Impact of Sanctions on International Arbitration
Alternate Dispute Resolution (ADR), mainly denotes a wide range of dispute resolution processes that act as a means of disagreeing parties to come to an agreement without using the means of litigation. It is a collective term that refers to how the parties can settle disputes, with the help of a third party. It is also known as external dispute resolution (EDR). ADR has gained widespread acceptance among both the general public and the legal profession in recent years and is also being adopted as the means to help settle disputes alongside the court system itself. Among all the other forms of Alternative Dispute Resolution (like mediation, conciliation, and negotiation), arbitration has gained widespread recognition globally. In the process of Arbitration, there has to be a valid Arbitration Agreement between the parties before the emergence of a dispute for the process of arbitration to exist. In this method of dispute resolution, the parties refer the dispute to a third party, who is appointed as an arbitrator. The decision of the arbitrator is binding on both the parties and his decision is given in the form of an award. Recent times have witnessed the growth of international arbitration, especially after the New York Convention on International Arbitration.
However, here the focus is mainly on the impact of sanctions on international arbitration. The best example depicting the impact of sanctions on international arbitration is that of the impact of sanctions issued by the United States of America (USA), the European Union (EU), and other jurisdictions in relation to Russia, on ADR involving Russian entities and parties. Apart from the complexities, the main problem of sanctions is that apart from the party on which the sanction has been imposed, the counterparty which is not subject to sanctions at the time of entering into a business transaction may be subjected to such sanctions without any logical reasoning. It is because of this that parties restrict themselves from entering into any transaction with the Russian parties. It must be noticed these sanctions have been issued since 2014.
When sanctions are imposed, it affects the various stages related to arbitration such as the appointment of arbitrators, payment of arbitration fees, etc. If the arbitral institutions or the arbitrators or legal representatives of the parties are residents in a jurisdiction that has imposed sanctions on a party to a dispute, then a prior authorization may be required from the relevant jurisdiction, to perform its role in the arbitral proceedings. In a lot of cases, there is a fear of banks freezing the accounts. Due to sanctions being imposed on Russia, it becomes difficult for her to pursue any arbitral institutions since most have them have been restricted by the US and EU signatories. This involved the Singapore International Arbitration Centre as well as the Hong Kong International Arbitration Centre.
The use of sanctions has increased in the past two decades. It is one of the most effective ways to apply pressure diplomatically to avoid military action. Many sanctions have been imposed on Middle Eastern countries and parts of Africa which explains the instability in those counties. It is the responsibility of the participants in the arbitration process, to go through the implications of sanctions on arbitration proceedings, and to be equipped to deal with them.