Caribbean Corporate Counsel - Winter 13

Winter 2013

T h e Q u a r t e r ly J o u r n a l o f t h e A s s o c i at i o n o f C a r i b b e a n C o r p o r at e C o u n s e l

Feature: Chapter 11 Tools & Strategies

Helping you navigate legal challenges in a dynamic world

Doing Business In: Trinidad & Tobago Special Focus: Arbitration Issue Alert: Corporate Governance Industry Watch: Energy Top Ten: Social Media Issues And More...

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About the Cover

wi n te r

Features 12 Cover Story Restructuring of International Companies Under Chapter 11

By Renée Dailey and Evan Flaschen 19 Top Ten Issues: Social Media Legal issues businesses should consider as social media extends its grasp on the workplace.

By Ralph Kroman

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6 Opinions • Hiring and Firing in Trinidad and Tobago By Gregory Pantin • Hiring and Firing in the U.S.

By April Boyer and Robert C. Leitner • The Taxman Cometh

By Summer Ayers LePree and William B. Sherman • Confidentiality and Rogue Employees By Jennifer Pierce 36 The Last Word: Lord (Peter) Goldsmith Why the ACCC Matters to Caribbean Corporate Counsel.

Artist James Porto has constructed a metaphorical seascape to demonstrate just how Caribbean Corporate Counsel helps its readers successfully navigate rough legal waters.

30 Issue Alert: Governance • Private Companies

By C. Paul W. Smith • Restoring Trust in Business

By Simon Osbourne 32 Special Focus: Arbitration • Freedom to Choose

By Salah Mattoo • A Traveler’s Guide to Arbitration By Adolfo E. Jimenez and Brain Briz • Arbitration and Litigation

By Christiane Deniger

Departments 22 Doing Business In: Trinidad & Tobago A look at the legal system, establishing a business, foreign investments and incentives, and taxation. By M. Glenn HamelSmith and Angelique Bart

Columns 2 Publisher’s Note Welcome to Caribbean Corporate Counsel 4 Meet the Advisory Board

26 Industry Watch: Energy • Arbitrating Cross-Border Energy Disputes

By Sophie Lamb and Aimee-Jane Lee • Protection for Foreign Investors By Ina C. Popova and Samantha J. Rowe • When Events Are Beyond Your Control By Jonathan Walker

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The Official Journal of the Association of Caribbean Corporate Counsel Produced for ACCC by Leverage Media LLC Publisher: Shelly-Ann Mohammed Managing Editor: Michael Winkleman Editor: Richard Sine Art Director: Carole Erger-Fass Copy Editor: Sue Khodarahmi Production Director: Rosemary P. Sullivan © Copyright 2013 by the Association of Caribbean Corporate Counsel.

All rights reserved.

Printed in Trinidad

ccc winter 2013 1

publisher’s note

Welcome to Caribbean Corporate Counsel

by Shelly-Ann Mohammed

A

s the regional voice and forum for attorneys in 22 member countries, the ACCC is proud to publish Caribbean Corporate Counsel, our new quarterly journal. Each issue will delve into topics that affect Caribbean corporations, financial institutions, and governments, examining issues from both a regional and international perspective.

Our readership is geographically and professionally diverse, and our market penetration is second to none. Our editorial board consists of experienced counsel from around the world. With their guidance, CCC will deliver timely and relevant material tailored to the needs of the Caribbean community.

January 2014 will mark five years since the collapse of one of the region’s largest conglomerates.

As the group chief legal officer of the former CL Financial Group, working with the government on the restructuring of the company, I saw firsthand how the collapse affected the region. The importance of good corporate governance was never more apparent. The informal out-of-court restructuring plan is still in motion today. Our cover story on Chapter 11 (page 12) aims to shed light on the tools that can be available to companies undergoing financial difficulties (and our special section on corporate governance, page 30, brings more focus to this critical area).

While an informal out-of-court restructuring approach provides shareholders with more control over decisions taken and priorities given, it may not provide or create value as a corporate restructuring

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vehicle such as Chapter 11 would. Chapter 11 or a restructuring type of legislation, such as the Bankruptcy and Insolvency Act in Canada (page 15), saves economies by giving companies a “second bite of the apple” and breathing new life into them.

As our economies struggle to recover, we must implement legislation not only to prevent future collapses but also to encourage growth and entrepreneurship. As Lord Goldsmith writes on page 36, “Caribbean firms must also innovate, successfully access global markets, forge strategic alliances with global players, and navigate the ever-expanding network of transnational regulation that now governs global commerce”. Attorneys play a major role in minimising risk to their clients.

The ACCC’s regional and international board advisories work to serve your needs. While I have the pleasure of serving as the ACCC president, our success would be impossible without the active support and participation of our board advisory members, and I would like to recognise them (see page 4).

Many exciting programs and events await us in 2014. The strength of our organisation is built on the involvement of our members. With that in mind, I invite you to share your ideas, thoughts, or feedback. I hope you enjoy our premiere issue. ccc Shelly-Ann Mohammed is founder and president of the Association of Caribbean Corporate Counsel and publisher of CCC. She is a member of the Bar in both Connecticut and Trinidad and Tobago and has worked for three AmLaw 250 law firms. Write her at shelly@ acccl.org or call her at (868) 294-9494.

Local Knowledge Global Reach Cross Border Mergers & Acquisitions Undisclosed

Undisclosed

Advised Moving in the Sale of a 50% Stake to Vinci Park

Advised Guardian in the Acquisition of RSA (Antilles) N.V.

Exclusive Financial Advisor

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Brazil / France

April 2013

Exclusive Financial Advisor

Trinidad & Tobago / Netherlands Antilles

Sovereign Debt Restructuring US$547.5 million

US$136.3 million

Advised the Coordinating Committee of Belize Bondholders

Advised the St. Kitts and Nevis Creditors’ Committee

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April 2012

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Belize

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Corporate Debt Restructuring US$220.0 million

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Advised Trinidad Cement Limited

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Capital Raising R$52.3 million

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Advised Atlantic Energias Renováveis S.A. Wind Farm Eurus II

Advised Atlantic Energias Renováveis S.A. Wind Farm Renascença V

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June 2013

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Brazil

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Valuation and Fairness Opinions Advised the Board of Directors of Transmissora Aliança de Energia Elétrica S.A. March 2013

Exclusive Financial Advisor Brazil

Provided Expert Testimony on Behalf of Grupo de Cementos de Chihuahua S.A. Exclusive Financial Advisor

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Bolivia / Mexico / Peru

Providing independent advice and focused execution to corporations, partnerships and government institutions in Latin America and the Caribbean since 2001 Miami

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Avenida Cidade Jardim, 400 São Paulo, Brasil, Cep.: 01454-000 Tel: +55 11-4114-0247

Meet the ACCC Advisory Boards Regional Board Advisory Anguilla Pam Webster, WEBSTER: Pam is the firm’s managing partner. She began her legal practice in Anguilla in 1986, as Crown Counsel for the Government of Anguilla. Her areas of expertise include international taxation, trusts, estate planning, and company law. She is now working toward increased transparency and good governance in Anguilla’s public institutions.

Barbados Theodore David Gittens, Q.C. J.P, Clarke Gittens Farmer: A founding member of this firm, and currently the senior and managing partner, David was appointed a Justice of the Peace in 1997 and a Queen’s Counsel in 2007.

He practises mainly in the areas of mortgages, banking, and property development in the residential, resort, and commercial sectors.

Belize Rodwell R. A. Williams, S.C., C.B.E., Barrow & Williams: Rodwell is the firm’s managing partner and the head of its Litigation Practice Group. He was admitted to practice in Belize in 1985 and is one of Belize’s leading practitioners in the area of commercial law.

He has vast experience working with complex multijurisdictional matters.

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international Board Advisory United states Cathleen McLaughlin, Allen & Overy: Cathleen heads the firm’s N.Y. international capital markets group and co-heads its Latin American practice.

Her experience includes varied transactional and advisory securities experience relating to SEC registered and unregistered debt and equity offerings by U.S. and foreign issuers, in addition to experience in sovereign, corporate, and infrastructure-related financings.

Lloyd Winans, Baker & McKenzie: Lloyd is a Banking & Finance partner concentrating on regulatory advice for non-U.S. financial institutions conducting business in the U.S., and transactional work including leasing, trade finance, and other cross-border credit. He is the founder and co-chair of the ABA’s Latin American & Caribbean Law Subcommittee in the Business Law section.

Gary Davidson, Diaz Reus. Gary is a highstakes international commercial litigator and arbitration advocate, based in Miami. He currently sits on the executive council of the Florida Bar’s International Law Section and has served as an adjunct professor of law at Nova Southeastern University and as a visiting lecturer at two European universities.

Trinidad Glenn Hamel-Smith, M. Hamel-Smith & Co.: A partner in the Banking & Finance Practice Group at Hamel-Smith, Glenn’s practice focuses on bank finance & regulation, project finance, mergers & acquisitions, secured lending, securities advisory matters, and capital markets transactions. He was admitted to practise law in Florida in 1998 and in Trinidad since 2003.

Kelly-Ann Cartwright, Holland & Knight LLP: Kelly-Ann practises general civil and commercial litigation, with an emphasis on employment discrimination, civil rights, business torts, and labor law. She also has experience in the litigation of cases involving trade secrets, defamation, fraud, civil theft, breach of fiduciary duty, breach of contract, and unfair competition.

Turks & Caicos Gordon Kerr, Missick & Stanbrook: Gordon leads the firm’s real estate team and practises widely in all areas of corporate and commercial law and represents a number of local and international banks. He is a former president of the Turks & Caicos Islands Bar Association and is currently a deputy magistrate in the TCI.

Kevin Ross, K&L Gates: Kevin is a partner in the firm, with an international practice focused on dispute resolution and arbitration. He has deep knowledge of the business environment in the Caribbean and Latin America and frequently counsels European, Asian, and U.S.-based companies on legal matters throughout the region.

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Canada John Rogers, QC, Stewart McKelvey: John is CEO of the firm, one of the top 20 largest law firms in Canada with six offices throughout Atlantic Canada. John has practised in the area of commercial and insurance litigation for over 20 years and has developed a reputation for excellence in law firm management.

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Frank Walwyn, WeirFoulds LLP: Frank is licensed to practise law in Canada and is admitted to many bars in the Offshore Financial Centres in the Caribbean. Frank’s cases include multijurisdictional corporate disputes involving shareholder rights and directors’ duties, forensic investigations into fraud and corruption, offshore trusts and estates litigation, and the registration and recognition of foreign judgments.

U.K. Hamish Perry, Charles Russell: Hamish is a partner in the firm’s Corporate Commercial service and advises on general company and commercial matters with a particular emphasis on private company mergers and acquisitions, joint ventures, fundraisings/private equity, and corporate reorganisations. He has extensive experience advising clients in technology, media, communications, and recruitment.

Lord (Peter) Goldsmith QC, Debevoise & Plimpton: Peter is chair of European and Asian Litigation, having joined the firm as European chair of Litigation in September 2007. He served as the U.K.’s attorney general from 2001-07, prior to which, he was in private practice as one of the leading barristers in London.

Nick Cherryman, Fried Frank: Nick is a disputes resolution partner resident in the firm’s London office, and leads the international disputes practice in London. He is also a barrister and is called to the Bar in London and in the Caribbean. He appears as an advocate before tribunals in international commercial arbitrations and multijurisdictional and offshore commercial disputes.

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opinion

Hiring and Firing in Trinidad and Tobago

The blurry line between “workers” and executives

By Gregory Pantin It’s commonly recognised that companies seek considerable latitude a “worker” and an executive can become blurred. In one recent case

when it comes to hiring or firing executives. For example, given in Trinidad and Tobago, an executive director convinced the court that he

the critical role of executives in organisational performance, a was a “worker”.

Often, it’s only when termination is

business may wish to replace an executive who doesn’t quite live imminent that the contractual terms

of engagement take on a sharp focus.

up to expectations, even if his or her performance isn’t totally But proper crafting of the employment contract at the outset of employment

unsatisfactory. But ensuring that the courts afford this latitude may should provide the employer with require careful attention to the employment contract.

Gregory Pantin is a partner in the Dispute & Risk Management Group at Hamel-Smith in Trinidad and Tobago.

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Here in Trinidad and Tobago, for example, a terminated executive may claim to be a “worker” under our Industrial Relations Act and thereby receive enhanced protections from our Industrial Court. This court may impose significant and potentially even punitive damages if it finds that the employer did not carefully manage the worker to help improve his “fit” with the company, or if the employer dismissed the worker in a “harsh or oppressive” fashion.

The definition of “worker” under the Industrial Relations Act excludes individuals who are responsible for the formulation of policy in any undertaking or business; are responsible for the effective control of the whole or any department; or have an effective voice in the formulation of policy. Depending on circumstances, the lines between

some control over the legal risks of a termination decision.

The contract should identify the executive’s scope of responsibilities, demonstrating that he or she has a role (or voice in) the formulation of policy or effective control of the whole or a department. The contract should also identify objectives and performance standards that are regularly discussed. A terminated executive who has previously been made aware of underperformance cannot claim to be taken by surprise.

The company may also wish to make appropriate use of fixed-term contracts, and to give a clear and reasonable notice of termination.

These measures may help to reduce or eliminate damages in the event of a court case.

Finally, the contract should be adhered to carefully, and employers should avoid amending it with new or implied terms. These could place the employer at a significant disadvantage in any termination negotiation. ccc

opinion

Hiring and Firing in the united states Even if they’re “at-will”, hiring and firing can present legal issues.

Here are some guidelines

By April Boyer and Robert C. Leitner The United States and the Caribbean have a unique relationship. The requirements of the job can help the company focus on business reasons in

U.S. flag flies in two Caribbean territories; most Caribbean nations and the hiring process. In the interview, the employer should never ask questions

territories have duty-free access to the U.S.; and the close proximity of to elicit information about a person’s protected characteristics. Interviewers

the Caribbean to the U.S. encourages cross-border business opportuni- should ask similar questions of all candidates to ensure fair comparisons and

ties. Given these linkages, Caribbean employers that have expanded or maintain notes in case a hiring decision wish to expand into the U.S.—whether it’s the mainland or a Caribbean U.S. territory—should be familiar with U.S. employment laws.

In the U.S., however, hiring and firing are complex, with the federal government as well as states and local jurisdictions imposing various requirements. This article focuses only on federal law.

When Hiring…

April Boyer is a partner and Robert C. Leitner is an associate with the Labor, Employment, and Workplace Safety Practice Group of K&L Gates LLP.

Don’t consider protected status.

In the United States, companies must base all employment decisions, including hiring decisions, on legitimate, non-discriminatory business reasons.

Decisions cannot be based on any “protected characteristic” (e.g., age, citizenship/national origin, colour/race, disability, gender/sex, pregnancy, genetic characteristics, leave status, veteran status/military service, or whistle-blower status). State and local laws often protect additional characteristics such as sexual orientation. Creating a written job description with the specific

is challenged.

Consider a background check.

Background checks can range from simple reference checking to formal credit and criminal history checks.

Background checks must observe various federal, state, and local laws. Criminal background checks warrant special concern. Companies should not, as a policy, reject all applicants with convictions. Ideally, employers should only consider convictions when the crime is relevant (e.g., a bookkeeper’s recent embezzlement conviction). Given the legal complexities, employers should consult counsel before rejecting an applicant based on a background check.

Communicate the offer.

The offer letter should summarize the key terms of employment and identify any conditions precedent (such as a successful background check or verification of eligibility to work). The offer letter also should state whether employment is “at-will” or contractual. Employment generally is “at-will” unless there is a written contract. “At-will” means that the company can discharge an employee

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Interviewers should ask similar questions of all candidates to ensure fair comparisons, and maintain notes in case a hiring decision is challenged. with or without cause or notice; the employee also may resign with or without a reason or notice. A company may impose other conditions on a candidate, such as execution of a non-disclosure or restrictive covenant agreement. Such agreements are governed by state law, which varies greatly; thus, it is critical to consult employment counsel in advance.

Confirm the candidate is free to work.

If a candidate accepts an offer, the employer must verify that the individual is legally permitted to work in the United States before work commences.

Employers also should confirm that no restrictive covenants (such as a noncompete provision) would prohibit employment.

When Discharging an Employee…

Although “at-will” employment permits an employer to discharge an employee without any reason, an employer may never terminate because of a protected characteristic. To reduce the possibility that a discharge decision will be challenged, a prudent employer will ensure that termination is: • Due to a legitimate business reason supported by known facts.

• Consistent with, and authorised by, workplace policies. In particular, if an employer has a progressive discipline policy, the employer should confirm each step was followed, unless the employee’s action was severe enough to justify immediate termination.

• Consistent with how the employer has addressed similar infractions.

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80,000+ U.S. federal charges claiming improper hiring or firing in 2012 Employment discrimination claimants often argue other employees were treated differently.

•S upported by documentation whenever possible. For example, if a person is discharged for performance, the employer should document performance over the course of employment, rather than beginning when the decision to terminate is made.

•C onsistent with legal advice. Employers should consult legal counsel before the decision to terminate, especially if the employee possesses one or more protected characteristics. It costs less for legal counsel to review a decision than to defend a lawsuit.

Executing the Decision

Advance planning will ensure a smooth termination. Among the issues to consider: • If there is a risk of violence, the company should involve security in the delivery of the decision.

• The company should create an inventory of the property issued to the employee to ensure its return.

• Preparing a “script” or outline will assist in communicating the decision properly.

• The company should consider whether to offer a severance package

in exchange for a release of claims related to employment.

At least two representatives of the company should meet with the employee, with one speaking and the other taking notes. At the outset, the representatives should tell the employee that the purpose of the meeting is his or her termination. The representatives should explain briefly, but accurately, why the decision was taken. They should not make excuses or apologise for the decision, and must bear in mind that their statements are likely to feature heavily in any lawsuit. The representatives never should imply that the employee’s protected status played any role in the discharge decision. They should insist that the employee immediately return all company property. The company may withhold severance (but never regular wages) until the property is received. The employee should have a chance to speak, but the representatives should not argue with the employee or comment on such statements. Finally, the representatives should remind the employee of any continuing obligations such as a non-disclosure restriction. The employer should promptly shut off the employee’s access to computers, credit cards, and the jobsite.

Employers have various obligations upon termination. Federal and state laws require employers to deliver certain post-employment notices, such as an explanation regarding health benefits continuation.

The company must promptly pay the employee final wages. The company also must maintain employment records for as long as required by federal and state laws, which vary based on the type of document. ccc

opinion

The Taxman Cometh

The deadline is near for the financial sector to comply with a law on U.S. assets and income—or face serious penalties

By Summer Ayers LePree and William B. Sherman

U.S. tax evasion by requiring certain non-U.S. entities to disclose

tax purposes, if the trust in question either is administered by a professional trustee or its assets are professionally managed. Any such entity that owns any U.S. assets or is a withholding agent or recipient with respect to any U.S. source payments will be significantly impacted by FATCA, and planning ahead is essential.

information about financial accounts held by U.S. taxpayers or by

Who’s Covered?

The U.S. law known as the Foreign Account Tax Compliance Act, or FATCA, will have significant implications for the Caribbean and its substantial financial sector. Passed in March 2010 as part of the so-called HIRE Act, FATCA is designed to detect and prevent

foreign entities in which U.S. taxpayers hold a substantial ownership interest. The stated goal of FATCA is to collect information, not

Summer Ayers LePree is a tax associate (Miami) and William B. Sherman is national chair of the tax team (Fort Lauderdale) at Holland & Knight.

tax. However, as explained below, the tool FATCA uses to motivate the desired information sharing is the imposition of a punitive withholding tax on those who do not comply. This punitive withholding tax applies to relevant payments made to all covered foreign entities that fail to comply with FATCA, not just those with U.S. accountholders.

The broad definitions of “foreign financial institution” and “non-financial foreign entity” under FATCA subject a wide range of non-U.S. entities to the FATCA rules. FATCA will apply to all non-U.S. banking, investment management/administration, fiduciary (including trust companies), and life insurance companies. FATCA also will apply to most trusts that are treated as non-U.S. trusts for U.S.

The financial sector in the Caribbean is dominated by banks, with non-bank financial institutions also becoming increasingly important. According to a recent paper published by the International Monetary Fund, the total assets of the Caribbean financial sector, excluding offshore banks, amount to 124 per cent of regional GDP, with the banking system accounting for some 91 per cent and non-bank financial institutions such as credit unions and insurance companies accounting for the rest. All such entities generally will be subject to FATCA if they own or otherwise manage an interest in any U.S. investments. Thus, a Caribbean hedge fund that invests in U.S. securities will need to comply with FATCA. Similarly, a Caribbean trust company acting as trustee of a trust that invests in U.S. assets will be subject to FATCA, as will the trust in question. In addition, banks will need to comply with FATCA if they hold any U.S. assets or receive any U.S. source income (e.g., from investing in U.S. bonds or stocks).

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Institutions that are subject to FATCA will need to develop new processes and due diligence procedures for identifying accounts, withholding, and reporting.

Institutions that are subject to FATCA will need to develop new processes and due diligence procedures for identifying accounts, withholding, and reporting. In addition, such companies will need to formally register with the IRS for FATCA purposes through an online portal that was launched in August. In the absence of proper registration and ongoing compliance, a wide range of U.S. source payments (including some sales proceeds) made to such institutions will become subject to a punitive 30 per cent FATCA withholding tax. While some issues remain unresolved under FATCA, the revised July 1, 2014, effective date for FATCA withholding is fast approaching, and companies subject to FATCA need to have a plan in place to ensure their full compliance and avoid costly penalties.

How It Works

FATCA requires foreign financial institutions, or FFIs, to enter into a disclosure and withholding agreement with the IRS to become classified as “participating FFIs”, or face a punitive

124

%

Caribbean financial sector assets equal 124% of GDP (excluding offshore banks) Banks account for 91% of those assets

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72

X

In the Bahamas, the offshore banking sector is 72 times the size of the economy

30 per cent gross withholding tax on all “withholdable payments” made to these FFIs. Withholdable payments include any payment of U.S. source interest, dividends, rents, salaries, wages, premiums, and annuities, as well as gross proceeds from the sale or other disposition of any property of a type that can produce the foregoing categories of income.

Participating FFIs are obliged to withhold a 30 per cent FATCA tax on payments made to account holders who refuse to provide information necessary to determine whether they are U.S. persons, and on payments to noncompliant and non-participating FFIs. Participating FFIs must also provide the IRS with information regarding accounts held by U.S. persons or foreign entities with substantial U.S. owners, including their name, address, taxpayer identification number, account number, account balance, and gross receipts and withdrawals from each U.S. account.

Participating FFIs must adopt detailed procedures for identifying U.S. accounts. These procedures likely will require modification of current practices and information systems.

FATCA also allows nations to enter into an agreement with the U.S. modifying the statutory requirements of FATCA so that, in some cases, that nation’s FFIs will report to their own government rather than the IRS. In August, the Cayman Islands announced that it had concluded negotiations with the U.S. government on a “Model 1” intergovernmental agreement, stating that both countries have initialed the agreement and a formal signing is expected to take place as soon as possible. Officials in the Bahamas, BVI, and Jamaica also have announced that they are negotiating with U.S. authorities regarding agreements for their respective countries.

FATCA is rapidly approaching, and

11

X

In Barbados, the offshore banking sector is 11 times the size of the economy

planning ahead to comply with its burdensome requirements is crucial.

Failure to do so will in many cases subject a wide array of payments that would otherwise not be subject to any U.S. tax to a 30 per cent punitive tax.

Those institutions that implement new standards and procedures now will be at a significant advantage over those that delay. ccc

opinion

Confidentiality and Rogue Employees

Companies should set up a system to identify and protect key information

By Jennifer Pierce Most organisations are well aware that rogue employees are in a will, hopefully, reduce the temptation to misuse information, and, if

position to do significant damage through misuse of confidential necessary, it will demonstrate to a court that the information was truly

information. Yet relatively few organisations set up and monitor confidential.

With departing employees, it

effective systems to prevent or mitigate this risk. In many jurisdictions, is essential to consider both their conduct prior to resignation and

there are limits to the enforceability of confidentiality clauses that are afterwards. The IT department or IT consultants can scrutinise the

weighted in favour of an employer, as public policy often dictates computer systems to check what

has been sent out of the building

that employees must be able to use their general skills and experience or exported on USB sticks, and

when they leave employment. So there is a delicate balance to be struck between the interests of the employer and the employee.

First Steps

Jennifer Pierce is a partner specializing in IP at Charles Russell in London.

It is crucial to formulate and to implement guidelines in relation to use of the employer’s information; some organisations may also wish to implement procedures for whistleblowing. The first step is to consider the available confidential information against the backdrop of the various grades of employee and their daily activities, identifying what is really confidential information and who needs to handle it. Then it is crucial to implement practical means of ensuring both physical security and cybersecurity, to publicise them within the organisation, and also to ensure that the measures are followed. This

can also find out if this activity has been disguised after the event. The employee may have been assisted by an IT professional to cover their tracks.

It may be appropriate for a departing employee to download all personal information with the help of the IT professional and then cease to have access to IT systems. Before departure, all passwords should be changed and company property returned.

New Employees

When employees change jobs they often take material from a previous employer, as they view this as part of their general skills and experience, but forget that this may contain confidential information.

New employees should be made aware that the new employer does not condone this practice.

It will never be possible to prevent all misuse of confidential information, but it is surprising how much can be done with simple procedures. ccc

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cover story

Restructuring of International Companies Under Chapter 11

Giving companies a second chance

By RenĂŠe Dailey and Evan Flaschen

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Scholars, practitioners, and governments are looking back at significant corporate failures of the past few years searching for lessons learned and pitfalls to avoid in the future. In the U.S., the collapse of Lehman Brothers, the restructuring of GM and Chrysler, and the bailout of the “too big to fail” financial institutions have served as the subject matter of many a debate. But the debacles have not been limited to the U.S.; virtually every significant economy has experienced its own Lehman. The corporate collapse of CL Financial and its subsidiaries, including Colonial Life Insurance Co. (Trinidad) Ltd. (known as CLICO), shocked the economies of not only Trinidad and Tobago but the Caribbean as a whole. In the wake of CL Financial, several government commissions and other organisations have focused on the need for increased regulation and oversight and improved corporate governance practices to avoid another corporate collapse of this magnitude. In contrast, this article will focus on the Chapter 11 restructuring tools that were available to CL Financial and that other multinational corporations should consider in the event of financial difficulty.

A Time and Place for Chapter 11

The general purpose of Chapter 11 is to provide a corporation with a meaningful opportunity to preserve its business as a going concern. In Chapter 11, a distressed company has the opportunity to obtain a breathing spell from the demands of creditors, reassess its business plan, and negotiate (or seek to impose) a reordering of its capital structure which binds all existing creditors and shareholders. During the Chapter 11 case, existing management typically continues to operate the business as a going concern. Management is expected to negotiate with creditors and frame a plan for reorganisation of the business. The theory is that management—rather than third-party administrators or

liquidators—knows the business best.

In contrast to Chapter 11’s restructuring focus, many jurisdictions primarily (or solely) provide for liquidation, or a controlled sale, of the troubled company. While a number of jurisdictions have revised their insolvency laws to provide a reorganisation alternative, the U.S. is generally considered unique in its history and precedent of a restructuring culture.

Chapter 11 is not a panacea, however; it should be considered an alternative to be used only when the necessary parties are unable, unwilling, or unavailable to reach an agreement outside of court proceedings.

Chapter 11 can be an expensive process and involve a level of disclosure that companies are not accustomed to; however, it is particularly powerful where the necessary parties are too numerous to negotiate with effectively, or where the passage of time (even a brief period) will erode significant value of the prospective debtor-company. The latter was the situation with Lehman Brothers, where there was nothing that could have been done to restructure the business quickly enough outside of a Chapter 11. In the case of CL Financial, multiple pending lawsuits and debt defaults were draining significant resources of the company, and it was impossible to come to a consensual agreement with all of those parties prior to the government intervention.

ccc winter 2013 13

cover story

The commencement of a bankruptcy case triggers an “automatic stay”, which operates as an injunction against all actions affecting the debtor or its property.

Eligibility of Solvent and Foreign Companies

As a preliminary matter, it is important to note that a company need not be insolvent to commence a Chapter 11 case. There is no requirement that its liabilities exceed its assets or that it be unable to pay its debts as they become due. Solvent companies may, therefore, voluntarily file for reorganisation under the Bankruptcy Code. This feature aides a company’s restructuring efforts in that it need not wait until its financial situation is so dire and there is no cash on hand to run the business, which could result in liquidation being the only viable alternative. CL Financial, therefore, was eligible to file Chapter 11 well before the agreement with the Government of Trinidad and Tobago in January 2009.

The Collapse of a Mighty Giant CL Financial Ltd. was the largest privately-held conglomerate in the Caribbean, encompassing more than 65 companies in 32 countries. Its operations spanned insurance, financial services, real estate development, manufacturing, agriculture and forestry, retail and distribution, energy, media, and communications. Its total assets exceeded US$100 billion—more than 25 per cent of Trinidad’s GDP. Following a liquidity crisis, CL Financial in January 2009 accepted a bailout from Trinidad’s government. The government was empowered to sell company assets or take other measures to address the financial condition of CL Financial’s insurance and investment affiliates CLICO, CIB, and BA and protect the interests of its depositors, policyholders, and creditors. The initial timeframe for the agreement was two years. Almost five years later, the outof-court restructuring is still in progress. The collapse of CL Financial was caused by factors including excessive related-party transactions, high leveraging of the Group’s assets, and poor corporate governance. The government has spent an estimated $25 million managing the conglomerate’s dissolution. —Richard Sine

14 ccc winter 2013

Almost any commercial enterprise can file for relief under Chapter 11. It is not a requirement that a Chapter 11 debtor be incorporated in the U.S.; it only needs to have a place of business or some nominal property in the U.S. Bankruptcy courts have even held that a foreign corporation was eligible for Chapter 11 relief when it had entered into an engagement letter with a U.S. law firm and had paid the law firm a retainer.

Notable exceptions to eligibility for Chapter 11 include banking and insurance institutions. Accordingly, CLICO and the other insurance subsidiaries as well as Republic Bank Ltd. would not have been eligible for Chapter 11 relief. CL Financial as the ultimate parent entity, and the obligor on many of the disputed obligations, however, could have commenced Chapter 11 proceedings given the existence (and ownership) of U.S.-subsidiary companies. This happens frequently in the U.S., with banks and bank holding companies. The Federal Deposit Insurance Corp. is appointed as receiver over the bank, but management commences a parallel Chapter 11 proceeding to manage claims and interests at the parent holding-company level and continue to operate non-bank subsidiaries and lines of business. For CL Financial, this would have included its non-bank and non-insurance company subsidiaries’ real estate development, manufacturing, agriculture, retail, energy, and media operations.

Chapter 11 Tools for Debtors

CL Financial was (and in part still is) effectively being administered in multiple jurisdictions by different government regulators or committees, often with competing goals. In contrast, Chapter 11 provides for a centralised forum to resolve claims against the estate. There are many benefits and tools available to companies seeking to restructure via a Chapter 11 proceeding. Chief among them are the automatic stay and the ability to borrow funds, assume or reject certain contracts, conduct a competitive sale of assets, and consummate a reorganisation plan that discharges all

Restructuring, Canada Style

debts even without the consent of all classes of creditors.

Each of these tools assists a debtor in its restructuring efforts and could have been helpful to CL Financial, in particular in continuing certain operations as a going concern and maximising creditor recoveries overall.

The Automatic Stay

The commencement of a bankruptcy case triggers an “automatic stay”, which, with certain exceptions, operates as an injunction (prohibition) against all actions affecting the debtor or its property.

This “breathing spell” provides the debtor with an opportunity to formulate a comprehensive restructuring strategy, and also protects the creditor body as a group by prohibiting the commencement or continuation of actions by individual creditors, both secured and unsecured, to obtain satisfaction of their claims using the remedies available under state law or to continue pending litigation. While many other jurisdictions have some form of moratorium, not all are “automatic” upon the filing of the case, and few apply to both unsecured and secured creditors. This immediate and broad stay benefits debtors, and is arguably the key to any successful restructuring.

The stay operates regardless of whether a creditor has actual notice of the filing of a bankruptcy petition, and by its terms applies to all of the debtor’s assets wherever located. Accordingly, the automatic stay in a CL Financial Chapter 11 would have applied to all of its assets and subsidiaries, no matter the location. Generally speaking, any action taken in violation of the stay, even by foreign creditors, is void. Persons violating the stay can be held liable for damages, including punitive damages in rare cases.

The automatic stay would have provided CL Financial with temporary relief from paying its prepetition debts on a current basis, as well as given it a breathing spell from defending pending lawsuits in multiple jurisdictions.

Given the widespread litigation plaguing CL Financial, the additional benefit of a Chapter 11 proceeding is that

Most insolvency proceedings in Canada are brought under the Bankruptcy and Insolvency Act, which codifies procedures for liquidating a debtor’s assets or a restructuring that allows the debtor to continue as a going concern. The BIA is highly codified: In liquidation proceedings under the BIA, all of the debtor’s assets are sold by a trustee and distributed to unsecured creditors pursuant to priorities set out in the BIA, subject to the rights of secured creditors, which are not affected by the BIA priority regime.

Canada’s other main insolvency statute, the Companies’ Creditors Arrangement Act, is available to companies with more than $5 million in debts. The more flexible CCAA allows for a going concern liquidation or restructuring with ad hoc court supervision. A plan of arrangement under the CCAA requires a majority of creditors (representing two-thirds of value) voting in favour for court approval. The BIA also allows for plans for compromise, but without the flexibility afforded CCAA proceedings. —Scott McGrath, Weir Foulds

it could have been used to resolve most of the pending litigation in one forum, or at least reduce the lawsuits to a claim in the bankruptcy case that would have received a distribution and then been discharged.

Debtor in Possession Financing

The financial support provided by the Government of Trinidad and Tobago to CL Financial was a key feature of the memorandum of understanding entered into in January 2009. A Chapter 11 debtor may continue to obtain unsecured credit and incur unsecured debt in the ordinary course of business, and credit so obtained is entitled to priority over all prepetition unsecured claims.

In the event a debtor is unable to obtain unsecured financing, it may request court approval to obtain new credit on a secured and “super-super priority” basis.

Rejection of Contracts

The Bankruptcy Code provides a Chapter 11 debtor with the opportunity to review and evaluate certain of its contractual obligations and decide whether to assume and continue to perform those obligations (and potentially assign them to a third party) or reject those contractual obligations and crystallise them as a claim in the bankruptcy case. The ability to assume or reject is limited to “executory” contracts. While the Bankruptcy Code contains no definition of an “executory contract”, the generally accepted meaning is a contract as to which material performance remains due on both sides

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cover story

The ability to reject an unfavourable contract is critical where a debtor is seeking to implement an operational restructuring of the company. (for instance, ongoing leases or supply agreements).

The ability to reject an unfavourable contract is critical where a debtor is seeking to implement an operational restructuring of the company rather than just reorganising the balance sheet. The ability to assume a favourable contract can also be key to a debtor’s future success. Where a debtor proposes to conduct an orderly sale of its business, the ability to include favourable contracts as part of the sale can result in the realisation of significant value. In Chapter 11, contractual provisions that purport to prohibit assignment to third parties without the consent of the non-debtor party are typically unenforceable.

Chapter 11 can also protect against the loss of valuable contracts. A clause in a contract that provides that insolvency or bankruptcy is an event of default creating a right of termination or modification of the contract or lease (a so-called “ipso facto clause”), is also not enforceable in bankruptcy.

Limited exceptions to this rule include contracts to extend a loan or financial accommodation to the debtor, to issue a security on the debtor’s behalf, or to perform uniquely personal services.

In a number of jurisdictions, judicial committees are liquidating assets of CL Financial. Chapter 11 provides a consolidated forum for competitive sale processes and frequently an opportunity for the sale of assets as a going concern, i.e., with key contracts, which can lead to greater return to creditors.

Imposition of a Plan of Reorganisation on Non-Consenting Classes

While consensual reorganisations are encouraged, the Bankruptcy Code provides for a mechanism to impose a plan of reorganisation (or to “cramdown” a plan) on non-consenting classes in certain

16 ccc winter 2013

circumstances. If an impaired class votes, as a class, to reject the plan, the plan can nevertheless be “crammed down” on the entire objecting class if: • At least one impaired class has voted to accept the plan, and • The court finds that the treatment provided for the objecting class under the plan does not “discriminate unfairly” and is “fair and equitable” (the “Fair and Equitable Test”).

The prohibition against “unfair discrimination” typically means that similar claims or equity interests must be treated similarly. However, there are circumstances in which a plan can discriminate fairly, such as enforcing subordination clauses.

Satisfaction of the Fair and Equitable Test turns on whether the non-consenting class is secured or unsecured. For secured creditors, as a general rule cramdown is permitted if the class is receiving at least the value of its security interests in the collateral. For unsecured creditors, a class can be crammed down if the plan provides either that (1) the creditors in the class receive (over time) cash payments equal to the present value of their full unsecured claims, or (2) if not being paid in full, classes junior to the class in question are not recovering anything on account of their claims.

There is no existing global reorganisation (or liquidating plan) for CL Financial, and instead, assets and creditors are being dealt with one-on-one, without the benefits of a stay. This decentralised resolution process can have an adverse effect on a company’s ability to operate as a going concern, restructure the business, and provide enhanced creditor recovery. In contrast, Chapter 11 provides effective tools that international corporations can use to achieve optimal reorganisation results. ccc Renée Dailey is a partner in the Financial Restructuring team at Bracewell & Giuliani. Evan Flaschen is chair of the team.

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top ten

the top 10 issues in

Social media Strong policies can help companies steer clear of the legal minefields

by Ralph Kroman

The Internet abounds with statistics regarding the widespread use of social media sites.

While extensive use of social media is old news, companies must continue to adapt to changes in the social media landscape. The following highlights legal issues that each business should consider as social media continues to extend its grasp on the workplace: 1. Banning or Restricting Social Media Access

Because of potential pitfalls associated with use of social media sites such as Twitter and Facebook, many companies ban social media use by employees and actively manage IT assets to deny access to social media sites. The main rationale is that employees will otherwise waste time and be less productive at the workplace. According to Ontario Privacy Commissioner Ann Cavoukian, banning employees from social media sites is not a good idea: “Employees tend to reroute or own a blog, go to another server, and find other ingenious ways of doing what they want to. And these rerouting

efforts may actually be more time consuming.”

Some suggest that banning use of social media by employees is bad for employee morale and can make a workplace less attractive to potential employees.

According to a survey conducted by Payscale, two out of five “Gen Y” workers rate social media access above receiving a higher salary—but 42 per cent of employers nonetheless prohibit use of social media, Payscale reports. The bottom line is that each company must do a cost-benefit analysis to determine whether banning social media is appropriate for the company. The greater the access that is granted to employees, the greater the need for a robust and clear social media policy.

illustrations by robert neubecker

ccc winter 2013 19

top ten

social media

A Facebook post by a restaurant in Antigua, meant for publicity, led to a labour investigation about the immigration status of the chef.

2. Social media policies

Social media policies serve a practical purpose to discourage improper social media activities and a legal purpose to help discipline an employee whose conduct is inappropriate. Each policy must be tailored to suit the business of the employer. The elements of a proper social media policy include a description of the risks, guidelines for use of social media sites, rules regarding the disclosure of confidential information, and disciplinary matters.

It is wise to support social media policies through employee training. Consideration should also be given to incorporating social media policies into employment contracts.

3. Disclosure of confidential information

It is well known that social media creates special risks.

Even lawyers are not immune. In a high-profile case, the Winkelvoss twins contested $13 million in legal fees charged by their firm, Quinn Emmanuel, in representing them against Facebook founder Mark Zuckerberg.

When the court upheld the fees, the firm’s litigatorin-chief tweeted, “payday cometh”. According to a news report, the court reprimanded the lawyer and considered tossing out the fee award but ultimately upheld it.

Companies are well advised to train employees

regarding improper disclosure of confidential information and trade secrets (which is sometimes inadvertent).

Adoption of corporate policies and the use of employee confidentiality agreements can further mitigate the risks of disclosure—and may provide the employer with tools to terminate non-compliant employees.

4. Hiring practices

HR departments often access public information gathered from social media regarding prospective employees, including information contained in profile pages on social networking sites. This information could disclose an individual’s ethnicity, religion, sexual preferences, or other information, which could form the basis for an unlawful discrimination or other claim. It is a good practice that the role of researching a candidate be separated from the role of hiring the candidate, so that only lawful information is passed on to the person who makes the hiring decision.

Employers who request and use candidates’ social media passwords in order to access private information, or use other means such as pretexting to access private information, should be mindful of applicable laws. For example, several U.S. states have outlawed requesting a candidate’s social media password.

Companies should beware that their social media posts do not expose improper hiring practices. In Antigua, Italian restaurant Il Giardino posted a picture on Facebook of Chef Gianluca Feri holding a red snapper as if he was about to kiss it. Although the picture was posted to garner publicity, it caught the attention of a veteran trade unionist, who complained to the Ministry of Labour about the immigration status of the chef and other workers at the restaurant. The Ministry found that the chef and two other workers did not have proper work permits.

5. Disciplining of employees

The extent to which an employee may be disciplined or dismissed for inappropriate use of social media (during

20 ccc winter 2013

To Recruiters, Social Media Matters work or at other times) depends substantially upon local employment laws. Of course, the gravity of the misconduct plays a key role. A well-drafted social media policy and employment contracts that cover the policy serve to strengthen an employer’s position.

Police forces can play a role. A Toronto mechanic tweeted that he “need[ed] a spliff or two to help me last this open to close.” The police noticed the tweet and tweeted a cheeky reply: “Awesome! Can we come too?”

The police notified the employer, who terminated the mechanic.

77%

of employers use social media in recruiting

43%

of employers have rejected a job candidate based on information found online

11

U.S. states bar employers from demanding social media usernames and passwords from employees and job applicants; 36 other states are considering such laws

6. Vigilance

Companies must monitor social media platforms to ensure that its intellectual property rights, such as trademarks and copyright, are not violated. When internal resources are insufficient, Internet monitoring services are available from third parties. If vigilance discloses a violation of IP rights, social media sites’ terms of use often provide tools for the IP owner to remove the unlawful materials.

User-generated content should also be monitored.

The Advertising Standards Bureau of Australia held that a distillery was responsible for fan postings on its Facebook page. The Bureau held that the advertiser had a reasonable degree of control over the page; it was responding to complaints that the postings were obscene and promoted excessive drinking.

7. Intellectual property infringement

Companies that upload documents, photos, or videos from social media sites must ensure that they have rights to these materials. Companies that maintain blogs sometimes republish text of news articles or other materials based upon an incorrect belief that attribution is a defence to a copyright claim. The terms of use of the social media site are also relevant. In the case of Agence France Presse v. Morel, a U.S. Federal District Court rejected a news agency’s position that it had an express licence to use photos obtained on Twitter. The court found that Twitter’s terms of use granted a licence only to Twitter..

8. Terms of Service issues

Each social media site has terms of service, and companies should familiarise themselves with each site’s TOS (including changes to the TOS). For example, it is well known that numerous jurisdictions have laws that govern online contests, but social media platforms like Facebook contain special TOS that relate to contests.

9. Defamation

The more a company permits social media use, the greater the likelihood that posted statements will impact the reputation of another person, business, or product, presenting legal risks to the employer. For example, an employer could become entangled in a claim if an employee uses a work-issued smartphone to voice an opinion about a competitor or its products. To mitigate liability, a social media policy could provide for review by an internal team of any outbound comments that reflect upon a third-party business or other person.

10. Regulatory compliance

Public companies should ensure that their social media marketing and communications efforts comply with securities laws. The U.S. Securities and Exchange Commission investigated Netflix CEO Reed Hastings last year when he posted on his public Facebook page that Netflix monthly viewing had reached new highs. The post made the news, and the stock rose that day. The SEC notified Netflix it was being investigated, claiming that material information was not disclosed through proper public channels such as news releases. Hastings defended his position on Facebook: “We think posting to more than 200,000 people is very public, especially because many subscribers are reporters and bloggers.” The SEC did not pursue legal remedies, but the incident highlights that social media can present landmines. The SEC subsequently issued a statement that companies should give advance notice of the use of a social media site for material disclosure. ccc

Ralph Kroman is a partner with Weir Foulds in Toronto.

Sources: Society for Human Resource Management, 2013; CareerBuilder, 2013; National Conference of State Legislatures, 2013Molly.

Thanks to Molly DiBianca, an associate with Young Conaway Stargatta & Taylor in Wilmington, Delaware, for collecting these statistics. ccc winter 2013 21

doing business in

By M. Glenn Hamel-Smith and Angelique Bart

trinidad tobago

&

Foreigners enjoy a welcoming fiscal and legal climate

ccc winter 2013 23

doing business in

trinidad & Tobago

The Republic of Trinidad and Tobago offers a prosperous, diverse, and dynamic market for doing business while serving as one of the largest financial hubs in the English-speaking Caribbean region. The economy is the most diversified in the English-speaking Caribbean, with industries including energy exploration, production and processing, financial services, manufacturing and distribution, and tourism. The country’s fiscal, regulatory, and legal environment not only encourages but also facilitates and supports foreign investment.

The Legal System

Trinidad and Tobago’s legal system is based on the United Kingdom’s traditional common law. The constitution is the supreme law of the land and codifies fundamental rights for citizens, foreigners, and legal entities doing business in the country. Generally, legislation enacted

by Parliament is modelled on legislation passed in the United Kingdom—particularly legislation enacted in the 1960s and 1970s. However, the Companies Act of 1995 and the recent Securities Act are largely based on Canadian legislation. Case law from both countries and other common-law jurisdictions often provide persuasive, and in some instances binding, precedents.

Commercial and civil disputes are handled by the High Court, appeals are heard before the Court of Appeal, and the final appellate court is the Judicial Committee of the Privy Council. Two specialised courts, the Tax Appeal Board and the Industrial Court, hear tax and industrial relations matters at first instance, but the appeals process is similar to other commercial matters.

Establishing a Business

A variety of dynamics should be considered in structuring a business so as to allow investors to achieve their desired objectives. Several legal vehicles are available, including: • A limited liability company (which is limited by shares, guarantee, or both) • An unlimited liability company (where the shares and/or guarantee are unlimited) • A public company • A branch (which is an external company) • A partnership amongst individuals (per the Partnership Act).

In choosing a legal vehicle, key factors to consider include the tax implications of conducting business; the size and complexity of the proposed operation; the security required by financiers; the cost of complying with statutory requirements; and whether limited liability is required or desirable. Recent measures to streamline the process for establishing a business have also been introduced by the government to accelerate new business formation.

Foreign Investment

Investing in Trinidad and Tobago is not complicated, since the Foreign Investment Act allows for foreign investors to buy land or shares in private or public companies and to form companies. In summary, the Foreign Investment Act of 1990 makes the following provisions: • A foreign investor is permitted to own 100 per cent of the share capital in a private company, but prior to the investment, the minister of Finance must be notified.

• Foreign investors are permitted to own up to 30 per

24 ccc winter 2013

VITALS: Trinidad & Tobago cent of the share capital of a local public company without a license. Ownership of more than 30 per cent of share capital requires a license. • A foreign investor is permitted to own one acre of land for residential purposes and five acres of land for trade or business without having to obtain a license.

The process of notifying the Ministry of Finance and obtaining a license is fairly simple and straightforward.

The government has maintained an economic policy directed toward the development of a robust and open market-driven economy with a commitment to encouraging foreign investment. Several bilateral trade agreements are aimed at promoting investment.

Legislation has been enacted to minimise limitations on foreign investment and to largely eradicate foreign exchange control. There are also fiscal incentives including import duty concessions, free zone benefits, uplifts on actual expenses incurred, and other special tax allowances.

A Simplified Tax Regime

A series of reforms have simplified the tax regime with the goal of promoting business investment, growth, and diversification.

Trinidad and Tobago enjoys a relatively low corporation tax rate of 25 per cent on profits and short-term gains accruing to companies in the country. A business levy also applies at a rate of 0.2 per cent of gross sales/ receipts and may be paid instead of the corporation tax (depending on which is higher). Additionally, a mandatory, environmental “Green Fund Levy� tax is payable at the rate of 0.1 per cent of gross sales/receipts.

There is also a VAT (value-added tax) system with tax payable and chargeable in relation to goods and services at a rate of 15 per cent generally, although many basic items are zero rated.

While companies in the petrochemicals/downstream sector are taxed at 35 per cent, companies engaged in the exploration and production of oil and gas are taxed at 50 per cent and also pay an unemployment levy of 5 per cent. Additionally, supplemental petroleum taxes apply on gross crude oil; this is computed on a scale of rates.

Cross-border payments of dividends/royalties or payments for services may attract withholding tax.

The rate, subject to the existence of certain double tax treaties, ranges from 5 per cent to 15 per cent.

For individuals, the income tax (pay-as-you-earn) is 25

1.3 million Population 4,828 km2 Land Area $17,999 GDP per capita 1.5% GDP growth 1Q 2013 (Compare: 0.3% U.S. and U.K.; -0.3% Euro) 2.5% GDP growth non-energy sector, 1Q 2013 4.9% Unemployment rate, 1Q 2013 $2.54 billion FDI, 2012 38% FDI increase, 2011-2012 Top investment opportunities in 2013 as identified by investTT: Downstream energy Data centers/BPO Tourism Agribusiness Film/Animation

per cent. Individuals are also liable for a nominal health surcharge and National Insurance contributions. Trinidad tax-resident persons are entitled to a personal allowance deduction of up to $60,000 per annum and may deduct 70 per cent of National Insurance contributions.

In summary, Trinidad and Tobago has a vibrant, robust, and diversified economy that facilitates and promotes foreign investment. The clarity around the legal system, the ease of commencing and doing business, the incentives available, and the simplified and competitive tax regime create an attractive environment for investors. ccc M. Glenn Hamel-Smith is a partner in Banking and Finance, and Angelique Bart is a senior associate in Business, Energy & Tax, at Hamel-Smith in Trinidad and Tobago.

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i n d u s t r y w at c h

Arbitrating Cross-Border Energy Disputes A good option for technical, sensitive cases

26 ccc winter 2013

energy

By Sophie Lamb and Aimee-Jane Lee

E

nergy security is a critical issue across the Caribbean. States in the region have renewed their efforts to set out regional and national energy policies to improve energy security, with ambitious targets to capitalise on the region’s rich and diverse renewable energy resources.

The energy industry has propelled the increasing popularity of arbitration as a dispute resolution mechanism.

A recent survey from the School of International Arbitration at Queen Mary University of London found 56 per cent of energy corporate counsel favoured arbitration as the dispute resolution mechanism, compared to 28 per cent preferring court litigation.

As a truly globalised sector that is often at the forefront of growth in the developing world, arbitration serves the energy industry well for many reasons.

First, international arbitration provides a neutral venue.

International energy companies are understandably reticent about submitting disputes to the unfamiliar local courts of their counter-party.

Likewise, state-owned entities that are party to energy-related contracts are unwilling to submit to the jurisdiction of overseas courts. The perception of arbitration as a neutral venue is reinforced by the independence of arbitral tribunals and the fair and transparent manner in which they are appointed. The neutrality of arbitration makes it a palatable alternative to litigation.

Second, arbitrators and arbitration counsel often develop industry expertise making them well-placed to argue and resolve often highly technical energy-related cases such as gas pricing disputes. This is a selfperpetuating benefit; as more energyrelated disputes are arbitrated by a relatively small pool of arbitrators and counsel, these individuals deepen their industry knowledge.

Third, arbitration awards are a global

energy currency. Pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”), arbitral awards rendered in 149 member states can be enforced in any other member state with minimal fuss. This is critical for energy companies that are likely contracting with entities that may have assets in various and far-flung jurisdictions. Domestic court judgments, relying on limited regional multilateral treaties or bilateral treaties, cannot boast similar enforceability. In the Caribbean,

Energy disputes often relate to high-value, ongoing projects where the parties seek to preserve their commercial relationship. many states are party to the New York Convention but there are notable exceptions (see chart, page 35).

Fourth, arbitration is usually a confidential process. Energy disputes often relate to high-value, ongoing projects where the parties seek to preserve their commercial relationship.

Although arbitration is adversarial, absent a concurrent public relations battle, it is easier to avoid the bitterness associated with public litigation. Gas pricing review disputes are the perfect example of using arbitration to resolve a discrete issue without undermining the parties’ relationship.

Finally, arbitration may be the only available dispute resolution mechanism. In the context of investor-state disputes, energy

companies must follow the dispute resolution mechanism in the relevant international treaty or legislation.

The energy industry is politically sensitive and often economically controversial. States have frequently demonstrated their willingness to trample over energy companies’ legal rights for the sake of political expediency. Given the large sums at stake, it is not surprising that energy companies are particularly savvy about seeking recourse by enforcing their rights under investment treaties.

Hence, the International Centre for Settlement of Investment Disputes, or ICSID, has recorded that one-quarter of its cases relate to the oil, gas, and mining sector, and a further 12 per cent relate to the electric power and other energy sectors. For example, Grenada has successfully defended two ICSID arbitrations brought by RSM Production Co. in relation to a petroleum exploration agreement.

Saint Lucia is currently defending an ICSID arbitration, also brought by RSM. The suitability of arbitration for energy-related disputes is reflected in a number of instruments. Arbitration is the standard dispute resolution mechanism in the Association of International Petroleum Negotiators’ main standard agreements (inter alia, the Joint Operating Agreement 2002, the Unitisation and Unit Operating Agreement, and the Gas Sales Agreement). Similarly, the Energy Charter Treaty provides for arbitration for the resolution of both investor-state disputes and disputes between contracting parties. Given the entrenchment of arbitration as the favoured dispute resolution mechanism in such instruments, the use of arbitration to settle energyrelated international disputes is likely on an upward trajectory. ccc Sophie Lamb is a partner and AimeeJane Lee is an associate at Debevoise & Plimpton LLP.

Protection for foreign investors

How to safeguard against regulatory change

By Ina C. Popova and Samantha J. Rowe

T

he landscape of the oil and gas industry has changed dramatically in the past decade as a result of rising oil prices, the development of unconventional shale reservoirs in the U.S. and Canada, and the Macondo incident. In response, governments have imposed many regulations affecting oil and gas investors. Investors are seeking to maximise protection against regulatory changes that could upset the economics of their investments.

The issue could not be timelier for the Caribbean. While only Trinidad and Tobago and Venezuela have exploited the reserves located in their territorial deepwater to date, at least 14 Caribbean countries have opened their waters to deepwater exploration. Companies flocking to invest in this new frontier of oil and gas exploration should keep in mind the contractual options available as they prepare to enter into investment agreements with host governments.

Investors have favoured two types of contractual provisions in their efforts to manage the risk of future adverse action by a host government. Force majeure clauses “allocate the risk of loss if performance becomes impossible or impracticable”, by allowing a

ccc winter 2013 27

i n d u s t r y w at c h

energy

Investors should keep in mind the contractual options available to them. party to suspend or terminate the performance of its obligations, according to Black’s Law Dictionary. Stabilisation clauses—found in international investment agreements—specifically address the extent to which future changes in laws or regulations can modify the contractual rights and obligations of the foreign investor.

Recent cases demonstrate that force majeure clauses may not provide sufficient protection, as they often do not expressly cover adverse governmental action. Stabilisation clauses allow comparatively greater flexibility in drafting.

Stabilisation clauses in the natural resources industry are contractual provisions that traditionally took the form of “freezing” clauses, which shield an investor from future changes in applicable laws. In the 2008 Duke Energy v. Peru award, the tribunal found that the tax stabilisation agreement at issue, which guaranteed the “continuity of the existing rules,” covered not only the formal text of the laws and regulations, but also “the maintenance of such stable interpretations of the law, existing at the time the LSA [legal stability agreement] was executed”. The tribunal also interpreted

28 ccc winter 2013

the clause as guaranteeing that the “stabilized laws will not be interpreted or applied in a patently unreasonable or arbitrary manner”.

Today, stabilisation clauses can take diverse forms tailored to the investor’s concerns, often with an emphasis on restoration of an economic balance through negotiation. Two recent arbitral awards offer guidance on how such clauses can be interpreted by tribunals in investor-state disputes premised on violations of bilateral investment treaties.

In Burlington v. Ecuador, the tribunal considered a claim for expropriation arising out of Ecuador’s Law 42, which created an additional “participation” for the government based on oil prices.

The participation contracts provided: “In the event of a modification to the tax system… in force at the time of the execution of this Contract and as set out in this Clause, which ha[s] an impact on the economy of this Contract, a correction factor will be included in the production sharing percentages to absorb the impact of the increase or decrease in the tax[.]”

Based on factors including the mandatory language of the provision, the

purpose of the correction factor, and its finding that “the economy of the PSCs was not a function of… oil price[s]”, the tribunal found that the clause required Ecuador to offset the impact of Law 42 on Burlington.

In Ulysseas v. Ecuador, the claimant’s concession contract stipulated: If laws or standards are enacted which prejudice the investor or change the contract clauses, the State will pay the investor the respective compensation for damages caused by those situations, in such a way as to at all times restore and maintain the economic and financial stability which would have been in effect if the acts or decisions had not occurred.

The tribunal held that, in the context of the “constant evolution” of Ecuador’s electricity regulatory framework, the claimant had no legitimate expectation of “immutability”. The tribunal added that the compensation clause in the concession contract “ha[d] a bearing” on the claimant’s treaty claim because it was evidence that the investor “had accepted,… that changes might be introduced to laws … which ‘would prejudice the investor’”, subject to payment of compensation. Ultimately, the tribunal rejected Ulysseas’ claims.

In drafting stabilisation clauses, investors must carefully consider both the mechanism and the desired result.

Attention should be paid not only to the terms of the clause, but also to its role in the contractual framework and its effect on other investor protections. When integrated into a global contractual risk management strategy, stabilisation clauses can be a valuable safeguard allowing investors to reconcile their economic objectives with a changing regulatory landscape. ccc Ina C. Popova and Samantha J. Rowe are associates at Debevoise & Plimpton in New York.The firm represents Perenco Ecuador Ltd. against the Republic of Ecuador in ongoing ICSID proceedings related to Law 42.

energy

When Events are Beyond Your Control Using force majeure clauses to restrict risk

By Jonathan Walker

I

n recent times the Trinidadian energy industry has been plagued with curtailments in the supply of natural gas. The impact of those curtailments has been drastic and far-reaching, resulting in reduced production in the downstream industries; increased prices in derivative products such as methanol and ammonia; and other significant long-term consequences.

Given the contractual obligations that exist in the natural gas supply chain, the disruption in the supply of this critical product has the potential to result in significant exposure for each relevant party in the supply chain. For the most part, the parties have sought to manage this potential risk by invoking the force majeure provisions in their contracts.

Generally, a force majeure event is unexpected and beyond the control of both contracting parties. It disrupts the operation of the contract such that the parties are excused from their liabilities or obligations under the contract. It should be noted, however, that force majeure is not a doctrine of the common law. Therefore, it must be expressly set out in the contract.

As a corollary, the party seeking to invoke a force majeure clause

must demonstrate that the particular circumstances of the event are covered by the force majeure provision. In this regard, the term force majeure has historically been linked to involuntary events such as Acts of God. A clause that describes the excusing event as one of force majeure will be sufficient to provide the contractual exception, but will be restricted to those limited circumstances.

That said, there are some limitations to the breadth of the clause. For example, in the 2010 case of Tandrin Aviation Holdings Limited v. AERO Toy Store, the court held that a change in economic or market circumstances affecting the profitability of a contract or the ease with which a party’s obligations can be performed is not a force majeure event.

Therefore, in providing for such a clause, the contracting parties should consider the risks that are evident in the industry or the particular transaction.

These are events that, if they occurred, would seriously impact their ability to carry out their obligations. If they decide that protection from these events is necessary, then they should be identified as comprehensively as possible in the clause.

Further, to get the benefit of a force majeure clause, the party invoking the clause must satisfy at least three criteria. The event that prevented the party from performing the obligation must have been beyond the control of the parties; could not have been

10

hurricanes in the Atlantic Basin in 2012 (only 2 in 2013)

anticipated or was not foreseeable or expected; and must have been unavoidable. The parties can include additional requirements, such as that the invoking party must give notice of the force majeure event and must attempt to mitigate its effects.

Since each force majeure event is different, the clause should specify whether its occurrence would excuse all of the obligations under the contract or only some of them; temporarily suspend performance while the force majeure conditions continue or bring the entire contract to an end; extend time for the performance of the obligations; or excuse underperformance. Another consideration is whether the excuse

Be careful before adopting boilerplate clauses. should be limited to “non-fault” events or if it should include situations that might have been caused or contributed to by the invoking party.

In drafting the clause, parties should be careful before adopting boilerplate clauses, since these often use extremely restrictive language that imposes a very high standard. For example, some boilerplate clauses require that the occurrence of the event make the obligation impossible to perform.

This may impose a significantly higher threshold than the parties intended to apply.

Finally, where the parties are part of a chain transaction involving back-toback contracts and obligations—such as the gas supply contracts mentioned at the beginning of this article—then it is critical to ensure that, at minimum, there is equal protection provided in the back-to-back contract. ccc Jonathan Walker is a litigation partner at Hamel-Smith in Trinidad and Tobago.

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issue alert

governance

Governance for Private Companies The right structure can improve decisions at any company

I

By C. Paul W. Smith n response to a number of high-profile corporate failures in the United States, rules affecting corporate governance for public companies were overhauled with the introduction of the SarbanesOxley Act in 2002. Aspects of this overhaul have found their way into the legislation of many other jurisdictions. However, the debate has almost exclusively focused on public companies and regulated organisations such as financial services institutions.

In the end, this represents only a small fraction of the economic activity in most countries, and particularly in the Caribbean, where private and familyowned businesses dominate. These companies continue to be left on their own to determine their governance standards.

Corporate governance is often described as the relationship between participants such as owners, management, and lenders in determining the direction and performance of corporations. Discussions of corporate governance usually focus on matters such as transparency, accountability, independence, disclosure, fairness, and the role of the board of directors.

Owners of private companies may feel that the lack of governance allows decisions to be made without excessive

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formality or bureaucracy. While this is true to a degree, good governance can add value and accountability and tends to lead to better decisions. In addition, investors and creditors expect good corporate governance practices, and may see them as an indicator of a wellmanaged organisation.

There is no one-size-fits-all model of corporate governance for private companies. What is best for a singleowner, early-stage company is different than the more complex structure that may be required for a multiowner, later-stage company. But a good governance structure will help any company navigate the stages in

its development. And there are some elements that should be part of any company’s approach to governance: Define roles. The responsibilities of the various participants—be they owners, directors, committee members, or management—should be welldefined and understood.

Adopt written standards. These roles should be set out in written position descriptions and board or committee charters. Private companies should also develop codes of business conduct applicable to all directors, officers, and employees. The business conduct code is aimed at promoting integrity and deterring wrongdoing.

It would usually address topics such as conflicts of interest, proper use of corporate assets, confidentiality of corporate information, and compliance with laws and regulations.

Review the structure regularly.

The governance structure should be reviewed regularly and updated to reflect changes at the company.

As the private company grows, the roles and responsibilities of its directors and management will become more onerous. They may want to consider aspects of public company governance such as appointing independent directors; establishing formal board committees, such as audit, nominating,

governance

and compensation committees; and implementing regular board education and assessment practices.

Good governance should aim at achieving better decisions. All persons having an interest in a company should take comfort in knowing who

makes the decisions, the process by which those decisions are made, and whether they are made by the right person with the proper skills and knowledge. Ultimately, the implementation of good governance practices by Caribbean private companies will not

only serve to strengthen those companies, but will benefit the economy of the region as a whole. ccc C. Paul W. Smith is a partner and chair of the partnership board at Stewart McKelvey in Saint John, New Brunswick, Canada.

Restoring Trust in Business Strong governance can bridge the confidence gap

By Simon Osborne

T

he U.K.’s Parliamentary Commission on Banking Standards (published in June) points out that the loss of trust in banking has occurred alongside the erosion of trust in other sectors, including the oil industry, the BBC, the political class, the National Health Service, and the print media. It concludes that “the public is less willing than ever to accept the credentials of institutions or sectors on trust”.

At the Institute of Chartered Secretaries and Administrators, we believe strong governance is vital for attracting and retaining the trust of investors, customers, suppliers, and employees. To that end, we support unequivocally the corporate governance model known as “comply or explain”.

In this model, companies must comply with the government’s governance code or explain publicly why they have not. This approach allows companies to tailor governance to their specific and changing needs. Comply or explain should encourage companies to give governance

matters full consideration, to change behaviours, and to create a framework for effective external challenge. A rigid rules-based alternative would force companies into a one-size-fits-all framework of governance, we believe. It would also result in less informative explanations driven by a “boxticking” mentality.

ICSA has identified three core areas of governance practice which can be improved to help build confidence in all sectors. These are: Appropriate boardroom behaviours. The best boardroom behaviour is characterised by a clear understanding of the role of the board; the appropriate deployment of skills, experience, and judgment; independent thinking; a supportive decision-making environment; a common vision; and the achievement of closure on individual items of board business.

Board support. All listed and public-interest companies should be supported by an appropriately resourced company secretariat.

ICSA has suggested that the formal board evaluation process should also include evaluation of the secretariat. The company secretary’s role—apart from managing regulatory compliance and advising

on corporate governance— should be to procure and advise on everything necessary for the chairman, non-executive directors, and the executives to discharge their obligations.

Tackling risk at board level.

The near-collapse of the financial system has been blamed on weaknesses in risk management and internal control. Risk management is not a question of complex computer modelling but of the board’s understanding of the principal risks and their potential consequences. A failure to tackle risk at the appropriate level has been exacerbated by the trend of overreliance on board committees at the expense of the board’s role.

The board should review risk on a regular basis, and should set out its policy clearly so that it can be implemented by management on a day-to-day basis.

By applying strong governance principles—combined with transparency and high standards of personal behaviour, decision making and accountability—institutions may start to earn back their trust in the public mind.

Simon Osborne is chief executive of ICSA in London.

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a r b i t r at i o n

Freedom to Choose Flexibility on forum, rules, and more gives arbitration an edge

T

By Salah Mattoo he exponential growth of international commerce in the Caribbean in the past two decades has increased the reach and ambit of international commercial contracts involving the Caribbean. These contracts have brought Caribbean governments and businesses closer to individuals and businesses from different countries, legal systems, cultures, and languages. For example, China is a major investor in the Caribbean and is reported to have undertaken a major project in nearly every Caribbean country. In Jamaica, the Chinese government-owned China Communications Construction Co. plans to build a large-scale commercial port over the next decade. Given the availability of English speakers in the Caribbean, it is already being considered a viable alternate for Asian-dominated business process outsourcing centres.

This phenomenon of globalisation has resulted in the growth of international commercial contracts containing arbitration clauses. It is normal for parties to an international commercial contract to choose a neutral mechanism for dispute resolution and a

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arbitration to any institutional rules to govern the arbitral process; where to conduct the arbitration (the “seat”); and the language of arbitration.

Choice of Law

International arbitration provides parties autonomy to choose what law shall govern the contract. This freedom allows the parties to assess the risks arising from the contract and to determine what potential remedies exist. To maintain party equality, it is recommended that the parties choose a governing law that is not connected to the parties (in terms of nationality), as it could make the contractual relationship asymmetric and take away the mood of neutrality. Given its proximity to English law and Commonwealth legal traditions, Caribbean companies and nation-states will naturally gravitate toward English law to provide them with commercial certainty.

Forum Design

system of laws that best protects their interests. Therefore, parties engaged in international commerce have two choices: to subject their contractual relationship to the national courts of a particular jurisdiction, or to resolve disputes by arbitration. Habitually, parties to an international commercial contract are reluctant to subject the contract to the jurisdiction of either party’s national courts. Consequentially, to maintain party neutrality, international arbitration is a preferred way of resolving disputes globally.

Party Autonomy

An arbitration agreement provides commercial parties the autonomy to design their dispute resolution process.

When drafting an international contract, both parties will need to consider the following: the governing law of the contract; whether to subject the

More important, the parties need to decide on an appropriate arbitration clause to govern their contractual relationship. The clause could specify: • That the parties would go to arbitration should any dispute arise (the standard arbitration clause); • That one or both parties could choose arbitration or the national courts of a particular jurisdiction (a hybrid or unilateral arbitration clause); or • That the parties will mutually decide whether to choose arbitration or national courts of a particular jurisdiction.

Seat

Normally the arbitration laws of the seat will provide guidance on the conduct of arbitration and the use of national courts if needed. The Caribbean nation-states have close trade links with the EU, the Middle East, the Commonwealth countries, and other nations such as the U.S., China, and Brazil. Therefore, international

a r b i t r at i o n

commercial contracts involving the Caribbean are bound to have commonly recognised arbitration seats in locations such London, Paris, New York, Singapore, and Hong Kong.

Rules

The parties must also choose the procedural rules of the chosen dispute resolution medium. The parties have the freedom to either consensually design bespoke rules to govern the arbitration process or to adopt the rules of international arbitration institutions such as the International Chamber of Commerce, the London Court of International Arbitration, or the rules of arbitration centers in the U.S., Singapore, Hong Kong, or Dubai.

Enforcement

International arbitration is further strengthened by the fact that the enforcement of an arbitral award is governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or the New York Convention. One hundred and forty-nine countries are parties to the New York Convention, which in effect means that once an arbitral award is released, it can be enforced in the national courts of any signatory state.

As of now, a majority of Caribbean countries have signed up to the New York Convention (see chart page 35).

The main strength of the arbitration is that it gives parties the capacity to design their dispute resolution mechanism from the outset of their contractual relationship. The parties are free to choose any system of laws, rules, languages, or forums to determine their disputes. This flexibility enables Caribbean governments and business entities to efficiently engage with the world commercially and raise much-needed foreign direct investment. ccc Salah Mattoo is a litigation associate with Fried, Frank, Harris, Shriver & Jacobson in London.

A TravelLer’s Guide to Arbitration Your destination: A smooth dispute resolution

By Adolfo E. Jimenez and Brian Briz

T

he Caribbean region contains over 7,000 islands in an area covering more than 1 million square miles. To travel in the Caribbean, one must first select a mode of transport. Several factors go into that decision, such as travel time, price, and convenience.

Arbitration is itself a mode of transport that allows parties to arrive at their intended destination: binding resolution of a dispute. Like a traveler wanting to reach a distant island, parties entering into an arbitration agreement must plan and consider a series of factors before embarkation.

Here are 10 mistakes that parties should avoid when selecting their mode of arbitration.

1. Avoid buyer’s remorse. Air and sea carriers charge rates depending on factors such as the type of line, distance travelled, amenities provided, and the reputation of the carrier.

Similarly, arbitral institutions apply different formulas for administering arbitrations. Before selecting an arbitral institution or deciding on ad hoc arbitration, parties should carefully evaluate the likely need and services required, the advantages vis-à-vis the other party in certain types of arbitrations, and the potential costs to avoid buyer’s remorse should a dispute ever arise.

2. Make sure you can communicate. The ability to communicate is necessary in travel.

It is crucial in arbitration. There are a half-dozen official languages and numerous local languages spoken in the Caribbean. Even if both parties to an agreement share a common language, conditions change, and many parties would prefer to use their native language. Parties should select an operative language in their agreement to arbitrate to avoid a potential dispute once the arbitration has commenced.

Be careful against being overly specific in your arbitrator qualifications.

3. Make sure you are authorised to travel. Without a passport or visa, a traveller may wind up stuck at the gate. Parties to an arbitration agreement must ensure that an ultimate arbitration award will be enforceable wherever the award may need to be enforced, or the arbitration may be in vain. They should confirm that the countries where an award may need to be enforced are parties to a treaty—such as the New York Convention—or have laws in force calling for the recognition of foreign arbitral awards.

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special focus

4. Make sure your flight is headed on course. Like a traveller confirming that he or she is boarding the correct flight, parties should address the format of the ultimate award (e.g., will it be a reasoned vs. “unreasoned” award) where necessary to confirm that the award will be enforceable wherever it may need to be enforced.

5. Do not forget your boarding pass. A traveller cannot travel without a boarding pass or ticket.

Similarly, non-signatories to an arbitration agreement are generally not considered parties to, or bound by, the arbitration agreement. Parties should confirm that their arbitration provision extends to all necessary persons or entities if they are not technically parties to the underlying agreement.

Look out for related agreements, such as a guaranty agreement or employment agreements, which may not specify the same dispute resolution mechanism.

6. Plan for travel delays. Travel delays are a common occurrence and should be planned for. While parties are often tempted to negotiate a strict timetable for arbitration, it is difficult to appreciate how much time will be needed to arbitrate a dispute before the dispute has materialized. Parties seeking to include a timetable should allow for flexibility or problems may arise and the ability to enforce an ultimate award may be jeopardised.

7. Plan for emergencies.

Emergencies happen in travel and in life. Parties to an arbitration agreement should plan for emergencies and consider contingencies—such as limited judicial procedures—where appropriate and if not addressed in the operative rules. The locale of the arbitration is also an important

34 ccc winter 2013

a r b i t r at i o n

consideration in this regard.

8. Do not block the runway.

An aircraft cannot take off if the runway is blocked. Finding qualified and experienced arbitrators is sometimes a challenge in itself. Parties should be careful against being overly specific in their arbitrator qualifications or they may end up with only a handful of arbitrators to choose from—or even worse, none.

9. Choose the right travel carrier. There are many options to choose from when travelling.

Likewise, there are options to choose from when deciding to arbitrate. Parties should carefully evaluate their options among the various arbitral institutions, and if they prefer to charter their own flight and proceed with an ad hoc arbitration, they should carefully decide on the rules or laws that will govern the arbitration.

10. Do not forget to order special accommodations. Like travellers who may need special accommodations, parties sometimes need special accommodations to address the particularities of any potential future dispute.

Parties should consider whether accommodations—such as specialised discovery rules or hearing rules—are necessary, and if so, should include them in their arbitration provision.

Adolfo E. Jimenez and Brian Briz are partners at Holland & Knight in Miami. Jimenez is lead of the International Arbitration and Litigation Team; Briz focuses on cross-border litigation and arbitration.

Arbitration and litigation The real differences

By Christiane Deniger

H

istorically, many international disputes having a Caribbean connection have been litigated or arbitrated outside of the Caribbean.

However, there has been an increase in litigations and arbitrations being held locally. For this reason, it is more important than ever to consider the distinct pros and cons of commercial arbitration and litigation. In recent years, the gap between the way commercial arbitration and litigation is conducted has narrowed. Yet important differences remain.

Proponents of arbitration frequently cite several advantages. Arbitration is shorter, less expensive, more flexible, and requires less extensive disclosure, these proponents say. The proceedings are less hostile—which can help maintain ongoing business relationships—and are confidential.

The right to appeal arbitral decisions is highly circumscribed, and it is easier to enforce arbitral awards in foreign countries when compared to court judgments.

In reality, commercial arbitration is no longer dissimilar from litigation in terms of the cost and the length of time required for the procedures and for a final decision. Given the large sums of money often in dispute and the tactics deployed by some highly aggressive clients, they can become as hostile as any dispute. Document

a r b i t r at i o n

disclosure is sometimes as extensive as in litigation, and may even be more extensive given the complexity of issues in the case.

We have chosen to highlight three features that truly distinguish arbitration from litigation: confidentiality, ease of enforcing an award, and the scope of available interim relief.

Confidentiality

One of the most compelling advantages of commercial arbitration is the ability to keep the dispute—and its resolution—entirely confidential.

In commercial arbitration, there is no public hearing and, thus, no public record. A third party therefore cannot request copies of any pleadings or attend any hearings. Confidentiality can add real value where a company would prefer to avoid publicity or if a dispute involves commercially sensitive matters.

Enforceability

Arbitral awards tend to be easier to enforce against assets in a foreign jurisdiction than court judgments.

Under the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), 149 countries have agreed to enforce arbitral awards, subject to very limited grounds for objection. By contrast, enforcing a domestic judgment in a foreign country or converting a domestic judgment into a foreign judgment can be a difficult and timeconsuming task. Most Caribbean countries have signed the New York Convention (see chart below).

Interim Relief

In the U.S. and U.K., judges can grant various forms of temporary, preliminary, and interim relief over the course of a dispute when a party has threatened to take action that cannot be undone by after-the-fact damages. Historically, arbitrators and arbitral tribunals not been able to provide the same level of relief.

To rectify this deficiency, various international arbitration institutions now provide for “emergency relief” through the use of an emergency arbitrator.

Who signed the NY Convention?

Anguilla No Antigua and Barbuda Yes Bahamas Yes Barbados Yes Belize No Cuba Yes Colombia Yes Costa Rica Yes Dominica Yes Dominican Republic Yes El Salvador Yes Grenada No Guatemala Yes Guyana No

Haiti Yes Honduras Yes Jamaica Yes Mexico Yes Nicaragua Yes Panama Yes Saint Kitts & Nevis No Saint Lucia No Saint Vincent & Grenadines Yes Suriname No Trinidad & Tobago Yes Turks and Caicos No Venezuela Yes

Litigation Catches Up

As practices and procedures in commercial litigation have become more efficient and flexible in many common-law jurisdictions, some of the differences between arbitration and litigation are not quite what they used to be. For example, in 2009, the BVI established a commercial division of the Eastern Caribbean Supreme Court. This led to the introduction of the Commercial Court Rules, which largely track the provisions of the English Civil Procedure Rules.

Similarly, the Grand Court of the Cayman Islands established the Financial Services Division in 2009, recognising the need for special procedures and skills in dealing with the more complex civil cases that were arising out of the Islands’ financial sector.

These changes have resulted in a more efficient means of resolving disputes in those countries. In addition to the solid nature of the BVI and Caymanian court systems, the number of parties now considering litigation over arbitration has increased.

Nonetheless, some legal procedural lacunas exist which will need to be clarified before all foreign parties feel totally secure litigating or attempting to enforce an arbitral award across the Caribbean.

Confidentiality in commercial arbitrations and the relative ease of enforcement of awards are likely to remain the most prominent benefits of commercial arbitrations. The current changes to the available scope of interim relief in commercial arbitration are likely to broaden with time. In fact, these changes and their possible future effect will further reduce the gap between arbitration and litigation in the Caribbean and abroad. ccc Christiane Deniger is a litigation associate with Fried, Frank, Harris, Shriver & Jacobson in London.

(based on the definition of the Association of Caribbean States)

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last word

Across a Dynamic Global Terrain, a Helping Hand

by Lord Goldsmith Q.C.

Why the ACCC matters to Caribbean corporate counsel

I

am grateful and honoured for this opportunity to contribute to the first edition of this publication and to participate in the launch of the Association of Caribbean Corporate Counsel. The establishment of the ACCC comes at an exciting time for the development of the Caribbean legal system and the practice of law in the region. As a regular practitioner in the Caribbean, and having enjoyed a long-standing relationship with the Caribbean legal community, I believe these are welcome milestones for the progressive development and promotion of corporate legal practice in the region.

As the Caribbean continues in its quest to achieve sustainable economic development, countries must successfully attract substantial and sustainable flows of foreign investment. Caribbean firms must innovate, successfully access global markets, forge strategic alliances with global players, and navigate the ever-expanding network of transnational regulation that now governs global commerce.

Corporate lawyers will play a key role in helping their clients navigate this dynamic terrain. Further, the advent of the Caribbean Single Market, the establishment of the Caribbean Court of Justice, changing EU-Caribbean relations, and hemispheric politico-economic shifts throw up new challenges and opportunities for corporate counsel and their clients. Against this backdrop, the ACCC promises to provide a ready network and forum for lawyers

36 ccc winter 2013

seeking to maximise regional growth potential and opportunities for professional and business development.

In the Caribbean, as elsewhere, legal professionals must maintain ongoing training to keep pace with rapid legal and business developments and to maintain high professional standards. The ACCC is key in this context. For example, the partnerships forged between the ACCC and international law firms provide a unique opportunity for dialogue, collaboration, and exchange of best practices between Caribbean practitioners and their counterparts around the world. For my part, I look forward to the opportunity to build meaningful relationships with ACCC members.

The ACCC can also provide a voice for the concerns of its constituents (and their clients) in relation to local or global developments. The organisation can provide a platform for articulating a unified position on key issues and leveraging institutional influence to secure real results for its members.

It is my hope that this publication and the launch conference will serve effectively to further the mandate of the ACCC. I encourage all members of the legal community to support actively the work of this organisation, and I look forward to working with you all to achieve this. ccc Lord (Peter) Goldsmith is chair of European and Asian litigation at Debevoise & Plimpton.

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