A Portrait of Alibaba – By Fa-Alpha Chen

Last week, Fa-Alpha Chen a PhD student reading law at the University of Cambridge, presented an overview of Alibaba. Below is a briefing of some of his discussion:

A Portrait of Alibaba – By Fa-Alpha Chen

This topic will give a brief introduction of Alibaba in the dimensions of corporate governance and IP.

  1. The business units of Alibaba

Most people understand Alibaba as a platform involving E-commerce. However, Alibaba has already expanded its business in quite broad fields, covering digital finance (Alipay), cloud computing and big data (Alibaba Cloud), culture and entertainment (Youku, UC),Travel (Navi: Autonavi; Bicycle sharing: Hellobike),item delivery (Cainiao), etc.

Some of the business units were incubated from E-commerce, e.g. Alipay and Alibaba Cloud, while some were the outcome of acquisition of other companies, e.g. Youku and Autonavi, both of which were previously US-listed companies before going private to be private subsidiaries of Alibaba.

  1. Alibaba Partnership

Even though Alibaba adopts the one-share-one-vote principle, the real controller of this company is not the largest shareholder. Instead, the Alibaba Partners as a whole is the actual controller.

When going public on NYSE, Alibaba (Stock Symbol: BABA) designed a unique framework above the board, namely, Alibaba Partnership, which in fact decides the operation of Alibaba. This partnership enjoys two special rights: one is the exclusive right to nominate directors, while the other relates to the allocation of bonus.

According to the articles of association, even though the director nominees should be appointed at the general meeting of shareholders, in case these nominees are denied by the general meeting of shareholders or leave the board after election regardless of the reason, Alibaba Partnership enjoys the right to appoint an interim director who serves until the following annual general meeting of shareholders. There is no limitation of such an appointment in terms of frequency, which means that as long as the nominees chosen by Alibaba Partnership are not elected by the general meeting of shareholders, this Partnership could appoint interim directors constantly. Such a stipulation results in an effect that Alibaba Partnership has the actual power to nominate directors, even though in the name of nominees or interim directors. Furthermore, pursuant to the articles, whenever the directors nominated (including the interim directors appointed) by Alibaba Partnership take up less than a majority of the total directors on board, Alibaba Partnership is empowered to appoint additional directors to the board at its sole discretion without any additional shareholder approval to ensure that the directors nominated or appointed by Alibaba Partnership could comprise a simple majority of the board. According to BABA’s recent annual report, there are eleven directors on the board currently, of which five are Alibaba Partnership nominees. Consequently, this Partnership is entitled to appoint two additional directors to increase its nominees to seven, occupying a simple majority of the thirteen directors in total.

Alibaba Partnership also determines the allocation of corporate bonus. The allocation of bonus,prima facie, is decided by the compensation committee according to its articles of association. However, the compensation committee is established by the board of directors. Since Alibaba Partnership controls at least a simple majority of the directors as discussed above, it determines the de facto allocation of bonus.

Several other stipulations in the articles of association make Alibaba Partnership unbreakable. Firstly, the election of partners is the own business of this Partnership. The number of partners is dynamic and new partners are elected annually. The election of new partners requires the approval of at least 75% of all the partners without the participation of shareholders. Secondly, Alibaba Partnership’s nomination rights and related provisions of the articles of association cannot be changed unless upon 95% of voting rights. Due to the agreement between Alibaba Partnership and the largest two shareholders of BABA named Softbank and Yahoo which hold approximately 30% and 15% of shares respectively, as well as the fact that the co-founders Jack Ma and Joseph C. Tsai jointly hold about 8% of the total shares, it is impossible for outsiders to collect 95% of voting rights to abolish this Partnership per seas well as its exclusive directors nomination right. Lastly, there is a bottom clause that where any change of control, merger or sale of BABA, Alibaba Partnership should not be transferred or otherwise delegated or given a proxy to any third-party with respect to the right to nominate directors.

  1. IP Related Facet

Each year, Alibaba spends a lot of money to import movies, TV drama, music from overseas producers, e.g. Sherlock 4 from BBC. Since it relates to cross-border IP licence, the relevant protection via litigation against infringement is, in practice, a difficult problem in China.

Firstly, who has the right to initiate litigation? IP license could be conducted on either an exclusive or non-exclusive basis. The right to initiate and deal with litigation is another right other than Intellectual Property Rights. In order for Alibaba to file litigation, it should get relevant authorisation from overseas producers. The litigation could be filed in Alibaba’s own name or on behalf of both itself and the foreign producer, depending on the contract terms.

Secondly, all the documents (e.g. Letter of Authorisation) should be legalised through notarisation, e.g. A notary issues a certificate to certify that the Letter of Authorisation  between BBC and Alibaba is signed on his face and the signature is true. According to the Articles of Association of BBC, the person who signed the Letter of Authorisation has the right to do so. The Ministry of Justice needs to certify that the notary is qualified. Chinese authority needs to certify the certificate issued by the Ministry of Justice of the UK. All the documents need to be translated in Chinese by a qualified translator.

Lastly, the litigation will be quite time-consuming, and it is normal for such a litigation to last for 2-3 years to receive a final ruling from the court. Moreover, the compensation for the plaintiff is very low.


Unjust enrichment in the case of Sempra Metals Ltd v IRC, the UK House of Lords – By Long Pham

Topic: In Sempra Metals Ltd v IRC, the UK House of Lords held that, as a matter of the law of unjust enrichment, a taxpayer is entitled to recover compound interest on tax levied in breach of EU law. However, in July of this year, the UK Supreme Court in Prudential Assurance Co Ltd v HMRC overruled Sempra Metals. Long will discuss the Prudential Assurance decision and its implications.
Biography: Long Pham is reading for the LL.M. at the University of Cambridge. His primary interest lies in private law and, in particular, contract, equity and unjust enrichment. Before arriving in Cambridge, Long was an associate at Herbert Smith Freehills in Australia and Hong Kong where he practised in commercial litigation and international arbitration. He can be reached at nlp33@cam.ac.uk


Unjust enrichment in the case of Sempra Metals Ltd v IRC, the UK House of Lords

In Sempra Metals v IRC, the House of Lords held that, as a matter of the law of unjust enrichment, a taxpayer could recover compound interest on taxes prematurely levied in breach of EU law. However, in July of this year, the Supreme Court in Prudential Assurance v HMRCoverruled Sempra Metals.

This post looks at the Supreme Court’s decision and what it means.

What is unjust enrichment?

The law of unjust enrichment concerns the reversal of normatively defective transfers of value.  For example, if I mistakenly pay you £50, the law of unjust enrichment says that you have to give it back to me.

Under English law, a claimant will have an unjust enrichment claim where

(1)   the defendant was enriched,

(2)   the enrichment was at the claimant’s expense,

(3)   the enrichment was unjust and

(4)   the defendant has no defences.

Where the above conditions are satisfied, the claimant has a right to restitution of the enrichment.

Sempra Metals

In 2001, the ECJ held that the ICTA infringed EU law insofar as it permitted corporate groups wholly resident in the UK to defer payment of corporations tax on intragroup dividends without extending the same advantage to corporate groups containing parents resident elsewhere in the EU.

The remedial consequences under English law of the ECJ’s ruling were examined in Sempra Metals.  The House of Lords held, by majority, that the claimant-taxpayer had a claim in unjust enrichment to recover compound interest on the prematurely levied tax.  The essential reasoning was that – in receiving the tax – the Revenue had been enriched not only by the money itself but also the opportunity to use the money ahead of time.  The value of the latter enrichment (use of the money) was the saving of the compound interest which the Revenue would have had to pay to borrow an equivalent amount. In circumstances where this enrichment had been unjust – because the taxpayer had paid the tax under a mistake of law as to its ability to defer payment – the Revenue had to give it back.

Prudential Assurance

But all this has changed thanks to Prudential Assurance.

There – following an ECJ ruling that the ICTA breached EU law in providing for differential tax treatment of UK-sourced dividends and foreign-sourced dividends – the claimant-taxpayer sought compound interest on taxes unlawfully levied on dividends received from foreign subsidiaries.  Overruling Sempra Metals, the Supreme Court held that the taxpayer was confined to simple statutory interest and could not recover compound interest (save in respect of one class of amounts where the Revenue conceded – incorrectly it turned out – that compound interest should be awarded).

In reaching this conclusion, the Supreme Court pointed out that, since Sempra Metals, there had been various developments in the law of unjust enrichment including as to the requirement that the enrichment be at the claimant’s expense.  In particular, that requirement had been interpreted as requiring a direct transfer of value from the claimant to the defendant.  This was said to call into question the reasoning in Sempra Metalsthat, where the tax was prematurely paid, there was an additional and simultaneous transfer of value comprising the opportunity to use the money.  The opportunity to use the money – the Supreme Court said – was a consequence of the transfer of the money but could not itself be regarded as an additional transfer of value capable of grounding an unjust enrichment claim.

With respect, this is difficult to accept.  If I steal your bike, can it really be said that the opportunity to ride the bike has not been transferred from you to me?  In this example, my gain in being able to ride the bike corresponds to your loss in no longer being able to ride the bike.  There is a direct transfer of value.  The same must surely be true of cases involving the opportunity to use money. The Supreme Court’s reasoning appears to have confused the opportunity to use money with the use to which the money is actually put.

It is clear from the judgment that the Supreme Court’s decision to overrule Sempra Metalswas also based on considerations sitting outside the law of unjust enrichment.  For example, the Supreme Court noted that later decisions had revealed the severe disruption to public finances that Sempra Metalscould cause.  Thus, in one case concerning VAT unlawfully levied between 1973 and 2004, the difference between awarding compound interest and simple interest equated to £17 billion.  The Supreme Court also observed that Sempra Metalshad caused problems in light of limitation rules which provided that an unjust enrichment claim based on mistake could be brought within six years of the mistake being discovered irrespective of how long ago the payment was made.  While Parliament had tried to address these problems using retroactive legislation, those attempts had themselves fallen foul of EU law.

The immediate effect of the Supreme Court’s decision in Prudential Assuranceis that a taxpayer can no longer rely on unjust enrichment to recover compound interest on unlawfully levied tax.  But the decision’s effects travel beyond this. This is because the Supreme Court’s reasoning was not limited to the tax cases; instead, it applies to all cases where a claimant seeks the restitution of money on the basis of unjust enrichment. In these cases, going forward, a successful claimant will be able to get back the money’s face value (plus simple interest) but not the money’s use value.  While there are sound policy reasons for not awarding compound interest in cases of unlawfully levied taxes (including, as the Supreme Court noted, the disturbance to public finances), such reasons are absent in the private contexts in which unjust enrichment law more typically operates.  Not awarding compound interest in those contexts runs the risk of denying full restitution to a successful claimant.

The Separation of Powers – Dream or Reality? – By Ewa Plesnar

It was a beautiful, autumn afternoon on the 25th of October when our “tax tax tax dot tax” group (as we call it) discussed my current working paper, entitled “The Separation of Powers (SOP) – Dream or Reality?” As always, the meeting involved a paper presentation followed by a discussion.

My current topic of interest seeks to resolve the question regarding the applicability of the separation of powers (SOP) in the European governmental systems; both in theory and practice, with the UK as a central point of analysis. I also explore other theories which claim the SOP and the rule of law (ROL) are outdated concepts and becoming misapplied in the modern world. This opens a way for some academics to look for other, in their opinion, beneficial ways for society to structure states.

The presentation started with a short introduction to the history of Parliament in the UK. The aim of that was to understand a long tradition of the SOP and the ROL in the UK. That point was followed by the explanation of the rule of law, which is very strongly connected with the SOP. Both create a very important political background in the UK. In basic terms, the role of the ROL is to restrain the sovereign from the arbitrary power; nowadays ROL is considered as reflected in a form of the separation of powers within the state. We examined the historical evolution of ROL from an English perspective with a particular focus on the Magna Carta 1215, the Bill of Rights 1689 and the Parliament Act 1911.

In terms of definition we spoke about the theory presented by Dicey, who is considered in the UK as being a “father” of the ROL. His concept of the rule of law contains the absolute supremacy of a regular law as opposed to the influence of arbitrary power as well as the equality before the law. Prof Loughlin understands that the UK has a long tradition of the ROL that is not necessarily applicable in the other parts of Europe where the legal system is based on the civil law (as opposed to common law).

I then presented the theory proposed by M. Oakeshott, one of the most interesting (in my view) political philosophers. For Oakeshott, the concept of ROL must envisage humans joined in a relationship specifiable in terms of certain exclusive conditions, namely laws. He proposes two kinds of concepts of society that, he says, are always in conflict with one another, namely: universitas (or transactional association, where members are focused on achieving a particular aim) and societas (or moral association, where the society members are joined not to seek a common substantive satisfaction but to explore the conditions and relationships between them). In each of those associations law plays a different part.

In order to see how SOP works in practice, we explored the legislative process in the UK beginning with the bill (i.e. the draft of the legislation) which is received and discussed by the Parliament. It is then discussed by the Parliamentary Committees and then voted by both Houses (where the final decision is made by the Commons, as they were elected). We identified the following problems: the bill is almost always proposed by the government and it is not analysed thoroughly by the Parliament (reason being a lack of time or lack of expertise). That leaves us with the question as to the factual applicability of SOP in the UK legislative system and the real possibility of that application in practice.

Finally, we moved to speak about the modernisation of the state. According to some theorists, the modern state becomes an administrative state where in the name of security, prosperity and liberty modern governments have greatly expanded their executive powers. Although, the theory applies mainly to the continental Europe, the practical influence of that in the UK is also visible. The question is whether, in the rise of administrative powers, we can continue speaking of SOP’s applicability.