To what extent are arbitrators bound by international sanctions? Are sanctions a barrier to enforcement of awards? And what role do arbitration institutes play in ensuring access to arbitral proceedings in sanctions-related cases? These were some of the questions raised during the CIArb European Branch Annual Conference held in Copenhagen last week.
By Sahra Arif, The Danish Institute of Arbitration
The impact of economic sanctions on international arbitration is not novel. Yet, the rapid and increasingly complex sanctions developments continue to cause unique legal and practical challenges for arbitration and creates a stronger need for clear principles and guidelines. For this reason, the Danish Institute of Arbitration was honored to participate in the CIArb European Branch Annual Conference and join the discussion on how parties, counsel, arbitrators and institutes can address these challenges and discuss potential solutions that can safeguard the access to effective dispute resolution in a world increasingly impacted by diverging geopolitical developments.
The difficulty of applying sanctions
The Annual Conference hosted six panel discussions with esteemed speakers from across the European continent. Together, the panelists and moderators tackled the topic from all relevant angles. The conference kicked off discussing the applicability of various sanctions regimes that may be relevant to a given arbitration, e.g. sanctions that form part of the substantive law, the procedural law, the law in the place of enforcement. The role of sanctions as overriding mandatory provisions and “transnational” public policy was discussed with insightful questions and comments from the audience. With no clear consensus on general principles determining the applicability of various sanctions regimes, it is obvious that tribunals would need to consider this question on a case-by-case basis.
Challenges for arbitrators
Additional challenges were highlighted in a panel dedicated to arbitrators and tribunals specifically. Here, a clear take-away was that arbitrators should not refuse appointments or step down at the first hint of sanctions. However, there is a need for a universal approach regarding arbitrators. In addition, some of the challenges arise not from sanctions legislation, but rather the response to sanctions legislation, such as international law firms refusing representation to sanctioned parties and overcompliance by banks complicating payments of fees. Tribunals should also not be expected to launch full-scale investigations into the sanctions status of a party, but should be able to rely – at least to a reasonable degree – on parties’ information.
The role of institutes in sanctions disputes
There was also an opportunity to discuss the role of arbitral institutes during a panel consisting of General Council of the ICC, Emmanuel Jolivet, Secretary-General of the DIA, Steffen Pihlblad, Secretary-General of the SCC, Caroline Falconer, and Deputy Chairman of the Board of DIS. During this panel, there was clear consensus that access to justice remains a cornerstone for the arbitral institutes.
This was illustrated by the persistent efforts by several arbitral institutes to ensure that there is a clear exemption in EU sanctions legislation for transactions necessary for arbitral proceedings, identical to the exemptions for legal proceedings at the state courts.
Although sanctions were described as “a nightmare for institutes”, the institutes have adopted various solutions to ensure that sanctions do not hinder the effective administration of arbitrations. These range from engaging with regulators and banks to obtain (general) licenses and help facilitate payments to other initiatives aimed at ensuring access and avoiding delays in sanctions-related disputes. As also noted by Secretary-General Steffen Pihlblad, it is a very strange situation if an institute can be required to refuse cases that parties have agreed should be administered by the institute. The message was clear that access to effective administration of arbitral proceedings is access to justice. The role of arbitral institutes in disputes involving sanctions are also a perfect illustration of the unique way arbitral institutes can assist parties and tribunals, as these challenges only become more difficult to deal with in ad hoc arbitrations.
Resolving sanctions issues earlier in the disputes
As promised by the title of the conference, the conference also concluded with some encouraging takeaways. As international sanctions become more of a common reality in our globalized world, there are various ways to resolve sanctions-related challenges ahead of and during disputes.
A panel focusing on sanctions and contracts highlighted that parties can and should deal up front with the realities of sanctions. Learning from global events, such as the Covid-19 pandemic, parties can address how issues resulting from sanctions should be dealt with before a dispute arises. These options also apply to arbitration agreements, where parties can address possible issues relating more specifically to the arbitration procedure. These include careful considerations of what laws parties should opt for, addressing how to deal with a party becoming unable to pay for fees due to asset freezes, participating in hearings due to travel bans, and dealing with counsel, arbitrators or institutes becoming restricted due to sanctions. The contractual solutions could even extend to dealing up front with issues relating more specifically to enforcement of awards.
Enforcement of awards and sanctions
Concerning enforcement, the final panel was dedicated exclusively to the various issues and solutions that can arise once an award is obtained. One may ask what the use of an award is if assets are frozen and enforcement seems unlikely. Luckily, the panel were able to not only remind that sanctions-related issues at the enforcement stage are not new, but rather requires that enforcement is considered as early in the proceedings as possible, and even before an action is lodged. A concern that an award which fails to take sanctions into account per se will be unenforceable on the grounds of public policy was carefully examined in a lively debate. The careful take-away from that discussion was that, although enforcement could be refused on the grounds of public policy, this would only apply in narrow cases.
Arbitral awards, even in such cases, will of course still have a legal and economic value. Aside from creating binding legal clarity on the subject-matter of the parties’ dispute, the award may also prove valuable in settlement discussions, offer protection against counter-claims and subsequent actions, and reflects an economic value, allowing the award to be regarded as an asset in itself.
Even in situations, where enforcement appears difficult at first glance, having an award still offers the successful party the immediate possibility to enforce it once such an opportunity arises. In addition, as enforcement challenges may only be present in certain jurisdictions, having an award could still allow the successful party to enforce it in other jurisdictions, as also seen in relation to awards rendered in intra-EU investment arbitrations post Achmea.
The panel also addressed raising sanctions as a defense at the enforcement stage, including whether parties in such cases would be at liberty to only raise such sanctions-defenses during challenge proceedings or if such defenses such already be raised during the arbitral proceedings. Drawing on similarities in cases concerning EU competition law and cases involving corruption and fraud allegation, no clear conclusion can be drawn specifically for sanctions. The discussion however underscores the need to consider enforcement and challenges to enforcement at earlier stages of the dispute.
Final take-aways
The Annual Conference concluded with the clear message that sanctions do not mean the end of international arbitration but the rapid developments does require that international arbitration adapts to the new realities of the world. Sanctions pose unique legal and practical challenges that many are confronted with for the first time. As the current climate of sanctions and countermeasures unfortunately becomes more common, it is important that all parties participating in arbitral proceedings carefully consider how to mitigate the legal and practical challenges that come with sanctions to ensure that sanctions do not hinder access to justice.