Key Features of the Singapore Convention on Mediation

The United Nations Convention on International Settlement Agreements resulting from Mediation, also known as the “Singapore Convention on Mediation” applies to international settlement agreements resulting from mediation (“settlement agreement”). It was adopted in December 2018 and establishes a harmonised legal framework for the right to invoke settlement agreements as well as for their enforcement. It is an instrument for the facilitation of international trade and the promotion of mediation as an alternative and effective method of resolving trade disputes. Since it is a binding international instrument, the Convention is expected to bring certainty and stability to the international framework on mediation, thereby contributing to the Sustainable Development Goals (SDG), mainly the SDG 16. As of 7 August 2019, the Convention is open for signature by States and regional economic integration organisations (or the “Parties”). On the first day alone 46 countries, including the United States, China and Singapore signed the Convention, which concentrates on enhancing the enforceability of settlement agreements that arise out of mediation. The Convention attempts to be mediation’s equivalent of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, and many hopes and aspirations are pinned to it as regards the widening of mediation as a mechanism for dispute resolution. 

The mediation process allows parties to try settle a dispute using the assistance of a neutral third person. The third party neutral person acts as the mediator. The mediator does not possess any authority to impose a decision on the Parties and can only to help them to agree a mutually-acceptable resolution. The Convention, under Article 2(3), defines mediation broadly, in other words it is as a way “to reach amicable settlement of their dispute with the assistance of a third person or persons (‘the mediator’) lacking the authority to impose a solution upon the parties”. So long as the settlement is captured by this definition, the Convention applies irrespective of whether the process of settlement is called a “mediation”. Similarly, no requirement exists for the mediation be administered by a mediation institution or conducted by an accredited mediator. The drafting of the provision is deliberately wide and intends to increase Convention’s appeal by avoiding a high level of prescriptiveness and maintaining the flexibility which makes mediation attractive. The Convention only applies to settlements arising from commercial mediation.

What is the test for a ‘one man company’?

Singularis Holdings Ltd (In Official Liquidation) (A Company Incorporated in the Cayman Islands) (Respondent) v Daiwa Capital Markets Europe Ltd (Appellant) concerns whether the dishonest state of mind of the sole shareholder and a director of a company is attributable to the company for the purposes of a claim in negligence against a third party bank or broker and, if so, what the consequences are of that attribution. The appeal was heard by Lady Hale, Lord Reed, Lord Lloyd-Jones, Lord Sales and Lord Thomas last month. The appeal in relation to attribution raises the following questions (1) what is the test for a “one man company”? is it a company where every single shareholder and director is implicated in the fraud, irrespective of whether the directors were involved in the management of the company at any point in time; or a company that is wholly owned and controlled by a fraudulent sole shareholder and dominant director and/or by the only person involved in the management and ownership of the company? (2) upon whom does the burden of proof lie so far as the role of the other directors is concerned? does it lie upon the company on whose behalf the directors acted at the material time or upon the bank or broker? (3) in determining the question of attributionIs it relevant to consider whether the company had a legitimate business, and/or does the nature of the Quincecare duty lead to the conclusion that Mr Al Sanea’s fraudulent knowledge should not be attributed to the respondent? If Mr Al Sanea’s knowledge and fraudulent actions are attributable to the Respondent then the appeal raises a series of further questions.

These questions are (1) is the respondent’s claim defeated by lack of causation because the Quincecare duty does not extend to protecting the respondent from its own deliberate wrongdoing and/or because the respondent did not rely upon due performance of the Quincecare duty? (2) does the reasoning of Evans-Lombe J in Barings plc v Coopers & Lybrand (a firm) [2003] PNLR 34 apply where the respondent is primarily (as opposed to vicariously) liable for the actions of Mr Al Sanea? (3) how does the three stage test recently identified by the Supreme Court in Patel v Mirza [2016] 3 WLR 399 apply in this case? In particular: is the respondent’s claim contrary to public policy? does the existence of money laundering legislation and associated regulations provide a countervailing policy consideration in favour of allowing such a claim? would it be disproportionate to deny the claim because of the ability to make a deduction for contributory negligence on account of the respondent’s own contributory fault? The facts are that the appellant is the London subsidiary of a Japanese investment bank and brokerage firm. At the material time, the respondent was wholly owned by an individual called Maan Al Sanea (“Mr Al Sanea”), who was the company’s Chairman, President, Director and Treasurer.

Habib Bank Expelled From New York

The case of the Bank of Credit and Commerce International (BCCI), which had fairy tale beginnings and patronage from the ruler of Dubai, is a historic example of a global private Pakistani bank that was shut down because of large-scale financial crime and money laundering. BCCI gave other lenders “bad vibes” and quickly acquired the nickname “the bank of Crooks and Criminals”. The closure of BCCI gave rise to the most costly and extravagant litigation in a generation. Indeed, as the late Lord Bingham discerned, investigating BCCI’s global malpractice “if a possible task, is one which would take many years to carry out”. Now the story seems to be repeating itself with Habib Bank – Pakistan’s largest bank headquartered in Karachi with $24bn worth of balance sheet assets and $1bn in annual revenue – which has been fined $225m because its New York branch failed to comply with New York laws and regulations designed to combat money laundering, terrorist financing, and other illicit financial transactions. Compliance failures were said to have “opened the door” to financing Saudi sponsored terrorism. Transactions were “batch waived” and management was unable to explain their actions. The news comes just days after the announcement that the Department of Financial Services (DFS) is seeking to enforce a civil monetary penalty of $629.625m on the bank. These enforcement actions by the DFS are a grim reminder of the poor culture plaguing banks and misconduct besetting financial institutions. DFS said it would not let the bank “sneak out” of the US without due accountability. In terms of culpability, the failures can be classified as “corporate integrity-related regulatory breach” and/or “imputed breach” events.

Because of significant weaknesses in the its risk management capabilities, the branch received the lowest possible rating of “5” in the latest compliance assessment conducted in 2016. The case for using conduct costs as a framework for analysing in the banking sector in Pakistan has already been articulated on this blog. If anything, the fines imposed by DFS certainly make Habib Bank the foremost – i.e. number “1” –financial institution for poor conduct in Pakistan itself. But of course it is equally true that Habib Bank’s delinquencies are surpassed by the toxic level of failings connected to the £264bn in conduct costs incurred by the world’s foremost international banks including Bank of America, JPMorgan Chase, Morgan Stanley, Lloyds Banking Group, Barclays, HSBC and so forth. As Lord King aptly puts it a decade after the global financial crisis: “Very smart people thought it was fun and completely acceptable to exploit less smart people.” The scale of poor conduct in the New York branch, which processed banking transactions worth a total of $287bn in 2015, raises serious questions about the state of affairs in the banking sector in Pakistan itself where corruption is widespread and regulation is diluted in comparison to the West.

Andrew Bailey on the Death of LIBOR

The ailing LIBOR benchmark, underpinning $500-$800 trillion worth of financial contracts, has been in a state of malaise for many years. Despite the efforts of regulators to revive the sick scandal-ridden benchmark, which suffered from a series of problems related to cheating and misreporting, it is unsurprising that its slow death will finally come in about four years’ time. As the Chief Executive of the FCA Andrew Bailey recently explained the funeral is set for 2021. But some clearly want LIBOR to live longer. Bailey called LIBOR “a public good” but questioned its current usefulness. Among other things, LIBOR related misconduct resulted in civil claims and fines of £9 billion. And, of course, in the criminal context it resulted in “clustered criminality” of which convicted LIBOR rigger Tom Hayes is a prime example. Clustered criminality, which only reflects a very small part of the ills affecting financial services, is when there “is at least strong suspicion that a crime has been committed and although the culprits may not be immediately clear it seems likely that more than one person was involved.” A succinct account of bankers lying, cheating and colluding to rig LIBOR is found in The Fix where Liam Vaughan and Gavin Finch expose the ills gripping the financial world. Hayes, who operated as “Tommy Chocolate” in the midst of the financial crisis, worked in a culture where “your performance metric” is all about “the edge” and making “a bit more money” because that is “how you are judged”.

In The Spider Network, David Enrich tells the “wild story” of Hayes – who he dubs “a maths genius” – and the backstabbing banking mafia which operated a thoroughly crooked financial system. Breaking the silence in an exclusive interview with The Sunday Times, Hayes’s wife Sarah Tighe vowed to “never stop fighting for my autistic husband, the LIBOR fall guy”. Hayes, who achieved notoriety by miraculously dodging extradition to the US, was jailed for 14 years for fraud but his sentence was reduced to 11 years. Tighe is fighting for her husband’s release and said that she “went apeshit” when officials tried to seize her assets as well. Her morale will undoubtedly be strengthened by the news that former Rabobank traders Anthony Allen and Anthony Conti, who are both British and were convicted at first instance for rigging LIBOR, have had their convictions overturned by the US Court of Appeals for the Second Circuit in New York which found that constitutional rights against self-incrimination had been breached. Tom and Sarah will probably also find solace in the fact that the cycle of cheating was so extreme that even the Bank of England is now implicated in LIBOR manipulation.

King and Country: Reflections on the Costs of Market Misconduct

Read as updated SSRN paper with reference to the Panama Papers. Because of the Budget 2016, the chancellor has been accused of “looking more like Gordon Brown as a purveyor of gimmicks.” In difficult times when calls for his scalp over the row regarding the budget seemed to have eclipsed everything else, the rare bit of good news for George Osborne is that he can use the opportunity provided by the threat of Brexit – “a leap in the dark” which may cost the UK £100 billion or 5 per cent of GDP and 950,000 jobs by 2020 – to camouflage and obfuscate the real problems of conduct in the world of economics and finance. On the other hand, in an important interview with Charles Moore the former Bank of England governor Mervyn King showed hallmark signs of euroscepticism and said the people need to make up their own minds about the upcoming referendum. King also warned that lenders have not stopped taking excessive risks with savers’ money and the result is “bankers have not learnt the lessons of the Great Crash”. Unsurprisingly, in his somewhat controversial new book The End of Alchemy he makes the case against financial sorcery by arguing that it must be squeezed out of the world’s banking system. Perhaps, such failings are amplified further because “financial crises are a fact of life” and we are “moving into a rerun of the credit crunch”. Indeed, Lord King calls banks “the Achilles heel of capitalism.”

Below I sketch important/emerging issues in the intersecting themes of economics, law and misconduct as seen in the media, especially through the lens of “conduct costs” – some other themes are also explored. Mentioning Walter Bagehot and his classic text Lombard Street, which argued that the BoE should provide short-term financial support in times of crisis, King advises us that the old “lender of last resort” model (LOLR) is in need of revision because “banking has changed almost out of recognition since Bagehot’s time.” The former governor argues that the time has come to replace LOLR with the pawnbroker for all seasons (PFAS) system. For him, it is time for financial institutions to drop LOLR and embrace PFAS and be prepared to advance funds to just about anyone who has sufficient collateral. “The essential problem with the traditional LOLR,” argues King “is that in the presence of alchemy, the only way to provide sufficient liquidity in a crisis is to lend against bad collateral – at inadequate haircuts and low or zero penalty rates.”

Navinder Sarao: ‘Flash Crash’ Trader’s Extradition Request Upheld

The Government of the United States of America v Navinder Singh Sarao (23 March 2016)

The case of Nav Sarao, the “hound of Hounslow” who faces a potential sentence of 380 years’ imprisonment on 22 counts in the US, has inflamed emotions and commentators have expressed extreme sympathy with the rogue trader who is considered to be the main culprit behind the “flash crash” of 6 May 2010. The disproportionate nature of his predicament is clearly illustrated by the fact that if extradited and punished in America, Sarao may well receive a harsher sentence than Serbian war criminal Radovan Karadic who got 40 years for crimes against humanity and genocide but will enjoy the right to a lengthy appeals process. It has been argued that Sarao had to be caged because he discovered a way to beat the HFTs at their own game. At the time of his arrest, senior traders even made public statements about footing his legal bill. Seldom has a corporate crime case aroused such a passionate response. Fellow traders dubbed Sarao “our spoofing hero” and the case against him was labelled “ridiculous”. Yet in the Westminster magistrates’ court judge Quentin Purdy disagreed and found that Sarao was extraditable to the US on the charges levelled against him. On the other hand, in making factual findings in the case, judge Purdy found that the downturn in the market was not attributable to a single event and the cause of the flash crash “cannot on any view be laid wholly or mostly at Navinder Sarao’s door” because even though he was active on 6 May 2010 the date “is only a single trading day in over 400 relied upon by the prosecution.”

Against this, the Commodities Trading Futures Commission accuses the Brit of exacerbating the flash crash and claims he “was at least significantly responsible for the order imbalances” in the derivatives market which affected stock markets to make matters worse on the day. The judge found that if found guilty of market abuse under UK law, Sarao’s activity would result in a sentence of 12 months’ imprisonment being imposed on him and so the dual criminality test in section 137 of the Extradition Act 2003 was satisfied. He also stressed the importance of the public interest in upholding the controversial UK-US Extradition Treaty. Sarao is accused of engaging in a ferocious campaign to manipulate the price of the E-mini S&P 500 on the Chicago Mercantile Exchange by relying on a variety of exceptionally large, aggressive and persistent spoofing tactics.

Tom Hayes: LIBOR Fraudster’s Sentence Reduced, But Conviction Upheld

Regina (Respondent) v Tom Alexander William Hayes (Appellant) [2015] EWCA Crim 1944 (21 December 2015)

In this redacted judgment, the Court of Appeal (Criminal Division) upheld Tom Hayes’s conviction but reduced his brutal sentence from 14 years to 11 years. The clawback of three years will come as a blow to the resurgent fortunes of the Serious Fraud Office (SFO). Lord Thomas of Cwmgiedd CJ, Sir Brian Leveson PQBD and Gloster LJ reduced the sentence because Hayes was not in a managerial position and also suffered from autism (see here). Expressing mixed emotions about the outcome of his appeal against conviction and sentencing Hayes said that he “was immensely disappointed” by the overall result but was nonetheless “relieved and grateful” that the “immensely disproportionate” sentence passed by Cooke J was reduced. “I never asked for a dishonest or inaccurate LIBOR rate to be submitted. I was at secondary school when these practices started,” is how Tom Hayes still places himself in the grand scheme of things. The three judges found that Cooke J was right to conclude that the expert evidence sought by Hayes was of low probative value. He initially entered into an agreement with the prosecution under section 73 of the Serious Organised Crime and Police Act 2005 (SOCPA) in order to avoid extradition to the US but later withdrew and changed his plea to not guilty. In more ways than one, Hayes is somewhat of a comeback kid and Cooke J had called him a “gambler”.

However, the Court of Appeal held that ordinary standards of reasonable and honest people, rather than the standards of the market or a group of traders, determined judging the extent to which a banker had acted dishonestly in manipulating financial markets. The court was clear that an example had to be made of Hayes so as to deter others with similar ideas from misbehaving. “I continue to maintain my innocence. I look forward to pursuing every avenue available to me to clear my name,” is how he intimated a possible appeal to the Supreme Court. In relation to his conviction, Hayes advanced six grounds of appeal but was granted permission to appeal on only one. The details contained in paragraphs 38 to 60 of the court’s judgment cannot be reported until the conclusion of Trial 2 (see here) before Hamblen J.

SFO v Standard Bank: First UK Deferred Prosecution Agreement

The director of the Serious Fraud Office (SFO), David Green QC, has overseen a turnaround in the ailing agency’s fortunes. Green is reportedly paid £175,000 annually and the press suggests he is likely to continue his role for another two years after his four-year term expires in April 2016. With successes such as the conviction of benchmark fraudster Tom Hayes (presently jailed in Lowdham Grange Prison) already under his belt, Green has his sights set on securing further convictions in other ongoing benchmark prosecutions. In Hayes’s appeal, Sir John Thomas LCJ has directed that a medical report should be filed by 9 December 2015. Hayes argued the Nuremberg defence and said that he was merely following orders. But he failed miserably in winning the jury’s sympathy and is a broken man. He suffers from Asperger’s syndrome and attention deficit hyperactivity disorder but that did not stop Sir Jeremy Cooke from sentencing him to 14 years’ imprisonment for his fraudulent ways. Of course, only recently the SFO also secured the UK’s first deferred prosecution agreement (DPA). In SFO v Standard Bank Plc, the president of the Queen’s Bench Division, Sir Brain Leveson approved the UK’s first DPA in a bribery case connected to a £397/$600 million sovereign note deal involving Tanzania.

Two things stand out about this case. It is the first example of a UK prosecutor entering into a DPA or a “plea deal”. Moreover, the situation was equally novel because it was the very first time that the offence of failing to prevent bribery – under section 7 of the Bribery Act – was used since its introduction in 2010. The government considers DPAs as a new and important enforcement tool to deal with corporate economic crime. DPAs came into existence in the UK by virtue of section 45 and schedule 17 of the Crime and Courts Act 2013. The present case turned on the Tanzanian government’s wish to raise funds by way of a sovereign note private placement. The bribe took place when, in March 2013, Standard Bank’s former sister firm Stanbic Bank Tanzania paid £4/$6 million to Enterprise Growth Market Advisers (EGMA). The SFO contended that the improper payment’s purpose was to induce a representative of the Tanzanian government to favour Standard Bank and Stanbic’s proposal for the sovereign note deal. Stanbic and Standard Bank shared the transaction fees of £5.6/$8.4 million that were generated by the placement.

Notable Economic Forecasts

The UK has recently been dubbed by the Legatum Institute as “the third cheapest place in the world to start a business, far cheaper than the US or Germany.” The strength of the UK economy, which makes it one of the world’s most prosperous countries, is the underlying reason for creating successful businesses and opportunities for those seeking entrepreneurial roles. The Legatum Institute 2015 Prosperity Index, which is a league table ranking countries on the basis of economic success and a series of wellbeing indicators, ranks the UK (behind Germany) as the fifteenth most prosperous country in the world. (Norway has topped the ranking for the seventh consecutive year as the world’s most prosperous country.) However, as observed on this blog, misconduct in financial services is spiralling and no end to the conundrum appears to be in sight. In relation to trade, contrary to the findings of the Legatum Institute, the Institute of Chartered Accountants in England and Wales (ICAEW) has also found that business confidence in the UK is weakening and that investment is muted and exports are low.

For example, the Q4 2015 ICAEW/Grant Thornton UK Business Confidence Monitor results argue that though “still firmly in positive territory … the post-election honeymoon maybe over”. Exports and manufacturing have not been rebalanced which means there is continued reliance on domestic demand. In addition to the fall in business confidence after the post-election bounce, the Q4 2015 ICAEW/Grant Thornton report further found that exports are sliding below domestic sales, firms are restricting their budgets for R&D because they lack long-run confidence and skills shortages are rising – albeit wages are increasing steadily. The upshot is that business confidence is at its lowest level since 2013. Confidence in the services sector remains positive but is declining in the production sector.

Navinder Sarao: ‘Flash Crash’ Trader’s Extradition Appeal Adjourned

Like Tom Hayes who got burned for benchmark rigging – but is appealing both his conviction and his sentence – Navinder Singh Sarao also suffers from Asperger’s Syndrome (autism). People like them only see the world in black and white and are unable to see shades of grey. Hayes got 14 years which seems to be disproportionate given that UBS had distributed a manual on rigging LIBOR. But he managed to play the Serious Fraud Office and achieved his main objective, i.e. to dodge extradition to the US. Sarao faces a potential sentence in the US, on 22 counts, which may be as long as 380 years’ imprisonment. The charges against Sarao include wire fraud, commodities fraud, commodity price manipulation and attempted price manipulation. He is charged with using his trading algorithm to spoof markets. After being granted bail in August he got his second lucky break and his extradition hearing was adjourned for four months because of changes, which seek to vary the start date of the allegation of the criminal activity by six months, in the charges levelled at him. Sarao was arrested on 21 April 2015. The US authorities, led by the Department of Justice and the Commodities Futures Trading Commission (CFTC) believe that Sarao is a malevolent individual.

But then again the Americans are also still running Guantánamo Bay despite the Obama administration’s promise to close the prison which Lord Steyn famously described by as a “legal black hole”: see post on Shaker Aamer’s return after 14 long years of being held there without charge. Because he does not have a spouse or a child, Sarao was initially refused bail because of posing a “quintessential flight risk” but was finally released on 14 August 2015 by Westminster magistrates’ court when his bail was reduced from £5 million to £50,000. His extradition appeal was due to be heard this month. Hitherto attempts to postpone the hearing scheduled on 25 September 2015 were unsuccessful: see posts here and here. The reasons for postponing the extradition hearing are related to the fact that the US authorities are pressing further charges against him and want to back date his criminal activity by six months to January 2009. Sarao told that Westminster magistrates’ court that he did not consent to being extradited to America.