User's blog

Blog

  • Eldwick Law in Astana: The AIFC Court and International Arbitration Centre

    Eldwick Law in Astana: The AIFC Court and International Arbitration Centre

    Rashid Gaissin and Waleed Tahirkheli recently travelled to Astana, Kazakhstan to attend client meetings, and deepen Eldwick’s presence within the region.

    During their trip, they visited the AIFC (Astana International Financial Centre): a financial hub for not only Central Asian countries, but the Caucasus, Middle East, Europe and China.

    Rashid Gaissin and Waleed Tahirkheli were also given a tour of the AIFC Court and International Arbitration Centre: an independent common law court which adjudicates exclusively on claims arising out of the AIFC and other claims where the parties agree to the jurisdiction of the AIFC Court.

    The AIFC Court and International Arbitration Centre (IAC) have completed and enforced almost 2200 cases, including 64 court judgments and 415 arbitration awards, including claims with quantum in excess of $300 million.

    We are very grateful to Nurkhat Kushimov, Almas Zholamanov, MPA, PMP, CIPR and Yernar Baktiyarov for their personal tour of the AIFC’s facilities.

  • Directors’ Duties – An Introduction

    Directors’ Duties – An Introduction

    We specialise in resolving shareholder conflicts through advice, negotiation, and litigation, ensuring our clients’ rights and interests are protected within the company.

    [contact]

    What are directors’ duties?

    All company directors must comply with the directors’ duties set out in Chapter 2 of Part 10 of the Companies Act (CA) 2006.

    These are:

    The above are often referred to as ‘general duties’ as their purpose is to promote the company’s general success. However, other directors’ duties may be included in the company’s Articles of Association. 

    Here is a detailed summary of each director’s duty under the CA 2006:

    Duty to act within powers

    As a director, align your actions with the company’s constitution, encompassing Articles of Association, resolutions, and agreements. Additionally, adhere to the equitable principle of ‘proper purpose,’ ensuring powers are exercised only for their designated purposes.

    Duty to promote the success of the company

    Acting in good faith is crucial in fulfilling this duty. Various factors must be considered, such as the long-term impact of decisions, employees, relationships with stakeholders, community and environmental impacts, and maintaining the organisation’s reputation for integrity.

    Duty to exercise independent judgment

    Directors cannot delegate decision-making powers and must protect themselves from external influences. Seeking advice is permissible, but ultimate judgments must be based on individual assessments.

    Duty to exercise reasonable care, skill, and diligence

    Directors must act with the diligence expected of a reasonably diligent person. 

    Duties relating to conflicts of interest

    You should avoid situations that could result in conflicts of interest, such as personal involvement in opportunities related to the company. Also, ensure you disclose potential conflicts to fellow directors, ensuring transparency.

    Duty not to accept benefits from third parties

    Be sure to exercise caution when accepting gifts or benefits to prevent conflicts of interest.

    Duty to declare interest in proposed transaction or arrangement

    Fully disclose any interest in a proposed commercial transaction or arrangement to other directors, even if not directly involved.

    To whom are the directors’ duties owed?

    As per the CA 2006, directors owe fiduciary duties to the company where they hold office and must act consistently with these duties.

    Are there directors’ duties contained in other legislation?

    Yes.

    Examples include:

    • The Health and Safety at Work etc Act 1974 – sets out the basic health and safety duties of a company, its directors, managers, and employees. It also acts as the framework for other health and safety regulations. Under the Act, all employers must ensure the health and safety of their employees, carry out “sufficient and suitable” risk assessments, and provide information, protective measures, and training to employees concerning any identified risks. This is merely a small sample of relevant health and safety duties and responsibilities.
    • The Insolvency Act 1986 – if a company becomes insolvent, the duties of the director/s change from promoting the company’s success to protecting creditors’ interests. If a director knows or ought to know that the company cannot avoid insolvency and continues to trade (wrongful trading) or carries on with business as usual with the intention of defrauding creditors (fraudulent trading) they can face severe sanctions, including a custodial sentence.
    • Environmental law – a director can be liable for an environmental offence if they commit it personally, a point particularly relevant for small businesses. A director and a company can also be jointly charged with committing an offence if it was perpetrated with the director’s cooperation and consent or attributable to the director’s negligence. 

    Breaching directors’ duties relating to health and safety, insolvency, and/or the environment can lead to significant reputational damage, even if you are not found liable for the alleged offence.

    It is, therefore, vital to understand the duties owed under each of these areas, and if an incident occurs resulting in a regulatory or police investigation, contact an experienced Solicitor immediately.

    What is the Company Directors Disqualification Act (CDDA) 1986?

    The CDDA 1986 sets out the procedures used to investigate and disqualify company directors suspected of misconduct.

    The Court can consider cases on application from the Secretary of State and disqualify a director for up to 15 years.

    Most disqualification applications are made under section 6 of the CDDA 1986, which states that the Court can make a disqualification order if it is satisfied that:

    1. the person has been a director of a company which has at any time become insolvent (whether while the person was a director or subsequently), or
    2. the person has been a director of a company which has at any time been dissolved without becoming insolvent (whether while the person was a director or subsequently), and
    3. The Court is satisfied that the person’s conduct as a director of that company makes the person unfit to be involved in the management of a company.

    How to ensure you comply with directors’ duties when launching a new business

    Launching a new company is a busy and exciting time. It may seem intimidating to know that you must have a minimal understanding of a company director’s statutory and regulatory duties and responsibilities.

    However, several different organisations can assist you with finding out the compliance requirements relevant to your industry, including, to name but a few,

    www.smallbusiness.co.uk

    www.ukstartups.org

    The Federation of Small Businesses

    Institute of Directors

    You will also be able to access a great deal of information from your industry’s regulatory body and via networking.

    If you are facing a regulatory or criminal investigation or prosecution, seek experienced legal advice immediately.

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

    Note: The points in this article reflect the law in place at the time of writing, 19 January 2024. This article does not constitute legal advice. For further information, please contact our London office.

    Contact Us

  • Anti-Suit Injunction Against Russian Court Proceedings Upheld In Hong Kong Court

    Anti-Suit Injunction Against Russian Court Proceedings Upheld In Hong Kong Court

    Linde GMBH v. Ruschemalliance LLC [2023] HKCFI 2409

    In this article we will discuss the impact of Russian sanctions on commerce and trade, particularly situations where there is an Arbitration Agreement between the parties.

    Anti-Suit and Anti-Anti-Suit Injunctions in UK Law

    In our previous article, we discussed the decision in Renaissance Securities (Cyprus) Ltd v Chlodwig Enterprises Ltd & Others [2023] EWHC 2816 (Comm), where the English High Court granted an anti-suit injunction (ASI) and an anti-anti-suit injunction (AASI) to a company to prevent the defendants in the case, who were subject to UK and US sanctions, bringing proceedings in Russia under Article 248 of the APC.

    Shortly before the Renaissance Securities decision, the Hong Kong Court of First Instance maintained an anti-suit injunction to prevent legal proceedings initiated in Russia that violated an Arbitration Agreement based in Hong Kong. Notably, the Court dismissed assertions that Russian jurisdiction laws should dissuade this decision, underscoring its commitment to honouring the agreement between the parties.

    EU Sanctions and Contractual Obligations

    Due to EU sanctions, Linde GMBH (‘Linde’), a German contractor, temporarily halted its obligations under an engineering, procurement, and construction contract aimed at building a gas processing complex (the ‘Contract’) with Russian owner Ruschemalliance LLC (‘RCA’). The Contract, governed by English law, included an Arbitration Agreement explicitly subject to Hong Kong law and specifying HKIAC arbitration seated in Hong Kong.

    In response, RCA terminated the Contract, alleging Linde’s independent actions constituted a significant breach. RCA then initiated proceedings in Russia under Article 248.1 of the Russian Arbitration Procedural Code (‘Article 248.1’), which, as was explained our previous article, claims to establish exclusive jurisdiction over disputes involving Russian-sanctioned entities.

    Concurrently, Linde initiated a HKIAC arbitration and subsequently secured an anti-suit injunction (‘ASI’) from the Hong Kong court in support of arbitration, preventing RCA from pursuing the Russian legal action. RCA attempted to lift the ASI by applying to the Hong Kong court.

    The Hong Kong Court’s Decision: Upholding the Arbitration Agreement

    The Hon. Madam Justice Mimmie Chan rejected RCA’s application and upheld the ASI. She confirmed that there was a fundamental principle that unless there were powerful reasons to the contrary, when it comes to proceedings designed to breach an agreement to arbitrate, the Court will use its discretion to restrain such proceedings via granting an injunction.

    RCA relied on Article 248.1 to argue that granting the ASI was not just and convenient because:

    1. Article 248.1 meant the Russian courts had exclusive jurisdiction; and
    2. Under Russian law, the Arbitration Agreement in the Contract was invalid, and any award would therefore be unenforceable.

    The Hon. Madam Justice Mimmie Chan rejected argument (a), stating that Article 248.1 only applies if the application of foreign sanctions created access to justice obstacles for a party in the dispute. In this case, RCA had a means of accessing justice through the Arbitration Agreement.

    Furthermore, EU sanctions did not apply in Hong Kong, and RCA had access to excellent lawyers there. Case law had established that provided an Arbitration Agreement is valid and can be applied under the law chosen by the parties and stated in the agreement (in this case Hong Kong), the fact that a foreign court has jurisdiction under its own law did not prevent granting an ASI. In addition, the Contract had been entered into whilst EU sanctions were in force, therefore, terms had been drafted to cater to their potential impact.

    Regarding point (b), the Hong Kong court concluded that the Arbitration Agreement was valid and Article 248.1 did not apply in this case. And even if EU sanctions prevented an Arbitration Award being enforced in the EU, it could be enforced in other jurisdictions.

    Implications of Anti-Suit Injunctions in International Trade and Sanctions

    The Hong Kong court’s ruling and the decision in Renaissance Securities is important for companies aiming to withdraw or vary Russia-related contracts that include arbitration clauses due to the impact of US, EU, and UN sanctions.

    These entities are increasingly confronting Russian legal actions based on Article 248.1. In these cases, obtaining an Anti-Suit Injunction (ASI) from relevant courts is sometimes the best option and one that is becoming increasingly popular.

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

    Note: The points in this article reflect sanctions in place at the time of writing, 27 December 2023. This article does not constitute legal advice. For further information, please contact our London office.

  • Will the New Fixed Costs Regime push parties away from litigation to arbitration?

    Will the New Fixed Costs Regime push parties away from litigation to arbitration?

    What is the Fixed Costs Regime? 

    The fixed recoverable costs (FRC) regime sets the amount of legal costs that the winning party can claim back from the losing party in civil litigation. 

    In proceedings today, it is not uncommon for costs to amount to nearly the same or exceed any sum awarded by a court. The purpose of the regime is to give parties certainty about the maximum amount that the losing party will have to contribute to the winning party’s costs. 

    The New Fixed Costs Regime October 2023

    Previously, under the Civil Procedure Rules (CPR), the FCR regime only applied to road traffic accident cases with up to £10,000 in damages. For all other cases, the amount recoverable depended on what the winner’s lawyers charge and whether the court deemed those charges to be reasonable and proportionate, considering the value and complexity of the case. 

    However, since the implementation of the new regime under CPR 45 and PD 45, which came into effect on 1 October 2023, the regime is now extended to all types of civil proceedings valued at less than £100,000 allocated to the fast and intermediate tracks, that are issued on or after 1 October 2023. 

    There are exceptions to this general rule including: 

    • particularly complex cases allocated to the multi-track;
    • if a party is protected by CPR r.45.1(6);
    • personal injury claims where the cause of action accrues before 1 October 2023; and
    • residential housing claims (although this may change with new legislation in 2025). 

    Effect of the New Fixed Costs Regime

    Under the new regime, the maximum costs the losing party will be liable to pay will be fixed at the rates set in the tables at PD 45 of the CPR. 

    In determining these rates, the court will assign the case to a complexity band, labelled 1 to 4 in ascending order of complexity. The more complex the case, the higher the band it will be assigned to, and the greater the fixed costs applicable to the case. 

    In deciding the band into which the dispute falls, consideration will be had for the nature of the claim, the amount in dispute, the legal complexity, the number of parties, and the expected duration of the hearing. 

    There are also certain cases in which the new FCR regime is applied but costs greater than the FRC can be awarded such as where vulnerable parties or witnesses have resulted in additional work leading to costs 20% above the FRC. 

    How Does The New Fixed Costs Regime Affect Disputes? 

    At first blush, the new regime may appear to be a welcome change to litigants as it provides an additional degree of certainty as regards adverse costs. 

    However, it is important to remember that only the recoverable costs are fixed, not what lawyers charge for representing a party in the proceedings. Any shortfall between the recoverable costs and the amount charged by lawyers remains the winner’s liability. 

    This liability will also be greater as the introduction of complexity bands potentially creates and additional procedural step for which parties will have to determine their applicable band and make representations if their assigned band is disputed. 

    Arbitration Agreements to agree on costs liabilities 

    Since the introduction of the new FCR regime, parties are seeking alternative methods to resolve their dispute which allows them to keep in control of their costs. 

    Unsurprisingly, parties are turning towards arbitration as a method that is more cost-effective and allows the parties to agree terms on costs liabilities. 

    To ensure arbitration is available when a dispute arises, parties need to enter into an Arbitration Agreement. 

    International businesses across the world are including arbitration agreements as boilerplate clauses in all their standard contracts. However, there are still many who don’t and end up incurring significant costs when a dispute ultimately arises. 

    As such, the best approach parties can take to maintain control over their costs is to draft a clear arbitration clause into their contract. 

    An effective Arbitration Agreement should be in writing and include the following non-exhaustive provisions: 

    • The seat of the arbitration 
    • The governing law 
    • The nature of the dispute under the agreement 
    • The inarbitrability of specific agreements under the chosen law and elected by the parties 
    • Whether the arbitration is to be ad hoc or institutional
    • The number of arbitrators in the tribunal 
    • The language of the proceedings
    • Specifying any opt-out provisions. 

    The decisions a business makes on each of these points will have consequences on future arbitrations, so it is essential that expert advice is sought. A poorly drafted, unclear Arbitration Agreement will only result in additional delay and costs. 

    At Eldwick Law, our expert lawyers can assist in drafting an Arbitration Agreement that suits your business needs and will draw upon their experience in arbitration proceedings to mitigate potential issues arising in the future. 

    For more information on how Eldwick Law can assist you, or to arrange a consultation, please contact our London office.

    Contact Us

  • Court Grants Anti-Suit Injunction To Stop Sanctioned Entities Bringing Russian Proceedings

    Court Grants Anti-Suit Injunction To Stop Sanctioned Entities Bringing Russian Proceedings

    In 2020, the Russian legislative body made amendments to the Russian Arbitrazh (Commercial) Procedural Code (APC) to establish the exclusive jurisdiction of Russian Arbitrazh Courts in cases involving individuals and entities subject to sanctions. According to the newly introduced Article 248.1 of the APC, Russian courts would exercise exclusive jurisdiction over disputes involving sanctioned individuals and entities; unless there exists an agreement between the parties stating otherwise. The exclusive jurisdiction of Russian courts under Article 248.1(4) is triggered if:

    • The dispute resolution clause states that a dispute must be resolved in an overseas court or through arbitration.
    • The clause becomes inoperative due to sanctions against a party, creating obstacles to access to justice for that party.

    If proceedings are either pending or about to commence in a foreign court or arbitration, the sanctioned individual has the option to petition the Russian court to issue an anti-suit injunction against the opposing party, as outlined in Article 248.2 of the APC.

    In the recent case of Renaissance Securities (Cyprus) Ltd v Chlodwig Enterprises Ltd & Others [2023] EWHC 2816 (Comm), the English High Court granted an anti-suit injunction (ASI) and an anti-anti-suit injunction (AASI) to a company for the purposes of preventing the defendants in the case, who were subject to UK and US sanctions, from bringing proceedings in Russia under Article 248 of the APC.

    Background to the decision

    Renaissance Securities (Cyprus) Limited (RenSec), an investment services company, executed Investment Services Agreements (ISAs) with the defendants, who included companies under the control of a Russian person designated as a sanctioned person by OFSI in the UK as well as a person subject to US OFAC sanctions. These companies were designated as holding assets for trusts benefiting sanctioned persons. In the case of a dispute, the ISAs, subject to English law, stipulated for LCIA arbitration with a seat in London.

    RenSec managed substantial sums and securities for each defendant. When the defendants requested the transfer of assets held by RenSec, blocked due to sanctions, to Russian bank accounts, RenSec declined, citing potential breaches of US, EU, and/or UK sanctions. In response, the defendants threatened legal action in the ‘appropriate forum.’

    Shortly thereafter, RenSec discovered that the defendants had initiated proceedings in the Russian courts, seeking damages equivalent to its blocked assets in Russia. Subsequently, RenSec applied for an ASI and an AASI in the English Court.

    The application was conducted without notifying the defendants and in private, as there was a genuine concern that the defendants might seek their own ASI and/or AASI if informed. Such actions, along with potential publicity, would undermine the purpose of the application.

    What are the legal principles (England and Wales) regarding anti-suit injunctions?

    By issuing proceedings in a foreign court in situations where an Arbitration Agreement provides for arbitration to be conducted in England and Wales, the defendants were in breach of contract, and English courts can therefore grant an ASI preventing a party from bringing a claim in another jurisdiction. In The Angelic Grace [1995] 1 Lloyd’s Rep 87, Lord Millet robustly stated (at page 96):

    “There is no good reason for diffidence in granting an injunction to restrain foreign proceedings on the clear and simple ground that the defendant has promised not to bring them.”

    An AASI is designed to guarantee that actions taken by an applicant to safeguard and uphold its contractual rights, including the implementation of an ASI, are not made ineffective or futile by pre-emptive measures or counteractions taken by the respondent. The principles governing the issuance of an AASI closely mirror those applied to an ASI. In cases where foreign proceedings have been brought despite a clear Arbitration Agreement, the courts in England and Wales have granted an AASI to force the respondent to bring any commenced proceedings to a halt.

    What did the High Court decide in Renaissance Securities?

    After examining the evidence, Mrs Justice Dias ruled that the Russian proceedings were brought in “flagrant” breach of the Arbitration Agreement. Furthermore, this was a deliberate choice on the part of the defendants as they were under no legal obligation to bring proceedings under Article 248 of the APC. It was therefore just and convenient for the Court to grant the ASI because if the application in Russia was allowed to carry on, a ruling in the defendants favour could allow them to bypass the sanctions regime by obtaining judgment in Russia and then enforcing it against RenSec’s assets which were currently frozen in that jurisdiction.

    In addition, Mrs Justice Dias observed that:

    “…evidence is that the Russian courts are unlikely to consider foreign sanctions a legitimate excuse for RenSec’s failure to comply with the Defendants’ instructions. Indeed, this is entirely plausible given that the rationale for the introduction of Article 248 in the first place seems to have been to permit Russian entities to bypass the effects of sanctions. Accordingly, RenSec is unlikely to be able to rely on the imposition of sanctions as a defence to the Defendants’ claims in Russia, whereas this is a matter which an LCIA tribunal would no doubt at least take into account in considering whether RenSec was in breach of contract or not.”

    Given that the evidence showed it was likely that the defendants would try and obtain ASIs in the Russian courts in breach of the English court’s exclusive jurisdiction over any arbitration proceedings, Mrs Justice Dias granted an AASI to prevent the defendants from taking any such action.

    Concluding comments

    Due to the ASI and AASI being granted, the defendants will have no choice but to terminate any Russian proceedings under Article 248 of the APC. Failing to do so means that they risk contempt of court in England and Wales. This case illustrates that where an Arbitration Agreement is in place, an ASI and AASI provides a tactical tool for ensuring the terms of the agreement are upheld and can prevent sanctioned entities from circumventing the agreement via Article 248. In addition, Mrs Justice Dias’s decisions shows that the English High Court will grant an ASI and AASI to protect the interests of a non-sanctioned party who has assets in Russia which are vulnerable to enforcement of a Russian judgment granted in favour of a sanctioned entity.

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

    Note: The points in this article reflect sanctions in place at the time of writing, 30 November 2023. This article does not constitute legal advice. For further information, please contact our London office.

  • The Use of Injunctions in Support of Arbitration Proceedings

    The Use of Injunctions in Support of Arbitration Proceedings

    In these situations, our commercial arbitration team can advise on and facilitate the application for such relief, ensuring that the parties’ interests are protected throughout the arbitration process.

    [contact]

    The Source of the Court’s Powers

    Section 44 of the Arbitration Act 1996 gives the Court wide powers to make orders for the preservation of assets and evidence in an arbitration, including the useful and important power to grant interim injunctions.  However, the Court will only exercise its powers to the extent that the arbitral tribunal or institution has no such power or is unable for the time being, to act effectively. 

    The Court will therefore adopt a cautious approach, bearing in mind the purpose of section 44 which the Court of Appeal in Cetelem S.A. v Robust Holdings Limited held was to “assist the arbitral process in cases of urgency before there is an arbitration on foot” with Court’s having to “take great care not to usurp the arbitral process…”. 

    Arbitrations with a Foreign Seat

    With parties to arbitrations often having a presence in multiple jurisdictions, the question which often arises is whether a Court in England and Wales can grant an injunction in arbitrations abroad? Helpfully, section 44 applies even if the seat of the arbitration is outside England, Wales or Northern Ireland, or even if no seat has been determined.  

    However, the Court may refuse to act in these circumstances when it considers it inappropriate to do so.  For example, if there are significant differences between the provisions of the curial law and English law; or if there is an insufficient link between the defendant and this jurisdiction, such as residency or assets within England and Wales. 

    What are the requirements for an injunction in support of arbitration proceedings?

    In order to get over the first hurdle of jurisdiction, you must demonstrate that the arbitral tribunal, or any arbitral institution, has no power or is unable for the time being to act effectively. The two main ways in which this threshold is met, is either:

    • By establishing that the tribunal will have no power to grant the order you are applying for. This is particularly the case in applications for freezing injunctions, where the applicant is looking to freeze a respondent’s assets in this jurisdiction backed by a penal notice – a useful deterrent in proceedings with elements of fraud or dishonesty; and/or
    • By establishing that a tribunal is not yet constituted and is therefore unable to act. However, in circumstances where you have yet to commence an arbitration, you will have to be able to demonstrate a clear intention to do so, which will often require the provision of a Court undertaking. 

    Once you have established that the Court has jurisdiction, the usual common law principles apply. The touchstone for injunctive relief is whether there is a serious issue to be tried and that the balance of convenience favours the relief sought (i.e., whether the inconvenience of any damage which could be suffered by the applicant outweighs that of the respondent).  The main injunction sought in arbitration proceedings are freezing injunctions, where the Court will consider urgency and whether there is a real risk that the respondent may dissipate its assets before the enforcement of any arbitral award. 

    Key Considerations

    If you are thinking of using section 44 to support your arbitration proceedings, the balance the Court will draw between its power to grant injunction relief and the risk of displacing the arbitration tribunal should always be borne in mind. 

    Although the Court may approach section 44 applications with caution, injunction applications are a useful tool for interim protection particularly in arbitrations where you have discovered that a respondent is dissipating its assets in this jurisdiction making any enforcement of an award futile. 

    Eldwick Law has recently successfully obtained a freezing injunction in arbitration proceedings before the German Arbitration Institute (DIS). If you would like to discuss any of the points raised in this article, please contact our litigation team below.   

  • Sanctions Increase The Complexity and Costs of LCIA Arbitrations

    Sanctions Increase The Complexity and Costs of LCIA Arbitrations

    The LCIA is introducing a number of new measures for arbitrations and mediations that will take effect from 1 December 2023 and apply to LCIA arbitrations registered on or after that date. 

    Schedule of Costs 

    The new measures include a new Schedule of Costs that introduces a new fee range between £250 and £650 per hour for the Arbitral Tribunal and raises the fee cap from £500 to £650 per hour. 

    The hourly rate that will be applied to your matter within this range will be based on the overall complexity of the case. The updated ‘Guidance Notes for Parties and Arbitrators’ provides examples of cases that may require a higher rate including those that involve complicated sanctions issues that go to the substance of the dispute or where multiple sanctions regimes are alleged to impact the merit or substance of the claims. 

    We are yet to see any further clarification on what is meant by a sanctions issue that goes to the ‘substance of the dispute’ or ‘impact the merit of the claim’; however, it is likely that just because an entity is sanctioned, it will not automatically result in the dispute being considered so complex that the Arbitral Fees are to be set a the top of this range. 

    The change to the Schedule of Costs demonstrates, yet again, how sanctions are complicating dispute resolution across the world and increasing costs for parties even in the more cost-efficient ADR setting. That being said, the increase in the hourly rate should ensure the LCIA remains competitive against other major arbitral institutions and continues to attract high-quality arbitrators, whilst the introduction of the fee range ensures there is a more accurate reflection of the complexity of the case in the fees charged. 

    Receipt of Funds 

    The updated Guidance Notes for Parties and Arbitrators also state that from 1 December 2023, the LCIA will take a new approach to the receipt of funds. 

    Under the new policy, the LCIA will only accept payment from: 

    1. an account held in the name of a party to the arbitration; or
    2. from an account held in the name of a person(s) or law firm(s) who is authorised to act for the party and who is on the record for the party to the arbitration. 

    The new policy comes in the wake of the extensive sanctions regime that came into force following Russia’s invasion of Ukraine, and the greater need for enhanced due diligence by the LCIA when receiving funds from parties to ensure they are not in breach of any sanctions. 

    The updated Guidance also states the LCIA may require further information in these circumstances where sanctions are involved.

    Clearly, this may raise concerns for parties of unnecessary delay resulting from these new policies, which is against the very principle of speed of resolution for which parties choose to engage in arbitration. However, the LCIIA is aware of this and may still accept payments from parties and their legal representatives, including payments for Registration Fees, deposits, arbitrator fees and LCIA charges (see paragraph 276 of the Guidance Note). 

    Commentary 

    There is no doubt that these new measures and policies announced by the LCIA as increasing the cost and complexity of arbitration proceedings, all as a result of sanctions. 

    Despite this, arbitration is still a far more cost-efficient and quicker process than court litigation for resolving your dispute. 

    These changes also highlight the need for businesses and litigators to always have one eye on sanctions and consider the impact they may have on the matter before them. At Eldwick Law, we understand the legal landscape surrounding sanctions is constantly evolving and is one of the most significant concerns for businesses across the world. Our extensive experience with both arbitration proceedings and sanctions best places us to provide tailored advice and help you navigate this ever-changing landscape. 

    For more information on how Eldwick Law can assist you, or to arrange a consultation, please contact our London office.

     

  • First Binding Decision on UK Sanctions ‘Control Test’

    First Binding Decision on UK Sanctions ‘Control Test’

    The issue of whether a non-sanctioned company is subject to a freezing order because a designated person who has been sanctioned under the Russia Sanctions Regulations ‘controls’ the entity has recently received a binding court decision in Litasco SA v Der Mond Oil and Gas Africa SA & Locafrique Holdings SA [2023] EWHC 2866 (Comm) (“Litasco SA”).

    Sitting in the High Court, Mr Justice Foxton found a middle ground between the narrow test suggested in the High Court case of PJSC National Bank Trust and another v Mints and others [2023] EWHC 118 (Comm) (“Mints”) and the broad test proposed by the Court of Appeal in the subsequent appeal of the aforementioned decision.

    Facts of Litasco SA v Der Mond Oil and Gas Africa SA & Locafrique Holdings SA 

    Litasco SA, a Swiss oil marketing and trading company wholly owned by the Russian oil company Lukoil PJSC, sought a summary judgment against Der Mond Oil and Gas Africa SA, along with its parent company, Locafrique Holdings SA, The dispute arose from a contract entered into in April 2021 between Litasco SA and Der Mond, where Litasco SA agreed to supply Nigerian crude oil to Der Mond. An addendum on 7 November 2022, modified the contract’s obligations. Der Mond faced allegations of failing to meet certain payment obligations, leading Litasco SA to issuing proceedings for the outstanding amount.

    Der Mond presented several defences, invoking sanctions and force majeure clauses contained in the addendum. Additionally, Der Mond contended that, despite neither Litasco SA nor Lukoil being designated persons under the UK sanctions regime, it was prohibited from making payments to Litasco SA under regulation 12 of the Russia Sanctions Regulations because Litasco SA should be treated as a designated person due to it being controlled by one or more designated persons, including Mr Alekperov, Lukoil’s founder and CEO until April 2022, and President Vladimer Putin.

    The applicable law concerning the UK Sanctions ‘control test’

    Regulation 12 of the Russia Sanctions Regulations provides that neither a person nor entity can make funds available directly or indirectly to a designated person, which includes a person owned or controlled, directly or indirectly, by a designated person. 

    Regulation 7 of the aforementioned regulations addresses the concept of ‘ownership or control.’ Ownership criteria are met if a designated person holds over 50% of the shares or voting rights or has the authority to appoint or remove most of the board of directors. An entity is considered to be controlled by a designated person if, considering all circumstances, it is reasonable to expect that the designated person could ensure the entity’s affairs are conducted according to their wishes.

    In a recent article, we discussed the obiter comments concerning what constituted ‘control’ made by Mrs Justice Cockerill in Mints. The Judge concluded the Claimants, two state-owned Russian banks, were not owned or controlled by a designated person within the meaning of Regulation 7, because control is not established under Regulation 7 where a designated person controls an entity through a political office which they hold.

    However, on appeal, Sir Julian Flaux, Chancellor of the High Court (sitting in the Court of Appeal), again in obiter comments, deemed ‘control’ to be a much wider concept than that provided by Mrs Justice Cockerill’s reasoning:

    i) By excluding control arising from a political office, the Judge [Mrs Justice Cockerill, sitting in the High Court] had put “an impermissible gloss on the language of the Regulation because of a concern on her part that, if the appellants were correct about the construction of the Regulation, the consequence might well be that every company in Russia was ‘controlled’ by Mr Putin and hence subject to sanctions.”

    ii) “If, as may well be the case, that is a consequence of giving Regulation 7 its correct meaning, then the remedy is not for the judge to put a gloss on the language to avoid that consequence, but for the executive and Parliament to amend the wording of the Regulations to avoid such a consequence.”

    iii) The relevant language “is not concerned with ownership, but with influence or control” and “is apt to cover the case of a designated person who, for whatever reason, is able to exercise control over another company irrespective of whether the designated person has an ownership interest in the other company, economic or otherwise.”

    iv) “The provision does not have any limit as to the means or mechanism by which a designated person is able to achieve the result of control, that the affairs of the company are conducted in accordance with his wishes”.

    By virtue of the above, the Court of Appeal appeared to interpret ‘control’ extremely broadly and acknowledged that under such an interpretation, President Vladimir Putin could be deemed to control everything in Russia.

    The High Court decision in Litasco

    Mr Justice Foxton determined that Mr Alekperov did not exert control over Litasco SA for several reasons, namely:

    1. first, Mr Alekperov resigned from Lukoil’s board soon after facing sanctions; 
    2. his ownership stake in Lukoil was limited to 8.5%, falling short of a controlling interest; and 
    3. the defendants failed to present any evidence indicating that Mr Alekperov maintained control over Lukoil.

    In dealing with the question of whether Litasco SA and Lukoil were controlled by the Russian President, Mr Justice Foxton distinguished Mints on the grounds that in that particular case, the bank in question was owned by the Central Bank of Russia which was “an organ of the Russian state”. In the case before him, the Defendant provided no evidence to show that Litasco SA was owned by the Russian state. 

    Mr Justice Foxton directed his attention to whether “making funds available to Litasco SA amounts to making funds indirectly available to President Putin.” He concluded that “the issue of control has, as its central focus, the ability of the designated person to control the use of the funds made available.” In addition, to have ‘control’ the Russian President would have to have “an existing influence” over the company, not merely the ability to gain control sometime in the future.

    Given the above test, the Court deemed it was “wholly improbable” that any funds made to the Defendant would be made available to President Putin as it was likely that the President had no idea of Lukoil or Litasco SA’s existence.

    Final words

    Litasco SA is the first binding decision to provide a test as to what constitutes ‘control’ under the Russia Sanctions Regulations. It strikes a middle ground between the High Court and Court of Appeal comments in Mints, concluding that whether a designated person has ‘control’ of an entity must be decided on a case by case basis and the key question is whether or not the designated person exercises control on a routine basis. Therefore, the test is a subjective, practical test, rather than an objective, abstract one. 

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

    Note: The points in this article reflect sanctions in place at the time of writing, 27 November 2023. This article does not constitute legal advice. For further information, please contact our London office.

  • How The Court Decides On Sanction Judicial Review Challenges

    How The Court Decides On Sanction Judicial Review Challenges

    Introduction

    The recent case of Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs [2023] EWHC 2121 (Admin) provides a helpful example as to how the High Court decides on cases where the Claimant challenges the lawfulness of a decision by the Foreign Secretary (FS) to designate a person under the Russian sanctions regime.

    The Shvidler Case Background

    The Claimant was a UK‐US dual national. In 1989 he moved from the former Soviet Union to the USA. In 2004, he moved to the UK, where he settled. He had a number of very substantial business interests and was considerably wealthy.

    He had never been a Russian citizen and had not visited Russia since 2007.

    On 24 March 2022 the Claimant was designated by the FS pursuant to regulation 5 of the Russia (Sanctions) (EU Exit) Regulations 2019 (the 2019 Regulations), made under section 1 of the Sanctions and Anti‐Money Laundering Act 2018 (SAMLA). The FS made the decision to designate the Claimant on the basis that there were reasonable grounds to suspect that he was an “involved person”.

    On 11 November 2022, the grounds for the Claimant’s designation were varied following a Ministerial review. The basis for his designation was as follows:

    1. There were reasonable grounds to suspect that the Claimant was associated with Mr Roman Abramovich (an associated person) who is, or has been, involved in obtaining a benefit from, or supporting, the Russian Government, and
    2. There were reasonable grounds to suspect that the Claimant himself participated in obtaining a benefit from, or supporting, the Russian Government through working as a non-executive director of Evraz plc, an entity carrying on business in sectors of strategic significance to the Kremlin.

    The designation resulted in a worldwide freezing order over all the Claimant’s assets. His children were immediately excluded from their public schools, and he had to move to the US where he relied on friends for financial maintenance. His ability to conduct business was “destroyed” and his ex-wife found it difficult to access banking facilities.

    The Claimant argued that the designation amounted to disproportionate interference in his rights under the European Convention on Human Rights (ECHR), specifically Article 8 (right to private and family life) and Protocol 1 Article 1 (right to enjoy property peacefully).

    Key Statute Laws Relevant to the Shvidler Case

    The power to make sanctions regulations is contained in section 1 of SALMA.

    Regulation 6 of the 2019 Regulations states that the Secretary of State may not designate a person unless they have reasonable grounds to suspect the person is an “involved person”.

    “Involved person” is defined in Regulation 6(2) as a person who:

    1. is or has been involved in—
    • destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine, or
    • obtaining a benefit from or supporting the Russian Government,

    2. is owned or controlled directly or indirectly by a person who is or has been so involved in the above, or

    3. is acting on behalf of or at the direction of a person who is or has been so involved, or

    4. is a member of, or associated with, a person who is or has been so involved.

    Regulation 6(3) provides that a person is “involved in destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine” if

    1. the person is responsible for, engages in, provides support for, or promotes any policy or action which destabilises Ukraine or undermines or threatens the territorial integrity, sovereignty or independence of Ukraine
    2. the person provides financial services, or makes available funds, economic resources, goods or technology, that could contribute to destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine;
    3. the person provides financial services, or makes available funds, economic resources, goods or technology, to –- a person who is responsible for a policy or action which falls within sub-paragraph (a), or
      – a person who provides financial services, or makes available funds, economic resources, goods or technology, as mentioned in sub paragraph (b);
    4. the person obstructs the work of international organisations in Ukraine;
    5. the person conducts business with a separatist group in the Donbas region;
    6. the person is a relevant person trading or operating in [non-government controlled Ukrainian territory];
    7. the person assists the contravention or circumvention of a relevant provision

    The Court’s decision

    Mr Justice Garnham referred to Lord Sumption’s test for proportionality set out in the Supreme Court case of Bank Mellat v HM Treasury (No 2) [2013] UKSC 39. When answering the question of whether a measure is proportionate, the Court must consider:

    1. Whether the objective of the measure being imposed is sufficiently important to justify the limitation of a fundamental right,
    2. Is the measure rationally connected to the objective,
    3. Could a less intrusive measure have been used, and
    4. Whether, having regard to the above and the severity of the consequences, a fair balance has been struck between the rights of the individual and the interests of the community.

    In evaluating the evidence presented by both sides, Mr Justice Garnham concluded that the test in Bank Mellat was satisfied. There was no doubt that the Claimant was a long term friend and business associate of Mr Abramovich. He was appointed Vice-President for Finance and then President of Sibneft, a company owned by Mr Abramovich between 1996 and 2005.

    The Claimant was also one of Mr Abramovich’s two nominee directors on the board of Evraz, a role for which he was paid $204,000 per year in the period 2013-2021. For these reasons, both grounds for the designations were ruled to be well founded.

    A rational connection between making the Claimant a designated person and the objective of the sanction regime was also found. Mr Justice Garnham stated that the evidence reviewed by the FS when he made the decision to designate the Claimant justified the conclusion made by the FS that Mr Abramovich had a continuing relationship of trust and confidence with President Putin. Regarding the ability of the Claimant to influence Mr Abramovich, the Court stated:

    “As a matter of common experience, an individual may more readily act when it is at the request, or in the interests, of his friends and colleagues than when it is only in his own interests. In any event, the availability of a more direct means of putting pressure on Mr Abramovich does not undermine the value of additional pressure provided by the Claimant.”

    The Court rejected the Claimant’s argument that sanctions cannot be imposed for past acts, now regarded as objectionable and that he had done everything possible to withdraw from his association with the Russian Government and denounce the invasion of Ukraine. Mr Justice Garnham said that a sanctions regime is likely to be backward looking, concentrating on past behaviour that was not considered unlawful at the time.

    Furthermore, the 2019 Regulations refer expressly to past conduct as providing the ground for designation. To be effective, sanctions need to send messages to the designated person, and others in a similar position, that the conduct in question is unacceptable.

    On the issue of whether or not alternative measures could have been applied to the Claimant, Mr Justice Garnham deferred to the FS, stating that “the relative benefits, disadvantages and effectiveness of different measures taken in pursuit of foreign policy objectives is not one on which the Court can second-guess the Foreign Office.”

    Finally, in considering whether a fair balance had been struck, the Court concluded that the FS had had full regard of the impact sanctions would have on the Claimant and his family. Although they suffered economic loss and inconvenience, neither their life nor freedom was threatened. In addition, the Claimant had not been permanently deprived of his property. The deprivation was only for as long as he remained a designated person.

    The Judicial Review was therefore dismissed. The Claimant has said he will appeal the decision.

    Comments on Judicial Review Applications

    This case highlights the high hurdles a Claimant must jump to succeed in a Judicial Review application concerning the Russian sanctions regime. Mr Justice Garnham concluded that the Court could review the reasonableness of the Secretary of State’s analysis in deciding to make someone a designated person; however, it is clear that any unreasonableness or disproportionality would not be something the Courts would readily find.

    Given the difficulty of succeeding in a Judicial Review challenge in sanctions cases, it is vital to instruct a legal team that has experience in this area of law.

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

    Note: The points in this article reflect sanctions in place at the time of writing, 12 October 2023. This article does not constitute legal advice. For further information, please contact our London office.

  • Legal Insights: A Recap of the English Law Week in Central Asia

    Legal Insights: A Recap of the English Law Week in Central Asia

    The English Law Week in Central Asia, running from September 15th to 21st, brought together law professionals and students in a unique event spanning Tashkent, Almaty, and Astana.

    The event marked a significant moment of sharing and exploring various aspects of English law and its intersection with Central Asian legal contexts.

    Here is an overview of the event:

    Kick-off in Tashkent

    The week started at Westminster International University in Tashkent, focusing on sanctions, particularly looking at recent changes and challenges.

    In-depth discussions moderated by Gani Abaidildinov on international disputes and arbitral awards provided a solid foundation for understanding and navigating the complexities of legal frameworks in international contexts.

    International arbitration was another key focus of the the event, with Rashid Gaissin moderating the conversation.

    In-Depth Discussions in Almaty

    Moving to De Montfort University in Almaty, the dialogues shifted towards exploring shareholder and corporate governance disputes under English and AIFC law.

    The sessions offered a unique blend of theoretical knowledge and practical insights, especially regarding unfair prejudice petitions in Kazakhstan, creating a robust learning environment.

    During the event, Rashid Gaissin, partner at Eldwick Law, facilitated the discussion on the complex terrains of cross-border legal frameworks and asset management.

    Wrapping Up in Astana

    The final leg at Wyndham Garden Astana delved into commercial contracts and cross-border insolvency in Kazakhstan, moderated once again by Eldwick Law.

    These sessions not only provided clarity on the subjects but also opened avenues for future discussions and collaborations among the participants.

    English Law Week - Astana
    English Law Week – Astana

    Connecting Traditions and Modernity

    English Law Week successfully blended traditional legal principles with modern challenges and approaches.

    The engaging discussions between English delegates and local participants, especially local private practices and in-house lawyers, laid the foundation for future international legal collaborations and knowledge exchange.

    The event has sewn seeds for future dialogues and collaborations in the legal domain.

    The shared discussions and forged connections promise a future of shared knowledge and collaborative efforts among the legal communities of England and Central Asia.

    Conclusion

    As we reflect on the event, the knowledge shared, connections made, and discussions had, promise a bright future of collaboration and understanding across borders.

    Rashid Gaissin, Chairman of the British-Kazakh Law Association and partner at Eldwick Law, took a moment to reflect on the success of the event, embodying a valuable exchange of legal knowledge between the UK and Central Asia.

    The week’s triumph has further ignited the association’s commitment to fostering dialogues and connections among the legal communities of Central Asia and the UK.

    With an optimistic gaze towards the future, Gaissin revealed exciting plans for the upcoming Kazakh Law Day, scheduled to be held in London in early 2024. This event, much like the English Law Week, promises to be a compelling platform where legal minds converge, explore, and collaborate, continuing the spirit of international legal exchange and cooperation.