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

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

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

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

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

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

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

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

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

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

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

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

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

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

Author


LIANA IACOB
Partner

FLORENTINA FRUMUŞANU
Partner

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

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

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Sponsored briefing: Overview of commercial litigation in Thailand

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Sponsored briefing: Overview of commercial litigation in Thailand

Tilleke & Gibbins’ Sittiwate Jewsittiprapai and Michael Ramirez share their insights into the working of Thailand’s legal system

Thailand’s legal system is based on European continental civil law systems, with a three-tier court system. Precedents set by the Thai Supreme Court are merely considered as examples of the application of laws and are not binding on Thai courts.

While the country’s judiciary and dispute resolution mechanisms are well developed, some aspects can be unfamiliar or even surprising to counsel unfamiliar with the Thai court system. This article introduces some of the Thai civil court procedures and practices, and covers several key issues it is important to understand regarding civil litigation in Thailand.

Offers of compromise or settlement

In Thailand, there is no such thing as an ‘offer without prejudice’. Anything put in writing can be used against the offering party. Therefore, compromises, settlements, and offers to compromise or settle should not be made before consulting with legal counsel. Similarly, parties at trial or anticipating litigation should be cautious in all communications with the opposing party.

Location of assets

Before initiating litigation, plaintiffs should investigate the nature and extent of the defendant’s assets in Thailand and abroad. A monetary judgment is of limited value if the defendant has little or no recoverable assets. Therefore, any information a claimant has on the opposing party should be assessed at the beginning of the case or as soon as is reasonably possible.

Language of documents

All documents submitted to a Thai court must be in the Thai language. Foreign documents must be the originals or certified copies, and certain documents also need to be notarised and then authenticated by a Thai consular official.

Court costs

A plaintiff must pay a court filing fee when submitting a case. This is usually 2% of the claim amount but will not exceed THB 200,000 per action for claims of up to THB 50 million. There is an additional 0.1% calculated on the amount of a claim exceeding the THB 50 million threshold. If the suit is successful, some of these advanced court costs are usually recoverable.

Additionally, non-resident plaintiffs may be required to deposit security with the court to insure against a potential award of court costs in favour of the defendant.

Appeals

In civil cases, appeals must be filed within one month of the judgment being read. Extensions may be granted at the court’s discretion if requested and reasonably justified.

At each level, the appealing party must deposit additional court costs of 2% of the judgment amount, with a maximum of THB 200,000 for claims of up to THB 50 million and an extra 0.1% calculated on claim amounts exceeding THB 50 million. The appealing party may also be required to post an additional guarantee to ensure its ability to cover judgment should the appeal be unsuccessful.

The Courts of Appeal and Supreme Court are not trial courts, and generally no new evidence may be introduced after the trial in the lower court is completed. Appeals at all levels are resolved through written pleadings and supporting documentation only. There is no live oral advocacy.

In 2015, Thailand changed its appeal system from a right-based system, which allows any party to appeal against the lower courts to the Supreme Court, to a permission-based system, where a judgment or an appellate court order is final unless an appeal is accepted by the Supreme Court. This change gave the Supreme Court the power to grant permission to file an appeal to the Supreme Court if it deems the question a significant matter worthy of a decision. Under this new discretionary system of review, only a minority of Supreme Court appeals are accepted by the Supreme Court.

Length of trials

Unless settled by compromise, civil litigation typically lasts between 12 and 18 months, counting from the initiation of action until a judgment by the court of first instance. Cases in the Courts of Appeal usually take an additional 18-24 months, with a similar period for appeals to the Supreme Court.

Recognition and enforcement of foreign judgments

Foreign judgments cannot be enforced in Thai courts. Thailand is not a party to any treaty or convention on the recognition and enforcement of foreign judgments. As such, a creditor must bring a new lawsuit to the relevant Thai court to obtain satisfaction. This means that a foreign judgment creditor must file a court case against a Thai debtor in Thailand and submit the foreign court’s judgment as evidence. The Supreme Court has ruled that for a foreign judgment to be admitted as evidence, it must be a final, dispositive order.

Arbitration and alternative dispute resolution

Deciding whether to litigate or seek alternative dispute resolution is commonly an anticipatory decision made by the parties to a contract before a dispute exists. Parties either specifically elect mediation or arbitration uniquely tailored to their needs or leave the matter of dispute resolution to the responsible court.

Some key reasons for choosing arbitration over court litigation are flexibility and the ability to tailor how a party’s dispute would be resolved by selecting the arbitration rules and institute, the venue, and the number of arbitrators. Administrative costs and arbitrator fees are pretty reasonable at local institutes and may help decrease the overall cost of dispute resolution in Thailand.

Thailand has three arbitration institutes: the Thai Arbitration Institute of the Office of the Judiciary, the Thai Commercial Arbitration Institute of the Board of Trade, and the Thailand Arbitration Center under the Ministry of Justice.

Enforcement of foreign arbitral awards

In general, foreign arbitral awards are recognised in Thailand if they fall within the recognition of treaties, conventions, and international agreements to which Thailand is a party – and only to the extent that Thailand is committed to be bound by them. Thailand is a party to both the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 and the Geneva Convention on the Execution of Foreign Arbitral Awards 1927. Awards brought under the auspices of the former are easier to enforce than under the latter. Foreign arbitral awards can be executed in Thailand without having to be relitigated, although enforcement does require the filing of an enforcement claim with the Thai court of jurisdiction for execution against a debtor’s assets.

Authors:


Sittiwate Jewsittiprapai, senior associate
T: +66 2056 5809
E: sittiwate@tilleke.com


Michael Ramirez, counsel
T: +66 2056 5794
E: michael.r@tilleke.com

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

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

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

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

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

Two experts, hundreds of views

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

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

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

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

Preparation makes perfect

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

Discussions between experts

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

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

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

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

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

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

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

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

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

Joint statements of experts

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

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

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

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

Selected arbitration cases

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

Authors


David Soukeník
Partner


Peter Štrpka
Partner


Lukáš Štefánik
Head of litigation and arbitration

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

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

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

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

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

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

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

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

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

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

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

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

2. Choose your forum with enforcement in mind

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

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

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

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

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

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

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

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

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

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

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

Our disputes team:

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

Author:


AUGUSTINE KIDISIL
Managing partner
E: augustine@ferociterlaw.com

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Sponsored briefing: The rights of policyholders in collective life insurance contracts 1

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Sponsored briefing: The rights of policyholders in collective life insurance contracts <sup>1</sup>

Queiroz Cavalcanti Advocacia on the duty to inform about restrictive and limiting clauses on the rights of policyholders in collective life insurance contracts

On 2nd March 2023, the Brazilian Superior Court of Justice (‘Superior Tribunal de Justiça’ – STJ), Brazil’s highest legal body regarding the interpretation of Federal Laws, deliberated on a mandatory precedent and determined that, in collective life insurance contracts, the stipulator has the exclusive responsibility to inform the policyholder of their rights regarding restrictive and limiting clauses, in order for them to understand the extension of the warranties before the execution of the contract.

The subject had not previously been the object of qualified voting, but there were precedents from the STJ’s Private Law Panels that recognised the duty of the insurance company to inform the policyholder, as this duty could not be transferred to third parties2. However, in recent decisions, the court overruled this interpretation and determined that it is the stipulator’s sole responsibility to inform the policyholder before the execution of the contract3.

This divergence of precedents created a state of legal uncertainty magnified by opposing interpretations by the state courts. In order to resolve the divergence and unify the national interpretation of the Brazilian Civil Code, the second section of the STJ selected case number 1.874.811/SC (resp. 2020/0115101-6) and case number 1.874.788/SC (resp. 2020/0115074-0) to be judged through the Repetitive Appeals procedure. The decision issued by the court in such cases shall extract a thesis that shall be necessarily observed by all the national courts of Brazil, applying the STJ’s interpretation to ongoing cases and the new ones that may be filed.

In the trial, the Justices underlined that, due to the asymmetrical relation between policyholder and insurer, the duty to inform must be fulfilled differently according to the type of contract, whether individual or collective.

In individual insurance contracts, entered into between the insurance company and the policyholder, it falls on the insurance company and its intermediaries (insurance brokers) the duty to inform the policyholder regarding any delimitation of the insurance warranties before the execution of the contract and in an adequate manner. If the insurance company fails to comply, the limiting or excluding clauses may become ineffective.

However, in collective life insurance contracts, the formation of the contract is different, considering that the negotiation of the clauses and the interests involved in these agreements are solely between the insurance company and the stipulator, for the benefit of a specific group, that is only defined after the execution of the contract4.

The insurance company must, however, inform the stipulator, in an appropriate manner and also prior to contracting, all the delimitations of the contract, so that the stipulator may agree and provide information to interested parties who may come to adhere to the contract.

The stipulator acts as the representative of the policyholders and is responsible for the inclusion and exclusion of beneficiaries of the insurance policies, as well as ensuring the performance of the compliance of the obligations stipulated in the contract, as stated in article 801 of the Brazilian Civil Code5. In this sense, it is the stipulator’s exclusive responsibility the duty to inform the policyholders before the contract, due to the principle of good faith in insurance contracts.

Therefore, by a majority ruling, the second section of the STJ established the thesis for theme number 1112 recognising that, in collective life insurance contracts, it is the stipulator’s sole responsibility, as the legal representative and only subject who has previous bonds with the members of the group (proper stipulation), to inform the potential policyholders before the execution of the contract.

Nevertheless, the cases that originated from improper stipulations and false stipulators are not included in the processes judged through this procedure, in view that the insurance policies in these cases shall be analysed individually. The appellate decision will be redacted and published, but the thesis shall be enforced by all the courts in the country henceforward when judging similar cases.

With this decision, it is expected that the stipulators will act more efficiently when informing the policyholders, in order to obtain an insurance contract with limits known by the parties.

The decision represents a step forward, not only because it settles a controversial subject and with frequent conflicts, but also because it recognises the usual execution of the collective life insurance contracts, which are very popular, facilitating their promotion as well as the development of the sector.

Authors


Carlos Harten
Director partner
E: carlosharten@qca.adv.br

Leonardo Cocentino
Managing partner
E: leonardococentino@qca.adv.br

  1. By Carlos Harten and Leonardo Concentino, partners at Queiroz Cavalcanti Advocacia.
  2. AgInt no REsp n. 1.835.185/SC, relator Ministro Marco Buzzi, Quarta Turma, julgado em 26/11/2019, DJe de 27/AgInt on REsp n. 1.835.185/SC, rapporteur Minister Marco Buzzi, Fourth Panel, judged on 11/26/2019, DJe of 11/27/2019; AgInt on REsp n. 1.848.053/SC, rapporteur Minister Raul Araújo, Fourth Panel, judged on 10/3/2020, DJe of 2/4/2020; AgInt on REsp n. 1.845.263/SC, rapporteur Minister Marco Aurélio Bellizze, Third Panel, judged on 3/30/2020, DJe of 4/6/2020; AgInt in AREsp n. 1.559.165/PR, rapporteur Minister Antonio Carlos Ferreira, Fourth Panel, judged on 4/5/2020, DJe of 7/5/2020; between others. Answer no. 1.825.716/SC, rapporteur Minister Marco Aurélio Bellizze, Third Panel, judged on 10/27/2020, DJe of 11/12/2020; AgInt in AREsp n. 1,737,671/SC, rapporteur
  3. Minister Marco Aurélio Bellizze, Third Panel, judged on 3/15/2021, DJe of 3/17/2021; AgInt on REsp n. 1,850,764/SC, rapporteur Minister Marco Aurélio Bellizze, Third Panel, judged on 4/19/2021, DJe of 4/23/2021; EDcl on AgInt on REsp n. 1.893.383/SC, rapporteur Minister Moura Ribeiro, Third Panel, judged on 4/26/2021, DJe of 4/28/2021; AgInt in AREsp n. 1,724,600/SC, rapporteur Minister Marco Aurélio Bellizze, Third Panel, judged on 11/5/2021, DJe of 5/24/2021; AgInt in EDcl in AREsp n. 1,709,389/MS, rapporteur Minister Marco Aurélio Bellizze, Third Panel, judged on 11/5/2021, DJe of 5/14/2021; AgInt no AgInt no REsp n. 1.849.456/SC, rapporteur Minister Antonio Carlos Ferreira, Fourth Panel, judged on 11/28/2022, DJe of 12/5/2022; between others.11/2019; AgInt no REsp n. 1.848.053/SC, relator Ministro Raul Araújo, Quarta Turma, julgado em 10/3/2020, DJe de 2/4/2020; AgInt no REsp n. 1.845.263/SC, relator Ministro Marco Aurélio Bellizze, Terceira Turma, julgado em 30/3/2020, DJe de 6/4/2020; AgInt no AREsp n. 1.559.165/PR, relator Ministro Antonio Carlos Ferreira, Quarta Turma, julgado em 4/5/2020, DJe de 7/5/2020; dentre outros.
  4. TZIRULNIK, Ernesto; CAVALCANTI, Flávio de Queiroz Bezerra; PIMENTEL, Ayrton. The insurance contract in accordance with Brazilian Civil. São Paulo: Roncararati, 2016. p307.
  5. Article nº 801. Personal insurance coverage can be stipulated by a natural person or a legal entity for benefit of a group that is in any way linked to the natural person or legal entity. § 1º The stipulator does not represent the insurance company to the insured group, and it is the only one responsible, regarding the insurance company, for compliance to the contractual obligations. § 2º Changes in the prevailing insurance policy will depend on the express consent of the policyholders that represent three quarters of the group.

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Sponsored briefing: Taking an important case to trial

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Sponsored briefing: Taking an important case to trial

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Steven: And the team should be diverse.

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

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

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

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

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

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

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

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

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

Do you do that with bench trials?

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

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

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

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

How important is subject matter expertise?

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

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

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

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

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

What about working with witnesses?

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

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

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

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

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

Authors


Steven Molo
Partner


Sara Margolis
Partner

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Sponsored briefing: Dispute resolution through courts in Bangladesh

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Sponsored briefing: Dispute resolution through courts in Bangladesh

Junayed Ahmed Chowdhury and Maliha Ahmed on the backlog of cases, revenue matters and alternative dispute resolution in Bangladesh’s courts

Overview

Dispute resolution through courts in Bangladesh is time-consuming. As per the data from recent reported cases, the average life span of a civil case from its institution in any of the District Courts until completion of an appeal at the High Court Division of the Supreme Court of Bangladesh is approximately 12.3 years (calculated from case data published in law reports between 2018 and 2022). The primary reason behind such lengthy litigation is the huge backlog of cases pending in the courts. The problem is further exaggerated by shortage of judges, their frequent transfer in the lower judiciary and reconstitution of Benches in the High Court Division of the Supreme Court of Bangladesh. As per the Annual Report 2021 of the Supreme Court of Bangladesh, from 1 January 2021 until 31 December 2021, a grand total of 536,230 cases were pending in the High Court Division of the Supreme Court of Bangladesh and only 23,654 of them were disposed (Supreme Court Annual Report 2021, at p112). On the other hand, from 1 January 2021 until 31 December 2021, a grand total of 23,031 cases were pending in the Appellate Division of the Supreme Court of Bangladesh (the apex court) and only 6,859 of them were disposed (Supreme Court Annual Report 2021, at p102).

The present Government of Bangladesh has given its concentrated effort to tackle the backlog of cases. In 2021-2022, in various districts across Bangladesh, appointments of 62 District and Session Judges, 11 Metropolitan Session Judges with 292 additional posts, two Metropolitan Magistrates, 30 Senior Judicial Magistrates, and 22 Judicial Magistrates along with additional 216 posts were created (Annual Report 2021-2022, Ministry of Law, Justice and Parliamentary Affairs, 22 October 2022, at p4). During the Covid-19 pandemic, the Bangladesh Parliament promulgated the Use of Information Technology by Court Act 2020 on 8 July 2020, which enabled the lower judiciary to dispose of 314,482 bail applications between 11 May 2020 and 10 August 2021 by use of virtual courts all over Bangladesh in which 158,507 individuals were granted bail. As a result of use of virtual courts, the government managed to contain the serious issue of prison overcrowding during the Covid-19 pandemic period (Annual Report 2021-2022, Ministry of Law, Justice and Parliamentary Affairs, 22 October 2022, at p10).

Arbitration

A concerning trend in international commercial arbitration, in which one of the parties is Bangladeshi, has been the interference by national courts. The High Court Division of the Supreme Court of Bangladesh has in recent years passed anti-arbitration injunction to impede foreign seated arbitrations. This raises many questions pertaining to the jurisdiction of national courts over an international arbitration tribunal and the extent to which such injunctions harm the sanctity of a contract containing a foreign seated arbitration clause. It also creates significant challenges when a foreign contracting party wants to enforce a foreign arbitral award in Bangladesh that was passed disregarding an anti-arbitration injunction from Bangladesh. Due to this problem, Vertex Chambers receives regular queries from foreign clients enquiring about the method and impediments in enforcing a foreign arbitral award in Bangladesh. Furthermore, this trend may have a long term impact on Bangladesh’s foreign direct investment prospects.

Revenue matters

The Income-tax Ordinance 1984 (‘Ordinance’) is one of the most complex and evolving statutes in Bangladesh. It is amended every year through promulgation of the Finance Act. Explanations regarding the changes introduced in the Ordinance are provided in ‘Income-tax Paripatra’ issued annually by the National Board of Revenue (‘NBR’) – the tax administration authority in Bangladesh. Notwithstanding such explanations, tax disputes are quite prevalent in NBR’s appellate forums and the High Court Division of the Supreme Court of Bangladesh. One of the major difficulties in resolving such disputes is the lack of resources for interpretation of the Ordinance. To put things into perspective, Junayed Chowdhury, managing partner of Vertex Chambers, has authored two editions of the book ‘Corporate Tax Law and Practice’ which is the only practitioner’s textbook on corporate tax laws of Bangladesh. Furthermore, the Cabinet of Bangladesh has recently approved in principle the draft Income Tax Act 2023 which has been drafted in Bengali language. The enactment of a tax statute written in Bengali language may lead to increased litigation regarding statutory interpretation. Moreover, practitioners may face difficulty due to different legislative language when citing cases from other commonwealth jurisdictions, which usually hold persuasive value in Bangladeshi courts. Vertex Chambers regularly advises clients on interpretational issues regarding tax litigation due to lack of clarity in the local legislation.

Similar challenges are also faced with regard to the new Value Added Tax and Supplementary Duty Act 2012. Vertex Chambers regularly advises on the impact of the new VAT law in matters where there is ongoing litigation or potential litigation resulting from differing interpretation by the competing parties. Vertex Chambers has recently advised on the impact of the new VAT law on infrastructure contracts and construction services. However, in the absence of authoritative judicial decision in Bangladesh on the interpretation of the law, our legal research is heavily reliant upon resources of other commonwealth countries.

Lack of precedent and academic books

Compared to the size of the population and legal problems that people and businesses face, there is a scarcity of reported judgments in Bangladesh on various legal issues. There also exists a shortage of well researched academic or practitioners’ books on different areas of law (for example, corporate law, banking and finance, construction and infrastructure, arbitration and ADR, climate and environment, energy and natural resources etc.). This poses a challenge for practitioners undertaking legal research to solve specialist legal issues. As a result, Bangladeshi legal practitioners are largely dependent upon case laws and materials of other common law jurisdictions.

Alternative dispute resolution

Alternative dispute resolutions are gaining traction from contracting parties because of the convenience of avoiding lengthy litigation. Many lawyers and former judges are constituting arbitration tribunals to expedite the dispute resolution process.

Authors


JUNAYED AHMED CHOWDHURY
Managing partner
E: jchowdhury@vertexchambers.com


MALIHA AHMED
Associate
E: mahmed@vertexchambers.com

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Sponsored briefing: Integrating and exploiting technology in our business activities

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Sponsored briefing: Integrating and exploiting technology in our business activities

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

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

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

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

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

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

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

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

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

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

Authors


Alex Choo Wen Chun
Senior Associate


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


Lim Zhi Jian
Partner
E:jian@rdslawpartners.com

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

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

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

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

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

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

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

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

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

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

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

I- AI and robotics: A blurred legal status

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

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

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

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

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

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

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

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

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

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

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

II- Emergina AI is a New Subject of Tort Liabilities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Authors


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


Maroua Alouaoui
Associate

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Sponsored briefing: A guide to NFT and metaverse-related trade marks

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Sponsored briefing: A guide to NFT and metaverse-related trade marks

Over the past year, each of us started to become more familiar with the terms such as non-fungible tokens (NFT), blockchain, digital assets or metaverse and it is obvious that we will be using these terms even more. Despite the growing popularity of the matter, there are either no or limited regulations available on the same while the virtual world will be a host of numerous legal issues.

Although it is interpreted as possible to obtain legal protections in other legal remedies, considering the advantages of trade mark registration, it is advisable to file a trade mark application which will also be able to provide protection in the metaverse based on Article 7 of the Turkish Industrial Property Code (IPC), which prescribes as follows: ‘Trade mark protection provided by this Code shall be acquired by registration.’ Continue reading “Sponsored briefing: A guide to NFT and metaverse-related trade marks”