The Arbitrability of Disputes Affected by Economic Sanctions Dr Yaraslau Kryvoi, MCIArb, LLM (Harvard) Associate Professor, University of West London Kuala Lumpur International Arbitration Week 9 May 2015

Structure of the Presentation Types of sanctions Scope of sanctions Contractual provisions Arbitrability Applicable law Separability of arbitration agreement Examples of arbitrability from various

jurisdictions

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Types of Sanctions Companies from Iran, Crimea, Russia, Belarus,

etc; companies and individuals Various reasons - misappropriation of funds,

annexation of Crimea, support of the non-democratic regime, violation of the non-profiliration regime, human rights, etc

Serious consequences for breach - in 2014 Paribas has pleaded guilty in the US to two criminal charges and agreed to pay almost $9 billion to resolve accusations it violated U.S. sanctions against Sudan, Cuba and Iran

2

Activities Covered by Sanctions

Sanctions may prohibits certain activities (doing business) or mandate certain conduct (freeze assets, report to the authorities)

For example, crediting with interest is allowed, otherwise need to apply for a special license, reporting obligations if there is an oence committed

US persons - arbitrators, law firms, oce in the US, when no right to provide any service of the institution to administer

3

Broad Sanctions US prohibition prohibits applied to entities

"owned or controlled by a United States person and established or maintained outside of the United States" from knowingly engaging in any transaction, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran, if that transaction would be prohibited if done by a US person or in the United States

4

Contractual Provisions Contractual provisions may stipulate

who bears the risks of adverse administrative or other acts, define force majeur

Impossible to exclude by contract applicability of mandatory rules

The scope of the arbitration clause matters (all related disputes or disputes arising our of obligations under the contract)

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Arbitrability The question of whether specific classes of disputes

are barred from arbitration Article V(2)A of the NY Convention - subject matter of

the dierence is not capable of settlement by arbitration under the law of that country

Should the courts deny arbitrability simply because some mandatory rules of law (whether of national or supranational nature) might provide for non-arbitrability of of the dispute?

In most countries - first assert jurisdiction and then to examine the substance of the claim

If against fundamental principle of public policy - then non-arbitrable (narrow construction)

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Applicable Law Domestic, international and EU law Domestic law of the seat of arbitration, agreed

substantive law or law of the third country Laws of the third country: Article 7 of the Rome

Convention - law with which the situation has (a close connection); extraterritorial application (e.g. US sanctions on Iran) - wider discretion of tribunals to apply

Public international law (e.g. UN Security Council Resolutions)

Place of enforcement law

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UN Security Council Resolutions

United Nations Compensation Commission (UNCC): can corporate claimants pursue claims against losses associated with business activities that violated UN embargo against Iraq (1998)?

Non-compliance with the UN Security Council resolutions results in the inability of a transgressor to obtain compensation for damages associated with its misconduct

Nationals, not only states are bound by UN Resolutions

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Separability of Arbitration Agreement Premuim Bafta Producs Limited v Filling Shipping Co Fiona Trust & Holding Corporation v Privalov: "The

principle of separability... means that the invalidity or rescission of the main contract does not necessarily entail the invalidity or rescission of the arbitration agreement. The arbitration agreement must be treated as a distinct agreement and can be void or voidable only on grounds which relate directly to the arbitration agreement.

Gateway matters to be decided

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Differences between Jurisdictions

Balancing between policy favouring arbitration and public policy

La Compagnie Nationale Air France v Libian Arab Airlines (Canada)

Fincantieri-Cantieri v Ministry of Defence of Iraq (approaches in Italy, France, Switzerland)

Ministry of Defense of Iran v Cubic Defense Systems (Switzerland)

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Questions

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