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  • Kazakhstan Legal Forum 2023

    Kazakhstan Legal Forum 2023

    The Kazakhstan Legal Forum 2023, spread across two engaging days, served as a vibrant platform for legal enthusiasts and professionals to delve into the core of modern legal challenges and advancements.

    The event, meticulously organised, unfolded a rich array of discussions that spanned from market regulation to the realms of digital law.

    The first day saw a lively exchange of ideas around market regulation trends, setting a robust foundation for the discourse that followed.

    The spotlight then shifted to corporate law and M&A (Mergers and Acquisitions), where seasoned legal experts dissected the intricacies of corporate legal frameworks and shared invaluable insights on global M&A trends.

    Eldwick Law team at Kazakhstan legal forum 2023
    Eldwick Law team at Kazakhstan Legal Forum 2023

    As the digital wave continues to intertwine with legal frameworks, day two brought forward stimulating discussions on digital law.

    The segments on Crypto and blockchain Law, Data Privacy Law, and Online Platforms Law were particularly eye-opening. They not only addressed the legal challenges posed by digital technologies but also explored the evolving legal frameworks catering to the digital age.

    A dedicated segment on dispute resolution offered a deep dive into the latest practices and future prospects. Moreover, an insightful discussion on the constitutional court’s challenges provided a glimpse into the judicial system’s heartbeat.

    The dialogues around the evolution of the legal profession and the trends in legal education added a layer of depth to the forum’s agenda, underscoring the importance of nurturing a new generation of legal professionals adept at navigating both traditional and modern legal landscapes.

    Rashid Gaissin moderated a session on asset recovery, where the new Kazakh Law on Unexplained Wealth was discussed in depth. Abbas Nawrozzadeh, a delegate at the forum, conducted many meetings on white-collar crime, adding valuable insights to the discussions.

    Rashid Gaissin at Kazakhstan legal forum 2023

    The Kazakhstan Legal Forum 2023, through its well-curated segments and expert discussions, not only enriched the legal discourse in Kazakhstan but also set the stage for more engaging and insightful legal dialogues in the future.

    As the curtains came down on the forum, the anticipation for the next edition was palpable, reflecting the event’s significant impact on the legal community.

  • Kazakhstan: Understanding The New Law On Asset Recovery

    Kazakhstan: Understanding The New Law On Asset Recovery

    In an attempt to address oligopolistic groups and entities implicated in large-scale corruption, President Kassym-Jomart Tokayev of Kazakhstan has sanctioned a law enabling the return of illegally acquired assets to the state.  In addition, amendments have been made to the Code of Administrative Offences, the Tax Code, and the Law on the Prosecutor’s Office.

    In this article, we provide detailed guidance on the new asset recovery law and how it may affect Kazakhstan citizens who hold assets inside the country and abroad.

    What is the background to the asset recovery law?

    In June 2022, the Council of Europe’s Group of States against Corruption published its first evaluation report on Kazakhstan. This followed the political unrest over fuel prices in January 2022, in which 227 people were killed and over 9,900 were arrested.

    The report stated that corruption in Kazakhstan was a serious concern; however, it praised the establishment of the Anti-Corruption Agency as a positive development, along with the adoption of dedicated strategies and initiatives with a stronger focus on prevention. 

    The report also highlighted the need for increased transparency in public administration and decision-making processes, including by instigating meaningful public consultation and improving access to information. The recruitment and promotion of civil servants and officials also needed to be based on merit, and rules on integrity in public service required clarification.

    Whistle-blower protection and public procurement processes also needed to be improved, especially given the latter was the area most exposed to corruption.

    After the riots, President Tokayev noted that international experts, in particular, KPMG had asserted that in Kazakhstan, 0.001% of the population, or 162 persons, were worth more than $50 million, which equates to around 50% of the total wealth of the population. Furthermore, according to 2018 Credit Suisse data, the top-50 richest businesspersons in Kazakhstan owned 42% of the total wealth of the adult population, or 16% of nominal GDP.

    The asset return law is aimed at addressing the above inequalities and recognised corruption practices.

    Who does the new asset return law apply to?

    Persons holding positions of public responsibility, positions in state legal entities, quasi-public sector entities, as well as those affiliated with them will be affected by the asset return law. For it to apply, a person or entity must have assets in excess of 44 billion tenge, or around USD100 million.

    The Authorised Body will establish a new department which will be responsible for collating and analysing information from legal sources, including state departments, concerning the legality of the acquisition of certain assets and the removal of those assets from the country.

    If the Authorised Body has ‘reasonable doubts’ that an entity has illegally acquired assets, it will submit proposals to the Commission on Asset Recovery (formed by the Prime Minister from members of Parliament, public figures, members of the Government, first heads of state bodies, and other persons) to include such entities and their affiliates in the relevant Register.

    Is ‘reasonable doubt’ defined under the Kazakhstan asset recovery law?

    Yes, the new law sets out clear criteria concerning the grounds the Authorised Body can use to infer ‘reasonable doubt’. The criteria include:

    • The value of an asset is inconsistent with the amount of legitimate income or other sources of capital enjoyed by the person or entity that purchased the asset.
    • The acquisition of assets by a person or its affiliates is more than the established threshold. 
    • Other grounds established by the asset recovery law.

    What should a person or entity do if they are added to the Kazakhstan asset recovery law register?

    If a person or entity is added to the register, they have between one and three months to submit an asset declaration affirming that their assets were legally acquired. If they fail to substantiate the legality of the asset, the assets fall under the classification of ‘unexplained origin’. If there is a risk of asset being withdrawn or alienated from Kazakhstan, the Authorised Body can apply to the Court for permission to take preliminary interim measures to prevent the asset being moved or dealt with.

    Can a person or entity be forced to return assets to Kazakhstan?

    If it is established that the assets have been acquired illegally and removed from the country, they can be returned voluntarily or by compulsion, the latter requiring the Authorised Body to make an application to the Court. Return of the assets may take the form of payment of money, transfer of part or all the assets to Kazakhstan, reimbursement of taxes not received, repayment of income derived from the asset, or compensation if the asset has been damaged.

    The asset recovery law sets out policies and procedures for facilitating international co-operation concerning the enforcement of court decisions, exchanges of information, and any other legal engagement required when seeking the return of an asset.

    Summary and Legal Advice

    Kazakhstan’s new asset recovery law is likely to have far reaching implications for people and entities based inside the country and overseas. If you require legal advice concerning the new law, please do not hesitate to contact our experienced and dual qualified Business Solicitors.

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

    Note: The points in this article reflect the law in place at the time of writing, 15 September 2023. This article does not constitute legal advice. For further information, please contact our London office.

  • UK’s Sanctions Post-Brexit Regimes on Russian Financial Institutions

    UK’s Sanctions Post-Brexit Regimes on Russian Financial Institutions

    UK Sanctions Do Not Prevent Access To Justice

     In the case of  PJSC National Bank Trust and another v Mints and others [2023] EWHC 118 (Comm), the High Court held that UK sanctions in force against Russian banks did not prevent the banks from:

    • Lawfully satisfying adverse cost orders,
    • Providing security for costs, or
    • Paying any damages that might be awarded on cross-undertakings given by the Defendants.

    This judgment is important as it is one of the first to consider issues around the post-Brexit UK sanction regimes and the impact these sanctions have on litigation proceedings concerning UK asset freeze targets. In addition, Mrs Justice Cockerill also provided commentary on when an entity is considered ‘owned or controlled’ by a designated person.

    Background to the UK Sanctions Case: Russian Banks’ Challenges

    The proceedings were brought by two Russian banks for US$850 million. The Claimants, PJSC National Bank Trust (NBT) and PJSC Bank Otkritie Financial Corporation (Otkritie), argued that the Defendants, Otkritie’s former co-founder, Boris Mints, and his sons (among others) conspired with bank representatives to replace loans with worthless bonds.

    In 2019, the Claimants obtained worldwide freezing orders against the Defendants, who gave cross-undertakings in damages. The banks were ordered to fortify the cross-undertakings by providing security.

    Following Russia’s invasion of Ukraine, the UK Government imposed an asset freeze on Otkritie pursuant to the Russia (Sanctions) (EU Exit) Regulations 2019 (the UK Regulations). As a result, UK persons were prohibited from:

    • dealing with funds or economic resources owned, held or controlled by Otkritie; and/or
    • making funds or economic resources available to or for the benefit of Otkritie.

    The Defendants claimed that NBT was subject to the same asset freeze because it was owned or controlled by at least two designated persons, namely the Russian President (P) and the Governor of the Bank of Russia (N). They sought a stay of proceedings (which had begun prior to the invasion) and for the undertakings against them to be released. This was on the grounds that, any judgment for the Claimants on the causes of action they were arguing would be unlawful as they would be in breach of the sanctions. In addition, some of the interlocutory stages were subject to Treasury licensing requirements, pursuant to the powers of the Office of Financial Sanctions Implementation (OFSI) under the UK Regulations. However, OFSI could not license several standard litigation steps including the satisfaction of adverse costs orders, the provision of security for costs, or the payment of any damages on the Claimants’ cross-undertaking.

    Sanctions and Legal Impediments: Key Issues Highlighted

    The High Court had three issues to consider, namely:

    1. Would a judgment for the Claimants be in breach of sanctions?
    2. Could OFSI issue a licence in relation to the satisfaction of adverse costs orders, the provision of security for costs, or the payment of any damages on the Claimants’ cross-undertaking?
    3. Is NBT owned and controlled by a designated person and therefore subject to UK sanctions?

    The High Court’s decision

    Issue one

    The Court accepted that a cause of action is an “economic resource” because it could be used to obtain funds or financial assets and goods and services. A judgment debt could also be construed as a “fund” as it puts an obligation on a debtor to pay a sum of money.

    Despite this, the Court concluded the entry of a favourable judgment was not caught by the restriction on dealing/making available. The reasoning behind this is that it was not clear that the legislation was designed to prohibit a designated person’s fundamental right to access to justice. This was despite the breadth of the UK Regulation’s wording and Parliament’s intention to allow a certain degree of curtailment of rights.

    Issue two

    Although OFSI had no power to license the entry of judgment in favour of designated persons no such licence was actually required. However, the High Court concluded that payment of an adverse costs order was licensable under Sch.5 Pt 1 para.3 of the UK Regulations. It therefore followed that OFSI could also issue a licence to permit the payment of security for costs for the purpose of meeting adverse costs orders, to enable the future payment of reasonable professional fees for the provision of legal services.

    Regarding the damages on the cross-undertaking, the Court stated that these were not ordinary or routine costs, rather they occur only after an inquiry has been made concerning liability.

    “Further it follows logically from where the argument goes elsewhere. How could OFSI refuse a licence when ex hypothesi money is to be paid to someone (a defendant) who is not sanctioned and who is, on this hypothesis, entitled to compensation pursuant to a decision of the English court. This is the more so as the diminution of a designated person’s assets, with no conceivable exchange of value or quid pro quo , would further, rather than undermine, the object and purpose of the Regulations.” para 195

    Issue three

    The definition of ‘ownership or control’ under the UK Regulations is a contentious one. The UK Regulations state that an entity is owned or controlled directly or indirectly by another person in any of the following circumstances:

    • The person holds (directly or indirectly) more than 50% of the shares or voting rights in an entity,
    • The person has the right (directly or indirectly) to appoint or remove a majority of the board of directors of the entity; or
    • it is reasonable to expect that the person would be able to ensure the affairs of the entity are conducted in accordance with the person’s wishes.

    The Claimants’ argued that the UK Regulations should not be interpreted as covering control by reason of office or employment. The Court agreed with this, stating:

    “…it does appear to me to be significant that at the drafting level the sanctions were not drafted to take aim directly at the Russian State or its main entities — despite the fact that some earlier sanctions (e.g. against Iran, did do so). It also appears significant that the drafting so far as asset freeze is concerned appears to be primarily (though not exclusively) designed to operate at a personal level…” p 238

    Mrs Justice Cockerill went on to conclude:

    “It also seems implausible that it was intended that such major entities as banks (or other major entities such as Gazprom) were intended to be sanctioned by a sidewind, in circumstances where they would have no notice of the sanction and be unable themselves to challenge the designation under section 38 of the Act [UK Regulations] .” p 241

    Future Implications of Sanctions and Access to Justice

    Although Mrs Justice Cockerill’s remarks regarding ‘ownership or control’ were Obiter (meaning they were not essential to the overall decision), her comments indicate that the Courts seem prepared to view the meaning of ‘ownership or control’ narrowly. In addition, the judgment makes clear that sanctioned people and entities should not be denied access to the Court’s justice.

    This case is currently being appealed.

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

    Note: The points in this article reflect sanctions in place at the time of writing, 07 September 2023. This article does not constitute legal advice. For further information, please contact our London office.

  • Effective Termination of Agreements: Topalsson v Rolls Royce [2023] EWHC 1756 (TCC)

    Effective Termination of Agreements: Topalsson v Rolls Royce [2023] EWHC 1756 (TCC)

    In the Topalsson v Rolls Royce Motor Cars case, the termination of the agreement between Topalsson and Rolls Royce Motor Cars was effectively executed through a second termination notice. The case highlights the precarious nature of entering into a general project development agreement, without identifying, in certain terms, agreed deliverables and delivery deadlines.

    Understanding the Case Background

    Topalsson, a German software services company specialising in digital data visualization entered into an agreement with Rolls Royce Motor Cars (“RRMC”) for the supply of Future Configurator Landscape for Rolls-Royce’s new Ghost model (the “Agreement”). 

    The Agreement set out the deliverables as contemplated by the parties and contained the following clauses:

    1. “In performing this Agreement the Supplier [Topalsson] shall … complete the Services and deliver the Deliverables on time and in full and by any applicable milestone date or delivery date, if delivery dates or milestones are not specified, within or by any reasonable delivery date or time period that is specified by RRMC.”
    2. “Time shall be of the essence regarding any date for delivery by the Supplier of any good or service specified in this agreement and the Completion Date.”
    3. “If in the reasonable opinion of RRMC the Supplier fails to perform the Services in accordance with this Agreement or to deliver Deliverables by the applicable delivery dates or milestone dates or if RRMC rejects the Deliverables, without limitation to any other of its rights or remedies, RRMC shall have the following rights: … to terminate this Agreement in whole or part with immediate effect by giving written notice to the Supplier.”

    The appendix to the agreement contained a general timeline of the execution of milestones and deliverables which was to be refined at a later stage. A revised implementation plan, containing a detailed breakdown of deliverables and set deadlines for execution was subsequently submitted by Topalsson and approved by RRMC.

    Topalsson failed to comply with the deadlines set out in the revised implementation plan.

    As a result, RRMC decided to terminate the Agreement and sent Topalsson a termination notice invoking its right to terminate the Agreement on account of Topalsson’s late delivery or lack thereof citing a document entitled “anticipated timeline” which formed a part of the appendix to the Agreement.

    Topalsson rejected the termination notice, prompting RRMC to send a second termination notice on the basis of the revised implementation plan.

    Topalsson initiated proceedings against RRMC for unlawful termination, claiming lost profits. RRMC counterclaimed for damages on grounds of Topalsson’s delay which it argued amounted to a repudiatory breach of the Agreement.

    The Court held that while the first notice to terminate was ineffective, RRMC had effectively terminated the Agreement through its second notice. The court explained that the anticipated timeline failed to specify the day and month on which delivery was to be expected and as such could not be taken to set an actionable deadline. Therefore, RRMC’s first notice was made on erroneous grounds. However, as the revised implementation plan had set out specific dates, the second termination notice was effective.

    While mere delay would not necessarily constitute a repudiatory breach, the court held that the Agreement had explicitly provided provision for termination in view of delay and had stressed that time is of the essence. The fact that RRMC’s first notice may have amounted to a repudiatory breach was held to be immaterial in view of Topalsson’s rejection of the notice and affirmation of the Agreement.

    TERMINATION AGREEMENT rolls royce
    Topalsson v Rolls Royce Termination Agreement

    In-Depth Case Analysis

    Topalsson v Rolls Royce Motor Cars termination agreement raises a number of important issues for consideration.

    The case highlights the potential pitfalls when drafting and entering into an agreement for goods or services without spelling out exactly what those goods and services are, and when they are to be delivered.

    This issue is most common in software development agreements that operate as a work in progress and through the course of which numerous documents with no outwardly apparent contractual effect are exchanged. Careful consideration of the ultimate object of the Agreement and the terms upon which it shall be delivered is essential.

    RRMC managed to narrowly evade committing a repudiatory breach by unlawfully terminating the Agreement through its first notice. The consequences of serving an ineffective notice to terminate your contract can include committing a repudiatory breach yourself, thereby exposing yourself to a claim for damages. By the same token, you should seek proper advice in deciding how to respond to a termination notice.

    By choosing to affirm the contract in response to RRMC’s first notice to terminate the Agreement, Topalsson had accepted RRMC’s breach. While, on the facts of the case, Topalsson’s affirmation of the Agreement proved inconsequential, in that it could not prevent RRMC from validly terminating the Agreement through its second termination notice, it may prove decisive in circumstances where termination could not be validly affected by the party seeking to terminate.

    For failure to comply with set timelines to constitute a repudiatory breach, it must be explicitly stated as such. RRMC relied on the fact that the Agreement stated that time was to be of the essence and that delay would empower RRMC to terminate the Agreement with immediate effect. If timely delivery is crucial to you, include it as a clause in your agreement clearly spelling out that delay, no matter how innocent or insignificant would empower you to terminate the agreement.

    Key Takeaways for Contract Management and Termination Agreements

    • Ensure that deliverables and specific due dates are explicitly set out in your contract.
    • Take care when drafting your termination notice to avoid repudiating the contract.
    • Seek legal advice when responding to a termination notice to avoid potentially accepting a breach of contract.
    • If time is a crucial factor in your agreement, include a provision indicating that time is of the essence.
  • Business Crime | What To Do In A Dawn Raid

    Business Crime | What To Do In A Dawn Raid

    Having your business premises or home raided by a legal authority or regulatory body is intimidating and scary.

    It is difficult (but not impossible) to prepare for a dawn raid as ‘surprise’ is the entire point of the exercise. But there are several things you can do if you suspect a dawn raid may be conducted and actions you can take while enforcement officers are on site to minimise the impact of the event.

    Understanding Dawn Raids in Business Crime Investigations

    If an authority such as HMRC, the National Crime Agency (NCA), Competitions and Markets Authority (CMA), Financial Conduct Authority (FCA), or the Serious Fraud Office (SFO) (to name but a few) suspect you or your business has broken the law or breached regulations, they can turn up unannounced and search your workplace.

    The aim of a dawn raid is to seize documents and other evidence to use in a legal or regulatory investigation.

    Is a warrant needed to conduct a dawn raid?

    Yes, the authority undertaking the dawn raid must have a valid warrant which states:

    • The premises in which the raid is being conducted.
    • The names of those authorised to enter the premises.
    • The procedure rules that apply when conducting the raid.
    • The scope of the raiding authority’s powers.

    Upon entering the premises, the investigation team must present the warrant and explain the remit for the raid.

    What can I do to prepare for a dawn raid?

    Although the purpose of a dawn raid is to surprise the recipient, if the authority has asked you to provide information or you have been tipped off that a raid may take place, you can prepare for such an eventuality.

    The first thing you must do is have key people in place (known as shadowers or the dawn raid response team) to greet the inspection team. They are responsible for following inspectors as they conduct their search, taking notes concerning what evidence is being examined and removed.

    Appoint a team leader. Ideally this should be an in-house or external Counsel experienced in business crime and regulatory investigations. The rest of the team should comprise of a senior manager, someone from IT (as the authority will want to access computer files), your compliance officer, and someone from your internal communications department (for example a HR or Marketing Director).

    The dawn raid response team needs to undergo training to ensure each person knows what they are accountable for, how to deal with the inspection team, and when to escalate matters.

    Remember to include your reception staff in your training programme. They are the first people likely to encounter the inspection team and therefore must be prepared so they do not panic. Reception staff should know to take the inspection team quietly into a room away from customers and other employees. They should then immediately contact the dawn raid team leader or a senior manager who can check the warrant.

    Can I delay the inspection team until my Solicitor arrives?

    If your dawn raid team leader is an external Solicitor, you can politely ask the inspection team to suspend their remit until your Solicitor arrives. However, they are not legally required to delay as most warrants are only valid for a short duration. If your legal team is enroute to your premises, a member of the inspection team may consent to speaking to them on the phone. If the inspection team start their search before your legal team arrives, your shadowers can begin to take notes but they must fully cooperate with the team and not prevent them from carrying out their remit.

    Can I destroy or delete documents/files whilst the inspection team is conducting a dawn raid?

    No, any routine destruction of documents must be immediately halted. Alert employees to the presence of inspectors and ensure they understand that no files or documents should be deleted or destroyed during or after the raid. Doing so could amount to a criminal offence.

    Can inspectors talk to employees during a dawn raid?

    Yes, inspectors can and will talk to various staff members about their role and ask practical questions on the location of documents and certain processes and procedures. However, they cannot interview or interrogate employees and one of your legal team’s tasks is to ensure investigators do not exceed the scope of their powers.

    How long does a dawn raid last?

    Depending on the size of your organisation, a dawn raid can last anywhere up to three days. Upon leaving the premises, the inspection team may place seals over doors, computers, and perhaps even the entire premises. Breaking these seals, even inadvertently, may be classed as a criminal act. In the past, companies found guilty of such an offence have been fined millions of pounds.

    What is the role of a Solicitor in a dawn raid?

    Your Solicitor and their team have several key responsibilities during a dawn raid, including:

    • Checking and making notes of the warrant and inspection remit.
    • Noting and taking copies of all requested documents/files.
    • Cross-checking the requested documents/files against the terms of the warrant.
    • Checking whether any requested documents/files are legally privileged. If there is a dispute about whether privilege applies, Counsel will ask for the documents to be placed in a sealed envelope until the matter is resolved.
    • Being present when employees are questioned and noting down everything that is said in the meeting.
    • Advising on what to do after the raid is over and the inspection team has left.

    In summary

    Preparing for a dawn raid in advance can help ensure none of your employees panic and you can exert some control over the situation. What matters most is having an experienced legal team advising and representing you to ensure the investigative team act lawfully and within the scope of their powers, and that the best interests of you and your organisation are protected.

  • Reciprocity Between English & UAE Courts: Recent Developments in Foreign Judgment Enforcement

    Reciprocity Between English & UAE Courts: Recent Developments in Foreign Judgment Enforcement

    Background: Recognition of Foreign Judgments in England & Wales

    Enforcement of UAE Court Judgments in the UK

    In Lenkor Energy trading v Irfan Iqbal Puri [2020] EWHC 75 (QB), the High Court held that in accordance with the law on recognition of foreign judgments, a decision of a Dubai court of competent jurisdiction is enforceable in the UK, provided the judgment, and not the “underlying transaction upon which the judgment is based” did not offend public policy. On the facts, the Court deemed that enforcement of the Dubai Court judgment in the Lenkor case would not be contrary to public policy. Lenkor was and continues to be significant for it established that enforcement of judgments issued by UAE courts are not contrary to public policy per se, paving the way for the possibility of further enforcement on a case by case basis.

    Criteria for UAE Court Judgment Enforcement

    Article 85 of UAE Cabinet Resolution No. 57 of 2018 (hereafter referred to as “Article 85”) contains the law on enforcement of foreign judgments. It sets out the following criteria which must be satisfied cumulatively for a foreign judgment to qualify for enforcement in the UAE:

    1. Judgments and orders delivered by a court in a foreign country to be executed in the UAE in accordance with the same conditions prescribed in the law of that foreign country for executing judgments and orders issued within the State (Article 85(1)).

    2. The courts of the UAE must not have exclusive jurisdiction over the dispute for which the foreign judgment or order was issued and the foreign courts that issued the judgment or order have jurisdiction as prescribed within their own law (Article 85(2)(a)).

    3. The judgment or order must be issued by a court in accordance with the law of the country in which it was issued and must be duly ratified (Article 85(2)(b)).

    4.The litigants involved in the case in which the foreign judgment was delivered must have been summoned and adequately represented (Article 85(2)(c)).

    5. The judgment should have acquired the force of res judicata (Article 85(2)(d)).

    6. The judgment does not conflict with any judgment or order issued by a court of the UAE and is not otherwise contrary to public policy or morals (Article 85(2)(e)).

    On September 13, 2022, in response to the decision in Lenkor, the UAE Ministry of Justice drafted a directive addressed to Dubai courts in which it opined that the condition of reciprocity set out in Article 85(1) of UAE Cabinet Resolution No. 57 of 2018 had been satisfied by the decision in Lenkor, which arises as precedent within the English common law system and therefore encouraged Dubai courts to find Article 85(1) fulfilled when considering whether to enforce English court judgments or orders.

    Recent development: Emirates NBD Bank

    Concerns that Lenkor was no more than an isolated decision have been largely addressed by the recent decision in Emirates NBD Bank PJSC v UAE Citizen* and Others [2023] EWHC 1113 (Comm). The case background is as follows:
    *At the request of the individual involved, their name has been omitted from this summary.
    A citizen of the UAE, who held the position of beneficial owner and director of a Dubai-based company that went into liquidation in September 2014, along with other directors (referred to as “the Guarantors”), provided personal guarantees to Emirates NBD Bank to secure a loan for the company.
    During the liquidation process, the Bank initiated legal proceedings in the Dubai Courts against the company and the Guarantors to recover the outstanding amounts. The litigation escalated to the Dubai Court of Cassation, which ruled in favor of the Bank, ordering the Guarantors to pay AED 211.3 million (approximately £47.5 million).
    Having been unable to recover the sums due in the UAE, the Bank sought to enforce the Dubai Court’s judgment against the assets in the UK of one of the Guarantors. However, prior to the Dubai Court of First Instance entering judgment against him, this individual transferred his assets to his son while retaining beneficial title, in actions the Bank argued were intended to defraud creditors. The individual contended that the Dubai Court Judgment should not be enforced on the grounds that it violated the rules of natural justice, due to the reliance on a report by an expert appointed by the Dubai Court that referred to a law no longer in effect.
    Affirming the Lenkor precedent, the Court held that the Dubai Judgment was enforceable. It rejected the argument to withhold recognition of the Dubai Court judgment on the basis presented, considering the reference to the repealed law merely a “procedural irregularity”. Consequently, the Court issued a monetary judgment against the individual, also finding that the asset transfer to his son was partially executed to defraud creditors.

    Analysis on the future of reciprocal enforcement in the UK & the UAE

    Emirates NBD Bank is a welcome development providing more certainty with respect to the enforcement of UAE court judgments in England and Wales. In addition to affirming the principle of reciprocity upheld in Lenkor, Emirates NBD Bank suggests that English courts will not readily impeach a foreign judgment on the ground that its enforcement or recognition would be contrary the rules of natural justice. As such, we can expect the trend set by Lenkor to continue in so far as English courts are concerned, giving creditors that have secured judgments in their favor in the UAE the confidence to pursue enforcement in England and Wales.

    There is yet to be a case in which a UAE court has either recognised or enforced an English court judgment. While the directive issued by the UAE Ministry of Justice is promising and can signal future symbiotic enforcement in the UAE, the reciprocity established by English courts in Lenkor and Emirates NBD are not on their own sufficient to satisfy Article 85. The conditions for the enforcement of foreign judgments set out in Article 85 are cumulative and may be difficult obstacles to overcome. In addition to the conditions set out in Article 85, UAE courts must consider whether a judgment is contrary to public order, a doctrine enshrined in Article 3 of the UAE Federal Law No. 5 of 1985 on Civil Transactions which provides that a decision or order must not conflict with the fundamental principles of the Shari’ah.

    It must also be borne in mind that the UAE is a civil law jurisdiction in which courts are not bound by precedent. Accordingly, while English courts may consider UAE Judgments to be enforceable as a matter of precedent, UAE judges have wider discretion to find otherwise.

    As matters stand, there is no bilateral enforcement treaty between the UK and UAE with respect to reciprocal enforcement of court judgments.

    Key Takeaways:

    • Emirates NBD confirms the decision in Lenkor further affirming the enforceability of UAE court decisions in England and Wales.
    • There have been advances across both jurisdictions towards reciprocity.
    • Absent a bilateral treaty between the UK and UAE providing for reciprocal enforcement, enforcement of UK court judgments in the UAE will be subject to the criteria set out in Article 85 and the requirement of Shari’ah compliance.
    • UAE courts operate within a civil law jurisdiction and therefore have wider discretion to decide on enforceability on a case by case basis.
  • New Defence Available In Russian/Ukraine War Sanctions

    New Defence Available In Russian/Ukraine War Sanctions

    On 20 June 2023, the Russia (Sanctions) (EU Exit) (Amendment) (No 2) Regulations 2023 (the Regulations) came into force.

    Established under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), the Regulations amended the Russia (Sanctions) (EU Exit) Regulations 2019 (Russia Regulations) to establish a clearer legislative basis to enable certain assets to remain frozen/immobilised until Russia pays compensation to Ukraine “for damage, loss or injury suffered by Ukraine as a result of Russia’s invasion of Ukraine on or after 24 February 2022.”

    Existing finance, shipping, and trade sanctions have also been extended under the Regulations.

    The new sanctions relate to non-government controlled Ukrainian territory “the Autonomous Republic of Crimea” and city of Sebastopol and non-government-controlled areas of the Kherson and Zaporizhzhia oblasts (administrative district or region) of Ukraine.

    These reflect the changing demographics now under Ukrainian control.

    The Regulations introduce a defence to the strict liability offence under section 68(1) of the Customs and Excise Management Act 1979 relating to the prohibition on exportation of certain goods to, or for use in, non-government-controlled areas of the Donetsk, Kherson, Luhansk, and Zaporizhzhia oblasts.

    What is the purpose of the Russia (Sanctions) (EU Exit) Regulations 2019?

    Before the amendment, the Russia Regulations were for the purposes of ‘encouraging Russia to cease actions destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty, or independence of Ukraine.’
    The explanatory memorandum to the Russia Regulations states that they reflect the UK’s position that Russia is fully responsible for the war in Ukraine and the damage caused, including to Ukraine’s critical infrastructure.

    The amended sanctions are designed to contribute to the objective of ensuring Russia pays compensation for the damage it has caused.

    What is the defence to the strict liability offence under section 68(1) of the Customs and Excise Management Act 1979?

    Section 68(1) reads:

    68 Offences in relation to exportation of prohibited or restricted goods.

    (1) If any goods are—

    (a) exported or shipped as stores; or

    (b) brought to any place in the United Kingdom for the purpose of being exported or shipped as stores,

    and the exportation or shipment is or would be contrary to any prohibition or restriction for the time being in force with respect to those goods under or by virtue of any enactment, the goods shall be liable to forfeiture and the exporter or intending exporter of the goods and any agent of his concerned in the exportation or shipment or intended exportation or shipment shall each be liable on summary conviction to a penalty of three times the value of the goods or [F1level 3 on the standard scale], whichever is the greater.

    The defence under the Regulations in relation to section 68(1) is available in circumstances where a person had no knowledge or reasonable cause to suspect that the prohibited goods were destined for the non-government-controlled areas of the Donetsk, Luhansk, Kherson, and Zaporizhzhia oblasts.

    What are the anticipated future developments in sanctions against Russia?

    In a press release dated 19 June 2023, the British government affirmed its commitment to maintaining sanctions until Russia paid compensation to Ukraine for the damage caused by the Russian invasion.

    The statement confirmed that a legislative route was being introduced to ensure frozen Russian assets are donated to Ukraine to help fund reconstruction.
    Laws are also anticipated to mandate that “persons and entities in the UK, or UK persons and entities overseas, who are designated under the Russia financial sanctions regime, must disclose assets they hold in the UK.”

    Russians who are already subject to sanctions are now able to apply to have their frozen funds released for the express purposes of donating money to support reconstruction in Ukraine.

    It is important to note that no relief from sanctions will be offered in exchange for making donations.

    Wrapping up

    Sanctions involve a complex web of domestic and international law, much of which is beyond the scope of this article. Therefore, it is imperative to check each transaction related to Russia or any other country subject to sanctions individually and seek legal advice as to you and/or your organisation’s legal position.

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email wt@eldwicklaw.com

    Note: The points in this article reflect sanctions in place at the time of writing, 13th July 2023. This article does not constitute legal advice. For further information, please contact our office.

  • Court Of Appeal Confirms Principle That Reflective Loss Cannot Be Recovered

    Court Of Appeal Confirms Principle That Reflective Loss Cannot Be Recovered

    Background to the decision

    The Claimants were former shareholders in a company called Motoriety (UK) Ltd (Motoriety) which provided software solutions for the motoring industry. In 2015, Motoriety sought investment from Automobile Association Developments Limited ( better known as the AA). It also looked to enter an arrangement to offer AA’s customer base of four million personal members and nine million business members access to its software. In addition, the AA said it would send out MOT reminders to five million members over the coming 12 months, a representation the Claimants later stated they relied on.

    Motoriety and the Claimants secured an investment agreement with the Defendant in which the Defendant agreed to subscribe for 50% of the share capital of Motoriety, receive a place on the Board, and benefit from a call option for the remaining 50 % of share capital. Motoriety subsequently granted a software licence and associated intellectual property rights to the Defendant. In 2017, Motoriety went into administration and was purchased by another company in the AA group.

    The Claimants stated they had relied on false representations by the Defendant, and this led to them entering into the agreement. They also claimed that the Defendant breached implied terms of the contract by taking specific actions that undermined the basis of the agreement. These factors, alleged the Claimants, resulted in Motoriety falling into administration.

    The Defendant applied to have the claim struck out on the basis it was barred by the reflective loss principle. Applying the Supreme Court decision in Marex Financial Ltd v Sevilleja [2020] UKSC 31 (see below), His Honour Judge Paul Matthews agreed with the Defendants and struck out the claim.

    The Court of Appeal’s discussion of the reflective loss principle

    In dismissing the Claimant’s appeal, the Court of Appeal turned to the leading case of Marex Financial Ltd v Sevilleja, in which the UK’s most senior judges confirmed the definition of the reflective loss principle made by Lord Reed in Johnson v Gore Wood & Co [2002] 2 AC 1.

    “a shareholder cannot bring a claim in respect of a diminution in the value of his shareholding, or a reduction in the distributions which he receives by virtue of his shareholding, which is merely the result of a loss suffered by the company in consequence of a wrong done to it by the defendant, even if the defendant’s conduct also involved the commission of a wrong against the shareholder, and even if no proceedings have been brought by the company”.

    Lord Reed explained that the rationale behind the principle was that where the rule applies:

    “the shareholder does not suffer a loss which is recognised in law as having an existence distinct from the company’s loss. On that basis, a claim by the shareholder is barred by the principle of company law known as the rule in Foss v Harbottle (1843) 2 Hare 461 : a rule which (put shortly) states that the only person who can seek relief for an injury done to a company, where the company has a cause of action, is the company itself”

    In Burnford, the Court of Appeal went on to set out several points that can be drawn from various case law authorities, namely:

    • The reflective loss principle applied where a shareholder brought a claim in respect of loss (in the form of a reduction in share value or in distributions) which they had suffered in their capacity as a shareholder, as a consequence of loss sustained by the company, and in respect of which the company had a cause of action against the same wrongdoer.
    • The fact a shareholder can prove they have an independent claim against the Defendant does not negate the application of the reflective loss principle. To circumvent the principle, the Claimant would need to demonstrate they had suffered a separate and distinct loss. A reduction in share value or distributions resulting from losses by the company does not qualify as a separate and distinct loss.
    • Specific correlation between the shareholder’s and company’s losses was not required for the principle to apply.
    • Because the reflective loss principle is so established, the Court has no discretion as to whether it is applied or not.
    • When deciding whether the principle applied, the Court would examine the facts that were present when the loss occurred, not at the time the claim was brought.
    • If the company has no claim against the Defendant, the reflective loss principle will not apply.

    What does Burnford and ors v Automobile Association Developments Limited mean for shareholders?

    The Court pointed out that although several case law authorities had grappled with the principle of reflective loss since the decision in Marex, there was no ambiguity concerning the rule. If the company has a claim against the Defendants, then unless shareholders can show they suffered a separate and distinct loss from that experienced by the company, they cannot bring a civil law claim.

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

    Note: The points in this article reflect sanctions in place at the time of writing, 5th March 2023. This article does not constitute legal advice. For further information, please contact our London office.

    See the article on Chambers&Partners

  • How Are Arbitration Awards Enforced In England and Wales?

    How Are Arbitration Awards Enforced In England and Wales?

    One of the benefits of using Arbitration to resolve international disputes is that Arbitration awards can be enforced in domestic courts.

    This is achieved through the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, known as the New York Convention (NYC), the Geneva Convention on the Execution of Foreign Arbitral Awards 1927, and the 1965 Convention on the Settlement of Investment Disputes (ICSID) Additional Facility Rules.

    Engaging experienced commercial arbitration solicitors can significantly streamline the process of dealing with these conventions and ensuring the effective enforcement of arbitration awards.

    Go To:

    Even if the Arbitration hearing took place in another jurisdiction, if you are the successful party and the Respondent has assets in England and Wales, you can apply to the English Courts to enforce the award.

    Before discussing enforcing an award, it is worthwhile briefly setting out how Arbitration works.

    What are Arbitration and Arbitration awards?

    Arbitration is a powerful alternative dispute resolution (ADR) method that is often used to settle international commercial disputes. Parties must agree to submit a dispute to Arbitration, therefore, it is essential to have a carefully drafted Arbitration Agreement either included or attached to the main commercial contract.

    Arbitration agreements are final and binding. Parties can choose the jurisdiction they wish the Arbitration to take place in, the rules governing the procedure, and the appointment of the Arbitrator/s.

    Arbitration in England and Wales is governed by the Arbitration Act 1996, therefore, if you plan to enforce an award in this jurisdiction you must have regard for the Arbitration Act 1996 from the outset.

    What are the distinct types of Arbitration awards?

    It is vital to note that although the term ‘Arbitration award’ appears to form a single concept, there are different types of awards. A partial award will dispose of certain points put forth for Arbitration, but not all. For example, the Arbitration Tribunal (the Tribunal) may make a final award concerning some of the main claims but leave decisions on other claims and any counter-claims for a later date. Only the matters that have been determined in a partial award are enforceable.

    The Tribunal may also make provisional awards that are not final and therefore unenforceable as such. Examples of provisional awards include interim injunctions and interim payments.

    The ideal situation is where the Tribunal makes a final, and therefore enforceable, award covering all the claims and counter-claims put forward by the parties, however, you cannot take for granted that this will occur.

    How does the New York Convention help me enforce an award?

    The NYC, which has been signed by over 160 countries (including the UK), is the main instrument of international arbitration. Signatory States have agreed to recognise and enforce awards made in countries other than the one in which recognition and enforcement of the award is sought. In terms of resolving commercial disputes, the NYC makes Arbitration a more attractive option than litigation as, due to the fewer number of reciprocal judgment recognition and enforcement arrangements the UK has with foreign legal jurisdictions, it is often easier to enforce an Arbitration award made in a signatory State than a court order made in a foreign jurisdiction.

    How can I increase my chances of successfully enforcing an Arbitration award?

    Having a well thought out strategy when drafting/negotiating an Arbitration Agreement and before commencing Arbitration can dramatically increase the chances of having an award enforced. Therefore, consider:

    • Ensuring that the State in which you and the other party agree for any Arbitration proceedings to take place are signatories to the NYC.
    • Investigate which States the other party’s assets are located in. If they reside in a NYC State enforcement will be relatively straightforward. If not, you will need to obtain local legal advice on enforcing any award obtained.
    • Enforcement under the NYC is most commonly resisted on the grounds of public policy. Public policy is a vague concept and the courts in different States take varying approaches. Therefore, be sure to think about any potential public policy issues that could relate to your commercial activities before choosing an Arbitration jurisdiction. 
    • To ensure that the award debtor has sufficient assets with which to pay any award made, it is useful to apply for a freezing injunction during Arbitration proceedings. A freezing injunction can also be granted by a court in England and Wales post-award to support enforcement.

    Final words on arbitration in England and Wales

    International commercial disputes are by nature complex and often involve multiple claims and counter-claims. Arbitration provides a straightforward, confidential way of resolving matters. By ensuring you obtain the legal advice required to build an enforcement strategy before Arbitration proceedings, you can markedly increase your chances of a successful outcome and preserve necessary commercial relationships.

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

    Note: The points in this article reflect sanctions in place at the time of writing, 09 February 2023. This article does not constitute legal advice. For further information, please contact our London office.

  • Disclosure Of Cryptocurrency Assets In Divorce Financial Settlement Proceedings

    Disclosure Of Cryptocurrency Assets In Divorce Financial Settlement Proceedings

    Cryptocurrency assets may be in trouble in terms of increasing fraudulent activity and volatile market values but experts are firm – digital assets are not a fad and the market is continuing to grow. It is approaching a total capitalisation of $1 trillion and the number of people trading in cryptocurrencies is increasing year on year. For divorcing couples, especially those who are high-net-worth (HNW) disclosure of cryptocurrency assets is becoming increasingly commonplace. Therefore, when negotiating a financial settlement, you need to ensure your Divorce Solicitor is experienced in cryptocurrency assets.

    Cryptocurrency remains a mystery to many of our family law clients, therefore, in this article we deep dive into the various legal matters crypto assets can raise in divorce financial settlement proceedings.

    What is cryptocurrency?

    Cryptocurrency is a digital currency that can be used to purchase goods and services (the UK beauty retailer Lush takes crypto as a form of payment on its website). When Argentinian football superstar, Lionel Messi transferred to French club Paris Saint-Germain, he received part of his $30 million package in cryptocurrency. You can also invest in cryptocurrency assets in the form of purchasing the currency directly or investing in crypto funds and companies. Crypto assets can take different forms, for instance non-fungible tokens (NFTs) which can represent different property for instance digital art.

    Where is cryptocurrency kept?

    Cryptocurrencies are managed using blockchain technology which means they are outside of the central banking and financial system, albeit subject to anti money laundering laws. Therefore, no ‘currency’ actually exists. Instead, cryptographic keys are stored in ‘wallets’ which are managed by a centralised crypto exchange (CEX).

    This may sound confusing, however, it is no different than notes and coins which are worthless in themselves (as paper and metal) but have a value attached which can be used to purchase goods and services.

    Do cryptocurrency assets have to be disclosed in family law proceedings?

    Cryptocurrency is considered an asset in family law proceedings and therefore must be disclosed. The Courts have considerable powers at their disposal to seek disclosure and value cryptocurrency assets, although their volatile exchange rate can make this a challenging exercise.

    One of the attractions of dealing with cryptocurrency assets is that transactions can be made anonymously, or in the case of Bitcoin, the most well-known cryptocurrency, pseudonymously. This can lead to disputes where one spouse believes the other is hiding cryptocurrency assets in order to keep them out of the divorce financial settlement.

    Can cryptocurrency assets be traced?

    As there is no centralised ownership register for cryptocurrency assets a specialist forensic expert may need to be instructed to establish where such assets are held and their approximate value. In theory crypto assets are represented by an immutable record on blockchain, but given the number of cryptocurrencies that have been lost by hacking or just not been accounted for there is an argument to say not all blockchain systems are failsafe.

    If there is evidence that your spouse is engaging in cryptocurrency transactions in order to hide or dispose of the assets so they do not become part of the financial settlement, your Divorce Solicitor may be able to obtain a freezing order. Case law in recent years supports the principle that cryptocurrency is a form of property. This will prevent them from dealing with or disposing of their cryptocurrency assets for as long as the injunction is in place. The order can be extended to cover not only your spouse but also any CEX that may facilitate potential transactions.

    What if cryptocurrency assets cannot be traced?

    If it becomes clear that the assets cannot be found despite the best efforts of forensic experts, your Family Law Solicitor may be able to persuade the Court that the assets do in fact exist by providing evidence such as bank statements or tracked wallet transactions showing dealings in cryptocurrency. If your Solicitor’s argument is successful, the Family Court Judge, after considering all the factors under section 25 of the Matrimonial Causes Act 1973, may award you a larger share of the overall matrimonial assets ‘pot’ after taking into account the approximate value of the undisclosed cryptocurrency assets. Additionally, persuade the court that any financial settlement is not on a ‘clean break’ basis allowing the opportunity to recover further income or assets as evidence of crypto assets materialise.

    Concluding comments

    Although cryptocurrencies have technically been around since the 1980s (with Bitcoin coming into play in 2008) they are unregulated in most economies. This, along with the speed of crypto transactions, and the ability to trade anonymously with some currencies means that when it comes to tracing undisclosed cryptocurrency assets in family law proceedings, it is vital to instruct a Solicitor who has not only experience in dealing with this type of asset, but the necessary expert forensic contacts who can conduct effective traces.

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

    Note: The points in this article reflect the law in place at the time of writing, 19 January 2023. This article does not constitute legal advice. For further information, please contact our London office.