{"id":1400,"date":"2022-03-28T10:42:31","date_gmt":"2022-03-28T10:42:31","guid":{"rendered":"https:\/\/blog.nicarb.org\/?p=1400"},"modified":"2022-03-28T10:42:31","modified_gmt":"2022-03-28T10:42:31","slug":"concerns-and-challenges-and-whats-next","status":"publish","type":"post","link":"https:\/\/blog.nicarb.org\/index.php\/2022\/03\/28\/concerns-and-challenges-and-whats-next\/","title":{"rendered":"CONCERNS AND CHALLENGES – AND WHAT’S NEXT?"},"content":{"rendered":"\n

Author: Inside Arbitration<\/strong><\/p>\n\n\n\n

Russia has responded to sanctions imposed by the US and EU, among others, with legislation and presidential decrees designed to restrict, control, and potentially seize foreign-owned assets. For investors with stakes in Russian assets, these retaliatory measures pose a significant risk of loss. Investors may have a path to recoup such losses, however, in an arbitration action brought pursuant to a Bilateral Investment Treaty (BIT) with Russia.<\/p>\n\n\n\n

BITs are agreements between states whereby the states promise that investments made in their state will be afforded a certain level of protection. These agreements are governed by international law and may be enforced, in most cases, through binding international arbitration. While there is no US-Russia BIT, Russia has over 60 BITs with other states, including many EU member states, the UK, Japan, South Korea, and Switzerland. To seek relief under a BIT, an investor must be a national of or incorporated in a jurisdiction with an active BIT. Investors in a jurisdiction without a BIT with Russia may gain the protection of another jurisdiction\u2019s BIT by investing through a foreign subsidiary or joint venture in that jurisdiction. Clients should be aware, however, that there is a recognized objection to arbitration jurisdiction on the basis of \u201ctreaty shopping\u201d\u2014entities may not restructure solely for the purpose of falling under the jurisdiction of a particular BIT in order to arbitrate a claim with Russia.<\/p>\n\n\n\n

While the specifics of Russian BITs vary, they typically share similar terms, definitions, and remedies for disputes. As a starting point, Russia\u2019s BITs generally afford investors protection against unfair and inequitable treatment; there is a strong argument that this promised protection disallows retaliatory measures against investors based on their relationship to an unfriendly nation. Furthermore, most of Russia\u2019s BITs provide protections against the nationalization, expropriation, or dispossession of foreign investments. Foreign investments may be seized only for a lawful reason\u2014that is, for public necessity, in accordance with Russian law, with just compensation, and not for any arbitrarily discriminatory reason. By discriminating against certain investors on the basis of nationality, forcing them to receive payment in Rubles, Russia may be substantially reducing the value of loan receivables, and would arguably be subject to an unlawful expropriation claim under its BITs. Finally, most Russian BITs prohibit the restriction of the free transfer of convertible currency payments made in connection with investments, including: the amount of the initial investment, income from the investment, and proceeds from the partial or complete sale of the investment. Russia\u2019s restriction of funds transferred out of the country to unfriendly nations would arguably violate these free transfer obligations.<\/p>\n\n\n\n

Most BITs hold that, in the event a dispute cannot be settled amicably between the parties within a certain time, either party to the dispute may refer the matter to an international arbitral tribunal, such as the International Centre for Settlement of Investment Disputes (ICSID). The tribunal is to be composed of an arbitrator chosen by each party, and one arbitrator\u2014a national of a third state\u2014chosen by mutual agreement of the parties. If an investor claimant is successful at arbitration, the resulting award is binding and enforceable in numerous countries pursuant to other international treaties to which Russia is party. The award can then be satisfied by moving the domestic courts of these countries to seize assets within that court\u2019s jurisdiction.<\/p>\n\n\n\n

Determining the best path toward recouping a company\u2019s losses stemming from Russia\u2019s retaliatory actions will require an analysis of the precise terms of each relevant BIT and the available fora for their enforcement. For US investors without a corporate structure allowing them to take advantage of another nation\u2019s BIT, domestic remedies are limited, barring congressional authorization for the Foreign Claims Settlement Commission to adjudicate claims against Russia. Investors may also be able to bring claims based on individual investor agreements with Russia, if applicable. ICSID data shows that about 10% of all new cases are based on an agreement between the investor and host state, rather than a BIT. These separate investment agreements may control the investor\u2019s rights and available remedies, and may even supersede the rights and remedies available under a BIT, depending on their language.<\/p>\n\n\n\n

Investors affected by Russia\u2019s actions should actively take stock of the geography of their investments and assets to determine which BITs, or investment agreements, with Russia may be applicable and seek to secure and maintain documents relating to their losses for use in potential future arbitration.<\/p>\n\n\n\n

In\u00a0DHL Project & Chartering Ltd v Gemini Ocean Shipping Co., Ltd\u00a0<\/em>[2022] EWHC 181 (Comm)<\/a>, the Commercial Court has set aside an arbitral award under s67 of the Arbitration Act 1996 (the \u201cAct<\/strong>\u201c) on the basis that the arbitral tribunal lacked substantive jurisdiction.<\/p>\n\n\n\n

The case concerned a \u201csubjects<\/em>\u201d provision which required \u201cshipper\/receiver\u2019s approval<\/em>\u201c. The Court found that:<\/p>\n\n\n\n