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The Possibility to Request a Supplemental Arbitral Award Under the Brazilian Arbitration Act

Kluwer Arbitration Blog - Tue, 2021-02-23 20:08

Five years ago, the Brazilian Arbitration Act (Law No. 9,307/96 or BAA) was amended by the Law No. 13,129/2015.

Law No. 13,129/2015 repealed the item V of Article 32 of the BAA which provided for the annulment of an arbitral award when it does not address the entire dispute submitted to arbitration (infra petita award).

Infra petita awards then started to be covered by the paragraph 4 of Article 33 of the BAA, which was also included by Law No. 13,129/2015. The provision sets forth that “The interested party may file a request for the rendering of a supplemental arbitral award if the arbitrator fails to rule on all matters submitted to arbitration”.

The legislative innovation aimed at safeguarding as much as possible the acts practiced by the arbitral tribunal (Article 5º, LXXVIII, Brazilian Constitution; Articles 277 and 281, Brazilian Code of Civil Procedure); however, there have been only a few requests for supplemental arbitral awards since then.

 

Recent case ruled by the Court of Appeals of the State of São Paulo

The recourses against arbitral awards are usually under confidentiality in Brazilian courts. Thus, it is not possible to ascertain how frequently such remedy has been used since the Law No. 13,129/2015 became effective. In a recent event of Fundação Arcadas, during the 2020 São Paulo Arbitration Week, Appellate Court Judge Manoel de Queiroz Pereira Calças and Court Judge Andrea Palma mentioned that they had never judged any request for supplemental arbitral award.

Nevertheless, an interlocutory appeal was recently ruled by the Second Panel of Corporate Law of the Court of Appeals of the State of São Paulo (TJSP, Interlocutory Appeal No. 2170826-30.2020.8.26.0000). The claimant sought an emergency relief to suspend the ongoing arbitral proceeding before the CAM-CCBC until the state court decided if the supplemental award was necessary. The lawsuit is not under confidentiality.

The emergency relief was rejected by the First Corporate and Arbitration Conflicts Court. The Court concluded that the requirements of Article 300 of the Brazilian Code of Civil Procedure were not met (relevance of claimant’s reasoning and possibility of serious harm). The arbitration is currently ongoing.

The suspension of arbitral proceedings by state courts is not uncommon; however, the relevance of claimants reasoning, and the possibility of serious harm must be supported by strong evidence. In the case mentioned above, the First Corporate and Arbitration Conflicts Court understood in a prima facie analysis that there would not be any harm resulting from the continuity of the arbitration.

The claimant appealed but the decision was maintained by majority. Appeals Court Judge Sérgio Shimura dissented from the reporter, Appeals Court Judge Grava Brazil. He understood that the interlocutory appeal should be granted once there was evidence that the partial arbitral award did not entirely addressed claimant’s requests.

Now the lawsuit has returned to the lower court to have its merit analyzed extensively (i.e., to decide whether a supplemental award is necessary). The final decision can take years depending on the extension and complexity of the production of evidence requested by the parties.

This dispute can contribute to the judicial interpretation of paragraph 4 of Article 33 of the BAA; however, it may take some time to find out how the judiciary will overcome the complexities of its application.

In international practice, for example, Article 34 of the UNCITRAL Model Law on International Commercial Arbitration (the Model Law) holds an exhaustive list of grounds for setting aside an arbitral award but there is no explicit reference to infra petita decisions.

Article 33(3) of the Model Law, nonetheless, mentions that the parties “may request, within thirty days of receipt of the award, the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award”. It suggests that infra petita awards are never meant to be set aside.

In Brazilian practice, the omission correction request is well-known (and maybe overused) as “motion for clarifications”. This possibility is foreseen in Article 30(I) of the BAA. If the omissions remain, then the provision set forth in paragraph 4 of Article 33 can – and should – be applied.

Some might say that the legal provision of paragraph 4 is not technical since Brazilian courts are committed to the minimal intervention rule. The wording of this paragraph might give the idea that the state court could decide about the merits of the arbitral proceeding, which is not the case. Given the existence of a valid and binding arbitration agreement, the state court has no jurisdiction to judge the merits of the case. It should only set aside or order the arbitration tribunal to issue a supplemental award when absolutely necessary.

Another issue is that the jurisdiction of the arbitral tribunal might have already been terminated when the state court finally decides upon the request for a supplemental arbitral award. It may result in the necessity to initiate a new arbitral proceeding.

 

Conclusion

The author understands that Law No. 13,129/2015 should only have repealed item V of Article 32 of the BAA, but not included paragraph 4 in Article 33. This legislative amendment instead of bringing more legal certainty brought doubts that discouraged lawyers from applying it.

In this sense, the comprehensiveness and completeness of the award cannot be overstated. The arbitral tribunal must be careful in setting out the decision issue by issue (see guidelines of the Chartered Institute of Arbitrators – CIARB). It would avoid the allegation of arbitrators’ failure to address claims submitted by the parties.

The same goes for lawyers, who must be careful in formulating precise requests in the terms of reference or the initial allegations; an infra petita decisions is not desirable in any circumstance or jurisdiction.

Disclaimer: The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of the CAM-CCBC. All the information mentioned above is public.

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the Menachem Begin Symposium – Conflict Resolution Part 1

ADR Prof Blog - Tue, 2021-02-23 17:13
Join  Carrie Menkel-Meadow, Lela Love, Andrea Schneider, and myself as we participate in the Menachem Begin Symposium, a series of discussions on Menachem Begin’s legacy.   Here’s how the Begin Heritage Center describes the series. Menachem Begin’s legacy is complex, but the charisma, passion, and ceaseless dedication that were the touchstones of his political and personal … Continue reading the Menachem Begin Symposium – Conflict Resolution Part 1 →

Updated ODR Bibliography

ADR Prof Blog - Tue, 2021-02-23 15:57
From EFOI Noam Ebner: I wanted to let you know of a new update to the Online Dispute Resolution Bibliography, adding over a hundred new items to the list. The updated to-the-moment version of the ODR Bibliography awaits you at the website of the National Center for Technology and Dispute Resolution.  The list is a … Continue reading Updated ODR Bibliography →

2020 in Review: Another Eventful Year for the Indian Arbitration Landscape

Kluwer Arbitration Blog - Tue, 2021-02-23 00:00

The “2019 in Review: India” started with a quote from Jeff Bezos that the 21st century belongs to India. Little did we know then that, one year later, Jeff Bezos’ Amazon would be fighting tooth and nail in a SIAC arbitration and related litigation in the Indian courts to claim a share of the burgeoning Indian market.

Despite the Covid-19 pandemic, 2020 (like 2019) has been an eventful year for the Indian arbitration landscape. This post considers some major recent developments on key topics. The three branches: the judiciary, executive, and legislature continued taking significant measures to reform the domestic and international arbitration landscape in India. While important judgments were delivered by courts across India, institutional arbitration continued making inroads in India. Similarly, the government continued its spree to amend the arbitration law. Overall, the developments paint a positive picture of India’s consistent efforts to ground itself as a pro-arbitration jurisdiction. Of course, there is a scope for improvement and the journey continues.

 

New India-Brazil BIT

As covered in a prior post, India and Brazil signed a BIT at the dawn of the new decade to usher in a new era of BITs. The BIT is noteworthy for its departure from the widely used investor-state arbitration mechanism in favor of state-state arbitration with a focus on dispute prevention. A noticeable feature of this BIT is the restriction on an arbitration tribunal in awarding compensation, which resembles shades of the WTO dispute settlement mechanism.

 

The Invalidity of Unilateral Appointment of a Sole Arbitrator

Historically, the unilateral appointment of a sole arbitrator was rife in the Indian arbitration ecosystem, especially in domestic arbitrations. This gave unreasonable power to one party and created a power imbalance between the parties in an arbitration. However, as discussed, in this post, the Indian Supreme Court (“Supreme Court”), in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. made unilateral sole arbitrator appointments invalid under the 2015 amendments to the Indian Arbitration and Conciliation Act, 1996 (“Act”). The judgment was delivered towards the end of 2019 and continued to influence several arbitration proceedings in 2020 (and in 2021) such as the Delhi High Court’s judgment in Proddatur Cable TV Digi Services v. Siti Cable Network Limited (2020) and City Lifeline Travels Private Ltd v. Delhi Jal Board (2021). There is still a need for further clarity on other aspects of the appointment of an arbitrator. The exercise is underway as the Supreme Court in Union of India v Tantia Construction (2021) has referred the issue to a larger bench while opining that once the appointing authority itself is incapacitated from referring the matter to arbitration, it may not appoint an arbitrator.

 

Choice of Seat or Venue

The choice of a seat or place of arbitration is critical. Arbitration-related disputes often land in courts when the choice of seat or venue is debatable. As discussed in this post, the Supreme Court’s decision in Union of India v. Hardy Exploration and Production (India) Inc., (2019) (“Hardy Exploration”) was criticized for failing to delineate the concepts of place, seat, and venue. The Supreme Court in BGS SGS Soma JV v. NHPC Ltd., (2019) (“BGS SGS”) provided the much-needed clarity. It laid down a test for determining the venue and seat of arbitrations. It went on hold Hardy Exploration as per-incurium for failing to follow the Supreme Court’s seminal decision in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services. The BGS SGS decision was expected to put a lid on this issue. However, subsequently, in Mankastu Impex Pvt. Ltd. v. Airvisual Ltd.(2020), when the rival contentions were based on the findings of Hardy Exploration on one hand and BGS SGS on the other, the Supreme Court chose to rely on neither of these decisions to come to its conclusion. This lack of clarity is likely to lead to further litigations in India.

 

Anti-Arbitration Injunctions

The Delhi High Court has taken divergent views on the issue of a civil court’s jurisdiction to grant anti-arbitration injunctions. In Mcdonald’s India Private Limited v. Vikram Bakshi and Ors. (2016) (“Mcdonald’s”), a division bench of the Delhi High Court held that civil courts had jurisdiction to grant anti-arbitration injunctions where it was proved that the arbitration agreement was null, void, inoperative, or incapable of being performed. However, in Bina Modi and Ors. v. Lalit Modi and Ors (2020), a single judge of the Delhi High Court concluded that a civil court did not have the jurisdiction to entertain suits to declare the invalidity of an arbitration agreement or injunct arbitral proceedings. In an appeal against the single judge’s decision, the division bench, relying on Mcdonald’s, set aside the single judge’s judgment. As discussed in this post, this judgment conforms to the previous Supreme Court judgements which have held that a civil court in India has inherent jurisdiction to grant injunctions in restraint of arbitration.

 

The Negative Effect of Kompetenz-Kompetenz

The arbitration between Devas v Antrix has been in the news for various reasons, the latest being the stay granted by the Supreme Court on the execution of the award in November 2020. The doctrine of Kompetenz-Kompetenz grants power to arbitrators to decide upon their own jurisdiction. However, the negative effect of Kompetenz-Kompetenz allows the courts to consider a jurisdictional challenge only on a prima facie basis while allowing for a complete review only by an arbitral tribunal. In the context of this arbitration, this post argues for a positive Kompetenz-Kompetenz with concurrent jurisdiction between national courts and the arbitral tribunal (with a condition of issuing a partial award on jurisdiction before considering issues of merits).

 

NAFED v. Alimenta S.A.: Opening a Pandora’s Box on Enforcement of Foreign Awards?

In 2020, the Supreme Court issued two significant judgments relating to the enforcement of foreign awards in India. While these judgments analysed the same legal provision regarding enforcement, they adopted contrary approaches and not surprisingly, reached diametrically opposite conclusions. As this post discusses, the earlier judgment in Vijay Karia v. Prysmian Cavi E Sistemi Srl (delivered in February 2020) eschewed reviewing the merits of the award in enforcement proceedings. However, just two months later in National Agricultural Co-operative Marketing Federation of India (NAFED) v. Alimenta S.A., the Supreme Court extensively reviewed the merits of the award and held it to be unenforceable. The fate of future enforcement proceedings could hinge on which precedent is relied upon by the enforcing court.

 

Clearing the Mist on Arbitrability of Fraud

Raising allegations of fraud had become a frequently used shield for respondents in Indian arbitrations. Unfortunately, various cases over the years did not provide much succor for the claimants, for whom the battleground would shift from tribunals to courts, where the recalcitrant respondent would argue on the basis of the (alleged) fraud that the dispute is no longer arbitrable. Ultimately, the Supreme Court in Avitel Post Studioz Ltd. v. HSBC PI Holdings (“Avitel”) laid down what would exactly constitute the “serious allegations of fraud” exemption to the arbitrability of disputes. This post discusses the pros and cons of Avitel.

 

Clarity on the Limitation Period for Enforcement of Foreign Awards

As discussed in this post, the Supreme Court, in the case of Government of India v Vedanta settled the debate on the applicable limitation period for enforcement of a foreign award in India. The Supreme Court held that the enforcement of a foreign award under Part II of the Act would be covered by Article 137 of the Limitation Act, which provides a period of three years, starting from when the right to apply accrues. The Supreme Court also made a passing remark and reaffirmed in this case that the courts should stay away from reviewing the merits of a case in enforcement proceedings. It echoed that the courts should only look at such cases from the narrow prism of Section 48 of the Act, which enumerates the limited grounds of refusal for enforcement of a foreign award.

 

Indian Parties Choosing a Foreign Seat of Arbitration

In the absence of any authoritative ruling by the Supreme Court on the issue of Indian parties choosing a foreign seat of arbitration, various High Courts have taken inconsistent positions over the years. In the latest decision dealing with this issue, the Gujarat High Court in GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited held that two Indian parties can choose a foreign seat of arbitration. As discussed in this post, the award in such arbitrations would be a foreign award under the Act. Significantly, the remedy of seeking interim measures from Indian courts in such a scenario would not be available.

 

Transitioning into 2021

2020 kept the domestic and the international arbitration community involved in India engaged. As 2020 came to an end, a few developments that started taking shape last year will define how 2021 proves for India to position itself as an arbitration hub.

Following are a few arbitration developments in India that are already attracting eyeballs of the international and domestic arbitration community alike.

 

The 2021 Amendments

The 2021 amendments to the Act (passed by the Lower House of the Indian Parliament on 12 February 2021) came on the heels of the 2019 amendments. The amendments were earlier promulgated by way of an ordinance in November 2020. As discussed in this post, the highlights include:

  • amendment to Section 36(3) of the Act that allows a court to unconditionally stay a domestic award where it is prima-facie satisfied that the underlying arbitration agreement or contract which is the basis of the award or the making of the award was induced by fraud or corruption.
  • the deletion of the controversial eighth schedule (that had onerous qualification requirements to be appointed as an arbitrator) to the Act that was introduced in 2019 but was never entered into force. In this regard, the amendment provides that norms for accreditation of arbitrators will be specified by the Arbitration Council of India.

 

150% Growth in MCIA’s Caseload

India’s home-grown institution, the Mumbai Centre for International Arbitration (MCIA) has released its Annual Report for 2020 where it reports having registered more than 150% growth in the total number of cases being administered by it. The sentiments are further boosted by recent referrals that the Supreme Court and the Bombay High Court have made to MCIA. Please read more about MCIA from its CEO and secretary-general/registrar here in our recent “Interviews with Our Editors” series. The post lays down MCIA’s journey in the last five years of its existence and how MCIA is registering more cases under its rules with every passing year.

 

Recognition and Enforcement of SIAC Emergency Arbitrator’s Award

As noted above, Amazon is currently involved in legal proceedings with Indian entities including Future Retail and Reliance Retail. Amazon commenced an emergency arbitration under the SIAC Rules, which culminated in the Emergency Arbitrator inter alia enjoining Future Retail from proceeding with its agreement with Reliance Retail. This arbitration is seated in Delhi, India. The related court proceedings before the Delhi High Court raise important questions as to the validity and enforcement of emergency arbitrations in India-seated arbitrations. As discussed in this post, none of the previous cases relating to the enforcement of emergency arbitration awards in India had the seat in India. In another positive development, a single judge of the Delhi High Court held that the provision for emergency arbitration under the SIAC Rules is not contrary to any mandatory provisions of the Act. However, an appeal against this decision is pending.

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Arbitrator Intelligence Announces Arbitrators of the Year for 2020

Kluwer Arbitration Blog - Sun, 2021-02-21 23:53

What is perhaps the greatest source of praise for an arbitrator? A party or lawyer who believes that they lost the case, but has positive things to say about that arbitrator. That is the criteria Arbitrator Intelligence started with to select its Arbitrators of the Year for 2020 and other Distinguished Arbitrators.

Intensive debate exists about what makes for a “great” arbitrator. One reason for this debate is that the evaluation of who is a “great arbitrator” can be highly (and unfairly) subjective. A long-time friend of an arbitrator is more likely to say positive things about that person than a professional rival. In debates over diversity, we worry that people may give more positive reviews to arbitrators with shared backgrounds or may unduly discount those from different backgrounds. And, of course, we all assume that winning parties will heap praise on arbitrators while losing parties will be unduly harsh.

But what if we could identify arbitrators who defy these expectations and earn positive feedback even from losing parties? At Arbitrator Intelligence, we have done exactly this.

Through our confidential and anonymous internet platform, after an arbitration is completed, parties and counsel submit detailed feedback about the case through our detailed Arbitrator Intelligence Questionnaire (AIQ). We collect facts about the case (but not the parties or attorneys’ names) as well as evaluative feedback through the AIQ.

Among the questions in the AIQ, we ask the parties and counsel who complete it to self-identify as the winning or losing party in the arbitration. [Aware that proud lawyers and parties may be reluctant to check a box saying they “lost,” the AIQ question is actually phrased in terms of whether the award was “more favorable,” “less favorable,” or “as expected.”] This question allows us a unique perspective in evaluating other details regarding the case and the feedback we receive on particular arbitrators.

To pick our Arbitrators of the Year and other Distinguished Arbitrators, we started by identifying all arbitrators in our database who received feedback from a person who self-identified as having lost the arbitration. Although we began with this fact as a prerequisite, we should underscore that many arbitrators in our database have impressive track records and receive highly positive feedback from individuals who thought they won the arbitration or who received what they expected. For our inaugural Awards, however, we focused only on those arbitrators who received feedback from losing parties.

From among arbitrators on whom we have feedback from a self-identified losing party, we assigned points for individual responses to questions in the AIQ that requested the responder’s “professional judgment.” These evaluative questions sought feedback about particular rulings of the tribunal, conduct of the arbitrator, or characteristics of the award. Parties and counsel responding to the AIQ were invited to identify, from a range of options, which qualities they would attribute to the tribunal’s rulings, arbitrator conduct, or award. For some questions, the feedback pertained to the entire tribunal, while for a few (see below) the feedback was specific to an individual arbitrator on the tribunal.

After we tallied the points for each arbitrator, we were able to identify our two winning Arbitrators of the Year.

Congratulations to Professor Dr. Nayla Comair-Obeid!

Arbitrator Intelligence’s Presiding Arbitrator of the Year for 2020

Arbitrator Intelligence selected Prof. Comair-Obeid because she garnered numerous points for consistently positive praise in the feedback we received from someone who considered their side to have lost the arbitration.

For those who do not know, Prof. Comair-Obeid is a Lebanon-based arbitrator and the former President of the Chartered Institute of Arbitrators (2017). She is the founding partner of Obeid Law Firm, and a professor of international commercial arbitration at the Lebanese University. She has actively participated in more than 100 domestic and international arbitrations, both ad hoc and institutional, as party-appointed arbitrator, presiding arbitrator, sole arbitrator, counsel and expert.

Prof. Comair-Obeid holds pre-eminent positions at various international legal institutions, including the International Chamber of Commerce (ICC) and the Cairo Regional Centre for International Commercial Arbitration (CRCICA). She sits on the ICSID panel of arbitrators and conciliators. Prof. Comair-Obeid is the author of ‘The Law of Business Contracts in the Arab Middle East’ (Kluwer Law).

In a Dubai-seated DIAC commercial arbitration, a losing party or their counsel (i.e., someone who reported that the final award was less favorable than expected) nevertheless had some impressive praise for Prof. Comair-Obeid.

Despite being disappointed in the outcome, the person who gave feedback agreed that the procedural rulings in the cases generally promoted fairness and efficiency, and that the number of hearing days was appropriate for the case.

That same feedback from the losing side also praised the questions Prof. Comair-Obeid asked during the hearings as demonstrating familiarity with the record and legal issues and helping to clarify factual or legal issues. Prof. Comair-Obeid’s questions were also assessed as fair and respectful. This person, who thought the award went against their or their party’s interests, nevertheless characterized the award as balanced and well-reasoned.

Given all this favorable feedback, it is not surprising that this responder also indicated that they strongly agreed that they would be comfortable having Prof. Comair-Obeid as a sole arbitrator in a future unrelated case.

That is a lot of praise for an arbitrator coming from a self-identified losing party or counsel who might have been expected to be less rosy in their assessment!

Congratulations Alfredo Fernández López!

Arbitrator Intelligence’s Co-Arbitrator of the Year for 2020

Like Prof. Comair-Obeid, Mr. Fernández López defied expectations by receiving positive feedback from a party or counsel who regarded themselves as having lost the arbitration. By way of background, Mr. Fernández López is a partner of BTA, a boutique law firm based in San Jose, Costa Rica. He is a member of the Spanish Arbitration Club-Costa Rica and ICC-Costa Rica. Mr. Fernández López is an expert in Alternative Dispute Resolution, major public infrastructure projects, FIDIC contracts and construction contract claims.

The case at issue was a Costa-Rica seated commercial arbitration administered by the Costa Rican Chamber of Commerce. The person who provided feedback seemed to be fairly impressed with Mr. Fernández López’s performance as an arbitrator, despite being on the losing side.

In their feedback, this person assessed the procedural rulings in the case as generally promoting fairness and efficiency. They also regarded the number of hearing days as appropriate for the case.

Feedback from the losing side also praised Mr. Fernández López for asking questions during the hearings that demonstrated familiarity with the record and legal issues and helped to clarify factual or legal issues.

Finally, the party or counsel providing feedback described the award as both well-written and persuasive, assessments that seem to suggest that, after reading the award, the person understood why they lost and was persuaded by those reasons. Perhaps in light of these assessments, it is not surprising that the person providing feedback also indicated that they would be comfortable having Mr. Fernández López as a sole arbitrator in a future unrelated case.

Congratulations to Our Distinguished Arbitrators!

Although Prof. Comair-Obeid and Mr. Fernández López got the top spots for 2020, many arbitrators from among the more than 300 on whom we have Reports received positive feedback of various sorts. Based on objective criteria from this feedback, in addition to our two winners for 2020, we have selected several Distinguished Arbitrators who also received favorable feedback from self-identified losing parties, but in fewer categories than our winners. It should also be noted that there were many other arbitrators who received positive feedback across the board, but not from self-identified losing parties. Our full list of Distinguished Arbitrators for 2020 will be published on our website shortly.

 

Picking the RIGHT Arbitrator for Your Case

Evaluative feedback is valuable in assessing potential arbitrators and was our focus in identifying our winning and distinguished arbitrators. Our Reports, however, also empower parties and counsel to identify specific features and trends that reflect their priorities and promote their case strategy. For example, claimants tend to look for arbitrators who have higher than average rates of damages awards, while respondents might focus on arbitrators who have a track record of declining jurisdiction or awarding costs and fees to prevailing respondents.

In our Reports on investment arbitrators, parties and counsel can see which expert witnesses, which leading arbitral awards, and which scholarly treatises were relied on by (or in the case of awards, rejected by) tribunals on which an arbitrator sat. Research on arbitrators can now include the rates at which tribunals on which they sat granted or denied (in whole or part) specific investment claims, and which jurisdictional challenges were accepted or denied by individual tribunals. They can see the duration of cases in which a particular arbitrator sat, how long their tribunals take to deliberate and render awards, and whether that timing is affected by dissents, bifurcation, or whether an arbitrator was presiding.

By expanding the categories of information that are available about arbitrators, by analyzing detailed data regarding those categories, and by providing evaluative feedback that complements facts in those categories, our Reports enable parties and counsel to refine their searches and increase predictability in their arbitrator selection strategy.

Parties and counsel can always supplement and build on this information from their own experience and by telephoning people in their professional network. But they are no longer limited to those sources. Detailed data and feedback about arbitrators allow us to recognize and consider newer, talented but less-well-known arbitrators who have earned the confidence of parties and counsel but may not be in our professional network yet.

The arbitration community has been calling for more information on arbitrators, as well as improved diversity in arbitral appointments. More information—both factual and evaluative—can help on both issues.

Our winners this year are excellent examples. Both are diverse arbitrators. Both are well known in their regional communities, but perhaps not as familiar to everyone. Both were selected based on objective criteria from specific provided by parties or counsel.

Now, you can see that our two winners received the ultimate compliment—positive feedback about their personal performance and that of their tribunal from the losing side of an arbitration.

Congratulations again to our Arbitrators of the Year for 2020!

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Two Upcoming Programs

ADR Prof Blog - Sun, 2021-02-21 17:52
Here are two programs you might want to tune into next week. On Tuesday, March 2, at 1 pm Eastern Time, I will give a free presentation sponsored by the ABA Section of Dispute Resolution’s Early Dispute Resolution Committee, entitled Evolution of Early Dispute Resolution and Where We Are Now.  Click here for the zoom … Continue reading Two Upcoming Programs →

New Approval Required for Government Contracts and Arbitration Agreements in Egypt

Kluwer Arbitration Blog - Sun, 2021-02-21 00:02

Egypt has been trying to control the number of investor-state arbitration disputes which has been steeply increasing since 2011 and the Arab Spring movement (see past discussion on the Blog here). To that end, Egypt created alternative out-of-court forums for amicable settlement of existing arbitration cases and worked toward curbing the eruption of new cases as much as possible. This post reviews some of those government efforts and, in particular, focuses on a new December 2020 Decree specifying the scope of governmental review and approval of all state contracts and arbitration agreements.

 

The Landscape of Relevant Decrees in Egypt

The Investment Law No. 72 of 2017 created special committees for the settlement of conflicts and disputes relating to investments and investment contracts. One of these committees is the Ministerial Committee for Resolving Complaints and Disputes that may arise between an Investor and the Government under Law 72/2017. The familiar short name of this committee is the Dispute Resolution Committee.

Another such committee is competent to settle disputes between investors and the government arising out of investment contracts. This committee is known as the Committee for the Settlement of Investment Contacts Disputes. In carrying out its job, the committee can reschedule financial dues, rectify inaccurate formalities followed to enter into the contract, or extend limitation periods specified in the contracts.

To ensure efficiency, Law No. 72/2017 provides that the decisions of these committees will be final and enforceable against the government/ state once approved by the Cabinet of Ministers. Investors, conversely, retain the right to resort to state courts or arbitral tribunals to initiate the claim anew.

The establishment of these committees resulted in the successful conclusion of a substantial number of investment arbitration cases. According to a previous Blog post, Egypt concluded 11 investor-state settlements between 2014 and 2020.

Furthermore, the Prime Minister issued Decree No. 1062 of 2019 to establish a ministerial committee to study existing investor-state arbitration cases and advise the government on how to best defend or settle such disputes. The committee’s name was the Higher Commission for Studying and Opining on International Arbitration Cases (“Commission”).

Most recently, in December 2020, the Prime Minister issued Decree No. 2592 of 2020 (“Decree”) to rename the Commission to the Higher Commission for Arbitration and International Disputes; and more importantly, to expand its role from just studying and expressing an opinion on arbitration cases to carrying out a review of all state contracts and arbitration agreements before execution. According to the Decree, the Commission is currently mandated to:

  • review contracts concluded between a foreign investor and any governmental entity or a company wholly or partially owned by the state; and
  • draft the arbitration clause in such contracts as well as other ‘governing clauses’ such as those related to force majeure and the change of law.

The Decree prohibits all governmental entities and companies wholly or partially owned by the state from taking any of the following actions without referring the matter to the Commission for prior review:

  • concluding or amending any contract with a foreign investor;
  • agreeing to arbitrate; or
  • taking any measure or action in relation to any arbitration dispute.

 

Prior Review of Government Contracts with a Foreign Investor

The Decree stipulates that the Commission will review all contracts concluded between a foreign investor and any governmental entity or state company and provide a ‘no-objection’ prior to execution.

The legality of such prior review requirement might be questionable under the principle of fair and equitable treatment of foreign investors given that contracts with national investors are not subject to such prior approval by the Commission.

The Decree comes in broad terms and general language to indicate that it will apply on all types of contracts regardless of their value, risk, subject matter, or the pertaining business sector. It will also apply to all companies wholly or partially owned by the state, no matter how minor the government shareholding percentage is.

The Decree does not provide a definition of what constitutes a ‘foreign investor’ nor how the corporate nationality will be defined. A company’s nationality can be determined according to many criteria (e.g., the place of incorporation, ownership of shares, nationality of management, or repatriation of profits). According to Egyptian law, a company that is incorporated in Egypt will be categorized as having Egyptian nationality regardless of the ownership of its shares. Therefore, choosing an appropriate criterion of corporate nationality will be a challenging task, especially if it might lead to jeopardizing the important international investment principle that foreign investors should receive nondiscriminatory treatment.

The Committee is headed by the Prime Minister and includes in its membership the Minister of the Central Bank of Egypt, the Minister of Justice, the Minister of Petroleum, the Minister of International Cooperation, the Minister of Finance, the Minister of Public Business Sector, the Minister of Trade and Industry, the Head of the State Lawsuit Authority, representatives of the Ministry of Interior and the General Intelligence Authority. As such, it is composed only of high level political and judicial figures rather than technical legal experts. It is accordingly questionable whether the members of the Commission will have the time or the technical expertise required to review and opine on each and every contract to be concluded with the government.

The Commission has a technical secretariat which will be headed by the Assistant of the Minister of Justice and will include a number of legal experts from the Minister of Justice as well as independent experts. The technical secretariat will carry out the legal works, meet on a monthly basis and will report to the Commission.

A question arises here as to the boundaries between the role of the Commission and that of the Advisory and Legislative Department within the Egyptian State Council. This department, according to the State Council law No. 47 for 1972, advises governmental entities on public law matters such as tenders and administrative contracts, and its consultation is mandatory with respect to government contracts with a value above EGP 5,000. In addition to the advisory department of the State Council, each governmental entity has an in-house member of the State Council who has an advisory role in relation to administrative law matters within the entity.

 

Additional Approval for Agreements to Arbitrate

The Egyptian Arbitration Law No. 27 for 1994 (the ‘Arbitration Law’) generally allows governmental entities and state companies to agree to arbitration of future disputes; only in the case of administrative contracts, the approval of the competent minister is required.

Nevertheless, by virtue of the Decree, all governmental entities and state companies are now prevented from signing any arbitration agreement without referring the matter first to the Commission to get its ‘no objection’ clearance. The Decree therefore comes with an additional layer of approval beside the one required under the Arbitration Law. Such additional approval however is broader in its scope as it applies to all government contracts not only the administrative ones.

 

Settling Existing Arbitration Disputes

Governmental entities and state-owned companies are prevented by virtue of the Decree from taking any measure or action in relation to any arbitration dispute without seeking the opinion of the Commission first. The Commission is charged in this respect with the following:

  • approve the legal counsels, international experts, and the arbitrators who will be involved in arbitration cases;
  • provide advice and opinion regarding the defence strategy, the defence adequacy and the sufficiency of evidence;
  • assess the expected award and its impact;
  • offer all needed legal support as may be requested by legal counsels;
  • approve the costs and legal fees pertaining to arbitration cases; and
  • suggest amicable settlement and lead negotiations with counterparties.

The tasks entrusted to the Commission in this respect are similar to those assigned to the abovementioned committees established under the Investment Law No. 72 for 2017 for the settlement of investment disputes. Such committees however are empowered to conclude settlement agreements with private counterparties and their decisions are binding on the relevant governmental authorities and have the force of a writ of execution (i.e., enforceable without the need to take any further legal action) once approved by the Cabinet of Ministers.

 

Conclusion

Private counterparties who intend to enter into an agreement for arbitration or settlement negotiations with an Egyptian governmental entity or a state company must ensure that the matter is first referred to the Commission in order to mitigate related enforcement risks.

A foreign investor should expect that their contract with the government will be reviewed by the Commission which is competent to draft the arbitration clause and other ‘governing clauses’ such as those related to force majeure and the change of law.

While developing standard contractual clauses for governmental contracts might be suitable for lower value, low risk government contracts, it is unsuitable for specific industries which have their standard documents (e.g., construction forms) or for complex and high-risk projects which require bespoke contractual arrangement (e.g., large infrastructure and energy projects or PPPs).

The government of Egypt (including governmental entities and companies) plays an important role in the procurement of major projects in all business sectors especially the infrastructure, energy, and the construction sectors. Foreign investors therefore should be aware of the new involvement of the Authority which is expected to delay the negotiation and execution process of such contracts, as well as the related arbitration agreements.

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Call for Nominations: The Elisabeth Haub Award for Environmental Law and Diplomacy

ADR Prof Blog - Fri, 2021-02-19 09:38
The Dean of the Elisabeth Haub School of Law at Pace University invites nominations for consideration by the Jury for the 2021 Elisabeth Haub Award for Environmental Law and Diplomacy. The Award, which is granted annually by the Elisabeth Haub School of Law at Pace University, recognizes exceptional accomplishments in the field of environmental law … Continue reading Call for Nominations: The Elisabeth Haub Award for Environmental Law and Diplomacy →

Anti-mandatory arbitration bills introduced in Congress

ADR Prof Blog - Fri, 2021-02-19 09:33
I thought some of you might be interested in this blog post, over at the SAA Blog, summarizing bills recently introduced in Congress to ban pre-dispute arbitration agreements in various contexts or otherwise amend the Federal Arbitration Act. Most of these proposed laws are not surprising, and mimic bills introduced over the past few decades … Continue reading Anti-mandatory arbitration bills introduced in Congress →

Interviews with Our Editors: Mapping India’s Institutional Arbitration Journey with Mumbai Centre for International Arbitration (MCIA)

Kluwer Arbitration Blog - Thu, 2021-02-18 19:13

In this installment of Kluwer Arbitration Blog’s “Interview with our Editors”, we highlight India’s position in the field, by speaking with Madhukeshwar Desai and Neeti Sachdeva of Mumbai Centre for International Arbitration (MCIA). Madhukeshwar, its CEO, and Neeti, its Registrar & Secretary-General, jointly present MCIA’s journey since its establishment in 2016. They also discuss how the Indian arbitration landscape continues to evolve into a mature arbitration hub.

Madhukeshwar and Neeti, thank you for joining us on the Kluwer Arbitration Blog. We are glad to have you here to share your unique perspectives with the international arbitration community.  

 

  1. Could you briefly introduce our readers to MCIA and your roles there?

Madhukeshwar Desai (“MD”): Most successful financial centres across the world boast of an international arbitration institution that is independent, credible, and that enjoys the support of the domestic market. Until the MCIA was set up in 2016, Mumbai, an important Indian and global financial centre, lacked a world-class arbitral institution.

Furthermore, the vast majority of arbitrations conducted in India were not institutional but ad hoc. MCIA, thus, was set up with the aim to bring international best practices in institutional arbitration to India, while recognising the nuances of the Indian domestic market. To that end, we created the MCIA Rules 2016 (“MCIA Rules”) which reflect international best practices and are also attuned to the Indian market. We believe they are the only institutional rules that do so. The MCIA Rules are implemented in a consistent, fair, and transparent manner via the arbitrations that we administer.

MCIA is also resolute in its mission to catalyse a vibrant ecosystem for arbitration in India that benefits all stakeholders- from the arbitrators to the lawyers, law firms, central and state governments, businesses, and other clients.

For example, we launched the YoungMCIA, to bring young talented lawyers into the arbitration world; hosted many training programs on our own and in collaboration with the best and the brightest from India and elsewhere; and organised events across India and other jurisdictions to elevate and expand the conversation around arbitration in India.

As the CEO, I concern myself with all matters related to the running of the institution except for those relating to the MCIA Rules and its implementation. As the Registrar and Secretary General, Neeti is in charge of the Secretariat where she is responsible for the due implementation of the MCIA Rules and for marketing the institution more broadly.

 

  1. In 2021, MCIA will complete its first five years. According to MCIA’s “4th Edition Report” until its third-year since establishment (2018-2019), it had administered 8 cases and hosted over 650 arbitration sessions. You have recently released the Annual Report 2020. Could you provide some highlights from the report for our readers?  

MD:  MCIA has seen more than a 150% growth in the total number of cases being administered by us. We have received 12 new matters in the calendar year 2020 of which 9 arose from contracts containing an MCIA arbitration clause. Significantly, the parties are increasingly choosing to incorporate clauses pointing to MCIA into their contracts.

Equally significant is the fact that three recent arbitrations were referred to MCIA by Indian courts: the Supreme Court of India referred two ad hoc arbitrations to be administered by the MCIA under the MCIA Rules with the parties consent, and the Bombay High Court referred yet another ad hoc arbitration to be conducted in accordance with the MCIA Rules.

These are important precedents that will go a long way in promoting institutional arbitration in India.

Importantly, also heartening is the increasing geographical diversity in the venue and seat of disputes we are administering. This year, we had parties from across India such as Agra, Amritsar, Bengaluru, Gujarat, Hyderabad, Indore, Jharkhand, Kolkata, Noida, and Telangana. Additionally, the MCIA is administering two international arbitrations with at least one party from Mauritius in both cases.

In 2020 alone, the MCIA received disputes worth over USD 180 million. We think that this is just the start of what we hope to be continued exponential growth going forward.

 

  1. What are the top three advantages of having a case administered under MCIA Rules?

Neeti Sachdeva (“NS”): Institutional arbitration over ad hoc arbitration: MCIA has played a transformative role in promoting the culture of institutional arbitration in India. The first and foremost advantage of having a case administered under the MCIA Rules is having the arbitration conducted under specialized rules agreed to by the parties which reflect international best practices, including, but not limited to, oversight and scrutiny by the institution; provisions for expedited arbitration and emergency arbitration; all of which would be missing in a regular ad hoc arbitration.

The second advantage would be the cap on maximum administrative and arbitrator fees incurred by the parties during the entire arbitration. Under the MCIA Schedule of Fees (“Schedule”), the total fees are calculated on an ad valorem basis and the Schedule reflects the minimum as well as the maximum fees that the parties will have to pay for the resolution of a dispute under the MCIA Rules. In the Indian context, this gives parties a clear understanding of what the arbitration will cost if they were to invoke the arbitration agreement.

The third advantage, that ties in with the first one, is the process for appointment of arbitrators for two reasons: (i) If one of the parties in an ad hoc arbitration is uncooperative, one has to approach the court for the appointment which is both time-consuming and expensive. In an MCIA administered arbitration, under the MCIA Rules, the MCIA Council has the power to appoint, hence is efficient, fast, and cost-effective; (ii) The MCIA Council comprises some of the world’s leading arbitration practitioners, who are equipped to identify the right arbitrators, with the necessary specialization, for each dispute.

 

  1. Indians are amongst the top nationalities to arbitrate at international arbitral institutions and that is reflected in recent case-load reports of SIAC (where India stood at the first place) and ICC (where the number of cases with an Indian party tripled from the previous year, thus, taking it from the fifteenth place in 2018 to the second place in 2019). While Singapore and Hong Kong have established themselves as leading arbitration jurisdictions in the region, India continues to play catch-up.  What more could the legislature and the executive do to create the right environment to make India an attractive international arbitration hub?

MD: The foundation is being laid by the executive and legislative branches to strengthen India’s position as a favourable jurisdiction for arbitration. Even if one looks at Singapore or Hong Kong, they did not become recognised centres for international arbitration overnight – it took them more than two decades to arrive at the recognition that you refer to. I believe that India is on a similar journey, but one that will hopefully get us to the destination sooner, given the clear direction from the government, the courts, and the users of arbitration in India. MCIA, on its part, looks forward to playing a significant role in accelerating that journey.

NS: There is a clear and concerted effort from the government, and the legal community to move towards institutional arbitration and make India a favourable seat for arbitration. There is no doubt that the MCIA has benefited greatly from this.

 

  1. What is your take on the Indian judiciary’s performance in promoting a) the arbitration culture in India, and b) enforcement of foreign arbitral awards in India? 

NS: Like the legislature and the executive (as discussed above), the Indian judiciary continues to show its commitment towards promoting arbitration culture in India and in particular, institutional arbitration. We see this in the judgments from the courts. We also see this when the Indian courts repose faith in MCIA’s work and refer cases to us for both, the appointment of arbitrators as well as administration. As mentioned above, to date, the Supreme Court of India has referred three matters to us. Of these, one is an international dispute where MCIA was entrusted with the responsibility of appointing the tribunal. The other two cases have been recently referred to MCIA for administration under its rules. Both these cases involve significant business houses of India.

In addition to this, the Bombay High Court has also referred two cases to be administered under MCIA rules. One of these cases was referred to MCIA in 2020 and involves a multi-million dollar claim.

 

  1. You have recently announced “Call for Arbitrators” to expand MCIA’s list of eligible arbitrators. Could you tell us more about your arbitrator roster?

NS: As noted above, we have recently had an influx of cases and we expect more cases to come our way. In anticipation of that, we put out a ‘Call for Arbitrators’, so that we are adequately prepared for the role that we have to play in terms of appointing tribunal members.

While anyone may choose to apply, we engage in a robust selection process before adding individuals to the list. The criteria we use is broadly based on, but not limited to those listed below, in no particular order of importance:

  • The number of cases the applicant has acted as an arbitrator
  • The number of years at the bar (if an advocate)
  • Area of expertise
  • Accreditation from bodies of repute, such as the CIArb
  • Jurisdiction/location

We will continue to accept applications on a rolling basis from both Indian and international practitioners. We maintain an internal list and do not publish it.  Nor do we make this list available to anyone outside the MCIA.

 

  1. How does YoungMCIA galvanize the energy of students and fresh graduates to promote institutional arbitration in India?

MD: India does not have a dedicated arbitration bar, but it does have a large number of young people that want to establish a practice that is predominantly arbitration-driven. To that end, the YoungMCIA creates a community and a safe space where students and young professionals gather to share thoughts, exchange ideas, and interact with like-minded individuals. In a pre-Covid world, most YoungMCIA events were a combination of training exercises – such as the ‘Lifeline of an Arbitration’ series (now done virtually) and social gathering aimed at facilitating interactions with senior members of the bar, who may otherwise be inaccessible to young practitioners.

We now have over 1300 YoungMCIA members, a strong community that galvanize the Young MCIA, and not the other way around.

 

Thank you for your time and perspectives – we wish MCIA continued success!

This interview is part of Kluwer Arbitration Blog’s “Interviews with Our Editors” series.  Past interviews are available here.  

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A Battle on Two Fronts: Vattenfall v. Federal Republic of Germany

Kluwer Arbitration Blog - Wed, 2021-02-17 23:15

Swedish state-owned power energy company Vattenfall operated two nuclear power plants located in Brunsbüttel and Krümmel, Germany. Vattenfall owns a 50% interest in the Krümmel plant, and a 66.6% interest in the Brunsbüttel plant. In August 2011, against the backdrop of the nuclear disaster in Fukushima, Japan, the German Parliament amended the Act on the Peaceful Utilization of Atomic Energy and the Protection against its Hazards (the “Atomic Energy Act”) to abandon the use of nuclear energy in the country by 2022 (the amendment is known as the ‘Thirteenth Amendment’).

The Thirteenth Amendment statutorily accelerated fixed end dates for the operation of nuclear power plants without any compensation – and therefore cut short the operational lifetimes of the nuclear power plants that had just been fixed in 2010 by means of the Eleventh Amendment. Consequently, Vattenfall’s licenses to operate both plants were immediately withdrawn and operations in both plants were shut down.

Vattenfall adopted a two-front battle against the German State’s measures: the filing of a constitutional challenge with the German Federal Constitutional Court (the “Court”), and the initiation of an investment arbitration against Germany under the Energy Charter Treaty (“ECT”) (the “ECT Arbitration”).

 

The Constitutional Litigation in Germany

In February 2012, Vattenfall Europe Nuclear Energy GmbH and Kernkraftwerk Krümmel GmbH & Co. oHG (the “Petitioners”) filed a constitutional complaint regarding the Thirteenth Amendment before the Court for violation of their property rights. On December 6, 2016, the Court issued a first judgment (the “2016 Judgment”) finding that the Thirteenth Amendment was incompatible with the German Constitution “insofar as it [did] not include any provision for a settlement for investments that were made in legitimate expectation of the additional electricity output allowances allocated in 2010, but were devalued by the Amendment.”

First, the Court recognized that the State enjoys broad powers in determining which aspects of the common good to prioritize, and how to protect public interests such as life and health (at ¶ 283). In this particular case, the Court found that the State enjoyed particularly broad powers to design its atomic energy law, given the high-risk nature of this activity.

Nonetheless, the Court held that such broad regulatory powers are not absolute, as the State is still obliged to preserve the legitimate expectations of investors (at ¶ 372). The Court found that, in this case, legitimate expectations arose from the Eleventh Amendment because it extended permissions for nuclear power plants and encouraged investors to undertake investments in plants, and it was not foreseeable that the German legislature would shift its energy policy within the same legislative period (at ¶¶ 375-377). By enacting the Thirteenth Amendment just a few months later, the German State unreasonably limited the investors’ property by devaluing the investments that were made following the Eleventh Amendment. The Court found that this amounted to a violation of the investors’ legitimate expectations, and therefore the State should have provided appropriate compensation (at ¶¶ 372-73, 375-80). (A previous discussion of the decision is available here).

In light of the above, the Court ordered that the Thirteenth Amendment could remain in effect until the legislature adopted a new amendment to correct the violations of the German Constitution, which was to occur no later than June 30, 2018 (at ¶¶ 399-406).

To comply with the Court’s mandate, on July 10, 2018, the German legislature enacted the Sixteenth Amendment to the Atomic Energy Act. This amendment was to enter into force one day after the European Commission (“EC”) authorized it, or declared that no state-aid authorization was necessary (see Article 3).  Applied to the Petitioners’ case, the amendment provided that (i) the Petitioners were entitled to compensation, but only if they had previously made a good faith effort to sell residual energy to third companies at a reasonable price; and (ii) if compensation was paid, it was limited to 2/3 of the residual energy for Brunsbüttel and 1/2 of the residual energy for Krümmel. Given that Vattenfall’s partner was in a position to use all of its residual energy internally, it was not entitled to compensation (see § 7f(1)).

The Petitioners filed another constitutional complaint regarding the Sixteenth Amendment, and on September 29, 2020, the Court rendered a second judgment (the “2020 Judgment”).1)According to the Constitutional Court’s official press release the 2020 Judgment was made public on November 12, 2020 and is currently available in German language only. jQuery('#footnote_plugin_tooltip_36145_18_1').tooltip({ tip: '#footnote_plugin_tooltip_text_36145_18_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  The Court found that the Sixteenth Amendment never entered into force because it was contingent upon approval from the EC. However, the EC had neither approved the Sixteenth Amendment, nor issued a binding communication that such an approval was not required (at ¶¶ 53-69)  Therefore, the Court found that the violation of the Petitioners’ rights persisted given that no other remedial provision had been enacted.

In addition, the Court also held that the content of the newly enacted regulation would still infringe upon the Petitioners’ constitutional rights. The Court found that the fact that the amendment tied compensation to an obligation to make efforts to transfer compensable electricity volumes to other companies under adequate conditions was unreasonable (at ¶ 71). In particular, it was unreasonable because, at the time they were to start negotiating the transfer of electricity, the Petitioners would not know whether the transfer conditions would meet the § 7f(1) criteria, and if the criteria weren’t met the Petitioners would risk not receiving compensation at all (at ¶¶ 74-76).

The Petitioners also complained about the proposed reduction of their compensation under the Sixteenth Amendment. Without opining on the amount of compensation provided, the Court held that this aspect of the amendment would also be unconstitutional. In particular, In particular, the amendment lacked sufficient specificity to determine compensation in circumstances where two corporations were shareholders in an affected investment (i.e. Vattenfall and PreussenElektra), but only one corporation was entitled to compensation pursuant to the 2016 Judgment (i.e. Vattenfall) (at ¶¶ 77-81).

Accordingly, it is clear from this latest decision that the German State still remains obligated by the 2016 Judgment to enact new provisions as soon as possible in order to remedy the violations of the Petitioner’s constitutional rights (at ¶ 84).

 

The ECT Arbitration

On May 14, 2012, Vattenfall and its German subsidiaries initiated an international arbitration under the ECT against Germany, claiming EUR 4.7 billion due to losses allegedly suffered from Germany’s decision to accelerate the phase-out of nuclear energy under the Thirteenth Amendment. The International Center for the Settlement of Investment Disputes (“ICSID”) is administering the arbitration (see Vattenfall AB and others v. Federal Republic of Germany (ICSID Case No. ARB/12/12)). Hearings on jurisdiction, merits, and quantum were held in 2016, however, a final decision is still pending.

In a Q&A public statement, Vattenfall explained that it decided to pursue the constitutional litigation and the ECT Arbitration as “it was not an option for Vattenfall to await the multi-year procedure at the German Federal Constitutional Court before appealing to ICSID.” Ironically, Vattenfall obtained a quicker decision from the German judiciary (in December 2016) than the ICSID tribunal which continues hearing the case to date.  However, the path towards remedying the violations to the Petitioners constitutional rights under German law is not finished yet as the German legislative power still needs to comply with the 2016 Judgment through the adoption of new legislative measures.2)According to a statement by the spokesman for the Federal Ministry of Environment, Stephan Haufe, the required changes to the Atomic Energy Act to comply with the Court’s judgement will be implemented in the course of this year. jQuery('#footnote_plugin_tooltip_36145_18_2').tooltip({ tip: '#footnote_plugin_tooltip_text_36145_18_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

Impact of the 2020 Judgment on the Ongoing ECT Arbitration

Back in 2016, Nikos Lavranos discussed the impact of the 2016 Judgment in favor of the Petitioners on the ECT Arbitration.  He anticipated that the arbitral tribunal would perform a comprehensive balancing between the regulatory powers of the German State and the protection of the legitimate expectations and property rights of the investor. The 2020 Judgment does not seem to alter that assessment.

While the parties’ written submissions in the ECT Arbitration are not public, from November 21, 2020 to November 27, 2020 the Tribunal held public hearings on certain quantum issues –  with the parties also being invited to make submissions on the impact of the 2020 Judgment on the arbitration proceedings.  On this issue, the Claimants submitted that the 2020 Judgment:

  1. removed any relevance of the Sixteenth Amendment on the arbitration proceedings (since Germany had argued that such amendment rendered the Claimants’ claims moot), and
  2. showed precisely why the Claimants had to bring the ECT Arbitration: ten years after the constitutional challenge was brought, Germany still had failed to compensate Claimants.3)See Vattenfall AB and others v. Federal Republic of Germany (ARB/12/12), Hearing on Tribunal Question 8 (November 21, 2020), Claimants’ Opening Statement. jQuery('#footnote_plugin_tooltip_36145_18_3').tooltip({ tip: '#footnote_plugin_tooltip_text_36145_18_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

On its side, Respondent alleged that Claimants were inflating its damages claim, among others, because:

  1. while in the constitutional litigation Vatenfall is not claiming damages and the Court does not deal with damages – rather the Court held that sales of electricity volumes could not amount to compensation – in the arbitration, the Claimants’ quantum analysis takes into consideration ex ante prices to calculate higher damages; and
  2. while German constitutional law focuses on individual property rights (in this case, the individual power plants and individual assets), the ECT Arbitration focuses on Vatenfall’s investment in an energy company which one of its lines of business was nuclear energy.4)Id., Respondent’s Opening Statement. jQuery('#footnote_plugin_tooltip_36145_18_4').tooltip({ tip: '#footnote_plugin_tooltip_text_36145_18_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

While judicial decisions do not constitute a binding precedent for an international investment arbitration tribunal, they can provide support to arguments such as those advanced by Vattenfall, as well as other investors facing similar energy bans without compensation from a host state. It will be interesting to see how the arbitral tribunal in the ECT Arbitration deals with the Court’s judgments in its final award (in particular, the reasoning in the 2016 Judgment regarding the violation of the investors’ legitimate expectations and property rights).

In turn, this decision will certainly be an important precedent for other cases where investors have resorted to international arbitration against States for similar legislation seeking to accelerate the decommissioning of coal-fired power plants, without compensating foreign investors. For instance, in 2018, Westmoreland Coal Company initiated arbitration against Canada following the Government of Alberta’s 2015 plan to eradicate coal-based energy by 2030.  Likewise, in September 2019 Uniper expressed its intention to file a claim against The Netherlands after the Dutch parliament passed a bill in 2016 which set forth a 55% cut in GHG emissions by 2030. On February 2, 2021, ICSID registered an ECT claim against the country arising out of those measures brought by German energy company RWE AG. Finally, on January 31, 2021, Australian mining company Berkeley also announced it is considering resorting to international arbitration if an amendment to Spain’s climate change bill, that proposes banning the mining of uranium in the country, is passed.

 

The views expressed by the author do not represent the position of Herbert Smith Freehills or its clients.

References[+]

↑1 According to the Constitutional Court’s official press release the 2020 Judgment was made public on November 12, 2020 and is currently available in German language only. ↑2 According to a statement by the spokesman for the Federal Ministry of Environment, Stephan Haufe, the required changes to the Atomic Energy Act to comply with the Court’s judgement will be implemented in the course of this year. ↑3 See Vattenfall AB and others v. Federal Republic of Germany (ARB/12/12), Hearing on Tribunal Question 8 (November 21, 2020), Claimants’ Opening Statement. ↑4 Id., Respondent’s Opening Statement. function footnote_expand_reference_container_36145_18() { jQuery('#footnote_references_container_36145_18').show(); jQuery('#footnote_reference_container_collapse_button_36145_18').text('−'); } function footnote_collapse_reference_container_36145_18() { jQuery('#footnote_references_container_36145_18').hide(); jQuery('#footnote_reference_container_collapse_button_36145_18').text('+'); } function footnote_expand_collapse_reference_container_36145_18() { if (jQuery('#footnote_references_container_36145_18').is(':hidden')) { footnote_expand_reference_container_36145_18(); } else { footnote_collapse_reference_container_36145_18(); } } function footnote_moveToAnchor_36145_18(p_str_TargetID) { footnote_expand_reference_container_36145_18(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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The Contents of Arbitration: The International Journal of Arbitration, Mediation and Dispute Management, Volume 87, Issue 1 (February 2021)

Kluwer Arbitration Blog - Wed, 2021-02-17 20:00

As we slowly turn the corner of this brutal year, a mixed set of thoughts and reflections come to mind. For a start, one cannot help but feeling a sense of measured optimism that after a vicious tally of human losses worldwide and unprecedented disruption of every single aspect of our social and professional lives which the pandemic has caused, some light appears to slowly shine at the end of what has been a very long tunnel.

And it is only right that I start this year’s assessment with a general reflection on the state of our world. Indeed, it would be entirely myopic and solipsistic to mainly think of our niche field of international law in these challenging times.

At the same time however, it is international dispute resolution that we -and the readers of this Journal– theorise and practice, and it is only natural for this editorial to also assess the implications of this year’s events on our field. And here the sense of measured optimism is overtaken by a sense of enthusiasm and, perhaps, admiration of the resilient and evolutionary nature of the practice of international arbitration.

Writing the introduction of the edited book on The Evolution and Future of International Arbitration back in the (what now appears to be) far distant 2016, I identified eight future challenges for the field of international arbitration. Without being able to imagine the wide-ranging plights that the global pandemic would bring about four years later, I was then asking the question as to how “technology can change the way international arbitration is conducted?”. Specifically, I was writing the following lines:

Despite its flexible nature, international arbitration has failed to embrace technology so far. The only technological innovations introduced in arbitration in the last twenty years are e-discovery of documents and the use of electronic copies of submissions and exhibits. However, electronic submissions have not changed the way arbitration is actually conducted: instead of (and very often in addition to) hard copies parties submit electronic copies of their submissions, including supporting documents. This is hardly innovative. Information technology has made unprecedented advances that may have far reaching implications for the conduct of international arbitration [….] science and technology can make arbitration proceedings more time and cost efficient.

Fast forward to 2020: faced with the prospect of recurrent postponements of arbitration hearings and extensive disruption of the process of thousands of ongoing arbitrations, arbitration institutions, counsel and arbitrators, have been quick to adapt to the new circumstances and come up with new sets of remote practices and protocols for online hearings. This has been international arbitration at its best: innovative, willing to embrace change, and quick to implement solutions to real life problems by relying on the use of cutting-edge technology.

All of us will look back to 2020 hoping that we not have to re-live such a treacherous turn of events. It is, however, likely that we will consider the year of 2020 as the beginning of a new era of a more effective and technologically friendly practice of international dispute resolution.

* * *

We are happy to report that the latest issue of Arbitration is now available and includes the following:

 

ARTICLES

Carlos Molina Esteban, Bifurcation of ICSID Awards and Reconsideration of Interlocutory Decisions: The Fine Balance of Procedural Economy

Bifurcation is by no means a rarity:ICSID Tribunals have rendered over 115 decisions on bifurcation. Despite this, until now, there has not been a comprehensive regulation of Bifurcation within the ICSID Convention and Rules. Case law has, thus, been fundamental to its development. This article will examine investment arbitration case law in order to answer a set of questions: What is the objective of Bifurcation? Under which circumstances should Tribunals bifurcate? Do these circumstances change depending on the issues to be bifurcated?

We will then take a look at the post-bifurcation scenario, specifically at the issue of reconsideration of decisions. After a review of case law on the matter, we will examine two further questions: when should Tribunals reconsider their decisions? And what is the rationale behind these reasons to reconsider a decision?

As we will further develop, these questions revolve around one key concept: Procedural Economy. Both bifurcation and reconsideration of decisions can ultimately be seen as a balancing exercise of procedural economy, Tribunals having to carefully balance out the circumstances of each case to decide whether the bifurcation of proceedings or the reconsideration of decisions would benefit efficiency.

 

Naimeh Masumy & Niyati Ahuja, Divergence from Conflict-of-Law Analysis: The Need for a Coherent Standard of Review for Economic Sanctions in International Arbitration

The recent reinstatement of economic sanctions by the US against Iran, China and Hong Kong (The Comprehensive Iran Sanction, Accountability and Divestment Act of 2010, Pub. L. 111–195, 124 Stat.1312, enacted 1 July 2010; Comprehensive Iran Sanction, Accountability and Divestment Act (CISADA). International Emergency Economic Powers Act (IEEPA), 50 U S C.1701–1706.) brings into focus how to best resolve disputes related to these sanctions in arbitral proceedings. Arbitral tribunals tend to apply conflict-of-law rules in order to determine the application and the validity of the sanctions. This article contends that the invocation of private international law principles, such as the conflict-of-laws analysis, to adjudicate these cases is conceptually and pragmatically challenging as it forces the arbitral tribunal to determine the applicable law according to complicated rules with a discretionary nature and thereby hinders arbitral tribunals from considering sanctions through the prism of public international law. The principles of Public International Law should be considered by arbitral tribunals when reviewing sanctions with transnational elements. The paper analyses the existing approach adopted by arbitrators and proposes that arbitral tribunals undertake a minimal standard of review based on Public International Law principles.

 

Edwin Teong Ying Keat, Calling a Spade a Spade: Making the Case for Construing Exclusion Agreements in Arbitration as Exclusion Clauses

Exclusion Agreements (‘EAs’) are agreements excluding the right to appeal arbitral awards. However, a lacuna exists in the analysis of EAs. courts when ruling on EAs, lapse into dichotomous outcomes – enshrine party autonomy or respect issued awards. Therefore, this article argues for the law on exclusion clauses to be applied to EAs for five reasons. First, EAs are essentially exclusion clauses as they also demarcate obligations. Second, the proposed solution adds rigour to the analysis of EAs. Third, EAs share very similar policy considerations with exclusion clauses. Fourth, the potential doctrinal objection – doing so violates the doctrine of separability – is rebutted. The tribunal presides over proceedings to issue arbitral awards, while courts decide the validity of EAs. Further, the roots of ‘separability’ is arguably procedural in enshrining choice of dispute settlement. Lastly, subjecting exclusion clauses to stricter scrutiny than EAs sends the wrong signal to parties invoking EAs.

 

Silpi Jain, Aryan Mohindroo & Harshil Manchanda, Mediating the Irish Way: Taking an Alternative Approach to Alternative Dispute Resolution in India

In the past couple of decades, Ireland and India, both common law countries, have made attempts to strengthen the mediation regime in their respective countries, however, Ireland has experienced greater growth, both in terms of law and practice. Through this article, the authors attempt to study the developments in the legal regime on mediation in both countries and propose the adoption of certain features of the Irish model into the Indian legal system for greater regulation of mediation practices. The authors explore the various features of the Irish regime and the suitability of adopting the same into the Indian system. The authors address a wide range of issues relating to building a robust regulatory framework in India, such as the scope of enacting a legislation, providing better enforcement mechanisms and enhancing the quality of mediators.

 

Bas van Zelst, Similar ≠ Equal – a Nuanced Approach to Remote Hearings: A Dutch Perspective

This article proposes a nuanced approach to remote hearings, from the perspective of Dutch law. The Dutch Arbitration Act was revised in 2015. It grants an arbitral tribunal the discretionary power to decide that a hearing be conducted ‘by electronic means’. This article challenges the notion that that power is of a mandatory nature. It submits that the power for arbitrators to opt for a remote hearing is limited by fundamental principles of procedural law, the principle of parity, in particular. The article goes on to list relevant considerations in opting for a remote hearing in Netherlands-seated arbitral proceedings and considers this approach to be feasible in the international setting as well.

 

Benjamin Williams, Qualifying Achmea: Investor-State Arbitration, Jurisdictional Conflict and EU Decision-Making

In 2019, the European Court of Justice shocked the arbitration community with the release of Opinion 1/17. The opinion turned once again to the compatibility of Investor-State Dispute Settlement mechanisms under EU law, finding the provision in Canada’s Comprehensive Economic and Trade Agreement compatible. Yet the ruling appeared at odds with the court’s own case law. Only a year earlier, in Slovak Republic v. Achmea, the court had found the Investor-State Dispute Settlement (ISDS) provision in a Netherlands-Slovakia treaty incompatible.

This article examines the two cases to consider the jurisdictional compatibility of investor-state arbitration bodies under EU law. Through a close reading of the judgements, it traces a common thread in the court’s reasoning – the principle of mutual trust. It argues that mutual trust can be seen both as the Court’s metric for limiting the scope of arbitration practice, as well as the source of the court’s autonomy within the EU legal order. In so doing, the paper seeks to resolve the apparent conflicts between these two contrasting cases, while also commenting on the Court’s approach to decision-making more broadly.

 

Viktoriia Korynevych, Revisiting Kompetenz-kompetenz and Arbitrability in the US Supreme Court: Vicious Circle of Delegation Clauses and Carve-out Provisions in Henry Schein Inc. v. Archer and White Sales Inc

The US courts have long recognized that arbitral tribunal has power to rule on arbitrability as long as parties ‘clearly and unmistakably’ delegated such power in the arbitration clause. The question as to what exactly constitutes ‘clear and unmistakable’ delegation still remains unanswered. In the 2020–2021 term, the US Supreme Court will have an opportunity to shed some light on the concept of ‘clear and unmistakable’ delegation. In 2019, in Henry Schein Inc. v. Archer and White Sales Inc., the Fifth Circuit Court of Appeals held that the presence of carve-out provisions in the arbitration clause negates an otherwise ‘clear and unmistakable’ delegation of arbitrability to arbitral tribunal. In other words, if arbitration clause excludes, for example, intellectual property disputes or injunctions, then arbitrability question automatically goes to courts. On 8 December 2020, the US Supreme Courtheard the argument in the case and will likely decide it in 2021.

 

BOOK REVIEWS

Margie-Lys Jaime, Mediation in International Commercial Arbitration and Investment Disputes, by Catharine Titi & Katia Fach Gómez (eds) (Oxford University Press, 2019)

Erik Van Wellen, Construction Contracts: Law and Management, by Will Hughes, Ronan Champion & John Murdoch (eds) (Routledge, 5th Edition, 2015)

Gordon Blanke, Commercial Arbitration in Zimbabwe, by D. Kanokanga (Juta, 2020)

 

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“And bad mistakes, I've made a few…” (Apologies to Queen)

International Arbitration Blog - Wed, 2021-02-17 10:52

Overview

Sir Ross Cranston commences his reasons in the case of Doglemore Trade Ltd v. Caledor Consulting Ltd [2020] EWHC 3342 (Comm), by quoting Sir John Donaldson MR in The Montan: “[M]istakes will occur even in the practices of the best of arbitrators”. While unfortunate, mistakes can occur. In such cases, one can seek relief from the tribunal or the courts. The mistake in Doglemore Trade Ltd v. Caledor Consulting Ltd, although seemingly obvious, required an application to the courts for relief.

The Public Policy Exception under Article V(2)(b) of the New York Convention in the Time of Covid-19

Kluwer Arbitration Blog - Wed, 2021-02-17 00:19

Exceptional times call for exceptional measures. We have all been experiencing a global pandemic for almost a year now. In an era where the legal exception tends to become the mainstream rule, one is left to wonder how far can this reversal of odds go. Is the global public health crisis susceptible to calling into question standard principles of international arbitration such as the recognition and enforcement of foreign arbitral awards under the New York Convention (“NYC”)? Faced with this question, this post examines whether the global health crisis may give rise to requests for courts to refusal to recognise and enforce arbitral awards under Article V(2)(b) of the NYC and assesses the circumstances and conditions under which such claims may be upheld in court. The post reflects a more detailed analysis of these issues in light of the current global health crisis, contained in a recent publication assessing the public policy exception under Article V(2)(b) of the NYC (see Z. PRODROMOU, The public order exception in international trade, investment, human rights and investment disputes, Kluwer, 2020).

 

Article V(2)(b) of the NYC: How Does the Global Health Crisis Fit In?

Article V(2)(b) of the NYC provides that:

2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:

(…)

(b) The recognition or enforcement of the award would be contrary to the public policy of that country”.

The benchmark question is whether the current global health crisis theoretically fits into the public policy exception. The text of the NYC itself refrains from defining the term public policy, and leaves it up to the national courts enforcing foreign awards to interpret the term’s meaning. Consequently, in the absence of a clear prohibition or definition otherwise, courts could read the global health crisis into Article V(2)(b) on the face of the facts and situations mapped out immediately below.

 

Mapping out Concrete Situations where the Global Health Crisis may Give Rise to Claims under Article V(2)(b) of the NYC

The exception enshrined in Article V(2)(b) of the NYC concerns infringements of procedural and substantive public policy rules. The current global health crisis may give rise to claims related to both of these aspects of public policy.

 

1. Claims concerning the infringement of procedural public policy against the backdrop of the global health crisis

In the context of Article V(2)(b) of the NYC, procedural public policy concerns can include flaws in the adjudication of the case at issue by the competent arbitral tribunal. By way of example, due process infringements constitute issues of procedural public policy.

The local lockdowns combined with the series of bans on international flights and travel have forced arbitral tribunals to adapt to a brand new reality of remote, e-operation. Virtual hearings have become the new norm, all while arbitral tribunals seek to guarantee the unhindered continuation of proceedings in the interests of justice. Despite noble intentions, though, this instant digitalization of arbitration could raise serious questions from a due process standpoint. This is particularly so in the event one of the parties objects to a virtual hearing and prefers to postpone the proceedings, including to allow for a meeting in person. Arbitral institutions have shown good reflex and have issued a line of additional notes and guidance discussing the different options available to arbitrators seeking to strike a fair balance between procedural efficiency and due process. Notwithstanding these additional soft law tools, key questions of principle remain unanswered: Do virtual hearings and other electronic means of administration of arbitral proceedings adequately fulfil the parties’ right to be heard in a meaningful manner and in line with the respective requirements of Article V(2)(b)? This includes the right to submit evidence, to comment upon evidence furnished by the other party, and the ability to cross-examine witnesses virtually. Moreover, the technology used to conduct virtual hearings could also raise questions on the confidentiality of the proceedings and the overall privacy and data protection of the parties involved. Based on the above, it would not come as a surprise if parties who are currently forced to take part in virtual arbitration proceedings subsequently rely on the intricacies raised above to seek to resist the recognition and enforcement of arbitral awards rendered after electronic hearings, based on the public policy exception under Article V(2)(b). Of course, the success of any such claims greatly depends on the facts surrounding the respective assertions. The more egregious the circumstances, the higher the prospects of success.

 

2. Claims concerning the infringement of substantive public policy against the backdrop of the global health crisis

The relevant case-law indicates that substantive public policy hinges on the protection of the following key pillars: (a) fundamental principles pertaining to justice or morality; (b) rules serving the State’s essential political, social or economic interests (“lois de police”); (c) duty of the state to respect obligations under international law; (d) the forum state’s national interests; and (e) constitutional principles. From this universe, the protection of the forum state’s national interests as well as the protection of the forum state’s constitutional principles would be the most likely be employed by parties seeking to resist the recognition and enforcement of arbitral awards in the backdrop of the global health crisis. In United World v. Krasny Yakor, the Federal Arbitrazh Court of the Volgo-Vyatsky Region in Russia, held on appeal that the award in question was counter to the forum’s substantive public policy due to the fact that it could lead to the respondent’s bankruptcy, thereby affecting the forum’s regional economy as a whole. Likewise, the Caribbean Court of Justice set aside the award under review in BCB Holdings, because it was determined to be contrary to the forum’s core constitutional values of separation of powers and parliamentary sovereignty.

These lines of jurisprudence, which are unrelated to the health crisis, could be employed by analogy in at least two ways by parties seeking to resist the recognition and enforcement of arbitral awards due to Covid-19-related events. First, the resisting party could rely on the financial implications of the lockdown, or on other restrictive measures, to argue that these would be further magnified to the detriment of the economy should the foreign arbitral award in question be recognized and enforced. This is particularly so where there is evidence showing that the resisting party would face bankruptcy as a result of the enforcement proceedings in question or that such proceedings could have indirect, yet severe, financial implications for other market players associated with the resisting party. Second, and depending on the prevailing circumstances at the time, the resisting party could also rely on any applicable restrictive measures at the time, including special measures for the suspension of certain judicial and commercial or banking activities, and therefore argue that recognition and enforcement of a foreign arbitral award would contravene these restrictions and therefore run against the national interest and constitutional principle of protecting public health, and by extension, affect the national population.

 

Reading the Global Health Crisis into Article V(2)(b) of the NYC is also Supported by the Provision’s Theoretical Underpinnings

Reading the global health crisis into Article V(2)(b) could be considered justified given that the content of the public policy exception is not meant to remain stable, but rather evolve over time. The non-static nature of the public policy exception is dictated by the need to capture fluctuations in prevailing societal circumstances. According to this evolutionary interpretation, the term ‘public policy’ is meant to encompass the most recent societal changes such as the current global health crisis. However, this conclusion does not necessarily compromise the need to construe the public policy exception narrowly or otherwise contravene the NYC’s general pro-enforcement spirit. Quite the contrary, it shows that public policy constitutes a notion fluid enough to adjust to changing circumstances, including the outbreak of Covid-19. The application of Article V(2)(b) by courts in situations arising out of the current global health crisis, however, must be in line with the provision’s exceptional nature, and must pay respect to the NYC’s overall aims.

 

Final thoughts

International jurisprudence on the enforcement and recognition of arbitral awards shows that the public policy exception has only been upheld by courts on limited occasions. Based on this, the mere fact that the global health crisis may give raise to additional claims under Article V(2)(b) does not necessarily mean that these will inevitably tip the NYC’s pro-enforcement balance. The provision has been traditionally applied extremely narrowly and has been upheld only on the face of exceptional procedural irregularities or in light of extremely dire financial conditions. All in all, the exception is expected to be invoked more often given the current unprecedented circumstances, but it does not run the risk of becoming the rule. The odds should not be reversed on this front.

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The Rising Arbitrator’s Challenge: Navigating the Premise and Perils of Your First Appointment(s)

Kluwer Arbitration Blog - Tue, 2021-02-16 23:49

On 27 January 2021, the Rising Arbitrators Initiative (RAI) hosted the second webinar of its series “The Rising Arbitrator’s Challenge: Navigating the Premise and Perils of Your First Appointment(s)”.

The aim of the series of events is to support practitioners who are seeking or tackling their first appointments and each webinar is focused on a different jurisdiction. The 27 January 2021 event focused on Europe and was moderated by Victoria Pernt (Schoenherr Attorneys at Law). After the opening remarks by Ana Gerdau de Borja Mercereau (Derains & Gharavi), co-founder and co-chair of RAI’s Executive Committee, introducing RAI’s initiative, the panel featuring Alice Fremuth-Wolf (VIAC); Milena Djordjevic (University of Belgrade), and Simon Gabriel (Gabriel Arbitration), commenced the discussion.

 

How to get your first appointment and what criteria do institutions take into account in the selection process?

Alice Fremuth-Wolf gave her insight and practical advice on the issues related to first appointments and the criteria for selection by VIAC. She highlighted that it is one of VIAC’s duties to look for new talents, to increase the arbitrators’ circle and look for more diversity in the arbitration market. It was clear from the discussion that one of the goals of VIAC is to promote young talents and give them the possibility to get their first appointments. Ms. Fremuth-Wolf’s advice on how to get the first appointment was for young practitioners to be confident and make themselves visible by attending conferences or seeking speaking opportunities. This, in her opinion, will make the decision-makers become aware of the new talents. Another important consideration mentioned was for aspiring arbitrators to keep publishing on specific topics, not only procedural, but also particular areas of substantive law. She mentioned that it is good to consider focusing on niche areas such as for example environmental law. In today’s pandemic reality it is important to make use of different online platforms such as LinkedIn and meet online with other peers and engage in discussions.

First appointments are usually realistic after gaining some experience as a party representative or as a tribunal secretary. Securing an internship with an arbitral institution may also be a valuable experience. Ms. Fremuth-Wolf mentioned that it is worth considering having one’s name included on so-called lists of practitioners, such as the one VIAC has, especially designed to make profiles visible.

 

Is it appropriate for arbitrators to seek support from arbitral institutions?

The discussion also touched upon the importance of asking for support from arbitral institutions. This is because there are many issues that can be raised even in small cases, in particular because these types of cases usually involve numerous procedural issues, less experienced counsel, or non-responsive parties. Ms. Fremuth-Wolf noticed that not only young practitioners seek such advice, but also experienced arbitrators ask many questions, and, as such, there should be no shame in asking for support. Many issues may be related to procedural aspects or best practices as to for example the costs of arbitration, and for which the institutions are well equipped to assist with. Moreover, as Ms. Fremuth-Wolf explained, there is always a designated case manager who is on the top of the case, monitoring and able to step in, in problematic situations. Furthermore, there is, in many institutions, the review procedure (ICC or VIAC) where another look at the arbitral award is taken. Of course, this is without any interference in the legal analysis and the outcome, but, for example, it would concern the issues related to the procedure or a double check on whether all of the issues have been dealt with and the clarity of the dispositive. Ms. Fremuth-Wolf encouraged young practitioners to “fight for their first appointments and be confident that they can do it”. Being young does not mean being inexperienced, she said.

 

Efficient Setup and Tribunal Secretaries

Milena Djordjevic gave further insights on how to get and keep first arbitral appointments. One of the problems young arbitrators face is big competition in the arbitration job market. It is difficult for practitioners to get the positions they deserve. Ms. Djordjevic highlighted that it is important to take the advantage of the pandemic situation and, in particular, the accessibility of the online events, webinars and conferences. Further, young aspiring arbitrators should seek to enhance their skills, which may include the knowledge of foreign languages. Studying in a different legal system than one’s own would be another consideration in terms of first appointments. The mix of common and civil law cultures may be helpful in understanding the arguments brought before the tribunal by the parties. Ms. Djordjevic also referred to a well-known dilemma: which came first: the chicken or the egg, with reference to the vicious circle of the first arbitral appointments. One may not be appointed because of lack of experience but if a person will not get appointed, she or he will not get any experience. However, Ms. Djordjevic believes that positions such as tribunal secretary make it possible for young practitioners to gain experience and become “visible”. She further raised a problem of lack of visibility of the tribunal secretaries and the fact that while institutions have started to publicize the arbitrators sitting in their cases, this has not been done for tribunal secretaries. Milena Djordjevic announced that this is changing, and as of 1 July 2021, the ICC will publish the names of administrative secretaries.

Regarding keeping the appointments coming, Milena Djordjevic mentioned that arbitrators must maintain efficiency, responsibility, avoidance of conflicts and diligence in ensuring that the award would not be set aside afterwards. Another important aspect to consider according to Ms. Djordjevic is to have a “good start” with counsel representing the parties. It is important to ensure that the relations between the members of the tribunal, between tribunal and counsel and between counsel of both parties are right. This also leads to ensuring that procedural order number one outlines all major issues. An important observation made by Ms. Djordjevic was that being a young arbitrator together with more-experienced arbitrators may be somewhat challenging in terms of trust from other arbitrators, but young arbitrators should be confident and, after prompt analysis of the issues, they should not be afraid to present their opinion.

 

Defaulting parties

Simon Gabriel continued with considerations related to defaulting parties and first arbitral appointments, which, as he stressed, may be quite disappointing situations for arbitrators in their first appointments. There are different reasons for default, including parties’ lack of experience with arbitration, false belief that arbitration is a dispute resolution similar to mediation, or even a procedural strategy or guerrilla tactic. Arbitrators facing default proceedings should search for guidance in the lex arbitri, institutional rules (for example Article 29.2 of VIAC Rules or Article 26.2 of the ICC Rules), legal scholarship, the New York Convention (Article V(1)(b) regarding minimum requirement for notification of the parties) or UNCITRAL Model Law (Article 25, which reflects a broad consensus on the issues of defaulting parties). Mr. Gabriel made reference to the song “The Show Must Go On” (Queen) explaining, that unlike many national courts’ practices, the arbitration must go on and arbitrators cannot simply rule against the defaulting party but consider all the issues at hand together with the evidence and promptly notify and inform both parties during the proceedings. This is of utmost importance especially for purposes of recognition and enforcement of arbitral awards.

 

Conclusion

The event has been a great opportunity for young practitioners to get an insight on how to seek the first arbitral appointment and how to maintain it. Speakers shared a very personal and practical experience of their own and also talked about the challenges faced along the way. RAI’s initiative is blooming and has a great significance for young arbitrators as well as for aspiring practitioners. Finally, one should follow the speakers’ advice: get yourself out there, be confident and do not think too much of the chicken and egg dilemma!

 

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ADR’s Place in Navigating a Polarized Era

ADR Prof Blog - Tue, 2021-02-16 16:36
In the middle of the impeachment trial last week, I received a Westlaw email with links to the symposium on ADR’s Place in Navigating a Polarized Era, organized by Texas A&M and published in the Ohio State Journal of Dispute Resolution. The symposium could not be more timely and is well worth reading (though the … Continue reading ADR’s Place in Navigating a Polarized Era →

I Actually Like Teaching on Zoom

ADR Prof Blog - Tue, 2021-02-16 07:06
That’s the title of a thoughtful op-ed in the New York Times by Viet Thanh Nguyen, a professor of English, American studies and comparative literature at the University of Southern California. Take a look.  (Click the title of this post to read the article.)

The 10 Year Anniversary of the PCA Outer Space Rules: A Failed Mission or The Next Generation?

Kluwer Arbitration Blog - Mon, 2021-02-15 23:08

Nearly a decade ago, the Permanent Court of Arbitration (“PCA”) published its Optional Rules for Arbitration of Disputes Relating to Outer Space Activities (“PCA Outer Space Rules” or “Rules”).  Unlike the five United Nations treaties on outer space, the Rules provide for a voluntary and binding dispute resolution process accessible to all space actors.  Notably, they are specifically tailored to the space industry and represent a significant development in the field of space law.  Curiously, however, the PCA Outer Space Rules have not made much traction in the space industry.

This article explains key provisions of the PCA Outer Space Rules, discusses their limited success to date, and explores opportunities for their use in the future.  As the traditional 10-year anniversary gift is meant to symbolize preservation, longevity, and the ability to last through time, this article explores whether the Rules have been a failed mission or are the next generation for resolving space disputes.

 

Overview of the PCA Outer Space Rules

The PCA Outer Space Rules are based on the 2010 UNCITRAL Arbitration Rules (“UNCITRAL Rules”), which are well-established procedural rules that parties commonly use in international arbitration.  The introduction to the PCA Outer Space Rules notes that the Rules reflect “the particular characteristics of disputes having an outer space component involving the use of outer space by States, international organizations and private entities” and “the public international law element that pertains to disputes that may involve States and the use of outer space, and international practice appropriate to such disputes.”  The most notable aspects of the Rules account for the highly technical nature of space disputes:

  • Specialized Panel of Arbitrators:  Under Article 10(4) of the Rules, “[f]or the purpose of assisting the parties” in appointing arbitrators, the PCA Secretary-General shall maintain a list of individuals “considered to have expertise in the subject matters of the dispute at hand for which these Rules have been designed.” The PCA’s Specialized Panel of Arbitrators currently lists 12 lawyers and non-lawyers from Argentina, Australia, Brazil, Chile, China, the Dominican Republic, Israel, Korea, Paraguay, Spain, and Thailand.  In appointing arbitrators, the parties to the dispute or the appointing authority may, but are not obliged to, choose persons from the list.  Relatedly, pursuant to Article 6 of the Rules, only the PCA’s Secretary-General may serve as the appointing authority (unlike the UNCITRAL Rules which leave this choice to the parties).
  • Specialized Panel of Scientific Experts:  Under Article 29(1) of the Rules, an arbitral tribunal may appoint experts on “specific issues to be determined by the arbitral tribunal.”  Under Article 29(7), the PCA Secretary-General maintains “an indicative list of persons considered to have expertise in the scientific or technical matters in respect of which these Rules might be relied upon.”  The PCA’s Specialized Panel of Scientific Experts currently lists 10 scientific and technical experts from Austria, Brazil, Chile, China, Israel, Korea, the Netherlands, Paraguay, and Thailand.  The tribunal may, but is not obliged to, choose expert witnesses from the list.
  • Non-Technical Documents:  Under Article 27(4) of the Rules, the tribunal “may request the parties jointly or separately to provide a non-technical document summarizing and explaining the background to any scientific, technical or other specialized information which the arbitral tribunal considers to be necessary to understand fully the matters in dispute.”  This non-technical document can assist the tribunal in understanding the complex technical issues involved and deciding whether it would be useful to appoint a scientific or technical expert in accordance with Article 29 of the Rules.
  • Confidentiality:  Under Article 17(6) of the Rules, a party may apply to the tribunal to have certain information in the arbitration classified as confidential.  The tribunal will determine whether the information should be classified as confidential based on whether “the absence of special measures of protection in the proceedings would be likely to cause serious harm to the party or parties invoking its confidentiality.”  Alternatively, instead of a party disclosing the confidential information in the arbitration, the tribunal may appoint a confidentiality adviser as an expert (in accordance with Article 29) to review the confidential information and report to the tribunal on specific issues designated by the tribunal.

 

A Failed Mission?

States, international organizations, and private entities use international arbitration to resolve outer space disputes.  In fact, several space-related disputes have been resolved through institutional and ad hoc arbitration rules and procedures, including those of the International Chamber of Commerce (“ICC“), the London Court of International Arbitration (“LCIA“), and the International Centre for Dispute Resolution (“ICDR“).

However, there currently are no publicly reported arbitrations that have been resolved using the PCA Outer Space Rules.The PCA has administered disputes relating to outer space, but in those cases, the parties arbitrated their disputes under the 1976 UNCITRAL Arbitration Rules rather than the PCA Outer Space Rules. (See, e.g., CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Ltd., & Telcom Devas Mauritius Ltd. v. Republic of India, PCA Case No. 2013-09; Deutsche Telekom AG v. The Republic of India, PCA Case No. 2014-10)

What explains the low demand for the PCA Outer Space Rules?  We believe that analyzing the successes and failures of the Rules involves further exploring three areas of inquiry.

First, who are the parties that currently use international arbitration to resolve their space-related disputes?  Early evidence demonstrates that the current landscape of space-related disputes is overwhelmingly dominated by private entities in the satellite and telecommunications sector.  This raises the question of whether private entities are aware of, and refer to, the PCA Outer Space Rules and the PCA’s International Bureau (Secretariat) in their commercial contracts and agreements, or alternatively, at the advent of a dispute in cases of existing contracts and agreements.  Although the PCA is a well-established institution that enjoys the confidence of States and international organizations, do private entities know of – and hold – the PCA in the same regard?  At least one informal survey of industry respondents suggests insufficient awareness of the PCA.

Second, what is the nature and complexity of such disputes?  An analysis of the type and subject matter of disputes suggests that the disputes to date have primarily related to satellite launch and delivery, regulatory measures, and lease of satellite capacity.  Are the PCA Outer Space Rules well suited to resolve the types of disputes arising out of existing legal relationships?  What are the comparative advantages of the Rules in today’s highly competitive dispute resolution market?

Third, do existing arbitration agreements and treaties adequately accommodate the Rules, which are optional in nature?  The current United Nations treaties on space law hardly contain effective dispute resolution provisions.  Although the Annex of the PCA Outer Space Rules contains a model arbitration clause for contracts, how often do parties incorporate such model clauses to resolve their disputes?

These questions require further research as part of this growing field.

 

The Next Generation!

Do the PCA Outer Space Rules hold any future promise?  In our opinion, yes.  We believe that the use of the PCA Outer Space Rules will likely increase as the types of disputants and the complexity of space disputes continue to evolve.  This is because the future of international space law is rapidly transforming – as too is the space industry as a whole.  To this end, and as discussed here previously, the recently signed plurilateral Artemis Accords signal the interest of several spacefaring States in promoting the “civil exploration and use of outer space,” including resource extraction and utilization conducted under the auspices of the 1967 Outer Space Treaty.  Domestically, a number of States, including the United States, have established legal and regulatory frameworks for space exploration and use of space resources.

If successful, this shift away from State monopolization will create new opportunities and relationships for private entities around the world and, in the process, generate scientific, technical, and legal advancements that are likely to surpass the scope of procedure envisaged in the generic institutional rules used today.  Likewise, in order to keep up, future space treaties and governance mechanisms will require more robust dispute resolution mechanisms.  Like the visionary drafters of the PCA Outer Space Rules, industry respondents overwhelmingly support a preference for arbitration in resolving space-related disputes.  The Rules are well suited to meet this preference and resolve the next generation of space disputes.

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Student Paper Topics

ADR Prof Blog - Mon, 2021-02-15 11:29
Have you sat across a desk (or zoom screen) from an earnest student who is trying to figure out what to write for a paper in your course?  Probably every instructor who has required students to write papers has had this experience. I certainly did.  These often were interesting conversations in which I helped students … Continue reading Student Paper Topics →

To Annul or not to Annul: The Constitutional Court of Ecuador Finally Set Clear Rules for the Annulment of an Arbitral Award

Kluwer Arbitration Blog - Sun, 2021-02-14 23:44

I .The Annulment of an Arbitral Award under Ecuadorian Law

Pursuant to article 30 of the Arbitration and Mediation Law (AML), arbitral awards are final and binding for the parties. In other words, parties cannot file recourses to challenge an award, with the exception of a clarification or extension petition before the arbitral tribunal. However, article 31 of the AML allows parties to file an action for annulment against an arbitral award under the following grounds: A) One of the parties has not been legally notified with the claim and the arbitration has been conducted in violation of said party´s rights; B) One of the parties has not been legally notified with the procedural orders issued by the tribunal and this fact has prevented them from exercising their rights; C) Evidence has not been produced or a party has not been legally notified of a hearing in which said evidence was going to be produced; D) The award refers to matters not submitted to arbitration or grants beyond what is claimed; and E) The procedures to appoint the arbitrators established under AML or agreed by the parties have been violated. According to the AML, the President of the Provincial Court where the award was rendered is the competent authority to decide on the annulment action. The annulment action was conceived for correcting in procedendo and incongruence vices contained in an arbitral award under the previously referred circumstances.

In 2012, a case under the number 169-12-SEP-CC was brought before the Constitutional Court regarding the possibility to file an annulment action on a ground (constitutional violations) different from the ones established under article 31 of the AML. The Court reasoned that the grounds for annulment under article 31 of the AML are exhaustive and that the President of the Provincial Court is not legally entitled to set aside an award under grounds not established in the aforementioned provision.  With respect to constitutional violations during an arbitral proceeding, the Court explored the applicability of constitutional remedies against arbitral awards. The Ecuadorian Constitution recognizes the right to challenge any final judgement in which constitutional rights have been violated, through a constitutional remedy called acción extraordinaria de protección. In this case, the Court concluded that given the arbitrators have jurisdictional faculties1)See article 7 of the Ecuadorian Code of the Judicial Function. jQuery('#footnote_plugin_tooltip_36110_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_36110_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and their decisions are similar to judicial ones, arbitral awards can also be reviewed through a constitutional remedy. Moreover, the Court reasoned that although arbitration is an alternative mechanism of dispute resolution, it has to observe the rights recognized under the Ecuadorian Constitution and, for this reason, constitutional review of arbitral awards is valid.

In 2015, the Constitutional Court changed its previous reasoning and issued the decision 302-15-SEP-CC concluding that the grounds for annulment under article 31 of the AML are not exhaustive and that an award can be set aside in other cases, for instance, when a tribunal lacks competence or when the award has not been sufficiently reasoned. According to the Constitutional Court, the due process rights to a reasoned decision and to be judged by a competent authority, which are recognized under article 76 of the Ecuadorian Constitution, also constitute grounds of annulment although they have not been expressly mentioned under article 31 of the AML. In its decision, the Court also required the exhaustion of an annulment action before a party attempts to challenge an award through a constitutional remedy. This decision certainly set a negative precedent for the development of arbitration in the country, particularly because it opened the door for an excessive judicial interference in arbitral proceedings and denaturalized the purpose of the annulment action. In light of this ruling, confusion among arbitration practitioners and local courts reigned with respect to the grounds for annulment of an award and the remedies available to challenge arbitral decisions.

 

II. Local Courts Annulled Awards under Grounds not Established in the AML

Given the lack of clarity regarding the annulment action, in 2017 the President of the Provincial Court of Pichincha decided to set aside two awards on different grounds from those established under article 31 of the AML. In case 17100-2017-00008 the President of the Provincial Court of Pichincha annulled the award, mostly, because he disagreed with the merits of the decision. According to the President of the Provincial Court, the award lacked legal reasoning and thus it violated constitutional rights recognized under article 76 of the Constitution. This decision is not in accordance with the AML, as the judges do not have the legal faculty to call into question the merits of an arbitral decision. As we mentioned earlier, annulment actions were conceived only for correcting in procedendo and incongruence vices and should not be used by local courts as vehicles to interfere in the autonomy of an arbitral proceeding.

In case 17100-2017-00005, the President of the Provincial Court annulled the award by taking a liberal interpretation of article 31 (d) of the AML, which refers to incongruence vices. The President of the Provincial Court of Pichincha basically questioned the merits of the award and the legal reasoning of the arbitrators in light of the evidence presented during the course of the arbitration. This conduct by the President of the Provincial Court of Pichincha constitutes a violation of the principle of judicial non-interference in arbitral proceedings and denaturalized the purpose of the annulment action. Moreover, this decision, which is more similar to an appeal judgement rather than to an annulment action, contradicts the legal certainty right of the parties submitting their dispute to final and binding arbitration.

Both of these decisions violate the doctrine of the autonomy of the parties´ will, as well as the legal certainty and legality principles recognized under the Ecuadorian Constitution.

 

III. The Constitutional Court Finally Set Clear Rules for the Annulment of an Arbitral Award

In 2019, the Constitutional Court issued three of the most relevant and positive decisions (31-14-EP, 323-13-EP, and 1703-11-EP) for the development of arbitration in the country, because they finally clarified the treatment of the annulment action.

In November 2019, the Constitutional Court issued decision number 31-14-EP, in which  it reasoned that:

  • The constitution recognizes arbitration as an alternative mechanism of dispute resolution, but it is still subject to constitutional review. This reasoning does not violate the judicial non-interference principle, but rather ensures that arbitral proceedings will respect constitutional rights.
  • The constitutional remedy known as acción extraordinaria de protección is applicable to control and correct constitutional violations in arbitral awards. Given the extraordinary nature of constitutional remedies there is a legal requirement to exhaust any ordinary available recourses before filing them. However, a party shall not be forced to file an annulment action in order to comply with this legal requirement before filing a constitution remedy in cases where the grounds of annulment are not sufficient to correct the constitutional violation.
  • An award shall only be set aside on the exhaustive grounds established under article 31 of the AML because this guarantees the legal certainty principle in arbitration. Hence, a party shall not invoke different grounds to annul an award.
  • In order to correct potential constitutional violations in an arbitral proceeding, such as lack of competence of the tribunal or lack of reasoning in the award, parties shall resort to the constitutional remedy known as acción extraordinaria de protección. In consequence, the review that the Constitutional Court makes during a constitutional remedy is different from the one in the annulment action.

This decision shows a different approach from the one contained in case 302-15-SEP-CC, in which the Court concluded that the grounds for annulment under article 31 of the AML were not exhaustive.

In November 2019, the Constitutional Court issued decision number 323-13-EP, in which it dissented from the case 302-15-SEP-CC and reasoned that:

  • Although it is not necessary to exhaust the annulment action before filing the constitutional remedy, it is worth noting that the lack of notification with the arbitration claim is considered under article 31, (b) of the AML for the annulment action. Hence, the respondent did have an ordinary recourse available (annulment action) to challenge the award on the grounds of lack of notification.
  • The annulment action imposes a civil sanction to the award. Hence, it shall only be applicable on the grounds established under article 31 of the AML, because this guarantees the legal certainty and legality principles. Depending on the situation, parties can either choose the annulment recourse (under the specific grounds of article 31 of the AML) or the constitutional remedy (constitutional violations not contained under article 31 of the AML).

In December 2019, the Constitutional Court issued decision number 1703-11-EP in which it reasoned that:

  • The annulment action is an especial procedure reserved for the grounds established under article 31 of the AML. The annulment action will only correct in procedendo or incongruence vices contained in the award.
  • Due to its very nature, parties cannot resort to other ordinary recourses (e.g. appeal or cassation) during the annulment process. However, if there has been a violation of constitutional rights during the course of the arbitration, particularly, lack of competence of the tribunal or lack of reasoning in the award, then a constitutional remedy could be filed in order to correct said violation.

 

IV. Conclusion

Article 31 of the AML provides only 5 grounds for annulment of an arbitral award in Ecuador, all of which are related to procedural matters, such as lack of notification with the arbitration claim or violations in the procedures for an arbitrator´s appointment. Since 2012, the Constitutional Court issued contradictory decisions on whether these grounds were exhaustive or not, which not only caused confusion among practitioners and arbitrators, but also opened the door for local courts to interfere in the merits of arbitral awards. Fortunately, this situation came to an end in 2019, when the Constitutional Court developed jurisprudence clarifying that awards may only be annulled under any of the grounds contained in article 31 of the AML. In case the award contains another vice (e.g. constitutional rights violation) not specifically established in article 31, then it was subject to be challenged through a constitutional remedy.

References[+]

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