive Plan of Action (JCPOA) by the P5+1 and
Iran do not immediately relieve, suspend or terminate
any sanctions on Iran. The only sanctions relief in force
is the relief provided pursuant to the Joint Plan of Action
(JPOA) reached on November 24, 2013 and extended
through June 30, 2015.” 1
1 http://www.treasury.gov/resource-center/sanctions/Programs/pages/iran.aspx
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Company Formations
After June 30, 2015, some of the sanctions imposed
on Iran shall be lifted, depending on the terms of the
agreement expected to be concluded between Iran
and the P5+1. For the sake of facilitating our analysis,
we presume that the parties will agree on all of their
issues of common interest. In that case, according
to the US Fact Sheet 2 the main consequences of the
agreement shall be:
• “U.S. and E.U. nuclear-related sanctions will be
suspended after the IAEA has verified that Iran
has taken all of its key nuclear-related steps. If at
any time Iran fails to fulfill its commitments, these
sanctions will snap back into place.
• The architecture of U.S. nuclear-related sanctions
on Iran will be retained for much of the duration
of the deal and allow for snap-back of sanctions
in the event of significant non-performance.
• All past UN Security Council resolutions on the
Iran nuclear issue will be lifted simultaneous with
the completion, by Iran, of nuclear-related actions
addressing all key concerns (enrichment, Fordow,
Arak, PMD, and transparency).
• However, core provisions in the UN Security
Council resolutions – those that deal with
transfers of sensitive technologies and activities
– will be re-established by a new UN Security
Council resolution that will endorse the JCPOA
and urge its full implementation. It will also create
the procurement channel mentioned above,
which will serve as a key transparency measure.
Important restrictions on conventional arms and
ballistic missiles, as well as provisions that allow
for related cargo inspections and asset freezes,
will also be incorporated by this new resolution.”
2. Allowing Iran to join the international club
Iran has been treated as a pariah state for more than
35 years. Now time is ripe to open the doors to allow
the Iranian State to become a full member of the
following entities:
a. WTO: The accession status of Iran, as explained on
the website of WTO, is as follows:
“The General Council established a Working Party to
examine the application of the Islamic Republic of Iran
on 26 May 2005. The Islamic Republic of Iran submitted
its Memorandum on the Foreign Trade Regime in
2 http://www.state.gov/e/eb/tfs/spi/iran/fs/240539.htm
November 2009. The Working Party has not yet met.”
The main reason for the current stand-still is political,
according to the Iranian government. For this reason,
Iran has taken few political steps to remove the
existing barriers as reported by Tass, Russian News
Agency, on November 30, 2014 :
“Iran asks Russia to help it join the World Trade
Organization (WTO), according to a memorandum on
cooperation between Russia’s ministry of economic
development and Iran’s ministry of industry, mining and
trade signed on Sunday.”
Almost five months have passed since then and Iran’s
membership status has not budged a bit. This means
that it would be impossible for Iran to join the WTO as
long as its disagreements with the P5+1 lingers. But
even after signing the agreement with the P5+1, there
will be an expectation to see to it that Iran respects
and abides by the international rules before allowing
this country to become a full member of the WTO.
b. Others: Becoming a member of an international
organization is just the first step in direction of joining
the international club. To become an active member,
Iran needs to enter into the game of give and take.
This means that Iran has to take the
following steps:
a. International policy of Iran, as far as its
membership in international organizations
is concerned, must be defined in clear and
concise terms;
b. Based on that policy, Iran needs to define its
strategies in order to meet its objectives;
c. Then a plan of action must be devised
comprising the ways and means of initiating
and maintaining an international cooperation
while taking into account the capacities and
capabilities of Iran; and
d. Finally, Iran needs to look into the steps to
be taken in order to put its plan of action into
execution.
3. Conclusion of new bilateral and multilateral agreements with Iran
Iran has concluded many bilateral and multilateral international agreements with its economic partners.
In practice, however, these agreements are often of no practical contribution to the Iranian economy. For
example, the following list shows that Iran has entered into Bilateral Investment Treaties (BITs) with the
following 46 countries:
Countries Date of signature Date of entry into force
1. Afghanistan 28 May 2006 2 February 2008
2. Algeria 19 October 2003 5 December 2005
3. Armenia 6 May 1995 26 February 1997
4. Austria 15 February 2001 11 July 2004
5. Azerbaijan 28 October 1996 20 June 2002
6. Bahrain 19 October 2002 12 October 2004
7. Bangladesh 29 April 2001 5 December 2002
8. Belarus 14 July 1995 23 June 2000
9. Bosnia &Herzegovina 27 July 1996 25 August 2002
10. Bulgaria 13 November 1998 24 August 2003
11. China 22 July 2000 1 July 2005
12. Croatia 17 May 2000 2 August 2003
13. Finland 4 November 2002 25 June 2004
14. France 12 May 2003 12 November 2004
15. Georgia 27 September 1995 22 June 2005
16. Germany 17 August 2002 23 June 2005
17. Indonesia 28 March 2009
18. Italy 10 March 1999 27 July 2005
19. Kazakhstan 16 January 1996 3 April 1999
20. Kyrgyzstan 31 July 1996 27 June 2005
21. Lebanon 28 October 1997 14 May 2000
22. Macedonia 12 July 2000 19 August 2005
23. Malaysia 22 July 2002 4 August 2006
24. Morocco 21 January 2001 31 March 2003
25. North Korea 30 September 2002 24 April 2005
26. Oman 2 December 2001 8 April 2003
27. Pakistan 8 November 1995 27 June 1998
28. Poland 2 October 1998 26 October 2001
29. Qatar 20 May 1999 5 November 2001
30. Romania 26 January 2002 12 January 2005
31. Serbia & Montenegro 5 December 2003 7 July 2006
32. South Africa 3 November 1997 5 March 2002
33. South Korea 31 October 1998 31 QQQ
Some of the above BITs have been left inactive and useless for decades. It is now an appropriate time to look into
each of them to see whether they are of any practical value and if so, to reactivate them after discussing the ways of
reviving these treaties with the States whose economic partnership is of interest to Iran.
20 | LawyerIssue 21

Company Formations
BB. Domestic Plan of Action
1. Internationalization of the domestic laws
The economic laws of Iran are old and outdated. The
government of Iran need to establish a working group
to carry out a comparative study of these laws in
order to adapt them to the current needs of potential
international partners of Iran.
The main laws that need to be reviewed
are in the following fields:
a. Competition (and restriction of competition);
b. Public- Private Partnership (PPP);
c. Concessions (based on Article 81 of the
Constitution of Iran);
d. Public markets;
e. Oil and gas;
f. Public property and public domain;
g. Privatization; and
h. Mining activities.
2. Establishing “connecting entities”
Foreign companies and firms need to learn about the
applicable rules of the Iranian market. They also need
to establish joint ventures with their Iranian partners.
Furthermore, it is indispensable for them to keep
themselves aware of the changes and developments
in the Iranian market place. In handling all of these
challenges, normally they have to rely on international
law offices and their representatives in Iran. There
is a dire need to have companies that are expert in
gathering economic information on both public and
private sectors of the economy of Iran and to carry
out due diligence studies for foreign companies,
if and when needed. Lack of ‘connecting entities’
could delay the process of internationalization of the
Iranian economy.
3. Modern courts and arbitration centers
It is trite to say that Iranian courts fall short of the
expectations of the foreign companies that are in
need of reliable judicial services. The Arbitration
Center of the Iran Chamber of Commerce, Industries,
Mines and Agriculture (ICCIMA) has taken serious
steps in order to meet the international standards
of commercial arbitration but despite all of the
invaluable efforts of its managers, the Arbitration
Center of the ICCIMA needs to take serious measures
to meet the international expectations. In taking
these measures, the Arbitration Center needs to avail
itself of services of renowned experts of international
commercial arbitration.
CONCLUSION
The agreement to be concluded between Iran and the
P5+1 ushers in a new era in economic development
of the country. The role of this agreement, however,
must not be overemphasized. Iran needs to take
other steps, both at international and at domestic
level, to pave the way for implementing its new
economic development plan. In this brief report, we
tried to put emphasise on the main parts of this plan.
A detailed version of this plan will be prepared as
soon as Iran and P5+1 ink their final agreement.
Follow-on competition law litigation in
Denmark – Cheminova vs. Akzo Nobel
by Martin André Dittmer,
Sam MacMahon Baldwin,
Søren Elmstrøm Sørensen,
Gorrissen Federspiel
Dr. Behrooz Akhlaghi
Attorney at law, Founder at Dr.
Behrooz Akhlaghi & Associates
T: +98 21 22 66 93 81
Email: akhlaghi@akhlaghi.net
Farhad Emam
Legal Counsel at Dr. Behrooz
Akhlaghi & Associates
T: +98 21 22 66 93 74 – 8
Email: ounsel@akhlaghi.net
In recent years, there has been considerable focus on private antitrust
litigation based on a prior infringement decision by either the European
Commission or a national competition authority – known
as follow-on litigation. In January 2015, the Danish Maritime and
Commercial Court awarded damages to Danish Cheminova A/S in a
follow-on action against Akzo Nobel.
22 | LawyerIssue 23

Competition & Anti-trust
Cartelists and others who act in breach
Akzo Nobel was in total fined EUR 84.38
causality and foreseeability. Consequently,
Cheminova had not
of competition law are increasingly
million by the European Commission for
it was ’only’ for Cheminova to prove that
suffered a loss. Akzo
sued in private antitrust proceedings by
its participation in the cartel.
they had suffered a loss and not least the
Nobel partly succeeded on this argument
companies who claim to have suffered
size of such a loss.
and Cheminova’s claim for damages was
a loss as a result of the anti-competitive
behaviour. If such proceedings are
initiated after a prior infringement
decision has been rendered by a relevant
The Danish company, Cheminova, which
produces crop protection products, had
bought MCAA-mixture, Azonol, from
Akzo Nobel during the cartel period for
Whether there was on
overcharge
reduced with a certain percentage.
However, Cheminova argued successfully
that the amount of damages should be
competition authority the proceedings
which Akzo Nobel was fined. In the view
In order to verify whether Cheminova had
adjusted in favour of Cheminova due to
are commonly referred to as follow-on
of Cheminova, Akzo Nobel overcharged
suffered a loss – and the potential size of
the fact that Cheminova had lost revenue
litigation.
Cheminova for such products due to the
such loss – the parties submitted various
since it sold products at a higher price
cartel, and accordingly Cheminova had
economic models to the court. These
to its customers – known as the ‘volume
In January 2015, the Danish Maritime and
suffered a loss for which Akzo Nobel was
models were heavily debated during
effect’.
Commercial Court rendered a decision in
liable. Cheminova therefore initiated
the case by the parties and an expert
favour of the Danish company, Cheminova
proceedings in Denmark before the
economist was appointed by the court to
Akzo Nobel then submitted that if Akzo
A/S (“Cheminova”), in a follow-on action
Danish Maritime and Commercial Court
assess the applicability and viability of the
Nobel was liable to Cheminova, the
against the Dutch company Akzo Nobel.
with a claim for damages against Akzo
models.
amount of damages should be adjusted
The case is one of few court cases from
Nobel.
for saved tax. The rationale was that
Denmark concerning actions for damages
A rather important issue for Cheminova
the tax rate for companies was higher
for breach of competition law. However,
Prior to the proceedings in Denmark Akzo
was to persuade the court of a model
during the period where Akzo Nobel had
the judgment may well increase potential
Nobel had settled the case with some of
which could demonstrate and measure
overcharged Cheminova than the current
victims’ appetite for suing competition
its American customers by paying 20% of
Akzo Nobel’s actual contribution margin
tax rate.
law offenders on the back of infringement
their purchases in damages.
during the cartel period derived from
decisions from the European Comission or
the Danish Competition Council.
Also in light of the recently adopted
Directive 2014/104/EU on actions
The legal basis for bringing
an action for damages
under Danish law
the sale of Azonol and Akzo Nobel’s
contribution margin if the cartel had not
existed, i.e. the counterfactual scenario.
Such a model would enable Cheminova
to prove the amount which Cheminova
According to Akzo Nobel this would
entail that Cheminova would be
overcompensated – if the amount of
damages was not adjusted – since
Cheminova would only have to pay tax of
for damages for competition law
Under Danish law claims for damages for
had been overcharged by Akzo Nobel for
the awarded damages based on the actual
infringements which seeks to make it
competition law infringements are not
Azonol.
and lower tax rate. This argument was,
easier for companies and individuals
governed by the Danish Competition Act
however, rejected by the court.
to claim damages from companies not
but are subject to non-statutory torts law.
Based primarily on the expert report,
playing by the rules.
Cheminova succeeded in persuading the
In a split decision (3 against 2) the court
The background of the
case against Akzo Nobel
In 2005 the European Commission fined
six Akzo Nobel companies together with
the companies EKA Chemicals AB, Atofina
SA (now Arkema SA), Elf Aquitaine SA,
Hoechst AG, Clariant GmbH and Clariant
AG for their participation in a European
Danish torts law provides that it is for
the injured party to put forward and
substantiate his case – in particular
the basis for liability and the monetary
loss sustained as consequence of the
wrongdoing. Therefore, it generally
falls upon the claimant to demonstrate
causality between the wrongdoing and the
loss suffered as well as foresee-ability.
court of accepting such a model – and
that Akzo Nobel had received a higher
contribution margin than would have
been the case in the absence of the cartel.
The court applied his model as a starting
point when measuring the damages.
Whether the overcharge
was passed on
finally ordered Cheminova damages in the
amount of approximately EUR 1.4 million
for the period 1986 to 2000. A dissenting
minority of 2 judges favoured damages of
approximately EUR 1.3 million.
Tendency towards more
follow-on litigation
The Cheminova/Akzo case illustrates that
market-sharing and price-fixing cartel for
MCAA chemicals (Monochloroacetic acid)
which lasted between 1984 and 1999. 1
1 Case No COMP/E-1/.37.773 – MCAA.
During the proceedings before the
Maritime and Commercial Court Akzo
Nobel only disputed that Cheminova had
suffered a loss – i.e. the issue of quantum.
Akzo Nobel admitted the basis of liability,
During the case Akzo Nobel argued that
even if it had overcharged Cheminova
during the cartel period, Cheminova in
any case had passed this higher price
on to its customers and accordingly
it is not impossible to succeed in a claim
for damages for breach of competition
law and certainly the increasing focus on
follow-on litigation – not least at EU-level
– means that even more cases should be
24 | LawyerIssue 25

Competition & Anti-trust
expected in the future. Therefore, companies have
to take into account when assessing their conduct
in light of competition law that they might end up in
private antitrust proceedings and at the end of the
day will have to pay damages to their customers or
even worse their competitors.
Denmark has not yet implemented Directive
2014/104/EU on antitrust damages actions. The
Directive must be implemented latest December
2016.
Review Panel calls for significant reforms
to Australia’s competition laws
by Patrick Gay,
Sarah Chubb
Martin André Dittmer
Head of EU & Competition law at Gorrissen Federspiel
T: +45 33 41 41 41
Email: mad@gorrissenfederspiel.com
Martin André Dittmer has extensive practical experience within competition law including antitrust litigation. Martin
André Dittmer handles merger applications to the Commission and Danish competition authorities, advice of clients on
horizontal and vertical agreements under article 101 (including cartels), matters of abuse under article 102 and all types
of problems within Danish competition law. Furthermore, Martin André Dittmer advises both contracting entities and
tenderers in relation to public procurement issues.
Sam MacMahon Baldwin
Associate Attorney at Gorrissen Federspiel
T: +45 33 41 41 41
Email: sam@gorrissenfederspiel.com
Sam MacMahon Baldwin has experience within all areas of competition law including anti-competitive agreements, abuse
of dominance, merger control, and state aid. Sam has experience in handling cases before the EU Courts, state aid cases
with the European Commission, and cases before the Danish competition authorities. Sam also has litigation experience
before the Danish courts. In addition, Sam handles matters on public procurement as well as matters concerning stateowned
and privileged companies and undertakings.
Søren Elmstrøm Sørensen
Assistant Attorney at Gorrissen Federspiel
T: +45 33 41 41 41
Email: SES@gorrissenfederspiel.com
Søren Elmstrøm Sørensen is assistant attorney in Gorrissen Federspiel’s EU & Competition law practice group. Søren
Elmstrøm Sørensen works within all areas of competition law including anti-competitive agreements, abuse of dominance
and merger control.
In March last year, the Australian Government commissioned an independent
‘root and branch’ review of Australia’s competition law and policy – the first
review of its type in over 20 years.
The Review Panel’s Final Report was
released on 31 March 2015. The Australian
Government intends to respond to the Final
Report in the second half of this year. We
would not be surprised if it endorsed many
of the suggested reforms.
The Final Report considers three broad
areas:
• competition law: substantive changes
to Australia’s key piece of competition
legislation, the Competition and
Consumer Act 2010 (Cth) (CCA);
• competition policy: reforms to
regulatory frameworks to open up
competition in a number of sectors,
including taxis, pharmacies and human
services; and
• institutions: among other things,
the Panel advocates removing all
access and pricing functions from the
Australian competition regulator, the
Australian Competition and Consumer
Commission (ACCC), and transferring
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Competition & Anti-trust
them to a new access and pricing
regulator.
The Panel made over 50 specific
recommendations. Below, we explore some
of the key recommendations for the CCA.
Merger review – a new formal
process
Under Australian competition law, there
is no mandatory notification regime for
mergers.
The Panel has not recommended
introducing a mandatory regime. But it has
proposed several changes to the existing
voluntary regimes.
likely to harm competition. Between
2007 (when the current process was
introduced) and late 2013, no one
applied for merger authorisation. But
in recent years, there have been two
applications – first by Murray Goulburn
in relation to its proposed acquisition
of Warrnambool Cheese & Butter, and
then by AGL in relation to its proposed
acquisition of Macquarie Generation’s
electricity assets.
The Panel has made a number of
important recommendations about these
processes:
• in relation to informal clearance: the
Panel believes that the process should
be retained, but that there should
be further consultation between the
ACCC and business to help improve the
timeliness of the ACCC’s decisions; and
disappointing.
Cartel laws – to be simplified
International practitioners may be surprised
by the length, complexity and reach of
Australia’s current cartel laws, which pose
serious challenges for both interpretation
and application.
The Panel expressed a range of concerns
about Australia’s existing cartel laws, several
of which stemmed from a recent court case
where the laws were found to apply to:
• a tender for the sale of a Canadian
corporation, which had business
operations outside Australia, where
the seller was based outside Australia,
and where the tender was conducted
outside Australia 1 ; and
the risks associated with their conduct. They
may also benefit the regulator in bringing
criminal prosecutions, in part because the
simplified concepts will be easier for juries
to understand and apply.
Joint venture defence – to be
simplified and expanded
The CCA recognises the economic value of
joint venture arrangements and includes
exemptions from cartel laws for these
arrangements.
Currently, there are three merger review
processes available in Australia:
• informal clearance: under this process,
the ACCC provides merger parties
with an informal view about whether a
merger is likely to substantially lessen
competition. Merger parties almost
invariably rely on this process, because
it is flexible in terms of the information
to be provided to the ACCC and the
timeframes for assessment;
• formal clearance: under the CCA,
merger parties may apply to the ACCC
for formal clearance. The ACCC can
grant formal clearance if it is satisfied
that the acquisition would not have the
effect or likely effect of substantially
lessening competition. Since the formal
clearance process was introduced in
2007, no one has elected to use it, in
part because of the significant amount
of information required to be provided
to the ACCC upfront; and
• authorisation: under the CCA, merger
parties may apply to the Australian
Competition Tribunal – a quasi-judicial
body – for authorisation on the grounds
that their merger will result in a net
public benefit. This means that a
merger may be allowed to proceed
on public benefit grounds, even if it is
• in relation to formal clearance
and authorisation: the Panel has
recommended combining these
processes into a single formal regime
which allows both competition
and broader public interests to be
considered. Under this process,
applications would be made to
the ACCC, with a right of review
to the Tribunal. There would be
strict timelines, and no prescriptive
information requirements, although the
ACCC would be empowered to require
the production of business and market
information from the parties involved.
While the Panel’s suggestion of a single
formal regime should make the process
more ‘user-friendly’, it will also mean that
parties lose the ability to apply directly
to the Tribunal for merger authorisation.
The AGL case showed that the Tribunal
can, after testing the evidence, come to
a very different view from the ACCC on
competition issues. Further, the current
merger authorisation process is quick,
with a time limit of three months (absent
complex or special circumstances). The
loss of this merger approval option is
• an arrangement between parties if
there is ‘more than a remote possibility’
that the parties are, or would be, in
competition with each other.
To address these concerns, the Panel has
made recommendations about both the
extraterritorial reach of the cartel laws and
the level of competition needed in order for
the laws to apply. In particular, the Panel
recommended that the cartel laws only
apply to:
• conduct that affects trade or commerce
within, to or from Australia; and
• corporations who are actual
competitors, or who are ‘more likely
than not’ to be in competition with each
other.
More broadly, the Panel believes that the
existing cartel laws are overly complex, and
has recommended that they be substantially
simplified. In our view, the Panel’s
suggested changes should make it easier for
commercial parties to identify and assess
1 The cartel laws were found to apply because the relevant
conduct was engaged in by parties incorporated in
Australia and/or carrying on business in Australia.
Submissions to the Panel emphasised the
importance of ensuring that Australia’s
competition laws do not frustrate the
formation of pro-competitive joint ventures,
and that they are drafted appropriately
to differentiate between legitimate joint
ventures and anti-competitive agreements
‘dressed up’ as joint ventures.
The Panel has recommended a simpler
and broader exemption for joint venture
activities that do not have the purpose or
effect of substantially lessening competition.
The joint venture defence proposed by
the Panel:
• removes the requirement for a
joint venture contract, instead
recommending that the defence be
extended to apply to less formal joint
venture arrangements;
• removes the requirement for a
production and/or supply joint venture,
instead recommending that the defence
be broadened to apply to any joint
venture for the production, supply,
acquisition or marketing of goods or
services; and
• includes a requirement that the relevant
cartel provision under consideration:
• be for the purpose of the joint venture
(this is an existing requirement);
28 | LawyerIssue 29

Competition & Anti-trust
• relate to goods or services acquired,
produced, supplied or marketed by or
for the purpose of the joint venture; or
• be reasonably necessary for
undertaking the joint venture.
This third suggestion seeks to ensure that
the relevant conduct is sufficiently linked
to the joint venture so that only genuine
joint venture conduct will benefit from the
defence. While that link is clearly important,
there has been no judicial consideration of
the phrases recommended by the Panel,
and they remain open to a number of
possible interpretations. In particular, it is
still unclear whether a provision that is not
strictly necessary for the operation of a joint
venture, but furthers its objective or enables
it to operate more efficiently, comes within
the scope of the defence.
Overall though, the Panel’s suggestions
are to be welcomed. They address many
of the concerns of joint venture parties,
particularly those in the energy and
resources sectors, where collaborative
activities are common.
Price signalling – to be replaced with a
prohibition on ‘concerted practices’
In 2011, the CCA was amended to include
prohibitions against price signalling – the
anti-competitive disclosure of information.
They currently apply only to the banking
sector.
The prohibitions have been heavily
criticised, and the Panel has recommended
they be repealed.
In their place, it has recommended dealing
with anti-competitive information exchanges
by extending the general prohibition against
anti-competitive contracts, arrangements
and understandings to include ‘concerted
practices’. It has defined a concerted
practice as ‘a regular and deliberate activity
undertaken by two or more firms. It would
include the regular disclosure or exchange of
price information between two firms, whether
or not it is possible to show that the firms
had reached an understanding about the
disclosure or exchange’.
While the term ‘concerted practices’ is not
currently used in the CCA, it is a familiar
concept in Europe. It will be interesting to
see whether Australian courts adopt the
European approach to ‘concerted practices’,
or develop their own approach as cases are
brought before them.
Unilateral conduct – introducing an
‘effects’ test
The current Australian prohibition regulating
the conduct of firms with substantial market
power considers the purpose of the relevant
conduct rather than its effect. It also
requires that there be a causal connection
between the market power and the conduct
(i.e. the market power must be ‘used’).
Perhaps the most controversial of the
Panel’s recommendations is the introduction
of an ‘effects’ test to this prohibition. More
specifically, the Panel recommends that the
section be re-framed to prohibit:
• a corporation that has a substantial
degree of power in a market
• from engaging in conduct that has
the purpose, effect or likely effect of
substantially lessening competition.
This formulation – ‘purpose, effect or likely
effect of substantially lessening competition’ –
already exists in other sections of the CCA
that apply to collective conduct. However,
if the Panel’s recommendation is adopted,
it will for the first time apply to unilateral
conduct by a corporation with substantial
market power.
The re-framed section also appears to remove
the causal link between substantial market
power on the one hand, and conduct on the
other.
Many commentators have expressed serious
concerns about this recommendation, arguing
that it will create uncertainty and may chill
legitimate competitive conduct. In addition, the
case law regarding the existing prohibition, which
has developed over many years, will, in essence,
be abandoned.
While the Panel has acknowledged that reframing
this prohibition will lead to a period
Patrick Gay
Partner at Herbert Smith Freehills
of uncertainty, in our view it has probably
underestimated both the period of uncertainty
and the consequences of that uncertainty on the
conduct of firms with market power.
Next steps
Sarah Chubb
Senior Associate at Herbert Smith Freehills
The Australian Government has been consulting
on the Panel’s recommendations, with
submissions on the Final Report due by late May.
It intends to formulate its response to the Final
Report in the second half of this year.
T: (54-11) 4310-0100
Email: patrick.gay@hsf.com
Patrick is a Partner in the Competition, Regulation and Trade group based in Sydney. His practice
focusses on competition and consumer law issues. Patrick has advised clients in a variety of
industries in relation to merger clearances, and ACCC investigation and enforcement matters. He
also provides competition law advice in respect of issues arising in contract negotiations, including
distribution arrangements and joint venture agreements. Patrick is a contributor to a recent
publication on Australian joint venture law entitled ‘Before you tie the knot: Contemporary issues
in joint venture law’.
T: +61 2 9225 5688
Email: sarah.chubb@hsf.com
Sarah is a Senior Associate in the Competition, Regulation and Trade team in Sydney. Sarah
specialises in competition and consumer law, and advises clients across a wide range of industries
including media, groceries, pharmaceuticals, wagering, insurance, ports, energy and petrol. Before
joining Herbert Smith Freehills, Sarah worked for several years at the Australian competition
regulator, the Australian Competition and Consumer Commission.
30 | LawyerIssue 31

Competition & Anti-trust
Argentinean Federal Supreme Court clarifies when
“substantial influence” implies “control” giving rise to
an “economic concentration” subject to authorization
as per the Competition Law.
by Agustín Siboldi
The configuration of “control” by means of the acquisition of “substantial
or controlling influence” according to the Argentinean Federal
Supreme Court:
Argentinean Federal Supreme Court
rendered issued a ruling 1 that according
to our point of view is extremely
important since it provides certainty
about the interpretation of all economic
1 Decision dated March 10, “Pirelli y CSPA y otros s/
notificación art. 8 ley 25.156 incidente de apelación de la
Resolución SCI n° 2/10 en concentración 741.”
transactions in which no real “control”
case arises as is the case provided by
paragraphs a) and b) of Article 6 of Law
25,156 (“merger” and “transfer of
goodwill”, respectively), which provide
no interpretative complexity. 2
2 a) the merger between companies;
b) the transfer of goodwill;”
The decision of the Supreme Court shed
light upon one of the two cases covered
by paragraphs c) and d) of Article 6 of
Law 25,156 (“Competition Act “), which
undoubtedly recognize more difficulty due
to the fact that are cases that refer to the
special features of each transaction.
It is worth transcribing literally both
paragraphs, since the need for legislation
on competition law is evidenced in order
to appeal to broad precepts, essential to
cover the different and innovative designs
that economic transactions may acquire,
to prevent that new ways may avoid the
controls established by legislation in this
matter: 3
“c) The acquisition of property
or any right to shares or equity
or debt securities that give
any right to be converted into
shares or equity or having any
influence on the decisions of the
person who issued said shares
where such acquisitions give
the buyer control or substantial
influence over an undertaking;
d) Any other agreement or
transaction that transfers, de
jure or de facto, to a person or
an economic group, the assets
of an undertaking or gives a
determinative influence over
ordinary or extraordinary
business decisions.”
We outlined the phrases designed by
3 This was the case in the past, where the law of antitrust
recognized an impression of criminal law itself, with
a thorough description of the factual requirement of the
established legal type, whose satisfaction was practically
impossible due to the evolution that recognized the way
to carry out business, circumstance allowed to avoid the
controls set forth by the first legislators in this matter.
The current wording of sections 1st and 2nd of Law
25,156 respond to the same logic.
the legislator in order to understand the
universe of cases in the world of business
that cannot be thoroughly defined. The
common denominator is given by the
“influence” which is qualified in two
ways: “substantial” or “intended”.
The case under analysis highlights on the
assumption of “substantial influence “ 4 over
the following concepts:
1. he universe of assumptions taken
by the concept “substantial
influence” includes the two cases
covered by paragraphs 1) and 2) of
Section 33 of the Companies Act . 5
2. Defines the first case as “...
internal or de iure control,
which occurs when a
partner holds a stake,
for any reason, that gives
the necessary votes to
constitute the social will
in corporate or ordinary
meetings…” 6
3. And the second as “... the socalled
external or in fact
control, which occurs when
an individual exercises
a dominant influence as
a result of their shares,
quotas or parts of interest
held, or due to special
4 The High Court, taking into account the opinion of the
Attorney General, stated: “In the case, the interpretation
of the concept of the acquisition of substantial influence
over a company is at stake under Article 6, paragraph c,
of Act 25,156.” (opinion of the Attorney General, page 8).
5 “Both cases provided for in the argentine companies
act are covered by Article 6, paragraph c, of the Law
25,156 ... “(Opinion of the General Attorney, page 10).
Subsections of article 33 of the Companies Act provide
as follows: “1) Holds stake, on any capacity, that may to
grant the necessary votes to constitute the social will in
corporate or ordinary meetings; 2) Exercises a dominant
influence as a result of the shares, quotas or parts of
interest owned, or by special links between companies.”
6 Opinion of the General Attorney, page 9 in fine.
32 | LawyerIssue 33

Competition & Anti-trust
existing relations …” 7
order to be deemed verified . 10
c. As such participation of 42.3% gave to its
holder the possibility to veto decisions
relating with the competitive strategy of the
company, in all cases in which a qualified
operate in this market . 15
4. But additional case identified, other than
those found in section 33 of the Companies
Act, under the concept of “substantial
influence”, when the possibility to
effectively influence in the strategy and
competitive behavior of a company is
inferred, in the absence of the control
procedures provided for in section 33 of
the Companies Act. 8
7. The Supreme Court understood that
the arguments of the appellant did
not touch the grounds of the decision,
e. Finally, it was taken into account the
conduct of the parties that arranged
different contractual conditions in order to
guarantee the independent administration
of Telefonica S.A. and Telecom Italia SpA
so that the operation would not affect
competition, due to the understanding –
on the one hand- that said conduct of the
parties was considered as one´s act and that
can only can only be explained to the extent
that the parties have considered a potential
imposition to competition and, on the other
hand, that such “private” control of the
absence of imposition to competition could
not replace the “State” control”.
so the Supreme Court concluded that
the acquisition of “substantial
influence” over the transaction´s
“target company” was verified in the
case 11 . The elements considered by the a
quo and accepted by the Supreme Court
are:
majority is required, as would be the
“approval and the amendment
of Telco SpA´s budget or the
decisions of the vote to be issued
at the extraordinary meeting
of Telecom Italia SpA” indirect
controller of Telecom Argentina . 14
5. This “third supposition” may be
d. Along with its shareholding, it was also taken
based upon the protected legal right by the
Competition Act, in order to ensuring fair
competition between economic operators,
which would be essential for such actors
that behave independently, free from
interference by its competitors, regarding
the strategy and the competitive behavior
that may display, which in this case would
be affected by an economic transaction
that fails to be framed in the provisions of
section 33 of the Companies Act . 9
a. Although it was a minority stake, it
reached 42.3% of the shares with voting
rights, the remaining shareholders
had less stake: one 28%, other 8.4%
and two having 10.6%, making it the
first of that minority stake as part
of a shareholder agreement which
provided that decisions were made by a
simple majority, a fact that allowed the
appointment -for example- of 4 out of
10 directors . 12
under consideration the fact that Telefonica
S.A. was “... the sole shareholder
of Telco SpA in the business of
telecommunications, which is
the activity of the company that
Telco SpA was aimed at control”
was taken into account. It also mentioned
the contractual provisions aimed to control
the entry of other shareholders that may
14 Opinion of the General, page 12, 2nd paragraph.
15 “In the shareholders´ agreement, Telco SpA´s partners agreed
to that there would not enter new members that were telecommunication
operator ... “defined as” ... any physical or legal entity that has
more than 10 percent of the shares of a publicly traded company and
operate in that business, or at least entitled to appoint one board
member. Furthermore, the shareholders’ agreement, Telefonica
S.A. reserved the right to request the corporate brake - up in case
Telecom Italy SpA held a strategic alliance with a telecommunications
operator.“ Opinion of the General Attorney, page 13, 1st paragraph.
6. Such “interference” in the strategy
and in the competitive behavior could be
both positive –when can be established–
as well as negative –when blocking its
definition- and not necessarily exercised in
7 Opinion of the General Attorney, page 9 in fine and 10.
8 0020“...the latter extends the notion of control as a relevant
element in order to determine the existence of an economic concentration
within the field of antitrust by incorporating the figure of
substantial influence. This situation is constituted when an individual
acquires the possibility to interfere over the strategy and the competitive
behavior of a company, through the acquisition of capital,
although not having control under the terms set forth in Article 33,
paragraphs 1st and 2nd, of Law 19,550.” (Opinion of the General
Attorney, page 10).
9 “You cannot forget that the purpose of the Antitrust Law is to ensure
free competition among the different economic market operators.
To that effect, it is important that the actors may behave as free
competitors and this may be affected by economic concentrations
so that imply that the controlled or participated company may lose
autonomy to take their competitive decisions. This mission of the
regimen of Law 25,156 explains the reasons why the concept of taking
control in the area of antitrust exceeds the notion of corporate
control of Article 33 of Law 19,550, to also include the supposition
of substantial influence. In order to constitute substantial influence
it is enough that the partner may influence to determine the
competitive strategy of the company; Also, it is not necessary, that
may influence in other decisions of the company.” (Opinion of the
General Attorney, p. 10).
b. According to the behavior of the
remaining shareholders, such stake
could allow its owner to positively
determine the corporate will of the
company, in case that the remaining
shareholders did not vote on the same
and only one sense . 13
10 “…this possibility of interference can be exercised in a positive
way -through the possibility of imposing its own will at the moment
of adopting decisions- or in a negative way-through the possibility
to veto decisions of the other partners-. The reason for this is that
the loss of autonomy of a competitor can take place in all the
mentioned cases. In addition, for the purposes of determining the
existence of substantial influence, it is not required that the partner
has actually exercised its ability to influence the determination of
competitive behavior; being reasonable likely to be exercised taking
into account all the circumstances of the case (Notari, Mario, “La
nozione di “controlo” nella disciplina antitrust”, Published by Giuffré,
Milán, 1996, page 258 and following.)” (Opinion of the General
Attorney, page 11).
11 This is the “Telco Operation” carried out by Telefónica S.A.
regarding Telco SpA.
12 Opinion of the General Attorney, page 12, 1st paragraph.
13 Opinion of the General Attorney, page 12, 1st paragraph.
Agustín Siboldi
Partner at Estudio O´Farrell
T: +54 11 4346 1087
Email: SiboldiA@eof.com.ar
Mr. Siboldi practice focuses on the following areas related with the economic regulation: antitrust
law, either economic concentrations as well as the investigation of anticompetitive practices;
telecommunication; hydrocarbons exploration, concession, exploitation, and distribution; gas
generation, transport, distribution and commercialization; pharmaceutical products marketing; as
well as other sector of the economy with a strong regulatory importance.
34 | LawyerIssue 35

Dispute Resolution
When can A non-party to an arbitration agreement
be compelled to arbitrate A claim?
by Colin Lockhart,
Kirsty Sutherland
INTRODUCTION
1. The Convention on the Recognition and
Enforcement of Foreign Arbitral Awards
(the New York Convention) requires each
Contracting State to recognise an agreement
to arbitrate. 1
2. The New York Convention also requires the
court of a Contracting State, when seized of
a matter in respect of which the parties have
made such an agreement, to, at the request
of one of the parties, refer the parties to
arbitration, unless it finds the agreement
is null and void, inoperative or incapable of
1 Article II, r 1
being performed. 2
3. Contracting States have implemented these
obligations in various ways. Australia has
done so by the International Arbitration Act
1974 (Cth), s 7(2), which requires a court
to stay proceedings brought in the face of
an arbitration agreement by a party to the
agreement.
4. By s 7(4), a ‘party’ to an agreement includes a
party claiming ‘through or under a party’.
5. The recent decision in Flint UK v Huhtamaki
2 Article II, r 3
Pty Ltd 3 held that s 7(4) can have the effect
that a non-party to an arbitration agreement
can be compelled by an Australian court to
submit to arbitration a claim against a party
to the agreement.
THE FACTUAL BACKGROUND
6. Flint concerned a claim by an Australian
company, Lion Dairy & Drinks Pty Ltd
(Lion) against another Australian company,
Huhtamaki Australia Pty Ltd (HA) for
damages for loss suffered by allegedly
defective packaging supplied by HA.
7. The packaging had been manufactured
in New Zealand and supplied to HA by a
company that was related to HA, Huhtamaki
Australia Pty Ltd (HNZ).
8. HA denied that the packaging was defective,
but also claimed that any defect was a result
of ink sold to HNZ by Flint Ink NZ Pty Ltd
(Flint) and used by HNZ in the packaging it
supplied to HA. HA sought to join Flint to the
proceedings by way of third party claim.
9. HA alleged that Flint owed HNZ, and HNZ’s
customers, a duty of care which was
breached by Flint providing negligent advice
to HNZ that the ink to be supplied by Flint
was suitable for the packaging HNZ supplied
to HA.
10. The agreement between HNZ and Flint
contained a provision whereby any dispute,
controversy or claim arising out of or related
to the Agreement … shall be finally settled by
arbitration’.
11. There was no agreement between Flint and
HA and Flint did not deal with HA.
12. Flint sought a stay of the proposed third
party proceedings against it, on the basis that
HA was, in relation to the claim it sought to
3 Flint UK v Huhtamaki Pty Ltd [2014] VSCA 166; 289 FLR 30
make against Flint, claiming by or through a
party to the arbitration agreement (i.e HNZ)
and that the claim was capable of settlement
by arbitration pursuant to the agreement.
13. The claim for a stay was refused at first
instance. Flint appealed to the Victorian
Court of Appeal.
THE STATUTORY BACKGROUND
14. By s 7(2) of the International Arbitration Act
1974 (Cth), where proceedings are instituted
by a party to an arbitration agreement
in relation to a matter that is capable of
settlement by arbitration, an Australian court
shall stay so much of the proceedings as
involves the determination of that matter, on
such conditions as it thinks fit, and refer the
parties to arbitration.
15. By s 7(4), for the purposes of s 7(2), a party
‘includes a person claiming through or under a
party’.
16. In the Victorian Court of Appeal, it was said
that s 7(4) ‘enlarges the definition of ‘a party to
an arbitration agreement’ [in s 7(2)] by deeming
persons claiming ‘through or under’ a party to
themselves be parties to that agreement’ (at
[11] per Warren CJ).
THE MEANING OF ‘THROUGH
OR UNDER’ A PARTY TO AN
ARBITRATION AGREEMENT
17. In that context, the meaning of ‘through or
under’ is highly material to the scope of the
Australian courts’ power to stay proceedings
and refer the parties to arbitration.
18. The words ‘through or under’ in s 7(4) had
been previously considered by the High
Court, Australia’s ultimate appellate court,
in Tanning Research Laboratories v O’Brien
(1990) 169 CLR 332.
19. Tanning concerned an appeal against a
36 | LawyerIssue 37

Dispute Resolution
liquidator’s rejection of a proof of debt that
allegedly arose from a contract containing an
arbitration clause, giving rise to the question
of whether the liquidator was claiming ‘by or
through’ the company in liquidation.
20. The High Court held that the liquidator,
in resisting the claim, was claiming ‘by or
through’ the company.
21. Although the liquidator was not himself
making a claim, it was held that ‘a person who
claims through or under a party may be either a
person seeking to enforce or a person seeking to
resist the enforcement of an alleged contractual
right’ (at 342 per Brennan and Dawson JJ
(Toohey J agreeing).
22. Brennan and Dawson JJ, with whom Toohey J
agreed, reasoned that the words ‘through or
under convey the notion of a derivative cause of
action or defence … that is derived from the party
[to the arbitration agreement]’ (at 342). Their
Honours also commented that ‘an essential
element of the cause of action or defence must
be or must have been vested in or exercisable by
the party [to the arbitration agreement] before
the person claiming through or under that party
can rely on the cause of action or defence’ (at
342, emphasis added).
23. The High Court held that an essential
element of the liquidator’s defence to the
creditor’s claim was vested in the company
in liquidation, which was a party to a relevant
arbitration agreement, as the liquidator stood
‘in the same position vis-a-vis the creditor as …
the company’ (at 342 per Brennan and Dawson
JJ (Toohey J agreeing)). Accordingly, the
creditor’s appeal against the rejection of its
proof was stayed and referred to arbitration.
24. In Flint, the Victorian Court of Appeal accepted
that the ‘essential element’ test ought to
determine whether HA was claiming against
Flint ‘through or under’ HNZ.
HA WAS CLAIMING ‘BY OR
THROUGH’ HNZ?
25. HA contended that ‘through or under’ in s
7(4) ‘requires ‘standing in the same position’
as the party to the [arbitration] agreement
and is thus restricted to privies whose rights
were derived from the party [to the arbitration
agreement] via an assignment or other
process of law’ (Flint at [18] per Warren CJ; see
also at [69] per Nettle JA).
26. The Victorian Court of Appeal held that the
‘essential element test was not so limited (at
[19]-[20] per Warren CJ, [60] per Nettle JA).
27. Further, the court found that the ‘essential
elements of [HA’s] claim against [Flint] are that
[Flint] breached its agreement with [HNZ] or
breached a duty of care to [HNZ] which is alleged
to have arisen out of the agreement’ (at [74] per
Nettle JA). HA’s claim was ‘critically dependant
upon and derivative from the contractual and
common law obligations alleged to have been
owed by [Flint] to [HNZ]’ (at [76] per Nettle
JA; see also at [26] per Warren CJ, at [148] per
Mandie JA).
28. In those circumstances, the court held that
HA’s ‘rights against [Flint] are so closely related
to [HNZ’s] rights against [Flint] that [HA] is
claiming through or under [HNZ]’ (at [74] per
Nettle J).
29. Nevertheless, it was noted that a different
result would follow where ‘a claimant relies on
a duty of care owed directly to [it] which is not
dependant upon or derived from any claim’ of
another (at [76] per Nettle JA).
THE STAY ORDER
30. A peculiar feature of this case was that, as HA
was not a party to the arbitration agreement,
there was some doubt as to whether it could
initiate an arbitration to pursue its claim
against Flint.
31. The stay power in s 7(2) of the International
Arbitration Act, however, permits a court to
compelling persons who are not parties to an
order a stay ‘on such conditions as it thinks fit’.
arbitration agreement to arbitrate claims that
bear a close relation to the contract containing
32. To address any concerns as to HA’s ability to
that agreement.
commence an arbitration, the Victorian Court
of Appeal granted the stay on the condition
35. In Australia, a person who is not a party to
that Flint ‘use its best endeavours to refer
an arbitration agreement will be required
the [HA] claims to arbitration in accordance
to arbitrate claims the essential elements of
with the arbitration clause and pursue the
which arise, or are derived, from the contract
arbitration with due expedition’ (at [117] per
containing an arbitration agreement, such as
Nettle JA; see also at [41] per Warren CJ).
the negligence claim in issue in Flint, which
CONCLUSION
33. The decision in Flint indicates the breadth
of the judicial power in Australia to stay
proceedings commenced in the face of
an arbitration agreement, which includes
referring to arbitration claims by a person who
claims by or through a party to an agreement
to arbitrate.
34. In particular, the stay power extends to
Colin Lockhart
Counsel at Corrs Chambers Westgarth
was dependant upon a finding that a duty of
care was owed to a party to the agreement.
36. No doubt there is room for much argument
in particular cases as whether the essential
elements of a claim are derived from those
of a party to an arbitration agreement. Flint
indicates, though, that the test may be more
readily satisfied where a non-party’s claim
arises out of the rights of a related company
that is a party to an agreement to arbitrate.
T: +61 8 9460 1713
Email: colin.lockhart@corrs.com.au
A leading authority on the law of misleading or deceptive conduct, Colin is the author of the only Australian
text focussed solely on the subject, The Law of Misleading or Deceptive Conduct, now in its fourth edition. He
has experience acting as counsel in significant disputes, including expert determinations and arbitrations,
particularly in relation to energy and resources and infrastructure. Colin is also regularly called upon by
commercial clients in relation to competition, access and regulatory matters.
Kirsty Sutherland
Partner at Corrs Chambers Westgarth
T: +61 8 9460 1620
Email: kirsty.sutherland@corrs.com.au
Kirsty heads up the litigation and insolvency groups in Perth. Kirsty has extensive experience acting for
financial institutions, insolvency practitioners and large corporation. She has been integrally involved
in some of the largest insolvencies in Australia. Kirsty completed her Master of Laws at the University of
Melbourne in 2000.
38 | LawyerIssue 39

Dispute Resolution
CJEU potentially opens the back door to court
ordered anti-suit injunctions in the EU
by Kate Davies
The ability of the English courts to restrain court proceedings in another Member
State in breach of an arbitration agreement was curtailed, following the infamous
decision of the Court of Justice of the European Union (CJEU) in Allianz SpA
(formerly Riunione Adriatica di Sicurtà SpA) v West Tankers Inc, (The Front Comor)
(Case C-185/07). Earlier this year, there were hopeful signs that this decision
might be reviewed following the referral to the CJEU by the Lithuanian Supreme
Court of similar questions arising in a dispute between Gazprom OAO and Lithuania.
The CJEU 1 ’s decision in that case was issued on 13 May 2015 and while it
has declined to revisit The Front Comor, the CJEU has potentially opened up the
back-door to court ordered, intra-EU anti-suit injunctions.
1 The Court of Justice of the European Union was formerly known as the European Court of Justice (ECJ).
In the West Tankers case, the CJEU found
that it was incompatible with the Brussels
Regulation 44/2001 (the original Brussels
Regulation) for a court of a Member State
to restrain a person from commencing
or continuing proceedings before the
courts of another Member State on the
ground that the proceedings would be
in breach of an arbitration agreement,
in circumstances where the proceedings
brought in the other Member State
were within the scope of the Brussels
Regulation.
This decision meant that an anti-suit
injunction could not be granted to restrain
proceedings within the scope of the
original Brussels Regulation brought in
another EU Member State in breach of an
arbitration clause.
Since – and in part because of – the
decision in West Tankers, the original
Brussels Regulation has been replaced by
Brussels Regulation 1215/2012 (the recast
Brussels Regulation), which has applied
since 10 January 2015.
It is against this background that a
dispute arose between Gazprom OAO
and Lithuania concerning the running of
Lithuania’s main natural gas provider, in
which both parties were shareholders.
The Lithuanian Ministry of Energy initiated
court proceedings in Lithuania.
Gazprom subsequently commenced
arbitration under the rules of the
Arbitration Institute of the Stockholm
Chamber of Commerce (SCC) in
Sweden. Gazprom argued that the
Ministry’s claims were in breach of an
arbitration agreement contained in the
shareholders’ agreement to which they
were both parties. The tribunal in the
SCC arbitration issued an award ordering
Lithuania to withdraw certain of its court
claims (subsequently referred to by the
Lithuanian court as an anti-suit injunction),
which Gazprom then sought to have
recognised and enforced in the Lithuanian
Court of Appeal. The court refused and
Gazprom appealed to the Supreme Court
of Lithuania, where Lithuania argued
that, in light of West Tankers, the anti-suit
injunction issued by the arbitral tribunal
was contrary to the original Brussels
Regulation.
The Supreme Court of Lithuania referred
the matter to the CJEU, asking whether
the court of a Member State could refuse
to recognise and enforce an award
containing an arbitral anti-suit injunction
as being incompatible with the original
Brussels Regulation.
Advocate General opines that West
Tankers should be reconsidered
On 4 December 2014, Advocate-General
Wathelet concluded that the original
Brussels Regulation must be interpreted
as not requiring the court of a Member
State to refuse to recognise such an award
(the conclusion); and (b) suggested,
in the context of a discussion of the
recast Brussels Regulation, that it is was
possible that the CJEU might reconsider
the approach taken in West Tankers, both
in relation to the original and the recast
Brussels Regulation (the suggestion).
The decision of the CJEU
The CJEU declined to follow the Advocate-
General’s suggestion and has therefore
avoided revisiting its earlier decision in
West Tankers. Although it referred to
West Tankers, the CJEU limited itself to
considering the specific questions posed
by the Lithuanian court. In this respect,
the CJEU agreed with the Advocate
General’s conclusion that the Brussels
40 | LawyerIssue 41

Dispute Resolution
Regulation must be interpreted such that
a Member State court is not required to
refuse to recognise or enforce an arbitral
award containing an anti-suit injunction.
In reaching this decision, the CJEU
confirmed that arbitration is outside the
scope of the original Brussels Regulation
because the Regulation governs only
conflicts of jurisdiction between courts
of the Member States. The CJEU took the
view that there was no such conflict in
this case and no question of infringement
of trust by the interference of the court
of one Member State in the jurisdiction of
the court of another Member State (the
only court involved was the Lithuanian
court).
The arbitral award did not deny the
party restrained from obtaining judicial
protection because, in any proceedings
for recognition and enforcement of the
arbitral award, that party could contest
recognition and enforcement and the
Lithuanian court would have to determine,
on the basis of national procedural law
and international law, whether or not the
award should be recognised and enforced.
The CJEU therefore concluded that the
original Brussels Regulation did not
“preclud[e] a court of a Member State from
recognising and enforcing, or from refusing to
recognise and enforce, an arbitral award prohibiting
a party from bringing certain claims
before a court of that Member State, since that
regulation does not govern recognition and enforcement,
in a Member State, of an arbitral
award issued by an arbitral tribunal in another
Member State”.
Comment
The original Brussels Regulation is widely
considered to have been a successful
European instrument. However, there
were concerns including in relation to the
arbitration exception whose application
in practice resulted in ambiguity about
the boundaries between the jurisdiction
of Member State courts to act in support
of arbitration in accordance with national
law and their jurisdiction to act under the
Brussels Regulation.
The CJEU sought to address this
ambiguity in the West Tankers case.
Unfortunately, this decision has had the
no doubt unintended but unfortunate
consequence of opening the door for
parties to act abusively by bringing
substantive proceedings within the scope
of the Brussels Regulation in the courts
of the Member State most likely to find
the arbitration clause invalid (so-called
“Italian torpedo” tactics), and rendering the
party wishing to uphold the arbitration
agreement and other Member State
courts, including the courts of the seat of
the arbitration, powerless to prevent this.
It also means that the courts of those
other Member States will subsequently
have to enforce any judgment on the
merits given by the Member State court
that heard the substantive claim in breach
of the arbitration clause.
Recital 12 of the recast Brussels Regulation
seeks to address this concern as it makes
clear that the ruling by a court of one
Member State on the effectiveness of an
arbitration agreement is not subject to the
rules of recognition and enforcement laid
down in the recast Brussels Regulation.
Following the Opinion of Advocate General
Wathelet in Gazprom OAO in particular in
respect of the recast Brussels Regulation,
it was hoped that the CJEU might
strengthen the effect of Recital 12 and
revisit the approach taken in The Front
Comor. The CJEU has not done so.
While this might, at first glance, appear
unsatisfactory for users of arbitration
keen to quell the tide of the abusive Italian
torpedo, the decision warrants closer
review. The CJEU concluded that the
original Brussels Regulation
“does not govern recognition and enforcement,
in a Member State, of an
arbitral award issued by an arbitral
tribunal in another Member State”.
This at least suggests that the decision
in Gazprom should be the same where
the courts of more than one Member
State are involved in the analysis. In
other words, it is at least open to debate
following this decision whether a party
to an arbitration seated in one Member
Kate Davies
Counsel at Allen & Overy
T: +44 203 088 2090
Email: Kate.Davies@AllenOvery.com
State could now obtain an arbitral award
restraining a counterparty from continuing
proceedings in another Member State
which could then be recognised by the
courts at the seat, effectively obtaining
a court-ordered anti-suit injunction by
the back door and circumventing the
limitation imposed by West Tankers.
Alternatively and possibly avoiding the
inevitable risks involved in recognition
and enforcement proceedings (and the
question whether such an injunction could
ever be issued as an award), a party may
seek the arbitral injunction in the form of
a peremptory order.
If the arbitration were London seated, at
least, that order could then be enforced
by court order under section 42 of the
Arbitration Act 1996. In either case, the
party concerned would then have the
benefit of a court order preventing their
arbitral counter-party from pursuing
proceedings in breach of the arbitration
agreement in the court of another
Member State with equivalent effect to a
standard court-issued anti-suit injunction.
Kate is a Counsel in the firm’s International Arbitration Group with expertise in both institutional and ad hoc
arbitrations sited in multiple common and civil law jurisdictions and under the governing laws of multiple
jurisdictions. She has experience in a wide range of commercial disputes across a range of industries including
the energy, telecommunications, automotive, technology, construction, aero and pharmaceutical sectors. Kate
has particular expertise in complex, cross-border commercial disputes with related proceedings in arbitration
and litigation. Kate also has expertise in public international law matters, representing both states and
investors in investor-state disputes as well as clients in state to state disputes (including in the infamous Abyei
arbitration).
42 | LawyerIssue 43

Energy & Natural Resources
THE DEVELOPING MINING SECTOR
IN THE REPUBLIC OF MACEDONIA
by Jane Jakimovski,
Andrej Belchovski
In recent period one of the most dynamic and attractive business sectors
in the Republic of Macedonia is the mining sector. The mining sector,
as the third largest export sector has significant contribution to the
Macedonian economy as it represents around 15% of the industrial
production and contributes around 1.5% of the Country’s GDP.
In regards to the increased business activities
and investments in the mining sector, in 2012
new legislation was passed in order to develop
this dynamic sector. The new legislation
introduced shorter, simpler and faster
procedure for granting mining permits and
concessions. Also the new mining legislation
incorporated positive legal practices for further
development of the mining sector and dealing
with the modern challenges of working in this
sector. One of the new developments in the mining
legislation, which is incorporated with the new
legislation in order to provide more legal possibilities
for the concessioners to develop their mining project
in the Republic of Macedonia, is the option for
merging concessions.
With this new stipulated possibility it is provided that,
for the purpose of rational and effective exploration
or exploitation of minerals, two neighbouring
concessions can be merged or embedded.
This merging or embedding of two neighbouring
concessions is conducted upon a request from the
concessionaire. With the placement of this option in
the hands of the concessioners, the new legislation
provides the investors-concessioners with the
necessary tools to further develop their investments
and mining projects in the Republic of Macedonia.
In accordance with Macedonian legislation, a
concession also can be expanded. Expansion of
a concession for detailed geological exploration
can be granted to a holder of such concession for
further exploration on an area that borders with the
exploration area from the existing concession.
A concession for exploitation can be expanded for the
purpose of increase of ore reserves and expansion
of the period of exploitation and increase of the
infrastructural capacities that are in function of
rational exploitation. These legal solutions provide
more flexibility in the planning and developing, as
well as running the mines in Republic of Macedonia.
This new legal framework resulted with increase in
the submitted requests for mining concessions and
also with increase in the granted mining concessions.
In the past the investments in the mining sector were
solely in acquisitions and expansions of the already
existing mines in Republic of Macedonia.
With the new legal framework in place the mining
sector started to attract new investors ready to make
green field investments in mining in Republic of
Macedonia. Parallel with the process of developing
a new mining legislation, the Government of the
Republic of Macedonia had announced a public call
for granting concessions for over 80 new locations for
mine development.
Today, several projects for opening new mining sites
for exploitation of mineral ores are under way or in
their final stage of development, including the Ilovitza
project, a green field investment of the company
Euromax Resources. This project should result in
opening one of the largest by production mines in
South-eastern Europe.
Financing of mining projects, especially mining
projects of such scale as the Ilovitza project, an
investment estimated at more than $500 million
for opening a new mine for exploitation of copper
and gold, is not a simple task. All mining projects
especially green field mines require significant
investment.
The required funds for such green field mining
projects can be obtained partially by equity
investments, but in the larger part it needs to be
financed through loans from banks and other
financial institutions and lenders. Naturally, the
lenders and creditors will require their investment to
be secured. Usually the security for the investment is
done with the project company`s assets, but in the
green field mining projects the value of the movable
and immovable assets of the project company is
not sufficient to cover the claims of all investors
and creditors. In fact, the most valuable asset that a
mining company has is its exploration or exploitation
concession.
The current Law on mineral raw materials which
regulates mining and concession issues, regulates the
transfer of concession, however it does not provide
clear provisions regarding the possibility of assigning
the concession as a mean of security or establishing
pledge over the concession.
Currently, according to the positive Macedonian
mining legislation, concession means obtaining rights
and obligations, so the concession cannot be pledged.
44 | LawyerIssue 45

Energy & Natural Resources
Having in mind that all investments in previous years
were realized in the already existing mines through
acquisitions of the mining companies, the question
regarding security over the investment did not pose
an issue.
However, with the new dynamic changes and
development in the mining sector and the newly
appeared high interest for opening new mining
sites in the Republic of Macedonia, the question for
security of the investment gained on significance.
The lack of provisions regarding the use of concession
as a mean of security in the Law on mineral raw
materials posed an issue for the investors regarding
the completion and development of their mining
sites in Republic of Macedonia. If this important issue
was not to be resolved, the sustainability and further
development of the green field projects would have
been threatened.
The answer to this newly appeared question and
issue regarding green field mining investments can
be found in the current Macedonian legislation. This
issue about the security of the claims of the lenders
and creditors can be resolved through the fact that
to all the issues regarding concessions which are not
regulated with the Law on Mineral Raw Materials
(lex specialis) the Law on Concessions and Public
Private Partnership shall apply as lex generalis. In
accordance with this, the concession agreement
which is concluded between the Government of
Republic of Macedonia and the concessionaire may
include a provision that allows transfer of the rights
and obligations from the concession to the creditors –
lenders as mean of security for their claims.
Furthermore, regarding the transfer of the
concession agreement, it is important to emphasize
that the exploitation concession agreement can
be transferred and the transfer procedure is fully
regulated. Namely, the Law on mineral raw materials
stipulates that the concessionaire can transfer his
concession by concluding an agreement for transfer
of the exploitation concession with the transferee to
which the concession is to be transferred and upon
written consent by the Government of Republic of
Macedonia. Obviously, certain conditions that are
subject to Government`s evaluation should be met
by the transferor and the transferee.
One more question regarding the mining legislation
is pointed out by some of the investors and that is
the legal provision determining the bankruptcy as
a reason for termination of a concession. Namely,
the Law on mineral raw materials stipulates that the
concession is terminated in case of bankruptcy, but
it does not prescribe exactly in which moment of the
bankruptcy procedure.
It is important to emphasise that according to
the Macedonian legislation even if a bankruptcy
procedure is opened, it doesn’t mean that the entire
business shall be wound up, i.e. not every bankruptcy
procedure ends up with liquidation of the company.
Having in mind that in the case of a company that
is a holder of a concession its` entire operations
depend on the concession, and the fact that opening
a bankruptcy procedure does not mean that the
company necessarily shall be wound up, some of
the investors have pointed out this question as
a potential problem for their business and they
proposed this issue to be resolved by precisely
determining the moment when the concession shall
be terminated in case of a bankruptcy procedure.
Furthermore, there are suggestions for amending the
current legislation in order for the termination of the
concession to be possible only after the company is
given the possibility to get through the reorganization
procedure and after the same was either not
accepted by the creditors or was not successful at the
end.
The Ministry of Economy is also considering this
issue and they are working on solving this issue
in alignment to the above mentioned suggestions
through implementation of EU directives and
international standards.
Due to the above mentioned investment activities,
and in order to further develop and harmonize
Furthermore, the new investments in the mining
the legislation regarding the mining sector, some
industry are bringing international know-how and
amendments to the legal framework that regulate the also the practice that is being established, as well
area of mining and concessions are in sight in order
as the Governmental support for this sector shall
to keep the pace with recent developments.
contribute for even more efficient regulation of this
area and overcoming of all difficulties that occur in
Also, there is an active process for harmonizing
the course of work.
and improving the by-laws with the contemporary
methods of work and the applicable technological
We, MENS LEGIS as a legal consulting firm, in synergy
solutions. Having in mind that the mining sector
with our clients, are working together on identifying
in the Republic of Macedonia has been long time
such and similar issues that derive from carrying on a
underdeveloped, this new changes are welcomed.
business in the Country, as well as on proposing the
best legal solutions for solving the issues that arise
The legal framework offers good opportunities and
from the regular activities of the companies and the
is a solid base for development of the mining sector,
legal framework in which they operate.
which tends to attract green field investments.
Jane Jakimovski
Junior Partner at MENS LEGIS
T: +389 2 3126 462
Email: mlegis@t-home.mk
Jane Jakimovski is a Junior Partner with MENS LEGIS Law firm, the first Law firm in the Republic of
Macedonia. As part of MENS LEGIS Jane Jakimovski specialized in corporate governance, contractual law,
company law, merger & acquisitions, mining law, labor law, intellectual property and real estate matters.
He has a Master degree in Business Law received form the Law Faculty „Iustinianus Primus“, in Skopje,
Republic of Macedonia.
Andrej Belchovski
Junior Legal Advisor at MENS LEGIS
T: +389 2 3126 462
Email: mlegis@t-home.mk
Andrej Belchovski is a Junior Legal Advisor at the law firm MENS LEGIS, the first Law firm in the Republic
of Macedonia. Since his amployment at MENS LEGIS in 2014, he specialized in the areas of corporate
governance, contractual law, company law, mergers & acquisitions, labor law, intellectual property, real
estate matters and mining law.
In 2013 he obtained his Master degree in Business law form the Law Faculty „Iustinianus Primus“, in
Skopje, Republic of Macedonia.
46 | LawyerIssue 47

Energy & Natural Resources
Offshore energy projects
in Denmark
by Per Hemmer
The Danish offshore industry has grown continuously larger in the past
couple of years. Offshore industry growth is in line with the focus and ambitions
of the Danish energy policy. This article explores the possibilities for
joining Danish offshore energy projects and the related legal framework.
1. OFFSHORE AND NEAR
SHORE WIND FARMS
In 2013, 24.6 % of the total Danish
energy consumption was renewable
energy.
In recent years the use of wind power
has increased, as it is a political aim that
renewable energy in the longer term is
to replace fossil energy completely. The
establishment of wind turbines and wind
farms has been especially popular in
Denmark.
There are currently 13 offshore wind
farms in Denmark. The wind farms
Anholt, Horns Rev I, Horns Rev II,
Rødsand II and Nysted are large-scale
wind farms.
As it is a political aim to increase the
use of renewable energy, the Danish
government has authorised the Danish
Energy Agency to launch several offshore
wind farm projects, including the largescale
wind farms Horns Rev III and
Kriegers Flak.
International companies are finding
Danish wind power an attractive
investment. E.ON Vind Sweden AB has
established the Rødsand II wind farm,
and Vattenfall AB owns 60% of the Horns
Rev I wind farm.
The Horns Rev III wind farm tender has
just been concluded with Vattenfall AB as
winner of the tender. The tender for the
six near shore wind farms was published
on 26 February 2015. The deadline for
submission of applications is on 26
May 2015.
The contract notice for large-scale wind
farm Kriegers Flak was published on 6
May 2015.
The application deadline regarding
Kriegers Flak is 1 October 2015. The
capacity of Kriegers Flak will be 600
MW, making it the largest wind farm in
Denmark. Sweden and Germany have
also chosen the Kriegers Flak area in the
Baltic Sea as sites for wind farms.
If the cooperation between the countries
is becoming a reality, Kriegers Flak will
be the first international offshore grid in
the world. Kriegers Flak is expected to
be put into operation as of 31 December
2018.
The establishment of large-scale offshore
wind farms and near shore wind farms
can follow two different procedures:
A governmental tendering procedure
administrated by the Danish Energy
Agency, or an open-door procedure.
In the government tender procedure
the Danish Energy Agency announces
a tender for an offshore or near shore
wind farm project of a specific size within
a specifically defined geographical area.
A government tender is carried out to
execute a political decision to establish
a new offshore wind farm at the lowest
possible cost.
In the open-door procedure, the project
developer takes the initiative to establish
an offshore or near shore wind farm of
a chosen size in a specific area. The area
and the size of the project are decided
by the project developer. This is done
by submitting an unsolicited application
for a license to carry out preliminary
investigations in the given area. The
application must as a minimum include a
description of the project, the anticipated
scope of the preliminary investigations
and the size and number of turbines.
The most important legal frame
regarding wind power is the Danish
Renewable Energy Act. 1 The provisions of
the act apply to both offshore and near
shore wind farms.
The act sets forward provisions
regarding, inter alia, subsidies to
wind farms, regulation of electricity
production by wind farms established
through tenders, and technical and
safety standards of wind turbines.
However, the Renewable Energy Act is
supplemented by sections from several
other Danish Acts.
The Renewable Energy Act stipulates that
an applicant must obtain the following
licenses in other to establish an offshore
or near shore wind farm:
• Preliminary survey license
The permission allows preliminary
surveys concerning the possible
establishment of a wind farm. It
is usually valid for one year. With
respect to tenders, the preliminary
surveys will be conducted by the
1 Act No. 122 of 6 February 2015
48 | LawyerIssue 49

Energy & Natural Resources
government-controlled Energinet.dk.
venture), all the joining parties must
consumption was hydrocarbon-based
The quality and scope of the proposed
submit their own documentation and
(36.8% oil and 18.1% natural gas).
work programme and the attendant
• The applicant must often conduct
information.
documentation demonstrating the
an EIA (“Environmental Impact
The political aim for the Danish Minister
applicant’s willingness and ability to
Assessment”). With respect to
Citizens aged 18 or more, living within a
for Climate, Energy and Building is
thoroughly explore for hydrocarbons in
tenders, the EIA will be conducted
4.5 km radius from a site where a wind
to continue with the hydrocarbon
the area comprised by the application, is
by the governmental controlled
turbine is about to be established, or
extraction and production over the next
also a selection criterion.
Energinet.dk.
who are living in a municipality where a
10 years.
wind turbine is about to be established,
The applicant must describe what
• Establishment license
are entitled to purchase shares in the
The Danish subsoil belongs to the
he considers to be a complete work
The establishment license allows the
wind turbine at cost price.
Danish state, and a license under the
programme for the area, and on this
establishment of the wind farm in
Danish Subsoil Act 2 is a prerequisite
basis he must expressly indicate whether
question. The license can, and will
At least 20% of the wind turbine project
for the exploration and extraction of
he is offering to perform the complete
most likely, include conditions set by
must be tendered to the local residents.
hydrocarbons in the Danish subsoil. A
work programme, or which parts of it he
the Danish Energy Agency which the
If a house is located close to a wind
license can be obtained in two ways;
intends to carry out.
applicant must comply with.
turbine, the house owner may be
either through a tender or through the
compensated for the depreciation of his
open door procedure.
The licensees’ liability for damages under
• Exploitation license
house.
the Subsoil Act must be covered by
The license must be granted prior
The seventh licensing round regarding
insurance. The insurance must provide
to the initialisation of the wind
A subsidy is paid to Danish-based wind
hydrocarbon exploration in the North
reasonable coverage, in light of the risks
farm. Moreover, the applicant
power. The size of the subsidy with
Sea is in progress. 25 different oil and
involved in the operation of the business
must document that the conditions
regard to tendered offshore wind farms
gas companies have applied for licenses
and the premiums to be paid.
contained in the establishment
may vary, as the size of the subsidy is
in the North Sea. This is a record-high
license are observed and complied
calculated as the difference between the
number. Licenses are expected to be
If the licensee is a subsidiary, the
with. If the capacity of the wind farm
market price and the bidding price.
issued at the beginning of 2015.
ultimate parent company of the licensee
is more than 25 MW, an additional
must assume an unconditional and
electricity production licence is
required.
It follows from the tender documents
from the latest tenders that the applicant
2. HYDROCARBON
EXPLORATION IN THE
NORTH SEA
The Danish Energy Agency has
announced that licensing rounds will
be held annually in the coming years.
Consequently, the Danish Energy Agency
expects to invite to the eighth licensing
irrevocable parent company guarantee
as a surety with primary liability without
any limitation in time, for the due
satisfaction of all existing and future
obligations and liabilities incurred by
must document sufficient financial
There are 55 platforms and 19 operating
round during the second half of 2015.
the licensee under activities carried out
capacity to establish the wind farm.
hydrocarbon fields in the Danish part of
under the license.
Subsequently, the applicant must submit
the North Sea. Mærsk Oil and Gas A/S
As licensing rounds will be held on an
a statement of the applicant’s overall
operates 15 fields, while DONG E&P A/S
annual basis, the opportunity to apply
The parent company guarantee is
revenue for the last three financial
operates three fields and Hess Denmark
for licenses has improved. Oil and gas
covering obligations and liabilities
years and equity ratio as a percentage
ApS operates a single field. In 2013, a
companies now know approximately
incurred by the Danish state and
of total assets for the last financial
total of 10.2 million cubic meters was
when it is possible to do so.
Nordsøfonden. The Danish Energy
year as well as copies of the full annual
extracted from the 19 fields.
Agency has published a standard parent
reports (including notes and appendices)
A license is obtained by application to
company guarantee for the purpose.
and audited accounts for each of the
More than 2/3 of the licensees are
the Danish Energy Agency. In order to
previous three financial years.
international companies, for instance
be awarded a license, applicants must
Nordsøfonden, the Danish state’s oil and
from France, the United Kingdom and
document that they have the required
gas company, must be party to all new
If more than one economic operator
Germany.
expertise and financial resources.
licenses in the Danish area of the North
submits an application for pre-
Sea with a 20% interest.
qualification (e.g. a consortium, a joint
In 2013, 54.9% of total Danish energy
2 Act. No.960 of 13 September 2011
50 | LawyerIssue 51

Energy & Natural Resources
The licensees are not to pay any royalty
or dividends to the Danish state besides
taxes and duties. Taxes and duties are
calculated as a 25% corporate income
tax, which is deductible from the basis
for assessing hydrocarbon tax, and a
52% hydrocarbon tax. In determining the
basis for assessing hydrocarbon tax, a
5% hydrocarbon allowance is granted for
investments over 6 years (a total of 30%).
It is a condition for obtaining a license
that the concession parties enter
into a joint operating agreement
that sets up the legal frames for the
parties’ operations when carrying out
exploration of hydrocarbons.
The Danish Energy Agency has created a
standard joint operating agreement that
the concession parties must use. The
concession parties must also appoint an
operator among them.
3. CONCLUSIONS
The opportunity to invest in Danishbased
energy projects is great. Wind
farms are being established through
tenders, and hydrocarbon licensing
rounds regarding oil and gas are held
annually.
The license and compliance regime in
relation to the establishment of wind
farms and in relation to hydrocarbons
might be seen as extensive.
Subsequently, it is recommended to seek
advice before entering into wind power
projects.
Bech-Bruun has vast experience in
dealing with matters relating to wind
farms and hydrocarbons. As an example,
Bech-Bruun has been advising E.ON on
their sale of 207 MW wind farm Rødsand
2 to Seas-NVE.
Joint Ventures: Legal and Practical
Considerations in Latin America
By Eric Scharf,
José María Pacheco
Per Hemmer
Partner at Bech-Bruun
T: +45 72273550
Email: phe@bechbruun.com
A few years ago, after the markets contracted and access to finance was reduced,
companies throughout Latin America began exploring alternate means to jointly
participate in projects that otherwise individually could not have been carried out.
We began to see a trend. Clients started creating strategic partnerships to develop
businesses through Joint Ventures, to benefit from their collective resources, information
and know-how. Entrepreneurs began realizing that by pursuing the aggregated
value that results from partnering with companies in other fields or markets,
the risk, time and cost of acquiring know-how in-house or retaining services was
mitigated, yielding quick, cost effective go to market solutions for their ventures by
sharing a percentage of the proceeds.
Per Hemmer heads Bech-Bruun’s energy group and is renowned among energy companies and
peers as one of the most experienced lawyers in Denmark dealing with regulatory energy matters
and energy related transactions. He has been the lead adviser on numerous acquisitions, mergers
and divestiture involving energy companies. As one of many references, Per Hemmer advised
Noreco Oil concerning the restructuring of the company. Per Hemmer is highly experienced in
regulatory matters related to offshore wind and North Sea oil and gas exploration and production.
Joint Ventures are not regulated in many
Latin American countries, including Costa
Rica. Because of this, most practices
come from day to day transactions,
mainly supported on the experience
of attorneys interacting with other
legislations or through their education in
foreign universities.
Also, because these agreements are
unregulated, drafting and advising
has a lot to do with performing a good
assessment of the transaction, the
client’s interests and complementary
regulations that may be applicable.
The first and most important practical
52 | LawyerIssue 53

Joint Ventures
To help
build trust
between the
parties, it is
essential that
the terms
are clearly
defined
from the
beginning.
consideration to enter into a Joint
Venture is choosing whom to partner
with. There are no easy go-to resources
that provide incentives, tools or a pool of
partners to those seeking to form Joint
Ventures.
Because of this, choosing a partner
will depend heavily on the company’s
network, contacts and counsel provided
by advisors. This has a positive aspect
to it, because when the parties have
previous experience working together,
a new target market. Other times both
partners could have know-how that,
combined, allows the business to be
possible.
The other key element that companies
should look for in a partner is
trustworthiness. Trust will grow as the
business progresses, but many people
don’t realize the importance of defining
the terms of the partnership in a way
that allows for it to be built up.
thresholds of reinvestment and
distribution. The agreements should
at least provide for how reinvestment
amounts will be determined by objective
parameters.
Also, because Joint Ventures often
don´t have individual legal personality,
it is important to define how the joint
administration and control of the
business will be carried out. If only
one of the partners will be taking care
of representing the business, which
treatment, which should be examined
in each jurisdiction. This is especially
important because Joint Ventures are
often not viewed as independent legal
entities and may be treated differently to
ordinary corporations or partnerships.
For example, in Costa Rica Joint
Ventures fall under the accounting
rules and procedures of NIC (IFRS) 31,
that regulates “Participation in Joint
Businesses”, where the participations,
assets, liabilities, expenses and incomes,
its easier to perform a better assessment
To help build trust between the parties,
decisions will require both to agree? Will
must be disclosed, regardless the
of the convenience to partner.
it is essential that the terms are clearly
there be qualified decisions? Will one
structures adopted.
defined from the beginning. Documents
partner be in charge of making technical
Also, partners must aggregate value to
must be negotiated and drafted
decisions on account of its particular
Costa Rican law doesn’t put a specific
the projected buisness. Each of them
transparently, addressing parameters of
know-how?
tax treatment for this type of agreement
should be able to provide a distinctive
authority and accountability, methods
in place and, therefore, general tax
and important contribution that would
of consensus for decision making
It will be critical that the transaction
regulations apply. The companies in a
otherwise not be easily atainable by the
and employing meeting management
is properly assessed to determine
Joint Venture would assume tax burdens
other party. In other words, synergy is
techniques that support authentic
these matters. There should be a
together and proportionally. This could
essential.
participation by all partners.
strong equilibrium of opinions among
work differently along other jurisdictions
the parties, but the value of their
so the agreements should include tax
Joint Ventures can be formed to
Transparency and objectivity will be
corresponding contributions should also
treatment provisions that are consistent
pursue business in four distinct ways:
especially important when performing
be taken into account.
with each national legal system.
a valuation of each of the party’s
(i) combining existing buisineses, known
contributions. To achieve this, one option
When Joint Ventures operate on a
Finally, because Joint Ventures have
as consolidation;
is to hire an expert that determines
transnational basis, efforts must be
a predetermined and limited term of
the value of each contribution. In
made to conciliate the interests of
validity, as agreed among the parties,
(ii) skill transfers, by which one partner
specific cases, such as consolidation
multinational companies in relation to
exit strategies must be defined as part of
acquires the know-how of another;
Joint Ventures, another alternative is
the operation and the business. Because
the initial terms and conditions. This will
calculating the value of each company
each legislation establishes different
provide for a more efficient dissolution.
(iii) combination, by which partners take
and determining the value added as
limitations, certain business strategies
advantage of thier mutual skills; or
parameters.
are viable in some countries but not in
Regarding disputes, in absence of legal
others.
recourses specific to Joint Ventures, a
(iv) to create a new business altogether.
Adequate valuations will, in turn, aid
well-drafted agreement with clear rules
Because of this, synergy can result from
in defining how each partner will be
Implementation time may also vary
between the partners may be useful to
different qualities that partners have.
compensated from utilities. Nonetheless,
across different jurisdictions. Therefore,
prevent conflicts or easily solve them if
having a clear understanding of how
the coordination of these different
necessary. Also, the choice of arbitration
For example, in one case a partnership
these will be distributed is often not
initiatives could be an important
vs. judicial jurisdiction may be very
could be beneficial to one party because
enough.
challenge. This is where the knowledge,
relevant in Latin America, where court
the other has a certain know-how
creativity and proactivity of counsel plays
proceedings often take years.
required for skill transfers. In other
For example, it may be important
a very important role.
cases, the benefit could be that the
to agree on provisions regarding
The main benefit of judicial
partner has a distribution network in
reinvestment of profits, setting
Another important issue is tax
jurisdiction is its lower cost. Because
54 | LawyerIssue 55

Joint Ventures
the government provides this service, it
can be accessed with almost no costs or
expenses other than attorney’s fees.
On the other hand, its main drawback
is time related, given that in Costa Rica
a civil proceeding may take five years or
more to be definitively concluded. Many
Latin American countries have this same
problem.
Arbitration also has its benefits and
drawbacks. The process is quick and
confidential. Arbitrators are specialized
and will likely be very qualified. Its
main drawback is the higher cost, given
that arbitrator’s fees and procedural
expenses can add up, although in many
cases such costs are not as high as many
companies believe.
In this complex scenario, it is crucial
that attorneys carefully consider and
draft the provisions of each Joint
Venture agreement. The experience
and knowledge of legal counsel will
either make or break the possibility
of a successful and fruitful business
enterprise being formed.
U.S. Agencies Take a Tough Approach to
Merger Remedies
by Ilene Knable Gotts
Eric Scharf
Partner at Sfera Legal
T: +506 2201 00 00
Email: est@sferalegal.com
Eric is an attorney specialized in commercial, corporate and insurance law. He heads Sfera Legal’s corporate
law department, advising clients on matters of commercial contracting, foreign investment and mergers &
acquisitions. He has a J.D. in Law from the University of Costa Rica, Insurance Courses from the Practicing Law
Institute and the College of Insurance in New York and an LL.M. from Columbia University School of Law. He is
a member of the Costa Rican Bar Association.
In the second term of the Obama Administration, both the U.S. Federal Trade Commission (“FTC”)
and the U.S. Department of Justice, Antitrust Division (“DOJ”)—the two agencies charged with
merger review—continued to press for broad divestiture packages.
José María Pacheco
Associate at Sfera Legal
T: +506 2201 00 00
Email: jmp@sferalegal.com
José is an attorney specialized in commercial, corporate and financial law. He advises individual and
corporate clients on business, investment banking, private equity, financial markets, mergers & acquisitions
and corporate governance. He has a J.D. in Law and a Specialization in Commercial Law from the University
of Costa Rica, an LL.M in Private Law from Carlos III University in Madrid, and a Master in Management
Specialized in International Business from IE Business School. He is a member of the Costa Rican Bar
Association.
To support these efforts, the FTC has
also announced plans to conduct a
“merger retrospective” to determine the
effectiveness of remedies imposed in
some of the prior mergers. 1
In total, the FTC proposes studying 92
merger orders issued by the Commission
between 2006 and 2012. The study
1 Press Release, Fed. Trade Comm’n, FTC Proposes
to Study Merger Remedies (Jan. 9, 2015), available
at https://www.ftc.gov/news-events/press-releases/2015/01/ftc-proposes-study-merger-remedies.
will include interviews of the buyers of
divested assets, significant competitors
in each market, and customers.
The current antitrust enforcement
environment means that merger parties
should be prepared for the potential
of prolonged review and protracted
consent negotiations in transactions that
raise concerns requiring relief.
On June 17, 2011, the DOJ issued
an updated policy guide to merger
56 | LawyerIssue 57

Merger & Acqusitions
remedies. As indicated in the Guide:
include not only a license for technology,
(2) requires Co-Star and Loopnet to
to commercial health plans in two
but the right to purchase the technology
allow customers to terminate their
geographic areas; the FTC, however,
The touchstone principle for the Division
or to transfer the license to a third party
existing contracts, without penalty, with
required that Community include in
in analyzing remedies is that a successful
later. 5
one year’s prior notice; and (3) bars the
the divestiture package the hospital
merger remedy must effectively preserve
merged firm from requiring customers
facilities and all outpatient services and
competition in the relevant market. . . .
In addition, non-discrimination
to buy any of its products as a condition
operations that were affiliated with the
provisions have been included to
for receiving other products, and from
hospital, regardless of whether those
In horizontal merger matters, structural
incorporate the concepts of equal
requiring customers to subscribe to
services were provided at the hospital.
remedies often effectively preserve
access, equal efforts, and equal terms.
multiple geographic coverage areas to
competition, including when used
gain access to a single area in which they
The FTC viewed the outpatient
in conjunction with certain conduct
For instance, the FTC’s CoStar/Loopnet
are interested.
business as necessary for the buyer
provisions. Structural remedies may be
consent contained what the FTC
of each hospital to be as effective of a
appropriate in vertical merger matters
characterized as “conduct relief that is
In addition, the consent requires, for
competitor as HMA had been prior to
as well, but conduct remedies often
unusual in a merger settlement.” 6
three years, that CoStar and LoopNet
the transaction.
can effectively address anticompetitive
continue to offer their customers core
issues raised by vertical mergers.
In addition to requiring that the parties
products on a stand-alone basis.
In Sun Pharmaceutical/Ranbaxy, 9 the
divest LoopNet’s Interest in Xceligent,
FTC although the expressed concerns
In all cases, the key is finding a remedy
a competing database that the FTC
A related provision prohibits the parties
that the combination would impact
that works, thereby effectively preserving
considered to be the “most similar
from limiting use of the REApplications
future competition for three strengths of
competition in order to promote
competitor for information services”
product, a software tool for managing
generic minocycline tablets used to treat
innovation and consumer welfare. 2
to CoStar, the consent also “imposes
market research in connection with
a variety of infections, the Commission
certain conduct requirements to assure
customers’ purchase, lease, or license of
required the firms to sell as well assets
Recent precedent includes the agencies
the continued viability of Xceligent as
CRE database services from competitors.
related to three dosages of generic
imposing a variety of behavioral
a competitor to the merged firm and to
minocycline capsules.
conditions to support a structural
reduce barriers to competitive entry and
There have also been situations recently
divestiture. Transition services
expansion. These additional provisions
in which the agencies have required
The FTC’s rationale for including the
arrangements and supply arrangements
will facilitate Xceligent’s geographic
divestitures to include out-of-market
capsules was that it would allow the
have been more routinely included,
expansion and prevent foreclosure of
assets (i.e., a divestiture package that
upfront buyer to use a shorter FDA
beyond the pharmaceutical industry
[the parties’] established customer
goes beyond the assets in the relevant
regulatory process because it would
where they were the norm. 3
base.”
market). 7
control both products and use the same
ingredient (API) supplier.
Mandatory licensing provisions may
The consent, for five years, (1) prohibits
In Community Health Systems
also alleviate competitive concerns by
CoStar and Loopnet from restricting
(“Community”)/Health Management
In Holcim/Lafarge, 10 the FTC conditioned
enabling competitors access to a key
customers’ ability to support Xceligent;
Associates (“HMA”), 8 the FTC’s concerns
clearance on the divestiture of plants
input; 4 some of the consents, however,
were focused on general acute care
and terminals, including a terminal in
2 U.S. Dep’t of Justice, Antitrust Division, Antitrust
Division Policy Guide to Merger Remedies (Aug. 19,
2010), available at http://www.justice.gov/atr/public/
guidelines/hmg-2010.html
3 See, e.g., Press Release, U.S. Dep’t of Justice, Justice
Department Requires Divestitures in Order for Regal
Beloit Corporation to Proceed with Its Acquisition
of A.O. Smith Corporation’s Electric Motor Business
(Aug. 17, 2011), available at http://www.justice.gov/
opa/pr/2011/August/11-at-1056.html; Hold Separate
Order United States v. Bemis Co., Inc., No. 1:10-
cv-00295 (D. DC Feb. 28, 2010), available at http://
www.justice.gov/atr/cases/f255700/255715.htm.
4 See, e.g., Press Release, U.S. Dep’t of Justice, Justice
Department Requires Google Inc. to Develop and
License Travel Software in Order to Proceed with
Its Acquisition of ITA Software Inc. (Apr. 8, 2011),
available at http://www.justice.gov/opa/pr/2011/
April/11-at-445.html; Press Release, U.S. Dep’t of Justice,
Justice Department Allows Comcast-NBCU Joint
Venture to Proceed with Conditions (Jan. 18, 2011),
available at http://www.justice.gov/opa/pr/2011/
January/11-at-061.html.
5 See, e.g., United States v. Cameron Int’l Corp., No.
1:09-cv-02165 (D. D.C. Nov. 17, 2009), available at
http://www.justice.gov/atr/cases/f252000/252080.
htm.
6 Press Release, Fed. Trade Comm’n, FTC Places
Conditions on CoStar’s $860 Million Acquisition of
LoopNet (Apr. 26, 2012), available at http://www.ftc.
gov/opa/2012/04/costar.shtm.
hospital impatient services sold
7 For a discussion of remedies including out-ofmarket
assets from the FTC’s perspective see Dan
Ducore, Divestitures may include assets outside
the market (Apr. 24, 2015), available at https://
www.ftc.gov/news-events/blogs/competition-matters/2015/04/divestitures-may-include-assets-outside-market.
8 Press Release, Federal Trade Comm’n, FTC Requires
Community Health Systems, Inc. to Divest Two
Hospitals as a Condition of Acquiring Rival Hospital
Operator (Jan. 22, 2014), available at http://www.
ftc.gov/news-events/press-releases/2014/01/
ftc-requires-community-health-systems-inc-divest-two-hospitals.
Alberta, Canada and cement plant in
Ontario, Canada. Canadian assets that
9 Press Release, Fed. Trade Comm’n, FTC Puts Conditions
on Sun Pharmaceutical’s Proposed Acquisition
of Ranbaxy (Jan. 30, 2015), available at https://
www.ftc.gov/news-events/press-releases/2015/01/
ftc-puts-conditions-sun-pharmaceuticals-proposed-acquisition.
10 Press Release, Fed. Trade Comm’n, FTC Requires
Cement Manufacturers Holcim and Lafarge
to Divest Assets as a Condition to Merger (May 4,
2015) available at http://www.ftc.gov/news-events/
press-releases/2015/05/ftc-requires-cement-manufacturers-holcim-lafarge-divest-assets.
58 | LawyerIssue 59

Merger & Acqusitions
are named in the FTC consent decree
were included by the FTC as necessary
to remedy competitive concerns in
northern U.S. markets.
Finally, in ZF Friedrichshafen AG/TRW
Automotive Holdings Corp., 11 the FTC
conditioned approval of the $12.4
billion merger that creates the world’s
second-largest auto parts supplier with
the divestiture of TRW’s linkage and
suspension business in North America
and Europe, even though only suppliers
that have production facilities in the
United States, Canada, and Mexico were
deemed capable of competing for U.S.
business.
The agencies have also taken a more
expansive stance, particularly in
transactions involving innovation and
future generations of products. For
instance, the DOJ recently announced
that Applied Materials Inc. and Tokyo
Electron Ltd. had abandoned their
merger plans after the DOJ informed
them that their remedy proposal failed
to resolve the competitive concerns. 12
Although the merger parties had
reportedly offered to divest the
overlapping etching and depositing
business line of Tokyo Electron, the DOJ
thought the package did not adequately
address the future impact of the deal
on innovation in future generations of
semiconductor equipment.
11 Press Release, Fed. Trade Comm’n, FTC Puts
Conditions on Merger of Auto Parts Suppliers ZF
Friedrichshafen and TRW Automotive Holdings Corp.
(May 5, 2015) available at https://www.ftc.gov/newsevents/press-releases/2015/05/ftc-puts-conditionsmerger-auto-parts-supplier-zf
12 Press Release, U.S. Dep’t of Justice, Applied Materials
and Tokyo Electron Ltd. Abandon Merger Plans
after Justice Department Rejected Their Proposed
Remedy (Apr. 27, 2015), available at http://www.
justice.gov/atr/public/guidelines/hmg-2010.html.
Similarly, in the Nielson/Arbitron
transaction, the FTC focused on
protecting a future market for syndicated
audience cross-platform measurement
services.
The consent conditioned that
transaction’s approval on Nielsen’s
obligation to:
1. continue its cross-platform project
with ESPN Inc. and Comscore Inc.;
and
2. license Arbitron’s people meter
and related data, as well as
software and technology being
used in the ESPN project, to an
FTC-approved third party for up to
eight years. 13
Both agencies have also increasingly
required that the parties identify an
acceptable “upfront buyer” before
accepting divestiture packages. 14 The
“upfront buyer” requirement is justified
by the agencies as being necessary
to ensure that the divestiture will be
effective in maintaining competition at
the same level as pre-transaction.
13 Press Release, Fed. Trade Comm’n, FTC Puts Conditions
on Neilsen’s Proposed $126 Billion Acquisition
of Arbitron (Sept. 20, 2013), available at http://www.
ftc.gov/opa/2013/09/nielsen.shtm. Commissioner
Wright dissented from the decision on the basis that
the future market theory shall be subject to a higher
evidentiary standard. See Dissenting Statement of
Commissioner Joshua D. Wright, In the Matter of Nielsen
Holdings N.V. and Arbitron Inc. FTC No. 131-0058
(Sept. 20, 2013), available at http://www.ftc.gov/os/
caselist/1310058/130920nielsenarbitron-jdwstmt.
pdf.
14 The public attention on Advantage Rent A Car’s
filing for bankruptcy four months after the FTC
approved its divestiture to resolve concerns in the
Hertz/Dollar Thrifty deal exemplifies the risk —
though extremely rare—that can arise for an agency
from accepting an antitrust remedy. See David Mc-
Laughlin, Mark Clothier, and Sara Gay Forden, Hertz
Fix in Dollar Thrifty Deal Fails as Insider Warned,
Bloomberg (Nov. 29, 2013), available at http://www.
bloomberg.com/news/articles/2013-11-29/hertzfix-in-dollar-thrifty-deal-fails-as-insider-warned.
The transaction parties, however, can
Transaction parties may be able to
face substantial delay from the process:
mitigate some of the harm by giving
the need to identify a divestiture buyer,
careful thought prior to the execution
negotiate a divestiture agreement,
of the definitive agreements regarding
and have that buyer and the package
the potential scope of relief and the
vetted by the agencies before the main
management of the review process
transaction is permitted to proceed
(including negotiation of remedies).
can literally add months to the review
process.
To minimize delay, parties may consider
approaching potential divestiture
For transaction parties with overlapping buyers that are likely to be supportive
products/services that are likely to
of the package that will be offered to
raise antitrust concerns, the recent
the reviewing agency to address their
enforcement activities and trends raise
concerns while the investigation is still
the potential for prolonged investigations ongoing.
and protracted consent negotiations as
well as the potential that the divestiture Absent such planning and initiative, the
package required to satisfy the agency
transaction’s consummation will, at best,
may exceed the U.S. operations or
be delayed, and could even potentially
currently sold products/services.
fail on antitrust grounds.
Ilene Knable Gotts
Partner at Wachtell, Lipton, Rosen & Katz
T: +1 212 403 4357
Email: IKGotts@wlrk.com
Ilene focuses on mergers and acquisitions. She is regularly recognized as one of the world’s top antitrust
lawyers, including in The International Who’s Who of Business Lawyers, Chambers Guides, and PLC Which
Lawyer Yearbook. Mrs. Gotts has served as the Chair of the American Bar Association’s Section of Antitrust
Law (2009-2010) and Chair of the New York State Bar Association’s Antitrust Section (2006-2007). She is a
frequent guest speaker, has had approximately 200 articles published, and has edited several books.
60 | LawyerIssue 61

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What is Wrong with our Fiction? The
Perceived Attack on Reverse Vesting
by Janet Levy Pahima
talented individuals get together to form a
company, sometimes they worry about this
from the beginning. They may set up a type
of reverse vesting which is basically a call
option. If one founder leaves the company,
the others can buy his or her shares usually
for par value.
They need another tool to safeguard their
investment. A fine or penalty that the
founders would have to pay if they leave
the company? Not worth the wasted air
expressing this out loud to a founder. It
is the VC’s that are supposed to have the
money, not the founders.
The concern that this may raise tax
implications is subdued. The value of the
company and its shares in those early days
are often low, and so the risk of a taxable
transaction is by correlation also low.
The more popular use of reverse vesting
addresses when our young company needs
an investment of millions of dollars from
a financial investor. Venture capital firms
(“VC’s”) are well versed in understanding
the crucial role founders may play in
the chances of success for their fragile
investments.
Reverse vesting is the obvious choice. If a
founder refuses to keep working for the
crucial first few years after the company
has received a large investment, he or she
should lose some of his or her shares and
not benefit from the future success of the
company.
This is a penalty that sounds fair – it is
in the control of the founder; it adjusts
the equitable balance of ownership if the
company is worth less because the founder
left; and it does not impose an impossible
financial burden on the founder.
Tax advisors in Israel are scrambling to find the best solution to the unknown
risk of adverse tax treatment of reverse vesting.
Why the current increased interest in the
topic? Paranoia or calculated anticipation
of the Israeli tax authorities (the “ITA”)
attacking a well established principle?
Reverse vesting is a commonly used
technique to address the concerns that
a founder of a company who is key to its
success and owns shares of the company
might simply walk away from the company
causing damage to the enterprise’s
prospects for success.
Using equity as a retention tool is nothing
new. When an employee is granted stock
options that are subject to a three or four
year vesting period, the theory is that the
employee is incentivized to stay at work
for the full vesting period to receive the full
benefit of the employee’s options.
The shareholders are willing to share
equity with the employees to align
interests between the company and
the employees, joining the level of the
employees’ compensation with the success
of the company and keeping the employee
motivated during his or her period of
employment.
But founders who set up a company own
their shares from day one. When a few
The venture capitalists could space
out their investments to correspond to
milestones including the continuation of the
employment of the founders, but that is not
popular and often not practical; they may
not be putting in nearly enough funds to
keep the company going for the full period
they wish the founders to commit and the
funds invested up to the point of departure
of a founder can be tremendous.
The investors can’t force the founders to
keep working. This is codified in Israel’s
Basic Law: Freedom of Occupation. 1
1 The Basic Law: Freedom of Occupation (1994). The
Law was passed by the Knesset on 9th March, 1994 and
published in the Book of Laws No. 1454 of 10th March,
1994. It provides in part:
a. Fundamental human rights in Israel are founded
upon recognition of the value of the human being,
the sanctity of human life, and the principle that all
persons are free; these rights shall be upheld in the
spirit of the principles set forth in the Declaration of
the Establishment of the State of Israel.
b. The purpose of this Basic Law if to protect freedom
of occupation, in order to establish in a Basic Law the
values of the State of Israel as a Jewish and democratic
state.
So far, so good. So why are tax advisors
in Israel wary of the ITA spoiling this
wonderful solution that is so common in
the global high tech world?
While there is no evidence that the ITA
is about to challenge the arrangement,
the ITA, obviously is not bound by the
treatment of reverse vesting in the Silicon
Valley for example 2 ; some lawyers and
tax advisors fear that the ITA may look at
shares subject to reverse vesting as being
deemed given in exchange for work and
therefore could categorize the shares as
work related income, taxable as ordinary
income and not as capital gains.
c. Every Israel national or resident has the right to engage
in any occupation, profession or trade.
2 See for example Rev. Rul. 2007-49 from Internal
Revenue Bulletin: 2007-31 dated July 30, 2007 specifying
that Section 83 of the Internal Revenue Code does not
apply to reverse vesting imposed by investors (changing
“substantially vested stock” to “substantially nonvested
stock”).
62 | LawyerIssue 63

Merger & Acqusitions
The ITA could take the position that when
the founders eventually sell their shares
in an exit event (a merger or acquisition),
the income earned on the shares should
be treated as ordinary income, even
though this seems like a real stretch of the
imagination.
If a founder can lose shares of a company
if he or she quits working for the company,
the ITA could look at those shares as not
really belonging to the founder until the
reverse vesting lifts, as if the founders are
actually receiving shares over time, in which
case they should be taxed periodically at
the time the shares were deemed to have
been received; this translates into the
dates that the shares are released from
the threat of reverse vesting rather than
the date of incorporation of the company
when the company value was lower if not
insignificant.
To protect from this troublesome threat,
reverse vesting is dressed up in colorful
non-ordinary income terminology.
For example, we don’t draft Reverse
Vesting Agreements but rather Repurchase
Agreements. We don’t state anywhere
in the agreement that the rights to the
founders’ shares vest over time but rather
that the other shareholders will have the
right to buy back some of the founders
shares in decreasing amounts over time
and for very little money if the founders
stop working.
Not that there seems to be evidence of the
topic heating up at the ITA, but nonetheless,
lately there has been much discussion in
Israel, or at least in the hallways of Tel Aviv
tax departments and law firms, of the risk
that all reverse vesting clauses in high tech
companies could be in jeopardy. That adds
up to a lot of clauses in a lot of companies
in a country dominated by its high tech and
start up culture.
Good advice is to distance the shares from
employment. Make sure the founders’
shares in an exit event are not worth
more than any other shareholders’ shares.
Include language that the purpose of the
reverse vesting is to avoid the damage and
harm that would be caused to the company
if the founder quit rather than any type of
compensation to the founder for staying.
Make sure it is shareholders who have the
right to buy the shares of the founders if
their employment terminates and not the
company itself. Do not include death or
disability as grounds to trigger repurchase
so that it is punishment to the founders for
quitting rather than just the founders no
longer working.
To the extent the founders have paid some
cash for their shares and the price to be
paid upon exercise of the reverse vesting
returns their capital, the shares look less
like ordinary income to the founders.
A more recent creative idea is to grant
other shareholders anti dilution rights
triggered if a founder leaves the company.
To implement this concept, the other
shareholders would be issued new shares
or the conversion ratio of preferred shares
would be adjusted to give the holders of
preferred shares a larger percentage of
the outstanding shares of the company;
the founders’ shares of the capital of the
company on a percentage basis would
decrease.
It is yet to be seen if this obvious new ploy
can trick the ITA into believing that the
additional shares received by the investors
from the company are not the same as the
additional shares the investors would have
gotten if they were entitled to buy shares
from the founders all with the same trigger
and lack of price tag.
In addition, if there is more than one
founder, this smacks of collective
punishment. If one leaves, all founders
would be diluted including those that loyally
stayed with the company.
Morally it would be more appropriate to
use this approach, if at all, if there is only
one founder subject to reverse vesting so
that other founders do not have to serve as
guarantors of each other’s commitment to
the company. But with only one founder,
the net effect is just the same as the
traditional reverse vesting.
With multiple founders, there is more
separation between the employment of a
founder and the share ownership of the
other shareholders.
Janet Levy Pahima
Partner at Herzog, Fox & Neeman
T: +972 3 692 2097
Email: pahima@hfn.co.il
Whether this fiction would be acceptable
in favor of traditional reverse vesting is
unclear and untested.
Until there is any clarity, some advice to
investors. When you don’t need reverse
vesting, don’t ask for it. Use it when you
do not have plausible alternatives to keep
founders motivated. If the founders have
less than 10% of the shares of a company
and do not have the right to appoint a
director, consider using shares or options
granted under Section 102 of the Tax
Ordinance 3 .
General advice of course may not be
applicable to your particular situation so
do visit your tax advisors for the latest
developments.
3 Section 102 of the Israeli Income Tax Ordinance [New
Version] 5721-1961, as amended, is the regime for employee
stock option plans granting favorable deferred tax
status; it is not available for holders of more than 10% of
a company’s share capital or to those that have a right to
appoint a member of the board of directors.
Janet is an International Mergers & Acquisitions partner at Herzog, Fox & Neeman, Israel’s leading
international law firm. In addition to M&A, Janet specializes in joint ventures, investment funds,
international trade, and advises in the general corporate field.
Janet represents multinational corporations including General Electric, Microsoft, BMC Software and
SunGard Data Systems, including in their acquisitions in Israel; venture capital funds such as Carmel
Ventures in early and late stage investments; and high-tech companies in their earliest stages of
development. Janet is recommended in PLC Which Lawyer and Chambers and has been described as an
“outstanding corporate lawyer” by the Legal 500.
Prior to moving to Israel, Janet was an associate at Shearman and Sterling in New York and Tokyo.
64 | LawyerIssue 65

Merger & Acqusitions
Mergers and Acquisitions Regulations in Lebanon
by Christiane Ghneim
M&A activity in Lebanon has been traditionally embryonic compared to its
neighboring Gulf countries, considering the size of the Lebanese market which
consists of SMEs and small family businesses, and that merger and acquisition
transactions among such entities are usually carried out privately in the
absence of any disclosure requirements or specific M&A regulations.
Nonetheless, the banking sector was
subject to a special treatment, as it
benefitted from a dedicated law aiming at
encouraging the mergers and acquisitions
among banks in Lebanon, under the strict
supervision of the Lebanese Central Bank.
The purpose of such laws and regulations
was to address the situation of banks in
difficulty that showed good management,
to maintain the rights of depositors and
employees, and to preserve the stability
of the market through incentives and soft
loans granted to the acquiring banks.
Consequently, this law contributed to the
improvement of the sustainability and
reliability of the banking sector in Lebanon.
In 1996, the Beirut Stock Exchange (BSE)
re-launched the trading activity in its hall,
following a thirteen-year compulsory
suspension. The Committee of the BSE,
which is responsible for managing,
regulating and developing the markets,
protecting the interests of the investors
trading at the Stock Exchange, monitoring
the activities of the issuing companies and
providing information to the issuers and
traders at the Stock Exchange on an equal
footing, organized part of the M&A for listed
companies.
Recently, a new Financial Markets Law was
enacted and a Capital Market Authority
(CMA) was established accordingly in
August 2011. The CMA is an independent
and autonomous regulatory body that aims
to regulate and supervise the activities of
capital markets in Lebanon and to create
the adequate legal framework for the
development of the Lebanese Financial
Markets, including the issuance of all
regulations pertaining to mergers and
acquisitions (M&A) for listed companies.
M&A REGULATIONS IN LISTED
COMPANIES
REGULATORY FRAMEWORK
Public M&A is regulated by the Lebanese
Commercial Law (articles 210 to 213 of
Legislative Decree 304 of December 24,
1942 and its modifications), and Decree
7667 of December 16, 1995 regarding the
implementation of the BSE by-laws.
The CMA is the regulatory body and the
enforcing authority in connection with
acquisition of shares in public companies
and the execution of M&A bids. Its control
unit regulates the capital markets and its
sanctions committee examines violation
cases transmitted by the Board, investigates
them and takes the necessary decisions
further to proceedings involving all
concerned parties, as specified in its rules
of operation.
STRUCTURAL
CONSIDERATIONS
Lebanese law does not mention structural
differences between friendly acquisitions
(in which the target is willing to be acquired)
and hostile takeovers (where the target is
opposed to the acquisition). An acquisition
is structured as a tender offer by the bidder
and regulated by article 161 of the decree
7667 /1995 which states that:
“Any investor or group of investors […]
wishing to own more than 10% of the voting
rights in a company quoted in the official or
secondary market, or wishing to acquire the
absolute or specified majority in this company,
should present a draft for a tender public
offer or bartering via a financial broker.”
The period of the offer in a bidding
transaction should not take less than ten
Stock Exchange sessions, and there are
no limitation of initial offer price limit.
However, article 168 of decree 7667/1995
states:
“In the event an investor or another group
of investors presents a counter-proposal, this
counter-proposal cannot be accepted unless
the counter-price exceeds the price of the
current offer by more than 5%”.
M&A REGULATIONS IN BANKS
REGULATORY FRAMEWORK
M&A of banks are regulated by the
Lebanese Code of Money and Credit
(articles 132/b-d and 133/b-d), the
provisions of Law 192 of January 4, 1993
and their amendments regarding the
facilitation of banks’ M&A as well as
66 | LawyerIssue 67

Merger & Acqusitions
Law 308 of April 3, 2001 organizing the
issuance and trade of stocks and bonds and
acquisition of real estate by banks.
The regulatory body is the Central Council
of the Lebanese Central Bank which set all
regulations concerning purchases of shares
in banks, and those concerning the banks’
M&A.
The Central Council of the Lebanese
Central Bank, after consultation with the
Banking Control Commission, supervises
all takeovers in the banking and financial
services sector, ensures that all regulated
entities comply with applicable laws and
regulations, and has all discretionary
powers to approve or reject any takeover
within the banking and financial services
sector.
STRUCTURAL
CONSIDERATIONS
Any subscription or transaction in the
Lebanese banks’ shares is subject to prior
approval of the Central Council of the
Lebanese Central Bank as follows:
• if the subscriber acquires more
than 5% of the bank’s shares or
from the voting rights related to
these shares, whichever is greater;
• if the subscriber owns at the time
of the subscription 5% or more
of the bank’s shares or from the
voting rights related to these
shares whichever is greater.
Any merger that includes a bank or a
financial institution shall be contingent
upon the approval of the Central Council of
the Lebanese Central Bank. Consequently,
the deals are governed by the Central
Council of the Lebanese Central Bank.
The Central Council shall take, after
consultation with the Banking Control
Commission, a provisional decision
approving or rejecting the merger within
sixty days from the filing of the bank’s
application and the attachments specified
by the Law.
In case of approval, the Central Council
shall specify the conditions, deadlines and
guarantees required for its final decision.
The Central Council shall take a final
decision on the merger within thirty days
from the submission date of documents
that prove the fulfillment of conditions and
guarantees required by the Council.
In case the Central Council has not taken
a final decision on the matter within the
above-mentioned deadlines, the Central
Bank shall be deemed to have taken an
implicit decision of rejecting the merger
request as submitted.
TAX INCENTIVES
In order to encourage M&A activity within
the banking sector, the legislator granted
the banks with several tax incentives,
including the following:
• Article 7 of Law 192 of January
4, 1993 states that: “During the
year that follows the year in which
the Central Council took its final
decision on approving the merger,
the Council may exempt the
merging bank from income tax for
an amount equivalent to taxes due
on a portion of its profits, provided
this portion does not exceed the
cost of the merging operation and
a ceiling of two billion Lebanese
pounds. […] The merged bank
(s) shall also be exempted from
the tax stipulated in article 45 of
the Income Tax Code, in case of
approval of the revaluation of its
(their) fixed assets”.
• Article 8 of Law 192 of January 4,
1993 states that: “All formalities
and procedures required by the
merging operation, including the
issuance of new shares, shall be
exempted from stamp, transfer
and notary public fees, and from
all registration fees with public
administrations.”
• The new parent bank can benefit
from payroll and capital gain tax
exemptions. Employees to be
dismissed as a result of the merger
or acquisition also benefit from
some tax exemptions and endof
service indemnities between
six and thirty six months’ salary
depending on the duration of their
employment. No income tax is
deducted from this compensation.
Christiane Ghneim
Associate at Aziz Torbey Law Firm
T: +961 1 616161
Email: cghneim@torbeylaw.com
CONCLUSION
Despite the regional upheavals, Lebanon
has witnessed M&A in the banking sector
as well as in other sectors such as the
insurance, information and communication
technologies industries.
We expect such activities to increase
in the near future as a result of the
establishment of the CMA and the
enacting of new financial markets laws
and regulations aiming to build confidence
among the investors in Lebanon; as well
as the prospect of privatizing some utility
companies and governmental institutions,
which will be a boosting factor for the Beirut
Stock Exchange, and would consequentially
lead to more M&A activity among listed
companies.
Christiane Ghneim is an associate at the Eptalex Beirut office of Aziz Torbey Law Firm where she works in
the banking and corporate practices. Her transactional experience includes several acquisitions where she
was involved in the due diligence phases and the drafting of transaction agreements.
Christiane also works on the in¬cor¬po¬ra¬tion and re¬lo¬ca¬tion of com¬pa¬nies as well as the dai¬ly
operations of busi¬ness¬es. She is a law graduate from Saint-Joseph University (USJ) and holds a Master
of Advanced Studies (DEA) in Internal and International Business Law from the Lebanese University- french
section.
68 | LawyerIssue 69

Tax
Austrian goodwill amortization: AG Kokott issues
her opinion on a landmark case for the relation
between state aid and treaty freedoms
by Rudolf Krickl,
Richard Jerabek,
Nikolaus Neubauer
On 16 April 2015, Advocate General Kokott („AG“) advised the CJEU
to rule that the exclusion of foreign EU group members of an Austrian tax
group from the goodwill amortization scheme is not in line with the freedom
of establishment. The AG, furthermore, argued that the scheme does
not constitute illegal State aid due to the lack of selectivity.
Treaty Freedoms vs. State Aid Rules
The case Finanzamt Linz vs.
Bundesfinanzgericht, Außenstelle Linz (C-
66/14) is expected to result in a landmark
decision of the CJEU. The importance of
the case is that it deals with an Austrian
tax regulation which may simultaneously
infringe the freedoms of the treaty
(freedom of establishment) and the state
aid rules of the EU.
The mentioned combination of conflicts
brings up fundamental questions, i.e.
the interaction between treaty freedoms
and state aid rules. The issues gives rise
to a potential conundrum because in
the context of alleged “aid” in relation
to domestic transactions, the respective
remedies for unlawful state aid and
the breach of freedoms are, in effect,
opposites.
Unlawful state aid has to be repaid which
– in the given situation – results in a nonapplication
of the goodwill amortization
scheme. However, the scope of a
discriminatory rule has to be extended
which would require the amortization
scheme to be applied to all investments
(domestic and foreign targets).
The solution for this conflict cannot be
derived from the already existing case law
of the CJEU. Tax experts were therefore
looking forward to the opinion of AG Kokott
which is laid down in the following.
Facts and Circumstances
Group taxation system
The Austrian Corporate Income Tax Act
(KStG) offers legally independent companies
belonging to a group of companies the
opportunity to form a tax group, with the
result that the income of all tax group
members is taxed in an added up way at
the level of the group parent. This has the
effect that the income of all group members
is taxed in the hands of the parent company
of the tax group.
The main requirement for two or more
companies to establish a tax group is
that the group parent company holds an
investment in the subsidiaries of more than
50%. Also foreign companies can take part
in the tax group, if they are directly owned
by a domestic group member. Therefore
only first-tier foreign subsidiaries may
become members of a tax group.
The tax group scheme provides for the
attribution of 100% of profits/losses of
a domestic group member to the group
parent even though the actual participation
might be lower. In the case of foreign group
members only losses are attributable
to the parent company according to the
percentage of the participation.
There is a recapture of taxes when the
foreign losses are set off against profits
abroad in subsequent years or if the foreign
group member ceases to be a group
member.
Goodwill amortization
Fore share acquisitions prior to March 2014,
tax groups could amortize the goodwill
resulting from the purchase of Austrian
group members with an active business. 1
Following this scheme the goodwill inherent
in the acquisition cost was amortized on a
straight-line basis over a period of 15 years.
In order to avoid constitutional concerns
goodwill that resulted from acquisitions
prior to March 2014 and which has not fully
been amortized upon March 2014, can be
further amortized if the possibility of the
goodwill amortization had an impact on
the purchase price of the participation. As
the goodwill amortization was limited to
domestic participations, foreign EU group
members were excluded from the scheme.
Litigation procedure
An Austrian taxpayer (a tax group which
acquired a non-privileged Slovak subsidiary)
concerned by the goodwill amortization
started a litigation process, because under
its opinion it infringed the freedom of
establishment.
The court of first instance (=Federal Tax
Court Linz) in its decision on 16 April 2013
followed the taxpayer’s argumentation,
classified the Austrian goodwill amortization
as being not in line with the freedom of
1 In 2014 the goodwill amortization concept was abolished
for new acquisitions due to the possible infringement
of EU-law.
70 | LawyerIssue 71

Tax
establishment and extended the goodwill
the goodwill amortization provides a
participations and companies which
AG Kokott then states that the goodwill
amortization also to foreign group
temporary liquidity advantage only, while
acquire foreign participations might be
amortization scheme, by excluding foreign
members. 2
capital gains from foreign participations
selective, one “normal” tax regime cannot
EU group members, treats taxpayers in
are, in most cases, tax exempt with the
be identified. 6
comparable legal and factual situations
After the Austrian tax office involved has
requested goodwill amortization resulting
differently. Consequently the goodwill
appealed against this decision, the Austrian
in a permanent tax advantage which was
Therefore it is solely important whether
amortization constitutes an advantage
Administrative High Court (VwGH) referred
not the intention of the Austrian lawmaker.
comparable legal and factual situations
to companies, which acquire domestic
two questions with regard to the goodwill
are treated differently and whether this
participations, compared to companies
amortization scheme for preliminary ruling
The AG rejected this justification on
different treatment leads to a selective
which acquire foreign participations.
to the CJEU. 3
the grounds of the coherence of the
advantage for certain industries or
Austrian tax system because the goodwill
undertakings (“comparability approach”).
This unequal treatment is not justified
The Court raised the question whether (a)
amortization scheme was even not open to
by the basic or guiding principles of the
the scheme constitutes illegal State aid for
taxpayers who opted for tax liability of their
The argumentation of the AG is in line with
Austrian tax system. Therefore the goodwill
the beneficiaries of the scheme as defined
participations in foreign EU group members
the present case law of the CJEU, which
amortization scheme can be regarded
under Article 107 TFEU and (b) the exclusion
according to § 10 Par 3 Nr. 1 KStG. 4
considers the selectivity examination also
as a subsidy in the narrow sense (which
of foreign EU group members from the
as an examination of comparability. For
cannot be justified by the basic or guiding
scheme was in line with the freedom of
Since there were no other justification
example in the Gibraltar judgement the
principles of the Austrian tax system). 9
establishment.
grounds the AG came to the conclusion that
CJEU classified a tax-exemption to offshore
Opinion of the AG
the goodwill amortization scheme infringes
the freedom of establishment. 5
companies as selective, even though less
than 1% of companies were actually taxed. 7
However, as the scheme covers all sorts
of domestic companies, it does not favor
Freedom of establishment
certain industries or undertakings and
State aid assessment
2. Assessment of the goodwill amortization
therefore it is not qualified as being
According to AG Kokott the exclusion
scheme
selective. The advantage is rather that all
of foreign EU group members from the
1. The concept of selectivity
companies within a tax group irrespective
amortization scheme restricts the freedom
According to the AG the refusal to grant the
of the economic sector they perform,
of establishment. Since the AG found the
With regard to the State aid assessment the
goodwill amortization to individuals and
receive a subsidy for acquiring domestic
domestic and the cross-border scenario
AG argued that the goodwill amortization
to companies which are not part of a tax
participations. 10
comparable, she examined whether
confers a tax advantage for its recipients
group cannot be considered to be state aid,
there was any justification for limiting the
pursuant to Art 107 para 1 TFEU.
since these persons are not in a comparable
With this reasoning the AG follows the
amortization scheme to just domestic
factual and legal situation with companies,
view taken by the European Court of First
targets.
The advantage was also granted through
which are members of a tax group.
Instance in two cases regarding the Spanish
state resources. For the selectivity test
goodwill amortization (Banco Santander
The representatives of the Austrian
of the measure the AG modified the
The AG suggests a less stringent
and Santusa/Commission, T-399/11 and
Government argued that the exclusion of
traditional selectivity examination scheme,
comparability test for pure domestic
Autogrill España/Commission, T-219/10). 11
foreign participations is required in order to
maintain the coherence of the Austrian tax
system.
They based the coherence argument on
the fact that under Austrian corporate
where one has to first identify the “normal”
taxation approach (“derogation approach”).
As the referring Court suspects that the
different treatment of (a) companies and
individuals, of (b) companies within a tax
situations as compared to cross-border
situations. This is due to that fact that only
unfavorable treatment of cross-border
cases compared to domestic cases are
covered by the EU Treaties. 8
There the Court concluded that the granting
of a goodwill amortization only in relation
with the acquisition of foreign participations
was not selective since the scheme was in
principle open to all companies and did not
income tax law capital gains from domestic
group and outside a tax group and of
participations are taxable and therefore
(c) companies which acquire domestic
6 Opinion of AG Kokott, 16 April 2015, C-66/14, Finanzamt
Linz, para. 88.
9 Opinion of AG Kokott, 16 April 2015, C-66/14, Finanzamt
Linz, para. 104.
2 Federal Tax Court (former „UFS“, now “Bundesfinanzgericht”)
Linz, 16 April 2013 (RV/0073-L/11).
4 Opinion of AG Kokott, 16 April 2015, C-66/14, Finanzamt
Linz, para. 61.
7 Commission/Government of Gibraltar and United
Kingdom, C-106/09 P and C-107/09 P.
10 Opinion of AG Kokott, 16 April 2015, C-66/14, Finanzamt
Linz, para. 111.
3 Austrian Administrative High Court, 30 January 2014
(Zl. 2013/15/0186).
5 Opinion of AG Kokott, 16 April 2015, C-66/14, Finanzamt
Linz, para. 69.
8 Opinion of AG Kokott, 16 April 2015, C-66/14, Finanzamt
Linz, para. 91.
11 Banco Santander and Santusa/Commission, T-399/11
and Autogrill España/Commission, T-219/10.
72 | LawyerIssue 73

Tax
exclude a specific group of undertakings.
In order to confer a selective advantage,
a tax rule would have to characterize the
recipient undertakings, by virtue of the
properties which are specific to them, as a
privileged category. 12
The mere fact that the tax rule/benefit
is subject to conditions could not, alone,
render it selective in favor of undertakings
satisfying this conditions. Otherwise, any
tax relief subject to conditions would be
state aid.
The AG furthermore argues that a too
broad understanding of the terms ‘certain
undertakings’ and ‘production of certain
goods’ and ultimately ‘selectivity’ entails
the risk to affect the distribution of
competence between Member States and
the EU as foreseen in Art 2 to 6 TFEU as
well as between the European Parliament/
Council of the European Union (Art 14
TEU) and the European Commission (Art
17 TEU). Consequently, the AG came to the
conclusion that the goodwill amortization
scheme does not constitute illegal State
aid. 13
12 Commission/Government of Gibraltar and United
Kingdom, C-106/09 P and C-107/09 P.
13 Opinion of AG Kokott, 16 April 2015, C-66/14, Finan-
Way Forward
The opinion of the AG provides an
important indication on how the CJEU could
qualify the Austrian goodwill amortization
scheme. It is expected that the CJEU will
render its decision still in 2015.
Until then, Austrian tax groups with foreign
EU group members, which were purchased
before 1 March 2014 and where the holding
company exercised the option for tax
liability according to § 10 Par 3 Nr. 1 KStG
should, if not already done, examine their
tax positions and assess whether they could
benefit from the goodwill amortization
scheme or not.
The prerequisite that the goodwill
amortization had to have an impact on
the purchase price of the participation
is also likely to infringe the freedom of
establishment and should therefore not
prevent tax groups from obtaining the
goodwill amortization for their foreign EU
group members.
zamt Linz, para. 117.
Rudolf Krickl
Partner at PwC Austria
T: +43 1 501 88 3420
Email: rudolf.krickl@at.pwc.com
Rudolf is a partner at PwC Austria. He has more than 19 years experience in advising national and
multinational companies. Rudolf’s areas of expertise are international tax planning, M&A, transfer pricing,
cash pooling, taxation of private foundations and business valuations for tax purposes.
Rudolf is a member of the Austrian Chamber of Chartered Accountants as Tax advisor, member of the Tax
Expert Board of the Austrian Chamber of Chartered Accountants and several working groups thereof.
Rudolf released publications in several professional journals and performs different lecture activities.
Richard Jerabek
Senior Manager at PwC Austria
T: +43 1 501 88 3431
Email: richard.jerabek@at.pwc.com
Richard is Tax Senior Manager and leader of the Austrian PwC European Direct Tax Group (EUDTG).
He joined the firm in 2003 and has more than 12 years of professional experience in advising domestic
and multinational companies. Richard’s areas of expertise are international tax planning, domestic and
international restructurings, corporate compliance and transfer pricing.
Richard is a member of the Austrian Chamber of Chartered Accountants and Tax Advisors, member of the
Tax Expert Board of the Austrian Chamber of Chartered Accountants and several working groups thereof.
Richard released publications in several professional journals as well as performs different lecture activities.
Nikolaus Neubauer
PwC-research associate at WU Wien
T: +43 1 313 36 5119
Email: nikolaus.neubauer@wu.ac.at
Nikolaus is PwC-research associate at the Institute for Austrian and International Tax Law, Vienna
University for Economics and Business Administration (WU).
Nikolaus released publications in several professional journals and performs different lecture activities.
74 | LawyerIssue 75

International Finance Centres
Excerpts from an Address to the STEP
Caribbean Conference
by Hélène Anne Lewis
Characterising a successful “international finance centre” is probably trite,
but it is perhaps necessary in order to determine what practical advice I
could possibly give to any IFC to attain if not ensure success in the current
and foreseeable environment. As much as we have come to abhor the term,
I perceive that the topic is really directed at an examination of “offshore financial
centres” rather than the well-established metropolitan finance centres
such London, Zurich and New York – which hardly need my advice!
Permit me then to paint a picture of a landscape that forms the back drop
for this topic.
The emergence of financial centres outside
of Europe, North America and Japan, began
of course with the Channel Islands, initially
only because of issues over radio licenses
that caused an entity known as “Radio
Caroline” to set up offshore the UK (in
waters closer to The Channel Islands than
to Britain) for the purpose of broadcasting
popular music and other content not
offered by the government controlled BBC.
The concept of “offshore” was born – and
avoidance of licenses soon gave rise to
avoidance of taxes. The post war explosion
of wealth, simultaneous with the rise of
trade unions and heightened concerns
over equitable distribution, gave rise to
concerns over protection of legacies and
the necessity to pre-empt the squandering
of resources by governments on so-called
“socialist” programmes.
The wealthy looked for different ways to
protect their wealth for themselves and
future generations – estate planning and
tax minimisation became high priorities – so
a growing number of professionals became
expert in developing wholly legitimate ways
and means of avoiding estate and other
taxes at a time when international financial
centres as we know them now didn’t yet
quite exist.
Initially it was as simple as a Swiss or
Channel Islands bank account, but schemes
became more sophisticated – no doubt
lots of lawyers were involved – and by the
late 60s people were being knighted for tax
avoidance,
International Finance Centres came to be
recognised, in the words of Dr Rose Marie
Belle Antoine, in her 2013 publication
Offshore Financial Law, as jurisdictions
which “have chosen as a main or important
path to development, legislative, financial
and business infrastructure which is more
flexible than orthodox infrastructure and
which caters more specifically, and often
exclusively, to the needs of non-resident
investors”.
By the early 1970s the Bahamas, Bermuda
and the Cayman Islands had gained
recognition as niche markets offering a
range of financial services attractive to
increasingly mobile wealthy global citizens
both individual and corporate. Perhaps it
was the very mobility of such persons that
ensured the emergence of island states
as financial centres as “snow birds” took
up residence in warmer climates for much
of the “winter season”. The BVI came
fairly late to the party, but soon achieved
unimaginable success – due in no small way
to the fall of Noriega in Panama in 1987.
The trajectory from latecomer to what the
GFCI characterised last month as the most
successful of the Caribbean IFCs, has been
well documented and indeed experienced
by many of us in this room.
But what were the hallmarks that
catapulted the BVI from virtual obscurity as
a place “fit only for a bird sanctuary” to a
major contender for high honours on the
Top 100 list of successful offshore finance
centres?
Of course the introduction of appropriate
legislation was the beginning of the climb
up the ladder, but legislation alone could
not have ensured success. The government
of the day and successive governments
since then established and maintained
close and productive working relationships
with the private sector.
By consulting widely with the technical
experts who have first-hand commercial
knowledge of clients and their needs,
governments are able to develop and
introduce attractive products facilitated
by modern, innovative legislation and
hospitable working environments for the
plethora of experts needed to underpin the
industry.
While the islands of the Caribbean
were playing catch up with the Channel
Islands, their political status became a
deeper cause for concern in Whitehall.
Political correctness became imperative
and the defences against increasingly
unacceptable governance arrangements
with former colonies, led to a restructuring
76 | LawyerIssue 77

International Finance Centres
of relationships with Britain that saw more
attuned to the demands of the industry
rapidity with which the provision of financial
of the arguments in support of the most
autonomy vested in local governments,
and in most centres made the adaptations
services from outside of the large Western
dramatic measures – public registers of
which were encouraged to develop financial
necessary to sustain it. So, technology
cities has become reviled and despicable
beneficial owners – tend to cloud the
services as an assured revenue stream and
and infrastructure are added to the list of
in the eyes of international organisations
underlying issues and the practical realities.
a path away from aid and grants from the
requisite characteristics for a successful IFC.
that have come in the last ten years or so
In the Caribbean – particularly in Cayman,
UK.
to regard what was once the legitimate
Bermuda and the BVI identification
In the meantime they all became truly
avoidance of taxation and the preservation
evidence of beneficial ownership has long
The new status of British Overseas
international – providing products and
of wealth for future generations as
been the norm, although such information
Territories brought with it tensions over
services that were sought after and used by
abominations.
is confidentially held not publicly available.
citizenship and control of finances. The
global corporations and UNHWIs as parts of
governments of BOTS were however
complex cross-border transactions.
International organisations have reacted
There are very good reasons to maintain
urged not to rock the boat as the tenuous
with uncharacteristic speed and resolve to
that position, but NGOs are not satisfied
financial services industry could soon
In most Caribbean financial centres there
reverse well established tenets of privacy,
with such reasons and revenue hungry
evaporate if the perceived stability of British
are significant developments in corporate
confidentiality and legitimate succession
jurisdictions have become the most ardent
status and the presence of Her Majesty the
and trust law not only at the legislative
planning. Statutory provisions onshore that
supporters of the positions adopted by the
Queen as Head of State were threatened.
level, but also in jurisprudence as a
saw a flight of capital to emerging financial
likes of Tax Justice Network and ICIJ.!
So, political stability became an important
result of litigation involving multinational
centres and to “tax havens” have been
characteristic of the successful IFC.
corporations and individuals who choose
repealed and criminal liabilities imposed on
In the meantime the advisability of
to litigate their causes in the well renowned
actions that were once perfectly legitimate.
maintaining an appropriate balance
Easy access to markets and the
courts of the region.
between the need for regulation and
development of niche products also
! Disclosure of the identity of beneficial
the benefits of international business, is
became important with each of the
Indeed, the establishment in the BVI of
owners is now atop the agenda of all
overlooked and decried as a tax dodger’s
Caribbean sectors developing a specialist
the Commercial Division of the Eastern
political parties in Europe; meanwhile, the
anthem.
track. While competition was keen,
Caribbean Supreme Court has become a
real powerhouses of the Asian economy,
specialisation afforded room at the table
significant feature of the BVI offer winning
Singapore and Hong Kong, having
Professor Jim Hines, no stranger to this
for everyone and, although proximity to
accolades from prominent commercial
outstripped the growth and development of
Conference, published a significant work in
the US east coast was a huge advantage
litigators globally. So reliable judicial
the Caribbean IFCs, have only now begun to
2009 analysing the role of IFCs in the global
to some, others found Asian markets very
systems are yet another sought after
emulate the regulatory provisions that have
economy. He has concluded that:
receptive to a cost effective product and
feature of the successful IFC.
been in place in the Caribbean for more
the mobile expertise that resided in the
than 15 years – and they deserve full credit
“Offshore centres act as conduits for
Caribbean but commuted frequently to
Unfortunately, as with the larger and more
for that, For the Caribbean IFCs, however, it
global trade and ease international
Hong Kong and Singapore which was then
accepted financial centres such as London
is a different story –no sooner is the ink dry
capital flows. International joint ventures
still called the Far East.
and New York, there have been those who
on one sanctioned agreement than another
are often structured as companies in an
abuse the systems for their own benefit
imposition is pushed through the pipeline.
offshore jurisdiction when neither party in
The rapid advances of technology and
and to conduct illicit activity. However, the
Keeping pace with the international
the venture wishes to form the company
the flexible co-operative relationship with
foresight of the region’s governments saw
“common standards” is not for the
in the other party’s home jurisdiction
Cable & Wireless allowed Caribbean IFCs
the introduction of regulation as early as
fainthearted, nor for the unfit. Indeed we
for fear of unwanted tax consequences.
to capitalise on the modernisation of
1990, such that some jurisdictions were
may well have come to the point where only
Although most offshore financial centres
communications with the introduction of
found to be ahead of the curve by the time
the super-strong will survive.
still charge little or no tax, the increasing
the internet (which eliminated the arrival of
Whitehall chose to become involved.
sophistication of onshore tax codes has
faxes stamped “Top Most Urgent” on the
While the demands of stringent global and
meant that there is often little tax benefit
desks of lawyers all over the Caribbean).
Since 1990 the introduction of appropriate
some may say extra territorial regulation
relative to the cost of moving a transaction
regulation has been an increasingly
have begun to impact the growth and
structure offshore.”
The burgeoning populations of the new IFCs
important requirement for the preservation
development of all IFCs, it is particularly
put a strain on the islands’ infrastructure
of the industry around the world. However
true that allegations of over-regulation fall
Where then are the benefits or advantages
but governments remained sensitive and
many people are still stunned by the
on deaf ears while in fact the politicisation
of doing business with IFCs in the
78 | LawyerIssue 79

International Finance Centres
foreseeable future? How can the success
of corporate vehicles that were flexible
those in Europe, the USA and Latin America
niches that have come to define each of us.
of the 90s and early millennium days
enough to submit to jurisdictions other
annually over the next five years.
be sustained? Is there a demand for the
than that of their domicile.
Just as those service providers who
services provided by these centres? Are
predicted the present environment became
the markets available and accessible? Can
The International Business Company
nimble enough to adapt whether by
IFCs survive? What must IFCs do to ensure
and the so called “offshore trust” were
The VISTRA Group believes that:
downsizing, outsourcing, consolidating or
their survival? Of what value today are the
devised as a means of providing just the
even expanding, so too jurisdictions must
characteristics that helped achieve their
privacy, confidentiality and tax efficiency
“Part of staying relevant means engaging
become more nimble and proactive rather
success? Does the new regulatory paradigm
that such markets demanded. The wave
with China, still the fastest-growing source
than reactive to the winds of change.
require “reinvention” of the IFC?
was sustained right through to the
of new business yet a constituency that
Global Financial Crisis in 2007, but while
is now looking to put capital to work
The VISTRA Group says:
The viability and success enjoyed by IFCs
growth slowed, it can nowhere be said
overseas as much as find ways to bring
between 1984 and 2007 were in no small
that demand has atrophied – it may have
it in. This amounts to a more global
“Jurisdictions face a similar battle to
way due to the emergence of a class of
mutated somewhat, but the real demand
opportunity, which can be tapped by
(service providers) to prove they are
persons particularly in Asia and Latin
for financial services has not dried up.
industry participants almost irrespective
relevant in an increasingly complex
America who have come to be known as
of their location.”
commercial environment. A number of
HNWIs or UHNWIs.
A significant industry leader, the VISTRA
offshore financial centres have already
Group of Hong Kong, has for the last five
Nor is China the only growth market.
carved out niches for themselves… and it
Being more commercially minded and
years conducted a survey of the financial
Most global economic indicators show a
is difficult to see them being supplanted.
business savvy than the wealthy of the 18th
services industry in offshore financial
great surge in wealth in Africa, the Middle
Others must identify a unique selling point
and 19th Century, they became increasingly
centres. In their 2014 report “Looking
East and Latin America. Notwithstanding
and invest in it, or face extinction.”
involved not only in cross border
Forward: an industry on the move”,
political instability, business development is
transactions but in the movement away
respondents were split 50/50 between
progressing rapidly across Africa with clear
I believe that deeper and closer
from the “socialist” 60s and 70s, where
Asia and the rest of the world. The report
indications that burgeoning wealth will see
collaboration with the private sector is
Government raised taxes on the rich in
asserts that:
increased demand for financial services
needed in order to assist governments to
order to provide programmes for the poor.
in those jurisdictions where legislation
develop and introduce legislative regimes
“When asked to name the top 10 locations
does not yet provide the sort of flexible
that will win new business and service the
Tax efficiency became an imperative, and
for client origination over the next five
succession planning options with which
demands of longstanding clients.
the demand for financial services that
years, 40% of respondents opted for China,
most of us are familiar.
facilitated such efficiencies as well as
well ahead of the United States (US) and
Collaboration must be real not cosmetic.
the protection of assets from rapacious
the United Kingdom (UK) in second and
So there are markets, but the burning
Legislators and civil servants must have
governments willing not only to impose
third, with 13% and 10%, respectively”.
question is, can Caribbean IFCs provide
significant buy in to the mission of every
high taxes, but also to confiscate private
what these markets want? Confidentiality is
government to preserve and upgrade the
wealth, increased exponentially.
The report notes that the survey results
gone, but notwithstanding the diminishing
jurisdiction in order to ensure ongoing
are not skewed because of a heavier Asian
returns on selling confidentiality, the
success. Facilitating the improved growth
So far as wealthy private citizens especially
response. It is clear from an analysis of the
products and services of IFCs are still very
and development of the financial services
in Latin America were concerned, the threat
respondents that industry practitioners
much in demand and will continue to be.
sector in any IFC will require a genuine
of kidnapping – a measure adopted by
from the Middle East as well as the
effort that will involve the entire population.
many “revolutionaries” for the purpose
Caribbean share the views of their Asian
It is undeniable that a wealth of technical
of raising revenues –was a growing and
colleagues that more and more business
expertise resides in all the various facets of
Governments must be willing to reach
predominant concern.
will come directly from China.
the industry in Cayman, Bermuda, Bahamas
across the aisles to embrace their
and BVI, so perhaps then a key to success
colleagues on the opposition benches in
Legal and financial advisers in the Global
Journalists from serious magazines such
in the new paradigm is for that expertise
order to solidify leadership in a common
Financial Centres initiated, encouraged and
as GQ, The Economist and Forbes all agree
to be innovative and assertive – offering
goal. Westminster model democracies
supported the use of low tax jurisdictions
that the number of new millionaires and
new products, better quality services and
do not tend to do that very well, but
as banking options but also as sources
billionaires in China will continue to outstrip
generally diversifying from the narrow
Caribbean IFCs (perhaps all the nations of
80 | LawyerIssue 81

International Finance Centres
the Caribbean) need only look eastwards to
entire society and specialisation is not only
three or four times in a career in order to
on the value of integrity and a virtually
Singapore for an example of how to ensure
encouraged but fully supported.
take advantage of opportunities offered
corruption free society. One of them
the success of an IFC.
in every recognised jurisdiction from
describes the secret of Singapore’s success
IFCs wishing to be successful in the
London to Uruguay and Zurich to Shanghai.
this way:
Taking advantage of such fortuitous factors
coming decade need to do the same thing.
Therefore the successful IFCs must do
as location, opportunity and timing, the
Emphasise education from the cradle to the
everything to attract, empower and retain
“What explains a willingness on the part of
late Singaporean President Lee Kuan Yew
grave. The general population must learn,
highly trained work forces.
so many foreigners to park their funds and
built a nation from scratch – retaining
know and understand the industry and its
their wealth in Singapore? The explanation
the fundamental legacies of colonialism
significance to the jurisdiction and be willing
The second characteristic that Singapore
lies in an ability to trust Singapore as a
that he found advantageous but ruling in
to support their governments’ commitment
emphasised was discipline – not only moral
place where promises are kept, the rule
a disciplined way, he emphasised a few
to enhancing opportunities for the industry
and ethical discipline, but fiscal discipline.
of law maintained, justice is assured,
things that made Singapore an enormous
– especially where the industry is the
Singapore began as a poor nation and Lee
government policies are predictable.
success, and solidified his legacy. Firstly he
main revenue earner. Programmes must
Kuan Yew taught his people to act poor. A
Singapore offers reliability, integrity,
took steps and made huge investments,
be introduced at primary and secondary
former head of the Singapore civil service
quality, hard work and trustworthiness.
as he put it, “to develop Singapore’s only
school level that expose young people to
and now a significant business leader in
These are what make for long-term
significant resource, its people”.
the sector.
Singapore, Lim Siong Guan spoke of Lee
relationships.
Kuan Yew’s legacy at a Business Times
He invested in education. In eulogising
In Singapore, teachers’ salaries are so
conference on March 31st.
Trust is the root of relationships, and
Lee Kuan Yew recently, a former Executive
structured as to attract only the best
honour is the foundation of trust, where
Vice-Dean of the Lee Kuan Yew School of
graduates for the jobs on offer. In all IFCs,
He told delegates that the starting mind
the people, businesses and government
Public Policy at the National University of
Community Colleges must develop curricula
set of Singapore in the 1960s was that of
deliver on their word of honour.
Singapore, said: “it should be emphasised
that equip students for successful entry into
a poor man: “life is uncertain, earn what
Singapore’s place in the community of
that Singapore’s education system was
the industry.
you can, save what you can, spend on what
nations obviously depends not just on
not designed de novo by Lee Kuan Yew
you need, we never know what tomorrow
trust, but on being able to mobilise talent,
and his colleagues. Rather, it was built on
Organisations like ICSA, CLT and STEP can
will bring, so be prepared and save for the
and to synergise the efforts of workers,
the very solid foundations inherited from
help with that. STEP certifications are now
rainy day.”
employers and government under superior
Singapore’s British colonial past. I
the gold standard for every employer in
leadership. But honour has to be the
the industry from Bermuda to Brazil and all
The attitude to wealth persists even now
starting point and the abiding foundation.”
n contrast to many of his contemporaries
points in between.
that Singapore is perceived to be a rich
among post-colonial leaders, Lee Kuan
nation. Although Singaporeans may have
Alongside Singapore at the top of the
Yew was not afraid to embrace whatever
The new realities that impact all IFCs
become more relaxed in their consumer
successful IFCs of the future sits Hong
elements from that past that would prove
demand highly specialised services. Clients
habits, on the part of the government there
Kong. Benefitting from its special
useful to the nation-building enterprise.
are no longer bound by old loyalties but
is a fierce determination not to spend the
relationship with and close proximity
Nowhere is this approach more evident
go shopping for jurisdictions that can offer
country back in to poverty.
to China, Hong Kong enjoys an enviable
than in education.”
such services not only at the right price, but
position. It is the IFC most likely to benefit
most often from a single shop.
According to Mr Lim, they are
most directly from the explosion of wealth
Today, Singapore with a population of five
“understandably, concerned that
in China.
million people, boasts among its several
Service providers are increasingly becoming
Singapore could be setting itself up to fall
tertiary and specialist level institutions, two
multi-jurisdictional so as to serve their
into a situation where the country is in
It has become the destination of choice
universities that consistently rank among
highly mobile global clients from wherever
fact poor, but the Government provides
for most expatriates seeking to work in
the world’s top 75 institutions of higher
they choose to reside.
for the people as though they are rich”.
offshore financial services and the last ten
learning – the same as China, Japan and
Perhaps Caribbean governments and IFCs
years have seen unprecedented levels of
Germany.
Practitioners too have become more
need to pay attention.
migration from Europe and the Caribbean
mobile and flexible. More and more people
to Hong Kong.
Singapore’s tertiary level institutions span
are willing to step outside their inherent
Finally in relation to Lee Kuan Yew, his
the gamut of relevant training needs for the
comfort zones and move across oceans
eulogists have placed great emphasis
Global trust corporations and law firms
82 | LawyerIssue 83

International Finance Centres
are making huge investments in their Asian
operations and setting up in Hong Kong has
become an imperative to success for many
heretofore traditionally conservative and
quintessentially Western entities such as
the “magic circle” accounting and law firms.
So globalisation is another key to success
for IFCs.
The global application of new and more
inflexible regulatory standards affects all
IFCs. Jurisdictions that were once secure
in their niche markets must now re-invent
themselves to create new attractiveness;
. the things that worked for us all in
the 90s are no longer the only reliable
characteristics for the new millennium.
Location, legislation, political stability, public
private partnerships, and soft selling, must
now all be supplemented and underpinned
by expertise, dynamism, assertiveness,
client focused products, synergies between
governments and service providers,
sophisticated infrastructure and superior
leadership. It’s not enough simply to be
user friendly.
Jurisdictions now have to work much
harder to motivate their populations both
indigenous and expatriate to develop and
maintain hospitable environments for
healthy survival of their industry.
It will not be enough to introduce
innovative legislation, it will be necessary
to train the resources that will support the
management and sale of those products
from within their jurisdictions.
Ramping up educational opportunities at
every level, insisting on high standards of
qualifications for all industry practitioners
and facilitating, genuinely and reliably
facilitating, the transplanting of expertise
into their jurisdictions in order to enhance
the global offer – all these things must
simultaneously impact the policies geared
to sustaining growth and development of
the financial services sectors of all IFCs.
Success then will be defined not only by
longevity but by the key indicators that
keep an IFC recognised and recognisable as
a “major player”:
Is it a stable, reliable, honest environment in
which to do business?
Is the legislation modern, flexible and
innovative?
Is the expertise available to facilitate use of
the jurisdiction?
Are the “products” relevant and attractive?
Is regulation appropriate and
accommodating?
Are services world class and efficient?
Is the judicial system trustworthy and reliable?
Can the jurisdiction provide everything the
client needs?
Competition is fierce. But imagine the
possibilities if we faced adversity together
rather than letting old school philosophies
impact our policies. Is there really still room
for “divide and rule” in the 21st Century?
Caribbean IFCs so often allow themselves to
be picked off hoping that winning brownie
points with the FCO will ensure some
secure position, But all that does is ensure
that even harsher measures will be adopted
sooner rather than later.
Imagine if we’d all held hands and run the
course together! We might have saved
confidentiality! But again here we are:
Recognisable brands cannot continue to
rely on traditional trade ties.
Everyone must engage in more direct
interface with the leading players in the
target markets –including the governments
– in order to secure viable commercial
relationships advantageous not only to the
seller but to the buyers as well.
Clients too will need to be educated to the
need for substance over form. Advisers will
need to become far more closely involved
with all aspects of clients’ operations in
order to deliver more comprehensive
practical advice.
Hélène Anne Lewis
Partner at SimonetteLewis
T: +1 284 494 4367
Email: heleneannelewis@simonettelewis.com
Cross disciplinary practices will continue to
emerge as lawyers, accountants and estate
planners will need to work closely together
across disciplines as well as across borders.
There is much work to be done but for
those who are willing and able to reinvent
themselves, the rewards are possibly larger
than ever.
Just remember: Hell is where the
regulators are in Singapore the marketers
are BVI and the products are from Gibraltar
but Heaven is where the regulators are
Guernsey, the products are BVI and the
marketers are Bermuda.
Hélène Anne Lewis is a national of Trinidad and Tobago and English qualified lawyer of more than twenty-five years
who has been practising in the BVI since 1990. She is the Founding Partner of SimonetteLewis a boutique law practice
that serves as BVI legal advisers to private banks in Europe and Asia as well as to private wealth advisers and high
net worth individuals onshore. Mrs Lewis’ practice includes advising on property, trust, probate and corporate
matters involving BVI structures.With her Litigation Partner, she has also appeared in several high value trust and
civil litigation matters in the Supreme Court of the Virgin Islands and the OECS Court of Appeal. She has presented to
several conferences on Trust, Compliance and Corporate issues and is a member of the organising committee of one
of the trust industry’s most successful conferences – the STEP Caribbean Conference which she has chaired twice in
her capacity as Chairman of the BVI Branchof the Society of Trust and Estate Practitioners (“STEP”). She is currently a
member of the STEP Board of Directors and Chair of STEP Worldwide.
After admission to the Bar at Gray’s Inn the former Hélène Anne Simonette returned to Trinidad where she was
at various times, State Counsel in the Attorney General’s Chambers, Legal Advisor to the Ombudsman and to the
Leader of the Opposition. After having been the Senior Crown Counsel and sometimes Acting Attorney General of
the Turks and Caicos Islands, she joined a prominent BVI law firm but established her own practice (SimonetteLewis)
in February 2007. Mrs Lewis has served as President of the B.V.I. Bar Association, of which she was previously
Secretary for seven years and has also served as Vice President and Treasurer of the OECS Bar Association, a
regional association of the Bar Associations of the nine countries which comprise the Organisation of Eastern
Caribbean States. She has served as a member of the Council and Board of Directors of the Society of Trust and
Estate Practitioners and has the distinction of being elected in November 2012 to be Chairman of the Society of Trust
and Estate Practitioners. She was re-elected to the post in November 2013 and stood down in November 2014. She
currently services as a Vice President of STEP Worldwide and Chairman of the Branch Development Committee.Mrs.
Lewis is also admitted to practice in St. Kitts & Nevis.
84 | LawyerIssue 85

Trusts
DO TRUSTS HAVE A FUTURE IN THE
CONTEXT OF THE 4TH AML DIRECTIVE?
by Monica Galea John
It is an undisputed fact that money laundering is a major hindrance to a
stable EU market. Money laundering distorts economies by allowing the
corrupt to legitimise the illegal. It has unfortunately become increasingly
common to witness the world’s most corrupt to launder their funds derived
from illicit sources into financial centres.
The Fourth EU Anti Money Laundering
Directive (the “Directive”), which has just
made its way through the EU’s legislation,
is designed to update and improve the EU’s
Anti-Money Laundering (AML) and Counter-
Terrorist Financing (CTF) laws.
The changes are in line with the
recommendations issued in 2012 by the
Financial Action Task Force (FATF) which
is the international global AML and CTF
standard-setting body.
What becomes immediately clear from
an overview of the Directive is that it
obliges, for the first time, EU member
states to maintain central registers listing
information on the ultimate beneficial
owner of corporate and other legal entities,
as well as trusts in certain cases.
Interestingly enough, it appears that these
central registers were only included by
MEPs during the negotiations and were not
envisaged in the European Commission’s
initial proposal.
Clearly, the aim is to enhance transparency
and target those criminals in Europe who
have for many years used the anonymity of
offshore companies and accounts to hide
their financial dealings.
In the words of Krisjanis Karins (EPP,
LV) (Economic and Monetary Affairs
Committee rapporteur) “Creating registers
of beneficial ownership will help to lift
the veil of secrecy of offshore accounts
and greatly aid the fight against money
laundering and blatant tax evasion”.
Essentially, a central register of an EU
country would contain a list of the ultimate
owners of companies which register
would be accessible to the competent
authorities and their financial intelligence
units (without any restriction) as well
as to “obliged entities” (such as banks
conducting their “customer due diligence”
duties).
Additionally, any person or organisation
who can demonstrate a “legitimate
interest” (such as investigative journalists
and other concerned citizens) with respect
to money laundering, terrorist financing
and the associated predicate offenses –
such as corruption, tax crimes and fraud –
are granted access to beneficial ownership
information, such as the beneficial owner’s
name, month and year of birth, nationality,
residency and details on ownership. Timely
access to beneficial ownership information
should be ensured in ways which avoid any
risk of tipping-off the company concerned.
In terms of the Directive, any exemption
to the access provided by member states
would be possible only on a case by case
basis in exceptional circumstances. Access
to the information on beneficial ownership
shall be in accordance with data protection
rules and may be subject to online
registration and to the payment of a fee. It
is very dangerous that the Directive failed
to define “legitimate interest” as this may
give rise to confusion and uncertainty as
well as potential room for abuse.
The persons who are able to demonstrate
a legitimate interest should have access to
information on the nature and extent of
the beneficial interest held consisting of its
approximate weight. Member States may,
under national law, allow for access that
is wider than the access mandated under
this Directive. The UK, for example, has
opted for a publicly accessible register of
corporate beneficial ownership.
As far as trusts are concerned, the FATF
recommendations have likewise obliged
countries to take measures to prevent the
misuse of legal arrangements for money
laundering or terrorist financing. The
FATF recommendations have specified
that countries should ensure that there is
adequate, accurate and timely information
on express trusts, including information on
the settlor, trustee and beneficiaries that
can be obtained or accessed in a timely
fashion by competent authorities.
This was faithfully transposed in Articles
30 of the directive which provides that
Member States shall require that trustees
of any express trust governed under their
law obtain and hold adequate, accurate
and current information on beneficial
ownership regarding the trust.
This information shall include the identity
of the settlor, the trustee(s), the protector
(if any), the beneficiaries or class of
beneficiaries, and of any other natural
person exercising effective control over the
trust.
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Trusts
The Directive further provides that Member
States shall ensure that trustees disclose
their status and provide in a timely manner
the information referred to above to
obliged entities (such as banks in the course
of undertaking customer due diligence
measures), when, as a trustee, the trustee
forms a business relationship or carries
out an occasional transaction above the
threshold set out in points (b), (c) and (d) of
Article 111 and accessed in a timely manner
by competent authorities and FIUs.
This has inevitably triggered a debate as
to how to reconcile this easy access to
information with the right to confidentiality
especially when once bears in mind that
that trusts are widely used to protect the
interests of vulnerable family members.
As professionals, we all appreciate the
importance of having measures in place to
prevent the movement of illicit funds, and
commit to ensuring that such measures are
effective. We are experiencing on a daily
basis the loss of human lives caused by
terrorist attacks and we all feel this innate
drive to do our part to curb the flow of
funds to terrorist organisations and help
curb these atrocities.
Equally, as professionals, we have a
commitment to preserve the legitimate
confidentiality of our clients’ financial
affairs. This will be an ongoing dilemma
that most are confronted with.
It is interesting to note that a much wider
debate is under way in many countries
on whether it is time to give power to
governments to monitor email traffic to
fight serious crime at the clear expense
of the right of individuals to privacy. As a
profession, we need to recognise that we
are confronted by similar dilemmas and
need to help develop effective solutions.
Thankfully, the mandatory register of trusts
applies only to taxable trusts and it will not
be public. In terms of the Directive, Member
States shall require that the information
mentioned above is held in a central
register only when the trust generates tax
consequences.
The central register shall ensure timely
and unrestricted access by competent
authorities and FIUs, without alerting the
parties to the trust concerned. Moreover,
information on trusts will only be available
to competent authorities. Ultimately this
information could nonetheless be collected
by tax authorities as a result of automatic
exchange of tax information agreements
and therefore one does not envisage that
the impact on the institute of trusts will be
too major in this sense.
The abovementioned strict limitations
placed on access to trust registers were
naturally welcomed by trust practitioners
especially when one considers that trusts in
common law countries are regularly used
to protect vulnerable beneficiaries, some
of whom could be at significant risk if their
identities were published. Therefore said
limitations allowed families to maintain
their fundamental right to respect for a
private family life.
Whilst the focus is on the Directive and
therefore the direct impact on EU countries,
the pressure to allow public access to
beneficial ownership information is
spreading around the world in the wake
of the revised FATF Recommendations.
To mention a few, it appears that the
government of the British Virgin Islands is
planning to introduce some new measures
whilst the government of the Cayman
Islands said it will work on the Directive. It is
clear to everyone that we’re living in an era
where there’s nowhere to run to or hide!
[i]
(C) in the case of persons trading in goods,
when carrying out occasional transactions
1 Article 11 provides that “Member States
in cash amounting to
shall ensure that obliged entities apply
customer due diligence measures in the
Eur10,000 or more, whether the transaction
following cases:
is carried out in a single operation or in
several operations which appear to be
(b) when carrying out an occasional
linked;
transaction:
(d) for providers of gambling services,
(i) amounting to Eur15,000 or more,
upon collection of winnings, the wagering
whether that transaction is carried out in
of a stake or both, when carrying out
a single operation or in several operations
transactions amounting to Eur2000 or
which appear to be linked; or
more, whether the transaction is carried
out in a single operation or in several
(ii) which constitutes a transfer of funds, as operations which appear to be linked.[i]
defined in point (9) of Article 3 of Regulation
(EU) 2015/847 of the European Parliament
and of the Council exceeding Eur1000;
Monica Galea John
Partner at French & French Advocates
T: +356 21 241 232
Email: monica.galeajohn@fenlex.com
Dr. Monica Galea John is a partner at French & French Advocates, a leading multi-disciplinary Maltese law firm
established in 1891, where she heads the Compliance Team within the Financial Services Department. She graduated
in 1999 as a Doctor of Laws from the faculty of Laws of the University of Malta and holds a masters of Arts in
Financial Services from the same university. Her areas of practice include corporate law, corporate finance, mergers &
acquisitions financial services and banking law, trusts & estate planning, prevention of money laundering & financial
terrorism requisition, general commercial law and family mediation.
She is a member of the institute of Financial Services Practitioners of Malta and sits on the Prevention of Money
Laundering & Financial Terrorism Sub-Committee of the Institute. She acts as a Compliance Officer and Company
Secretary for a number of financial services entities licensed by the Malta Financial Services Authority. Dr. Galea John’s
other professional memberships include the Camera degli Avvocati of Malta and Member of the Society for Trust &
estate Practitioners
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