Author: D C

In international business, drafting Arbitration Agreements that can withstand the complexities of cross-border sanctions is akin to constructing a legal fortress.

Arbitration Agreements play a pivotal role in protecting a company’s commercial interests by providing a framework for resolving disputes quickly, confidentially, and cost-effectively.

However, sanctions against countries such as Iran and Russia present unique challenges that complicate arbitration proceedings.

In this article, we explore how to draft rigorous Arbitration Agreements that can protect your interests should international sanctions impact your project or venture.

What is the effect of international sanctions on arbitration proceedings?

Sanctions are a range of measures put in place by individual governments, regional groups (for example the European Union or the African Union) or the United Nations to achieve one or more of the following:

• Prevent escalation of or settle conflicts.
• Curtail nuclear proliferation.
• Deal with terrorism and human rights violations.

Types of sanctions include:

• Economic – impose commercial and financial penalties, for example levying import duties and/or blocking exports of certain goods.
• Diplomatic – reducing or recalling diplomats or cancelling high-profile international meetings.
• Sport – preventing the sanctioned country’s athletes from competing in international events.
• Targeted/smart sanctions – imposes travel bans and asset freezing orders on individuals, companies, or other entities such as terrorist organisations.
• Military sanctions – these are used as a last resort and can involve targeted military strikes and arms embargoes.

Sanctions can negatively affect arbitration proceedings in the following ways:

• Enforcement Issues: Sanctions can render Arbitration Awards unenforceable if courts in sanction-enforcing jurisdictions refuse to recognise them.
• Choice of Arbitrators: Selecting Arbitrators can be problematic if their involvement breaches sanction rules.
• Logistical Barriers: Conducting hearings and investigations may be challenging due to travel restrictions, limited access, and prohibitions on financial transactions.
• Evidence Gathering: Collecting evidence in sanctioned countries is often a tangled process due to regulatory obstacles.

What Is an Arbitration Agreement?

An Arbitration Agreement is the cornerstone of any arbitration proceedings. It outlines the framework by which disputes will be resolved and often includes the following key components:

• The law governing the agreement.
• The jurisdiction that determines the procedural law governing the arbitration.
• Whether the arbitration will be institutional, whereby the process is administered by an arbitration body, or ad hoc, where the arbitration is conducted independently.
• The procedural rules that govern how the arbitration is conducted.
• The language in which all arbitration proceedings and documents are communicated.
• How the Arbitrator will be appointed and the expertise they must have.

How can Arbitration Agreements be drafted

When drafting Arbitration Agreements that can withstand the rigours of international sanctions, it’s crucial to anticipate potential issues. Here are some strategies to consider:

• Inclusion of a Sanctions Clause: A robust sanctions clause explicitly addressing potential restrictions and outlines how the parties will handle logistical challenges. This could include substituting alternative Arbitrators or venues and specifying the conditions under which an Arbitral Award can be enforced.
• Choice of Jurisdiction: Selecting an arbitration seat in a neutral jurisdiction that is less susceptible to sanctions ensures better enforceability. Jurisdictions such as England and Wales or Singapore are preferred because of their impartiality and predictable legal systems.
• Institutional Framework: Involving a well-recognised arbitration institution, such as the London Court of International Arbitration (LCIA), provides procedural oversight and established rules to navigate the complexities of sanctions.
• Choice of Rules and Governing Law: Selecting procedural rules and governing law that provide flexibility ensures that the agreement is adaptable to changing circumstances.
• Fallback Clauses: Include fallback clauses that specify alternative venues and arbitrator selection processes if the primary options are affected by sanctions.
• Multi-tier Dispute Resolution Mechanisms: Incorporating multi-tier dispute resolution mechanisms such as mediation before arbitration can help resolve issues at an early stage.

What are the best practices when drafting an Arbitration Agreement where sanctions may impact proceedings?

To further protect your commercial interests when drafting an Arbitration Agreement, consider these practical measures:

• Regularly reviewing and updating the agreement will ensure it reflects current sanctions policies and changing geopolitical landscapes.
• Protect sensitive commercial information through secure communication channels, confidentiality protocols, and Non-Disclosure Agreements (NDAs).
• Clearly specify the enforcement mechanisms to reduce uncertainties, and choose institutions with a track record of handling disputes related to sanctions.

Final words

In light of the geopolitical challenges presented by international sanctions against countries such as Iran and Russia, drafting a robust Arbitration Agreement is crucial for businesses engaged in cross-border transactions and ventures. The agreement must be carefully crafted to address enforcement issues, logistical barriers, and potential Arbitrator challenges.

Incorporating fallback clauses, multi-tier resolution mechanisms, and choosing neutral jurisdictions can help mitigate obstacles and the potential for further disputes. By regularly reviewing and updating your Arbitration Agreements, you can robustly protect your best interests.

To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

Note: The points in this article reflect sanctions in place at the time of writing, 14th May 2024. This article does not constitute legal advice. For further information, please contact our London office.

In February 2024, the High Court was faced with an extraordinary case in which an Arbitration Award and the Arbitration Agreement were fabricated. The facts of the case, Contax Partners Inc BVI v Kuwait Finance House (KFH-Kuwait) & Ors, are concerning, especially for the future as AI and Large Language models (LLMs) become increasingly sophisticated.

Background to the decision

On 21 June 2023, an arbitration claim was commenced by the Claimant (Contax BVI) against the Defendants, comprised of three companies in a banking group. The claim sought to enforce, under section 66 of the Arbitration Act 1996, what was said to be a Kuwaiti Arbitration Award dated 28 November 2022 (the Award). The Award was said to have been rendered in pursuance of an Arbitration Agreement between Contax BVI and the Defendants dated 31 August 2021. The Claim Form was signed by Hamza Adesanu, a Solicitor at H&C Associates, based in London. It stated that it was made on behalf of Contax BVI. Mr Filippo Fantechi, who said he was Contax BVI’s managing director, also provided a witness statement to the Court.

H&C Associates served an Order to the Defendants. After the lapse of 28 days, during which no set aside application had been made, a Third Party Debt Order (TPDO) of £70,634,614.04 against several banks was granted upon application of the H&C Associates.

The Defendants only became aware of the Order and proceedings against them after their bank accounts were frozen. They argued that the order had not been validly served ‘but, ‘more than this, … there was never an arbitration at all’.

The decision

This application was made before Mr Justice Butcher on a without notice basis, for consideration on the papers, which is typically how such applications are made. The Court gave plenty of allowance for the fact that the documents were prepared by people who were not native English speakers and/or whose grasp of English law procedure was not perfect. However, Mr Justice Butcher stated that he was “not on the lookout for fraud” and did not suspect it.

The Court concluded that there was no doubt that the Arbitration Award was fraudulent for the following reasons:

1. There was no original copy of the Award. “No original has been produced. There is no documentary (in which I include electronic) evidence of the existence of this alleged agreement before June 2023, when it was exhibited to the witness statement of, or supposed to be of, Mr Fantechi in support of the application to enforce the award.”
2. The Award itself contained substantial passages taken from Manoukian [v Société Générale de Banque au Liban SAL [2022] EWHC 669 (QB). The wording used “exactly the same phraseology”, including the jargon of English judgments (‘be that as it may’, ‘the submission is not entirely without merit’, ‘that said’, ‘fall to be considered’) and the same punctuation, “even when it was not obvious, and arguably incorrect”. Mr Justice Butcher stated “The almost identical assessment of factual and expert evidence could not, in my view, have been the result of chance, and the echoing of the terms of Justice Picken’s judgment was “not the result of the adoption of transposable legal reasoning”.
3. There was evidence that the Award was in English rather than Arabic and this, along with other aspects of the judgment, did not comply with Kuwaiti law.

In setting the Order aside, Mr Justice Butcher declared:

“The result of this decision is that there are a considerable number of unanswered, but serious, questions, and in particular as to who was responsible for the fabrications which I have found to have been made, and whether there is culpability (and if any whose) as to the way in which the application for permission to enforce the purported award was presented to the court.

“Those are matters which are likely to require investigation hereafter.”

What does this decision mean for the future of arbitration?

The Defendants will likely bring claims against all those involved in fabricating the documents and the fictitious Arbitration Award. However, the problem remains that although the English Court could refuse to recognise or enforce the Award, it does not have the jurisdiction to set it aside. This means the Award could be enforced in another country that is party to the New York Convention on the recognition and enforcement of foreign arbitral awards – regardless of Mr Justice Butcher’s decision.

The other primary concern is that further fabrications of Arbitration Awards could be made using sophisticated LLMs. As Mr Justice Butcher said, he did not suspect nor was he looking for forgery. Following this case, it is vital that English Courts pay close attention to the wording of an Award and the evidence supporting its existence to avoid substantial fraud and injustice.

To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

Note: The points in this article reflect sanctions in place at the time of writing, 09 April 2024. This article does not constitute legal advice. For further information, please contact our London office.

This piece focuses on how complying with directors’ duties fits into good corporate governance. 

Before we begin discussing corporate governance, let’s remind ourselves of the directors’ duties under 172 of the Companies Act 2006, namely:

• To act within powers.
• To promote the success of the company.
• To exercise independent judgment.
• To exercise reasonable care, skill, and diligence.
• To avoid conflicts of interest.
• Not to accept benefits from third parties.
• To declare any interest in a proposed transaction or arrangement with the company.

The overriding duty is to act in good faith and in a way that promotes the company’s success for its shareholders’ benefit. However, in this day and age, customers, investors, and shareholders demand that this is done sustainably.

Here is where corporate governance comes into play. 

The above is a fine balance as it is not a director’s job to strictly weigh up the company’s interests with those of other stakeholders. Instead, a director must consider the best course of action to lead to the company’s success while considering long-term consequences. This may lead to some stakeholders being adversely affected; however, that does not mean the decision is wrong. 

• How does corporate governance affect director’s duties?
• D&O Insurance to Protect Directors From Liability

A further challenge is that company boards, especially those of large organisations, must  exercise proportionate oversight and monitoring whilst allowing managers to make the decisions required to move the company forward and meet its targets.

What is corporate governance?

Corporate governance is about best practices regarding company board leadership. It is governed by the UK Corporate Governance Code (the Code). The 2024 Code is divided into four sections, namely: Board Leadership and Company Purpose; Division of Responsibilities; Composition, Succession and Evaluation; Audit, Risk and Internal Control; and Remuneration. 

The Code gives a codified framework to ensure board members recognise the collective duties and responsibilities needed to advance the long-term, sustainable success of the company.

Corporate governance can be expanded to ESG, which stands for environment, social, and governance.

How does corporate governance affect directors’ duties?

In 2018, the GC 100 published new guidance on embedding directors’ duties under section 172 in board decision-making. The guidance provides for five specific actions to assist in ensuring section 172 duties are incorporated into any decisions made by directors:

• Strategy: When establishing or updating company’s strategy, the section 172 duties must be kept in mind.
• Training: When a new director is added to the board, they should take part in training based on section 172 principles. Ongoing training concerning section 172 duties and responsibilities and how they should tie into decision-making should be regularly provided. 
• Information: Consider and distribute the information directors require on appointment and going forward to help them carry out their role and satisfy section 172 duties. 
• Policies and process: Establish policies and processes appropriate to support the organisation’s operating strategy and commercial ambitions in the light of section 172 duties. 
• Engagement: Examine and set policies concerning the company’s approach to engagement with employees, investors, suppliers, and other stakeholders.

How can section 172 duties be incorporated into a company’s culture?

In an ideal situation, directors’ duties and responsibilities are woven into a company’s culture, making desirable behaviours automatic. The GC 100 guidance states that although there is no prescribed corporate culture that all companies must abide by, “a clear tone from the top will support developing the culture you wish to have throughout the organisation and inform business decisions at all levels.”

The top-down principle of creating a corporate culture is vital to ensuring its success.

Most employees of large companies are concerned with the actions and responses of their direct line manager and have little contact with board members. Remote policies are quickly read and forgotten. Therefore, each management layer must understand and embrace considerations such as approach to risk, policies on career progression, and communication about market opportunities and challenges.

In addition, line managers and supervisors need to train new employees on what directors’ duties are and how they impact the organisation at a base level. This will ensure that everyone in the company understands how and why certain board decisions are made and the duties and responsibilities considered when making those decisions.

Final words on Corporate Governance and Directors Duties

Throughout this series of articles, we have explained what directors’ duties are and why it is crucial for boards to understand their responsibilities to all company stakeholders. The risk of being challenged by NGOs, governments, and even the company’s own shareholders for breach of directors’ duties is increasing, especially relating to environment matters. Boards now run the risk of legal claims, reputational damage, and losing millions due to shelved projects if they fail to implement section 172 duties in their decision-making process.

To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

Note: The points in this article reflect the law in place at the time of writing, 25 March 2024. This article does not constitute legal advice. For further information, please contact our London office.

Rashid Gaissin and Waleed Tahirkheli recently travelled to Astana, Kazakhstan to attend client meetings, and deepen Eldwick’s presence within the region.

During their trip, they visited the AIFC (Astana International Financial Centre): a financial hub for not only Central Asian countries, but the Caucasus, Middle East, Europe and China.

Rashid Gaissin and Waleed Tahirkheli were also given a tour of the AIFC Court and International Arbitration Centre: an independent common law court which adjudicates exclusively on claims arising out of the AIFC and other claims where the parties agree to the jurisdiction of the AIFC Court.

The AIFC Court and International Arbitration Centre (IAC) have completed and enforced almost 2200 cases, including 64 court judgments and 415 arbitration awards, including claims with quantum in excess of $300 million.

We are very grateful to Nurkhat Kushimov, Almas Zholamanov, MPA, PMP, CIPR and Yernar Baktiyarov for their personal tour of the AIFC’s facilities.