HOW TO SECURE FOREIGN INVESTMENT? ODA and CCIG Conference on « IRAN AFTER THE SANCTIONS » March 17th, 2016 by Dr. HOMAYOON ARFAZADEH
I. I. IN INTRODUC RODUCTIO ION Converging and merging two perspectives: Foreign counterpart or partner Iranian counterpart or partner 2
II. TYPICA II. ICAL L RIS ISKS KS SURROUN ROUNDING DING IR IRANIAN ANIAN TR TRAN ANSACTIONS SACTIONS AN AND D INVESTME IN ESTMENT NTS Regulatory risks and change in legislation: sensitive sectors Creeping expropriation and investment protection: BITS and FIPPA Monopolies and lack of transparency Sanctions and other adverse regulatory measures Knowing your partner Negotiations and drafting contracts Project finance , LC, bank guarantees, performance guarantees (see below) Intermediaries and corruption (see below) Applicable law and Dispute resolution (see below) 3
III. III. SECURED URED TRANSACT NSACTIO IONS: NS: LC LCs, s, IN INDEPENDENT DEPENDENT GUARANTEES, ARANTEES, PROMISSOR OMISSORY Y NOTES, ES, EXPORT PORT IN INSURANCE SURANCE A. Securing transactions for foreign partner or investor. Secured transactions: English terminology means transactions supported by documentary credits or some sort of independent guarantee, usually bank guarantee and, in sales transactions, an LC, which is also the means of payment. B. No restriction on foreign banks issuing, advising and confirming LCs for Iranian business except: SDN (specially designated national) involved, prohibited dual use goods involved, US (including clearing of $ transactions) or US national involved. 4
III. III. SECURED URED TRANSACT NSACTIO IONS: NS: LC LCs, s, IN INDEPENDENT DEPENDENT GUARANTEES, ARANTEES, PROMISSOR OMISSORY Y NOTES, ES, EXPORT PORT IN INSURANCE SURANCE C. Iranian LC issues: usually deferred payment, 90 to 180 sometimes 360 days, and issues of advising/confirming bank and discounting/forfeiting with high premiums and rates. D. Other means of securing transactions and financing: Promissory notes ("billet à ordre" et "lettre de change": articles 990 to 1099 Swiss Code of Obligations) or "barat" and "safteh", avalized by an Iranian bank and accepted or subscribed by a foreign bank, as means of financing. Can be efficient but extremely complicated. 5
III. III. SECURED URED TRANSACT NSACTIO IONS: NS: LC LCs, s, IN INDEPENDENT DEPENDENT GUARANTEES, ARANTEES, PROMISSOR OMISSORY Y NOTES, ES, EXPORT PORT IN INSURANCE SURANCE E. Case study: largest private Iranian private bank dispute Facts are over simplified for this presentation. Group of Companies A was an international group with production facilities in Iran, England, Germany, Emirates and a trading/holding company in Geneva. A issued 365 days PNs for roughly EUR 320 Million, a major part of which was avalized by Iranian Bank B, to the benefit of Swiss Bank C, for obtaining financing from Swiss Bank C for the production facilities in Iran and Emirates. However, A had an outstanding loan and LC debt for EUR 180 Million towards the Swiss Bank C in relation to its factory in England and trading activities in Geneva and a dispute arose regarding this loan and LCs between A and the Swiss Bank C. 6
III. III. SECURED URED TRANSACT NSACTIO IONS: NS: LC LCs, s, IN INDEPENDENT DEPENDENT GUARANTEES, ARANTEES, PROMISSOR OMISSORY Y NOTES, ES, EXPORT PORT IN INSURANCE SURANCE Swiss Bank C did not discount the PNs avalized by Iranian Bank B and, instead, held them as guarantee for A’s disputed debt of roughly EUR 180 Million. When the PNs came to maturity, Swiss Bank C introduced expedited enforcement proceedings of the PNs in Germany against Iranian Bank B - on the basis of a forum selection clause contained in the Swift that originally accompanied the PNs - and successfully attached more than EUR 120 Million of funds belonging to Bank B in Germany. Iranian Bank B lost before the German court of 1st instance and on appeal. Only then did A and Iranian Bank B introduce an action in Geneva against Swiss Bank C, claiming that the latter had abused and misused by enforcing the PNs, which it had never discounted, for a disputed loan unrelated to the Iranian Bank B. 7
III. III. SECURED URED TRANSACT NSACTIO IONS: NS: LC LCs, s, IN INDEPENDENT DEPENDENT GUARANTEES, ARANTEES, PROMISSOR OMISSORY Y NOTES, ES, EXPORT PORT IN INSURANCE SURANCE A and Iranian Bank B also requested provisional measures from Geneva Court, ordering C to withdraw its action for enforcement of the PNs in Germany and consignment of the PNs with the Geneva Court. Provisional measures were dismissed in the first instance but awarded by the Court of Appeals. The PNs were released and German proceedings discontinued. Parties settled the case. 8
IV. IV. AG AGENTS ENTS AN AND D IN INTERMEDIAI TERMEDIAIRIES: RIES: AVOIDING OIDING PIT ITFALL ALLS S THROUGH ROUGH TRANSPARENCY NSPARENCY A. Agents and Intermediaries indispensable B. Ordinarily local law applies: re. general provisions of Iranian Civil Code on agency or mandate contracts, leaving room for interpretation and flexibility C. Tale of Canon distribution (1956 to 2006) litigation D. Tenders and bidding in public procurement: the law prohibiting percentage E. Wisdom of transparency 9
V. V. DIS ISPUTE PUTE RESOLU SOLUTIO ION A. Negotiate without threatening B. Litigation: continuation of business by other means Court or arbitration? Courts in Iran Courts in Europe Parallel criminal proceedings in Iran in relation to business transactions Interim and conservatory measures in particular in relation to intellectual property 10
V. V. DIS ISPUTE PUTE RESOLU SOLUTIO ION C. Pros and cons of arbitration Neutrality Choice of the institution Appointment of arbitrators Choice of the seat Choice of procedural rules Costs and financing Length Enforcement of awards in Iran Enforcement of awards in Europe D. Arbitration without acceptance ATF 4A_84/2015 of February 18th 2016 11
VI. VI. CONCLUSIO NCLUSION Be patien ent t and avoid haste: te: lesson ons s from m high techn hnolo logy y dispute ute. . Homayoon oon Arfazadeh adeh Partner Attorney-at-Law Geneva & New York Ph.D. International law LL.M. New York University 2, rue Charles-Bonnet, CH-1206 Genève Tel. +41 22 702 15 15 - Fax +41 22 702 14 44 harfazadeh@pplex.ch Geneva - Pully - Lausanne - Bern - Sion - Zug – Bruxelles - Tokyo www.pplex.ch 12
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