Thursday, 5 February 2015

"Get yourself a good robust agreement"

Arab states
Source Wikipedia

Yesterday I attended a members' networking event at the Arab British Chamber of Commerce in Upper Grosvenor Street. There were 5 minute speeches by 11 businesses whose activities included training under-performing employees, software development, personal security in Southern Iraq, locating art and antiquities on public display, medical insurance broking, accountancy, wellness, money transfer, banking and facilitating business and investment in Saudi Arabia. All good stuff and I personally wish all those companies and business owners the very best of luck.

Before the speeches we heard an interesting presentation by Mr Abdelsalam El-Idrissi, Director of Trade Services of the Arab British Chamber of Commerce, on the history of the Chamber, the economic importance of the Arab world, the Chamber's services and some solid advice on doing business in the Middle East and North Africa ("MENA") in which I learnt a lot of things that were new to me. One of those things was that the Chamber had been created pursuant to decree No:K1175/D52/G of the League of Arab States in 1975 with the mandate of promoting, facilitating and encouraging bilateral trade so the Chamber must be approaching its 40th anniversary. Another was the volume and value of the trade that we do with the MENA region which Mr El-Idrissi demonstrated was more profitable to us than our trade with Brazil, China and India combined.

Mr El-Idrissi concluded his talk with the following top tips for businesses that wish to sell to the region:
  • "Know your product
  • Do some desk research
  • Identify your market
  • Visit the market
  • Appoint a good agent
  • Understand the 40/51 rule
  • Draft a robust agreement
  • Agree payment terms
  • Export documentation"
There was a question and answer session at the end of his talk. I got up and asked Mr El-Idrissi "What should be the proper law of the 'robust agreement'? Should it be local law? Could it be English law or the law of the Dubai International Financial Centre ("DIFC") or Qatar Financial Centre ("QFC") where the laws are in English and they have English speaking judges applying the common law?" Mr El-Idrissi turned the question back on me. "You're a lawyer" he said. "Maybe you should be telling us." He then added that Sharia law is very fair and suggested that we should use that.

I have no doubt that Mr El-Idrissi is right to say that Sharia law is fair and it does have the advantage of being the source of law for the states in which British companies wish to do business. The problem for us is that we don't know very much about it and what little we do know tends to be on the penal sanctions and that scares us (see, for example, the BBC report What is Sharia and how is it applied? 14 May 2014).

As the question was turned back on me this is my advice. Try to persuade your customer, supplier, licensee, joint venturer, agent or other trading partner to accept an agreement in English which is widely spoken in the MENA region. Many business owners and professionals in the region speak the language well having lived in, or travelled to, the UK, the USA or Commonwealth.  English law is also well known and the English courts are well regarded throughout the world. Try to persuade your trading partner and his or her advisers of the advantages to them of choosing English law as the proper law and England as the jurisdiction for the resolution of disputes. If they are not persuaded of those advantages then the DIFC or QFC courts would be acceptable alternatives. If your partner would prefer not to use those legal systems then there is always arbitration in the region.

If you cannot do business on the basis that the agreement is in English and governed by English law then make sure that you are properly advised by a local lawyer who speaks English well and understand our legal and commercial systems as well as his own. I am sure that Mr El-Idrissi and his staff can find you such a lawyer but if they can't I can suggest some names. Over the years I have met a lot of lawyers (particularly in IP) and my former pupil, Alex Khan, has practised in Dubai. Between us we can come up with some reliable practitioners. Call them, talk to them about their education, training, specialization and experience and use your judgment just as you would if you were choosing a lawyer here. Finally, I have a suggestion to Mr El-Idrissi for another event for the Arab British Chamber of Commerce, namely an in-depth workshop on Sharia law for business people. I for one would certainly attend it as a delegate.

Should anyone wish to discuss this article or related matters, call me on +44 (0)20 7404 5252 during normal British office hours or use my contact form.

Wednesday, 24 December 2014

Reem Al Marzouqi - an Emirati inventor

Jane Lambert

I an grateful to Mr Mohamed Al Hemairy, Head of Intellectual Property & Patent Commercialization at the United Arab Emirates University, for bringing Aamera Jiwaji's article Patent Experience 23 Dec 2014 BQ to my attention.  It is about a young woman called Reem Al Marzouqi who has invented means of driving a car without hands. 

According to the article:
"More than a year has passed since a shy Emirati student and her two colleagues of UAE University made international headlines for inventing a system that allows a disabled person to drive a vehicle using only their feet. But little has happened in the last three years, despite her university’s best efforts to facilitate the process, spotlighting whether the GCC is truly ready to become a regional hub for innovation and intellectual property matters."
The University saw the potential of Reem's invention and allocated two mechanical engineering students and their supervisor to assist her. Applications have been filed for patents in the USA, European Patent Office, China and Japan though apparently not the Gulf Co-operation Council Parent Office.

Those patent applications must have cost a lot of money and their maintenance and enforcement will cost a great deal more. The work that has been carried out by the mechanical engineering students and supervisor will also have come at a cost though they will all have gained valuable product development experience. Unless and until a manufacturer or user applies for a licence to work Reem's invention there is a risk that this investment will not be recovered.

Yet even if that happens it is no reason to doubt the GCC states' capacity to become "a regional hub for innovation and intellectual property matters." The fact that Reem came up with the idea in the first place indicates that there are talented young men and women in the region. The University's willingness to invest in the invention is also to the region's credit. Reem's experience is one that has been shared by countless private inventors throughout the world including the UK and USA. I can say that from bitter experience because I have set up and chaired inventors clubs in Leeds, Liverpool and Sheffield, run IP clinics throughout the UK and spent most of my career advising and representing start-ups and other small and medium enterprises.

Reem's problem is that she is an independent inventor and not a member of a major vehicle manufacturer or other big institution's research and development department. If you look at page 9 of the UK Intellectual Property Office's publication Facts and Figures you will notice names like IBM, HP, Schlumberger and Rolls Royce in the table of top 10 patentees. The patent system in most countries (if not every country of the world) is designed to assist big businesses. It is very tough indeed for anyone else to get a look in. The remark attributed to Ralph Waldo Emerson "Build a better mousetrap, and the world will beat a path to your door" is simply not true. And to be fair to Emerson what he actually said was:
"If a man has good corn or wood, or boards, or pigs, to sell, or can make better chairs or knives, crucibles or church organs, than anybody else, you will find a broad hard-beaten road to his house, though it be in the woods."
Having said that it was not necessary a bad thing to apply for a patent or other intellectual property right for a useful invention like Reem's but applying for a patent for an invention and then licensing it is putting the cart before the horse.

Intellectual property exists to protect investment in branding, design, technology and works of art and literature but does not necessarily stimulate it. What stimulates such investment is the promise of a return through the use or sale of an invention, the publication of a blockbuster novel and so on.  When I am asked to advise a new business on patenting or other IP protection I take the entrepreneur through the following exercise:

  • Identify the revenue streams for your business over the period of your business plan;
  • Consider the threats to each of those revenue streams;
  • What counter-measures can you take to avert those threats.
In most cases the threats are commercial - a competing product, a technical advance or changing consumer spending - and in most instances so are the countermeasure - reducing your prices, developing new products or services or finding new markets. Only very rarely is obtaining legal protection (that is to say a patent or other intellectual property right) the main answer. Even then a patent may not be the best answer because there are other forms of legal protection for new products and services such as the law of confidence which protects trade secrets or in the UK unregistered design right. Such alternatives are often unregistered rights and therefore free.

So what should Reem do now that she or her University has spent a lot of money on developing and patenting her invention? The obvious thing is to find a market and that is most likely to be found in a highly developed country with its own motor manufacturing industry with high welfare spending for disabled persons. I have no idea whether there is a market here but I do know that there is a scheme to adapt motor vehicles for disabled persons called Motability in the UK. There are probably bigger and better schemes in other countries. If I were Reem I would be exploring all those possibilities and perhaps also talking to the motor manufacturers.

Perhaps Reem, Mr Al Hemairy or someone else at the UAEU has thought of all that and done all these things. If so, excuse my impertinence. But if not, it's an idea isn't it and this article may help other inventors  in the GCC. If any of those inventors or entrepreneurs wants to discuss this article he or she can call me on +44 20 7404 5252 during office hours (remembering that we have 3 public holidays between now and 2 Jan 2015) or send me a message through my contact form

I should like to wish Reem, her helpers and university all the best and urge them not to be discouraged. There's plenty of scope for enterprise and innovation in the GCC states. The rest of the world owes a great debt of gratitude to the Arab world for the work of its scholars and scientists in the past. The fact that we use 1, 2, 3, 4 and 5 rather than I, II, III, IV and V for counting is a constant reminder of that debt. There is no reason why the GCC - indeed the whole Middle East North Africa region - could not be a great source of ideas and technology again.

Tuesday, 9 December 2014

GCC-British Economic Forum

Landmark Hotel, London
Photo Wikipedia

Last Thursday I attended several of the sessions of the GCC-British Economic Forum organized by the Arab British Chamber of Commerce at the Landmark Hotel. The Forum was opened by Prince Andrew and there were keynote speeches from Abdullatif bin Rashid Al Zayani, Secretary General of the Gulf Cooperation Council ("GCC") and Prince Saud Bin Khalid Al-Faisal, Deputy Governor of the Saudi Arabian General Investment Authority (SAGIA). For the rest of the day there were discussions on energy, investment in infrastructure, financial services and tax.

I found the first session on sustainable energy was the most interesting. For the last 100 years the world has looked to the Gulf for petroleum products but the oil stocks will not last for ever. One of the businesses planning for when the oil runs out is QSTec (Qatar Solar Technologies). QSTec, which is part of the Qatar Foundation,
"aims to be a fully integrated solar energy company that operates across the solar value chain. Starting with the production of high quality polysilicon, QSTec will expand along the value chain into ingots, wafers, cells modules and applications. Its high quality solar products and services will be used locally and exported globally to meet the growing needs of the global solar industry."
The company was one of the sponsors of the Forum and Dr. Khalid K. Al-Hajri, its chair and CEO spoke at the dinner. Every guest received a goody bag from QSTec consisting of a solar powered battery charger and a bound notebook.

QSTec is developing new solar technologies in Doha in collaboration with the universities that are clustered in Education City and the businesses in Qatar Science and Technology Park. The company is already exporting its products around the world In time, it will no doubt build up an impressive portfolio of licensable technologies. Intellectual property will be crucial to businesses like QCTec not just in Qatar but also in the rest of the Gulf, yet it was barely touched upon in any of the discussions.

The good thing about the Forum was that discussion focussed on Arab investment in the UK as well as British investment in the GCC but the emphasis on energy, infrastructure, banking and tax seemed backward looking rather than forward thinking. Education City is not the only centre for research and development in the region. Saudi Arabia has the King Abdulaziz City for Science and Technology (see my article "Saudi Arabia: King Abdulaziz City for Science and Technology" 6 Sept 2014), Dubai has its Knowledge Village and so on. We in the UK and indeed the rest of the world will want to use and develop this technology. This should certainly be a topic for any future Forum.

Another topic upon which I had expected more discussion was the political and legal infrastructure. The only time it came up was when one of the speakers remarked that investment was happened by political and legal uncertainty. In the Q & A I pointed out that Dubai and Qatar had both established English speaking common law courts in their financial districts in order to give foreigners sufficient confidence to use the local financial services industries and that there was no reason why investors in other industries could not opt for QFC or DIFC law and submit to the jurisdiction of those courts in their contracts. It should not have been left to a speaker from the floor to bring these important institutions to the Forum's notice.

Overall it was an interesting day and I met a lot of interesting people from the Gulf and other parts of the Middle East North Africa region. I hope that there will be another Forum but that it will be more forward thinking next time. Should anyone wish to discuss this article or business with the GCC generally he or she should call me on +44 20 74 04 52 52 or use my contact form.

Friday, 28 November 2014

Sky High Costs

Burj Khalifa
Photo Wikipedia

In 2010 Hogan Lovells published "At what cost?" , a multi jurisdictional guide to litigation costs. A series of questions was presented to lawyers in each jurisdiction on the amount and recoverability of costs which were defined as
"the costs incurred by a party during the course of litigation in connection to that litigation, and which include, but are not limited to, costs that the party has paid to its lawyers (including solicitors, counsel and advocates) to agents, to courts, to process servers and in respect of disbursements (for example, photocopying, expert witness, travel, translation, notarial services and witness attendance etc.)."
Two of the jurisdictions it compared were the Dubai International Financial Centre ("the DIFC") and the rest of Dubai and the United Arab Emirates.  The information on both jurisdictions in Dubai was contributed by Hadef & Partners.

As I explained in DIFC Courts 7 Jan 2014, the Centre has its own legal system based on the common law where proceedings are conducted in English before judges who have already held high judicial office in the United Kingdom and other Commonwealth countries. The rest of Dubai is a civil law jurisdiction where proceedings are conducted in Arabic. One of the most striking differences between the two systems is costs. In both jurisdictions the unsuccessful party pays the costs of the litigation which are unlimited in the DIFC. In the rest of Dubai they are generally limited to between 1,000 and 2,000 dirhams (£173 to £346 at current rates of exchange).

The high cost of litigation in England and Wales has been a matter of concern in that country for many years. A recent report by the Legal Services Consumer Panel warned lawyers in England and Wales that they are not indispensable and risk being priced out of the market:
"The core challenge ahead is to extend access to justice to those currently excluded from the market because they cannot afford legal services. This need and other forces, including government policy, consumer empowerment, technology and the effects of liberalisation, will combine to result in less involvement by lawyers in many of the tasks that until now have made up their staple diet. Consumers will seek alternatives to lawyers or use them in different ways. In place of lawyers will be greater self-lawyering, online services, entry by unregulated businesses, and also by regulated providers, such as accountants and banks, who will diversify into the law. Calls will grow for more radical solutions that cut lawyers out, such as an
inquisitorial style of justice and online dispute resolution, which are better suited to the new funding realities. The consumer interest will lie in resolving the tension between cost and quality, and determining when a lawyer is needed and when alternatives can safely suffice. Regulated lawyers should be viewed as a small part of an increasingly diverse ecosystem of legal services delivery; improving access will require looking at how the whole system will work in future around consumer need."
Those costs compared to the cost of litigation in the rest of Europe appear to be one of the reasons why the UK lags behind other European countries in the number of applications for European patents (see Jane Lambert UK slumps to Ninth Place in European Patent Applications 25 July 2014 NIPC Inventors Club). It is significant in that regard that the DIFC courts have never heard an intellectual property case (Why has no IP case come before the DIFC Courts? 19 March 2012).

One of the justifications for the DIFC courts is that the adversarial system and the quality of the judges ensure high quality judicial decision making. While that is undoubtedly true where both parties are well resourced, disparity of means can sometimes defeat that objective - at least in England and Wales. For instance, a large retailer facing a copyright or design infringement action by a small company can apply for an order requiring the claimant to deposit money or give some other security for its costs of defending the claim under CPR 25.12. If the claimant fails to do so within the time specified in the order the claim is stayed and any interim injunction against the defendant is discharged. There is a similar rule under Part 25 of the DIFC Court Rules.  According to Hadef & Partners there is no equivalent rule in the rest of Dubai; but if the average award of costs is between 1,000 and 2,000 dirhams there would be no need for one.

Should anyone wish to discuss this article or civil litigation generally, he or she should call me on +44 20 7404 5252 during office hours or send me a message through my contact form.

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.