Category: International Asset Protection

The future of investment dispute settlement

The original article was published in Family Office Magazine and can be found here.

Entrepreneurs engaging in international investments face several issues when they are accused of a breach of contract. When the investment agreement does not provide solid provisions for dispute settlement, endless legal discussions and expensive court cases in unfamiliar jurisdictions can be the result. This article provides simple solutions for both investor and beneficiary to avoid such issues. 

The solution to avoid endless legal battles is to insert an arbitration clause in the investment agreement (out of court legislation). Arbitration has numerous advantages.

  1. Unlike in court, parties can select an arbitrator with an appropriate degree of practical experience. For example, a Court of Arbitration has a list of arbitrators who are experts in the field of digital commerce.
  2. Arbitration is faster than litigation in court, and a time limit can be placed on the length of the process.
  3. Arbitration is cheaper and more flexible, more commercial and less formal than court.
  4. Unlike court rulings, arbitration proceedings and arbitral awards are confidential.
  5. Unlike in court, there are very limited avenues for appeal of an arbitral award, which limits the duration of the dispute and any associated liability.
  6. Due to the provisions of the New York Convention 1958, arbitral awards are far easier to enforce in other nations than court judgments.

From an international perspective, there are several courts of arbitration that offer an effective way to solve investment disputes. Below are examples (in alphabetical order).

Astana International Financial Court (AIFC Court)

The AIFC Court in Kazakhstan provides a common law court system that operates to the highest international standards to resolve civil and commercial disputes in the Astana International Financial Centre.  It adjudicates exclusively all claims arising out of the AIFC and its operations and other claims in which all parties to the dispute agree in writing to the jurisdiction of the AIFC Court.  

The AIFC Court has its own court of final appeal, its own procedural rules, and a special fast track for small claims. Its Chief Justice and judges are among the most experienced and distinguished judges from the common law world with global reputations for independence, impartiality, integrity, unconditional application of the rule of law, and incorruptibility. The judges, procedures, practices and standards at the AIFC Court will be familiar to businesses currently operating in major financial centres around the world.

Website: http://aifc-court.kz

Dubai International Financial Courts (DIFC Courts)

The laws establishing the DIFC Courts were designed to ensure the highest international standards of legal procedure, thus ensuring that the DIFC Courts provide the certainty, flexibility and efficiency expected by the global institutions operating in, with and from Dubai and the UAE. The laws enacted provide for a court system capable of resolving all civil and commercial disputes, ranging from sophisticated, international financial transactions to debt collection and employment disputes.

The DIFC Courts deal exclusively with all cases and claims arising out of the DIFC and its operations and any other claims where all parties agree in writing to use the DIFC Courts. The DIFC Courts carry out their functions in an independent manner, in accordance with the provisions of the DIFC laws and regulations.

Website: https://www.difccourts.ae

Court of Arbitration of the European Chamber of Digital Commerce (ECDC Court)

As an activity of its parent organization, the Swiss Chamber of Commerce in The Netherlands, founded in 1933, the Court of Arbitration of the European Chamber of Digital Commerce plays a crucial role in today’s digital world. Issues specific to digital technology include fintech, blockchain, cybersecurity, digital currencies, and intellectual property. Fairness has always been a business tradition observed in Europe, making the region so prominent as an arbitration location. The Court of Arbitration is conveniently located at Schiphol International Airport in The Netherlands.

The Court of Arbitration applies the UNCITRAL Arbitration Rules of the United Nations Commission on International Trade Law which meet international legal standards. The rules are concise and easy to understand, comply with current national and international legal developments, and are published in several languages.

Unless parties do not agree otherwise, the Court will apply the neutral UNIDROIT Principles of International Commercial Contracts to judge the dispute.

Website: https://europeanchamberofdigitalcommerce.com

London Court of International Arbitration (LCIA)

The LCIA is one of the world’s leading international institutions for commercial dispute resolution. The LCIA provides efficient, flexible and impartial administration of arbitration and other ADR proceedings, regardless of location, and under any system of law. The international nature of the LCIA’s services is reflected in the fact that typically over 80% of parties in pending LCIA cases are not of English nationality. 

The LCIA has access to the most eminent and experienced arbitrators, mediators and experts from many jurisdictions with the widest range of expertise. The LCIA’s dispute resolution services are available to all contracting parties without any membership requirements.

Website: https://www.lcia.org

Arbitration Institute of the Stockholm Chamber of Commerce (SCC)

The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) has developed into one of the world’s leading forums for dispute resolution. The SCC was established in 1917 and is part of, but independent from, the Stockholm Chamber of Commerce. The SCC consists of a Board and a Secretariat and provides efficient dispute resolution services for both Swedish and international parties. The SCC was recognized in the 1970’s by the United States and the Soviet Union as a neutral centre for the resolution of East West trade disputes. Also China recognized the SCC as a forum for resolving international disputes around the same time. The SCC has since expanded its services in international commercial arbitration and emerged as one of the most important and frequently used arbitration institutions worldwide.

Website: https://sccinstitute.com

Conclusions

When you want to avoid legal dramas unfolding from an investment agreement, check the websites above and copy the relevant clause into the agreement before signing. Another option is to persuade the counterparty to allow an already arisen case be settled by one of these arbitration institutions.

About the author: Bob Juchter van Bergen Quast, LLM, FSS, is the President of the Court of Arbitration of the European Chamber of Digital Commerce. Juchter van Bergen Quast has the right of audience before the AIFC. He is Chief Executive Officer of the Swiss Chamber of Commerce in The Netherlands and the European Chamber of Digital Commerce.

DIFC Courts corporate video

The DIFC Courts are an independent English language common law judiciary, located in the United Arab Emirates (UAE) and based in the Dubai International Financial Centre (DIFC). This video briefly explains the work of the Courts, why leading international law firms in the region use their services and how their role encourages investment in Dubai. The DIFC Courts’ jurisdiction governs civil and commercial disputes nationally, regionally and worldwide. The DIFC Courts are part of the sovereign structure of the UAE Emirate of Dubai and more than 500 cases have been decided since the Courts began operations in 2006. Based on international best practice, the Courts are an important resource for international businessmen seeking to resolve commercial legal disputes, as well as the enforcement of national and cross-border judicial decisions. The DIFC Courts’ official Enforcement Guide was created in 2012 to provide details on the enforcement of DIFC Courts’ judgments in Dubai, the UAE, the Middle East and across the world. The document is available on our website www.difccourts.ae

See the corporate video here.

Intermediary commission percentages to raise money from investors

Investment banks and other consultants can plan and execute a fundraising campaign for startups and for companies in the growth phase. A reputable fundraising intermediary will likely speed up the process, reduce the legal risks, and negotiate a better deals. Most brokers will take a monthly retainer plus 5 percent to 15 percent of the investment. That may sound like a lot, but taking into account the time and risks, hiring an experienced expert can be very budget friendly.

Commission guidelines

The Lehman formula is a compensation formula developed by Lehman Brothers to determine the commission on investment banking or other business brokering services. Lehman Brothers developed the Lehman Formula, also known as the Lehman Scale Formula, in the 1970’s while raising capital for corporate clients.

The original structure of the Lehman Formula is a 5-4-3-2-1 ladder, as follows (accumulated amounts):

  • 5% of the first million EURO involved in the transaction
  • 4% of the second million
  • 3% of the third million
  • 2% of the fourth million
  • 1% of everything thereafter (above EUR 4 million)
Today, financial experts often seek some multiple of the original Lehman Formula, such as the double Lehman Formula (or the triple Lehman) (accumulated amounts):
  • 10% of the first million EURO involved in the transaction
  • 8% of the second million
  • 6% of the third million
  • 4% of the fourth million
  • 2% of everything thereafter (above EUR 4 million)
A more common variant used by mid-market M&A specialists and business brokers is the Double Percentage Lehman (“Modern Lehman”). Under this variation both the percentages and the scale are adjusted, instead of the percentages only. In addition, the percentage is held constant at 3% above EUR 8 million (accumulated amounts):
  • 10% of the first  million EURO
  • 9% of the second  million
  • 8% of the third million
  • 7% of the fourth million
  • 6% of the fifth million
  • 5% of the sixth million
  • 4% of the seventh million
  • 3% of everything thereafter (above EUR 7 million)

Source: Investopedia

How Chambers of Commerce Help Family Offices and Wealth Management Firms

A Chamber of Commerce has traditionally furthered the interests of businesses in a particular geography or market sector by way of representation, business services, and networking opportunities. Multilateral Chambers of Commerce can link the business environments of two or more countries, such as the Swiss Chamber of Commerce in The Netherlands.

International Chambers of Commerce, such as the European Chamber of Digital Commerce, aim to boost companies’ reputation and growth in a particular business sector, such as Digital Technology. Some are governmental, nonprofit, or private organisations.

This article, written by Bob Juchter van Bergen Quast and published in Family Office Magazine, presents some unique benefits that Chambers of Commerce can offer businesses in an independent, impartial manner.

Read the full article here

Functions of the AIFC Court

The AIFC is underpinned by an ambitious objective to become the financial hub for Central Asia, the Caucasus, Eurasian Economic Union, the Middle East, and Europe. The new financial centre is positioning itself to attract US$ 40 billion of investments by 2025 and ensure about 1 per cent growth in the carbonless GDP of Kazakhstan. Kazakhstan is the largest and most oil rich country in Central Asia.

Legal framework

The governing law of the AIFC is based on the Constitution of Kazakhstan and has a special legal regime, consisting of the AIFC Constitutional Law “On the Astana International Financial Centre” (the Law), its own independent judicial system and jurisdiction based on English common law and standards of leading international financial centres. The official language of the AIFC is English.

Like its neighbouring financial free zone the Dubai International Financial Centre (DIFC) (whose Courts were selected to advise the Kazakhstan Central Bank on establishing the AIFC’s commercial court and arbitration centre), the AIFC has its own specific legislation to address issues arising in the context of companies, contract, implied terms, obligations, damages and remedies, employment and partnership law.

It is reported by the Prime Minister of Kazakhstan that a total of 30 general-purpose AIFC Acts and 17 financial services regulation acts were developed and subsequently adopted by the relevant bodies of the AIFC. About 50 acts constitute the legislative framework of the AIFC.

Source: Norton Rose Fullbright

The value of a Dutch foundation for international asset protection

According to the Rule of Law Index , the Dutch justice system ranks as one of the most reliable and effective in the world. In general terms, only the Scandinavian justice systems seem to do better. In terms of resistance to discrimination, corruption and undue political influence, The Netherlands is even ranked #1.

Companies that are active on an international level become increasingly aware of the risks involved when engaging business in certain national legal systems, but also of the opportunities differences in jurisdictions present. International asset protection is an important activity in the current business environment. International Asset Protection is the legal process of titling both personal and business assets to put them beyond the reach of future potential threats and creditors. In this respect, multinational companies look for a jurisdiction that best suits their needs in an individual case.

For such sophisticated parties, it can be interesting to set up a Dutch legal entity. An important option in this respect is the Dutch Foundation. In this article, I will detail most of the topics to know before starting a foundation in The Netherlands, in particular a Dutch Administration Office foundation.

What is a foundation?

A foundation is a private legal entity, not associated with the government, that has no members or shareholders and in which the revenues are used for non-profit purposes, such as a charity fund.

Facts and features

Dutch foundations have specific features within the Dutch tax regulations. Although they have legal personality, Dutch foundations differ from businesses because their profits are not used to accumulate personal wealth. Instead, Dutch foundations have a non-profit goal and pay no taxes as long as their activities do not focus on profit or they do not compete with other businesses. As long as this situation remains, Dutch foundations do not need to file tax documents or deposit documents at the Dutch Chamber of Commerce.

The Dutch foundation can only be incorporated by a Dutch notarial deed, and will subsequently be registered by the notary in the Dutch public company register, where the names of the board members are publicly disclosed. There can be one or more incorporators and/or board members. No government authority is involved in the creation of a Dutch foundation and it acquires full legal capacity immediately when it is created. The Dutch foundation has a board, composed of one or more individuals and/or legal entities. It needs an office address in or outside The Netherlands. The directors of a Dutch foundation are not liable for the debts of the foundation, except for instance in cases of fraud.

Stichting Administratiekantoor (STAK)

A so called ‘STAK’ (Dutch: Stichting Administratiekantoor or in English: Administration Office Foundation) is a normal Dutch foundation, but with specific statutes. In short, a STAK is formed to hold the shares of a private company. By using the STAK to hold ‘their’ shares, shareholders are able to separate the economic ownership from the voting rights.

Thus, a STAK can be a voting trust foundation, without shareholders or share capital. When the STAK is used to buy, hold or manage shares of other companies, it must issue exchangeable depository receipts to the original owner of the shares. The STAK thus enters into an agreement with the original owner of the shares, transferring their legal ownership to the STAK, while the original owners maintain economic ownership of the shares. The main regulatory document in this respect is the trust conditions document, drawn up by the notary when forming the STAK. This document stipulates the agreement between the STAK and the depository receipt holders. The original owner of the shares (now the depository receipt holder) may then receive any dividends from the stock, even though he or she is no longer the legal owner of the shares.

A STAK structure can also acquire and manage assets in its own name. It can then issue certificates to the directors attesting to the economic value of the foundation’s assets.

Example of the use of a STAK in respect to international asset protection

The STAK structure has become an effective legal form of asset protection, because the STAK structure separates legal and economic ownership of stock in other companies. This has been proven in e.g. the Yukos cases; several international court and arbitral cases seeking compensation from the government of Russia to the former shareholders of Yukos-based on the claim that Russian courts were not acting in good faith in launching tax evasion criminal proceedings against Yukos, which led to the bankruptcy of the company. The Yukos structure is as follows:

Yukos Capital S.a.r.l., a Luxembourg-based company under two Dutch STAKs – Stichting Administratiekantoor Yukos International and FPH for Stichting Administratiekantoor FPH – that are run by Yukos’s former management, represents all those who held Yukos shares when the company was liquidated in 2007, including about 55,000 minority shareholders, some of which were investment funds. As of 2015, the structures control up to $2 billion in assets.

Tax benefits

There are also tax benefits to forming a STAK. First, holding investments in a STAK is not considered a business activity, and a STAK is taken as transparent for tax purposes. Therefore, it is not a subject to the Dutch corporate income tax. If the depository receipt holders do not live or conduct business in The Netherlands, and their investment are not actually located in The Netherlands, they are not subject of the Dutch tax liability on profits or capital gains.

Other benefits

The STAK structure limits disclosure of ownership since the STAK itself is the legal owner of shares. It can also function as an inheritance planning vehicle.

Note

All information has been prepared for general information purposes only to permit you to learn more about financial law. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice. 

Important lecture: the AIFC Court and the Common Law Method of Resolving Commercial Disputes and Issues arising from Regulatory Decisions

The Rt. Hon. Sir Jack Beatson FBA, Justice of the AIFC Court 

Delivered at the Supreme Court of the Republic of Kazakhstan 

on Tuesday 24 April 2018

1. Introduction

(1) It is a huge honour and a great pleasure to be asked to speak here at the Republic of Kazakhstan’s Supreme Court in the presence of Chief Justice Assanov, other judges of the Supreme Court, with regional judges joining us by videolink, Lord Woolf, the Chief Justice of the AIFC Court, Barbara Dohmann QC, Chairman of the AIFC’s International Arbitration Centre, Kairat Kelimbetov, the Governor of the AIFC and other members of the team which has worked so hard to set up the Court, in particular the Court’s Registrar and Chief Executive, Christopher Campbell-Holt, who is based in Astana.

(2) My topic is the nature of the common law method and how it will work in the context of an international financial centre such as the AIFC. Consideration of the common law method has two distinct elements. The first concerns the law itself. The second concerns the judges who created so much of the common law over the centuries. I suggest that there will be at least seven features of the common law method which will make a substantial contribution to dispute resolution in the AIFC. I will say something brief about each of them. They are: 

· A proven track record and proven foundational principles relevant to commercial and regulatory law which have proved attractive to the international business community for over 100 years;

· An independent judiciary committed to the rule of law who are appointed as judges after significant practical experience as lawyers;

· The decisions of common law judges are sources of law which are binding precedents for decision-making in later cases on the same question so that parties and their advisers know where they stand and are able to predict the outcome of any disputes when they arise;

· Flexibility which enables a common law system to develop principle incrementally and keep up to date without producing uncertainty;

· Procedural rules which foster predictability and enable cases to be dealt with in a way that is proportionate to their complexity;

· Considerable experience of commercial arbitration and respect for the parties’ choice of arbitration shown by a “light touch” system of supervision guided by a general principle of non-intervention; and

· A developed body of principles and decisions on the supervision by judicial review of decisions of commercial regulatory bodies.

(3) Before turning to the seven features, I briefly set out the legal framework within which the AIFC Court will work. Article 13(2) of the AIFC’s Constitutional Statute (the “Constitutional Statute”) states that the court is an independent court and not part of the judicial system of Kazakhstan. The court is to serve the AIFC by dealing with all disputes which arise out the AIFC or its operation; that is disputes between AIFC participants, and between participants and AIFC bodies and the foreign employees of participants. But the court will also have jurisdiction in respect of other disputes concerning other markets which all parties agree to have dealt with by it.

(4) The AIFC Court Regulations (“the Regulations”) make provision for the complete independence of the AIFC Court’s judges when performing their judicial functions and require them to act impartially when doing so.

(5) Article 13(5) of the Constitutional Statute provides that the law to be applied is to be based on English law principles and legislation and the standards of leading global financial centres. Regulation 29(3) of the AIFC Court Regulations (“the Regulations”) provides that the Court will be guided by its own decisions on relevant matters and by final decisions in other common law jurisdictions. It thus has similar features to other institutions of what can be described as a transnational system of dispute resolution such as the DIFC, the Dubai International Financial Centre Courts and the SICC, the Singapore International Commercial Court. Such courts also form part of a complementary partnership between dispute resolution based on litigation and that based on arbitration.

2. The 7 features resulting from the AIFC being based on and guided by principles of English common law and legislation

(1) A proven track record and proven foundational principles relevant to commercial and regulatory law: My starting point is to say that the English common law, its method of making decisions and keeping the law up to date, and the judges who created so much of the common law over the centuries have a proven track record. A 2016 report stated that 27% of the world’s 320 legal jurisdictions use English common law. The confidence for over 100 years by the international business community in English common law and its judges is also demonstrated by the number of companies and individuals with no or little connection to England who choose to litigate or arbitrate in London. So, in 2015 seventy percent of the London Commercial Court’s work had no relation to England except for the choice of law and choice of jurisdiction clause in the contract. In the year ending in July 2017, 71% of claims in London’s Admiralty and Commercial Courts were international. Why is this?

(2) The first reason is that the principles of English common law balance the tension between the needs of certainty and flexibility in a way which has proved practical and attractive to its international users. I mention three principles that are relevant to the likely workload of the AIFC Court. First, the common law respects the parties’ freedom of contract and the bargain they have struck, and thus in general respects their autonomy to agree the terms of the contractual relationship as they choose. The second, which follows from this is that commercial contracts are construed so as to give effect to the intentions of the parties objectively determined. Provided you contract in reasonably clear and intelligible terms, what you agree is what you get. The objective standard protects those who rely in good faith on the apparent position and thus promotes certainty and finality of transactions. The third principle is that the courts will not imply terms into contracts or rectify their terms unless stringent conditions are met. Other than the relatively rarely applied rule against penalties, English law does not seek to strike down or amend the parties’ agreement. There is no overriding duty of good faith. 

(3) The United Kingdom has a strong independent judiciary committed to the rule of law: A strong and incorruptible judiciary ensures fair and predictable dispute resolution. International parties litigating in a jurisdiction with such a judiciary can be confident that their disputes will be decided only on their intrinsic merits, without regard to nationality, politics, religion or race. That is a vital factor in inspiring business confidence and underpinning international trade and investment. The judges of the AIFC Court are all the product of such a system, and will bring its values to their work. In the context of the AIFC itself, the commitment to judicial independence and to the rule of law is seen from the provisions in the AIFC’s Constitutional Statute and Regulations to which I have referred.

(4) One of the reasons for the confidence in English law that has been shown by the international business community is that common law judges are appointed after significant practical experience as lawyers. They have therefore had significant interactions over many years with the commercial entities and individuals who they represented or who were their adversaries. That background gives them experience and understanding of the pressures of commercial life, and the need for commercial and financial law to reflect the needs of the business community. It also helps them to understand the differences between acceptable and unacceptable practices. That background has also been an important factor in the adaptability of English common law to fast-changing practical and commercial realities.

(5) In common law systems, decisions of judges are sources of law: The hallmark of a common law system is the importance accorded to the decisions of judges and, in particular appellate judges, as sources of law. So, within a framework set by the legislature when it enacts statutes, the law is made by decisions of judges. The common law is thus that part of the law which it is within the province of the courts themselves to establish. It is unwritten in the sense that it is not in a statute, but it is made accessible and transparent in law reports and in textbooks which analyse the effect of the decisions with a view to identifying the principles which underlie them.

(6) Decisions are binding precedents:  The system is built on and depends on individual decisions being binding precedents for future courts at the same level to follow so that “like cases are treated alike” and the principles in a particular area are built up by a gradual development from case to case, in the way I will describe. Two features of the doctrine of precedent which gives binding effect to previous decisions of courts at the same level are crucial to the certainty that the common law produces. The first is its strength. The second is its maturity. Because English law has been determining cases involving international commercial disputes since the early 19th century it has built up a large and formidable body of precedent to assist parties and their advisers to know where they stand and to be able to predict the outcome of any disputes when they arise in many specialist areas such as shipping, commodities, insurance, construction and banking. By contrast, civilian systems are essentially codified legislative systems and owe their inspiration to the principles of the Napoleonic codes. In such systems judicial decisions are not primary sources of law but only a gloss on the law in the legislative code.

(7) This is not to downplay the importance of legislation. Of course, much English commercial law is contained in legislation, from statutes on topics such as Sale of Goods, Bills of Exchange, and Marine Insurance originating in the nineteenth century which reflected market practice and previous decisions on these topics, to modern statutes dealing with company law, banking and the financial markets. But much law is also contained in the decisions of the courts; either “pure” common law where there is no statute involved (a rarity in the modern world), or where the decision interprets the statute or is made against a statutory background which while not directly applicable is relevant to the determination of the underlying principles and the result in the case. While the core of pure common law doctrine continues to shrink, the common law technique will continue as the courts consider and apply the statutory provisions. In the case of the AIFC, its legal framework consists of regulations and rules made in accordance with its Constitutional Statute.

(8) The judges’ duty to apply statutory and common law, the fact that the principles governing the underlying contractual or other dispute are ascertainable, and the importance of the doctrine of precedent are strong factors in the certainty and predictability of English commercial law. Certainty is important in all contexts but particularly important where a transaction or course of dealing may affect third parties, for example involving documentary letters of credit, bills of lading, bearer bonds or long chains of contracts of sale or for services. In such cases there can be difficult choices between the claim of a person who has been wrongfully deprived of property, often fraudulently, and the claim of a third party who has acquired the property in good faith in the market place.

(9) A common law system has flexibility which enables it to develop principle and keep up to date without producing uncertainty: In a nutshell, the common law does this by applying old principles to new circumstances, and by very gradually moving from the particular to the more general in a way which is sensitive to the particular commercial context.

(10) Lord Goff, a distinguished English appeal judge and scholar, stated that the dominant element in the development of English law should be and is “professional reaction to individual fact situations rather than theoretical development of legal principles”. He described the process of legal development within a common law system as a movement from the identification of specific heads of recovery in particular cases to the identification and closer definition of the limits to a generalised right of recovery; a search for principle. This “bottom-up” approach of gradually generalising from the specific is part of the way that judges have exercised their responsibility over the centuries to keep the common law abreast of current social and market conditions and expectations, and the challenge of new technology. In keeping the law up to date, they have also had regard to what is done in other legal systems. Lord Goff saw the developing state of the law as a mosaic that is kaleidoscopic in the sense that it is in a constant state of change in minute particulars. Such development typically takes place in the decisions of appellate rather than first instance courts, and the reference to minute particulars indicates that it is very gradual and dependent on the particular context of the case which is being decided.

(11) Some of the most dramatic examples of such development of the law have happened in areas which are not of relevance to the work the AIFC Court will be doing. But there are also examples of development by our final court of appeal, formerly the House of Lords and now the UK Supreme Court, which is of great importance to commercial law. In 1932 the House of Lords took the specific cases in which a person had been held liable in damages for a civil wrong (a tort) and identified a generable principle of liability focussed on the blameworthiness of the defendant’s conduct which foreseeably caused the harm to those closely and directly affected by the conduct. In 1991 the English final court of appeal rationalised a large number of cases which had appeared to be based on narrow fact-based grounds and recognised the principle of unjust enrichment as the unifying principle underlying liabilities to make restitution of benefits gained by the defendant at the plaintiff’s expense.

(12) Because common law change is incremental and gradual, it is also possible to step back if a particular development turns out to be a step too far. It is the flexibility of the system which keeps it relevant and up to date and able to meet the challenges of an ever-changing commercial world. In recent years English law has been a leader in addressing the problems of globalised financial markets after the global financial crisis in 2008, as seen in the “Waterfall” and other litigation about Lehman Brothers and it has recently had to revisit and determine the duty of banks in identifying fraud in the internal corporate structure of their clients. Last month, Lady Justice Gloster, the Vice-President of the English Court of Appeal, stated that at present the common law is leading the way in Fintech, Digital Ledger Technology and Artificial Intelligence. 

(13) Predictability by the application of known and suitable procedures: The procedural rules in the English Civil Procedure Rules are designed to be practical and to deliver the speedy and efficient resolution of business and financial disputes in ways which are proportionate to the nature and complexity of the case. They are sensitive to the unique needs of commercial court users and are generally accepted as being the most effective set of rules to apply in trying complex commercial cases.

(14) I anticipate that the AIFC Court Rules, which are closely modelled on the English Civil Procedure Rules, will provide similar benefits. There is a special fast track procedure for small claims. The common law principle that the costs are generally to be borne by the loser of litigation applies, although there is power for the court to make a different order.

(15) A developed body of principles and decisions on the supervision by judicial review of decisions of regulatory bodies: I have stated that the AIFC court is to have exclusive jurisdiction over disputes between AIFC participants and AIFC bodies. The exact boundaries of that jurisdiction will need to be determined. In this context, however, the experience of the English common law in the exercise of the judicial review jurisdiction over the decisions of regulatory bodies, including those in the financial, banking and commodity markets will, in my view be very helpful. The role of the court has been to ensure by the exercise of a supervisory jurisdiction, that regulatory bodies operate within the area that has been allocated to them by the legislature or other body conferring power on them. The court is concerned with the legality of their decisions, including their rationality and procedural fairness rather than their substantive merits.

(16) While the courts have the final word on questions of law, in considering the other questions, they will take into account the expertise of the decision-maker, and whether the decision requires the evaluation of complex economic or scientific evidence. They will not interfere if the matter is one for the judgment of the administrator or regulator and not for the judgment of the court, and the threshold for a finding of “irrationality” is high. English Courts exercising the supervisory jurisdiction do not substitute their own judgment for that of the administrator or regulator who was tasked with making the decision.

(17) English law has considerable experience of commercial arbitration and respect for the parties’ choice of arbitration: Chief Justice James Allsop of the Federal Court of Australia has said that “co-operation and partnership between courts and arbitral structures is essential for a jurisdiction to serve international commerce, and for judicial and arbitral institutions to complement each other and to grow and succeed”. He also said that how well any particular jurisdiction deals with international commercial arbitration and so serves the international commercial community is dependent upon the quality and qualities of its commercial courts” which, “as supervising seat courts and as enforcing courts, are a critical integer in the successful operation of the international commercial arbitral legal order”.

(18) The legislative framework provided by the English Arbitration Act 1996 and the decisions of courts on it show respect for the parties’ choice of arbitration. English Courts provide support for the process during the arbitration if one party tries to frustrate the arbitration agreement and there is a general principle of non-intervention in arbitral proceedings. The volume of commercial litigation and arbitration in the Commercial Court in London means that English common law has considerable experience of supervising the awards made in commercial arbitrations. Last year, in an important speech in Beijing, Lord Thomas, then Lord Chief Justice of England and Wales, said that when considering a dispute about an arbitration agreement or the arbitration process, courts are required “to ensure that the choice of arbitration and party autonomy are fully respected and not nullified”.

(19) These then are the features of the English common law system which will, in my judgment, make the AIFC Court an effective and independent institution in which its users can have confidence. Confidence by the business community and the international investors in the AIFC in the AIFC Court and the fairness of its processes will play a significant role in ensuring the success of the AIFC.

(20) Thank you.

Source: AIFC

Theme: Overlay by Kaira Copyright: Juchter van Bergen Quast