Monday, March 26, 2018

New Register for Overseas Companies Owning UK Property or Bidding for UK Government Contracts

The UK government is to establish a register to show the true beneficial ownership of overseas companies that own, or propose to own, UK property in order to bolster the reputation and integrity of the UK property market. The register will be the first of its kind in the world and will require overseas companies that own or buy property in the UK, or who wish to participate in UK government procurement, to provide details of their ultimate owners.

Generally speaking, these include shareholders with more than 25% of the shares or voting rights in a corporate entity; or individuals, such as directors or managers, who otherwise exercise significant influence or control over the entity.

The UK has already taken major steps to increase corporate transparency, with the introduction of the “people with significant control” (PSC) register, a public register of those who control UK companies. Now UK property is being brought into play in the battle against money laundering. It is hoped that the register will minimise opportunities for criminals to use anonymous shell companies to launder criminal proceeds via UK properties, and will make it easier for law enforcement agencies to track illegal funds.

The new register will apply to both existing and future property ownership, and to freehold and leasehold properties of more than 21 years. Overseas entities that have not been registered will not be able to charge or grant, let alone buy or sell, a long lease of UK property. Entities that already own UK property when the legislation comes into effect will be given a year to comply with its requirements, or to sell if they do not want to do so. At the end of the year, any such entities will be prevented from selling their property or from creating a long lease or charge if they have not registered, and a restriction will be put on the title accordingly.

Further, overseas entities which have not provided information about their beneficial owners to the UK’s Companies House will not be able to bid for UK government contracts. Bids for UK government contracts by overseas entities which fail to include information on the bidder’s beneficial ownership will be excluded and, if received, will be rejected as incomplete or non-compliant.

The proposals are also intended to apply across the UK, in England, Scotland, Wales and Northern Ireland. While Scotland has set forth similar proposals separately, the UK government indicates that it will work with the devolved administrations as the proposals develop.

The new register will be held by Companies House. Once registered, overseas entities will be given a registration number. The Land Registry will not register the title of an overseas company without a valid registration number. Anyone will be able to check the register free of charge.

The government has committed to publishing a draft bill this summer and introducing it in Parliament by next summer.

This will be a significant consideration for overseas companies investing in UK property or bidding for UK government contracts, so that the registration process does not end up causing delay, or preventing a purchase from being registered. Evidence of registration will need to be sought early on, and before the exchange of contracts.


Monday, March 19, 2018

Oman and the Law of the Sea: Part II

In October 2017, the Sultanate of Oman submitted a formal application to the United Nations to extend its continental shelf. The first article in this three-part series outlined the framework of the international Law of the Sea as relevant to Oman. This second installment outlines the international legal process involved when a country seeks to expand its marine territory.

While Oman’s formal submission marked the end of a decade-long process of exploration and research, it marked only the beginning of the process of review and determination by the United Nations Commission on the Limits of the Continental Shelf (the “Commission”), part of the United Nations Division for Ocean Affairs and Law of the Sea. Established in 1997, the Commission is neither a judicial nor a political body, but rather an advisory group that gives technical guidance to states seeking to expand their continental shelves. The advice given by the Commission is based on the technical and objective criteria set out in the UN Convention on the Law of the Sea (the “Convention”).

The Commission is comprised of 21 experts from the fields of geology, geophysics or hydrography, who are elected by state parties to the Convention. The Commissioners serve five-year terms and volunteer significant time to assess the scientific and technical validity of the applications and data submitted by each coastal state. Among the Commission’s current members is an Omani, Dr. Adnan Rashid Al-Azri. The Commission holds two sessions per year at the United Nations headquarters in New York.

The Commission’s purpose is to consider the documentation submitted by the coastal state and to make recommendations regarding the outer limits of the continental shelf. After the state submits its application, the Commission waits three months to begin review to give interested parties, such as bordering states, time to consider any responses. After the three-month period, the Commission meets with a delegation from the submitting state, during which the state presents its submission and answers any preliminary questions from the Commission. The Commission then appoints a sub-commission of seven members to carry out a detailed review. Commission members from the concerned coastal state or its bordering states may not sit on the sub-commission. The sub-commission then meets as many times as necessary to complete a full technical and scientific review, which is not constrained by any time limits. During this process, the sub-commission may request further information or clarification from the submitting state or from outside legal or technical experts. The sub-commission considers each of the criteria established by the Convention and determines whether the state has submitted data sufficient to lay claim to an extension of its continental shelf. After completing its review, the sub-commission drafts recommendations on the proposed limits and passes these along to the full Commission.

After in-depth consideration and discussion by the Commission during its biannual sessions, the Commission decides whether to adopt the sub-commission’s recommendations regarding the delineation of the relevant state’s continental shelf. The process of consideration, requests for more information, and reconsideration can take years, depending on the technical complexity of the determination. After the Commission makes a formal recommendation, it is then incumbent upon the applicant state to promulgate national law effectuating the Commission’s recommendations. If the state disagrees with the Commission’s recommendations, it can resubmit its claim to the Commission for a new set of recommendations.

Although the extension of a state’s continental shelf limits is a matter of sovereign state law, the need for the Commission’s consideration and recommendation is twofold. First, the assessment and determination of submarine geographical bounds is a complex scientific and technical process requiring expert investigation, information gathering, and data analyses, and the Commission serves as a vital resource for coastal states which may not otherwise have access to such expertise. Second, the Commission acts as a safeguard of what the Convention has termed the “common heritage of mankind” – the seabed, ocean floor, subsoil, and resources beyond the outer limit of the continental shelf.

Coastal states do not have an unlimited right to submit applications expanding their continental shelf. Rather, the Convention provides that each coastal state seeking to expand its continental shelf must submit an application within ten years of the Convention coming into force for the state in question. However, given the technical complexity and financial demands of gathering data and forming a submission, many countries pushed for an extension of that deadline, at least for developing countries. Collectively, the parties to the Convention decided that applicant states could satisfy the ten-year deadline by submitting preliminary findings on their outer limits, a description of the status of their progress, and an intended final submission date. This decision spurred a raft of new placeholder applications, making it likely that the Commission will be reviewing submissions and resubmissions for at least the next decade.

The Commission is restricted to giving advice to determine the outer limits of a state’s continental shelf, and by its own procedural rules is not permitted to influence any potential dispute related to the delimitation of the shelf between two or more states. All recommendations of the Commission are made without prejudice to maritime boundary delimitation between states themselves. As this is often a sensitive area, applicant states are permitted to classify as confidential any data and other material forming part of its application.

 An example of the sensitive and high-stakes nature of these issues can be seen in the outcry following the very first submission to the Commission, which was the Russian Federation’s 2001 claim over extensive portions of the Arctic Circle. This raised the ire and concern of countries such as Canada and Norway who also had claims over the Arctic but had not yet submitted applications to the Commission. Ultimately, the Commission rejected large portions of Russia’s claims over the Arctic and the contentious issue remains unresolved.

The third and final installment in this series will examine Oman’s recent submission to the Commission and will discuss the potential benefits to Oman of extending its continental shelf, which include the right to explore for oil and gas and other non-living resources.

Click here to read Oman and the Law of the Sea: Part I
Click here to read Oman and the Law of the Sea: Part III


Monday, March 12, 2018

U.S. Customs and Border Protection: Search of Electronic Devices

On 4 January 2018, the United States (“U.S.”) Customs and Border Protection (“CBP”) issued Directive No. 3340-049A superseding Directive 3340-049 to standardise procedures its officers use during border searches, which include searches of all persons entering the U.S. through airports (the “Directive”). Pursuant to the Directive, the CBP has authority to conduct “routine searches of the persons and effects of entrants [into the U.S. which] are not subject to any requirement of reasonable suspicion, probable cause, or warrant.” In effect, this means the CDP may conduct border searches of electronic devices, such as laptops, tablets, and mobile phones.

This article outlines why business travellers should be aware of the Directive, and sets out the steps a business traveller can take to protect information they store on their digital devices when entering the U.S.

Privileged material 
Entrants into the U.S. should be particularly aware of Section 5.2 of the Directive, which covers privileged material. Section 5.2 sets procedures for CBP officers to follow when encountering material asserted to be protected by the attorney-client privilege or the attorney work product doctrine. Officers should first clarify with the owner of the electronic device which files are specifically protected by a privilege. Officers cannot search any privileged material without first contacting the CBP Chief Counsel office and establishing a Filter Team, composed of both legal and non-legal CBP personnel, to assist in segregating privileged materials from other files.

Searches can be basic or advanced. Basic searches are those conducted without the aid of external equipment CBP personnel use to review, copy, or analyse the device’s contents. They should be conducted in the presence of the device’s owner unless there are safety concerns rendering the owner’s presence inappropriate. Advanced searches are searches requiring external equipment to review the device. They require reasonable suspicion of unlawful activity.

Once CBP officers complete their search of an electronic device, they must destroy any privileged materials that they have copied. Business or commercial information should be treated similarly and protected from unauthorised disclosure.

Business travellers 
Business travellers who are stopped by CBP while entering the U.S. may consider taking the following steps:

• insist that any basic searches be conducted in their presence;

• tell the CBP officers that they do not want the device to leave their sight;

• call a legal adviser if necessary to ensure compliance with the Directive;

• ask the purpose and authority for a border search;

• ask to report concerns and seek redress from the CBP, if necessary;

• ask for a receipt if a device is detained by CBP officers who are entitled to detain devices for up to five days; and

• enter their own passcode or encryption key into a device instead of divulging it to CBP officers.

If a business traveller has on them any privileged, confidential, or trade secret information contained on the device or devices subject to search by CBP officers, they should advise CBP personnel performing the search.

How can sensitive information be protected? 
In order to facilitate the protection of sensitive information, it may prove helpful to segregate privileged, confidential, or trade secret information to a single, clearly labeled folder or directory when traveling internationally, so that the information can be easily identified to CBP and treated in accordance with the Directive.

As the Directive requires entrants to provide log-in and password information, encryption or password protection will not be a useful tactic for protecting sensitive information. One possible method of protection is not to store any privileged materials on your electronic devices at all. Retaining privileged documents in a password-protected secure cloud server or a remote file-saving system ensures that CBP, when searching your device, cannot access any protected material.

Section 5.1 of the Directive permits officers to search “only the information that is resident upon the device and accessible through the device’s operating system or through other software, tools, or applications.” This means that CBP officers cannot access information that is solely stored remotely, and must either enable airplane mode or disable internet connectivity before searching a device. Any person travelling to the U.S. should themselves ensure their devices are in airplane mode, or insist that CBP personnel disable their devices’ connectivity before conducting a search. This both protects remote files and prevents downloading of harmful malware. Any remotely stored information that is synced with the device’s operating system is, however, accessible; only remote information that is not downloaded will be protected.

In an effort to respond to the evolving world of information technology, the Directive aims to enhance the transparency, accountability and oversight of electronic device border searches performed by CBP. Business travellers who frequently participate in international travel may wish to consider the scope of the Directive, especially if the traveller’s electronic device(s) contain confidential or sensitive work-related information.


Monday, March 5, 2018

Drafting Arbitration Clauses

It is common practice that commercial agreements contain clauses that provide for arbitration as the mechanism to resolve disputes.

There are a number of reasons why parties choose arbitration rather than court as the forum to resolve their disputes. One is that when parties from different countries enter into a contract, if a dispute arises they may not feel comfortable going to the court in the other party’s country. As an alternative, parties may choose arbitration as a neutral forum for resolving disputes. Another rationale for opting for arbitration rather than courts is that arbitration is a private dispute forum compared to courts which are public forums.

The most advantageous reason to include an arbitration clause in a contract is that arbitration awards are enforceable through the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). The Sultanate of Oman is a signatory to the New York Convention, which was ratified into Omani law by virtue of Sultani Decree 36/1998. Under the New York Convention an award rendered in any of the 157 countries that are a party to the New York Convention should be legally enforceable in all other countries that are a party to the New York Convention. There is no comparable convention for the enforcement of court judgments.

Unclear drafting 
One common problem that parties face when including arbitration clauses in contracts is that the clause may be drafted poorly which can lead to a considerable amount of time spent by lawyers fighting about the clause. In the worst case scenario, errors in arbitration clauses can lead to the clauses being unenforceable.

Several common problems appear in poorly drafted arbitration clauses; one is that an arbitration clause names an arbitration center or arbitral rules that do not exist. Another problem that frequently occurs is that part of the clause is omitted altogether, for example the name of the arbitration rules is missing or where the arbitration will take place is missing.

These problems can be easily avoided by carefully drafting clear arbitration clauses.

Key considerations when drafting your clause 
There are a number of key considerations that should be kept in mind when drafting every arbitration clause.

1. Whether the arbitration will be administered or ad hoc This is the first and most fundamental consideration parties should take into account when drafting their clauses. If parties opt for an administered arbitration, this means that an arbitration center, for example the International Chamber of Commerce (“ICC”), will oversee the arbitral procedure and facilitate the proceedings. If parties choose ad hoc arbitration, this means that there will be no arbitration center in place to facilitate the proceedings and it will be up to the parties to decide on the dispute resolution procedures. Ad hoc arbitration will often be less expensive than administered arbitration but will lack an arbitration center guiding the proceedings.

2. Which arbitration rules will be used? 
There are various arbitration centers that administer arbitrations in the region and each has its own set of rules. When choosing a set of rules, only the arbitration center that has published those rules should administer arbitrations under those rules.***

Most regional centers typically administer arbitrations in the city where they are based; in comparison, larger arbitration centers such as the ICC and the London Court of International Arbitration administer arbitrations in cities throughout the world.

3. Where will the arbitration take place? Parties should choose a place that is mutually convenient for the parties involved and is located in a country that is a signatory to the New York Convention to ensure enforceability of the award.

4. How will the tribunal be selected? 
Tribunals are comprised of one or three arbitrators. Parties often include in their arbitration clause the number of arbitrators and how they will be selected. If parties fail to include this in their clauses, the default procedures included in the rules that the parties have selected will provide a default number of arbitrators and a procedure for their selection. When a tribunal is comprised of one arbitrator, the usual practice is that parties will have a certain number of days to agree on the arbitrator; if they fail to do so, an arbitration center will make the appointment for the parties. When a tribunal is comprised of three arbitrators, the most common procedure it that each party will appoint an arbitrator and the two party-appointed arbitrators will appoint the third.

5. Language of the arbitration
In particular in the Middle East, parties should give due consideration to the language of the arbitration and ensure that they include the language in each arbitration clause in order to avoid having the arbitration in a language with which they are not comfortable. For example, the default language under the rules of the Abu Dhabi Commercial Conciliation and Arbitration Center (“ADCCAC”) is Arabic unless the parties agree otherwise.

Takeaway points to consider when drafting your arbitration clauses 
• Parties should carefully draft clauses to ensure that they do not contain any errors.
• Parties should ensure that they have taken into account the considerations listed above when drafting their arbitration clauses.
• Parties may want to utilise Model Clauses published by arbitration centers.

***For example, Article 1(2) of the ICC Rules states that the ICC "is the only body authorized to administer arbitrations under the Rules."

Click here to read Drafting Arbitration Clauses - Part II: Ad Hoc or Administered Arbitration
Click here to read Drafting Arbitration Clauses - Part III