Brexit: Article 50 of the Treaty on European Union

Francisco A. Laguna & Amy Turner

This week, we continue our series on Brexit looking at the withdrawal provisions of the Treaty on European Union.  Article 50 controls the process for the exit of countries from the EU. Withdrawal under Article 50 is an untested procedure, and the UK’s decision has caused a debate throughout Europe as to how it should be invoked.

European Parliament in Brussels by Zinneke - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=4421689

European Parliament in Brussels by Zinneke – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=4421689

Article 50 states:

  1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
  2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
  3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

Notice of withdrawal under Article 50 is a formal, proactive act the British government should undertake. The Brexit vote on June 23, 2016 does not constitute Article 50 notice. On June 26, 2016, three days after the UK vote, the EU issued a statement regretting but respecting Britain’s decision and asking it to proceed quickly in accordance with Article 50, stating “We stand ready to launch negotiations swiftly with the United Kingdom regarding the terms and conditions of its withdrawal from the European Union.” On 28 June 2016, the EU Parliament passed a motion calling for the “immediate” triggering of Article 50.  In contrast, in the UK, the growing consensus is that Article 50 notice should be given at, or near the end of, the end of the maximum two-year. Despite the pressure, however, the reality is that there is no mechanism to compel a state to withdraw from the European Union.

uk_parliamentNewly appointed PM Theresa May has stated that negotiations with the EU required a “UK-wide approach”. “I have already said that I won’t be triggering article 50 until I think that we have a UK approach and objectives for negotiations – I think it is important that we establish that before we trigger article 50.” She has also stated “All of us will need time to prepare for these negotiations and the United Kingdom will not invoke article 50 until our objectives are clear.”

Although there are many questions that will need to be addressed, timing is the most important. Presently the European Commission is operating under the assumption that Article 50 notification may not be made before September 2017, a sign suggesting that the government of the UK may be regretting the vote. Next in the series, we will discuss the possible plans for withdraw.

Contact TransLegal with your questions concerning Brexit and how it may impact your business.

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India Legislative Updates — Reorganization of the Judiciary

Francisco A. Laguna

Today, we continue our India Update, focusing on the recent reorganization of the judiciary.  The reforms included in The Commercial Courts Commercial Division & Commercial Appellate Division of High Courts Act, 2015 (Act) form part of India’s efforts to ease doing business in the country, build confidence and attract foreign direct investment.

Jurisdiction in Arbitration Proceedings

All matters currently pending under Part I of the Arbitration & Conciliation Act, 1996 (Arbitration Act) will be transferred to the Commercial Courts or Divisions.

Golden Temple, Amritsar, by Rakshakdua – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=21132680

International commercial arbitrations, defined as controversies involving at least one non-Indian party with proceedings in India, will be under the jurisdiction of the Commercial Divisions of the High Courts.  The one exception is applications for the designation of arbitrators, which are currently the responsibility of the Supreme Court.

This has created a conflict between the Act, which prescribes that arbitration proceedings would be heard by the Commercial Appellate Divisions, and the Arbitration Act, including the fact that the Commercial Divisions of the Mumbai High Court do not include arbitration proceedings within their jurisdiction.  This is expected to be modified in the near future.

Appellate Jurisdiction

Decisions issued by the Commercial Courts and Divisions are no longer subject to appellate review by the High Courts.  These appeals will be heard, exclusively, by the Commercial Appellate Division of the High Court that heard the case in first instance.  Appeals must be filed within 60 days of the date of the order, and more importantly from the foreign investor perspective, must be decided within a period of 6 months.  The time it takes for appeals to be heard and resolved has been a major criticism of foreign companies doing business in India.

Procedure & Timelines

To address concerns of the time required to litigate in the Indian courts, the Code of Civil Procedure has been revised to include the following provisions, some taken directly from procedures followed by US courts:

  • Parties may move for summary judgment solely on the written pleadings.
  • Every pleading must be attested by an affidavit; otherwise, it cannot be relied upon.

In addition, the following deadlines have been incorporated into the Code:

  • Written statements must be filed within 120 days of the date of service of process.
  • Document Inspection must be completed within 30 days of filing of the written statement.
  • Initial case management hearing will be within 4 weeks from admission or denial of documents by all parties.
  • Written arguments must be submitted within 4 weeks of commencement of oral arguments. The court has the discretion to permit revised written arguments to be filed within 1 week of oral arguments.
  • Oral arguments must be concluded within 6 months from the first case management hearing.
  • The Commercial Court or Division must issue its ruling within 90 days of the conclusion of oral arguments.

These deadlines, if indeed followed and enforced, will greatly streamline court proceedings.

Pending Disputes

The Act clearly stipulates that pending commercial disputes with the required Specified Value, including those pending under the Arbitration Act, will be transferred to the Commercial Courts or Divisions.  Not surprisingly, however, the Delhi High Court has adopted another position, ruling that the civil courts will continue to retain jurisdiction of cases where hearings have concluded and judgment is reserved.

From the practical perspective, Commercial Courts have yet to be established. Only the Delhi and Bombay High Courts have Commercial Divisions and Commercial Appellate Divisions. Moreover, the establishment of new divisions or courts does not resolve the fact that the judiciary is over-burdened.

Contact TransLegal with your questions concerning court and arbitration proceedings in India.

India Legislative Updates — Reorganization of the Judiciary

Francisco A. Laguna

 Today, we continue our India update, focusing on the recent reorganization of the judiciary.

On 31 December 2015, President Pranab Mukherjee approved The Commercial Courts Commercial Division & Commercial Appellate Division of High Courts Act, 2015 (Act), which is effective as of 23 October 2015.  The Act is yet another step in India’s efforts to ease doing business in the country, build confidence and attract foreign direct investment.  It will certainly impact both ongoing and future litigation.

Classes of Courts under the Act

The Act establishes three classes of courts.

 

"High Court of Karnataka, Bangalore MMK" by Muhammad Mahdi Karim (www.micro2macro.net)Facebook Youtube/ Augustus Binu - Own work. Licensed under GFDL 1.2 via Wikimedia Commons

“High Court of Karnataka, Bangalore MMK” by Muhammad Mahdi Karim (www.micro2macro.net)Facebook Youtube/ Augustus Binu – Own work. Licensed under GFDL 1.2 via Wikimedia Commons

  • First, the existing High Courts of original jurisdiction (Mumbai, Kolkata, Chennai, Delhi and Karnataka) must set up a Commercial Division.
  • Second, every High Court will have to establish a Commercial Appellate Division.
  • Third, state governments in the remaining states must establish Commercial Courts at the district level.

Threshold Monetary Jurisdiction

The Commercial Courts and Divisions will have jurisdiction over all commercial disputes in excess of INR 1,00,00,000 (~ US$ 150,900) or such higher amount dictated by the Central Government (“Specified Value”).

Chennai:  Madras High Court Photo Credit: Milei.vencel via Wikimedia Commons

Chennai: Madras High Court
Photo Credit: Milei.vencel via Wikimedia Commons

Section 12 of the Act provides how to calculate the value of the claim.  Plaintiffs and counsel should pay careful attention to the valuation provisions in Section 12 to avoid possible allegations of lack of jurisdictions.

Subject Matter Jurisdiction

The Commercial Courts and Divisions will have subject matter jurisdiction over commercial disputes, defined as those arising out of, or related to:

  • ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents;
  • export or import of merchandise or services;
  • issues relating to admiralty and maritime law;
  • transactions relating to aircraft, aircraft engines, aircraft equipment and helicopters, including sales, leasing and financing thereof;
  • carriage of goods;
  • construction and infrastructure contracts, including tenders;
  • agreements relating to immovable property used exclusively in trade or commerce;
  • franchising agreements;
  • distribution and licensing agreements;
  • management and consultancy agreements;

 

"High Court - Oval Maidan" in Mumbai, by Anunandusg - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

“High Court – Oval Maidan” in Mumbai, by Anunandusg – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

  • joint venture agreements;
  • shareholders agreements;
  • subscription and investment agreements pertaining to the services industry including outsourcing services and financial services;
  • mercantile agency and mercantile usage;
  • partnership agreements;
  • technology development agreements;
  • intellectual property rights relating to registered and unregistered trademarks, copyright, patent, design, domain names, geographical indications and semiconductor integrated circuits;
  • agreements for sale of goods or provision of services;
  • exploitation of oil and gas reserves or other natural resources including electromagnetic spectrum;
  • insurance and re-insurance;
  • contracts of agency relating to any of the above; and
  • such other commercial disputes as may be notified by the Central Government. Further, a commercial dispute includes a counter-claim filed in a suit if it is a commercial dispute of Specified Value.

Clearly, many of topics now under the purview of the commercial courts are of specific interest to investors.

Next week, we will continue the discussion of jurisdiction over arbitration proceedings and other procedural matter.

TransLegal assists its clients understand and maneuver the often difficult rules and regulations that characterize the Indian legal and regulatory system.  Call us with any questions you may have about doing business in India.

 

Alibaba: The Scandal You Should Know About Before Investing

Francisco A. Laguna & Rolanzo White

For those unfamiliar, Alibaba is an e-commerce company based in China. Founded in 1999 by Jack Ma, this giant has grown into one of the most valuable technology companies in the world.  It raised US$ 25 billion from its United States IPO, and in 2014, transactions on their sites totaled US$ 248 billion.

"Alibaba Group Logo" by Source (WP:NFCC#4). Licensed under Fair use via Wikipedia

“Alibaba Group Logo” by Source (WP:NFCC#4). Licensed under Fair use via Wikipedia

Alibaba does not warehouse, ship or sell products, instead they offer sales portals and platforms whereby third-party merchants can sell their goods to third-party buyers. The company began as an online business-to-business wholesale company operating as Alibaba.com. Over the next decade, Alibaba launched a variety of businesses including Taobao, an online payment system called Alipay, an online marketing technology platform called Alimama, Tmall, and Alibaba Cloud Computing. The Company derives the vast majority of its revenue – 81.6% for FY2014 – from its China retail marketplaces, Taobao, Tmall, and Juhuasuan.

The sale of counterfeit and contraband goods over its platforms has long been an issue that could potentially impact Alibaba’s business significantly. Alibaba has always claimed to be against the counterfeiting on their sites.  On April 14, 2014, Alibaba’s proprietary news website, Alizila, published an article entitled “Fight against Online Sale of Fakes Goes on for Alibaba Group.” Alibaba claims to have removed an estimated 114 million listings for suspected fake goods from their giant Taobao marketplace during the first ten months of 2013. Their stated goal was to curb the infringement of intellectual property rights on its websites. The company has implemented measures to correct the problem which include searching their sites for merchants selling counterfeits and opening communication with government authorities and major brand owners. That being said, their current measures to stop counterfeiting have failed according to the recent complaints. The site rife with counterfeits is Taobao. Taobao is Alibaba’s largest shopping platform, hosting millions of merchants. Taobao offers buyers the ability to purchase unusual items and services like boyfriends for hire, live scorpions, and plenty of counterfeit merchandise.

"Jack Ma 2008" by World Economic Forum at en.wikipedia. Licensed under CC BY-SA 3.0 via Commons

“Jack Ma 2008” by World Economic Forum at en.wikipedia. Licensed under CC BY-SA 3.0 via Commons

Recently, Alibaba, Jack Ma and company executives have been hit with three class action law suits. The first was a derivative suit led by a common stock holder named Steve Surray (United States District Court for the Southern District of California). The second was a class action suit led by Gucci America Inc. who is joined by Balenciaga, Bottega Veneta, Yves Saint Laurent, Luxury Goods International (L.G.I.), and Kering (US District Court for the Southern District of New York). The last class action was filed by Myrtle Chao; the plaintiffs consist of people who bought the publicly traded ADSs of Alibaba on a U.S. stock exchange during the Class Period of 10/21/2014 – 01/28/2015 (United States District Court for the Central District of California).

Overall, these complaints accuse Alibaba of being untruthful about the counterfeiting problem on their sites and aiding and abetting the assailants. In other words, Alibaba is not only accused of allowing the sale of items like fake cigarettes, alcohol, restricted weapons and counterfeit luxury goods, it is also accused of providing an “ecosystem” for this type of behavior. In the Gucci complaint, the class claims that Alibaba knowingly encourages, assists and profits from the sale of counterfeits by providing online marketing, credit card processing, financing and shipping services. For example, Alibaba knowingly continued to allow the Hangzhou Yanbei Trading Company, a “Gold Supplier” and “Assessed Supplier” to sell counterfeit Gucci bags after inspecting them and concluding that they were, indeed, counterfeit. Alibaba is also accused of helping customers find counterfeit goods. For instance, they allow for keyword searches like “Gucci replica” and suggested terms like “cucci” and “guchi” when “Gucci” is typed into the search bars on their various platforms to intentionally drive customers to merchants of counterfeit products.

"Alibaba Binjiang Park" by Danielinblue, designed by HASSELL (architects)[1] - Own work. Licensed under CC BY-SA 4.0 via Commons

“Alibaba Binjiang Park” by Danielinblue, designed by HASSELL (architects)[1] – Own work. Licensed under CC BY-SA 4.0 via Commons

Alibaba is being sued for, among other things, trademark infringement, counterfeiting under the Lanham Act and violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The plaintiffs want Alibaba to stop aiding counterfeiters and take down any infringing product currently on their sites and have asked the court for statutory, punitive, and court-determined damages that could cost Alibaba millions.

Alibaba’s actions, if true, are illegal and could mean a severe drop in market value, which could further disrupt the Chinese economy and investor confidence.  The prudent investor may wish to consider waiting until the lawsuits are resolved, at least at the district court level.

TransLegal has offices throughout Asia, including China.  We assist our clients with enforcement of IP rights in the region.  Call us with your questions.

Victimized by a Slumlord

Francisco A. Laguna

 After college, my little cousin moved to New York City and rented her first apartment in young, hip Alphabet City. The place was a dump: the stove had a hole on the top of it; the windows were drafty and didn’t have brackets for the window A/C; the cabinet paint was peeling. But, at $ 1,650 / month for 165 sq ft, how could she resist?! The enchantment soon wore off.

 

Aerial View of New York City Photo Credit: Wikimedia Commons

Aerial View of New York City
Photo Credit: Wikimedia Commons

My cousin unfortunately rented from the classic, stereotypical slum lord – he was right out of central casting. When she asked him to replace the stove, he told her he would have to increase the rent. After 7 months of knowing that she had a cat, he threatened to evict her for having a pet. My cousin fought back on each count and eventually got the new stove and was able to stay in the apartment through the duration of her lease.

After the evident bad blood between them, my cousin assumed that the slum lord would find an excuse not to return her security deposit. She decided to apply her security deposit against her last month’s rent.

In consequence, the slum lord sued her in small claims court. Initially, the claim was for $ 1,750 (last month’s rent plus $ 100 late fee). Then, he raised it to the maximum $ 5,000, alleging that she caused such damage to the apartment that it had to be completely renovated.

Lower Manhattan Photo Credit: Wikimedia Commons

Lower Manhattan
Photo Credit: Wikimedia Commons

My cousin was scared and intimidated. The slum lord would not provide any evidence of the damages, always telling her that he would see her in court. I was concerned because one never knows what a judge will decide, and this was my cousin’s first experience with the justice system. I hoped that the experience would be positive for her, despite the psychological and emotional stress the lawsuit was causing.

At court, the parties were offered the option to arbitrate. He refused because the arbitral decision would be final and not subject to appeal. The slum lord, as plaintiff, presented his case first, proffering pictures of the damaged apartment and an invoice for the renovation. My cousin then presented her case, showing photographs of the apartment when she took possession and when she vacated.

Manhattan Photo Credit: Wikimedia Commons

Manhattan
Photo Credit: Wikimedia Commons

The judge asked the slum lord for proof of payment of the renovation invoice. Turns out the renovation was done by in-house people, so the invoice was not an invoice. The judge noted that the cabinet paint was peeling when my cousin moved in, and the fact that she re-painted the cabinets improved the condition of the apartment. Then the judge asked whether the slum lord had, indeed, changed the cabinets for the new tenant. Response: the new tenant moved in immediately, and he did not have time to change the cabinets prior to his moving in. Turns out that, 8 months later, the cabinets had still not been changed.

Last week, the judge dismissed the case.   The experience was difficult but invaluable for my cousin. She learned that the justice system can work and that dishonest people can be held responsible for their actions. She learned to prepare her arguments, practice and anticipate counter-arguments. She learned that she can be her best advocate. I am proud of her.

How many of you have similar stories?

Jurisdiction of US Federal Courts over US Corporations Controlled from Foreign Countries

Francisco A. Laguna

Today’s blog is inspired by a case we worked on in Puerto Rico last year. Counsel for US corporations whose directors live abroad and control the corporation from abroad may find it instructive.

In 2014, TransLegal assisted clients involved in litigation in the Dominican Republic and Puerto Rico. Our clients, two corporations – one Dominican and the other Puerto Rican – were sued in federal district court in Puerto Rico, on allegations of breach of contract.

Map of Caribbean Showing Puerto Rico and the Dominican Republic

Map of Caribbean Showing Puerto Rico and the Dominican Republic

The plaintiffs were three corporations: one with US citizenship; one with Brazilian citizenship; and one with Mexican citizenship.

The plaintiffs invoked the US District Court’s diversity jurisdiction because there were subjects or citizens of foreign states named as additional parties (28 U.S.C. §1332(a)(3)). For diversity to be complete to allow the federal court to hear the case, there had to be US citizens on both sides of the lawsuit: one of the plaintiffs had to be a US entity; and, similarly, one of the defendants had to be a US entity.  Continue reading