Introduction
Welcome to the last issue of Esin Dispute Quarterly for 2024! As we come to the end of the year and reflect on 2024, we are excited to introduce a comprehensive resource that we delve into the key rulings of the various Supreme Courts, Turkish Constitutional Court and Regional Court of Appeals offering in-depth analysis and insights. We will also highlight the most important breakthroughs and emerging trends in the international arbitration, and more generally in dispute resolution in the last few months.
Join us as on this exciting journey with Esin Dispute Quarterly- your essential guide to the ever-evolving world of legal disputes
1. Significant court decisions
1.1 The Constitutional Court ruled that the provisions of the Law on Mediation in Civil Disputes regarding mandatory mediation proceedings before filing a lawsuit for termination of joint ownership was constitutional.1
The Constitutional Court of the Republic of Türkiye ("Constitutional Court") recently made a significant ruling (file no. 2023/178, decision no. 2024/125), published in the Official Gazette on 2 October 2024. The Constitutional Court assessed the constitutionality of the phrase in Article 18/B(1)(b) of the Law on Mediation in Civil Disputes No. 6325, which mandates mediation as a prerequisite before filing a lawsuit for disputes related to the termination of joint ownership. Sorgun Court of Peace alleged that this provision imposes an unreasonable restriction on the right to access to the court, as it does not allow parties to bypass mediation even when it is impractical or impossible to gather all necessary parties. The Constitutional Court ruled that the phrase is constitutional and should not be annulled.
In its objection, Sorgun Court of Peace claimed that the primary challenge in disputes concerning the termination of joint ownership is identifying the involved parties. This type of lawsuit often necessitates additional legal actions, such as obtaining a certificate of inheritance or correcting civil registry records. As a result, the mandatory mediation process could complicate the identification of these parties. However, the Constitutional Court disagreed with this perspective, stating that requiring mediation as a pre-condition for disputes helps resolve issues more quickly and effectively. This approach allows lawsuits to be concluded within reasonable timeframes while also reducing the workload on judicial authorities.
The Constitutional Court further noted that the Mediation Law empowers mediators with various tools to organize the parties involved, ensuring a smooth and effective mediation process. As a result, the Constitutional Court ruled that the regulation mandating obligatory mediation in termination of joint ownership lawsuits is constitutional and should remain in effect
1.2 The Constitutional Court annuls the provision of Article 278 of Enforcement and Bankruptcy Law in which the gratuitous dispositions made between the adoptee and the adopter are accepted as donation.2
The Constitutional Court recently examined the constitutionality of a provision in Article 278 of the Enforcement and Bankruptcy Law No. 2004. This provision treats all gratuitous transfers between an adopter and an adoptee made within a specified period before insolvency or bankruptcy as donations, rendering them null and void in cancellation of disposition lawsuits.
In its ruling for case no. 2023/200 and decision no. 2024/103, the Constitutional Court found that this provision imposes an unreasonable restriction on property rights and the right to seek justice, as it prevents parties from presenting evidence or counterarguments regarding whether these transfers were indeed gratuitous dispositions. Consequently, the Constitutional Court ruled that the provision is unconstitutional and should be annulled, with the annulment taking effect nine months after the decision is published in the Official Gazette.
The Constitutional Court's annulment decision is a further step in protecting property rights and the right to seek justice. This ruling ensures that individuals can present evidence and arguments in legal proceedings, preventing unreasonable restrictions on their constitutional rights
1.3 UK Supreme Court upheld the Court of Appeal's decision in UniCredit Bank GmbH V. RusChemAlliance LLC [2024] EWCA Civ 64.
The UK Supreme Court recently upheld the Court of Appeal's decision in UniCredit Bank GmbH V. RusChemAlliance ("RCA") LLC [2024] EWCA Civ 64 regarding anti-suit injunction against RCA.3
RCA had entered into contracts with a third party for the construction of gas processing plants in Russia. To support these contracts, UniCredit had issued seven on-demand bonds totaling approximately EUR 420 million. The bonds contained arbitration clauses governed by English law and provided arbitration under International Chamber of Commerce ("ICC") rules, with Paris as the seat.
Following the invasion of Ukraine, the contractors claimed EU sanctions prevented them from finishing the project and refused to return the advance payments. Following that, RCA filed a lawsuit against UniCredit in Russia for EUR 448 million under the bonds. In response, UniCredit sought an anti-suit injunction in the UK to stop the proceedings in Russia arguing that RCA is in breach of the arbitration agreement
Initially, the High Court granted an interim injunction on an ex parte basis in favor of UniCredit but later declined to make it permanent. The High Court reasoned that, since the arbitration was seated in Paris, French law governed the arbitration process, and thus English courts should not issue an anti-suit injunction. Furthermore, it concluded that even if English law applied, England was not the appropriate forum due to the arbitration's location.
However, the Court of Appeal of England and Wales ("English Court of Appeal") allowed UniCredit's appeal, ultimately granting an injunction that required RCA to discontinue the Russian proceedings.
The Supreme Court upheld the English Court of Appeal's judgement and decided that the English courts have jurisdiction over anti-suit injunctions where parties have expressly chosen English law as the governing law to their arbitration agreements.
1.4 English Court of Appeal rules out immunity defense to International Centre for Settlement of Investment Disputes ("ICSID") awards.
English Court of Appeal has ruled that states cannot use sovereign immunity to avoid the registration of ICSID awards against them with its decision in the case numbered [2024] EWCA Civ 1257.
This decision came after Spain and Zimbabwe appealed against the registration of ICSID awards in favor of investors claiming that as being sovereign states, they have jurisdictional immunity before English courts, and therefore they cannot be a party to a proceeding before the English courts. Spain's appeal involved a €101 million award related to changes in its renewable energy subsidy regime, while Zimbabwe's appeal concerned a $124 million award over a land reform program.
Spain and Zimbabwe argued that the UK's State Immunity Act should protect them, but the English Court of Appeal disagreed, saying the ICSID Convention's wording was clear enough to waive immunity, meaning states cannot oppose the registration of ICSID awards on these grounds. Therefore, English Court of Appeal ruled out both Spain and Zimbabwe's claims and decided that they cannot deny the registration of ICSID awards against them
1.5 The irregular constitution of the arbitral tribunal caused the Paris Court of Appeal to revoke the ICC award in a 15 Billion Dollar dispute.4
The Paris Court of Appeal revoked an ICC award given on 1 September 2016 due to concerns relating to the presiding arbitrator's independence in accordance with article 1520(2) of the French Code of Civil Procedure, which is related to irregular tribunal constitution. The court emphasized the need to assess an arbitrator's independence and impartiality by identifying any circumstances that could create reasonable doubt in the parties' minds. The court found that the presiding arbitrator's law firm had ongoing business relations with Vivendi (Telecom Italia's principal shareholder, making it economically interested in the outcome of the proceedings), which were not disclosed during the arbitration. Vivendi's significant shareholding in Telecom Italia and its involvement in Telecom Italia's governance were deemed to create a conflict of interest.
The court concluded that these ties constituted an objective conflict of interest, thereby raising reasonable doubt about the arbitrator's independence. The decision to set aside the award is notable for its reliance on the relationship between the arbitrator's law firm and a third party interested in the arbitration outcome. The court's reasoning aligns with the Note to Parties and Arbitral Tribunals on the Conduct of Arbitration, which underscores the importance of disclosing such relationships. The judgment highlights the necessity for arbitrators to disclose relevant information promptly to avoid conflicts of interest and ensure the integrity of the arbitration process.
1.6 The English High Court has ruled that the identity of a third-party supplying documents to lawyers for litigation is not privileged.
The English High Court has ruled with its decision numbered [2024] EWHC 2573 (Comm) that a law firm must disclose the identity of a consultant that provided a report used in litigation, in case there are suspicions that the report is a forgery
The case arose from a long-running dispute between Oleg Deripaska and Vladimir Chernukhin concerning a joint venture. Mr. Chernukhin and his associated company Chernukhin Parties alleged that the report submitted by Deripaska and his associated company the Deripaska Parties, was forged, and hence led to significantly inflated damages awarded to Deripaska.
The High Court found that the identity of the consultant was not protected by litigation privilege because it did not reveal any privileged communications or litigation strategy. Therefore, the High Court granted a Norwich Pharmacal order, which requires a third party involved in wrongdoing to disclose information to help identify the wrongdoer.
The decision highlights the court's approach to privilege and the conditions under which Norwich Pharmacal relief can be granted. It also underscores the importance of transparency and accountability in legal proceedings, especially when there is a strong public interest in uncovering serious wrongdoing.
1.7 Russian Supreme Court declares tribunal with nationals from unfriendly states presumed biased.
On 26 July 2024, the Russian Supreme Court has made a significant ruling that affects arbitration proceedings involving Russia. In the case numbered A45-19015/2023, the Russian Supreme Court decided that arbitrators from countries designated as "unfriendly" by Russia are presumed to lack impartiality and independence. Unfriendly countries list includes the USA, the UK, all EU Member States, Switzerland, and others.
The Russian Supreme Court's ruling implies that any arbitrator from a country on Russia's "unfriendly" list is presumed biased unless proven otherwise. This presumption is difficult to rebut, making it challenging to enforce arbitral awards against Russian parties in Russia. As a result, there is likely to be an increase in the appointment of arbitrators from countries not on the "unfriendly" list, such as Turkey, Egypt, the UAE, and China, in cases involving Russian parties. This trend reflects the growing difficulty of navigating arbitration with Russian entities under the current political climate.
1.8 Swiss Federal Supreme Court rules that there is no post-award requirement when proving bias in revision cases for arbitrator independence and impartiality.
On 11 June 2024, the Swiss Federal Supreme Court made key decisions (numbered 4A_288/2023 and 4A_572/2023) regarding the arbitration case between Crescent Petroleum and the National Iranian Oil Company ("NIOC"). The court rejected NIOC's requests to revise an interim award, which followed the disqualification of two arbitrators by the ICC Court of Arbitration due to alleged conflicts of interest and bias.
The Swiss Federal Supreme Court ruled that for a revision request to be valid, the grounds for challenging an arbitrator must have existed at the time the award was made, not based on actions or comments occurring years later.
This decision highlights the Swiss Supreme Court's strict approach to revising arbitral awards, emphasizing that grounds for challenge must be present at the time of the award. The court also noted that post-award comments by an arbitrator do not necessarily indicate bias at the time of the award. This underscores the importance of maintaining the integrity of arbitration and the challenges of revising awards based on later developments.
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