International Risk Management
International Risk Management Overview
If drafted precisely and if amalgamated into the contract correctly, the prospect of effective international arbitration lowers risk and offers a proven way to achieve redress, if necessary. This prospect incentivises parties to negotiate solutions to problems during contractual performance, rather than seeking advantage in local courts, saving relationships and projects.
Nowadays, for these reasons, commercial parties in most sectors prefer international arbitration as the means of ensuring international enforcement of their contractually agreed allocation of risk. Our fluency in the applicable laws, procedures and practicalities of international arbitration in all its forms enables our clients to conduct cross-border transactions (and where necessary disputes) with confidence.
Benefits of International Arbitration
Generally, International Arbitration is legally binding, flexible, reliable and confidential. It replaces national courts, which are often inappropriate in international commercial scenarios. Usually, each party wishes to avoid litigating in the other’s home courts, or those of a third jurisdiction, where for instance a joint venture asset may be situated or there may be high levels of political risk.
Other up-front benefits are set out below. More detail on available options should difficulties nevertheless arise later is available here, depending upon precise circumstances:
- Commercial Arbitration
- Investment Arbitration
- Interim Relief
- Award Enforcement
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Commercial Arbitration
The integrity of Commercial Arbitration agreements is founded upon international treaty and respected by courts in over 160 countries. This treaty nexus bestows many advantages over litigation in terms of risk management. Three such advantages are:
First
First, the doctrine of separability requires that arbitration agreements exist as separate contracts, operating autonomously. Consequently, even if a contract is void, its arbitration agreement endures, only failing if it is also and independently void. This ensures that no party can undermine the arbitration agreement through claims relating to the contract.
Second
Second, the principle of kompetenz-kompetenz enables arbitral tribunals to (i) determine their own jurisdiction, (ii) decide the validity of the arbitration agreement, and (iii) delineate its scope, all independently of national courts at least until they render their award(s). This principle ensures neither party can undermine the arbitration agreement by attacking the arbitration agreement itself.
Third
Third, arbitration award enforcement is so difficult to challenge or resist in national courts that most award debtors now pay timeously. Post-award, courts can in very limited circumstances scrutinise awards in set-aside and/or enforcement proceedings (and our lawyers have resisted award enforcement for clients), but successful challenges are very rare. This endgame factors into commercial risk assessment when issues arise during project development
Investment Arbitration
There are over 3,000 bilateral and multilateral investment treaties designed to stimulate foreign direct investment between their signatories. These treaties grant investment protections to investors from signatory states against interference by signatory host states with investments. Any resulting investment arbitrations are even harder to frustrate than their commercial counterparts, and any awards are extremely difficult to overturn. States must engage: payment of awards can adversely affect state budgets, while non-payment can result in the lowering of a state’s credit rating.
In short, if approached correctly, the prospect of investment arbitration lowers political risk for investors, thus increasing the likelihood of investment for signatory states.
Usually, when structuring international investments, political risk is one of several factors at play, alongside for instance tax treaties, confidentiality and exit strategy. Alongside our expert transactional and sectoral colleagues, we can provide clients with a fuller picture.
In particular, experience of such arbitrations and specialist qualifications enable us to provide practical advice on what treaty protections mean and whether they would actually apply should a state interfere with the investment in question. We can also offer advice on related matters of public international law that tend to arise in this context, such as international sanctions and sovereign immunity.
Interim relief
If necessary, we have experience in obtaining freezing orders, evidence preservation orders and other injunctive relief – including against third parties – should international transactions falter during negotiation or after conclusion. Depending upon the situation, such relief may be required from a national court, an emergency arbitrator or an arbitral tribunal.
Effective enforcement of such interim relief is always a factor, which is why it is so important to address international risk allocation carefully in transaction documents. If done correctly, though, the prospect of effective interim relief can constitute an important deterrent for potentially recalcitrant parties.
Commercial Arbitration
The integrity of commercial arbitration agreements is founded upon international treaty and respected by courts in over 160 countries. This treaty nexus bestows many advantages over litigation in terms of risk management. Three such advantages are:
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Can we help?
There is nothing to stop clients availing themselves of the prospect of all three means of risk enforcement to minimise risk in the right case. If you are considering structuring, restructuring or amending an international transaction, contract or project, we would be happy to help.