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Independence of CAS vis-à-vis its Funders and Repeat Users of its Services

6 hours 45 min ago

Giulio Palermo and Anna Sokolovskaya

In a recent case, the Swiss Federal Tribunal (“SFT”) has once again been called to consider the question of independence of the Court of Arbitration for Sport (“CAS”) vis-à-vis its funders and users. This note introduces the issue of funding and independence of CAS in the context of the SFT’s prior case law and discusses why the SFT saw no reason to depart from it. It finally considers whether such position could change in the future.

I. Historical perspective on CAS’s financial independence

For a decade after its establishment in 1984, CAS was financed almost exclusively by the International Olympic Committee (“IOC”). In a 1993 decision of the SFT in the case of Gundel (ATF 119 II 271), the SFT had to consider whether CAS was independent vis-à-vis the International Equestrian Federation (“FEI”). The SFT concluded that CAS enjoyed the required degree of independence from the FEI. However, as an obiter dictum, the SFT recognised that some objections to the independence of CAS could not be dismissed without further examination, in particular those based on the organic and economic links between CAS and the IOC (given that CAS was financed almost exclusively by the IOC at that time).

In light of Gundel, in 1994, the IOC and other international sports governing bodies signed the Agreement related to the Constitution of the International Council of Arbitration for Sport (the “Paris Agreement”). By virtue of this agreement, CAS was placed under the aegis of the newly created International Council for Sports Arbitration (“ICAS”) that became responsible, inter alia, for the financing of CAS. Pursuant to Article 3 of the Paris Agreement, the IOC remained the biggest contributor of CAS but its proportion was reduced to 1/3.

Approximately ten years later, in its 2003 Lazutina judgment (ATF 129 III 445), the SFT was called to assess CAS’s independence again. In light of the 1994 reform, the SFT decided that CAS was not “the vassal of the IOC” and was sufficiently independent of it, as well as of all other parties using its services. Moreover, the SFT also observed that “[t]here appears to be no viable alternative to this institution, which can resolve international sports-related disputes quickly and inexpensively. […]” (English translation from CAS’s website).

II. Challenge before the Swiss Federal Tribunal based on the alleged financial dependence of CAS on FIFA

On 20 February 2018, in case number 4A_260/2017, the SFT rejected a challenge of an award issued by CAS in disciplinary appeal proceedings between a Belgian football club (the “Club”) and the Fédération Internationale de Football Association (“FIFA”) (the “Decision”). The challenge was based, inter alia, on the alleged financial dependence of CAS on FIFA, which, in the Club’s opinion, had led to the award being issued by an improperly constituted arbitral tribunal within the meaning of article 190.2(a) of Swiss Public International Law Act.

To demonstrate the alleged financial dependence of CAS on FIFA, the Club argued that it was well-known that FIFA had become the dominant sports federation in terms of “volume of business” for CAS and that it financed CAS (alongside other sports federations and associations) by providing large financial contributions, so much so that the turnover of CAS came largely from this “big client”.

In the Club’s opinion, the mere prospect for CAS of losing this important client was capable of influencing CAS’s decisions to the detriment of parties opposed in proceedings to FIFA. The Club also argued that, unlike judges in state courts, employees of CAS and arbitrators would see their personal gains diminished if FIFA were to renounce its affiliation with CAS.

FIFA argued that CAS’s independence was a question generally considered closed in Swiss law as per case law described above. FIFA rejected the Club’s assertion that CAS’s arbitrators needed to “please” FIFA so that it continued to recognise the jurisdiction of CAS and so that their incomes and those of CAS’s employees would not have to suffer.

Acting through its Secretary General, CAS also participated in the proceedings and opposed the Club’s arguments, observing that only approximately 32% of CAS’s cases involved FIFA and its contribution to CAS only amounted to CHF 1,500,000, which was a relatively modest contribution in comparison with the CHF 7,500,000 paid by the entire Olympic movement out of a total budget of CHF 16,000,000. The Secretary General also observed that, even if FIFA would decide to no longer provide recourse to CAS in its Statutes, CAS’s very existence would not be called into question because the only consequence of a decrease in its revenues would be a reduction of its current size accompanied by a restructuring of its services.

The SFT decided that there was no reason to revisit its earlier, firmly established case law. Referencing the Gundel and Lazutina judgments and subsequent decisions, and making a distinction between the IOC, on the one hand, and sports federations, on the other, the SFT stated that, from the point of view of CAS’s independence, CAS’s links with sports federations (such as FIFA) had always been less problematic than CAS’s links with the IOC. The SFT further observed that only compelling reasons could make it not equate FIFA with the other international sports federations. The SFT observed that the Club’s submissions were not strong enough to justify a departure from the established case law and that there was not much force in the Club’s argument based on FIFA’s contributions to CAS’s budget since those amounted to less than 10% thereof.

As for the willingness of the arbitrators and CAS’s employees to seek to preserve their court by doing everything in their power not to lose a “big client” like FIFA, such an allegation assumed a very poor state of mind of those individuals and, in any event, the Club did not provide any evidence to that effect. Nor did the Club seek to demonstrate, by statistical analysis or in any other way, that there was a propensity by CAS to find in favour of FIFA whenever it was a party to arbitration proceedings before CAS.

The SFT rejected the Club’s challenge of the arbitral award, including the Club’s arguments about CAS’s lack of financial independence from FIFA.

III. Conclusions

In light of the above, two broad conclusions can be made:

A. In its current form, CAS cannot be self-financing and, for the time-being, there are no better alternatives to the current funding model that would ensure its full financial autonomy

It is noteworthy that the disciplinary appeals proceedings before CAS (i.e. appeals against decisions that are rendered by international sport federations or sports bodies) do not require that parties pay CAS’s and arbitrators’ fees, save for a filing fee of CHF 1,000. Thus, since CAS itself bears these costs, it must have other sources of funding to sustain its operations. As envisaged by the Paris Agreement, different sports governing bodies have over the years been making contributions to CAS’s budget.

In its 2003 Lazutina judgment, the SFT had observed that the particular model adopted for funding CAS was linked to a very hierarchical structure of sport – a feature that, especially in disciplinary proceedings before CAS, would see an individual athlete located at the bottom of the pyramid acting in opposition to a sports body located at the top, with contributory capacities of the parties to such disputes being too unequal in most cases.

This special feature of sports arbitration before CAS did not escape the attention of the SFT in the Decision either. The SFT, once again, contrasted the model adopted at CAS with the way commercial arbitrations were usually funded by disputing parties themselves and pointed out that, if the same were required in all proceedings before CAS, this would do nothing but harm athletes and deny them access to CAS.

B. Financial contributions to CAS’s budget do not necessarily jeopardise its independence vis-à-vis its contributors. However, it is not clear whether a line exists (and, if so, where it lies) beyond which direct/indirect contributions by a single entity to CAS could be considered as jeopardising its independence

In its 2003 Lazutina judgment, the SFT had stated that there was no necessary cause-and-effect relationship between the method of financing of a judicial body and the degree of independence of the said body. Could this be interpreted to mean that the SFT considers questions of financing to be irrelevant for the question of independence and that, for this reason, the Club’s arguments based on FIFA’s budgetary contributions were redundant? It does not seem so. It rather seems to mean that the SFT would examine each funding relationship on its own merits and would require proof of any alleged lack of independence (rather than make assumptions to that effect).

In this vein, the SFT’s Decision makes it clear that direct contributions (i.e. budgetary contributions) from entities that are also parties to proceedings administered by CAS do not, per se, strip the latter of its independence. As for the assessment of FIFA’s specific level of funding, the conclusion reached in the Decision seems unsurprising: FIFA’s annual contribution amounted to less than 10% of CAS’s budget which is significantly below 1/3 that had already been “okayed” in the Lazutina judgment. Yet, it remains unclear what level of direct contributions between 1/3 and 100% of CAS’s budget (as per Lazutina and Gundel, respectively) could be seen as potentially threatening CAS’s independence.

As to indirect contributions (i.e. revenue stream from CAS’s administrative fees collected in cases involving FIFA), they served as one of the bases of the Club’s allegation of lack of financial independence of CAS. The SFT’s dismissal of this argument was based on lack of evidence, in particular of a propensity by CAS to find in favour of FIFA. It remains nonetheless unclear what level of indirect contributions, per se or on top of direct contributions, could be seen as potentially threatening CAS’s independence.

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Brexit and Beyond: Will London Still Wear its Arbitration Crown?

Wed, 2018-05-23 17:48

Dipen Sabharwal and Mona Wright

The results of the 2018 Queen Mary/White & Case International Arbitration Survey were launched on 9 May 2018. The survey explores “The Evolution of International Arbitration”: how international arbitration has evolved, the key areas for development in the future, and who and what will shape the future evolution of the field. This is the 4th survey conducted by the School of International Arbitration, Queen Mary University of London, in partnership with White & Case, and is the most comprehensive yet. Record participation from stakeholders around the world reflects the uniquely global nature of international arbitration.

The subject of Brexit, with its attendant uncertainties and spectrum of potential ramifications, is one of the hottest topics of the day in all arenas of discourse: political, social and, of course, commercial. The position London enjoys as one of the premier commercial centres of the world means that the impact of Brexit will be felt far beyond British shores. We therefore sought to explore what the impact of Brexit might be in relation to international arbitration. In particular, we asked whether Brexit may potentially have an impact upon the use of London as a seat of international arbitration and, if so, to what extent?

London has long been held in high regard as a seat for international arbitration. In both our 2010 and 2015 International Arbitration surveys, for example, London was the seat most favoured by respondents. Our 2018 survey now reveals that not only has London cemented its position as the top seat worldwide, but its popularity amongst users of international arbitration has increased even further in recent years: 47% of respondents cited London as a preferred seat in our 2015 survey, rising to 64% in our 2018 survey. In addition, London was the most frequently chosen seat by respondents practising or operating in each of the global regions represented in the 2018 survey – i.e. across all continents. London’s appeal as a seat, then, is a truly international phenomenon. This could, in a sense, be considered to parallel London’s general position as a preeminent commercial centre whose reach and impact is global rather than merely local or even regional.

The spectre of Brexit, however, casts a shadow for many commentators over London’s future position as a global centre of commerce. To what extent might this also prove to be the case in terms of London’s position as an international arbitral seat? We tested this by asking respondents what impact they think Brexit will have on the use of London as a seat. Respondents were asked to indicate their view of the likely impact using a scale from 1 (negative) to 5 (positive). The number 3 represented an outcome of no expected impact at all.

The most popular view, espoused by just over half of the respondents (55%), was that Brexit is unlikely to bring about any change as far as the use of London as a seat is concerned. Indeed, almost 1 in 10 respondents (9%) even expect Brexit to have a positive impact on the use of London as a seat. The remaining 37% of respondents were more sceptical, anticipating that the use of London as a seat will suffer, to a higher or lesser degree, due to Brexit.

Given the general air of uncertainty and pessimism that tends to pervade discussions concerning Brexit and its potential impact, these results may – on their surface – come as a surprise to some, who may have expected a more negative view would prevail. We sought to explore the reasons underlying the opinions expressed by respondents. These further findings explain why the post-Brexit outlook in relation to London’s position for international arbitration appears rosier than some may have expected.

We asked respondents to indicate up to three reasons for their views on the likely impact of Brexit on the use of London as a seat. The three most selected factors were: (1) “The English legal system will continue to be perceived as neutral and impartial”; (2) “The legislative framework applicable to arbitration and the English courts will continue to be supportive of arbitration”; and (3) “The UK will continue to be a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards”. All of these factors, which reflect the majority viewpoint that Brexit is unlikely to have any impact on the use of London as a seat, are aspects of the UK’s formal legal infrastructure which are not expected to be affected by Brexit. They also overlap with another set of relevant findings from the 2018 survey: when asked to explain the reasons underlying their preferences for a given seat, the most important factor identified by respondents is the “general reputation and recognition” of the seat (14%), closely followed by the “neutrality and impartiality of the local legal system” (13%), “national arbitration law” (12%), and “track record in enforcing agreements to arbitrate and arbitral awards” (11%).

This suggests that the essential reason why approximately 64% of respondents do not anticipate Brexit will have a negative impact on the use of London as a seat is that the features that historically and currently make London a popular seat will continue to be in place post-Brexit. As far as being a seat of international arbitration goes, then, it should be business as usual for London in the future.

At the same time, the concerns expressed by the not inconsiderable minority of respondents should not be ignored. Those who feel London will be negatively impacted are concerned by the uncertainties over the impact that Brexit will have on English law and the English legal system; they also feel that London’s commercial reputation and its appeal as a situs of arbitration may decline to the benefit of other seats.

Mindful of this last possibility, we also asked those respondents who expected Brexit to have a negative impact about which seats they thought might benefit the most from any future decline in London’s popularity. The clear winner here was Paris, chosen by 70% of respondents. Singapore and Geneva came in a distant joint second, each selected by 22% of respondents, with Hong Kong securing the nod from 15% of those who answered, followed by Stockholm (13%), New York (12%) and Zurich (6%).

Of course, as with so many aspects of Brexit, it is still too early to predict with any real certainty what the eventual impact may be. This is exacerbated by the lack of reliable empirical data allowing precise tracking of the frequency with which London is or has been used as seat. Furthermore, many of the disputes we will see over the next few years will have arisen from contracts entered into pre-Brexit, under arbitration clauses specifying London as the seat. Indeed, we have seen businesses continue to opt for arbitration in London in contracts concluded even after Brexit was formally triggered in May 2017. Based on the findings of our 2018 survey, though, the prognosis for London at present appears stable.

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Summary Disposal In Arbitration and Tribunals’ Ability To Order Summary Procedure Without Express Authority

Wed, 2018-05-23 00:26

Claire Morel de Westgaver

Bryan Cave Leighton Paisner LLP

The recent American case of Weirton Medical Center Inc v Community Health Systems Inc (N.D. W. Va. Dec. 12, 2017) is another reminder that the debate over the place of summary disposal in arbitration has not been settled. This issue has previously been in the spotlight notably through the transatlantic case of Travis Coal Restructured Holdings LLC v Essar Global Fund Ltd [2014] EWHC 2510 (Comm), a case relating to an ICC award rendered in New York and sought to be enforced in England (see previous post of the author on Summary Judgment in International Arbitration – No Longer Dismissed?).

The fundamental question is whether tribunals’ general power to conduct arbitral proceedings in a fair and efficient manner enables them to order a summary procedure in circumstances where the parties have not expressly agreed such procedure. The answer to this question can have important and costly ramifications. More broadly, the availability of summary disposal as part of the arbitration process can potentially impact the way in which arbitration may be perceived and used in the future.

Certain industries, such as the financial services sector, have been reluctant to embrace arbitration as a dispute resolution mechanism due to the alleged lack of such summary procedure. Yet, tribunals are faced with applications for summary disposal on a regular basis. In that context, tribunals are often threatened by defending parties that any award rendered on a summary basis would impact that party’s ability to present its case and ultimately would be challenged on that basis. Recognising the uncertainty and the shortfall of cases that a more streamlined process could attract, institutions have considered revisiting their rules to introduce summary procedures with some taking the plunge and others not.

The Weirton case concerned the annulment proceedings of an arbitral award rendered by a sole arbitrator on a summary basis. A dispute had arisen between a hospital, Weirton Medical Center, Inc. (“Weirton”) and Quorum Health Resources LLC and affiliated persons (“Quorum”) in relation to the termination and payment under two separate administrative services agreements. Each agreement provided for arbitration in accordance with “the arbitration rules of the American Arbitration Association (AAA)” albeit in different cities in the United States. In addition, one agreement invoked “the substantive and procedure laws of the State of Tennessee applicable to contracts made and to be performed therein” and the second invoked “the substantive and procedure laws of the State of West Virginia applicable to contracts made and to be performed therein”.

Following another arbitration between the same parties and Weirton’s unsuccessful attempt to vacate the ensuing award rendered in favour of Quorum, on 24 March 2016, Weirton commenced a new arbitration against Quorum. On 29 July 2016, Quorum requested the arbitrator to dispose of Weirton’s claims on a summary basis. Three months later, the arbitrator granted the application for summary disposal and disposed of all Weirton’s claims in an award dated 2 November 2016. In response to Weirton’s argument that a motion for disposition was not appropriate under the 2009 AAA Commercial Arbitration Rules, the arbitrator held that Rule L-4 empowers tribunals “to hear and grant motions for summary disposition”. Rule L-4 of the 2009 AAA Commercial Arbitration Rules states that “(a) Arbitrator(s) shall take such steps as they may deem necessary or desirable to avoid delay and to achieve a just, speedy and cost-effective resolution of a Large, Complex Commercial Case.” The arbitrator based his decision on the case of Sherrock Bros. Inc. v. DaimlerChrysler Motors Co., LLC, 260 F. App’x 497, 502 (3rd Cir. 2008).

On 12 December 2017, Weirton filed a motion in the US District Court for the Northern District of West Virginia to vacate the award on the grounds that the arbitrator had exceeded his powers and manifestly disregarded applicable law. Weirton argued inter alia that the arbitration agreements, the 2009 AAA Commercial Arbitration Rules and procedural laws of Tennessee and West Virginia prohibited summary disposals. Weirton further argued that the arbitrator was obligated to apply the West Virginia and Tennessee Rules of Civil Procedure, which would not have permitted summary disposal without adequate discovery and an evidentiary hearing. Finally, Weirton argued that each of the arbitration agreements designated a specific location for the arbitration and therefore the judicial procedural rules of those locations were applicable.

The District Court rejected Weirton’s arguments and held that the arbitrator did not exceed his powers or manifestly disregard the law in ordering the disposal of Weirton’s claims on a summary basis. As part of its decision to deny the motion to vacate and confirm the award, the District Court found that “read as a whole, these agreements make clear that the AAA rules governed procedural matters in the arbitration, while Tennessee and West Virginia law governed the substantive legal issues”. The District Court recognised that the express reference to arbitration rules and state procedural laws in the arbitration agreement created an ambiguity which – the District Court considered – justified the arbitrator to exercise discretion to resolve which procedural law applied. It also highlighted that it is well-established in the US that an arbitrator has jurisdiction to “adopt such procedures as are necessary to give effect to the parties’ agreement” and that “procedural questions which grow out of the dispute and bear on its final disposition are presumptively… for an arbitrator [ ] to decide.” It further concluded that “while the arbitration agreements do not expressly permit summary disposition, they do not expressly prohibit it either”.

Regarding the parties’ choice in relation to Weirton’s reference to the arbitration “locations”, the District Court dismissed Weirton’s argument that by agreeing to binding arbitration in Brentwood, Williamson County, Tennessee and in Pittsburgh, Pennsylvania, the parties had intended to require full discovery and a full evidentiary hearing. It held that “these designations of sites for arbitration hearings are not equivalent to express requirements that the parties conduct discovery and participate in a full evidentiary hearing”.

Whilst it may not have the implications it would have had it not been a domestic arbitration, the decision in the Weirton case reinforces the position that tribunals’ general case management powers encompass the power to dispose of a claim or issue on a summary basis and therefore that express authority is not necessarily required. Express authority can be derived from the arbitration agreement itself. This was the case in the Travis Coal case where the arbitration agreement authorised the arbitral tribunal to hear any issue said to be “dispositive of any claim” in such manner as was considered appropriate. Express authority may also be found in any applicable arbitration rules. Yet, until recently, save for their general discretion with respect to the conduct of the proceedings, most arbitration rules were silent on arbitrators’ powers to dismiss claims or defences or determine an issue on a summary basis. A noticeable exception to this trend was article 41(5) of the ICSID Rules.

Over the last decade, many sets of commercial rules have been revisited to include a summary procedure. Pointedly, the 2013 version of the rules at stake in the Weirton case contemplates the possibility of dispositive motions (whereas the 2009 version which applied in the Weirton case did not). Rule R-33 of the 2013 AAA Commercial Arbitration Rules states that “the arbitrators may allow the filing of and make rulings upon a dispositive motion only if the arbitrator determines that the moving party has shown that the motion is likely to succeed and dispose of or narrow the issues in the case”.

Some of the leading arbitration institutions took the view that inserting a specific summary procedure provision in their respective arbitration rules was desirable. Arbitration rules containing such a provision include the SIAC Rules effective on 1 August 2016 (Rule 29.1) and the SCC Rules effective on 1 January 2017 (Article 39(1)). In contrast, the LCIA Rules, the ICC Rules, the ICDR Rules and the UNCITRAL Rules constitute examples of arbitration rules that do not include any specific summary procedure provision. In the Travis Coal case, the party resisting enforcement had run the argument that because summary procedures had been deliberately omitted from the ICC Rules on their 2012 revision, the general power of Article 22 of the ICC Rules could not implicitly support such procedures. The English court in Travis Coal was not persuaded by that argument.

In fact, the decision of the ICC (and indeed other institutions) to refrain from inserting a summary procedure provision into its rules may support the opposite position. It has been widely argued that there is no need for such provision to be inserted in arbitration rules. This would be the case because express authority is not required and the power to render an award on a summary basis forms part of tribunals’ general case management powers. The decision of the District Court in Weirton certainly reinforces that argument and in that sense might contribute to the gradual dissipation of arbitrators’ paranoia over summary procedure-related challenges. With respect to rules that now do incorporate a summary procedure provision, what remains to be seen is how these provisions work in practice and any positive impact on arbitrations conducted under these rules.


The author is grateful for the assistance of Alice Simon and Lydia Burke (Bryan Cave Leighton Paisner).

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Third Party Funding in Asia: whose duty to disclose?

Tue, 2018-05-22 07:00

Christine Sim (Assistant Editor for Southeast Asia)

Hot on the heels of Singapore’s liberalising third party funding (TPF) for arbitration, Hong Kong followed with similar legislation. Keen to ensure the new regime works, the Singapore Ministry of Law is already seeking feedback on whether cases are being funded, businesses are benefiting from the liberalisation, and whether to expand third party funding.1) Singapore Ministry of Law, Public Consultation to Seek Feedback on the Third-Party Funding Framework https://www.mlaw.gov.sg/content/minlaw/en/news/public-consultations/public-consultation-third-party-funding.html jQuery("#footnote_plugin_tooltip_3532_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

As the two Asian arbitration hubs embrace TPF, practitioners should pay close attention to two key differences between Singapore and Hong Kong regarding their disclosure obligations.

 

Tribunal’s powers to order disclosure of TPF

 

By amending its Civil Law Act,2) Singapore Civil Law Act (Cap. 43), sections 5A–5B (as amended 1 March 2017). jQuery("#footnote_plugin_tooltip_3532_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Singapore abolished the tort of champerty and maintenance only for arbitration and related proceedings including arbitration-related court assistance, mediation, conciliation, or insolvency.3)Singapore Civil Law Act (Cap. 43), section 5B(10): “’dispute resolution proceedings’ means the entire process of resolving or attempting to resolve a dispute between 2 or more parties and includes any civil, mediation, conciliation, arbitration or insolvency proceedings”. jQuery("#footnote_plugin_tooltip_3532_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In contrast, TPF is still a potential tort, ground for invalidity of the TPF contract, and ground for professional ethical responsibility in Singapore court litigation.4) Law Society of Singapore v Kurubalan s/o Manickam Rengaraju [2013] 4 SLR 91, para 61; Second Reading Speech by Senior Minister of State for Law, Indranee Rajah SC, on the Civil (Amendment) Bill 2016, (published 10 January 2017), para. 18. This includes the Singapore International Commercial Court, which is a part of the Singapore Supreme Court. jQuery("#footnote_plugin_tooltip_3532_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Reflecting Singapore’s intention to strictly regulate TPF, section 5B(8) of the Singapore Civil Law Act provides for the Minister to “make regulations necessary or convenient to be prescribed for carrying out or giving effect to this section”. Although this power was likely envisioned to be a method of regulating TPFs in terms of the type of dispute resolution proceeding the TPF exercises influence over,5) Singapore Civil Law Act (Cap. 43), section 5B(8)(b) (as amended 1 March 2017). jQuery("#footnote_plugin_tooltip_3532_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); capital requirements,6)Singapore Civil Law Act (Cap. 43), sections 5B(8)(a) (as amended 1 March 2017); Singapore Civil Law (Third-Party Funding) Regulations 2017. jQuery("#footnote_plugin_tooltip_3532_6").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and other industry regulations, it may also be used more generally for “governing the provision and manner of third‑party funding including the requirements that the Third‑Party Funder and the funded party must comply with”.7) Singapore Civil Law Act (Cap. 43), sections 5B(8)(c) (as amended 1 March 2017). jQuery("#footnote_plugin_tooltip_3532_7").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Singapore presents a peculiar arrangement. It has legalised TPF through its Civil Law Act,8) Singapore Civil Law Act 1999 (Cap. 43), sections 5A–5B (as amended 1 March 2017). jQuery("#footnote_plugin_tooltip_3532_8").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but chosen to prescribe the relevant disclosure rules in its Legal Profession Rules instead.9)Singapore Legal Profession Act 2001 (Cap. 161), section 71; Singapore Legal Profession (Professional Conduct) Rules 2015, sections 49A–49B. jQuery("#footnote_plugin_tooltip_3532_9").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This could be to ensure that lawyers in Singapore do not themselves hold any share or other ownership interest in a third-party funder funding their client’s case.

 

During the passing of the Singapore legislation, the Singapore Minister of Law briefly explained the rationale for disclosure of TPF:

“In addition, the Legal Profession (Professional Conduct) Rules will be amended to impose a duty on lawyers to disclose the existence of any third-party funding which their client is receiving…Disclosure of third-party funding is necessary to ensure there is no conflict of interest…It is anticipated that similar to other jurisdictions where third-party funding is prevalent, industry-promulgated guidelines or best practices will emerge.”10) Second Reading Speech by Senior Minister of State for Law, Indranee Rajah SC, on the Civil (Amendment) Bill 2016, (published 10 January 2017), paras. 25–26. jQuery("#footnote_plugin_tooltip_3532_10").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Principle A.1 of the ICCA-Queen Mary Task Force Principles on Third-Party Funding recommends that a “party and/or its representative” should disclose the identity of the funder to the arbitrators and the institution.

 

Disclosure of TPF is indeed critical to ensuring there is no conflict of interest for the arbitrators. Therefore, guidelines and best practices are not the ideal method of enforcing such an important rule.

 

Sections 49A and 49B of the Singapore Legal Profession Rules were amended concurrently to clarify that lawyers may introduce or refer funders to their clients so long as they do not receive direct financial benefit from the introduction/referral; and may act for their clients in relation to the third-party funding contract.11) Singapore Ministry of Law, ‘Legislative Changes to Enhance Singapore as an International Hub for Commercial Dispute Resolution’, Press Release 7 November 2016, para. 7(iv) <available at https://www.mlaw.gov.sg/content/minlaw/en/news/press-releases/legislative-changes-to-enhance-singapore-as–an-international-hu.html> accessed 3 October 2017. jQuery("#footnote_plugin_tooltip_3532_11").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

However, the parties themselves are certainly not bound by the Singapore Legal Profession Act nor its Legal Profession Rules, which applies generally to registered lawyers practising in Singapore.12) Singapore Legal Profession Act 2001 (Cap. 161), sections 11, 15, 71, 130I; Singapore Legal Profession (Professional Conduct) Rules 2015, section 3, ‘Application of Parts 2 to 5’ (as amended 1 March 2017). jQuery("#footnote_plugin_tooltip_3532_12").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Furthermore, although Singapore counsel are bound by the Legal Profession Rules, unregistered foreign counsel representing parties in arbitrations seated in Singapore are not strictly bound by the Singapore Legal Profession Rules.13) See generally, Catherine A Rogers, Ethics in International Arbitration (Oxford University Press 2014). jQuery("#footnote_plugin_tooltip_3532_13").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Legal practitioners regulated by the Singapore Legal Profession Rules14) Singapore Legal Profession Act 2001 (Cap. 161), sections 11, 15, 130I; Singapore Legal Profession (Professional Conduct) Rules 2015, section 3, ‘Application of Parts 2 to 5’ (as amended 1 March 2017). jQuery("#footnote_plugin_tooltip_3532_14").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); are under a strict obligation to disclose—to the court or tribunal and every other party to those proceedings—the existence of any third-party funding contract15) Singapore Legal Profession (Professional Conduct) Rules 2015, section 49A(1)(a) (as amended 1 March 2017). jQuery("#footnote_plugin_tooltip_3532_15").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and the identity and address of any funder.16) Singapore Legal Profession (Professional Conduct) Rules 2015, section 49A(1)(b) (as amended 1 March 2017). jQuery("#footnote_plugin_tooltip_3532_16").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

In contrast, Hong Kong has combined its regime for disclosure of TPF with its liberalisation provisions. Article 98U of the Hong Kong Arbitration Ordinance states:

“(1) If a funding agreement is made, the funded party must give written notice of—

(a) the fact that a funding agreement has been made; and

(b) the name of the third party funder.

(2) The notice must be given—

(a) for a funding agreement made on or before the commencement of the arbitration—on the commencement of the arbitration; or

(b) for a funding agreement made after the commencement of the arbitration—within 15 days after the funding agreement is made.

(3) The notice must be given to—

(a) each other party to the arbitration; and

(b) the arbitration body.”17) Hong Kong Arbitration Ordinance (Ord. No. 6 of 2017), section 98U, ‘Disclosure about third party funding of arbitration’. jQuery("#footnote_plugin_tooltip_3532_17").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_17", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

In Hong Kong, the obligation to disclose the existence of a funding agreement is imposed directly on the funded party, not on their counsel. Therefore, disclosure obligations apply equally to all arbitrations regardless of their choice of counsel.

 

One downside may be that some funded parties may be prevented from choosing Hong Kong for their arbitration, due to fear of having to disclose their funding details or a potential breach of the terms in a funding agreement.

 

When to make disclosure

 

Second, the time provided for disclosure once TPF becomes involved could be different.

 

The Hong Kong Arbitration Ordinance specifically requires disclosure within 15 days after the funding agreement has been made. 15 days is the same amount of time prescribed under the UNCITRAL Arbitration Rules 2010 for challenging an arbitrator for issues of independence and impartiality.18) UNCITRAL Arbitration Rules 2010, Article 13(1). jQuery("#footnote_plugin_tooltip_3532_18").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_18", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

In practice, this would give counsel a reasonable amount of time to take instructions from their clients regarding the extent of detail to be provided in disclosure, and to prepare correspondence containing the disclosure to the tribunal and other parties to the arbitration.

 

Timing is less clear under the Singapore Legal Profession Rules. The legal practitioner is under a strict obligation to make the disclosure “as soon as practicable after the third-party funding contract is entered into”.19) Singapore Legal Profession (Professional Conduct) Rules 2015, section 49A(2)(b) (as amended 1 March 2017). jQuery("#footnote_plugin_tooltip_3532_19").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_19", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

In each case, the practitioner could either be unduly pressured by professional ethics and duties to the client, or take the opportunity to delay disclosure by arguing that it was not reasonably practicable under the circumstances. Consequences could be harsh for Singapore advocates and solicitors and foreign registered lawyers found in breach of the Legal Profession Rules.20) Singapore Legal Profession Act, 2001 (Cap. 161), Part VII, ‘Disciplinary Proceedings’, sections 85–104, and for foreign law firms, sections 130E to 130H. jQuery("#footnote_plugin_tooltip_3532_20").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_20", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Solutions and further questions

 

Is Hong Kong’s approach better? Compliance with an order to disclose third party funding details in Singapore could in reality be more tightly enforced because the obligation is imposed directly on counsel who must disclose if they wish to operate within the Singapore arbitration and legal profession framework.

 

However, in Hong Kong, an obligation that is linked directly to the parties could be more easily enforced by an arbitral tribunal’s order within the context of the arbitration itself. Depending on the applicable rules, a tribunal could have discretion to make further orders, draw adverse inferences, order costs or otherwise make directions. If so, Singapore may wish to align its position closer to Hong Kong’s.

 

Two solutions are suggested. Under section 5B(8)(c) of the Singapore Civil Law Act, the Law Minister may generally make regulations “governing the provision and manner of third‑party funding including the requirements that the Third‑Party Funder and the funded party must comply with”.21) Singapore Civil Law Act (Cap. 43), section 5B(8)(c) (as amended 1 March 2017); Singapore Civil Law (Third-Party Funding) Regulations 2017. jQuery("#footnote_plugin_tooltip_3532_21").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_21", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Pursuant to this power, Singapore could prescribe that:

  1. The funded party shall, as soon as reasonably practicable, disclose to the court or the tribunal and to every other party to those proceedings the existence, identity and address of any TPF involved; and
  2. A reasonably practicable time period for disclosure is 15 days, unless otherwise decided by the relevant court or tribunal with jurisdiction over the proceedings.

 

Alternatively, arbitral institutions such as the Singapore International Arbitration Centre (SIAC) could fill the gap by amending its arbitration rules.22) SIAC Arbitration Rules 2016, Article 27(f). jQuery("#footnote_plugin_tooltip_3532_22").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_22", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Although this would not apply to the same universe of arbitrations governed by the Singapore International Arbitration Act, there is a significant empirical overlap. Issuing SIAC guidelines on disclosure, which would at least draw the attention of SIAC tribunals, could also be useful for ordering disclosure obligations against the funded party.

 

Lastly, a third question remains what level of detail should be ordered in a disclosure order, and whether this is a matter for treaty, arbitral legislation, arbitral rules or each tribunal’s discretion.

 

Under the SIAC Investment Arbitration (IA) Rules 2017, the tribunal is expressly given the powers to order disclosure of the existence of a TPF’s involvement. Furthermore, it indicates which details of the TPF agreement may be ordered to be disclosed:

“[W]here appropriate, details of the third‐party funder’s interest in the outcome of the proceedings, and/or whether or not the third‐party funder has committed to undertake adverse costs liability.”23) SIAC Investment Arbitration Rules 2017, Article 24(L). jQuery("#footnote_plugin_tooltip_3532_23").tooltip({ tip: "#footnote_plugin_tooltip_text_3532_23", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Details of a TPF’s interest in the outcome of proceedings and any commitments to undertake adverse costs liability are potentially relevant to an application for security for costs. This question, as indicated by the Singapore Minister of Law, should be best left to international arbitration’s best practices and guidelines.

 

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References   [ + ]

1. ↑ Singapore Ministry of Law, Public Consultation to Seek Feedback on the Third-Party Funding Framework https://www.mlaw.gov.sg/content/minlaw/en/news/public-consultations/public-consultation-third-party-funding.html 2. ↑ Singapore Civil Law Act (Cap. 43), sections 5A–5B (as amended 1 March 2017). 3. ↑ Singapore Civil Law Act (Cap. 43), section 5B(10): “’dispute resolution proceedings’ means the entire process of resolving or attempting to resolve a dispute between 2 or more parties and includes any civil, mediation, conciliation, arbitration or insolvency proceedings”. 4. ↑  Law Society of Singapore v Kurubalan s/o Manickam Rengaraju [2013] 4 SLR 91, para 61; Second Reading Speech by Senior Minister of State for Law, Indranee Rajah SC, on the Civil (Amendment) Bill 2016, (published 10 January 2017), para. 18. This includes the Singapore International Commercial Court, which is a part of the Singapore Supreme Court. 5. ↑ Singapore Civil Law Act (Cap. 43), section 5B(8)(b) (as amended 1 March 2017). 6. ↑ Singapore Civil Law Act (Cap. 43), sections 5B(8)(a) (as amended 1 March 2017); Singapore Civil Law (Third-Party Funding) Regulations 2017. 7. ↑ Singapore Civil Law Act (Cap. 43), sections 5B(8)(c) (as amended 1 March 2017). 8. ↑ Singapore Civil Law Act 1999 (Cap. 43), sections 5A–5B (as amended 1 March 2017). 9. ↑ Singapore Legal Profession Act 2001 (Cap. 161), section 71; Singapore Legal Profession (Professional Conduct) Rules 2015, sections 49A–49B. 10. ↑ Second Reading Speech by Senior Minister of State for Law, Indranee Rajah SC, on the Civil (Amendment) Bill 2016, (published 10 January 2017), paras. 25–26. 11. ↑ Singapore Ministry of Law, ‘Legislative Changes to Enhance Singapore as an International Hub for Commercial Dispute Resolution’, Press Release 7 November 2016, para. 7(iv) <available at https://www.mlaw.gov.sg/content/minlaw/en/news/press-releases/legislative-changes-to-enhance-singapore-as–an-international-hu.html> accessed 3 October 2017. 12. ↑ Singapore Legal Profession Act 2001 (Cap. 161), sections 11, 15, 71, 130I; Singapore Legal Profession (Professional Conduct) Rules 2015, section 3, ‘Application of Parts 2 to 5’ (as amended 1 March 2017). 13. ↑ See generally, Catherine A Rogers, Ethics in International Arbitration (Oxford University Press 2014). 14. ↑ Singapore Legal Profession Act 2001 (Cap. 161), sections 11, 15, 130I; Singapore Legal Profession (Professional Conduct) Rules 2015, section 3, ‘Application of Parts 2 to 5’ (as amended 1 March 2017). 15. ↑ Singapore Legal Profession (Professional Conduct) Rules 2015, section 49A(1)(a) (as amended 1 March 2017). 16. ↑ Singapore Legal Profession (Professional Conduct) Rules 2015, section 49A(1)(b) (as amended 1 March 2017). 17. ↑ Hong Kong Arbitration Ordinance (Ord. No. 6 of 2017), section 98U, ‘Disclosure about third party funding of arbitration’. 18. ↑ UNCITRAL Arbitration Rules 2010, Article 13(1). 19. ↑ Singapore Legal Profession (Professional Conduct) Rules 2015, section 49A(2)(b) (as amended 1 March 2017). 20. ↑ Singapore Legal Profession Act, 2001 (Cap. 161), Part VII, ‘Disciplinary Proceedings’, sections 85–104, and for foreign law firms, sections 130E to 130H. 21. ↑ Singapore Civil Law Act (Cap. 43), section 5B(8)(c) (as amended 1 March 2017); Singapore Civil Law (Third-Party Funding) Regulations 2017. 22. ↑ SIAC Arbitration Rules 2016, Article 27(f). 23. ↑ SIAC Investment Arbitration Rules 2017, Article 24(L). 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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Revisiting the Idea of ISDS Within the EU and an Arbitration Court: The Effect on Party Autonomy as the Main Pillar of Arbitration and the Enforceability of Arbitral Awards

Mon, 2018-05-21 03:09

Marike R. P. Paulsson

The world after the  Achmea v Slovakia decision focuses on the question about the future of ISDS in relation to intra-EU BITs. At the ASIL conference on the 6 April 2018, a representative of the EU observed the decision in the Achmea case as one that was perhaps a natural consequence of the intricacies of the EU and its members States; of national laws and EU laws; of BITs with EU Member States; and the mechanisms available under the EU system. The current geopolitical developments that affect ISDS, the status of intra-EU BITs, and the possible establishment of a permanent arbitration court raises various questions. One of them is whether awards rendered by such courts are enforceable under the 1958 New York Convention.

The Appointment of ‘Arbitrators or Adjudicators’ in the Court

The EU’s idea of creating a permanent court that renders awards is presented as if it were to be a permanent arbitration court with sitting arbitrators who would render awards. The idea of appointing those ‘adjudicators’ for the permanent court would potentially lead to improvements in the arbitrators’ pool, such as to gender equality. To steer the entire debate of ISDS and intra-EU BITs towards a policy debate on gender equality does disservice to the fact that the international arbitration community has made it a key vocal point with many efforts ranging from institutional focus to the pledge and the #MeToo movement in international law. Young ICCA has been in existence for almost ten years and has opened the doors of international arbitration to many. The argument would also not be original: the debate on gender equality has often turned towards the efforts of institutions achieving such gender equality. In that light, the debate automatically shifts to the idea of institutional appointments. In most cases, arbitral institutions do not appoint co-arbitrators. The parties in arbitration appoint them. The reality of the EU’s envisioned court is that the appointments of arbitrators to that court are probably sovereign appointments. And it is again necessary to remind all of the words of Fali Nariman:

Sovereigns are like billiard balls, they collide often but seldom do they go in the right direction.

The sovereigns appointing those arbitrators or ‘adjudicators’ act as respondents in those arbitration cases. To say that States are not only respondents but also treaty negotiators falls on deaf ears. So the sovereigns appoint adjudicators who would be asked to resolve disputes based on treaties that they have negotiated? Or must one understand this premise in a different way?

Enforceable Under the New York Convention?

Would the awards rendered by those adjudicators of this court be enforceable under the New York Convention?

In 1958, the delegates shared some concerns in this regard. Article I(2) is instructive for appreciating the importance of party autonomy under the NYC: arbitrations that are of a mandatory nature do not fall under the Convention’s scope.1)M.Paulsson, The 1958 New York Convention in Action (Kluwer 2016), pp. 120-121. jQuery("#footnote_plugin_tooltip_4827_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4827_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

“It was the Czechoslovakian delegate that proposed Article I(2). The debate then focused on adding the phrase “to which parties have voluntarily submitted”. Awards rendered by permanent arbitral bodies would only fall under the Convention if those bodies were not really court of justice – exercising compulsory jurisdiction – irrespective of whether they were called arbitral bodies or not. If a dispute came to a permanent arbitration court on the basis of mandatory law, then the proceedings were not arbitral but judicial in nature. The delegates agreed that the test was whether the submission was voluntary and a consequence of real freedom of contract: the autonomy of the will. The Belgian representative proposed the insertion of the word ‘voluntarily’ – an addition that was regarded superfluous by the other delegates – and it was ultimately not included for want of necessity.”2)M.Paulsson, The 1958 New York Convention in Action (Kluwer 2016), p. 121. jQuery("#footnote_plugin_tooltip_4827_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4827_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The history reminds us of the post WW-II communist east bloc ‘permanent arbitral courts’. Those awards that were rendered by such courts and other semi judicial courts were the ones that the drafters wanted to exclude from the New York Convention.

The permanent investment court would bring about several questions. First, what happens to the element of the choice? It seems that claimants in ISDS within the EU no longer have a say in the choice of arbitrators and the institution that is to administer the arbitration. Second, what is the de facto identity of the court? Is the court quasi judicial or not?  Do EU Member States voluntarily comply and collaborate with the establishment of the court and the appointment of its adjudicators? Is the court’s dispute settlement system premised on party autonomy or premised on sovereign control, and is it in effect judicial? The appointments of the permanent adjudicators of this ‘permanent arbitral body or court’ are not the same as appointments of international arbitrators in an investor state dispute.

The question that must be answered is whether this court renders in fact quasi-judicial decisions, and is comprised of State-appointed adjudicators, who sit on a permanent court which happens to have as its nomenclature – arbitral court?

Some historical knowledge would help the key stakeholders to make informed choices. The idea of a permanent arbitration court has been raised before in the 90s and discussed by the leading experts of international arbitration: Schwebel, Holtzmann and Nariman. And that idea was referred to as the impossible dream from the man from la Mancha in the musical Don Quixote.

At the LCIA Centenary Conference in London (in the year 1995) some old stalwarts – Judge Howard Holtzman and Judge Stephen Schwebel (then a Sitting Judge of the ICJ) envisaged the prospect in the 21st century of a new international Court for resolving disputes on the enforceability of arbitral awards. But these worthy gentlemen being experienced Arbitrators and men of the world they also recognized that setting up an International Court of Arbitration would be tilting at the wind mills of national sovereignty. One of them (Judge Schwebel) in his speech recalled the theme of a song of a popular film at the time “the Man from La Mancha” where the principal character Don Quixote, who is a dreamer – always dreamed, “the impossible dream”. An International Court of Arbitration: Schwebel said, was like an impossible dream. Well, we are now well into the second decade of the 21st century and an International Court of Arbitral Awards continues to remain an impossible dream.

To care about the protection of foreign investment and direct investment is a false premise when the foundation of that idea of dispute resolution, i.e. party autonomy and a neutral forum that is not encapsulated by sovereign control, is torn away.

The ‘awards’ of this ‘arbitration court’ would perhaps not be enforceable under the New York Convention. Losing the New York Convention as an enforcement mechanism is something that the EU would want to avoid. The New York Convention is what makes international trade work.

“This landmark has many virtues. It has nourished respect for binding commitments, whether they have been entered into by private parties or governments. It has inspired confidence in the rule of law. And it has helped ensure fair treatment when disputes arise over contractual rights and obligations. International trade thrives on the rule of law: without it parties are often reluctant to enter into cross border commercial transactions or make international investments.3)Kofi Annan, “Opening address commemorating the successful conclusion of the 1958 United Nations Conference on International Commercial Arbitration,” in Enforcing Arbitration Awards under the New York Convention – Experience and Prospects, 1 (United Nations 1999). jQuery("#footnote_plugin_tooltip_4827_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4827_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

If the objections to party-appointed arbitrators, the idea of transparency, and the idea of a centralized court within the EU seems to be paramount to investment in the EU, why one does not rely on an independent institution or organization to keep a roster of arbitrators with ample experience in investment arbitration and even expertise in EU law? The ICC is at the forefront of transparency and fair lists and roster of arbitrators, and the PCA or ICCA are both organizations that could take on a leading role in rethinking ISDIS within the EU. They would do so in a way that preserves the pillars of international arbitration that protects and encourages investment, in a way forward to blossoming trade within and beyond the EU. Whatever may be, the EU might not want to create a court that renders awards that cannot be enforced under the New York Convention, since:

“The New York Convention perhaps could lay claim to be the most effective instance of international legislation in the entire history of commercial law.”4)Michael Mustill, Arbitration: History and Background, 6 J.Intl. Arb. 43 (1989). jQuery("#footnote_plugin_tooltip_4827_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4827_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

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References   [ + ]

1. ↑ M.Paulsson, The 1958 New York Convention in Action (Kluwer 2016), pp. 120-121. 2. ↑ M.Paulsson, The 1958 New York Convention in Action (Kluwer 2016), p. 121. 3. ↑ Kofi Annan, “Opening address commemorating the successful conclusion of the 1958 United Nations Conference on International Commercial Arbitration,” in Enforcing Arbitration Awards under the New York Convention – Experience and Prospects, 1 (United Nations 1999). 4. ↑ Michael Mustill, Arbitration: History and Background, 6 J.Intl. Arb. 43 (1989). 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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Diversity and Intergenerationality – Report on the Seminar “OGEMID and TDM past, present and future: a celebration”

Sat, 2018-05-19 23:43

Giammarco Rao

Back in the early 20th century, the business community created arbitration with the aim of offering an alternative to the perceived inadequacies of state courts in dealing with foreign parties, law, and claims. At the time, cases and claims were characterised by European, Mediterranean, and American elements. As a result, the arbitration community was described as:

“an Anglo-European (plus the odd American) gentlemen’s club, where everyone knew everyone else, either personally or by reputation, where arbitrators and counsel regularly lunched or golfed together, and where everyone was usually familiar with the style and proclivities of the members.”1) L. Barrington and R. Rana SC, ‘ArbitralWomen/TDM Special Issue on ’Dealing with Diversity in International Arbitration’ [2015] TDM4, 1-2. jQuery("#footnote_plugin_tooltip_7541_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7541_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In the last couple of decades, international arbitration has evolved. As pointed out by Adekoya,2) F. Adekoya, SAN, ‘Is International Arbitration Truly International – The Role of Diversity’ [2018] TDM. jQuery("#footnote_plugin_tooltip_7541_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7541_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); a notable increase of disputes from the Middle East and Africa can be seen from the statistics released by ICSID, the ICC, and the LCIA. However, the data on counsel and arbitrators do not reflect the diversity present in those disputes. International arbitration remains the domain of a selected number of persons.

It is against this backdrop that on 10 May 2018, academics and practitioners gathered at the conference OGEMID and TDM past, present and future: a celebration, held at Jones Day’s London offices, to discuss diversity and intergenerationality and celebrate OGEMID and TDM in the ten years since the passing of their founder, Professor Thomas Wälde.

Professor Wälde founded the discussion forum and publication to offer practically and academically sound tools for the fields of international arbitration, ADR, and international investment law.

The conference focused on the topics of diversity and intergenerationality central to Professor Wälde’s vision, enriched and shaped by the community he created. The introductory remarks, by OGEMID Moderators Baiju Vasani and Sophie Nappert, and TDM Editor Mark Kantor, focused on what that vision means. Baiju recalled that Professor Wälde’s objective was to include in arbitration people from all around the world, as well as from different generations, to test the status of established wisdom. This was reflected in the care and attention he gave, acting as an expert on one of Baiju’s cases as a young associate, to Baiju’s impressions and thoughts and to treat them on an equal footing as those of more experienced partners. Sophie paid tribute to Professor Wälde’s passion in creating a community dedicated to the discussion of different topics without any taboo. Mark highlighted the guidance that Professor Wälde offered to the world of arbitration, the purpose of TDM in delivering this guidance, and how TDM benefited from OGEMID. TDM is an online platform where scholars, practitioners, and government officials can communicate their ideas to the community to which they belong. The importance of the journal is demonstrated by the number of university subscribers, giving access to students and researchers in the field.

In true Professor Wälde fashion, the conference dealt with the topic of diversity and intergenerationality in international arbitration through a short panel discussion, followed by debate with the audience which highlighted different perspectives and angles on the issues.
To begin with, Dr Catharine Titi3) Catharine Titi is a Research Scientist at the French National Centre for Scientific Research (CNRS) and Member of the CREDIMI, Law Faculty of the University of Burgundy. She holds a PhD from the University of Siegen in Germany. jQuery("#footnote_plugin_tooltip_7541_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7541_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); pointed out that diversity is of paramount importance for two reasons. First, in truly multicultural environments, any person enhances the team by bringing to the table something unique connected to his or her background. At the same time, the members of the team do not take for granted any statement, and thus, team members come up with diverse angles, perspectives, and responses. However, Catharine noted that when choosing a candidate for a role, the choice should not be based on positive discrimination. Unless creating a team, when the role is to be taken by only one person, the process of selection should take into account the most capable person regardless of any diversity requirements. Moreover, she briefly commented that the underrepresentation of women in the international arbitration field might be due to a woman’s career choices. In the same way, she noted that the perception of women as being less authoritative than men might represent an issue to tackle.

In the second place, Dr Alessandra Asteriti4) Alessandra Asteriti is Junior-Professor for International Economic Law at the Leuphana University Lüneburg. She is also a post-doctoral researcher at the University of Glasgow, School of Law. jQuery("#footnote_plugin_tooltip_7541_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7541_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); put emphasis on the meaning of diversity and how it depends on the perspective from which it is taken into consideration. In particular, even though this would not be enough in certain circumstances, it was stressed that being part of a group is the first step to take, and only then, diversity of backgrounds and experiences could play a role. For example, it is not surprising that 71% of senior judges went to private school. As a result, it was submitted that there is a necessity to agree on the set of skills or qualities required to be the best for a role. In doing so, importance should be given to diversity so as to allow, for example, women not to run behind a model and necessarily match with that model.

Moreover, Guled Yusuf5) Guled Yusuf is a Senior Associate at Allen & Overy, London. jQuery("#footnote_plugin_tooltip_7541_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7541_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); touched upon the issue of geographic diversity by looking at the appointments in ICSID tribunals. In particular, attention was focused on the underrepresentation of African nationals as arbitrators in ICSID cases. In fact, counsel disproportionately appoint arbitrators from North America and Western Europe notwithstanding the presence of talented African nationals. Furthermore, Guled pointed out that diversity is relevant to the benefits of a tribunal in terms of legitimacy. Indeed, a multilateral system which lacks diversity could not truly be called multilateral. The involvement of all actors in the appointment system was raised as a remedy to the diversity issue, whereby law firms should appoint more diverse tribunals whereas States should keep up-to-date panels of arbitrators. In doing so, the efforts made by ICSID to provide parties with more diverse candidates would be facilitated.

Following the panellists’ remarks, four propositions were put forward by Baiju on how to face the challenge of diversity in international arbitration:

1. Too much emphasis is placed on gender diversity at the expense of regional diversity;
2. The Pledge is a valuable initiative but it does not have the desired effect;
3. Removing party appointment and leaving the appointments to institutions will facilitate the constitution of more diverse tribunals;
4. Doing away with arbitral secretaries will prevent arbitrators from handling overly large caseloads, and thus facilitate the appointment of newcomer arbitrators.

Catharine commented on the third proposition. In particular, she stated that, even though party appointment might come with some disadvantages, the rejection of the whole system should be discouraged since it is still a valuable one. Moreover, Guled noted that a closed list of arbitrators, as that provided by the Court of Arbitration for Sport, might offer an interesting solution to remedy the defects of the system.

As to the proposal of doing away with arbitral secretaries to force busy arbitrators to lighten their caseload, a member of the audience noted that what needs to be tackled is the underlying issue of large caseloads distributed amongst a limited number of individuals. The issue of diversity will not be solved by discouraging young professionals from entering the arbitration field via the tribunal secretary route. A participant suggested that deadlines as to when rendering the award might be the solution to that issue. Moreover, Baiju noted that that the appointment of diverse tribunal secretaries might offer an additional opportunity of introducing the diversity factor in arbitration.

Regarding the proposition that too much emphasis is put on gender diversity at the expense of regional diversity, it should be noted that attention is to be focused on both given that the gender and geographical elements might be combined. The main challenge is to appoint subjects who distinguish themselves not only by their gender but also by their backgrounds. On the one hand, regional diversity brings something uniquely related to the subject’s diverse background. On the other hand, the gender factor also brings diverse perspectives and angles. This is why their combination ought to be favoured and facilitated.

After briefly discussing potential areas of improvement for OGEMID and TDM, the closing remarks by Professor Maurice Mendelsohn QC emphasised their origins. By keeping the roots of OGEMID and TDM firmly in mind, we can look forward to the future of the community of professionals sharing interests and mutual respect, united under the vision of Professor Wälde.

In conclusion, this conference was the perfect example of how this growing community is carrying the torch of Professor Wälde’s vision by providing a lively, no-holds-barred discussion between passionate professionals of different generations and backgrounds.

The author is an LLM candidate in comparative and international dispute resolution at Queen Mary University of London.

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References   [ + ]

1. ↑ L. Barrington and R. Rana SC, ‘ArbitralWomen/TDM Special Issue on ’Dealing with Diversity in International Arbitration’ [2015] TDM4, 1-2. 2. ↑ F. Adekoya, SAN, ‘Is International Arbitration Truly International – The Role of Diversity’ [2018] TDM. 3. ↑ Catharine Titi is a Research Scientist at the French National Centre for Scientific Research (CNRS) and Member of the CREDIMI, Law Faculty of the University of Burgundy. She holds a PhD from the University of Siegen in Germany. 4. ↑ Alessandra Asteriti is Junior-Professor for International Economic Law at the Leuphana University Lüneburg. She is also a post-doctoral researcher at the University of Glasgow, School of Law. 5. ↑ Guled Yusuf is a Senior Associate at Allen & Overy, London. 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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Intra-EU Investment Arbitration Post-Achmea: A Look at the Additional Remedies Offered by the ECHR and EU Law

Sat, 2018-05-19 01:05

Xavier Taton and Guillaume Croisant

Linklaters

As it has been extensively discussed on this blog, in its landmark Achmea case the Court of Justice of the EU (“CJEU”) found the arbitration provision of the bilateral investment treaty (“BIT”) between the Netherlands and Slovakia to be incompatible with EU law.

This decision potentially affects the effectiveness of the roughly 200 BITs concluded between the EU Member States, although its overall implications are far from clear. Against that background, however, investors in EU Member States who object to State measures which have impacted their investments elsewhere in the EU might be expected to look for additional routes to a remedy. What might these be? Two, in particular, which stand out for closer analysis are the European Convention on Human Rights (“ECHR”) and the fundamental principles of EU law.

The European Convention on Human Rights

47 States, spanning from Iceland to Russia, are parties to the ECHR, including all the EU Member States. Several of the rights and freedoms enshrined in the ECHR and its additional protocols, such as the right to property, the right to a fair trial and the provisions on protection from discrimination, may be engaged in the event of excessive State intervention. State measures restricting those rights must be necessary to achieve a legitimate aim, and proportionate to the aim pursued.

In many Contracting States, the ECHR is directly applicable before domestic courts and has precedence over national law. Constitutional courts, in particular, usually construe the rights enshrined in their respective domestic constitution in light with the ECHR and the European Court of Human Right’s (“ECtHR”) case law. The applicant must first exhaust these domestic remedies, if they are available both in theory and in practice, before lodging a complaint with the ECtHR within a period of six months from the date on which the final domestic ruling was rendered.

If the ECtHR finds that there has been a violation of the ECHR, and if the internal law of the State concerned does not allow full reparation to be made, the ECtHR can afford a ‘just satisfaction’ to the injured investor. In the Yukos case for instance, the ECtHR awarded the record amount of almost EUR 2 billion to the companies’ former shareholders.

Fundamental principles of EU law

The internal market of the EU is based on four fundamental freedoms, namely the free movement of goods, persons, capital and services (which includes the freedom of establishment). Under certain circumstances, State measures jeopardising an investment may constitute an illegal hinder to these freedoms, in particular the free movement of capital and services. Pursuant to the CJEU’s case law, national measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty must (i) be applied in a non-discriminatory manner; (ii) be justified by imperative requirements in the general interest; (iii) be necessary and proportionate to these requirements; and (iv) be compatible with the fundamental rights, in particular the Charter of Fundamental Rights of the European Union and the ECHR (which, as we have seen, protect the investors’ rights to property, to a fair trial and to be free from discrimination).

A selective advantage granted by a State or from State resources to certain companies over other investors may also be prohibited under EU State aid rules if they distort or threaten to distort competition and affect trade between Member States.

As it is the case for the ECHR, these fundamental principles of EU law are directly applicable before domestic courts and have precedence over domestic law. In addition, in a situation in which a Member State has failed to fulfil its obligations under the Treaties, the European Commission may request this State to amend its legislation and, should it refuse to do so, bring the matter before the CJEU. In theory, other Member States may also bring the matter before the CJEU but, for obvious political reasons, they have barely ever done so. This means that the investor does not have the right to initiate formally a Treaty action on its own but must file a complaint with the European Commission and convince this authority to take on its case. The investor will be afforded the possibility to intervene before the CJEU if the Commission were to launch infringement proceedings.

If the CJEU finds an infringement of EU law, it cannot itself award compensation to the investor but may only order the Member State to take specific steps to remedy its breach. The CJEU may only impose fines and/or penalty payments on the Member State if it fails to comply with the judgment. However, this judgment will constitute a precedent for a possible claim for damages against the Member State (and, under State aid law, for the Member State against the aid beneficiary) before domestic courts.

Use of parallel remedies

If an investor wishes to pursue its claim under an intra-EU BIT, would it also be able to, say, launch proceedings before the ECtHR? As we have already discussed in a previous post, where the claims carefully distinguish the causes of action (the investment rights on the one hand, human rights and fundamental freedoms on the other) and/or the precise plaintiffs to the actions (usually the shareholder(s) of a company operating in the State that allegedly violated the investment rights on the one hand, this latter company on the other), then objections based on lis pendens and similar issues would face much more difficulties. This distinction is especially important when the arbitration provision of the BIT provides for a so-called “fork in the road” provision which requires investors to choose a single avenue of relief at the outset of the dispute and preclude them from switching forums after having filed a request for arbitration or having started proceedings in court.

Since investors are not direct parties to the proceedings provided for at EU level, there seems to be no legal objection to the introduction of a complaint before the European Commission in parallel to investment arbitration proceedings and/or an application before the ECtHR.

Conclusion

As briefly outlined in this post, investors opposing what they see as excessive intervention from EU Member States are not limited to investment arbitration but may resort to additional or alternative remedies under the ECHR or EU law. In the post-Achmea world we can expect that investors are increasingly likely to consider these in their assessment of the potential remedies available to them in any given case; each offering a contrast in terms of procedures, substantive rules, chances of success, remedies and enforcement mechanisms.

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The Standard of Attorney-Client Privilege In International Arbitration: Is The “Most Protective Law” The Right Answer?

Thu, 2018-05-17 23:36

Ibrahim Mohamed Nour Shehata

The concept of attorney-client privilege is a unique creation of common-law jurisdictions which has influenced all types of legal regimes over the world. Common-law regimes developed such a concept to curb the wide sphere of document production and discovery in litigation. As the name of the concept entails, it was created as a privilege for the client. The rationale was mainly fostering candid communications between clients and their attorneys which would typically improve the quality of legal advice across the spectrum.

On the other hand, civil-law jurisdictions view the issue from a different perspective. As a starting point, discovery is very limited in civil-law countries as the purpose of document production is not the search for the truth. Accordingly, there was no reason to develop such a concept since the scope of document production is rather narrow. However, civil-law countries developed a concept which had similar attributes to attorney-client privilege, namely the attorney’s duty of confidentiality or the legal professional privilege. The rationale was rather similar as well; it was promoting the quality of legal advice. In sum, both concepts are different in their nature, and scope, but share the same purpose which is enhancing the legal representation of clients.

However, the divide between common-law and civil-law countries in attorney-client privilege is utterly a myth. In fact, there is not a uniform concept of attorney-client privilege even within common-law jurisdictions nor within civil-law jurisdictions. In the words of Möckesch, “[a]lthough the US attorney-client privilege and the work-product protection are the approximate equivalents of the English legal advice privilege and litigation privilege, the laws of the United States and England equally differ in many respects.”1)Möckesch, “Attorney-Client Privilege in International Arbitration”, at para 6.40. jQuery("#footnote_plugin_tooltip_9177_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9177_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); There is another myth, namely,that attorney-client privilege is broader in common-law jurisdictions than civil-law jurisdictions. For instance, if you look at the German law in particular, you can easily argue that the scope of attorney-client privilege is far broader than common-law jurisdictions. In fact, German attorney-client privilege extends to business and financial advice. Also, German and Swiss laws protect information/facts rather than communications, which could prove far more protective in several situations. Shattering these myths complicates things even more when we face a conflict of laws situation, and especially in international arbitration.

In this respect, international arbitration began to develop best practices and standards by the end of the 20thcentury; it started to develop unique features that gather various doctrines of law from both common-law and civil-law jurisdictions. For example, the International Bar Association introduced its rules on the Taking of Evidence in 1999 which were further updated in 2010 (the “IBA Rules”) to offer guidance for arbitral tribunals when dealing with evidentiary issues. The IBA Rules have delivered a standard of document production that could be considered broader than most civil-law jurisdictions, and narrower than most common-law jurisdictions. As for attorney-client privilege, it has been widely recognized as a valid defense against requests for document production under the IBA Rules.2)Born, “International Arbitration”, (Kluwer Law International 2012) 187; Kuitkowski, “The Law Applicable to Privilege Claims in International Arbitration”, (2015) 32(1) J Int’l Arb 65, 80. jQuery("#footnote_plugin_tooltip_9177_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9177_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, there has not been a general consensus yet on the applicable standard of attorney-client privilege in international arbitration.3)Möckesch, “Attorney-Client Privilege in International Arbitration”, at para 8.01 jQuery("#footnote_plugin_tooltip_9177_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9177_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This opened up the debate between international arbitration scholars for the right answer to such a bottleneck. 

Most prominent scholars in international arbitration advocate for the adoption of a most protective or favored law approach. However, upon surveying approximately (40) published arbitral procedural decisions in international commercial and investment arbitration, this approach featured only once in an explicit manner in Poštová banka, a.s. and Istrokapital SE v. Greece (July 20, 2014). This could be due to one of two reasons; eitherthere is a wide gap between the literature and the practice on determining the applicable standard to attorney-client privilege in international arbitration. Otherwise, it might be in fact that such an approach has been impliedly embedded when arbitral tribunals craft an autonomous standard for attorney client privilege by applying general principles of attorney-client privilege that are highly protective of the parties or that favor the limitation of document production at the expense of expanding it.

However, I still think that the most protective law approach might not be adequate or feasible for international arbitration for three main reasons. (1) It requires a complex conflict of laws analysis: the arbitral tribunal needs first to determine the potential competing applicable laws and then determine which one is the most protective law. (2) It is not an easy task to determine the most protective lawat first glance, it may seem that attorney-client privilege in common-law countries is more expansive than the equivalent concept in civil-law countries. However, this is far from true for two reasons: First, there is no consensus within common-law countries or within civil-law countries to being with. Second, there are definitely some aspects where some civil-law countries provide for more protective features than in other common-law countries. (3) It does not take into consideration the sphere of document production: for instance, Germany and Switzerland are quite restrictive when it comes to in-house counsels. Imagine a dispute between German and Swiss parties where the arbitral tribunal decides to follow the IBA Rules. It seems that it would be rather unjust if the scope of attorney-client privilege is not aligned with the scope of document production.

In light of the inadequacy and infeasibility of the “most protective law” standard, we need to search for a superior approach. In this regard, I advocate for a transnational substantive and autonomous standard that could have three potential benefits. Firstly, this approach would comport with the discretion of the arbitral tribunals and would allow them enough leeway to cherry-pick the applicable standard to the parties. Secondly, this approach would align with the scope and purpose of document production under the IBA Rules. Finally, this approach would be able to eliminate the need to conduct any conflict of laws analysis which may prove problematic in several situations as highlighted above.

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References   [ + ]

1. ↑ Möckesch, “Attorney-Client Privilege in International Arbitration”, at para 6.40. 2. ↑ Born, “International Arbitration”, (Kluwer Law International 2012) 187; Kuitkowski, “The Law Applicable to Privilege Claims in International Arbitration”, (2015) 32(1) J Int’l Arb 65, 80. 3. ↑ Möckesch, “Attorney-Client Privilege in International Arbitration”, at para 8.01 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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Arbitral Seats – An Empirical Overview

Wed, 2018-05-16 17:56

Stavros Brekoulakis and Adrian Hodiș

            On 9 May 2018, the School of International Arbitration at Queen Mary University of London, in partnership with White & Case LLP, launched the Report of the 2018 Queen Mary/White & Case International Arbitration Survey: The Evolution of International Arbitration. As its title suggests, the survey sought to assess user perceptions of the evolution of key issues in international arbitration, both by looking at recent developments but also by challenging respondents to predict what the future of international arbitration might hold in store. The findings of the survey draw from 922 questionnaire responses and 142 interviews. The record number of responses and interviews, as well as the wide geographical spread of contributing users [1], make this survey the most comprehensive empirical study that has ever been conducted in international arbitration.

One of the key topics addressed by the 2018 Survey is the recent evolution of arbitral seats. In particular, the survey sought to identify (1) the seats that users prefer, and (2) what drives their preferences.

  • Preferred seats
  • Global rankings

In our 2015 Survey, seven seats emerged as the most popular amongst respondents, in the following order: London (47%), Paris (38%), Hong Kong (30%), Singapore (24%), Geneva (17%), New York (12%), and Stockholm (11%).[2] Three years later, perhaps unsurprisingly, the top seven ranking of the most preferred seats is populated by these same seven cities. What is more, their order of preference is also largely left unchanged: London (64%), Paris (53%), Singapore (39%), Hong Kong (28%), Geneva (26%), New York (22%), and Stockholm (12%).

Among these well-established seats, London and Paris particularly continue to reinforce their leading positions in the market, with London surging ahead of Paris by a margin of more than 10%. It remains to be seen, of course, whether Brexit will impact in any way this established duo. The only variation from the 2015 survey is the change in the order between Singapore and Hong Kong. Singapore now features third (from fourth in the 2015 Survey) with a significant rise in its popularity from 24% in the 2015 Survey.

Beyond these seats, it is noteworthy that we received a record number of more than 140 distinct entries of cities and countries across all continents (except Antarctica). Here, countries like the United Arab Emirates, Nigeria, India, and Poland are just several jurisdictions whose seats were nominated twenty times or more. In fact, the lower segment of the top most preferred seats worldwide (i.e. outside the top seven ranking) is occupied by a rather eclectic group: São Paulo takes eighth place (8%), followed closely by Zürich (8%),[3] Vienna (6%), Washington, D.C. (5%), Miami (4%), the Hague (4%) and Rio de Janeiro (3%). These findings reflect the truly global nature of international arbitration, as well as the amount of choice users enjoy.

Having said that, it is also noteworthy that the seven most popular seats have collectively increased their popularity by an average of approximately 11% compared to their respective 2015 figures. It appears that these seven seats form a group of “elite seats” which enjoys excellent popularity among users and that it is likely that their dominance will further consolidate in the future.

  • The regional picture

While the global rankings may reflect a reinforced consolidation, rather than fluctuation, the regional standings show slightly different dynamics. An analysis of subgroups of respondents based on the geographic regions[4] where they principally practise or operate revealed both consistencies, as well as some variations.

On the one hand, London and Paris feature in the top four most preferred seats in all regions, thus establishing themselves as truly global hubs for international arbitration. Most notably, London secured the top spot in every region, albeit by a small margin in Asia-Pacific and Latin America. Singapore was also among the top four choices in all regions, except Latin America.

On the other hand, it is noteworthy that the standings vary depending on the region. Singapore, for instance, was the second most preferred seat in Asia-Pacific, ceding the top spot to London by only a tiny margin. Another example was São Paulo which, although fell just short of making the top seven seats worldwide, came fourth in the Latin American subgroup. In Europe, Geneva took the third spot as Hong Kong fell to the seventh. In the two Americas, New York climbed up to third place while Africa and the Middle East reported a particular appreciation for Geneva, putting it in third and fourth place, respectively.

  • Reasons for preferring a given seat

        Data shows that the factors that decisively shape most users’ preferences for certain seats are relatively few. Respondents expressed that the most important driver for preferring a certain seat relates to its “general reputation and recognition” (14%), closely followed by “neutrality and impartiality of the local legal system” (13%), “national arbitration law” (12%), and “track record in enforcing agreements to arbitrate and arbitral awards” (11%).

The most selected reason, namely the seat’s general reputation and recognition, may be indicative of the fact that users tend to assess seats from a macro perspective, that they are perhaps prone to give considerable weight to a seat’s general perception in the international arbitration community, rather than engaging right away in a thorough scan of its features.

The other three most important reasons voted by respondents essentially revolve around the ‘formal legal infrastructure’[5] of a given seat. In other words, users are particularly looking to make sure that the arbitration laws and the local judiciary at the seat of their choice are supportive of the arbitral process and provide sufficient indications of predictability and impartiality. In particular, respondents look at whether, and to what extent, the national arbitration law is based on the UNCITRAL Model Law and whether the country concerned is a signatory of the New York Convention (although this is nowadays more likely than not). What respondents tend to evaluate, then, are the core features of the local legal system, as seen through the lens of an arbitration user. Ultimately, a seat’s “general reputation and recognition” is in effect primarily comprised of, and underpinned by, these exact systemic features reflected in the other three most selected reasons for preferring that seat. It can therefore be argued—and the very close figures indeed suggest—that all of these four reasons should be read holistically.

One of the key—though perhaps slightly overlooked—takeaways from our research into seats is that arbitration is a truly global phenomenon. As 97% of respondents indicated that international arbitration is their preferred method of dispute resolution and more than 99% of the same sample expressed that they would choose or recommend international arbitration for future cross-border disputes, we have reason to believe that the practice of international arbitration will reach uncharted territory in the foreseeable future.

[1]Based on where respondents principally practise or operate, responses were collected from users on all continents, except Antarctica.

[2]2015 Queen Mary/White & Case International Arbitration Survey, at p. 12 (Chart 8).

[3]As was the case in 2015, Switzerland seems to be a particularly popular jurisdiction given that 38% of respondents included at least one Swiss city or Switzerland itself in their answers. Among the Swiss cities, Zürich is the second most popular seat after Geneva.

[4]The 2018 Survey uses the following six regions to present its findings: Europe, Asia-Pacific, Latin America, North America, Africa, and the Middle East.

[5]The phrase was coined in the 2010 Queen Mary/White & Case International Arbitration Survey (see p. 17 et seq.).

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How Can We Tackle the Problem of Non-Binding Judgments as to the Validity of an International Arbitration Agreement within the Context of EU Law?

Wed, 2018-05-16 03:04

Julio-César Betancourt

The Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters of 27 September 1968 was superseded by Council Regulation (EC) 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters. The latter was subsequently repealed by Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Recast) (“the recast Regulation”).

The recast Regulation contains a new set of rules relating to the recognition and enforcement of judgments in civil and commercial matters within the Member States’ territory. Arbitration has always been excluded, not only from the scope of the Brussels Convention, but also from the scope of both Regulations. However, the so-called ‘arbitration exception’ and, especially, the question of whether or not a Member State’s court judgment on the validity of an arbitration agreement is binding on the rest of the courts of the Member States has, for all time, been the subject of a tortuous and lengthy saga.1) For a complete overview of the episodes in the ongoing saga of the arbitration exception, Julio-César Betancourt, ‘State Liability for Breach of Article II.3 of the 1958 New York Convention’ (2017) 33 Arbitration International 215-227. jQuery("#footnote_plugin_tooltip_2862_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2862_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In line with the previous legislation, Article 1(2)(d) of the recast Regulation makes clear that it ‘shall not apply to … arbitration’, and Recital 12, paragraph 2, of the said Regulation stipulates, inter alia, that ‘[a] ruling given by a court of a Member State as to whether or not an arbitration agreement is null and void, inoperative or incapable of being performed should not be subject to the rules of recognition and enforcement laid down in this Regulation’, meaning that these kinds of judgments are not inherently binding or, put differently, do not invariably attain res iudicata effect as between Member States.

This does not mean that the relevant judgment cannot be given effect in the Member States in accordance with the rules that are intended to regulate the effects of a foreign judgment in their respective jurisdiction, but rather that the recast Regulation cannot be invoked with a view of obtaining its recognition and enforcement. In other words, judgments that do not fall within the ambit of the recast Regulation (i.e., non-regulation judgments) might well be recognised and enforced in another Member State under a different set of rules, but certainly not under such a Regulation.

Recital 12, paragraph 2, of the recast Regulation managed to solve one of conflicts that arose under the previous Regulation vis-à-vis the New York Convention 1958. In National Navigation Co v Endesa Generacion SA (The Wadi Sudr), the English Court of Appeal held that the United Kingdom’s obligation under the New York Convention to give effect to arbitration agreements did not exempt an English court from its duty to enforce a decision of a court of a fellow Member State and co-signatory of the New York Convention (i.e. Spain) that there was no arbitration clause.

In that case, it would seem to be clear that the validity of the agreement to arbitrate should have been judged on the basis of English law (the law applicable to the arbitration agreement), and yet the Spanish court — curiously — decided that the agreement in question was not valid pursuant to Spanish law. As a result, the party against whom court proceedings were wrongly initiated in breach of such an agreement, was unable to counteract the effects of the Spanish judgment, which, for better or for worse, was considered to be binding on the Court of Appeal.

The recast Regulation is no doubt to be welcomed by the international arbitration community. Among other things, it reverses the English Court of Appeal’s decision in The Wadi Sudr, which, unquestionably, led to an undesirable result. From now on, it can be said that, as a matter of EU law, the Member States’ courts will not be prevented (in principle) from asserting their own view as to whether a given arbitration agreement is valid, irrespective of any previous judgments to the contrary, and ‘regardless of whether the court decided on this as a principal issue or as an incidental question’.2) Recital 12, paragraph 2, of the recast Brussels Regulation. jQuery("#footnote_plugin_tooltip_2862_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2862_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

At first glance, Recital 12, paragraph 2, of the recast Regulation may appear to be a rather promising solution. On a closer examination, however, this solution might not be as promising as it seems, mainly because the question of whether an arbitration agreement is null and void, inoperative or incapable of being performed (“the validity issue”) could be litigated — and relitigated — before the courts of, practically, various Member States. Thus, this recital, if interpreted literally, would flagrantly run against the principle of legal certainty, which is said to be one of the general principles of EU law.

Recital 12, paragraphs 1 and 2, of the recast Regulation somehow implies that, under EU law, the national courts of the Member States have been granted jurisdictional power to examine and make a non-binding determination as to the validity issue. But what if the arbitration agreement contains a choice-of-court agreement in favour of a court a Member State? Or more exactly, what if the arbitration agreement itself sets out that the courts of a given Member State are to have exclusive jurisdiction so as to consider, once and for all, the validity issue?

This question can be answered by looking at Recital 12, paragraph 3, in conjunction with Article 73(2) of the recast Regulation. Recital 12, paragraph 3, posits that the New York Convention takes precedence over such a Regulation, thereby inferring that the former is hierarchically superior to the latter. Article 73(2) of the recast Regulation states that it ‘shall not affect the application of the … New York Convention’. The Convention, which has been ratified by 159 countries, including all EU Member States, provides that Contracting States are bound to recognise and enforce arbitration agreements.

In Giuseppe Manfredi v Regione Puglia, the Court of Justice of the European Union held, among other things, that recitals ‘cannot be relied upon to interpret [a Regulation] … in a manner clearly contrary to its wording’. Therefore, it can be argued that Recital 12, paragraphs 1 and 2, of the recast Regulation should not be interpreted to mean that the parties to an arbitration agreement whose validity has been challenged before the court of a Member State have an inalienable right to secure a judgment on the matter from the court seized of the case in question.

Nor should it be interpreted to mean that the national courts of the Member States are not legally bound to recognise and enforce a judgment on the validity issue stemming from an arbitration agreement whereby the parties have agreed to refer this issue to a chosen court. Adrian Briggs, Professor of Private International Law at the University of Oxford, explains that it is ‘perfectly possible to find a reason to recognize judgments … by focusing …  on the conduct of the parties in relation to each other as giving rise to a mutual obligation, owed by each to the other, to abide by a judgment’.3) Adrian Briggs, ‘The Principle of Comity in Private International Law’ in Collected Courses of The Hague Academy of International Law (The Hague Academy of International Law 2012) 152. jQuery("#footnote_plugin_tooltip_2862_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2862_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In view of the foregoing, it is submitted that a private — or exclusive jurisdiction — agreement to abide by the court’s judgment of a given forum (e.g., the English courts) with the underlying purpose of finally disposing of the validity issue should be readily recognised and enforced by the courts whose jurisdiction it purports to exclude pursuant to Article II of the New York Convention. This is so regardless of whether the chosen court is located within or outside the EU. It is immaterial whether the non-chosen court was first seized.

It is evident that the non-chosen court does not (or should not) have the power to decide whether the exclusive jurisdiction agreement is valid, otherwise, it would be very easy to defeat the object of such an agreement. Nor does it have the power to entertain the matter if it is contended that the contract to arbitrate ‘containing the agreement on jurisdiction is [null and void, inoperative or incapable of being performed], not least because the latter is juridically distinct from the [former]’.4) Cf Adrian Briggs, The Conflict of Laws (3rd edn, Oxford University Press 2013) 78. jQuery("#footnote_plugin_tooltip_2862_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2862_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This holds true even if the chosen court eventually decides that the arbitration agreement itself is not valid.

It remains to be seen, however, whether these types of agreements will withstand judicial scrutiny, as their validity has yet to be tested in the Member States’ courts.

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References   [ + ]

1. ↑ For a complete overview of the episodes in the ongoing saga of the arbitration exception, Julio-César Betancourt, ‘State Liability for Breach of Article II.3 of the 1958 New York Convention’ (2017) 33 Arbitration International 215-227. 2. ↑ Recital 12, paragraph 2, of the recast Brussels Regulation. 3. ↑ Adrian Briggs, ‘The Principle of Comity in Private International Law’ in Collected Courses of The Hague Academy of International Law (The Hague Academy of International Law 2012) 152. 4. ↑ Cf Adrian Briggs, The Conflict of Laws (3rd edn, Oxford University Press 2013) 78. 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 – April Digest

Tue, 2018-05-15 03:01

Anna Howard

In April we welcomed two new regular writers to the blog: Rick Weiler from Canada and Alan Limbury from Australia. The usual breadth of posts continued last month with posts from writers in New Zealand, Germany, Singapore, Romania, Scotland, the UK, Canada and Australia. A brief summary of each of last month’s posts appears below. If you would like to receive more regular updates from the Kluwer Mediation Blog, please subscribe to the Kluwer Mediation Blog’s email notifications here.

In “Online Resources for unrepresented clients in mediation: enhancing participation”, Ian Macduff considers the recent developments in the UK and New Zealand regarding the provision of online legal information for prospective litigants and the development of online courts. In light of the rise of unrepresented disputants and the proliferation of digital tools, Ian asks what we might be able to achieve for those disputants in order to enhance the prospects of effective participation in mediation.

In “The value of mediation training: an interview with a recent training graduate”, Greg Bond interviews Larissa Wille-Friel who recently trained as a mediator at the University of Applied Sciences Potsdam (Germany). A key theme which emerges from the interview is the benefits which mediation training can bring for people whose aim is not to become mediators. Greg notes how mediation training can change people’s lives and to borrow Greg’s words:

“If I were to sum up the effect of this (when it is done and goes well) in one word, then that word would be empowerment.”

In “Court-referred ADR: The view from the Bench”,  Alan Limbury shares some of the key findings from research conducted by Dr Nicky McWilliam and Dr Alexandra Grey on judges’ perceptions of court-referred ADR in Australia. Alan considers some of the interesting differences in judicial perception and behaviour identified in the research and notes that the increasing numbers of law graduates who have studied ADR will eventually influence the perception of lawyers and judges of ADR.

In “Does the world need an international negotiation initiative“, Michael Leathes draws on his recent book (Negotiation: Things corporate counsel need to know but were not taught) to explain the key components of the proposal for an International Negotiation Initiative (“INI”). Michael invites the readers to influence the current conversation on the INI.

In “What street fighting can teach mediation”, Marcus Lim uses electronic fighting games and, in particular, EVO Moment #37 to identify similarities between masterful mediators and street fighters. These include the use of preparation, framing and patience.

In “What amicably means in a dispute resolution clause”, Constantin-Adi Gavrila considers the meaning of “amicably” in the context of the requirement on parties, as is often seen in dispute resolution clauses, to amicably settle disagreements arising from their contracts.  Constantin also considers whether dispute resolution clauses should be more prescriptive regarding this “amicable” requirement.

In “A neuro-linguist’s toolbox- rapport: representational systems (Part 1)”, in the third of a series of posts on neuro-linguistic programming, Joel Lee explores how we can build rapport using representational systems. The term “representational systems” refers to the various ways of representing the world which include visual, auditory, kinesthetic, olfactory, gustatory and digital representations.

In “Mind Games”, Charlie Woods describes mediation as a process that seeks to convert what is apparently a zero or negative-sum game into a positive-sum game. Charlie then draws on game theory to explore how mediation can help in achieving a positive-sum approach.

In “Whither (wither) mediation?”, Rick Weiler draws on his extensive experience as a mediator to identify troubling trends in commercial mediation in Ontario. Rick then proposes various options to address these trends, including education, community, regulation, professionalisation and promotion.

In “Effective paperwork in mediation”, Geoff Sharp notes how mediation has become a more paper-intensive process over the years. Geoff uses Justice Susan Glazebrook’s no-nonsense guide to effective written submissions to provide guidance for those preparing litigated cases for mediation.

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Singapore High Court Finds that an Arbitral Tribunal is Empowered to Disregard the Parol Evidence Rule

Mon, 2018-05-14 07:00

Jordan Tan and Joel Ng

The Singapore High Court in BQP v BQQ [2018] SGHC 55 (judgment rendered on 14 March 2018) (the “Judgment”) dismissed a challenge against an arbitration tribunal’s award on jurisdiction and in so doing confirmed that where parties have agreed that the tribunal shall determine the relevance, materiality, and admissibility of all evidence, the tribunal would be entitled to disapply traditional common law evidentiary rules on the admissibility of parol evidence in contractual interpretation. The broader significance of this decision is that where parties have agreed to institutional rules which empower the tribunal to determine the admissibility of evidence (such as Rule 16.2 of the SIAC Rules 2013 which was in issue in this case), the parties should appreciate that the tribunal may even disapply established rules of evidence relating to the interpretation of contracts i.e. doctrines which may be perceived as part and parcel of contractual interpretation.

The decision in BQP v BQQ

In BQP v BQQ, BQQ commenced SIAC arbitration against BQP and its nominee company, alleging breaches of contract in relation to an agreement for the supply of round logs. BQP argued that on its proper construction, that agreement had been superseded by a subsequent agreement providing for BANI arbitration, and challenged the tribunal’s jurisdiction on this ground. BQP failed in its jurisdictional challenge before the tribunal and appealed to the Singapore High Court pursuant to s 10 of Singapore’s International Arbitration Act. The High Court (Quentin Loh J) dismissed BQP’s appeal and refused to grant leave to further appeal to the Singapore Court of Appeal.

The High Court made the following observations:

1. First, S.2(1) of the Singapore Evidence Act (Cap 97.) expressly provides that Parts I, II and III shall not apply to proceedings before an arbitrator – this includes the rules relating to the admission of parol evidence to interpret an agreement. The Judge took the view that this was “unsurprising”. One major rationale for resort to arbitration was to avoid the national laws of countries shackling the parties’ quest for expeditious and practical dispute resolution. The Judge opined that to a businessman from a civil law country, concepts like the parol evidence rule do not make much sense (see Judgment at [126]). Indeed, the authors also note that the general prohibition on evidence of pre-contractual negotiations was also memorably excoriated by common law judges such as Lord Nicholls, who in his extrajudicial writing criticized the prohibition as “perverse” for tending to withhold from the adjudicator’s consideration “the best evidence of all” of the parties’ intentions (see Donald Nicholls, My kingdom for a horse: the meaning of words [2005] LQR 577, p.583).

2. Second, the SIAC Rules 2013 (which governed the arbitration in question) provided that “The Tribunal shall determine the relevance, materiality, and admissibility of all evidence. Evidence need not be admissible in law”. This, in the learned Judge’s view, made it clear that evidential questions of admissibility, relevance and materiality were therefore clearly “within the sole province of the tribunal”.

3. Third, the High Court took the view that the question of whether evidential rules relating to contractual interpretation was to be classified as a question of evidence or procedural law to be left to the arbitrator or a question of contract law which governs the substantive rights of the parties has been settled by the Singapore Court of Appeal in Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] 4 SLR 193 in favour of the former. It should be noted that this issue is not settled in all jurisdictions – for instance, Julian D.M. Lew, Loukas A. Mistelis & Stefan M. Kröll (citing New York law) have described the parol evidence rule as lying “in the grey zone between substance and procedure” (Comparative International Commercial Arbitration (The Hague: Kluwer Law International, 2003), p. 558).

Implications beyond Singapore-seated arbitrations

1. Interpretation of other arbitral rules: The High Court’s observations are not limited to
Singapore seated arbitrations or arbitrations under the auspices of the SIAC Rules. The Court specifically noted at [128] of the Judgment that other arbitral institutions have a rule similar to the SIAC rule under consideration, naming: the LCIA Rules, the UNCITRAL Arbitration Rules, the HKIAC Rules, the AAA procedures, and the Korean Arbitration Act.  The Court additionally noted, in that same paragraph, that even though the ICC Rules do not contain a similar provision, it is generally accepted that the tribunal has the inherent power to decide such evidential issues.

2. Interpretation of the IBA Rules: Further, the High Court’s observations should apply with
equal force when interpreting and applying the IBA Rules on the Taking of Evidence in
International Arbitration 2010 (“IBA Rules”). The IBA Rules were referred to with approval by the High Court at [130] of the Judgment as rendering invalid floodgates concerns about
admitting evidence of pre and post-contractual conduct in contractual interpretation.
a. As with the institutional rules discussed above, the IBA Rules provide at Article 9.1
that “The Arbitral Tribunal shall determine the admissibility, relevance, materiality and
weight of evidence”. Constraints on this broad discretion are contained in Article 9.2,
which provides that the tribunal “shall, at the request of a Party or on its own motion,
exclude from evidence or production any Document, statement, oral testimony or
inspection for any of the following reasons”.

b. Conspicuously, these “reasons” do not include the situation where a domestic rule of
evidence proscribes the admission of that document. Indeed, their operation turns
largely on the tribunal’s exercise of discretion, since several reasons can only be relied
on to exclude evidence if the Tribunal determines that reason to be compelling (see
Articles 9.2(e) to (g)). This is unsurprising. As the drafters stated in the Commentary
to the the 2010 IBA Rules, the Rules were intended to fill the intentional gaps in
arbitral rules of procedure and thereby minimize conflicts between the parties as to
how the case should proceed – “particularly…when the parties come from different
legal backgrounds and cultures”.

c. As discussed above, the High Court echoed the drafters’ concern that international
arbitration should be unshackled by the individual quirks of national rules of
procedure. The decision in BQP v BPP therefore should therefore provide comfort and
confirmation that the IBA Rules will be applied so as to realise this shared objective.

Takeaways

The key takeaway from this decision is that parties must be careful to appreciate that agreeing to institutional rules which empower the tribunal to decide admissibility of evidence may extend to allowing the tribunal to disapply (or conversely, to apply) evidential rules which might ordinarily be perceived as part of the substantive contractual principles, for example, the parol evidence rule in this case.

That being said, parties may welcome the opportunity to circumvent the eccentricities of the
applicable national law simply by careful selection of the appropriate institutional rules. BQP v BPP provides parties with some ammunition to avoid results such as that reached in Azpetrol Oil Services Group B.V. v Republic of Azerbaijan (ICSID Case No. ARB/06/15) (“Azpetrol”), where the ICSID tribunal held it was precluded by English contract law from considering evidence of prior negotiations and post-contractual conduct in construing an English law-governed contract (see Azpetrol at [72], [90]).

It may be that because this issue of the application of domestic rules of evidence was not substantially argued before the tribunal that this result was obtained. If one, however, considered Rule 34(1) in Chapter 4 of the ICSID Convention Arbitration Rules which provides that “the Tribunal shall be the judge of the admissibility of any evidence adduced and of its probative value”, this issue could actually have been ventilated even further had more extensive submissions on the point been made. Indeed, the relevant arbitral rule in the Azpetrol decision is largely similar to those considered in BQP v BPP,
and with the benefit of the reasoning in the latter decision, a tribunal deciding Azpetrol today might reach a different result.

Finally, disapplying domestic rules of evidence in the arbitral arena is unlikely to leave tribunals in a procedural no-man’s land. As the authors of Evidence in Investor-State Arbitration found, tribunals display a reasonably consistent practice of drawing inferences, using presumptions and excluding evidence on familiar principles such as privilege, confidentiality or public policy. The decision in BQP v BPP will continue to further the trend of tribunals applying autonomous principles of admissibility of evidence rather than exhibiting complete deference to national laws of evidence.

 

Note: The contributor Joel Ng is currently a trainee with the firm Clifford Chance Asia.

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Why We Don’t Need Blockchain to Manage Cases in International Arbitration

Sat, 2018-05-12 20:23

Ashish Chugh

Until a few decades ago, international arbitration was perceived to be a quick and inexpensive way of resolving disputes. However, the proliferation of legal rules, the disclosure of voluminous documents, complex technical evidence and over-lawyering have, to a large extent, hollowed that boast and made it appear somewhat of an urban myth.

Quite recently though, we have been told that blockchain might be the panacea for several of those ills.1)See GAR article “Is blockchain the future?” 14 March 2018 and Law360 article “Blockchain will improve International Dispute Resolution” 14 March 2018. jQuery("#footnote_plugin_tooltip_9494_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9494_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Given the current euphoria surrounding potential uses of blockchain in almost every industry, it is unsurprising that the international arbitration community is excited to see how this emerging technology can be used in international arbitration.

However, the main difficulty with any potential application of blockchain in the area of international arbitration is that the resolution of disputes does not require the use of ledgers in the same way that they are needed to, for example, record cross-border payments in the finance services sector or property rights in the real estate industry.

This is what appears to be blockchain’s core strength. It is a digital ledger that is decentralised (i.e. there is no single controlling entity), distributive (i.e. the ledger is shared, processed and synchronised over a vast network of computers or “blockchain nodes”) and almost incorruptible because it would be extremely difficult to alter retrospectively an entry which has been recorded on the ledger without altering all of the subsequent entries recorded on it. These entries (or “blocks” of data) are linked or “chained” together by using cryptography and time-stamping giving blockchain its unique name.

Blockchain accordingly allows us to rely on a continuously-growing record of economic transactions on a digital ledger without the need for a trusted third party to validate those transactions. Users are willing to trust a given blockchain ledger because it will be highly improbable for anyone to be able to manipulate the ledger. Thus, for example, a blockchain property title ledger could possibly record the particulars of specific properties, including their exact location, title details and ownership history. If buyers and bankers are able to rely on this information at face value, it is a no brainer that it would serve to reduce costs as well as to simplify and expedite property transactions.

With specific reference to international arbitration, there are cogent technological reasons which will make it difficult for the management of an arbitration reference to be conducted in a blockchain platform in the foreseeable future.

These technological reasons stem from blockchain’s own limitations (i.e. it is actually quite slow and expensive to store massive volumes of data on a blockchain ledger). We know for a fact that, for example, the blockchain-based Bitcoin can only process 1MB of data every 10 minutes. Moreover, the current transaction cost of storing about 1KB of data on a public blockchain is reported to be well over US$2. Moreover, once data is actually stored on a blockchain ledger, it must be borne in mind that it is immutable and can never be deleted.

Thus, before a complete arbitration reference can be efficiently managed on a blockchain platform (as proposed by the groups such as the Smart Arbitration and Mediation Blockchain Application (SAMBA)), one needs to first find a way to effectively overcome the inherent shortcomings of blockchain technology.

It is also incorrect to suggest that we need blockchain to somehow bring us into a new era where hard copies of voluminous documents will no longer need to be served on the arbitral tribunal and the other parties by courier service.

On the contrary, contemporary practices in international arbitration show that, for the past several years, many arbitral tribunals have been able to effectively manage the filing of a large number of documents by the parties with the assistance of third-party cloud storage providers such as Dropbox, Amazon AWS and Google drives.

The real issue as to whether such a practice should continue to be used in international arbitral proceedings emanates from a concern that such cloud storage providers may not have adequate security protocols which can prevent major cyberattacks in the future. If they do not, it could potentially lead to the unauthorised disclosure of documents in the public domain and thereby undermine the confidential nature of the arbitral process.

In order to obviate this concern, the use of decentralised cloud storage systems is slowly gaining currency. Such systems are currently being commercialised by companies such as Storj, Sia and Filecoin. In short, in a decentralised cloud storage system, a document is encrypted and shredded into smaller parts and duplicated. The smaller files are then sent to different computers on a peer-to-peer network. This effectively means that in the event of a cyberattack against one specific computer, it will still not be possible to access the original document. The only way it would be possible is by using a private key to reconstruct and decrypt the original document with the aid of distributed hash table (DHT) technology. DHT technology notably predates blockchain and an earlier version was in fact used by companies (such as Napster and BitTorrent) to infamously share files over their peer-to-peer networks in the early 2000s.

Moreover, it is noteworthy that several arbitral institutions (such as WIPO, JAMS and the Court of Arbitration for Sport) have already introduced their own electronic case management systems, which allow parties and the arbitral tribunal to upload documents in relation to an arbitration reference on a secure website hosted by the arbitral institution. A blockchain platform is neither necessary nor currently used by such institutions to operate their electronic case management systems.

In conclusion, whilst the ingenious opportunities that blockchain presents are truly unprecedented and potentially revolutionary, it is unlikely that one of the significant applications of blockchain will be data storage or the creation of an electronic case management system for the complete conduct of an arbitration reference.

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References   [ + ]

1. ↑ See GAR article “Is blockchain the future?” 14 March 2018 and Law360 article “Blockchain will improve International Dispute Resolution” 14 March 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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Expedited Procedure Vis-à-Vis Party Autonomy, Enforceable?

Fri, 2018-05-11 19:17

Sacchit Joshi and Brijesh Chhatrola

The ICC Rules introduced expedited procedure with effect from March 01, 2017. With this, the ICC joined the league of other leading arbitration institutions such as SIAC, LCIA and HKIAC who had already incorporated expedited procedure. Courts across the globe have delivered uniform decisions, views in interpreting party autonomy except for a decision by the Shanghai Court. This conflict has led to some uncertainty in the discretion exercised in appointing arbitrators. This post will examine the decision of the Shanghai Court conflicting with other uniform decisions and views which have ignited the discussion on the subjectivity involved in interpreting party autonomy.

This post discusses the refusal of enforcement of an award under the expedited procedure by a Shanghai court. The Shanghai No.1 Intermediate Court, in the case of Nobles Resources Pte. Ltd. v. Good Credit International Trade Co. Ltd. (2016) refused to enforce a SIAC award passed under the expedited procedure (Rules of 2013). The court ruled that it is not in consonance with the intention of the parties and it does not uphold party autonomy. The agreement entered by the parties contained a clause providing for a three-member arbitration tribunal in Singapore. Subsequently, the vice – chairman of SIAC appointed a sole arbitrator under the expedited procedure who passed an award.

The Shanghai Court before which the enforcement of the award was litigated, held that the SIAC Rules did not empower the chairman to compel the parties to accept the jurisdiction of the sole arbitrator. Moreover, the agreement provided for a three-member arbitration tribunal that did not preclude the chairman of constituting the tribunal against the backdrop of the number of arbitrators stipulated in the agreement. It observed that the sole arbitrator had disregarded this objection and the intention of the parties reflected in the agreement specifying a three-member tribunal. As a result, the Shanghai Court refused to enforce the award delivered by the sole arbitrator. This decision was later affirmed by the PRC Supreme People’s Court as a part of their reporting system.

Conversely, two years before the Shanghai Court delivered its decision, the Singapore High Court in AQZ v. ARA [2015] SGHC 49 had discussed the issue of appointment of a sole arbitrator under expedited procedure despite the arbitration agreement specifying a three-member tribunal. A post by Gary Born and Jonathan W. Lim discussed the decision of the Singapore High Court. The crux of the post is that the High Court adopted a ‘commercially purposive’ stance and liberally interpreted the concept of party autonomy. The Court held that opting for the expedited procedure under SIAC Rules 2010 is indicative of the intention of the parties to accept the SIAC Rules in its entirety and not just one single rule. It is established that when parties opt for SIAC Rules they impliedly validate the discretion exercised by the SIAC president in appointing the arbitrators.

Thus, the duty of the court is limited to examining if the discretion has been ‘exercised properly’ by the president. If a judicious exercise of the discretion is ascertained and established, then it can override the parties’ agreement. In deciding so, the Shanghai Court heavily relied on the intention of the parties in the arbitration agreement, which provided for a three-member tribunal. It opined that the SIAC president ought to have used his/her discretion only against the backdrop of the stipulation of a three-member tribunal.

The job of a court in enforcing an award is not to sit in judgement on the procedure adopted in exercising discretion. If every court interferes with the discretion exercised by the president in appointing the number of arbitrators, it will give rise to subjective interpretations of the same rule. These subjective interpretations of the courts across the globe will cause confusing interpretations on party autonomy, thereby leaving parties in uncertainty. However, the Shanghai Court erred when it upheld the view that expedited procedure never deprived the president of constituting the tribunal against the backdrop of the number of arbitrators stipulated in the agreement. It held that the president was not empowered to appoint the sole arbitrator given the fact that the agreement provided for a three-member tribunal.

The Swiss Rules and the HKIAC Rules invite parties opting for the expedited procedure to modify the agreement in case of more number of arbitrators. Failure to modify the agreement results in party autonomy being preferred while effecting expedited procedure. Under the JCAA Rules, the expedited procedure is automatically applied to disputes below ¥20 million, but party autonomy prevails if the parties have agreed on more than one arbitrator.

Judicial precedents

The Bombay High Court (India) in Siddhi Real Estate Developers v. Metro Cash & Carry India Pvt. Ltd. & Anr. (2014) SCC Bom 623 held that sanctity of the party autonomy should be preserved whilst deferring the procedure for appointment of arbitrators and the courts should retain the power to appoint arbitrators.

Likewise, the Singapore High Court in AQZ v. ARA, ruled that by opting for SIAC Rules the parties had recognised the SIAC president’s power and discretion to appoint a sole arbitrator where the expedited procedure applied.

In Travis Coal Restructured Holdings LLC v. Essar Global Fund Ltd., the English High Court considered the ICC Rules opted by the parties in its entirety. It can be inferred that the court validated the summary procedure adopted by the arbitrators, as the same was within the discretion exercised by them. This discretion exercised was held to be consented by the parties when they opted for ICC Rules.

In W. Company v. Dutch holding Company (2012) 1 SAA 97, the court held that by choosing SIAC Rules to govern the arbitration, the parties had accepted the SIAC Rules in its entirety, including the expedited procedure under rule 5.

Deliberation & discussion

The interpretation of the Shanghai Court was dislodged when it held the SIAC president should not have composed a sole arbitrator tribunal. The consent of the parties for the whole of SIAC Rules validates the decision arrived at by the SIAC president. Thus, the discretion exercised by the president in appointing the arbitrator/arbitrators is implied by the parties when they choose the SIAC Rules in its entirety.

The decision in the Singapore High Court case has well laid down the jurisprudence in interpreting ‘party autonomy’ under institutional arbitration. Instead of relying on the established jurisprudence, the Shanghai Court misinterpreted the intention of the parties by not looking at the SIAC Rules in its entirety.

The SIAC Rules at the time of the dispute in the Shanghai Court were the SIAC Rules of 2013 (5th Edition) and at the time of the Singapore High Court decision were SIAC Rules of 2010 (4th Edition). Nonetheless, Rule 5 in both the above editions provided for the expedited procedure and it was duly applied in both these cases. Thereafter, in 2016 SIAC published its 6th Edition of Rules, and under Rule 5 of the (6th Edition) of SIAC Rules 2016, there has been an effective amendment in particular under Rule 5.3 which now states, –

Rule 5.2 shall apply even in cases where the arbitration agreement contains contrary terms.”

This amendment was introduced in order to completely eliminate the discrepancy governing the intention of the parties against the number of arbitrators appointed under the expedited procedure. Post this Amendment, even though the plain language of an arbitration agreement might mandate for a three-member or a higher numbered arbitration tribunal, in cases of expedited procedure it would be the sole discretion of the SIAC president to appoint the number of arbitrators, irrespective of the intention of the parties inferred from the arbitration agreement.

Conclusion

In light of the evolving jurisprudence in this area of arbitration, the Shanghai Court might have interpreted the agreement and party autonomy differently post the SIAC 2016 (6th Edition) Rules. However, the concept of party autonomy has been respected across the globe by varied courts whilst also adopting a commercially liberal construction. In the authors’ opinion, the appointment of a sole arbitrator proves to be the most efficient alternative on multiple fronts.

Firstly, a sole arbitrator would naturally be more expeditious in delivering decisions which is one of the fundamental purposes of opting for the expedited procedure. Secondly, the costs of a sole arbitrator would also outweigh the costs of a three-member arbitration tribunal. Ultimately, it would boil down to the intention of the parties and the language employed in drafting the arbitration agreement. Interpretational references are set to aggrandize with the advent of growing needs and demand for institutional arbitration.

The underlining principle of arbitration should be taken into account by every court in every country and the components of arbitration such as speedy redressal, minimal court intervention and a pro-business approach should be upheld. A smooth functioning mechanism to this effect, observed by the courts of the world would lead to a healthier environment for businesses to arbitrate.

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Demystifying the Nigerian Arbitration and Conciliation Bill 2017

Thu, 2018-05-10 20:41

Joseph Onele

Introduction

In March 2017, Senator Emmanuel Andy Uba introduced the Arbitration and Conciliation Act (Repeal and Re-enactment) Bill (the Bill). While the first reading of the Bill was done at the Nigerian Senate Chambers in March 2017, the second reading of the Bill was not done till April 2017 and only thereafter was it referred to the Senate Committee on Judiciary, Human Rights and Legal Matters. Meanwhile, the third reading of the Bill was not done till February 2018 and only thereafter was the Bill passed by the Senate of the Federal Republic of Nigeria.

The Bill, which is currently pending before the House of Representatives, the second legislative chambers of the National Assembly (the legislative arm of the Federal Republic of Nigeria), is expected to be passed and concurred to by the House of Representatives, before the Bill is ultimately submitted to the Nigerian President for assent, in order to take the force of law.

This article succinctly considers certain key provisions of the Bill and proceeds to make relevant recommendations on areas the Bill can be improved on by the members of the House of Representatives before the Bill is assented to by the President and takes full effect.

Key Provisions of the Bill

The Bill, laden with very innovative provisions that accord with international best practices in arbitration, seeks in the main to repeal the Arbitration and Conciliation Act Cap. A18, Laws of the Federation of Nigeria, 2004 (the ACA).

A cursory read of the Bill will reveal that the Bill, inter alia, seeks to:

• expand the requirement that an arbitration agreement must be in writing to include electronic communication;

• tacitly allow for third-party funding in Arbitration and defines third-party funding to mean an arrangement between a specialist funding company, an individual, a corporation, a bank, an insurance company or an institution (the funder) and a party involved in the arbitration, whereby the funder will agree to finance some or all of the party’s legal fees in exchange for a share of the recovered damages;

• allow a substitute Arbitrator to be appointed where the mandate of an arbitrator is either terminated as a result of a challenge from one of the parties to the arbitration agreement or where the arbitrator is unable to perform his or her functions or withdraw as arbitrator;

• guarantee the immunity of Arbitrators, Appointing Authority and Arbitral Institution from liability for anything done or omitted in the discharge or purported discharge of their ‘official’ functions;

• provide for the time within which an application to stay legal proceedings on the same substantive claim can be made;

• imbue the arbitral tribunal with the power to make interim or supplementary orders as may be deemed necessary, for the purpose of the preservation of the rights of parties, whenever an order for stay of proceedings is made;

• allow for the appointment of an Emergency Arbitrator to attend to any urgent relief any party to an arbitration agreement may have;

• guarantee the power of the arbitral tribunal to grant interim measures of protection, for the purpose of arbitration proceedings whose seat is the Federal Republic of Nigeria and equally provides for the conditions that must be satisfied for the grant of such interim measures; and

• imbue the Arbitral tribunal with the power to request that the party seeking an interim measure provide appropriate security in connection with the measure as well as make such party liable for any costs and damages caused by grant of such measure, amongst others.

Conclusion and Recommendations

Upon a careful reading of the Bill, it may not be out of place for one to assert that the Bill will go a long way in not only providing a more enabling cum friendly business climate for investors, but also further boost the reputation of Nigeria, aid the ease of doing business in Nigeria and consequently, help boost the Nigerian Economy, given how quintessential the need for certainty of disputes resolution is, when making any commercial agreement and/or arbitration agreement.

The foregoing notwithstanding, it is imperative for the provision of third-party funding to be given more elaboration in the body of the Bill as opposed to only appearing for the very first time in the ‘Definition Section of the Bill. The recognition of third-party funding in the Bill is a major innovation of the Bill and it is imperative this new development be properly given a befitting place in the Bill, whilst ensuring that all seemly existing potential obstacles to the realisation of the third-party funding in the Bill are swiftly and neatly dealt with. Additionally, the House of Representatives will equally be expected to do well to address the other shortcomings, which for want of space, the present writer is unable to fully address here but have been reasonably dealt with elsewhere by leading experts in Arbitration.

The Bill, when passed, is expected to positively influence the choice of Nigeria as the seat of arbitration in arbitration agreements by parties. It is certainly not out of place for one to remain positive that the Bill will encourage investors to consider Nigeria more as an investor-friendly country, as nothing could be discouraging to a potential investor than to have uncertainties permeating the legal climate of the country of proposed investment, worse still, where the dispute resolution of such a country is shrouded in mystery and secrecy.

The Bill, which is hoped will be warmly received and passed anon, upon necessary review by the House of Representatives (having addressed concerns made by all relevant stakeholders), is capable of attracting more Foreign Direct Investment in Nigeria as investors will be encouraged and gravitate more towards making investment in a country where there is an efficient and effective alternative dispute resolution mechanisms, backed up by legislation. The Bill becomes even more relevant when one realizes that litigation, given its sundry challenges, is finally giving way to ADR, as seen in recent times, not only here but also in other business climate. It will equally encourage parties to be more inclined to choose Nigeria as the seat of arbitration.

In all, the Bill is a very commendable one. It will, most certainly, go a very long way in enriching our jurisprudence. Hence, one cannot help but commend all who worked tirelessly, in ensuring that this becomes a reality.

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The Enforcement Chimera

Thu, 2018-05-10 02:00

Cameron Ford

“Enforcement” of arbitral awards is one of the main selling points of arbitration, with the perception being that nothing yet comes close to the New York Convention to enforce court judgments. The Hague Convention on Choice of Court Agreements will assist when adopted by more countries.

For now, the mere uttering of the incantation “enforceability” tends to quell any rebellious stirrings of interest in litigation. Yet it is not a quality I find highly persuasive except in very clear cases. Other than those situations, the spectre of the questionable enforceability of a court judgment is not particularly troubling. This is heresy for private practitioners who feel obliged to remove all risk, but can be a real consideration for in-house counsel struggling with time, cost and predictability of dispute processes.

Obviously not everyone feels this way, and there will be some industries and companies for whom the possibility of enforcement is important. These are where the debtor would not pay unless the judgment or award is enforceable and has assets readily available for execution. The ideal example of that situation is where the creditor holds security for the debt in a jurisdiction where execution is practically, as well as theoretically, possible.

Apart from those situations, I venture to suggest that the enforceability of awards can be overrated as a determinative factor in choosing dispute resolution methods. Four features of the contract landscape lead me to this view, namely the disputes iceberg, the procedural mountains, the enforcement pyramid and the judgment mirage.

The disputes iceberg
The vast majority of contracts never have serious disputes requiring resolution, and the vast majority of disputes are below the surface, being dealt with in-house without proceedings ever being issued and enforcement being necessary. Proportions will differ among companies and industries, but my experience is that around 1% of contracts have a real dispute and 1% of those require proceedings. With these ratios, enforcement does not loom large in the choice of resolution methods. Attention instead is focussed on mechanisms for negotiation and mediation before proceedings need to be commenced.

The procedural mountains
“Enforcement” needs to be unpacked into its constituent parts. It is comprised of three components – R, E, R:
Recognition of the award by the court of the enforcing jurisdiction;
Execution of the judgment by the local authorities;
Recovery of funds as a result of execution.

Enforcement of an award can only be as effective as the weakest of these three distinct steps. It would be interesting to see statistics showing the number and value of awards (a) sought to be recognised, (b) recognised, and (c) for which some recovery was made.

Recognition

The irony of recognition of a foreign award by an enforcing court is that the parties are forced back to the very courts they tried to avoid by choosing arbitration. Of course, that will not always be the prime motive in selecting arbitration over litigation but it is often likely to be a significant factor. It might also be that recognition is being sought in a place which would not have been the jurisdiction had litigation been chosen: a debtor’s assets might be spread around the world. True also that there may be fewer theoretical opportunities for problems in the enforcement process in the court than in a full trial, but no doubt there will still be opportunities, even if they only result in delay, appeals, opaque processes and curious results.

Whether the enforcing jurisdiction is supportive of arbitration or not, the mere differences in interlocutory processes, legal practices, standards of the profession and time to judgment can render the recognition process frustrating and, sometimes, practically ineffectual.

Execution

Once an award is recognised and made a judgment of the local court, it then falls to the local processes to execute the judgment – by bailiffs, sheriffs, police, private operatives, and so on, depending on the jurisdiction. Again, the creditor is subject to the vagaries of the jurisdiction it may have been trying to avoid. The characteristics of the jurisdiction that drove the parties to choose arbitration over the local courts usually means the execution processes are not as productive of results as those in developed countries.

Execution can be a frustrating process even when in mature jurisdictions such as Australia and even when executing a local judgment. You feel that the control you have had throughout the litigation has been lost and that you are now at the mercies of those who over whom you have no influence, control or even visibility. There is very little that can be done if the bailiff returns a writ of execution with the comments that it could not be executed, the debtor could not be found or had no assets against which to execute. At least in mature jurisdictions there is a certain amount of accountability in that a complaint could be made to appropriate authorities if need be and be taken relatively seriously.

How much more is the loss of control and visibility when execution is in a foreign country not known for its legal processes, with different language, procedures, culture and attitude to enforcement. There is virtually no accountability to a foreign creditor and the process can be utterly opaque.

Recovery

Stones do not yield blood. No execution process, no matter how diligent, will yield results if there are no recoverable assets. It is for this reason recovery of funds is dealt with separately from the execution process in this analysis. It is the result of execution, not part of the execution process. The unfortunate fact is that debtors are often found to have no recoverable property at the end of the execution process, leaving creditors only with the unsatisfying options of liquidation or capitulation.

The enforcement pyramid
Separate from the components of enforcement is the question of whether enforcement is necessary to begin with. For many companies enforcement is necessary only in a minority of cases. This will vary among industries and companies, and some creditors will have the luxury of security to make enforcement worthwhile. Banks and insurers, for example, will not identify with these sentiments. For others, counterparties can be divided into three categories with the result that enforcement is:

not necessary because the counterparty will honour a judgment or award regardless of its enforceability. Reputable companies concerned with their reputation and financial standing will pay judgment debts if they can. If they cannot, enforcement has little use. Further, some judgments against a debtor will be paid by its insurer in any event, rendering enforcement unnecessary. It is also the nature of things that the type of companies who would pay without enforcement holds the contracts of the highest value and risk: large, established, reputable companies tend to obtain the larger, riskier, longer term contracts This is not always the case, particularly with IT contracts, but it can be a general rule for parties in many fields.

A practical consideration is the individual creditor’s contracting philosophy and the dispute resolution process it informs. A philosophy of non-contention, conciliation and preservation of relationships will usually inform a resolution process of genuine negotiation and meaningful mediation before formal proceedings. Even if it does not, such a philosophy will produce compromises and negate the need for enforcement. By its nature this will affect both the question of whether there is a judgment debt to be enforced and whether and how it is enforced.

The proportion of counterparties in this category will vary among industries but I suggest they would be at least, say, 30%, probably closer to 50% for some industries.

pointless because the counterparty will have no recoverable assets or will be able to evade execution. Subject to industry variance, this could account for around 30% of counterparties;

necessary because the debtor will have recoverable assets but will not pay unless forced to do so through the formal execution process. Again, depending on the industry, this could be 10%-30% of counterparties.

We can speak of an enforcement pyramid, with the broader base being the 50% or so of contracts where enforcement is not necessary, the middle layer of around 30% where enforcement is pointless, and the apex of around 20% for those contracts where enforcement is necessary, looking like this:

NECESSARY
P O I N T L E S S
N  O  T     N  E  C  E  S  S  A  R  Y

The judgments mirage
Judgments may be enforced in some countries in a manner not too dissimilar from the enforcement of awards under the New York Convention. The Asian Business Law Institute’s 2018 report on the Recognition and Enforcement of Foreign Judgments in Asia showed that the factors taken into account in enforcing foreign judgments in those 15 countries are similar to those under the New York Convention. The major difference lies in eight of those countries requiring either a treaty with the judgment country or reciprocity of enforcement – Cambodia, China, Indonesia, Japan, Lao, Philippines, South Korea and Vietnam. The other seven countries being based on common law or having similar features, will enforce judgments without a treaty or reciprocity subject to the usual conditions – Australia, Brunei, India, Malaysia, Myanmar, Singapore and Thailand.

This is not to minimise the practical difficulties in enforcing judgments in those countries, but those difficulties may not be much greater than scaling the procedural mountains described above. It is interesting that in the 1949 edition of Dicey & Morris, the authors say that the New York Convention was intended to give the same degree of enforceability to arbitral awards as already existed for court judgments (I am indebted to Justice Quentin Loh of the Singapore Supreme Court for this snippet of information).

Summary
Enforcement is not a real concern for certain industries and companies where it will only be necessary for a minority of counterparties and, even where necessary, has a high chance of being ineffective because of the problems associated with recognition, execution and recovery in the debtor’s country. Arbitration needs to concentrate on or create other unique features to attract parties where enforcement is not of particular concern.

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Developing a Coherent Basis for International Minimum Standard of Treatment

Wed, 2018-05-09 03:00

Hannepes Taychayev

International Minimum Standard of Treatment (IMST) is one of the most important protection standards available to non-domestic investors under international law. The standard has been a subject of controversy on a number of occasions (see, for instance Saluka v. Czech Republic). Much of the controversy and debate arise with respect to the relationship of IMST to the Fair and Equitable Treatment (FET), and other non-discrimination doctrines such as National Treatment (NT).

Some rules of international law are ascribed a greater legal significance in foreign investment law and this requires knowledge of their interpretation and application (Dolzer and Schreuer 2011, p.17). For instance, the IMST has made its way from international criminal cases into international investment law. The content of the standard is broad and largely undefined (Leite 2016, p. 372). The standard has developed into a broad prohibition of unfavorable governmental discrimination directed at the aliens. This makes it susceptible to partisan use and interpretation in construction of state obligations under international law.

The standard is not native to the field of international investment law per se; it is the sum of rules that developed from various fields of international law out of disputes on the status of aliens (Dolzer and Schreuer 2011, p. 3). The emergence of IMST was motivated in large part by a desire to protect the aliens by international law against arbitrary and unacceptable actions of the host state. It could be argued that the standard is based on an understanding that “the standard provided at the time by some foreign countries sometimes fell below that which should be accepted” (Gallus, p. 14). In the context of a dichotomy between the developed and the developing countries, it could be argued that the standard was created through the audacity of political will of certain powerful states.

In order to understand IMST it is important to examine the genealogy of the standard which inevitably leads to discussing a thesis postulated in Neer v. Mexico (1926). The Commission in the Neer case stated:

… the treatment of an alien, in order to constitute an international delinquency should amount to an outrage, to bad faith, to willful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.

The Neer argument was discussed in NAFTA cases such as S.D. Meyers v. Canada and Pope & Talbot, Inc. v. Canada (Leite 2016, p. 373). The thesis postulated by the Neer Commission has become, although with certain degree of controversy, the vantage point from which the application of standard under international investment law has been interpreted (Dolzer and Schreuer 2011, p. 6 ).

However, the approaches to the rule taken by the Tribunals in the Case of James and others v. The UK (1986) and Joseph Charles Lemire v. Ukraine (2011) may arguably not be sustainable. The European Court of Human Rights (ECRT) in the Case of James and others v. UK (1986) held that:

… a taking of property effected in the context of a social reform, there may well be good grounds for drawing a distinction between nationals and non-nationals as far as compensation is concerned. To begin with, non-nationals are more vulnerable to domestic legislation: unlike nationals, they will generally have played no part in the election or designation of its authors nor have been consulted on its adoption. Secondly, although a taking of property must always be effected in the public interest, different considerations may apply to nationals and non-nationals and there may well be legitimate reason for requiring nationals to bear a greater burden in the public interest than non-nationals (emphasis added)

In the Joseph Charles Lemire v. Ukraine (2011) the Tribunal declared that:

Foreigners, who lack political rights, are more exposed than domestic investors to arbitrary actions of the host State and may thus, as a matter of legitimate policy, be granted a wider scope of protection. (emphasis added)

The fundamental premise underlying the two judgments justifying and requiring the host state to grant unequal treatment to the aliens is that they lack a political clout in the host state. The criteria stipulated by both Tribunals for determining whether the aliens should be granted an extra layer of protection solely based on the grounds that they do not have a say in the political process of the host state can have far reaching implications.

First, in the context of a social reform, an argument could be put forward that the nationals of a host state are entitled to elect or designate the authors of a reform and be consulted on its adoption in open societies and functioning democracies. In other words, the mere fact that the local population is deprived of the opportunity to elect and designate the authors of the social reform could render the claim of the alien of a preferential treatment vulnerable.

Second, it is important to ask ourselves if devising a legitimate policy for a state is charging tribunals with duties beyond their equipment. Meddling with public policy issues of a state without its express consent caused opposition in the past.

Third, an argument could be made that states grant the aliens the protection of international law in the hope that their nationals will be able to take advantage of the rule abroad. In this sense it is a mere mutually beneficial arrangement employed by states for the benefit of their nationals. In the context of international investment law, it is a marketing tool for a host state intended at attracting the foreign capital.

The argument put forward by the two Tribunals also proves difficult to sustain under the logic of customary international law. Under international law the lawmaking authority and control over the regime rests in the hands of sovereign entities – states. Nominally, sovereign states are all independent and equal. Hence, the value and authority of international law depends upon voluntary participation of states in its development, observance and enforcement. The consent of states ensures the validity of a norm in international law and there is no higher norm in the international system from which a valid norm could be drawn. The States might consent to treat foreigners better and practice the rule but it is either out of considerations for their own nationals abroad or using it as a market tool. But there is not much proof that they do it so because aliens lack political representation. In other words, through there is a widespread practice of states grating preferential treatment to the aliens there is little proof that they are doing so because the foreigners lack a political clout in the host state.

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Arbitrating with States in CEE and CIS

Tue, 2018-05-08 02:55

Ioana Knoll-Tudor

Jeantet

In the midst of the second edition of the Paris Arbitration Week, Jeantet hosted, on Thursday 12 April 2018, a roundtable on the topic “Arbitrating with States in CEE & CIS”. The speakers of the roundtable were: Cosmin Vasile (Zamfirescu Racoti & Partners), Yas Banifatemi (Shearman & Sterling), Davor Babić (University of Zagreb), Yasmin Mohammad (Vannin Capital), Matthias Cazier-Darmois (FTI Consulting) and Ivana Blagojević (ICC International Court of Arbitration). They all intervene in international arbitration procedures in different roles and at different stages, allowing the discussion to address a number of complex topics. The roundtable was moderated by Ioana Knoll-Tudor (Jeantet). The discussion resulted in a lively debate on the specificities of international arbitration proceedings involving States and state entities from the CEE & CIS region, among the speakers but also between the speakers and a very active audience. Some of the issues discussed during this event are addressed in this article.

Introductory Remarks

The significant participation of CEE & CIS States and state entities in international arbitration is a reality, which can be justified by two main reasons: (i) the structure of the national economies in this region, whereby States and public entities remain important interlocutors for investors even though these countries started their transition from a centralized to a market economy in the 1990s; and (ii) a very “dynamic” regulatory policy involving frequent changes in national regulations aiming, sometimes, at protecting local actors.

Correlatively, the number of cases where States and state entities appear as a party has increased. 15.4% of ICC cases were filed in 2017 with a state, a parastatal or public entity as a party (here). 32% of the cases for which the PCA provided registry services in 2017 arose under contracts involving a State, intergovernmental organization or other public or private entity (here). In terms of geographic distribution, 36% of the ICSID cases registered in 2017 involved a State from Eastern Europe and Central Asia, from 14 different countries (here).

Distinction Between Commercial and Investment Arbitration

Both commercial and investment arbitration have provided for a rich body of cases involving CEE & CIS parties. The rules of the arbitral institutions administrating both commercial and investment arbitration cases usually show few procedural differences in the management of these two types of disputes. The ICC, for example, registers a limited number of investment cases (7 BIT claims in 2016), as only 18% of the BITs from the CEE & CIS region allow for ICC arbitration, and therefore does not provide procedural rules specific to investment disputes. Distinctions between commercial and investment arbitration are observed on a case-by-case basis and usually arise on matters subject to the parties’ own considerations (selection of counsels, appointment of arbitrators).

Investment arbitration in the region, however, raises the very specific issue of the application of EU law. In particular, issues arise when States are required to adapt their legislation and regulatory framework in order to comply with EU requirements. In the context of investment arbitration, questions thus arise as to the treatment of national regulations modified in order to comply with the mandatory EU obligations and which violate fair and equitable treatment, result in expropriations etc. (the obligation to comply with EU law is one of the most frequent arguments invoked by States).

The Scope of Application of International Arbitration Rules

If the procedural rules of arbitral institutions do not differ considerably between commercial and investment cases, most arbitral institutions adapted their rules to accommodate the specificities of States and state entities. The PCA, for instance, issued a set of new rules in 2012 that constitutes a consolidation of four sets of PCA Rules drafted in the 1990s and includes special provisions adapted to arbitrations involving public entities. That same year, the ICC released its revised Arbitration Rules allowing the Court to directly appoint an arbitrator where “one or more of the parties is a state or may be considered to be a state entity” (Article 13.4). This particular amendment was intended to address concerns regarding the perceived lack of neutrality of ICC National Committees in appointing arbitrators at the time, especially in Eastern European countries. In 2016, the ICC further published its updated Practice Note, establishing that draft awards involving a State or a state entity have to be reviewed during a Plenary Session of the Court (para. 103 of the Practice Note).

Parties

As with most other regions, the parties involved in investment arbitration in the CEE & CIS regions are diverse, ranging from individuals (the Micula brothers) to state-owned companies (Naftogaz) and large international corporations (Veolia). One specificity of the region, as noted by the speakers, is the situation where individuals who left their home country subsequently return to make substantial investments.

Commercial arbitration provides an even wider variety of parties and disputes. For example, investors often face post-privatization issues similar to those encountered in post-acquisition disputes (commitment to keep a plant in operation, to maintain a certain number of employees, etc.).

Preliminary steps

First, with regard to the appointment of arbitrators, a change of trend is occurring. From a practice of appointing their own nationals or individuals sharing strong connections with the State (such as former Ministers of Justice or advisors involved in the drafting of the piece of legislation in dispute), Eastern European countries start to recognize that securing one vote on the tribunal is not necessarily the best strategy. Such practice not only puts tremendous pressure on the arbitrator but it also creates occasions for challenges of the said arbitrator by the other party. Therefore, States are now more inclined to appoint experienced arbitrators outside of their jurisdiction.

Second, the selection of counsels proves to be particularly sensitive when a State or a state entity appears as a respondent. In such cases public tenders can be extremely lengthy and burdensome and, sometimes, arbitral tribunals have to wait 1-2 years for the state party to secure representation. For example, in Romania, a state entity is able to retain external legal services only after the approval of the Budgetary Supervisor.

Finally, the region constitutes a fertile ground for third-party funding. Despite difficulties to enforce arbitral awards in the CEE & CIS, funders are relatively comfortable financing disputes against States and state entities. Third-party funders however acknowledge the need for a more thorough due diligence due to the opacity in the chain of command and in the identity of the ultimate beneficiary, often encountered in the region.

Conduct of the Proceedings

From an arbitrator’s perspective, time management is often an issue when dealing with a State or state entity from the region. Negotiated settlements happen rarely and cases usually last longer, partly because State parties tend to request time extensions and to exhaust every possible legal argument. For arbitral institutions and arbitrators, such situations require not only a lot of patience but also a delicate balance between, on the one hand, the necessity to comply with the procedural timetable agreed by the parties, and, on the other hand, the respect of the parties’ right to be heard, in order to limit due process challenges.

During the conduct of the proceedings, arbitrators often have to adapt to parties used to their national courts’ inquisitive practice and take procedural measures accordingly.  The recent publication of the draft Inquisitorial Rules on the Taking of Evidence in International Arbitration (The Prague Rules) constitutes an interesting development in this context. The drafters of the Prague Rules promote a traditional inquisitorial procedural model in international arbitration, limiting document production as well as cross-examination, and replacing them with an interrogation of witnesses conducted primarily by the arbitral tribunal.

As some of the speakers experienced, CEE & CIS States display at times a very disciplined and professional attitude when dealing with arbitration-related issues. Occasionally, after the receipt of the Notice of Arbitration, some States accepted to sit down with their adversaries and settle their dispute in a confidential manner. Likewise, more and more States are reserving the amounts in dispute in their accounts in order to be able to comply with an award, if case be, in an efficient manner.

Finally, assessing damages can prove tedious. While universality seems to prevail concerning the guiding principles – put the claimant in the situation where it would be had there been no breach – their application is more intricate as publicly available information is scarcer than in other regions and it is much more complicated to extract reliable data from the parties themselves.

Enforcement and recognition

Many CEE & CIS States made commercial reservations under Article I (3) of the New York Convention. Arbitrability is still an issue in the region and awards might not be enforced in jurisdictions where, for instance, a State-to-business contract is not considered commercial, or where the contract involves real estate, public-private partnership agreements or any other matter falling under the exclusive jurisdictions of national courts.

In the last years, the involvement of the EU Commission in international arbitration rendered the enforcement of investment arbitration awards uncertain. For example, in the Micula case, the Commission took the position that payment by Romania based on an arbitral award constituted state aid (prohibited by EU law). Most recently, the ECJ’s Achmea decision shook the arbitration world by declaring arbitration clauses contained in intra-EU BITs incompatible with EU law. Without the possibility to rely upon the intra EU-BITs investors can only rely on the legal provisions and judicial mechanisms available in EU Member States, which do not always offer a comparable level of protection of investments as the one guaranteed by BITs. This situation is of a major concern as two-thirds of the cases in the CEE & CIS region are related to intra-EU BITs.

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Implicit Bias in Arbitrator Appointments: A Report from the 15th Annual ITA-ASIL Conference on Diversity and Inclusion in International Arbitration

Mon, 2018-05-07 03:05

Apoorva Patel

ITA

The past year has made clear that the issue of diversity and inclusion is, at last, firmly on the agenda. The 15th Annual ITA-ASIL Conference, held in Washington, D.C. on 4 April 2018, was the first major international conference to tackle this issue in the context of international arbitration.

Speakers critically examined the lack of diversity in arbitral tribunals, as well as in lead counsel and expert appointments, with respect to gender, race, national origin, and other forms of diversity. Speakers also explored potential solutions from practitioner, institutional, and academic perspectives. Conference co-chairs Won Kidane (Seattle University School of Law) and Caroline Richard (Freshfields Bruckhaus Deringer LLP) led the event, which featured Prof. Anna Spain Bradley (University of Colorado Law School), Gonzalo Flores (ICSID), Prof. Susan Franck (American University Washington College of Law), Lucy Greenwood (GreenwoodArbitration), Mélida Hodgson (Foley Hoag LLP), Prof. Lucy Reed (National University of Singapore), Prof. Catherine Rogers (Pennsylvania State University), Prof. Anne Marie Whitesell (Georgetown University Law Center), and Nassib Ziadé (Bahrain Chamber for Dispute Resolution).

Recent data from many arbitral institutions indicates that female arbitrators constitute only about 16% of total appointments. Further, using ICSID’s 2017 statistics as an example, only about 4% of cases are arbitrated by entirely non-Anglo-European tribunals. As Prof. Lucy Reed explained in her keynote address, these low levels of diversity are likely due to caution + habit + bias. Parties approach high-stakes disputes with caution, and thus form a habit of appointing arbitrators from a limited group of individuals with the most experience. Bias enters the equation, Reed argued, because many people consider the 16% proportion to be a “good enough” sign of progress, even though it is far from parity. In Reed’s view, replacing habit and bias from the equation with patience, persistence, and inclusion can result in improved diversity.

The concept of bias—both conscious and unconscious—was a key theme that emerged during the conference. In particular, many speakers emphasized the need to become aware of and counteract one’s implicit biases, which are unconscious attitudes or stereotypes that our brains use to make automatic judgments about others.

Lucy Greenwood shared examples of empirical studies outside the realm of arbitration that have demonstrated the insidious effect of implicit biases.1)See Lucy Greenwood and C. Mark Baker, Getting a Better Balance on International Arbitration Tribunals, Arbitration International, Vol. 28, Issue 4 (2012); Lucy Greenwood and C. Mark Baker, Is the Balance Getting Better? An Update on the Issue of Gender Diversity in International Arbitration, Arbitration International, Vol. 31, Issue 3 (2015). jQuery("#footnote_plugin_tooltip_5318_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5318_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For example:

Numerous studies have found that resumes and journal articles were rated lower by both male and female reviewers when the reviewers were told that the author was a woman.
A study examining postdoctoral fellowships found that female awardees needed a substantially greater number of publications to achieve the same rating as male awardees. Peer reviewers overestimated male achievements and/or underestimated female performance.
In evaluating male and female professors, reviewers were four times more likely to ask for supporting evidence about the woman’s qualifications than they were for the man.
Studies have shown that men historically are promoted based on potential, whereas women are promoted based on what they have previously achieved.

These implicit biases can have significant implications on the arbitrator appointment process. Newer and diverse arbitrator candidates may be overlooked when practitioners consider prospective arbitrators, or may be evaluated by different standards. The appointment of diverse arbitrators can also be inhibited by the tendency of practitioners to appoint arbitrators who are similar to themselves in gender, age, or background. As Lucy Reed stated, “If habit is knowing and selecting whom you know, bias tends to slide into knowing and selecting people just like you.”

The conference speakers emphasized that although implicit biases are pervasive, they can be neutralized through personal awareness, meaningful training, and purposeful action. Speakers recommended that practitioners take the following actions, among others, to counteract implicit biases and enhance diversity in international arbitration:

Take an implicit bias test (such as the Harvard Implicit Association Tests) to become aware of the unconscious influences that may affect one’s consideration of potential arbitrators;
Engage in hands-on implicit bias and diversity training, such as the workshops offered by the Alliance for Equality in Dispute Resolution;
Change one’s arbitrator appointment practices to foster the inclusion of more diverse candidates, such as by listing the desired characteristics of an arbitrator before brainstorming names, spending an extra five minutes in compiling lists of potential arbitrators to consider newer and diverse candidates, and rethinking certain assumptions in evaluating arbitrator candidates (such as the perception that a track record of prior appointments is the most relevant marker of an arbitrator’s experience and competence);
Address information asymmetries and broaden access to information about diverse arbitrators, through initiatives such as Arbitrator Intelligence’s questionnaires on arbitrators’ decision-making and case management; and
Support and broaden initiatives such as the Equal Representation in Arbitration Pledge, which encourages practitioners to appoint more female arbitrators.

In the author’s view, the international arbitration community has the opportunity and the responsibility to tackle these issues actively and openly. Although initiatives such as those described above have contributed to an increase in diversity, the passage of time alone is unlikely to produce adequate change. For instance, the National Association of Women Lawyers’ most recent survey of demographic data from the top 200 U.S. law firms (in terms of revenue) provides an illuminating example. Although women have long represented approximately half of law students and entry-level associates, the likelihood that women will become equity partners has remained largely unchanged in the last ten years: 16% in 2007 compared to 19% in 2017. At the current rate, and without new and continued efforts to address the lack of diversity, gender parity might not be achieved in the next hundred years.

Further, as Prof. Susan Franck explained in her concluding remarks, there are unlikely to be blanket solutions to the lack of diversity in international arbitration, because the challenges affecting gender, race, national origin, and other forms of diversity often vary. Effectively addressing these challenges and increasing diversity and inclusion will help ensure the legitimacy, accuracy, and acceptability of the international arbitral process and of the outcome.

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References   [ + ]

1. ↑ See Lucy Greenwood and C. Mark Baker, Getting a Better Balance on International Arbitration Tribunals, Arbitration International, Vol. 28, Issue 4 (2012); Lucy Greenwood and C. Mark Baker, Is the Balance Getting Better? An Update on the Issue of Gender Diversity in International Arbitration, Arbitration International, Vol. 31, Issue 3 (2015). 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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The State in Transition – Did the Questionable Privatisation Come to Haunt Bosnia?

Sun, 2018-05-06 03:45

Maja Pravuljac

After three high-value infrastructure and energy projects cases at ICSID and the Permanent Court of Arbitration, Bosnia and Herzegovina (“BiH”) is now facing a new US$40 million investment treaty claim. This time it involves the privatization of an insurance company – Krajina osiguranje a.d. Banja Luka, based in the Republic of Srpska (one of the two BiH’s entities). Following failed negotiations for an amicable resolution with Republic of Srpska’s Government, the Indian investors, Naveen Aggarwal and Neete Gupta and their New Delhi-based chemicals company Usha Industries, filed their request for UNCITRAL arbitration under the India-Bosnia 2006 BIT (“BIT”), seeking US$40 million for fraudulent acquisition of shares of Krajina osiguranje.

Relevant Facts

Initially, a majority state-owned entity, Krajina osiguranje was privatized in December 2015 via an international tender. Republic of Srpska’s Ministry of Finance sought to attract private investors by issuing a prospectus in September 2015 that contained information on insurer’s financial conditions and performance. Aggarwal and Gupta acquired just over 50% of the shares of Krajina for 4 million USD.

The investors claim that the prospectus contained multiple fraudulent misrepresentations and omissions, namely the quantum and value of specific properties owned, significant information on liability associated with pending litigation, and the value of shares that was significantly understated. They base their claim on the Trebinje Commercial Court’s decision where the court found that Krajina’s shares have been dramatically inflated above their true value and ordered the compensation of almost EUR 3 million to the investors. The investors further allege that they presented the judgment to the Bosnian officials who responded with a “series of punitive actions” designed to, among other things, suspend the rights of shareholders and to divert customers to rival insurers.

Notwithstanding the claim, since the investment was made in 2015, the investors were under serious supervision by Bosnian authorities, namely the Republic of Srpska’s Insurance Agency, Security Commission, State Inspectorate and Ministry of Interior. The reason being the number of alleged unlawful misconducts in the management of Krajina that caused the insurance company to trade with high financial losses, questionable dismissals of workers, as well as the absence of the pay of its employees.

Dispute Resolution Clause

The UNCITRAL Arbitration Rules are silent on exhaustion of local remedies. Thus, the question of whether or not this principle applies is of a great importance. The exhaustion of local remedies, as interpreted in the Elettronica Sicula S.p.A case1)Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), ICJ Report (1989) jQuery("#footnote_plugin_tooltip_9180_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9180_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, could not be considered dispensed with unless such „dispensation“ had been made explicitly.2)ibid. jQuery("#footnote_plugin_tooltip_9180_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9180_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The alternative nature of the present BIT provision gives a menu of dispute settlement options to the investor (domestic authorities/conciliation or international arbitration). The similar wording can be found in the BIT Article 9(2)3) See, Agreement between the government of the Hellenic Republic and the Federal Government of the Federal Republic of Yugoslavia on the reciprocal promotion and protection of investment, 18 February 1998, available here ,art. 9(2) jQuery("#footnote_plugin_tooltip_9180_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9180_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in Mytilineos v. Serbia and Montenegro case, where the tribunal opined that the domestic court alternative in the fork-in-the-road clause obliges the investor to make a choice between pursuing the claim before a domestic court or international fora. The tribunal here concluded that due to its alternative nature, once the choice is made in favor of domestic remedies, international arbitration is no longer available. Thus, rather than a precondition, the initiation of local proceedings forfeits access to international arbitration.4) Mytilineos Holdings SA v. the State Union of Serbia & Montenegro and the Republic of Serbia, UNCITRAL, Partial Award on Jurisdiction, paras. 189, 204–208, 220–222 (Sept. 8, 2006), para 221 jQuery("#footnote_plugin_tooltip_9180_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9180_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Therefore, the main question for the tribunal certainly is whether initiating the proceedings before the local courts makes the same matter inadmissible before the international arbitration.

BIT Provisions and Host State’s Measures

The investors claim that the State’s measures breached the FET standard, expropriation provisions and obligation to provide MTF and national treatment.

Initially, the Insurance Agency passed a decision on 11 April 2016 suspending specific provisions of the Articles of Association that enabled the president and members of Managing Board to perform their roles. This entailed the right to dispose the assets on the bank accounts of the company, represent the company in legal transactions, or to authorize any third party to represent the company in any legal transaction. The Insurance Agency established the extraordinary administration in Krajina that then submitted a motion for a retrial to the High Commercial Court in Banja Luka.

The High Commercial Court in Banja Luka found that a number of illegalities in the investor’s conduct initiated the decision of the Trebinje Court. Inter alia, the Court found that Mr Aggarwal, disregarding the decision of Insurance Agency, authorised the member of the Board to sign the Agency Agreement with company’s attorney, to represent Krajina in the upcoming trial at the Trebinje Commercial Court, to admit the claim in full and renounce the right of appeal in the name of the company. Thus, the retrial was granted due to the violation of due process.

Looking at the BIT provisions, Article 3(2) briefly provides for investments and returns of investments to be at all times accorded with fair and equitable treatment. Since the BIT does not provide further elaboration on what would this practice entail, the claimant would in this instance usually argue that the State’s conduct breached their legitimate expectation not just through the State’s intervention in management of Krajina, but most certainly during the privatisation and inflation of value of its shares, and investment in general. On the other side, it is on the host State to prove that the measures in question were proportionate and necessary in order to protect the domestic legal system and that it did not involve a change of predictability and stability of domestic regulatory framework.

Article 5 BIT provides for exceptional cases where expropriation is allowed, prescribes the duty of due process and right to an independent judicial review and puts forth the right to a fair and equitable compensation.

Because of the Security Commission supervision, the investors were disowned of their rights as shareholders, since they failed to act in accordance with the relevant national legislation. The Commission found that the investors have acted in concert during the acquisition of Krajina’s shares and ordered them to take over the company due to the joint venture of their shares. Since they failed to do so within the required timeframe, the management of Krajina was reinstated to the Investment and Development Bank of the Republic of Srpska.

Whether or not the Commission’s decision was an act of expropriation or a valid regulatory act that is not subject to compensation will be on the host state to prove. In practice, States are given a wide margin of appreciation in these instances, both by the theory and practice. For instance, states usually argue that in order to suppress crime or as a sanction of violation of domestic law, the wrongdoing by the claimant necessitated such conduct. Thus, whether that be to prevent or prosecute monopolistic and anti-competitive practices, protect the rights of consumers, environment, and public health, or to regulate the conduct of corporations, the state has a right to intervene.

The same view was established in the case law, for instance in Saluka v Czech Republic, the tribunal found that “States are not liable to pay compensation to a foreign investor when, in the normal exercise of their regulatory powers, they adopt in a non-discriminatory manner bona fide regulations that are aimed at the general welfare.”5)Saluka v. Czech Republic, Partial Award, 17 March 2006, para. 255 jQuery("#footnote_plugin_tooltip_9180_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9180_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Thus, the tribunal would need to assess the nature of the measure whether it was a bona fide regulatory act, in accordance to the common and normal exercise of regulatory powers, whether it pursues a genuine public purpose, or whether it was implemented in a non-discriminatory manner.

Regarding the MFN and NT provisions, Article 4 BIT provides for a treatment that is not less favorable to that given to any third State (Art 4(1)) or its own investors (Art 4(2)) respectively. Whether or not the investors were under less favorable treatment is typically invoked in order to import a more favorable substantive protection, such as a broader definition of “investment”, “compensation” or more favorable procedural conditions in order to bypass the need of exhaustion of local remedies. In this instance, the tribunal would need to determine whether such better treatment was indeed contained in a BIT with a third State, or if State’s measures were to purposefully divert customers to rival insurers and thus provide them with a better treatment.

Conclusion

As it seems, the privatization of Krajina has caused more harm than good to the state that is still facing a significant financial and economic difficulties. The high-value cases like these are undoubtedly alarming and ask for a change and higher level of transparency during investment negotiations. On the other hand, one can wonder if the commencement of arbitration proceedings by the investors, demonstrated in an extreme way a notion of forum shopping, and with that undermined host state’s normal exercise of regulatory power. Thus, the issue admissibility will certainly be the focus of tribunal’s examination.

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References   [ + ]

1. ↑ Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), ICJ Report (1989) 2. ↑ ibid. 3. ↑ See, Agreement between the government of the Hellenic Republic and the Federal Government of the Federal Republic of Yugoslavia on the reciprocal promotion and protection of investment, 18 February 1998, available here ,art. 9(2) 4. ↑ Mytilineos Holdings SA v. the State Union of Serbia & Montenegro and the Republic of Serbia, UNCITRAL, Partial Award on Jurisdiction, paras. 189, 204–208, 220–222 (Sept. 8, 2006), para 221 5. ↑ Saluka v. Czech Republic, Partial Award, 17 March 2006, para. 255 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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