ICC Canada Annual Conference, Afternoon Session: Debate on Arbitral Sanctions
for example, just days before the debate, the London Court of International Arbitration announced that it had been granted an exemption from EU sanctions control to enable it to complete administration of pending arbitrations involving Russian and Belarussian parties. Debaters Joseph Chedrawe (Covington & Burling LLP) and Jessica Crow (Independent Arbitrator) offered valuable insights into how sanctions and international arbitration interact.
What do we mean by Sanctions?
To begin the debate, Trehearne noted the UN’s broad definition of sanctions: “Restrictive measures that fulfill a range of purposes when put in place.” He suggested that there are two broad categories of sanctions: primary and secondary. Primary sanctions are enforced by targeting domestic entities, whereas secondary sanctions are enforced by preventing third parties from trading with countries subject to sanctions.
Why is this timely?
Trehearne emphasized the importance of sanctions in today’s political climate. He explained how foreign policy history shows that states have used use military means to achieve goals; while military means have decreased, the use of sanctions has sharply increased. Tehrane pointed to Russia as his main example, where thousands of sanctions have been imposed on their economy since the invasion of Ukraine. As of March 2022, 55,000 sanctions have been imposed worldwide, a number that has only increased since.
What are the practical implications?
Trehearne ended his introduction to the debate by diving into the effects of sanctions on arbitral institutions. He suggested that institutions that see themselves as neutral must conduct compliance checks throughout the process. If new sanctions are imposed, everything existing must be checked—institutions need to pay attention to the parties’ businesses and potentially seek licenses from regulators in order to continue administering pending arbitrations involving sanctioned parties. Nonetheless, as Trehearne suggests, these challenges are procedural and not substantive.
Chedrawe took the position that adherence to sanctions does not affect the neutrality of arbitral institutions. He based his argument on four main points. First, Chedrawe indicated that adherence to sanctions is a legal requirement imposed on arbitral institutions, just as neutrality is a legal requirement. He pointed to a statement released by the International Chamber of Commerce Court of International Arbitration (ICC) on this topic: “The need for sanctions is a political matter outside the realm of ICC and law and regulations are generally considered to be mandatory and override ICC rules.” As such, it is not a matter of choice for arbitral institutions to comply, as they must comply by the necessity of law or else seek a license or exemption through legal processes.
Second, Chedrawe argued that while adhering to sanctions creates new procedural steps, it does not create a general prohibition on parties’ participation in arbitrations. As an example, he cited the exemption procured by the London Court of International Arbitration (LCIA) October 17, granting it a general license to administer arbitrations involving Belarussian parties which allows the LCIA to make and receive payments with sanctioned persons.
Third, Chedrawe argued that, while the use of sanctions has grown, the international experience in dealing with sanctions is not a new phenomenon. According to Chedrawe, arbitrational institutions have been managing sanctions for decades. In fact, the ICC was already reporting that one-third of all cases involved sanctions before this year. Therefore, while this might create additional steps in the case management process, and notwithstanding the recent sanction proliferation, the key message from institutions is: “it’s business as usual.”
Last, Chedrawe based his argument on the foundational principle of international arbitration: party autonomy. Parties have a choice of over 266 arbitral institutions worldwide. Chedrawe points to Russian parties, which historically used Europe-based institutions, but after the 2014 occupation of Crimea and the rounds of sanctions it generated, began to show a preference for Asian institutions.
In opposing Chedrawe, Crow took the position that adherence to sanctions does affect the neutrality of arbitral institutions. Crow began by indicating that, as the war in Ukraine continues, she stands in opposition to the current resolution. She stresses this is not because the war is not serious or because it does not demand a response from the international community, but because when assessing the ethics of sanctions and regime interaction with the rule of law it is important to maintain a balanced view. Crow suggested that while the overall strategy of the West are correct, the tactics deployed may be short-sighted. Many innocent Russian citizens are collateral damage under this current regime. The international judicial system, our rule of law, and our institutions should not be sacrificed to protect against the violation of norms.
Crow continued by pointing to how compliance with sanctions raises legitimate concerns about access to justice. She indicated that the constantly shifting sea of unilateral sanctions complicates matters, as the regimes are not always compatible or implemented the same way across jurisdictions. Further, this poses major problems for institutions and sanctioned parties in the processing of payments. The use of sanctions can impose procedural disadvantages for sanctioned parties who lack effective means of asserting claims and enforcing rights that the institution is not able to accept payment or even where secondary sanctions prevent an imposing party from paying in substitute. In addition, Crow argues that, in most cases, an exemption is not available, and that when it is, applying for these licenses imposes huge delays. Put simply, it is not business as usual, as the time and cost required to navigate compliance issue is extensive.
Finally, Crow argued that party autonomy is not as simple as Chedrawe suggested. Many institutions have a strong connection to their host city. While parties might have a choice to take their disputes elsewhere, if we care about the legitimacy of our institutions then we should be more concerned about the appearance of bias and reputational impact. Crow finished by pointing out that before WWI, sanctions were considered economic warfare and indeed contributed to the start of the war. If sanctions were truly peaceful, there would not be such an ethical dilemma. However, sanctions do cause harm, including to the neutrality of institutions, because they have such long-lasting effects that it is difficult to untangle their ramifications.
* JD Student, Queen’s University Faculty of Law; Assistant Managing Editor of Productions, Canadian Journal of Commercial Arbitration.