Linklaters 7th CARTAL Conference on International Arbitration – A Conference Report
Rahul Lal & Navya Bhandari (Indian Journal of Arbitration Law)
The Centre for Advanced Research and Training in Arbitration Law (CARTAL) and the Indian Journal of Arbitration Law (IJAL) organised the Linklaters 7th CARTAL Conference on International Arbitration (Conference) on February 11-12, 2023. The Conference consisted of three-panel discussions to forward the academic discourse on various contemporary issues significant to the arbitration community. Panel I discussed the Implications of Economic Sanctions on International Arbitration. Panel II, titled Arbitration in the 21st Century: Taking Stock of Climate Change and the Environment, explored the relationship between climate change and arbitration. Finally, Panel III was a unique discussion in the format of an Arbitrator Roundtable, on the topic of Arbitration and Insolvency: Avoiding a Collision Course.
Important contributions from the Conference have been discussed below
I. Implications of Economic Sanctions on International Arbitration
The first panel, moderated by Ms. Christina Beharry (Partner, Foley Hoag, Washington, DC), examined the impact of economic sanctions in international commercial arbitration and discussed questions concerning the various substantive and procedural elements of such proceedings where one of the parties has been affected detrimentally.
Mr. Kartikey Mahajan (Partner, Khaitan & Co., Singapore) commenced the discussion on the topic by elaborating on the issues that would arise while proceeding against/for a sanctioned party. Further, he discussed how the process of choosing a seat in arbitration clauses becomes a contentious issue in such proceedings, as the sanctioned entity would only be willing to arbitrate at a neutral seat. He also commented on the hectic process of acquiring licenses when involved with a sanctioned state in the proceedings, which would in turn adversely affect the receipt of arbitration fees by arbitrators, institutions and the counsel of the sanctioned party. Through case studies and illustrations, he mooted the implications of the amendment to the Russian Commercial Procedure Code, which establishes the exclusive jurisdiction of Russian Arbitrazh courts over cases where a Russian party is subject to sanctions, or where a dispute has arisen out of sanctions.
Following this, Dr. Gordon Blanke (Founding Partner, Blanke Arbitration, Dubai) elaborated on the 4 levels that arbitrators need to look at when dealing with proceedings involving a sanctioned party. They are as follows –
- Logistics and Procedure: At the outset, it becomes essential for an arbitrator to examine whether they can be involved in a particular proceeding. They may be precluded from accepting a mandate on the sheer basis of their nationality, country of origin, and country of residence, amongst others. Another issue that may exist is with respect to the payment of arbitration fees. Due to the licensing requirements that exist when it comes to dealings with a sanctioned party, it becomes imperative for an arbitrator to ensure that all the licenses are in place in order to avoid any negative impact on the proceedings.
- Jurisdiction: The arbitrator may be required to check whether the sanctions concerned affect the arbitrability of the underlying dispute under the law of the seat and/or the law governing the arbitration agreement.
- Merits of the case: Some issues governing merits that could arise would be the termination of the underlying agreement, or defences such as impossibility of performance, illegality or frustration as a result of the sanctions.
- Enforceability of the award: The issues that arise with respect to the enforcement of arbitral awards within the context of sanctions are two-fold: (a) Legal [relating to resistance to the enforcement of awards involving sanctions on the basis of non-arbitrability, public policy, or the irregular constitution of tribunal]; and (b) Practical [relating to the enforcement against a sanctioned award debtor whose assets are frozen, and the recoverability of post-award interest].
The discussion then proceeded to the aspect of the asset freeze. Ms. Rebecca James (Managing Associate, Linklaters, Singapore), through illustrations and a discussion of recent court proceedings, provided a detailed breakdown of the operation, application, and impact of sanctions, specifically focussing on the United Kingdom’s sanction regime.
Following this, Dr. Srikant Parthasarathy (Independent Arbitrator, Chief Legal & Financial Officer, Chakra Venture Partners LLP, India) commented on the aspect of sanctions being used as an excuse against the performance of contracting parties’ obligations. Dr. Parthasarathy, after enumerating various statistical facts, took the counterview stating that nothing prevents counsels, parties or arbitrators from taking on a jurisdiction in terms of a sanctioned state, where the requisite rules exist. He also expressed his view that due to the presence of UN resolutions, and the aspect of “tribunal activism” (where there is a tendency to err on the side of over-compliance), there is limited scope for escaping the performance of obligations. However, a chance that obligations may be avoided does exist, if neither the counsels nor the arbitrators examine the issue of sanctions during the proceeding (especially in ad-hoc arbitrations); following which, if the award is not in favour of a party, they can approach the concerned court and state that sanctions were not taken into account in the proceedings.
Ms. Priyanka Shetty (Partner, AZB & Partners, India) deliberated upon the impact of sanctions on international investment arbitration matters. She observed that the admissibility of a claim (reliance placed on Stati v. Kazakhstan) and jurisdiction (through sanctions imposed by the UN Security Council under the UN Charter) of an arbitral tribunal can be severely impacted by the sanctions in place. Further, due to the lack of investment treaty cases with respect to international sanctions, Ms. Shetty concluded that international sanctions, today, occupy a very interesting twilight zone between communication and contact between nations, leading to any action against these sanctions raising very fascinating queries in international investment law. But the viability of such actions fails to be tested in reality.
II. Arbitration in the 21st Century: Taking Stock of Climate Change and the Environment
The second panel, moderated by Ms. Rebecca James, deliberated upon the ways in which the threat of climate change has transformed the dispute resolution landscape.
Mr. Adrian Cole (Independent Arbitrator, Mediator and Adjudicator, Adrian Cole FZ LLE, Abu Dhabi) initiated the discussion on a green note, laying down the aspect of climate change and linking it to the domain of construction arbitration. He examined the various positive changes that have been brought about globally (such as the disclosure requirements introduced by the Bank of England regarding the impact on climate change, and the Bangladesh Accord on Fire Safety, which provided for a form of supply-chain arbitration, agreed upon post the Rana Plaza tragedy).
Mr. Cole asserted that climate regulations may be ineffective owing to the concept of Greenwashing, but on a positive note also stated that privacy regulations and standards such as the LEED Building Standards, by taking environmental impact into consideration, mitigate the impact of the construction industry on climate change. He concluded by stating that the most important consideration while facing construction and climate change-related disputes is to resolve them in a quick, economical, prudent and sensible manner, and that arbitration would be the perfect fit to attain these objectives if used wisely.
Mr. Chatura Randeniya (Partner, Afridi & Angell, Dubai) furthered the discussion by introducing the aspect of Environmental, Social and Governance (ESG) frameworks and their relation with litigation and international treaties. He observed that while arbitration may be an appropriate forum for solving ESG disputes due to the enforceability of awards post the New York Convention and the confidentiality of the process, reasons such as the possibility of an incompetent and corrupt judiciary may serve as a roadblock.
Mr. Randeniya also raised the much-contested question of whether environmental issues with a link to public policy were arbitrable and concluded that while purely environmental matters are not best suited for arbitration, practitioners and tribunals have to work with the parties to make the process as effective and flexible as possible to accommodate such disputes as well.
Following this, Ms. Shalaka Patil (Partner, Trilegal, India) initiated a discussion on the history of environmental action in the legal field and acquainted the audience with the important principles relating to environmental protection and climate change mitigation. She further asserted that if the pollution is in a small region, the parties may submit to arbitration; however, parties inevitably end up opting for the route of litigation, owing to the hassle involved in enforcing an award in the Indian court system.
Dr. Sunny Kapoor then discussed the recently introduced European Union due diligence law, which would have major ramifications for disputes being resolved by arbitration (if a clause is in place), as the law puts direct liability on companies involved in the supply chain. Further, he asserted that the new law is expected to increase the importance of ESG-related issues in corporate governance and decision-making. He also observed that the reason for the proactiveness of the legislature in Europe is due to the pressure exerted by society (through protests, suits, etc.).
Ms. Rebecca James commented on the growth of the renewable energy sector worldwide and stated that when it comes to the energy and construction sectors, the potential areas where disputes could arise would be in relation to the costs involved in a project, the time taken to complete a project (some projects, such as the installation of wind turbines in optimal weather conditions, are time-sensitive) and the quality of the construction. Ms James further gave examples of the areas where there may be disputes in the energy sector –
(i) claims arising out of the phasing out of traditional energy (as seen in the Netherlands during the phase-out of coal); and
(ii) incentives being rolled back (as crystallised in the claims of Eiser v. Spain and Charanne v. Spain).
III. Arbitration and Insolvency: Avoiding a Collision Course
The third panel deliberated upon the practical difficulties surrounding the interplay of arbitration and insolvency, with an examination of not only the validity of the arbitration clause in such matters but also the more nuanced considerations of cross-border insolvency proceedings and ongoing international arbitrations. Further, since the panel was in the unique form of an Arbitrator Roundtable, insight regarding insolvency-related guerrilla tactics that may be adopted by parties was also given.
After a brief introduction of the speakers, the moderator of this panel, Ms. Parnika Chaturvedi (Partner, King & Wood Mallesons, Dubai), observed that insolvency is an area which is greatly influenced by domestic laws. Hence, the deliberation on the interplay would have to be across jurisdictions.
Mr. Sairam Subramanian (Partner, Saraf and Partners, India) initiated the discussion with a breakdown of the evolution of the law and precedence regarding the overlap between insolvency and arbitration. He examined the approach taken by the Indian courts with respect to the recognition and enforcement of arbitral awards when the arbitral proceedings co-exist with insolvency proceedings.
Following this, Ms. Chaturvedi raised the question of whether the Indian position differs when it comes to the treatment of international arbitrations under the New York Convention, instead of the domestic laws. This question was taken up by Mr. Tejas Karia (Partner, Head – Arbitration, Shardul Amarchand Mangaldas & Co., India) who stated that an arbitral award only takes the character of a financial debt if it is recognised as a decree of an Indian court. Hence, according to the procedure, once the foreign award is deemed to be a decree, then the parties have two options– first, to enforce the foreign award under the Code of Civil Procedure, 1908, or second, to initiate insolvency proceedings against the award-debtor for being unable to pay the foreign award.
Ms. Jelita Pandjaitan (Partner, Asia Head – Dispute Resolution, Linklaters, Singapore) provided insight into the jurisdictions of Singapore and Hong Kong. She stated that the position in both these jurisdictions is largely similar. The primary consideration when it comes to insolvency would be the interest of the creditors as a whole, as opposed to just the interests of the claimant party and the insolvent company. Further, there are two ways in which an arbitral proceeding may be dealt with in light of an insolvency proceeding– first, the leave of the court could be attained which would allow the arbitral proceeding to continue, or second, the liquidation or insolvency administrator may treat the award as an unsecured debt while entering into the insolvency process. Ms. Pandjaitan also asserted that if there is a brink of insolvency scenario that is faced by the court, then they must give primacy to insolvency over arbitration to protect the broader interests of the range of creditors that are on the line.
Mr. Muhammad Ussama (Partner, Shalakany Law Office, Egypt) then proceeded to provide a breakdown of the validity of insolvency proceedings in light of arbitral proceedings, under the Egyptian legal regime. He also specifically pointed out an interesting standpoint in Egypt regarding the initiation of insolvency proceedings. While generally, the creditors of a company are not allowed to initiate separate insolvency proceedings and need to collectively file an application; in 2018, a development allowed a certain class of creditors with “privileged debt” guaranteed by a pledge to initiate separate insolvency proceedings. He concluded by stating that in Egypt, one can commence or continue arbitral proceedings even after the initiation of insolvency proceedings.
Further, while Ms.. Pandjaitan stated that one of the tactics that can be adopted to avoid arbitral proceedings is declaring oneself insolvent, Mr. Karia and Mr. Subramanian both stated that the tactic of keeping arbitration as a protective measure is often followed, as post the initiation of insolvency, there may be no hope for the party seeking to utilise such tactics.
The panel concluded with the panellists answering the diverse questions that were raised by the attendees of the Conference.
The closing remarks for the Conference were delivered by Dr Rosmy Joan (Assistant Professor, National Law University, Jodhpur).
The authors acknowledge the assistance and efforts of Reet Malik, Raunak Rai Maini, Yash Joshi, Krati Gupta and Harshita Baswana (Indian Journal of Arbitration Law) in the preparation of this report.