Arbitration Reform and Development

1. Arbitration Reform and Development Georgian Perspective Presented by: Lasha Gogiberidze Partner, BGI Legal Member of the Board, AmCham Georgia March, 2014

2. General Overview • First Law on Arbitration was adopted in April 1997; • Gradual development of local arbitration institutions in late 90s early 2000; • Interesting experiment by the government in 2004 as a part of tax system overhaul – repealed rather quickly; • Substantial increase in cases (and complaints) in 2005 – 2008; • Considerable push against arbitration both from executive and judicial branches • 1997 Law repealed entirely in 2009 and replaced with new Law on Arbitration

3. Peculiar Differences between the two legislative acts

4. Signing Formalities 1997 Law • Requirement for the arbitration agreement to be in writing; • Stipulation as per requirements of the 1997 Law: • Name of the parties • Subject matter of Arbitration • Place and time of the agreement

5. Signing Formalities 2009 Law • Substantially the same requirement for the agreement to be in writing, BUT; • Far broader scope of what constitutes “an agreement in writing, including • Electronic exchange; • Exchange through complaint / response; • Other matters elaborated in much greater detail than 1997 law • BUT: • Rather specific requirement for entering into the arbitration agreement by individuals, namely: • Has to be co-signed by the lawyer to the party or • Has to be notarized

6. Injunctive Relief • Rather general statement in 1997 Law; • Basically stipulating ability of a party to apply for one. • 2009 version provides much more detailed procedures, including: • Procedural considerations for review of injunctive relief requests by parties to arbitration; • Explicit provision regarding compensation of damages in case of damages / undue hardship inflicted on the opposing party (in case of wrongful or frivolous claim); • Rather detailed procedures for recognition and enforcement of the same; • Specific language covering ability of the parties to apply to courts for injunctive relief while having arbitration agreement in place.

7. Recognition and Enforcement1997 Law • Grounds for appeal were limited to the following: • Award contradicts administrative and penal legislation; • Certain procedural violations; • Certain criminal case being brought against the arbitrator • Interestingly the last part was used by the government rather eagerly

8. Recognition and Enforcement2009 Law • Generally follows NY convention requirements, however: • Interestingly provides for what appears to be parallel regime without much of a distinction. • Separate venues for enforcement of local and foreign awards • Probably follows the foreign court judgment recognition procedure.

9. Other Points • 2004 tax “experiment” • Quickly repealed (various speculations as to the grounds for repeal) • Criminal prosecutions • Government trying to use 1997 law exclusionary provision by initiating criminal cases against arbitrators; • Some were, unfortunately, rather grounded • Conflict of interest issues • Lawyers having “side show” arbitration tribunals and inserting the same in clients’ contracts – problem? • Lack of transparency and disclosure re the same

10. Issues to Consider In drafting / implementation of the law

11. Subject Matter of Arbitration • Can / should all disputes be subject to arbitration; usual suspects include: • Land related disputes; • Trademark disputes • Certain corporate issues • However, overlaps also occur and would be nice to address those properly, namely: • Loan vs. related security agreements; • Corporate decisions vs. shareholder disputes; • Foreclosure vs. disputes under underlying loan documentation; • Title to the land vs. dispute under immovable property sale purchase agreement. • Consider local vs. international aspects of all of the above; • Many need to take determination based on outcome of the discussion as per next slide

12. Ability / Capacityof the parties to arbitrate • Legal entities: • Local vs. foreign, ownership issues, any ensuing restrictions: • Land related • Ownership related; • Public sector related • Public entities: • international concessions; • International market (consider ECM / DCM); • local procurement / administrative agreements • Anything else?

13. Ability / Capacityof the parties to arbitrate (continued) • Individuals • General capacity pros and cons • Need for rigorous execution and procedural formalities • Employment related matters • Consumer protection • As opposed to banning individuals from arbitration altogether (and then applying the same in the context of subject matter

14. Dual / Asymmetrical Arbitration Clauses • Clauses allowing one of the parties to file general claim in courts (whether local or foreign); • Trend for resenting / dislike of the same by courts • As a result, better to have those provided explicitly (again, consider linked agreements (e.g. loan vs. underlying security agreements)

15. Recognitionand Enforcement • Local vs. foreign – need to have a bifurcated structure • Depending on ability to directly apply NY Convention • Enforcement (through courts?) • Allowing for possibility to by-pass court (by advance agreement of the parties / going immediately to enforcement bureau – sward with two edges

16. Other • Public Policy vs. Public Order (as in Georgian law) – issues to consider: • Any particular source in the country that can be a good reference point? • Overt vs. “behind the scene” policies (issue with ISDA буюу Олон улсын своп, деривативийн холбооны асуудал, шийдвэр гүйцэтгэл– Russian default); • Other issues?

17. Thank You! BGI Advisory Services Georgia 18, Rustaveli Ave, Tbilisi, Georgia bgilegal@bgi.ge