PRAC MEMBER NEWSPRAC MEMBER NEWS Page 2 Page 2 WASHINGTON, D.C., September 3, 2009 -- Hogan &...

► ABNR represents Credit Suisse in US$420M Exchange Offer

► DAVIS WRIGHT Wins Appeals Court Ruling: Spain Cannot Claim

Sovereign Immunity In Suit Over Nazi Art Theft

► ESTUDIO MUNIZ Advise Compania Miner Milpo in Launching Tender Offer

► FRASER MILNER CASGRAIN Advises Armtec Infrastructure Income Fund

Acquisition of Pre-Con Inc.

► GIDE LOYRETTE NOUEL Advised on Securitisation Vehicle FCT

Windermere XII

► HOGAN & HARTSON Wins Major Victory in Newcomb College Case ► KING & WOOD Waste Management Wins State-Owned Asset Bidding Process

► LUCE FORWARD Obtains Unanimous Supreme Court Decision Rejecting At-

tempts to Effectively Abolish Automobile Insurer’s Med Pay Reimbursement Rights ► NAUTADUTILH Acts for Consortium of banks in construction finance of a new

hospital

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►Gide Loyrette Announces New Head for Budapest Office

►Hogan & Hartson - Two of the Nation’s Most Successful

White Collar Criminal Defense Attorneys, Bob Bennett and Carl

Rauh, Join Firm

►Estudio Muniz Announces New Name

►Nauta Dutilh Appoints New Associate Partner to Boost

Restructuring Capability in Brussels

►Simpson Grierson Expands Commercial Department

►Skrine Partner Elevated to High Court Commissioner

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► ARGENTINA Ministry of Health Designates Authority

in Aim to Control Lead Levels in Paint ALLENDE & BREA

►AUSTRALIA Further Recommendations on Personal Property Securities Bill CLAYTON UTZ ►BRAZIL Supreme Court Set to Rule in Value Added Tax Levied on Import of Medical Machinery TOZZINI FREIRE ►CANADA Facebook to Make Changes to Comply with Canadian Privacy Laws FRASER MILNER CASGRAIN ►CANADA Insurance Update Chinese Drywall - The Next Wave of Claims RICHARDS BUELL SUTTON ►CHINA The Battle for the Company Seal: Competition for Control between Foreign Private Equity Investors and Management KING & WOOD ►INDONESIA Government to Implement One Stop In-vestment Service ABNR ►TAIWAN Insurers Must Disclose Compensation Paid to Directors, Supervisors and Presidents LEE & LI ►UNITED STATES ►Commuting in a Company Vehicle, Home E-Mail Activity: Compensable Employee Time? DAVIS WRIGHT ►Update: Implementation of the Consumer Product

Safety Commission HOGAN & HARTSON

►Selling Unneeded Life Insurance Policies: Windfall or

Pitfall? WILMER HALE

►VIETNAM Extension of Deadline for Re-Registration

of Foreign Invested Enterprises Until June 30 2011

GIDE LOYRETTE

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M E M B E R D E A L S M A K I N G S N E W S


WASHINGTON, D.C., September 3, 2009 -- Hogan & Hartson LLP announced today that Robert S. Bennett and Carl S. Rauh, prominent former federal prosecutors and veteran trial lawyers, will join the firm as partners in the Washington, D.C., office, following a partnership vote. Bennett and Rauh will join from the Washington, D.C., office of Skadden, Arps, Slate, Meagher & Flom LLP where they are partners. Among his many well-known matters, Bennett has served as former President Clinton's personal attorney, and represented former newspaper journalist Judith Miller in the CIA leak investigation. Rauh is a former U.S. Attorney for the District of Columbia. During Bennett’s 40-plus-year career as a trial lawyer, he and Rauh have handled numerous high-profile cases, including the representa-tion of Enron and former Secretaries of Defense Clark Clifford in the Bank of Credit and Commerce International (BCCI) case and Caspar Weinberger in the Iran-Contra affair. They have handled highly-publicized settlements for a number of major international companies. "We are delighted Bob will return to Hogan & Hartson after starting his private practice career with us years ago,” said J. Warren Gorrell, Jr., Chairman of Hogan & Hartson. "Bob and Carl's pre-eminent practice in the white collar and investigations arena make them natural fits with our existing leaders in this group. With all of the changes in the regulatory and legislative environment, we are handling a rapidly expanding number of government investigations of companies in the United States and overseas. These investigations and other anti-corruption initiatives are becoming an important part of the global economy and both Bob and Carl will be valuable additions to our team." Bennett said, "Carl and I have worked together for nearly 30 years, most recently as Co-leaders of the international government enforce-ment litigation group and the criminal and civil litigation practice at our previous firm’s D.C. office. We are excited to continue to build our white collar practice at Hogan & Hartson, one of the few international law firms with an established history in D.C. and impressive regulatory capabilities, particularly in the health care, energy, and financial services industries. We look forward to working with our new colleagues, skilled litigators with years of high-level experience in this area, who have created a global and robust white collar practice." "Our expansive regulated industry platform permits Bob and Carl to continue building upon their extraordinary litigation achievements," said Ty Cobb, longstanding head of the firm's white collar and investigations practice. "Their arrival brings yet more great talent to the experienced group we have carefully grown over the past 25 years to serve major corporations in 'bet-the-company' white collar, securities, and other enforcement investigations and trials in the United States and around the world." Bennett will join Cobb to co-head the group going forward. Bennett and Rauh are Fellows of the American College of Trial Lawyers and Bennett is a Judge on the Court of Arbitration for Sport. In 2000 and 2006, Bennett was selected by the National Law Journal as one of the “100 Most Influential Lawyers in America.” About Hogan & Hartson Hogan & Hartson is an international law firm founded in Washington, D.C., with more than 1,100 lawyers in 27 offices worldwide. The firm has a broad-based national and international practice that cuts across virtually all legal disciplines and industries. The white collar and investigations group at Hogan & Hartson includes a number of former prosecutors and government officials who regularly ad-vise clients on investigative matters involving external inquiries or internal reviews. The firm's lawyers are experienced in representing companies, directors, officers, and other entities and individuals at all stages of criminal and civil investigations across the full spectrum of federal agencies, tackling cases from initial agency inquiries to full-scale grand jury and U.S. Department of Justice investigations, and from preliminary government interviews to trial and beyond. Hogan & Hartson has offices in Abu Dhabi, Baltimore, Beijing, Berlin, Boulder, Brussels, Caracas, Colorado Springs, Denver, Geneva, Hong Kong, Houston, London, Los Angeles, Miami, Moscow, Munich, New York, Northern Virginia, Paris, Philadelphia, San Francisco, Shanghai, Silicon Valley, Tokyo, Warsaw, and Washington, D.C. For more information, visit www.hhlaw.com.

H O G A N & H A R T S O N T W O O F T H E N A T I O N ’ S M O S T S U C C E S S F U L W H I T E C O L L A R C R I M I N A L A T T O R N E Y S , B O B B E N N E T T A N D C A R L R A U H , J O I N F I R M

François d'Ornano, partner at Gide Loyrette Nouel, is the new head of the Budapest office.

As partner in charge of the Belgrade office for the past five years, François d’Ornano takes over as head of the Budapest office. François d'Ornano was an associate in Budapest from May 2000 to May 2004, and previously worked in the Real Estate Transactions and Financing department in Paris (1998-2000). François d'Ornano has developed extensive knowledge of the CEE region and its legal environment and has displayed his management skills by opening and successfully developing the Belgrade office. Carol Santoni, previously senior associate in the Real Estate Transactions and Financing department in Paris, takes up new responsibilities as head of the Belgrade office. For additional information visit www.gide.com

G I D E L O Y R E T T E N O U E L A N N O U N C E S N E W H E A D F O R B U D A P E S T O F F I C E


From September 1st 2009, Muñiz, Ramírez, Pérez-Taiman & Luna-Victoria Attorneys at Law became Muñiz, Ramírez, Pérez-Taiman & Olaya Attorneys at Law.

An agreement was reached at the end of May between César Luna-Victoria and the founding partners about his amicable withdrawal from our Firm, effective the end of August.

Mr. Mauricio Olaya, whose last name has become part of the Firm name, is the head of the M&A practice group. In 1994, he joined the Firm. In 2003, he was promoted as main partner. He is former foreign associate at Chadbourne & Parke (NY).

He has participated in the most significant M&A transactions in the country (e.g. Grupo de Supermercados Wong’s acquisition by the chilenian Cencosud in US$ 700 million) and he’s had a key role in the acquisitions carried out in recent years by the Romero and Brescia Groups (the largest economic conglomerates in Peru) in the fishing sector. For additional information visit www.munizlaw.com

E S T U D I O M U N I Z A N N O U N C E S N E W N A M E


Leading Benelux law firm NautaDutilh has announced that restructuring and insolvency specialist Sophie Jacmain will join its litigation team based at the firm's Brussels office. She previously worked at Allen & Overy in Brussels where she led the restructuring team in the litigation and contracts department, as well as serving as the trustee in several bankruptcies. Sophie Jacmain advises and litigates on behalf of companies in financial difficulty or represents creditors and creditor groups. As well as practicing law, she teaches and researches on securities structures at the Université Libre de Bruxelles. For additional information visit www.nautadutilh.com

Simpson Grierson is pleased to welcome back Joost van Amelsfort to its Wellington Commercial Department. Joost first joined the firm in 2001 and left in 2004 to take up an opportunity at a London 'magic circle' law firm where he specialised in securities issuance and regulatory capital raisings. He returns to Simpson Grierson as a senior associate.

Simpson Grierson is pleased to welcome Joanna Lim back to the firm's commercial department. Joanna began her legal career at Simpson Grierson in Wellington, before leaving to study Mandarin in Beijing. She joins the Christchurch office as a senior associate after gaining experience at another legal firm. For additional information visit www.simpsongrierson.com

SKRINE is pleased to announce the elevation of our senior dispute resolution partner, Anantham Kasinather to the High Court of Malaya as a Judicial Commissioner effective 14 August 2009.

For additional information visit www.skrine.com

N A U T A D U T I L H A P P O I N T S N E W A S S O C I A T E P A R T N E R T O B O O S T R E S T R U C T U R I N G C A P A B I L I T Y I N B R U S S E L S

S I M P S O N G R I E R S O N E X P A N D S C O M M E R C I A L C A P A B I L I T Y

S K R I N E P A R T N E R E L E V A T E D T O H I G H C O U R T C O M M I S S I O N E R

46th International PRAC Conference

Beijing October 17—20, 2009 Hosted by King & Wood

Registration open to all PRAC Member Firms

www.prac.org

Page 5 P R A C M E M B E R N E W S

ABNR has represented Credit Suisse, underwriter of PT Gajah Tunggal Tbk (GT) and its subsidiary GT 2005 Bonds BV, in connection with the successful completion of the exchange offer and consent solicitation of outstanding Guaran-teed Secured Bonds valued at US$420 million. Approval has been requested and obtained from bondholders to ex-change all the outstanding Guaranteed Secured Bonds due 2010 for US$435,089,000 million in guaranteed callable step-up bonds of the issuer due 2014. Partners Ferry P. Madian and Chandrawati Dewi led the firm’s advisory team in advising Credit Suisse.

ABNR also represented The Hongkong and Shanghai Banking Corporation as the Security Agent on this deal. Zacky Husein, Partner of the firm, led the team in advising HSBC. For additional information visit www.abnrlaw.com

A B N R R E P R E S E N T S C R E D I T S U I S S E I N U S $ 4 2 0 M E X C H A N G E O F F E R


Muñiz, Rámirez, Pérez-Taiman & Olaya has advised Compañía Minera Milpo S.A.A. (Milpo) in launching a tender offer for 100% of the outstanding voting shares of Compañia Minera Atacocha S.A.A. (Atacocha) not under control of Milpo. The deal amounted to US$ 68 MM.

Milpo indirectly acquired over 70% of the voting shares of Atacocha last November 10, 2008, when it became the sole shareholder of Votorantim Andina Peru S.A.C. (currently Milpo Andina Peru S.A.C.)

Votorantim Andina Peru S.A.C. is a special purpose vehicle that was set specifically to complete the acquisition of approximately 70% of the voting shares of Atacocha through the Lima Stock Exchange, transferred by several shareholders represented by the investment bank Panamerican Finance Securities, which took place on November 3, 2008. The tender offer was launched on August 7 and concluded on September 4, 2009.

Andres Kuan-Veng from Muñiz points out that “Peruvian securities regulation requires the launching of tender offers when acquiring blocks of voting shares over the 25%, 50% and 60% thresholds.”

Kuan-Veng adds that “when the change of control takes place at the level of the holding company (in this case over Milpo Andina Peru S.A.C.), the current regulation requires launching an “OPA posterior” (mandatory tender offer). In this case, Milpo is launching a tender offer for additional blocks of shares, besides those ones owned by Milpo Andina Peru S.A.C. enabling the minority shareholders that were not parties to the November 3rd and November 10, 2008 transactions to benefit from the price premium paid in Atacocha.

Atacocha operates one of the Peru’s most productive zinc mines, and also has gold projects.

For additional information visit www.munizlaw.com

D A V I S W R I G H T T R E M A I N E W I N S A P P E A L S C O U R T R U L I N G : S P A I N C A N N O T C L A I M S O V E R I G N I M M U N I T Y I N S U I T O V E R N A Z I A R T T H E F T

In a decision by the U.S. Court of Appeals for the Ninth Circuit, a three-judge panel in Pasadena ruled that Plaintiff –Appellee Cassirer's suit against the Thyssen-Bornemisza museum in Madrid and the Spanish government may go forward. Over 70 years ago, a Nazi-appointed appraiser forced Cassirer's Jewish grandmother to sell Pissaro's Rue Saint-Honoré, Après-midi, Effet de Pluie for $360 in 1939 before she could leave Germany. The Spanish government acquired the painting from a collector in 1988. Twelve years later, Cassirer discovered Rue Saint-Honoré, now valued at $20 million, hanging in Madrid's Thyssen-Bornemisza. In 2005, Cassirer hired Davis Wright Tremaine and filed suit in California federal court. demanding the return of the painting. The case landed before the Ninth Circuit after a district court judge denied motions by Spain and the museum to dismiss the case. Stuart Dunwoody is leading the DWT team on this file. For the full story, visit www.dwt.com

E S T U D I O M U N I Z A D V I S E C O M P A N I A M I N E R M I L P O I N L A U N C H I N G T E N D E R O F F E R


The French Commercial Court has just implemented a safeguard plan in favour of Hold and Dame Luxembourg, against the opinion of the FCT, practically the only creditor, and the court-appointed receiver (mandataire judiciaire). This decision, which is based on the protection of the proper use of the Coeur Défense building and, more generally, the commercial property market in La Défense, from alleged threats which have in reality been entirely eliminated by the dual undertaking made long ago by the FCT to guarantee the payment of operational expenses to the asset manager and not to sell the building, conflicts not only with the best interests of the FCT and its noteholders but also with those of the commercial property market and of the functioning of structured finance. Nevertheless, this court decision only represents an admittedly regrettable but by no means definitive stage in the process. The FCT will shortly communicate on the various strategic steps which it intends to take after consultation with its noteholders. In the interim, it advises those following the case to observe the utmost prudence with respect to any "final judgment" on this file which may well be disproved by the outcome of the next phases. Gide Loyrette Nouel's team comprised Gilles Saint Marc, Olivier Puech, Arnaud de Pesquidoux and Frédéric Daul. For additional information visit www.gide.com

F R A S E R M I L N E R C A S G R A I N A D V I S E S A R M T E C I N F R A S T R U C T U R E I N C O M E F U N D A C Q U I S I T I O N O F P R E - C O N I N C .

Armtec Infrastructure Income Fund, through its wholly owned subsidiary Armtec Holdings Limited, completed its acquisition of all of the issued and outstanding shares of Pre-Con Inc. from Blue Circle Home Products International Limited for an aggregate purchase price of approximately $48.4 million. The Fund is a leading manufacturer and marketer of a comprehensive range of infrastructure products and engineered construction solutions for customers in a diverse cross-section of industries that are located in every region of Canada. Pre-Con Inc. is a market leader in custom precast pre-stressed concrete products in southern Ontario, and was previously owned by Lafarge S.A.

The Fund was represented by a team from Fraser Milner Casgrain LLP led by Richard Scott which included Matthew Hibbert and Mark Mahoney (M&A), Glenda Mallon and Paul Shantz (Real Estate), Jules Lewy (Tax), Mark Dunsmuir (Pensions) and Naomi Horrox (Employment).

For additional information visit www.fmc-law.com

G I D E L O Y R E T T E N O U E L A D V I S E D O N S E C U R I T I S A T I O N V E H I C L E F C T W I N D E R M E R E X I I

Isala Klinieken and a consortium consisting of Rabobank, Bank Nederlandse Gemeenten and Fortis Bank signed a financing agreement worth EUR 442 million for the construction (including equipment) in Zwolle, the Netherlands, of a new hospital for Isala Klinieken. NautaDutilh acted as counsel to the banks and drafted the financing documents. The project is the largest construction project in the Dutch health care sector, second only to the construction of the Erasmus Medical Centre in Rotterdam. The amount of the financing is remarkable considering the current market conditions. Tailor-made documentation was required in view of the present economic situation and the specialised nature of the financing.

The Isala Klinieken project is the first financing transaction in the Netherlands following the introduction in January 2009 of a treatment-related pricing system under which capital cost (such as interest and amortisation) is included in the fees and rates charged by health care institutions, and not in their budgets. Under the old system, the risk on investments in real property and equipment incurred by health care institutions (and by extension, insurance companies) was limited or absent. The new system was introduced to provide more financial incentives in order to improve health care services.

The NautaDutilh team assisting the banks consisted of Thijs Lommen (partner, Banking & Finance) and Arief van Rhee (partner, civil law notary), together with Martijn van der Vliet, Deirdre Scheenjes and David Wumkes. For additional information visit www.nautadutilh.com

N A U T A D U T I L H A D V I S E S C O N S O R T I U M O F B A N K S I N € 4 4 2 M I L L I O N C O N S T R U C T I O N F I N A N C I N G F O R N E W H O S P I T A L


NEW YORK, September 3, 2009 -- Lawyers with Hogan & Hartson LLP successfully defended Tulane University in a case seeking to force the University to maintain a women-only college within the University. In the aftermath of Hurricane Katrina, which devastated New Orleans and resulted in the temporary closing of Tulane, the University implemented a Renewal Plan to re-establish Tulane as a world-class research and teaching institution after Katrina. In the Renewal Plan, the University consolidated all of its undergraduate colleges, including the former H. Sophie Newcomb Memorial College for women, to create a single Newcomb-Tulane College for undergraduates. On August 20, 2008, Susan Henderson Montgomery filed an action in New Orleans against Tulane attempting to reverse the Uni-versity's decision to consolidate the colleges. Montgomery alleged that she was a would-be heir of Josephine Louise Newcomb, who left over $2 million to Tulane when she died in 1901. Montgomery claimed that Newcomb's will required the University to main-tain Newcomb College in perpetuity. On August 28, 2009, Civil District Judge Rosemary Ledet found that Newcomb's will did not impose any enforceable conditions and dismissed the action. Hogan & Hartson has represented Tulane in a series of lawsuits by plaintiffs seeking to reopen Newcomb College. Partner Dennis Tracey and associate Brian Black, both with the firm's New York office, represented Tulane in this matter.

For additional information visit www.hhlaw.com

King & Wood represented Waste Management Inc., a leading US solid waste treatment company and a NYSE listed Fortune 500 company. Acting through its subsidiary, Wheelabrator Technologies Inc., it successfully won the State-owned assets bidding proc-ess becoming the foreign joint venture partner in Shanghai Environmental Group, a key subsidiary of Shanghai Chengtou Holding Corp. This landmark deal is subject to Ministry of Commerce approval. Partner Zhang Yi and Alan Du were involved. For additional information visit www.kingandwood.com

H O G A N & H A R T S O N W I N S M A J O R V I C T O R Y I N N E W C O M B C O L L E G E C A S E

K I N G & W O O D W A S T E M A N A G E M E N T W I N S S T A T E - O W N E D A S S E T B I D D I N G P R O C E S S


August 26, 2009

Luce Forward announced partners John T. Brooks, Peter H. Klee and Charles A. Danaher obtained a unanimous California Su-preme Court decision clarifying the rule on attorneys fees in med pay disputes and blocking the plaintiffs’ attempts to recover tens and possibly hundreds of millions of dollars in reimbursement payments that were at risk across the whole automobile insurance industry. In the case of Quintana v. 21st Century Insurance Co., the Court sided with 21st Century, finding that an automobile insurer is not liable for attorney fees incurred by an insured in order to obtain uncovered damages from a third party tortfeasor. In addition, the Court simultaneously decided companion cases filed against the Interinsurance Exchange of the Automobile Club, Allstate Insurance Company, and Allstate Indemnity Company, all of which were likewise represented by Luce Forward. Quintana was one of thirteen identical class actions – the so-called “make whole” cases – filed against nearly every major automobile insurer in California. The question presented in the “make whole” cases was this: Can an insurer assert its contractual right to reimbursement of med pay benefits, after the policyholder settles with the at-fault driver, if the policyholder’s attorney fees incurred in obtaining the settlement from the tortfeasor exceed the amount of med pay benefits paid by the insurer? Quintana argued that an insurer’s right of reimbursement is barred completely by the “make whole” rule anytime the policyholder’s attorney fees exceed the med pay benefits. Because attorney fees almost always exceed the typically small amount of med pay benefits, plaintiff’s argument – if accepted – would have effectively prohibited med pay reimbursement. In contrast, Luce Forward’s Brooks argued on behalf of 21st Century that attorney fees are irrelevant to whether the policyholder has been made whole, and that the proper way to allocate attorney fees is pro rata sharing in accordance with the common fund doctrine. The class actions sought restitution of millions of dollars of med pay reimbursement payments collected by insurers from policyholders since 2001, the beginning of the class period. The California Supreme Court, siding with 21st Century, affirmed the unpublished decision of the Fourth District Court of Appeal which had granted writ petitions by 21st Century, Allstate, and the Interinsurance Exchange after the trial courts overruled the insurers’ demurrers. The Supreme Court rejected the contrary conclusion previously reached by a federal district court in Chong v. State Farm Mut. Auto. Ins. Co. The Quintana decision should be dispositive for all thirteen pending “make whole” class actions in both state and federal court. The result eliminates the risk that insurers will be liable for restitution of med pay reimbursement payments collected. For additional information visit www.luce.com

L U C E F O R W A R D O B T A I N S U N A N I M O U S S U P R E M E C O U R T D E C I S I O N R E J E C T I N G A T T E M P T S T O E F F E C T I V E L Y A B O L I S H A U T O M O B I L E I N S U R E R ’ S M E D P A Y


SEOUL 2007

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Member Firms are encouraged to contribute articles for

future consideration. Send to [email protected].

Deadline is 10th of each month.

Allende & Brea ABOGADOS

ARGENTINA Health Ministry Issues Regulation Designating National Institute of Technology as Certifying Authority In Further Aim to Control Lead Levels in Paint

The Ministry of Health issued Resolution 7/2009 aiming to control the quantity of lead in paints. Although the first National Regulation that created a cap on the level of lead contained in paints was Resolution 1088/2004, it did not establish which entity would issue the certificate of absence of lead prior to the marketing of the paints to the public. In this respect, Resolution 7/2009 designates the National Institute of Technology (INTI) as the Certifying Authority. Within the obligations imposed by the mentioned Resolution, it is worth mentioning that manufacturers and importers need to obtain a certificate evidencing that paints and varnishes do not contain more than 0,6 grams of lead per hundred grams of nonvolatile mass Moreover, paints used for art, agricultural equipments, bridges or public works, traffic signals, cars, airplanes, trains and boats, which are exempt from the abovementioned obligation, must obtain a Certificate of Exemption issued by the Certifying Authority. INTI has already published in its web page (http://www.inti.gov.ar/certificaciones/c-pinturas.htm) instructions containing the proceedings to obtain both Certificates.

For additional information visit www.allendebrea.com

24 August 2009

Further recommendations on Personal Property Securities Bill

The public debate regarding the proposed personal property securities reform currently being considered by the Commonwealth Government proves the truth of the saying that "you can't please all of the people all the time". In fact, based on the submissions made to the second Senate Legal and Constitutional Affairs Committee inquiry regarding the Personal Property Securities Bill (PPS Bill) introduced to the House of Representatives in June 2009, you could say, at least in the case of the PPS Bill, that you cannot please any of the people, any of the time. Given the wide range of views presented to the inquiry it is perhaps unsurprising that the Committee did not make definitive recommendations for amendments to the PPS Bill, as discussed below.

An exposure draft of the PPS Bill was referred to the Senate Legal and Constitutional Affairs Committee in November 2008. The Committee tabled its report on that exposure draft in March 2009. There was then no response from the Commonwealth Government until mid June 2009. A formal response from the Commonwealth Government to the report was issued on 18 June 2009. Immediately prior to that time, New South Wales was the first State to pass referral legislation on 17 June 2009. The revised PPS Bill was tabled in the NSW Legislative Assembly for the purposes of that referral. On 24 June 2009 the revised PPS Bill was introduced to the Commonwealth House of Representatives. The PPS Bill was then referred, for the second time, to the Committee.

The revised PPS Bill, as tabled in New South Wales and introduced in the House of Representatives, was substantially amended from the earlier exposure draft of the PPS Bill previously considered by the Committee. This had been done to address the recommendations in the earlier Committee report. Many of the amendments were quite superficial, such as the re-ordering of significant parts of the Bill to attempt to have "more important" provisions at the front of the Bill and the introduction of summary sections. A number of changes were however quite significant, such as the introduction of a conflicts of law regime and the changes to deal with privacy issues.

Following receipt of written submissions and public hearings on 6 and 7 August 2009, the Committee tabled its report on 20 August 2009. The majority report recommended that the PPS Bill should be supported and passed. This was on the basis of 3 conditions:

1. until 30 September 2009, the Commonwealth Government consults with stakeholders in relation to concerns that have been raised with the Committee and also in relation to other concerns that have been raised with the Commonwealth Government since the revised PPS Bill became publicly available;

2. greater transparency is provided regarding the Commonwealth Government's response to concerns that are raised and the reasons for particular policy decisions as reflected in the PPS Bill; and

3. a consequential amendments bill is debated in the Senate at the same time that the PPS Bill is debated following the further consultation period.

As in the case of the initial inquiry, although most submissions generally supported the reform, a wide range of significantly different views were expressed. The Committee was concerned whether these wide ranging views reflected fundamental policy differences or, instead, concerns regarding whether the PPS Bill, as drafted, operates as it is intended to. Ultimately, the Committee concluded that the issues raised reflected both types of concerns.

Given the number of concerns raised, the Committee's first condition is aimed primarily at ensuring these concerns are addressed, to the extent practicable, in a way that enables the timetable for commencement of the new regime to be met. The Committee's condition regarding transparency in decision making is intended at least in part to ensure that an attempt is made to explain the policy choices of the Commonwealth Government and possibly persuade those who are unconvinced by the merits of the PPS Bill, or particular provisions of it, to change their minds.

Unfortunately, the recommendations do not provide a great deal of guidance to the Commonwealth Government as to what amendments should be made to the PPS Bill following the consultation process. Chapter 5 of the report lists in detail a number of "technical" issues to be addressed by the Attorney-General's Department, indicating that the Committee believes the focus of the next month of consultation (and the amendment legislation that is proposed) should be on these technical issues, rather than broader policy concerns that have been raised.

The Committee did not recommend an extension to the implementation date for the new PPS regime, though was concerned with timing. It is not clear why the Attorney-General took so long to respond to the Committee's initial report and why a decision was made to commence the State legislative referral process, and introduce the PPS Bill to the House of Representatives, without making the revised PPS Bill publicly available or undertaking any public stakeholder consultation. If the revised PPS Bill had been made publicly available at an earlier point in time, and stakeholders invited to provide input, perhaps the Commonwealth Government would not now be in the awkward position of having to introduce and pass amendment legislation to the PPS Bill at the same time that the PPS Bill itself is passed.

Although the additional time for public consultation recommended by the Committee is commendable, it does prolong the uncertainty associated with the introduction of the new regime. Until the consultation process is finished at the end of the September 2009 and the proposed amendment legislation is made available there remains uncertainty as to the final terms of the legislation. This is compounded by the fact that the PPS regulations and the amendments to other Commonwealth legislation, such as the Corporations Act and the Shipping Act, are also not available. Therefore, although those affected by the regime can start planning for its introduction in May 2011, consideration will need to be given to the further amendments, the regulations and the ancillary changes to other legislation as and when these become available.

If you have any questions in relation to the PPS Bill or its ramifications for your business, please contact Angela Flannery.

For further information, please visit www.claytonutz.com

Disclaimer Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states.

September 10, 2009 - No 13/2009 www.tozzinifreire.com.br

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LIFE SCIENCES - RECENT NEWS

Brazilian Supreme Court Will Rule on ICMS Levied on Importation The Superior Court of Justice (STJ), Brazil’s highest court in federal matters, will not be responsible for deciding a dispute involving the ICMS (a type of value-added tax) levied on importation of machineries by medical clinics. Since the dispute involves a constitutional issue, the Brazilian Supreme Court (STF) will issue a ruling. The ICMS levied on importation was introduced in 2001 by a Constitutional Amendment. However, certain Brazilian States, such as Rio Grande do Sul, were already levying the tax before the Constitutional Amendment. Thus, medical clinics claim that the collection could only occur after the amendment. Many lawsuits are currently in course about this issue and court decisions have been inconsistent. Based on precedents from similar issues, some expect that the decision to be rendered by the STF will be more favorable to taxpayers than the trend indicated in precedents from the STJ. Food and Beverage Advertisement 24 of the largest food and beverage companies in Brazil publicly and voluntarily committed themselves to adopt new advertisement standards. Such companies will no longer target food and beverage advertising to children up to 12 years old, exception made to products with nutritional profiles that meet specific criteria based on scientific evidences. The commitment will be effective as from January 2010 and will embrace any and all media whose audience is comprised by at least 50% of children with less than 12 years old. Legislation • Anti-Smoking Law: on August 7, 2009, a law enacted in the State of São Paulo came into force prohibiting the consumption of cigarettes, tobacco products, and any other smoking products, derived or not from tobacco, in all indoor public or private areas used by the public. The restriction is also applicable to outdoor areas sheltered by awnings and roofing or encircled by walls. The Brazilian General Attorneys’ Office issued an opinion considering such law unconstitutional, arguing that individual States do not have legislative powers on the matter. Other States, such as Rio de Janeiro, Minas Gerais, Ceará, and Maranhão, are also adopting similar laws. • New Rules for Drugstores: through Resolution 44/09, the National Agency for Sanitary Surveillance (“ANVISA”) established new rules for drug commercialization. As a general rule, the activities of drugstores will be restricted to the commercialization of drugs and will not include the offer or services not related to drug dispensation, pharmaceutical attention and ear perforation. In practical terms, the Resolution prohibits automatic teller machines and the selling of phone cards by drugstores. The sale of medical devices, perfumes, personal hygiene products, in vitro diagnosis products, special food, medicinal plants and vegetable drugs is still permitted, based on Normative Instruction 9/2009, also enacted by ANVISA. Resolution 44/2009 also establishes that non prescription drugs, such as analgesics, cannot be placed in shelves that are accessed directly by consumers. Drugstores have six months to conform to the new rules. • New Physician’s Code of Ethics: after two years of discussions, the Federal Council of Medicine approved on August 29, 2009 their new Code of Ethics. Among the new rules, the code recommends that physicians disclose any sponsorship in speeches and scientific works, and that they do not sell drugs or receive commissions from pharmaceutical companies based on the recommendation of drugs. The code also prohibits the selection of gender in artificial insemination procedures. The new Code of Ethics will become effective within 180 days from its publication in the Official Gazette, which is expected to occur in December 2009.

Valter Matta Partner - São Paulo

[email protected]

Marcela Waksman Ejnisman Partner - São Paulo

[email protected]

WWW.TOZZINIFREIRE.COM.BR T 55 11 5086-5000 F 55 11 5086-5555

FMC Focus on Technology/Privacy

Volume 2, Issue 2 | September 2009

Co-Editors: Eric Smith and Dana Bissoondatt

Facebook to make changes to comply with Canadian privacy laws

By: Eric Smith

On August 27, 2009, the Office of the Privacy Commissioner of Canada (OPC) announced thatFacebook, the world’s largest social networking site, has agreed to make significant changes to themanner in which it collects and safeguards the personal information of individuals. This agreement,reached over one year after the original complaint against Facebook was made, is significant notonly as it relates to Facebook’s operations, but also for the clear message it sends to allorganizations, both Canadian and foreign, that compliance with Canada’s privacy laws must not betaken lightly.

Background

The OPC’s investigation into the practices of Facebook was initiated in response to a complaint filedwith the OPC by the Canadian Internet Policy and Public Interest Clinic (CIPPIC) dated May 30,2008[1]. In its complaint, the CIPPIC alleged that Facebook was engaged in "unnecessary andnon-consensual collection and use of personal information" and in doing so, was in violation of thePersonal Information Protection and Electronic Documents Act (PIPEDA). The complaint focused on 12 areas in which CIPPIC alleged that Facebook was not compliant withPIPEDA. Some of the areas identified in the complaint were the collection of date of birth, defaultprivacy settings, disclosure of personal information through third party applications, accountdeactivation and deletion, use of personal information of deceased users, and the collection ofpersonal information of non-users.

Report of Findings

Following the OPC’s investigation into the allegations made by CIPPIC, which included consultationswith and representations by Facebook, the OPC released its "Report of Findings" on July 16, 2009. In the Report of Findings, the OPC stated that, on four of the twelve subjects identified in thecomplaint (i.e. new uses of personal information, collection of personal information from sourcesother than Facebook, Facebook Mobile safeguards, and deception and misrepresentation), it foundno evidence of contravention of PIPEDA. With respect to another four subjects identified in thecomplaint (i.e. collection of date of birth, default privacy settings, advertising, and monitoring ofanomalous activity), the OPC concluded that the allegations were well-founded, but that they had

been resolved by corrective actions taken by Facebook in response to recommendations made bythe OPC during the investigation and consultation process. Finally, the report indicated that thefour remaining subjects identified in the complaint (i.e. third-party applications, accountdeactivation and deletion, accounts of deceased users, and personal information of non-users)were well-founded and had not been resolved, as Facebook had not agreed to adopt therecommendations of the OPC. A closer look at these unresolved issues provides insight into theconflict between an organization’s desire to use personal information for its business purposes andits legal obligation to safeguard such information and only use it with the informed consent of theindividual to whom the information relates.

(i) Third-Party Applications

In May 2007, Facebook opened its platform to allow third party developers to create applications(e.g. games, quizzes, etc.) that are accessible to users within Facebook.[2] By adding anapplication to their Facebook account, users enable such applications to access most of thepersonal information found in such account, including personal information related to theirFacebook friends.[3]

In its Report of Findings, the OPC identified a number of concerns with third party applications.These include:

the making available of more personal information than is necessary for the purpose of theapplication;

the reliance on contractual covenants by the developers to respect users’ privacy settingsand safeguard their personal information in lieu of technological safeguards and effectivemonitoring of compliance;

a lack of meaningful consent to the collection and use of personal information by the userwho adds the third party application; and

a lack of meaningful consent from users when their friends and fellow network members addapplications that expose their own personal information to access the application.

In its recommendations, the OPC asked Facebook to implement measures that would limit third-party developers’ access to personal information that is not required for the purposes of theapplication, inform users of the specific information that an application requires and for whatpurpose, obtain the express consent of users in each instance, and prohibit all disclosures ofpersonal information of users that are not themselves adding the application.[4] Facebookdeclined to implement such measures. (ii) Account Deactivation and Deletion

Facebook allows users to deactivate or delete their account. When a user deactivates an account,his or her personal information is retained indefinitely, a practice which the OPC concluded is acontravention of Principle 4.5 and 4.5.3 of PIPEDA. In addition, while a user can find informationconcerning how to delete an account, such option is not given the same exposure as thedeactivation option, making it less obvious to users as to how their accounts and personalinformation can be deleted from the service.

To address these concerns, the OPC recommended in a preliminary report that Facebook set acutoff date after which Facebook would no longer retain the personal information of users who haddeactivated accounts. The OPC did not suggest what a reasonable period of time would be, ratherit suggested that the period of time be a period "that a reasonable person would considerappropriate in the circumstances and based on [Facebook’s] experiences with user reactivation

Page 2 of 5

patterns"[5]. The OPC also recommended that Facebook include an account deletion option on theusers’ Account Settings pages, as is the case with the deactivation option. Facebook declined toact on these recommendations.

(iii) Accounts of Deceased Users

When Facebook is notified that a user has died, it generally keeps such user’s profile active in a"memorialized" status (i.e. with certain information removed and only confirmed friends providedaccess) for a period of time. Such a practice is not referred to in Facebook’s Privacy Policy[6]. Inits Report of Findings, the OPC concluded that the failure to advise users of this potential use oftheir personal information was a contravention of Principles 4.2.1, 4.2.3, 4.3.2 and 4.8 of PIPEDAwhich, in essence, require organizations that collect personal information to advise individuals as tothe purposes for which such information is collected. Facebook declined to follow OPC’srecommendation of referencing such use in its Privacy Policy. (iv) Personal Information of Non-Users

Facebook allows users to post personal information of non-users to their Facebook pages, therebymaking it available to anyone who has access to the applicable portions of that user’s Facebookaccount. While the majority of such postings are made for the personal use of the user, andtherefore outside the scope of PIPEDA, the OPC determined that, in some instances, Facebook usessuch non-user personal information for its own purposes.

For example, when a user ‘tags’ a non-user in a photograph that has been uploaded to his or herFacebook account, Facebook gives the user the option of providing to Facebook the non-user’semail address, which is then used by Facebook to send a notification to the non-user of the taggingand an invitation to join Facebook. While the notification of tagging is for the benefit of the non-user, the invitation to join Facebook is for the benefit of Facebook. In addition, Facebook allows users to provide Facebook with the email addresses of non-users thatFacebook uses to send invitations to non-users to join Facebook. Facebook retains suchinformation for an indefinite period of time. In addition to using the email addresses to deliverinvitations, Facebook uses the email addresses to provide users with a history of invitations sentout on their behalf and for tracking the success of the referral program.

The OPC concluded that in instances where personal information about an individual (i.e. the non-user) is being collected from another individual (i.e. the user), it is reasonable to allow Facebook torely on the user to obtain the direct consent of the non-user, provided that Facebook takesreasonable measures to ensure that such consent is obtained. In the opinion of the OPC, merelyreferencing the requirement for the user to obtain the non-user’s consent in the Privacy Policy isnot sufficient, and Facebook should include a reminder each time that a user discloses a non-user’semail address to Facebook. Facebook should also take action against those users who violate suchconsent requirements.

In addition, the OPC concluded that the retention of non-users’ email addresses for the purpose ofinvitation history and tracking without informing non-users of such use is a contravention ofPIPEDA’s informed consent requirement. Retaining such addresses indefinitely beyond the timenecessary for the initial purpose of collection was also a violation of PIPEDA.

Resolution of Outstanding Issues

As part of its Report of Findings, the OPC requested that Facebook reconsider the OPCrecommendations that it had declined to adopt, and that the OPC would give Facebook 30 days inwhich to do so. We do not know what actions the OPC would have taken had Facebook notsatisfied the OPC’s request, as, on August 27, 2009, the OPC announced that the outstandingmatters had been resolved to its satisfaction.

Page 3 of 5

In a letter to CIPPIC dated August 25, 2009, the OPC advised CIPPIC of the outcome of itsdiscussions with Facebook regarding the CIPPIC allegations that it determined were well-founded,including those that remained unresolved at the time that the OPC issued its Report of Findings. With respect to the previously unresolved matters, the OPC reported as follows:

(i) Third-Party Applications

Facebook agreed to redesign its API so that users will have greater control over the type ofpersonal information that third party application developers may access, and the purposes forwhich such information can be used. While access to the personal information of friends and fellownetwork members may still be accessed by the third party applications, users will be able to controlwhether such information is made available to developers. Users will also be presented with a linkto a statement of the developer explaining how it will use such personal information. Theintroduction of this new model for information sharing with third-party applications is to take placeon or before September 1, 2010.

(ii) Account Deactivation and Deletion

On the basis that most users reactivate accounts and expect to have access to their personalinformation when they do so, Facebook has not accepted the OPC’s recommendation that a finiteretention period be instituted for deactivated accounts. The OPC accepted this position, providedthat users are well informed of the differences between deactivating and deleting an account. Tothis end, Facebook has undertaken to include a more complete explanation of the differencesbetween the two options in its Privacy Policy and Help Center, and include links to each option.

(iii) Accounts of Deceased Users

In accordance with the recommendations of the OPC, Facebook has agreed to include a referenceto the use of accounts to memorialize deceased users in its Privacy Policy within 10 weeks time.

(iv) Personal Information of Non-Users

Facebook has agreed to include additional language in its Statement of Rights and Responsibilitiesthat informs users of their obligation to obtain the consent of non-users before providing the non-user’s email address to Facebook. Facebook further undertook to follow up on any complaints bynon-users with respect the use of their email address. Facebook also confirmed that it does notretain the email addresses of non-users in order to track the success of its invitation feature.

While the CIPPIC may take further action if it is not satisfied that the actions taken by Facebookadequately address its concerns, the OPC letter indicates that, so long as Facebook follows throughon its undertakings, the OPC is satisfied with Facebook’s response.

Conclusion

The investigation into the practices of Facebook, and the resulting changes that Facebook hasagreed to make to its service, were the result of a lengthy and, no doubt, costly process. Whilesome suggest that individuals should resign themselves to the fact that privacy does not exist inthe on-line world, the CIPPIC complaint and its apparent resolution illustrate the power that usershave to change the behaviour of on-line business organizations, even if they are located outside ofthe country in which the users reside. This matter also demonstrates the seriousness with whichCanadian regulators treat well-founded complaints. The Facebook complaint is a strong reminderthat all businesses should be proactive in examining their practices in relation to the collection, useand safeguarding of personal information. Failing to do so can be costly, not only in time andmoney, but also with respect to the damage it can cause to relationships with customers.

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[1] A copy of the complaint, as well as the report of findings and other announcements by the OPC referenced below can be found on the website of the Office of the Privacy Commissioner of Canada at http://www.priv.gc.ca [2] As of June 4, 2009, Facebook stated that there were over 350,000 Facebook applications from over 950,000 developers in over 180 countries – see Paragraph 148 of the Report of Findings. [3] To illustrate the sharing of personal information with third-party applications, the Northern California chapter of the American Civil Liberties Union (ACLU) created a Facebook application that allows users to see personal information that the ACLU application can access on the user’s Facebook account. See http://tinyurl.com/nhmusj.[4] See Report of Findings, paragraph 211. [5] Ibid, paragraph 245. [6] As noted in Paragraph 275 of the Report of Findings, the practice of using accounts for memorial purposes was, at the time of complaint, identified in Facebook’s Terms of Use. In the time between the filing of the complaint and the issuance of the Report of Findings, Facebook replaced its Terms of Use with a Statement of Rights and Responsibilities (SRR). The SRR does not include a reference to using accounts for memorial purposes.

Contact Us

If you have any questions or would like any further information, please contact the regional Technology Transactions Group contacts listed below or any member of FMC's PrivacyGroup.

Location Name Number

Ottawa Eric Smith +1 613 783 9632

Toronto Michael Beairsto +1 416 862 3412

Montréal Philipp Park +1 514 878 8872

Edmonton Tom Sides +1 780 423 7138

Calgary Laura Safran +1 403 268 7318

While this newsletter is a good source of general information accurate at publication, do not rely onit for specific legal advice. This newsletter does not establish a solicitor-client relationship betweenFMC and you. Every legal matter is unique and your specific circumstances need to be discussedwith a qualified lawyer. We would be pleased to discuss the issues this newsletter raises with you inthe context of your particular circumstances.

Page 5 of 5

Insurance Law NewsletterAugust, 2009

Chinese Drywall:Th e Next Wave of Claims?by H. Scott MacDonald

Just when the peak of “leaky building” claims has worked its way through the legal system, now comes word that the next wave may be coming in the form of toxic Chinese drywall. While Chinese drywall claims are surfacing in the Gulf Coast region of the United States (which experienced a home building boom in the aftermath of a series of devastating hurricanes), recent reports suggest the same product was imported into Canada, and used in the lower mainland of British Columbia.

Background

Drywall produced in China and imported to Canada and the United States from 2001 to 2007 is being linked to toxic gases which are alleged to cause property damage and a variety of health symptoms such as nose bleeds, respiratory problems, headaches, nausea and skin irritations. Early studies suggest that a sulfur compound is emitted from the drywall, causing health eff ects and corroding of electrical wiring, HVAC components and even household appliances.

Th ousands of lawsuits have been fi led in the south eastern United States against manufacturers, distributors and home builders for the production, sale and use of Chinese drywall. Insureds are seeking coverage under liability policies for third party claims being brought against them and it is expected that fi rst party claims by homeowners won’t be far behind.

Th ird Party Issues

Similar to the epidemic of leaky building lawsuits, defective Chinese drywall will give rise to lawsuits against developers, contractors, subtrades and material suppliers for claims involving “bodily injury” and “property damage”. Commercial General Liability (“CGL”)

700 – 401 West Georgia Street, Vancouver, BC, Canada V6B 5A1Tel: 604.682.3664 Fax: 604.688.3830 [email protected] www.rbs.ca

policies provide broad coverage for bodily injury claims brought by third parties against an insured. In the context of Chinese drywall cases, CGL insurers can expect to be faced with defending lawsuits brought against an insured for bodily injury arising from the exposure to noxious gases emitted by the drywall.

CGL policies also provide coverage for property damage that results from an “occurrence”. An “occurrence” is typically defi ned as an accident, which includes continuous or repeated exposure to substantially the same general harmful conditions. In Canada, the case law diff ers from one province to the next as to what constitutes an “occurrence” in the construction defect context. In British Columbia, there is case law to suggest that a construction defect can never be an “occurrence” because it lacks the element of fortuity. In Ontario, however, while the damaged work itself may not be covered, the damage that results from that defective work is considered an “occurrence”. Generally speaking, the purpose of coverage under a CGL policy doesn’t extend to the risk of repairing or replacing the insured’s own defective work.

In the same manner that water ingress damage took time to surface in the leaky building cases, it may take time for property damage to surface in the context of Chinese drywall claims. Th at gives rise to a problem: when is coverage triggered for construction defects under a CGL policy? Is it when the drywall was fi rst installed, or when the homeowner fi rst began to notice the damage or corrosion, or is it simply a continuous trigger so that all CGL policies that were in eff ect while the damage was “ongoing” are triggered? Few of the leaky building cases have actual evidence of when the damage occurred. As a result, every CGL carrier who provided insurance to a developer, contractor, subtrade or material supplier between the date of substantial completion of the construction project, and the date the claim is made or the damage is repaired, has been involved in these types of claims.

If an insured can establish an “occurrence” to trigger coverage for a third party claim under a CGL policy, what standard CGL policy

British Columbia Wall and Ceiling Association denies that Chinese drywall was widely used in British Columbia, it acknowledges that 929,000 square metres of board landed in Vancouver between 2004 and 2007 and that “rogue” contractors may have used the product. Th e fact that no, or very few, actions have been commenced in superior court is a positive sign that British Columbians may not suff er extensive damage from Chinese drywall, but, given the potential for huge exposures and the “long tail” nature of these claims, the fi nal chapter is far from being written.

For more information on the content of this newsletter, or on other

insurance law matters, please contact H. Scott MacDonald at

604.661.9217 or Alex L. Eged at 604.661.9203.

©2009 Richards Buell Sutton LLP. All rights reserved. Th e content of this newsletter is intended to provide general information on Richards Buell Sutton LLP, our lawyers, and recent developments in the law and is not to be relied on as legal advice or opinion. For more information on the fi rm or to comment on our newsletter, please contact our Marketing Coordinator, Doris Chin, at 604.661.9231 or [email protected]

exclusions might bar coverage in Chinese drywall cases? Some of the standard exclusions which could potentially apply to exclude coverage are the pollution exclusion, the “fungi, mold and bacteria” exclusion, the exclusion for injuries “expected or intended”, and the exclusions for faulty workmanship, defective design, contractual liability, your work, the insured’s work product, premises owned, and impaired property.

First Party Issues

Th e fi rst issue in the coverage analysis under a homeowners insurance policy, for damage to a home caused by defective drywall, is whether the damage constitutes “direct physical loss” to property. Th e insuring agreement under most homeowners insurance policies insures against the “risk of direct physical loss to property”, subject to various coverage exclusions. Whether or not construction defects related to the use of poor quality materials constitute “direct physical loss to property”, remains to be seen.

If a homeowner can overcome the threshold issue of proving “direct physical loss”, most homeowners’ insurance policies contain exclusions which could restrict or eliminate coverage altogether. For instance, a claim involving the emission of hazardous gases from the drywall may fall within the scope of a standard homeowners pollution/contamination exclusion. Water damage exclusions may also apply because many of the hazardous aspects of Chinese drywall arise when it is exposed to water or humidity. Many homeowner policies also contain a standard “inherent vice” exclusion for damage caused by “mechanical breakdown, latent defect, inherent vice, or any quality in property that causes it to damage or destroy itself”.

Practical Considerations For Insurers

Is it too late for insurers to introduce a new exclusion for property damage caused by Chinese drywall? While an insurer cannot protect itself against the portion of damage that has already occurred, it is not too late to introduce new wording to exclude this type of damage going forward. In the same way that many CGL insurers introduced “water ingress” exclusions to their liability policies after leaky building cases began to surface, insurers should consider introducing a “Chinese drywall” exclusion to limit risk before such claims become ubiquitous.

Insurers would also be well advised to remain vigilant as to their exposures for toxic Chinese drywall in British Columbia. While the

Insurance Law Newsletter

Insurance Law Group MembersAlex L. Eged / 604.661.9203 / [email protected]. Scott MacDonald / 604.661.9217 / [email protected] W. Lightbody / 604.661.9284 / [email protected]. Nicole Mangan / 604.661.9257 / [email protected] R. Hamilton / 604.661.9274 / [email protected]

The Battle for the Company Seal: Competition for Control between Foreign Private Equity Investors and Management By Zhang Shouzhi*, Xu Xiaodan** and Li Xiang*** China Bulletin August 2009

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The recent global financial crisis has intensified private equity investment disputes (“PE Disputes”). In general, private equity (“PE”) can be broadly defined to include all of the assorted financing or investment options other than a public offering. Most of the time a PE Dispute is between a foreign invested company’s investors and its management. Moreover, most PE disputes have common factual and legal issues.

I. The Most Common Features of PE Disputes

Most PE Disputes are similar in the following aspects:

（1） The disputes arise in foreign invested companies; （2） The companies’ foreign investors lose control of the companies’ operations and

management; （3） The companies’ investment and equity structure are complicated; （4） The investments are large, usually, more than USD5 million; （5） Resolution of the disputes usually requires several litigations, arbitrations, and other

remedies; （6） Criminal and civil laws apply to the disputes; （7） The disputes usually involve the law of more than one jurisdiction; and （8） There are usually practical barriers to settling the disputes.

To be able to obtain an optimal settlement in a complex PE Dispute, foreign investors must plan ahead. Planning, involves two basic dimensions: one, adopting the most effective legal strategy; and two, overcoming any practical roadblocks to implementing that chosen strategy. The investors’ ultimate goal should be to regain control of their company.

II. How do Foreign Investors Lose Control of Their Company?

As foreign investor diversify their investments worldwide, it is increasingly difficult for them to be involved in each investment’s daily management. Therefore, foreign investors usually opt to use a professional manager that is familiar with the local culture and market to take care of the company’s operations and daily management. In these kinds of arrangements, investors can enjoy the company’s profits without being burdened of managing the company’s daily operations. However, as a practical matter, foreign investors do not really have an effective way to supervise the company’s management personnel. In general, investors typically learn of the company’s true business and financial status through the company’s regular shareholders’ meetings, its board meetings, and its management reports. In addition, many foreign investors grant company management too much power and discretion over the company’s operations, including, the management’s right to use company funds without the investors’ specific consent to use the funds. This management discretion right often stems from the foreign investor absolute faith in the company’s management personnel, and because unfettered access to funds is necessary to be able

2

to hire the best management personnel available. Yet, foreign investors often fail to seek remedies when the company’s assets have been impaired or the management personnel causes other serious problems.

III. What Happens When Foreign Investors Lose Control? When one or more executives control a company for a long time, the executives have the opportunity to take advantage of their position to conduct related party transactions, provide unauthorized external guarantees, or misappropriate or embezzle the company’s assets. However, by this time the foreign investors realize that the company’s executives have misappropriated company assets, and fire or replace the executives and recover the assets they have already lost control of the company. When a company is established its articles of association usually do not grant its foreign investors the right to vote as the company’s majority shareholders board or shareholders’ meetings, nor are they actually allowed to hold a majority of the company’s shares. This set up is common for Sino-foreign equity joint venture enterprises and Sino-foreign contract joint venture enterprises. 1 Alternatively, sometimes the company’s operations cause foreign investors to lose their rights to vote as majority shareholders. No matter what causes the foreign shareholders to lose this right, it will prevent the foreign investor’s from being able to use internal governance to dismiss executives that abuse their position in the company (e.g., through board or shareholders resolutions passed in accordance with the company’s articles of association). The company’s top executive is usually the company’s legal representative, and he or she is legally entrusted with the company seal, which is the company’s official symbol. The company seal provides the legal capacity to make and execute agreements, provide guarantees, transfer assets, and legally bind the company in any other way. When a legal representative is replaced, the displaced legal representative must return the company seal to the company so that the new legal representative takes possession of it and represent the company. However, if the displaced legal representative refuses to return the seal the company will be liable for all the agreements that the former legal representative binds the company to. In other words, even if the articles of association can be used to remove an executive it does not necessarily mean that the foreign investors have been able to regain control of the company. As long as, the seal is outside of the company’s control the foreign investors still have no power. In addition, the chief financial officer (“CFO”) is another key position in a company, since he or she controls the company’s financial accounts. If using the company’s bank account funds only requires the CFO’s signature, the company’s seal, or the CFO’s signature, the company’s financial seal and the company’s seal, but does not require the foreign investor’s signature or seal, then the CFO can collude with the legal representative to misappropriate or embezzle the company’s funds. Without the company seal and the financial seal, a bank will refuse to change the names of the people who can access the company’s bank account even if the party’s that had the right to access the accounts have been dismissed.

IV. How Foreign Investors Can Regain control?

A. Use a shareholder or board resolution to dismiss the legal representative and other

executives

If the company’s articles of association allow it, foreign investors may dismiss the legal representative and other executives through a shareholder or board resolution, and the foreign investors have not lost authority as the majority shareholders or lost control of the board of

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directors. Overall, this strategy is the most efficient and practical way to regain control of rogue executives.

At present, PRC law requires a company to be liable for any action taken by the company’s State Administration for Industry and Commerce (“SAIC”) and local SAIC office registered legal representative. Therefore, the company must immediately register the company’s new legal representative with the SAIC, as soon as, the old one is terminated. Otherwise, the removal of the old legal representative will not be legally effective, and the new legal representative will not be able to exercise control over the company’s affairs. Moreover, without filing the change in legal representative the company will continue to be liable for any transactions the old legal representative executes in the company’s name.

However, a practical roadblock to this change is that the SAIC or its local branch office requires the company to provide a written application to alter the company’s seal registration.2 Furthermore, the company’s power of attorney is also required to submit a written authorization under the company seal. If the company seal is still held by removed legal representative, the company will not be able to apply to alter the registration. Consequently, the terminated legal representative will remain the company’s legal representative in the SAIC’s record and on the company’s business license.

A recent case Supreme People’s Court (“SPC”) case held that a change in legal representative is effective where a board director’s resolution or other evidence can prove that the terminated legal representative has been legally replaced, even if the change in registration has not been filed with SAIC or its local branch office. Moreover, if the company has submitted new legal representative’s identification certificate and an authorization to act under the company seal, then the new legal representative is entitled to represent the company in its litigations. To some extent, this SPC decision has weakened the rule that a change to a company’s legal representative is only effective upon the change’s registration with the SAIC or its local branch office. However, since China is a civil law country this SPC decision has no official legal effect on the rule that the change must be registered with the SAIC or its local branch office.

B. Litigate to terminate a legal representative or other management personnel

Article 147 of the Company Law establishes what actions can cause a person to be prohibited from being appointed an executive in a company.3 For example, a person cannot be named a director, supervisor, or senior manage if he or she has been convicted of corruption, bribery, misappropriation, or manipulation of the PRC government’s economic plan within five years of the application to appoint him or her to a position. Further, Article 147 stipulates the situations in which any individual shall not be designated or employed as an executive or a senior manager of a company, such as a person sentenced to prison. The designation or employment of an individual in any of the situations provided in Article 147 is invalid. However, the Company Law does not state whether a company may remove its executives in the absence of the circumstances laid out in Article 147. In practice, many companies and many companies’ shareholders have petitioned the people’s courts dismiss of company executives based on the executive’s breach of duties to the company, including but not limited to, Article 149 of the Company Law’s fiduciary duties.4

However, since PRC law does state that courts can remove company executives for any other reasons besides the ones the Company Law lists, we can assume that the people’s courts are not empowered to remove a company’s executives on the grounds that they breached of their fiduciary duties to the company. Some courts have been inclined to consider the appointment and removal of directors as internal company matters, and they believe that it would be improper for

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the courts to take away a company’s right to self-govern by dismissing its directors. The courts that hold this view will acknowledge that the directors they are asked to remove are, in fact, in breach of their fiduciary duties to the company, however, these courts will not support a plaintiff’s request that the court remove them from office. Instead, the courts will only render “judicatory advice” that recommends that the company taken internal action to remove the directors in accordance the law and the company’s articles of association.

When a director’s actions constitute a crime, criminal charges may be brought against the director, and if he or she is found guilty the people’s courts may terminate the director from his or her position based on Article 147 paragraph 2 of the Company Law.

C. Petition for the company seal to be returned

As we have discussed, when a removed legal representative refuses to return the company’s seal, the company’s foreign investors may not have necessarily regained control of the company. Therefore, retrieving the terminated legal representative’s unlawfully held company seal is an important step toward the foreign investors recapturing control of the company.

Article 148 paragraph 2 of the Company Law establishes that “directors, supervisors and senior managers shall not take advantage of their position to take bribes or other illegal income, and they shall not speculate with the company’s assets.” Article 91 of the Meeting Minutes of the Second National Forum on Foreign-Related, Commercial Maritime Trials (Fafa [2005] No. 26), issued by the SPC on December 16, 2005, provides that “the people’s courts will accept petitions from foreign invested companies attempting to retrieve a company seal from a natural person, legal person, or other entity.” Therefore, based on Article 148 of the Company Law and this published meeting minutes a company can take legal action against a removed legal representative to have the company seal returned to the company.

However, in practice, this remedy is hard to implement. When a company files a lawsuit to seek the return of the company seal, the indictment must be stamped with the company seal. If the company seal is not available, then the court will accept the legal representative’s signature on the petition, but the legal representative that signs the petition must be the legal representative list on the company’s business license. When the person illegally holding the company seal is the company’s removed legal representative, and the company has not filed the application to change its registered legal representative, the terminated legal representative will remain the legal representative on the company’s business license. In a situation where the preceding legal representative is the defendant, he or she will clearly be unwilling to execute a petition against him or herself to return the company seal. Although the SPC has confirmed a company can effectively change its legal representative even if it does not file a change in legal representative with the SAIC or its local branch office, the new representative must still provide the court his or her identification and company authorization stamped with the company seal to be able to act in the company’s name. Therefore, the company has several procedural problems it must overcome if it wants to file a lawsuit to retrieve the company seal in its own name.

When a company has trouble retrieving the company seal from a removed legal representative, another potential option is to report the lost company seal to the police. Although the public security bureau (“PSB”) in each city and province has its own requirements for reporting a lost company seal, all PSBs require a company to state how the seal was lost or stolen, and publish an announcement about the loss in a designated newspaper for prescribed period of time. Once the announcement has been published for long enough, the new legal representative may bring an original copy of the company’s business license to SAIC or its branch office, and apply to make a new company seal and file related registrations. However, there are two roadblocks to using

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this technique. First, a company cannot get a new company seal, unless, the new seal registration is completed by the legal representative listed on the company’s business license with the approval of PSB in the company’s domicile. Second, the question of when a company’s seal should be considered “lost” or “stolen” is a subjective question. Therefore, many PSBs tend not to approve a company’s request to report of a lost seal. However, some PSBs will consider a terminated legal representative’s continued possession of a company seal to be an acceptable exception to the requirements, and they will approve the company’s application for a new company seal after the company provides a detailed explanation about why it cannot follow the proper procedure.

D. Shareholder derivative lawsuits

Articles 150 and 152 of the Company Law state that a company’s directors or officers are liable for any losses that occur when they violate the PRC’s laws and administrative regulations, or they violated the company’s articles of association while acting on the company’s behalf. The company’s shareholders may make a written request that the company’s supervisors or its board of supervisors sue the directors or officers that caused the company’s illegal loss. Moreover, the shareholders can file a petition on their own behalf with the people’s courts, if the company’s supervisors or its board of supervisors refuse to do to take action against the directors or officers, if the supervisors or board of supervisors fail to initiate a lawsuit within 30 days of receiving the shareholders’ written request to act, or if urgent action is needed because any delay in taking action will probably cause irreparable harm to the company.

Therefore, when a company is unable to initiate an action to stop activities that will injure the company on its own behalf because of procedural barriers, the company’s foreign investors can start a derivative action to have rogue officers removed, or retrieve the company seal from a terminated legal representative. Although the Company Law’s provisions allow shareholders to initiate a derivative action, the shareholders must first exhaust all internal remedies, including, requesting the company’s supervisors or the board of supervisors to sue the directors or officers that are injuring the company before they can sue offending directors and officers on their own behalf. The only exception to this is rule is if the case is urgent, and irreparable harm will occur if action is not taken.

Sometimes foreign investors may choose to establish an offshore holding company to invest in a PRC company. The offshore holding company and PRC company will then share the company’s management duties. In a case where a company is jointly managed, the offshore company shareholder of the PRC company would not bring suit against the PRC company’s management because it is part of the PRC company’s management. The company’s foreign investors do not have standing to sue because they are not the PRC company’s shareholders the offshore company is the PRC Company’s shareholder. These problems will make it more difficult for foreign investors to regain control of a company.

When a company’s foreign investors do not hold any equity in the PRC company, they could attempt to sue the PRC company and its officers and shareholders for joint tort damages to their legal rights and interests in the company. However, the likelihood that the company’s foreign investors will be able to prove joint infringement and a causal relationship between that infringement and the losses the company’s officers and shareholder caused foreign investors is low.

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V. Conclusion This analysis discusses several regulations and practices in China’s current legal system that creates serious barriers to foreign investors being able to protect their legal rights and interests in a Chinese company they control. Yet in practice, the people’s courts, the PSBs, and the SAIC and its local branch offices tend to be flexible when a company presents a case where the facts of wrongdoing are clear, and the company faces procedural barriers to preventing more wrongdoing. Therefore, foreign investors need to take a two step approach to protecting their rights and interests. First, when they work to establish the company they must be sure that the company has an effective mechanism to monitor its management team. In addition, when a PE Dispute does arise, they must also carefully review all of possible legal strategies to insure that they effectively redress any wrongs and prevent any additional harm to their interest. Moreover, when it is necessary, foreign investors should proactively communicate with the PRC’s competent government bodies, and inform them of the facts and claims that are in their favor to make sure that their legal rights and interests are protected as much as possible. (This article was originally written in Chinese, the English version is a translation.) * Zhang Shouzhi is a partner of King & Wood’s Beijing International Litigation and Arbitration Group. ** Xu Xiaodan is a partner of King & Wood’s Beijing International Litigation and Arbitration Group. *** Li Xiang is an associate of is a partner of King & Wood’s Beijing International Litigation and Arbitration Group.

1 The Company Law establishes that a company’s articles of association may set rules for shareholders and the board of directors voting rights. The Company Law does not require these voting rights to match the shareholders’ percentages of equity in the company. Furthermore, when Chinese investors negotiate to establish a joint venture they can bargain to have more voting rights than their percentage of company equity to help reduce the company’s foreign investors voting rights. This negotiating tactic is often found when the foreign investors would actually be the company’s majority shareholders, and the company’s domestic shareholders use it to keep the foreign shareholders voting rights below half. Alternatively, Chinese investors can try to require super majority, two thirds or three quarters, approval for many important company matters that way even if the foreign investors hold more than half of the company’s equity shares they will not be able to pass a resolution without the Chinese shareholders’ agreement to the resolution.

2 Article 27 of the Administrative Regulations of the People’s Republic of China on Company Registration establishes that to apply to alter a company’s business registration, it must submit these documents to registration authority: (1) a written application to alter the registration, signed by the company’s legal representative; (2) a company resolution or decision to alter the registration that was adopted based on the Company Law’s requirements; and (3) any other documents that the SAIC requires for the company to be able to change its registration. Where altering the company’s registration involves amending the company’s bylaws, the company must submit the proposed bylaw amendments or the amended bylaws that have signed by the legal representative. Where the law, regulations, or State Council decisions require a company get pre-approval before a registered item can be altered, the company must also submit the required pre-approvals to the registration authority.

3 Article 147 of Company Law establishes that “a person shall not act as a director, supervisor or senior manager of a company if he or she meets any of the following circumstances:”

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(1) The person does not have civil capacity or has limited civil capacity; (2) The person was sentenced to prison for corruption, bribery, misappropriation, or interruption of the order of the socialist market economy, or he or she was deprived of his political rights due to one of these offences, and less than 5 years have passed from the date that penalty ended; (3) The person was formerly a chairman, a director, or a manager in a company or enterprise that entered bankruptcy or a bankruptcy litigation proceeding. He or she was held personally liable for the company or enterprise’s bankruptcy, and less than three years have passed since the company or enterprise completed the bankruptcy or liquidation; (4) The person was the legal representative of a company or enterprise when that company or enterprise’s business license was revoked and the company was forced to wind-up its business for violating the law. He or she was held personally liable for causing the revocation and mandatory wind-up of the company or enterprise, and it has been less than three years since the company or enterprise had its business license revoked; (5) The person has a relatively large amount of outstanding debt, which is due. Where a company elects or appoints a director or supervisor, or recruits a senior manager in breach of these provisions, the election, appointment, or recruitment is invalid. When a director, supervisor or senior manager already holds the office when one of situations described in Article 147 paragraph 1, the company shall remove that individual from his or her office.

4 Article 149 of the Company Law establishes that directors and senior managers are prohibited from participating in any of the following acts:

(1) Misappropriation of company funds; (2) Depositing company funds in an account under his own or any other individuals name; (3) Using company funds to make a loan to an individual or using company property to guarantee a loan to an individual in breach of the company’s bylaws, or without a shareholders’ meeting, the shareholders’ assembly, or the board of directors resolution authorizing him or her to make the loan or guarantee; (4) Entering a contract on the company’s behalf or doing business with the company in breach of the company’s bylaws, or without a shareholders’ meeting or a shareholders’ assembly resolution allowing him or her to take that action; (5) Taking advantage of his or her position to seek personal or another individual’s business opportunities that should belong to the company, or operating another business that is similar to the company’s on his or her behalf or on behalf of others, without a shareholders’ meeting or a shareholders’ assembly resolution that allows him or her to run another business; (6) Taking a personal commission on a transaction between the company and another party; (7) Disclosing the company’s confidential information without authorization or consent to disclose the information; or (8) Any other act that is in breach of his or her fiduciary duties to the company.

Any income that a director or senior manager receives from engaging in any of these acts will be given to the company.

20/08/2009 Government To Implement One Stop Investment Service The Government of Indonesia continues its effort to change the perceived view that the process of entering into Indonesia for business is time consuming, burdensome and involves a lot of upfront fees for getting permits, hiring and dealing with government institutions. Its recent step in this line is the recent issue of Presidential Regulation No. 27/2009 regarding Integrated One Door Services for Investment (“Regulation No. 27/2009”). In the past, the government’s efforts to streamline the country’s investment process include the following: - issue of Presidential Decree No. 29/2004 regarding Realization of Capital Investment in the Framework of Foreign and Domestic Investments Through A One-Stop Service System (“Presidential Decree”). This Presidential Decree was followed by a number of regulations issued by ministries and governors of provinces meant as the implementation of the Presidential Decree. - insertion of Articles 25 and 26 in Law No. 25/2007 (“2007 Investment Law” or the ‘new investment law’). Articles 25 and 26 of 2007 Investment Law basically introduced a one-stop service system (“One Stop Service” or the “System”) for the processing of the required investment permits, with the intention of providing investors with access to simplified services, fiscal facilities, and information. The recently issued Regulation No. 27/2009 intends to create better investment mechanism and environment by providing investors (both foreign or domestic) with convenient services, fiscal facilities, and easy access of information on investment. It aims to speed up and simplify the services as well as lessen or eliminate the costs in the processing of licenses and non-licenses. The term licenses is defined as “all forms of approval for conducting investment activities that are issued by the Government and the Local Government having the authority to do so in accordance with the prevailing laws and regulations”. Non-licenses is defined as “all forms of convenient services, fiscal facilities, and information regarding investment, in accordance with the prevailing laws and regulations”. The institution in charge of running the One Stop Services is the Investment Coordinating Board (“BKPM”), and for this purpose departments and government institutions or governors or regents that currently handle investment licenses and non-licenses are to delegate their respective authority to the head of BKPM, the head of PDPPM or the head of PDKPM. Hence, applications for licenses and non-licenses are to be lodged with the BKPM, PDPPM or PDKPM. A provision of note of this Regulation No.27/2009 is the provision that an application may be submitted manually or electronically through a system to be called SPIPISE, which is an integrated service system that allows coordination between government departments/institutions and BKPM, PDPPM or PDKPM. The procedures for the implementation of this One Stop Service will be further elaborated by BKPM and regional governments (governors and regents) in separate regulations. Regulation No. 27/2009 revokes a number of previous regulations on investment (including the above mentioned Presidential Decree No. 29/2004). It became effective on the day of its issue on 23 June 2009. [Hamud M. Balfas For more information visit www.abnrlaw.com

INSURERS MUST DISCLOSE COMPENSATION PAID TO THEIR DIRECTORS, SUPERVISORS AND PRESIDENTS◎J. C. Liu/Ying-chen Chen

The Financial Supervisory Commission (FSC) issued a ruling on 28 April 2009, effective 1 January 2009, stating that when filing annual financial statements and consolidated financial statements for the previous year with the Insurance Bureau, insurers, excluding professional reinsurers and foreign insurers, in any of the following situations must disclose the names of each directors, supervisors and president and the amounts of compensation paid to these individuals:

The RBC ratio shown in the latest financial statements audited by certified public accountants, or examined and adjusted by the FSC, is below 200%.

Net loss was posted for the last two consecutive fiscal years.

Insurers, after being requested by the FSC to increase capital, failed to complete the capital increase in accordance with the capital-increase proposal.

For insurers whose shares are publicly offered, their directors or supervisors failed to comply with the shareholding requirements under Article 2 of the Rules Governing Shareholding Percentage of Directors/Supervisors and Implementation of Examination for three consecutive months or more.

The average ratio of directors or supervisors creating pledges over their shares in any three months of the latest year is more than 50%.

Insurers not in any of the above situations may choose to disclose the compensation paid to their directors, supervisors and president in the last fiscal year either by disclosing the consolidated amount with the directors, supervisors and president listed by ranks or by disclosing each name of the directors, supervisors and president and the amount paid to the individual.

For additional information visit www.leeandli.com

Lee and Li Bulletin_July 2009 Issue

Commuting in a Company Vehicle, Home E-Mail Activity: Compensable Employee Time?

09.14.09

By Judith Droz Keyes and Michelle D. Fife

The availability of laptop computers, PDAs and cell phones has made off-site working easy to do. These realities raise a number of human resource concerns, not the least of which are determining when nonexempt employees must be paid for time spent traveling from their homes to customer sites, and when they must be paid for incremental time spent working outside of normal working hours (such as to “check e-mail”). Helpful guidance on these issues has recently been provided by the U.S. Court of Appeals for the 9th Circuit in a case called Rutti v. Lojack Corporation.1

Background

Federal and most state wage-and-hour laws require that employees be paid for all "hours worked.” For example, federal regulations provide that “[a]s a general rule the term ‘hours worked’ will include: (a) all time during which an employee is required to be on duty or be on the employer’s premises or at a prescribed work place and (b) all time during which an employee is suffered or permitted to work whether or not he is required to do so.”2 California regulations define “hours worked” as “the time during which an employee is subject to the control of an employer, [which] includes all the time the employee is suffered or permitted to work, whether or not required to do so.”3

Twenty-five years ago, in Lindow v. United States, the 9th Circuit interpreted federal law to require that employees be compensated for activities that are an “integral and indispensable part of the principal activities for which [they] are employed” no matter when the work is performed, unless the activities are de minimis. The court established a three-pronged test to determine de minimis:4 (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work.”5 This test reflects a balance between requiring an employer to pay for activities it requires of its employees and the need to avoid “split-second absurdities” that “are not justified by the actuality of the working conditions.”6

Rutti decision

Rutti was an employee who installed and repaired vehicle recovery systems. He worked out of his home in California, driving a company vehicle to customer sites. He sued for compensation for the time he spent traveling from home to the first customer and from the last customer back to his home, each day (“commute time”). He also sued for “off-the-clock work,” that is, for various activities that he performed from home before his first appointment and at the end of the day. The trial court rejected all of Rutti’s claims, and Rutti appealed.

Company-car commute time

The 9th Circuit first analyzed Rutti’s commute time and found it not to be compensable under either federal or California law. Even though the company required Rutti to use the company car and restricted its use to business-related activities, the time Rutti spent driving was deemed “incidental” to his employment rather than being a “principal activity.” Thus, it was not “hours worked” under federal law.7 Applying California law, the court deemed the commute time not to be so “subject to the ‘control of the employer’” as to make it working time, in spite of the vehicle requirements and restrictions. 8

Computer activity from home

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The court next examined Rutti’s before-work activities: checking the computer for his daily assignments and then mapping his route. These were found not to be “principal activities” and therefore not compensable as work time. Even if this was work time, the court said the time was de minimis under the Lindow test because the activities took only a minute or so.

Rutti’s after-work activities were a different story, however. Although he had flexibility as to when it was done, Rutti was required to transmit data to the company’s computer, using the company’s modem, every day in order to complete the day’s work. Rutti estimated that this could take as long as 15 minutes because the transmission sometimes did not go through the first time. The court held this activity to be an “integral and indispensable part” of Rutti’s job and, therefore, to be compensable time unless it was de minimis.

Applying the first prong of the Lindow test, the court deemed “the practical administrative difficulty of recording the additional time … [to be] closely balanced” between Rutti’s position and the company’s position. The other two prongs, however, “the aggregate amount of compensable time, and the regularity of the additional work,” were deemed to favor Rutti. The court therefore reversed the decision in favor of the company and sent the case back to the trial court for further evidence on the after-work activities.

Lessons Rutti teaches

One of the challenges of wage-and-hour law is that state law can override federal law; so even if something is permitted, or is not compensable under federal law, the opposite may be true under applicable state law. But with that caveat, the Rutti decision provides some helpful lessons for California employers.

One: You probably do not have to pay employees who work from their homes for the time they spend traveling to their first work site of the day and from their last work site of the day, even if you require them to use a company vehicle. As long as employees are not required to perform significant duties during this period, their drive time should not be compensable.

Two: You probably do not have to pay employees for the time they spend checking e-mail or voice mail, or going onto the company’s Web site, for such incidental work-related activities as getting their daily assignments or checking their work schedules. This is especially true if these activities take only a few minutes.

Three: You will have to pay employees for the time they spend working from an off-site location that is directly connected to their job duties, such as accessing the company’s computer to effect, or to verify, the completion of a work assignment, unless the time spent is de minimis. Whether it is de minimis will depend on the regularity and duration of the task, and how difficult it would be to track it.

FOOTNOTES

1 Rutti, et al. v. Lojack Corp., No. 07-56599, slip op. (9th Cir. Aug. 21, 2009).

2 29 C.F.R. § 778.223.

3 The IWC Wage Orders generally define “hours worked” this way. Employers who work in the health care industry and who are covered by Order 4 or 5 and employees required to reside on the employment premises are subject to special definitions. DSLE Opinion Letter 1998.12.23 (Dec. 23, 1998).

4 Lindow v. United States, 738 F.2d 1057, 1060 (9th Cir. 1984) (quoting Steiner v. Mitchell, 350 U.S. 247, 256 (1956)); see also 29 C.F.R. § 790.8(a).

5 Lindow, 738 F.2d at 1060.

6 Id. at 1062 (quoting Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 692 (1946)).

7 The court examined the Employee Commuting Flexibility Act, 29 U.S.C. § 254(a) (2), a 1996 amendment to the Portal-to-Portal Act, and found both the language of the statute and its legislative history to compel this result.

8 Cf. Morillion v. Royal Packing Co., 22 Cal. 4th 575 (2000)(if the employee is required to drive to a reporting point and then to ride in a company vehicle from there to the work site, the time may be sufficiently “subject to the employer’s control” to make it compensable work time under California law).

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Disclaimer

This advisory is a publication of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

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CONSUMER PRODUCT SAFETY UPDATE | September 8, 2009 | 1

CONSUMER PRODUCT SAFETY UPDATE

Recent Developments Regarding Implementation of the CPSIA

In recent weeks, the Consumer Product Safety Commission (CPSC) has issued important

guidance on several issues raised by new standards contained in the Consumer Product Safety

Improvement Act of 2008 (CPSIA). As CPSC continues to clarify key provisions of the statute, we

wanted to alert you to agency action regarding several significant issues.1 To meet the statutory

effective dates, many companies had to make compliance decisions in advance of CPSC guidance

and new rules. Companies should revisit these decisions in light of recent developments to ensure

their policies and procedures coincide with those of CPSC.

Topics addressed in this update include:

• New tracking label requirement for children’s products

• Determining accessibility of lead-containing component parts

• Factors for determining civil penalties

• Lead content limits in certain materials or products

• Recent statement of policy regarding phthalate restrictions

• Public hearing regarding FY2011 priorities and strategic plan

Tracking Labels for Children’s Products

After soliciting comments from the public regarding the CPSIA’s tracking label requirement for

children’s products,2 CPSC has released informal guidance in the form of Frequently Asked

Questions and a statement of policy regarding the interpretation and enforcement of section 103(a),

as well as individual statements from the Commissioners. Importantly, the policy statement

indicates that CPSC “anticipates that there will be a period of education” when the requirements

take effect. Echoing sentiments contained in Commissioner Moore’s statement, the policy

1 Companies should also be aware of continuing revisions to the Standard Consumer Safety Specification for Toy Safety (ASTM F963). Earlier this year, CPSC accepted revisions to the standard proposed by ASTM, which went into effect August 17, 2009. Additionally, CPSC is currently soliciting comments, pursuant to Section 106 of the CPSIA, in order to examine and assess the effectiveness of ASTM F963 as it relates to safety requirements, safety labeling requirements and test methods in six areas of product safety, including hazardous materials and toxic substances. See 74 Fed. Reg. 35,848 (July 21, 2009). 2 Section 103 of the CPSIA mandates, in pertinent part, “distinguishing marks” on all children’s products and their packaging to enable the manufacturer and ultimate purchaser to ascertain certain source and production information, including the manufacturer or private labeler, location and date of production of the product, and cohort information. The new requirements apply to product manufactured after August 14, 2009.

Hogan & Hartson LLP


statement indicates the agency will consider the good faith efforts of manufacturers to educate

themselves regarding compliance with this requirement and determine its applicability to their

business, and likely will not seek penalties if required information is inadvertently omitted.

The Frequently Asked Questions and policy statement also contain important guidance on the

agency’s position on practical issues related to the regulation’s implementation:

• When considering the reasonableness of a manufacturer’s decision regarding what information

to include in its markings, CPSC will look to the individual company’s situation, although

ultimately each manufacturer is “responsible for making a reasonable judgment” about its own

approach to tracking labeling. CPSC will also consider the practices of the company’s peer

manufacturers.

• The term “label” should not be assigned a singular definition, as CPSC does not believe the

required information must appear in one discrete location, but may include various marks in

different places on the product or package.

• Manufacturers that sell products in sets, such as building blocks, may find it unnecessary to mark

all pieces in the set.

• Marking the products with a code and website address where the required information may be

found is acceptable as long as the manufacturer and private labeler is also identified.

• Marking both the package and the product may not be practical, such as in instances where the

product is too small, the toy is meant to be stored in a box or other packaging (e.g. board

games), the product is sold in bulk vending machines, a physical mark would weaken or damage

the product, the product surface would be impossible to mark, or the mark would ruin the

aesthetics of the product.

• Location of production may be indicated by listing the city, state, and country of manufacture,

and date of manufacture may be indicated with a date range.

Both the policy statement and Frequently Asked Questions contain valuable information for any

manufacturer subject to these requirements and should be reviewed in detail as you contemplate

how to comply with this federal mandate.

Accessibility of Lead-Containing Component Parts

The CPSIA provides for specific lead limits in children’s products. As of August 14, 2009, products

designed or intended primarily for children 12 years and younger may not contain more than 300

ppm of lead. The statute exempts component parts of a product that are not accessible to a child

from these limits. Section 101(b)(2) specifies that a component part is not accessible if it is not


physically exposed by reason of a sealed covering or casing and does not become physically

exposed through reasonably foreseeable use and abuse of the product.

Section 101(b)(2)(B) of the CPSIA requires CPSC to issue a final rule regarding what products or

classes of components will be considered “accessible” for the purpose of determining whether the

lead limits contained within the statute for children’s products apply. Earlier this year, CPSC

published a notice of proposed rulemaking containing a proposed framework for determining

accessibility.3 The final rule, published August 7, 2009, is substantially the same as proposed and

establishes the application of two existing test methods for determining accessibility.

• First, the accessibility probes used to determine whether a sharp point or edge is accessible will

be used to determine whether a lead containing component part is accessible.4

• Second, the use and abuse tests methods used to determine the normal use and reasonable and

foreseeable abuse of toys and other articles intended for children will be used to evaluate

potential lead hazards.5

A number of key points were made in the preamble, including:

• Inaccessible component parts will not require testing or certification for compliance with the lead

limit.6

• CPSC takes the position that the scope of accessibility, as contemplated by Congress, does not

extend to instances beyond physical accessibility, such as exposure to lead through leaching,

ingestion or mouthing of the object. The agency supported its position by noting that the statute

specifically identifies physical exposure as a determining factor for accessibility and that the

potential of exposure due to mouthing and other forms of contact would be considered under the

existing “use and abuse” evaluation.

• As 16 C.F.R. 1500.50-1500.53 contain test methods for toys and articles intended for children in

three separate age groups, slight revisions were made to the final rule to clarify that the tests

would be applied according to the specific age group for which the product is intended.

3 74 Fed. Reg. 2,439 (January 15, 2009). 4 See 16 C.F.R. 1500.48-1500.49. 5 16 C.F.R. 1500.50-1500.53 (excluding 16 C.F.R. 1500.51(c) and 1500.52(c)). 6 The CPSIA requires manufacturers to certify that their products comply with applicable consumer safety laws and regulations, including the lead limit, based on a test of the product or a reasonable testing program. The CPSIA contains a provision that exempts “inaccessible” component parts from that limit. CPSIA, §101(b)(2)(A).


The preamble also addresses the use of fabric coverings as a barrier to accessibility; the effect of

aging on accessibility; and the agency’s interpretation of the phrase “lead-containing component

part.” Finally, CPSC notes that it will address certification requirements and standards for ensuring

children’s products are tested for compliance with applicable safety rules in a separate rulemaking.

Civil Penalty Factors

The CPSIA requires CPSC to issue a final rule providing the interpretation of the civil penalty

factors found in the CPSA.7 Recently, CPSC posted a draft interim final interpretive rule to its

website. In addition to providing definitions of key terms, the draft rule provides guidance regarding

the agency’s proposed interpretation of the criteria set out in the CPSIA. Importantly, the rule

provides examples on the factors that the agency believes falls within the catchall criteria, “Other

factors as appropriate.” Factors include the violator’s safety/compliance program, history of

noncompliance, economic gain from noncompliance, and failure to respond in a timely and

complete fashion to CPSC’s requests for information or remedial action. The final rule will become

effective upon publication.

Lead Content Limits on Certain Materials or Products

Earlier this year, CPSC issued a proposed rule that would establish certain materials as inherently

lead free: precious and semiprecious gemstones, pearls, wood, natural fibers (including cotton, silk,

wool and hemp), and other natural materials (including coral, amber, feathers, fur, untreated

leather), as well as certain alloys and metals. Products and components made from these materials

would be exempt from section 101(a) and therefore relieved of the lead content testing

requirements in section 102 for the purpose of supporting the required certification.

Based on comments received, the agency has issued a final rule that also exempts the following

materials, in addition to those listed in the proposed rule:

• Paper and similar materials made from wood or other cellulosic fiber and coatings on such paper

which become part of the substrate.

• CMYK process printing inks (excluding spot colors, other inks that are not used in the CMYK

process, inks that do not become part of the substrate, and inks used in after-treatment

applications, including screen prints, transfers, decals, or other prints).

7 The CPSIA sets out specific criteria for determining an appropriate civil penalty, which go into effect once CPSC has issued regulations interpreting these criteria, or August 14, 2009, whichever is earlier. Previously, violations of the CPSA resulted in a maximum civil penalty of $8,000 for each violation and $1,825,000 for any related series of violations under the civil penalty provisions of the CPSA. CPSA § 20(a). The CPSIA significantly increases these penalties so that any party who knowingly violates section 19 of the CPSA will be subject to a civil penalty of up to $100,000 for each violation and a maximum civil penalty of $15,000,000 for any related series of violations. CPSIA § 217(a)(1).


• Textiles (excluding after-treatment applications, including screen prints, transfers, decals, or

other prints) consisting of dyed or undyed natural and manufactured fibers.

• Other plant-derived and animal-derived materials (including animal glue, bee’s wax, and seeds).

Statement of Policy Regarding Phthalate Restrictions

After soliciting comments earlier this year, CPSC has issued a statement of policy regarding the

new phthalate prohibitions applicable to children’s toys and child care articles that became effective

February 9, 2009.8 In the statement, CPSC describes its current position on component part testing

with respect to section 108 of the CPSIA, but notes that a company may adopt an alternative

approach if it satisfies the requirements of the CPSIA. According to the statement, CPSC believes

that phthalate testing should be limited to “plasticized component parts,” i.e., those plastic parts or

other product parts which could conceivably contain phthalates. CPSC believes this interpretation

is more protective to human health than testing phthalate content as a percentage of the entire toy

or child care article and effectuates the intent of Congress.9

The statement of policy also provides examples of products that may contain phthalates (polyvinyl

chloride, certain soft or flexible plastics and rubbers, foam rubber or plastic) and therefore require

testing, as well as products that do not normally contain phthalates (unfinished metal, natural wood,

textiles made from natural fibers, or common synthetic fibers), which might not require testing or

certification. However, the responsibility remains on the manufacturer to determine whether testing

or certification is required for its product or product components.

Public Hearing Regarding FY 2011 Priorities and Strategic Plan

On August 25, 2009 CPSC held a public hearing regarding the development of its agenda,

priorities, and strategic plan for the next fiscal year. While many of the speakers discussed issues

unrelated to the CPSIA, a number advocated that CPSC set aside additional resources to the

implementation of the CPSIA. Key suggestions included dedicating additional resources toward

increasing agency transparency and industry education; further exploration and guidance regarding

the use of X-Ray florescence technology as a lead content screening tool; and providing scientific

support for the broad application of consumer safety requirements.

* * * * *

8 Section 108 of the CPSIA bans three phthalates, DEHP, DBP, and BBP, in concentrations of more than 0.1% in “children’s toys” or “child care articles.” Three additional phthalates, DINP, DIDP, and DnOP, have been prohibited pending further study and review by a group of outside experts and the Commission. 9 CPSC test method for phthalates can be found on the agency’s website at http://www.cpsc.gov/about/cpsia/CPSC-CH-C1001-09.2.pdf.


We will continue to monitor these and other issues related to CPSC's implementation of the provisions of the CPSIA. For more information, please contact the Hogan & Hartson attorney with whom you work or one of the attorneys listed below. STEVEN B. STEINBORN [email protected] 202.637.5969 Washington, D.C.

LA TOYA C. SUTTON [email protected] 202.637.4860 Washington, D.C.

ELIZABETH B. FAWELL [email protected] 202.637.6810 Washington, D.C.

This Update is for informational purposes only and is not intended as basis for decisions in specific situations. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship.

Copyright © 2009 Hogan & Hartson LLP. All rights reserved. Hogan & Hartson LLP is a District of Columbia limited liability partnership with offices across the United States and around the world. Some of the offices outside of the United States are operated through affiliated partnerships, all of which are referred to herein collectively as Hogan & Hartson or the firm.

www.hhlaw.com

Email Alerts SELLING UNNEEDED LIFE INSURANCE POLICIES: WINDFALL OR PITFALL? September 11, 2009 By Michael L. Fay, Brian W. Monnich In the September 6, 2009 issue of The New York Times, the front page lead article discussed the new, but burgeoning, practice of selling to investors life insurance policies no longer needed or wanted by an insured person, often for sums substantially in excess of the "cash surrender value," if any, offered by the life insurance company issuing the policy. While the Times article focused on opportunities for investors, this client alert speaks to opportunities – and pitfalls – facing our individual and family clients, and trustees acting on their behalf, seeking to maximize the funds derived from dispositions of life insurance policies during the insured party's lifetime. A client may have acquired life insurance, early in his or her career, to provide additional funds for the financial security of a spouse or young children, prior to saving sufficient funds to ensure that educational costs are defrayed and adequate retirement funds are accumulated. A retired client may well no longer need life insurance coverage for such purposes. Similarly, a client who has sold a closely held or family business may no longer need life insurance previously purchased to pay estate taxes otherwise generated by an illiquid asset constituting a significant portion of his or her wealth. By contrast, the very same client may find that his or her investments accumulated for retirement have been greatly reduced in value by the financial market's meltdown of the past year. The same client may also be living for many years longer than he or she expected upon retirement, and his or her living expenses, especially uninsured medical expenses or expenses incurred to keep the client in his or her own home, and not in a nursing or similar facility, have increased to a level never before anticipated. Finally, especially in the case of term life insurance policies (with no cash surrender value at all), the costs of maintaining the policy in force may be projected to increase enormously in future years. Such a client should evaluate carefully the benefits and detriments of selling to investors any life insurance policies no longer needed. However, because the market for sales of such policies is so new, and largely unregulated, any such client should proceed with great caution and with the benefit of truly objective financial advice. Given the health of the insured, especially if his or her health is declining, would the client's family be better off simply retaining the policy, notwithstanding the cost of insurance premiums? Can such costs be financed, at least in part, by borrowing against cash surrender value? Is the value offered by an investor competitive? In the recent experience of one of our clients, the highest bid for the purchase of a policy insuring his life was nearly triple the amount of the initial bid. With such experience in mind, it is imperative to deal with only the most reputable brokers and other financial professionals; to expose the policy to the broadest possible array of potential purchasers; and to ensure that all details of the transaction, especially fees or other compensation, are entirely transparent, especially in the absence of more detailed state or federal regulations and consumer safeguards. Three other notes of caution: First, the income tax consequences relating to the sale of a policy are still not entirely settled. While the seller's investment in the policy (typically the sum of premiums paid) can be recovered tax free, it is not at all clear to what extent any additional amounts received upon such a sale are subject to capital gains taxation (at lower rates) and to what extent higher, ordinary income tax rates will apply instead. Second, if the policy is held (as is very often the case) in an irrevocable insurance trust, the proceeds will be paid to trustees who may in turn make distributions only to the trust's beneficiaries. Almost invariably such beneficiaries will not include the grantor of the trust who is ordinarily the insured party. Such limitations are imposed to ensure that the trust's assets are not subject to estate taxation upon the grantor's death. As a result, however, the trustees cannot distribute the proceeds of the sale of a policy (or any other trust assets) to the trust's grantor. Nevertheless, if the grantor's spouse, if any, is a beneficiary of the trust, and if such spouse is still alive, distributions can nevertheless be made to such spouse,

thereby providing indirect but perhaps substantial support for the grantor. Third, if purchases of insurance policies by investors become a widespread phenomenon, life insurance companies issuing such policies will be forced to modify their assumptions regarding the rate at which policies will be surrendered and lapse before the death of the insured party (whether or not any cash surrender value is payable). Because more policies will remain in force and larger amounts of proceeds will eventually be paid out, insurance companies will be subject to pressure to increase premiums charged, when issuing new policies, to accommodate this new cost. In that respect the long-term trend toward reducing life insurance costs will be shortened, if not reversed. If you are considering disposition of a life insurance policy that is no longer needed or affordable, we urge you to proceed with caution and to act only upon the advice of objective and highly reliable advisors.

Page 2 of 2

VIETNAM: EXTENSION OF THE DEADLINE FOR RE-REGISTRATION OF FOREIGN INVESTED ENTERPRISES UNTIL JUNE 30, 2011 Dear All,

As you might know the Law on Enterprises and the Law on Investment came into effect in July 2006, enabling foreign invested enterprises and parties to business cooperation contracts established under the former law to restructure their investment project and to modify their type of investment in the form of a Limited Liability Company (LLC) or of a Joint Stock Company (JSC). In fact, under the Law on Enterprises, foreign invested enterprises had until June 30, 2008 to either re-register under the new laws, or continue operating in accordance with existing charters and investment licenses.

Foreign invested companies which had not re-registered within the above deadline are today not able (i) to extend their duration of operation, (ii) to amend their authorized scope of activity, or (iii) to convert into a joint stock company to mobilize capital from securities markets. Such is the case for many foreign invested enterprises today. In view of the global economic downturn and in order to allow existing foreign invested enterprises to expand their business lines etc, the National Assembly has passed an amendment to the Law on Enterprises allowing foreign invested enterprises to re-register until June 30, 2011.

We would be pleased to further debrief you about the re-registration procedure and possible actions your company may take to comply with the law in this respect.

Kind regards,

Hanoï

Pacific Place

Suite 505-507

83B Ly Thuong Kiet St

Hanoï

Vietnam

Tel. +84 4 3 946 23 50

Fax +84 4 3 946 23 51

Contacts

Jacques de Servigny

E-mail: [email protected]

Franz Hepp de Sevelinges


Hô Chi Minh-City

4th floor

18 Hai Ba Trung

District 1

Hô Chi Minh-City

Vietnam

Tel. +84 8 3 823 85 99

Fax +84 8 3 823 85 98

Contacts

Jacques de Servigny


Francois d’Hautefeuille


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