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Yukos's jailed former owner Mikhail Khodorkovsky looks through the bars of the court room cage in Russia's city of Chita February 6, 2008. (STRINGER/RUSSIA)
Yukos's jailed former owner Mikhail Khodorkovsky looks through the bars of the court room cage in Russia's city of Chita February 6, 2008. (STRINGER/RUSSIA)

Start: Tony WIlson

Rule of law crucial for safe investment Add to ...

There is a legal issue that many people in Canada, especially those in business, often take for granted. It is appropriate to raise it here, in my first column for 2011, so keep reading. Your business depends on it.

It’s called the rule of law, and it’s more important than anything else you’ll read about leasing, franchising or trademarks in 2011. Whether it relates to you as an individual or to the operation of your business, you’ll only realize how important the rule of law is when it’s not there, and right now, it’s not there in Russia.

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I’m speaking specifically about a new trial held in December regarding charges of money laundering and embezzlement against Russian oil tycoon (or should I say former oil tycoon) Mikhail Khodorkovsky, who was president and controlling shareholder of oil company Yukos until his arrest in 2003, and subsequent conviction for fraud and tax evasion. Before his arrest, Mr. Khodorkovsky was the wealthiest man in Russia and 16th on Forbes’ worldwide list of billionaires.

Since 2003, he has been serving much of his prison time in what we would have called the Gulag before Russia became a democracy and a member of the G-20.

With his first sentence about to end, the prosecutor’s office in Russia laid new charges against Mr. Khodorkovsky and another Yukos executive stemming from their involvement in the company eight years earlier. Both men were found guilty last week and sentenced to another six years in prison.

In regards to the first trial in 2005, the European Court of Human Rights found that Russian officials had intimidated and harassed witnesses and defence counsel during the initial investigation and the trial itself. Add to this apparent pressure placed on PriceWaterhouseCoopers by the Russian government to withdraw audits PWC performed on Yukos that might have aided Mr. Khodorkovsky’s defence. Russian authorities were investigating PWC for tax evasion at the time, and they suspended the investigation once the audits were withdrawn.

As for the second trial, François Zimeray, France's human rights ambassador, was quoted by Human Rights Watch as finding it odd that “Khodorkovsky could be sentenced twice on facts which look the same, or even contradictory, as it is forbidden by the main principles of law.”

Indeed, the courts of a number of countries, including Britain and Switzerland, refused to co-operate with Russian prosecutors in connection with Yukos-related legal proceedings, and Switzerland’s highest court specifically ordered the Swiss government not to co-operate with Russian authorities after it determined that “the first trial was politically motivated and that there had been violations of the defendants' fair trial rights throughout the procedure.”

Toward the end of the second trial in December, Prime Minister Vladimir Putin was interviewed on Russian television about the Khodorkovsky case and said: “A thief must be in jail.” So the second guilty verdict would seem a fait accompli, as if the judge were following orders, or feared for his job if Mr. Khodorkovsky wasn’t convicted and sentenced to further prison time.









Transparency International, which ranks nations from least to most corrupt, says Russia is one of the most corrupt nations on Earth. Out of 178 countries ranked in 2010, Russia was 154th, and had a worse ranking than Yemen (146th), Zimbabwe (134th) and Haiti (also 146th). To put corruption in perspective, Canada ranked sixth, and the United States 22nd.



What irked the Kremlin about Mr. Khodorkovsky was that he started using his vast sums of petrodollars to fund political movements that opposed the government of Mr. Putin. But if Mr. Khodorkovsky’s first trial was politically motivated to get a well-funded political opponent out of the way for a few years, his second trial on the eve of his release has made a total mockery of any argument that Russia has a fair and impartial judicial system.

What’s missing in Russia is an independent judiciary that isn’t afraid to make rulings that may be at odds with what the government of the day wants. What’s missing in Russia is the rule of law, something we may take for granted in Canada, but which is so important, lawyers and judges in places as diverse as Pakistan and Zimbabwe have fought for it against their own governments over the past decade, at great risk to their personal safety.

So what is the rule of law?

I think its best summarized by my colleague Gordon Turriff in a number of speeches he gave around the world while he was president of the Law Society of British Columbia. The rule of law, he says, is the keystone for order and prosperity in all our communities. It’s a shared commitment to propositions about how people can live together under arrangements that guarantee fairness in all respects, no matter how different those people might be.

1. That law, not force, or even the power of a personality, should regulate our lives.

2. That the law that regulates our lives is a body of rules to which at least a majority of us has assented to and which are intended, as much as is possible, to balance competing public and individual interests.

3. That no one, including government, is above the law, meaning that, unless expressly excepted, all rules bind all people to whom they could apply.

4. That everyone is equal before the law, meaning that all rules apply the same way to all people.

5. That judges must be impartial and independent, meaning that they must not pre-judge the matters they must decide and that their judgments must result from thoughtful consideration only of the evidence led and arguments made before them.

6. That lawyers must be independent, meaning that they must be free of all influences that might impair their ability to discharge the duty of loyalty they owe each of their clients.

7. That the confidentiality of communications between lawyers and their clients must be preserved so that clients will be encouraged to lay everything bare, and by doing so ensure that they will get their lawyers’ best advice.

So in light of circumstances surrounding the trial and conviction of Mr. Khodorkovsky, how comfortable are you investing or otherwise doing business in any country that doesn’t ascribe to the rule of law? Russia isn’t the only one, by any stretch of the imagination.

If there are no independent lawyers arguing forcefully for their clients without fear of legal or financial pressure exerted by the State or, for that matter, risk to their personal safety, how safe is your investment in that state?

If the judges of that state simply do what the government of the day orders or expects, without reference to any international standard of fairness and impartiality, how safe is your investment in that state? Foreign investors have to know their investments won’t be arbitrarily confiscated, and their businesses ruined. They also have to know that if they have a dispute with the state, or with another party, the judge’s adjudication of the dispute will adhere to the rule of law, and the decision will be made impartially, fairly and without undue interference from that state.

Certainly being aware of Transparency International’s yearly Corruptions Perception Index might give you a sense of how corrupt the country you’re planning to invest in is perceived to be, and arguably, where the rule of law is weakest. Its 2010 report is worth a look, if only to note that Russia may be 154th least corrupt, but China is 78th and Hong Kong is 13th.

There is a human rights element to this as well. Your investment can be at risk in a country without the rule of law, but your own personal freedom, and the freedom and personal safety of you and your employees in that country, may also be at risk. If Russia can send Mr. Khodorkovsky back to prison, they can send anyone there. Even you.

There are lots of places in the world you can invest your money, your time and your entrepreneurial energies. Why on earth would you invest in places where there isn’t some basic adherence to the rule of law?

Special to the Globe and Mail

Vancouver franchise lawyer Tony Wilson is the author of Buying A Franchise In Canada – Understanding and Negotiating Your Franchise Agreement and he is ranked as a leading Canadian franchise lawyer by LEXPERT. He is head of the Franchise Law Group at Boughton Law Corp. in Vancouver and acts for both franchisors and franchisees across Canada, many of whom are in the food services and hospitality industry. He is a registered Trademark Agent, an Adjunct Professor at Simon Fraser University and he also writes for Bartalk and Canadian Lawyer magazines.

 

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