24th Annual IBA Arbitration Day, 2023 - Session 2: Sanctions

Alipak Bannerjee
Nishith Desai Associates, New Delhi

Session two was focused on the implications of sanctions for international arbitration. The panel sought to explore the practical effects of economic sanctions on arbitral institutions, arbitrators and parties, and how to ensure the enforcement of arbitration agreements entered into by parties located in sanctioned countries.

The panel was chaired by Hamid Gharavi (Derains & Gharavi, Paris) and comprised the following panellists: 

• Chul-Won Lee, Kim & Chang, Seoul; 
• Jacomijn van Haersolte-van Hof, Director General, LCIA, London; 
• Dário Moura Vicente, Professor, Faculty of Law - University of Lisbon, Lisbon; 
• Pirkka-Marja Põldvere, LEADELL Pilv Advokaadibüroo, Tallinn.

IBA Arbitration Committee Co-Chair, Xavier Favre-Bulle, introduced the session chair.   

Before requesting the other speakers to comment on the topic, Hamid Gharavi provided his perspective. He was of the view that: (1) sanctions have had an adverse impact on international arbitration cases; (2) there needs to be a balance between proportionality, due process, the right to be heard and prohibition against discrimination; (3) in the context of international arbitration, sanctions have had a counter-productive impact on non-sanctioned entities, and jeopardises their rights to take a dispute to its logical conclusion.

He further explained that the first major impediment is the appointment of counsel and tribunal – largely a political issue as none of the lawyers would like to represent a party from a sanctioned country, either as a counsel or as party-nominated arbitrator. The second obstacle is access to payment channels. Banks refuse to process payments, and therefore, running an arbitration becomes extremely difficult and challenging. 

Gharavi further emphasised that a party in a sanctioned country should have the right to legal representation, and therefore, the extreme hardship caused due the imposition of sanctions, insofar as it compromises the parties’ right to arbitrate their dispute is counter-productive. 

He explained that it is a known trend that arbitral institutions communicate the information pertaining to a dispute/arbitration arising from a sanctioned entity to the relevant authority of the relevant sovereign state, when asked. In his view, this can seriously compromise the confidentiality of the arbitral proceedings. 

As a larger issue, he commented that there is no clarity on which provision of law is relied upon to curtail the access of the parties to avail a choice of dispute resolution that they had agreed: ie, international arbitration. Certain parties have had recourse to national courts in such scenarios, thereby undermining party autonomy which is the essence of arbitration. Therefore, there is an urgent need to fix a solution to these problems.

Chul-Won Lee explained the problems in relation to instructing counsel and appointing arbitrators in relation to a sanctioned country. He suggested that the fundamental problem is access to justice. He also cited a BVI court decision where instruction of a counsel in relation to a sanctioned country was ultimately approved. 

He suggested that non-sanctioned countries are also put to severe prejudice when there is a dispute involving a sanctioned country. In particular, the non-sanctioned country may need assistance from local counsel, for collection of documents, meeting with parties, and/or preparing witness statements. He cited a case between a Korean company and a party in Iran. Ultimately, there was significant delay due to the sanctions imposed, and ultimately, the case had to be abandoned by the Korean company. He also cited the recent example of sanctions imposed on a famous London-based barrister chambers by China, and how many barristers shifted out of the chambers. 

He suggested that due to technological advancements, it is possible to conduct virtual hearings which helps in reducing the risks associated with travelling to sanctioned countries. 

Jacomijn van Haersolte-van Hof provided an institutional perspective in view of the LCIA’s experience. She highlighted the problems related to access to banking channels for receiving registration fees, payment of case administration fees, paying arbitrator fees, etc. She explained the new licensing framework by the UK government and how some of the cases from Russia can be administered by the LCIA, subject to certain fee thresholds. 

Dário Moura Vicente addressed the effect of sanctions on the substance of the dispute, and more importantly, the threat to the enforceability of arbitral awards. He explained the diversity of sanctions in terms of sources, targets and scope, and distinguished the different types of sanctions. He also explained the impact of sanctions on the arbitrability of disputes. He discussed public policy considerations arising from the imposition of sanctions, and why it should be dealt with as a matter of transnational public policy. He referred to La Compagnie Nationale Air France v Libyan Arab Airlines which had held that sanctions did not hinder arbitrability of the dispute and that it was not mandatory for the arbitral tribunal to enforce sanctions. 

He also cited the approach of the Paris court which held that sanctions were a bundle of overriding mandatory rights. As a general rule, he was of the view that due to the adversities caused by sanctions, they must satisfy very high standards. As a solution, he suggested the need for soft law instruments, like those produced by the IBA, to to provide much needed guidance to arbitral tribunals on this matter. 

Ms Pirkka-Marja Põldvere provided a practical perspective and discussed the difficulties resulting from the Russia-Ukraine war. She considered that before discussing how to balance the right to justice and the legal representation of companies located in sanctioned countries, one needs to carefully consider the sufferings due to the present conflict.