Spotlight on Sovereign Wealth Funds

On 6th of June, HKIAC hosted the seminar Spotlight on Sovereign Wealth Funds - Litigating banking and investment disputes under the spectre of corruption and bribery in conjunction with 20 Essex Street. The seminar was hosted by Dr Michael Moser, and speakers included John Choong from Freshfields Bruckhaus Deringer, and Philip Edey QC, Andrew Fulton, Kate Parlett, Philip Riches and Sudhansu Swaroop QC from 20 Essex Street.

Dr Michael Moser kicked off the seminar by providing a thorough background of litigating corruption in relation to the Sovereign Wealth Funds (SWF) in English courts and international arbitration. He also introduced the principles emerging from the recent cases. Mr. Philip Edey QC then compared different approaches taken by English courts in cases KWL v UBS and Libyan Investment Authority v Goldman Sachs regarding defining and proving corruption. The takeaway, suggested by Mr. Edey QC, is that the purpose of the alleged briberies and the scale of undue influence matter in the court’s analysis.

Mr. Philip Riches continued the discussion by asking whether companies and SWFs have the obligation to take reasonable steps to ensure suitability. Drawing on cases Bankers Trust International plc v Dharma and LIA v Goldman Sachs, he concluded that a duty of care not to make negligent misstatements exists, and such obligation would be interpreted in each case based on the entity’s knowledge and experience in the investment field, its financial situation, and investment objectives. In the context of SWF, though suitability itself may not become a cause of action, it would most possibly become an evidentiary component of claims such as undue influence or unconscionable bargain.

Mr. John Choong then talked about sovereign immunity with a focus on the possibility of bringing corruption-related claims against SWFs in Hong Kong. Hong Kong courts adopt the position of absolute immunity in accordance with the law in the People’s Republic of China. Considering Chinese government’s decisive role in managing most SWFs, in particular under the Belt and Road Initiative, the sovereign immunity defense would create further obstacles to such claims. Attribution principle, on the other hand, may become pertinent. The control the Chinese government actually exercises on the SWF may be determinative as to the whether a SWF could be brought within the purview of corruption litigation. Nevertheless, claims can be brought before an arbitration tribunal.

Finally, Ms. Kate Parlett and Mr. Sudhanshu Swaroop QC extended the discussion to investment arbitration. Ms. Parlett discussed three relevant issues: whether SWFs qualify as investors, what impact corruption allegations have on bilateral investment treaties (BITs), and potential corruption-related claims for SWFs under the BITs. Mr. Swaroop QC, through discussing the ICSID case EDF v Romania, where the tribunal treated corruption as a violation of fair and equitable treatment under the BIT, pointed out the difficulties of using corruption allegations as a “sword” on the part of the investors, particularly regarding their burden to prove. 

At the end of the seminar, the panelists also took the questions from the audience relating to proving corruption in investment arbitration and the Santiago Principles.