A Draft for the Digital Dilemma: The E-Evidence Convention

This blog post is by Nikolaos Trigkas, a third-year Ph.D. candidate.

  1. THE FIRST CONVENTION ON E-EVIDENCE

The legal question of how to treat probative information generated or stored in electronic form has a relatively short history, but is becoming increasingly significant. Interest in the new possibilities and challenges regarding the introduction of electronic evidence at trial is growing, awareness is spreading and dialogue is beginning to unfold. In 2016 an innovative cross-disciplinary initiative was launched by Stephen Mason, barrister and IALS associate research fellow, in the wake of concerns about the nuances of e-evidence such as intangible form and changeable nature. He initiated a Convention on Electronic Evidence, which was the first attempt to systematically treat the subject of digital evidence.

The obvious lack of standardised processes regulating the admissibility (and particularly authentication) of electronic evidence was the driving force behind the recent project. According to Mr. Mason, who has provided training to judges and lawyers in matters relating to electronic information across the globe, the need for accepted guidance is emerging. In the absence of a systematic scheme to commence development of such a convention by (inter)national organisations, a private initiative relying on scholars from various countries would be helpful. Mr. Mason reasoned as follows:

I have spoken so many times (especially in Europe) about electronic evidence, and spoken to so many people, and the same question keeps on being raised: why is there no Convention on Electronic Evidence being devised by the Council of Europe or the UN?

The ‘Draft Convention on Electronic Evidence’ workshop (supported by the Information Law and Policy Centre) took place at the Institute of Advanced Legal Studies on 20 May 2016. The workshop was designed to take forward the discussion outcomes from a previous similar conference held in Zagreb in April 2016 and aimed to provide a platform to facilitate a fuller understanding of the complex concept of electronic evidence by judges and lawyers. In essence, the event was created to urge that electronic evidence be viewed in a different way to documentary evidence and, more generally, the traditional forms of proof.

After a consultation period, the final version of the draft was published in the latest issue (2016) of the Digital Evidence and Electronic Signature Law Review. In the preamble of the draft, it is explained that the existing rules – tailored to the characteristics of paper evidence – cannot always apply to electronic information. Although this critical matter has not yet been settled at international level, it is becoming increasingly clear that e-evidence has a unique nature. Because of its complex character, some rules (e.g. the authentication rule, the best evidence rule and the hearsay rule) appear to be irrelevant or inapplicable to such evidence.

This brave initiative should be warmly welcomed by modern legal professionals as the first convention dealing with the treatment of electronic evidence in civil and criminal trials. The purpose of the initiative can be described as ambitious, but even so it is realistic, given that the contributors to it have carefully taken account of legal and technological considerations. Additionally, the final text of the Convention is based on a consensus between international scholars, as the provisions have been excluded that were not generally agreed. Time will tell, however, whether and to what extent this project will bring about a landmark change in the way legal professionals perceive e-evidence.

  1. THE IMPORTANCE OF THE CONVENTION

It should be acknowledged that this initiative has already made a significant contribution to legal scholarship in terms of innovative thinking. It is commonplace these days to say that the current procedural rules are still in force, simply for the reason that they sufficiently serve their purpose. While this is true in some cases, it is debatable whether the old legal doctrines can accommodate technologies underlying electronic records as a rule. In fact, it can be argued that existing rules give short shrift to the critical question of authorship, when it comes to complicated information in electronic form. The initiative offers a new insight into the issue, as it recognizes that the specific nature of electronic evidence poses new challenges to legal practitioners.

With regard to the treatment of electronic evidence at the admissibility phase, two totally opposite lines of thought have been supported in the international literature. These were aptly described by van der Merwe in his analysis as: a) the ‘paper’ approach; and b) the ‘protocol’ approach.

The ‘paper’ approach stipulates that all the traditional rules of evidence fulfil their purpose, on the condition that they can be applied mutatis mutandis to electronic evidence. Without any doubt, this approach prevails in the European Union and the United States, where evidentiary rules generally apply with equal force to any type of proof.

The ‘protocol’ approach acknowledges that we are now faced with forms of evidence essentially different in nature from those traditional forms, which constituted the basis of the law of documentary evidence. Therefore, we need to find alternative digital guarantees, namely internationally agreed protocols, concerning the authenticity of the electronic information that a proponent may seek to introduce at trial. This approach has so far failed to gain significant traction among legal practitioners, who have no choice but to follow the current framework governing the status of e-evidence.

  1. CONCLUSION

It is clear that the equal treatment of traditional and electronic evidence represents something of a paradox, given that the latter can be altered or fabricated with relative easiness (as the Hon. Alan Pendleton pointed out).

The Draft Convention on Electronic Evidence marks a shift to a new legal thinking, which seeks to bring traditional legal principles into line with the modern technological environment. The Convention seems to follow the ‘protocol’ approach in that it seriously takes into account not only the legal aspects, but also the technical details of the cases under consideration. In this sense, the Convention may serve as a useful starting point for legislative work, as the old rules may sometimes be inapplicable to electronic evidence. Should legal professionals’ understanding of sophisticated technology become more complete, it can be expected that the convention will inspire changes in rules in the light of technological evolution.

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Australia’s aversion to compulsory settlement for maritime boundary disputes comes back to bite it

This is a guest post by Professor Andrew Serdy of the The Institute of Maritime Law at the University of Southampton. It builds on a guest lecture he gave to the Aberdeen University Centre for Energy Law. Robert Veal, Senior Research Assistant at the Institute of Maritime Law, contributed to this post. A longer version of this post is available at the Institute of Maritime Law’s website.

The background

The long-running saga over the maritime boundaries between Australia and Timor-Leste has been keeping lawyers for both sides busy. There have been no fewer than four separate legal proceedings in recent years related directly or indirectly to the issue.

One of these is the subject of this post: the invocation by Timor-Leste of compulsory conciliation under Article 298 of the United Nations Convention on the Law of the Sea (UNCLOS) and Annex V to UNCLOS as a means of settling permanently their outstanding boundaries, despite a clause in the 2006 Treaty between Australia and the Democratic Republic of Timor-Leste on Certain Maritime Arrangements in the Timor Sea (CMATS) by which the parties agreed not to invoke such proceedings against each other for 50 years, with particular reference to the ruling by the conciliation commission to reject Australia’s challenge to its competence, delivered on 19 September 2016.  Also tangentially relevant to the conciliation is another of the four proceedings, an arbitration under the 2002 Timor Sea Treaty, in which Timor-Leste seeks a declaration of the invalidity of CMATS on the ground that its conclusion was tainted by the alleged planting of listening devices in 2004 by the Australian Secret Intelligence Service in Timor-Leste’s cabinet room.

Much has been written over the years about the substance of the dispute as to where the maritime boundaries between Australia and Timor-Leste should lie, and the conciliation commission (the Commission) will come up with its own recommendations now that it has rejected the Australian challenge to its competence.  Readers unfamiliar with the arguments on both sides will find them conveniently illustrated by the Timor-Leste and Australian slideshows from the public opening session of the conciliation hearing on 29 August 2016 (which, along with the transcript of that session and the Commission’s preliminary ruling, are the only publicly available documents at the time of writing; in particular, the written pleadings have not been released), but this post is confined to the procedural aspects of the conciliation, which are novel enough in themselves.  Indeed this was the first-ever compulsory conciliation under UNCLOS (or at least the first that has entered the public domain – it cannot be excluded that parties to earlier disputes have settled or attempted to settle them by conciliations which they have agreed not to disclose).

Conciliation as a method of settling disputes

Conciliation has been defined as a procedure in which the disputant parties establish a commission or other body to help resolve their dispute, whose chief task is to examine the dispute impartially and attempt to define the terms of a settlement it thinks likely to be acceptable to the parties. UNCLOS provides for both voluntary (see Article 284) and compulsory conciliation.  The latter is an unusual combination of compulsory procedure with a non-binding outcome, but is occasionally encountered elsewhere, for example the Vienna Convention on the Law of Treaties provides for compulsory conciliation for a small class of disputes arising under it (though again none is known to have actually occurred).

As provided for by Article 3 of Annex V, a five-member conciliation commission was constituted.  Pursuant to Article 3, the party initiating the proceedings appoints two conciliators and the other party does the same.  The four chosen conciliators together in turn nominate a fifth who becomes the chairman.  It comprises HE Ambassador Peter Taksøe-Jensen (Chairman, a former UN Assistant Secretary General for Legal Affairs – I am grateful to a member of the audience at the initial presentation of these thoughts at the Faculty of Law of the Victoria University of Wellington a few weeks ago for pointing this out), Dr Rosalie Balkin (a former Director of the Legal Division and Assistant Secretary-General of the International Maritime Organization, a specialised agency of the United Nations, appointed by Australia), Judge Abdul G. Koroma of the International Court of Justice, appointed by Timor-Leste), Professor Donald McRae (a member of the International Law Commission, a body of experts reporting to the Sixth Committee of the UN General Assembly, appointed by Australia) and Judge Rüdiger Wolfrum of the International Tribunal for the Law of the Sea (ITLOS) established by UNCLOS, appointed by Timor-Leste).  Its decision to uphold its own competence of 19 September 2016 despite the objections put forward by Australia was taken unanimously and will, I suspect, have taken many observers by surprise, myself included, though this is not to say that it is wrong in law.

The relevant law

Australia’s analysis, like my own before the event, took as its starting point Article 4 of CMATS, which remains in force until and unless the Timorese attack on its validity succeeds.  This provision is headed “Moratorium” and provides in pertinent part:

  1. Neither Australia nor Timor-Leste shall assert, pursue or further by any means in relation to the other Party its claims to sovereign rights and jurisdiction and maritime boundaries for the period of this Treaty.

[…]

  1. Notwithstanding any other bilateral or multilateral agreement binding on the Parties, […] neither Party shall commence or pursue any proceedings against the other Party before any court, tribunal or other dispute settlement mechanism that would raise or result in, either directly or indirectly, issues or findings of relevance to maritime boundaries or delimitation in the Timor Sea.
  2. Any court, tribunal or other dispute settlement body hearing proceedings involving the Parties shall not consider, make comment on, nor make findings that would raise or result in, either directly or indirectly, issues or findings of relevance to maritime boundaries or delimitation in the Timor Sea. Any such comment or finding shall be of no effect, and shall not be relied upon, or cited, by the Parties at any time.

[…]

  1. The Parties shall not be under an obligation to negotiate permanent maritime boundaries for the period of this Treaty.

By Article 12 of CMATS the “period” of this Treaty” referred to above is 50 years from its entry into force, which took place in 2007.  On its face, therefore, there has been a clear breach of Article 4 by Timor-Leste in calling these conciliation proceedings into being.  Nothing in the words of Article 4 suggests that the fact that the proceedings do not have a binding outcome makes any difference in that regard.  Of course, if the Timorese claim in case (1) succeeds, CMATS will have been void ab initio and thus there will have been no breach of it by Timor-Leste after all, but it would be risky for it to rely on that outcome, since that condition has not yet been satisfied, and may never be.

The Commission, however, rejected this approach and instead based its analysis on the dispute settlement provisions within UNCLOS, grouped in Part XV (Articles 279 to 299), since it was to UNCLOS that it owed its own existence.  It said that, having been created under UNCLOS and not under CMATS or the Timor Sea Treaty, it had no authority to decide any secondary claim that there had been a breach of CMATS by Timor-Leste in bringing the primary claim.  Instead, it began with Article 280 of UNCLOS: “Nothing in this Part impairs the right of any States Parties to agree at any time to settle a dispute between them concerning the interpretation or application of this Convention by any peaceful means of their own choice.”  This makes clear that the UNCLOS compulsory mechanism for settling disputes is a default one and can be displaced by agreement of the parties to a dispute, even if what they put in its place is non-compulsory or leads to a non-binding outcome, or both.

Article 280 is one of three relevant provisions in Part XV of UNCLOS for this conciliation.  The effect of making an alternative choice under Article 280 is governed by Article 281, headed “Procedure where no settlement has been reached by the parties”, which is in the following terms:

  1. If the States Parties which are parties to a dispute concerning the interpretation or application of this Convention have agreed to seek settlement of the dispute by a peaceful means of their own choice, the procedures provided for in this Part apply only where no settlement has been reached by recourse to such means and the agreement between the parties does not exclude any further procedure.
  2. If the parties have also agreed on a time-limit, paragraph 1 applies only upon the expiration of that time-limit.

This is another way of saying that the compulsory procedures of Part XV can still be applied to a dispute if the alternative methods of the parties’ own choice under Article 280 have not led to its settlement, unless the original agreement to contract out of Part XV precludes this.  Article 281 was critical to the result in the Southern Bluefin Tuna arbitration where an arbitral tribunal formed under Annex VII to UNCLOS found by majority that it lacked jurisdiction because the 1993 Convention for the Conservation of Southern Bluefin Tuna procedurally displaced UNCLOS through its optional dispute settlement provision, from which it inferred the exclusion of any further procedure within the meaning of Article 281(1) of UNCLOS, even though the relevant provision of the 1993 Convention was completely silent on the matter.  Sir Ken Keith dissented: his view was that a clear indication of intent to displace UNCLOS would have been needed in the 1993 Convention but was absent there.  This decision has in the main been heavily criticised and has very few supporters, so it was not unexpected when in 2015 a differently composed Annex VII tribunal in the South China Sea arbitration accepted the Philippines’ invitation to depart from the reasoning of the Southern Bluefin Tuna tribunal, deciding that the non-compulsory procedures of the 1992 Convention on Biological Diversity, to which the Philippines and China were both parties,  could not displace Part XV jurisdiction as argued informally by China in a position paper.

The last relevant provision of Part XV of UNCLOS is Article 298.  This creates, in the words of its heading, a series of “[o]ptional exceptions to [the] applicability of section 2”, in other words to Articles 286 to 296 which is where the compulsory procedures are found.  One of the limited number of opt-outs it offers is for maritime boundary disputes:

  1. When signing, ratifying or acceding to this Convention or at any time thereafter, a State may…declare in writing that it does not accept any one or more of the procedures provided for in section 2 with respect to one or more of the following categories of disputes:
  • (i) disputes concerning the interpretation or application of articles 15, 74 and 83 relating to sea boundary delimitations, […] provided that a State having made such a declaration shall, when such a dispute arises subsequent to the entry into force of this Convention and […] no agreement within a reasonable period of time is reached in negotiations between the parties, at the request of any party to the dispute, accept submission of the matter to conciliation under Annex V, section 2; […];

Australia had made such a declaration in 2002, shortly before Timor-Leste’s independence.  Unlike the other opt-outs in the remaining subsubparagraphs, for a subset of excluded disputes this is not the end of the road: no further procedure is available for pre-existing disputes, but for those arising once UNCLOS is in force, compulsory conciliation of the kind represented by these proceedings is contemplated.

The unsuccessful Australian objections

The foregoing provisions collectively enabled the Commission to dismiss each of Australia’s objections made on six distinct grounds, which I paraphrase in the underlined text before commenting on each:

  1. Article 4 of the CMATS Treaty precludes either party from initiating compulsory conciliation under Article 298 of UNCLOS and from engaging in the substantive matters in dispute in such proceedings. As noted above, the Commission took the view that it had no authority to give effect to a treaty other than UNCLOS except where UNCLOS itself dictated this, adopting a narrow reading of Article 293(1), which prescribes the sources of law that a Part XV forum should apply as follows: “A court or tribunal having jurisdiction under this section shall apply this Convention and other rules of international law not incompatible with this Convention.”
  2. The CMATS Treaty falls within the category of “provisional arrangement[s] of a practical nature” specifically contemplated by Articles 74 and 83 of UNCLOS for the situation when a boundary delimiting the parties’ exclusive economic zones and continental shelves respectively remains outstanding, hence the moratorium in CMATS was not displaced by the later entry into force of UNCLOS between the parties, which occurred in 2013 when Timor-Leste acceded to UNCLOS (Australia having been an original party to it since 1994). To the extent that this argument also depended on direct application of CMATS, the Commission declined to give effect to it for the same reason as the first ground.
  1. In 2003 the parties agreed on a mechanism for resolving their boundary dispute, i.e. negotiation. The CMATS Treaty built on that agreement, confirmed negotiation as the method of dispute resolution, and added a time stipulation, namely that the negotiation was not to occur for 50 years.  Accordingly, the Commission’s competence is precluded by UNCLOS Article 281, which recognises the CMATS Treaty as a relevant choice by the parties as to how their dispute is to be settled.  Although this argument is more in tune with Commission’s approach of needing a gateway within Part XV of UNCLOS itself through which the previsions of another treaty can enter into its considerations, the Commission interpreted both Articles 280 and 281 and CMATS strictly: Part XV would in principle yield to any agreement to settle the dispute by some other means, but the moratorium in Article 4 of CMATS was something different: in fact it amounted to an agreement not to settle the dispute for 50 years.  Thus the gate remained shut, and Article 281 proved to be of no use to Australia.
  1. The parties’ dispute over maritime boundaries dates from 2002, before UNCLOS entered into force as between them, so the first condition of Article 298, that the dispute must have arisen “subsequent to the entry into force of this Convention”, was not met. Had this objection succeeded, the failure of the prior ones would not have mattered, since any one objection on its own would have had the desired effect for Australia of putting an end to the conciliation.  But it too failed, in this instance because the Commission interpreted against Australia the ambiguity in the quoted phrase: does it refer to the entry into force of UNCLOS generally, which occurred in 1994, or as between the particular disputants, which did not happen until 2013?  The objection would succeed only under the latter interpretation, but the Commission preferred the former.
  1. Because both Parties have observed the CMATS Treaty, there have not been negotiations on the maritime boundary, which Article 298 requires before resort to its provisions. Accordingly, the second condition of Article 298 is not met.  In this instance the Commission took a broader view of what was encompassed by the term “negotiations” – there clearly had been negotiations on the dispute as a whole, if not, at Australia’s insistence, on the boundary itself.
  1. The dispute is “inadmissible” because Timor-Leste was seeking to seise the Commission in breach of its treaty commitments to Australia, or at the least the Commission should stay the conciliation proceedings until the Tribunal constituted to hear the related arbitration concerning the validity of the CMATS Treaty has reached its decision on that point. The first half of this contention logically would have to suffer the same fate as the first two objections, but under other circumstances – i.e. if the Commission had decided those points differently – there would certainly have been an argument that it would make sense for the conciliation to wait until the fate of CMATS on which Australia was relying had become apparent through the outcome of case (1).

Next steps

So where to from here?  One important consequence of the Commission’s disinclination to apply CMATS is that Australia’s (and my own) contention that Timor-Leste’s initiation of the conciliation was in violation of the Article 4 moratorium remains undetermined, thus leaving Australia free to pursue that claim in whatever ways are open to it.  The obvious solution would be to bring a case of its own against Timor-Leste under CMATS alleging its violation, and to seek by way of remedy an order compelling Timor-Leste to discontinue the UNCLOS proceedings, a kind of international equivalent of an anti-suit injunction.  This, though, is easier said than done.  Although there is a provision of CMATS dealing with dispute settlement, Article 11, all it says, reflecting Australia’s negative attitude towards compulsory settlement of maritime boundary disputes, is: “Any disputes about the interpretation or application of this Treaty shall be settled by consultation or negotiation.”  So, ironically, Australia would need Timor-Leste’s consent to bring a claim against it to seek such an order, which is clearly not going to happen.

This leaves the conciliation to run its course, and the Commission has indicated that it will allow it a year to run.  Australia has announced that it will participate fully, a welcome expression of readiness to follow the UNCLOS procedures which were beginning to show signs of fraying at the edges after the respondents in two recent cases, the Arctic Sunrise and South China Sea arbitrations, refused to take part.  One final ambiguity may need to be resolved once the Commission reports back to the parties: UNCLOS Article 298(1)(a)(ii) states that “…after the conciliation commission has presented its report, which shall state the reasons on which it is based, the parties shall negotiate an agreement on the basis of that report; if these negotiations do not result in an agreement, the parties shall, by mutual consent, submit the question to one of the procedures provided for in section 2, unless the parties otherwise agree[.]”

Here it is not clear which of “shall” and “mutual consent” takes precedence: in other words, would the failure of post-conciliation negotiations pave the way to an ordinary compulsory Part XV case to decide the boundary through a putative oxymoronic obligation of the parties to consent to this?  This would suit Timor-Leste, but is the very thing Australia has been at pains to avoid.  Or are the disputants free to give or withhold their consent as they please, such that only if both of them consent “shall” the question ultimately come before a Part XV forum?  Thus it is by no means beyond the bounds of possibility that yet another case would become necessary a year or so from now to decide this point.

A fuller version of this post is available for download at the Institute of Maritime Law’s website.

OPEC’s Decision to Cut Oil Production: Factual and Legal Background

This blog is by Constantinos Yiallourides, a Doctoral Candidate at the University of Aberdeen.  In this blog, he considers the most recent decision of OPEC to cut oil production and its potential implications.

On 30 November 2016 in Vienna, the Organization of the Petroleum Exporting Countries (known as OPEC, or Organization) reached a historic deal to cut-down on their current collective output, leaving behind the pump-at-will policy the Organization had adopted in 2014 at the instigation of Saudi Arabia. They decided, after eight years of continuous negotiations, to reduce production by about 1.2 million barrels a day. The new limit on total OPEC output will be 32.5 million barrel per day.

The agreement follows on from a plan sketched out in the 170th (Extraordinary) Meeting of the OPEC Conference in Algiers on 28 September 2016 where OPEC countries agreed to examine how to set up a production ceiling of between 32.5 Mb/d and 33.0 Mb/d. They also emphasised the need to bring leading non-OPEC producers into the process in an effort to stabilise the oil market and avoid the adverse impacts in the short and medium-term. While certainly significant, the Algiers failed to reach a consensus on how to distribute the cuts amongst its members. Further, OPEC’s push to implement the Algiers deal and boost oil prices shifted focus to major crude suppliers outside of OPEC such as Russia. Despite some positive signs, Russia appeared reluctant to curtail its current production rates, risking scuttling the whole deal.

With the 30 November decision, a more specific implementation framework has now been agreed and the actual cuts of each OPEC country have been determined. OPEC’s Secretary-General Mohammad Barkindo stated that this cooperation will be ‘the first time OPEC [and] non-OPEC will agree to a joint, binding supply-management agreement’ according to the Wall Street Journal. Over the coming 6 months, starting from 1 January 2017, Saudi Arabia shall cut its output by 486,000 barrels a day to 10.058 million a day. Iraq, OPEC’s second-largest producer, shall reduce by 210,000 barrels a day from October levels. The United Arab Emirates and Kuwait will reduce output by 139,000 barrels a day and 131,000 a day, respectively. Most crucially, Russia has agreed to cut output in the first half of 2017 by up to 300,000 barrels per day. As it turns out, this is the first time in 15 years that the non-OPEC oil-producing country Russia is officially participating in an OPEC production cut deal.

Factual and Legal Background

OPEC was created at the Baghdad Conference on September 10-14, 1960. Its current members, with years of membership, include: Algeria (1969-present), Angola (2007-present), Ecuador (1973-1992 and 2007-present), Gabon (1975-1994 and 2016-present), Indonesia (1962-2008 and 2016-present), Iran (1960-present), Iraq (1960-present), Kuwait (1960-present), Libya (1962-present), Nigeria (1971-present), Qatar (1961-present), Saudi Arabia (1960-present), United Arab Emirates (1967-present) and Venezuela (1960-present).

OPEC’s stated objective is to coordinate the petroleum policies of member countries and to determine the best means of safeguarding their interests. This includes devising ways for ensuring the stabilisation of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations. According to Article 10 of OPEC statute, the Conference is the supreme authority of the Organization. The Conference, which typically meets twice a year, consists of delegations representing all the member countries. A non-member country may be invited to attend a Conference as an observer, only if the Conference so decides. Article 15 of OPEC statute provides that the Conference shall ‘formulate the general policy of the Organization and determine the appropriate ways and means of its implementation’. That said, OPEC’s most recent Conference, after reviewing oil market developments since it last meeting in Algeria as well as the oil market outlook for the remainder of 2016 and 2017, found that it is in the interest of both OPEC and non-OPEC producing countries to bring stock levels down to normal levels in order ‘to accelerate the ongoing drawdown of the stock overhang and bring the oil market rebalancing forward’.

According to OPEC’s press release, its decision to implement a new OPEC-14 production target of 32.5 Mb/d, was based on the report of OPEC’s Secretary General’s, the recommendations made by the High-Level Committee that was set up following the Algiers framework agreement, the report of the Economic Commission Board and OPEC’s Long-Term Strategy (LTS) document. A common observation in all the documents above was that, because of the continuous oil price downfall due to oversupply, global spending on exploration and production investments has also been free-falling since 2014, and a third year of investment falls would be catastrophic. Thus, appropriate responses to bring forward the rebalancing of supply and demand, this returning sustainable stability to the market were deemed urgent.

Current and Future Implications

The recent decision of OPEC to cut production has already had a positive effect on global oil prices. At the time of writing this blog, only five days following OPEC’s decision, global oil prices have surged 15 percent with Brent crude rising from $46 per barrel up to $54.94 per barrel according to Bloomberg. Some commentators suggest that this may mark the beginning of the end of a two-year downfall in the global oil market, during which prices have plunged from $100 per barrel down to $40 and oil producing countries, such as Venezuela, have come close to financial collapse.

However, whether this upward trend is sustained, it will depend on a number of factors. First, the agreement depends on how closely the OPEC and non-OPEC countries, such as Russia, adhere to their promises to pump less, something they have not always done in the past. Indeed, there are still questions about how this deal will be monitored and enforced. For example, it is submitted that traders cannot fully monitor the implementation of Russia’s pledge to cut 300,000 b/d of production since much of its production moves via pipelines as opposed to oil tankers which are easier to monitor based on how many leave port. Thus, getting Russia to stick to this commitment may be a tougher sell than expected, according to energy analysts.

Third, there is the question about the potential implications of the shale energy revolution in the US. Indeed, if anyone is cheering the news of the OPEC deal it is US shale producers. Over the past year, with global oil prices low, the US oil production has been constrained to some extent. A likely rebound in oil prices, if OPEC members cut supplies, combined with a steep slide in drilling costs as a result of technological advances, could lead to a revival in US shale production. This scenario played out similarly in late September 2016 when oil prices increased shortly after the announcement of the Algiers deal. US shale producers swiftly put rigs back in operation sending prices right back down to where they were before the announcement. Undoubtedly, this could pose serious challenges to the Organization’s efforts to boost oil prices.

Finally, as always with oil, there is time and money at stake and the stakes are high: from what refiners, marketers, distributors, and retail station owners gain per gallon, to the future of the global oil market and the world economy as a whole. OPEC, it would appear, still has the power to shake global markets. If the OPEC agreement pushes oil above $60 a barrel in the next few weeks, as some optimistic estimates suggest, it will certainly allow some breathing space to big oil producers who have seen their profits halved since 2014. On the other hand, big oil consumers will have to move swiftly to protect themselves against soaring fuel prices. Airlines, for example, could scramble to hedge against rapidly increasing oil prices.

Rent Deposits – Filling in the Gaps

This blog post is by the undergraduate LLB (Hons) candidate Matthew Nicol.  Matthew is a member of this year’s Scottish Law of Leases Honours class.

Background

With all the major world-shaking events that are at present going on around us, it is easy to overlook the smaller things, which may, nevertheless, still have an effect upon us.  For example, on the Brexit/Trump scale of 0-10, the Tenancy Deposit Schemes (Scotland) Regulations 2011 might, on the face of it, rate at 0.00001. Yet the scheme significantly impacts upon landlords and tenants in Scotland’s private residential rented sector, and could, in the event of failure to comply with the regulations, result in landlords becoming liable to pay over to their tenants a hefty sum (albeit one that cannot exceed three times the amount of the tenancy deposit). In a case where the monthly rent is, say, £1560 (based upon three students sharing a flat, each paying £125 per week), the maximum penalty for non-compliance with the regulations would be £4875, with the money going to the tenants. This sanction is intended to deter non-compliance with a statutory scheme, providing enforceable protections to tenants against non-compliant landlords.

Phoebe Russel-Smith and others v Ijeoma Uchegbu

The case of Phoebe Russel-Smith, Stephanie Dion-Jones and Alexis Herskowit v Ijeoma Uchegbu [2016] SC EDIN 64 (hereinafter Russel-Smith) related to a dispute regarding a landlady’s admitted failure to lodge the deposit in an approved deposit guarantee scheme. Once the court action had commenced this requirement of the Regulations was eventually complied with, but there was another failure on the part of the landlady in relation to the provision of information (under Regulations 3 and 42 of the 2011 Regulations) to the tenants.

This note focusses on the issues arising out of a summary application raised against the landlady by three of her four co-tenants.

Res Judicata

For reasons that were unknown to the sheriff, one of the co-tenants, Marc Fitchett, chose not to participate in the action against the landlady. Notwithstanding this, the court proceeded by assessing the level of the penalty at the top end of that which was available to the claimants collectively (as in, the full monthly rent, as paid by all four tenants, times three).

Given Fitchett’s non-participation in the legal action, a problem was posed for the Sheriff in relation to the quantum of the sanction.  As Sheriff Welsh noted (at paragraph 6)

[o]nly three of the four tenants under the tenancy make this application. I do not know if Marc Fitchett has waived his right to apply for sanction. He can apply up to 31 October 2016. However, if he did, the landlady could not, in my opinion, be sanctioned twice. The scheme does not provide for that.

Clearly, this could result in some prejudice to the fourth tenant, as by not being joined in the action raised by the other three – was he even invited to? – the fourth tenant would lose out not only on the financial compensation at the time of the initial claim, but any further right of his to exercise this claim. Such is the nature of the doctrine of res judicata.

Res judicata, broadly stated, concerns circumstances in which pursuers are barred from continuing litigation where there has already been final judgement. The term is synonymous with ‘the matter decided’ and carries an implication, as recently illustrated in Smith v Sabre Insurance [2013] CSIH 28, that all losses arising out of a single incident ought to be raised at the same time (discussed by the Scots law firm Brodies here).  The case of Smith set out that this principle is a long-established and highly practical element of Scots law.

The case of Russel-Smith perhaps illuminates – in its particular statutory context – a particular quirk of the res judicata doctrine, whereby in trying to protect the defender from future litigation where a decision has already been made, prejudice actually crystallises instead on one (or more) persons who might have been potential pursuers.

The court’s response in Russel-Smith was robust in terms of addressing the issue of res judicata. The sheriff refused to reduce the award to the three co-litigant co-tenants pro-rata by 25% (so as, it had been submitted, to reflect non-participation in the action by one co-tenant).  This was because whatever course of action was taken, including an award made to the three tenants, the effect of that award would be that the fourth tenant would then be prevented from having an exercisable claim against the landlord. The sheriff was therefore moved to award the full amount to the three co-litigants, thereby preserving a right (and surely giving rise to a claim in unjustified enrichment) of the fourth tenant to claim against his former co-tenants for a 25% share of the award (which might be pursued under the new simple procedure, whereas actions under the Tenancy Deposit Scheme Regulations must be raised by way of summary application during or within three months of the termination of the tenancy; note also that such a claim would be subject to statutory prescription and not affected by the time limit for the raising of a claim under the regulations).

In terms of resolving the potential inequities which might result from the blocking any further claim on the ground of res judicata when an otherwise viable claim under the 2011 Regulations is not exercised at the same time as other claims (for example, where one co-tenants takes a month’s holiday following the termination of the tenancy then returns to their family home in Aberystwyth, or wherever, while the other three move on to another shared flat together and do not feel inclined to search out their former flatmate), the judgement in Russel-Smith does assist in granting another opportunity to a party to claim.

However, and as has already been referred to above, a distinct possible downside emerges out of the relative fluidity which the approach of the sheriff in Russel-Smith gives to the tenants in order to achieve a resolution for them collectively. Without knowing the rationale of the fourth tenant for refusing to partake in the initial claim, it could speculatively be said that the judgment in Russel-Smith appears to offer such a tenant the right to ‘piggyback’ on the efforts of his fellow tenants in the initial litigation after he had perhaps refused to be involved in that action.

The policy and statutory agenda behind the Regulations is to address the problem of landlords unfairly misusing tenancy deposits, and to protect against the landlord holding the deposit and then becoming insolvent. It is arguable that the effect of the judgement of Russel-Smith is to create the scope for tenants making claims against one another in the aftermath of a judgement against a landlord, which complicates the horizontal relationship between co-tenants (as well as distorting the vertical relationship between tenant and landlord).

Given that one of the primary aims of the Tenancy Deposit Scheme Regulations is (according to the legal commentator Angus McAllister) to ‘ensure that deposits are returned quickly and fairly, particularly in the event of a dispute’, the judgement of Russel-Smith appears to complicate this approach. The sheriff’s approach adds an extra dimension to the dispute process surrounding the deposit. Whilst it is correct that the matter has been resolved by the case of Russel-Smith, in that all of the losses arising from the incident were raised at the same time, the equity of the approach adopted by the court in Russel-Smith is not unchallengeable. Now we are faced with a question of whether the matter is truly decided if the full losses have been awarded to the claimants, yet there exists a right of another claimant to derive his share of the sum at a later date.

The calculation of the penalty

In calculating the amount of the penalty, Sheriff Welsh (at paragraph 9 in his judgement) adopted a two-stage process.  Firstly, he adjusted the full sum of the deposit so as to be pro rata of the number of ‘unprotected’ days out of the term of the tenancy:

In my judgement there are two broad aspects to the sanction […] Firstly, the lease lasted 334 days, for 270 days of which, the deposit was unprotected and the tenants deprived of protection from the scheme and the proper information. In my judgement, to mark the fact that the defender breached the regulations for a sustained period of time which subjected the tenants and the deposit to a risk the regulations are designed to avoid, the proportionate and appropriate starting point for sanction in these circumstances is £1550 divided by 334 multiplied by 270. This produces a figure of £1253.

Then he made an assessment of what might be termed the landlord’s culpa element

Secondly, to that sum I will add a weighting to reflect the fact that the landlady was repeatedly officially informed of her obligations and still failed to comply. I do not accept the suggestion this was wilful defiance of the regulations. I am more inclined, on a balance of equities, even if finely judged in this aspect of the case, to accept the submission that the defender was dilatory in attending to her obligations to protect the deposit and advise the tenants of their rights rather than in wilful defiance of the purpose of the scheme. In assessing this aspect I also weigh in the balance the fact that no actual prejudice occurred and in the final analysis the purpose of the regulations was not defeated and the deposit was returned to the tenants, in full, without dispute. I also take into account the early admission of breach in these proceedings and the responsible way the defender has remedied the situation through her agents. I had the benefit of seeing the defender during the proceedings and while it may be said; ‘There’s no art to find the mind’s construction in the face’ [Macbeth, Act 1 Scene 4], I am satisfied the assurances given by Mr Wells, that she deeply regrets the position she now finds herself in, are genuine.  For all these reasons, I will set the financial penalty to reflect this second factor, at £600.

The maximum possible penalty would have been £4,650, meaning that under Sheriff Welsh’s two step approach – with the first stage ‘deprivation of protection’ element having been set at £1,253 – the maximum ‘stage  2’ culpa element would have been £3,397.

Postscript

On 17 March 2016 the Scottish Parliament passed the Private Housing (Tenancies) (Scotland) Act 2016 (asp 19).  It received Royal Assent on 22 April 2016, and is currently subject to commencement.  Much necessary infrastructure for the new statutory tenancy regime created by the statute has to be put in place, and full commencement may take some time.  One aspect that is of interest here relates to Part 2 of the Act, under which the landlord is required to provide certain specified information to the tenant.  In the event of the landlord’s failing to do so, the tenant may make an application to the First-Tier Tribunal, with the tribunal having the power to sanction the landlord’s failure to provide the required information.  Section 19 of the 2016 Act allows the Tribunal the power to penalise the landlord by requiring her to pay ‘the person’ who made the application an amount not exceeding, in specified cases, six month’s ‘rent’.  Section 16 subsections (6) and (7) specify:

(6) In a case where two or more persons jointly are the tenant under a tenancy, references to the tenant in this section are to any one of those persons.

(7)  In subsection (2), “rent” means––

(a) the amount that was payable in rent under the tenancy at the time that notice of the application was given to the landlord, and

(b) in a case where two or more persons jointly are the tenant under the tenancy, the amount mentioned in paragraph (a) divided by the number of those persons.

Section 5 of the 2016 Act has the effect of extending references in other enactments to tenancies and to connected expressions so as to cover private residential tenancies under the 2016 Act (unless it appears from the context that a particular reference is not intended to cover private residential tenancies).

The First-Tier Tribunal for Scotland Housing and Property Chamber is to inherit the jurisdiction of the Sheriff Court in respect of private residential tenancies. The Chamber will take over the functions of the Private Rented Housing Panel and the Homeowner Housing Panel with effect from 1 December 2016, and will begin to hear more private rented sector cases in consequence of the transfer of jurisdiction from the sheriff courts plus actions relating to private residential tenancies under the 2016 Act from December 2017.

If Sheriff Welsh’s analysis in respect of res judicata in the context of tenancy deposits is to be followed, there will be the situation in which the First-Tier Tribunal will apply one (res judicata) rule in respect of rent deposits and another (non-res judicata) in respect of ‘certain specified information’.  The potential for confusion is clear. That being said, in either case, professionalism and best practise are clearly the landlord’s best safeguard.

Finally, it is worth noting that the First-tier Tribunal for Scotland Housing and Property Chamber and Upper Tribunal for Scotland (Composition) Regulations 2016 allow for tribunals of up to three members:

Composition of First-tier Tribunal

2 (1) Subject to paragraph (2) the First-tier Tribunal, when convened to decide any matter in a case, shall consist of—

(a) a legal member;

(b) a legal member and one ordinary member; or

(c) a legal member with two ordinary members.

This introduces scope for differences of opinion in relation to the quantification of statutory penalties, making Sheriff Welsh’s two-step mode of calculation an attractive approach.