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The UN Convention on Transparency in Treaty-based Investor-State Arbitration (the “Mauritius Convention on Transparency”) gained its first seven signatories at a ceremony in Port Louis, Mauritius on 17 March 2015.

The Convention’s purpose is to broaden the use of the new UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration. These Rules are designed to provide a high level of transparency and public accessibility in investor-state disputes.

Under their own terms, these Rules apply only to UNCITRAL arbitrations that arise out of treaties “concluded” (i.e., typically, signed) after 1 April 2014. As the vastly greater proportion of the roughly 3,000 investment treaties currently in force were concluded prior to this date, the Transparency Rules will be of extremely limited application for a very long time unless either the state parties to treaties or the parties to individual disputes adopt additional instruments to apply them.

The Mauritius Convention is an important means to expand the use of the Rules to treaties initiated under this enormous raft of pre–Transparency Rules treaties. It provides a simple mechanism to apply the Transparency Rules to any investor-State arbitration, whether or not initiated under the UNCITRAL Arbitration Rules, in which both the investor’s “Home State” and the Respondent “Host State” are parties to the Convention. The Convention allows state parties who do so to make a limited number of reservations, excluding the application of the Transparency Rules to disputes arising out of certain particular investment treaties, or to all arbitrations under a particular set of Rules, or to any arbitration in which that state is the Respondent state.

The Convention was adopted by the United Nations General Assembly last December (2014). Its first seven signatories are Canada, Finland, France, Germany, Mauritius, Sweden, the United Kingdom and the United States. However, it has not yet entered into force. This will first happen six months after the date that the first three signatories have deposited their instruments of ratification at the UN in New York.

Here is a copy of the URL of the official text of the treaty: Official UN text of Treaty

On 12 March 2015 the Investigatory Powers Tribunal (IPT) held a rare open hearing to consider any remedies it should provide on the hypothetical possibility that UK intelligence agencies had unlawfully intercepted privileged communication between Libyan nationals and their lawyers.

The details and outcome of the hearing have not yet been made available. The IPT’s Order of 26 February 2015 states as follows:

• There is a declaration that since January 2010 the regime for the interception/obtaining, analysis, use, disclosure and destruction of legally privileged material has contravened Article 8 ECHR and was accordingly unlawful.
• The factual issue as to whether the claimants’ legally privileged communications have in fact been intercepted/obtained, analysed, used, disclosed or retained (“relevant interception”) will be considered by the IPT in a closed hearing.
• There will be an open hearing to consider, on the hypothetical assumption (the true position being neither confirmed nor denied) that there has been relevant interception, what, if any, remedies should be granted to the claimants, at 10.30am on Thursday, 12 March 2015 in the Rolls Building in a court to be notified.

The pleas in law of DenizBank in its annulment application against the sanctions in view of Russia’s actions in Ukraine have been published in the OJ on 16 March 2015.

What is unique about the pleas is that they allege a breach of the Ankara Agreement between the EU and Turkey, which aims towards the accession of Turkey to the EU (Agreement Establishing an Association between the European Economic Community and Turkey and the Additional Protocol).

The annulment action refers to Council Decision 2014/659/CFSP and Council Regulation (EU) No 960/2014 (both of 8 September 2014). The details of the pleas in law are as follows:

• That the Council has breached its duty to give reasons for imposing the contested measures on the applicant, and that the Council has given the applicant no reasons for imposing the contested measures on it, nor even informed it of its inclusion.
• That the Council has failed to safeguard the applicant’s rights of defence, including its right to a fair hearing and to effective judicial review. Moreover, that the Council has given the applicant no reasons or evidence for imposing the contested measures on it, no opportunity for it to comment on the case against it, and has thereby also impeded the Court from exercising effective judicial review.
• That insofar as it has imposed the contested measures on the applicant, the Council has breached the Ankara Agreement between Turkey and the EU (and its Additional Protocol) in a number of respects.
• That the Council has breached the principles of non-discrimination and proportionality, and has imposed an unjustified and disproportionate restriction on the applicant’s fundamental rights.

Case T-798/14 DenizBank v Council, action brought on 5 December 2014

On 5 March 2015 the CJEU handed down its judgment in EIH v Council. This was an appeal brought by Europäisch-Iranische Handelsbank (EIH) against the General Court’s refusal to remove it from the list of sanctions against Iran. The CJEU rejected the appeal.

EIH had been listed on grounds of assisting Iranian banks with alternative options for completing transactions disrupted by EU sanctions, and had its assets frozen.

The most interesting part of the judgment concerns the validity of general licences in the context of exceptions to sanctions, and highlights the need to exercise caution in relying on such licences in circumstances where the relevant legal instruments mandate obtaining specific licences before engaging in otherwise prohibited acts.

The main findings of the CJEU were as follows:

• EIH admitted that it had carried out transactions with listed entities (Iranian banks), but argued that they were lawful as they had been authorised by the Bundesbank (German central bank).
• However, the General Court had been correct to find that in the absence of authorisations granted on a case-by-case basis, a blanket approval from the Bundesbank that did not distinguish the nature of the precise transactions and the designated entities concerned was insufficient. Moreover, except for one call that took place after the applicant had been entered on the lists, the communications containing approval predated the transactions by either one or two years. EIH knew that the transactions it was carrying out concerned listed entities, and that those transactions were therefore particularly suspect, as they made it possible to circumvent the freezing of those entities’ funds.
• The applicant’s legitimate expectations had therefore not been infringed. The wording of the legislation concerned was clear that the transactions in question were subject to a regime of release and authorisation on a case-by-case basis. The legislation had been adopted against a background of growing suspicion and increased controls of financial transactions. As a bank specialising in Iran-related services, EIH must have known that the transactions concerned listed entities and were therefore particularly suspect.
• Even on the assumption that the general approvals granted by the Bundesbank were capable of forming the basis of a legitimate expectation on the part of the appellant, such an expectation could not render lawful transactions that were expressly prohibited by the relevant legislation.

Case C‑585/13 P Europäisch-Iranische Handelsbank v Council, 5 March 2015

On 5 March 2015 the CJEU handed down its judgment in the appeal brought by Ezz following the General Court’s refusal to annul his sanctions listing.

Ezz and three of his wives were listed on the following grounds: “[p]erson subject to judicial proceedings by the Egyptian authorities in respect of the misappropriation of State Funds on the basis of the United Nations Convention against corruption”.

The main findings of the CJEU were as follows:

• The disputed sanctions instruments had as their objective to assist the Egyptian authorities in their fight against the misappropriation of State funds. As such, the English-language version of the disputed Decision was more consonant with its objective. The English version did not require a criminal conviction for misappropriation of state assets before an individual could be listed, by contrast with other language versions, which did contain such a requirement (for example the French version).
• The General Court had been correct in using the English version and consequently construing the listing criterion “responsible for misappropriating State funds” as not requiring a criminal conviction.
• Pursuant to the English version, persons could be listed on the following grounds: persons having been identified as responsible for misappropriation of State funds and those associated with them; persons being prosecuted for misappropriation of Egyptian State funds; persons the subject of judicial proceedings connected to criminal proceedings for misappropriation of Egyptian State funds; persons associated with the individuals the subject of those criminal proceedings.
• The other grounds for appeal were also rejected. The appeal was therefore dismissed, and the listing of the appellants remains in place.

Case C-220/14P Ezz and others v Council, 5 March 2015

Last year the Office of Tax Simplification was commissioned by the Government to produce a report on employment status. The OTS’s terms of reference commissioned it “to examine the dividing line between employment and self-employment and whether it is drawn in the right place and in the right way”. These terms of reference also expressly instructed the OTS not to consider IR35, the construction industry scheme and the expenses rules for employed and self-employed people. The OTS report has just been published (see link below).

The report contains a range of simplification proposals, but is expressed to be a part of a “long range project”. The report does not purport to suggest a “solution” to the employment status issue. The OTS recognises that the report will be something for Treasury Ministers in the next Government. However, the authors of the report anticipate an immediate reaction in next week’s Budget.

The report recognises that an individual’s status as an employee or not is something that affects issues beyond tax such as employee rights, national minimum wage, benefits and credits and pensions auto-enrolment. Indeed, the report recognises that it is often the potential employer that is most interested in knowing the answer; employee or not.

The key recommendations of the report are:
This is the last formal project of the OTS in its current form, and it will be interesting to see if and how the report is picked up in next week’s Budget. However, in his Foreword to the report, John Whiting, Tax Director of the OTS, does say that the OTS hopes to participate in a conference in the summer on the issues raised in the report.

• There should be a joint review between HMRC, HM Treasury, DWP and the Department for Business, Innovation and Skills to explore the possibility of an agreed code of principles on employment status.
• There should be exploration of a set de minimis level for payments to an individual who carries out some activities for a business which would definitely not be an employment.
• There should be exploration of a “safe harbour” basis that balances businesses’ need for certainty with risk to HMRC.
• The idea of a statutory employment test should be taken further.
• There should be a full study into the alignment of tax and NICs payments and benefits across the employed and self-employed.
• The OTS repeats the recommendations made in its Small Business Review that merging tax and national insurance would remove many of the anomalies within the tax system and assist in simplifying issues around employment status by reducing the differentials.

OTS Employment Status review and report, March 2015

On 6 March 2015 Switzerland updated the measures that it introduced to prevent circumvention of international sanctions against Russia. At present the Ordinance is only available in the official languages of the Swiss Confederation (see here for the German and French versions), although a press release is available in English (see link below). The amendment came into force on 6 March 2015 at 18:00.

In brief:

• The Swiss Federal Council has added the measures decreed by the EU in December 2014 following non-recognition of the annexation of the Crimea and Sevastopol to the ordinance on international sanctions of 27 August 2014. All foreign investment in the Crimea and Sevastopol is now prohibited. Service bans apply in the investment and tourism branches, and in some other economic sectors. The existing ban on the export of key goods to the Crimea and Sevastopol has been extended to include further articles. In addition, the measures have been made more precise to accord with adjustments made to the EU sanctions.
• The Federal Council has also added to Annex 3 of the ordinance the names of 28 further persons and entities who have had financial and travel restrictions imposed on them in the EU. Anyone in Switzerland with an existing business dealings with any of these entities is required to report this relationship.
• Swiss territory may not be misused to circumvent EU sanctions. The Federal Council is continuing current policy and taking measures necessary to prevent circumvention of the latest EU sanctions.

Press release: Situation in Ukraine: Federal Council extends measures to prevent the circumvention of sanctions

The Finance Act 2014 (High Risk Promoters Prescribed Information) Regulations 2015, which come into force on 27 March 2015, were laid before the House of Commons on 6 March 2015. These Regulations implement certain aspects of the regime created by Part 5 of the Finance Act 2015 applying enhanced disclosure obligations to certain promoters of tax avoidance schemes, as well as their intermediaries and clients.

The Regulations prescribe:
A technical consultation on this instrument ran from 16 December 2014 under 27 January 2015. Taking account of comments received, the conditions in the final version for producing copies of documents now make it clear that it is permissible to redact copies of documents where necessary to preserve legal professional privilege. See paragraph (3) of Regulation 11.

• how a promoter subject to enhanced disclosure obligations (“monitored promoter”) must publish that fact;
• how a client of such a promoter must report that fact to HMRC:
• the information and documents that must be provided to HMRC about the promoter’s tax avoidance schemes and clients, and
• the conditions under which copies of documents may be produced instead of the originals.

HMRC issued a press release publicising these Regulations on 7 March 2015. According to the press release, HMRC has already written to a number of promoters warning them of the consequences if they do not change their behaviour and has also sent the first Conduct Notice to a promoter. Promoters who fail to comply with the terms of a Conduct Notice can be issued with a “Monitoring Notice”. As “monitored promoters” they then fall within the terms of these Regulations.

The Finance Act 2014 (High Risk Promoters Prescribed Information) Regulations 2015

Explanatory Memorandum

HMRC press release

On 4 March 2015 the Court of Appeal handed down judgment in R (Ingenious Media Holdings plc) v HMRC. Sir Robin Jacob delivered the judgment of the court. This was an appeal from Sales J’s judgment in this matter.

Ingenious Media Holdings plc (“Ingenious”) and its subsidiaries conducted, inter alia, a business of promoting investment schemes in the form of partnerships intended to allow participating taxpayers to take advantage of certain tax reliefs and exceptions associated with films. HMRC maintain that all or most of these film schemes are ineffective for tax purposes, a matter that is currently being litigated. This case concerned statements made by HMRC’s then Permanent Secretary for Tax, Dave Hartnett, to two Times journalists in what Mr. Hartnett thought was an off-the-record briefing on tax avoidance schemes. The disclosure made to the journalists was that HMRC did not accept that the Appellants’ film schemes generated the tax reliefs claimed and that HMRC was going to challenge their validity. Mr. Hartnett acknowledged that he was aware of Patrick McKenna, the founder of Ingenious. Mr. Hartnett said that he thought that HMRC would be ultimately successful in defeating film schemes. This was information of HMRC’s own creation, not information given to it by taxpayers or by the Appellants in this case. Following the disclosure, various comments made by Mr. Hartnett were published in The Times, albeit attributed only to a “senior Revenue official”, in apparent breach of Mr. Hartnett’s understanding that they would not be published at all.

In brief, the Court of Appeal has held that:

• Mr Hartnett and HMRC did not breach section 18 of the Commissioners for Revenue and Customs Act 2005 in making the disclosure Mr Hartnett did, to journalists from The Times in what HMRC understood to be an off-the-record briefing. “Information held” was conceded by HMRC to have a wide meaning capable of including information generated by HMRC as well as information supplied to HMRC. But the Court also construed the meaning of “for the purpose of a function of the Revenue” in section 18(2) widely, meaning that the disclosure was permissible.
• Although Article 8(1) of the European Convention on Human Rights (“ECHR”) was engaged in respect of the founder of Ingenious, the disclosure had no effect on the Appellants’ private life and there was no evidence of any damage to reputation as a result of it.
• Article 1 Protocol 1 (“A1P1”) to the ECHR was not engaged because the case concerned a mere loss of future income said to result from the disclosure, which is not an interference with “possessions” within the meaning of A1P1. Although this was determinative of the A1P1 claim, the Court also indicated that it was in the public interest for HMRC to let the public know its view that film investment schemes were ineffective, regardless of the fact that no formal closure notices had been issued at the time.

R (Ingenious Media Holdings plc) v HMRC [2015] EWCA Civ 173, 4 March 2015

On 27 February 2015 the Court of Appeal held that it had jurisdiction to order a beneficiary under a discretionary trust to disclose details of the trust.

The court also dismissed the claimant liquidator’s appeal against an unlimited sum cross-undertaking in damages, but allowed the liquidator to appeal against the fortification of the cross-undertaking.

The case concerned a freezing order under which the defendant had to inform the claimants of his assets. The defendant disclosed that he was a discretionary beneficiary under certain named trusts, but did not give further details of the trusts. The defendant applied for an order discharging the freezing order unless the claimants gave an unlimited cross-undertaking fortified by an appropriate payment into a bank account in England to be held to the order of the court.

The Court of Appeal held as follows:

• The defendant’s interests under the discretionary trust were caught by the prohibition on dealing with assets and were subject to the disclosure order. The purpose of a freezing order was to prevent a defendant from putting assets beyond the reach of creditors in the event that judgment was entered against him. On the face of it assets held by the trustees of a discretionary trust would not be amenable to execution if judgment was entered against one of the class of potential beneficiaries at the suit of a third party. However, in the present case the wording of the freezing order was non-standard, and did in fact cover the interests of a beneficiary under a discretionary trust.
• The court had jurisdiction to order the beneficiary under a discretionary trust to disclose details of the trust and the trust assets, and it had been appropriate to make the disclosure order in the present case. The jurisdiction to make a freezing order carried with it the power to make whatever ancillary orders were necessary to make the freezing order effective. The claimants were only asking for information (not for an order preventing the defendant from dealing with assets).
• The judge had been correct in ordering an unlimited cross-undertaking from the liquidator, but there was not enough evidence in the present case to require fortification. The judge was entitled to take into account the lack of evidence about what efforts the liquidator had made to persuade substantial creditors, for whose benefits the recoveries would ensue, to back the cross-undertaking. As regards fortification, the judge had reasoned that an international businessman on the scale of the defendant was likely to suffer loss if prevented from conducting his ordinary business activities. However, the judge did not provide details about why she reached the general conclusions that she did regarding such business activities, and those conclusions were unsustainable on the evidence.

JSC Mezhdunarodniy Promyshlenniy Bank v Sergei Viktorovich Pugachev [2015] EWCA Civ 139, 27 February 2015