Mauritius: Launching of E-Judiciary System

The E-Judiciary System will be launched on 1 April 2013 by the Honourable Chief Justice,  in presence of eminent personalities.

eJudiciary Mauritius is one of the most advanced electronic legal filing systems in the world – and the first in Africa.  Based on the well-proven Electronic Filing System used in Singapore’s courts, eJudiciary Mauritius features numerous refinements tailored specifically for needs of legal practitioners in Mauritius. 

The introduction of the Judiciary electronic filing system for Court documents will transform the delivery of justice in Mauritius. 

For more than two centuries, Mauritius Courts enjoy an enviable reputation throughout Africa and beyond for its judicial standards. But when cases can take anywhere from two to five years to be resolved, these standards are seriously compromised. As the old adage goes, “Justice delayed is justice denied.” Recognising the importance of keeping up with 21st Century levels of litigation, the Judiciary has taken the step to harness modern technologies with the implementation of the eJudiciary Mauritius. The efficiencies it provides will not only speed up court processes and significantly reduce the time and costs involved in lodging a commercial case in Mauritius, they will also enable legal practitioners to get more done in less time and so handle a greater case load.

The eJudiciary system will enable the Judiciary of Mauritius to move from a manual system to an automated, paperless one, eliminating the need for physical storage space. The integrated platform enables seamless case filing, notary services and legal research – minimising the potential of human error and time spent on these processes.

Multinational corporations and the profit-sharing lure of tax havens

In this new Occasional Paper, Petr Jansky, Economist, Charles University in Prague and Alex Prats, Principal Economic Justice Policy Advisor at Christian Aid, explore the links between multinational corporations (MNCs), tax avoidance and tax havens.

Focusing on 1,500 corporations operating in India, they find out that MNCs with tax haven links report less profits and pay less in taxes than MNCs with no such links.

It’s time to make multinationals pay their fair share of tax, campaigners urge

The international system for taxing multinationals is broken and out of date, with many loopholes which allow unscrupulous companies to avoid paying their fair share - as the recent Google, Amazon and Starbucks scandals have shown. So say 58 campaigning organisations today, in a response to the OECD’s February report Addressing Base Erosion and Profit Shifting.

Alex Prats, Christian Aid’s Principle Economic Justice Adviser, said: ‘The OECD identifies aggressive tax planning by multinationals as a fundamental cause of base erosion, which includes tax avoidance and evasion. But countries such as the UK, Germany, France and the US have only asked for solutions when their own economies have felt the consequences. For many years, however, unfair tax rules have been seriously undermining efforts to tackle poverty in developing countries.

‘The current tax rules, which were written 80 years ago, assume that the different entities than form multinationals exchange goods and services as if they were mutually independent. But this is a fiction. These different subsidiaries follow an overall business strategy. The truth is that the tax system has not kept pace with the way multinationals operate.

‘So we agree with the OECD, that the fundamentals of the current tax system need revisiting. And because this is a global problem that requires a global solution, developing countries cannot be excluded from the process. We need tax justice for everyone, not just for rich countries. So far, the OECD seems not to have understood. We find this unacceptable.’

The new briefing paper, No More Shifty Business, calls on the OECD and G20 to work with the United Nations Tax Committee and governments in developing countries to define new rules for the taxation of multinationals. 

The new rules must ensure that each country is able to tax a fair share of the profits earned by multinationals operating within its territory. They should also treat multinationals as what they really are: complex structures bound together by centralised management, functional integration and economies of scale.

Finally, the briefing argues that multinationals must pay their taxes where their economic activities and investments are actually located, rather than in jurisdictions where their presence is fictitious and explained by immoral tax avoidance strategies.

Alex Prats added: ‘If, as the OECD states, the current system is broken and does not reflect the way that businesses operate in today’s globalised world, and if loopholes are exploited by some the expense of everyone else, then the rules must be changed. Individual countries acting alone cannot solve the problem.

‘The current tax system raises serious issues of fairness and compliance. Aggressive tax planning by unscrupulous multinationals hinders development and increases inequality. So we are calling on the OECD, G20 and UN Tax Committee to work together and find an alternative that reflects how multinationals actually operate today - and to make them pay their fair share of tax in all countries where they operate.’

No more shifty business

The current international tax system is broken and out of date. In this joint policy brief, 58 organisations and networks around the globe are asking the OECD and the G20 to cooperate with developing countries to change the rules that currently allow multinational corporations to avoid paying their fair share of tax.

This is the response of the civil society to the OECD’s report, 'Addressing base erosion and profit shifting'.

Download Response Paper

FSA: Methodology note on calculating capital pressures

In November 2012 the interim Financial Policy Committee recommended that the FSA takes action to ensure that the capital of UK banks and building societies reflects a proper valuation of their assets, a realistic assessment of future conduct costs and prudent calculation of risk weights. Where such action revealed that capital buffers need to be strengthened to absorb losses and sustain credit availability in the event of stress, the FSA should ensure that firms either raise capital or take steps to restructure their business and balance sheets in ways that do not hinder lending to the real economy.

In responding to the recommendation the FSA has undertaken analysis to assess incremental capital requirements to reflect a proper valuation of assets, a realistic assessment of future conduct costs and prudent calculation of risk weights. The exercise covered large institutions, firms with significant portfolios of higher-risk loans and firms that calculated risk weights using model-based approaches. We describe below the methodologies we have followed in making our assessments.  

Proper valuation of assets

Valuation assessments were made across a number of the largest and riskiest banking book loan portfolios on firms’ balance sheets.  Assets included were: UK commercial real estate loans; portfolios in vulnerable euro-area periphery countries; plus other material portfolios identified as potentially having significant embedded expected loss not commensurate with expected revenue.  We adopted a “base testing” approach assessing expected future losses over a three-year period using data provided by firms - this goes beyond the usual deduction from capital where one year modelled expected loss exceeds accounting provisions. Our approach considered both the adequacy of provision coverage for defaulted loans, and the expected losses that were likely to emerge over a three-year period. Our analysis did not constitute a stress test but was inherently conservative as it gave no credit for future income that firms were likely to generate from these portfolios.  In making our assessment, we have held risk-weighted assets (RWAs) constant and not made any allowance for reduced requirements following the crystallisation of additional losses and the consequent reduction in exposures.  Although this is a conservative approach, we do not believe it results in materially over-stated RWAs.

Additionally, given the size of firms’ UK retail mortgage portfolios and elevated levels of forbearance, a review of the adequacy of firms’ provisions for forborne loans was also undertaken.

In aggregate, £1.3 trillion of assets were reviewed, representing approximately 50% of firms’ gross banking book loans and advances and covering - in the FSA’s judgement - the significant areas of potential valuation uncertainty in firms’ balance sheets.

Our assessment of UK CRE assets covered approximately £125bn in gross loans across the UK banks and building societies, and considered the adequacy of provision coverage of impaired assets, the migration of forborne assets to default, portfolio loss rates and firms’ own loss forecasts. Based on these factors a judgement was made on the expected losses that could emerge over three years in excess of existing provisions at December 2012.

A similar approach was also taken for significant portfolios in the euro-area periphery countries and other portfolios identified as being vulnerable to losses greater than provisions (described above).

Forbearance practices, if not managed effectively, have the potential to suppress underlying losses.  The FSA has previously issued guidance  regarding good and poor practices across the UK retail mortgage industry. The adequacy of provisions held in respect of forborne retail mortgage loans was re-examined as part of this exercise. The analysis was conducted at a detailed level, with data split by LTV band and arrears status for each firm.  The risk exists that firms may not reflect the additional credit risk attached to accounts in forbearance and therefore may not provide a complete picture of the credit risk profile within portfolios. In addition, to the extent that loans subject to forbearance arrangements have not been separated from the general up-to-date pool for the purposes of impairment assessment, the impact of this additional credit risk may not be fully reflected in a firm's impairment calculation.

In addition to the banking book assessment, FSA also considered the trading book. For some time, the FSA has asked firms to report a prudent valuation adjustment (PVA) that adjusts the accounting valuation for assets and liabilities held at fair value on firms’ balance sheets to comply with regulatory valuation standards that place greater emphasis on the inherent uncertainty around the value at which positions could be exited. As part of this exercise, we conducted a high-level review of a sample of firms’ policies and procedures in respect of determining the PVA. Adjustments were applied to compensate for methodological weaknesses thereby seeking to address the extent to which these assets’ accounting valuations are overstated relative to a more prudent valuation approach.  Further work is being undertaken by the FSA and internationally, and this adjustment is an interim measure while we wait for the conclusions of more detailed studies.

In aggregate, having taken into account capital deductions made for regulatory expected loss,  adjustments totalling around £30bn were believed appropriate to reflect the concerns identified across both banking book loans and fair-valued positions.

Realistic assessment of future conduct costs

The FSA examined the potential future costs that firms might incur over a three year period as a result of fines around the setting of the London Interbank Offered Rate (LIBOR) and redress payments linked to the mis-selling of payment protection insurance (PPI) and interest rate swaps.

The estimates for PPI redress costs were based on an assessment of future pay-out amounts based on historic experience and trends.  Associated administrative costs were also considered. Interest rate swap redress rates were estimated based on details of product sales, including the product type, the sophistication of customers and costs to remediate mis-sales by product category.

Provisions already held by firms were taken into account in arriving at an estimate of around £10bn for costs not yet provided for.

Prudent calculation of risk weights

Risk weights applied to corporate and institutional loans, and UK mortgages were examined as these represent the majority (approximately 70%) of assets for which firms use models to determine risk weights in the banking book.  For UK mortgages, the FSA calculated the impact of a risk weight floor to reflect that these loans will always carry some risk, even if recent loan losses have been low.  For corporate and institutional loans, the FSA applied  a floor to the minimum loss that firms should expect to suffer in the event of a borrower defaulting on a loan.  

Trading book risk weights have not been assessed as part of this exercise.  The FSA will extend its examination of trading book risk weightings through the use of further hypothetical portfolio exercises.  A Basel led trading book review will determine the long term framework for trading book capital requirements.

In aggregate, the FSA estimated that the above two adjustments would increase the firms’ risk-weighted assets by around £170bn.  At a capital ratio of 7% of risk-weighted assets, in line with the framework adopted by the FPC, this would equate to an increased core equity Tier 1 capital requirement of around £12bn.  This is in addition to the impact of recently introduced sovereign risk loss given default floors and UK CRE slotting.

Aggregate Impact on firms’ resilience

Applying the judgements made under the three areas above to firms’ current capital positions would reduce aggregate capital levels by around £50bn.

Some firms, even after the adjustments described above, have capital ratios in excess of the FPC’s recommended 7% of risk-weighted assets using Basel III definitions; for those that do not, the aggregate capital shortfall at the end of 2012 was around £25bn.

US: 2013 International Narcotics Control Strategy Report

The 2013 International Narcotics Control Strategy Report (INCSR) is an annual report by the Department of State to Congress prepared in accordance with the Foreign Assistance Act. The two-volume report offers a comprehensive assessment of the efforts of foreign governments to reduce illicit narcotics production, trafficking and use, in keeping with their international obligations under UN treaties. The Report also examines anti-money laundering policies and practices and related financial crimes. The Drug and Chemical Control section covers the efforts of 92 countries and jurisdictions. The second section, Money-Laundering and Financial Crimes, describes the efforts of the 65 Major Money Laundering Countries to implement strong anti-money laundering and counterterrorist financing regimes.

Volume I covers drug and chemical control activities. 

Volume II covers money laundering and financial crimes.

Mauritius and Zambia sign Agreement under the Joint Permanent Commission of Cooperation

The Government of Mauritius and the Republic of Zambia signed an agreement this morning in Port Louis with regard to the agreed areas of cooperation between the two countries during the 2nd session of the Zambia-Mauritius Joint Permanent Commission of Cooperation held this week in Mauritius.

The signatories were the Vice-Prime Minister, Minister of Finance and Economic Development, Mr Xavier-Luc Duval and the Minister of Foreign Affairs of Zambia, Dr Effron C. Lungu. The Minister of Foreign Affairs, Regional Integration and International Trade, Dr Arvin Boolell was also present.

During the 2nd session of the Zambia-Mauritius Joint Permanent Commission of Cooperation, discussions focused on enhancing bilateral relations between the two countries as regards trade and business facilitation and joint ventures in various sectors of the economy as well as in the development of new spheres of cooperation between both countries.

Speaking at the signing ceremony, the Vice-Prime Minister, Minister of Finance and Economic Development, Mr Xavier-Luc Duval, highlighted the importance that Mauritius has attached in the development of the African continent with the signing of the agreed areas of cooperation with Zambia. According to VPM Duval, Mauritius is fortunate owing to its strategic position near Africa, which he qualified as the future emerging market. He added that the agreement demonstrates the commitment of Mauritius to further collaborate with Zambia in various sectors which can be of mutual benefits to both countries and that they can learn from each other while promoting cross-border cooperation.

VPM Duval also announced that Mauritius and Zambia are also finalising two MoUs with regards to increased services and a bilateral air services which will be signed very soon between the two countries.

For his part, the Minister of Foreign Affairs of Zambia, Dr Effron C. Lungu, reiterated the dedication of his country into implementing joint projects with Mauritius so as to take the relationship between the two countries to new heights. Mr Lungu also underpinned the success of the Joint Permanent Commission of Cooperation between Zambia and Mauritius, which he said has confirmed the synergies in the alliance between the two countries. He also called for a coordinated approach that will provide continuous review and monitoring as regards the agreed areas of cooperation and that both countries should adhere to an agreed time frame for the smooth implementation of the projects.

The 2nd session of the Zambia-Mauritius Joint Permanent Commission of Cooperation will help both countries to benefit from mutual cooperation in the following fields: facilitation of cross-border trade and investment, financial services, economic integration, customs issues, transport, diplomatic relations, trade and industry, agriculture, environmental protection, fisheries sector, cultural cooperation, gender, social security, ICT, tourism, health, training, education, science and technology, youth and sports, energy and water, housing, legal matters and employment and labour issues.

It will be recalled that the 3rd session of the Joint Permanent Commission of Cooperation between Mauritius and Zambia would be held in 2015 in Zambia.

Cayman Creates Incorporated Cell Companies

A framework for incorporated cell companies in the insurance sector was created in the Cayman Islands on 25 March, when the Legislative Assembly passed an amendment to allow the registration of portfolio insurance companies, or PICs, within segregated portfolio company insurers (SPCs).

PICs offer four main advantages over existing SPCs, which also are offered in the Cayman Islands, said the Minister for Financial Services, the Hon. Rolston Anglin, who presented the Insurance (Amendment) Bill 2013 to the Legislative Assembly.

1. A PIC is a separate legal entity, whereas a segregated portfolio of an SPC is not. This means the PIC may have greater ease in dealing with counterparties than a segregated portfolio of an SPC.
2. Unlike a segregated portfolio of an SPC, a PIC can contract with another cell of its controlling SPC, or with the SPC itself.
3. Because each PIC is a separate legal entity, there should be less risk of inadvertent comingling of assets.
4. A single PIC can be wound up without affecting its controlling SPC or other PICs; this is not possible within an SPC structure.

Minister Anglin said that PICs compete with incorporated cell companies (ICCs) that are offered in other captive domiciles, and with structures such as the Delaware Series LLC. The PIC model is also more efficient and cost-effective than introducing standalone ICC legislation.

And since PICs were created through an amendment to the Insurance Law, 2010, Cayman has positioned this vehicle to operate within fundamental and well-understood principles of corporate law, and to meet international standards. 

‘PICs do not involve the highly creative and untested jurisprudence involved in an ICC’, Minister Anglin said. ‘Furthermore, because they will take on the form of an exempted company they will be subject to the same legal requirements as any exempted company’.

The Bill also creates new class of insurer known as Class B(iv).

Minister Anglin thanked the Cayman Islands Monetary Authority, which regulates the country’s financial services industry; and the joint public-private sector Financial Services Legislative Committee, for their work on drafting the amendment.

Mauritius: Offshore Fund / Global Scheme / Expert Fund

An offshore fund may be established as a Collective Investment Scheme or Closed-end Fund in Mauritius. 

A Collective Investment Scheme (“CIS”) is defined under the Securities Act 2005 (“SA 2005”) as a scheme approved by the Financial Services Commission (FSC) in Mauritius:

• whose sole purpose is the collective investment of funds in a portfolio of securities, or other financial assets, real property or non-financial assets as may be approved by the FSC;


• whose operation is based on the principle of diversification of risk;


• that has the obligation, on request of the holder of the securities, to redeem them at their net asset value, less commission or fees; and


• where the participants do not have day to day control over the management of the property, whether or not they have the right to be consulted or to give directions in respect of such management.

• includes closed-end funds whose shares or units are listed on a securities exchange; but


• excludes such schemes as are specified in Part II of the Schedule SA 2005.

A Closed-end Fund means an arrangement or a scheme, other than a CIS, whose object is to invest funds, collected from investors through an offer or from sophisticated investors, in a portfolio of securities, or in other financial or non-financial assets, or real property.

A "Global scheme" is defined under the Securities (Collective Investment Schemes and Closed-end Funds) Regulations 2008 (“Regulations”) as a company or any other legal entity approved by the FSC, holding a Category 1 Global Business Licence (GBL 1) and authorized to carry out activities falling within the definition of a Collective Investment Scheme.

Conditions applicable to Global schemes

The FSC may grant an authorisation for a Global scheme provided that: 

1. information relating to the CIS Manager and the custodian as prescribed in the Regulations is submitted with the application for authorisation;


2. a CIS administrator [e.g. OCRA (Mauritius) Limited] with a place of business in Mauritius is appointed;


3. the accounting and reporting services are carried out by the CIS Manager, or the CIS Administrator of the scheme, having a place of business in Mauritius.


4. The prospectus or other offering document contains the following statements in a prominent position:
   
   "Investors in [name of the Global scheme] are not protected by any statutory compensation arrangements in Mauritius in the event of the fund's failure."
   
   "The Mauritius Financial Services Commission does not vouch for the financial soundness of the fund or for the correctness of any statements made or opinions expressed with regard to it."


5. a certified copy of the prospectus or other offering document filed in a jurisdiction where the collective investment scheme is regulated or exempted from regulation is filed with the FSC;


6. information is provided on the CIS Manager and the custodian, including name and registered addresses and where regulated, if applicable;


7. information is given on whether the collective investment scheme is regulated, or shall be subject to regulation, in any jurisdiction and if so, a copy of the authorisation or similar consent of the regulator and if not, indication on what basis it is exempted from securities regulation in other jurisdictions;


8. adequate measures are taken to prevent money laundering and financing of terrorism and provided that the FSC is satisfied that these measures meet legislative requirements.

An authorisation under section 97(5) SA 2005 may be granted subject to such terms and conditions the FSC considers necessary or desirable for the protection of participants.

Subject to FSC approval, a Global scheme may appoint and retain a CIS Manager and/or a custodian established in a foreign jurisdiction.

An “Expert Fund” is defined as a fund which is only available to expert investors. A Collective Investment Scheme (“CIS”) may apply to the Financial Services Commission (“FSC”) under the Securities (Collective Investment Schemes and Closed-end Funds) Regulations 2008 (“Regulations”) for authorisation as an expert fund.

Such application must include the following documents / information:

• constitutive document of the scheme;
• measures taken to prevent money laundering and financing of terrorism;
• latest audited financial statements;
• a copy of the offering document given to potential investors; and
• if applicable, information on the CIS manager as requested in regulation 6.

Conditions applicable to an Expert Fund

1. An expert fund shall only be available to expert investors.
2. An expert fund may appoint a manager who, where appointed, shall be the holder of:
   
   (a) a CIS manager licence; or
   
   (b) a licence issued by a regulatory body in a jurisdiction having comparable regulation as Mauritius for investor protection (e.g. FSA in UK or SEC in US)
   
   
3. The CIS manager of an expert fund need not be resident in Mauritius.
4. The Board of the fund or the CIS manager where appointed must satisfy itself that the fund is and continues to be managed in accordance with the fund’s constitutive documents.
5. The Board of the fund, or the CIS manager where appointed, shall be responsible for ensuring that the provisions of these Regulations applicable to expert funds are complied with.
6. The expert fund shall accept as investors in the fund, only such persons as the Board or CIS manager where appointed is satisfied are expert investors.
7. The offering document or any other similar document of an expert fund shall:
   
   (a) contain a statement to the effect that the expert fund shall be available only to expert investors,
   
   (b) contain in a prominent position, the definition of an expert investor; and
   
   (c) shall have the following statements in a prominent position -
   
   "Investors in [name of the expert fund] are not protected by any statutory compensation arrangements in Mauritius in the event of the fund's failure."
   
   "The Mauritius Financial Services Commission does not vouch for the financial soundness of the fund or for the correctness of any statements made or opinions expressed with regard to it."
8. In accordance with section 30 of the Financial Services Act 2007 the audited accounts of the expert fund shall be filed by the scheme, the CIS manager or the CIS Administrator as appropriate.

Expert Investor

An “expert investor” means-

(i) an investor who makes an initial investment, for his own account, of no less than US$ 100 000; or

(ii) a sophisticated investor as defined in the Securities Act 2005 or any similarly defined investor in any other securities legislation (e.g. an accredited investor under US federal securities laws)

Exemptions for an Expert Fund

An expert fund, subject to authorisation from the FSC, shall be exempt from the provisions of the Regulations except for regulations 78 to 81 and Part I and XII.

Listing on the Stock Exchange of Mauritius

A Global Scheme/Closed-end Fund may apply to be listed on the Stock Exchange of Mauritius (SEM). The SEM charges a highly competitive initial listing fee of US$1,500 and an annual fee of US$1,500 for global funds.

A Global Scheme/Closed-end Fund, after admission to listing, must comply with the ongoing obligations of the SEM, as specified under Chapter 16 of the Listing Rules

DLA Piper - Data Protection Laws of the World Handbook: Second Edition

The second edition of the Data Protection Laws of the World Handbook offers a quick overview of those aspects of data protection law that have the most practical significance to businesses, including: 

• International data transfer restrictions
• Security obligations
• Breach notification requirements, and
• Enforcement, an important consideration in assessing any jurisdiction's risk.

MONEYVAL carries out evaluation of anti-money laundering in the Cypriot banking sector

MONEYVAL will participate in an independent evaluation of the implementation of the anti-money laundering framework in Cypriot financial institutions, alongside a private international audit firm.

MONEYVAL has responded positively to the invitation of the Chairman of the Eurogroup Working Group (on behalf of the Troika institutions) to undertake an evaluation of Customer Due Diligence (CDD) measures in the Cypriot banking sector to assist the decision-making process on Cyprus's request for financial assistance from the Euro area.

This is an exceptional assessment which MONEYVAL has agreed to undertake outside its normal cycles of mutual evaluation. It will focus exclusively on the effectiveness of Customer Due Diligence measures in the banking sector alone.

Eurogroup Statement on Cyprus

The Eurogroup has reached an agreement with the Cypriot authorities on the key elements necessary for a future macroeconomic adjustment programme. This agreement is supported by all euro area Member States as well as the three institutions. The Eurogroup fully supports the Cypriot people in these difficult circumstances.

The programme will address the exceptional challenges that Cyprus is facing and restore the viability of the financial sector, with the view of restoring sustainable growth and sound public finances over the coming years.

The Eurogroup welcomes the plans for restructuring the financial sector as specified in the annex.

These measures will form the basis for restoring the viability of the financial sector. In particular, they safeguard all deposits below EUR 100.000 in accordance with EU principles.

The programme will contain a decisive approach to addressing financial sector imbalances. There will be an appropriate downsizing of the financial sector, with the domestic banking sector reaching the EU average by 2018. In addition, the Cypriot authorities have reaffirmed their commitment to step up efforts in the areas of fiscal consolidation, structural reforms and privatisation.

The Eurogroup welcomes the Terms of Reference for an independent evaluation of the implementation of the anti-money laundering framework in Cypriot financial institutions, involving Moneyval alongside a private international audit firm, and is reassured that the launch of the audit is imminent. In the event of problems in the implementation of the framework, problems will be corrected as part of the programme conditionality.

The Eurogroup further welcomes the Cypriot authorities' commitment to take further measures.

These measures include the increase of the withholding tax on capital income and of the statutory corporate income tax rate. The Eurogroup looks forward to an agreement between Cyprus and the Russian Federation on a financial contribution.

The Eurogroup urges the immediate implementation of the agreement between Cyprus and Greece on the Greek branches of the Cypriot banks, which protects the stability of both the Greek and Cypriot banking systems.

The Eurogroup requests the Cypriot authorities and the Commission, in liaison with the ECB, and the IMF to finalise the MoU at staff level in early April.

The Eurogroup notes the intention of the Cypriot authorities to compensate potential individual victims of fraudulent practices, in line with established legal and judicial procedures, outside the programme.

The Eurogroup takes note of the authorities' decision to introduce administrative measures, appropriate in view of the present unique and exceptional situation of Cyprus' financial sector and to allow for a swift reopening of the banks. The Eurogroup stresses that these administrative measures will be temporary, proportionate and non-discriminatory, and subject to strict monitoring in terms of scope and duration in line with the Treaty.

Against this background, the Eurogroup reconfirms, as stated already on 16 March, that – in principle - financial assistance to Cyprus is warranted to safeguard financial stability in Cyprus and the euro area as a whole by providing financial assistance for an amount of up to EUR 10bn. The Eurogroup would welcome a contribution by the IMF to the financing of the programme. Together with the decisions taken by Cyprus, this results in a fully financed programme which will allow Cyprus’ public debt to remain on a sustainable path.

The Eurogroup expects that the ESM Board of Governors will be in a position to formally approve the proposal for a financial assistance facility agreement by the third week of April 2013 subject to the completion of national procedures.

Annex

Following the presentation by the Cyprus authorities of their policy plans, which were broadly welcomed by the Eurogroup, the following was agreed:

1. Laiki will be resolved immediately - with full contribution of equity shareholders, bond holders and uninsured depositors - based on a decision by the Central Bank of Cyprus, using the newly adopted Bank Resolution Framework.
2. Laiki will be split into a good bank and a bad bank. The bad bank will be run down over time.
3. The good bank will be folded into Bank of Cyprus (BoC), using the Bank Resolution Framework, after having heard the Boards of Directors of BoC and Laiki. It will take 9 bn Euros of ELA with it. Only uninsured deposits in BoC will remain frozen until recapitalisation has been effected, and may subsequently be subject to appropriate conditions.
4. The Governing Council of the ECB will provide liquidity to the BoC in line with applicable rules.
5. BoC will be recapitalised through a deposit/equity conversion of uninsured deposits with full contribution of equity shareholders and bond holders.
6. The conversion will be such that a capital ratio of 9 % is secured by the end of the programme.
7. All insured depositors in all banks will be fully protected in accordance with the relevant EU legislation.
8. The programme money (up to 10bn Euros) will not be used to recapitalise Laiki and Bank of Cyprus.

The Eurogroup is convinced that this solution is the best way forward for ensuring the overall viability and stability of the Cyprus financial system and its capability to finance the Cyprus economy.

Mauritius: Enforcement Authorities sign MoU for smooth implementation of the provisions under the Asset Recovery Act

A Memorandum of Understanding (MoU) was signed this morning in Port Louis by the Mauritius Revenue Authority (MRA), the Enforcement Authority (pursuant to section 4(1) of the Asset Recovery Act 2011) at the office of the Director of Public Prosecutions (DPP) and the Financial Intelligence Unit (FIU).

The aim of the MoU is to ensure smooth implementation of the provisions of the Asset Recovery Act and to enable faster exchanges of information and more effective cooperation between the enforcement authorities as regards assets recovery which are proceeds or instrumentalities of crimes.

Addressing the ceremony, the Director of Public Prosecutions, Mr Satyajit Boolell, highlighted the role of the Asset Recovery which is a new instrument to fight criminals whose motive is to obtain money and hide the money by means of assets through different schemes to get the money out of the reach of the enforcement agencies. Mr Boolell further said that some 90 cases have already been referred to the Enforcement Authority since its coming into operation in 2012 and such cases, he added, involved millions of rupees which have been deprived from the authorities at the expense of the law abiding citizens. On this score, he warned that fraudulent activities at the cost of the society are unacceptable. 

For his part, the Director General of the MRA, Mr Sudhamo Lal, lauded the initiative of the enforcement authorities into entering the MoU which according to him, will set the path for greater collaboration and exchange of information essential in helping the Enforcement Unit at the DPP to successfully bring proceedings before the Supreme Court to recover assets. Mr Lal, further pointed out that very soon the MRA will also sign a MoU with the Police Department for collaboration in the suppression of customs offences, illicit drug trafficking, money laundering and other transnational crimes as well as to enhance the effectiveness of the Police and the MRA in areas of protection of society and the national security of the State.

As for the Director of the Financial Intelligence Unit, Mr Dev Bikoo, he reiterated the role of the FIU from the prevention to the detection of financial crimes which is being done in a fairly manner and added that the FIU is also one of the leading unit in the African region where there is a comprehensive framework to combating financial crimes. According to Mr Bikoo, there should be a system to manage and monitor the MoU and see that it is working efficiently. So far the FIU has signed 21 MoUs with various countries, he added.

Jersey Retains Position as Top Offshore Finance Centre

Jersey has retained its top spot as the highest rated offshore jurisdiction in the latest Global Financial Centres Index (GFCI) and is the only offshore centre to feature in the top 30 finance centres around the world.

Jersey is now placed 28th in the competitive rankings, which are published every six months. The 13th edition of the Index has ranked Guernsey in 31st place, the Cayman Islands in 41st and the Isle of Man in 43rd. London remains number one, followed by New York, Hong Kong and Singapore.

Particularly strong performances from a number of major city locations that have jumped up the rankings, such as Paris, Vienna and Kuala Lumpur, have impacted Jersey’s previous GFCI 12 position (20th). 

However, Jersey has increased its overall rating in the Index to now sit just behind Melbourne, Paris and Munich and ahead of Oslo and Qatar.

The GFCI, launched in 2007, was designed as a barometer to track movements in the competitiveness of financial centres around the world.

Geoff Cook commented: “In the last eight consecutive Indexes, Jersey has been the highest rated offshore jurisdiction. It is encouraging that Jersey continues to maintain such a high ranking, ahead not only of all the main offshore competitors, but also above a number of financial centres in EU jurisdictions, such as Malta and Dublin.

“Recent market conditions and a remarkable period of regulatory change have presented significant challenges for offshore centres and the Crown Dependencies in particular. This is reflected in the latest rankings, and in the number of onshore city centres moving up the rankings. While this is a reminder of just how competitive the market is for finance centres globally, the fact that Jersey’s rating has increased yet again is an indication that it continues to perform well and is still perceived very positively by others in the marketplace.”

Global Financial Centres Index 13 (GFCI 13)

Today the Z/Yen Group publishes the thirteenth Global Financial Centres Index (GFCI 13), sponsored by the Qatar Financial Centre Authority and rating 79 financial centres on a scale of 1 to 1,000.

The main stories are:

London, New York, Hong Kong and Singapore remain the top four centres. Hong Kong and Singapore are now only two points apart. There is a 48 point spread between London in first place and Singapore in fourth and then a gap of 3 points to Zurich in 5th place.

Zurich and Geneva confirm their position in the GFCI top ten. Frankfurt and Paris rise significantly and have closed the gap on London a little. Luxembourg, Vienna, Milan and Rome also show improvements.

Other European centres are still affected by the Eurozone crisis. Lisbon, Reykjavik, Budapest and Athens decline, and remain at the bottom of the GFCI rankings.

All Asian financial centres except Beijing see their ratings improve. Kuala Lumpur, Singapore and Tokyo experience the strongest rises in the region.

American centres see their ratings improve although Chicago, Toronto and San Francisco fall slightly in the ranks. Boston enters the GFCI top ten, climbing to 8th place. Sao Paulo and Rio de Janeiro are now in the GFCI top 50 and Buenos Aires makes a significant gain.

Offshore centres continue to gain ground. Jersey and Guernsey remain the leading centres followed by Monaco which ranks 35th, up 25 places.

Mark Yeandle, Associate Director of the Z/Yen Group and the leading author of the GFCI, said:

"We have seen an overall increase in average ratings since July 2012 - this signifies an increase in confidence in financial centres."

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Barclays Mauritius: If Renminbi is your cup of tea

Making cross border payments to China doesn't need to be difficult, which is why you can now settle your transactions in Renminbi (RMB).

To find out more about this convenient trading solution, visit your nearest branch or call us on 402 1000

Mauritius - Penalty Points System: Deadline for Collecting Driving Licence Counterpart Extended to 28 March 2013

The deadline for the collection of the Driving Licence Counterpart (DLC) by Mauritian drivers, has been extended to Thursday 28 March 2013, as confirmed by Inspector Bijaye Rambhursy of the Traffic Branch, Line Barracks. The reason is that only 354,892 licence holders, including those in Rodrigues, have collected their DLC as at yesterday afternoon.

According to the authorities, there are several reasons why approximately 300,000 licence holders have yet to collect their DLC. These are mainly due to the following: many licence holders are elderly persons and have thus stopped driving; others, mainly students are studying abroad, and could not return to collect the DLC; still, others, especially learners, were apparently unaware of the need to collect the document, while some drivers said they were too busy and had no time to collect it, while others simply “forgot” to do so.

It must be stressed that for those studying or working abroad who are unable to make it to Mauritius anytime soon, provisions will be made for them exceptionally to collect their DLC upon their return. However, they must produce documentary evidence to the effect that they were either studying or working abroad.

Zero Point Zero Traka

The Penalty Points System (PPS), introduced with the adoption of the Road Traffic (Amendment) Bill last year, will imminently be implemented by the authorities. As soon as the law is proclaimed, it will be an offence if a driving licence holder does not have both the driving licence and its counterpart in possession. Both documents henceforth constitute the driving licence.The distribution of the DLC was effected through 21 police stations in Mauritius and 2 police stations in Rodrigues, between 21 January and 21 March 2013. The authorities have adopted the slogan “Zero Point Zero Traka” to sensitise more effectively motorists and licence holders on the new system.

The operation of a PPS is meant to deter the commission of road traffic offences by assigning penalty points on conviction for certain road traffic offences. With the introduction of the PPS, drivers failing to observe the road codes will be severely reprimanded.

As per the new legislation, the DLC has to be annexed to the licence. It is in the form of a paper where information such as penalty points, date of offence, fine amount, disqualification period, date of expiry of penalty points, offence code, etc., are inscribed. Moreover, the Traffic Branch has, in the wake of the coming into operation of the PPS, set up a new computerised system that will contain and update all relevant details pertaining to drivers’ licence and the eventual sanctions they will receive from courts.

With the PPS, the aim of drivers is to have a minimum number of points on their DLC. The driver initially starts with zero number of points on the DLC. Upon conviction for an offence, the court will, in addition to regular sanction (e.g. payment of fixed penalty), sanction the offender with penalty points within the range of points attributed to the offence. The range of points provided varies from 2 to 10 in relation to the severity of the offence. Penalty points allocated for each offence will be effective for 36 months as from the date of conviction. The penalty points will be entered on the DLC.

For a provisional driving licence holder, the maximum number of points is 10, exceeding which the driver will be disqualified from driving any motor vehicle in Mauritius. For a competent driving licence holder, the maximum number of points is 15, exceeding which the driver will be disqualified. The disqualification period is not less than 6 months. After the disqualification period, all penalty points accumulated for the disqualification will be ineffective. However, on a second disqualification, the driving licence will be cancelled for good. Fixed Penalty Notice and the Photographic Enforcement Device Notice are also included in the PPS. Upon settlement of the fine, the lower point of the range of points attributed to the offence will be allocated.

Thus, penalty points will be assigned to certain road traffic offences, including the following:(a) failing to wear securely a prescribed protective helmet while riding a motorcycle or an autocycle;(b) neglecting or refusing to comply with traffic directions given by a police officer;(c) using a hand held or hand-free microphone or telephone handset whilst driving a motor vehicle;(d) using a vehicle on a road without prescribed lights during hours of darkness; and(e) exceeding speed limit.

Effective for 3 years

Penalty points attributed to an offence will remain effective for a period of three years. The PPS may cause a driver to have his driving licence suspended for at least six months if he has exceeded the threshold limit of 15 penalty points. On a second disqualification, the driving licence will be cancelled. Under the proposed Mauritian system, the counter will start at zero, and points will be totalled cumulatively for each and every offence.Penalty pointswill be imposed by the Court, in addition to other sanctions such as monetary fines, and used especially to tackle the most dangerous safety related road traffic offences committed by drivers.

The system is expected to instill a greater sense of responsibility in motorists and make our road safer. The PPS is in line with government’s strategy to increase road safety and to comply with international norms and subsequently reduce casualties on roads. The authorities are of the view that the PPS will trigger the right mindset among drivers so that they become more cautious and diligent. Government is determined to take bold and severe actions against those defaulters who have no respect for human life.

Success abroad

The PPS is a system which has successfully been implemented in many countries across the world such as the United States of America, Australia, Malaysia, Singapore and several European countries. In most jurisdictions, the introduction of the PPS has led to a significant reduction in road accidents casualties and fatalities, when there is an effective traffic monitoring system.

In Italy, for instance, it was estimated that the introduction 10 years ago of a PPS for driving offences had led to a reduction of about 10% of road accidents and of about 25% of traffic fatalities. In Spain, an assessment of the effectiveness of the PPS in reducing traffic injuries, has shown that it was associated with reduced numbers of drivers involved in injury collisions and people injured by traffic collisions.

OFFENCES – PENALTY POINTS – OFFENCE CODE

1.  Failing to wear securely a prescribed protective helmet while riding a motorcycle or auto cycle – section 123N(3)(a) and (5) 2-4 HELM01

2.  Failing to give way when coming out of a less important road (including any private road or any place) onto a more important road or on to a main road – regulation 40(10) of the Road TrafficRegulations 1954 3-6 FWAY01

3.  Failing to stop and remain at the scene of an accident when involved in the accident – section 140(1)(a),(5) and (7) 4-8 STOP01

4.  Neglecting or refusing to comply with traffic directions given by a police officer – section 123AD(1) and (3) 2-4 POLD01

5.  Using a hand-held microphone or telephone handset whilst driving – section 123AE 2-4 PHON01

6.  Using a vehicle on a road without prescribed lights during hours of darkness – regulation 103(1) of the Road Traffic (Construction and Use of Vehicles) Regulations 2010 3-6 LAMP01

7.  Load insecurely fastened and falling, or liable to fall, from a vehicle, or projecting from the vehicle – regulations 4(2) and 55 of the Road Traffic (Construction and Use of Motor Vehicles) Regulations 2010 and section 123V(1) and (3) 3-6 LOAD01

8.  Failing to allow free and interrupted passage to a pedestrian using the crossing – regulation 3(b) of the Road Traffic (Pedestrian Crossings) Regulations 2002 4-6 CROS01

9.  Overtaking or passing a vehicle which has stopped at a pedestrian crossing – regulation 4 of the Road Traffic (Pedestrian Crossings) Regulations 2002 4-6 OVCR01

10. Exceeding speed limit (by less than 25 kilometres per hour) – regulations 3 and 4 of the Road Traffic (Speed) regulations 2011 and sections 124(1) and (4) 2-4 SPED01

11. Exceeding speed limit (by 25 kilometres per hour or more, but less than 50 kilometres per hour) – regulations 3 and 4 of the Road Traffic (Speed) Regulations 2011 and sections 124(1) and (4) 4-6 SPED02

12. Exceeding speed limit (by 50 kilometres per hour of more) – regulations 3 and 4 of the Road Traffic (Speed) Regulations 2011 and sections 124(1) and (4) 6-8 SPED03

13. Failing to wear seat belt when driving a motor vehicle – regulations 87(1)(a)(i) and (b) of the Road Traffic (Construction and Use of Vehicles) Regulations 2010 2-4 BELT01

14. Failing to comply with traffic sign (crossing a continuous white line on a road) – Traffic Signs Regulations 1990 and sections 123AD(2), 184 and 185 2-4 LINE01

15. Failing to comply with traffic sign (traffic lights) – Traffic Signs Regulations 1990 and sections123AD(2), 184 and 185 2-4 TRLT01

16. Dangerous driving – section 123A 8-10 DANG01

17. Driving without due care or reasonable consideration – section 123C 8-10 CARE01

18. Breach of lane discipline on a dual carriageway – section 123AM 3-6 LANE01

19. Involuntary homicide and wounds and blows – section 133 8-10 INWB01

Chatham House - Soaring Dragon, Stumbling Bear: China's Rise in a Comparative Context

Briefing Paper

Mark Harrison and Debin Ma, March 2013

• In a historic reversal of fortunes, China is overtaking the territory of the former Soviet Union in GDP per capita.
• China's rapid economic development has been driven by 'regionally decentralized authoritarianism' (RDA). But only the economy is decentralized. Political centralization, the objectives and patronage of the centre, and the centre's relative performance evaluation are essential elements of the model.
• China's model of rapid economic development is best understood in a comparative context, but it is important to get the comparison right. It has been said that China's advantage over the Soviet Union was that it carried out economic reforms while postponing political reforms. In reality, this is not true. The Soviet Union made reforms similar to China's, but without the same success.
• China's success so far owes much to its unique circumstances: the great opportunities of initial poverty, exceptional economic size, and the commitment of its leaders, supported by long-standing traditions of RDA.
• In future, sustained economic development requires continuous policy reform. While China's existing model has encouraged this in the past, it is likely that obstacles will accumulate in the years ahead.
• Current risks to the continuation of China's economic modernization include two traps: complacency and conflict. These risks may become increasingly difficult to manage without strengthening the rule of law and enforcing governmental accountability.

This paper is part of the project on Shifting Competitive Advantage in the Global Economy.

Jersey agrees tax package with the UK

States of Jersey:

Following consultation with the Island’s finance industry, Jersey has agreed a package of tax measures with the UK Government that reflects the Island’s special relationship with the UK and its long-standing commitment to join in the global action to combat tax evasion.

The package that has been agreed with the UK comprises:

• The main body of an intergovernmental agreement ( IGA) that closely follows the FATCA IGA being negotiated with the US (aside from the jurisdiction specific annexes);
• An alternative reporting arrangement for UK residents who are categorised as non-domiciled for tax purposes (res non-doms) which will be included in an annex to the IGA and which will be finalised to the same timetable as the IGA currently being negotiated with the US the main body of which has already been initialled with the US authorities;
• A disclosure facility, full details of which will be published shortly, which will allow investors with assets in Jersey to come forward and regularise their past tax affairs prior to information on their accounts being automatically exchanged.

In addition to the package, the UK have indicated that they are happy to consider a possible renegotiation of the current Double Taxation Agreement between the UK and Jersey.

Senator Gorst said: “We have a centuries-old special relationship with the UK and this package puts beyond doubt our long-held commitment to ensuring that the Island is not used for tax evasion by UK resident tax payers. Our internationally recognised reputation for being transparent and well regulated is a key strength of our financial services sector, and what we have now agreed with the UK will serve to further reinforce this message. It is also in the Island’s long-term interests to keep in step with the global direction of travel towards greater transparency.”

Jersey Finance:

The States of Jersey has today announced details of an agreement with the UK on a package of tax measures, widely referred to as ‘UK FATCA’. 

In response to this announcement, Jersey Finance notes that this package of tax measures is consistent with those agreed with Guernsey and the Isle of Man and clearly reflects Jersey’s political objective to remain closely aligned to the UK and to act as a leading participant in the development of standards to combat tax evasion.

Commenting on the package, which comprises three main parts, Heather Bestwick, Deputy CEO of Jersey Finance, said: "The outline package agreed between Jersey and the UK is largely as expected and as noted by the Chief Minister, Senator Gorst, reflects Jersey’s strong relationship with the UK and the island’s international reputation for high standards of regulation. The extensive consultation process that we ran on behalf of government with our member firms raised a number of points that will be important to capture in the detail of the final agreement and we are encouraged to see that there is reference to jurisdiction specific annexes forming part of the intergovernmental agreement (IGA)."

Ms Bestwick added: "One of the key benefits of this announcement is the degree of certainty that it offers the industry and our focus from this point forward will be to continue to work closely with government on the detail of each element of the agreed package and to support our members in quickly and clearly communicating these measures to Jersey’s global financial services client base."

Nishith Desai Associates: English Court Applies Indian Law to Arbitration Agreements to Set Aside an Award

The High Court of Justice, Queen’s Bench Division at London had recently in Arsanovia Ltd. & Ors. v. Cruz City 1 Mauritius Holdings1 set aside an arbitration award given in a London seated arbitration, governed by the London Court of International Arbitration (“LCIA”) Rules. The judgment gains importance from the perspective that the English court applied Indian laws to the arbitration agreements where the substantive law governing the agreement was Indian law and the seat of the arbitration was London.

FACTS

A subsidiary of Unitech Limited (“Unitech”) being Arsanovia Limited (“Arsanovia”), a Cypriot company, had entered into a joint venture with Cruz City 1 Mauritius Holdings (“Cruz City”), a Mauritian company, for the purpose of slum development project in Mumbai. Accordingly, Arsanovia and Cruz City formed a joint venture company called Kerrush Investment Ltd. (“Kerrrush”). Arsanovia, Cruz City and Kerrush entered into a Shareholder’s Agreement (“(“SHA”) dated June 6, 2008.

Another subsidiary of Unitech, being Burley Holdings Limited (“Burley”), a Mauritian company, subscribed to certain specific clauses of the SHA by providing that:

“The undersigned hereby executes this Agreement to be bound by the direct obligations imposed upon them, under Clauses 3.9, 5.5.4, 5.6.2 and 15.3.4.”

Thus Burley while signing the SHA identified the specific obligations under the SHA that it was undertaking.

Unitech, Burley and Cruz City also executed an agreement dated 6 June 2008 (“Keepwell Agreement”), whereby Unitech agreed to cause Burley (as Burley is a subsidiary of Unitech) to comply with its obligations under the SHA which included making timely payments. Unitech had also agreed to ensure that Burley would have sufficient funds to timely meet any of its obligations under the SHA.

On July 14, 2010, Arsanovia served a Management Approval Termination Notice and a Buy-Out Notice on Cruz City on the grounds that a “Bankruptcy/Dissolution Event” (as defined in the SHA) had occurred in respect of the “Affiliate which controls Cruz City” (Lehman Brother Holdings Inc, which had filed for Chapter 11 Bankruptcy in the USA). On September 13, 2010 Cruz City purported to exercise a put option under the SHA on the basis that requirements for the start of the construction phase of the project had not been met, and required Arsanovia to buy Cruz City’s interest in Kerrush. The terms of the put option were much more favorable to Cruz City than the formula governing the Buy-Out Notice.

The question arose regarding the validity of the put option and the buy out notices leading to three arbitrations being:

Sr. No.	Claimant	Respondent	Claim/Counter-claim	Award
First Arbitration	Cruz City	Arsanovia and Burley	Damages and specific performance under the SHA whereby the respondents were required to comply with their obligations pertaining to the put option exercised by Cruz City.	Tribunal determined that it had jurisdiction and held that Cruz City had validly exercised the put option and that Unitech and Burley are required to the amounts due under the put option to Cruz City.
Second Arbitration	Cruz City	Unitech and Burley	Damages under the Keepwell Agreement as it was Unitech’s obligations to ensure that Burley complies with its obligations under the SHA and that Burley is kept in sufficient funds to meet such obligations.
Third Arbitration	Arsanovia and Burley	Cruz City	Declaration that the Buy Out notice was valid and damages and specific performance under the SHA Counterclaim which is similar to the claim under the Frist Arbitration made by Cruz City	Both claim and counterclaim were dismissed.

The awards were subsequently challenged by Unitech, Arsanovia and Burley (“Appellants”) before the Queens Bench on the ground that the tribunal did not have jurisdiction over the claims. It was contended by the Appellants in the court proceedings that the law applicable to the arbitration agreement under the SHA was Indian law and that as per Indian law Burley had not agreed to be bound by the arbitration clause found within the SHA. Accordingly, Burley could not have been made a party to the arbitration. Further, it was argued that under Indian law if the claim is brought against two parties only one of which is party to the arbitration agreement, the arbitration cannot be maintained and thus the tribunal did not have jurisdiction to decide the claims against Arsanovia either.

Accordingly, the following issues were framed by the court:

With respect to the award passed in the first arbitration:

• Whether Indian Law is applied to the Arbitration Agreement in the SHA or not?
• Whether Burley became party to the Arbitration Agreement in the SHA or not?
• Whether the Tribunal had the jurisdiction in the first arbitration to make the award against Arsanovia or not?

With respect to the award passed in the second arbitration:

• Whether Indian Law is applicable to the Arbitration Agreement in the Keepwell Agreement or not?
• Whether the claim of Cruz City in the Second Arbitration as upheld by the Tribunal was beyond the scope of the Tribunal’s jurisdiction because it was premature or not?

HELD

The first aspect that the court had to establish was the law which would be applicable to the arbitration agreement.

To determine the law governing the arbitration agreement the court applied the principles enunciated in the seminal judgment of Sulamerica Cia nacional de Seguros SA and Ors. v. Enesa Engenharia SA and Ors2 being:

• whether there was an express choice of parties with regards to the law applicable to the arbitration agreement.
• If there is no express choice, then whether an implied choice has been made by the parties.
• If there is no express and implied choice of the parties with regards to the law applicable then which law has the closest and most real connection with the arbitration agreement

It was held that the law governing the SHA was a strong indicator that the parties had made an implied choice that the law governing the arbitration agreement within the SHA shall also be Indian law. Further, under the arbitration clause the parties had specifically excluded the Part I of the (Indian) Arbitration and Conciliation Act, 1996 (“Act”) from being applicable including that no interim reliefs would be available under Section 9 of the Act. This was seen to be a strong indicator of the intention of the parties that the arbitration agreement should be governed by Indian law. The only contrary indication with respect to the intention of the parties regarding the law applicable to the arbitration agreement was the choice of seat of the arbitration. Such contrary indication was not deemed to be sufficient to override the considerations in favour of coming to the conclusion of a choice of Indian law.

After concluding that the law applicable to the arbitration agreement found within the SHA was Indian law, the court then considered whether Burley became a party to the arbitration agreement within the SHA. It was observed that the arbitration clause did not fall within the specific clauses which Burley had agreed to be bound by while signing on the signature page. Further each of the clauses which Burley had signed on in confirmation included specific references to Burley. Lastly, the arbitration clause only referred to the term “the Parties” which did not include Burley within its fold. Thus, based on these factors the court concluded that Burley was never a party to the arbitration agreement. An interesting aspect here is that while considering the issue of whether Burley was a party to the arbitration agreement or not, the court relied on the principles of contractual interpretation under English law which required that an intention to enter into an arbitration clause must be clearly shown and is not readily inferred. The court then observed that the Indian law in this regard is similar to English laws and that there was no evidence before him to indicate to the contrary.

Thereafter, the court considered the question of whether an award can be made by the tribunal against Arsanovia in light of the fact that Burley was not a party to the arbitration agreement. The question arose as under Indian law, as per Supreme Court’s ruling inSukanya Holdings Pvt. Ltd. v. Jayesh Pandya and anr3 , bifurcation of cause of action is not permissible and therefore the court cannot bifurcate the cause of action between parties who are parties to the arbitration agreement and those who are not. However, the court then had to consider whether Sukanya Holdings case would be applicable to the present case as Sukankya Holdings dealt with Section 8 of the Act which deals with domestic arbitrations under part 1 of the Act, whereas the factual matrix on hand involved an international commercial arbitration. With respect to the question the court considered the recent Supreme Court decision in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. and Ors4, wherein it was argued that the proposition of law as laid down in the Sukanya Holdings case is not correct and should be set aside. However, in Severn Trent, the apex court did not provide an answer to the question and only provided that “Sukanya was a judgment of this court in a case arising under Section 8 Part 1 of the 1996 Act, while the present case relates to Section 45 Part II of the Act. As such the case may have no application to the present case…..”

Thus the English court concluded on the basis of the above that, the Supreme Court had in Severn Trent not answered that whether the proposition laid down inSukanya Holdings was correct or that whether the proposition laid down in the case of Sukanya Holdings is applicable to petitions under Section 45 of the Act. Thus, the court placed reliance of several other (Indian) high court judgments wherein Sukanya Holdings had been applied in context of Section 45 of the Act to hold that the principle enunciated in Sukanya Holdings case is not confined to applications for reference to arbitration, but to the concept of arbitrability and that it applies to international arbitrations as much as it does to domestic arbitrations.

Therefore, it was held that as under the First Arbitration as Burley could not have been made a party, Arsanovia could also not be subjected to arbitration as that would amount to bifurcation of cause of action which is not permitted under Indian law as held in the Sukanya Holdings case. The court thus set aside the award passed in the First Arbitration.

Further, the arbitration agreement within the Keepwell Agreement was also held to be governed by Indian Law on the same consideration as those in case of the SHA.

Thereafter, it was contended that the award passed in the Second Arbitration with respect to the Keepwell Agreement should also be set aside on the ground that the claim made therein is pre-mature as the liability therein arises only once the claim is crystallised under the SHA. With respect to the same the English court agreed to the reasoning of the tribunal that:

“There is nothing conceptually difficult about a court or tribunal making a determination that a debt is due under another contract in order to determine whether relief should be granted under the contract before it.”

The court observed that the Tribunal needed to determine whether Burley was liable under the SHA in order to determine whether Unitech was liable under the Keepwell Agreement, and that the question could be dealt with by the tribunal to resolve a “dispute arising out of or in connection with the provisions of the Keepwell Agreement”. Thus the award passed under the Second Arbitration was upheld.

ANALYSIS & CONCLUSION

The present case establishes the importance of clearly stipulating in international contracts, the law which would be applicable to an arbitration clause. Failure to stipulate such law at the stage of drafting the clause may give rise to significant jurisdictional issues, at a later stage, as highlighted by the present judgment.

Further, in the present case the court had considered the express exclusion of Part 1 of the Act found within the arbitration clause as a factor which pointed towards the intention of the parties to apply Indian law. However, the express exclusion of Part 1 of the Act in an arbitration clause providing for a seat of arbitration outside India is a standard practice which has been adopted in relation to transactions which have an Indian link. This is due to the pivotal decision of Bhatia International v Bulk Trading SA5 wherein the court had held that Part 1 of the Act would be applicable to even foreign seated arbitrations unless they have been otherwise excluded, thereby giving Indian courts jurisdiction with respect to even foreign seated arbitrations. Though the decision in Bhatia International case has been overruled in Bharat Aluminum Co. v. Kaiser Aluminum Technical Services6 , it continues to be applicable to the agreements executed prior to September 6, 2012 and to that extent such an exclusion of Part 1 of the Act to limit interference of Indian courts in foreign seated arbitrations was a typical approach which is unlikely to reflect on the intention of the parties with respect to the law governing the arbitration agreement.

Further, the court had considered the recent Supreme Court judgment in the Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. and Ors., from the perspective of whether it overrules the Sukanya Holdings case or limits the application of the proposition laid down in Sukanaya Holdings to domestic arbitrations. However, the court never applied the Chloro Controls judgment to the issue of whether Burley could have been made party to the arbitration irrespective of whether it had signed arbitration agreement or not. This may be in light of the fact that such an argument was never made before the judge as at the time of the hearing before the English court the Supreme Court ruling in Chloro Controls case had not come out. However it would have been interesting to see if the said judgment could have been applied to hold that Burley could have been made a party to the arbitration proceedings.

 - Ashish Kabra, Prateek Bagaria & Vyapak Desai

1 [2012] EWHC 3702 (Comm)

2 [2012] EWCA Civ 638

3 (2003) 5 SCC 531

4 (2013) 1 SCC 641

5 (2002) 4 SCC 105

6 (2012) 9 SCC 552