Kluwer Arbitration Blog

Syndicate content
Updated: 1 hour 26 min ago

2019 In Review: A View From North Africa

Tue, 2020-01-21 18:00

Mohamed H. Negm (Assistant Editor for the MENA Region) and Zahra Rose Khawaja (Assistant Editor for the MENA Region)

Here at Kluwer Arbitration Blog, we are pleased to reflect on a number of significant and exciting developments in international arbitration, with impact on the North African region. In this post, we recap these developments and their implications; and, of course, also thank our esteemed authors who have enabled us to bring coverage of events in this emerging region to the wider international arbitration community.

 

1. Developments in Investment Arbitration: Framework and Experience

This past decade has been important for regional developments in investment arbitration. Not only have Arab states gained more experience with the resolution of investment disputes during the 2010’s, but they have also actively worked toward revising the available framework through the Organisation of Islamic Cooperation (OIC).

 

A. Impact of Arab Spring on International Investment Arbitration

The uprisings of the Arab Spring and political changes resulting therefrom have had a quantifiable and significant impact on the international investment arbitration landscape, with a surge of new investment cases against Arab states. The number of newly filed ICSID cases from the Arab World indeed rose sharply in the period from 2011 to 2019.

While Arab respondent states have become increasingly diverse, Egypt has remained the most frequent respondent state with 22 new cases filed against it between 2011 and 2019. Behind Egypt, Algeria was confronted with 5 new cases in the 2011-2019 period. Morocco was confronted with 4 cases and Tunisia was confronted with 2 cases.

Despite the increasing number of new cases filed against Arab respondent states, the outcomes have not always been favorable for investors. A number of cases brought by investors have been dismissed on jurisdictional grounds (e.g. National Gas) or resulted in liability decisions in favor of the respondent state (e.g. Veolia). An even larger number of cases have settled (at least 12 since 2011, e.g. Bawabet Al Kuwait, Sajwani, Indorama, and LP Egypt), which leads one to question whether investment arbitration may have been increasingly employed during this period as a tactical mechanism for obtaining amicable settlement. In the years to come, it will be interesting to see how the legacy of these experiences will influence the approach taken by Arab respondent states in future investment arbitrations.

 

B. Organisation of Islamic Cooperation (OIC) Developments

Egypt, Libya, Tunisia and Morocco are the North African countries that have ratified the OIC Agreement, which provides for investment protections such as prohibition of unlawful expropriation and most favored nation treatment. It also includes an ad hoc investor-state arbitration provision (Article 17), which will operate “[u]ntil an Organ for the settlement of disputes arising under the Agreement is established.”

As explained by our contributors in 2019, the OIC Agreement provides that if a party to the dispute does not appoint an arbitrator, the OIC Secretary General will make the appointment on the party’s behalf. However, the Secretary General has refused to make such appointments due to political pressure from some OIC member States. In a recent case, the Secretary-General of the Permanent Court of Arbitration (PCA) designated an appointing authority in an OIC arbitration by applying the UNCITRAL Arbitration Rules. This was despite the absence of any reference to these Rules in the OIC Agreement, and the fact that placing the constitution of tribunals in the hands of the PCA is contrary to the spirit and the objectives of the OIC.

This led to the question as to whether the OIC would establish a permanent “organ” for the settlement of disputes to resolve the issue of potential interventions in OIC arbitrations. In a recent post, our contributors reported on developments shared by Dr. Mouhamadou Kane, Project Lead and Manager for the OIC at a program hosted by Columbia Law School. During the program, Dr. Kane confirmed that a draft (which is not yet publicly available) investment protocol for the OIC Investment Dispute Settlement Organ is likely to be adopted by ministers of OIC member States in March 2020. This development has importance regionally and globally, and it will be interesting to see if the final protocol adopted by the OIC draws on the current global reform efforts concerning investor-state dispute settlement, including topics addressed through the ICSID rule revision process and the work of UNCITRAL Working Group III.

 

2. North African Arbitral Institutions

One of the highlights of our coverage of the North African region on the Kluwer Arbitration Blog in 2019 was our interview with Dr Ismail Selim, Director at the Cairo Regional Centre for International Commercial Arbitration (CRCICA). In his interview, Dr Ismail kindly gave our readers a guided tour of the institution he describes as the “Godfather” of arbitration in the MENA region and Africa. In explaining the advantages to users of administering an arbitration via CRCICA, Dr Ismail pointed to the Centre’s highly experienced counsels, cost effectiveness and neutrality vis a vis the host state in investment arbitrations, and through guaranteeing party autonomy in appointing tribunals.

Our 2019 coverage of North Africa shone a spotlight on a number of up and coming arbitral institutions, which are developing as regional alternatives to some of the more well-established global players. Two such institutions, both of which are located in Morocco, are:

  • The Casablanca International Mediation and Arbitration Center (CIMAC), which was instituted in late 2014. With an internationally composed, diverse panel of arbitrators, facility with proximity to major economic hubs, clear flexible rules, cooperation Agreement with the Vienna International Arbitration Center (meaning that cases can be managed by either center), it is well placed to serve North Africa and beyond.
  • The International Court of Maritime and Air Arbitration (CIAMA), established in September 2016 as a specialist maritime and air arbitration centre for the MENA region. CIAMA was designed to be a reliable and secure choice for parties engaged in maritime, shipping and aviation disputes in the MENA region.

We also analysed the Rules of the Egyptian Sports Arbitration Center, which envisage that arbitral awards should be subject to (a) an appeal; and (b) an annulment action (internally within the same arbitral institution itself). The Rules further provide that the internal annulment regime applies to any arbitral award whether seated in Egypt or abroad. In other words, the Rules have an extraterritorial reach beyond the borders of Egypt whereby they apply to domestic and foreign arbitral awards alike. Egyptian courts’ perspective on these provisions will be discussed in further detail later in this post.

 

3. National Level Developments

A. Morocco as a New Hub

We have witnessed a number of developments in Morocco in 2019, as it seeks to draw on its position as a cardinal point between the Middle East and North Africa. We explored the potential for Morocco to develop into a hub for international arbitration in the region, owing to its lead as a diplomatic power in Africa and its experience in investment and commercial arbitration. Morocco has been an Observer to the Economic Community of West African States (ECOWAS) since 2005, and recently filed an application to join the organization as a member. It is also in the process of joining OHADA and is an existing member of the OIC. Morocco is also one of the oldest players in the investment and commercial arbitration scene. It was the very first state to be part of an ICSID arbitration under the Washington Convention of 1965, as well as one of the early signatories of the ICSID Convention. The definition of an investment under the ICSID Convention (known as the “Salini test”) was formulated in a prominent case to which Morocco was a party (Salini v. Morocco).

We will keep a watching eye on Morocco as it seeks to fulfill its potential as an emerging hub for international arbitration in the region.

 

B. Egyptian Courts’ Perspectives on Contemporary Arbitration Controversies

There have been various contemporary controversies concerning arbitration that have triggered heated debates before the Egyptian courts:

  • Arbitrators’ Conflict of Interest: On 11 June 2019, the Egyptian Court of Cassation clarified that the presumption of knowledge of the challenging party of any arguably suspicious facts arises only when the arbitrator in question discloses such facts at the time of officially accepting his appointment. Accordingly, if the challenged arbitrator fails to prove that the challenging party already knows these suspicious facts, then it cannot be said that the challenging party has waived its right concerning this ground. The Egyptian Court of Cassation has aligned its views with international arbitration practices as it defined the standard of arbitrators’ independence and impartiality as the one constituting “a real danger of bias”, or raising “justifiable doubts”.
  • Enforceability of Arbitral Anti-Suit Injunctions: The Egyptian Court of Cassation is currently reviewing the Cairo Court of Appeal’s judgment concerning the enforcement of an arbitral interim measure ordering one party to arbitration to refrain from suing a third-party guarantor bank regarding the liquidation of a letter of guarantee issued in favor of the said party. The Cairo Court of Appeal held explicitly that interim orders are covered by the New York Convention, provided that (1) the interim order is final; (2) the interim order is issued based on a valid arbitration agreement; (3) both parties were offered the opportunity to present their case in the arbitration; and (4) the interim order does not violate the Egyptian public policy. Upon applying these criteria, the Cairo Court of Appeal determined that the order satisfied all of these requirements.
  • Judicial Nature of Arbitration: Although the nature of arbitration is still a matter of debate in the Egyptian legal system, the arbitration-friendly jurisprudence of Egyptian courts now supports the idea that the arbitration process is indeed of a judicial nature. As discussed by our contributors, recently the Cairo Court of Appeal held that arbitration is a technical means with a judicial nature that aims to settle a dispute. To that effect, if arbitration is to be considered of judicial nature, the Egyptian Supreme Constitutional Court would have the final word in cases where the same dispute is filed before an arbitral tribunal and the other side files the same dispute before a domestic court. In this scenario, the Supreme Constitutional Court would have the final word on which proceedings would continue and which would be terminated.
  • Annulment of Sports Arbitration Awards: In December 2018, the Cairo Court of Appeal ruled that annulment actions concerning arbitral awards issued by the Egyptian Sports Arbitration Center (as discussed earlier in this post) are inadmissible. The Court explained its position by stating that the annulment procedures under the Egyptian Arbitration Law No. 27 of 1994 do not apply to sports arbitration awards as the latter follow a special regime for annulment as provided for under the new amendments to the rules of the Egyptian Sports Arbitration Center. Nonetheless, on 24 December 2019, the Egyptian Court of Cassation decided to refer relevant provisions of the Rules of the Egyptian Sports Arbitration Center to the Supreme Constitutional Court to decide whether they conform with Egypt’s Constitution. In its recitals, the Court of Cassation held that the Rules of the Egyptian Sports Arbitration Center contravene the Egyptian Constitution while excluding the review of its arbitral awards through annulment actions by any domestic courts, whether Egyptian or foreign-based.

Based on these recent developments, it is evident that the Egyptian courts are aligned with best international arbitration practices, seeking to drive legal developments in this direction.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


Macau Ups Its Game: A Discussion on the New Arbitration Law 2019

Mon, 2020-01-20 22:00

Chiraag Shah, Pietro Grassi and Ziqi Qi

The Macau Special Administrative Region of the People’s Republic of China (“Macau”) has seen a dramatic decrease of foreign direct investment in the last few years. According to data from the Macau Statistics and Census Service, foreign direct investment dropped 79.9% in 2017 compared to 2016.

In order to attract more investment, Macau needs to strengthen its competitiveness and appeal to overseas investors, particularly amongst Lusophones. Legislative reform needed includes promulgation of investor-friendly legislation that incorporates best international practices, as well as modern and effective dispute resolution techniques for investment disputes. In this vein, Macau published a new arbitration law, Law no. 19/2019 (the “New Arbitration Law”) on 5 November 2019, which will come into force on 4 May 2020.

The New Arbitration Law unifies the laws governing domestic and international arbitrations seated in Macau by replacing Decree-Law 29/96/M (for domestic arbitrations) and Decree-Law 55/98/M (for international commercial arbitrations). It also implements practices and standards in accordance with the UNCITRAL Model Law. A number of noteworthy developments are highlighted below.

 

Ability to opt into emergency arbitrator mechanism

The emergency arbitrator mechanism did not exist in the previous legislative regime. The New Arbitration Law allows parties to appoint an emergency arbitrator in their arbitration agreement or in any other subsequent agreement (Chapter 3 of the New Arbitration Law). The emergency arbitrator can deal with applications for urgent interim relief before constitution of the arbitral tribunal. Once constituted, the arbitral tribunal will take over from the emergency arbitrator.

 

Procedure for court’s assistance in taking of evidence

Article 61 of the New Arbitration Law makes it clear that an arbitral tribunal, or any of the parties with the approval of the arbitral tribunal, may apply to the local courts for assistance with obtaining evidence from another party or even a non-party to the arbitration. The application shall identify the facts that would justify such request, the issues to be covered by the evidence, as well as the documents to be presented and/or the persons to be questioned. The actual process of collecting the evidence will be run by the Macanese courts, which will then submit all information gathered to the arbitral tribunal. Previously, although Article 27 of the Decree-Law 55/98/M provided that an arbitral tribunal or any of the parties with the approval of the arbitral tribunal, could apply to the local courts for assistance with obtaining evidence, it did not explicitly provide for the taking of evidence with the courts’ assistance in relation to a non-party.

 

Possibility to appeal an award before another arbitral tribunal

The previous arbitration regime allowed parties to a Macau-seated arbitration to appeal an award before a local court (Article 34(2) of the Decree Law 29/96/M). The New Arbitration Law has abolished that possibility and provided, as a pro-arbitration move, that arbitral awards are no longer subject to appeal before a local court (Article 67(1) of the New Arbitration Law). The only exception is where there is an agreement between the parties before the award is rendered that such award may be appealed to another arbitral tribunal (the “Appeal Agreement”). The New Arbitration Law does not determine the scope of the Appeal Agreement, for example, whether the scope of appeal would be limited to points of law or would extend to finding of facts. The parties must set out the scope and limits of such appeal in the Appeal Agreement, since failure to do so would render the Appeal Agreement null and void. The requirement that any appeal process must be agreed upon on specific terms will safeguard the finality of the arbitration process while preserving parties’ autonomy.

The New Arbitration Law is not the only existing instrument that allow parties to appeal an award before a newly constituted arbitral tribunal. The Optional Appellate Arbitration Rules of the American Arbitration Association (“AAA”) allow parties to agree on the possibility to appeal an award before a newly constituted AAA arbitral tribunal, which may then review decisions on the ground of “an error of law that is material and prejudicial”, or  “determinations of fact that are clearly erroneous” (Rule A-10). However, it is observed that parties in practice rarely agree to such appeal possibility before another arbitral tribunal. The effect of this feature of the New Arbitration Law in practice is uncertain.

 

Recognition and enforcement of interim measures issued outside Macau

The New Arbitration Law also provides that, the procedure for the recognition and enforcement by the local courts of interim measures issued by a foreign-seated tribunal, shall be the same as for interim measures issued by a Macau-seated arbitral tribunal (Article 44 of the New Arbitration Law). The additional requirements applicable to such procedure relate to the presentation of the original order for interim measures, or a certified copy of such order, to be accompanied by a translation into Chinese or Portuguese (i.e., the two official languages of Macau) (Article 44 combined with Article 72 of the New Arbitration Law). This was not explicitly stated in the previous legislation.

 

Recognition and enforcement of arbitral awards issued outside Macau

The New Arbitration Law echoes the Chinese declaration of 19 July 2005 that the New York Convention shall apply to Macau. Consistent with such declaration, the New Arbitration Law allows for the recognition and enforcement of foreign arbitral awards and lists specific limited grounds for refusing recognition and enforcement (Chapter 8 of the New Arbitration Law), which are the same grounds as those set out in the New York Convention. Once an arbitral award is recognized, the courts can enforce it pursuant to regular civil procedural laws.

The mutual recognition and enforcement of arbitral awards between Mainland China and Macau remains unchanged under the New Arbitration Law. Pursuant to the Supreme People’s Court Arrangement between the Mainland and the Macau Special Administrative Region on Reciprocal Recognition and Enforcement of Arbitration Awards, Mainland Chinese awards are enforceable in Macau and vice versa.

 

Obligation to publicize arbitral awards involving public administration

In line with international practice, the New Arbitration Law does not preclude arbitrability of disputes involving public administration. Whilst the previous statutory regime did provide for the arbitrability of disputes involving the public/government sector, Article 77 of the New Arbitration Law provides greater transparency by requiring the Government of Macau, through the Directorate of Justice Affairs, to publish online all arbitral awards related to (i) an administrative contract, (ii) liabilities of government authorities or its officials arising from acts of public management, or (iii) property rights or legally-protected interests.

 

Comments

The enactment of the New Arbitration Law is an important step for Macau’s development into a viable and preferred seat of arbitration between Chinese- and Portuguese-speaking parties. From the perspective of the Lusophone business community, the fact that Portuguese is one of its official languages may gain Macau an advantage over nearby jurisdictions such as Hong Kong. Although the New Arbitration Law has made significant progress in promoting Macau as a pro-arbitration venue, it arguably still falls short in a number of respects.

Firstly, in comparison with the Hong Kong Arbitration Ordinance (Cap. 609) which expressly adopts UNCITRAL Model Law provisions (although with modifications and supplements), Article 7(2) of the New Arbitration Law simply provides that UNCITRAL Model Law can be used in support of interpretation of the New Arbitration Law. Whilst the distinction may not be obvious at first glance, it offers arbitral tribunals and Macanese courts a wider discretion when interpreting the New Arbitration Law which may potentially lead to inconsistent decisions.

Secondly, the New Arbitration Law has not incorporated some of the recent arbitral developments such as provisions addressing third-party funding. Third party funding was made possible in Hong Kong in February 2019 (see discussion in an earlier post).

Thirdly, the New Arbitration Law does not expressly deal with several practical issues that may arise during the course of an arbitration. These include the general and specific powers of an arbitral tribunal, the death of an arbitrator, provisions relating to the award of costs and interest, and provisions governing the liability of an arbitral tribunal.

Lastly, as discussed earlier on the Blog, the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region enables Chinese courts to grant interim measures in respect of Hong Kong-seated arbitrations that are administered by qualifying institutions. Under such Arrangement, a party to an eligible arbitration against a Chinese counterparty would have in its toolkit the possibility of attaching assets, requesting injunctions, and preserving evidence in Mainland China through the Chinese national courts.  However, the same possibilities are currently not available with regard to Macau-seated arbitrations.

For the time being, whilst the New Arbitration Law is undoubtedly a significant step forward for Macau, there remain gaps in its legislative setting that are yet to be closed.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


The Passports’ Game: Chronicle Of A Foretold Death For Dual Nationals’ Claims

Mon, 2020-01-20 01:00

Pablo Mori Bregante

In a previous post, which discussed the Ballantines award, the author concluded that doors for dual nationals’ claims are being closed, including for non-ICSID cases where the relevant treaty does not have a provision dealing with the issue. The recent Heemsen v. Venezuela jurisdictional award confirms this approach. Unanimously, a PCA tribunal declined jurisdiction over the claims brought by Messrs. Enrique and Jorge Heemsen against Venezuela, not only because of lack of jurisdiction ratione voluntatis, since Venezuela did not consent the arbitration to be settled by an UNCITRAL tribunal, but most important – for the sake of this post – because of lack of jurisdiction ratione personae, since the Treaty between the Republic of Venezuela and the Federal Republic of Germany for the promotion and reciprocal protection of investments (the “Treaty”) does not allow claims brought by nationals of both states.

The award makes clear that the lack of an express prohibition of dual nationals’ claims in the relevant treaty is not enough to sustain that such types of claims were consented by the parties. Despite a treaty’s silence on this issue, what matters are the principles of international law, including the dominant and effective nationality as the one that governs the issue. Showing their German passports and nationality certificates was not enough for the Heemsens. Their dominant and effective nationality was the Venezuelan one; therefore, they were not allowed to bring claims against their home state, Venezuela. Thus, it seems that the passports’ game is reaching its end.

 

Understanding the Heemsen award

According to the jurisdictional award dated October 29, 2019 (PCA Case No. 2017-18), the company Sucesión Heemsen, C.A. (“SHCA”) owned a land called “La Salina,” in Carabobo, Venezuela. SHCA was ultimately controlled by Messrs. Enrique and Jorge Heemsen Sucre (¶¶ 63-71), both born in Venezuela but allegedly also German nationals due to ius sanguinis. Their father, Mr. Enrique Heemsen Velazco, was recognized and treated as a German national by the German authorities, despite also having been born in Venezuela (¶ 172).

In May 2011, after the Venezuelan port state-owned company “Bolivariana de Puertos S.A.” informed Messrs. Heemsen of its intention to expand the state port, both parties began negotiations to transfer to the state a part of La Salina. Ultimately the parties could not agree on the price and on March 13, 2012, Venezuela issued the Expropriation Decree No. 8.838. The Decree ordered an expropriation proceeding against La Salina due to public and social reasons (¶¶ 72-78). In December 2016, the Heemsens submitted the dispute to an ad-hoc arbitration proceeding under the UNCITRAL Rules alleging that the Decree violated its rights under the Treaty.

On the one hand, article 10.2 of the Treaty provides that any dispute under the Treaty shall be submitted to ICSID arbitration. Further, the Treaty’s Protocol ad-article 10(a) states that “while the Republic of Venezuela does not become party to the ICSID Convention,” the dispute shall be submitted to the ICSID Arbitration Additional Facility Rules before ICSID. Ad-article 10(b) points that “in case it is not possible to recourse to the arbitration proceeding according to the ICSID Arbitration Additional Facility Rules,” the dispute shall be submitted to an ad-hoc proceeding under the UNCITRAL Rules. Based on these provisions, Venezuela submitted a ratione voluntatis jurisdictional objection arguing that it had not consented to an ad-hoc proceeding, which was available only during the time previous to Venezuela’s becoming a party to the ICSID Convention. In any event, given that the ICSID Additional Facility Rules were still available, the Heemsens would not have been authorized to initiate a UNCITRAL proceeding (¶¶ 89-108).

On the other hand, the Heemsens are dual nationals, which is the base for Venezuela’s ratione personae jurisdictional objection. Although the claimants hold German passports and nationality certificates, they are also Venezuelan citizens. According to Venezuela, the Treaty does not allow dual nationals’ claims. Even if that were not the case, it argues that international principles of law should apply when interpreting the relevant treaty; thus, the principle of dominant and effective nationality controls the issue at hand. Therefore, since the Heemsens have stronger ties with Venezuela than with Germany, their dominant and effective nationality is the Venezuelan one, and therefore, they are not entitled to sue Venezuela (¶¶ 238-245).

Upholding the ratione voluntatis objection, the tribunal first concluded that the forums contemplated in ad-articles 10(a) and 10(b) of the Treaty’s Protocol and in article 10.2 were not intended to be optional among each other. This is, any forum different from an ICSID arbitration, including an UNCITRAL proceeding, was available only while Venezuela had not become a party to the ICSID Convention; this is the so-called “pre-ICSID period,” thus not extendible to the time after which Venezuela denounced such convention (¶¶ 352-388).

Nevertheless, even if the additional forums were extendible to that time, the Heemsens would not have been allowed to bring their claims to an UNCITRAL tribunal. They tried to initiate an arbitration under the ICSID Additional Facility Rules but the ICSID Secretary General rejected it in-limine since Messrs. Heemsens do not fit in the definition of “national of another state” set forth in article 1(6) of such Additional Facility Rules. The tribunal concluded by stating that a motivated rejection is not the same as the impossibility to apply the Additional Facility Rules mentioned in ad-article 10(b) (¶¶ 389-399).

Although the tribunal could have stopped there, “ex abundati cautela,” it went further and stated its position on the feasibility of dual nationals bringing claims against one of their own states (¶ 411). First, the tribunal concluded that the lack of an explicit prohibition in the relevant treaty is not an authorization for such kind of claims. While the treaty does not exclude protection to dual nationals, it does not include them explicitly either (¶ 414).

Moreover, it found that article 10.2 states that had the dispute not been amicably settled, it shall be submitted, at the “national” request, to an arbitration proceeding under the ICSID Convention. Since the latter does not allow dual nationals’ claims (article 25(2)(a) of the ICSID Convention) the concept of “national” in the treaty must be interpreted as a national holding the nationality of one state but without having at the same time the nationality of the other one. Arguing otherwise would mean that the treaty protects dual nationals, but they cannot use the dispute resolution clause. The fact that theoretically the investor and the state could apply rules different from those of ICSID is not a compelling excuse to change the conclusion above (¶¶ 417-419).

Finally, the tribunal concluded that regardless of the treaty’s silence on the issue, principles of international law apply, and therefore – applying by analogy the international law of diplomatic protection (¶ 433) – the principle of dominant and effective nationality is to govern the matter (¶ 440). Applying the Nottebohm case, the tribunal concluded that the Heemsens’ dominant and effective nationality was the Venezuelan one as they were born and have their domicile in Venezuela, their children were also born in Venezuela, they incorporated companies and behaved on them as Venezuelan citizens, and finally they did not register their shares in La Salina or themselves as an international investment or as foreign investors respectively before the Superintendence of Foreign Investments.

Given those findings, the tribunal rejected jurisdiction ordering the Heemsens to pay Venezuela’s counsel reasonable fees.

 

There is no such a thing as an affirmative silence for dual nationals’ claims

The importance of the Heemsen award is even bigger than that of the Ballatines decision. Unlike the Ballantines decision, which dealt with a treaty that had a specific provision about dual nationals’ standing, the Heemsen decision deals with the same issue but where the applicable treaty keeps silent on the matter. This issue had been previously dealt with by other tribunals in a totally opposite direction. Particularly the PCA, Serafin García Armas tribunal (discussed here) allowed claims brought by dual Spanish-Venezuelan nationals against Venezuela mostly due to a lack of an express prohibition for such claims in the Spain-Venezuela BIT (Serafin García Armas award, ¶ 200). The Heemsen award has shifted such an interpretation, concluding that an affirmative silence for dual nationals’ claims does not exist in investment arbitration.

Most recently, a new PCA tribunal confirmed this trend, dealing what could be seen as the final blow to the passports’ game. Analyzing the Spain-Venezuela BIT, the Manuel García Armas v. Venezuela jurisdiction award dated December 13, 2019 (PCA Case No. 2016-08), found that silence in a treaty about dual nationals’ standing cannot amount to a consent. The tribunal looked at the context of the BIT’s conclusion. During the negotiations of the ICSID Convention both Spain and Venezuela explicitly opposed dual nationals’ claims. Particularly, Spain’s representative stated that “with regard to the problem of dual nationality, he felt that, where one of the two nationalities involved was that of the host State, that State would not agree to being brought before an international forum by a person whom it claimed as its national.” Further, the same representative added that “on the question of dual nationality he could not agree that a State would under any circumstance consider foreign an investment made by one of its nationals even if they had concurrently the nationality of another State.” (¶ 667). The tribunal concluded that this revealed what both states considered as the international law applicable not only to the ICSID Convention negotiation, but also to their negotiated investment treaties, including the BIT (¶ 669).

Contrary to the Serafin García Armas award, which stated that the international law of diplomatic protection was not applicable to the interpretation of investment treaties (¶¶ 172-173), both the Heemsen and the Manuel García Armas awards state that diplomatic protection principles are indeed important in this field, including therefore the principle of dominant and effective nationality. As a consequence, from now on, if tribunals follow the Heemsen and the Manuel García Armas approaches, any dual national will have to show that their dominant and effective nationality is the one of the non-host country state; otherwise, their claims will be dismissed based on lack of ratione personae jurisdiction.

 

The back door is not an option anymore either

Of same – or maybe even more – importance than the application of international law principles is the fact that the alternative to submit a dispute to a non-ICSID arbitration, like an UNCITRAL one, is no longer an option. Same as Serafin García Armas, the Heemsens, and Manuel García Armas, other investors have tried to use the back door of an UNCITRAL arbitration, instead of an ICSID one, in order to secure jurisdiction. Since the ICSID Convention clearly forbids dual nationals to sue either of their own states, investors have argued that because the treaty also allows them to initiate an UNCITRAL proceeding, this would also create standing for dual nationals. Both the Heemsen and the Manuel García Armas awards seem to put an end to that possibility, too. If parties agreed to ICSID arbitration, the parties also agreed on the prohibition of dual nationals suing any of their own states. What cannot be obtained through the main door (ICSID) cannot be obtained through the back door (UNCITRAL) either.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


Unpacking the Singapore Court of Appeal’s Determination of Proper Law of Arbitration Agreement in BNA v BNB

Sat, 2020-01-18 19:00

Samuel Koh

In BNA v BNB and another [2019] SGCA 84 (“BNA”), the Singapore Court of Appeal overturned the High Court’s ruling and provided authoritative guidance on the applicable principles in determining the proper law of an arbitration agreement.

I discussed the High Court’s decision and the factual background in an earlier post. This post unpacks the significance and ramifications of the findings that the Court of Appeal made in BNA, as well as those that the Court arguably could have made, but ultimately refrained from making.

 

Court of Appeal’s decision

The Court of Appeal allowed the appeal, finding that Shanghai was the arbitral seat, and that PRC law should be the implied proper law of the arbitration agreement (at [4] and [103]). In reaching this outcome, the court applied a three-stage analysis:

  • the parties had not made an express choice of law for the arbitration agreement, as an express choice of the proper law of the underlying contract does not, in and of itself, also constitute a choice of the proper law of the arbitration agreement (at [56]–[61]);
  • in the absence of an express choice of the proper law of the arbitration agreement, the implied choice of the proper law should presumptively be the proper law of the underlying contract, which is PRC law in the present case (at [47], [62] and [63]);
  • the High Court erred in finding that the implied choice of PRC law was the law of the seat, being Singapore law, because: (i) the arbitration agreement, in providing for “arbitration in Shanghai”, should naturally be read to be a choice of Shanghai as the seat (and not merely the venue) of the arbitration (at [65]–[69] and [91]–[93]); (ii) there having been a choice of the seat, Rule 18.1 of the SIAC Rules 2013, which provides that in the absence of the parties’ agreement, the default seat of the arbitration shall be Singapore, does not come into play (at [64]); and (iii) there was nothing to displace the natural reading of the phrase “arbitration in Shanghai” (at [70]–[90]); and
  • as the implied choice of the proper law has been found to be PRC law, there was no need to consider the third stage of the three-stage analysis, which considers the system of law with which the arbitration agreement has the “closest and most real connection” (at [94]).

 

Analysis

I discuss three significant issues raised by the Court of Appeal.

 

Endorsing the proper law of the underlying contract as presumptive implied choice

First, in applying the three-stage analysis, the Court of Appeal expressly endorsed the approach taken in Sulamerica Cia Nacional de Seguros S.A. v. Enesa Engenharia S.A. [2012] EWCA Civ 638 (“Sulamérica”) that in the absence of an express choice of the proper law of the arbitration agreement, the implied choice of law should presumptively be the proper law of the underlying contract (the “Sulamérica Presumption”).

Previously, there had been a divergence in Singapore authorities in this regard. Whereas the Assistant Registrar in FirstLink Investments Corp Ltd v GT Payment Pte Ltd and others favoured the law of the seat as the presumed implied choice of the proper law of the arbitration agreement (at [13]–[15]), the High Court in BCY v BCZ preferred the proper law of the underlying contract (at [49]–[65]). While recent High Court authorities appeared to have coalesced in support of the Sulamérica Presumption (see Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd at [31] and BMO v BMP at [38] and [39]), this technically remained an open question in Singapore law, given that Singapore’s apex court had thus far not expressly opined on which approach should apply.

Notwithstanding that it was common ground in BNA that the Sulamérica Presumption should apply (BNA at [47] and [62]), the fact remains that the Court of Appeal finally ruled conclusively in favour of the Sulamérica Presumption.

 

Clarifying proper interpretation of the reference to a city

Second, in holding that the natural meaning of the phrase “arbitration in Shanghai” should be that Shanghai is the seat (and not the venue) of the arbitration, the Court of Appeal introduced welcome clarity to the manner in which arbitration clauses containing such wording should be interpreted.

This interpretation accords with common sense. As the Court rightly pointed out, given the legal significance of a seat of an arbitration (which determines, among other things, the system of law that governs the arbitral process, the court having supervisory jurisdiction over the arbitration, and the jurisdiction where an award is considered to have been made), as compared to its venue (where the tribunal merely holds its hearings and meetings), it makes eminent sense for an arbitration clause to be read as having selected a seat instead of a venue where the clause specifies only a single geographical location.

This interpretation also reflects the more commercially sensible approach. This is clear from the sheer prevalence of commercial parties specifying cities (and not countries) in arbitration agreements, as seen from the case authorities (at [66]–[68]) and the model clauses of arbitral institutions (at [92]) referred to by the Court in its analysis.

 

Declining to consider effect of PRC law on the arbitration agreement

The Court of Appeal found that the invalidating effect of PRC law on the arbitration agreement was not a relevant consideration in determining the proper law of the arbitration agreement, given that there was no evidence that the parties were at least aware of the impact that the choice of PRC law could have on the validity of the arbitration agreement (at [90]). This holding warrants scrutiny for two reasons.

First, this approach appears contrary to the approach adopted in English law. In Sulamérica, the English Court of Appeal held that the Sulamérica Presumption may be displaced by two factors: first, the choice of a seat of arbitration that points away from the main contract’s choice of law (at [29]); and second, the consequences that follow from the main contract’s choice of law – specifically, where the proper law of the underlying contract would undermine the parties’ clear intention to arbitrate, the Sulamérica Presumption will be rebutted (at [30]). This approach has been endorsed by the Singapore High Court in BCY (at [74]).

While the Court of Appeal suggests that if there had been evidence of the parties’ awareness of the effect of PRC law on the arbitration agreement, then it would have been possible for the Court to take into account the potential invalidating effect of PRC law, this still appears to be a departure from the approach in Sulamérica and BCY. The courts in both of these decisions did not appear to require such evidence when opining on the effect of the consequences flowing from the main contract’s choice of law on the parties’ implied choice of proper law of the arbitration agreement.

Second, the Court of Appeal’s approach appears problematic as a matter of principle. The requirement that parties must be shown to have considered, or at least be aware, of the invalidating effect of a particular choice of law on the arbitration agreement appears to be inconsistent with the fundamental consideration underlying the finding that the potential invalidating effect of a main contract’s choice of law can displace the Sulamérica Presumption. This consideration is that in a situation where parties have clearly evinced an intention to refer disputes to arbitration, parties should not be taken to have impliedly chosen for the arbitration agreement to be governed by a system of law that invalidates the arbitration agreement and nullifies their intention to arbitrate. Hence, when parties have evinced a clear intention to arbitrate in the form of an operative arbitration agreement that is capable of being performed, specific evidence of the parties’ contemplation of the potential invalidating effect of the main contract’s choice of law is arguably unnecessary.

As such, assuming that PRC law will invalidate the present arbitration agreement, the Court of Appeal arguably should not have concluded that PRC law was the implied proper law of the arbitration agreement, given that the Sulamérica Presumption has been rebutted. The Court ought to have gone on to consider the third stage of the three-stage analysis. While this stage would likely yield the same substantive outcome (i.e., that PRC law is the proper law of the arbitration agreement), the Court should have embarked on this inquiry to preserve analytical clarity between the second and third stages of the three-stage analysis.

 

Conclusion

The Court of Appeal’s decision in BNA is a landmark judgment in many ways, with the apex court settling conflicting strands of authorities regarding the application of the three-stage analysis, and clarifiying a key point of interpretation that might have otherwise continued to promote uncertainty in the Singapore arbitration scene. However, as regards the other findings that the Court of Appeal declined to make, it remains to be seen if future corams of the apex court would reconsider the approach taken in BNA, if such an opportunity so arises.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


The Role of Precedent in ISDS: Can Decisional Law Contribute to the Creation of Customary Norms?

Sat, 2020-01-18 02:00

Rebecca Meyer

ISDS is a fragmented field, consisting of a few thousand bilateral investment treaties (“BITs”) and treaties with investment chapters – such as the Energy Charter Treaty (“ECT”) or the North American Free Trade Agreement (“NAFTA”). These instruments that regulate foreign investment are often similar but are not the same. Yet, even where different bilateral relationships are governed by technically distinct obligations, there is often a level of consistency among ISDS decisions. This coherence results from the precedent-like reliance on earlier ISDS decisions.

Even though ISDS decisions are non-binding on investment tribunals, reliance on other awards to substantiate a ruling is logical practice. If a dispute is well-reasoned and concerns similar factual or legal issues, it makes sense to reference it. After all, justified reliance on precedent can further the goals of arbitration, such as fostering judicial economy. Additionally, it is useful when arbitrators tout approval for the rationale behind a particular treaty interpretation or for the application of treaty language to the facts of a given dispute. This is helpful to both states and investors, considering regulatory and investment decisions, respectively.

Although the above-mentioned practice is sound, the rationale for reliance on other arbitral awards has been distorted in certain circumstances. Some practitioners and scholars who support the use of precedent have stated that precedent is a primary source of law in ISDS.1)See e.g., Andreas F. Lowenfeld, Investment Agreements and International Law, 42 COLUM. J TRANSNAT’L L. 123, 129 (2003); E. Alvarez, A BIT On Custom, 42 J. OF INT. L. & POL. 17, 54 (2011). jQuery("#footnote_plugin_tooltip_3947_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3947_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Specifically, certain authors argue that traditional sources of public international law – particularly custom – are overly formalistic and not workable as applied to ISDS.2)See id. jQuery("#footnote_plugin_tooltip_3947_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3947_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Hence, the argument often proceeds that decisions of ISDS tribunals are of heightened importance in the field in comparison to customary international law. In fact, some advocates of this view advance that ISDS decisions not only contribute to, but generate the best statement of, customary law in the field.

 

ICJ Statute – Hierarchy of Sources in International Law

According to the Statute of the International Court of Justice (the “ICJ Statute”), courts and tribunals “shall apply” three primary, co-equal sources in deciding international disputes: treaties, customary international law and general principles of law. In addition to these three sources, Article 38(d) of the ICJ Statute indicates that judicial decisions and opinions rendered by the most preeminent scholars may be used as a “subsidiary means for the determination of rules of law.”  (Emphasis added.) It is possible to argue that ISDS decisions qualify as judicial decisions under Article 38(d). If that is the case, then ISDS decisions would appear to be a mere subsidiary means for the determination of rules of law in ISDS. The primary sources continue to be the principal means for determination.

 

ISDS Decisions’ Relationship to Custom

Customary international law is evidenced by “general practice accepted as law,” and therefore, it has two constituent elements: state practice and opinio juris. (Statute of the International Court of Justice, art. 38, ¶ 1.) Both of these elements must be assessed independently, and evidenced affirmatively, in order to indicate that a customary norm exists. Evidence of the constituent elements is gleaned from state action.

 

Possible Contribution to the Elements of Custom

As noted, one argument sometimes advanced is that ISDS decisions contribute to custom. Simply put, ISDS decisions do not supply evidence of either state practice or opinio juris. Importantly, tribunals’ decisions are not made by or on behalf of a state actor, so there can be no question as to whether state practice or opinio juris can be gleaned from the decisions themselves. However, this does not render ISDS decisions completely irrelevant regarding the identification (as opposed to formation) of customary international law.

There are at least two circumstances where ISDS decisions can have an impact on the creation of customary norms. First, ISDS decisions can stimulate state practice. For instance, if an ISDS ruling causes a state actor to reform its domestic legislation in order to comply with its international obligations, then the ruling has stimulated some state practice.

Second, it is possible to argue that a state’s submission to an ISDS tribunal contributes to the identification of customary international law because it supplies evidence of opinio juris. However, this argument must be viewed more critically. In recent years, the International Law Commission (the “ILC”) considered the identification of customary international law and prepared its draft conclusions. (UN/GA/res/A/73/10.) The ILC’s draft conclusions indicate that statements made in pleadings, on behalf of a state, can contain evidence of opinio juris. However, the same draft conclusions emphasize that “extralegal” motives for an action must be carefully assessed and distinguished from opinio juris. Thus, it is necessary to consider how much weight can be given to ISDS submissions, which are made by private law firms on behalf of a government. This is significant for a number of reasons, one being that law firms that have an ISDS practice can often represent both investors and states. Hence, for the purpose of identifying customary international law, a case-by-case analysis needs to be undertaken to determine the weight that can be given to statements in ISDS submissions. This analysis should focus on the motives of both the government and its legal representatives in making various submissions.

 

Possible Superior Role

Some posit that ISDS decisions generate the best statement of what is customary in the field. Thus, the argument proceeds that the decisions effectively do, and should, replace the need for identifying custom through the more difficult practice of finding evidence of state practice and opinion juris.

Despite arguments to the contrary, ISDS decisions neither replace nor occupy a more important position than customary international law. It is worth recalling that the ICJ Statute creates a hierarchy between the sources of international law: (1) primary sources, including custom and (2) subsidiary sources, including judicial decisions and scholarship. Judicial decisions may include ISDS decisions, making them an inferior means for determination as compared to custom. Although beyond the scope of this piece, it is worth considering in the first instance whether ISDS decisions are the type of judicial decisions envisioned by Article 38(d) of the ICJ Statute.

In any case, even if ISDS decisions qualify as judicial decisions under Article 38(d) of the ICJ Statute, it cannot be stated that they have special force vis-à-vis the primary sources – especially custom – in ISDS. In practice, ISDS tribunals are typically careful to note that other decisions are not binding on them. This alone is seemingly enough to refute the idea that decisional law contributes to the creation of custom. Yet even more important is the consideration of state consent, since the identification of a new custom obliges states to act in compliance with it. Accepting the argument that ISDS tribunals create custom through decisional law completely negates the essential element of custom: state consent (as evidenced by the constituent elements). This is because ISDS decisions are imposed on states, not agreed to by states. Moreover, such decisions are binding, and yet a state will invariably disagree with a ruling against it in ISDS. Hence, it is not possible to say that a state consents to the unfavorable award, let alone to its contribution to customary law.

 

Conclusion

Reliance on previously rendered ISDS decisions benefits players in the field. However, the function of precedent in ISDS should not be overstated. The difference between, on the one hand, creating customary international law and/or providing direct evidence of the elements of custom and, on the other hand, providing a forum where evidence of custom is likely to be gleaned, is a technical one. Nonetheless, it is an important difference with potentially significant consequences for states, and investors. Thus, it is important to adhere to traditional sources of law, and to respect the hierarchy between those sources, as espoused in the ICJ Statute. This is especially true today, where the continued vitality of the ISDS system is being called into question.

References   [ + ]

1. ↑ See e.g., Andreas F. Lowenfeld, Investment Agreements and International Law, 42 COLUM. J TRANSNAT’L L. 123, 129 (2003); E. Alvarez, A BIT On Custom, 42 J. OF INT. L. & POL. 17, 54 (2011). 2. ↑ See id. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


The Contents of the Brazilian Arbitration Journal, Volume XVI, Issue 64 (December 2019)

Sat, 2020-01-18 01:00

João Bosco Lee

In October 2019, Brazilian legal community lost two of its most prominent authorities in private international law: Professors Jacob Dolinger and Luiz Olavo Baptista. Besides having built the basis of modern Brazilian private international law, Professors Dolinger and Baptista were essential in the development of Brazilian arbitration. In this edition, Brazilian Journal honors these unique and exceptional jurists with tributes of José Emilio Nunes Pinto, Esq. to Prof. Baptista and of Min. Luis Barroso to Prof. Dolinger.

In this 64th edition of Brazilian Journal Arbitration, Pedro Teixeira Mendes Parizotto opens the National Doctrine section with a study on the validity of hybrid jurisdictional clauses under Brazilian legal system. Thereafter, Maysa Abrahão Tavares Verzola and Kamile Medeiros do Valle present an article about the arbitrability of pecuniary administrative penalties as disposable rights. Finally, Ana Olivia Antunes Haddad, Julia Martins Gomes, and Louise Maia de Oliveira’s work aims at identifying tendencies concerning arbitrators’ profile in Brazil through an analysis of the members of the lists of the leading Brazilian arbitral institutions.

In the International Doctrine section, Thomas Granier examines the recent understanding of Paris Court of Appeals on the compatibility of international arbitral awards with international public policy, counting on an in-depth review of the facts to determine whether a breach of international public policy had arisen.

In the National Judicial Case Law section, Caio de Sá Dal’Col and Lívia Dalla Bernardina Abreu comment the Superior Court of Justice (STJ) decision in the judgment of Special Appeal No. 1.550.260/RS on  the jurisdiction of State courts to process and judge a lawsuit on forgery of a document, even when there is an arbitration clause in the subject matter documents of the lawsuit. On his turn, Ricardo Ramalho Almeida comments on a first instance decision delivered by the 1st Court of Business Restructuring and Insolvency of São Paulo in the Continental v. Quirós case, which handled the bankruptcy effects on pending arbitral proceeding and passive standing ad causam of the part that had not been included as debtor in the enforceable instrument for the enforcement of the award.

Turning to not-commented International Judicial Case Law section, it is presented a decision rendered by Grand Court of the Cayman Islands Financial Services Division regarding the enforcement of a foreign arbitral award filed by VRG Airlines against Matlin Patterson.

In the General Information section, Renata Auler Monteiro reports the highlights of the IV International CBMA Arbitration Congress; Bruno Guandalini comments the XVIII International Arbitration Congress of Brazilian Arbitration Committee, which took place from August 22 to August 24, 2019, in Brasília; and Thais D’Angelo da Silva Hanesaka presents the transcription of the speech of Ambassador Roberto Azevêdo in the ceremony of granting of the Title of Patron of CIArb Brazil Branch, held on September 27, 2019.

In the Arbitration Classics section, Clarie Debourg presents her comments on the emblematic Cour de Cassation’s decision in the Mardelé v. Muller case, which has consolidated, in French law, the dualist system centered in the economic criterion to differentiate the domestic arbitration and the international arbitration.

Finally, this editon includes the Arthur Gonzalez Cronemberger Parente book review on “Arbitragem e Conexão – Poderes para Decidir sobre Questões de Conexão”, by Paulo Macedo Garcia Neto.

I wish you an excellent arbitral reading!

João Bosco Lee, Director

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


2019 in Review: Latin America and Investment Arbitration

Thu, 2020-01-16 20:00

Enrique Jaramillo (Assistant Editor for Latin America)

Introduction

In 2019, we witnessed a number of interesting developments in the field of investment arbitration in Latin America. While some of them were in line with expectations, some jurisdictions did deviate from their usual or expected approach to ISDS and surprised us in positive, but also in negative ways. Our authors did a tremendous work covering and sharing their insights on the most important developments affecting our industry. In this post, we aim at giving you a quick look back to some of our most impactful publications in 2019.

 

USMCA will not enter into force before May 2020

Although USMCA was originally signed in November 2018, 2019 went by without its provisions coming into force. According to its text, the treaty takes effect three months after ratification by all three signatories. By the end of 2019, however, neither the United States Congress nor the Canadian Parliament has been able to pass such ratification. This delay was caused mainly by U.S. House Democrats who insisted on modifying the first version of the treaty on a number of issues related – mainly – to including stronger enforcement of labor provisions, and stricter environmental protections.

In December 2019, all three parties signed a Protocol amending the original text of USMCA. Chapter 14 – the section of the treaty dealing with ISDS, which we covered extensively in 2019 (see here, here and here) – is not modified by the Protocol. On the other hand, Chapter 31 – applicable to disputes between signatories – did suffer some minor modifications oriented to eliminate signatories’ ability to delay or to block the establishment of a dispute panel. It does so by 1) modifying certain language to ensure the automatic establishment of panels at the parties’ request; 2) requiring parties to establish a roster of dispute settlement panelists; and, 3) allowing the roster to be established even if consensus is not reached on the appointments made by each party.

As of today, the updated version of USMCA was already ratified by both the Mexican Senate, the U.S. House of Representatives and the Senate; ratification pending only by the Canadian Parliament. The latter might be the last to ratify the treaty, since it is in recess until January 27, 2020. This being the case, USMCA would not enter into force at least until May 2020 – three months after the potential ratification by all three parties. Under this state of affairs, the North American Free Trade Agreement (NAFTA) – along with all its substantive and procedural protections – remains in effect.

 

Investment Arbitration and claims by dual nationals

In October 2019, we reported on a PCA Tribunal’s award on jurisdiction dealing with a treaty provision allowing dual nationals to bring claims against one of their home states (Lisa Ballantine and Michael Ballantine v. The Dominican Republic). The case is the first publicly known investment arbitration that deals with a provision like this and will most likely be taken as a precedent for similar cases.

The claim was submitted by the Ballantines, citizens of both the U.S. and the Dominican Republic, against the latter, under the Dominican Republic – Central America – United States Free Trade Agreement (the “DR-CAFTA”). DR-CAFTA allows claims by dual nationals, as long as the claimant’s “dominant and effective nationality” is that of the non-host country. The Tribunal concluded it did not have jurisdiction to hear the claim, deciding that the claimants did not meet the dominant and effective nationality test. The tribunal reached its conclusion by addressing two substantive issues.

First, the Tribunal concluded that according to both the terms of the specific treaty and the UNCITRAL Rules, the nationality requirement must be fulfilled, first, at the moment the notice of arbitration is received by the respondent and, second, at the date in which knowledge of the breach is or should have been acquired, which is when the alleged breach was committed. Second, the Tribunal decided that – given DR-CAFTA’s silence on the matter – analyzing the legal standard for the dominant and effective nationality test required resorting to the customary rules of international law for which “customary international law cases are instructive.” Consequently, the Tribunal identified four elements to determine effective and dominant nationality: (i) the state of habitual residence; (ii) the circumstances in which the second nationality was acquired; (iii) the individual’s personal attachment to a particular country; and (iv) the center of the person’s economic, social and family life.

On account of Article 25(2)(a) of the ICSID Convention, the Ballentines decision will have no effect on ICSID cases. It is, however, relevant precedent for cases arising under treaties allowing dual-national claims, and – potentially – those silent on the matter. According to our author, Pablo Mori Bregante, this is so because the Ballantines award reinforced the concept that in absence of a provision in a treaty, customary international law cases are instructive, and because in at least one ongoing case without a similar provision (Serafin García Armas v. Venezuela), French courts have upheld the need to determine the effective nationality.

 

Colombia’s Constitutional Court conditions FTA ratification to issuance of joint interpretative notes by signatories

Colombia’s reputation as an investor-friendly country is irrefutable. In 2019, however, the nation’s Constitutional Court (the “Court”) issued a number of decisions in hinderance of both commercial and investment arbitration. In regard to the latter – for the very first time – the Court conditioned the ratification of investment agreements – with France (France BIT) and Israel (Israel FTA) – to the issuance of joint interpretative notes for certain provisions, including those regarding fair and equitable treatment (“FET”), national treatment, most favored nation (“MFN”), and expropriation. The Court’s decisions basically required the signatories to define terms such as “international law,” “legitimate/reasonable expectations,” “similar circumstances,” and others, in line with the Court’s own understanding of what those terms encompass.

As reported here and here, the relevance of these cases does not rest so much on the terms the Court required the parties to interpret but on the nature of the rulings itself. Specifically, on whether the Court exceeded its powers, first, by imposing its own views on the content of international investment agreements (“IIAs”) on Colombia’s Executive Branch; and, second, by asserting jurisdiction over foreign nations by requesting them to issue interpretative notes.

These decisions have dramatically changed the Court’s longstanding position regarding IIAs and may have several effects. First, if the Parties wish to pursue the ratification of the treaties, the representatives of Colombia, France, and Israel – respectively – will have to negotiate again either a joint interpretative declaration or the language of the agreements. Second, the interpretations of the Court may become evidence of state practice on how Colombia interprets provisions such as “international law,” “legitimate expectations,” or “similar circumstances”. This may have an impact on on-going and future investment arbitrations against Colombia.

 

After a decade-long arbitration, an international tribunal issued award on quantum in Perenco v. Ecuador saga

As reported by Daniela Páez-Salgado and Natalia Zuleta, after more than a decade, last year saw the end of the Perenco v. Ecuador saga. This dispute arose years ago from (i) Ecuador’s amendment of its Hydrocarbons Law in order to increase windfall profit tax rate for oil and gas operations up to 99%; and (ii) from Petroecuador’s decision to unilaterally terminate (declare caducidad) Perenco’s exploration and production contracts (PSAs). In response to Ecuador’s action, in 2008, Perenco brought a claim before ICSID arguing that the South American nation had breached FET standard under the France-Ecuador BIT and that it had unlawfully expropriated its investment. On the other hand, Ecuador also brought counterclaims, under Rule 40 of the ICSID Arbitration Rules, for environmental damages arising out of Perenco’s operations.

In 2014, the Tribunal found that (i) Ecuador had breached its contractual obligations to Perenco; (ii) Ecuador had acted in violation of FET, and (iii) that Ecuador’s decision to terminate the contract by declaring Caducidad amounted to an expropriation. In 2015, the Tribunal also found that Perenco was liable to Ecuador for environmental damage.

Finally, in 2019 the Tribunal issued an award on quantum. This award addressed the damages claimed by both parties; specifically, US$ 1.5 billion for the principal claim, and US$ 2.5 billion for the counterclaims. In the end, the Tribunal awarded Perenco US$ 449 million as compensation for Ecuador’s violation of the PSAs and the BIT; and awarded Ecuador US$ 54 million for its environmental counterclaim. Interestingly, the Tribunal appointed an independent expert to award the damages for the environmental counterclaim. Tribunal-appointed experts are not a novelty in international arbitration. However, it has not been very common for investor-state tribunals to appoint independent experts. From 2005 onward, tribunal-appointed damages experts have been engaged in only eight publicly available cases.

 

Modernized Canada-Chile FTA entered into force

In July 2019, Chip Rosenberg and Eduardo Bruera reported the coming into force of the Amending Agreements to the Canada-Chile Free Trade Agreement (“CCFTA”). The amendment updates several key provisions of the CCFTA, for example, it added a section on corporate social responsibility (“CSR”) reaffirming the parties’ commitment to globally endorsed CSR standards. It also includes procedural enhancements to the investor-state dispute settlement mechanism with respect to a number of modern considerations, including preliminary objections, awarding of costs, ethical considerations, third-partying funding, and transparency.

The amendment of the CCFTA was in line with Chile’s IIA agenda in recent years, i.e. to concentrate on comprehensive free trade agreements (FTAs) with investment chapters, instead of on BITs.

 

Conclusion

The intervention of Colombia’s Constitutional Court aside, 2019 was arguably a good year for investment arbitration in Latin America. The Perenco-Ecuador arbitration seems to be finally coming to an end, and Chile continues to move forward with the modernization of its IIA program. Granted, the year went by without the USMCA coming into effect, but the AMLO administration has dispelled investors’ concerns and, instead of reneging of treaty terms negotiated by the previous administration, it reasserted Mexico’s commitment to ISDS and international trade.

We expect to see as many interesting developments in 2020 as we did in 2019, e.g., the ratification of USMCA and the resulting termination of NAFTA; the development of annulment proceedings initiated by Ecuador following issuance of the Perenco quantum award; and, hopefully, news on the ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in Chile and Perú. We look forward to receiving our readers and contributors’ insights on these and other matters.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


The BIT Footprints of Emerging Market Economies in Africa: What Do They Portend for ISDS?

Thu, 2020-01-16 00:00

Uche Ewelukwa Ofodile

Introduction

 

In a 2015 publication Investment Policies and Bilateral Investment Treaties in Africa: Implications for Regional Integration, the United Nations Economic Commission for Africa opined that for countries in Africa:

“[o]pportunities for signing BITs with non-African partners have largely been exhausted because new southern partners such as China and India prefer other modalities for engaging with Africa.”

However, a careful review of all publicly available bilateral investment treaties (BITs) concluded since 2014 suggests that when it comes to the BIT footprint of emerging market economies in Africa, the landscape is a bit more complicated. Although countries like India and South Africa are rethinking their approach to investment treaty making, others appear to be moving in the opposite direction. Indeed, a survey of recent BIT practice of countries like Turkey, the United Arab Emirates (UAE), and Brazil reveals a decidedly African orientation.

What about China? Although the pace of the conclusion of China-Africa BITs has slowed down, China has concluded more BITs with countries in Africa than most of Africa’s traditional partners.1)Uche Ewelukwa Ofodile, China-Africa Bilateral Investment Treaties: A Critique, 35(1) Michigan Journal of International Law 131 (2013). jQuery("#footnote_plugin_tooltip_6234_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6234_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The growing number of BITs between countries in Africa and emerging market economies raise questions about the role of emerging markets economies in international investment law rule-making and about future trends in investment treaty arbitration.

 

BITs Between African States and New Southern Partners: The Emerging Landscape

A review of the BITs that countries in Africa have concluded since 2014 suggests that countries like Turkey, Brazil, and the UAE are concluding BITs with countries in Africa at a significant rate. Overall, the record shows that:

 

Chart 1: Turkey-Africa BITs Since 2014

No. Short Title Date of Signature Date of Entry into Force ISDS (?) 1. Zambia-Turkey BIT 28/07/2018 — Yes 2. Mali-Turkey BIT 02/03/2018 — Yes 3. Mauritania-Turkey BIT 28/02/2018 — Yes 4. Turkey-Tunisia BIT 27/12/2017 — Yes 5. Turkey-Chad BIT 26/12/2017 — Yes 6. Burundi-Turkey BIT 14/06/2017 — Yes 7. Turkey-Mozambique BIT 24/01/2017 — Yes 8. Rwanda-Turkey BIT 03/11/2016 — Yes 9. Somalia-Turkey BIT 01/06/2016 — Yes 10. Ghana-Turkey BIT 01/03/2016 — Yes 11. Cote d’Ivoire – Turkey BIT 29/02/2016 — Yes 12. Sudan-Turkey BIT 03/04/2014 — Yes 13. Kenya-Turkey BIT 08/04/2014 — Yes

Source: Source: UNCTAD Investment Policy Hubhttps://investmentpolicy.unctad.org/

 

Chart 2: UAE-Africa BITs Since 2014

No. Short Title Date of Signature Date of Entry into Force ISDS (?) 1. Gambia-UAE BIT 15/07/2019 — Yes 2. UAE-Zimbabwe BIT 16/06/2018 — Yes 3. Mali-UAE BIT 06/03/2018 — Yes 4. Rwanda-UAE BIT 01/11/2017 — Yes 5. Uganda-UAE BIT 01/11/2017 — Yes 6. Angola-UAE BIT 05/04/2017 — Yes 7. Burundi-UAE BIT 06/02/2017 — Yes 8. Ethiopia-UAE BIT 03/12/2016 — Yes 9. Equatorial Guinea-UAE BIT 19/10/2016 — Yes 10. Nigeria-UAE BIT 18/01/2016 — Yes 11. Mauritania-UAE BIT 2015 12/04/2016 Yes 12. Senegal-UAE BIT 22/10/2015 — Yes 13. Mauritius-UAE BIT 20/09/2015 28/12/2017 Yes 14. Comoros-UAE BIT 26/03/2015 29/11/2017 Yes 15. Kenya – UAE BIT 23/11/2014 05/06/2017 Yes

Source: UNCTAD Investment Policy Hub  –https://investmentpolicy.unctad.org/

 

Chart 3: Brazil-Africa BIT Since 2014

No. Short Title Date of Signature Date of Ratification ISDS (?) 1. Brazil-Morocco BIT 13/06/2019 — No 2. Brazil-Ethiopia BIT 11/04/2018 — No 3. Brazil-Malawi BIT 25/06/2015 — No 4. Brazil-Angola BIT 11/04/2015 11/10/2017 No 5. Brazil-Mozambique BIT 30/03/2015 — No

Source: UNCTAD Investment Policy Hub  –https://investmentpolicy.unctad.org/

 

Emerging Market Economies, African States and ISDS: Key Questions

BITs between countries in Africa and emerging market economies outside the continent raise questions about the role of emerging economies in the development of international investment law and in investor-State dispute settlement (ISDS) in particular. For example:

  • In their BITs, are emerging market economies merely conforming to the norms and standards established by developed countries or are they changing these norms in fundamental ways?
  • In their recent BITs, are emerging market economies adopting a monolithic approach or are they carving their own respective paths?
  • Given the reported crisis in ISDS, are emerging market economies omitting ISDS from their recent BITs and if so, what are they replacing it with?
  • In their foray into Africa’s FDI space, what role might ISDS play in managing the activities of emerging market economies in the continent?

 

Emerging Market Economies, African States and ISDS: Emerging Trends

A review of the BIT footprint of some emerging market economies in Africa reveals that regarding ISDS, although ISDS is still very popular, emerging market economies are not adopting a monolithic approach, but are carving their own respective paths. Overall, several conclusions can be drawn.

First, all recent BITs between Turkey, UAE, China and countries in Africa provide for ISDS.2)Uche Ewelukwa Ofodile, Emerging Market Economies and International Investment Law: Turkey-Africa Bilateral Investment Treaties, 52(4) Vanderbilt Journal of Transnational Law 949 – 1060 (2019). jQuery("#footnote_plugin_tooltip_6234_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6234_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Second, regarding Brazil, none of the five recent BITs between Brazil and countries in Africa provide for ISDS. For example, the Brazil-Malawi BIT does not provide for ISDS but rather creates a Joint Committee that is responsible for the administration of the agreement. One of the tasks of the Joint Committee is to:

‘[r]esolve any issues or disputes concerning Parties’ investments in an amicable manner’.

Third, emerging market investors appear to welcome ISDS and are not shying away from utilizing ISDS. In their dealings with States in Africa, ISDS has been triggered by numerous investors including investors from South Africa (e.g. AngloGold Ashanti (Ghana) Limited v. Republic of Ghana), UAE (e.g. DP World v. Djibouti) and Mauritius (e.g. LTME Mauritius Limited and Madamobil Holdings Mauritius Limited v. Republic of Madagascar.

Fourth, competition between emerging market economies for influence in Africa will intensify in the coming years and resort to dispute settlement mechanisms will likely increase as well. Already emerging market multinationals (EMNCs) are beginning to compete amongst themselves for lucrative contracts in Africa, as demonstrated by ongoing legal battles over who gets to control port terminals in Djibouti. The case of D.P. World v. Djibouti discussed here, pits Middle East port giant, DP World, against the government of Djibouti and a Chinese conglomerate, China Merchants Port Holdings Company. When Djibouti terminated a concession agreement with DP World to operate a port terminal, DP World filed claims with the London Court of International Arbitration. The same case is also playing out in Hong Kong’s high court (discussed here and here).

 

Conclusion

The global corporate landscape is going through a fundamental transformation thanks to emerging market multinational companies (“EMNCs). According to a 2015 report Playing to win: The new global competition for corporate profits (“Playing to Win”), since 1990, emerging economies have launched more than 17,000 large companies. Moreover, by 2025, EMNCs will account for more than 45 percent of the Fortune 500. Significantly, EMNCs are not content with operating in their home markets but are going overseas.

According to Playing to win:

“[i]n the past decade, the 50 largest firms from emerging economies have doubled their share of revenue from overseas activity from 19 percent to 40 percent.”

In the Asian Development Outlook 2011: South-South Economic Links, the Asian Development Bank declared that:

“prospects are bright for the South to promote growth and productivity by improving market-oriented links that facilitate the exchange of goods and services as well as capital investment flows and transfers of technology.”

The increased role of emerging market partners in Africa was noted in the African Economic Outlook 2011: Africa and Its Emerging Partners.

The role of emerging market economies in the global economic system is shifting from that of capital-importers to that of both capital-importers and capital-exporters, and their interests (both defensive and offensive) are changing as well. The shifting and changing role of emerging market economies in the global economy raises important questions about the continued relevance of the fundamental principles that underpin the South-South Cooperation discourse such as the principles of respect for national sovereignty, independence, equality and equity, mutuality of benefit, mutual respect, and partnership.

These principles can be found in instruments such as the Joint Declaration of the Seventy-Seven Developing Countries (1964), the Buenos Aires Plan of Action for Promoting and Implementing Technical Cooperation among Developing Countries (1978); the Havana Declaration and the Programme of Action of the First South Summit (2000); and the Marrakech Framework for the Implementation of South-South Cooperation (2003).

Despite debates about crisis in investment treaty arbitration, most emerging market economies are concluding BITs that provide for ISDS and EMNCs appear to welcome ISDS. Significantly, recent BITs between emerging market economies and other developing countries tend to be modelled on traditional BITs and do not generally reflect core principles that underpin the South-South Cooperation agenda.

With the changing role of emerging market economies in the global economy and pressures from their own domestic constituencies, commitment to South-South cooperation is clearly waning. In the future, we are likely to see challenges to the notion of South-South cooperation, attempts to redefine and reimagine South-South cooperation principles, a gradual erosion of South-South cooperation agenda, as well as a weakening of the mechanisms for promoting South-South cooperation.

References   [ + ]

1. ↑ Uche Ewelukwa Ofodile, China-Africa Bilateral Investment Treaties: A Critique, 35(1) Michigan Journal of International Law 131 (2013). 2. ↑ Uche Ewelukwa Ofodile, Emerging Market Economies and International Investment Law: Turkey-Africa Bilateral Investment Treaties, 52(4) Vanderbilt Journal of Transnational Law 949 – 1060 (2019). 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: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


New Year’s Quiz Answers, Winner…

Wed, 2020-01-15 00:00

Michael McIlwrath

Nkiri Agbu is the winner of the 2020 Kluwer Arbitration Quiz. Nkiri spent New Year’s Day researching the Quiz in order to be the first to submit the correct answers. Now that’s passion for international arbitration!

Nkiri won a very special prize for her correct answers for which she will be contacted. In addition to Nkiri, KAB also congratulates runner up Mihaela Apostol, for her submission of correct answers.

This particular quiz was not easy, since its focus was domestic arbitration around the world, ranging from quirky localisms to counterintuitive and utterly strange practices. And our readers sent in some additional reasons to prefer international practice over domestic dispute resolution practices filled with landmines. For example:

Brazil: Diogo Araujo pointed out that the jurisdiction now permits consumer arbitration, but only if certain, specific formalities are met, i.e., that either the consumer is the one that initiates the arbitration or has agreed to arbitrate in a separate document or has signed a contract containing an arbitration clause written in bold letters. Diogo pointed out a recent decision that invalidated such a clause because the clause with bold letters appeared on the same page as the contract signature, and the consumer signed the page only once.

India: In addition to the unusual practices mentioned in the quiz, Aman Mir noted some 2019 changes in Indian law that will undoubtedly reinforce perceptions of hostility towards international arbitration. One was the official designation of eight categories of persons who may act arbitrators, none which include foreign-qualified lawyers.1)The Amendment Act, Sections 43D(2)(c) and 43J. jQuery("#footnote_plugin_tooltip_4851_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4851_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Another is the introduction of a government body that will “grade” the performance of all arbitration institutions, and the government’s grading will be used by the courts when appointing or designating institutions.2)Id., Sections 43A to 43M. jQuery("#footnote_plugin_tooltip_4851_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4851_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Answers to the Quiz

 

  1. Arbitrators. Match the arbitrator and the country whose courts decided the issues in 2019:

a. Arbitrators imprisoned for accepting compensation based on ICC fee scales in ad hoc arbitration proceedings. 4. Peru: On 4 November 2019, a Peruvian court ordered the “preventative detention” (imprisonment) of 14 arbitrators who had sat in cases between the Peruvian construction company, Odebrecht, and the Peruvian government. Several are charged with bribery for having accepted compensation based on the ICC fee scales instead of the lower arbitrator fees published by the Lima Chamber of Commerce. As discussed on the Kluwer Arbitration Blog on 10 December 2019, the court ignored widely-accepted international practice and also Peru’s own domestic arbitration law, which permits arbitrators to increase their fees based on the complexity of a dispute or the amount of work. On 28 November 2019, the Peruvian court had released some of the arbitrators from temporary detention, although the charges remain pending and they are prohibited from leaving Peru.

b. Arbitrator’s failure to disclose an ownership stake in the institution that administered the arbitration held to be grounds for annulment of award. 1. USA. MonsterEnergy Company, v. City Beverage, LLC (doing business as Olympic Eagle Distributing) (9th Cir. Nos. 17-55813, 17-55082, October 22, 2019). Failure by a sole arbitrator to disclose he was an “owner-shareholder” of JAMS, the institution administering the arbitration, was grounds to vacate award in a U.S. domestic commercial arbitration administered by JAMS on grounds of “evident partiality”. The court also faulted the failure to disclose what it called the “non-trivial business dealings” of prior arbitrations JAMS had administered with one of the disputing parties.

c. Arbitrator allowed to remain on tribunal despite being a former employee of one of the parties to the dispute. 3. India. Specifically, The Government of Haryana PWD Department Vs G.F.Toll Road Private Limited 2019(1) SCALE 134, decided by the Supreme Court of India on 03.01.2019.

d. Court granted a professional body access to the arbitration hearing transcript and witness statements so it could determine whether an arbitrator should be disciplined for failure to disclose circumstances of possible bias. 2. England. The Chartered Institute of Arbitrators v B & Ors, (2019) EWHC 460. In reaching this conclusion, the High Court held that maintaining the quality and standards of arbitrators outweighs preserving the confidentiality of the arbitration itself.

 

  1. Skeletons in the domestic closet. Match the practices with the domestic jurisdictions with which they are most associated.

a. Pre-hearing written skeletons. 3 – UK. They are a requirement of English litigation procedure. See CPR 52. And let’s be honest, there’s often little that is skeletal about them. Practitioners reveal their distinct English influence when they request or insist on the opportunity to provide this additional exchange of submissions after all the other memoranda have been submitted.

b. Pre-hearing oral examination of opposing witnesses with a written transcript that can be used later during the oral examination of the same witnesses at the arbitration hearing. 2 – USA. Just as insisting on “skeletons” will type cast a practitioner as being influenced by England, “depositions” will define someone as American. This staple of legal practice across all 50 of the US states is virtually absent from legal systems outside of North America.

c. Iura novit curiae. 4 – Prague Rules. An arbitrator who insists on the tribunal’s right to inject its own legal arguments, even if not raised by the parties, is likely revealing a strong civil-law origin or influence. Loosely translated from Latin, iura novit curiae means “the arbitrators now wish to demonstrate their superior knowledge of the law versus the counsel retained by the parties”. The Prague Rules on the Efficient Conduct of Arbitration, which draw heavily from certain domestic practices of civil-law jurisdictions, expressly incorporate iura novit at Article 7, providing at least the guaranty of a framework by which a tribunal may “rely on legal authorities even if not submitted by the parties”.

d. “Sittings” as term for calculating arbitrator fees for hearing time (usually a half day). 1 – India. If the arbitrators have scheduled a “sitting”, to be followed by other, future, sittings, then most likely you are in India. Unlike international practice, domestic Indian arbitral hearings are typically scheduled via a series of non-consecutive days. And arbitrator fees are assessed on a per-sitting basis. Even where an ad valorem fee scale is used, for example under the rules of the Indian Institute of Arbitration & Mediation (IIAM), the arbitrators’ expenses are still be reimbursed on a “per sitting basis”.

 

  1. Swearing! Match the oath with the place or rules.

a. Witnesses must swear an oath to tell the truth. 2 – UAE. Failure to properly swear witnesses may have unfortunate consequences for the enforceability of an award rendered in the UAE. Article 33(7) of UAE Federal Law No. 6 of 2018 concerning Arbitration provides that “unless otherwise agreed by the parties, hearing the statements of the witnesses, including the experts, shall be carried out as per the effective laws of the State”. The effect of an arbitral tribunal’s failure to administer an oath to witnesses was recently addressed by the Dubai Court of Cassation in Commercial Cassation No. 364 of 2019 (hearing of 19 May 2019).

b. Arbitrators must swear an oath to decide based on the truth. 3 – New York law makes this a requirement.

c. Arbitrators are expressly authorized to administer an oath to witnesses but are not required to do so. 1 – LCIA. The institution’s rules contemplate that arbitrators may occasionally have to contend with swearing requirements at the seat, and authorize arbitrators to administer “any appropriate oath to any witness” before they give testimony.

 

  1. Champerty. Third-party funding of arbitration is prohibited under the common law doctrine of champerty in which of the following Asian countries?
  •  5 – None of the above. While champerty may still be recognized in some corners of the common law world, these major common law fora in Asia do not treat it as an impediment to third party funding. See “Champerty Is Dead: Long Live Champerty”.

 

  1. Foreign lawyers. Match the rule with the jurisdiction

a. Foreign lawyers are expressly authorized to appear in international arbitration and mediation proceedings. 1 – Singapore. In 2004, Singapore amended its Legal Profession Act to expressly permit foreign lawyers to represent parties to international arbitrations seated in Singapore, in order to make the jurisdiction more attractive.3)Alvin Yeo, Lim Lim Wei Lee, Arbitration Guide of the IBA Arbitration Committee: Singapore (Updated January 2018), at 4. jQuery("#footnote_plugin_tooltip_4851_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4851_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Before that, Singapore allowed foreign counsel to represent parties only so long as they appeared together with Singaporean co-counsel.

b. Foreign lawyers may appear in international arbitrations but only as co-counsel with an attorney qualified to practice at this seat. 3 – California, USA. In order to make California more attractive to international arbitration, the state loosened its prohibition against foreign counsel beginning January 2019 if certain, specified conditions are met. Those conditions require a relationship between the dispute or client relationship and the law where the foreign attorney is licensed to practice or “private international law”. The revised statute appears to still require co-counsel licensed in California for arbitrations that do not fall within these exceptions, such as cases in which counsel have no qualification in the law governing the dispute or the place where the dispute arises, and are not based in the same country as the client.

c. Foreign lawyers may reside and work at this seat, subject to regulation by a statutory body. 2 – England and Wales. The Solicitors Regulation Authority permits foreign lawyers to practice in England and Wales and provides rules that regulate their conduct, and not just with respect to international arbitration.

 

  1. Enforcement. Match the requirement with the jurisdiction (hint: one jurisdiction matches two propositions)

a. A party must pay a tax of 3% of the amount awarded in order to enforce an arbitration award. 1 – Italy. The requirement is “only” applicable to enforcement of amounts awarded. Italian Decree No. 131/1986 (Tariff A, Part I, article 8). Instead, awards that only declare rights to be null or void are subject to a Euro 200 registration tax.

b. The arbitrators must read the entire text of their award out loud to the parties in order for it to become officially enforceable. 2 – Ecuador. Arbitral tribunals sitting in Ecuador can still issue supercalifragilisticexpialidocious awards. Under Article 29 of the country’s arbitration act, however, they just may not want to use that or other difficult-to-pronounce terms. The same requirement is imposed by Article 33 of Columbia’s Arbitration Act.

c. Arbitrators do not have authority to issue provisional/interim measures. 1 – Italy. But Italy does not prohibit arbitrators from issuing orders that the parties may spontaneously comply with. In 2019, the Milan Chamber of Arbitration, Italy’s leading arbitration institution, issued a new Article 26 of its rules providing for a tribunal’s order of provisional measures to have a contractual effect over the parties, substantially side-stepping what has long been a criticism of Italy’s arbitration law.

 

  1. Employment arbitration not allowed in?
  • c – Saudi Arabia.

The use of arbitration to resolve employment disputes is very likely an exception around the world rather than the rule. Even where some employment arbitration is permitted, it is often limited to certain, specified types of employment relationships. Therefore, we did not deduct or penalize any wrong answers to this question. (Almost none of the submitted answers agreed with ours.)

a. USA. Employment arbitration is a substantial practice in the USA. The US Supreme Court held in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) that employers can require employees to arbitrate work-related disputes.

b. China. See “Law of The People’s Republic of China on Labor-Dispute Mediation and Arbitration Order of the President of the People’s Republic of China” No. 80. (PRC Labor Law).

c. Saudi Arabia. The entity responsible for adjudicating employment disputes in Saudi Arabia is the Commission for the Settlement of Labour Disputes, a body of the Ministry of Justice. But all cases must be first submitted to mediation under the auspices of the Ministry, and can proceed to adjudication only if the employee or employer rejects the mediator’s proposed resolution.

d. The Vatican. Under procedures of the Labour Office of the Apostolic See, employment disputes in the Vatican may be resolved by mediation or arbitration. See, Statute of the Labour Offices of the Apostolic See (ULSA), Article 3(f).

e. Brazil. Chapter II, Paragraph 4 of the Brazilian Arbitration Act. In 2017, Brazil revised its labor laws to permit disputes of executive-level employees to be resolved by arbitration.

 

  1. Grounds for challenging an award: Which of the following statements is true about Singapore?

 

  1. Procedure. Which jurisdiction has enacted legislation to empower arbitrators to impose exemplary costs on parties seeking adjournments?
  • c – India.

a. Myanmar

b. Vietnam

c. India. Article 24(1) of the Indian Arbitration Act provides that, with respect to hearings, “the arbitral tribunal….may impose costs including exemplary costs on the party seeking adjournment without any sufficient cause.”

d. South Africa

 

  1. “Which was established first?”
  • a – The Finland Arbitration Institute.

a. The Finland Arbitration Institute (FAI). Founded 1911. The FAI initially relied on a unique mechanism of “transparency” to ensure enforcement of arbitral awards. During its initial years of operation, parties that failed to voluntarily comply with an award would be fined 300 Finnish marks and have their name posted conspicuously on the bulletin board of the Helsinki Stock Exchange.

b. The Singapore International Arbitration Centre (SIAC). Founded 1991.

c. The Vienna International Arbitration Centre (VIAC). Founded 1975.

d. The Court of Arbitration of the International Chamber of Commerce (ICC). Founded 1923.

e. The American Arbitration Association (AAA). Founded 1926.

References   [ + ]

1. ↑ The Amendment Act, Sections 43D(2)(c) and 43J. 2. ↑ Id., Sections 43A to 43M. 3. ↑ Alvin Yeo, Lim Lim Wei Lee, Arbitration Guide of the IBA Arbitration Committee: Singapore (Updated January 2018), at 4. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


The Dawn of a New Era for Arbitration in Pakistan? Highlights from the Inaugural Conference of CIICA’s Young Arbitration Group

Mon, 2020-01-13 23:49

Dimitrios Katsikis

On 15 and 16 November 2019, the Centre for International Investment and Commercial Arbitration (CIICA), organised a conference in Islamabad, Pakistan celebrating the inauguration of its Young Arbitration Group (YAG). The conference, titled “International Arbitration in Pakistan: Opportunities for the Next Generation” was, in many respects, a first-of-its-kind in Pakistan. CIICA, based in Lahore, is Pakistan’s first centre for international arbitration, and the conference was the first time that over 30 practitioners from all over the world came to Pakistan to discuss topical issues in international arbitration. It also marked the first time that an event supported by Arbitral Women was hosted in Pakistan. This post touches on some of the most interesting points discussed at the conference.

 

Keynote address of Mr Makhdoom Ali Khan

Mr Makhdoom Ali Khan, Senior Advocate of the Supreme Court of Pakistan who is highly regarded for his experience in international arbitration, delivered the keynote address in which he explored the, often difficult, relationship between arbitration and the courts in Pakistan. Mr Khan deplored how courts in Pakistan had on occasion held that contracts were void ab initio as a result of corruption, and that arbitration agreements concluded in those contracts could not be enforced. In Mr Khan’s view, part of the problem lay with Pakistan’s arbitration act, enacted in 1940. Urging that the 1940 Act be updated, he gave the pertinent example that, under this Act, an arbitral tribunal must issue an award within four months from the time the dispute is referred to it, otherwise an extension of time has to be granted by the courts.  According to Mr Khan, this provision gives courts an opportunity to interfere – and sometimes significantly delay – the arbitral process.

Despite these problems, Mr Khan asked Pakistan’s younger lawyers to not give up on their pursuit of a career in international arbitration, even if they were to “start small”, recalling how he was thrown in the deep waters of SGS v Pakistan, when he was Pakistan’s Attorney General, and how he learned about ICSID arbitration through his exchanges with Professor Emmanuel Gaillard (then counsel for SGS). Mr Khan concluded by sharing with the younger lawyers in the audience an old Spanish proverb: “Traveller, roads are made by travelling”.

 

Pakistan’s experience in investment arbitration: how to revisit the approach and rise to challenges

Coming only days after Pakistan’s settlement of the Karkey Karadeniz investment arbitration (see here), this panel of the conference was particularly topical. Ms Mahnaz Malik, of Twenty Essex, helped frame the debate by tracing the history of BITs, and Pakistan’s role in that history. She noted that the first ever BIT to be signed was the Germany-Pakistan BIT, in 1959, and concluded that BITs are “here to stay”.

This was a view that, Mr Feisal Naqvi, of Bhandari Naqvi Riaz, disagreed with.  He argued that BITs do not work for Pakistan because the Pakistan government often does not attribute appropriate importance to commitments under BITs, recounting the Karkey Karadeniz and Tethyan Copper Company cases, as recent, prominent examples. This view is attractive, and all the more so for its simplicity. Yet many multinational corporations have specifically referenced the provision of international protection of their investments as a reason to invest, so it may be difficult for Pakistan to attract the investment it needs if it were to deprive foreign investors of that protection altogether. It is also important to keep in mind that, whatever the benefits of this approach may be, they would only accrue in the long run: in light of the sunset clauses prevalent in many BITs, foreign investors would continue to benefit from protection for years after the BITs’ termination. A prominent example is the Pakistan-Turkey BIT, that gave birth to the Bayindir v Pakistan and Karkey Karadeniz v Pakistan investment arbitrations, and which provides for a sunset clause of 20 years (see Article IX(4) of the Pakistan-Turkey BIT).

It may therefore be more effective to try and resolve disputes before the stage where they get to international investment arbitration, rather than depriving foreign investors of international protection altogether. This was the view put forward by Ms Sarah Vasani, of Addleshaw Goddard. Drawing on recent examples, Ms Vasani argued that States should pay more attention to how BITs are drafted, as this would greatly help reduce disputes. But even when disputes do arise, Ms Vasani argued that Pakistan could resolve these disputes by managing them proactively when they are still at the “cooling off” phase, rather than tossing the cooling off letter aside as unimportant.

Ms Vasani is not the only voice calling for a pre-arbitration identification and resolution of disputes in Pakistan. In a recent article published on the Kluwer Arbitration Blog, Professor Ahmad Ghouri, a member of CIICA’s Global Advisory Board, emphasised the importance of the Government of Pakistan taking an active role in screening foreign investments before they are made, but also in supporting and monitoring foreign investments once established. This approach could enable the Government of Pakistan to coordinate its treatment of foreign investments and, therefore, avoid situations where disgruntled foreign investors initiate arbitration. The panel was completed by Ms Ruba Ghandour, of the PCA, who took a step back from Pakistan’s experience with investment arbitration, and focussed on various techniques that the PCA uses to resolve investment arbitrations in an efficient manner.

 

Arbitrating power disputes: recurring issues and how to resolve them

In a separate panel, the discussion focused on commercial arbitration and, in particular, arbitration of power disputes. Most of these arbitrations are commercial in nature, and therefore not public, but no less significant: in fact, Pakistan’s state-owned entities have faced a slew of such arbitrations recently.

Speaking on this panel, the author of this post illustrated how a typical dispute arises in Pakistan’s power sector, as many of these disputes concern unpaid dues under Power Purchase Agreements between the (often privately held) power producers, and the (always State-owned) power purchaser. Once these disputes arise, parties to the arbitration agreement have a menu of dispute resolution options typically available to them: negotiations, expert determination, and arbitration. Although many of the disputes arising in relation to Pakistan’s power sector are submitted to expert determination due to its perceived efficiency, the author suggested that expert determination may not be the best forum to submit disputes raising complex contractual construction issues, since, as expert determination is only a creature of contract, a dispute will likely end up in arbitration in any event.

Mr Mian Sami-ud-Din, of Bhandari Naqvi Riaz, then explored the submission of power disputes to court litigation, such as public-interest litigation before Pakistan’s Supreme Court, or regulatory proceedings before NEPRA, the regulator setting the electricity tariff in Pakistan. In his view, some of the matters that have been referred to such dispute resolution fora ought to have been referred to arbitral tribunals instead, in light of the pre-existing agreements to arbitrate. This raises interesting questions of the material scope of the agreement to arbitrate.  For example, if the agreement to arbitrate is found in a Power Purchase Agreement, which addresses the sale and purchase of electricity from power producers to the State, should that agreement be construed to also encompass public interest litigation concerning the power industry in Pakistan? What if proceedings initiated by the power producers were regulatory proceedings for the determination of the electricity tariff? These are difficult questions to answer in abstract terms, and any answer requires recourse to the law governing the arbitration agreement. As they have arisen in practice, and will continue to do so, one expects that an arbitral tribunal will have to pronounce on them in due course.

Taking a practical perspective, Mr Samar Abbas, of 39 Essex Chambers, focused on how expert evidence can play a key role in resolving complex power disputes. Mr Abbas suggested that one can divide power disputes as arising in one of three phases in a power plants’ life: (i) the development phase, where issues of financing and guarantees are likely to arise; (ii) the construction phase; and (iii) the operation phase, i.e.,disputes arising in relation to the sale of power. Mr Abbas suggested that expert determination can be a useful dispute-resolution method for power disputes in any of those phases, and emphasised the importance of parties getting experts involved at an early stage of the dispute. The last speaker on the panel was Mr Usman Piracha of the Attorney General’s office, who took a different perspective than the previous speakers, discussing how the Government of Pakistan, as well as private parties, can improve in the drafting of contracts, so as to avoid disputes arising in the future.

 

The effect and relevance of corruption in international arbitration

The subject of the third panel, corruption, was equally current: allegations of corruption had weighed heavily in both the Karkey Karadeniz and the Tethyan Copper Company arbitrations (see above), which had culminated in substantial damages orders against Pakistan.

Ms Emilie Gonin, of Doughty Street Chambers, led the discussion by identifying the key situations in which corruption may arise as an allegation in an arbitration: as a defence by a State or State-owned entity against the validity of a contract, or, alternatively, as a claim by an investor that a corrupt government has confiscated its investment. The discussion was further advanced by Mr Mark McNeill, of Quinn Emanuel Urquhart & Sullivan, who noted that arbitral tribunals in commercial arbitration typically deal with the question of corruption by employing the doctrine of separability, which can be very useful at preserving the arbitral agreement, as it isolates the arbitral agreement from the effect that corruption may have on the contract as a whole. As for investment arbitration, however, Mr McNeill noted that corruption can potentially have a much more significant effect, depriving the tribunal of jurisdiction altogether. Mr Imad Khan, of Winston & Strawn, agreed with this assessment, noting also that because investment arbitrations were largely in the public domain, this may put extra pressure on States in deciding whether to launch a claim for corruption, as it could implicate past misconduct of a State official. Mr Khurram Khan, of Addleshaw Goddard, concluded the discussion by touching upon the burden and standard of proof, and suggested that calls for shifting the burden of proof and raising the standard of proof in relation to corruption allegations may need to be further considered.

 

Disputes in the China-Pakistan Economic Corridor and effective methods for their resolution

A further panel focussed on the resolution of disputes arising in the China-Pakistan Economic Corridor (“CPEC”), which forms part of China’s Belt-and-Road Initiative. The CPEC is likely to become key in the new future, in light of the increasing Chinese investment in Pakistan.

Ms Samantha Lord-Hill, of Freshfields Bruckhaus Deringer, set out the fundamental aspects of CPEC. Listing the dispute resolution options available to parties involved in CPEC disputes, Ms Lord-Hill suggested that, although on occasion very useful, mediation and expert determination may be abused by recalcitrant parties in an attempt to delay the resolution of a dispute.

Mr Emmanuel Jacomy, of Shearman & Sterling LLP, agreed with this assessment, also noting the many practical issues that one may face with enforcing a foreign arbitral award in China.  Mr Jacomy then observed that, although choosing a neutral seat in an independent country is a crucial consideration, neither the arbitration law of China, nor that of Pakistan, refer to the concept of “seat”. This could raise significant difficulties with enforcing a foreign arbitral award, which Mr Jacomy illustrated with the example of Chinese courts holding that an ICC award by a tribunal with its seat in England would actually be a French award, because the ICC is headquartered in France. Practically, parties engaged in CPEC projects would be well-advised to select a seat in the same country as that of the headquarters of the arbitral institution, pursuant to the rules of which the arbitration will be conducted.

Ms Kiran Sanghera, of the HKIAC, seized of the opportunity to suggest Hong Kong as a neutral seat that is well-positioned to resolve Belt-and-Road Initiative (“BRI”) disputes. Ms Sanghera also referred to a ground-breaking development in Hong Kong, pursuant to which parties to arbitrations seated in Hong Kong may obtain interim relief in mainland China if that arbitration is under the auspices of one of a certain number of arbitral institutions, one of which is HKIAC (for a discussion of the development on this blog, see here).

Ms Olga Boltenko, of Fangda Partners, concluded the panel on CPEC disputes on a positive note, observing that the statistics of enforcing foreign awards in mainland China are particularly good, as compared to other jurisdictions, at approximately 70% of publicly available cases (for a publication on this point, see here). Ms Boltenko also contemplated the usefulness of having an arbitration centre which focusses exclusively on the resolution of BRI disputes

 

Concluding thoughts

In the wake of the Karkey Karadeniz and Tethyan Copper Company arbitrations, international arbitration is front-page news in Pakistan, and globally. In some quarters this has led to an angry reaction, with commentators labelling international arbitration as “flawed”, “capricious” and “corrupt” (see here).

Such sweeping criticisms are seldom of much help. They do little to help Pakistan, which is party to a number of BITs, and whose State entities strike up contracts with arbitration agreements for virtually every major foreign and domestic investment. They also fail to recognise that international – but also domestic – investors regard access to arbitration as a valuable right, and will insist on its inclusion. The power industry serves as useful reminder, where virtually all of the major domestic players have concluded contracts for the sale of power which provide for arbitration in Singapore, London, or elsewhere. Indeed, it is difficult to argue otherwise, when only a few years ago, in 2017, a State-owned entity of Pakistan was able to convince Lahore’s Civil Court to pass an interim order setting aside an award in an arbitration that was seated in London, England (the interim order was later suspended through an order of the High Court).

Greater promise lies in preventing disputes from arising, rather than precluding them from being arbitrated. For this to take place, the first step is for Pakistan’s legal community, as well as its judiciary and Government, to become even more acquainted with international arbitration, and how they can use it to their advantage.

In this endeavour, conferences such as the CIICA YAG Inaugural Conference have an important role to play. Many of the most important arbitration issues pertinent to Pakistan were discussed at the conference, which can serve as fertile ground for an exchange between international and local practitioners, and especially young practitioners of the “next generation”. What is more, by creating a Young Arbitration Group, the CIICA permits this dialogue to continue beyond the confines of a one- or two-day conference, educating international lawyers about court process and culture in Pakistan, and local practitioners about the latest developments internationally. In the author’s view, it is this “next generation” that presents the greatest promise in helping Pakistan overcome some of the most difficult international arbitrations that it may have to face.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


Change of Clean Energy Rules in Mexico: Potential Impact for Investors

Mon, 2020-01-13 01:21

Fernando Pérez-Lozada

In 2013 Mexico embarked on a major energy reform by amending its Constitution, thereby allowing the participation of private investors in the exploration and extraction of oil & gas and the generation of electricity, particularly from clean and low-cost energy sources.

Subsequently, Certificates of Clean Energy (“CELs“) were introduced on 31 October 2014 to promote new “private” investments for the generation and use of clean energy in accordance with Mexico’s national development plan 2013-2018. CELs are granted to companies generating electricity only from renewable sources,1)Receiving 1 CEL for each MW/h generated. jQuery("#footnote_plugin_tooltip_6332_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6332_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); which can be sold to suppliers, qualified users and other obliged participants to meet their consumption requirements. Furthermore, pursuant to Mexico’s international commitments (i.e. Paris Agreement ratified on 21 September 2016) and the national strategy adopted as a result, Mexico committed to generate 30% of its energy from clean sources by 2021 (from a base of 20.3% in 2015), to reach 35% by 2024 (as established in its Climate Change Law), 37.7% by 2030 and 50% by 2050. Mexico’s national strategy of clean energy was inspired by model economies such as Germany (Energiewende), France (Act on energy transition for green growth) and the State of California in the U.S. (Senate’s Bill No. 350).

Under the 2014 original regime, CELs could only be granted for a period of 20 years to “Clean Power Plants” (Centrales Eléctricas Límpias) established after 11 August 2014, to be sold in the free market under certain criteria established by SENER. Notably, the plants owned by the State (under the Federal Electricity Commission “CFE“) built before August 2014 –known as “Legacy Power Plants” (Centrales Eléctricas Legadas)– were not eligible to acquire CELs, unless they invested capital to increase their production of clean energy (i.e. by replacing power plants with new ones) and only to the extent of the additional clean energy generated.

This policy was intended to promote new investments on clean energy plants through a series of public auctions. As a result, private investors have committed US $8.6 billion in clean energy projects in the last 5 years under the 2014 CELs regime. There are 44 companies registered as “Clean Generators” (as of 7 November 2019), involving local and foreign investors from, inter alia, North America, Europe and Asia. In 2017 Mexico was ranked the 9th most attractive country to invest in renewable energy (out of the top 40 economies) and the 2nd in Latin America (behind Chile) according to the Renewable Energy Country Attractiveness Index (RECAI 2017). In the same year, 36% of the total investment in clean energy in Latin America was placed in Mexico. However, in November 2019 Mexico lost 15 positions in the attractiveness index, and ranked in the 24th position (RECAI 2019).

However, on 28 October 2019 the Secretariat of Energy of Mexico (“SENER“) published an accord modifying the previous 2014 Guidelines that established the criterion for the issuance of Clean Energy Certificates (the “New Guidelines“). Under the New Guidelines, the state-owned Legacy Power Plants can now acquire CELs –without the previous condition of making an investment to increase their clean energy generation. Furthermore, the State can acquire CELs with respect to all the clean energy generated. Notably, the CFE generated 65.7% of the clean energy in Mexico in 2018.

The left-wing administration currently in power does not consider that this change will have a negative impact on the market of CELs, as it will not reduce the number of clean generators, but considers the favorable outcomes to be the following: (i) favor competition between public and private generators of clean energy; (ii) increase productivity; and (iii) favor better prices for the final consumer, thus avoiding the speculation and the increase of prices. This was indicated in the New Guidelines.

However, this view is not shared by business and energy associations who have expressed their concern on the adverse impact of the regulatory change. One business association in Mexico (Consejo Coordinador Empresarial) has claimed that this modification “alters the equitable treatment between participants in the electricity sector, generates uncertainty and violates the execution of investments.” Furthermore, SENER modified the guidelines without carrying out a Regulatory Impact Analysis –employed in OECD countries to assess the positive and negative effects of a regulatory change– which includes public consultations.

It has been reported that power generators and companies have filed legal injunctions and Amparos (constitutional appeals) to contest the constitutionality (legality and due process) of the modification, which may involve investors from the UK, France and Italy. In a joint communication the wind and solar associations in Mexico (AMDEE and ASOLMEX) reported the main arguments put forward before Amparo courts, namely: (i) violation of environmental rights; (ii) destruction of the value of power plants in operation; and (iii) reduction of the investors’ confidence in Mexico. As a result, on 12 December 2019 the District Judge(s) hearing the case granted the “definitive suspension” (yet provisional in nature) of the application of the New Guidelines, while the merits of the Amparos in question are resolved. Although the suspension maintains the status quo pending the analysis of the merits, it is uncertain what the outcome and duration of the Amparos would be. Foreign investors have other mechanisms of negotiation and Investor-State arbitration under the various Bilateral Investment Treaties signed by Mexico (29 in force) and other treaties with investment provisions (i.e. NAFTA, CPTPP), under which a number of arbitration proceedings can be triggered against Mexico, given the high stakes at hand.

 

Potential impacts of the regulatory change

It has been suggested that this change may have a potential effect in the prices of CELs, which under specific circumstances may affect the investor’s economic interests and/or the value of their investments. On the other hand, Mexico’s ability to achieve its clean energy goals seems uncertain and therefore it is unclear how Mexico will deal with its commitments in the near future.

The following potential impacts have been indicated by experts, local media and renewable energy associations, as a result of the change of the rules governing CELs in Mexico:

  1. Saturation of CELs in the market;
  2. Decrease of the price of clean energy (i.e. CELs);
  3. Devaluation of clean energy plants in operation after August 2014;
  4. Uncertainty on the viability of current and/or new clean energy projects; and
  5. Discouragement of foreign investment in the clean energy sector.

 

Potential violation of foreign investor’s rights

The most common protections afforded under the investment treaties signed by Mexico are related to, inter alia, expropriation, national treatment, fair and equitable treatment and full protection and security. In some cases, the legitimate expectations standard has been analyzed by investment tribunals considering both the investors’ economic interest and the State’s right to regulate. In the case at hand, arbitral tribunals would have to decide those issues depending on the particular circumstances of the case and their interpretative approach of the BIT’s language.

At this point, it is uncertain for how long foreign investors would continue to litigate in Mexican courts before resorting to treaty-based arbitration against Mexico, if necessary. This would depend on many factors, including the likelihood of success of domestic proceedings on the one hand, and on the other, on the exhaustion of local remedies requirements, cooling periods and/or statute of limitation periods set out in the applicable BIT.

References   [ + ]

1. ↑ Receiving 1 CEL for each MW/h generated. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


Investment Arbitrations Ready to Land at Florence Airport?

Sun, 2020-01-12 01:00

Danilo Ruggero Di Bella and Josep Gálvez

It is our tentative prediction that a recent ruling from the Regional Administrative Court of Tuscany (TAR), which blocked the project to expand Florence Airport’s runaway – and hence, its passenger flow and corollary revenue – may “prepare the ground” for an investment arbitration dispute between Argentinian and Emirati investors and Italy.

 

Background

In 2009, the then Mayor of Florence, Matteo Renzi (future Italian PM), proposed the idea of building a runaway of 2,400 meters and a new terminal for the Florence Airport (“Amerigo Vespucci”) with the view of increasing its passenger flow. That idea met the support of the Region of Tuscany and the Argentinian tycoon, Mr. Eduardo Eurnekian, the majority shareholder of Corporación América Airports (CAAP), the world leading company in owning and operating airports. In 2014 CAAP acquired the majority ownership of Florence airport in order to present the “2014-2029 Masterplan” to expand the airport. The Masterplan is estimated to cost approximately € 334,500,000 and aims at doubling up passenger flow of the airport. Of this 334.5 million, the State committed to put 150 million, while the remainder 184.5 million would be put by the private investors managing the company that operates the airport.

The authorization process for the works started in 2015. On 28 December 2017, the Decree-Law containing a favorable Environmental Impact Assessment (EIA) for the project was issued by the Ministry of Environment (MoE). On 21 March 2018, seven municipalities adjacent to the city of Florence challenged the EIA Decree-Law before the TAR in order to block the project.

In the meantime, on 25 July 2018, CAAP sold 25% of its participation in Toscana Aeroporti S.p.A. (hereafter TA, the local company set up to run both Florence airport and Pisa airport) to Mataar Holdings 2 B.V., a company indirectly controlled by the Investment Corporation of Dubai (ICD), the sovereign wealth fund of the Emirate of Dubai.

On 6 February 2019, the decision-making body of the Conference of Services acknowledged that all the competent Administrations – including the Ministry for the Cultural Heritage – had given their favorable opinions for the Masterplan, despite the minority opposition of the seven municipalities. Accordingly, on 16 April 2019, the Minister of Infrastructure and Transport (MIT) ratified the outcome of the Conference of Services by issuing the Decree-Law that gave the green light to start the works.

However, the whole project has suffered a setback because on  27 May 2019 the TAR rendered its ruling n. 793/2019 upholding the challenge submitted by the seven municipalities, and thus annulled the EIA Decree-Law. The TAR found that the environmental assessment conducted by the MoE was not sufficiently exhaustive. Consequently, the MIT had to suspend its Decree-Law approving the Masterplan, while the Region of Tuscany, the municipality of Florence and TA have appealed the ruling to the Council of State (CS), the highest Administrative Court. The MIT’s Decree-Law will remain suspended until the resolution of the administrative dispute and so will the Masterplan for Florence airport. The CS is expected to rule on the matter in January 2020.

 

Reactions   

Bewildered by the TAR’s ruling that quashed the EIA Decree-Law, TA issued a press release criticizing its contents. To the company’s surprise, the administrative Judge:

“completely overturned the assessment given by the national ministerial commission of experts, supported and endorsed by the competent Ministers of three different national governments (Renzi, Gentiloni and Conte), regarding the suitability of the technical documentation to demonstrate the lack of negative impacts on the environment.”

According to the TAR, the Administration should have requested further details about the project before issuing the relevant EIA Decree-Law. The competent Administration instead concluded – wrongly, according to the TAR – that the assessment had been thorough and complete. However, Article 5 letter g of Legislative-Decree No. 152 of 2006 does allow the MoE to issue the EIA Decree-Law for a project having a level of details that are at least equivalent to that of the feasibility plan (as defined in the Legislative-Decree No. 50 of April 18, 2016), and in any event a sufficient level of details to permit a thorough assessment of the environmental impacts. And, indeed, the Department of Environmental Assessment of the MoE informed the Italian Civil Aviation Authority that it reached the following conclusion: “The planning documentation in the procedure’s archives may be regarded as adequate for the purposes of Environmental Impact Assessment rules.”

Moreover, the company has emphasized that it was not TA that came to the conclusion that the details of the project were sufficiently adequate for obtaining a favorable EIA; it was the competent technical departments of the Ministry that came to that conclusion. TA has affirmed that it did everything it was asked to in the course of the administrative procedure. Further, the company complained about the arbitrariness of the judgement, which does not address legal points; rather, it assesses technical matters of the project. Apparently, the TAR — without any court-appointed expert — discarded a complex two-and-a-half-year study conducted by qualified ministerial technical experts on the same day as the hearing, which is when the judgement was rendered. In that judgment, the TAR also suggests that that the ministerial Environmental Observatory (tasked with verifying compliance with the requirements) should have been more inclusive towards the municipalities opposed to the project, even if the Observatory was not mandated by the law to do so.

 

Potential Arbitrations

TA’s largest shareholders are indirectly Argentinean and Emirati investors. To be precise, CAAP is incorporated in Luxemburg, however, its main shareholder is the Argentinean mogul, Mr. Eurnekian; while Mataar Holdings 2 B.V is a Dutch registered company controlled by the Emirati ICD.

Both Argentina and the United Arabs Emirates have a BIT in force with the Italy. Both shareholders meet the definition of qualified investors under the legal instruments in question: Mr. Eurnekian as an Argentinean citizen pursuant to Article 1(2)(a) of the Argentina-Italy BIT, whereas the UAE-Italy BIT specifically protects also State-owned entities, such the sovereign wealth fund of Dubai at Article 1(2).

Mr. Eurnekian’s and ICD’s indirectly owned shares in TA meet the definition of a qualified investment as per Article 1(b) of both BITs. Accordingly, both foreign shareholders could avail themselves of the protection under the corresponding BITs made effective through the investor-State arbitration contemplated in both Treaties.

Article 2 of both BITs provides for a fair and equitable treatment (FET) that shall be accorded to the foreign investors of the other Contracting Party.

Admittedly, TAR’s ruling has frustrated Mr. Eurnekian’s and ICD’s’ legitimate expectations of doubling up the passenger flow and, accordingly, the revenue of their asset. Arguably, those frustrated legitimate expectations have been built up on various approvals by the local and central Administration. Three different ministers over a period of three years and three successive governments have endorsed investors’ project to increase the airport’s capacity. Consequently, the Italian State has fully backed-up investors’ legitimate expectations with respect to their qualified investment.

Finally, either the TAR arbitrarily came to the wrong conclusion (because the Administration had sufficient details about the project to issue the EIA) or the TAR was correct (because the Administration negligently did not request further details about the project before issuing the EIA). In either scenario, the Italian State first encouraged and then let down investors’ legitimate expectations by failing to ensure a favorable, stable and predictable legal framework for the investment at hand. Therefore, Italy could be held liable for breaching its FET obligation before the arbitral tribunals constituted under the Italy-Argentina/UAE BITs.

Additionally, an umbrella clause claim could be available by combining the Most-favored Nation (MFN) clause of the Italy-Argentina/UAE BITs with the Italy-Panama BIT. Arguably, Italy breached also that clause by rolling back the fair value over the construction services that would have been provided by the private investors in TA corresponding to the adequate margin over 184.5 million euros worth of construction services.

From investors’ perspective, a double investment arbitration would be more appealing than just appealing to the CS in terms of claimable damages. A favorable decision to the investors by the CS is not going to compensate the loss of profits that has already materialized due to the postponement of the works. Legitimate interests do not receive the same level of protection under national law as they do under investment law. In this sense, an international arbitration is more attractive as the applicable law to the dispute takes into account such future loss of profits. Therefore, an hypothetical award quantifying the damages may realistically range from several dozen million euros (in case the Masterplan is simply delayed) to several hundred million euros (in case the execution of the Masterplan is rejected once and for all by the CS).

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


The Contents of the Asian International Arbitration Journal, Volume 15, Issue 2

Sun, 2020-01-12 00:00

Lawrence Boo and Gary Born

The contents of this issue of the journal is now available and includes the following contributions:

 

Nobumichi Teramura, The Strengths and Weaknesses of Arguments Pertaining to Ex Aequo et Bono

Ex aequo et bono is a means of resolving disputes in light of fairness and good conscience. The principle has been known to jurists since the classical period of Roman Law, but commentators and practitioners have avoided using it for fear of its potential unpredictability. Being controlled by the perception that ex aequo et bono brings irreconcilable uncertainties and undue exercise of authority by arbitrators, arbitration lawyers have not extensively investigated whether their negative understanding of ex aequo et bono can still be maintained in the current arbitration environment under the United Nations Commission on International Trade Law (UNCITRAL) Model Law regime. The main objective of this article is to suggest that arbitration lawyers’ negative understanding of ex aequo et bono is not supported by adequate legal research. This article analyses the literature on ex aequo et bono and identifies the gaps in the research.

 

Weiyi Tan, Allowing the Exclusion of Set-Aside Proceedings: An Innovative Means of Enhancing Singapore’s Position as an Arbitration Hub

In some jurisdictions, parties who choose arbitration as a means of resolving their disputes can contractually waive the set-aside mechanism, thereby limiting the extent of judicial review that will be available after the award is issued. In recent years, parties and institutions have also shown an increasing interest in such contractual waivers because it is thought that reducing post-award challenges will increase the efficiency and finality of arbitration. However, the validity of contractual exclusions of set-aside proceedings remains a controversial issue. While some jurisdictions uphold the validity of such clauses, others have held that set-aside proceedings cannot be waived in advance, citing fundamental policy reasons. This paper analyses the reasons for each regime and explores whether laws that allow contractual exclusions of set-aside proceedings would be beneficial in the context of Singapore, particularly in enhancing its position as a choice seat for arbitration.

 

Sarah Alshahrani, Ousting Choice of Law in International Contracts: Lessons from the Aramco Case

This article examines the landmark Aramco case from a different perspective. It is not focusing on the outcome of the award, as the Saudi government lost this case and consequently prevents any arbitration against the government. Alternatively, this article focuses on ousting Islamic law as the choice of law clause. It thoroughly examines the argument favouring the “internationalisation” of contracts to prevent the application of the host state’s law of developing states. The tribunal decision bears many lessons worth nothing.

 

Russell Thirgood & Erika Williams, Arbitrating Down Under: Highlights and Lessons Learned from 2018 to 2019

Australia is rapidly gaining ground as an attractive seat for international arbitration, particularly within the Asia-Pacific region. The last financial year saw Australia’s Courts taking steps towards further supporting the use of arbitration within Australia’s wider legal framework for dispute resolution. This article considers some of the highlights from the 2018 to 2019 financial year case law involving arbitration.

From a review of the diverse range of decisions handed down in the 2018–2019 year, we have identified the key points in relation to arbitration agreements on the one hand and arbitral awards on the other, which we consider in detail in this article. In relation to arbitration agreements, we note that the High Court has adopted an orthodox approach to contractual interpretation by stating that arbitral agreements should be construed ‘by reference to the language used by the parties, the surrounding circumstances, and the purposes and objects to be secured by the contract’. Further judgments make it clear that, in interpreting arbitration clauses, Courts are hesitant to refer disputes to arbitration where the dispute is not within the scope of the arbitration agreement. In relation to arbitral awards, we consider a number of decisions which highlight that there is a high threshold for parties seeking to set aside an arbitral award by virtue of alleged misconduct on the part of the arbitrator and that Courts may not enforce an arbitral award if an application to set aside that same award has been filed in the jurisdiction in which the award was made.

 

Abhishek Shivpuri, Zenith Drugs v. Nicholas Piramal: Turning Back the Clock?

The Supreme Court of India in the recent case of Zenith Drugs & Allied Agencies Pvt. Ltd. v. M/s Nicholas Piramal India Ltd. had to decide the issue as to whether the disputes raised by the appellant in a suit for recovery were covered by the arbitration clause and whether the parties, could be referred to arbitration. The primary issue with which the paper is concerned with is the manner in which the Supreme Court has dealt with the issue of fraud.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


2019 In Review: A View From the United Arab Emirates

Fri, 2020-01-10 20:00

Dalal Al Houti (Assistant Editor for the MENA Region) and Kiran Nasir Gore (Associate Editor)

With 2019 concluded and a new decade on the horizon, it is worth reflecting on salient arbitration-related developments in the United Arab Emirates. As a jurisdiction, the UAE is not only a geographically-strategic venue for arbitration, but also a legally strategic one. As Dr. Gordon Blanke explained in his recent post, the UAE offers opportunities for “forum shopping” between both onshore arbitral seats (i.e., mainland UAE, typically Dubai or Abu Dhabi) and offshore arbitral seats (i.e., one of the UAE’s two judicial free zones: the Dubai International Financial Centre (“DIFC”) or the Abu Dhabi Global Market (“ADGM”). Drawing on this dichotomy, we review recent onshore and offshore arbitration developments in the UAE and offer insights into forthcoming opportunities for further development of arbitral practice.

 

The Onshore Landscape Following the Long-Awaited UAE Federal Arbitration Law

The long-awaited Federal Arbitration Law of the UAE, Federal Law No. 6 of 2018 on Arbitration (“Federal Arbitration Law”), came into effect in June 2018 and has since been put to the test.  This standalone Federal Arbitration Law repealed Articles 203-218 of the UAE Civil Procedure Code (Federal Law No.11 of 1992) applicable to arbitration, and any other provisions contrary to the Federal Arbitration Law.  During 2019, our authors focused on the developments that have arisen as a result.

  • Penal Code Article 257 Changed

The UAE  modified Article 257 of its Penal Code so as to exclude arbitrators from the scope of its application. Since a 2016 amendment, Article 257 imposed criminal liability on arbitrators, experts, and translators who issue decisions or opinions contrary to the duties of “integrity” and “neutrality”. That version of Article 257 allowed either side to claim that an arbitrator in question (or other enumerated participant in the arbitration) had not maintained the requirements of integrity and neutrality. By exempting arbitrators from its scope, the latest amendment provides comfort to arbitrators acting in UAE-seated arbitrations.

  • Joinder of Third Parties

Arbitrators often encounter requests to “extend” the arbitration clause or “join” third parties to an arbitration. Under the Federal Arbitration Law, arbitrators sitting in the UAE now have further guidance and are empowered to order the joinder of third parties provided they are: (1) satisfied that an arbitration agreement exists between the original parties and the third parties: and (2) have granted the concerned parties an opportunity to be heard on the application for joinder. Notably, Article 22 of the Federal Arbitration Law does not appear to require both parties’ express consent to joinder, it merely requires the parties to be given an opportunity to be heard. That said, arbitrators should keep in mind that the Federal Arbitration Law maintains the requirement that an arbitration agreement be made in writing (Article 7(1)) and be signed by a person having capacity to do so (Article 4(1)).

An example of this mechanism in action is provided by a recent arbitration of the Dubai International Arbitration Centre (“DIAC”) in which the claimant sought permission to apply for joinder of third parties. After considering the application, the arbitrator decided to allow service of the request for arbitration together with the application for joinder on the third parties. Accordingly, DIAC served the parties in question while granting a 30-day period for response. Despite having been duly served and given an opportunity to be heard, the concerned parties failed to respond. The arbitrator subsequently accepted the claimant’s application for joinder and agreed to join the third parties as respondents to the arbitration. Under the facts presented, the arbitrator found that the Article 22 requirements had been satisfied. However, it is yet to be seen whether the UAE onshore courts will endorse this interpretation of Article 22, should the case become the subject of an annulment proceeding.

  • Update to Civil Procedure Code

Whilst the Federal Arbitration Law introduced a streamlined process under Article 55 for the enforcement of domestic awards before the UAE onshore courts, it did not expressly repeal Articles 235 to 238 of the Civil Procedure Code (the “CPC”), which apply to the enforcement of foreign judgements and award. This caused confusion amongst the local arbitration community as to whether the streamlined provision provided under Article 55 of the Federal Arbitration Law applied to foreign arbitral awards, or whether Article 55 only applied to the enforcement of domestic arbitral awards. The confusion was clarified through a February 2019 Cabinet Resolution as it contains new provisions in Chapter IV at Articles 85 to 88 on the “Enforcement of foreign judgments, orders and instruments”, which are intended to replace Articles 235 to 238 of the CPC.

To summarize, Articles 85 to 88 of the Cabinet Resolution essentially provide that the relevant provisions of the Cabinet Resolution concerning the enforcement of foreign judgments and orders shall also apply to foreign arbitration awards provided that (1) the subject-matter of the award is arbitrable under UAE law and (2) the award is enforceable in the country of origin. Importantly, Article 85(2) provides that an application for enforcement of a foreign judgment or arbitration award in the UAE should be brought directly before the competent execution judge who is required to issue its order within three days from the date of filing. Even though the execution judge’s order remains subject to the usual channels of judicial appeal, the regime put in place by the Cabinet Resolution represents a welcome improvement to the enforcement process, and provides clarity as to the enforcement regime applicable to foreign awards.

***

2019 has seen a number of kinks ironed out in the UAE onshore arbitration law and it is expected that 2020 will continue to resolve teething issues which inevitably arise in the initial years following a significant change in legal framework.

 

Offshore Highlights: Advancements within the UAE Free Judicial Zones

As mentioned above, a unique highlight of arbitration in the UAE is the variety of arbitral fora it offers. While onshore UAE arbitration recently experienced significant developments through the Federal Arbitration Law, offshore arbitral fora remain attractive and are evolving to keep up with international best practices.

  • Statutory Revision at the Dubai International Arbitration Centre, DIFC

Within the DIFC, the DIAC saw revision of its founding statute. As explained in a June 2019 post, Decree No. 17 of 2019 approved a new statute for DIAC (the “New DIAC Statute”) which is more comprehensive than the prior statute. Among other features, our contributors speculated that the New DIAC Statute could impact the level of independence of DIAC vis-à-vis the Dubai Chamber of Commerce and Industry (the “Chamber”) because it allows the Chamber’s Board of Directors to appoint the DIAC’s Board of Trustees, which is the governing body carrying out the overall responsibility for the DIAC’s management. As explained by our contributors, in order for the DIAC to remain competitive and attractive in the UAE arbitration scene, it is important for the DIAC to ensure that its independence is both actually maintained and seen to be maintained.

The DIAC must also ensure that its Rules bolster its competitiveness. Indeed, since 2017, the UAE arbitration community has anticipated the release of new DIAC Rules, a revision process that many feel is overdue as the current DIAC Rules have been in place since 2007. It will be interesting to see if this revision of the DIAC’s founding statute is a step toward bringing such a revision into reality during 2020.

  • Debate Concerning the Jurisdiction of the ADGM

During 2019, our contributors continued to debate the true jurisdiction of the ADGM. One position is that the ADGM is an arbitral seat “open to all.”  This argument is premised on the understanding that Arbitration Regulations enacted in 2015 establish the ADGM as a seat of arbitration for (1) disputes with a nexus to the ADGM, or (2) for disputes unconnected to the ADGM, where the parties (a) choose the ADGM as the seat of arbitration, or (b) agree to the application of the ADGM Arbitration Regulations. This is consistent with the scope of jurisdiction of the ADGM Courts, where parties may opt into the jurisdiction of the ADGM Court of First Instance, even where the transaction or dispute in question has no connection with the ADGM.

The ADGM Court of First Instance is considered by many as a favorable venue: between 2017 and 2018 there was a 100% increase in its caseload (from 7 cases to 14 cases) and 2019 also saw several interesting decisions involving residential property disputes, recognition of an arbitral award under the New York Convention, and decisions on costs and other applications. Indeed, the ADGM is widely regarded by parties as a favorable seat, for its incorporation of the UNCITRAL Model Law, with certain enhancements, including with regard to confidentiality of proceedings, the joinder of third parties, and the waiver of the right to bring an action for setting aside.

However, as one of our contributors has pointed out, the jurisdiction of the ADGM Court of First Instance is distinct from the jurisdiction available for ADGM arbitration. This limitation is provided in Articles 13(6)-(7) of the ADGM Founding Law which can be read to require an ADGM-nexus for an arbitral dispute to be within its jurisdiction. This is a key issue for prospective users as a jurisdictional defect may lead to challenge of an arbitral award under the ADGM Arbitration Regulations (specifically, Article 53(2)(ii) (the invalidity of the arbitration agreement).  Given the debate among our contributors on this subject, it seems this is an area ripe for clarification by the Ruler of Abu Dhabi during 2020.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


The Contents of the ASA Bulletin, Volume 37, Issue 4 (December 2019)

Fri, 2020-01-10 01:00

Matthias Scherer and Catherine Anne Kunz

We are happy to report that the latest issue of the ASA Bulletin is now available and includes the following articles and cases:

 

ARTICLES

Elliott GEISINGER, De la musique avant toute chose, et pour cela préfère l’impair

In his last message as ASA President, Elliott GEISINGER exhorts us to prefer the “uneven” in arbitration, namely diversity.

 

Matthias SCHERER, Angela CASEY, Domestic Review of Investment Treaty Arbitrations: the Swiss Experience Revisited

This article offers an overview of the decisions of the Swiss Supreme Court rendered in the past decade involving treaty claims or claims under the Energy Charter Treaty: Russia v. Yukos – Hungary v. EDF – Recofi v. Vietnam – Poland v. Hortel – Serbia v. Mytilineos – Russia v. Ukrnafta & Stabil – India v. Deutsche Telekom.

 

David ROSENTHAL, Complying with the General Data Protection Regulation (GDPR) in International Arbitration – Practical Guidance

David ROSENTHAL provides practical guidance on how to comply with data protection requirements under the EU General DATA Protection Regulation (GDPR) in international arbitration. A template data protection agreement is included at the end of the article.

 

Gustavo SCHEFFER DA SILVEIRA, Brazilian Special Appeal No. 1.639.035-SP, 18 September 2018, Paranapanema S/A vs/ BTG Pactual S/A and Santander Brasil S/A

Gustavo SCHEFFER DA SILVEIRA comments on the recent decision rendered by Brazilian courts in the Paranapanema case, in which the courts found that the arbitration agreement in a contract extended to two connected contracts, despite the exclusive forum selection clause they contained, on the basis that all three contracts formed a single economic transaction.

 

Johannes LANDBRECHT, Commercial Arbitration in the Era of the Singapore Convention and the Hague Court Conventions

Johannes LANDBRECHT presents the Singapore Convention (2018) concerning mediated settlements, the Hague Choice of Court Convention (2005) and Hague Judgment Convention (2019) and considers their impact on the competitiveness of international commercial arbitration.

 

Simon GABRIEL, Congruence of the NYC and Swiss lex arbitri regarding extension of arbitral jurisdiction to non-signatories. BGE 145 III 199 (BGer Nr. 4A_646/2018)

Simon GABRIEL reports on a recent decision of the Swiss Supreme Court relating to the extension of arbitration agreements to non-signatories under the New York Convention (NYC). The central question is whether non-signatories may rely on Article II NYC to resist a state court’s jurisdiction.

 

Morten FRANK, Arbitration ‘if any’ or ‘to be settled’: A pathological yet curable agreement to arbitrate?

This article focuses on the interpretation and legal consequences of pathological arbitration clauses providing for arbitration “if any”, “if required” or “to be settled” in the light of the case law of English and U.S. courts.

 

Lorenz RAESS, Challenging Court Assistance in the Taking of Evidence in International Arbitration – the Swiss Perspective

This contribution sheds light on how to challenge decisions rendered by Swiss state courts at the seat of the arbitration when called upon by parties or an arbitral tribunal to assist in the taking of evidence under Article 184(2) of the Swiss Private International Law Act.

 

DECISIONS OF THE SWISS FEDERAL SUPREME COURT

  • 4A_646/2018 (145 III 199) of 17 April 2019 [Extension of arbitration agreement to non-signatory – Non-signatory entitled to rely on Article II NYC and to resist jurisdiction of state court]
  • 4A_98/2017 (143 III 462) of 20 July 2017 [Russia v. Yukos Capital: Request to set aside treaty award (ECT) – Jurisdiction of the arbitral tribunal – Request premature]
  • 4A_34/2015 (141 III 495) of 6 October 2015 [Hungary v. EDF: Request to set aside treaty award (ECT) – FET – Jurisdiction – Umbrella clause – Reservation]
  • 4A_616/2015 of 20 September 2016 [Recofi v Vietnam: Request to set aside award rendered under the BIT between France and Vietnam – Lack of eligible investment]
  • 4A_157/2017 of 14 December 2017 [Hungary v Hortel et al: Request to set aside award rendered under the BIT between the Netherlands and Poland – Public policy – Gambling laws – Fiscal prerogatives – FET]
  • 4A_396/2017 of 16. October 2018 [Russian Federation v. Ukrnafta: Request to set aside award rendered under the BIT between Russia and Ukraine – Crimea – Scope of application of BIT]
  • 4A_65/2018 of 11 December 2018 [India v. Deutsche Telekom: Request to set aside award rendered under the BIT between Germany and India – Jurisdiction – Investor – Investment – Pre-investment – Indirect investment]
More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


2019 in Review: Investment Arbitration in Europe

Thu, 2020-01-09 03:00

Deyan Dragiev (Assistant Editor for Europe)

After the quite tumultuous 2018, which saw the seminal Achmea judgment of the Court of Justice of the European Union and the subsequent awards on jurisdiction by a number of investment treaty arbitration tribunals, 2019 comes as a sequence and furtherance to developments that were in process in the course of the previous year. The tense relationship between EU law and investment treaties seems to have been triggering ripples in the arbitration world in the course of the year.

2019 began with the political reverberations of the Achmea saga. In January 2019, the EU Member States adopted declarations that envisaged the termination of the intra-EU investment treaties and the establishment of a single EU regulation, and investment court loomed large on the scene once again. Most of the Member States extended the effect of Achmea also to intra-EU disputes within the context of the Energy Charter Treaty (ECT), while a handful of Member States argued that it would be more appropriate to wait until the Court of Justice has explicitly ruled on the compatibility of the ECT arbitration clause with EU law, which has not been the case yet. In a separate Declaration, Hungary rejected the application of the Achmea judgment to the ECT altogether. Some countries, e.g., Hungary started terminating their BITs. Others, including those outside the EU, started reconsidering their investment treaty policy and treaty-making. Furthermore, on 24 October 2019, the European Commission announced that the EU Member States have reached agreement on a plurilateral treaty for the termination of all intra-EU bilateral investment treaties (BITs) (“Termination Agreement”).  According to the Termination Agreement, all intra-EU BITs, listed as an annex to it, shall be terminated by the operation of that Agreement. Moreover, the sunset clauses contained in intra-EU BITs are made devoid of legal effect. The Termination Agreement nullifies the legal effect of the arbitration clauses contained in intra-EU BITs with the date of commencement 1 January 2007. Concluded investment treaty arbitrations are not prejudiced by the Termination Agreement. Hence, the Termination Agreement shall not alter the results of disputes which were already completed. Pending disputes, however, shall be resolved via so-called “structured dialogue”. As envisioned under the Termination Agreement, this should be a procedure closed within the respective EU Member State. Therefore, the rationale of investment treaty arbitration – to internationalize the dispute with an investor and bring it before an impartial umpire – seems to be undermined. There is no clarity as to the consequences of the structured dialogue being not successful, which is why the Termination Agreement raises significant concerns on how it will operate in practice.

Regardless of various political moves, the arbitral stance of suspicion and disregard towards Achmea did not change radically. The tendency of arbitral tribunals constituted under the Energy Charter Treaty (ECT) to reject intra-EU jurisdictional objections, despite contrary views expressed by most EU member states, was recently continued in the case of Landesbank Baden-Württemberg (LBBW) and others v. Kingdom of Spain. Under that case, the tribunal once more analysed the relationship between the provisions of the ECT and EU law, as Spain raised a jurisdictional objection under a claim arising from the Spanish renewables sector amendments. First, Achmea was differentiated on grounds that a provisional interpretation of Article 26 of the ECT appears to constitute an offer of arbitration by each EU member state to investors from all other contracting parties without any limitations regarding intra-EU disputes. The tribunal found that even if EU law were to prohibit Spain from making an offer of arbitration under Article 26 of the ECT, the tribunal must still give priority to the ECT as it does not operate under EU law but under international law and the ECT. The case is one more example that the Achmea case will continue to reverberate and lead to a widening gap between investment treaty tribunals and EU-law based interpretation by EU authorities such as the EU Commission and the Court of Justice of the European Union. Therefore, 2019 did not produce a full stop to the Achmea saga. Given the latest developments recently, the story will certainly continue even beyond this year’s end.

One more saga produced its stages during 2019: the Micula dispute, which has touchpoints with the Achmea judgment and the EU-investment arbitration tensions. The EU General Court upheld the Micula application and annulled a 2015 decision of the EU Commission against Micula, considering that EU state aid law was inapplicable and that the Commission had exercised its powers retroactively. As a background to the saga, Romania gave certain rights and incentives to the business of Micula brothers. Since this happened prior to 2007, the year of the accession of Romania to the EU, it could be assumed that EU law should not extend to encompass this period. The CJEU reasoned that, contrary to the Commission’s contention,

“it cannot be considered that the effects of the award constitute the future effects of a situation arising prior to accession […]since that award retroactively produced definitively acquired effects which it merely ‘stated’ for the past, that is to say, effects which, in part, were already established before accession” (§84).

With respect to the intra-EU aspect of the applicable BIT (concluded between Sweden and Romania), the General Court further distinguished, very briefly, the Micula case from Achmea, ruling that “the arbitral tribunal was not bound to apply EU law to events occurring prior to the accession before it”, as opposed to the Achmea tribunal (§87). In addition, the General Court ruled that the contested decision was unlawful because it considered the award as illegal state aid within the meaning of Article 107 TFEU since, pursuant to the Court’s case-law, compensation for damage suffered cannot be regarded as aid unless it has the effect of compensating for the withdrawal of unlawful aid, which was not the case here as EU State aid law is not applicable to situations pre-dating Romania’s accession (§§103-104).

Later during 2019, the Micula saga reached the English Supreme Court, too: Micula et al. v Romania 2018/0177, where the enforcement of the widely discussed ICSID award against Romania was discussed. The UK enforcement proceedings started in the autumn of 2014. Romania filed a set-aside application against the ICSID award with the English High Court. In the alternative, the State also asked the court to vary or stay the registration of the ICSID award by the Micula brothers. There are two main issues which reached the UK Supreme Court to be decided: first, whether the High Court has the power to stay the enforcement of an ICSID award; and, second, where an ICSID award against an EU Member State has been stayed pending proceedings before the EU courts, whether the duty of sincere cooperation precludes an English court from ordering the State to provide security. The Supreme Court had not handed down its decision yet. First, because in similarity to the Achmea saga, this eventual decision will also be an authoritative interpretation of the relationship between EU law and investment treaty arbitration, which is a tense one, as the Achmea story demonstrates. In addition, it will most likely come up after Brexit, therefore the UK Supreme Court’s decision in the Micula case would be a harbinger of how the post-Brexit dialogue between UK and EU courts will be.

There were some reform and reconsideration moves in the course of this year.

Marking the latest step in its procedural rules overhaul, the International Centre for Settlement of Investment Disputes (“ICSID”) Secretariat released the third Working Paper on Proposals for the ICSID Arbitration Rules Amendments in late August 2019 (“WP3”). The Contracting States, stakeholders and the public have submitted reform proposals regarding arbitrator challenges to the UNCITRAL secretariat, in preparation of UNCITRAL Working Group III meetings. The overarching proposal within the Working Paper included increasing the perceived and actual independence and impartiality of the tribunal, clarifying the removal threshold under WP3 proposed Arbitration Rule (“AR”) 22 and second, introducing the option for disputing parties to submit challenges to an external decision-maker under proposed AR 23. Similarly, some contracting States proposed to subject the challenge decision to judicial review or validation by the Chair under proposed AR 23.

Moreover, there is the innovative idea of an Advisory Centre on Investment Law. The core competency of an Advisory Centre should be to represent, together with lawyers from the respondent States, under-resourced developing country respondents in international investment disputes and the immediate preparation of such disputes. There is currently no institution that provides assistance in the representation of respondents in international investment disputes —  developing countries are left entirely on their own in the course of investment disputes. Also, an Advisory Centre should be established with the purpose to help developing countries because of the increased costs of investment disputes.

We will be waiting to see how these developments will have further implications during 2020 and beyond.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


Appointment of Sole Arbitrator: Can a Modified Asymmetrical Arbitration Clause Avoid Court Appointment?

Wed, 2020-01-08 01:49

Ajar Rab

An asymmetrical arbitration clause is one where only one party can choose the method of resolving disputes between the parties. A slightly varied form of such a clause is usually contained in statutory arbitrations, which involve lop-sided arbitration clauses where only one party has the right to appoint the arbitrator. At first brush, these clauses appear to be patently unfair, but the same have been held to be enforceable in various jurisdictions. Considering their enforceability has been recognized, one may use the same to further efficiency and speed of the entire arbitral process, especially in the context where a mutually agreed sole arbitrator must be appointed. If one were to modify these clauses further to account for disagreement between the parties, one could limit, if not eliminate, the need to approach courts for such appointments.

Often times, an arbitration clause requiring the appointment of a mutually agreed sole arbitrator contains nothing more than the phrase “mutually appointed by both parties,” leaving several questions, including the appropriate time period for appointment, unanswered. Additionally, such language does not provide a contractual solution to a deadlock with respect to the choice of the sole arbitrator. The only remedy in ad-hoc arbitrations, in such cases, is seeking an appointment of arbitrator through the court at the seat of the arbitration under Article 11 (4) of the UNCITRAL Model Law, 1985 (“Model Law”).

In jurisdictions where court procedure is slow and tedious, an application to the court for appointment of an arbitrator can last years before being finally decided. Therefore, more elaborated language for the arbitration clause could be a possible contractual solution. The below sample clause provides such a solution:

The arbitral tribunal will comprise of a single arbitrator to be appointed by mutual consent of the Parties within 7 (seven) days of the request of the notice to start arbitration proceedings. If either party does not respond to the request for mutual appointment of arbitrator within the aforesaid 7 (seven) days, the party issuing such a request may nominate such an arbitrator, subject to such nomination not being in contravention of IBA Guidelines on Conflict of Interest.

The incorporation of such a clause may appear to be asymmetrical, granting one party the right to nominate the sole arbitrator, but in practice, the same adequately caters to the interest of both the parties for several reasons explained below.

 

1. Fair and Equal Treatment

The first and foremost objection ordinarily raised with respect to asymmetrical arbitration clauses is that they are violative of the fundamental principle of fair and equal treatment of parties in arbitration. This argument is often misplaced and misapplied. The principle of fair and equal treatment is enshrined in Article 18 of the Model Law, which refers to treatment with equality, and each party being given a full opportunity of presenting its case before the arbitral tribunal. Therefore, the said Article only comes into play once the arbitral tribunal has been formed and concerns only the manner in which the tribunal is expected to conduct the arbitral proceedings.

Asymmetrical arbitration clauses and the clause referred to above fall within a stage prior to the appointment of the sole arbitrator. While asymmetrical arbitration clauses grant one party the right to choose to go to court or have the dispute resolved through arbitration, the modified clause above ensures equal and fair treatment with respect to choice of the method of dispute resolution, i.e., through arbitration, and also grants an equal opportunity to either party to exercise their right to accept or reject the name of the sole arbitrator suggested by the party invoking arbitration.

The above sample clause also leaves enough flexibility for parties to reach an agreement with respect to the appointment of the sole arbitrator, should the party continue to communicate with each other and negotiate in good faith. At the same time, it creates a deterrent against delay tactics by forcing a party to seek a court appointment of the sole arbitrator at the cost of additional delay and expense.

Any concern over equality and fair treatment is adequately addressed by giving both parties the equal rights to participate in the appointment of the sole arbitrator, and should one party choose not to exercise that right, the same would amount to waiver under contract law principles. Alternatively, if one of the parties intends to play foul by deliberately mishandling the service of notice of arbitration, the same would bring the risk of challenge to the final award by the other party.

 

2. Independence and Impartiality

Another reason why the aforesaid sample clause is more suitable as it unequivocally accepts the international standards for independence and impartiality of the sole arbitrator and hence any concern over one-party appointing a non-neutral or biased arbitrator is suitably addressed. If the party appointing the sole arbitrator fails to ensure compliance with the standards, the opposite party will get more reasons to challenge the appointment of the sole arbitrator.

 

3. Neutrality

Tied to the standard of independence and impartiality, the above sample clause strengthens the neutrality of the sole arbitrator. Any arbitrator appointed under such a clause would be more conscious of the possibility of his or her appointment being challenged and hence would have a greater incentive to fully disclose even the remotest conflict of interest, which would further bolster the integrity and efficacy of the entire arbitral process. Furthermore, such an appointment would be in consonance with the intention of the parties to have speedy and effective dispute resolution with minimal court intervention and without sacrificing or compromising adjudication of their dispute by a neutral person.

 

4. Breach of the Arbitration Agreement

One potential objection with the above sample clause may be that it would unnecessarily place one of the parties in a position where they would be forced to breach the arbitration agreement (and hence may be liable for damages if granted by the tribunal later) when one party does not fulfill its obligation to respond within seven days of the receipt of the arbitration notice. However, even this objection may not hold water as the fundamental basis of arbitration is consent and when two commercial parties intend to have speedy dispute resolution along with the freedom to determine the arbitrators, procedure, etc. of the arbitral tribunal, there is little ground to argue that this flexibility cannot be extended to the formation of the arbitral tribunal.

 

Conclusion

Therefore, as per the foregoing, there are more reasons in favor of incorporating the more elaborated sample arbitration clause mentioned above as opposed to the potential objections against its incorporation. If more and more parties were to adopt such clauses, they could drastically reduce court intervention and deter guerrilla tactics of delay and abuse of the process by the parties. The only set of circumstances in which the parties would be forced to go to courts with respect to the nomination of the sole arbitrator by the mutual agreement would be the challenge the appointment of the arbitrator under Article 13 (3) or 14 (1) of the Model Law.

Thus, the acceptability of asymmetrical clauses may actually be a silver lining permitting a spin-off or variation which may ultimately create situation where court-appointed sole arbitrators would become an exception rather than the norm, especially in countries with slow court procedures, where delay tactics in appointment of sole arbitrator is often the first resort when one of the party is the government or a public sector undertaking. While there is little or no basis to reasonably predict how the courts in each country would react to such a clause, it cannot reasonably be denied that such a clause would only further arbitral efficacy and reduce court intervention to a bare minimum, ultimately strengthening the goal of speedy dispute resolution.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


Intra-EU Investment Reform: What Options for the Energy Charter Treaty?

Mon, 2020-01-06 23:49

Markus Beham and Désirée Prantl

The recently leaked treaty for the termination of intra-EU BITs can be seen as the culmination of an ongoing effort by the European Commission to discourage investment arbitration between Member States, reflecting, in the eyes of many, a tension between public international law and EU law. In spite of this, and even after the Court of Justice of the European Union’s (CJEU) Achmea decision, intra-EU proceedings are still being instituted, most recently in the cases of VM Solar Jerez v. Spain and Strabag v. Germany.

In the aftermath of Achmea, EU Member States expressed their intention to terminate all intra-EU BITs by 6 December 2019. While they seem to have reached consensus on the future of intra-EU BITs, Achmea‘s impact on intra-EU investor-state arbitration under the Energy Charter Treaty (ECT) remains disputed. Twenty-two Member States declared that intra-EU arbitration under the ECT was equally incompatible with primary EU law and sought to “discuss without undue delay whether any additional steps are necessary to draw all the consequences from the Achmea judgment in relation to the intra-EU application of the Energy Charter Treaty. Hungary rejected this view, finding that “the Achmea judgment concerns only the intra-EU bilateral investment treaties” and holding that “the future applicability of the ECT in intra-EU relations requires further discussion and individual agreement amongst the Member States”. Finland, Luxembourg, Malta, Slovenia, and Sweden refrained from taking any position.

The Commission is of the view that the investor-state arbitration clause of the ECT, “if interpreted correctly”, is not applicable between EU Member States. As a consequence, the ECT does not offer an invitation to arbitrate for investors in intra-EU constellations. In absence of a valid arbitration agreement, tribunals lack both competence and jurisdiction. The EU has argued its position in amicus curiae briefs to arbitral tribunals (one of them cited extensively here) and domestic courts (here and here).

 

Jurisdictional questions before tribunals

Arbitral tribunals have uniformly rejected the Commission’s view in the known proceedings so far. Jurisdictional objections asserting that the arbitration provisions of the ECT are not applicable for disputes between an EU Member State and an investor of another EU Member State have been dismissed under different theories.

In Masdar Solar v. Spain, the first decision to follow Achmea, the tribunal tersely pointed out that the CJEU has not touched upon the issue of applicability of the ECT. The reasoning was expanded on in Foresight Luxembourg Solar v. Spain and CEF Energia v. Italy. The tribunal in Vattenfall handed down an elaborate Decision on the Achmea Issue (already discussed here). In determining the ordinary meaning of Article 26 ECT, the Vattenfall tribunal found no indication in the wording, context, or object and purpose of this provision that intra-EU disputes should be excluded. It also stressed that the ECT does not contain a “disconnection clause” ensuring that provisions in mixed agreements apply only to third parties and not between EU Member States. The tribunal in Cube Infrastructure v. Spain added a historical reasoning as to the nature of the ECT to the interpretation. In LBBW v. Spain, the tribunal also accorded primacy to the treaty from which it derived its jurisdiction, the ECT, over primary EU law in case of conflict.

In Eskosol v. Italy, the tribunal dealt with the Declaration by the 22 Member States, dismissing its nature as a binding interpretative instrument. A similar ruling on jurisdiction came from the tribunals in Rockhopper v. Italy and SolEs Badajoz v. Spain. In I.C.W. Europe Investments v. Czech Republic, Photovoltaik Knopf Betriebs-GmbH v. Czech Republic and WA Investments-Europa Nova v. Czech Republic, the tribunals found that, since the seat of arbitration was Switzerland, EU law was simply international law between third countries. Yet another tribunal in 9REN Holding v. Spain simply found no incompatibility between the claims under the ECT and EU law. A future preliminary ruling might reshuffle the argumentative cards for both sides.

 

Amending the Energy Charter Treaty

The alternative to judicial clarity would be a straightforward political decision. The Energy Charter Conference, the governing and decision-making body for the Energy Charter process composed of all states or regional economic integration organisations which have signed or acceded to the ECT, has approved the modernisation of the ECT. On 15 July 2019, the Commission was authorised by the Council to enter into negotiations on behalf of the EU. In its negotiating directives, the Council seeks to “bring the ECT provisions on investment protection in line with the modern standards of recently concluded agreements by the EU and its Member States” and “in line with the EU approach in its investment protection agreements and the position taken by the EU in UNCITRAL WG III and ICSID, to ensure that this approach is reflected in the Modernized ECT”. It committed to “ensure that any rule or commitment agreed upon by the European Union should be in line with the EU legal framework”. The EU submitted this position to the policy options for modernisation of the ECT adopted on 6 October 2019 by the Energy Charter Conference.

Beyond the harmonious interpretation suggested by the EU, there is no explicit carve-out provision for intra-EU disputes in the ECT. Article 46 ECT prohibits any reservations to the Treaty, barring unilateral modifications by individual parties. While it seems unlikely – recalling the position taken by Hungary and insinuating the doubtful minds of Finland, Luxembourg, Malta, Slovenia, and Sweden – that a uniform position of EU member states will emerge in the near future, what are the legal options?

Amendments are possible under Article 42 ECT following a proposal by any contracting party. These are then communicated by the Secretariat at least three months before the proposed adoption by the Energy Charter Conference. Following adoption, the depositary submits the amendments to all contracting parties for ratification, acceptance, or approval. On the ninetieth day after submission to the depositary by at least three fourths of the contracting parties, the amendments enter into force for those parties.

The ECT has 56 members, including the EU and Euratom. This means that the Union and its member states are a small stretch away from reaching a three fourths majority on their own. One such amendment took place in 1998 to incorporate the new WTO system.

 

Inter se agreements

Article 41 of the Vienna Convention on the Law of Treaties provides that the modification of multilateral treaties between a select group among the parties to a multilateral treaty (referred to as an inter se agreement) must either be provided for by the treaty or at least not be prohibited. Nor may it affect the enjoyment by the other parties of their rights under the treaty or the performance of their obligations or relate to a provision, derogation from which is incompatible with the effective execution of the object and purpose of the treaty as a whole.

The Commission has already submitted the argument before arbitral tribunals (rejected here and here) that the Lisbon Treaty constitutes an inter se agreement. Since Article 46 ECT prohibits any reservations to the Treaty, however, one might reason that the effective execution of the object and purpose of the treaty as a whole would pose an obstacle to an inter se agreement. The “object and purpose” of a treaty may be deducted from its preamble and its core substantive provisions (such as Article 2 ECT), particularly those from which no reservation or derogation is permitted. In the case of the ECT, an inter se agreement could be understood to defeat the general prohibition of reservations.

In addition, Article 16 ECT specifically denies any derogation from the investment provisions of the ECT in the case of prior or subsequent agreements (see in this regard also the reasoning of the Vattenfall tribunal) unless more favourable. Even in the case of a valid inter se agreement, it is doubtful whether the investor state dispute settlement provisions would not still apply.

 

Withdrawal and association agreement

Finally, the EU could at any time withdraw in accordance with Article 47 ECT through written notification to the depositary. Taking effect one year after the date of the receipt by the depositary (or any specified later date), the Union and its member states could then conclude an association agreement with the remaining members of the ECT in accordance with Article 43 ECT. The downside of this construction would be the 20-year sunset clause in Article 47 ECT triggered by a unilateral by the EU and its members.

 

Article 26(3)(b)(ii) statements

There remains a possibility under the ECT itself. Article 26(3)(b)(ii) allows, “for the sake of transparency, each party listed in Annex ID (this includes the EU) to provide a written statement of its policies, practices and conditions to the Secretariat. In May, the EU submitted a new statement to ensure that the EU judicial system is recognised for purposes of the fork-in-the-road clause. However, it is clarified in a footnote that none of it concerned intra-EU investments, adding that the Union “may address this matter at a later stage”. In Vattenfall, the EU had taken recourse to its previous statement that “[t]he Communities and the Member States will, if necessary, determine among them who is the respondent party to arbitration proceedings initiated by an Investor of another Contracting Party” to restrict the offer to extra-EU investors. The tribunal did not share the view.

 

Outlook

In terms of the envisaged reform of intra-EU investment dispute settlement the creation of an institutionalised mechanism as envisioned in the CETA Agreement deserves mentioning. In this regard, in April 2019 the CJEU has already confirmed its compatibility with primary EU law. An alternative would be “a future Multilateral Investment Court” exercising jurisdiction over the ECT as set out in the negotiating directives.

Since it might be put into question, following the benchmark set by the CJEU in Opinion 1/17, whether the current system of investment protection under the ECT is even legitimate in extra-EU constellations from a Union law perspective, the EU will continue to seek reform. Depending on the momentum during the reform process, it will either aim at a holistic solution for all parties to the ECT or an explicit or implicit carve out for intra-EU disputes alongside reformed investment protection provisions for extra-EU investments disputes. Both options depend on a large-scale consensus by all parties to the ECT.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


Oded Besserglik v Mozambique: The BIT Was Not In Force, Who’s To Blame?

Sun, 2020-01-05 21:28

Juan Carlos Herrera Q.

In the recently rendered Oded Besserglik v Mozambique award (“Award”), after 5 years of proceedings and millions in costs and expenses, a tribunal accepted a Motion to Dismiss and declined jurisdiction over the dispute for the relevant treaty never entered into force.

Despite the fact that Mozambique prevailed on its motion, this case raises several questions as to the efficiency, ethics and professionalism of all participants (and the system). No participant of the case is in a position to discharge its responsibility, especially because this case should have never been brought before a tribunal (claimant’s counsel fault), approved and registered (ICSID’s fault), heard (tribunal’s fault), and untimely defended (respondent’s counsel fault).

 

Background of the Case

Mr Besserglik (“Claimant”), a South African national, had interests in a couple of entities in Mozambique and was allegedly unlawfully deprived of his shares and other assets for which he had claimed around US$ 100 million in compensation.

On 4 March 2014, the Claimant filed an Application for Approval of Access to the International Centre for Settlement of Investment Disputes (“ICSID”) Additional Facility on the basis of the Agreement Between South Africa and Mozambique for the Promotion and Reciprocal Protection of Investments (“BIT”), signed on 6 May 1997, and the Law No. 3/93 of Mozambique (“Investment Law”).

The application was approved by the Secretary-General of the ICSID on 17 April 2014 and confirmed on 3 July 2014, after it had made a request for additional information. Mr Besserglik requested to commence arbitration proceedings in June 2014 and the tribunal was constituted in January 2015. On 20 June 2017, within weeks to the Hearing on Jurisdiction and Liability, Mozambique filed a Motion to Dismiss alleging that the BIT never entered into force. At this point, the parties exchanged several submissions, produced several witness statements, and Mozambique and South Africa have even exchanged Diplomatic Notes (confirming that the BIT never entered into force, see Award ¶373).

 

Procedural Considerations for the Motion to Dismiss

The tribunal was posed three fundamental questions:

  • Were there any limitations to raise a new jurisdictional objection at a late stage of the proceedings, in accordance with the Article 45(2) of the Arbitration (Additional Facility) Rules (“Arbitration Rules”)?
  • Did Mozambique waive its right to raise such a jurisdictional objection, in accordance with the Articles 33 and 34 Arbitration Rules?
  • Despite such delay, is the tribunal -in its own words-, still bound to validate the jurisdictional objection and dismiss the case?

 

(i) Timing

Between the registration of the request to commence the proceedings and the Motion to Dismiss, 21 months had passed. This had been made in disregard of Article 45(2) of the Arbitration Rules, which provides that any objection shall be raised as soon as possible after the constitution of the tribunal until the filing of the counter-memorial. The latter being the ultimate limit to raise such objections unless they were unknown by the objecting party (the tribunal cited the approach taken in the Pac Rim v El Salvador Award, ¶265).

Mozambique had to bear the burden of demonstrating that the factual basis of the jurisdictional objection, i.e. that the BIT was not in force, was unknown until it was effectively raised in its Motion to Dismiss. The tribunal acknowledged that such a duty is difficult to discharge, stating that “[a] party who was aware or could have, by an examination of its records, made itself aware of the fact that the BIT was not in force, is not protected by the exception”; otherwise respondents will be entitled to raise jurisdictional objections at any stage of the proceedings (Award, ¶272).

Mozambique attempted to justify being under the exception by relying on the United Nations Conference on Trade and Development (“UNCTAD”) and ICSID websites where the BIT was registered as in force, and in the fact that, since December 2011, Claimant’s counsel was cognizant that the BIT was not in force. For the tribunal, such justifications did not discharge Mozambique’s duty under the Arbitration Rules, nor did its case fall under the exceptions. Mozambique should have raised this jurisdictional objection until the filing of the counter-memorial unless the factual basis of the objection was unknown (the exception). However, had Mozambique checked its records, it would have known that the BIT was not in force.

 

(ii) Waiver

The tribunal deemed that Article 34 of the Arbitration Rules did not apply to the question of whether a belated jurisdictional objection entails a waiver, especially because such a  failure of a timely objection would not cure the lack of jurisdiction.

 

(iii) Tribunal’s Authority

Normally, a Respondent’s belated jurisdictional objection would not be upheld by the tribunal (Award, ¶307). Nonetheless, in light of the principle of Kompetenz-Kompetenz, the tribunal had a duty to write valid and enforceable awards and it must only proceed with matters under its competence. Consequently, tribunals are entitled to examine every jurisdictional objection as it is their prerogative (citing Zhinvali v. Georgia) and a duty (citing Pac Rim v El Salvador) (Award, ¶310 et seq).

Furthermore, the tribunal considered that despite Mozambique’s delay could have entailed a procedural advantage and would have been ruled out as such, these sort of objections are not at the disposal of the parties (Award, ¶316) and the fact that a BIT is not in force cannot be amended by the untimely jurisdictional objection of one of the parties (Award, ¶320).

 

The BIT is Not in Force: What Happened Next?

Mozambique made four submissions to support the fact that the BIT is not in force, but the tribunal mainly relied on the second one: as per article 12(1) of the BIT, the entry into force of the BIT is subject to a notification. The tribunal analysed the situation in light of Article 24(1) of the Vienna Convention on the Law of the Treaties (“VCLT”), which establishes the manner and date for a treaty to enter into force.

The BIT’s Article 12(1) adopted a very formalistic approach whereby it enters into force “on the day following” after an exchange of notifications between Mozambique and South Africa (indicating the fulfilment of constitutional requirements in each state). For the tribunal, even the publication of the BIT in the Official Gazette of Mozambique as “in force” does not discharge the requirement of the notification as per Article 12(1) (Award, ¶341).

The tribunal regarded the lack of evidence as to the exchange of notifications as sufficient to dismiss the case (Award, ¶371). Nonetheless, it went on to consider that the Diplomatic Notes between Mozambique and South Africa confirmed that the BIT never entered into force (Award, ¶383). The tribunal also deemed that the lack of registration of the BIT before the United Nations (“UN”) Secretariat is irrelevant because its sanction (that such treaty cannot be invoked before any organ of the UN) is not applicable to an investor (a non-member of the UN).

 

Additional Basis of Jurisdiction

The tribunal noted that the Claimant failed to construe a cogent argument towards the applicability of the Investment Law as an additional basis for jurisdiction (Award, ¶397) and thus accepted Mozambique’s submission that the consent to arbitration under the Investment Law was the BIT itself, and, since it never entered into force, claims based on such law should also fail (Award, ¶416).

Nonetheless, in an attempt to construe an argument of estoppel, the Claimant alleged that Mozambique made several representations as to the applicability of the BIT for South African investors and, hence, estoppel should apply to give effect to the BIT.

Mozambique argued that the VCLT, as the applicable law on the issue, does not enshrine the possibility of estoppel bringing the BIT into force. Furthermore, the alleged representation was done years after the investment was made thus barring any allegation that such representations were of relevance.

The tribunal, without referring to the applicability of estoppel in situation where non-state parties are involved (see Cambodia v Thailand, Dissenting Opinion of Judge Spender, pp. 143-4), held that, in light of the VCLT, the notification requirement cannot be discharged by invoking estoppel, due to a question of jurisdiction and that a treaty is in force is a matter of law (Award, ¶422).

As for the requirements of estoppel to be applicable in the case, the tribunal considered that Mozambique should have made a statement of fact that is unambiguous, voluntary, unconditional, authorized, and that caused an advantage for itself and detriment to the other party (see further on estoppel in Mauritius v UK award,  ¶438). In that sense, the Claimant was unable to show that he relied on a valid representation of Mozambique (a PowerPoint presentation) nor in other requirements of estoppel. Hence, the tribunal rejected the submission on estoppel (see estoppel as a source of jurisdiction in Chevron v Ecuador, Second Partial Award on Track II, ¶7.80 et seq).

 

A String of Errors

Mozambique is a country with great needs and the fact that it employed large sums of money in a dispute with no jurisdictional basis is at least polemic considering that several times States are brought before international tribunals for exercising – legitimately or not – its regulatory powers. The manner in which this case has been handled is a disfavour to a system that has received severe critics for its alleged lack of transparency and legitimacy, and that is currently under revision and reform.

There were four moments in which the BIT could have been checked, namely:

  • When claimant’s legal counsel prepared his case (after December 2011, when South Africa informed him that the BIT was not in force),
  • At the time of the application for approval and request to arbitration,
  • At the time the tribunal was appointed and initiated its procedural activities, and
  • When Mozambique’s legal counsel prepared its defence.

Legal counsels of the parties, the ICSID and the tribunal shared a joint duty to conduct the proceedings with the highest level of efficiency and diligence. Especially because in investor-state arbitration the exercise of sovereign powers of a state are under examination and, on several occasions, states are condemned to pay astronomical amounts of money with prejudice to their economies.

The members of the arbitral tribunal and especially legal counsels are not only subject to the applicable ethical standards in international arbitration, but also to their own domestic deontological standards which compel them to exercise their legal profession with the utmost care and attention. Surely, further development on this point needs to be conducted not only at the multilateral level but also within the arbitral institutions and organizations in order to avoid infamous cases like this.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200


The Coming of Age of Institutional Arbitration Rules in Iran: An Analytic Overview of the ACIC Rules

Sat, 2020-01-04 22:31

Mohsen Mohebi and Naimeh Masumy

 Introduction

The Arbitration Center of Iran Chamber of Commerce (hereafter “ACIC”) was established in 2002, following approval by the parliament of Iran as an affiliate to the Iran Chamber of Commerce. However, it has a distinctive and independent legal character. The ACIC is the first institution to incorporate institutional arbitration into the legal system of Iran for the resolution of both domestic and international disputes

The last five years have been pivotal for the ACIC and included significant developments. In addition to Rules of Arbitration which were developed during the formation of the ACIC (the “ACIC Rules”), the ACIC launched its own arbitration rules designed for cost and regulations on organization. The ACIC Rules now consist of Rules of Arbitration, Rules of Arbitration Costs and Regulations on Organization. The ACIC has also published three volumes of selected arbitration awards issued under the auspice of ACIC, both in domestic and international arbitrations. More recently, the ACIC has published “Iranian Yearbook of Arbitration” designed to address the varying nuances of Iran’s arbitration practice.

Certain key features of the ACIC Rules and anticipated future developments of this institution are set out below.

 

Key Features of the New ACIC Rules: Points of Convergence with the UNCITRAL Model Law

To substantial extent, the ACIC Rules mirror the provision of LCIA Rules, which were modelled after UNCITRAL Model Law (“Model Law”). There are several points of convergence between the Arbitration Rules of the ACIC and the Model Law. Similar to the Model Law, the ACIC Rules distinguish between domestic and international arbitration. As iterated in Article I of the ACIC CharterAll domestic and international commercial disputes referred to the arbitration Center of Iran Chamber shall be conducted in accordance with the present Rules”. The ACIC is designed to serve both domestic and international arbitration proceedings in a manner that is both cost-effective and efficient.

Further, the ACIC Rules contain provisions that are instituted to guarantee a basic level of fairness to parties and the process. For instance, rules regarding the conduct of multi-party arbitrations (Article 15), the procedure for challenge of an arbitrator (Article 24) and competence of competence (Article 29) are particularly designed to reduce technical defects that can frustrate proceedings. More prominently, the establishment of a Court of Arbitration of the ACIC, consisting of senior and eminent members, to decide on prima facie jurisdiction is enshrined in Article 9 and Articles 22 through 26 of the Regulations on Organization and signifies the pro-enforcement stance of Iranian arbitration landscape. These articles aim to foster and promote enforcement without overzealous judicial scrutiny.

In the similar vein, Article 35 of the ACIC Rules empowers tribunal to issue all urgent and provisional measures with respect to the subject matter of the dispute. According to this rule, a party seeking an urgent measure is ought to approach arbitral tribunal directly. However, the respective article does not specify whether or not this power vested onto tribunal is curtailed by mandatory provisions applicable to the proceedings. It could be argued that this reservation should be incorporated as it is necessitated by both Civil Procedure Code of Iran and Iran International Arbitration Act. In practice, Article 17 of Iran International Arbitration Act will govern issues surrounding provisional measures with respect to international arbitration, however, the act has remained silent regarding the enforcement of such measures. Similarly, the Civil Procedure Code which governs the domestic arbitration fails to address issues in relation to provisional measures. The absence of hard guidance has given rise to a conundrum for ACIC. A cursory look at the practice of ACIC tribunals reveals that they tend to make distinctions between cases where the party asks for a provisional measures addressed to the respondent or a third party like banks. In the former, the tribunal directly compel the respondent himself to act or refrain from acting particular measures, however in the latter the question of enforcement of the order has remained unclear. Moreover, it appears that Article 35 grants a broad discretion to arbitrators to decide what procedures to adopt and what issues to take into account when considering application for security for costs. This could pose further complications in the absence of specific and precise criteria to apply and may result in arbitrary and partial decisions.

Another prominent feature of the ACIC Rules that is consistent with the best practices of international arbitration is the broad and extensive use of witness evidence and experts. Article 45 affords broad discretion to the arbitral tribunal to “conduct a witness hearing” if the arbitral tribunal deems the subject of testimony of relevance. Similarly, article 46 stipulates that arbitrator may refer to expert opinion at his own initiative when “he deems necessary”. In the absence of additional provisions, it appears that there is no limitation as to the examination of experts and the arbitral tribunal enjoys unfettered discretion to assess the viability of expert opinion. In addition, the ACIC Rules provide mechanism for parallel proceedings to be consolidated into a single arbitration. This concept is recalled in Article 6 of ACIC Rules subject to the timing of the request and other relevant circumstances. This procedural mechanism is a progressive step towards harmonization of arbitral awards. In this regard, the ACIC has recognized that a unified process avoids repetition or duplication of the same evidentiary materials in proceedings and related costs such as expert witness fees. However, it should be noted that timing of the consolidation, compensation of dismissed arbitrators and duplication of already submitted evidence for the benefits of parties are not explicitly addressed within the ACIC framework.

The above provisions demonstrate the intention of the ACIC Rules in presenting a legal framework that are aligned with international arbitration on a global scale. However, the current ACIC model requires comprehensive reforms to account for a more efficient and sophisticated framework that is consistent with archetype of legal framework across borders.

 

The ACIC Rules:  Future Prospect

What is visibly absent from the existing framework is the codification of the best practices of procedural rules that are the prototype of modern international standards. In this regard, the ACIC seeks to move away from an institution being a mere postbox and appointing authority, and strives to shape the arbitral process by embracing and promulgating innovation. To this end, after 20 years, the ACIC Board of Directors has issued a call for amendment of the ACIC Rules formulated in 2002.

Firstly, the current ACIC Rules do not include provisions for emergency arbitrators, nor do they embody expedited arbitration. In the absence of provisions regarding emergency arbitrators, when the lex arbitri is the Iranian law, both courts and arbitral tribunal will have the authority over the case but due to the absence of precise guidelines, a party seeking an urgent measure will instead resort to national courts when the issue is extraordinarily urgent. This will undermine the choice of arbitration as an optimal dispute resolution mechanism. To this end, the domestic law ought to adopt a coherent framework to account for the emerging practice of emergency arbitration, without such a provision, domestic law and practice in national courts will pose further complications with regard to enforcement against the noncompliant party. Therefore, the future amendments to the ACIC Rules must first consider the specifics of the Iranian legal framework.

Secondly, the current ACIC Rules do not embody a comprehensive framework to protect confidentiality in arbitration proceedings. Parties can nonetheless agree in writing that the arbitration session for the hearing and consideration of the case shall be in confidence. According to Article 43, the arbitrators may take necessary measures to protect trade secrets and confidential information, but the current legal framework of the ACIC Rules is silent regarding the ways in which documents and information shall be submitted to the tribunal. Thus, it is important that the rules be revised to reflect the changes and emerging standards within international arbitration practice. It is therefore imperative for the future developments to encompass best practices of the international arbitration community which will not only reinforce Iran’s pro-arbitration stance, but also will pave the way for new standards that have yet to be explored by other Iranian arbitral institutions.

Further, the procedures for appointing arbitrators are not designed to be sufficiently swift. In this regard, Article 13 does not outline the timing requirements for the constitution of arbitral tribunal. The designated deadlines for an arbitrator’s appointment have remained unclear. For instance, Article 10 provides one period of 15 days for the parties to present their objections to the appointment of the arbitrators. It can be argued that the long process of appointing the panel of arbitrators under the ACIC Rules can delay the constitution of the arbitral tribunals. There is a need to revise this rule to make it more consistent with modern archetype of institutional arbitration rules.

 

Conclusion

The ACIC has recognized the central role it serves in promoting institutional rules of arbitration in the Middle East region, thus revisiting its rules will solidify its quintessential role in promoting arbitration in both domestic and international sphere. Revisions would address the growing complexity of contemporary arbitration proceeding which afford parties greater autonomy and flexibility. It can be argued that the new developments will reflect the ACIC’s ambition to compete with other major international arbitration institutions, and will usher the ACIC in a new era for  arbitration in Iran, both international and domestic.

 

Dr. Mohsen Mohebi has served almost 13 years as Secretary General of the Arbitration Center of Iran Chamber of Commerce. He has been member of ICC Court of Arbitration since 2006-mid 2017. He is currently a member of the Permanent Court of Arbitration.

More from our authors: The Decision-Making Process of Investor-State Arbitration Tribunals
by By Mary Mitsi
€ 200