Disputes Myanmar

UPDATE
A recently published Supreme Court
case (Supreme Court decision dated
16 February 2015) is casting additional
uncertainty on structures in Myanmar
where persons hold property on behalf
of someone else, a widespread practice in
various segments of the economy.
17 January 2017

Supreme Court Decision Casts Doubt

ABOUT VDB LOI
on Certain Nominee Structures in
We are a network of leading
law and tax advisory firms with Myanmar
offices in Cambodia, Indonesia,
Laos, Myanmar and Vietnam. A recently published Supreme Court case
(Supreme Court decision dated 16 February
In conjunction with our 2015) is casting additional uncertainty
Myanmar qualified litigation
Highlights of this note
on structures in Myanmar where persons
partners, we have launched an hold property on behalf of someone else, a
exclusively dedicated disputes Facts of the case
widespread practice in various segments of the
team comprising trial lawyers, economy. On what basis did the beneficial
litigators and consultants. owner claim his property back?
In a case where it was obvious a property
We represent clients in a wide Supreme Court reverses the
was held in the name of one person (lets call
range of disputes, from complex him the nominee), but paid for with monies lower court decisions
cross border insolvency provided by another person, the Supreme Some nominee structures under
and enforcement of foreign Court upheld the rights of the nominee, and
arbitration awards to collection fire?
refused to transfer the legal ownership to the
of debts and labour cases. person who paid for it and who claimed to be
the beneficial owner.

In a country where nominee or trustee married to F) as the new land owners.

Download transactions are fairly frequent, even in certain
FDI situations, the decision calls into question In 2010 G, the daughter of A and B passed
our DISPUTES the limits of such structures when holding away, after which her husband F sought to
experience property such as land or shares on behalf inherit the share of land that belonged to
of someone else. After this Supreme Court his deceased wife. This did not sit well with
decision we would do well to ask ourselves: A and B, who clearly did not have a high
Get to the point.
in which situation do nominee structures still opinion of F. To prevent F from getting the
work? ownership in the land, A and B filed for a suit
Disputes
of declaration on 4 August 2010 claiming
We provide the ultimate ground advantage for commercial
disputes. Most cases are actually won or lost on the ground, Facts of the case ownership in the land, as being the real
owners.
where the assets are. That is where we come in. Many parties are
hesitant to get involved in litigation in the emerging markets
we cover, but local proceedings can also be turned into an
advantage. If you know the terrain really well, that is.

Through our locally qualified network partners, we provide the

full range of litigation, arbitration and dispute resolution services.
A married couple, A and B (plaintiffs)
purchase land in the name of their children The suit was filed at the West District Court
Our litigators, trial lawyers and foreign consultants are known for
their aggressive stance and creative approach.

We are known for never giving up. We leave no stone unturned

to get you the leverage you need on the ground. Talk is cheap.
Winning is everything. All the rest is chit chat. C, D, E, and G (defendants) in 1974. The of Yangon, where the judge ruled in favor of
Cambodia
existing building on this land was demolished A and B. F appealed against this judgment
Indonesia
Laos
Myanmar
four years later for the construction of a three- at the High Court of the Region, which,
storey residential property that was entirely incidentally, confirmed the District Courts
Vietnam

financed by A and B. decision. F filed a second appeal at the

We gain trust with our partners and customers when using VDB
Supreme Court of Myanmar (governed by
In 1994, the land grant document expired and 1 judge), which confirmed the lower courts
Loi for advice. They are very efficient, knowledgeable and are well
informed especially on telecom, tax and labour laws. Asialaw

it was renewed with C, D, E and G (who was decision in favor of A and B.

https://goo.gl/HfNhqC

Page 1

In his final attempt, F submitted a special
appeal to the Supreme Court (before the
full bench of 7 judges).
On what basis did the beneficial
owner claim his property back?
The beneficial owners A and B claimed
that this was a so-called Benami
transaction. Benami is a concept known
mostly- in Indian law, with at least some
acceptance in Myanmar law. It essentially
refers to a land or a property without a
name. Under a Benami transaction, the
person(s) who pays for the purchase
of the property or land does not buy it
under their name. Instead, the purchase
is made under someone elses name.
The person whose name the property
or land has been purchased is called
the Benamidar and the property or
land thus purchased is called a Benami
property/land.
In Myanmar, there is no actual statute to
base the legal concept on, except, in our
view, the Myanmar Trust Act. Indeed, the
Supreme Court will look in its decision
at Benami from the perspective of the
Trust Act. Indeed, in many respects
the Benamidar and the trustee are
comparable, in that they both hold
property for the benefit of another.
However, a trustee has legal ownership
(but not beneficial ownership) and a
Benamidar is merely a nominee.
Nevertheless, Benami is also widely
acknowledged in practice in Myanmar.
An classic case on Benami in Myanmar
makes a rather interesting mention
on Benami transactions in pre-
independence Myanmar:
Benami transactions are never
made among Burmans except for
purposes of fraud.
They are much less common in
this country than they are in India
proper where they are supposed to
be customary. Even in cases where
the money with which the property is
bought is provided by a person who
claims the beneficial ownership, the
presumption that the purchase in
the name of the ostensible owner is
a benami transaction is weaker in
Burma than in other parts of India. In
Burma it may in particular cases be
too weak to displace the presumption
of advancement which would arise in
the absence of a presumption that a
transaction is benami,
All India Reporter Rangoon, 8
April 1927.
Nevertheless, the West District Courts
decided to rule in favor of A and B, given
that A and B paid for the land purchase
but bought it under the names of their
children, the District Court considered
this to be a Benami transaction. It stated
that as a benami transaction, A and B
will have complete ownership in the
land (because they paid for it) and that
ownership cannot be transferred to C, D,
E, and F. This judgment was confirmed
by the High Court and the initial decision
of the Supreme Court of Myanmar.
Things were looking very well for A and
B.
Supreme Court reverses the lower
court decisions
However, the Special Appeal judgment
stated that although the land purchase
was financed by A and B, the land was
actually transferred for the benefit of its
transferees (originally C, D, E and G). The
Supreme Court set aside the Benami as a
separate legal basis and instead referred
to section 82 of the Trusts Act 1882. This
states as follows:
82. Where property is transferred to
one person for a consideration paid
or provided by another person, and
it appears that such other person
did not intend to pay or provide
such consideration for the benefit of
the transferee, the transferee must
hold the property for the benefit of
the person paying or provided the
consideration
Chapter 9, Of Certain Obligations
in the Nature of Trusts, The Trusts
Act, 1882
This provision essentially says that
when you receive a property paid for
by someone else, and the payer did not
have the intention for you to benefit
from that consideration, then you are
required to hold that property for the
payer.
So, the Supreme Court basically viewed
that who paid for it, in and of itself, does
not matter. What is more important, is
the intent. When the property was put in
the name of C, D, E and F, in this situation,
Page 2

there was no intent for A and B to be the
owners. The intent was for C, D, E and
F to be the owners. So, the transferees
must be considered as the owners the
Supreme Court argued. And therefore,
there is no reason why F should be
denied ownership in the property, of
which his deceased wife was an owner.
The Special Appeal judgment also
pointed out that civil courts do not have
the jurisdiction to determine ownership
of the above-mentioned land, as per
section 41 of the Lower Burma Town and
Village Lands Act.
No civil Court shall have jurisdiction
to determine any matter which under
this Act, is to be determined by the
Revenue Officer,
- Chapter 9, Lower Burma Town and
Village Lands Act.
Some nominee structures under fire?
Benami transactions were finally almost
entirely outlawed in India in 1988
(Repeal Ordinance dated 19.5.1988 of
sec. 82 Trust Act. In the era of combating
money laundering and tax fraud, the
Benami concept does not sit well.
Of interest in this case are the distinct
ways in which the lower courts and the
Supreme Court of Myanmar (Special
Appeal) interpreted the case. As seen
above, the District Court, High Court and
the Supreme Court interpreted the land
transfer as a Benami transaction and
concluded that the party who paid for
the land will enjoy complete ownership.
The Special Appeal judgment, on the
other hand, placed emphasis on the
intentions behind the land transfer as
per section 82 of the Trusts Act 1882.
Even though the Supreme Courts
emphasis on the intention is fully in
line with earlier Myanmar and Indian
decisions, this decision serves to
recall that there may be limits to the
effectiveness of certain beneficial
ownership-like structures in Myanmar.
If intention is crucial to decide who land
or the shares belong to, as the Supreme
Court has finally held, how does this play
out in a typical nominee structure for a
foreign investor?
Imagine Myanmar citizen M who holds
shares on behalf of foreigner F in a
company C. C has a business activity
which is open to foreign investment with
a maximum of 80%. M therefore holds
20% in C on behalf of F as Benamidar,
F paying for the entire shareholding. F
legally owns the remaining 80%. After
the structure was put into place, M lets
F know that he in fact regards himself
as the real owner of the 20% shares in
C. F sues M, claiming to be the owner,
to transfer the 20% to another Myanmar
citizen allied to F.
Based on the Supreme Court decision
we discussed above, we need to apply
the intention test. In that regard, is it
possible to say that it must have been
the intention of M and F that M was
the owner of the shares, otherwise
they would not have complied with
the regulation requiring 20% local
shareholding? In other words, the whole
purpose of putting M in the picture was
that M had to be an owner of C. That
must thus have been the intention, and
if that was the intention, the Supreme
Court might not uphold Fs right to the
shares.
A related problem is how foreign
investors can explain what the motives
for the nominee structure were
without raising various questions and
consequences related to the object and
purpose of the transaction.
There is a wide range in structures used
in Myanmar to hold a property on behalf
of someone else. Each case would have
to be looked at on its own merits to
decide on validity and effectiveness. This
Court decision does not change that.
But it is telling that the Supreme Court is
willing to correct its own decisions with
a special appeal just to point out that
the ostensible owner may very well be
the legal owner despite that someone
else obviously paid for the property and
simply put it in that owners name, and
despite that someone else financed the
improvements and stayed in possession.
Finally, the emphasis the Supreme Court
places on the intention of the parties
may be a difficult test for some nominee
structures where Myanmar assets or
property is held on behalf of foreigners.
Page 3
 Related vDB LOI Publications
Court Judgment
West District Court Land and property purchase were financed by A and B, A Primer on Commercial
even though the sale of contract carries the names of Litigation in Myanmar Debt
their children C, D, E and G Recovery and Enforcement
The land is considered to be Benami land and A Critical First Look at
transferees cannot be considered owners, and thus A Myanmars New Arbitration
and B become land owners Law
F, who was married to G (who passed away in 2010),
does not have any ownership in the land since he is a Download our Regional
transferee in this case. Brochure here

High Court of the Region Confirms the West District Courts judgment
The land in considered to be benami land, A and B are Get to the point.

land owners and F has no ownership in the land.

OUR APPROACH
Supreme Court of Confirms West District Courts and High Courts
Myanmar judgment
The land in considered to be benami land, A and B are We are a network of leading law and tax advisory firms with

land owners and F has no ownership in the land. offices in Cambodia, Indonesia, Laos, Myanmar and Vietnam.

Our general areas of practice are corporate, finance and

disputes.

Our principal specialized areas of practice are energy and

Special Appeal to the Land transfer cannot be considered a benami infrastructure, real estate, telecom and taxation.

Supreme Court of transaction.

There are three things you need to know about our approach:

1. We deliver the ultimate in ground connectivity.

Myanmar Parties under whose name the land and property were
2. Our quality is trusted by the most discerning.
3. We never give up.

purchased become the rightful owners. Land owners: C,

D, E and F, and property owners: A and B.
In short, the Special Appeal overrules the Supreme Cambodia
Indonesia
Laos

Courts decision in favor of F. A and B have no ownership

... commercially creative firm with very high standards. - Legal 500 Myanmar
...widely considered a powerhouse. - Asialaw Vietnam

in the land.
https://goo.gl/EHPmR4

Contact Disputes Team

Edwin Vanderbruggen Aye Kyaw

Senior Partner, VDB-Loi Team Leader
edwin@vdb-loi.com aye.kyaw@vdb-loi.com

Edwin is a prominent foreign legal advisor living and working
in Myanmar since 2012. He frequently advises the Government
on privatizations and transactions in the energy, transport and
telecommunications areas. He and our Banking team act for
international financial institutions and DFIs, including on their
largest ever Myanmar financing, and had a role on virtually every
completed project financing transaction. In 2016, Edwin and his
team obtained MIC permits for an astounding 25% to 33% of
approved FDI in Myanmar, and helped establish a foreign bank.
With our firms Energy team, Edwin worked on 5 out of 7 power
projects signed in 2016, and advised 4 of the supermajors.
Supported by an exclusively dedicated telecom team, he helped
clients obtain and negotiate Myanmars first new spectrum and
IGW licenses this year.
U Aye Kyaw is a Myanmar qualified lawyer and the principal of U
Aye Kyaw & Associates VDB Loi, a specialized litigation firm which
joined VDB Loi in 2014. He is a former judge, magistrate and law
lecturer with nearly 25 year experience in civil and commercial
litigation and arbitration. He and his team of litigators have served
clients in a broad range of industries with services since 1990.
VDB Lois Disputes team comprises Myanmar qualified trial
lawyers, litigators and foreign arbitration specialists (resident
in Myanmar) who exclusively work on litigation and arbitration
matters. We focus on a broad range of commercial disputes, labour
cases, construction disputes, insolvency and debt enforcement. In
2016, the disputes team booked a significant win when it was able
to secure the release and clear the employee of a foreign state
agency from criminal charges in connection with a fatal accident.

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