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The Statistical Analysis of the Application of the New York Convention in Russia

Sun, 2019-02-03 23:47

Roman Zykov

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (New York) celebrated its 60th anniversary in 2018 (“Convention”). Since its inception, 159 Contracting States have joined the Convention. The USSR ratified the Convention on 22 November 1960. The Russian Federation, as a successor of the USSR, continues to be a Contracting State.

The NYC Study

There is a significant body of legal research on the application of the Convention in Russia. However, the Russian Arbitration Association undertook to look at the application of the Convention from a statistical point of view. The Working Group of the Russian Arbitration Association has analyzed all cases decided in the past 10 years, which relate to the application of the Convention. The study represents the first time when the Convention is being studied solely from the angle of Russian case law (“NYC Study”). The full Study is available here.

The NYC Study was commenced over a year ago and comprised three (3) stages. To begin, the Working Group identified approximately 700 court rulings of the first, appeal and supreme instances, in which the courts applied Article V of the Convention or related national legal norms in determining the recognition and enforcement (“R&E”) of the foreign arbitral award. The approximately 700 court rulings were deducted to 472 R&E cases arising out of 472 foreign arbitral awards. Each court ruling was analyzed in accordance with 45 parameters, such as date of the arbitral award, date of the R&E application, date of the first instance ruling, number of instances, results per instance, date when the R&E was granted or rejected, nationality of the claimant, names of the parties, seat of the arbitration, arbitration rules, applicable law, subject matter of the dispute, awarded amounts and currency, number and names of arbitrators, number and names of state court judges in each instance, geography of state courts, requested and granted grounds under Article V of the Convention, and the final result of the R&E application. All extracted data were entered into a master table, which comprised over 21,000 elements in total.

To ensure accuracy, the case search was done through two legal databases, which were kad.arbitr.ru and Consultant Plus. The cases have been cross-checked to ensure that the gathered data is accurate and mostly complete. It should be noted that the existence of publicly available case law databases in Russia is, in itself, a great achievement because it improves court’s transparency and makes case law accessible to anyone.

The second stage of the NYC Study focused on coding the data to make it machine readable. Most of the data groups were assigned binary codes comprising the digits 1 and 0. Various combinations of these digits made a computer read the data.

At the final stage, we built formulas for correlated data and visualized them. By applying formulas to the binary codes we could extract information from a broad range of data types. Practically, these formulas enable us to describe the court practice and tendencies in the application of the Convention in Russia. For example, we can show how amounts in dispute affect Russian court decisions, which courts and judges are arbitration friendly, the judges whose rulings are successfully appealed, and the ratio of successful cases per instance.

The NYC Study Results in a Nutshell

  • The NYC Study reveals that the Convention has been widely invoked by the parties and courts of all instances in Russia in the past 10 years. In total, there were 472 R&E applications, 378 of which were granted, 45 rejected and 49 applications were not considered due to various reasons, which were mostly related to the procedure.
  • The NYC Study shows that Russian courts are arbitration friendly – in various years, 80 to 97% of all R&E applications were granted.
  • During the period 2008 to 2017, the most used Article V grounds were: violation of public policy (Article V2(b)) – 42 cases, the lack of proper notice or inability to present the case (Article V1(b)) – 34 cases, and excess of mandate by arbitrators (Article V1(c)) – 13 cases.
  • Most disputes arose out of sale of goods contracts (341 cases); services agreements (39 cases); and various financial agreements (30 cases).
  • The awarded amounts in approximately 50% of the cases comprised less than EUR 50,000, in about 35% of all cases were less than EUR 1 million, in about 12% of the cases were from EUR 1 to 15 million, and in 5% of cases – over EUR 15 million.
  • Distribution of claimants by country was as follows: Ukrainian (196), Belarussian (101), Kazakhstani (15), Latvian (13), German (11) and Moldovan (11).
  • The most used arbitration rules were those of the ICAC Ukrainian CCI (193 cases), IAC Belarussian CCI (95), LCIA (17), SCC (16), ICC (13) and LMAA (12).
  • The hit ratio of cases finally decided in the first instance, meaning that they were not subsequently appealed, was 77,6% of all cases.
  • The NYC Study shows that the higher the instance, the lower the ratio of recognized and enforced arbitral awards. About 89% of the R&E applications were granted in the courts of the 1st instance; 61% of the R&E applications were approved by the courts of the 2nd instance and there was a 60% hit ratio in the supreme instance.
  • The total value of claims sought under the R&E applications in the period 2008 to 2017 was EUR 8,220,758,910. Russian courts enforced the claims for EUR 4,771,021,582 or, in other words, 58% of all claimed amounts.
  • In the reviewed years, the average duration of the R&E application process in Russian courts was 6 months.
  • From time to time, the Supreme court provides case law overviews, which explain to the lower courts how to apply certain legal provisions. For example, in 2013, the Russian Supreme Arbitrazh (Commercial) Court published the Information letter No.156, in which it explained how to apply the concept of public policy in R&E applications. As a result, the number of court granted public policy motions dropped to 0 in the following years, until 2017.
  • In terms of improving the case law, the courts should consider giving a more detailed account of the invoked Article V grounds, which includes an explanation why such motions were granted or rejected by the court. This will contribute to the development of the case law and will increase the predictability in the application of the Convention.

This is a whole new place to go with numbers, but the NYC Study is just scratching the surface. As more data comes in, we now have a better context to explain what these numbers really mean by comparing the cases, judges, outcomes and many other factors. In a few years, this NYC Study can be used to consider how things have changed in Russia by comparing the measurements and conclusions drawn in this study. This work will continue with the annual updates published at www.newyorkconvention.ru.

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Comparing Hong Kong Code of Practice for Third Party Funding Arbitration with the Code of Conduct in England & Wales

Sun, 2019-02-03 22:02

Peter Hirst and Mun Yeow

Clyde & Co.

 

As 2019 dawns the arbitration community looks forward to the Hong Kong Code of Practice for Third Party Funding in Arbitration coming into force on 1 February 2019. In this article we look at the impact of the Hong Kong Code on Hong Kong seated arbitrations and draw comparisons with the voluntary Code of Conduct for Litigation Funders in England & Wales.

 

History of third party funding in Hong Kong

Historically in Hong Kong, and many other common law jurisdictions, third party funding in any legal proceeding was strictly prohibited under the doctrines of maintenance (when a person who has no legitimate interest in a litigation gives assistance, encouragement, or support to the litigation) and champerty (when a person supports the litigation in return for a share of the proceeds).

Prior to the introduction of the Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 (the Ordinance), Hong Kong legislation did not address whether the rules of champerty and maintenance applied to arbitration in Hong Kong. There is however no case law to suggest that an arbitral award in favour of a funded party would not be enforced on that ground.

 

New third party funding legislation in Hong Kong

On 14 June 2017, the Hong Kong Legislative Council passed the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (the Ordinance). The Ordinance distinguishes arbitration and mediation from traditional litigation, and permits the third party funding of arbitration and mediation in Hong Kong.

Pursuant to the delegated powers in the Ordinance,1) Section 98P Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 jQuery("#footnote_plugin_tooltip_5532_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); on 7 December 2018, the Secretary of Justice (SOJ) published the Hong Kong Code of Practice for Third Party Funding in Arbitration (the “HK Code”) which comes into effect on 1 February 2019. The mandatory HK Code shares similarities with the voluntary Code of Conduct for Litigation Funders in England & Wales (the “EW Code”), and sets out the rules, standards and recommended practices of third party arbitration funding in Hong Kong.

 

Comparing the HK Code and EW Code

Application

The HK Code applies to:

  • all Hong Kong seated arbitrations and
  • any arbitration conducted outside Hong Kong to the extent that the costs and expenses of services in relation to the arbitration are provided in Hong Kong2) Section 98N Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 jQuery("#footnote_plugin_tooltip_5532_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

that have a written funding agreement (made on or after the commencement date) entered into between a funded party and a funder.3) Section 98H Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 jQuery("#footnote_plugin_tooltip_5532_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Both Hong Kong and overseas parties should be aware of the provisions within the HK Code when entering into arbitration funding agreements.

Compliance

The provisions of the HK Code are binding on all parties and “applies to any funding agreement”.4) Paragraph 1.2 of HK Code jQuery("#footnote_plugin_tooltip_5532_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Failure to comply with the HK Code does not render any person liable to any judicial or other proceedings.5) Section 98S(1) Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 jQuery("#footnote_plugin_tooltip_5532_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Any non-compliance would only be used as evidence in subsequent court or tribunal proceedings.6) Section 98S(2)(a) Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 jQuery("#footnote_plugin_tooltip_5532_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

By contrast, the EW Code represents the leading practice in England and Wales, but is only to be followed by members of the Association of Litigation Funders. As such, compliance with the EW Code is not mandatory.

Control

One of the concerns for regulators and funded parties is the level of control that a funder exerts over a dispute. There is a perceived risk that the funder may seek to influence and take over proceedings to the funded party’s detriment.

The HK Code requires a funded agreement to set out clearly that the third party funder will not seek to influence the funded party or the funded party’s legal representative to give control or conduct of the arbitration to the third party funder.7) Paragraph 2.9 of HK Code jQuery("#footnote_plugin_tooltip_5532_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The EW Code states that a funder may provide input to the funded party’s decision in relation to settlements,8) Paragraph 2.9 of HK Code jQuery("#footnote_plugin_tooltip_5532_8").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but at the same time, should not seek to influence the funded party’s legal counsel to cede control or conduct of the dispute.9) Paragraph 9.3 of EW Code jQuery("#footnote_plugin_tooltip_5532_9").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

On its face, the HK Code appears to provide more protection for the funded party than the EW Code. However, the rule is followed by the exception of: “except to the extent permitted by law.”10) Paragraph 2.9 of HK Code jQuery("#footnote_plugin_tooltip_5532_10").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This statement is ambiguous as there are no examples or explanation to illustrate the extent of control a funder can have. Neither the HK Code nor the Ordinance set out what controls a funder is permitted to have under the law. It remains to be seen whether the HK Code can adequately protect a funded party’s interest.

Conflict of interest

The HK Code requires a funder to maintain effective procedures for managing any conflicts of interest11) Paragraph 2.6(1) of HK Code jQuery("#footnote_plugin_tooltip_5532_11").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and further lists out examples of effective procedure.12) Paragraph 2.7 of HK Code jQuery("#footnote_plugin_tooltip_5532_12").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In doing so, the HK Code states that “the third party funder has effective procedures for managing a conflict of interest…if it can show through documentation that… [Lists out examples effective procedure]”.13) Ibid. jQuery("#footnote_plugin_tooltip_5532_13").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The use of the word “if” is potentially problematic as it is unclear whether effective procedures can be shown through other means that are not listed in Paragraph 2.7 of the HK Code. The EW Code does not address the issue of conflicts of interest.

In this respect, the HK Code has clearly scrutinized the EW Code and addressed the issues that arose in other jurisdictions. The codification of effective procedures to control the conflict of interest between parties is definitely a welcome addition in safeguarding a funded party’s interest.

Disclosure

The HK Code requires a funded party to disclose in writing the existence of the funding agreement and the name of the third party funder to each other party to the arbitration and the arbitration body.14) Section 98U Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 jQuery("#footnote_plugin_tooltip_5532_14").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In addition, the third party funder has a duty to remind the funded party of its duty to disclose.15) Paragraph 2.10 of HK Code jQuery("#footnote_plugin_tooltip_5532_15").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Ordinance also clarifies that parties can communicate information relating to the arbitral proceedings to a third person for the purpose of having, or seeking, third party funding of arbitration from the person.

The EW Code is silent on the parties’ disclosure obligations. The inclusion of a disclosure requirement in the HK Code provides a clarity that the EW Code does not.

 

A bright future for funders, parties and Hong Kong as an arbitral centre

The introduction of the HK Code has already sparked a renewed enthusiasm for Hong Kong’s reputation as a leading international arbitration centre. In certain respects, the HK Code deals with issues differently from that of the EW Code and practitioners would be wise to think about the merits of HK Code’s approach. Despite the uncertainties of a funder’s control as well as effective procedures for managing conflicts of interest, we think the HK Code is likely to encourage funding while provide sufficient protection for funded parties.

References   [ + ]

1. ↑ Section 98P Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 2. ↑ Section 98N Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 3. ↑ Section 98H Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 4. ↑ Paragraph 1.2 of HK Code 5. ↑ Section 98S(1) Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 6. ↑ Section 98S(2)(a) Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 7, 8, 10. ↑ Paragraph 2.9 of HK Code 9. ↑ Paragraph 9.3 of EW Code 11. ↑ Paragraph 2.6(1) of HK Code 12. ↑ Paragraph 2.7 of HK Code 13. ↑ Ibid. 14. ↑ Section 98U Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 15. ↑ Paragraph 2.10 of HK Code function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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A New and Improved Investment Protection Regime: Truth Or Myth!

Sat, 2019-02-02 21:20

Shilpa Singh J.

With the proposed investment court system, the European Commission aims to limit criticism revolved around Investor-State Dispute Settlement due to its lack of legitimacy, transparency and appellate mechanism. The investment regime under Comprehensive Economic and Trade Agreement with Canada (hereinafter “CETA”) and European Union-Viet Nam Free Trade Agreement (hereinafter “EUVFTA”) could be a solution by bringing transparency, consistency, and institutionalization in investment protection. The article addresses the compatibility of the new system with EU law as any violation of the autonomy of EU law would not be optimistic to its future. Meanwhile, a Member State of the EU (Belgium) has sought an opinion from the Court of Justice (hereinafter “the CJEU”) on whether the investment court system in CETA is compatible with EU law, even though that system is promising and would lay down stepping stones of improved investment protection.

Achmea Ruling and its Effect to the Jurisdiction of the Tribunal under CETA and EUVFTA

The Achmea ruling confirms that intra-EU BITs are incompatible with EU law while its effects reverberate to agreements entered by the EU with third countries. As per the judgment, arbitral tribunals under investment agreements, when entered between Member states, are outside the judicial system of the EU and incompatible with the autonomy of EU law since arbitral tribunals were empowered under the principle of lex loci arbitri to include and interpret EU law (the Community treaties and secondary laws).1)Opinion 1/09 on Creation of Unified Patent Litigation system of 08.03.2011, para 89; Judgment in Achmea, C-284/16 of 06.03.2018, para 58. jQuery("#footnote_plugin_tooltip_6528_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6528_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, the ruling may not be applicable in full since investment protection in CETA and EUVFTA are concluded as mixed agreements meaning the EU and its Member states are parties to them.

A logical conclusion is that the Tribunal established under CETA and EUVFTA would not fall within judicial framework of the EU since its jurisdiction is limited to claims related to breaches of investment agreements and to determine if a measure of a Member state and/ or of the EU is in violation of the standards set in the agreements. It can only resolve a dispute under the applicable law, i.e., the provisions of an investment agreement.

The ECJ places responsibility on the arbitral tribunal to protect the autonomy of EU law by not giving an inconsistent interpretation to it. In the past, the ECJ has protected autonomy of EU in many cases and call it as the “essential” characteristics2)Opinion 2/13 on accession of EU to the European Convention on Human Rights of 18.12.2014 jQuery("#footnote_plugin_tooltip_6528_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6528_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, originating from an independent source of law, i.e., the Treaties.3)Opinion 1/09, para. 65. jQuery("#footnote_plugin_tooltip_6528_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6528_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Further saying that the standard of review to protect the autonomy of EU law is a matter of these tribunals and Member states too. Since the ECJ has never been eager to open doors of interpretation to a tribunal which is out of the EU judicial framework and Member states are obligated to bring issues related to EU law to the ECJ. The reasoning of the judgment is discussed in the blog in posts here, here and here.

On the contrary, if the ECJ finds that the Tribunal under CETA and EUVFTA is part of the judicial framework of the EU and that it could send for preliminary ruling under Article 267 TFEU departing from its previous judgments, even then it has responsibility to protect autonomy of EU law along with uniform and consistent interpretation and application of EU law. In both situations, an interpretation of EU law done by the tribunals may affect the consistency. However, by looking at the features (discussed below) of the Tribunal assure that autonomy of EU law is protected, at least in theory.

Ensure Jurisdiction of Domestic Courts and ECJ

CETA and EUVFTA under Article 8.22(1)(f) & (g) CETA and Article 3.34 (1) EUVFTA preclude parallel proceedings at a domestic or international court or tribunal so as to not to undermine the authority of tribunals which could mean taking away exclusive jurisdiction of the ECJ. The previous posts of the blog discuss the concerning issue from the point of view of human rights, available here and here. Even when the agreements do not allow parallel proceedings for disputes related to an alleged measure which is inconsistent with agreements, the Tribunal is under obligation to stay its proceedings or take into account proceedings under international agreement which may affect the findings of the Tribunal or the compensation awarded due to the use of “shall” found in Article 8.24 CETA and Article 3.34(8) EUVFTA. These agreements assure that in case the Tribunal failed to do so, the appellate body has authority to modify or reverse award on “manifest errors in the appreciation of facts, including….. relevant domestic law” under Article 8.28 CETA and Article 3.42 (1) EUVFTA. It is important that the tribunals under agreements take into consideration decisions of the ECJ and domestic courts effectively and importantly, ensure the supremacy of EU law and full respect to decisions of the ECJ. Perhaps the limited scope of disputes of the Tribunal done by the drafters of the agreements, especially the interpretation and application of EU law is a solution to it. The tribunals under Article 8.31 CETA and Article 3.42(3) EUVFTA are not allowed to interpret and apply the provision of EU Treaties including prevailing domestic laws and shall follow the prevailing interpretation given to the domestic law. While determining the consistency of measures, it has to consider the domestic law as a matter of fact which also includes EU law.

Issue of Competence and International Responsibility

After the opinion on EU-Singapore FTA, it is important to look at the nature of the agreement concluded: CETA and EUVFTA are concluded as mixed. The question of competence would not affect the interpretation of the investment agreements done by the tribunals. The question of determining obligation arising from the agreements whether it would be the responsibility of the EU or Member states requires interpretation of the agreements and, due to their drafting, it would be within the jurisdiction of the ECJ. The agreements have placed the obligation of international responsibility on the EU to determine respondent.

In other words, the right to access tribunal as per the rules to determine respondent by the EU in both agreements would allow foreign investors to initiate proceedings without affecting the autonomy of EU law, supremacy of EU law and would promote legal certainty. This conclusion would also put away any future doubts on competences, inter alia on lawmaking and concluding the agreement between Member states and the EU which would be mutually exclusive of the determination of respondent done to fix international responsibility. The issue of competence would, however, justify the reason to conclude the agreements as mixed agreements since some areas are shared between the EU and its Member states.

Unique Features of the Investment Court System

The institutionalization would ensure legitimacy and consistency to decisions after introducing an appellate body. While allowing participation of non-disputing third parties and interpretations of provisions to the agreements from scholars and person of interest, having compulsory resolution through an amicable mechanism like conciliation and mediation and transparency are front-runners. The members of tribunals are appointed by a committee as per the agreement while cases are allotted on a random basis to a roster of judges much like done in WTO panel. After the award, the Tribunal would be dissolved and the question of sending back to the same tribunal after appellate body’s decision is still unanswered. Moreover, it does not contribute to ‘permanent structure’ since members are paid retainer fees and can take up other occupation unless otherwise decided. It can still be said that the system is not balanced out and independent, instead, it seems semi-permanent or hybrid.

Due to a proliferation of investment agreements, the tribunals organized may give rise to different conclusions relating to a similar commercial situation and similar investment rights to the similar in the provisions of these agreements questioning procedural fairness. None of the agreements deal with the correlation of the tribunals. Additionally, another procedural flaw observed that both the agreements do not directly deal with a question on jurisdiction and thus the parties must wait until the final award is issued to appeal a positive or mixed jurisdiction award.

In sum, the investment protection in the agreement has room for improvement. That can be done by creating a new regime of investment protection with a multilateral investment court which would be permanent in nature with full tenured and impartial judges for the problem of coherence and determinacy. The consistency would be ensured with a permanent appellate mechanism and the treaties would be considered at par with one another. As concluding remarks, the present system in the agreements is a way forward to institutionalize investment protection. But, this optimism should not be taken blindly and hinder improvement and develop a better system.

References   [ + ]

1. ↑ Opinion 1/09 on Creation of Unified Patent Litigation system of 08.03.2011, para 89; Judgment in Achmea, C-284/16 of 06.03.2018, para 58. 2. ↑ Opinion 2/13 on accession of EU to the European Convention on Human Rights of 18.12.2014 3. ↑ Opinion 1/09, para. 65. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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2018 In Review: The Middle East

Sat, 2019-02-02 17:05

Dalal Al Houti (Assistant Editor for the Middle East), Gloria Alvarez (Associate Editor) and Zahra Rose Khawaja (Assistant Editor for the Middle East)

The year of 2018 brought a wave of important arbitration events, developments, precedents and legislative reforms in the Middle East.  Join the Kluwer Arbitration Blog’s (KAB) regional editorial team (Dalal Al Houti, Zahra Rose Khawaja, and Gloria Alvarez) as we reflect on a few of these developments and thank the authors who enabled us to provide this important and engaging coverage.

Kuwait’s First ICC Arbitration Day

In November 2017, the ICC, in collaboration with Al Tamimi and Company, organised Kuwait’s first ICC Arbitration Day. This development received coverage on KAB as well. The day involved discussions by prominent practitioners on the advantages and disadvantages of arbitration, recent developments in ICC arbitration and the history and continued progress of arbitration in Kuwait. The speakers specifically laid emphasis on the need for a stand-alone arbitration law that conforms to international standards. Talks are underway to host the second ICC Kuwait Arbitration Day this year.

United Arab Emirates Penal Code Reforms

Since early in 2018, we have been discussing on the KAB the long-awaited reforms to Article 257 of the UAE Penal Code, which finally were enacted in October 2018.  Article 257 had been unsettling arbitrators, experts, translators and investigators in UAE-seated arbitrations for two years following amendments to the law passed in October 2016 which introduced the risk of temporary imprisonment for acting contrary to the duty of objectivity and integrity.  The ambiguous wording of the law had caused widespread concern that it would discourage arbitrators and experts from accepting appointments, damage the UAE’s reputation as an arbitration-friendly jurisdiction and that parties might use it tactically to delay or derail arbitral proceedings.

The revised Article 257 removed arbitrators and party-appointed experts from the list of persons implicated by the law. UAE arbitration practitioners have welcomed this change as imprisonment fears have been put to rest and confidence in the UAE’s arbitration regime has been restored.

ADGM Arbitration Centre

In addition, on 17 October 2018, the new Abu Dhabi Global Market (ADGM, a financial free zone) Arbitration Centre opened its doors for business, offering parties state of the art hearing rooms equipped with advanced technology for hearings to take place.  Whilst the ADGM does not yet have its own institution to administer arbitrations, the ICC has set up its first Middle Eastern representative office within the ADGM.  However, parties may choose any institution to administer arbitrations seated at the ADGM and make use of the centre’s cutting-edge facilities.

United Arab Emirates Arbitration Law Developments

In 2018, the UAE enacted its stand-alone arbitration law, Federal Law No. 6 of 2018 on Arbitration (the New Arbitration Law). Previously, arbitration in the UAE was governed by articles 203-218 of Federal Law No.11 of 1992 on the Civil Procedures Law.

The key features of the New Arbitration Law are that it is largely based on the UNCITRAL Model Law on International Commercial Arbitration, it recognises the doctrine of separability and principle of competence-competence, which are all fundamental principles of international arbitration. In addition, it recognises the use of technology, continuation of arbitral proceedings in parallel upon submitting an application for interim measures or challenging an arbitrator, reducing the time-limits to 15 days and 6 months for the court to determine challenges against the tribunal and date of when the arbitral tribunal shall render its award, respectively.

Additionally, the New Arbitration Law clarifies that the parties waive their rights to arbitration should they not raise an objection before addressing any claim or defence on the merits of the dispute if the matter is referred to the courts.  It also delegated more powers to the arbitral tribunal and reduced court intervention specifically in matters relating to awarding interim measures.

These changes are likely to increase the efficiency of arbitral procedures and attract parties to conduct arbitrations under the New Arbitration Law.

Enforcement of an Arbitral Award in the Kingdom of Saudi Arabia (KSA).

KSA has witnessed significant positive changes in its arbitration regime over the last few years. As noted in this post, in 2017-2018, KSA recorded both the highest number of applications and the highest value of applications since 2014.

This trend has its origins in the country’s updates over 2012 and 2013 to its arbitration regime. In 2012, by Royal Decree No. M/34, KSA replaced its 1983 Arbitration Law, which contained 25 articles with a modern arbitration law (2012 Arbitration Law) which covers the entire arbitral process in 58 articles and conforms to international standards. The 2012 Arbitration Law notably reduced court intervention and increased party autonomy.

Additionally, in 2013, an Enforcement law, by Royal Decree No. M/53 (Enforcement Law) came into force with the aim of providing a smoother and more efficient process of enforcing arbitral awards. Mainly, the Enforcement Law granted Enforcement Judges with powers to enforce decisions and impose sanctions when parties do not comply with the orders issued within the requested time frame. The law additionally sets out a one-month period in which the Enforcement Judges should issue the execution order.

Consequently, KSA has witnessed a continuing growth in the numbers and values of the foreign enforcement applications. As per the Ministry of Justice media reports (see here and here), the total number of applications has now exceeded 600 with a total value passing the USD 3.4 billion mark. Of these 600+ applications, more than 40% were made in 2018. 

Commentary on these Regional Developments

2018 has seen positive developments across the Middle East, albeit in different ways. While Kuwait and KSA moved towards establishing reputations as pro-arbitration jurisdictions, the UAE  took some significant steps towards realising its aspirations of becoming a regional hub for arbitration.

In Kuwait, the inaugural ICC day marks a growing awareness and interest in arbitration. Through the panel discussions, the strengths of the arbitration regime in Kuwait and areas that needed further development were extensively discussed. With talks reportedly underway for organising the second ICC Kuwait Arbitration Day this year, it may be concluded that the Arbitration Day has provided some momentum to the development of the arbitration regime in Kuwait.

In May 2018 alone, the Ministry of Justice in KSA reported three different instances of enforcement of foreign decisions: an American court’s judgment against a Saudi company, a Chinese arbitration tribunal’s award against a Saudi gold mining company and an ICC award against a private Saudi university. In each case, the judgment/award-debtor was ordered to pay within five days from the notification date of the decision by the Riyadh Enforcement Court. These decisions reflect a positive trend, which if continued, can help remedy the problematic reputation that KSA has previously built with respect to the enforcement of foreign awards.

While the UAE is by no means the first country in the region to have adopted a pro-arbitration national law (Bahrain, Egypt, Jordan, Oman and KSA have already done so), the move has been applauded by the arbitration community for finally bringing the UAE in line with international standards. This is a particular success for the country when considered against the failed attempts to update the law in 2008 and 2013. The latest amendment to Article 257 is also likely to have registered on the minds of potential parties to arbitration in the region. By finally plucking this proverbial thorn in the side of the UAE’s claims to being an arbitration-friendly jurisdiction, arbitrators are likely to be more comfortable with appointments in the country. Finally, the establishment of the ADGM and the region’s first ICC representative office is likely to bring in more arbitration into the emirate of Abu Dhabi, and the UAE generally.

With these views in mind, we optimistically look forward to 2019 and additional promising developments in the region.

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Enabling Legislation: Check; Code of Practice for Third Party Funders: Check; Third Party Funding for Arbitration in Hong Kong is Ready for Lift Off!

Fri, 2019-02-01 20:00

Roger Milburn

Hong Kong’s legislative regulations

On 7 December 2018, the Hong Kong government published its eagerly awaited Code of Practice for Third Party Funders and confirmed that from 1 February 2019, Hong Kong’s Arbitration Ordinance, as amended, will be fully in force (save for provisions which relate to third party funding of mediation). The sections which are coming into operation are Divisions 3 and 5 of the new Part 10A of the Arbitration Ordinance (Amendment Ordinance): these sections expressly permit the use of third party funding for arbitration in Hong Kong. This development will bring Hong Kong into line with Singapore as jurisdictions which permit the funding by professional third parties of arbitrations and arbitration related litigation.

The Code of Practice For Third Party Funders, which has been awaited since the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (Amendment Ordinance) came into force on 23 June 2017.

The Code of Practice details the standards and practices with which third party funders will be ordinarily required to comply in order to operate in the Hong Kong arbitration market. They include the following which third party funders must do:

  • take reasonable steps to ensure that the funded party is made aware of the right to seek independent legal advice on the funding agreement before entering into it” (with such obligation being regarded as satisfied where the funded client party confirms the same in writing);
  • maintain access to minimum capital of HK $20m, maintain the capacity to “pay all debts when they become due and payable” and maintain the capacity to “cover all of its aggregate funding liabilities under all of its funding agreements for a minimum period of 36 months”;
  • include provisions in funding agreements which set out clearly that the funder “will not seek to influence the funded party or the funded party’s legal representative to give control or conduct of the arbitration to the third party funder, except to the extent permitted by law”;
  • explain in funding agreements whether (and the level to which) it agrees to be liable for adverse costs, insurance premiums or any other financial liability and whether it will provide security for costs if such security is ordered;
  • state in funding agreements the circumstances in which the funder may terminate (with discretionary termination by the funder in circumstances not detailed in the Code of Practice being prohibited);
  • effectively manage any conflicts of interest and maintain an effective complaints procedure; and
  • ensure promotional materials are “clear and not misleading.

Compliance with the Code of Practice will be overseen by an advisory body in Hong Kong to which each third party funder must submit information regarding its financial position and annual returns regarding any complaints received.

As mentioned, this development will bring Hong Kong into line with Singapore, where third party funders also have certain requirements imposed upon them by law in order to enter the market. For example, the funding of dispute resolution costs (whether in Singapore or elsewhere) in actions to which they are not party must be the principal business of a funder and funders must have paid-up share capital of not less than SG $5m or not less than SG $5m in managed assets. They should also pay heed to the Guidelines for Third Party Funders which were published by SIArb (Singapore Institute of Arbitrators) in May 2017 which aim to promote best practices among funders who intend to provide funding to parties involved in international arbitrations seated in Singapore. Unlike in Hong Kong, the Guidelines are non-binding but it is expected that professional litigation financiers will comply with them and there are good reasons for this.

 

Are the regulations welcome?

Professional, reputable litigation funders would welcome the regulations that have been imposed by the legislatures of Singapore and Hong Kong in conjunction with the opening up of the market for third party funding of arbitrations in those jurisdictions. This is evidenced by virtually all, if not all, the main players in the industry providing their views during the respective consultation periods. Whilst differing regimes in different jurisdictions add a degree of administrative burden for funders to ensure compliance with the various regulations or codes of practice for each jurisdiction in which they operate, this is a small price to pay in circumstances where new jurisdictions open up for funders to expand their businesses. Furthermore, and more importantly, professional funders are well aware that the regulatory frameworks are put in place to benefit and protect the ultimate end user clients. Requirements which mean that only professional funders are able to operate in jurisdictions like Singapore and Hong Kong further this important legislative aim.

The corollary advantage to professional funders of this regulation is that the reputation of the funding industry is protected from the damage which could result from an environment where there is no limit on who can financially support arbitration disputes and inexperienced or purely opportunistic financiers are able to operate in an uncontrolled manner.

Unregulated access to the third party funding market could potentially lead to situations where the clients ultimately lose out and these regulations in Singapore and Hong Kong are designed to avoid this eventuality. Imagine the scenario where a finance source dries up at a crucial stage in a case in circumstances where a client has sought outside assistance because they are impecunious. Who loses out? First, the client who is unable to continue with their meritorious claim. Second, professional funders who could be tarred with the same brush in the event the unfortunate occurrence becomes widely known in the market. Similar reputational damage to the third party funding industry could result from a scenario where a case concludes and a recovery is made but the whole of that recovery is paid to the lawyers and the funder, with the ultimate client being left empty-handed having been forced to agree onerous terms with an inexperienced, unprofessional and/or improperly motivated funder.

The reputation of third party funding could be put at risk by a failure by funders to comply with the new regulations. All those entering the funding market in Hong Kong and Singapore have a responsibility to play their part in maintaining and improving the reputation of the industry in Asia, which has been slower to embrace funding than other parts of the world (for example, Australia and the UK). Further, the legislatures of Hong Kong and Singapore have so far merely dipped their toes into the funding world by permitting financing by third parties of arbitration and arbitration related litigation only1)The funding of insolvency disputes is also permitted but this has evolved through developments in case law rather than by legislation jQuery("#footnote_plugin_tooltip_3202_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3202_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. This means that a failure by funders to protect the reputation of the funding industry will likely eradicate any hope that consideration will be given in future to extending the types of disputes for which funding can be provided, such as litigation in the Singapore International Commercial Court or in the high courts of Hong Kong or Singapore. Any such extension will only become likely if professional funders adhere to the well thought out and welcome regulatory frameworks, which are designed to protect funded party clients. It is expected that professional funders will so adhere, since whilst funding assists clients to gain access to justice as well as offering alternative financing methods, it is clearly also in the interests of the funding industry as a whole to do so.

References   [ + ]

1. ↑ The funding of insolvency disputes is also permitted but this has evolved through developments in case law rather than by legislation function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Winds of Change in International Arbitration

Fri, 2019-02-01 05:02

Stavros Brekoulakis, Mary Mitsi (Assistant Editor), Ahmed El Far and Mercy McBrayer

Indicating signals of the evolution of international arbitration, as a response to the need to keep up with a globalised legal and financial market, is not an easy task. It is not an easy task because of the different ways evolution is perceived by different circles. For some, a wind of change in international arbitration would signify a major institutional reform, such as the creation of specialised arbitral tribunals or the creation of free zone jurisdictions. For others, a wind of change could be seen as any element that shapes the international arbitration culture, such as the analysis of how market forces influence the needs of arbitration users.1) Published in CIArb’s Academic Journal: International Journal of Arbitration, Mediation and Dispute Management. The Journal welcomes the submission of articles for publication (see here the guidelines for submissions) jQuery("#footnote_plugin_tooltip_5367_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Such a developmental process in the field of international arbitration can clearly be pictured in what Gordon Blanke refers to as “supranational arbitration”.2) Gordon Blanke, “Winds of Change in International Arbitration, Keynote Address, 3rd CARTAL Conference, 29–30 September 2018” 85(1) CIArb Journal of International Arbitration (2019) 98. jQuery("#footnote_plugin_tooltip_5367_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It has been suggested that the private enforcement of EU competition law claims through arbitration has given rise to the formation of supranational arbitration, a new type of arbitration that sanctions the active involvement as amicus curiae of the European Commission, being the EU regulator responsible for matters of competition within the internal market and the guardian of the EU Treaties. A variation of the theme has since become the use of arbitration as a monitoring tool within the context of EU merger control, a subject that has attracted much academic and professional attention on the European continent and that has prompted parallel developments in the US and Canada.

Another example of winds of change, in an attempt to respond to sector-specific needs, is the emergence of arbitration in the banking and finance sector.3) Gordon Blanke, “Winds of Change in International Arbitration, Keynote Address, 3rd CARTAL Conference, 29–30 September 2018” 85(1) CIArb Journal of International Arbitration (2019) 98. jQuery("#footnote_plugin_tooltip_5367_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Such a change is prompted by the increase in the complexity of financial products that give rise to disputes in the modern world of finance, in particular within the context of cross-border swaps and derivatives transactions. Some jurisdictions have established arbitration centres dedicated to finance arbitration. These include most importantly the London City Dispute Panel, Euroarbitration and P.R.I.M.E. Finance (the Panel of Recognised International Market Experts in Finance). A variation of the theme are existing arbitration centres that branch out into finance arbitration-specific products by offering a specific set of rules for application in finance arbitrations.

Along the same lines, financial and legal concerns arise in the world of cryptocurrencies and dispute resolution. The issue of how cryptocurrencies can be used as a means to attract foreign investors and whether investment arbitration could be the way of settling disputes relating to central bank digital currency triggers a need for further evolution. Santiago Rodriguez Senior acknowledges that digital currencies are an emerging market, and develop some of the benefits they possess over the use of fiat currencies.4) Santiago E Rodriguez Senior, “May Central Bank Digital Currencies Become a Tool for Hostile States to Avoid Investor-State Arbitration?” 85(1) CIArb Journal of International Arbitration (2019) 24. jQuery("#footnote_plugin_tooltip_5367_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, there is a growing discussion among states of whether to adopt their own form of digital currency, and how states with hostile reputations towards foreign investors will use these digital currencies as a new way to attract foreign investment, but also to limit their sovereign immunity. What can be said with certainty is that we are entering into a new revolution in humanity’s history, the tech revolution. Technologies such as blockchain and cryptocurrencies will reshape our understanding of the financial industry within the coming years.

In whichever way someone views development in arbitration, the underlying force triggering such change is, inevitably, the way arbitration users and arbitration viewers assess its functions. The continuously emerging needs of this dispute resolution field are clearly connected to economic, legal and political concerns that strive for an effective response.

References   [ + ]

1. ↑ Published in CIArb’s Academic Journal: International Journal of Arbitration, Mediation and Dispute Management. The Journal welcomes the submission of articles for publication (see here the guidelines for submissions) 2, 3. ↑ Gordon Blanke, “Winds of Change in International Arbitration, Keynote Address, 3rd CARTAL Conference, 29–30 September 2018” 85(1) CIArb Journal of International Arbitration (2019) 98. 4. ↑ Santiago E Rodriguez Senior, “May Central Bank Digital Currencies Become a Tool for Hostile States to Avoid Investor-State Arbitration?” 85(1) CIArb Journal of International Arbitration (2019) 24. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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2018 In Review: Arbitration Postcards from Latin America

Thu, 2019-01-31 16:05

Gloria Alvarez (Associate Editor), Daniela Páez-Salgado (Assistant Editor for Latin America) and Enrique Jaramillo (Assistant Editor for Latin America)

 

 

 

 

[Source:Google]

In this post the Kluwer Arbitration Blog’s Latin American editorial team (Associate Editor Gloria Alvarez and Assistant Editors Daniela Páez  and Enrique Jaramillo) joins us in an adventure to reflect on the Blog’s 2018 coverage of arbitration developments in the region.

First, it is worth recapping the environment and circumstances that make Latin America ripe for international arbitration development and innovation: not only does Latin America serves as home to thought leaders of the arbitration community, it has also been intimately involved in shaping international arbitration. Written submissions, oral advocacy and taking of evidence are some of the areas where Latin American disputes spice up international arbitration. Moreover, Latin America nations embody a strong civil procedure education and seek to protect their sovereign resources and powers, both of which have undeniably shaped the way the international community understands and digests international arbitration, especially the reception to arbitration of the judiciary in national courts (see for example Comissa v Pemex).

In terms of economic opportunities, Latin America continues to experience an energy revolution. Around a quarter of Latin America’s energy supply comes from renewable sources, including hydropower and bioenergy. An extraordinary example is Costa Rica, which currently generates more than 99% of its electricity using five different renewable sources. Bolivia  and Ecuador’s recent denunciations of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), Brazil, Mexico and Colombia’s hydrocarbons strategies, and the US-Canada-Mexico trade negotiations are some of the political changes that have also impacted Latin American arbitration practice. In this context, an interesting development is the impact of the Belt Road Initiative and the role of Chinese Investments in Latin America.

In the last six years, incubators and accelerators for debate have emerged and their strategy has given birth to an active arbitration community. For example, CBAr, ALARB, the ITA Americas Workshop forum, and the ICC Miami Conference. Other innovative and original activities comprise the IASC Arbitration School, Arbitrator Intelligence LatAm Campaign: Entra a la Cancha! and the ICC Brazilian Arbitration Day.  In 2019, Costa Rica will celebrate its 10th edition of the International Arbitration Congress: CAI Costa Rica  In addition, the Young ITA Mentorship Programme, the Young ICCA Mentoring Programme and ICC YAF Latin American Chapter have opened the door for young practitioners from all over the world, including Latin America. Further, the ICC continues with its strong commitment of regional coverage; in only one year their new Sao Paulo Office has registered 40 new cases. Paris and London-based arbitration law firms are also hubs dealing with Latin American matters. New emerging fora have been actively promoting the debate, for example the CERSA Conferences on Topical Issues in ISDS: Latin America and The Arbitration Station has recently produced a podcast episode called The LatAm Holiday Special, which discusses regional developments.

Focusing now on 2018, there is no doubt that this past year involved a number of important developments in commercial and investment arbitration.

Investment Arbitration: Mexico is Playing for Keeps

In July 2018, Mexico ratified the ICSID Convention and the instrument formally came into force in August 2018. Mexico’s addition to ICSID enhances the country’s obligations to protect foreign investment in Mexico and reflects its commitment towards international arbitration as a means to resolve investor-state disputes.

In November 2018, Mexico and its North American partners signed the United States-Mexico-Canada Agreement (USMCA) during a G-20 summit in Buenos Aires. Before the USMCA enters into force, the treaty still has to follow domestic procedures for its ratification, which under Article 76(I) of Mexico’s Constitution, means approval by the Senate. The USMCA eliminates investor-state arbitration between the U.S. and Canada, while allowing investor-state arbitration between the U.S. and Mexico. However, USMCA’s provisions are more restrictive than those found in NAFTA’s Chapter Eleven. Specifically, the USMCA orders investors to file claims in national courts first, and then wait 30 months before initiating arbitration. This restriction would not apply to investors with a contract with the government relating to a “covered sector”, e.g. oil and gas, or power generation. USMCA’s substantive provisions also differ from NAFTA’s in significant ways, by providing that  the “most favored nation” (MFN) clause cannot be used to import substantive or arbitration provisions from other treaties.

Ecuador Wants to Get Back in the Saddle

As of June 2018, all Bilateral Investment Treaties (BITs) between Ecuador and other states officially expired. Due to their survival clauses, they continue to protect certain pre-existing investments for a number of years into the future. This state of affairs is the result of the country’s somewhat historical crusade against investor-state dispute settlement (ISDS), which also included its denunciation of the ICSID Convention. Ecuador’s new administration, however, has endeavored to reinstate protection to foreign investment through the promotion of a new Model Bilateral Investment Agreement (BIA). As observed by one of our authors, the BIA differs from the former BITs on a number of issues ranging from the definition of covered investment, restrictions on violations to fair and equitable treatment (FET), exclusion of indirect expropriation, and the proposed forum for investor-state disputes.

Argentina Adopted a New International Commercial Arbitration Act

In July 2018, Argentina passed the Ley de Arbitraje Comercial Internacional. One of our authors discussed Argentina’s decision to adopt the UNCITRAL Model Law with some modifications. For example, the Argentinian Arbitration Act takes a conservative approach in terms of the form of the arbitration agreement and requires that the agreement be in writing, excluding the possibility for it to be concluded orally or by any other means. Another author of the Blog highlighted that the Act provides for a broad interpretation of the meaning of ‘commercial’, which includes every relationship, contractual or not, completely or mostly governed by private law. It further orders that, in case of doubt, the commercial characterization of the relationship should prevail.

Furthermore, in late 2018, the Blog reported that a friendly-arbitration judgement was handed down applying the new Argentinian Arbitration Act.

Brazil Continues to be the Most Active Arbitration Jurisdiction in Latin America

At the beginning of 2018, one of the Blog’s authors warned us to keep an eye on the Abengoa case. In May 2018, our authors reported to the Blog on the Rio de Janeiro Statute Decree No. 46.245/2018. This Statute provides that all entities owned by the State of Rio de Janeiro may participate in arbitral proceedings.

Brazil also continued to be active at the legislative level, entering into a Cooperation and Facilitation Investment Agreement with Chile which offers, among others, a set of substantive investment protections and arbitration as the mechanism to resolve disputes (covered on the Blog here and here).

The judiciary was also active and gave some clarity regarding the debate on the ‘extension’ of arbitration agreements. KAB reported that the Brazilian Superior Court of Justice (SCJ) recently considered the issue in disputes involving groups of contracts between the same parties. The SCJ ruled in favor of the ‘extension’ of the arbitration agreement contained in the main contract to its ancillary contracts in a multi-contract bank loan operation.

Lastly, the Blog discussed a recent judgement from the Appellate Court of São Paulo, which ruled on a matter related to a franchising contract. In this case, the Court dismissed the formal requirements of arbitration clauses in consumer contracts. Our author highlighted the importance of this decision about the formal requirements of arbitration clauses in franchising contracts and concluded that it reflects a more liberal approach in favor of arbitration agreements.

Uruguay Enacted its First Ever International Commercial Arbitration Act

In July 2018, 14 years after its first attempt to pass a commercial arbitration law, Uruguay’s Congress enacted its first International Commercial Arbitration Act.  Similar to Argentina’s reform discussed above, this Act largely incorporates UNCITRAL Model Law‘s provisions.  This is a major development for the country, given that arbitration, prior to the Act’s enactment, was governed by the provisions of the General Procedure Code of the country. Our authors expressed their optimism and predicted the favorable impact on domestic and international arbitration in Uruguay.

Conclusion

The developments discussed here reflect on the openness to and standardization of the use of arbitration in Latin America. We are sure that Latin America will continue to experience growth in the international arbitration sphere in 2019 and beyond.

We take this opportunity to encourage our readers to participate in the discussions and to submit their contributions at [email protected]

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Defending and Promoting Arbitration: Make it Simple!

Wed, 2019-01-30 21:22

Jalal El Ahdab

Over the last couple of decades, arbitration, its practical aspects, but also its very notion, have faced severe attacks from a variety of critics: politicians, members of civil society, users, etc. While arbitration practitioners are actively tackling many areas of reform, the majority of these denunciations appear, for the most part, biased and overly simplistic. Yet, these critiques have pervaded the public discourse, probably due to a lack of effort to educate, convey, and promote the spirit of arbitration. In sum, the general opinion on this unfamiliar form of justice is all the more biased given how little is known about it.

This failure to adequately educate the uninitiated has led many to see this process as inaccessible, as a system only in place for high-level or very technical disputes. Even when setting aside cost considerations, this layer of complexity has further burdened the perception that arbitration is primarily designed to cater to the elite, accessible only to a privileged few. Meanwhile, discussions about arbitration are generally (and rightly so given the wealth of topics to address) academic and abstract, and therefore less accessible to the general public. In light of these circumstances it seemed necessary to bring the debate into other spheres, through a different medium than dense and lengthy articles, in order to popularize and simplify the debate. The point is, when asked, “What exactly is arbitration?”, to avoid answering: “Well, it’s complicated.” Thus, to fill an obvious gap for which we, as arbitration practitioners, may bear some responsibility, one approach could be to stop convincing and speaking to ourselves and perhaps be less elitist and more … user-friendly.

Although far from being the first to do so, I had the idea of creating a short animation, spanning less than 10 mins, with the aim of connecting with non-practitioners, as though I were explaining my interest in arbitration to a relative, such as my grandmother or my daughter. Given the habits of consumption and communication now prevalent today, it seemed natural to explore these new avenues, by using online videos to offer a more user-friendly introduction to what should paradoxically be perceived as a modern form of dispute resolution. The arbitration world has already understood the power of using audio-visual tools to connect and communicate ideas. This is demonstrated, for example, by the training video that was released by the Singapore International Arbitration Centre (SIAC), which offers a step-by-step breakdown of an arbitration under the institution’s Rules. Of course, there is also technology, such as video conferencing, recommended by some ICC Reports for the sake of efficiency, with even some discussion about the specific legal issues that that may arise. Setting aside the modern technological means for now, what about the substance?

The increasingly harsh condemnation of arbitration calls for a response centered on the basics: a clear explanation of the process and its objective pros and cons. This effort must be addressed not only to the general public, but also to less-knowledgeable legal practitioners. By increasing awareness and curiosity about arbitration, the hope is to further the development and interest in this process while also addressing its failings. In fact, the popularization of specialized research has been shown to increase its academic value. The danger, therefore, lies is sitting back and leaving it to those who, rightly or wrongly, have adopted an anti-arbitration stance.

These pitfalls, well-founded or not, are familiar to many of us: arbitration is viewed as (too) expensive; lacking in transparency because of its confidentiality; “undemocratic” (in contrast to the judiciary) and a threat to the rule of law, (given the tendency of arbitrators to apply, sometimes unpredictably, rules of equity). Finally, in the case of investor-state arbitration, the process is criticized as being  overly protective of the interests of investors from capital-exporting countries, to the detriment of developing, capital-importing countries.

Naturally, the arbitration community, mindful of the importance of a positive perception of arbitration, is now actively involved in improving it. For instance, there is a genuine attempt to achieve greater diversity – whether in terms of gender, culture, race or age – in the making of arbitral tribunals, to promote the global reach of arbitration, reinforce its legitimacy, and popularize the tool  in other spheres. Similarly, investor-state arbitration, which bears the brunt of most attacks, is actively being reformed, as evidenced by the forthcoming revision of the ICSID Rules, the current round of meetings of Working Group III of the UNCITRAL, and the trend in the EU to reduce the potency of intra-EU BITs.

Despite the criticism, arbitration remains the preferred method of dispute resolution for international commercial disputes, as shown by the overwhelming majority of respondents in the International Arbitration Survey performed by the Queen Mary University.

The reasons for this preference are mostly positive. Reasons that are cited include:  a greater enforceability of the awards through the New York Convention, ratified by most States worldwide; the confidentiality of the process; the ability to select specialized arbitrators adapted to the subject-matter at hand; and the flexibility of the proceedings. The conclusion that the court system is ill-equipped to meet the needs of international commercial disputes is certainly another important factor in the recourse to arbitration. In response to this, some jurisdictions, such as Singapore and France, have recognized the importance of adapting the judiciary system to address the specific nature of these disputes. To provide a recent example, France has recently responded by creating international commercial chambers within its court system. This trend – whether it will pay off or not – shows the general absence, outside of arbitration, of a specific justice system for international disputes.

Finally, as a neutral forum, arbitration has powerful potential in handling critical conflicts. It possesses the unique ability to remove sensitive matters from the public debate and provide the circumstances to facilitate a calmer discussion between the parties, whether at the State level, such as with diplomatic matters concerning border conflicts, or in commercial matters subject to political forces. As we were recently reminded by a remarkable contribution from the Stockholm Chamber of Commerce (SCC), the role of arbitration as a means to promote peace cannot be underestimated.

Arbitration is inherently a just and fair process, and this powerful message is worth being conveyed in simple terms.

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Court Support for Arbitration In South Africa: Knowing Where You Stand

Wed, 2019-01-30 02:15

Jonathan Ripley-Evans and Fiorella Noriega Del Valle

Herbert Smith Freehills

In December 2017 South Africa brought into law its first piece of legislation dedicated to international arbitration, the aptly named International Arbitration Act of 2017 (the New Act).

 

The New Act

The New Act incorporates the provisions of the UNCITRAL Model Law and further aligns the country’s national law with the New York Convention. The legislation has been welcomed as a necessary step for South Africa to become the continent’s leading arbitral hub. Rather interestingly, in an effort to stimulate the growth of ADR, parties can also now choose to refer their disputes to conciliation using the UNCITRAL Conciliation Rules.

But the New Act does not stop at mere adoption of the UNCITRAL texts and modernisation of the old regime.  Ambitious refinements to the Model Law (which is incorporated as Schedule 1 to the New Act), seek to advance certain matters into what many may regard as relatively unchartered waters. One such ambitious development relates to court ordered interim measures.

 

Interim measures: a new approach

It is widely accepted that the availability of court ordered interim measures in support of arbitration is key. However, the extent of court intervention, supervision or control is often a heated topic of debate and in jurisdictions like South Africa, where court ordered interim measures in support of international arbitration are not supported by a long history of judicial precedent, legislation detailing the powers of the court can be extremely useful.

There appears to be a significant global trend of courts showing deference to the tribunal where possible. The English court, for example, can only provide urgent relief to the extent that the arbitral tribunal (or any emergency arbitrator) has no power, or is unable to act. If the English court does intervene, it will only do so in a manner which causes the least disruption possible to the arbitral process.1) Gerald Metals SA v The Trustees of the Timis Trust and others [2016] EWHC 2327 jQuery("#footnote_plugin_tooltip_1288_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1288_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In South Africa, both tribunal and court ordered interim measures are governed by Article 17 of Schedule 1 to the New Act. As is well known, the template wording of the Model Law offers a rather vanilla proposal for court ordered interim measures. South Africa, acknowledging that its judiciary has not actively participated in the global development of this area of law, elected to remove some of the ambiguity surrounding the wording of Article 17J by prescribing exactly what the local courts can and cannot do. This move is particularly significant given the wide jurisdiction historically afforded to the local South African High Courts, particularly in relation to all forms of court ordered interim relief.

Article 17J of the New Act details the circumstances under which a court may grant interim measures, but such measures are only available when 1) a tribunal has not yet been appointed and the matter is urgent, or 2) the tribunal is not competent to grant the order, or 3) the urgency of the matter makes it impractical to seek the relief from the tribunal.  This restriction of the jurisdiction of the courts may not sound particularly surprising to the international arbitration community but may well be perceived as fairly revolutionary within the local community.

 

Third parties

Under the legislation that governed international arbitration before the introduction of the New Act, the South African courts enjoyed an extremely wide jurisdiction to intervene (and interfere) in all arbitrations conducted in South Africa. Provided the affected third party fell within the jurisdiction of the court, there was seldom an issue.

The court’s jurisdiction in respect of interim measures under the New Act has not yet been considered by the South African courts. It appears that, provided the court holds jurisdiction over an affected third party, interim relief should be available. This would make perfect sense as an arbitrator is normally unable to grant relief which affects the rights of a third party in the absence of consent.

It appears that the English courts are somewhat reluctant to exercise jurisdiction over third parties under Section 44 of the English Arbitration Act in relation to court ordered interim measures.  Hong Kong courts appear more comfortable granting interim measures affecting third parties, but have stressed that such measures should not be granted lightly.

The English courts2) DTEK Trading SA v Morozov and another [2017] EWHC 94 (Comm) at page 640 jQuery("#footnote_plugin_tooltip_1288_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1288_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); have acknowledged that their somewhat narrow approach in relation to court ordered interim measures may leave a “lacuna” in the law. The South African courts should not face the same difficulty under the provisions of the New Act, provided that they are correctly applied. Consider the situation where the interests of a non-arbitrating party are likely to be affected by an interim measure, for example where a bank is involved as either the holder of funds or the issuer of a guarantee. Here court assistance is not only appropriate but required.

South Africa did not incorporate the standard wording of Article 17J of the Model Law which would have provided for local procedural law to apply to an application for an interim measure. This is significant, particularly when considering the obligation of the courts to interpret Article 17J (as adopted) in conformity with the general principles on which the Law is based (Article 2A). As a result, technical objections based upon transgressions of the Uniform Rules of Court should not feature in applications for interim measures under the New Act.

 

You only get one shot

In a move which some on the continent may regard as the boldest under the New Act, Article 17J(3) prescribes that a decision of the court in relation to any application for an interim measure under Article 17J, shall not be subject to an appeal.

This is not unique, as other jurisdictions including Hong Kong take the same approach. In other jurisdictions, including the English courts, rights of appeal exist but are in practice relatively rarely exercised. The lack of a right of appeal is not particularly shocking in the international arbitration context, given that rights of appeal of arbitral awards themselves are significantly curtailed under the rules of some of the major arbitral institutions (for example, the LCIA and ICC Rules prevent any appeal to the extent allowable under the relevant law). However, clients from some jurisdictions may consider this lack of the right to appeal in respect of interim measures to be a deprivation of a fundamental right.

This provision of the New Act does not appear vulnerable to a constitutional challenge. South African law would be applicable to such a challenge, and although the South African Constitution secures everyone’s right of access to courts, it does not expressly secure rights of appeal to higher courts. A party is always entitled to approach the court for interim relief, but under the New Act, that is where the process ends.

Article 17J prescribes that the New Act will apply, irrespective of whether the juridical seat is in the territory of South Africa. This means that an application under the New Act may follow in the absence of any contractual reference to South Africa whatsoever.

The position becomes even more intriguing when the rights of a third party likely to be affected by the granting or dismissal of an interim order are considered. Is the New Act intended to deprive an unrelated third party of its right of appeal which it ordinarily would have held, in the absence of an arbitration agreement?

The courts have not yet considered this question but, provided the New Act applies, the court is bound to settle the matter in conformity with general principles of international law. Where the relief is sought pending or pursuant to arbitration proceedings, the South African court’s decision should not be subject to any appeal.

This may be problematic in certain circumstances. For example, where an applicant applies to court under the New Act seeking to prevent payment by a bank (non-arbitrating party) under a performance guarantee where a fraudulent call on the guarantee is alleged. Is the bank deprived of a right of appeal which would otherwise have been available?

It appears that the answer lies in whether the requested interim measure is in fact a measure pursuant to or in support of arbitration. If the requested relief is to apply pending the determination of the dispute, then it would appear to be an application correctly made under the New Act and no appeal will be possible.

On the other hand, if the fraud is truly a fraud committed during the call on the guarantee, only the court can determine this question.  Such a determination should therefore not be regarded as being pursuant to or pending the arbitration and the normal rules of South African court procedure should apply.

There is no doubt that, despite some local concerns about appeal rights, the New Act is a bold display of support for international arbitration and will provide a significant and helpful measure of certainty for parties who choose to arbitrate in South Africa. The measures aimed at reducing the scope of court interference in arbitral proceedings will be welcomed by the global community, who will not be concerned by the restriction of appeal rights, which should help reduce costs and delay.

References   [ + ]

1. ↑ Gerald Metals SA v The Trustees of the Timis Trust and others [2016] EWHC 2327 2. ↑ DTEK Trading SA v Morozov and another [2017] EWHC 94 (Comm) at page 640 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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CJEU Opinion 1/17 – AG Bot Concludes that CETA’s Investment Court System is Compatible with EU Law

Tue, 2019-01-29 05:00

Guillaume Croisant

Introduction

On 7 September 2017, Belgium requested the opinion of the Court of Justice of the European Union (“CJEU”) on the compatibility with EU law of the Investment Court System (“ICS”) provided for by the Comprehensive Economic and Trade Agreement between the EU and Canada (“CETA”).

In his much anticipated opinion rendered today, Advocate General (“AG”) Bot considers that this mechanism for the settlement of investor-State disputes is compatible with the EU Treaties and the EU Charter of Fundamental Rights.

Although the CJEU usually follows the opinion of its AGs, the divergence of views between the Court and AG Wathelet in Achmea was a striking example that this pattern admits exceptions. In a dictum of Achmea, the CJEU held that the EU has competence to conclude agreements establishing an international court “provided that the autonomy of the EU and its legal order is respected”.

 

Background

The inclusion of Investment Court Systems in EU free trade agreements

Since 2009, by virtue of the Lisbon Treaty, the external trade policy (including direct investment) has become an exclusive competence of the EU. As a result, Member States have been precluded from entering into new free trade agreements (“FTAs”), which have been concluded by the EU since then.

As it is well known, the use of Investor-State Dispute Settlement (“ISDS”) mechanisms has been seen by certain sections of the civil society, and by the EU itself (see its December 2017 submission to the Working Group III of UNCITRAL on the ISDS Reform), as inappropriate for disputes involving States because of their alleged lack of transparency, legitimacy, consistency as well as the absence of sufficient review of the arbitral tribunals’ decisions.

In order to address these criticisms, the EU’s approach has been to attempt to institutionalise the resolution of investment disputes in the FTAs it concludes, through the inclusion of an Investment Court System (“ICS”). Such a mechanism is now provided for by most of the EU FTAs, including with Canada (CETA), Singapore (the EUSFTA) and Vietnam (the EUVFTA).

In a nutshell, the ICS provides for a break from the ad hoc arbitration system to a permanent and institutionalised court, whose members (subject to strict independence and impartiality requirements) are appointed in advance by the States parties to the treaty instead of being appointed on a case-by-case basis by the investor and the responding State. The EU FTAs also contain appellate bodies, as opposed to traditional investment arbitration mechanisms which only provide for one instance on the merits. Subject to the mandatory provisions of the FTAs, investors’ claims may still be submitted according to the ICSID or UNICTRAL Arbitration Rules (or any other rules on agreement of the parties) whilst the ICSID Secretary General and Secretariat remain entrusted with administrative tasks.

 

Belgium’s request to the CJEU

This new approach has not overcome the general public’s mistrust for investment arbitration. The ICS provided for by CETA, in particular, gave rise to heated debates in the framework of the conclusion of the treaty. This point was one of the core reasons put forward by some of Belgium’s federated entities, led by the Walloon Region, for refusing to agree to the signature of the treaty by the Belgian federal Government. If the Walloon Region finally surrendered, after intense political pressure, it was subject to an agreement with the federal State and the other Belgian federated entities that Belgium would refer the validity of the CETA’s ICS to the CJEU.

This was done on 7 September 2017, when Belgium requested the CJEU to render an opinion on the compatibility of the CETA’s ICS with EU law – in particular with (i) the exclusive competence of the CJEU to provide the definitive interpretation of EU law, (ii) the general principle of equality, (iii) the requirement that EU law is effective, and (iv) the right to an independent and impartial judiciary – while specifying that Belgium “does not take any position itself regarding [those] questions”.

CETA entered into force provisionally on 21 September 2017, with the exclusion of the ICS (among other controversial provisions).

 

Towards a Multilateral Investment Court?

Shortly after Belgium’s request, on 13 September 2017, the European Commission introduced a recommendation for a Council decision authorising the opening of negotiations for a convention establishing a multilateral court for the settlement of investment disputes (the “Multilateral Investment Court” or “MIC”), with the aim of “having one, multilateral institution to rule on investment disputes covered by all the bilateral agreements in place” rather than one bilateral investment court for each FTA.

The EU Council formally gave its agreement on 20 March 2018, though the possibility of replacing the various ICSs by a single MIC had already been provided for by CETA, the EUSFTA and the EUVFTA.

International negotiations are taking place in the framework of Working Group III of UNCITRAL, which had identified the setting up of MIC as an “option for reform” of investor-State dispute settlements at the occasion of its 50th session last July. On 18 January 2019, the EU and its Member States submitted two papers to the working group. The first paper sets out in more detail the EU’s proposal of establishing a MIC whilst the second paper proposes a work plan for the process of the working group. It remains to be seen whether the European Union will gather sufficient support from its trading partners.

 

Potential impact of Achmea?

In its seminal Achmea ruling (Case C-284/16 of 5 March 2018), which has been extensively discussed on this blog, the CJEU ruled that: “[…] according to settled case-law of the Court, an international agreement providing for the establishment of a court responsible for the interpretation of its provisions and whose decisions are binding on the institutions, including the Court of Justice, is not in principle incompatible with EU law. The competence of the EU in the field of international relations and its capacity to conclude international agreements necessarily entail the power to submit to the decisions of a court which is created or designated by such agreements as regards the interpretation and application of their provisions, provided that the autonomy of the EU and its legal order is respected” (§57).

 

AG Bot’s opinion

Principle of autonomy of EU law (§§39-184)

Against this background, AG Bot opines that CETA’s ICS does not jeopardise the principle of autonomy of EU law and the CJEU’s exclusive jurisdiction over its definitive interpretation. As it could have been expected, this aspect of Belgium’s request constitutes the crux of the AG’s opinion.

After having underlined that the preservation of the autonomy of the EU legal order is “not a synonym for autarchy” (§59), AG Bot stressed that the potential asymmetry between the substantive and procedural level of investment protection existing within the EU and within third State “necessitates the negotiation of a common standard of substantive and procedural protection” (§87), including a neutral dispute settlement mechanism. Even if EU law could, arguably, offer a sufficient level of protection to foreign investors who invest in the EU, such a reciprocal mechanism is necessary in order to ensure the protection of EU investors when they invest in third States. This conclusion would be supported by the absence of direct effect of CETA, which precludes domestic courts from applying the standards of protection set out in the treaty.

In the second step of his reasoning, AG Bot distinguishes CETA’s ICS with the CJEU’s ruling in Achmea. He argues that the premises guiding the line of reasoning would be different since, in this latter case, the court’s approach would have been “primarily guided by the idea that the judicial system of the European Union, in so far as it is based on mutual trust and sincere cooperation between Member States, is inherently incompatible with the possibility of Member States establishing, in their bilateral relations, a parallel dispute settlement mechanism which may concern the interpretation and application of EU law” (§105), whilst the relationship between the EU and Canada (or other third States) does not rest on the same principles.

AG Bot further considers that CETA provides sufficient guarantees in order to preserve the exclusive jurisdiction of the Court over the definitive interpretation of EU law since the applicable law before the CETA Tribunal consists exclusively of the relevant provisions of that agreement as interpreted in accordance with international law, excluding the domestic law of the Member States and EU law, which can only be taken into account by that Tribunal as a matter of fact (in particular to take account of legitimate objectives in the public interest). In addition, in the few instances where the CETA Tribunal would interpret EU law, it would be “bound by the interpretation of EU law given by the Court, which Article 8.31.2 of the CETA requires it to follow, whereas neither the Court, nor the institutions of the European Union, nor the national courts or authorities are bound by the interpretation of EU law made by the Tribunal” (§138). The decisions of the CETA Tribunal are also subject to an appellate body, which offers additional guarantees that the correct interpretation of EU law would be applied.

Finally, AG Bot underscores that CETA’s ICS does not affect the role of EU national courts of ensuring the effective application of EU law, nor the power (or obligation) of those courts to request a preliminary ruling from the CJEU since it “does not restrict the substantive rights enjoyed by foreign investors under internal EU law” nor “does it have the effect of limiting the jurisdiction of the Court or of the courts and tribunals of the Member States to hear and determine actions brought with a view to ensuring the observance of such rights as are afforded by internal EU law”.

 

Principle of equal treatment (§§185-213)

A discrimination exists only where persons in relevantly similar situations are treated differently, without objective and reasonable justification. In this case, AG Bots is of the opinion that European investors who invest in Canada are merely in a similar situation with Canadian investors investing in the EU. Their situation cannot be equated to European investors investing within the EU. AG Bot added that “it would, in any event, be wrong to take the view that, given their ability to bring matters before the CETA Tribunal, Canadian undertakings investing in the EU are placed in a preferential situation as compared with EU undertakings investing in the EU. That possibility merely compensates for the fact that the CETA cannot be relied on directly before the domestic courts and tribunals of the Parties” (§205). Finally, the AG indicated that the purpose of encouraging foreign investments in the EU would, in any case, justify a difference of treatment.

 

Principe of effectiveness (§§214-219)

The AG considers that the effectiveness of EU competition law cannot be jeopardised by the CETA Tribunal’s decisions (e.g. by awarding damages equivalent to the amount of fines imposed by the European Commission or a national competition authority). CETA acknowledges that the Parties may take appropriate measures to proscribe anti-competitive behaviours and guarantees their right to regulate in order to achieve legitimate objectives in the public interest.

 

Right to an independent and impartial tribunal (§§220-271)

CETA’s ICS does not breach the right to an independent and impartial tribunal as it merely constitutes an alternative method of dispute settlement, which provides sufficient procedural guarantees (in particular as regards the tribunal members’ remuneration schemes, their appointment and removal, and the rules of ethics that they have to follow).

 

Conclusion

In Achmea, the CJEU rendered its decision roughly 6 months after the publication of the opinion of its AG. Needless to say that the Court’s final say will be impatiently awaited by the EU, its trading partners and the civil society. The CJEU’s opinion is likely to shape the future of extra-EU investment arbitration, as AG Bot highlighted that “what is at issue here is the definition of a model which is consistent with the structural principles of the EU legal order and which, at the same time, may be applied in all commercial agreements between the European Union and third States” (§86). In the meantime, AG Bot’s reasoning briefly set out hereabove is likely to cause much ink to flow.

The principle of autonomy of EU law appears to be the most likely potential stumbling block to the compatibility of the ICS or a future MIC with EU law, in line with the concerns raised by the Court in Achmea. Arguably, an easy way out could be to provide in the EU FTAs (or a potential international convention establishing a MIC) the possibility/obligation for investment courts/their appellate bodies (or a potential MIC) to refer the case to the CJEU, as long as it is deemed compatible with the CJEU’s competences under the EU Treaties. Obviously, such a clause would not merely depend on the willingness of the EU but also on the consent of the other contracting States, which may request a similar arrangement for the definitive interpretation of their domestic law by their supreme/constitutional court. As pointed out by AG Bot, “this would run counter to the purpose of the dispute settlement mechanism, namely to be neutral and independent from the domestic courts and tribunals of the other Party” (§182).

 

The views expressed herein are the author’s only.

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2018 In Review: Recent Revisions of Institutional Rules in Europe – Where Do Europe’s Arbitral Institutions Now Stand Against Global Competition?

Mon, 2019-01-28 22:09

Fabian Bonke (Assistant Editor for Europe)

As worldwide competition amongst arbitral institutions continues, the Europe-based arbitral institutions have, thus far, been able to defend their strong market position. Currently, the International Chamber of Commerce (ICC), with its base in Paris, continues to stand out globally as the most preferred institution by a significant margin (77%). It is followed by the London Court of International Arbitration (LCIA) (51%), and thereafter by the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC) by much smaller percentages of 36% and 27% respectively (see Queen Mary University of London, 2018 International Arbitration Survey 2018 for these statistics). In addition to the above, several Europe-based institutions, although not top-ranked, have established significant recognition and enjoy a relatively high number of submitted disputes, for example, the Stockholm Chamber of Commerce (SCC),  the Swiss Chambers’ Arbitration Institution (SCAI), the Vienna International Arbitral Centre (VIAC) and the German Institution of Arbitration (DIS). Despite this comparatively strong position of the European institutions, it must be noted that the strongest growth in recent years has been accomplished by the Asia-based institution SIAC.

 

In order to remain relevant, the Europe-based institutions have put significant effort into updating their respective arbitral rules. Especially seeing as users continue to evaluate the efficiency of arbitral rules, the key competitive concern for arbitral institutions has become to provide an increasingly time and cost-efficient body of rules.

 

Notably, 2018 saw the first full year where the new 2017 arbitration rules of the ICC had been in use. It was also the year in which several national European arbitral institutions, primarily the DIS in Germany and the VIAC in Austria, updated their arbitral rules. For potential parties to arbitration, it is, therefore, useful to consider the institutional changes that recently occurred.

 

2017 Revision of the ICC Rules

The new ICC Rules, in effect since 1 March 2017, encompassed a number of revisions. As a reaction to the revision of arbitration rules in the various Asian arbitration institutions, the ICC update was also a means to maintain its competitive edge. As such, it introduced measures to increase efficiency such as the reduction of time limits (e.g., Article 23(2) on the time within which to sign the terms of reference), and the new expedited procedure (Article 30).

 

Looking at the most recent statistics compiled and published by the ICC in their 2018 report, there was a general increase in the number of arbitral proceedings since the enforcement of the new rules. With a view to Europe, a 4.8% growth of North and West European parties to arbitration occurred from 2016 to 2017 occurred. In fact, the ICC set globally new statistical records in the year 2017, approving some 512 awards, appointing or confirming 1,488 arbitrators, and ruling on disputes referred by parties originating from 142 countries (ICC Dispute Resolution Bulletin, 2018 Issue 2).

 

Beyond this general success observed in the ICC, specific provisions introduced in the 2017 ICC Rules were also positively received. The significant addition of the expedited procedure provisions, for instance, has made way for 84 submissions requesting expedited procedures. Interestingly, although certain issues have been raised by the legal community about violations of party autonomy caused by inconsistencies with the number of arbitrators (see previously on Kluwer Arbitration Blog), this disadvantage appears to be outweighed by the positive factor of efficiency in the general opinion of the users of arbitration. The new ICC rules of 2017, therefore, appear to have added to the success the ICC enjoys as an institution in Europe. Furthermore, as the rules of different institutions have converged due to the competitiveness of the market and the fight for market share,1) Taddia, “Feature: International Court of Arbitration: World Service.” Law Society Gazette, 9 April 2018. jQuery("#footnote_plugin_tooltip_6446_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6446_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the constant pressure to improve and adapt is as persistent as ever. While the ICC may have been the only major institution with a presence in Europe to reform its arbitration rules in line with industry changes in 2017, other institutions were quick to catch up in 2018.

 

2018 Revisions of DIS and VIAC Rules

As changes occur within the industries that arbitral institutions deal with, the procedures and systems that the institutions deliver must be continually adapted and reformed in order to stay relevant, efficient and practicable. Therefore, in order to strengthen their market position within Europe, two major European arbitration institutions namely the VIAC (see previously on Kluwer Arbitration Blog) and the DIS (see previously on Kluwer Arbitration Blog) each introduced new rules of arbitration. The new VIAC and DIS Rules entered into force on 1 January 2018 and 1 March 2018 respectively. Although each of the rules and the revisions they make are not identical, they do share certain purposes: making the rules more accessible to a wider variety of potential parties to arbitration, aligning the rules with international standards and optimising efficiency.

 

More specifically, the new DIS Rules aim to provide a non-bureaucratically administered and flexible arbitration procedure that caters for a large degree of party autonomy. Rather than a simple revision of the existing regulations, the reformed DIS Rules constitute an entirely new set of regulations. To increase procedural efficiency in terms of lower time and cost expenditure, for instance, several measures were taken. For example, the time limits for completion of certain procedures were shortened (Articles 7, 12, and 37), cost sanctions for delays were introduced (Articles 37 and 33), case management conferences were made mandatory (Articles 27 and Annex 3), and procedure rules regarding the optional expedited proceedings were optimised. Furthermore, taking into account the dangers of contrasting rulings from various tribunals or courts that parties face, the new DIS Rules aim to make the system more amenable to multi-party arbitration (Articles 17-20).

 

Generally, the new DIS Rules have been welcomed as having met the parties’ increasing expectations to be cost and time efficient. However, it has been noted in response to the reform, that while the DIS has amended its rules in line with the international standards, it has maintained certain distinctive characteristics. For instance, the new DIS Rules encourage the arbitrators to promote amicable settlements (Articles 26, 27.4(iii) and 4). This mandate for the arbitrators was deliberately retained and even extended in comparison to the DIS Arbitration Rules of 1998 and reflects the traditional proactive role of domestic judges in jurisdictions like Germany, Switzerland and Austria. Furthermore, while including an expedited procedure like other institutions, under the DIS Rules it is optional and at the parties’ disposal rather than being automatically applied with reference to a value threshold. Despite these modernisations, it remains to be seen if DIS is able to attract more international high-level arbitration cases in the future.

 

Similarly, the new VIAC Rules aim to increase the applicability and effectivity of the rules to modern cases by implementing cost-effective mechanisms. The new VIAC Rules are no longer limited to application in international cases, but are now also relevant to domestic cases, both in arbitration and mediation. Notably, Article 10 explicitly allows for the combination of arbitration and mediation proceedings. Beyond expanding the reach of the rules, other articles delineate time and cost-cutting measures. Articles 16 and 38, for instance, impose an obligation on the arbitrators, parties and party representatives to conduct proceedings in an efficient and cost-effective way. The VIAC Secretary General and arbitral tribunals may take non-compliance into account when making decisions on cost allocation to help to enforce this. Additionally, Article 44 provides that the VIAC Secretary General has the express authority to increase or decrease the arbitrators’ fees depending on the facts of the case. To the same end, Annex 3 provides an amended fee schedule where registration and administrative fees were reduced for lower amounts in dispute and increased for high amounts in dispute.

 

Responses to the VIAC reform have also been generally positive. It has been said that the VIAC has succeeded in bringing its rules “into line with other German-speaking arbitration institutions“ (see Corporate Disputes Magazine Oct-Dec 2018 issue), as well as with other institutions internationally. In doing so it has equally taken a positive step towards maintaining, or perhaps even increasing, its market share.

 

Continuous Adaptation and a View to the Future

As arbitration continues to be a dynamic field of law that experiences ongoing change, the institutional rules must, therefore, be continuously adjusted. The adaptability of institutional rules to the users’ preferences is also key to the success of the arbitral seat since the conduct of arbitration is more determined by the agreed institutional rules which supersede the, otherwise applicable, national arbitration law. According to the 2018 first statistics on the ICC’s new rules of 2017, the ICC seems to have undergone a successful review of its system. The new VIAC and the DIS Rules were the next to update their systems in response to stay relevant as arbitral systems available in Europe, and their success will equally have to be assessed in the upcoming years.

References   [ + ]

1. ↑ Taddia, “Feature: International Court of Arbitration: World Service.” Law Society Gazette, 9 April 2018. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Cognitive Errors and Thinking Aids: Rationalising Choice of Law and Arbitration Clauses

Mon, 2019-01-28 02:15

Gustavo Moser

We often mislead ourselves into believing that, by arriving at a certain contract decision, we have carefully considered all available options, weighed up the pros and cons of each attribute dispassionately, and selected the most favourable outcome, i.e. the one which maximises our welfare in the transaction.

Regretfully, however, we are seldom cognisant of the rational components that form part of our contract decisions. In fact, we are rather often oblivious to the myriad of factors that a bad choice may entail and our ‘gut feeling’ can frequently lead us astray. Most of the time, we are gathering information that simply justifies our pre-existing beliefs or confirming our choices, rather than helping us to effectively make a decision (confirmation bias).

Whilst it is true that some of us can sway towards changes more easily, most of us would prefer remaining in our comfort zone and holding on to what we are most familiar with. Yet being curious and adventurous is part of our evolutionary process. How would this behaviour then play out in the choice of a governing contract law?

Cognitive biases and ‘noise’1)For Daniel Kahneman, noise equals to randomness or variability within individuals, for which Kahneman attributes the status of an independent source of error along with bias. Kanheman compares noise with arrows that miss the mark randomly, while bias misses the mark consistently. jQuery("#footnote_plugin_tooltip_3297_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3297_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); are errors that can also influence the decision-making process in relation to choosing and applying a governing contract law. While we are all susceptible to such ‘threats’, we are able to ‘outsmart’ them through the use of effective systems and controls, frameworks and rules of thumb by which more rational decisions may be achieved, as discussed further below.

Choice of law has been the subject of numerous works and studies worldwide, with a particular and often anachronistic twist on ‘searching for the applicable law’. A matter of disquiet for few stakeholders, the focus of these earlier studies was never placed on how this choice is made and, more importantly, why parties opt for a particular governing contract law.

As surprising as it may sound, negotiators often opt for a law or rules of law that may be the result of a previous experience, such as a successful deal, without further deliberation. Parties may thus simply attribute a ‘tag’ to this experience and evaluate it according to outcomes achieved in the past. Nonetheless, these evaluations may not always be accurate and can be clouded by emotions, thereby raising a number of questions:

  • Are there rational and non-rational elements involved in this choice?
  • Does it depend on the context and external stimuli?
  • Do emotions and cognitive biases play any role in the choice?
  • Can emotions and cognitive biases cloud or enlighten the judgment of these choices? If so, to what extent?
  • How can we avoid, control or minimise the effects of these factors?
  • How can parties seek to influence and improve choice of governing contract law?

Contemporaneous legal literature2) See, Gustavo Moser, Rethinking Choice of Law in Cross Border Sales, Eleven International Publishing, 2018. jQuery("#footnote_plugin_tooltip_3297_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3297_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); offers a comparative analysis of a number of empirical efforts aimed at investigating how we deal with uncertainty when making choice of law decisions, including shedding light on the above-listed questions. A key factor discussed in legal literature is how parties, negotiators and party advisors may and should execute a cost-benefit analysis in cross-border contracts – by anticipating behaviour, advanced tactics, and possible legal battles. Cognitive errors, however, are likely to play a significant role in the real-life decision-making processes, and this may lead to unwelcome surprises and inefficient decisions.

How can we avoid these errors? It is inevitable that we, first and foremost, understand how biases and ‘noise’ come to be, i.e. the mental shortcuts that individuals take and assess why this occurs. This is instrumental in better understanding (and possibly anticipating) the risks to which a party, negotiator and party counsel are routinely exposed to in decision-making contexts. In addition, awareness of these risks represents ‘warning flags’ which signal to contracting parties that they might be falling into a cognitive trap and neglecting a ‘better deal’.

Parties should also make use of contract governance structures, i.e. thinking aids to ‘debias’ and establish an emotional distance from governing contract law decisions. One such mechanism is the use of metrics to achieve more context-specific business decisions. This would involve a list of the most desirable key aspects in a given governing law or rules of law more generally. The list could be categorised by contract type and/or contractor’s position (e.g. supplier or buyer), and a system of attribution of points (e.g. 1-5) which would add up to elect the highest value, or provide a ranking which could be compared with a corresponding (pre-existing) list of matching potential governing contract laws. At this point, a decision about the applicable law should have reached a better level of rationality (cognitive errors may however emerge if the lists are too narrowly constrained).

The above structure could work the other way around: by establishing that provisions a, b, and c are undesirable and so if a potential governing law contemplates those factors, it should be eliminated from the pool of choices.  A similar mechanism would likewise apply to jurisdiction and arbitration clauses. For example, a list of key factors most appealing in institutional or ad hoc arbitrations, or even a mechanism to maximise the expected utility in the choice of the arbitral institution.

To conclude, parties, negotiators, party advisors and adjudicators should make use of contract governance structures to assist them to make more effective, informed and commercially sensible choices. At the same time, such awareness would shield parties, negotiators, party advisors and adjudicators from the cognitive biases and distracting ‘noise’ that can often cloud rational and efficient outcomes.  These structures would be paramount to negotiators – party or party advisor, who will come across a number of considerations (legal and economic) while deciding which law or rules of law should or should not apply to their international contracts. Contract governance structures should, nonetheless, also appeal to adjudicators – in particular judges and arbitrators – who might be called upon to apply or determine the law or rules of law to govern a given cross-border contract. We hope that these thinking aids will assist stakeholders more generally to better understand what the contract provisions mean(t) and to give commercial effect to the transaction.

References   [ + ]

1. ↑ For Daniel Kahneman, noise equals to randomness or variability within individuals, for which Kahneman attributes the status of an independent source of error along with bias. Kanheman compares noise with arrows that miss the mark randomly, while bias misses the mark consistently. 2. ↑ See, Gustavo Moser, Rethinking Choice of Law in Cross Border Sales, Eleven International Publishing, 2018. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The (Final?) Death of Intra-EU Investor-State Arbitration

Sun, 2019-01-27 23:58

Richard Power

Clyde & Co.

At the risk of mixing metaphors, if Achmea (Slovak Republic v Achmea Case C-284/16) killed intra-EU investor-state arbitration, and the European Commission’s Communication COM(2018)547/2 of 19 July 2018 knocked the head off its zombie corpse, then the Declaration of the Representatives of the Governments of the Member States of 15 January 2019 on the legal consequences of the Judgment of the Court of Justice in Achmea and on Investment Protection in the European Union drove a stake through its heart. In short, it would appear that intra-EU investor-state arbitration is finally dead.

Or is it?

 

Background to the Declarations

In Achmea the Court of Justice of the EU (CJEU) held that an arbitration clause in a bilateral investment treaty (BIT) between two EU Member States was incompatible with EU law.  In the European Commission’s (EC) Communication 19 July 2018 (the Communication), the EC stated that:

  • EU law provides a comprehensive and exclusive system for the protection of intra-EU investments;
  • Disputes must be litigated in the courts of the appropriate Member State;
  • Intra-EU BITs themselves are contrary to EU law in that they are discriminatory and, by incorporating arbitration clauses, they “take away from the national judiciary litigation concerning national measures and involving EU law…[entrusting this] to private arbitrators, who cannot properly apply EU law” as they cannot make references to the CJEU; and
  • Achmea applies equally to Energy Charter Treaty (ECT) arbitrations – “Given the primacy of [EU] law,” Article 26 ECT (providing for investor-state arbitration) is “inapplicable”. The EU’s participation in the ECT only “created rights and obligations between the EU and third countries”.

Some have suggested that this is actually a statement of what the EC wants the position to be, but which ignores legally-binding obligations which Member States, and the EU itself, have undertaken. Indeed, subsequent to the Communication, a number of tribunals have held that Achmea does not apply to ECT arbitrations,1) Masdar Solar & Wind Cooperatief U.A. v Spain ICSID Case No. ARB/14/; Antin Infrastructure v Spain ICSID Case No. ARB/13/31; Vattenfall AB and others v Federal Republic of Germany ICSID Case No. ARB/12/12; and Greentech Energy Systems A/S and Others v Italy SCC Arbitration V (2015/095) jQuery("#footnote_plugin_tooltip_9326_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9326_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); because the EU itself is a signatory to the ECT and there is no carve-out for intra-EU disputes. Similarly, it has been held that Achmea does not apply to ICSID arbitrations, given the fact that Articles 53 and 54 of the ICSID Convention (which pre-dates the EU constitutional treaties) provides that an ICSID award is binding on a signatory state, and must be recognised and enforced as if it were a final judgment of signatory state’s national court.

 

The Declarations of 15 January 2019 (the Declarations)

In the Declarations, however, Member State governments have effectively undertaken to give practical force to the views in the Communication.  Broadly speaking, the Declarations adopt the reasoning of the Communication as to the meaning and impact of Achmea. The main Declaration, signed by 22 Member States, reasons that Achmea also applies to ECT arbitrations because:

…international agreements concluded by the [EU], including the Energy Charter Treaty, are an integral part of the EU legal order and must therefore be compatible with the [EU constitutional] Treaties. Arbitral tribunals have interpreted the [ECT] as also containing an investor-State arbitration clause applicable between Member States. Interpreted in such a manner, that clause would be incompatible with the Treaties and thus would have to be disapplied.

The reasoning behind this argument – that tribunals have interpreted the ECT wrongly and/or if such an arbitration clause exists, it should be disapplied – had already been considered and rejected in 2018 by the tribunal in Vattenfall AB v Germany, which found that:

  • The Vienna Convention on the Law of Treaties provides that treaties should be interpreted in accordance with the “ordinary meaning” of their terms. It does not permit a tribunal to “rewrite the treaty being interpreted” or to substitute a plain reading of the treaty with other international law rules that would contradict its terms.
  • The ECT contains clear wording by which signatory states, including EU Member States and the EU itself agreed to refer disputes to arbitration.
  • Nothing in the ECT indicates an intention to carve out intra-EU disputes from arbitration. A “disconnection clause” could have been included, as it had been for other classes of dispute, but the ECT contains no such wording. Indeed, the EU had proposed such a clause be included in the ECT, but dropped this before the ECT was signed and ratified.
  • There is no principle of public international law, or indeed EU law, which requires the ECT to be interpreted so as to give priority to external EU treaties and/or a court judgment interpreting those treaties.

The logic of the Vattenfall position is difficult to counter. Indeed, the main Declaration does not attempt to do so: instead it applies a type of self-justificatory, pull-yourself-up-by-your-own-bootstraps circular logic which ignores the possibility that the EU has the power to agree to something in a multilateral treaty which would otherwise be contrary to its internal rules.

The applicability of Achmea to ECT arbitrations is currently being considered by the Svea Court of Appeal in Sweden (the Novenergia II appeal), which has been asked to refer the question to the CJEU.

 

The commitments in the Declarations

In the main Declaration, the Member States make the following commitments/undertakings:

  1. Member States “[b]y the present declaration… inform” tribunals in all pending intra-EU BIT and ECT arbitrations about the legal consequences of Achmea as set out in the Declarations; and undertake, both as defending Member State and the claimant investor’s Member State, to inform tribunals of those consequences.

This appears to be a sort of universal submission to the effect that arbitration clauses in intra-EU BIT or ECT violate EU law and hence arbitral tribunals have no jurisdiction.  It appears to be based upon a belief that tribunals have accepted jurisdiction in ignorance of the EC’s and Member State’s opinion on how Achmea applies, rather than a reasoned rejection of such arguments.

  1. Defending Member States will request their national courts and any third country courts to set aside intra-EU BIT and ECT awards or not to enforce them due to a lack of consent to arbitration.
  2. Member States “inform the investor community that no new intra-EU investment arbitration proceeding should be initiated”.

Some may consider that the tone of this undertaking (and that of the first mentioned above), amounts to a warning. It will be interesting to see whether investors (and tribunals) heed this “warning”.

  1. Member States which control organisations which have brought investment arbitration claims against another Member State will withdraw those claims.
  2. Member States will terminate all intra-EU BITs by way of a plurilateral treaty or (if more expedient) bilaterally, ideally by 6 December 2019.
  3. Settlements/awards in intra-EU BIT and ECT arbitrations which cannot be annulled or set aside and were voluntarily complied with or enforced before Achmea should not be challenged.

It is not immediately apparent what right to re-open concluded settlements or unwind enforcement measures is being given up here.

  1. Member States and the EC will discuss what additional steps are necessary “to draw all the consequences from Achmea in relation to the intra-EU application of the Energy Charter Treaty.”

The wording of this last commitment is somewhat vague, but clearly the intention is to do whatever needs to be done in order to apply the principles in the Declarations to intra-EU ECT arbitrations.

Because the question of Achmea‘s applicability to the ECT is being considered in the Novenergia II appeal, and perhaps in recognition of the Vattenfall counter-arguments above, two additional Declarations (one by Finland, Luxembourg, Malta, Slovenia and Sweden and another by Hungary) omit the main Declaration’s conclusions about, and commitments with regard to, the ECT.  Hungary’s Declaration goes so far as to state that in that Member State’s opinion, Achmea does not apply to ECT claims.

 

Is intra-EU arbitration dead?

 By the Declarations, the Member States have fallen in line with the EC. The intention is to bring all existing intra-EU investor-state arbitrations to an end by the end of 2019, and prevent any new intra-EU arbitrations. By tackling not only the arbitrations but the treaties themselves, and “informing” tribunals and investors that arbitrations cannot be commenced or continue, Member States intend a comprehensive extermination of intra-EU arbitration.

In this regard, the Declarations consider that sunset and grandfathering clauses found in intra-EU BITs (by which the treaty’s protections and right to bring claims survive termination for a period of time) are inapplicable. This might be challenged by investors either as a matter of the interpretation and application of the treaties, or on the basis of a denial of access to justice (protected under the EU’s Charter of Fundamental Rights). However, it may be that the instrument of termination will include a provision whereby the signatory states amended/delete the sunset clauses first and then terminate the relevant treaty.

The one possible survivor could be ECT arbitrations, clinging on by the thread of the Novenergia II appeal and the “minority” Declarations.  But it would be a brave person who would gamble on the CJEU not extending its Achmea reasoning to the ECT. Perhaps the time for obituaries is not yet nigh, but the headstone is already being carved.

References   [ + ]

1. ↑ Masdar Solar & Wind Cooperatief U.A. v Spain ICSID Case No. ARB/14/; Antin Infrastructure v Spain ICSID Case No. ARB/13/31; Vattenfall AB and others v Federal Republic of Germany ICSID Case No. ARB/12/12; and Greentech Energy Systems A/S and Others v Italy SCC Arbitration V (2015/095) function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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2018 In Review: Blockchain Technology and Arbitration

Sun, 2019-01-27 00:06

Nevena Jevremović (Assistant Editor for Europe)

For those of us interested in the intersection of technology and law, 2018 has been a fascinating year. Lawyers across jurisdictions, areas of expertise, and industries have engaged in debates about the use of emerging technologies and the impact that they will have on the future of the legal industry. Blockchain, smart contracts, artificial intelligence (“AI”), machine learning and natural language processing – they have ceased being mere buzz-words and have entered the sphere of technologies that are actively shaping today’s society.

Arbitration is no exception in this increased trend of convergence between technology and law. Kluwer Arbitration Blog (“KAB”) has seen a stark increase in the number of posts discussing the various impacts these new technologies have had or might have on international commercial and investment arbitration (see the overview of technology related posts here). Aside from presenting fascinating points for reflection, these articles show that the key theme of 2018 was blockchain and its use in arbitration. Three core topics emerged over the course of 2018: understanding blockchain, its possible application to enhance existing processes, and its potential to reshape the arbitration process.

Where to Start when Thinking about the Use of Blockchain in Arbitration?

A starting point in an arbitration-blockchain discussion inevitably begins with defining, and more importantly, understanding blockchain technology. Essentially, a blockchain is a shared database filled with entries that must be confirmed and encrypted. The name blockchain comes from the “blocks” that get added to the “chain” of transaction records. The benefit of this technology is its easy adaptation for different purposes. When linked with other technologies, blockchain finds plenty of meaningful applications. A prime example of this is smart contracts – a set of coded contractual clauses that sit on the blockchain and enable self-enforcement of parties’ rights and obligations.

Blockchain as a standalone tool can decentralize, and therefore, streamline existing processes in managing arbitration proceedings. The role of blockchain as a facilitating tool focuses mostly on the aspects of the process that can be enhanced. The scope is limited and partial. The picture changes if blockchain is connected with another technology, such as, for example, AI or Internet of Things (“IoT”).

Is Blockchain only a Management Facilitating Tool?

In the quest for a tool that would reduce cost and time, but still ensure all due process requirements are duly complied with, blockchain is just one in the line of technologies that have been explored thus far (the most common ones so far being audio and video conferencing tools). While implementing any new technology in a field with as many repercussions as the legal field, it is important to consider if the introduction of the technology is even warranted. The benefits of using blockchain technology to authenticate and validate smart contracts are worth the technological transition that the field will have to accommodate.

As a community, we have mostly explored the limits of using blockchain without affecting the analog nature of arbitration proceedings. Such partial automation revolves around the notion of confirming the authenticity of documents via a blockchain based system. The authentication may include various aspects of an arbitration lifecycle: from an arbitration clause, through submission and taking of evidence, to enforcement of arbitral awards, each using the benefits of the technology to enhance the efficiency of proceedings. (See examples of these discussions on KAB here and here)

Simultaneously, looking at a wider market, one can notice a dozen blockchain-based platforms aiming at a different degree of automation. (See, for example, Confideal, Coinlancer.io, Jury.online and Kleros). The full automation of the process, but for the arbitrator’s assessment of the case and the decision, is something we still need to explore.

Will Blockchain Be the Innovative, Disruptive Industry Force that will Reshape Arbitration as We Know It?

With emerging technologies, one can imagine automated dispute resolution platforms where these technologies are interoperable, thus enabling more efficient and better-secured proceedings. Such full automation, however, requires careful procedural design, translated and adjusted to the conditional logic of a given programming language. Special care must be employed in drafting policies relating to those aspects that require a more nuanced understanding of legal proceedings than those that can be conveyed through conditional logic and 1s and 0s.

As a starting point, an arbitration clause would need to become a smart arbitration clause – i.e. translated into a block of code and stored on the blockchain. The first question here is would such a clause meet the requirements of Art. II of the New York Convention? Looking at smart contracts as another form of executing agreements, one could make the argument that a smart arbitration clause would be compliant with New York Convention Art. II requirements. As has been discussed on KAB here and here, at the very minimum, blockchain technology could preserve the validity of an original arbitration agreement stored therein.

By its very nature, an arbitration clause is passive. For it to be triggered, there needs to be a dispute that parties cannot otherwise resolve. While in an analog environment this means that an arbitration clause can be physically independent from the main agreement, in an automated environment that would not necessarily be the case. Rather, such a clause would need to be conditionally programmed and its activation made dependent on a particular event constituting breach of the parties’ agreement. In simple contract terminology, an arbitration clause would be triggered if the goods are not delivered or the price has not been paid as per the terms of the contract.

A blockchain-based dispute resolution platform would exclude oral hearings and the arbitrator’s decision on the case. Aside from that, theoretically, all other aspects of the process can be automated: the submission of claims and counter-claims, submission of evidence, or communication with the tribunal, to list a few.

To design the automation of a dispute resolution system, one needs to look at the nature of the process itself and find ways to enable the same outcome in a blockchain-based platform. As an example, if triggering an arbitration clause means the submission of a notice of arbitration to an institution, what comes next? Notifying the party of the breach and instructing a commencement of proceedings, or automating the commencement notification?

In the former case, it seems that the automation would stop there. The interested party would submit its notice of arbitration and the remainder of the proceedings would be administered in very much the same way as we are accustomed to. The latter option, however, seems to lead further down the path of automation to the first crossroad: Is there a need to integrate a smart arbitration clause within a dispute resolution platform of an arbitral institution?

Even if we, as the arbitration community, opt for “no”, the market may still decide “yes”. The businesses that transition to smart contracts, and integrate smart arbitration clauses therein, might want an integration with the institutionally designed dispute resolution platforms. They would likely see the security and stability of the system as the key advantages of such integration. The decisive element, in that case, sits with arbitral institutions.

On one hand, waiting for the tech-market to offer some stability is the best choice. We currently find ourselves in the wild west days of this technology, with insufficient standards and best practices. The technology is continuously changing and expanding. We are yet to fully grasp the potential of blockchain, either as a standalone technology or coupled with another one. The global hype around blockchain is simply not enough to incentivize any major tech investments in the development of a platform that would be integrated with a smart contract.  So far, no institution has announced its intention to undertake such an endeavor. Whether and to what extent we will see arbitration institutions jumping on the tech wagon will depend on the technologies themselves, the regulatory environment, and the need of the industries.

At the same time, the last couple of years have brought independent dispute resolution blockchain-based platforms. However, we are yet to see how these platforms will operate in the future. The mere fact that they exist, even tailored to specific types of transactions, should signal to the arbitral institutions that they need to adjust and adapt to the trends by finding ways to make the technology work for their benefit and the benefit of their clients.

So, What Will 2019 Bring?

It is fascinating to think how far the application of blockchain can lead us. As this technology develops, and new ones emerge, it will take some time to see the extent of their application in practice, and a long time before these technologies become the standard.

We, as a community, have the opportunity to shape the direction in which these technologies are applied. To effectively do so, we will need to expand the audience and include the individuals who are creating these technologies. It is a fundamental shift in the legal industry calling for more discussion across legal and tech industry lines. To effectively code a contract, design a document-storage platform or design an entire dispute resolution platform, we, as a community, need to speak the same language as the programmers. This, in turn, will require us to re-think our approach to arbitration in analog terms and transition to a digital environment.

If you were setting policies for smart-contracts on the blockchain, what checks and balances in the application of the technology would be required to ensure no violation of due process?

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Can an Arbitral Tribunal Admit Evidence Obtained through a Cyber-Attack?

Sat, 2019-01-26 21:14

Nitya Jain

With the increase of cyber-attacks, arbitral tribunals face the question whether to accept evidence obtained via such an unlawful breach. The question even found its way to this year’s Vis Moot problem, confirming the timeliness and need for a debate on a global level.

Current Framework on Admissibility of Evidence

An arbitral tribunal is not under an obligation to explicitly follow a binding evidentiary code, unless, of course, the parties agree otherwise. Most national arbitration laws and arbitration rules follow this approach. For example, Article 19(2) of the UNCITRAL Model Law states:

Failing such agreement, the arbitral tribunal may, subject to the provisions of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence.”

The arbitral tribunal will determine and adapt the procedure to the specifics of a given case. Consequently, each procedure will differ. In doing so, the tribunals have little guidance from the IBA Rules on the Taking of Evidence in International Arbitration. Article 9(2) of the IBA Rules provides some standards of admissibility of evidence. The provision, however, is not exclusive and does not include the issues reflected in certain jurisdictions, such as limiting or excluding the admissibility of the evidence. At the same time, the inclusion of illegally obtained evidence can lead to an unreasonable conclusion, endangering due process, subjecting the award to a potential challenge.

Often, the importance of the evidence has overshadowed the illegality of its source: gaining evidence as a result of unauthorized access to data in a system or computer. Attaching the term illegal with evidence prima facie perturbs its admissibility. How can tribunal admit and use evidence primarily obtained through an unlawful breach? On the face, such a stance may seem to resonate with the travesty of justice. Certain circumstances, however, may call for the admission of an illegally obtained evidence in the interest of justice.

Arbitral Tribunal Can Admit Evidence Obtained via an Unlawful Breach

First, the tribunal needs to consider if a party to the proceedings was itself involved in the illegal activity. The clean hands doctrine plays a seminal role in deciding the admissibility of an illegally obtained evidence.

If a party seeking admission of evidence has clean hands the possibly unlawful nature of that disclosure cannot be held against it. Evidence originally obtained through unlawful conduct should be considered prima facie admissible if it has found its way to the tribunal through the hands of a third disinterested party. In other words, such evidence should be regarded as prima facie of superior credibility. Where a party seeks to benefit from its own unlawful conduct (i.e., if it does not have clean hands), the evidence should be considered inadmissible. Even in such case, the wrongdoing needs to be egregious for evidence to be deemed inadmissible. The tribunal may show less willingness to admit evidence when the illegal activity through which it was obtained was particularly grave.

In Bible v. United Student Aid Funds, Inc., Seventh Circuit Court declined the application to strike references to documents that had been released by others on WikiLeaks. There, the plaintiff obtained the evidence through WikiLeaks disclosure websites and argued for its admission in the proceedings. The court held that the evidence is admissible as the information was already in the public domain. Public domain implies to be a state wherein the evidence is accessible to the public at large without undue hardship. In this particular case, as the evidence was available on the internet for five (5) years, the court saw no problem in using the evidence for a more accurate assessment of the case. The court also stressed upon the probative value of the evidence.

Second, the arbitral tribunal has the duty to ensure the parties’ right to be heard. A failure by the arbitral tribunal to observe the rights of fair trial and due process constitutes a violation of public policy and exposes the award to the risk of annulment.

The right to be heard includes each party’s right to propose evidence on pertinent facts. Dismissal of evidence that is material to the outcome of the case impairs party’s procedural right to a fair trial. Equality of arms, or a fair balance principle, must be preserved between the parties in adversarial proceedings. Each party must be afforded a reasonable opportunity to present their case – including their evidence – under conditions that do not place them at a substantial disadvantage vis-à-vis their opponent. With that said, illegally obtained evidence should be admitted if there is no other evidence available to prove a necessary aspect of a case

In Conoco Phillips v. Venezuela, Venezuela sought to rely on US diplomatic cables obtained through Wikileaks. The case was different on the grounds that the Respondent presented the illegally obtained documents only post the Decision on the Merits had been rendered and the proceedings had entered the quantum phase. Arbitrator George Abi-Saab stated that since the leaked cables were relevant to the outcome of the case, they should have been given proper weight by the arbitral tribunal. Mr. Abi-Saab concluded that, in his view, the cables should have been admitted as valid evidence because of their “high degree of credibility” and “level of detail”.

Third, ignoring illegally obtained evidence may not provide a just solution and may even lead to an award that is factually wrong. The relevance and materiality of the evidence play a fundamental role. The evidence is relevant when it is reasonably necessary for a party to support, contradict, or weaken any contention or fact in the proceeding or to discharge its burden of proof. In dealing with the admissibility of evidence the tribunal considers the likely or prima facie materiality of evidence. The evidence is considered to be material to the case when it would help to assess whether a factual allegation is true or not and would assist in bearing upon the final award. Uncovering the truth outweigh the unlawfulness in which submitted evidence was obtained.

Striking a Balance between the Interest of Justice and Due Process

Today, cyber-intrusion can be accomplished with utmost ease and the almost daily reports of hacks suggest that arbitrators are likely to be presented with issues related to breaches of cybersecurity. The reasons outlined here may compel a tribunal to overlook the illegality of the source. It is, however, difficult to strike a balance between the requirements of due process and right to be heard and the prohibition of accepting evidence obtained via illegal means.

The nature of illegality cannot be ignored as an admission of illegally obtained evidence will likely endanger enforceability of an award on the grounds of public policy violation. Beyond that, it may influence parties’ procedural behavior in other proceedings. For example, it may encourage illegal behavior in future – showcasing illegally obtained evidence may incentivize future unlawful disclosures. When an arbitral tribunal hands down an order to the effect upholding that illegally obtained evidence is admissible, it may encourage the parties to resort to illegal means of obtaining evidence.

To counter such outcome, the relevancy and materiality of the evidence should be given utmost importance. It is of crucial importance for a tribunal to know the complete facts and circumstances of the case for proper resolution of the dispute. In those cases, exclusion of evidence would be an infringement of a party’s right to be heard.

There is no straight-jacketed formula that can outrightly decide the fate of evidence; rather, it comes down to the facts and circumstances of a given case.  Nonetheless, to achieve the necessary balance, the tribunal should consider two factors when deciding on the admissibility of evidence obtained via an unlawful breach of data or computer. First, the evidence should be accepted if obtained without the claiming party’s involvement in the illegal act. Second, such evidence should be accepted only if it is material to the outcome of the case. This would cover, for example, materials already available on the internet. Where, however, the illegal activity is direct and of severe nature, the tribunal should prima facie deny admissibility of evidence. Such two-prong test preserves due process and procedural fairness, and, therefore, safeguards the award.

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Back to the Future: Young Voices Reflect on How the Past Year in International Arbitration Will Inform Upcoming Years at CIArb, YMG and Young ITA Event

Sat, 2019-01-26 03:22

Rocío Digon, Ana Gerdau de Borja Mercereau and Alexander G. Leventhal

Young ITA

Key developments in international arbitration in 2018 were the focus of an end-of-the-year conference held on Wednesday, 19 December 2018, organized by CIArb YMG, the young members’ group of the Chartered Institute of Arbitrators, and Young ITA, the young members’ group of the Institute for Transnational Arbitration.  The event’s faculty members were Alexander G. Leventhal (Quinn Emanuel), Ana Gerdau de Borja Mercereau (Derains & Gharavi), Diego Romero (Latham & Watkins), Jil El Ahdab (Bird & Bird), Paula Henin (Freshfields), Rocío Digón (White & Case), and Saadia Bhatty (Gide).  The event was hosted by Latham & Watkins.

The event began with a welcome from Rocío Digón, Young ITA’s Continental Europe Chair. Digón set the stage for the panel’s discussion and introduced the panel’s moderator, Jil El Ahdab, the Chair of CIArb’s European Branch.  She noted that 2018 had been an exciting year for international arbitration with developments in all spheres of the profession – including the taking of evidence, diversity, and investor-state arbitration.  Digón remarked that the attendees were fortunate to have Jil El Ahdab and a distinguished panel to guide them through these topics.

 

The Panel’s View

The panel then tackled the following three developments in 2018:

 

Evidence Taking in International Arbitration:  With the official launch, just a few days before the event, of the Rules on the Efficient Conduct of Proceedings in International Arbitration (also referred to as the Prague Rules) and developments in the use of Section 1782 (Assistance to foreign and international tribunals and to litigants before such tribunals) of the U.S. Code, 2018 has been an interesting year for evidence-taking in international arbitration.  The panel’s first speaker, Paula Henin, guided discussion on this issue.

Henin first explained that Section 1782 allows interested persons to elicit the assistance of a U.S. federal district court to obtain evidence from persons and entities residing or found in its district, for use in foreign and international proceedings. Its availability in aid of international arbitration proceedings, once rejected, has been confirmed in several, but not in all, federal districts since the Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), decision. Henin observed that 2018 brought to light interesting developments in Section 1782 practice in the context of international arbitration. Among those were cases in which litigants sought to use Section 1782 to obtain documents held by US-based law firms on behalf of their clients,1) See Kiobel by Samkalden v. Cravath, Swaine & Moore LLP, No. 17-424-CV, — F.3d —-, 2018 WL 3352757 (2d Cir. July 10, 2018); In Re Application of Hulley Enterprises Ltd., Yukos Universal Ltd. & Veteran Petroleum Ltd. for an order pursuant to 28 U.S.C. Section 1782 to conduct discovery for use in a foreign proceeding, No. 1:18-mc-00435 (S.D.N.Y.); In Re Application of Hulley Enterprises Ltd., Yukos Universal Ltd. & Veteran Petroleum Ltd., for an order pursuant to 28 U.S.C. Section 1782 to conduct discovery for use in a foreign proceeding, No. 2:18-mc-00176 (E.D. Penn.). jQuery("#footnote_plugin_tooltip_9889_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9889_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); or even documents held by arbitrators.2) See D Charlotin & L E Peterson, Challenge against three high-profile arbitrators is spurred by misdirected email to arbitral secretary; Gary Born submits expert report in defence of arbitrators (IA Reporter Nov. 5, 2018). jQuery("#footnote_plugin_tooltip_9889_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9889_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In other cases, parties looked for new ways to resist Section 1782 discovery, eliciting the assistance of courts outside the US to enjoin their arbitration adversary from enforcing a Section 1782 discovery order rendered against them.3) See Dreymoor Fertilisers Overseas Pte Ltd v Eurochem Trading GmbH & another [2018] EWHC 2267 (Comm) (24 August 2018) (Males J). jQuery("#footnote_plugin_tooltip_9889_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9889_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Against that background, the panelists discussed whether Section 1782 strengthens, or instead undermines, the authority of arbitral tribunals to manage the taking of evidence in arbitral proceedings. The consensus among the panelists was that the answer depends on whether the parties are using Section 1782 to work with, or instead against, the arbitral tribunal.

As for the Prague Rules, Henin explained that these Rules were devised as a more civil-law focused answer to the IBA Rules.  In main part, they limit the scope of document production to specific documents – avoiding the type of expansive discovery that results from allowing requests for categories of documents – and allow for a more robust role in the process for the tribunal, which may provide its preliminary views on the arbitration at the case management conference, assist the parties in reaching an amicable settlement, and take a proactive role in fact finding.  Henin noted that it is still too early to say whether they were will become an alternative or a supplement to the IBA Rules.  However, she noted that, while the Prague Rules may provide an alternative to some of the IBA Rules’ provisions on evidence-taking, they also go beyond what is provided in those Rules and expressly propose the conferral of additional management powers to arbitral tribunals – for example, in regards to mediating a settlement – where the IBA Rules are silent.

 

Investor-State Arbitration in a Post-Achmea World:  The conference’s second speaker, Diego Romero, tackled two recent proposals for change in the post-Achmea international arbitration landscape.

First, Romero dissected the proposal for amendment of the ICSID arbitration rules, which includes provisions on third party funding, expedited proceedings, and security for costs.  He argued that these proposals went a long way towards dissuading frivolous claims by including an express provision on security for costs and lowering the bar for security for costs applications (to date, only two security for costs applications have been successful under the ICSID Rules).  Romero then referred to the Proposed Arbitration Rule 21(2) on the parties’ obligation to disclose whether they have third-party funding and the identity of the third-party funder immediately upon registration of the Request for Arbitration or upon conclusion of a funding arrangement after registration of the case.  He also argued that the proposals would increase transparency – by creating an opt-out rule in favor of publication of awards and decisions and clarifying rules for the submissions of non-disputing parties – and independence – by requiring parties to disclose the identity of any third party funder for the conflicts purposes.  The panel agreed that whether such measures would be “sufficient” to satisfy critics would remain to be seen.

Second, Romero explored the new face of investment disputes in North America under the United States-Mexico-Canada Agreement (USMCA), signed in November 2018.  Although the USMCA unquestionably curtails access to investment treaty arbitration to its parties, the panel acknowledged that the USMCA at least brings much needed certainty and predictability regarding certain substantive provisions, such as the minimum standard of treatment and the most favored nation clause.  Romero concluded that these reformative movements should not be seen as existential threats to investment arbitration but rather, opportunities to improve it and fix some of its problems.

 

Diversity in International Arbitration:  The final panelist, Saadia Bhatty, touched upon diversity in international arbitration – in all its forms and apparitions.

Noting that there is a general consensus in the arbitration community that diversity is not only beneficial but crucial in international arbitration, Bhatty began by discussing the recent case of Shawn C. Carter, et al. v. Iconix Brand Group, Inc. et al., Index No. 655894/2018, a case before the Supreme Court of New York in which rapper Jay Z challenged the validity of an arbitration clause in favor of AAA arbitration.  Carter argued that enforcement of the arbitration clause would be against public policy because the AAA roster of arbitrators did not include any African-American arbitrator.  According to Bhatty, the Carter case revealed that, despite substantial efforts made by the arbitration community in the past year – the publishing of diversity statistics by major arbitration institutions, the release of toolkits to increase diversity in international arbitration, and the raising of awareness to the importance of diversity in all forms – a lot of work still remains to be done.

Bhatty then discussed another aspect of diversity in international arbitration receiving increasing attention: regional diversity.  She noted that China’s One Belt One Road (OBOR) project, an Asian infrastructure project led by China whose cost is estimated to go well above USD 5 trillion and which, when completed, will provide infrastructure connecting around 60 countries, would inevitably create a new market for arbitration disputes that would, in part, be serviced by Asian arbitration institutions.  Bhatty noted that, while beneficial, diversity also created a risk of parcellisation of international arbitration.  She raised the question whether the original purpose of international arbitration was to be transnational, and for arbitrators to be neutral, rather than to be “representative” of the end-users.

 

The Public’s View

After the panel, Alexander G. Leventhal led a discussion with the audience, which included the use of a live poll.  While the issue of technology in arbitration may not have been discussed by the panel, it was center stage in the post-panel discussion as attendees were able to voice their opinions to poll questions using their telephones.  In the first question, attendees were asked to offer their thoughts on the future of the Prague Rules.  Leventhal noted that while a plurality (48%) of attendees believed that the Prague Rules would be a useful supplement to the IBA Rules, a majority either found that they would soon be forgotten (32%) or were not even familiar with the Prague Rules (20%).  When asked the most pressing issue of diversity, attendees responded gender diversity (29%), national diversity (29%), and age diversity (27%).  Leventhal noted that, despite the recent Carter case, only 7.5% of attendees listed racial diversity.  As for the USMCA, a majority of attendees (76%) believed that the agreement would not be passed by the US Congress and would remain a dead letter (a response that, panel moderator Jil El Ahdab noted, was more political than legal).  Lastly, a majority of attendees (56%) said that they believed 2019 would be most marked by a reevaluation of existing investor-State dispute settlement procedures and agreements.  Leventhal noted the coming year promised to be an interesting one as at least 12% of attendees also believed that 2019 would be marked by a revolt by international tribunals against restrictions imposed by politicians and national courts.

Ana Gerdau de Borja Mercereau closed the conference with recap of the evening’s developments and her three wishes for 2019.  Her first wish was that arbitrators have the courage to take difficult decisions and not fear the ex post review of State courts.  She sustained that today’s due process paranoia often prevents or slows down arbitrators’ decision-making and that a “procedural judgment rule”4) See Klaus Peter Berger & Ole Jensen, “Due process paranoia and the procedural judgment rule: a safe harbour for procedural management decisions by international arbitrators”, 32 (2016) Arbitration International 415 (Proposing the “procedural judgment rule”). jQuery("#footnote_plugin_tooltip_9889_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9889_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); could serve as tool to fight this, based on the principles of transparency, proactivity, interactivity, and proportionality in procedural management decisions.  Her second wish was that the arbitration community not lose sight of its professional raison d’être: to solve dispute and, in doing so, render the best possible dispute resolution services.  Mercereau’s third and last wish but perhaps the most important one was that the “enduring social institution”5) See Jan Paulsson, The Idea of Arbitration (Oxford 2013), p. 298. jQuery("#footnote_plugin_tooltip_9889_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9889_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  of international arbitration continue evolving with a quickly changing world.

 

References   [ + ]

1. ↑ See Kiobel by Samkalden v. Cravath, Swaine & Moore LLP, No. 17-424-CV, — F.3d —-, 2018 WL 3352757 (2d Cir. July 10, 2018); In Re Application of Hulley Enterprises Ltd., Yukos Universal Ltd. & Veteran Petroleum Ltd. for an order pursuant to 28 U.S.C. Section 1782 to conduct discovery for use in a foreign proceeding, No. 1:18-mc-00435 (S.D.N.Y.); In Re Application of Hulley Enterprises Ltd., Yukos Universal Ltd. & Veteran Petroleum Ltd., for an order pursuant to 28 U.S.C. Section 1782 to conduct discovery for use in a foreign proceeding, No. 2:18-mc-00176 (E.D. Penn.). 2. ↑ See D Charlotin & L E Peterson, Challenge against three high-profile arbitrators is spurred by misdirected email to arbitral secretary; Gary Born submits expert report in defence of arbitrators (IA Reporter Nov. 5, 2018). 3. ↑ See Dreymoor Fertilisers Overseas Pte Ltd v Eurochem Trading GmbH & another [2018] EWHC 2267 (Comm) (24 August 2018) (Males J). 4. ↑ See Klaus Peter Berger & Ole Jensen, “Due process paranoia and the procedural judgment rule: a safe harbour for procedural management decisions by international arbitrators”, 32 (2016) Arbitration International 415 (Proposing the “procedural judgment rule”). 5. ↑ See Jan Paulsson, The Idea of Arbitration (Oxford 2013), p. 298. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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“Final-Offer Arbitration”: A Procedure to Save Time and Money?

Fri, 2019-01-25 00:00

Danilo Ruggero Di Bella

This is an introduction to the so-called “Final Offer Arbitration” (FOA), sometimes also referred to as pendulum or baseball arbitration. FOA is a model of arbitration that originated in the late 1940s and consolidated in the 1970s in the USA to resolve labour disputes in the public sector and the baseball league, hence the name. FOA differentiates itself from conventional arbitration owing to the incentives it sparks in parties’ conduct to reach a mutually agreeable settlement, its celerity in issuing an award and, accordingly, its overall ability of keeping proceedings costs in check.

As arbitration hubs are stepping on the gas of creativity to a) compete among themselves in providing their prospective users with the most efficient and innovative ways to solve their disputes, and b) not lose market share in favour of blooming regional arbitration centres, FOA may deserve consideration since it is a relatively unknown model of arbitration, and yet it aims at achieving the very same goals and implementing the same principles (procedural economy, swiftness, and fairness) by which arbitral institutions are shaping their reforms.

After presenting FOA’s special procedure and pondering its advantages and challenges, the reader will be left with a question.

 

FOA proceedings

In a FOA, the tribunal is obliged to render an award by selecting in its entirety one of the parties’ final proposal on the contentious issue or issues. Arbitrators cannot seek to bridge the gap between parties’ positions by coming up with a compromise decision. Because it is the final offer of one of the parties that will be chosen inevitably over the other, this raises the fear of losing the whole case. Hence, parties are spurred to make more realistic proposals, since an unreasonable position will most likely be rejected by the tribunal in favour of the more sensible competing offer.

The procedure is quite straightforward, although there exist several variations. After the round of written pleadings and the hearing where the contradictory points are singled out and evidence is presented to sort out those very points, each party simultaneously submits its proposal of the draft award. Afterward, the tribunal must make its award in the form of either party’s draft award without amending it.

The foregoing is the “package FOA”, according to which parties deliver an offer addressing the dispute as a whole, and the tribunal picks one complete package or the other. A less stringent version is the “issue-by-issue FOA” version, where each party submit its final offer on each separate question in dispute, and then the tribunal can mold the award by siding with one party’s offer on some points and with the other party’s offer on others, thus combing the two drafts. This issue-by-issue FOA obviously shares more similarities with conventional arbitration. Another variety allows each party to put forward a twofold offer so that it gives parties some leeway in presenting at least a more ambitious position together with a more moderate stance to choose from. Some other modalities also envisage its inclusion in a multi-tier process, where mediation precedes the resort to the FOA. Some forms of FOA expressly provides for tribunal’s obligation to give reasons for its choice, while others do not require arbitrators to state any reason.

 

Pros

Several advantages flow from such a streamlined procedure. The chance of succumbing to the opposing party’s draft award instils in both parties enough uncertainty as to the possibility of a devastating outcome, that it drives both parties and their respective lawyers (who are risk-averse by nature) to engage in serious negotiations to reach a satisfactory agreement before the award is even rendered. FOA strongly incentivizes fruitful negotiations to settle the dispute, as opposed to conventional arbitration where disputing parties pass the ball to a third party (the arbitrator) who will have the responsibility to resolve their conflict, so that they are free to exacerbate the dispute (since it is not up to them to settle it) by taking the most radical positions.

On the assumption that arbitrators are usually reluctant to sanction extreme arguments, FOA pushes parties to act more reasonably, since this increases their chances of having their own draft chosen over the other party’s offer. So, each party makes more realistic demands and concessions to secure against the tribunal going with the other party’s draft. Therefore, a party may effectively steer the tribunal in its favour by consciously being more rational and considerate towards the other party’s needs, something ideal to preserve long-term business relationships.

The time between the hearing and the rendering of the award is drastically reduced and so is the tribunal’s workload – who, instead of going again through the statements of claim and defence to assemble its award, will simply have to decide which of the two drafts better reflects its view of justice in that case and sign it. A shorter timeframe for the proceedings translates into a less expensive procedure and, eventually, a better service for the parties.

Counsels and quantum experts will not have to defend extreme stances, strategically adopted only because of tribunals’ tendency to make compromise awards halfway between the parties’ demands. Such a defusing effect positively affects the costs of the proceedings.

In sum, FOA presents a tantalizing alternative to conventional arbitration for the parties, because it appears to be more prone to productive negotiations, faster, cheaper, it helps to safeguard long-term relationships, and parties collectively retain more control over the case as they will be able to influence the outcome by simply being more reasonable, and will not be blindsided by the contents of an outrageous award or annoyed by a decision aimed merely at “splitting the difference”.

 

Cons

The package FOA, with or without the obligation to give reasons, is the more transparent and more appealing variation of FOA maximizing all the benefits of this type of arbitration. However, it is also the variation of FOA which could be more exposed to possible challenges. Hence, the analysis of the main drawback of this swift type of arbitration is focused on this type of FOA assessed against the 1958 NY Convention and the UNCITRAL Model Law (and a few national arbitration laws to test the concrete validity of such an assessment).

A package FOA award, that does not contain any reasons why one party’s offer was chosen over the other but simply ratifies the preferred offer in its entirety, might be easily subjected to a challenge at the seat of the arbitration to be set aside or to objections to its recognition and enforcement in a third country.

Even though the NY Convention does not prescribe the requirement of stating reasons upon which the award is based and Article 31(2) UNCITRAL Model Law allows the parties to agree that no reasons are to be given, in some jurisdictions the lack of reasons is per se a ground to annul the award. For example, Article 37 of the Spanish Arbitration Act provides that the award shall always state the grounds upon which it is based (unless it contains the settlement between the parties in the form of an award) and, pursuant to Article 823(5) of the Italian Civil Procedure Code, the award shall briefly give reasons. Conversely, other jurisdictions are silent on such a requirement (e.g. Section 31 Swedish Arbitration Act, dealing with the contents and form of an award, does not explicitly require the award to be reasoned).

Such an award could be also set aside because the arbitrators exceed their powers by choosing a draft award that fails to rule on the dispute on its entirety, (viz. infra petita exception, as per Article 34(2)(iii) and 36(a)(iii) UNCITRAL Model Law and Article V(1)(c) NY Convention). A consequence of having each party drafting its own award is that becomes improbable that it mention in its proposal the objections or counterclaims raised by the opposing party, unless it does so to rebut it. Hence, such an award could not fulfil arbitrator’s mandate to address every relevant issue of the dispute.

By the same token, it would be hard to show that a party was able to present its case since the award (drafted by the opposing party) is unlikely to include the arguments or counterclaims of the party whose draft award was not selected, thus making the award challengeable on the ground of Article 34(2)(ii) UNCITRAL Model Law or unenforceable on the grounds of 36(a)(ii) UNCITRAL Model Law and Article V(1)(b) NY Convention.

Careful considerations should be given when drafting a package FOA clause whose ensuing award lacks written reasons. Attention should be paid to confining the remit of the tribunal, waiving explicitly the right of appeal against the award, and agreeing on the procedure and contents of the award.

Consequently, despite its almost instantaneous deliberative process, a package FOA requiring the tribunal to state at least some brief reasons should be preferred to avoid the above challenges or objections. The reasons given could be well confined to the appreciation of the evidence presented.

 

Final question

Undoubtedly, FOA may help arbitration institutions to regain the advantage in terms of lower costs as compared to State courts, an edge that arbitration is ostensibly losing. Could this FOA be a new feature to be added as an alternative procedure by leading arbitration institutions or could it maybe inspire the creation of a brand-new arbitration centre characterized by this seemingly cheaper, faster, and fairer process?

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The Contents of the ASA Bulletin, Volume 36, Issue 4 (December 2018)

Thu, 2019-01-24 23:32

Matthias Scherer

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

ARTICLES

Karin GRAF, Brigitte UMBACH-SPAHN, Berücksichtigung ausländischer Schiedsurteile in der Insolvenz – Lehren aus den Bundesgerichtsentscheiden in Sachen Swissair [Recognition and Enforcement of Foreign Arbitral Awards in Swiss Insolvency Proceedings – Lessons Learnt from the Decisions of the Swiss Federal Supreme Court in the Causa Swissair]

According to the New York Convention, enforcement of a foreign arbitral award may be refused if the subject matter of the dispute is non-arbitrable. Insolvency matters are not entirely arbitrable. Karin GRAF and Brigitte UMBACH-SPAHN explore when a foreign arbitral award can be enforced in Swiss insolvency proceedings against an insolvent defendant. The spectacular bankruptcy of the Swiss national carrier Swissair has spawned a series of decisions of the Swiss Federal Supreme Court, which the authors apply to arbitration.

Bernhard BERGER, Insolvenz und Schiedsvereinbarung in der Schweiz [Insolvency and Arbitration Agreements in Switzerland]

This paper presents the Swiss practice concerning insolvency and how it affects arbitration agreements in the international context. About ten years ago, on 31 March 2009, the Swiss Federal Supreme Court ruled in the Vivendi case that foreign insolvency statutes might affect the validity of an arbitration agreement in an international arbitration in Switzerland. A few years later, the Court nuanced this controversial finding (Decision of 16 October 2012, 138 III 714). The risk remains that the issue of insolvency and arbitration agreements rises (again) at the stage of recognition and enforcement of an arbitral award, particularly where enforcement is sought in the country of the lex concursus. BERGER advocates that the provisions of a national bankruptcy law, which aim to invalidate arbitration agreements, should be disregarded in cross-border transactions. This must reasonably apply both in the arbitration and in subsequent enforcement proceedings.

Mahutodji Jimmy Vital KODO, Aperçu général de l’actuel régime de l’arbitrage OHADA [Overview of the OHADA Arbitration Regime]

The author provides a general overview of the current OHADA Arbitration legal framework by presenting the regime governing arbitral agreements, the arbitral proceedings and the award and emphasizing the particularities of both the institutional arbitration governed by the Regulation of the CCJA on Arbitration and the Uniform Act on Arbitration.

Sami TANNOUS, Matei PURICE, Mohamed KHANATY, The New UAE Federal Arbitration Law: Was it Worth the Wait?

The UAE has finally modernised its arbitration framework by promulgating Federal Arbitration Law No 6 of 2018. While the Federal Arbitration Law is largely based on the Model Law, certain changes have created unnecessary ambiguities and uncertainties. A welcome development is the broad powers granted to arbitral tribunals, including the power to issue interim and conservatory measures, and to rule on their own jurisdiction.

The authors consider that despite all the ambiguities and a number of missed opportunities, the Federal Arbitration Law is a positive development which will strengthen the UAE’s position as a leading regional hub for arbitration.

Bernd EHLE, SIA 150:2018 – Modern Swiss Arbitration Rules for Construction Disputes

The Swiss Society of Engineers and Architects (SIA), Switzerland’s leading professional association for construction, technology and environment specialists, has issued new arbitration rules for construction disputes. The SIA Standard 150:2018 entered into force on 1 January 2018. It features state-of-the-art procedural rules which evidently strive towards efficiency and emphasize settlement facilitation, including through the use of a mandatory instruction hearing at which the arbitral tribunal provides the parties with a preliminary assessment of the case. EHLE presents the most remarkable innovations namely the arbitral tribunal’s power to appoint a technical expert as a consultant, and the possibility for the parties to agree on a procedure for an urgent determination of specific legal issues, e.g., whether the employer has the right to order a variation or whether the contractor is entitled to an extension of time for the performance of the works.

Daniel GREINEDER, The Limitations of Soft Law Instruments and Good Practice Protocols in International Commercial Arbitration

This article considers the value of “soft law” instruments in international commercial arbitration. It starts from the practical uncertainty arising from the procedural freedom afforded to parties and arbitrators under liberal arbitration legislation. While good practice guidelines may help to overcome this uncertainty and manage parties’ expectations, the article identifies the following three difficulties for soft law in achieving this goal: (1) that it is utopian in aspiring to create a transnational legal order; (2) that it is practically unworkable, because it is open to abuse and misunderstanding; and (3) that it is superfluous in stating the painfully obvious. The article concludes by recommending limiting soft law to areas where it is strictly necessary and where a meaningful international consensus can be reached.

Stavroula ANGOURA, Interface between Arbitrators’ Disclosure and Parties’ Investigation Duties

In the judgment SAAD Buzwair Automotive Co v. Audi Volkswagen Middle East Fze LLC, the Paris Court of Appeal set aside an ICC arbitral award on the ground of irregular composition of the arbitral tribunal under Article 1520 para. 2 CPC. It found that a co-arbitrator had failed to disclose that his law firm had a relationship with the party’s affiliate company in another ongoing dispute. S ANGOURA analyses the judgment and what it means in terms of arbitrators’ duty to disclose

Caroline DOS SANTOS, The RFC Seraing’s Saga Goes on: Arbitration Clause Contained in FIFA’s Statutes Held Invalid under Belgian Law

Caroline DOS SANTOS reports on a decision of the Brussels Court of Appeal of 29 August 2018 in the RFC Seraing v FIFA saga. RFC Seraing, a Belgian football club, challenged the legality of FIFA’s ban on certain Third-Party Ownership (“TPO”) agreements. In its decision, the Court while deciding upon its own jurisdiction over the matter, reached the conclusion that the arbitration clause enshrined in the FIFA’s Statutes is overly broad and therefore, illegal in the eyes of Belgian law.

DECISIONS OF THE SWISS FEDERAL SUPREME COURT

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2018 in Review: A View from PR China, Hong Kong, and Central Asia

Wed, 2019-01-23 22:04

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

As the end of the Year of the Dog approaches, we look back at five noteworthy developments in the arbitration world in PR China, Hong Kong and Central Asia and their coverage on our Blog.

1. New HKIAC Arbitration Rules and the Prominence of Hong Kong as an Arbitral Seat

Hong Kong International Arbitration Centre (“HKIAC“) introduced its new Administered Arbitration Rules, which came into force on 1 November 2018 during HK Arbitration Week. These revisions were eagerly anticipated and reflected HKIAC’s insights into the latest trends and next innovation in international arbitration. Joe Liu, Deputy Secretary General of HKIAC, wrote a succinct summary of the revisions on our Blog.

Hong Kong also continued as one of the world’s leading arbitration hubs. In the Queen Mary University of London 2018 International Arbitration Survey, Hong Kong remained one of the five most preferred seats of arbitration globally.

Part of Hong Kong’s appeal as an arbitral seat, of course, lies in its pro-arbitration legislative regime. One of the hot topics in 2018 was the discussion on the effect and scope of third party funding legislation in Hong Kong. In particular, our contributors discussed disclosure obligations and potential pitfalls when dealing with third-party funding.

Discussions on arbitration issues in Hong Kong would inevitably bring up comparisons with Singapore – one contributor discussed this right before the Opening of the Legal Year in Singapore. An anticipated development in is the expected signing of the Singapore Mediation Convention on 7 August 2019.

2. First Emergency Arbitrator and New International Commercial Courts in China

China saw its first emergency arbitrator (“EA”) procedures under Beijing Arbitration Commission in PR China in 2018. Our Blog was the first to report on this with reflections by the emergency arbitrator himself on the conduct of the EA proceedings. This was a positive development and entirely in line with our expectation of increasing numbers of EA procedures in the upcoming year. Additional commentators also wrote on what a practice note on EA procedures should likely contain.

Further, there was talk about whether China’s new international commercial court would replace arbitration as a preferred dispute resolution forum for Belt-Road disputes. Our Blog published articles from contributors which provided clarifications on what the commercial courts actually are and analysed difficulties in choosing the commercial courts.

In 2019, we expect more developments regarding enforcement of international arbitral awards in China. Official statistics continue to be hard to come by notwithstanding the demand from arbitration users, but we hope to broaden the dialogue on this topic during the course of 2019.

3. Belt-Road Arbitrations in Europe, Africa and Latin America

China’s Belt-Road Initiative continued to be a hot topic in discussions on China-related arbitration topics. The main difference in 2018 was that we saw such discussions from other parts of the world – from Europe, Africa, North America to Latin America.

For example, a contributor discussed the implications of Belt-Road arbitration in Eurasia. Arbitral institutions also got on board: CIETAC (HK)’s Managing Counsel wrote about CIETAC opening its second arbitration centre outside mainland China in Vancouver, Canada; our Blog interviewed the CEO of China Africa Joint Arbitration Centre; ICC created the Belt and Road Commission in January 2018; and HKIAC announced a similar Belt and Road Programme in April 2018.

4. Live Coverage of HK Arbitration Week 2018

For the first time, our Blog gave real-time coverage of HK Arbitration Week this year with event reports and analyses from our contributors in the same week.

HK Arbitration Week has always been a highly anticipated event in the arbitration event calendar for the quality of the events. Our contributors wrote on efficiency in international arbitration proceedings for Asian users; how arbitration can be made fit for the future; how the vision of arbitration should be revised; and how the new HKIAC Rules may help in resolving IPP project disputes.

We enjoyed having each of you share in the events and insights virtually and look forward to reprising this coverage for HK Arbitration Week in 2019.

5. Central Asia and the Rise of the Astana International Arbitration Centre

With regard to Central Asia, our Blog discussed the new arbitration rules of Astana International Arbitration Centre. We think the lesser lights shone on arbitration in Central Asia in our Blog coverage do not reflect the obvious potential and reality of arbitrations involving Central Asia and we look forward to watching, and continuing to cover, developments in the region.

Finally, we thank you readers, contributors, Permanent Contributors, and affiliates for your fantastic support of our Blog.

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Are Arbitral Anti-Suit Injunctions Enforceable before Egyptian Courts?

Wed, 2019-01-23 02:34

Ibrahim Shehata

In May 2018, the Cairo Court of Appeals issued an intriguing judgment concerning the enforcement of an arbitral interim measure. In the words of the Court, the arbitral tribunal has issued a procedural order against Damietta International Ports (“DIP”) ordering the latter to refrain from suing the guarantor bank regarding the liquidation of a letter of guarantee issued in favor of DIP (“Order”). The Order was, in fact, an anti-suit injunction. DIP raised three arguments against the enforcement of the Order as follows:

  1. The Order is issued in favor of the guarantor bank which is rather a third party and is not a party to the arbitration agreement;
  2. The Order is a temporary conservative order and is not a final conclusive arbitral award, and therefore lacks the required res judicata effect to be enforced before Egyptian Courts; and
  3. The Order contravenes Egyptian public policy because it orders DIP to refrain from litigating a non-arbitral party in Egypt.

The Cairo Court of Appeals held explicitly that interim orders are covered by the New York Convention, provided that:

  1. The interim order is final;
  2. The interim order is issued based on a valid arbitration agreement;
  3. Both parties were offered the opportunity to present their case in the arbitration; and
  4. The interim order does not violate the Egyptian public policy.

Upon applying these criteria, the court determined that the Order satisfied all of these requirements. The question then becomes whether the Order in question was actually a final or a temporary one. In reciting the facts of the judgment, the Cairo Court of Appeals referred to the Order as a “procedural order providing for temporary and conservatory measures.” However, it seems that the Court has surprisingly reversed its opinion in its holding by considering that the Order was final rather than temporary.

On a side note, the final ICC award in this case was issued in January 2018, while the Cairo Court of Appeals reviewed the enforcement of the Order in May 2018. It is not clear whether the Order was later amended by the ICC arbitral tribunal in its final award.

If the Order was, in fact, a temporary one rather than a final one, then we should begin by citing Mr. Bravin who indicates that:

“The New York Convention has an enforcement regime that applies to awards. National courts that have applied the Convention have pretty uniformly concluded that an order imposing a provisional measure for relief is not an award. National courts cannot look to the Convention for authority to enforce such interim orders. It is not there.”1)Ziyaeva, Interim and Emergency Relief in International Arbitration (2015), at p.147. jQuery("#footnote_plugin_tooltip_3747_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3747_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In this regard, an order imposing a provisional temporary relief cannot be considered an award. Therefore, a clear distinction should have been made by the court between a temporary arbitral award that provides for a temporary relief, and interim awards that decide upon a certain issue in a final and conclusive manner. The reason why temporary arbitral orders are consistently not considered within the scope of the New York Convention is that temporary arbitral orders are usually accompanied with fewer integral formalities than arbitral awards. For example, a temporary arbitral order can be issued by the presiding arbitrator solely, and without any reasoning. Also, in the case of an ICC arbitration, a temporary arbitral order would not be subject to the typical scrutiny process followed by the ICC Court of International Arbitration with respect to arbitral awards. In a nutshell, temporary arbitral orders are not accompanied by the same safeguards accompanying arbitral awards. Further, article 298 of the Egyptian Code of Civil and Commercial Procedure (which concerns the provisions pertaining to the enforcement of foreign arbitral awards in Egypt) mandates that the foreign arbitral awards have the res judicata effect, and contain a decision upon the substantive matters of the dispute.

Furthermore, allowing an anti-suit injunction is still a blatant violation of the Egyptian Constitution and the Egyptian public policy. 2)Article (97) of the Egyptian Constitution provides that “Litigation is a safeguarded right guaranteed to everyone.” jQuery("#footnote_plugin_tooltip_3747_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3747_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This is because the Order was restricting the right of an arbitral party to sue a non-arbitral party (a third party). This is, in fact, an extension of a benefit to a non-party to the arbitration agreement. Arbitral tribunals should not be considered to have any authority to create rights for third parties. The Cairo Court of Appeals concluded that it does not have the authority to delve into the merits of the Order. The fact of the matter is that public policy mandates the reviewing courts to delve into the merits of the arbitral awards to a certain extent to verify their compliance with the public policy principles of the place of enforcement.

Furthermore, several other civil-law jurisdictions have uniformly considered that arbitral anti-suit injunctions violate their national public policy. In the words of a German Court dealing with an arbitral anti-suit injunction it stated that “such injunctions constitute an infringement of the jurisdiction of Germany.” 3)Judgment of 10 January 1996, Re the Enforcement of An English Anti-Suit Injunction, 3 VA 11/95, [1997] I.L.Pr. 320 (Oberlandesgericht Düsseldorf). jQuery("#footnote_plugin_tooltip_3747_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3747_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Moreover, Jean-Franðcois Poudret and Sébastien Besson assert that it is unlikely that an arbitral anti-suit injunction would be enforced under the auspices of the New York Convention. This is because it is an order and not an award 4)Jean-Franðcois Poudret, Sébastien Besson, Comparative Law of International Arbitration (2nd edn, Sweet & Maxwell, 2007) para. 639. jQuery("#footnote_plugin_tooltip_3747_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3747_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In this regard, a recent study reiterated the fact that anti-suit injunctions “will remain unrecognized under Egyptian law” unless article 298 undergoes an amendment by the Egyptian Legislative Authority.5)Shalaan, Wael S. E. Interim Measures in International Commercial Arbitration – A Comparative Study of the Egyptian, English and Scottish Law. jQuery("#footnote_plugin_tooltip_3747_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3747_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In conclusion, the Cairo Court of Appeals might have filled a void, but sorrowfully, it did so at the expense of confusing temporary arbitral orders with interim awards under the New York Convention, and also at the expense of fundamental rights under the Egyptian Constitution. Luckily, this is not a final conclusive judgment, and it is currently in the process of being reviewed by the Egyptian Court of Cassation.

References   [ + ]

1. ↑ Ziyaeva, Interim and Emergency Relief in International Arbitration (2015), at p.147. 2. ↑ Article (97) of the Egyptian Constitution provides that “Litigation is a safeguarded right guaranteed to everyone.” 3. ↑ Judgment of 10 January 1996, Re the Enforcement of An English Anti-Suit Injunction, 3 VA 11/95, [1997] I.L.Pr. 320 (Oberlandesgericht Düsseldorf). 4. ↑ Jean-Franðcois Poudret, Sébastien Besson, Comparative Law of International Arbitration (2nd edn, Sweet & Maxwell, 2007) para. 639. 5. ↑ Shalaan, Wael S. E. Interim Measures in International Commercial Arbitration – A Comparative Study of the Egyptian, English and Scottish Law. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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