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Client Alert

September 9, 2019

SEC Staff Announces Significant Changes to Shareholder Proposal No-Action Letter Process

Click for PDF On September 6, 2019, the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (“SEC”) announced[1] two significant procedural changes for responding to Exchange Act Rule 14a-8 no-action requests that will be applicable beginning with the 2019-2020 shareholder proposal season: Oral Response by Staff: The Staff may now respond orally instead of in writing to shareholder proposal no-action requests.  The Staff’s oral response will inform both the company and the proponent of its position with respect to the company’s asserted Rule 14a-8 basis for exclusion expressed in the no-action request.  The Staff stated that it intends to issue a written response letter to a no-action request “where it believes doing so will provide value such as more broadly applicable guidance about complying with Rule 14a-8.” No Definitive Response by Staff: The Staff may now more frequently decline to state a view on whether or not it concurs that a company may properly exclude a shareholder proposal under Rule 14a-8.  Importantly, the Staff stated that if it declines to state a view on any particular no-action request, the interested parties should not interpret that position as indicating that the proposal must be included in the company’s proxy statement.  Instead, the Staff stated that in these circumstances, the company requesting exclusion may have a valid legal basis to exclude the proposal under Rule 14a-8. In the announcement, the Staff also reiterated that—in the situations described in prior Staff Legal Bulletins[2]—it continues to find an analysis by the board of directors useful when a company seeks to exclude a proposal on grounds of either ordinary business (Rule 14a-8(i)(7)) or economic relevance (Rule 14a-8(i)(5)).  The Staff also noted that parties continue to be able to seek formal, binding adjudication on the merits of Rule 14a-8 issues in court. Background of the Staff’s Announcement Under Rule 14a-8(j), if a company intends to exclude a shareholder proposal from its proxy materials, it must notify the SEC no later than 80 calendar days before it files its definitive proxy statement, and must simultaneously provide the shareholder proponent with a copy of its submission.  The company’s submission must include an explanation of why the company believes that it may exclude the proposal under Rule 14a-8, and the explanation “should, if possible, refer to the most recent applicable authority, such as prior [Staff] letters issued under the rule.”[3]  This mandatory process has evolved into the practice of companies submitting no-action requests that ask the Staff to concur with their view that shareholder proposals are properly excludable under one of the procedural requirements or substantive bases set forth in Rule 14a-8. Rule 14a-8 contemplates that the Staff will respond to these requests.  For example, Rule 14a-8(k) states that a shareholder proponent can respond to a company’s exclusion notice, but states that proponents should make such submissions as quickly as possible so that the Staff “will have time to consider fully your submission before it issues its response.”  In Staff Legal Bulletin No. 14, the Staff stated, “Although we are not required to respond [to a no-action request], we have, as a convenience to both companies and shareholders, engaged in the informal practice of expressing our enforcement position on these submissions through the issuance of no-action responses.  We do this to assist both companies and shareholders in complying with the proxy rules.”[4]  Thus, for the past several decades, the Staff has responded to almost every shareholder proposal no-action request, except in limited situations (discussed below).  Similarly, the Staff has treated Rule 14a-8 no-action requests differently than no-action requests in other contexts by publicly disclosing the Rule 14a-8 no-action requests promptly following submission, whereas most no-action requests not involving Rule 14a-8 are publicly disclosed only after the Staff has responded to the request.[5] Following the 2018-2019 shareholder proposal season, during which the Staff performed the Herculean task of timely responding to hundreds of shareholder proposal no-action requests notwithstanding the month-long partial government shutdown, the Staff stated in a number of forums that it was considering changing its practice of expressing its views in writing in response to every no-action request.  For example, Division of Corporation Finance Director William Hinman was quoted as stating, “Going forward . . . we are going to be thinking about whether every request for a no-action letter need[s] a formal response from us.”[6]  Director Hinman added, “If we don’t think we have something to add, we may not issue a letter.  Something we are thinking about.  We may actively monitor the area and not necessarily give a response.”[7] As a result of these reports, a number of groups met with and/or wrote to the Staff regarding its proposal, raising concerns with the proposed change.[8] Perspectives on the Staff’s Announcement The Staff’s announcement provides few details on how and in what circumstances its new policy will be implemented.  While the full implications of the Staff’s announcement thus are difficult to assess, some initial observations follow. No Immediate Relief for Companies or Proponents: While the number of Rule 14a-8 no-action requests submitted to the Staff has been trending downward,[9] the new procedures may further relieve some of the burdens on the Staff of the shareholder proposal process.  However, they do not appear to lessen the costs and burdens of the shareholder proposal process on companies.  Under Rule 14a-8(j), a company must still notify the Staff if it intends to exclude a shareholder proposal from its proxy statement under Rule 14a-8, and it must still explain why the company believes that it may do so.  Because the Staff’s announcement provides no clear standards on when the Staff will apply its new procedures, companies likely will conclude that they should continue to request no-action relief and fully explain and cite support for their position.  Likewise, shareholder proponents may continue to conclude that it is worthwhile for them to submit responses seeking to refute companies’ positions on the excludability of proposals. Uncertainty over Effect of Staff’s Decisions to Decline to State its Views: The Staff historically has only rarely declined to state its views on a no-action request under Rule 14a-8, typically adopting that position when a proposal topic was subject to pending litigation.[10]  Importantly, the Staff announcement noted that its determination to not state its views on a no-action request does not mean that it disagrees with a company’s analysis or conclusion and that, in fact, the company requesting exclusion may have a valid legal basis to exclude the proposal under Rule 14a-8.  Nevertheless, a company faced with this situation will have the dilemma of determining whether in fact to exclude the proposal.  As noted by the Council of Institutional Investors (“CII”) in its letter to the Staff,[11] the result may be that some companies include proposals in their proxy statements that, in the past, the Staff would have concurred could be excluded.  That result would require all of the company’s shareholders (many of whom already have been overburdened with assessing how to vote on proposals during proxy season) to expend valuable time and resources on such proposals, even though, in CII’s words, “[s]ome of these proposals are likely to be misguided or on trivial issues.”[12]  In considering whether to omit a proposal in such situation, a company will need to consider the potential reaction of its shareholders, the risk of adverse publicity, possible reactions from proxy advisory firms (discussed below), the risk of litigation, and the possibility that including the proposal in its proxy statement will attract more proposals in future years. Response of Proxy Advisors: Both Institutional Shareholder Services (“ISS”) and Glass Lewis have policies under which they may recommend votes against directors if a company excludes a proposal without having received a Staff response or court order agreeing that the proposal is excludable or withdrawal from the proponent.[13]  However, these policies were issued before the Staff’s announcement and statement that their declining to state a view on a no-action request does not mean that a company has failed to state a valid basis to exclude the proposal.  Given concerns that have been expressed over burdens imposed on all shareholders if the Staff’s new policies result in an increase in the number of proposals included in company proxy statements, it will be important to watch whether the proxy advisory firms adopt a more nuanced approach to their analyses of company decisions to omit shareholder proposals when the Staff has declined to state a view, particularly in light of the SEC’s recent interpretive guidance on the applicability of Rule 14a-9 to the firms’ voting recommendations and cautions regarding the fiduciary duties of investment advisors relying on such recommendations.[14] Increased Risk of Litigation and Related Costs: Although Staff no-action letter responses reflect only informal views of the Staff and not binding adjudications, both companies and proponents have tended to defer to the Staff’s views, and litigation under Rule 14a-8 has been rare.[15]  Shareholder proposal litigation is costly (especially compared to the costs of obtaining a no-action letter response), and federal district courts cannot be relied upon to consider and adjudicate shareholder proposal disputes on the expedited schedule required during proxy season.  Nevertheless, it has always been the case, as noted in the Staff’s announcement, that “the parties may seek formal, binding adjudication on the merits of [a Rule 14a-8 interpretive] issue in court.”  The Staff’s announcement increases the risk to both proponents and companies that they may find themselves in court addressing the excludability of a shareholder proposal under Rule 14a-8. Greater Uncertainty in Rule 14a-8 Interpretations: A number of questions remain on the potential impact of the Staff’s new policies on the long-term transparency around and dynamics of the Rule 14a-8 process. For example, the Staff currently maintains two Rule 14a-8-related websites for shareholder proposal no-action requests: one where it posts incoming no-action requests, and one where it posts Staff responses to no-action requests.  The Staff could effectively maintain the same level of transparency as in the past by maintaining this practice and, when it issues an oral response, including some indication on the website where it posts decided no-action letters, indicating the nature of its oral response (Concur, Unable to concur, or No View) and, if it concurs, the basis of its concurrence.  However, the Staff announcement does not indicate whether the Staff intends to inform the company and proponent of the basis of its decision when issuing an oral response to a no-action request that makes multiple exclusion arguments (including, for example, that it concurs with the company on the basis of its Rule 14a-8(i)(7) argument), much less whether it will include some public indication on its website in such instances. Clearly there will be less definitive guidance on the application of Rule 14a-8 when the Staff declines to state a view on whether a proposal may properly be excluded from a company’s proxy statement. Nevertheless, depending on the frequency, context, and disclosure (if any) around the Staff’s determinations not to state a view, we expect that participants will seek to interpret or read meaning into the situation, rightly or wrongly. The Staff announcement indicates that one instance in which the Staff will issue response letters will be to provide “more broadly applicable guidance about complying with Rule 14a-8.” Although the Staff has on occasion used a Rule 14a-8 no-action response to elaborate on its interpretation of the rule, historically the Staff has utilized Staff Legal Bulletins to provide “more broadly applicable guidance” regarding its interpretation of Rule 14a-8.  The Staff’s announcement appears to suggest that it now will more commonly spring guidance on the shareholder proposal community in the middle of the season and in the context of specific factual situations, which may make such guidance harder to apply in other contexts than if the Staff addressed such issues more generally. In light of the foregoing, there is concern that the Staff’s procedural changes will result in companies and proponents being less able to easily or accurately determine the Staff’s views on the applicability of Rule 14a‑8 to a certain proposal.[16] In the absence of any written record, third parties may not know whether a proposal that was challenged in a no-action letter was excluded, and on what grounds, or if the Staff declined to state its position (the Staff’s announcement did not indicate that it would cease to disclose when a no-action request was withdrawn).  If that does occur, over time this may (ironically) result in an increase in the number of shareholder proposals submitted to companies and the number of no-action exclusion requests submitted to the Staff, as proponents and companies have less guidance on when and on what grounds proposals are excludable. Conclusions Although the shareholder proposal landscape is constantly evolving, the Staff’s announcement heralds a more significant shift in the landscape.  Combined with the implications of the SEC’s recent guidance for proxy advisory firms and investment advisers engaged in the proxy voting process,[17] it means that the 2019-2020 shareholder proposal season could be particularly tumultuous.  Moreover, it remains likely that the SEC will propose amendments to Rule 14a-8 in the near future,[18] although any such rules are unlikely to be in effect for much of the 2019-2020 shareholder proposal season.  Nevertheless, shareholder proponents likely will be mindful of these dynamics when evaluating whether to submit novel proposals, and companies should consider now how these changes may bear on their approaches in seeking no-action exclusion of shareholder proposals and engaging with their shareholders in advance of and during the upcoming proxy season. [1]   Available at https://www.sec.gov/corpfin/announcement/announcement-rule-14a-8-no-action-requests. [2]   See, e.g., Staff Legal Bulletin No. 14I (Nov. 1, 2017), available at https://www.sec.gov/interps/legal/cfslb14i.htm, and Staff Legal Bulletin No. 14J (Oct. 23, 2018), available at https://www.sec.gov/corpfin/staff-legal-bulletin-14j-shareholder-proposals. [3]   Rule 14a-8(j)(2)(ii). [4]   Staff Legal Bulletin No. 14, Shareholder Proposals (July 13, 2001), available at https://www.sec.gov/interps/legal/cfslb14.htm.  As stated in the Division of Corporation Finance’s “Informal Procedures Regarding Shareholder Proposals” (Nov. 2, 2011), which in the past the Staff has attached to each of its Rule 14a-8 no-action letter responses, “The Division of Corporation Finance believes that its responsibility with respect to matters arising under Rule 14a-8 [17 C.F.R. § 240.14a-8], as with other matters under the proxy rules, is to aid those who must comply with the rule by offering informal advice and suggestions and to determine, initially, whether or not it may be appropriate in a particular matter to recommend enforcement action to the Commission.”  Available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8-informal-procedures.htm. [5]   See 17 C.F.R. § 200.82 (providing for public availability of materials filed pursuant to Rule 14a-8(d)). [6]   The Deal, “SEC’s Clayton Eyes Tougher Rules for Proxy Firms, Proposals” (July 16, 2019).  See also Bloomberg Law, “SEC May Curb Review of Contested Shareholder Proposals” (July 16, 2019). [7]   Id. [8]   For example, see Council of Institutional Investors, Letter to Staff: SEC Corporation Finance 14a-8 Process (August 12, 2019), available at  https://www.cii.org/files/issues_and_advocacy/correspondence/2019/ August%2012%202019%2020190812%2014a-8%20No-Action%20Process%20letter.pdf. [9]   The following statistics are based on information we have compiled from the SEC’s website and the Institutional Shareholder Services shareholder proposals and voting analytics databases. No-Action Request Statistics   2019* 2018* 2017* Total number of proposals submitted 792 788 827 Total no-action requests submitted 228 256 288 No-action submission rate 29% 32% 35% Staff responses 180 194 242 Exclusions granted 119 (66%) 125 (64%) 189 (78%) Exclusions denied 61 (34%) 69 (36%) 53 (22%) *   Year references are to each year’s shareholder proposal season, which we define to mean the period from October 1 of the preceding year through June 1 of the indicated year.  The number of Staff responses is lower than the number of no-action requests submitted due to withdrawals and also reflects no-action letters submitted late in the season that are responded to after our June 1 measurement date. [10]   See, e.g., Electronic Arts Inc. (avail. May 23, 2008) (“We note that litigation is pending in the United States District Court for the Southern District of New York with respect to EA’s intention to omit the proposal from EA’s proxy materials.  In light of the fact that arguments raised in your letters and that of the proponent are currently before the court in connection with the litigation between EA and the proponent concerning this proposal, in accordance with staff policy, we will not comment on those arguments at this time.  Accordingly, we express no view with respect to EA’s intention to omit the instant proposal from the proxy materials relating to its next annual meeting of security holders.”). [11]   See note 8. [12]   Id. [13]   ISS, U.S. Proxy Voting Research Procedures & Policies (Excluding Compensation-Related) Frequently Asked Questions (Aug. 13, 2018), FAQ 67 (available at https://www.issgovernance.com/file/policy/active/americas/US-Procedures-and-Policies-FAQ.pdf): [U]nder our governance failures policy, ISS will generally recommend a vote against one or more directors (individual directors, certain committee members, or the entire board based on case-specific facts and circumstances), if a company omits from its ballot a properly submitted shareholder proposal when it has not obtained: 1) voluntary withdrawal of the proposal by the proponent; 2) no-action relief from the SEC; or 3) a U.S. District Court ruling that it can exclude the proposal from its ballot. … If the company has taken unilateral steps to implement the proposal, however, the degree to which the proposal is implemented, and any material restrictions added to it, will factor into the assessment. Glass Lewis, 2019 Proxy Paper™ Guidelines, An Overview Of The Glass Lewis Approach To Proxy Advice – United States (2019) (available at https://www.glasslewis.com/wp-content/uploads/2016/11/Guidelines_US.pdf.): In instances where companies have excluded shareholder proposals . . . Glass Lewis will take a case-by-case approach, taking into account the following issues: . . . The company’s overall governance profile, including its overall responsiveness to and engagement with shareholders . . . Glass Lewis will make note of instances where a company has successfully petitioned the SEC to exclude shareholder proposals.  If after review we believe that the exclusion of a shareholder proposal is detrimental to shareholders, we may, in certain very limited circumstances, recommend against members of the governance committee.   [14]   Gibson, Dunn & Crutcher LLP, “SEC Issues New Guidance for Proxy Advisors and Investment Advisers Engaged in the Proxy Voting Process,” available at https://www.gibsondunn.com/sec-issues- new-guidance-for-proxy-advisors-and-investment-advisers-engaged-in-proxy-voting-process/. [15]   But see TransDigm Group Incorporated (avail. Jan. 28, 2019) (New York City Office of the Comptroller commenced litigation over the proposed exclusion of its proposal prior to the Staff issuing its no-action letter response). [16]   Agenda, “SEC Launches ‘Brand New’ Changes to No-Action Process” (Sept. 6, 2019) (quoting the New York City Comptroller and representatives from the Council of Institutional Investors and As You Sow expressing concern with the Staff announcement). [17]   See note 14. [18]   See Commission Elad L. Roisman, “Statement at the Open Meeting on Commission Guidance and Interpretation Regarding Proxy Voting and Proxy Voting Advice” (Aug. 21, 2019), available at https://www.sec.gov/news/public-statement/statement-roisman-082119 (“As our Regulatory Flexibility Agenda notes, in the near future the Commission expects to consider . . . proposed rules to amend the submission and resubmission thresholds for shareholder proposals under Rule 14a-8 under the Exchange Act . . . .”); Gibson Dunn Securities Regulation Monitor, “SEC To Propose Shareholder Proposal and Proxy Advisory Firm Rule Amendments” (May 24, 2019), available at  https://www.securitiesregulationmonitor.com/Lists/Posts/Post.aspx?ID=367. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work in the Securities Regulation and Corporate Governance practice group, or any of the following lawyers: Ronald O. Mueller - Washington, D.C. (+1 202-955-8671, rmueller@gibsondunn.com) Elizabeth Ising - Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com) Lori Zyskowski - New York (+1 212-351-2309, lzyskowski@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
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September 3, 2019

New York Court of Appeals Round-Up & Preview (September 2019)

The New York Court of Appeals Round-Up & Preview summarizes key opinions in civil cases issued by the Court over the past year and highlights a number of civil cases of potentially broad significance that the Court will hear during the coming year, beginning in September 2019.  The cases are organized by subject. From September 2018 through August 2019, the Court issued 106 decisions.  Looking ahead, the Court has scheduled 12 cases for argument in September 2019 (both civil and criminal) — with the session’s first cases being argued on the afternoon of September 4 — and 13 cases for argument in October 2019 (both civil and criminal). The Court has not yet scheduled argument for the remaining cases currently on its docket. To view the Round-Up, click here. New York-based members of the firm’s renowned Appellate and Constitutional Law Group have deep experience in front of New York State and federal courts of appeal, and a record of success in constitutional and other challenges to government action. They are often brought into a case at the onset to help craft the legal strategy, working seamlessly with our trial lawyers to take a matter from its inception all the way to the U.S. Supreme Court, if necessary. This integrated approach distinguishes Gibson Dunn from its competitors and is key to the wide recognition the firm receives. *   *   *  * Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding developments at the New York Court of Appeals, or any other state or federal appellate courts in New York.  Please feel free to contact any member of the firm's Appellate and Constitutional Law practice group, or the following lawyers in New York: Mylan L. Denerstein (+1 212-351-3850, mdenerstein@gibsondunn.com) Akiva Shapiro (+1 212-351-3830, ashapiro@gibsondunn.com) Genevieve B. Quinn (+1 212-351-5339, gquinn@gibsondunn.com) Patrick Hayden (+1 212-351-5235, phayden@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
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September 3, 2019

The Pacte Statute Introduces Significant Changes for French Corporate Governance – An Overview

While France has experienced an intense legislative debate on a new, far-reaching business regulation this year, companies are adapting to navigate the interesting challenges it poses, such as a stricter approach to the social and environmental impact of their operations. In this short video, Paris partner Jean-Philippe Robé, along with Cercle Montesquieu's Administrator and Dassault Systèmes’ Vice-President, Global Affairs & Sustainability Valérie Valais analyze the ins and outs of Pacte Law on corporate governance. Pacte Law is a complex regulation devised with the objective of improving corporate funding, governance, entrepreneurship and innovation. Video realized by Le Droit Pour Moi in collaboration with Le Cercle Montesquieu. Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this video. For further information, please contact the Gibson Dunn lawyer with whom you usually work or any of the following members of the Paris office by phone (+33 1 56 43 13 00) or by email: Jean-Philippe Robé - jrobe@gibsondunn.com Bertrand Delaunay - bdelaunay@gibsondunn.com Benoît Fleury - bfleury@gibsondunn.com © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
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August 28, 2019

USPTO Requests Public Comments on Patenting Artificial Intelligence Inventions

Click for PDF Following up on the release of eligibility guidelines for AI-related inventions earlier this year, the United States Patent and Trademark Office (Patent Office) published yesterday a request for public comments on a series of patent-related issues regarding AI inventions. Request for Comments on Patenting Artificial Intelligence Inventions, 84 Fed. Reg. 44889, 44889 (Aug. 27, 2019). The Patent Office hopes that with the input it receives in response to this request for comments from the innovation community and experts in AI, the Patent Office will be in a strong position to evaluate whether further patent examination guidance is needed to (1) “promote the reliability and predictability of patenting artificial intelligence inventions,” and (2) “ensure that appropriate patent protection incentives are in place to encourage further innovation.” Id. The office’s request poses twelve questions covering “a variety of topics from patent examination policy to whether new forms of intellectual property protection are needed.” Id. For example, the questions cover topics such as: Inventorship – Should current inventorship laws and regulations be revised to account for entities other than a natural person contributing to the conception of an invention? What are the different ways in which a natural person can contribute to the conception of an AI invention? Ownership – Who owns an AI invention? Is it the company who trains the AI process that creates the invention? Should entities other than a natural person or the company to which it is assigned be able to own an AI invention? And Patent Application Requirements – Does AI impact the level of a person of ordinary skill in the art? Are there disclosure-related considerations unique to AI inventions, such as written description? Are new forms of intellectual property protections needed for AI inventions? This is an important opportunity for individuals and companies active in AI technologies to provide their perspective on how U.S. intellectual property law and patent office procedures should address some of the unique issues raised by AI inventions. Written comments may be sent by email to AIPartnership@uspto.gov, and must be received on or before October 11, 2019. Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm's Artificial Intelligence and Automated Systems or Intellectual Property practice groups, or the following authors: H. Mark Lyon - Palo Alto (+1 650-849-5307, mlyon@gibsondunn.com) Jessica A. Hudak - Orange County (+1 949-451-3837, jhudak@gibsondunn.com) Please also feel free to contact any of the following practice group leaders and members: Artificial Intelligence and Automated Systems Group: H. Mark Lyon - Chair, Palo Alto (+1 650-849-5307, mlyon@gibsondunn.com) J. Alan Bannister - New York (+1 212-351-2310, abannister@gibsondunn.com) Lisa A. Fontenot - Palo Alto (+1 650-849-5327, lfontenot@gibsondunn.com) David H. Kennedy - Palo Alto (+1 650-849-5304, dkennedy@gibsondunn.com) Ari Lanin - Los Angeles (+1 310-552-8581, alanin@gibsondunn.com) Robson Lee - Singapore (+65 6507 3684, rlee@gibsondunn.com) Carrie M. LeRoy - Palo Alto (+1 650-849-5337, cleroy@gibsondunn.com) Alexander H. Southwell - New York (+1 212-351-3981, asouthwell@gibsondunn.com) Eric D. Vandevelde - Los Angeles (+1 213-229-7186, evandevelde@gibsondunn.com) Michael Walther - Munich (+49 89 189 33 180, mwalther@gibsondunn.com) Intellectual Property Group: Wayne Barsky - Co-Chair, Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Josh Krevitt - Co-Chair, New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Mark Reiter - Co-Chair, Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
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August 23, 2019

SEC Issues New Guidance for Proxy Advisors and Investment Advisers Engaged in the Proxy Voting Process

Click for PDF On August 21, 2019, the Securities and Exchange Commission (the “Commission”) issued new guidance regarding two elements of the proxy voting process[1] that are influenced by proxy advisory firms: proxy voting advice issued by proxy advisors and proxy voting by investment advisers who use that proxy voting advice. The guidance, in the words of Commissioner Elad L. Roisman, “reiterate[s] longstanding Commission rules and positions that remain applicable and very relevant in today’s marketplace.” Notably, the two releases issued by the Commission are not subject to notice and comment and will instead become effective upon publication in the Federal Register. Specifically, the Commission approved issuing both: a Commission interpretation that the provision of proxy voting advice by proxy advisory firms generally constitutes a “solicitation” under federal proxy rules and new Commission guidance about the availability of exemptions from the federal proxy rules and the applicability of the proxy anti-fraud rule to proxy voting advice (the “Proxy Voting Advice Release”);[2] and new Commission guidance intended to facilitate investment advisers’ compliance with the fiduciary duties owed to each client in connection with the exercise of investment advisers’ proxy voting responsibilities, including in connection with their use of proxy advisory firms (the “Proxy Voting Responsibilities Release”[3] and together, the “Releases”). The Commission approved both Releases by a vote of 3-2, with Commissioners Robert J. Jackson, Jr. and Allison Herren Lee dissenting from each Release. In their statements explaining their opposition, Commissioners Jackson and Lee expressed concern that neither was subject to a notice and comment period, which prevented the Commission from fully considering the consequences of the new guidance.[4] Both Commissioners also questioned whether the Releases will increase costs associated with the provision and use of proxy voting advice, and Commissioner Lee expressed concern that greater issuer involvement in the proxy voting recommendation process could “undermine the reliability and independence of voting recommendations.” Background Over the past several years, the Commission and its staff (the “Staff”) have issued statements and held public forums to discuss issues related to voting advice issued by proxy advisory firms and investment advisers’ reliance on that advice. For example, in July 2010, the Commission issued a concept release[5] that sought public comment on, among other topics, the legal status and role of proxy advisory firms.[6] And in June 2014, the staff of the Divisions of Investment Management and Corporation Finance issued Staff Legal Bulletin No. 20 (“SLB 20”),[7] which provided guidance on investment advisers’ responsibilities in voting client proxies and retaining proxy advisory firms and the availability and requirements of two exemptions to the federal proxy rules often relied upon by proxy advisory firms.[8] Subsequently the Staff held a roundtable in November 2018 to provide an opportunity for market participants to engage with the Staff on various aspects of the proxy process (the “2018 Roundtable”).[9] The 2018 Roundtable included panels addressing each of the regulation of proxy advisory firms, proxy voting mechanics and technology, and shareholder proposals. Participants on the proxy advisory firms panel discussed investor advisers’ reliance on voting advice provided by proxy advisory firms, how proxy advisory firms address conflicts of interest and challenges issuers face in correcting factual errors in voting recommendations published by proxy advisory firms.[10] Following the 2018 Roundtable, Chairman Jay Clayton announced that Commissioner Roisman would lead the Commission’s efforts to improve the proxy voting process and infrastructure.[11] In his opening remarks at the Commission’s August 21 meeting, Commissioner Roisman indicated that the Releases were the first of several matters that the Commission may consider in the near future relating to its proxy voting rules.[12] Other matters that Commissioner Roisman mentioned would likely be considered “in the near future” include proposed reforms to the rules addressing proxy advisory firms’ reliance on proxy solicitation exemptions and the rules regarding the thresholds for shareholder proposals announced as part of the Commission’s Spring 2019 Regulatory Flexibility Agenda.[13] Summary of the Proxy Voting Advice Release The Proxy Voting Advice Release, developed by the Commission’s Division of Corporation Finance, addresses two topics: the Commission articulates its view that proxy voting advice provided by proxy advisory firms generally constitutes a “solicitation” subject to the federal proxy roles, and the Commission provides an interpretation and additional guidance on the applicability of the federal proxy rules to proxy voting advice that is designed to influence the voting decisions of a proxy advisory firm’s clients. Proxy Voting Advice Constitutes a Solicitation Under the Federal Proxy Rules As explained in the Proxy Voting Advice Release, under Rule 14a‑1(l) of the Securities Exchange Act of 1934 (the “Exchange Act”), a “solicitation” includes “a communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.” This includes communications seeking to influence the voting of proxies, even if the person issuing the communication does not seek authorization to act as a proxy and may be indifferent to its ultimate outcome. Communications that constitute “solicitations” under Rule 14a‑1(l) are subject to the information and filing requirements of the federal proxy rules. However, Exchange Act Rule 14a-2(b)(1) provides an exemption from the Commission’s information and filing requirements (but not from the anti-fraud rules) for “any solicitation by or on behalf of any person who does not, at any time during such solicitation, seek directly or indirectly, either on its own or another’s behalf, the power to act as a proxy for a security holder and does not furnish or otherwise request, or act on behalf of a person who furnishes or requests, a form of revocation, abstention, consent or authorization.” Based on this background, in the Proxy Voting Advice Release the Commission explains that its interpretation is informed by the purpose, substance and circumstances under which the proxy voting advice is provided. Where a proxy advisory firm markets its expertise in the research and analysis of voting matters to assist a client in making proxy voting decisions by providing voting recommendations, the proxy advisory firm is not “merely performing administrative or ministerial services.” Instead, the Commission believes that providing such proxy voting recommendations constitutes a solicitation because the recommendations are “designed to influence the client’s voting decision.” Importantly, the Commission believes that such recommendations constitute a solicitation even where a proxy advisory firm bases its recommendations on its client’s own tailored voting guidelines or the client ultimately decides not to follow the proxy voting recommendations.[14] The Commission makes clear that its interpretation does not prevent a proxy advisory firm from relying on the exemptions from the federal proxy rules information and filing requirements under Exchange Act Rule 14a-2(b)(1).[15] Nevertheless, the Commission’s interpretation is an important foundational basis for any subsequent regulation of proxy advisory firms that addresses conditions for the availability of Rule 14a-2(b)(1). Proxy Voting Advice Remains Subject to Exchange Act Rule 14a-9 In the second part of the Proxy Voting Advice Release, the Commission emphasizes that even where a proxy advisory firm’s voting advice is otherwise exempt from the information and filing requirements of the federal proxy rules under Exchange Act Rule 14a-2(b)(1), that voting advice remains subject to the anti-fraud provisions of Exchange Act Rule 14a-9. Accordingly, when issuing proxy voting advice, proxy advisory firms may not make materially false or misleading statements or omit material facts that would be required to make the voting advice not misleading. Exchange Act Rule 14a-9 prohibits any solicitation from containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact. In addition, solicitations may not omit any material fact necessary in order to make the solicitation false or misleading. Of particular importance for proxy voting advice based on the research and analysis of proxy advisory firms, Exchange Act Rule 14a-9 also extends to opinions, reasons, recommendations or beliefs that are disclosed as part of a solicitation. Where such opinions, recommendations or similar views are provided, disclosure of the underlying facts, assumptions, limitations and other information may need to be disclosed so that these views do not raise concerns under the rule. Depending on the materiality of the information and the particular circumstances, the Commission indicates that proxy advisory firms may need to disclose additional information to avoid issues under Exchange Act Rule 14a-9, including: an explanation of the firm’s methodology used to formulate its voting advice on a particular matter; non-public information sources and the extent to which the information from these sources differs from the publicly available disclosures; and any material conflicts of interest that arise in connection with providing the proxy voting advice in reasonably sufficient detail so that the client can assess the relevance of those conflicts. Summary of the Proxy Voting Responsibilities Release Developed by the Commission’s Division of Investment Management, the Proxy Voting Responsibilities Release clarifies how an investment adviser’s fiduciary duties to its clients inform the investment adviser’s proxy voting responsibilities, particularly where investment advisers retain proxy advisory firms to assist in some aspect of their proxy voting responsibilities. Under Rule 206(4)-6 of the Investment Advisers Act of 1940, an investment adviser that assumes proxy voting authority must implement policies and procedures that are reasonably designed to ensure it makes voting decisions in the best interest of clients. The Commission reiterates throughout the Proxy Voting Responsibilities Release that proxy voting must be consistent with the investment adviser’s fiduciary duties and in compliance with Rule 206(4)-6. The Proxy Voting Responsibilities Release sets forth six examples of considerations investment advisers should evaluate when discharging their fiduciary duties in connection with proxy voting. The Commission emphasizes that this list of considerations is non-exhaustive, and while its guidance is generally phrased as considerations or actions investment advisers “should” evaluate, the Commission further indicates that these examples are not the only way for investment advisers to discharge their fiduciary duties when voting proxies. 1. Determine the scope of the investment adviser’s proxy voting authority and responsibilities If an investment adviser agrees to assume proxy voting authority, the scope of the voting arrangements should be determined between the investment adviser and each of its clients on an individual basis.  The Commission emphasizes that any proxy voting arrangements must be subject to full and fair disclosure and informed consent. Among the variety of potential approaches to proxy voting arrangements, the Commission provides several examples to which an investment adviser and its client may appropriately agree, including the investment adviser exercising proxy voting authority pursuant to specific parameters designed to serve the best interests of the client based on the client’s individual investment strategy, the investment adviser refraining from exercising proxy voting authority under agreed circumstances or the investment adviser voting only on particular types of proposals based on the client’s express preferences. 2. Demonstrate that the investment adviser is making voting determinations in its clients’ best interests and in accordance with its proxy voting policies and procedures The Commission indicates that investment advisers must at least annually review and document the adequacy of its proxy voting policies and procedures, including whether the policies and procedures are reasonably designed to result in proxy voting in the best interest of the investment adviser’s clients. Because clients often have differing investment objectives and strategies, if an investment adviser has multiple clients then it should consider whether voting all of its clients’ shares under a uniform voting policy is in the best interest of each individual client.  Alternatively, an investment adviser should consider whether it should implement voting policies that are in line with the particular investment strategies and objectives of individual clients.  An investment adviser should also consider whether its voting policy or policies should be tailored to permit or require more detailed analysis for more complex matters, such as a corporate event or a contested director election. In addition, where an investment adviser retains a proxy advisory firm to provide voting advice or execution services, the investment adviser should consider undertaking additional steps to evaluate whether its voting determinations are consistent with its voting policies and in the best interests of its clients. 3. Evaluate any proxy advisory firm in advance of retaining it Before retaining a proxy advisory firm, investment advisers should consider whether the proxy advisory firm has the capacity and competency to adequately analyze the matters for which it is providing voting advice.  The Commission indicates that the scope of the investment adviser’s proxy voting authority and the services for which the proxy advisory firm has been retained should inform the considerations that the investment adviser undertakes. Such consideration could include an assessment of the adequacy and quality of the proxy advisory firm’s staffing, personnel and/or technology.  In addition, investment advisers should consider the proxy advisory firm’s process for obtaining input from issuers and other clients with respect to its voting polices, methodologies and peer group design. 4. Evaluate processes for addressing potential factual errors, incompleteness or methodological weakness in a proxy advisory firm’s analysis An investment adviser should have policies and procedures in place to ensure that its proxy voting decisions are not based on materially inaccurate or incomplete information provided by a proxy advisory firm.  By way of example, the Commission suggests that an investment adviser should consider periodically reviewing its ongoing use of the proxy advisory firm’s research or voting advice, including whether any potential errors, incompleteness or weaknesses materially affected the research or recommendations that the investment adviser relied on. In addition, the Commission indicates that investment advisers should consider the proxy advisory firm’s policies and procedures to obtain current and accurate information, including the firm’s engagement with issuers, efforts to correct identified material deficiencies, disclosure regarding its sources of information and its methodologies for issuing voting advice and the firm’s consideration of facts unique to the issuer or proposal. 5. Adopt policies for evaluating proxy advisory firms’ services Where an investment adviser has retained a proxy advisory firm to assist with its proxy voting responsibilities, the investment adviser should adopt policies and procedures that are designed to evaluate the services of the proxy advisory firm to ensure that votes are cast in the best interests of the investment adviser’s clients. The Commission indicates that investment advisers should consider implementing policies and procedures to identify and evaluate a proxy advisory firm’s conflicts of interest on an on-going basis and evaluate the proxy advisory firm’s “capacity and competency” to provide voting advice and execute votes in accordance with the investment adviser’s instructions. In addition, investment advisers should consider how and when the proxy advisory firm updates its methodologies, guidelines and voting advice. 6. Determine when to exercise proxy voting opportunities An investment adviser is not required to exercise every opportunity to vote in either of two circumstances—where the investment adviser and its client have agreed in advance that the investment adviser’s proxy voting authority is limited under certain circumstances and where the investment adviser and its client have agreed in advance that the investment adviser has authority to cast votes based on the best interests of the client. In both situations, the investment adviser’s action must be in accordance with its prior agreement with its client. Moreover, where an investment adviser may refrain from voting because doing so is in the best interest of its client, the investment adviser should first consider its duty of care to its client in light of the scope of services it has agreed to assume. Practical Considerations Just as the Commission was divided in approving the Releases, reactions to the Releases are likely to vary among participants in the proxy process. For example, public companies may both view the Releases as a positive step and believe that additional Commission action is needed to address the errors, conflicts of interests and other challenges with proxy advisory firms. The Commission was limited in the actions it could take via interpretation and issuing guidance in the Releases. However, the Commission signaled that the Staff is working on proposed rules “to address proxy advisory firms’ reliance on the proxy solicitation exemptions in Exchange Act Rule 14a‑2(b).” Given that the rulemaking process can be time-consuming, the Releases provide helpful immediate guidance heading into the 2020 proxy season. That said, it remains to be seen whether and to what extent the proxy advisory firms and their investment adviser-clients will adjust their practices in response to the Releases. For example, the proxy advisory firms may increase the disclosures included in their reports, particularly when they are relying on debated premises such as studies asserting that certain corporate governance or sustainability actions increase shareholder value. They may also be less willing to rely on information provided either by proponents or activists unless that information has been filed with the Commission. Investment advisers inclined to vote lock-step with proxy advisory firm recommendations may be more willing to engage with companies in advance of voting. Similarly, the Commission’s statements on the application of Rule 14a-9 to proxy advisory firm reports and recommendations[16] may affect various proxy advisory firm practices due to the threat (real or perceived) of public companies commencing litigation against these firms in the event that statements in a proxy advisory firm’s report are viewed as materially false or misleading. For example, it is common to see parties in contested solicitations commence litigation under Rule 14a‑9 challenging the other side’s solicitation materials. It is not hard to envision similar litigation playing out in the future when there are differences of opinion as to whether a proxy advisory report contains information that is either inaccurate or misleading, or where it simply omits information that leaves the disclosed information materially misleading. As a result, proxy advisory firms may change their practices for vetting and issuing their voting recommendation reports; for example, the firms may be more inclined to provide drafts of their reports to public companies in advance of the reports being issued. ________________________ [1]   The two most influential proxy advisory firms are Institutional Shareholder Services (“ISS”) and Glass, Lewis & Co. [2]   Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice, Exchange Act Release No. 34-86721 (Aug. 21, 2019), available at https://www.sec.gov/rules/interp/2019/34-86721.pdf. [3]   Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, Investment Advisers Act Release No. IA-5325 and Investment Company Act Release No. IC-33605 (Aug. 21, 2019), available at https://www.sec.gov/rules/interp/2019/ia-5325.pdf. [4]   See Commissioner Robert J. Jackson, Jr., “Statement on Proxy-Advisor Guidance” (Aug. 21, 2019), available at https://www.sec.gov/news/public-statement/statement-jackson-082119; Commissioner Allison Herren Lee, “Statement of Commissioner Allison Herren Lee on Proxy Voting and Proxy Solicitation Releases” (Aug. 21, 2019), available at https://www.sec.gov/news/public-statement/statement-lee-082119. [5]   Concept Release on the U.S. Proxy System, Release No. 34-62495, 75 FR 42982 (July 22, 2010), available at https://www.sec.gov/rules/concept/2010/34-62495.pdf. [6]   For additional information on the 2010 concept release, please see our client alert dated July 22, 2010, available at https://www.gibsondunn.com/securities-and-exchange-commission-issues-concept-release-seeking-public-comment-on-u-s-proxy-system/. [7]   Staff Legal Bulletin No. 20 (June 30, 2014), available at http://www.sec.gov/interps/legal/cfslb20.htm. [8]   For additional information regarding SLB 20, please see our client alert dated July 1, 2015, available at https://www.gibsondunn.com/sec-staff-releases-guidance-regarding-proxy-advisory-firms/. [9]   See Securities and Exchange Commission, “Spotlight on Proxy Process” (Nov. 15, 2018), available at https://www.sec.gov/proxy-roundtable-2018. [10]   See Securities and Exchange Commission Webcast Archive, “Roundtable on the Proxy Process” (Nov. 15, 2018), available at https://www.sec.gov/video/webcast-archive-player.shtml?document_id=111518roundtable. [11]   See Chairman Jay Clayton, “Remarks for Telephone Call with SEC Investor Advisory Committee Members” (Feb. 6, 2019), available at https://www.sec.gov/news/public-statement/clayton-remarks-investor-advisory-committee-call-020619. [12]   See Commission Elad L. Roisman, “Statement at the Open Meeting on Commission Guidance and Interpretation Regarding Proxy Voting and Proxy Voting Advice” (Aug. 21, 2019), available at https://www.sec.gov/news/public-statement/statement-roisman-082119. [13]   See Agency Rule List - Spring 2019, available here. [14]   In contrast, ISS previously asked the Commission to confirm that “a registered investment adviser who is contractually obligated to furnish vote recommendations based on client-selected guidelines does not provide ‘unsolicited’ proxy voting advice, and thus is not engaged in a ‘solicitation’ subject to the Exchange Act proxy rules.” Letter from Gary Retelny, President and CEO, ISS, to Brent J. Fields, Secretary, Commission (Nov. 7, 2018), available at https://www.sec.gov/comments/4-725/4725-4629940-176410.pdf. [15]   For additional information regarding the Staff’s views on the availability of such exemptions for proxy advisory firms, please see our client alert regarding SLB 20 dated July 1, 2015, available at https://www.gibsondunn.com/sec-staff-releases-guidance-regarding-proxy-advisory-firms/. [16]   The solicitation exemption in Rule 14a-2(b)(3) explicitly does not also provide an exemption from Rule 14a-9. Thanks to associate Geoffrey Walter in Washington, D.C. for his assistance in the preparation of this client update. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following lawyers: Securities Regulation and Corporate Governance: Elizabeth Ising - Washington, D.C. (+1 202-955-8287, eising@gibsondunn.com) James J. Moloney - Orange County, CA (+ 949-451-4343, jmoloney@gibsondunn.com) Ronald O. Mueller - Washington, D.C. (+1 202-955-8671, rmueller@gibsondunn.com) Brian J. Lane - Washington, D.C. (+1 202-887-3646, blane@gibsondunn.com) Lori Zyskowski - New York (+1 212-351-2309, lzyskowski@gibsondunn.com) Shareholder Activism: Eduardo Gallardo - New York (+1 212-351-3847, egallardo@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
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August 22, 2019

The Singapore Convention on Mediation and the Path Ahead

Click for PDF On August 7, 2019, forty-six State Parties, including the United States, China, India, and South Korea,[1] signed the United Nations Convention on International Settlement Agreements Resulting from Mediation, also known as the “Singapore Convention on Mediation.”[2] The Convention aims to promote the use of mediation to resolve cross-border commercial disputes by enhancing the enforceability of international mediated settlement agreements. Mediation can be an effective means for disputing parties to resolve their dispute efficiently and creatively. It seeks to achieve a practical outcome based on the disputing parties’ underlying motivations. Historically, there has been one significant barrier to settling international disputes through mediation: if a party to a mediated settlement agreement defaults on its obligations, the non-defaulting party must turn to litigation, arbitration, or any other method contemplated by the settlement agreement to enforce the agreement like it would any other contractual obligation. This can be costly and time-intensive, particularly if enforcement requires cross-border proceedings or the defaulting party has acted to obstruct the enforcement process. For example, a settlement agreement may require litigation in a particular jurisdiction, but the defaulting party may have transferred its assets to another jurisdiction after signing the settlement. In this situation, the non-defaulting party will need to pursue litigation in multiple jurisdictions. The Convention aims to resolve issues with cross-border enforcement by making mediated settlement agreements directly enforceable by the courts of all State Parties to the Convention.[3] Specifically, the Convention allows parties to the settlement agreement to invoke those agreements before the courts of State Parties to establish that the matter has already been resolved via mediation.[4] Once a court in a State Party is presented with a request, it must “act expeditiously” to enforce the settlement agreement.[5] Settlement Agreements Covered by the Singapore Convention on Mediation The Convention applies to any settlement agreement that: (i) resulted from mediation;[6] (ii) is related to a “commercial” dispute;[7] (iii) is in writing;[8] and (iv) is “international” in character. In order for the settlement agreement to be “international,” at least two parties to the settlement agreement must have their places of business in different countries, or the State Party with which the settlement agreement is most closely connected, or in which it must be performed, must be different from the parties’ places of business.[9] Notably, the parties to the settlement agreement do not need to be nationals of, or have their places of business in, the State Parties to the Convention. The Convention does not apply if a settlement agreement (i) has been concluded or approved in the course of a court proceeding and is enforceable as a judgment in that State; or (ii) is enforceable as an arbitral award.[10] State Parties may also restrict the Convention’s applicability by entering two types of reservations. First, a State Party may exclude application to settlement agreements to which the State Party or its governmental agencies are party.[11] Second, a State Party may restrict application of the Convention to settlement agreements only to the extent parties have expressly agreed to apply it.[12] Thus, when negotiating a mediated settlement agreement, it may be prudent to expressly agree to the Convention’s application.[13] Enforcement of Settlement Agreements under the Singapore Convention on Mediation In order to enforce a settlement agreement under the Convention, a party must provide to the court with jurisdiction the signed settlement agreement and evidence that the settlement agreement resulted from mediation.[14] Such evidence could include the mediator’s signature on the agreement or a document signed by the mediator confirming there was a mediation.[15] State Parties to the Convention may refuse to enforce mediated settlement agreements on the following limited, prescribed grounds: (i) a party to the agreement was under some incapacity; (ii) the agreement is null and void, inoperative or incapable of being performed under the law that governs it; (iii) the agreement is not binding or is not final; (iv) the agreement has been subsequently modified; (v) the obligations under the agreement have been performed, or are not clear or comprehensible; (vi) granting relief would be contrary to the terms of the settlement agreement; (vii) there was a serious breach by the mediator of standards applicable to the mediator or the mediation without which breach the party resisting enforcement would not have entered into the settlement agreement; (viii) the mediator failed to disclose to the parties circumstances that raise justifiable doubts as to the mediator’s impartiality or independence, and this had a material impact or unduly influenced one of the parties to enter into the settlement agreement; (ix) granting relief would be contrary to the public policy of the State Party; or (x) the subject matter of the dispute is not capable of settlement by mediation under the law of the State Party.[16] In practice, parties objecting to the enforcement of a settlement agreement may seek to interpret these grounds broadly. For example, the Convention does not define what qualifies as a “serious breach” of standards applicable to the mediator or mediation.[17] However, these grounds are similar to those in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”),[18] which seek to preserve procedural propriety and prevent abuse. Courts have generally construed the New York Convention grounds for challenging arbitral awards narrowly, and we would expect them to take a similar approach with respect to settlement agreements subject to scrutiny under the Singapore Convention on Mediation.[19] Current Status of the Singapore Convention on Mediation The Convention will enter into force six months after three signatories deposit instruments of ratification with the United Nations.[20] This will likely be achieved relatively soon given that forty-six countries have already signed the Convention. Its terms will then apply to qualifying settlement agreements concluded after its entry into force in the State Party where enforcement is sought.[21] A United Nations Commission on International Trade Law (“UNCITRAL”) working group has also issued a corresponding Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation.[22] The Model Law is intended to assist State Parties with legislation to implement the Convention, much like UNCITRAL’s Model Law on International Commercial Arbitration aimed to bolster the implementation of the New York Convention. Implications for Cross-Border Dispute Resolution Mediation is generally faster and less expensive than other forms of dispute resolution. It also tends to preserve commercial relationships to a greater degree than other forms of dispute resolution where there are clear winners and losers. Proponents of the Singapore Convention on Mediation hope that, by offering increased certainty with respect to enforcement of mediated settlement agreements, the Convention will provide the same boost to mediation that the New York Convention provided to arbitration. As parties gain confidence in the increased enforceability of mediated settlement agreements as a result of the Singapore Convention on Mediation, they should consider mediation as an alternative or supplement to other forms of dispute resolution. And mediation can be used as an effective tool at any stage of a dispute. For example, mediation may be appropriate for parties in bifurcated proceedings after a merits award is issued but before the remedies have been determined. In this context, mediation would offer the parties a mechanism for agreeing upon a remedy that is acceptable to all involved. In short, the Singapore Convention on Mediation gives companies an additional reason to consider the role of mediation in an overall dispute resolution strategy. And in the event of a successful mediation, companies must structure their mediated settlement agreements to take full advantage of the Convention. * * * Gibson Dunn lawyers have extensive experience advising clients on international dispute resolution, including international mediation processes. If you have any questions about how your company is impacted by or could take advantage of the Singapore Convention on Mediation, we would be pleased to assist you. ______________________    [1]   The complete list of signatories is available here: https://treaties.un.org/Pages/showDetails.aspx?objid=080000028054826c&clang=_en. It includes Afghanistan, Belarus, Benin, Brunei, Chile, China, Colombia, Congo, Democratic Republic of Congo, Eswatini, Fiji, Georgia, Grenada, Haiti, Honduras, India, Iran, Israel, Jamaica, Jordan, Kazakhstan, Laos, Malaysia, Maldives, Mauritius, Montenegro, Nigeria, North Macedonia, Palau, Paraguay, Philippines, Qatar, Republic of Korea, Samoa, Saudi Arabia, Serbia, Sierra Leone, Singapore, Sri Lanka, Timor-Leste, Turkey, Uganda, Ukraine, USA, Uruguay, and Venezuela.    [2]   The complete text of the Singapore Convention on Mediation is available here: https://uncitral.un.org/sites/uncitral.un.org/files/singapore_convention_eng.pdf.    [3]   See Singapore Convention on Mediation, Article 3(1).    [4]   See Singapore Convention on Mediation, Article 3(2).    [5]   See Singapore Convention on Mediation, Article 4(5).    [6]   Under the Convention, “mediation” is defined broadly to encompass any process “whereby parties attempt to reach an amicable settlement of their dispute with the assistance of a third person or persons . . . lacking the authority to impose a solution upon the parties to the dispute.” Singapore Convention on Mediation, Article 2(3).    [7]   The Convention specifically excludes from its scope disputes arising from transactions entered into for “personal, family or household purposes,” or if the settlement agreements relate to “family, inheritance or employment law.” Singapore Convention on Mediation, Article 1(2).    [8]   A settlement agreement will be in writing under the Convention if “its content is recorded in any form,” including “electronic communication if the information contained therein is accessible so as to be useable for subsequent reference.” Singapore Convention on Mediation, Article 2(2).    [9]   See Singapore Convention on Mediation, Article 1(1). Under the Convention, “[i]f a party has more than one place of business, the relevant place of business is that which has the closest relationship to the dispute resolved by the settlement agreement, having regard to the circumstances known to, or contemplated by, the parties at the time of the conclusion of the settlement agreement.” Alternatively, “[i]f a party does not have a place of business, reference is to be made to the party’s habitual residence.” Singapore Convention on Mediation, Article 2(1). [10]   See Singapore Convention on Mediation, Article 1(3). [11]   See Singapore Convention on Mediation, Article 8(1)(a). [12]   See Singapore Convention on Mediation, Article 8(1)(b). [13]   The Convention also permits parties to opt-out by expressly stipulating this in their settlement agreement. See Singapore Convention on Mediation, Article 5(1)(d). [14]   See Singapore Convention on Mediation, Article 4(1). [15]   See Singapore Convention on Mediation, Article 4(1)(b). [16]   See Singapore Convention on Mediation, Article 5. [17]   Singapore Convention on Mediation, Article 5(1)(e). [18]   See New York Convention, Article 5. [19]   See Gary Born, International Arbitration: Cases and Materials 3427 (2d ed. 2015). [20]   See Singapore Convention on Mediation, Article 14(1). [21]   See Singapore Convention on Mediation, Article 9. [22]   Available here: https://undocs.org/en/A/RES/73/199. Gibson, Dunn & Crutcher's lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm's International Arbitration practice group, or the following: Cyrus Benson - London (+44 (0) 20 7071 4239, cbenson@gibsondunn.com) Penny Madden - London (+44 (0) 20 7071 4226, pmadden@gibsondunn.com) Jeffrey Sullivan - London (+44 (0) 20 7071 4231, jeffrey.sullivan@gibsondunn.com) Rahim Moloo - New York (+1 212-351-2413, rmoloo@gibsondunn.com) Charline O. Yim - New York (+1 212-351-2316, cyim@gibsondunn.com) Zachary A. Kady - New York (+1 212-351-5305, zkady@gibsondunn.com) Marryum Kahloon - New York (+1 212-351-3867, mkahloon@gibsondunn.com) Ankita Ritwik - Washington, D.C. (+1 202-887-3715, aritwik@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
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