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Developing Country Opposition to an Investment Court: Could State-State Dispute Settlement be an Alternative?

14 hours 28 min ago

Trishna Menon and Gladwin Issac

The Comprehensive Economic and Trade Agreement (CETA) made waves in a post-Trump era of hostility towards free trade. But not all press is good press and CETA’s investor–state dispute settlement (ISDS) mechanism has come under fire.

While all chapters of the CETA entered into force at midnight on September 21, 2017, one didn’t: the controversial Investment Court System (ICS). After concluding CETA, Canada and the EU vowed to “work expeditiously” to create a permanent investment court, and certain issues arose during the exploratory discussions hosted in December 2016. This would mean a leap from the current regime of ad hoc investor–state arbitration included in around 3200 investment treaties in force today towards a WTO-like multilateral system. Such a radical shift signifies turbulent times for developing economies.

Multilateral Investment Court and the EU ICS Proposal
Traditional ISDS mechanisms have faced much criticism. They are alleged to increase the power of large corporations at the expense of national sovereignty, and allow corporations to bypass national judicial systems. Further, “regulatory chill” is the fear that ISDS could discourage governments from adopting regulations for public welfare in health, environment, labour and other areas. Investor claims also have a strong impact on the public exchequer, as the average cost of defending an investor claim is estimated at US$4.5 million. In addition to this, there is no guarantee of recovering costs even if the respondent state is successful. There is also a perception of conflict of interest on the part of arbitrators, many of whom are also practitioners. Lack of procedural transparency is another issue.

Based on the above concerns and the backlash against ISDS, the European Commission has moved away from traditional ISDS towards a different ISDS mechanism. This can be seen as a compromise that addresses many of the criticisms while preventing states from abandoning ISDS entirely. The EU proposal includes in the first place, an appellate mechanism, as part of a two-tier system; a roster of 15 members who may be chosen to form the first-instance tribunal, who are prohibited from acting as counsel, party-appointed expert, or witness in an investment dispute during their terms; and full transparency, with proceedings and key documents publicly available.

Developing Country Opposition—to ISDS, the EU ICS and the Multilateral Investment Court

In recent years, countries including Brazil, India and South Africa have significantly rethought their approach to investment protection, leading to many policy innovations. Brazil follows a model of signing “Cooperation and Facilitation Investment Agreements” which have no mention of “protection of investments” or an ISDS system. Similarly, India’s new model Bilateral Investment Treaty (BIT) excludes the Fair and Equitable treatment (FET) and Most-Favoured-Nation (MFN) treatment clauses. Before turning to investor–state arbitration, investors must exhaust local remedies for five years. Since the model BIT has been publicised, most of India’s BITs have lapsed, with many partner-nations unwilling to renegotiate with the new model BIT as its basis. South Africa has also developed a domestic bill that fully excludes recourse to international arbitration and relies on mediation instead.

Other states that are attempting to disengage from the bonds of traditional BITs and the ISDS regime are are Bolivia, Ecuador, Venezuela, South Africa and Indonesia. The reason for this is that many countries concluded BITs without fully understanding their implications. When Pakistan was first sued in 2001, based on a 1995 BIT with Switzerland, no one in the government could find the text and had to ask Switzerland for a copy. It is unlikely that developing countries would make this mistake again.

Argentina, Brazil, India, Japan and some other countries have reportedly rejected the initiative to establish a multilateral investment court. This suggests that some of the strongest opposition to the ICS is likely to come from developing countries based on the following factors:

1. Costs
If Japan, the world’s third largest economy, rejected ICS citing the heavy costs involved in international arbitration, this consideration is even more relevant for developing countries. In one case, Libya was ordered to pay US$935 million to a company which had only invested US$5 million. Legal costs average roughly US$4.5 million for each side per case, but can be much higher. In the case against Russia, Yukos’ lawyers alone billed US$74 million and fees of the three arbitrators amounted to US$7.4 million. As legal costs are not always awarded to the winning party, states can end up footing the bill even if they do not lose.

2. Sovereignty
The idea that a panel of three individuals can sit in judgment over a sovereign state in a dispute initiated by a private individual or corporation may still be hard for many countries to digest. Galling examples are the cases of Philip Morris’ claims against Australia and Uruguay over plain tobacco packaging laws intended to reduce the rate of smoking and Vattenfall’s pending €4.6 billion claim against Germany arising out of the phase-out of nuclear power in the wake of the Fukushima nuclear disaster in Japan. These issues invite the question: what gives a corporation the right to challenge a sovereign state’s legislative actions meant to protect its citizens’ health and safety?

3. Regulatory chill
In Guatemala, citizens protested against a controversial gold mine owned by Canadian mining giant Goldcorp, and the Inter-American Commission on Human Rights recommended closing it down. Even so, as revealed by internal government documents obtained through the country’s Freedom of Information Act, the risk of an investor–state dispute weighed heavily on the state’s decision, and the mine was ultimately allowed to stay open. The risk or threat that ISDS may discourage States from regulating in the public interest concerns all states. However, the stakes are higher for developing and least developed countries, many of which are in greater need for legislation and may be more susceptible to cave when intimidated by foreign investors threatening to pull out their investment.

State–State Dispute Settlement as an Alternative?
States have a number of alternatives to granting excessive procedural rights for corporations. Not to grant them in the first place is one. For example, neither the Australia–United States Free Trade Agreement (FTA) nor the Australia–Japan Economic Partnership Agreement allow for ISDS: in case of a dispute, foreign investors must resort to domestic courts. Investors going abroad can insure their investment against political risks by purchasing private insurance, rather than relying on ISDS.

Another alternative would be working out a multilateral system for state–state dispute settlement instead of the ICS. Just as States provide diplomatic protection, if a private investor believed a host state was in breach of its investment obligations, it could ask its home state to bring a case on its behalf, and the home state could then decide whether it believed the case merited initiating a formal claim. States would have the power to prevent controversial claims from going forward. This would place checks on the power of corporations to initiate claims and assuage the fear of developing countries of expensive lawsuits, since home states would be expected to have considerations other than the profits of its corporations.

Recourse to state–state dispute settlement would not be unprecedented. The Australia–United States FTA allows for state–state dispute settlement when domestic remedies are unsuccessful. Since 2014, Brazil has negotiated investment agreements based on a model that prominently features state–state dispute settlement in place of ISDS. The Southern African Development Community (SADC) amended its Finance and Investment Protocol in 2016 to exclude the ISDS clause, leaving state–state dispute settlement as the only option. The recently negotiated Australia­–China FTA, while not fully excluding ISDS, provides for a state–state filter: if both states agree a potential ISDS claim is about a non-discriminatory regulatory issue, the claim may not proceed.

Consider India, which has never indicated any particular inclination towards the state-state dispute settlement model. However, as India prepares to resume FTA negotiations with many EU nations this year, ten months after its unilateral termination of BITs, it is likely that the state–state dispute settlement mechanism would find the greatest favour with India and the EU. Given India’s stand on the ISDS, as reflected in the 2016 model BIT, India would find this outcome favourable.

Conclusion

All of this leads us to the importance of addressing the concerns of developing nations in the arena of investment arbitration. Since it is almost-universally agreed that the ISDS, system as existing, is  unsustainable for developing nations, a multilateral state–state dispute settlement mechanism, coupled with other mechanisms to guarantee participation and access to justice to all stakeholders affected by foreign investment, could help rebalance public and private interests in the investment regime, ensuring states, rather than corporate interests or the legal community of arbitrators, maintained control.

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FAI Board’s Recent Practice on the Consolidation of Arbitrations under the FAI Rules

Fri, 2018-02-16 00:49

Mika Savola

Introduction

Consolidation means combining two or more arbitrations that are pending under a specific set of rules into a single arbitration proceeding. In appropriate circumstances, consolidation has various advantages. Most importantly, it eliminates the risk of having contradictory awards rendered in different proceedings on closely related sets of facts. Additionally, it makes for procedural and cost efficiency as all issues in dispute will be decided by a single arbitral tribunal in one proceeding, rather than by different tribunals in two (or more) separate arbitrations.

The FAI Rules permit consolidation of different FAI arbitrations on conditions set forth in Article 13. In principle, consolidation is possible irrespective of whether the proceedings to be combined are pending between the same or different parties, provided that at least one of the following requirements (1)-(3) is met: (1) all parties to all arbitrations have agreed to consolidation; or (2) if all claims in the arbitrations are brought under the same arbitration agreement; or (3) where the claims in the arbitrations are brought under different arbitration agreements, if (i) the disputes in the arbitrations arise in connection with the same legal relationship (in practice, the same economic transaction, e.g. a common construction project or corporate transaction involving formally different but related contracts); and (ii) the arbitration agreements do not contain contradictory provisions that would render consolidation impossible (e.g. different seats, different number of arbitrators or different method of appointing the tribunal).

The FAI Board decides in its discretion whether to accept or deny a request for consolidation by taking into account the factors listed in Article 13.2. These include the identity of the parties in the different arbitrations, the connections between the claims made in the different arbitrations, whether any arbitrator has been confirmed or appointed yet in any of the arbitrations (and if so, whether the same or different persons have been confirmed or appointed), and any other relevant circumstances (such as the progress already made in the arbitration that was commenced first and into which the second arbitration would be consolidated).

Turning to the FAI practice, since the adoption of the revised FAI Rules on 1 June 2013, there have been a total of eight requests for consolidation. Six of them were accepted, whereas two were denied. In 2017, the FAI witnessed four new applications for consolidation. This suggests that the number of consolidation requests may be on the increase.

It is not unheard of that all parties to all different arbitrations specifically agree to, and jointly request, consolidation. In such event, the FAI Board will normally accept the parties’ joint request almost as a matter of routine, provided only that all the proceedings to be combined are indeed FAI arbitrations (and not, for instance, ad hoc cases). But problems may arise if one or more parties to one or more of the proceedings raises an objection against the other party’s request for consolidation.

The FAI faced this situation first time in 2015, in a case where the Board ultimately decided to dismiss the consolidation request (see an anonymous case comment posted on the FAI website). However, more recently, the FAI experienced the first case where the Board did order consolidation of two separate FAI arbitrations regardless of the objections of the respondent parties to those arbitrations. The formal justification for such “non-consensual” consolidation lies in the fact that, when incorporating the FAI Rules to their arbitration agreement, the parties are deemed to have consented in advance to the consolidation of arbitrations on conditions laid down in Article 13.

Below is a brief description of the factual circumstances of the case and the FAI Board’s reasons for consolidation.

First FAI case where consolidation was ordered over the objection of respondents

Two Finnish companies, A and B, had entered into an Asset Purchase Agreement (“APA”) whereby A acquired certain business from B. Clause 16 of the APA provided that the APA was governed by Finnish substantive law and that any disputes arising out of or relating to it shall be finally settled in FAI arbitration seated in Helsinki.

Some time after the transaction, a dispute arose between A and B in relation to certain intellectual property rights that B had allegedly granted to A under the terms of the APA. The APA contained also the following undertaking by B’s non-Finnish parent company C: “[C] hereby (…) acknowledges [A’s] right to use [certain intellectual property rights], as set out in Clause 8.5. Clause 16 (Governing Law and Dispute Resolution) shall apply to this undertaking.”

As the parties could not settle their dispute amicably, A commenced FAI arbitration against B and requested e.g. that the arbitral tribunal declare that A had the right to use certain intellectual property rights granted by B under the APA. Soon after that, A commenced separate arbitration proceeding against C, seeking effectively the same relief as in the first case and requesting that the two proceedings be consolidated. Respondents B and C objected to the consolidation mainly because of the alleged lack of a valid and binding arbitration agreement.

The FAI Board allowed both arbitrations to proceed, being prima facie satisfied that there may exist a valid and binding FAI arbitration agreement. After that – and once the Board had consulted with all parties and the arbitrator nominated by A – the Board ordered consolidation pursuant to Article 13 FAI Rules mainly on the following grounds: (1) Although the parties in the two proceedings were formally different (A vs. B / A vs. C), they were closely related (as C was B’s parent company); (2) disputes in both proceedings arose from the same legal relationship and economic transaction (i.e. the APA, including C’s undertaking that was part of it); (3) both proceedings were based on the same FAI arbitration agreement (set out in Clause 16 of the APA); and (4) the relief sought by A was essentially the same in both proceedings.

The Board concluded that, for the above reasons, the arguments and evidence that A, B and C were likely to put forward in both proceedings could be expected to be virtually identical. Non-consolidation would mean that the parties would have to present the same arguments and evidence twice in two separate proceedings, which would cause unnecessary extra expenses. Also, in the event of non-consolidation, the parties would face a risk of conflicting decisions in separate proceedings. Therefore, in the interest of procedural efficiency and fairness, and in order to avoid conflicting decisions on effectively the same dispute under the same arbitration agreement, the Board decided to consolidate the cases.

Conclusions

The outcome of the FAI Board’s decision was hardly surprising. In light of the factual circumstances, consolidation was undoubtedly well-founded. On a more general level, this case – together with other existing FAI practice on “non-consensual” consolidation – lends support to the conclusion that the undersigned presented already when commenting on the FAI Board’s first decision on consolidation in 2015 (see the case reference and hyperlink above). Accordingly, even though the consolidation regime under the FAI Rules is flexible and allows, in principle, far-reaching applications, the FAI Board may be expected to apply Article 13 somewhat restrictively. To illustrate, the Board is likely to accept a request for consolidation mainly in cases where the arbitrations are pending between the same (or closely related) parties and they are based on the same arbitration agreement. Conversely, it is probably safe to say that the threshold for consolidation is high if the parties are different and the proceedings are based on different arbitration agreements (unless all parties expressly agree to consolidation). Further, consolidation is also unlikely if different arbitrators have already been confirmed in the different arbitrations, absent special reasons to the contrary.

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The DIS Rules of Arbitration of 2018

Thu, 2018-02-15 00:48

Mathias Wittinghofer, Catrice Gayer, Tilmann Hertel and Nils Kupka

Herbert Smith Freehills

The new arbitration rules of the German Institution of Arbitration (Deutsche Institution für Schiedsgerichtsbarkeit – “DIS”) will enter into force on 1 March 2018 (“DIS Rules 2018”).

It is the first revision of the DIS Rules since the current version was adopted in 1998 (“DIS Rules 1998”). The revision process involved nearly 300 persons sitting in three different commissions, but took only 18 months. The DIS Rules 2018 were drafted concurrently in English and German. The result: The DIS maintained and enhanced those civil law elements which were already decisive for the success of the DIS Rules 1998. But it also adopted new rules to reflect the changes and developments of international arbitration practice of the last two decades.

One of the most prominent features – as under the DIS Rules 1998 – of the DIS Rules 2018 is the promotion of early settlements (I.). Further, a newly founded body, the “Arbitration Council” will enhance the transparency and the integrity of the arbitration process (II.). Next, several new rules have been adopted in order to increase the already high efficiency, quality and expeditious character of DIS arbitration proceedings (III.). Lastly, along with the amendments of several institutional rules, the DIS Rules 2018 contain several new rules for multi-party and multi-contract arbitrations (IV.).

I. Promotion of early settlements

For many medium, small and big-sized companies in Germany and abroad the early settlement of disputes is an important feature of any dispute resolution mechanism which they might chose in their contracts. This tradition is reflected by the different mechanisms which already existed in the DIS Rules 1998 and which have been further strengthened in the DIS Rules 2018. Two of the most salient features are:

o The arbitral tribunal shall encourage an amicable settlement between the parties at every stage of the arbitration (Article 26). Reflecting the long-standing practice, the DIS Rules 2018 provide that arbitral tribunals will seek to do so unless any party objects.

o During the case management conference, the arbitral tribunal must address whether it can give a preliminary legal and factual assessment of the case (Article 27.4(i) and annex 3). The latter is a common feature in civil law proceedings: by identifying disputed and relevant facts and salient legal issues at an early stage of the proceedings, arbitral tribunals can often streamline proceedings, shorten submissions and enhance settlement negotiations between the parties. By not objecting to the arbitral tribunal exercising this power, the parties waive their right to invoke doubts regarding the arbitral tribunal’s impartiality or independence.

II. Involvement of the DIS in the arbitration process – Transparency is strengthened

The role and the powers of the DIS as an institution will be strengthened and expanded. In particular, a new body, the “Arbitration Council”, is founded. The purpose is to ensure that many controversial decisions will be taken by an independent body of the DIS and not by the arbitral tribunal itself. The Arbitration Council’s competencies comprise in particular:

o Decision to appoint a sole arbitrator upon request of any party and if the parties did not agree on the number of arbitrators (Article 10.2). The Arbitration Council will decide, after hearing the other party, whether the arbitral tribunal shall be comprised of one or three members.

o Decision on the challenge of an arbitrator (Article 15.4): Under the DIS Rules 1998 the decision on the challenge of an arbitrator was made by the arbitral tribunal itself and not by the DIS. Although it was common practice that at least in three-member tribunals the challenged arbitrator would not participate in the challenge decision, many practitioners criticized that the arbitral tribunal had to make this decision. To shift the competence for this kind of decision to a body embedded within the institution will certainly enhance the acceptance of a challenge decision and reduce the risk that an unsuccessful party will appeal the challenge decision with the state courts.

o Decision on the arbitrator’s removal from office if the Arbitration Council considers that the arbitrator is not fulfilling its duties according to the DIS Rules 2018 or will not be fulfilling its duties in the future (Article 16.2).

o Decision on the arbitrators’ fees in case the arbitration has been terminated prior to the making of a final award or by an award by consent (Article 34.4). Under the DIS Rules 1998 the decision on the fees in these cases was made by the arbitral tribunal itself and not by the DIS.

o Decision to reduce the arbitrators’ fees based upon the time it has taken the arbitral tribunal to issue its final award (Article 37).

o The arbitral tribunal will determine the amount in dispute after consultation with the parties. Based on the amount in dispute the DIS will determine the arbitrators’ fees. Upon request of any party the Arbitration Council can modify or confirm the arbitral tribunal’s determination. This is a feature which in contrast to many institutional rules is unique. It ensures that the arbitrators being closest to the matter in dispute decide upon the amount in dispute. At the very same time it also ensures the integrity of the arbitral tribunal in cases a party appeals the arbitral tribunal’s decision upon the amount in dispute.

o The DIS will now request and administer the deposits for the arbitrators’ fees payable by the parties. This is an important amendment. Under the DIS Rules 1998 the arbitral tribunal had to request and administer the deposits which was heavily criticised by many arbitrators.

o The case management team will review the award with regard to form (Article 37.3).

III. Efficiency, quality and expedition of arbitration proceedings are enhanced

Under the DIS Rules 2018 the DIS has adopted several rules to enhance more expeditious and efficient proceedings than under the DIS Rules 1998. The most prominent amendments are:

o Quicker constitution of a three-member tribunal: Respondent has to nominate its arbitrator within 21 days (instead of 30 days under the DIS Rules 1998) after receipt of the request for arbitration (Article 7.1 (i)) also, the deadline – set by the DIS – for the co-arbitrators to nominate the president was shortened from 30 days to 21 days (Article 12.2).

o Respondent has to file the answer to the request for arbitration within 45 days after receipt of the request (Article 7.2). The DIS Rules 1998 did not stipulate any deadline for a respondent at all. Instead, the arbitral tribunal had to set respondent the deadline to file its answer. This former procedure was often criticized. Delays in the constitution of the arbitral tribunal often meant that respondent had very long deadlines to submit its answer.

o The DIS Rules 2018 stipulate that a case management conference has to take place, in principle, within 21 days after the constitution of the arbitral tribunal (Article 27.2).

o As regards the agenda of such case management conference the DIS Rules 2018 go one step further than many other institutional rules: Article 27.4 obliges the arbitral tribunal, parties and in-house counsel to address and discuss the adoption of those measures which are listed in annexes 3 and 4 of the DIS Rules 2018. These measures increase the procedural efficiency and reflect the common international arbitration practice. The measures listed in annex 3 are, inter alia, the limitation of rounds and length of submissions, the exclusion or limitation of production of documents by the party not having the burden of proof and the power of the arbitral tribunal to give a preliminary legal and factual assessment of the case.

o Further, the parties, the arbitral tribunal and in-house counsel are also obliged to discuss the application of the rules of expedited proceedings (annex 4) during the case management conference. The DIS Rules 2018 provide for the opt-in system. The revision process of the DIS Rules showed that in-house counsel considered it more appropriate and efficient to evaluate the application of the rules of expedited proceedings at the outset of the arbitration during the case management conference rather than at the stage of concluding the arbitration agreement. At the stage of the case management conference, the amount in dispute, the kind of dispute, and further the availability of counsel, witnesses and experts can be assessed and therefore also the appropriateness of the application of expedited proceedings rules.

IV. Multi-party, multi-contract and joinder of additional parties

The DIS Rules 1998 addressed only the constitution of an arbitral tribunal in case of multiple claimants or respondents (section 13 DIS Rules 1998). Apart from that, the DIS Rules 1998 stipulated that it was within the arbitral tribunal’s discretion to decide on the admissibility of multi-party proceedings. The term “multi-party” comprised multi-party and multi-contract proceedings, the consolidation of two or more arbitration proceedings or the joinder of additional parties. The requirements of the admissibility of these different procedural constellations were not set out in the DIS Rules 1998.

The DIS Rules 2018 contain new and multi-faceted provisions for multi-party proceedings, multi-contract proceedings and the joinder of additional parties (Articles 8 and 17-19).

V. What will the future bring?

The revision of the DIS Rules reflect the best practice of a modern set of arbitration rules which meets the expectations of users for cost-efficient, expeditious and transparent arbitration proceedings. Nonetheless, the DIS has consciously chosen to maintain and enhance those distinct features which characterize civil law proceedings. With this, the DIS underlines its role as one of the leading international arbitration institutions, but honours its civil law traditions which have been attractive to parties from all over the world.

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Specialised Chambers for International Commercial Disputes: Paris in the Spotlight

Wed, 2018-02-14 02:40

Ioana Knoll-Tudor

In 2010, the Commercial Court of Paris created a specialised international and European court chamber in order to judge all international complex commercial cases in the first instance. Although French procedural rules continue to apply before this court chamber, evidence and oral debates can take place in a foreign language, if the judges and the parties so agree. Judges of this special chamber are competent, both linguistically and substantially, to adjudicate complex international commercial cases. Parties cannot elect this special chamber to hear their dispute, they can only chose the Commercial Court of Paris as the competent jurisdiction. Once the dispute is submitted to the Commercial Court, it is distributed among the different court chambers. Disputes with an international character are more likely to be heard by the international chamber (although in practice it is difficult to predict if that will be the case). If the decision in first instance is appealed, the ordinary procedure designates the Paris Court of Appeal as competent to hear the case since no international chamber exists at the Court of Appeal.

Background

On 7 March 2017, the French Minister of Justice asked the High Legal Committee of the financial market of Paris (HLCP) to prepare a report on the opportunity of creating court chambers specialised in hearing international commercial litigation disputes within the Paris Court of Appeal.
This initiative aimed at increasing French jurisdictions’ international visibility, especially for those businesses choosing London to solve their disputes. The success of the Commercial Court of London with foreign companies is a reality: each year, 80% of the cases submitted have at least one foreign party and in almost 50% of these cases both parties are foreign companies. Moreover, in the UK, the market of commercial litigation legal services, represented a total of 16 billion euros in 2016. The success of London in the field of commercial litigation is justified, among others, by the UK’s access to the mechanisms of mutual recognition of awards among the Member States of the European Union. This access will certainly be modified once the UK will no longer be part of the EU.

The report of the HLCP was rendered on 15 May 2017 and proposed the creation of specialised court chambers competent to judge all international commercial disputes, including the recourses against international arbitral awards.1)In France, the Paris Court of Appeal is generally competent to hear all actions against international arbitral awards and against exequatur procedures of international arbitral awards or awards rendered abroad. All such actions initiated after 1 March 2018 will take place in front of the International Chamber. jQuery("#footnote_plugin_tooltip_5575_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5575_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
The agreements creating an international court chamber within the Paris Court of Appeal (the « International Chamber ») have been signed on 7 February 2018 and define the procedure applicable before these specialised court chambers, both in first and second instance.

What Are the Cases Judged by the International Chamber?

The International Chamber will be competent for hearing appeals introduced against decisions rendered by the international court chamber of the Commercial Court of Paris, between a French and a foreign entity as well as between two foreign entities, or whenever a foreign law is applicable to the dispute.

The competence of these international court chambers should be automatic whenever at least one of the parties is a foreign entity or a foreign law is applicable to the dispute. If either of these two criteria is fulfilled, the contractual designation of the Commercial Court of Paris should be sufficient to have the case heard by these international court chambers. Parties can also make a specific reference to these court chambers in the contract.

What Are the Particularities of the International Chamber?

The creation of the International Chamber allows France to have two degrees of jurisdiction in front of which international commercial disputes can be heard according to adapted procedural rules, partly in English and by experienced and highly qualified judges.

  • The use of English or of another foreign language during the procedure

In front of the International Chamber, in accordance with the agreement of the parties:
– all documentary evidence can be presented in the language chosen by the parties without need for a translation,
– witnesses, experts, parties and foreign lawyers will be able to intervene orally in the chosen language2)As a default rule, pleadings will be held in French. jQuery("#footnote_plugin_tooltip_5575_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5575_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });,
– all procedural acts will be drafted in French,
– the award will be drafted in French, with a sworn translation in English.
The possibility to chose English in front of these court chambers will not only save time and expenses – because the parties will no longer have to produce sworn translations – but will also give access to a larger pool of international lawyers and experts.

  • Qualified judges

The specialised court chambers will be composed of permanent judges, experienced in commercial, financial and economic cases, with a knowledge of the main foreign applicable laws but also able to use English during the procedures. In addition to these permanent judges, the possibility of having highly qualified part-time judges is currently under discussion.

  • Adapted procedure

The procedure in front of the specialised courts will be shorter and more efficient, with, for example, time extensions more difficult to obtain than in front of ordinary courts. Judges will define procedural timetables in close cooperation with the parties and their representatives.

A large place will be given to testimonial evidence: witnesses and experts can be called to testify in court, to answer questions by the judges, and be cross-examined by the parties’ counsels (which is currently not a common feature of French commercial litigation).

  • Recognition and enforcement of French decisions

In the context of Brexit, the fact that France will continue to benefit from the automatic recognition and enforcement of the French decision in all Member States is an advantage. The UK’s exit from the European Union will also mean that it will no longer be integrated in the EU legal system. In practice, all decisions rendered in London will have to be submitted to the exequatur procedures of each Member State, in order to be recognised and enforced.

  • Start of the operations

The International Chamber will be operational as soon as its President and his/her two advisers will be appointed by the Superior Council of Magistrates. All procedures initiated after 1 March 2018 will be heard by the International Chamber.

  • An increased choice of French law

The International Chamber will judge cases in which a foreign law is applicable to a dispute, but also cases in which French law has been chosen by the Parties, whenever at least one party is not French. The authorities expect that once these specialised court chambers become operational and popular with the Parties, French law will be chosen more frequently as the governing law of international contracts.

Similar European Initiatives

The French initiative to set up court chambers specialised in international commercial litigation in which English can be used is not unique. Similar projects are ongoing in different EU countries. The Irish bar is in talks with large solicitor firms in Dublin and the solicitors’ professional body in order to see how to best market the Irish legal system abroad. In the Netherlands, the new Netherlands Commercial Court is due to open in 2018 with English and Dutch as the languages of the proceedings, specialised Dutch judges and effective and shorter proceedings. The Brussels International Business Court should be operational in 2018, with proceedings and judgements in English, no appeal possible and a procedure inspired by international arbitration. Finally, also in 2018, the regional court of Frankfurt will establish an English-speaking chamber for commercial matters, in front of which – if the parties so request – the dispute can be litigated in English.
France hopes to benefit from the eminent place it already occupies in international arbitration and litigation. The ICC and its Arbitration Court are based in Paris and the only ICSID hearing facilities outside of Washington D.C. are in Paris. The market of legal services counts an important number of law firms offering strong international arbitration and litigation practices and court costs remain rather modest compared to the high quality of services delivered. The success of these different European specialised court chambers will depend on the procedural features offered to the Parties, but most importantly on the trends that will emerge from the case law and which will allow international litigators to make an informed choice.

References   [ + ]

1. ↑ In France, the Paris Court of Appeal is generally competent to hear all actions against international arbitral awards and against exequatur procedures of international arbitral awards or awards rendered abroad. All such actions initiated after 1 March 2018 will take place in front of the International Chamber. 2. ↑ As a default rule, pleadings will be held in French. 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: International Arbitration and the Rule of Law
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A View toward the Post-Brexit Future: the UK in the NAFTA? Part II

Tue, 2018-02-13 00:21

Patrick Pearsall and Thomas Wingfield

In the first part of this article, we discussed the need to broaden the debate about the UK’s future trading relationships, touched upon some potential advantages of the UK joining the NAFTA and traced the idea’s limited history.

Is there political will?

These days, the idea remains on the periphery, even out of sight.

Each of the three NAFTA members is open to agreement with the UK, at least unilaterally.1) The UK Commons International Trade Committee has heard that “Both the Mexicans and the Canadians have publicly stated that they would welcome the UK to accede to NAFTA” (Oral evidence: UK-US Trade Relations, HC 481-I, 25 October 2017, Questions 70-71). jQuery("#footnote_plugin_tooltip_5926_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); President Trump has stated that “no country that could possibly be closer than our countries […] We have been working on a trade deal which will be a very, very big deal, a very powerful deal, great for both countries and I think we will have that done very, very quickly.”2) G20 Press Conference, 8 July 2017. jQuery("#footnote_plugin_tooltip_5926_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Mexico has separately publicised its openness to negotiation with the UK. Likewise, Canada. Outside government, John Weekes, former chief NAFTA negotiator for Canada, has stated that “[i]n many ways it would make a lot of sense for the UK to join the NAFTA […] You wouldn’t have to sit down and work out de novo what a trade agreement with the US would look like, you would start with something that is already there.” Likewise, “it would make a lot of sense from a UK perspective to have one agreement with the three North American countries rather than three agreements with the North American countries – especially when the North American countries have one agreement with each other.”3) Prosperity Conference, 26 April 2017, Trade Panel: Prospects of a North Atlantic and other Free Trade Agreements. Australia’s High Commissioner to the United Kingdom, Alexander Downer, said much the same with respect to the TPP: “Setting up new structures would be a laborious way to start.” jQuery("#footnote_plugin_tooltip_5926_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In the UK itself, the NAFTA has been mentioned surprisingly few times in parliamentary debate, and generally only in passing. Last year, in the House of Lords following the EU referendum, Daniel Brennan observed “[a United States trade agreement with the UK] might bring us into or next to the NAFTA with Canada and Mexico. I am not recommending it but pointing out that there is an actual alternative.”4) Outcome of the European Union Referendum, 5 July 2016, Lord Brennan, 15:48 (Hansard). jQuery("#footnote_plugin_tooltip_5926_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Again in the House of Lords, following the last Queen’s Speech, former Foreign Secretary David Owen asked “What would happen if we were able to get a NAFTA mark 2 with Canada and the United States? That is not at all impossible.”5) Queen’s Speech, 5th Day, 28 June 2017, Lord Owen, 19:09 (Hansard). jQuery("#footnote_plugin_tooltip_5926_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The new House of Commons International Trade Committee has re-commenced the first session of an inquiry into UK-US trade relations, which was originally interrupted by the June 2017 general election. Its terms of reference include “what involvement, if any, the UK should seek to have in the North American Free Trade Area or any future regional free trade agreement involving the USA.”6) ‘UK-US trade relations inquiry launched’, ITC, 16 October 2017. jQuery("#footnote_plugin_tooltip_5926_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Its Chair commented that “Ministers are only at the point of informal discussions with the US” and “[c]learly the Government has a lot of work to do before negotiators sit down for formal talks with their US counterparts”.

For now, the Government itself seems to be keeping its cards close. Effectively, the official position remains unchanged since before the election: “it is too early for the Government to outline the details of our position relating to a future trade agreement with the US.”7) Liam Fox letter to Angus MacNeil, 26 February 2017. jQuery("#footnote_plugin_tooltip_5926_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

However, it has more recently been reported that the NAFTA is one of several options considered as part of “Project After”, the Department of International Trade’s plan B brainstorming in the event of no deal with the EU. Here the NAFTA sits alongside other theoretical possibilities including the Trans-Pacific Partnership (“TPP”), free ports and unilateral free trade i.e. removing all tariffs altogether. The Department for International Trade stated: “We are confident that we will find a deal that works for Britain and Europe too. But it is our responsibility as a government to prepare for every eventuality, and that is what we are doing.”8) Newsnight, 9 October 2017; ‘Brexit: Liam Fox, transition and “Project After”’, BBC, 9 October 2017. jQuery("#footnote_plugin_tooltip_5926_8").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

What can the UK do now?

Prime Minster May has said she is “optimistic” about a deal with the US, but that there is a “limit” as to what can be done before Brexit.9) G20 Press Conference, 8 July 2017. jQuery("#footnote_plugin_tooltip_5926_9").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The EU is, amongst other things, a customs union. Pursuant to the EU’s common commercial policy, the EU has exclusive competence to negotiate trade agreements on behalf of the member states as a collective. Hence, the UK is restricted in what it can do whilst still a member of the EU. The UK Government has repeated that the UK will honour its obligations as an EU member state prior to Brexit.

It is clear, then, that the UK will not conclude any new free trade agreements until after Brexit. It is less clear, however, what the UK can do before Brexit. According to Secretary of State Liam Fox, “[r]emaining true to those obligations does not […] preclude us from having discussions on our future trading relationships.”10) Liam Fox letter to Angus MacNeil, 26 February 2017. jQuery("#footnote_plugin_tooltip_5926_10").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Commons International Trade Committee reported that “[w]hile there seems to be broad consensus that the UK can, legally, undertake informal discussions with non-EU countries about future trade relationships, it is not clear how far the Government can go towards negotiating new agreements on the spectrum from having informal discussions to having a deal ready to sign the day after the UK leaves the EU.”11) UK trade options beyond 2019, House of Commons International Trade Committee, First Report of Session 2016-17, published 7 March 2017, ¶165. jQuery("#footnote_plugin_tooltip_5926_11").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Committee concluded that, “[g]iven that striking new FTAs is a major strand of the UK’s Brexit strategy”, this lack of clarity was “untenable”. Whilst “accept[ing] that there is no precedent for this situation—and that the EU’s view could differ from that of the UK”, the Committee requested that the Government set out clearly its position on how far it can go.12) UK trade options beyond 2019, ¶201. jQuery("#footnote_plugin_tooltip_5926_12").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Although the answer was waylaid for seven months by the intervening election,13) Liam Fox letter to Angus MacNeil, 20 April 2017. jQuery("#footnote_plugin_tooltip_5926_13").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the Government did respond, albeit with questionable clarity. The Government drew a distinction between negotiations of trade agreements and “discussions on our future trading relationships”, but declined to elucidate further: “it would not be appropriate to publish anything that may undermine our negotiating position”.14) ‘UK trade options beyond 2019: Government Response to the Committee’s First Report of Session 2016–17’, published 17 November 2017, responses 21 & 22. jQuery("#footnote_plugin_tooltip_5926_14").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

There may be some irony that the EU’s legal competence currently prevents the UK from concluding new trade agreements to trade outside of the EU. Ultimately, however, the more important issue may be what the UK is able to achieve in a post-Brexit transition period. Very recently, the EU declared that “[d]uring the transition period, the United Kingdom may not become bound by international agreements entered into in its own capacity in the fields of competence of Union law, unless authorised to do so by the Union.”15) XT 21004/18 ADD 1 REV 2, 29 January 2018, ¶16. jQuery("#footnote_plugin_tooltip_5926_15").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Is it either-or?

The UK Parliament’s International Trade Committee also asked “whether the UK should use informal discussions with the US to influence its formal trade negotiations with the EU.”16) First session, UK-US trade agreement examined, ITC, 25 October 2017. jQuery("#footnote_plugin_tooltip_5926_16").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Further questions spring to mind – would doing so poison the EU negotiations? or show that the UK means business when it says ‘no deal is better than a bad deal’? will non-EU nations be willing to reach agreements in principle when there is such uncertainty about the UK’s agreement with the EU? Arguably however, these kind of questions do not go deep enough into viewing the UK’s global negotiations in the round.

Even if joining the NAFTA would actually be to the UK’s benefit, there may be no NAFTA to join.17) It also appears increasingly probable that the TPP (without the US) will come into existence. Recently, the remaining 11 TPP members announced their intention to sign a Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) in March 2018. Much of the discussion in this article would also apply to a future CPTPP. Britain has held informal talks with CPTPP members. Greg Hands, UK Minister of State for Trade Policy, is reported as saying “Nothing is excluded […] With these kind of plurilateral relationships, there doesn’t have to be any geographical restriction” (Financial Times, 2 January 2018). Liam Fox, International Trade Secretary, is reported as saying that press reports were “rather overblown” and the UK wanted to see how the TPP evolved after the US exit before making such a move (BBC, 3 January 2018). jQuery("#footnote_plugin_tooltip_5926_17").tooltip({ tip: "#footnote_plugin_tooltip_text_5926_17", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the first part of this article, we described the NAFTA as bringing a degree of certainty, but the NAFTA has perhaps never been so uncertain. Prime Minister Trudeau has said renegotiations could end in a “win, win, win”, but President Trump has never renounced his statement that the NAFTA is “the worst trade deal ever”.

Yet, the renegotiations continue. In itself, that is telling. Talks have been extended. The reality may not be as dramatic as some reports suggest.

And, at times of flux for both sides, the NAFTA may also be at its most flexible and welcoming. After all, President Trump is on record both for threatening to terminate the NAFTA and for being willing to cut a quick deal with the UK. Perhaps these should not be considered separately: perhaps the UK might inject some new lifeblood into the NAFTA.

Joining the NAFTA may or may not be a solution to the UK’s trade in the post-Brexit future. Even if the possibility is far-fetched, it is a useful exercise to consider the question. What might initially seem no more than a stimulating idea may look increasingly worthy of consideration. These are the kind of questions that should be asked now, before it becomes too late.

References   [ + ]

1. ↑ The UK Commons International Trade Committee has heard that “Both the Mexicans and the Canadians have publicly stated that they would welcome the UK to accede to NAFTA” (Oral evidence: UK-US Trade Relations, HC 481-I, 25 October 2017, Questions 70-71). 2, 9. ↑ G20 Press Conference, 8 July 2017. 3. ↑ Prosperity Conference, 26 April 2017, Trade Panel: Prospects of a North Atlantic and other Free Trade Agreements. Australia’s High Commissioner to the United Kingdom, Alexander Downer, said much the same with respect to the TPP: “Setting up new structures would be a laborious way to start.” 4. ↑ Outcome of the European Union Referendum, 5 July 2016, Lord Brennan, 15:48 (Hansard). 5. ↑ Queen’s Speech, 5th Day, 28 June 2017, Lord Owen, 19:09 (Hansard). 6. ↑ ‘UK-US trade relations inquiry launched’, ITC, 16 October 2017. 7, 10. ↑ Liam Fox letter to Angus MacNeil, 26 February 2017. 8. ↑ Newsnight, 9 October 2017; ‘Brexit: Liam Fox, transition and “Project After”’, BBC, 9 October 2017. 11. ↑ UK trade options beyond 2019, House of Commons International Trade Committee, First Report of Session 2016-17, published 7 March 2017, ¶165. 12. ↑ UK trade options beyond 2019, ¶201. 13. ↑ Liam Fox letter to Angus MacNeil, 20 April 2017. 14. ↑ ‘UK trade options beyond 2019: Government Response to the Committee’s First Report of Session 2016–17’, published 17 November 2017, responses 21 & 22. 15. ↑ XT 21004/18 ADD 1 REV 2, 29 January 2018, ¶16. 16. ↑ First session, UK-US trade agreement examined, ITC, 25 October 2017. 17. ↑ It also appears increasingly probable that the TPP (without the US) will come into existence. Recently, the remaining 11 TPP members announced their intention to sign a Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) in March 2018. Much of the discussion in this article would also apply to a future CPTPP. Britain has held informal talks with CPTPP members. Greg Hands, UK Minister of State for Trade Policy, is reported as saying “Nothing is excluded […] With these kind of plurilateral relationships, there doesn’t have to be any geographical restriction” (Financial Times, 2 January 2018). Liam Fox, International Trade Secretary, is reported as saying that press reports were “rather overblown” and the UK wanted to see how the TPP evolved after the US exit before making such a move (BBC, 3 January 2018). 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: International Arbitration and the Rule of Law
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Kluwer Mediation Blog – January Digest

Mon, 2018-02-12 02:25

Anna Howard

From lessons learnt from Lord Hope’s diaries and the memoirs of Ken Newell (a Presbyterian Church minister in Northern Ireland) to a debate at the recent Lex Infinitum competition on whether the role of the mediator can be overrated, the first month of 2018 has offered up the usual variety of posts on the Kluwer Mediation Blog. A brief summary of each post can be found below.

In “Mediation and Dialogue Facilitators: One Profession or Competitors”, Tatiana Kyselova shares the preliminary findings of her research on mediation and dialogue facilitation in the Ukraine and identifies some distinctions between these two fields.

In the honest and uplifting “Mediators and Self-Doubt”, John Sturrock draws on Lord Hope’s Diaries to identify what we can learn, as mediators and professionals, from Lord Hope’s admissions of self-doubt and anxiety.

In “Odd Conversations: four vignettes”, Ian Macduff reflects on recent conversations and identifies mediator strategies to address the challenges presented by these types of conversations.

In  “(This house believes) The Role of the Mediator can be overrated”, Greg Bond sets out the key arguments presented during a debate at the recent Lex Infinitum mediation competition on the motion of: “The Role of the Mediator Is Overrated”.

In “The History of Mediation in the Middle East and its Prospects for the Future“, Negin Fatahi  provides an overview of the history of mediation in the Middle East and identifies some of the differences between mediation in this region and the West. Negin also considers the factors which may lead to an increase in the use of mediation in the Middle East.

In “Reputation Bias”, Constantin-Adi Gavrila considers whether mediators have their own interests in the mediation processes in which they are involved and, if so, the further issues which this raises.

In “A Neuro-linguists toolbox – A Starting Point and Building Rapport”, in the first in a series of posts on this topic, Joel Lee provides an introduction to Neuro-Linguistic Programming and explains how it can assist in the practice of amicable dispute resolution.

In “A Light at the end of the tunnel for labour disputes in Brazil”, Andrea Maia explains recent changes to labour laws in Brazil which may result in the greater use of mediation and negotiation for labour disputes.

In “Lex Infinitum – Celebrating Three Years of Inspiration”, Anna Howard interviews the founders of the Lex Infinitum mediation competition, Jonathan Rodrigues and Prof. M.K. Prasad. Jonathan and Prof. Prasad offer their insights on the aspirations behind the competition, its impact on the participating students and professionals, and its influence on the growth of mediation in India.

In “A Minister’s Mediation Challenges”, Bill Marsh explains how his horizons have been challenged and expanded by reading Ken Newell’s memoirs, “Captured by a Vision”. Ken (a Presbyterian Church minister in Northern Ireland until his retirement some years ago) played a central role in bringing together representatives of both sides of that region’s long-running conflict.

In particular, Bill identifies some of the key characteristics which Ken’s role required of him, and which go with the territory of being “in the middle”.

More from our authors: International Arbitration and the Rule of Law
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A View toward the Post-Brexit Future: the UK in the NAFTA? Part I

Sun, 2018-02-11 00:17

Patrick Pearsall and Thomas Wingfield

To many, it would seem foolish even to ask whether the UK might join the North American Free Trade Agreement. Yet, the UK should explore all possibilities open in a post-Brexit world. As we explain, the idea that the UK might join the NAFTA is not only conceptually interesting, but also merits entertaining with a degree of seriousness.1) See discussion with Patrick Pearsall on “Predictions for a post-Brexit UK/US trade agreement”. jQuery("#footnote_plugin_tooltip_9826_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9826_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

How do the NAFTA and the EU compare? In many ways, there is no comparison. The NAFTA is a free trade agreement. The EU is an economic and political union. There are 3 states in the NAFTA. There are 28 states in the EU. There is no NAFTA parliament. There are no NAFTA elections. There is no NAFTA legislation. There is no NAFTA court of justice. The NAFTA Trade Commission is not the equivalent of the European Commission in purpose or powers. There is no NAFTA central bank. There is no NAFTA single currency. There is no NAFTA common external tariff. There is no NAFTA common trade policy. The NAFTA does not require anything like the level of bureaucrats employed in Brussels.

The things that the NAFTA is not are the same things that many supporters of Brexit most dislike about the EU. It is a recurrent argument that the EU is a free trade arrangement which has got out of hand, taking too much control and interfering in too many areas. Many Brexit supporters say that the EU has overreached itself over time. Many who voted to leave in 2016 voted to enter in 1975. For such voters, perhaps the EU should be more like the NAFTA: free trade without a super-state. Certainly, the NAFTA represents an alternative to the EU model.

Should the UK be talking about the NAFTA?

So far, to the limited extent that UK membership of the NAFTA has been spoken about at all, it has been introduced principally as a contingency plan in the event that negotiations with the EU fail to come to an acceptable conclusion. In other words, the NAFTA would come into play only on a ‘no deal’ scenario with the EU. But is it correct to view the question as a binary choice? Would NAFTA membership be compatible with a future agreement with the EU? That, of course, depends upon the terms of that agreement. Hence, it is important that these issues are evaluated now, rather than later. An agreement with the EU and agreements with non-EU countries should not be considered in isolation from one another. For the same reason, it is unlikely to be the most effective strategy to negotiate them purely sequentially. There should, at the very least, be simultaneous consideration and discussion.

However, the current focus in the UK is on the UK’s future relationship with the EU. Every day, folks are eager for updated news, gossip and speculation about the state of negotiations. This question – how the UK will deal with the EU in the future – is undoubtedly important, affecting incalculable aspects of living and doing business in the UK. But the EU question is not the only question. There is also the question of the UK’s future relationships with non-EU states. It is a mistake to focus on the EU to the exclusion of the non-EU. But it is an understandable mistake. Individuals, media outlets and even governments can only direct their attention in so many directions and only have finite resources to bring to bear.

The almost exclusive prominence (at least in column inches) currently given to agreeing a “new partnership” with the EU is also encouraged by the UK Government’s goal in those negotiations to secure “a time limited implementation period” of perhaps two years, during which access between the markets will continue on current terms. According to the Government, the “UK would intend to pursue new trade negotiations with others during the implementation period.”2) Preparing for our future UK trade policy, Department for International Trade, 9 October 2017, p.8. jQuery("#footnote_plugin_tooltip_9826_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9826_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In other words, this is largely a question for another day.

However, there is no guarantee that the EU will agree to such a standstill period following legal Brexit. (The EU’s guidance for the next phase of Brexit negotiations states that transitional arrangements should cease 21 months after Brexit day.3) COM (2017) 830, 20 December 2017, ¶21. jQuery("#footnote_plugin_tooltip_9826_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9826_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });) Nor that, if agreed, either period would be long enough for the UK to conclude the new trade agreements desired. The UK-EU Article 50 negotiations effectively have a two year cut-off, and time may already be feeling tight.

The Government’s white paper ‘Preparing for our future UK trade policy’ is by its own admission only an “early step”.4) Preparing for our future UK trade policy, p.5. jQuery("#footnote_plugin_tooltip_9826_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9826_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As negotiations move onto new ground, now is an appropriate time to take stock. The EU accounts for very roughly half of the UK’s trade.5) UK Overseas Trade in Goods Statistics August 2017, Office for National Statistics (ONS), 10 October 2017. jQuery("#footnote_plugin_tooltip_9826_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9826_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The other half must be considered alongside.

According to its Prime Minister, “it is time for Britain to get out into the world and rediscover its role as a great, global, trading nation.”6) ‘The government’s negotiating objectives for exiting the EU’, Theresa May, 17 January 2017. jQuery("#footnote_plugin_tooltip_9826_6").tooltip({ tip: "#footnote_plugin_tooltip_text_9826_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Secretary of State for International Trade, Liam Fox, has spoken of having around 40 free trade agreements ready to go “the second after midnight” after Brexit in March 2019.7) Subsequently, provided for in the Trade Bill 2017-19. jQuery("#footnote_plugin_tooltip_9826_7").tooltip({ tip: "#footnote_plugin_tooltip_text_9826_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, these planned agreements are proposed only to replicate those trade agreements already existing between the EU and non-EU states. When the UK leaves the EU, it will leave more than the EU. Here again, the aim is to preserve the status quo a while longer, avoiding a cliff edge and disruption of trade. So, if these future agreements become reality, they would be essentially transitional, neither moving the UK forward nor offering an alternative to the EU model.

What might be the benefits of joining the NAFTA?

The figures vary according to the source, but the US, Canada and Mexico have a combined GDP of around the same as, if not more than, the combined GDP of the EU. Britain, the US, Canada and Mexico account for more than 30% of the global economy. They are connected by the Atlantic and the internet. The US and Canada are, like the UK, in the G7. The US is the UK’s largest single country trading partner. Together the NAFTA nations account for 13% and 20% of the UK’s imports and exports respectively (comparing with 53% and 45% for the EU).8) ‘Who does the UK trade with?’, ONS, 21 February 2017. jQuery("#footnote_plugin_tooltip_9826_8").tooltip({ tip: "#footnote_plugin_tooltip_text_9826_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Joining the NAFTA may have certain advantages.9) For the avoidance of doubt, it is beyond the scope of this article to evaluate, and we take no position on, whether NAFTA membership would actually make sense for the UK. jQuery("#footnote_plugin_tooltip_9826_9").tooltip({ tip: "#footnote_plugin_tooltip_text_9826_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The US and Canada, in particular, are obvious present and future trading partners with the UK in whatever form that takes. They have substantial common cause with the UK, in economic as well as other matters. They share many principles of law. The 23-year old NAFTA brings with it a degree of certainty, perhaps unobtainable with less established or yet-to-be-agreed arrangements. There is a degree of certainty about the jurisprudence. The existing NAFTA relationship is well-known and well-analysed. The UK would have a sense of what it was getting into.

The UK would not be starting from scratch. Joining the NAFTA could be construed as an extension of the UK’s present pragmatic policy of adopting/adapting existing trade agreements with the EU. Provided the NAFTA survives and the existing three states are open to a new member, the UK could sign up relatively quickly by the standards of treaty negotiation (if not quick, then quicker). Canada, Mexico and the US have effective and experienced negotiating teams up and running (perhaps worryingly effective and experienced). The UK Government is under significant time and resources pressure. Brexit brings new challenges to Whitehall and exposes existing challenges which have long been absorbed by the intervening bureaucratic infrastructure in Brussels.

What is the history of this idea?

The idea of the UK joining the NAFTA is not entirely novel, although its history is patchy. In 1998, Newt Gingrich, then Speaker of the House of Representatives, mooted the UK as an associate member. In 2000, Republican Phil Gramm, then chairman of the Senate Committee on International Trade, announced that doors would be opened in Washington “in a matter of a week” if the UK knocked. Kenneth Clark, now Father of the House of Commons, responded “I hope nobody believes that Senator Gramm is typical of American opinion, because he ain’t.” UK Foreign Secretary Robin Cook described the idea as “barmy”, agreeing with a leaked Foreign Office memo. To all this, Senator Gramm replied that “[Barmy] is not a word in the American-English dictionary, which reminds me we have been separated too long […] I was still unsure whether I was being complimented.”10) ‘We back Britain joining Nafta, says US Senator’, The Telegraph, 5 July 2000. jQuery("#footnote_plugin_tooltip_9826_10").tooltip({ tip: "#footnote_plugin_tooltip_text_9826_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Senate Finance Committee had requested an investigation into the impact of including the UK in the NAFTA “in order to determine whether the success […] can be replicated with other trading partners”. The subsequent International Trade Commission report found that “[b]ecause trade between the UK and the North American countries is subject to relatively low tariffs, […] elimination of these tariffs would have minimal effects on the economies of the countries in question.”11) Investigation 332-409, Publication 3339, August 2000. jQuery("#footnote_plugin_tooltip_9826_11").tooltip({ tip: "#footnote_plugin_tooltip_text_9826_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

To the extent that the idea subsequently had any significant traction, it was largely amongst the politically conservative and Euro-sceptical of both sides of the Atlantic. Conrad Black, sometime transatlantic media tycoon and prison inmate, has been another notable advocate of the idea as “based on the Anglo-American free market model”, predicting that “Britain would be received [by the US] with rejoicing and extensive reminiscences about Churchill and Roosevelt” and “[i]f America were jubilant, Canada would be ecstatic.”12) Britain’s Final Choice: Europe or America?, Centre for Policy Studies, 1998, pp.13, 27. jQuery("#footnote_plugin_tooltip_9826_12").tooltip({ tip: "#footnote_plugin_tooltip_text_9826_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); He did not speculate how Mexico would feel.

In the second part of this article, we consider the present degree of appetite for this idea, the restrictions on the UK’s freedom to negotiate whilst still a member of the EU and the implications of the uncertainty about the future of the NAFTA itself.

References   [ + ]

1. ↑ See discussion with Patrick Pearsall on “Predictions for a post-Brexit UK/US trade agreement”. 2. ↑ Preparing for our future UK trade policy, Department for International Trade, 9 October 2017, p.8. 3. ↑ COM (2017) 830, 20 December 2017, ¶21. 4. ↑ Preparing for our future UK trade policy, p.5. 5. ↑ UK Overseas Trade in Goods Statistics August 2017, Office for National Statistics (ONS), 10 October 2017. 6. ↑ ‘The government’s negotiating objectives for exiting the EU’, Theresa May, 17 January 2017. 7. ↑ Subsequently, provided for in the Trade Bill 2017-19. 8. ↑ ‘Who does the UK trade with?’, ONS, 21 February 2017. 9. ↑ For the avoidance of doubt, it is beyond the scope of this article to evaluate, and we take no position on, whether NAFTA membership would actually make sense for the UK. 10. ↑ ‘We back Britain joining Nafta, says US Senator’, The Telegraph, 5 July 2000. 11. ↑ Investigation 332-409, Publication 3339, August 2000. 12. ↑ Britain’s Final Choice: Europe or America?, Centre for Policy Studies, 1998, pp.13, 27. 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: International Arbitration and the Rule of Law
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Arbitrating in Brazil: Arbitration and Binding Precedents

Fri, 2018-02-09 20:50

Teresa Arruda Alvim

This post covers the main topics broached in my lecture given in Oxford, in the Conference “II Oxford Symposium on Comparative International Commercial Arbitration”, which took place on November 20, 2017.

The question is: are arbitrators bound by precedents or by a clear line of case law, when parties have decided, in the arbitration agreement, that Brazilian law should be the basis of the final award.

To solve this problem, firstly, something has to be said about arbitration and, secondly, something has to be said about the law, which is much more difficult.

1). A quick look at the several theories on the nature of arbitration is useful here.

There are at least four theories which have been created to explain the legal nature of arbitration. They are known as the jurisdictional, contractual, mixed (or hybrid) and autonomous theories.

According to the first theory – jurisdictional – the arbitrator’s award is comparable to a judgment rendered by official courts.

Arbitrators, say those who adopt this theory, draw their powers from national law – exactly like judges do. The only difference is that arbitrators are appointed by the parties. But both make final and binding decisions.

According to the contractual theory, the arbitration agreement is the most important element of arbitration. The submission to the agreement and the award are two phases of the same contract.

The mixed theory, it seems to me, is the one that explains arbitration in the best way possible.  It is highly accepted, and recognizes both worlds in arbitration: elements of public and private law.

On the one hand, what happens during arbitration proceedings and to the award has to stick necessarily and perfectly to the arbitration agreement.

On the other hand, the main principles of procedural law have to be given consideration.

Arbitrators undoubtedly exercise a public function, as some legal writers say, a quasi-judicial role, because they solve disputes and make binding decisions (on the parties).

The fourth and last theory is the autonomous theory. It considers that arbitration is a phenomenon which can operate outside the constraints of positive law or national legal systems. This approach is intimately linked to the idea that arbitration is something that “floats”, having no connection with any national law.

In my point of view, this theory makes arbitration rather unattractive. In a country like Brazil, the possibility of judicial control, even if very rare, inspires trust and encourages its use.

In fact, parties shall exercise control over the arbitrator’s conduct. If arbitration stems from an agreement where parties delegate power to a third person in order to make binding decisions in a specific dispute in a certain prescribed way, this power is naturally not absolute. Arbitration proceedings are obviously bound by the arbitration agreement.

So, even if there is a clear tendency to consider the judicial review of arbitral awards undesirable, it cannot be taken to extremes.

Well, as I said, the approach that recognizes elements of public and of private law in arbitration is, in my view, the correct one.

It stems from a contract, so it must be respected.

If arbitrators do not comply with the agreement, this should be considered grounds for the award to be challenged before the courts.

2). On the other hand, what does a clause saying that “Brazilian law must be applied” effectively mean? What is law?

Currently, most law philosophers or people who just reflect about the law, not in a technical way, have perceived that law (in civil law jurisdictions) cannot be identified with statutory law.

The complexity of modern societies has already shown that statutory law is not enough to completely regulate human conduct.

If law is the rule that individuals have to obey, it is evident that legal writing and case law play a very important role in its formation.

Statutory law must be interpreted and its final “design” is given by courts according to legal scholarship.

As we know, in civil law jurisdictions, legal writings are a very prestigious source of law.

The last version – the one that really counts – of the rule is given by the Courts – normally the Supreme or Superior Courts.

In sum, when a potential client asks us ‘is the law on my side?’, ‘Am I going to win?’, We have to do more than just read the statutes to give them a reliable answer. We do have to consult case law and legal literature.

Even in civil law jurisdictions, where precedents are ordinarily not binding, there are cases where there is a clear set of precedents along the same lines, where courts have been firmly adopting the same position for years.

Furthermore, in Brazil we have now binding precedents, in a small number of cases. For instance, the decisions made in proceedings joined as a result of what is very similar to a group litigation order are binding on other future cases where the dispute revolves around the same quaestio iuris.

Binding precedents should be considered as law. They are conceived and regulated by statutes as MANDATORY. A clear and predictable line of precedents in the same direction, in some cases, as well. They are law in the sense that they are benchmarks or rules of conduct which have to be respected by individuals in their day-to-day conduct, in planning their business, in distinguishing the licit from the illicit.

To a certain extent, judges create law, even in civil law countries. In civil law jurisdictions, it normally happens in the interpretation of statutes or in solving disputes not expressly solved by the statutes.

3). So, if arbitrators are judges (for the parties), they have to decide according to the law chosen by them. They cannot interpret statutes in their own way, independently of binding precedents or established case law. These elements are part of the law.

Arbitrators are in many ways comparable to judges: they analyze facts, assess them and then, in the light of the law chosen by the parties in the arbitration agreement, make their decision. But in my view, they cannot be creative, for example, solving the dispute departing from all possible interpretations already given by official courts, from a clear line of case law or – even worse – from binding precedents (so considered by statutes). And this, because it could be considered that they could create law, as judges do.

So, in fact, lawyers should refer to binding precedents as grounds of their pleading, as well as to establish case law. In the former case, if a precedent applies, that is, if the facts are the same or similar to those underpinning the precedent, the arbitrator cannot refuse to respect it. Unless, a distinction can be made.  In the latter case, there is a duty, from which the arbitrator can depart only if there are powerful arguments.

In any case, even if the binding precedent is not referred to, iura novit curia applies.

So, binding precedents have to be respected by the arbitrators.

In some exceptional cases, even stablished case law.

Why? For several reasons:

i. Because not to respect them would be a breach of contract – the parties having said in the arbitration agreement that they want Brazilian law to be applied;

ii. If this were possible, there would be substantive law of arbitration and substantive law of courts. Arbitrators have to apply the same law that courts do: and the latter have the last word on what law is;

iii. If this were possible, arbitration would be a world apart, in terms of predictability. Even the possibility of the creation of specific case law in the world of arbitration would not justify this possibility.

Arbitration is a choice of method; of path. It is just a choice of the road, but parties want to arrive at the same place, as if they had chosen to have their dispute solved by courts. So much so that in the arbitration agreement Brazilian law has been chosen to be the basis of the arbitrator’s award; arbitrators lack legitimacy to innovate in law.

iv. If Brazilian law is not applied, parties may be surprised. Law cannot surprise. Predictability is inextricably linked to the idea of law.

This breach of contract can be grounds for challenging the arbitral award before the Judiciary. The power delegated to the arbitrator is limited: so, these limits must be controlled by someone, otherwise they would be putative limits. This “someone” is the judge.

Despite the trend of suppressing judicial control of the arbitrator’s award, in my view, there is a small group of grounds which cannot be deprived of judicial appreciation. Disrespect of the arbitral agreement is certainly one of them.

If the possibility of controlling the award did not exist at all, the limits created by the parties in the agreement would be nothing but an illusion.

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Israeli Arbitration Law in Knots? Foreign Service of Process for ‘Made in Israel’ Awards

Fri, 2018-02-09 01:00

Hadas Peled and Yedidiya (Didi) Melchior

On 31 December 2017, Israel’s Supreme Court published an important precedential decision concerning enforcement procedures of ‘made in Israel’ commercial arbitral awards. In Request for Appeal 1739/17, Michael Flacks v. Stephan Bisk (in Hebrew), the Israeli Supreme Court denied a motion for service of process abroad in a petition to confirm an arbitration award issued in Israel. The court held that Israeli courts should generally not exercise “long arm” jurisdiction on a foreign party just because the arbitration was seated in Israel.

In this post, we will first present the material facts of the case and explain in a nutshell the legal basis for the decision: the Israeli Arbitration Law 5728-1968 (“Arbitration Law“) and the relevant provisions of the Civil Procedure Regulations 5744-1984 [consolidated version] (“Civil Procedure Regulations“). Then, we turn to discuss the majority opinion as well as the dissenting opinion in reference to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (“New York Convention“) and the UNCITRAL Model law on International Commercial Arbitration 1985: with amendments as adopted in 2006 ((“Model Law“). We conclude with the problematic result that this precedent generates.

The Material Facts of the Case

The parties, Bisk – an Israeli resident and a US citizen, and Flacks – British citizens and US residents, entered into a commercial agreement, according to which Bisk paid a sum of 300,000 USD to Flacks, designated for a property investment in Germany. The agreement included an arbitration clause, providing for arbitration of disputes in Beit Din in Israel (Beit Din is an institutional arbitration court based on Jewish law). When the debt matured and Flacks did not return the principal nor the premium, Bisk initiated arbitration proceedings in Israel. Flacks argued that the arbitration agreement was not valid since the parties reached subsequent agreements that effectively cancelled the arbitration clause. The arbitration panel ultimately appointed dismissed Flacks’ jurisdictional objections arguments and ruled in favor of Bisk in two subsequent arbitration awards: one concerning the principal sum and the latter concerning the premium.

Pursuant to the Arbitration Law, Bisk then applied to the Israeli court for confirmation of the arbitration award. Since Flacks does not reside in Israel, Bisk submitted a motion for service of process abroad. Both the registrar at the District Court, and on appeal, the judge, granted permission for service of process abroad. However, on a request for appeal to Israel’s Supreme Court a majority ruling overturned this decision and denied the motion for service of process abroad.

The Legal Basis for the Decision

As background for presenting the reasoning for this decision, it is important to understand the Arbitration Law and the Civil Procedure Regulations that apply to service of process abroad. Under the Arbitration Law, an arbitration award does not require judicial confirmation. However, according to Article 23 of the Arbitration Law, if a party wishes to enforce the award via the Enforcement and Collection Authority (the judicial branch that administers collection of debts and obligations) it must apply for judicial of the award (“Confirmation Proceedings“). The Confirmation Proceedings requires notice to be given to both parties’ (not an ex-parte proceeding). Essentially, if the respondent is a foreign party, service of process abroad must first be undertaken.

The rules that generally apply to permitting service of process abroad to a foreign party are rooted in the Civil Procedure Regulations and extensive case law. These rules require three cumulative conditions: (a) the cause of action is listed in the closed list of causes in regulation 500 of the Civil Procedure Regulations (“Regulation 500“); (b) there is a good and substantiated cause of action against the respondent; and (c) Israel is a convenient forum.

The majority reasoning – a narrow interpretation of Regulation 500

The causes of action listed in Regulation 500 all demonstrate either a personal connection of the respondent, or a subject-matter connection of the case, to the State of Israel. Courts have consistently held that international comity considerations lead to a narrow interpretation of Regulation 500.

In Flacks, the District Court approved the service of process abroad based on subsection (4) of Regulation 500, which permits extension of jurisdiction in disputes relating to contracts that were either made in Israel or are subject to the laws of Israel. The district court held that the arbitration agreement, that was part of the commercial agreement between the parties, and which designated Israel as the seat of the arbitration, suffices for such purpose.

In accepting the appeal, the Supreme Court held that an action to confirm the arbitration award is distinct from the action based on the agreement between the parties. At the post-award stage, Confirmation Proceedings are no longer an action based on the arbitration agreement, but rather stem for the arbitration award. Accordingly, Subsection 500(4), based on a contractual claim, cannot create the basis for summoning a foreign respondent. The majority verdict summarized that the mere fact that a court is asked to confirm a ‘made in Israel’ arbitration award, is not sufficient for creating personal jurisdiction over the foreign respondent, since award confirmation is not a contractual cause of action.

The Dissenting Opinion and New York Convention

Subsection (8) of Regulation 500 allows overseas summons for enforcement of ‘foreign arbitral awards as defined in the Arbitration Law’ while Confirmation Proceedings (even of foreign awards) are not explicitly listed. The dissenting opinion suggested filling this legal lacuna by assuming that the Israeli legislator did not want to treat Israeli arbitration awards as inferior to foreign awards, and construing Subsection (8) to include Confirmation Proceedings. The majority opinion however expressly dismissed such an expansive construction of Regulation 500, considering international comity.

In this context it is important to note the different scope of application of the New York Convention, the Model Law and the Arbitration Law. Article 1 of the Arbitration Law distinguishes between ‘foreign and ‘domestic’ awards, defining a foreign arbitral award as an award ‘made outside Israel’. The scope of application of the New York Convention covers, according to Article 1 of the Convention, both awards made outside the State where the recognition and enforcement are being sought, and awards not considered domestic. The Arbitration Law does not recognize any award made in Israel as not being domestic, regardless of the parties or circumstances involved, so the second option under the New York convention is not reflected in local law.

Interestingly, the Model Law specifically clarifies (e.g. in Articles 1(2) and 35) that recognition proceedings can be made irrespective of the country in which the award was made if the award is not considered domestic. Thus, in the event that the arbitration involves international elements, such as the case was in Flacks, according to the model law this may fall under the definition of international arbitration. Since the Arbitration Law, which predates the Model Law, and the Civil Procedure Regulations, distinguish, for the purpose of service of process, between foreign and domestic awards, the outcome in Flacks is different than the outcome that would have been reached had the Model Law and appropriate regulations been adopted by the Israeli legislator.

Israeli Supreme Court Ties the Arbitration Law Up in Knots

Despite the undesirable result and troubling outcome expressly noted by the Supreme Court, Flacks set a precedent that Israeli courts will not extend their jurisdiction to foreign parties merely because the arbitral award is made in Israel. At the same time, Israeli courts will extend jurisdiction to foreign parties in enforcement procedures of awards not made in Israel and that are subject to the New York Convention. Consequently, arbitral awards rendered in Israel cannot be confirmed by an Israeli court and enforced in Israel if the foreign party objects to jurisdiction and there are no other causes of action that allow the service of the process abroad. This problem may be solved by initiating enforcement and recognition procedures in the foreign jurisdiction pursuant to New York Convention, as suggested by the Supreme Court itself. Since, as the majority opinion noted, this problematic outcome can only be fully resolved by a future amendment to the Civil Procedure Regulations, parties choosing arbitration in Israel are advised to note this procedural hurdle and act according to it when drafting arbitration clauses.

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Federal Court Enforces Arbitration Clause in Maritime Insurance Policy, Rejecting Reverse Preemption Claim

Wed, 2018-02-07 19:15

Jason P. Minkin and Jonathan A. Cipriani

The U.S. Court of Appeals for the Ninth Circuit has enforced an arbitration clause in a maritime insurance policy, finding the policy subject to the Federal Arbitration Act, and not “reverse preempted” by the McCarran-Ferguson Act.  In so holding, the court determined that the policy’s choice-of-law clause and arbitration provision controlled over somewhat different language in the application for the policy, because the latter did not qualify as a “contract.”  Galilea, LLC v. AGCS Marine Insurance Co., 2018 WL 414108 (9th Cir. Jan. 16, 2018).

Two Montana residents, the Kittlers, established a Nevada LLC (Galilea), through which they purchased a yacht.  Galilea submitted an insurance application for the yacht that contained arbitration and choice-of-law terms.  The arbitration provision provided for AAA arbitration to take place in New York.  The choice-of-law provision stated that the “relationship” and the “Agreement” would be governed by New York law.  The insurance policy that eventually issued also contained choice-of-law and arbitration provisions, but with slightly different terms.  Specifically, while the policy also called for AAA arbitration to take place in New York, the choice-of-law provision selected U.S. federal maritime law, with New York law to fill any gaps where maritime law did not provide any relevant precedent.  Further, the policy provided that the scope of arbitrable disputes was “any and all disputes arising under this policy,” rather than “any dispute arising out of or relating to the relationship [between the Kittlers and the insurance underwriters],” as stated in the application.

A month after the insurance policy issued, the Kittlers’ yacht ran ashore.  The underwriters declined to cover the resulting insurance claim, on the basis that the yacht had traveled south of the navigation limit in both the application and the policy.  The underwriters commenced arbitration proceedings in New York, and Galilea filed objections and counterclaims.  Galilea also filed a separate action in Montana federal district court, as well as a motion to stay the New York arbitration proceedings.  The underwriters filed their own petition to compel arbitration in the U.S. District Court for the Southern District of New York.

The Montana federal district court issued two orders, providing that the arbitration provision in the application was irrelevant because it was not included in the underwriters’ arbitration demand; the insurance policy was governed by federal maritime law; the Federal Arbitration Act (FAA) applied to the policy and required that the court enforce the policy’s arbitration provisions; questions relating to enforceability and arbitrability were to be determined by the court, not an arbitrator; and the policy’s arbitration clause did not extend to ten of Galilea’s twelve claims.  Accordingly, the district court compelled arbitration as to two of Galilea’s claims, but denied it as to the rest.

On appeal, the Ninth Circuit affirmed in part and reversed in part.  The court generally found that the arbitration clause in the policy (not the one in the application) controlled, and was subject to federal law—both maritime law and the FAA.  However, the court also found that the parties had agreed that questions of arbitrability would be decided by an arbitration panel and not by a court.  Accordingly, the Ninth Circuit instructed the district court to grant the underwriters’ motion to compel in its entirety, not just as to two of the claims.

With respect to which law controlled, the court found that the relevant document was the insurance policy itself, and not the application, because the application was not a contract.  Noting that the FAA only applies where there exists an agreement to arbitrate, the court made a threshold determination as to whether there was such an agreement.  The insurance application was not an agreement, the court held, because it contained no evidence of mutual assent to a contract or to arbitration.  Under New York law—which the application called for in its choice-of-law provision—the application would only be deemed a part of the insurance contract if attached to the policy at the time of delivery.  Because it was not, the application was not a contractual agreement under New York law, and federal law of arbitrability could not apply to the arbitration agreement it contained.

In contrast, however, the court determined that the insurance policy was in fact a contract subject to the FAA.  The court noted that “[p]olicies that insure maritime interests against maritime risks are contracts subject to admiralty jurisdiction and to federal maritime law,” citing the U.S. Supreme Court’s decision in Wilburn Boat Co. v. Fireman’s Fund Insurance Co., 348 U.S. 310 (1955).  The FAA specifically applies to “maritime transactions,” see 9 U.S.C. § 2, thus requiring arbitration of the insurance dispute here.  Galilea argued, however, that under federal maritime law, the FAA did not apply to the policy, because Montana public policy disfavoring arbitration “reverse preempted” the FAA pursuant to the McCarran-Ferguson Act.

The Ninth Circuit rejected Galilea’s reverse preemption argument.  As explained by the court, the McCarran-Ferguson Act, 15 U.S.C. § 1101 et seq., allows state law to “trump” otherwise applicable federal if the state law regulates the business of insurance; the conflicting federal law does not; and the federal law would “invalidate, impair, or supersede” state insurance law.  Galilea cited Montana’s Uniform Arbitration Act, which bars enforcement of arbitration provisions in insurance policies, in support of its argument that Montana law reverse preempted the FAA under McCarran-Ferguson.  The Ninth Circuit disagreed.  Under Wilburn Boat, the court reasoned, a maritime insurance policy falls within federal admiralty jurisdiction and is governed by federal admiralty law (including the dictates of the FAA) in the first instance.  State law, in contrast, is only relevant to maritime insurance contracts in the absence of a controlling federal rule.  Because federal law is “primary” over state law with respect to maritime insurance contracts, the FAA’s requirement of arbitration does not “invalidate, impair, or supersede” state law, particularly given the “interstitial, contingent” nature of state law in setting of a maritime insurance dispute.  The same result would hold if a conflict-of-law analysis were done, since Montana law had virtually no relevance to this dispute (other than that the Kittlers happened to reside there), and since landlocked Montana has relatively little interest in maritime insurance disputes.

The Ninth Circuit also rejected Galilea’s secondary argument that the policy’s choice-of-law provision was unenforceable under M/S Bremen v. Zapata Off-Shore Co., (The Bremen), 401 U.S. 1 (1972).  The Bremen holds that forum selection clauses are presumptively unenforceable under federal maritime law, where they “would contravene a strong public policy of the forum in which the suit is brought.”  The court noted, however, that the dispute at issue was about a choice-of-law provision, not a forum selection clause.  Further, the court observed that The Bremen dealt with conflicts between U.S. law and the law of other nations, which were subject to international comity.  In contrast, this dispute involved “an unequal, hierarchical relationship between federal maritime law and state law.”  Accordingly, there was no basis for Montana law to supplant federal maritime law, including the FAA.

Finally, the court determined that the parties had agreed to reserve the issue of arbitrability for an arbitrator by incorporating AAA rules into the insurance contract.  The court noted that arbitrability is an “arcane” issue, and that the general presumption is against having it decided by an arbitration panel absent “clear and unmistakable evidence” that the parties wished to do so.  Ninth Circuit precedent holds, however, that a contract between sophisticated parties that incorporates AAA rules qualifies as such evidence.  AAA Commercial Arbitration Rule 7 specifically provides that “the arbitrator shall have power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.”  The court concluded that the parties to the dispute—insurance companies, and two individuals, one of whom owned and operated a financial services company, who had formed an LLC to control a yacht worth more than a million dollars—were indisputably “sophisticated” and capable of agreeing to AAA rules.

Despite dealing with some complex arbitration law issues, Galilea applies two straightforward principles.  First, the Ninth Circuit views insurance contracts for vessels to be maritime in nature, and thus governed by federal maritime law, including the FAA.  Second, “sophisticated” parties can contract around the presumption against “arbitration of arbitrability” by agreeing to arbitration under AAA rules.  As was the case in Galilea, when a maritime insurance policy is at issue, a state law disfavoring arbitration will not limit the FAA’s broad reach.

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Arbitrability of Shareholder Disputes in Germany

Wed, 2018-02-07 00:26

Tilmann Hertel and Alessandro Covi

Herbert Smith Freehills

INTRODUCTION

 

Germany is considered as one of the most arbitration friendly jurisdictions in Europe if not world-wide, not least because the 1998 arbitration law is almost a verbatim translation of the UNCITRAL Model law. This arbitration-friendliness always encompassed also corporate disputes, safe for one minor, but important exception: arbitrations concerning the validity of shareholder resolutions. After many heated debates among scholars and courts, the German Federal Supreme Court (“BGH“) has by now handed down three seminal decisions on this topic. These decisions show the gradual acceptance of arbitrability of shareholder disputes by the German judiciary, and will be briefly described.

 

On the back of this case law, foreign investors that purchase shares in a German company can be confident that possible disputes among shareholders in the target company can be comprehensively submitted to arbitration. This requires, however, that the arbitration agreement satisfies the criteria developed by the BGH. These drafting practicalities will therefore be addressed at the end.

 

ARBITRABILITY I

 

On 29 March 1996, the BGH handed down its first ruling on the arbitrability of shareholder disputes (“Arbitrability I”).1) German Federal Supreme Court, decision, case no. II ZR 124/95 dated 29 March 1996. jQuery("#footnote_plugin_tooltip_2424_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2424_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The BGH essentially denied that these disputes were amenable to arbitration.

 

In that case, the minority shareholder of a German limited liability company (“GmbH“) sued the company before local courts challenging the validity of a shareholder resolution. The company objected to the court’s jurisdiction on the ground that the articles of association of the company contained an arbitration clause which explicitly encompassed shareholder resolutions. The minority shareholder persuaded the local court that it had jurisdiction over the dispute. On appeal, the company prevailed with its assertion that state courts did not have jurisdiction over a shareholder claim in view of the arbitration clause. The BGH vacated the appellate court’s decisions finding that shareholder disputes were not arbitrable under German law.

 

The BGH’s Arbitrability I decision premised mainly on the fact that an award would necessarily be binding on all shareholders, irrespective of whether they participated in the arbitration or not. In ordinary court proceedings, this erga omnes effect is achieved through Sec. 248 German Stock Corporation Act (AktG). The BGH declined to apply this provision to arbitrations because it regarded it to be inconsistent with the arbitration law in force at that time according to which awards were only binding inter partes. In the BGH’s view, the parties could not extend the reach of awards by agreement for three reasons:

  1. There was risk that disputes concerning the validity of a shareholder resolution are not concentrated in one forum creating the risk of conflicting decisions;
  2. In order to have an erga omnes effect, the decision needed to be completely objective and impartial, and to originate from a strictly formalized and transparent proceeding. The BGH hereby implicitly questioned to what extent arbitration satisfied these standards;
  3. A shareholder who had not participated in the arbitration, but is bound by the decision because of its erga omnes effect, could be deprived of its right to appoint an arbitrator or influence the constitution of the tribunal.

 

The BGH stressed that it had no lawmaking powers and that, to the extent that arbitration in relation to the validity of shareholder resolutions was deemed to be desirable, the legislator had to provide a legal framework.

 

ARBITRABILITY II

 

In 1998, Germany amended its arbitration law, albeit without introducing a mechanism for disputes in relation to the validity of shareholder resolutions. Nevertheless, on 6 April 2009 the BGH reversed Arbitrability I through another ruling on the matter (“Arbitrability II“).2) German Federal Supreme Court, decision, case no. II ZR 255/08 dated 6 April 2009. jQuery("#footnote_plugin_tooltip_2424_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2424_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

As in Arbitrability I, the case concerned a dispute between a shareholder of a GmbH and the company. The majority of the shareholders passed a resolution according to which the claimant’s shares were to be redeemed. The companies’ articles of association contained an arbitration agreement that encompassed also disputes regarding the validity of shareholder resolutions. Moreover, the arbitration agreement spelled out that disputes should be tried by a three member tribunal. Further, the arbitration agreement set out that a party consisting of more than one individual or entity would be regarded as one single party and its decisions would be taken by majority vote.

 

The court of first instance declined jurisdiction in virtue of the arbitration agreement. On appeal, this decision was reversed because the arbitration agreement in question did not ensure that all claims concerning a specific shareholder resolution are concentrated in one forum and that all shareholders could participate in the constitution of the tribunal. Interestingly, the appellate court did not call into question the arbitrability of shareholder resolutions as such.

 

The BGH concurred with the appellate court that disputes concerning the validity of shareholder resolutions are, in principle, amenable to arbitration. Unlike in Arbitrability I, the BGH found that parties are free to agree on an erga omnes effect and that a specific legislative framework is unnecessary. This requires, however, that the arbitration lives up to the standard that the legislator had set out in Sec. 248 AktG for court decisions with erga omnes effect. Put differently, arbitral proceedings must to be functionally equivalent to court proceedings on the validity of shareholder resolutions. While the arbitration agreement in question did not satisfy this standard, the BGH articulated the criteria that need to be fulfilled:

 

  1. all shareholders consented to arbitration either through an arbitration clause in the articles of association or by separate agreement;
  2. all stakeholders, i.e., all shareholders, managing directors, and members of the supervisory board, if any, must be notified of the institution of the arbitration and be constantly updated about the arbitration and be granted a fair opportunity to actively participate in the proceedings;
  3. all stakeholder must have an equal opportunity to participate in the constitution of the tribunal;
  4. all disputes regarding a specific shareholder resolution must be concentrated in one single arbitration to exclude conflicting decisions.

 

Finally, the BGH cautioned that an arbitration agreement that does not satisfy the above criteria is null and void.

 

Arbitrability III

 

On 6 April 2017, the BGH pronounced its most recent ruling on this matter (“Arbitrability III“).3) German Federal Supreme Court, resolution, case no. I ZB 23/16 dated 6 April 2017. jQuery("#footnote_plugin_tooltip_2424_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2424_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In Arbitrability III, the BGH did not alter the position under German law in substance, but extended the reach of its jurisprudence.

 

The facts underlying Arbitrability III are very similar to both previous cases. The major difference is that this decision related to a limited partnership under German law (KG).

 

Both parties were shareholders of the KG. The claimant was a legal entity, namely a GmbH, whereas the respondent was a natural person. The claimants passed a resolution according to which the respondent was expelled as a shareholder. The 1968 articles of association of the KG contained an arbitration agreement. Moreover, in 1968 the shareholders had entered into a side agreement which also contained an arbitration agreement. In 2013, the shareholder replaced the 1968 articles of association, but the side agreement was left in place. Based on the arbitration clause in the 1968 side agreement, the respondent instituted arbitral proceedings challenging the validity of the shareholder resolution. While the claimant challenged the tribunal’s jurisdiction, an interim award was handed down which confirmed the tribunal’s jurisdiction. The claimant unsuccessfully sought to quash the interim award before local courts. This decision was vacated by the BGH.

 

The BGH held that Arbitrability II applied, in principle, also in relation to a KG. The ruling stressed the importance of granting all affected parties equal opportunities to influence the constitution of the tribunal, as well as a fair chance to participate in the proceedings from the beginning. The BGH advised, moreover, that these criteria may need to be adjusted if this is warranted by the different legal nature of the KG, but without providing any further guidance.

 

Conclusion

 

The above case law shows that the BGH accepts arbitration with regard to the validity of shareholder resolutions. At the same time, the BGH vigorously enforces each shareholder’s right to participate in the arbitration and the constitution of the tribunal.

 

Foreign investors that wish to avoid litigating shareholder disputes in German courts must bear in mind the Arbitrability II jurisprudence. This does not only relate to GmbHs but also KGs, as Arbitrability III shows. In order to minimize the risks of unenforceable arbitration agreements, the German arbitration Institute (“DIS“) has developed a model arbitration clause and Supplementary Rules for Corporate Law Disputes (“DIS-SRCoLD“), which incorporate the Arbitrability II criteria. Due to their complexity in relation to both the arbitration agreement and the subsequent arbitration proceedings, parties should try to agree on the DIS model arbitration clause and the DIS-SRCoLD to avoid unpleasant surprises once a dispute has arisen.4)For an overview on the DIS-SRCoLD in English see Schmidt-Ahrendts/Covi, Arbitrability of Corporate Law Disputes: A German Perspective, International Commercial Arbitration Review, 2014 No. 1, pages 116 et seq., available on Kluwer Arbitration. jQuery("#footnote_plugin_tooltip_2424_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2424_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ German Federal Supreme Court, decision, case no. II ZR 124/95 dated 29 March 1996. 2. ↑ German Federal Supreme Court, decision, case no. II ZR 255/08 dated 6 April 2009. 3. ↑ German Federal Supreme Court, resolution, case no. I ZB 23/16 dated 6 April 2017. 4. ↑ For an overview on the DIS-SRCoLD in English see Schmidt-Ahrendts/Covi, Arbitrability of Corporate Law Disputes: A German Perspective, International Commercial Arbitration Review, 2014 No. 1, pages 116 et seq., available on Kluwer Arbitration. 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: International Arbitration and the Rule of Law
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Reconciling the Conciliators: The BANI Split in Indonesia

Tue, 2018-02-06 04:00

Togi Pangaribuan

Increased investment in South East Asia has led to a growth in the supply and demand for dispute resolution services in the region. Indonesia is no exception, with disputes increasingly submitted to the Badan Arbitrase Nasional Indonesia (“BANI”) – the country’s most popular and well recognised arbitration centre.

Recently however, BANI has seemingly split into two entities; the original entity created in 1977 (“BANI Mampang”) and a new entity formed in 2016 that calls itself BANI Pembaharuan (“BANI Sovereign”). These two centres have been battling it out across the Indonesian court system to determine which entity has the legitimacy to call itself “BANI”. Meanwhile, parties have been left not knowing which institution should be administering their disputes. This brings further uncertainty to a jurisdiction which should be embracing arbitration as an essential tool to support the rule of law.

The Arbitral Mitosis

BANI was established in 1977 as an independent body to promote the use of out of court dispute resolution. Its foundation was initiated by the Indonesian Chamber of Commerce and Industry and driven by three renowned Indonesian legal experts: Professor Raden Soebekti, Mr. Haryono Tjitrosoebono, and Professor Priyatna Abdurassyid.

In late 2016, former BANI arbitrator Anita Kolopaking established BANI Sovereign as a successor organisation to BANI, supported by high-profile names in the Indonesian arbitration circle. BANI Mampang immediately denounced BANI Sovereign as illegitimate, claiming that it had conducted an unlawful act by establishing an organization with the same name as BANI Mampang. BANI Sovereign however argued that BANI was set up as a civil partnership as defined under Article 1618 of the Indonesian Civil Code and therefore the founding partners have the right to bequeath the organization to their heirs. BANI Sovereign further argued that as it is supported by the heirs of 2 of BANI’s 3 founders, BANI Sovereign was in fact the rightful heir to BANI and that BANI Mampang’s current officers and management are illegitimate.

BANI Sovereign subsequently obtained legal entity status through a decision of the Ministry of Law and Human Rights (“MOLHR Decision”) and set up offices in South Jakarta – not far away from BANI Mampang’s offices.

These events put BANI Mampang and BANI Sovereign onto a direct collision course. To date, we understand that BANI Mampang and BANI Sovereign are engaged in three ongoing court proceedings and police proceedings, with neither side backing down.

Round One – the South Jakarta District Court

In September 2016, BANI Sovereign submitted a claim to the South Jakarta District. By August 2017, the District Court had ruled in favor of BANI Sovereign. Among other things, the Court decided that although BANI was founded as a non-profit organisation, it had become a for-profit organisation and could therefore be regarded as a civil partnership. As a result, the organisation could and indeed had (indirectly) been bequeathed to the heirs of the founders. The Court also declared that BANI Sovereign’s officers were the rightful officers of BANI and that the current BANI Mampang officers were illegitimate. BANI Mampang’s officers were therefore ordered to hand-over management of BANI to BANI Sovereign. BANI Mampang has appealed this decision and it is currently under review by the Jakarta High Court.

Round Two – the State Administrative Court

In December 2016, BANI Mampang submitted a claim to the State Administrative Court, arguing that the MOLHR Decision that approved the establishment of BANI Sovereign should be revoked. In July 2017 the State Administrative Court found in favour of BANI Mampang and revoked the MOLHR Decision. The official copy of the decision is not yet publicly available, but media statements indicate that BANI Mampang argued that it is the original, internationally known BANI institution, and that BANI Sovereign’s use of the name “BANI” infringes on BANI Mampang’s rights. BANI Sovereign has appealed this decision and through a decision dated 21 November 2017 it won the appeal. The State Administrative High Court considers the nature of the dispute to not be an administrative law dispute but a civil law dispute, therefore the State Administrative High Court does not have jurisdiction over the issue and the State Administrative Court’s decision therefore must be revoked.

Round Threethe Jakarta Commercial Court

In July 2017, BANI Sovereign submitted a claim to the Jakarta Commercial Court, arguing that BANI Mampang’s trademark registration of the brand “BANI” should be revoked. In September 2017, the Jakarta Commercial Court found in favour of BANI Mampang and declared BANI Mampang as the rightful owner of the trademark over the brand “BANI”. On 10 November 2017, BANI Mampang issued a statement saying that this decision has become final and binding, because no appeal was filed by BANI Sovereign, therefore making BANI Mampang the only rightful party to use the name “BANI” and “Badan Arbitrase Nasional Indonesia”.

Round FourPolice Report

Publicly available sources also suggest that a police report was filed by BANI  Mampang against BANI Sovereign for misuse of the BANI trademark. Under Indonesia’s Law No. 20 of 2016 on Trademark and Geographical Indications, using a registered trademark belonging to another is punishable by imprisonment of up to 5 years and/or a fine of up to IDR 2 billion (approximately USD 147,000). However, as of the date of this article, there do not seem to have been any developments on this report and no suspect has been named.

The Way Forward

Although not identical, BANI’s current situation shares similarities with CIETAC’s situation following the 2012 split of its Shanghai and Shenzhen sub-commissions to form the Shanghai International Economic and Trade Arbitration Commission (“SHIAC”) and South China International Economic and Arbitration Commission (“SCIA”). Following the sub-commissions’ departures, the Chinese courts issued conflicting “pro-CIETAC” and “pro-sub commission” decisions, which made it difficult for parties with CIETAC arbitration clauses to know whether their arbitration was being dealt with by the correct institution. Clarity only returned in 2015 when the Supreme People’s Court specified which institutions could administer which cases. The Supreme People’s Court issued a Reply, a judicial interpretation that took effect on 17 July 2015. In the Reply, The Supreme People’s Court established the “Golden Rule”, which set out that for a party considering commencing arbitration proceedings in connection with an arbitration agreement affected by the split, the key date for consideration is when the relevant sub-commission changed its name. Further analysis on this issue is provided by Matthew Townsend in his August 2015 post in the Kluwer Arbitration Blog.

Parties caught in the current crossfire between BANI Mampang and BANI Sovereign face similar problems depending on the nature of the arbitration agreements.

For parties whose arbitration agreements are still being negotiated, there is the (slight) benefit of knowing about the existence of this ongoing dispute. If those parties are obliged to opt for a local arbitration institution, one option is to keep the reference specific by referring to the exact BANI institution that the parties intend to engage. For example, the parties could do this by stating the address of the BANI institution. The risk of this approach is that a future court could find that either BANI Mampang or BANI Sovereign has no legitimacy, leaving parties, which have specified the illegitimate arbitration centre with problems.

However, if parties cannot agree on a specific BANI institution and prefer to safeguard their arbitration agreement from future courts declaring one of the BANIs to be illegitimate, another option would be to keep the reference vague by simply referring to “BANI” arbitration, and then going to either BANI Mampang or BANI Sovereign when the dispute arises. The risk of this approach is that when the dispute arises, the parties could continue to disagree on which BANI should administer the dispute. The parties could separately decide to proceed before their preferred BANI, leading to concurrent proceedings and potentially contradictory awards.

For parties already subject to “BANI” arbitration clauses drafted before the establishment of BANI Sovereign, there are also no easy answers.  Arguably as a matter of Indonesian contract law, the parties can only be said to have considered arbitrating before BANI Mampang, given that BANI Sovereign did not exist at the time of their contract. However, this argument requires one to temporarily put aside BANI Sovereign’s argument that it is the successor of BANI, and therefore the entity that should inherit all arbitration agreements that simply provide for “BANI” arbitrations. Again, there are no easy answers.

In any case, given the increasing investment in South East Asia through China’s One Belt One Road Initiative and the increase of cases being examined by BANI Mampang, alternative dispute resolution methods, especially arbitration should thrive in Indonesia. Clarifying this matter should therefore be a priority for the Indonesian government and relevant stakeholders. Even though there are rumours that the Indonesian Chamber of Commerce and Industryis trying to settle the fight between BANI Mampang and BANI Sovereign, the fight is nowhere close to the final bell.

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Japanese Supreme Court’s First Decision On Arbitrator’s Non-disclosure

Mon, 2018-02-05 06:00

Yoko Maeda and Jeremy M. Bloomenthal

On December 12, 2017, the Supreme Court of Japan rendered its first decision on the setting aside of an arbitral award based on an arbitrator’s failure to disclose facts allegedly constituting a conflict of interest, reasoning that, in order for the award to be set aside on this ground, it is necessary that the arbitrator was aware of such facts or that such facts could ordinarily have been ascertained if the arbitrator had conducted reasonable research (heisei 28 (kyo) no. 43. Available at here). This post discusses the court’s decision from a practical, theoretical, and comparative perspective.

Factual Background

The underlying arbitration was filed in June 2011 under the Japan Commercial Arbitration Association’s Commercial Arbitration Rules (“JCAA Rules”) and was seated in Osaka, Japan.  Claimants in the arbitration were Japanese and Singaporean companies that manufactured and sold air conditioners and the two Respondents were Texas companies that sold air conditioners.

The chairman of the three-member tribunal (the “Chair”) was a partner in the Singapore office of an international law firm (the “Firm”).  In his Declaration of Impartiality and Independence submitted in September 2011, the Chair declared that he was not aware of any circumstances likely to give rise to justifiable doubts as to his impartiality and independence, but noted that a lawyer of the Firm could in the future advise or represent a party to the arbitration or related companies thereof on a matter unrelated to the arbitration.

In February 2013, another lawyer joined the San Francisco office of the Firm.  That lawyer was representing a sister company (the “Affiliate”, under 100% common ownership by the parent) of one of the Claimants in a class action before the U.S. District Court for the District of California and continued to do so during the arbitration (the “Facts”).  The Chair did not disclose the Facts during the arbitration proceeding.

Set-aside Proceedings

After the tribunal rendered an award in August 2014 in favor of Claimants, the Respondents applied to the Osaka District Court (the “ODC”) to have the award set aside under Article 44 of the Japanese Arbitration Act of 2003, on the basis that the composition of the arbitral tribunal or the arbitration procedure was not in accordance with Japanese laws and regulations (Art. 44, para. 1, item (vi)), and the content of the award was contrary to Japanese public policy (Art. 44, para. 1, item (viii)).

Respondents argued, inter alia, that the Chair had breached his obligation, under Article 18 para. 4 of the Arbitration Act, to “disclose … all facts that would be likely to give rise to doubts as to his/her impartiality or independence.

Dismissing the set-aside application, the ODC held that although the Facts might generally qualify as circumstances likely to give rise to justifiable doubts as to the arbitrator’s impartiality and independence, the Facts did not reach this level under the particular circumstances of the case.

On appeal, the Osaka High Court (the “OHC”) set aside the award.  The OHC held that an arbitrator’s obligations include the duty to conduct research to uncover any potential sources of conflicts that the arbitrator can find without substantial effort, and that the Facts could have been ascertained without exceptional difficulty through a conflict-check procedure within the Firm.

Reversing the OHC’s decision, the Supreme Court held that, in order to find a breach of an arbitrator’s duty to disclose facts that would likely give rise to doubts as to his/her impartiality or independence, it is necessary that the arbitrator either was aware of such facts or could have discovered such facts by making a reasonable search before the completion of the arbitration proceeding.

The Supreme Court found it unclear from the record whether the Chair had been aware of the Facts.  It further found that it was unclear whether the Chair could have discovered the Facts by making a reasonable search before the completion of the arbitration proceeding, as it was unclear whether the Firm was aware of such facts, and unclear what methods the Firm used to check for conflicts.

The Supreme Court then concluded that the OHC’s decision was erroneous because it had concluded that the Chair was in breach of his disclosure obligation without determining the relevant issues above.

Comments

The OHC and the Supreme Court accepted the same general premise that an arbitrator is obliged to disclose facts like those at issue in this case.

From a practical standpoint, however, the OHC’s decision has been criticized by practitioners as ignoring the real world of international law practice.  Specifically, the conflict check described by the OHC is considered too burdensome because it would apparently require the arbitrators and the parties to continuously monitor all relationships between the arbitrator’s law firm and the parties’ affiliates, regardless of the affiliate’s degree of closeness to the party.

The Supreme Court’s decision, to its credit, takes into account the complex reality of practice in an international law firm setting, requiring that courts, first, determine how the arbitrator’s firm actually conducted conflict checks and whether the facts were, in some sense, known to the firm and, second, determine whether the arbitrator could have found the facts through reasonable research.

From a theoretical standpoint, the Japanese courts have not yet discussed the profound and frequently arising question of whether an arbitrator’s apparent unawareness of his or her law firm’s representation of an affiliate of a party, might preclude a finding of a lack of independence and impartiality that would warrant setting aside.  Recent decisions in Switzerland and England offer an interesting comparison.

In a decision dated September 7, 2016 (4A_386/2015) (English translation here), the Swiss Federal Supreme Court analyzed a case involving an arbitrator at a Swiss law firm who failed to disclose that lawyers at a German law firm (operating in an alliance with the Swiss law firm) represented a sister company of one of the parties in the arbitration.  The Court noted that there was no evidence that the arbitrator was aware of the representation, and thus “he would have had no reason to show favor in the arbitration to the party affiliated to the [sister company].”  Ultimately, the Court found there was no ground for setting aside because the arbitrator’s purported “law firm” was actually just a network of independent law firms that did not share fees.  Thus, referencing the IBA Guidelines, only Article 4.2.1 (Green List) could legitimately be invoked, which was not a ground to challenge the arbitrator or the award.

Similarly, in a decision dated March 2, 2016 (W Limited v. M SDN BHD, [2016] EWHC 422 (Comm), available here), the English High Court declined to set aside an award under similar circumstances.  In that case, after a sole arbitrator had submitted a statement of independence and accepted his appointment, an existing client of the arbitrator’s law firm became a sister company of a party in the arbitration, as the client was acquired by the party’s parent company.  Although the arbitrator had conducted a conflict check and made disclosures twice – first in his initial statement of independence and again later during the arbitration, the second conflict check failed to identify the fact that the firm’s client had become affiliated with one of the parties.  The arbitrator rendered awards in the arbitration, which were later challenged.  While the court stated that the facts fell under Article 1.4 (Non-Waivable Red List) of the IBA Guidelines, it held that, since the arbitrator lacked knowledge of the fact, had made repeated disclosures, and would have disclosed the fact had he been aware of it, there was no doubt as to the arbitrator’s independence and impartiality.  The court found that “the arbitrator could not have been biased by reason of the firm’s work for the client.  That work was not in his mind at all; had it been he would have disclosed it.”

In the case at hand, currently on remand to the OHC, it will be interesting to see whether the OHC takes into account the Chair’s apparent lack of awareness concerning the Facts, which both the Swiss and English court decisions above considered to be a relevant factor.

Furthermore, neither the Supreme Court nor the OHC discussed when or how the Respondents first became aware of the Facts; nor did they take positions on whether or how such timing might affect the conclusion, both of which can be critical issues.  Similarly, the Supreme Court and the OHC did not discuss the significance of the amount of fees that the Firm received from the Affiliate, the relationship between the Claimant and the Affiliate, and the relationship between the Chair and the Firm, all of which could affect the court’s conclusion if the IBA Guidelines on Conflicts of Interest in International Arbitration were to apply.

Therefore, it also deserves continued attention whether the OHC or other Japanese courts will take these factors into consideration to see how close the Japanese courts’ position is to those of national courts in other countries.

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The Intra EU-BITs in the Opinion of AG Wathelet between Light and Shadow

Sun, 2018-02-04 01:12

Anna de Luca

 

The present analysis critically focuses on some aspects of the Opinion on the intra-EU BITs issued by AG Wathelet in the Achmea case (Case C-284/16) in September 2017. The Opinion has been extensively commented on in previously published posts on this blog. As such posts have noted, the AG’s position that intra-EU BITs are compatible with EU law certainly represents the most remarkable aspect of the Opinion for the arbitration community. This position, extensively analysed by the preceding posts and not further discussed here, clashes with the long-standing claim of the EU Commission on intra EU-BITs’ incompatibility with EU law, submitted to investment tribunals in its several amici curiae briefs as of 2006. The EU Commission’s claim, being weak from a public international law perspective, has been rather unsuccessful before investment tribunals until now.

 

The AG’s view, endorsing some of the supportive arguments on intra-EU compatibility already made by intra-EU BIT-based tribunals,1)Among these arguments are those that i) intra-EU BITs and EU law do not regulate the same subject-matter (Opinion, para. 173 ff.); ii) EU law does not grant to investors and their investments the same level of protection granted to them by BITs, or even a comparable level of protection (Opinion, para. 199 ff.); and iii) BITs standards and EU law are complementary rather than incompatible (Opinion, para. 210). jQuery("#footnote_plugin_tooltip_6381_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6381_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); represents a positive note, coming from European circles, which sharply contrasts with the ‘incompatibility narrative’ dominant so far.

 

That notwithstanding the Opinion also presents perplexing aspects, possibly affecting its overall coherence. These aspects, which will be specifically investigated in the present post, are the AG’s qualification of investment tribunals as MSs’ courts pursuant to Article 267 TFEU and his ‘no-discrimination’ conclusion.

 

 

Are investment arbitral tribunals under intra-EU BITs court or tribunals within the meaning of Article 267 TFEU?

 

According to the AG intra-EU BIT-based tribunal would be courts or tribunals common to two MSs, thus permitted to request the Court to give a preliminary ruling. Investment tribunals would therefore meet the requirements established by the Court of Justice in its case-law to determine whether a certain Member State’s ‘body making a reference is a “court or tribunal” within the meaning of Article 267 TFEU’, namely, they a) are established by law; b) have a permanent nature; and c) their jurisdiction is compulsory. (See, inter alia, Case C-377/13, Ascendi Beiras Litoral e Alta, para. 23)

 

To use the words of the AG, ‘it cannot be disputed that an arbitral tribunal constituted…in accordance with Article 8 of the BIT is established by law’ (Opinion, para. 96). This would be the case because said arbitral tribunal ‘…derives its jurisdiction not only from an international treaty but also from the Netherlands and Czechoslovakian statutes ratifying the BIT by virtue of which the BIT became part of the legal orders of those Member States.’ (Opinion, para. 96) Given that investment tribunals’ jurisdiction would be established by law, and Contracting Parties’ public authorities are obviously involved in the choice of arbitration (Opinion, para. 96), investment arbitral tribunals would also be permanent (Opinion, para. 103 ff.) and their jurisdiction compulsory (Opinion, para. 110 ff.).

 

In the first place, the AG’ position contradicts the well-established consensual nature of BIT-based arbitration, as is also acknowledged in a contradictory manner in the Opinion at para. 204.

 

In the second place, the ‘establishment by law’ argument is misleading. It confuses the conclusion of a treaty and its binding effects upon the Contracting Parties at the international level with treaty domestic implementation. ‘Ratification’, i.e., ‘the international act…whereby a State establishes on the international plane its consent to be bound by a treaty’2)Article 2 Vienna Convention on the law of treaties (VCLT). jQuery("#footnote_plugin_tooltip_6381_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6381_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); should be distinguished from a domestic implementing act. The latter is an internal statute or order incorporating the treaty into the domestic legal system, and turning it into domestic law applicable before domestic judges. Consequently, on the one hand, even unincorporated treaties, when duly agreed upon by a certain Contracting State (through ratification), binds it internationally; on the other, an implementing statute has a specific ‘domestic’ significance, which is inconsistently denied by the AG in respect of BITs (Opinion, para. 265), but is of little ‘international’ import, expect for State responsibility purposes.

 

In the third place, the public authorities’ involvement argument is an element less decisive than the AG seems to believe. Public authorities’ involvement is not a peculiarity of investment arbitration. Such involvement is present and often required by law when parastatal entities consent to international commercial arbitration as means of resolution of contractual disputes with private counterparties.

 

Finally, to further support his view, the AG relies on two cases in which the Court of Justice gave two Portuguese arbitral tribunals the status of courts of that Member State, and uses the Benelux Court and European Patent Court as points of comparison. The afore-mentioned reliance and comparison are both misplaced.

 

In the case Ascendi Beiras Litoral e Alta (Case C-377/13) the Court qualifies the Portuguese ‘Tribunal Arbitral Tributario’ as a tribunal of that Member State, given that its general jurisdiction on taxation and customs matters stems directly from provisions of law. To quote the Court itself its jurisdiction ‘…is not, as a result, subject to the prior expression of the parties’ will to submit their dispute to arbitration.’ (para. 29) Additionally, the “Tribunal Arbitral Tributario” is included in the list of national courts in Article 209 of the Portuguese Constitution and, as a whole, is permanent in nature being it institutionalized and a stable element of Portugal’s legal system. Arbitrators are appointed by the Etichs Board of the Centre for Administrative Arbitration, and selected from a panel formed in advance by the Centre itself; its decisions are qualified by law as judgments, and the applicable (substantive and procedural) law is Portuguese law. Similarly, in the second case, Merck Canada v. Accord Healthcare Ltd and others (Case C-555/13), the CJEU attributes the very same status to another Portuguese arbitral tribunal tellingly called ‘Tribunal Arbitral necessário’ vested by law with a general and compulsory jurisdiction on disputes concerning industrial property rights related to medicines (para. 19 ff.). Such Tribunal’s decisions may be subject to appeal before the competent Court of Appeal. Like the ‘Tribunal Arbitral Tributario’, the ‘Tribunal Arbitral necessário’ is mentioned in the list of national courts of Article 209 the Portuguese Constitution, and Portuguese law governs both the procedure and merits.

 

Since the two Portuguese arbitral tribunals are clearly domestic administrative law arbitrations, the AG’s analogies between the latters and international investment arbitration are more than perplexing. Similarly, his comparison between investment arbitral tribunals and the Benelux Court, the main judicial body of the Benelux Union, is inapposite. (Opinion, paras. 128-130) The Benelux Court is a creature quite different from arbitral tribunals since it is made up of judges belonging to the Supreme Courts of the three States Parties. Moreover, it has jurisdiction to give preliminary rulings on the interpretation of Benelux law upon referral of the domestic judges thereof, as opposed to the arbitral jurisdiction to decide actual cases on the basis of public international law.

 

Finally, even admitting AG’s qualification of investment tribunals as courts under Art. 267 TFEU such tribunals still remain based on international treaties, which neither provide for the preliminary reference procedure nor explicitly establish that the preliminary rulings of the CJEU are binding on the referring tribunal, as apposed to what is explicitly provided for in the Agreement on a Unified Patent Court (Article 21). Even in case of a referral by an investment tribunal the CJEU would not be in the position to accept its request for preliminary rulings. Pursuant to its consistent case law in case of referral by an international tribunal established by a non-European treaty, same treaty shall explicitly provide that its preliminary rulings are binding thereon (see, inter alia, Opinion 1/91, point 61, opinion 1/92, points 32-33; and 1/00, points 33).

 

Are intra-EU BITs really not discriminatory against the investors of third MSs?

 

It is the firm view of the AG that the TFEU does not contain a most favoured nation (MFN) clause. As a consequence, there is no discrimination where a Member State does not afford the nationals of another Member State the treatment which it affords, by convention, to the nationals of a third Member State. The Court’s case-law on Article 18 TFEU would confirm the above (Opinion, para. 72). Since the fact that the reciprocal rights and obligations created by the BIT apply only to investors from one of the two Contracting Member States is a consequence inherent in its bilateral nature, ‘a non-Netherlands investor is not in the same situation as a Netherlands investor so far as an investment made in Slovakia is concerned.’  (Opinion, para. 75)

 

Nevertheless, pursuant to the CJEU’s case-law discrimination problems might arise in respect of those intra-EU agreements granting reciprocal benefits only to the nationals of the Contracting Parties, excluding nationals of other MBs. Intra-EU bilateral treaties, albeit not per se discriminatory, may have a discriminatory effect from an European perspective. In this respect it is sufficient to mention the Matteucci case (Case 235/87), where the CJEU states that the application of EU law (and of the principle of equal treatment) cannot be precluded on the ground that it would affect the implementation of an agreement (in the case a cultural cooperation agreement outside the scope of application of EU law) between two MSs. As a result, when intra EU bilateral treaties have a discriminatory effect grounded on nationality, the concerned MSs might be obliged to remove it.

 

Final remarks

 

The AG’s opinion on intra-EU BITs compatibility, albeit not original, is a welcome dissenting voice. However, the other aspects here commented are so unconvincing from a strictly legal point of view as to risk weakening the ‘compatibility’ conclusions. Besides disregarding the consensual nature of investment arbitration and its public international law nature, the Article 267 TFEU based arguments are also not well founded in EU law, and partially contradictory with the compatibility arguments. Similarly, the conclusion that intra-EU BITs are not discriminatory is not undisputed, if one looks at the CJEU’s case-law. For the afore-mentioned reasons the AG conclusions can hardly represent the last word on the matters. Moreover, as the post by Buczkowska and others aptly observe, the AG’s opinion rests on policy arguments rather than on strictly legal arguments, and advances an intermediate policy approach towards intra-EU investment treaty arbitration (the recognition of its consistency with EU law against its subordination to EU law and the CJEU’s jurisdiction). By adopting a prospective approach, thus entering into the on-going policy discussion on the future of intra-EU BITs, the Opinion appears, however, to be of less help to the CJEU from a judicial perspective than one may expect.

References   [ + ]

1. ↑ Among these arguments are those that i) intra-EU BITs and EU law do not regulate the same subject-matter (Opinion, para. 173 ff.); ii) EU law does not grant to investors and their investments the same level of protection granted to them by BITs, or even a comparable level of protection (Opinion, para. 199 ff.); and iii) BITs standards and EU law are complementary rather than incompatible (Opinion, para. 210). 2. ↑ Article 2 Vienna Convention on the law of treaties (VCLT). 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: International Arbitration and the Rule of Law
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Empirical Research on Legal Reasoning in Commercial Disputes – Then and Now

Sat, 2018-02-03 01:40

S.I. Strong

Critics of international arbitration often express concerns about the quality of legal reasoning in arbitration, even though conventional wisdom within the international community suggests that international arbitral awards reflect relatively robust reasoning that is often on a par with that of decisions rendered by commercial courts.  Why the discrepancy?

 

I have written elsewhere about how unconscious biases may work against the perception of international arbitration (see “Truth in a Post-Truth Society: How Sticky Defaults, Status Quo Bias and the Sovereign Prerogative Influence the Perceived Legitimacy of International Arbitration”, 2018 University of Illinois Law Review), but other factors may be at play in this case.  In particular, the problem may simply be that very few empirical studies exist regarding legal reasoning in arbitration.

 

The situation may have been very different if Soia Mentschikoff, the first woman to teach at Harvard Law School (1947) and a former dean of the University of Miami School of Law (1974-82), had been able to complete her ground-breaking empirical work in the area of commercial arbitration.  During the 1950s and 1960s, Mentschikoff conducted empirical studies using hypothetical disputes resolved by arbitrators from a variety of backgrounds.  The goal was to determine whether and to what extent legal reasoning differed according to the arbitrator’s professional experience.   Although Mentschikoff never wrote up her final conclusions, a number of preliminary observations are reflected in “Commercial Arbitration” (1961) 61 Columbia Law Review 846 and “The Significance of Arbitration – A Preliminary Inquiry” (1952) 17 of Law and Contemporary Problems 698.

 

The University of Chicago has kept Mentschikoff’s working papers and it is possible that an aspiring young researcher could eventually complete Mentschikoff’s work.  However, contemporary scholars are currently developing a number of new studies that appear quite promising.

 

One major project involves a large-scale, international study conducted by the University of Missouri’s Center for the Study of Dispute Resolution.  The research seeks to improve our understanding of how judges and arbitrators resolve complex commercial disputes in both national and international settings by exploring potential differences between (1) judicial and arbitral decision-making; (2) national and international decision-making; and (3) common law and civil law decision-making.  The study will not only help parties make more informed choices about where and how to resolve their legal disputes, it will also assist judges and arbitrators in carrying out their duties by improving counsel’s understanding about how to best to craft and present legal arguments and submissions.  The study also helps providers of judicial and arbitral education offer educational programming that better meets the needs of judges and arbitrators.

 

The study includes several different elements, including a series of semi-structured interviews of domestic and international judges and arbitrators; a detailed survey of domestic and international judges and arbitrators; and a coded (qualitative) analysis of judicial decisions and arbitral awards involving domestic and international commercial disputes.  All of the various components focus on legal reasoning, including factual reasoning as it affects legal reasoning, and thereby provide key insights into previously unstudied issues.  The research is funded in part by a grant from the AAA-ICDR Foundation, although neither the Foundation, the AAA nor the ICDR plays any role in the gathering or analysis of the data so as to ensure the objectivity and independence of the study.

 

The research is currently ongoing, and those with experience serving as judges or arbitrators in national or international commercial disputes are invited to complete an anonymous electronic survey that can be found here: < https://www.surveymonkey.com/r/commercial-dispute-strong >.  The survey should take approximately twenty minutes to complete, and participation is entirely anonymous.  The survey will remain open until 11:59 p.m. Central Daylight Time (CDT) on May 1, 2018.  Only those with experience serving as judges or arbitrators in national or international commercial disputes are eligible to participate, although there are no restrictions relating to nationality or the level of seniority.

 

As the preceding suggests, empirical research in international arbitration has a bright future, and it will be interesting to see where the field moves next.  Although Soia Mentschikoff is no longer with us, she would doubtless be pleased with current developments relating to legal reasoning in commercial arbitration.

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Is Arbitration Portfolio Financing Going to Grow In 2018?

Fri, 2018-02-02 08:54

Tobey Butcher

The progress in the development, acceptance and understanding of third-party financing of dispute resolution costs by lawyers and clients, will undoubtedly continue in 2018. The model of third-party based financing of arbitration costs will be no exception, it being generally accepted that it is here to stay and that it provides a solution, in particular, to the high cost of arbitration proceedings.

In 2017, Singapore established a framework for third party financing of international arbitrations by yet to be prescribed qualifying third-party funders1)Civil Law (Amendment) Act (Bill No. 38/2016), see https://sso.agc.gov.sg/Bills-Supp/38-2016/Published/20161107?DocDate=20161107&ProvIds= jQuery("#footnote_plugin_tooltip_3568_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3568_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });; also, Hong Kong passed legislation making it clear that third party financing of arbitrations is permitted under Hong Kong law2)Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Bill 2016 dated 14 June 2017, see https://www.legco.gov.hk/yr16-17/english/bills/b201612301.pdf jQuery("#footnote_plugin_tooltip_3568_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3568_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. In April 2018, the final report by a Task Force made up by the International Council for Commercial Arbitration and the Queen Mary University of London about third-party funding in international arbitration is due to be published 3) For the draft report see Krestin/Mulder: Third-Party Funding In International Arbitration: To Regulate Or Not To Regulate? http://arbitrationblog.kluwerarbitration.com/2017/12/12/third-party-funding-international-arbitration-regulate-not-regulate/ jQuery("#footnote_plugin_tooltip_3568_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3568_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. The report provides detailed background focusing on the issues dispute cost financing raises in international arbitration and how those issues might be addressed.  Initiatives like this will serve to ensure that the quality and professionalism of those providing third-party finance for dispute resolution costs is kept in focus and further integrate the concept into mainstream arbitral processes.

In addition to the acceptance and understanding of third-party financing by the wider arbitral community that the above developments demonstrate, the third-party finance community itself will continue to provide innovative solutions. Particularly with regard to the adoption of portfolio financing which will further expand in 2018.

Under the portfolio model, finance is provided across multiple arbitrations. If the first award under the arbitrations included in the portfolio does not provide a complete, or any, return to the finance provider, the balance due in relation to that arbitration is included in the return to be paid upon the next successful outcome of an arbitration which it has been agreed between the client and the third-party finance provider should be included in the portfolio. Through this approach, the arbitration finance provider’s return is cross collateralised and relying upon the overall performance of the portfolio, rather than a single arbitration.

A significant advantage of the portfolio model from the client’s perspective is the ability to include a range of cases in the portfolio that would not otherwise qualify for a case by case financing. The finance provider is certainly seeking to include claims likely to provide the agreed return for the portfolio. However, the client may be able to include claims anticipated to achieve outcomes, whether by settlement or award, which on their own would not be sufficient to secure financing on a single case basis. In addition, the client might be able to include in the portfolio arbitrations where it is the respondent and thereby finance defence costs.  So long as across the entire portfolio there is sufficient potential value to generate the required return, the third-party finance provider will be prepared to advance the funds required, enabling the client to pursue, or defend the arbitration and court claims, or even to monetise a potential award or judgment.

Any form of third-party financing of dispute costs benefits clients from an accounting perspective as it removes a present-day cost P&L expense, and a contingent liability for future costs. The legal fee spend is transferred to the finance provider and becomes an off-balance sheet transaction. The portfolio financing model extends the accounting advantages because of the potential ability to include in the portfolio claims that would not otherwise qualify for case by case financing.

Arbitration financing on a case by case basis will continue but will increasingly be supplemented in 2018 by more and more sophisticated arrangements including financing based on a portfolio model. In this way, as the understanding by clients and lawyers of the advantages of third party financing in arbitration develops, the use of it will advance beyond application just as a matter of necessity by entities subject to liquidity or budgetary issues, to use as a tool by corporates as a matter of choice to manage legal budgets.  This will include actively seeking to identify claims that might not otherwise have been pursued, in order to realise the value locked-up in claims which would otherwise be lost with the passage of time.

 

References   [ + ]

1. ↑ Civil Law (Amendment) Act (Bill No. 38/2016), see https://sso.agc.gov.sg/Bills-Supp/38-2016/Published/20161107?DocDate=20161107&ProvIds= 2. ↑ Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Bill 2016 dated 14 June 2017, see https://www.legco.gov.hk/yr16-17/english/bills/b201612301.pdf 3. ↑ For the draft report see Krestin/Mulder: Third-Party Funding In International Arbitration: To Regulate Or Not To Regulate? http://arbitrationblog.kluwerarbitration.com/2017/12/12/third-party-funding-international-arbitration-regulate-not-regulate/ 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: International Arbitration and the Rule of Law
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International Politics vs International Justice: No Room for Investor-State Arbitration?

Thu, 2018-02-01 00:45

Anissa Achaibou

Schoenherr

Critics of the current investor-state arbitration regime may yet have their best days ahead of them. In the midst of tarnished FTA negotiations and in times of political uncertainty, they have captured a global audience. Their message is disconcerting: Investor-State Dispute Settlement (ISDS) is a system designed by and for multinational corporations. It allows faceless conglomerates to bypass national courts and thus strips sovereign nations of their policy-making powers and taxpayers of their money.

From a political perspective, ISDS originally emerged from a bilateral bargaining process of post-colonial developing states with capital-exporting developed states. From a legal perspective, ISDS provided a much needed international legal framework that allowed investors to invest in emerging economies while at the same time affording them protection against local political turmoil. The dispute resolution system of the International Centre for the Settlement of Investment Disputes (ICSID) was created to incentivise investors to specifically venture into new territory and to bolster international development by doing so. As some commentators have rightly noted, the link between investment arbitration and international economic development justified the connection between ICSID and the World Bank. Today, ISDS critics perceive this link as a “dangerous liaison”. It supposedly illustrates how big corporations, backed by the international financial system, manipulate public policy and undermine democracy.

So far, the polemics of the anti-ISDS front are hardly convincing. Take, for example, the oft-repeated complaint that the triggering of a treaty clause by a private party deprives states of their sovereignty. It is not only dishonest; it also shows a blatant ignorance of basic principles of public international law. Bilateral Investment Treaties are legal instruments entered into by sovereign nations. That, in itself, is a sovereign act. The triggering of the dispute settlement clause contained in a Bilateral Investment Treaty guarantees compliance of the sovereign nation with the international obligations it assumed under the treaty. In their diatribe against globalisation, the critics of ISDS likewise tend to forget this. For instance, ISDS has proven to be the only efficient mechanism to protect foreign investments in the oil and gas sector against political risks and “economic nationalism”.

Nor is ISDS a privilege exclusive to multinational corporations. It very much benefits small and medium enterprises (SMEs) as well. More often than not, investor-state arbitration constitutes the only forum in which SMEs may effectively seek justice. In the same vein, for economic, political and legal reasons, the number of nationals of capital-exporting states suing other capital-exporting states is rising sharply (e.g. Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No.  ARB/12/12). And the scales of Justice do not always tip exclusively to the detriment of state respondents. Moreover, cost decisions against claimants are an effective tool that is increasingly applied to penalise frivolous claims (e.g. Philip Morris v. Australia, PCA Case No. 2012-12, Final Awards Regarding Costs, 8 March 2017)

To be fair, ISDS is a still-developing and thus perfectible system at the crossroads of international justice and politics. Ultimately, it provides a peaceful dispute settlement forum and prevents economic disagreements from growing into political and diplomatic conflicts. The latest trends show there is a political will to reform the system, pushing for more institutionalisation (e.g. the process of analysis and reform of ISDS initiated within the framework of Working Group III of UNCITRAL; the European Commission’s project of a Multilateral Investment Court). Yet, spreading falsities will not assist in adapting the system such that it will serve its purpose in today’s political environment.

 

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Paving the Way Forward: the Supreme Court’s Ratification of Grounds for Annulment of Arbitral Awards in Argentina

Tue, 2018-01-30 16:15

Leandro Caputo and Martina Monti

The judicial review of arbitral awards has been a continuous topic of discussion amongst scholars and legislators. Considering the major effects of the seat of the arbitration in annulment proceedings, even when the arbitral award is in principle final and binding, local legislators are faced with the need to balance the aim of assuring the finality of awards with the need for judicial control to guarantee a certain degree of fairness. Verily, excessive judicial review could lead to re-litigation of the case in the domestic forum, which in turn would contravene the very purpose of an arbitration proceeding which seeks finality.

In its most-recent decision, the Argentine Federal Supreme Court (the “Supreme Court”) made its own mark in the debate over judicial control of arbitral awards by crystallizing the development of a long line of case law by ratifying the limited reach of judicial control of annulment proceedings of awards.

In the judgment handed down on 09/05/2017 in the case Ricardo Agustín López [et al.] v. Gemabiotech S.A., the Supreme Court recognized the grounds for annulment contained in sections 760 and 761 of the National Procedural Civil and Commercial Code (the “Procedural Code”). Section 760 states that arbitral awards may be set aside if: (i) there is an essential flaw in the proceedings -which could include the failure to give reasons for the decision, constituting a violation of the due process of law-, (ii) an award is rendered beyond the stipulated term and (iii) an award is rendered on issues not listed to be resolved. On its part, section 761 adds that (iv) an award may be annulled if it contains incompatible and contradictory decisions. In essence, the Procedural Code is the local judges’ primary guidepost in order to decide whether or not to set aside an award.

Ricardo Agustín López [et al.] v. Gemabiotech S.A.: A Brief Overview

The application arose from an arbitration where the plaintiffs requested the payment of the price of shares they had sold to the respondent. The respondent filed a counterclaim, alleging the plaintiffs’ breach of various contractual clauses. Soon thereafter, the plaintiffs sought the suspension of the proceedings -which was later denied by the arbitral tribunal- on the basis of the existence of parallel criminal proceedings instituted by the respondent against the plaintiffs.
An arbitral award was eventually rendered in favor of the respondent, but was later annulled by Chamber F of the National Court of Appeals on Commercial Matters (the “Court of Appeals”), as it considered that the arbitral tribunal should have postponed the issuance of the final award until the decision in the parallel criminal proceedings was resolved.

The annulment decision was elevated to the Supreme Court, whereby the Court of Appeals decision was revoked as the award had been annulled for reasons different than those set forth in the Procedural Code, which contained an exhaustive list of grounds for annulment. In other words, the plaintiff had not alleged that its grievance fell within any of the causes that the law exhaustively enabled for the judicial review of an arbitral award by means of a recourse of annulment. Even more so, the Supreme Court added that the Court of Appeals did not articulate the plaintiff’s grievances upon any of the grounds that would enable the request of nullity, nor therefore, did it examine the extent of its jurisdiction. On the contrary, it entered directly into the treatment of issues relating to the merits of the dispute, according to its own assessment of the claims and defenses wielded by the respondent, as well as the records of the criminal case.

Crystallization of Previous Case Law and Lessons Learnt from the Supreme Court’s Decision

The Supreme Court’s ruling in Ricardo Agustín López [et al.] v. Gemabiotech S.A. strikes a balance between the need for arbitration proceedings to render final decisions and the need for judicial review and supervision. By stating that the judicial review of an arbitral award must be limited to verifying the existence of grounds for annulment expressly stated by the Procedural Code, it not only ratified that the judicial control of awards is limited, but also crystallized the development of Argentine jurisprudence regarding the matter.

In this sense, Argentine precedents have supported a limited judicial review of arbitral awards. For instance, in the July 2013 case Seven Group v. ADT Security Services S.A., Chamber F of the Court of Appeals denied the request for annulment of the award as the plaintiff had essentially presented a full-fledged appeal, not an annulment proceeding. In fact, it stated that: “(…) the judge must limit himself to resolve the existence of expressly indicated grounds for annulment which may affect the validity of the arbitral award”, and even added that those express grounds for annulment were found in sections 760 and 761 of the Procedural Code.

Similarly, on November 2013 in the Aronna v. Petrobras case, Chamber A of the Court of Appeals stated that it did not find any defect in the compromise the parties had agreed upon, but that the plaintiff merely disagreed with the content of the decision. It also highlighted that the challenge of annulment of an arbitral award did not involve a substantive review of the case, but rather the confirmation of certain conditions that are contained in rules of public order that must be respected, that is, those contained in the Procedural Code.

On August 2014, in the case NSB v. A.A., one of the three arbitrators in an ICC arbitration passed away during the issuance of the final award. Consequently, the award was issued by the two remaining arbitrators. As they did not reach a consensus, the dispute was resolved by the vote of the tribunal’s chairman, as stipulated by the ICC Arbitration Rules. In turn, the respondents requested the annulment of the award based on this alleged defect in the proceedings. The Chamber B of the Court of Appeals rejected the petition for annulment by stating that the recourse was not meant to challenge the merits of the case. It went on to add that judges must limit themselves to controlling the fulfillment of the formal conditions that the legislation has considered indispensable for a proper administration of justice.

As mentioned, the Supreme Court in Ricardo Agustín López [et al.] v. Gemabiotech S.A. not only reaffirmed that the judicial review of arbitral awards could not delve into the merits of the case, but it went even further and stated that the only possible grounds for annulment were those set out in sections 760 and 761 of the Procedural Code. On our behalf, we fully support the Supreme Court’s decision. Otherwise, the scope of grounds for annulments of arbitral awards could be unduly broad, thus dwindling the attractiveness and advantages of the arbitral system. Therefore, the precedent set by the Supreme Court allows both the plaintiff and the respondent to rest assured that the award, whether favorable to their position or not, will only be annulled on the grounds expressly stated by the law. For this same reason, this decision increases the overall confidence in the institution of arbitration as a means for seeking finality.

Final Considerations

The Supreme Court’s ruling leaves us with high-hopes for the future of arbitration in Argentina. Not only this, but new developments are in the horizon. For instance, a bill was presented in the Argentine Chamber of Deputies on 03/03/2017 in order to partially reform the National Civil and Commercial Code with respect to the rules regulating arbitration that have been criticized by scholars. Even more, there is a draft International Commercial Arbitration Act based on the UNCITRAL Model Law pending approval by the Chamber of Deputies, as it has already been approved by the Senate.

We can reasonably expect that with a consistent line of jurisprudence and internationally-aligned arbitration standards, Argentina will be able to establish itself as a safe haven for arbitration in the near future.

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Amendments to the UAE Advocacy Law: Run into the Sand?

Mon, 2018-01-29 16:06

Gordon Blanke

At the dawn of the New Year, foreign arbitration specialists will welcome some reassurance to the effect that the amendments made to the UAE Advocacy Law, also known as Federal Law No. (23) of 1991 on the Regulation of the Legal Profession, in November 2017 (see Ministerial Resolution No. (972) of 2017 on the Executive Regulations of the Federal Law No. (23) of 1991 on the Regulation of the Legal Profession and its Amendments, in short “MR 972/2017”) do not affect their right to represent clients in arbitrations seated in the Emirate of Dubai. This, no doubt, provides some relief given the importance of Dubai as a seat of arbitration and the keen interest taken by foreign and expat practitioners in advising and representing clients in arbitrations seated there. That said, the representation of clients in arbitrations seated in other Emirates might be affected by the amendments in question. To avoid procedural complications in individual references going forward, it is worthwhile taking a closer look at the positions on legal representation taken by the various Emirati laws and to what extent these might be impacted by the UAE Advocacy Law as amended.

By way of background, Art. 2 of MR 972/2017 provides that only lawyers who are registered on the Roll of Practicing Lawyers in the UAE are permitted to plead before arbitration tribunals. A power of attorney for authorisation to represent may only be issued to any such registered lawyers. The Roll distinguishes between “practicing lawyers admitted before courts of first instance and courts of appeal” and those “admitted before the Federal Supreme Court” (see Art. 4, MR 972/2017). Finally, arbitration tribunals are prohibited from accepting representation for and on behalf of a party by non-registered lawyers (see Art. 2, MR 972/2017: “[…] arbitration tribunals […] may not accept a person to act as a lawyer on behalf of another person unless his name is registered in the Roll of Practicing Lawyers.”). Only governmental bodies appear to be excluded from these new rules (see Art. 3, MR 972/2017) except where they hire outside counsel (see Art. 48, MR 972/2017). The net effect of these provisions is that non-local (non-UAE) lawyers are not allowed to represent any parties in UAE-seated arbitrations nor to plead before UAE-seated tribunals. Violations will be sanctioned with a range of disciplinary penalties, including suspension from practice (see Art. 38, MR 972/2017).

No need to say that taken literally, these amendments have for a consequence that non-UAE lawyers (i.e. all expat and international arbitration specialists offering their services in the UAE) are no longer allowed to represent clients and appear before arbitration tribunals in domestic arbitrations (although it would seem that they are still allowed to sit as arbitrators in such cases, no provisions being made to the contrary in the UAE Advocacy Law as amended). Not only does MR 972/2017 fail to provide for a transition regime that would allow pending arbitrations with non-qualifying counsel to complete on previously acceptable terms, but it also sends a strong arbitration-hostile signal to international arbitration lawyers practising on the ground.

For the avoidance of doubt, it is arguable that free zone arbitration seated in the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) are excluded as the UAE free zones have their own regime of registration of practising lawyers. A solution may therefore be to re-seat pending local arbitrations and move them to a free zone. Irrespective of any temporary solutions that may be on offer, the fact remains that these new advocacy rules throw a spanner into the wheel of arbitration in the UAE.

It is further arguable that these new rules do not bite in the Emirates of Dubai, Abu Dhabi and Ras Al Khaimah given that these do not form part of the federal judicial structure and that instead, each has their own, stand-alone judiciary (with its own rules on the licensing and registration of lawyers): By way of example, all lawyers practising in Dubai (including the DIFC) must register – without discrimination (i.e. whether foreign or local) – with the Dubai Legal Affairs Department (DLAD) (see Dubai Executive Council Decision No. 22/2011 on the Legal Profession and Legal Consultancy in the Emirate of Dubai of 26 June 2011). In this context, it is also instructive to note that the Arbitration Rules of the Dubai International Arbitration Centre (DIAC) allow arbitrating parties free choice of counsel, again irrespective of their national origin – i.e. whether local or international (see Art. 7, DIAC Rules). Importantly, the DIAC Rules have been adopted by Ruler’s decree and therefore have the status of a law (thus producing legal rights and obligations in their own right). It has more recently been confirmed in this context that the amendments introduced by MR 972/2017 do not apply to lawyers – whether domestic or foreign – practising arbitration in Dubai. Pursuant to a circular of Dr. Louay Mohamed Balhol, General Manager of the DLAD, addressed to the local legal profession:

“We inform you that the ‘Resolution of Dubai’s Executive Council No. 22/2011 regarding penalties and fines related to the practice of the legal profession and legal consultancy in the Emirate of Dubai’, which confirms in its Article 2 the competence given to the Legal Affairs Department by virtue of its establishing Law No. 32 of 2008 in the organisation of the legal profession and legal consultation in the Emirate of Dubai, allows legal consultants who are licensed with the Legal Affairs Department to appear and represent clients before arbitration tribunals and administrative bodies in the Emirate of Dubai. […] As regards visiting lawyers, there are no restrictions as to their right to appear and represent their clients before arbitration tribunals in the Emirate of Dubai.”

Equally, the situation in Ras Al Khaimah (RAK) likely remains unaffected: The relevant RAK laws contain no specific restrictions on representation in arbitration (see RAK Law No. 3 of 2012 Concerning Legal Profession). Finally, Abu Dhabi also does not place any limitations on the representation of parties in arbitration through foreign counsel (see Executive Council Chairman Resolution No. 30 of 2006 Concerning Organizing the Licensing of Legal Consulting Activities in Emirate of Abu Dhabi). Like the DIAC Rules, the Arbitration Rules of the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC) leave the appointment of counsel to the full discretion of the arbitrating parties (see Art. 3, 2014 ADCCAC Procedural Regulations of Arbitration).

In any event, rumour has it that the impact of the amendments was unintended and that the courts will not implement the new rules on their strict terms. In addition, the local professional forces that are have reportedly raised these concerns with the UAE legislature and are hopeful that necessary revisions will shortly be afoot to rectify what are amendments with severe consequences on the international perception of the UAE as an arbitration-friendly seat. In the interim, challenges of international counsel might impede smooth arbitration proceedings in a number of Emirates: This will, in particular, be the case in Fujairah, Umalquain and Ajman, each of which is entirely dependent for the licensing and registration of lawyers practising there on the UAE federal structure, the legal profession in those three Emirates being governed by the UAE Advocacy Law as amended. That said, few foreign practitioners are active as advising counsel in those Emirates, so that the amendments of the UAE Advocacy law will likely have only limited effect in practice.

In this sense, the recent amendments to the UAE Advocacy Law have not entirely run into the sand and do produce some, albeit limited, impact on arbitration in the UAE. It is to be hoped that these amendments will be reversed without further ado in the early course of the New Year in order to avoid any more incisive inroads into the reputation of the UAE as a regionally leading seat of arbitration.

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“Japan is Back” – for International Dispute Resolution Services?

Mon, 2018-01-29 06:00

Luke Nottage and James Claxton

“Japan is Back”?

 

Prime Minister Shinzo Abe himself is certainly back – having led the Liberal Democratic Party (LDP) to a fifth consecutive election in October 2017. If Abe remains in power for another three years, he will become the longest serving Japanese prime minister since World War II. Although the electorate probably responded mostly to his government’s hawkish security policy, given the recent sabre-rattling from North Korea, voters also seem to be giving the government the benefit of the doubt on his “Abenomics” economic policy. Introduced after the LDP regained power in 2012, Abenomics involves shooting “three arrows” – for monetary, fiscal and structural reform – to try to jumpstart the Japanese economy out of its lethargic performance since the “bubble economy” burst in 1991.

 

Against this political backdrop, and Abe’s ambitious announcement in 2013 that “Japan is back” on the world stage, some LDP policy-makers recently have proposed enhancing Japan as regional hub for international dispute resolution services. On 18 May 2017 the Nikkei Asian Review announced: “Japan to Open Center for International Business Arbitration.”

 

Beyond the JCAA?

 

However, the wheels of government turn slowly in Japan. The Cabinet Office (naikaku kanbo) has established an inter-departmental committee to investigate options in more detail. One key player remains METI. Its jurisdiction ranges from sectors where Japanese firms have long become globally competitive (such as the automotive and electronics industries) to sectors dominated by small- and medium-sized enterprises (SMEs). The latter have traditionally been more domestically oriented but since the 1990s have increasingly engaged in exports and even investments abroad. METI has long supported the JCAA, notably by providing former senior officials to serve as JCAA President. The latest such “descent from heaven” (amakudari) is Mr Hiromichi Aoki, who had a career primarily in METI and the associated SME Agency.

 

Unfortunately, the JCAA has largely missed out on the boom in international commercial arbitration across the wider Asian region particularly over the last 10-15 years. Despite good Rules (last updated in late 2015), fee structures and personnel, the JCAA has attracted only 12-27 new case filings annually over 2007-2016. This caseload is very low compared to its counterparts in China, Hong Kong, Singapore and even recently Malaysia (KLRCA) and Korea (the KCAB). The JCAA might gain more critical mass and visibility if it merged with the Tokyo Arbitration Maritime Commission (TOMAC), but that has its own history and shipping comes under the jurisdiction of the Transport Ministry. JCAA also struggles to shake off a reputation abroad as being Japan-focused, partly reflecting the fact that almost all its cases involving at least one Japanese party but also the nature of the appointment of its Presidents.

 

The result is that the JCAA loses credibility for Japanese SMEs and even large Japanese companies seeking to include it in cross-border contracts as the arbitral venue. More generally, Japan is missing out on the potential to be a neutral and quite geographically-convenient seat in Asia for disputes between for example parties in the Americas and China or along the latter’s “One Belt, One Road” initiative, and between parties in Southeast Asia and North Asia other than Japan. Yet Japan was quick to ratify the New York Convention (in 1961), and has implemented the UNCITRAL Model Law (from 2003) for both international and domestic disputes. Courts have interpreted both instruments in a pro-arbitration spirit, as Nottage outlined with Tatsuya Nakamura in 2013 and with Nobumichi Teramura in their chapter in Anselmo/Gu (eds) The Developing World of Arbitration (Hart, January 2018).

 

So can Japan make a comeback now in the increasingly competitive world of international dispute resolution services? The opportunity is well worth taking, despite the notorious risk-averseness of Japanese policymakers. And this will probably be Japan’s last chance, especially now that Korea’s Arbitration Industry Promotion Act has come into effect since August 2017. That statute commits the Korean government to planning and funding initiatives beyond its longstanding support for the KCAB.

 

Adding the TCIDR

 

The complex institutional history behind JCAA (and TOMAC) suggests that the best option for Japan will be to set up a new umbrella organisation, which could be named the Tokyo Centre for International Dispute Resolution (TCIDR). This would be similar to the Seoul International Dispute Resolution Centre, successfully established in 2013 and seemingly now an inspiration for Japan, but with even stronger international flavour. The President of TCIDR should have excellent English (whether as a native speaker or otherwise), a world-wide reputation and extensive expertise in international dispute resolution (in terms of practice and publications), and marketing acumen (to promote Japan as a venue for international dispute resolution services generally, whether or not involving Japanese parties). The TCIDR could also have a thoroughly international board (closer to the diversity evident within the SIAC Court of Arbitration), as well as including non-Japanese employees and interns.

 

The TCIDR would promote and offer facilities for international arbitrations that already do (and should increasingly) take place in Japan under ICC, ICDR or other rules, as well as for ad hoc arbitrations. But it can also provide support for other types of cross-border ADR, such as adjudication (expert determination) in construction disputes. The TCIDR could additionally provide a venue for mediation, especially for short sessions in “breakouts” from arbitration proceedings underway in Tokyo. These might be led by mediators appointed separately from the arbitrators, thus offering a different option to the JCAA’s traditional Arb-Med practice. Such mini-mediations might also be conducted off-site, for example in downtown premises of universities (such as Keio Law School) that actively promote practice-oriented teaching and learning in international dispute resolution. This would defray costs to the Japanese government and other sponsors for TCIDR facilities and activities – possibly the Japan Association of Arbitrators (JAA) and Bar Associations. Anyway, commercial property rentals and other operational costs in Tokyo are now very reasonable by regional standards.

 

Adding the JIMC-Kyoto

 

The new TCIDR would be complemented by the Japan International Mediation Center-Kyoto (JIMC-Kyoto), which will offer international commercial mediation services beginning already in 2018. The idea for JIMC-Kyoto came from disputes lawyers in Tokyo and Osaka who felt that the peaceful environment in the old capital, with its natural beauty and traditional Japanese architecture, might be conducive to amicable settlements.

 

JIMC-Kyoto will offer various services including appointing mediators, supporting ad hoc mediations, and administering mediations under rules presently being drafted by the organising committee. Managed by the JAA and Doshisha University, it will maintain a secretariat at Doshisha’s campus in central Kyoto. Doshisha will also offer physical facilities for mediations, including rooms for the parties and mediation rooms with interpretation booths.

 

JIMC-Kyoto aims to be a truly international institution. While court-annexed mediation and ADR in Japan tends to follow a more evaluative approach (compared for example to Australia), JIMC-Kyoto will not proscribe any particular type of mediation but rather leave it to the mediators and parties to determine the appropriate methodology. For this purpose, the organising committee is compiling a panel of international mediators whose approaches are facilitative, evaluative and or in between. The Singapore International Mediation Center, with its own panel of international mediators, is advising JIMC-Kyoto on the composition of this panel. JIMC-Kyoto and the SIMC have also made plans to collaborate on mediator training, events and promotion. The Centre’s potential is bolstered as UNCITRAL’s Working Group II progresses towards an instrument for the enforcement of international commercial settlement agreements resulting from mediation.

 

Further Promising Developments

 

Another key player in successfully promoting both these initiatives to reposition Japan as a regional hub in international dispute resolution services will be the Justice Ministry. Its Litigation Bureau has been expanded in recent years (now called the Shomu-kyoku), partly to respond to more and increasingly complex domestic lawsuits involving the Japanese government, but also by adding an “international litigation” support unit (including several bengoshi lawyers on fixed-term contracts) to assist the Foreign Ministry. One of the unit’s aims is to be better prepared for any investor-state dispute settlement claim that might be brought against Japan, amidst proliferating investment treaties and slowly increasing inbound FDI. Yet it could achieve this partly by becoming more familiar with and supportive of international commercial arbitration and mediation processes.

 

In addition, the Litigation Bureau as well as other parts of the Justice Ministry involved primarily in law reform projects still rely significantly on elite-track career judges being seconded by the Supreme Court’s General Secretariat. If the Ministry can develop a more active role in promoting international dispute resolution services, this may eventually result in Japanese judges speaking out more publically about the advantages of ADR, including in international forums. So far, this almost never happens. By contrast, judges particularly from common law jurisdictions within the Asia-Pacific region often actively promote their home countries as desirable venues for international dispute resolution services.

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