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Is Iraq Fully Open for Business? Not Yet, But Very Soon | Iraq Energy Conference 2018

Fri, 2018-04-06 20:42

Noor Kadhim (Assistant Editor for the Middle East)

The 4th Iraq Energy Forum (IEF), coinciding with the 10th anniversary of the Iraq Energy Institute, took place this year on 28-29 March at the Rasheed Royal Tulip Hotel. Politically and economically, the context of this IEF was important. The context was that the global reconstruction package in Kuwait had been agreed with the IMF and others merely two months prior to the IEF, and the country is preparing for national elections. My intervention at the forum, upon the invitation of the IEF founder, Luay Al Khateeb, was to speak about the consequences of a development that many in the global legal community have been long been waiting for: Iraq’s future accession to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) which I have discussed in an earlier blog post, also in the context of the implications that Iraq’s membership of the treaty may have on foreign direct investment (FDI) and on improving Iraq’s business environment. The Iraqi cabinet’s welcome announcement that Iraq will finally join the New York Convention has surprisingly been under-publicised outside of national borders. However, it is not an insignificant decision, and Iraq is aware of this.

The IEF 2018 once again brought together many (over 400) participants ranging from Iraq’s economic and political decision-makers (government Ministry officials and representatives) to private sector companies (multinational banks and oil companies, and electricity and power companies). Besides the various international delegations, OPEC’s Secretary, Dr Barkindo, was the Forum’s guest of honour, as in 2017. His participation was key to the event as he commented on oil market share and added some insightful views on the OPEC/Non-OPEC Accord with respect to oil production cuts to balance market supply and demand.

Globally, the IEF again addressed oil (upstream and downstream) policy, and electricity/power policy, and to a lesser extent than in 2017, regional issues and the divergences between Kurdistan and federal Iraq oil policy.

In his interview with John Defterios (CNN’s anchor and emerging markets editor in the Middle East), the Prime Minister emphasised four main objectives during this critical time for Iraq: (i) encouraging Iraq to move from a purely oil-based economy (over 85% of its revenues are from crude oil) to a more diversified one, (ii) supporting and increasing private sector business and jobs (Iraq’s public-to-private sector jobs ratio (a massive 80/20), is probably the highest in the world), (iii) combatting corruption at all levels, and (iv) attracting foreign direct investment (FDI).

There was much optimism at the IEF 2018 for Iraq’s future thanks to the Kuwait conference but there was also some tension. This is only natural, given that the elections are imminent. There is a sense of urgency amongst the foreign and local businesses attending the forum, which was not as obvious in 2017. Last year, there was impatience amongst investors that transactions move quicker, and a desire that terms (at least with the international oil companies (IOCs)) be renegotiated to provide more balanced solutions for all stakeholders (government and business counterparties). This year, the impression was that it truly is now or never for Iraq to capitalise on the momentum generated by the Kuwait reconstruction conference and goodwill of the international community. As Alan Eyre, the Director of the Office of the Middle East and Asia for the US Department of State’s Bureau of Energy Resources, emphasised (hear his talk here (after 11:30 minutes)), Iraq cannot afford to procrastinate. It must get down to the business of concluding contracts with those states and companies willing to invest in rebuilding its infrastructure. There is no room for complacency because if Iraq does not deliver, investors will go elsewhere. One of my co-panellists for the Iraq Economy session expressed his view that the “jam tomorrow” attitude of the government towards private investors (where everything is promised but nothing delivered) should change. His concern was the bureaucracy surrounding what should be straightforward commercial transactions, leading to a stifling and strangling of the private sector. Indeed, the possibility of even more red tape was hinted at, at an energy conference held  in Berlin earlier this year. In addition to releasing new oil blocks to investors for exploration, Iraq’s ministry of oil has unveiled plans for a newthat it would create a “National Oil Company” to which operational decisions on international oil policy would be entrusted. Questions remain over the legitimacy and independence of such an entity (whether it truly can be separated from the Ministry of Oil, which has so far made all decisions on oil policy). Time will tell.

And yet, despite these concerns, the outlook for Iraq at the IEF 2018 remained optimistic. Capacity building has started already, with the recent recruitment of young, talented and ambitious Iraqi nationals to the Economic Reform arm of the Ministry of Finance. These hires are for the most part alumni of the world’s most established and respected investment banks. They will have a hand in forming the country’s economic policy.

The political backdrop of the IEF 2018 was important for another reason. The IEF 2018 is recognised to be a great networking opportunity for which senior staff from companies such as Honeywell, Siemens, Crescent Petroleum, Uruk, LUKOIL, BP, Deutsche Bank, JP Morgan, Petronas, Total, Exxon Mobil, General Electric and many others make a considerable effort to travel to. As such, it may have been used as a tool to facilitate and organise meetings ‘off-site’ between government and contractors/ investors to conclude or renegotiate deals. Some important meetings were happening on the fringes of the IEF 2018, such as the unforeseen meeting to which the Ministry of Oil invited investors on Day 2 of the conference. In that meeting, the MoO allegedly brought forward a deadline for the receipt of tenders for new oilfield concessions which were to be subject to a revised contract. According to the anecdotal evidence, the IOCs now have a challenging period of only 2 weeks (ending before the elections take place) to comment on the new contract and submit their bids. It is a process that would normally take not less than 6 weeks.

But attracting FDI to Iraq depends not only on meeting halfway with investors on contract terms and being reasonable. It is also crucial to provide investors with a stable legal framework for dispute resolution if those contracts are not respected, either by the government or by the private sector. In earlier posts, I highlighted (what for many readers of this Blog are obvious) implications of the ICSID Convention (for investment disputes) and the New York Convention (for commercial disputes) for Iraq. But what was interesting in IEF 2018 is that the same audience before whom I spoke last year, who were curious to know more about how arbitration (especially investment treaty arbitration and structuring) worked, now displayed a more savvy attitude. Between sessions, businesses approached me explaining issues they faced with certain government ministries (such as loss-causing delays on certain projects, cancelled licences) and with certain private companies (joint venture disputes, shareholder gripes). These companies are much more aware of the arbitral process; indeed, even the Iraqi state cannot be said to be ignorant. All parties are now looking for a way to solve the issues – which could involve a carefully considered and strategic arbitration, designed either to place pressure for settlement purposes, or be followed through to award stage.

I believe that on balance, the IEF 2018 was a success. As far as I am aware, unlike any other Iraqi global conference, it attracts a large and important cross-section of stakeholders who are interested and invested in Iraq’s future. The IEF 2018 has generated some important discussions. The mood at this year’s forum was even more positive that such discussions would soon translate to actions after years of stagnation at high-level. The Kuwait conference has spurred this. Iraq’s ambitious plans to ramp up its non-oil (power generation and communications, and construction) sectors are also a driving force. Its legislative activity (signing up to international conventions that have long gathered dust) are great indicators of the state’s eagerness to improve. For the arbitration community, this means not only acceding to important treaties like the New York Convention, but increasing capacity building in the institutions and relevant government departments. It is easy to forget how much this country has suffered in the last 45 years –  under Saddam’s rule and in the aftermath of the war that followed. No other country has suffered such a brutal sanctions regime. As John Defterios said, the resilience of the Iraqi people is truly astonishing. Hopefully, in time, Iraq will find its feet again, and truly be open for business.

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U.S. District Courts Rule Consent Awards Fall Within New York Convention

Thu, 2018-04-05 20:28

Ava Borrasso

ArbitralWomen

The importance of memorializing a settlement agreement into a consent award was recently highlighted in Transocean Offshore Gulf of Guinea Vii v. Erin Energy Corp., Case No. H-17-2623 (S.D. Tex. March 12, 2018). There, a Texas district court addressed whether a consent award is subject to confirmation in the United States pursuant to the New York Convention, as codified in the Federal Arbitration Act. The underlying case involved a contract dispute over drilling equipment and services located in waters off the Nigerian coast culminating in an arbitration before the London Court of International Arbitration.

The parties ultimately agreed to resolve their dispute prior to final hearing and asked the arbitrator to enter a consent award (as well as a partial award on costs that was not challenged). After the respondent failed to pay pursuant the terms of the award, the claimants sought to confirm the award in the Houston district court. The respondent moved to dismiss for lack of subject matter jurisdiction based on the contention that consent awards are not subject to New York Convention because the Convention is silent on the treatment of settlement awards. The respondent cited to a 2016 United Nations Commission on International Trade Law Secretariat Guide on the Convention which noted the silence of the New York Convention as well as the absence of any treatment in case law. The respondent also argued that the LCIA rules, absent other agreement of the parties, require the issuance of a reasoned award. Because the consent award lacked reasons, the respondent contended that it did not constitute an “award.”

However, prior to the court’s decision, an intervening decision by a New York district court addressed a similar argument which it handily rejected. In Albtelecom SH.A v. UNIFI Communs., Inc., Case No. 16 Civ. 9001, 2017 U.S. Dist. LEXIS 82154 (S.D.N.Y. May 30, 2017), the court confirmed a consent award arising from an ICC proceeding. The Texas district court therefore relied on Albtelecom and held that “[n]o binding or persuasive statutory language or case law requires a court to hold that a tribunal must reach its own conclusions, separate from the parties’ agreement, to make a valid, binding award subject to the Convention” and that such a rule “would dissuade parties from seeking arbitration in the first place or benefitting from the efficiencies it is meant to provide.”

The court also noted the rationale discussed in Albtelecom that the parties could have simply resolved their dispute by private settlement agreement but instead elected to request a consent award. As the remedies for breach of a settlement agreement culminating from an arbitration proceeding are generally more cumbersome than confirmation of a consent award, both decisions highlight the advantages of taking this further step to memorialize settlement agreements through issuance of a consent award when feasible.

Albtelecom further underscores the complications of enforcing a settlement agreement arising from international arbitration proceedings. In that case, the petitioner sought to confirm a consent award issued by an arbitrator from an ICC proceeding. Even more, the petitioner sought damages for breach of the award pursuant to its terms. The respondent sought to dismiss or stay the case, first arguing that the consent award was issued outside of the arbitration and not subject to confirmation under the New York Convention.

The court rejected that argument stressing that the parties requested that the arbitrator enter the award, reviewed and commented on a draft form of the award, and otherwise operated within the context of the arbitration. The court confirmed the consent award as within the scope of the New York Convention.

The next issue was more problematic. In addition to seeking confirmation of the award, the petitioner sought damages for its breach. The consent award included a clause that, if breached, the petitioner was entitled to recover a greater amount, and also provided that disputes unrelated to payment required resolution through arbitration in Switzerland. The respondent next argued that factual circumstances had changed following issuance of the award that excused payment and advised the court that it had instituted an ICC arbitration in Switzerland to resolve those issues.

The court decided it lacked a sufficient record to resolve the damages claim and asked the parties to provide further briefing in the event that the petitioner decided to pursue the claim in the district court. The court also asked the parties to provide briefing as to the proper forum to resolve the pending damages issues.

Albtelecom and Transocean Offshore appear to resolve whether consent awards are subject to confirmation pursuant to the New York Convention in the United States. In doing so, they not only demonstrate the advantage of memorializing a settlement agreement into a consent award when the tribunal is inclined to do so, they also highlight issues that may arise post settlement. Despite the agreement of the parties, these cases demonstrate the care required in fashioning consent awards and details for subsequent proceedings in the event of breach.

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A Preview of the Forthcoming ICCA-Queen Mary Report on Third-Party Funding

Thu, 2018-04-05 04:05

William (Rusty) Park, Stavros Brekoulakis and Catherine A. Rogers

As the three co-chairs of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, we are pleased to announce that the final Report will be launched at the ICCA Congress in Sydney with an extraordinary group of experts, including Donald Donovan, Ania Farren, Jean-Christophe Honlet, Gabrielle Kaufmann-Kohler, Julian Lew, Audley Sheppard, and Lawrence Teh. We provide below a brief overview of the Report.

The Task Force was a joint effort established in 2013 between ICCA and the Institute for Regulation and Ethics, School of International Arbitration, Queen Mary University of London. With over 50 members representing over 20 jurisdictions from around the world, the Task Force includes arbitrators, in-house and external counsel, individuals who work for various governments, academics, and third-party funders. Since its inception, the Task Force undertaken sustained study and discussion of the key issues arising from third-party funding of arbitration.

The work of the Task Force and its Report also benefitted from extensive consultations, individual comments, and numerous roundtable discussions and public symposia. During a public comment period that extended from 1 September through 31 October 2017, the Task Force received over sixty written submissions from individuals, law firms, and organizations. It also benefitted from many additional comments both at the roundtables and symposia organized by the Task Force co-chairs, and several other events at which the draft was discussed.

It is important to note at the outside that, in light of how rapidly international arbitration practice and funding models are evolving, the ICCA-Queen Mary Report does not aim to be either definitive or permanent. Changes in the field and considerations that arise within in particular regulatory contexts may require reconsideration of its contents and analysis. While this Report will not be the last word on issues relating to third-party funding, we believe it develops an important set of conceptual frameworks and analysis that are much needed. It also articulates clear Principles that the Task Force hopes will provide concrete guidance now and a foundation for future work in the area.

In terms of substance and organization, the Report has 8 chapters. The first three chapters provide introductory and background material. The Introductory Chapter 1 explains the background on the Task Force and its work. Chapter 2 provides an overview of the market and mechanics of third-party funding. It examines the reasons parties seek funding, and the process third-party funders use to evaluate whether to fund a dispute. It then provides a descriptive overview of the range of means for financing disputes, including both modern case-specific non-recourse funding and a range of other sources that serve similar functions.

Building on Chapter 2’s overview of the forms of funding, Chapter 3 examines the definition of third-party funders and third-party funding, and issues relating to definitions. Specifically, Chapter 3 provides broad Working Definitions of “third-party funding” and “third-party funders” that underlie the Task Force’s deliberations. The chapter also examines the reasons for particular language in different possible definitions, surveys the range of definitions that have been adopted by various other sources, and analyses the functional features of different means of dispute financing that relate to how they are definitionally categorized.

Despite adopting a broad Working Definition for the purposes of its overall analysis, the Task Force recognized that addressing particular sub-issues required more narrow definitions that focus attention on the target of specific inquiries. For example, not all types of funding that are relevant to an assessment of potential conflicts of interest may be relevant for an assessment of a request for security for costs, and vice versa. For this reason, Chapter 3 concludes by examining how different definitions affect analysis of particular issues addressed in subsequent chapters.

After the chapter on definitions, the Report turns to three substantive chapters on each of the following topics: Disclosure and Conflicts of Interest (Chapter 4), Privilege (Chapter 5), and Costs and Security for Costs (Chapter 6). Debate existed on the Task Force about what form any work product should take. On the one hand, there was a desire to avoid contributing to what some regard as an overcrowding of rules and guidelines. Ultimately, it was decided that the essential conclusions of each chapter, particularly given the length of the overall long report, should be easy to reference. For that reason, each of these chapters begins with a distilled set of Principles, which serve to summarize the essential conclusions of the relevant chapter.

The body of each of these substantive chapters both identifies relevant sources and articulates competing viewpoints the Task Force considered in reaching these Principles. They also explain the reasons why particular viewpoints were eventually incorporated into the Principles instead of others.

Chapter 4 addresses the issue of disclosure and potential arbitrator conflicts of interest. Consistent with other recent sources, the principle it articulates requires disclosure of the existence and identity of third-party funders to facilitate analysis of potential conflicts, but not (for the purposes of conflicts analysis) any other provisions of the funding agreement. It both proposes systemic disclosure by parties and counsel to arbitrators to facilitate assessment of potential conflicts, and confirms that arbitrators have the power to request disclosure of the presence and identity of any funder. The chapter does not, however, provide any new standards for assessing conflicts, but instead refers such issues to existing law, rules, and guidelines. In its analysis the chapter provides a detailed survey and analysis of other disclosure obligations.

Chapter 5 addresses confidentiality and privilege. It examines international standards for evaluating privilege, and provides a survey of national differences regarding privilege, particularly the contrasting treatment by common law and civil law jurisdictions of information and communications provided to third-party funders for the purpose of obtaining funding or performing under a funding agreement. The analysis in the chapter is supported by an online Appendix, which collects national reports indicating how different jurisdictions treat issues of privilege with respect to third-party funding. Specifically, the chapter recommends that, despite national variances, tribunals generally treat information shared with a third-party funder as protected against disclosure.

Chapter 6 takes up the issue of costs and security for costs. It analyses existing standards for allocating costs and for granting security for costs, based largely on investment arbitration case law. It concludes that the existence of funding is not generally relevant to such determinations, but examines exceptions that may exist.

Chapter 7 collects the Principles articulated in other chapters, and provides a summary of best practices in funding arrangements. Task Force members generally agreed that most aspects of funding arrangements were dealt with in the private agreements between funders and a funded party. Consequently, it was decided that a statement of existing best practices would be the most useful means of providing guidance to new parties seeking funding, new third-party funders entering the market, and the increasing number of arbitrators and counsel that are encountering funding for the first time. The chapter concludes with a checklist of considerations that provide additional guidance for the due diligence process.

Finally, Chapter 8 examines third-party funding in investment arbitration. The analysis in each of the foregoing chapters also addresses issues and sources regarding third-party funding in investment arbitration, but those chapters focus on analysis of the current state of the law. Chapter 8, instead, seeks to examine some of the broader policy issues that may affect how the Principles of this Report are applied in investment arbitration, and a limited range of specialized issues that have arisen with respect to funding in investment arbitration.

This Chapter does not seek to offer concrete answers on these policy questions, but instead proposes areas for future research and consideration. Even with more modest goals, the process of drafting this Chapter presented many unique challenges. One of the primary challenges was linguistic. The language used by different stakeholders in debates about investment arbitration can be particularly stark. Terminology that is part of the basic lexicon of one group of stakeholders is often regarded by those with competing views as inherently biased or unduly inflammatory. Despite these challenges, this Chapter aims to provide a fair-minded and full-throated presentation of competing viewpoints in a manner that respects particular stakeholders’ frame of reference, but also facilitates meaningful discussion. Importantly, this final Chapter was produced in consultation with several individuals that work with or represent States, as well as numerous representatives from civil society and other interest groups.

As co-chairs of the Task Force, beyond the initial launch, it is our hope that parties, counsel and arbitrators will find the Principles and analysis in the Report helpful in addressing issues that arise in the course of an arbitration, in entering into a funding agreement, and in continued discussions and debates regarding third-party funding.

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The Act is not the entire story: How to make sense of the U.S. Arbitration Act

Tue, 2018-04-03 22:22

Ylli Dautaj

The central point of this note is that the U.S. law of arbitration is not clear from the text of the Federal Arbitration Act (FAA). The FAA is archaic and in need of updating. The FAA is the oldest – but still functioning – arbitration statute in the world. Case law has rewritten much of its content, so that the statute’s true content is buried in federal decisional law. Foreign-trained lawyers or scholars especially are unlikely to understand the U.S. law of arbitration through the statute.

The U.S. Supreme Court has played an important role in developing international commercial arbitration (ICA), which in turn has played a huge role in developing and recrafting the U.S. law of arbitration. The Supreme Court early on distinguished international and domestic agreements in order to broaden the subject-matter arbitrability of the former. This would account for, among other things, global realities and international comity. For example, securities and antitrust disputes came to fall within the ambit of arbitrability in ICA.

The Supreme Court later relied on the precedents established in ICA related cases in order to justify the creation of, for example, securities arbitration in domestic arbitration (see Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220 (1987) and Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989)). This author thinks that the U.S. Supreme Court has justified the widening of subject-matter arbitrability in a domestic setting on the basis of (1) being pro-arbitration, and (2) on precedent that was initially based on the distinction between international and domestic agreements.

This note will highlight three cases that demonstrate the importance of judge-made law in U.S. arbitration: The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972); Scherk v. Alberto-Culver Co., 417 U.S. 506, reh’g denied, 419 U.S. 885 (1974); and Mitsubishi Motors Corp. v. Soler Chrysler-Playmouth, Inc., 473 U.S. 614 (1985). In Arbitration Law in a Nutshell, Professor Carbonneau describes this “trilogy” as one of four pillars of U.S. arbitration. It represents the fourth pillar – the international one. As Professor Carbonneau writes, the case law has established that: (1) arbitration is vital to the resolution of labor and management disputes; (2) the FAA can preempt contrary state laws on arbitration; (3) arbitrators have substantial authority to resolve matters of arbitral procedure; and (4) some of the international arbitration cases have “played a decisive role in crafting the general domestic doctrine on arbitration [and] […] [given] rise to another string of cases on subject-matter or statutory arbitrability.” This note will discuss part of the fourth – international – pillar, only.

Case Analysis

In Scherk, the parties agreed to arbitrate in Paris. Alberto-Culver alleged that Scherk’s breach violated the 1933 Securities Act and the 1934 Securities Exchange Act. Could that issue of regulatory law be resolved by arbitrators? The court in Scherk held that:

A parochial refusal by the courts of one country to enforce an international arbitration agreement would not only frustrate these purposes, but would invite unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages.

[…]

For all these reasons, we hold that the agreement of the parties in this case to arbitrate any dispute arising out of their international commercial transaction is to be respected and enforced by the federal courts in accord with the explicit provisions of the [FAA].

With this decision, the Supreme Court of the United States took a leadership position in the elaboration of the legal doctrine on ICA. It concluded that contracts for arbitration were vital to both global commerce and international contracting. The ruling in favor of “international comity” was followed by the Court’s decision in Mitsubishi. There, the Court cited Scherk with approval and determined that there was a virtually irrebuttable presumption favoring enforcing freely-negotiated transborder contracts. It decided that antitrust disputes arising from national law were arbitrable as a general matter, and international arbitrators could rule on the application in that particular case.

U.S. courts also favor arbitration and arbitrability at the enforcement stage of the arbitral process. For example, in The Bremen (which involved the enforcement of a forum-selection-clause) the Court stated that international commercial contracts implicate special policy concerns and the “[d]omestic strictures on judicial jurisdiction and the enforceability of contract provisions had to yield to the provisions in the parties’ bargain.” Professor Carbonneau has analyzed this case as follows:

The Court emphasized new global commercial realities and asserted that legal doctrine should be made to respond to them in a nonsectarian fashion. In matters of transborder litigation, the function of domestic courts was not to create legal roadblocks to, or compete with, arbitration for jurisdictional supremacy.

[…]

The Bremen is the first case in which the Court established a marked boundary between law for domestic and international matters, holding that domestic rules could be unsuitable for application in the international sector and that these rules should be disregarded or modified when such a conflict emerged.

As Professor Carbonneau has written, Scherk and Mitsubishi established that a “special regime emerged for international business contracts “allowing international arbitrators” to rule upon claims based upon U.S. regulatory law.” The Court blurred the distinction between domestic and international arbitration in relation to subject-mattter arbitrability and “made universal subject-matter arbitrability an integral part of U.S. domestic law.” The Court was willing to facilitate arbitration and protect and implement its “purposes.” Through the Court’s doctrine, the U.S. legal system had taken a business efficient and effective pro-arbitration stance. U.S. courts would enforce international dispute resolution clauses providing for arbitration that may not have been enforceable domestically. The Court had established a federal policy favoring international commerce and arbitration.

In both McMahon and Rodriguez de Quijas the Supreme Court interpreted Mitsubishi and Scherk to support its reasoning in order to discredit  the Wilko Doctrine (see Wilko v. Swan, 346 U.S. 427 (1953)). These two cases led to the creation of what Professor Carbonneau calls “securities arbitration.” This author is of the view that the Supreme Court failed to mention that the international aspects in the above-mentioned trilogy was crucial for those holdings.

Concluding Remarks

The pro-arbitration stance has led to the growing scope of arbitrability in ICA and subsequently in domestic arbitration, too. Possibly, a growing scope of arbitrability might lead to “judicialization” of arbitration. “Judicialization” of arbitration might be a good thing, but it can also be the opposite. This author wants to remind the reader of two crucial distinctions; that is, (1) there is a significant difference between domestic and international arbitration, and (2) the “pros” of arbitration—confidentiality, flexibility, speed, costs, etc.—might slowly diminish with a “judicialization” of arbitration. However, the growing scope of arbitrable cases may help in reducing the back-log of courts in civil matters and provide for further expertise to the dispute, and therefore the pro-arbitration stance might sit well with judges and the business community. Notwithstanding this, cases including, among other things, issues of antitrust and securities might have a public importance that trumps the pro-arbitration stance in domestic arbitration. While public interest may trump pro-arbitration sentiments domestically, it could be decided that it does not trump the growing scope of arbitrable cases in ICA. This is because of “international comity” and the need for a predictable ICA system. With that said, the U.S. courts will still have the enforcement stage available to ensure that their securities and antitrust laws have been properly enforced. The New York Convention guarantees the public policy exception to enforcement or recognition of arbitral awards.

While these cases do not paint the entire picture of U.S. arbitration law, they indicate the origins of its evolution. For purposes of informing oneself on the content of U.S. arbitration law, the case law on the FAA is vital. This author has benefited extensively from – and would take this opportunity to recommend – Professor Thomas Carbonneau’s 4th edition on “Arbitration Law in a Nutshell.”

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Kluwer Mediation Blog – March Digest

Tue, 2018-04-03 03:13

Anna Howard

“It turns out that the “little things” are in fact the “big things”. Forget to focus on them, and we are doomed to fail. Forget to value them, and we will find ourselves chasing shadows and permanently dissatisfied.” Bill Marsh

This wonderfully wise advice from Bill Marsh’s latest post on the daily work of the mediator has much wider resonance beyond the context of mediation. A summary of Bill’s post and all the other posts on the blog last month appears below. We hope you enjoy the wide range of topics addressed on the blog last month.

In Dung Beetles and Basics, Bill Marsh identifies the basics that lie at the heart of what mediators do and emphasises the importance of doing these basics well. Bill offers this comprehensive and thoughtful description of the “stuff of mediation”:

“Whilst we may dream about the dramatic moments, real progress and transformation is usually achieved through the little things – the small acts of respect, such as listening to someone who hasn’t been properly heard for a long time, acknowledging people’s right to make their own decisions while feeling able to engage them in a serious discussion about the wisdom of their choices, the odd humorous line, the power of a silence. This is the “stuff” of mediation, the raw material at our disposal. Pretty much all progress is made up of this “stuff”. There are no short-cuts.”

In Turkey: Mandatory Mediation is the new game in town, Idil Elveris provides a comprehensive overview of Turkey’s new mandatory mediation regime for labour disputes. Idil explains the path to the adoption of mandatory mediation and identifies the challenges presented by this development.

In Mediation Inside Out, Andrea Maia draws on a recent talk by Toby Landau QC and an article by Eryn J. Neumann and Maryanne Garry as she considers the nature of false memories and how understanding more about false memories can help mediators to better serve their clients.

In Reasons to Mediate, Constantin-Adi Gavrila identifies a number of insights which he recently gained regarding the various perceptions of mediation of those who are not familiar with mediation. Constantin also challenges some of these perceptions and clarifies why they may be held.

In A Convention on the enforcement of iMSAs… AND a new model law, Nadja Alexander summarises the recent developments at UNCITRAL Working Group II (Dispute Settlement) 68th session in New York and identifies the next steps which are needed before the mediation community gets its own “New York Convention.”

In Dirty Tricks in Mediation, Martin Svatos identifies a number of dirty tricks which he has witnessed in mediation and considers the drawbacks of using such tricks.

In Separate the People from the Problem – or the Person from the Action. Strategy or Compassion? In Theory and in Practice, Greg Bond considers Ury and Fisher’s recommendation to separate the people from the problem and, drawing on the work of Noah Levine, suggests a different approach. Greg suggests separating the people from the action which allows us to finally see the confused human being behind his or her hurtful act.

In Optimising the Use of Joint Sessions in Mediation, John Sturrock questions whether the use of the joint session in mediations is really in demise and draws on a recent mediation to highlight the abundant use by the parties of joint sessions.

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Expedited Arbitration at the SCC: One Year with the 2017 Rules

Mon, 2018-04-02 03:15

Anja Havedal Ipp

“In its origins, the concept of arbitration as a method of resolving disputes was a simple one . . . . Two traders, in dispute over the price or quality of goods delivered, would turn to a third whom they knew and trusted for his decision.” (Redfern & Hunter 2014 at 1-03)

Arbitration has strayed quite far from this rosy picture, as business transactions have grown ever more complex and globalized over the past several decades. The trend has consistently led toward longer, more complex and resource-intensive proceedings, causing some users to complain of arbitrations that are over-lawyered and overly sophisticated and neither quicker nor more efficient than proceedings in national courts.

Expedited arbitration stands in contrast to this trend; arguably, it still bears some resemblance to Redfern & Hunter’s portrayal of arbitration’s origins. In an expedited proceeding, the dispute is heard by a sole arbitrator, and the parties are allowed a limited number of submissions and shorter time frames than in a typical arbitration.

In 2017, the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) launched revised Rules for Expedited Arbitration (“Expedited Rules”), following a two-year review that took into account user feedback and the Institute’s own experience. The revision process sought to update the Expedited Rules and offer users an even more streamlined, efficient and cost-effective dispute resolution process. One year after the revised rules entered into force, the following observations can be made.

  • Front-loading the case. One significant change in the 2017 Expedited Rules was that the Request for Arbitration also constitutes the Statement of Claim, and that the respondent’s Answer also constitutes the Statement of Defence (Art 6 & 9). This “front-loading” of the case aims to save time by having the main submissions in place when the arbitrator receives the case file. The rules do not stipulate a time limit for the respondent’s Answer, but the SCC typically gives four weeks from when the respondent is served. Although some observers were nervous that this “front-loading” would create confusion among users and counsel, the new procedure has been welcomed by parties and arbitrators alike and has worked well in practice.
  • Limited submissions, short time frames. The 2017 Expedited Rules stipulate that each party may make one supplementary written submission in addition to the Request for Arbitration and the Answer (Art 30). The arbitrator may, of course, request the parties to make additional submissions if the circumstances are compelling. The rules also specify that submissions should be brief and, importantly, that the timeframe for submission must not exceed 15 working days; this time may of course be extended by the arbitrator when necessary. In the spirit of expediency, the rules also require that a case management conference be held promptly after referral, and that a timetable be set within seven days. In the SCC’s experience, arbitrators, parties and counsel generally accept and comply with these deadlines.
  • No hearings. As a main rule, an expedited arbitration should be in writing, but in practice a brief hearing is often held. In the 2017 Rules, the provision relating to hearings was revised so that a hearing is to be held only if a party so requests and if the arbitrator considers that special reasons exist (Art 33). So far, a hearing has been held in about one-third of the cases initiated under the 2017 Expedited Rules. The absence of a hearing typically contributes to a quicker resolution of the dispute. In 2017, 54 percent of awards under the expedited rules were rendered within 3 months of referral, and another 38 percent within 6 months.
  • The arbitrator’s mandate. Prior to the revision of the Expedited Rules, some arbitrators complained that the parties’ expectations of the arbitral proceedings did not match the framework of the rules. This motivated several changes in the revised rules; notably, the arbitrator was given a greater mandate to limit the proceedings and reject parties’ requests for further submissions or longer hearings. The Expedited Rules now support the arbitrator’s efficient handling of the dispute even in situations where the parties cannot agree on the procedural framework. The article regarding the conduct of the arbitration now places greater emphasis on efficiency and expediency, and instructs the arbitrator to “consider at all times the expedited nature of the proceedings” (Art 24).
  • Rules upgrade. The Expedited Rules apply only where the parties have so agreed. Most commonly, this is by stipulation in the arbitration agreement, but it also happens that the parties agree on the expedited procedure after a dispute has arisen. A new provision was introduced in the 2017 Expedited Rules whereby the SCC may invite the parties to “upgrade” to the regular Arbitration Rules (Art 11). In assessing whether a dispute is suited for expedited arbitration, it is not necessarily the value of the parties’ claims that is determinative; the question is rather if the complexity and the nature of the dispute allows for it to be decided through a limited written exchange and without extensive oral evidence.

Of the 200 new arbitrations registered by the SCC in 2017, 72 were expedited cases. This was a significant increase over previous years; typically around one-fourth of the total SCC caseload have been disputes under the Expedited Rules. In 2016, there were 55 expedited arbitrations out of 199 total.

Most of the expedited arbitrations administered by the SCC are related to commercial agreements between small and medium-sized companies in Sweden, or within the EU. These disputes often arise out of relatively limited, straightforward business transactions where there is no need for full-fledged arbitration, or where the value of the transaction makes regular arbitration cost-inefficient. Through the expedited arbitral proceeding, the parties receive a quick and just resolution to their dispute, allowing them to get back to business. Sometimes, the parties’ business relationship even survive the brief arbitral process.

In agreeing to arbitrate under the Expedited Rules, arbitration users are aware of the limited scope of the procedure; in a sense, they are agreeing to resolve their disputes in the same spirit as the merchants in Redfern & Hunter’s historical retrospect on arbitration. Perhaps this procedural simplicity is precisely what has made expedited arbitration an increasingly attractive dispute resolution method.

 

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Navigating Specialist Energy and Natural Resources Arbitration in East Africa

Sun, 2018-04-01 03:00

Wairimu Karanja

The countries of Africa are nascent economies, some with well developed, and most with burgeoning energy and natural resources (ENR) sectors. With the vast resource of wealth comes a greater expectation of economic development and a greater interest in ENR and infrastructure investment. Disputes are often inevitable, considering the vested interests involved. Navigating ENR arbitration has become increasingly important, especially for African arbitrators and arbitration practitioners.

This post will focus on ENR arbitration in the East African countries of Kenya, Tanzania and Uganda, and will discuss: an overview of ENR investment in East Africa; East Africa’s international arbitration regimes; dispute provisions in ENR agreements and laws; peculiarities ENR disputes; main causes of ENR disputes; selected ENR disputes in the region; and involvement of East African arbitrators and practitioners. The article will conclude with suggestions for arbitrators and practitioners to be better equipped to navigate specialist ENR arbitration involving East Africa.

ENR Investment in East Africa

East Africa has made major strides in national and cross-border ENR development.

In oil and gas, Uganda’s crude oil reserves stand at 3.5 billion barrels, and Kenya’s at 750 million barrels. Tanzania’s gas reserves stood at 57 Trillion Cubic Feet (TCF) in 2016.

In October 2017, the Kenya Government signed a joint development agreement (JDA) with Tullow Oil, Africa Oil and Maersk Oil for the USD 2.1 Billion, 820 Km Lamu-Lokichar Crude Oil Pipeline. Uganda and Tanzania are constructing a 1,445 Km crude oil pipeline at a cost of USD 3.5 Billion with Tullow, Africa Oil and Maersk Oil.

In mining, Tanzania’s 2015 mineral exports amounted to USD 1.37 Billion (24% of total exports). Titanium mining is dominant in Kenya. Uganda’s main minerals include cobalt and gold.

In power, all three countries are members of the 10 member Eastern African Power Pool (EAPP). The EAPP aims to increase regional power generation from 63 gigawatts (GW) in 2015, to 6,110 GW in 2025 and regional transmission by 3,000 Kms with a capacity of over 6,000 megawatts (MW).

The above, and others, will require substantial investment by large and small players.

East Africa’s International Arbitration Regimes

All countries are members of the International Centre for Settlement of Investment Disputes (ICSID) and signatories to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. Kenya and Uganda are members of the Permanent Court of Arbitration (PCA).

Kenya’s Arbitration Act of 1995 and Uganda’s Arbitration Act of 2000 are based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration.

Regionally, the East Africa Court of Justice (EACJ) seated in Arusha, Tanzania, has an arbitration court. Further, IGAD, in partnership with the Djibouti Chamber of Commerce, is developing the Djibouti International Arbitration Centre (DJIAC).

Nationally, Kenya has 3 international arbitration institutions: CIArb – Kenya Branch; the Nairobi Centre for International Arbitration (NCIA) and the ICC Regional Office. Uganda has the Centre for Alternative Dispute Resolution (CADR). Tanzania has the Tanzania Institute of Arbitrators (TIA).

Dispute Provisions in ENR Agreements

Kenya’s 2015 Model Production Sharing Contract (PSC) provides for arbitration under UNCITRAL Rules with ICSID as an appointing authority. Under the Kenya Mining Act 2016, dispute resolution in mineral agreements should be through international arbitration, and mineral rights disputes should undergo mediation or arbitration.

Under the Kenya Energy Act 2006, licensing disputes should undergo arbitration. The Kenya standardized power purchase agreement (PPA) for above 10 MW provides for arbitration under the Kenyan Arbitration Act or the ICC Rules.

In Tanzania, the 2013 Model production sharing agreement (PSA) provides for arbitration under ICC Rules.

In Uganda, the 1999 Model PSC provides for arbitration under the ICSID Rules. Further, Uganda’s Mining Act 2003 provides for mineral agreement disputes to undergo international arbitration, and mining rights disputes to be settled by arbitration.

Peculiarities of ENR Disputes

The sovereignty of natural resources is vested in the people and managed by governments and this is recognized under international laws such as the United Nations Convention on the Law of the Sea (UNCLOS) and under National laws. Disputes, therefore, mainly involve governments.

Due to a government being a party, one peculiarity is that national legislation may have a special government dispute procedure. For instance, in Kenya, the Government Proceedings Act has special party and notice requirements.

Investor-State disputes can be directly under investment contract (PSA, PPA, Mining Agreements) or under Bilateral Investment Treaties (BITs).

A dispute can also be state-state, such as the Kenya-Somalia maritime dispute at the International Court of Justice (ICJ) and the Tanzania-Malawi dispute over Lake Nyasa/Lake Malawi.

In ENR arbitration, amounts involved are significant, and disputes can be highly technical. Involvement of forensic experts and technical sectoral experts is common, if not a necessity.

Another peculiarity is that disputes are highly emotive and may have a political angle. Sometimes, termination is not about the facts, but about national sentiments, political opinions and election cycles.

Main issues in ENR disputes

The main ENR dispute issues are:

(a) Resource nationalism. This can be direct, for instance, after political unrest, where the government takes over projects. It can be indirect through a change in law and change in taxation regimes.

(b) Local content. The East African countries have growing local content regimes. Local content requirements may cause contract cancellation for not meeting thresholds or disputes between foreign companies and local partners.

(c) Resource price volatility in oil, gas and mining. Governments globally are known to implement production share, taxation and royalty to cover price volatility.

(d) Project delays. This leads to cancellation or contracts by governments, or delay compensation claims by investors.

Select East Africa ENR Arbitrations

At ICSID, Tanzania has had four ENR arbitrations, with one concluded and three pending. The parties include the Tanzania government, the Tanzania Electricity Supply Company (TANESCO), Independent Power Tanzania Limited (IPTL) and Standard Chartered Bank (Hong Kong) relating to PPAs.

Uganda has had three petroleum sector investment arbitrations at ICSID, with one concluded and two pending. The claimants have been Tullow Uganda and Total E&P. The Tullow Uganda cases entail petroleum agreements worth about USD 2.9 Billion.

Kenya has two pending ENR arbitrations at ICSID: a 2015 geothermal licence case by Walam Energy worth approximately USD 620 Million; and a 2015 mining case by Cortec Mining and Stirling Investment, worth about USD 2 Billion.

The ICSID cases are available on the ICSID website.

With the increased investment and recent and on-going changes in law, arbitration in East African ENR has potential to grow.

Involvement of African Arbitrators and Practitioners

Each of the ENR cases discussed had a three-member tribunal. Only two African arbitrators were appointed in two cases: David Unterhalter (South Africa) in Standard Chartered v Tanzania; and Swithin Munyantwali (Uganda) in Walam Energy v Kenya.

African counsels included private practitioners and ministry/state counsels. Generally, there is a shortage of African arbitrators, and further, a shortage of African women arbitrators. Prominent ICSID women arbitrators include: Brigitte Stern (French) – Cortec Mining v Kenya and StanChart v Tanzania; and Jean Kalicki (US) – Tullow v Uganda.

In the ICSID Panel of Arbitrators (women): Kenya has nominated Ms. Jacqueline Kamau and Ms. Njeri Kariuki; Tanzania has nominated Ms. Verdiana Nkwabi Macha; Uganda has no female nominee. It is hoped that these East African women arbitrators and more, will obtain appointments in ICSID cases.

Conclusion

The potential for international investment and commercial arbitration in the East African ENR sector is significant. How can East Africans seize the opportunities?

There should be greater exposure and recognition. Arbitrators should list themselves as energy arbitrators in institutional databases such as CIArb, ICC, LCIA, NCIA and other centres. Arbitrators and Practitioners should publicise their expertise (subject to confidentiality) and participate in arbitration conferences.

There should be an awareness of industry best practices, and country energy and mining laws, noting recent overhaul changes.

There should be an appreciation for the need for technical experts (drilling, piping, electricity charges, energy charges, taxation) and forensic experts in calculating quantum.

Very importantly, one needs to be aware of local realities, but be objective and steer clear of political issues.

Finally, keep learning. National centres like CIArb-Kenya, CADR in Uganda and TIA in Tanzania can offer courses on ENR arbitration. Other organisations include the International Law Institute-Africa Centre for Legal Excellence (ILI-ACLE) in Uganda and the London Centre for International Law Practice (LCILP) – Centre for Energy and Natural Resource Law.

Opportunities abound for East African arbitrators and arbitration practitioners in ENR arbitration. With targeted efforts, regional practitioners can more strategically compete in the global arbitration market.

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Les Jeux Sont Faits: Swiss Supreme Court Upholds Investment Treaty Award against Public Policy Challenge in a Gambling Case

Sat, 2018-03-31 01:05

Georg von Segesser

The Swiss Federal Supreme Court, in a rare appeal against an award in a bilateral investment treaty arbitration, confirmed its statutory restraint in reviewing arbitral awards pursuant to article 190 of the Private International Law Act (“PILA”) and rejected the host state’s request to set aside the award for violating substantive public policy. (Case 4A_157/2017, 14 December 2017)

Facts of the Case

Following the development of a market economy in the 1980s, State X undertook different measures to regulate gambling, including low-stakes gambling with slot machines. The relevant regulation was strengthened over the years, with concurrent increases in taxation. In 2009, following a scandal involving members of X’s government, the regulations were again increased. With this change, all new slot machines were prohibited, with existing slot machines being allowed to remain in operation until the expiration date of their current authorization. This change too was accompanied by an increase in the taxation of slot machines.

Since 2004, three companies organized according to the laws of the State Y (which had entered into a bilateral investment treaty (“BIT”) with State X) were active in X through participations in local companies operating slot machine. While these companies continued to operate their existing slot machines, the increased regulatory and fiscal burden led them to retire most machines and abandon the market entirely in 2015.

In 2014, A, B and C (the State Y companies), after failed conciliation attempts, submitted a request for arbitration against X. They claimed damages, arguing that they were victims of a violation of the fair and equitable treatment (“FET”) clause in the BIT between X and Y.

A three-member arbitral tribunal was constituted with seat in Geneva, which handed down its final award on 16 February 2017. The arbitral tribunal found that X had violated the BIT’s FET clause and ordered it to pay 37M zlotys, with interest. While the Arbitral Tribunal did not find that the companies had been victims of unlawful expropriation, it held that the strong increase in taxation constituted a violation of the FET standard, which warranted the payment of damages to the Claimants.

State X appealed to the Swiss Federal Supreme Court (“FSC”) for the decision to be set aside.

The Supreme Court’s Decision

In line with its constant practice, the FSC based its assessment on the facts of the case as determined by the arbitral tribunal. It reiterated its position that it could not correct or complete the facts on its own initiative even if they were manifestly incorrect or had been determined in a manner that was incompatible with the law; the sole exception being the grounds for review explicitly and exhaustively enumerated in article 190 (2) PILA.

With regard to the violation of the substantive ordre public (public policy), the Supreme Court went on to elaborate that such a violation could only be found under a very restrictive set of circumstances. Specifically, such a violation could only be seen in a decision that failed to consider fundamental legal principles and, in doing so, became irreconcilable with the essential and generally accepted system of values, which – from the point of view predominant in Switzerland – should underlie any legal system. Such principles are, inter alia, the principle pacta sunt servanda, the duty to act in good faith, the prohibition of abuse of law, the prohibition of expropriation without compensation, the prohibition of discrimination and the protection of minors and vulnerable adults. Moreover, a violation of the substantial ordre public could only be found in a decision whose outcome (rather than just its reasoning) was incompatible with the aforementioned ordre public.

In the present case, the appellant argued that the decision violated the substantial ordre public on three different counts, namely by restricting X’s fiscal sovereignty, by disregarding that it acted in the public interest of fighting the dangers of gambling, and by failing to sanction X’s reasoned approach in regulating low-stakes gambling.

In rejecting the appeal, the SFC recalled that its power to review decisions under appeal depended on the arguments invoked against the appealed decision. It then went on to clarify that this differentiated approach was the same whether the appealed decision was rendered in an investment treaty arbitration against a host state or any other type of international arbitration.

It further recalled that, in reviewing jurisdictional decisions pursuant to article 190 (2) (b) PILA, it examined questions of law freely, including any preliminary questions that were determining for jurisdiction. By contrast, when called to examine a violation of the substantial ordre public under article 190 (2) (e) PILA, its review was strictly limited and, consequently, it could not review an erroneous interpretation of a clause in the BIT, even to the point of such interpretation being arbitrary, if it did not fulfill the conditions of article 190 (2) (e) PILA as established in its long-standing jurisprudence.

The FSC ultimately refused to examine whether the arbitral tribunal was right to find that the substantial increase in taxation of the slot machines violated the FET clause under the BIT. It justified its refusal by pointing out that the appellant failed to substantiate how the Arbitral Tribunal’s findings violated the substantial ordre public as defined in the context of a Supreme Court review of an international arbitral award according to PILA 190 (2) (e). Instead of referring to the relevant notion of ordre public, the appellant had referred to a different, vastly more expansive notion, namely a textbook definition of ordre public as the “sum of all legal rules issued in the interest of the community”. As a result, the Supreme Court could not examine how the appellant’s criticism of the appealed decision constituted a violation of the substantial ordre public. Consequently, the appeal was rejected.

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New OHADA Arbitration Text Enters Into Force

Fri, 2018-03-30 02:16

Roland Ziadé and Clément Fouchard

Linklaters

The revised OHADA Uniform Act on Arbitration (the Arbitration Act) and revised Rules on Arbitration of the Joint Court of Justice and Arbitration (the CCJA) (the Rules), as well as the new Uniform Act on Mediation, entered into force on 15 March 2018. The fruit of nearly two years of consultations among the 17 Member States of the Organisation for the Harmonization of Corporate Law in Africa (OHADA), these new acts will apply to all proceedings initiated as of such effective date. These acts had all been approved on 23 November 2017 by the OHADA Council of Ministers.

The revised Arbitration Act and the Rules, which replace previous versions dated 1999 and 1996 respectively, are in line with the rules and regulations of key arbitration-friendly jurisdictions and leading arbitral institutions. The most significant changes include: (i) provisions for arbitration arising under investment treaties or investment laws; (ii) the binding effect of multi-tiered dispute resolution clauses requiring the parties to undertake negotiation, mediation and/or conciliation prior to commencing arbitration; (iii) various measures to improve the efficiency of the proceedings, including permitting the parties to agree to the waiver of setting aside proceedings and very tight time limits to rule on requests for recognition and enforcement of arbitral awards and on requests for setting aside of awards; and (iv) measures to increase transparency in arbitration, notably by allowing the publication of excerpts of arbitral awards.

While all these new acts are without doubt a positive step towards offering investors a predictable and efficient arbitration framework within the OHADA region, it remains to be seen whether, in practice, the local state courts and the CCJA will succeed in implementing the new rules.

Modernisation of the OHADA arbitration mechanisms

Arbitration of investment disputes.
Both the Arbitration Act and the Rules recognise the importance of offering users a reliable framework to resolve their investment disputes in the region. They now expressly allow foreign investors to start an arbitration based on any instrument related to the protection of investments, including bilateral investment treaties and local investment laws.(Art. 3 of the Arbitration Act and Art. 2.1, Art. 5.1(b) of the Rules) To ensure consistency in the investors’ access to arbitration, the Arbitration Act further confirms the ability of public entities to consent to arbitration.(Art. 2 of the Arbitration Act)

Powers of the arbitral tribunal reflecting modern arbitration practices

Pre-arbitration dispute resolution. In an effort to conform with the present-day practice in relation to multi-tiered dispute resolution clauses, the Arbitration Act and the Rules give the arbitrators the power to suspend the proceedings and instruct the parties to fulfil any preliminary steps (such as mediation, negotiation or conciliation) called for in the dispute resolution clause of their agreement, at the request of a party.(Art. 8-1 of the Arbitration Act and Art. 21-1 of the Rules)

Complex arbitrations. In response to the increasing use of arbitration to resolve disputes arising out of multiparty and multi-contract business transactions, the Rules now address the issue of arbitration with multiple parties and parallel arbitration proceedings. Articles 8.1 and 8.2, which are entirely new, offer the possibility, subject to the various conditions set forth therein, of joinder of additional parties.(Art. 8.1 and 8.2) Other new provisions of the Rules allow the arbitral tribunal to consolidate several related proceedings initiated under separate arbitration agreements (Art. 8.4) and/or involving the same parties.(Art. 8.3)

More efficiency and increased transparency

Parties’ duty of loyalty and efficiency. The revised Arbitration Act expressly provides that arbitration proceedings should be conducted diligently and that the parties should not use dilatory tactics.(Art. 14 of the Arbitration Act) Under the Rules, a party which fails to immediately raise an irregularity is precluded from raising it at a later stage of the proceedings.(Art. 16 of the Rules)

Duty and standard of impartiality and independence. Although arbitrators acting under the previous Arbitration Act were already subject to the duty of impartiality and independence, the revised Arbitration Act clearly states their duty—throughout the pendency of the proceedings—to inform the parties (Art. 7 of the Arbitration Act) and the Secretary General of the CCJA (Art. 4.1 of the Rules) of any circumstances likely to give rise to any doubts affecting their impartiality and independence. Article 8 of the Arbitration Act, which details the procedure for challenging an arbitrator in OHADA arbitration, now imposes a time limit for bringing a challenge, namely a period “not exceeding 30 days from the discovery of the fact which gave rise to the challenge”. (Art. 8 of the Arbitration Act) The lack of any such time limit in the previous version of the Arbitration Act allowed parties to raise challenges at times that might strategically disrupt the smooth running of the arbitration. As an additional safeguard against undue delay in respect of challenges to arbitrators, the revised Arbitration Act provides that if the competent state court before which the challenge has been brought does not issue a decision on the challenge within 30 days, the challenge may be brought before the CCJA. (Art. 8 of the Arbitration Act) The parties thus have in principle the possibility of receiving a decision on the challenge that would not be unduly delayed by the case load of the relevant state court, provided that the CCJA is able to render such a decision in a reasonable period of time.

Constitution of the arbitral tribunal. The Arbitration Act regulates the constitution of the arbitral tribunal, which is composed of a sole arbitrator absent an agreement between the parties. (Art. 5 of the Arbitration Act) Whereas the previous version of the Rules gave little guidance as to how the CCJA selected arbitrators in the absence of party agreement on a method of appointment, the revised Rules adopt the list procedure for such arbitrator appointment. Under such procedure, the CCJA will send the parties the same list of at least three names, the parties will then have the opportunity to strike unsuitable candidates and rank the remaining names in their order of preference, and the CCJA will then appoint the tribunal based on the final list.(Art. 3.3 of the Rules) The revised Rules also add the availability of the potential arbitrator to the criteria to be taken into account when making the appointment.

Prompt recognition of arbitral awards.
The revised Arbitration Act imposes strict time-limits on state courts to decide on recognition and enforcement of arbitral awards. Competent state courts must rule on a request for recognition “within a period that may not exceed fifteen days from its referral”.(Art. 31 of the Arbitration Act) This period is very short in comparison to the several months that have often been necessary to render such decisions in many OHADA jurisdictions. If the state court fails to issue its decision (granting or rejecting recognition) within the 15-day time limit, the revised Arbitration Act specifies that the award will be deemed to be recognised by the state court, which is a rather radical remedy.(Art. 31 of the Arbitration Act) In terms of enforcement, under the revised Rules, the CCJA must rule on a request for enforcement within a 15-day time limit.(Art. 30.2 of the Rules) Finally, the CCJA has only 3 days to decide on any provisional or protective measures in the context of enforcement proceedings.(Art. 30.2 of the Rules) The foregoing features will undoubtedly be welcomed by the international business community, which is eager to obtain effective court decisions on recognition and enforcement quickly within the OHADA region.

Waiver of setting aside proceedings. Following the 2011 Decree which reformed French arbitration law and reforms in several other jurisdictions (Switzerland, Belgium, Sweden, etc.), the new Arbitration Act provides that parties may agree in their arbitration clause or otherwise to waive their right to challenge the arbitral award before the competent state courts (Art. 25 of the Arbitration Act) and the CCJA (Art. 29.2 of the Rules), as long as such a waiver is not contrary to international public policy.

Challenge of arbitral awards before the CCJA in case of delay in state proceedings. Under the revised Arbitration Act, competent state courts must rule on annulment requests within three months of the date of receipt of the application. This new time limit seems extremely ambitious. By way of comparison, setting aside proceedings before the Paris Court of Appeal take on average between 12-18 months. If the state court does not decide the annulment request within the three-month time limit, the challenge to the award may be brought before the CCJA, which, in turn, is supposed to render its decision within six months thereafter.(Art. 27 of the Arbitration Act) Another new feature is that when the CCJA steps in to hear an application to set aside an award in replacement of a state court, the procedure will be an accelerated version of the regular procedure of the CCJA.(Art. 27 of the Arbitration Act) Nevertheless, a six-month time limit will most likely be a challenge for the CCJA, which has tended in the past to take one or two years to render its decisions. Moreover, since there is no sanction for the CCJA’s failure to meet the six-month deadline, it is highly likely that the ambitious targets set in the Arbitration Act will not be met in practice.

As a preliminary conclusion, the revised Arbitration Act and Rules are in line with the modern rules and regulations of key arbitration-friendly jurisdictions and leading arbitral institutions providing a flexible and efficient dispute resolution mechanism. The revision is without doubt a positive step towards offering investors a predictable and efficient arbitration framework within the OHADA region. It nevertheless remains to be seen how, in practice, the local state courts and the CCJA will interpret the new rules and succeed in implementing them.

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Is Online Dispute Resolution The Future of Alternative Dispute Resolution?

Thu, 2018-03-29 02:50

Derric Yeoh

YSIAC

The tech revolution has been underway for some time now but has only recently come to the forefront of the general public’s consciousness from the explosion in attention to bitcoin. The progress of technology has allowed it to creep into the domain of alternative dispute resolution. There is now online mediation, online arbitration, and even arbitration utilising the same blockchain technology as cryptocurrencies: blockchain arbitration. These forms of alternative dispute resolution, known as “online dispute resolution”, are increasingly making their presence felt.

Online mediation

An online mediation is usually commenced when an email is sent to the parties informing them of the basic information of the online mediation. Meetings are then conducted virtually in “chat rooms” where the mediator can communicate separately with each party or simultaneously with both parties. There is usually one chat room for joint sessions, one for caucuses or “breakout rooms”, and another for filing and storing documents. This can also be conducted through emails.

Asynchronous online mediation has been shown to be the most popular form of online mediation as it allows parties flexibility and faster resolution of the matter compared to offline mediation, which may see a mediation be put off to a distant date because of the parties’ conflicting schedules. It would also allow parties time to fashion their response, as one’s immediate response at a mediation is not always one’s best response. Other benefits include savings in cost, time and convenience. For example, just last month, the Singapore State Courts’ Community Justice and Tribunals System launched its “e-Mediation” to help those with neighbourly disputes save time and money as they no longer need to go to the courts to file their documents.

However, the downside to online mediation is that it dilutes some of the key features of mediation, which is the human relational aspect of mediation. Online mediation may not effectively capture the various needs, interests, motivations and emotions of the parties involved. The use of emails to convey messages instead of face to face dialogue may also embolden parties to make inflammatory comments which may not occur if they were in the same room with a mediator (a phenomenon that one can easily observe from social media). The effectiveness of communication at the mediation is also highly dependent on the parties’ literary skills in expressing themselves over email. The largely asynchronous nature of online mediation may also be detrimental to the mediation process, as it breaks the momentum that a long and uninterrupted mediation session can bring.

Online arbitration

Online arbitration can be defined as an arbitration in which all aspects of the proceedings are conducted online. Online arbitrations can have hearings through the use of video conferencing, but most online arbitrations simply require parties to upload their evidential documents, respond to questions from the arbitrator and they will receive a decision from the arbitrator. Online arbitration shares many similar advantages as online mediation, such as lower costs and greater flexibility due to their asynchronous nature. The disadvantage of online arbitration not having face-to-face interactions is also less significant as arbitrations rely less on the parties’ interactions but more on evidentiary written submissions.

Online arbitrations are widely used for internet domain name disputes and these can be legally binding or non-binding in nature. Internet domain name disputes are usually governed by the Internet Corporation for Assigned Names and Numbers’ (“ICANN”) Uniform Domain Name Dispute Resolution Policy (“UDRP”). The World Intellectual Property Organization (“WIPO”) is one of the UDRP dispute resolution service providers administering the UDRP Administrative Procedure for domain name disputes and is responsible for appointing panellists to determine the dispute. The decisions made under the UDRP Administrative Procedure are non-binding but they are nevertheless highly effective. This is because while these decisions are not binding on parties, it is binding on the domain name provider, who will then effect the changes as determined by the panellists. While the parties have recourse to litigation if they are unsatisfied with the decision, this is rarely done as the expensive and time-consuming cross-border litigation is unlikely to be justified by the value of the domain name.

Online arbitrations over domain name disputes can also be legally binding. The HKIAC administered Hong Kong Domain Name Dispute Resolution Policy (“HKDRP”) takes a more direct approach in effecting the panel’s decision. Article 4 of the HKDRP states that the parties are required to submit to a mandatory arbitration proceeding which is governed by the Hong Kong Arbitration Ordinance. The award rendered is therefore not subject to appeal in any court and is considered as an arbitration award rendered in Hong Kong for the purpose of enforcement under the New York Convention.

Online arbitration is also used in business to consumer disputes. However it is generally unpopular not because it is a poor medium for dispute resolution, but because consumers view such arbitration agreements as denying them access to justice through the courts and in particular, to class action suits which would offer more compensation.

Smart contracts and blockchain arbitration

All of the aforementioned forms of online dispute resolution have been around for some time, but there is a new form of online dispute resolution which is currently being developed: blockchain arbitration. Blockchain arbitration has been developed as the dispute resolution mechanism of choice for disputes arising from smart contracts. Some knowledge of blockchain technology and smart contracts is required to understand blockchain arbitration.

The blockchain is essentially an incorruptible digital ledger of transactions that can be programmed to record not only financial transactions, but almost anything that is of value for record. While originally devised for cryptocurrencies, there are many potential uses for the technology. The blockchain database is not stored in any single location but is instead spread across many times over a network of millions of computers simultaneously. The blockchain ledger containing the information has been touted to be incorruptible, because to alter any information on it would require the hacker to have the processing capability to overpower the entire network of millions of computers.

What has arisen from blockchain technology are smart contracts. Unlike regular contracts, smart contracts are not written in natural languages such as English or French, but entirely in code. Another point of difference is that, like a program, smart contracts automatically execute or enforce obligations. For example, in a simple contract to sell an item, the smart contract could be coded in such a way that once payment is received, it would automatically transfer the ownership of the item to the buyer.

Blockchain arbitration has in turn been developed in order to service the dispute resolution needs that may ensue from smart contracts. It is unlikely in the previous scenario of a simple buy and sell smart contract that any disputes would occur. However, disputes can come about from more complex contracts which may involve some element of misunderstanding in the transaction. This is where blockchain arbitration comes in. There are currently several models of blockchain arbitration being developed, such as CodeLegit and Kleros. CodeLegit has even drafted a set of Blockchain Arbitration Rules and envisions an Appointing Authority (it is unclear whether it will be an arbitral institution) which will appoint an arbitrator who may be a jurist or a blockchain technician. Communication would be done by email and there might even be an oral hearing over video conference should the arbitrator call for it. This is in essence quite similar to online arbitration.

Kleros on the other hand represents a different system of blockchain arbitration, in which the developers appear to be creating an entire quasi-judicial system, with a general court, followed by two tiers of sub-court divisions e.g. transport division and then air transport division. A rather complex process then occurs where “jurors” who volunteer at these Kleros court divisions would be selected by random number generation. It has also worked into place an appeal system and even bribe resistance system for the jurors.

All of these are fascinating developments in the virtual world, but what does this mean for arbitration practitioners? Despite several tech enthusiasts’ claim that blockchain arbitration is the future of dispute resolution, there are still several fundamental issues preventing blockchain arbitration from replacing traditional arbitration.

First, as a smart contract is entirely in code, some national legislations may not recognise it as a valid contract because it does not fulfil formality requirements. There may also be discrepancies when translating complex contracts into smart contract codes.

Secondly, while smart contract disputes will benefit from arbitration because of its flexibility and its relative ease in cross-border enforcement of awards, there are some difficulties with the arbitral clause in smart contracts. It is not clear whether the smart contract containing the arbitral clause (which is in code) will fulfil the requirement set out in Article 2 paragraph 2 of the New York Convention which requires that the arbitral clause be in writing. However, this problem can be overcome by interpreting Article 2 paragraph 2 according to the doctrine of functional equivalence as stated at paragraph 16 of the UNCITRAL Model Law on Electronic Commerce 1996. Such an interpretation is supported by part two of the New York Convention, which contains UNCITRAL’s recommendation to interpret the “in writing” requirement non-exhaustively. Smart contracts can also be tethered to a written agreement setting out the seat of arbitration, governing law and arbitral rules, which would ensure that the “in writing” requirement is complied with. This would also remove any uncertainties about choice of law or the lex arbitri in the blockchain arbitration.

A problem specific to Kleros-type blockchain arbitration is that it only allows its “jurors” to make a decision based on the transaction evidence on the blockchain, and not hear any arguments from the disputing parties. The resulting arbitral award may be refused recognition and enforcement under Article V(1)(b) of the New York Convention for not giving the party the opportunity to present its case. It may require a significant revamp in Kleros’ blockchain arbitration model in order to adapt it to the New York Convention.

Technology for Lawyers: Beware The Ides of March?

Complex and high value disputes will remain the province of traditional alternative dispute resolution. However, with traditional arbitration increasingly incorporating modern technology into its proceedings, the distinction between online arbitration and traditional arbitration is becoming less clear. What cannot be denied is that with improved technology and automation, less complex disputes work will be claimed by online dispute resolution services. It is therefore imperative that lawyers continue to improve themselves and keep abreast of the latest legal and technological developments to avoid falling by the way side in the wake of technology’s relentless march.

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Arbitration as a Market

Wed, 2018-03-28 03:19

Eirini Kikarea

The Cambridge Arbitration Day (CAD), an annual arbitration conference organised by the Cambridge University Graduate Law Society, took place on the 3rd of March 2018, in Cambridge, United Kingdom. The event was preceded by the Young Practitioners’ Event organised with ICC Young Arbitrators Forum on the 2nd of March 2018, which brought together students and young arbitration practitioners to discuss about how the younger generation can break into the arbitration market.

The overarching topic of the 5th Cambridge Arbitration Day was ‘Arbitration as a Market’. Academics and arbitration practitioners discussed recent developments in the field of international arbitration. Professor Catherine Rogers (Penn State and Queen Mary University of London) delivered the keynote speech of the event, followed by two discussion panels and a debate panel. This post provides a brief synopsis of the ideas discussed in the event.

Competition in the International Arbitration Market: A Race to the Top?

Prof. Rogers’ keynote speech was themed ‘Competition in the International Arbitration Market: A Race to the Top?’ and focused on the implications of competition between different actors in the marketplace of arbitration. Her special focus was on the phenomenon of regulatory competition between arbitral institutions and its impact on arbitration. Arbitral institutions, the primary regulators in the arbitration market, constantly compete against each other by adopting rules and establishing procedures for the effective adjudication of disputes. The question addressed by Prof. Rogers was whether such regulatory competition is a paradigm of ‘race to the top’ or ‘race to the bottom’. She examined competitive forces and observed both a risk of race to the bottom, for instance arbitration for money laundering and abusive trading tactics of third-party funders, and evidence of race to the top, such as the recent transparency movement and the IBA Guidelines for Conflicts of Interest in International Arbitration. Nevertheless, she observed that the arbitration market continues to be opaque and, to a great extent, inaccessible to young practitioners.

Buying Justice: The Demand for Arbitration

The first panel of the conference, chaired by Prof. Stavros Brekoulakis (Queen Mary University of London), focused on demand for international arbitration, the parties’ expectations, and on whether and how justice is bought by the parties. Mr. Hendrik Puschmann (Partner, Farrer & Co) discussed the cost of arbitration, expressing the view that arbitration remains an expensive and non cost-effective endeavour, and Mr. Timothy Smyth (Associate, Arnold & Porter Kaye Scholer) discussed arbitration agreements, focusing on the key elements of a well-drafted arbitration agreement and on ‘pathological’ arbitration clauses. With regard to the cost of arbitration, the conclusion was that demand for arbitration has not decreased despite its very high cost and that the parties are fully aware of this reality. The opposite conclusion was reached about arbitration agreements. Apparently, the parties are often not diligent when signing arbitration agreements and, as a consequence, they do not always get what they want when a dispute arises. Prevention, awareness, and increased transparency were suggested as solutions to this problem, rather than focusing on ex ante cure mechanisms (such as the presumption of validity under the New York Convention).

Mr. Rupert Reece (Partner, Gide Loyrette Nouel) discussed the demand for publicity in international arbitration. He observed two opposite forces. On the one hand, surveys show that the parties perceive confidentiality as an advantage of arbitration and, on the other hand, they show demand for increased transparency, especially with regard to the performance of arbitrators and institutions. He also analysed different sources of the transparency obligation, its relation to public interest, and the balance of confidentiality and transparency in commercial and investment arbitration. Another demand-related subject is the appointment of experts by the parties. Mrs. Michela D’Avino (Associate, BonelliErede) talked about the reasons behind the decision to appoint an expert and expert suitability criteria. She warned on the importance of giving clear instructions to an expert and of ensuring that he/she has a deep understanding of the factual background of the case.

 Selling Justice: The Supply of Arbitration

The second panel, themed ‘Selling Justice: The Supply of Arbitration’, was chaired by Dr. Patricia Shaughnessy (Vice-Chair of the Board of Directors, SCC) and the discussion evolved around competition between different actors in the arbitration market.  Mr. Audley Sheppard QC (Partner, Clifford Chance) presented statistics showing the percentages of cases filed before different arbitral institutions and discussed the differentiating factors driving the parties’ decision when choosing an arbitral institution (including fees, degree of supervision, confidence in their system of appointments, and perception of the industry). Mr. John McMillan (Senior Associate, Wilmer Hale) focused on the market of judges and, in particular, on how arbitrators market themselves. To achieve appointments, arbitrators market their decisions, their views and themselves, often jeopardising the quality of awards and their impartiality.

In his presentation, Mr. Alexander Uff (Partner, Shearman & Sterling) questioned whether the saying ‘whatever client wants, client gets’ applies in international arbitration. He argued that party autonomy is not absolutely boundless but limited by a number of rules deriving from different legal sources, having different purposes, and operating at different stages of the arbitration process. Mr. Graham Coop (Partner, Volterra Fietta) spoke about competition between places of arbitration and analysed the factors leading to the choice of seat and arbitration centre. Finally, Mrs. Marily Paralika (Associate, White & Case) discussed gender diversity in international arbitration. After reviewing relevant surveys, she argued that the lack of gender diversity is a market failure of the arbitration market. The so-called ‘pipeline leak’, the lack of visibility of potential arbitrators, and unconscious bias were identified as the main reasons behind this market failure. Recent initiatives have raised awareness about the issue, but there is still a long road ahead of us.

Debate: “This House believes that investment arbitration demands different rules and principles to that used in commercial arbitration.”

The debate panel was moderated by Mrs. Wendy Miles QC (Partner, Debevoise & Plimpton) and was composed of Dr. Cameron Miles (Barrister, 3 Verulam Buildings), Mr. David Hunt (Associate, Boies Schiller Flexner), Mrs. Ema Vidak-Gojkovic (Senior Associate, Omnia Strategy), and Mr. Kartikey Mahajan (Associate, Kirkland & Ellis). The moto of the debate was ‘this House believes that investment arbitration demands different rules and principles to that used in commercial arbitration.’ Mr. Hunt and Mr. Miles argued in favour of the proposition whereas Mr. Mahajan and Mrs. Vidak-Gojkovic argued against it. The discussion evolved around the public/private character of international investment arbitration, party autonomy, flexibility, predictability, and consistency in decision-making, regulatory chill, transparency, accountability, and the recent reform proposals for the creation of a permanent investment court. In her closing remarks, Mrs. Wendy Miles QC argued that investment arbitration is a ‘hybrid’ creature, a complete fallacy, both alike and different from commercial arbitration. Investment arbitration is different from commercial arbitration mainly because it is a creature of public international law; it follows that rules of treaty interpretation apply and not private law principles. On the other hand, one should acknowledge that the system of arbitration is a whole organic system and that flexibility and party autonomy are the core characteristics of its success.

Conclusion

 The conference provided a unique opportunity to reflect on the system of international arbitration as a whole. The speakers explored the market forces affecting supply and demand in the arbitration market and analysed the effects of competition between different actors, the expectations of parties, barriers to entry, and market failures. The overall impression was that the practitioners and academics that participated in the event positively evaluate the arbitration system, recognising at the same time the need for reform initiatives aiming at improving inefficient market outcomes.

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Impact of Foreign Direct Investment on Arbitration in Africa

Tue, 2018-03-27 02:30

Sadaff Habib (Assistant Editor for Africa)

What is FDI?

Foreign Direct Investment (FDI) is investment in the shares of an enterprise operating in a country other than the home country. Typically, such investment can either be in the form of ‘mortar and brick’ investment or mergers and acquisitions.

FDI has a major impact on the economic growth of developing countries. Africa is one such continent that has become the world’s fastest-growing region for foreign direct investment. A study by the Financial Times data division in 2015 found that Africa enjoyed a 65% increase in capital investment in 2014. The number of FDI projects in the continent rose by 6%. The study found that capital investment into Africa remains, at its core, resource seeking with the majority of the investment going into oil and gas followed by real estate and communications.

What Does This Mean for International Arbitration in Africa?

As a natural by-product, there has been an increase in the number of international arbitration proceedings involving African parties or interests, particularly in the mining, oil and gas, telecommunications and construction sectors. Whilst these arbitrations involve African parties or interests, most of these arbitrations have their seat outside Africa and seldom involve African administering institutions or arbitrators; they are primarily conducted through international institutions such as the ICC or the LCIA.

It is also unsurprising that with the increase in capital investment the lush continent has seen an increase in investment disputes. According to a report by the United Nations Economic Commission for Africa, between 1972 and 2014, African countries have been involved in 111 investment dispute cases. In most, if not all, of these cases the claimant has been a company invoking the violation of a Bilateral Investment Treaty (BIT(s)). Among African countries, Egypt trumps as being the respondent in the largest number of cases (25) and ranks third globally on ICSID. It is followed by the Democratic Republic of Congo (DRC) (8 cases), Algeria (6 cases), and Guinea (5 cases). BITs have been of great use as they provide for disputes between foreign investors and host states to be resolved through international arbitration, for example, under the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) Rules, or ad hoc arbitration under the UNCITRAL Rules. All in all, the arbitration process offers parties greater control and ownership of the process and maintains a strong appeal amongst foreign investors.

On the other hand, countries such as China, which has spent over USD 1.3 billion under the Africa ‘Belt and Road Initiative’, prefer to establish their own arbitration centres such as the China Africa Joint Arbitration Centre (CAJAC) to provide a neutral and cost-effective mechanism for resolving commercial disputes that involve Chinese and African parties. Thus far, CAJAC has set up centres in Shanghai using the Shanghai International Arbitration Centre Rules and in Johannesburg under the auspices of the Arbitration Foundation of South Africa.

The above-mentioned developments have also led to an upsurge in arbitration laws of African countries (Nigeria and South Africa arbitration acts) and revamping of arbitration rules. Moreover, organisations such as the Organization for Harmonization of Business Law in Africa (OHADA), comprising of 17 African states, have reformed their Uniform Arbitration Act and the Arbitration Rules of the Common Court of Justice and Arbitration (CCJA) which came into effect on 15 March 2018 (further details on OHADA can be found here). OHADA arbitration has moved towards including investment arbitration and the CCJA’s aim is for CCJA dispute resolution clauses increasingly to appear in bilateral investment treaties (there are a few, such as in the Guinea-Chad, the Guinea-Burkina Faso, and the Benin- Chad treaties). The CCJA is providing healthy competition for ICSID.

Supported by state authorities and the emergence of CAJACs and reforms such as OHADA’s Uniform Arbitration Act can be seen as a sort of alliance in a post-colonial era where emerging economies are asserting their interests and rights and positioning themselves as international players to be reckoned with. Whilst historically, African parties and foreign investors have mostly turned towards the ICC or LCIA or in some cases ICSID as preferred arbitration institutions to resolve disputes, recent trends have shown a shift. There is a simmering growing preference for disputes to be resolved more “locally.”

A “Seat” in Africa

Generally, the above developments all spell a positive for Africa. However, a lot still needs to be done to increase the popularity of international arbitrations involving African parties and foreign investors to trust local countries as their seat. As many arbitration practitioners will agree, choosing the seat of arbitration is a critical part to arbitration being an effective dispute resolution process. The importance of the seat lies in providing the arbitration with a framework and giving the courts at the seat supervisory jurisdiction. Ultimately, the aim is for an arbitral award to be successfully enforced in the local courts at the seat.

There is a general mistrust in having an African country as the seat in an arbitration and popular choices remain London, Geneva, Paris, Singapore as these places are considered to have a comparatively more arbitration friendly court system. It must be noted though, countries and regions in Africa vary in their approach towards enforcing an arbitral award. For example, the local laws of Nigeria and Tanzania exclude public policy as a ground to challenge a foreign arbitral award (here). On the other hand, an award may be set aside under Ethiopia’s domestic laws if it is wrong in law and/ or sometimes in fact. The former is less unheard of. Section 69 of the UK Arbitration Act 1996 provides, albeit in narrow and specific circumstances, that an award may be set aside if the arbitral tribunal made an error of English law. In contrast, challenging an award due to a perceived “wrong fact” touches and concerns the merit of an award and is, therefore, usually inconceivable in international arbitration where challenges to awards are limited to procedural grounds.

OHADA’s new Uniform Arbitration Act is yet another example of a prominent development. The Act applies to any arbitration proceedings commenced after its effective date for which the seat is in an OHADA Treaty Member State (Benin, Burkina Faso, Cameroon, CAR, Comores, Congo, Cote d’Ivoire, Gabon, Guinea, Guinea Bissau, Equatorial Guinea, Mali, Niger, DRC, Senegal, Chad, Togo). Under the Act, parties may expressly waive the right to file an application to set aside an award (except where this may be counter to international public policy as defined in the Act). Alongside French law, this makes it one of the rare texts that allows such waiver.

Precaution is always better than cure when choosing a seat of arbitration. However, it would be sensible for parties involved in disputes in Africa to understand the local court system of a particular country before completely ruling it out as a seat of arbitration. After all, in the long run, it would be potentially more cost and time effective and efficient if the seat was “local.” In parallel, African countries would be well advised to reform their local court system to make it more arbitration friendly (where and if necessary) as arbitration in and of itself is a form of investment, such that if the “local” system is friendly this is likely to attract international law firms and increase the use of hotels and conference rooms during arbitrations.

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Nordic Offshore and Maritime Arbitration Association (NOMA): Could the Nordic Maritime Model Attract a Wider Audience?

Mon, 2018-03-26 02:37

Jacob Skude Rasmussen and Jens V. Mathiasen

The Nordics now boast two Nomas – the world-famous Danish restaurant (noma) and the Nordic Offshore and Maritime Arbitration Association (NOMA). NOMA began operations early this year, and its rules and best practice suggest a more pragmatic, quicker and cheaper service than traditional institutions.

NOMA was established as an initiative of the Danish, Finnish, Norwegian and Swedish Maritime Law Associations, with support from law firms and academics in the industry. It promotes the use of arbitration to resolve disputes and is primarily aimed at the shipping sector where at least one party is Nordic. However, the question arises whether it could attract a wider audience, particularly after Brexit. Nothing prevents non-Nordic parties or non-shipping disputes to be heard before the association.

One way that NOMA tackles the perennial issue of ensuring efficient and quick proceedings is by streamlining international texts. For instance, as compared to the UNCITRAL Arbitration Rules on which they are based, the NOMA rules:

1) Reduce by over a week the waiting time to ask for an arbitrator’s appointment, if a second party has not appointed one, or if two arbitrators have not agreed upon a third;

2) Eliminate the response to a notice of arbitration, so there can be no delays by a respondent claiming that it has not received the notice and no waiting for a response before a tribunal can be appointed;

3) Remove the possibility of requesting an interpretation of an award, and so also remove a delaying tactic; and

4) No longer have an article on tribunal-appointed experts, highlighting that their appointment would be unusual, and reducing time and costs spent in debating the need of such experts and in analysing their reports.

There are also three documents attached to the NOMA rules to assist in efficiency. These are 1) the NOMA Best Practice Guidelines, 2) the NOMA Matrix and 3) the NOMA Rules on the Taking of Evidence.

1) The guidelines assist the tribunal and parties on certain procedural points. For instance, the guidelines provide:

a) Considerations for a case management conference (e.g. are document-only proceedings possible? Are written witness statements or expert reports needed? Should time be allocated for mediation/settlement discussions?);

b) Default deadlines for submissions, for when new evidence and arguments can be presented, and for when hearings should start; and

c) The expected structure for a hearing (i.e. opening statements, examinations and closing statements).

2) The matrix provides a clear table which goes into greater depth about what is to be discussed during the case management conference, suggesting best practice and practical tips such as four-day weeks for hearings, termination fees and use of factual abstracts.

3) The rules on the taking of evidence are sleeker than the IBA’s. This is because NOMA flips the presumption of certain procedural steps. For instance, although the possibility to request documents from a party still exists, the tribunal may not order it unless the parties agree or the tribunal decides otherwise. Similarly, written witness statements are not to be used, unless the parties agree.

So far so streamlined, and such features would appeal to parties wishing to keep down time and costs, as well as to tribunals looking for a solid basis to set clearer and leaner proceedings.

Moreover, not only does NOMA promote Nordic pragmatism, it is timely. The legal effects of Brexit are presently uncertain and, as Michael McIlwrath points out in a previous post, uncertainty is “anathema to dispute resolution clauses”. NOMA accordingly provides an attractive and less uncertain option for shipping (and other) disputes which are traditionally resolved in England because:

1) Nordic lawyers are famously adept at English and indeed the rules state that English is the language which “shall normally be used”;

2) Many Nordic lawyers are familiar with English law because it often governs contracts, and nothing prevents English law governing NOMA cases; and

3) The Nordic system is a useful blend of common and civil law, with a focus on written codes balanced with an advocacy forte because of the habitual emphasis on the hearing when resolving disputes.

For a new set of rules, one could have anticipated provisions on trending topics such as arbitrator diversity, third-party funding, counsel conduct, summary proceedings, tribunal secretaries, etc. Their absence unsurprisingly reflects a Nordic minimalism in focusing on the fundamentals for a final award. Nevertheless, these topics also demonstrate opportunities to grow and adapt to users’ wishes, and of course, the tribunal can bear them in mind when conducting the “arbitration in such manner as it considers appropriate”.

In short, NOMA looks to be a persuasive option for all parties and industries because of its streamlined arbitration services in English. We shall see if, owing to the strength and trustworthiness of the Nordic legal system, NOMA can become every bit as famous as its coincidental namesake.

Jacob Skude Rasmussen and Jens V. Mathiasen are members of Gorrissen Federspiel, one of the law firms involved in the establishment of NOMA. With thanks to Andrew Poole for assistance.

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The Future for Cross-Border Contracts: In combination with Arbitration Clauses, the UNIDROIT Principles of International Commercial Contracts provide a Practice-Proven Bridge between Common and Civil Law

Sat, 2018-03-24 22:29

Eckart Brödermann

Released in 2017 in their 4th edition 2016, the UNIDROIT Principles of International Commercial Contracts (“UNIDROIT Principles”) provide an ingenious tool for cross-border contract drafting and dispute resolution on neutral ground. This is particularly so if the choice is combined with an arbitration clause, because, pursuant to many arbitration laws, “[t]he arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute” (emphasis added; the quote stems from the UNCITRAL Model Law on International Arbitration which has been integrated into many domestic arbitration laws). Thus, if the choice of the UNIDROIT Principles is combined with an arbitration clause, there is no danger of any legal discussion about the soft law character of the principles. The same is true when parties of an arbitration agreement decide to apply the UNIDROIT Principles later, during the arbitration, (I have experienced this twice in my professional practice as an international lawyer; once upon the proposal of the Chairman of a Swiss arbitration, in 2001, and again in 2017 upon proposal of the respondent in a CEAC arbitration, in order to avoid research and proof of otherwise applicable Chinese law to European arbitrators).

Even if the choice of the UNIDROIT Principles is combined with a choice of court clause and that court would require the application of the domestic law of a state, the choice of the UNIDROIT Principles is useful to bridging the gap between common and civil law. The domestic law will step in only if the application of the UNIDROIT Principles would entail a violation of mandatory domestic law which is excluded per se as pursuant to Art. 1.4 of the UNIDROIT Principles, “[n]othing in these Principles shall restrict the application of mandatory rules, whether of national, international or supranational origin, which are applicable in accordance with the relevant rules of private international law.” Most otherwise applicable domestic laws would thereby respect the choice of the UNIDROIT Principles as an expression of party autonomy.

Developed through approximately 35 years of international legal research and discussions (since the establishment of the first Working Group in 1983 at the inter-governmental organisation UNIDROIT in Rome), the UNIDROIT Principles have been described as a “restatement” of international contract law (Bonell). Most of the 211 principles constitute a compromise between different approaches to a given contractual topic, while others reflect a universal understanding or an emerging general principle of law (e.g. Arts. 1.7, 4.1 and 5.1.7). On other occasions, the international Working Group, composed of experts from all major legal systems, has decided for one or the other solution providing in sum a balanced middle ground between the common and the civil law approach (only Section 11.2 on plurality of obligees is content to merely offering a choice for the applicable default rule because the Working Group could not agree on any “better law” approach or compromise). Sometimes the UNIDROIT Principles have proposed a new approach, particularly appropriate for cross-border business (e.g. Section 6.2 on hardhsip). The UNIDROIT Principles also address typical international questions (e.g. a rule on foreign currency set-off, Art. 8.2; or a rule on time zones, Art. 1.12) for which there is no equivalent in most domestic laws.

The UNIDROIT Principles are based on the principle that each contract party is responsible for its own scope of work and its own sphere. It can be excused by force majeure (Art. 7.1.7) or by contractual agreement, which is typically contained in a limitation of liability or an other exemption clause (Art. 7.1.6).

The UNIDROIT Principles, created for cross-border B2B contracts, are smooth to work with. I have been using them close to 15 years on a regular basis in a multitude of contexts: (i) for civil law clients and for common law clients; (ii) for my own law firm’s client contracts when we are instructed by foreign clients or by an international organisation, or for contracts with international cooperation partners from other jurisdictions; (iii) for small and mid-size clients and for large clients listed on the German DAX stock market. For example, when offering sub-contracts for a large construction project to a variety of potential sub-contractors from different jurisdictions, the client offers them a choice between German law from its home jurisdiction and the choice of the UNIDROIT Principles. (iv) I have chosen the UNIDROIT Principles as the applicable contractual regimes, with or without adaptations. I have used them as a check-list. I have implemented individual rules, e.g. on hardship, as templates. (v) I have also used the UNIDROIT Principles as an arbitrator interpreting a clause choosing the general principles of law, or as counsel arguing before arbitration tribunals and even before German national courts (in order to demonstrate that a certain interpretation of German domestic law would best fit the international spirit of a given contract).

As with many legal topics, the devil lies in the details. For example, in case of non-performance, the UNIDROIT Principles provide a number of pragmatic options to both the obligor and the obligee (as defined in Art. 1.11) to cope with the situations, see e.g. Art. 7.1.4 for the non-performing obligor or Arts. 7.2.1-7.2.5 for the obligee.

With this background, the UNIDROIT Principles are an important instrument for all international practitioners although the Principles themselves are not part of many law school curriculums , at least not at any advanced level. An article-by-article commentary provides a useful tool in working with the UNIDROIT Principles and navigating through the myriad of options which they offer to the drafting of contracts, advising businesses and resolving disputes (once there is a dispute governed by the UNIDROIT Principles). Based on my personal work experience with the UNIDROIT Principles (as well as my experience in participating in the discussions of the Working Group of UNIDROIT for several years, as an official observer), I decided to write exactly such an article-by-article commentary (Eckart Brödermann, UNIDROIT Principles of International Commercial Contracts, an article-by-article commentary, published by Wolters Kluwer in 2018, 529 pages). For each rule, I have concentrated on its background, summarized its practical requirements, defined its limits and strived to present options to its application, as appropriate under the given circumstances. Over a period of two years, this made me realise the brilliance of the UNIDROIT Principles and the coherence of the many bridges built between different approaches to so many contractual subjects, many of them so sophisticated that there is usually no budget to spend time on them during the average cross-border contract negotiation.

The article-by-article commentary is a format which has a long standing tradition in civil law. It functions well also for the interpretation of written soft law.

From a business perspective, the use of the UNIDROIT Principles can save time and money in many situations. The commentary is aimed at providing a convenient tool to navigate through the UNIDROIT system.

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A Brief Analysis of the Legal Background Surrounding Arbitration and the Enforcement of Foreign Arbitral Awards in Brazil

Sat, 2018-03-24 02:26

Paula Paixao e Silva Zarazinski

ArbitralWomen

In the past decade, the legal landscape in Brazil has changed significantly to better accommodate alternative dispute resolution methods, including mediation, conciliation, and arbitration. Brazil recently revised its Civil Procedure Code (Law 13.105/2015) and its arbitration law (Law 13.129/2015). It also enacted a mediation law (Law No. 13.140/2015). These major pieces of legislation contain provisions that encourage and legitimize the use of non-judicial procedures to resolve disputes more effectively.

 

The Brazilian Arbitration Law, partially based on the UNCITRAL Model Law, was enacted in 1996 and revised in 2015. The revised legislation incorporated pro-arbitration case law established by Brazilian higher courts over the years, responding to an increasing demand for arbitration to resolve disputes in Brazil. Some of the significant changes include the possibility for public entities to use arbitration in disputes relating to transferable property rights, the granting of provisional remedies before the commencement of arbitration proceedings, and the establishment of an “arbitral letter” to enable arbitrators to ask for judicial assistance to compel a party to act or refrain from specific acts. An arbitral letter can be used, for example, to subpoena a person to provide certain documents or physical evidence.

 

The number of arbitration cases with seats in Brazil has increased, as well as the number of international arbitration proceedings with Brazilian parties arising out of commercial transactions. The International Chamber of Commerce (ICC) listed Brazil seventh in its worldwide rankings with a total of 51 cases in 2017. In May 2017, the ICC also established a permanent case management team in Brazil in response to an expanding market and the country’s strategic importance in the region. Regarding international arbitration proceedings involving Brazilian parties carried out abroad, Brazilian law requires recognition of foreign arbitral awards prior to their execution against assets situated in Brazil. Therefore, for those considering arbitration with a Brazilian party or a party with significant assets in Brazil, it is important to understand the provisions regarding the enforcement of foreign arbitral awards in the revised law.

 

Brazilian legislation does not distinguish between proceedings taking place nationally or internationally, but an arbitral award issued outside of Brazil is treated as a foreign judgment. Prior to the arbitration law of 1996, a foreign arbitral award needed to first be recognized at the issuing country as a pre-condition for the recognition proceeding in Brazil. This is what scholars called “double recognition.” After the adoption of the arbitration law in 1996, and Brazil’s ratification of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) in 2002, only a “simple recognition” is now required. Moreover, since the passage of a constitutional amendment in 2004, the Superior Tribunal de Justiça (“STJ”) is the Brazilian court with original jurisdiction to recognize foreign judgments, including foreign arbitral awards. While not automatic, the recognition of foreign arbitral awards in Brazil is subject to limited conditions as detailed below and does not require prior recognition in the country of the seat of arbitration.

 

Article 34 of the Brazilian Arbitration Law provides that a foreign arbitral award will be recognized and enforced in accordance with legally binding international treaties. This provision refers to the New York Convention which allows each contracting state to recognize and enforce arbitral awards in accordance with their own internal rules.

 

Article 37 of the Brazilian Arbitration Law further establishes the initial steps for recognizing foreign arbitral awards. A party seeking recognition of a foreign arbitral award must first file a petition to the STJ with the original or a certified copy of the award and of the parties’ agreement to arbitrate, together with an official translation of each. If the award is issued by a party to the Hague Apostille Convention, certification follows a streamlined process recognized in Brazil. Otherwise, the award and the arbitration agreement must be authenticated by the Brazilian Consulate located in the country of the seat of arbitration. If there is no Brazilian Consulate, the interested party may certify documents at the nearest Consulate located in the country with jurisdiction over the seat of arbitration.

 

Moreover, recognition of a foreign arbitral award must follow the procedural requirements under Articles 15 and 17 of the Introductory Law to Brazilian Rules (LINDB) and Articles 216-D and 216-F of the STJ’s internal rules. Accordingly, the STJ will recognize a foreign award when: (a) it is issued by a competent authority, (b) it is final and not subject to appeal, (c) process is properly served on all parties, and (d) the award does not offend “sovereignty, human dignity, and public order.”

 

It is important to note that these requirements are mostly procedural. The STJ has repeatedly stated that if the procedural requirements are met, reviewing the merits of a foreign arbitral award is not permitted under Brazilian law and the award must therefore be recognized. In Enelpower SPA v. Inepar Energia S/A, for example, the Court stated that “revisiting the merits of a foreign arbitral award is incompatible with the current (recognition) proceeding.”

 

In addition to procedural requirements, Article 38 of the Brazilian Arbitration Law establishes the situations in which the STJ may refuse to recognize and enforce a foreign arbitral award. These provisions follow the wording of Article V of the New York Convention, including the possibility of refusal to enforce if: (a) the parties were incapacitated, (b) the arbitration agreement is not valid, (c) a given party was not given proper notice of the appointment of the arbitrator or due process was violated, (d) the award exceeds the scope of the arbitration, (e) the arbitral institution was not agreed to by the parties, or (f) the award is not yet binding or has been set aside in issuing country.

 

Under Article 39 of the Brazilian Arbitration Law, the STJ may refuse recognition of an arbitral award if it determines that the issue is not capable of settlement by arbitration or the award violates public policy under Brazilian law. In addition to these well-known provisions inspired by the New York Convention, the STJ’s internal rules state that a foreign judgment, including a foreign arbitral award, may be refused if it violates “national sovereignty” or “human dignity.” Regarding service on parties, Article 39 allows service following the terms of the arbitration agreement or according to the procedural law of the seat of arbitration. Finally, Article 40 of Brazilian Arbitration Law provides that, if the STJ denies the recognition of a foreign arbitral award, the losing party may seek recognition again after procedural mistakes have been rectified. Recently, the STJ also refused to enforce a foreign arbitral award that had been set aside at the seat, in Argentina, stating that an annulled award cannot be enforced. (EDF International S/A v. YPF S/A).

 

Brazil is moving towards a culture more conducive to extrajudicial dispute resolution, including international disputes. With modern and arbitration-friendly legislation as well as courts willing to defer to domestic and foreign arbitral awards, parties seeking to enforce an award in Brazil should be able to navigate the country’s legal framework while receiving appropriate judicial support.

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Revisiting Anti-Suit Injunctions Post Brexit: Some Lessons from the US

Fri, 2018-03-23 03:49

David Ndolo and Margaret Liu

Background

UK courts senior courts have the power to issue an anti-suit injunction in favor of arbitration where a party commences foreign court proceedings in breach of a valid arbitration agreement (Senior Courts Act 1981 s.37(1)). At the heart of this controversial remedy lies a concern that anti-suit injunction is an indirect interference with the process of a foreign sovereign court. Consequently, it may convey the message that the UK courts have little confidence in the foreign court’s ability to adjudicate the dispute fairly.1)Ndolo D and Liu M ‘Does the Will of the Parties Supersede the Sovereignty of the State? Anti-suit Injunctions in the UK Post-Brexit’ (2017) 83(3) Arbitration 254, at 256. jQuery("#footnote_plugin_tooltip_4900_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4900_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Indeed, the Court of Justice of the European Union (CJEU) held in West Tankers [(C-185/07) EU:C:2009:69 (ECJ (Grand Chamber)] that anti-suit injunctions of this nature run counter to the principle of mutual trust among the EU member states as required by the Brussels I Regulation. The UK courts, therefore, cannot issue an anti-suit injunction in favour of arbitration where a party starts foreign court proceedings in an EU state.

In 2015, the Brussels I Recast replaced the Brussels I Regulation, and expressly removed arbitration from its scope. This has led to further debate as to whether the Recast can accommodate anti-suit injunctions. Interestingly, in Gazprom [EU:C:2014:2414] Advocate General Wathelet held that, if West Tankers had been decided under the Brussels I Recast, anti-suit injunctions in favour of arbitration would not have been held to be incompatible with the Regulation because the arbitration exception;

‘…also excludes ancillary proceedings, which in my view covers anti-suit injunctions issued by national courts… supporting… the arbitration.’

Such a stance indicates a possibility of a departure from West Tankers under the Brussels I Regulation. Until then, however, the CJEU decision in West Tankers still bans the issuance of anti-suit injunctions within EU state courts. The CJEU affirmed this rule in Gazprom by emphasizing the importance of the principle of mutual trust.

Brexit

The impact of Brexit on anti-suit injunctions in the arbitration context will depend almost entirely on the terms of the final deal.2)Ndolo D, at 263 jQuery("#footnote_plugin_tooltip_4900_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4900_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The current position of the UK is to end the jurisdiction of the CJEU and the application of EU law in the UK.3)HM Government, The United Kingdom’s Exit from and New Partnership with the European Union 2017, at 13. jQuery("#footnote_plugin_tooltip_4900_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4900_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Indeed, the EU Withdrawal Bill is currently being debated in the UK Parliament. The purpose of the Bill is to copy all existing EU law and regulations including Brussels I Recast into UK law, with appropriate changes where necessary. As a result, the UK Supreme Court (UKSC) will no longer be bound by CJEU decisions and will be the highest court of appeal on all legal cases in the UK.

In the unlikely event, the UK courts rule that Brussels I Recast does not accommodate anti-suit injunctions, UK parliament will have to amend or repeal it first for UK courts to regain full power to issue anti-suit injunctions. However, since UK courts have ruled before that arbitration is excluded from Brussels I and in light of Advocate General’s opinion in Gazprom, it is likely that there may be no need to reform it as it can accommodate anti-suit injunctions.

If so, post-Brexit, it is likely that the UK courts will rule to change the practice such that UK courts will be able to enjoin parties who have stated foreign litigation in EU state courts. Indeed, the UK House of Lords (UKHL) in West Tankers [2007] UKHL 4 referred to the power to grant anti-suit injunctions as an ‘important and valuable weapon’, (Id at 19), stating that such orders are consistent with the Brussels I Regulation, since arbitration is excluded from its material scope. The UKHL held that the power of the English courts to grant anti-suit injunctions gives London seat an added advantage over its competitors (Id). Evidently, there is a vested interest to use anti-suit injunctions to protect international arbitration, particularly in London.

However, even if the UK courts were to regain full power to issue anti-suit injunctions, it will not be completely unfettered. Following U&M Mining Zambia v Konkola Copper Mines [2013] All ER 193, anti-suit injunctions are only granted in appropriate cases. Moreover, it is well established that anti-suit injunctions are a fault remedy. Hence, the foreign litigation must be inter alia ‘unconscionable’, ‘vexatious’ or ‘oppressive’ in the eyes of English law (Fort Dodge Animal v Akzo Nobel [1998] F.S.R. 222, at 246).

The US

Although the above cases involve non-EU courts, it was confirmed in Turner v Grovit [2001] UKHL 65 and later approved in the UKHL in West Tankers that UK courts would apply the same standards in the EU context. If the UK courts were to regain the full power to issue anti-suit injunctions post-Brexit, the adoption of the Brussels I Recast and CJEU decisions in Turner, West Tankers and Gazprom are indications that the English courts would need to afford significant weight on the principle of mutual trust on cases involving litigation in EU state courts. Consequently, the closest principle UK courts can make reference to when considering the principle of mutual trust is the principle of international comity which is adopted in the US.

International comity, binds the US courts to respect foreign court proceedings out of mutuality and respect. It creates an atmosphere of cooperation and reciprocity between the US and foreign courts in this modern era of economic interdependence (Microsoft Corp. v Motorola Inc. [2012] No. 12-35352 (9th Cir.), at 12113-12115). Just as anti-suit injunctions run counter to the principle of mutual trust, they also run counter to the principle of international comity. This principle, therefore, ordinarily requires US courts not to interfere with the foreign concurrent court proceedings based on the same claim because ‘the mere existence of dual grounds of jurisdiction does not oust either one.’ (Euromarkets Designs v Crate & Barrel [2000] 96 F.Supp.2d 824, at 57). The principle of international comity is not absolute. When determining whether to issue of anti-suit injunction, it dictates US courts to balance between the public policies of the domestic and foreign sovereigns. As a result, the US courts are split in three on the appropriate weight that should be placed on international comity.

The Fifth, Seventh, Ninth and Eleventh Circuits adopt a liberal approach and place more weight on the need to provide a remedy that avoids the inconveniences and inequities that simultaneous prosecution of the same action in foreign court may otherwise entail (E&J Gallo Winery v Andina Licores [2009] 446 F3d 984 (9th Cir.)). Although under this approach, anti-suit injunctions are granted ‘sparingly’ (Id, at 18) it places an undesirable low weight on international comity.

The District of Columbia, Third, Sixth and Eighth Circuit adopt a conservative approach that accords more weight on non-interference with the sovereignty of the foreign court over the inconveniences of simultaneous parallel proceedings (PT Pertana v Kahara Bodas (PETITION) [2007] USSC No. 07). This is because an anti-suit injunction may affect the economic relations between the two countries and/or the foreign court may in-turn refuse to give effect to the US court judgment (Gau Shan v Bankers Trust [1992] 956 F.2d; at 1354).

Thus, under this approach, an anti-suit injunction would only be granted if two conditions are met. First, where a foreign court proceeding would be evading important US public policies. For example, where a party seeks to elude a statute relating to the dispute. (Lakers Airways v Sabena Belgian World Airlines [1984] 909 F2d 731, at 931). Second, where a foreign court action threatens appropriate jurisdiction. (Id) Such a case would be, for example, where there is evidence that the court may issue an anti-arbitration injunction or not refer case towards arbitration. However, this approach is too rigid as anti-suit injunctions would be granted only where these two requirements are met. (Quaak v KPMG Belgium [2004] 361 F.3d 11 (1st Cir.)).

Instead, the UK courts could adopt the intermediate approach adopted by the First and Second Circuit courts. Under this pragmatic approach, these courts adopt a rebuttable presumption against the issuance of issue anti-suit injunctions. This presumption can be rebutted evidence showing that the totality of the facts/circumstances, weighs in favor of issuing an anti-suit injunction. (Ibeto Petrochemical v Bryggen Shipping [2007] 475 F.3d 56 (2nd Cir.)). The factors considered include, inter alia, the importance of the policies at stake in the litigation and the extent to which the foreign action has the potential to undermine the arbitration process. (Quaak).

Conclusion

If UK courts are to regain power to issue anti-suit injunctions to enjoin parties from commencing court proceedings in EU states in breach of arbitration agreement post-Brexit, then the CJEU decisions are strong indications that the English courts will have to place significant weight on the principle of mutual trust. Accordingly, pragmatic measures adopted by the US courts, preferably under the intermediate approach, could be used to reform the current approach.

References   [ + ]

1. ↑ Ndolo D and Liu M ‘Does the Will of the Parties Supersede the Sovereignty of the State? Anti-suit Injunctions in the UK Post-Brexit’ (2017) 83(3) Arbitration 254, at 256. 2. ↑ Ndolo D, at 263 3. ↑ HM Government, The United Kingdom’s Exit from and New Partnership with the European Union 2017, at 13. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Legitimate Expectations in Renewable Energy Treaty Arbitrations: The Lessons So Far

Thu, 2018-03-22 09:08

Deyan Dragiev (Assistant Editor for Europe)

The initially alluring and subsequently vehemently amended incentives for investments in renewable energy projects across Europe have given rise to a significant number of arbitration claims brought on basis of the Energy Charter Treaty (ECT) and various BITs. Currently there are tens of pending investment treaty arbitrations with respect to renewable energy projects in Spain, Italy, Czech Republic, etc. A number of awards have already been rendered.

The analysis below considers the awards under four recent cases regarding alleged breaches of the standard of treatment (FET), including issues of stability and legitimate expectations: Charanne B.V., Construction Investments S.A.R.L. v Spain, SCC Arbitration No.: 062/2012 (“Charanne”); Eiser Infrastructure Limited and Energia Solar Luxembourg S.a.r.l. v Spain, ICSID Case No. ARB/13/36 (“Eiser”); Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italy, ICSID Case No. ARB/14/3 (“Blusun”); and Jürgen Wirtgen, Stefan Wirtgen, Gisela Wirtgen, JSW Solar (zwei) GmbH & Co. KG v. The Czech Republic (“Wirtgen”) PCA Case No. 2014-03; Novenergia II-Energy & Environment (SCA) (Luxembourg), SICAR v. Spain, SCC Arbitration 2015/063 (“Novenergia”).

No Breach Found

Charanne, which was the first decided investment treaty claim arising from the situation with renewable energy producers, considered various breaches of the ECT, including FET and legitimate expectations. The tribunal adopted the view, which is consistently expounded in previous arbitral case law, that it cannot be expected that regulatory framework would remain unaltered (para. 503 of the award). A state is entitled to sovereign policy as to its legislative incentives. However, this could be overridden if the investor holds legitimate expectations. These can be generated by a specific commitment towards the investor (para. 490 of the award). The tribunal did not find that there is such a commitment that incentives to renewable investments would not be altered. Moreover, the amendments in focus did not affect the essential characteristics of the renewable energy framework (para 539 0f the award) – feed-in tariff, etc.

In Blusun, the tribunal did not find a breach either. It held that the state is entitled to make regulatory changes (para. 319 of the award). However, it distinguished its position from the analysis in Charanne and considered that there is no necessity to establish unreasonableness as to legislative amendments. The ECT, it was held, clearly demanded stability and predictability not only at the initial time of investment but also throughout its operation. Any amendments, although within a state’s margin of appreciation, should be proportionate to a legislative aim. It is not only what is the substance of the regulatory changes but also what is their manner. The only carve-out is when there is a specific commitment and the investor has placed reliance on it (para. 373 of the award)..

The reasoning of Wirtgen seems a bit different, though. The tribunal indeed followed the argument that a state is entitled to make regulatory amendments and there can be a violation only if legitimate expectations generated by specific commitments are affected (para. 436-437 of the award). The tribunal, however, held that the guarantees of return to investors as the groundwork of the renewable energy promotion regime had been left intact. If an investor would continue to receive a level of revenue through the FIT system that ensures a 15 year payback of capital expenses and a return on investment of at least 7% per year over a period of 15 (later 20) years, there should not be a breach.

A Dissenter

A very strong dissenting opinion was put forward by Gary Born in Wirtgen. Born accepted that the Czech Republic breached the FET by amending its regulatory regime by the so called “solar levy”. Although a state is allowed to make regulatory amendments and an investor is not entitled to expect that no changes are made, if a state makes specific commitment regarding guarantees to investments, these should not be affected by regulatory changes. A specific commitment may be in the form of a legislation in favour of a class of investors providing a set of elements for ensuring the operation of promoted investments. As the Czech Republic had committed itself and guaranteed a minimum of profit in the form of feed-in tariffs to the investors for a fixed period of time, an investor who relied on this regulatory regime is entitled to expect that the regime would not change. So the dissenting opinion goes beyond what was said in the award by the majority – that a level of profitability was guaranteed and hence if the level of profits is ensured, there can be no breach. Instead, the entire regime is, in the view of Born, a commitment guaranteed by the state and should not be amended.

Breach Found

Eiser was the first award where a host state providing beneficial incentives to investors in renewable energy production has been found to breach its international investment treaty obligations by altering its regulatory regime. The tribunal in Eiser reiterated that a state has full regulatory powers but on the other hand, this should not abrogate its fair and equitable treatment obligations towards investors (para. 362 of the award). If any changes are made, however, these should not be of a manner that does not take account of the circumstances of existing investments made in reliance on the prior regime. The ECT was found to protect investors against total and unreasonable changes (para. 363 of the award). Although changes are allowed, fundamental stability of the essential characteristics of the legal regime relied upon by investors in making long-term investments should be ensured by the host state and radical amendments on key characteristics of the investment that were relied upon by the investors would constitute a breach. In Eiser, the tribunal accepted that the regulatory change was so radical and fundamental that it affected the financial fundament of the investments made in Spain and “washed away” the benefits envisioned at the time of investment. This qualified as a breach.

In February 2018, the tribunal in Novenergia noted the reasoning in Eiser and analysed whether Spain generated legitimate expectation and whether subsequently Spain radically altered the essential characteristics of its legislation in a manner that violates the FET standard (para. 656 of the award). The tribunal found that the objective of Spanish legislation was to ensure achieving emissions and renewable targets under EU law. Spain created, according to the tribunal, a very favourable investment climate for renewable energy investors. The domestic legislation in force at the time of investment incorporated commitments and assurances to guaranteed revenues on which investor placed reliance. Hence, the investor had a legitimate expectation that there would not be any radical or fundamental changes to the local laws. However, the investor could not have reasonably expected that there would be no changes to lower the value of its investment (para. 688 of the award). Spain had regulatory powers, but not unrestricted ones. A state’s regulatory interests are weighed against the investors’ legitimate expectations and reliance. It is not simply sufficient to look at the economic effect; but it can show a change in the essential characteristics of the legal regime relied upon by investors when making long-term investments (para 694 of the award). Ultimately, the tribunal found the challenged Spanish measures to be radical and unexpected which transformed the legal and business environment under which the investment was decided and made.

Inferences

The cited awards, although not entirely in line with each other and having a dissenting view, can serve as basis for a set of inferences.

It is not a matter of dispute that a state is entitled to make changes to its legislative framework and policy, including as to incentive and regulation of renewable energy production.

Any amendments have a “substantive” aspect, i.e. that changes should be targeted at a proportionate aim; and a “procedural aspect”, i.e. that should be enforced in a reasonable manner.

If a host state makes specific commitments, including guarantees that certain (financial) end results would be available to a renewable energy producer, an investor who relies on the commitments and guarantees can have legitimate expectations that these would not be altered. A commitment may be made not only by a direct stipulation towards a particular investor but also by enacting legislation in favour of a class of investors.

Complete subversion of the financial status of a project would be tantamount to a breach of legitimate expectations. Alteration to key elements and essential characteristics of a regulatory framework such as feed in tariffs can also be a potential breach. If the legislative framework caters for specific levels of returns, this can also qualify as possible breach of legitimate expectations. An adverse economic effect may not be the only factor, but may indicate the implementation of drastic changes when considering the breach of FET.

The views and opinions expounded in this article belong entirely to the author and do not reflect the position of any entity or institution he may be affiliated or associated with.

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Consolidation of Arbitral Proceedings and its Ramifications on a Party’s Right to Challenge the Jurisdiction of the Tribunal and the Arbitral Award

Tue, 2018-03-20 22:19

Eunice Chan Swee En

YSIAC

The potential ramifications on a party’s right to challenge an award made in a consolidated proceeding should inform a party’s decision to adopt institutional rules or national arbitration laws that allow for consolidation. Ensuring as a preliminary matter that the mechanism for consolidation and any waiver provisions in the institutional rules or national arbitration laws adopted accords with the parties’ intent would avoid any unintended waiver of any grounds to set aside and/or challenge the enforcement of an award made in the consolidated proceedings.

The nature of a consolidation decision and its ramifications on a party’s right to challenge the Tribunal’s jurisdiction

A consolidation decision may be characterised as purely administrative or jurisdictional in the sense that the consolidation decision creates the jurisdiction of the tribunal of the consolidated proceedings. The characterisation of the nature of a consolidation decision is important as it may have ramifications on a party’s right to challenge the jurisdiction of the tribunal of the consolidated proceedings.

It may be said that the consolidation decision by an arbitral institution under institutional rules (such as Article 10 of the 2017 ICC Rules, Article 28.1 2013 of the HKIAC Rules and Article 15 of the 2017 SCC Rules) which allow such consolidation may be regarded as administrative in nature. There are two common features of such a consolidation decision. First, there is no requirement for reasons to be given (for example, see Article 8 of the 2014 ICDR Rules and Rule 40.1 of the 2016 SIAC Rules). Secondly, there is no stipulated avenue for a party to challenge an institution’s decision to consolidate proceedings. The institution’s decision on consolidation is final.

An institution’s decision to consolidate proceedings may be distinguished from an award or a ruling on jurisdiction. Unlike the institution’s decision to consolidate proceedings, the latter typically contains reasons and may be set aside under the law of the seat of the arbitration and/or challenged at the enforcement stage. Thus, the institution’s decision to consolidate, being administrative in nature, does not preclude a tribunal of the consolidated proceeding from making a determination on the validity of the consolidation in a ruling on its own jurisdiction. The 2016 SIAC Rules appear to adopt this view.

SIAC Rule 8.4 and Rule 8.9 clarify that the consolidation provisions (as with the joinder provisions in Rule 7.4 and Rule 7.10) in the SIAC Rules set out the procedural mechanism for consolidation. The SIAC Rules do not create the jurisdiction of the tribunal in respect of the consolidated proceedings. The tribunal of the consolidated proceedings retains kompetenz-kompetenz to decide on its own jurisdiction, including any challenge to its jurisdiction on the basis of the institution’s decision to consolidate.

In contrast, there are institutions that appear to treat the consolidation decision as jurisdictional in nature. Article 28.8 of the 2013 HKIAC Rules states that “parties waive any objection, on the basis of HKIAC’s decision to consolidate, to the validity and/or enforcement of any award made by the arbitral tribunal in the consolidated proceedings, in so far as such waiver can validly be made”. The underlying premise of this waiver provision appears to be that the tribunal of the consolidated proceedings has valid jurisdiction to make an award pursuant to the institution’s decision to consolidate proceedings.

However, having regard to the fundamental principle in international arbitration that the tribunal has kompetenz-kompetenz to rule on its own jurisdiction, the better view is that the initial decision by the arbitral institution to consolidate should be regarded as administrative in nature, and should not purport to create the jurisdiction of the tribunal of the consolidated proceedings. After all, the initial decision to consolidate does not bear the hallmarks of a jurisdictional ruling or award (i.e. containing reasons and subject to challenge). The tribunal of the consolidated proceedings should retain the competence to rule on its own jurisdiction, including any challenge to its jurisdiction on the basis of the initial decision to consolidate.

This view might be regarded as procedurally inefficient because a party objecting to the consolidation is effectively given a second bite at the apple. However, it upholds the fundamental principle in international arbitration that the tribunal of the consolidated proceedings has competence to rule on its own jurisdiction. It further acknowledges the fact that the initial decision-maker (institution or tribunal) may not have been in the best position to make a decision on consolidation at an early stage of the proceedings because there might have been insufficient information available at that time.

The agreement to consolidate and its ramifications on a party’s right to challenge the award

Consolidation of proceedings contrary to parties’ consent negates party autonomy and would jeopardise the enforceability of an award made by the tribunal of the consolidated proceedings. However, even where parties have consented to apply institutional rules or national arbitration laws which allow for the consolidation of proceedings, such agreement may have ramifications on the grounds available to a party to challenge an award made by the tribunal of the consolidated proceedings. Three potential ramifications are discussed below.

First, by agreeing to adopt institutional rules that grant the institution the power to decide to consolidate proceedings, parties may be deemed to have waived their right to challenge an award made by the tribunal of the consolidated proceedings on the basis of the institution’s decision to consolidate. Article 28.8 of the HKIAC Rules which has been mentioned above provides such an example. Notably, parties can waive their right to set aside an arbitral award in some jurisdictions: see Article 1522 French Code of Civil Procedure and Noble China Inc v Lei (1998) 42 O.R. (3d) 69; 42 B.L.R. (2d) 262.

Even if the institutional rules do not contain such a waiver provision, it would be prudent for parties to expressly reserve their rights to challenge any award made by the tribunal of the consolidated proceedings on the basis of the initial decision to consolidate. In Karaha Bodas v Pertamina (No 2) [2003] 4 HKC 488, the Hong Kong Court observed (at [29] and [36]) that the fact that the defendant had made no challenge to the decision on consolidation (and appointment of arbitrators) to the supervisory court and had remained silent until the enforcement stage “may be construed as a waiver, if indeed there had been an irregularity”.

Secondly, by agreeing to adopt arbitral intuitional rules that grant the institution the power to decide to consolidate proceedings, parties may be deemed to have waived their right to designate an arbitrator.

There are several institutional rules which provide that parties waive their right to designate an arbitrator in the event of a consolidation of proceedings. Examples of these rules include Art 4 of the SRIA Rules and SIAC Rule 8.12. Parties’ agreement to adopt such rules endangers a party’s right to set aside and/or challenge the enforcement of an award made by the tribunal on the basis that the composition of the tribunal was not in accordance with the parties’ agreement under Article 34(2)(a)(iv) of the Model Law and Article V(1)(d) of the New York Convention.

Thirdly, parties may have agreed to apply the law of the seat of the arbitration which allows the national court to order consolidation of arbitrations (for example, the Hong Kong Arbitration Ordinance). Such agreement may affect a party’s right to challenge the award made by the tribunal of the consolidated proceedings. For instance, where the consolidation decision is made by the court of the seat of the arbitration in accordance with the law of the seat, it would be difficult for a party to challenge an award made by the tribunal of the consolidated proceedings on the basis that the arbitral procedure and/or constitution of the tribunal was “not in accordance with the law of the country where the arbitration took place” (i.e. the law of the seat) under Article 34(2)(a)(iv) of the Model Law and Article V(1)(d) of the New York Convention.

Concluding remarks

Fidelity to efficiency in international arbitration demands that multi-contract disputes should be consolidated before a single arbitral tribunal. Consolidation reduces time and costs of resolving the dispute and prevents inconsistent / duplicative decisions on related claims and factual issues. However, before agreeing to consolidation, parties should be forewarned of the potential ramifications on their rights to challenge the jurisdiction of the tribunal of the consolidated proceedings and/or an award made in the consolidated proceedings.

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Novenergia v. Kingdom of Spain, the ECT and the ECJ: Where to now for intra-EU ECT claims?

Tue, 2018-03-20 02:12

Richard Power

Clyde & Co.

There has been much comment about recent awards in Energy Charter Treaty (‘ECT’) arbitrations concerning investors’ claims against Spain and other EU states regarding renewable energy projects . The fortunes of investors and states have waxed and waned over the last few years, but overall it seemed that investors faced a considerable hurdle. In recent weeks, the rollercoaster ride has accelerated, with Novenergia v. Kingdom of Spain, SCC Case No. 063/2015, giving hope to investors, and EC Decision 2017/C 442 (‘the Decision’) and the European Court of Justice’s (‘ECJ’) decision in Case C-284/16 Slovak Republic v. Achmea BV apparently dashing those hopes.

Background

In the mid-2000s, many EU states encouraged foreign investors to undertake renewable power projects, particularly solar energy. Legislation offered incentives such as specified feed-in tariffs for lengthy periods and no limit on energy generation/distribution.

The global economic crash made such schemes became unbearably costly, and relevant legislation was repealed or amended. Those legislative changes undermined or even destroyed the profitability of investments predicated on the basis of the existing legislative frameworks. Consequently, many investors brought arbitration claims under the ECT, which protects foreign investments in the energy sector of signatory states from expropriation and unfair treatment.1)At the time of writing, for example, around 30 ECT claims against Spain are underway jQuery("#footnote_plugin_tooltip_9170_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9170_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Charanne, Eiser, Isolux and Blusun

In 2016 and 2017, four awards were made in respect of claims by investors from one EU state against another EU state: Charanne v. Spain2)Charanne B.V. and Construction Investments S.á.r.l v. Kingdom of Spain (SCC Case No. V 062/2012) jQuery("#footnote_plugin_tooltip_9170_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9170_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });; Eiser v. Spain3)Eiser Infrastructure Limited and Energia Solar Luxembourg Sarl v. Kingdom of Spain (ICSID Case No.ARB/13/36) jQuery("#footnote_plugin_tooltip_9170_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9170_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });; Isolux Netherlands, BV v. Kingdom of Spain4)Isolux Netherlands, BV v. Kingdom of Spain (SCC Case No. V 2013/153) jQuery("#footnote_plugin_tooltip_9170_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9170_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Blusun v. Italy5)Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic (ICSID Case No. ARB/14/3) jQuery("#footnote_plugin_tooltip_9170_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9170_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. The awards displayed some consistency in that:

1. They rejected submissions by the respondents, and the European Commission (‘EC’) via amicus curiae briefs, that the tribunals lacked jurisdiction to hear ECT claims between an EU member state and an investor from another EU state.6)Similar arguments have been heard, and dismissed, in other cases, e.g. RREEF Infrastructure v. Kingdom of Spain (ICSID Case No. ARB/13/30) jQuery("#footnote_plugin_tooltip_9170_6").tooltip({ tip: "#footnote_plugin_tooltip_text_9170_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Broadly the arguments were that:

(a) As the EU itself is a signatory of the ECT and both parties are from the EU, Article 26(1) ECT was not fulfilled i.e. the claimant was not from an “Area” of “another Contracting Party”;
(b) The ECT impliedly included a disconnection clause, barring EU states from applying the ECT inter se; and
(c) EU law is an independent legal system taking precedence over other international law and domestic law, which provides an exclusive source of legal rights and remedies for intra-EU relations, including investor protection. The tribunal must apply EU law in reaching its decision. Therefore, the courts of the EU are the only appropriate jurisdiction to apply and enforce EU law.

The tribunals dismissed those arguments, holding that:
(i) individual EU states are also individual signatories to the ECT and the parties are of different nationalities;
(ii) the plain wording of the ECT did not allow for an implied disconnection clause; and
(iii) the claims are based on the provisions of the ECT, not EU law; the ECT expressly gives the tribunal exclusive jurisdiction; and there is no clash between ECT protections and EU law which would require a decision by the ECJ.

2. The tribunals accepted that fair and equitable treatment protections such as that in Article 10(1) ECT do not prevent a state from amending its regulatory regime, unless (i) it has given specific assurances to keep that regime in place for the lifetime of the investment (such as a contractual ‘stablisation clauses’); and/or (ii) such changes are disproportionate to the aim of the legislative changes, and fail to take due regard to investors’ legitimate expectations, formed before such reforms were mooted.

However, the awards also differed on some key issues:

3. The only award in favour of an investor was Eiser. This distinguished the 2010 amendments to Spain’s solar incentives regime7)The focus of the claim in Charanne. jQuery("#footnote_plugin_tooltip_9170_7").tooltip({ tip: "#footnote_plugin_tooltip_text_9170_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); from the more extensive 2013/14 reforms. The tribunal held that Article 10(1) ECT entitled the claimants to expect that Spain would not revise the regime upon which their investments were based to such a degree that all value in them was lost. Those legitimate expectations were based on the 2007 legislation and Spain’s further conduct in 2010-2011. The 2013/14 reforms amounted to a “total and unreasonable change” in violation of those legitimate expectations. The tribunal awarded the claimants damages of €128m.

4. When considering the circumstances in which a state may have breached Article 10(1) by modifying its regulatory framework, the Blusun tribunal rejected the tripartite criteria in Charanne (public interest, unreasonableness and disproportionality). The tribunal concluded that “in the absence of a specific commitment”, a state has no obligation to grant or maintain subsidies, but any modification should be done “in a manner which is not disproportionate to the aim of the legislative amendment, and should have due regard to the reasonable reliance interests of recipients who may have committed substantial resources on the basis of the earlier regime.”

The awards indicated the difficulties of establishing actionable legitimate expectations of stability in the absence of a stabilisation clause. Even the one result in favour of an investor, Eiser, is being challenged via annulment proceedings.8)Spain has applied for annulment for a failure to state reasons and a manifest excess of power, based upon the finding of a breach of Article 10(1) in circumstances where the tribunal held that Spain had a sovereign right to amend its legislation and had made no commitments as to a stable regulatory environment. Spain’s application also alleges that the claimant’s nominated arbitrator breached his obligation of independence and impartiality by failing to disclose a longstanding relationship with the claimants’ valuation experts. jQuery("#footnote_plugin_tooltip_9170_8").tooltip({ tip: "#footnote_plugin_tooltip_text_9170_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Novenergia v. Kingdom of Spain

However, in February 2018, the tribunal in Novenergia v. Spain ordered Spain to pay €53 million to Novenergia, a Luxembourg fund which had invested in photovoltaic plants in Spain. The award was significant in that adopted a more expansive approach to investor claims than in the previous cases (including Eiser).

Novenergia’s claim related to the same 2013/14 reforms as in Eiser and Isolux. As in the previous awards, the tribunal confirmed that Article 10(1) ECT does not create an independent obligation to provide stable investment conditions. The key question is whether the investor has legitimate expectations of stability.

Contrary to Charanne, however, the tribunal held that such expectations “arise naturally from undertakings and assurances” given by the state. These do not need to be specific undertakings and/or contractual stabilisation clauses – state conduct or statements which objectively create such expectations (irrespective of whether the state intended to create them) are sufficient. Novenergia was entitled to form legitimate expectations as to the 2007 regime based on statements by officials to Spain’s Congress of Deputies, as well as Spain’s marketing documents which, the tribunal said, constituted “bait”.

As in Eiser, the tribunal held that Spain’s 2013/2014 reforms, which replaced the 2007 regime with a new regime guaranteeing only a ‘reasonable rate of return’, were a “radical and unexpected” departure from the 2007 regime. At the time of its investment decision, Novenergia had a legitimate expectation that the 2007 regime would remain relatively stable.

While Novenergia’s investments had not been destroyed by the 2013 reforms,9)In fact, they were still achieving a reasonable rate of return jQuery("#footnote_plugin_tooltip_9170_9").tooltip({ tip: "#footnote_plugin_tooltip_text_9170_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); going further than Esier, the tribunal held that it was sufficient that Novenergia could show “quantifiable prejudice” compared with its position when it initially made its investment. The tribunal found that the 2013/14 reforms had a “significant damaging economic effect” on Novenergia’s plants, decreasing revenues by 24% – 32%, and awarded damages accordingly.

Enter the EC

One might think that the tide has turned in favour of investors. However, two interventions from EU institutions seem to have swung the pendulum in the other direction:

(a) In Decision 2017/C 442, published on 10 November 2017, the EC attacked ECT claims brought by investors against Spain (and other EU states). Spain had established the 2007 regime, and reformed it, without obtaining prior approval from the EC. That constituted the granting of state aid without first notifying the EC, and under EU law investors cannot form legitimate expectations with regard to such schemes. The applicable law of the dispute must be EU law as each party was or was from an EU state; and since “the principle of fair and equitable treatment [in the ECT] cannot have a broader scope than the [EU] law notions of legal certainty and legitimate expectations in the context of a state aid scheme”, no investor could form legitimate expectations with regard to the Spanish 2007 regime and its reforms.

The Decision went on to criticise the concept of the ECT claims, stating that the EC considers that “any provision that provides for investor-State arbitration between two Member States is contrary to [European] Union law…Union law provides for a complete set of rules on investment protection…Member States are hence not competent to conclude bilateral or multilateral agreements between themselves”. The Decision concluded that “[f]or those reasons, ECT does not apply to investors from other Member States initiating disputes against another Member States”.

Finally, the Decision stated that if an arbitral tribunal awarded an investor compensation in respect of losses caused by Spain’s reform of the Special Regime, that would constitute state aid; and if Spain paid such an award, it would require EC approval. For good measure, the Decision stated that “this Decision is part of Union law, and as such also binding on Arbitration Tribunals, where they apply Union law. The exclusive forum for challenging its validity are [sic] the European Courts”.10)The Decision was considered in the Novenergia award and dismissed as irrelevant, since the tribunal held that they were not applying EU law, but rights arising under the ECT. jQuery("#footnote_plugin_tooltip_9170_10").tooltip({ tip: "#footnote_plugin_tooltip_text_9170_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

(b) In March 2018, the ECJ handed down its judgment in the Achmea case, holding that investor-state arbitration clauses in intra-EU BITs are not compatible with EU law. However, it is not clear whether this affects intra-EU ECT claims. The ratio decidendi appears to be that EU member states cannot derogate from the provisions of EU instruments, especially the Treaty on the Functioning of the EU, which provide for the primacy of EU law and the necessity for it to be tested in the courts of member states, by reference to the ECJ if necessary. However, in contrast to the Netherlands and Slovakia BIT which is the subject-matter of Achmea, the EU itself is a signatory to the ECT, and hence it can be argued that it has agreed to claims under the ECT being determined by the arbitration mechanism specified in the ECT. The EU clearly has the power to enter into arbitration agreements – c.f. the EU’s free trade agreements with third parties.

Nevertheless, the Decision and the Achmea judgment make it likely that any attempt to enforce an ECT award in an EU state will be resisted, e.g. under Article V(2) of the New York Convention (dispute not capable of settlement by arbitration/contrary to public policy). Investors may of course try to enforce outside the EU.

Where to now?

It remains to be seen if claimants will press ahead with their outstanding ECT claims against Spain and other EU states; or whether fresh claims will be commenced in another forum (and if so, what and where?). However, the Decision and Achmea may not necessarily be the death-knell for intra-EU ECT arbitrations that they might seem at first glance.

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References   [ + ]

1. ↑ At the time of writing, for example, around 30 ECT claims against Spain are underway 2. ↑ Charanne B.V. and Construction Investments S.á.r.l v. Kingdom of Spain (SCC Case No. V 062/2012) 3. ↑ Eiser Infrastructure Limited and Energia Solar Luxembourg Sarl v. Kingdom of Spain (ICSID Case No.ARB/13/36) 4. ↑ Isolux Netherlands, BV v. Kingdom of Spain (SCC Case No. V 2013/153) 5. ↑ Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic (ICSID Case No. ARB/14/3) 6. ↑ Similar arguments have been heard, and dismissed, in other cases, e.g. RREEF Infrastructure v. Kingdom of Spain (ICSID Case No. ARB/13/30) 7. ↑ The focus of the claim in Charanne. 8. ↑ Spain has applied for annulment for a failure to state reasons and a manifest excess of power, based upon the finding of a breach of Article 10(1) in circumstances where the tribunal held that Spain had a sovereign right to amend its legislation and had made no commitments as to a stable regulatory environment. Spain’s application also alleges that the claimant’s nominated arbitrator breached his obligation of independence and impartiality by failing to disclose a longstanding relationship with the claimants’ valuation experts. 9. ↑ In fact, they were still achieving a reasonable rate of return 10. ↑ The Decision was considered in the Novenergia award and dismissed as irrelevant, since the tribunal held that they were not applying EU law, but rights arising under the ECT. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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The Structural Implications of Belt-and-Road Arbitration: China’s Legal Gamble across Eurasia

Sun, 2018-03-18 21:00

Horia Ciurtin

The Belt-and-Road Initiative (“BRI“) is a grand vision about connectivity, infrastructure, trade and unimpeded foreign direct investment (“FDI“) flows. It is a path to China’s largest export market  – the European Union – which does not only propose to ‘transit’ Eurasia (and coastal East Africa), but to radically transform it. And, thus, mere construction and outpours of capital do not suffice for such an ambitious project. The scale and depth of the BRI require a substantial ‘investment’ in establishing a common normative nexus. For connectivity to actually exist as a functional feature of the project, it must also – on the long-term – take the shape of legal harmonization.

However, in this initial phase of the BRI, more modest objectives need to be achieved. And China has taken small – but firm steps – in this direction. Thus, while previously considered a problematic jurisdiction for arbitrating commercial disputes (and a difficult Respondent in investment litigation), China’s status has significantly improved in the last few years. As it envisions itself to rather be the source of investors and contractors along the Belt-and-Road (and not a destination for FDI), Beijing is seeking legal mechanisms to ensure the protection of Chinese companies’ interests abroad.

For this reason, China is well set on the course of strengthening CIETAC and also offering it – for the first time – a clear set of rules that will deal with investor-state disputes. However, if ADR as a whole is considered, it must be noted that China still favors mediation (usually state-to-state driven) as a manner of solving disputes, seeing arbitration as a measure of last resort. Nonetheless, it got involved in ensuring that this legal ultima ratio is circumscribed within a discernable pattern which is not so different from similar measures proposed by Western states. It might be a form of globalization with Chinese characteristics – as Beijing likes to portray it – but it does not diverge too much from the beaten track regarding international arbitration.

Returning to the BRI’s intrinsic (and necessary) relationship with arbitration, it must be ascertained that it is the only viable way to ensure a stable and predictable framework for solving disputes over such a large area, with dozens of different jurisdictions, legal cultures and diverging geoeconomic interests. Most of the states that will become part of the BRI are not consolidated democracies, lacking independent judiciaries and national courts that uphold the rule of law. And that might be a problem for Chinese investors which will – inevitably – face the risk of (creeping) expropriation or breaches of the FPS and FET standards. And thus, although arbitration might not be the preferred solution for China, it is the best answer to such systemic risks.

On the other hand, for companies along the Belt-and-Road that trade, construct and invest in the opposite direction, targeting the Chinese mainland as a destination for their goods and FDI, arbitration against China (and within China) still remains problematic. Especially on the enforcement side. The judiciary is sometimes less than collaborative and – although it might permit enforcement on a regular basis – it strongly takes into consideration matters of public policy and personal ties to the Party members involved. Most large Chinese private entities are linked with the Party nomenklatura one way or another, representing a matter that BRI investors need to carefully take into account.

In this sense, China might seek to improve some procedural aspects of arbitration within its territory, but it will stick to its ‘systemic’ approach of favoring state-owned entities and Party-linked companies, even by making enforcement against them extremely difficult. On the short term, it is unlikely that significant improvements will take place where there are high stakes involved. Especially if they are in any way linked to the political scene. However, what can be expected is a more predictable framework and improved procedures in the statutes. How they will work in practice, it is difficult to tell.

Thus, even the recent enactment of the CIETAC ‘investment arbitration rules’ seems to be – at this stage – more an exercise in wishful thinking and PR for the BRI. Its practical effects upon existing BITs from the third generation that offer ICSID rules or UNCITRAL rules as possibilities. But such new rules might – nonetheless – impact the manner in which the Belt-and-Road contracts and treaties will be further modelled. If ‘legal traditions’ and ‘customs’ are taken into consideration when developing the arbitration framework, that will give a high margin of appreciation to the arbitrators that will be called to rule upon those disputes. Of course, if China has sufficient leverage on one country, it can renegotiate the existing BIT and introduce a mandatory reference to its new rules, but it is unlikely that many states will switch ICSID or UNCITRAL rules for CIETAC. Or choose an arbitral seat anywhere in Chinese mainland territory.

And that is why the Belt-and-Road is dependent upon a ‘string’ of regional arbitral venues that fulfil all the impartiality and quality requirements for every party involved. More precisely, in East and Southeast Asia, Hong Kong proves to be an excellent choice for the seat’s jurisdiction when arbitrating with Chinese entities. Its legal system comes from a long Anglo-Saxon tradition of upholding the rule of law and an independent judiciary. The quality of the arbitral institutions is extremely high (see the HKIAC, ICC-HK), as well as of local arbitrators. The enforcement is quite swift (compared to mainland China) and it is within the bounds of what a Western-based investor would expect. In addition, for this region, the Singapore International Arbitration Centre is also a good choice, benefitting from the same qualities as Hong Kong and – even more – a total disconnection with Chinese authorities.

On the other hand, in Central Asia, the Middle East, the Balkans or Eastern Europe, the offer is quite scarce. The projected arbitral venue in Astana is still just in blueprint phase, while Moscow and Teheran do not have a consistent track record in large commercial arbitration (and no experience in investment disputes). That could, perhaps, leave Istanbul on-route and – for the BRI end-point – one could consider the Vienna International Arbitral Centre. Otherwise, almost all other parties will consider using Hong Kong, Singapore or a traditional Western-based institution.

For these reasons, China must seriously invest in developing a network of sister-institutions along the entire BRI, each having a regional focus. Unitary rules could be adopted, drafted along the UNCITRAL ones, but with additional provisions that allow the BRI specifics to emerge. CIETAC ones might work just fine for Chinese companies that wish to settle a dispute against foreign entities or sovereigns, but they could prove insufficient and inadequate for a litigation going the other way round. And that is where such regional centers – ‘decoupled’ from China’s state apparatus – need to emerge. As a measure to build confidence and to symbolically reveal all other parties that Beijing is accepting to be bound by clear and transparent rules, well beyond its jurisdiction.

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