Kluwer Arbitration Blog

Syndicate content
Updated: 1 hour 18 min ago

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

Sun, 2019-03-17 21:05

Kiran Nasir Gore (Associate Editor)

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

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

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

 

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

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

 

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

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

 

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

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

 

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

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

 

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

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

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

 

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

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

 

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

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

 

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

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

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

 

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

 

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

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


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

Sat, 2019-03-16 23:51

Raghav Kohli

Young ICCA

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

 

Background of the Case

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

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

 

Decision of the Singapore Court of Appeal

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

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

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

 

Commentary

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

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

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


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

Sat, 2019-03-16 00:00

Simon Bianchi

Young ICCA

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

 

Background

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

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

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

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

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

 

The Swiss Federal Supreme Court Decision

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

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

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

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

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

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

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

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

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

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

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

  • The Swiss Supreme Court does not hesitate to use its broad power of review when assessing an arbitral tribunal’s legal reasoning on jurisdiction.
  • A majority of the judges of the Supreme Court tend to adopt a broad definition of the notion of investments relying on the purpose and meaning of bilateral investment treaties and to reject a more restrictive definition based on a historical and/or literal interpretation.
More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


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

Fri, 2019-03-15 00:05

Marlon Meza-Salas

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

Insights on the Topics Discussed

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

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

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

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

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

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

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

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

Some Challenges to International Arbitration

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

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

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

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

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


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

Thu, 2019-03-14 03:55

Oleksii Maslov

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

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

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

Foreign States’ Sovereign Immunities in Ukraine

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

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

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

2) where an applicable international treaty provides otherwise.

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

Supreme Court’s Reasoning

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

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

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

Food for Thought in Supreme Court’s Reasoning and Implications

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

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

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

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

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

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

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

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

References   [ + ]

1. ↑ E.g., see here  2. ↑ See this post by Mykhaylo Soldatenko. 3. ↑ See here and here in Ukrainian. 4. ↑ See here in Ukrainian. 5. ↑ A brief summary of the judgment may be found here. 6. ↑ See here in Ukrainian. 7. ↑ See here in Ukrainian. 8. ↑ See here, paragraphs 68-78. 9. ↑ See here and here. 10. ↑ Direct applicability is established by the Law of Ukraine “On Execution of Judgments and Application of Jurisprudence of the European Court of Human Rights”, see here in Ukrainian. 11. ↑ See the BIT here. 12. ↑ See here. 13. ↑ German court, while analysing Germany-Thailand BIT (with wording very similar to that in the Russia-Ukraine BIT) decided that it constitutes Thailand’s waiver of immunity from execution, see here, referred to by Alexey Vyalkov. 14. ↑ Detailed analysis in Ben JURATOWITCH (2016). Waiver of State Immunity and Enforcement of Arbitral Awards. Asian Journal of International Law, 6, pp 199-232 here. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


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

Tue, 2019-03-12 22:17

Danilo Ruggero Di Bella and Josep Gálvez

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

 

Regulatory changes

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

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

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

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

 

The (almost ready) precedent

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

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

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

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

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

 

Risk analysis

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

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

 

Circumventing double-sided risks: an amicable solution

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

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

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

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

 

References   [ + ]

1. ↑ See also the forward-looking Master Thesis from 2015 of Danilo Di Bella. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Abu Dhabi Global Market Courts Enhances its Attractiveness as an Arbitral Seat

Tue, 2019-03-12 05:40

Peter Smith

The Abu Dhabi Global Market (“ADGM”) is an international financial free zone and an important emerging seat of arbitration in the GCC region. The ADGM’s arbitration law is based on the UNCITRAL Model Law, with a number of significant enhancements relating to the confidentiality of proceedings, the joinder of third parties, and the waiver of the right to bring an action for setting aside.

The Court of First Instance (“CFI”) of the ADGM Courts (“ADGMC”) is the court designated as the supervisory court for arbitrations seated within the ADGMC’s jurisdiction. 2018 saw the CFI exercising that function for the first time in the cases of A1 v B1 (9 January 2018) and A2 v B2 (11 October 2018). One of these cases involved a pre-claim ex parte application for interim relief which demonstrated the ability of the CFI to organise hearings quickly, use sophisticated document management and international telephone conferencing facilities, and to grant swift and appropriate relief when necessary.

These cases are part of a wider trend. As the ADGMC enter 2019, they can be expected to build on the progress made in 2018. Last year saw an increase to 14 of the numbers of cases brought in the CFI, up from 7 the year before, i.e. a 100% increase. Many of the cases listed cover real property and employment disputes but, as more companies take offices on the island and residential developments grow, the volume and range of the CFI’s docket will surely increase with the ever-greater numbers of contracts subject to the ADGMC’s jurisdiction.

The CFI’s increased workload comes as the ADGMC signed a memorandum of understanding (the “2018 MOU”) revising and updating the mutual and reciprocal recognition and enforcement of, inter alia, ratified arbitral awards between the ADGMC and the Courts of the Emirate of Abu Dhabi represented by the Abu Dhabi Judicial Department (“ADJD”). The 2018 MOU builds on an earlier MOU signed between the same parties in 2016 and Article 13(11) of Abu Dhabi Law No. 4 of 2013, but provides further clarity on the specific processes for reciprocal enforcement which the 2013 law did not cover. The 2018 MOU fills a gap in the relationship between the ADJD-ADGMC identified previously. The 2018 MOU establishes that mutually ratified or recognised awards are to have the same force as a judgment of either of the courts without the requirement of any further ratification or recognition by the other court. Mutual recognition and enforcement also extends to include court-approved settlement agreements (known as ‘memoranda of composition’) certified by either court. Parties are already benefitting from these enforcement regimes, which are the result, as may be seen, of the collaborative efforts of the ADGMC and ADJD.

As a court of the UAE, the ADGMC is bound by the UAE’s international obligations under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, the Riyadh Arab Agreement for Judicial Cooperation 1983 and Gulf Cooperation Council Convention for the Execution of Judgments, Delegations and Judicial Notifications 1996.

In October 2018, the ADGM’s Arbitration Centre opened. The new centre provides parties with state of the art meeting and hearing room facilities. In December, the ADGMC launched “the world’s first fully digital courtroom”, allowing parties and their representatives to access court documents including court forms and bundles and to attend hearings remotely.

In summary, and as a result of its sophisticated arbitral law, its collaboration with the ADJD, and the effective performance of the CFI of the ADGMC of its arbitration related functions, ADGM is establishing itself as a leading arbitration seat in the region.

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


Third Party Funding in Nigerian Seated Arbitrations: Setting the Law Straight

Mon, 2019-03-11 22:30

Opemipo Omoyeni

Introduction

This post addresses the topical issue of Third-Party Funding (“TPF”) in relation to Nigeria-seated arbitrations, and posits in variance with recent work on the subject that there is no extant law prohibiting TPF in Nigeria-seated arbitrations. This post points out that there has been an apparent misapplication of the common law principles of champerty and maintenance as is obtainable in courtroom litigation to privately convened arbitrations. Further, there seems to be a narrow conception of TPF in terms of direct funding of a proceeding by a funder (funders). The author argues that the scope of TPF is broader than envisaged as TPF also includes attorney financing (pro bono and contingency or success fee type arrangements) and Nigerian law permits the latter concept.

Origins and Scope

Nigeria is a common law country. Although English case law is considered largely persuasive, certain corpus of laws were imported into the Nigerian legal system by virtue of it being a former British Colony. This is known as the Received English Law which comprises of the principles of Common Law and Equity and Statutes of General Application (being statutes in force in England on the 1st day of January, 1900).

Historically, the English courts developed concepts like “champerty” and “maintenance” in response to what was considered to be interference by non-interested third parties with ongoing proceedings. Unfortunately, these doctrines of champerty and maintenance still form part of the Nigerian legal system on account of its association with the Common Law system and the reinforcement of these principles by local courts. Thus, in order to ascertain the scope and applicability of these doctrines in Nigeria, recourse must be readily had to the English Common Law system where these doctrines originated from. It has been posited that to understand the scope of a concept, one must readily refer to the mischief the law sought to remedy 1)Steyn L.J in Giles v Thompson[1994] 1 A.C. 142; [1993] 2 W.L.R. 908. jQuery("#footnote_plugin_tooltip_8762_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8762_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

In the medieval British era, there was a prevalent mischief of influential persons (barons) purchasing weak claims with the expectation that they could use their power and wealth to influence the administration of justice and to eventually win those claims. This mischief was aptly pointed out by the Hong Kong High Court in Cannonway Consultants Ltd v Kenworth Engineering Ltd citing an extract from Jerry Bentham’s work:

“A mischief, in those times it seems but too common, though a mischief not to be cured by such laws, was, that a man would buy a weak claim, in hopes that power might convert it into a strong one, and that the sword of a Baron, stalking into court with a rabble of retainers at his heels, might strike terror into the eyes of a judge upon the bench. At present, what cares an English judge for the swords of a 100 barons? Neither fearing nor hoping, hating nor loving, the judge of our days is ready with equal phlegm to administer, upon all occasions, that system, whatever it be, of justice or injustice, which the law has put into his hands.”

Nigerian Jurisprudence and TPF

Indeed, the mischief that both doctrines were devised to remedy, were prevalent in the public justice system as administered in court rooms and the application of the doctrines at common law was confined to litigation. Their applicability cannot be extended beyond that remit. The concerns for holding otherwise have been noted to include, among others, the erosion of the party autonomy doctrine and the same have been reinforced elsewhere 2)Giles v Thompson [1994] 1 A.C. 142; [1993] 2 W.L.R. 908 jQuery("#footnote_plugin_tooltip_8762_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8762_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

In view of the foregoing, the contention that TPF extends to arbitration appears rather curious. The scale of the application of the doctrine of champerty and maintenance under common law cannot be readily stretched or modified to apply to circumstances and situations not otherwise contemplated at common law except modified by local legislation(s) in that regard. It is, therefore, pertinent to note that at the time of penning this article, there are no local legislations or case law positing that the doctrine extends to the field of arbitration 3)See Miscellaneous Offences Tribunal v. Okoroafor(2001) 18 NWLR (Pt. 745) 295 jQuery("#footnote_plugin_tooltip_8762_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8762_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. The attendant consequence is, indeed, that TPF in Nigeria-seated arbitrations are, in all intents and purposes, legal. The law remains that whatever is not prohibited is allowed 4) Oyo v. Mercantile Bank (Nig) Ltd. (1989) 3 NWLR 229 jQuery("#footnote_plugin_tooltip_8762_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8762_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

On another note, there are various incidences of TPF that do not entail the funding of a claim/defense by a formal funder for an agreed consideration. The financing of a claim by a lawyer or law firm on a pro bonoor contingency basis also falls under the umbrella of TPF. These arrangements, either in arbitration or litigation, are legal and permissible under Nigerian Law. Earlier decisions of Nigerian Courts adjudging contingency fee arrangements as at best unprofessional and at worst champertuous 5) Oyo v. Mercantile Bank (Nig) Ltd. (1989) 3 NWLR 229 jQuery("#footnote_plugin_tooltip_8762_5").tooltip({ tip: "#footnote_plugin_tooltip_text_8762_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); have since been supplanted by subsidiary legislations enacted pursuant to the Legal Practitioners Act 6)Rule 50 of the Rules of Professional Conduct for Legal Practitioners, 2007 allows Nigerian Legal Practitioners to enter into contingency arrangement with clients provided that these arrangements are reasonable. jQuery("#footnote_plugin_tooltip_8762_6").tooltip({ tip: "#footnote_plugin_tooltip_text_8762_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

Conclusion

Whilst the Arbitration and Conciliation (Repeal and Re-enactment) Bill 2017 has been extensively reviewed with calls for a more explicit recognition of TPF in the Bill among others, the law as it stands does not prohibit the incidence of TPF in Nigeria-seated arbitrations. A better approach, the author suggests, will be to demand for an enactment of a comprehensive regulatory framework for TPF, as is obtainable in other jurisdictions, by calling for a holistic revision to the Bill to provide for issues  bordering on disclosure of funding arrangements, conflict of interest considerations as it pertains to the arbitrators,  element of control and influence of the funder in the proceedings as well as other concerns in this space. An adoption of this approach will make Nigeria an attractive choice as a seat for contracting parties in arbitrations.

References   [ + ]

1. ↑ Steyn L.J in Giles v Thompson[1994] 1 A.C. 142; [1993] 2 W.L.R. 908. 2. ↑ Giles v Thompson [1994] 1 A.C. 142; [1993] 2 W.L.R. 908 3. ↑ See Miscellaneous Offences Tribunal v. Okoroafor(2001) 18 NWLR (Pt. 745) 295 4. ↑ Oyo v. Mercantile Bank (Nig) Ltd. (1989) 3 NWLR 229 5. ↑ Oyo v. Mercantile Bank (Nig) Ltd. (1989) 3 NWLR 229 6. ↑ Rule 50 of the Rules of Professional Conduct for Legal Practitioners, 2007 allows Nigerian Legal Practitioners to enter into contingency arrangement with clients provided that these arrangements are reasonable. 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


The Interpretation of the New York Convention by the UAE Courts: a Geneva Flavor?

Sat, 2019-03-09 21:19

Abdelhak Attalah

Introduction

The United Arab Emirates (the “UAE”) is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the “NYC”), which was adopted into UAE law by Federal Decree No. 43 of 2006. However, there have been instances where the lower courts of the UAE have come to interpret the NYC requirements for enforcement, and the concept of “double-exequatur” has arisen (i.e., the need for it to be shown that the arbitral award has been rendered enforceable in the jurisdiction in which it was made before it can be enforced in any other jurisdiction).

This has created uncertainty, which undermines one of the NYC’s fundamental objectives: to establish uniform international standards for the recognition and enforcement of foreign arbitral awards in signatory countries.1) Pieter Sanders, Quo Vadis Arbitration?: Sixty Years of Arbitration Practice, A Comparative Study (Kluwer Law International, The Hague 1999) 67-69; Gary B. Born, The New York Convention: A Self-Executing Treaty (2018) 40 MJIL 116,119 (accessed on 3 January 2019) jQuery("#footnote_plugin_tooltip_5423_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5423_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Recent UAE Case Law on Double-Exequatur

Fortunately, to the relief of arbitral award creditors, in a ruling of the Federal Court of Cassation (the “FCC”) of 15 January 2019 in the joint Commercial Appeals Nos. 620/2018 and 654/2018, the FCC overturned a refusal by the Khor Fakkan Court of Appeal (the “Court of Appeal”) to recognize and enforce a foreign arbitral award issued under the Rules of the London Court of International Arbitration (“LCIA”) in London, UK, (the “LCIA Award”) on the basis that it had not been granted exequatur by the English Court before being enforced in the UAE.

The FCC found that (i) the Court of Appeal’s ruling amounted to a “double-exequatur” requirement, which was abolished by the NYC; and (ii) the lower court’s refusal to recognize and enforce the LCIA Award was due to its misinterpretation of the term “authenticated” set forth in sub-paragraph (a) of Article IV(1) of the NYC which states that:

To obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply:
(a) The duly authenticated original award or a duly certified copy thereof.

In the FCC’s view, the Court of Appeal had confused the meaning of the term authentication (an international certification comparable to a local notarization/legalization of any document) with the meaning of enforceability/exequatur set forth in Article 4 of the Geneva Treaties.2) The Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927, the predecessors of the NYC. jQuery("#footnote_plugin_tooltip_5423_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5423_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The requirement for a leave for exequatur from the court under whose law the award was made was abrogated by Article VII(2) of the NYC, and hence the ruling of the Court of Appeal contradicts the prevailing legal position in the UAE.

The FCC confirmed that, pursuant to Article 238 of the UAE Civil Procedures Code, the UAE courts are bound by the NYC. In this matter, the FCC stated verbatim that:

The argument based on which the lower court rejected the recognition and enforcement of the said award was because it was not granted exequatur in the country where it was issued, and, is therefore, unlawful. This is because of the term authentication, which caused confusion in the mind of the lower court, does not mean ratification of the award and granting it exequatur as per the meaning taken from article 236 of the Civil Transactions Law, rather, it means authentication or legalization as required for the official documents issued by a foreign country and invoked within the State, and since the appealed judgement had a contrary opinion, it shall be declared as a wrongful application of the law, which prevented the lower court to adjudicate the case in its proper legal scope and under the provisions of the NYC mentioned above, the Court of Appeal has erred in its judgment and therefore, it must be overturned. (emphasis added)

The Evolution of the Double-Exequatur Concept: The Geneva Convention

As for the concept of double-exequatur, it should be noted that Article 4(2) of the 1927 Geneva Convention required the party relying upon an award or seeking its enforcement to supply, inter alia, “[d]ocumentary or other evidence to prove that the award ha[d] become final […] in the country in which it was made”.

While Albert Jan van den Berg explains3) Albert Jan van den Berg, The New York Convention of 1958: An Overview in (Emmanuel Gaillard & Domenico Di Pietro (eds), Enforcement of Arbitration Agreements and International Arbitral Awards: The New York Convention in Practice (Cameron May 2008) 61 jQuery("#footnote_plugin_tooltip_5423_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5423_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that:

The NYC’s predecessor, the Geneva Convention of 1927, required that the award had become ‘final’ in the country of origin. The word ‘final’ [used in Article 4(2) of the Geneva Convention of 1927] was interpreted by many courts at the time as requiring a leave for enforcement (exequatur and the like) from the court in the country of origin. Since the country where enforcement was sought also required a leave for enforcement, the interpretation amounted in practice to the system of the so-called “double-exequatur”. The drafters of the NYC, considering this system as too cumbersome, replaced the term “final” in Geneva Convention, qualifying the award, with the word “binding” in NYC. Accordingly, no leave for enforcement in the country of origin is required under the New York Convention. This principle is almost unanimously affirmed by the courts.

The meaning of the term authentication stated in sub-paragraph (a) of Article IV(1) of the NYC was clarified by the FCC as per the meaning of the UAE statutes, especially Article 13 of the UAE Law of Evidence, in addition to the legal precedents explaining the meaning of the authentication of documents. Indeed, authentication shall be executed as per the Hague Convention of 1961 or as per the UAE modalities and requirements through which a document issued in a foreign country shall be certified i.e., by a solicitor or a notary public and by the respective Foreign Ministry. This interpretation is almost unanimously affirmed by the UAE courts.

The Position under the NYC

As a reminder, the NYC was established as a result of dissatisfaction with the Geneva treaties of 1923 and 1927, and one of the basic actions contemplated by it is the abrogation of the double-exequatur requirement. Article VII(2) of the NYC states that:

[t]he Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927 shall cease to have effect between Contracting States on their becoming bound and to the extent that they become bound, by this Convention.

Moreover, pursuant to Article IV of the NYC, the arbitral award creditor is required to provide the court with only two documents (with translations certified by an official or sworn translator or by a diplomatic or consular agent if either document is not made in an official language of the country in which the award is relied upon):

(a) The duly authenticated original award or a duly certified copy thereof; and
(b) The original agreement referred to in Article II or a duly certified copy thereof.

Therefore, pursuant to Article IV of the NYC, enforcement of a foreign award is not conditional upon presentation by the award creditor of proof that the award is final and enforceable in the country of the seat, as the drafters of the NYC did not set such a requirement. Rather, it is for the party resisting recognition and enforcement to provide such proof as clearly required in Article V(1)(e) of the NYC which states:

1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

(e) The award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

Conclusions

Taken in the round, it is clear that Article V(l)(e) and Article VII(2) of the NYC were drafted with a view to put an end to the mechanism of double-exequatur required by Article 4 of the Geneva Treaties, by which a party seeking recognition and enforcement of a foreign award had to prove, among other conditions, that the award had become “final” in the country of the seat.

Indeed, Article V(l)(e) of the NYC allows national courts to refuse the recognition or enforcement of an award if the party resisting enforcement establishes that the award: (a) has not yet become binding on the parties; or (b) has been set aside or suspended. Thus, the binding character of a foreign arbitral award in the hand of a creditor seeking recognition and enforcement in the UAE shall not depend on an exequatur by the courts of the country of the seat.

References   [ + ]

1. ↑ Pieter Sanders, Quo Vadis Arbitration?: Sixty Years of Arbitration Practice, A Comparative Study (Kluwer Law International, The Hague 1999) 67-69; Gary B. Born, The New York Convention: A Self-Executing Treaty (2018) 40 MJIL 116,119 (accessed on 3 January 2019) 2. ↑ The Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927, the predecessors of the NYC. 3. ↑ Albert Jan van den Berg, The New York Convention of 1958: An Overview in (Emmanuel Gaillard & Domenico Di Pietro (eds), Enforcement of Arbitration Agreements and International Arbitral Awards: The New York Convention in Practice (Cameron May 2008) 61 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


Arbitrability of IP Disputes in India – A Blanket Bar?

Sat, 2019-03-09 01:00

Saniya Mirani and Mihika Poddar

Arbitration of IP disputes has inherent advantages of saving time and costs and ensuring confidentiality while also maintaining long-term business relations (see here). In India, arbitration will be especially useful in light of the enormous pendency of judicial cases.

However, arbitrability of any subject-matter is dictated by a country’s public policy. In India, what forms part of arbitrable subject-matter is determined as per the test laid down in the Booz Allen Case, expanded upon by the Ayyasami Case. The following two categories of disputes are thereby inarbitrable in nature:

  1. Disputes involving the adjudication of actions in rem as opposed to actions in personem, such as, disputes relating to criminal offences, guardianship matters etc. (hereinafter, the first test of arbitrability);
  2. Disputes arising out of a special statute, which are reserved for exclusive jurisdiction of special courts, such as, matters reserved for small causes courts1) Natraj Studios Private Ltd v. Navrang Studios & Another, 1981 AIR 537 jQuery("#footnote_plugin_tooltip_4851_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4851_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (hereinafter, the second test of arbitrability). (See here and here)

These tests evince that arbitrability is dependent upon the nature of the claim made in a dispute, i.e., whether the claim is in rem or statutory in nature. This principle should guide the arbitrability of IP disputes too.

 

The IP Regime in India: A Primer

Before understanding the arbitrability of IP disputes, it is essential to understand the functioning of IP regime in India. The scope of this article is limited to analysing arbitrability of patent, copyright and trademark regimes. These regimes allow a “statutory monopoly” to be given to the creator of an intangible asset, conferring an exclusive right to exploit it. There are corresponding statutory remedies to enforce this right. For instance, there exist statutory remedies for infringement of copyright, trademark and patent.2) See, Chapter XII, Copyright Act, 1957; Section 135, Trade Marks Act, 1999; Chapter XVIII, Patents Act, 1970. jQuery("#footnote_plugin_tooltip_4851_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4851_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As per the statute, these remedies must be granted by civil courts. The statutory mention of courts, as a forum to grant these remedies, creates the first hurdle in arbitrating IP disputes.

 

Lack of a Supreme Court precedent settling the issue

The Supreme Court of India has not conclusively settled the issue of arbitrability of IP disputes. In the Ayyasami Case, patents, trademarks and copyrights were listed in the category of inarbitrable disputes. However, the main issue before the court was of arbitrability of fraud (discussed here and here). Thus, categorization of IP disputes as inarbitrable was only obiter dictum. Therefore, this decision cannot be read to bar arbitrability of IP disputes.

 

Different positions of Indian High Courts

Both the aforementioned tests of arbitrability have been used to hold IP disputes inarbitrable. In the Mundipharma Case, the issue was whether a claim of ‘copyright infringement’ was arbitrable. The Delhi High court held the dispute to be inarbitrable given that infringement of copyright is a statutory claim, having definite statutory remedies that are to be granted exclusively by civil courts. This ruling thus seems to echo the second test of arbitrability that bars arbitrability of disputes arising out of special statutes which are reserved exclusively for civil courts.

Subsequently, in the SAIL Case [Suit No. 673/2014], a claim of ‘trademark infringement’ was held to be inarbitrable by Bombay High Court reasoning, “the rights to a trademark and remedies in connection therewith are matters in rem and by their very nature not amenable to the jurisdiction of a private forum chosen by the parties”. Accordingly, the dispute was held to be inarbitrable on the basis of the first test of arbitrability that makes actions in rem inarbitrable.

The Eros Case brought about the first winds of change to this negative trend. The Respondent was granted a copyright license to distribute the Petitioner’s films. The license contained an express negative covenant which prohibited the use of copyrighted films upon termination of contract. Respondent violated this term. Thus, the Petitioner initiated arbitration for ‘violation of the contractual covenant’ – a claim although sourced purely in contract, still required an infringement of copyright to be established.

The Bombay High Court held for the first time that it would be too broad, impractical and against all commercial sensibilities to hold that the entire realm of IP disputes is inarbitrable. Accordingly, the case rightly noted the nuance that that IP disputes arising purely out of contracts are arbitrable because they are actions in personam, i.e. “one party seeking a specific particularized relief against a particular defined party”. Thus, the case applied the first test of arbitrability. The court went a step ahead to state that, a finding of infringement had to be made for proving such a contractual breach and that an arbitrator was empowered to make such a finding of infringement as ‘infringement’ can only be in personam. Thus, an infringement claim could now be determined by arbitration.3) Note that this ratio had been upheld by an earlier case from the same high court called Eurokids International Media Ltd. v. Bhaskar Vidyapeeth Shikshan Sanstha (2015) 4 Bom CR 73. However, Eurokids case was never referred to by EROS, as should have been done in light of the precedential system followed by India. jQuery("#footnote_plugin_tooltip_4851_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4851_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

However, even when the dispute is in personam, the second test of arbitrability can be applied, to hold the disputes arising out of special statutes as inarbitrable. This test was refuted in EROS reasoning that the statute nowhere provides that the court is an ‘exclusive’ forum, and thus, arbitration should be allowed. We argue that the holding of inapplicability of the second test was correct. The second test is applied where there is an underlying public policy objective in keeping disputes in the hands of courts. For instance, labour disputes are made inarbitrable by Industrial Disputes Act, 1947, for the reason that a public fora can address the power imbalance prevalent between employers and employees in labour disputes. However, in such IP disputes, similar considerations are not always in play. Thus, the EROS decision rightly refuted the second test of arbitrability.

Since the Eros and Euro Kids cases, other IP disputes that are purely born out of such negative covenants in contracts have also been upheld as being arbitrable.4) Deepak Thorat v. Vidli Restaurant Limited, 2017 SCC OnLine Bom 7704 jQuery("#footnote_plugin_tooltip_4851_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4851_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Analysis and conclusion

In earlier cases of Munidpharma and SAIL, where arbitrability of IP disputes was tested, the petitioners raised statutory claims of infringement of copyright/trademark, and expected statutory or public law-based remedies in return. Thus, the only gamut of IP disputes whose arbitrability had been tested hitherto were those that were purely born out of IP statutes. However, IP disputes are not merely statutory, but can be contractual as well.5) In some cases, an entire contract may be about an IP right. For instance, license agreements, joint research and development agreements, etc. In other cases, the IP rights may form a part of a larger commercial transaction, such as, mergers, acquisitions, distribution agreements. jQuery("#footnote_plugin_tooltip_4851_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4851_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); With increase in quantum and complexity in commercial transactions, the arbitrability of purely contractual IP disputes arose very recently in recently in the EROS and Eurokids cases. These cases have rightly not applied SAIL’s holding about the inarbitrability of purely statutory I.P. claims to contractual IP claims.

Thus, as per the current position in India, there is no blanket bar on arbitrability of IP disputes. Instead, arbitrability is determined on the basis of nature of claims raised. Disputes of royalty, geographical area, marketing and other terms of the license agreements, which are purely contractual, would be arbitrable. Parties in India can and should freely arbitrate such disputes. However, a dispute of validity/ownership of an IP right should be decided by the court/assigned public administration, for the dispute would result in a judgement affecting the general public’s right to use the respective asset.

The position of infringement claims is dependent upon each case. Statutory infringement simpliciter would not be arbitrable in accordance with the Mundipharma and SAIL cases; while infringement arising purely out of contract will be arbitrable in accordance with EROS, Euro kids cases. However, often as is the case, if a counter-claim about the validity of IP right is raised against an infringement claim, the counter-claim needs to be resolved by the court for it would then be an action in rem. Pending such resolution, the arbitration may be stayed.

This position on arbitrability will ensure a balance of rights between inventor/author and the general public, with inventor/author retaining the right to arbitrate contractual rights and courts retaining jurisdiction over claims that affect the general public. Such a balance is desirable for effective functioning of the IP regime as well. The possibility of easy dispute resolution would encourage inventors. Retaining the courts’ jurisdiction over matters where the public’s right to use copyrighted works and patented inventions is affected, would also ensure a robust public domain and safeguard public interest.

References   [ + ]

1. ↑ Natraj Studios Private Ltd v. Navrang Studios & Another, 1981 AIR 537 2. ↑ See, Chapter XII, Copyright Act, 1957; Section 135, Trade Marks Act, 1999; Chapter XVIII, Patents Act, 1970. 3. ↑ Note that this ratio had been upheld by an earlier case from the same high court called Eurokids International Media Ltd. v. Bhaskar Vidyapeeth Shikshan Sanstha (2015) 4 Bom CR 73. However, Eurokids case was never referred to by EROS, as should have been done in light of the precedential system followed by India. 4. ↑ Deepak Thorat v. Vidli Restaurant Limited, 2017 SCC OnLine Bom 7704 5. ↑ In some cases, an entire contract may be about an IP right. For instance, license agreements, joint research and development agreements, etc. In other cases, the IP rights may form a part of a larger commercial transaction, such as, mergers, acquisitions, distribution agreements. 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


Section 1782 Discovery For Use In Private Arbitrations: The New York Saga Continues

Fri, 2019-03-08 03:00

Lucas Bento

United States Code Section 1782 has become the weapon of choice for international litigants seeking discovery in aid of foreign proceedings. Section 1782 allows an “interested person” (such as a foreign litigant) to apply for discovery over a person or entity “found” in the U.S. “for use” in a proceeding “in a foreign or international tribunal.” Significant uncertainty exists, however, in whether Section 1782 discovery can be sought for use in a private arbitration abroad.  In a prior Kluwer Arbitration Blog post, I reviewed a decision of the U.S. District Court of the Southern District of New York (“SDNY”) that granted an application for Section 1782 discovery for use in a foreign arbitration governed by the London Maritime Arbitration Association (“LMAA”).

While the Second Circuit has not weighed on this issue post-Intel (the leading Supreme Court case on Section 1782), a recent decision from the SDNY provides some additional insight on how New York federal courts interpret the statute, particularly in light of Second Circuit precedent (“NBC”) holding that Section 1782 does not apply to proceedings before private arbitral panels—until now one of only two circuit court decisions addressing the issue.  That precedent was called into question by a passage in Intel that parenthetically quoted a law review article authored by Professor Hans Smit—one of the principal advisers to Congress on the drafting of Section 1782—that included arbitration proceedings in an illustrative list of “tribunals.”1) See Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 258 (2004); citing Smit, International Litigation under the United States Code, 65 Colum. L.Rev. 1015, 1026–1027, and nn. 71, 73 (1965) jQuery("#footnote_plugin_tooltip_6829_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6829_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In Children’s Investment Fund, the SDNY declined to follow NBC by holding that an arbitration governed by the London Court of International Arbitration (“LCIA”) rules fall within the purview of Section 1782.  The applicants were investors in a group of Mauritius private equity funds that were formed to invest in real estate in India.  Disputes eventually arose relating to the management of the funds, and the applicants initiated a series of actions in Mauritius, India, and an LCIA arbitration in the United Kingdom.  The applicants subsequently filed a Section 1782 application seeking discovery over certain individuals and entities in the United States for use in those foreign proceedings, including the LCIA arbitration.

In considering the threshold issue of whether an LCIA tribunal qualifies as a “foreign or international tribunal” under Section 1782, the SDNY noted that “the question of whether a private, foreign arbitration panel satisfies the ‘for use’ requirement of § 1782 is unsettled in th[e] [Second] Circuit.”  While the Court explicitly acknowledged NBC, it went on to note that “five years after NBC…. the Supreme Court cited an article by Professor Hans Smit including the text, ‘the term ‘tribunal’ includes investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts.”

In noting that the Second Circuit has not considered whether a private arbitration tribunal satisfies the “for use” requirement since Intel, the SDNY sided with the U.S. District Court of the Northern District of Georgia, which held that NBC no longer applies since Intel.  The Court consequently found that

“a private arbitration tribunal is a ‘proceeding in a foreign or international tribunal’ for the purposes of § 1782; therefore, the LCIA satisfies this statutory requirement.”

The decision is significant for foreign litigants who wish to use Section 1782 to obtain evidence from persons that “reside” or are “found” in New York for use in a foreign private arbitration.  It departs from the “shadow” of NBC and falls more heavily within the gravitational pull of the “weight of Intel” and the district court decisions citing Intel for the proposition that Section 1782 authorizes discovery for use in private arbitral proceedings.  While other SDNY decisions have also recently gone the other way,  perhaps the time is ripe for the Second Circuit to finally weigh in on the issue.

 

Lucas Bento FCIArb FRSA is the author of The Globalization of Discovery under 28 U.S.C. § 1782: Law and Practice (Kluwer Law International, forthcoming 2019).  He is a Senior Associate at Quinn Emanuel Urquhart & Sullivan and President of the Brazilian-American Lawyers Association.  The views expressed in this post are the author’s personal views, and do not reflect the opinions of Quinn Emanuel, its clients, or of the Brazilian American Lawyers Association.

References   [ + ]

1. ↑  See Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 258 (2004); citing Smit, International Litigation under the United States Code, 65 Colum. L.Rev. 1015, 1026–1027, and nn. 71, 73 (1965) 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


Revised ICC Note to Parties and Tribunals: Will Publication of Awards Become the New Normal?

Wed, 2019-03-06 22:09

Ben Jolley and Oliver Cook

Herbert Smith Freehills

ICC’s updated guidance to parties

On 20 December 2018 the International Court of Arbitration of the International Chamber of Commerce (ICC) published an updated Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration (Note). The Note, which came into effect from 1 January 2019, introduces a number of significant updates to the ICC’s practical guidance on its Rules of Arbitration.1) These updates include new guidance on data protection, clarifications on disclosures by arbitrators and additional guidance for treaty-based arbitrations. jQuery("#footnote_plugin_tooltip_9361_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9361_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Amongst these updates, the ICC’s new opt-out approach to the publication of awards will be of particular interest to users of international arbitration, many of whom have chosen this method of dispute resolution for its privacy and perceived confidentiality.  Some users may also be surprised to learn of this change, which came in through an updated practice note rather than via a formal amendment to the ICC Rules.

This article will examine the ICC’s new approach, and the practical considerations it raises for users of ICC arbitration. Ultimately, while we consider the ICC’s new approach to publication will have benefits for users of arbitration and tribunals, it remains to be seen whether parties will support the ICC’s attempts to make information about its awards more widely-accessible.

 

Revised approach to publication of awards

The ICC’s new approach to the publication of awards is set out in paragraphs 40 to 46 of the Note. The ICC considers that the publication and dissemination of information about arbitration is an “instrumental factor” in facilitating the development of world trade. (paragraph 40 of the Note)  It is in this context that the ICC has adopted the following approach:

  • ICC awards made from 1 January 2019 may be published.
  • The Secretariat will inform parties at the time of notification of awards, that the award may be published in its entirety no less than two years after notification. Parties are able to agree to publication in a shorter or longer time period.
  • Any party may, at any time before publication, object to publication or require that the published version of an award be anonymised or pseudonymised.
  • If a party objects to publication or requires that the award be anonymised or pseudonymised, the award will either not be published, or will be published in a restricted format.
  • If there is a confidentiality agreement in place covering the arbitration or specific aspects of the arbitration or award, publication of the award will be subject to the parties’ specific consent (opt-in to publication rather than opt-out).
  • Aspects of awards that refer to personal data may be anonymised or pseudonymised by the Secretariat to comply with applicable data protection regulations.
  • The Secretariat retains the discretion to exempt awards from publication.

This approach to publication will apply to all future ICC awards, including those issued under arbitrations commenced before 1 January 2019. Importantly, although publication is the default position, the new approach does provide parties with an opt-out mechanism. Where any party objects to publication, the award will simply not be published (or will be anonymised or pseudonymised if that is what a party requires). While the other party might want to challenge non-publication for strategic or other reasons, the Note (perhaps unsurprisingly) does not provide any process by which a party may object to non/limited publication once requested.

Given the relative ease with which parties are able to achieve non-publication via the opt-out process, and present attitudes towards publication of awards, it is possible that the new approach to publication will not significantly increase the number of awards that are published, in the immediate future.

The Note does not set out a process or protocol for anonymisation or pseudonymisation of awards.  This lack of guidance on restricted publication of awards may simply reflect the notion that each case may have different requirements.  However, the extracts from over 600 awards contained in the ICC Dispute Resolution Library, may provide some insight for parties into how the Secretariat may approach restricted publication.

 

What does this mean for users of arbitration? 

For most users of international arbitration the prevailing sentiment is likely to be against publication of awards in full.  Although the new approach does provide protections for those who do not want their awards to be published, the presumption in favour of publication may be of concern to some of the ICC’s users.  It is, of course, possible to foresee a situation arising where a party inadvertently fails to opt out – leading to publication of an award where the party would not otherwise have actively consented to publication.

At a practical level, for parties who are engaged in ongoing ICC arbitrations, it will therefore be important to consider:

  • whether their arbitration agreement includes any restrictions on the publication of any award, or confidentiality provisions that may restrict the ICC from making public the existence of the arbitration or publishing the award;
  • whether the terms of reference or procedural orders issued by the Tribunal include any restrictions on the publication of any award, or confidentiality provisions that may restrict the parties and the ICC from making public the existence of the arbitration or publishing the award; and
  • whether to write to the Tribunal and the ICC Secretariat opting out of potential publication of any final award in advance, so as to avoid possible publication via a failure to raise an objection at a later stage.

For parties currently negotiating ICC arbitration clauses in contracts, it may be wise to consider including a confidentiality provision that will operate to restrict or prevent publication of any award up front, if confidentiality is desired.  Likewise, parties may also want to revisit standard form ICC arbitration clauses and consider the inclusion of this type of confidentiality provision or otherwise address the publication of awards in their arbitration agreements.

It is fair to say that there are potential benefits of disseminating information about arbitrations more generally.  Most users will know that the ICC already publishes extracts from some awards through its ICC Dispute Resolution Library, mentioned above. These extracts are classified according to the procedural points they address.

However, having access to a greater number of previous awards – which might include rulings on the application of the ICC Rules, other procedural points or even substantive legal issues – would undoubtedly be of value to practitioners and tribunals, and could provide parties with more certainty about particular questions of law and procedure. In turn, wider publication of awards, with appropriate anonymisation where required, might go some way to address the concerns some have raised as to the potential of private arbitration to affect detrimentally the development of the rule of law and international commerce.2) See, for example, the 2016 BAILII Lecture by then Lord Chief Justice of England and Wales, Lord Thomas. jQuery("#footnote_plugin_tooltip_9361_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9361_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  It is certainly true that one of the commonly-cited advantages of international arbitration generally is the privacy and confidentiality that the process affords,3) In the Queen Mary University of London 2018 International Arbitration Survey, 36% of respondents indicated these to be amongst the most valuable characteristics of international arbitration. jQuery("#footnote_plugin_tooltip_9361_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9361_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and it could be argued that the ICC’s new approach is not necessarily incompatible with those two attributes (although awards in some sectors may clearly not lend themselves to publication even with anonymisation or pseudonomisation).

Ultimately, while the ICC’s continued focus on transparency is to be lauded, whether or not this will lead to an increased number of awards being published will depend on the approach taken by users of arbitration.  Given how highly privacy and confidentiality is valued for users of arbitration at present, it may require a significant change in attitude for publication to become widely accepted. Many users may well make opting out of publication their default approach. It is also possible that given the opt-out framework some parties may unwittingly fail to object to publication and some awards may be published where parties never expected them to see the light of day. At this stage there appears to be no way back, as there is no provision in the Note for published awards to be withdrawn from the ICC database.

References   [ + ]

1. ↑ These updates include new guidance on data protection, clarifications on disclosures by arbitrators and additional guidance for treaty-based arbitrations. 2. ↑ See, for example, the 2016 BAILII Lecture by then Lord Chief Justice of England and Wales, Lord Thomas. 3. ↑ In the Queen Mary University of London 2018 International Arbitration Survey, 36% of respondents indicated these to be amongst the most valuable characteristics of international arbitration. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


The European and Singapore International Commercial Courts: Several Movements, a Single Symphony

Wed, 2019-03-06 01:19

Ioana Knoll-Tudor

Jeantet

A 2018 study commissioned by the European Parliament’s Committee on Legal Affairs concluded that the EU should seek to establish a “European Commercial Court” at the level of the EU1) Study for the European Parliament’s Committee on Legal Affairs (JURI Committee), Building Competence in Commercial Law in the Member States, authored by Prof. Dr. Giesela Rühl, published on 14 September 2018 and available here. jQuery("#footnote_plugin_tooltip_3750_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3750_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); to provide commercial parties with an alternative to both the courts of the Member States and international commercial arbitration. This recommendation echoes the global competition that has arisen in the past years for the resolution of international disputes. A number of jurisdictions across the world launched initiatives to position themselves as new hubs for the resolution of international commercial disputes by establishing specialized English-speaking courts with specific, more flexible procedural rules. This post provides a short overview of the projects to create international commercial courts (“ICCs”) that currently exist in Europe.

ICCs are a rather recent phenomenon. To the exception of the historical London Commercial Court (“LCC”) set up in 1895, all the other ICCs were established in the last four years: the Singapore International Commercial Court (“SICC”) on 5 January 2015, the Chamber for International Commercial Disputes of the District Court of Frankfurt/Main (“Frankfurt ICC”) on 1 January 2018, the International Chamber of the Paris Court of Appeal (“CICAP”)2) The Protocols on Procedural Rules Applicable to the International Chambers of the Paris Commercial Court and of the Court of Appeals of Paris (available here). jQuery("#footnote_plugin_tooltip_3750_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3750_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); on 7 February 2018, and the Netherlands Commercial Court (“NCC”)3) The Rules of Procedure for the International Chamber of the Amsterdam District Court and the Amsterdam Court of Appeal (available here). jQuery("#footnote_plugin_tooltip_3750_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3750_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); on 1 January 2019. The Brussels International Business Court (“BIBC”) should become operational by 2020.

Unlike commercial arbitration which operates as a private form of dispute resolution, the ICCs have systematically been incorporated within the national judicial order, save for the BIBC. The LCC is a sub-division of the Queen’s Bench Division of the High Court of Justice, one of the superior courts of England and Wales. The SICC operates as a division of the Singapore High Court, the lower section of the Supreme Court of Singapore. The Frankfurt ICC was established as a specialized chamber of the Frankfurt High Court (Landgericht Frankfurt am Main).

The French and Dutch courts, for their part, offer access to an ICC, both in the first instance and at the appeal level. Decisions rendered by the International Chamber of the Paris Commercial Court and the NCC District Court can thus be appealed directly in front of the CICAP and the NCC Court of Appeal, whose judgments can ultimately be challenged before the French Court of Cassation and the Dutch Supreme Court, respectively.

Finally, the BIBC will not be integrated into the national judicial system, following the Belgian Government’s intent to have it serve as a semi-permanent jurisdiction, acting on an ad hoc basis, and hear and decide cases at first and last instance, with no appeal possible (but for very limited exceptions).

  • Jurisdiction

ICCs have a rather wide jurisdiction, which does not come as a surprise considering that their purpose is to attract as many disputes as possible in relation with international actors and businesses. The jurisdiction of the LCC thus extends “to any claim relating to the transaction of trade and commerce”4) Rule 58.1(2) of the Civil Procedure Rules. jQuery("#footnote_plugin_tooltip_3750_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3750_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and that of the Paris international chambers to any “transnational commercial disputes”5) Article 1 of the Protocol on Procedural Rules Applicable to the International Chamber of the Paris Commercial Court and of the Protocol on Procedural Rules Applicable to the International Chamber of the Paris Court of Appeal. jQuery("#footnote_plugin_tooltip_3750_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3750_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. The jurisdiction of the Singaporean, German, Dutch and Belgian ICCs are, in contrast, subject to cumulative conditions, which all include at least the two following criteria: (i) the international and commercial nature of the dispute, and (ii) the parties’ express agreement on the jurisdiction of the specialized chamber. Further, under the rules applicable to both the Frankfurt ICC and the NCC, the dispute must not fall under the special jurisdiction of another chamber or court, and the parties must have agreed for the proceedings to be in English.

It shall be noted that the SICC and the NCC also have jurisdiction to adjudicate annulment actions brought against international arbitration awards. Although this jurisdiction is mentioned in the CICAP Protocol, the CICAP does not deal with this type of actions at this stage.

Parties’ agreement on the jurisdiction of the relevant ICC is thus a key element to have a dispute adjudicated before it. Some ICCs even provide standard jurisdiction clauses.6) Standard jurisdiction clauses notably exist for the SICC, the Paris international chambers, and the NCC. jQuery("#footnote_plugin_tooltip_3750_6").tooltip({ tip: "#footnote_plugin_tooltip_text_3750_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, if the jurisdiction of the Paris international chambers “may” result from a contractual clause it can also, in the first instance, be the consequence of a formal distribution of the dispute by the Enrollment Chamber.

  • Judges

Once a dispute has been referred to an ICC, the case will usually be submitted to a panel of three judges, except when provisions allow for the possibility to have a sole judge (as is the case, for instance, before the SICC and the International Chamber of the Paris Commercial Court). As an exception, the LCC sits with eight judges. Not all ICCs require the same qualifications and experience from their judges and, when applicable, draw a distinction between judges sitting in first instance and those sitting on appeal.

Indeed, first instance ICCs are usually composed of lay judges. As such, the International Chamber of the Paris Commercial Court is only composed of non-professional judges appointed by their peers, who are experienced in international business practice and who are used to the practice of the English language.

By contrast, at the appeal level, the LCC, the SICC, the CICAP and the NCC are exclusively composed of professional judges. Interestingly, the Singaporean court may even comprise international judges from both civil law and common law traditions (such as Lord Neuberger of Abbotsbury and Dominique T. Hascher).

Finally, cases brought before the Frankfurt ICC and the BIBC will, for their part, be submitted to a mixed panel, composed of one professional judge and two lay judges, knowledgeable about business affairs and business law.7) In the case of the BIBC, the professional judge will be a judge from the Court of Appeal of Brussels while the two lay judges will be selected from a list of Belgian and foreign specialists in international commercial law, and will be nominated after selection by an independent committee. jQuery("#footnote_plugin_tooltip_3750_7").tooltip({ tip: "#footnote_plugin_tooltip_text_3750_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

  • English language

Amidst all these characteristics, one of the important innovations brought by the ICCs is, undoubtedly, to allow the use of the English language during proceedings. But for England and Wales and Singapore, such feature is an exceptional departure from the rule of having proceedings held in the jurisdiction’s official language.

The use of the English language, however, varies from jurisdiction to another. Thus, before the Frankfurt ICC, the use of English is possible if the parties have expressly agreed whereas, before the NCC, English is the official language of the proceedings unless the parties unanimously request the tribunal to allow the use of the Dutch language for one party or for the entire proceedings. Accordingly, in the abovementioned circumstances, before the Frankfurt ICC and the NCC, the entire proceedings – including oral hearings, written submissions, evidence, as well as the final judgment – may be conducted in English.

In France, procedures before the Paris ICCs can be conducted in English save for the procedural acts (written submissions, judgments) which must be drafted in French (the judgment can be delivered together with a sworn translation in English). Experts, witnesses and parties may be heard in their language with a simultaneous translation provided at the requesting party’s expense.

  • Procedure

Although ICCs such as London, Singapore and Frankfurt are subject to rules of procedure commonly applicable in their respective legal orders8) Respectively, the England & Wales Civil Procedure Rules, the Singapore Supreme Court of Judicature Act, and the German Code of Civil Procedure. jQuery("#footnote_plugin_tooltip_3750_8").tooltip({ tip: "#footnote_plugin_tooltip_text_3750_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the French and Dutch ICCs adopted a specific set of procedural rules.

Indeed, in an effort to provide international actors with features of common law and international arbitration proceedings, the Paris ICCs and the NCC have established bespoke procedures that are deliberately flexible, while remaining within their national procedural framework. As such, at the outset of procedures before the Paris international chambers, a mandatory procedural timetable will be established. Before the CICAP, further conferences will even be held at various stages of the proceedings between the judges and the parties to confirm the parties’ agreement on various procedural issues. In addition, a large place is given to testimonial evidence, allowing for witnesses and experts cross-examination as well as questions by the judges. As recently announced by François Ancel, president of the CICAP, the provisions of the Protocols will soon be supplemented by a detailed procedural guide for the use of parties. Among other things, parties should be provided with the opportunity to prepare a joint memorandum listing the agreed points and those that remain contentious, as well as a joint file of documents and exhibits.

Likewise, the NCC has aligned its dedicated rules of procedure with elements from international arbitration proceedings, such as the IBA Rules on the Taking of Evidence in International Arbitration, and allows the conduct of hearings to be tailored to the parties’ interests and preferences. As noted by the Explanatory note to the NCC Rules of Procedure, parties may make agreements regarding an evidentiary hearing for the examination of witnesses or experts, which the court will consider in its case management decisions.9) Rules of Procedure for the International Chamber of the Amsterdam District Court and the Amsterdam Court of Appeal, Annex I, Article 8.5. jQuery("#footnote_plugin_tooltip_3750_9").tooltip({ tip: "#footnote_plugin_tooltip_text_3750_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Applicable rules may also result from a deliberate choice. Procedures before the BIBC, for instance, will be based on the UNCITRAL Model Law on International Commercial Arbitration, thus offering many features traditionally associated with arbitration.

  • Costs

As regards the costs of proceedings before the ICCs, in some jurisdictions, costs are the same as before ordinary tribunals and courts (which is notably the case in France and in Germany), while other jurisdictions have introduced higher costs before such specialized chambers. Thus, registration fees amount to £10,000 (approx. €11,400) before the LCC, S$8,000 (approx. €5,200) before the SICC, €15,000 before the NCC District Court and €20,000 before the NCC Court of Appeal. By contrast, costs in France remain exactly the same, namely, €74.50 for a summons before the International Chamber of the Paris Commercial Court and €225 per party before the CICAP.

  • Legal representation by a foreign counsel

In France and in the Netherlands, foreign lawyers will be able to represent their client before the ICCs only after concluding a cooperation agreement with a lawyer registered at the respective national bar. Before the SICC, foreign lawyers who have obtained a full registration can act directly and represent their client throughout the proceedings (partial registration only gives the right of representation on foreign law matters).

If competition was existing so far between the various jurisdictions as seats of arbitration, this rivalry will now also be a reality for national courts that have established ICCs. These specialized chambers present common characteristics but also specific features that allow international parties to choose the best option for the settlement of each of their disputes. Each jurisdiction is thus creating its own movement within the symphony of international dispute resolution – let’s take our seats, listen to the concert, and hope that the sound is right!

References   [ + ]

1. ↑ Study for the European Parliament’s Committee on Legal Affairs (JURI Committee), Building Competence in Commercial Law in the Member States, authored by Prof. Dr. Giesela Rühl, published on 14 September 2018 and available here. 2. ↑ The Protocols on Procedural Rules Applicable to the International Chambers of the Paris Commercial Court and of the Court of Appeals of Paris (available here). 3. ↑ The Rules of Procedure for the International Chamber of the Amsterdam District Court and the Amsterdam Court of Appeal (available here). 4. ↑ Rule 58.1(2) of the Civil Procedure Rules. 5. ↑ Article 1 of the Protocol on Procedural Rules Applicable to the International Chamber of the Paris Commercial Court and of the Protocol on Procedural Rules Applicable to the International Chamber of the Paris Court of Appeal. 6. ↑ Standard jurisdiction clauses notably exist for the SICC, the Paris international chambers, and the NCC. 7. ↑ In the case of the BIBC, the professional judge will be a judge from the Court of Appeal of Brussels while the two lay judges will be selected from a list of Belgian and foreign specialists in international commercial law, and will be nominated after selection by an independent committee. 8. ↑ Respectively, the England & Wales Civil Procedure Rules, the Singapore Supreme Court of Judicature Act, and the German Code of Civil Procedure. 9. ↑ Rules of Procedure for the International Chamber of the Amsterdam District Court and the Amsterdam Court of Appeal, Annex I, Article 8.5. 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


Need for Overhaul of the Costs Regime in Indian Arbitration Law

Tue, 2019-03-05 02:00

Badrinath Srinivasan

A legal regime which asks the victim of a frivolous legal proceeding to subsidise the costs of the perpetrator is unjust and is bound to provide incentives for more frivolous proceedings. For a long time, Indian arbitration law had been providing such incentives for a party to make frivolous objections to the arbitration agreement or the arbitral award. The Law Commission of India sought to change this state of affairs through its 246th report and recommended certain changes to the Arbitration and Conciliation Act, 1996 (“1996 Act”). Pursuant to the recommendations, the Indian legislature enacted the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Act”) attempting to update the law on costs in line with the best international practices.

This post argues that even after the 2015 amendments, there has not been a marked change in the way in which courts award costs following best international practices such as the principle that costs follow the event.

 

Statutory Provisions on Costs in Arbitration

Section 31(8) of the 1996 Act as originally enacted dealt with costs in arbitration proceedings. Precedents that evolved therefrom led to a dissatisfied state of affairs regarding the regime on costs allocation in arbitration and arbitration related court proceedings (See, Ernst & Young LLP, Emerging Trends in Arbitration in India, p. 20). The chief complaint was that the provision was too open textured and allowed unnecessarily enormous discretion in awarding of costs. In most cases, tribunals and courts failed to award costs and provide reasons for their decision. An empirical survey suggested that in about 90% of the arbitrations, the parties had to bear either their own costs or half of the total arbitration costs, irrespective of the outcome of the arbitration.

Consequently, the winning party lost substantial money towards costs incurred due to the arbitral proceedings and was not compensated for considerable expenses incurred in arbitration related court proceedings such as proceedings relating to appointment of arbitrators, application for interim measures, and so on. Frequent judicial interference in arbitration also provided incentives for a party to delay or frustrate efficient settlement of disputes. A party so delaying or frustrating the proceedings was not made to bear the costs expended by the winning party and the winning party was not fully compensated for the costs incurred owing to the censurable conduct of the losing party.

This state of affairs was incongruent with best international arbitration practices. After numerous calls for reforms, the Law Commission of India in its 246th Report sought an overhaul of the existing provision on costs.

 

Law Commission’s Recommendations on Costs

The Law Commission of India submitted its 246th report, where it specifically pointed out the need for amending the law on costs. The Commission noted the potential for significant increase in costs in arbitration proceedings, which, according to the Commission necessitated the law on allocation of costs to be clear and predictable. For these reasons, the Commission recommended that the loser-pays principle should be normally followed by tribunals and courts hearing arbitration related court proceedings while allocating costs.

Primarily, two justifications were offered for by the Commission for this recommendation: One, it is only just that the losing party which dragged the other party to court/ arbitration or which set up unjust defences compensates the winning party for the losses incurred in resolving the issue in courts or before the tribunal. The second justification offered by the Commission was that from an economic point of view, the loser-pays principle provided an “efficient deterrence against frivolous conduct and furthers compliance with contractual obligations.” (Para 23)

Further thereto, the Law Commission recommended insertion of Section 6A to the 1996 Act containing a detailed provision on costs. Thus, it would appear that the objective of the Law Commission’s recommendations on costs was to introduce a “costs follow the event” regime and that in all arbitration related proceedings, the tribunal or the court, as the case may be, should ordinarily adhere to this principle. However, the manner in which Section 6A is a cause for concern (as will be seen in the later part of this post).

 

Section 31A of the 1996 Act (as amended in 2015)

Based on the recommendation of the Law Commission and an ordinance, the Indian Parliament enacted the Arbitration and Conciliation (Amendment) Act, 2015, and the same was brought into force with effect from 23 October 2015.

The amended Act contains detailed provisions on costs in Section 31A, which is similar to Section 6A suggested by the Law Commission. Section 31A(1) empowers the court or arbitral tribunal, as the case may be, to award costs in relation to any proceeding under the 1996 Act. It reads:

In relation to any arbitration proceeding or a proceeding under any of the provisions of this Act pertaining to the arbitration, the Court or arbitral tribunal, notwithstanding anything contained in the Code of Civil Procedure,1908, shall have the discretion to determine— (a) whether costs are payable by one party to another; (b) the amount of such costs; and (c) when such costs are to be paid…

The wordings of Section 31A(1) is a cause for concern. The use of the word “discretion” could be construed to mean that the Court or the tribunal has the option to choose not to pass any order on costs.

Similar is the case of Section 31A(2) as well. It reads:

If the Court or arbitral tribunal decides to make an order as to payment of costs,— (a) the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party; or (b) the Court or arbitral tribunal may make a different order for reasons to be recorded in writing.”

This sub-section begins with the term “if” as if to suggest that making an order as to payment of costs is a matter of choice of the Court or the arbitral tribunal, as the case may be. This construction is incongruent to the purpose for which the new regime on costs was introduced, as noted by the Law Commission.

A perusal of the decisions in the post-2015 suggest that there has not been a change, especially by the courts, in awarding of costs. This leads to the inference that the introduction of Section 31A was a pointless exercise.

The recent decision of Larsen and Toubro Limited Scomi Engineering BHD vs. Mumbai Metropolitan Region Development Authority (03.10.2018 – SC): MANU/SC/1151/2018 is a typical example where the court did not even deal with costs in a petition for constituting the tribunal. The petition was ultimately dismissed on the ground that the arbitration was not an international commercial arbitration warranting constitution of the arbitral tribunal by the apex court rather than by the relevant High Court.

 

Proposed Amendments

The Arbitration and Conciliation Bill, 2018, which is now under consideration in the Indian Parliament does not seek to address this issue.

Therefore, it is suggested that amendments to Section 31A should be made in the current round of reforms to provide the following:

  • The Court or the tribunal shall make an order as to payment of costs.
  • The general rule for the tribunal and the Court should be that the unsuccessful party should be ordered to pay costs of the successful party.
  • The Court or the tribunal may depart from the above general rule for reasons to be recorded in writing.

Towards this end, a new sub-section in the form of Section 31A(1A) has to be introduced along the following lines: “The Court or arbitral tribunal shall make an order as to payment of costs while making a determination under this Act: Provided that the Court or arbitral tribunal shall have the discretion to postpone the order as to payment of costs at the time end of the proceedings before it.

Consequently, the phrase “If the Court or arbitral tribunal decides” at the beginning of Section 31A(2) should be amended to read: “Where the Court or arbitral tribunal decides”.

 

Closing Remarks

International practice suggests that arbitral tribunals and courts hearing arbitration related matters award reasonable costs in favour of the winning party. In some countries, courts award costs on indemnity basis in respect of unsuccessful challenges to arbitration agreements and arbitral awards and also in unsuccessful petitions for refusal to recognise or enforce awards. Indemnifying the winning party for costs incurred in such cases makes sense.

Unfortunately, Indian courts and tribunals not only fail to award indemnity costs in deserved cases but do not even award reasonable costs in favour of the winning party as provided under the statute book. Hence, it is important that the 2018 Amendment Bill clarifies the intent behind the enactment of Section 31A by amending the law as suggested above. This will ensure that the legal costs of the party initiating frivolous legal proceedings stalling the arbitration process is not subsidised by the victim of such proceedings.

In order for India to achieve the objective of becoming a prominent global centre for dispute resolution, it is of fundamental importance that courts and the arbitral tribunals allocate costs in accordance with best international practices.

This post is based on the ideas that were mooted in a paper presented at a conference in 2017 and can be accessed from here.

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


The Path for Online Arbitration: A Perspective on Guangzhou Arbitration Commission’s Practice

Sun, 2019-03-03 21:00

Chen Zhi

In recent years, the combination of arbitration and technology has raised great concerns among international arbitration community. Much discussion has centred on online arbitration and use of artificial intelligence in arbitration.

In China, the rapid growth of electronic business (including but not limited to internet consumer applications and mobile financial services) has posed challenges to traditional arbitral procedures. Further, to overcome difficulties under current arbitral legislation framework which has been seen by some to be rigid, centralized and too similar to the judicial process, several arbitration institutions in Mainland China have endeavored to introduce the latest technology to make arbitral proceeding more flexible, efficient and time-effective. China Guangzhou Arbitration Commission (“GZAC”) is one such institution.

 

GZAC and Online Arbitration

GZAC was one of the first seven arbitration institutions founded after the enactment of 1994 Arbitration Law. It was founded shortly after on August 29, 1995.

In 2007, GZAC commenced its study on online arbitration. Seven years later, it launched an unprecedented project to transform itself into an online arbitration institution. Dozens of experienced IT engineers were retained and assigned into groups to develop the online arbitration system. Unlike other institutions which have generally chosen to cooperate with third party service providers, GZAC employed its own technical team, IT engineers and programmers dedicated to developing GZAC’s online arbitration system.

On September 24, 2015, GZAC organized China Internet Arbitration Alliance, gathering more than 100 entities including arbitration institutions, universities, enterprises and social groups to promote online arbitration. On October 1, 2015 GZAC issued its first Online Arbitration Rules, which was the first set of arbitral rules in Mainland China with specific reference to how an arbitration can be run online. In October 2016, a new system named Arbitration Cloud Platform 1.0 was released. The Arbitration Cloud Platform 1.0 was one-stop online service for arbitration conducted entirely online including case filing, delivery of materials, constitution of tribunal, holding the hearing, examining evidence, drafting and rendering of an award, etc.. In 2017 and 2018, the Arbitration Cloud Platform was upgraded to a newer version.

Compared with the traditional arbitration, my view is that GZAC’s online arbitration is more cost-effective and efficient because: (i) it is paperless; (ii) time limit for answer, constitution of tribunal has been vastly narrowed for the wide use of electronic delivery; (iii) documentary-only arbitration is by default but even if a hearing is needed, it is also more convenient to arrange an online conference; and (iv) in 2018, Arbitration Cloud Platform 2.0 allows for cases with similar scenario and same legal issues to be filed, managed and decided on batches, under which an award can be generated automatically and dispatched after the approval of tribunal.

Since then, the caseload of GZAC has skyrocketed. In 2017, it accepted 89,530 cases, among which 70,079 follow the online arbitration process entirely. In 2018, the number of online arbitrations handled by GZAC increased to 166,634 with the total dispute sum of RMB 9.5 billion (approximately USD 1.4 billion).

 

New Challenges, New Chances

With great success come new challenges. At the very beginning, some local courts declined to enforce awards rendered in the online arbitration process for various reasons. For example, several courts had rejected award enforcement by applying 2012 Civil Procedure Law which has vastly narrowed down the use of electronic delivery. Those courts held that GZAC failed to “appropriately notify” the respondent1)For example, in 2018 Xiang 08 Zhi No. 55(September 20,2018), Zhangjiajie Intermediate People’s Court of Hunan Province opined that delivery of arbitral award was not compatible with Civil Procedure Law, and hence refused to enforce an online award by GZAC. jQuery("#footnote_plugin_tooltip_2047_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2047_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, and hence vacated the award on breach of due process basis.

Fortunately, the situation has changed. On February 23, 2018, the Supreme People’s Court issued a specific judicial interpretation concerning enforcement of arbitral award (Provisions of the Supreme People’s Court on Several Issues Concerning the Enforcement of Arbitral Award referred to as “Enforcement Provisions”). Article 14(2) of Enforcement Provisions arguably gives judicial recognition of the validity of notice provisions stipulated in arbitration rules2)Article 14 does not specify online arbitration. It uses the general heading of “arbitration rules” but online arbitration rules fall within the scope of “arbitration rules”. jQuery("#footnote_plugin_tooltip_2047_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2047_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, even though such a measure is technically incompatible with Civil Procedure Law and other regulations. However, I think it is still premature to say that electronic delivery has been entirely legitimised because on one hand, Enforcement Provisions are not binding in setting aside proceedings. Hence, sufficient engagement and dialogue between competent courts and arbitration institutions is still necessary to ensure the effectiveness and enforcement of an award rendered in an online arbitration.

Another challenge is the competition brought by other dispute resolution fora. In 2017, China established its pilot Internet Court in Hangzhou. In 2018, Internet Courts of Beijing and Guangzhou were formed with the strong support from the Chinese government. Apart from the courts, e-commerce giants such as Alibaba, Jingdong, etc. have also established their own online dispute resolution system to cope with the simple and small claims. This came about because of Article 63 of E-Commerce Law which came into effect on January 1, 2019 and has empowered e-commerce operators to build their own dispute resolution system.

Against this backdrop, GZAC launched two initiatives in 2018. First is the proposed revision of GZAC’s Online Arbitration Rules, which: (i) broadened the scope of application of online arbitration, under which GZAC and the tribunal are vested with the power to decide on the appropriateness of the case for resolution by online arbitration; (ii) introduced new technologies into arbitral proceedings, for instance, the rules require tribunals to examine the authenticity of electronic signature while being conscious of the common use of technologies such as time-stamp and block-chain technologies. The appointing authority may also decide on the arbitrator appointment by referring to big data results; and (iii) incorporated some of the latest thinking in international arbitration such as making sole arbitrator as the default number of arbitrator. The revised rules have been released in draft format and are now in the consultation process with the public.

Second, on 28 September 2018, GZAC, along with its partners, has released a new e-commerce platform named Dashizhiyue Intellectual Transaction Platform, a B2B supply-chain platform providing a one stop service for storage of transaction records, storage of evidence, legal advice, identity of parties and determination of the dispute. It is noteworthy that the transaction records and related materials would have been stored by the third party service providers before any dispute commences hence it will be not necessary for parties to furnish evidence themselves. Dashi dispute resolution platform would be able to automatically collate the relevant evidence and forward them to parties after the commencement of the dispute resolution proceeding.

 

The Future of Online Arbitration in China

The decentralization, in-territoriality and ubiquity are inherent features of online transaction and these may well require more than the traditional dispute resolution mechanism. The traditional way to run an arbitration may satisfy such requirements, but is far from enough in my view.

I see much in the future of Online Arbitration, but there is still much to do. First of all, arbitration institutions and practitioners should deepen their cooperation to make China a more arbitration-friendly jurisdiction. In 2019, the establishment of China Arbitration Associate which has long been suspended is likely to restart. This will be a good chance to make the voice of arbitration society more influential. Second, a successful online arbitration mechanism requires support from law firms, technical corporations, e-commercial operators and governmental sectors. Last, arbitration institutions in Mainland China should provide more efficient, convenient and user-friendly online service.

Moving forward from online arbitration, institutions in Mainland China like GZAC are likely to explore unchartered waters like artificial intelligence arbitration. With the help of most advanced technologies, the AI arbitrator can learn, automatically review and decide a case. It is not likely that AI arbitrator will operate without the need for a human but it can enhance the efficiency and quality of arbitration.

References   [ + ]

1. ↑ For example, in 2018 Xiang 08 Zhi No. 55(September 20,2018), Zhangjiajie Intermediate People’s Court of Hunan Province opined that delivery of arbitral award was not compatible with Civil Procedure Law, and hence refused to enforce an online award by GZAC. 2. ↑ Article 14 does not specify online arbitration. It uses the general heading of “arbitration rules” but online arbitration rules fall within the scope of “arbitration rules”. 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


Approaches to Arbitration in Australia and Singapore

Sun, 2019-03-03 01:00

Cameron Ford and Andrew Foo

The different approaches to arbitration between courts in Australia and Singapore have been illustrated in two cases in the last 2 years – KVC Rice Intertrade Co Ltd v Asian Mineral Resources Pte Ltd [2017] SGHC 32 and Hursdman v Ekactrm Solutions Pty Ltd [2018] SASC 112. The Singapore approach typified by KVC is to give judicial support to arbitration and take a pragmatic, commercial, common-sense, approach. The Australian attitude can be far more legalistic, ignoring practical realities and the desirability of encouraging arbitration.

Of course, not every purported arbitration agreement should be enforced. If a clause is truly defective, the arbitral award obtained thereunder may be unenforceable under the laws of the enforcing state.1) Nigel Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th Ed, 2009) at [4.43]. jQuery("#footnote_plugin_tooltip_6989_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6989_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

The Singapore approach

Singapore’s approach has been noted on this blog, and was articulated by the Court of Appeal in Insigma Technology Co Ltd v Alstom Technology Ltd2) Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR 936 at [31]. jQuery("#footnote_plugin_tooltip_6989_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6989_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });:

…where the parties have evinced a clear intention to settle any dispute by arbitration, the court should give effect to such intention, even if certain aspects of the agreement may be ambiguous, inconsistent, incomplete or lacking in certain particulars…so long as the arbitration can be carried out without prejudice to the rights of either party and so long as giving effect to such intention does not result in an arbitration that is not within the contemplation of either party.

In KVC, the court enforced a bare arbitration clause that said:

The Seller and the Buyer agree that all disputes arising out of or in connection with this agreement that cannot be settled by discussion and mutual agreement shall be referred to and finally resolved by arbitration as per Singapore Contract Rules.

The clause did not specify the place of arbitration, mechanism for constituting the tribunal, or the applicable arbitration rules.

Nonetheless, the court held that the clause was a valid arbitration clause which was capable of being performed, and that the court could assist with appointing arbitrators to ensure the parties’ intentions for arbitration were not defeated. The court said at [71]:

…a Singapore court would be prepared to step in to directly appoint an arbitrator, provided the dispute had some connection with Singapore…such a decision could be justified either on the basis of contract law…with the appropriate use of implied terms…or as an exercise of the court’s inherent jurisdiction to prevent injustice.

This, the judge said, was “consistent with Singapore’s public policy (which includes strong support for the smooth functioning of international arbitration) and jurisprudence (which recognises the common law right…of access to justice, including the maxim ubi jus ibi remedium3) “Where there is a right there is a remedy”. jQuery("#footnote_plugin_tooltip_6989_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6989_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });)”.

As previously discussed on this blog, the Singapore courts find many friends in adopting a pro‑arbitration policy, including the Swedish courts and the Swiss courts.

 

The Australian approach

Compare that approach with that in Hurdsman which, while admittedly dealing with a different aspect of arbitration agreements, perhaps illustrated the underlying philosophy. The court in Hurdsman refused to enforce the following clause:

28.3         If the parties have been unable to resolve the Dispute within the Initial Period, then the parties must submit the Dispute to a mediator for determination in accordance with the Rules of the Singapore International Arbitration Centre (Rules), applying South Australian law, which Rules are taken to be incorporated into this agreement.

28.4         A party may not commence court proceedings in respect of a Dispute unless it has complied with this clause 28 and until the procedures in this clause 28 have been followed in full, except where:

28.4.1     the party seeks injunctive relief in relation to a Dispute from an appropriate court where failure to obtain such relief would cause irreparable damage to the party concerned; or

28.4.2     following those procedures would mean that a limitation period for a cause of action relevant to the issues in dispute will expire.

The problematic word was the reference to a mediator rather than an arbitrator. The contract in question followed a memorandum of understanding (MOU) which stipulated ‘arbitration in accordance with the rules of the Singapore International Arbitration Centre (SIAC)’.

However, the court held that it was not obvious on the face of the agreement that the word ‘mediator’ was intended to be ‘arbitrator’, that the agreement was neither one to arbitrate or mediate, and that the submission to the jurisdiction of South Australian courts would have no work to do if Clause 28.3 were an agreement to arbitrate.

It is not difficult to imagine how this clause would have been dealt with in Singapore.

First, the clear arbitration agreement in the MOU strongly suggests the parties intended for arbitration. No reason was suggested why the parties would change their minds between the MOU and the contract.

Second, the words ‘for determination’ following ‘mediator’ strongly indicate arbitration over mediation. There is nothing a mediator determines; whereas arbitrators determine disputes by delivering an award. Curiously, the judgment makes no mention of this phrase.

Third, the reference to ‘the Rules of the [SIAC]’ strongly indicates arbitration. This is because the SIAC publishes rules for arbitration, not mediation.

Fourth, contractual submission to courts is not a contraindication of arbitration. Such clauses still have work to do where arbitration is validly chosen. It is common for parties to submit to the jurisdiction of named courts, while stating that disputes are to be resolved by arbitration. The MOU itself contained submission to the courts of South Australia, “subject to arbitration“.  Where that occurs, submission to jurisdiction indicates the seat of the arbitration and hence the courts which would supervise the arbitration by appointing arbitrators, granting interim measures, etc.4) Jeffrey Waincymer, Procedure and Evidence of International Arbitration (Wolters Kluwer 2012) at [3.5]. jQuery("#footnote_plugin_tooltip_6989_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6989_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Fifth, while the right to commence court proceedings to avoid the expiration of limitation periods sat more comfortably with the clause being a mediation agreement (since commencing arbitration typically satisfies limitation concerns), this arguably reflects parties’ ignorance of arbitration. Here, under the principle of effective interpretation, the courts should salvage the true intentions of parties, even if distorted by infelicitous drafting.5) Insigma v Alstom [2009] 3 SLR(R) 936 at [39]. jQuery("#footnote_plugin_tooltip_6989_5").tooltip({ tip: "#footnote_plugin_tooltip_text_6989_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The court’s decision effectively sanctioned a violation of the parties’ agreement, by allowing the plaintiff to pursue court proceedings without first commencing either mediation or arbitration. Perhaps this flows from the defendant dropping its contention to replace ‘mediator’ with ‘arbitrator’ in Clause 28.3.

In contrast, in another Singapore decision, the Singapore court said it would be prepared to replace the word ‘umpire’ in an arbitration clause with the word ‘president’ (BNP v BNR [2018] 3 SLR 889).

The court said this would give effect to the parties’ intention for arbitration and “make such an arbitration workable and feasible”.

The court ultimately dismissed the challenge against the tribunal’s jurisdiction, which was made on the basis that while the clause provided for the third arbitrator to “act as an umpire”, the third arbitrator was acting as president.

Based on KVC and BNP, it seems a Singapore court would uphold the clause in Hurdsman as a workable arbitration agreement.

 

Conclusion

Professor Waincymer has proposed on this blog that a court hearing an application to stay court proceedings in favour of arbitration should “simply ask whether a reasonable tribunal hearing all evidence could find validity”. He submits that this fits the deferential approach courts should adopt, pursuant to the UNCITRAL Model Law and New York Convention.

Professor Waincymer’s proposal may have made a difference in Hurdsman.

This is because  in Hurdsman, there was “some ambiguity” in the clause: the court noted it was “neither this nor that…not quite an arbitration agreement and not quite a mediation agreement”.

However, the court did not, it appears, have the benefit of seeing witnesses cross-examined, or a full body of relevant material. This is not surprising. As Professor Waincymer notes:

…presentation and testing of detailed evidence via contemporaneous documents and cross-examination of witnesses would not be the norm…there would invariably be reluctance to allow a full hearing with cross-examination, or allow for the generation of a full body of relevant material evidence …

The court was therefore tasked with deciding the matter without a full appreciation of the facts.

Under Professor Waincymer’s approach, the court may well (a) have accepted that a reasonable tribunal hearing all the evidence (unlike the court, which only heard some evidence) could find that the clause was a valid arbitration agreement, and (b) therefore granted a stay in favour of arbitration.

However, until Professor Waincymer’s approach is accepted, parties should beware the different levels of scrutiny their dispute resolution clauses may face in different courts.

Parties should seek appropriate early advice, to avoid unnecessary skirmishes and unpredictable decisions. Such ‘fights over where to fight’ are like being stuck on a disrupted Tube service – time‑consuming, but largely avoidable, if you had only planned your route more carefully.

 

Clifford Chance Asia is a Formal Law Alliance in Singapore between Clifford Chance Pte Ltd and Cavenagh Law LLP.  The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Clifford Chance, nor those of its clients.

References   [ + ]

1. ↑ Nigel Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th Ed, 2009) at [4.43]. 2. ↑  Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR 936 at [31]. 3. ↑ “Where there is a right there is a remedy”. 4. ↑ Jeffrey Waincymer, Procedure and Evidence of International Arbitration (Wolters Kluwer 2012) at [3.5]. 5. ↑  Insigma v Alstom [2009] 3 SLR(R) 936 at [39]. 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


A Comparison of the IBA and Prague Rules: Comparing Two of the Same

Sat, 2019-03-02 02:05

Sol Argerich

On December 2018, the Prague Rules on the Efficient Conduct of Proceedings in International Arbitration (“Prague Rules”) were released. (For related posts on the Prague Rules on Kluwer Arbitration Blog click here, here, here, and here.)

The Prague Rules aim to increase efficiency and reduce costs in arbitral proceedings. The project arose from a general dissatisfaction with both the costs of arbitration and the length of proceedings. Drafters believe that one of the causes of this is that, generally, tribunals are not sufficiently proactive in providing cost efficient and time-saving procedures.

The drafters proposed the Prague Rules as an alternative to the well-known and commonly adopted IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules”). The note following provides an analysis of the main differences (and similarities) between the IBA Rules and the Prague Rules.

Application

The Prague Rules are intended as a framework providing guidance to conduct effective arbitration proceedings. They do not replace institutional rules which govern arbitral procedure and are only applicable upon the parties’ agreement or at the arbitral tribunal’s own initiative after consultation with the parties and, even then, only to the extent to which the parties have agreed (see Prague Rules, Article 1). In practice, although unlikely, a tribunal could apply the Prague Rules without party consent under Article 1.2.

The IBA Rules, on the other hand, provide that they may be adopted in whole or in part by the parties and tribunals. There is no specific provision for the tribunal adopting the IBA Rules of its own initiative.

Key differences

The key underlying difference between the IBA Rules and the Prague Rules is that while the IBA Rules were intended to create a level playing field in international arbitration, it is commonly believed that they are more aligned with common law. In contrast, the Prague Rules openly adopt a more inquisitorial approach more in line with the civil law tradition. This below illustrates, by way of comparative charts, the four main issues addressed by the Prague Rules:

1. A Proactive Arbitral Tribunal: Arbitrators should be active both in the taking of evidence and in fact finding to speed up proceedings.

In sum, the Prague Rules contain unequivocal provisions on how the tribunal should be active. Yet, the IBA Rules also encourage the tribunal to adopt a proactive attitude.

2. Document production: The drafters of the Prague Rules criticise the current IBA-style practice of document discovery arguing that it is highly time and cost consuming. The Prague Rules, following the civil law style, limit document production.

3. Number of witnesses: Another proposed solution to reduce the duration of arbitral proceedings under the Prague Rules is that the tribunal will have the final say regarding the number of witnesses to be heard throughout the proceedings. While under the IBA Rules, the tribunal has no say over this matter.

4. Examinations of witnesses: Despite the criticism of the cross-examination of witnesses in arbitration, the drafters of the Prague Rules retained the cross-examination process in the new Rules. However, provisions that tend to avoid lengthy hearings were included. The Prague Rules even suggest not having a hearing, and when possible, resolving the dispute on a document basis only (Article 8.1).

Innovations

The Prague Rules included two other provisions that are not addressed in the IBA Rules and may not be familiar to common law practitioners:

    1. ‘Iura Novit Curia’ principle (Article 7). This maxim demands for proactive arbitrators who are able to spot and determine the applicable law on their own initiative and thus apply provisions that were not set out by the parties. This requires prior consultation with the parties; furthermore, the tribunal must seek the parties’ views on those legal provisions it intends to apply.
    2. Assistance in Amicable Settlement (Article 9). Unless the parties object the tribunal may assist the parties in reaching an amicable settlement. This alternative dispute resolution mechanism can be used at any stage of the proceedings. Where that no agreement is reached, the arbitrator who acted as mediator may (a) continue as an arbitrator (parties’ written consent is required) or (b) terminate his/her mandate.

Even though common law practitioners may not be familiar with this mechanism, it is interesting to note that it is used in other jurisdictions, specifically Asia. Similar provisions are contained in the HKIAC Rules 2018 (Article 13.8) and in the China International Economic and Trade Arbitration Commission (Article 47).

Conclusion

On the whole, even when there are some differences in procedures under the two sets of rules, the Prague Rules do not present a radical change. However, these changes and innovations could have an impact on the costs and the duration of the proceedings.

Will the Prague Rules yield better results overall? We will have to wait for the Prague Rules to be put into practice in order to fully analyse their impact on international arbitration.

 

This post is an expression of the author´s personal opinion, the views expressed here do not reflect Clyde & Co’s position.

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


Reflections on Default Number of Arbitrators under Expedited Procedure Rules

Thu, 2019-02-28 21:00

Wei Sun

In this post, I will compare and discuss the expedited procedure rules (“EP Rules”) used by various arbitral institutions in deciding on a default number of arbitrator(s) for such expedited procedure.

A core concern of Article V(1)(d) of the New York Convention is how to weigh between party autonomy and institutional control in arbitration proceedings. Arbitration practitioners may recall the failed attempt by Noble Resources International Pte. Ltd. (“Noble Resources Case”) to enforce a SIAC award a few years back.

That award was rendered under the old SIAC Arbitration Rules’ EP Rules though. In its Arbitration Rules 2016, SIAC made a detailed regulation on EP Rules by adding two new sub clauses [Rule 5.3 and Rule 5.4]. In particular, Rule 5.3 stipulates that “By agreeing to arbitration under these Rules, the parties agree that, where arbitral proceedings are conducted in accordance with the Expedited Procedure under this Rule 5, the rules and procedures set forth in Rule 5.2 shall apply ‘even in cases where the arbitration agreement contains contrary terms.’”1)Rule 5.2(b) prescribes that “the case shall be referred to a sole arbitrator, unless the President determines otherwise” jQuery("#footnote_plugin_tooltip_4431_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4431_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Under the 2016 Rules, the sole arbitrator is the default in expedited procedure, and parties are deemed to accept the default if they choose SIAC, whose arbitration rules refer to the application of the EP rules if certain conditions are met, albeit their agreement otherwise.

In my view, this approach is a bit too hardline: when parties choose a certain set of arbitration rules, they have to accept all of them, without any deviations by agreeing otherwise. This might be detrimental to party autonomy, which is considered the foundation of arbitration, and the flexibility of arbitration procedure, which is a key factor of arbitration’s success as an internationally preferred method of dispute resolution.

Similarly, the newly revised 2017 ICC Arbitration Rules achieve effectively the same result. The relevant provisions provide that “The court may, notwithstanding any contrary provision of the arbitration agreement, appoint a sole arbitrator.” [Article II Appendix VI of the ICC’s EP Rules]. In particular, Article 30 of the ICC Rules provides that “By agreeing to arbitration under the Rules, the parties agree that this Article 30 and the Expedited Procedure Rules set forth in Appendix VI (collectively the ‘Expedited Procedure Provisions’) shall take precedence over any contrary terms of the arbitration agreement”.2)Also, in a press release dated 4 November 2016, ICC stated that “Under the Expedited Procedure Rules, the ICC Court will normally appoint a sole arbitrator, irrespective of any contrary term of the arbitration agreement.” jQuery("#footnote_plugin_tooltip_4431_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4431_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

As a contrast, the 2018 HKIAC Rules has opted for a different approach. The HKIAC rules provide that “the case shall be referred to a sole arbitrator, unless the arbitration agreement provides for three arbitrators.” [Article 42.2(a)]. Also, “If the arbitration agreement provides for three arbitrators, HKIAC shall invite the parties to agree to refer the case to a sole arbitrator. If the parties do not agree, the case shall be referred to three arbitrators.” [Article 42.2(b)].

Similar to the HKIAC Rules, the CIETAC Rules provides that “Unless otherwise agreed by the parties, a sole-arbitrator tribunal shall be formed in accordance with Article 28 of these Rules to hear a case under the Summary Procedure.” [Article 58]

The above institutional rules demonstrate two different approaches to the procedure of expedited proceeding: SIAC and ICC seem to treat the procedures in EP Rules superior than the arbitration agreement while HKIAC and CIETAC put more emphasis on party autonomy. Although it is unknown whether the Noble Resources Case will be recognized by the Chinese Court if the 2016 SIAC Arbitration Rules applies, Chinese courts attach importance to party autonomy. In Noble Resources Case, the court put a lot emphasis on party autonomy, holding that the parties’ particular agreement on a procedural matter is superior to the provisions in the arbitration rules. It is therefore suggested for foreign arbitrators and arbitration institutions to be cautious about parties’ agreement, especially when the party expressed its concerns on the special arrangement on procedural matters during arbitration proceedings.

References   [ + ]

1. ↑ Rule 5.2(b) prescribes that “the case shall be referred to a sole arbitrator, unless the President determines otherwise” 2. ↑ Also, in a press release dated 4 November 2016, ICC stated that “Under the Expedited Procedure Rules, the ICC Court will normally appoint a sole arbitrator, irrespective of any contrary term of the arbitration agreement.” 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


The Future of ISDS: Can’t See the Wood or the Trees

Thu, 2019-02-28 02:00

Maarten Draye and Emily Hay

On 22 November 2018, the Belgian Ministry of Foreign Affairs, Foreign Trade and Development Cooperation hosted a High Level Event on the Reform of Investment Protection. Distinguished panellists from arbitral institutions, international organisations, academia, civil society, arbitration users and legal practitioners presented diverse views on the need for reform of the system of investor-State dispute settlement (“ISDS”), the progress of current reform efforts, and the potential multilateral investment court (“MIC”). These insightful contributions surveyed the many and varied perspectives from which to view the current state of ISDS, and its future. At the end of the day, however, the distinct impression was that the various stakeholders in this debate are talking at cross-purposes, making it difficult to see either the wood or the trees.

Status of Current Reform Initiatives

A first wave of reforms is undertaken by ICSID. Meg Kinnear, Secretary-General of ICSID explained that the fourth comprehensive reform of the ICSID arbitration rules is well underway. The proposed amendments were published in August 2018, and are open for comment by States and the public until 28 December 2018. A vote on the amendments to the rules is expected in 2019 or 2020.

In order to keep ICSID’s procedural rules fit-for-purpose, there is a range of proposed reforms, including:

  • a new provision for consolidation or coordination of like cases;
  • an obligation to disclose the existence and source of third party funding;
  • strong provisions in favour of greater transparency of awards, decisions, and orders, including deemed consent and the publication of excerpts; and
  • the availability of expedited procedures, anticipated to be useful in particular for small and medium enterprises.

The reform proposals are based on ICSID’s day-to-day experience in the management of cases, which puts it in a unique position to know what works and what does not. See more details on the proposed reforms here.

In parallel, UNCITRAL has tasked its Working Group III to study ISDS reform. Anna Joubin-Bret, Director of the International Trade Law Division at UNCITRAL, reported that at its thirty-sixth session in November 2018, Working Group III completed the second phase of its mandate, reaching consensus that reform is desirable to address concerns about the current system of ISDS. These concerns fall into three broad categories:

  • lack of consistency, coherence, predictability and correctness of arbitral decisions by ISDS tribunals;
  • concerns about arbitrators and decision makers, including lack of independence and impartiality, limitations in challenge mechanisms, lack of diversity, and qualifications; and
  • concerns regarding the costs and duration of proceedings.

The next and third phase of the work of Working Group III will be to discuss and determine what reforms should be developed to address the specific concerns. Due attention will be given both to concerns based on facts, as well as concerns based on perception. See the draft report of the thirty-sixth session of Working Group III here.

Ms. Joubin-Bret emphasised that this Working Group is a government-led process. This reflects the fact that it was States who initiated the design of the current system, and in her view they should be the ones to reform it.

Which Reforms, Why and How?

According to some stakeholders in civil society who voiced their objections during the event, the question should not be what reforms to undertake, but whether we should rather abolish the system of investor protection altogether. The concerns of these groups are more existential and question why investors should receive favoured treatment. Their assertion that investors are offered protection which is not available in other areas such as human rights, climate, labour rights, etc., may very well be on point. It risks, however, throwing away the baby with the bath water.

While it is difficult to measure the immediate impact of bilateral investment treaties on the levels of foreign investment, Patrick Baeten, Deputy GC at Engie, pointed out that investors want certainty and will always look at the level of investment protection when investigating long-term commitments. He predicted that, failing adequate protection (regardless of its form), investment gaps would not be filled, or at least not at the same cost. Moreover, many speakers, including James Zhan, Senior Director of Investment and Enterprise at UNCTAD, pointed out that the current discussion on reform should not be limited to ISDS or other issues of procedure, but also include substance. Treaties can be revised to include obligations for investors which can be enforced by host States.

For those who accept that investment protection should continue to exist in one form or another, there remains a great variance in opinions on the level of reform to ISDS necessary. For some practitioners, the system is imperfect but with some self-regulating tweaks could be sufficiently improved. Others propose largely maintaining the current system, but adding an appeal mechanism to address issues of consistency, predictability and correctness. Those in favour of a more dramatic rethink may support an MIC, or some form of court with international jurisdiction in combination with recourse to domestic courts. Reference was made to the recent report by the IBA on “Consistency, efficiency and transparency in investment treaty arbitration”, which details some of the challenges facing ISDS and proposes solutions to foster the legitimacy of the system.

In her keynote speech, European Commissioner for Trade Cecilia Malmström expressed the EU’s view that the MIC is the only option on the table that can effectively address these concerns. According to the EU, only a permanent body to resolve investment disputes can create predictability and consistency, bring about the necessary expertise in the system, effectively address costs and duration, and assure equal representation. The EU plans to put forward this idea at the multilateral level during the next phase of UNCITRAL Working Group III’s discussions.

Does an MIC Address the Concerns Raised?

At the time of the conference, no detailed proposals for an MIC had been made public. It was therefore unclear what form the court would take, whether it would be an independent institution in its own right, or whether it would make use of the secretariat and facilities of other institutions which already exist. It was further unknown what kind of judges would sit on the court, how they would be appointed, and what rules would govern their service.1)Meanwhile, on 18 January 2019, the EU submitted two papers containing concrete reform proposals to UNCITRAL. jQuery("#footnote_plugin_tooltip_7392_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7392_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Even speaking in general terms, many speakers doubted whether an MIC could address the concerns with the current ISDS system that have been identified. The speakers therefore advocated that, at this stage, full consideration should be given to all potential reform options, and to measure those options against the objectives sought to be achieved. Professor Loukas Mistelis of Queen Mary University pointed out that, if an MIC is created, one option could be to maintain the current system of ISDS, with the MIC to function as an appellate body.

A further question lingers over the feasibility of bringing an MIC into existence in the current global climate, in which multilateralism already faces serious challenges, and a number of other multilateral efforts in the economic sphere have stalled or are dysfunctional.

Again recalling the importance of substantive standards, several contributions also highlighted that while proposed reforms to ISDS are mainly procedural, the importance of the nature and wording of standards of treaty protection should not be underestimated. Mr. Zhan of UNCTAD pointed out that the overwhelming majority of ISDS cases are brought under old generation treaties. In this connection, Professor Bernard Hanotiau of Hanotiau & van den Berg commented that divergent treaty wording, some of which is unclear or inconsistent with other treaties, is often the very reason why ISDS tribunals reach different interpretations of treaties in different cases.

Conclusion

This event illustrated once more how divided different participants in the debate are on the issue of ISDS, and more generally, on investor protection. At the same time, it demonstrated the need for a continued exchange of views in pursuit of solutions that cater to diverse stakeholders.

Civil society groups question the existence of an entitlement to investor protection itself. This approach does not seem to be shared by most lawmakers. However, the EU, one of the main political forces in the debate at UNCITRAL, has made it clear that it sees an MIC as the only way forward.

Meanwhile, practitioners acknowledge to varying degrees that change is necessary, but point out that an MIC will likely fail to address many of the concerns with ISDS. Indeed, it may create new ones. At this stage, it seems doubtful that such technical remarks will fall on fertile soil, since the idea of an MIC which has been planted by the EU appears cultivated in large part on political ideology.

While States are legitimately in the driver seat of ISDS reform, discussions between experts and lawmakers must continue, in order to benefit from the input of those with daily experience of legal practice and procedure. In this way, every potentially viable variety of tree will be given due consideration before a decision is made whether to replant the forest entirely, or whether to seek better results through forest management.

References   [ + ]

1. ↑ Meanwhile, on 18 January 2019, the EU submitted two papers containing concrete reform proposals to UNCITRAL. 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


Should Arbitral Institutions Have Diplomatic Immunity?

Wed, 2019-02-27 01:00

Christine Sim (Assistant Editor for Southeast Asia)

In November 2018, the former director of the Asian International Arbitration Centre (AIAC) in Kuala Lumpur resigned from his role after being arrested on suspicions that he paid past and present ministers bribes to renew his role at the AIAC.

His lawyer argued before Malaysian courts that, by virtue of his role at AIAC, he is protected by diplomatic immunity under Malaysia’s 1992 International Organisations (Privileges and Immunity) Act and the Vienna Convention on Diplomatic Relations (18 April 1961) (Vienna Convention). As a result, he cannot be arrested, detained or subject to criminal jurisdiction in Malaysia. He was detained for investigations briefly, but released, not subject to bail on 21 November 2018.

Are arbitral institutions and their officers entitled to diplomatic immunity?

 

Legal Regime for Diplomatic Immunity of Arbitral Institutions

Under international law, the question whether an international organization enjoys diplomatic immunity depends on treaties with the host State and customary international law.1) Josef L. Kunz, ‘Privileges and Immunities of International Organizations’ American Journal of International Law, vol. 41, No. 4 (Oct., 1947), pp. 828-862; Michael Wood, ‘Do International Organizations Enjoy Immunity under Customary International Law?’ in Immunity of International Organizations (Brill, 2015), pp 29-60. jQuery("#footnote_plugin_tooltip_5379_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5379_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Under the Vienna Convention, immunity from criminal jurisdiction is complete. But the Vienna Convention does not apply to international organizations. As provided in the Commentary:

‘Apart from diplomatic relations between States,there are also relations between States and international organizations. […]However, these matters are, as regards most of the organizations, governed by special conventions.’

Under domestic law, States have enacted legislation regarding diplomatic immunity for international organisations. In Malaysia, the applicable law cited by Rajoo is the Malaysian 1992 International Organisations (Privileges and Immunity) Act. In the United States, the 1945 International Organizations Immunities Act applies to protect international organizations and their officers from U.S. search and seizure laws.

The Permanent Court of Arbitration (PCA) has a treaty with the Netherlands concerning their headquarters. It provides that the PCA shall be immune from legal processes and its property shall be inviolable. The PCA also has several Host Country Agreements, providing privileges and immunities to its staff, adjudicators and participants in PCA-administered proceedings. The International Chamber of Commerce (ICC) Court of Arbitration is part of the ICC, a non-governmental business organization, organized under the laws of France. It does not have the same treaties setting out diplomatic immunity protections as the PCA.

According to the AIAC, it was established under the Asian African Legal Consultative Organization (AALCO), an international organization comprising 47-member states from across the region, and that:

“Formed pursuant to the host country agreement between Malaysia and AALCO, the AIAC is a not-for-profit, non-governmental international arbitral institution which has been accorded independence and certain privileges and immunities by the Government of Malaysia for the purposes of executing its functions as an independent, international organization.”

 The extent to which officers of arbitral institutions are protected by diplomatic immunity depends on the same legal framework above.

Officers of arbitral institutions perform a great variety of roles, including registering the case, appointing arbitrators, making procedural decisions, facilitating the hearing, drafting or editing the award, and promoting the arbitral institution to users.

Generally, the diplomatic immunity enjoyed by the arbitral institution would extend to the officer when he acts on behalf of the institution. The key requirement is that the arbitral institution’s officer was acting within the scope of his role and in the exercise of his functions. But what happens when the officer is accused of corruption or bribery?

 

Corruption and Bribery in Arbitral Institutions

 Suspicions of corruption and bribery raise the temptation to lift diplomatic immunity for international organizations.

In such cases, there is a delicate balance between the need to investigate corruption and bribery and giving the international organization space to conduct activities that may be against the interests of a host State. For arbitral institutions, this includes the freedom to issue awards directly against the host State.

On the one hand, corruption suspicions should be investigated effectively. Allegations of corruption can seriously tarnish the reputation of the arbitral institution, its panel of arbitrators and affect the respect for its awards in enforcement proceedings around the world.

On the other hand, the ability of a State to create obstacles in the way of a tribunal’s work, interfere with legal proceedings and gain access to confidential information, simply by starting a corruption investigation, poses a significant risk to the sanctity of due process.

The balance may be shifted if the arbitral institution’s treaty with the host State requires that the institution respects domestic laws. For diplomats, Article 41(1) of the Vienna Convention provides:

Without prejudice to their privileges and immunities, it is the duty of all persons enjoying such privileges and immunities to respect the laws and regulations of the receiving State.

When should an arbitral institution’s officer be prosecuted for corruption? If an officer of an arbitral institution was not serving in his official capacity when committing the acts of corruption, he should not be entitled to diplomatic immunity.

Whether an official acted outside his official capacity in each instance would depend on the court’s interpretation of the facts. For instance, if a court finds that the arbitral institution’s officer was acting only in his interest by offering or soliciting bribes, it may be possible to conclude that he was not performing the institutional functions. However, there may be factual situations where it would be far more difficult to distinguish between the institution’s officer’s official duties and acts performed for only in his own interest. This difficulty is reflected in the debate currently before the International Law Commission on expressly excluding corruption and bribery from diplomatic immunity.

 

Should arbitral institutions and their officers enjoy diplomatic immunity?

First, the rationale for granting diplomatic immunity to international organizations is to enable them to fulfil their functions independently, by preventing member states and, particularly, the host State from exerting undue influence.2) Philippa Webb, ‘The Immunity of States, Diplomats and International Organizations in Employment Disputes: The New Human Rights Dilemma?’ (2016) 27 (3) European Journal of International Law 745–767p 762. jQuery("#footnote_plugin_tooltip_5379_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5379_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It is particularly important, that international organizations that sit in judgment of States enjoy the highest form of protection from State interference. If arbitral institutions were vulnerable to interference from their host State’s criminal investigations, these institutions would find it difficult to administer cases against State-related parties.

Second, we may draw parallels to arbitrators being granted immunity from liability under arbitration rules.3) See Asif Salahuddin, ‘Should arbitrators be immune from liability? Arbitration International, Volume 33, Issue 4, 1 December 2017, Pages 571–581. jQuery("#footnote_plugin_tooltip_5379_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5379_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Arbitrators enjoy civil immunity so that they may sit in judgment of a State or State-related party in a neutral manner. Similarly, arbitral institutions and their officers should be free from the criminal or civil interference or other influences of that State.

Third, the officers of arbitral institutions need to be granted diplomatic immunity in order to carry out their duties. Especially in the case of investor-State arbitration, the officers of the arbitral institution cannot be subject to interference from the host State. The Secretariat of the International Centre for the Settlement of Investment Disputes (ICSID) would find it very difficult to do their jobs if they were vulnerable to investigations and detention by a respondent State. The ICC Court of Arbitration would have difficulty exercising certain key functions, such as appointing arbitrators and deciding on consolidation of arbitration proceedings, if its members were subject to the constant threat of investigations by State authorities. When an arbitral institution’s officers are conducting adjudication-related activities, especially against a State, these functions should be protected by diplomatic immunity.

These compelling justifications are akin to arguments regarding diplomatic immunity for State diplomats. If diplomats are not granted immunity, they would be vulnerable to interference by host States, frustrating important diplomatic functions of negotiations, representation and secrecy of communications with their home State. But many have pointed out that the latitude granted to diplomats has led to abuse of diplomatic immunity, and in recent years, people have started calling for such abuse to stop by restraining the scope of diplomatic immunity.

Could the institution be found responsible? In the context of a State’s diplomat, a corrupting State could be held responsible as a matter of State responsibility for the actions of its corrupting diplomat.4) See Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001), footnote 150 jQuery("#footnote_plugin_tooltip_5379_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5379_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

To conclude, the question whether an arbitral institution and its officers are entitled to diplomatic immunity in cases or corruption will depend on the presence of host State treaties and domestic laws on diplomatic immunity. However, arbitral institutions and host States should consider amending their treaties and domestic laws to expressly exclude corruption and bribery from diplomatic immunity.

References   [ + ]

1. ↑ Josef L. Kunz, ‘Privileges and Immunities of International Organizations’ American Journal of International Law, vol. 41, No. 4 (Oct., 1947), pp. 828-862; Michael Wood, ‘Do International Organizations Enjoy Immunity under Customary International Law?’ in Immunity of International Organizations (Brill, 2015), pp 29-60. 2. ↑ Philippa Webb, ‘The Immunity of States, Diplomats and International Organizations in Employment Disputes: The New Human Rights Dilemma?’ (2016) 27 (3) European Journal of International Law 745–767p 762. 3. ↑ See Asif Salahuddin, ‘Should arbitrators be immune from liability? Arbitration International, Volume 33, Issue 4, 1 December 2017, Pages 571–581. 4. ↑ See Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001), footnote 150 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