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The Know How to Enforcing Foreign Arbitration Awards in South Africa

Sun, 2019-02-17 02:50

Danika Balusik

Hogan Lovells

Legislative Framework

 

After much anticipation, the South African International Arbitration Act 15 of 2017 (“new Act”) was welcomed by arbitration practitioners in December 2017. The intention of the new Act has been to incorporate the UNCITRAL Model Law as the cornerstone of the international arbitration regime in South Africa. The South African Arbitration Act 42 of 1965 remains applicable to domestic arbitrations.

 

One of the most significant changes in the new Act was the incorporation of the Recognition and Enforcement of Foreign Arbitral Awards Act 40 of 1977 (the “REFAA Act”) which was promulgated to give effect to the New York Convention, that was signed by South Africa in 1976. The REFAA Act recognised that a foreign arbitral award is binding between parties and is capable of being enforced by way of application to the court, to have the award made an order of the court. To avoid duplication of legislation, the REFAA Act has been repealed in its entirety and replaced by the new Act.

 

Procedure

 

The court application to have a foreign arbitral award made an order of a court is a fairly lengthy process. A Notice of Motion and Founding Affidavit is lodged by the Applicant (the party wanting to enforce the award) at a High Court in South Africa that has jurisdiction over the matter. Jurisdiction is usually determined with reference to the principal place of business or the location of the assets of the Respondent (the party against whom the award is being enforced). In terms of section 17 of the new Act, the application is required to be accompanied by the original foreign arbitral award and the original arbitration agreement in terms of which the award was made, both authenticated for use in the High Court, together with certified copies of the award and the agreement.

 

The application is issued by the Registrar of the High Court served on the Respondent by the Sheriff of the court. The Respondent can then elect to oppose the application or not. Should the Respondent elect to oppose the application, it is required to file a Notice of Intention to Oppose within the time period set out in the Notice of Motion (between 5 to 10 days). Thereafter, the Respondent is required to file an answering affidavit on the Applicant within 15 days of serving its Notice of Intention to Oppose. The Applicant will then be afforded an opportunity to file a Replying Affidavit, within 10 days of receipt of the Respondent’s Answering Affidavit.

 

In terms of the High Court Rules, an Applicant is entitled to make an application to the court on an urgent basis, in accordance with Rule 6(12) of the Uniform Rules of Court. In this instance, the time periods are reduced and general procedure applicable to applications is shortened. However, the Applicant would be required to motivate as to why the matter is urgent, for example, that the Respondent is in the process of disposing of all its assets in South Africa. Should the court find that grounds for urgency do not exist; the matter will be enrolled on the ordinary motion court roll.

 

Advantages and Pitfalls

 

When it comes to enforcing arbitration awards, time is of utmost importance. When a matter is placed on the ordinary court roll and the application is opposed, the hearing usually takes places approximately 4-6 months after the matter is enrolled – a pitfall with enforcement in South Africa. It is no secret that a successful party to arbitration wants to have the award enforced as soon as possible so as to receive what it is entitled to, and therefore a 4-6 month delay in enforcement can cause prejudice to the successful party. If the application is not opposed, the application can be heard approximately 1-2 months after the relevant time period has lapsed for the Respondent to serve its notice of intention to oppose.

 

When a party is considering opposing the enforcement of a foreign arbitral award, section 18 of the new Act is important and sets out the various grounds on which the enforcement of a foreign arbitral award will be refused. If a court finds that a reference to arbitration where the subject matter of the dispute is not permissible under the laws of South Africa or where the award is contrary to public policy, the court will refuse to recognise or enforce the foreign arbitral award.

 

Where a party against whom the award is sought to be invoked can prove (1) a party to the arbitration agreement had no capacity to contract, (2) the arbitration agreement is invalid under the law to which the parties are subjected to, (3) that he or she did not receive notice of the appointment of the arbitrator or the arbitration proceedings or was not able to present his or her case, (4) the award deals with disputes not contemplated by or falling within the terms of reference, (5) the arbitration procedure was not in accordance with the arbitration agreement or laws of the country in which the arbitration took place, or (6) the award is not yet binding on the parties or has been set aside or suspended by a competent authority, the court may refuse to recognise or enforce a foreign arbitral award.

 

There is currently no case law dealing with section 18 of the new Act, however, as the wording of section 18 mirrors that of section 4 of the REFAA Act, the below cases remain significant when dealing with refusal of recognition and enforcement of foreign arbitral awards. South African law recognises the principle of judicial precedent. It is very likely that case law decided upon with reference to the REFAA Act will still bear precedential value when deciding case law under the new Act.

 

In the case of Seton Co v Silveroak Industries Ltd (2000 (2) A 215 (T)), the Respondent opposed an application to have an award by a French arbitral tribunal for damages in favour of the Applicant recognised by the High Court, on the grounds that the award was tainted by a fraud committed on the tribunal by the Applicant. The Respondent contended that the South African High Court should refuse the enforcement of the award by virtue of the provisions of section 4(1)(a)(ii) of the REFAA Act in that it was contrary to public policy to recognise an award obtained through fraud. The Respondent conceded that it did not have evidence on the affidavit to substantiate the allegation of fraud, but that there was someone who, if subpoenaed to give viva voce evidence, would give the necessary evidence.

 

The court held that section 4(1)(a)(ii) of the REFAA Act provided that a court would only refuse to recognise a foreign arbitral award if on the face of the award and the arbitration agreement it was clear that the agreement was contrary to public policy. To successfully claim that the award was obtained under fraudulent means (and therefore against public policy), there ought to be no extraneous evidence to persuade the court that the agreement in question was an illegal agreement. The Respondent was required to approach the French court to have the award set aside on the grounds of alleged fraud and parallel to that, make an application for a stay of the Applicant’s application to have the arbitral award enforced, pending the outcome of the Respondent’s application to have the arbitral award set aside in France. The South African High Court found no reason not to recognise the award, and therefore the Applicant’s application for recognition and enforcement succeeded.

 

In Phoenix Shipping Corporation v DHL Global Forwarding SA (Pty) Ltd and Another (2012 (3) SA 381 (WCC)), Phoenix and DHL approached the Western Cape High Court for an order for the recognition and enforcement of a London arbitral award. Bateman Ltd resisted the application on the grounds that it was never a party to the agreement referred to in the request for arbitration, that the arbitrator had accordingly lacked jurisdiction over it, and that the enforcement of the award would, therefore, be contrary to public policy. DHL relied on the booking note, which provided that the parties submitted to London arbitration. DHL contended that the arbitrator had made an award against Bateman Ltd and that Bateman Ltd had failed to satisfy the arbitral award, which the court was then obliged to enforce.

 

The court held that the booking note issued by Phoenix did not, in South African law, constitute a binding contract of carriage for the transportation of Bateman Ltd.’s machinery in terms of which the parties submitted any dispute to arbitration. Arbitration is characterised by its consensual nature and there was nothing to suggest that there ever was a consensus (either between Bateman Ltd and DHL or between Bateman Ltd and Phoenix) to conclude a contract in terms of which the parties had agreed to submit to arbitration. Both the common law and the REFAA Act recognised the importance of an arbitration agreement as a prerequisite to the enforcement of the arbitral award. In this case, as a fact, there had not been a valid agreement concluded between DHL and Bateman Ltd, agreeing to arbitration in terms of either English law or South African law. DHL had accordingly failed to allege and prove a valid arbitration agreement. Absent an arbitration agreement, no arbitrator could claim jurisdiction to determine a dispute and an order for the recognition and enforcement of a foreign arbitral award, which on the face of it was invalid, would be contrary to the principles of public policy.

 

Whilst it may take some time to have a foreign arbitral award made an order of a court in South Africa, parties can be confident that the South African courts will continue to uphold the principles of public policy and remaining practical and impartial when deciding to recognise and enforce a foreign arbitral award.

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Libra v CODESP: Is Arbitration in the Brazilian Ports Sector Salvageable?

Fri, 2019-02-15 19:05

Gabriel Ferreira Labatut Simões

A long-term dispute between Libra Terminais S.A., Libra Terminais Santos S.A., two companies belonging to one of the major port operating groups in Brazil (“Libra”), and the Dock Companies for the State of São Paulo (“CODESP”) seems to have been concluded by a recent arbitral award. The dispute concerned a concession agreement of two terminals in the Port of Santos in São Paulo, Brazil. The historic award is the first decision based on controversial statutes regulating arbitration in the ports sector in Brazil. This decision can provide insights on the practical effects of these statutes and their contentious provisions.

Background

In 1995, Libra and CODESP signed a concession agreement for terminal T-37 (“T-37”) and adjacent areas in the Port of Santos (“T-37 Agreement”). In exchange for the concession, Libra would pay CODESP a monthly fee and would be obligated to expand and improve T-37’s infrastructure.

A few years later, in 1998, Libra and CODESP signed another concession agreement for terminal T-35 and adjacent areas (“T-35 Agreement”, together with the T-37 Agreement, “Concession Agreements”). Similar to the first agreement, Libra would have to pay a monthly fee to CODESP and make investments to expand and improve the terminal.

Soon after the conclusion of the T-35 Agreement, still in 1998, Libra requested CODESP to suspend the collection of the fee owed by Libra. According to Libra, CODESP had not fulfilled its obligations to renovate terminal infrastructure and ensure minimum depth of the waterway access to the Santos Port, which supposedly allowed Libra to stay the payments. Meanwhile, CODESP was attempting to collect the amounts owed by Libra for the concessions. These discussions lasted decades in Brazilian courts. From 1998 to 2015, the parties initiated more than 10 lawsuits, resulting in different outcomes. While Libra was successful in some of the claims, CODESP was successful in others. However, the dispute had no prospect of ending soon.

In 2015, new legislation regarding dispute resolution mechanisms in the ports sector enabled Libra and CODESP to opt for arbitration to resolve their dispute.

Ports sector dispute settlement legislation

The port concessions sector in Brazil is regulated by Statute No. 12.815 (“Ports’ Statute”). The Ports’ Statute was envisaged to modernise the port concessions sector in Brazil by amplifying private investment and improving competition and efficiency. In what was seen as a positive development at the time; the Ports’ Statute established that – public and private – parties in concession contracts could resort to arbitration to resolve disputes regarding their financial obligations. The caveat was that the Statute did not specify how the arbitration should be conducted.

Therefore, in 2015, soon after the enactment of the changes to the Brazilian Arbitration Act (previously discussed in this Blog), the Federal Government enacted Decree No. 8.465 (Port Arbitration Decree, or “PAD”). PAD regulated and expanded the provision of the Ports’ Statute that allowed use of arbitration to resolve contractual disputes in the sector.

In contrast with the Ports’ Statute, the PAD was not well received (see here, here and here). It seemed that the PAD was a well-intended project but poorly executed. It was seen as an attempt by the Federal Government to manage and engage in new practices of dispute resolution. For example, among the most criticised provisions, the PAD (i) established that all information regarding the arbitration should be publicised; (ii) added time consuming bureaucracy to the process of initiating an arbitration; and (iii) provided that arbitration could only be used to settle disputes regarding the reestablishment of the financial-economic equilibrium of a contract; only if the arbitration was based on a submission agreement and not on an arbitration clause.

Nonetheless, despite criticisms, in 2015, Libra and CODESP signed a submission to arbitration agreement relying on the mechanism provided for in the PAD.

Arbitration and Partial Award

Pursuant to the submission agreement, the Tribunal had the mandate to decide (i) whether CODESP breached its obligations under the Concession Agreements; (ii) which of the parties (CODESP or Libra)  was liable for the performance of the construction works on the public docks in front of T-37; (iii) whether the financial-economic equilibrium of the T-35 Agreement had been affected by CODESP’s actions; (iv) whether Libra was liable to pay the fee originally agreed between the parties in the Concession Agreements; and (v) parties’ liability regarding these issues.

The Terms of Reference were signed in September 2017 and, a year later, the Tribunal issued an Award. The Award dismissed all of Libra’s claims, accepted CODESP’s claims, and ordered Libra to pay the fee originally agreed by the parties, as well as penalties for breach of contract. The Tribunal decided the case through the strict application of the contractual terms and the relevant statutes. However, the true contribution of the Libra v CODESP arbitration award is that it provides valuable insight as to whether initial criticism regarding application of the PAD was justified.

Time consuming bureaucracy?

One of the main criticisms to the PAD is that, in theory, it increases bureaucracy for execution of submissions to arbitrate. PAD requests a case by case preliminary government assessment regarding the benefits of using arbitration in each particular dispute. The PAD also establishes that arbitrators and arbitral institutions should be contracted by direct negotiation, as opposed to public biddings. Although the former is swifter than the latter, it still entails a number of time-consuming administrative burdens.On the other hand, a positive aspect of the PAD is the time requirement to issue an arbitration award within 24 months, which seems to offset, at least partially, the additional bureaucracy.

In Libra v CODESP, the time requirements for issuance of the award seemed to balance out the additional bureaucracy imposed by the PAD. While CODESP had to go through the preliminary government assessment; submission to arbitration was signed by the parties in less than three months from the day that the PAD entered into force. In fact, the dispute was adjudicated in record time, as the Tribunal decided on the liability issues in no more than 16 months from the signing of the Terms of Reference, which is less than the average period of time for an arbitration to be decided in Brazil, and substantially faster than obtaining a final decision in court.

Publicity issues?

Another point of contention regarding the PAD is the protection of sensitive information (e.g. price formation, production methods, formulas) vis à vis the requirement that all information regarding the arbitration must be publicized.

Again, this did not seem to be an issue in Libra v. CODESP. Even though the Federal Government divulged most of the proceedings through a specific website, no sensitive information was published. This is especially important considering that the Tribunal granted Libra’s request to keep confidential certain documents containing information on its commercial practices. Therefore, it seems that the publicity requirement of the PAD is not incompatible with, and can accommodate, existing judicial protection to sensitive information.

Abuse of privileged condition?

The most glaring issue with the PAD is that it grants to the Public Administration the power to decide whether disputes regarding the financial-economic equilibrium of contracts can be submitted to arbitration. According to the PAD, these disputes can only be submitted to arbitration via submission agreements.  This means that public parties can decide, after the dispute has arisen, whether the dispute should be submitted to arbitration or referred to a national court, which clearly puts the Administration in a privileged position as a disputing party and can hinder the “parity of arms” principle.

Nonetheless, there is some reason for optimism; Libra v CODESP has pinned down better arbitration practices for public authorities as disputing parties. For example, it is all very common for state parties in Brazil to challenge the legitimacy of arbitration. However, in Libra v CODESP, the Administration refrained from these unnecessary (and generally unsuccessful) challenges, demonstrating willingness to submit to arbitration even when there was no contractual obligation to do so.

In fact, the Federal Government Attorney’s Office, for the first time in history, has created a department to deal exclusively with arbitration. The department will represent the Federal Government in arbitration proceedings and will be responsible for gathering and managing expertise in the area, which indicates that the government intends to continue to use arbitration to resolve disputes with private parties in the future.

Conclusion

Prior authors in this blog (see here and here) have correctly described Brazil as an arbitration-friendly jurisdiction. Indeed, it does not appear that the PAD, despite accurate and relevant criticism, can challenge that description.

Libra v CODESP has provided strong indications that the Public Administration in Brazil, despite resistance and poorly drafted legislation. Brazil is walking steadily towards fully embracing arbitration as an efficient (and legitimate) dispute resolution mechanism.

Nonetheless, one should not let excessive optimism be a blindfold, as Libra v CODESP does not answer all the problems with the PAD. One question that remains unanswered is whether the prerogatives granted to the Public Administration by the PAD will be abused, especially in cases where future prospects of prevailing on the merits of the dispute might not be so positive.

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Cybersecurity in International Arbitration: Don’t be the Weakest Link

Fri, 2019-02-15 01:37

Claire Morel de Westgaver

Bryan Cave Leighton Paisner LLP

In recent years there has been a dramatic increase in cyber-attacks on corporates, governments and international organisations. Arbitration proceedings are not immune from the threat of attack as previous incidents demonstrate.

The publication last year of a draft Cybersecurity Protocol for International Arbitration by the International Council for Commercial Arbitration, the International Institute for Conflict Prevention and Resolution (CPR) and the New York City Bar was an important step in raising awareness of cybersecurity risks and initiating a discussion within the arbitration community. The discussion has focussed on the sorts of measures that may be appropriate to protect documents and data against unauthorised access. However, there appears to remain a critical issue upon which consensus has not yet been found: the manner in which cybersecurity measures should be designed, implemented and enforced.

As a firm, BCLP wanted to contribute to the discussion and formulation of cybersecurity strategies by using our Annual Arbitration Survey to find out what arbitrators, corporate counsel, external lawyers, users of arbitration and those working at arbitral institutions thought about these and other related issues.

The full BCLP Arbitration Survey 2019 can be downloaded here and some of the key findings are summarised below.

 

Cybersecurity is an important (and real) issue

The results of this year’s survey confirm that the importance of cybersecurity is widely recognised. 90% of respondents said that it was an important issue in international arbitration, with 11% of respondents indicating that they had had experience of arbitral proceedings being subject to a cybersecurity breach. That more than 1 respondent out of 10 was involved in an arbitration where someone was able to obtain unauthorised access to electronic documents or other information in itself demonstrates the pressing need for cybersecurity measures to be put in place.

 

What measures

The two factors regarded by the largest number of respondents as being relevant to a cybersecurity strategy were the level of sensitivity/commercial value of the documents to be used in an arbitration (94%) and the consequences for the parties if someone were to gain unauthorised access to the documents/information (78%). Other factors included the costs of implementing the proposed measures (70%) and the extent to which the proposed security measures may hinder the ability of a party to present its case (61%).

In nearly all cases the percentage of respondents who regarded a particular measure as desirable was significantly higher than the percentage of respondents who had seen the same measure in practice. 83% of respondents thought it desirable for electronic documents to be transferred by means of a secure shared portal, as opposed to 53% who had seen the measure adopted in practice. 50% of respondents thought participants in an arbitration should have in place appropriate firewalls and antispyware and/or antivirus software, as opposed to 12% who had seen the measure implemented in practice.

 

Who and when

The majority of respondents agreed that active engagement by all participants to an arbitration would be necessary in order for a cybersecurity strategy to be effective.  96% of respondents thought that the parties would need to actively engage with the process and 94% thought that the arbitrators would need to actively engage with the process. There was, however, a recognition that obtaining agreement from all participants to observe cyber security measures would not be straightforward. Only 56% of respondents thought that obtaining the agreement of the parties or the arbitrators to observe security measures would be very or relatively easy.

There was a large measure of consensus about the desirability of considering cybersecurity measures at an early stage of the proceedings but opinion was divided over who should take the lead on initiating discussions on cybersecurity issues. 48% thought the parties should take the lead, 31% thought the supervising arbitral institution (if any) should take the lead, and 21% thought it should be the tribunal. Among respondents who act as arbitrators, nearly half (48%) thought that the parties should take the lead in initiating discussion. This suggests that a significant proportion of arbitrators are reluctant to actively engage in the assessment of cybersecurity risks and the development of appropriate measures. Whilst arbitrators may have legitimate reasons for such a position, as reflected in the numbers referred to above, there may well be circumstances where parties may not be able to take a view or agree on appropriate cybersecurity measures.

 

How to implement

One question that has been the subject of discussion is whether cybersecurity measures is a procedural matter, best handled by the tribunal after hearing submissions from the parties, or an administrative matter, best handled by the supervising arbitral institution, assuming there is one. Just over half of respondents (52%) thought it was a procedural matter for the tribunal, 41% thought it was an administrative matter for the institution and 7% were undecided.

This is an interesting finding as there are pros and cons with both approaches and the procedural or administrative nature of measures is likely to dictate whether such measures should be implemented in procedural orders, arbitration rules or arbitrators’ terms of appointment.

Giving arbitrators the power to impose cybersecurity measures may not sit well with the background and training of all arbitrators, and the nature of their main function. Further, depending on their level of interest and the information technology environment in which they operate, individual arbitrators may take very different approaches to cybersecurity. Whilst the nature and potential consequences of cybersecurity risks may vary from one case to another, there are certain cybersecurity risks that will arise in virtually every international arbitration. In that context, the adoption of mandatory measures addressing baseline risks would raise the level of cybersecurity in international arbitration on a more systemic basis. In addition, given that to be effective any measures adopted will have to be adhered to by the arbitral tribunal, arbitrators may find themselves in a situation where their personal preferences or practices may conflict with the objectives sought to be achieved by a robust cybersecurity strategy.

52% of respondents felt that a tribunal should have the power to impose measures in cases where the parties were unable to agree them. 71% of respondents thought that a tribunal should have the power to impose sanctions on a party that breaches data security measures that have been agreed or ordered by the tribunal. What remains unclear is how, in a system where cybersecurity measures are ordered by a tribunal (rather than stemming from arbitration rules for example), a breach of a measure on the part of the tribunal itself should be handled. It is difficult to contemplate that a tribunal would be competent to sanction itself.

It was clear that respondents felt that arbitral institutions could have an important role to play in dealing with issues of cybersecurity. 68% of respondents said that they would be more likely to use the arbitration rules of an institution that was able to provide advice or assistance on appropriate data security measures. 70% of respondents felt that support from within an institution’s secretariat would be useful to improve cybersecurity.

47% of respondents indicated that, where appropriate, their clients would be willing to pay a higher fee/incur an additional cost with an arbitration institution that provided advice and assistance on appropriate security measures and/or provided a secure platform (or similar) on which all communications and data sharing storage in the arbitration could take place. This particular finding may provide comfort to institutions. It suggests that users recognise that there is a cost aspect to cybersecurity and that the pressing need for structural solutions to be put in place may in some circumstances justify the associated increase in cost. As suggested in a previous blog post published on 6 October 2017, Cybersecurity in International Arbitration – A Necessity and an Opportunity for Arbitral Institutions, arbitral institutions are particularly well positioned to implement systemic solutions to cybersecurity risks; something that a risks-based approach by which risks are assessed and dealt with by parties and tribunals on a case-by-case basis is less likely to achieve.

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Joinder of Third Parties: A Welcome Novelty Under the UAE Federal Arbitration Law

Fri, 2019-02-15 00:30

Soraya Corm-Bakhos

In June 2018, the long awaited UAE Federal Arbitration Law (Law No. 6 of 2018) entered into force, repealing the arbitration specific provisions (“UAE Arbitration Chapter”) contained in the UAE Civil Procedure Code (Law No. 11 of 1992). Whilst it is fair to say that the new UAE Federal Arbitration Law failed overall to meet the local arbitration community’s expectations by not resolving some of the salient issues of arbitration in the UAE, such as the issue of capacity to enter into an arbitration agreement or the recoverability of parties’ costs, it contains a number of new provisions, which notably enhance arbitration proceedings seated in the UAE. The provisions on joinder of third parties are one good example of improvements introduced by the UAE Federal Arbitration Law.

Arbitrators often may have to consider requests to “extend” the arbitration clause or “join” third parties. Many commercial contracts involve various stakeholders, which are not always signatories to the contract but either have an interest in the dispute or mutual claims arising out of the same fact pattern. In such circumstances, efficiency considerations play in favour of joining these third parties to the arbitration. This said, joinder of third parties raises challenging issues around consent to arbitrate. As all arbitration practitioners know, consent is the cornerstone of arbitration. How to reconcile the consensual nature of arbitration while maximising efficiency by binding related parties? While the precise answer and related legal arguments may differ from one legal system to another, joinder of third parties will commonly be based on either implied consent or disregard of the corporate personality.

What legal principles should an arbitrator sitting in the UAE apply when considering joinder of third parties? Arbitrators should bear in mind that the UAE Federal Arbitration Law maintains the requirement that an arbitration agreement be made in writing (Article 7.1) and signed by a person having capacity to do so (Article 4.1). Ultimately, the answer will largely depend on the pleadings and arguments put forward by the concerned parties before the arbitrator.

When considering whether or not joinder is procedurally possible in the first place, the arbitrator must take into account and respect the law of the seat or legal place of the arbitration and, if any, the procedural rules. In this context, one will note that the current version of the rules of the Dubai International Arbitration Centre (DIAC), one of the most prominent arbitral institutions in the UAE, do not address joinder of third parties. Prior to the adoption of the UAE Federal Arbitration Law, the UAE Arbitration Chapter did also not contain any provisions on joinder. Article 22 of the UAE Federal Arbitration Law now provides as follows:

“The Arbitral Tribunal may authorise the joinder or intervention of a third party into the arbitration dispute whether upon request of a party or upon request of the joining party, provided that he is a party to the Arbitration Agreement after giving all Parties including the third party the opportunity to hear their statements.”

Based on the foregoing provisions, an arbitrator sitting in the UAE in a DIAC arbitration is now empowered to order the joinder of third parties provided he or she is (i) satisfied that an arbitration agreement exists between the original parties and the third parties and (ii) provided he or she has granted the concerned parties an opportunity to be heard on the application for joinder. Importantly, Article 22 does not appear to require all concerned parties’ express consent to joinder, simply requiring that each concerned party be given an opportunity to be heard.

In a recent local DIAC arbitration case, in which I was personally involved, the claimant sought permission to apply for joinder of third parties. After considering the application for joinder, the arbitrator decided to allow service of the request for arbitration together with the application for joinder on the third parties by the DIAC. DIAC served the concerned entities while granting them 30 days to provide their answers. Despite having been duly served and given an opportunity to be heard, the concerned entities failed to respond. By a reasoned decision, the arbitrator granted the relief sought by the claimant in the application for joinder and agreed to formally join the third parties as respondents to the arbitration. The arbitrator noted that pursuant to the provisions of Article 22 of the UAE Federal Arbitration Law, third parties may be joined provided that the arbitrator was satisfied that an arbitration agreement exists between the claimant and the third parties. Based on the evidence on record, the arbitrator considered that the fact pattern of this particular case lent itself to disregard of the corporate form and to finding of apparent authority. More specifically, the arbitrator found that it was established on the record that:

  • the agreement was signed by the HR manager of “X Group”, identified as “X Group”, a company organised and duly registered in Dubai, UAE, with a specific registered office in Dubai;
  • although “X Group” advertised on its website the existence of a corporate entity named “X Group LLC”, the original respondent in the arbitration, it was established that such limited liability company did not exist; there rather appeared to be separate legal entities operating under the name “X Group”;
  • on the website of the “X Group”, the concerned third parties were described as part of the “X Group”; the third parties advertised themselves as being part of the “X Group”;
  • the claimant’s claim in the arbitration was for payment by the “X Group” of services rendered by the claimant for the benefit of the “X Group”;
  • the HR manager corresponded with the claimant in his capacity as HR manager of the “X Group”; and
  • the joining third parties shared the same address as set out for the “X Group” in the agreement.

Based on the foregoing, the arbitrator found it reasonable – in the absence of any evidence to the contrary – that the HR manager acted as the agent of the joining third party entities, having acted well within the usual range of authorities and/or powers when signing the agreement with the claimant in respect of the particular services and it stood to reason that as such the HR manager did have authority to give full effect to the agreement, including the arbitration agreement through his signature. In the prevailing circumstances, the arbitrator found that the HR manager signed the agreement in his apparent authority as HR manager of the third parties, which entities were therefore bound under the agreement, including the arbitration agreement.

It remains to be seen whether the unconventional approach adopted by the arbitrator, who – despite the absence of all concerned parties’ express consent – decided to grant the joinder in the particular circumstances of this case, will be sanctioned by the UAE courts in the event of a potential action for annulment of the award.

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Arbitral Tribunal Not Properly Constituted: What is the Role of an ICSID Committee?

Thu, 2019-02-14 00:51

Ba Duong (Donny) Trinh

Introduction

On 14 December 2018, an ICSID committee issued a decision on annulment of the award of Suez, Sociedad General de Aguas de Barcelona S.A., and InterAguas Servicios Integrales del Agua S.A. v. The Argentine Republic, ICSID Case No. ARB/03/17 (“Suez 03/17”) in which it declined to uphold the application for annulment from Argentina. This decision marked the fourth time Argentina has failed in its attempt to have the award set aside since 2016 with the same reason that the original tribunals failed to disqualify Prof. Gabrielle Kaufmann-Kohler due to the conflict of interest. Three of these four cases were ICSID arbitrations (the two other ICSID cases are: EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic, ICSID Case No. ARB/03/23 (“EDF”) and Suez, Sociedad General de Aguas de Barcelona, S.A.and Vivendi Universal, S.A. v. Argentine Republic, ICSID Case No. ARB/03/19 (“Suez 03/19”)). The fourth case was an ad hoc UNCITRAL arbitration under Argentina-UK BIT (AWG Group Ltd. v. The Argentine Republic (“AWG”)). This post will focus on the three ICSID committees’ annulment decisions and the debate therein regarding the limitation of review powers of an ICSID committee under the ICSID Convention.

Factual Background

Prof. Kaufmann-Kohler started to act as a member of the Board of Directors of UBS in April 2006 and remained in this position until 2009. In each of the three ICSID arbitration proceedings that took place within this period of time, UBS was undeniably connected with the claimants in some different forms. Argentina hinged its arguments on these connections in order to question Prof. Kaufmann-Kohler’s qualifications before other unchallenged members in accordance with Article 58 of the ICSID Convention. In EDF, Argentina requested the rest of the tribunal to disqualify Prof. Kaufmann-Kohler on the basis of five connections between UBS and EDF and EDFI, a subsidiary of EDF, most importantly the common interests of these three companies in an Italian company and a Swiss Company. In Suez 03/17 and Suez 03/19, Argentina challenged Prof. Kaufmann-Kohler on the ground that UBS held shares and other interests in the claimant companies, i.e. Suez and Vivendi (only in Suez 03/19). Argentina further claimed that Prof. Kaufmann-Kohler had failed to disclose these connections.

The tribunals in each of the three cases followed the requirement under Article 14(1) of the ICSID Convention, thus applying the test of whether Prof. Kaufmann-Kohler could “be relied upon to exercise independent judgment”. The tribunals reached similar conclusions, namely that the connections between Prof. Kaufmann-Kohler and the claimants were so far-flung that they could not have affected her independence. In EDF, the unchallenged members opined that Prof. Kaufmann-Kohler’s non-executive directorship at UBS gave her no financial interest in any of the Claimant companies and that she would not benefit in any way from an award in their favour.1) Decision of 25 June 2008 on the challenge to Prof. Kaufmann-Kohler in EDF International SA and Others v. Argentine Republic (ICSID ARB/03/23), para. 71 jQuery("#footnote_plugin_tooltip_2352_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2352_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Meanwhile, in Suez 03/17 and Suez 03/19, the tribunals evaluated the extent of arbitrator-party relationship based on four qualitative criteria: proximity, intensity, dependence, and materiality. Taking into account the facts regarding the significance of shares that UBS held in Suez and Vivendi, as well as the role of Prof. Kaufmann-Kohler at UBS, both tribunals concluded that the connections between Prof. Kaufmann-Kohler and the claimants ‘did not create a manifest lack of independence and impartiality of judgment’ because UBS was merely a portfolio investor in the claimant companies and the economic links were fairly insignificant. Therefore, these proceedings still remained ongoing with Prof. Kaufmann-Kohler as part of the tribunal.

The Consistency in Three ICSID Committees’ Decisions

After losing in each of the original proceedings, Argentina decided to request the ad hoc committees to annul the award on two grounds. The first ground was the improper composition of the tribunal under Article 52(1)(a) with the participation of Prof. Kaufmann-Kohler who was supposed to be disqualified based on an alleged of conflict of interest. On the second ground, Argentina claimed that Prof. Kaufmann-Kohler committed ‘a serious departure from a fundamental rule of procedure’ under Article 52(1)(d) with her failure to disclose the connections between UBS and the claimants. Argentina further argued that the ad hoc committee would have to examine the issues de novo and decide as though there was no challenge that had been previously made.

To begin with the earliest decision in EDF, the committee responded to Argentina’s argument that the issues should be determined de novo by assessing the relationship between the findings and rulings of the tribunal in respect to Article 58 and the role of the committee at the annulment stage. The EDF committee considered that the function of an ICSID ad hoc committee did not include the determination of the independence and impartiality of an arbitrator, because Articles 57 and 58 entrusted this function to the unchallenged members of the tribunal. According to this committee, the role of an ad hoc committee was not to determine whether or not the original tribunal has rendered a correct decision because it is not an appellate body. It would not find a ground of annulment existing under Articles 52(1)(a) and 52(1)(d) unless the tribunal’s decision was “so plainly unreasonable that no reasonable decision-maker could come to such a decision”. The tribunal continued to point out that the same conclusion had actually been reached by another ‘reasonable decision-maker’, which was the Suez 03/19 tribunal, and therefore rejected Argentina’s annulment request with regards to Prof. Kaufmann-Kohler’s disqualifications.

The two Suez committees followed the lead of the EDF committee. They held that, with direct reference to EDF committee’s decision, they would only review whether the decisions made by the tribunals were “so plainly unreasonable that no reasonable decision-maker could come to such a decision” since they would not operate as an appeal mechanism. In the end, the outcomes in both subsequent decisions on ‘Kaufmann-Kohler controversy’ were not different from the first one with the loss for Argentina.

Commentary

Another way to understand the approach of these ICSID committees is that if the decision of an arbitral tribunal is not clearly unreasonable, though it could be somewhat controversial, still there will be no point going through it all over again. From the author’s view, such approach would probably raise two questions:

(1) What should be the actual role of an ICSID committee when dealing with a request to annul an award on the ground of improper composition of the tribunal?

(2) What is the role of Article 52(1)(a) in this context?

Firstly, it is clear that the function of review of an ICSID ad hoc committee should be akin to that of a national court before which a challenge of a non-ICSID arbitration award is brought. Besides the three ICSID proceedings, as mentioned above, Argentina also sought vacatur of an UNCITRAL award in AWG before the District Court for the District of Columbia with the same ground that Prof. Kaufmann-Kohler’s participation constituted improper composition of the tribunal.2) Decision of the US District Court for the District of Columbia on Argentina’s Petition to Vacate the Arbitral Award, 30 September 2016; Judgment of the United States Court of Appeals for the District of Columbia, 3 July 2018 jQuery("#footnote_plugin_tooltip_2352_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2352_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Unlike the ICSID committees, both the DC district court and then the Court of Appeals adjudicated this particular issue by analyzing the factual background and came to decision on their own, not depending on whether or not the arbitral award was ‘plainly unreasonable’. The question is why an ad hoc committee and a national court performed in two different ways. From author’s view, there would be no reason for them to perform differently, given that they had the same function to decide on an annulment request raised by the same party, with very similar set of facts, based on substantively same grounds under Article 52(1)(2) ICSID Convention and § 10(a)(2) Federal Arbitration Act, which is challenge of an award due to improper constitution of tribunal. The question now is which way is more appropriate.

Secondly, if the approach of three ICSID committees is more appropriate, how should Article 52(1)(a) be interpreted? Article 52(1)(a) enunciates:

“Either party may request annulment of the award […] on one or more of the following grounds:

(a) that the Tribunal was not properly constituted”.

Words matter. There is clearly no implication of a limited scope of review under this provision. When a party raises request, the committee shall decide de novo on its own whether or not to set aside the award based on the party’s request, not on whether there is another tribunal that comes with the same conclusion. If the committee’s decision depends on other decisions that much, then what is the role of Article 52 in such circumstances?

Finally, all three ad hoc Committees never answered the question raised by Argentina: how did the members of the Committee come to the conclusion not consider the annulment of award relating to disqualification of an arbitrator unless the tribunal’s decision was “so plainly unreasonable that no reasonable decision-maker could come to such a decision”, since this requirement is not expressly spelled out in Article 52(1)(a) nor anywhere else in the ICSID Convention? The Committees reasoned that they performed the function of an annulment committee, not of an appellate body. If the scope of review was so wide as to re-consider the merits of a decision, an ad hoc committee would be turned into an appellate body and thus it would be inconsistent with the limited scope of annulment under the ICSID Convention.3) Decision on Annulment (5 February 2016) in EDF International SA and Others v. Argentine Republic (ICSID ARB/03/23), para. 145 jQuery("#footnote_plugin_tooltip_2352_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2352_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, the distinction between annulment and appeal consists of two elements: the result of the process and the aspects of the decision under review.4) Christoph H. Schreuer, ‘The ICSID Convention: A Commentary’ (Cambridge University Press, 2009), p. 901. jQuery("#footnote_plugin_tooltip_2352_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2352_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); First, the result of annulment is the invalidation of the original decision while the result of a successful appeal is its modifications. In this case, Argentina clearly did not request the committees to modify the decisions but to invalidate them. Secondly, annulment is not concerned with substantive correctness of the decision while appeal is, and annulment does not provide the challenging party an opportunity to raise new arguments on the merits or introduce new evidence. However, Argentina asked for none of these. Argentina asked the committees to set aside the decisions based on one of fundamental standards listed exhaustively in Article 52(1) and, therefore, the distinction made by the tribunals between annulment and appeal was not relevant in this context.

References   [ + ]

1. ↑ Decision of 25 June 2008 on the challenge to Prof. Kaufmann-Kohler in EDF International SA and Others v. Argentine Republic (ICSID ARB/03/23), para. 71 2. ↑ Decision of the US District Court for the District of Columbia on Argentina’s Petition to Vacate the Arbitral Award, 30 September 2016; Judgment of the United States Court of Appeals for the District of Columbia, 3 July 2018 3. ↑ Decision on Annulment (5 February 2016) in EDF International SA and Others v. Argentine Republic (ICSID ARB/03/23), para. 145 4. ↑ Christoph H. Schreuer, ‘The ICSID Convention: A Commentary’ (Cambridge University Press, 2009), p. 901. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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When is Commencement of Court Proceedings a Repudiatory Breach of an Arbitration Agreement?

Tue, 2019-02-12 21:00

Andrew Pullen

In Marty Ltd v Hualon Corporation (Malaysia) Sdn Bhd [2018] SGCA 63, the Singapore Court of Appeal held that an arbitral tribunal had no jurisdiction because the claimant in the arbitration (“Hualon”) had repudiated the arbitration agreement1)See here another discussion of this case from the Singapore law perspective jQuery("#footnote_plugin_tooltip_5456_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5456_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. Of most interest, the decision appears to create a presumption in Singapore law that commencing litigation in breach of an arbitration agreement is repudiatory, diverging from English law.

 

Background

In 2014, Hualon, through a receiver appointed by its creditors (the “Receiver”), commenced proceedings in the BVI courts (the “BVI Action”) against its former directors and Marty Ltd (“Marty”), a company owned by the former directors. Hualon claimed that the former directors, in breach of duty, had unlawfully diluted Hualon’s shareholding in its Vietnamese subsidiary in favour of Marty. Hualon brought claims for dishonest assistance and unjust enrichment against Marty. The BVI Action was eventually dismissed.

In 2015, following various steps in the BVI Action, but before it was dismissed, Hualon (through the Receiver) commenced an arbitration against Marty, pursuant to an arbitration agreement set out in the Vietnamese subsidiary’s company charter (the “Charter”). The claims against Marty were essentially the same as in the BVI Action. Marty unsuccessfully challenged the tribunal’s jurisdiction before the tribunal and in the High Court. Those decisions were overturned by the Court of Appeal.

 

The decision

Repudiation

The Court of Appeal held (at [68] and [80]) that Hualon had repudiated the arbitration by a combination of commencing the BVI Action and contending in its statement of claim that, upon appointment of the Receiver, the former directors lost all authority to bind Hualon. This amounted to a “disavowal” of all documents signed by the former directors after the Receiver’s appointment, including, crucially, the Charter containing the arbitration agreement. The Court observed (at [43]) that an allegation that the entire contract was entered into without authority is a challenge to each and every clause, including the arbitration clause. Hualon did not qualify its position and this, therefore, was sufficient to evince “repudiatory intent”.

Acceptance of the repudiation

It is only if a repudiation is accepted by the innocent party that the contract is terminated. The Court of Appeal held (at [89]) that Marty had accepted the repudiation. Where the breach of the arbitration agreement was commencement of litigation, acceptance “must lie in accepting the court’s jurisdiction and engaging it on the merits” (see [85]). Marty did so when it applied for summary judgment in the BVI Action. In contrast, Marty’s challenge to the jurisdiction of the BVI court on forum non conveniens grounds, stating that Malaysia or Vietnam were possible alternative fora but without committing to submit to those courts, was not sufficiently clear and unequivocal.

 

A presumption of repudiation?

The Court of Appeal rested its decision that Hualon repudiated the arbitration agreement on a combination of commencement of the BVI Action and disavowal of the Charter because Marty’s counsel accepted that commencement of proceedings did not per se amount to a repudiatory breach. However, the Court stated, obiter, (at [66]) that it is:

“strongly arguable that the commencement of court proceedings per se by a party who is subject to an arbitration agreement is prima facie repudiatory of such party’s obligations under that agreement” (emphasis in original).

According to the Court, commencement of litigation is prima facie repudiatory, but it would be open to the breaching party to furnish an explanation or qualification for having commenced the proceedings which showed objectively that it had no repudiatory intent in doing so. It appears that the explanation would have to be furnished to the other party contemporaneously with the breach. The effect of this is to create something akin to a rebuttable presumption.

 

Analysis

There are three types of repudiation in Singapore and English law: (i) renunciation of the contract; (ii) self-induced impossibility of performance; and (iii) a sufficiently serious failure to perform in accordance with the terms of the contract.

We are not concerned with impossibility. Nor was the case analysed as a serious failure to perform. That would have required the Court to assess:

(i) whether the obligation not to litigate a dispute had the status of a condition (a term, any breach of which, no matter how trivial, amounts to a repudiation); or

(ii) if not, whether the breach had the effect of depriving the innocent party of substantially the whole benefit which it was intended it should obtain from the arbitration agreement (the Hong Kong Fir test).

There was no such assessment.

The discussion of whether Hualon had manifested “repudiatory intent” by its actions makes clear that the Court analysed the case in terms of renunciation, i.e. where a party “expressly or implicitly refuses to perform in accordance with the terms of the contract”. However, a refusal to perform will amount to a renunciation only if it is a refusal to perform (i) all obligations under the contract, (ii) a condition, or (iii) where the consequent breach would satisfy the Hong Kong Fir test2)The Law of Contract in Singapore, Andrew Phang Boon Leong, Gen Ed, para 17.003, 17.031 and 17.048; Chitty on Contracts, 33rd edition, para 24-018 jQuery("#footnote_plugin_tooltip_5456_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5456_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

The obligation not to litigate cannot have the status of a condition, because that would mean that commencement of litigation would always be repudiatory, no matter what explanation was provided.

The Court of Appeal did not mention the Hong Kong Fir test.

The Court therefore appears to regard commencement of court proceedings as a refusal to perform all obligations under the arbitration agreement. One can see why the BVI Action evinced such a refusal: it was combined with a disavowal of the arbitration agreement.

But that will not be the same in every case. By commencing litigation in respect of a claim, a party may evince a refusal to arbitrate that claim. But even without a specific qualification of the sort which the Court of Appeal suggested would be necessary to rebut the presumption, there are circumstances in which it would not be clear that it was refusing to arbitrate every claim falling under the arbitration agreement. Such circumstances might include the following:

  • the litigation concerns one claim, but the parties are already arbitrating a different claim under the same contract and the party commencing the litigation gives no indication that it wishes to abandon the arbitration;
  • the claim in the litigation is limited in scope, in the context of much broader contract which could give rise to multiple disputes e.g. a small debt claim arising under a 30-year licensing agreement covering a suite of products;
  • there is (objectively) legitimate doubt as to whether the claim in the litigation falls within the scope of the arbitration agreement (even if it is later held to do so) e.g. a non-contractual claim relating to a transaction involving multiple contracts, some containing arbitration clauses, others containing jurisdiction clauses.

Beyond the above examples, it is not unknown for parties simply to make mistakes and overlook an arbitration agreement. However, such a mistake will not negate repudiatory intent because the test is objective. Hualon claimed it was unaware of the arbitration agreement when it commenced the BVI Action, but Hualon was not entitled to rely on its own alleged ignorance because it was not communicated to Marty. That was a purely subjective reason for its conduct and could not negate the repudiatory intent which a reasonable person would infer (see [52] and [74]). The Court of Appeal’s view would therefore create something of a hair trigger, since commencement of the litigation is said to be prima facie repudiatory, not continuation of proceedings after the breach of the arbitration agreement has been pointed out.

The Court of Appeal’s presumption, albeit obiter, appears to put Singapore arbitration law onto a different footing from English arbitration law. The Court departed from earlier Singapore and English authorities (describing the reasoning in the leading English case, Rederi Kommanditselskaabet Merc-Scandia IV v Couniniotis SA (The “Mercanaut”) [1980] 2 Lloyds Rep 183, as “thin”), and from the views expressed in the leading (English) textbooks Chitty on Contracts, which states that “resort to legal proceedings of itself [does not] constitute a repudiation of the arbitration agreement” (33rd edition, para 32-051) and Russell on Arbitration, which states (24th edition, para 2-137) that:

“A party may repudiate the arbitration agreement by commencement of proceedings in court in breach of its terms, but such breach will only be repudiatory if done in circumstances that show the party in question no longer intends to be bound by the agreement to arbitrate”.

The view in Chitty may be too lenient on the breaching party, but for the reasons explained above it is suggested that the Court of Appeal’s presumption goes too far and requires qualification. The position described in Russell allows an appreciation of the facts of the particular case and may be preferable. In any event, the Court of Appeal’s presumption requires further consideration when next before the Court.

References   [ + ]

1. ↑ See here another discussion of this case from the Singapore law perspective 2. ↑ The Law of Contract in Singapore, Andrew Phang Boon Leong, Gen Ed, para 17.003, 17.031 and 17.048; Chitty on Contracts, 33rd edition, para 24-018 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Relooking at Consent in Arbitration

Mon, 2019-02-11 21:00

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

Consent has long been accepted as the cornerstone of arbitration, until recently. The evolution and expansion of arbitration brought about diverging opinions on the consensual character of arbitration. For example, Stavros Brekoulakis suggested that “[w]hile … a functional concept of consent may enhance the effectiveness of arbitration clauses in complex transactions, it is very difficult to reconcile with fundamental principles of consent.” 1) Brekoulakis S, “Parties in International Arbitration: Consent v Commercial Reality” (2015) Presentation at the 30th Anniversary School of International Arbitration jQuery("#footnote_plugin_tooltip_3458_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3458_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the context of binding non-signatories in an arbitration, Brekoulakis also suggested that “what matters is not whether a non-signatory can demonstrate consent for arbitration, but whether it is inextricably implicated in a dispute which is the subject matter of an arbitration.”2) See discussion in Brekoulakis S, “Rethinking Consent in International Commercial Arbitration: A General Theory for Non-signatories” (2017) 0,1-34 Journal of International Dispute Settlement jQuery("#footnote_plugin_tooltip_3458_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3458_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

We discuss whether consent in arbitration is now merely a legal fiction.

International treaties and national laws have consistently required consent as a precondition to arbitration. Thus, a party can only bring its dispute to arbitration – and bar either party from invoking the jurisdiction of otherwise competent courts – where there is an agreement to arbitrate. The New York Convention requires a written arbitration agreement or clause within an agreement, i.e. record of consent, for an arbitral award to be enforceable.3) New York Convention, Art. II (1, 2), Art V. jQuery("#footnote_plugin_tooltip_3458_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3458_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The UNCITRAL Model Law on International Commercial Arbitration, which has been adopted by numerous states around the world, likewise provides that an arbitral award may be refused recognition and enforcement if the parties to the arbitration agreement were under some incapacity, or if the agreement was not valid under its own governing law.4) UNCITRAL Model Law on International Commercial Arbitration, Art. 35. jQuery("#footnote_plugin_tooltip_3458_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3458_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The English Arbitration Act 1996 provides that ‘parties should be free to agree how their disputes are resolved.’ 5) s. 1(b) of the Arbitration Act 1996. jQuery("#footnote_plugin_tooltip_3458_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3458_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the case of PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others and another appeal [2013] 226 SGCA 57, the Singapore Court of Appeal stated that: ‘[a]n arbitral award binds the parties to the arbitration because the parties have consented to be bound by the consequences of agreeing to arbitrate their dispute. Their consent is evinced in the arbitration agreement.’ The US Supreme Court in Volt Information Sciences v Leland Stanford, Jr. University [1989] 489 U.S. 468 recognized that ‘[a]rbitration under the [Federal Arbitration Act] is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit…’

However arbitration, which has long been seen as a consensual exercise, has increasingly been viewed as a mechanism borne out of compelled consent. This is especially so when parties have unequal bargaining positions. In sports arbitration, for instance – the Swiss Federal Supreme Court in Guillermo Cañas v ATP Tour6) ATF 133 III 235, 243 para. 4.3.2.2 [Guillermo Cañas v. ATP Tour], 25 ASA BULL. 592, 602 (2007), as translated in 1 SWISS INT’L ARS. L. REP. 65, 84-85 (2007). jQuery("#footnote_plugin_tooltip_3458_6").tooltip({ tip: "#footnote_plugin_tooltip_text_3458_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); recognized that ‘any athlete wishing to participate in organised competition under the control of a sports federation whose rules provide for recourse to arbitration will not have any choice but to accept the arbitral clause.’ Germany’s Federal Court of Justice (the Budesgerichtshof) took a similar stance in Az. KZR 6/15, Pechstein v. International Skating Union, 7 June 2016, finding that agreements referring disputes between athletes and sports federations to the Court of Arbitration for Sport in Lausanne was consensual and lawful, despite the fact that any professional sportsperson who wished to compete was required to agree to arbitration. In the US, mandatory (non-negotiable) arbitration agreements are found in employment contracts, which the US Courts uphold such as in the case of Gilmer v Interstate Johnson / Lane. Corp , Rent-A-Center v Jackson, and AT&T Mobility v Concepcion.7)See discussion in Giles T and Bagley A “Mandatory Arbitration of Employment Disputes: What’s New and What’s Next?” (2013) 22(3) at p.39 Employee Relations Journal jQuery("#footnote_plugin_tooltip_3458_7").tooltip({ tip: "#footnote_plugin_tooltip_text_3458_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Another source of increasing doubt in the consensual nature of arbitration comes from the expansion of arbitration from resolving disputes between two parties to complex multi-party arbitrations and third-party joinders, where arbitrators hear claims by or against someone who never signed the relevant contract, therefore, not giving consent to arbitration.

That said, we believe that this seeming paradigm shift from consensual to compulsory or the so-called ‘compelled consent’ does not mean that the principle of consent has been extinguished. For arbitrations borne out of compelled consent, the problem is essentially one of abuse of unequal bargaining powers, which should be reconsidered by legislatures. For example, a legislature may decree that disputes of a small quantum and arising from an average consumer transaction shall be non-arbitrable. For multi-party arbitrations and third-party joinders, a “non-signatory” might still be bound by an arbitration agreement because consent to arbitrate was given through some other means other than the formality of a signature. .8) Park W, “Non-Signatories and International Contracts: An Arbitrator’s Dilemma”, in “Multiple Party Actions in International Arbitration” 3 (Permanent Court of Arbitration, 2009), adapted from Non-Signatories and International Arbitration, in Leading Arbitrators’ Guide to International Arbitration 707 (L. Newman & R. Hill, 3d ed. 2014); 2 Dispute Res. Int’l 84 (2008) jQuery("#footnote_plugin_tooltip_3458_8").tooltip({ tip: "#footnote_plugin_tooltip_text_3458_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Therefore we do not agree that “arbitration without consent exists”.9) Kaufmann-Kohler G and Peter H, “Formula 1 Racing and Arbitration: The FIA Tailor-Made System for Fast Track Dispute Resolution” (2001) 17(2) Arbitration International at p. 186 jQuery("#footnote_plugin_tooltip_3458_9").tooltip({ tip: "#footnote_plugin_tooltip_text_3458_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); We think it is more accurate to refer to a modern approach to consent that is more focussed on facts and more aligned with commercial practice, economic reality and trade usages.

In fact, marginalising consent10) See e.g. Youssef K, ed. by Mistelis L, Brekoulakis S, “The Death of Arbitrability” in Arbitrability: International and Comparative Perspectives (2009), Kluwer Law International at pp. 47-68. jQuery("#footnote_plugin_tooltip_3458_10").tooltip({ tip: "#footnote_plugin_tooltip_text_3458_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); or any other fundamental principle of arbitration to address these changing needs is inimical to the development of arbitration because it detracts from the fundamentals which made arbitration popular to commercial parties in the first place. Instead, a more nuanced adaptation of the concept of consent is required to accommodate the consideration of a multitude of circumstances in law, fact, or equity, which may evince the parties’ consent to arbitration or lack thereof.

The needs of arbitration users have changed since the drafting of the New York Convention in 1958 and these needs are not best addressed by a rigid and dogmatic adherence to arbitration principles and practices. For example, in respect of multi-party arbitrations, it remains to be seen whether an award can be enforced against a losing party joined to an arbitration against its will when that party cannot select the tribunal.11) See e.g. Van den Berg AJ, “Consolidated arbitrations and the 1958 New York Arbitration Convention” (1986) 2(4) Arbitration International, at pp 367-369 jQuery("#footnote_plugin_tooltip_3458_11").tooltip({ tip: "#footnote_plugin_tooltip_text_3458_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As the raison d’être of international arbitration is the greater predictability of global enforcement of an award, parties’ concerns about such issues of award enforcement in multi-party arbitrations are real and can only be resolved by relooking at traditional arbitration principles.

Consent in arbitration must also address the new economic reality of more complex commercial practices. The close interactions of today’s global economies and the greater economic convergence in today’s markets have led to a greater prevalence of international trade and complicated projects around the world involving multi-party transactions and contracts. Groups of companies are not the exception but the present norm in major international projects as commercial parties seek to manage their risks and resources better. These multi-party transactions and contracts have in turn given rise to more multi-faceted and multi-party international trade disputes. The concept of consent must accurately reflect the economic functions of global entities and the complex structures of modern-day projects.

Such a nuanced approach towards the concept of consent will ensure the relevance of arbitration as the preferred international dispute resolution mechanism for modern-day parties.

References   [ + ]

1. ↑ Brekoulakis S, “Parties in International Arbitration: Consent v Commercial Reality” (2015) Presentation at the 30th Anniversary School of International Arbitration 2. ↑ See discussion in Brekoulakis S, “Rethinking Consent in International Commercial Arbitration: A General Theory for Non-signatories” (2017) 0,1-34 Journal of International Dispute Settlement 3. ↑ New York Convention, Art. II (1, 2), Art V. 4. ↑ UNCITRAL Model Law on International Commercial Arbitration, Art. 35. 5. ↑ s. 1(b) of the Arbitration Act 1996. 6. ↑ ATF 133 III 235, 243 para. 4.3.2.2 [Guillermo Cañas v. ATP Tour], 25 ASA BULL. 592, 602 (2007), as translated in 1 SWISS INT’L ARS. L. REP. 65, 84-85 (2007). 7. ↑ See discussion in Giles T and Bagley A “Mandatory Arbitration of Employment Disputes: What’s New and What’s Next?” (2013) 22(3) at p.39 Employee Relations Journal 8. ↑ Park W, “Non-Signatories and International Contracts: An Arbitrator’s Dilemma”, in “Multiple Party Actions in International Arbitration” 3 (Permanent Court of Arbitration, 2009), adapted from Non-Signatories and International Arbitration, in Leading Arbitrators’ Guide to International Arbitration 707 (L. Newman & R. Hill, 3d ed. 2014); 2 Dispute Res. Int’l 84 (2008) 9. ↑ Kaufmann-Kohler G and Peter H, “Formula 1 Racing and Arbitration: The FIA Tailor-Made System for Fast Track Dispute Resolution” (2001) 17(2) Arbitration International at p. 186 10. ↑ See e.g. Youssef K, ed. by Mistelis L, Brekoulakis S, “The Death of Arbitrability” in Arbitrability: International and Comparative Perspectives (2009), Kluwer Law International at pp. 47-68. 11. ↑ See e.g. Van den Berg AJ, “Consolidated arbitrations and the 1958 New York Arbitration Convention” (1986) 2(4) Arbitration International, at pp 367-369 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Challenges in Front of the Successful Evolution of the FDI Protection Regime: EFILA Annual Conference

Mon, 2019-02-11 01:07

Ivaylo Dimitrov

The 4th EFILA Annual Conference, held in London on 31 January 2019, offered a lively discussion about the future of the European investment policy among the EFILA’s distinguished guests. As expected, the focal topics were the ISDS reform, the EU proposal for Multilateral Investment Court (“MIC”), and the way forward. The MIC proposal was the subject-matter of the Keynote Speech delivered by Colin Brown (Directorate General for Trade, European Commission (“EC”)), and the subsequent panel debate moderated by Arif H. Ali (Dechert), which included John Gaffney (Al Tamimi & Co), Mélida Hodgson (Foley Hoag), Veronika Korom (ESSEC Business School Paris), and Saadia Bhatty (Gide Loyrette Nouel) as speakers. Nonetheless, the clash between the world of investment arbitration and the EU investment policy naturally came across as the leitmotif of the other panels as well. The following post examines certain aspects of the EU proposal and its possible loopholes in light of other recent developments, such as (i) the unsuccessful enforcement of the ICSID award in Micula v. Romania in Sweden, (ii) the EU Member States’ Declaration on the legal consequences of Achmea, and (iii) the AG Bot Opinion in Opinion 1/17 on the compatibility of CETA’s Investment Court System (“ICS”) with EU law.

 

EU MIC Proposal

Much has been said about the ongoing ISDS reform and, in particular, the EU MIC proposal (see Kluwer Arbitration Blog posts, for instance, here, here, and here). At the dawn of 2019, Nikos Lavranos noted that 2019 might prove to be the year of the EU’s “Big Harvest” with respect to its ISDS aspirations and that its first assessment will take place at the EFILA Annual Conference. While it is too early to comment on the first prediction, the second one was accurate. Whereas the EU MIC proposal has many strands, almost all of which were vigorously debated by the panellists, I will here concentrate on a couple of them, which come to show that the EU might not be aiming at completely dissolving the current system. These are: (i) the dichotomy between substantive rules of protection and dispute resolution mechanism, and (ii) the enforcement of investment awards/decisions.

First, it seems that the EU does not currently take issue with the substantive rules of investors’ protection in the BIT network. Indeed, there can hardly be raised an objection against rules prohibiting discrimination and expropriation, as well as rules ensuring fair and equitable treatment of investors. This was recently underscored by the Submission from the EU and its Member States to the UNCITRAL Working Group III on ISDS reform of 18 January 2019:

…[T]he precise scope of jurisdiction of the standing mechanism and the substantive rules that it would apply are determined by the underlying treaties. This implies that the substantive rules that the standing mechanism would apply may evolve with the underlying treaty rules. (emphasis added)

The EU’s sympathy for the standards of investor protection is further evidenced by its recent investment treaty practice — i.e. CETA, EU-Vietnam IPA, EU-Singapore IPA — which endorses the well-established standards of investment protection subject to modifications providing more regulatory space for the sovereigns.

Second, as clarified during the conference, the EU considers the effective enforcement of awards/decisions vital. Thus, in the EU’s view, the domestic review at the enforcement stage does not make sense. Rather, the EU will endorse an ICSID-like enforcement regime at an international level which would be provided for in the future convention establishing the MIC mechanism. As pointed out in the recent EU Paper, this is in line with the idea of having a two-tier system with a first-instance court and appellate tribunal with the latter exercising the function of annulment or set-aside currently vested with the ICSID annulment committees and, respectively, national courts. With respect to enforcement in States which are not parties to the conventional regime, the EU would opt for the application of the 1958 New York Convention.

Apparently, the crux of the EU’s reformist idea concerns predominantly the institutionalization of the system and the introduction of a permanent body which can address the perceived flaws of the investment arbitration, namely the lack of (i) predictability and certainty, (ii) deliberative process, (iii) independence and impartiality safeguards, and (iv) costs and duration cap.

 

Micula Enforcement in Sweden

Against this backdrop, on 23 January 2019, the Nacka District Court in Sweden refused to enforce the ICSID Award in the Micula v. Romania. This is one of the most interesting episodes in the long-running saga involving the Micula brothers, Romania, the EC, and various enforcement courts. As pointed out by another commentator, the Micula case foreshadowed the clash between the investment arbitration world and EU law long before Achmea. But unlike Achmea, which concerned a battle for dispute settlement supremacy, Micula presented a frontal collision between substantive rules, namely the FET provision of Sweden-Romania BIT, and EU rules on State Aid. The first one prevailed in the ICSID arbitration where the majority of the tribunal decided that Romania breached the BIT by revoking certain tax and customs incentives notwithstanding the obligations towards EU arising out of the State’s accession. Nonetheless, the conflict recurred at the post-award stage as in March 2015 the EC decided that any payment of the compensation awarded by the ICSID tribunal would be incompatible with the EU law and would constitute illegal State aid thus effectively foreclosing Romania from respecting the award.

The Swedish court sided entirely with the EU law and declared that enforcing the award would run counter the principle of sincere cooperation established in the CJEU case law which obliges Member State courts to respect 2015 EC decision and decline enforcement.  This is a particularly powerful message by the Swedish court if one takes into account the fact that enforcement proceedings concerned an ICSID award. Unlike enforcement under the New York Convention, the ICSID Convention, to which Sweden is a Contracting State since 1967, provides for a self-contained enforcement regime which allows no review by domestic courts. Pursuant to Art. 54 ICSID Convention, each Contracting State shall recognise and enforce an ICSID award as if it were a final judgment of a court of that State.

 

Challenges Ahead

The brief remarks set out above demonstrate that States, regional organisations, and think tanks will face significant challenges in shaping the new regime of FDI protection and dispute settlement.

A. Substantive Conflicts

First, achieving predictability and certainty of the outcome is not premised solely on an effective dispute settlement mechanism. Even the most objective and knowledgeable pool of adjudicators can produce inconsistent results if there is no clarity with respect to the applicable law. As evidenced by Micula, the confrontation between EU law and investment treaty arbitration is not limited to issues of procedural character, but finds its roots in the conceptually different nature of the two systems. Thus, establishing a clear and uniform legal framework which is able to reconcile both systems is crucial for successful reform. In the intra-EU context, the obstacles seem to be the lack of uniform substantive rules on the protection of foreign investors. This lacuna is all the more problematic in light of the recent Declaration of 15 Member States on the legal consequences of the CJEU Judgment in Achmea which evidences, inter alia, Member States’ firm intention to terminate their intra-EU BITs. As suggested by Nikos Lavranos, one possible measure to remedy this situation could be the adoption of an EU regulation on investment protection. Alternatively, to the extent that substantive rules on investor protection remain in force as between the Member States, the relevant stakeholders should come up with an effective mechanism to resolve conflicts between substantive rules preventing thereby Micula-like scenarios. In this respect, seeds of reasonableness could be found in AG Bot Opinion with respect to the compatibility of CETA’s ICS with EU law, who pointed out that “the autonomy of the EU legal order is not a synonym of autarchy” (para. 59). This is equally valid with respect to the EU’s external investment policy and possible conflicts between treaty provisions and EU law. As set out by one panellist during the EFILA Conference, the coherence between MIC and EU law should be based on a set of key principles, among which: (i) respect for the autonomy of EU law, (ii) exclusive application of investment treaty law as interpreted by the rules of international law, rather than EU law, (iii) sufficient safeguards for the exclusive jurisdiction of CJEU, (iv) the binding power of CJEU’s interpretation of EU law, and (v) the preservation of the role of national courts in the dialogue under Art. 267 TFEU.

B. Enforcement

Leaving the question of enforcement of the MIC decisions under the New York Convention aside, the Micula enforcement saga proves that the establishment of an effective self-contained and supranational enforcement system is dependent on having uniform and coherent legal framework of substantive protection, as well as means for resolution of conflicts between various set of rules operating on the international level. Hopefully, negotiators, policymakers, and all relevant stakeholders will quickly grasp the problems and will successfully address the challenges in shaping a new just and fair regime of foreign investment protection.

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Could a Reduction in a State’s Income Violate Public Policy – A View on Turkey?

Sat, 2019-02-09 22:04

Pelin Baysal and Bilge Kağan Çevik

The Public Policy Exception as an Unruly Horse

There is an ongoing quest for a uniform application of the New York Convention. However, the interpretation of the exceptions to enforcement still varies. Albeit applying the same provisions, national courts continue to adopt different approaches to the enforcement of foreign arbitral awards. This is particularly true where the public policy exception is raised under Art. V(2)(b).

Considerable debate exists as to what the public policy is. To the extent it is capable of definition, the public policy is found to embrace nebulous concepts such as a state’s most basic notions of morality and justice. Due to its vague and unpredictable application; the public policy described by an English judge as “a very unruly horse, and when once you get astride it you never know where it will carry you.”1)Richardson v Mellish [1824]2Bing229, 252. jQuery("#footnote_plugin_tooltip_5643_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Driven by the motivation of taking advantage of the ambiguous nature of the public policy, the parties often raise the public policy exception where all other arguments for setting aside or refusing of the enforcement of the foreign arbitral awards have failed. As described by one national court: “the public policy ground is often invoked by a losing party raised to frustrate or delay the winning party from enjoying the fruits of a victory.”2)A v R [2009]HKCFI 342. jQuery("#footnote_plugin_tooltip_5643_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Partially in reaction to this, in many developed jurisdictions, courts have taken very restrictive and demanding views of public policy. Indeed, some national courts acknowledged that even when their domestic rules were inconsistently applied in arbitration, this was not in itself enough to refuse enforcement provided, i.e., that international public policy was not violated.

On the other hand, the unruly horse has not been fully tamed in some jurisdictions. In those countries, the inconsistent or broad application of the public policy exception may cause a severe infringement of the legal expectations of the parties to the arbitration and significantly decrease those countries’ reliability on legal predictability.

 

Unruly Horse is not Fully Bridled in Turkey, Especially when the 13th Civil Division of the Turkish Court of Cassation is in the Saddle

In Turkey, the Turkish Court of Cassation’s interpretation of the public order has changed throughout the years and embraces a trend towards a pro-arbitration approach. Nevertheless, it is still not possible to conclude that the task is complete and that the unruly horse of public policy is fully controlled in Turkey.

Previously, the Turkish Court of Cassation was using the public policy exception as a gateway to examine whether the tribunals correctly applied Turkish law or not. Although this appeal-like role ceased after the entry into force of the International Arbitration Act in 2001, the Turkish Court of Cassation continued to use the public policy exception as a tool to get “desired results”. Indeed, in its previous decisions, the Turkish Court of Cassation found that the ICC arbitrations’ scrutiny process violated Turkish public policy, and as a result refused to enforce arbitral awards with the ICC cache. Similarly, despite the parties having agreed that the seat of arbitration would be Switzerland and that Turkish law would be applicable, the Turkish Court of Cassation refused to enforce the final award stating that the “Turkish law” term also covers the Turkish procedural law, and the tribunal should have applied the Turkish procedural law as opposed to the Swiss procedural law.3)Court of Cassation 15th Civil Chamber, File No:1617, Decision No:1052 dated 10.3.1976. jQuery("#footnote_plugin_tooltip_5643_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This perception has been changing, and Turkey has been transforming into an arbitration-friendly country thanks to the new pieces of legislation and change in the national courts’ perception of arbitration. This is especially evident after the Turkish Court of Cassation’s General Assembly on Case-Law Unification decision of 2012, in which it concluded that the lack of reasoning in a court decision or an arbitral award does not constitute a violation of Turkish public policy.4)Court of Cassation, General Assembly on Case-Law Unification, File No:2010/1, Decision No:2012/1 dated 10.2.2012. jQuery("#footnote_plugin_tooltip_5643_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Current predominant practice of the Turkish Court of Cassation suggests that there is a violation of the foundations of Turkish public policy on enforcement of the arbitral awards only in cases where the award is contrary to the principles that underpin the public or commercial life of Turkey, as well as in cases where it is contrary to the fundamental notions of justice. In this context not every violation of the mandatory legal rules can be classified as a violation of the public policy.

However, this arbitration-friendly approach is apparently not endorsed by the 13th civil chamber of the Court of Cassation. The 13th civil chamber of the Court of Cassation is still continuing to abuse the public policy exception to not to enforce decisions against Turkey. In fact, the 13th civil chamber of Court of Cassation consistently sets aside, or refuses the enforcement of foreign arbitral awards, by arguing that “the reduction in an income of the State would clearly violate the economic balance and public policy.”5)Court of Cassation, 13th Civil Chamber, File No:2015/16140, Decision No:2017/3322 dated 16.3.2017. jQuery("#footnote_plugin_tooltip_5643_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

One of the most popular decisions of the 13th civil chamber of Court of Cassation was dated back to 2012. The dispute was related to a concession agreement concluded between a GSM operator and the Turkish Information Technologies and Communication Authority (“TITCA”). The tribunal concluded that the discounts provided to distributors on wholesales were required to be excluded from the base of the shares. Accordingly, TITCA approached the Turkish courts to set aside this award due to a public policy infringement. The Turkish Court of Cassation held that even though the shares stipulated in the concession agreement did not constitute a tax per se, but that they were an important and continuous source of income for the State. Therefore, the reduction in such an income of the State would clearly violate both economic balance and public policy.6)Court of Cassation, 13th Civil Chamber, File No:2015/16140, Decision No:2017/3322 dated 16.3.2017. jQuery("#footnote_plugin_tooltip_5643_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Although this decision was believed to be an example of an unfortunate and singular decision, the 13th civil division of the Turkish Court of Cassation endorsed the same approach also in 2014, 2015, 2016, and 2017. In those decisions, the 13th civil division of Turkish Court of Cassation either set aside the arbitral awards by arguing that “the reduction in an income of the State would clearly violate the economic balance and public policy”, or overturned the decision of the first instance court by suggesting the first instance court to undertake an evaluation whether such an award results in the decrease of the income of the State and decide accordingly.

In line with the work distribution of the civil chambers of the Turkish Court of Cassation, if the dispute is related to

  1. water, electricity, natural gas, phone and internet subscription agreements,
  2. waste water prices,
  3. joint ventures,
  4. invalid contracts, or
  5. strict liability provisions,

set aside and/or recognition and enforcement actions are to be brought before the 13th civil division of the Turkish Court of Cassation. Accordingly, if one of the disputing parties is a state and the award requires a reduction in the income of that state, the recognition and enforcement of the award will likely be rejected, or the award could be set aside.

 

Suggestions and Future Perspective

The decisions of the 13th civil division of the Turkish Court of Cassation are a reminder that dealing with the public policy exception continues to be a struggle for the Turkish courts. There is no doubt that the decisions of the 13th civil division of the Turkish Court of Cassation are contrary to the nature of the arbitration. These decisions suggest that if an arbitral award touches in the economic gains of a state, it violates its public policy and it is either to necessary to set it aside or deny the enforcement of it.

To circumvent the vexing decisions of 13th civil chambers of the Turkish Court of Cassation, the parties might refer their disputes to ICSID arbitration rather than other arbitration institutions and/or to ad hoc arbitration. As widely known, the ICSID awards are directly enforceable in contracting states and there is no recourse available to national courts in ICSID arbitrations.

Otherwise, there is a risk that the final award would not be enforced or it would be set aside by the 13th civil division of the Turkish Court of Cassation. Investors and the arbitration practitioners are eagerly waiting with fingers crossed for one of the first instance courts which will insist on its decision and try to convey the issue to the General Assembly of the Turkish Court of Cassation to finally resolve the issue.

Nevertheless, the re-organisation of the structure of the Turkish Court of Cassation to establish a separate civil division specialised on international arbitration law is under consideration. If this happens, it would avoid any incompatibility among different chambers of the Turkish Court of Cassation, and would make Turkey an even more arbitration-friendly jurisdiction. As an English judge said in response to his distinguished predecessor’s observations: “With a good man in the saddle, the unruly horse can be kept in control.”7)Enderby Town Fc ltd v. Football Association [1971] Ch 591, 606-7 CA. jQuery("#footnote_plugin_tooltip_5643_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ Richardson v Mellish [1824]2Bing229, 252. 2. ↑ A v R [2009]HKCFI 342. 3. ↑ Court of Cassation 15th Civil Chamber, File No:1617, Decision No:1052 dated 10.3.1976. 4. ↑ Court of Cassation, General Assembly on Case-Law Unification, File No:2010/1, Decision No:2012/1 dated 10.2.2012. 5, 6. ↑ Court of Cassation, 13th Civil Chamber, File No:2015/16140, Decision No:2017/3322 dated 16.3.2017. 7. ↑ Enderby Town Fc ltd v. Football Association [1971] Ch 591, 606-7 CA. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Decisions of the Swiss Federal Supreme Court in 2018: Part I

Sat, 2019-02-09 04:00

Petra Rihar

This is the 1st part of the report highlighting the most significant arbitration-related decisions of the Swiss Federal Supreme Court (the “Supreme Court”) published in 2018.

Consent to Arbitrate

In two decisions, the Supreme Court dealt with the validity of an arbitration agreement under Swiss law. It set aside both awards – two of rather rare cases in which an appeal was granted.

In the decision 4A_150/2017 of 4 October 2017, published on 19 January 2018, the Supreme Court set aside a partial award, holding that the parties did not consent to submit to arbitration. The dispute arose between two insurance companies which, in the context of a reinsurance arrangement, entered into several agreements. Whilst the other agreements contained an arbitration clause, the retrocession agreement, on which the claim was based, provided for jurisdiction of state courts. Confirming the principle of consent in arbitration, the Supreme Court held that the interpretation of an arbitration agreement follows the general principles of contract interpretation, the decisive factor being the concurrent actual will of the parties. Where no such concurrent actual will exists, the agreement must be interpreted according to the principle of trust. When interpreting an arbitration agreement, it must also be borne in mind that the renunciation of a state court severely restricts the possibilities to appeal. Consequently, the will to depart from the state court jurisdiction cannot be easily assumed and must be clearly expressed by the parties.

Following the same principles, in the decision 4A_432/2017 of 22 January 2018, published on 26 February 2018, the Supreme Court set aside a CAS award. The dispute arose from an exclusive brokerage agreement between a footballer and his agent, who sued the footballer for payment of brokerage compensation. Whilst the dispute resolution clause in the brokerage agreement contained a reference to AFA and FIFA as “national and international bodies”, it contained no mention of an arbitral tribunal, but rather submitted the parties to the jurisdiction of the state courts in the “Comercial de Capital Federal, Republica Argentina”. Applying the principle of trust, the Supreme Court found that the tribunal had wrongly declared itself competent to decide the dispute as the dispute resolution clause did not contain a clear expression of the parties’ will to derogate from the state court jurisdiction.

The Scope of an Arbitration Agreement

In the decision 4A_583/2017 of 1 May 2018, published on 6 June 2018, the Supreme Court dealt with the objective scope of an arbitration agreement contained in a mandate agreement dated 2 July 1997 (“Mandate”), in a dispute between a foundation and an attorney. Whilst the foundation requested the return of a share certificate, the attorney claimed retention right on the certificate to secure outstanding payments under the Mandate and under other agreements. In an interim award, the tribunal affirmed its jurisdiction to hear all claims for outstanding payments as well as the request for the return of the share certificate. The attorney appealed against this award arguing that the tribunal was competent to assess his claim for outstanding payments under the Mandate, but not his claims not having their basis in the Mandate. The Supreme Court found that the parties did not actually agree on the objective scope of the arbitration agreement. It, therefore, interpreted the agreement in accordance with the principle of trust, thereby assuming that the parties did not want a division of legal process, but rather a comprehensive jurisdiction of the arbitral tribunal. The Supreme Court held that the jurisdiction of a tribunal competent for disputes arising out of a contract also included the assessment of the opposing party’s retention claims, provided that these claims had a sufficiently close connection with the object of retention, i.e. the share certificate. It was thus not necessary that the retention claims had their basis in the Mandate.

When deciding on the validity of an arbitration clause, the Supreme Court requires a clear expression of the parties’ will to derogate from the state court jurisdiction. Once the validity of the arbitration agreement is established, the Supreme Court’s approach is more liberal. When deciding on the objective scope of an arbitration agreement, it tends to assume a comprehensive jurisdiction of the tribunal.

Substance over Form

In the decision 4A_136/2018 of 30 April 2018, published on 6 June 2018, the Supreme Court dealt with the question of whether an interim decision titled as “Verfügung” (corr. to procedural order) should be challenged in the same way as an interim award. The issue arose from a dispute brought before a tribunal under the DIS Arbitration Rules. During the proceedings, the claimant challenged both the chairman and the arbitrator nominated by him for lack of impartiality. After the tribunal rejected the challenge in a “Verfügung”, the proceedings continued and ended with an award that was detrimental to the claimant. Subsequently, the claimant appealed before the Supreme Court requesting that the award be set aside, and the case be referred back to a newly appointed arbitral tribunal. Confirming the “substance over form” approach, the Supreme Court held that interim decisions of a tribunal on its jurisdiction or its composition – including an alleged bias of the arbitrators – are not only subject to an independent appeal but must also be directly challenged within 30 days upon notification, as the objections raised will otherwise forfeit and cannot be brought before the Supreme Court in an appeal against the final award.

The parties are well advised to promptly study the content of an arbitral decision – regardless of its title – and examine whether it can or must be challenged in order not to forfeit the grounds of appeal.

Anticipatory Assessment of Evidence

In the decision 4A_550/2017 of 1 October 2018, published on 18 December 2018, the Supreme Court dealt with the anticipatory assessment of evidence. The issue arose in a dispute brought before a tribunal under the Swiss Rules. In the award, the respondent was ordered to pay to claimant USD 1.5 Mio. on the basis of a contract which was – according to the respondent – invalid because it did not express the true will of the parties. The respondent challenged the award before the Supreme Court arguing that he was denied his right to be heard as the tribunal had ignored a number of arguments and evidence presented by the respondent. The Supreme Court dismissed the appeal, confirming the tribunal’s right to an anticipatory assessment of evidence. It held that a tribunal is allowed to refrain from assessing all evidence presented by the parties if (i) the presented evidence is unfit to support the alleged facts, or (ii) the fact to be proved is already sufficiently established by other evidence and the tribunal, by making an early assessment, reaches the conclusion that the additional evidence would not lead to different results with respect to the disputed facts.

This principle was again confirmed in the decision 4A_65/2018 of 11 December 2018, published on 27 December 2018, concerning an investor-state dispute brought before a tribunal under the UNCITRAL Arbitration Rules. Before the Supreme Court, the appellant Republic of India alleged, i.a., a violation of its right to be heard as it did not obtain permission to present a preparatory work for a bilateral investment treaty, which allegedly supported its position that the BIT relevant in the case at hand did not to protect indirect investments. As the preparatory work not only related to a treaty different from the relevant BIT, but was also presented late, the Supreme Court found that, due to the delay in invoking evidence that was not decisive in the case at hand, the appellant’s right to be heard had not been violated. It pointed out that not only did tribunals have a right to an anticipatory assessment of evidence, but also that a party’s right to have the presented evidence assessed must be exercised in a timely manner and in the agreed form.

Tribunal Appointed Expert

In the decision 4A_505/2017 of 4 July 2018, published on 6 September 2018, the Supreme Court dealt with the question whether a tribunal may, based on the results of its anticipatory assessment of the previously presented evidence, subsequently unilaterally reduce the scope of the tribunal appointed expert’s mandate concerning technical issues. The reduction of the mandate’s scope by the tribunal resulted in the exclusion of the counterclaims from the expert’s analysis. The Supreme Court held that the tribunal was entitled to reduce the scope of the expert’s mandate since (i) in the relevant agreement signed by all parties, the tribunal had expressly reserved the right to adapt the scope of the expert’s mandate, and (ii) the tribunal’s anticipatory assessment of evidence previously presented (including a witness hearing) showed that the counterclaims would be dismissed based on legal considerations, irrespective of the expert’s findings.

The 4A_505/2017 decision also confirms the established requirements regarding the parties’ right to a tribunal appointed expert. Such right exists, if: (i) the party expressly requested the appointment of an expert, (ii) in the agreed form and in a timely manner, (iii) she advanced the costs of the expertise, (iv) the expert evidence relates to relevant facts, and (v) it is necessary and capable of proving such facts. The requirements (iv) and (v) are met, e.g., where the facts are of a technical nature or otherwise require special knowledge and the arbitrators themselves do not have such knowledge (see also Kluwer Arbitration Blog of 9 August 2011).

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Decisions of the Swiss Federal Supreme Court in 2018: Part II

Sat, 2019-02-09 03:55

Petra Rihar

This is the 2nd part of the report highlighting the most significant arbitration-related decisions of the Swiss Federal Supreme Court (the “Supreme Court”) published in 2018.

 

Jura Novit Arbiter

In the decision 4A_525/2017 of 9 August 2018, published on 26 September 2018, the Supreme Court dealt with the principle of jura novit arbiter, controversial in a dispute resulting from a construction contract governed by Algerian law, between an Algerian public company and a constructor Canadian company. Applying the principle of equity and a contractual clause that was, according to the tribunal, not strictly applicable, the tribunal ruled that the constructor had to pay damages for the unjustified presence at the construction site. The constructor appealed to the Supreme Court arguing that its right to be heard was violated since the tribunal applied the rules of equity as an autonomous source of law under Algerian law, although no arguments based on equity had been advanced by either party, and the applied contractual clause did not concern the type of delay referred to in the counterclaim.

Referring to the principle of jura novit arbiter, the Supreme Court held that the right to be heard relates mainly to the establishment of facts and not of law. As the arbitral tribunals freely determine legal provisions applicable to the dispute, they may also decide on the basis of rules of law other than those invoked by the parties. The parties’ right to be heard becomes relevant and the parties must receive an opportunity to comment only in exceptional cases, namely if (i) the arbitral tribunal intends to base its decision on a legal norm that was not raised during the proceedings, (ii) the relevance of which could not be assumed by the parties, and the application of the norm thus comes as a surprise. The Supreme Court found that the notion of equity was used in different provisions of Algerian law and had been mentioned repeatedly during the arbitration. The appellant could thus not reasonably argue that it could not expect the tribunal to use considerations of equity to decide the dispute. The same was true for the contractual clause referred to by the tribunal by analogy, which was not only known to the parties, but had also been invoked by one of them in support of another claim.

The principle of jura novit arbiter was also applied in the decision 4A_338/2018 of 28 November 2018, published on 21 December 2018. In a domestic arbitration, a Swiss company alleged that FIFA had infringed the company’s contractual rights to purchase World Cup tickets. The tribunal rendered a decision in favor of the company. FIFA appealed to the Supreme Court arguing, i.a., that its right to be heard was violated since the tribunal applied one specific provision of Swiss law although neither party claimed that this provision was relevant. The Supreme Court held that the argument was inadmissible, noting that FIFA failed to explain why it could not have assumed the relevance of said provision and why its application by the tribunal came as a surprise.

Jura novit curia/arbiter, an established principle of Swiss procedural law, has two aspects, (i) the determination of the applicable law and (ii) the ex officio application of the determined law to the case.

 

Res Judicata

In the decision 4A_247/2017 of 18 April 2018, published on 6 June 2018, the Supreme Court dealt with the principle of res judicata. The dispute arose out of two loan agreements providing for the application of Swiss law and each including an arbitration clause. The dispute was first brought before and decided by state courts of Russia and the BVI. It was subsequently brought before a tribunal seated in Zurich. The tribunal’s award was appealed against before the Supreme Court.

Confirming its prior case law, the Supreme Court held that the principle of res judicata governs, i.a., the relationship between a Swiss arbitral tribunal and a foreign state court. If a party files a claim before a tribunal seated in Switzerland, identical to the one already subject of a judgment rendered between the same parties in another territory, the arbitral tribunal – in order not to expose itself to a claim of violation of procedural public policy – must declare the claim brought before it inadmissible insofar as the foreign judgment is capable of being enforced in Switzerland. The Russian state court had rendered its judgment disregarding the objection of lack of jurisdiction raised before it, without, at the same time, finding that the arbitration agreement was null and void, inoperative or incapable of being performed. As a consequence, the decision of the Russian state court was not enforceable in Switzerland and did not have the res judicata effect in the Swiss arbitration. The tribunal did therefore not violate the procedural public policy when rendering the award.

Under Swiss law, res judicata applies where (i) the parties and (ii) the subject matter are identical. It affects the operative part of the decision, but not the reasons on which it is based. It applies, without restriction, if a Swiss state court or tribunal is called upon, but a Swiss court decision or award exists. It applies, under the precondition of enforceability, where a Swiss court or tribunal is called upon, but a foreign court decision or award already exists.

 

Costs

In two decisions, one of them being the decision 4A_338/2018 (cited above), the Supreme Court dealt with the appeals against arbitral cost decisions. It held – in both cases – that the allocation of costs is a question of procedural law and not of substantive law.

In the decision 4A_450/2017 of 12 March 2018, published on 1 May 2018, a cost decision of a sole arbitrator was appealed against, based on the alleged violation of the principle of equal treatment. The dispute concerned the interpretation of a termination clause in a contract. The arbitrator issued a final award and agreed with the respondent on the disputed point. Claimant appealed before the Supreme Court arguing, i.a., that the arbitrator, by awarding costs exclusively to the respondent, although, by his own statement, no party was fully successful with its claims, violated the principle of equal treatment of the parties. The Supreme Court held that the principle of equal treatment can be invoked during the evidentiary phase, however not in later stages of the arbitral proceedings, and is not affected by the assessment of evidence or the application of law during the deliberations or when deciding on costs.

As a rule, in international arbitrations, the cost decisions may be challenged on the grounds listed in article 190(2) PILA, in particular if the tribunal lacked jurisdiction to decide on costs (article 190(2) lit. b) or if its decision went beyond the claims submitted (article 190(2) lit. c). Unlike in Swiss domestic arbitrations, in international arbitrations, the arbitrators’ fees and expenses cannot be challenged with the argument that they are manifestly excessive.

 

Success Fee

In the decision 4A_125/2018 of 26 July 2018, published on 29 August 2018, the Supreme Court dealt with the question of admissibility of a success fee in arbitration. The question arose in a dispute between a Portuguese client company and a Zurich law firm (representing the company in two ICC arbitrations) regarding the amount invoiced by the law firm for its work. With respect to the law firm’s remuneration, the parties agreed on a combination of a reduced hourly fee and a success fee. The dispute was brought before a sole arbitrator who found that the success fee arrangement was valid. The company challenged the award.

The Supreme Court confirmed that a success fee (“pactum de palmario”) was admissible under Swiss law. However, due to its restricted scope of review under article 190(2) PILA, it did not examine the admissibility parameters under domestic Swiss law. Instead, it validated the sole arbitrator’s explicit departure from the domestic requirements holding that Swiss public policy was not violated by the sole arbitrator’s confirmation of a success fee owed to the law firm by its client (see also Kluwer Arbitration Blog of 7 October 2018).

 

Enforcement

In the decision 5A_942/2017 / 144 III 411 of 7 September 2018, published on 27 September 2018, the Supreme Court dealt with the admissibility of an attachment over real estate property of a sovereign state in Switzerland. The attachment order proceedings were commenced by a UK company against the Republic of Uzbekistan, based on an award in favor of the UK company, rendered under the UNCITRAL Arbitration Rules by a tribunal seated in Paris.

With reference to article III of the New York Convention, the Supreme Court held that, for attachment of assets of a foreign state located in Switzerland in cases where the foreign state has acted “iure gestionis“, the requirement of a sufficient connection applies. It presupposes that the legal relationship on which the arbitral award is based and from which the attachment claim arises has a sufficient connection to Swiss territory. This requirement is fulfilled if (i) the legal relationship was established or is to be fulfilled in Switzerland, or (ii) the foreign state has undertaken acts thereby establishing a place of performance in Switzerland. By contrast, for an attachment to be granted it is not sufficient that assets are located in Switzerland or the claim has been awarded by a tribunal seated in Switzerland.

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New 2019 JCAA Rules: Is Three a Crowd?

Fri, 2019-02-08 01:00

David Gilmore, Ben Jolley, John Ribeiro and Sam Beer

Herbert Smith Freehills

Overview1)The views expressed herein are those of the authors and should not be construed as necessarily reflecting those of their firm or of any of its clients. jQuery("#footnote_plugin_tooltip_6008_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6008_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

On 1 January 2019 the Japan Commercial Arbitration Association (the “JCAA“) amended its two current sets of arbitration rules. At the same time, it introduced an additional set of new rules with the aim of providing a more efficient and cheaper arbitration procedure that draws on some civil law-type approaches.

The JCAA’s motivation for these changes, and the introduction of the new Interactive Rules, is to provide a range of arbitration rules to support the potential needs of different businesses.2)JCAA background document: “Reform of the JCAA Arbitrations Rules: Three Sets of Rules in Response to All Business Needs” at page 2. jQuery("#footnote_plugin_tooltip_6008_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6008_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); These changes also come at an important time, where Japan is embarking into new territory in its approach to and support of international arbitration.

In this post we summarise and analyse the key changes to the JCAA’s two sets of existing rules (the Administrative Rules and the Commercial Rules) and consider the different approach enshrined in the new Interactive Rules.

 

1) Administrative Rules

The JCAA administers arbitrations under the UNCITRAL Arbitration Rules pursuant to the Administrative Rules. Accordingly, these Rules are designed to provide “the minimum essentials” to allow the UNCITRAL Rules to be overseen by an institution.

The only significant updates focus on arbitrator remuneration. These changes put the JCAA at a similar level – at least under the Administrative Rules – to other international institutions in the region (e.g., SIAC and HKIAC) for arbitrator remuneration; previously the JCAA had a reputation for keeping such fees lower.

The JCAA’s logic behind these revisions is to make it easier to appoint “prominent international experts to serve as arbitrators”.3)Ibid, page 4. jQuery("#footnote_plugin_tooltip_6008_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6008_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

2) Commercial Rules

The Commercial Rules is the JCAA’s main set of institutional rules. Here the JCAA’s approach is markedly different from that taken vis-a-vis the Administrative Rules. The changes are more significant and include some inventive amendments designed to encourage efficiencies and protect against challenge. They also place heavier restrictions on arbitrators’ fees than before.

The most important revisions are as follows:

a) Explicit ongoing duties for arbitrators to conduct a “reasonable investigation” into potential conflicts of interest (Article 24) – these active duties after appointment go further than what is stated explicitly in many other sets institutional rules and appears to codify the position for Japan-seated arbitrations as set out by the Japanese Supreme Court in December 2017. Arbitrators should be aware that they may not be able to discharge this requirement by simply disclosing conflicts of which they become aware, and active steps may be required. In the rules, no detail is given as to what such an investigation should involve.

b) Detailed rules regarding the role of the Tribunal Secretary (Article 33).

c) Explicit right for the Tribunal to reject evidence submitted in an untimely manner (Article 41).

d) No dissenting opinion may be disclosed “in any manner” (Article 63) – going beyond most other institutional rules, this change is designed to avoid (i) potential challenges, which are often based on dissenting opinions, and (ii) the additional cost associated with preparation of such opinions.

e) Increase in scope of automatic expedited procedures to cover disputes up to JPY 50 million (around USD 400,000) (Article 84) – this represents a welcome increase from the previous figure, but is still far below institutions like the ICC, HKIAC and SIAC. Many smaller disputes, otherwise well-suited to the expedited process, may therefore still end up being resolved in a more time-consuming manner.

f) Arbitrators’ Remuneration (Article 93.2) – the most fundamental of the changes to arbitrators’ remuneration requires all arbitrators to be paid a fixed hourly rate of JPY 50,000 regardless of experience or the complexity of the case. The JCAA has also maintained existing provisions that reduce arbitrators’ hourly rates after a period of time worked on the case, but increased the threshold for reduction to 150 hours.

We generally see the rule changes as being positive in terms of encouraging efficiency and protecting against challenges. The attempts to limit fees should also be generally welcomed, although the approach is not without risk. Questions may arise as to whether the lower fixed hourly rates for arbitrators – just one part of the costs of arbitration – could operate as a disincentive to senior international arbitrators, with experience running complex proceedings, taking appointments under JCAA Commercial Rules arbitrations. Alternatively, if such appointments are accepted, there will likely be immediate requests to dis-apply the restrictive provisions (something we have seen happen in JCAA arbitrations regularly in practice).

 

3) Interactive Rules

The JCAA has also introduced new “Interactive Rules” which is the third and final set of JCAA rules. The Interactive Rules follow the updated Commercial Rules closely, but are meant to also deal with three main issues with arbitration today as identified by JCAA: (i) awards are unnecessarily long; (ii) counsel often do more work than required for the matter resulting in more costs; and (iii) arbitration costs are increasing.

The Interactive Rules propose two main solutions:

a) Inquisitorial / interventionist approach from the tribunal – this is enshrined in Articles 48 and 56, which require the tribunal (i) to share a document, as early as possible, summarising the parties’ positions and factual and legal issues that arise and (ii) to set out preliminary views on key factual and legal issues before a decision is made as to whether a hearing is necessary. We think the tribunal’s more active role could drive greater efficiency and potentially increase the likelihood of early settlement. With the perceived prevalence of common law approaches to arbitration and natural justice concerns, it remains uncertain whether tribunals will adopt this approach on a large scale, but where the Interactive Rules are selected a tribunal is at least empowered explicitly to do so.

b) Fixed fees – arbitrators’ fees are fixed depending on the value of the claim (up to JPY 5 million for a sole arbitrator working on the highest value claims under Articles 94 and 95).
This should mean that arbitrator remuneration under the Interactive Rules is likely to be lower than in an arbitration under, say, the Commercial Rules. However, it is foreseeable that some arbitrators may be put off from committing to this fixed fee structure – particularly where there is no guarantee that a dispute under the Interactive Rules will necessarily be over quicker or more limited in scope and complexity.

 

Comment

The JCAA’s new rules – coming four years after the last update – demonstrate the JCAA’s ambitions to: (i) improve its reputation as a viable institution for international arbitration; and (ii) increase its limited caseload. The focus on efficiency and innovation in the Interactive Rules and the provision of a flexible set of options focused on arbitration users appears to be part of an attempt to overcome the perceptions around “Japan’s (In)Capacity in International Commercial Arbitration“.

Some of the innovations implemented merit close consideration by the arbitration community at large. For example, while not an endorsement of the “controversial” Prague Rules on the Efficient Conduct of Proceedings in International Arbitration (launched on 14 December 2018), the Interactive Rules are certainly a nod to them and a more inquisitorial and interventionist approach to arbitration. This approach may be an attractive prospect to some parties. While others may be concerned about parties’ right to a fair hearing in this inquisitorial approach, both sets of rules present themselves as welcome developments in the international arbitration community and we look forward to seeing how well they are received.

However, rightly or wrongly, it seems that the JCAA has now established a seemingly three-tiered approach via its new Rules. In this regard, the changes to the Commercial Rules – presently understood to be the most widely used set of JCAA Rules for complex international arbitrations – could make it difficult to attract international arbitrators of the highest quality.

Further, although the changes to the Administrative Rules are welcome, our experience is that parties tend to choose institutions for their own bespoke rules or for their track record in administering proceedings. It may be that UNICTRAL cases involving international parties will only come to the JCAA for administration where there is some direct link to Japan (be it seat, party, language or maybe governing law), at least until the JCAA is able to demonstrate sufficient experience to the arbitral community.

Only time will tell how successful these changes are. Alongside the opening of (i) the Japan International Dispute Resolution Center in Osaka in May 2018, with a Tokyo hearing-facility expected to follow by 2020, and (ii) the IP-focused International Arbitration Center in Tokyo (IACT) in September 2018, many will view the updates to the JCAA Rules as building upon the “Japan is Back” fever that gripped the arbitral community in Japan last year. The contributors remain optimistic for further developments in the year ahead. Watch this space!

 

A more detailed summary of the key changes can be found in a separate post on HSF arbitration notes blog.

References   [ + ]

1. ↑ The views expressed herein are those of the authors and should not be construed as necessarily reflecting those of their firm or of any of its clients. 2. ↑ JCAA background document: “Reform of the JCAA Arbitrations Rules: Three Sets of Rules in Response to All Business Needs” at page 2. 3. ↑ Ibid, page 4. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Analyzing Features of Investment Court System under CETA and EUVIPA: Discussing Improvement in the System and Clarity to Clauses

Thu, 2019-02-07 23:50

Shilpa Singh J.

An intriguing feature of Investment court system (“ICS”) of resolving disputes in Comprehensive and Economic Trade Agreement (“CETA”) and the European Union-Viet Nam Investment Protection Agreement (“EUVIPA”) is the amicable resolution of disputes to avoid long and expensive burden of Investor-State Dispute Settlement (“ISDS”) (see Art. 8.19 (1) CETA and Art. 3.39 EUVIPA). Another exceptional feature of the agreements is transparency to limit confidentiality and privacy as UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, available here (“Transparency Rules”) (see Art. 8.36 CETA and Art. 3.46 EUVIPA). Confidentiality is pertaining to the access of information like written submissions, a record of the hearing, award of the tribunal, whereas privacy excludes the participation of unauthorized third parties or even observing the hearing.

Compared to adversarial processes, the conciliation and mediation mechanisms under CETA and EUVIPA envisage a more flexible evidentiary process aiming to provide a fair and independent system. Unlike under CETA, EUVIPA provides for detailed rules concerning mediation. There is a mandatory six-month cooling period before a claim can be submitted for arbitration. During this period, the parties should engage in a consultation followed by mediation or conciliation. A party can submit a notice of arbitration only upon expiration of the cooling period. Otherwise, the claim will not be admissible.

Both Treaties envisage similar procedures in terms of submission of a claim, constitution of a first instance and appellate tribunal, and envisage the same rules on transparency. These common features are further described below.

Submitting a Claim

To submit a claim for a dispute under either Treaty, it is necessary to determine a respondent. Under CETA, a notice is sent within 90 days of the submission of the request for consultation to the EU concerning the alleged breach by the EU or a Member state (Art. 8.22(1) CETA). The procedure is slightly different under EUVIPA; the claimant may send a notice of intent to arbitrate within 90 days of the submission of the request for consultations, which automatically triggers the determination of a respondent by the EU within 60 days of the notice of intent (Art. 3.32).

Both instruments allow an investor to make a claim for breach of the obligations in the agreements (Art. 8.18(1) CETA; Art. 3.33 EUVIPA). An investor can submit a claim only with regard to a breach of obligations under provisions of Chapter 8 in CETA and Chapter 2 of EUVIPA. Moreover, there is substantive protection of “market access” but this is excluded from the jurisdiction of the Tribunal and thus a claim cannot be submitted against this.

Under both CETA and EUVIPA, the parties have a choice to submit claims under the rules prescribed in the agreement; the rules of ICSID Convention and Rules of Procedure for Arbitration Proceedings, ICSID Additional Facility Rules if the former do not apply, UNCITRAL Arbitration Rules or any other rules agreed the parties.

Constitution of First-instance Tribunal and Appellate Tribunal

The European Commission calls it an ICS as done in for the first time under CETA and Transatlantic Trade and Investment Partnership. As a matter of fact, under both CETA and EUVIPA, the tribunals constituted are ad hoc established for the purpose of dispute dissolution. The court system that the Commission envisaged comprises of a tribunal and an appellate tribunal.

Under CETA, ICS is not explicitly mentioned as a permanent body but there are diverse opinions that the intention is to create a permanent tribunal empowered with exclusive competence to hear claims. The tribunal, as envisaged by the Commission, is a semi-permanent body where a roster of judges is chosen from members of the tribunal who are not appointed on a full-time basis. For now, the Tribunal in CETA consists of 15 members appointed by each, i.e., 5 members from Canada and other 5 from the EU with remaining 5 neutral members appointed by the Joint Committee for a term of 5 years. Under EUVIPA system, a tribunal consists of 9 members: 3 members from Viet Nam, 3 from the EU, and 3 neutral members, all appointed for a 4-year term. The adjudicators are ex-ante selected by the state parties to the investment agreements.

The dispute is heard in a division of 3 members, appointed by the President of the Tribunal, where one of the members shall be national of a Member state of the EU, one from Canada/Vietnam and one from a third country chairing the division. The assignment of cases is “random and unpredictable” and with the possibility of being heard by a sole arbitrator who shall be from the third country. What is important to find is that the members of the Tribunal are paid a monthly retainer fee contributed by both parties of the agreement ensuring independence and impartiality of the members. The issue of conflict of interest is addressed under Article 8.30(1) CETA, and Article 3.40 (1) EUVIPA as members are not allowed to act as counsel or party-appointed expert in pending or new investment protection dispute in this or any other agreement which may ensure independence “beyond doubt” and avoids direct or indirect “conflict of interest”.

Another feature pertinent to find among these agreements is the establishment of an appellate tribunal to review awards if the Tribunal based on the grounds fora challenge (Art. 8.28 CETA; Art. 3.54 EUVIPA). The Commission envisages the appellate mechanism that might “increase legitimacy both in substance and through institutional design by strengthening independence, impartiality, and predictability”. This is a permanent body under Article 3.39 (1) EUVIPA but no such permanency is found explicitly in CETA. However, the lack of word “permanent” in CETA does not infer that it is not permanent since the Commission envisioned of creating a “permanent multilateral appeals” in future. Members of Appellate Tribunal, in both FTAs, are paid a retainer fee. Under Article 3.39 (8) EUVIPA appeal to be heard in a division of three, one from the EU, one from Viet Nam and one from the third country and it shall be chaired by the national of a third country. However, in Article 8.28 CETA no such restriction on nationality is found but left to the Joint Committee to adopt a decision on administrative and organizational matters.

Transparency of Proceedings

In 2013, the Transparency rules, applicable to CETA and EUVIPA, introduced a large degree of publicity in the arbitral proceedings. The rules introduced provisions, inter alia, for public disclosure of commencement of the arbitration proceeding and also the notice and response of arbitration with written submissions from the parties and non-disputing third parties, transcripts of hearings, awards, and decision while allowing open hearings and submissions by non-disputing parties. However, expert reports, witness statements, and exhibits are made available upon request to the arbitral tribunal.

Transparency is assured to limit confidentiality and privacy and making documents available for public irrespective of arbitration rules chosen under CETA and EUVIPA. Moreover, hearings are public, and it is a matter of right of a non-disputing third party to attend under Article 3.51 (2) EUVIPA. The public disclosure of the award would improve predictability and consistency in the jurisprudence of the Tribunal creating precedents for future decisions. However, the availability of documents in public is subject to redaction of confidential or protected information, like business secrets and classified government information of respondent. Much burden lies on the Tribunal to determine on confidentiality of information and in cases when legible confidential information is disclosed could damage the interest of the disputing parties and may be a cause to appeal the award. The Tribunal can also accept or invite the non-disputing party to submit an interpretation of a particular provision of the treaties, a significant opportunity for academic and practitioners to scrutinize and contribute to the interpretation of the agreements.

Where next?

In sum, ICS introduces a new regime by assuring transparency, independent members of tribunals who are not appointed by the disputants, and importantly an appellate mechanism. The mechanism provides for mandatory resolution of disputes through amicable settlement. With an optimistic outlook of these features, criticisms have developed on its drawbacks especially the provisions to challenge award, jurisdictional issues and power of the Joint Committee/Trade Committee of the agreements. What is certainly expected from the Commission to push for the mechanism in the future agreements and thus the outcome of the Court of Justice on its compatibility could deeply affect and inspire changes.

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Expected Challenges and Opportunities of Investment Arbitration in Africa

Wed, 2019-02-06 21:26

Guillaume Aréou

AfricArb

Foreign Direct Investment into Africa has increased from $10 billion in 19991)UNCTAD, World Investment Report (2000), p. 40. jQuery("#footnote_plugin_tooltip_5527_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5527_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); to $41,8 billion in 2017.2)UNCTAD, World Investment Report (2018), p. 38. jQuery("#footnote_plugin_tooltip_5527_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5527_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Makhtar Diop, former World Bank Vice President for the Africa Region, pointed out that “Intra-African investment is also on the rise, creating a virtuous circle”.3)M. Diop, Y. Li, L. Yong, H.E. Ato Ahmed Shide, “Africa Still Poised to become the Next Great Investment Destination”, June 30, 2015. jQuery("#footnote_plugin_tooltip_5527_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5527_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); ICSID statistics also show that the number of newly registered cases involving African States in 2018 is still high with 11 new cases registered by the ICSID Secretariat. Yet, the number of African arbitrators appointed by the parties is low. Meanwhile, if one observes the case details of new registered ICSID cases involving African States in 2018, out of the 11 registered cases, it would seem that no African law firm appears as Counsel to represent a party. This demonstrates that one of the challenges related to Investment Arbitration in Africa is the greater participation of African arbitrators and counsels (I). Greater representation of African arbitrators and counsels would be consistent with the active role already played by African States in the last 50 years in the field of Investment Arbitration and especially before the ICSID. The ICSID jurisprudence is also marked by cases in which African States have been involved. The current role of African States in the development of the next generation of investment treaties is thus not surprising (II).

 

I.  Challenges Related to the Appointment of African Arbitrators and Counsels

As shown in the chart below, the number of African arbitrators (with a single or dual nationality) is low compared to that of arbitrators from other regions. One of the appointed arbitrators has Moroccan and Somalian nationalities while three other arbitrators have nationalities from the Arab Republic of Egypt and Nigeria. Another arbitrator with a dual nationality (United Kingdom and Nigeria) has been appointed three times. These are very low numbers compared to France (27), the United States of America (20), the United Kingdom (20) and Switzerland (14). Indeed, out of the 57 nationalities represented by arbitrators appointed in an ICSID proceeding only 4 African States are represented. 

source: ICSID’s 2018 annual report, p. 33
This chart covers the Year 2018 and takes into account cases registered under the ICSID Convention and the additional facility rules.

Paul-Jean Le Cannu, Team Leader and Legal Counsel at the ICSID, similarly observes that “when comparing the data by region, […] relatively few arbitrators from the African continent have been appointed in ICSID arbitrations”.4)P.-J. Le Cannu, “Foundation and Innovation: The Participation of African States in the ICSID Dispute Resolution System”, ICSID Review, Vol. 33, No 2 (2018), p. 474. jQuery("#footnote_plugin_tooltip_5527_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5527_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Chart 1. Arbitrators, conciliators and ad hoc committee members in cases registered under the ICSID Convention and Additional Facility Rules – distribution of appointments by ICSID and by parties (or party-appointed arbitrators) by geographic region.5)P.-J. Le Cannu, “Foundation and Innovation: The Participation of African States in the ICSID Dispute Resolution System”, ICSID Review, Vol. 33, No 2 (2018), p. 474. jQuery("#footnote_plugin_tooltip_5527_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5527_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });Several reasons explain this data.

First and foremost, parties, either investors or States, tend not to appoint arbitrators from Africa.

According to Emilia Onyema, who released the SOAS Arbitration in Africa Survey in April 2018, this underrepresentation may be explained by “poor perception of African arbitration practitioners (by their foreign colleagues)” (see a KAB post on the survey here). Similarly, it would seem that African parties do not appoint their peers as arbitrators.6)E. Onyema, and others, « SOAS Arbitration in Africa Survey, Domestic and International Arbitration: Perspectives from African Arbitration Practitioners », 2018, p. 8. jQuery("#footnote_plugin_tooltip_5527_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5527_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Parties are not the only actors that can help to improve the appointment of African arbitrators. Arbitral institutions also play a significant role. The chart above shows that ICSID already appoints more African arbitrators than the parties themselves. It demonstrates the willingness of leading arbitral institutions to appoint arbitrators from diverse geographical regions. This was precisely one of the goals of the ICC when it launched the African Commission in July 2018.

The above analysis on the under-representation of African arbitrators in International Arbitration is also true regarding the appointment of African Counsels in ICSID proceedings. In the 11 new cases registered by the ICSID in 2018 with an African State involved, no party appears to have retained an African law firm as counsel.

This might change in the near future because there already exists a growing pool of highly qualified African lawyers. The same is true for African students who benefited from specialized International Arbitration program abroad. As African States also develop a similar high-level education program in International Arbitration, the representation of African law firms is also likely to grow in the coming years.

Finally, the development of associations dedicated to arbitration in Africa, such as AfricArb, I-ARB and African Arbitration Association will also help promote African arbitrators and counsels. In addition, African States are making renewed efforts to participate in, and weigh in on, the design of modern international investment standards and dispute resolution.

 

II.  African States’ Ongoing Initiatives in the Next Generation of Investment Treaties

In order to analyse the expected roles of African States in the next generation of investment treaties, it is essential to recall the active role played by African States in the development of the ICSID system.

One must first observe that African States were actively involved in the negotiation and entry into force of the ICSID Convention. Indeed, 15 of the 20 ratifications necessary for the Convention to enter into force came from African States. By 1970, after the first five years of ICSID, the number of African Member States had doubled and reached 29.

It is thus unsurprising that the first cases registered before the ICSID involved a majority of African States (15 out of 25);7)P.-J. Le Cannu, op. cit., p. 463. jQuery("#footnote_plugin_tooltip_5527_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5527_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); meaning that the ICSID jurisprudence has therefore been significantly marked by decisions that involved an African State.

It should be reminded that SPP v. Egypt 8)P.-J. Le Cannu, op. cit., p. 464. jQuery("#footnote_plugin_tooltip_5527_8").tooltip({ tip: "#footnote_plugin_tooltip_text_5527_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); was the first ICSID case where an Arbitral Tribunal upheld its jurisdiction on the basis of the host country’s investment law, establishing the famous theory of “arbitration without privity”. A few years later, but nonetheless as important as the SPP case, was the decision rendered in 2001 in the Salini v. Morocco case. This decision established another cornerstone of the ICSID jurisprudence by determining the criteria that should be used in the definition of an “investment” under Article 25 of the ICSID Convention.

It follows that African States have an extensive understanding of bilateral investment treaties. African States are thus well placed to propose new provisions, with a more balanced approach, for the next generation of investment treaties at either a bilateral, a regional or a continental level.

Out of 2971 BITs signed worldwide, 994 involve an African State and 194 are intra-Africa States. For instance, the Morocco-Nigeria BIT signed on 3 December 2016 is perceived as a model for the next generation of BIT as it includes new obligations for investors such as environmental and social impact assessments (see a KAB post on this topic here). Meanwhile, African States are currently negotiating the investment chapter, including the dispute resolution mechanism, of the African Continental Free Trade Agreement.

The above analysis shows that African States have played a significant role in the development of investment arbitration. The ongoing initiatives in the drafting of the next generation of investment treaties demonstrate that African States are willing to keep this positive function to be major actors for the future of International Arbitration. So does their involvement in the current rules amendment process at ICSID, along with other Member States and Convention signatories.The UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration is another typical example of their important contribution. Mauritius, the first State to have signed and ratified this convention, gave its name to this Treaty. Mauritius was followed by Cameroun and Gambia, putting African States, once again, at the forefront in the ratification of new instruments designed to improve the international investment arbitration system.

References   [ + ]

1. ↑ UNCTAD, World Investment Report (2000), p. 40. 2. ↑ UNCTAD, World Investment Report (2018), p. 38. 3. ↑ M. Diop, Y. Li, L. Yong, H.E. Ato Ahmed Shide, “Africa Still Poised to become the Next Great Investment Destination”, June 30, 2015. 4. ↑ P.-J. Le Cannu, “Foundation and Innovation: The Participation of African States in the ICSID Dispute Resolution System”, ICSID Review, Vol. 33, No 2 (2018), p. 474. 5. ↑ P.-J. Le Cannu, “Foundation and Innovation: The Participation of African States in the ICSID Dispute Resolution System”, ICSID Review, Vol. 33, No 2 (2018), p. 474. 6. ↑ E. Onyema, and others, « SOAS Arbitration in Africa Survey, Domestic and International Arbitration: Perspectives from African Arbitration Practitioners », 2018, p. 8. 7. ↑ P.-J. Le Cannu, op. cit., p. 463. 8. ↑ P.-J. Le Cannu, op. cit., p. 464. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Arbitration in Hong Kong: The Year of the Dog in Hindsight

Wed, 2019-02-06 21:00

Matthew Townsend

HK45

As an arbitration hub, Hong Kong has an enviable pedigree. The territory boasts a modern workable arbitration law, robust legal system, and a cohesive arbitration community. It is routinely ranked highly in indices of economic freedom; judicial independence; and perceived arbitration friendliness.

In the Year of the Dog, Hong Kong’s authorities and institutions have continued to build on this legacy1)The views expressed herein are the author’s only. jQuery("#footnote_plugin_tooltip_2950_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2950_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Its legislature brought into force reforms permitting third party funding for arbitration; its home grown arbitration institution, the HKIAC, released new rules; and its courts handed down a number of pro-arbitration decisions.

 

Third party funding

On 1 February 2019, the territory formally brings into effect amendments to its Arbitration Ordinance (Cap. 609) (“AO”). The new provisions abolish the common law doctrines of maintenance and champerty insofar as they apply to Third Party Funding (or “TPF”) for arbitrations in Hong Kong.

Readers will know that TPF is the funding of legal proceedings in return for financial reward by a third party which does not otherwise have an interest in the proceedings. The funder provides funding on a non-recourse basis, only receiving a return if the claim is successful. Hong Kong’s reforms have the effect that the territory now joins a number of other jurisdictions including Singapore, Australia, and England and Wales, which permit TPF for arbitration.

(Sensibly, the updated AO also permits the funding of services in Hong Kong in respect of arbitrations seated outside the territory. This reflects the fact that Hong Kong’s legal community also represent clients in arbitrations seated in other jurisdictions.)

The amendments have been some years in the making (see the author’s posts in previous years). Although the law was formally amended as early as 2017 it was only following the publication in December 2018 of a code of practice, under section 98P of the AO, (the “Code”) that the amendments were brought into force.

The Code stipulates duties on funders relating to inter alia: capital adequacy; conflicts of interest; confidentiality; privilege; disclosure and funding agreement provisions. These obligations are for the most part reflective of provisions contained in mandatory or voluntary codes in other jurisdictions. Under section 98R of the AO, failure to comply with the Code does not, in itself, render a funder liable to judicial or other proceedings. However, it is admissible in evidence, and any failure to comply with the Code may be taken into account if relevant to a question being decided in such proceedings.

It is instructive to compare Hong Kong’s reforms with those recently entering into force in Singapore, another jurisdiction which now permits TPF for arbitration. The Singaporean reforms apply only to a fairly narrow class of funders with funding at their “principal business”. By contrast, the Hong Kong’s amendments have wider application, permitting funding by any party to a funding agreement which does not otherwise have a legal interest in the arbitration (section 98J of the AO). The difference in approach perhaps explains why the Department of Justice, took the time to consult and develop the comprehensive Code before the new AO took effect. Singapore, which progressed its own reforms more rapidly, as yet has no wide ranging code of conduct of this sort. However, the professional funders identified in the Singaporean legislation will to some degree be sophisticated entities with well-established funding practices, which take account of funding practices in other jurisdictions (such as those set out in the England and Wales Association of Litigation Funders’ Code of Conduct).

 

Arbitration institutions in Hong Kong

Hong Kong is home not only to the HKIAC, but also the Asia office of the ICC, and since 2012, the CIETAC Hong Kong Arbitration Centre (“CIETAC HKAC”). Each of these institutions is continuously refreshing its arbitration offerings.

Notably, in 2018, the HKIAC issued new Administered Arbitration Rules. A full update on the new rules was previously published on this blog. However, in summary, the new provisions: facilitate electronic document submission by parties on to secured online repositories (Articles 3.1(e), 3.3, 3.4 and 13.1); for the first time allow a party to commence emergency arbitration (“EA”) prior to the filing of a Notice of Arbitration (Article 23.1 and Schedule 4); reduce the time frames for the EA process (Article 23.1 and Schedule 4); introduce an early determination procedure (Article 43); broaden the scope for single arbitration under multiple contracts (Article 29); and, in another first, introduce a default time limit for rendering an award — three months after the closure of proceedings or the relevant stage of the proceedings (Article 31.2). The changes are fairly incremental in nature. Nonetheless they reinforce the HKIAC’s intention to stay at the cutting edge of international best practice.

As discussed below, all three of the Hong Kong based institutions continue to position themselves to take advantage of the Chinese Belt and Road initiative, the growth of investment arbitration in Asia and other recent trends.

 

Case law

Hong Kong courts have, in the past 12 months, handed down a number of arbitration-related judgments. Three of the most significant are summarised below.

In Arjowiggins v Shandong Chenming [2018] HKCFI 93; HCCT 53/2015 (19 January 2018), the Court of First Instance (“CFI”) granted an anti-suit injunction restraining Shandong Chenming, an unsuccessful party to arbitration, from continuing parallel litigation proceedings in the PRC mainland. Whilst anti-suit injunctions have in the past been awarded under section 45(2) of the AO, in this case, the CFI granted the relief under section 21L of the High Court Ordinance (Cap. 4). The decision underlines the Hong Kong courts’ reluctance to entertain parties attempting to litigate (or re-litigate) matters which fall within the scope of an arbitration agreement.

In Z v Y [2018] HKCFI 2342; HCMP 1771/2017 (18 October 2018), the CFI refused to enforce a mainland Chinese award on the ground that the Tribunal had not given adequate reasons for its decision to reject evidence that the underlying agreement was invalid under PRC law. Applying R v F [2012] 5 HKLRD 278; HCCT 32/2011 (3 August 2012), the court found that “the reasons may be short, so long as the factual and legal basis are explained and the reasoning is expressed to enable the parties to understand how, and why, a finding is made on a material issue, and how a conclusion is reached by the tribunal”. The case provides a sober reminder of the difficulties parties will face in enforcing in Hong Kong awards with insufficiently reasoned decisions. The author’s full report on the decision can be found here.

Finally, the latest judgment in the decade-long Astro Lippo saga suggests the story will continue well into 2019. Readers will recall Astro’s unsuccessful attempts to enforce five Singaporean arbitration awards in that jurisdiction, giving rise to a 2013 Singaporean Court of Appeal decision in which it restated the applicability in Singapore of the choice of remedies doctrine (see report here). In Astro Nusantara International B.V. and Others v. PT First Media TBK [2018] HKCFA 12; FACV 14/2017 (11 April 2018), the Hong Kong Court of Final Appeal, overturning decisions of the lower courts, allowed First Media (the Lippo entity) an extension of time to apply for leave to set aside orders granting enforcement of these awards in Hong Kong. The Hong Kong courts will now hear the substantive challenge to enforcement.

 

The next 12 months

Looking forward to the Year of the Pig, three trends merit particular attention.

First, Hong Kong’s authorities and institutions will continue to position the territory as the preferred jurisdiction for resolving disputes arising out of the PRC’s belt-and-road initiative (“BRI”). The BRI, which the PRC government announced in 2013 and involves an enormous investment programme over three continents, will almost certainly lead to an increase in commercial disputes along the Belt and Road region. In recent years each of the ICC, HKIAC and CIETAC has launched its BRI initiative.

Second, and relatedly, Hong Kong looks set to benefit from an expected increase in investor state disputes, brought under bilateral and multilateral investment treaties. The HKIAC, which has from 2016 implemented a policy of offering hearing and meeting rooms free of charge to parties in HKIAC administered dispute resolution proceedings involving certain states, is also understood to be currently administering at least two investment treaty claims. It is noteworthy too that in October 2017, CIETAC brought into force its own international investment arbitration rules. These specifically anticipate administration of such arbitrations by CIETAC HKAC.

A third issue which could be of significance is the ongoing trade dispute between China and the United States, which may impact upon commercial transactions, and consequently arbitrations, in Hong Kong and the wider region.

In the Chinese Zodiac, the Pig denotes good fortune. The next lunar year looks to be one of opportunity for Hong Kong, as it seeks to maintain its unique position as a common law jurisdiction with a close cultural and geographic relationship to mainland China. The author would like to take this opportunity to wish all readers in Hong Kong and elsewhere a very Happy Year of the Pig!

References   [ + ]

1. ↑ The views expressed herein are the author’s only. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Issue Estoppel and Public Order in the Context of International Commercial Arbitration: The Russian Approach

Wed, 2019-02-06 05:42

Alexander Kostin and Ekaterina Berezina

The Supreme Court of the Russian Federation recently ruled that initiation of a second arbitration from the same contract violates the principle of legal certainty which forms part of the Russian ordre public (Ruling of the Supreme Court of Russian Federation dated 27.09.2017 docket number N 310-ЭС17-5655, А54-3603/2016).

The reasoning of the decision is comparable to the principle of issue estoppel – one of the pillars of the English procedural law as set in Henderson v. Henderson (3 Hare 100, 67 ER 313):

the parties to a lawsuit shall put forward their entire case and may not in further litigations proceed with a head of claim which could have submitted in the initial litigation.

Given the potential impact of the Ruling to arbitrations seated abroad, it is beneficial to look at the approach of the Russian Supreme Court in light of the principle of legal certainty.

Facts of the Case

JSC Ryazansky Plant of Ceramic Metal Instruments (Russia) and Lugana Handelsgesellschaft mbH (Germany) entered into an agreement for exclusive distribution of electronic components. The distribution agreement provided for arbitration before the German Institution of Arbitration (“Deutsche Institution für Schiedsgerichtsbarkeit e.V. – DIS”).

Due to the alleged breach of the distribution agreement by the Plant, Lugana initiated arbitration proceedings accordingly. The tribunal ruled in favor of Lugana and ordered the Plant to pay the debt in arrears, interest on debt and arbitration costs (“Award DIS 1”). The Award DIS 1 was enforced in Russia.

In 2013, Lugana initiated a new arbitration before the same institution seeking legal relief regarding several heads of claims which have not been adjudicated in arbitration DIS-1 (these heads of claims are referred to as “claims 3b and 3c” in the Ruling of the Supreme Court, without any further particularities). The arbitration tribunal ruled that substantive legal effect of the Award DIS-1 (materielle Rechtskraft) does not preclude bringing forward these heads of claim as they have not been decided in arbitration DIS-1. Thus the tribunal entered an award in favor of Lugana (“Award DIS 2”).

Since Plant did not comply with the Award DIS-2 voluntarily, Lugana sought recognition and enforcement in Russia. The first instance court found that the award complies with Art. V of the New York Convention and, therefore, recognized and enforced it. Plant appealed such decision and the case found its way to the Russian Supreme Court.

The Supreme Court ruled that the Award DIS-1 established legal certainty between the parties in question. Although the Award DIS 2 specifically stated that claims 3b and 3c have not been raised in the proceedings DIS 1, the initiation of the proceedings arising from the same contract and pertaining to the same subject matter violates the principle established by the European Court of Human Rights in LLC Link Oil SPb v. Russian Federation where the court decided on the admissibility of claims (“ECHR Judgement”). Consequently, the Supreme Court ruled that Award DIS 2 violates the Russian ordre public and thus its recognition and enforcement should be denied.

Analysis of the Decision

The Information Letter of the Supreme Arbitrazh [Commercial] court of the Russian Federation dated 26/02/2013 N 153 (“Information letter”) sets out the basic guidelines concerning the scope of order public under the Russian law. It provides that the notion order public refers to the fundamental legal grounds (principles) having superior imperative effect, universal character, specific social and public importance that form the basis of the economical political and legal state system.

One can argue that such principles include the Roman maxima ne bis in idem under which no person shall be penalized twice for the same breach of law (unless such application is specifically provided by the relevant law). In the arbitration context, such principle applies to the situations where an arbitration tribunal fails to discontinue proceedings if there already exists an arbitration award entered between the same parties, concerning the same factual background and with a similar legal relief sought.

The legal reliefs in the two arbitrations differ substantially, as heads of claims 3b and 3c have not been raised in the first proceedings. Thus, Award DIS-2 does not violate the Russian public order in this respect.

Another fundamental principle of Russian law is the prohibition of the parallel existence of judicial acts with irreconcilable conclusions. For instance, the Cassation Court of Western-Siberia in the Judgment dated 05.12.2011 N А27-781/2011 denied recognition and enforcement of an ICC award (place of arbitration – Turkey) on the grounds that the share purchase agreement, which was the subject-matter of the arbitration, had been found null and void by the Russian court under the derivative claim made by the minority shareholder of the Russian party to arbitration. As the conclusions reached in the Award DIS-1 and DIS-2 are not irreconcilable, the Award DIS-2 does not affect the Russian public order in this respect.

The Russian Supreme Court, however, should not have relied on the principle of legal certainty for two main reasons.

First, the Russian procedural law does not oblige the party to bring the entire case in the initial proceedings. Under Russian law, a court may terminate proceedings only if there is a previous judgment rendered between the same parties on the same cause of action and with a similar factual background (triple identity test). As the principle of legal certainty is not enshrined in the Russian procedural law it may not be considered as the fundamental legal grounds (principles) having a superior imperative effect.

Second, the Supreme Court reference to the ECHR Judgment is not persuasive as the ECHR in that instance dealt with the powers of the former Russian Supreme Arbitrazh [Commercial] Court for extraordinary review (peresmotr v poryadke nadzora) of the judgments of the lower courts. Therefore, its application to the arbitration awards is questionable.

With that said, we believe that the principle of legal certainty applied in the matter N 310-ЭС17-5655, А54-3603/2016 is an entirely artificial concept. In fact, the Award DIS-2 in no way violates the genuine principle of international ordre public and should have been granted recognition and enforcement (as did the courts of the lower instance). The ruling of the Paris Court of Appeals in Marriott v. JNAH, which provides that arbitrators enjoy a wide margin of appreciation in the application of Henderson v. Henderson doctrine. In this respect, an exequatur of the relevant award may be denied only if it is irreconcilable with the previous judgment or arbitral award. The approach of the Paris Court of Appeals is not only consistent with the international best practice, but also with the Russian law and as such should have been applied in the matter before the Russian Supreme Court.

In any event, the approach of the Russian Supreme Court and its reliance on the principle of legal certainty raises important practical implications. The parties to arbitrations pending abroad and need to assure that they have brought their entire case before the relevant arbitration tribunal. Otherwise, the relevant award runs the risk of being not recognized and enforced in Russia.

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Essential Tips on Cybersecurity for Arbitrators: Identify, Protect, Detect, Respond and Recover

Tue, 2019-02-05 19:01

Mauricio Duarte

Parties to arbitration, just like “millennials”, are dependent on digital data and network systems. Currently, most of the data created is used and stored in digital formats using internet and computer technology. This should not be surprising; the online world enables people to interact and behave in new and efficient ways. However, the resulting dependence on digital records creates significant cyber security vulnerabilities, which can result in major harm to the parties involved in an international arbitration.

In 2018, the White & Case – Queen Mary International Arbitration Survey: The Evolution of International Arbitration (“Survey”) revealed that the use of international arbitration is likely to increase in the technology sector. Furthermore, the Survey showed that technology is widely used in international arbitration and an overwhelming majority favours the use of hearing room technologies, cloud-based storage, videoconferencing, Artificial Intelligence and virtual hearing rooms.

However, as the digital environment continues to grow rapidly, it is time to acknowledge that any effort to achieve a successful relationship between technology and arbitration must also consider related privacy and data security concerns. This post discusses some essential tasks that can be undertaken by key players in international arbitration to protect privacy and data security and ensure a successful arbitration.

 

Cyber Security Scandals

In 2015, the Permanent Court of Arbitration’s (“PCA“) website was hacked as a result of a cyber-attack originated in China. Hackers placed a malicious code, infecting the computers of diplomats, lawyers, and others who visited the website, which caused the PCA to temporarily take the website down. This constitutes the first real example that cyber security is, in fact, becoming increasingly relevant in the context of international arbitration.

Other recent security incidents have made clear that no company is immune from cyber-attacks. For example, the Equifax cyber security scandal shocked data experts around the world in 2017. The incident involved the breach of a security protocol that was easy to decipher and “hackers” accessed sensitive information including: names, social security numbers, birth dates, addresses, driver’s licenses and credit card numbers taken from consumers’ personal data.

As a result of this and many other cyber security incidents, the United States National Institute of Standards and Technology (“NIST”) issued a

Framework for Improving Critical Infrastructure Cyber security. The framework defined high-level goals of any cyber security risk management program. Identify, Protect, Detect, Respond, and Recover are the 5 main goals for any successful cyber security program which could be considered in international arbitration. If these principles were adopted; 2019 could be the year in which there is an awakening for the international arbitration community regarding cyber security concerns in the field.

 

Cyber Security Protocol

International arbitration as a preferred choice of dispute resolution involves sensitive subject matters, which normally might require discovery of confidential information including trade secrets, financial information, and personal identifiable information. In order to preserve international arbitration as a preferred alternative to resolve disputes, arbitral institutions and arbitrators will have to identify critical data and software to protect valuable information. This will enable arbitrators to effectively build procedures that satisfy both cyber security and data privacy concerns at arbitral proceedings.

Parties, as users of international arbitration, expect arbitrators and arbitral institutions to take reasonable measures to protect non-public exchanges of information. This expectation derives from parties’ awareness of the risk of cyber security incidents, which may result in a wide range of losses for them, including: (a) out-of-pocket expenses for legal advice and forensic investigators; (b) regulatory penalties imposed by authorities; (c) potential damages awarded in civil claims; and (d) damages to market reputation. For instance, Facebook is currently facing lawsuits and monetary claims for the recent scandal involving Cambridge Analytica.

In 2018, ICCA, the New York Bar Association and the International Institute for Conflict Prevention and Resolution released a draft of the Cybersecurity Protocol for International Arbitration (Cybersecurity Protocol). The Cybersecurity Protocol originated as an acknowledgement from practitioners that arbitration proceedings are not immune to increasingly pervasive cyber-attacks. This also meant that attention to cyber security is required and essential to ensure that international arbitration maintains the confidentiality of the dispute resolution process.

In a digital era, a variety of factors must be considered when adopting security protocols for the transfer of sensitive information. However, with the new Cybersecurity Protocol, arbitral institutions and arbitrators will have some principles and guidelines to Identify, Protect, Detect, Respond, and Recoverdata from cyber security incidents that might take place in the arbitration proceedings.

Identify

Parties, arbitrators and arbitral institutions will have to work actively to identify what information might be vulnerable to cyber threats. This means, there should be an exhaustive consideration of what type of information is likely to be exchanged by the parties in the case. Intellectual property; trade secrets or other commercially sensitive information; financial information; personal data; and information that is subject to express confidentiality agreements or other relevant obligations should be considered.

However, identifying the relevant data or information is the first step. The arbitral tribunal will also need to identify whether the risk of a cyber attack is high or low, and whether the consequences of a breach are likely to be minor, moderate, or severe. This determination will depend on the identity of the parties; the industry/subject matter of the dispute; the size and value of the dispute; the prevalence of cyber threats and the severity of potential consequences if there is a breach of information security.

Protect

After identifying the data and potential risks, arbitrators will need to establish security protocols for the storage and transfer of sensitive data and information. This protection will require a digitally secure infrastructure that would contain or store the potential information. For instance, it is not recommendable to use a “cloud service” or similar services, such as Dropbox, with a fairly predictable password such as: “1234arbitration”. In this regard, the NIST has recommended that passwords should be based on unique passphrases, at least 8 characters long, and easily remembered. In addition, common dictionary words, past passwords, repetitive or sequential characters and context-specific words should be avoided.

Encryption, pseudonymization, or anonymization of information before it is exchanged could be a reasonable measure, depending on the concerns. Moreover, other protection measures could also address the limiting of exchanges of confidential commercial information and personal data; restriction of access to arbitration-related information and the method of transmission of the information.

Hopefully, the future of a blockchain infrastructure can contribute to cyber security in international arbitration. Blockchain is a distributed and immutable ledger, which stores information, known as blocks. Blocks are structured in the form of a ‘chain’ sequence, stored on various nodes (i.e., computers), which ensure that no single person or entity can manipulate the ledger without everyone else knowing. In other words, a blockchain protocol could serve as a tamper-resistant and resilient repository of data, to modernize and increase cyber security.

Detect

After identifying and enabling protection measures, a tribunal would need to have tools to detect a possible cybersecurity breach. For instance, the use of a program that specializes in detecting both malware and non-malware forms of spyware could be helpful (anti spyware software). Also, the use of antivirus software’s (not the trial versions) should enhance the process to detect a possible breach. Arbitral institutions could also adopt an enhanced digital infrastructure with a security service (i.e., intrusion detection system or intrusion prevention system) that monitors networks or systems for the purpose of finding or detecting, in real-time or near real-time, attempts to access system resources in an unauthorized manner.

Respond

Arbitrators would need to create a Cyber Incident Response Plan, providing instructions or procedures to respond and mitigate the consequences of a cyber incident. For instance, suspending the procedure until the cyber risk is addressed could be an option. Other options could include a strict mandatory 72-hour breach notification requirement; use of computer forensics to address the issue and alternatives to recover information; and the use cryptography for documents that have not been compromised in order to prevent anyone but the intended recipient from reading that data.

Recover

Although sometimes it might be difficult, if a cyber security incident occurs, a tribunal would have the responsibility to try to restore the data that has been lost, accidentally deleted, corrupted or made inaccessible. However, a tribunal could also adopt protection measures (since the beginning) to have a data back-up system in which copy of files and programs is made in order to facilitate recovery, if necessary. This backup should be done routinely and even considering the so-called “3-2-1 rule”, according to which 3 copies of the data should be made, 2 should be stored locally in different storage media, and 1 copy should be stored offsite.

Conclusion

The Cybersecurity Protocol discussed in this post is designed to encourage practitioners to become more familiar with cybersecurity risks and to provide guidance on measures to be taken in light of those risks. Although the lack of regulation in a particular industry could be interpreted as something positive at times, this does not apply to situations in which there could be: (a) economic loss to parties, arbitrators, and arbitral institutions; (b) reputational damage to arbitral institutions, arbitrators and counsel, as well as to the system of international arbitration overall; and (c) potential liability under applicable laws and other regulatory frameworks.

As the frequency and sophistication of cyber-attacks grow, we will need to ensure the adoption of good practices to protect digitally stored information. The incorporation of new technologies will not dismantle arbitral proceedings. On the contrary, technology will boost the appeal of arbitration to resolve disputes, especially in the technology sector. Thus, as practitioners, we shall all be familiar with the need to Identify, Protect, Detect, Respond, and Recover.

 

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The DIFC’s Status as a Conduit: A Timely Update in the New Year

Mon, 2019-02-04 21:50

Gordon Blanke

At the dawn of the New Year, it is time to provide an update on the Dubai International Financial Court (DIFC)’s role as a conduit. Since the DIFC’s first entry onto the jurisdictional landscape as a conduit for the recognition and enforcement of awards for onward execution against assets of award debtors in onshore Dubai, the DIFC’s status as a conduit jurisdiction has been unstable, wavering between approval, half-hearted support and outright rejection. It did manage to clear the hurdles of constitutional and public policy concerns in the earlier days of its existence before entering into wanton – yet predictable – confrontation with the Dubai-DIFC Joint Judicial Tribunal (the “JT). The JT was established precisely to deal with conflicts of jurisdiction between the onshore Dubai Courts and the offshore DIFC Courts.1)See Decree No. (19) of 2016 establishing the Dubai-DIFC Judicial Tribunal jQuery("#footnote_plugin_tooltip_1460_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The latter half of 2018, however, saw the adoption of encouraging case law precedent, both at the hands of the DIFC Court of First Instance (the “CFI”)2)See Chenshan Liu v. Dubai Waterfront LLC [2016] ARB 004, Order with Reasons of Justice Sir David Steel, 29 July 2018. jQuery("#footnote_plugin_tooltip_1460_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and those of the JT3)See Cassation No. 1/2018 (JT) – Sinbad Marine In. LLC v. Essam Abdulameer Hamadi Alfadli Al Tamimi jQuery("#footnote_plugin_tooltip_1460_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Isai v. Isabelle (CFI)

As I reported in a previous blog, in a ruling of the CFI of early 20184)See ARB 0006/2017 – Isai v. Isabelle, Amended Order with Reasons of H.E. Justice Omar Al Muhairi, dated 28 February 2018 jQuery("#footnote_plugin_tooltip_1460_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the CFI confirmed the concurrent jurisdiction of the onshore Dubai and the offshore DIFC Courts for recognition and enforcement of a DIFC-LCIA award rendered in onshore Dubai (as the seat of the arbitration) even in the absence of any assets of the award debtor offshore. The CFI based its findings in favour of its own jurisdiction on Art. 42(1) of the DIFC Arbitration Law, read together with Art. 5(A)(1)(e) of the Judicial Authority Law as amended5)See Dubai Law No. (12) of 2004 as amended jQuery("#footnote_plugin_tooltip_1460_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Art. 8(2) of Dubai Law No. 9 of 2004.6)As amended by Dubai Law No. 7 of 2011 jQuery("#footnote_plugin_tooltip_1460_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Chenshan v. Dubai Waterfront (CFI)

In Chenshan Liu v. Dubai Waterfront LLC, the CFI extended the logic it applied to the determination of its own jurisdiction in Isai v. Isabelle to an application for the offshore recognition and enforcement of a DIAC award rendered in a Dubai-seated arbitration for onward execution onshore and holding the award debtor, Dubai Waterfront LLC, liable for repayment of a deposit paid for the intended purchase of a plot of land on the Dubai waterfront. The CFI promptly granted an order for recognition and enforcement in the summer of 2016. In response, the award debtor filed an application for setting aside before the DIFC Courts and moved for nullification of the award before the onshore Dubai Courts. In both proceedings, the award debtor raised, inter alia, the purported invalidity of the arbitration agreement as a ground for a successful challenge.

Shortly after, in around September 2016, following the establishment of the JT, the award debtor challenged the jurisdiction of the DIFC Courts before the JT, contending that Arts 42 and 43 of the DIFC Arbitration Law did not apply to DIAC awards. The JT found in favour of the onshore Dubai Court’s jurisdiction to annul and enforce the award on the basis of “the general principles of law embodied in the procedural laws”7)See Cassation No. 2/2016 (JT) – Dubai Water Front LLC v. Chenshan Liu jQuery("#footnote_plugin_tooltip_1460_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. A dissenting minority (composed of the DIFC Courts’ members of the JT) found that the Dubai Courts in their capacity as the curial courts did have jurisdiction to annul the award, but that the DIFC Courts had “compulsory and exclusive jurisdiction to entertain an application for recognition and enforcement within the DIFC”.8)Ibid. jQuery("#footnote_plugin_tooltip_1460_8").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the prevailing circumstances, the DIFC Courts stayed their proceedings.

In 2017, the Dubai Courts rejected the award debtor’s application for nullification, both on appeal and cassation. It was then that the award creditor applied to the DIFC Courts for re-instating the original 2016 DIFC Court Order for recognition and enforcement. The CFI, in turn, found that the CFI retained “residual jurisdiction” for the recognition and enforcement of the award on the basis of (i) the original and exclusive jurisdiction accorded to the CFI over any claim or actions over which the Courts have jurisdiction in accordance with the DIFC laws and (ii) Art. 24(1) of DIFC Law No. 10 of 2004, which accords jurisdiction to the DIFC Courts to ratify any recognised arbitral award. On this basis, Sir Justice David Steel of the CFI concluded as follows:

“There is nothing in the Decree [No. (19) of 2016] to suggest that the Joint Judicial Committee [i.e. the JT] has executory power to override the statutory jurisdiction of either [the onshore Dubai or the DIFC] court. It follows that once the Court of Cassation had dismissed the Defendant’s appeal and the administrative stay had been lifted, the Claimant was entitled to reactivate the recognition proceedings. I reject the submission that the DIFC Courts had no residual jurisdiction in the matter.”9)[2016] ARB 004, at para. 36 jQuery("#footnote_plugin_tooltip_1460_9").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Sir Justice Steel reinstated the original DIFC Court Order for recognition and enforcement. In arriving at this conclusion, he expressly discounted the proposition that under Decree No. (19) of 2016 “once the Joint Judicial Committee decides on the appropriate court to have jurisdiction, there is no room for the other court to make any order whatsoever in relation to the global dispute in any of its aspects”10)[2016] ARB 004, at para. 30b jQuery("#footnote_plugin_tooltip_1460_10").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. According to Sir Justice Steel, “[t]his would lead to a black hole where it would be impossible to recognise and enforce an Award upheld by Dubai Courts within the DIFC, since there is no statutory mechanism for Dubai Courts to directly issue an order for enforcement of an Award within the DIFC save through the DIFC Courts.”11)[2016] ARB 004, at para. 30b jQuery("#footnote_plugin_tooltip_1460_11").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Further, “[t]he reliance on the alleged ‘general principles of law’ as supporting the Dubai Court’s competence to entertain the case is difficult to reconcile with the allocation of ‘exclusive jurisdiction’ to the DIFC Courts pursuant to Article 5 of the Judicial Authority Law No. 12 of 2004.”12)Ibid., at para. 30d jQuery("#footnote_plugin_tooltip_1460_12").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Sinbad v. Al Tamimi (JT)

In Sinbad Marine In. LLC v. Essam Abdulameer Hamadi Alfadli Al Tamimi, a more recent JT pushed the boundaries of the DIFC’s jurisdictional competence further, granting jurisdiction to the DIFC Courts for the recognition and enforcement of a non-DIFC award rendered in an onshore Dubai seat under the DIFC-LCIA Rules of Arbitration. In this case, the award creditor, Mr. Al Tamimi, sought recognition and enforcement of a DIFC-LCIA award for onward execution against a Dubai-based award debtor, Sinbad Marine. In the arbitration, Sinbad Marine had been found to have failed in the renovation of a yacht owned by Mr. Al Tamimi. Sinbad Marine filed for nullification of the award before the onshore Dubai courts and contended for a conflict of jurisdiction that required resolution in favour of the onshore Dubai Courts on the basis that there was no automatic offshore DIFC Court jurisdiction and that both parties were based in onshore Dubai. Mr. Al Tamimi moved for dismissal of the cassation given that a DIFC Court order for recognition and enforcement had already been issued. Against this background, the JT concluded as follows:

“Despite the fact that the DIFC and the DIFC-LCIA […] are separate entities, yet the DIFC-LCIA Arbitration Centre had been established in the DIFC. Accordingly, the supervising court of the arbitration should be the DIFC court [sic] and not Dubai Court.”13)Cassation No. 1/2018, at p. 5 jQuery("#footnote_plugin_tooltip_1460_13").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Even though the JT’s finding in favour of the DIFC Courts’ jurisdiction is, in principle, correct for the very reasons adduced by the CFI in its ruling in Isai v. Isabelle, it is difficult to follow the logic of the JT when it concludes from the offshore location of the DIFC-LCIA as the arbitration institution in charge of the administration of the reference in favour of the DIFC Courts’ status as the “supervising” court, a conclusion from which the DIFC Courts’ minority of the JT correctly dissented (a dissent that is presently still pending publication). For the avoidance of doubt, the geographic location of an arbitration institution does not assist in the identification of a competent enforcement court. A court’s jurisdictional competence and more specifically its competence to determine whether it is empowered to hear actions for recognition and enforcement is ultimately a question to be addressed by each court by reference to its own laws on jurisdiction. That said, the JT could have dismissed the cassation with relative ease on the basis that the DIFC Court proceedings for ratification and enforcement had already been closed and therefore, in the absence of two sets of proceedings pending in parallel before the Dubai and DIFC Courts, there was no conflict of jurisdiction within the meaning of Art. 4 of Decree No. (19) of 2016 to start (although, arguably, within the meaning of the Article, potentially divergent outcomes of the onshore and offshore courts – such as a successful nullification on the one hand and an order for enforcement on the other – suffice to accord the JT proper jurisdiction).

Be that as it may, Cassation No. 1/2018 provides good authority for the continued role of the DIFC Courts’ role as a conduit for the offshore recognition and enforcement of a non-DIFC DIFC-LCIA award for onward execution against assets of an award debtor in onshore Dubai.

References   [ + ]

1. ↑ See Decree No. (19) of 2016 establishing the Dubai-DIFC Judicial Tribunal 2. ↑ See Chenshan Liu v. Dubai Waterfront LLC [2016] ARB 004, Order with Reasons of Justice Sir David Steel, 29 July 2018. 3. ↑ See Cassation No. 1/2018 (JT) – Sinbad Marine In. LLC v. Essam Abdulameer Hamadi Alfadli Al Tamimi 4. ↑ See ARB 0006/2017 – Isai v. Isabelle, Amended Order with Reasons of H.E. Justice Omar Al Muhairi, dated 28 February 2018 5. ↑ See Dubai Law No. (12) of 2004 as amended 6. ↑ As amended by Dubai Law No. 7 of 2011 7. ↑ See Cassation No. 2/2016 (JT) – Dubai Water Front LLC v. Chenshan Liu 8. ↑ Ibid. 9. ↑ [2016] ARB 004, at para. 36 10, 11. ↑ [2016] ARB 004, at para. 30b 12. ↑ Ibid., at para. 30d 13. ↑ Cassation No. 1/2018, at p. 5 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Kluwer Mediation Blog – January and December Digest

Mon, 2019-02-04 20:42

Anna Howard

The end of 2018 and the start of 2019 brought the usual diversity of posts on the Kluwer Mediation Blog.   Topics addressed include: recent legislation on mandatory mediation in Turkey, lessons on mediators’ liability from a New Zealand Court of Appeal decision, reflections from the recent “Tbilisi Mediation Days” conference in Georgia, and the recent report on ADR and Civil Justice in England and Wales by the Civil Justice Council’s ADR Working Group. You’ll find below a brief summary of, and a link to, each of the posts written by the authors on the Kluwer Mediation Blog in the last two months.

 In “The future of ADR and civil justice in England and Wales”, Rafal Morek provides a detailed summary of the recent final report by the Civil Justice Council’s ADR Working Group on ADR and Civil Justice in England and Wales. Rafal’s summary includes the recommendations to address the three main themes identified in the report, namely a lack of awareness, availability and encouragement of ADR.

In “Everything is difficult before it is easy”, Martin Svatos draws on the negotiating experiences of his students and of his early experiences of negotiating to explain the difference between negotiating and “conscious negotiating.”

In “It’s not cricket. But it is a lesson about why apologies matter”, Rosemary Howell uses the recent Australian cricketing scandal to illustrate what not to do when apologising. Rosemary then applies the work of Debra Slocum and her research colleagues to the cricketing case study to demonstrate how to make a more effective apology. Such guidance will be very useful for mediators seeking to help parties to make things better, and not worse, when apologising.

In “Selecting a mediator; in general, in commercial cases –  and in a kingdom in need”, Greg Bond continues the debate about the qualifications that mediators need to mediate. In particular, Greg applies this issue to the potential involvement and selection of a mediator for the current difficulties between the UK and the European Union.

In “Who gets to talk; who gets to be heard”, Ian Macduff draws on recent research in New Zealand on public participation in local government to highlight the challenges of ensuring that participation and access are open and representative. Ian then uses an example from his experience as a facilitator to illustrate how it is important for facilitators to understand that there will be those who do not expect to be heard in the same way as others.

In “Turkish mandatory mediation expands into commercial disputes”, Tuba Bilecik examines the recent expansion of mandatory mediation in Turkey into commercial disputes. Tuba describes the impact of mandatory mediation to date in Turkey, the key provisions of Turkey’s new law on mandatory mediation and the challenges to its constitutionality.  Tuba also considers what the future may hold for mediation in Turkey.

In “A neuro-linguist’s toolbox – rapport: metaphors”, Joel Lee explores how the identification and adoption of another party’s metaphors can help to build rapport between parties. Joel also explains how a party can then reframe another’s metaphors in order to lead discussions into a more beneficial direction.

In “What would you know about it? Some thoughts on gaining experience as a young mediator”, Haley Weir draws on her own experience as a young mediator to highlight the challenges which can be faced by young mediators. Haley also identifies what she can bring, as a young mediator, to the table and encourages young mediators to continue to pursue opportunities to gain mediation experience.

In “Communication in the Whatsapp era”, Andrea Maia uses recent examples of communications by political leaders, including the Brazilian president, Jair Bolsonaro, to highlight the changing nature of communication. Andrea considers how the application of non-violent communication skills could improve communication via new communication technologies such as Whatsapp.

In “The man who loved dogs”, Rick Weiler draws on Leonardo Paduro’s novel, The Man Who Loved Dogs, to identify some of the key issues faced by mediators, namely, epistemology, fear and compassion. Rick notes that the novel’s treatment of compassion is perhaps the most instructive theme for mediators, and Rick explains the key role that compassion plays in his work as a mediator.

In “Gandalf, Choice, Power and Hope”, Bill Marsh applies the wisdom of Gandalf, the wizard in Tolkien’s famous Lord of the Rings, to the sense of powerlessness which those involved in conflict – mediators, parties and advisers alike – can feel. Bill explains how this sense of powerlessness can be converted into empowerment by turning our focus from the past to the present and the future, and by asking what it is that each of us can do, however small, to contribute in an apparently impossible situation.

In “A Mediator’s Dilemma”, John Sturrock describes a mediation dilemma in which he found himself and explains the steps he took to address the situation. John also asks readers to identify what the mediator may have missed in this situation.

In “Brexit negotiated? Online dispute resolution will be more than an alternative”, Charlie Irvine discusses the rise of online dispute resolution (“ODR”) and reviews recent developments, including a live, online Brexit negotiation, which point to a mainstream future. Charlie concludes that ODR will become an integral part of the justice system.

In “Let mediation be mediation. Conciliation versus mediation in Brazil”, Maria Nazareth de Serpa explains the meaning of each of mediation and conciliation in Brazil. Nazareth describes how these terms are frequently used interchangeably and incorrectly, and highlights the importance of understanding the difference between these two dispute resolution processes.

In “A neuro-linguist’s toolbox – rapport: values”, Joel Lee identifies techniques which can be used to identify values, both our values and those of others, and explains how the identification of another’s values can assist in building rapport. Joel notes how such techniques are similarly used in mediation, though in the context of identifying interests rather than values.

In “Is swapping shoes enough?”, Charlie Woods explores how the concept of “reflexive cartography” and the Design Council’s Double Diamond approach might be used in mediation and facilitation projects to: help people better understand things from different perspectives; and to allow them to work together to see how a place or an organisation might be improved, or a mutually acceptable agreement might be reached.

In “Who pays the mediator for an Ontario MVA mandatory mediation?”, Rick Weiler summarises the recent decision by the Ontario Superior Court regarding who is required to pay the mediator for mediations conducted under the mandatory mediation programme for motor vehicle actions. Rick also considers the impact of the court’s decision.

In “Leading in Conflict”, Bill Marsh draws on the wisdom of Richard Rohr, a Franciscan monk and thinker, to identify the key characteristics of “Creative leaders” when dealing with conflict. While the post focuses on the category of the parties to a conflict, Bill notes that mediators also need to lead and therefore Richard Rohr’s characteristics apply as much to mediators as to parties.

In “Mediation lessons from the cases – Part 1”, Alan Limbury identifies the important lessons regarding mediators’ liability which can be found in the New Zealand Court of Appeal case of Robert Samuel McCosh v David A R Williams.  Alan also uses this case to provide helpful guidance for mediators on how to exclude their liability for their actions during and after the mediation, and whether having anything to do with the mediation or not.

In “My 2018 Christmas notes on algorithms, my own children, sustainability, choice, and the human heart”, drawing on Yuvah Noah Harari’s Homos Deus: A brief history of tomorrow and, in particular, Harari’s vision of a post-humanist world in which Dataism reigns and where choices are made by algorithms, Greg chooses in this Christmas Eve post to write on the topics of sustainability, choice and the human heart.

In “Tbilisi mediation days – a glance into the history, the present, the future”, following the “Tbilisi Mediation Days” international conference in November in Tbilisi, Georgia, Sophie Tkemaladze explains the history of mediation in Georgia and identifies the current and future challenges and opportunities for mediation in Georgia. In particular, as regards the present, Sophie draws on discussions at the conference to identify the following two challenges:  the rights-based approach of Georgia’s legal culture and the way in which lawyers have been trained; and mediators’ inability (so far) to exercise leadership and mediate among themselves.

In “Don’t just do something. Sit there”, Anna Howard draws on her experience in a recent mediation with John Sturrock to explore the challenges, and the impact, of the mediation skill of saying nothing. The points which Anna identifies have relevance far beyond the mediation room.

 

 

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

Mon, 2019-02-04 00:47

Roman Zykov

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

The NYC Study

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

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

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

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

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

The NYC Study Results in a Nutshell

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

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

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