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The Fate of Finality Clause in Ethiopia

1 hour 50 min ago

Mintewab Afework

The cassation bench of the Supreme Court of Ethiopia, whose decisions have precedential value, in National Motors Corp. v. General Business Development case has ruled that parties’ final intention to be bound by an arbitration award shall be final and may not be subject to review by courts, including the cassation bench. The bench, however, reversed the favourable precedent in the National Mineral Corp. Pvt. Ltd Co. v. Danni Drilling Pvt. Ltd Co. (“National Mineral case”), where the parties have agreed to submit their disputes to arbitration and waived their right of appeal on the final arbitral award. The bench ruled that it still has the power to review the award on fundamental error of law grounds despite parties’ express agreement on the finality of the arbitral award.


In the recent arbitral award in the famous case of the government of Ethiopia and Djibouti (represented by the Chemin de Fer Djibouto-Ethiopien (“CDE”)), and Consta Joint Venture (“Consta”) the majority of the tribunal under the Permanent Court of Arbitration awarded Consta in excess of 20 million Euros, rejecting all of CDE’s defenses and counterclaims. The governing law was Ethiopian while arbitration was conducted under the Procedural Rules on Conciliation and Arbitration of Contracts Financed by the European Development Fund (“EDF Rules”). This award was challenged before the cassation bench on the precedent set by the National Mineral case. The bench, on 24 May 2018, ruled that it not only has the jurisdiction to review an EDF arbitral award for fundamental errors of Ethiopian law but also that such errors existed in the case.


Experts say that this jurisdictional ruling could be a groundbreaking precedent affecting existing and future EDF cases in many profound ways and hence calls for a further study. This article, however, is based on the previous National Mineral case on which the Consta’s case was based upon.


With the sweeping precedence in the National Mineral case, parties are denied of their right to waive appeal. This creates another wide avenue of review of final arbitral awards besides appeal and annulment (set-aside) under the existing Ethiopian laws of arbitration. Such approach is not consistent with the legislative and judicial approach followed by many contemporary jurisdictions that are progressively abandoning judicial review on substantive grounds including on grounds of error of law.


Jurisdictions like the United States are moving away from ‘manifest disregard of the law’ as a ground of annulling awards in the Hall Street Associates v. Mattel case. Many other jurisdictions such as France, Switzerland and countries that have modelled their national laws after the UNCITRAL Model law International Commercial Arbitration do not allow appeal on international arbitral awards on the point of law. Only limited numbers of jurisdictions allow appeal on a mistake of law. One such example is the 1996 English Arbitration Act, §69, which provides that, in a limited category of cases, an award may be subject to appellate review by the English courts for substantive errors of law. However, the right is subject to several restrictions and most importantly allows the parties to waive their rights of appeal by agreement. The English Courts, in practice, have taken a very restrictive approach to allow challenges on error of law ground.


One cannot deny the merit of judicial review in order to guard against mistakes of law. It is to safeguard against unjust and arbitrary awards and avoid the risk of inconsistent decisions to ensure uniform application of the law. Such argument is in line with the cassation bench’s rationale in the National Mineral case. However, international arbitral practice dictates that this public interest of ensuring consistency and predictability has been significantly weighed down in favor of the need for finality of awards, except in very limited circumstances.


Interference in a private agreement is contrary to the fundamental goals of international arbitration as it frustrates parties’ choice of arbitration as a neutral and independent forum with no risk of national bias or political pressure. Allowing parties to agree on a neutral playing field promotes international business transactions, while protracted multi-stage litigation through appeals and retrials discourages such involvement in the state. A national legal framework hampered by excessive court intervention could negatively affect the effort to attract foreign investment and participate in international commerce. The restrained intervention also makes courts more efficient by avoiding unnecessary diversion of judicial resource.


As we speak, Ethiopia’s arbitration regime makes final arbitral awards susceptible to review by the cassation bench for error of law. This position has been solidified by the recent cassation bench’s annulment of the PCA’s award.


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Efficient Arbitration – Part 3: Winning an Efficient Arbitration

Sat, 2018-07-21 02:36

Victoria Pernt and Marina Stanisavljevic


Following up on Efficient Arbitration – Part 2: Launching an Efficient Arbitration, where we addressed efficiency tools available at the early stages, we now provide an overview of options to save time and costs up until the award. As we continue our efficiency series, we will zone in on a selection of efficiency tools and discuss our experience using them.

5. Focusing the Evidence

Gathering and presenting the right evidence is key.

This often requires close cooperation between counsel and the parties who have the best access to documentation and fact witnesses. Where documentation is kept by the opposing party, agreeing on a document production phase might be advisable. However, document production should be a focused exercise. To avoid fishing expeditions, discovery requests are best addressed at the CMC. This permits the tribunal to direct the parties to the evidence required to determine the case.

Expert witnesses play an important role. They should be carefully selected and thoroughly briefed. While in-house experts might be cheaper, parties should be mindful of their potential (at least perceived) partiality (IBA Compendium of Arbitration Practice 2017).

Preparing fact and expert witnesses for the hearing is a costly exercise; in particular, if mock hearings are held for counsel and the witnesses. However, witness and expert testimonies are valuable. The costs of preparing the witnesses will often prove worth it.

Other relevant tools may include expert conferencing, electronic filings (see also Leon Kopecký’s A Case for Paperless Arbitration), splitting exhibits into “core” and “supplementary” categories (i.e. exhibits likely and unlikely to be referred to at the hearing), and pleading the applicable law rather than relying on legal experts.

6. Streamlining the Hearing

Hearing practicalities have the potential to save (or waste) significant resources. Efficiency considerations will include: selection of venue, adoption of a tight hearing schedule (chess-clock process), decisions on which witnesses to call (and cross-examine), agreement on paperless hearings (see also Leon Kopecký’s A Case for Paperless Arbitration), and the use of video conferencing (ICC Guide on Effective Management of Arbitration).

Transcript services should also be borne in mind. Less complex, low value disputes may not justify the expense of live daily transcripts. Similarly, consecutive interpretation may be more accurate, but will certainly prolong the duration of the hearing (ICC Guide on Effective Management of Arbitration).

Finally, where issues have been fully covered in submissions, counsel should consider whether opening statements are really necessary, and if so, whether they could at least focus only on the key issues. Naturally, this will depend on the tribunal’s familiarity with the submissions and supporting documentation.

7. Post-Hearing

Post-hearing briefs are popular among parties who wish to seize this last opportunity to (re-)present their case. In reality, however, the time to present evidence has passed. This limits the benefit of post-hearing submissions. At the same time, these submissions are costly, as preparing them requires a thorough review of the previous submissions, the evidence submitted and the hearing transcripts.

If at all necessary, post-hearing briefs should be limited in scope, length and timing (see ICC Guide on Effective Management of Arbitration). They should be drafted to assist the tribunal, and not restate the parties’ submissions and closing statements.

While parties might be tempted to re-plead their strongest arguments, or to sneak in new ones, the cost/benefit analysis will often speak against post-hearing submissions.

In conclusion…

Designing an efficient arbitration is an important and daunting responsibility. Counsel has to determine in every case and at every stage whether resources are being invested or wasted. While utilizing the right efficiency tools will save time and costs, selecting the wrong ones might jeopardize the party’s chances of success in the arbitration.

The quest for efficiency therefore remains a balancing act. But the goal is not more than just saving: it is achieving the best possible outcome with the least amount of resources. After all, there is one thing that is more important than saving.


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New Model BIT proposed by Ecuador: Is the Cure Worse than the Disease?

Fri, 2018-07-20 05:44

Javier Jaramillo

Like a chronicle of a death foretold, the  systematic denunciation by Ecuador of the Bilateral Investment Treaties (“BITs”) signed with various states formally began in 2009.  Although, the origin of the complaints goes back to 2008, when the current Constitution of the Republic of Ecuador was enacted and specifically forbid the execution of any international treaty in which the Ecuadorian State “surrendered jurisdiction to international arbitration entities”.

In 2010, Ecuador approved the termination of treaties executed with Finland, the United Kingdom and Germany; in 2011, those signed with Sweden and France, and in 2017, the remaining 12 BITs in force with Argentina, Bolivia, Canada, Chile, China, Spain, USA, Italy, Netherlands, Peru, Switzerland and Venezuela.

On this basis, in 2013, former President Rafael Correa created the Commission for Sovereignty, Integration, International Relations and Security of the National Assembly (“CAITISA”) in charge of reviewing the provisions of all the BITs executed by Ecuador, which, in its final report, deeply criticized the text of the majority of them. Many of its observations are reflected in the new Model Bilateral Investment Agreement (“BIA”).

This document intends to (non-exhaustively) outline the salient characteristics of the BIA that Ecuador intends to negotiate with other States.

Definition of Investment

Regarding the definition of investment, in principle, the BIA provides for the requirements of the Salini test to establish the existence of an investment in article 3(2). These requirements are: (i) a contribution of money or assets; (ii) a certain duration; (iii) risk; and (iv) a contribution to the host State’s economy. However, the BIA also introduces requirements that must be met in addition to the test. These additional requirements are: (i) respect for human rights obligations; (ii) respect for environmental obligations; and (iii) subjection to national legislation, which is tied to the condition that there are no acts of corruption in order for the investment to exist. Consequently, article 15(5) of the BIA includes the clean hands doctrine to prevent arbitration for investors who commit acts of corruption; something that was adopted in the iconic World Duty Free case.

The same article provides a list (which given its literalness seems to be specific rather than illustrative) of the types of capital deployment that constitute an investment provided they meet the requirements determining its existence. Some examples are: (i) shares and participations in companies; (ii) real property rights; (iii) contractual rights; and (iv) concessions. The same article, at the end of section 2, contains a specific list of activities that are not considered investments under the Treaty. In essence, it excludes activities such as the following: (i) portfolio investments; (ii) intellectual property rights that are not protected by the host State; (iii) commercial contracts for the sale of goods and services; (iv) bank loans; and (v) debt instruments from some contracting states. Any activities that are not considered as investments on the basis of the BIA are excluded from its protection.

Definition of Investor

Article 3 (3) of the BIT prescribes two regimes to define an investor. Firstly, for a natural person, it implements the International Law test of effective nationality; that is, the individual will be a national of the State with which he/she has the closest connection. For an investor with dual nationality, one of these nationalities cannot be of the host State. Secondly, for a legal person, the BIA provides for the theory of effective control. Therefore, only a company with an activity in the issuing State will be considered an investor, provided that it is not controlled by a national of the host State or a third party of another State. In both cases, the investor must have an investment in the host State to be considered as such.

Fair and Equitable Treatment (FET)

FET is one of the most important substantive protections for investors under International Investment Law. This standard is included in article 7 of the BIA. Its definition equates Fair and Equitable Treatment to the minimum standard of international treatment, similar to article 5 in Chapter 11 of the NAFTA. The definition is complemented by the standard of national treatment for foreign investors, stipulated in article 5 of the BIA. The exception to this is in article 6, which refers to the different types of treatment that the host State may accord investors of Small and Medium-sized Enterprises (SMEs). Lastly, article 7 states that investor treatment will be guided by Customary International Law.

Despite the above, and somewhat contradictorily, the BIA limits violations of FET to two specific situations: i) denial of justice, and, ii) discrimination.

Firstly, FET can be violated by denial of justice. The BIA provides for two situations where there is a denial of justice: (i) illegal judicial decision; and (ii) wrongful refusal by the judicial authority to hear the claim. In any case, the investor must exhaust “all national levels of jurisdiction”, in order to be able to file a claim for breach of this standard. In principle, it would seem that this requirement is limited to the scenario where the authority fails to hear the claim; thus excluding the standard of effective means recognized in previous cases against Ecuador.

Secondly, FET is violated in the case of discrimination. The BIA defines it as “an exceptional and singular treatment of the investor”. However, this type of treatment only breaches FET when it is based on “reasons of nationality, sex, race or religion”. Other types of singular treatment, even if illegal, are not protected under the treaty.


The BIA meets the standard of the Chorzow case. Any legitimate expropriation must: (i) be in the public interest; (ii) observe due process; and (iii) provide a just, adequate and prompt compensation.

There are two special circumstances that are regulated by the BIT. Firstly, article 17 provides for the scenarios that must be considered in order to quantify the compensation for the investment, namely: (i) the use of the investment; (ii) pending obligations of the investor; (iii) fault of the investor in the damage caused; and (iv) any type of environmental damage. These situations are above all illustrative. The host State may analyze “any other relevant consideration to achieve an adequate balance between the public interest and the interests of the investment or investor”.

Secondly, article 7 (9) expressly excludes claims for indirect expropriation from the treaty. This would seem to be a response to a historical reason relating to ICSID arbitrations pursued by certain oil companies against Ecuador, which had differing results. For example, in the Burlington case, the Tribunal ruled that there was no indirect expropriation. On the contrary, in the face of similar events, in the Perenco case, the  Tribunal concluded that there was an indirect expropriation. In any case, there is a certain risk in the exclusion, since creeping expropriation cases would be left unprotected, something which occurred in the Yukos case, and there would be no way to file a claim under the BIA.

Dispute Resolution

In accordance with the BIA, arbitration for violation of the treaty is only possible if it is submitted to “arbitration mechanisms in regional proceedings in Latin America” or to arbitration centers of the host State, under the premise that the “place of arbitration is a Latin American country agreed by the Contracting Parties”.

Claims for violation of the treaty seek to protect the investment. In this case, there is a multi-tiered clause that provides for direct negotiation before arbitration.

The claim only begins when the other party is notified of the dispute. The BIA establishes the extinguishment of the right to arbitration if the arbitration claim has not been filed within three years following notice of the dispute. Furthermore, if the claimant has not begun negotiations within 90 days, the claim will be understood to be abandoned and it will not be possible to re-file the claim. Another distinction of the notice of dispute is that the BIA requires the notice of dispute to have the same subjective and objective subject matter as the arbitration claim that is subsequently filed.

On the basis of the experience in the Burlington case, article 21 of the BIT provides standing to the host State of the investment to file counterclaims in arbitration based on violations by the investor of its obligations under the treaty (e.g. human rights, environment, corruption, etc.).

Additionally, in keeping with the inclination towards local legislation concerning public private partnerships and investment promotion, for investor-State claims, article 21 of the BIA requires local administrative proceedings to be exhausted as a prior condition for arbitration. This requirement does not apply to State-State disputes.

Tax matters are expressly excluded from the subject-matter jurisdiction of arbitral tribunals formed under the BIA.

Also, the BIA limits the sanctions that can be imposed by arbitral tribunals on the host States of the investment, stating that such sanctions may only be economic and, under no circumstances, of specific performance.

Lastly, the BIA states that the award is final for State-State disputes, but provides for the possibility of filing (i) a horizontal motion for clarification; (ii) a vertical motion of appeal (pursuant to the method in the BIA); or (iii) an action for annulment of the arbitral award in cases of investor-State disputes. The action for annulment is admissible on specific grounds that concern: (i) violation of due process; (ii) inconsistencies and (iii) lack of jurisdiction of the arbitral tribunal.


It is clear then that the new BIA brings significant changes compared to the current BITs in force around the world. Many of the changes seem positive, but many others eliminate protections that are necessary for promoting investment, which could negatively affect its acceptance by other States.

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Interpreting Contracts Under Singapore Law in International Arbitration — The Sequel

Wed, 2018-07-18 21:53

Darius Chan


Article 16(3) of the Model Law provides in relevant part that, “if the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request … the court … to decide the matter”. One question that arises is, to the extent issues of evidence arise, what rules of evidence should the court apply when “decid[ing] the matter”? Does the court apply national rules of evidence, or does the court apply the same rules of evidence, if any, that the tribunal was obliged to apply?


This thorny question reared its head recently in a Singapore High Court decision of BQP v BQQ [2018] SGHC 55, which follows an earlier discussion by a different Judge in HSBC Trustee (Singapore) Ltd v Lucky Realty Co Pte Ltd [2015] SGHC 93.1)See also the previous post discussing this decision. jQuery("#footnote_plugin_tooltip_7062_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7062_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });




By way of background, subject to various exceptions and as a general rule under English law, pre-contractual negotiations, such as prior drafts of contracts, are inadmissible to interpret a contract.  At least where Singapore litigation proceedings are concerned, the issue of whether pre-contractual negotiations are admissible in evidence to construe written agreements, and if so, the applicable limits or safeguards (the “admissibility issue”), remains an unsettled question.


The Singapore Court of Appeal has held that extrinsic evidence (including pre-contractual negotiations) to interpret a contract is admissible under Singapore law only if it is “relevant, reasonably available to all the contracting parties and relates to a clear or obvious context” (Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] SGCA 27 (hereinafter called the “Zurich criteria”)).


Subsequently, the Court of Appeal formulated specific court pleading requirements to ensure that the Zurich criteria are met (Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] SGCA 43), namely:


(a) parties who contend that the factual matrix is relevant to the construction of the contract must plead with specificity each fact of the factual matrix that they wish to rely on in support of their construction of the contract;


(b) the factual circumstances in which the facts in paragraph (a) above were known to both or all the relevant parties must also be pleaded with sufficient particularity;


(c) parties should in their pleadings specify the effect which such facts will have on their contended construction; and


(d) the obligation of the parties to disclose evidence would be limited by the extent to which the evidence is relevant to the facts pleaded in paragraphs (a) and (b).


In 2015, the Singapore Court of Appeal (eg, Xia Zhengyan v Geng Changqing [2015] SGCA 22 and other cases) sounded the caution that the admissibility issue is still an open question under Singapore law. Reliance on prior drafts of contracts should not be permitted as a matter of course.  At a minimum, the Zurich criteria must still be met.


In the 2015 High Court decision of HSBC Trustee (Singapore) Ltd v Lucky Realty Co Pte Ltd [2015] SGHC 93, the Judge opined, by way of dicta, that a dispute over how a contract is to be construed must yield the same final determination whether the contract is construed by a court or in arbitration.  The Judge’s observation did not sit comfortably with Singapore’s Evidence Act, which provides expressly in section 2 that certain parts of the Evidence Act do not apply to “proceedings before an arbitrator”.  The Judge’s observation also does not sit well with institutional rules which typically provide that an arbitral tribunal can determine whether to apply strict rules of evidence to determine the admissibility of evidence.  For instance, the current SIAC Rule 19.2 expressly provides that evidence need not be admissible in law.


The Judge’s observation also raises questions concerning whether, and if so how, arbitral tribunals ought to apply the Court’s caution in Xia Zhengyan v Geng Changqing when considering whether to admit or rely on pre-contractual negotiations.  Is extrinsic evidence admissible in international arbitrations where the underlying contract is governed by Singapore law? If an arbitral tribunal finds jurisdiction by construing a contractual provision in a certain manner by relying on prior drafts of the relevant contract, is the tribunal’s decision on jurisdiction susceptible to challenge?  In BQP v BQQ, the Court was confronted with these issues.




In BQP v BQQ, the arbitral tribunal, after admitting and relying on evidence of prior drafts and negotiations in construing a certain contractual provision, found that the tribunal enjoyed jurisdiction.


The plaintiff applied before the Singapore courts to challenge the tribunal’s jurisdiction ruling under section 10 of Singapore’s International Arbitration Act read with Article 16(3) of the Model Law.  After meticulously analysing the evidence (including extrinsic evidence) that had been adduced before the tribunal, the Singapore High Court agreed with the tribunal’s interpretation, and dismissed the plaintiff’s challenge.


The plaintiff applied for leave to appeal, contending inter alia that the issues surrounding admissibility of pre-contractual negotiations were questions of importance or questions of general principle to be decided for the first time. The Court refused, holding that the Singapore Court of Appeal had already decided that rules concerning admissibility of evidence are rules of evidence or procedural law (which generally would not bind arbitral tribunals), and not a matter of substantive law.


In essence, the Court held that national rules concerning admissibility of evidence, including the Zurich criteria, are procedural in nature, and do not bind international arbitration tribunals.  The Judge made the following observations:


(a) There is a specific provision in Singapore’s Evidence Act that precludes the Act’s applicability to “proceedings before an arbitrator”.


(b) Parties resort to international arbitration precisely because they wish to avoid national laws shackling their quest for a speedy, commercial and practical outcome to their dispute, and preclude the application of laws and procedures which may be alien to them.


(c) To the extent parties may have agreed to institutional arbitration, many institutional rules give the tribunal broad discretion to decide on the admissibility, relevance, materiality and weight of evidence offered.




The Court in BQP v BQQ had meticulously reviewed the evidence (including extrinsic evidence) adduced before the tribunal before eventually reaching the same interpretation of the relevant contract as the tribunal.  This can be understood as an exercise where the Court was simply applying rules of contractual interpretation (found in the law of contract) against the body of evidence that had already been adduced before the tribunal.


Separate from the issue of whether a tribunal was bound to apply national rules concerning admissibility of evidence (which the Court in BQP v BQQ ruled in the negative), it is not evident whether there was any argument questioning whether the Court itself was bound to apply national rules concerning admissibility of evidence in an Article 16(3) application.  Yet, at the same time, the Court in BQP v BQQ (at para 123) stated that the Zurich criteria (which according to the Court was a rule of evidence) had, in fact, been met.  Whilst this may have been a statement made out of prudence, it provokes the vexed question: what if the Zurich criteria had not been met? In those circumstances, would the Court exclude certain extrinsic evidence which had been adduced before the Tribunal?


A possible argument would be that it should not matter whether the Zurich criteria had been met — the Court should not revisit a tribunal’s decisions concerning admissibility of evidence because that would effectively frustrate the parties’ expectation (or agreement) that the tribunal has wide discretion to deal with issues of evidence and procedure unfettered by national rules of evidence and procedure.  In the context of an Article 16(3) or Article 34(2)(a) application, whether the Zurich criteria had been met may well be an academic question.  Practically speaking, to the extent the Court disagrees with the tribunal’s reliance on a certain piece of evidence that had already been adduced before the tribunal, the Court can simply assign limited weight to that evidence, rather than revisit a tribunal’s decision on admissibility.

Be that as it may, one can imagine scenarios where national rules of evidence may, in fact, be relevant.


Under Singapore law, in applications under Article 16(3) or Article 34(2)(a) of the Model Law, parties are not precluded from advancing new arguments that were not previously advanced before the Tribunal (see, for instance, the dicta in Tan Poh Leng Stanley v Tang Boon Jek Jeffrey [2000] SGHC 260).   It is also the position under Singapore law that parties may adduce new evidence for the purposes of an Article 16(3) application (Government of the Lao People’s Democratic Republic v Sanum Investments Ltd [2015] SGHC 15) or an Article 34(2)(a) application (AQZ v ARA [2015] SGHC 49).  In determining whether new evidence could be adduced, the Singapore High Court in Sanum had applied what the Court called a “modified Ladd v Marshall test” which, in fact, stems from national rules of evidence.


Imagine further an Article 16(3) or Article 34(2)(a) application where the applicant seeks to introduce a new argument based on interpreting a contract using new extrinsic evidence (such as prior drafts of contracts).  In this scenario, can an objection based on the Zurich criteria be sustained in relation to the new evidence sought to be adduced?  Perhaps more practically, would the caution in Xia Zhengyan v Geng Changqing (namely, reliance on prior drafts of contracts should not be permitted as a matter of course) apply in this scenario?  A possible argument would be that the Court can decide the issue of admissibility by applying national rules of evidence when there has been no prior decision on admissibility by the tribunal.


Given the steady stream of arbitration cases flowing through the Singapore Courts, one might not have to wait long before the Court has to grapple with these issues again.


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References   [ + ]

1. ↑ See also the previous post discussing this decision. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Has Acting as Arbitrator Become a Risky Business?

Wed, 2018-07-18 03:00

Nathalie Voser

Schellenberg Wittmer

Comments on the Decision of the Paris Court of Appeal Dated 27 March 20181)CA Paris, Pôle 1, Chambre 1, 27 mars 2018, n°16/09386. jQuery("#footnote_plugin_tooltip_7754_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7754_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Neither the author nor Schellenberg Wittmer was personally involved in any of the cases mentioned in this blog, and all information disclosed is publicly available.

The appellant in the case before the French Court of Appeal, Saad Buzwair Auotomotive and Co., (SBA) is a Qatari car distributor who in 2007 concluded two agreements (one regarding Audi and one regarding Volkswagen vehicles) with Audi Volkswagen Middle East Fze (AVME) limited to the distribution of cars, spare parts and after-sales services for the territory of Qatar.

In February 2013, SBA initiated arbitration under the ICC Rules after AVME informed SBA that it would not renew the two distribution agreements. In an award of March 2016, the three-member Paris-seated tribunal fully rejected SBA’s claim of USD 150 million, holding that AVME was entitled not to renew the distribution agreements. In April 2016, SBA filed a request to set aside the award. Almost two years later, on 27 March 2018, the Paris Court of Appeal granted the request and annulled the award.

The Paris Court was called upon to decide whether a partner of a German law firm appointed by SBA was conflicted. In the five-page “whereas”-decision there were several, also evidentiary, issues at stake. The key findings regarding the issue of conflict are as follows:

  • Based on the 2015/16 edition of a JUVE, a German legal magazine, the Court considered it as established that the co-arbitrator’s law firm represented Porsche, an entity of the Volkswagen group, in a case before German state courts in the years 2014 and/or 2015. Since this representation took place during the arbitration, and because this case was important to the firm, such circumstance could create reasonable doubt as to the co-arbitrator’s independence and impartiality.
  • In addition, the co-arbitrator had not disclosed, when being appointed, that his firm had provided banking law advice to Porsche between June and November 2010. According to the testimony of an in-house counsel of Porsche, this was a one-time occurrence and the fees amounted to EUR 7,520.80.

It is common ground that justifiable doubts as to an arbitrator’s impartiality and independence exist if there is, from the point of view of a reasonable third person, a likelihood that an arbitrator “may be influenced by factors other than the merits of the case as presented by the parties in reaching his or her decision” as expressed in GS 2(c) IBA Guidelines on Conflicts of Interest.

The most striking feature of the decision of the Paris Court is that it does not explain why the co-arbitrator’s assessment of the merits of the case before him could have been influenced by his firm’s representation of Porsche, a representation which was terminated at the time when the award was rendered. The only fact that is mentioned is that Porsche is an entity of the Volkswagen group. The Paris Court obviously assumed that this was per se sufficient to constitute an appearance of a conflict.

According to GS (6)(a) IBA Guidelines “if one of the parties is a member of a group with which the arbitrator’s firm has a relationship, such fact should be considered in each individual case, but shall not necessarily constitute by itself a source of a conflict of interest […].” Furthermore, according to GS 6(b), “If one of the parties is a legal entity, any legal or physical person having a controlling influence on the legal entity, or a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration, may be considered to bear the identity of such party.”

While the IBA Guidelines are obviously not binding, this nevertheless shows the general understanding that an affiliation is not sufficient per se to create a conflict, but rather that additional elements must occur. The IBA working group chose the elements “controlling influence”, “direct economic interest”, or “duty to indemnify”, to identify an affiliate to a party in the arbitration. One can consider this threshold as too high but it shows that as a minimum, there must be a real and actual interest of the affiliate in the outcome of the arbitration.

Other courts have shown what constitutes an adequate analysis in similar situations and have considered when the representation of an affiliate by the law firm of the arbitrator constitutes an appearance of a conflict.

The Swiss Supreme Court addressed the issue at stake in 2013. The so-called “Nespresso-decision”2)DSC 139 III 433 dated 27 August 2013. jQuery("#footnote_plugin_tooltip_7754_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7754_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); was rendered in the context of patent infringement proceedings before the Federal Patent Court between Nestlé and Denner over Nespresso-compatible coffee capsules. The Supreme Court had to decide on the appearance of a conflict of a judge in the following situation: A French sister company of Denner had instructed a partner of the judge’s law firm regarding trademark matters. The Supreme Court rejected a rigid approach to conflicts in a ‘group-of-companies’ situation which would consist in treating all affiliates as one entity. However, the Supreme Court found that the mother company, Migros-Genossenschafts-Bund, had an immediate interest in all its trademarks, including all trademarks held by any of its subsidiaries, and in related disputes. Therefore, Migros-Genossenschafts-Bund itself was to be treated both as a party to the proceedings before the Federal Patent Court and a client of the judge’s law firm. The Supreme Court, therefore, concluded that there was an appearance of bias.

In another 2013 decision, the Southern District of New York Second Circuit3)Ometto v. ASA Bioenergy Holding A.G., 2013 WL 174259 (SDNY), aff’d, 2014 WL 43702 (2d Cir.). jQuery("#footnote_plugin_tooltip_7754_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7754_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); applied § 10(a) of the Federal Arbitration Act providing for setting aside of an award in cases where there was “evident partiality” of an arbitrator. Ometto argued that in three instances the chairperson’s law firm had advised an affiliate of the opposing party. While these mandates were not disputed, Judge Rakoff found no evidence refuting the sworn testimony of the arbitrator that he had no knowledge of the circumstances put forward by Ometto. The mistakes made when recording the conflict could not create evident partiality nor could the deficiency of the law firm’s conflict check system. Therefore, he rejected the request for setting aside.4)Other Circuit courts apply a lower threshold and to date there is no subsequent Second Circuit or Supreme Court decision on “evident partiality” clarifying this issue. The latest Circuit Court decision is Hawaiian Supreme Court decision in Noel Madamba Contr. LLC v. Romero (2015); 133 Haw. 447, 329 P.3d 352, 2014 Haw. App. LEXIS 252 (Haw. Ct. App., May 23, 2014). jQuery("#footnote_plugin_tooltip_7754_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7754_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Swiss Supreme Court discussed the simultaneous representation of an affiliate by the arbitrator’s law firm again in 2016 in the “CMS-Case”.5)See DSC 4A_386/2015 dated 7 September 2016. jQuery("#footnote_plugin_tooltip_7754_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7754_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); An arbitration partner in the Swiss branch of CMS acted as sole arbitrator. Respondent lost over a damage claim and filed a petition to the Supreme Court to vacate the award. It claimed that only then did it discover a press release of CMS Germany revealing that CMS Germany had represented a German company belonging to the same group of companies as the claimant in the arbitration. The Supreme Court analyzed the specific circumstances and held that that the arbitrator’s subjective impartiality could not be doubted since he was undisputedly not aware of the advice provided by CMS Germany to the affiliate of the claimant. Therefore, the arbitrator had no reason to favor the claimant. Regarding the objective impartiality, given that CMS constituted a network of financially independent firms, the link between the arbitrator and claimant’s affiliate was too tenuous to be relevant.

The decision of the Paris Court of Appeal is in stark contrast to these decisions. There is no discussion of any reasons why the previous representation of Porsche by the co-arbitrator’s law firm could have influenced his decision. Considering the territorial and strictly pecuniary aspect of the dispute between SBA and AVME, it seems difficult to see an overreaching interest of the whole Volkswagen group and thus also of Porsche in the arbitration. Furthermore, the assumed representation was apparently over when the award was rendered. Finally, it is unclear whether the Paris Court assumed that the co-arbitrator was aware of the representation and how this impacted its decision.

As to the second leg of the reasoning put forward by the Paris Court of Appeal, the advice in question was given more than two years prior to the co-arbitrator’s appointment. While it should have been disclosed, the relevant question is whether non-disclosure as such justifies setting aside the award. The more convincing and reasonable position is that this is not the case.6)See Explanation (c) to GS (3) IBA Guidelines. jQuery("#footnote_plugin_tooltip_7754_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7754_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Setting aside has too important consequences to warrant using it to reprimand an arbitrator whose lack of disclosure was possibly the consequence of circumstances outside the scope of his or her personal responsibility.

In order to maintain the legitimacy of arbitration, the impartiality and independence of arbitrators is of the highest importance. However, courts have the obligation to explain why there is a real likelihood that an arbitrator might have been influenced by factors other than the merits of the case.

Where courts limit themselves to a cursory analysis, accept very tenuous connections to disqualify arbitrators, or take a non-disclosure as such as a basis for setting aside an award, they open the door to potential liability claims against arbitrators. Then, yes, being an arbitrator has become a very risky business.

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References   [ + ]

1. ↑ CA Paris, Pôle 1, Chambre 1, 27 mars 2018, n°16/09386. 2. ↑ DSC 139 III 433 dated 27 August 2013. 3. ↑ Ometto v. ASA Bioenergy Holding A.G., 2013 WL 174259 (SDNY), aff’d, 2014 WL 43702 (2d Cir.). 4. ↑ Other Circuit courts apply a lower threshold and to date there is no subsequent Second Circuit or Supreme Court decision on “evident partiality” clarifying this issue. The latest Circuit Court decision is Hawaiian Supreme Court decision in Noel Madamba Contr. LLC v. Romero (2015); 133 Haw. 447, 329 P.3d 352, 2014 Haw. App. LEXIS 252 (Haw. Ct. App., May 23, 2014). 5. ↑ See DSC 4A_386/2015 dated 7 September 2016. 6. ↑ See Explanation (c) to GS (3) IBA Guidelines. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Judicial Clarification on Anti-suit Injunctions: The Right Approach?

Tue, 2018-07-17 03:50

David Ndolo

On 6 June 2018, Justice Males at English High court in Nori Holdings Ltd v Bank Financial Corp [2018] EWHC 1343 (Comm) (Nori Holdings) provided clarifications on some of the legal issues on anti-suit injunctions.

The facts revolved around an application for an anti-suit injunction to restrain the court proceedings commenced by the defendant (Bank) in Russia and Cyprus, which were alleged to be brought in breach of a London arbitration clause. The application raised the following legal issues in relation to anti-suit injunctions in the arbitration context.

Do Courts Have Jurisdiction to Grant an Anti-Suit Injunction When an Arbitral Tribunal Has Been Constituted?

It is well established under English law that senior courts in England have ‘general power’ to grant anti-suit injunctions in support of arbitration under s.37 of the Seniors Courts Act 1981. However, they exercise this general power cautiously and ‘sensitively’ in the arbitration context ‘with due regard for the scheme and terms’ of the Arbitration Act 1996 (AA 1996) (see Lord Mance, Ust-Kamenogorsk Hydropower Plant [2013] UKSC 35, at 60).

Of interest in Nori Holdings was s.44(5) AA 1996 which states that in any case ‘the court shall act only if or to the extent that the arbitral tribunal … has no power or is unable for the time being to act effectively.’ Accordingly, the defendant argued that, because the arbitral tribunal had already been constituted, the court should allow the arbitrators to decide whether to grant an anti-suit injunction.

Justice Males held that there is ‘no reason why the court should not exercise the jurisdiction to grant anti-suit relief which it undoubtedly has‘ (at 41). To further strengthen his decision, he referred to Lord Mance’s decision in AES Case [2013] UKSC 35 (at 58-60), in which his lordship held that ‘it is inconceivable that the 1996 Act intended or should be treated sub silentio as effectively abrogating the protection enjoyed under s.37.’ It follows, therefore, that a constitution of an arbitral tribunal and the tribunal’s power to issue an anti-suit injunction, was not a valid reason for a court to refuse to grant an anti-suit injunction or grant a limited injunction until arbitrators consider it (Nori Holdings, at 42).

Justice Males’ decision does indicate that the outcome would have been different if the defendant had made a claim for a stay in proceedings under s.9 AA1996 (at 41). However, it was impractical for the defendant to make such a claim because they denied the jurisdiction of the arbitral tribunal and that the foreign proceedings (in Russia) were in breach of the arbitration proceedings.

Is West Tankers Good Law?

In a controversial and extensively analysed West Tankers case [(C-185/07) EU:C:2009:69 (ECJ (Grand Chamber)], the Court of Justice of the European Union (CJEU) held that the anti-suit injunctions of this nature run counter to the principle of mutual trust among the EU member states as required by the Brussels I Regulation (the Regulation). As a result, EU member state courts, including English courts, cannot issue an anti-suit injunction in favour of arbitration where a party commences foreign court proceedings in an EU state. In Nori Holdings case, the defendant argued that under West Tankers the English Court cannot issue an anti-suit injunction to stop the proceedings in Cyprus as both countries are EU Member States.

The claimant sought to rely on the fact that the Regulation was replaced by the Brussels I Recast (the Recast), which expressly removed arbitration from its scope (Recital 12 para.4). Furthermore, the claimant relied on the Advocate General Wathelet (AG) decision in Gazprom [EU:C:2014:2414], where the AG held that;, if West Tankers had been decided under the Recast, anti-suit injunctions in favor of arbitration would not have been held to be incompatible with the Regulation due to the arbitration exception:

‘…also excludes ancillary proceedings, which in my view covers anti-suit injunctions issued by national courts… supporting… the arbitration’ (Opinion of the AG in Gazprom, at 138).

According to the claimant, that stance indicates a departure from West Tankers under the Recast.

However, Justice Males held that ‘the opinion of the Advocate General on this issue was fundamentally flawed’ for, inter alia, several reasons (at 91-98).  First, the CJEU did not adopt the AG’s approach; instead, it reaffirmed the decision in West Tankers and emphasized the importance of the mutual trust principle among the national courts of the EU Member States. Second, the Recast replaced the Regulation with the aim to explain how the Regulation should be interpreted. As a result, it did not bring any change in the law. Indeed, in Gazprom, the CJEU affirmed such reasoning by reaffirming the interpretation in West Tankers. Third, the approach of the AG to treat the arbitration exception to mean excluding any proceedings in which the validity of an arbitration agreement was contested is a ‘far too sweeping’ and incorrect. Instead, the exception states that such a ruling should not be subject to the rules of recognition and enforcement listed in Chapter III of the Recast. Fourth, the AG’s approach incorrectly envisaged the court proceedings related to anti-suit injunctions as valid under the Recast if the court first seized issued the anti-suit injunction. The Court held such an interpretation as incorrect given that it (a) creates legal uncertainty and unpredictability, and (b) leads to jurisdictional conflicts as to which court was in fact seized first, both of which are contrary to the fundamental principles of the Recast.  Following this, Justice Males held that ‘there is nothing in (the Recast) to cast doubt on the continuing validity of the (CJEU) decision in West Tankers case’ (at 99).  As a result, the English court could not grant an anti-suit injunction to stop the proceedings in Cyprus.

The Nori Holdings decision reaffirms West Tankers as good law and in doing so clears up most of the confusion that had been brought up by the AG opinion in the Gazprom case in relation to the arbitration exception in the Recast. The CJEU’s strong decisions against the issuance of anti-suit injunctions in the arbitration context within EU Member State courts in West Tankers and Gazprom, coupled with the importance and effect they have had does indicate that if there was to be a change in practice it would come directly from a clear CJEU decision.

Is the Fragmentation of Proceedings a Strong Reason Not to Issue an Anti-Suit Injunction?

English courts usually exercise their power to grant anti-suit injunctions in favor of arbitration, unless there are strong reasons not to do so (see in Donohue v Armco Inc (Donohue) [2002] 1 Lloyd’s Rep 425, (at 24)). In Nori Holdings, the defendant argued that there are strong reasons not to issue an anti-suit injunction to stop the foreign proceedings. Specifically, in the interest of justice, it would be necessary to allow the whole dispute to be decided in a single forum that is the Russian court as some of the claimants did not agree to the London arbitration.

However, Justice Males held that if the anti-suit injunction is issued, it would not be possible to submit the whole dispute to a single forum as some of the claimants had agreed to arbitration in London (at 113). Importantly, this case was distinguished from the Donohue, where the court refused to grant an anti-suit injunction to allow, inter alia, the whole dispute to be decided by a single forum. Nori Holdings was materially different as such a result was not possible. Moreover, Nori Holdings also adds to precedence that the fragmentation of proceedings by itself, especially where a single forum for the dispute resolution cannot be achieved either way ‘is not a strong reason not to grant an anti-suit injunction’ (at 113).


Unsurprisingly, the English courts continue to protect their power to grant anti-suit injunctions, in this instance, it remains unfettered even where an arbitral tribunal is constituted. Pragmatically, if there is fragmentation of proceedings, in the interest of justice these courts will exercise that power depending on whether it is possible to submit the whole dispute to a single forum. With regards to issuing anti-suit injunction between EU Member state courts, despite the controversy that the AG’s opinion raised in Gazprom, the English courts still firmly apply the CJEU’s approach in West Takers. But what is yet to be seen is whether the English courts will still favor this approach post-Brexit.

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Arbitration, Jurisdiction and Culture: Apropos the Rules of Prague

Sun, 2018-07-15 17:07

Paula Costa e Silva

On the occasion of the German-Portuguese International Arbitration Symposium  experienced practitioners in international arbitration described what is going on in their national systems and, to some extent, what is going on in the world.

Following Duarte’s introduction and as announced in this conference’s program, Klaus Peter Berger, in his brilliant keynote speech on Civil vs Common Law in International Arbitration – The Beginning or the End? gave a complete and exhaustive overview of the possible impact of the Rules of Prague. On this same blog, Guilherme Rizzo Amaral, a Colleague from Brazil, when comparing the IBA and the Prague Rules, states: “The Prague Rules and the IBA Rules are examples of soft law.” Borrowing the expression from Bryan H. DRUZIN, Why does Soft Law have any Power Anyway?, Asian Journal of International Law, vol. 7/no. 2, (2017), pp. 362-363, Guilherme goes on saying that, in order to succeed, soft law needs to bridge gaps, not burn bridges. Its strength rests upon its network effects: the more agents rely upon the soft law, the more it acquires power.

Aware of these facts, I have chosen to address some topics I brought together under the title Arbitration, Jurisdiction and Culture.

First, arbitration must observe the fundamental principles of jurisdiction, under the clause of the principle of due process of law: the right to be heard and the right to a fair trial. Without diminishing the relevance of international civil procedure, arbitration was beyond reasonable doubt the longa manus of international trade, the instrument that enabled the rational allocation of financial resources, notably in countries where State courts are said to be ineffective and/or partial. The civil procedure was, by its nature, so straightly attached to the concept of sovereignty (let us remind the dominance, in Europe and for centuries, of the canon law procedure) that it was of little use in resolving the conflicts involving huge corporations that traded in foreign markets.

Secondly, having observed and studied for 30 years the evolution of arbitration, mainly international arbitration, civil procedure in Europe (the publication of the CPR, the constant amendment of the regulations on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters as the political and economic Europe became larger in its frontiers)  arbitration became the cosmopolis for justice in a substantial way.

If there is an institute where the differences between legal traditions are substantial, it is the institute of liability; here one cannot even find a unique civil law tradition, opposed to a common law one. And what can be noted in arbitral awards deciding on damage, imputation, causation and causation tests, liability? If I’m not mistaken and despite the tribunals refer to the applicable law, considered as a fact, as is typical in civil law systems (art. 7 RofP), tort law, here taken in a broad sense, becomes a sort of supranational liability law. With the advantages and risks such an approach bears in itself. And when we look at the proceedings, the phenomenon is even more striking: proceedings are all very much alike, no matter where the arbitrators come from. Arbitration is the cosmopolis for Justice, English became its mother tongue and its terms the new legal Esperanto; Arbitration is the new level playing field for jurisdiction.

Recently, I was asked to gather the experience of the world’s key arbitrators from different legal cultures on some of the most sensitive IBA Rules on the taking of evidence, my findings where that: the interviewed practitioners gave me almost the same answers whatever their legal background was.

Thirdly, arbitration is culture. As a species of adjudication, arbitration must comply with the clause of due process, I cannot forget that this clause is the result of a cultural evolution and the reflex of a given cultural subsystem. As we all know, even nowadays the due process clause does not have common contents; and for that we politely never refer to the unspoken dissensus under an imaginary consensus when invoking this clause. Furthermore, we cannot forget that the rights to be heard and to a fair trial are superseded in legal cultures where the access to the reality doesn’t depend on the confrontation of the parties’ versions on the facts, but from revelation. And although, as Taruffo explained in his so interesting paper Cultura e Processo, I couldn’t say what the word culture accurately means, one thing can be taken for granted: the evolution of a culture, here understood as the set of philosophical, political and moral beliefs and ideas existant in a society. As Max Planck once said, a new idea will not impose itself by virtue of its correctness but when the generation who defended the one that is being overruled dies.

But what  is the relevance of this bunch of reflections?

Let me go back to the beginning: the Rules of Prague in its relation to the IBA Rules. When considered per se, the Prague Rules on the taking of evidence it is easy to understand them and to accept the main political option underlying: the way powers and burdens are allocated to the parties and the decision maker is exactly the same than in certain civil procedure systems. And let me unravel one of the most gnawing misunderstandings. When those, stemming from the civil procedure, speak about the similarities between adjudication by an arbitrator and adjudication by a state court, they are not talking about certain provisions of a specific civil procedure code. The argument is much more complex than that; what is being referred to, is the legal theory on adjudication construed after the analyses of the legal system considered.

Why are the Prague Rules familiar to me? Simply because they have different rules that underline the powers of the arbitrators. First, in Article 2, the proactive nature of the role of the tribunal. In addition, Article 3, launches a bridge to the Untersuchungsmaxime, one of the most relevant instrumental principles characterizing an adjudication system. Article 7, unties the tribunal from the Dispositionsmaxime in what concerns the law, a maxime that is applied in such an awkward manner in international arbitration that I have caught myself thinking lately whether or not the arbitrators, while deciding a case, should feel themselves bound to the excerpts of the legal authorities submitted to them, considering they are barred from reading the whole book or other books!

In this digression we will get to a hot topic in international arbitration: the statute of foreign law in connection to the principle iura novit arbiter. The Rules of Prague explicitly affirm its validity. But one cannot forget that the foreign law, the one that is applicable to the merits by neutral arbitrators (wherefore third parties to legal system they will have to apply), must be proven by the parties. Let us underline this topic again: in international arbitration, the applicable law isn’t international law; the applicable law is typically national law to, at least, one of the parties and foreign law at least to the president, if not to the majority or all the arbitrators.

Under the Rules of Prague, the arbitrator, as the judge, explicitly plays the game; he is not a simple onlooker. Can we really say that the arbitrator is a simple onlooker when playing the game by the IBA Rules? I think we cannot draw this conclusion solely from the text of the rules. However, one thing can be said: the IBA Rules on the taking of evidence seem more agnostic than the Prague Rules. The Prague Rules are fitted to conflicts involving adjudicators from, at least, similar civil law systems that have to apply substantive civil law. The IBA Rules on the taking of evidence, just one piece of the puzzle that is adjudication, will probably be considered more adequate if the conflict involves different legal traditions.

In his paper, which I have already mentioned, Guilherme Amaral has a critical approach to what he considers a climate of confrontation between different legal cultures that the IBA Rules tried successfully to supersede. At this level, his words are harsh and one can understand his reasons: as the IBA Rules are agnostic, one could have considered introducing any changes considered necessary thereto instead of creating a new set of them. This was not the choice of the group who proposed the Rules of Prague: in their initial version they were presented as Inquisitorial Rules on the taking of evidence. The opposition to the so said Adversarial Rules on the taking of evidence is explicit; the opposition between legal traditions is emphasized.

From a methodological point of view, I suppose the Prague Rules must be evaluated from the angle of the rules themselves, of their ability to solve problems in the best way one can idealize; the political statements or intentions that justify or determine their enactment must be placed in second. Law is politics and politics can lead both to war and to peace. So let us never forget that leges silent inter arma. And let us look at the Prague Rules as a set of dispositions on the taking of evidence bearing in mind that they will prove to be intelligent if they prove capacity of adaptation. Their starting point is very clear: they were set up to correct the excessive Americanization of the IBA Rules, the one that I could not trace in the answers I got to the questionnaire. The Prague Rules are the newcomers in arbitration; and they entered the ballroom with noise. Dealing with the new is always defying. Albeit their historical roots, resistance and confrontation will be part of their history. Let them tread their path under the sign of Saint Augustine: ”Patience is the companion of wisdom.”

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The 2018 Hungarian Arbitration Act: Implications of the New Setting Aside Provisions

Sun, 2018-07-15 03:02

Ioana Knoll-Tudor


On 17 May 2018, the Central European University and Jeantet co-organized a conference to discuss the new Hungarian Arbitration Act (the “New Act”), following the first months of its entry into force on 1 January 2018 (the “Conference”). The Conference was held in Budapest and the organizing committee was composed of Csongor Nagy (CEU, University of Szeged), Davor Babic (CEU, University of Zagreb), Markus Petsche (CEU) and Ioana Knoll-Tudor (Jeantet, Budapest & Paris). The debates were divided into four panels in which selected issued raised by the New Act were discussed by speakers practicing in Hungary and in other regional and international jurisdictions.

Closing the debates, a panel composed of Zsolt Okány (CMS, Budapest), Moritz Keller (Freshfields Bruckhaus Deringer, Vienna) and Philippe Cavalieros (Simmons & Simmons, Paris) and moderated by Ioana Knoll-Tudor examined in detail the modifications brought by the New Act in relation to the setting aside proceedings. Three specific novelties of the New Act have been addressed by the panel, namely (1) the suspension and rectification of setting aside proceedings, (2) the effect of setting aside an award on the arbitrators’ fees, and (3) the stay of enforcement of the award during the setting aside proceedings.

1. The Suspension and Rectification of Setting Aside Proceedings

Although based on the UNCITRAL Model Law as amended in 2006, the New Act brought significant changes to the provisions applicable to Hungarian commercial arbitration. It notably introduced the possibility for State courts to suspend setting aside proceedings to give the arbitral tribunal an opportunity to eliminate the grounds for setting aside. Building upon Article 34(4) of the 2006 UNCITRAL Model Law, Section 47(4) of the New Act reads as follows:

“At the justified request of either party, the court may suspend the hearing in the proceedings for the setting aside of the arbitral award, for a maximum of 90 days so that the arbitral tribunal, within the limitations set by Section 46, may re-initiate the arbitral proceedings or undertake any other procedural measures with which, in the opinion of the arbitral tribunal, the cause of invalidity can be eliminated. In this case, the arbitral proceedings terminated by the award shall continue for the purpose and duration determined by the court. The setting aside of the award adopted in the re-initiated arbitral proceedings may be requested by an amendment of the claim or by a counterclaim within 60 days from the receipt of the award.

1.1 The Duration of the Suspension

As discussed by the panel, the duration of the suspension of the setting aside proceedings is not certain. While the court may suspend the proceedings “for a maximum of 90 days“, the arbitral proceedings can also be re-initiated and continue “for the purpose and duration determined by the court“. It is, therefore, not clear whether the court may extend the suspension beyond 90 days. According to one panelist, the duration of the suspension is flexible since the purpose and duration of the suspension are determined by the court. For another, however, 90 days should be mandatory since the purpose of the suspension is precisely to offer to the arbitral tribunal a possibility for a short and effective review of the award. If the ground for setting aside was lack of due process, would 90 days be sufficient to address such a question (especially in a large arbitration)? Should the court fix the time limit, or should this be left to the agreement of the parties? From an arbitrator’s perspective, there is a logistical issue: while arbitral institutions such as the ICC require prospective arbitrators to provide their availabilities for the two years following their appointment, under the New Act, the unplanned commitment of an arbitrator would be requested for a period of 90 days in order to render a fully-fledged decision. As noted by one panelist, this situation is similar to that of an emergency arbitrator, except that the arbitrator may not be alone, in case of a three-member panel.

1.2 The Mission of the Arbitral Tribunal

Section 47(4) of the New Act also suggests that judges may interfere with the mission of the arbitral tribunal. No further clarification is given as to how exactly State courts should remit the challenged award to the arbitral tribunal. However, judges should refrain from specifying the issues to be reviewed or from indicating their thoughts on the validity of the award, since the arbitral tribunal should decide by referring to the statement of claims in the annulment procedure. Yet, some judges’ attitude could infringe the principle of absence of State court’s intervention in the arbitral process. Moreover, since there is a risk for arbitrators not to be in position to be paid their fees if the award is set aside (as it will be discussed below), if a State court enjoins an arbitral tribunal to carefully review a specific issue, arbitrators would probably feel compelled to comply with such indication in order to secure the enforcement of the award and their full payment.

1.3 Article 34(4) of the 2006 UNCITRAL Model Law in Other Jurisdictions

The purpose of Article 34(4) of the 2006 UNCITRAL Model Law is to offer an opportunity to “save” the award and similar provisions are found in the Netherlands (Article 1065a of the Dutch Code of Civil Procedure) and in Belgium (Article 1717.6 of the 2013 Law on Arbitration). In Germany, courts can remit the award to the arbitral tribunal without suspending the setting aside proceedings: rectification by the tribunal will occur instead of the annulment procedure before the courts. French law does not provide for a suspension of setting aside proceedings. Without going as far as the New Act, French law alleviates the risk of setting aside an award by dismissing as valid grounds for annulment some legal requirements of the arbitral award (e.g., lack of the arbitrator’s name or lack of the date the award was rendered).

2. The Effects of Setting Aside an Award: No Arbitrators’ Fees?

Section 57(2) of the New Act provides that, in the event an award is set aside, the arbitrators will not be entitled to their fees, irrespectively of the reason of the setting aside:

“If the arbitral award is set aside, the arbitral proceedings terminated by the set aside award shall be free from arbitrator’s fees, and the arbitral tribunal that adopted the set aside award shall not be entitled to a fee. In the continued proceedings following the setting aside, the parties shall not be obliged to pay administrative costs.

If some arbitral institutions, such as the ICC, introduced negative incentives for arbitrators if the award is not rendered within the allocated time (e.g., reduction of their fees), Section 57(2) of the New Act is of a different nature. As noted by the panel, this provision sanctions arbitrators for substantive matters over which they bear no control: While a delay in rendering an award may be directly attributable to arbitrators, only a few grounds for setting aside fall within the scope of arbitrators’ influence.

The panel has identified two main consequences of Section 57(2) of the New Act. First, in addition to the reimbursement of its fees, a party could claim it is entitled to the amount granted in the annulled award. By way of illustration, parties under French law often argue the loss of opportunity (perte de chance). In a 2015 decision, a 114 million award was set aside because it was rendered only once the time limit during which the tribunal was supposed to render its award had elapsed. After the setting aside, the parties had agreed to settle but one of them sued the arbitrators for the difference between 114 million and the settlement amount. French courts considered that, by settling, the parties had lost the right to sue for such a difference. Second, the obligation to reimburse the fees will inevitably create tensions among the arbitrators. The possible consequences of not complying with the procedural timetable could affect the serenity of the collegial decision-making process, even leading some arbitrators to withdraw from the tribunal. Through repercussion, more and more liability actions could be initiated by arbitrators against their colleagues. Similarly, the number of dissenting opinions could increase in an attempt for arbitrators to distance themselves from the content of an award that could be successfully set aside, triggering the reimbursement of fees. As a consequence, it could be more and more difficult to appoint arbitrators willing to sit on cases to which the New Act applies.

3. The Stay of the Enforcement of the Award During Setting Aside Proceedings

 While the previous Hungarian Act on Arbitration only referred to the possibility to suspend the enforcement of the award, Section 7(5) of the New Act supplemented this reference by adding a set of conditions that have to be met in order to obtain a stay of enforcement of the award during setting aside proceedings. These conditions are:

(i) the parties’ ability to bear the burden of the award’s enforcement, and

(ii) the likelihood of the party succeeding in the setting aside proceedings.

These conditions are similar to those required for granting an interim measure.


The aim of the Conference was to bring together Hungarian and international practitioners to discuss the possible implications of the New Act from a comparative perspective. Having entered into force only on 1 January 2018, the provisions of the New Act have not yet been tested in practice. Therefore, the international arbitration community will follow closely the evolution of these provisions and their interpretation by Hungarian courts and arbitral tribunals.

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The Future of Investment Arbitration in Europe: AIA Conference, June 2018

Sat, 2018-07-14 03:45

Iuliana Iancu

Also reporting: Chuba Nwokedi (Association for International Arbitration), Mateusz Rys (University of Antwerp), Maryam Salehijam (Ghent University), Anmol Sheth (Association for International Arbitration), Arthur Van Den Bossche (University of Antwerp), Antonia Zydek (University of Strathclyde)

It has long been said that investment treaty arbitration is at a crossroad. This is probably most true within the European Union, where a profound recalibration and reform of the system is underway. On 6 March of this year, the Court of Justice of the European Union (the “CJEU”) rendered its judgment in Case C-284/16 Slowakische Republik v. Achmea BV (“Achmea”), finding that arbitration clauses included in international agreements between the Member States providing for investor-State arbitration are incompatible with Articles 267 and 344 of the Treaty on the Functioning of the European Union (“TFEU”). The CJEU is also expected to issue shortly its Opinion 1/17 on a Request for an opinion submitted by the Kingdom of Belgium pursuant to Article 218(11) TFEU regarding the compatibility of Chapter Eight (“Investments”), Section F (“Resolution of investment disputes between investors and states”) of the Comprehensive Economic and Trade Agreement between Canada and the European Union (“CETA”) with the EU Treaties and fundamental rights. Adding more complexity to the debate, the United Kingdom is soon to withdraw from the European Union, which raises fundamental questions regarding the implications for the United Kingdom’s bilateral investment treaties (“BITs”) and, particularly, the Energy Charter Treaty (“ECT”).

These issues were explored on 1 June 2018 in Brussels by arbitration and public international law specialists during the aptly-titled conference “The Future of Investment Arbitration in Europe”, organized by the Association for International Arbitration (AIA).

The first panel of the conference discussed the possible fate of intra-EU BITs after the Achmea judgment and canvassed the options available to investors for the enforcement of their rights. Moderated by Prof. Nikos Lavranos, the panel included Dr. Anna Plevri (University of Nicosia), Dr. Richard Happ (Luther Hamburg), Andras Nemescsoi (DLA Piper Budapest) and Johan Billiet (Billiet & Co. Brussels). The first question that was addressed was the scope of the Achmea judgment and whether it was limited to the Netherlands-Slovakia BIT or it was applicable to other intra-EU investment treaties as well. A consensus appeared to emerge on the panel and in the audience that the CJEU’s findings will ultimately affect all arbitrations under intra-EU BITs, including ICSID arbitrations. However, some panelists considered that the ECT, as an international agreement to which the European Union itself is a party, remained at this stage outside the scope of application of Achmea. It was agreed that the Achmea judgment will prevent new cases from being filed on the basis of intra-EU BITs, but may also affect ongoing cases where either no award has been issued or where the State may still apply for the annulment or revision of an award upholding jurisdiction. It was added that, despite the limitations of the judgment, it is not certain that the CJEU will not in the future find fault with the substantive protections included in BITs or even with commercial arbitration. Looking at the options available to investors for the protection of their rights, the panelists explored whether domestic courts could be a forum for their claims. It emerged that no uniform answer to this question exists, as the courts of some Member States may be prevented from hearing such claims on account of the dualist nature of their legal systems. Mediation was explored as a possibility, with the caveat that in the absence of an enforceable dispute resolution mechanism, the incentive to use this tool may be considerably diminished. Other available options that were discussed included the conclusion of investment contracts, parliamentary lobbying and the restructuring of investments.

The second panel explored the degree to which the international arbitration landscape has changed due to greater gender, cultural and legal diversity. Moderated by Diego Brian Gosis (GST LLP Miami), the panel included Prof. Verónica Sandler (Austral University), Grant Hanessian (Baker McKenzie New York), Dr. Alejandro López-Ortiz (Mayer Brown Paris) and Saadia Bhatty (Gide Loyrette Nouel London). The panel looked into how women are represented in various types of disputes and made the provocative suggestion that gender should be used as a tool in making appointments to arbitral tribunals, in a way that is not too dissimilar to jury selection in the United States. The panel also explored the degree to which perceived cultural differences or stereotypes play a role in the appointment of arbitrators. It was agreed that, as best practices of the arbitration community are being developed, the differences in approaches between common lawyers and civil lawyers in arbitration have diminished. Where they appear to persist is with regard to evidence. For instance, in answer to the perceived common-law bias of the IBA Rules on the Taking of Evidence in International Arbitration, a draft of the Inquisitorial Rules on the Taking of Evidence in International Arbitration (or the “Prague Rules”) has recently been published. The panel discussed whether and how the Prague Rules could mark the beginning of a dialogue to recalibrate arbitration so that it can better reflect the needs of all its users.

The third panel, moderated by Dr. Todd Weiler and including Dr. Martins Paparinskis (UCL Faculty of Laws), Prof. Dr. Eric De Brabandere (Leiden University), Louise Woods (Vinson & Elkins London) and Robert Volterra (Volterra Fietta), looked into whether the proposed investment court model included in the CETA is compatible with European Union law and whether it could provide a useful template for investor-State dispute resolution. No consensus emerged between the members of the panel or in the audience regarding the compatibility of the proposed court with European Union law. In one view, in Achmea, the CJEU intentionally omitted to analyze a number of points so as to retain sufficient flexibility that would later allow it to find the investment court in the CETA compatible with the European Union treaties. In another, it is questionable whether the envisaged investment court could be considered a “court or tribunal of a Member State” so that it could be found compatible with the European Union treaties in light of Achmea. The panel also examined whether the proposed investment court answered the objections raised against the current investment arbitration system. Some members of the panel considered that the latter’s alleged pro-investor bias had no support in the statistics and debated whether creating a system where only States were in control of appointments was a solution to this perceived problem. The panelists considered that the perceived inconsistency between different awards was to some extent justified by the different wording employed in the multiple investment treaties that were applicable. Finally, there was some disagreement among the panelists about the review of awards under the CETA on the grounds of manifest errors of fact or law, some panelists strongly suggesting that it would result in a de novo review of the entire case and could not work towards the stated goal of improving cost and efficiency of these proceedings; others being less persuaded.

The fourth panel was moderated by Graham Coop (Volterra Fietta) and included Gordon Nardell QC (20 Essex Street), Kathleen Paisley (Ambos Law), Bernhard Maier (Squire Patton Boggs London) and Frederic Yeterian (Philax International (UK) Ltd). The panel concentrated on the effects on the ECT of the United Kingdom’s withdrawal from the European Union. A common thread during the discussions was that, at the moment, there is considerable uncertainty in the energy markets as a result of not knowing the terms of the withdrawal. The panelists were of the view that, until there is clarity on the United Kingdom’s position with regard to the treaties it benefits from, its relationship with the ECT is unlikely to change. The panel debated whether Achmea could apply in intra-EU ECT arbitrations and noted that presently there is uncertainty surrounding this point. In one view, the principles set out by the CJEU in Achmea are equally apposite in the ECT context, which could result in situations where the treaty is interpreted differently, depending on the parties to a dispute. The panelists also debated whether investors could file claims under the ECT as a result of Brexit, for instance by arguing the breach of their legitimate expectations due to changes in the regulatory framework. It was mentioned that the answer to this question depends on whether a tribunal would consider that Article 50 of the Treaty on the European Union acts as a bar to a claim based on legitimate expectations. Finally, the panelists looked into whether claims arising before Brexit based on intra-EU BITs or the ECT could nonetheless be asserted post-withdrawal, when the Achmea judgment could be seen as no longer applicable. There was some support for this view, provided that the European Union and the United Kingdom did not agree otherwise in the withdrawal agreement.

The closing address was given by Iuliana Iancu (Hanotiau & van den Berg Brussels), who summarized the day’s remarks and invited the audience to reflect on whether what some perceive as the gradual reduction in investment protection throughout the European Union will have an effect on foreign direct investment volumes.

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Efficient Arbitration – Part 2: Launching an Efficient Arbitration

Fri, 2018-07-13 02:56

Victoria Pernt and Marina Stanisavljevic


Kicking off our series on efficiency in arbitration, our first article, Efficient Arbitration – Part 1: Metrics sets out our idea of an efficient arbitration:

Achieving the best possible outcome with the least amount of resources.

A balancing act.

A range of tools are available to focus the spending of resources. Resources should be invested, not wasted. The selection of the right tools to do so often falls to counsel. It is crucial that counsel is aware of the available tools, stays on top of new efficiency developments, and is experienced in selecting and utilizing the right tools for each case.

This article is the first of a two-part overview of efficiency tools, focusing on those available at the early stages of the proceedings. The second part will address efficiency in presenting evidence and at the hearing and post-hearing stages.

As our series continues, we will discuss our experience with various efficiency tools.

  1. Preliminary Case Assessment

The course for an efficient arbitration can be set even before the arbitration is initiated.

A preliminary case assessment, involving a detailed review of the documentation and legal analysis, permits the drawing out of real issues and likely outcomes. The advantages of this are evident. To highlight a few:

  • For matters of low value or with little chance of success, mediation or other forms of ADR may be the better means for resolving the dispute.
  • Knowing the real issues informs the decision of whether to pursue joinder or consolidation, so as to avoid the cost of potential multiple proceedings (see “Efficiency at all cost – arbitration and consolidation”); and whether a simplified procedure applies or should be proposed (i.e. expedited or summary procedure).
  • A thorough case assessment may attract stronger third-party funding. De-risking the dispute, third-party funding allows parties to pursue their claim without bearing all the costs and risks.
  • Finally, one of the advantages of arbitration is that the parties are free to design the proceedings to fit their issues and needs. To benefit from that advantage, counsel should be aware of the real issues already at the outset of the arbitration.

Accordingly, early case assessment is an important efficiency tool. If utilized properly, it will save time and money in the long run.

  1. Initiating the Arbitration

Already drafting the first submission to initiate the arbitration, often called the Request for Arbitration (RFA), raises important efficiency questions:

How much detail, and how much evidence, should actually go into the RFA?

This, of course, depends on strategy, and parties should tread on a case-by-case basis.

Generally, a shorter RFA may save time and money, but will require additional information in further submissions. The case may be perceived as weaker if less or no evidence is presented, hampering chances of early settlement. A more detailed RFA, on the other hand, may assist the tribunal in laying out a more tailored procedure. However, the respondent party may seek an extension for filing its equally detailed Answer (and potential counterclaim) (ICC Guide on Effective Management of Arbitration). Moreover, while possibly enhancing chances of early settlement, revealing the “smoking gun” in the RFA gives the other party significantly more time to prepare a rebuttal, which may jeopardize a favourable outcome.

  1. Selecting the Tribunal

Once the arbitration is initiated, the next – and important – task is selecting the right arbitrators. Many considerations are relevant, in particular the arbitrators’ experience, background and preferences.

But personality may also play a role. In our experience, the efficiency of proceedings is greatly enhanced by arbitrators who, for instance, restrain “particularly litigious counsel” tempted to “take advantage of arbitrators who were softer; generously granted exceptions; always sought to achieve a compromise in lieu of simply deciding, and so allowed counsel to disregard set deadlines and procedures with impunity” (see Leon Kopecký and Victoria Pernt’s A Bid for Strong Arbitrators).

When selecting arbitrators, counsel may also seek confirmation as to their availability and commitment not to take on new appointments that may interfere with the efficient conduct of the arbitration.

  1. Designing the Arbitration

The early stages of the proceedings lend themselves to designing the most efficient arbitration for the particular case.

Parties may agree on a fast-track schedule (with fixed deadlines) or page limits for submissions. Should subsequent submissions give rise to new issues, parties may schedule a further procedural conference to modify the proceedings accordingly.

An important tool gaining more and more traction is the effective use of the case management conference (CMC). The CMC aims to engage the tribunal at an early stage. It helps streamline the proceedings and determine and focus the real issues. The benefits are significant: focusing the real issues may simplify the arbitration, or even dispose of it altogether by encouraging early settlement (IBA Compendium of Arbitration Practice 2017).

… to be continued

The above are just some of the tools at the parties’ disposal in the early stages of arbitration. Counsel will have to determine in every case and at every stage whether and which of these tools to implement. That decision will be based on a cost/benefit analysis. A balancing act.

Importantly, no two tools and no two stages should be viewed in isolation. The efficiency tools adopted in the early stages will inform and affect the remainder of the proceedings – a stage we will explore in our next article.

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Kluwer Mediation Blog – June Digest

Thu, 2018-07-12 04:00

Anna Howard

“We believe that it is in the interests of our world as a whole and our own communities in particular that difficult issues are discussed with civility and dignity.”


These are the opening words of the Edinburgh Declaration of International Mediators, which was launched at the International Academy of Mediators Conference in Edinburgh in May. Our monthly summary of posts on the Kluwer Mediation Blog includes three posts on this conference and the seminal declaration, together with posts from around the world including from Singapore, Canada, France, Germany and England. You’ll find below a brief summary of each post on the Kluwer Mediation Blog last month.

In “The Edinburgh Declaration of International Mediators, May 2018”, John Sturrock, who chaired and hosted the International Academy of Mediators conference in Edinburgh, shares the Edinburgh Declaration which sets out what international mediators believe in and commit to. Following addresses emphasising the value of principled and interest-based negotiation delivered by world-renowned negotiation expert William Ury and Scotland’s First Minister, Nicola Sturgeon, the declaration was signed at the conference by nearly 100 mediators from around the world. The declaration is available for all to use and share.

In  “Beware Unreasonable Refusal to Mediate”, Rick Weiler considers the recent cost decision of Justice Graeme Mew in the Canadian case of Canfield v Brockville Ontario Speedway. The case provides an instructive review of the principles which the court will consider when weighing the cost consequences to an unsuccessful party of unreasonably refusing to participate in a mediation.

In “Principled Negotiation’s Greatest Hits”, following the International Association of Mediators Conference in Edinburgh, Charlie Woods shares his ‘desert island discs’ selection of some of the greatest hits from the principled negotiation approach as set out in William Ury’s Getting to Yes. These include: giving to gain, separating the people from the problem and getting into their shoes.

In “A Neuro Linguist’s Toolbox – Rapport: Representational Systems (Part 2)“, in the fourth part of a series of posts on the application of neuro-linguistic programming, Joel Lee explains four representational systems: visual, auditory, kinesthetic and digital. Joel also explains how to identify which representational systems are in use.

In “The Trump-Kim Summit: Is “attitude” more important than preparation?”, Nadja Alexander considers the role of “gut feeling” or intuition in negotiation. Drawing on Kahneman’s Thinking, fast and slow, Nadja explains two sets of assumptions (or heuristics) which may have been of relevance in the Trump-Kim Summit: the affect heuristic and the over-confidence heuristic.

In   “The Soul of Mediation & leaving a legacy for the next generation”, Anna Howard shares some of the insights gained from workshops at the International Academy of Mediators conference on the topic of the soul of mediation and leaving a legacy for the next generation. Anna also shares her reflections on talks by William Ury and three times Nobel Peace Prize nominee – Dr Scilla Elworthy.

In  “Commercial Mediation & the exhibition industry”, Angela Herberholz considers the findings from her research on the use of, and knowledge about, mediation in the exhibition industry. Angela’s  research found that the majority of the surveyed exhibition industry professionals stated that commercial mediation is not a conflict resolution mechanism which is used to treat business-to-business disputes in their industry.

In “Haltung – on the meaning of a word and its relevance for mediation”, Greg Bond explores the meaning of the German word Haltung, a key term in mediation training in Germany. Haltung can be translated insufficiently as “attitude.” Greg’s comprehensive explanation of the term invites mediators to reflect on what they bring to mediation.

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UAE’s Federal Arbitration Law – Another Missed Opportunity?

Wed, 2018-07-11 03:00

Aishwarya Suresh

On May 3rd, the President of the United Arab Emirates (UAE) signed Federal Law No. 6 of 2018 (‘Law’) – the nation’s first federal arbitration legislation. According to the Federal National Council, this law has been formulated with the objective of maintaining and encouraging inflow of investments, and to comply with the UAE Vision 2021. This is the UAE’s third attempt at instituting such a law since acceding to the New York Convention in 2006 and is said to be modeled on the UNCITRAL Model Law on International Commercial Arbitration.

Unlike the previous outings in 2008 and 2013, the law repeals all the provisions of the UAE Civil Procedures Law that had so far governed arbitration in the UAE. However, one aspect of the previous arbitration regime remains, quite conspicuously, unaddressed: Art. 257 of the UAE Penal Code (‘Code’). This provision imposes criminal liability on an arbitrator deemed to have issued a decision contrary to the duty of fairness and unbiasedness. Punishment under Art. 257 is temporary imprisonment which, as per Art. 68 of the Code, can be anywhere from three to fifteen years.

The Preamble to the Law lists the Code as one of thirteen laws studied before its issuing. This may be interpreted as a reference to Art. 257 as it is the only relevant provision in the Code. Despite this, Art. 60 of the Law, while discussing the legal effect of provisions in conflict with the Law, repeals only the Civil Procedures Law.

Art. 257 – Content, Effects and Application

Art. 257, in its current form, came into effect in 2016, following Federal Law No. 7 of 2016. The pre-amendment Art. 257 imposed criminal liability on court-appointed experts and translators alone. The amendment widened Art. 257 to include arbitrators and experts appointed by judicial or administrative authorities as well as those appointed by the parties themselves.

Aside from a prohibition on undertaking similar responsibilities in the future which remains common to both versions of Art. 257, punishment under the original version was confinement for a minimum period of one year and temporary imprisonment only in criminal cases. The amended version however, directly sentences the individual to temporary imprisonment.

Under the Code, temporary imprisonment has several adverse implications. Art. 28 of the Code notes that temporary imprisonment is imposed only in felony crimes. As a more serious category of offenses, the branding of having committed a felony could have a far more deleterious effect on an arbitrator’s future appointments than a fine or disqualification. Art. 78 of the Code further provides for removal from office of a punishee who is commissioned with a public service. Art. 113 of the Code entitles the Judge to prohibit the punishee from residing in specified places for the period of imprisonment. Any of these associated effects would be especially troubling for non-resident arbitrators.

The scope of Art. 257 is also problematic. The duty of ‘fairness and unbiasedness’ is not defined under the Code or the Civil Procedures Law. Art. 257 could therefore be extended to include any type of action. For example, under Sec. 33(1)(b) of the English Arbitration Act, an unnecessarily protracted or expensive arbitration could also be interpreted as the tribunal’s failure to ensure a ‘fair’ means of resolution.

Art. 257 is also likely to create confusion in arbitration governed by other rules. For example, General Standard 4 of the IBA Guidelines on Conflicts of Interest in International Arbitration (‘Guidelines’) allows the parties to appoint an arbitrator whose impartiality is doubted if the parties agree with full knowledge of the alleged impartiality. Thus, in case of arbitrations commenced in the UAE which apply the Guidelines, the arbitrator risks punishment under Art. 257 for reasons known to the parties despite their consent at the time of appointment. Similarly, Art. 22 of the DIFC Arbitration Rules and Art. 24 of the DIAC Statute Rules require proof of intention before holding an arbitrator liable for any act or omission. This is in direct conflict with Art. 257’s blanket approach.

International Approach

Internationally, it is uncommon to subject arbitrators to criminal liability. Accordingly, there is very less commentary on the subject. Countries that currently impose penal liability include Germany (German Penal Code, Arts. 331, 332), China (Criminal Law of the People’s Republic of China, Art. 339A), Spain (Spanish Criminal Code, Arts. 419-423)  and Argentina (Argentine Penal Code, Art. 269). Switzerland (Art. 315 and 316 of the Swiss Penal Code) and Norway (Art. 114 of the Norwegian Penal Code) had similar provisions but these were repealed in 2000 and 2003 respectively.

It is crucial to note that in these countries as well, criminal sanctions apply only in specific instances such as bribery, money laundering or illegal negotiations. China is the only one of the abovementioned states to have opened up criminal liability to cases of “perversion of law and fact” and has, as can be expected, been subject to repeated condemnation as noted here.

Even in these countries, the punishment is not as severe. The maximum sentence out of these countries is in Germany: 10 years for accepting a bribe for performing an unlawful act. Most of these countries also provide differing scales of punishment depending on the gravity of the offense and, in some cases, provides the option of paying a fine in lieu of imprisonment.

Decoding the Legislative Intent

The imposition of criminal liability on an arbitrator does not find any justification under Shari’a or in the civil law countries upon whose laws UAE laws have been modelled. The Medjella, the first civil codification of Islamic Law, provides that in case of flagrant injustice or unfair hearing, the parties’ remedy is to set aside the award. Shari’a provides simply for the challenge of an arbitrator before the award is rendered. Similarly, France recognizes only civil liability. Egypt and Jordan also follow suit.

A Practical Conclusion

Since its introduction, no reported case has been brought against any arbitrator under Art. 257. Furthermore, as can be observed from here and here, the courts in UAE require a high standard of proof in case of complaints of impartiality against a judge or arbitrator. Thus far, it is safe to say, Art. 257 has therefore been of very little utility. However, it has caused significant unease in the international arbitration community leading to a reduced preference of the use of UAE law to govern arbitrations. The retention of Art. 257 would therefore significantly undermine the success of the Law and counteract the UAE’s attempts to align the nation’s arbitration law with international standards.

After weighing the pros and cons, the most reasonable conclusion is that Art. 257 must be repealed. The Law, under Art. 14, specifically provides for the challenge of an arbitrator in cases of justifiable doubts as to their impartiality or independence or qualifications rendering Art. 257 unnecessary. As the Law has already been issued, the best alternative now remains to amend the Law so as to include Art. 257 within the ambit of Art. 60 as well. Alternatively and more effectively, to repeal Art. 257, insofar as it deals with arbitrators, entirely.

Further commentary on the UAE arbitration law can be found here.

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True Diversity is Intersectional: Escaping the One-Dimensional Discourse on Arbitrator Diversity

Tue, 2018-07-10 02:20

Joshua Karton and Ksenia Polonskaya


ISDS tribunals have an unfortunately accurate reputation for being “male, pale, and stale”. A welcome backlash to this state of affairs has arisen, but the discourse has focused almost entirely on one aspect of diversity: gender. For example, the Equal Representation in Arbitration Pledge has garnered over 2900 signatories, who have committed to appointing more female arbitrators to arbitral panels (commercial and investor-state). Reportedly, many arbitral institutions have increased the number of female candidates they appoint to panels. These developments are all to the good, although progress has by no means been steady. When investors and co-arbitrators made appointments to ICSID tribunals, they did not appoint a single woman in 2017. International Investment Agreements (IIAs), even those negotiated recently by relatively progressive countries, such as the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), contain no provisions—not even preambulatory ones—relating to arbitrator diversity.

Still, progress is progress. The problem is that while achieving gender parity (or more!) is a laudable goal, there is much more to diversity than gender. Unfortunately, the diversity discourse in ISDS has thus far been almost totally restricted to the issue of gender, and has avoided intersections between different aspects of diversity. (The recent ITA-ASIL Annual Conference, held in Washington in April 2018, was a rare but welcome exception.) After all, female lawyers come from various backgrounds. There are Asian female lawyers, Indigenous female lawyers, black female lawyers, female lawyers from developing states, Muslim female lawyers, and so on. These overlapping characteristics generate different experiences and different struggles to find “points of entry” into the field of investment arbitration. Being an arbitrator is a position of prestige and importance; it is also well remunerated. If we as a community are to take diversity seriously, we must move beyond the kind of token diversity that sees only white women from developed Western countries added to the pool of arbitrators.

At the risk of oversimplifying, “intersectionality” refers to the overlapping effect of different aspects of diversity in a single individual. The term was coined by Kimberlé Crenshaw, an American law professor, in a 1989 paper. Crenshaw was particularly concerned about the experiences of black women in the United States, who suffer from racism and sexism and the intersection between the two, but the concept has broad relevance. Underlying it is the idea that people who belong to more than one group that suffers discrimination experience discrimination differently from those who are discriminated against only on one axis. Thus, the struggles of black women are shaped by different social dynamics than those affecting white women and those affecting black men. Accordingly, potential arbitrators with intersectional backgrounds—for instance, Asian female lawyers from developing states—can experience a distinctive mix of obstacles in seeking arbitral appointments. Intersectionality more generally refers to this way of thinking about inequality, a perspective that acknowledges and recognizes the range of experiences of those who face intersecting axes of discrimination.

A brief look at the ICSID panels formed in 2012-2017 shows very few female arbitrators with intersecting backgrounds. (Note that the prominent arbitration institutions that administer investment disputes, such as ICSID, ICC, and SCC, do not report statistics on the appointments of female arbitrators with overlapping characteristics, and do not account for double appointments; our statistics were generated by checking the biographies of appointed arbitrators one-by-one.) Over that time period, a total of 951 appointments were made in ICSID arbitrations. Only three appointed arbitrators were female, non-white, and from a developing state: Bertha Cooper-Rousseau (Bahamian), Tinuade Oyekunle (Nigerian), and Dorothy Udeme Ufot (Nigerian). Interestingly, all three were members of annulment committees and all three were appointed by ICSID. We found zero arbitrators appointed to ordinary ICSID panels, and zero arbitrators appointed by parties or by other arbitrators, who meet the gender/race/nationality overlap. There are some arbitrators who meet two of these characteristics; for example, Teresa Cheng is a female arbitrator from Hong Hong and can be identified as non-white; Marie-Andrée Ngwe is a black female arbitrator from France; Maria Stanivukovic is a female arbitrator from Serbia.

Yet, in our sample, most of the few women who are appointed to the panels are Caucasians from developed states. Indeed, the majority of all appointments of women to ICSID panels are of either Brigitte Stern or Gabrielle Kaufman-Kohler. Out of 951 appointments in our data set, only 106 (11%) were of female arbitrators, and of these Stern obtained 53 appointments and Kaufman-Kohler 15. Only 38 appointments (4% of the total) went to all other female arbitrators. (ISDS tribunals are hardly unique in suffering from a lack of diversity; non-Western female judges and arbitrators continue to be rare across all international courts and tribunals with only a few notable exceptions, such as Judge Gabrielle Kirk McDonald of the International Criminal Tribunal for the Former Yugoslavia and the Iran-US Claims Tribunal, Judges Joyce Aluoch and Olga Venecia Herrera Carbuccia of the International Criminal Court, and Judges Julia Sebutinde and Xue Hanqin of the International Court of Justice.)

The current gender-focused discourse is partly to blame for the disappointing outcomes of recent efforts to increase arbitrator diversity because it engenders complacency without tackling the most important problems. The key issue that the lens of intersectionality helps us to identify—the issue that is largely absent from recent discussions—is not whether we appoint enough women arbitrators (we don’t) but which women we appoint? In short, the concept of intersectionality gives meaning to the banal observation that diversity is not one-dimensional. People with overlapping backgrounds may experience unique obstacles that prevent them from entering the field as arbitrators, and they would also bring with them unique perspectives should they be appointed. Without representation of intersectional communities on ISDS tribunals, we cannot say that the arbitration community has made progress even on gender diversity.

Why does intersectionality matter? There are at least three reasons why improving diversity by focusing on intersectionality helps everyone, even white males. First, diverse arbitral panels are likely to produce higher quality decisions because diversity disrupts groupthink and short-circuits cognitive biases. For example, in international criminal law, two female judges, Gabrielle Kirk McDonald and Elizabeth Odio-Benito, played an instrumental role in the recognition of sexual assault as a war crime. Second, diversity is a matter of fairness, in any workplace, but especially in one as consequential as that of investor-state arbitrator. As Francoise Tulkens argues, women’s presence need not “justify” or “legitimize” anything; they must be represented on ISDS tribunals simply because there is no good reason for them not to be active decision-makers in the field. Third, diverse representation would improve legitimacy. ISDS depends on widespread political acceptance for its legitimacy, an acceptance that cannot be taken for granted in these days of resurgent populism on the left and right. ISDS can never enjoy global legitimacy unless people from around the globe can see themselves represented in the process.

Just bringing intersectionality into the discourse on arbitrator diversity would be a step forward. But we can do even more to reform the arbitrator appointment process. First, any reforms must be empirically based. Addressing both the obstacles that intersectional candidates experience in seeking arbitral appointments and the perspectives that intersectional arbitrators bring to the deliberations requires more data than we currently have. It may be useful to conduct interviews with arbitration lawyers of diverse backgrounds to identify the key obstacles they encounter in traversing the international arbitration cursus honorum. Second, on the basis of these findings, it may be valuable to consult with arbitral institutions, who will necessarily play an important role in shifting the dynamics of arbitral appointments, as they have already been a driving force in increasing appointments of women. Third, if empirical studies can identify the “points of entry” at which candidates with overlapping backgrounds face the most serious obstacles, tailored programs can be established to help intersectional candidates overcome those obstacles. Not only they, but the whole ISDS community, will benefit.

Joshua Karton is an associate professor and the Associate Dean for Graduate Studies and Research at the Queen’s University Faculty of Law, Canada. Ksenia Polonskaya is a Postdoctoral Fellow at the Centre for International Governance Innovation, Canada.

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A Rollercoaster: The First Half of the Year 2018 for BITs and ISDS

Mon, 2018-07-09 04:04

Nikos Lavranos

The first half of the year has been a rollercoaster when it comes to BITs and ISDS, in particular in Europe. Several developments at various levels can be distinguished with one common denominator: for better or for worse, the European Union (EU) and EU law have become one of the key drivers in shaping international investment law and arbitration. Below are some selected developments.

Last March, the long-awaited Achmea judgment by the Court of Justice of the EU (CJEU) has certainly been the most discussed cause célèbre in investment law and within the arbitration community. After the Advocate General’s courageous attempt to save the ISDS clause in intra-EU BITs by a very innovative Opinion, the CJEU – following its long-standing jurisprudence – used the preliminary ruling-argument to effectively declare ISDS arbitration within the EU as being incompatible with EU law. From an EU law perspective that, in itself, is hardly surprising; however, the very short and unclear Achmea judgment has had and continues to have a significant impact on a wider scale (click here for the blogposts on Achmea).

First and foremost, the Achmea judgment signalled to the EU Member States that it is about time to sort out this issue by removing the possibility for foreign EU investors to be able to use international arbitration when – by virtue of EU law – domestic courts of the Member States are the only venue. Unsurprisingly, several Eastern and Central European Member States have used the Achmea judgment as an argument to announce or even to proceed with the termination of their intra-EU BITs (notably Poland and Romania, although Italy and Denmark had already done so previously). However, the letter of the Dutch Minister for Trade and Development to the Dutch Parliament was somewhat surprising. In her answers to the questions posed by left-wing members of the Dutch Parliament as to the consequences of the Achmea judgment, she stated that all Dutch intra-EU BITs will have to be terminated because of the Achmea judgment. In addition, she also mentioned that it would be necessary to look into the Energy Charter Treaty (ECT) as well. This wide interpretation of the Achmea judgment is arguably not supported by a close reading of it. The CJEU did not declare that intra-EU BITs must be terminated (neither was it asked to). The CJEU also did not declare that all ISDS provisions in intra-EU BITs are incompatible with EU law, but focused only on the particular one in the Netherlands-Slovak BIT, which was at issue in the case. Finally, the CJEU most certainly did not say anything regarding the ECT or intra-EU ECT ISDS disputes, which were definitely not the subject in the Achmea case. However, what is most interesting to note is how quickly and sweepingly the Netherlands changed its position from being a staunch supporter of ISDS (and, indeed, a supporter of Achmea in the setting aside proceedings before the German courts) to a supporter of the European Commission’s crusade against intra-EU BITs and intra-ECT ISDS cases. It remains to be seen whether, to what extent, how (unilaterally or mutually), and when all the 190 intra-EU BITs will be renegotiated or terminated. It is interesting to note that other important Member States such, as for example Germany or France, have apparently not yet drawn the same conclusions as the Netherlands.

The second noticeable development concerns the string of intra-EU ECT awards in the renewable energy sector against mainly Spain, Italy, and Czech Republic. While the first awards finally started to come out in 2017, the speed has picked up in 2018 with some interesting outcomes. While Spain was successful in thwarting off the first two claims against the retroactive removal of feed in tariffs, all other subsequent awards have resulted in losses for Spain and awarding claimants significant amounts of damages (EUR 128 million in Eiser, EUR 53.3 million in Novenenergia, EUR 64.5 million in Masdar). More generally, at least so far, arbitral tribunals have not been impressed by the attempts to ascribe any impact of the Achmea judgment on intra-EU ECT disputes. Indeed, the Masdar arbitral tribunal simply stated that the Achmea judgment has “no bearing on the case at hand”. Nonetheless, Spain is using the Achmea judgment in ICSID annulment proceedings and in setting aside proceedings before domestic courts to escape the payment of these awards. It remains to be seen whether, and if so, to what extent arbitral tribunals will eventually bow to the pressure and follow the CJEU. In fact, the CJEU has already been asked by the Stockholm court to give its views on this matter. So, again, the CJEU will be in a central position to make or break the future availability of the ECT for European investors against EU Member States. In parallel, it appears that also within the ECT, the EU and some EU Member States are increasing the pressure to “reform” or “re-balance” the ECT provisions. In that context, one could expect that the EU and EU Member States might issue a declaration containing a so-called “disconnection clause”, whereby the ISDS provisions would be declared inapplicable for intra-EU ECT disputes.

Speaking of reforms, another interesting development is the recently published new Dutch draft model of a BIT text, which was also opened for public consultation. As I described elsewhere in more detail, the draft text is a significant departure from the 2004 “gold standard” Dutch model BIT text by essentially taking on board many of the new “reform” elements contained in CETA. Since the Netherlands has already concluded almost 100 BITs and since the EU is mainly responsible for the negotiation of Free Trade Agreements (FTAs) – although the competence for the ISDS provisions remains with the Member States – the practical value of this draft model BIT text will probably remain limited. Nonetheless, the political signal is clear in that also the Netherlands is bowing to the pressure of the NGOs and forced to align itself with the EU’s investment policy, which has proclaimed that “ISDS is dead”.

Another reform project, which is driven by the EU and gained more international attention, is the push for a Multilateral Investment Court (MIC), which is currently debated and negotiated within UNCITRAL. The last meeting in April in New York has shown that many states are in the mood of changing the system in their favour and the MIC is one option that is considered by some to be an appropriate solution to deal with the (perceived) concerns regarding the current ISDS system and BITs generally. The next round of negotiations, which is scheduled for late October, will be an important indicator as to whether the MIC proposal will indeed gain traction among a substantial number of states.

Looking ahead into the second half of the year, the CJEU is likely to take again the center stage when it delivers its Opinion on the compatibility of the Investment Court System (ICS) that is now included in CETA, EU-Singapore FTA, EU-Vietnam FTA, and EU-Mexico FTA (a hearing report can be found here). If the Achmea judgment is of any guidance, it seems likely that the CJEU would consider the ICS to be also incompatible with EU law. This would be for the same reason, which is that the ICS also cannot request preliminary rulings from the CJEU and thus is not under its control when it comes to the potential interpretation or application of EU law – something which the CJEU finds unacceptable. If that is, indeed, the outcome, it would mean the end of the EU’s efforts in maintaining some sort of international arbitration for foreign investors in its treaties. In fact, since the CJEU’s Opinion regarding the EU-Singapore FTA in which it held that ISDS is a mixed competence, the appetite of the EU to shape or reform the ISDS proceedings is rapidly fading away. This is also reflected by the fact that most recent EU-Japan FTA already does not include an ISDS chapter and neither is such a chapter envisaged for the currently on-going FTA negotiations between the EU and Australia and New Zealand.

In conclusion, the last half year has been very dynamic, to say the least. While the destruction of international arbitration within the EU seems to linger on, outside the EU investment disputes continue to be initiated and awards are issued. Indeed, in a remarkable move against the current trend, recently Mexico signed up to the ICSID Convention, thereby confirming its consent to arbitrate disputes under the current ISDS system. However, it remains to be seen whether the new Mexican President will ensure that Mexico will ratify the ICSID Convention anytime soon. In any event, the fact remains that States are still negotiating and concluding BITs and FTAs with ISDS provisions, in particular outside the EU. So, ISDS is not dead yet but still alive and kicking, and that will be the case for at least the rest of this year.

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Art-Related Disputes and ADR Methods: A Good Fit?

Sun, 2018-07-08 04:54

Alice Trioschi

In the past few years, the discussion and research about the use of ADR methods in art & cultural heritage has increasingly grown. This is due partially to the rise of art related claims but also to the interest scholars and practitioners are showing to alternative and consensual ways of solving a conflict. Indeed, despite there are instances in which litigation in a national court would be entirely appropriate, such as when a legal precedent is sought (for common law systems) or a party is particularly uncooperative, a lawsuit is not always the best option.

Most claimants are detained from bringing an action to court due to its high expenses, long proceedings, the worsening of relations, the uncertainty of the outcome and the possible embarrassment of an adverse ruling. In addition, lawsuits are not always available: they might be rejected because of lack of jurisdiction or because their limitation period has expired.  Furthermore, in the case of a final and binding decision upon two international parties, the winning one might need to ask the enforcement of the judgement in a foreign jurisdiction. The disadvantages the parties face when entering a lawsuit, pose the question of whether ADR methods such as mediation, arbitration and expert determination could be a better fit for art-related disputes. Which are the benefits of ADR in the art and cultural heritage sector?

Flexibility and creativity – Art-related disputes often involve sensitive non-legal issues that are relevant to the parties and are not normally addressed into court: emotional, moral, political and ethical matters. Therefore, ADR on art-conflicts could be considered a fertile ground for ‘expanding the pie’, meaning that a huge variety of interests can be taken into account to negotiate a mutual gain and a possible agreement between the actors. An example of a flexible and creative solution is the one reached in 2007 by the Tasmanian Aboriginal Centre (TAC) and the Natural History Museum (NHM) of London for the restitution of 17 human remains hold in the NHM’s collection. After 20 years from the first restitution claim, the parties reached a mediation agreement respecting both their interests: the return of the remains to the TAC, with the possibility of the NHM to control part of the material to conduct non-invasive scientific analysis.

Preservation of long-term relationships – it could be said that most of art world relationships are largely based upon trust and personal connections between the parties. When the trust is lost, the actors often embark legal proceedings where the ensuing argument is driven by feelings of betrayal.  The recent and still ongoing high-profile case of Yves Bouvier and Dmitry E. Rybolovlev is an example of this practice. In 2015 Mr. Rybolovlev commenced various trials in Singapore, Hong Kong, Paris and Monaco accusing Mr. Bouvier of having defrauded and overcharged him over $1 billion for the purchase of works of art. The Russian millionaire also accused Mr.Bouvier of selling him stolen paintings, such as Femme se Coiffant and L’Espagnole à l’Èventail by Picasso, claimed back by the artist’s daughter Jacqueline Roque. The two men had a long-term business relationship started in 2003 and ended suddenly with the legal claims. On this basis, ADR methods can help the parties to reach a concerted solution preserving the existing relationship: their agreement could include the provision of works of art in lieu of monetary damages, the shared ownership of an art piece or the use of long-term loans.

Consensus – Apart from the case in which a court mandates a specific ADR mechanism, the latter is generally consensual. The parties can use it when submitting their dispute to ADR, also through a clause previously included in their contract. This characteristic, especially in mediation, leads to a mutual solution of the dispute satisfying the parties.

Neutrality  and expertise – ADR procedures allow the actors to choose a specific arbitrator, mediator or expert coming from the art world. Similarly, they can pick a person with a certain cultural or linguistic background.  The skills and the ability of the arbitrator/mediator to see the art-dispute in its integrity are crucial to the outcome of the procedure. An example is the case faced by WIPO relating a cooperation agreement between a European gallery and e European artist for the promotion of the artist on the art market. Three years after signing the agreement, the parties entered a  dispute and deferred it to three arbitrators experienced in art law issues. As a result, the arbitral tribunal encouraged the parties to negotiate and reach a concerted agreement. Subsequently, the tribunal rendered an award including the parties’ agreement, encompassing the conclusion of the contract between them and the provision of a number of works from the artist to the gallery.

A single, quick and cheap procedure – art-related disputes are often multidimensional (including both institutional and private parties) and international. These two characteristics pose a problem of jurisdiction: judges from different countries could be involved in the same conflict. ADR methods allow the parties to choose a specific international forum, the applicable law and the language preferred, letting them save time and money. For instance, in accordance to the New York Convention2, arbitration offers the advantage of an arbitral award that can be internationally enforced without a review of the case. Similarly, under D.Lgs.28/2010, the legislation for Italian mediation regulates the parties’ possibility to reach an agreement directly enforceable on the Italian territory without further legal actions.

Confidentiality – the art market is renown to be an opaque world where the reputational factor plays a key role. The actors can be involved in court-case proceedings fostering negative publicity or further claims on the same issues. ADR mechanisms keep the dispute confidential and allow the parties to settle it in a more discrete manner, balancing their privacy with public interest requirements such as in the case of illicitly traded objects. Indeed, whatever is said in the presence of the arbitrator, mediator or expert must be kept private: if the agreement is not reached, the information disclosed during the process can’t be further used in court.


CAM’s (Milan Chamber of Arbitration) Experience

CAM established its ADR Art & Cultural Heritage (ADR Arte) project in 2015 to respond the need of a specific dispute resolution service for art-related disputes. The preferred method is mediation, intended as a process which facilitates the parties in their negotiation and in reaching a concerted solution to their conflict. The mediation process can be activated under the rules of D.Lgs.28/20103, when the parties are involved in a domestic dispute and strive for an Italian enforceable title, or through the “fast track mediation rules”. These are particularly flexible and appropriate when the dispute is multidimensional, international, foresees the necessity of art experts and lower costs.

From 2015 to 2017, ADR Arte faced 32 art- mediations. Out of these, 25% relate to leasing contracts , 22% to inheritance, 19% to property rights, 16% to the distribution of the estate, 6% to financial contracts, 3% to libel, trading contracts and residual categories. 94% of disputes were compulsory under the D.Lgs. 28/2010, while 6% were voluntary.  53% of mediations was based on a contract liability between the parties while 47% was non-contractual. 6% started because of the judge’s request, while 3% because of a contractual clause deferring the dispute to mediation. Furthermore, the value of the conflict varied greatly: ranging from those < €20.000,00 (16%), the ones between €20.001,00 – €50.000,00 (12%), those between €50.001,00 – €150.000,00 (16%), €150.001,00 – €250.000,00 (34%), the ones from €250.001,00 to €1 million (6%) and those above €1 million (16%). Finally, the results: out of all art-related mediations, the percentage of agreements reached is 28%, a higher result if compared to the one of settlements attained generally during a mediation proceeding (22.5% in 2017). Differently, when the parties decided to move forward with mediation after the first session, the percentage of reached agreements increases to 82% (a higher result than the one of classic mediation, which was of 72.5% in 2017).

In the light of these results, three main conclusions seem to arise. The first, that ADR methods could be considered a good fit for those disputes concerning an ‘artistic’ actor, object or subject. In fact, they do solve most of complex nuances of the art market, such as confidentiality, preservation of long term relationships, quick and cheap procedures through pragmatic and innovative solutions. Second, ADR methods are particularly effective on legal categories as inheritance and division of the estate. Indeed, in arbitration and mediation the sensitive non-legal matters of the parties, often connected to personal relations, are free to arise and be included in their final agreement. The third, that only 3% of CAM’s art mediations started because of a contractual clause deferring the dispute to ADR. This means there is still room for enhancing the use of ADR in art-related disputes, especially with the inclusion of multi-step clauses in the contract concluded by the parties.


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Draft Model BIT – The Netherlands

Sun, 2018-07-08 02:31

Nikos Lavranos

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Equality and Inclusion Revolution

Sat, 2018-07-07 03:01

The Alliance Council

Many people now readily recognise that there is still a gaping disconnect between the types of people now involved, at a ‘grass-roots’ level, in dispute resolution globally and those who reach the upper echelons of the industry.  Across all industries, there seems to be daily news reports emphasizing inequality and often with a focus on gender. We hear about the gender pay gap, inequality particularly amongst male dominated industries such as information technology, science and finance, and other issues such as sexual harassment which disproportionately affect women. Yet addressing the issues faced by women alone does not address the issue of diversity and inclusion as a whole. There are many more ingredients necessary for true diversity: social class, race, ethnicity, disability and regional provenance, to name but a few, which must also be taken into account. These attributes can all be barriers to entry and progression within the legal community.

On occasion, in making any selection we may miss a person’s potential, simply because of a lack of awareness of our unconscious biases. In dispute resolution (whether law firms, the Bar, counsel, judiciary or arbitral tribunals) there is an over-representation of middle aged, white (Euro-American) men. Statistics confirm the existence and extent of this imbalance: of all closed ICSID cases between January 1972 and May 2015 only 4% had been arbitrated by an entirely non Anglo-European tribunal;1)Berwin Leighton Paisner, International Arbitration Survey, „Are We Getting There? jQuery("#footnote_plugin_tooltip_5263_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5263_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Africa, Asia and the Pacific represented 32.3% of the parties in ICC cases in 2013, yet less than 15% of arbitrators were from these geographical regions;2)Berwin Leighton Paisner, International Arbitration Survey, Are We Getting There?” jQuery("#footnote_plugin_tooltip_5263_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5263_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in 2015 only 2 females were listed in the Chambers & Partners “Most in Demand Arbitrators” globally, the majority of the other 33 males being white Europeans.3)Ibid jQuery("#footnote_plugin_tooltip_5263_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5263_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

More recently, the 2018 International Arbitration Survey conducted by the School of International Arbitration, Queen Mary University of London, in partnership with White & Case, reported:

In particular, is there any causal relationship between diversity across a multi-member tribunal and the quality of its decision-making? The most popular answer, chosen by a quarter of respondents, was that the effect of diversity across a panel of arbitrators on the quality of that tribunal’s decision-making “depends on the particularities of the dispute in question”. 22% of respondents think that diversity brings about “some improvement in quality” while 18% take the view that diversity leads to a “significant improvement in quality”. A similar number (19%), meanwhile, deem this enquiry to be irrelevant because they consider diversity to be inherently valuable in and of itself. The views that diversity does not make an appreciable difference in quality or can even reduce the quality of the decision-making were less adhered to. It is noteworthy that no single viewpoint attracted a significant majority of supporters.

These are just but a few of those figures that should strike the reader. This is not anyone’s fault, it is a simple reflection of the world in which we all grew up. Striving for true diversity in our field means challenging every element of that group: age, race/colour, ethnicity, regional dominance and gender. There is clearly a great deal of work still to be done if there are to be any improvements. Lip service is not enough.

Knowledge of the disconnection between a diverse community and representation isn’t sufficient; what is needed is real and concrete long-lasting action. Any organisation, new or old, taking steps, bold or small, to increase diverse representation in an otherwise notoriously male-dominated profession, is to be lauded. The Alliance for Equality in Dispute Resolution was launched earlier this year to tackle, in a collaborative and inclusive manner, the lack of diversity and, therefore, equality, in the international dispute resolution community. In the past, this goal has largely been pursued by others on a piece-meal basis or by focusing on only one element of diversity. Yet, what is needed is a concerted effort to eradicate inequality and the lack of diversity. This means all of us taking a stand for equality of treatment, of opportunity and justice universally and also pushing vigorously and consistently for it. The inequality and inequity of the current position amongst the different sexes, ethnic groups and regional practitioners must be addressed.

One of the manners in which this can be achieved is by providing training in unconscious biases. Evidence suggests that this type of training reduces the impact of bias in the workplace. It provides an opportunity to understand the nature of bias that affects us all. The strategy of categorization that gives rise to unconscious bias is a normal aspect of human cognition. Understanding this important concept can help individuals approach their own biases in a more informed and open way. Sharing your biases can help others feel more secure about exploring their own biases. It is important to have these conversations in a safe space – individuals must be open to alternative perspectives and viewpoints. This means developing the vocabulary for that discussion to take place. This training facilitates discussions by promoting bias literacy utilizing the concepts and techniques which have been proven effective in minimizing bias. The Alliance’s first workshop on unconscious bias took place in early June in New York in collaboration with the CPR Institute.4)The Alliance’s Workshop jQuery("#footnote_plugin_tooltip_5263_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5263_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Much can be done at a personal level to enable us all to recognise, monitor, manage and reduce the impact of our personal biases. Organisations can support this in very practical ways within policies, practices and at key people decision making points. An organisation’s culture and values will necessarily evolve from those of the leadership. Individual actions need to be facilitated and authorised by a clear stance being taken on the culture of an organisation by its leaders – and carried through into systems. Role models of every kind are needed to transform workplace culture. Leaders can help by rewarding and supporting diverse role models. It is important to reward inclusive behaviour and interventions, measure and make public the effect of workplace culture initiatives, and ideas that have worked should be broadcast using data and engaging tools that tell people’s stories.

Some control can also be achieved through social norms. In those norms we need to consider accelerators and innovation. Accelerator initiatives work like hot-houses, giving underrepresented groups all the benefits men have such as mentoring, training, and inclusion in networking and communication. Innovation involves considering strategies to address unconscious bias and conventional social norms; these should be individual and institutional strategies.

Thankfully, there is also empirical evidence in the business world and also national judiciaries which shows that diversity enhances decision making and improves the ‘bottom line’. For instance, a report published by McKinsey in 2014 found a statistically significant relationship between diverse leadership and better financial performance.5)McKinsey, “Diversity Matters” jQuery("#footnote_plugin_tooltip_5263_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5263_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); There is no reason why this should not translate into the same types of benefits of enhanced decision making in arbitration. Great work has been done in the space of gender diversity but not enough is being done in relation to ethnic, racial and regional diversity. If initiatives for gender diversity have made some inroads then there is no reason why initiatives encompassing a broader group will not do the same.

Life is full of challenges, some of which we are able to meet head on and others which largely lie hidden but show themselves in subconscious behaviour. We should not shy away from tackling both kinds, the explicit and the implicit, the conscious and unconscious, the deliberate and automatic. Ultimately, in one form or another, they all require us to challenge the status quo to be a part of bringing about the necessary change. The next generation of dispute resolution practitioners deserve to come into a workplace where the role models who came before them forged a path, and fought to change the attitudes and cultures that held them back. Those role models should comprise of not only a gender diverse group but also a racially, ethnically and regionally diverse group.

References   [ + ]

1. ↑ Berwin Leighton Paisner, International Arbitration Survey, „Are We Getting There? 2. ↑ Berwin Leighton Paisner, International Arbitration Survey, Are We Getting There?” 3. ↑ Ibid 4. ↑ The Alliance’s Workshop 5. ↑ McKinsey, “Diversity Matters” function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Prague Rules v. IBA Rules and the Taking of Evidence in International Arbitration: Tilting at Windmills – Part II

Thu, 2018-07-05 17:22

Guilherme Rizzo Amaral

On my latest post, I addressed the announcement of the upcoming Inquisitorial Rules on the Taking of Evidence in International Arbitration (“The Prague Rules”) as a reaction to the alleged “Creeping Americanisation of international arbitration”, represented by the IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules”).

In this post, I will assess whether the Prague Rules really differ from the IBA Rules and whether the former are actually capable of delivering a satisfactory result in terms of arbitration efficiency.

Prague Rules and IBA Rules: not that different after all

The Prague Rules provide for the arbitral tribunal’s active role on the taking of evidence in article 2.5, which states that “[t]he Tribunal may also, if it deems appropriate, order the Parties to produce evidence (including making available fact witnesses or expert reports)”. Furthermore, article 3.1 entitlesand encouragesthe arbitral tribunal to take an active role in establishing the facts of the case, albeit not releasing the parties from their burden of proof. The tribunal may on its own motion“request any of the Parties to produce relevant documentary evidence or make fact witnesses identified by the Arbitral Tribunal available for testimony” (article 3.2, i), appoint experts or instruct the parties to do so (article 3.2, ii), order site inspections (article 3.2, iii) and take other appropriate actions for the purposes of fact finding (article 3.2, iv). The Tribunal may also on its own initiativerequest that both Parties and non-parties to the arbitration produce documents (articles 4.4 and 4.5).

From the declaration of purpose of the Prague Rules, we would expect the IBA Rules to take an entirely different stance on these issues. Yet the reality is much different.

The IBA Rules also encourage the arbitral tribunal to identify any issues (whether factual or legal issues) that it considers relevant to the case (article 2.3) and to order the production of documents (article 3) – and here the tribunal has an even more inquisitorial role as the verb orderis used instead of request, favoured by the Prague Rules. The IBA Rules even allow the arbitral tribunal itself to take “any step it considers appropriate to obtain Documents from any person or organisation” (article 3.10). The same goes for witnesses: the tribunal may order any Party to provide for the appearance for testimony of any person, “including one whose testimony has not yet been offered (article 4.10). As for experts, the tribunal also has discretion to appoint their own (article 6), without prejudice to the appointment of experts by the parties (article 5). The arbitral tribunal may also order inspections on its own motion (article 7). Furthermore, the IBA Rules provide that the arbitral tribunal “shall at all times have complete control over the Evidentiary Hearing (article 8.2), varying the order of the proceeding on its own motion(article 8.3, f) and asking witness questions at any time (article 8.3, g).

Both the Prague Rules (articles 5.2 and 5.3) and the IBA Rules (article 9.2) allow the arbitral tribunal to exclude witness testimony on its own motion if said testimony is not relevant to the case. Both the Prague Rules (5.6) and the IBA Rules (article 8.2) bestow upon the arbitral tribunal the power to limit the number of questions to witnesses. Finally, both the Prague Rules (article 6.3) and the IBA Rules (articles 9.5 and 9.6) allow the arbitral tribunal to make adverse inferences, although the IBA Rules are much more detailed on the issue.

With so many similarities between the Prague Rules and the IBA Rules, especially concerning the arbitral tribunal’s proactive role on the taking of evidence, one may question whether the former might be an overreaction to a misconceived view on what the latter really stands for.

Maybe now is a good time to revisit the note from the Prague Rules’ working group. As we have seen so far, the approach towards document production, fact witnesses and party-appointed experts is quite similar in the two sets of rules. Yet the note from the Prague Rules’ working group points out that (i) the IBA Rules take for grantedthe party’s entitlement to cross-examine witnesses, (ii) many arbitrators are reluctant to actively manage arbitration proceedings, fearing the risk of a challenge, (iii) it is very rare that “document production brings a smoking gun to light”, and that (iv) there are doubts “as to the usefulness of fact witnesses and the impartiality of party appointed experts”.

As to the right to cross-examine, it remains unclear how it harms arbitration efficiency, as both the IBA Rules and the Prague Rules allow the tribunal to curtail undue or ineffective questioning of witnesses.

With regard to the arbitrators’ reluctance to manage proceedings for fear of challenges, this would actually stimulate an adversarialapproach rather than an inquisitorialone, and both the IBA Rules and the Prague Rules provide room for arbitrators to follow the latter path unhindered.

Finally, doubts as to the usefulness of document production or party-appointed experts have not caused either the IBA Rules or the Prague Rules to ever dismiss such proceedings. Quite the contrary, both sets of rules confer to the parties the opportunity to appoint their own experts (IBA Rules, article 5; Prague Rules, article 6.6).

And yet the Prague Rules contain a rather questionable provision stating that the arbitral tribunal “shall avoid extensive production of documents, including any form of e-discovery” (article 4.1). It is important to note, however, that it is one thing to control the usefulness of documents in arbitration – a point that both the IBA Rules and the Prague Rules leave at the discretion of the tribunal. Another entirely different thing is to abdicate methods such as e-discovery, which are fundamental not only due to the way businesses are conducted nowadays but also due to the need to address the imbalance between the parties, assuring both a formal and a substantive due process in arbitration. At first glance, the suppression of e-discovery simply looks backward minded.

Anyhow, if the Prague Rules do not represent a clear departure from the IBA Rules – save exceptional and questionable provisions such as the condemnation of e-discovery – one may question whether there is any gain or even utility in issuing them in the first place.


The Prague Rules operate under the shadow of an apparent war between common law and civil law armies for dominance over the international arbitration landscape. Yet, just like Don Quixote, they mistake windmills for giants.

As commentators have pointed out, “[r]igid distinctions that exist between civil law and common law approaches are not imposed upon international commercial arbitration”, as “the emerging practice for taking of evidence in international commercial arbitration comprises elements of both civil and common law type procedures, other legal systems, and practices especially appropriate for an international process” (LEW, Julian D. M., MISTELIS, Loukas A., et al., Comparative International Commercial Arbitration. Kluwer Law International, 2003. p. 556).

This approximation between the common law and the civil law traditions is not circumscribed to international arbitration. It is rather a universal trend intensified by globalisation and the growth of international trade. For example, while civil law countries have been adopting their own case-law systems, common law countries have been relying more and more on statutes rather than on precedents. Good examples can be taken from the Chinese Case Guidance Systemand from the new Brazilian Code of Civil Procedure, which I have dealt with in a recent publication.

The Prague Rules and the IBA Rules are examples of soft law. In order to succeed, soft law needs to bridge gaps, not burn bridges. Its strength rests upon its network effects:the more agents rely upon the soft law, the more power it acquires (DRUZIN, Bryan H. Why does Soft Law have any Power Anyway? Asian Journal of International Law, vol. 7/no. 2, 2017, pp. 362-363). Therefore, it is not by building an illusionary divide between common law and civil law practitioners that the Prague Rules will thrive. Such approach, in fact, practically sentences them to stillbirth.

There is much to gain from a joint effort of arbitration practitioners and academics from different cultural and legal backgrounds, as long as their shared goal is to put all their might at the service of a more reliable, legitimate and cost-effective international arbitration. It would be a terrible mistake to assume that by defending entrenched legal theories or traditions one could achieve such a goal.

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Prague Rules v. IBA Rules and the Taking of Evidence in International Arbitration: Tilting at Windmills – Part I

Wed, 2018-07-04 17:14

Guilherme Rizzo Amaral

On May 29, 2010, the International Bar Association (“IBA”) adopted the IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules”), a revised version of the original 1999 version which, in turn, had replaced the IBA Supplementary Rules Governing the Presentation and Reception of Evidence in International Commercial Arbitrationof 1983.

Even though the IBA Rules were drafted as a “resource to parties and to arbitrators to provide an efficient, economical and fair process for the taking of evidence in international arbitration”, their main goal was to bridge the gap between different legal systems and their respective procedures on the taking of evidence, which is “particularly useful when the parties come from different legal cultures” (IBA Rules, Foreword).

The IBA Rules have successfully influenced the practice of international arbitration, as arbitral tribunals formed by members from different legal traditions have been applying them, be it on their own motion or at the request of the parties,regardless of an express choice for the IBA Rules in the terms of reference.

However, such success has not prevented a reaction from members of the arbitral community concerned by what they see as a dominance of the common law tradition over the IBA Rules. For instance, the denunciation of a “Creeping Americanisation of international arbitration” set the tone at the IV Russian Arbitration Association Annual Conferencethat took place in in Moscow on April 20, 2017. The outcry gave rise to the proposal of a different set of rules, the so-called Inquisitorial Rules on the Taking of Evidence in International Arbitration, or The Prague Rules, as their drafters intend to launch them in Prague in December 2018.

In a preliminary draft of the Prague Rules, dated March 2018, it is easy to see that while they share one of the goals of the IBA Rules, which is to improve the efficiency of international arbitration, their focus is entirely different when it comes to bridging the gap between different legal traditions.

The Prague Rules are a manifestoin favour of the civil law tradition and of an inquisitorial approach in international arbitration, as well as an attack on the inefficiencies of the adversarial approach. If their official name was not enough evidence of that – InquisitorialRules on the Taking of Evidence in International Arbitration –, the note from the Prague Rules’ working group leaves no room for doubt. It criticises the IBA Rules “from a civil law perspective” for following “a more adversarial approach”. It goes on to say that many of the procedural features of the IBA Rules “are not known or used to the same extent in non-common law jurisdictions, such as continental Europe, Latin America, [the] Middle East and Asia”. It then states that the adoption of an “inquisitorial model of procedure” would contribute to the efficiency in international arbitration, “reducing time and costs of arbitrations”.

Regardless of any assessment on the efficiency of the Prague Rules’ procedural mechanisms to reduce the time and costs of arbitrations, some questions can immediately be raised: Is it true that the IBA Rules are dominated by the common law tradition – that is to say by an adversarial approach? How much do the IBA Rules differ from the Prague Rules? Furthermore, if the problem with the IBA Rules is really the fact that many of their features are uncommon to civil law practitioners, would the Prague Rules not suffer from the same problem in reverse? Considering the existence of domestic arbitration statutes and institutional rules that already reflect different traditions, what would be the purpose of a soft lawon the taking of evidence in international arbitration if not to bridge the gap between different legal traditions?

The Prague Rules and the proactive role of the arbitral tribunal

The classic distinction between the inquisitorial approach and the adversarial approach rests on the distribution of burdens and powers between parties and adjudicators (whether judges or arbitrators). An inquisitorial proceeding relies on an active role of the adjudicator, who may take initiative both in fact-finding (production of evidence) and in the ascertainment of the law. The adversarial approach, on the other hand, burdens the parties with those activities and confers upon the adjudicator the duty to preside over the proceeding and to rule on the dispute as an umpire; definitely a more passive stance for the adjudicator.

That said, the Prague Rules contain many provisions bestowing a proactive role upon the arbitral tribunal. And yet many of such provisions have no direct connection – and sometimes not even an indirect connection – with the taking of evidence, as can be seen in the provisions of article 2 (e.g., holding a case management conference through electronic communication, clarifying the legal grounds on which parties base their position, fixing a procedural timetable, limiting the number of submissions or their length, the tribunal being allowed to share with the parties – during the proceeding – its views regarding the relief sought), article 9 (assistance in amicable settlement), or article 11 (allocation of costs).

These provisions in particular may be useful in ad hocarbitrations, yet their usefulness in institutional arbitrations is questionable as most institutional rules or terms of reference usually address those issues. The Prague Rules themselves concede that due regard should be given not only to the mandatory provisions of the lex arbitribut also to the applicable arbitration rules (article 1.3).

Yet, what about the rules strictly concerning the taking of evidence? How do the Prague Rules differ from the IBA Rules? Are the Prague Rules capable of delivering a better result than the IBA Rules in terms of arbitration efficiency?

These questions will be addressed in the second and final part of this post.

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International Commercial Court in China: Innovations, Misunderstandings and Clarifications

Tue, 2018-07-03 22:03

Wei Sun

On 29 June 2018, the Supreme People’s Court of China (the “SPC”) launched its First International Commercial Court in Shenzhen, Guangdong, and Second International Commercial Court in Xi’an, Shaanxi (the “Courts”). Correspondingly, the Regulations of the Supreme People’s Court on Certain Issues Concerning the Establishment of International Commercial Courts (the “Regulation”) has just taken effect on 1 July, 2018. This is considered an effort by the SPC to provide effective judicial protection for the “Belt and Road” initiative, and to reform China’s international dispute resolution system. In this article, I will introduce the basic mechanisms of the Courts, and then clarify certain misunderstandings which I believe are already circulating within the international community of law practitioners.


  1. Courts


The Courts are permanent branches of the SPC. The judges of the Courts are appointed by the SPC from experienced judges familiar with practices in international commerce and investment and having language capacity to work with both Chinese and English. Currently, the SPC has appointed eight judges, including Wang Chuang, Zhu Li, Sun Xiangzhuang, Du Jun, Shen Hongyu, Zhang Yongjian, Xi Xiangyang, and Gao Xiaoli. A tribunal hearing a specific case will consist of three or more judges.


The Courts will only hear international civil and commercial disputes between equal parties. In other words, they will NOT hear state-state trade or investment disputes or investor-state disputes. According to Article 3 of the Regulation, disputes are “international” where one or both of the parties are foreign, where one or both parties regularly reside outside the territory of the PRC, where the subject matter is located outside the territory of the PRC, and where legal facts that create, change or eliminate commercial relations occur outside the territory of the PRC.


Specifically, the Courts will focus on four types of international commercial disputes: first, a dispute where the parties agree to litigate in the SPC according to Article 34 of the Chinese Civil Procedural Law and the amount in dispute exceeds RMB 300 million; second, a dispute which originally should be litigated in a high court but was submitted to the SPC because the high court believes it should be heard by the SPC and the SPC approves; third, disputes that have an impact nationwide; fourth, disputes where one parties applies for interim measures in assistance for arbitration, setting aside and enforcement of arbitral awards according to Article 14 of the Regulation.


  1. Clarifying Misunderstandings


  1. Determining the Jurisdiction of the Courts


The jurisdiction part of the Regulation is mainly drafted with a focus of the jurisdictional relationship between the Courts as part of the SPC and the lower courts. Under the Civil Procedure Law, the SPC already has the right to hear any litigation case, as long as it believes to be necessary, which is within the jurisdiction of a lower court. However, the relationship between arbitration and litigation and between domestic and foreign courts and arbitral institutions are much more complicated. The Regulation does not cover this issue.


For instance, let’s say an international sales contract between a Chinese company and a Russian one with the total value of RMB 1 billion designates one of the Courts as the forum, but when a dispute arises the amount in dispute is only RMB 200 million, would the Courts still have jurisdiction? If not, will the lower Chinese courts have jurisdiction? Or will the clause be deemed not applicable at all for this dispute? What if the plaintiff adds a new claim or the defendant makes a counter-claim, thus making the amount in dispute exceed RMB 300 million? Further, let’s say the same contract provides that when the amount in dispute is under RMB 300 million, arbitration under SIAC Rules; when the amount in dispute exceeds RMB 30 million, litigation in one of the Courts. Will this clause be valid? How does it work in practice?


  1. Involvement of Foreign Institutions


Misunderstanding: Article 11 of the Regulation provides that the Courts will work with international mediation and arbitration institutions to form a one-stop dispute resolution mechanism. Some believe foreign institutions will get involved and will be able to operate within China.


Clarification: The wording of “international” in this article refers to both Chinese institutions with experiences and reputation in international dispute resolution and foreign institutions. One good example for Chinese international arbitral institution is the CIETAC.


Major obstacles have to be cleared before foreign institutions could actually get involved. Opening up the market for these foreign institutions may happen in the future but it will unlikely be decided by the SPC. Hence, in the near future, institutions that actively work with the Courts will likely be Chinese institutions with an international focus.


  1. Interim Measures in Assistance of Foreign Arbitration


Misunderstanding: Parties to foreign arbitration proceedings may apply to the Courts for interim measures.


Clarification: This misunderstanding stems from Article 14 of the Regulation, which appear to mean that the parties, when choosing an international arbitration institution to resolve their disputes, may apply to the Courts for interim measures, whether before or during the arbitration proceeding.


However, Article 14 does not have that effect. The arbitration proceedings in this Article only refer to those conducted under Article 11 of the Regulation, i.e. arbitration proceedings as part of the Platform. The parties to foreign arbitration proceedings involving a Chinese party still cannot apply to Chinese courts for interim measures and cannot have the tribunal’s interim measure orders enforced in China.


  1. International Commercial Law Expert Committee (“Expert Committee”)


Experts will be mainly foreign nationals, especially those from “Belt and Road” countries with an international reputation and recognition. They may act as mediators if the parties choose so and will also help to ascertain and interpret foreign substantive laws as well as customary international rules.


According to Article 9 of the PRC Law on Judges, judges of Chinese courts must be Chinese nationals, so it is impossible for foreign nationals to be judges of the Courts. The Expert Committee is established so that foreign experts can play an active role, despite the restriction on becoming judges. The number of experts sitting in the Expert Committee might be around 30 so as to balance efficiency and diversity. The appointment, tenure, management and remuneration of experts will be provided in more detailed rules to follow. But it’s safe to say that when an expert is requested to work on a specific case, such as ascertaining foreign law, issuing expert opinions, or conducting as mediators, then very likely there will be payments.


  1. Procedural Language of the Courts


Misunderstanding: The procedural languages for case before the Courts can be English or other foreign languages.


Clarification: This common misunderstanding stem from Article 4, which require judges of the Courts to be able to use English as working language, and Article 9, which provides that, if agreed by the other party, a party may submit evidence materials in English without the need of translating into Chinese.


However, the Regulation never mentions that procedures before the Courts can be in English or parties can argue their cases in English. In fact, these are not possible under the current legal framework. Article 262 of the Civil Procedure Law in China provides that trials of cases involving foreign elements must be in “language commonly used in the PRC”, meaning Chinese, including languages native to the 55 recognized ethnic minorities in China. Article 6 of the Law on the Organization of Courts also includes a similar requirement. These laws are superior to the Regulation and cannot be modified by the SPC through judicial interpretations. Within the existing legal framework, the SPC is exploring ways to make it more convenient and cost-efficient for parties, hence the flexibility on submitting evidence materials in English.


  1. 6. Publication of Dissenting Opinions


Article 5 of the Regulation provides that a judgment of the Courts is reached by majority decision, and the dissenting opinion, if any, may be incorporated into the judgment. This is also an innovative measure of the SPC.


There have already been attempts (for instance, the Guangzhou Maritime Court) to promote the publication of dissenting opinions in judgments in China. However, this practice has never been widely adopted by other courts or made into a mandatory rule. Article 5 of the Regulation should NOT be viewed as an attempt to promote this practice nationally.


Internationally, in common law countries such as the United States, publication of dissenting opinion is a customary practice, but in civil law countries such as France, it is different, where each judgment is seen as the collective decision of the tribunal. In theory, China tends to recognize the practice of civil law countries. One possible major concern of the SPC is that, if the reasoning of each individual judge is known by the parties, then judges may face pressures, threats or reprisals from parties or even from higher-ups.


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