Dispute resolution issues when investing in emerging markets

Transcription

1 Emerging Markets Seminar Series 29 September 2011 Peter Rees QC Jason Yardley Julia Zagonek

2 Dispute Resolution Issues in Emerging Markets Choice of governing law Litigation v. arbitration Enforcement Issues Investor/state disputes Short-form documentation 2

3 Governing law clause This Agreement, including any non-contractual obligations arising out of or in connection with this Agreement, is governed by, and this Agreement shall be construed in accordance with, English law. 3

4 Choice of governing law Rome I (Regulation (EC) No 593/2008 on the Law applicable to contractual obligations) - Article 3.1 A contract shall be governed by the law chosen by the parties. The choice shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or to part only of the contract 4

5 Choice of governing law If no express choice of law by parties, Rome Convention / local conflicts of laws rules may apply 5

6 Choice of governing law Do governing law clauses work? Rome I - Article 3.3: Where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement. 6

7 Choice of governing law Do governing law clauses work? Real property and questions of title law of the state where the property is located Capacity of a party to enter into a contract law of the state in which the party is domiciled or incorporated Some legal concepts not universally recognised Mandatory rules affecting certain types of contracts may not be capable of exclusion by the express choice of another system of law, regardless on English conflicts of law rules 7

8 Choice of governing law Governing law corporations most frequently choose when they are free to do so Governing laws most frequently imposed by counterparties 44% Law of home jurisdiction 25% English law 9% Sw iss law 6% New York law 3% French law 1% US law (other than New York law ) 3% Other 9% Not possible to say/none in particular 53% Law of home jurisdiction 21% English law 10% New York law 3% US law (other than New York law ) 1% Sw iss law 1% French law 1% Other 11% Not possible to say/none in particular 8

9 Choice of governing law Governing laws most frequently used by corporations 40% English law 17% New York law 8% Swiss law 6% French law 5% US law (respondents did not specify) 24% Other 9

10 Governing law clause Channel Tunnel clause [the contract shall] in all respects be governed by and interpreted in accordance with the principles common to both English law and French law, and in the absence of such common principles by such general principles of international trade law as have been applied by national and international tribunals 10

11 Governing law clause Channel Tunnel clause, and then some This Agreement shall be governed and interpreted in accordance with principles of law common to the law of the Republic of X and English law, and to the extent that no common principles exist in relation to any matter then in accordance with the principles of the common law of Alberta, Canada (except for laws regarding conflicts of laws). This Agreement shall also be subject to the international legal principle of pacta sunt servanda (agreements must be observed). Upon approval by Mr Y of the Republic of X of this Agreement, this Agreement shall constitute a law of the Republic of X and shall take precedence over any other current or future law, decree or administrative order (or part thereof) of the Republic of X which is inconsistent with or conflicts with this Agreement except as specifically otherwise provided in this Agreement. 11

12 Choice of governing law - arbitration UNCITRAL Rules Art 35 The arbitral tribunal shall apply the rules of law designated by the parties as applicable to the substance of the dispute. Failing such designation by the parties, the arbitral tribunal shall apply the law which it determines to be appropriate.... In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract, if any, and shall take into account any usage of trade applicable to the transaction. LCIA Art 22.3 The Arbitral Tribunal shall decide the parties dispute in accordance with the law(s) or rules of law chosen by the parties as applicable to the merits of their dispute. If and to the extent that the Arbitral Tribunal determines that the parties have made no such choice, the Arbitral Tribunal shall apply the law(s) or rules of law which it considers appropriate. ICC Art 21 The parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute. In the absence of any such agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate. The arbitral tribunal shall take account of the provisions of the contract, if any, between the parties and of any relevant trade usages. 12

13 Arbitration v Litigation What s the big deal? Why choose arbitration? 13

14 Arbitration v Litigation Why choose arbitration? Neutrality (?) Choice of Judge (?) Speed (?) Flexibility (?) Cost (?) Confidentiality (?) Finality (?) Enforceability 14

15 Why choose arbitration? - enforceability Enforceability of international arbitral awards New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (NY Convention) Over 140 signatory states Awards automatically enforceable through the courts of any signatory state (in theory and subject to certain exceptions), unlike court judgements 15

16 Arbitration v Litigation Can you have your cake and eat it? (One-sided) optional disputes clauses Agreement to arbitrate, with option to litigate 16

17 Optional Disputes Clauses 1.2 Arbitration Subject to Clauses [1.3] ([Client s] Option) and [1.4] (Jurisdiction), the [Parties] agree that any claim, dispute or difference of whatever nature arising under, out of or in connection with this Agreement (including a claim, dispute or difference regarding its existence, termination or validity or any non-contractual obligations arising out of or in connection with this Agreement) (a Dispute ), shall be referred to and finally settled by arbitration in accordance with the Rules of the London Court of International Arbitration ( LCIA ) (the Rules ) as at present in force and as modified by this clause, which Rules shall be deemed incorporated into this clause. The number of arbitrators shall be three, one of whom shall be nominated by the Claimant(s), one by the Respondent(s) and the third of whom, who shall act as Chairman, shall be nominated by the two party-nominated arbitrators, provided that if the third arbitrator has not been nominated within thirty days of the nomination of the second partynominated arbitrator, such third arbitrator shall be appointed by the LCIA Court. [The parties may nominate and the LCIA Court may appoint arbitrators from among the nationals of any country, whether or not a party is a national of that country.] The seat of arbitration shall be London, England and the language of arbitration shall be English. [Sections 45 and 69 of the Arbitration Act 1996 shall not apply.] 17

18 Optional Disputes Clauses 1.3 [Client s] Option At any time before [client] has nominated an arbitrator to resolve any Dispute or Disputes pursuant to Clause 1.2 (Arbitration), [client], at its sole option, may elect by notice in writing to [counterparty] that such Dispute(s) shall instead be heard by the courts of England or by any other court of competent jurisdiction, as more particularly described in Clause 1.4 (Jurisdiction). Following any such election, no arbitral tribunal shall have jurisdiction in respect of such Dispute(s). 1.4 Jurisdiction In the event that [client] serves a written notice of election in respect of any Dispute(s) pursuant to Clause [1.3] ([Client s] Option), [counterparty] agrees for the benefit of [client] that the courts of England shall have jurisdiction to hear and determine any such Dispute(s) and, for such purposes, irrevocably submits to the jurisdiction of such courts. Subject to Clause 1.2 (Arbitration), nothing in this clause shall (or shall be construed so as to) limit the right of [client] to bring proceedings ( Proceedings ) for the determination of any Dispute(s) in any other court of competent jurisdiction, nor shall the bringing of such Proceedings in any one or more jurisdictions preclude the bringing of Proceedings by [client] in any other jurisdiction (whether concurrently or not) if and to the extent permitted by law. 18

19 Optional Disputes Clauses 1.5 Appropriate Forum At any time before [client] has nominated an arbitrator to resolve any Dispute or Disputes pursuant to Clause 1.2 (Arbitration), [client], at its sole option, may elect by notice in writing to [counterparty] that such Dispute(s) shall instead be heard by the courts of England or by any other court of competent jurisdiction, as more particularly described in Clause 1.4 (Jurisdiction). Following any such election, no arbitral tribunal shall have jurisdiction in respect of such Dispute(s). 19

20 Optional Disputes Clauses There are risks Is there an agreement in writing to submit to arbitration (NY Convention, Article II)? Would enforcement of any award be contrary to public policy (NY Convention, Article V)? Take local advice 20

21 Enforcement Issues Court Judgments Arbitration awards Interim measures Other enforcement issues 21

22 Enforcement Issues Arbitration Awards Approximately 90% of arbitration awards are complied with voluntarily, but New York Convention, Article V Arbitration agreement invalid under applicable law Party not given proper notice of proceedings or otherwise unable to present case Issues decided by tribunal fall outside scope of arbitration agreement Arbitration proceedings and/or composition of tribunal not in accordance with parties agreement Award not yet binding, or has been set aside or suspended Award is in respect of a matter which is not capable of settlement by arbitration Recognition or enforcement would be contrary to public policy 22

23 Enforcement Issues Interim Measures Interim measures Injunctions available in support of arbitration Court action to assist arbitral process, where appropriate 23

24 Enforcement Issues Local Support Reliance on local courts, authorities etc Continuation of licences Registration of shares Etc 24

25 Investor / State Disputes Possibility of claims against a state May be instead of or in addition to contractual claims ICSID Convention / Energy Charter Treaty Bilateral investment treaties 25

26 Bilateral Investment Treaties (BITs) BITs signed and ratified BITs Country Number of BITs signed Number of BITs ratified Belarus Georgia Kazakhstan Moldova Russia Turkmenistan Ukraine Uzbekistan Source - * As at

27 ICSID Convention There are currently 157 signatory States to the ICSID Convention. Of these, 147 States have ratified. Russia Kyrgyz Republic Armenia Azerbaijan Belarus Kazakhstan Moldova Turkmenistan Ukraine Uzbekistan * Tajikistan ICSID Convention Country Year signed Year ratified Not signed Not ratified Not ratified * As at

28 ICSID Cases Status of ICSID cases ICSID Cases Country Cases Status Armenia 1 Concluded Azerbaijan 3 Concluded Georgia 7 3 pending Kazakhstan 8 4 pending Kyrgyz Republic 1 Concluded Moldova 1 1 pending Turkmenistan 4 4 pending Ukraine 10 2 pending Uzbekistan 1 1 pending * As at

29 Energy Charter Treaty (ECT) ECT year signed and ratified ECT Country Year ECT signed Year ECT ratified Russia* 1994 Never Kazakhstan Ukraine Members of the Energy Charter Conference include Albania, Armenia, Azerbaijan, Baltic States, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Moldova, Poland, Romania, Russian Federation*, Slovakia, Slovenia, Tajikistan, The former Yugoslav Republic of Macedonia, Turkmenistan, Ukraine, Uzbekistan * the Russian Federation signed the Energy Charter Treaty and was applying it provisionally until 18 October 2009 inclusive * As at

30 Non-ICSID Investment Treaty Arbitration - examples Kazakhstan SCC arbitration US/Kazakhstan BIT Moldova SCC arbitration UNCITRAL arbitration Russia/Moldova BIT US/Moldova BIT Russia SCC arbitration SCC arbitration SCC arbitration Spain/Russia BIT UK/USSR BIT Germany/USSR BIT Uzbekistan UNCITRAL Switzerland/Uzbekistan BIT 30

31 Short Form Documentation Enforceability Subject to contract Contractual interpretation 31

32 Emerging Markets Breakfast Seminar Series 2011 Remaining Seminars Friday 30 September High yield in emerging markets: the new era Tuesday 4 October Sovereign restructuring in emerging markets Wednesday 5 October How will the recent changes in the law affect private equity investments in Turkey? Thursday 6 October Middle East: recent developments in funding sources 32

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