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  • Corporate Governance And Directors’ Duties

    Corporate Governance And Directors’ Duties

    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:

    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. 

    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.

     

  • Shareholders’ Agreement Explained

    Shareholders’ Agreement Explained

    A Shareholders’ Agreement is a vital legal document designed to protect the interests of a company and its shareholders.

    Drafted by experienced shareholder dispute solicitors, this agreement ensures transparency, outlines decision-making processes, and provides a framework for resolving disputes.

    It also demonstrates to potential investors that your business is well-managed and stable.

    For startups, establishing a Shareholders’ Agreement is especially crucial. When forming a limited liability company, shareholders may initially be directors, as is often the case in early-stage businesses.
    However, as the business grows and external investors join, shareholders typically become distinct from directors. Once there are two or more shareholders, having a Shareholders’ Agreement in place is essential to prevent conflicts and safeguard everyone’s interests.

    This is particularly important if shareholders include friends or family, a common scenario for many startups during their initial phases. A well-drafted agreement ensures clarity and protects relationships while fostering a stable foundation for growth.

    What is a Shareholder’s Agreement?

    A Shareholders’ Agreement, along with the company’s Articles of Association (Articles) set out how the company will be run.

    A typical Shareholders’ Agreement will include:

    • The types of shares issued by the company.
    • Details of majority and minority shareholders’ rights and responsibilities.
    • Rules relating to the sale and purchase of shares.
    • Principles and policies concerning the running of the company.
    • Protection for minority shareholders including details of their voting rights.
    • Information about dilution rights.
    • Information regarding the payment of dividends.
    • Intellectual property assignment policies and procedures.
    • Confidentiality clauses.
    • A dispute resolution process, including what happens if a deadlock situation arises.

    Although you can access Shareholders’ Agreement templates online, it is worth investing in having one drawn up by a Company Law Solicitor. The agreement is a legally binding contract between shareholders, meaning it must be carefully drafted by someone who not only has an excellent knowledge of the law but has also taken the time to understand your company, market sector, and future commercial ambitions.

    What are the risks of not having a Shareholders’ Agreement?

    Launching and growing a business is incredibly exciting but at times it can be hard work and stressful. Shareholders can quickly fall into disagreements concerning the direction the company is taking, payment of dividends, and/or voting rights. Without a Shareholders’ Agreement governing these and other matters and providing a clear dispute resolution procedure, matters can rapidly escalate. Other risks of not having an agreement in place include:

    • Shareholders who are also employees can retain their shares after they resign or are dismissed.
    • Minority shareholders must rely on statutory rights which can be difficult to enforce. They can also block the sale of the company.
    • With no agreement governing the sale of shares, existing shareholders can transfer their shares to anyone unless prohibited from doing so by the Articles.
    • There is little to prevent shareholders from using or leaking confidential information.
    • Shareholders may not have a clear exit strategy if they want to leave the company.
    • Deadlock situations can result in the company having to be wound up.

    Recent events have reminded us that our business and personal lives can change with little warning. Although at this stage of your business’s life things may be running smoothly, problems can suddenly flare up, demanding significant time and resources that should be directed towards business growth. Having a robust Shareholders’ Agreement and Articles in place will ensure the company can continue to run as normal whilst disputes and/or shareholder changes are resolved.

    Final words on shareholders’ agreements

    It is natural to want to limit legal costs in your startup’s early stages, however, this can lead to unnecessary future expenses and stress. Disputes and deadlocks can halt the progress of potentially profitable projects and lead to reputational damage. Therefore, it is well worth investing in a comprehensive Shareholders’ Agreement that is tailored to your business.

  • Directors & Officers Liability Insurance

    Directors & Officers Liability Insurance

    What is covered by Directors’ and Officers’ Liability Insurance?

    The Companies Act 2006 provides for several director’s duties that could give rise to a civil claim if breached. Directors must:

    • act in accordance with the company’s articles of association
    • only exercise powers for the purposes for which they are conferred
    • promote the success of the company, taking into consideration the long term impacts of decisions made, including for employees and community and the environment
    • exercise independent judgement.
    • exercise reasonable care, skill, and diligence
    • avoid conflicts of interest 
    • not accept benefits from third parties
    • declare an interest in proposed transactions or arrangements of the company

    Apart from potential misconduct in the day-to-day operations of a company, directors and officers often confront claims linked to securities offerings, acquisitions, and disposals.

    As per the Finance Act 2009, violations of accounting duties constitute another potential area of claims covered by D&O insurance policies. Senior accounting officers are mandated by the Finance Act 2009 to establish and adhere to proper tax accounting arrangements for large companies (with a turnover exceeding £200 million or gross assets surpassing £2 billion).

    Insurance Coverage

    D&O insurance also extends coverage to various other breaches that might lead to claims.

    This includes ‘derivative claims,’ initiated internally by shareholders on behalf of the company against a director or officer. Section 260 of the Companies Act 2006 specifies that a derivative claim can only be brought for actions arising from actual or proposed acts or omissions involving negligence, default, breach of duty, or breach of trust by a company director. This coverage is crucial due to the broad scope of derivative claims, which can be raised concerning alleged breaches, even predating the director or officer’s tenure with the company.

    Furthermore, D&O insurance offers protection against class action claims.

    The range of liabilities covered by D&O insurance encompasses negligence, health and safety failures, default, defamation, director’s breach of duty, or breach of trust by the director or officer concerning the employing company. Past directors and officers are also covered.

    Officers protected by D&O insurance include company secretaries, in-house lawyers, and senior executives. Moreover, D&O coverage can extend to employees temporarily placed in management roles, spouses of directors and officers, estates of deceased directors and officers, and liquidators.

    Is there anything D&O insurance does not cover? 

    If a director or officer commits a serious criminal offence their D&O policy will not provide cover. In addition, D&O Insurance will not cover damage to property or personal injury. These are covered by separate policies, namely, Employee Liability Insurance and Public Liability Insurance.

    Is Director’s Indemnity Insurance essential?

    The 2008 financial crisis and high-profile company collapses such as Carillion and Patisserie Valerie, where the alleged directors’ misconduct led to the demise of the businesses, alongside the growing climate catastrophe, have led to shareholders, investors, NGOs and consumers increasingly using litigation to hold company directors to account. For example, in 2022, ClientEarth brought actions against Shell’s Board for mismanaging climate risk and against KLM Airlines for alleged greenwashing via one of its marketing campaigns.

    At present, it is the boards of large companies facing the greatest risk; however, as more of these types of claims succeed, the greater the threat to SME directors and officers becomes. 

    What is the difference between Professional Indemnity Insurance and D&O Insurance?

    PII insurance covers errors and omissions concerning a person’s work. For example, if an accountant makes a negligent error that results in their client facing a significant tax bill they would otherwise have not had to pay, PII would provide cover. D&O insurance protects directors and officers if they make a negligent management decision, for example not employing a supervisor to check a junior accountants work.

    Many claims are multifaceted and will engage PII and D&O insurance; therefore, it is vital to be covered by both types of policies.

    Do NGO directors need Directors’ and Officers’ Insurance?

    Yes, as they face the same challenges and risks as a director or officer of a private company and often operate in a strict statutory and regulatory environment (for example, charities must comply with the Charities Act 2011 and the Charity Commission.

    Concluding comments

    Directors’ and Officers’ Insurance can provide directors with peace of mind that should they be sued for negligence or breach of fiduciary duty whilst undertaking their responsibilities as a company director or officer, they will have the funds required to fight the claim and/or pay out any compensation awards.

    If you are facing a regulatory or criminal investigation or prosecution, seek a shareholder disputes solicitor legal advice immediately.

    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, 9 February 2024. This article does not constitute legal advice. For further information, please contact our London office.

  • Eldwick Law in Astana: The AIFC Court and International Arbitration Centre

    Eldwick Law in Astana: The AIFC Court and International Arbitration Centre

    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.

  • Directors’ Duties – An Introduction

    Directors’ Duties – An Introduction

    We specialise in resolving shareholder conflicts through advice, negotiation, and litigation, ensuring our clients’ rights and interests are protected within the company.

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    What are directors’ duties?

    All company directors must comply with the directors’ duties set out in Chapter 2 of Part 10 of the Companies Act (CA) 2006.

    These are:

    The above are often referred to as ‘general duties’ as their purpose is to promote the company’s general success. However, other directors’ duties may be included in the company’s Articles of Association. 

    Here is a detailed summary of each director’s duty under the CA 2006:

    Duty to act within powers

    As a director, align your actions with the company’s constitution, encompassing Articles of Association, resolutions, and agreements. Additionally, adhere to the equitable principle of ‘proper purpose,’ ensuring powers are exercised only for their designated purposes.

    Duty to promote the success of the company

    Acting in good faith is crucial in fulfilling this duty. Various factors must be considered, such as the long-term impact of decisions, employees, relationships with stakeholders, community and environmental impacts, and maintaining the organisation’s reputation for integrity.

    Duty to exercise independent judgment

    Directors cannot delegate decision-making powers and must protect themselves from external influences. Seeking advice is permissible, but ultimate judgments must be based on individual assessments.

    Duty to exercise reasonable care, skill, and diligence

    Directors must act with the diligence expected of a reasonably diligent person. 

    Duties relating to conflicts of interest

    You should avoid situations that could result in conflicts of interest, such as personal involvement in opportunities related to the company. Also, ensure you disclose potential conflicts to fellow directors, ensuring transparency.

    Duty not to accept benefits from third parties

    Be sure to exercise caution when accepting gifts or benefits to prevent conflicts of interest.

    Duty to declare interest in proposed transaction or arrangement

    Fully disclose any interest in a proposed commercial transaction or arrangement to other directors, even if not directly involved.

    To whom are the directors’ duties owed?

    As per the CA 2006, directors owe fiduciary duties to the company where they hold office and must act consistently with these duties.

    Are there directors’ duties contained in other legislation?

    Yes.

    Examples include:

    • The Health and Safety at Work etc Act 1974 – sets out the basic health and safety duties of a company, its directors, managers, and employees. It also acts as the framework for other health and safety regulations. Under the Act, all employers must ensure the health and safety of their employees, carry out “sufficient and suitable” risk assessments, and provide information, protective measures, and training to employees concerning any identified risks. This is merely a small sample of relevant health and safety duties and responsibilities.
    • The Insolvency Act 1986 – if a company becomes insolvent, the duties of the director/s change from promoting the company’s success to protecting creditors’ interests. If a director knows or ought to know that the company cannot avoid insolvency and continues to trade (wrongful trading) or carries on with business as usual with the intention of defrauding creditors (fraudulent trading) they can face severe sanctions, including a custodial sentence.
    • Environmental law – a director can be liable for an environmental offence if they commit it personally, a point particularly relevant for small businesses. A director and a company can also be jointly charged with committing an offence if it was perpetrated with the director’s cooperation and consent or attributable to the director’s negligence. 

    Breaching directors’ duties relating to health and safety, insolvency, and/or the environment can lead to significant reputational damage, even if you are not found liable for the alleged offence.

    It is, therefore, vital to understand the duties owed under each of these areas, and if an incident occurs resulting in a regulatory or police investigation, contact an experienced Solicitor immediately.

    What is the Company Directors Disqualification Act (CDDA) 1986?

    The CDDA 1986 sets out the procedures used to investigate and disqualify company directors suspected of misconduct.

    The Court can consider cases on application from the Secretary of State and disqualify a director for up to 15 years.

    Most disqualification applications are made under section 6 of the CDDA 1986, which states that the Court can make a disqualification order if it is satisfied that:

    1. the person has been a director of a company which has at any time become insolvent (whether while the person was a director or subsequently), or
    2. the person has been a director of a company which has at any time been dissolved without becoming insolvent (whether while the person was a director or subsequently), and
    3. The Court is satisfied that the person’s conduct as a director of that company makes the person unfit to be involved in the management of a company.

    How to ensure you comply with directors’ duties when launching a new business

    Launching a new company is a busy and exciting time. It may seem intimidating to know that you must have a minimal understanding of a company director’s statutory and regulatory duties and responsibilities.

    However, several different organisations can assist you with finding out the compliance requirements relevant to your industry, including, to name but a few,

    www.smallbusiness.co.uk

    www.ukstartups.org

    The Federation of Small Businesses

    Institute of Directors

    You will also be able to access a great deal of information from your industry’s regulatory body and via networking.

    If you are facing a regulatory or criminal investigation or prosecution, seek experienced legal advice immediately.

    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, 19 January 2024. This article does not constitute legal advice. For further information, please contact our London office.

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  • Anti-Suit Injunction Against Russian Court Proceedings Upheld In Hong Kong Court

    Anti-Suit Injunction Against Russian Court Proceedings Upheld In Hong Kong Court

    Linde GMBH v. Ruschemalliance LLC [2023] HKCFI 2409

    In this article we will discuss the impact of Russian sanctions on commerce and trade, particularly situations where there is an Arbitration Agreement between the parties.

    Anti-Suit and Anti-Anti-Suit Injunctions in UK Law

    In our previous article, we discussed the decision in Renaissance Securities (Cyprus) Ltd v Chlodwig Enterprises Ltd & Others [2023] EWHC 2816 (Comm), where the English High Court granted an anti-suit injunction (ASI) and an anti-anti-suit injunction (AASI) to a company to prevent the defendants in the case, who were subject to UK and US sanctions, bringing proceedings in Russia under Article 248 of the APC.

    Shortly before the Renaissance Securities decision, the Hong Kong Court of First Instance maintained an anti-suit injunction to prevent legal proceedings initiated in Russia that violated an Arbitration Agreement based in Hong Kong. Notably, the Court dismissed assertions that Russian jurisdiction laws should dissuade this decision, underscoring its commitment to honouring the agreement between the parties.

    EU Sanctions and Contractual Obligations

    Due to EU sanctions, Linde GMBH (‘Linde’), a German contractor, temporarily halted its obligations under an engineering, procurement, and construction contract aimed at building a gas processing complex (the ‘Contract’) with Russian owner Ruschemalliance LLC (‘RCA’). The Contract, governed by English law, included an Arbitration Agreement explicitly subject to Hong Kong law and specifying HKIAC arbitration seated in Hong Kong.

    In response, RCA terminated the Contract, alleging Linde’s independent actions constituted a significant breach. RCA then initiated proceedings in Russia under Article 248.1 of the Russian Arbitration Procedural Code (‘Article 248.1’), which, as was explained our previous article, claims to establish exclusive jurisdiction over disputes involving Russian-sanctioned entities.

    Concurrently, Linde initiated a HKIAC arbitration and subsequently secured an anti-suit injunction (‘ASI’) from the Hong Kong court in support of arbitration, preventing RCA from pursuing the Russian legal action. RCA attempted to lift the ASI by applying to the Hong Kong court.

    The Hong Kong Court’s Decision: Upholding the Arbitration Agreement

    The Hon. Madam Justice Mimmie Chan rejected RCA’s application and upheld the ASI. She confirmed that there was a fundamental principle that unless there were powerful reasons to the contrary, when it comes to proceedings designed to breach an agreement to arbitrate, the Court will use its discretion to restrain such proceedings via granting an injunction.

    RCA relied on Article 248.1 to argue that granting the ASI was not just and convenient because:

    1. Article 248.1 meant the Russian courts had exclusive jurisdiction; and
    2. Under Russian law, the Arbitration Agreement in the Contract was invalid, and any award would therefore be unenforceable.

    The Hon. Madam Justice Mimmie Chan rejected argument (a), stating that Article 248.1 only applies if the application of foreign sanctions created access to justice obstacles for a party in the dispute. In this case, RCA had a means of accessing justice through the Arbitration Agreement.

    Furthermore, EU sanctions did not apply in Hong Kong, and RCA had access to excellent lawyers there. Case law had established that provided an Arbitration Agreement is valid and can be applied under the law chosen by the parties and stated in the agreement (in this case Hong Kong), the fact that a foreign court has jurisdiction under its own law did not prevent granting an ASI. In addition, the Contract had been entered into whilst EU sanctions were in force, therefore, terms had been drafted to cater to their potential impact.

    Regarding point (b), the Hong Kong court concluded that the Arbitration Agreement was valid and Article 248.1 did not apply in this case. And even if EU sanctions prevented an Arbitration Award being enforced in the EU, it could be enforced in other jurisdictions.

    Implications of Anti-Suit Injunctions in International Trade and Sanctions

    The Hong Kong court’s ruling and the decision in Renaissance Securities is important for companies aiming to withdraw or vary Russia-related contracts that include arbitration clauses due to the impact of US, EU, and UN sanctions.

    These entities are increasingly confronting Russian legal actions based on Article 248.1. In these cases, obtaining an Anti-Suit Injunction (ASI) from relevant courts is sometimes the best option and one that is becoming increasingly popular.

    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, 27 December 2023. This article does not constitute legal advice. For further information, please contact our London office.

  • Will the New Fixed Costs Regime push parties away from litigation to arbitration?

    Will the New Fixed Costs Regime push parties away from litigation to arbitration?

    What is the Fixed Costs Regime? 

    The fixed recoverable costs (FRC) regime sets the amount of legal costs that the winning party can claim back from the losing party in civil litigation. 

    In proceedings today, it is not uncommon for costs to amount to nearly the same or exceed any sum awarded by a court. The purpose of the regime is to give parties certainty about the maximum amount that the losing party will have to contribute to the winning party’s costs. 

    The New Fixed Costs Regime October 2023

    Previously, under the Civil Procedure Rules (CPR), the FCR regime only applied to road traffic accident cases with up to £10,000 in damages. For all other cases, the amount recoverable depended on what the winner’s lawyers charge and whether the court deemed those charges to be reasonable and proportionate, considering the value and complexity of the case. 

    However, since the implementation of the new regime under CPR 45 and PD 45, which came into effect on 1 October 2023, the regime is now extended to all types of civil proceedings valued at less than £100,000 allocated to the fast and intermediate tracks, that are issued on or after 1 October 2023. 

    There are exceptions to this general rule including: 

    • particularly complex cases allocated to the multi-track;
    • if a party is protected by CPR r.45.1(6);
    • personal injury claims where the cause of action accrues before 1 October 2023; and
    • residential housing claims (although this may change with new legislation in 2025). 

    Effect of the New Fixed Costs Regime

    Under the new regime, the maximum costs the losing party will be liable to pay will be fixed at the rates set in the tables at PD 45 of the CPR. 

    In determining these rates, the court will assign the case to a complexity band, labelled 1 to 4 in ascending order of complexity. The more complex the case, the higher the band it will be assigned to, and the greater the fixed costs applicable to the case. 

    In deciding the band into which the dispute falls, consideration will be had for the nature of the claim, the amount in dispute, the legal complexity, the number of parties, and the expected duration of the hearing. 

    There are also certain cases in which the new FCR regime is applied but costs greater than the FRC can be awarded such as where vulnerable parties or witnesses have resulted in additional work leading to costs 20% above the FRC. 

    How Does The New Fixed Costs Regime Affect Disputes? 

    At first blush, the new regime may appear to be a welcome change to litigants as it provides an additional degree of certainty as regards adverse costs. 

    However, it is important to remember that only the recoverable costs are fixed, not what lawyers charge for representing a party in the proceedings. Any shortfall between the recoverable costs and the amount charged by lawyers remains the winner’s liability. 

    This liability will also be greater as the introduction of complexity bands potentially creates and additional procedural step for which parties will have to determine their applicable band and make representations if their assigned band is disputed. 

    Arbitration Agreements to agree on costs liabilities 

    Since the introduction of the new FCR regime, parties are seeking alternative methods to resolve their dispute which allows them to keep in control of their costs. 

    Unsurprisingly, parties are turning towards arbitration as a method that is more cost-effective and allows the parties to agree terms on costs liabilities. 

    To ensure arbitration is available when a dispute arises, parties need to enter into an Arbitration Agreement. 

    International businesses across the world are including arbitration agreements as boilerplate clauses in all their standard contracts. However, there are still many who don’t and end up incurring significant costs when a dispute ultimately arises. 

    As such, the best approach parties can take to maintain control over their costs is to draft a clear arbitration clause into their contract. 

    An effective Arbitration Agreement should be in writing and include the following non-exhaustive provisions: 

    • The seat of the arbitration 
    • The governing law 
    • The nature of the dispute under the agreement 
    • The inarbitrability of specific agreements under the chosen law and elected by the parties 
    • Whether the arbitration is to be ad hoc or institutional
    • The number of arbitrators in the tribunal 
    • The language of the proceedings
    • Specifying any opt-out provisions. 

    The decisions a business makes on each of these points will have consequences on future arbitrations, so it is essential that expert advice is sought. A poorly drafted, unclear Arbitration Agreement will only result in additional delay and costs. 

    At Eldwick Law, our expert lawyers can assist in drafting an Arbitration Agreement that suits your business needs and will draw upon their experience in arbitration proceedings to mitigate potential issues arising in the future. 

    For more information on how Eldwick Law can assist you, or to arrange a consultation, please contact our London office.

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  • Court Grants Anti-Suit Injunction To Stop Sanctioned Entities Bringing Russian Proceedings

    Court Grants Anti-Suit Injunction To Stop Sanctioned Entities Bringing Russian Proceedings

    In 2020, the Russian legislative body made amendments to the Russian Arbitrazh (Commercial) Procedural Code (APC) to establish the exclusive jurisdiction of Russian Arbitrazh Courts in cases involving individuals and entities subject to sanctions. According to the newly introduced Article 248.1 of the APC, Russian courts would exercise exclusive jurisdiction over disputes involving sanctioned individuals and entities; unless there exists an agreement between the parties stating otherwise. The exclusive jurisdiction of Russian courts under Article 248.1(4) is triggered if:

    • The dispute resolution clause states that a dispute must be resolved in an overseas court or through arbitration.
    • The clause becomes inoperative due to sanctions against a party, creating obstacles to access to justice for that party.

    If proceedings are either pending or about to commence in a foreign court or arbitration, the sanctioned individual has the option to petition the Russian court to issue an anti-suit injunction against the opposing party, as outlined in Article 248.2 of the APC.

    In the recent case of Renaissance Securities (Cyprus) Ltd v Chlodwig Enterprises Ltd & Others [2023] EWHC 2816 (Comm), the English High Court granted an anti-suit injunction (ASI) and an anti-anti-suit injunction (AASI) to a company for the purposes of preventing the defendants in the case, who were subject to UK and US sanctions, from bringing proceedings in Russia under Article 248 of the APC.

    Background to the decision

    Renaissance Securities (Cyprus) Limited (RenSec), an investment services company, executed Investment Services Agreements (ISAs) with the defendants, who included companies under the control of a Russian person designated as a sanctioned person by OFSI in the UK as well as a person subject to US OFAC sanctions. These companies were designated as holding assets for trusts benefiting sanctioned persons. In the case of a dispute, the ISAs, subject to English law, stipulated for LCIA arbitration with a seat in London.

    RenSec managed substantial sums and securities for each defendant. When the defendants requested the transfer of assets held by RenSec, blocked due to sanctions, to Russian bank accounts, RenSec declined, citing potential breaches of US, EU, and/or UK sanctions. In response, the defendants threatened legal action in the ‘appropriate forum.’

    Shortly thereafter, RenSec discovered that the defendants had initiated proceedings in the Russian courts, seeking damages equivalent to its blocked assets in Russia. Subsequently, RenSec applied for an ASI and an AASI in the English Court.

    The application was conducted without notifying the defendants and in private, as there was a genuine concern that the defendants might seek their own ASI and/or AASI if informed. Such actions, along with potential publicity, would undermine the purpose of the application.

    What are the legal principles (England and Wales) regarding anti-suit injunctions?

    By issuing proceedings in a foreign court in situations where an Arbitration Agreement provides for arbitration to be conducted in England and Wales, the defendants were in breach of contract, and English courts can therefore grant an ASI preventing a party from bringing a claim in another jurisdiction. In The Angelic Grace [1995] 1 Lloyd’s Rep 87, Lord Millet robustly stated (at page 96):

    “There is no good reason for diffidence in granting an injunction to restrain foreign proceedings on the clear and simple ground that the defendant has promised not to bring them.”

    An AASI is designed to guarantee that actions taken by an applicant to safeguard and uphold its contractual rights, including the implementation of an ASI, are not made ineffective or futile by pre-emptive measures or counteractions taken by the respondent. The principles governing the issuance of an AASI closely mirror those applied to an ASI. In cases where foreign proceedings have been brought despite a clear Arbitration Agreement, the courts in England and Wales have granted an AASI to force the respondent to bring any commenced proceedings to a halt.

    What did the High Court decide in Renaissance Securities?

    After examining the evidence, Mrs Justice Dias ruled that the Russian proceedings were brought in “flagrant” breach of the Arbitration Agreement. Furthermore, this was a deliberate choice on the part of the defendants as they were under no legal obligation to bring proceedings under Article 248 of the APC. It was therefore just and convenient for the Court to grant the ASI because if the application in Russia was allowed to carry on, a ruling in the defendants favour could allow them to bypass the sanctions regime by obtaining judgment in Russia and then enforcing it against RenSec’s assets which were currently frozen in that jurisdiction.

    In addition, Mrs Justice Dias observed that:

    “…evidence is that the Russian courts are unlikely to consider foreign sanctions a legitimate excuse for RenSec’s failure to comply with the Defendants’ instructions. Indeed, this is entirely plausible given that the rationale for the introduction of Article 248 in the first place seems to have been to permit Russian entities to bypass the effects of sanctions. Accordingly, RenSec is unlikely to be able to rely on the imposition of sanctions as a defence to the Defendants’ claims in Russia, whereas this is a matter which an LCIA tribunal would no doubt at least take into account in considering whether RenSec was in breach of contract or not.”

    Given that the evidence showed it was likely that the defendants would try and obtain ASIs in the Russian courts in breach of the English court’s exclusive jurisdiction over any arbitration proceedings, Mrs Justice Dias granted an AASI to prevent the defendants from taking any such action.

    Concluding comments

    Due to the ASI and AASI being granted, the defendants will have no choice but to terminate any Russian proceedings under Article 248 of the APC. Failing to do so means that they risk contempt of court in England and Wales. This case illustrates that where an Arbitration Agreement is in place, an ASI and AASI provides a tactical tool for ensuring the terms of the agreement are upheld and can prevent sanctioned entities from circumventing the agreement via Article 248. In addition, Mrs Justice Dias’s decisions shows that the English High Court will grant an ASI and AASI to protect the interests of a non-sanctioned party who has assets in Russia which are vulnerable to enforcement of a Russian judgment granted in favour of a sanctioned entity.

    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, 30 November 2023. This article does not constitute legal advice. For further information, please contact our London office.

  • The Use of Injunctions in Support of Arbitration Proceedings

    The Use of Injunctions in Support of Arbitration Proceedings

    In these situations, our commercial arbitration team can advise on and facilitate the application for such relief, ensuring that the parties’ interests are protected throughout the arbitration process.

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    The Source of the Court’s Powers

    Section 44 of the Arbitration Act 1996 gives the Court wide powers to make orders for the preservation of assets and evidence in an arbitration, including the useful and important power to grant interim injunctions.  However, the Court will only exercise its powers to the extent that the arbitral tribunal or institution has no such power or is unable for the time being, to act effectively. 

    The Court will therefore adopt a cautious approach, bearing in mind the purpose of section 44 which the Court of Appeal in Cetelem S.A. v Robust Holdings Limited held was to “assist the arbitral process in cases of urgency before there is an arbitration on foot” with Court’s having to “take great care not to usurp the arbitral process…”. 

    Arbitrations with a Foreign Seat

    With parties to arbitrations often having a presence in multiple jurisdictions, the question which often arises is whether a Court in England and Wales can grant an injunction in arbitrations abroad? Helpfully, section 44 applies even if the seat of the arbitration is outside England, Wales or Northern Ireland, or even if no seat has been determined.  

    However, the Court may refuse to act in these circumstances when it considers it inappropriate to do so.  For example, if there are significant differences between the provisions of the curial law and English law; or if there is an insufficient link between the defendant and this jurisdiction, such as residency or assets within England and Wales. 

    What are the requirements for an injunction in support of arbitration proceedings?

    In order to get over the first hurdle of jurisdiction, you must demonstrate that the arbitral tribunal, or any arbitral institution, has no power or is unable for the time being to act effectively. The two main ways in which this threshold is met, is either:

    • By establishing that the tribunal will have no power to grant the order you are applying for. This is particularly the case in applications for freezing injunctions, where the applicant is looking to freeze a respondent’s assets in this jurisdiction backed by a penal notice – a useful deterrent in proceedings with elements of fraud or dishonesty; and/or
    • By establishing that a tribunal is not yet constituted and is therefore unable to act. However, in circumstances where you have yet to commence an arbitration, you will have to be able to demonstrate a clear intention to do so, which will often require the provision of a Court undertaking. 

    Once you have established that the Court has jurisdiction, the usual common law principles apply. The touchstone for injunctive relief is whether there is a serious issue to be tried and that the balance of convenience favours the relief sought (i.e., whether the inconvenience of any damage which could be suffered by the applicant outweighs that of the respondent).  The main injunction sought in arbitration proceedings are freezing injunctions, where the Court will consider urgency and whether there is a real risk that the respondent may dissipate its assets before the enforcement of any arbitral award. 

    Key Considerations

    If you are thinking of using section 44 to support your arbitration proceedings, the balance the Court will draw between its power to grant injunction relief and the risk of displacing the arbitration tribunal should always be borne in mind. 

    Although the Court may approach section 44 applications with caution, injunction applications are a useful tool for interim protection particularly in arbitrations where you have discovered that a respondent is dissipating its assets in this jurisdiction making any enforcement of an award futile. 

    Eldwick Law has recently successfully obtained a freezing injunction in arbitration proceedings before the German Arbitration Institute (DIS). If you would like to discuss any of the points raised in this article, please contact our litigation team below.   

  • Sanctions Increase The Complexity and Costs of LCIA Arbitrations

    Sanctions Increase The Complexity and Costs of LCIA Arbitrations

    The LCIA is introducing a number of new measures for arbitrations and mediations that will take effect from 1 December 2023 and apply to LCIA arbitrations registered on or after that date. 

    Schedule of Costs 

    The new measures include a new Schedule of Costs that introduces a new fee range between £250 and £650 per hour for the Arbitral Tribunal and raises the fee cap from £500 to £650 per hour. 

    The hourly rate that will be applied to your matter within this range will be based on the overall complexity of the case. The updated ‘Guidance Notes for Parties and Arbitrators’ provides examples of cases that may require a higher rate including those that involve complicated sanctions issues that go to the substance of the dispute or where multiple sanctions regimes are alleged to impact the merit or substance of the claims. 

    We are yet to see any further clarification on what is meant by a sanctions issue that goes to the ‘substance of the dispute’ or ‘impact the merit of the claim’; however, it is likely that just because an entity is sanctioned, it will not automatically result in the dispute being considered so complex that the Arbitral Fees are to be set a the top of this range. 

    The change to the Schedule of Costs demonstrates, yet again, how sanctions are complicating dispute resolution across the world and increasing costs for parties even in the more cost-efficient ADR setting. That being said, the increase in the hourly rate should ensure the LCIA remains competitive against other major arbitral institutions and continues to attract high-quality arbitrators, whilst the introduction of the fee range ensures there is a more accurate reflection of the complexity of the case in the fees charged. 

    Receipt of Funds 

    The updated Guidance Notes for Parties and Arbitrators also state that from 1 December 2023, the LCIA will take a new approach to the receipt of funds. 

    Under the new policy, the LCIA will only accept payment from: 

    1. an account held in the name of a party to the arbitration; or
    2. from an account held in the name of a person(s) or law firm(s) who is authorised to act for the party and who is on the record for the party to the arbitration. 

    The new policy comes in the wake of the extensive sanctions regime that came into force following Russia’s invasion of Ukraine, and the greater need for enhanced due diligence by the LCIA when receiving funds from parties to ensure they are not in breach of any sanctions. 

    The updated Guidance also states the LCIA may require further information in these circumstances where sanctions are involved.

    Clearly, this may raise concerns for parties of unnecessary delay resulting from these new policies, which is against the very principle of speed of resolution for which parties choose to engage in arbitration. However, the LCIIA is aware of this and may still accept payments from parties and their legal representatives, including payments for Registration Fees, deposits, arbitrator fees and LCIA charges (see paragraph 276 of the Guidance Note). 

    Commentary 

    There is no doubt that these new measures and policies announced by the LCIA as increasing the cost and complexity of arbitration proceedings, all as a result of sanctions. 

    Despite this, arbitration is still a far more cost-efficient and quicker process than court litigation for resolving your dispute. 

    These changes also highlight the need for businesses and litigators to always have one eye on sanctions and consider the impact they may have on the matter before them. At Eldwick Law, we understand the legal landscape surrounding sanctions is constantly evolving and is one of the most significant concerns for businesses across the world. Our extensive experience with both arbitration proceedings and sanctions best places us to provide tailored advice and help you navigate this ever-changing landscape. 

    For more information on how Eldwick Law can assist you, or to arrange a consultation, please contact our London office.