ARBITRATION PROCEEDINGS AWARD DEFAULT INSURANCE Arbitration Proceedings Award Default (APAD) insurance removes the risk of non or late payment following a successful international arbitration against a sovereign state. It negates the need for claimants to pursue lengthy and expensive enforcement proceedings. ARBITRATION PROCEEDINGS AWARD DEFAULT INSURANCE (APAD) Actual payment risk following an international arbitration against a state respondent is something clients will always consider and their legal representatives can find hard to predict. Arbitrations can take years to conclude and the state’s political or economic situation can change dramatically during that time. International arbitrations are increasing year on year with the International Centre for Settlement of Investment Disputes (ICSID) alone seeing new cases double inside a 10 year period. Political and/or economic unpredictability are driving uncertainty so claimants demand a solution that hedges the key risks of non or late payment following a successful award. These challenges are neither unique to emerging economies nor to one business sector. However the proportion of those arbitrations filed against sovereign states in eastern Europe and central Asia is rising: 53 per cent of new cases registered in 2014 stemmed from these areas. ICSID figures also show that oil, gas/mining, power and construction now account for 73 per cent of all new cases - compared to 41 per cent three years ago. Working with Lloyd`s of London syndicates we have designed a bespoke Arbitration Proceedings Award Default insurance (APAD) solution that responds to claimant demand across the spectrum. Importantly, it ensures you as claimant - will promptly receive what is rightfully yours following an award in your favour. The policy allows claimants to make a claim under the policy just 60 days after the award is made. Key features of the APAD solution include: • Prompt payment as a claim can be brought under the policy just 60 days following a default. • The claimant will keep 100 per cent of the sum insured value. • Low cost with premiums typically costing between three to six per cent of the sum insured depending on the territory. The one-off premium provides up to five years of insurance. • Premium discounts of up to 60% of the premium rate are given for early claim settlement. • A succinct, condition-light policy underwritten by A-rated insurers. • No requirement to enforce, as any recovery action will be undertaken by the insurer, initially at the insurer’s own cost. • Long policy periods of up to five years available - to cater for the typical multi-year duration of international arbitration proceedings. • Policy can be purchased at any time during the arbitration proceedings but is not available once an award has been made. The political situation within the respondent jurisdiction at the time of placement is key. However most arbitrations falling under the auspices of a leading arbitral institution and associated rules will be considered providing the respondent is a signatory to the New York Convention. Example Case Study The table below provides an example placement using up-to-date underwriting information to provide indicative pricing. 2 Claimant Non-EU Oil & Gas Company Defendant Sub-Saharan African State Subject of Dispute Contract frustration arising from an infrastructure project Arbitration Institution International Chambers of Commerce (“ICC”) Arbitration Rules ICC Rules 2012 Seat of Arbitration London, England (3 arbitrator panel) Period of Insurance 5 years from inception of the policy Limit of Indemnity USD 60M Waiting Period 60 days (see flowchart opposite for more information on waiting period) Premium Stage 1 (inception): 2.5% of limit = USD 1.5M Stage 2 (only if reaches final hearing is reached): 2.5% of limit = USD 1.5M Stage 3 (only if claim is successful): 0.70% of limit = USD 0.42M Total: 5.7% of the sum insured if all stages are reached ARBITRATION PROCEEDINGS AWARD DEFAULT INSURANCE AJGINTERNATIONAL.COM ARTHUR J. GALLAGHER The process: Following placement of the insurance there are three simple stages leading to a default on payment and a subsequent claim under the policy. Stage One Conclusion of the Arbitration Following the conclusion of the arbitration (whether by decision or agreement of the parties) there will be a period of time while the arbitrators write up their final award. The final stage of the premium is not payable until a final, approved award is received in the claimant’s favour. Stage Two Challenge to the Award Most arbitral institutions allow a very short window for challenges to the final award to be lodged. This period varies depending on the seat of arbitration and governing rules. At the conclusion of this challenge period the award is deemed final and the waiting period for payment begins. Stage Three Waiting Period If payment has not been received after the conclusion of the waiting period then a default will have been deemed to have occurred - and a claim can be made under the policy. The graphic below illustrates this process using an actual ICC Arbitration held in London. ARBITRATION AWARD Arbitration Award is NET amount payable by defendant to claimant, has been scrutinised and approved by the Court and includes Award Payment Date. NO Was Award reached by agreement of the parties? Was award challenged? (28 day challenge period) TIMEFRAME YES Challenge Period: Max. 28 days NO YES Were enforcement proceedings stayed pending outcome of challenge? NO YES Was the challenge successful? Court Proceedings to effect challenge if brought: Usually 2/3 months NO YES Was the Award modified or annulled? ANNULLED NO Has Award Payment Date been reached? MODIFIED YES NO Has waiting period expired? Waiting Period: 60 days from Award Payment Date YES Has defendant voluntarily complied with award? YES NO No Default ARBITRATION PROCEEDINGS AWARD DEFAULT INSURANCE Default, claim can be made under the policy AJGINTERNATIONAL.COM ARTHUR J. GALLAGHER 3 Here’s how made-to-measure dispute resolution insurance protection can work for parties involved in a dispute … Adverse Costs: pays the defendants costs & own side disbursements following an adverse costs order. A variety of pricing options and deductibles exist to provide cost certainty in any budget or case plan. Security for Opponent’s Costs: an insurance policy or bond which will satisfy the Court, and by extension the defendants, on the issue of security-for-costs. Cross Undertakings as to Damages: For circumstances where a cross undertaking is required to support an application by the claimant, our solution delivers a seven-year non-cancellable policy - insuring any damages and costs awarded against the insured if it later turns out that the order should not have been granted. Human Risk: Solutions exist to protect the claimants and/or the law firm to the exposure of any extra costs resulting from delay or the total expended costs of case abandonment caused by non-appearance of key named individuals. We design and place a wide range of indemnity, contingency and warranty covers that provide peace of mind after the conclusion of proceedings - including … Litigation buyout: transfers or caps the risk of known and/or potential litigation. Tax indemnity: where there is uncertainty in deemed tax authority following an award or where there is uncertainty of the tax treatment of a remittance. Beneficiary uncertainty: insures the incorrect allocation of an award. Untraceable beneficiary: where a previously untraceable or unreachable beneficiary suddenly materialises after the proceeds have been remitted. Representation and warranties: where companies assumed part of an award, are then sold. Insurance covers the seller’s contractual liability under the sale and purchase agreement for breach of warranty or tax deed - or if buyer requires an indemnity against a known issue. Contingent tax liability: cover in circumstances where companies assumed part of an award might trigger a tax liability as a result of the transaction. Arthur J. Gallagher Founded by Arthur Gallagher in Chicago in 1927, Arthur J. Gallagher & Co has grown to become one of the largest insurance brokerage and risk management companies in the world, is the only broker with an externally accredited Ethical award, and places USD 18 billion in global markets. With significant reach internationally, the group employs over 20,000 people and its global network provides services in more than 140 countries. Our Major Risks practice of 53 colleagues, based in London, is dedicated to complex insurance advice and solution delivery. Our Dispute Resolution Team provide solutions for clients involved in complex litigation and arbitration proceedings both in the UK and internationally. Arthur J. Gallagher Walbrook Office The Walbrook Building 25 Walbrook London EC4N 8AW www.ajginternational.com Alan Pratten T: 020 7560 3446 E: alan_pratten@ajg.com Steve Jones T: 020 7234 4014 E: steve_jones1@ajg.com Nairn Lickrish T: 020 7234 4026 E: nairn_lickrish@ajg.com Mick Brown T: 020 7234 4013 E: mick_brown@ajg.com James Munton T: 020 7234 4041 E: james_munton@ajg.com Gallagher London is a trading name of Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 1193013. www.ajginternational.com FP601/2015 exp.26/08/16 4 ARBITRATION PROCEEDINGS AWARD DEFAULT INSURANCE AJGINTERNATIONAL.COM ARTHUR J. GALLAGHER