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Interviews with Our Editors: 360 Degrees of Perspective with Noah J. Hanft, President and CEO of CPR

Kluwer Arbitration Blog - Sun, 2019-03-17 21:05

Kiran Nasir Gore (Associate Editor)

Mr. Hanft, welcome to the Kluwer Arbitration Blog!  I appreciate the opportunity to share your perspective with our readers at an exciting moment, where conversations about politics, diversity, and technology are intersecting and transforming the way globalized corporations and their lawyers conceive of and approach dispute resolution.  

  1. Before we delve in, can you briefly introduce yourself and the path that brought you to CPR?

Of course, and thank you for the invitation. Before coming to CPR, I was the General Counsel and Chief Franchise Officer at Mastercard and it was there that I truly gained an appreciation for the power and potential of alternative dispute resolution (ADR). After years of handling disputes, which resulted in both wins and losses, I found myself growing frustrated by the traditional litigation process. At the same time, I was increasingly turning to mediation to resolve some major cases. I became more and more intrigued by the process, and soon also introduced early dispute resolution to the company, including a sophisticated early case assessment protocol. As a forward-thinking and customer-centric business, Mastercard was extremely receptive, embracing alternatives to litigation and a thoughtful approach to addressing inevitable business disagreements.


  1. CPR is more than just a provider of arbitration rules and ADR services. Can you tell us how CPR draws on its membership to establish itself as a thought leader in ADR?

We are indeed much more. We are also the world’s leading ADR think tank, utilizing our powerful and member-driven committee structure—comprising top corporations and law firms, academic and public institutions and leading mediators and arbitrators around the world—to foster and inspire thought leadership. This, in turn, leads to the development of cutting edge tools, trainings and resources and drives CPR’s efforts to promote and develop an ADR culture globally. This unique and multi-level structure is part of CPR’s heritage, going back to 1977 when the organization was founded by a group of corporate counsel that knew there had to be a better way, and who wanted to help themselves, and each other, prevent and resolve commercial disputes more effectively and efficiently.


  1. In your prior role, at Mastercard, your responsibilities and focus were much broader than only dispute resolution. What about ADR generally, and arbitration specifically, attract you and how does this support a corporation’s day-to-day business and prosperity?

You are correct, at Mastercard, I had responsibility for the traditional law and law-related functions (policy, compliance and regulatory), but also business responsibilities (that included licensing, franchise development, information security and diversity).  I think the expanded business role helped me in thinking more broadly about dispute prevention and resolution and the importance of maintaining ongoing relationships with customers, suppliers and even competitors.  Once you see your role as extending beyond just dispute resolution and combine it with the early identification of disputes and dispute prevention it becomes an extremely broad and important component of the job. It then puts you in a position to create a business imperative in terms of structuring relationships, focusing on early resolution as a way to preserve those relationships and increase commerce. Once executive management gets behind these efforts, recognizing the benefits of such a thoughtful approach, it becomes part of the day-to-day business. And, if you’re doing it right, the management and even the board actually start to adopt ADR thinking in reviewing and weighing in on matters that come up, instead of going straight to an adversarial or litigation mindset.


  1. For which parties, and in what types of disputes, is arbitration likely to be of most benefit?

I think it is generally accepted that, if parties know each other and want to maintain a relationship, arbitration is often the preferred approach to dispute resolution as it offers the potential to be somewhat less adversarial, speedier and more efficient—a good partner with mediation, as part of a multi-step process, if the mediation fails to resolve the matter. Of course, there are cases where one wants to establish a published precedent, where litigation is a better option. But with respect to the overwhelming number of disputes, mediation is an attractive method for resolving disputes early on in the process. And, if that fails, arbitration is often the best option for commercial disputes. It is a particularly good choice where two consenting entities want a private proceeding and want to have a say on who the decider or deciders are? In fact, I believe that if arbitration is approached and practiced in the right fashion, its inherent flexibility makes it the right choice for many different types of disputes. One such example is in the intellectual property sphere, where the expertise of an arbitrator may serve to the advantage of the parties. At the end of the day, if parties understand what arbitration can achieve and how best to utilize it depending on the nature of a dispute, it is an excellent tool for reducing expense and obtaining a reasoned opinion from an expert.


  1. What is a common misconception about arbitration percolating within corporate legal departments and what can we do to address it?

One common misconception is that arbitrators tend to “split the baby.” There is this notion that, in arbitration, there is often no clear victor, that the parties often receive a compromise decision, where both parties win or lose a little. Studies on the subject bear out that this is simply not the case. This misconception gives rise to a misplaced view that if one has a strong case, they are better off litigating than arbitrating. Other misconceptions stem from a lack of understanding of arbitration including that there is no appellate right (there can be if the parties choose) and arbitration costs as much as litigation (not if the parties take control of the process). CPR was the first to add an appellate option and now most ADR organizations have followed suit. As to cost, at CPR we’ve addressed the concern by building into our Rules an efficient process that provides for reasonable, but strict timeframes and allows arbitrators to limit disclosure and control the process. One final misconception, that we very clearly addressed in our new Rules for Administered Arbitration, is that one can’t obtain an early disposition of a claim or defense. In fact, arbitrators have the authority to dispose of claims and defenses before a hearing, if a proper showing can be made.  All of the misconceptions can be addressed through education. There is a surprising lack of understanding amongst some very sophisticated people as to how arbitration works, its benefits and potential. I believe it is incumbent upon all of us to take every opportunity we have to make it clear to users and potential users what arbitration can offer if used thoughtfully.


  1. What are some “best practices” for outside counsel as they collaborate with corporate clients to resolve disputes?

That’s a really good and important question. One of the things CPR has made available to our corporate members is a supplement to their requests for proposal (RFPs) for outside law firms which seeks information about their approaches to and expertise in dispute resolution. Our view is that it is not only important for law firms to know how to litigate and/or arbitrate, but also how to approach settlement and mediation. For outside counsel, it is important to understand, not only the nature of the dispute, but the specific corporate or commercial culture of an organization, which dictates how a resolution might practically work within the company. It really helps to understand a company’s business practices, and the personalities involved in the dispute.

Also in terms of best practices, law firms need to be really upfront about both the strengths and weaknesses of their clients’ cases. They also need to be prepared to move beyond mere litigation or arbitration strategy, and to think about the best way to resolve disputes from very early on, which will often involve mediation and negotiated settlements.


  1. How do emerging views on diversity support effective dispute resolution?

Just as diversity strengthens a legal team, it strengthens the reasoning process and the resulting nuance of the outcome. In fact, a highly-regarded study has suggested that diversity can lead to better decisions. Thus one can expect a tribunal that has arbitrators from different backgrounds and/or perspectives to achieve better results than a less diverse group. Supporting effective dispute resolution, stimulating new types of creative and strategic thinking, and nudging people out of old ruts and habits, is important to the continuous development and improvement of ADR. At CPR addressing the diversity challenge has been a long-standing objective of the organization. To that end, we have been very focused on not only adding diverse neutrals to our panel, but encouraging consideration of them. Our selection rate for diverse neutrals has reached 31% and we are very proud of the progress we have made. We believe there is more to be done and, in an effort to address gender diversity, we recently published, Look Who’s Joined ADR’s Most Exclusive Club, which highlights many of our leading female neutrals.


  1. Why should corporations and dispute resolution practitioners pay attention to emerging technology trends, and how can they employ new technology to support the dispute resolution process?

Whether we are talking about diversity or new technologies, corporations and practitioners need to pay attention to any and all learnings and new developments that could possibly improve the process. The ADR world needs to take into account the increasing importance of issues like cyber and data privacy as well as the opportunities presented by AI and ODR. And there will undoubtedly be many more new technologies just around the corner, which will bring both new complexities and potential new benefits. It is an ongoing process, and certainly never boring!


  1. I understand that you recently announced that, in a few months, you will step down as President & CEO of CPR and transition to launching your own ADR practice in collaboration with CPR Board member Richard Ziegler. Congratulations!  Can you tell us more about your forward-looking plans, and how the lessons you’ve learned in-house and at CPR will inform your vision and approach?

Well, thank you. I’m very excited about this new phase in my career. I plan to be a mediator, arbitrator and  settlement counsel and to consult with law departments on various dispute prevention and resolution issues and, in all of these areas, I will be applying and benefitting from the best practices I’ve gained from CPR. That includes participating and learning from the outstanding work done by CPR Committees as well as the many fabulous CPR training opportunities.  Richard and I have both taken the intensive and exceptional CPR/CEDR mediation training and are CEDR accredited mediators. Additionally, we both benefitted from the outstanding CIARB training and are both fellows of the Chartered Institute.

In terms of the lessons I’ve learned, and how they will inform my future vision and approach, from an in-house perspective I’ve learned how important it is to think about early resolution and mediation during the life cycle of a dispute.  When I was in-house, I came to realize how important it is that a mediator both be able to effectively listen and create an environment where parties are able to actively listen to each other.   But now, after 5 years at CPR and having mediated many cases, I have an even richer understanding of what it takes to be a good mediator. As important as it is to create the right environment for parties to work towards a collaborative result, there is no substitute for understanding the facts underlying a dispute and the relevant law. Also, given my in-house background, I understand some of corporate counsel’s concerns about arbitration, and as an arbitrator I believe I will be well positioned to address those concerns, again in large part as a result of learnings from CPR. I also believe that the learnings I’ve gained from other arbitrators and the best practices that I’ve been privy to for the last 5 years will enable me to effectively manage an arbitration and handle the many issues that arise. I am excited about this upcoming new phase and am deeply appreciative of CPR and my friends in the ADR community that have been so welcoming to me from the day I joined CPR 5 years ago.


Mr. Hanft, thank you for sharing your time and unique perspective.  We wish you and CPR continued success!


This is the first of two interviews that cover CPR’s innovative approach to aiding corporate legal departments with global dispute resolution.  Keep an eye out for a follow up interview with Olivier P. André, Senior Vice President, International at CPR.

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Marquette Hiring a Visitor in ADR

ADR Prof Blog - Sun, 2019-03-17 13:10
I am really delighted to announce that we are looking for a visiting faculty member in ADR–yay!  Come hang out with me–the weather is awesome.  Okay, don’t come for the weather, do come for the great students and super fun colleagues 😊   Here is the official announcement: Marquette University Law School invites applications for a visiting … Continue reading Marquette Hiring a Visitor in ADR →

Taking a Second Bite of the Cherry: When is it Appropriate to Remit an Award Instead of Setting it Aside in Singapore?

Kluwer Arbitration Blog - Sat, 2019-03-16 23:51

Raghav Kohli

Young ICCA

Much ink has been spilt on the legal consequences of remitting an award back to an arbitral tribunal vis-à-vis setting it aside. The Singapore Court of Appeal in the seminal decision of AKN v. ALC [2015] SGCA 63 has settled that remission is not possible after an award has been set aside. Rather, remission is a curative alternative available in circumstances where setting aside of an award is preventable. These two remedies available under Article 34(4) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) are thus mutually exclusive.


Background of the Case

In its earlier decision in AKN v ALC [2015] 3 SLR 488, the Singapore Court of Appeal allowed appeals in part against a High Court decision to set aside an arbitral award. The crux of the dispute at the arbitration was whether or not the liquidator and secured creditors of an insolvent corporation had breached their obligation under an Asset Purchase Agreement to deliver certain assets free from encumbrances to the purchasers. The Tribunal found for the purchasers. However, the High Court set aside the award in its entirety on the grounds of breaches of natural justice and excess of jurisdiction. On appeal by the purchasers, the Singapore Court of Appeal held that only some parts of the award should be set aside. The Court also directed parties to file written submissions on costs and consequential orders. The decision being analysed arose from these subsequent proceedings.

The Court framed the following issues, inter alia, for adjudication: (1) Does the court have the power to remit matters to a new tribunal? (2) Can the court remit any matter, which is the subject of an award that has been set aside, to the same tribunal that made the award? (3) What are the various consequences of setting aside an arbitral award? While the issues were worded broadly, the Court confined its analysis to cases governed by the Singapore International Arbitration Act and the Model Law.


Decision of the Singapore Court of Appeal

On the first issue, the parties agreed that courts have no power to remit an award to a newly constituted tribunal. The Court cited its decision in BLC v BLB [2014] 4 SLR 79, where it was observed that the clear language of Art 34(4) of the Model Law only envisions the possibility of remitting an award to the same tribunal which delivered it.

On the second issue, the Court held that remission operated as an alternative to setting aside. Thus, the question of remitting an award after it had been set aside could not arise in any case. Since a tribunal becomes functus officio after issuing a final award, a court may only direct it to review its award in accordance with Article 34(4), which requires a court to ‘suspend setting aside proceedings for this purpose. Based on ‘good sense’ and an ordinary reading of Article 34(4), the Court held that it was not competent to remit an award after it had been set aside. Support for the proposition that remission was meant to be an alternative curative provision to prevent the setting aside of an award was also found in the travaux préparatories of the Model Law.

On the third issue, the Court considered the consequences of setting aside an award. It found that while an award ceases to have legal effect, it does not affect the continued validity and force of the arbitration agreement between the parties. A tribunal’s mandate also ends with the making of an award, unless it is restored pursuant to an order remitting it back for further consideration of the tribunal.



Previously, Singapore courts have employed remission both after setting aside an award (see Kempinski Hotels SA v. PT Prima International Development [2012] SGCA 35), and to refer matters to newly constituted tribunals (see Front Row Investment Holdings v. Daimler South East Asia [2010] SGHC 80). The decision in AKN v ALC is welcome, as it has resolved that the power to remit under Article 34(4) of the Model Law may only be invoked for reconsideration by the same tribunal before an award has been set aside.

However, the significant question of when it is appropriate to remit an award to the same tribunal instead of setting it aside has not been adequately addressed by both courts and the academic community in Singapore. For example, in BLC v. BLB [2014] SGCA 40, the Court of Appeal reversed the High Court decision remitting the matter to a new tribunal. Although the issue was not strictly before the Court, it went on to summarily hypothesize about an appropriate case for remission. Without laying down any definitive threshold, the Court weighed in two relevant factors to determine whether or not to remit an award: the pure oversight of the arbitrator in overlooking an issue, and his ability to determine it again. Thus, in an application for remission vis-à-vis setting aside in the future, courts will have little assistance from national precedents on the scope and substance of this remedy. While the AKN decision has provided clarity on some aspects, it remains to be seen how Singapore courts will carve out meaningful contours for determining the appropriateness of remission under Article 34(4) of the Model Law.

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The Applicability of the Ukraine-Russia BIT to Investment Claims in Crimea: A Swiss Perspective

Kluwer Arbitration Blog - Sat, 2019-03-16 00:00

Simon Bianchi

Young ICCA

Since the annexation of Crimea by the Russian Federation in 2014, a substantial number of investment claims, in particular expropriation claims, have been raised by Ukrainian nationals against the Russian Federation in relation to investments made in Crimea prior to the annexation. In this regard, a fundamental legal issue concerns the applicability of the Agreement on the Encouragement and Mutual Protection of Investments entered into in 1998 between Ukraine and the Russian Federation (the “Ukraine-Russia BIT”) to such investments. In a landmark decision 4A_396/2017 dated 16 October 2018, the Swiss Supreme Court upheld an award on jurisdiction (the “Award on Jurisdiction”), rendered by an arbitral tribunal in the case PCA No. 2015-34 (the “Arbitral Tribunal”), recognizing that (i) investments made by a Ukrainian company in Crimea prior to its annexation were protected under the Ukraine-Russia BIT and thus (ii) the Arbitral Tribunal had jurisdiction to hear the corresponding investment claims.



On 21 March 2014, following the annexation of Crimea, the Russian Federation adopted the treaty of accession of Crimea and, in this context, took various economic measures relating to Crimea, in particular to the energy sector. Within this framework, PJSC Ukrnafta, a Ukrainian company active in the fuel market (“PJSC”), alleged that the measures implemented by the Russian Federation interfered with and ultimately expropriated its investments in petrol stations located in Crimea and violated the Ukraine-Russia BIT.

On 3 June 2015, PJSC initiated arbitration proceedings under the UNCITRAL Arbitration Rules against the Russian Federation based on Article 9(c) of the Ukraine-Russia BIT and sought payment of USD 50,314,336 as compensation for the alleged expropriation (the “Dispute”). The Russian Federation contested the jurisdiction of the Arbitral Tribunal, refused to take part in the arbitral proceedings and did not appoint an arbitrator nor submit an answer to PJSC’s statement of claims.

On 26 June 2017, the Arbitral Tribunal rendered the Award on Jurisdiction acknowledging its own jurisdiction to hear the Dispute and made the following findings:

  • The territorial scope of application of the Ukraine-Russia BIT was fulfilled as the concept of “territory” defined in Article 1(4) encompassed regions over which a contracting State exercised de facto In casu, the Russian Federation exercised de facto control over Crimea and it was unnecessary, for the purpose of the application of the Ukraine-Russia BIT, to determine whether the annexation of Crimea was lawful under public international law.
  • The Dispute fell within the scope ratione materiae of the Ukraine-Russia BIT since the notion of “investments” (Article 1(1) of the Ukraine-Russia BIT) did not require that the relevant investments be initially made in the territory of the Russian Federation. Investments located in the territory of the Russian Federation only as a result of subsequent border changes were also protected under the Ukraine-Russia BIT.
  • PJSC, being a company duly incorporated under the laws of Ukraine and legally capable of carrying out investments in the territory of the Russian Federation, qualified as an “investor” according to Article 1(2)(b) of the Ukraine-Russia BIT (scope ratione personae).

In light of the above, the Arbitral Tribunal concluded that it had jurisdiction to hear the Dispute under Article 9(c) of the Ukraine-Russia BIT.


The Swiss Federal Supreme Court Decision

On 14 August 2017, the Russian Federation lodged an appeal to the Swiss Supreme Court against the Award on Jurisdiction and contested the jurisdiction of the Arbitral Tribunal based on three main arguments.

First, the Russian Federation submitted that the concept of “territory” in the Ukraine-Russia BIT only encompassed territories belonging to a contracting State at the time of contracting and any subsequent extension to further territories had to be agreed between the contracting States. Second, PJSC facilities, subject of the alleged expropriation, did not constitute “investments” under the Ukraine-Russia BIT as the latter required an act of a cross-border investment at a certain point in time. Third, PJSC did not qualify as an “investor”.

The Supreme Court rejected the Russian Federation’s appeal and confirmed the jurisdiction of the Arbitral Tribunal to hear the Dispute on the following grounds.

Concerning the notion of “territory”, the Supreme Court noted that the Russian Federation did not contest that (i) the legality of the annexation of Crimea was irrelevant for the purpose of the application of the Ukraine-Russia BIT and (ii) the notion of “territory” encompassed regions over which a contracting State exercised de facto control. This said, the Supreme Court recalled that, under Article 29 of the Vienna Convention on the Law of Treaties (“VCLT”), an international treaty is binding upon each contracting State in respect of its entire territory. Therefore, even in case of subsequent territorial changes, a treaty remains applicable to the entire territory of each contracting State, without the need for a supplementary agreement. In the present case, Crimea became a territory of the Russian Federation as the latter has exercised de facto control since 21 March 2014 at least. Therefore, the Supreme Court confirmed that Crimea was a territory of the Russian Federation under Article 1(4) of the Ukraine-Russia BIT.

With regard to the notion of “investments”, the Supreme Court recalled that such notion had to be interpreted pursuant to the principles set out in Article 31 of the VCLT and resorted to various methods of interpretation to determine whether the Ukraine-Russia BIT covered only investments made ab initio in the territory of the Russian Federation or also investments being located in its territory as a result of subsequent border changes.

First, the Supreme Court found that the wording of Article 1(1) of the Ukraine-Russia BIT in itself did not support the restrictive position defended by the Russian Federation.

Second, the limitation of the notion of “investments” to investments initially made in a foreign State (cross-border investments) results from the “transaction-based” model, which reflects earlier bilateral investment treaties focused on liberalisation of capital movements. On the contrary, the “asset-based” model includes the protection of investments in the form of assets and rights which are not directly related to a cross-border transaction. As Article 1(1) of the Ukraine-Russia BIT contained a non-exhaustive list of assets qualifying as investments, the Supreme Court found that the definition of “investments” was broad and followed an “asset-based” model. Thus, it did not refer to specific cross-border transactions, which could be attributed to a specific point in time, and did not contain a limitation with regard to the moment of border crossing.

Further, a teleological interpretation supported the fact that the Ukraine-Russia BIT served two purposes, i.e., the promotion and protection of investments. For this reason, the Supreme Court did not follow the argument of the Russian Federation according to which the purpose of protection was only secondary. Furthermore, a broad protection of investments, including investments located in the territory of the Russian Federation only as a result of subsequent border changes, did not contradict the meaning and purpose of the Ukraine-Russia BIT. Indeed, the general principle underlying bilateral investment treaties is that the host State should not interfere with or expropriate investments made by nationals of the other contracting State without compensation. In casu, the protection offered by the Ukraine-Russia BIT only took effect at the time of the alleged expropriation. Therefore, the necessary conditions to benefit from the protection granted by the Ukraine-Russia BIT should be fulfilled at the time of such infringement (and not at the time of contracting). This also corresponds to the well-established principle that the conditions for jurisdiction ratione personae (i.e., nationality or seat) must be fulfilled at the time of the infringement.

In the view of the Supreme Court, neither a systematic interpretation of the Ukraine-Russia BIT, in particular Articles 1(2)(a), 2(1) and 12, nor the principle of good faith could support a limitation of the protection solely to investments made ab initio in the territory of the Russian Federation. On the contrary, such limitation would exclude from protection investments made within the ratione temporis scope of application of the Ukraine-Russia BIT (i.e., after 1 January 1992 according to Article 12) and would be incompatible with the principle of good faith and the purpose of the Ukraine-Russia BIT.

As to the concept of “investor”, the arguments raised by the Russian Federation were similar to those related to the notion of “investments”; thus, there was no reason to dismiss the Arbitral Tribunal’s conclusion that PJSC qualified as an “investor”.

In conclusion, the Swiss Federal Supreme Court confirmed that the Ukraine-Russia BIT was applicable and that the Arbitral Tribunal had jurisdiction to hear the Dispute. In my opinion, the takeaways of this decision are twofold:

  • The Swiss Supreme Court does not hesitate to use its broad power of review when assessing an arbitral tribunal’s legal reasoning on jurisdiction.
  • A majority of the judges of the Supreme Court tend to adopt a broad definition of the notion of investments relying on the purpose and meaning of bilateral investment treaties and to reject a more restrictive definition based on a historical and/or literal interpretation.
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Women Saying Sorry

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X CAI Costa Rica 2019: Developments and Challenges in International Arbitration

Kluwer Arbitration Blog - Fri, 2019-03-15 00:05

Marlon Meza-Salas

The X CAI Costa Rica held by the Costa Rican Chapter of the ICC and its Arbitration Commission, took place in San Jose, Costa Rica between February 24 and 27, 2019. Ten years have led to its consolidation as one of the most important ICC events in the region. This year’s intensive program included several academic panels and practical workshops, as well as a meeting of young arbitrators ICC-YAF. The event brought together more than 50 high-level speakers from the U.S. and other countries in Latin America and Europe.

Insights on the Topics Discussed

Making a tight summary of the issues discussed, the Congress began with references to what has happened in the last 10 years in international arbitration, in general, and in some Latin American countries, in particular, such as changes in some legislations confirming the tendency to continue adopting the UNCITRAL Model Law in a greater number of countries. It was also mentioned the amendment of some arbitration rules, or proposals from associations linked to arbitration such as the Club Español del Arbitraje (Spanish Arbitration Club, “CEA” for its initials in Spanish), as for example the CEA Code of Good Practice for Arbitration and the CEA Code for Good Practice for Mediation. The amendment of the Spanish Arbitration Law in 2011 was also commented, which allows the arbitrability of intra-companies disputes, better known as statutory or corporate arbitration.

It was also highlighted that according to the results of recent reports such as the Queen Mary University survey, arbitration remains the preferred method for resolving international disputes. The main reason for this preference continues to be the final nature of the awards, and how easy it is to enforce them in most countries of the world thanks to the New York Convention (“NYC”), on which an entire panel focused on. Among other things, the speakers discussed some practical problems at the time of requesting the recognition and enforcement of an award, the effects of applications for annulment that have not yet been settled, or what happens when an award is vacated at the seat of the arbitration. The future of the NYC was not out of the discussions either.

Recent reports and surveys also showed that the ICC continues to be the preferred institution in the world to administer cases of international arbitration, and currently has offices in New York, Hong Kong and Brazil, from which –and not exclusively from Paris– the institution is able to administer arbitration procedures. Among the initiatives of the ICC are its efforts to reduce the time and cost of arbitration proceedings by the introduction of the expedited procedure in the latest amendment of the ICC Rules of Arbitration. The advantages and disadvantages of that Fast Track arbitration were discussed in one of the panels because, although brevity is very well received, it entails some procedural issues and concerns about due process when certain procedural acts such as the Terms of Reference or a hearing are excluded.

The speakers also mentioned the constant attacks against arbitration, which have focused more on investment arbitration where the issuance of inconsistent awards is criticized due to inadequate or contradictory reasoning. Both international commercial arbitration and investment arbitration continue to be criticized for their high costs, which is attributed –among other reasons– to high attorneys’ fees or complex document production that extend the lifespan of the proceedings. However, criticisms have been much greater in investment arbitration than in commercial arbitration.

The discussions from Europe on the proposal to create a Multilateral Investment Court, or the possible ban of arbitrations based on intra-European bilateral investment treaties –following the Achmea case– were not ignored. It was clarified, however, that this last view would not affect the arbitrations based on the Energy Charter Treaty. It was also said that it is possible to see in the near future the use of financial vehicles through Switzerland or the United Kingdom post-Brexit, to continue using investment arbitration in intra-Europe disputes.

One of the panels dealt with the differences between common law and civil law, as well as, the influence of both systems in the practice of international arbitration. In this and other panels, the recent Prague Rules were mentioned, comparing them with the IBA Rules on the Taking of Evidence in International Arbitration. The comparison was mainly focused on the document production stage in arbitration proceedings –a topic on which there are very different approaches from both legal systems–, and the proactive role that the Prague Rules propose for the arbitral tribunal, granting broad powers to the arbitrators. It was pointed out that this latter could be a problem to enforce an arbitral award in some countries. Among the interesting things that were mentioned about the new Prague Rules, was that these have been described as “reactionary” by many common law practitioners, but surprisingly, they have also received a lot of criticism from civil law practitioners, even if the latter are its main target.

Another subject that was discussed was the different approaches of the above-mentioned legal systems on the value of documents and witnesses statements, since the former tend to be more valued in civil law systems and the latter tend to be preferred in common law systems. This different point of view can explain the importance and high value that common law practitioners give to the examination of witnesses and experts through cross-examination, not only in state courts but also in arbitration.

Another interesting topic that was discussed was the issue related to multi-party arbitrations and the possibility of incorporating into an arbitral proceeding non-signatories of the arbitration agreement. It was commented that this topic has been expressly regulated so far only in the Peruvian legislation, where it is required that the non-signatory has had an active participation in the negotiation, execution, performance or termination of the relevant contract.

Some Challenges to International Arbitration

It is expected that arbitration will continue to grow in many sectors, in which disputes were previously litigated before state courts, as has been happening in areas such as construction, energy, finance, technology and others. As good news, it was highlighted that arbitration has grown not only because of a greater number of cases, but also because of the nationalities of the parties and arbitrators, and in general it has grown in diversity, and the greater challenge is that diversity and inclusion continue to grow. It is foreseeable that the growth of arbitration will continue as long as it is able to evolve and adapt to the needs of its users, who increasingly demand a greater reduction of time and cost.

Consensus was reached on that it is necessary to continue encouraging and promoting arbitral culture, for which the convenience and importance of understanding technology –which is not an option, but something mandatory nowadays – and learning to work with it was highlighted. The speakers referred to the multiple challenges in this subject, and also mentioned many times terms such as “digital assets”, “databases”, “encrypted documents”, “clouds”, “cyber security”, “blockchain”, “arbitrator intelligence”, and many others.

The importance of continuing to adopt best practices in international arbitration was also highlighted. These best practices could come from both common law and civil law, whose differences tend to be reduced and harmonized when incorporated into arbitration. Each arbitration is different and it is influenced by many factors such as the nationality of the parties, their counsel’s and the arbitrators’, or the law applicable to the merits of the dispute. However, beyond these differences and the particularities of each case, the importance of avoiding assuming biased positions was emphasized, always having in mind the reduction of costs and time for the benefit of arbitration users. It must then be understood, what generates real value for the client.

Finally, it was mentioned that, only to the extent that the challenges to arbitration are understood and solved by arbitration practitioners, the myth that arbitration only works for large cases may be destroyed. The goal seems viable in international commercial arbitration, as has been happening in domestic arbitration in some countries that have knocked down that myth, such as Peru, where domestic arbitration has become the rule and important disputes are no longer discussed in state courts but in the arbitral jurisdiction.

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ADR Prof Blog - Thu, 2019-03-14 19:55
As regular readers of this blog know, it is intended to “engage in dialogue that is both scholarly and practical, to dig into the empirical work that is relevant to DR, and to reflect on the reality of DR in action, for better and for worse.  We will be posting on a regular basis, and … Continue reading Invitation →

Lukoil faces SCC claim over Uzbek project

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Spain potentially faces its largest liability to date in the many arbitrations it is fighting over reforms to its renewable energy sector, after an ICSID tribunal upheld claims by a Florida-based energy...

Spain faces biggest payout to date over solar reforms

Spain potentially faces its largest liability to date in the many arbitrations it is fighting over reforms to its renewable energy sector, after an ICSID tribunal upheld claims by a Florida-based energy...

Ukraine’s Supreme Court Takes an Unexpected Approach on Sovereign Immunities

Kluwer Arbitration Blog - Thu, 2019-03-14 03:55

Oleksii Maslov

Investment arbitrations with respect to Ukrainian assets in Crimea have been in the spotlight of the international arbitration community for some time now1)E.g., see here  jQuery("#footnote_plugin_tooltip_1427_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. After the Claimants in Everest Estate LLC et al. v. the Russian Federation (“Everest”) obtained the merits award in their favour in May 20182)See this post by Mykhaylo Soldatenko. jQuery("#footnote_plugin_tooltip_1427_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the focus started to shift to the enforcement and set aside stages of the Crimean cases.

In July 2018, Claimants applied for recognition and enforcement of the Everest award in Ukraine. They have also requested provisional measures to be granted against the shares in three Ukrainian subsidiaries of Russian state banks (VTB Bank, Prominvestbank, and Sberbank, together the “Banks”). In September 2018, the Kyiv Appellate Court (acting as the court of first instance) granted both applications.3)See here and here in Ukrainian. jQuery("#footnote_plugin_tooltip_1427_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Unfortunately, the court mostly overlooked inevitable issues of the Banks’ separate legal personality and sovereign immunities of the Russian Federation.

Conversely, the Ukrainian Supreme Court in its recent judgment on the Banks’ appeal (“SC Judgment”) directly addressed these issues.4)See here in Ukrainian. jQuery("#footnote_plugin_tooltip_1427_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It, among other things, concluded that Russia waived its immunity by means of the Russia-Ukraine BIT.5)A brief summary of the judgment may be found here. jQuery("#footnote_plugin_tooltip_1427_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In this post, we focus on the Supreme Court’s quite unexpected take on the issue of sovereign immunities. We will start by explaining applicable provisions of Ukrainian law, proceed to the reasoning of the Supreme Court, and then highlight the most thought-provoking takeaways from the SC Judgment.

Foreign States’ Sovereign Immunities in Ukraine

Ukraine is not a party to the United Nations Convention on Jurisdictional Immunities of States and their Property, 2004 (“UNCSI”) or to the European Convention on State Immunity, 1972. Under the Constitution of Ukraine6)See here in Ukrainian. jQuery("#footnote_plugin_tooltip_1427_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, ratified international treaties are incorporated into the Ukrainian legal system. The Constitution, however, does not establish direct applicability of rules of customary international law. They, thus, cannot be applied directly by Ukrainian courts.

Under the domestic legislation, in particular the Law of Ukraine on Private International Law (“PIL Law”)7)See here in Ukrainian. jQuery("#footnote_plugin_tooltip_1427_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, foreign states enjoy absolute immunity in respect of themselves and their property from 1) suit, 2) provisional measures, and 3) execution of court judgments. There are only two exceptions to this rule, namely:

1) where the competent authority of a state concerned waives its immunity, or

2) where an applicable international treaty provides otherwise.

Neither the law nor relevant court practice specify the manner in which the waiver of immunity can be made. Thus, in line with applicable Ukrainian legislation, the Russian Federation should have had full immunity with respect to itself and its property in the territory of Ukraine.

Supreme Court’s Reasoning

Although the Russian Federation did not participate in the proceedings before the Ukrainian Supreme Court, the court record demonstrates that the Russian Ministry of Justice sent a letter to the Ukrainian Supreme Court, invoking Russian sovereign immunity. The sovereign immunity defence was also mentioned in the appellate claims of some of the Banks.

A separate section of the SC Judgment deals with sovereign immunities.8)See here, paragraphs 68-78. jQuery("#footnote_plugin_tooltip_1427_8").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The SC Judgment first acknowledges provisions of the PIL Law on absolute immunity of foreign states. Then it refers to the practice of the European Court of Human Rights (“ECHR”) in Cudak v Lithuania (Application No. 15869/02, “Cudak”) and Oleynikov v Russia (Application No. 36703/04, “Oleynikov”)9)See here and here. jQuery("#footnote_plugin_tooltip_1427_9").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, where the ECHR analysed customary nature of certain provisions of the UNCSI. The Supreme Court then stated that although the UNCSI is not ratified by Ukraine, the “restrictive immunity concept [set out in the UNCSI] is applicable in accordance with customary international law and taking into account the judgment of the ECHR in Oleynikov v Russia”. The Supreme Court further quoted paragraph 68 from Oleynikov, where the ECHR found that Russia had breached applicant’s right to fair trial by denying court review of his claim against North Korea on the basis of sovereign immunity.

The SC Judgment noted that the European Convention on Human Rights (“European Convention”) and the jurisprudence of the ECHR are directly applicable sources of Ukrainian law.10)Direct applicability is established by the Law of Ukraine “On Execution of Judgments and Application of Jurisprudence of the European Court of Human Rights”, see here in Ukrainian. jQuery("#footnote_plugin_tooltip_1427_10").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Having done so, the Supreme Court referred to Article 19 of the UNCSI, listing ways in which state immunity from execution may be waived. It concluded that the dispute settlement clause in the Russia-Ukraine BIT (Article 9) constitutes Russian waiver of immunities from “1) jurisdiction, 2) measures of constraint and 3) execution of court judgments”11)See the BIT here. jQuery("#footnote_plugin_tooltip_1427_11").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); for the purposes of the UNCSI and the PIL Law.

Food for Thought in Supreme Court’s Reasoning and Implications

The Supreme Court’s departure from the (now nearly extinct) rule of absolute sovereign immunity should be welcomed. It has close parallels with Lithuanian Supreme Court’s abortion of legislatively prescribed absolute immunity in early 2000s. At the same time, the court’s reasoning raises a lot of questions.

First, it is true that the ECHR has tackled the question of sovereign immunities and referred to customary nature of the UNCSI in a number of cases. However, in both Cudak and Oleynikov it has done so exclusively in the wider context of the right to fair trial under the European Convention. The ECHR recognises that sovereign immunity limitation pursues a “legitimate aim” and may, in principle, validly limit right to fair trial. In each Cudak and Oleynikov the ECHR analysed, whether the limitation of right to fair trial through sovereign immunity was proportionate in light of the relevant customary international law.

 On this backdrop, it is debatable whether the jurisprudence of the ECHR indeed may outright ‘import’ provisions of the UNCSI to national legislation, as the correlation is more nuanced. This question looms over the SC Judgment, as it seems to apply the UNCSI without considering Everest Claimants’ right to fair trial.

Second, assuming the applicability of the UNCSI, the Supreme Court’s reasoning with respect to the waiver of immunity from execution seems hasty. The UNCSI operates on a distinction between immunity form jurisdiction and that from execution. Article 17 of the UNCSI, dealing with arbitration agreements, states that arbitration agreements bar the state from invoking immunity in proceedings relating to “confirmation … of the award” (e.g., recognition proceedings). At the same time, Article 19, dealing with immunities from post-judgment measures of constraint (e.g., execution of an award), separately requires an express consent to such measures “by an arbitration agreement”.

The SC Judgment refers only to the latter Article and generally does not seem to recognise the UNCSI’s distinction between two immunities. Furthermore, Article 9 of the Russia-Ukraine BIT, relied on by the Supreme Court, may be viewed as lacking such express consent to execution required by the UNCSI. It refers only to State Parties’ obligation to “execute such [arbitral] award in accordance with its national law.” For instance, ICSID in its model clauses recommends a much clearer waiver of immunity from execution.12)See here. jQuery("#footnote_plugin_tooltip_1427_12").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Meanwhile, the Supreme Court’s approach is consistent with that applied by the German Supreme Court in Werner Schneider v Kingdom of Thailand.13)German court, while analysing Germany-Thailand BIT (with wording very similar to that in the Russia-Ukraine BIT) decided that it constitutes Thailand’s waiver of immunity from execution, see here, referred to by Alexey Vyalkov. jQuery("#footnote_plugin_tooltip_1427_13").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Thus, the SC Judgment adds to the wider debate on whether and in which circumstances an arbitration agreement constitutes waiver from state immunity from execution. It should be viewed in the light of evolving national jurisprudence limiting sovereign immunities.14)Detailed analysis in Ben JURATOWITCH (2016). Waiver of State Immunity and Enforcement of Arbitral Awards. Asian Journal of International Law, 6, pp 199-232 here. jQuery("#footnote_plugin_tooltip_1427_14").tooltip({ tip: "#footnote_plugin_tooltip_text_1427_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Apart from adding to international context, the SC Judgment fundamentally alters Ukrainian legal framework for recognising and enforcing arbitral awards against sovereign states. By using the provisions of the UNCSI on waivers as directly applicable law, the Supreme Court has likely paved the way for application of its other provisions (e.g., those on commercial exception from immunity). It remains to be seen whether and how parties to Ukrainian proceedings and Ukrainian courts will use this significant body of newly applicable law.

The submission is made in my personal capacity. The views contained in this post are not necessarily the views of AVELLUM or its clients.

References   [ + ]

1. ↑ E.g., see here  2. ↑ See this post by Mykhaylo Soldatenko. 3. ↑ See here and here in Ukrainian. 4. ↑ See here in Ukrainian. 5. ↑ A brief summary of the judgment may be found here. 6. ↑ See here in Ukrainian. 7. ↑ See here in Ukrainian. 8. ↑ See here, paragraphs 68-78. 9. ↑ See here and here. 10. ↑ Direct applicability is established by the Law of Ukraine “On Execution of Judgments and Application of Jurisprudence of the European Court of Human Rights”, see here in Ukrainian. 11. ↑ See the BIT here. 12. ↑ See here. 13. ↑ German court, while analysing Germany-Thailand BIT (with wording very similar to that in the Russia-Ukraine BIT) decided that it constitutes Thailand’s waiver of immunity from execution, see here, referred to by Alexey Vyalkov. 14. ↑ Detailed analysis in Ben JURATOWITCH (2016). Waiver of State Immunity and Enforcement of Arbitral Awards. Asian Journal of International Law, 6, pp 199-232 here. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); 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/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Being Assertive

ADR Prof Blog - Wed, 2019-03-13 16:56
This video of talk show host James Corden pranking soccer star David Beckham provides a fascinating example of remaining composed and assertive in the midst of strong emotions. Note, however, that the emotions make it hard for Beckham to brainstorm options, even though he knows that the status quo is unacceptable.

Updated – 2020 USNews Dispute Resolution Rankings

ADR Prof Blog - Wed, 2019-03-13 11:25
Last week I posted the USNews DR specialty rankings from memory having seen them on the Spivey Consultants home page.  They are now public, and newsflash, my memory was not quite right.  Apologies to Cardozo, which clocked in at 8 tied w/ Marquette (I had them at 9), and Hastings, which is not Cal-Berkeley, and … Continue reading Updated – 2020 USNews Dispute Resolution Rankings →

Oil & Gas: Is Italy Doing It Wrong All Over Again?

Kluwer Arbitration Blog - Tue, 2019-03-12 22:17

Danilo Ruggero Di Bella and Josep Gálvez

The Italian Republic – for better or for worse – is cracking down on hydrocarbon explorations and extractions. Kicking off with the regulatory changes recently brought about by the Italian Government, this post gauges their possible consequences for the stakeholders by going through a pending arbitration which may be ripe enough to become a benchmark for future cases on the horizon. The post ends with a possible amicable solution, following the steps of a previous KAB contribution.


Regulatory changes

In February this year, the Italian Parliament converted the Decree-Law No. 135/2018 into Law by passing the Act No. 11/2019. Article 11-ter of this Act has massive implications for the upstream oil & gas industry in Italy. It suspends all the exploration permits, as well as any new application for production concession for a period of 18 months, which can be stretched up to 2 years. During this temporary ban on upstream activities, the Minister of Economic Development, together with the Minister of Environment, is supposed to enact a Decree containing a Plan (named “PiTESAI”) to determine, once and for all, the suitable areas for sustainable hydrocarbon exploration and production activities by having special regard for the marine ecosystem, fishery stocks and the impact on the coastline.

As soon as the Plan is adopted, the exploration permits – which are not compatible with the Plan – will be revoked accordingly. Any production concession application, pending during the adoption of the Plan and concerning areas later declared incompatible with the Plan, will be rejected, unless those production concessions are awarded before the adoption of the Plan (which is a relatively unrealistic event, given the objectives that led the Government to adopt the Decree-Law No. 135/2018 in the first place). Whereas any application for time extension regarding ongoing production concessions, which will fall within the incompatible areas with the Plan, will be declined.

Further, Article 11-ter of the Law 11/2019 is going to increase the administrative fees on hydrocarbon activities by 25 times as of 1 June 2019, in the bid to set up a fund to edge against potential investment arbitrations. The government is, indeed, well aware of the concrete risk posed by foreign oil & gas investors’ arbitral claims, because of the pending Rockhopper v. Italy case. Hence, any investors’ claims for direct or consequential damages, which may originate from the implementation of the Plan, will be covered (at least in theory) by the companies whose hydrocarbon production is left unharmed by the Plan itself. The Government estimates that such a fund will amount approximately to 470 million euros. However, this sum is far from being satisfactory to make up for the damnum emergens and lucrum cessans caused by the Government, according to the potentially affected companies (concerning at least 73 exploration permits).

As a result, the entire upstream industry in Italy – including both the companies whose explorations or productions have been halted, and those whose operational costs will exponentially rise – is disgruntled with the present situation and on the warpath.


The (almost ready) precedent

The Rockhopper v. Italy arbitration1)See also the forward-looking Master Thesis from 2015 of Danilo Di Bella. jQuery("#footnote_plugin_tooltip_3506_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3506_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); was launched in 2017 and is now arriving at its finish line. On February 4, 2019, a hearing on jurisdiction, liability and quantum was held in Paris, bringing the case to its closure. Therefore, according to the ICSID Arbitration Rules 38 and 46, the tribunal will have to render the award within 120 days from the closing of the proceeding (i.e. presumably around May or June 2019, unless, of course, the tribunal will extend this period by 60 additional days.

Reportedly, Rockhopper claimed compensation of 275 million euros from Italy for having breached its obligations under the ECT. This case is particularly important for the future arbitrations the oil & gas companies are now threatening to commence against Italy, because it shares similar, if not identical features, with their current situation:

  1. The introduction and retroactive application of a Legislative Act to the existing concessions, thereby exploration and possible production activities are paralyzed;
  2. A Plan, that will most likely turn into a ban, imposing completely different zoning regulations (just like Article 2 of the Legislative Decree 128/2010 did) and which will end up forbidding hydrocarbon explorations and extractions in blocks previously destined for such purpose as well as imposing additional limitations or burdensome compliance mechanism;
  3. Probable retraction of promises given by previous governments contravening specific representations and inconsistencies all along the administrative procedures;
  4. A further increase of the government’s take on hydrocarbons, just like it occurred by means of Law No.134/2012 which raised off-shore royalties by more than 40% to finance sea protection and operational safety;
  5. Possible failures to observe the time-frame to conclude the administrative procedure for the issuance of the relevant Environmental Impact Assessment Decrees concerning the production concession applications pending during the adoption of the Plan.

These analogous facts laid the foundation for Rockhopper’s claims of ECT-grounded legitimate expectation violations and may now constitute the pillars for the looming arbitrations mirroring Rockhopper’s case and its recurring pattern.

Despite Italy’s denunciation of the ECT in January 2015, which became effective one year afterwards, Article 47(3) ECT, the ECT sunset clause, will protect for 20 more years investments in the oil & gas sector made in Italy before January 2016. Should the sunset clause fall short to light up the expectations of some foreign investors, Italy is a Contracting Party to an array of BITs, all containing a FET clause safeguarding investors’ legitimate expectations. Hence, awaiting the adoption of the new Plan, investors have the time to rearrange their investments through one of the many countries which Italy has a BIT with.


Risk analysis

Given this picture, it is worth running a risk analysis for both sides. From Italy’s perspective, there is the tangible risk of facing not just one, but multiple arbitrations; the possible defeat in the ongoing Rockhopper case (even though, arguably, the risk of being ordered to pay the 275 million euros is remote, as that sum could be reduced substantially); and the ensuing risk of setting an unfavorable precedent to be relied upon by the next belligerent oil & gas company.

From the disgruntled oil & gas companies’ standpoint, there is the risk of losing time and money pending their arbitrations (which can go on from three to five years); the risk of having the tribunal drastically reducing the compensation they aspire to get; the risk of Italy non complying with the pecuniary obligations set in the award, thus causing further delays; and the ensuing risk of being compelled to choose between trying to enforce the award or selling it for less than what it was originally worth.


Circumventing double-sided risks: an amicable solution

In slightly different cases, where there happen to be a long-standing dispute among the different parties of a public-private joint venture for the exploitation of natural resources, the full course of an arbitral process may prolong, if not intensify, the conflict itself without making anyone happy. In these instances, if the State party’s responsibility can be promptly ascertained, but its financial liability is below what the claimants are demanding, arbitrators have often come up with sensible solutions. A customary proposal by tribunals, for example, envisages the purchase by the State-party of the private parties’ interests in the joint venture at the price the investment was made, plus a 2% annual interest rate from the date each investment was made, plus the payment of a reasonable bonus reflecting the end of the private parties’ opportunity to obtain future profits from the concession. Understandably, such an overall payment should be secured by way of a bank guarantee and could be spread over a short number of years to be affordable.

This approach could be easily transferable – with the appropriate adjustments – in a consolidated mediation to solve the looming arbitrations unfolding before us, whose real causes are rooted in many years of a somewhat confused energy policy incapable of a long-term predictability (which is something pivotal to a sector where billions of euros are poured in with the hope of recouping gradually those investments with a reasonable profit over a long time span).

As to a positive example of a desirable amicable settlement, in the mid-eighties, Norway was in the midst of having to face multiple claims by oil & gas companies enraged at the retroactive application of a royalty payment regulation to their licenses. Right after the first leading case (Ekofisk Royalty Case) was ruled in favor of the claimant by the Norwegian Supreme Court on 19 December 1985, the Norwegian Government entered into negotiations with the other oil & gas companies providing them with a serious offer, instead of fueling their anger. Those companies, which waited for the outcome of that case and settled their dispute out of court, cut even a better deal (meaning a 3% higher compensation, plus interest on the overdue repayments) compared to the company that first commenced the court proceeding (which, in our case, could be Rockhopper). Simultaneously, Norway came out of that heated energy-related quarrel appearing even more trustworthy and appealing towards foreign energy companies.

As also indicated in an earlier KAB contribution, consolidated mediations could be the answer to multiple ongoing or potential arbitrations revolving around the same fact pattern, especially when a decision on a similar matter has already emerged and declared the victorious side by making following predictable awards. Eventually, both sides will avoid unnecessary risks, benefit more favorable terms and gain international credibility.


References   [ + ]

1. ↑ See also the forward-looking Master Thesis from 2015 of Danilo Di Bella. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); 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/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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ICC panel dismisses claim against Burkina Faso

An ICC tribunal has dismissed a US$2.2 billion claim against Burkina Faso over one of the world’s largest manganese mines, also rejecting a counterclaim of similar size and the west African state's allegations...

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