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EMTA Special Seminar: Recent Developments in Emerging Markets Arbitrations (NY) - May 14

Monday, May 14, 2018

Dechert LLP

3 Bryant Park
28th Floor (Rooms J and K)
(42nd St. between 6th Avenue & Broadway)
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. 

11:30 a.m. Registration 

12:00 noon – 2:00 p.m. Panel Discussion 

Alexandre de Gramont (Dechert) – Moderator
Mark Cymrot (BakerHostetler)
Noiana Marigo (Freshfields Bruckhaus Deringer)
Henry Weisburg (Shearman & Sterling)
Peter Griffin (Slaney Advisors)

Lunch will be provided 

Additional Support provided by BakerHostetler, Freshfields Bruckhaus Deringer 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. 



NYC Panel Discusses Updates to EM Arbitrations, Including Corruption Defenses and Third-Party Funding

EMTA’s Special Seminar “Recent Developments in Emerging Markets Arbitrations” was held on May 14, 2018 at Dechert’s NYC offices. Alexandre de Gramont (Dechert) moderated the panel, with Mark Cymrot (BakerHostetler), Noiana Marigo (Freshfields Bruckhaus Deringer), Henry Weisburg (Shearman & Sterling) and Peter Griffin (Slaney Advisors) as panelists. Additional support was provided by BakerHostetler, Freshfields Bruckhaus Deringer and Shearman & Sterling. PowerPoint Presentations by Messrs. de Gramont and Weisburg and by Ms. Marigo, together with relevant documents can be found in the Special Events section of EMTA’s website under May 14, 2018 (

de Gramont’s introductory remarks included a summary of the advantageous attributes of using arbitration instead of litigation for disputes in the Emerging Markets. Specifically, arbitration guarantees a more neutral forum for the resolution of disputes between parties of different nationalities by avoiding the local courts of the disputing parties and having neutral arbitrators with specialized expertise. Arbitral awards are easier to enforce than court judgments because of international treaties, and arbitration is speedier and relatively more efficient than court proceedings. And, arbitration is particularly well-suited for Emerging Markets where the courts pose particular challenges (including not being independent, sometimes being corrupt and without the proper experience to deal with complex business matters).

Explaining the differences between international commercial arbitration and investor-state arbitration, he stated that the former typically arises from a contract between private parties (including state-owned enterprises), while the latter is typically between an investor and the State (though state-owned enterprises are often involved) and typically arises from an investment treaty (such as NAFTA) or local investment laws that provide similar protections to treaties and have provisions that allow parties to seek arbitration. Occasionally, investor-state arbitration arises from contracts entered into by the investor and the State (or a State-owned enterprise).

There are well over 120 international arbitration institutions around the world, 70% of which have been created in the past 30 years. Currently, there are over 3,200 investment treaties and over 600 known cases, which are typically high-value cases alleging hundreds of millions and even billions of dollars. There is a great deal of geographical diversity and most cases come from the developing world. Treaty provisions typically have more fulsome protections than contracts – namely, no expropriation without compensation, “fair and equitable treatment”, “full protection and security”, treatment no less favorable than that received by other domestic or foreign investors and “umbrella clauses” which bring other obligations undertaken by the State within the protection of the treaty. Also, investor-state arbitrations do not require privity of contract, investors can bring claims if they are nationals of States that are parties to the relevant treaty. However, there are particular challenges in connection with ISDS (investor-state dispute settlement) that some States, NGOs and academics have raised – namely, the arguments that investor-state arbitration infringes on the ability of States to self-regulate, that the issues at stake should be decided by a court rather than by independent private arbitrators, and that ISDS does not promote foreign investment (which is the rationale for investor-state arbitration in

the first place). Currently, there is also opposition to ISDS from the Trump Administration. According to the Trump Administration, if ISDS were eliminated, U.S. investors would be more likely to invest in the U.S. than abroad. And, finally, de Gramont discussed a recent case brought in the EU, Slovak Republic v., where the Court of Justice of the European Union held that the bilateral investment treaty between the Netherlands and the Slovak Republic must be interpreted as precluding a provision that provides for investor-state arbitration. While it is unclear whether this case will be extended to other treaties, he commented that it could create particular challenges for investor-state arbitration in Europe.

Marigo provided statistics on arbitration claims against Latin American countries, with Argentina, Venezuela and Mexico leading the pack. She analyzed whether the protections afforded by the treaties developed to mitigate risks in EM are effective. The threat of international arbitration alone in many instances allows investors to have meaningful negotiations with the relevant government officials. Approximately 1/3 of the cases are settled prior to an award. If early settlement is not possible, States normally do pay voluntarily (especially when States need foreign investment and financing) even if it takes a long time, and discounts are to be expected. That said, if States do not pay voluntarily, it is exceedingly difficult to find assets to attach. Some tools that can be used to force collection of awards include lobbying the U.S. government to put pressure on the States in the form of denial of international funding or suspension of trade benefits. On balance, bilateral investment treaty protection is one of the few tools (and in some cases the only tool) for investors to protect their investments against political and regulatory risks.

Mr. Weisburg discussed the dramatic increase in corruption as a defense in international investment arbitration, which decisions are highly publicized (vs. commercial arbitrations, which are very private, thus not affording a view of both the award and decision). How one even proves corruption is difficult, and is it a criminal (overwhelming evidence) or commercial (preponderance of evidence) standard? What should award fees and costs be? What if a State is corrupt, along with the claimant? The standards for proving corruption and illegality claims are the following (all of which reflect some level of uncertainty):

Domestic Legal Standard (standard prescribed by the State) - Allegations that an act violated a specific host State law should be proven under the standard prescribed by that State.
Criminal Standard (clear and convincing evidence, higher standard) - Corruption allegations can be proved through circumstantial evidence, provided the evidence is clear and convincing.
Reasonable Certainty Standard (closer to the commercial standard) - Tribunals will not resort to presumptions about the burden of proof, but will assess whether the evidence establishes the allegations with reasonable certainty.
As the Tribunal Sees Fit Standard - No standard of proof is mandated by international law and a tribunal is free to weigh the evidence as it sees fit.

It is common for some or all of the winner’s fees and costs to be imposed on the loser. However, what about corruption cases where both parties are at fault? If no “successful party”, each party should bear its own costs and Tribunal costs should be split equally. He mentioned an unusual award where there was a sizable contribution to the UN anti-corruption fund.

Mr. Griffin discussed the increase in third-party funding of arbitration awards which are increasingly being bought and sold, give the uptick in activity in treaty awards. After the Achmea decision, he thinks there may be more sellers of arbitral awards (as more institutional buyers become more aware of the possibilities and enter this space with large law firms participating), leaving others to deal with enforcement. Arbitration awards are tradable investment opportunities, akin to other sovereign bond instruments, and usually bear interest from the date of the award to the date of final payment, which amounts can be quite significant. Some of the differences between sovereign instruments (such as bonds) and awards are that the latter are often illiquid (i.e., not much of a marketplace exists), difficult to trade and expensive to document. In addition, buying awards is complicated, with lots of moving parts (which may include obligations to do or not do certain things); it is a “fairly opaque business”, subject to cancellation. These awards can be large enough to have an effect on a country’s GDP ratio, ratings, debt profile, etc. (e.g., as evidenced by recent awards against Pakistan and Venezuela). Some awards remain unpaid (e.g., Belize) that may then have an Event of Default trigger to other debt (so the amount of the award is not as relevant as a possible cross-default scenario). Rogue arbitration creditors can be viewed as a threat (acting destructively by direct involvement with the sovereign, or indirectly by an aggressive enforcement campaign) or an opportunity (through big returns that are not always discounted as bonds tend to be).

Griffin also addressed sovereign enforcement award insurance, which can be expensive (but may not be in the long run). There is no limit to geographical concentration, and can include sovereigns that are creditworthy and have the ability to pay and the political need to pay, but for some other reason do not pay. Likewise, litigation funding companies provide new access to arbitral awards for small companies that have brought in their own investors to also collect in such awards. These transactions are not exclusively outright sales of awards; they may have buy-back vehicles that have characteristics of mergers and acquisitions transactions. If selling down to de-risk is a concern, partial sales or participations can be implemented. The securitization route can also be employed by harnessing the power of the debt capital markets, borrowing from the Repsol model where a sovereign can be persuaded to issue sufficient paper to satisfy an arbitral award, either though some discount or by replacing high interest rate debt without worrying about attachments.

Mr. Cymrot discussed his new book, “Squeezing Silver: Peru’s Trial Against Nelson Bunker Hunt”, which encompassed the decrease in silver prices, the too big to fail bailout, buying silver futures, the “broad daylight” conspiracy and the lesson that those events may lead to a similar set of circumstances today. He noted this case would have been very difficult to settle in an arbitration context.