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Google International ADR News - 1 hour 31 min ago
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Finality of Arbitral Awards in Nigeria- Separating Harm from Hubris (Contd.)

Kluwer Arbitration Blog - 3 hours 21 min ago

Adebayo Adenipekun

In a previous post, the issue of finality of arbitral awards in Nigeria was discussed and it was concluded that the review of awards is not in itself a vice to arbitration. In this post, I share further observations on the finality debacle with emphasis on the pro-finality judicial policy in Nigeria.

Are our Criticisms Fair?: There is an increasing crop of arbitration practitioners making it to the state and federal benches in Nigeria and taking with them a firm understanding of arbitration law and the limitations of judicial intervention. Courts have generally warmed up to arbitration and the finality of its awards. Thus, the risk of overreach in Nigerian courts has reduced.

Of course, there is the notorious Nigerian case of Taylor Woodrow (Nig.) Ltd. v. Suddeutsehe Etna – Werk GMBH (1993) 4 NWLR (Pt. 286) 127, which has been much vilified for two reasons. Firstly, the decision appeared to expand the grounds for challenge of an award by a wide margin. Secondly, the decision takes cognisance of errors of law and mistakes of fact as grounds to set aside an award – a large leeway for re-litigation. Worse, the decision is that of the Supreme Court in a country where judicial precedent is the law. I too have had bad experiences arising from this decision as I have seen so many challenge applications based on even the most frivolous points and by imaginative legal argumentation, hinged to any of the ten misconduct examples in Taylor Woodrow. To be fair, however, complaints of errors of law are an exception – the Learned Law Lords of the Supreme Court did state the law as is applicable in Nigeria today, that

“‘You have constituted your own tribunal; you are bound by its decision’. The only exceptions to that rule, are, cases where the award is the result of corruption or fraud, and one other, which, though it is to be regretted, is now, I think, firmly established, viz: where the question of law necessarily arises on the face of the award, or upon some paper accompanying and forming part of the award”.

The Learned Justices adopted this exception, as can be seen, with reluctance and it is important to understand that this exception was not a creation of the Nigerian Courts- the Supreme Court had merely followed the English position as in Hodgkinson v. Fernie. That decision may no longer be the law in England as a result of legislation but as the Nigerian Arbitration and Conciliation Act has remained the same since Taylor Woodrow, the position remains.

However, Taylor Woodrow does not appear to me to have materially altered the law since in 2015 the Court of Appeal would still hold that on the question of errors of law, “when parties have referred a question to a judge of their choice…they must be bound by his decision whether the conclusion be right or wrong” (Arbico v. Nigeria Machine Tools). An error of law contemplated by Taylor Woodrow will arise only where the legal question is the main dispute submitted for resolution to the arbitrator. A mistake of fact, on the other hand, was explained to be one that is admitted or clear beyond reasonable doubt. Proof beyond reasonable doubt is the highest standard of proof in Nigeria and to my knowledge, no challenge application on mistake of fact has met that standard yet.

Most gratifying on award finality is the decision of the Nigerian Supreme Court delivered in January 2017 in NITEL v. Okeke [2017] 9 NWLR (Pt. 1571) 439. A complaint of the appellant was that the arbitrator had not considered the evidence the way a judicial panel would have and that the tribunal did not analyse the pleadings as a court would. The Supreme Court rejected this argument and held that “[a] court should not therefore upset the expectation of the parties except for the clearest evidence of wrong doing or manifest illegality on the part of the arbitrator”. The Supreme Court stated expressly that a challenge application is not a merits appeal and deprecated the appellant’s approach of attacking the substance of the award rather than demonstrating the alleged misconduct. Fortunately, the Court considered Taylor Woodrow and was not persuaded that the conduct of the arbitrator in question fit into any of the broad Taylor Woodrow examples of misconduct.

Accordingly, Taylor Woodrow may make for easy criticism but it does not appear that it has significantly altered the law on award finality – an award is still final and binding in Nigeria, whether its conclusion be right or wrong. Of course, the criticism against Taylor Woodrow is not really that it altered the law but that it has led to a deluge of mischievous actions to set awards aside. The problem with this criticism is in its very framing – if an application is mischievous or made with a hidden untoward intent, the state of the law is essentially immaterial and even if the Nigerian law were to be interpreted or amended to reduce the ground of challenge to one stringent ground, mischievous party representatives will still bring applications to set awards aside and tie them to that sole statutory ground. The problem is, therefore, the mischief of the party representatives and not the courts. And if the position in Taylor Woodrow is no longer the law in England because legislation has changed the challenge landscape, then blame should lie at the feet of the Nigerian legislature, not the courts. Certainly, a panacea for the criticisms is perhaps in the clamour for an effective judicial system in Nigeria where challenge applications are heard timeously and effectively as opposed to the current norm where challenge applications even when ultimately refused, stay in courts for long periods, sometimes as long as a decade.

The point is, for arbitrators, the concern ought not to be the litigious nature of party representatives but the judicial policy of Nigeria. The law as it is may disappoint the party-representative and arbitration user who have to contend with (frivolous) set-aside actions after an award, but the disposition of the courts before and after Taylor Woodrow (as well as the pro-arbitration stance of the current Chief Justice who has issued arbitration practice directions to all courts) should encourage the arbitrator.

Post Script: There is some value to award challenge. The truth is that more damage will be done to arbitration if parties leave with an award which they are convinced was tainted by bias, but cannot challenge for fear of appearing litigious – or simply because it is forbidden. Secondly, just as the number of concluded references speaks to the competence of an arbitrator, the number of challenge applications resolved in the arbitrator’s favour speaks to his or her suitability and integrity; thus, it may actually be an additional medal to an arbitrator to have his or her awards and procedural orders subjected to the scrutiny of some authority. Should the award survive, so may the arbitrator – I recently came upon the example of a renowned Kenyan arbitrator who was challenged five times from one reference and is today an example of the arbitrator under fire.

Thirdly, challenge applications, where eventually shown to be meritorious, do the arbitration world a vital favour. In Nigeria, Judges and Justices are subject to the discipline and oversight of the Judicial Council. Before their appointments, they ought to show certain qualifications and pass a test and then immediately upon appointment, are subjected to intensive judicial training. This system of pre-appointment checks is remarkably absent from the arbitrator-appointment process as anyone can be appointed to discharge the quasi-judicial role of an arbitrator, in ad hoc references especially (checks however exist, I am aware, in institutional references in which the institutions or certain officials/organs thereof play roles similar to that of the Judicial Council in litigation). Also, while the Court system is a public system utilising public records available for public scrutiny, an arbitral reference is the business of the parties and with a water-tight confidentiality direction, will remain so for life. Without an employer or Judicial Council to oversee the arbitrator and with the reference being such that the public cannot keep an eye on, all sorts of misdeeds could occur unchecked. Successful award challenges therefore spotlight the worst of arbitrator behaviour. Arbitrators are guided by such decisions in knowing what amounts to acceptable determination, what manner of party indulgence is too much indulgence, what level of procedural equivalence they must afford the parties and what manner of directions to make or decline, going forward.

More from our authors: International Arbitration and the Rule of Law
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The post Finality of Arbitral Awards in Nigeria- Separating Harm from Hubris (Contd.) appeared first on Kluwer Arbitration Blog.

Let negotiation begin - koreatimes (press release)

Google International ADR News - Tue, 2018-01-23 23:22

Let negotiation begin
koreatimes (press release)
Negotiation is both an art and science. The practice and theory of deal making derives from all sorts of studies such as game theory in economics, communication, psychology, philosophy and political science. People who are highly aware of the art and ...

and more »

Let negotiations begin - Korea Times

Google International ADR News - Tue, 2018-01-23 23:21

Let negotiations begin
Korea Times
Negotiation is both an art and science. The practice and theory of deal making derives from all sorts of studies such as game theory in economics, communication, psychology, philosophy and political science. People who are highly aware of the art and ...

and more »

Divided Community Project at Ohio State to Receive Lawyer as Problem Solver Award

ADR Prof Blog - Tue, 2018-01-23 11:50
Another well deserved award.  Congrats to Grande Lum and the entire Ohio State crew !  Text of the press release is below. The ABA’s Section of Dispute Resolution has named the Divided Community Project (DCP) at the Ohio State University Moritz College of Law the recipient of the 2018 institutional Lawyer as Problem Solver Award, … Continue reading Divided Community Project at Ohio State to Receive Lawyer as Problem Solver Award →

Charlie Craver – 2018 Recipient of ABA DR Section’s Award for Outstanding Scholarly Work

ADR Prof Blog - Tue, 2018-01-23 11:45
Well deserved !!  The text from the  press release is below. Professor Charles Craver of George Washington University Law School is the 2018 recipient of the ABA Section of Dispute Resolution’s Award for Outstanding Scholarly Work, which honors individuals whose scholarship has contributed significantly to the field of dispute resolution. Craver is the Freda H. … Continue reading Charlie Craver – 2018 Recipient of ABA DR Section’s Award for Outstanding Scholarly Work →

Survey on Legal Reasoning in Commercial Disputes

ADR Prof Blog - Tue, 2018-01-23 10:31
Indisputably ally Stacie Strong (Missouri) sends along the following request for survey participants who who have been arbitrators or judges in commercial disputes, both domestically and internationally. ———————— Those with experience serving as arbitrators or judges in national or international commercial disputes are invited to complete an anonymous electronic survey that is part of an international … Continue reading Survey on Legal Reasoning in Commercial Disputes →

Communication and Conflict

Communication and Conflict Blog - Tue, 2018-01-23 09:38
A website about the relationship between communication and conflict. Articles on conflict resolution, mediation, why effective communication is important for conflict management in relationships.

Japan International Mediation Centre to open in Kyoto - Lexology

Google International ADR News - Tue, 2018-01-23 06:39

Japan International Mediation Centre to open in Kyoto
Lexology
It has recently been announced that a new "Japan International Mediation Centre" (JIMC) is to open in Kyoto. Mediation is a form of alternative dispute resolution (ADR) in which an independent third party helps both sides to a dispute come to a ...

FAI Arbitral Tribunal’s Separate Award on the Reimbursement of Advance on Costs

Kluwer Arbitration Blog - Tue, 2018-01-23 00:59

Mika Savola

Introduction

Article 48.1 FAI Rules provides that, in any international arbitration, FAI shall fix an advance on costs which the parties must pay in full before the case file is transmitted to the arbitral tribunal. Like under many other institutional arbitration rules, the starting point under the FAI cost regime is that FAI will fix one “global” advance on costs to be paid by the parties in equal shares. Accordingly, the respondent is normally required to contribute to the advance on costs to the same extent as the claimant irrespective of whether it has brought any claims of its own against the claimant. There is, however, a limited exception to this main rule that may apply where the respondent has raised a counterclaim or set-off claim. In such instances, FAI Rules permit FAI to fix separate advances on costs for the claims, counterclaims and set-off claims and order each of the parties to pay the advance on costs corresponding to its claims.

If a party fails to pay its share of the global advance on costs, FAI will give the other party an opportunity to pay the unpaid share on behalf of the defaulting party within a set time limit. If the other party makes such payment, the arbitral tribunal may, at the request of that party, issue a separate award for reimbursement of the payment in accordance with Article 43(a) FAI Rules and Article 2.6 of Appendix II thereof. In the event that any part of the advance on costs remains unpaid, FAI Board is vested with the power to terminate the proceedings.

As a practical matter, it is not unheard of that a respondent who objects to FAI’s jurisdiction, or for some other reason does not want to participate in the arbitral proceedings, refuses to pay its part of the advance on costs as requested by FAI. Occasionally a respondent may choose to do so even though it wishes to bring its own counterclaim in the arbitration and is willing to pay the requisite filing fee for its own claims. In all of these situations, unless FAI has fixed separate advances costs, the claimant has no other alternative but to make the payment on behalf of the defaulting respondent in order to avoid the arbitration being frustrated and to have its claims adjudicated by the arbitral tribunal.

Where the claimant has discharged the full global advance on costs due to the respondent’s failure to pay its part, the claimant may wish to exercise its right of redress through a separate award for reimbursement of the payment in accordance with the above-mentioned Article 43(a) FAI Rules and Article 2.6 of Appendix II. These provisions, which were introduced to the FAI Rules in 2013, are inspired by Article 45(4) of the 2010 SCC Rules (an essentially similar provision is set forth in Article 51(5) of the 2017 SCC Rules). The principal justification for such a remedy is the widespread sentiment within the arbitration community that some form of redress should be available to the claimant in the event that the respondent breaches its contractual commitment by refusing to discharge its share of the advance on costs. While few arbitration rules expressly recognize separate awards to this effect, in practice such awards have been issued, e.g., under the ICC Rules, even in the absence of clear statutory support or any specific provisions in the applicable arbitration rules.

There are many cases concerning the rendering of separate awards for reimbursement of payment of advances on costs under the SCC Rules. In FAI arbitrations, however, the provisions governing separate awards on advances on costs have been invoked rather infrequently. To date, there are only two cases where the claimant requested such an award due to the respondent’s failure to pay its share of the global advance on costs. In both instances, the arbitral tribunal granted the claimant’s request. Below is a comment on the latter one of these cases.

Factual circumstances of the case

A Finnish company (“Claimant”) had concluded a contract with two Eastern European parties (“Respondents”). The contract was governed by Finnish substantive law and the arbitration clause provided that any disputes relating to it shall be decided in FAI arbitration seated in Helsinki. Once a dispute arose between the parties and Claimant commenced FAI arbitration proceedings, all parties expressly agreed that the case shall be referred to an arbitral tribunal consisting of a sole arbitrator. FAI Board then appointed a Danish sole arbitrator in the case and fixed the global advance on costs to be paid in equal shares by Claimant, on one hand, and Respondents, on the other.

Claimant paid its share, but Respondents failed to do so. Upon invitation of FAI Secretariat, Claimant paid Respondents’ share too and the case file was subsequently transmitted to the sole arbitrator. In their Statement of Defence, Respondents raised a counterclaim and paid the requisite filing fee of EUR 3,000. However, they continued to decline to pay their part of the global advance on costs.

Meanwhile, Claimant filed a request for a separate award, asking the sole arbitrator (a) to order Respondents jointly and severally to pay to Claimant “soonest by a date decided by the Arbitrator” EUR 11,000, which amount represented Respondents’ share of the advance on costs fixed by FAI, with interest starting on [date] at the rate provided in Section 4.1 of the Finnish Interest Act (633/1982); and (b) to order, as part of the final award, Respondents to bear the costs for rendering the separate award, including the sole arbitrator’s fees and all costs and fees incurred by Claimant.

Respondents objected to Claimant’s request for a separate award, stating that the issue of advance on costs should be decided only in the final award and that the claim for interest on any amount payable by Respondents as advance on costs should be dismissed as contrary to Article 2.11 of Appendix II FAI Rules. According to said provision, “the amounts paid as advances on costs do not yield interest for the parties or the arbitrators”.

The sole arbitrator decided to issue a separate award and granted Claimant’s request for the reimbursement of the advance on costs as well as the claim for interest. Below is an extract of the reasons for the sole arbitrator’s separate award.

Reasons for the separate award

The parties have agreed in their arbitration clause that any dispute shall be finally settled by arbitration in accordance with the FAI Rules. Pursuant to Article 3.2 FAI Rules, the Rules include Appendices I to III, which form an integral part of the Rules. Article 2.2 of Appendix II imposes an obligation on each party to pay half of the advance on costs fixed by the Institute. Article 2.6 of Appendix II provides that the arbitral tribunal may, at the request of a party, issue a separate award for reimbursement of the payment made on another party’s behalf.

Since the parties have adopted the FAI Rules by reference in the arbitration clause, they have undertaken to comply with the obligation to pay half of the advance on costs. The prevailing doctrine affirms the contractual nature of such provision. The matter in dispute is thus a matter of substance on which the arbitral tribunal may render a decision regarding the reimbursement of the advance on costs paid on behalf of another party, by way of a separate award.

Respondents have not paid their share of the advance on costs as determined by the Institute. Instead, Claimant has made the payment of EUR 11,000 on Respondents’ behalf. Respondents’ failure to pay constitutes a breach of a contractual condition. It lies with Respondents to prove that an exception to reimbursement should apply.

Respondents have not objected, by itself, to the obligation to pay half of the advance on costs, i.e. the principal amount of EUR 11,000. However, Respondents have argued that the issue of advance on costs should be determined only in the final award, which decides the merits of Claimant’s case.

The sole arbitrator considers that the reimbursement of the advance on costs paid by Claimant is a separate matter from the sole arbitrator’s ultimate decision in the final award on the allocation of costs. The FAI Rules provide an explicit legal basis for the sole arbitrator to decide Claimant’s claim for reimbursement by a separate award. The sole arbitrator also finds that Claimant has a legitimate interest that Respondents reimburse Claimant given that Respondents informed the Institute on [date] that they were unable to pay their share of the advance on costs.

In their comments to Claimant’s request for a separate award, Respondents have not repeated the inability to pay as grounds for relieving Respondents from the obligation to pay half of the advance on costs. Moreover, Respondents have continued to involve themselves in this arbitration and raised counterclaims/set-off claims without, however, adhering to the obligation to pay half of the advance on costs as determined by the Institute. The sole arbitrator finds that Respondents have not presented any reasonable cause for their failure to pay. Claimant’s request for a separate award shall therefore be granted insofar as the principal amount of EUR 11,000 is concerned.

Claimant has also claimed interest on the amount payable by Respondents accruing from [date], which is the day Claimant paid Respondents’ share of the advance on costs on their behalf. Respondents have objected to Claimant’s claim for interest by arguing that Article 2.11 of Appendix II FAI Rules excludes interest on advances on costs. Claimant, for its part, has disputed Respondents’ interpretation of said provision. Claimant contends that it regulates the payment of interest on any amounts paid to the Institute, but does not prevent ordering Respondents to pay interest on any amount payable to Claimant.

The sole arbitrator finds that Article 2.11 of Appendix II FAI Rules only addresses the situation where a party has in fact paid its share of the advance on costs to the Institute, in which case the amount paid does not accrue interest for the parties. Therefore, the sole arbitrator agrees with Claimant in that Article 2.11 of Appendix II does not prohibit ordering Respondents to pay interest on their share of the advance on costs to Claimant.

Further, the sole arbitrator finds that the issue of interest is governed by the laws of Finland. Under Finnish law, parties to arbitration are generally entitled to receive interest on defaulted payments.

Following the Institute’s letter of [date], Claimant paid Respondents’ share of the advance on costs. Respondents were aware of their payment obligation when Claimant made the payment on their behalf, but stated that they were unable to pay and ultimately chose not to reimburse Claimant. Claimant had to pay Respondents’ share of the advance on costs to ensure the continuation of the arbitration proceedings.

The sole arbitrator finds that Claimant’s claim for interest on the amount in dispute constitutes an actual damage resulting from Respondents’ breach of their contractual obligation set forth in Article 2.2 of Appendix II FAI Rules. On that basis, Claimant’s claim for interest is justified and interest shall be awarded from the date of Claimant’s payment on behalf of Respondents at the rate provided in Section 4.1 of the Finnish Interest Act.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


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George J. Siedel: Are Negotiators Subject To Liability For Using Their BATNA Power?

ADR Prof Blog - Mon, 2018-01-22 13:51
From George J. Seidel, Williamson Family Professor of Business Administration and Thurnau Professor of Business Law at the University of Michigan’s Ross School of Business: Many thanks to John Lande, Hiro Aragaki, and Sanda Kaufman for their recent posts that have clarified the meaning of “BATNA.”  BATNA is an important concept because it is often a … Continue reading George J. Siedel: Are Negotiators Subject To Liability For Using Their BATNA Power? →

Arbitration in Ghana - Lexology

Google International ADR News - Mon, 2018-01-22 08:58

Arbitration in Ghana
Lexology
With International Arbitration the International Court of Arbitration of the International Chamber of Commerce (ICC) and the London Court of International Arbitration are mostly used. Arbitration in Ghana lasts roughly about four (4) months to one (1 ...

Bird & Bird expands in Budapest - CDR News Magazine

Google International ADR News - Mon, 2018-01-22 04:49

Bird & Bird expands in Budapest
CDR News Magazine
Halász is head of the intellectual property (IP) group in Budapest, and focuses on contentious litigation matters, for both national and international clients from various industry sectors, including electronics, pharmaceuticals and IT, with extensive ...

Bird & Bird expands in Budapest - CDR News Magazine

Google International ADR News - Mon, 2018-01-22 04:32

Bird & Bird expands in Budapest
CDR News Magazine
Halász is head of the intellectual property (IP) group in Budapest, and focuses on contentious litigation matters, for both national and international clients from various industry sectors, including electronics, pharmaceuticals and IT, with extensive ...

and more »

Bird & Bird expands in Budapest - CDR News Magazine

Google International ADR News - Mon, 2018-01-22 04:32

Bird & Bird expands in Budapest
CDR News Magazine
Halász is head of the intellectual property (IP) group in Budapest, and focuses on contentious litigation matters, for both national and international clients from various industry sectors, including electronics, pharmaceuticals and IT, with extensive ...

and more »

Setting Aside Arbitral Awards before Japanese Court: Consolidating Japan’s Position as an Arbitration-Friendly Jurisdiction?

Kluwer Arbitration Blog - Sun, 2018-01-21 17:57

Koki Yanagisawa and Takiko Kadono

Under the Japanese Arbitration Act, which was established based on the UNCITRAL Model Law on International Commercial Arbitration in 2003, parties may file a petition with a court requesting the court to set aside an arbitral award under certain circumstances. In such petition, parties frequently assert, among others, that “the terms of the arbitral award violated the public policy of Japan” under Article 44-1-8 of the Arbitration Act or that “the composition of the arbitral tribunal or arbitration proceeding violated Japanese laws and regulations” under Article 44-1-6 of the Arbitration Act, as grounds for setting aside the arbitral award.

Recently, the Tokyo High Court referred to the construction of Article 44-1-8 and Article 44-1-6 in a case where Company X (an appellant) filed a petition with a court in Japan, requesting the court to set aside an arbitral award that was rendered in accordance with the rules of the Japan Commercial Arbitration Association (JCAA) (Company X v Company Y, the Tokyo High Court, 2016 (RA) 497, August 19, 2016). In this case, the arbitral tribunal rendered an arbitral award ordering X to pay Company Y (an appellee) a certain amount of money for, among others, compensation for damage arising from X’s breach of its obligations under a distributor agreement between X and Y. X filed the aforementioned petition, asserting that (1) the arbitral tribunal’s construction of the distributor agreement violated the EU competition law and therefore violated the public policy of Japan and (2) the arbitral tribunal’s construction of the burden of proof was not justified under Japanese law, the governing law of the distributor agreement, and therefore the arbitration proceeding violated Japanese law. However, the Tokyo District Court rendered a decision dismissing X’s petition and, in response to the appeal against such decision filed by X, the Tokyo High Court rendered a decision affirming the decision of the Tokyo District Court.

Parties who received an unfavorable arbitral award tend to make an attempt to set aside such award based on the theory of “a breach of public policy” before the Japanese courts. It is also common for such parties to argue that the “arbitration proceeding was in breach of Japanese laws and regulations.” Over the past 15 years since the Arbitration Act came into force, Japanese courts have had opportunities to deal with the issue regarding to what extent the aforementioned grounds should be accepted in determining whether to set aside arbitral awards. Japanese arbitration practitioners have been closely monitoring the court’s construction on this issue since it would indicate to what extent arbitral awards could be set aside by Japanese courts, which would seriously affect the issue as to whether or not Japan is considered as an “arbitration-friendly” jurisdiction in the world.

We envisage that the Tokyo High Court decision reasonably affirmed the district court decision based on a view that not all breaches of a governing law or mandatory laws by an arbitral tribunal constitute “public policy” grounds for the court to set aside an arbitral award under the Arbitration Act. More specifically, the Tokyo High Court took a position that the EU competition law should not constitute the public policy of Japan and the arbitral tribunal’s mere misconstruction of a distributor agreement in violation of mandatory laws would not necessarily constitute a breach of the public policy of Japan under Article 44-1-8 of the Arbitration Act.

Furthermore, we believe it is important for the court to reasonably limit the scope of “issues concerning arbitration proceeding” in order to avoid the situation where parties can readily make an attempt to expand the scope of such issues to make it easier to set aside arbitral awards based on the ground that the arbitration proceeding violated Japanese laws and regulations under Article 44-1-6 of the Arbitration Act. In the present case, while it was discussed by the parties whether or not the construction of the burden of proof is an issue of arbitration proceeding, the Tokyo High Court reasonably concluded that it is a matter of substantive law and therefore the arbitral tribunal’s misconstruction of the burden of proof does not mean that the arbitration proceeding violated Japanese laws.

In Japan, the number of petitions to set aside arbitral awards filed with the court is relatively small and even a single court decision on this issue would significantly affect the construction of the Arbitration Act and arbitration practice in Japan. From that perspective, the Tokyo High Court decision in the present case has made a meaningful contribution in solidifying a reasonable construction of the definition of “public policy” as well as the scope of the “issues concerning arbitration proceeding” in relation to the grounds for setting aside arbitral awards under the Arbitration Act and thereby establishing sophisticated arbitration practice in Japan. We firmly believe that a series of such decisions rendered by Japanese courts will further consolidate Japan’s position as an arbitration-friendly jurisdiction and is expected to attract global business entities to select Japan as the situs of arbitration in arbitration agreements in their international business transactions.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


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What is the Future of Intra-EU BITs?

Kluwer Arbitration Blog - Sun, 2018-01-21 01:08

Lucian Ilie

After the enlargement of the European Union in 2004, many eastern bloc countries acceded to the European Union. BITs entered into between the eastern bloc and the western bloc were transformed into the so-called “Intra-EU BITs”.

The problems of Intra-EU BITs arose when the European Commission started its campaign against Intra-EU BITs, alleging their incompatibility with EU law. Many EU Member States have taken different actions: Czech Republic, Ireland, Italy, and Romania have terminated their Intra-EU BITs unilaterally, while Poland and Denmark have expressed an intention to do the same; other Member States such as Germany, Finland, the Netherlands, Austria and France proposed a system for multilateral termination of Intra-EU BITs.

European Commission’s War against Intra-EU BITs

The European Commission began to take a soft formal stand against Intra-EU BITs as early as 2006 through a note addressed to the Economic and Financial Committee of the Council (“EFC”). In 2009, the EFC stated in its letter to the President of the Council of the European Union that the majority of Member States wished to maintain their Intra-EU BITs since they did not share the European Commission’s view on the incompatibility between these BITs and EU law.

In addition, the European Commission has petitioned investment tribunals, through amicus curiae, for challenging their jurisdiction and the application of Intra-EU BITs. The European Commission has also made submissions before ICSID annulment committees and national courts in enforcement proceedings.

For instance, in Micula v. Romania the ICSID award was only partially enforced because the European Commission issued in 2014 a suspension injunction calling Romania to suspend the remaining payment due under the award. In its decision of March 2015, the European Commission found that the payment of damages under the award was incompatible with EU State aid provisions, and prohibited Romania from making any further payment.

In June 2015, the European Commission took a further step by initiating infringement proceedings against Austria, the Netherlands, Romania, Slovakia and Sweden in order to formally request them to denounce their Intra-EU BITs. These proceedings had little success since Romania was the only country to have formally terminated, though on a unilateral basis, all of its Intra-EU BITs in March 2017.

Intra-EU BITs and EU Law: Are They Really Incompatible?

The core concern of the European Commission is the alleged incompatibility between Intra-EU BITs and EU law. The European Commission has raised many arguments in support of this position but in all occasions arbitral tribunals refused to uphold these arguments.

The first argument is the principle of lex posterior under Article 59 of the Vienna Convention on the Law of Treaties. This principle is often invoked along with Article 351 of the Treaty on the Functioning of the European Union (“TFEU”), which requires the Member States to take actions against incompatibilities between EU law and an earlier treaty. This argument was raised as a defence to bar the tribunals’ jurisdiction. For instance, the arbitral tribunal in Achmea v. Slovakia did not uphold this argument because (i) Intra-EU BITs provided wider investment protections than EU law, (ii) there was no incompatible provision for protecting an investment under Intra-EU BITs and EU law, and (iii) there was no intention on the part of the Member States to derogate from the application of Intra-EU BITs.

The second argument is the principle of supremacy of EU law, which enables EU law to prevail over treaties concluded between EU Member States. For example, the arbitral tribunal in Achmea v. Slovakia pointed out that it had to apply international law since it derived its power from the Intra-EU BIT, and not EU law. It concluded that international law had to be applied as a matter of law, while EU law may be applied as facts, in assessing whether there was a breach of the afforded substantive protection.

The third argument is the availability of equivalent investment protection under EU law. In the view of the arbitral tribunal in Achmea v. Slovakia, investment protections under Intra-EU BITs were neither covered nor applied in the same scope as under EU law. Particularly, EU law did not grant access to investment arbitration or an equivalent provision that would allow a EU investor to bring a claim against a EU Member State.

The fourth argument is the principle of non-discrimination under Article 18 of TFEU, which prohibits any discrimination on grounds of nationality. The arbitral tribunal in Binder v. Czech Republic refused to accept this argument because in the absence of Intra-EU BITs, investors could bring their claims before national courts. In this regard, arbitration was just a form of adjudication that replaced the access to national courts.

The fifth argument is the violation of State aid rules under EU law. Micula v. Romania is a very controversial ICSID case regarding State aid, in which the European Commission persistently contested the tribunal’s jurisdiction and the enforcement of the award. The arbitral tribunal in this case refused to allow the prevailing application of EU law over the BIT, since the investment was made prior to Romania’s accession to the EU, thus being subject only to the Intra-EU BIT. Furthermore, the arbitral tribunal denied that the issue of enforcement was a matter to be resolved before it.

The last argument is the exclusive jurisdiction of the CJEU on interpreting EU law and that an arbitral tribunal is not competent to seek preliminary ruling from the CJEU. Arbitral tribunals denied this argument on the ground that the CJEU had no jurisdiction over investor-State disputes, and there was no prohibition of investor-State arbitration under EU law. The arbitral tribunal in Achmea v. Slovakia added that EU domestic courts were not always required to seek preliminary ruling from the CJEU for every interpretation of EU law.

Problems of Terminating Intra-EU BITs

Termination of Intra-EU BITs may address the European Commission’s main concern for their alleged incompatibility with EU law. However, without an alternative regime to replace these Intra-EU BITs, such termination can bring other problems.

Firstly, the lack of Intra-EU BITs means that EU investors can no longer benefit from the advantages of international investment arbitration for disputes arising out of their investment in a EU Member State. The sole available option would be to have recourse to national courts. However, the lack of procedural protection via arbitration may affect EU investors’ confidence in their investment in EU countries, and may encourage forum shopping for restructuring the investment in a non-EU country that has a favourable BIT with a EU Member State.

Secondly, many Intra-EU BITs stipulate a sunset clause under which a protected investor continues to enjoy substantive and procedural protections under the BIT upon its termination for a specified period of time. In Gavazzi v. Romania, the investor was able to initiate in 2012 arbitration under the terminated Italy-Romania BIT, as the sunset period was not yet expired. Therefore, termination of Intra-EU BITs would not solve the European Commission’s concern in the short-term.

Lastly, EU law has no equivalent substantive protections to Intra-EU BITs since the latter generally provide a broader scope of protections, as pointed out by the CJEU Advocate General Wathelet in the Achmea v. Slovakia preliminary ruling.

Potential Solutions

On a short-term basis, two solutions may be envisaged to tackle the issue of incompatibility between Intra-EU BITs and EU law.

One solution is to consider the proposal made in the non-paper of April 2016 by Austria, France, Finland, Germany and the Netherlands, which requested a multilateral agreement among the EU Member States, in order to replace and supersede pre-existing Intra-EU BITs. On the substantive aspects, the new multilateral agreement would (i) terminate all Intra-EU BITs and their sunset clause, and (ii) provide for common and wide substantive protections to all EU investors. On the procedural aspects, the multilateral agreement would create a single procedure for resolving Intra-EU BIT claims by either (i) conferring jurisdiction to the CJEU over Intra-EU investment disputes, (ii) establishing a Permanent Investment Court, or (iii) providing investor-State arbitration under the auspices of the Permanent Court of Arbitration.

Another solution is to obtain guidance from the CJEU in 2018, on the relationship and the compatibility between Intra-EU BITs and EU law. Since two-investment arbitration cases are pending before the CJEU (Achmea v. Slovakia and Micula v. Romania), these decisions could have a breakthrough implication on Intra-EU BITs.

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The post What is the Future of Intra-EU BITs? appeared first on Kluwer Arbitration Blog.

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