1. Economic Sanctions and International Arbitration The Application of Sanctions by Arbitrators (in the arbitral award) W. Laurence Craig

2. Sanctions may be national, regional or supranational Their application may have to be examined / applied under: –Applicable substantive law –Laws of third states (for example through the tribunal’s application of Article 7 of the Rome Convention on Law Applicable to Contractual Obligations in EU Member States; or if a country, like the United States, demands the extraterritorial application of an economic sanction) –Public International Law (e.g. economic sanctions set by the Security Council of the United Nations) –Law of the seat of arbitration –Law of the place of enforcement Question 1: What is the applicable law in disputes concerning economic sanctions? October 28, 2016 Orrick | 2

3. The arbitrability of disputes involving sanctions primarily depends on the law of the seat of arbitration. However, consideration should also be made with regard to the law governing the arbitration clause and the interpretation of the language of the sanction at issue. As such, the issue of arbitrability must be analysed on a case by case basis. Case law suggests that it is likely that arbitral tribunals faced with this question will confirm that the presence of sanctions does not render a dispute inabitrable. Question 2: May disputes involving the application of sanctions be arbitrated? Orrick | 3 October 28, 2016

4. La Compagnie Nationale Air France v. Libyan Arab Airlines (unpublished but extensively reported, see G. Burdeau, « Les embargos multilatéraux et unilatéraux et leur incidence sur l’arbitrage commercial international – Les états dans le contentieux économique international, I. Le contentieux arbitral » (2003), 3 Revue de l’Arbitrage 753, 762 ff) –Ad hoc UNCITRAL arbitral tribunal seated in Montreal asserted its jurisdiction; Québec courts upheld tribunal’s decision Finantieri-Cantieri Navali Italiani SpA v. Ministry of Defense of Iraq ICC Case N° 6719 –The Court of Appeal of Genoa concludes that Italian law dealing with sanctions on Iraq was applicable to the dispute and rendered it inabitrable; the French Cour d’Appel de Paris disagreed, acknowledged the arbitrability of the dispute and refused to enforce the decision –Swiss Federal Tribunal concluded that the matter was arbitrable due to the broad definition of arbitrability in Article 177 of the Swiss PILA Question 2: May disputes involving the application of sanctions be arbitrated? (continued) Orrick | 4 October 28, 2016

5. Where the sanction is adopted by the country whose law governs the contract (lex causae), the arbitrator may directly apply it to the dispute However, there may be a question as to whether the sanction is applicable in the absence of a choice of law by the parties –See Awards in ICC Case N° 2977, 2978 and 3033/1978 (where the arbitrators refused to take into account a Libyan boycotting regulation against Israel on the ground that the law of Libya was not expressly chosen by the parties) Question 3: How may sanctions impact the merits of the dispute? Orrick | 5 October 28, 2016

6. Where the sanction is not derived from the lex causae, the arbitrator is faced with a number of possibilties: Traditionally, the arbitrator may treat the sanction as datum to be considered in the applicable law: the sanction is treated as a factual circumstance relevant to considerations such as force majeure or other conditions that may affect the validity of the contract at issue –See Award in ICC Case N°4462 (where the tribunal examined whether applicable embargo measures qualified under the force majeure exception in a contract governed by Libyan law) –See Final Award in Chamber of Arbitration of Milan Case N°1491 (where the tribunal found that applicable sanctions rendered performance under the contract governed by Italian law impossible) Question 3: How may sanctions impact the merits of the dispute? (continued) Orrick | 6 October 28, 2016

7. Another possibility advocated by commentators involves the arbitrator inquiring whether the invoked sanction forms part of the transnational public policy or constitutes a mandatory rule of a foreign law Although not directly applicable to arbitration, Article 7(1) Rome Convention or Article 9(3) Rome I Regulation authorizing domestic courts in certain circumstances to take into account overriding mandatory rules may be applicable by analogy –UN Security Council Resolutions would more easily qualify as rules of transnational public policy –However, whether a sanction adopted by one country or a smaller number of countries would qualify as transnational public policy or a foreign mandatory rule is less obvious Question 3: How may sanctions impact the merits of the dispute? (continued) Orrick | 7 October 28, 2016

8. A sanction may have an impact on the validity and the enforcement of an award to the extent that the enforcement of the award would be in breach of a sanction and thereby the public policy of the state where the award was rendered or where enforcement is sought. To the extent possible, an arbitrator should take into account a sanction that would affect the enforceability of the award. However, this exercise may be problematic given that recognition, enforcement and public policy will differ from State to State. Notable decision: Ministry of Defense of Iran v. Cubic Defense Systems, where U.S. federal courts dismissed Cubic’s argument that the confirmation of the award would be contrary to U.S. public policy in light of US sanctions imposed on Iran concluding that Cubic had failed to identify a public policy sufficient to overcome the strong federal policy in favor of recognizing foreign arbitration awards. Question 4: Should the arbitrator take into account sanctions to the extent they affect the enforceability of the award? Orrick | 8 October 28, 2016