Wednesday, 15 October 2014

Enforceability of Shareholder Agreements in the DIFC: Smartpaper Software LLC v Keross LLC and Another

This case which came before Sir John Chadwick in the Court of First Instance of the Dubai International Financial Centre is of interest of practitioners outside Dubai because the enactments that the judge considered are modelled on Acts of the United Kingdom Parliament and the contract that the claimant company sought to enforce was one that could easily have been concluded by entrepreneurs anywhere.

In Smartpaper Software LLC  v Keross LLC and Another CFI 012/2010 14 Sept 2014 the claimant sued for damages for breach of a shareholders' agreement to which neither the claimant nor the first defendant were party. The agreement, which is described as a “Final and Binding Shareholder Agreement for Selling Membership Interests of Keross LLC” (the “first defendant”) for the stated purpose of working together in an orderly and transparent way to effectuate the sale of all membership interests owned by two parties to the agreement respectively to the second defendant, provided for the first defendant to transfer certain assets and liabilities to a new company to be formed. The claimant, which was incorporated 3 months after the shareholder agreement, claimed to be that new company. It alleged that the defendants had failed to transfer those assets and in particular certain contracts to it. The value of those contracts was the sum claimed in damages.

The action came on for trial before Sir John on 22 Feb 2012, He formed the preliminary view that the claimant was unlikely to succeed for the following reasons:
  1. The claimant was not party to the shareholder agreement.
  2. The first defendant was not party to that agreement.
  3. The proposed transfer was unlawful under art 46 of the DIFC Companies Law unless the case could be brought within one of the exceptions under art 46 (1).
  4. The particulars of claim no longer disclosed a cause of action as certain paragraphs alleging malice had been struck out by Sir David Steel shortly before the trial.
The judge invited the claimant to address him on those points before calling evidence. The claimant's representative, who was one of the parties to the agreement, failed to persuade Sir John who dismissed the claim under RDC Part 24 which appears to be modelled on Part 24 of the English and Welsh Civil Procedure Rules. The judge indicated that he would put his reasons in writing which were published on 11 Sept 2014.

In his reasons the judge modified his view on the first ground. The claimant relied on art 104 (1) and (3) of the DIFC Contract Law which is modelled on s.1 (1) of the British Contracts (Rights of Third Parties) Act 1999:
"104 Right of third party to enforce contractual term
(1) Subject to the provisions of this Law, a person who is not a party to a contract (a ‘third party’) may in his own right enforce a term of the contract if
(a) the contract expressly provides that he may; or
(b) subject to Article 104(2), the term purports to confer a benefit on him.
(2) Article 104(1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
(3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into."
The shareholder's agreement provided:
“In consideration for Sami and Khaled selling their respective interests to Farouk, Keross LLC shall transfer the ownership of specific assets and liabilities (the ‘Consideration’) to a new legal company (the ‘New Entity’) to be incorporated by Sami and Khaled.”
At paragraph 11 of his reasons the judge said:
"It seems to me reasonably clear that the “New Entity” is a person on whom the relevant term purports to confer a benefit within the meaning of Article 104(1)(b) of the Contracts Law; and that it cannot be said – for the purposes of Article 104(2) – that the parties did not intend that that term should not be enforceable by the New Entity. It is also clear that SCS is not “expressly identified” in the Shareholder Agreement by name or as a member of a class for the purposes of Article 104(3). The question is whether SCS is expressly identified “as answering a particular description”: that is to say, whether SCS can be identified as the “New Entity”?"
The judge did not decide the point as the claim failed on other grounds. However, he said at paragraph 12:
"In the circumstances that I have reached the conclusion, on other grounds, that the claims advanced by SCS in these proceedings have no prospect of success and should be dismissed, I am content to assume (without deciding) that SCS can be identified as the “New Entity” for the purposes of article 104(3) of the Contracts Law."
Similarly, he made no finding on the second point as the particulars of claim  had alleged that the first defendant was party to the shareholders' agreement through the agency of their directors and shareholders. At paragraph 15 he said:
"Given that [the first defendant] has taken no part in these proceedings – and in the absence of any allegation of agency to support the assertion in the Particulars of Claim that it “came to an agreement” – I would be reluctant to hold that [the first defendant] must be treated as a party to the Shareholder Agreement. In the circumstances that I have reached the conclusion that, having regard to Article 46 of the DIFC Companies Law, the claims in these proceedings have no prospect of success, it is unnecessary to decide the agency point; and I do not do so."
However, he held that the transaction was unlawful having regard to art 46 of the Companies Law which prohibits companies from providing financial assistance to acquire shares in that company or its holding company unless the transaction falls within one of a number of exceptions. Further, as the parts of the particulars of claim alleging malice had been struck out there was no longer a cause of action.

Because the case was decided by a former Lord Justice of the Court of Appeal and the enactments are modelled on English statutes this case is of persuasive authority in the United Kingdom and other jurisdictions with similar laws. It is a pity that the judge did not decide the privity and agency points but he has uttered some useful dicta.  The issues raised in this case should be borne in mind by those who negotiate and draft shareholders' agreements in England as well as the DIFC,

Sunday, 17 August 2014

Second Arab British Economic Forum

The second Arab-British Economic Forum will take place on 21 Oct 2014 at the Millennium Hotel, 44 Grosvenor Square, London W1K 2HP. This forum is an initiative of the Arab-British Chamber of Commerce in partnership with Jordan Chamber of Commerce, League of Arab States, the General Union of Chambers of Commerce, Industry and Agriculture and United Kingdom Trade & Investment.  Its aim is to provide a platform for dialogue and cooperation, to strengthen commercial ties, deepen cooperation and promote investment in both directions.

The programme will focus on:
  • business opportunities in Jordan
  • Islamic banking and finance
  • energy sustainability, and
  • logistics and technology.
The event is expected to attract business leaders from the banking, construction, energy, healthcare, IT, logistics, retail and tourism industries, universities and other educational institutions, government and diplomatic representatives. 

The event costs £100 for Arab-British Chamber of Commerce members. £150 for non-members and those who want to attend the dinner can register through the Chamber's website. It should be a memorable event.

Related Event

Sunday, 27 July 2014

Without Notice Injunctions in Dubai

Part 25.1 of The Rules of the Dubai International Financial Centre Courts 2011("RDC 2011") confer wide powers on the Dubai International Financial Centre ("DIFC") courts to make "without notice" orders including search and freezing order.

A "without notice" order is an order that has been made in the absence of the person against whom it is made ("the respondent"). Such orders are made either because a matter is so urgent that the person seeking the order ("the applicant") has insufficient time to serve the respondent or because there is a danger that the respondent will frustrate justice by for example hiding or destroying evidence or removing from the court's reach or dissipating assets that could otherwise have been used to satisfy a judgment if he or she learns about them. A "search order" is a "without notice" order "requiring a party to admit another party to premises for the purpose of preserving evidence" (RDC 2011 25.1 (8)). A model search order is at Schedule B to RDC 2011 Part 25. A "freezing order" is a "without notice" order
"(a)  restraining a party from removing from the jurisdiction assets located there; or
(b)  restraining a party from dealing with any assets whether located within the jurisdiction or not."
A model of such an order is at Schedule A.   The rules and practice relating to without notice orders set out in RDCC 2011 Part 25 are based on the provisions of Part 25 of the English Civil Procedure Rules and the Part 25A Practice Direction. The model orders in Sched A and B are adapted from the model orders in the Annex to PD25A.

A search order and freezing order were made by Sir John Chadwick in GFH Capital Ltd v Haigh on 3 June 2014 and sealed on the 12th. The parties were due to return to court on the 17th June 2014 ("the return day"). I have not yet been able to ascertain what happened on the return day.

To be served with one of those orders - particularly a "search order" - is an alarming experience and one that is likely to unsettle respondents. Yet respondents have to make important decisions within a very short time. To assist parties who have been served with such orders in England I have written a step by step guide on
"What to do if you are served with a Freezing Injunction or Search Order" (20 July 2014 JD Supra). Most of the advice set out in the guide applies to Dubai as it does to England. However, legal advice and representation should be sought from one of the law firms in Part I of the Register of Practitioners of the DIFC Courts.

Should anybody wish to discuss this article or any other topic he or she can contact me on +44 (0)20 7404 5252 during normal business hours or send me a message through my contact form. He or she can also send me a tweet, write on my wall or contact me through G+, Linkedin or Xing.

Saturday, 26 July 2014

Information in English on Saudi Patent Law

Because of the massive and rapidly increasing importance of Asia to the world economy the European Patent Office offers a range of Asian patent information services some of which are chargeable and others of which are free. Among the free services are virtual helpdesks on a number of countries including Saudi Arabia.

The Saudi virtual helpdesk consists of a series of FAQs.  Visitors who fail to find a solution to their problems among the FAQs are invited to complete an enquiry form. Those who want more specific answers to an FAQ are invited to email the International Legal Affairs team at the EPO.  Before reading the FAQs it is perhaps worth reading my articles:  "Patents: Gulf Co-operation Council" 23 Jan 2011 and "Saudi Arabia: Overview of Intellectual Property Law" 22 May 2011.  It will be recalled that patents can be granted either for Saudi Arabia alone by the Saudi Patent Office which is in the King Abdulaziz City for Science and Technology or for all the Gulf Co-operation Council states including Saudi Arabia by the GCC Patent Office. The EPO helpdesk provides information on patents granted by the Saudi Patent Office.

The EPO's FAQs are quire comprehensive. Here are some of the bits of information that I learned from the FAQs:-
"Computer programs as such are not patentable, but may be protected by copyright. Computer-related inventions may be patentable in Saudi Arabia if the requirements for patentability are met."
"All non-residents wishing to apply for a patent require an authorised Saudi Arabian representative. Applicants have to file a power of attorney which has been duly notarised and legalised by the consulate of Saudi Arabia."
"It is not possible at present to file a provisional application in order to get an early filing date in Saudi Arabia."
"It is not possible to submit third-party observations."
"The Saudi Arabian Patent Law does not include any provisions on patent term extensions or supplementary protection certificates (SPCs).
"Within 90 days from publication of the decision to grant, any interested party may apply for partial or total revocation of the patent.

Invalidation is possible for a third party at any time after grant and must be raised before a separate governmental body (Appeals Committee)."
The Saudi Patent Office also publishes FAQs on intellectual property, patents, industrial designs, plant varieties and integrated circuits and statistics on patents, designs and plant varieties.

Should anybody wish to discuss this article or any other topic he or she can contact me on +44 (0)20 7404 5252 during normal business hours or send me a message through my contact form. He or she can also send me a tweet, write on my wall or contact me through G+, Linkedin or Xing.

Monday, 14 July 2014

Saudi Arabia - Riyadh Workshop to train Advisers to Saudi SME on Effective Intellectual Asset Management

Between the 16 and 18 Sept 2014 a training workshop will take place in Riyadh on effective intellectual asset management for small and medium enterprises ("SME"). It will be organized by the World Intellectual Property Organization (the UN specialist agency for intellectual property ("IP")) in conjunction with the Standing Committee on Intellectual Property of the Ministry of Commerce and Industry of Saudi Arabia,

The importance of IP to SME is explained on the front page of the WIPO portal on SME:
"Regardless of what product your enterprise makes or what service it provides, it is likely that it is regularly using and creating a great deal of intellectual property. This being the case, you should systematically consider the steps required for protecting, managing and enforcing it, so as to get the best possible commercial results from its ownership. If you are using intellectual property that belongs to others, then you should consider buying it or acquiring the rights to use it by taking a license in order to avoid a dispute and consequent expensive litigation.

Almost every SME has a trade name or one or more trademarks and should consider protecting them. Most SMEs will have valuable confidential business information, from customers' lists to sales tactics that they may wish to protect. A large number would have developed creative original designs. Many would have produced, or assisted in the publication, dissemination or retailing of a copyrighted work. Some may have invented or improved a product or service.
In all such cases, your SME should consider how best to use the IP system to its own benefit. Remember that IP may assist your SME in almost every aspect of your business development and competitive strategy: from product development to product design, from service delivery to marketing, and from raising financial resources to exporting or expanding your business abroad through licensing or franchising."
The development of an understanding of IP by Saudi SME will be vital for the growth and diversification of the economy of that country. The object of the workshop is to train those who will train Saudi businesses in effective intellectual asset management.

The course will be delivered in English and a provisional programme has already been published which may be downloaded from the WIPO website.  After an introduction to WIPO by Siyoung Park of WIPO's SME section and an overview of IP and the role of effective intellectual asset management in enhancing SME competitiveness there will be talks on trade marks, designs, patents and utility models, copyright and confidentiality by Prof. Al-Khoury of La Sagesse University in Lebanon, Prof Damodaran of the Indian Institute of Management and Mr Park on the 16 Sept.  The next day there will be discussions and exercises on shaping IP strategy, IP in the digital economy and in international business, licensing and other matters. The speakers will be joined by the chair of the Standing Committee on IP who will outline IP Law and administration and IP support services for SMEs in Saudi Arabia.  On the last day there will be talks on accounting and valuation of intellectual assets, IP audits and due diligence and an overview of the role of SME in the Saudi economy by a speaker to be arranged.  After round table discussions which will include a view of IP support in Brunei there will be a short open book written test for the participants.

This seems a useful introduction to IP which could well be emulated even in advanced countries such as the UK where the difficulties of SME in obtaining relevant and comprehensive advice on IP were highlighted by Prof Hargreaves in his report in May 2011.

Tuesday, 22 April 2014

World Intellectual Property Day in the Gulf

On 26 April 1970 the Convention Establishing the World Intellectual Property Organization came into force. The anniversary of that event is celebrated throughout the world as World Intellectual Property Day. A different theme is selected for the event each year. This year it is "The Movies - A Global Passion."

The WIPO enters details of the celebrations on a special Facebook page. So far the WIPO appears to be aware of three events in the GCC region:

Should any other events in the region to mark World Intellectual Property Day appear on the WIPO Facebook page between now and Saturday I shall mention them here.

None of those events relates to film which may be explained by the fact that film making and distribution in the GCC countries is quite small. According to Wikepedia there are no cinemas at all in Saudi Arabia though films are seen in that country on television, over the internet and on DVD and at least one Saudi film has been made though it was shot abroad and the lead female actor was Jordanian (see Cinema of Saudi Arabia). Kuwait seems to be the only state in the region with a highly developed film industry and local cinemas (see cinema of Kuwait) and the industry is growing in the United Arab Emirates (see Cinema of the UAE). Initiatives like the incentives offered by the Abu Dhabi Film Commission upon which I reported in 
Abu Dhabi: An Offer to Film Makers that will be hard to refuse 31 May 2012 should certainly help.

World Intellectual Property Day falls on a Saturday this year so it is difficult to mark the day. Over the next few weeks or so I shall be writing about copyright and rights in performances, the intellectual property rights that protect film makers, distributors and actors, as my contribution to the day. In the meantime, as the greeting "Happy World Intellectual Property Day" is something of a mouthful I wish all my readers around the world a good weekend (whether they celebrate it on Friday and Saturday or Saturday and Sunday). I hope they take in some of their local events to mark World IP day and that at the very least that they get to see a good movie or some other show.

Saturday, 5 April 2014

Intellectual Property and its Role in Economic Development, Kuwait 30-31 March 2014

On the 30 and 31 March 2014 a conference and exhibition on Intellectual Property and its Role in Economic Development at the Kuwait Marriott. The event was organized by the Ministry of Commerce and Industry of Kuwait in collaboration with the University and the Gulf Co-operation Council.

The event's objective was
"to activate the community partnership between the official bodies concerned with intellectual property and private sector business represented by the owners of the trademarks authorized in the local market and regional and international experts concerned with the implementation of IPRs laws highlighting the importance of providing adequate protection to the production and services companies, as well as safeguarding human health, safety and environment from the damages resulting from trading in counterfeited goods and their impacts on countries' economies."
The organizers set out to achieve those objectives by
  • promoting avenues for activating the role of the intellectual property in economic development;
  • encouraging and motivating inventors and individuals with creative thoughts;
  • highlighting the official efforts exerted by the State of Kuwait in enacting IP regulatory laws and legislations and implementation thereof;
  • highlighting the damages caused by counterfeited trade marks and raising consumers' awareness of such damages;
  • exchanging expertise and experiences of the GCC States, the other Arab countries and international organizations.
Four topics were discussed:
  • counterfeit trade marks, their damage to the national economy and how to combat and control them;
  • the economic and industrial importance of patents;
  • Kuwait's national IP legislation; and
  • the role of chambers of commerce and other private sector organizations in suppressing counterfeiting.
Speakers included the Kuwaiti Deputy Prime Minister and Minister of Commerce and Industry, the GCC Secretary General, the Assistant Undersecretary for International Trade and Intellectual Property Affairs in Kuwait, the Dean of the Law Faculty of Kuwait University and the Chair of the Intellectual Property Training Centre.