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Sponsored briefing: Class actions defence

PLMJ on class action litigation and the future trends and potential pitfalls for businesses to keep in mind when facing a claim in Portugal

Who we are

We are a leading, national and independent law firm in Portugal that is focused on providing legal advice to the business sector, and we have one of the largest teams of lawyers in the country.

Our dispute resolution team supports our clients in highly complex disputes critical to their business and reputations, and we work consistently on the most sophisticated and sensitive Portuguese and international disputes.

Class action litigation in Portugal:a few points to note

Legal framework – the general legal framework for class actions is set out in the Class Action Act (83/95). There are also sector-specific class action rules (eg the Private Damages Act when there is a breach of competition law).

‘Opt-out’ representative basis – the general rule under Portuguese law is that all class actions proceed on an opt-out representative basis. If the class action is accepted by the court, class members will be served (i) to join and participate in the proceedings proactively if they wish; or (ii) to state that they do not agree to be represented by the claimant(s). The right to opt out may be exercised by class members until the end of the evidential stage of proceedings. Not opting out of an action by the deadlines set will result in automatic opt-in.

Absence of a separate certification stage – Portuguese law does not provide for a standalone class certification process. However, for a class action to proceed in Portugal, the court must carry out a preliminary analysis of the claim. In that assessment, the court can summarily reject the claim if it considers that it is manifestly unlikely to proceed. One of the grounds for such a decision can be the absence of a proper class. It is rare, however, for class actions to fail at this stage of proceedings. Notwithstanding the above, the parties to class action proceedings can make submissions regarding class membership prior to judgment. As a rule, the court will rule on all substantive issues – including class membership – in the final judgment.

Relatively low costs for bringing class actions – the general rule is the ‘loser-pay rule’. Costs comprise court fees and adverse costs, including the prevailing side counsel’s fees. Under the specific class action rules, if the court finds even just partially in favour of the claimant, the claimant will be exempt from court costs. If the claim is universally unsuccessful, claimants will be ordered to pay an amount to be fixed by the court as costs. This amount will range from 10% to 50% of the amounts due in ordinary civil claims. In determining the specific amount to be paid by an unsuccessful claimant, the court will consider the economic situation of the claimants and the reasons why the claim did not succeed. Conversely, defendants in class actions must pay court costs, as is the case in any other civil proceedings.

Third-party funding is not yet specifically regulated in Portugal – to date, there is no identifiable established case law on whether and to what extent third-party funding arrangements are lawful in Portugal. Until very recently, third-party funding was very rare. However, since December 2020, several class actions backed by litigation funding arrangements have been brought before the Portuguese courts. The extent to which litigation funding arrangements common in jurisdictions such as the US, the UK and Australia are permitted by Portuguese law is not yet clear.

Typically available defences – several procedural and substantive defences are available in class action proceedings in Portugal.

The key procedural defences brought in class action litigation include (i) lack of jurisdiction of the Portuguese courts; (ii) limitation; (iii) the absence of interests covered by the class action regime (diffuse interests); and, in class actions where the claim is brought by consumer associations, (iv) a defence as to whether the association in question meets the requirements as a class representative and therefore has standing to bring the claim.

The key substantive defences brought in class action litigation in Portugal include (i) the absence of any unlawful behaviour or, in the case of standalone competition litigation, any infringement of EU and/or domestic competition law; (ii) the absence of causation of any damage arising from the conduct at issue; (iii) the absence or miscalculation of any alleged damage to the claimant(s); and (iv) pass-on (in the case of competition law class actions).

There are a number of additional defences that are currently being run in Portuguese class action litigation. The extent to which these defences will remain available in the future will depend on the outcome of current litigation.

Compensation is set globally – the court has the discretion to set the compensation of unidentified claimants as a whole, considering the overall damage. This amount must be reduced by the amount of compensation due to claimants who opted out. Identified claimants will be compensated according to the general rules of civil liability (ie according to the damage they have actually sustained).

Class action landscape and future trends

The class action litigation landscape in Portugal is evolving rapidly. Since December 2020, self-proclaimed consumer associations have brought numerous class actions against both multinational and domestic firms, especially competition and consumer law class actions. Many of these actions are copycat cases of class actions brought in other jurisdictions. We expect the volume of class actions to continue to increase in the short to medium term and witness the rise in privacy/data breach, Big Tech and crypto class actions litigation. The ESG movement may lead to class litigation in the near future as well. It is to be expected that Portugal will soon have transition steps underway to implement the EU Directive on Representative Actions ((EU) 2020/1828).

Anticipating potential pitfalls

Businesses would be advised to keep the following key points in mind when facing a claim in Portugal:

  • Anyone can bring a class action and the general rule is that class actions are opt out.
  • There is no separate class certification stage. A decision on the class of potentially harmed consumers is only made on final judgment. This means that a claimant is not burdened by a procedural hurdle which in other jurisdictions can result in delays to a final hearing on the merits and final judgment.
  • The costs associated with bringing class actions are relatively low. Judicial costs are only due on final judgment and the claimant is exempt from any court costs if the claim is totally or partially upheld. If the claim fails entirely, judges have the discretion to cap cost orders against claimants. Based on past judicial practice, it is unlikely that a claimant will be burdened with an order to pay a large amount of the defendant’s costs in the event that the claim is dismissed in its entirety.
  • Portugal is a one-shot jurisdiction. This means that a defendant must present all of its procedural and substantive defences in its defence to a claim. This can often place a defendant on the back foot, as the deadlines for submitting a defence are very tight – a domestic defendant will need to respond to a claim within 30 calendar days of service on the last defendant, while a foreign defendant has 60 days to respond from service on the last defendant.

The combination of these reasons makes Portugal an attractive jurisdiction for class action claimants and can put Portuguese proceedings at or near the front of a defence strategy for a defendant facing similar/identical claims across jurisdictions. This is because, as noted, a defendant must submit all defences at a very early stage of litigation. As a result, while in other jurisdictions a defendant may be litigating class certification, in Portugal the same defendant will have to have developed all its arguments on the merits of the case in addition to presenting any procedural defences.

We are ready to help you navigate complex class actions

Our team has represented clients in defending high stakes class actions that require a multifaceted approach, including liability of directors of listed companies and manufacturers’ civil liability. We also have extensive experience representing clients in competition class action claims before the Portuguese Competition Court.

We are mindful that class actions are a rough sea for businesses: they entail significant risks, including high monetary exposure and reputational hazard. Our class actions defence lawyers are well placed to work with our clients facing class actions and employ their specialised skills and strategic experience to achieve positive outcomes. We have an in-depth knowledge of the substantive and procedural aspects of class actions in Portugal and keep a close eye on the international landscape to monitor emerging trends. We invest strongly in detailed case planning and assessments, especially in the case of multi-jurisdictional and cross-border actions. Last but not least, we do not overlook the importance of working with leading national and/or international economic experts and providing our clients with robust and cost-effective defences.

Authors


Petra Carreira
Managing associate in the dispute resolution practice


Rita Samoreno Gomes
partner and co-head of the dispute resolution practice

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Sponsored briefing: Mutual meetings of party-appointed experts: Key to procedural effectivity in arbitration proceedings?

It is a rule rather than an exception that the parties in significant arbitration proceedings present their case also by expert reports produced by party-appointed experts. However, such taking of expert evidence is frequently associated with unsolicited increase of time and costs in arbitration. SOUKENÍK – ŠTRPKA give their insights

Negative aspects of party-appointed experts may be prevented or mitigated by adoption of effective procedural measures.

Within this article, Slovak law firm SOUKENÍK – ŠTRPKA gives a closer view on mutual meetings of party-appointed experts as a procedural tool, which may assist the parties and the arbitral tribunal in saving time and costs when taking expert evidence.

Two experts, hundreds of views

When both parties appoint experts of the like discipline, these experts start to familiarise themselves with the case separately based on available scope and content of instructions, information and documents provided by the parties.

Although both party-appointed experts of the like discipline form their initial opinions on certain factual and expert matters individually, it is not uncommon that certain views of the experts would be aligned despite the fact that the experts were instructed by different parties of the dispute.

Unless the party-appointed expert is not aware of the position of the expert appointed by the counterparty on a certain matter, such expert would be obliged to deeply consider and explain all of the issues associated with expert discipline. Such a situation is ineffective and undesirable, as an expert cannot focus more on matters which are indeed contentious between the experts.

Therefore, in each arbitration with the presence of party-appointed experts, it should be duly considered, whether an early mutual experts’ meeting associated with production of joint expert statement would have the potential to narrow the uncontentious issues between party-appointed experts and consequently result in the saving of time and costs for taking of expert evidence.

Preparation makes perfect

Parties and their legal representatives should always identify appropriate experts for their case in the early stage of a dispute and provide appointed experts with information, relevant documents and reasonable instructions as soon as possible. Otherwise there would be a threat that discussions would be ineffective or unfavourable due to a shortage of the expert’s time for preparation for joint meeting with the expert appointed by the counterparty.

Discussions between experts

Identification of issues to be resolved by agreement between party-appointed experts is widely recognised between arbitration practitioners as an effective case management technique.

Joint meetings between party-appointed experts are a field for reaching agreement between experts over certain matters which fall into their area of specialisation.

From our practical experience, the sooner meetings of experts take place, the more effective the discussions are.

Adoption of two (or more) rounds of early expert meetings (by agreement of the parties or instruction of arbitral tribunal within procedural order) also represents good practice which may result in increased procedural effectivity regarding expert evidence.

Meetings of experts held before the issue of expert reports are less frequent. However, a first round of expert meetings before exchange of expert reports may assist the experts in clarifying agreements and disagreements particularly in respect to the methodology, terminology and units of measurement.

Second (core) round of expert meetings should be organised after first round of exchange of written expert reports, ie, in the procedural stage when initial complex positions of experts are clarified.

Discussions between experts after exchange of initial expert reports may assist the experts to narrow the scope of contentious issues before the production of final expert reports.

Prior to the meeting of experts, several issues should be clarified:

  • Format – in person/videoconference;
  • Agenda – should be notified in advance (to allow the experts to appropriately prepare for effective discussions)
  • List of participants – experts with/without their colleagues would attend the meeting. However, the presence of legal representatives is questionable. In the majority of arbitration cases, tribunals are of the view, that the presence of legal representatives would preclude the experts communicating without pressure. Since the role of experts is not to settle aspects of the dispute on behalf of the party of dispute and the experts shall focus on technical issues, we share the opinion that the presence of legal counsel at joint expert meetings is unnecessary, unless specific circumstances of the case require otherwise.
  • Minutes of meeting – are the basis for preparation of joint statements of experts and therefore it is advised, that MoM should be prepared by a third independent party.

Joint statements of experts

Provided that the discussions of the experts were effective and the experts were able to identify the areas of their agreement and disagreement, the experts should prepare a joint statement including a list of agreed and disagreed issues.

For the sake of effectivity of future hearing, any reasons for disagreement should be justified by both experts within a joint statement.

A joint statement should be afterwards submitted to the arbitral tribunal which would assist the tribunal in becoming familiar with the list of contentious matters between the party-appointed experts and with the reasons for disagreement of the experts in certain matters.

Although joint statements of experts are in general not binding on the parties and/or their experts, it would be extremely difficult for a party or its own expert to deviate from an opinion previously expressed in a joint statement. Therefore, the time and cost-effective party-appointed expert discussions require diligent preparation and consideration of possible risks.

Selected arbitration cases

  • Representing company operating in road sector in construction arbitration (2021 ICC Rules; case value: €400m; co-operation with Simmons & Simmons);
  • Representing Ministry of Transport and Construction of the Slovak Republic in ICC arbitration arising from delay of the PPP project, EOT and increased costs (2017 ICC Rules; case value: €1.9bn; co-operation with Eversheds Sutherland);
  • Counsel to a state-owned entity in respect to ICC arbitration arising from compensation for damage dispute (2012 ICC Rules; case value €700m);
  • Counsel to the Slovak Republic in investment treaty arbitration based on a BIT, arising from the investment in the textile sector (UNCITRAL rules; case value: €290m);
  • Local counsel to the major international law firm in investment treaty arbitration based on a BIT, arising from health insurance (UNCITRAL rules; case value: €1bn);
  • Representing of the National Council of the Slovak Republic in six major court disputes (partially linked to investment arbitration proceedings) with foreign investors (cases value in total: €600m).

Authors


David Soukeník
Partner


Peter Štrpka
Partner


Lukáš Štefánik
Head of litigation and arbitration

Tel: +421 2 322 02 111
E-mail: [email protected]

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Sponsored briefing: Taking an important case to trial

MoloLamken LLP partners Steven Molo and Sara Margolis discuss how a party in a high-stakes trial might improve its chances of success, or, at least avoid disaster

It’s the rare businessperson who wants to have an important issue or, worse, a company’s fate decided by a judge or jury. The vast majority of lawsuits are settled before it comes to that. But trial happens, sometimes with billions or hundreds of millions of dollars at stake.

Given how unfamiliar this territory can be, we spoke with MoloLamken LLP partners Steven Molo, one of America’s leading trial lawyers, and Sara Margolis, a rising courtroom star, to learn how a party in a high-stakes trial might improve its chances of success, or, at least avoid disaster.

The overwhelming number of civil lawsuits in America, including high-stakes business disputes, settle given the risk and the expense. What is it that causes a party – plaintiff or defendant – to say we understand all that, but we’re going to trial?

Steven:Usually, it’s when the parties have fundamentally different views on the value of a case. A variety of factors influence those views. Certainly, the evidence developed in fact and expert discovery is important. But also important are the party’s financial circumstances, its view of what type of trial – and possibly decision – it will get from this judge, and if it’s a jury trial, what the jury research has shown.

Sara: Sometimes, too, a party will have great confidence in its position on a key legal issue it lost earlier in the case. It might be something decided on summary judgment or on a motion to dismiss. Or it could be on how the judge has said she will instruct the jury. A party might believe the risk of a trial loss is substantially mitigated by the likelihood of an appellate victory or at least a favourable settlement after trial in light of the appellate issue. It can be a big bet. But some clients are willing to make it.

Is there a type of case – in terms of the underlying dispute – that’s more likely to go to trial?

Sara: Not really. It can be an antitrust case, a fraud case, a contract dispute, shareholder or bondholder disputes, an IP dispute. You don’t see many class actions tried, but recently we won a nice jury verdict for the plaintiff class in a securities fraud suit.

I know sometimes you are brought in very late in a case, maybe after it’s been litigated for years, to represent a client at trial. How does that come about?

Steven: Sometimes a client will recognise that a case that’s been plodding along for three or four years with discovery and motions is actually going to be tried and there’s a lot at stake. They can look at their lead lawyer, who may have done a fine job up to that point, and realise this is not someone with much, if any, experience trying cases before a jury or a judge. That can be a sobering moment.

When you think about it, that makes sense. Not many cases get tried so not many lawyers have tried many cases.

Clients sometimes find us and say, can you come in and work with our existing lawyers who we love, but who just aren’t that experienced with trials. We do that regularly.

Sometimes the firm itself will approach us and say, we’ve gotten it this far but adding your firepower can make a real difference. Once in a while, a client will want to replace its law firm over a disagreement concerning trial strategy or whether the case should be settled.

Ultimately, a client has to feel comfortable and believe it’s got an experienced fighter leading the charge and a competent well-structured team that can take the case from where it is to a win.

You say a ‘competent well-structured team’. What do you mean?

Sara: You can have a great lead trial lawyer but in a complex, high-stakes case, there’s too much going on for that person to be effective without other strong players focusing on discrete aspects of the trial. For example, we might have a lawyer focused on damages, another focused on liability experts, another focused on legal issues and jury instructions. They need to go deep in their assigned areas but also have in mind the broad strategy and be aware of what’s going on in other aspects of the case.

Steven: And the team should be diverse.

Sara: Right. Diversity broadens your perspective and provides strength. Not everyone looks at the world, or the issues you are dealing with, the same way. Diversity isn’t some catchphrase. It leads to better outcomes.

What you describe sounds like a highly-structured, almost military approach. Can you provide a sense of what that actually looks like at a trial?

Steven: We believe the case should be tried before we ever set foot in the courtroom. By that I mean, we’ve mapped out the testimony of our witnesses and the cross-examination of opposing witnesses, including the exhibits we’ll use with each. We’ve thought through the evidentiary issues. And we do this collaboratively to capture the best thinking.

Sara: We have our own system for organising that. The same system carries over from trial to trial, so expectations of team members are clear. We’re not re-inventing the wheel with each case. We’re big on white boarding as a tool to spark creativity and collaboration but bring discussions to a concrete point.

Steven: We have dinner as a team in a conference room at 7 p.m. every day after court. There’s an agenda covering what needs to be done based on our plan and the day’s developments.

Wow. That sounds rather rigid. Aren’t trials supposed to be dynamic?

Steven: They are dynamic. But having an experience-based system and a plan, we can better address courtroom twists and issues as they arise.

You mentioned jury research. What exactly do you mean by that?

Sara: There are consultants who, under the confidentiality protections of the attorney-client privilege and work-product doctrine, run various exercises – surveys, focus groups, mock trials – and help develop themes and assess likely juror reactions. We’ve worked with many of the top people throughout the country.

Do you do that with bench trials?

Sara: Sometimes, in a fashion. We might bring in one or more retired judges to have a look and get their thoughts.

What about graphics? They seem to be used extensively at trials and hearings?

Steven: Good graphics are essential. There are studies showing 85% of communication is non-verbal. And we live in a smart phone/Twitter world. People’s brains are trained to receive and process information and form beliefs quickly – through displays of information, not just the spoken word. We account for that. We work with outstanding graphics consultants who we’ve known for years to hone our messaging.

Sara: Graphics are something most lawyers get wrong.
They use too many. They are jammed with too much information. They don’t understand color. It’s usually death by PowerPoint.

How important is subject matter expertise?

Sara: At this stage, advocacy skills are far more important than subject matter expertise. The legal issues have been fleshed out. We usually have a subject matter expert as part of the trial team. But the lawyers’ job now is to persuasively present the important evidence within the framework of the applicable law.

Are there aspects of a trial that lawyers without a lot of courtroom experience tend to struggle most with?

Steven: Cross-examination is probably the most difficult skill to develop. Preparation is critical, but an effective cross-examiner must respond and adjust in the moment. It takes lots of experience with inevitable failures along the way to excel at it. People think success as a prosecutor equates to success as a private lawyer. It helps, but prosecutors often are not required to cross-examine many witnesses, so that’s not necessarily true.

Another common struggle is seeing the forest for the trees. People become so immersed in facts developed over the years that they won’t focus on the few that matter most. Often, it’s a lack of confidence or a ‘cover-your-backside’ mentality – two documents can prove the point but let’s introduce 15, so we won’t be criticised. What’s lost is the 15 can confuse or bore the judge or jury. Less is often more.

Persuasion is about striking an empathetic chord with your audience and telling a simple story that has the equities as well as the facts favouring your side.

What about working with witnesses?

Sara: Many litigators are experienced in preparing witnesses for depositions. But depositions, at least those taken in discovery and not for the purpose of presenting trial testimony, are quite different from trial testimony. A trial witness will affirmatively tell the client’s story, or part of it, and different communication skills are required. An experienced courtroom advocate shapes the witness preparation to account for that.

Also, there’s a tendency among less experienced lawyers to want to tell the whole story – or at least a good part of it – with each witness. They fail to recognise that a well-presented case at trial is like a mosaic, with various pieces fitting together to form the big picture.

Other than the obvious benefit of courtroom expertise, are there advantages to using a litigation specialist firm like yours to try a major case?

Steven: Certainly, when we are hired it sends a message to the other side that the client is ratcheting things up and ready to do battle from the trial court all the way to the Supreme Court, if necessary. That can be one factor in reaching a favourable settlement.

Additionally, we are independent. A large percentage of our clients come to us to deal with a specific serious matter. Without a corporate practice, we lack the institutional ties that can sometimes – consciously or unconsciously – influence advice and strategy. Our advice about whether to proceed to trial or settle in a given range is based on our studied view of that case and the client’s articulated goals.

Authors


Steven Molo
Partner


Sara Margolis
Partner

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Sponsored briefing: Integrating and exploiting technology in our business activities

RDS Partnership discusses how the covid-19 pandemic has played a significance in exploiting and integrating technology in the legal sector.

One of the main lessons learned from the global lockdown is the significance of integrating and exploiting technology in our business activities. This applies to the legal field as well, where lawyers have had to adjust to the new reality of making arguments in front of a monitor and looking at a camera, rather than addressing the judge face-to-face.

The courts in Malaysia have also adapted to the digital era by allowing virtual hearings and trials even during the initial stages of the pandemic. The legislative branch made a commendable move by quickly amending the Rules of Court 2012 to establish regulations and best practices for electronic communication in serving legal documents and remote communication technology in court proceedings. As a result, it is not surprising that while most of the world was on hold, the courts persevered in their duty to dispense justice.

Statutory interpretation whilst often perceived as elementary and trite, is frequently the key to unlocking the Gordian knot in disputes. A case in point was the recent Federal Court decision in Tan Kah Fatt & Anor,1 where the interpretation of the term “issue” under theDistribution Act 1958 was fundamental to the appeal. The Federal Court acknowledged that the standard canon of construction has always been that the courts should, in usual cases, begin with the literal rule and that the purposive rule only ought to be relied on where there is ambiguity. Nevertheless, the recent trend of decisions seem to have taken a markedly different approach. In this recent case the Federal Court cited the decision ofBursa Malaysia Securities Bhd2 in approval and held that the purposive rule of construction prevails over the literal rule of construction in the interpretation of a statute given section 17A of theInterpretation Acts 1948 and 1967.

The pandemic years also saw landmark decisions in the housing industry. Regulation 11(3) of the Housing Development (Control and Licensing) Regulations 1989(“HDR”) was declared ultra vires its parent law, the Housing Development (Control and Licensing) Act 1966(“HDA”), by the Federal Court in the case of Ang Ming Lee.3 This means that only the Minister of Urban Wellbeing, Housing and Local Government, and not the Controller of Housing, can make amendments to the sales and purchase agreement that is statutorily provided. The Court of Appeal supported this decision in the case of Bludream City Development Sdn Bhd,4 and the purchasers’ motion for leave to appeal to the Federal Court was dismissed. Another issue in the housing industry was the calculation of liquidated damages for late delivery of vacant possession, which was resolved by the Federal Court in the case of PJD Regency Sdn Bhd.5 The court ruled in favor of the homebuyers and held that the starting date for calculating liquidated damages was the date of the purchaser’s payment of the booking fee, and emphasized that the HDA should be interpreted in favor of the homebuyers as it is a social legislation. These decisions resulted in a surge of cases filed by homebuyers to claim liquidated damages alleging that their sales and purchase agreement (where the date for delivery of vacant possession exceeded the 36-month prescribed timeline) was void. This slew of cases before the Malaysian Courts for liquidated damages are currently awaiting the decisions of the Federal Court in the cases of Obata-Ambak Holdings Sdn Bhd6 and Vignesh Naidu.7

In the field of intellectual property, there were several important cases that reached the Federal Court. In Mohammad Hafiz bin Hamidun,8 the court clarified the meaning of “goodwill” and who owns it, stating that “goodwill” is a flexible asset that can be generated in various ways. In Ortus Expert White Sdn Bhd,9 the court reiterated principles on trademark comparison and held that disclaimers should not be disregarded in the comparison exercise.

Regarding parallel imports, the Federal Court’s decision in Guangzhou Light Industry & Trade Group Ltd10 narrowed the applicability of the defense of parallel importation, holding that goods intended for sale in a specific jurisdiction (outside Malaysia) may infringe trademarks if imported into Malaysia.

The YKL Engineering Sdn Bhd11 case provided guidance on patent invalidation and copyright subsistence. The case dealt with practical aspects of patent invalidation and held that that prior arts relied on to invalidate a patent must be specifically pleaded, failing which may result in the litigant being deprived the ability to rely on said prior art in the invalidation action. The court also held that copyright law does not require a work to be new or unprecedented, but rather that sufficient effort has been expended to make the work original.

The trend of copyright owners taking a proactive approach in enforcing their intellectual property rights can also be discerned from the case of The Football Association Premier League Limited & 1 other.12 In that case, the copyright owner had painstakingly taken steps to protect their intellectual property associated with the Premier League by registering the ASTRO and ASTRO Supersport’s logos, promos and other interstitials only for the defendant to screen Premier League matches at its restaurant bar on a set-top box without the requisite subscription. The High Court handed a judgment against the restaurant owner which serves as a reminder to the masses that copyright owners will not stand idle while their intellectual property is misappropriated.

On the topic of data protection, the Minister of Communications and Multimedia announced in August 2022 that a draft amendment bill to the Personal Data Protection Act 2010 has been prepared. The proposed amendments seeks to introduce, among others, a mandatory data breach notification obligations for data users, which will require data users to report data breaches within 72 hours, a new obligation on data users, where they will be required to appoint data protection officers and a new right to data portability for data subjects. Cybersecurity in Malaysia too may see some significant changes. It was announced in Parliament that a draft standalone Cybersecurity Bill to regulate cybersecurity matters in Malaysia is in the works and the Malaysian government aims to table the Cybersecurity Bill for parliament’s approval in July 2023.

Authors


Alex Choo Wen Chun
Senior Associate


Bahari Yeow Tien Hong
Partner
E:[email protected]


Lim Zhi Jian
Partner
E:[email protected]

  1. [2023] 2 CLJ 169
  2. [2022] 4 CLJ 657
  3. [2020] 1 MLJ 281
  4. [2022] 2 MLJ 241
  5. [2021] 2 MLJ 60
  6. W-02(IM)(NCvC)-1204-06/2021
  7. W-02(IM)(NCVC)-880-04/2021; W-02(IM)(NCVC)-881-04/2021
  8. [2021] 4 MLJ 878
  9. [2022] 2 MLJ 67
  10. [2022] MLJU 1135
  11. [2022] 6 MLJ 1
  12. [2023] 9 MLJ 16

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Sponsored briefing: Artificial intelligence challenged by law and regulations: an odd legislative blank

Afrique advisors discuss both the challenges and opportunities that AI brings to the legal system in Morocco

Artificial intelligence (AI) and robotics are rapidly growing fields that have the potential to transform various industries and sectors, including law. They have become the most outstanding technological trends of our century.

The ongoing process of digital transformation is being accomplished in part with the use of AI, an interdisciplinary technology that aims to use large data sets (Big Data), suitable computing power, and specific analytical and decision-making procedures in order to enable computers to accomplish tasks that approximate human abilities and even exceed them in certain aspects.

We are now 70 years beyond their inception1 and we can recognise that we have made tremendous progress as we are no longer dealing with simple programs that can interact with humans, or programs that can treat small diseases. Now we are approaching the so-called “Strong AI” capable of autonomous thinking, adaptation and making decisions the same way a human being would.

Thus, the rapid growth of their use and their development is bringing new challenges, sometimes difficult to cope with for our society. This situation requires different legal treatment of these technologies, as robots and AI are likely to increase their interaction with humans in a wide range of areas. Morocco, like many other countries, is grappling with the legal implications of AI and the need to regulate its use.

Undoubtedly, the statutory law cannot avoid the evolution that AI and robotics have induced and they will certainly have a significant consequence on its classical notions (liability, property rights, intellectual ownership, data protection, etc.). Nowadays law-makers endeavour to understand these new systems in their relationship with the human being2, however, their interactions are sometimes ambiguous, as the AI systems increasingly aims to gain autonomy over the human being to shape their own identity in a symbiotic manner.

Such situation recalls the need to consider the legal status of the artificial intelligence, as an emerged issue that should interest the public policies.

Indeed, the broadening of artificial intelligence’s capacity and the purposes for which it might be used is not merely fraught with the opportunity but also with the potential danger. The following is a short assessment of the regulatory and legal challenges posed by AI.

I- AI and robotics: A blurred legal status

Given the current progress of AI and robotics technologies dominated by techniques of “Machine Learning” and “Deep Learning”, their capacity to learn autonomously from their own experiences, and their interactions with the environment in a unique and unpredictable ways, one could enquire whether it is sufficient to consider the basis surrounding the principles of the laws of persons and property in order to ascertain the status of AI among the summa divisio of the law.

Generally speaking, the summa divisio of law has a binary vision. First, there are persons: the subjects of law who have legal personality. At the opposite end of the spectrum, we have property which does not have the so-called “legal personality”. Indeed, property is appropriable by the persons entitled thereto. Individuals include natural persons (human beings) and legal persons (states, corporations, international organizations, NGOs, etc.). Anything that is not a person is legally a property. However, this does not necessarily pertain to robotics and artificial intelligence.

As the result of an IT programming activity that expresses a transcription of coded information, AI and robotics are, above all, creations of the mind. As such, they are by definition an intangible asset. Hence the recognition by the World Intellectual Property Organization (WIPO) of the possibility of filing patents related to AI reveals its intellectual property nature.

According to the WIPO Technology Trends Report (February 2019), since “the 1960s, inventors and scientists have filed patent applications for nearly 340,000 inventions pertaining to artificial intelligence”. Such statistics seem to be an assertion of the legal status of these intelligent entities as subject matter, and far from being deemed to be its subject3.

However, this position has been called into doubt following a lengthy battle initiated by Stephen Thaler4 before different national patent offices throughout the world.

In the above 2018 case, two European patent applications have been filed by Thaler5, with the particularity that these two patent applications is that both designate as inventor an AI algorithm called by its creator, “DABUS” 6.

At the time, the European Patent Office (EPO) had refused to grant the status of inventor to an intelligent machine on the grounds of lack of legal personality. The same position has been upheld by the European Patent Office7, the Intellectual Property Office of the United Kingdom and the Patent and Trademark Office of the United States. Nevertheless, the South African Patent Office and the Australian Federal Court8 decided to grant this AI the status of inventor, thus adopting a completely different position and turning all standards upside down.

This worldwide debate is a perfect illustration of the fact that AI is no longer just an end in itself, but rather a tool for creation – and sometimes the creator as well – capable of learning from the introduced data and developing into an autonomous decision maker beyond any human involvement. Indeed, creations generated by intelligent entities have become a widespread reality and it has been difficult to distinguish between human creations and those created by an artificial intelligence.

In the same vein, a well-known painting, “The New Rembrandt”, was created by an AI which was able to extract the secret of the Dutch painter based on his existing art works. Experts have stated that, had they seen the AI created painting in a museum, they would have thought it painted by Rembrandt himself9.

Another field of example in which the AI was considered equal to persons was the attribution of citizenship rights. In 2017, Saudi Arabia announced that robot Sofia, who identifies herself as a woman, was granted the Saudi citizenship. In the same year, Japan granted a residence card to the Shibuya Mirai bot cat under a special regulation10.

All these examples provide a perfect illustration of the evolution of AI from an owned property to a subject that acts within the summa divisio. A reality that science and scientists acknowledge, yet the legal realm is quite distant.

II- Emergina AI is a New Subject of Tort Liabilities

The previous lines reveal that AI can represent a crucial contribution to the enhancement of the human capabilities in terms of generated creations or in carrying out functions that were previously the exclusive preserve of humans. However, the other side of the coins is that these intelligent entities can be involved in causing accidents or damage as well. For instance, one of Google’s cars has been the cause of an accident before11. Damage was also caused by an AI-assisted medical diagnosis (IBM’s Watson)12.

Hence the need to consider the tort liability framework for damage caused by an AI or robot, whereby their conduct may bear implications from both contractual and extra-contractual liability perspectives.

In practice, these technologies involve many actors such as the programmer, the data provider, the platform owner and the user. However, the positioning of the users at the front line of the process often makes them the first rank liable.

One could wonder if such positioning legitimate, particularly considering the development of certain autonomous and cognitive functionalities (such as the capacity to learn from experience or to make near-independent decisions), which make these robots more likely to be considered as actors who interact with their environment and can significantly alter it13.

In such a situation, the issue of the legal liability in case of a damaging action by a robot is a key concern.

Scientists generally agree to classify AI as two categories: soft AI, which merely imitates a pre-established behavior that a human would have had in a given situation, and strong AI, which is endowed with a high degree of autonomy in making decisions and which is similar – thanks to the progress of cognitive sciences – to human behavior in its most particular features.

As a matter of fact, intelligent entities based on soft AI technology does not raise any problem, insofar as it is considered merely as a tool that performs tasks or carries out operations according to the instructions of its programmer or its user, and therefore corresponds to the definition of “things” under the scope of positive law.

Consequently, the application of the liability for “things in possession”, embodied in Article 88 of the Moroccan Civil Code14, which provides that “everyone must be liable for damage caused by things in their possession”, remains a suitable approach.

However, the notion of legal guardianship, based on the theory of risk management, seems to bring up further issues since Moroccan law draws a distinction between legal guardianship, which belongs to the owner of the thing, and ordinary material guardianship, which belongs to the person who has the power of direction and control at the time of the damage. Therefore, no one can deny that in such a context, the notion of guardianship and risk management must be interpreted differently.

Regarding technologies based on so-called strong artificial intelligence, the issue gets much more complicated, considering their emerging autonomy and the immateriality and unpredictability of their actions, as they can cause damage regardless of any control or influence by a human. Indeed, the solutions provided by the theory of risk management and guardianship of things, appear unable to justify the faulty contribution of any human.

Therefore, it follows that the increasing autonomy of robots brings us back to the legal nature of these machines, which vary depending on their type. The more an intelligent machine is autonomous, the less it can be considered a “thing” under human control and must bear the responsibility for the damage it causes, according to the terms of the theory of guardianship of things as it is conceptualized under Moroccan law.

It seems that the current statutory liability rules are no longer sufficient in this regard and new policies and regulation are required to clarify both the legal nature of these entities and also the liability system of the various actors for the actions or inactions of a robot which cannot be attributed to a human factor.

Actually, these two issues of positive law, relating to the legal status of intelligent entities and the liability regime applicable in case of damage or injury they cause, are in all likelihood inter-related insofar as each one has an impact on the other and indeed on other legal fields, in particularly intellectual property rights and the protection of personal data.

At this point there is no doubt that the established law is naturally applied, although not by choice. Nevertheless, it must be enhanced by new and specific responses by the legislature, whether by creating appropriate regulations or by adapting and modulating existing provisions.

Recalling ultimately that in terms of the connections linking law and technology, it is technology that leads the process, as expressed by an eminent author, La Paradelle, who once said: “It is not the philosophers with their theories, nor jurists with their definitions, but rather engineers through their inventions and discoveries that establish the law and, above all, the progress of the law”.

The main challenge is therefore for the legislators to address an effective regulatory approach that combines the prevention of potential risks along with the preservation of innovation and its progress.

Overall, AI presents both challenges and opportunities for the legal system in Morocco. While the lack of specific regulations may hinder the development of AI, it also provides an opportunity for the country to shape its legal framework in a way that encourages the responsible and ethical use of the technology. It is therefore crucial that policymakers in Morocco take a proactive approach to developing a legal framework that addresses the unique challenges and opportunities presented by AI.

Authors


Rabab Ezzahiri
Attorney at Law, Casablanca Bar Association and PhD Candidate


Maroua Alouaoui
Associate

  1. Chris Smith, “The history of artificial intelligence”, University of Washington, December 2006.
  2. Wolfgang Hoffmann-Riem, “Artificial Intelligence as a Challenge for Law and Regulation”, ResearchGate, January 2020.
  3. Ryan Abbott, Therefore I Invent: Creative Computers and the Future of Patent Law, 57B.C.L. Rev.1079 (2016).
  4. Philippe Schmitt, “Brevet DABUS et Intelligence artificielle : le 25 novembre 2019 n’est pas le jour de la singularité creative”. November 2019. Village des juristes. Available at: https://www.village-justice.com/articles/brevet-dabus-intelligence-artificiellenovembre-2019-est-pasjour-singularite,33059.html (Last accessed on April 13, 2023)
  5. EP 18 275 163 and EP 18 275 174.
  6. Matthieu Objois, Lucas Robin, Inventeurs IA “l’office européen des brevets remet les pendules à l’heure dans la décision DABUS”. Village des juristes. Available at: https://www.village-justice.com/articles/inventeurs-office-europeen-des-brevetsremet-les-pendules-heure-dans-decision,33546.html (Last accessed on April 13, 2023).
  7. EPO decision rejecting two patent applications naming a machine as inventor on 28 January 2020. Available at: https://www.epo.org/news-events/news/2020/20200128.html (Last accessed on April 13, 2023).
  8. Federal Court Of Australia, Thaler v Commissioner of Patents [2021] FCA 879.
  9. Andres GUADAMUZ, “L’intelligence artificielle et le droit d’auteur”, OMPI | Magazine, octobre 2017. Available at :L’intelligence artificielle et le droit d’auteur (wipo.int. (Last accessed on April 13, 2023).
  10. Atabekov, O. Yastrebo, “Legal Status of Artificial Intelligence Across Countries: Legislation on the Move”. European Research Studies, Journal, Volume XXI, Issue 4, 2018.
  11. LeBeau, Phil. “Google’s Self-Driving Car Caused an Accident, So What Now?” CNBC, 29 Feb. 2016, Available at: https://www.cnbc.com/2016/02/29/googles-self-driving-car-caused-an-accident-so-what-now.html. (Last accessed on April 13, 2023).
  12. Bensoussan, Alain, and Jeremy Bensoussan. “IA, Robot et Droit.” Lexing – Technologie Avancées & Droit : Théorie et Pratique, 2019, p. 139.
  13. Margaret A. Boden, “Computer Models of Creativity”, Association for the Advancement of Artificial Intelligence, 2009, p. 23.
  14. Moroccan Dahir – Code of Obligations and Contract, 12 September 1913.

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Bench strength revisited

The resounding message is that London is still booming. Fears surrounding its status as a leading jurisdiction for disputes being adversely impacted by Brexit appear to have gone largely unfounded, with not only the established players, but less traditional disputes practices and boutiques thriving. Martin Davies of Latham & Watkins sums up the outlook across the board, commenting: ‘There is a growing fragmentation in the London litigation market with some of the winners being at opposite ends of the spectrum, ie the international top tier who can serve clients worldwide, and the more niche boutiques.’ Continue reading “Bench strength revisited”

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‘A great year for growth and consolidation’: Keystone’s revenue up in the face of market-wide recruitment difficulties

Keystone Law has released its financial results for 22/23, reporting a positive 8% revenue increase since last year with a turnover of £75.3m in comparison to last year’s £69.6m. A breakdown of revenue earnings per principal also shows a promising 4% rise to £190k since January 2022.

Although revenue grew, cash generated from the business decreased by 7% from £10m to £9.3m. The figure given for profit before tax (PBT) is £8.4m, the same as 12 months ago, while adjusted PBT is up by 6% to £9.2m. Continue reading “‘A great year for growth and consolidation’: Keystone’s revenue up in the face of market-wide recruitment difficulties”

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Revolving doors: Eversheds adds two partners as Kingsley Napley launches restructuring and insolvency practice

Eversheds Sutherland

Eversheds Sutherland has had a busy week, strengthening both its regulatory and energy and infrastructure finance practices with two senior hires.

Nicola Williams has re-joined Eversheds, after a decade long stretch at Welsh Water Legal, where she was the legal compliance director and company secretary. She has joined as a partner in the firm’s litigation and dispute management practice. Continue reading “Revolving doors: Eversheds adds two partners as Kingsley Napley launches restructuring and insolvency practice”

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Ukraine war and currency take toll as PEP drops 20% at White & Case

Dipen Sabharwal

White & Case was another firm to post muted financials for the last year, as a bullish 2021 gave way to a 2022 struggling under the weight of a deal slowdown, inflation, high interest rates, supply chain disruptions, and geopolitical conflict.

Global revenue declined by 1% from $2.87bn to $2.83bn, and net income dropped by 11% to $1.09bn. Profit per equity partner (PEP), meanwhile, suffered a significant 20% drop from $3.5m to $2.8m. This took its PEP figure below the $3m mark crossed in 2020, and was the lowest figure reported since 2019 when it hit $2.6m. Continue reading “Ukraine war and currency take toll as PEP drops 20% at White & Case”

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Revolving Doors: Goodwin elects new chair as firms add regulatory, M&A, litigation and IP expertise

In a novel lateral move, Fieldfisher has announced that cannabis regulatory pioneer Robert Jappie is joining its London regulatory team this month.

Jappie established the first department dedicated to cannabis law in the UK at previous firm Mackrell Turner Garrett in 2018. While in this position, Jappie advised CBD brands, licensed producers and medicinal cannabis companies on regulatory and commercial issues in the UK and Europe. Continue reading “Revolving Doors: Goodwin elects new chair as firms add regulatory, M&A, litigation and IP expertise”

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Revolving doors: Another departure from Shearman as firms make moves in finance and real estate

Debt finance specialist Rahul Chatterji became the latest partner to leave Shearman & Sterling this week, with Linklaters announcing that he will join its Asia banking practice in May. Chatterji has experience in cross-border transactions, with a particular focus on India and Southeast Asia. He will move first to Linklaters’ London office, before relocating to Singapore later in the year.

The week also saw a flurry of hires in the real estate sector, with Legal 500 leading individual and disputes specialist Owen Talfan Davies moving to Withers from Fieldfisher, where he was a senior equity partner.

Jeremy Wakeham, head of the business division at Withers, explained the hire to Legal Business: ‘We’ve been looking to really grow our real estate disputes expertise. To do that, we wanted a heavy-hitting property disputes partner who could cover the whole gamut of real estate disputes, with a background in the bigger-ticket commercial disputes arena. And that’s what we have in Owen.’

The move follows the firm’s December hire of a team from Charles Russell Speechlys, led by partners Simon Ewing and Ruby Dalal, and further bolsters its real estate practice on the contentious side, which Wakeham believes will be increasingly busy.

‘You’re going to see more landlord and tenant disputes as tenants are going to look to reassess their requirements, and landlords look to shore up the investment value of their assets.’

Herbert Smith Freehills, meanwhile, has hired Ashurst’s head of non-contentious construction Matthew Bool into its real estate team. Recognised as a next-generation partner in the Legal 500, Bool has experience advising on procurement strategy, construction and property documentation, and development projects.

Elsewhere, transactional real estate partner Sarah Atkinson has joined Addleshaw Goddard from Greenberg Traurig. Atkinson has expertise in private equity transactions, including development finance and bond leaseback work. Her move follows the 2021 hire of Daniel Woolston, also from Greenberg Traurig, and Catherine Williams’ return to the firm in March after eight years at Shoosmiths.

Howard Kennedy has also grown its real estate practice with the hire of Huseyin Huseyin from Harold Benjamin. Huseyin’s practice sees him advise housebuilders and developers on residential mixed-use projects on greenfield and brownfield sites, and his hire signals the firm’s intention to expand in residential real estate.

Also in real estate, former Maples Teesdale real estate finance head Rohan Campbell has moved to Burges Salmon, along with of counsel Tom Farrell, who joins the firm as a legal director.

‘The chance to plug a pair of really good real estate finance lawyers into our wider built environment sector practice was a significant driver,’ banking and finance team lead Andrew Eaton told Legal Business.

‘There’s a big opportunity for us, particularly in the mid-market. Last year there was a big bump in deal flow, and we’re starting to see that come back. There’s still a desire on the part of clients to look for opportunities.’

Bryan Cave Leighton Paisner has also made moves in the area, expanding its corporate real estate and funds team with the hire of cross-border transactional specialist Luke Mines from Morrison Foerster.

Mines spent time at Linklaters and Reed Smith before moving to Morrison Foerster in 2019, and has experience advising clients both domestically and across Europe, where BCLP has extended its coverage in recent years, opening a French office in 2020 and building up in Germany in 2022.

‘Certainly the French and German offering here was a real draw to me’, said Mines. UK real estate group head Samant Narula echoed this point, and stressed the firm’s continued focus on real estate despite economic turmoil. ‘Volatility in the debt markets has meant that the volume of transactional work has decreased. But we’ve been in a good position because of our broad client base, who continue to be active in asset management and development. We know there’s a lot of money out there, ready to invest. So the key is patience. When the opportunities arise, clients will do deals.’

Elsewhere, Irwin Mitchell has hired commercial litigation and arbitration partner David Vaughan from Collyer Bristow. Previously head of both the litigation practice and the London office at Shakespeare Martineau, Vaughan is a chartered arbitrator with strong experience in multijurisdictional disputes.

Legal director Steve Downey has left Squire Patton Boggs to join TLT’s structured finance practice as a partner, which expanded in December with the hire of new team co-lead Mark Thomas, who also joined from Squire Patton Boggs.

Dechert has also continued to grow its global finance practice, bringing over structured finance specialist Aaron Scott from Paul Hastings. Scott has experience advising on matters relating to collateralised loan obligations, and his hire extends Dechert’s European offering, which also expanded in Munich with the hire of private equity partner Kai Terstiege from WilmerHale.

Finally, commercial outsourcing and tech partner Nathan Evans has moved from Harrison Clark Rickerbys to Fladgate, where he will extend its tech sector offering. Evans has experience advising clients from startups to established companies in areas including legal tech, fintech, and trade tech, on issues including digital transformation, platform development, and system support.

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‘A choice to live up to your values’ – Seward and Rowey to take the helm of A&O’s US practice

Allen & Overy’s global litigation co-head Karen Seward (pictured) and project finance and infrastructure partner Kent Rowey have been appointed to co-chair US operations.

The pair will succeed US senior partner Tim House, the well-regarded litigator who has led the Magic Circle firm’s US practice since 2017. Seward and Rowey will take on their new roles on 1 May 2023 and will continue their client work alongside leadership responsibilities. Continue reading “‘A choice to live up to your values’ – Seward and Rowey to take the helm of A&O’s US practice”

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International round-up: Reed Smith names new Asia-Pac managing partner as Holland & Knight bolsters US emerging technologies offering

Singapore cityscape, Marina Bay

Amid a busy week of non-domestic news, Reed Smith has been among the firms making headlines, appointing Singapore-based Prajakt Samant as its new Asia-Pacific managing partner.

Samant has succeeded Kyri Evagora, who had been in the role since July 2020, and who has relocated to the firm’s London office from Singapore. Continue reading “International round-up: Reed Smith names new Asia-Pac managing partner as Holland & Knight bolsters US emerging technologies offering”