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Art of persuasion in court

Posted by Carl Islam on LinkedIn 10.09.2021 (www.ihtbar.com)

‘The best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts.’ Guestmin SGPS S.A. v Credit Suisse (UK) Ltd [2013, applied in Rainey v Weller & Ors [2021] – a Will forgery claim (see below).

Therefore, in a contentious probate case and thinking like a judge, to assist the court and as part of elementary case-preparation, counsel should draft a Chronology after reading the papers, i.e., before connecting the dots, in order to arrive at an overall conclusion based upon inferences drawn from the documentary evidence and known or probable facts.

While an advocate cannot win a case using logic alone, assisting the judge to make findings of fact based upon inferences drawn from the documentary evidence and known or probable facts, is the metier of advocacy in contentious probate trials, and an essential technique in drafting a Skeleton Argument, and delivering a compelling final speech at trial.

To see the big picture as early as possible, apply Keith Evans’ original golden rule of case preparation and planning, which is:

  1. As soon as you have an approximate idea of what a new case is about, sit down and write your ideal final speech. Then read it. See how well the available evidence supports it. At once you will see the gaps, the missing bits. Trying to close those gaps is the preparation of your case.
  2. When you think you are getting close sit down and write your opponent’s final speech. This will concentrate your focus more sharply on what you still need to do by way of preparation and on the weak points you will have to reach and deal with before anybody else does.
  3. Perfect your final speech – This is the blueprint of your trial. It becomes a record of your progress through the case, a shopping list of all you have to do, a fool proof checklist. The evidence you need and the way you need to present it stares straight at you from this final plan.

[The] purpose of doing the closing speech when you receive the brief is it lights up precisely what you want from each witness. Your closing speech is what you want to be able to say to the [judge]. It is a mixture of comment and reference to the evidence. Once you know what you want to say to the [judge], you will know what evidence you will seek from the witnesses. Once you know what comments you want to be able to make to the [judge] at the end of the trial based on that evidence, it is easy to work out precisely what you want from each witness. So, in preparing the closing speech, you find the natural consequence is that instinctively you prepare your examination of the witnesses… you know what you would like them to say, and can gear your preparation towards thinking about exactly how you will get them to say it… [so that you can] elicit from each witness only what you need for the closing speech… The closing speech is your map. It tells you where you are going, what you have to do, where you have been, and where you have to get to. It tells you everything you will want to do at trial… [From] your closing speech, you identify the comment you want to make. From the comment you want to make, you identify the facts you want to hear. From the facts you want to hear, you identify the questions you want to ask and of whom.’ [‘The Devil’s Advocate’ by Iain Morley QC].

Another useful technique to focus your mind, is as early you can, to draft the order you will seek at the end of the trial.

Recently, in Rainey v Weller & Ors [2021] EWHC 2206 (Ch) (05 August 2021), Deputy Master Linwood stated;

[Counsel] cited, as to the burden of proof, Face v Cunningham [2020] EWHC 3119 (Ch) where His Honour Judge Hodge QC sitting as a Judge of the High Court at [46] said: “…where the forgery of a will is alleged, then the ultimate burden of proving that the will is not a forgery must rest on the party propounding the will, as part of the formal requirements of proving that the will was duly executed by the testator and was duly witnessed.” It is therefore for the Defendants to establish, on the balance of probabilities, that the signature of [the deceased Testator] on the [disputed] Will was genuine. In closing submissions I said to [Counsel] and the Defendants that in my approach to the evidence I would very much have in mind the well-known paragraphs 15-22 in Guestmin SGPS S.A. v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm) where Mr Justice Leggatt as he then was set out the difficulties of recollection based oral evidence, and the importance of documentary evidence.’

In Guestmin Mr Justice Leggat (as he then was) stated;

‘An obvious difficulty which affects allegations and oral evidence based on recollection of events which occurred several years ago is the unreliability of human memory.

While everyone knows that memory is fallible, I do not believe that the legal system has sufficiently absorbed the lessons of a century of psychological research into the nature of memory and the unreliability of eyewitness testimony. One of the most important lessons of such research is that in everyday life we are not aware of the extent to which our own and other people’s memories are unreliable and believe our memories to be more faithful than they are. Two common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate.

Underlying both these errors is a faulty model of memory as a mental record which is fixed at the time of experience of an event and then fades (more or less slowly) over time. In fact, psychological research has demonstrated that memories are fluid and malleable, being constantly rewritten whenever they are retrieved. This is true even of so-called ‘flashbulb’ memories, that is memories of experiencing or learning of a particularly shocking or traumatic event. (The very description ‘flashbulb’ memory is in fact misleading, reflecting as it does the misconception that memory operates like a camera or other device that makes a fixed record of an experience.) External information can intrude into a witness’s memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. Events can come to be recalled as memories which did not happen at all or which happened to someone else (referred to in the literature as a failure of source memory).

Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs. Studies have also shown that memory is particularly vulnerable to interference and alteration when a person is presented with new information or suggestions about an event in circumstances where his or her memory of it is already weak due to the passage of time.

The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings. Other, more subtle influences include allegiances created by the process of preparing a witness statement and of coming to court to give evidence for one side in the dispute. A desire to assist, or at least not to prejudice, the party who has called the witness or that party’s lawyers, as well as a natural desire to give a good impression in a public forum, can be significant motivating forces.

Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does nor does not say. The statement is made after the witness’s memory has been “refreshed” by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause the witness’s memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events.

It is not uncommon (and the present case was no exception) for witnesses to be asked in cross-examination if they understand the difference between recollection and reconstruction or whether their evidence is a genuine recollection or a reconstruction of events. Such questions are misguided in at least two ways. First, they erroneously presuppose that there is a clear distinction between recollection and reconstruction, when all remembering of distant events involves reconstructive processes. Second, such questions disregard the fact that such processes are largely unconscious and that the strength, vividness and apparent authenticity of memories is not a reliable measure of their truth.

In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.’

In Rainey v Weller & Ors [2021], the judge accepted the expert evidence of the Claimant’s handwriting expert, observing that the expert:

‘expresses a more positive view on the scale they both worked to that the signature on the [disputed] Will was not that of [the deceased Testator]. Thirdly, but at the very bottom of my scale of expert witness factors/considerations, is that [‘C’s expert] just edges [‘D’s expert] in his credentials, although I place very little weight upon that. … The totality of [his expert] evidence is unassailable in my judgment.’

In finding that the disputed will was a forgery the Judge made findings of fact based upon inferences drawn from the documentary evidence and known or probable facts, which included:

  • i) It is highly improbable, indeed verging on the impossible, in the circumstances I have set out above that [the deceased Testator] decided in the very short gap between the 9th February – 5th March to wholly change her will – she knew her own mind;
  • ii) In particular there was no change of circumstances or intervening event as I have found above;
  • iii) Likewise, it would not make sense that, had she so decided, she would not go back to the solicitors, with whom she was still in contact as they were finalising the LPA, to make any new will;
  • iv) The [disputed] Will was not mentioned by [D.1] … to anyone. That appears unlikely if it had been made as [D.1] says as his sons … were living with him at all material times;
  • v) When his mother died [D.1] did not immediately produce the [disputed] Will. In oral evidence he said he could not remember where he had put it, and eventually found it in his loft. That I find unbelievable in circumstances where the natural reaction would be to keep one’s mother’s will close but safe and to produce it immediately upon her death;
  • vi) [D.1] had in his control the evidence as to from where he obtained the template for the [disputed] Will that he said he used; he never produced it;
  • vii) Likewise, as I observed at the start of trial, I was surprised no metadata was obtained from [D.1’s] laptop/PC to show exactly when he prepared it and how or from what, although as I said it was also open to [C’s] solicitors to apply for it had they appreciated that;
  • viii) [D.1] provided to his expert the Cards which he had access to as he took control of his mother’s house and effects including her papers after her death. [C] said in evidence and I accept that [T] did have various bank cards which she had not signed. One such blank card was produced by [C] on disclosure. I find that [D.1] or someone at his behest forged his mother’s signature on the Cards in an attempt to manipulate the expert evidence;
  • ix) However, he had to provide the Cards for examination by [C’s] expert, as appears from the correspondence I have referred to. He therefore decided to send an empty envelope to Streathers but obtained a Certificate of Posting to show he had provided the Cards to them;
  • x) However [D.1] had not appreciated that the Post Office on the Certificate of Posting set out their weight of the envelope and any contents, for charging purposes, which according to the evidence of Dr Chatfield, was about twice the weight of what was actually despatched by [D.1], namely the empty envelope;
  • xi) [D.1] then tried to get around this evidential problem he had created for himself by saying the envelope was not, as Ms Jelea said, white but brown. However, this attempt to manipulate the evidence also failed as Dr Chatfield said a brown envelope would actually weigh less, which only fortified his conclusion;
  • xii) That none of [T’s grandchildren] were told by their grandmother of their future legacies, notwithstanding how close they all say they were to her, and – for [D.5 & d.6] – that she regularly told them they were to inherit her house and possessions;
  • xiii) That [D.1] in cross examination said his mother did not need to name her grandchildren who were to benefit as he knew who they were to be;
  • xiv) Likewise, his confidence that notwithstanding his mother not naming the three beneficiaries he prepared the [disputed] Will and got [D.3] to go round to witness it before his mother had even seen it;
  • xv) The fact that when their mother died on 24th November 2018 neither [D.3] nor [D.1] told anyone of the [disputed] Will – in fact it did not surface until [D.1] applied for probate of it in January 2019. I do not accept [D.1’s] explanation that the reason for this was because he was grieving; …
  • xvii) If Mrs Weller had really made the March Will, it would in view of her conduct of her affairs follow that she would have ensured a copy was in [a] Suitcase [which T had] prepared carefully to resolve her affairs, in all respects, for the future, with the copy of the [earlier] Will and the physical gifts of cash and jewellery;
  • xviii) Likewise, all the urgent efforts and concern to locate and secure the Suitcase would have been clearly pointless to [T] if she really had appointed [D.1] as her executor;
  • xix) Especially, the evidence of [C’s handwriting expert] that there was moderate to strong evidence that the signature of [T] had been forged.’
Carl Islam Author

Carl Islam Author

Navigating Arbitration and Specialised Courts in IP matters in Nigeria

Enforcement of Intellectual Property (“IP”) in Nigeria is saddled with loop holes, bureaucratic bottlenecks, lack of technical knowledge, skills and lack of public awareness. These have led to the prevalence of piracy, counterfeiting, unauthorised, unlicensed use and infringement of IP rights. Though there have been laudable developments in recent times, there is still a wide gap in the enforcement of Intellectual Property Rights.

Regulatory Framework & Institutions

The principal types of Intellectual Property rights in the Nigeria Legal System are Copyrights, Patents, Trademarks and Industrial Designs. The regulatory frameworks include by the Copy Right Act Cap C28, Trade Marks Act Cap T13, Patent & Design Act P2 and the Merchandise Marks Act Cap M10.

These laws are enforced by the Nigerian Copyright Commission (“NCC”), The Trademark, Design and Patents Registry which is a subdivision of the Ministry of Industry, Trade & Investment, The National Agency for Food and Drug Administration Control (“NAFDAC”), The Nigerian Police (“NPF”) and The Nigerian Custom Service (“NCS”).

Nigeria is also a signatory to numerous international treaties on Intellectual Property. These include the World Intellectual Property Convention (“WIPO”) of 1970, Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”), Berne Convention and Rome Convention for the Protection of Performers, Producers of Phonograms &Broadcasting Organisation etc.

The Current Situation

Enforcement of IP rights in Nigeria have been slow, largely ineffective and ladled with obstacles and loopholes. We shall consider the causative factors:-

  • Obsolete and Weak Laws: The principal laws in force were adopted from the Laws of England and date back as far as the 19th Century with no review since enactments. Intellectual Property is a steadily evolving concept and these laws do not also take into consideration, these dynamic changes in IP including the advancements in Technology. These Laws are also weak and cannot effectively control issues like piracy and counterfeiting.
  • Non Implementation of International Treaties: Section 12 of the Constitution of the Federal Republic of Nigeria 1999 as amended (“CFRN”) provides that before an International Treaty can be implemented in Nigeria, it must be ratified and enacted by the Legislative. Though Nigeria is a signatory to numerous International Treaties on IP, which can be a supplement to our laws, these cannot be implemented because they haven’t been ratified and enacted according to the CRFN.
  • Lack of Awareness and Inadequate Finance & Staffs of the Regulatory Agencies: Regulatory Agencies charged with enforcing IP rights in Nigeria are greatly understaffed; lack the necessary equipment, training and knowledge to effectively carry out their duties. . These culminate in a slow and inefficient enforcement of IP rights.
  • Lack of Uniformity and Cooperation amongst enforcement Agencies: Intellectual Property is a broad and technical area. Its enforcement cannot be carried out by one regulatory agency alone; the agencies need to work together. However in Nigeria, there is no such cooperation, they also lack a uniform public domain between the agencies to access the data of each agency in enforcing Intellectual property rights.
  • Judicial Enforcement: The Nigerian Judicial System is slow and t cases take an inordinate amount of time before coming to a conclusion. This coupled with the technical nature of Intellectual Property Rights, the lack of such technical knowledge by the Judges and the non-observance of judicial orders has further inhibited the effective enforcements of IP rights by the Judiciary. Furthermore the Federal High Court is vested with exclusive jurisdiction over IP disputes. This is a bar to parties exploring Alternative Dispute Resolution (“ADR”).

The Way Forward

Due to the loopholes in enforcing IP rights and resolving IP disputes in Nigeria, it has become necessary that new and alterative procedures need to be considered. These include Arbitrations and Special Courts.

Why Arbitration

Arbitration according to the Black’s Law Dictionary is a dispute resolution process in which the disputing parties choose one or more neutral third parties to make a final and binding decision resolving the dispute. WIPO has advocated for the use of Arbitration for resolving IP disputes and has gone further to establish an Arbitration & Mediation Centre for resolving IP disputes. It also has in place its Arbitration rules. Discussed here are the advantages of Arbitration over Litigation and why IP disputes should be resolved using Arbitration in Nigeria.

  • Technicality involved in Intellectual Property: Intellectual Property is a technical subject matter. Therefore it is a better to use an Arbitrator who has specialised knowledge of Intellectual Property. This is even more so when technical issues like computer programs, Industrial designs, patents etc. are being contested. When parties can choose their adjudicator they have the opportunity of picking one who possesses the necessary technical knowledge.
  • Expert determination: Disputing parties can also refer the matter to an expert in the area of dispute for expert opinion, appraisal, valuation or determination to settle a dispute. This expert can act as Arbitrator and the resulting decision is binding on the parties.
  • International Nature of Intellectual Property Disputes: IP is by its nature intangible and global unlike other forms of property. It can be exploited and transmitted globally instantaneously. This makes its rights infringeable internationally and disputes are cross borders. Therefore IP disputes are best resolved by Arbitration which is most suitable for International disputes.
  • Flexibility of Arbitration: Arbitration by its nature is flexible. The parties can choose the Arbitrator, time, conduct of the proceedings and venue of the proceedings. Also they can choose the applicable law to govern the proceedings. This is important having regards to the International nature of Intellectual Property disputes. Parties do not have to be bound by the local laws of a disputing party.
  • The Time Involved and Finality: Arbitral proceedings are fastidious. Parties do not have to go the tedious and formal procedure involved in litigation. Arbitration is expeditious, quick and efficient. This is an advantage for Intellectual Property disputes which are of a technical and economical nature and need to be resolved timeously. Furthermore, contracting parties can resolve that there will be no appeal to the arbitral award. This ensures the dispute will be brought to an end quickly unlike litigation where parties by contract cannot bar an appeal.
  • Confidentiality: Arbitration ensures confidentiality between parties. IP disputes may involve trade secrets and commercial benefits. These are better kept confidential in order to avoid being exploited by the public. Arbitration also ensures that parties’ trade reputation is protected and this is a commercial benefit.

Establishing Special IP Courts

A special IP Court is an independent public judicial body that can operate at national or regional levels to adjudicate IP disputes, enforcement of IP rights and incidental disputes. There has been a global trend toward the establishment of specialised IP courts especially in developed Countries. Establishing a specialised Court improves the quality of justice available to litigants. This is because the Judiciary will have vast experience and knowledge in IP. This is unlike non specialised Court where the judiciary may or may not have vast knowledge of IP. Specialised Courts are better equipped to keep pace with and adapt to dynamic developments in Law. Another advantage of specialised Courts is that they allow for timely and cost-effective handling of proceedings and can improve consistency in case Law. Establishing a specialised IP Court or Tribunal in Nigeria will further enhance the effective enforcement and protection of IP rights in Nigeria and it is important considering the fact that some IP disputes are of a criminal nature and thus not arbitrable.

Conclusion

Intellectual Property plays a key role in the economy and development of a Country. Where these rights are adequately protected, enforced and implemented, it has a lot of benefits to the economy and the society at large. Lessons have been learnt form developed countries who have given IP the paramount stage that it deserves. A crucial method of ensuring these rights and enforced and disputes are efficiently resolved is to resort to Arbitration and establish specialised IP Courts. Our Laws should be amended to meet up with dynamic trends in IP, to provide resort to ADR especially Arbitration and Special Courts and Tribunals should be established to ensure speedy and effective trial of IP disputes.

Is Customary Arbitration the Solution to Congestion of Cases in Courts?

It is no longer news that determination of disputes especially commercial disputes before Nigerian courts is not time efficient. The courts are usually congested and cases are subjected to too many adjournments. A litigant cannot reasonably predict the term of a case in court. Presently, the courts are not sitting because judiciary workers are on strike to demand financial autonomy for the judiciary. It is clear that the delay in resolving disputes in court makes the English model court system to be ineffective in meeting the demands for justice in Nigeria in the 21st century.

Customary arbitration was used to reach peaceful resolution of disputes in pre-colonial Nigerian societies. This made it easier for business and social relationships to be maintained in that era. The reason for this is that customary arbitration encouraged amicable settlement of disputes and the need to restore cordiality amongst members of the society. The rights and liabilities of the parties were not interpreted in isolation like in the current English system of litigation. The rights and liabilities of the parties were interpreted in accordance with the general social good of the society.

Interestingly, recently in Umeadi v Chibunze (2020) 10 NWLR (Pt. 1733) 405, the Supreme Court found that where parties who believe in the efficacy of juju, resort to oath-taking to settle a dispute, they are bound by the result and so the common law principles in respect of proof of title to land no longer applies since the proof of ownership of title to land will be based on the rules set out by the traditional arbitration resulting in oath-taking. The Court further stated that where customary arbitration is pleaded and proved, it is binding on the parties and capable of constituting estoppels.

The main difference between customary and modern arbitration is that while the former cannot be enforced as a judgment of court, the later can be enforced as a judgment with leave of court. However, if a customary arbitration award is pleaded and proved before a court of law, the parties cannot resile from it as it will be binding on them and create estoppel.

Customary arbitration is indigenous to Nigerian societies and has been part of our dispute resolution mechanism since time immemorial. It is more effective than the acrimonious and technical English model of litigation. Hence, the Bill before the National Assembly to amend the Arbitration and Conciliation Act should take cognisance of the benefits of customary arbitration and make provisions for it to coexist with domestic and international commercial arbitration.

In order to ensure its efficacy, a customary arbitration award should not be subjected to the principles of English law by the court testing whether the decision of the customary tribunal meets English law standards. This is because the history and composition of the English system of adjudication is different from customary arbitration in Nigeria.

It is settled law that parties are bound by the terms of their agreement. Litigants do not need to go to conventional courts to resolve all their disputes. If parties to a dispute subject themselves to customary arbitration before a religious or traditional leader, clan or village head or other persons they trust, they should naturally be bound by the decision of the person who they choose to resolve their dispute. This will in no small way decongest the courts, promptly resolve disputes and give Nigerians a sense of fulfilment in the justice delivery system in the country.

Indeed, the Supreme Court decision in Umeadi v Chibunze (supra) is a breath of fresh air and a welcome development. It is also a clarion call for Nigeria to go back to its roots and develop its own customary arbitration and indigenous dispute resolution mechanisms, culture and principles which will better serve the demands of Nigerians for a justice system which will serve them promptly and efficiently.

Joint Venture Guidelines under the Competition Act No. 12 of 2010

The Competition Authority of Kenya to Clarify the Rules and Filing Requirements of Joint Venture Arrangements

The Competition Authority of Kenya (the CAK) has published draft joint venture guidelines (the Guidelines). The Guidelines aim to provide clarity, transparency and predictability about joint venture arrangements that require CAK approval. The Guidelines specifically clarify the CAK’s position on what consists of a Full Function Joint Venture, a Greenfield Joint Venture; and lays out the process for notifying and filing a joint venture with the CAK, as well as how the CAK reviews a joint venture’s impact on competition.

The Guidelines are still open to review and amendment, with the CAK inviting comments by Friday, March 5th, 2021. However, the following are the main implications of the proposed Guidelines:

Full Function Joint Venture

The Guidelines define a Full Function Joint Venture as a joint venture undertaking that performs all the functions of an autonomous economic entity for ten (10) years or more including:

i. operating on a market and performing the functions normally carried on by undertakings operating in the same market; and

ii. having a management dedicated to its day-to-day operations and access to sufficient resources including finance, staff and assets in order to conduct for a long duration its business activities within the area provided for in the joint-venture agreement.

Full Function Joint Ventures constitute a merger under the Competition Act and will require notification and filing with the CAK. However, it should be noted that a joint venture established for a purposefully finite period (e.g. a ten (10) year construction project) will not be viewed as having a long duration and will not qualify as a Full Function Joint Venture.

Greenfield Joint Venture

The Guidelines set out Greenfield Joint Ventures as joint venture undertakings in which local or foreign entities collaborate with other locally domiciled entities to develop a new product separate from the products and services provided by the parent entities. Typical distinguishing features of a Greenfield Joint Venture include: a new joint venture vehicle formed by the parties for the purpose of the transaction, undertakings in new areas for the parties in the joint venture, and the transaction entailing entry into a new business area or enhancement of an existing business.

The Guidelines recommend that parties potentially entering into a Greenfield Joint Venture should seek the advisory opinion of the CAK as Greenfield Joint Ventures are reviewed on a case-by-case basis.

Process for Filing a Joint Venture With CAK

The Guidelines set out the registration requirements for a Full Function Joint Venture. The CAK requires the parent entities to separately submit documents relating to the transaction by filling the Merger Notification Forms (MNF) as Joint Venture Parents, and if a joint venture vehicle exists as a part of the undertaking it will also be required to file the MNF. In situations where the joint venture parties have no separate joint venture vehicle, (e.g. a contractual relationship or have acquired existing shares in an existing undertaking that results in a joint venture) the parent entities will only need to separately submit documents by filling the MNF as Joint Venture Parents.

Determination of Impact on Competition

The Guidelines specify how the CAK determines the competition impact a Full Function Joint Venture transaction is likely to have in a market. The CAK considers the turnover and asset figures of all the parents to a joint venture, including the entities directly or indirectly in the control of the joint venture parents and the joint venture vehicle where applicable. In addition, the CAK looks at the terms of the joint venture agreement(s), public interest factors (e.g. the effect of the joint venture on the labour market) and whether the efficiency benefit of the joint venture brings more economic gains compared to the competition detriment. If the CAK makes a finding that a joint venture transaction has negative competition and public interest impacts, it may engage the joint venture parties to come up with remedies to mitigate against the harm. Additionally, the CAK will direct on which of the joint venture parties as well as the joint venture vehicle will be impacted by the mitigating factors.

The draft joint venture guidelines aim to further clarify the rules and reduce the confusion surrounding the competition regulations on joint ventures. Pursuant to the Guidelines, the CAK is committed to further its mandate on fostering competitive markets through transparency.

For further information please contact Walid Khan or Benedict Nzioki.

Brazil – Cost Sharing with Company Domiciled Abroad

1. Characterisation of shared services as reimbursement

The payment of costs and expenses shared between companies of the same economic group, with headquarters in different countries, may be treated as a mere reimbursement without the incidence of a high tax burden on payment or receipt. However, in order for such costs and expenses to be characterised in Brazil as a reimbursement, certain requirements must be complied with.

First of all, to be treated as a reimbursement the costs and expenses must relate to supporting activities rather than core activities of the service provider. Thus, services that are included in the corporate purpose of the service provider may not be shared, and consequently the costs and expenses thereof cannot be treated as a reimbursement.

For this reason, it is only possible to recognise as a reimbursement of shared costs and expenses those actually incurred by the service provider. It is therefore not permitted to add any amount or profit margin to the costs or expenses shared and reimbursed.

Moreover, in order for the costs and expenses to be recognised as a reimbursement, it must be shown unequivocally that the services shared are of mutual benefit to the companies that participate in the agreement. Accordingly, all the companies must benefit from the services shared, including those performing the services.

With a view to proving compliance with the minimum conditions required, it is necessary to have, apart from other documents, a formal contract between the companies of the group, showing the total costs of each service incurred and shared, and also the reasonable and objective criteria used for the division.

The minimum requirements of the said contract were set out in Cosit Answer to Consultation no. 8/12 of which, in spite of its technicality, it is worth citing the following:

  • a) the division of the costs and risks inherent to the development, production or obtaining of goods, services or rights must be detailed;
  • b) the contribution of each company must be consistent with the individual benefits expected or actually received;
  • c) the identification of the specific benefit to each company of the group must be clear;
  • d) there must be an agreement for reimbursement, meaning the refund of costs relating to the effort or sacrifice incurred in the carrying out of an activity, without any additional profit;
  • e) the collective nature of the advantage offered to all the companies of the group must be express;
  • f) there must be a provision for remuneration of the activities, irrespective of their actual use, it being sufficient to “put the activities at the disposal” of the other companies of the group;
  • g) the conditions must be such that any company, in the same circumstances, would be interested in contracting.

In short, the contract must state the total cost or expense that benefits the signatory companies; the criteria for its division, each company necessarily defraying only the benefits actually expected or gained, with the possibility of their identification; and further it must state the manner in which reimbursement of the cost or expense will be made, with the supposition that it will be attractive even for independent companies.

Although the amounts classified as reimbursement of costs and expenses do not reflect any financial gain, which is sufficient to justify the non-incidence of taxation, the Brazilian Federal Revenue has still not adopted a firm position to this effect.

2.1. Payments abroad

Generally speaking, payments, credits or remittances abroad relating to the provision of services are subject to Withholding Income Tax (IRRF) of 15%, the Contribution on Economic Activities (CIDE) of 10%, the Contribution for the Financing of Social Security payable by the Importer of Foreign Goods or Services from Abroad (COFINS-Importation) of 7.6% and the Contribution for the Social Integration Programme and Civil Servants’ Investment Programme due on the Importation of Foreign Products or Services (PIS/PASEP-Importation) of 1.65%. The Tax on Financial Operations (IOF) of 0.38% is due in any case. The Tax on Services (ISS), with the maximum rate of 5%, may also be demanded by the municipality.

The IRRF paid in Brazil may be taken as a credit abroad if there exists a double taxation convention with the country in question, or, at least, reciprocity of treatment.

It is worth mentioning that, in the event of a remittance of funds abroad in payment of services, the financial institutions involved are also responsible for the operation, for which reason they tend to confirm the need to pay the taxes due on the operation in order to avoid any risks.

2.2. Cash receipts from abroad

Payments received by the Brazilian company for services shared may be regarded as corresponding to services exported. In this case, the funds received from companies abroad, in the form of foreign currency, would not be subject to PIS and COFINS on the amount invoiced. In any case, if they are recognised as remuneration for services rendered, they would be subject to IRPJ and CSLL. The ISS on the services may also be demanded by the municipality in question.

3. Possible risks and means for their reduction/elimination

As already stated, the Brazilian Federal Revenue has not confirmed its attitude regarding the non-taxation of payments relating to costs and expenses shared and reimbursed. As a result, in operations involving remittances abroad, the financial institutions normally require to see proof of payment of taxes.

If it is intended to avoid paying tax, and with a view to reducing, and even eliminating, possible risks, it is important that the operations be properly formalised. It must be possible to show, by producing solid evidence, that the funds received from, or paid to, the related party refer to the recovery of expenses incurred for the benefit of another, so as not to generate income/earnings for the recipient.

The contracts signed must contain details sufficient to prove compliance with the requirements necessary for characterisation of the reimbursement, with the resulting non-taxation, and all the supporting documentation must be retained.

An alternative, in order to guarantee the position of the Brazilian Federal Revenue, in principle and preferably in favour of the non-incidence of tax, is the submission of a formal consultation with a view to confirming the interpretation applicable to the case.

Specifically for operations involving remittances abroad of sums relating to the costs and expenses shared, it is possible that, even on production of the contract signed between the companies of the group, together with all supporting documentation, and further even presenting the formal consultation to the public authorities, the financial institution may not agree to make the remittance without payment of the tax.

In this event, a declaration may also be produced to the financial institution, in which the company making the remittance assumes the obligation to inform the institution immediately of the result of the formal consultation, as soon as a reply is received from the Federal Revenue, and also to comply with the result thereof, if necessary, with payment of tax on the operation.

We consider that, provided the above requirements are met, the risks may be reduced or even eliminated.

We are available to assist persons interested in any issues involving this matter.

Patrícia Giacomin Pádua
Partner in the Tax Area – São Paulo
[email protected]

Chambers Global 2021 highlights our cross-border strengths

Norton Rose Fulbright ranked first among all law firms with 18 ranked lawyers in the Chambers Global 2021 global-wide practice rankings, as well as standing in the top 10 for total number of global-wide departmental practice rankings, practice rankings across all categories and lawyers ranked overall.

The firm earned 22 global-wide practice rankings, and was ranked in 185 practice areas across all categories, including global-wide and country-specific. The 185 practice area rankings include 16 top tier rankings in China, Greece, Malaysia, Morocco, Myanmar, the United Kingdom, the United Arab Emirates and the United States.

A total of 234 Norton Rose Fulbright lawyers were individually ranked as leaders in their field. The firm also picked up six new departmental rankings in Africa, Latin America, Russia, the United Kingdom and United States.

In its analysis, Chambers cited clients who provided feedback on the firm’s work, praising its extensive global reach.

“The (Norton Rose Fulbright) international network has become an increasingly important component of their service delivery as cross-border business grows,” one client told Chambers. Another praised the firm’s “ability to function seamlessly with team members in different offices and across time zones.”

A full list of our rankings is available online.