XI ABA Conference of the Resolution of CIS-Related Business Disputes
American Bar Association and the RAA held the conference “XI ABA Conference of the Resolution of CIS-Related Business Disputes, held jointly at the Ukraine Hotel on September 18th, 2019.
The plenary session of the “Game of Venues: An ongoing tale featuring tumult beyond the Narrow Sea, the rise of dragons, and upstart challengers for the throne” was opened by Peter Pettibone, Pettibone International ADR, USA. He drew attention to the multinational composition of the panel - each of the panelists represented a jurisdiction from Hong Kong to the United States.
John Choong, partner at Freshfields Bruckhaus Deringer, Hong Kong, recalled that HKIAC received the permission to administer disputes in Russia in April, including a SPA and stock purchase agreement. According to him, the Chinese factor plays an important role in the context of direct investment from China (FDI). HKIAC is a good compromise center for Russia-China dispute resolution. The Hong Kong Center is also often elected as a result of cascading arbitration clauses. An important role is played by the fact that Russian and their representatives do not need a visa to visit Hong Kong.
A new treaty between China and Hong Kong allows parties to obtain interim measures in the courts of mainland China.
Felix Prozorov-Bastians, Graf von Westphalen, Germany, drew attention to the fact that the courts of Frankfurt and Hamburg now allow to consider disputes in English - this also applies to holding oral hearings, recording transcripts, and providing evidence. Such a procedure, however, is valid only for the first instance. The question of whether the German courts will “pull” the flow of cases from the English courts remains open. Such an option may be especially attractive to the Russian parties, whose representatives are familiar with the continental system of law.
Maria Gritsenko, counsel for litigation practice at VEON, England, spoke about the creation of the commercial court in the Netherlands, which will fully carry out its work in English. She mentioned that, in spite of the fact that the French courts follow the same path and would like to consider disputes in English, the edict of the 16th century obliges the court to hold oral hearings in French. Neither court requires disclosure of facts and evidence. She spoke about the requirements for recognizing the existence of an “international element” in the case: in Dutch courts, the barrier for recognition is fairly low.
Ed Crosse, Simmons & Simmons, England, said that the methodology for handling cases in England and Wales allows to pay attention to details. The courts are distinguished by a particularly close analysis of the documents provided by the parties. The cost to hold a dispute in London is still very high, but English tribunals optimize their case procedure. Disclosure of documents remains the most important issue in the English arbitration. The new rules allow a wider access to electrode documents: the rules clearly require the parties to disclose all documents. Even if a fragment of a document, such as an e-mail, is in favor of the other party, the party is obliged to provide it.
Alexander Muranov, partner of Muranov, Chernikov & Partners, Russia, formulated the idea of a Russian arbitration reform for the foreign public as “no arbitration without permission from the authorities”. He expressed his personal opinion on the arbitration reform: it was restrictive. According to him, the Russian authorities were afraid of the arbitration as a phenomenon after four decisions in favor of Yukos in 2006 and another three under the Energy Charter in 2014. One of the “beneficiaries” of the reform was Vladimir Lisin, who is now in charge of sports arbitration. The result was a reduction in the number of the arbitration institutions from a few hundreds to three. He concluded with a quote from Orwell: “All animals are equal, but some animals are more equal than others”. When the system is completely controlled by the state, the one problem remains - it is impossible to predict when the state will be interested in this or that matter and intervene. The international “aspect” of the reform: isolation of Russia. He expressed his opinion on obtaining a license from VIAC and HKIAC. According to him, on the one hand, the Russian parties will now be able to avoid the monopoly of Russian centers, on the other hand, these centers have become a "machine for laundering" the reputation of the governmental agencies responsible for the reform.
Peter Pettibone attempted to integrate speaker presentations. He recalled the history of the development of arbitration in general, its role as an alternative to litigation in state courts. During the discussion, the parties considered the choice of the forum in terms of confidentiality and speed of the consideration of the case. Answering questions from the audience, panelists expressed their opinion on the appropriate form of arbitration for small claims.
After that, the first session “Forethought spares afterthought: Maximizing return on pre and post-award interest, costs, and other “non-core” components of arbitration damages” in Library hall was opened with a mini dialogue played between Lisa M. Richman and Laura Hardin as a client and a consultant. They demonstrated that pre-award and post-award interests are of paramount importance for the parties to the dispute. Claimants always want higher damages, but sometimes cannot apply appropriate interest rate. Laura as a consultant suggested to put several possible rates before the tribunal, so it has options to apply.
Laura Hardin, Alvarez & Marsal, USA in details described the purpose and function of the pre-award damages, clarified that they should be calculated from the commitment of the bad act. She also covered the potential pre-award interest choices, that include Free Risk Rate +, LIBOR, WACC, Sovereign Debt Rate, Compound Interest. Noteworthy, LIBOR is no longer a reliable base rate of interest due to the possible manipulations for profit. SOFR is an appropriate replacement for LIBOR.
Lisa M. Richman McDermott Will & Emery, USA then proceeded with the post-award interest overview. She once more highlighted the importance of these interests, explained the concept, main functions and two separate periods when post-award interests can be calculated.
Doran Doeh, 36 Stone, UK made a report on costs in arbitration. He told that the main costs are lawyers’ fees (around 80%), institution and arbitration fees, costs related to premises rent, translation costs. Then he moved to the different approaches how to allocate costs: The American Rule, which implies that each side pays its own, excluding lawyers’ fees (unless the arbitration agreement provides otherwise); The English Rule that applies as a pro rata to success.
Doran also covered the third party funding as a pending issue in arbitration and inconsistent tribunals’ approach to it.
Olga Boltenko, Fangda Partners, Hong Kong in continuation of the cost topic, highlighted different international rules, namely ICC, LCIA, UNCITRAL, Swiss rules, CIETAC, HKIAC, ICDR, SCC, SIAC. The majority of Rules adhere to the rebuttable presumption and principles of reasonableness and proportionality, when dealing with the costs.
The Session “Obtaining “private” information from reluctant third parties (“Getting information from third parties who do not want to cooperate”)” was started by Steven M. Richman in the main conference room. He gave an example of a precedent when a court demanded access to confidential information of the party stored on Google servers. The problem of such requests is becoming increasingly relevant in the field of GDPR regulation. Richman discussed with the panelists and the audience the question of whether the Russian side will comply with the decision of the American court regarding the disclosure of the information.
Kathleen Paisley, Ambos Lawyers, Belgium, discussed how to use information protection laws to your advantage - or to the detriment of an opponent. The most important achievement of the GDPR is the ability to request a copy of the information directly from the party that stores it. She asked panelists whether it would be worthwhile to require evidence in the United States, where the servers of many large switching companies are located, or to claim evidence in her national jurisdiction. In Europe, a court order is not required to receive information- the person who owns the information must provide an answer within 30 days.
She emphasized that the underlying role of the GPDR is protection against information disclosure.
Elena Mazetova, Petrol Chilikov, Russia, spoke about a clash of Russian laws of the “Yarovaya Law” and GDPR. Who should be defined as a user from Russia in the context of the European Data Protection Directive? A user with an account in the “.ru” domain zone. The speaker briefly talked about the sequence of actions in the collection of such evidence through the court: they include a judicial penalty in the English and Russian jurisdictions. She noted that regarding the admissibility of such evidence, the court will be guided by the rules of the Russian procedural law.
Richard Brown, Carey Olsen, UK, told about his own experiences concerning GDPR based disclosure requests. He talked about the English precedent when a court required the participants of a trial based on Norwich Farmacal to disclose their ongoing e-mail exchange. Brown outlined the procedure for obtaining evidence in the British Virgin Islands.
Alexander Popelyuk, Lidings, Russia, spoke about his experience in using personal data recovery when considering a case at the ICAC. He mentioned that the arbitration manager is entitled to demand access to the electronic correspondence of the bankrupt. Courts most often reject such requests due to insufficient justification by the managers.
He addressed the issue of choosing the applicable law in the implementation of such requests. In response to a question by Richman, he noted that in Russia it is still very hard to prove destruction of electronic evidence.
The moderator of the second session «Seeking protection through interim relief: A multi-jurisdictional toolbox for CIS-related disputes» in Library hall Alexander Troller, Lalive, Switzerland, presented a practical case dealing with the loan agreement between Russian and American parties. The agreement was to be executed in Moscow and ad-hoc arbitration took place in London.
This case was discussed by the panelists from the perspective of both the borrower and the lender.
Alexander Troller proceeded with the issue of different jurisdictions. If the borrower has two or more accounts within one bank or accounts within different banks, he advised to file separate protective briefs for each asset and for each bank. He also covered the question of application of the interim relief from the perspective of the lender.
Peter Ferrer, Harneys, BVI, then reminded the need to see the goal of getting protection. He emphasized that one cannot reasonably rely on the information provided by respondents. Peter advised to conduct own research concerning the respondent’s assets and even ask competent organs for the assistance. He also mentioned the possibility to attract respondent’s assets even if there were no evidence of their connection with the loan agreement.
Artem Doudko, Osborne Clarke, UK, told about the main actions from the borrower view and possible fraud allegations. He also addressed the tools similar to the interim measures in the UK.
The round table in the main conference room on investment arbitration, “The future of investor state dispute settlement: CIS perspectives”, was opened by Anna Kozmenko, Schellenberg Wittmer Ltd, Switzerland. She mentioned the revision of investment agreements by European states in the context of the Akmea decision and the idea of creating an investment court in the air.
Richard Happ, Luther, Germany, tried to briefly outline the history of investment arbitration. Mentioned that Germany created the concept of BIT from the time of the Roman Empire until the Russian Revolution of 1918. Only during this revolution began a large-scale expropriation of property. To protect investors in the 20th century, bilateral arbitration agreements appeared. The role of the Akmea decision is that the EU court can, in theory, extend the effect of the decision to bilateral agreements with countries outside the EU, such as Russia.
Fredrik Ringquist, Mannheimer Swartling, Russia, skeptically mentioned the role of the EU as an entity in protecting bilateral investment - recently, such protection has been weakened due to the intervention of Brussels. This trend began long before the decision of the EU court in the Akmea case, he said. He discussed with Olga Tsvetkova the modern approach of the Russian state to participate in investment disputes.
Olga Tsvetkova, Ministry of Justice of the Russian Federation, mentioned the growing role of investment arbitration for Russia. According to her, in October Russian representatives will take part in the UNCITRAL working group on investment arbitration. She mentioned that investment arbitration cannot be used by the parties as yet another “tool” of investment in itself. She mentioned that the state should also use the right to a fair hearing as a subject of the arbitration process.
At the same time, a session “What’s happening in Kazakhstan?” was held in the «Leto» Hall of the hotel. Before starting the discussion, Alexander Korobeinikov, partner of the Almaty office of Baker & McKenzie, said that the most active listener would be presented with a national Kazakhstan headdress that stood on the table in front of the speakers throughout the session.
Mukhit Yeleuov, partner of Kinstellar, Kazakhstan, spoke about the latest reforms in the judicial system of Kazakhstan. In order to get rid of congestion of courts and heterogeneous judicial practice, the country introduced a requirement for mandatory out-of-court settlement of disputes, the rigor of the selection of judges increased and the style of drawing up judicial acts was unified. In addition, Kazakhstan plans to introduce the Administrative Procedure Code of Procedure (APPK).
The speaker noted that the number of disputes resolved in the arbitration is growing in the country. In conclusion, Mukhit Eleuov notes that soon the changes will positively affect the judicial system of Kazakhstan.
Continuing the topic, Alexander Korobeinikov talked about the differences in the interpretation of the arbitration clauses in Kazakhstan and Russia, citing two cases as an example. He showed the clearly different approaches in two countries. The speaker emphasized the pro-arbitration approach of the courts of Kazakhstan, calling the relationship between them and the arbitration a “candy period”.
Answering questions, Alexander Korobeinikov admitted that the existence of the arbitration institution provides an inflow of investments. He noted that the ICAC in Russia should strengthen its position in providing services to business: it should be more flexible in coordinating the schedule of hearings and providing information on the progress of the case.
Aisha Manapova, assistant secretary of the International Arbitration Center (IAC) in Nur-Sultan, spoke about the new arbitration institutions of Kazakhstan - the AIFC Court and the IAC.
The AIFC Court is the first court in Eurasia, how’s functioning is based on the norms and principles of common law. Its main advantages are: simple arbitration rules, the existence of its own e-justice system, the finality and binding character of the decisions.
Speaking about the IAC, the speaker drew attention to the absence of arbitration fees, the high speed of dispute resolution, the free choice of arbitrators and the availability of its own list of arbitrators, many of which are from the UK and the EU.
At the fourth session in the main conference room, «The role of secretary to the tribunal: Fourth arbitrator or support staff?», panelists discussed the difficulties faced by tribunal secretaries.
Katherine Simpson, Simpson Dispute Resolution / 33 Bedford Row Chambers, said the clerk is the main “villain” and “scapegoat” in scary tales of arbitration. “After all, if not for him, the court would certainly have accepted all my arguments!” - says the party, noted Simpson. On the other hand, they enormously help to take the load off the arbitrators, can help the party in administrative matters. The speaker emphasized the dual nature of this post.
Dmitry Marenkov, Germany Trade & Invest, Germany, provided statistics on the use of arbitration secretaries in various arbitration institutions. He said that more than 91% of Queen Mary University research respondents find the work of secretaries useful. They are subject to the same standards of impartiality and confidentiality as arbitrators. The speaker noted that the ICC rules (ICC in Paris) allow that the part of the arbitral award could be drafted by the secretary, but he expressed his disagreement with this position. He noted that in LCIA, the scope (and consequently the amount of work) of the clerks is subject to agreement of the parties.
Dominic Pellew, Dentons, UK, noted that often arbitration secretaries offload the panel of arbitrators in large processes. The arbitration secretary may serve well as a “second pair of eyes” to see if all issues are addressed in the decision. Nevertheless, this is not a good practice, since this is primarily the work of the arbitrator, noted the speaker. From the financial perspective, the involvement of a secretary reduces the fee of each individual arbitrator in the arbitral tribunal. He noted that the involvement of secretaries is often dictated by the fact that the arbitrator wants to take as many cases as possible, but cannot really devote his or hers time to handle them carefully.
Shirin Saif, Roschier, Sweden spoke about the enforcement of awards and the meaning of paragraph E of Art. 5 of the New York Convention. She spoke about the current dispute between Gazprom and Naftogaz over gas transit through Ukraine. Gazprom objects to the arbitration decision in which the secretary was appointed. The secretary was forbidden to participate in the drafting of the decision or to conduct legal research, however, a number of experts indicated that it was the secretary who drafted the decision. On this basis, the decision was disputed in the Svea Court of Appeal, and although Naftogaz promptly began the execution of the decision, as a result, the execution was stopped.
Moderator of the third session "The evolving landscape of legal privilege and disclosure obligations» in Library hall Mark Brown, Bristows, UK introduced the speakers and told about their experience in the juridical profession. He presented several hypothetical cases and compared different attitudes of the speakers from different jurisdictions to the resolution of these cases.
Vassily Rudomino, Alrud, Russia described the main features of the legal profession in Russia, the different status of advocates and lawyers. Turning to the disclosure issue, the speaker noted that there is no binding disclosure procedure in Russia. The parties are free to decide what evidence to present to the court. This approach has its drawbacks - the parties can present falls and not complete information. He also mentioned the active role of a judge, who can assist in collecting evidence and request the additional ones.
Oksana Wright, Fox Rothschild LLP, USA told about the disclosure proceeding in the US. Compared to Russia the USA approach significantly differs. Oksana describe US Attorney Client Privilege Doctrine. Importantly, she showed that Privilege exists not only between attorney and his client, but also between in-house layers and employees, and even non-lawyers (investigators or consultants). However, such Privilege is not perfect and can be waived.
Johannes Hertfelder, Gleiss Lutz, Germany covered disclosure procedure in civil jurisdiction and Germany in particular. Similar to Russia there is no general disclosure obligation. The exceptions only exist in relation to specific law areas such as antitrust or IP law. Judges in civil law jurisdiction also have discretion to ask for additional evidence. The speaker covered the relation towards the Privilege in civil jurisdiction. Interesting, that there is no general protection of attorney-client correspondence in criminal cases.
At a parallel session “Attachment of CIS state-owned assets abroad - a comparative perspective” in «Leto» hall the speakers talked about the structure of this institute in various jurisdictions and cited case studies where one of the parties was the CIS country.
Dmitry A. Pentsov, partner at Froriep Legal SA in Geneva, spoke about the Swiss experience. He noted that the seizure of assets in a given country applies to a specific property, in contrast to England, where this measure can be imposed on all property of a person. The most important reasons for applying this measure are the existence of an enforceable decision of a foreign court on seizure, as well as the location of the debtor's assets in Switzerland and the close relationship of the original contract with Switzerland. The main advantages of asset seizure proceedings in a given jurisdiction are the speed of adjudication and the ability to hear cases without a hearing and in the absence of a debtor.
The discussion was continued by Ivan Urzhumov, Foley Hoag, Paris, France, describing the institution of the arrest of sovereign assets in France. In 2016, a new law was adopted in the country amending the legal regulation of this area. Now, the creditor must obtain special permission from the court to seize state assets. The law also lists the specific types of state property covered by the immunity and introduces special rules for waiving immunity. Answering questions, Ivan Urzhumov noted that in France there is a presumption that all the property of diplomatic missions is used for its intended purpose. Thus, even if such assets are used for commercial purposes, they are still subject to diplomatic immunity.
Talking about asset seizure in the United States, Gene Burd, Arnall Golden Gregory LLP, Washington, emphasized the similarity of this institution in various jurisdictions. However, in the United States there is a type of seizure of property such as garnishment (most often it applies to bank accounts). The speaker emphasized that legislation on the seizure of property varies from state to state. In the USA, the two types of immunity are recognized - jurisdictional and enforcement measures. Another difference between the United States and other jurisdictions is the ability to detect assets even after a court decision.
Ulf Hårdeman, Advokatfirman Delphi, Stockholm, began his speech by listing the types of property that could be seized in Sweden. The speaker emphasized that Sweden adheres to the concept of limited state immunity and the seizure of property is not possible if it is protected by diplomatic and state sovereignty. Describing the practice of property seizure cases in Sweden, Ulf Hardeman came to the conclusion that the threshold for determining the state immunity of property in Swedish courts is quite high.
In the Library hall C. William Phillips, Covington & Burling, USA, started the last session “Making your case: Practical tips on oral persuasion and advocacy” with the main tips of the effective oral advocacy. He listed confidence, simplicity, no reading, no emotion principles as cornerstone of successful presentation. William recommended to be yourself and talk with the tribunal, so it does not seem that you’re arguing something.
Maxim Kulkov, Kulkov, Kolotilov & Partners, Russia proceeded with different options how to deal with difficult scenarios during the hearing. He introduced two practical situations. Firstly, when the opponent doesn’t comply with his timing the situation can be resolved by asking the tribunal to mind the time of the opponent and not to deprive another party of the right to be herd.
Secondly, he addressed the situation with rude and aggressive opponents, the solutions offered by the audience was to ignore provocative statements or to ask the tribunal to restore the order.
Huawei Sun, Zhong Lun, China covered the topic related to interacting with the tribunal. She remained that arbitrators are also people with different background and personality. In strained situations, she advised not to bicker with the tribunal but be ready to compromise solutions. It is also important to be calm to interrupting.
Moderator of the session Rupert D’Cruz, Littleton, UK, explained how to behave during the cross-examination. He drew the attention of the audience that during cross-examination it is important to identify the crucial points and questions to the witness. It is also of paramount importance to know when you have already persuaded the tribunal and when to stop cross-examination.
The speaker pointed out that it is not necessary to elicit from the witness that is suitable for you, but to show that witness is mistaking or not speaking truth. The answers of the witness must be consistent, and logical.
Then in the main hall in the section “Bifurcation in international arbitration” Peter M. Wolrich, Curtis, Mallet-Prevost, Colt & Mosle LLP, France, introduced the speakers gave an overview of what bifurcation is in the arbitration process.
Tatiana Minaeva, PRC, United Kingdom, demonstrated the Glamis Gold ltd v. United Sates of America case. She then talked about the case of Emmis International Holding BV v. Hungary and cited the parties' arguments in these arbitral proceedings.
Christoph Brunner, Peter & Partners, Switzerland, noted that in the test, by analogy with the Glamis Gold case, arbitration primarily determined whether there was a chance of success for the party requiring the separation of the case. He talked about whether separation of the case is required if the questions are too different. He noted that the ICC Interim and Partial Decisions report has a “Presumption in favor of a single and final decision.”
Andrey Panov, Norton Rose Fulbright, Russia, led the case with the Share-Purchase Agreement, subordinate to English law and considered in LCIA. In a London court, the parties agreed to a bifurcation procedure. The proceedings were divided into two parts, which led to an uneven distribution of responsibilities of the parties despite the fault of both. He spoke about the recognition and enforcement of such decisions in the Arbitration (Commercial) State Court of Moscow (ASGM). He noted that the German courts, as well as the Russian ones, are very cautious about partial decisions received during the bifurcation.
At the final fourth session in the main conference room, which brought together all the participants, «So you “won” your case, now what do you have to show for it? (What will you recover by winning the case?)» Anastasia Malyugina from PwC, Russia, provided statistics on the execution of decisions in investment arbitration. She showed statistics of applied assessment methods, among which DCF leads. This method however is often scrutinized. The median value of the average claim against the states of the former CIS countries is $ 107 million, and this amount is growing, she said.
Simon Davenport, 3 Hare Court Chambers, talked about a combination of laws and precedents in the assessment of losses in English jurisdiction.
Grant Hanessian, Baker & McKenzie, USA discussed various types of damages in American jurisdiction. He also talked about the difference in the assessment of losses for startups and large or well-established companies.
Grigory Galkin, Marks & Sokolov, Russia highlighted the approaches of high Russian courts to the assessment of losses. He mentioned that Russian law does not know the concept of one liquidated damages. One of the alternative ways to secure obligations under Russian civil law is contractual penalty, he noted.
At the conclusion of the conference, Glenn Hendrix, Arnall Golden Gregory LLP, USA, noted that the conference has been held annually for 11 years. He encouraged the audience to reflect on topics and suggest ideas for future conferences and to take an active part in planning the event. Hendrix emphasized that without the RAA this conference would have been impossible to organize.
Roman Zykov, Mansors, Russia noted that this year the Conference counted 160 participants and listed the sponsors of the event. The RAA Secretary General thanked all the participants and the ABA for the trust they show for the third time by making the Russian Arbitration Association their partner.