EMTA SPECIAL SEMINAR: RECENT DEVELOPMENTS IN EMERGING MARKETS ARBITRATIONS
Friday, April 7, 2017
EMTA
360 Madison Avenue, 17th Floor
(on 45th St. between Madison and 5th Aves.)
New York City
This EMTA Special Seminar is aimed at both EM
investors and legal advisors, and will provide analysis and commentary on how arbitration affects investments in the Emerging
Markets.
Specific topics to be addressed will include:
12:00 noon – 1:30 p.m. Panel Discussion
Jonathan Greenblatt (Shearman & Sterling) – Moderator
Mark Cymrot (BakerHostetler)
Peter Griffin (Slaney Advisors)
Lunch will be provided
Support provided by BakerHostetler and Shearman & Sterling.
This Special Seminar is part of a continuing series of panels and presentations that EMTA is pleased to sponsor on various topics of interest to Emerging Markets investors and other market participants, and is part of EMTA’s Legal & Compliance Seminars*.
*CLE credit will be available for NY attorneys. This seminar is non-transitional and appropriate for experienced attorneys only. Please click here for details on EMTA’s Financial Hardship Policy.
Registration fee for EMTA Members US$95 / US$695 for non-members.
Second EM Arbitration Panel Held in NYC
The Second Panel in New York “Recent Developments in Emerging Markets Arbitrations” was held on April 7, 2017 at EMTA’s NYC offices. Jonathan Greenblatt (Shearman & Sterling) moderated the panel, with Mark Cymrot (BakerHostetler) and Peter Griffin (Slaney Advisors) as panelists. The event was supported by BakerHostetler and Shearman & Sterling. Relevant documents discussed can be accessed by Clicking Here.
Griffin opened his remarks by claiming that the intersection between international arbitration and the Emerging Markets is crucial and growing. The debt profile of a country can change “at the stroke of a pen”, and he cited Yukos as an example of that where $50 billion of sovereign debt was created (albeit annulled the following year). Arbitration is relevant for EM investors because of the impact of massive arbitral awards. Between 40 and 50% of arbitral awards that involve any entity – sovereign or commercial – require enforcement. Therefore, the difficulty in collecting these awards lends itself to a massive secondary market evolving where plaintiffs can sell down their claims. Litigation fatigue, coupled with financial prudence and need to monetize the awards, also leads to a secondary market in these awards. With the buy-side comprised of different players – hedge funds, distressed debt trading houses and litigation funds – it is likewise inevitable for such a market to evolve. And, this is a good way to buy exposure to an arbitration claim or award at a discount. However, at present, it is a nascent market, lacking transparency and filled with inefficiencies.
The new “product” of arbitration awards also lends itself to the creation of insurance syndicates that insure against the default of such awards (thus betting against the international arbitration law bar, where more claims against a sovereign lose than win and, for those that win, the wins are less than the claims - examples are Venezuela, Russia and Argentina).
He also discussed the “consensual, non-disruptive” approach in the Repsol case, where Argentina issued bonds to Repsol to satisfy an arbitral award and Repsol sold the bonds to JPM. This scenario is attractive for sovereigns since it eliminates aggressive enforcement actions and attractive to creditors as it eliminates the uncertainty of enforcement, with a quick cash outlay of orderly coupon payments.
The impact of Brexit and Trump on international arbitrations is still too early to surmise, but it’s clear that populist distrust of international arbitration and its institutions is prevalent, and fewer bilateral treaties are being signed (also in evidence is Trump’s disdain for NAFTA). On the other hand, disruption tends to increase litigation and arbitration generally.
Cymrot provided an overview of the distinctions between the different types of awards – sovereign and commercial. He explained the legal framework where one cannot execute against a sovereign as one would against commercial debt because of the doctrine of sovereign immunity. And further, one cannot even sue a sovereign unless it has waived its immunity. Arbitral awards are in and of themselves a waiver of such immunity. Execution immunity in property is extremely narrow in that the property has to be used for a commercial activity in the United States in relation to a transaction. Therefore, even though there may be a right to sue, there may not be a satisfactory remedy. Arbitration (or the threat of it) can apply some pressure on sovereigns. 2700 Investment Treaties are currently in place, most not allowing for arbitration. However, those treaties do have clauses preventing the expropriation of property, as well as national treatment (which is fair and equitable), to aid foreign investors. And the ICSID Convention allows for perhaps even greater rights for investors.
Greenblatt discussed the pitfalls of counterparties that want to set aside (losers) vs enforce (winners) arbitral awards and how the two entities may attempt to do so in differing jurisdictions. He explained that the grounds for setting aside awards are very narrow, and that the benefit of arbitration is that there is no right of appeal on the merits, but there is a limited right to set it aside depending on the “seat” of the arbitration. The New York Convention where arbitral agreements and awards are enforced does not deal with the rights to set aside awards (that is left to the national courts), but it does discuss the grounds for refusing to enforce an award, such as corruption, fraud and incapacity of the party to agree to arbitration (all of which are rather narrow). He believes the Yukos annulment is an anomaly. In France, it is almost impossible to set aside an award, and it is very difficult to do so in the US and UK. A court is not obligated to refuse to enforce an award, the presumption is that it will enforce such an award, and will only refuse to do so if narrow grounds are met, such as incapacity, lack of notice (related to due process concerns) and lack of jurisdiction. Other elements to consider include the scope of the arbitral award, the composition of the tribunal, comity (where a court will defer to the other jurisdiction’s court findings) and fairness. He stated that a US court is likely to enforce an arbitration award for public policy reasons – related to enforcement of a contract where the parties agreed to arbitration – and to maintain an availability of a forum to hear claims. If the conduct is sufficiently egregious (and “looks fishy”), it will be highly suspicious of any annulment (and the court will not be bound by the “set aside” court’s judgment).