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Arbitration

China

Overview
Including: international arbitration versus domestic arbitration; institutional and ad hoc arbitration; legal representation; commencement of proceedings; appointment of arbitrators; expansion of application and defence - further pleadings; hearing; rules of evidence; post-hearing pleadings; preservative measures; awards; enforcement of foreign arbitration award.

The much-debated Labour Dispute Mediation and Arbitration Law allows labour arbitration commissions to issue decisions which are immediately legally binding and which cannot be appealed in some cases. The fact that local labour arbitration commissions will allow workers to submit cases to arbitration for free is likely to result in more labour disputes being brought before the commissions.

China and Macau have signed an agreement to recognize awards made under their respective arbitration laws as being mutually legal and enforceable. A similar agreement is already in place between China and Hong Kong. The agreement applies to all arbitral awards made after December 20 1999.

Arbitration is the preferred method of dispute resolution for foreign investors in China. For a variety of reasons, foreign parties also prefer to arbitrate outside China. However, the first question confronting a party that wishes to arbitrate China-related disputes outside China is whether Chinese law allows the parties to do so. The answer, at least for now, is a qualified 'yes'.

Bilateral investment treaties are gaining recognition as sources of protection for foreign investors, as they allow investors to bring an arbitration claim directly against a host country. Historically, Chinese bilateral investment treaties have granted foreign investors limited rights of recourse through arbitration, but a new generation of treaties grants greater rights.

The Supreme People's Court has promulgated its long-awaited interpretation on arbitration law issues. The statement consolidates previous judicial interpretations, as well as providing additional guidance on two key issues: the validity of arbitration agreements and challenges to arbitral awards.

The Supreme People's Court issued its Interpretations on Certain Issues Relating to the Application of the Arbitration Law by the People's Courts (Draft for Approval), which are expected to be formally promulgated soon. The interpretations include a number of interpretations on the provisions of the Arbitration Law dealing with the validity of arbitration agreements.

More updates >

France

When French arbitration law was reformed in 2011, one major innovation was to amend the position on the stay of enforcement of international arbitral awards pending the outcome of annulment proceedings or of an appeal against an order granting leave to enforce (exequatur). However, the courts' severity towards requests for a stay of execution has given rise to concerns about exequatur proceedings.

According to the French law on international arbitration, an action to set aside is available against international arbitral awards issued in France. Therefore, such an action may be instituted only against arbitral awards. The distinction between arbitral awards and other communications issued by tribunals can be unclear; however, a decision of the Supreme Court provides useful guidance.

The interaction between insolvency proceedings and arbitration is treated differently in different countries. The French legal position is clear: the supervening insolvency of a party does not render a dispute inarbitrable. In a recent decision the Paris Court of Appeal found that the International Court of Arbitration of the International Chamber of Commerce had committed an "excessive measure" justifying the annulment of an award.

In a recent case the Supreme Court reaffirmed the existence of an arbitral legal order, independent of any national legal order. It held that the arbitral proceedings in question were detached from the French judicial order, since the tribunal's seat was located in Sweden and proceedings were governed by the United Nations Commission on International Trade Law rules.

Since March 2010 the ordinary French courts have been able to challenge the constitutionality of a statute or statutory provision through a specific procedure. However, the reform was silent on the issue of whether arbitral tribunals enjoy similar rights to ask the Supreme Court to refer a matter to the Constitutional Council. In a recent decision, the Supreme Court found no basis for such rights to be allowed to arbitrators.

It is a truism that relativity applies in arbitration. An award can be set aside by the courts of the English seat of arbitration and yet be declared enforceable in France. The conflicting decisions issued by the Paris Court of Appeal and the UK Supreme Court in Dallah illustrate that an arbitral award can have a different fate depending on the approach of the courts of the seat of arbitration and the courts of the places where enforcement is sought.

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Germany

Liability claims against arbitrators can arise not only from the violation of duties under the arbitrator's agreement, but also from the violation of pre-contractual duties as well as tortious acts. However, the arbitration agreement also contains an implied limitation of the arbitrator's liability.

Interim measures are a combination of a preliminary summary review of the subject matter and immediate enforcement. Although interim measures aim at swift provisional enforcement, some problems exist which mean that parties seldom apply for tribunal-ordered relief in practice. This update explains why.

Including: UNCITRAL Model Law v German Arbitration Act; Applicable Substantive and Procedural Law; Judicial Intervention; Preventative and Interim Measures; Language Requirements; Local Arbitration Institution

German arbitration law provides for a single-track enforcement regime, which does not differentiate between German and foreign awards as far as the reasons for refusing enforcement are concerned. This update outlines the key points of enforcement.

In international business practice, arbitration is the preferred means of contentious dispute settlement. The lower cost argument is one of the most common explanations for this preference. Arbitration is often completed within a single stage, and as such may take less time and create fewer costs.

Foreign companies considering arbitration in Germany may be glad to know that they can turn to a local service provider for assistance and reliably refer to its arbitration rules. This update concerns the top institutional service provider for domestic and international commercial arbitration, the German Institution for Arbitration.

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Hong Kong

Overview
Including: Dispute Resolution in Hong Kong SAR

China's Supreme People’s Court has confirmed that awards made in ad hoc arbitration proceedings in Hong Kong are enforceable in China. This issue had been of particular concern because it had been unclear whether arbitration awards made with the assistance of the Hong Kong International Arbitration Centre would necessarily be treated as institutional awards or merely ad hoc awards.

Aviation

Germany

The sale of an aircraft which is located in Germany at the time of transfer of title generally falls under the scope of the Value Added Tax Act. The application of the act does not necessarily imply that the sale triggers value added tax (VAT), as the act provides for an exemption. This update sets out the preconditions for the application of the VAT exemption and reviews the input VAT refund procedure.

Despite being an active participant in the drafting of the Cape Town Convention and Protocol, Germany is yet to proceed to ratification. This is partly because a number of changes to the existing German legal system will be required in order to conform to the convention and protocol. This update sets out the most significant changes required before ratification by Germany can proceed.

The delivery of aircraft which are located in Germany at the time of transfer of title frequently raises questions as regards due procedure under German law. The transfer of title of aircraft in Germany must be approached with prudence, caution and, most importantly, a sense of practicality. German choice of law provisions on the rights to aircraft are mandatory and cannot be derogated from.

Banking

China

The China Banking Regulatory Commission's guidelines on reputational risk management in commercial banks apply to all Chinese commercial banks, banks established through equity joint ventures and foreign-invested banks. They require banks not only to integrate reputational risk management into their corporate governance and overall risk management, but also to minimize adverse effects on the public and society.

In an attempt to strengthen China's economic exchange with foreign countries, the government announced the launch of a renminbi cross-border trade settlement pilot programme, for which the People's Bank of China and ministerial authorities have issued implementing regulations. The scheme will affect background clearing between Chinese and foreign banks.

With Chinese banks' loan business growing rapidly - along with fears of inflation - the China Banking Regulatory Commission has released a consultative note on a draft circular on capital replenishment mechanisms. The draft circular indicates the government's intention to tighten capital adequacy ratio requirements for Chinese banks and to curtail bank lending.

The People's Bank of China and the Hong Kong Monetary Authority have signed a currency swap agreement which enables short-term liquidity support to be provided to the mainland operations of Hong Kong banks and the Hong Kong operations of mainland banks, as necessary.

The People's Bank of China and the Hong Kong Monetary Authority have announced a multi-currency cross-border payment arrangement between the mainland and Hong Kong. The arrangement covers cross-border payments and settlement in four currencies.

Rules newly in force are likely to complicate the acquisition or disposal of interests in financial enterprises. Among other things, they confirm that transfers of state-owned interests in unlisted financial institutions are subject to a mandatory public auction or tender process, unless a special approval for transfer by private agreement is obtained from the State Council or the financial authorities.

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United Kingdom

Following its consultation on draft statutory instruments under the Consumer Credit Act 2006, the Department of Trade and Industry has published its conclusions. Among other measures, the department will relax the requirement for prescribed information to be shown without interspersion and amend its proposals for transitional arrangements for existing periodic fixed-sum statements.

The Financial Services and Markets Act 2000 (Ombudsman Scheme) (Consumer Credit Jurisdiction) Order 2007 sets out the types of business relevant to the application of the Financial Ombudsman Scheme in relation to a complaint against a licensee under a standard consumer credit licence or a person authorized to carry on an activity by virtue of Section 34(a) of the Consumer Credit Act 1974.

The Financial Services Authority and the Office of Fair Trading have submitted comments on the review of the Banking Code. Both bodies indicate, among other things, that the EU Unfair Commercial Practices Directive should be taken into consideration.

The Treasury Select Committee is to undertake an inquiry into unclaimed assets within the financial system. It will consider the proposed definition of an 'unclaimed asset' within the UK banking sector and the scope for extension of the scheme - or for another scheme - to cover unclaimed assets held by other financial institutions, such as insurance companies.

The Department of Trade and Industry has published a report on illegal money lending. It recommends a regulatory strategy which maximizes the availability of regulated credit and the provision of closely targeted support for those who are unlikely to be able to access regulated credit. The Treasury has announced funding for specialist enforcement teams to tackle the problem.

The Financial Services Authority (FSA) has prohibited John Vincent Burton, sole director of Mortgage and Finance Club Limited, from carrying out functions in relation to regulated activities. The FSA concluded that Burton was neither fit nor proper to carry out functions in relation to regulated activities following his breaches of a number of the Statements of Principle for Approved Persons.

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Capital Markets

China

After a two-year moratorium on the establishment of, and investment in, Chinese securities companies, the new Rules on the Establishment of Securities Companies with Foreign Equity Participation and their subsidiary provisions demonstrate the government's encouraging, if cautious, approach to creating a clearer regulatory framework and enabling a gradual opening of the industry to foreign investors.

Italy

CONSOB, the Italian securities market regulator, has completed the transposition of the EU Market Abuse Directive. Its new regulatory provisions codify its increased powers of intervention and introduce new disciplinary measures on corporate information and crime, particularly with respect to insider dealing and market manipulation.

A new resolution has been unveiled which aims to govern regulated markets. The law harmonizes market regulations with recent corporate law reforms and takes into consideration the implementation of the EU Financial Collateral Directive. It will be of particular interest to market operators, who were consulted on the new law.

Competition

China

The Ministry of Commerce recently issued guidance notes and other documents providing further details of the merger control procedure to be followed under the Anti-monopoly Law. Among other things, they formalize certain notification procedures, increase information requirements and signal that certain non-competition-related factors may routinely be considered as part of a review.

The Ministry of Commerce has published its decision to clear InBev NV/SA's proposed $52 billion acquisition of Anheuser-Busch Companies Inc. The conditions it has imposed seem to demonstrate a willingness to adopt an approach to remedies that differs from the international norm.

China's first comprehensive competition law code is now in force. However, uncertainty remains over how the new regime will work. This update explains some of the law’s implications for businesses, some of the areas that still require clarification and the role of the courts. It also considers the new merger control notification thresholds.

The draft regulations to implement the merger control provisions of the Anti-monopoly Law provide clarification and procedural enhancements. However, buried in the detail are a proposal that becoming the single largest shareholder in a company will be enough to constitute a change of control, and a reserve power to subject deals which do not satisfy the notification thresholds to regulatory review.

China's first comprehensive competition law, over a decade in the making, is generally in line with international norms, but has some distinctive Chinese characteristics. This update examines its main features, the changes from the June 2007 draft and the implications for foreign companies doing business in China.

Corporate Finance/M&A

China

Foreign merging banks can now utilize a single-step approval process and apply directly to the People's Bank of China (PBOC) for final approval once the financial regulatory authority in the home jurisdiction has formally approved the merger. Previously, the PBOC's 'in-principle' approval had to be obtained before the merger in the home jurisdiction.

A notice recently issued by the China Securities and Regulatory Commission sets out conditions and procedures for the issuance of convertible bonds by listed companies. These include a requirement that listed companies issuing such bonds must have good cash flow.

Two recent foreign investments in Chinese telecommunications companies are examples of the trend towards liberalization in this sector. Although the stakeholdings acquired are relatively small, the deals indicate that China is one step closer to realizing its World Trade Organization market reforms.

The National People's Congress has amended the Equity Joint Venture Law in preparation for China's entry to the World Trade Organization. Foreign insurance companies may now provide services to equity joint ventures, and the latter are no longer obliged to report their production and operational plans to the authorities.

Including: Mergers Clarified; Application Procedure; Mergers with State Owned Enterprises; Due Diligence

A State Council Notice issued in October 2000 has effectively put any plans for mergers and acquisitions involving state owned power assets on hold for at least a year. The notice, rather than being specifically targeted at foreign investment, reflects renewed efforts by the central government to continue reforms in the power sector first initiated in 1998.

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Corporate Tax

Austria

Overview
Including: Corporate Income Taxation; Anti-avoidance Regulations; Reorganization of Enterprises; Capital Transfer Tax.

The Tax Reform Act 2000 extended the scope of stamp duty for contracts that are subject to this tax, including credit contracts and other contracts relevant to inbound investments into Austria. Although the scope has since been reduced for contracts signed outside Austria, it still applies to credit agreements.

The European Court of Justice has ruled that a beverages tax imposed on alcoholic drinks contravenes EU law. However since the tax was an important source of revenue, it has restricted refund claims.

The Austrian federal minister of finance recently announced that proposed changes to the tax regime for private capital gains will come into force on October 1 2001, a year later than initially planned. This update outlines these changes.

The Appeals Senate V has asked the European Court of Justice whether dividends distributed by Austrian companies may be taxed at a different rate to those distributed by their non-Austrian counterparts.

The revisions affect witholding taxes on inter-company dividends, shareholdings and portfolio dividends.

Non-Austrian investment funds are discriminated against under the domestic tax regime. A formal complaint has been lodged with the European Commission, which has required a response from Austria.

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Germany

Proposed tax changes, if enacted, will reduce the income and corporate tax exemptions but tighten thin capitalization rules.

E-commerce

China

On April 1 2005 China's first national level e-commerce legislation, the Electronic Signatures Law, came into effect. By giving legal weight to electronic signatures and to the creation and storage of business documents in electronic form, the law will not only facilitate online transactions, but also spur on the security and encryption business.

Insolvency & Restructuring

Germany

The Federal Court recently had to rule on the circumstances in which an illiquid and over-indebted unlimited liability partnership (structured as a limited company and general partnership) could effectively exclude dissenting partners from a partnership where they were unwilling to participate in a rescue capital increase.

A new bond regulation has entered into force. The reform was held to be overdue and necessary in order to adapt to the needs of modern international markets and to allow for the restructuring of bonds issued in Germany, which has hitherto proved virtually impossible.

The long-debated, comprehensive reform of the law on limited liability companies has come into force. The bill introduced significant changes not only to the Limited Liability Companies Act, but also to insolvency law, including changes to the treatment of shareholder loans in insolvency and, in certain circumstances, an extension to shareholders of the directors' duty to file for insolvency.

The government has recently passed the Financial Market Stabilization Act in order to help banks and financial institutions survive the global financial crisis. The act provides a set of tools aimed at restoring confidence among market players. An important part of these rescue measures is an easing of the balance-sheet insolvency test for companies under the Insolvency Code.

The German courts have used the ‘centre of main interest’ (COMI) concept under the EU Regulation on Insolvency Proceedings to assist in the rescue of Germany’s second-largest mail service provider, the PIN Group. The case shows that with diligent and strategic planning, the COMI of a holding company can be successfully moved to another insolvency forum in order to support a group restructuring.

United Kingdom

Shortly before the administration of Kaupthing Singer & Friedlander Limited (KSF), a Financial Services Authority supervisory notice required KSF to open a segregated trust account at the Bank of England and deposit moneys equivalent to the aggregate value of deposits accepted from its customers during a certain period. The Court of Appeal has now ruled on how the funds in the account should be distributed.

The Insolvency Service's latest figures on corporate insolvencies indicate that the effects of the recession in terms of business failures have tailed off. However, in all previous downturns the United Kingdom has experienced a double spike in formal insolvencies.

Her Majesty's Treasury has issued a consultation paper entitled "Strengthening the administration regime for insurers". The government proposes to enhance the protection and payment of benefits for holders of insurance contracts with an insurer facing financial difficulties. Among other things, its proposals would apply the existing rules for valuing contracts of insurance in liquidation to administration.

The Court of Appeal has clarified the position regarding the anti-deprivation rule, holding that it will operate to avoid a transfer of assets from a company only if the transfer is triggered by the company's insolvency. If the transfer occurs before the company's insolvency, it cannot fall foul of the anti-deprivation rule.

Corporate insolvencies in England and Wales remain on track to reach the highest yearly levels since the early 1990s. Further strain on the retail and leisure sectors is clear from the 16% rise in company voluntary arrangements, which are becoming the insolvency vehicle of choice where the cost of leased real estate represents a substantial part of a business's overall outlay.

The Court of Appeal has upheld the High Court decision that a scheme of arrangement is not an appropriate mechanism by which the administrators of Lehman Brothers International (Europe) can return assets to the latter's clients. The administrators must now advance alternative means of facilitating the return of the assets.

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Insurance & Reinsurance

United Kingdom

The Association of British Insurers (ABI) has released a paper, with the support of the Financial Services Authority, that clarifies the new internal model approval process. It is the first in a series of papers prepared by the ABI that are designed to help insurance companies to comply with the requirements of Solvency II.

Recent publications by the Association of British Insurers provide guidance on two aspects of insurance business. An updated statement of best practice for critical illness cover is designed to improve the clarity and understanding of total permanent disability cover, while a good-practice guide addresses insurers' approach to people with convictions and related offences.

The defendants in a recent High Court case provided extended warranties for satellite television equipment. The Financial Services Authority applied successfully for a winding-up order on the grounds that the defendants were carrying out an activity regulated under the Financial Services and Markets Act 2000 without authorisation.

Her Majesty's Treasury has published the report of the Independent Commission on Equitable Life Payments. The commission was asked to provide advice on the fair allocation of the money and the prioritisation of payments over the next three years. The government has accepted the principles and is now determining how best to apply them in practice.

The Financial Services Authority has fined a company director £25,000 and withdrawn his approval to work in regulated financial services for his part in a scheme that defrauded leading London market insurers. The company, which was established to write a form of insurance known as surety bonds, withheld over £2 million and produced fake documents to show that it had kept within the terms of the binding authorities.

The government has pledged to make "fair and transparent payments to Equitable Life policyholders, through an independently designed payment scheme, for their relative loss as a result of regulatory failure". It recently announced that £1.5 billion will be available for the payment scheme, £1 billion of which will be paid upfront over the first three years of the spending review period.

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Intellectual Property

China

Under Chinese law, well-known trademarks receive special legal protection. However, a brand owner cannot unilaterally apply for a declaration that a trademark is well known under Chinese law. Such a determination can be made only in the context of administrative or judicial proceedings. An official interpretation aims to resolve the uncertainty surrounding well-known trademarks in China.

The Japanese Ministry of Trade, Economy and Industry and China's State Administration for Industry and Commerce have signed a memorandum of understanding on IP protection. Closer links are intended to foster joint efforts in areas such as trademark registration systems, the policing of counterfeit products and the prevention of unfair competition.

Legal measures are a key element of IP rights protection, but more is needed to keep a company's safeguards watertight. Businesses must take a holistic approach in developing a rights strategy that includes operational protocols and procedures, both internally and across the relevant supply chain and distribution network.

New guidelines from the Supreme People's Court include the announcement of its intention to establish special unified tribunals for IP rights disputes and a unified IP appellate court. They also encourage courts to use their powers to grant interim remedies and make substantial damages awards, confiscatory orders and other remedial measures.

The most recent revisions to the People's Republic of China (PRC) Patent Law were passed to bring the law further into line with international standards and other PRC regulations. The recent revisions are also part of a national strategy to assist Chinese companies move towards greater innovation and to strengthen China's legislative and enforcement framework for the protection of IP rights.

The Supreme People’s Court has issued for public consultation a new draft of the Interpretation of Several Issues Regarding Application of Laws in Recognition and Protection of Well-Known Trademarks in Trademark-Related Civil Disputes for public consultation. It aims to set the criteria for the recognition of well-known trademarks and to standardize the remedies available for trademark owners.

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Litigation

Austria

The Austrian Supreme Court has made some basic statements on agreements on jurisdiction under European civil procedural law. It ruled on the admissability of general terms and conditions that refer to jurisdiction when they are written in a foreign language.

The Supreme Court has ruled that if a defendant company is struck off the register, proceedings can continue on application by the plaintiff.

China

Despite Hong Kong's importance as a venue for resolving disputes involving China and other states, Hong Kong judgments are presently unenforceable in China. A new enforcement arrangement will apply to money judgments arising from commercial contracts, but an exclusive jurisdiction exception will effectively exclude certain types of dispute, such as those arising from Sino-foreign joint ventures.

Germany

If the beneficiary of a bank demand guarantee makes an unjustified demand for payment, the bank will usually pay up at first demand and the principal must sue to claw back the sum. However, if reclamation is impossible payment of the demand guarantee can be stopped by way of a preliminary injunction.

Although many businesspersons dislike litigation due to the associated costs, it is unavoidable in some situations. This update explains how potential litigants can assess what costs should be expected and how the fees will be structured when an action is brought before the German courts.

Including: Sources of Civil Procedure Law; Court System; Obtaining Access to the Proper Court; Preparing the Lawsuit; Commencing the Proceedings; Defendant's Reactions; Further Preliminary Steps; Oral Hearing; Judgment; Other Forms of Terminating the Proceedings; Enforcement of Judgments; Appeals

Offshore Services

China

The new Trust Law which recently took effect was enacted to protect the legitimate rights and interests of parties to a trust. The law provides a long-awaited legal framework for trusts in China, allowing for greater flexibility with regards to the holding and managing of property.

Projects & Procurement

Germany

Overview
Including: The Legal Environment; The Parties; The Market

The first, and so far only, toll-based and project-financed road infrastructure in Germany is under construction. It is expected that the financial closing of this ground-breaking project will improve the chances of further projects earmarked for private financing by the Federal Ministry of Transport being realized.

The recent financial closing of the off-balance project finance of a large industrial investment shows that the requirements of both German and US tax and accounting rules as regards off-balance sheet structures can be successfully reconciled.

United Kingdom

Overview
Including: Completed Projects; Types of Project Finance Initiative (PFI) Projects; How UK PFI Works; Risk Allocation; Contractual Framework

The Skynet 5 project has been restructured to expand from two in-orbit satellites to three in-orbit satellites and a partially built fourth reserve satellite, giving the Ministry of Defence increased communication assurance at no extra cost. The expansion was made possible by cost savings resulting from innovative insurance and financing solutions used in the restructuring.

Securitisation & Structured Finance

United Kingdom

CMA CGM’s completion of the Vega ContainerVessel 2006-1 corporate asset-backed securitization deal breaks new ground for shipping companies looking to diversify their funding sources. The transaction tapped into the asset-backed securitization capital markets, the syndicated bank loan market and the corporate bond market to secure funding for up to 12 new panamax containerships to be operated by CMA CGM.

Trade & Customs

Germany

In order to support manufacturing companies and their employees, the government intends to introduce a special programme under which the German public bank, KfW, will provide loans for projects carried out in Germany. Further funds have been made available for loan guarantees funded by the German federal states and, in certain cases, the central government.