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The IBA’s response to the situation in Ukraine
Cooke,Young and Keidan, London
Cooke,Young and Keidan, London
Cooke,Young and Keidan, London
The UK’s departure from the EU on 1 January 2021 changed its legal landscape. Arbitration has been particularly affected by four notable changes covered in this article, all of which concern enforcement.
As is well known, one of the key advantages of arbitration over litigation is enforcement. It is therefore important to consider these changes, which, as outlined in this article, are likely to further boost England’s arbitration-friendly and award creditor-friendly reputation.
By way of recap, the combined effect of the following judgments of the CJEU is that intra-EU investment treaty claims are said to be incompatible with the TFEU.
Having left the EU, the UK may be largely “immune” from the above approach.
In light of the CJEU’s rulings above, a non-ICSID award may be set aside at the seat of the EU Member State where it was rendered. The Courts of EU Member States have already demonstrated their willingness to do so. See, for example, the June 2022 judgments of the Paris Court of Appeal in Poland v Strabag et al, no. RG 20/13085.
If the award is not set aside by an EU Court (for example, if the award was rendered outside the EU), the Courts of EU Member States may nonetheless refuse enforcement of such awards.
Accordingly, England may become a more attractive seat for non-ICSID investment arbitrations, and for the enforcement of non-ICSID investment arbitration awards.
Furthermore, even if an award has been set aside by the Courts of the relevant EU Member State, it may still be possible to enforce that award in England. Although theoretically possible, practice has shown that enforcement of the so-called “zombie awards” is not straightforward. That said, given that such awards may have been set aside on the basis of CJEU judgments which no longer bind the English Courts, the outcome may be different in this context.
Under the ICSID Convention, national courts (including the Courts of EU Member States) do not have the jurisdiction to set aside ICSID awards. However, the Courts of EU Member States may nonetheless refuse enforcement of such awards, enforcement of which in the UK may therefore be the “safer” option.
Furthermore, attempts appear to have been made to challenge the validity of ongoing ICSID arbitrations on Achmea grounds. For example, it has been reported that the Claimants in Mainstream Renewable Power Ltd -v- Germany (ICSID Case No. ARB/21/26) are facing such proceedings in Germany (on the basis that several Claimants had their “seat” in Berlin), and it is understood that at the time of writing the case is currently pending with the German Federal Court of Justice.
Apart from not being bound by the above case law, even prior to Brexit the UK Supreme Court adopted a robust approach to the enforcement of ICSID awards, permitting enforcement even when there was a risk that such enforcement contravened EU law.
In Micula and others v Romania  UKSC 5, the award-creditors sought to enforce their ICSID award against Romania, while EU proceedings were ongoing in which it was alleged that Romania’s compliance with the award could be a breach of EU State Aid rules.
The UK Supreme Court considered the potential conflict between the UK’s obligations under the ICSID Convention and the TFEU and held that the UK’s obligations under the ICSID Convention require it to enforce an ICSID award even in circumstances where that could be considered to be an infringement of the TFEU. The Supreme Court held that: (i) enforcement of the award should not be stayed pending the outcome of the EU proceedings; and (ii) although enforcement of an ICSID award may be stayed on procedural grounds (as permitted by the ICSID Convention), a stay of enforcement on substantive grounds (until the EU proceedings were resolved) was not permitted by the ICSID Convention.
Accordingly, the UK is likely to be a more attractive destination for both ICSID and non-ICSID award-creditors seeking enforcement of investment treaty awards.
Prior to Brexit, following the reasoning of the CJEU in the seminal case of Allianz SpA v West Tankers Inc (Case C-185/07) (“West Tankers”), the English Court held that it did not have the power to issue anti-suit injunctions restraining a party from breaching an arbitration agreement by pursuing proceedings in another EU Member State (Nori Holding Ltd v Public Joint-Stock Co Bank Otkritie Financial Corp  EWHC 1343 (Comm)).
Accordingly, if a party commenced proceedings in (for example) the Courts of Italy, having previously agreed to arbitrate such proceedings in (for example) England – a tactic known as the “Italian torpedo” – then the English Courts did not have the power to prevent or order the discontinuance of such proceedings. Now that the UK has left the EU, the English Courts may not necessarily follow West Tankers going forward, and the first reported instance of that occurring was in August 2022 when an anti-suit injunction in favour of arbitration was granted (QBE Europe SA/NV and QBE (UK) Ltd v Generali Espaa de Seguros y Reaseguros  EWHC 2062 (Comm)).
The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards remains unaffected by Brexit. Therefore, awards rendered in the EU can be enforced in England (and vice versa) under the New York Convention (to which England and all EU Member States are parties).
In contrast, the UK and the EU Member States are not parties to a similarly broad instrument in respect of the enforcement of all judgments. For judicial proceedings commenced after 31 December 2020 – and unless the Hague Convention on Choice of Court Agreements or certain bilateral conventions apply (and, perhaps soon, the Hague Judgments Convention, once it comes into force) – the enforcement of EU judgments in England (and vice-versa) is governed by domestic rules for enforcement of overseas judgments.
This is an opportune time to consider the question of enforcement against “frozen” assets, that is, assets owned or controlled by sanctioned persons.
The UK imposed extensive sanctions on Russia following its invasion of Ukraine. As at the date of writing, 1489 persons were designated under the UK “asset freeze” sanctions, which (briefly) prohibit the provision of and dealing with “assets” and “economic resources” of designated persons. They must be “frozen”.
Importantly, these sanctions also apply to entities owned or controlled by the designated persons. Accordingly, the number of entities subject to the “asset freeze” sanctions is likely to be considerably longer than the list of designated persons.
Because dealing with such assets is prohibited, they cannot be used to satisfy an award (or judgment). However, the UK sanctions contain grounds for seeking prior permission from the competent authorities to deal with (or release) such assets. Those grounds include enforcement of an award (or judgment).
The UK Russia Sanctions (Russia (Sanctions) (EU Exit) Regulations 2019/855) provide that the competent authority may permit:
“the implementation or satisfaction (in whole or in part) of a judicial, administrative or arbitral decision…, provided that - …the decision…was made or established before the date on which the person became a designated person…”. (emphasis added)
Accordingly, permission may be obtained for enforcement of awards (or judgments) rendered prior to designation (the imposition of the sanctions).
To assist with enforcement against the assets of designated persons, it may be possible to obtain information identifying such assets from the competent authority of the UK.
In 2020, the English Court obliged the UK competent authority to disclose the information which it held about the assets of individuals and entities sanctioned under the sanctions against Syria to claimants seeking to enforce judgments against them (R. (on the application of Certain Underwriters at Lloyds London) v HM Treasury  EWHC 2189). The Court’s decision was based on the information sharing provisions in that sanctions regime, which are mirrored in the UK Russia Sanctions.
Another ground for applying for an authorisation under the UK Russia Sanctions is to enable performance of a pre-existing contractual obligation. For example, if a contract was entered into prior to the imposition of the sanctions, it may be possible to obtain an authorisation for the sanctioned person to make the payments which it is obliged to make under that contract (for example, to repay a loan agreement).
This is interesting because if the designated entity nonetheless refuses to perform its obligation, requiring litigation or arbitration to be commenced, it is unclear whether the subsequent judgment or award may be enforced, given the requirement (for the requisite authorisation in respect of enforcement) for awards and judgments to be rendered prior to the imposition of the sanctions.
The cumulative effects of Brexit on arbitration are likely to render England a more attractive destination for enforcement of investment treaty awards, as a seat for investment treaty arbitrations, and for enforcement of arbitration agreements. Furthermore, arbitration may become a more attractive option when dealing with counterparties in England or with assets in England. Finally, given the recent waves of sanctions, substantial volumes of assets are likely to be “frozen” in England, against which enforcement may be possible, and which assets may be identified by the competent authority.