www.brownrudnick.com SUIT bulletin STRONG STRONG International Disputes November 2012 REGULATORY NEWS AND CASE UPDATES FROM BROWN RUDNICK’S INTERNATIONAL LITIGATION AND ARBITRATION PRACTICE

in This issue NEWS

NEWS n Brown Rudnick Expands its Global White Collar Brown Rudnick Expands its Global White Collar Defense & Government Investigations Practice Defense & Government Investigations Practice n Brown Rudnick Files Goldman Claim on Behalf Brown Rudnick LLP is pleased to announce that Mark Beardsworth has joined of Dutch Pension Fund the firm as a partner in the London office. Mark focuses his practice in the defense n Brown Rudnick Hosts Conference in Tunisia: of serious fraud and criminal matters, with expertise in prosecutions brought 4-5 October 2012 by the Serious Fraud Office, the Financial Services Authority and HM Revenue and Customs. These cases are often complex, high profile and international in Regulatory & Legislative scope. Mark undertakes investigations for companies, institutions and on behalf Developments of regulators. He also advises companies and their directors in a wide range of n Redress for mis-sold Swaps, but only if you’re corporate, regulatory and compliance matters, as well as individuals facing criminal “unsophisticated” and professional disciplinary proceedings. He writes and speaks regularly, both in the UK and abroad. Mark joins the firm at the same time as Thomas A. Ferrigno, n The UK Bribery Act : One Year On who will be based in the firm’s Washington D.C. office. n First Whistleblower Award Leaves More Questions than Answers “We are delighted to welcome Tom and Mark to our Firm,” said Joseph F. Ryan, Chairman and Chief Executive Officer of Brown Rudnick. “With the addition of Case Law these two highly regarded attorneys Brown Rudnick continues to deepen our n Dramatic Development in Eurozone Bank international bench strength in the areas of white collar defense and government Restructuring investigations. We are committed to providing our clients across the globe with top tier talent and expertise.” n Ukrainian Court Recognises English Court Freezing Order “As our clients continue to face heightened scrutiny by government authorities in n EU Cross-Border Enforcement of Judgments the United States, the UK, and elsewhere, these two accomplished attorneys are in Default: A Note of Caution valuable additions to our team,” added Mark H. Tuohey III, head of the Firm’s White Collar & Government Investigations Practice. “We are very pleased to welcome n Executing Judgments Against Sovereign Assets: Tom and Mark as we look to the Don’t Look Back continued expansion of our global footprint in this practice area.” MENA Corner – News from the Middle East and North Africa “I am delighted to be joining n Dubai Land Department to Open New Arbitration Brown Rudnick,” added Mark Centre for Real Estate Disputes Beardsworth. “The Firm offers n Real Estate Arbitration Award Not Enforced in me an excellent platform to Dubai on Grounds of Public Policy continue building my practice internationally.” n New Saudi Arabian Arbitration Law Mark Beardsworth Tom Ferrigno

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Brown Rudnick Files Goldman Claim experts from North Africa. Mark Dorff, Partner at Brown Rudnick and Chairman of the Law Firm Network commented, “We are on Behalf of Dutch Pension Fund pleased to have the opportunity to be in Tunis and to be part of On 9 July 2012, acting on behalf of the Dutch pension fund Pensio- the emerging economic development in the region.” enfonds Vervoer and two related parties, Brown Rudnick filed a 250 million professional negligence claim against Goldman Sachs Asset Management International (“GSAMI”). The claim focuses on GSAMI’s mandate as a fiduciary investment manager during the period 2006- 2010, and has two distinct elements arising from GSAMI’s conduct of investments in separate asset classes. The first part of the claim relates to losses suffered in a planned investment in European Government Bonds which was effected through the use of an inappropriately risky portable alpha structure in 2007; and the second seeks to recover losses incurred as a consequence of GSAMI’s flawed implementation of an investment in Global High Yield Bonds in 2009.

GSAMI’s defence is currently expected towards the end of 2012, with the still to be agreed trial timetable likely to take this highly complex matter well into 2014. The second day, organized by Brown Rudnick in conjunction with the International Chamber of Commerce, focused on dispute Brown Rudnick Hosts Conference in Tunisia: resolution in the region. There was discussion of a broad range of 4-5 October 2012 topics, including the 2012 ICC Rules of Arbitration, expropriation of assets, asset-tracing and recovery, and alternative dispute resolution. A large contingent from the Brown Rudnick litigation and arbitra- Commenting on the event, Nicholas Tse, Partner, Brown Rudnick tion team, along with members of the corporate team, recently noted “We are delighted to have been able to work together travelled to Tunisia for a 2-day conference jointly organized with the with the ICC to put on a conference which has attracted interest International Chamber of Commerce, the Tunisian Bar and the Law from across North Africa, and which deservedly puts the future of Firm Network. international dispute resolution in this region in the spotlight.”

In addition to the conference, members of the team also met with representatives of the Tunisian bar for a round table discussion on the presence of international law firms in Tunisia entitled “compe- tition or collaboration?” as well as for a football match. In respect of the latter event, the team can confirm that none of its members has plans to give up the day job, having been soundly beaten by a skilled Tunisian side, who nevertheless graciously allowed the Brown Rudnick team to hold the trophy!

The first day entitled “North Africa in Focus - The View from Tunisia” was jointly hosted with the Law Firm Network and was made up of a series of panel discussions on issues such as legal capacity building after the Arab Spring, the challenges currently facing investors in the region, and recent developments in dispute resolution. Speakers and Panelists included His Excellency the British Ambassador to Tunisia, Christopher O’Connor, His Excel- lency the Governor of the Central Bank of Tunisia, a representative from the African Legal Support Facility and other prominent

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REGULATORY & LEGISLATIVE Specifically, for all sales since December 2001 to customers categorised as either “private customers” (in respect of sales made DEVELOPMENTS by the Firms on or before 31 October 2007) or “retail clients” (in respect of sales made by the Firms on or after 1 November 2007), the banks will: (a) provide appropriate redress on the basis of what Redress for Mis-Sold Swaps, is fair and reasonable (in the circumstances) to “non-sophisticated” But Only If You’re “Unsophisticated” customers who were sold structured collars; (b) review sales of other interest rate hedging products (except caps and structured In recent months the Financial Services Authority (“FSA”) has collars) for “non-sophisticated”’ customers, and where it is consid- issued various statements in respect of its on-going consideration ered appropriate provide redress on the basis of what is fair and of the previously widespread marketing and sale of interest rate reasonable (in the circumstances); and (c) review the sale of caps if hedges and swaps to small and medium sized businesses (in all a complaint is made by a “non-sophisticated” customer, and where around 28,000 such products were sold in the past decade or so). it is considered appropriate provide redress on the basis of what is Whilst the FSA accepted that the types of products that were sold fair and reasonable (in the circumstances). As a form of safeguard (swaps, caps, collars and structured collars) were not inherently the exercise undertaken by each bank will be scrutinised by an inappropriate, and of course not all will have been mis-sold, it does independent reviewer and overseen by the FSA. In addition to take the view that such products were often not appropriate for the key market players the FSA intends to contact all other banks so-called “unsophisticated” customers and it has found “serious that may have sold such products with a view to agreeing a similar failings” in the actions of some of the largest names in retail banking: exercise with them. Barclays, HSBC, Lloyds and RBS. The identified failures included: (i) a lack of information and disclosure of the costs for exiting a product; Notwithstanding the FSA’s efforts, a major concern for many is (ii) a failure to ascertain the extent of customers’ understanding of that given the applicable criteria to qualify as an “unsophisticated” the risks of the products being offered; (iii) sales that strayed into customer many affected corporate claimants will be excluded. the realms of advised sales; (iv) incentives to bank employees for Under the FSA proposals only corporate claimants that meet at driving sales; and (v) disproportionately lengthy terms of the hedging least two of three qualifications are covered by the agreement, products which far exceeded that of the underlying loan or product namely: turnover not exceeding £6.5m; a balance sheet of no more which was the target interest rate being hedged. than £3.26m; or having less than 50 staff. The other concern is that banks can also dismiss a complaint where it can “demonstrate” that the customer had the “necessary experience and knowledge to The success of any potential mis-selling understand... [the] complexity and the risks involved”. This gives rise claim will therefore depend very much to a concern that notwithstanding the arguably good intentions of the FSA, the banks will still have a great deal of discretion when it on skillful litigators teasing out the facts comes to deciding whether or not to pay any redress. of individual cases, and drawing the Not only does it remain to be seen exactly what the touted “fair and reasonable redress” will be for those falling under the scheme, court’s attention to serious breaches in but those firms not covered by the scheme, or who do not meet the relevant bank’s conduct. the Financial Ombudsman Service criteria, or, even if they do, have incurred losses in excess of £150,000, may have no option but to resort to civil claims. There are mixed views on whether in The selling point of the hedging product s had been the protection the wake of the FSA’s findings the UK courts should be bracing they appeared to afford customers against interest rate rises. itself for a glut of mis-selling cases. Some take the view that the However, given interest rates have fallen dramatically in recent acknowledgment by a number of banks that they participated in years and now stand at historically low levels, the reality is that mis-selling may weigh against them. However, the law in this area many customers have found themselves burdened by unattractive being what it is and the line of relevant authorities more or less products which are proving to be incredibly expensive both in bank-friendly, there are unlikely to be any easy wins. The success of terms of the payments necessary to service them as well as the any potential mis-selling claim will therefore depend very much on cost of any break fee to simply unwind them. skillful litigators teasing out the facts of individual cases, and drawing the court’s attention to serious breaches in the relevant bank’s As a consequence of the FSA’s findings the four largest banks have conduct. An example of the court’s likely approach in such matters agreed they will no longer sell such products to retail customers, comes from the Scottish Court of Session’s recent consideration of and they will undertake a formal process in respect of which claims brought in respect of an interest rate swap by the liquidators “appropriate redress” will be paid “where mis-selling has occurred”. of Grant Estates Limited against RBS. Grant Estates had argued

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that RBS had mis-sold it the swap in that, amongst other things, it This effort may not yet be wasted. The Act is only applicable to had breached the FSA’s Conduct of Business (COB) requirements corrupt practices undertaken after 1 July 2011 so it is hardly thereby entitling Grant Estates to damages under section 150 of the surprising that, to date, there has only been one prosecution under Financial Services and Markets Act 2000. However, in the court’s it. In November 2011 a court clerk at Redbridge Magistrates’ judgment Lord Hodge made it very clear that section 150 does not Court, pleaded guilty to accepting a bribe to remove a defendant’s entitle corporate claimants to a cause of action as its purpose is conviction from the record and was sentenced to 4 years impris- to protect “private persons” against providers of financial services onment. Experienced practitioners will know that new legislation who fail to comply with the FSA rules. The court was also against takes several years to “bed in.” any suggestion of negligent misrepresentation or negligent advice, as the court took the view that RBS’ On 9 October, the SFO published new guidance in relation to facilita- terms of business made it very clear tion payments, self-reporting and corporate hospitality. In respect of the that there was no advisory relationship, latter the SFO has confirmed that “bona fide hospitality or promotional the bank acting on an “execution only” or other legitimate business expenditure is recognised as an established basis. Although the Grant Estates case and important part of doing business”. Through its statement of policy was heard in Scotland, its principles are on facilitation payments, which the SFO had previously acknowledged equally likely to apply to cases heard in would be unlikely immediately to cease following the introduction England and Wales, and may indicate the of the Act, the regulator appears to be preparing corporations for uphill struggle claimants will face in the a more robust approach to be taken going forwards, noting simply absence of strong evidence of specific that “Facilitation payments were illegal before the Bribery Act came Christian Toms breaches on the part of the bank. into force and they are illegal under the Bribery Act”. Significantly, the SFO’s statement on self-reporting makes it clear that whilst corporate self-reporting remains encouraged, there is now no surety that civil settlement will be favoured over criminal prosecution. The UK Bribery Act: One Year On Amidst reports of unrest over budget and high numbers of departures from the SFO, this summer has at least seen some high It is now 16 months since the Bribery Act came into effect. The Act profile appointments including that of Geoffrey Rivlin QC, formerly was touted as a serious declaration of intent by the government to presiding judge at Southwark Crown Court. Coupled with the prosecute corrupt business practices. It was viewed with trepidation success of the Nadir prosecution we may now see the director of by corporations, who struggled to define the practical effect of the the SFO increase in confidence and put the Act back on the agenda. Act’s extra territorial reach. The introduction of a corporate offence where bribery was committed and “adequate procedures” were not in place to prevent it, gave the Act a formidable amount of coverage and a place on every board room agenda. Although the corporate offence has yet to be tested in the courts, the effect of the Act has been substantial. It has coincided with a growing political awareness of the need to be seen to be acting against corruption and an increased appetite for action. The extensive corporate time and money expended to ensure effective compliance and governance means that one aim has already been achieved. Mark Beardsworth Chloe Pawson-Pounds

First Whistleblower Award Leaves More Questions than Answers* On August 21 2012, the U.S. Securities and Exchange Commission disclosed its first whistleblower award under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The announcement, which had long been awaited by the legal and regulatory com- munity, and which attracted a great deal of media attention, was ultimately not as illuminating as anticipated.

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The whistleblower program, which went live in August 2011, SEC Enforcement Director Robert Khuzami stated, “had this allows an informant to receive between 10% and 30% of monetary whistleblower not helped to uncover the full dimensions of the recoveries if the informant provides original information that scheme, it is very likely that many more investors would have been leads to a successful prosecution resulting in monetary penalties victimized.” Some reports have hypothesized that the whistleblower exceeding $1 million. reported in connection with a Ponzi scheme, but the defendant was not named, and there was no explanation as to the underlying Only about a year since the program was first implemented, and conduct. While the SEC is doing a good job of protecting the during a period when the SEC averages eight whistleblower tips identity of the whistleblower and the defendant, the business a day, the announcement that a whistleblower had been awarded community needs to fully understand what operative information $50,000 ultimately raised more questions than it provided answers, led to the whistleblower award. Presumably, the basics of a scheme as the SEC neglected to divulge any of the details behind the could be shared with the public without divulging the identities of anxiously awaited first award. the parties involved.

The $50,000 award represented 30%—the maximum allowed—of The maximum award coupled with iron-clad anonymity may well the approximately $150,000 the SEC has collected from the target encourage other would-be whistleblowers to come forward, corporation thus far. The whistleblower could ultimately collect though everyone except for the anonymous whistleblower remains much more depending on how much money is ultimately collected in the dark as to what type of information will lead to a successful by the SEC. The prompt payment here sends the message that the prosecution and a subsequent whistleblower award. SEC can move quickly to investigate, collect penalties and make the requisite payouts to whistleblowers. We can only hope that the next announcements will provide some additional insight into the whistleblower program. In the meantime, Unfortunately, the SEC’s announcement did not delve into any companies should continue to employ robust compliance underlying details of the fraud, the whistleblower’s connection to programs and implement internal controls to attempt to detect it, or what types of information the tipster had provided. Instead, and prevent fraud. Companies may also consider incentivizing the announcement simply stated that the complaint was received corporate risk managers and internal auditors (who are not eligible through the anonymous tip line, and that the whistleblower had for whistleblower awards) in order to put a company in a better provided substantial information that led to a court-ordered position to detect improper conduct and report before a potential sanction of over $1million. whistleblower does.

If the aim of the whistleblower program truly is deterrence, it is imperative that the SEC provide a more robust explanation of future awards so would-be whistleblowers and companies can understand what works and what does not under the program. The first award, despite its meager size, has given the fledgling program a start, but it still has a ways to go.

* This article appeared in Corporate Board Member in September, 2012: https://www.boardmember.com/ First-Whistleblower-Award-Leaves- More-Questions-than-Answers.aspx The announcement also noted that the SEC had rejected another tipster’s claims for a whistleblower award in the same case because the other tipster had not provided information that substantially contributed to the investigation and enforcement Lauren Curry action. And it is anyone’s guess as to why one whistleblower’s account merited the highest possible recovery from the SEC while another’s meant nothing.

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CASE LAW JSC BTA Bank for the recognition of the freezing order issued by the English High Court in JSC BTA Bank v Mukhtar Ablyazov, Roman Solodchenko, Zhaksylyk Zharimbetov, Drey Associates Limited, Anthony Dramatic Development Edward Thomas Stroud, John Dominic Wilson and Sarah Juliet Wilson in Eurozone Bank Restructuring [2009] EWHC 2840 (Comm).

Case commentary: Assenagon Asset Management S.A. v Irish In this case the bank brought claims against the defendants in Bank Resolution Corporation Limited (formerly Anglo Irish Bank) respect of their alleged involvement in the large-scale misap- [2012] EWHC 2090 Ch (English High Court, Chancery Division) propriation of over US$ 295m of the bank’s assets. The freezing order has already been recognised in Austria, Latvia, Lithuania, In a dramatic vindication of bondholder rights, a judgment of the Luxembourg, the Netherlands, Switzerland and Saint Vincent and English High Court has thrown into doubt the legality of a central the Grenadines. plank of the restructuring of Irish banks carried out by the Irish government in around 2010. The judgment could have repercus- Pursuant to Ukrainian legislation, the decisions and orders of sions throughout the Eurozone. foreign courts are recognized and enforced in Ukraine only if: (i) their recognition and enforcement is provided for by an In Assenagon Asset Management S.A. v Irish Bank Resolution international agreement or treaty ratified by the Verkhovna Rada Corporation Limited (formerly Anglo Irish Bank), Mr. Justice Briggs (the Parliament of Ukraine); or (ii) under the reciprocity principle. in the Chancery Division of the English High Court has ruled that Although the reciprocity principle is presumed unless proved the “exit consent” technique used by Anglo Irish (and a number otherwise, the application of this principle has not been established of other Irish banks) in order to enforce losses on subordinated in over two years and this particular ruling is a very rare example bondholders is not permitted as a matter of English law, which of its application. is the governing law of many of the bonds issued by the banks. Briggs J acknowledged that this was the first time that the legality When recognition and enforcement depends on the principle of “exit consents” had been tested by the English Courts. He of reciprocity, there are a number of grounds upon which the considered the US case of Katz v Oak Industries (1986), in which court can deny recognition or enforcement. Examples of these “exit consents” were upheld in Delaware, but expressly chose not grounds include: (i) if the party against which the foreign court to follow that case. decision is given was deprived of the possibility of participating in the court proceedings due to its not having been given proper Many bondholders who suffered losses from the use of “exit notice of those court proceedings; and (ii) if the subject matter consents” by the Irish banks may now seek compensation. of the dispute is not capable of resolution by courts according The repercussions of this judgment are potentially huge, and could to the law of Ukraine; and (iii) if the enforcement of the decision affect all bond restructurings carried out by the Irish banks in the jeopardises the interests of Ukraine. period 2009 to 2011, as well on the legality of “exit consents” in Clearly, these grounds are wide enough to be applied in other jurisdictions, including in respect of a variety of circumstances, which is why the ruling of the the recent Greek sovereign debt exchange Golosiivskii District Court was particularly noteworthy in Permission to appeal the decision has concluding that none of these grounds applied. The importance been granted to Anglo Irish Bank. Brown of this ruling is also highlighted by the fact that it established Rudnick continues to advise investors in jurisdiction in a case where a non-Ukrainian resident has assets Irish and other Eurozone jurisdictions, in Ukraine, which further demonstrates the ground-breaking including Greece and Spain, on bonds and nature of the decision. sovereign restructurings. Although the ruling is only one of the Steven Friel court of first instance, it gives a glimmer of hope for the future to those who may Ukrainian Court Recognises wish to recognize and enforce a decision English Court Freezing Order of a foreign court in Ukraine in circum- stances where there is no applicable Case commentary: JSC BTA Bank v Ablyazov & others international treaty. Whether that hope (Ukrainian General Court of First Instance, English High Court, will become the norm, however, remains Commercial Court) to be seen. Olga Bischof This summer the Golosiivskii District Court of Kyiv city, the Ukrainian general court of first instance, granted the request of 6 bulletin

EU Cross-Border Enforcement of Judgments The ECJ ruling in this case seeks to strike a fair balance between the principle of mutual trust and recognition (on which the in Default: A Note of Caution framework of the Judgments Regulation is based) on the one hand, Case commentary: Trade Agency Limited v Seramico Investments and a defendant’s right to a fair trial on the other. Limited [2012] EUECJ C-619/10 (European Court of Justice) However, parties seeking to enforce a judgment in default in another Member Regulation (EC) 44/2001 (the “Judgments Regulation”) allows for State must now be aware that Enforcing the near-automatic recognition and enforcement of judgments in civil Courts have greater jurisdiction under and commercial matters obtained in one Member State in another the Judgments Regulation to review Member State, subject only to the limited exceptions set out in and verify evidence in relation to such Articles 34 and 35 of the Judgments Regulation. In particular, Article judgments (as opposed to fully reasoned 36 of the Judgments Regulation provides that “[u]nder no circumstanc- judgments relating to contested legal es may a foreign judgment be reviewed as to its substance”. proceedings), and may in certain cases refuse to enforce such judgments. The exceptions to recognition include instances where recognition Manan Singh would be contrary to the public policy of the Member State in which enforcement is being sought, or where the judgment was given in default and where the defendant was not served with the claim documents initiating the proceedings. Executing Judgments Against Sovereign

On 6 September 2012, the European Court of Justice (“ECJ”) Assets: Don’t Look Back handed down a preliminary ruling clarifying the scope for review Case commentary: SerVaas Incorporated v Rafidain Bank of a judgment in default by a court in the Member State where [2012] UKSC 40 (UK Supreme Court) enforcement of such a judgment is sought (the “Enforcing Court”). In SerVaas Incorporated v Rafidain Bank [2012] UKSC 40 the UK Seramico had obtained a default judgment from the English High Supreme Court has considered the true construction of the Court on the grounds that Trade Agency had not responded to the expression “property which is for the time being in use or intended claim documents that were served on it. Being a default judgment, for use for commercial purposes” contained in section 13(4) of the it did not contain any further reasons for the decision. Seramico State Immunity Act 1978 to describe a category of state property then applied (successfully) to the Latvian court for the recognition which can be subject to execution by a judgment creditor. and enforcement of the English default judgment. The Supreme Court has held that the expression should be given Trade Agency appealed the decision recognising the English default its ordinary and natural meaning having regard to its context and judgment to the Latvian Supreme Court on the grounds that that Parliament did not intend a retrospective analysis of all the (1) its rights of defence had been breached during the English circumstances which gave rise to the state’s ownership of the proceedings, since it had not been informed of those proceedings, property, but rather an assessment of the use to which the state and (2) the default judgment was contrary to Latvian public policy, had chosen to put the property. It is not enough that the property since it did not give reasons. merely relates to, is connected with, or originated from, a commer- cial transaction. The test is narrower. The Latvian Supreme Court referred the matter to the ECJ for a preliminary ruling, and the ECJ ruled that: This decision highlights the difficulties • where a defendant challenges the declaration of enforceability of which a judgment creditor of a sovereign a judgment in default of appearance claiming that it had not been state can face in finding assets against served with the documents initiating the original proceedings, which to execute a judgment and in the Enforcing Court has jurisdiction to verify the evidence in that proving that those assets are not immune. regard and to ensure that it is consistent with the information in The judgment creditor must positively the certificate issued by the original court that gave judgment; and prove that the moneys or other property have been earmarked for use for the • the Enforcing Court may refuse to enforce a judgment given in purposes of a commercial transaction. default of appearance which does not assess the substance and Roger Kennell the merits of the claim only if it appears to the Enforcing Court that the judgment in default is a manifest and disproportionate breach of the defendant’s right to a fair trial.

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Mena Corner Decision of the Dubai Court of Cassation News from the Middle East and North Africa The Dubai Court of Cassation set aside the decision of the Court of Appeal, on the grounds that a dispute arising out of a failure to register the unitsin accordance with the provisions of Law No. 13 Dubai Land Department to Open New of 2008 Regulating the Interim Real Estate Register in the Emirate of Dubai was “a form of dispute relating to public order, since it is Arbitration Centre for Real Estate Disputes related to the rules of individual ownership and the circulation of The Dubai Land Department has recently announced its plan to set up wealth”, and, therefore, fell outside of the cases an arbitrator had an arbitration centre dedicated to real estate disputes. The announcement authority to rule upon. was made at the Alternative Dispute Resolution Conference, during the The Court relied upon Article 3 of the UAE Civil Code, which last edition of Cityscape Global held in early October 2012 in Dubai. provides that “public order shall be deemed to include matters relating to personal status such as marriage, inheritance, and lineage, A draft Law to establish this “real estate arbitration and reconciliation and matters relating to systems of government, freedom of trade, the centre” has been sent to the Executive Committee for approval. circulation of wealth, rules of individual ownership and the other rules The objective, as set out by Mr. Nasser and foundations upon which society is based, in such a manner as not Suleiman, Head of the Legal Centre at the to conflict with the definitive provisions and fundamental principles of Dubai Land Department, is to provide a the Islamic shari’ah”. time-efficient way to settle property-relat- Overview ed disputes. The decision of the Dubai Court of Cassation leaves room for There is no doubt that future develop- criticism on both conceptual and practical levels. ments will be keenly anticipated, especially given the recent decision of the Dubai On a conceptual level, the wording retained by the Court seems Court of Cassation in Baiti Properties v excessively wide and vague, as it tends to suggest that, as a matter Jean-François Le Gal Dynsatsy Zarooni, which is discussed below. of principle, each and any real estate dispute may be considered a matter of public order. This reading ignores the reference to “the definitive provisions and fundamental principles of the Islamic shari’ah” contained in Article 3 of the UAE Civil Code. The wide Real Estate Arbitration Award Not Enforced interpretation of the Court also opens the door to a potentially in Dubai on Grounds of Public Policy endless expansion of the scope of public order matters. Even more importantly, the Court seems to reach the rather unsatisfactory Case commentary: Baiti Properties Development vs Dynasty conclusion that any such dispute by its very nature falls out of the Zarooni Inc. (Dubai Court of Cassation) reach of arbitration.

On 16 September 2012, the Dubai Court of Cassation relied upon From a practical point of view, the solution retained by the Court the principle of public policy to set aside an order for enforcement of obviously puts at risk currently pending arbitration proceedings a domestic arbitration award initially made by the Dubai Court of First in Dubai. More generally, it is likely to raise great anxiety among Instance and then affirmed by the Dubai Court of Appeal. Practitioners and investors as to the reliability of the DIAC, and perhaps Dubai a investors fear real estate arbitration in Dubai may be put at risk as a result. whole, as an arbitration hub.

Background No doubt that the next decision of the Dubai Court of Cassation A purchaser, Dynasty Zarooni Inc., initiated arbitration proceedings on a similar issue will be scrutinized with a mixture of fear and before the Dubai International Arbitration Centre (“DIAC”) against hope by legal practitioners and investors. a developer, Baiti Properties Development, which had failed to fulfill its obligations to complete a project and, in particular, to register the units in the Real Estate Register. In response, the developer filed a separate set of arbitration proceedings against the purchaser, also with the DIAC. Both sets of proceedings were subsequently joined and a single arbitrator appointed. An award was ultimately given, granting part of the purchaser’s claims.

The purchaser then successfully sought to enforce the award before the Dubai Court of First Instance. This decision was later affirmed by the Dubai Court of Appeal in similar terms. Jean-François Le Gal Ravinder Thukral 8 bulletin

New Saudi Arabian Arbitration Law apply it and to the extent that the rules conform with both Sharia law and the rules of the international conventions to which Saudi The new Saudi Arbitration Law was issued by Royal Decree No. Arabia is a party. M.34 on 16 April 2012 and was subsequently approved by the Council of Ministers. It came into effect on 8 July 2012, 30 days According to Article 5, if the parties agree that a specific after its publication in the official gazette ‘Umm Al-Qura’. It replaces international convention or contract governs their relationship, then the old arbitration law of 1983. this convention or agreement shall be applied where this does not contradict Sharia law. The law, which offers new opportunities both for corporates and investors is based on the UNCITRAL Model Law and Sharia Law. The separability of the arbitration clause According to the new law, the parties may decide on arbitration History of arbitration in Saudi Arabia either by reference to agreements which include an arbitration Until 1983, there were no clear or comprehensive rules governing clause or by incorporating an arbitration clause. commercial arbitration. Uncertainty regarding dispute settlement through arbitration threatened commercial activity in the country Article 21 states that the arbitration clause is separate from as arbitration clauses agreed upon between the parties were not the contract in which it is contained. Thus, the termination or often given effect to by the courts. the invalidity of the latter does not affect the arbitration clause, provided it is valid. This provision was not present in the old law. The arbitration law of 1983, which was followed by an Executive Regulation in 1987, put an end to some of that uncertainty. Applicable law However, both arbitration clauses and the enforceability of awards Article 38 states that the arbitral tribunal shall apply the law remained problematic as both were required to conform strictly to chosen by the parties to the extent that this conforms both with Sharia law. Sharia law and public order. Where the parties fail to agree on the applicable law, the arbitral tribunal shall decide on the most relevant The new arbitration law of 2012 law to the subject of the dispute. The Saudi legal system is trying to keep pace with the moderniza- tion of international dispute settlement around the world. The new Arbitrators’ qualifications arbitration law provides corporates and foreign investors with a Under the law of 1983, arbitrators had to be both male and of predictable, impartial and efficient mechanism to resolve disputes Islamic faith although they were not required to be Saudi nationals. according to rules which are both familiar to them and conform to Sharia law. The new law does not have the same rules. But according to Article 14 (3), the sole arbitrator or the chairperson of the panel The new law is based on the UNCITRAL Model Law and this (in case of a panel composed of multiple arbitrators) is required to reflects the commitment of the Saudi legal system to adhere to the have a university degree either in law or in Sharia law. internationally recognized rules of the arbitration process. It deals with national and international arbitration proceedings; it lays down The procedure and rules for challenging arbitrators is dealt with in the governing rules of arbitration in Saudi Arabia; and it covers Article 17. arbitration clauses, and the enforcement of the arbitral awards including foreign arbitral awards. Rules of procedure The new law sets out rules of procedure which are more or less The arbitration agreement similar to the international rules of arbitration in terms of com- The new arbitration law gives discretion to the parties to decide position and challenge of the arbitral tribunal, pleadings, hearings, on the law and the rules which will govern the arbitration, unlike witness statements and expert reports. the old law of 1983, which restricted their freedom of choice by giving a supervisory role to the local courts. Previously, the parties Yet, the parties may choose to follow any particular arbitration were required to obtain the court’s approval of the arbitration rules by incorporating the institutional rules of the ICC for example submission agreement, the terms of reference together with the or the LCIA, and where this happens they shall be applied on procedural rules of the arbitral tribunal. condition that they do not contradict Sharia law.

Article 2 states that the rules of the new arbitration law govern Where the parties are agreed on this, the arbitral tribunal may any dispute arising in or outside Saudi Arabia in relation to choose the appropriate rules of procedure to apply, while taking international commercial arbitration if the parties have agreed to into consideration the rules of the Sharia and the new law of 2012.

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In this regard, compliance with Sharia law in the aforementioned is Conclusion expressly stated in Article 25. In conclusion, the new Saudi arbitration law expresses the willingness of the Kingdom to conform with international laws and Article 29 of the new law states that Arabic is to be the default rules governing arbitration. At the same time, it is a clear attempt language, unless the parties or the arbitral tribunal agree to use to remain attached to the traditions of its legal system and Sharia another language. The chosen language will be the language of the law. Despite this promising move to attract more investment into hearing, statements and the award, unless the parties or the arbitral the Kingdom, the reference to Sharia law in the abovementioned tribunal agree otherwise. aspects of arbitration, especially in the enforcement and annulment The arbitral tribunal may decide whether translations are required phase, will not satisfy everyone. In particular, the risk of annulment for some or all of the presented documents. In contrast, the old of the award in case of non-compliance with Sharia law will law of 1983 stated that Arabic was the only language of the hearing continue to cause some concerns, as it remains an unfamiliar legal and it was prohibited to conduct any part of the arbitration in any system. Yet, the clarity, simplicity, ease of application and greater other language. predictability of the new law mean that it is perhaps the beginning of a positive environment for arbitration in Saudi Arabia. Article 36 expressly allows the arbitral tribunal to appoint one or more experts to provide it with a written or verbal report.

Enforcement and annulment of arbitral awards The new Saudi arbitration law modernizes the arbitration system in the Kingdom. Nevertheless, the local courts continue to play a significant role in the enforcement and annulment of the arbitral awards. This issue, which was rather vague under the old law of 1983, is clarified and specified under the new law.

Article 49 states that an award is final and cannot be the subject of Ravinder Thukral any appeal. However, Article 50 provides that proceedings to set an award aside may be initiated according to rules which are set out in that provision.

As in some of the other of the Gulf countries an arbitral award may be set aside by a local court if, for example, one of the parties who agreed to arbitrate did not have the capacity at the time of concluding the agreement, or the award covers aspects which were not included in the matters to be submitted to arbitration.

Article 50(2) states that a local court may order an ex officio annulment of an award if it finds it to be in violation of Sharia law, public order, the contents of the parties’ agreement or if the subject of the dispute is non-arbitrable under the arbitration law of 2012.

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