Kluwer Arbitration Blog

Syndicate content
Updated: 1 hour 28 min ago

2018 In Review: The Achmea Decision and Its Reverberations in the World of Arbitration

Tue, 2019-01-15 21:53

Deyan Dragiev (Assistant Editor for Europe)

Very rarely would a single arbitration-related decision produce as significant an impact as the judgment of the Court of Justice of European Union (“EU” and “CJEU” respectively) in the Achmea case did during 2018. We should not doubt that Achmea will remain a cornerstone issue in the world of arbitration for a long period of time. This post attempt to summarize the Achmea debate thus far.

What the CJEU Reasoned in Achmea?

The CJEU succinctly ruled on a number of issues that were important for the supremacy of EU law and, indirectly, the role of EU institutions. The investment treaty arbitration system (“ITA”) had long been, if not rejected, at least not heartily welcomed by the EU. The clash could have been foreseen and cracks appeared long ago before Achmea, especially in the context of the Micula case against Romania. So, an Achmea judgment was something inevitable – it had to come to the scene.

However, the actual decision did not say much. It approached the issue of clash/overlap between ITA and EU law from the standpoint of EU law. In para 33, the CJEU reiterated the autonomy and supremacy of EU law. In para 34, the CJEU stressed the mutual trust between EU Member States. In para 42, the CJEU considered that an arbitral tribunal may have to apply EU law to questions such as freedoms provided in the Treaty on the Functioning of the European Union. According to para 54, the outcome of commercial arbitration may be subject to review by Member State courts for the purpose of enforcement. In para 56-58, the CJEU reasoned that the effectiveness of EU law may be undermined as EU-related disputes are referred to bodies that are outside the EU jurisdiction. Hence, concluded the Court, the Netherlands-Slovakia BIT in particular, is not compatible with EU law.

What Achmea Was Silent About?

The CJEU did not usher a word regarding the Vienna Convention on the Law of Treaties (“VCLT”), although it is the international treaty governing the conclusion, interpretation, validity and invalidity of treaties. Neither did it mention the New York Convention, although it is the treaty governing the Achmea judgment. This left a number of questions unanswered.

Firstly, if EU law precludes ITA, what happens with the ITA itself, i.e., does it make it invalid altogether? However, the invalidity of international treaties is regulated by the VCLT, yet, the CJEU did not refer to it. Moreover, if EU law precludes ISDS, what happens with the arbitration clause? How should it be treated in the course of attempted enforcement or setting aside of the arbitral award – as invalid? On what grounds of invalidity?

The next line of questions concerns the scope of the Achmea decision. What is the ambit of Achmea, i.e., does it encompass all ITA, or should it be read only strictu sensu regarding the particular dispute under the Netherlands-Slovakia BIT? Does Achmea refer to all BITs, if it is read expansively, or should be even wider and encapsulate also multilateral agreements such as the Energy Charter Treaty (“ECT”), which is the basis for a significant number of arbitration proceedings? How does Achmea sit with ICSID arbitration, as the ICSID system is based on a multilateral treaty? Should there be any difference between an EU-seated tribunal that is bound by the CJEU and EU law, and a non-EU-seated one? In other words, how far does the Achmea go – from being a specific and idiosyncratic ruling to a global condemnation on ITA in the way it currently is?

The questions posed would in effect delimit the perimeter of Achmea – and its ultimate significance. As these questions were not answered by the CJEU, we can expect that the answers will be given by other stake-holders in the near future: states, EU Member States, institutions like ICSID, EU institutions, national courts of EU Member States and non-EU Member States alike, investors, and others. These questions are the tidal wave, and the reality of investor-State relations and disputes is the shoreline this wave has been hitting since Achmea appeared on the stage.

Achmea’s Aftermath: Tribunals and National Courts about Achmea

Achmea has already been interpreted and reflected upon by a number of stakeholders.

Firstly, the ITA tribunals.

In Masdar Solar v. Spain (ICSID Case No. ARB/14/1), the tribunal considered that Achmea decision is merely silent on the relevance of ECT. It can be inferred that the tribunal deemed Achmea not applicable to multilateral agreements like ECT.

Another tribunal, in UP and C.D Holding Internationale v. Hungary (ICSID Case No. ARB/13/35) where a BIT is applicable, considered that Achmea cannot excuse non-compliance with public international law. It can be inferred that the tribunal reasoned that issues of EU law should not stand against treaty obligations of States and an ITA tribunal applies the particular treaty at hand, without regard of other legal regimes such as EU law.

The most comprehensive ruling of an ITA tribunal thus far is in the Vattenfall v. Germany (ICSID Case No. ARB/12/12) case. First, the tribunal rejected application of Art. 31 of VCLT as the tribunal accepted that EU law is not part of general international law and cannot constitute principles applicable as between the parties. The tribunal’s primary purpose was that the treaty at hand is applied without reading into it other laws/agreements/international obligations. Moreover, the ECT could even be assumed as a later concluded treaty (lex posterior) or a special regime (lex specilis). On whichever of these grounds, the tribunal unflaggingly assumed that the Achmea decision is not relevant to ECT-based cases. Moreover, Art. 16 of the ECT should be directly applied to preclude the relevance of other international agreements/obligations. Further, the more favourable regime to an investor is the ECT in terms of dispute resolution, so the tribunal accepted EU law should not be overriding the ECT.

However, the EU Commission took a different view. In its 19 July 2018 Communication, the Commission not only cited the Achmea judgment, but took the position that it should be extended to multilateral agreements such as the Energy Charter Treaty: “The Achmea judgment is also relevant for the investor-State arbitration mechanism established in Article 26 of the Energy Charter Treaty as regards intra-EU relations. This provision, if interpreted correctly, does not provide for an investor-State arbitration clause applicable between investors from a Member States of the EU and another Member States of the EU. Given the primacy of Union law, that clause, if interpreted as applying intra-EU, is incompatible with EU primary law and thus inapplicable. Indeed, the reasoning of the Court in Achmea applies equally to the intra-EU application of such a clause which, just like the clauses of intra-EU BITs, opens the possibility of submitting those disputes to a body which is not part of the judicial system of the EU. The fact that the EU is also a party to the Energy Charter Treaty does not affect this conclusion: the participation of the EU in that Treaty has only created rights and obligations between the EU and third countries and has not affected the relations between the EU Member States.”

Finally, it is worth mentioning that a number of national courts reviewed Achmea thus far.

The German court reviewing the application for setting aside of the Achmea award took CJEU’s words verbatim and set aside the Achmea award. The German court accepted that EU law precludes arbitration and the tribunal seated in Germany did not have jurisdiction to render award. The EU obligations did obstruct Slovakia to provide relevant consent for validity of arbitration.

The issue remains in flux: Currently, a plea to this extent is pending in two courts – in Sweden, and in New York. In the context of an action to set aside the award under the Novenergia v Spain award in Swedish courts, Spain requested that the court seeks preliminary ruling from the CJEU with focus on ECT. The same award is also resisted in US courts, as in the court of District of Columbia Spain has put forward Achmea opposition as well.

Where Do We Go from Here?

Achmea has two potential outcomes – either to dramatically change the world of ITA, or to have very limited impact and gradually fade away. It seems that Achmea is and will be an important factor in the world of arbitration. Arbitral tribunals apparently struggle to restrict its significance and find a way to pass it by. However, the Achmea decision is the flag that the EU Commission needed to reinvigorate its campaign against intra-EU ITA. The EU Commission is currently very active to request participation in pending ITA cases and the Commission, along with states, raises Achmea-based challenge to the jurisdiction of arbitral tribunals. The matter had reached national courts, too – inside and outside the EU. Hence, Achmea reminds us once more of the ancient curse of living in interesting times.

 

 

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Can’t Knock the Hustle … [To Broaden Diversity in Arbitration]

Mon, 2019-01-14 21:31

Rekha Rangachari

Young ICCA

Begin at the Beginning

On November 28, Rapper Jay-Z filed a petition in Manhattan Supreme Court pertaining to an ongoing arbitration administered by the AAA-ICDR.  He sought (i) a temporary restraining order to halt Iconix from pursuing claims in arbitration; (ii) a preliminary injunction staying arbitration for a period of ninety days for the parties to find suitable African-American arbitrator candidates; and (iii) a permanent stay of the arbitration.

A flurry of press reported on the matter, of arbitration under fire.  On November 30, Judge Scarpulla, sitting in for Judge Ostrager, ordered the proceedings on hold until December 11, when Judge Ostrager could conference with the parties.

According to the Petition filed by Counsel for Jay-Z, the AAA-ICDR did not “ensure a diverse slate of arbitrators” on a preliminary arbitrator selection list (NYSCEF Doc. No. 1 – Petition ¶7).  Ironically, at Exhibit 4 of the Petition, the list of 12 arbitrator candidates includes diversity on several fronts.  However, the particularity of Jay-Z’s petition is rather curious – the ask was not a battle cry for diversity generally but rather for the inclusion specifically of male African-American candidates, of whom there were two on the list (and one African-American female).  Even more curious in light of his argument is that Jay-Z’s legal representation includes no African-American lawyers.

The Transcript of the proceedings on November 28 begins with Judge Scarpulla’s reminder of the supremacy of party autonomy in arbitration:

You voluntarily choose AAA, you know what AAA has … why are you alleging now something that you chose, that you’ve agreed to, and now you’re dissatisfied because you think that African-American arbitrators are somehow going to decide a commercial dispute differently than Asian-Americans, than women, than gay arbitrators, than all of the other protected classes?  What is that about? (NYSCEF Doc. No. 18 – Transcript 5: 16 – 23).

On November 30, Counsel for Iconix replied and discussed Opposing Counsel’s delay tactics within its Affirmation, “After business hours on the Strike List Deadline, the Carter Parties contacted the AAA ex parte to complain, for the first time, that they “could not identify a single arbitrator of color with suitable experience” (NYSCEF Doc. No. 28 – Affirmation of C. Flanders ¶16).  If diversity of the nature desired and described by Counsel for Jay-Z was indeed paramount, it begs the question why it was not raised on the October 31 administrative conference call or prior to the November 12 deadline to select an arbitrator.

On December 6, the AAA-ICDR sent a Letter to the parties responding to their queries, confirming that metrics on race and ethnicity are provided at the discretion and self-identification of the arbitrator, with “priority to identify and recruit diverse candidates” and optionality for parties to mutually agree and select party-appointed arbitrators that fit “particular expertise and backgrounds” (NYSCEF Doc. Nos. 31, 50 – Letter pp. 1, 2).  Of note, 89 of 152 candidates, or 58.5%, self-identified as African-American and “were appointed to a case in 2017” (Id. at 4).

On December 7, Counsel for Iconix filed its Memorandum of Law in Opposition, arguing that:

The implicit premise behind the Carter Parties’ race theory is that an arbitrator who shares the same race as a litigant … is inherently less likely to be biased toward that litigant; while arbitrators of different racial background are prone to inherent bias. This is a patently false presumption … By analogy, the race or ethnicity of a presiding judge is not the basis for recusal (NYSCEF Doc. No. 47 – Memorandum of Law in Opposition p. 20).

On December 9, Counsel for Jay-Z filed a Letter with Judge Ostrager withdrawing their motion to enjoin the arbitration, and noting in the opening paragraph:

Following the filing of the Petition in this action, the American Arbitration Association (“AAA”) has committed to work with Petitioners to identify and make available African-American arbitrators … (NYSCEF Doc. No. 50 – Letter p. 1).

AAA-ICDR’s commitment to diversity arguably did not change in the 11 days elapsed between November 28 and December 9.  Notwithstanding, perhaps something did change in Counsel for Jay-Z’s attitude and posturing of the case, and even the cognition that arbitration was the previously selected and more appropriate forum for the dispute rather than a public showdown (with public access to all filings referenced repeatedly in this blog).

This unfinished story hits at the crux of working definitions of diversity and unconscious bias.  Put a different way, are clients of arbitration modifying the system from alternative dispute resolution to alternative diversity resolution?

The issue of diversity or lack thereof is a collective action problem.  While much pressure has been placed on arbitral institutions in ensuing years, it is a shared burden amongst all practitioners.  As preliminary considerations, how do we define diversity?  How are metrics culled within the community to identity diversity?  How do we reply to examples like Rachel Dolezal, the white woman who posed as black?  And then, what of the pool who abstain from designation?

 

Empire State of Mind: There’s Nothing You Can’t Do

Most arbitral institutions have implemented diversity initiatives to respond to the perceived gaps within the arbitrator pool.  This is a starting point.  A snapshot of these innovations is provided from an institution operating within Jay-Z’s Empire State and under fire by Jay-Z, the AAA-ICDR, their Mission and Vision Statement demonstrating a “shared commitment” to diversity with arbitrator lists “that comprise at least 20% diverse panelists where party qualifications are met” (AAA-ICDR Roster Diversity & Inclusion).  For example, “87% of lists sent to parties [in 2017] met that goal” (NYSCEF Doc. Nos. 31, 50 – Letter p. 4).  The list provided by the AAA-ICDR to the afore-mentioned parties included 7 of 12 arbitrator candidates from diverse categories of gender, race, ethnicity, and sexual orientation, or 58%.  This does not consider other diversity categories including social background, age, religious beliefs, and other ideologies, necessarily increasing the diversity percentage.  Separate from this, the AAA-ICDR spearheads the Higginbotham Fellows Program, a reason for which the AAA-ICDR was honored in 2015 by the NYLJ’s Diversity Initiative Project.  The AAA-ICDR also created a Foundation to address funding needs on projects increasing access to alternative dispute resolution.

The AAA-ICDR is one amongst many in New York advancing diversity thought leadership, including: the ICC and its North America Office, SICANA (focused on gender parity and a recent cultural diversity initiative with ICC interns); the CPR (issuing an annual Diversity Award and offering a Young Lawyer Rule and Diversity Statement; JAMS (offering a Diversity Inclusion Rider) and FINRA (hosting an annual Diversity Summit).  These institutions embrace transparency, disclosing available statistics and creating pipeline initiatives.  Admittedly, this is only a small snapshot of the hard work advanced by leading arbitral institutions in the global marketplace.

The larger arbitral community must also buttress the case for diversity and encourage apt candidates.  Distinct from the arbitral institutions, many affinity groups have suggested solutions to address diversity in the practice.  One example tethered to the Empire State was the inaugural launch of the ArbitralWomen DiversityToolkit ™ on November 8, in commemoration of ArbitralWomen’s jubilee celebration of 25 years bringing together global women of dispute resolution.  The Toolkit is noteworthy in defining a training module whereby trainers lead participants through various exercises to recognize the moral, equal access, and business case for diversity, problem solve in dialogue, and brainstorm ideas for critical change.  Of special mention, a headline supporter of the Toolkit was the Equal Representation in Arbitration (ERA) Pledge, launched in 2015 in recognition of the under-representation of women on international arbitral tribunals and also offering an Arbitrator Search platform from the databases of leading arbitral groups.  As of December 7, there are 3,250 organization and individual signatories, numerically demonstrative that our system is dynamic and constantly improving from the inside.

 

Where Do We Go from Here?

The Jay-Z arbitration headlines created undue hysteria.  Now, in the aftermath, the arbitration community must come together thoughtfully and productively in response, to change the rules of the game.  The lack of diversity falls on global communities, to recharge and reinvigorate for market demands.  Gender parity is one case for diversity gaining momentum, but what of the other diversity categories that also need support and community leadership to flourish?

International lawyer Gary Born aptly noted during his 2018 Freshfields Lecture that “the ending [to arbitration] hasn’t been written yet – it depends on us; it depends on you.”  This applies equally to the state of diversity in arbitration and the perpetual query: are we getting there?  Does our system improve diversity at a sufficient rate across fluid categories each quarter, each year, each decade?  Our ending is far from being written, as new law graduates join the practice and redefine how we look at education, the law, and representation.  A famous quote of Jay-Z’s parlays opportunely here, as a reminder to be “hungry for knowledge.  The whole thing is to learn every day, to get brighter and brighter.”  With the calls for change growing ever louder, learn we will, and change we will enact, together.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Belt and Road Initiative: Joint Interpretation Mechanism in Investment Agreements

Mon, 2019-01-14 20:00

Yang Xinglong

In 2013, China proposed to jointly build the “Belt and Road” Initiative. While the international investment agreements (“IIAs”) proposed to be concluded with China and its counterparties along the “Belt and Road” will provide a robust source of potential investor protections, they must be easily understood among investors, states, and international tribunals.

IIAs, as the products of compromise between or among states, will likely contain vague and ambiguous provisions. In order to limit tribunals’ otherwise broad discretion over treaty interpretation and ensure the treaty texts best reflect the states’ intent, states may choose to incorporate a binding joint interpretation mechanism into the treaty texts. Although the words describing the mechanism under different IIAs may differ, such mechanism typically entrusts an organ or the states themselves with the explicit power to issue binding interpretative statements on contentious provisions.

For the last decade, China has increasingly adopted a joint interpretation mechanism in the new generation of IIAs. Currently, at least six Chinese IIAs, namely the treaties concluded with Canada, Australia, Uzbekistan, Cuba, New Zealand, and Tanzania, have officially adopted the mechanism aiming to strike a better balance between the interpretative right between contracting states and tribunals.

However due to the insufficient practice in China on the issuance of joint interpretation statements in investment arbitration, China may rush into concluding IIAs containing template joint interpretation provisions with little consideration of the following factors:

1. Entrusting a Specific Organ with Authority to Issue Joint Interpretation

Among the above six IIAs stated above, only the China-Australia FTA1)Adopted November 2014, entered into force 20 December 2015, accessed 20 Oct 2018. jQuery("#footnote_plugin_tooltip_5175_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5175_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); has set up an organ, the Committee on Investment (“CI”), to be entrusted with the authority to issue a joint decision declaring its interpretation of a provision of the FTA pursuant to Article 9.7.3(b). The joint decision shall be binding on a tribunal of any ongoing or subsequent disputes. However, the other five Chinese IIAs containing joint interpretation provisions do not designate a specific organ to be responsible for issuing interpretative statements.

Reaching a common understanding on contentious provisions would be difficult because states might not always aware of how their IIAs practice aligns with that of other states, and may not know the issues of international investment law on which they agree or disagree.2)Geoffrey Gertz and Taylor St John, “State Interpretation of Investment Treaties: Feasible Strategies for Developing Countries” (2015) GEG & BSG Policy Brief, 4. jQuery("#footnote_plugin_tooltip_5175_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5175_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the absence of a prior designated organ to issue joint interpretation decisions, states tend to reach their joint decision only in the circumstances of potential acrimonious negotiations or arbitrations.3)Xinglong Yang, “Implementation of the Joint Interpretation Mechanism under the ASEAN Comprehensive Investment Agreement: Obstacles and Pragmatic Steps for the ASEAN” (2018) 11(1) Contemp. Asia. Arb. J, 130. jQuery("#footnote_plugin_tooltip_5175_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5175_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In addition, if a tribunal requests China and its counterparties to reach a joint decision on contentious provisions, the states are bound to plan meetings or send visiting delegations. There can be heavy costs involved. Also IIAs normally provide a fixed period of time for states to issue joint decisions. This can vary from 60 days to 90 days. Even though the fixed period of time aims to ensure the efficiency of arbitral proceedings, it can be difficult in practice to spur states’ bureaucracies into action to reach a joint statement within the time period.

Confronted with the above obstacles, it is important for China and its counterparties to designate an organ to be entrusted with the authority to issue joint interpretation statements in their upcoming IIAs. The designated organ should comprise senior government officials and investment law experts. The organ, with the assistance of academics and non-governmental organizations dealing with investment laws, should aim to “compile evidence of which states have asserted similar legal arguments in arbitration hearings, identifying commonalities across states and groups of states which may form the basis for joint interpretative statements.”4)Gertz (n 4) 5. jQuery("#footnote_plugin_tooltip_5175_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5175_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Hence, through the assistance of the organ, a joint statement may be produced to guide the tribunal on the determination of the meaning to a contentious provision without delay.

2. Distinguishing the Nature of Joint Understanding on Contentious Provision

An interpretation statement clarifies the meaning of unclear provisions or what the norm has always been, so a true interpretation has retroactive effect in examining conduct of the state after IIA has entered into force. On the contrary, an amendment, as an agreed modification to the original IIA, creates new norms and thus has no retroactive effect to previous conduct of the state.5)Eleni Methymaki and Antonios Tzanakopoulos, “Master or Puppets? Reassertion of Control Through Joint Investment Treaty Interpretation” (2016) Oxford Studies Research Paper 10, 22. jQuery("#footnote_plugin_tooltip_5175_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5175_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In particular, when a joint interpretation statement is issued at the time when an investment case is pending, the nature of the joint statement may be disputed, namely whether the statement is a true interpretation or a disguised amendment of the IIA. This is so even if an IIA stated that a joint interpretation statement should bind tribunals of ongoing and subsequent cases as the previous practices of the NAFTA arbitrations show.

When the Pope & Talbot Inc. v. Canada (“Pope & Talbot”) arbitration6)Pope & Talbot Inc. v. Government of Canada (“Pope & Talbot”), UNCITRAL (NAFTA), Award in Respect of Damages, accessed 15 October 2018. jQuery("#footnote_plugin_tooltip_5175_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5175_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); was ongoing, the Free Trade Commission (“FTC”) of the NAFTA, on July 31, 2001, jointly issued the Notes of Interpretation of Certain Chapter Provisions (“the Notes”),7)Adopted on 31 July 2001, accessed 20 Oct 2018. jQuery("#footnote_plugin_tooltip_5175_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5175_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); aiming to present the three contracting states’ joint understanding on the minimum standard of treatment of Article 1105.

Notwithstanding the Notes, the tribunal ruled that Article 1131 (1) of the NAFTA granted the tribunal the right to decide the issues in dispute in accordance with the NAFTA and applicable rules of international law. Therefore, the tribunal had a duty to consider and decide that question and not simply accept that whatever the FTC stated to be the true interpretation. In the final award, the tribunal held that the Notes were an amendment to the NAFTA, but did not analyse the binding effect of the Notes because it found that the conclusion reached in the partial award would stand even if the interpretation contained in the Notes was accepted.8)Pope & Talbot, para 47. (For the reasons, were the Tribunal required to make a determination whether the Commission’s action is an interpretation or an amendment, it would choose the latter. However, for the reasons discussed below, this determination is not required. Accordingly, the Tribunal has proceeded on the basis that the Commission’s action was an “interpretation””) jQuery("#footnote_plugin_tooltip_5175_8").tooltip({ tip: "#footnote_plugin_tooltip_text_5175_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

To take into consideration the possibility of tribunals following the Pope & Talbot ruling, China and its counterparties need to expressly clarify in the treaty that it is within the states’ power to determine conclusively in the nature of a joint statement, the binding interpretation of a particular provision. The states also need to provide for the designated organ to have the power to debate and decide on the contents of the joint statement. When the organ holds that the joint statement aims to clarify the possible meanings that fall within the interpretative radius of a norm, both pending and subsequent tribunals should be strictly bound by the joint decision. On the contrary, if the understanding is in effect a modification to the treaty, the designated organ, on behalf of the contracting states, may decide the joint statement shall have binding effect from a specific date.

Such practice aims to serve two goals. Firstly, it will avoid a disguised amendment to have binding effect on tribunals of pending cases. In addition, a joint statement reflects the common understandings of all contracting states on any key issues which have not been addressed before or have been brought into public spotlight recently, so issuing the statement aims to regulate states’ subsequent behaviours, which will contribute to the consistency of treaty interpretation by subsequent tribunals.

3. Protecting States’ Legitimate and Non-discriminatory Public Welfare Regulation

As pointed out by an earlier blog, “Rebalancing the Asymmetric Nature of International Investment Agreements?”, the last decade has witnessed the growing debate regarding one of the key asymmetric natures of IIA. It is claimed that IIAs impose a number of obligations on the states, but do not seem to hold investors accountable for the social, environmental and economic consequences of their investment activities.

Faced with the concern, one attempt to protect states’ legitimate and non-discriminatory public welfare regulation from investor-state claims is to provide “an innovative feature that goes beyond existing safeguards for protecting the regulatory autonomy of states by providing a mechanism for joint treaty party control.”9)Anthea Roberts and Richard Braddok, “Protecting Public Welfare Regulation through Joint Treaty Party Contorl: a ChAFTA Innovation.” (REGNET, 24 June 2016), accessed 15 Oct 2018. jQuery("#footnote_plugin_tooltip_5175_9").tooltip({ tip: "#footnote_plugin_tooltip_text_5175_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Such innovation has been incorporated into the China-Australia FTA.

Pursuant to Article 9.11.4 of the China-Australia FTA, a measure of a contracting state is non-discriminatory and for the legitimate public welfare objectives of public health, safety, the environment, public morals or public order shall not be the subject of a claim under the FTA. A respondent state, within 30 days of the date on which it receives a request for consultation made by an investor, should deliver the investor and the non-disputing state a “public welfare notice” clarifying that it considers a measure alleged to be in breach of an obligation set out in the FTA is of kind described as “Public Welfare”. Upon receiving the notice, both states should carry out a negotiation in a timely manner. During the negotiation, the dispute resolution procedure will be automatically suspended. Any joint statement reached by China and Australia will have binding effect on the tribunal.

It is suggested that this feature be adopted by China in negotiating IIAs with its counterparties along the “Belt and Road”. The innovative approach would serve as a strong safeguard for China and its counterparties to regain their control over regulatory autonomy in the future.

References   [ + ]

1. ↑ Adopted November 2014, entered into force 20 December 2015, accessed 20 Oct 2018. 2. ↑ Geoffrey Gertz and Taylor St John, “State Interpretation of Investment Treaties: Feasible Strategies for Developing Countries” (2015) GEG & BSG Policy Brief, 4. 3. ↑ Xinglong Yang, “Implementation of the Joint Interpretation Mechanism under the ASEAN Comprehensive Investment Agreement: Obstacles and Pragmatic Steps for the ASEAN” (2018) 11(1) Contemp. Asia. Arb. J, 130. 4. ↑ Gertz (n 4) 5. 5. ↑ Eleni Methymaki and Antonios Tzanakopoulos, “Master or Puppets? Reassertion of Control Through Joint Investment Treaty Interpretation” (2016) Oxford Studies Research Paper 10, 22. 6. ↑ Pope & Talbot Inc. v. Government of Canada (“Pope & Talbot”), UNCITRAL (NAFTA), Award in Respect of Damages, accessed 15 October 2018. 7. ↑ Adopted on 31 July 2001, accessed 20 Oct 2018. 8. ↑ Pope & Talbot, para 47. (For the reasons, were the Tribunal required to make a determination whether the Commission’s action is an interpretation or an amendment, it would choose the latter. However, for the reasons discussed below, this determination is not required. Accordingly, the Tribunal has proceeded on the basis that the Commission’s action was an “interpretation””) 9. ↑ Anthea Roberts and Richard Braddok, “Protecting Public Welfare Regulation through Joint Treaty Party Contorl: a ChAFTA Innovation.” (REGNET, 24 June 2016), accessed 15 Oct 2018. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Does Final Mean Final? Arbitrators Can “Clarify” Award, Second Circuit Holds

Mon, 2019-01-14 06:00

Lucas Bento and Michael Carlinsky

One of the main benefits of arbitrating a dispute is obtaining a final binding award.  A number of principles work to promote this fundamental building block of the arbitration ecosystem. For example, the functus officio doctrine dictates that, once arbitrators have fully exercised their authority to adjudicate the issues submitted to them, their authority over those questions is ended, and the arbitrators have no further authority, absent agreement by the parties, to redetermine those issues.  But there are exceptions to that doctrine.  In Gen. Re Life Corp. v. Lincoln Nat’l Life Ins. Co., No. 17-2496-CV, 2018 WL 6186078 (2d Cir. Nov. 28, 2018), the Second Circuit Court of Appeals[1] recognized “an exception to functus officio: where an arbitration award is ambiguous, . . . the arbitrators retain their authority to clarify that award.”  What constitutes ambiguity and clarification, of course, is open to interpretation.

 

Factual Background

 

The case involved a dispute between an insurance company and its reinsurer over premium increases.  The insurance company elected to arbitrate the rate increase as provided under the parties’ agreement.  The arbitration panel held a multi-day hearing in June 2015, and then issued its award on July 1, 2015 (“Award”).  The Award directed the parties to work together in calculating the amount of monies owed, and stipulated that “[a]ny disagreement over the calculations shall promptly be submitted to the [arbitral panel] for resolution.”  The arbitration panel also explicitly retained “jurisdiction over this matter to the extent necessary to resolve any dispute over the calculation and payment of the amounts awarded herein.”

 

The parties subsequently failed to reach agreement on how to calculate some of the premiums.  The insurance company wrote to the arbitral panel, set forth the parties’ dispute regarding the language of the Award and what that meant regarding the calculation of premiums, and requested that the panel settle the issue.  The reinsurer objected to that request, arguing that it was beyond the authority of the arbitrators because it sought reconsideration of, and a fundamental change to, the calculation methodology unambiguously ordered in the Award.

 

On November 19, 2015, over a dissent, the arbitral panel issued a clarification (“Clarification”).  The panel stated that the Award contained “ambiguities requiring clarification,” and that both parties were reading the Award in a manner inconsistent with the language of the reinsurance agreement.   The panel then ordered the reinsurer to make certain payments under the agreement.  This prompted the reinsurer to petition a U.S. federal district court to confirm the original, unclarified Award, and the insurance company filed a cross-petition to confirm the Clarification.   The district court denied the reinsurer’s petition to confirm the original Award and granted the insurance company’s petition to confirm the Clarification.  The reinsurer subsequently appealed that decision.

 

The Second Circuit’s Decision

 

On November 28, 2018, the Second Circuit upheld the district court’s decision.  In recognizing the principle of functus officio, the court noted that “[t]he functus officio doctrine dictates that, once arbitrators have fully exercised their authority to adjudicate the issues submitted to them, their authority over those questions is ended, and the arbitrators have no further authority, absent agreement by the parties, to redetermine those issues.”  The court explained that the rationale for the principle was that “it is necessary to prevent re-examination of an issue by a nonjudicial officer potentially subject to outside communication and unilateral influence.” As the Seventh Circuit Court of Appeals[2] in another case noted,

 

“The doctrine is based on the analogy of a judge who resigns his office and, having done so, naturally cannot rule on a request to reconsider or amend his decision. Arbitrators are ad hoc judges—judges for a case; and when the case is over they cease to be judges and go back to being law professors or businessmen or whatever else they are in private life, like Cincinnatus returning to his plow. [But] [o]nce they return to private life, arbitrators are less sheltered than sitting judges, and it is feared that disappointed parties will bombard them with ex parte communications . . . .”[3]

The practical consequence of functus officio is that an arbitrator cannot revisit its decision, thus providing finality to the arbitration process.  However, in affirming the district court’s decision, the Second Circuit recognized that functus officio carries an exception where the award “fails to address a contingency that later arises or when the award is susceptible to more than one interpretation.”  The court further found that the exception is consistent with the well-established rule that when asked to confirm an ambiguous award, the district court should instead remand to the arbitrators for clarification.

 

In seeking to provide some guidance to stakeholders, the Second Circuit held that an arbitrator does not become functus officio when it issues a clarification of an ambiguous final award as long as three conditions are satisfied: (1) the final award is ambiguous; (2) the clarification merely clarifies the award rather than substantively modifying it; and (3) the clarification comports with the parties’ intent as set forth in the agreement that gave rise to arbitration.  In doing so, the court noted that the exception is necessary to further “the twin objectives of arbitration: settling disputes efficiently and avoiding long and expensive litigation.”

 

In confirming the Award, the Second Circuit joined five other circuit courts that have also recognized an exception to functus officio.  For example, in Sterling China Co. v. Glass, Molders, Pottery, Plastics & Allied Workers Local No. 24, 357 F.3d 546 (6th Cir. 2004) the Sixth Circuit Court of Appeals[4] held that the arbitrator retained the authority to clarify an award requiring an employer to compensate workers for work previously performed at a higher base rate that other workers received.  Clarification was necessary because the award was ambiguous as to exact definition of what constituted a higher base rate, and thus the arbitrator retained jurisdiction in the award to resolve disputes between employer and union with respect to implementation of an appropriate remedy.[5]  Similarly, in Brown v. Witco Corp., 340 F.3d 209 (5th Cir. 2003), the Fifth Circuit[6] held that an arbitrator was allowed to clarify how the parties should calculate  an employee’s back pay award.

 

Keep Calm and Clarify: Where Do We Go From Here? 

 

What constitutes ambiguity in an award is of course unclear and subject to interpretation.  The same could be said of what constitutes a “clarification”.  These issues will need to continue to be litigated and clarified, acting as a further reminder of the ongoing conversation and symbiotic relationship between arbitration and litigation..  But the decision highlights the importance of understanding how the applicable law of the arbitration may affect an arbitrator’s authority to take a second look at the award where necessary.

 

Michael B. Carlinsky is Chair of Complex Litigation and Co-Chair of Insurance Litigation at Quinn Emanuel Urquhart & Sullivan LLP and a founder and managing partner of the firm’s New York office.  Lucas Bento FCIArb FRSA is a Senior Associate at the firm. The views expressed in this post are the authors’ personal views, and do not reflect the opinions of Quinn Emanuel

 

 

 

[1] The United States Court of Appeals for the Second Circuit is the U.S. federal court of appeals overseeing the states of Connecticut, New York, and Vermont.

[2] The United States Court of Appeals for the Seventh Circuit is the U.S. federal court of appeals overseeing the states of Illinois, Indiana, and Wisconsin.

[3] Glass, Molders, Pottery, Plastics & Allied Workers Int’l Union, AFL-CIO, CLC, Local 182B v. Excelsior Foundry Co., 56 F.3d 844, 846–47 (7th Cir. 1995).

[4] The United States Court of Appeals for the Sixth Circuit is the U.S. federal court of appeals overseeing the states of Kentucky, Michigan, Ohio, and Tennessee.

[5] See also Brown v. Witco Corp., 340 F.3d 209, 219 (5th Cir. 2003) (“An arbitrator can … clarify or construe an arbitration award that seems complete but proves to be ambiguous in its scope and implementation.”); Glass, Molders, Pottery, Plastics & Allied Workers Int’l Union v. Excelsior Foundry Co., 56 F.3d 844, 847 (7th Cir. 1995) (same); Colonial Penn. Ins. Co. v. Omaha Indem. Co., 943 F.2d 327, 334 (3d Cir. 1991) (“[W]hen the remedy awarded by the arbitrators is ambiguous, a remand for clarification of the intended meaning of an arbitration award is appropriate.”); McClatchy Newspapers v. Central Valley Typographical Union No. 46, 686 F.2d 731, 734 n.1 (9th Cir. 1982) (same).

[6] The United States Court of Appeals for the Fifth Circuit is the U.S. federal court of appeals overseeing the states of Louisiana, Mississippi, and Texas.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Arbitration X Technology: A Call For Awakening?

Mon, 2019-01-14 00:25

Lito Dokopoulou

On the 5th of December 2018, the stake of arbitration amidst the technological evolution was in the spotlight; Sciences Po Law School hosted the first conference of the Arbitration X Technology saga, organized by the Sciences Po Arbitration Society (SPAS), under the framework of the LL.M in Transnational Arbitration and Dispute Settlement (T.A.D.S). The former is an autonomous association that aims to bring together Sciences Po alumni, future graduates, lawyers and academics interested in the law and practice of arbitration.

This first part of an upcoming Arbitration X Technology series of events, was, indeed, a  true “Call for Awakening”. Highly regarded practitioners and scholars, addressed the most pressing questions on the topic, in order to set the baseline of the interaction between technology and arbitration: What is the stake of AI in dispute resolution?; what does the GDPR means for arbitration?; could cybersecurity and request for confidentiality coexist?; and would smart contract disputes even need arbitration? The moderator, Peter Rosher, finely guided the panel in the discussion of those topics, triggering more questions and setting the stage for further debate.

The conference was opened by Sophie Nappert, on the topic of artificial intelligence (AI) and arbitration. She highlighted that “technology is not a new partner of arbitration”, but now is more present than ever. She proceeded with real examples of algorithms that are currently being used for enhancing the arbitral proceedings in different aspects and she identified those areas where artificial intelligence might be key (such as pinpointing at red flags to establish corruption). She concluded that this “algocracy” is ready to change the very scope of justice.

Taking it from there, Hafez R. Virjee presented some takeaways on the interaction between artificial intelligence and arbitration. He reassured that algorithms will not take over the legal profession, by observing that only low-level legal skills can be automated, such as issue-spotting. However, this evolution might challenge the education of junior lawyers, whom are traditionally charged with such tasks. Finally, he observed that algorithms might prove a very useful tool for enhancing diversity in arbitrator appointments, by creating automated and easily accessible short lists of arbitrators, a fact that will render the procedure of appointment more “open”. The conversation over artificial intelligence was concluded by the remarks of Philippe Bordachar on predictive justice in investment arbitration, i.e. the method of calculating the probabilities of the success of the case, by rationalising previous decision-making.

The discussion later shifted to the impact of the General Data Protection Regulation (GDPR) in arbitration, with Philippe Pinsolle and José Ricardo Feris taking the floor. First, Philippe Pinsolle explained that the GDPR, due to its broad definition of “personal data”, it applies to virtually all arbitrations where those involved are established in the European Union. The collateral problem created is the individual liability for compliance for the parties, their counsel, the arbitral tribunal, the institutions etc., the breach of which entails very serious sanctions. However, this burden, was considered, at least, “unpractical” for actors that engage in activities in the international arena, where processing of personal data is in effect, found, in every routine activity, from exchanging e-mails, to crossing the borders with personal data stored in a computer. José Feris highlighted that there is no practical solution to address this difficulty created. An answer, might lie with the application by analogy of the GDPR state court exception from its scope, to international arbitration. The panel informed that this action has been taken so far only by the Irish legislator. Philippe Pinsolle proposed as a “mitigating measure”, the creation of a Data Protection Protocol at the beginning of the arbitration (for example, at the drafting of the Terms of Reference) which aims to address GDPR compliance, including its potential impact on data transfer, disclosure and possible indemnities.

Closely linked to the subject of GDPR, is the demand of cybersecurity. Clément Fouchard commenced by confirming that cyberattacks constitute a real issue for international arbitration. The latter, is, indeed, under attack, mainly because the users are already prominent targets. Meanwhile, due to the fact that large arbitration databases include information that is not necessarily publicly available, and that actors in international arbitration usually travel a lot and thus can be more easily hacked, renders arbitration a tempting target. For these reasons, cybersecurity, is inextricably linked to the legitimacy and reliability of the dispute resolution system and, as such, it should thus be part of every practice, even accompanied by sanctions. Former ICC Deputy Secretary General, José Feris provided the institutional perspective, where the topic is even more relevant. The confidentiality obligation of arbitral institutions, that has now -due to GDPR- been upgraded from a contractual, to a legal obligation, creates an imperative need for institutions to take several measures for protecting sensitive data. Among them, would be the idea to create electronic platforms (such as the ICC will soon launch) which would allow users to exchange information securely.

The last topic of the roundtable discussion was smart contract arbitration. Commencing with the definition of blockchain technology, Gauthier Vannieuwenhuyse shifted to the function of smart contracts (or, else, self-executed contracts) and potential disputes that the latter may generate. Main examples provided were the discrepancies between the contract and its coded version, the inability to code specific concepts and the lack of a legal basis for their operation. “In a galaxy not too far away”, he considered the use of robots in smart contract arbitration; accordingly, two possibilities where identified. First, what Gauthier Vannieuwenhuyse characterized as “off-chain arbitration”, where the proceedings will remain as such, but the decision will be registered in a blockchain and will be self-executed; and, “on-chain arbitration”, where, robots (primarily in the form of algorithm), will enhance the arbitral process. Lastly, constitutional considerations and enforcement problems were addressed.

The conference was concluded with Gauthier Vannieuwenhuyse‘s reassurance that “arbitration by humans is not over yet”; artificial intelligence, is here not to replace us, but, rather to provide us with better sources to be used in arbitration. The exact ways of achieving this, together with fruitful takeaways of this first conference, are to be explored in the next series of “Arbitration X Technology” events.

 

Conference organized by the Sciences Po Arbitration Society (SPAS): Alexandre Senegacnik, Bruno Rodrigues, Dimitrios Andriopoulos, Lito Dokopoulou, Tiphaine Leverrier and Akhil Chowdary Unnam.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Hungary Gives the Green Light for the Conclusion of a Termination Agreement for Intra-EU BITs

Sun, 2019-01-13 23:00

Veronika Korom and Lénárd Sándor

On 17 December 2018, the Prime Minister of Hungary issued a decision entitled “Decision authorizing the conclusion of an Agreement to terminate bilateral agreements on encouragement and reciprocal protection of investments concluded between governments of certain Member States of the European Union”.[1]

The rather succinct Decision confirms the Prime Minister’s approval of the commencement of negotiations on an agreement for the termination of Member State BITs and, in line with the relevant Hungarian regulation on the domestic procedure with regards to international treaties (Act No. L of 2005), the Decision authorises the Minister of Foreign Affairs to conduct the negotiations and to sign the resulting text on behalf of Hungary. It further calls on the Minister of Foreign Affairs and the Minister of Justice to draw up a text to be submitted to the Government for the ratification of the agreement by Hungary once it has been finalised.

The Hungarian PM’s Decision comes in the aftermath of the ground-breaking Achmea judgment of March 2008 (discussed in the numerous posts at the blog here), in which the Court of Justice of the European Union (“Court”) held that investor-State arbitration clauses contained in intra-EU BITs are incompatible with EU law because they undermine the principle of autonomy of EU law by impairing the Court’s exclusive jurisdiction to interpret EU law. The Court’s ruling in Achmea is authoritative and binding on all EU Member States, who have an obligation to eliminate the incompatibility identified. Following Achmea, the Commission announced in its Communication on the Protection of intra-EU Investment of July 2018 that it had intensified its dialogue with the Member States, calling on them to take action to terminate their intra-EU BITs.

Hungary’s Intra-EU IIAs

Hungary currently has 54 BITs in force, 22 of which are so-called intra-EU BITs.

Hungary was one of the first Member States in Central Europe to adopt bilateral investment treaties in an effort to attract large-scale foreign investment. Although certain safeguards for foreign investment had existed under domestic Hungarian law since the 1970s, BITs were considered to represent stronger guarantees for foreign investors. Hungary signed its very first BIT with Germany in April 1986, and entered into further BITs with France, Belgium, and Luxembourg that same year. By the time Hungary gained independence and concluded the so-called Europe Agreement in 1993, which formed the legal framework for Hungary’s accession process to the EU and specifically encouraged the conclusion of BITs with Member States of the then European Communities, Hungary had BITs in place with all Western European States. In addition, in the course of the 1990s, Hungary entered into BITs with nine countries in Central and Eastern Europe (“CEE”). Hungary also became a signatory to the New York Convention and the ICSID Convention, later also joining the Energy Charter Treaty (“ECT”). Upon Hungary’s accession to the EU in 2004 and the EU’s subsequent enlargements, Hungary’s BITs (as well as the BITs of the other CEE countries) concluded with EU Member States became intra-EU BITs.

ISDS Proceedings against Hungary on the Basis of its Intra-EU IIAs

The majority of the sixteen known investor-State arbitration proceedings that have been commenced against Hungary to date concern investments made by Western European investors during the privatisation years of the 1990s. In the 1990s, in order to avoid bankruptcy following the collapse of the socialist regime, Hungary set about privatising large segments of its national economy to foreign investors who were willing to acquire formerly State-owned companies and other assets. In addition, owing to its successful economic and political transformation, Hungary attracted a growing number of greenfield investments, soon becoming one of the most popular destinations for Western capital investment in CEE.

Twelve of the sixteen arbitrations brought against Hungary were commenced on the basis of intra-EU BITs or the ECT by investors incorporated in an EU Member State.

Hungary’s Changing Position on the Applicability of its Intra-EU IIAs

In these intra-EU arbitrations, contrary to other CEE States, most notably Slovakia and the Czech Republic, Hungary has long sought not to contest the validity or applicability of its intra-EU BITs or the ECT. When the European Commission was allowed to intervene as amicus curiae in the AES Summit v. Hungary, Electrabel v. Hungary, and EDF International v. Hungary arbitrations, Hungary distanced itself from the jurisdictional objections raised by the Commission based on the inapplicability of the ECT in the context of intra-EU disputes, expressly confirming that it considered the tribunal to have jurisdiction to entertain claims against Hungary on the basis of the ECT.[2]

It, therefore, came as something of a surprise that Hungary chose to contest the validity of intra-EU BITs before the Courts of the European Union by intervening in both the Achmea and the Micula cases, in the latter as the only other Member State besides Spain.

Since the Achmea judgment, however, Hungary has officially changed course and has begun to openly invoke the inapplicability of the arbitration clauses contained in its intra-EU BITs as an objection to jurisdiction.[3] It is also seeking the annulment of two unfavourable intra-EU BIT awards on this basis, despite the fact that it had not raised any intra-EU jurisdictional objections in the underlying arbitration proceedings.[4]

Hungary Finally Moves to Terminate its Intra-EU BITs

Despite this recent change to Hungary’s defence strategy, Hungary remained silent until 18 December 2018 as regards the fate of its intra-EU BITs. Unlike other EU Member States, such as Italy, Denmark, Romania, Latvia, Poland and the Czech Republic,[5] Hungary did not follow the recommendation of the European Commission, repeatedly addressed to the Member States since 2007, to voluntarily terminate their intra-EU BITs.[6] The PM’s Decision marks a clear departure from Hungary’s former position and paves the way for the termination of Hungary’s intra-EU BITs. The Decision would seem to suggest that Hungary is contemplating the conclusion of a multilateral termination agreement with its EU counterparts.

The idea of a multilateral termination treaty was first raised by Austria, France, Finland, Germany and the Netherlands in their 2016 Non-Paper, which recommended that Member States terminate and replace their existing intra-EU BITs with an appropriate level of substantive and procedural protection for all EU investors.[7] In light of Achmea and the Commission’s Communication, which considers states that EU law provides for adequate and sufficient protection for cross-border EU investments, it would seem increasingly unlikely that Member States who have repeatedly been respondents in intra-EU investor-State arbitrations (such as Hungary) would voluntarily agree to an alternative EU-wide investment protection regime.

The text of the PM’s Decision also leaves open whether the contemplated termination agreement will deal with the intra-EU application of the ECT’s investor-State arbitration provisions. In this regard, it is noteworthy that Hungary’s oil and gas company MOL, the second largest company in CEE, is currently pursuing a highly politicised ECT claim against Croatia over the treatment of its investment in Croatia’s national oil and gas company, INA.[8] Any change to the intra-EU applicability of the ECT would likely be acceptable to Hungary only if it contains an appropriate carve-out for pending proceedings.

The Hungarian PM’s Decision is likely to be followed by similar authorisations issued by other EU Heads of State in preparation for the adoption of what is expected to be a common effort for the end game for intra-EU BITs.

 

[1] see also  here at p. 35105.

[2] Electrabel S.A. v. Hungary (ICSID Case No. ARB/07/19), Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, ¶¶ 4.54, 5.26-5.30.

[3] See eg. UP and C.D Holding Internationale v. Hungary (ICSID Case No. ARB/13/35), Award, 9 October 2018, ¶¶ 207-279.

[4] Hungary seeks to annul intra-EU BIT award, GAR, 3 April 2018; Three Crowns partners resign from panels considering Achmea, 9 August 2018; Another resignation from panel weighing Achmea, GAR, 5 September 2018.

[5] UNCITRAL, Recent developments in International Investment Agreements (2008-June 2009), IIA MONITOR No. 3 (2009) International Investment Agreements, p. 5. Cecilia Olivet, A test for European solidarity – The case of intra-EU Bilateral Investment Treaties, Transnational Institute, January 2013, p. 6; Czech Republic terminated investment treaties in such a way as to cast doubt on residual legal protection for existing investments, IAReporter, 1 February 2011; Denmark and Czech Rep to terminate BIT, but not all EU Members agree with Czech view that intra-EU BITs are unnecessary, IAReporter, 17 July 2009; Investigation: Denmark Proposes Mutual Termination of its Nine BITs With Fellow EU Member-States, Against Spectre Of Infringement Cases, IAReporter, 2 May 2016; Nikos Lavranos, Romania’s termination of its intra-EU BITs: a counterproductive move, Practical Law Arbitration Blog, 14 October 2016; Tom Jones, Romania paves way for intra-EU BITs termination, GAR, 15 March 2017; Latvia to terminate bilateral investment treaties with Poland, Czech Republic at EU request, the Baltic Times, 2 February 2018; Analysis of Bilateral Investment Treaties, Ministry of Treasury of the Republic of Poland, 25 February 2016; Marcin Orecki, Bye-Bye BITs? Poland Reviews Its Investment Policy, 31 January 2017; Marcin Orecki, Let the Show Begin: Poland Has Commenced the Process of BITs’ Termination, Kluwer Arbitration Blog, 8 August 2017.

[6] See, for example, Annual EFC Report to the Commission and the Council on the Movement of Capital and the Freedom of Payments, 4 January 2007, ¶ 16; Eastern Sugar B.V. v. The Czech Republic (SCC Case No. 088/2004), Partial Award, 27 March 2007, ¶ 126.

[7] Intra-EU Investment Treaties: Non-paper from Austria, Finland, France, Germany and the Netherlands, 7 April 2016. Following the Achmea judgment, the Netherlands again suggested to terminate all intra-EU BITs through the adoption of a multilateral treaty between Member States, see Marie Davoise, Markus Burgstaller, Another One BIT the Dust: Is the Netherlands’ Termination of Intra-EU Treaties the Latest Symptom of a Backlash Against Investor-State Arbitration?, Kluwer Arbitration Blog, 11 August 2018.

[8] MOL Hungarian Oil and Gas Company Plc v. Republic of Croatia (ICSID Case No. ARB/13/32).

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Expedited Procedure under the 2017 ICC Rules: Does the ICC’s Priority for Efficiency and Cost Effectiveness Come at the Expense of the Parties’ Rights?

Sat, 2019-01-12 22:17

Matilde Flores

Young ICCA

Article 30 of the 2017 ICC Rules of Arbitration, along with Appendix VI, constitute the Expedited Procedure Provisions (“Provisions”). These new provisions are among the most notable innovations of the 2017 ICC Rules, and are part of the ICC’s efforts to increase the efficiency and transparency of arbitrations. However, certain aspects of this Provisions may leave its users questioning whether the ICC has stricken the right balance between time and cost effectiveness on the one hand, and due process and other substantive rights on the other hand.

 

Scope of the Provisions

Pursuant to the 2017 ICC Rules, the Provisions apply to arbitrations where (i) the amount in dispute does not exceed US$2,000,000 (Article 30(2); Article 1(2) Appendix VI); (ii) the arbitration agreement was concluded after 1 March 2017 (Article 30(3)(a)); and (iii) the parties have not opted out of the Provisions (Article 30(3)(b)). In addition, the Provisions will apply to disputes that do not fall within the above criteria if the parties so agree (Article 30(2)(b)).

The distinct features of the Provisions include the ICC Court’s power to appoint a sole arbitrator, notwithstanding any provisions to the contrary in the arbitration agreement (Article 2(1) Appendix VI), and the arbitral tribunal’s power to, at its discretion and in consultation with the parties, limit the length and scope of the submissions, including witness and expert evidence, or exclude requests for document production (Article 3(4) Appendix VI). After consulting with the parties, the tribunal can even decide the dispute without a hearing and without examining witnesses and experts (Article 3(5) Appendix VI). Finally, the Provisions fix the time limit for rendering the final award to six months from the case management conference (Article 4(1) Appendix VI).

 

Particular Features of the Provisions

It should be emphasized that if the parties agree to the 2017 ICC Rules, which is the case for any arbitration agreement concluded from 1 March 2017 designating the ICC Rules, and if the dispute falls within the scope of the Provisions, then the Provisions will take precedence over the arbitration agreement (Article 30(1)). That is, the Provisions will apply automatically and determine how the arbitration is to be conducted despite any contrary specific terms in the arbitration agreement. This could lead to cases where the arbitration agreement and the Provisions come into conflict.

For instance, if an arbitration agreement explicitly provides for a three-member arbitral tribunal, but the Provisions also apply, which favor the appointment of a sole arbitrator, then the latter take precedence. A similar situation can arise if the parties specify time limits in the arbitration agreement that are different to those imposed by the Provisions. Again, the Provisions relating to the time limits of the arbitration will be favored over any contrary terms in the arbitration agreement. This derives from the fact that the ICC Rules specify that an agreement to opt out of the Provisions shall be clearly stated in the arbitration agreement.

 

Rationale Behind the Provisions

The introduction of an expedited procedure in the 2017 ICC Rules was motivated by the aim to render arbitrations more efficient in terms of time and cost and to enhance transparency. This is in line with additional efforts carried out by the ICC towards these ends, such as the ICC Guide on Effective Management of Arbitration, which emphasizes the importance of managing the time and cost of an arbitration in light of the value and complexity of the dispute.

The provisions also follow the trend that has been adopted by other arbitral institutions seeking to develop expedited procedures and resolve disputes in a faster and less expensive manner.

 

Controversial Aspects of the Provisions

Given the novelty and distinction of the Provisions, their application in practice will likely come with certain controversies or uncertainties for users.

1. Is Consent Overridden by the Provisions?

As stated above, the automatic application of the Provisions to an arbitration that falls within their scope may impose terms on the parties that differ from what they agreed to in the arbitration agreement. This has been criticized mainly in terms of overriding the parties’ consent to appoint a three-member arbitral tribunal, since the provisions call for the appointment of a sole arbitrator (Article 2(1) Appendix VI).

According to some critics, the consent on which arbitration is based is infringed if the parties are stripped off their right to have their case heard by a three-member arbitral tribunal if this was clearly and explicitly specified in the arbitration agreement. Thus, the argument is that the ICC’s priority for efficiency and transparency deprives the parties from a right to which they explicitly agreed.

Nevertheless, by agreeing to the application of the ICC Rules in the arbitration agreement, the parties implicitly consented to the application of the Provisions, which in turn provide for the possibility to appoint a sole arbitrator. In this regard, the interactions between such implicit consent and an explicit contrary consent in the arbitration agreement pend final clarification.

The text of Article 2(1) Appendix VI states that “the Court may, notwithstanding any contrary provision of the arbitration agreement, appoint a sole arbitrator.” As such, the provision does not impose a strict obligation on the Court to appoint a sole arbitrator. According to the ICC, “[t]he Court may nevertheless appoint three arbitrators if appropriate in the circumstances. In all cases, the Court will invite the parties to comment in writing before taking any decision and shall make every effort to ensure that the award is enforceable at law.” (ICC Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration, dated 30 October 2017, p. 13.)

Therefore, the relevant question at issue is whether the safeguard in place, i.e. allowing the Court to appoint a three-member tribunal at its discretion, sufficiently protects the parties’ rights and consent. Much of the answer will depend on the practice developed by the ICC Court and by state courts dealing with enforcement and setting aside proceedings.  Of particular relevance is the interplay between the Provisions and Article V(1)(d) New York Convention, which provides as a ground for refusing enforcement of an award the fact that the composition of the arbitral tribunal was “not in accordance with the agreement of the parties.”

2. Is the Value of a Dispute Indicative of its Complexity?

Another area of uncertainty or controversy under the Provisions relates to the quantification of claims. In order to determine whether the amount in dispute exceeds US$2,000,000, and thus whether the Provisions apply, all quantified claims, counterclaims and cross-claims are considered (Article 30(2); ICC Note to Parties, p. 12). This however, imposes the expeditious procedure to all disputes with an amount in dispute which does not exceed US$2,000,000, without taking into consideration the complexity of the dispute. In effect, this assumes that the value and complexity of a dispute are always directly proportional. While this may be the case in many arbitrations, it will not always be true, and concerns may arise when the complexity of the dispute warrants more scrutiny and a more thorough procedure, despite a low amount in dispute.

Although the ICC Court has pledged to preserve the quality of awards by providing scrutiny at the highest level, there is no guarantee that shorter time limits, no document production, or no expert or witness evidence at the hearing will not affect the outcome of the dispute. In fact, the expeditious nature of the proceedings under the Provisions could even constitute a potential ground to challenge the enforcement of the final award pursuant to Article V(1)(b) New York Convention, since a party may argue that it was “unable to present his case.” This adds to the uncertainty of how the Provisions will be interpreted and dealt with by state courts in enforcement or setting aside proceedings and by arbitral tribunals.

On the other hand, the ICC Rules provide safeguards to ensure that a complex dispute be decided with sufficient scrutiny, regardless of the amount of the claim. Article 3(b) of the ICC Rules for instance, states that the parties may opt out of the Provisions in the arbitration agreement or thereafter. Similarly, Article 1(4) Appendix VI states that the Court may decide at any time, on its own motion or upon a party’s request, that the Provisions shall no longer apply.

Thus once again, the issue is whether the safeguards in place are enough to preserve the parties’ right to adequately present their case.

In all likelihood, the Provisions will prove to be adequately equipped to address both of these concerns; none of their features are strictly mandatory and the parties ultimately have the last word in determining how to conduct the arbitration. However, it remains to be seen, with the aid of arbitral awards and judicial interpretation, whether the Provisions will in fact achieve greater efficiency and transparency without jeopardizing the rights of its users.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


The Nature of Pre-Arbitration Procedural Requirements in Pakistan: Mandatory or Optional?

Sat, 2019-01-12 19:02

Ahmed Tariq

Young ICCA

Pre-arbitration procedural requirements come into operation before the commencement of arbitration proceedings where parties have agreed on a multi-tiered dispute resolution mechanism. They are especially common in construction and engineering contracts. The Islamabad High Court (IHC) in Pakistan has addressed issues related to the nature of these requirements and consequences of non-compliance in its recent judgment Pak. U.K. Association (Pvt.) Ltd. v. Hashemite Kingdom of Jordan [2017 CLC 599].

A contract (the “Contract”) was entered into between the parties for certain works to be executed by the Pak. U.K. Association (Pvt.) Ltd. (the “Applicant”) at the Jordanian Embassy and the Jordanian Ambassador’s residence in the Diplomatic Enclave, Islamabad. The Hashemite Kingdom of Jordan appointed an Engineer to oversee the works.

Clause 67.1 of the Contract provided that any dispute arising in connection with or out of the Contract was to be referred firstly to the Engineer for his decision. If either party was aggrieved by the Engineer’s decision, or if the Engineer failed to give a notice of his decision within a certain time period, Clause 67.3 of the Contract provided that either party could refer the dispute to arbitration under Pakistan’s primary arbitration legislation, the Arbitration Act, 1940 (the “Arbitration Act”).

Section 20 of the Arbitration Act provides for the intervention of a court to compel arbitration where a party to an arbitration agreement refuses to take steps necessary to initiate arbitration proceedings. The Applicant filed an application under Section 20 of the Arbitration Act with the IHC, seeking to initiate arbitration proceedings without first referring the dispute to the Engineer, as provided for in the Contract. It argued that there was a suspicion of bias against the Engineer, which disqualified him from adjudicating upon the dispute.

The IHC expressed the view that if parties have agreed on certain conditions that precede the operation of an arbitration clause, such conditions precedent need to be fulfilled before the arbitration clause can be invoked. The Court noted that in construction or engineering contracts which provide for a multi-tiered dispute resolution process, an aggrieved party’s right to refer contractual disputes to arbitration is pre-conditioned with a reference of such disputes, prior to the commencement of arbitration, to the dispute resolution mechanism agreed upon by the parties.

The IHC placed reliance on the well-settled principles of contract law in common law jurisdictions that a court cannot rewrite an agreement between the parties, or exempt a party from complying with contractual obligations. The case was decided on the premise that the contractual requirement to refer a dispute firstly to the Engineer can be dispensed with only in those situations where a reference to the Engineer cannot be made because he has resigned or has been disengaged by the employer, or where he has refused to entertain the dispute.

On the issue of bias, the IHC concluded that a pre-condition to the invocation of an arbitration clause cannot be dispensed with on the ground of bias, unless the court is satisfied that a substantial miscarriage of justice will take place. Consequently, a party cannot be relieved from approaching an agreed upon forum simply because the forum might decide against it.

The Supreme Court of India has similarly held in International Airport Authority v. K.D. Bali [AIR 1988 SC 1099] that where the Chief Engineer of a party has unilaterally appointed an arbitrator under the parties’ arbitration agreement, a mere apprehension in the mind of the other party, without any tangible evidence of bias, could not constitute a ground for the arbitrator’s removal.

The IHC ultimately held that an application under Section 20 of the Arbitration Act is to be dismissed as premature without the fulfilment of a contractually agreed upon pre-condition.

The principle of mandatory compliance with pre-arbitration procedural requirements has been discussed by Pakistani courts in prior cases. In Board of Intermediate and Secondary Education, Multan v. Fine Star & Company, Engineers and Contractors [1993 SCMR 530], the Supreme Court of Pakistan dismissed an application under Section 20 of the Arbitration Act because the applicant had failed to approach the Chairman of the appellant Board for his decision on the dispute, as provided for in the applicable dispute resolution clause. The Sindh High Court followed this decision in Hanover Contractors v. Pakistan Defence Officers Housing Authority [2002 CLC 1880] and the Lahore High Court in WAPDA v. S.H. Haq Noor and Company [2008 MLD 1606], with both courts holding that a pre-condition contained in a dispute resolution clause is binding upon the parties.

The IHC decision and the prior decisions of Pakistani courts cited above show that Pakistani courts have opted to follow the precedents established by the courts of other common law jurisdictions. In Emirates Trading Agency LLC v. Prime Mineral Exports Private Ltd [2014 EWHC 2104 (Comm)], the English High Court has held that it is in the public interest to enforce conditions precedent to arbitration agreements, since commercial entities expect courts to enforce obligations that they have entered into freely. In International Research Corp PLC v. Lufthansa Systems Asia Pacific Pte Ltd [2013 SGCA 55], the Singapore Court of Appeal determined that preconditions for arbitration must be fulfilled where the parties have clearly contracted for a specific set of dispute resolution procedures. In United Group Rail Services Limited v. Rail Corporation New South Wales [2009 NSWCA 177], the New South Wales Court of Appeal in Australia found a dispute resolution clause in an engineering contract, which required senior representatives of the parties to undertake “good faith negotiations” prior to commencing arbitration, to be valid and enforceable.

The IHC’s decision in Pak. U.K. Association (Pvt.) Ltd. v. Hashemite Kingdom of Jordan has implications on the admissibility of arbitration proceedings seated in Pakistan, and also on the enforceability of arbitral awards in Pakistan.

In relation to the admissibility of arbitration proceedings seated in Pakistan, it can be ascertained from this decision that a failure to perform a pre-arbitration procedural requirement will render the initiation of an arbitration proceeding inadmissible, meaning that any arbitral tribunal asked to conduct such a proceeding would have to decline jurisdiction.

Moreover, if an arbitration was seated in Pakistan, any award made by an arbitral tribunal lacking jurisdiction could be set aside by Pakistani courts. This is based on the conclusion that an arbitral tribunal that hears a case, despite a pre-condition for arbitration not being met, exceeds the parties’ arbitration agreement, and, therefore, lacks jurisdiction.

As for the issue of enforceability of arbitral awards in Pakistan, it follows from this decision that if a pre-arbitration procedural requirement forms a condition precedent to the arbitration agreement and remains unfulfilled, any award given on the merits of a dispute based on such an arbitration agreement would be unenforceable.

Notwithstanding the above implications, the IHC’s decision has left certain key issues unaddressed. For example, the Court has failed to decide

  1. whether it is possible to fulfil a pre-arbitration procedural requirement after an arbitration proceeding has already been initiated, and, thereby, retrospectively rectify the previous non-compliance; and
  2. whether a new arbitration proceeding in respect of the same dispute can be initiated once an application under Section 20 of the Arbitration Act has been dismissed as premature.

While the answers to the above issues depend upon the facts and circumstances of each individual case, it should be possible, as a matter of procedural efficiency, to retrospectively fulfil a pre-arbitration procedural requirement after the commencement of an arbitration. It should also be possible to initiate a new arbitration proceeding once an application under Section 20 of the Arbitration Act has been dismissed as premature, since such a dismissal would not invalidate the arbitration agreement itself, and would also not constitute a decision given on the merits of the claim for the purposes of res judicata and issue estoppel.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Hong Kong: A Listed Company’s Duty of Confidentiality in Arbitration and its Duty of Disclosure to the Public

Sat, 2019-01-12 03:02

Joanna Du

Herbert Smith Freehills

Confidentiality is frequently promoted as a key advantage of international arbitration.  It preserves the information exchanged in the arbitration proceedings and prevents the parties from disclosing information relating to the arbitration.  The extent of confidentiality afforded to the parties varies from jurisdiction to jurisdiction.  In certain jurisdictions, the law does not recognise the concept of confidentiality in arbitration proceedings, for example, in the US and Australia.  In other jurisdictions, confidentiality is seen as being implied in the arbitration agreement, for example, in England and Wales.

In Hong Kong, the Hong Kong Arbitration Ordinance (Cap. 609) which came into effect on 1 June 2011 (“Arbitration Ordinance“) expressly provides for statutory duty of confidentiality in arbitration.  The 2018 HKIAC Administered Arbitration Rules effective on 1 November 2018 (“2018 HKIAC Rules“) also contains similar provisions on the duty of confidentiality.

Despite the laws and institutional rules, the parameters of confidentiality are by no means clear-cut.  In particular when the arbitrating party is also a company listed on the stock exchange – which is therefore subject to disclosure duty – one inevitably will ask the question: what is the boundary between the duty of confidentiality and the duty of disclosure?

 

Hong Kong law provides statutory protection over confidentiality in arbitration

The arbitration agreement between the parties, law of the seat of the arbitration, and the rules of the arbitral institution administering the arbitration would normally dictate the extent of duty of confidentiality in arbitration.

Hong Kong is one of few jurisdictions explicitly providing for statutory protection over confidentiality in arbitration.  Pursuant to Section 18(1) of the Arbitration Ordinance, unless agreed by the parties, no party may publish, disclose or communicate information relating to the arbitral proceedings and awards.  Section 5 further states that the duty of confidentiality applies as long as the seat of arbitration is in Hong Kong.  Notably, the scope of confidentiality is worded very widely preventing disclosure of even the existence of arbitration proceedings.

The 2018 HKIAC Rules largely mirror the position under the Arbitration Ordinance.  In line with Section 18(1) of the Arbitration Ordinance, Article 45.1 imposes the duty of confidentiality on the parties.  It further clarifies the scope of confidentiality to cover the arbitration itself, any award, and decision of the emergency arbitrator.  As to the parties bound by the duty, Article 45.2 states that the duty applies to the arbitral tribunal, any emergency arbitrator, expert, witness, tribunal secretary and HKIAC.

Few jurisdictions adopt the same position as Hong Kong.  In England and Wales, by comparison, the Arbitration Act 1996 contains no provision on confidentiality.  This is intentional.  The rationale is that it is difficult and controversial to define the scope of the duty of confidentiality and its exceptions.  As a result, the English courts have been developing the parameters of confidentiality over the years through cases.  The classical position, as confirmed in Ali Shipping v Shipyard Trogir [1998] 1 Lloyd’s Rep 643, is that the duty of confidentiality is implied in the arbitration agreement.  This case has however been tested in various subsequent cases challenging the existence of an absolute duty of confidentiality.

 

Exceptions to the duty of confidentiality

In Hong Kong, while the parties to the arbitration are bound by the duty of confidentiality, they are permitted to disclose information relating to arbitration in limited circumstances.  In Housing Authority v Sui Chong Construction & Engineering Co Ltd [2008] 1 HKLRD 84, the Hong Kong Court of First Instance considered that an arbitrating party could disclose confidential information relating to an arbitration if it is “reasonably necessary” for the protection of the party’s legitimate interest in a claim brought by a third party.  In reaching this conclusion, the court made reference to Ali Shipping, which is one of the leading English authorities on the duty of confidentiality.  In Ali Shipping, the English Court of Appeal recognises an exception to the duty of confidentiality, i.e. where disclosure to a third party is “reasonably necessary” for the protection of the disclosing party’s legitimate interest.

Section 18(2) of the Arbitration Ordinance also explicitly sets out exceptions to the confidentiality duty.  Particularly under Section 18(2)(b), a party may publish, disclose or communicate information to any government body or regulatory body to which the party is obliged by law to do so.  This is echoed by Article 45.3(b) of the 2018 HKIAC Rules.

In practice, the Section 18(2)(b) exception would apply to a public company listed on the Hong Kong stock market, which is subject to strict regulatory rules on disclosure.  Specifically, under Rule 13.09 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules“) and Part XIVA of the Securities and Futures Ordinance (Cap. 571) (“Securities and Futures Ordinance“), a listed company shall disclose inside information to the public as soon as reasonably practicable after such inside information has come to its knowledge.  “Inside information” is defined as specific information about the corporation that is not generally known to the public but would, if generally known, be likely to materially affect the price of the listed securities.

The regulations will be seen as an exception to the duty of confidentiality.  They impose a mandatory duty on listed companies to disclose arbitration-related information to the public as soon as reasonably practical.  The duty of disclosure arises if the arbitration will likely materially affect the company’s share price.  Having said that, the regulations are silent on what constitutes materiality.  In practice, the listed company will usually exercise discretion on the level of materiality, for example, by comparing the claim value against its annual revenue to decide if the arbitration is indeed material.

Some commentators further categorise the listed company’s disclosure duty as one concerning public interest – because a listed company owes a duty to the public to disclose information likely to materially affect the share price to enable an investor to make an informed assessment of the activities, assets, and liabilities of the company.  Failure to make prompt and fair disclosure would endanger the benefits of the investors and the wider public.

 

What is the boundary between the duty of confidentiality and the duty of disclosure?

It is reasonably clear that in Hong Kong, a listed company is obliged to disclose information relating to arbitration to the public if the dispute is considered to likely materially affect the share price.  Its obligation is imposed by the regulations thus constitutes an exception to the duty of confidentiality.

However, this is never the end of the story. When the listed company intends to comply with its disclosure duty, there seems to be no clear guidance on what the listed company shall disclose, or what constitutes disclosure “as soon as reasonably practical“.  Some commentators hold the view that the listed company will have to at least disclose the existence of arbitration proceedings as it is likely to materially affect the price of the listed securities.

In the real world, listed companies face myriad uncertainties surrounding disclosure.  To name a few:

  • When does the duty of disclosure arise? The Listing Rules and the Securities and Futures Ordinance require disclosure by the listed company as soon as reasonably practicable after any inside information has come to its knowledge. It is uncertain if the listed company would have to disclose the existence of the arbitration as soon as arbitration commences, or if it could disclose the arbitration only after it has received the arbitral award.  In our view, this will depend on the nature of the disputes and expectation of how that arbitration will impact on the listed securities.
  • More importantly, what should a listed company disclose, and not disclose? The listed company should be cautious about disclosing more information than is reasonably necessary, as suggested in Housing Authority.  In practice, Hong Kong courts recognise that injunctions can be used to prevent the disclosure of confidential information.  Moreover, bearing in mind that the duty of confidentiality concerns a duty towards the parties in the arbitration, the listed company shall consider carefully the likely impact on the other party in case of disclosure.

 

Although there is no universal answer, to minimise the uncertainties, parties are encouraged to expressly agree on the extent of disclosure in the arbitration agreement, for example, that the parties agree to keep all information relating to the arbitration and the award confidential to the extent possible.  Parties should also carefully consider the confidentiality positions under the applicable laws as well as the applicable institutional rules when drafting the arbitration agreement.

In case of disclosure, public companies should act with caution to disclose the information that is reasonably necessary for investors to make an informed decision.  The public company must seek proper advice and carefully consider the timing and scope of disclosure before doing so. Needless to say, each instance will need to be examined on a case-by-case basis.

 

 

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


A Fireside Chat With Gary Born: How to Become a Star in International Arbitration in Five (Easy?) Steps, and Is It Still Possible?

Sat, 2019-01-12 01:11

Gary Born and Mikhail Kalinin

WilmerHale

On 23 October, Gary Born participated in a Fireside Chat titled “How to Become a Star in International Arbitration in Five (Easy?) Steps, and is it Still Possible?”. The interview took place in Moscow and was conducted by Sergey Usoskin of Double Bridge Law, and Mikhail Kalinin of Norton Rose Fulbright. It was moderated by Alexandra Shmarko of Baker McKenzie and covered a series of questions about careers in, and the future of, international arbitration.

Key takeaways are summarised below, while the full interview is available to watch here.

 

The chat kicked off with Mr Born’s thoughts on the five steps proposed as key to start a career in international arbitration.

First, international arbitration requires its practitioners to speak a variety of languages. While English is a prerequisite, speaking other languages represents a potential advantage. Mr Born noted that Spanish is becoming increasingly important and that Latin America enjoys enduring strength as a source of disputes. Portuguese may present an opportunity to stand out, as Brazilian arbitrations have been increasing in number over the last two years. Other languages, such as Russian, are important for the critical client relationship aspects of work as counsel.

Second, Mr Born shared his opinion on international moot courts. While acknowledging that they are great fun, he suggested that participation in a moot court is not in and of itself decisive for hiring. However, he observed that there is a natural affinity between the characteristics required for successful participation in moot courts and those characteristics which law firms seek. He also stressed the value of activities such as taking other law courses, attending international events, undertaking internships at law firms, and writing articles to demonstrate ambition and ability.

Third, Mr Born addressed a question on LL.M. programmes and internships at arbitral institutions. He answered that specialised LL.M. programs would not be his first choice and suggested taking a general LL.M. instead. The reason for that is twofold; firstly, a lot of firms operate firmwide hiring and evaluate the general legal knowledge of graduates, and secondly arbitration requires knowledge in other substantive legal areas, often including corporate and commercial law.

He recommended internships at arbitral institutions as a more effective way forward for graduates, both timewise and in terms of the costs. Inside an arbitral institution you can experience arbitration in a completely different way; instead of the details of a particular case you will see the broad sweep of the entire process. In three to six months 150 cases come in, and you will see 150 different requests for arbitration, tribunals and awards, which is an enlightening experience. You will also have an important addition to your CV, which law firms will value as a resource and a sales point to potential clients.

Fourth, Mr Born was asked whether it is crucial to start one’s career in an arbitration practice of a leading international law firm. He asserted that experience in a quality institution – including strong domestic firms and regardless of the practice – is a plus. He explained that when someone moves from one international arbitration practice to another you are tempted to ask why. On the other hand, when someone moves to arbitration from a strong litigation or corporate practice in a high-quality domestic firm, he or she brings with them valuable new experience in a distinctive area of practice.

Fifth, Mr Born commented on authoring articles and speaking at conferences. In his opinion, writing is a more valuable exercise, as written papers last forever, while conferences have a one-day impact and attention is divided across all the other speakers at the conference. He stressed that neither can be a one-shot effort – building a career is like building a snowman. Other practitioners cite your article, then invite you to write a chapter in a book, and in this way your reputation grows.

 

Having addressed the beginning of one’s career in arbitration, the chat moved on to discuss how to further develop an arbitration practitioner’s profile.

Firstly, Mr Born was asked when a young practitioner should get a chance to speak before a tribunal and whether younger colleagues appear equally persuasive to more senior arbitrators. He answered that this will depend on when the individual in question feels comfortable in front of a tribunal, but stressed that law firms should provide younger practitioners with such opportunities and push them beyond their comfort zone. Firms should delegate the examination of less important witnesses to their younger associates and deliberately take on smaller cases on which they can assign substantive roles, including presenting opening statements, to more junior lawyers.  He also confirmed that the increasing diversity of international arbitration must include not only gender or ethnic diversity, but also age diversity, and that younger associates may sometimes appear even better prepared than their senior colleagues.

Mr Born was then asked to share any tips on surviving lengthy hearings and managing stress. He agreed that one cannot simply say to oneself that “it doesn’t matter,” and suggested other options including – crucially – getting enough sleep. Mistakes sometimes occur and Mr Born advised the audience to accept that fact and address a mistake rather than pretend that nothing has happened. Finally, it is important to acknowledge that one person cannot be responsible for everything, and having a good team and being able to delegate is of paramount importance.

Another aspect of stress related to hearings is the adversarial nature of arbitration proceedings, which often entail exchanging harsh words between counsel on different sides. Mr Born’s advice was to always try and be the politest person in the hearing room, not least because building a good profile with peer practitioners is important, and that even if one has to play rough, play fair. Even when the other side acts unreasonably and makes it difficult to stick to that, he suggested, this approach will strengthen your position in the proceedings and undermine the other party’s tactics.

Mr Born was asked for his advice on time management and to shed some light on how he manages to write so much. He explained that the International Commercial Arbitration treatise was based on a US casebook that he had authored previously, but that his initial idea to restructure the original casebook turned into an entirely new work, which took him five years and at least 5,000 hours to write. Yet, he treats both editions as drafts and always has in mind the advice given to him by a judge he once worked with, who said, “Once you have done 90% of the work, you are finished.”

The discussion then touched upon the importance of an academic background in arbitration. Mr Born agreed that it serves as an important complement to arbitration practice, along with other related activities in the spheres of politics, government and public affairs. At the same time, he suggested that a PhD is not necessarily the best way to build one’s academic experience. For example, by teaching and therefore having to think through every point, a lawyer actually learns more than by simply studying. He also acknowledged that his own professorial and other academic appointments boost his reputation as counsel and arbitrator.

 

Lastly, the chat moved on to discuss the future of arbitration, in particular the growing competition between arbitration and national courts, as well as on the development of technology.

Mr Born argued that national courts – whether those established in Europe and operating in English or common law courts, including those established in Dubai and Kazakhstan – cannot compete with international arbitration. Despite styling themselves as “international courts”, they remain national courts established by national authorities and comprising judges appointed by national authorities and then imposed on the parties to a dispute. Mr Born stated that the development of such national courts is, in principle, a positive development, as courts need to stay up-to-date with international commerce. At the same time, he expressed concern that there might be a subtext of jealousy of the arbitral process, which could undermine national courts’ commitment to supporting international arbitration.

As regards technology, Mr Born was asked to comment on what new technology could be introduced to assist arbitration lawyers in their practice. He mentioned the elimination of paper, which people keep saying is just around the corner. However, all the bundles and boxes are still there. He also talked about video conferencing. With good connectivity, examination of witnesses can actually be clearer to the tribunal via video conferencing and he sees no reason why an evidentiary hearing should not take place in a virtual space, saving time and cost.

 

Baker McKenzie and Double Bridge Law co-sponsored the event, which was organized by RAA40 and RAA25, the younger branches of the Russian Arbitration Association.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Emergency Arbitrator Procedures: What Should a Practice Note of Best Practices Consider?

Thu, 2019-01-10 20:00

Stephanie Khan and Benson Lim (Assistant Editor for PR China, Hong Kong and Central Asia)

Hogan Lovells

Emergency arbitrator (“EA”) applications are fast gaining popularity among both arbitral institutions and international arbitration users.

EA provisions were first introduced in the 2010 SIAC Rules to address the need for emergency interim relief before a tribunal is constituted, and many arbitral institutions have adopted relatively similar EA procedures over the past decade. For example, SIAC has administered a total of 72 EA applications as at December 2017,1)http://siac.org.sg/images/stories/articles/annual_report/SIAC_Annual_Report_2017.pdf jQuery("#footnote_plugin_tooltip_4394_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); while 84 applications for ICC EA procedure have been made as of July 2018.2)ICC News 31 July 2018, https://iccwbo.org/media-wall/news-speeches/icc-court-releases-full-statistical-report-for-2017/ jQuery("#footnote_plugin_tooltip_4394_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The types of relief sought through these applications include preservation orders, freezing orders, Mareva injunctions and general injunctive relief.

Given these developments, it is now worth considering compiling the best practices for both EAs and parties to employ once such an EA procedure is established. We consider several such practices below.

Establishing the procedures early in the process: In general, EA rules permit the arbitrator to set his own procedure, which should be clear from the outset. Such procedures may include the timelines for exchange of submissions, a hearing (if any), the scope of the reply submissions, the mode of communications between the parties and evidence which can be adduced.

Tribunal secretaries / arbitral clerks can be of real assistance to both an EA and parties in view of the tight timelines. Parties should be informed at the outset of the option of and the practical advantages of speed and efficiency in appointing a tribunal secretary / arbitral clerk to assist the EA.

Establishing points of agreement between the parties: EAs should identify points of agreement between the parties, especially on issues which go towards the EA’s jurisdiction. For example, it would be prudent to confirm parties’ positions on the seat of the arbitration and applicable arbitration rules at the outset, which may be determinative of the scope and limits on the EA’s powers to order emergency relief sought.

Clarity on the standards for awarding emergency relief: As suggested by the point raised above, different national courts apply different standards in awarding emergency relief. Clarity would be welcome as to what these standards applied should be and whether they should be the same for the EA and main tribunal. We think no arguable grounds exist as to why an EA should apply different standards in granting relief simply because the parties’ application came before the main tribunal was constituted.

Holding a hearing versus conduct on paper: In a time of greater user dissatisfaction with the time and costs involved with the arbitration process, due consideration should be given as to whether the parties are heard via an in-person hearing, or solely on written submissions. The EA may also consider whether any hearing is held by phone or video conference, with such options specifically referred to in various institutional rules including the SIAC, the LCIA and the ICC.3)See SIAC Rules 2016, Schedule 1, item 8; LCIA Arbitration Rules 2014, Article 9.7; ICC Rules of Arbitration 2017, Appendix IV(f) jQuery("#footnote_plugin_tooltip_4394_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Such options should be expressly stated in the practice note of best practices in an EA procedure.

Orders versus Awards: The nature of decisions of EAs (and whether they are rendered as an “award” or an “order”) should be a consideration for reasons of enforceability. Although most institutions which provide for emergency arbitration expressly clarify that those rulings are binding on the parties (for example, SIAC Rules 2016 Schedule 1, Item 12), none provide a precise route for enforcement in the event of non-compliance, and the issue of enforcement remains uncertain.

The EA should keep in mind that the New York Convention applies to the “recognition and enforcement of arbitral awards” (emphasis added). Whilst the SIAC 2016 rules provide the EA with power to order an award or any interim relief deemed necessary,4)SIAC Rules 2016, Schedule 1 item 8 jQuery("#footnote_plugin_tooltip_4394_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); not all institutions are as accommodating. For example, the ICC Rules provide that the EA’s decision shall take the form of an order,5)ICC Arbitration Rules 2017, Appendix V, Article 6(1) jQuery("#footnote_plugin_tooltip_4394_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); thus avoiding the ICC’s scrutiny process for awards which would delay the issuance of the decision. Article 29(2) of the ICC Rules also notes, however, that “the parties undertake to comply with any order made by the emergency arbitrator“, which may generate reluctance on a party to breach such an undertaking. More generally, however, there is still uncertainty regarding whether a national court would enforce the EA’s decision under the provisions of the New York Convention.

When it comes to the form of the order sought, the EA may also wish to consider adopting some standard forms, in particular for more typical relief such as Mareva injunctions. In litigation, the parties often look to the standard forms located in the civil procedure rules, and as there is no guidance currently offered to EAs, it may prove useful to adopt similar practices into the EA process.

Dealing with non-responsive parties in urgent situations: Although there is a general assumption that parties to an arbitration agreement will cooperate and actively participate in the proceedings, this is not always the case, and institutional rules often fail to deal with this situation, particularly in the context of an EA. As a first step, EAs should ensure that the non-participating party received proper notice of the EA application. Further, given the urgency of the proceedings, an EA should continue the proceedings despite such a situation so that the process is not stopped or frustrated by the party’s non-participation. In this regard the EA should also satisfy him or herself that the applying party has demonstrated that there is an urgency that cannot await the constitution of the tribunal, that there is risk of irreparable or serious harm, proportionality and a prima facie case on jurisdiction and the merits.

Dealing with non-compliance: While the 2012 amendments to the Singapore International Arbitration Act provides for the enforceability of awards and orders issued by EAs, enforceability of decisions by EAs remains a real concern to parties.6)http://arbitrationblog.kluwerarbitration.com/2017/07/14/interim-relief-emergency-arbitration-upcoming-goal-still-illusion jQuery("#footnote_plugin_tooltip_4394_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While “the record of enforcement of emergency arbitrator decisions is, on the whole, quite positive“7)Santens and Kudrna, ‘The State of Play of Enforcement of Emergency Arbitrator Decisions”, in Maxi Scherer (ed), Journal of International Arbitration at [8] jQuery("#footnote_plugin_tooltip_4394_7").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, EAs and the main tribunal should consider whether they have the powers to order costs for non-compliance with the EA’s decision. Cost allocation has the promise of having direct impact on the parties’ compliance with an EA’s decisions. In practice, parties may also be motivated by the perception that non-compliance may adversely affect the main tribunal’s opinion of the party in breach.

Cross-undertakings and when to fortify with security: A cross-undertaking refers to an undertaking made by a party applying for interim relief to compensate the respondent if it is subsequently determined that the applicant was not entitled to the interim relief granted. The EA may consider requiring security in cases where there appears to be a sufficient risk of loss (including the likely kind and degree) requiring fortification.8)Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2014] EWCA Civ 1295, as referenced in Practical Law, ‘Court’s wide discretion regarding conditions for granting or continuing an injunction (High Court) jQuery("#footnote_plugin_tooltip_4394_8").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); EAs may also consider whether an undertaking from the respondent would be more appropriate on balance than the emergency relief sought.

Dealing with applications for costs: Many arbitral rules require the EA to allocate costs in their decision. For example, the SIAC arbitration rules (Schedule 1, Rule 13) give power to the EA to provide an initial apportionment of the costs, subject to the power of the main tribunal to determine finally the apportionment of such costs. Note however that this power is discretionary and, in addition, no further guidance is provided. Accordingly, it may be desirable to defer the issue of costs to the arbitral tribunal or at least until after the substantive application has been dealt with. Alternatively, the EA may wish to make an initial order for costs, but defer payment of the costs until the tribunal has been appointed, leaving it open to the tribunal to incorporate the costs of the emergency arbitration into the costs award of the arbitration as a whole.9)Kluwer Arbitration, ‘The Practice of Emergency Arbitration’, Belgian Review of Arbitration (van Hooft and Tossens (eds); Jan 2017, at 9 jQuery("#footnote_plugin_tooltip_4394_9").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Closing Observations

EA caseloads for various institutions remain on the rise and parties continue to see value in EA proceedings as opposed to relief from national courts for reasons of confidentiality, time and cost effectiveness and impartiality of the relevant national court. Accordingly, guidance for EAs and parties would be of value now more than ever. Speed is often the aim of the game when it comes to EA proceedings and the above are just some of the factors that should be considered to improve efficiency in the process.

References   [ + ]

1. ↑ http://siac.org.sg/images/stories/articles/annual_report/SIAC_Annual_Report_2017.pdf 2. ↑ ICC News 31 July 2018, https://iccwbo.org/media-wall/news-speeches/icc-court-releases-full-statistical-report-for-2017/ 3. ↑ See SIAC Rules 2016, Schedule 1, item 8; LCIA Arbitration Rules 2014, Article 9.7; ICC Rules of Arbitration 2017, Appendix IV(f) 4. ↑ SIAC Rules 2016, Schedule 1 item 8 5. ↑ ICC Arbitration Rules 2017, Appendix V, Article 6(1) 6. ↑ http://arbitrationblog.kluwerarbitration.com/2017/07/14/interim-relief-emergency-arbitration-upcoming-goal-still-illusion 7. ↑ Santens and Kudrna, ‘The State of Play of Enforcement of Emergency Arbitrator Decisions”, in Maxi Scherer (ed), Journal of International Arbitration at [8] 8. ↑ Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2014] EWCA Civ 1295, as referenced in Practical Law, ‘Court’s wide discretion regarding conditions for granting or continuing an injunction (High Court) 9. ↑ Kluwer Arbitration, ‘The Practice of Emergency Arbitration’, Belgian Review of Arbitration (van Hooft and Tossens (eds); Jan 2017, at 9 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


PRC Court Upholds ICDR Award Relating to International Franchise Agreement

Wed, 2019-01-09 21:00

Pan Huiwen

On 12 June 2018, the Xiamen Intermediate People’s Court of PRC (“Court”), in Subway International B.V. v Xiamen Woguan Enterprise Management Co., Ltd, upheld an ICDR award made by sole arbitrator Charles J. Moxley Jr., Esq.1)The author would like to thank Judge Chen Yanzhong of Xiamen Maritime Court for his comments on the earlier drafts of the piece. jQuery("#footnote_plugin_tooltip_2071_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2071_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This case raised some important questions in the recognition and enforcement of arbitral awards in China, which have been previously covered on the Blog: determination of arbitration agreement’s foreign applicable law; application of international conventions and arbitration rules of foreign arbitration institutions; and above all, the arbitrability of contractual parties’ tax disputes.

Case Summary

On behalf of Subway International B.V. (“Subway”), two authorized directors Patrica Demarals and David Worroll from Subway signed two separate franchise agreements (“Agreements”) with Xiamen Woguan Enterprise Management Co., Ltd (“Woguan”) in October 2010. According to the Agreements, Woguan was obliged to pay royalty, advertisement fees and other fees to Subway. However, Woguan failed to pay and Subway applied for arbitration in accordance with the arbitration clause in the Agreements. The sole arbitrator found Woguan to have breached the Agreements. It granted RMB 76,823 in liquidated damages to Subway and ordered Woguan to pay arbitration fees and arbitrator’s fees in the amount of USD 23,615.

Since Woguan failed to comply with the ICDR award, Subway applied to the Court for recognition and enforcement of the award.

In its pleadings, Woguan sought to have the arbitral award’s recognition and enforcement be refused on various grounds: (ⅰ) Invalid arbitration clause; (ⅱ) Breach of due process by the arbitral tribunal; and/or (ⅲ) Breach of arbitrability principle by the arbitral tribunal in dealing with the issue of the taxes payable.

As regards the validity of the arbitral agreement, Woguan argued that Patrica Demarals and David Worroll were not authorized to sign the Agreements on behalf of Subway. Furthermore, although the Agreement provided for the intention to arbitration and arbitration rules, it did not mention the specific arbitral tribunal, so the arbitral agreement was invalid. The Court rejected Woguan’s argument. It found that, according to commercial register from the Netherlands’ Chamber of Commerce, Patrica Demarals and David Worroll are both Subway’s directors with independent authority to sign the Agreement. A Director’s authority is a matter of legal fact, the existence of which is not affected by whether authority certificate was shown to Woguan or not. Moreover, by initiating the ICDR arbitration, Subway has confirmed its attitude towards the Agreements. Article 10 of the Agreement provides that contractual disputes should be referred to ICDR for arbitration and UNCITRAL Arbitration Rules should apply. The seat of arbitration should be New York. Thereby, the Court concluded that Woguan’s argument was baseless both in fact and law, the arbitration agreement was valid indeed.

As regards breach of due process by the arbitral tribunal, Woguan argued that relevant persons did not have the authority from Subway to apply and submit materials to the tribunal. However, the Court found that Subway raised no objections as to this point. Woguan further argued that it was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case. The Court held that Woguan’s argument was contrary to the Agreements it signed with Subway. According to article 10 of the Agreements, both parties agree to complete the arbitration proceeding as soon as possible. Unless one party wishes an oral hearing, at the request of the parties or with their consent, the arbitrator may hear and decide the case on the basis of documents only. Meanwhile, the procedural history section of the arbitral award found that when applying for arbitration, Subway requested for the case to be heard on the basis of documents only and Woguan raised no objections. The tribunal provided opportunity for both parties to request for an oral hearing. However, both parties waived the right. Furthermore, both parties had submitted a large amount of materials to support their respective positions and claims. During the arbitral hearing, Woguan even filed a counter-claim. In conclusion, the Court held that Woguan’s breach of due process allegation is without factual basis. Woguan had received proper notices of the arbitration proceeding and presented his case accordingly.

As regards arbitrability relating to the tribunal’s dealing of taxes payable, Woguan asserted that taxes payable in the Agreements was not arbitrable. The Court did not agree with Woguan in this point, holding that it was contractual parties’ agreement as to the burden of taxes payable which did not involve or impact the exercise of administrative right by China’s tax authority. The Court ruled that the tribunal’s founding was consistent with the principle of arbitrability. As to the burden of arbitration fees and arbitrator’s fees, according the Agreements and UNCITRAL Arbitration Rules, the Court ruled that it was within the scope of the tribunal’s authority to determine on this point. Woguan’s argument was rejected accordingly.

Analysis

The ruling once again shows PRC court’s approach of minimal intervention in judicial review of foreign arbitral award. It gives effect to party autonomy and that of arbitral tribunals empowered by the will of the parties. International commercial and arbitration community may make positive reference from the ruling when assessing Chinese court’s attitude towards judicial review of foreign arbitral award.

The ruling by the Xiamen Intermediate People’s Court of PRC touches on one contentious issue in international arbitration: the degree of judicial review over tax burden agreed by parties in commercial contract. Arguments do exist to suggest that tax issues should remain beyond the reach of private adjudicators. However, arbitration of tax-related disputes proves very much a reality despite the doctrinal objections. Arbitrators routinely address problems of taxation in the context of ordinary commercial contracts. The arbitrability of tax disputes remains highly fact-intensive.2)William W. Park, Part II Substantive Rules on Arbitrability, Chapter 10 – Arbitrability and Tax in Loukas A. Mistelis and Stavros L. Brekoulakis (eds), Arbitrability: International and Comparative Perspectives, (Kluwer Law International 2009) pp. 179. jQuery("#footnote_plugin_tooltip_2071_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2071_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Although no hard-and-fast rule prohibits all tax arbitration per se, the Court ‘s ruling clarifies that if contractual parties’ agreement as to tax burden does involve or impact the exercise of administrative right by China’s tax authority, relevant disputes will not be arbitrable. Through prudent review, the limit between exercise of administrative right in public law and freedom of contract in private law was drawn, excessive judicial review of foreign arbitral award was avoided and substantial rights of both parties were legally protected under New York Convention (“Convention”).

It is worth mentioning that Subway’s application to the Court was to have the award recognized and enforced. According to the Notice concerning Relevant Issues of Centralized Handle over Cases of Judicial Review of Arbitration issued by the Supreme People’s Court (“SPC Notice”) in 2017, division specialized in the trial of foreign-related lawsuits is responsible for handling cases of judicial review of arbitration in China, including the judicial review of application for recognition and enforcement of foreign arbitration award. In judicial practice, according to research on court judgments published on http://wenshu.court.gov.cn/, most courts do comply with the SPC Notice recognizing and enforcing foreign arbitration award by the same division and in one proceeding and ruling. However, the Court opined that Subway should file the enforcement application with other competent authority (i.e. the Court’s enforcement division). The Court confined its finding to the conditions upon which recognition was satisfied or not. Not only would such practice result in conflicting rulings by different court divisions when handling recognition and enforcement separately, but also lead to unnecessary delay in the enforcement of arbitration award which may discourage business people from choosing Xiamen as the seat of enforcement.

National courts are required under Article III of the Convention to recognize and enforce foreign awards in accordance with the rules of procedure of the territory where the application for recognition and enforcement is made and in accordance with the conditions set out in the Convention. However, the competent court/court division to be seized with the enforcement application is not regulated by the Convention and thus regulated by national law. Hopefully, with the further implementation of the SPC Notice, court practice of judicial review of arbitration award in China will be more efficient and harmonized to further strengthen the pro-arbitration position of Chinese courts.

References   [ + ]

1. ↑ The author would like to thank Judge Chen Yanzhong of Xiamen Maritime Court for his comments on the earlier drafts of the piece. 2. ↑ William W. Park, Part II Substantive Rules on Arbitrability, Chapter 10 – Arbitrability and Tax in Loukas A. Mistelis and Stavros L. Brekoulakis (eds), Arbitrability: International and Comparative Perspectives, (Kluwer Law International 2009) pp. 179. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Give Me the Facts and I’ll Give You the Law: What Are the Limits of the Iura Novit Arbiter Principle in International Arbitration?

Wed, 2019-01-09 20:00

Christian Collantes

The discussion about whether and how the arbitral tribunals can apply the iura novit arbiter (INA) principle has been widely debated in different studies of international arbitration. INA allows the arbitrator to amend and to replace wrongly invoked law or the law not invoked by the parties. However, the arbitrator cannot go beyond the request, base its decision on facts other than those claimed by the parties, or exceed the mission entrusted in the arbitration agreement as to the applicable law, under penalty of putting the future award at risk of possible cancellation for contravening the principles of congruence, contradiction, and due process.

Determining what law governs in international arbitration is a complex task that has been the subject of several studies,1) KAUFMANN-KOHLER, Gabrielle. The Arbitrator and the Law: Does He/She Know It? Apply It? How? And a Few More Questions. Arbitration International, Volume 21, Issue 4, December 2005, p. 631-638. jQuery("#footnote_plugin_tooltip_7523_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as arbitrators normally deal with different rules that could be simultaneously applicable: the substantive law or lex causae, the law applicable to the agreement of arbitration, the lex arbitri and the regulation of the arbitration institution. Many times these refer to different national rights and even different legal systems.

To contextualize the above, according to ICC statistics,2) ICC Dispute Resolution Bulletin, Issue 2, 2018, ICC Practice and Procedure, p. 61. jQuery("#footnote_plugin_tooltip_7523_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in 2017, the laws of 104 different nations was applied. In 99% of the cases, the arbitrators chose the applicable national law while only 1% of the contracts opted for soft law, e.g. UN Convention on the International Sale of Goods (5), EU legislation (5), the UNIDROIT Principles of International Commercial Contracts (1), Lex Mercatoria (1), “International Customary Law” (1), UNCITRAL Law (1) and the ICC Incoterms (1).

On the other hand, there are precedents from ICSID annulment committees that have accepted that INA is a “power” that arbitrators must apply. Likewise, the application of INA has been accepted in non-ICSID investment treaty arbitrations, e.g., in Bogdanov v. Moldova, Case SCC 93/2004.

 

Who is in a better position to know the law?

Arbitral tribunals are in a better position to know the law. A decision-making process that eliminates the discretion of arbitrators in applying the law is not consistent with the purpose of the mission entrusted to them by the parties through the arbitration agreement.

“Knowledge of law” must be understood in a manner related to the specific case. The arbitrator is not obliged to know all the laws, but his mission is to use the legal tools (within the rules of the game) to settle the dispute in accordance with justice. Is it not precisely for this reason that they were appointed by the parties? It would be absurd to say that a tribunal exercises its powers to settle the dispute only on the basis of what has been said by the parties.

If within their analysis of the laws the arbitrators identify some rule or principle that has been ignored by the parties (involuntarily or intentionally) and that could be crucial for the decision of the case, should the tribunal simply ignore said rule or principle because the parties did not mention it? The task of the tribunal to submit an award strictly according to law is not bound by what has been said by the parties.

This has been understood, e.g., in Duke Energy International Peru Investments No. 1 v. Republic of Peru, ICSID Case No. ARB / 03/28, annulment (March 1, 2011), paragraph 96:

The concept of the ‘powers’ of a tribunal goes further than its jurisdiction, and refers to the scope of the task which the parties have charged the tribunal to perform in discharge of its mandate, and the manner in which the parties have agreed that task is to be performed.

Also, that the arbitral tribunals do not pronounce on a question that the parties have submitted constitutes a breach as well of the mandate that the parties have granted them in the agreement.3) Vivendi c. Argentina, Decision on Annulment, paragraph Nº 86. jQuery("#footnote_plugin_tooltip_7523_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Faculty or duty?

INA is not a faculty of the tribunal, because the institutionality of arbitration would be jeopardized if the arbitrators had the freedom to decide, at their discretion, to apply the laws. Likewise, and by definition, a faculty does not contain any obligation or burdensome consequences for its owner due to its non-observance.

Instead, INA constitutes an imperative and it is the responsibility of the arbitrator to redirect the legal foundations of the parties when they are insufficient (whether involuntarily or intentionally) to resolve the dispute with justice. Therefore, it would not be an arbitrary act that the arbitrators can apply the appropriate rules to the facts exposed by the parties.

Our position is the application of the INA is a duty that must be exercised by the arbitrator but under certain limits, mainly based on the need to protect the future award of the arbitral tribunal, since accepting the contrary would violate the right to due process.

 

Possibility or reality?

The INA principle is widely accepted in judicial litigation, particularly in Civil Law jurisdictions such as Germany, Switzerland, Sweden and Finland. In the Common Law jurisdictions where the adversarial system prevails and it is the parties who contribute the integrally to the debate, this principle is not even known.4) Lew, Julian; Mistelis, Loukas; Kroell, Stefan. Comparative lnternational Commercial Arbitration, La Haya: Kluwer Law International, 2003, pp. 725-726. jQuery("#footnote_plugin_tooltip_7523_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

However, the applicability of INA is not linked to a division between Civil Law and the Common Law jurisdictions. Rather, the central axis of the problem is the evaluation by the courts of the extent to which the arbitral tribunals have taken the parties by surprise when applying the INA.

In this regard, it is worth bearing in mind the criteria raised from Article 34(1) and (2)(g) the English Arbitration Act 1996,5) “(1) It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter. (2) Procedural and evidential matters include (…) g) whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law“. jQuery("#footnote_plugin_tooltip_7523_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); or to follow the International Law Association Recommendations on Ascertaining the Contents of the Applicable Law in International Commercial Arbitration (Resolution Number 6/2008), whose points 10 and 11 indicate that “If arbitrators intend to rely on sources not invoked by the parties, they should bring those sources to the attention of the parties and invite their comments, at least if those sources go meaningfully beyond the sources the parties have already invoked and might significantly affect the outcome of the case. Arbitrators may rely on such additional sources without further notice to the parties if those sources merely corroborate or reinforce other sources already addressed by the parties […]”.

Along the same lines, Fouchard, Gaillard and Goldman argue that the use of INA is inadequate in arbitration; however, they suggest a practical solution: arbitrators should offer the parties the opportunity to discuss the laws that they intend to apply. The exception to this rule would be if the rule invoked is of such a general nature that it was understood to be included implicitly in the allegations.6) FOUCHARD, GAILLARD & GOLDMAN. International Commercial Arbitration. Boston: Kluwer Law International, 1999, p. 692. jQuery("#footnote_plugin_tooltip_7523_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The pathological scenario in the application of INA in international arbitration arises when any of the parties is not allowed to adequate defense on the arguments presented by the arbitral tribunals. Since the arbitration does not have a second instance to review the merits of the dispute, the position of arbitrators regarding the application of the principle is somewhat skeptical, careful and reserved.

 

Recommendations

In order to allow courts to fulfill their duty and legally shield their decisions, we make the following recommendations:

  • Parties should be guaranteed sufficient opportunity to present their cases.
  • The petitum and the factual grounds of the causa petendi are not a matter of discussion in the application of INA.
  • The general rule is that the tribunal cannot find a ratio decidendi in an element other than the causa petendi invoked (principle of congruence).
  • If the arbitral tribunal omitted the application of rules of public order, this would jeopardize the validity of the arbitral award, its subsequent recognition and enforcement.
  • For its application, it is not enough for the arbitral tribunal to conclude that the application of the jura novit curia principle is acceptable at the seat of arbitration.
  • The application of INA should be analyzed in the context of the provisions of lex arbitri regarding the annulment of arbitral awards, since they constitute the external limits of the tribunal’s authority to determine the content of the lex causae.
  • The court should also examine the context of the denial of execution rules in the different jurisdictions in which it is necessary to apply the award.

In conclusion, in international arbitration, it is an inherent duty of the arbitrator arising from the agreement of the parties that, in case they have legitimate doubts about specific points of the law, arbitrators can investigate on their own to clarify these doubts and take into account such inquiry at the moment of forming their criteria for the resolution of dispute, under the limits indicated here.

References   [ + ]

1. ↑ KAUFMANN-KOHLER, Gabrielle. The Arbitrator and the Law: Does He/She Know It? Apply It? How? And a Few More Questions. Arbitration International, Volume 21, Issue 4, December 2005, p. 631-638. 2. ↑ ICC Dispute Resolution Bulletin, Issue 2, 2018, ICC Practice and Procedure, p. 61. 3. ↑ Vivendi c. Argentina, Decision on Annulment, paragraph Nº 86. 4. ↑ Lew, Julian; Mistelis, Loukas; Kroell, Stefan. Comparative lnternational Commercial Arbitration, La Haya: Kluwer Law International, 2003, pp. 725-726. 5. ↑ “(1) It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter. (2) Procedural and evidential matters include (…) g) whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law“. 6. ↑ FOUCHARD, GAILLARD & GOLDMAN. International Commercial Arbitration. Boston: Kluwer Law International, 1999, p. 692. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


What is the ISDS Landscape under the “New NAFTA”?

Tue, 2019-01-08 23:24

Calliope Sudborough

On Friday December 7th, a distinguished panel of government negotiators, experienced investment arbitrators and senior legal advisors gathered in Paris at the law faculty of the University Paris II Panthéon-Assas (Paris II) to discuss the US-Mexico-Canada Trade Agreement (USMCA) also called the “New NAFTA” signed on November 30th.

The panel was held as part of a seminar series on Topical Issues in international investment law and investor-state dispute settlement organized by the CERSA, Research Centre of the French National Centre for Scientific Research (CNRS) and the University Paris II Panthéon-Assas. The seminar was moderated by Catharine Titi (CNRS-CERSA, University Paris II Panthéon-Assas) and brought together as panelists

Héctor Anaya Mondragón (Creel, García-Cuellar, Aiza y Enriquez), José Manuel García Represa  (Dechert LLP), David Gaukrodger (OECD, in a personal capacity), Barton Legum (Dentons), Rodney Neufeld (Government of Canada, in a personal capacity) and Noah Rubins (Freshfields Bruckhaus Deringer). Over the course of three hours, the panelists discussed the new investment law landscape following the signature of the USMCA.

Main Differences Between the Old and the New NAFTA

USMCA developments have been previously discussed in the blog in relation to Latin America, the EU, in relation to fork in the road provisions and more generally in here. 

To kick-off the discussion, the moderator asked the panel to describe the key differences in the ISDS provisions between the USMCA and NAFTA. The first panel described the most striking change as the phasing out of ISDS for investors between the US and Canada and the significant restriction of ISDS between the US and Mexico. Nevertheless, panelists pointed out that even after the USMCA is ratified, the old NAFTA ISDS mechanism will still live on for another three years for what has been termed “legacy investments” made during the NAFTA period from January 1st 1994 to the date of NAFTA’s termination. As noted by the panel, “legacy investments” claims initiated during the three year period will be decided under the old NAFTA Chapter 11 rules and the tribunal proceedings will continue until finished and any arbitral awards will be fully enforceable, even beyond the three-year phase-out period. As such, the panel noted that there will likely be a flurry of new claims by investors before their arbitration rights expire.

Legacy Investments

The panel then spent a lengthy time debating various questions raised by the legacy investments provisions without producing straightforward answers.  These questions included: Is it intentional that pre-1994 investments are not included and if so why? Do the legacy investments provisions still kick-in if one of the parties does not ratify the USMCA? What does “termination” of NAFTA actually mean? Will arbitrators be allowed to interpret new claims filed under the legacy provisions in light of modifications made in the “New NAFTA”?

USMCA Innovations

The speakers also noted more specific innovations to the old NAFTA contained in the USMCA including, the expansion on the definition of expropriation in Annex 14-B, the use of specific examples given for interpretation of the minimum standards of treatment provided in the new Article 14.6 (previously article 1105) and the implication that a state’s actions which fulfill “public welfare objectives” will be considered  in the new Articles 14.4 on National Treatment and 14.5 on the Most Favored Nation standard in determining whether treatment was accorded in “like circumstances”.

Negotiation Process and Government Concerns

The conversation then turned to the negotiation process. The 15-month long negotiations of the USMCA were described as “very strange” and unlike any other high level treaty negotiations previously experienced by those involved, including some very “big surprises” along the way. By way of explanation, the panelists highlighted the political shift that has taken place since the old NAFTA agreement was put into place.

In particular, panelists observed that more recently, high-level government representatives have made sharp public criticisms of investment treaties which could explain some of the new approaches in the treaty. For example, David Gaukrodger noted that, in testimony before the US Congress, US Trade Representative Robert Lighthizer expressed concerns about preferential treatment of foreign investors over US investors due to access to ISDS, ISDS incentivizing companies to outsource jobs, and the dissuasive impact of investment treaties on regulation in the public interest (popularly coined as “regulatory chill”) as governments fear that they expose themselves to liability.  It was noted that, unlike recent EU rejection of the operation of investor-state arbitration, this criticism was broader and goes to the overall effects of investment treaties.

Death of ISDS?

Interestingly, Noah Rubinson and Barton Legum noted how twenty years ago, these statements used to be reserved to the NGOs and the left and right “fringes” but have now moved to the mainstream. This in turn sparked an exchange around the oft-debated question is this “The Death of ISDS”?

At first speakers debated philosophically if it would matter if it really were the end of ISDS and whether the underlying issue was really more an emotional attachment than a crisis in the world order. Ultimately, the panelists seemed to agree that the USMCA marks a decline although perhaps not the fatal end of ISDS. Moreover, José Manuel García Represa remarked that he previously represented a couple of the first Latin American countries to renounce the ICSID Convention and that now this exodus seems to be spreading to capital-exporting countries while, ironically, countries like Ecuador are reversing course and returning to ISDS.

State to State Disputes

Catharine Titi concluded the panel discussion by questioning the likelihood that under the New NAFTA, there will be a return to State to State disputes and asked the panelists to indicate how well they think that the US, Mexico and Canada are prepared for this. Barton Legum noted that the US is well situated to handle such claims because the State Department office dealing with large claims before the US-Iran Claims Tribunal contains a large staff with a great amount of expertise that will become available when the current hearings in that tribunal conclude. Rodney Neufeld pointed to Canada’s extensive WTO practice as providing good preparation for such claims. On the other hand, Héctor Anaya Mondragón expressed some concern as to Mexico’s preparedness in light of the newly-elected government’s purge of experienced staff and the push to cut the budget and therefore avoid the use of external counsel.

Unanswered by the panel was the deeper question posed by the moderator, Does this return to State to State disputes mean a return to diplomatic protection and the Calvo Doctrine?

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


New Year’s Quiz Answers, Winners, and Selected Arbitration Jokes to Get You Through 2019

Tue, 2019-01-08 04:35

Michael McIlwrath, Crina Baltag (Acting Editor) and Kiran N. Gore (Assistant Editor to the Acting Editor)

The Kluwer Arbitration Blog thanks everyone who responded to the New Year Arbitration Quiz, and have decided that all those who responded will receive free subscriptions to this blog for 12 months.1) It is true that the Kluwer blog is already free. In keeping with the theme of arbitration, however, we felt our award should have at least one component that leaves the winner scratching their head. jQuery("#footnote_plugin_tooltip_8937_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8937_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The winner is Chris Campbell of the United States, but we had two very close runners up, Abhinav Bhushan of Singapore and Ana Coimbra Trigo of Portugal. We have decided that all three should be entitled to dinner in Florence (exclusive of travel costs) with a guest of their choice and/or the author of the quiz.

We would be remiss not to mention that the winners, and only one other contestant, Ishana Tripathi of India, correctly guessed all the hobbies/past careers of the arbitrators in question 4. They must be formidable resources when appointing a tribunal. (Look out, Arbitrator Intelligence!)

The Kluwer editors and the author of the quiz reviewed many amusing submissions for a joke starting “an arbitrator, law firm partner, and in-house counsel walked into a bar together…”  We enjoyed them all, and ultimately chose the following as our favorite.

 An arbitrator, a law firm partner, and an in-house counsel walk into a bar together… The bartender asks, “what are y’all in town for?” They respond together: “New York Convention?” Christopher Campbell

Other worthy submissions, plus one that made us all groan, follow the answers to the quiz.

1. (b). Before becoming Prime Minister of Italy, Giuseppe Conte was a professor of law who was active in domestic and international arbitration and mediation, and twice hosted ICC summer workshops at his university. In fact, my September 2011 Kluwer blog post, It’s Not Hard to Mediate During Arbitration, discussed a simple but effective arb-med-arb procedure proposed by the chairman of an arbitral tribunal. Prof. Conte was that unidentified chair (the arbitration and settlement were still fresh). The mechanism he proposed back then is identical to the one in the new DIS Arbitration Rules, which has also been included in the Prague Rules for facilitating settlement, Art. 9.2-3.  Conte resigned from pending arbitral appointments upon being named Prime Minister.

2. (b). The United States of America submitted a proposal for the enforcement of mediated settlements at the end of the UNCITRAL Working Group II’s 62nd Session in New York, in July 2014. (Ecuador was the first country to endorse the USA’s proposal when it was subsequently introduced for discussion in Vienna.) At the UNCITRAL working group session in June 2018, 27 countries spoke in favor of Singapore hosting the signing ceremony and naming the convention after the country. The UN General Assembly passed a resolution to this effect on 20 December 2018. The broad support for this name may also have been influenced by the successful chairing of the working group sessions conducted by Singaporean Natalie Yu-Lin Morris-Sharma.  The official signing of the Convention is scheduled for 7 August 2019 in Singapore.

3. (a). The rules of arbitration of the Milan Chamber of Arbitration (CAM) include a Code of Ethics regulating the conduct of all arbitrators appointed under the CAM Rules. Art. 12 of the Code provides that, “The arbitrator who does not comply with this Code of Ethics shall be replaced by the Chamber of Arbitration, which may also refuse to confirm him in subsequent proceedings because of this violation.”  The Code also applies to tribunal-appointed experts.

4. Know your arbitrator. As eclectic as international arbitration is, it should be no surprise it attracts people with eclectic interests, hobbies, and backgrounds.  What did surprise us, however, was how much the responses to the quiz varied. So we apologize to those named for thousands of odd emails inquiring about former careers as professional footballers, except Seok Hui Lim. Almost all respondents correctly pegged her as the past squash champion, showing either a definitive correlation between knowledge of international arbitration and international squash or, possibly, adeptness at using Google as a research tool. The correct answers are below.

a. Gary Born

Born on International Arbitration iii. Gary has immense experience scuba diving the world’s seas.  Based on anecdotal information, the author of this quiz (also a diver) suspects scuba diving is disproportionately popular among arbitration professionals.

  b. Lim Seok Hui

CEO, SIAC & Director, SIMC

  i. As the Singapore press reported with disappointment at the time, Lim Seok retired from her career as a squash player to attend law school, but as former Singapore and East Asia Squash champion remains one of the country’s most famous squash players.

  c. Roman Zykov

Secretary General, RAA

  v. Before embarking on a career in law and then arbitration, Roman worked as a life guard.

  d. Sophie Nappert

Arbitrator, London

  ii. Sophie is an active participant in “rocket yoga,” a form of yoga given this name by Bob Weir of the Grateful Dead because, he said, “it gets you there faster.”

  e. Eduardo Silva Romero

Arbitrator, Paris (Colombia) iv. Eduardo played semi-professional football (soccer) in his native Colombia.

 

5. (e).Standardized data about arbitration cases?” There is no such thing. Indeed, arbitration institutions have not even adopted a common definition of “international arbitration”.  For example, the ICC defines an international arbitration as one between parties from different countries, while the AAA/ICDR defines one as having an international dimension, even if the parties are from the same country.

6. (b). In Rethinking Choice of Law in Cross Border Sales (International Commerce and Arbitration) (Eleven Publishing Int’l 2018), Gustavo Moser leverages the available empirical data to demonstrate that parties fail to exploit strategic advantages that contract choice of law provisions may offer. The data reviewed by Moser suggests that most parties who exclude the application of the UN Convention on Contracts for the International Sale of Goods (CISG) from their contract choice of law provisions do so because they lack familiarity with the CISG, often ignoring any advantages it may offer.

7. (c). The available guidance is scarce as to when tribunals should grant requests for security for costs generally, and the ICCA/Queen Mary report on Third Party Funding in International Arbitration (2018) does not seek to introduce a substantive rule. Rather, the report addresses when a funding agreement should be disclosed in applications for security for costs. It suggests tribunals should order disclosure only to determine whether the funder has agreed to pay an adverse costs award (possibly obviating the need for security), not to determine whether the funded party is impecunious.

8. Everyone who responded received credit for their answer.  The final report of the Global Pound Conference, to be issued in 2019, will have more on this interesting data, so watch this space. The only GPC participants who viewed In-house lawyers as being the most influential were in-house counsel and parties/users of dispute resolution services themselves. All other stakeholder groups (i.e., advisors, providers, and influencers) viewed in-house lawyers as being equally low in influence (in fourth place). Advisors (external counsel or experts) and Adjudicative Providers (arbitrators and judges) voted for themselves as being the most influential, and Non-Adjudicative Providers (conciliators and mediators) and Influencers (academics and civil servants) voted for Governments/Ministries of justice in first place. The groups that were ranked the least influential were the Parties’ non-legal personnel (business owners, directors and officers) in 5th place and Non-Adjudicative Providers (conciliators and mediators) in 6th place.  The data raises questions for further investigation as to whether those who suffer the consequences of disputes and bear the associated costs are truly being listened to by those who are responsible for providing services to resolve them, and whether parties and in-house counsel should take a more visible leadership role.  Only Parties (legal and non-legal) voted in fact for “In-house lawyers” as being the most influential, and nobody else agreed with them.  The correct answer was thus any one of options (a)-(d) in the answers, but since the data was so surprising (and the author is also an in-house lawyer), credit was also given for (e).

9. (c). The hosts of The Arbitration Station podcast, now in its third season, conclude each episode with a segment they call “Happy Fun Time,” sharing a virtual beer while conversing on whimsical topics such as ways of addressing the members of the tribunal (should you say, “Madam Arbitrator?”) or traveling with colleagues to an arbitration hearing (should you reserve seats together on the flight, and who doesn’t have a packed suitcase and amenities kit always ready to go?).

10. (d). In 2018, the pornographic actress Stormy Daniels sought to avoid an agreement to arbitrate disputes in a contract with President Donald Trump. The musician Jay-Z momentarily enjoined the AAA from appointing arbitrators based on an alleged lack of representative diversity of the AAA’s construction panel. This sparked considerable discussion in the arbitration community about diversity beyond gender in arbitration.  By contrast, Brad Pitt was spared any embarrassing arbitration news, and is reportedly back together with Jennifer Aniston.

11. (e). The ICDR offers an ODR (online dispute resolution) for manufacturing disputes designed for both a mediation and arbitration phrase to be completed within 60 days. The low-cost service is focused on disputed technical issues and is conducted on-line based on submitted documents only, without the need for a hearing.

12. Noteworthy submissions for a joke starting, “An arbitrator, a law firm partner, and in-house counsel walk into a bar….”

An arbitrator, an in-house counsel and a law firm partner walk into a bar. The barman asks “What can I get you?”, whereupon the law firm partner looks at the in-house counsel, says “I guess you’re paying” and orders a large 25 year-old Macallan single malt whisky. The in-house counsel, cost conscious as always, objects and suggests the law firm partner and he have a Coors Light. The law firm partner says that the in-house counsel, as always, is putting cost before quality and an argument ensues. The barman asks the arbitrator if he can resolve the dispute and the arbitrator says “Of course! And I can give them each what they want.” He asks for a 25 year-old Macallan, a Coors Light and two glasses, mixes the two drinks together in the glasses, turns to the disputants and says “Here you are. You asked for this, so this is what I am going to give you in resolution of your dispute … but neither of you are going to like it.” Peter Rees of the United Kingdom

 

 An arbitrator, a law firm partner, and an in-house counsel walk into a bar together. The law firm partner asks for additional time before deciding what to drink, the arbitrator orders, and the in-house counsel picks up the tab. Barbara Reeves of the United States

 

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together, … no idea what happens next due to a Confidentiality Clause. Ana Coimbra Trigo of Portugal

 

 An arbitrator, a law firm partner, and an in-house counsel walk into a bar together … Red, Orange or Green? Gary Benton of the United States

 

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together … with an agreed costs cap. Riina Luha of the United Kingdom

 

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together …  Whatever happens next, it will end up costing the in-house counsel money. Amanda Lee of the United Kingdom

 

An arbitrator, a law firm partner and an in-house counsel walk into a bar together. They all sit down and order drinks. The arbitrator orders a shaken vodka martini and tells the story about how her mentor, an old famous arbitrator, ordered the drink routinely when deliberating. The law firm partner orders a Moscow mule and tells the story of ordering the same drink after a hearing in Moscow at the surprise of local counsel (since the drink is not common in Moscow). The in-house sits and takes this all in but does not order anything. The law partner turns and asks the in- house counsel ‘you are not drinking?’ The in-house counsel takes a pause then says ‘no, I am fine. I only budgeted for three beers.’ Cornel Marian of Sweden

 

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together … the bartender says to the arbitrator “for the last time, its way past closing (submissions)”. The Arbitrator looks over his shoulder at the Law Firm Partner engrossed in his large, bulky phone and In-house Counsel frantically searching for his credit card. He responds to the bartender, “Hey, it’s alright, we’ll get the usual.” Vivek Kapoor of the United Kingdom

 

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together, and they then appoint a mediator to help them work out how to split the tab. Jeremy Lack of Switzerland

 

And the one that made us smile through our groaning (or groan through our smiling):

An arbitrator, a law firm partner, and an in-house counsel walk into a bar together. The bartender says “You again? I told you before, you’re all disbarred!” Joel Dahlquist of Denmark

 

If you still haven’t had enough, you are welcome to peruse our archives and test your skills and knowledge through past quizzes.

References   [ + ]

1. ↑ It is true that the Kluwer blog is already free. In keeping with the theme of arbitration, however, we felt our award should have at least one component that leaves the winner scratching their head. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Application of Law of Limitation in Computing Time Period Under Section 34(3) of the Arbitration & Conciliation Act, 1996

Tue, 2019-01-08 01:34

Devansh Mohta

INTRODUCTION

It is fairly known that the Indian Limitation Act, 1963 (the Limitation Act) constitutes “general law” for Time Periods and its computation. Section 29(2) of the said Act contains the fundamental rule that provisions of Limitation Act would apply for computation of time period prescribed by any special law only to the extent it is not expressly excluded.

The relevance of time period

An application to challenge arbitral award is made under section 34 of the Indian Arbitration and Conciliation Act, 1996 (the Arbitration Act) within the “time period” prescribed in sub-section (3) of section 34, i.e., within three months from the receipt of the award after the expiry of which the Court can permit a party to make the application within 30 days “but not thereafter”. A “time period” has been regarded as necessary for certainty and to ensure expeditious and effective resolution of disputes between the parties.

Express Exclusion Test

Should a rule of computation of time periods contained in the Limitation Act apply to section 34(3) of the Arbitration Act, 1996? To answer this question the Supreme Court has generally resorted to the test of “express exclusion”. The article briefly sets out the legal position about the computation of time limits and analyzes the manner which the Court has applied the express exclusion test.

 

LEGAL POSITION

Starting Point (the first day)

The time period for challenging an award commences only upon its proper receipt. An award would be regarded as properly received only if it is delivered in the manner prescribed by section 31 (5). This means when a “signed copy” has been delivered to the party. The delivery of an award constitutes an important stage in the arbitral proceedings. The Supreme Court has held that “delivery of an arbitral award” is not a matter of formality but of substance; as it confers certain rights on the party. (see: Union of India v. Tecco Trichy (2005) 4 SCC 239)

“Within three months from……”

There is an ordinary rule that where statutes, while prescribing time period, uses the expression “from”, it is an indication that while computing the period so prescribed the rule would be “to exclude the first and include the last day”. (see: section 9 of the General Clauses Act). 

In the case of State of Himachal v. Himachal Techno (2010) 12 SCC 210, the Supreme Court extended this principle to section 34(3). Thus, the time period for filing an application under section 34 would commence “a day after the receipt of the award by the party.

The time in between

Once the time has begun to run, no subsequent disability or inability to institute a suit or make an application would “stop it”. This is a fundamental rule. (see: section 9 of the Limitation Act)

So after proper receipt of award, the time period for a challenge “begins to run”. Apart from the exception of section 33, it cannot be stopped. [section 34(3)]

The last day

The time period under section 34(3) expires after “three months”. The rule of construction of this period would be to not treat this period as 90 days, but actual period of calendar month. Thus, the period would expire in the third month on the date corresponding to the date upon which the period starts. In days it may mean “90 days or 91 days or 92 days or 89 days”. (State v. Himachal Techno (2010)12 SCC 210)

A rule for computation is that in case the last day of the time period expired on a day when the court is closed the proceedings will be instituted “on the day when the court reopens” (see: section 4 of the Limitation Act, 1963)

However, the Supreme Court has held that the benefit of this rule cannot be taken to prefer an application under section 34 after the expiry of the time period. (see: Assam Urban Water v. Subhash Projects & Marketing (2012)2 SCC 628)

The proviso to section 34(3): Additional 30 days

Section 34(3) proviso enables the party to make an application after the expiry of three months upon demonstrating that the applicant was “prevented by sufficient cause” from doing so. In such cases,  the statute has conferred upon the court discretion to entertain the application within a period of 30 days “but not thereafter”.

To “prevent” means to thwart; to hinder or to stop. Thus, while ‘time period’ would never stop under any circumstances but certain circumstances may stop an applicant from making the application. If the court found those circumstances constituted “sufficient cause” it would permit the party to make the application.

It is beyond cavil that the discretion of the court to permit an application beyond the original period cannot extend beyond 30 days being the statutory outer limit for exercise of discretion. (see: Union of India v. Popular Construction (2001)8 SCC 470)

The distinction between “extension of time” and “computation of time”

While time does not stop running, it can be excluded from the computation. The rule of computation  of time period recognizes the concept of “exclusion of time” under certain circumstances: and so far the Supreme Court has permitted parties, to take recourse to section 14 of the Limitation Act, 1963 and exclude from computation the time spent in bonafide litigious activity in other words “mistaken remedy” or “selection of a wrong forum”. (see:  Consolidated Engineers v. Principal Secretary (2008) 7 SCC 169)

However, when a party sought exclusion of time by taking recourse to the plea of fraudulent inducement available under section 17 of the Limitation Act, 1963. The Supreme Court held that once the party has properly received the award the right to challenge comes within their knowledge and no fraudulent act of another party can be made an excuse for excluding the time from computation.

Where fraud has been practised at the time of delivery the award would not be considered as having “properly received”. (see: P. Radhabai & v. P. Ashok Kumar (2018)13 SCALE 60)

 

THE PRINCIPLE OF “EXPRESS EXCLUSION”

The Supreme Court has applied the principle of express exclusion the following manner:

By reference to language of section 34(3) of the Arbitration Act

In Popular Construction (supra) the Supreme Court held that the expression “but not thereafter” found in proviso section 34(3) expressly excluded the applicability of section 5 of the Limitation Act.

In P. Radhabai (supra) the Supreme Court while emphasizing on the expression “had received the arbitral award” found that applicability of section 17 was “expressly excluded”. It also held that extending the benefit of section 17 of the Limitation Act would “do violence” to the provision of section 34 (3).

Interestingly in Himachal Techno (supra) the Supreme Court emphasized on the expression “from the date” found in section 34(3) applied the presumptive rule of interpretation found in section 9 of the General Clauses Act. It therefore held that that the Arbitration Act did not exclude the application of section 12 of the Limitation Act, 1963 which is similar to section 9 of the General Clauses Act. However, the Supreme Court failed to notice the expression “period of limitation” found in that section, which necessarily restricts the applicability of section to those periods which are prescribed by schedule to the Limitation Act, 1963.

By reference to the Limitation Act

In Assam Urban Water Supply (supra) the Supreme Court refused to extend that benefit of section 4 of the Limitation Act on the ground that the section was meant only for the time period prescribed by the Limitation Act and time period under section 34(3) stood outside its purview. To arrive at this conclusion the Supreme Court resorted to the definition “period of limitation” found in section 2(j) of the limitation act.

It is noteworthy that the above decision was delivered two years after the judgment in Himachal Techno (supra).

Principles of equity

It is pertinent to note that in Consolidated Engineers (supra) the Supreme Court laid on two factors: first was the distinction between extension of time and exclusion of time, as explained above and secondly on the principle of equity. On these scores the Supreme Court held that section 34(3) did not excluded applicability of section 14 of the Limitation Act, 1963.

 

CONCLUSION

It is clear that where the Supreme Court has applied the express exclusion principle with reference to the language of section 34(3) and Limitation Act the answer about applicability has been in the negative. On two occasion- while applying section 12 and section 14- the Supreme Court has answered the question affirmatively. It would be in consonance with the object of arbitration law- efficient and expeditious adjudication of disputes- to avoid calling in aid the principle “underlying the provisions” of the Limitation Act and read into fixed time periods of section 34(3); benefits of principle of computation found in the Limitation Act.

After all the Supreme Court in Yeshwant Deora v. Walchand AIR 1951 SC 16 had held that “rules of equity have no application where there are definite statutory provisions specifying the grounds on the basis of which alone suspension or stoppage of running of time can arise. While courts are necessarily astute in checkmating or fighting fraud, it should equally borne in mind that statutes of limitation are statues of repose”.

This is a noteworthy principle.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


IFFCO v. Bhadra Products: Increasing Confusion or Clarifying on Matters of Jurisdiction?

Sun, 2019-01-06 17:43

Pragya Chandak and Harsh Salgia

Section 16 (1) of the Arbitration and Conciliation Act, 1996 [“the Indian Act”] confers power upon the arbitral tribunal to decide on matters relating to its jurisdiction. Under section 16 (5), a decision accepting the plea of lack of jurisdiction shall be an appealable order; while decision rejecting the same plea can be challenged only with the final award. Though the term jurisdiction has not been defined, the courts in India have interpreted it to include inter alia scope of the arbitration agreement and arbitrability of disputes.

Recently, the Indian Supreme Court [“the Court”] in M/s Indian Farmers Fertilizers Co-operative Limited v. M/s Bhadra Products (Civil Appeal No. 824 of 2018) [“Bhadra Products”] restricted the scope of section 16 (1), declaring that issue of limitation is not covered under the primitive sense of the term ‘jurisdiction’. It is important to distinguish matters of jurisdiction from that of the merits of claims, as the former goes to the root of the dispute and absence of the same can render the ultimate decision null and infructuous. While relying heavily on English jurisprudence, the Court in Bhadra Products gave a very narrow interpretation to the term ‘jurisdiction’. It was held by the Court that similar to the Arbitration Act, 1996 [“the English Act”] matters of only substantive jurisdiction such as the validity of arbitration agreement and/ or of arbitral tribunal and arbitrability of disputes shall be considered within the scope of section 16(1) of the Indian Act. However, the reasoning is inaccurate on various fronts:

At first, the term jurisdiction derives its meaning from the context in which it is used. The Indian Act provides the tribunal with the power to pass a ruling on any issue that is related to its jurisdiction. In the case of National Thermal Power Corporation v Siemens Atkeingesellschaft 1) (2007) 4 SCC 451 jQuery("#footnote_plugin_tooltip_2475_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2475_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, it was reasoned that any refusal to go into the merits of the claim lies within the realm of jurisdiction. Like any other issue of jurisdiction, the issue of limitation is decided without going into the merits of the particular claim. In other words, while determining the issue of limitation, the tribunal enquires only into the fundamental facts such as when the claim arose and the time period which has lapsed and nothing more.

Secondly, section 16 (1) of the Indian Act is wide enough to permit the tribunal to decide any matter, including any issue relating to jurisdiction which goes to the root of the matter.  In Pandurang Dhoni Chougule v. Maruti Hari Jadhav2) AIR 1966 SC 153 jQuery("#footnote_plugin_tooltip_2475_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2475_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the Court held that plea of limitation is an issue that goes to the root of the matter and affects the jurisdiction of the tribunal conducting the proceedings. Applying the rationale in a case, the Bombay High Court determined that while ruling on the issue of limitation, the tribunal shall be ruling on its jurisdiction.

Thirdly, the English Act restricts the principle of Kompetenz-Kompetenz by using the term ‘substantive’ jurisdiction. However, the Indian Act has no such restriction and provides for wider amplitude as it reflects tribunal’s power to determine any issue relating to its ‘own’ jurisdiction. Further, it has been held in the case of Union of India v. East Coast Builders 3) 1998 (47) DRJ 333 jQuery("#footnote_plugin_tooltip_2475_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2475_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that guidance should not be taken from the English Act when the Indian Act expressly deviates from it. Therefore, issue of limitation must be construed as an issue of jurisdiction as provided under section 16(1) of the Indian Act.

 

Decision on limitation: Order or Interim award?

Section 31(6) of the Indian Act lays down that an interim award can be passed on any matter on which a final award can be passed. In Bhadra Products, the Court held that as issue of limitation is one of the matters raised by parties at dispute, a decision on the same would be an interim award. The Court arrived at this conclusion by wrongly interpreting the term ‘interim award’, as issue of limitation is not a matter on which a final award can be passed. Though the term interim award has not been defined in the Indian Act, the courts have consistently ruled that for a decision to be an interim award, it must finally settle one or few of the claims or issues of liability raised by the parties. For instance, a decision on breach of the contract can be an interim award on which a final award clearly specifying the amount of damages can be passed subsequently. However, adjudication on an issue of jurisdiction does not settle any claim or issue of liability and is a necessary step to be undertaken before determining the substantial relief sought by parties. It is for this reason that under the Indian Act, a ruling on jurisdiction has been classified as an order.

 

Anomaly based on a different decision on the issue of jurisdiction

A lot of confusion hovers around the tribunal’s decision with respect to its jurisdiction, that is, whether it is an award or an order. This arises primarily because the Indian Act is silent on this aspect. In other words, when an objection regarding tribunal’s lack of jurisdiction is accepted, it has been termed as an appealable order under section 37 of the Indian Act. However, the Indian Act does not expressly categorize the decision of the tribunal accepting its jurisdiction as an order. It is for this reason it had been argued various times that such decision shall be an interim award so that the court can be approached to set aside the same. However, such contention should be rejected for the basic reason that the order under section 16 cannot change its nature based on different outcome that is become an interim award if the tribunal rejects plea of no jurisdiction and is only appealable if plea of no jurisdiction is allowed.

 

Removing the discrepancy

Section 37 of the Indian Act does not provide a right to appeal against the order if the tribunal accepts its jurisdiction and it can be challenged only later with the ultimate final award. It is believed that such a distinction was created to reduce the role of the courts in the proceedings. But this can result in a waste of time and money in arbitral proceedings in case the court determines that tribunal did not have jurisdiction in the first place. To fill this gap, it is suggested that preferably an amendment should be introduced in section 37 wherein (i) any order whether accepting plea of lack of jurisdiction or rejecting the same shall be appealable and (ii) that the court should decide the matter expeditiously.

However, this might lead to a dilemma of whether the arbitral proceedings should continue or come to a standstill. In such a situation, the arbitral tribunal should have the prerogative to decide whether to continue with the proceedings or not. In this way, a balance can be attained between parties having right to appeal against the order and having an efficient arbitral proceeding.

References   [ + ]

1. ↑ (2007) 4 SCC 451 2. ↑ AIR 1966 SC 153 3. ↑ 1998 (47) DRJ 333 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Is Brazil an Arbitration-Friendly Jurisdiction?

Sat, 2019-01-05 16:02

Andre Luis Monteiro, José Antonio Fichtner and Sergio Nelson Mannheimer

Recently, the 2018 White & Case International Arbitration Survey confirmed London, Paris, Singapore, Hong Kong, Geneva, New York and Stockholm as the most in-demand places for arbitration in the world.

Brazil is well represented by São Paulo – the economic hub of the country – which occupied eighth place in the overall ranking. This result gives rise to the following question among those not familiar with the country: is Brazil an arbitration-friendly jurisdiction?

In previous Kluwer posts, it has been discussed Brazilian arbitration developments in franchising, extension of arbitration agreements, and facilitation and cooperation investment agreements (here and here),This post aims to answer that question, providing a concise but comprehensive overview of the Brazilian legal framework for arbitration.

 

Legal Framework

In Brazil, arbitration is governed by Law 9.307, which came into force in 1996. The Brazilian Arbitration Act (hereafter BAA) is partially based on the UNCITRAL Model Law and the 1988 Spanish Arbitration Act.

The BAA adopts the monism regime, which means that its provisions apply equally to international arbitration and domestic arbitration. However, the Act is considered modern, particularly because it leaves plenty of space for party autonomy.

Brazil has not signed the Washington Convention (ICSID Convention) and, therefore, all arbitrations follow commercial standards, even when the State is one of the parties.

Nevertheless, a few mandatory provisions apply to arbitrations involving “State entities”. This term encompasses the Union, states, municipalities, government agencies, government foundations, wholly-owned state companies and state-controlled companies, although not all entities are subject to the same mandatory provisions (explained below).

 

Arbitrability 

The scope of arbitrability in Brazil is wide. Article 1 of the BAA declares that “those who are capable of entering into contracts may use arbitration to resolve conflicts related to negotiable and pecuniary matters”. Article 1(1) establishes that “State entities may use arbitration to resolve conflicts related to negotiable and pecuniary matters”. In short, any civil or commercial matter in Brazil can be resolved through arbitration, even when the case involves “State entities”.

Most arbitral proceedings in Brazil arise from construction contracts, corporate conflicts (company v. shareholders, controlling shareholder v. minority shareholder, parties to shareholders’ agreements etc.), energy and insurance contracts and contractual disputes in general.

 

Choice of Law

According to Article 2 of the BAA, in arbitrations seated in Brazil, parties are unrestrained in the choice of law applicable to the merits, to the arbitral process (lex arbitri) and to the arbitration agreement. This rule applies not only to arbitrations involving foreign parties but also to purely domestic arbitrations. There are a few exceptions: in some cases, if the arbitration involves “State entities”, the application of Brazilian Law is mandatory.

 

Arbitrators

Parties have complete autonomy in selecting the arbitrators who shall rule upon the claims submitted in arbitration. There are no limits regarding nationality, age, gender, religion or language proficiency. As set forth in Article 13 of the BAA, “any individual with legal capacity, who is trusted by the parties, may serve as arbitrator”. This rule also encompasses arbitrations involving “State entities”, where parties in general can even nominate foreign arbitrators.

 

Arbitral Institutions

Parties are entirely free to choose the arbitral institution, whether international arbitral institutions like the ICC (which has an office in São Paulo) and the LCIA, or one of the renowned Brazilian arbitral institutions: CAM-CCBC (whose rules of arbitration were adopted for the 2017 Vienna Vis Moot), CAMARB, Ciesp/Fiesp, CBMA, Amcham and others.

 

Language

Finally, parties have total autonomy in choosing the language of the arbitration. Again, there are a few exceptions: in some cases, where the arbitration involves “State entities”, Portuguese is compulsory. However, this does not prevent parties from adopting a bilingual arbitration (Portuguese and English, for example).

 

Kompetenz-Kompetenz

Brazilian Arbitration Law recognises both positive and negative effects of Kompetenz-Kompetenz.

According to Article 8(1) of the BAA, “the arbitrator has jurisdiction to decide ex officio or at the parties’ request, any issues concerning the existence, validity and effectiveness of the arbitration agreement, as well as the contract containing the arbitration agreement”. Article 20 of the same Act complements this provision. In turn, the second part of Article 485(VII) of the Brazilian Code of Civil Procedure states that “a judge shall not rule on the merits when (…) the arbitral tribunal confirms its jurisdiction” (i.e., the judge has to dismiss the case).

Legal scholars interpret this latter provision as guaranteeing the chronological priority rule in favour of the arbitral tribunal deciding on its own jurisdiction. Among other cases, the Superior Court of Justice declared in SPPATRIM v. BNE that “as a consequence of the Kompetenz-Kompetenz principle, set forth in Articles 8 and 20 of Law n. 9.307/96, the Brazilian legislation on arbitration establishes a chronological priority rule in arbitral proceedings, allowing access to the courts only after the delivery of the arbitral award”.

 

Interim Measures

As Article 22-B(1) of the BAA states, “if arbitration proceedings have already commenced, the request for the interim measure will be directly addressed to the arbitrators”. In short, pursuant to that provision, arbitrators have the power to grant interim measures. Before the appointment of the arbitrators, parties can seek an interim measure before Brazilian courts. Whether granted or denied by the courts, the arbitrators have the power to confirm, modify or reverse any such judicial decision following their appointment (Article 22-A(1)). If the party against whom the interim measure was granted does not voluntarily comply with the arbitral decision, the interim measure can be enforced before the courts.

 

Awards

The BAA provides in Article 31 that “the arbitral award shall have the same effect on the parties and their successors as a judgement rendered by the courts and, if it includes an obligation for payment, it shall constitute an enforceable instrument thereof”. This means that the arbitral award has the same effect as decisions issued by Brazilian courts, which shall encompass the res judicata effect.

 

Appellate Proceedings

The BAA does not give the losing party the right to appeal against arbitral awards (neither awards on jurisdiction nor awards on the merits). There are no appellate proceedings in arbitrations seated in Brazil. As described below, parties can apply for annulment of the arbitral award.

 

Enforcement of Arbitral Awards

Arbitral awards issued in Brazil can be directly enforced before Brazilian courts (Article 32 of the BAA and Article 515(VII) of the Brazilian Code of Civil Procedure). There is no need for exequatur or any kind of judicial authorisation to give effect to arbitral decisions. Arbitral awards are enforced as judicial decisions, following the same legal proceedings, which means that the winning party can seize the losing party’s bank accounts and other assets.

There is only one exception: when the losing party is the Union, a state, a municipality, a government agency or a government foundation, a “certificate of judgment debt” (the so-called precatório) shall be issued in favour of the winning party. Hence, it is legally impossible to seize their bank accounts or other assets. Payment in these cases occur only after inclusion of the debt in the State entity’s budget, in average two years after the decision becomes enforceable. However, investors in Brazil can be reassured that in most cases the State uses state-controlled companies to carry out its largest projects. These companies are subject to normal foreclosure proceedings, what means that their assets can be seized and the precatório regime does not apply to them.

 

Annulment of Arbitral Awards

Arbitral awards can be set aside before Brazilian courts should the losing party apply for such within 90 days of receiving the award (Article 33(1) of the BAA), either partial or final. Article 32 of the BAA states that there are seven limited grounds upon which annulment can be sought. In a few words, the grounds are related to formal requirements, validity of the arbitration agreement, due process, impartiality of the arbitrator, excess of power, arbitrability and public policy. In Brazil, courts are not allowed to control arbitral awards on the merits.

 

Recognition of Foreign Arbitral Awards

Brazil ratified the 1958 New York Convention in 2002, and the country thus adopts international standards for the recognition of foreign arbitral awards (i.e., awards made in another State). The court with jurisdiction to recognise foreign awards is the Superior Court of Justice. This court is the second highest court in Brazil (only below the Supreme Federal Court), which means there are no avenues for endless appellate proceedings. In addition, case law has largely been in favour of the recognition of arbitral awards.

 

Courts

In assessing whether a jurisdiction is arbitration-friendly, one must naturally judge the quality of decisions rendered by courts of the seat in connection with arbitral proceedings. In Brazil, the Supreme Court demonstrated its pro-arbitration approach by declaring the constitutionality of the BAA in 2001. In its turn, the Superior Court of Justice is also undoubtedly pro-arbitration. To cite one example, the Court said in SERPAL v. Continental do Brasil that “arbitration, as an alternative dispute resolution method, fulfils precisely the fundamental right of access to justice, provided by Article 5(XXXV) of the Brazilian Constitution”. It is the current understanding that Brazilian courts support arbitration when faced with any challenge concerning that procedure.

 

Anti-arbitration Injunctions 

Brazilian courts have in few cases granted anti-arbitration injunctions that prevented parties from commencing arbitral proceedings. There are two decisions that became notorious among international arbitration practitioners: (i) a 2003 decision by a first-instance judge in Paraná in the case Copel v. UEG; and (ii) a 2012 ruling by the São Paulo Court of Appeals in the case Sulamérica v. ENESA (also known as the “Jirau case”). It is well established in Brazil that these decisions represent exceptions.

 

Conclusion

In conclusion, based on all the above mentioned reasons, we can affirm with confidence that Brazil is currently an arbitration-friendly jurisdiction.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Can Article 25 Arbitration Serve as a Temporary Alternative to WTO Dispute Settlement Process?

Fri, 2019-01-04 21:45

Bashar H. Malkawi

The World Trade Organization (WTO) was born on January 1, 1995 and its Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) provides a binding means for WTO members to resolve disputes arising under WTO agreements.  This post summarizes WTO DSU dispute settlement and considers, whether in light of recent developments, article 25 of the WTO DSU, which provides for binding arbitration, can provide a temporary alternative.

When the WTO was first formed, DSU dispute settlement effectively replaced the weaker dispute settlement process that had existed before under the General Agreement on Tariffs and Trade (GATT) 1947, which until then had served as the principal multilateral agreement whereby contracting parties negotiated liberalizing trade by reducing tariffs.

Under the GATT, the Tokyo Round (which lasted from 1973 to 1979, with 102 countries participating) established separate dispute resolution procedures in some of the separate codes negotiated during that period, such as the code on subsidy and anti-dumping. In effect, the GATT consisted of independent agreements with their own dispute settlement mechanism. Moreover, under GATT, dispute panels handed down findings that had to be accepted by both sides and other GATT Contracting Parties before they were adopted. Refusal by one Contracting Party, such as the losing party, meant that a panel report was simply set aside. Thus, under the GATT dispute settlement mechanism, the losing party in a dispute could block the adoption of a panel ruling.

WTO DSU dispute settlement created a more potent dispute settlement process than had existed previously and was part of the global gradual shift from a diplomatic and power-based approach in the settlement of international disputes to a more legalistic, law-based approach for dispute resolution.

To summarize, the WTO DSU dispute settlement is administered by a Dispute Settlement Body (DSB) which consists of the WTO’s General Council. Among its powers, the DSB has the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize suspension of concessions and other obligations under WTO agreements.

The WTO DSU provides a dispute resolution forum and its rules establish firm deadlines to file initial submissions, appeals, and enforce rulings (Understanding on Rules and Procedures Governing the Settlement of Disputes, arts. 4.4, 4.7). Also, the DSU rules govern notice, consultations, discovery, panel establishment and proceedings, and report circulation. Furthermore, the DSU set up a permanent Appellate Body to review appeals of panel decisions. Throughout its existence, the DSU has proved its efficiency in settling disputes between WTO members covering many WTO agreements.

WTO DSU dispute settlement has now been in effect for nearly twenty-three years and has been described as the “crown jewel” of the WTO legal system. Over the span of its existence, the WTO has decided 350 cases through its dispute settlement process. As a result, the WTO has succeeded in serving as a forum for negotiating international trade agreements and the monitoring and regulating body for enforcing these agreements among member nations.

Yet, today, the WTO dispute settlement process is in a critical stage as the U.S. is preventing filling vacancies in the seven-member Appellate Body. Of the seven-member Appellate Body, right now there are  only three seats filled.  Two of these vacancies were created at the end of 2018 when the incumbents’ terms expired.  The U.S. blockade further affects the Appellate Body’s ability to function even as disputes continue to pile up. The lack of full panels put huge pressure on other Appellate Body members who would have to decide many cases and within tight schedules. Under these circumstances, it is worth considering whether article 25 in the WTO DSU, which provides for binding arbitration, can serve as a “temporary alternative”? Theoretically, the answer is in the affirmative.

Article 25.1 of the WTO DSU allows “for expeditious arbitration within the WTO as an alternative means of dispute settlement which can facilitate the solution of certain disputes that concern issues that are clearly defined by both parties”. Recourse to arbitration under the DSU is permitted only as an alternative. Types of disputes that can be resolved under the article 25 mechanism are wide open. However, these types of disputes must concern issues that are defined by the concerned parties to the dispute at hand.

As a procedural matter, all WTO members should be notified of agreements to resort to arbitration sufficiently in advance of the actual commencement of the arbitration process (art. 25.2). The purpose of this language is to ensure transparency and that multilateralism is maintained by informing all members. Parties to article 25 arbitration can agree on the procedures to follow (art. 25.2). In other words, parties to a dispute have the freedom to choose their own procedures in the arbitration process. There are no limitations on procedures for selecting arbitrators, evidence submitted, hearings, and other relevant matters.

Once rendered, the arbitral award is binding on the concerned parties (art. 25.3) and there is no ability to object to or appeal enforcement of an award. WTO members can only raise certain points regarding the award such as the evidence presented or interpretation of the panel. Therefore, the arbitral award under article 25 is final. The award also should be notified to the DSB and other WTO members who can raise any point regarding the award.

Although the use of article 25 arbitration seems attractive especially in the current environment, as a practical matter, article 25 would not serve as a “viable or permanent solution” to the ordinary WTO dispute settlement process. Over the past decades, WTO members have developed a wealth of expertise and knowledge regarding WTO DSU, which they cannot simply forgo. Reports of WTO Appellate Body and panels helped define and shape many treaty provisions. It is hard to envisage that WTO members would put aside such experience and enter into article 25 arbitration, which is essentially uncharted territory.

Throughout the history of the WTO, article 25 has been used only one time, in U.S-Section 110(5) of the U.S. Copyright Act- Recourse to Arbitration under Article 25 of the DSU, WT/DS160/ARB25/1, Nov. 9, 2001 (Award). That arbitration concerned a narrow issue of whether it was reasonable for the European Community (EC) to calculate losses for all potentially realizable income.  The arbitrators in US – Section 110(5) Copyright Act observed that recourse to article 25 arbitration is not subject to multilateral control and that, accordingly, “it is incumbent on the Arbitrators themselves to ensure that it is applied in accordance with the rules and principles governing the WTO system” (Award, para. 2.1). The arbitrators in the case also ruled that international tribunal may consider the issue of its own jurisdiction on its own initiative. The arbitrators decided that the U.S., the defendant in the original panel proceedings, had to provide a prima facie proof that the methodology and estimates proposed by the EC did not accurately reflect the EC benefits being nullified or impaired (Award, para. 4.4). To maintain confidentiality, the arbitrators decided that two versions of the award would be prepared. One, for the parties, which would contain all the information used in support of the determinations of the arbitrators. The other, which would be circulated to all WTO members, would be edited so as not to include sensitive information (Award, para. 1.24). In general, arbitrators in US – Section 110(5) Copyright Act determined important issues regarding jurisdiction and procedures so that future article 25 arbitrators can follow suit.

Add to all of this, that article 25 arbitration does not provide any appeal mechanism. As discussed above, arbitral awards under article 25 arbitration are final and there is no appeal process. Nor is there any need for article 25 arbitration award to be adopted by the DSB. This is in contrast with the WTO ordinary dispute settlement mechanism, where appeals are available regarding issues of law covered in the panel report and legal interpretations adopted by the panel (DSU, art. 17.6). The panel’s findings on factual issues thus escape from appellate review. The appellate review process is limited to upholding, modifying or reversing the panel’s legal findings and conclusions. Under WTO ordinary procedures, panel decisions are adopted unless all WTO members present at the meeting of the DSB decide by consensus not to adopt panel decisions (known as inverted consensus).

Conclusion

While theoretically article 25 arbitration seems to be a viable alternative past practice and wealth of experience and knowledge developed under WTO ordinary dispute settlement mechanism would prevent utilization of such an alternative. However, WTO members should not shy away from utilizing article 25 arbitration. The dispute settlement mechanism as a whole – including article 25 arbitration – is not only about disputes; it is an evolving body of international trade law principles.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Peeking Behind the Curtains: Insights from the Swiss Supreme Court’s Recent Public Hearings in Appeals against Investor-State Dispute Settlement Awards

Fri, 2019-01-04 02:05

Michael Falck

In a marked departure from its usual closed-doors policy, the Swiss Federal Supreme Court (the “Supreme Court”) recently held public deliberations in two separate appeal proceedings concerning foreign investment arbitrations. In both cases, a public deliberation by all five judges of the first civil chamber was necessitated due to the lack of unanimity among the regular panel of three (Articles 20 and 58 of the Swiss Federal Tribunal Act). In both cases, the majority decided to uphold the decisions in the relevant UNCITRAL arbitrations that favored investment protection, with a dissenting minority advocating for a more restrained interpretation of the scope of application of the relevant bilateral investment treaties (“BITs”).

The first hearing, held on 16 October 2018, concerned two cases in which the Russian Federation sought to set aside the interim awards in two PCA-administered UNCITRAL arbitrations with seat in Switzerland for lack of jurisdiction (4A_396/2017 and 4A_398/2017, published on 16 November 2018). The disputes centered on the territorial scope of the Russia-Ukraine BIT of 27 November 1998 (the “R-U BIT”), namely on whether the Crimea was part of the host state territory from the perspective of a Ukrainian investor.

The Supreme Court confirmed the arbitral tribunal’s finding that the BIT extended to the Crimea, over which Russia exercised de facto control. As for the scope of investments covered by the BIT, the Supreme Court backed the arbitral tribunal’s finding that the term “investment” included investments initially located in the investor’s home state that ended up in the host state only subsequent to a change in territorial borders.

Judge Kathrin Klett, the lone dissenting judge, criticized the majority’s finding, arguing that the arbitral tribunal’s jurisdiction should have been declined for two reasons. For one, the investment notion under Article 1 (1) of the R-U BIT was in Klett’s view transaction-based, i.e. it only covered investments that were made by investors of one state in the territory of another state. Judge Klett argued that, by contrast, the majority wrongly based their assessment on an asset-based definition of investment, which she considered to be a definition more commonly used in recent BITs. Judge Klett found that her view was also in line with a systematic interpretation of the R-U BIT, which specifically mentions the need for a cross-border investment ab initio (based on the wording in Article 12 of the R-U BIT: “… investments carried out by the investors of one Contracting Party on the territory of the other Contracting Party …”), thereby excluding investments that only become international later on. She further opined that her stance was supported by the BIT’s goal of attracting foreign investment. Secondly, Judge Klett criticized the majority’s approach as an impermissible supplementation of a lacuna in the BIT. In her view, Russia and Ukraine in 1998 did not consider the possibility that investments would change ‘nationality’ as a result of shifting borders and this gap in their agreement could not be filled by a judicial or arbitral body.

In the second hearing, held on 11 December 2018 and for which the reasoned judgement is still outstanding, the Supreme Court rejected India’s set-aside appeal to an interim arbitral award in a satellite telecommunications dispute with Deutsche Telekom. In the UNCITRAL arbitration with seat in Switzerland, the tribunal had rejected India’s jurisdictional objections and found the force-majeure repudiation of the contract by the Indian state-owned entity to be a violation of the fair and equitable treatment standard. The Supreme Court confirmed the arbitral tribunal’s finding that the subjective scope of the 1995 Germany India BIT (the “G-I BIT”) extended to both direct and indirect foreign investments and thus covered Deutsche Telekom’s Indian investment made through a Singaporean subsidiary.

The majority considered that the G-I BIT covered indirect investments despite not being mentioned explicitly in the text. It based its interpretation on the BIT’s purpose of promoting foreign investment. Christina Kiss, the presiding judge, explained that a state should not be allowed to restrictively interpret such a treaty to exclude the type of investment it intended to attract when entering into the BIT. The majority also found support for its position in the fact that the use of special purpose investment vehicles was common in foreign investment and should not be disallowed by way of a restrictive interpretation. By contrast, the two dissenting judges adhered to a more literal interpretation, with Judge Klett emphasizing that Deutsche Telekom’s investment was in Singapore and not in India. Judge Martha Niquille expressed the view that the treaty’s silence on indirect investments should be interpreted as a conscious omission by the treaty partners since some contemporary BITs explicitly included such investments.

While no assessment on the basis of a sample size of two can be conclusive, the two decisions nevertheless invite a joint assessment in light of the fact that their contested and, in the case of the Crimean decision, politically sensitive subject matter led both to be publicly deliberated in the space of only two months. Seen together, the two decisions betray the possibility of an ideological divide among the judges of the first civil chamber. In common terms, this divide would distinguish Judges Klett and Niquille as the more ‘conservative’ faction favoring a more restrictive interpretation of BITs’ scopes of application, which ultimately favors states’ sovereignty. By contrast, the majority seems to show a willingness to interpret the BITs brought before it based on their objective purpose, thereby maintaining their broad scope (as reflected e.g. in Article 2 of the G-I BIT by the phrase “all investments made”) and refusing to exclude investments that a more restrictive historical or literal interpretation of the BIT would not cover.

It remains to be seen whether this divide follows the described lines or even truly exists. In any case, the Supreme Court’s recent jurisprudence in investor-state dispute settlement disputes can still be said to reflect its customary and long-standing practice as a gate-keeper: it assiduously uses its broad power of review when assessing an arbitral tribunal’s legal reasoning on jurisdiction yet exercises the judicial restraint mandated by Article 190 (2) of the Swiss Private International Law Act on all other grounds of appeal. The result is a body of established precedents that is very consistently in favor arbitri, which is good for investor-state arbitrations with seat in Switzerland and good for business.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185