Kluwer Arbitration Blog

Syndicate content
Updated: 1 hour 35 min ago

Slovak Republic v. Achmea: When Politics Came Out to Play

Sun, 2018-07-01 02:32

Vivek Kapoor

Young ICCA

The Court of Justice of the European Union (“CJEU”) is not an ordinary court but a political court, which means that it is strongly influenced in making its decisions by the political beliefs of the European Commission. The 6 March 2018 judgment of the CJEU’s Grand Chamber in Slovak Republic v. Achmea BV is a reminder; with a preordained weltanschauung and political outcome, the CJEU then proceeded to forge the jurisprudential basis.

The European Commission has long maintained that investor-state arbitration is incompatible with EU law. In 2015, the European Commission initiated infringement procedures against Austria, the Netherlands, Romania, Slovakia, and Sweden, and requested them to terminate their intra-EU BITs. Some EU Member States, including Romania, Poland, Ireland and Italy, have already begun terminating their intra-EU BITs.

The European Commission has also intervened as amicus curiae in several investor-state arbitrations involving issues of EU law. Much to its chagrin, arbitral tribunals facing questions of EU law have routinely held that investor-state arbitration is not incompatible with EU law, and have found themselves competent to interpret questions of EU law. Two instances that come to mind are Electrabel S.A. v. The Republic of Hungary and European American Investment Bank AG (Austria) v. The Slovak Republic, where the European Commission had submitted amicus briefs.

Background to Slovak Republic v. Achmea

On 7 December 2012, a Frankfurt-sited arbitral tribunal constituted under the 1991 Netherlands-Slovakia BIT (the “BIT”) found Slovakia in breach of its obligations under the BIT, and ordered Slovakia to pay damages to Achmea.

Slovakia brought an action before the Higher Regional Court of Frankfurt to set aside the award, arguing that the BIT’s provision for investor-state arbitration was incompatible with EU law. The Frankfurt Court upheld the award, and Slovakia lodged an appeal to Germany’s Federal Court of Justice. The Federal Court of Justice turned to the Court of Justice of the European Union (“CJEU”), requesting a preliminary ruling on whether Articles 267, 344 or 18(1) of the Treaty on the Functioning of the European Union (“TFEU”) preclude investor-state arbitration under an intra-EU BIT.

Fifteen Member States weighed in; the majority in support of Slovakia’s position. One of the Advocates General of the CJEU also gave a formal opinion. In his Opinion of 19 September 2017, he concluded that intra-EU BITs were compatible with EU law.

The Incompatibility

In its decision, the CJEU held that the provision for investor-state arbitration in the BIT was contrary to Articles 344 and 267 of the TFEU. It found that the investor-state arbitration mechanism threatened the effective application of EU law and was incompatible with the duty of sincere cooperation incumbent upon EU Member States in order to ensure the uniform and effective application of EU law.

The CJEU constructed its reasoning on the basis that in resolving the investment treaty dispute, the arbitral tribunal would invariably be called upon to interpret and apply EU law as part of the law and international norms in force. However, such arbitral tribunal did not qualify as a “court or tribunal of a Member State”, and therefore was not competent (under Article 267 of the TFEU) to request preliminary rulings on the interpretation of EU law from the CJEU.

Emphasizing what is essentially an artificial distinction, the CJEU concluded that, unlike commercial arbitration, investment treaty arbitration effectively removed matters relating to the interpretation and/or application of EU law from the jurisdiction of the domestic courts of EU Member State. Moreover, the nature of the process ensures that awards are subject only to limited judicial review by the domestic courts of EU Member States.

Accordingly, the Court held that investor-state arbitration impaired the autonomy of EU law, which is ensured by Articles 344 and 267 of the TFEU.

Having found investor-state arbitration incompatible with EU law, the CJEU did not rule on the question whether it was also incompatible with Article 18(1) of the TFEU.

The Jurisprudential Manoeuvre

The reasoning of the CJEU is fairly synthetic. First, an arbitral tribunal constituted under a BIT essentially rules on the substance of that particular BIT. At no point in time would it stray into the operational domain of the CJEU under Article 344.

Second, the reasoning could very easily apply to a commercial arbitration tribunal which would also not qualify as a “court or tribunal of a Member State” but could be called upon to interpret and apply EU law as it is a fundamental part of any EU Member State’s domestic law. Then why the express exclusion for commercial arbitration? Moreover, arbitration as a process ensures that awards are subject only to limited judicial review by the domestic courts. Commercial arbitration awards too are subject to judicial scrutiny only on limited grounds and it is unclear whether these limited grounds, similarly defined for a better part in most domestic arbitration codes, would allow an examination of the fundamental provisions of EU law. Public policy is not an easy gateway to an extensive judicial review.

The Aftermath

The CJEU’s judgment is indeed in the particular context of the provision for investor-state arbitration under the Netherlands-Slovakia BIT. But make no mistake, it will change the lay of the land.

While the judgment’s analysis does not concern the substantive protections accorded under intra-EU BITs, it effectively renders the 196 intra-EU BITs currently in force impracticable. The investor-state arbitration mechanism is fundamental to a BIT, intra-EU BITs being no different. Investment treaty tribunals constituted under intra-EU BITs may not be required to decline jurisdiction as a result of the judgment, but their awards could very well be set aside or denied enforcement on grounds of incompatibility with EU law.

Even investors (with awards by tribunals sited in EU Member States) seeking enforcement outside the European Union would not be able to escape the judgment. Courts of EU Member States have to comply with the CJEU’s judgment. Thus, where the courts of an EU Member State are asked to set aside awards made on the basis of an intra-EU BIT, they are likely to annul such awards. Awards set aside at the seat tend not to find much favour in enforcement courts elsewhere.

Having the tribunal sited in a non-EU State may tide over the annulment muddle, but the problems would effectively remain the same at the enforcement stage of the awards in EU States. Investors will now be forced to submit claims protected by an intra-EU BIT to the jurisdiction of the courts of their host State, essentially without the substantive protections provided under the BITs.

Investors could consider restructuring their investments in EU Member States to benefit from protection under BITs with third (non-EU) States. However, it is not inconceivable that in the future, BITs with third States might also run into similar rough weather. Any investment treaty award based on a claim that has an EU Member State as the host State can potentially get stuck in this web, the contours of which have been firmly defined by this judgment of the CJEU.

The path of multilateral treaties for intra-EU claimants may also not remain unravaged for long. The European Commission’s disapproval of the investor-state arbitration mechanism of the Energy Charter Treaty (also due to purported incompatibility with EU law) is well known.

An award by an arbitral tribunal constituted under the rules of the Convention On The Settlement Of Investment Disputes Between States And Nationals Of Other States (“ICSID”) is enforceable as if the award were a final judgment of a court in each Contracting State to the ICSID Convention, with no possibility for it to be set aside by a domestic court. Yet, investors may find it difficult to enforce an ICSID award in the EU due to the incompatibility of investor-state arbitration mechanism with EU law. US courts rejected the arguments of the European Commission against the enforcement of the ICSID award in Ioan Micula, Viorel Micula and others v. Romania, however, courts in EU Member States might not take the same view when called upon to do so.

Tour d’horizon

For EU Member States, the CJEU’s finding of an incompatibility of investor-state arbitration with EU law will make revisions to their existing BITs unavoidable.

The recent weeks have seen the EU unveil the finalized draft of the investment protection agreement with Singapore and the outline of the trade deal with Mexico. Both seek to implement the EU approach to investment protection that “fundamentally reforms the old-style ISDS system” – by providing for a permanent two-tier investment court.

The future of investor-state arbitration is fast evolving, and within the European Union, CJEU’s judgment has taken investor-state disputes to the doorstep of a permanent investment court, as has long been advocated by the European Commission.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post Slovak Republic v. Achmea: When Politics Came Out to Play appeared first on Kluwer Arbitration Blog.

The Great Battle of Intellectual Property versus State Sovereignty: Is Philip Morris v Uruguay a Good Referee? (Part II)

Sat, 2018-06-30 02:29

Michaela Brett Samuel Halpern

In the first part of this article, we discussed the problems of balancing an investor’s intellectual property rights with the sovereign right of a State. Now, we look at how Philip Morris v Uruguay has added to the debate.

In 2010 Philip Morris challenged two measures adopted by the government of Uruguay: (1) a “single presentation requirement” in which brands were allowed to sell products with only one packaging style therefore limiting products to one variant and (2) the “80/80 Regulation” which called for the increase in size of the graphic health warnings on cigarette packages from 50% to 80%. Uruguay defended these measures on the basis that they were adopted for the sole purpose of protecting public health, the measures were within the scope of Uruguay’s sovereign powers and applied in a non-discriminatory manner to all tobacco companies. While the root of the FET standard was not contested, the content and interpretation of the standard was and remains today up for debate.1) Philip Morris ¶ 312. jQuery("#footnote_plugin_tooltip_2131_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In an award dated 8 July 2016, all of Philip Morris’ claims were rejected and the Claimants were required to pay $7 million to cover arbitration costs. The Tribunal unanimously rejected the claim of expropriation, emphasizing that this was a valid exercise by Uruguay of its police powers to protect public health2) Finding that the measures were a “valid exercise of the State’s police powers, with the consequence of defeating the claim for expropriation” Philip Morris, ¶ 287. jQuery("#footnote_plugin_tooltip_2131_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and, by majority, rejected Philip Morris’ other claims.

Is Philip Morris a Good Precedent?

As the President of Uruguay, Tabaré Vázquez, said in the midst of the Philip Morris dispute: “It is not acceptable to prioritize commercial considerations over the fundamental right to health and life…”3) Benedict Mander, Uruguay Defeats Philip Morris Test Case Lawsuit, FINANCIAL TIMES (Jul. 8, 2016) jQuery("#footnote_plugin_tooltip_2131_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Even though Philip Morris tried to differentiate its particular case and claim that their suit had nothing to do with questioning “Uruguay’s authority to protect public health,” the implications of this decision is a milestone in the battle between investor rights and public policy.

As discussed in the previous post, arbitration has been criticized as a method for large, wealthy companies to threaten small countries into conceding or settling in order to avoid the risk of an avalanche of expense and even potential bankruptcy. Philip Morris shows that it is not a given that wealthy multinational corporations can bully smaller countries.4) Todd Weiler, Philip Morris vs. Uruguay: An Analysis of Tobacco Control Measures in the Context of International Investment Law, PHYSICIANS FOR A SMOKE FREE CANADA (Jul. 28, 2010), at 36 said that “the claim is nothing more than the cynical attempt by a wealthy multinational corporation to make an example of a small country with limited resources to defend against a well-funded international legal action…” jQuery("#footnote_plugin_tooltip_2131_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The original intent of developing the field of ISDS was to help developing countries attract foreign capital. Those same developing countries, instead, fear that this system will either bankrupt them or undermine their sovereignty.5) Claire Provost & Matt Kennard, The Obscure Legal System that Lets Corporations Sue Countries, THE GUARDIAN, (Jun. 10, 2015) jQuery("#footnote_plugin_tooltip_2131_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For example, in Guatemala, the risk of a suit appeared to have weighed so heavily on the government that they decided not to challenge a controversial gold mine despite citizen protests and a recommendation of closure from the Inter-American Commission on Human Rights.6)id. jQuery("#footnote_plugin_tooltip_2131_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Tribunal in Philip Morris acknowledge that it is “common ground” that “the requirements of legitimate expectations and legal stability as manifestations of the FET standard do not affect the State’s rights to exercise its sovereign authority to legislate and to adapt its legal system to changing circumstances.”7) Philip Morris, ¶ 422 citing Parkerings v Lithuania, ¶¶ 327-328; BG Group Plc v the Republic of Argentina, UNCITRAL, Award (Dec. 24, 2007), ¶¶ 292-310; Plama Consortium Ltd v Republic of Bulgaria, ICSID Case No. ARB/03/24, Award (Aug. 27, 2008), ¶ 219; Continental Casualty Co v Argentine Republic, ICSID Case No. ARB/03/9, Award (Sept. 5, 2008), ¶¶ 258-261; EDF (Services) Ltd v Romania, ICSID Case No. ARB/-5/13, (Oct. 8, 2009), ¶ 219; AES, ¶¶ 9.3.27-9.3.35; Total S.A. v the Argentine Republic, ICSID Case No. ARB/04/1, Decision on Liability, (Dec. 27, 2010), ¶¶ 123 and 164; Sergei Paushok, CJSC Golden East Company, and CJSC Vostokneftegaz Co v the Government of Mongolia, UNCITRAL, Award on Jurisdiction and Liability, (Apr. 28, 2011), ¶ 302; Impregilo, ¶¶ 290-291; and El Paso, ¶¶ 344-352 and 365-367. jQuery("#footnote_plugin_tooltip_2131_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Tribunal further went on to acknowledge that “police powers” necessarily entail a State’s ability to enact measures to protect public welfare as long as they are bona fide and non-discriminatory.8) Philip Morris, ¶ 305. jQuery("#footnote_plugin_tooltip_2131_8").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); And in fact, in Born’s dissent, he reiterated a multitude of times that he is in no way questioning the host State’s ability to adopt legislative measures to protect health and safety.9) Born Dissent, for example ¶¶ 86, 89, 90, 140, 141, and 197. jQuery("#footnote_plugin_tooltip_2131_9").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Yet even though it seems to be universally agreed and recognized that a State has a right to regulate in the interests of its citizens, we continue to see arbitration proceedings brought and States failing to enact helpful regulations and measures for fear of being brought through arbitral proceedings.

So what does Philip Morris mean for State rights?

The Tribunal acknowledge the supremacy and profound leeway to be granted to the State in regulation. While this is a positive reinforcement of a State’s right to regulate, this does not acknowledge the role that tribunals have increasingly been playing, for better or for worse, in balancing investor rights, intellectual property, and state sovereignty. Governments cannot perform this balancing act alone while the FET standard is still obscure. Tribunals do have a role in the balance; this role is in defining the FET standard.

The core of the problem is in the fact that FET is not fully explored and circumscribed. “The exact contours of FET protection are amorphous and can depend on the language of the relevant IIA, as well as the approach taken by the presiding arbitral tribunal”10) PETER CHROCZIEL ET AL (EDS), INTERNATIONAL ARBITRATION OF INTELLECTUAL PROPERTY DISPUTES: A PRACTITIONER’S GUIDE, 153 (2017). jQuery("#footnote_plugin_tooltip_2131_10").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); with this “deliberate vagueness” being used as a catch-all claim.11) Valentina S. Vadi, Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments, 5 NYU J. INTELL. PROP. & ENT. L. 113, 166 (2015). See also F.A. Mann, British Treaties for the Promotion and Protection of Investment, 52 BRITISH Y.B. INT’L. L. 241, 243 (1981) that FET claims are so broad they cover “all conceivable cases.” jQuery("#footnote_plugin_tooltip_2131_11").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The European Commission has stated that because FET is not clearly defined, “tribunals have had significant leeway in interpreting this in a manner that has been seen as giving too many or too few rights to investors.”12) European Commission, Fact Sheet – Investment Protection and Investor-to-State Dispute Settlement in EU Agreements, 2 (Nov. 2013). jQuery("#footnote_plugin_tooltip_2131_12").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); There needs to be more consistency in the interpretations and applications of the FET claim.

Interpretations of the FET standard range across the whole spectrum. Some tribunals apply the FET standard broadly13) International Thunderbird Gaming Corporation v the United Mexican States, UNCITRAL, Award, (Jan. 26, 2006). jQuery("#footnote_plugin_tooltip_2131_13").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); while some tribunals14) Crystallex International Corporation v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, (Apr. 4, 2016). jQuery("#footnote_plugin_tooltip_2131_14").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); take a narrower approach. With no hierarchical system of precedent in arbitration, these competing awards leave neither guidance nor hope of consistency or stability; ironically, the same complaint brought by a claimant arguing breach of FET.

Instead of taking this opportunity to try to better circumscribe the FET standard, the Tribunal left the door open. The Tribunal rejected reading the BIT as reflecting the minimum treatment standard of international law. Such an application would have provided a better guideline for analyzing the standard. If the Tribunal was to be dissuaded from applying the international law standard to FET cases, it should have at least attempted to delineate the proper standard rather than conclude that each case of FET depends on the particular circumstances and listing out the various ways different Tribunals have attempted to define the standard. The end result is a multitude of tribunals each trying to give a more definite meaning of breaches of the FET standard and ultimately creating a still confusedly applied standard accompanied by a random list of potentially breaching acts from particular circumstances.

While the Tribunal ultimately reached the same conclusion, this methodology does not solve the root of the problem that has been plaguing the ISDS system. The evolving nature of what is “fair” and “equitable” adds another layer of complications. Ideas of fairness and equality do indeed change every generation, even every day, but that does not mean we cannot have a circumscribable standard; it just means the created definition needs to account for flexibility.

Conclusion

The battle of rights has only just begun. State sovereignty and the right for a State to legislate and regulate in the public interest is a deeply engrained and important concept spanning many millennia. The technological revolution and the increasing emphasis on globalization has given intellectual property rights not only a new importance in and of itself, but also entangled IPRs with other fundamental aspects of human society. When the two realms clash, which should prevail?

Investment arbitration, while far from perfect, provides the most suitable forum for resolving these types of disputes. However, the vagueness of standards of review and the lack of a system of precedence has created a climate in which tribunals are seen to emphasize the rights of investors over a State’s public interest regulatory scheme. Private arbitral tribunals cannot be substituting their own judgments on policy issues in place of those of the State.

While Philip Morris is a significant step in equilibrating the balance, it is not sufficient. The root of the issue is the vagueness of the fair and equitable treatment standard and the consequent conflicting tribunal decisions. Rather than attempt to delineate the FET standard, the Tribunal in Philip Morris left the gap open. There needs to be more concrete guidelines on the FET, particularly in an intellectual property context so States are not threatened and discouraged.

Intellectual property is not an absolute right and must be put into perspective and harmonized with other rights.15) Valentina S Vadi, ‘Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments’ (2015) 5 NYU J Intell Prop & Ent L 113, 192–93. jQuery("#footnote_plugin_tooltip_2131_15").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the same vein, even though investment law is aimed at providing investors with certain protections, this does not operate in a vacuum and must work with other aspects of international law. An investor losing millions of dollars is not greater than or equivalent to loss of life due to lack of access to pharmaceuticals or mass tobacco consumption or irreversible environmental damage. Each day new medical and technological discoveries are made which changes our perceptions of the status quo and the legal system needs to account for this and allow for flexibility and adaptation.16) Rochelle Dreyfuss and Susy Frankel, ‘From Incentive to Commodity to Asset: How International Law is Reconceptualizing Intellectual Property’ (2015) 36 Michigan J Int’l L 557, 587. (“Science is not static, and neither can be its interface with the legal system. As new technologies develop and as the impact of old technologies are better understood, countries must have some freedom to adapt both IP legislation and impacted regulatory regimes”). jQuery("#footnote_plugin_tooltip_2131_16").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Perhaps now that the Philip Morris Tribunal has published its award, countries will no longer feel this chill however, just because the pressure may be eased, does not mean the problem is fully resolved. Instead of relying on various interpretations and various aspects of international law the next tribunal needs demonstrate the balance of intellectual property rights and Sovereign rights by circumscribing the limits of FET claims.

The author is the editor of the Intellectual Arbitrator.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

References   [ + ]

1. ↑ Philip Morris ¶ 312. 2. ↑ Finding that the measures were a “valid exercise of the State’s police powers, with the consequence of defeating the claim for expropriation” Philip Morris, ¶ 287. 3. ↑ Benedict Mander, Uruguay Defeats Philip Morris Test Case Lawsuit, FINANCIAL TIMES (Jul. 8, 2016) 4. ↑ Todd Weiler, Philip Morris vs. Uruguay: An Analysis of Tobacco Control Measures in the Context of International Investment Law, PHYSICIANS FOR A SMOKE FREE CANADA (Jul. 28, 2010), at 36 said that “the claim is nothing more than the cynical attempt by a wealthy multinational corporation to make an example of a small country with limited resources to defend against a well-funded international legal action…” 5. ↑ Claire Provost & Matt Kennard, The Obscure Legal System that Lets Corporations Sue Countries, THE GUARDIAN, (Jun. 10, 2015) 6. ↑ id. 7. ↑ Philip Morris, ¶ 422 citing Parkerings v Lithuania, ¶¶ 327-328; BG Group Plc v the Republic of Argentina, UNCITRAL, Award (Dec. 24, 2007), ¶¶ 292-310; Plama Consortium Ltd v Republic of Bulgaria, ICSID Case No. ARB/03/24, Award (Aug. 27, 2008), ¶ 219; Continental Casualty Co v Argentine Republic, ICSID Case No. ARB/03/9, Award (Sept. 5, 2008), ¶¶ 258-261; EDF (Services) Ltd v Romania, ICSID Case No. ARB/-5/13, (Oct. 8, 2009), ¶ 219; AES, ¶¶ 9.3.27-9.3.35; Total S.A. v the Argentine Republic, ICSID Case No. ARB/04/1, Decision on Liability, (Dec. 27, 2010), ¶¶ 123 and 164; Sergei Paushok, CJSC Golden East Company, and CJSC Vostokneftegaz Co v the Government of Mongolia, UNCITRAL, Award on Jurisdiction and Liability, (Apr. 28, 2011), ¶ 302; Impregilo, ¶¶ 290-291; and El Paso, ¶¶ 344-352 and 365-367. 8. ↑ Philip Morris, ¶ 305. 9. ↑ Born Dissent, for example ¶¶ 86, 89, 90, 140, 141, and 197. 10. ↑ PETER CHROCZIEL ET AL (EDS), INTERNATIONAL ARBITRATION OF INTELLECTUAL PROPERTY DISPUTES: A PRACTITIONER’S GUIDE, 153 (2017). 11. ↑ Valentina S. Vadi, Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments, 5 NYU J. INTELL. PROP. & ENT. L. 113, 166 (2015). See also F.A. Mann, British Treaties for the Promotion and Protection of Investment, 52 BRITISH Y.B. INT’L. L. 241, 243 (1981) that FET claims are so broad they cover “all conceivable cases.” 12. ↑ European Commission, Fact Sheet – Investment Protection and Investor-to-State Dispute Settlement in EU Agreements, 2 (Nov. 2013). 13. ↑ International Thunderbird Gaming Corporation v the United Mexican States, UNCITRAL, Award, (Jan. 26, 2006). 14. ↑ Crystallex International Corporation v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, (Apr. 4, 2016). 15. ↑ Valentina S Vadi, ‘Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments’ (2015) 5 NYU J Intell Prop & Ent L 113, 192–93. 16. ↑ Rochelle Dreyfuss and Susy Frankel, ‘From Incentive to Commodity to Asset: How International Law is Reconceptualizing Intellectual Property’ (2015) 36 Michigan J Int’l L 557, 587. (“Science is not static, and neither can be its interface with the legal system. As new technologies develop and as the impact of old technologies are better understood, countries must have some freedom to adapt both IP legislation and impacted regulatory regimes”). 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
by Andrea Menaker
€ 240


The post The Great Battle of Intellectual Property versus State Sovereignty: Is Philip Morris v Uruguay a Good Referee? (Part II) appeared first on Kluwer Arbitration Blog.

The Great Battle of Intellectual Property versus State Sovereignty: Is Philip Morris v Uruguay a Good Referee? (Part I)

Fri, 2018-06-29 04:27

Michaela Brett Samuel Halpern

The constructive framework of ISDS was intended to promote investment and growth through the establishment of a stable and predictable atmosphere for investment. However, some have argued that this purpose has been warped to allow a small group of private individuals to rule on public matters. Arbitrations such as CMS v Argentina, Tecmed v Mexico, and Metalclad Corp v Mexico have led to a concern that the rights of investors are given prominence over a State’s sovereign rights and the legitimate use of a State’s regulatory power. There have therefore been an increasing number of discussions on the need for greater safeguards. Even though investments are crucial to building the modern international economy, investment arbitration should not be seen as a hindrance to a country’s ability to govern its population and pursue public policy objectives.

In a similar vein, intellectual property rights are essential to a country’s development; a well-balanced intellectual property regime can promote innovation, consumer protection, and are increasingly becoming intertwined with human rights. Occasionally, however, the protection of intellectual property rights and the public interest of a state may clash. As discussed by various scholars including Rochelle Dreyfuss, Susy Frankel, Peter Yu, and Ruth Okediji, intellectual property rights being seen as an “investment” has critical consequences. The increased recognition of intellectual property rights as an investment itself opens the way for intellectual property law to “turn…on its head” by creating the possibility for questions of national innovation policy to be adjudicated by private actors.1) Ruth Okediji, Is Intellectual Property “Investment”? Eli Lilly v. Canada and the International Intellectual Property System, 35 U. PA. J. INT’L. L. 1121, 1122 (2014); Peter K. YU, The Investment-Related Aspects of Intellectual Property Rights 843 (2016) noting that it is not the fact that intellectual property rights are considered investments that is the novel problem, it is the fact that this now means private investors can bring a suit without requiring assistance from the government and support of their home states. jQuery("#footnote_plugin_tooltip_2427_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This series examines this battle between the intellectual property rights of investors and public interest considerations of a host State. In the majority of disputes brought to arbitration, the investor argues that the host State has breached the FET standard and therefore owes the investor appropriate compensation. The issue is that there is a lack of consensus as to the precise content and scope of the FET standard. This lack of a uniform approach or even definition of “fair and equitable treatment” leaves host states at risk of being beleaguered by large multinational corporations burying them in lengthy adjudicative procedures.

In 2016, a tribunal of three arbitrators rejected the claims of tobacco company, Philip Morris, against Uruguay in the World Bank ICSID case, Philip Morris Bran Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland), and Abal Hermanos S.A. (Uruguay) vs. Oriental Republic of Uruguay. Philip Morris is considered to be a significant step towards rebalancing the “battle of rights” and reinforcing that States have a sovereign right to decide the laws for their own populations.

The Battle of Rights

A major concern in ISDS is that decisions of public policy are left in the private hands of arbitrators and corporate lawyers. When investor rights, such as intellectual property rights, conflict with public policy initiatives and national priorities such as health regulations, environmental concerns, and human rights, the perception is that with ISDS, a handful of arbitrators become “the judge of the policies of the state, deciding on the basis of a subjective standard, because there is no public and shared determination about it.”2) Riccardo Fornasari, The Protection of Legitimate Expectations under the Fair and Equitable Treatment Standard, KSLR COMMERCIAL & FINANCIAL LAW BLOG (May 12, 2015). jQuery("#footnote_plugin_tooltip_2427_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The one or three arbitrators adjudicating the dispute are chosen by the parties to the dispute, whereas a state’s legislative power is backed by the “core principles of modern representative democracies” (for the most part). In other words, a country’s legal framework is the result of an elected legislature and/or executive with any changes in the regulatory framework as reflective of the “the will of the people souverain.” 3)id. jQuery("#footnote_plugin_tooltip_2427_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

That said, in resolving disputes that inevitably arise, arbitration provides a number of advantages over domestic litigation for both the investors and States. However, given the private nature of ISDS, we end up with private actors affecting public policy “in a vacuum.”4) Susan D. Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law through Inconsistent Decisions, 73 FORDHAM L. REV. 1521, 1571 (2005) [hereinafter “Franck”]. jQuery("#footnote_plugin_tooltip_2427_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); There is consternation that “as corporations become larger and more influential in global politics and trade negotiations, they will disproportionately control and benefit from [international investment agreements] at the expense of state sovereignty.”5) Leite, fn 14 citing Tamara L. Slater, Investor-State Arbitration and Domestic Environment Protection, 14 WASH. U. GLOBAL STUD. L. REV. 131, 132-133 (2015). jQuery("#footnote_plugin_tooltip_2427_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Some commentators even go so far as to criticize investment arbitration as a “supranational decision-maker” which lacks any of the democratic checks and balances.6) James Gathii & Cynthia Ho, Regime Shifting of IP Lawmanking and Enforcement from the WTO to the International Investment Regime, 18 Minn. J. L. Sci. & Tech. 427, 495 (2017) citing Barnali Choudhury, Democratic Implications Arising from the Intersection of Investment Arbitration and Human Rights, 46 ALTA. L. REV. 983 (2009) and Sergio Puig, The Merging of International trade and Investment Law, 33 BERKELEY J. INT’L. L. (2015). jQuery("#footnote_plugin_tooltip_2427_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Ruth Okediji notes that having private actors adjudicate public policy is a “subver[sion of] a core judicial function” and consequently “alters the contours of state power and responsibility.”7) Okediji, at 1122.
jQuery("#footnote_plugin_tooltip_2427_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Given the notion that intellectual property was originally seen as primarily in the public domain for the purpose of promoting creativity, the expansion and shift of intellectual property rights into an “investment” capable of expropriation risks perturbing the initial public good motivation behind intellectual property as well as the traditional safeguards.8) Rochelle Dreyfuss & Susy Frankel, From Incentive to Commodity to Asset: How International Law is Reconceptualizing Intellectual Property, 36 MICHIGAN J. INT’L L. 557, 559–560 (2015); YU, at 835. jQuery("#footnote_plugin_tooltip_2427_8").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In other words, as Rochelle Dreyfuss and Susy Frankel discuss, intellectual property rights shifted from being seen as an incentive to becoming a commodity in itself.9) See Dreyfuss and Frankel. jQuery("#footnote_plugin_tooltip_2427_9").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The purpose of investment agreements was to provide an unprecedented avenue for private foreign investors to resolve disputes with the State hosting their investment and thereby reduce the risk of investing. However, the system appears to have become somewhat one sided with investment agreements seen as “a charter of rights for foreign investors, with no concomitant responsibilities or liabilities, no direct legal links to promoting development objectives, and no protection for public welfare in the fact of environmentally or socially destabilizing foreign investment…”10) United Nations Conference on Trade and Development, The Development Dimension of FDI: Policy and Rule-Making Perspectives, UNCTAD/ITE/IIA/2003/4 (Nov. 6-8, 2002), 212. jQuery("#footnote_plugin_tooltip_2427_10").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); If the objective of these investment agreements was to reduce investor risk with “risk” defined as a “moral wrong” from which an investor should be protected,11) Azernoosh Bazrafkan & Alexia Herwig, Reinterpreting the Fair and Equitable Treatment Provision in International Investment Agreements as a New and More Legitimate Way to Manage Risks, 7 EUROPEAN J. OF RISK REG. 439, 440 (2016) [hereinafter “Bazrafkan & Herwig”]. jQuery("#footnote_plugin_tooltip_2427_11").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); then it is only logical and moral to allow a state to prioritize and act in accordance with bona fide public interests.

The FET context

Despite the pervasiveness of the FET claim, there is no defined mechanism for factoring into the balancing equation whether the host State had valid reasons for enacting the measure in question. The result is a “regulatory chill” in which smaller and developing countries do not enact necessary legislation for fear of crushing liability.

The case law paints a sporadic and confused picture. In an expropriation context, some tribunals12) Siemens A.G. v The Argentine Republic, ICSID Case No. ARB/02/8, Award, (Jan. 17, 2007), ¶ 270; Compañía del Desarrollo de Santa Elena, S.A. v The Republic of Costa Rica, ICSID Case No. ARB/96/1, Award (Feb. 17, 2000), ¶ 72; AES Summit Generation Limited AES-Tisza Erömü KFT v The Republic of Hungary, ICSID Case No. ARB/07/22, Award (Sept. 23, 2010), ¶¶ 14.3.1-14.3.4 [hereinafter “AES”]; Metalclad Corporation v The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (Aug. 30, 2000), ¶¶ 103 and 107. jQuery("#footnote_plugin_tooltip_2427_12").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); look only at the effects of a host State’s measure, some13) Azurix Corp. v The Argentine Republic, ICSID Case No. ARB/01/12, Award (Jul. 14, 2006), ¶¶ 309-312; Tecnicas Medioambientales Tecmed S.A. v The United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, (May 29, 2003), ¶¶ 121-122. jQuery("#footnote_plugin_tooltip_2427_13").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); look at whether the measure was non-discriminatory, bona fide and had a proportionate legitimate public purpose, and others14) Methanex Corp. v United States of America, Final Award on Jurisdiction and Merits, 44 ILM 1345 (2005), award rendered Aug. 3, 2005, pt. IV, ch. D, ¶ 7: “As a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alia, a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation.” jQuery("#footnote_plugin_tooltip_2427_14").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); try to balance the host State’s right to regulate in the public interest with the protection of the investor’s rights. In an FET context, tribunals appear to be even more split and indeterminate. This lack of clarity, especially in the context of the rapidly changing intellectual property context, can evolve into disastrous results if not properly and promptly resolved.

Hirsch has said that Tribunals find breaches of FET on two grounds.15) Moshe Hirsch, Between Fair and Equitable Treatment and Stabilization Clause, 12 THE JOURNAL OF WORLD INVESTMENT & TRADE, 784, 790, 792–99 (2011). jQuery("#footnote_plugin_tooltip_2427_15").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The first ground being specific government assurances in which FET is treated like detrimental reliance in contract law and the second ground being that the legislative change was accompanied by procedural defects. The problem is that the balance at stake here, investor rights vs. public interests, are not between contractual parties. Instead, what we have is an economic operation, on one side, and a sovereign power resulting from a political commitment to the populous, on the other.16) Fornasari. jQuery("#footnote_plugin_tooltip_2427_16").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The ability of the FET claim to limit a State from regulating in pursuance of public interest is both unclear and confused as the application of the standard is undeveloped and inconsistent. What qualifies as “fair and equitable treatment” is not yet defined. But “fair” treatment should not mean the investor’s rights are paramount. “Fair” should mean fair which necessarily requires an equitable balancing of all rights and interests at play.

The Intellectual Property Context

There is an emerging “new form of dialectics between the private and public interests in IP governance at the international level”.17) Valentina S. Vadi, Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments, 5 NYU J. INTELL. PROP. & ENT. L. 113, 118 (2015). jQuery("#footnote_plugin_tooltip_2427_17").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_17", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As discussed above, the battle in this case is not an even playing field as we have private interests competing with public national entities.18)id. jQuery("#footnote_plugin_tooltip_2427_18").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_18", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Arbitration provides the most well-equipped forum for such disputes as unlike national courts, arbitration offers an avenue for private investors to file claims against states. The arbitration of disputes concerning intellectual property rights “has the potential to revolutionize IP governance at the national and international levels.”19) Id, 118-119 citing Muthucumuraswamy Sornarajah, Evolution or Revolution in International Investment Arbitration? The Descent into Normlessness , in EVOLUTION IN INVESTMENT TREATY LAW AND ARBITRATION (Chester Brown and Kate Miles eds., 2011), 631-657 arguing that “disparate trends” in international investment law and arbitration “show neither evolution nor revolution but an ongoing conflict [between private and public interests] that either will bring a new system – resulting in a revolution – or will keep the old, simply because one or the other of the camps wins the tussle,” at 632. jQuery("#footnote_plugin_tooltip_2427_19").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_19", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Given the global reach and impact of intellectual property as well as the constantly changing nature of the industry, an international and flexible forum such as arbitration can provide the best medium for resolving intellectual property disputes.

IP rights and their proper enforcement are crucial to the promotion of innovation and, ultimately, to the growth of society as a whole. The importance of IPRs, particularly in the international realm, is becoming increasingly recognized. While a person having their work copied is not the same as someone being stripped of food and shelter, IP is increasingly seen as being entangled with human rights issues. When IP rights are considered important public policy tools in themselves, the question becomes to what extent these rights take precedence over other factors such as public interest and a State’s sovereign rights.

In the second part of this article, we consider how the award in Philip Morris has affected this balance.

The author is the editor of the Intellectual Arbitrator.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

References   [ + ]

1. ↑ Ruth Okediji, Is Intellectual Property “Investment”? Eli Lilly v. Canada and the International Intellectual Property System, 35 U. PA. J. INT’L. L. 1121, 1122 (2014); Peter K. YU, The Investment-Related Aspects of Intellectual Property Rights 843 (2016) noting that it is not the fact that intellectual property rights are considered investments that is the novel problem, it is the fact that this now means private investors can bring a suit without requiring assistance from the government and support of their home states. 2. ↑ Riccardo Fornasari, The Protection of Legitimate Expectations under the Fair and Equitable Treatment Standard, KSLR COMMERCIAL & FINANCIAL LAW BLOG (May 12, 2015). 3, 18. ↑ id. 4. ↑ Susan D. Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law through Inconsistent Decisions, 73 FORDHAM L. REV. 1521, 1571 (2005) [hereinafter “Franck”]. 5. ↑ Leite, fn 14 citing Tamara L. Slater, Investor-State Arbitration and Domestic Environment Protection, 14 WASH. U. GLOBAL STUD. L. REV. 131, 132-133 (2015). 6. ↑ James Gathii & Cynthia Ho, Regime Shifting of IP Lawmanking and Enforcement from the WTO to the International Investment Regime, 18 Minn. J. L. Sci. & Tech. 427, 495 (2017) citing Barnali Choudhury, Democratic Implications Arising from the Intersection of Investment Arbitration and Human Rights, 46 ALTA. L. REV. 983 (2009) and Sergio Puig, The Merging of International trade and Investment Law, 33 BERKELEY J. INT’L. L. (2015). 7. ↑ Okediji, at 1122.
8. ↑ Rochelle Dreyfuss & Susy Frankel, From Incentive to Commodity to Asset: How International Law is Reconceptualizing Intellectual Property, 36 MICHIGAN J. INT’L L. 557, 559–560 (2015); YU, at 835. 9. ↑ See Dreyfuss and Frankel. 10. ↑ United Nations Conference on Trade and Development, The Development Dimension of FDI: Policy and Rule-Making Perspectives, UNCTAD/ITE/IIA/2003/4 (Nov. 6-8, 2002), 212. 11. ↑ Azernoosh Bazrafkan & Alexia Herwig, Reinterpreting the Fair and Equitable Treatment Provision in International Investment Agreements as a New and More Legitimate Way to Manage Risks, 7 EUROPEAN J. OF RISK REG. 439, 440 (2016) [hereinafter “Bazrafkan & Herwig”]. 12. ↑ Siemens A.G. v The Argentine Republic, ICSID Case No. ARB/02/8, Award, (Jan. 17, 2007), ¶ 270; Compañía del Desarrollo de Santa Elena, S.A. v The Republic of Costa Rica, ICSID Case No. ARB/96/1, Award (Feb. 17, 2000), ¶ 72; AES Summit Generation Limited AES-Tisza Erömü KFT v The Republic of Hungary, ICSID Case No. ARB/07/22, Award (Sept. 23, 2010), ¶¶ 14.3.1-14.3.4 [hereinafter “AES”]; Metalclad Corporation v The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (Aug. 30, 2000), ¶¶ 103 and 107. 13. ↑ Azurix Corp. v The Argentine Republic, ICSID Case No. ARB/01/12, Award (Jul. 14, 2006), ¶¶ 309-312; Tecnicas Medioambientales Tecmed S.A. v The United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, (May 29, 2003), ¶¶ 121-122. 14. ↑ Methanex Corp. v United States of America, Final Award on Jurisdiction and Merits, 44 ILM 1345 (2005), award rendered Aug. 3, 2005, pt. IV, ch. D, ¶ 7: “As a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alia, a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation.” 15. ↑ Moshe Hirsch, Between Fair and Equitable Treatment and Stabilization Clause, 12 THE JOURNAL OF WORLD INVESTMENT & TRADE, 784, 790, 792–99 (2011). 16. ↑ Fornasari. 17. ↑ Valentina S. Vadi, Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments, 5 NYU J. INTELL. PROP. & ENT. L. 113, 118 (2015). 19. ↑ Id, 118-119 citing Muthucumuraswamy Sornarajah, Evolution or Revolution in International Investment Arbitration? The Descent into Normlessness , in EVOLUTION IN INVESTMENT TREATY LAW AND ARBITRATION (Chester Brown and Kate Miles eds., 2011), 631-657 arguing that “disparate trends” in international investment law and arbitration “show neither evolution nor revolution but an ongoing conflict [between private and public interests] that either will bring a new system – resulting in a revolution – or will keep the old, simply because one or the other of the camps wins the tussle,” at 632. 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
by Andrea Menaker
€ 240


The post The Great Battle of Intellectual Property versus State Sovereignty: Is Philip Morris v Uruguay a Good Referee? (Part I) appeared first on Kluwer Arbitration Blog.

U.S. Supreme Court Holds That Individualized Employer-Employee Arbitration Agreements Must Be Enforced As Written

Fri, 2018-06-29 02:05

Cherine Foty

ArbitralWomen

On May 21st, 2018, the Supreme Court of the United States in Epic Systems Corp. v. Lewis (“Epic Systems”) held in a 5-4 majority that one-on-one mandatory arbitration agreements imposed by employers upon their employees must be enforced as written in accordance with the Federal Arbitration Act (“FAA”). The majority opinion, written by Justice Neil Gorsuch, reasoned that the FAA superseded the federal right of employees to bring claims in class or collective actions contained in the National Labor Relations Act (“NLRA”) and the Fair Labor Standards Act (“FLSA”).

Enacted in 1935 during U.S. President Franklin D. Roosevelt’s New Deal Era, the NLRA established a “‘fundamental right’ [of employees] to join together to advance their common interests”. The rationale was that by permitting workers to collectively confront employers with respect to the conditions of their employment, they would “gain strength […] in numbers” and avoid the threat of retaliation. Low-value minimum-wage and overtime claims could thus be brought on a collective level to equalize the employer-employee power imbalance, allowing employees to be an adequate match for the much stronger employers.

However, in recent years, the imposition of mandatory arbitration agreements by employers upon their employees has drastically risen, affecting over 50% of non-unionized companies in the United States (as opposed to 2% in 1992). According to Justice Ruth Bader Ginsburg, who criticized the Epic Systems majority decision as “egregiously wrong” in a scathing dissent, this exponential growth of individualized employer-imposed arbitration is a direct result of recent Supreme Court jurisprudence which has rendered “the cost-benefit balance of underpaying workers […] heavily in favor of [employers] skirting [their] legal obligations”.

The FAA’s Saving Clause

The Epic Systems majority decision debated what exceptions exist to the general requirement that arbitration agreements must be enforced by courts as written. It considered Section 2 of the FAA, or its “saving clause”, which states that a written arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

The majority examined divergent lower court opinions from the Fifth, Seventh, and Ninth Circuits. On the one hand, the Fifth Circuit held that no unfair labor practices were committed by requiring employees to sign individual arbitration agreements waiving their right to pursue class and collective actions. However, on the other hand, the Seventh and Ninth Circuits held that enforcing an arbitration agreement which violates a “substantive federal right” renders the agreement illegal and hence unenforceable under the FAA. They found that enforcing an agreement which requires individualized arbitration proceedings contravenes the “substantive federal right” contained in the NLRA which protects workers’ right to engage in class or collective action.

This was indeed the position taken by the National Labor Relations Board’s (“NLRB”) General Counsel in 2012 that “employer-imposed contracts barring group litigation in any forum – arbitral or judicial – […] unlawfully restricts employees’ Section 7 right to engage in concerted action for mutual aid or protection, notwithstanding the Federal Arbitration Act (FAA), which generally makes employment-related arbitration agreements judicially enforceable.”

However, the majority in Epic Systems drastically departed from the reasoning of the Seventh and Ninth Circuits and the NLRB, holding that the text of the FAA’s “saving clause” only recognizes “defenses that apply to ‘any’ contract”. As such, only general contractual defenses such as fraud, duress, or unconscionability can be invoked to invalidate an arbitration agreement under the FAA. This means that unless the arbitration agreements in question were extracted by fraud or duress, which would serve to invalidate any contract, the clear terms of an arbitration agreement, allegedly validly entered into, should prevail.

In her dissent, Justice Ginsburg criticized this reasoning, suggesting that the illegality of collective litigation waivers contained in employer-imposed arbitration clauses is what qualifies as an excludable contractual provision which would fall under the FAA’s “saving clause”.

She also highlighted Section 1 of the FAA which expressly excluded employment contracts from the scope of the FAA: “but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

In fact, the legislative history of the FAA shows that organized labor had objected to the application of arbitration in the employment context but were contented with the fact that the FAA clearly excluded workers from its scope. That understanding of the Section 1 exclusion in the FAA was confirmed in historic Supreme Court jurisprudence. For example in the 1967 Prima Paint case, the Supreme Court stated that “categories of contracts otherwise within the [FAA] but in which one of the parties characteristically has little bargaining power are expressly excluded from the reach of the [FAA].”

However, more recent jurisprudence has gradually whittled away the employment contract exception in the FAA, beginning with the 1991 Gilmer case which authorized arbitration of claims under the Age Discrimination and Employment Act of 1967. Thereafter, the 2001 Circuit City case ruled that the employment exception should be construed narrowly, only to cover transportation workers. According to Justice Ginsburg, the resulting spike in the number of mandatory employer-imposed arbitration agreements in recent years is a direct result of that decision.

Individualized Arbitration Proceedings and the Issue of Consent (or Lack Thereof)

The Epic Systems majority also found issue with the invocation only of the “individualized nature” of the arbitration proceedings, suggesting that a contract cannot be unenforceable “just because it requires bilateral arbitration”. It likened the employer-employee arbitration agreements prohibiting class actions to company-consumer arbitration agreements with class action waivers recently upheld as valid by the Supreme Court in the 5-4 split 2011 AT&T Mobility LLC v. Concepcion case (with Justice Scalia writing for the majority rather than Justice Gorsuch). When discussing the Concepcion case, the Epic Systems majority held that in both the employer-employee and the company-consumer context, “courts may not allow a contract defense to reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent”.

However, in response, Justice Ginsburg’s dissent highlights that by limiting employees to individualized arbitration proceedings, employers inherently prevent them from utilizing “existing, generally available procedures” to exercise their right to engage in “other concerted activities” as permitted by the NLRA. Employees should be able to use procedures such as joinder, class action litigation, and class arbitrations, permitted under the FLSA, Federal Rules on Civil Procedure, and for example the Supplementary Rules for Class Arbitrations established by the American Arbitration Association (“AAA”).

Interestingly, Justice Ginsburg also took issue with the majority’s use of the word “consent” when referring to individualized arbitration proceedings. She questioned whether the arbitration agreements between the employers and employees in the three lower court decisions in question were truly “bilateral” in nature and whether they were in fact “voluntary”. Indeed, the employers Epic Systems and Ernst & Young in the Seventh and Ninth Circuit decisions respectively, had e-mailed their employees an arbitration agreement imposing individual arbitration, providing that if the employees continued employment, they would be deemed to have accepted those terms. It is debatable whether the employees sufficiently entered into the arbitration agreement on consensual terms.

Justice Ginsburg emphasized that the FAA was designed to apply to “voluntary, negotiated agreements” to arbitrate. It was never meant to support arbitration “where one party sets the terms of an agreement while the other is left to ‘take it or leave it’.”

The Epic Systems decision has served to further increase the divide between the position of the United States and that of France, for example, which has carved out an exception to the primacy of arbitration agreements when it comes to labor and employment disputes. In fact, according to Article L. 1411-4 of the French Labor Code, only the Labor Courts (Conseils des Prud’hommes) are competent to hear employment disputes and recourse to arbitration is hence prohibited. It remains to be seen how the United States and the various EU Member States will continue to diverge on this issue in the future, as class actions continue to take a foothold in Europe.

The views expressed in this article are those of the author alone and should not be regarded as representative of, or binding upon ArbitralWomen and/or the author’s law firm and its clients.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post U.S. Supreme Court Holds That Individualized Employer-Employee Arbitration Agreements Must Be Enforced As Written appeared first on Kluwer Arbitration Blog.

Corruption as a ‘Sword’ in Investor State Arbitrations

Thu, 2018-06-28 00:10

Edmund Bao

King & Wood Mallesons

That investor state tribunals may deal with allegations of corruption in ISDS disputes is well acknowledged. The seminal World Duty Free1) World Duty Free Company Limited and The Republic of Kenya, ICSID Case No. ARB/00/7 (Award dated 4 October 2006). jQuery("#footnote_plugin_tooltip_5092_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); decision involved the payment (in a briefcase) of USD$2 million dollars cash to (the then) President of Kenya to secure a concession contract. The subsequent decision became (although it was by no means the first)2) See for example earlier decisions such as Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt, ISCID Case No. ARB/84/3 (Award on the Merits dated 20 May 1992); Wena Hotels Ltd. v Arab Republic of Egypt, ICSID Case No. ARB/98/4 (Award dated 8 December 2000). jQuery("#footnote_plugin_tooltip_5092_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the leading authority for the proposition that claims based on contracts tainted by corruption cannot be upheld on the basis of host state illegality and international public policy. In this respect, corruption has been primarily used as a ‘shield’ (i.e. a defence) by host states to challenge the enforcement of a contract, or as in Metal Tech, to challenge the Tribunal’s jurisdiction (see our previous discussion on Metal Tech).

On the other hand, there appears scant commentary on whether corruption may be used as a ‘sword’, such as the basis for a claim under an investment treaty or agreement. This usually involves corrupt solicitation of bribes that are unconsummated, as investors that have engaged in corrupt conduct do not themselves have clean hands. Predominantly, the avenues for a claim will be premised upon a violation of the fair and equitable principle, expropriation or a breach of the full security and protection provisions. Below we analyse two decisions (and their related tests) which demonstrate instances of corruption that have been relied upon by investors to bring a claim against the host state.

 

A. EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 (Award dated 8 October 2009)

The case of EDF (Services) involved the alleged solicitation by (the then) prime minister of Romania for a US$2.5 million-dollar bribe. When EDF Services refused to pay the bribe, it was alleged that Romania (though various governmental departments and regulatory agencies) took retaliatory action by engaging in a concerted effort to destroy EDF’s business, resulting in a total loss of EDF’s operations. EDF claimed this was a breach of the FET principles (among other things). While EDF’s claim ultimately failed for other reasons as discussed below, the EDF Tribunal affirmed as uncontroversial that in the context of an investor claim, acts of corruption “is a violation of international public policy, whereby ‘exercising a State’s discretion on the basis of corruption is a […] fundamental breach of transparency and legitimate expectations’”.3) EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 (Award dated 8 October 2009), [221]. jQuery("#footnote_plugin_tooltip_5092_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });


• The requirement for “clear and convincing” evidence in substantiating allegations of corruption

EDF (Services) demonstrates that tribunals will not entertain corruption allegations on the basis of a claim in the absence of clear and convincing evidence. The Tribunal held that “[t]he seriousness of a corruption charge also requires that the utmost care and sense of responsibility be taken to ascertain the truthfulness and genuine character of the evidence that the party intends to offer in support of its claim.”4) EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 (Procedural Order No. 3), [28]. jQuery("#footnote_plugin_tooltip_5092_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This was highlighted by the Tribunal especially in the context that the bribe was allegedly facilitated at the highest levels of the Romanian government, including the Prime Minister.

In EDF (Services), the oral testimony of EDF’s witnesses in relation to the solicitation of payment was held to be inconsistent with respect to statements made concurrently to the NAD (the Romanian anti-corruption agency) during the course of its investigations. In particular, whereupon the statement made to the NAD expressly disavowed any knowledge of the identity of the bribe solicitants, the arbitration witness statement did name the individual who requested the bribe. This led the Tribunal to characterise the evidence as of doubtful value. In this respect, EDF was also unable to prove that the bribe was not made in the personal interest of the solicitant but rather on behalf of and for the benefit of the governmental authorities.

 

• That evidence of corrupt conduct be authentic, reliable and obtained lawfully

Another crucial piece of evidence sought to be admitted by EDF was an audio recording between one of EDF’s agents and a staffer of (the then) Prime Minister of Romania. The recording was claimed by EDF as capturing a bribe being requested. The Tribunal however also rejected this piece of evidence. First, it was held that there was a lack of authenticity and reliability regarding the recording. The recording was subject to expert scrutiny as it had sections missing, including the beginning and end sections, various irregularities and instances of transient sounds indicative of possible manipulation. The Tribunal therefore ruled that the EDF had failed to discharge the burden of satisfying the court of the authenticity and reliability of the audio recording. A crucial factor in this finding was due to EDF not able to provide the original copy of the recording for analysis.

Second, the Tribunal held that the recording was not obtained lawfully under Romanian law. In particular, the recording was made clandestinely at the private home of a Romanian public servant without her knowledge. The Claimant’s submission that Romanian privacy law did not apply to public servants was held not to be persuasive as the Romanian constitution guarantees all citizens (notwithstanding their public servant status) equal enjoyment of their rights and liberties (such as privacy).

 

B. Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada, ICSID Case No. ARB/10/6 (Award dated 14 October 2010) and related proceedings

The proceeding history is complex. The original merits arbitration was brought under an investment agreement between RSM Production and Grenada. The crux of the dispute related to the cancellation of RSM’s exploration licence by Grenada for offshore hydrocarbon reserves. The merits Tribunal ruled in favour of Grenada and found that the cancellation had been in accordance with the agreement. RSM (the claimants in the first merits hearing) subsequently sought to annul the award (unsuccessfully) under the annulment committee’s inherent powers. RSM then proceeded to bring fresh proceedings under FET, full protection and treatment and expropriation provisions (among others) under the Grenada-United States Bilateral Investment Treaty. RSM did this on the basis of new evidence relating to allegedly corrupt payments received by Grenada from certain Russian parties. RSM alleged that such payments were for the purpose of inducing Grenada to rely on a technicality with licence approval timeframes as a pretext to terminating its agreement (even if arguendo the terms of the Agreement permitted it to do so) and reissue the exploration licence to a Russian company. The following novel issues arose in the context of a claim based corruption argument:

 

• Related corrupt conduct may lead to a breach of investment protections, notwithstanding that there were no breaches of the contractual agreement itself

Despite the fact that a previous Tribunal had found Grenada’s termination of the agreement valid, RSM invited the successor Tribunal to reopen the prior Tribunal’s findings under Article 51 of the ICSID Convention in light of the new corruption evidence. The successor Tribunal declined to do so on the basis that the facts and circumstances which gave rise to the alleged conduct had in fact been available to RSM in the previous case but was not raised by RSM. The Tribunal characterised this as “no more than an attempt to re-litigate and overturn the findings of another ICSID Tribunal, based on allegations of corruption that were either known at the time or which ought to have been raised by way of a revised application and over which the Prior Tribunal had jurisdiction”.5) Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v Grenada, ICSID Case No. ARB/10/6 (Award dated 10 December 2010), [7.3.6]. jQuery("#footnote_plugin_tooltip_5092_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As such, the successor Tribunal held that it was not open to them to revisit the facts and issues that had been distinctly determined by the merits Tribunal.

Distinguishing on the facts of this case, it seems that the Tribunal left open the possibility that fresh evidence in relation to corruption may be sufficient as a standalone basis for ISDS proceedings. This is assuming that the evidence that came to light is in fact new and rises issues not covered under collateral estoppel.

 

• The alleged corrupt conduct must have a causative link with the alleged violation of the BIT

The Tribunal ruled that even if it was established that the Grenadian officials were accepting bribes, the agreement (and exploration licence) was terminated by Grenada by relying on its contractual rights.6) Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v Grenada, ICSID Case No. ARB/10/6 (Award dated 10 December 2010), [7.2.6]. jQuery("#footnote_plugin_tooltip_5092_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As the merits Tribunal found, RSM was solely responsible for its application’s timing which led to the loss of the exploration licence. As such, the causative link between the bribes and RSM losing the licence was broken.

 

Conclusion

The use of corruption as a sword presents many challenges to investors. There is a high evidentiary bar to successfully proving corrupt conduct. Absent clear and convincing proof and reliable evidence of corrupt conduct directly linked to and attributable to the host state, a breach of investment protections is unlikely to be made out. Some of this is linked to practicalities surrounding the nature of corruption; the Tribunal in EDF (Services) acknowledged that “corruption is notoriously difficult to prove since, typically, there is little or no physical evidence”.7) EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 (Award dated 8 October 2009), [221]. jQuery("#footnote_plugin_tooltip_5092_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This is not withstanding the accepted position in international investment law that allegations of corruption, if made out, is contrary to international public policy and is a breach of the fair and equitable policy. Therefore, despite the current lack of success by investors in using corruption as a sword, corruption as the basis for a claim in international investment arbitration appears nonetheless to be well-established.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

References   [ + ]

1. ↑ World Duty Free Company Limited and The Republic of Kenya, ICSID Case No. ARB/00/7 (Award dated 4 October 2006). 2. ↑ See for example earlier decisions such as Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt, ISCID Case No. ARB/84/3 (Award on the Merits dated 20 May 1992); Wena Hotels Ltd. v Arab Republic of Egypt, ICSID Case No. ARB/98/4 (Award dated 8 December 2000). 3, 7. ↑ EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 (Award dated 8 October 2009), [221]. 4. ↑ EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 (Procedural Order No. 3), [28]. 5. ↑ Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v Grenada, ICSID Case No. ARB/10/6 (Award dated 10 December 2010), [7.3.6]. 6. ↑ Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v Grenada, ICSID Case No. ARB/10/6 (Award dated 10 December 2010), [7.2.6]. 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
by Andrea Menaker
€ 240


The post Corruption as a ‘Sword’ in Investor State Arbitrations appeared first on Kluwer Arbitration Blog.

HKIAC’s New Belt and Road Programme: Does More Need to be Done?

Wed, 2018-06-27 05:04

Stephanie Tang

Linklaters

On 26 April 2018, HKIAC announced its new “Belt and Road Programme” which consists of an industry-focussed Belt and Road Advisory Committee and an online resource platform dedicated to Belt and Road disputes. This is a welcome development in light of the ICC Court’s formation of their own Belt and Road Commission in March (see relevant blog post here), but could the capabilities of the HKIAC’s online resource platform be improved in light of the HKIAC’s premier role in the Belt and Road disputes arena?

By way of background, the Belt and Road Initiative is a push by the Chinese government to invest around US$900 billion in infrastructure along the land-based “Silk Road Economic Belt” and the oceangoing “Maritime Silk Road”, both of which consist of several routes from China through countries including Turkey and Kenya all the way to Italy and the United Kingdom. In total, the initiative will span over 60 countries and will generate investment in roads, railways, ports and other facilities. Chinese construction firms will be cooperating with other international firms in a variety of jurisdictions on a plethora of different contracts. The potential for dispute resolution work is great, and the arbitral institutions are already competing to be the best placed forum to secure their share of the pie.

In the commentaries, HKIAC is a firm favourite. Reasons for this include Hong Kong’s proximity to China while being a separate administrative region; Hong Kong’s stable and independent common law legal system and pro-arbitration judiciary; and Hong Kong being home to multilingual legal and commercial professionals who are familiar with foreign investments and working with Chinese companies. HKIAC itself reports that in 2017 it saw 55% of its arbitrations involving a Mainland Chinese party and one-third of its cases between a Mainland Chinese Party and a Belt and Road jurisdiction in 2017.

Therefore, it comes as no surprise that HKIAC is keen to put itself forward as the premier forum for the resolution of Belt and Road disputes. In line with this aim is the formation of a HKIAC Belt and Road Advisory Committee composed of experts from the finance, infrastructure, insurance, construction and maritime sectors. A full list of members can be found here.

Nevertheless, it could be argued that HKIAC’s new online resource platform might benefit from some improvements. A few suggestions are set out below:

1. Belt and Road Knowledge Database: Currently this is a list of links to publications broadly categorised under ‘Investment and Trade Opportunities’, ‘Dispute Resolution’, ‘Regulatory & Compliance’ and ‘Useful Websites’. Although such broad categorisations may have been sufficient when the resources were sparse, the list is now becoming a little cumbersome. A more user-friendly interface organised around the potential problems that practitioners may face, and which can be surveyed ‘at a glance’, would add value to this useful resource.

2. Model Clauses for Belt and Road Contracts: Currently the HKIAC model clauses for Belt and Road contracts refer disputes directly to arbitration, without recourse to mediation. It is possible that the model clauses on this site would gain greater traction if they included a ‘hybrid’ method combining both mediation and arbitration. In Asia, there is a longstanding culture of mediating disputes, especially when arbitration may still be perceived as expensive and detrimental to commercial relations. As Guiguo Wang, President of the International Academy of the Belt and Road, has put it, conciliation is an “Eastern value and tradition”. Notably, the Supreme People’s Court of China (SPC) is interested in promoting mediation for Belt and Road disputes, as evidenced by the SPC’s endorsements at the September 2017 International Mediation Conference in Hangzhou, China. Further, the Hong Kong government has championed mediation for Belt and Road disputes, as can be seen in its development of an online mediation and arbitration tool, eBRAM.hk, and the discussion at the October 2017 Belt and Road Summit of model Belt and Road dispute resolution clauses that provide for mediation, then arbitration. Finally, the Hong Kong-based think tank, International Academy of the Belt and Road, has published a “Dispute Resolution Mechanism for the Belt and Road Initiative” that proposes a unified dispute resolution clause requiring negotiation and mediation before arbitration. Consistency where possible in relation to model clauses would be ideal for legal certainty in a multifarious legal landscape for Belt and Road disputes.

3. Belt and Road Events: Currently this is a list of events that HKIAC have hosted or will host in various jurisdictions with a very brief description of each. Perhaps each description would be improved by including links to meeting minutes, a video of the lecture or even a transcript, where appropriate. As it stands, it serves only as a log, where otherwise it could itself serve as a useful resource for Belt and Road practitioners across the jurisdictions who seek to stay in the know of how this premier arbitral institution views the various issues and challenges that the Belt and Road initiative presents.

Considering HKIAC’s prime position as an arbitral institution for Belt and Road dispute resolution, its current efforts to support participants with its new Belt and Road Programme are to be welcomed. HKIAC should be encouraged to build on its resources, especially in relation to its database, model clause provision and record of Belt and Road events. It would be safe to say that for the disputes rolling through, the more equipped practitioners are now, the more streamlined resolution will be for Belt and Road disputes in the years to come.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post HKIAC’s New Belt and Road Programme: Does More Need to be Done? appeared first on Kluwer Arbitration Blog.

The Binding Nature of Provisional “Recommendations” in ICSID Arbitration

Wed, 2018-06-27 03:07

Ylli Dautaj and Bruno Gustafsson

Introduction

Pursuant to Article 47 of the ICSID Convention, an ICSID Tribunal may “recommend any provisional measures which should be taken to preserve the rights of either party”. The use of “recommend” is concerning. Its lack of imperative character triggers a debate on whether ICSID provisional measures have legally binding effect, i.e. require mandatory state compliance. Quite controversially, numerous ICSID tribunals have rendered binding provisional measures to suspend domestic criminal investigations or proceedings.1)See following cases for discussions on suspending criminal procedures through provisional measures: Border Timbers Ltd. V. Republic of Zimbabwe, ICSID CASE NO. ARB/10/25, Directions Concerning Claimants’ Application for Provisional Measures of 12 June 2012 (June 13, 2012); Caratube International Oil Company LLP v. Republic of Kazakhstan, ICSID Case No. ARB/13/13, Decision on the Claimants’ Request for Provisional Measures, (Dec. 4, 2014); City Oriente Ltd v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) (Ecuadoran) ICSID case No. ARB/06/21; Italba v. Oriental Republic of Uruguay ICSID Case No. ARB/16/9 Decision on Claimant’s Application for Provisional Measures and Temporary Relief (Feb. 15, 2017); Nova Group Investments, B.V. v. Romania, ICSID Case No. ARB/16/19; and Teinver S.A., Transportes de Cercanías S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Decision on Provisional Measures (Apr. 8, 2016). jQuery("#footnote_plugin_tooltip_4620_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4620_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Thereby, some arbitrators have designated to themselves an implicit or de facto authorization to render orders, even such that extensively interfere with state sovereignty.

The issue of whether these orders are binding in nature rests upon an inherent give-and-take conflict between (1) honoring state sovereignty, and (2) making investor-state arbitration investor-friendly and an effective dispute resolution mechanism. A perfect illustration of this tension comes to light when a tribunal orders a provisional measure to suspend a criminal investigation or procedure.

However, at the outset it should be known that since Maffezini v. Spain (ICSID Case No. ARB/06/21, Decision on Request for Provisional Measures (Oct. 28, 1999) 5 ICSID Rep. 387 para 9. (2002)), there is a generally held view that provisional measures in ICSID are binding. For example, the Tribunal in City Oriente v. Ecuador held that “[f]rom a substantive view, the difference between a recommendation and an order is mainly a question of terminology. [And even] where named recommendation, a decision on provisional measures is substantially binding.”2)City Oriente Ltd v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) (Ecuadoran) ICSID case No. ARB/06/21 Decision on Provisional Measures (Nov. 19, 2007), para. 52. jQuery("#footnote_plugin_tooltip_4620_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4620_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The crux of the matter is, however, that these orders are not explicitly supported in the relevant text.

Provisional measures can secure the efficiency and fairness of the arbitration proceeding

In general, provisional measures lie on the premise that the proceedings should be fair and efficient. Accordingly, the use of provisional measures may be connected to the due process requirements of equal treatment and the right to be heard. This is a natural result of the “judicialization” of investor-state arbitration. And whether – and why – judicialization of arbitration is a bad thing, we can leave for another day. Nonetheless, the tribunal’s authority to render binding provisional measures have oftentimes been described as indispensable in order to uphold arbitration as a fair and efficient way of dispute resolution.3)See Gary Born, International Commercial Arbitration 2425 (2d ed. 2014). jQuery("#footnote_plugin_tooltip_4620_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4620_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

To illustrate the complicated balance between state sovereignty and efficiency we wish to address whether an ICSID tribunal has the authority to suspend domestic criminal procedures. How have previous tribunals justified an “order” suspending criminal investigations or procedures under the ICSID framework?

In Quiborax S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Provisional Measures (Feb. 26, 2010), the Tribunal stated that Article 47 of the ICSID Convention and Rule 39 of the ICSID Arbitration Rules give the tribunal wide discretion to render provisional measures. (para. 105) The Claimant claimed compensation for the revocation of eleven mining concessions. Some years into the arbitration, Bolivia initiated criminal proceedings on the allegations that the main shareholders of Quiborax had forged documents in order to become “protected investors” under the Bolivia-Chile BIT. Bolivia’s Ministry for Foreign Affairs ordered an audit. The Bolivian authorities reviewed corporate documentation and “noted irregularities,” and brought proceedings regarding “forged documents.” (paras 22-45) The Claimants alleged that the criminal proceedings constituted litigation tactics aiming towards limiting their access to important documents.

The Tribunal concluded that the Claimant had met the requirements for suspending the criminal proceedings, viz. had managed to prove: (1) an existence of rights requiring preservation; (2) existence of urgent protection; and (3) necessity of the provisional measure.(paras 113-165)

In Hydro S.r.l. v. Republic of Albania the Claimant initiated an ICSID arbitration against Albania for alleged breaches of commitments relating to electricity generation enterprises in the host-state. Subsequently, Albania sought to extradite two of the Claimants from the UK on the alleged basis of money laundering and fraud. The Claimants sought an interim measure requesting Albania to desist its action. The Tribunal recommended Albania to (a) suspend the criminal proceedings until the issuance of a final award and (b) take necessary actions to suspend the extradition proceedings.4)Hydro S.r.l. v. Republic of Albania, ICSID Case No. ARB/15/28, Order on Provisional Measures (Mar. 3, 2016), para 5.1. jQuery("#footnote_plugin_tooltip_4620_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4620_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Tribunal first determined whether there was a sufficient basis for it to decide the questions subject of the request for a provisional measure.(para. 3.9) It went on to assess the “appropriate test” to be applied i.e. whether the application was (1) necessary to protect the applicant’s rights; (2) urgent; and (3) proportionate. (para 3.11) The Tribunal was satisfied that the conditions were met and, therefore, saw “no difficulty in recommending an order”. (para. 3.18-20)

Is the word “recommendation” coincidental?

The non-binding language in Article 47 of the ICSID Convention reflects that investor-state arbitration is tainted with issues of state sovereignty. Schreuer wrote that “a conscious decision was made not to grant the tribunal the power to order binding [provisional measures].”5)Christoph H. Schreuer, The ICSID Convention: A Commentary 758 (2001) jQuery("#footnote_plugin_tooltip_4620_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4620_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Furthermore, Redfern and Hunter wrote that: “[t]he use of the word ‘recommend’ in this context stems from the concern of the drafters of the ICSID Convention to be seen as respectful of national sovereignty by not granting powers to private tribunals to order a state to do or not do something on a purely provisional basis”.6)Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration 333 (4th ed. 2004). jQuery("#footnote_plugin_tooltip_4620_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4620_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This sheds light upon what should be an obvious notion of textual legal understanding; namely, that the text is supreme and prevails. The explicit choice of words in the convention indicates that provisional measures were not meant to have legally binding effect.

However, it is not inconceivable that a tribunal may render binding provisional measures in order to safeguard the procedural integrity or the parties’ duty of “good faith”. Allegedly, this should be implied from the text of the ICSID Convention, in part and in whole. In a similar vein, it may be argued that the concept of “state sovereignty” should not force tribunals to tie their hands when serious interference with the arbitration is making the procedure unfair at best, or a nullity at worst. How convincing this argument is – and how far a tribunal can go – should be left for the arbitration community to decide. Nevertheless, decisional law is not binding in investor-state arbitration and, therefore, the decision should be reflected in rules or statute form.

Concluding remarks

The host-state, in its capacity as a sovereign, can interfere with the arbitration in a myriad of ways. For example, a state can utilize its prosecutorial powers in order to frustrate the arbitration by putting immense pressure on the investor. However, it is questionable whether an ICSID tribunal may redress such behavior by “ordering” a provisional measure that interferes with state sovereignty.

Mechanisms that secure procedural efficiency and due process are essential for maintaining investor-state arbitration as the dominant forum for adjudicating investment disputes. As a corollary, it is arguably necessary to grant the arbitrators some scope of authority to make compulsory decisions throughout arbitral proceedings. Nonetheless, the authority of the tribunal to render provisional measures in investor-state arbitration is dependent on the state giving up some traditionally sovereign features.

The drafting states to the ICSID Convention did not attribute a legally binding effect to provisional measures. Therefore, ICSID tribunals treating provisional “recommendations” as binding orders may undermine textual interpretation and state sovereignty. Above all, a lack of textual adherence may impede clarity, consistency and foreseeability.

As a result, provisional “orders” may carry a risk of causing states to question the legitimacy of investor-state arbitration as a valid regime for resolving investment disputes. Moreover, decisions lacking textual authority might discourage states from compliance. Eventually, the lack of textual adherence and interpretation may prove damaging for the sustainability of investor-state arbitration. 

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here. 

References   [ + ]

1. ↑ See following cases for discussions on suspending criminal procedures through provisional measures: Border Timbers Ltd. V. Republic of Zimbabwe, ICSID CASE NO. ARB/10/25, Directions Concerning Claimants’ Application for Provisional Measures of 12 June 2012 (June 13, 2012); Caratube International Oil Company LLP v. Republic of Kazakhstan, ICSID Case No. ARB/13/13, Decision on the Claimants’ Request for Provisional Measures, (Dec. 4, 2014); City Oriente Ltd v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) (Ecuadoran) ICSID case No. ARB/06/21; Italba v. Oriental Republic of Uruguay ICSID Case No. ARB/16/9 Decision on Claimant’s Application for Provisional Measures and Temporary Relief (Feb. 15, 2017); Nova Group Investments, B.V. v. Romania, ICSID Case No. ARB/16/19; and Teinver S.A., Transportes de Cercanías S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Decision on Provisional Measures (Apr. 8, 2016). 2. ↑ City Oriente Ltd v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) (Ecuadoran) ICSID case No. ARB/06/21 Decision on Provisional Measures (Nov. 19, 2007), para. 52. 3. ↑ See Gary Born, International Commercial Arbitration 2425 (2d ed. 2014). 4. ↑ Hydro S.r.l. v. Republic of Albania, ICSID Case No. ARB/15/28, Order on Provisional Measures (Mar. 3, 2016), para 5.1. 5. ↑ Christoph H. Schreuer, The ICSID Convention: A Commentary 758 (2001) 6. ↑ Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration 333 (4th ed. 2004). 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
by Andrea Menaker
€ 240


The post The Binding Nature of Provisional “Recommendations” in ICSID Arbitration appeared first on Kluwer Arbitration Blog.

Customary International Law Claims in Contract-based Arbitration

Tue, 2018-06-26 02:33

Patrick Fox and Alexey Vyalkov

Three Crowns LLP

Without the rights and protections of a treaty, a foreign investor who suffers a wrongful act at the hands of a host State traditionally has no legal standing to pursue an international claim against that State.1) Case Concerning the Barcelona Traction, Light & Power Company Limited (Belgium v Spain) (Second Phase) [1970] ICJ Rep 3, 44. jQuery("#footnote_plugin_tooltip_7212_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Instead, the investor must rely on the diplomatic intervention of its home State to protect the investor’s interests—a corollary to the widely-accepted view that a State’s obligations under international law may be engaged only by other States. However, in 1987, Stephen Schwebel argued that private parties in contract-based arbitrations may pursue certain customary international law claims in their own name.2) E.g., denial-of-justice claims: see S Schwebel, International Arbitration: Three Salient Problems (Grotius Publishing 1987) ch 2. jQuery("#footnote_plugin_tooltip_7212_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Decades on, there are now several examples of contract-based arbitrations – under both ad hoc and institutional rules – where investors have sought to invoke a State’s breach of the minimum standards of treatment under customary international law as a separate head of claim.3) Channel Tunnel Group Limited and France-Manche SA v Secretary of Transport of the United Kingdom and Secretary of Transport of France (PCA Case No. 2003-06) Partial Award, 30 January 2007, (Eurotunnel); Dunkwa Continental Goldfields Limited & Continental Construction and Mining Company Limited v The Government of the Republic of Ghana (ICC Case No. 18294/ARP/MD/TO) Award, 9 July 2015 (Dunkwa); Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana (UNCITRAL) Award on Jurisdiction and Liability, 27 October 1989, 95 ILR 184 (Biloune); Cambodia Power Company v Kingdom of Cambodia (ICSID Case No. ARB/09/18) Decision on Jurisdiction, 22 March 2011, (Cambodia Power); Caratube International Oil Company LLP & Mr Devincci Salah Hourani v Republic of Kazakhstan (ICSID Case No. ARB/13/13) Award, 27 September 2017, (Caratube II). jQuery("#footnote_plugin_tooltip_7212_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Such claims have presented few jurisdictional problems in contract-based ICSID arbitrations, given that Article 25 of the ICSID Convention allows any kind of legal dispute to be referred to the Centre, so long as that dispute arises “directly out of an investment” and other jurisdictional preconditions are satisfied. But international claims pursued outside of the ICSID regime raise additional and fundamental issues of international legal theory, such as the power of private parties to pursue international claims where that power has not been delegated through a treaty analogous to the ICSID Convention, or the need to exhaust local remedies in the absence of a provision to the effect of Article 26 of the ICSID Convention.

Still, international claims in both ICSID and non-ICSID arbitrations present a number of common issues, and it is here that we would like to add a few thoughts. Kate Parlett has previously summarised as follows:

the starting point of the analysis must be the scope of consent given in the arbitration clause. In a claim brought pursuant to a contract, it might also be relevant to consider the applicable law of the contract, since that law might incorporate customary international law.4) K Parlett, Claims under Customary International Law in ICSID Arbitration (2016) 31(2) ICSID Review 434. jQuery("#footnote_plugin_tooltip_7212_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Section A of this blog suggests an alternative approach to interpreting an arbitration clause for the purpose of determining whether the scope of the clause encompasses customary international law claims. The essence of this approach is that any such interpretation should be consistent with and draw upon the developed jurisprudence for other types of non-contractual claims in contract-based arbitrations. Section B draws attention to the apparently-overlooked question of whether the tribunal has the power to decide if a particular standard of customary international law is incorporated into the law governing the contract.

A. Customary International Law Claims as Non-Contractual Claims for the Purpose of Determining the Scope of the Arbitration Clause

A tribunal’s jurisdiction is limited by the scope of the parties’ consent in the arbitration agreement, which establishes the subjective arbitrability of a claim. An arbitration agreement may be drafted expressly to include (or to exclude) customary international law claims, in which case it is suggested that the tribunal must apply the principle of lex specialis and decide its jurisdiction ratione materiae accordingly. Absent an express enunciation, however, the question arises as to what contractual language will allow a tribunal to hear such claims (with the caveat that principles of interpretation are determined by the applicable law). Once examined, parallels may be drawn with other non-contractual claims brought under similar contractual language.

In Eurotunnel, the tribunal concluded that it lacked jurisdiction to consider customary international law claims extrinsic to the provisions of a concession agreement. The jurisdiction clause provided that “any dispute between the [parties] relating to this Agreement” would be submitted to arbitration,5) Eurotunnel (n 3) para 97. jQuery("#footnote_plugin_tooltip_7212_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but the tribunal held that its jurisdiction was limited to claims implicating the rights and obligations of the parties under the concession agreement. The contract in Dunkwa featured a similarly broad arbitration clause, covering “[a]ll claims … arising, whether directly or indirectly out of, or in connection with” a Ghanaian-law-governed project agreement.6) Dunkwa (n 3) para 337. jQuery("#footnote_plugin_tooltip_7212_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Contrary to Eurotunnel, however, the tribunal acknowledged that this formulation could include non-contractual claims (the implication being that the tribunal may have found jurisdiction ratione materiae over claims for wrongful expropriation under customary international law). In Biloune, the investor’s claim for violation of his human rights was found to be beyond the tribunal’s jurisdiction on the wording of an arbitration clause which provided that “[a]ny dispute … in respect of an approved enterprise … may be submitted to arbitration”.7) Biloune (n 3) 188. jQuery("#footnote_plugin_tooltip_7212_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In the context of ICSID arbitration, the tribunal in Cambodia Power found that it had jurisdiction to hear customary international law claims where three English-law-governed contracts referred to “any dispute or difference aris[ing] out of or in connection with” the relevant contract.8) Cambodia Power (n 3) para 336. jQuery("#footnote_plugin_tooltip_7212_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Moreover, the claimant was able to bring customary international law claims notwithstanding the designation of English law as the rules of law agreed by the parties pursuant to Article 42 of the ICSID Convention. The same interpretation of Article 42 was applied in Caratube II, where the jurisdiction clause covered “all disputes arising from the Contract”9) Caratube II (n 3) para 27. jQuery("#footnote_plugin_tooltip_7212_9").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and the tribunal found, notwithstanding the choice-of-law clause, that it would be inconsistent with the aims of the ICSID Convention to disregard customary international law.

The above examples demonstrate that tribunals have not been entirely consistent in assuming jurisdiction over customary international law claims under broadly-drafted arbitration agreements. Moreover, this inconsistency does not sit easily alongside the position widely (although not universally) taken in respect of other non-contractual claims, e.g. tort, unjust enrichment, or statutory claims, which most tribunals have agreed to hear under arbitration clauses with similar broad wording.10) See, e.g., G Born, International Commercial Arbitration (Second Edition) (Kluwer 2014) 1345–1355. jQuery("#footnote_plugin_tooltip_7212_10").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While the scope of even broadly-worded arbitration clauses must be determined with reference to the principles of interpretation existing in the applicable law, there appears to be no reason to differentiate between customary international law claims and other non-contractual claims for the purpose of this interpretation exercise. On the contrary, it seems only consistent for tribunals either to allow customary and other non-contractual claims to be heard under broadly-worded clauses, or to disallow both. Thus, when analysing whether a customary international law claim falls within the scope of an arbitration clause, it is submitted that tribunals should take into consideration the much richer jurisprudence pertaining to the permissibility of other non-contractual claims under broadly-worded clauses.

B. The Power of the Tribunal to Decide on the Incorporation of a Customary International Law Standard into the Law Governing the Contract

To the extent that a choice of national law to govern the contract may indeed suffice to open the door to claims based on customary international law, a number of issues remain to be resolved for such claims to be sustained. Kate Parlett has written that, for the purpose of presenting a customary international law claim in a contract-based arbitration:

(i) the relevant customary standard of treatment should be incorporated in the body of municipal law chosen to govern the contract;
(ii) the standard relied on should indeed be of customary nature; and
(iii) this standard should be capable of being invoked by the private party in its own capacity.11) Parlett (n 4) 441–447. jQuery("#footnote_plugin_tooltip_7212_11").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

To these three important prerequisites one might add a further issue of incidental nature. As noted by Dr Parlett, for a customary international law claim in contract-based arbitration to be successful, the customary rule relied on should form part of the body of national law applicable to the contract. However, as a matter of jurisdiction, it is not always clear, first and foremost, whether the arbitral tribunal should have the power to decide if the invoked rule of supposedly-customary nature forms part of the national law chosen by the parties. This issue appears analogous to the one debated by Jan Paulsson and Pierre Mayer—namely, whether an arbitral tribunal should be deemed competent to exclude certain rules from the body of substantive law agreed by the parties where such rules are demonstrated to be in contradiction with the constitution of the State of the agreed applicable law.12) J Paulsson, Unlawful Laws and the Authority of International Tribunals (2008) 23(2) ICSID Review 215; P Mayer, L’arbitre International et la Hiérarchie des Norms (2011) 2 Revue de l’Arbitrage 361; JS Betancourt, Understanding the ‘Authority’ of International Tribunals: A Reply to Professor Jan Paulsson (2013) 4(2) Journal of International Dispute Settlement 227. jQuery("#footnote_plugin_tooltip_7212_12").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

By analogy with the Paulsson / Mayer debate, one may be naturally inclined to answer the above threshold question with reference to the powers of the court of the State of the agreed applicable law. In this respect, the courts of some (not necessarily monist) legal systems are completely autonomous in deciding whether the relevant customary rule forms part of the national law. However, the courts of other (not necessarily dualist) legal systems may be prevented from deciding such issues altogether as a matter of law, or be allowed to resolve them only where the parliamentary body explicitly permits it.13) See AJ Belohlavek, “Czech Republic” in D Shelton, International Law and Domestic Legal Systems (OUP 2011) 202; EA Alkema, “Netherlands” in ibid, at 420. jQuery("#footnote_plugin_tooltip_7212_13").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); At the same time, if the arbitral tribunal holds that it lacks jurisdiction to decide on the incorporation of the invoked customary rule in the substantive law chosen by the parties, it may thereby fail to determine the content of the applicable law and, accordingly, violate its duty to apply the law. This is therefore a further issue capable of determining the fate of a customary international law claim in a contract-based arbitration, which in our view merits further consideration.

Patrick Fox is an associate at Three Crowns LLP. Alexey Vyalkov is a trainee at the Stockholm Chamber of Commerce. The views expressed in this post are the authors’ personal views and do not necessarily reflect those of Three Crowns LLP or the Stockholm Chamber of Commerce.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

References   [ + ]

1. ↑ Case Concerning the Barcelona Traction, Light & Power Company Limited (Belgium v Spain) (Second Phase) [1970] ICJ Rep 3, 44. 2. ↑ E.g., denial-of-justice claims: see S Schwebel, International Arbitration: Three Salient Problems (Grotius Publishing 1987) ch 2. 3. ↑ Channel Tunnel Group Limited and France-Manche SA v Secretary of Transport of the United Kingdom and Secretary of Transport of France (PCA Case No. 2003-06) Partial Award, 30 January 2007, (Eurotunnel); Dunkwa Continental Goldfields Limited & Continental Construction and Mining Company Limited v The Government of the Republic of Ghana (ICC Case No. 18294/ARP/MD/TO) Award, 9 July 2015 (Dunkwa); Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana (UNCITRAL) Award on Jurisdiction and Liability, 27 October 1989, 95 ILR 184 (Biloune); Cambodia Power Company v Kingdom of Cambodia (ICSID Case No. ARB/09/18) Decision on Jurisdiction, 22 March 2011, (Cambodia Power); Caratube International Oil Company LLP & Mr Devincci Salah Hourani v Republic of Kazakhstan (ICSID Case No. ARB/13/13) Award, 27 September 2017, (Caratube II). 4. ↑ K Parlett, Claims under Customary International Law in ICSID Arbitration (2016) 31(2) ICSID Review 434. 5. ↑ Eurotunnel (n 3) para 97. 6. ↑ Dunkwa (n 3) para 337. 7. ↑ Biloune (n 3) 188. 8. ↑ Cambodia Power (n 3) para 336. 9. ↑ Caratube II (n 3) para 27. 10. ↑ See, e.g., G Born, International Commercial Arbitration (Second Edition) (Kluwer 2014) 1345–1355. 11. ↑ Parlett (n 4) 441–447. 12. ↑ J Paulsson, Unlawful Laws and the Authority of International Tribunals (2008) 23(2) ICSID Review 215; P Mayer, L’arbitre International et la Hiérarchie des Norms (2011) 2 Revue de l’Arbitrage 361; JS Betancourt, Understanding the ‘Authority’ of International Tribunals: A Reply to Professor Jan Paulsson (2013) 4(2) Journal of International Dispute Settlement 227. 13. ↑ See AJ Belohlavek, “Czech Republic” in D Shelton, International Law and Domestic Legal Systems (OUP 2011) 202; EA Alkema, “Netherlands” in ibid, at 420. 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
by Andrea Menaker
€ 240


The post Customary International Law Claims in Contract-based Arbitration appeared first on Kluwer Arbitration Blog.

The Belgian Government unveils its plan for the Brussels International Business Court (BIBC)

Mon, 2018-06-25 02:59

Guillaume Croisant

Background

In October 2017, in the wake of Brexit, Belgium was one of the first European jurisdictions to announce its intention to set up a specialised English-speaking court with jurisdiction over international commercial disputes, the Brussels International Business Court (“BIBC”).

The stated aim of this new court is to position Brussels as a new hub for international commercial disputes, in line with its international status as de facto capital of the EU and seat of many international companies and institutions (NATO, World Customs Organisation, Benelux, etc.). As discussed in previous posts on this blog, similar projects are ongoing in several jurisdictions throughout the EU, including France, the Netherlands and Germany.

An update version of the bill has been submitted to the Belgian Parliament on 15 May 2018, after that the Government’s initial draft faced criticisms from the High Council of Justice (relating to the BIBC’s independence and impartiality, its source of funding and its impact on the ordinary courts) and was subject to the review of the Conseil d’Etat.

The Belgian Government aims to have the BIBC up and running by 1 January 2020.

Jurisdiction

The BIBC will have jurisdiction over disputes:

  • which are international in nature, i.e. where (i) the parties have their establishment in different jurisdictions, (ii) a substantial part of the commercial relationship must be performed in a third country, or (iii) the applicable law to the dispute is a foreign law. In addition, another language than French, Dutch or German (Belgium’s official languages, which are already used before ordinary courts) must have been used frequently by the parties during their commercial relationship;
  • among “enterprises” (i.e. every entity pursuing an economic purpose, including public enterprises which provide goods and services on a market basis); and
  • provided that the parties have agreed to the BIBC’s jurisdiction before or after the crystallisation of their dispute.

Procedure

Subject to potential amendments in Parliament, the main procedural hallmarks of the BIBC can be summarised as follows:

  • the procedure will be conducted in English (notices and submissions, evidence, hearings, judgments, etc.);
  • the procedure will be based on the UNCITRAL Model Law on international arbitration;
  • the cases will be heard by ad hoc chambers of three judges, one professional and two lay judges (appointed by the president of the BIBC on the basis of a panel of Belgian and international experts in international business law), assisted by the Registrar of the Brussels Court of Appeal;
  • the BIBC will be granted the power to issue provisional and protective measures (including upon ex parte requests);
  • no appeal will be open against the BIBC’s decision (with the exception of an opposition/tierce opposition before the BIBC for absent parties/interested third parties, and a pourvoi en cassation on points of law before the Supreme Court);
  • the BIBC should be self-financing and the court fees are therefore going to be significantly increased (to around € 20,000/case).

A potential competitor to commercial arbitration?

It is clear from the above that the envisaged procedure before the BIBC, based on the UNCITRAL Model Law and drawn up for international commercial disputes, offers many features traditionally associated with arbitration (necessity for the parties to agree on its jurisdiction, specialised judges, absence of appeal, procedural flexibility, etc.), at a much lesser cost.

However, the BIBC will remain a State court. This means, in particular, that its judgments will not benefit from the recognition and enforcement regime of the 1958 New York Convention (although, where the defeating party will have assets within the EU, this consequence will likely be offset by the application of the Brussels I recast regulation). In addition, the BIBC will not offer two procedural hallmarks often perceived by commercial parties as significant advantages of arbitration over State court proceedings: the confidentiality of the hearing and judgment, and the possibility to appoint/nominate the judges who will hear the dispute.

As a result, it remains to be seen whether the BIBC, and similar English-speaking commercial courts which are being established in other jurisdictions, will become a competitor to international arbitration (especially for cases requiring cost-effective proceedings) or if they will merely attract commercial disputes which would have been heard by ordinary courts, potentially from across the Channel. In any case, parties are likely to await the successful completion of a few procedures before trusting these new commercial courts with their more crucial and complex disputes.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post The Belgian Government unveils its plan for the Brussels International Business Court (BIBC) appeared first on Kluwer Arbitration Blog.

Brace for Impact? Examining the reach of Achmea v Slovakia

Sun, 2018-06-24 03:33

Florian Stefan

Over the past two months, the judgment by the Court of Justice of the European Union (“CJEU”) in Slovak Republic v Achmea BV, hereinafter referred to as “Achmea”, has created much discussion among arbitration practitioners. Its reasoning and implications have already been addressed in several Kluwer Arbitration blog posts, available here, here and here. The overall consensus seems to be that the CJEU effectively put an end to investment treaty arbitration based on a bilateral investment treaty (“BIT”) between member states of the European Union (so-called “Intra-EU BITs”). But can the decision of the CJEU in Achmea really be applied to all Intra-EU BITs? A closer look at the Achmea judgment reveals that its reasoning is specific to the BIT in question and its general reach might be limited.

 

An Adverse Effect on the Autonomy of EU law?

The reasoning of the CJEU in Achmea is based on two assumptions. First, arbitral tribunals established under the bilateral investment treaty between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic, hereinafter referred to as the “Netherlands – Slovakia BIT”, may interpret or apply EU law.[1] Second, arbitral tribunals constituted in accordance with the dispute resolution provision of the Netherlands – Slovakia BIT cannot be classified as a tribunal of an EU member state in the sense of Article 267 of the Treaty on the Functioning of the European Union (“TFEU”) and are thus not capable to request a preliminary ruling from the CJEU. It follows from these two assumptions that the CJEU would not be able to exercise its authority over disputes involving the application of EU law. As a consequence, the CJEU considered the arbitration clause in Article 8 of the Netherlands – Slovakia BIT to be incompatible with EU law.

With regards to the applicability of EU law Article 8 (6) of the Netherlands – Slovakia BIT is pertinent. The provision provides that arbitral tribunals shall decide on the basis of the law, taking into account in particular though not exclusively the law in force of the contracting party concerned, the provisions of the treaty, other relevant agreements between the contracting parties, the provisions of special agreements relating to the investment and the general principles of international law. Given that the law in force of the contracting party concerned is to be taken into account, which in the Achmea case was Slovakian law, and that EU law forms part of the law in force in every EU member State, the CJEU held that the arbitral tribunal may be called on to interpret or indeed to apply EU law.

Very often the CJEU follows the opinion of the Advocate General, but in the Achmea judgment it did not. Advocate General Wathelet, whose opinion is available here, held that disputes between investors and states to be settled under Article 8 of the Netherlands – Slovakia BIT do not concern the interpretation and application of EU law. In particular, the Advocate General considered EU law to have no impact on the substance of the dispute since the Claimant only invoked breaches of the BIT and neither party relied on provisions of EU law. Furthermore, the Advocate General held that arbitral tribunals constituted under Article 8 (6) of the Netherlands – Slovakia BIT are tribunals in the sense of Article 267 TFEU and are as such capable of referring a dispute to the CJEU for a preliminary ruling.

Although the Advocate General’s reasoning diverged from that of the CJEU, both departed from the same viewpoint, namely that EU Law could potentially be applied by an arbitral tribunal settling a dispute between an investor and a state under the Netherlands – Slovakia BIT. This seems reasonable since Article 8 (6) of the Netherlands – Slovakia BIT provides that the arbitral tribunal shall take into account the law in force of the contracting party concerned. Notably, the second question, i.e. whether an arbitral tribunal settling a BIT dispute is considered a tribunal in accordance with Article 267 TFEU, may only arise if the first question, i.e. whether EU law might be applicable, is answered affirmatively.

But what would be outcome if the provisions relating to applicable law were different? In particular, would the reasoning on the adverse effect of the arbitration clause on the autonomy of EU law still apply? If the arbitral tribunal were to decide the dispute pursuant to rules that do not touch upon EU law, it is difficult to imagine how the autonomy of EU law could potentially be endangered.

 

Different BITs, Different Laws

A cursory review of the provisions on the applicable law found in Intra-EU BITs shows that the presumption of a general reach of the Achmea decision on all Intra-EU BITs might be premature.

Whilst a considerable number of Intra-EU BITs indeed refer to domestic or national laws of contracting states, and in accordance with the reasoning of the CJEU thereby also to EU law, many do not. In fact, there are Intra-EU BITs that do not contain an explicit rule on the applicable law to be applied by the arbitral tribunal when deciding on a dispute between an investor and a contracting party. Still others do not provide for the applicability of domestic laws but for a decision in virtue of the provisions of the BIT and general principles of international law.

By way of example, the BIT concluded in 1997 between Greece and Estonia stipulates in Art 9 (4) that an arbitral tribunal settling a dispute between an investor and a contracting party “shall decide the dispute in accordance with the provisions of this agreement and the applicable rules and principles of international law”. Thus, the reasoning of the CJEU in Achmea, whereas the arbitral tribunal has to take into account EU law as part of the laws of the contracting states when ruling on possible violations of the BIT, could not be applied to a case under the BIT between Greece and Estonia.

The same holds true for the Energy Charter Treaty (“ECT”), which provides in Article 26 (6) that an arbitral tribunal deciding a dispute between an investor and a contracting party shall decide the issues in dispute in accordance with the ECT and applicable rules and principles of international law. Again, the concern of the court that its primacy on the interpretation of EU law would be endangered could not be per se an issue in a case under the ECT.

Interestingly, not even all of Slovakia’s BITs provide for the applicability of its domestic laws when deciding a dispute between an investor and a state. For instance, this is the case in the BIT concluded in 1990 between the United Kingdom and the Slovak Republic. Art 8 (3) of that BIT foresees that arbitral tribunals concerned with disputes between an investor and a host state, “shall, in particular, base its decision on the provisions of [the] Agreement”, without making any reference to domestic laws.

 

The Direct Impact is Technically Limited

There might be other ways for an arbitral tribunal constituted on the basis of an Intra-EU BIT to consider the applicability or interpretation of EU law. For instance, by holding that EU law forms part of the international legal order as held by the tribunal in Electrabel v Hungary,[2] or to consider it as a fact, as was the case in Micula v Romania,[3] where the EU accession of Romania played a considerable role in the considerations of the tribunal.

However, in the Achmea judgment the CJEU based its finding that EU law might be applicable or interpreted by the arbitral tribunal, on the explicit provision on applicable law of the Netherlands – Slovakia BIT. As the provisions on applicable law found in the close to 200 Intra-EU BITs differ, the reasoning of the CJEU itself limits the decision’s impact.

Technically, the Achmea judgment may only have a direct impact on those Intra-EU BITs that contain a similar rule on the applicability of domestic laws. For all others, there is no reason to automatically assume an adverse effect on the autonomy of EU law. Rather, the applicability of EU law needs to be examined on a case by case basis.

 

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

 

[1]               The bilateral investment treaty between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic entered into force in 1992. As a successor to the Czech and Slovak Federative Republic, the Slovak Republic succeeded to the latter’s rights and obligations under the treaty in 1993. In 2004 the Slovak Republic became a member of the European Union, thus making the Netherlands – Slovakia BIT an intra-EU BIT.

[2]               Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, para 4.122.

[3]               Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack; S.R.L. v. Romania, ICSID Case No. ARB/05/20, Final Award, 11 December 2013.

 

 

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post Brace for Impact? Examining the reach of Achmea v Slovakia appeared first on Kluwer Arbitration Blog.

Arbitration under the Lebanese Public Private Partnership Law

Sat, 2018-06-23 02:31

Michel Nassar

Young ICCA

On 9 September 2017, Lebanon passed Law No. 48 “Regulating Public Private Partnerships” (“PPP Law”) ahead of the CEDRE Conference (acronym in French for “Economic Conference for Development, through Reforms and with the Businesses”) held in Paris on 6 April 2018. This conference brought USD 11 billion of funding for Lebanon’s infrastructure which is in a critical state.

This most awaited law is based on a draft prepared in 2010 by the Lebanese High Council for Privatization and Public Private Partnership (“PPP”). The law was finally enacted just in time for the CEDRE Conference. As PPP is the preferred vehicle for foreign investments, the new law paves the way for a more prevalent choice for arbitration as dispute resolution mechanism.

1. The impact of the CEDRE Conference

Peter Mousley, a PPP specialist at the World Bank’s Beirut office, said in an interview: “Obviously [local banks] want to take informed risks.” Mousley continued: “Doing it in a PPP framework that takes proper account of the risks involved is liable to create a more enabling environment for infrastructure investment.”

The Secretary General of the High Council for Privatization and PPP, Ziad Hayek, explained in an interview that PPP is “a partnership in risks”. This means that the private company winning the PPP tender — depending on the terms of the agreement — might take on the risk of financing, constructing, and operating the project, while the government deals with revenue guarantees to the company, political risk, or environmental risk. “For each of these risks, then, [comes] a conversation about how you’re going to mitigate it,” Hayek says, adding that transparency is important in the tender process. Companies do not want to invest heavily in preparing for bids, i.e. designing the project and negotiating financing options with banks, which can be costly, if the evaluation methodology is not made public and the selection process is opaque.

Investors and fund managers such as those who were present at the CEDRE Conference have the option of investing in Lebanon or elsewhere. Invariably, they will look for jurisdictions that provide lucrative returns and low levels of risk.

2. Arbitration and public procurement projects before the PPP Law

Before the PPP Law was enacted, recourse to arbitration for local and foreign investors in procurement projects in Lebanon was limited mainly because it was subject to a lengthy authorization process, which often had a political connotation to it.

The Libancell and Cellis case in the early 2000’s serves as a prime example of how uncertain recourse to arbitration used to be. Those two mobile companies operated Lebanon’s first-generation mobile network. Their contracts provided for arbitration clauses. When the government moved to terminate the contracts prematurely the companies filed for arbitration.

Consequently, the State Council, Lebanon’s highest administrative court, issued an opinion according to which the arbitration clauses were null and void. Therefore, the state could not be party to the arbitration. Instead, the Council ruled that it had the competence of hearing cases against state-related entities. Despite this ruling, each investor ultimately won an award in CNUDCI proceedings under their respective country’s BIT with Lebanon.

In response, improvement was made with Law No. 440 of 29 July 2002, that amended Article 762 of the Lebanese Code of Civil Procedure, allowing recourse to arbitration in a dispute with a state-entity:

[…]

The State and public legal entities may resort to arbitration regardless of the nature of the contract in dispute.

[…]

the arbitration clause or the arbitration submission agreement included in the administrative contracts will only become effective after being approved by virtue of a decree issued by the Council of Ministers following the proposal of the competent Minister with regards to the State, or the proposal of the supervising authority with regards to public legal entities.

However, effective recourse to arbitration remained uncertain — even if included in a public procurement agreement, the validity of an arbitration clause continued to be subject to the issuance of a decree by the executive power. Thus, in absence of political approval, recourse to arbitration would be paralyzed.

3. The new PPP Law

The CEDRE Conference organized by France was the final turning point because it required Lebanon to establish a certain legal framework as a condition for being granted funding. The envisaged changes were, for instance, the enactment of a new water law; the appointment of the members of regulatory authorities for the telecommunications, energy and aviation sectors; and an effective sharing of risks between state and investor.

3.1. The PPP Law allows recourse to arbitration

Article 10 of the recent PPP Law explicitly authorizes recourse to arbitration in the Partnership Agreement (as defined in Article I of the law) to be concluded between the state-party and the investor:

[…]
The Partnership Agreement shall include the following:

[…]
15- The dispute resolution mechanism, which can include mediation and domestic and international arbitration.

Ziad Hayek highlighted at the Lebanon Investment in Infrastructure Conference held in Beirut on 6 March 2018, that the new PPP Law:

[…] has facilitated the participation of the private sector – in the full spirit of partnership. It did that by recognizing the need to share risks and mitigate them; by providing for local and international arbitration; by exempting project companies from regulations requiring Lebanese control, ownership and management; and by allowing project companies to benefit from the provisions of the existing laws of investment promotion and asset securitization.

Article 10 of the new PPP Law will allow investors to benefit more easily from a dispute resolution clause providing for arbitration in the Partnership Agreement, since the state-party won’t need a specific authorization to be able to resolve the dispute in arbitration.

Arbitration is now accepted by the Lebanese government as the impartial forum allowing for effective risk sharing between the state and the investor, assuring foreign investors.

However, the arbitration clause won’t be automatically included in the draft Partnership Agreement proposed by the project committee. Consequently, the investor will have to negotiate such a clause and its terms on a case by case basis.

3.2. The PPP Law secures investment law

As noted by Ziad Hayek, operating through a PPP vehicle should not prevent local and foreign investors to benefit from the protection granted under Law No. 360 of 16 August 2001 (“Investment Law”).

In that sense, Article 16 of the PPP Law provides that:

The provisions of this law shall not prevent the Private Partner and the Project Company from benefiting from the provisions of Law No. 360 dated August 16, 2001 and relating to the development of investments in Lebanon and from the provisions of Law No. 705 dated December 9, 2005 and relating to the securitization of assets.

The Investment Law provides investors with administrative and financial exemptions and facilities. Article 18 of the Investment Law also allows recourse to arbitration, although only after a lengthy authorization process.

This legal framework for investment protection granted by the new PPP Law and the Investment Law comes in addition to existing international agreements entered into by Lebanon.

4. Existing BITs and trade agreements

Lebanon’s substantial investment protection is finally fully efficient since an authorization by the executive power is no longer required to allow conducting an arbitration involving a state-party.

In addition, the country has signed so far fifty-four Bilateral Investment Treaties (“BIT”). The BITs provide primarily for fair and equitable treatment on a non-discriminatory basis, and for full protection and security of foreign investments in both countries.

Lebanon has also a long tradition of openness towards the international community having ratified several trade agreements with major trade partners, such as the Euro-Mediterranean Partnership Agreement (EMP), the Free Trade Agreement with the European Free Trade Association (EFTA), the Greater Arab Free Trade Area (GAFTA), the Unified Agreement for the Investment of Arab Capital in the Arab States, the Lebanon-US Trade and Investment Framework Agreement (TIFA), and the Lebanon-Turkey Association Agreement.

5. Conclusion

Even if the new PPP Law and the investment protection framework provide for protection for investors in Lebanon, it remains nonetheless subject to the condition that an appropriate and efficient jurisdiction can hear their claims should a dispute arise. Therefore, arbitration will be the preferred method of dispute settlement over litigation before the Lebanese courts.

Consequently, foreign investors that will operate in Lebanon should negotiate robust dispute resolution clauses in order to efficiently protect their investments. To this end, Article 10 of the PPP Law allows an escalation clause, which includes arbitration as ultimate recourse.

Throughout these projects, legal practitioners should advise their clients also taking into account sector specific regulations (e.g. energy, oil & gas and telecommunications) in order to offer the most suitable dispute resolution mechanism.

With the new PPP Law, Lebanon makes yet another step towards a more arbitration-friendly environment. However, further efforts are still needed in order to make recourse to arbitration a natural choice of dispute resolution. Investors should therefore pay special attention to dispute resolution clauses when negotiating a Partnership Agreement.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post Arbitration under the Lebanese Public Private Partnership Law appeared first on Kluwer Arbitration Blog.

New Challenges to the Territorial Requirements of Investment Treaties: Can Social Platforms Be Protected?

Fri, 2018-06-22 07:40

Nikita Kondrashov

The explosive development of IT companies offering social platforms (social networking and instant messaging applications) over the past years has gifted us with many tools that we now use on a daily basis. Facebook, LinkedIn, Instagram, What’s App, Skype, Telegram and many others services help us to stay in touch with people all around the globe.

These social platforms may use different methods to generate profit but evidently many of those methods would rely on their biggest asset – their users. A good example of that is advertisement and sponsored content – on Facebook or LinkedIn, the advertisements are almost inevitably tailored to interests and previous behaviour of the person using the account, making any form of commercial on social platforms quite attractive for advertisers.

The rapid development of social media and messaging has not escaped the attention of governments, many of which have been expressing concerns that unregulated use of social media and encrypted messaging may be dangerous.

One of the points of criticism voiced by the regulators revolves around the idea that in some cases it can be difficult even for the operator of the social platform to find out the real identity of the user; therefore, a platform can facilitate communication between criminals or impair security of personal data.

For example, Russia has lately prescribed that all IT companies operating social platforms in its territory must store personal data and users‘ correspondence on server infrastructure in Russia as well as make any encrypted communications exchanged on the social platforms accessible to law enforcement. Following failure to comply with some of regulations, LinkedIn has been banned on the entire Russian territory. Telegram, a popular messaging application has suffered the same fate last week. Ban on Facebook might also follow.

Another area of criticism is the recent fake news phenomena. One of the examples of related measures is Ukraine’s ban on Russian companies operating search engines, social networks, news portals and rendering other ancillary services on Ukrainian territory. There is also an ongoing investigation against Russian nationals allegedly massively distributing misleading information through social platforms in the wake of the US presidential elections.

The examples given above demonstrate that states have a wide array of regulatory tools that can complicate the life of IT companies. At the same time, if one would take a look at the simplified example of their business, the main assets of an IT company would likely to consist of applications (software products, related intellectual property rights and operating licenses), infrastructure (i.e. equipment used to run the software) and most importantly the clientele – users. Due to the specifics of the business those assets are not necessarily located in the same jurisdiction.

Hence, the question arises: could a tribunal, operating under the framework of an investment treaty, have jurisdiction in respect of investments of a company that has marginal amount of real assets on the host-state territory, but operates a social platform there?

For prima facie analysis, let’s use a hypothetical example.

John Doe (JD) is a messaging application, enjoying worldwide popularity among the users. JD is operated by John Doe LLP (JD LLP), a British company. JD was launched on the Russian market in 2010 and does not have any physical assets in Russia. It has met all the local legal requirements necessary for its operation at the time of its launch. JD has also built server infrastructure in a third country in order service the Russian market.

JD’s User agreement states that users will always enjoy free and secure use of JD and JD LLP can integrate any profit generating mechanism in JD application. JD’s income on the Russian market derives from such profit generating mechanisms. After legislation prescribing disclosure of JD’s encryption protocols to law enforcement is enacted in Russia, JD refuses to comply. Russia then prohibits access to JD’s servers on its entire territory.

Since JD LLP is a British company, it can resort to the 1989 Agreement for the Promotion and Reciprocal protection of Investments between Russia and the UK (further referred to as the “BIT”). The BIT contains many features and definitions typical for treaties of its time.

The BIT extends its protections to “[…] any corporations, companies, firms, enterprises, organisations and associations incorporated or constituted under the law in force in the territory of the that Contracting party” (N.B. – to the BIT).

Its definition of investment is open-ended and asset based – “every kind of asset and in particular, though not exclusively […] movable and immovable property […] rights conferred by law or under contract […] to undertake any commercial activity”.

The BIT also contains a territoriality requirement which can be deduced by systematic interpretation of its substantive treatment provisions (namely Articles 2, 3 and 5 of the BIT) and its preamble.

Upon initial examination JD LLP should meet the definition of investor under the BIT. The situation with the possible “investment” is more difficult in light of the location of some assets and territorial requirements of the BIT.

In our hypothetical, JD LLP will have three assets that could meet the definition of investment: firstly, the right to operate JD application and render services to its users in Russia conferred by law, secondly, portfolio of contractual rights arising under JD User agreement between the users and JD LLP, and, finally, the server infrastructure built for the Russian market.

Viewed separately, only part of those hypothetical assets can arguably pass the territoriality test necessary to qualify as an investment. However, all three assets serve same purposes – rendering of services to Russian users under JD User agreement and generation of profits. For that reason and for the purposes of qualifying the above-mentioned assets as an investment it might be useful to look at the entire set of assets holistically.

A holistic approach to the identification of assets capable of qualifying as an investment has already been used in a number of cases, inter alia, in SGS v. Philippines, Inmaris v. Ukraine and Alpha v. Ukraine cases. Those cases also were resolved on the premise of similar treaty definitions of investment as the ones found in the BIT. [FN]SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, Decision of the Tribunal on Objections to Jurisdiction, Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case No. ARB/08/8[/FN]

In SGS v. Philippines, the Tribunal came to a conclusion that as SGS undertook costs to set up business structure aimed at provision of services to Philippines on the territory of Philippines in several jurisdictions. In Alpha, capital contributions necessary for renovation of a hotel in Kyiv were made outside of Ukraine, while the economic effect of those contributions has occurred in Kyiv and resulted in renovation works in the building of the above-mentioned hotel. Similarly, in Inmaris, payments resulting in augmentation of property on the Ukrainian territory were made outside of Ukraine. The tribunals in all cases found that there was an investment and it met the territorial requirements of the BIT even though considerable parts of the investment were carried outside of the host-state. In all of the cases tribunals have focused on the question of where the economic effect of the investment activity takes place.

Upon initial analysis, this economically essential part of performance of JD LLP’s obligations takes place when Russian users of JD generate profit for JD LLP by using the application. Therefore, provided the analogy with the above-mentioned case law is sustainable, it can be argued that the economic effect of the investment takes place in Russia, so entire scope of assets can possibly be attributed to one asset of JD qualifying as an investment – for example contractual rights arising under JD User agreement between the users and JD LLP.

Of course, the holistic approach cannot be used to circumvent the definition of investment – in all above-mentioned cases the tribunals identified the assets that were capable of meeting the treaty definition of investment as well as their close economic link to the territory of the host state. Arguably, the main purpose of the holistic approach is to produce a plausible explanation as to why territorial requirements of a treaty are met by some assets of the investor if such assets were created outside of territory of the host-state for the purposes of the investment.

Despite all that, the real life situations might be more complicated and contain much less omissions than the hypothetical proposed above. It, therefore, remains to be seen whether any IT company finding itself in a difficult situation would want to bring a treaty claim against Russia, Ukraine, or else. It is, however, clear that the era of internet technologies and social platforms can potentially bring new challenges to old definitions of investment contained in the international investment treaties.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post New Challenges to the Territorial Requirements of Investment Treaties: Can Social Platforms Be Protected? appeared first on Kluwer Arbitration Blog.

The Eve of the New York Convention’s 60th Anniversary and the Birthday Party: How to Prepare with too Many Guests at the Table. “Il ne faut pas melangér les tables”  

Thu, 2018-06-21 04:51

Marike R. P. Paulsson

What Is the Future of the New York Convention as a Primary Means for Enforcement of Arbitral Awards Across the Globe? Is There Any Future at All?1)UNCITRAL will be having several celebrations in June. At these occasions, thought leaders will reflect on the last 60 years and give their prognoses on the next 60 years. However, the views are on extreme sides of the spectrum with some proposing for complete overhaul whilst others abide by the adagio: if it ain’t broken, don’t fix it. jQuery("#footnote_plugin_tooltip_2105_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2105_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The year 2018 has featured many conferences and publications celebrating the 60th year that the New York Convention has been in existence, and with that, the question has been posed, as it had ten years ago at the occasion of its 50th anniversary at the ICCA Congress in Dublin: Does the treaty need replacement? The answers have been multiform since:

  1. One extreme answer on the spectrum: The New York Convention has been showing its cracks and needs replacement due to 60 years of divergent interpretation in the different 159 Contracting States.2) The replacement of the New York Convention has been proposed by Albert Jan van den Berg and has been dubbed the Miami Draft. The Draft has been discussed by the author in an earlier post. jQuery("#footnote_plugin_tooltip_2105_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2105_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
  2. The other side of the spectrum suggests: The New York Convention has been hailed around the world by thought leaders as the most successful instance of international law in the history of international commerce. It has even been proposed to be given the Nobel Prize, or at least its father – Piet Sanders and, in the alternative the organization that has been monitoring its existence, the International Council for Commercial Arbitration.
  3. A more moderate, yet realistic point of view: The New York Convention works, but it requires various instruments of soft law in order to assist judges in applying its text in the domestic realm.
  4. A more moderate, yet acceding view: The New York Convention will continue to promote international arbitration whilst being monitored by UNCITRAL.

Being on extreme sides of the spectrum at roundtable discussions with thought leaders has brought me to the use of the phrase – “Il ne faut pas mélanger les tables”.3)A French expression often used at wedding table seating advising the naïve bride to be not to mix the tables but to seat like-minded people with like-minded people. jQuery("#footnote_plugin_tooltip_2105_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2105_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Some tables do not need controversy leading to great conversations. Sometimes, a common path must be found for stakeholders to reach consensus about a treaty that has enabled the flourishing of international arbitration and international trade.

Perhaps the New York Convention ought to be a living breathing document like the US Constitution. Perhaps the original purpose or intent of the drafters was not for the treaty to be applied in a uniform manner in every single Contracting States for decades to come. Perhaps the New York Convention does not need replacement, yet it needs some hip or knee replacements such as the Global Restatement, or official recommendations issued by UNCITRAL or a policy guide for both executive and legislator by ICCA. Or perhaps the application of the New York Convention over the last 60 years has taught us that something far more radical is required than a replacement. Given the outcomes of the application of setting aside regimes in the countries where the award was rendered, perhaps the time has come again to pose the question as to whether setting aside regimes should be abolished.4)For the idea of revisiting the New York Convention and domestic setting aside regimes, please see here. jQuery("#footnote_plugin_tooltip_2105_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2105_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

To these possible outcomes, I would add the following three pivotal developments that ought to be taken into account when finding a common path:

  1. First, the idea that international arbitration will continue to be the preferred method of dispute settlement in international trade is under revision both in the realm of international commercial arbitration and international investment arbitration. It is subjected to harsh criticism both from the arbitration community and from users, often citing costs and duration as a potential downfall.
  2. Second, the New York Convention is being currently presented with a mandate that was not even remotely considered 60 years ago: to be the enforcement mechanism for ‘awards’ rendered by a permanent court envisioned by the European Union.
  3. Third, perhaps Pieter Sanders was the first to think of mediation as one of the important topics in the future of dispute resolution back in 2010. But since then, the proponents of mediation have taken center stage and are making progress; thus, leading us back to the – perhaps original – idea of alternative dispute resolution. This idea was that first parties ought to attempt to settle any disputes through direct negotiation. If those attempts fail, parties can resort to what one could coin as third-party assisted settlement, which could be conciliation, mediation or commercial diplomacy (the latter I would coin as Dispute Resolution Diplomacy “DRD”). With that, the New York Convention loses its relevance: it is no longer just the successor of the Geneva Conventions. On the basis of Article VII(2), perhaps the New York Convention was less favorable than the European Convention of 1961, but otherwise, it continued to be celebrated at important milestones. Now, a new convention is underway: the United Nations Convention on International Settlement Agreements [resulting from mediation]. Is this to be the twin sister of the New York Convention?

Admittedly, 60 years with the commitment of 159 States gives a lot to celebrate. Yet, it is time for reflection about (partial?) replacements, additional reading glasses, crutches to enable the treaty to last another 60 years. Alternatively, the treaty could gradually phase out with the rise of third-party assisted settlement as the new way forward for dispute settlement in international trade (with the use of a probable Mediation Convention). Even if mediation will only supplement the ‘stick’ – international arbitration – the question remains what the role of the New York Convention will be when the idea of international arbitration will change fundamentally. If the EU is to move forward with its permanent court, the New York Convention will most likely not be the treaty under which those awards can be enforced.5) The community seems to be confident that the Convention can serve as the enforcement mechanism for any awards coming out of this court. I disagree. The awards of the court will most likely not fall under the scope of Article I(2) of the New York Convention as the travaux preparatoires demonstrate. jQuery("#footnote_plugin_tooltip_2105_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2105_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); George Bermann states that “what emerges from the court will not be arbitration awards and thus the future – should the proposed EU investment court come into existence – could spell an end for the role of the New York Convention in European investor-state cases”.

Of course, most awards to be enforced under the New York Convention are commercial arbitration awards, for instance, those rendered under the auspices of the ICC. Even so, recent case law demonstrates judicial freestyling with some faint memory of the New York Convention. It is not all doom and gloom: institutions have embarked upon admirable journeys to shepherd judges across borders through the fog that has enveloped the text of the New York Convention. The International Council for Commercial Arbitration was created by Piet Sanders and his peers at the occasion of the conclusion of the European Convention of 1961. Piet Sanders then created the ICCA Yearbook with the purpose of monitoring the application of the New York Convention. That Yearbook has published over 2500 decisions to date. ICCA proceeded to write and distribute the ICCA Guide for the judicial interpretation of the New York Convention in 2011, a guide translated in 20 languages and distributed worldwide for free. In 2012, it embarked upon NYC Roadshows, which has led to certain States signing on to the New York Convention. The work has been done. The work continues to be done by UNCITRAL and ICCA. The work remains to be done. Powerful soft law must be developed; a dialogue must continue to take place with judiciary, legislators and executive and with all stakeholders in the community of international arbitration but also and especially with the actors in international trade.

Proposals? The community should continue to reflect on the Miami Draft, as a suggested replacement for the New York Convention, for the simple reason that it leads to ideas that could be effectively implemented: a Harvard Draft, a Global Restatement, a Supplementary Commentary, the possibilities are countless when mapping the future.

I would compare the Miami Draft metaphorically to the impossible dream of the Man of La Mancha.6) As referenced by Fali Nariman in his speech in 2013 in Delhi on sovereignty. jQuery("#footnote_plugin_tooltip_2105_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2105_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); From the time of Yukos v. Russia to Pemex, notions of sovereignty have collided like billiard balls and gone in opposite directions and given the current nationalist waves, it will get worse. I would symbolically compare modern day enforcement as a never-ending Russian Doll of proceedings before numerous forums – all at the cost of predictability. However, the proposals are there and provide ways forward so one can end this note in times of geopolitical turmoil and the PR crisis of international arbitration with the one thing we do well to remember: international law has perhaps not achieved much, but it is good that it is there.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

 

References   [ + ]

1. ↑ UNCITRAL will be having several celebrations in June. At these occasions, thought leaders will reflect on the last 60 years and give their prognoses on the next 60 years. However, the views are on extreme sides of the spectrum with some proposing for complete overhaul whilst others abide by the adagio: if it ain’t broken, don’t fix it. 2. ↑ The replacement of the New York Convention has been proposed by Albert Jan van den Berg and has been dubbed the Miami Draft. The Draft has been discussed by the author in an earlier post. 3. ↑ A French expression often used at wedding table seating advising the naïve bride to be not to mix the tables but to seat like-minded people with like-minded people. 4. ↑ For the idea of revisiting the New York Convention and domestic setting aside regimes, please see here. 5. ↑ The community seems to be confident that the Convention can serve as the enforcement mechanism for any awards coming out of this court. I disagree. The awards of the court will most likely not fall under the scope of Article I(2) of the New York Convention as the travaux preparatoires demonstrate. 6. ↑ As referenced by Fali Nariman in his speech in 2013 in Delhi on sovereignty. 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
by Andrea Menaker
€ 240


The post The Eve of the New York Convention’s 60th Anniversary and the Birthday Party: How to Prepare with too Many Guests at the Table. “Il ne faut pas melangér les tables”   appeared first on Kluwer Arbitration Blog.

The Future of Arbitration: 5, 10, 25 Years and Beyond

Wed, 2018-06-20 03:30

Michael McIlwrath

At the recent Finnish Arbitration Institute’s Arbitration Day in Helsinki, I spoke on the topic of the future of arbitration from the user’s perspective.

While I am not a futurist by any stretch, I do have something to say as a user, since I have been an in-house counsel in a global company for the past 20 years. Also, in 2016-17, I had the honor of chairing the Global Pound Conference (GPC), an event held in 29 cities around the world where we asked over 2,000 stakeholders the same 20 questions to help shape the future of commercial dispute resolution.

A consistent finding from these events was that users are the ones most likely to bring about change.1) Interestingly, this was not the same finding of the recent Queen Mary/White & Case International Arbitration survey, which found that 80% of respondents believe that “arbitral institutions” are best placed to make an impact on the future evolution of international arbitration. But in her own remarks at the event, Heidi Merikalla-Teir, the Secretary General of the Finnish Arbitration Institute, clarified why this data is not inconsistent. She pointed out that arbitral institution themselves look to what the market wants, which means offering services that users will need. jQuery("#footnote_plugin_tooltip_9752_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9752_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Therefore, in trying to predict the future of arbitration, I will focus on the effect of pressures that users will bring to bear in the coming years.

About predicting the future

I feel relatively confident that my short-term predictions in this post are likely to come to fruition. Although they may arrive a bit sooner or later than I predict, they are all grounded in trends or dynamics that are already shaping dispute resolution practices.

The longer-term, of course, will be less constrained by current practices and expectations. This allows bigger swings about how dispute resolution may radically depart from customs we currently know and trust, and how it might adapt to society as it will come to exist.

One thing about the future, however, does not require a time machine to be certain it will occur: the users who will most shape the future will not be me or my contemporaries. We are already being displaced by a younger generation that, unlike us, trained in international arbitration at university, is quicker to adopt new technologies, and is highly networked. They also include a vocal contingent of “super-users,” the third party funders.

The next 5-10 years

The most significant development in the next five years will be the emerging divide between procedures for resolving low value/low complexity disputes on one end, and high value/complexity on the other.

While discussion about efficiency in arbitration typically focuses on larger-sized disputes (where the largest costs are incurred), institutions will continue to introduce tools to make it cost-effective to resolve disputes on the lower end. They will do this to retain market share, realizing there are many more small cases than large ones, and therefore more opportunities to attract and retain users.

To do this, institutions will market new forms of automation, especially versions of Online Dispute Resolution (ODR). At least initially, users will adopt these tools not because they appear better than non-automated procedures, but because they offer a method of resolution where no viable alternative is available.

In rules revisions, institutions will sacrifice some degree of party autonomy in favor of more efficiency, and users will ultimately embrace this. An example of this today are the recent SIAC and ICC rule changes imposing a sole arbitrator in smaller-sized cases, even where the parties had agreed to three arbitrators in their contract, or the proposed “Prague Rules” that impose a more restrictive “civil law” flavor on international proceedings.

Mediation will continue its steady growth, especially as an escalation step in medium and large disputes, or in cases that were once sent to investment arbitration. There will still be fewer mediations than arbitrations, but leading institutions will offer both to keep users from moving to other providers.

Institutions will seize upon the lack of accessible information about arbitrators—a common user complaint—and transform it to opportunity. As the 2018 Queen Mary/White & Case survey highlighted, 43% of in-house counsel respondents stated they have insufficient information to make an informed choice about the appointment of arbitrators. If nearly half the market wants more information, why are institutions not providing it? Because they are run mainly by arbitrators, not users.

This tension will not last. Within the next five years, the transparency trend will gather speed. Institutions will offer competing avenues to provide users with information about arbitrators (in particular case their management skills) and awards rendered under their rules.

Institutions will also explore new forms of cooperation, especially in the sharing of administrative resources and technology. Some of this will be driven by the need for expensive compliance with regulatory frameworks, like Europe’s new privacy regulation, or ensuring cybersecurity, or adopting modern electronic case management systems. This pooling of back-offices will be a boon to regional institutions, allowing them to punch above their weight with limited resources.

Finally, before the decade is over, Kluwer will publish the 5th edition of Gary Born’s treatise on international commercial arbitration. The treatise will grow from three to five volumes in order to accommodate published arbitration awards that will begin to lay the foundation of an emergent international commercial arbitration jurisprudence.

After 10 years of change

As users become more experienced with technology tools to resolve their lower value disputes, demand for them will creep into higher value and more complex cases.

Leading institutions will begin to market resolution methods that draw on data analytics and tools of predictive justice that purport to help users assess likely outcomes and resolve their disputes earlier. The ability to better predict outcomes will bolster amicable methods of resolution, especially mediation.

Users will begin to appoint arbitrators based on their ability to automate by incorporating machine learning into the tasks of sorting facts and developing their legal analysis of the case. The IBA’s arbitration committee will recommend full disclosure of the types of AI-assistance, algorithms, or other technologies arbitrators use in aid of the management of proceedings or the drafting of awards.

At the same time, the market will see an emerging “professionalization” of the role of international arbitrator, akin to that imposed on lawyers, doctors, and even mediators (who are already licensed/certified in many countries). Initially there will be regional, state-sponsored certification regimes for court-referred disputes and other domestic cases. Partly in response to these inconsistent approaches creeping into international cases, global certification schemes, codes of conduct, and accompanying enforcement regimes for international arbitration will come into existence.

Gender diversity in the appointment of international arbitrators will be close to parity in both regional and global institutions. Diversity will still be a concern, however, as there will still be a broad gap in the geographic and ethnic backgrounds of those being appointed.

Building on their successes in sharing back-office resources, regional institutions will extend their collaboration to attract more users. The international arbitration market will be split between large multinationals and the “super regionals.”

But the biggest competition facing arbitration in 10 years will be from the courts. And not the ambitious international courts that are already underway in Singapore or planned in Germany and France, but rather domestic courts.

Many users insist on including an arbitration clause in their contracts not because of the enforcement advantages or flexibility or confidentiality it provides, but simply the lack of an acceptable court alternative. Yet the commercial courts of many countries are already undergoing sweeping reforms and multi-year modernization efforts. This will continue, making it difficult for a contracting party to object to the courts of a buyer’s home country because they are not fair, competent, or efficient.

In the late 2020’s, Kluwer will publish the seventh and last version of Gary Born’s treatise to appear in printed form. It will return to its original two volumes, but buyers will have access to an on-line database of annotated arbitration awards and court decisions equivalent to a much larger, multi-volume set.

25 years and beyond

The changes to occur in the next two decades will establish new norms and expectations for users. In the eyes of future users, the lines between human decision-maker and automated processes will become increasingly blurred. Users will still want a human to be held responsible for the quality of a decision, but they will look mainly to institutions to fulfill this role.

Above all, users will expect technology to quickly crunch the data of the issues in dispute and provide accurate, predictable awards.

As we get closer to the singularity, the point where human and machine intelligence intersects, users will be able to select arbitrator programs that may that offer different approaches or that may even be modeled on human decision-makers. In this future, the Finnish Arbitration Institute could be called to address party disagreements over whether the dispute calls for a “John Beechey” or a “Carita Wallgren-Lindholm” flavor of arbitrator.

And, finally, Born on Arbitration, currently scheduled by Kluwer for release on June 20, 2043, will be an interactive artificial intelligence. The voice of Gary Born will answer user queries about any type of arbitration by drawing on the author’s collected writings and all arbitrations conducted to date.

The future or not?

Or, possibly, little will change.

Perhaps in the year 2043 we will still be gathering information about arbitrators exclusively via word of mouth, complaining that the procedure is too expensive for many disputes, struggling to agree dates for hearings 12 to 24 months after the first procedural conference, and arguing over whether a respondent in Europe should receive additional weeks to reply on a submission that falls due during the summer holidays.

Check back in 25 years and let me know.

 

References   [ + ]

1. ↑ Interestingly, this was not the same finding of the recent Queen Mary/White & Case International Arbitration survey, which found that 80% of respondents believe that “arbitral institutions” are best placed to make an impact on the future evolution of international arbitration. But in her own remarks at the event, Heidi Merikalla-Teir, the Secretary General of the Finnish Arbitration Institute, clarified why this data is not inconsistent. She pointed out that arbitral institution themselves look to what the market wants, which means offering services that users will need. 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
by Andrea Menaker
€ 240


The post The Future of Arbitration: 5, 10, 25 Years and Beyond appeared first on Kluwer Arbitration Blog.

Shaping the Future of International Arbitration: A Report from Helsinki International Arbitration Day 2018

Wed, 2018-06-20 00:41

Heidi Heidi Merikalla-Teir

Finland Arbitration Institute (FAI)

Helsinki International Arbitration Day (HIAD) is an arbitration conference organised by the Arbitration Institute of the Finland Chamber of Commerce (FAI). Since its inception in 2012, HIAD is held every year in the city of Helsinki bringing together legal practitioners from Finland and abroad to hear from top experts about the latest developments in international arbitration and mediation. Already in its seventh edition, this year’s event, held on 24 May 2018, was attended by some 200 delegates from 16 countries.

Welcome remarks

Petra Kiurunen (FAI Board Chair) and Heidi Merikalla-Teir (FAI Secretary General) opened the event with an outline of the conference topics—public-private arbitration, transparency, technology, sports arbitration and the users’ perspective—examined during the conference from non-conventional angles to shed new insights into the shaping of international commercial arbitration.

Petra Kiurunen asked whether there is anything new under the sun if we think about hot topics in international arbitration. She noted that even though international arbitration can perhaps be said to have matured, to have certain best practices that are followed to a large extent regardless of the seat, there is at the same time an increasing trend that we see in almost all aspects of life: nothing survives in a bubble. Instead, influences come, and need to be considered from various directions.

Heidi Merikalla-Teir referred to the results of the 2018 Queen Mary/White & Case survey, where a great majority of the respondents identified arbitral institutions as best placed to influence the evolution of international arbitration. However, she said, it is the users—in-house counsel and business people in different sectors—who should be listened to and allowed to take the driver’s seat in the shaping of the future of international arbitration.

Keynote address

Catherine A. Rogers (Penn State Law, USA / Queen Mary University of London, UK), delivered the conference’s keynote address. Rogers said that, in international arbitration, the starting point of the shaping process—the one that the shapers of the future of international arbitration must preserve and deal with—is a truly exceptional mechanism that like the “fly of the bumblebee” is unique and counter-intuitive. Despite lacking the conventional features of traditional adjudication, international arbitration works better than national courts to resolve international disputes and is being increasingly asked to do so—by some estimates, over 10,000 disputes are resolved annually through international arbitration worldwide, Rogers said. This is the result of international arbitration’s evolutionary advances—an evolution that requires an active intervention from all custodians of the continuous success of international arbitration in the face of new challenges, Rogers concluded.

Panel: “Public-Private Arbitration – How to Strike the Right Balance Between Public Interests and Private Proceedings?”

A panel of four speakers—Stavros Brekoulakis (Queen Mary University of London, UK), Robert Lambert (Clifford Chance, UK), Eva Storskrubb (Roschier, Sweden), and Galina Zukova (Bélot Malan & Associés, France)—moderated by Patrizia Netal (KNOETZL, Austria), discussed about public-private arbitration in their respective jurisdictions.

Brekoulakis explained the rise of public-private arbitrations involving states or state entities in the last decade as a result of two concurrent developments: 1) the collapse of the doctrine of non-arbitrability of disputes involving public interest or public policy, and 2) ideological and economic forces that combined to massive privatisation programmes in the 80’s and 90’s. Nowadays, many of the standard contractual forms that are used for concessions and infrastructure projects contain arbitration as a default provision. A further rise in public-private arbitrations is foreseen for the future, e.g., in connection with the “One Belt, One Road” initiative.

Zukova added that, in some jurisdictions, it is also important to consider disputes with a public interest component involving private parties, e.g., in France, in road construction concessions involving a contractor and subcontractor.

Storskrubb addressed the concepts of public policy and public interest. From a Nordic perspective, she said, public policy or ‘ordre public’ is an outer boundary of arbitration. In Finland and Sweden, ‘what is manifestly in breach of the fundamental principles of the legal order’ is quite a high threshold, which is why it is quite rare to refuse the recognition of an arbitral award on this basis. Public interest, for its part, is a broader concept.

The panellists further discussed about how to capture the public interest in the contract or with some laws that go beyond the contract, such as mandatory laws or rules. Lambert told the audience about the “e-Borders case”, which served to illustrate these issues, generating an interesting debate on how to better align these contracts with the public interest.

Interview: “Can Some Characteristics of Sports Arbitration be Adopted to International Commercial Arbitration?”

Interviewed by Markus Manninen (Hannes Snellman Attorneys Ltd, Finland), Professor Richard McLaren (University of Western Ontario, Canada) addressed the main features of sports arbitration, some of which could or should be used in commercial arbitration.

McLaren mentioned that commercial arbitration gave birth to sports arbitration and addressed some of its features, many of which can be found in in commercial arbitration as well, like the role of arbitral institutions, the composition of arbitral tribunals, the appointment of arbitrators, the use of (tactical) challenges in arbitrations. However, he also mentioned that, in sports arbitrations, there was a greater transparency due to the nature of sports disputes (frequently parties want their names concealed), control of costs and general speediness.

On speediness, McLaren explained that sports arbitrations are generally speedy, which is made possible by the quality of parties’ counsel: experienced, specialised and cooperative, and by procedural features: usually one round of briefs, short time frames with limited or no room for extensions—the latter because of the ripple effects of some decisions, and cases done on the papers without a hearing.

Speech: “Users’ Perspective on the Future of International Arbitration”

Michael Mcllwrath (GE Oil & Gas, Italy) quoted Yogi Berra’s ‘Future ain’t what it used to be’ to refer to arbitration’s golden age in the ever-evolving arbitration scene.

McIlwrath emphasised that it has become clear, e.g., at the Global Pound Conference, that it is the users of arbitration who will most likely drive change in arbitration. He proposed to look at the drivers of the market over the next years, i.a., the current generation of young arbitration practitioners and third-party funders; the latter ones, according to McIlwrath, will be the super users of arbitration in the future.

Further, McIlwrath made some interesting predictions for the next 5, 10 and 20-25 years and encouraged everyone to enjoy the golden age of arbitration while it is possible.

Panel discussion: “How to Embrace the Disruption in International Arbitration?

The last panel session—moderated by Riikka Koulu (University of Helsinki, Finland) and including speakers Michael Lind (Tyler Technologies, Inc., UK), Clemens Heusch (Nokia, Germany), Catherine A. Rogers (Penn State Law, USA, and Queen Mary University of London, UK), and Meera Sivanathan (Dottir Attorneys, Finland)—focused on disruptive digital technologies and overall trends that might become influential and how the arbitration community should react to them.

Koulu presented the Legal Tech Lab, a research hub at the University of Helsinki’s Faculty of Law focusing on digitalisation of the legal practice. According to their research, there is a discrepancy between the hype around technology and lawyers’ everyday use of only basic tools, such as Google, Word and e-mail.

Lind spoke about online dispute resolution (ODR), originally applied to small cases and progressively used in more complex cases. Technology allows, e.g., the scheduling of arbitrators/adjudicators to these cases, which are conducted efficiently through a platform.

Sivanathan presented the FAI Arbitration Process flowchart—a legal design project carried out in close cooperation between the FAI, law firm Dottir and design agency Hellon. The flowchart aims to provide arbitration users with a one-stop tool to quickly understand the whole arbitration process.

Rogers gave a presentation on “Arbitrator Intelligence (AI)”, a project aiming to promote transparency, fairness and accountability in the selection of international arbitrators by increasing and equalizing access to critical information on arbitrators and their decision making. The collection of information on arbitrator case management and decision-making is conducted through the feedback questionnaire “Arbitrator Intelligence Questionnaire” (AIQ), which is open for all parties, counsel, and third-party funders to fill in after the conclusion of an arbitration in which they are involved.

Heusch commented on the use of new technologies in arbitration and shared his views on their benefits and impacts from the point of view of the different stakeholders.

Closing remarks

Petra Kiurunen thanked the key note speaker, the moderators, the speakers, and the HIAD Partners, and invited all participants to the next year’s conference to be held in Helsinki on 23 May 2019 under the umbrella of the International Federation of Commercial Arbitration Institutions (IFCAI): the 15th IFCAI Biennial Conference.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post Shaping the Future of International Arbitration: A Report from Helsinki International Arbitration Day 2018 appeared first on Kluwer Arbitration Blog.

Relationship between the Arbitrators and their Law Firm: A case for Dynamic Application of the IBA Guidelines on Conflicts of Interest

Mon, 2018-06-18 19:10

Sharanya Shivaraman

Independence and impartiality of an arbitrator form the bedrock of effective and fair legal proceeding. However, there are many requisites to an impartial tribunal such as fair and timely disclosures of potential conflicts by parties and the arbitrators. In this article, I shall explore the critical impact of the professional relationships of an arbitrator’s law firm on the perception of arbitrator’s independence.

The IBA Guidelines on Conflicts of Interest reflect on the growth of law firms and the commercial realities surrounding the practice of appointing arbitrators belonging to large law firms. In this regard, the Guidelines mandate that the arbitrator, in principle must be considered to bear the identity of his/her law firm. The Guidelines in multiple entries under waivable red list and orange list discuss the impact of engaging an arbitrator who belongs to the law firm with whom a party to the case has an established connection.

This is because the arbitrator has a substantial interest in his law firm’s sustenance and well-being and is expected to appreciate the professional relationships of his law firm as an active agent of the firm. However, this raises concerns on the presumptive approach under the Guidelines in stark contrast to the analytical approach under most of the domestic arbitration rules and even UNCITRAL, ICC etc.

Application of IBA Guidelines

In the case of Vivendi, the arbitrator was challenged on account of a connection between his law firm and a party. The challenge was dismissed on the ground that the connection was of minor value and wholly discrete. However, applying the IBA Guidelines, it was envisaged that an arbitrator’s law firm’s professional relationship with any party to the case may seriously impair his/her independence in the proceedings. It is further observed that where the arbitrator holds a key position in the law firm, there is a legal presumption on singularity of interest between arbitrator and his law firm so far as his independence in any arbitration is concerned (KPMG AB v PROFILGRUPPEN AB (Svea Court of Appeal), (Case no. T 1085-11)).

A different position emerged in the case of W v. M. Ltd. The point of contention was whether in treating the arbitrator and his or her firm as well ‘‘compendiously’’ without reference to the question of whether the particular facts could realistically have any effect on the impartiality or independence of the arbitrator is consistent with the need to evaluate cases of impartiality from an objective standpoint. The Judge even went on to state that where the facts fit the situation detailed under the IBA Guidelines, it ‘‘causes a party to be led to focus more on assumptions derived from the fact, and to focus less on a case-specific judgment.”

Dynamic interpretation of the IBA Guidelines

The IBA Guidelines are not legal provisions and are not meant to override any applicable national law or arbitral rules chosen by the parties. The Working Group while framing these guidelines trusted that they will be applied with robust common sense and without pedantic and unduly formalistic interpretation. While detailing the scope for a factual approach to conflicts of interest, the Guidelines state that “the relevance of the activities of the arbitrator’s firm, such as the nature, timing and scope of the work by the law firm, and the relationship of the arbitrator with the law firm, should be considered in each case.

The case-specific analysis as the W v. M Ltd. case requires, might hinder the larger goal that the IBA Guidelines set out to achieve. An analytical approach will defeat the purpose of the Guidelines to achieve uniformity and consistency. However, blanket acceptance of these Guidelines will dissuade appointment of any arbitrator who has any semblance of a commercial relationship with appointing party merely to escape the narrow conduit under the Guidelines.

Independence and impartiality of arbitrator are shaped by the ‘legal traditions and culture’ along with the specific nuances of each case (Jung Science Information Technology Co. Ltd. v. ZTE Corp.). In the light of such clear observations, it might be premature to accord significant value to the relationships of the law firm of arbitrator while assessing the arbitrator’s impartiality as the identity of an arbitrator with law firm has to be preceded by a legal analysis of the likelihood of justifiable doubt and cannot be naturally presumed.

Though tribunals have repeatedly stated that these Guidelines carry indicative value only, it must be ensured that the IBA Guidelines must not take the position of customary international arbitration law (Will Sheng Wilson Koh, p. 720). In conclusion, it would suffice to say that any assessment of an arbitrator’s propriety will have to take cognisance of the dynamic and commercially oriented law firm-client relationship without restricting the application of law to any pre-conception or pigeon holes.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post Relationship between the Arbitrators and their Law Firm: A case for Dynamic Application of the IBA Guidelines on Conflicts of Interest appeared first on Kluwer Arbitration Blog.

Recent Issue b-Arbitra

Sun, 2018-06-17 17:51

Gloria Alvarez (Associate Editor)

We are pleased to present to you this second issue of b-Arbitra 2017, which is also the second issue of our new cooperation with Wolters Kluwer. As announced, our journal is now also accessible in digital form on Jura in Belgium and in the Kluwer Law Arbitration database.

In this issue you will find an in depth analysis by Olivier Caprasse and Maxime Malherbe of the Belgian Constitutional Court decision of 16 February 2017. This decision addresses the important issue of the effects of judicial and arbitral decisions and of their consequences on the recourse that is available to third parties against an award. A distinction is made between the current inability of a third party to resist enforcement of an award and the limited possibility recognized by the Cour de Cassation for a third party to request the annulment of an award, in case of fraud. The decision of the Constitutional Court is published in the Case law section of this issue.

We then publish two contributions dealing with third party funding mechanisms. These contributions complement, as announced in our previous issue, the articles and documents already published in that issue on this topic, following a CEPANI colloquium on Third Party Funding that took place on 9 March 2017. The first contribution is an article by Dirk Van Gerven and Arie Van Hoe published in the Doctrine section about the ethical and deontological issues related to third party funding. The authors first discuss the views as to the ethical or unethical character of third party funding as such. Then they comment on the various aspects and manifestations of the ethical issues, from the perspective of both the lawyer and the arbitrator. They end with a question : how will arbitration institutions deal in the future with third party funding in their rules? You will find a second contribution on third party funding in our Documents section, written by Christopher P. Bogart, co-founder and chief executive officer of Burford Capital LLC, a major actor in litigation and arbitration finance, publicly traded on the London Stock Exchange. His contribution offers the finance industry’s point of view, as a primer of sorts, on the advantages that arbitration finance in general and third party funding in particular bring to both corporate clients and their lawyers. It also addresses two areas of concern that are frequently raised in regard to financing international arbitration : disclosure and security for costs.

In our Case law section, we publish a decision of the Brussels Court of First Instance, with a note by Stephanie Davidson. That decision deals with particular procedural aspects of a third party’s objection to enforcement of an arbitral award. The first aspect is the time limit applicable to a third party for filing its objection to enforcement of an award, in combination with a simultaneous application to set aside the award. In a second aspect, the court confirms the position of the Cour de Cassation as to the right of the third party to seek the annulment of an award that was obtained by fraud.

We also publish two decisions of the Brussels Court of First Instance rendered in the Yukos saga. In a first decision of 9 December 2016, the court has declared inadmissible the third party application (“tierce opposition/derdenverzet”) filed by the Russian Federation seeking to withdraw its decision of 24 June 2015 that had granted the exequatur of two arbitral awards against the Russian Federation. By another decision of 8 June 2017, the judge of attachments (“juge des saisies/beslagrechter”) lifted the seizures that had been obtained by Yukos on a number of assets in Belgium of the Russian Federation and of related entities. Both decisions raise interesting issues of international private law and of procedural law regarding the interaction between the enforcement and the annulment of awards, as well as the related seizures. A doctrinal comment on those decisions will be published in a next issue of our journal.

In the Documents section, after the contribution of Christopher Bogart, you will find the first Dutch translation of the rules of CIETAC (the China International Economic and Trade Arbitration Commission), made and commented upon by Jacques Herbots. International arbitration is today a hot topic in China and a priority of Chinese diplomacy under the presidency of Xi Jinping. No fewer than 387 international cases were dealt with under the auspices of CIETAC in 2016. This journal has previously published in 2014 a contribution by the same author on the characteristics of arbitration in China.1)Herbots J.H., “Les caractéristiques propres au droit de l’arbitrage de la République populaire de Chine », b-Arbitra, 2014/2, pp. 379-420. jQuery("#footnote_plugin_tooltip_6630_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6630_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Herman Verbist then delivers a comprehensive presentation of the new ADR Rules of CEPANI that have just been revised, 5 years after the 2013 revision of its Arbitration Rules.

Finally, this issue contains a book review of the interesting and challenging reflections of Rémy Gerbay in his book on the Functions of Arbitral Institutions, as well as a brief presentation of the remarkable 1958 New York Convention Guide and Website launched in 2017 as a collaboration between UNCITRAL, Shearman & Sterling and the Columbia Law School.

We wish you excellent and stimulating reading and we always welcome further views, exchanges and suggestions from our readers.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

References   [ + ]

1. ↑ Herbots J.H., “Les caractéristiques propres au droit de l’arbitrage de la République populaire de Chine », b-Arbitra, 2014/2, pp. 379-420. 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
by Andrea Menaker
€ 240


The post Recent Issue b-Arbitra appeared first on Kluwer Arbitration Blog.

A New Arbitral Institution for the Art World: The Court of Arbitration for Art

Sun, 2018-06-17 02:48

Jane Parsons and Claire Morel de Westgaver

Bryan Cave Leighton Paisner LLP

A new court dedicated to resolving art-related disputes was launched earlier this month in The Hague. The Court of Arbitration for Art (“CAA”) was founded by the Netherlands Arbitration Institute (“NAI”) in collaboration with Authentication in Art (“AiA”), a not-for-profit foundation that promotes best practice in art, particularly in art authentication.

The CAA will administer arbitrations conducted by arbitrators with significant disputes, art and art law expertise and under arbitration rules (“AiA/NAI Court of Arbitration for Art Adjunct Arbitration Rules” (the “Adjunct Arbitration Rules”)) that have been designed to accommodate common issues in art-related disputes, such as provenance issues.

 

Submission to CAA arbitration

Parties can agree to submit a dispute to arbitration administered by the CAA and/or under the Adjunct Arbitration Rules in a contractual arbitration clause or submission agreement. Where parties have incorporated these Rules, the NAI Arbitration Rules will apply as well, except where they are modified by the Adjunct Arbitration Rules (Point 2, Adjunct Arbitration Rules and Explanatory Note 3.2).

Historically, the art market was notorious for conducting business without any paperwork or with only an invoice or very informal agreement to document a transaction, without any dispute resolution provisions. Where that is still the case or where no contractual relationship exists at all, the CAA would only have jurisdiction if the parties agreed a submission agreement after a dispute has arisen. Increasingly, however, written contracts are put in place for art purchases, consignments, artist/gallery agreements, loan agreements and other art-related transactions. It might be that in the early years of the CAA the majority of disputes will be referred to the CAA by way of a submission agreement after a dispute has arisen, but as the CAA gains prominence it will be interesting to see if parties decide to incorporate the Adjunct Arbitration Rules into their contracts from the outset.

 

Key features of the Adjunct Arbitration Rules

Number of arbitrators

The default position is that there will be three arbitrators, unless the value of relief sought is less than €500,000 or the parties have agreed to a sole arbitrator (Point 5). This is the reverse of the position of most leading commercial arbitration rules, under which a sole arbitrator is appointed unless the circumstances of the case warrant the appointment of three arbitrators (see Article 9.1 of the SIAC Rules 2016, Article 5.8 of the LCIA Rules 2014 and Article 12.2 of the ICC Rules 2017).

 

AiA/NAI pool of arbitrators

The starting point is that arbitrators will be appointed from a “Pool” compiled by the AiA Board and the NAI composed of international lawyers with experience in litigating or advising clients in art law disputes and/or international arbitration (Point 4 and Explanatory Notes 2.1 and 5.1). If a party wants to deviate from that Pool and has compelling reasons to do so, the party must obtain the consent of the NAI administrator (in consultation with the AiA Board) after having disclosed the name of the arbitrator they want to appoint and the reasons for the deviation (Points 4 and 6 and Explanatory Note 5.1). The only example of a compelling reason the Rules provide is wanting an arbitrator with a very specific background and the absence of such an arbitrator in the Pool.

Given the default position under the Adjunct Arbitration Rules is that the parties’ choice of arbitrator is restricted to the Pool, the calibre of people in the Pool has to be good and they have to be available to progress the proceedings efficiently, in order that parties have confidence in the process. If the Pool compiled by the NAI and AiA contains high quality candidates, these provisions should add credibility to the decisions and provide comfort to parties that their dispute will be resolved by a panel with the specific legal and sectorial expertise required in art disputes, which a judge in court may not always have.


Experts in forensic science and provenance

The only admissible expert evidence on forensic science and provenance issues will be from an expert or experts appointed by the tribunal (and not by the parties), which overrides Article 28 of the NAI Arbitration Rules (Point 10 and Explanatory Notes 7.1 and 7.2). The tribunal must consult with the parties on the appointment of the expert and will establish the expert’s terms of reference after considering comments from the parties.

These experts may come from an “Expert Pool” of art historians, materials analysts, forensic scientists and provenance researchers compiled by the AiA Board, but relevant scholars of a particular artist may be approached on a case-by-case basis. The parties are able to appoint experts on other issues, but any such evidence must not compete with or supplement the tribunal-appointed expert’s evidence on forensic science or provenance (Point 10 and Explanatory Note 2.2).

This provision, inspired by inquisitorial systems of civil law jurisdictions under which the court is in charge of investigating the facts of the case, appears to stem from the concern that party-appointed experts may advocate for the party who appointed them, as opposed to being a neutral expert whose duty is to assist the tribunal. The Explanatory Notes to the Adjunct Arbitration Rules state that “As an alternative to having disputing parties retain their own respective experts in these particular fields [provenance and forensic science], with such experts then advocating for their side, the AiA/NAI Rules shall offer the Expert Pool to provide the exclusive analysis and testimony on these subjects”. Parties who are used to a more adversarial system may not like to seemingly cede control to the tribunal in this regard. What is clear is that this feature reinforces the significance of provenance and forensic science, given they can be prominent or decisive factors in disputes regarding ownership, authenticity and value. In practice it will be interesting to see what proportion of disputes fall into forensic science and provenance categories, thereby leaving the expert evidence solely in the hands of the tribunal in those cases. As with the Pool of arbitrators, the parties’ confidence in the process and whether decisions rendered under these Rules will command the respect of the art market will depend on the calibre and independence of the experts in the Pool.

 

Technical process advisor

If the case involves highly technical issues, for example in relation to an object’s authenticity, the tribunal may appoint a “technical process advisor” from the Expert Pool in relation to pre-hearing evidence gathering and evidence exchange processes (Point 12 and Explanatory Note 8). This advisor will only be appointed with the parties’ consent, the parties first having seen the tribunal’s proposal setting out the intended role, scope of authority and advisory mandate of the advisor. The technical process advisor will act under the tribunal’s direction but, if requested, may draft proposed procedural orders for adoption by the tribunal. The Rules underline that the tribunal retains ultimate decision-making responsibility on all matters.

These provisions appear to have taken on board the criticisms often levelled at the use of tribunal secretaries that the scope of their role can lack clarity and transparency.

 

Choice of law guidance

Another interesting feature of the Adjunct Arbitration Rules relates to the cross-border nature of art-related practices and the international bearing of certain works of art in terms of legal implications typically arising under more than one legal system. Point 13 of the Adjunct Arbitration Rules provides that “An appropriate choice of law for the arbitral tribunal may be the law of the principal location of the seller, if known at the time of the transaction, or, if no sale is involved, of the owner of the object in question at the time of the commencement of the arbitration.” Point 13 supplements Article 42.2 of the NAI Arbitration Rules which, like other commercial arbitration rules, provides that the tribunal shall apply the law it considers appropriate in the absence of party choice. Point 13 appears to be intended to enhance certainty with respect to factors relevant to the determination of the applicable law by a tribunal in the absence of a party choice. This is an issue of significance in art disputes where it is not uncommon for controversies to be resolved without the benefit of a choice of law provision. Given the lack of constraint on tribunals under Point 13, whether this provision will actually render the arbitration process more efficient remains to be seen.

 

Publication of awards

As is the case with the NAI Arbitration Rules, awards may be published by the NAI and AiA although the parties’ identities will not be revealed. One difference under the Adjunct Arbitration Rules is that they note that the name or identity of the art work in question may be revealed (Point 15). Publication of the name of the object may be desirable if a party wants vindication, for example in relation to provenance. In other cases, sometimes the fact that there has been a dispute at all about an art work may negatively affect its value in the future, so a party may want to consider objecting to publication.

 

Looking ahead

The CAA certainly offers many attractive features that have been carefully tailored for art-related disputes. If the arbitrators and experts selected are well regarded in the art market, the CAA could become a popular method for resolving disputes, particularly when coupled with the other advantages arbitration offers, such as confidentiality which remains attractive to many parties involved in art-related transactions as well as the ease of enforcement of awards in foreign jurisdictions, which is pertinent given the cross-border nature of many art disputes. As the prominence of the CAA grows, this could lead to more parties including dispute resolution clauses in their contracts to refer disputes to the CAA.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post A New Arbitral Institution for the Art World: The Court of Arbitration for Art appeared first on Kluwer Arbitration Blog.

Efficient Arbitration – Part 1: Metrics

Sat, 2018-06-16 03:04

Victoria Pernt and Marina Stanisavljevic

Schoenherr

This is the first in a series of articles by Schoenherr focusing on efficiency in arbitration. In our series, we will explore various tools which serve to improve the efficiency of any given arbitration and so achieve a favourable outcome without wasting resources.

But before exploring those tools we need to determine what efficient arbitration actually means.

Thanks to its well-known advantages, arbitration has grown exponentially over the past few decades. However, as more complex, high-value disputes emerge and become regular subjects of arbitral proceedings, the length and cost of these proceedings inevitably increase. In fact, cost is now regarded as one of, if not the, worst feature of international arbitration (IBA Compendium of Arbitration Practice 2017).

This has not only spawned a torrent of third-party funding (an initiative to de-risk dispute resolution through the involvement of a funder), but a general push for efficiency in arbitration. For the past few years, law firms have been flagging efficiency as the year’s hottest trend. Possible solutions and tools have been evaluated in surveys, protocols, institutional guides and panel discussions. The recent tightening of institutional procedures, including expedited and summary disposition, is yet another example of the impact of this quest.

But efficiency is not just about cutting costs. Some argue that efficiency can be measured against two standards: time and money. In his article Key to Efficiency in International Arbitration, Veijo Heiskanen explains that in terms of money, arbitration may be deemed efficient if its costs are significantly less than the value in dispute. Thus, the greater the difference between the amount awarded and the fees spent, the more efficient the arbitration. The same could apply in terms of time. But a shorter arbitration is not necessarily an efficient arbitration. While it may save the party money in the immediate term, it could result in a less persuasive case and an unfavourable award. In a slightly longer arbitration, on the other hand, the parties could present their case more compellingly and thoroughly, which may result in a more favourable (and economic) award.

But time and money aren’t everything. Efficiency is also about quality. In her article Efficiency in Arbitration: Whose Duty Is It?, Jennifer Kirby postulates the concept of the “Iron Triangle”, in which efficiency in arbitration is the relationship between time, money and quality. When less time and money are spent on arbitration, its quality suffers. It is only when time and money are spent (or rather, wasted) on things that do not contribute to improving the arbitration that time and money can be reduced without affecting the quality.

Therefore the key to efficiency is to identify when resources are being invested and when they are being wasted – a daunting task. A variety of tools can help to identify and avoid unnecessary expenditures throughout the proceedings. We will introduce and explore these tools in the course of our series.

After all, if the right tools are chosen, arbitration will be efficient. The parties will end up with a quality arbitration free of unnecessary costs, and still be in a position to achieve the best possible outcome.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post Efficient Arbitration – Part 1: Metrics appeared first on Kluwer Arbitration Blog.

Arbitration, Social Media and Networking Technologies: Latent Existing Conflicts

Fri, 2018-06-15 02:00

Alonso Bedoya

Introduction

Currently, social network trends are focused on consumer markets, such as the fashion or food industry. The uninterrupted use of smart phones, computers, tablets, Ipod´s, etc. with unlimited internet connection has resulted in us being mere dependent beings on these devices. Social networks are everyday forms of social interaction, defined as a dynamic exchange between people, groups and institutions of high complexity, involving groups that identify with the same needs and problems.

It is within this understanding that a novel additional variable has become relevant within the legal domain as technology pervades all ambits of our human endeavor. International arbitration has since several years ago been affected by social networks as the latter have become an important part of our day-to-day lives. Whether we access them in our workplaces or elsewhere, social networks no longer serve solely to keep us connected with friends and family but also establish very important networks of professionals in the global labour market. Social networks for this purpose must thus be understood enunciatively – and without simply being limited to: Facebook, Twitter, Tumblr, LinkedIn, YouTube, Google +, Instagram, etc.

Arbitration and Social Networks: A reason for conflict

In addressing the matter, and as an anecdote, he who writes these lines was once appointed to act as party arbitrator in an ad hoc arbitration some time ago, and as it is expected, prior to accepting the charge, did research on both parties in the dispute and on those who were to be their counsels so that the proper disclosure and declaration of independence and impartiality could be provided. After concluding that there was no connection with any of the parties or with any of their lawyers involved in the case, the disclosure was made, indicating that there existed no conflict of interests by being part of the tribunal, in accordance with the minimum standards for impartiality and independence for arbitrators that is exemplified in the new Arbitration Regulation of the Lima Chamber of Commerce in its article 14, numeral 2, which is very similar to the provisions in the English Arbitration Act or the U.S.A. Federal Arbitration Act, as follows:

“(…) 2. The arbitrator, upon accepting the designation, subscribes to a statement of availability, independence and impartiality, in which he must make known in writing to the institution any fact or circumstance that could give rise to justified doubts about his impartiality or independence … ”

Nevertheless, on the first procedural hearing day, one of the parties objected to my appointment as arbitrator, requesting  me to desist from being part of the arbitral tribunal. The party alleged that I do so because I had the brother of the other party as a LinkedIn contact; this was a fact of which I was not aware and could have, therefore, never anticipated the objection.

Conclusion 

It is undeniable that under current social media trends, contact suggestions, automated publicity and repetitive confirmation notifications are the standard once a person is online; and few are those who do not manage their professional contact networks with LinkedIn and who have probably accepted contacts before really knowing them in person. A good reason may be that the present competitive work environment prompts international arbitrators as well as highly trained individuals to establish a solid professional network that may generate business opportunities and/or work positions in the future. Hence, many have come to add contacts without necessarily coming to meet or know all the members of this network personally, and thus I found the objection to my appointment quite absurd. Consequently, having a relative of one of the parties to the process as a LinkedIn contact did not compromise any impartiality or independence; even so, one of the parties wanted to challenge one of the arbitrators and his counsels devised a viciously pernicious campaign in order to achieve it.

In principle, the synergy between arbitration and social media has been fruitful and constructive. Since the publicity of arbitration as an alternative mechanism for dispute settlement, arbitral institutions and arbitrators in general have been positively received by the majority of the domestic and international community. Nonetheless, this still-not-well-documented combination of areas does present some incompatibility, since arbitration is based on the premise that the arbitrators who form the panel have the obligation to be an independent and impartial body and must not have any bond with the parties in dispute; and yet this premise, by reference to social networking, is not always true.

Thus, arbitrators are prompted to consider that, as a consequence of technology becoming an everyday-life instrument, some of the following questions need to be addressed: What happens if the Chairman of the arbitral tribunal has as a “friend” on Facebook who is the respondent or one of his counsels in the arbitration?  A worse scenario still, what if the respondent, being a national or international celebrity, has one of the members of the arbitral panel as a follower on Instagram? As we see, the various possibilities for arbitrators to be linked to their parties or their counsels may become endlessly numerous; and even the most diligent of arbitrators may likely never be able to foresee all these facts in this ever evolving digital era.

Moreover, even though the International Bar Association (IBA) Council has created Guidelines on Conflicts of Interest in International Arbitration (hence, the famous Non-Waivable Red List, Waivable Red List, Orange List and Green List, which in brief terms try to reflect situations that in practice are usually present in arbitration), These Guidelines fall short of covering the plurality of potential scenarios that may arise as a consequence of a conflict of interest. Even more, none of the lists remotely mentions all the probable relationships that the parties and arbitrators may have with one another through social networks. Therefore, although the Red List describes critical situations in which the arbitrator has a very close relation with one of the parties or with the result of the process, and the Orange List only mentions those situations in which the arbitrator and any of the disputing parties may have a degree of closeness, I still stand pondering as to where being part of the same social network should be included.

This latent but active social media phenomenon further presents a condition in which the parties involved in an arbitration process, whether acting as claimant or respondent, may stand vulnerable to the fact that one of them (or its lawyers) may maliciously use social networks to manipulate and to challenge arbitrators principally because of fear that such arbitrator may issue an award (if it is a sole arbitrator) or vote against one of the parties’ interests. It is clear then and without doubt that these sorts of inquiry should inspire us practitioners to continue studying and researching on the evolution of new technologies and social media and its effect on our legal profession because we are currently entering a transformational digital era that will bring rise to issues requiring continuous analysis during the coming years.

 

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here. 

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post Arbitration, Social Media and Networking Technologies: Latent Existing Conflicts appeared first on Kluwer Arbitration Blog.