Structuring Renewable Energy Projects in Uzbekistan
PPPs and dual structures for projects financing in Uzbekistan
LMA publishes first of its kind model form of credit risk insurance policy
Overview of the new model form of credit risk insurance policy
Arbitration in Saudi Arabia
Why it's on the rise/key developments in recent years
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Welcome.
We have been working in emerging markets for decades across multiple practices and regions, helping our clients to navigate the unique challenges and opportunities associated with doing business in different markets. Our work spans a wide range of jurisdictions, parties and products – one of the main reasons we enjoy the work so much. Our previous edition focused on key market trends in certain specific jurisdictions written by some of our local counsel firms. In our fourth edition, we have shifted the focus to look at some notable developments across the Banking & Finance, Restructuring and Data Privacy areas. Our lawyers across the UK and US discuss crucial developments around data privacy in Africa; new guidance for Sovereign Loans; a step-up in climate financing; AZB & Partners, one of our Indian local counsel firms, give an interesting insight into the steps India are taking towards green taxonomy; and the second instalment of why the use of arbitration is on the rise in Saudi Arabia which our lawyers co-wrote with Al Akeel & Partners (our cooperation firm in Saudi Arabia). Please reach out to any of us if you have any questions about any of the articles.
Eye on Emerging Markets
Q4 2022 Edition Four
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What is the legal framework around crowdfunding in Romania?
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Ukraine Crisis – the contractual risks of withdrawing from Russia
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Green Taxonomy
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The World Bank declares it is ready to scale-up its climate financing
Sovereign Loans
New Guidance for Sovereign Loans: Majority Lender Voting for Payment Term Amendments
Africa's Innovation
Recent Data Privacy Developments in Africa
Spotlight on the Saudi Center for Commercial Arbitration (SCCA)
Eye on Emerging Markets | Q4 2022
In general, sovereign loan agreements provide that unanimous lender consent is required to amend loan payment terms. This has led to inefficient (or has prevented) sovereign loan restructurings due to minority dissenting lenders and/or unresponsive lenders refusing to provide their consent.
Depending on the characteristics of the loan in question, a margin "penalty" may also be assigned for falling below a predetermined minimum SPT, whereby any previously achieved incentive is lost.
This has been particularly highlighted over the past two years, during which sovereign debtors have been experiencing increased levels of financial distress further to (amongst other things) the pandemic, the Ukraine-Russia crisis and commodity price rises. On 1 November 2022, various industry bodies (including the APLMA, ICMA, IIF and the LMA) published a guidance and explanatory note titled "Guidance and Explanatory Note relating to new specimen clauses for inclusion in Commercial Loan Agreements for Sovereign Borrowers" (the Guidance). The Guidance recommends that lender unanimity for payment term amendments be replaced by a 75% majority lender voting threshold (by value measured by reference to principal) to decrease minority creditor holdout risk and minimise undue delays in sovereign loan restructurings. It considers that this will be particularly useful for scenarios such as extension of due dates for payments, reduction in payment amounts, interest deferrals and/or interest capitalisations arising as a result of a natural disaster or as a consequence of a pandemic and replacements of bullet repayment mechanisms with instalment repayment schedules. Annexes 1 to 8 to the Guidance contain the specimen clauses for English law governed loans closely aligned to the LMA form (although there is no LMA recommended form of sovereign loan agreement, the LMA recommended form of Single Currency Term and Revolving Facilities Agreement for use in developing market jurisdictions is often used as the starting point). The specimen clauses are voluntary and are to be used as a guide and be considered and amended as applicable on a case by case basis (for example, where there is a sovereign guarantee, the ability to amend payment terms by a majority action needs to extend to the payment terms of that sovereign guarantee and so the majority voting provisions will also need to be incorporated into the guarantee). The specimen clauses to effect the majority lender vote for payment term amendments are set out in Annex 1 to the Guidance. In a typical sovereign loan agreement, the parties will need to: 1. Remove the payment term amendment sub-clauses (which usually relate to reducing the margin or payment of principal, interest or fees and to extending the due date for payments) from the all lender consent list in the amendments and waivers clause; and 2. Amend the definition of "Majority Lender" (usually defined as a lender/lenders whose commitment(s) aggregate more than 66⅔% of the total commitment) so that for the purposes of the payment term amendments, "Majority Lender" shall mean a lender/lenders whose commitment(s) aggregate more than 75% of the total commitments.
Written by Barry Cosgrave, Musonda Kapotwe and Hannah Davies
The Guidance contains a number of additional specimen clauses, which it suggests are complementary to the payment term voting threshold amendments. An overview of these clauses is detailed below. 1. Revised pari passu provision set out in Annex 2 to expressly disavow the "payment parity" interpretation (i.e. where the clause operates to prevent a debtor from paying one of its creditors ahead of any other when it is not in a position to pay all creditors in full) of such provision in order to be consistent with the form of pari passu provisions in international sovereign bonds. 2. New "snooze you lose" provision (commonly used in leveraged loan markets) set out in Annex 3 to require that a lender votes on an amendment or waiver within a specified period (suggested in the drafting as 20 Business Days) or its vote will be disregarded. This is likely to be particularly useful where hedging arrangements have resulted in indirect communication flows and delays. 3. New "yank the bank" provision (commonly used in leveraged loan markets) set out in Annex 4 to provide the borrower with a right of replacement of a dissenting minority lender. 4. New unitised voting provision set out in Annex 5 to be used where a lender has de-risked part of its exposure so that the lender of record has the flexibility to split votes to reflect the preferences of those entities with an economic interest in the loan. 5. Amended event of default clause set out in Annex 6 to exclude "Permitted Debt Relief Discussions" from triggering an event of default. 6. Inclusion of an exchange offer provision in syndicated sovereign loans to address how the participations in such loans of lenders who accept an exchange offer should be properly treated. Sovereign loans tend to be restructured by exchange offers (being offers from a sovereign to all of its lenders to exchange or convert all or part of its loan into some other obligation/security of the distressed company, with a view to providing some debt relief to the distressed company). The specimen clause set out in Annex 8 in essence extends the prepayment clause such that lenders' participations are treated as having been prepaid upon their exit by way of an exchange offer. The specimen clauses annexed to the Guidance are voluntary and the market's reaction to these provisions remains to be seen. Based on the high levels of use of the equivalent payment term amendment provisions in the sovereign bond market, we expect that these will be commonly utilised in the sovereign loan market and are likely to lead to more efficient sovereign loan restructurings going forward with a collective benefit for the majority lenders. It should be highlighted that these provisions only apply on a future-looking basis and so will not have an effect on current sovereign loans, which are still likely to include unanimous lender consent for payment amendments.
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Erica Arcudi Associate, London E: earcudi@mayerbrown.com T: +44 20 3130 3263
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The Guidance recommends that lender unanimity for payment term amendments be replaced by a 75% majority lender voting threshold...
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Hannah Davies Senior Associate, London E: hdavies@mayerbrown.com T: +44 20 3130 3258
Musonda Kapotwe Partner, London E: mkapotwe@mayerbrown.com T: +44 20 3130 3778
Barry Cosgrave Partner, London E: bcosgrave@mayerbrown.com T: +44 20 3130 3197
Eye on Emerging Markets | Q1 2022
We need some sort of intr here??
Doing business in Africa means the collection of personal information, which increasingly, as in the rest of the world, is becoming regulated.
I. Global Companies Have Identified Africa as One of the Areas of Growth Recent developments in the region reflect that global companies should be focusing attention on data protection developments in Africa. Tech companies, consumer packaged goods manufacturers, and retailers have focused on Africa as a growth market for their products and services as user adoption in the United States and European Union has flattened. As a result, and in the wake of the European Union’s General Data Protection Regulation (“GDPR”), many African countries have heeded the call for data protection laws. Africa is now the largest region with countries that have some sort of data protection law. And doing business in Africa means the collection of personal information, which increasingly, as in the rest of the world, is becoming regulated. While recent attention in data protection has focused on the United States, the European Union, the Asia-Pacific region, and Latin America, focus now needs to be directed toward the African continent, which is becoming a burgeoning hotspot for data protection laws and enforcement. II. At Least 33 Countries in Africa Have Data Protection Laws While the recent activity in 2022 is important, it reflects an overall trend. As of the end of 2021, at least 33 African countries have adopted comprehensive data protection laws in the wake of the EU’s adoption of the GDPR. This represents over 60 percent of the countries in the second-largest continent in the world (with some 1.3 billion residents). The increased attention to data in Africa has also been accelerated by the COVID-19 pandemic. For example, South Africa’s Information Regulator announced that it would begin monitoring the Department of Health’s use and disclosure of COVID-19 information in April 2022. A. The Majority of Data Protection Laws in Africa Have Data Subject Rights and Enforcement Mechanisms Similar to the Rest of the World’s The comprehensive data protection laws in Africa share many features that exist in other regimes such as the GDPR, China’s Personal Information Protection Law, and California’s California Consumer Privacy Protection Act and its successor, the California Privacy Rights Act. For example, with respect to the most common rights of data subjects, 33 African countries provide the right to access, 29 provide the right to rectification; 27 provide the right to object; 21 provide the right to be forgotten and the right to information; 14 provide the right not to be subject to automated decision-making; 13 provide the right to restrict marketing; five provide the right to obtain personal data in an understandable form; and three provide the right to data portability, to submit complaints, to obtain compensation from data controllers, and to withdraw consent. In addition to the above data subject rights, roughly 19 African countries require data controllers to notify the relevant data protection authority, and at least 30 require data controllers to have a legal basis for processing personal data and cross-border transfer. III. Data Protection Developments in Africa in 2022 Signal That Requirements and Enforcement Are Underway A. Kenya Required Data Controllers and Processors to Register with the Data Protection Commissioner, Effective July 14, 2022 Earlier last month, on July 14, 2022, Kenya’s registration requirement for data controllers and processors went into effect. Companies doing business in Kenya and processing personal information should review the Office of Data Protection Commissioner’s (“ODPC”) Guidance Note on Registration of Data Controllers and Data Processors to understand their obligations. The Kenyan Data Protection Act, No 24. of 2019 (the “Act”) provides a statutory obligation for all Entities (defined below) that process Personal Data (defined below) to register with the Data Protection Commissioner, subject to the thresholds set in place by the Data Protection Commissioner on mandatory registration. The Data Protection (Registration of Data Controllers and Data Processors) Regulations, 2021 (the “Regulations”) went into effect on July 14, 2022. The Regulations define “Entities” that are required to register as “mean[ing] a natural (individual) or legal person, public authority, agency or other body that processes (handles) Personal Data.” The term “Personal Data” is defined broadly to include “any information relating to an identified or identifiable natural person.” The Regulations detail the registration requirements, including the Entities that must register and meet their mandatory registration obligations and those that are exempt due to being found to be below the threshold. On July 13, 2022, the Data Protection Commissioner issued a guidance to assist Entities in ascertaining if they are data controllers or data processors and understanding their obligations with respect to mandatory registration. Data controllers must create an account, pay the required registration fee, and electronically submit, through the ODPC’s website, the online form. The new guidance requires registration for Entities that (1) process personal data, (2) have an annual turnover/revenue of more than 5 million Kenyan shillings, and (3) have more than 10 employees. B. On June 15, 2022, the Uganda Data Protection Authority Held Trainings Regarding Enforcement of Its Data Protection Law On June 14, 2022, the Uganda Data Protection Authority held a training titled “Enforcement of the Data Protection Act.” In the training, the Ugandan Data Protection Authority provided tips regarding enforcement, including: Adopting strong governance procedures Identifying the information that needs protection Protecting the information Using strong detection systems Being ready to respond and recover Testing and refining information defenses
Written by Britteny Leyva, Elias Okwara and Dominique Shelton Leipzig
Data Privacy Regulation Data Subject Rights and Privacy Opt-Outs Data Policies/Fly-Outs (i.e. drop-down menus) Legal Bases/Legal Bases Fly-Outs (i.e. drop-down menus) Consent Flow Sensitive Personal Youth Data Data-In (Ads) Opt-In
Unlike private companies, sovereigns and SOEs have to take into account political considerations as well as ESG-related and economic considerations.
Bob Palmer Partner, London E: bpalmer@mayerbrown.com T: +44 20 3130 3363
Different or More Stringent Requirements Than the GDPR Algeria, Burkina Faso, Cape Verde, Gabon, Ghana, Ivory Coast, Mali, Morocco, Niger, Rwanda, South Africa, Togo, Tunisia, Uganda and Zimbabwe Cape Verde, Mali, and Niger Benin, Ivory Coast, Mali, Niger, Rwanda, Seychelles, Tunisia, and Uganda Tunisia Botswana, Chad, Egypt, Gabon, Ghana, Ivory Coast, Kenya, Lesotho, Mali, Niger, Nigeria, Rwanda, Togo, Uganda, Zambia and Zimbabwe Gabon, Ghana, Lesotho, South Africa, Tunisia, Zambia and Zimbabwe Algeria, Ivory Coast, Mauritius and Morocco
In Africa, the 55-country African Union’s Digital Transformation Strategy (2020-2030) is the premier continent-wide mechanism for achieving the promise of digitization in Africa, even as other initiatives like Smart Africa continue to make a mark. Pursuant to the Strategy’s High Level Implementation Plan released in June 2022 is a commitment that the Convention on Cybersecurity and Personal Data Protection (Malabo Convention) will come into force by 2023. The Convention’s history dates back to the Extra-Ordinary Conference of African Union Ministers in charge of Communication and Information Technologies meeting in Johannesburg, South Africa from 2-5 November, 2009 which requested the African Union Commission to develop jointly with the United Nations Economic Commission for Africa, a convention on cyber legislation based on the Continent’s needs and which adheres to the legal and regulatory requirements on electronic transactions, cybersecurity, and personal data protection. It is through this that the Malabo Convention was drafted in 2011 and adopted in 2014. As it stands 14 countries have ratified the Convention, namely: Angola, Cape Verde, Congo, The Gambia, Ghana, Guinea, Mozambique, Mauritius, Namibia, Niger, Rwanda, Senegal, Togo and Zambia. This leaves one ratification for the Convention to come into force. Based on deliberations within the African Union, which Mayer Brown Africa lead Elias Okwara oversaw, it is clear that the Malabo Convention will undergo amendments to account for national, regional and global developments that have taken place since the Convention’s adoption in 2014. As it stands, some of the changes initiated by Okwara included mark ups of definitions, special protections for children and minors, data protection impact assessment, risk-based approach to compliance, data protection by design, Council of Data Protection Authorities, Joint Cyber Unit, among others. For the amendments to be adopted, the Convention has to come into force first and so all eyes will be on how quickly the African Union will achieve the outstanding ratification instrument. The enactment of the various laws in African countries since GDPR’s enactment represents a significant change in the region’s regulatory landscape. As more African countries continue passing data protection laws, entities processing data should continue monitoring the region and seek advice of counsel for proper compliance.
C. Nigeria’s National Information Technology Development Agency (“NITDA”) Partners with a Major Credit Card issuer On April 15, 2022, the NITDA formed a partnership with a major credit card issuer for a joint training program on cybersecurity and data protection. The NITDA highlighted that the credit card issuer’s virtual academy will provide certificates on cybersecurity courses and will “open [a] platform for online courses where Nigerians can go and learn at their own pace and also get digital certificates.” The initiative is part of the NITDA’s National Economy Policy and Strategy for a Digital Nigeria, which has a target of achieving 95 percent digital literacy by 2030. IV. Companies Need to Know How Data Protection Laws in Countries in Africa Differ from Regimes Such as the GDPR Importantly, not all African countries follow the GDPR model, making a “one-size-fits-all” approach difficult. Many of these countries have adopted different models, so entities that process data will need to adopt data privacy standards and practices depending on the country and business activity. The rapid pace of change in both the digital transformation and regulatory environments in Africa makes it crucial for businesses to have agile and adaptable legal governance frameworks.
Elias Okwara Head of Data Protection and Privacy Africa Risk Management and Compliance Partners E: okwaralias@outlook.com
Britteny Leyva Associate, Los Angeles E: bleyva@mayerbrown.com T: +1 213 229 5107
Dominique Shelton Leipzig Partner, Los Angeles E: dsheltonleipzig@mayerbrown.com T: +1 213 229 5152
1 Vicky Feng & Jennifer Zabasajja, African Tech Sector Is Sprouting Unicorns and Raking in Billions, Bloomberg, April 7, 2022. https://www.bloomberg.com/news/articles/2022-04-07/africa-s-tech-sector-is-sprouting-unicorns-and-raking-in-billions. 2 Graham Greenleaf & Bertil Cottier, International and regional commitments in African data privacy laws: A comparative analysis, Computer Law & Security Review, Volume 44, (2022). 3 Office of the Data Protection Commissioner, Guidance Note on Registration of Data Controllers and Data Processors, (July 13, 2022), https://www.odpc.go.ke/download/guidance-note-on-registration-of-data-controllers-and-data-processors/ 4 Id. at p. 2.
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At the 2021 United Nations Climate Change Conference, more commonly known as COP26, India had announced the following elements of India’s climate action to achieve the Nationally Determined Contribution (NDC) under the 2015 Paris Agreement:
Per some estimates, India needs ~USD 2.5 trillion by 2030 and USD 15 trillion by 2070 to achieve these climate goals. The procurement of green finance for achieving these goals would be greatly aided by the implementation of a green taxonomy which sets out clear definitions and strictures of activities which help reduce the impact of climate change. India is working towards a green taxonomy and in January 2021, the Department of Economic Affairs, Ministry of Finance had set up a task force for finalising the same. The task force submitted its report in the beginning of 2022. The policy however is under consideration by the Government of India (“GoI”) and is yet to be released for public comments. While a formal green taxonomy is awaited, one may look at the recently published Framework for Sovereign Green Bonds (Framework) to gauge what the GoI considers to be a “green project”. In the Union Budget 2022-23, the GoI had announced the issuance of Sovereign Green Bonds (“SGBs”) for mobilising resources for green infrastructure. In furtherance of the same, the GoI issued the Framework in November 2022. The Framework has been designed to align with the four core components which have been highlighted in the Green Bond Principles issued by the International Capital Markets Association (ICMA). These four core components are: (i) use of proceeds; (ii) process for project evaluation and selection; (iii) management of proceeds; and (iv) reporting. We have set out below, in brief, the key principles set out in the Framework for each of these components: Use of proceeds The proceeds from issuance of the SGBs will be utilized to finance / refinance expenditure for green projects. A project will be classified as a “green project” if it satisfies the following principles: The Framework clarifies that the proceeds from issuance of the SGBs will be expended in green projects in the form of investment, subsidies, grants, tax breaks, operational and R&D expenditures. The Framework also sets out that investment in, inter-alia, projects involving new or existing extraction, production and distribution of fossil fuels or where the core energy source is a fossil fuel are restricted. However, an exception has been made for relatively cleaner compressed natural gas when it is used in public transportation projects.
Written by Aditya Periwal and Anuja Tiwari, AZB & Partners
Process for project evaluation and selection For the purposes of undertaking project evaluation and selection, the Framework has constituted an inter-ministerial Green Finance Working Committee (GFWC) to make the final decision on whether or not a project is eligible for financing through the proceeds of SGBs. The relevant ministries / departments will conduct an internal evaluation and prepare a list of eligible projects and the GFWC will thereafter prepare the final list of projects in alignment with inter-alia, the ICMA Green Bond Principles, UN Sustainable Development Goals, the Framework, as well as the various national environmental policies. Management of Proceeds The proceeds from the issuance of the bonds will be deposited to the Consolidated Fund of India (CFI) and then funds from the CFI will be made available for eligible green projects. For the purposes of ensuring that the proceeds’ allocation and accounting is transparent, a distinct account will be set up by the GoI. The Public Debt Management Cell will monitor the allocation of funds towards eligible expenditures. Unallocated proceeds, if any, will be carried forward to successive years for investment in eligible green projects. Reporting Until the complete allocation of proceeds and thereafter in case of any material changes, the GFWC will prepare and release an annual report setting out inter-alia, (i) information about the issuance; (ii) list of allocated proceeds to eligible projects and the type of expenditure; (iii) total quantum of proceeds generated, allocated and remaining unallocated; and (iv) expected impact of the projects in quantitative indicators (to the extent possible) indicating the reduction in carbon intensity, other environmental benefits and, where possible, social co-benefits. The allocation and utilisation of proceeds will also be within the purview of audit by the Comptroller and Auditor General of India. Given that India is a major contributor to green house gas emissions, not just Indian, but global stakeholders are rooting for India to achieve its climate goals and while the Framework is not the equivalent of a green taxonomy, it does give insight into what India’s Green Taxonomy could look like. It can be said that the adherence to ICMA’s green bond principles and emphasis on alignment with the UN SGDs are definitely a step in the right direction of what is sure to be a long and winding road.
India is working towards a green taxonomy and in January 2021, the Department of Economic Affairs, Ministry of Finance had set up a task force for finalising the same.
Reach 500 GW non-fossil energy capacity by 2030;
Reduction of the carbon intensity of the economy by 45 per cent by 2030, over 2005 levels;
Reduction of total projected carbon emissions by one billion tonnes from 2021 to 2030;
50 percent of its energy requirements from renewable energy by 2030;
Achieving the target of net zero emissions by 2070.
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Encourages energy efficiency in resource utilization;
Reduces carbon emissions and greenhouse gases;
Promotes climate resilience and / or adaptation;
Values and improves natural ecosystems and biodiversity especially in accordance with the UN Sustainable Development Goals (UN SDGs).
Anuja Tiwari Partner, New Delhi AZB & Partners E: anuja.tiwari@azbpartners.com T: +91 9717798959
Aditya Periwal Partner, Mumbai AZB & Partners E: aditya.periwal@azbpartners.com T: +91 9619173141
1 International Capital Market Association - Green Bond Principles (2021) https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/green-bond-principles-gbp/
The World Bank ready to scale-up its climate financing
Rightly or wrongly, media coverage following the end of COP27 has focused primarily on its unambitious outcomes. However, one aspect of COP27 that may not have received enough attention is the interview that Axel Van Trotsenburg (Managing Director of Operations of the World Bank) gave to Reuters, where he explained that the World Bank is ready to make a "decisive contribution" to scaling-up climate finance, but it needs "fresh funds" to do so.
The World Bank provided $31.7 billion in climate finance in 2022, its highest annual total to date. This financing was primarily sourced from Sustainable Development Bonds and Green Bonds, which are debt securities for which a percentage of the bond proceeds are put to 'sustainable' or 'green' initiatives.
What is climate finance? Climate finance is financing provided at a local, national or transnational level, the proceeds of which are to be applied towards helping cut greenhouse gas ("GHG") emissions and/or adapting to climate change. Multilateral Development Banks ("MDBs") such as the World Bank are a vital source of funds for climate financing. In addition, they are critical in driving capital flows to developing countries, since they can provide technical assistance to help develop projects, as well as improving governments' institutional capacity. How does the World Bank currently provide climate finance? The World Bank group provided $31.7 billion in climate finance in 2022, its highest annual total to date. This financing was primarily sourced from World Bank issued Sustainable Development Bonds and Green Bonds, which are debt securities for which a percentage of the bond proceeds are put to 'sustainable' or 'green' initiatives. It's important to acknowledge that the World Bank's methods of providing climate finance are often criticised, mainly in relation to: (1) A lack of transparency: Oxfam's Unaccountable Accounting 2022 Report claimed that up to 40% of the World Bank's reported $17.2 billion of 2020 climate financing cannot be independently verified. Oxfam's report partially attributes this to the fact that while many of the financed projects have a climate-related component, their main objective is not to address climate change; and (2) A focus on offering debt instruments: Many countries most in need of climate finance already face heavy debt burdens. According to the World Bank's International Debt Report 2022, around 60% of the poorest countries are in, or at a high risk of, debt distress. There is therefore a substantial risk, that if these countries partake in climate finance funded projects, they would need to divert capital from socio-environmental programmes in order to service such climate finance debt. Such shortcomings have sparked calls for reform, including from the US Treasury Secretary, Janet Yellen, who recently called on the World Bank to "evolve" the way it provides climate finance. A move towards 'blended finance' Noting the above criticism, the World Bank may well find it appropriate to adopt a different approach to how it funds its "decisive contribution". One approach may be to increase the effective use of blended financing structures currently employed by the World Bank that amalgamate public capital from concessional sources with private capital. The advantage of such a structure is that the public capital would help to hedge against the 'conventional' risks of investing in emerging markets (such as currency and inflation risk), thereby making the investment more attractive to private investors. This may then lead to the introduction of new market participants. More generally, the World Bank could more effectively use several instruments that it currently employs to enhance its blended finance structures, including through the continued use of: Debt instruments: One way to encourage joint public and private sector participation in emerging market climate finance projects may be for the World Bank to more regularly adopt junior rather than senior lender position, thereby absorbing additional risk;
Written by Oliver Williams, David Fraher, Justin Brandt-Sarif and Ashley McDermott
Equity instruments: The World Bank already employs equity instruments through the likes of the Green Climate Fund, however it may wish to consider further prioritising flows of capital from its own equity funds whilst also continuing to participate in third party equity funds; Grants: The World Bank (and other MDBs) do offer grants, however, according to Stern's 2022 Report, such grants fall short of the equivalent offered by multilateral climate funds and bilateral aid agencies. In light of the debt stress that many developing countries are under, the World Bank may consider increasing the amount of grant funding it provides; Guarantees: As the OECD suggests in the Role of Guarantees in Blended Finance 2021 Report, guarantees can be more effective than debt or equity instruments in mobilising private capital, so perhaps the World Bank may consider increasing the number of guarantees that it offers; and/or Technical assistance: Whatever finance structure is adopted, it can be supplemented by the provision of technical assistance from the World Bank, including grant-like resources that are used for project preparation. Regardless of the exact approach the World Bank adopts in making its "decisive contribution" to additional climate financing, more proactive measures from the World Bank may help to drive capital flows to emerging markets jurisdictions that can be applied towards cutting GHG emissions and/or adapting to climate change.
David Fraher Senior Associate, London E: dfraher@mayerbrown.com T: +44 20 3130 3248
Justin Brandt-Sarif Trainee Solicitor, London E: jbrandt-sarif@mayerbrown.com T: +44 20 3130 3404
Ashley McDermott Partner, London E: amcdermott@mayerbrown.com T: +44 20 3130 3120
Oliver Williams Trainee Solicitor, London E: owilliams@mayerbrown.com T: +44 20 3130 3238
Arbitration in the Kingdom of Saudi Arabia Part 2
Having explained, in Part 1, why arbitration in the Kingdom of Saudi Arabia (the "KSA") is on the rise, in Part 2 we focus on the Saudi Center for Commercial Arbitration ("SCCA"), the first institutional arbitration centre in the KSA which administers civil and commercial disputes.
The SCCA has undergone "major transformation " in recent years to strengthen its local and international standing as a first-class arbitration center. It has recently opened SCCA Dubai, a branch office based in the Dubai International Financial Centre, and announced the establishment of an independent "SCCA Court" (discussed further below). The SCCA's CEO, Dr. Hamed Bin Hassan Merah, recently commented that "on a professional and technical level, the [SCCA]… is ready to offer ADR services within a well-ordered regulatory framework that ensures the industry’s transition from isolated practices to institutional work organized in accordance with international best standards." The SCCA's role, services and noteworthy activities The SCCA was established pursuant to Ministerial Resolution No. 257 of 14/6/1435H, corresponding to 15/04/2014. It became operational in late 2016 when it physically opened in Riyadh and published its Arbitration Rules and since then has proven to be a modern, fast-moving and innovative institution. In 2018, it adopted Rules for Conciliation (now called "Mediation Rules") and for Expedited Arbitration and its Codes of Ethics (discussed below). Pursuant to the KSA's Vision 2030 initiative, announced in 2016, the KSA seeks to bolster economic diversification and is actively encouraging foreign investment in the Kingdom. The SCCA was established as part of this plan and one of the SCCA's goals is to "create a safe environment that attracts both foreign and domestic investment to the [KSA]…. by eliminating obstacles and difficulties related to ADR between investing parties." The SCCA administers arbitration and mediation proceedings in both Arabic and English. The SCCA is dedicated to providing professional, transparent and efficient ADR services, inspired by Sharia. An arbitration may take the form of a standard arbitration, an expedited arbitration, an emergency arbitration or an online arbitration. Regarding online arbitration, in 2021, the SCCA updated its Arbitration Rules to incorporate its Online Dispute Resolution ("ODR") Service and its ODR Protocol. The SCCA's ODR Service is an electronic arbitration service which relies on state-of-the-art technology. It is suitable for resolving small-scale commercial disputes with a sum of up to SAR 200,000 (currently about GBP 43,000) quickly and efficiently. Use of the ODR Service costs SAR 9,000 (just under GBP 2,000) covering both the SCCA's administration fee and the arbitrator fees. The ODR Protocol supporting this service provides for a sole arbitrator, a Riyadh seat and Arabic language (subject to party agreement otherwise) and a final award within 30 days of the arbitrator's appointment. In addition to offering arbitration and mediation services, and providing model ADR Clauses, the SCCA offers what it calls “a la carte” services, namely: 1. assisting with arbitrator selection and appointment in non-SCCA cases; 2. helping to decide arbitrator challenges and disputes, for example as to the seat or language of the arbitration, through its Committee for Administrative Decisions; and 3. providing state-of-the-art facilities in Riyadh, Jeddah and Dubai. The SCCA's vision is to become the region's preferred ADR provider by 2030 and in June 2022, it announced it had joined the International Federation of Commercial Arbitration Institutions, which includes the world's top 52 international arbitration centres globally. On 13 November 2022, the SCCA established a branch based in the Dubai International Financial Centre ("DIFC") meaning that parties may therefore choose the SCCA Arbitration Rules in conjunction with a DIFC seat. The SCCA has an independent Board of Directors ("Board") whose members come from diverse public sector backgrounds and are not allowed to hold any government position during their membership. The Board and the SCCA's Committees comprise of well-renowned international ADR experts. Presently, the Board comprises 40% foreign experts and has a foreign Vice Chairman, albeit it only has one female representative. The gender ratio is more balanced when it comes to the SCCA’s Committee for Administrative Decisions which comprises three females and two males. In November 2022, the SCCA announced that it will launch new SCCA Arbitration Rules in early 2023, following which an independent "SCCA Court" will replace the SCCA Committee for Administrative Decisions and take over its functions. The Court, headed by Mr. Jan Paulsson, will comprise 15 leading arbitration experts and it will determine administrative and technical matters related to SCCA-administered arbitrations and mediations including:
Written by Raid Abu-Manneh, Alain Farhad, Gerard Moore, Ali Auda, Lisa Dubot Al Akeel Authors: Dr. Meshal Al Akeel, Marc Saroufim and Sultan Abdeen
Some of the SCCA's other recent noteworthy activities include: 1. Its public confirmation that under the KSA's 2012 arbitration law (the "Arbitration Law") and the SCCA's Arbitration Rules, the concept of party autonomy is paramount and accordingly, non-Saudi nationals and non-lawyers may act as legal representatives for parties to a KSA-seated arbitration. 2. A partnership with CIArb implementing the "SCCA-CIArb Pathways to Fellowship" (an arbitrator and mediator accreditation programme). Those achieving Fellowship status may apply to be admitted to the SCCA's Roster of Arbitrators. 3. Launching an online interactive costs calculator to help assess, at the outset, the likely arbitration costs. 4. Signing the Equal Representation in Arbitration ("ERA") Pledge in April 2021, thereby signalling its commitment to gender diversity in international arbitration. 5. Commencing educational webinars and seminars on topics of interest to the arbitration community, such as the November 2022 Seminar with Gary Born on Developments in International Arbitration. 6. Partnering with Jus Mundi to make non-confidential SCCA arbitration materials freely available to users of Jus Mundi's international law and arbitration database. The SCCA Arbitration Rules Based largely on the UNCITRAL Arbitration Rules, the SCCA Arbitration Rules (the "Rules"), effective on Shawwal 1437 corresponding to May 2016, were created to provide parties with "a clear, concise and efficient dispute resolution procedure" and are consistent with the Arbitration Law. The Rules apply without prejudice to the rules of Sharia (Article 31(4)). As foreshadowed above, the Rules were amended in 2018 and 2021 to keep abreast of important developments in the arbitration sphere. The 2018 revisions introduced:
Alain Farhad Partner, Dubai E: afarhad@mayerbrown.com T: +971 4 568 4950
The SCCA Codes of Ethics for (i) arbitrators and (ii) parties and their representatives The SCCA have issued a Code of Ethics, which is divided into three parts: (i) Code of Conduct for Arbitrators; (ii) Code of Conduct for Mediators; and (iii) Code of Conduct for Parties and Representatives (the "SCCA Code"). The SCCA partnered with the ICDR-AAA when developing the Rules and the SCCA Code. Accordingly, it is likely to have been inspired by the AAA-ICDR's Code of Ethics for Arbitrators in Commercial Disputes and Standard of Conduct for Parties and Representatives. Parties in LCIA arbitrations also have similar "General Guidelines for the Authorised Representatives of the Parties", annexed to the LCIA Rules (2014 and 2020), but the key difference is that the SCCA Code applies to parties as well as their representatives, and parties and their representatives must sign an express statement committing to observe its terms. The SCCA Code sets out twelve rules with respect to the conduct of parties and their representatives, setting out the modes of behaviour required by them during an SCCA arbitration, including refraining from using vulgar/inappropriate language and harassing/threatening conduct, avoiding unnecessary delay and expense, respecting confidentiality and prohibiting contact with the SCCA Board on case-related matters. Non-compliance with the SCCA Code may "result in the SCCA declining to administer a particular case or caseload". Since the conduct of party representatives is likely to be increasingly scrutinised in international commercial arbitration, it will be interesting to see if the SCCA will feel comfortable using the aforementioned sanction, when appropriate, hence enabling it to be a meaningful tool to control party behaviour. Arbitrator codes of conduct/ethics are now fairly common in international arbitration, with institutions like the AAA-ICDR, SIAC, CIETAC, HKIAC and the LCIA having their own such codes. Looking specifically at arbitrator conduct, the SCCA Code sets out seven canons for arbitrator behaviour. They essentially set the standards that he/she should follow to uphold the integrity and fairness of the arbitration process (including in relation to compensation arrangements), to avoid impropriety (or the appearance of it) when communicating with parties and reinforce the need to disclose all circumstances that are likely to raise a reasonable doubt as to his/her impartiality and independence. The SCCA Code has to be read in conjunction with other rules of ethics which may be set by other ethical rules, the parties' arbitration agreement, the Rules and/or the applicable law. The SCCA Code is a welcome development to ensure that arbitrators, as well as parties and their representatives, in the KSA and the MENA region adhere to the highest standards of behaviour. It should help maintain confidence in SCCA arbitrations. The pivotal role that the SCCA is likely to play in the KSA and in the MENA region As at late 2021, construction cases comprised about half of the SCCA's caseload followed by banking and finance, then real estate and a diverse range of 24 other sectors. In Part 1, we discussed the likely projected rise of arbitral disputes in the KSA, especially given the sheer volume of construction and giga projects. It is well known that the construction industry is "dispute-rich and claims-oriented" and the construction industry is highly important in the MENA region too. As a key dispute resolution mechanism for these disputes, arbitration is proving popular in both areas and this trend will continue. In addition to being well-suited to dealing with disputes that are closely connected to the KSA and the MENA region, like those related to large-scale and/or local joint operation projects, the SCCA may attract disputes that cannot be arbitrated in foreign seats due to public policy (such as in rem disputes, disputes about the performance of pilgrim contracts and certain matrimonial law disputes). The SCCA in the KSA and Dubai are therefore likely to continue to play a pivotal role in helping resolving both local and international arbitral disputes in the KSA and MENA region. Traditionally in the KSA litigation has been favoured over arbitration but the tides are turning. Between October 2016 and 2021, the SCCA received in the region of 200 cases, totalling circa USD one billion, involving domestic and international parties. Over 70% of those cases were filed in the years 2020 and 2021, highlighting (i) the SCCA's increasing popularity as the institution has gained increased local and global traction and (ii) user confidence in SCCA arbitration. For the foreseeable future, the SCCA's caseload is "expected to skyrocket". In addition to regional and international businesses being more confident in the arbitral procedure in the KSA, SCCA arbitration has been written into numerous model contracts, including model Government procurement contracts, so we may see more disputes in years to come as result of this. It should be noted that while Governmental entities have bylaws enabling them to resort to arbitration, they can only enter into arbitration agreements after approval from the Ministry of Finance (albeit the General Authority for Military Industries submits to arbitration in a different way to other Governmental entities). Concluding comments The SCCA offers modern and user-friendly Rules that comply with the KSA's Arbitration Law and with Sharia law, a commendable Code of Ethics and a multitude of services suitable for a wide variety of parties' needs. Importantly, the institution is doing a lot to increase awareness of arbitration in the region and globally and the SCCA's caseload is becoming increasingly international, even though domestic cases still account for the majority of its caseload. The SCCA's caseload continues to grow and this growth will only accelerate given its expansion into Dubai and the increasing use of arbitration clauses in governmental and commercial contracts. Accordingly, the current outlook is that the SCCA is likely to play a pivotal role in helping to develop the KSA into a leading arbitration nation in the Arab region. It will be interesting to see what changes will be made to the SCCA's Rules when they are launched this year and we will write a further update on this subject in due course. Introducing Part 3 In our next Legal Update in this Saudi Arabia Series, we will explore how to draft and conclude effective arbitration agreements in the KSA.
1 SCCA_Report_Eng.pdf (sadr.org) 2 News Details (sadr.org) 3 https://www.sadr.org/home?lang=en 4 See National Report for Saudi Arabia (2019 through 2022) by Jean-Benoit Zegers in Lise Bosman, ICCA International Handbook on Commercial Arbitration. 5 Royal Decree No. M/34 dated 24/5/1433H corresponding to 16/4/2012, which came into effect on 9 July 2012. 6 The ERA Pledge aims to improve the profile and representation of women in international arbitration and seeks the appointment of women as arbitrators on an equal opportunity basis. 7 See https://www.reedsmith.com/en/perspectives/2021/10/an-update-on-the-scca-with-adr-chief-christian-alberti 8 https://globalarbitrationreview.com/guide/the-guide-construction-arbitration/fourth-edition/article/construction-arbitration-in-the-mena-region 9 See The Saudi Center for Commercial Arbitration: The Catalyst Most Needed by Hamel Alsulamy in ASA Bulletin (Scherer; Sep 2019). 10 "A Progress Report on Saudi-Arabia's arbitration-friendliness" by James McPherson (SCCA), GAR Middle East and Africa Arbitration Review 2022. 11 See The Saudi Center for Commercial Arbitration: The Catalyst Most Needed by Hamel Alsulamy in ASA Bulletin (Scherer; Sep 2019). 12 Commentary in October 2021 indicated that domestic cases comprised circa 84% of the SCCA's caseload: https://www.reedsmith.com/en/perspectives/2021/10/an-update-on-the-scca-with-adr-chief-christian-alberti.
5. Disclosures. The Rules outline an arbitrator's duty to be impartial and independent and accordingly, an arbitrator can be challenged on the basis of lack of impartiality or lack of independence. They also emphasise the importance of the arbitrator's and the parties' continuing duty of disclosure and the disclosure obligation relates to any circumstances that may give rise to justifiable doubts as to the arbitrator's impartiality or independence. Interestingly, Article 13(5) expressly provides that failure of a party to make such disclosure within a reasonable period after that party becomes aware of the information will amount to a waiver of the right to challenge an arbitrator based on those circumstances. 6. Privilege. The Rules tackle this challenging topic head on by expressly providing that the tribunal shall take into account applicable principles of privilege and where the parties, their counsel or their documents are subject under applicable law to different rules, the tribunal should, to the extent possible, apply the rule which provides for the highest level of protection to all parties (Article 22). 7. Set period for rendering an award. The Rules provide that the final award should be made within 60 days of the date of the closing of the hearing (unless otherwise agreed by the parties, specified by law, or determined by the SCCA Administrator). This short timeframe highlights the SCCA's aim of being an efficient and cost-effective institution. 8. Confidentiality. In line with some other institutional rules like the ICDR International Arbitration Rules 2021, there is a general obligation of confidentiality in SCCA arbitrations but it applies only to the tribunal members and to the SCCA Administrator (Article 38).
reviewing emergency applications; determining jurisdictional objections; appointing arbitrators; determining arbitrator challenges; determining disputes relating to the place of arbitration, the number of arbitrators, the fixing of advance deposits as well as final payments for neutrals; and reviewing awards.
eliminate the SCCA's filing fee (now there is only a flat registration fee of SAR 5,000 (circa GBP 1,075) which is credited towards the Claimant's share of the administrative fees); place a SAR 300,000 (circa GBP 64,500) cap on SCCA's administrative fees; reduce the cost of its ODR service by 40%; reduce arbitrators fees by up to 30%; provide flexibility for parties to compensate arbitrators based on their hourly rates should they prefer that to the SCCA's ad valorem method (based on the amount in dispute); and provide parties with options to pay the deposits, including by instalment plans and by bank guarantee.
Overall, the SCCA offers modern Rules which are generally in line with most other modern institutional rules. Below is a summary of eight key aspects of the Rules, including more novel aspects when compared to other well-known institutional rules. 1. Joinder and Consolidation. Reminiscent of the ICC Rules, Article 7 provides for automatic joinder of an additional party, at the request of a party, prior to the appointment of any arbitrator. Once one or more arbitrators have been appointed, joinder is only permitted if all parties (including the additional party) agree. Mirroring the Arbitration Law, the Rules do not address consolidation of arbitral proceedings so consolidation of separate SCCA proceedings will not be an option. 2. Emergency Arbitration. Article 6 and Appendix III provide detailed provisions relating to the SCCA's emergency arbitration procedure and they are particularly prescriptive about an emergency arbitrator's powers to "order or award any interim, provisional or precautionary measures…including injunctive relief and measures for the protection or conservation of property". An emergency arbitrator has 14 days to issue his/her decision, with reasons, following receipt of the file, and it "shall be binding on the parties when rendered." The Rules give flexibility to parties since they confirm the usual position that the emergency arbitrator may not serve as a member of the tribunal, but, interestingly, they expressly provide that the parties can agree the opposite (i.e. that the emergency arbitrator sits on the tribunal). 3. Tribunal appointments. The Rules provide for the default appointment of a sole arbitrator, unless the parties previously agree otherwise or the SCCA Administrator (in consultation with the parties) consider a three-member tribunal to be more appropriate given the size, complexity or other factor(s) in the case. 4. Appointment process. The Rules leave significant autonomy to the parties to agree the procedure for appointing the tribunal, but if they are unable to agree, the list method in Article 12 will be used (essentially the parties should try to agree an arbitrator(s) from a list sent by the SCCA and if it proves impossible, a strike out process follows). The SCCA will always designate the presiding arbitrator. The SCCA has a roster of 350 arbitrators (and mediators) with experience in the KSA and abroad which it relies on when it provides the list of neutrals to the parties.
an expedited procedure, applicable to any case where the aggregate value in dispute is SAR 4,000,000 or less (circa GBP 860,000) and the arbitration agreement was concluded after 15 October 2018. However, parties remain free to opt out or to opt in for higher value cases. The expedited procedure provides parties with comprehensive filing, an expedited appointment process, the possibility of deciding the case without a hearing based only on parties’ submissions and abbreviated time limits. The expedited procedure usually costs about 20% less than the cost of the SCCA's standard arbitration process. A new, detailed emergency arbitrator procedure, following the trends in other institutional rules (discussed further below).
A light-touch update was also made to the Rules in 2021 (effective on Safar 1443, corresponding to September 2021) to streamline the process and make SCCA proceedings more affordable and hence more appealing to diverse sectors and to parties of any size and nationality. The latest Rules:
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Gerard Moore Senior Associate, London E: gmoore@mayerbrown.com T: +971 4 568 2208
Ali Auda Senior Associate, London E: aauda@mayerbrown.com T: +44 20 3130 3035
Alain Farhad Partner, London E: afarhad@mayerbrown.com T: +971 4 568 4950
Raid Abu-Manneh Partner, London E: rabu-manneh@mayerbrown.com T: +44 20 3130 3197
Lisa Dubot Global PSL, Paris E: ldubot@mayerbrown.com T: +33 1 53 53 83 98
Marc Saroufim Partner, London E: msaroufim@alakeellaw.com.sa T: +966 50 704 4261
Dr. Meshal Al Akeel Chairman, Saudi Arabia E: malakeel@Alakeellaw.com.sa T: +966 50 423 2801
Sultan Abdeen Associate, London E: sabdeen@Alakeellaw.com.sa T: +966 53 777 7804
