Archive for July, 2009

Northern Rock: the Final Chapter …Well Maybe

Friday, July 31st, 2009

By: Ainsley Brown

The shareholders of Northern Rock, lead by hedge funds SRM Global and RAB Capital, have lost their judicial review appeal at the Court of Appeal this week.

This ruling should end the saga of the shareholders´ attempting to use human rights law in order to gain – to their mind – just compensation from the nationalization of the Bank by the UK government.  Well, not exactly, for now it’s only a maybe.

The shareholders, well at least it would seem SRM Global for now, intends to carry on the fight. They intend to seek permission to appeal to the House of Lords – oh sorry, that is the newly minted Supreme Court – or ultimately if that fails to the European Court of Human Rights (ECHR).

So the saga continues, there could be at least two more chapters to come.

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2015 Rugby World Cup Goes To England

Wednesday, July 29th, 2009

By: Ainsley Brown

This is a follow up to Rugby World Cup: England 2015?

73319317The largest rugby competition is going home back to England where the sweet sweet game began – so says the International Rugby Board (IRB). If you cannot tell already well let me confess or should I say profess my love for this game. I am more than simply a fan, I am a proud member of the Brampton ´Breavers´ Rugby Football Club – we are Dam Proud – so every chance I get to mention rugby on this blog I jump at it.

The Rugby Football Union (RFU) beat out its competition to host the 2015 games by putting forward a bid that was about 20% more commercially lucrative than its rivals. The bid is set to net the IRB £220 million from merchandising, broadcasting and sponsorship. It is also estimated that the World Cup will be worth £2.1 billion to the UK economy.

What does all this have to do with law?businessmen-playing-rugby_~IS272-035

Well let’s just say between now and 2015, and perhaps for long after that,  with those kind of figures as noted above, there will be many a lawyer who will earn a pretty penny. They will come to know and appreciate – for those that don’t already – rucks, mauls, scrums, trys, spin passes and drop goals.

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Anti-Dumping Investigations Rose Last Year

Monday, July 27th, 2009

By: Ainsley Brown

Anti-dumping investigations rose by more than 25% in 2008 over the previous year, says the World Trade Organization (WTO).

1212912_growing_graphThe 2008 numbers, 208 in total, are to be contrasted with the peak of 366 in 2001 and the eleven year low of 2007 of only 163. It will be interesting to see what the numbers will be at the end of 2009, they will have no doubt increased. But, why? This is not simply following the general trend over the previous year, no, there is an underlying reason that way the peak of 2001, the low of 2007 and the sharp increase of 2008.

The reason in a word: recession. Yes, recession, it would seem that whenever there is an economic down turn, like the recession that followed the dot-com bubble of 2001 anti-dumping investigations increase. In contrast whenever there is an economic boom, as in 2007, there is a fall in investigations.

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Litigation…..A New Investment Vehicle?

Wednesday, July 22nd, 2009

By: Ainsley Brown

686544_uk_coinage_3It is unquestionable that litigation is big business for lawyers, especially in complex commercial matters.

The billable hours that can be racked up can be astonishing – and unlike popular belief is not largely due to an over inflation in the billing procedures of lawyers, though no doubt this can be an issue for some at times but is rather the result of the litigation process itself (pleadings, motions, discovery, delaying tactics, etc). The ever increasing costs of litigation have forced many a meretricious claim not to be perused simply out of economics – a wholly unacceptable state of affairs.

What if there was a way to externally fund your claim, just like how you would find an investor to fund the start-up or expansion of a business?

Enter three enterprising UK lawyers and you get not only funding for litigation but a potential investment opportunity as well. George Brown, John Byrne and Neil Purslow know a good opportunity when they see one. This is why they launched Therium, a third party litigation fund which intends to invest between £100,000 and £5 million per case with an expected return of 250% on its investment. The fund will be commercial litigation and arbitration focused.

Moreover, Therium intends to raise £50 million by going into the capital markets and with a potential 250% rate of return it should be very attractive to many investors, institutional and individual alike. Given that London is a leading centre for the settlement of commercial disputes, Therium is posed to reshape the business dispute resolution scene in England.

However, while the concept of third party litigation is no longer a crime or a tort in England and Wales since 1967 it is still frowned upon in many circles. It is true that maintenance, the intermeddling of third parties that have no interest in the outcome of a case and champerty, the maintenance of a case with a view for profit, might have been abolished long ago but their influence on the English legal profession remains very strong.

Times they are however changing; the establishment of Therium is proof positive of this.

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Vulture, Tigers And Lions: New African Development Bank Legal Support Facility Set Ambitious Goals.

Monday, July 20th, 2009

By: Ainsley Brown

The African Development Bank (AfDB) has engineered a legal support wing charged with the responsibility of evening out the imbalance in legal expertise that many African nations face when negotiating complex commercial transactions. It will also serve as a necessary firewall for these nations by providing top notch legal advocacy when facing litigation, especially from vulture funds.

Vulture funds?

Vulture´s Sunset?

Vulture´s Sunset?

The aptly named vulture funds or as better known in investment circles:  distressed debt or special situations funds, are those hedge or private equity funds that buy up debt  -in this case sovereign debt – at very low rates in the market or directly from a company or nation at a point when either is illiquid and distressed.  Circling like vultures they buy up this debt with the intention of later bringing suit for recovery at grossly inflated prices as compared to what they paid for the debt.

Most of the cases brought by Vulture funds are either brought in US or UK courts, a point that has not gone unnoticed by NGO´s and legislators alike in both countries. Due to pressure and effective information dissemination by NGO´s, they have managed to bring the issue to the fore enough to see legislation introduced in both the US and UK aimed at curbing the vultures.

The question now is whether these new pieces of legislation, if passed, when combined with the new AfDB legal support facility will be enough to keep the vultures at bay?

It is my hope that either by themselves or combined they are not so watered down and ineffective that they are paper tigers but are the roaring lions they need to be to take on such a monumental task – let’s hope.

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L´Oreal Found Guilty Of Racial Discrimination

Thursday, July 16th, 2009

By: Ainsley Brown

This is part of the Middle Passage Law Series and is cross posted on Law Is Cool.

BBR - Blue, Blanc, Rouge Now I know I have not posted a piece in this series in quite some time and for that I apologize – I have no excuse.

It may seem that I am either picking on L´Oreal, as I have tracked their recent legal battles with eBay on Commercial Law International, either that or I have an obsession with makeup. Let me assure you that neither in the case. With that over, let´s go to the story.

The La Cour de Cassation, the highest court in France, upheld the ruling by the Paris Court of Appeal, finding L´Oreal guilty of racial discrimination. The court also found Adecco, a temp-employment agency, involved through its Districom division, guilty and fined both it and L´Oreal €30,000. The court however, sent back to the Court of Appeal for its reconsideration the €30,000 each in damages payable to SOS Racisme, an anti-racism public interest group that brought the case.

The ruling ends three years of legal wrangling and is no doubt a huge blemish for L´Oreal.

The main issue of fact in the case was BBR. Yes, BBR. What in the world is BBR, you ask?

BBR or blue, blanc, rouge – the colors of the French flag. Now if you were to ask me I would have simply thought that this was a general patriotic gesture, however, it hides a much more sinister meaning. It, as the Times reports is an expression ¨widely recognized in the French recruitment world as code for white French people born to white French parents.¨ This would of course exclude not only the 4 million ethnic minorities current living in France but also any whites not born of pure French stock, including presumably none other than the French President himself Nicolas Sarkozy whose father is Hungarian.

It would seem that word got out that L´Oreal did not want any black, Asian or Arab sales staff to promote Fructis Style, a hair care product made by its Garnier division. Only BBR would do, I guess – because they are worth it – to play on L´Oreal´s because you are worth it ads. But, why?

And this for me is the most troubling aspect of this case. The BBR move by L´Oreal hints at a much larger and disquieting issue in French society. Yes, racism, this is very obvious but much more than that it is brand of racism that operates not just on the fringes of society but at its heart – in the labour and retail markets – while at the same time managing to remain in the shadows .

How is it that this BBR policy that so pervades the French employment and retail markets is only now seeing the light of day?

Like I said, very troubling indeed.

However, a silver lining to all of this is that BBR has now been fully exposed in a court of law. From now on the racial prejudice that operates in the French labour and retail markets can no longer be subject to denials of anecdote or conjecture. The court record stands as an official record by the state that BBR does exist and is a proven fact.

As for L´Oreal, this cannot be good for its brand management. For a company that so fiercely defends its brands, just take a look at its battles with eBay, this was not only a poorly conceived recruitment drive but also incorrectly defended case – this is not to be read as a dig at L´Oreal´s lawyers, not at all, I am sure they represented their client the best way they could, however, I am unreservedly criticizing L´Oreal.

L´Oreal forgot that it´s all about the brand. What they sell is much more than simply a product, it is a lifestyle, it is instant gratification, it is control and it is improved self-confidence through a line of beauty products designed for one thing – to improve the true beauty that is you. Nothing can be allowed tarnish the brand less they lose sales and market share.

If this is the basic market reality of the L´Oreal brand, and for that matter any brand, why would you maintain the spectacle of a public trial for three years with a case that even if it comes out in your favor could still blemish the brand?

There is no doubt that L´Oreal´s PR team is hard at work trying to figure out how to either make this go away or finding an angle on how to spin this. A word to the wise, L´Oreal, you have already been found guilty, it would be an exercise in futility to deny any part of this. In fact such a denial, in whole or in part, direct or indirect, could result in a backlash against the brand. It would be better to fully accept culpability, say sorry and take positive and no doubt public steps in order to combat BBR or other forms of discrimination. That my friend is your angle.

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Does The Future Of The Revised US-Swiss Double Taxation Treaty Depend On The Outcome Of The UBS Case?

Monday, July 13th, 2009

By: Ainsley Brown

UBS, the world´s largest wealth manager, has found itself embroiled in a diplomatic row between Washington and Bern. At issue is the interpretation of the current US-Swiss double taxation treaty and at stake is the newly inked, yet to be ratified, revised US-Swiss double taxation treaty.

Does the future of the revised US-Swiss double taxation treaty depend on the outcome of the UBS case?

As much was indicated by Doris Leuthard, the Swiss Economy Minister, as she called for a speedy resolution of the case.  What the Minister is expressing in her pronouncements is simply the reality of the situation. Swiss maintain that the issues in the case are diplomatic and ought to be resolved in forum more appropriate to friendly relations between nations – face-to-face closed door negotiations – rather an the public spectacle of a courtroom.  Secondly, while the treaty has been finalized it has yet to be ratified by the Swiss Parliament, a parliament that will be slow to give its blessing if it is dissatisfied with the outcome of the case.

So what exactly is going on in this case? This is a very good question for I myself was a bit confused for two reasons. The first is that UBS already plead guilty to assisting thousands of Americans to evade US taxes in a case brought by the Department of Justice (DOJ) in February of this year. In the same case it also paid fines of $750 million and disclosed 250 names of its US clients. So the case ought to be over, right? Well, yes and no. This was the criminal leg of the – and I am going to substitute strategy here for case to avoid any legal confusion –  US authorities strategy to gain the names of as many as 52,000 believed to be evading US taxes.

The current case before the courts is the civil leg of the strategy brought by the Internal Revenue Service (IRS). They have served on UBS a John Doe subpoena in an effort to force UBS to reveal the names, so those people can in turn answer to the authorities.

While I know that criminal and civil matters are wholly different creatures, this smacks of double prosecution – persecution if you will. Or is it?

The second thing that was puzzling me was this IRS case seems to have stepped outside the four corners of the existing double taxation treaty. The treaty only requires UBS, through Swiss authorities, to co-operate with US tax evasion investigations if the IRS can provide the specific names of the holders of secret offshore accounts. It is clear from the IRS´s actions, issuing a John Doe subpoena, that it clearly does not know the names of the suspected tax evaders. So that should be the end of it, right. Well, clearly not.

Now, what the IRS is doing is clearly is not only not double prosecution/persecution, it is well within, I believe, the scope of the treaty. In fact I would go as far as saying that it is share genius.  This was revealed to me in a brief filed by the IRS in response to one filed by UBS. To see what I mean just take a look at section 2 of the brief, the head tells it all: ¨Nothing in the Tax Treaty Limits the IRS´s Authority to Enforce a Duly Authorized Summons Issued to a Third-Third Party Witness within the United States, or Requires the IRS to Exhaust its Treaty Rights With a Foreign Government Before Seeking to that Summons.¨

Unfortunate for UBS, and as rightly pointed out by the IRS ¨the existence of a treaty….does not limit the rights granted to the United States under the laws of this country¨ (the bold being original). Well, that is in part, it should read doesn’t limit those laws so limited by treaty obligation.

What the IRS has done is not too circumvent the treaty but simply not to bring it into the equation at all. It has kept the issue entirely domestic. As I said,  share genius.

In any event the prospects are dim for UBS if a negotiated settlement is not reach soon. If UBS loses, which it looks increasingly probable, it will be faced with either defying US law by refusing to reveal the names or reveal the names and be in violation of Swiss banking law which carries with criminal sanction.

Now that a Floridia judge has agreed to postone the case the excutives at UBS will surely be working over time to reach an amecible resolution of the case.

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Innovation may just be the solution

Tuesday, July 7th, 2009

By Charles Wanguhu

In many international forums the developed nations are always pushed to provide more aid in the fight against poverty. Several reviews on the effectiveness of aid have proved time and time again its ineffectiveness in poverty eradication. The latter has led to current aid driven projects to often try and include sustainability options in all projects undertaken.

The identification of the problem is usually the easy part the “how do we do it” is the more complex part.  A bike building operation in Zambia however offers an innovative opportunity for local Zambians to get job opportunities and may in the end offer a route out of poverty.

The key feature of the enterprise is the use of locally grown Bamboo plant in the bike manufacturing process. One of the advantages of using local material is that it was low cost and readily available. Mr Calfee a co founder of the company believes that the bikes will be a great hit based on advanced orders that he has received.

However a great challenge remains in the business environment and is the entry point for African policy makers. Bureaucracy greatly hinders innovators with a myriad of licensing requirements, lack of tax relief on upcoming projects, corruption and a lack of access to capital. African governments have to take the lead in these reforms if aims of uplifting its citizens out of poverty are to be achieved.

The bikes aptly named Bamboosero may yet prove that Innovation and not aid may be the best route out of poverty.

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GreenTech War: Japan, China, Lithium, Batteries and Bolivia

Monday, July 6th, 2009

By: Ainsley Brown

Bolivia: The Saudi Arabia of Lithium

Bolivia: The Saudi Arabia of Lithium

A potential GreenTech war is brewing between Japan and China, location Bolivia.

The salt flats of Bolivia´s Salar De Uyuni, where most recent James Bond movie was shot (Quantum of Solace) seems like the most unlikely place for  a green technology war, much less one between Japan  and China.  However, it very much is. Both countries through official diplomatic overtures and through its multi-nationals have sought to secure stable supplies of lithium.

Why lithium?

Well, given current technology, lithium is the key to battery power. And while batteries power all kinds of devices, it is the key to the electric car – I think you are seeing where I am going with this. Whoever control´s the lithium, controls the electric car.

Currently Chile is the world largest producer of the metal; however Bolivia has half the world´s proven reserves. According to the Times, ¨Bolivia is to lithium what Saudi Arabia is to oil.¨

It looks like the Salar De Uyuni could soon become much more than just a 007 film location, to being a linchpin in the world´s effort to curve carbon emissions. Let´s hope along with this the people of Bolivia see some true developmental benefits and the reduction of poverty from this greentech war.

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Australian Securities Regulators In Policy Quandary

Wednesday, July 1st, 2009

By: Ainsley Brown

The question that faces Australian securities regulators is what to do about two or more Chinese state owned enterprises together owing substantial shareholdings in an Australian company?

At first blush it would appear that this is a case of China take over fear, however there is much more to the story than this. Indeed, there is a legal/regulatory story here as well. Now I am not trying to say there is or isn’t a China phobia here, it is a given that all nations have their own xenophobic tendency,  however I cannot speak on this as I know very little about Australia and what I do know comes from watching Rugby, Crocodile Dundee and Steve Irwin (may he rest in peace). Moreover, while I am not versed in Australian law, I believe that my legal training and experience thus far permits me an insightful comment or two.

This question has come to the fore because of the increased interest of Chinese companies in Australia´s mineral wealth – this is in fact a global trend and not one peculiar to Australia – just take a look at the recent attempt by Chinalco to increase its stake in Rio Tinto to see my point.

In Australia it isn’t that two or more state entities is per say barred from investing in the same company, as the law currently is, not at all. Then what is the problem, you might ask? The issues here are the concepts of associated entities and substantial shareholdings.

1064543_the_road_aheadYou see in Australia, under their securities regime, two or more entities that are associated – related in some way, namely through ownership and control – that combined own more than 5% of a listed company must declare a substantial shareholding. However, due to a lack of clarity in the law and the absence of a clear policy position the question remains open if two or more Chinese state owned companies would be considered associated and required to declare a substantial shareholding?

The securities regulators face several related sub-problems and they must approach this issue with some degree of sensitively to the political nature of dealing with entities belong to another state. With that in mind regulators have to be cognizant of the fact that they are not dealing with subsidiaries here but foreign state owed companies; state ownership is not equal in all these enterprises; state control is not equal in all these enterprises; and these enterprises while having the same state owner might indeed be fierce competitors with opposing interests.

I do not envy the regulators their task but it will be interesting to watch what if any policy position is developed or if the law is changed to address this issue.

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