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Arbitral Decision-Making: An Issue of Consistency and a Response to Bias

Tue, 2018-06-12 04:00

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

Chartered Institute of Arbitrators (CIArb)

Consistent decision-making has been an ongoing concern in the way arbitrators approach the issue of treaty shopping and indirect expropriation. The article of Ozlem Susler and Therese Wilson, “Restoring Balance in Investor State Dispute Settlement: Addressing Treaty Shopping and Indirect Expropriation Claims and Consistent Approaches to Decision-Making” ,1)Published in CIArb’s Academic Journal: International Journal of Arbitration, Mediation and Dispute Management. jQuery("#footnote_plugin_tooltip_9054_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9054_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); explores two of the apparent concerns of western liberal democracies regarding investor state dispute settlement provisions in investment treaties and trade agreements. Both of these concerns were highlighted in the arbitration in Philip Morris Asia Ltd v Commonwealth of Australia wherein Philip Morris Asia challenged Australia’s Tobacco Plain Packaging Act 2011 as amounting to, amongst other things, indirect expropriation or a breach of the fair and equitable treatment (FET) standard. The case, therefore, highlighted the possibility of treaty shopping by an investor to secure the protection of an investment treaty, as well as the possibility of challenging State regulation on the basis of indirect expropriation or breach of the FET standard.

As the decision in Phillip Morris v Australia2)Philip Morris Asia Ltd (Hong Kong) v Commonwealth of Australia (Award on Jurisdiction and Admissibility, Permanent Court of Arbitration, Case No.2012-12, 17 December 2015). jQuery("#footnote_plugin_tooltip_9054_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9054_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); demonstrates, tribunals will not entertain jurisdiction to hear a claim where there has been an abuse of process in the form of treaty shopping which was undertaken at a time where the dispute was foreseeable. The clear message for investors following the decision in Philip Morris v Australia is that investors must structure their investment to make use of protections offered in a particular treaty at the time of entering the investment, rather than when a dispute is foreseeable.

The host state’s response to abusive treaty shopping might be to amend existing BITs or to terminate existing BITs. Some countries have moved towards terminating BITs with other countries—a radical move which can undermine the whole fabric of the foreign investment framework that has been developed to date. For example, Australia attempted to ban investor state arbitration, presenting a Bill in 2014 with a view to protecting Australian laws. An alternative approach is to improve the function of ISDS from the perspective of states, for example by addressing the issues discussed in this paper—including through a consistent investment court mechanism

Additionally, recently negotiated agreements such as the TPP reconceptualised as the CPTPP, and the proposed TTIP, have tended to include “carve-out” provisions, preserving state rights to regulate in the public interest, for example with regard to the environment and public health. Explicit preservation of the right to regulate, with regard to a range of public policy objectives, is a notable feature of the CETA. However, concerns might remain about how consistently such provisions might be interpreted or how consistently approaches to abuse of process might be applied by arbitral tribunals. A permanent and central investment court may allay those concerns.

A different factor influencing consistent decision-making is the issue of bias. Stepan Puchkov, in his article “Subconscious Bias as a Factor Influencing Arbitral Decision-Making” ,3)Published in CIArb’s Academic Journal: International Journal of Arbitration, Mediation and Dispute Management. jQuery("#footnote_plugin_tooltip_9054_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9054_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); explores the “black box” of the human mind which has been explored less than many people would guess and much less than it deserves. Even scientists specialising in this sphere have very limited knowledge about how thoughts are processed and how decisions are made. One of the means to obtaining an insight into this deep and mysterious process is the observation of repeating patterns of irrational behaviour that many people often follow. The process is two-way: on the one hand, the fact of human irrationality makes it possible to construct thought “road-maps”, on the other hand, an understanding of thinking processes allows us to predict and to some extent to avoid irrationality.

Rational decision-making is crucial for the functioning of many aspects of human society including dispute resolution. The progress made from trial by battle to international arbitration cannot be overestimated, but even the latter is not completely free from non-legal influences. Subconscious biases are among them. The good news is that such biases are predictable and as such can in principle be avoided.

Puchkov explores the most influential theories dealing with the concealed thought processes and their implications for arbitral decision-making. One of the most important known features of the human mind for decision-making is the processing of information by two different systems rather than by one. Departing from the results of previous research, they distinguished between the “automatic and largely unconscious” System 1 and the deliberative and analytical System 2. Subconscious influences are not apparent to a person but can nevertheless result in irrational although predictable decisions

As an example, the CME v Czech Republic and Lauder v Czech Republic cases are based on essentially the same factual and legal background but, nevertheless, the tribunals’ decisions are vastly different. Subconscious biases might have to a certain extent conditioned the discrepancies in the outcomes. One can fairly easily imagine a situation where a judge or an arbitrator sympathises with one party’s case in general as a “big question” but cannot accept arguments underpinning “small issues” and thus has no option other than to dismiss the claim altogether (despite not feeling inclined to do so). In such cases, it must be helpful for a party to state its arguments broadly, in a way that would allow the decision-maker to exercise some degree of interpretation.

The issues of consistency and bias in arbitral decision-making cannot be underestimated. They have given rise to criticisms regarding the legitimacy and transparency of arbitration as a dispute resolution process for resolving disputes involving public and private interests. Elucidating the arbitral decision-making process can be the much needed reply to such criticisms proving the effectiveness of arbitration as an alternative to domestic courts.

Both articles are published in CIArb’s Academic Journal: International Journal of Arbitration, Mediation and Dispute Management. After 8 years under the Editorship of Mr Michael O’Reilly, Professor Stavros Brekoulakis has taken over as the Editor in Chief of the CIArb’s Academic Journal (the International Journal of Arbitration, Mediation and Dispute Management). He will be supported by associate editors Dr Mary Mitsi, Dr Ahmed El Far and Sabina Adascalitei, and an Editorial Board of distinguished international arbitration practitioners and academics from a wide range of jurisdictions and legal backgrounds. The Journal is the oldest academic journal dedicated to the field of arbitration and dispute resolution and boasts an unparalleled membership of around 16,000 individuals and online access through Westlaw and Lexis Nexis UK. The Journal welcomes the submission of articles for publication (see here the guidelines for submissions)

References   [ + ]

1, 3. ↑ Published in CIArb’s Academic Journal: International Journal of Arbitration, Mediation and Dispute Management. 2. ↑ Philip Morris Asia Ltd (Hong Kong) v Commonwealth of Australia (Award on Jurisdiction and Admissibility, Permanent Court of Arbitration, Case No.2012-12, 17 December 2015). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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A Data-Driven Exploration of Arbitration as a Settlement Tool: Does Reality Match Perception?

Mon, 2018-06-11 03:12

Brian Canada, Debi Slate and Bill Slate

Arbitration as a Settlement Tool: Costly and Slow?

As an alternative dispute resolution (ADR) mechanism, arbitration is not without its critics, particularly when it comes to time and money spent. According to White & Case, LLP’s 2018 International Arbitration Survey: The Evolution of International Arbitration, respectively 67% and 34% of survey respondents indicated “Cost” and “Lack of speed” as being one of the three worst characteristics of international arbitration, and conversely, merely 3% and 12% of respondents respectively listed “Cost” and “Speed” as valuable characteristics of international arbitration. These observations underscore similar perceptions and concerns, regarding the costs of arbitration, which exist in the literature and elsewhere in the dispute resolution community.

If the perception of a protracted duration and associated high cost truly makes arbitration a less favorable dispute resolution mechanism, then one would expect that an analysis of case data would reveal that most arbitrations do not reach an early conclusion but rather proceed to settlement at an advanced stage, such as after an oral hearing or to determination in an award. Here, we investigate the extent to which these perceptions are reflected in reality by exploring a comprehensive repository of recent arbitration case data collected and maintained by Dispute Resolution Data (DRD), an organization providing online, subscription-based access to aggregated arbitration and mediation case data.

Elucidating the True Nature of Arbitration as a Settlement Tool

As of May 2018, the DRD database contains approximately 216,000 data points, collected across 4,100 alternative dispute resolution cases, which reflect categorical and quantitative information that includes case types, commercial and industrial sectors, geographic regions, various costs and fees, dates of key events, outcomes, award amounts, and much more. These data, collected from arbitration institutions and mediation organizations through a carefully designed and controlled user interface provided via the DRD website, fill a long-standing need for greater availability, clarity, and transparency of detailed statistics in arbitration for parties who are faced with or engaged in arbitration and for parties who are considering their ADR options but may not fully appreciate what is involved in such key areas as cost and duration.

Of the 4,100 cases in the DRD database, nearly 3,750 (or 91%) represent international commercial arbitration, while the remainder are international commercial mediation cases. A high-level summary of international arbitration case outcomes is presented in Figure 1. Overall, just over half (56%) of all the arbitrations informing the DRD data ended in either settlement or withdrawal, with a final award being rendered in 35%, administrative closure in 6%, dismissal in 1%, and the remaining 2% of cases having some other, unspecified outcome. It is worth noting that, although the DRD database allows for “withdrawal” to be entered as a separate case outcome, DRD’s position is that a “withdrawal” also indicates a settlement, the terms of which include the withdrawal of the claim. Consequently, DRD treats “settlement or withdrawal” as a single, combined case outcome for the purpose of this analysis.

Figure 1. Outcomes of 3746 arbitration cases in the DRD repository; all data represented in this and the remaining figures in this study are current as of May 2018

The DRD database reflects arbitration case types from many industry and commercial sectors, with some sectors more widely represented than others. Presently, the top four case types, in terms of the number of records entered, include commercial contracts (779 cases), hospitality and travel (453 cases), wholesale and retail trade (299 cases), and financial services and banking (254 cases). From Figure 2, we can see that in all but one of these four predominant case types, the most frequent outcome was settlement or withdrawal.

While the representations of the cases in Figures 1 and 2 suggest that settlement is a more likely outcome than any other conclusion, they each nonetheless represent a single, “static” view with no reference to the point in the arbitration at which settlement occurred.

Figure 2. Outcomes of arbitration cases for top four case types in the DRD repository

When Did Settlement Occur?

For those arbitrations that ended in settlement or withdrawal, the point in the arbitration at which this outcome occurred provides a benchmark duration for parties that are actively involved in or otherwise contemplating arbitration (actually or academically) and its potential costs. For each of the arbitrations that settled or were withdrawn, the DRD dataset includes dates of key points in the arbitration, including the date on which the claim was filed (the “claim date”) as well as the dates, where applicable, of any counterclaim, preliminary hearing, and any hearing on the merits. As shown in Figures 3 and 4, the most recent event prior to settlement or withdrawal, regardless of case type, was most frequently the claim date itself, from which we compute the overall duration of the proceedings. Summary plots of these data are shown in Figure 5; for each of the four predominant case types, we show the average length of time (in days) from claim date to settlement, with the margin of error (also in days) computed at the 95% confidence level.

Figure 3. Most recent event occurring prior to settlement, all case types Figure 4. Most recent event occurring prior to settlement, grouped by case type Figure 5. Distributions of the number of days to reach settlement or withdrawal for cases in which settlement or withdrawal occurred prior to any significant arbitration events that would otherwise follow the claim date. For each case type, “X” indicates the average time from claim to settlement or withdrawal. Stacked boxes represent the interquartile range (i.e., between the first and third quartiles), with the median number of days represented by the horizontal line inscribed within each box. Outlier points are not shown in accordance with DRD policy to safeguard the interests of our data contributors.

Concluding Remarks and Future Work

Our high-level analysis of data on hundreds of actual international commercial arbitrations suggests that arbitration has the potential to be an effective tool for settlement as well as for binding determination, given that settlement or withdrawal is the most frequent outcome in the arbitrations recorded in the DRD repository. Of those cases that settled or were withdrawn, the vast majority settled before any other significant step in the arbitration process after the claim date (i.e., counterclaim, preliminary hearing, and/or hearing on the merits). From Figure 5, one sees that among the four most highly represented case types, both the average and median number of days to reach settlement or withdrawal after the claim date (and before any other significant step in the arbitration process) were less than one calendar year, with some variance from one case type to another.

While this analysis does provide evidence to show that settlement is often quickly achieved within arbitration, further study and greater transparency of actual case data is necessary for parties contemplating or actively involved in arbitration to make more fully informed decisions on the duration, costs, and likely outcomes of arbitration. As the DRD repository continues to be populated, we are continuing to apply data analytics to identify trends and patterns that we believe may be useful to those who are evaluating different mechanisms for dispute resolution. In forthcoming studies, we will show the results of deeper investigations into the relationships between and among various dimensions in our dataset. For example, we plan to examine both case type (including more specific subtypes) and case region (that is, where arbitration took place) as factors potentially affecting arbitration outcomes, the time required to reach those outcomes, and the associated costs of achieving those outcomes.

[Note: A version of this article with older data was originally published in volume 11, number 1 of the NY Dispute Resolution Lawyer (Spring 2018), a publication of the Dispute Resolution Section of the New York State Bar Association.]

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The Seat of Arbitration is Important. It’s That Simple.

Sun, 2018-06-10 05:00

David Hesse

Clyde & Co.

The seat of arbitration is a vital aspect of any arbitration proceeding. The situs is not just about where an institution is based, where hearings will be held or where there may be a good pool of arbitrators. It is also about which courts have supervisory power over your arbitration and the scope of those powers. A recent decision of the Commercial Court reminds us that although the governing law of an agreement may provide for one national law, which may follow the nationality of one or both parties, it is the seat of the arbitration which is crucial to the protection of an arbitral award and its enforceability.

Atlas Power v National Transmission

In Atlas Power v National Transmission Mr Justice Phillips heard an application in the Commercial Court for a final anti-suit injunction to restrain the defendant from challenging a Partial Final Award made in an LCIA arbitration. In ordering the final injunction, Phillips J confirmed that the seat of the arbitration in question was London and this entitled the claimant to permanently restrain the defendant from challenging the Final Partial Award in Lahore, Pakistan or anywhere other than England & Wales. (Atlas Power v National Transmission [2018] EWHC 1052 (Comm))

Background

The claimants were a group of independent power producers (IPPs) generating and supplying energy solely to the defendant, National Transmission and Despatch Company Limited (NTDC), a company registered in Pakistan and owned by the government of Pakistan. The IPPs entered into nine power purchasing agreements (PPAs) with NTDC. The PPAs were subject to Pakistani law and provided, in a somewhat complex arbitration agreement, for tiered dispute resolution by mutual discussions, expert determination and arbitration. The arbitration clause provided for Lahore, Pakistan as the situs in general, but under certain circumstances, the arbitration clause provided that the arbitration would be conducted in London, England.

A dispute arose which was determined in the IPPs’ favour by expert determination. NTDC challenged the determination in the Lahore court and obtained an injunction preventing any reliance by the parties on that determination. While the expert’s determination had been pending, the IPPs had commenced nine LCIA arbitrations in London (which had been subsequently stayed with the agreement of the LCIA and NTDC, pending the outcome of the expert determination). Following the expert determination (and NTDC’s challenge to the result), the stay on the arbitrations was lifted at the request of the IPPs.

The LCIA Court determined under LCIA Rule 16.1 that the seat of the arbitration should be London and a sole arbitrator was appointed.

NTDC subsequently applied for the arbitration to be stayed on grounds that the seat of the arbitration was Lahore, not London and that the Lahore injunction prevented the arbitration from proceeding.

Various proceedings took place in the courts in Lahore and the arbitration in London, including, a declaration from the arbitrator that the correct seat was London, following the NTDC application. The arbitrator issued a Partial Final Award finding in the IPPs favour finding that the expert’s determination was final and binding. NTDC challenged the award under s68 Arbitration Act but discontinued the proceedings.

Commercial Court proceedings

The IPPs came before the Commercial Court in December 2017 (judgment handed down 4 May 2018) seeking an anti-suit injunction from the English Court restraining NTDC from challenging the Partial Final Award in Lahore or anywhere other than England & Wales.

In the Commercial Court NTDC argued (having eventually agreed that London was the seat of the arbitration) that the present case could be distinguished from the Court of Appeal decision in C v D on which the IPPs relied. In C v D the Court of Appeal held that having chosen London as the seat of arbitration, the parties must be taken to have agreed that proceedings on the award should only be those permitted by English law. NTDC submitted that as the governing law of the PPAs and the arbitration agreement was the law of Pakistan so the provisions as to the choice of seat and the intended effect of such a choice must be determined as a matter of Pakistan law. As such, that a contract between Pakistani parties governed by the law of Pakistan cannot exclude the supervisory jurisdiction of the Pakistan courts. (C v D [2008] 1 Lloyd’s Rep 239)

The judgment

Phillips J found in the IPP’s favour on the “entirely straightforward basis that the seat of the Arbitration is London” and restrained NTDC on a permanent basis from challenging the Partial Final Award in Lahore or anywhere other than England & Wales.

In reaching this decision, Phillips J considered:

  • Where the seat of the arbitration is in England & Wales, Part I of the Arbitration Act 1996 apply including the provisions in s67 and s68 relating to challenging an award on the basis of jurisdiction or serious irregularity
  • The seat therefore determines the curial law of the arbitration
  • Numerous authorities establish that the courts of this jurisdiction, England & Wales, regard the choice of seat of an arbitration as akin to an exclusive jurisdiction clause
  • The Court of Appeal in C v D made it clear that by choosing London as a seat the parties intended that proceedings on the award should only be those permitted by English law regardless of the governing law of the arbitration

He further noted that in C v D, one of the reasons Longmore J regarded the seat as necessarily giving rise to exclusive supervisory jurisdiction was that the alternative would be a highly unsatisfactory position in which multiple jurisdictions could hear challenges to an award. This must surely be correct as the alternative leaves the potential for potentially conflicting decisions and undermines the finality of the arbitral process.

The case adds to the increasing volume of jurisprudence in England & Wales in support of and giving effect to parties’ choices in respect of arbitration provisions. The choice of seat is a vital consideration when contracting and should never be relegated to ‘just another detail’ of a dispute resolution clause.

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A Procedural Perspective of Achmea: What Does Achmea Imply in Practice

Sun, 2018-06-10 02:59

Deyan Dragiev (Assistant Editor for Europe)

Considering what the Court of Justice of the European Union (“ECJ”) said in its Judgment of 6 March 2018, under Case C‑284/16, widely known as the “Achmea judgment” (“Achmea”), one begs the question: How this should be perceived in practice?  Because, when interpreting EU law not to be compatible with BIT-based dispute resolution, or vice versa, there is one important issue: How this is to be implemented? Achmea can be read through the lenses of EU law, and through the lenses of international arbitration. The purpose of this post is to consider Achmea from the procedural point of view of arbitral jurisdiction and subsequent award enforcement.

Jurisdiction Stemming from an Arbitration Agreement in Conflict with Achmea

Let’s imagine a putative arbitrator, or a panel of arbitrators. The parties to an arbitration agreement, be it incorporated within a bilateral or multilateral treaty, have appointed them, or at least a party has triggered arbitration proceedings as per the respective treaty. The tribunal (or the arbitral institution) is faced with the treaty, that grounds their jurisdiction, on one hand and with Achmea on the other hand, which postulates that “TFEU must be interpreted as precluding a provision in an international agreement […], under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept”. The treaty states on what grounds the tribunal has jurisdiction. Achmea provides that Treaty for the Functioning of the European Union prohibits investor-state dispute resolution between EU Member States. For the sake of the argument, let’s assume Achmea is relevant and applicable, without delving into the discussion what is the precise scope of application and impact of Achmea, i.e. whether its ambit is very case specific or very wide ranging.

So, should the tribunal assume jurisdiction over the dispute or not? First of all, the tribunal should consider whether the respective treaty serves as valid basis for jurisdiction. The tribunal would either have to state that the treaty is not valid, as a matter of public international law, or proceed to consider the prerequisites for jurisdiction under the treaty. To evaluate the validity of a treaty is not among the tasks of the arbitral tribunal deciding investor-state dispute, though. All issues of validity and termination of international treaties are governed by the Vienna Convention on the Law of Treaties 1969 (“VCLT”) (as per its Article 42). A tribunal or another authority may not invoke domestic law or EU law to argue that a treaty is not valid except where the VCLT’s requirements are present.

Moreover, all disputes concerning a treaty would have to be settled as per the VCLT, and most likely as between the states parties to the treaty and during proceedings between these states concerning only and specifically the issue of validity/invalidity. Investor-state dispute resolution clauses are usually different from state-to-state dispute resolution clauses. Further, the VCLT contains a set of specific procedural rules how a state should act where it finds that a treaty is invalid or to terminate it, and this cannot be rendered by a tribunal constituted under an investment dispute. Hence, the arbitral tribunal faced with an investment dispute would not have the jurisdiction as a matter of procedure to rule on the validity of the treaty, and this is without going at all into the merit of the question whether the treaty is valid and enforceable after the Achmea judgment. The tribunal would simply lack jurisdiction to assess the issue. Hence, it would either have to accept the treaty as it is, on its face value, or decline jurisdiction. But there are no apparent reasons for the latter, so the tribunal should proceed with checking if the conditions for jurisdiction are in place.

This would entail answering to a set of questions as to whether one party is an investor; national of a state party to the treaty; there is an investment dispute, etc. All these issues do not relate to what the ECJ stated in Achmea. All these issues are most likely to be seen only through the prism of the respective treaty without involving the EU law, even if some domestic law of the host state should apply (e.g., on the question of what rights the investor possesses). Achmea would not come into play and the tribunal would not have a reason to consider its relevance to their operation at all. Hence, Achmea should not have impact on the tribunal’s jurisdictional assessment at this stage as well.

Enforcement of an Award Rendered on an Investment Dispute Based on Intra-EU Investment Treaty

Let’s imagine an investor who obtains a favourable award against an EU Member State, and that the state fails to comply with it, for one reason or another. The investor should seek enforcement.

1. The award is an ICSID award and is brought to be enforced before EU Member State authorities

Under Article 54 of the ICSID Convention, the ICSID award has the same status as a domestic judgment. There are no procedural grounds to defend against it under the ICSID Convention, including grounds as per arguments for lack of jurisdiction and invalidity of arbitration agreement.

2. The award is a non-ICSID award and is brought to be enforced before EU Member State authorities

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) 1958 has two grounds for non-recognition that may be relevant: (i) nullity of the arbitration agreement (Article V(1)(a)), or (ii) public policy (Article V(2)(b)). The former implies invalidity of the entire treaty or at least invalidity of this respective provision of the treaty. A national authority of a EU Member State would not have the powers to declare an international treaty, wholly or partially, as null and void, for the reasons stated above. Moreover, it cannot apply its own law to make assessment of the validity of the international treaty incorporating the arbitration agreement. Article V(1)(a) requires that “the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made”. The national authority cannot proclaim an international treaty null and void under public international law or under its own domestic law.

Hence, the only residual basis for an Achmea defence is public policy. However, public policy has a substantive and procedural aspect. The ruling of the ECJ in Achmea has no regard for substantive considerations but procedural ones. However, the procedural aspect of public policy (e.g. lack of due process and other procedural irregularities, lack of impartiality/independence of arbitrators, etc.) should exclude issues of validity of arbitration agreement/jurisdiction as these should fall within the scope of Article V(1)(a) and not public policy defence. Therefore, it is questionable to what extent an award may be refused recognition and enforcement under the New York Convention based on arguments derived from Achmea, granted that the Convention is applied with due regard and without policy influence.

3. The award is enforced outside the EU

The considerations reviewed above apply here as well with one major limitation: that EU law would not be part of the forum law and therefore any interpretation of EU law should not be taken into regard by the forum authorities.

Conclusions

There remains one important question. What is the practical value of ECJ’s statement in Achmea? It is more likely than not that it should not bereave an arbitral tribunal from its jurisdiction based on an international treaty for protection of investments. Moreover, it is difficult to say how it would affect at all the way an arbitral award is being enforced.

Then what is the procedural impact of Achmea? We are forced to assume that Achmea, given that the judgment is contrary to the Opinion by the Advocate General Wathelet, is more of a political statement. Being a political statement, it is a legal swish in the air as it says a lot on its own but does not necessarily pave a way to its pragmatic implementation. It does not say how an investor-state dispute under existing international treaties should be handled. It does not even mention the VCLT although it is common knowledge that one cannot consider validity of treaties without the background of the VCLT. The autonomous legal order argument that the ECJ relies upon is rather artificial. As the reference system of the ECJ allows that the ECJ says something as a matter of interpretation of the law, and leaves the interpretation of its own statement to others, the Achmea judgment seems even more a political proclamation of what EU institutions would like the reality to be.  But what reality is, is something different.

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

 

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Transparency, Legitimacy, and Investor-State Dispute Settlement: What Can We Learn from the Streaming of Hearings?

Sat, 2018-06-09 01:40

Colin Trehearne

Herbert Smith Freehills

[I]t is not merely of some importance but is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done.1) R v Sussex Justices, ex parte McCarthy [1924] 1 KB 256, 259 (Lord Hewart C.J.) jQuery("#footnote_plugin_tooltip_9909_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9909_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

If you sought to distil [the connection between ISDS’s transparency and legitimacy] to a single point, it would be that transparency is a necessary condition of the legitimacy of ISDS.2) Michael Douglas, “The Importance of Transparency for Legitimising Investor-State Dispute Settlement: An Australian Perspective” in the New Zealand Association of Comparative Law, Hors Serie Volume XIX (2015) Part I: Investor-State Dispute Settlement and UNCITRAL Texts on Transparency, at page 112. (“Douglas”) jQuery("#footnote_plugin_tooltip_9909_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9909_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Scholars, NGOs, and practitioners have been discussing the legitimacy of investor-state dispute settlement (“ISDS”) for years. Much of this debate has focused on the critique that ISDS, usually taking the form of confidential and binding arbitral proceedings, sees private and unelected tribunals determining matters thought to be of public importance. Some activist and media publications (such as in this local newspaper or in this news website) also allege a host of profound ills arising from ISDS: negative impacts on systems of criminal justice, the protection of kleptocracy, and the placing of pressure on host states to assist in the murder of environmental activists.3) The author notes that addressing such critiques is beyond the scope of this blog post. jQuery("#footnote_plugin_tooltip_9909_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9909_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); All of this harm is compounded still further, it is argued, by the fact that ISDS is largely conducted behind closed doors.

The Open Court Principle

The argument that justice should be seen to be done, also known as the open court principle, is nothing new to interlocutors from (at least) the common law world. Generally speaking this principle holds that both proceedings and the record, including the evidence submitted in the matter, should be available for public scrutiny. In many jurisdictions this principle has become enshrined in law and, in some locations, in the constitutions of States. Openness is argued to foster fairness and to allow individuals to determine for themselves whether or not legal matters are being conducted in accordance with the rule of law.4) See, for example, Douglas at pages 117 and 119. jQuery("#footnote_plugin_tooltip_9909_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9909_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Transparency is thought to foster legitimacy, and on some views, is a condition of legitimacy.

For these and other reasons, court systems throughout the world have sought to increase transparency and in many cases have begun either time-delayed or live streaming, on the internet, of proceedings. The Supreme Court of England and Wales, for example, both live streams cases and provides on-demand access to some of its past proceedings. According to the Court, about 15,000 people used the live streaming service per month in the seven months following its launch. Similar services are available in other jurisdictions, such as Canada – where the norm is to broadcast Supreme Court proceedings online and to provide video archives of almost the last 10 years of hearings. In Australia the High Court and other levels of court offer similar services. Similar efforts in China, too, demonstrate that this trend is not limited to the common law world. Courts are not alone, however, in looking to technology to improve transparency and thereby to increase perceived legitimacy.

Transparency in the Proposed Investment Court System and ISDS

In 2015 the European Commission proposed the introduction of its Investment Court System (“ICS”) for inter alia the Transatlantic Trade and Investment Partnership. In a speech introducing the idea, Commissioner Cecilia Malmström referred to a “fundamental lack of trust by the public” in the traditional ISDS system and stated that the answer to this problem was clear: “We need to introduce the same elements that lead citizens to trust their domestic courts. This is the only way to establish trust in this system.” With regard to how this will be achieved, Commissioner Malmström set out various elements of the new ICS and affirmed that: “All this will be done in a system that is even more transparent than in domestic courts. All documents will be online and hearings will be open to the public.”

Against this background, participants in and defenders of traditional ISDS have also taken significant steps to increase legitimacy through increased transparency. The adoption by the United Nations Commission on International Trade Law (“UNCITRAL”) of Rules on Transparency in Treaty-based Investor-State Arbitration (the “Transparency Rules”) were thought to hold the potential to blaze a trail towards ISDS transparency and the UN Convention on Transparency in Treaty-based Investor-State Arbitration was thought yet another step. Certain key institutions, including the International Centre for Settlement of Investment Disputes (“ICSID”), have used technology – including the live streaming of hearings – to increase transparency. It is now approaching 10 years of practice since the first case in which an ICSID hearing was publicly webcast (Pac Rim Cayman LLC v. Republic of El Salvador (ICSID Case No. ARB/09/12)). This practice has continued, most recently with BSGR et al v. Republic of Guinea (“BSGR”) — the first ISDS case to apply the Transparency Rules under the ICSID Convention, with the resulting recording available on ICSID’s YouTube channel.

BSGR

The Kluwer blog has previously considered BSGR and examined the sources and implications of its transparency provisions. Interestingly, however, we are now better placed to answer a question posed in previous posts: whether open hearings will attract a huge crowd of spectators or whether the purported public interest in ISDS proceedings is much ado about nothing. If an ISDS hearing was likely to attract public attention, BSGR seems a reasonable candidate for the role: in an era of Wikileaks and the Panama papers, the matter involved the mining industry, allegations of a political conspiracy,5) BSG Resources Limited v The Republic of Guinea, Request for Arbitration at paragraph 75 jQuery("#footnote_plugin_tooltip_9909_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9909_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); allegations relating to corruption6) Request for Arbitration at paragraph 60 jQuery("#footnote_plugin_tooltip_9909_6").tooltip({ tip: "#footnote_plugin_tooltip_text_9909_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and allegations of the wrongful involvement of billionaire George Soros,7) Request for Arbitration at paragraphs 57ff jQuery("#footnote_plugin_tooltip_9909_7").tooltip({ tip: "#footnote_plugin_tooltip_text_9909_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and a failed application for disqualification of all of the tribunal members.8) Decision on the Proposal to Disqualify All Members of the Arbitral Tribunal (28 December 2016), available here jQuery("#footnote_plugin_tooltip_9909_8").tooltip({ tip: "#footnote_plugin_tooltip_text_9909_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); One might expect, therefore, various civil society actors, institutions, scholars, and the public to be keenly interested in the hearing. An initial analysis suggests that this is not the case; public interest in ISDS hearings, based on BSGR at least, appears to be minimal.

BSGR and View Counts

While few members of the public have the resources, time, and ability to attend public ISDS hearings, billions of people are online and have ready access to free platforms like YouTube, Vimeo, and Dailymotion. So while the UN General Assembly9) General Assembly Resolution 69/116 of 10 December 2014 jQuery("#footnote_plugin_tooltip_9909_9").tooltip({ tip: "#footnote_plugin_tooltip_text_9909_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); recognized “the need for provisions on transparency in [ISDS] disputes to take account of the public interest involved”, the view counts visible on uploaded ISDS videos suggest more concretely the actual amount of public interest. The BSGR hearing is, it bears noting, a relatively recent upload to YouTube (published on 29 March 2018) but the view counts are extremely low: the English version of the hearing videos has (as at 7 May 2018) fewer than 150 views for day 1 and no more than 30 views for any of the other days made available. These figures, it bears noting, may also overstate or understate the amount of public interest: YouTube’s view count only indicates that the video was loaded and does not indicate whether the video was actually watched in part or in full, nor does a single view count capture all views where hearings are available on multiple websites (such as the Vattenfall v Germany hearing, available on YouTube and Livestream). What these numbers do suggest, nevertheless, is that there has so far been minimal public interest in observing ISDS cases. A recent video on how to pick up cats safely recorded more than 2 million views in 5 days, and a video showing a silent black screen with a blinking red dot recorded more views than the BSGR hearing in less than 24 hours. What can be gleaned from this?

The goal of increased transparency and open courts is generally a worthy one, provided that appropriate protections are in place as needs be and as national courts regularly put into effect in addressing risks that can arise from cameras in court rooms. As institutions and policymakers take steps towards greater ISDS transparency,10) It bears noting, of course, that these are limited steps as evidenced by the slow adoption of the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration of 2014. As of May 2018 this convention has only three parties. jQuery("#footnote_plugin_tooltip_9909_10").tooltip({ tip: "#footnote_plugin_tooltip_text_9909_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); an (admittedly) cursory examination of the ISDS hearings available online suggests that too much is being made of the ability of transparency to improve public perceptions of legitimacy. While there may be small gains to legitimacy for those especially interested in a given matter, few people appear to have the time or inclination to meaningfully engage with the technology-assisted offerings nor is there evidence that ICSID’s streaming of hearings for almost a decade has improved opinions of ISDS legitimacy. While streaming and uploading hearings may be one part of improving the perceived legitimacy of ISDS, the view counts suggest that much more will need to be done if the link between transparency and legitimacy is as strong as some suggest.

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References   [ + ]

1. ↑ R v Sussex Justices, ex parte McCarthy [1924] 1 KB 256, 259 (Lord Hewart C.J.) 2. ↑ Michael Douglas, “The Importance of Transparency for Legitimising Investor-State Dispute Settlement: An Australian Perspective” in the New Zealand Association of Comparative Law, Hors Serie Volume XIX (2015) Part I: Investor-State Dispute Settlement and UNCITRAL Texts on Transparency, at page 112. (“Douglas”) 3. ↑ The author notes that addressing such critiques is beyond the scope of this blog post. 4. ↑ See, for example, Douglas at pages 117 and 119. 5. ↑ BSG Resources Limited v The Republic of Guinea, Request for Arbitration at paragraph 75 6. ↑ Request for Arbitration at paragraph 60 7. ↑ Request for Arbitration at paragraphs 57ff 8. ↑ Decision on the Proposal to Disqualify All Members of the Arbitral Tribunal (28 December 2016), available here 9. ↑ General Assembly Resolution 69/116 of 10 December 2014 10. ↑ It bears noting, of course, that these are limited steps as evidenced by the slow adoption of the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration of 2014. As of May 2018 this convention has only three parties. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Irreparable or Near-Irreparable Harm that Can Result from Non-Enforceability of Judgments

Fri, 2018-06-08 01:52

Maja Stanivukovic

Enforcement for some may be a chimera, an overrated factor in choosing the dispute resolution methods.1)Cameron Ford, The Enforcement Chimera, Kluwer Arbitration Blog, May 10. 2018. jQuery("#footnote_plugin_tooltip_7904_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7904_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Yet, efforts that have been invested in enforcement of judgments within the Hague Conference on Private International Law2)See the Draft Judgments Convention jQuery("#footnote_plugin_tooltip_7904_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7904_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and of international commercial settlement agreements reached in mediation within UNCITRAL3)See materials of the UNCITRAL Working Group II jQuery("#footnote_plugin_tooltip_7904_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7904_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); suggest that enforcement is not an entirely fictional animal. The topic of this post is how enforceability of judgments can indirectly affect enforcement of a domestic arbitral award in Serbia.

Efforts to improve efficiency of enforcement in Serbia

On 1 July 2016, the 2015 Enforcement and Security Act (ESA) came into force in Serbia.4)Zakon o izvršenju i obezbeđenju, “Official Journal,” 106/2015. This is the fourth Enforcement and Security Act in row since 2000. jQuery("#footnote_plugin_tooltip_7904_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7904_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It introduces significant changes in the enforcement procedure.5)One of the major changes introduced by the 2015 ESA is that most enforcement procedures including those based on arbitral awards are now conducted by public enforcement agents, under the supervision of the court. Public enforcement agents are graduated lawyers appointed by the Minister of Justice to exercise public powers entrusted to them under the law, in particular enforcement of judgments. They were introduced as a new legal profession by the 2011 Enforcement and Security Act. jQuery("#footnote_plugin_tooltip_7904_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7904_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The most important reasons for its adoption are: low efficiency in enforcement procedures,6)The European Court of Human Rights has found on numerous occasions that Serbia has committed violations of Art. 6(1) of the Convention and Art. 1 of Protocol no. 1 due to the failure to timely enforce final judgments. See one of the latest cases Vukosavljević v. Serbia, Application no. 23496/13, Judgment dated 27 September 2016. jQuery("#footnote_plugin_tooltip_7904_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7904_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); a large backlog of enforcement cases pending in courts, and general dissatisfaction of creditors.

Article 15(1) of the ESA provides that enforcement proceedings are urgent. Articles 41 and 42(1) expressly recognize domestic arbitral awards as valid legal bases for the institution of enforcement proceedings.7)Article 64(1) of the Arbitration Act provides that a domestic arbitral award shall have the force of a final domestic judgment. This means domestic arbitral awards may be enforced in accordance with the provisions of the statute regulating enforcement procedure, which is currently the 2015 ESA. jQuery("#footnote_plugin_tooltip_7904_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7904_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A final domestic arbitral award is enforceable after the time for voluntary execution has expired, or other conditions specified in the award have been fulfilled. If no time is specified, the time for voluntary execution is eight days (ESA, Art. 47(1)).

The public enforcement agent has a duty to rule on the request for enforcement of a domestic arbitral award within eight days from the date of lodging of the request for enforcement in ex parte proceedings (ESA, Art. 15(4)). The debtor then has eight days to appeal the decision to the court (Art. 25(1)).

As a rule, lodging of the appeal does not suspend enforcement (ESA, Art. 25(3)). Execution against assets may be obtained as soon as the decision granting enforcement is rendered.

Suspension of enforcement

The sole remedy against the domestic arbitral awards is the action for annulment (setting aside) which must be filed within three months of the receipt of the award (Arbitration Act, Art. 59(1)). It may happen that an enforcement proceeding has been initiated while the action for setting aside is pending. The debtor in such case may wish to request suspension of the enforcement proceedings until the decision on the setting aside is made.

The Arbitration Act does not provide for suspension of enforcement proceedings because an action for setting aside of the domestic award has been filed. Furthermore, the 2015 ESA does not envisage it, either.

Nevertheless, the 2015 ESA provides that the enforcement proceedings may be suspended at the request of the debtor if the debtor establishes likelihood that enforcement would cause him irreparable or near-irreparable harm exceeding the harm caused to the creditor due to suspension (Article 122).8)It should be noted that the possibility of suspension of enforcement proceedings at the request of the debtor was not provided by the previous 2011 Enforcement and Security Act. jQuery("#footnote_plugin_tooltip_7904_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7904_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Additionally, the debtor is required to show that the suspension is justified by special reasons which the debtor can substantiate with an authentic or duly certified document. Further, suspension may be conditioned upon deposit of security by the debtor.

The proposal for suspension may be filed only once during the enforcement proceedings (Article 122(1)). The public enforcement agent must decide on the proposal within five days of receipt (Article 124(1)). This decision is subject to a review by the court upon the debtor’s objection (Article 124(2)). The time for which enforcement is suspended is determined by the public enforcement agent, following the request of the debtor.

How it works in practice

Although suspension is envisaged as an exceptional remedy, the practice confirms a case where the suspension was granted.9)Rešenje Privrednog suda u Beogradu, Posl. br. 8 IPV (I) 375/17 Ii 639/17 Veza 8 Ipv (I) 255/17 dated 22 January 2018. The case, unpublished, has been reported by Nikola Bodiroga, Odlaganje izvršenja domaće arbitražne odluke, Privreda i pravo no. 4-6/2018, pp. 277-281. See also, Nenad Tešić, Odlaganje izvršenja arbitražne odluke – Periculum in Mora ili Ultima ratio u odbrani dužnika od neopravdanog osigromašenja, soon to be published. jQuery("#footnote_plugin_tooltip_7904_9").tooltip({ tip: "#footnote_plugin_tooltip_text_7904_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In this case, an Austrian creditor sought enforcement of a domestic award against a Serbian debtor. The creditor sought enforcement by blocking the debtor’s business account and by attaching debtor’s real estate for sale. The debtor requested suspension for at least two years or until the setting aside proceedings initiated before the Commercial Court in Belgrade were finalized.

The public enforcement agent initially rejected the debtor’s request. The debtor then filed an objection to the Commercial Court in Belgrade.

The grounds for the objection were that the attached property was of considerably higher value compared to the amount of the debt, that the blocking of the debtor’s business account prevented the debtor’s operation and could eventually lead to its bankruptcy, and that the creditor was domiciled in Austria and had no property in Serbia or abroad from which the collected amount could be recuperated in case the award was eventually set aside.

The court found that the debtor’s objection was well-founded. In the opinion of the court, the debtor had established likelihood that enforcement would cause him irreparable harm, and that such damage would exceed the harm that would be caused to the creditor due to suspension.

The court attributed particular importance to the fact that there was no treaty on enforcement of judgments between Serbia and Austria, Austria being known as a country requiring a treaty with the judgment country. Therefore, the debtor would not be able to recover the collected amount from the creditor if the award was subsequently annulled. On the other hand, the creditor’s claim was secured by an entry of the decision on enforcement in the real property cadastre. By making an entry, the creditor obtained priority over any other creditor that might later acquire claims against the same debtor. The court therefore quashed the decision that rejected the request of the debtor for suspension and ordered the public enforcement agent to reconsider the grounds for suspension taking into account the holding of the court. Acting upon the court’s decision, the public enforcement agent then granted the request for suspension.

Conclusion

The fact that judgments of Serbian commercial courts are not enforceable in Austria has been critical to the court’s decision to suspend the enforcement proceedings based upon the domestic award. The irony of it is that the prime motive for selecting arbitration in commercial contracts between Austrian and Serbian partners may often be to circumvent the non-enforceability of judgments.

The case indicates that under the 2015 ESA there may be a greater risk than before of delay in enforcement of domestic awards rendered in international cases if the award debtor is established abroad, in a country with which reciprocity in enforcement of judgments is lacking.

The potential duration of the suspension is considerable. The setting-aside proceedings can last up to a year and appeal proceedings for another year and a half. The procedure for setting aside, although usually unsuccessful, can thus indirectly affect the efficiency of the domestic arbitration proceedings, and undermine one of the goals set by 2015 ESA, as well as the 2006 Arbitration Act: efficient enforcement of domestic arbitral awards.10)In 2010 Serbia has been held liable for a violation of Article 1 of Protocol No. 1 of the European Convention on Human Rights due to the partial non-enforcement of a domestic arbitration award. Kin-Stib and Majkić v. Serbia, no. 12312/05, ECtHR (Second Section), Judgment (Merits and Just Satisfaction) 24 April 2010. jQuery("#footnote_plugin_tooltip_7904_10").tooltip({ tip: "#footnote_plugin_tooltip_text_7904_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For this reason alone, courts should administer this remedy sparingly.

Professor Stanivukovic is the author of the ICCA Handbook National Report on Serbia, recently completely revised and updated, and now available here. With thanks to prof. Milena Đorđević for helpful comments.

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References   [ + ]

1. ↑ Cameron Ford, The Enforcement Chimera, Kluwer Arbitration Blog, May 10. 2018. 2. ↑ See the Draft Judgments Convention 3. ↑ See materials of the UNCITRAL Working Group II 4. ↑ Zakon o izvršenju i obezbeđenju, “Official Journal,” 106/2015. This is the fourth Enforcement and Security Act in row since 2000. 5. ↑ One of the major changes introduced by the 2015 ESA is that most enforcement procedures including those based on arbitral awards are now conducted by public enforcement agents, under the supervision of the court. Public enforcement agents are graduated lawyers appointed by the Minister of Justice to exercise public powers entrusted to them under the law, in particular enforcement of judgments. They were introduced as a new legal profession by the 2011 Enforcement and Security Act. 6. ↑ The European Court of Human Rights has found on numerous occasions that Serbia has committed violations of Art. 6(1) of the Convention and Art. 1 of Protocol no. 1 due to the failure to timely enforce final judgments. See one of the latest cases Vukosavljević v. Serbia, Application no. 23496/13, Judgment dated 27 September 2016. 7. ↑ Article 64(1) of the Arbitration Act provides that a domestic arbitral award shall have the force of a final domestic judgment. This means domestic arbitral awards may be enforced in accordance with the provisions of the statute regulating enforcement procedure, which is currently the 2015 ESA. 8. ↑ It should be noted that the possibility of suspension of enforcement proceedings at the request of the debtor was not provided by the previous 2011 Enforcement and Security Act. 9. ↑ Rešenje Privrednog suda u Beogradu, Posl. br. 8 IPV (I) 375/17 Ii 639/17 Veza 8 Ipv (I) 255/17 dated 22 January 2018. The case, unpublished, has been reported by Nikola Bodiroga, Odlaganje izvršenja domaće arbitražne odluke, Privreda i pravo no. 4-6/2018, pp. 277-281. See also, Nenad Tešić, Odlaganje izvršenja arbitražne odluke – Periculum in Mora ili Ultima ratio u odbrani dužnika od neopravdanog osigromašenja, soon to be published. 10. ↑ In 2010 Serbia has been held liable for a violation of Article 1 of Protocol No. 1 of the European Convention on Human Rights due to the partial non-enforcement of a domestic arbitration award. Kin-Stib and Majkić v. Serbia, no. 12312/05, ECtHR (Second Section), Judgment (Merits and Just Satisfaction) 24 April 2010. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Third Party Funding for Arbitration in Nigeria: Yea or Nay?

Thu, 2018-06-07 03:38

Joseph Onele

Introduction

 

It is no longer news that Third-Party-Funding (TPF) has captured the attention of the arbitration community in recent times and has become increasingly popular even in international commercial and investment arbitration. No doubt, the recent expansion of TPF in international commercial and investment arbitration has spurred debates with regard to its regulation, both on a national and an international level.

 

Whilst noting that it is virtually impossible to address all issues with a single set of rules, and the need to avoid the risk of over-regulating as there is no ‘one size fits all’ approach, this article proceeds to contribute to the debate on the need for TPF regulation in Nigeria. Specifically, given the Arbitration and Conciliation Act (Repeal and Re-Enactment) Bill 2017 (The Bill) currently pending before the House of Representatives, the second legislative chambers of the National Assembly (the legislative arm of the Federal Republic of Nigeria), this article considers the propriety or otherwise of regulating TPF for arbitration in Nigeria. This article comes to complement the previous post on this issue authored by Joshua Karton and Abayomi Okubote, given the wide interest in TPF and arbitration.

 

This article stems from the implicit recognition of TPF in Arbitration in Article 41(2)(g) (Definition of Costs), Article 50(1) (Costs of the Arbitration), and Article 83 (Interpretation) of the Bill. It argues that the Bill, earlier passed by the Nigerian Senate, but now awaiting the concurrence of the House of Representatives, must go beyond ‘implied’ recognition of TPF and include express provisions to make TPF for Arbitration in Nigeria accord with best practices.

 

Recent Move towards Third-Party Funding in Arbitration in Nigeria: What about the Blurred Lines in the Bill?

 

A careful reading of the Bill will reveal that the Bill tacitly recognizes TPF in arbitration. Apart from defining the ‘costs’ in arbitration to include TPF in Article 41(2)(g) of the Bill, Article 50(1) empowers the arbitral tribunal to fix ‘costs of arbitration’ in its award and further defines the term ‘costs’ to include ‘the costs of obtaining Third Party Funding.’ Furthermore, Article 83 defines TPF as arrangement between an individual or corporate entity (the funder) and a party involved in the arbitration, whereby the funder agrees to finance some or all of the party’s legal fees in exchange for being remunerated from proceeds of the award. It is submitted that the above stated provision tacitly recognises TPF in arbitration in Nigeria to the extent that it contemplates increasing access to justice and preventing a situation where a party is unable to arbitrate a dispute on account of costs associated with arbitration.

 

The foregoing submission notwithstanding, it could be argued, particularly, by those belonging to the ‘liberal’ school of thought – canvassing that TPF should be allowed in arbitration – that a careful reading of the Bill reveals an intention by drafters to allow TPF in arbitration in Nigeria. However, this position could be countered by those belonging to the ‘restrictive’ school of thought. The proponents of the restrictive school of thought are likely to argue that a mere mention of TPF under the provisions on costs or the ‘Interpretation’ section does not suffice. It could further be argued that the drafters, if indeed desirous of permitting TPF in arbitration, should have included a substantive provision expressly stating that TPF is allowed in arbitration.

 

Making a Case for Third-Party Funding in Arbitration in Nigeria

 

With the above in mind, it is, therefore, essential that TPF in arbitration in Nigeria be given a befitting place in the body of the Bill, to avoid providing a fertile ground for undue controversy on the question as to whether the Bill actually allows TPF in arbitration. Whilst the Bill’s implied recognition of TPF in arbitration is commendable, it is crucial the drafters go further to include at least a substantive provision expressly stating that TPF in arbitration is allowed. This is to ensure all existing or potential obstacles to the realisation of the TPF in Arbitration in Nigeria are swiftly dealt with and no doubt is left as to the enforceability of agreements stemming from TPF in arbitration ‘seated’in Nigeria.

 

The Nigerian lawmakers will do well to go beyond the tacit recognition of TPF in arbitration in Nigeria and enact substantive provisions allowing TPF in arbitration in Nigeria. This will definitely clear all doubts the statutory provision supersedes the common law position precluding champerty and maintenance. This is because it is a well settled principle of Nigerian law that where a statutory provision differs from common law, the common law gives way to the statute. The Bill, no doubt, will go a long way in providing a more enabling business climate for investors, boosting investors’ confidence and encouraging parties to choose Nigeria as a seat of arbitration.

 

Revisiting the Debate on Third-Funding in (International) Arbitration: What about it?

 

Arguably originating in Australia, and initially designed to support parties that did not have the means to pursue claims, it could be conveniently argued that TPF helps with the costs of arbitral proceedings, increases access to justice and allows a claimant to allocate risks and costs while continuing its business operations with a steady cash flow.

 

Whilst it is incontrovertible that TPF improves access to justice, one needs no soothsayer to realise that it equally attracts some challenges. Some of the issues TPF raises include: conflicts of interest, disclosure, security for costs, and control over the claim, amongst others.

 

The above issues notwithstanding, it is submitted that the advantages of allowing TPF in arbitration, should sway the lawmakers in the affirmative. The choice of Singapore and Hong-Kong as preferred seats for arbitration, ranking as third and fourth most preferred arbitration seat globally, after London and Paris, is arguably not far-fetched from the Singapore and Hong-Kong permitting TPF in arbitration.

 

Lessons for Nigeria from Singapore and Hong-Kong

 

The Federal House of Representatives can readily draw relevant examples from Singapore and Hong-Kong. The Singaporean Parliament, on 10 January 2017, passed the Civil Law (Amendment) Act (Bill No. 38/2016) (the Act), which entered into force in March 2017. The Act amends Singapore law to permit TPF for international arbitration and related court proceedings under certain conditions, with further regulations prescribing specific eligibility requirements for funders. Similarly, further inspiration can be drawn from the Hong-Kong Legislative Council which recently adopted a new law permitting the TPF of arbitration, bringing Hong Kong into line with other common law jurisdictions and further strengthening the position of the Hong Kong International Arbitration Center.

 

Conclusion

 

In all, should the Bill go beyond the definition of TPF and contain substantive provisions allowing TPF in arbitration in Nigeria, it is argued that the Bill, upon being passed to law would have effectively overridden the common law position precluding champerty and maintenance.This is because it is a well settled principle of Nigerian law that where a statutory provision is in conflict or differs from common law, the common law gives way to the statute. This much has equally been alluded to by the Supreme Court of Nigeria in Patkun Industries Ltd v. Niger Shoes Ltd (1988) NWLR (Pt. 93) 138; (1988) LPELR-2906(SC), Per Nnamani JSC.

 

Giving the attraction of Nigeria as a preferred seat of arbitration and the potentials such offer for the Nigerian economy, the Nigerian lawmakers are advised to go beyond the tacit recognition of TPF in arbitration in Nigeria and enact substantive provisions allowing TPF in arbitration in Nigeria.

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UAE Federal Arbitration Law Adopted at Long Last: All Well that Ends Well?

Tue, 2018-06-05 17:05

Gordon Blanke

The adoption of the UAE Federal Arbitration Law  has kept the specialist arbitration profession in the waiting for the better part of a decade. It was finally adopted earlier this week, to the great acclaim of the local and international arbitration community. The new Law, Law No. 6 of 2018, will apply within 30 days from publication in the UAE Official Gazette to all ongoing and newly initiated arbitration proceedings seated in the UAE or to those proceedings that are governed by the provisions of the new Law by reason of another connecting factor (Article 2). The new Law repeals the provisions of the UAE Arbitration Chapter, i.e. Articles 203 through to 218 and 236 of the UAE Civil Procedures Code, which have governed UAE-seated arbitrations to date.

The UAE Arbitration Chapter has routinely been criticised for being an archaic instrument of local arbitration, which is out of time with the requirements of arbitration in a modern age. That said, albeit based on the UNCITRAL Model Law and bringing welcome change to the limited procedural scope of the UAE Arbitration Chapter, the new Law essentially fails to deliver on the ambitious promises that previous drafts once held. The better part of the new Law codifies existing case law precedent that stems from the UAE courts’ interpretation of the provisions of the UAE Arbitration Chapter since its adoption in 1992. That case law precedent is remarkably arbitration-friendly and has given rise to a jurisprudence constantethat has provided reliable guidance in the application of the UAE Arbitration Chapter over the years (see in particular the detailed article-by-article commentary on the practice and procedure under the UAE Arbitration Chapter for a full study: G. Blanke, Commentary on the UAE Arbitration Chapter, Thomson Reuters/Sweet & Maxwell, 2017). By way of example, the principle of party autonomy, pursuant to which the arbitration process is a matter for contractual agreement between the parties; the separability of the arbitration agreement from the main contract, which allows a tribunal to investigate matters of invalidity affecting the main contract; the principle of kompetenz-kompetenz, whereby the arbitral tribunal is empowered to determine its own jurisdiction; the distinction between arbitration agreements and submission agreements; the incorporation by reference of arbitration agreements; the distinction between seat and venue of the arbitration; the res judicataeffect of awards; and the partial enforcement or nullification of arbitration awards are all concepts of arbitration well known from arbitration practice under the UAE Arbitration Chapter. Whilst derived from prevailing case law precedent under the UAE Arbitration Chapter, these fundamental concepts of arbitration now find express codification in the new Law.

The new Law also provides detailed guidance on the formation of the arbitral tribunal and potential challenges and the replacement of arbitrators, the tribunal’s procedural and substantive decision-making as well as the termination of the arbitration reference. Further, the new Law contains detailed wording on the process of the arbitration going forward, such as the exchange of substantive pleadings by the parties, including the statement of claim and statement of defense and counterclaim, the language of the arbitration, the submission of evidence (including tribunal and party-appointed experts), the presentation of witness testimony, the power of the tribunal to determine the applicable law, the form and content requirements of a resultant award as well as the confidentiality of awards and the interpretation, correction and the issuance of additional awards. Most of these provisions are closely modeled on the UNCITRAL Model Law and will as such be by and large familiar to the discerning practitioner (depending always on the quality of the English translation in hand, the text of the law having as yet only been published in its Arabic original). That said, virtually all of these provisions have existed before in one form or another in arbitration practice under UAE Arbitration Chapter in combination with a leading set of arbitration rules, whether e.g. the local DIAC Rules, the ICC Rules or the free zone DIFC-LCIA Rules. In this sense, the new Law provides no doubt a useful stand-alone framework for ad hoc arbitration outside a firm institutional context and as such, on its own, is no doubt superior to the provisions of the UAE Arbitration Chapter. That said, leading local institutional rules – in addition to the UNCITRAL Rules – have proven to be a suitable and helpful procedural complement to the UAE Arbitration Chapter over the years in order to avoid undesirable stalemate in an ad hoc context.

Be that as it may, some of the provisions of the new Law are more innovative and do bring change – for better or worse. Some of the better changes include in no particular order the following:

  • The parties’ free choice of impartial and independent arbitrators (subject to an express prohibition to appoint members of staff of arbitration institutions in charge of the administration of an individual reference) (Article 10);
  • the arbitrability of tortious causes of actions (Article 2(3));
  • the introduction of a wide definition of “international” arbitration, which may lay the basis for the gradual formation of a domestic/international public policy dichotomy, the latter being typically more restrictive than the former;
  • the more broadly available arbitration defense, which – in the terms of the new Law (Article 8(1)) – no longer needs to be advanced “in the first session/hearing”before the court, a term that used to cause interpretive challenges under Article 203(5) of the UAE Arbitration Chapter;
  • the express and wide power given to the courts to support the arbitral process through interim measures both before and after initiation of the arbitration as appropriate (Articles 18) and supplementary powers to similar effect granted to the arbitral tribunal (Article 21);
  • the tribunal’s power to join a third party to the arbitration process (Article 22);
  • the confidentiality of the arbitration proceedings (Article 33(1));
  • hearings (Article 33(3)), including the hearing of witnesses, by means of modern means of communication (such as video-conferencing), their physical presence at the hearing not being required (Article 35);
  • the award being deemed issued at the seat of the arbitration, there being no requirement for arbitrators e.g. from outside the UAE to be present in the UAE for a valid execution of the award (Article 41(6)); and
  • the tribunal’s express power to render interim and partial awards (Article 39), which – pursuant to Article 39(2) – are enforceable before the UAE courts.

 

Under the new Law, there is also no longer a requirement for a Preliminary Meeting in the terms of Article 208(1) of the UAE Arbitration Chapter, which will no doubt streamline the arbitration process and remove one procedural stumbling bloc encountered under the UAE Arbitration Chapter. In stark contrast to the position under Article 211 of the UAE Arbitration Chapter, there is also no longer an express requirement for taking witness testimony on oath, a requirement that may, however, survive given the mandatory character it has been accorded by existing case law precedent (see Dubai Court of Cassation Case No. 503/2003 – Bechtel).

Further, all court supportive functions under the new Law are initiated before the competent court of appeal, with the decisions of that court mostly being taken as final and binding and not being subject to further appeal.

Great disappointment is caused by provisions that either create procedural uncertainty, confirm a previously criticised positive law position or add new procedural requirements, which – if anything – render the successful conduct of an arbitration under the new Law more cumbersome. These include in no particular order:

  • The cumbersome minuting requirement kept alive by the new Law with respect to any meetings with the parties (Article 28(b));
  • the continued requirement for special powers of attorney for valid representation of a party in arbitration or a party’s valid submission to an arbitration process (subject to, of course, the application of apparent authority to the formation of arbitration agreements in the terms ordained by the UAE courts under the UAE Arbitration Chapter) (Article 4);
  • the requirement to add the arbitrators’ nationality in the text of the award (Article 41(5));
  • the absence of an express tribunal power to award party costs, these being expressly “at [a party’s] own expense”(Article 33(4) read together with Article 46), thus confirming the position taken under the UAE Arbitration Chapter (see Dubai Court of Cassation Case No. 282/2012);
  • the requirement to render an award “within six months from the date of the first session in the arbitration”, subject to extension by the arbitrator by an additional six months and party agreement to any further extensions (further extensions without party agreement being subject to approval by the UAE courts) (Article 42), essentially confirming the cumbersome provisions on time-limits under the UAE Arbitration Chapter; and
  • the need to serve a copy of the award within as little as 15 days after issuance (Article 44).

Finally, under the new Law, the enforcement and onward execution of an award still requires the completion of a ratification (or validation) process before the UAE courts (Article 52) in terms similar to those under Article 215(1) of the UAE Arbitration Chapter. Importantly, under the new Law, both a supervisory court ruling ratifying an award and a ruling setting aside an arbitral award can be appealed (Article 54), thus essentially keeping in place a fully-fledged appeal process. Equally, a ruling on an action for annulment, which cannot be brought in defense to an action for enforcement under the new Law, generally remains subject to appeal (Article 54). In this sense, the new Law will be no more enforcement-friendly with respect to domestic awards than the UAE Arbitration Chapter. That said, the appeal process is shortened by one stage, any application for enforcement or nullification being initiated before the competent court of appeal, subject to further appeal only to the competent court of cassation. Further, unlike the present situation under the UAE Arbitration Chapter, the underlying arbitration agreement remains valid and the parties will have to pursue the resolution of their pending dispute in an arbitral forum. Article 54 also provides for the award to be remitted to the arbitrator to avoid nullification in the terms presently prevailing under Article 214 of the UAE Arbitration Chapter. The grounds for challenge of an arbitral award under the new Law are identical to those of the UNCITRAL Model Law and hence perceived as more arbitration-friendly, even though this is not necessarily the case in practice given the UAE courts’ interpretation of the corresponding provisions in favorem arbitrandi. Importantly, an application for annulment does not automatically suspend the execution of the award (Article 56). Under the new Law, like the position under the UAE Arbitration Chapter, both a decision by the UAE court to execute an award and one against can be appealed (Article 57).

To conclude, whether the adage that all is well that ends well applies to the new UAE Federal Arbitration Law is highly questionable. With the passage of time, it will be seen whether the adoption of the new Law has been a step in the right direction.

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A One-Two Punch to the Kompetenz-Kompetenz Principle in Venezuela

Tue, 2018-06-05 02:35

Carmine A. Pascuzzo S.

Young ICCA

This post focuses on two decisions issued by the Venezuelan Supreme Court of Justice in the Corporación LSR case. The decisions constitute an unexpected change in the approach of the Supreme Court towards arbitration, deviating from its latest and vastly commented case law regarding commercial arbitration matters.

Background

The dispute in Corporación LSR arose out of an option contract that contained a pathological arbitration clause, in that the clause referred all future disputes to arbitration under the rules of a non-existing arbitration institution: the Conciliation and Arbitration Centre of the Chamber of Commerce, Industry and Agriculture of the Bolivarian Republic of Venezuela.

Claimants in the case filed suit before the First Instance Courts arguing that it was the correct forum due to the evident impossibility to comply with the arbitration agreement. The Second Tribunal of First Instance declined jurisdiction, in correct application of the Kompetenz-Kompetenz principle (Article 7 of the Venezuelan Arbitration Act) following the Supreme Court’s leading case law regarding arbitration, in particular the 2009 ruling in Astivenca Astilleros de Venezuela, C.A. v. Oceanlink Offshore III AS.

The decision was subject to a jurisdictional review by the Political Administrative Chamber of the Venezuelan Supreme Court. The Political Administrative Chamber reaffirmed the lack of jurisdiction of the courts on the basis that the option contract contained an arbitration clause and, therefore, the courts could not exercise jurisdiction over the dispute.

However, claimants insisted on their arguments and filed a constitutional request for review before the Constitutional Chamber of the Venezuelan Supreme Court, which is considered in more detail below.

The first punch

The Constitutional Chamber of the Supreme Court ruled in favor of claimants. In its reasoning it held that the Political Administrative Chamber failed to consider claimants’ argument regarding the unavailability of the arbitral institution, which amounted to a serious violation of claimants’ access to justice, due process and effective judicial protection. It concluded that it was necessary to produce an express and positive conclusion on claimants’ argument, i.e. to interpret the existence, validity and enforceability of the arbitration agreement. Hence, the Constitutional Chamber remanded the case for retrial before the Political Administrative Chamber in order to decide the appeal in accordance with the criteria established in its decision.

The second punch

The Political Administrative Chamber of the Supreme Court decided the remanded case following the ruling of the Constitutional Chamber. In its decision, the Political Administrative Chamber concluded that the lack of availability of the arbitration center seriously infringed claimants’ due process rights given the uncertainty as to the proper forum to file suit.

Analysis

These decisions are an unpleasant surprise for the Venezuelan arbitration law community, especially since the Venezuelan Constitution provides in its Article 253 that arbitration forms part of the judicial system. As a result, a decision that holds that compelling a dispute to arbitration “hinders the parties’ right to resolve the dispute before a competent tribunal” is an unexpected outcome.

In addition, there is no doubt about the Kompetenz-Kompetenz principle being in force under Venezuelan law. The principle is expressly provided for in Article 5 of the Venezuelan Arbitration Act and affirmed by the Constitutional Chamber of the Supreme Court in Astivenca Astilleros de Venezuela, C.A. v. Oceanlink Offshore III AS:

“The question does not lie in determining the existence of the competence-competence principle in the Venezuelan legal system, which is clearly supporting it, but its application in those cases in which one of the parties that agreed to submit to arbitration all differences or certain differences that have arisen or may arise between them with respect to a certain legal, contractual or non-contractual relationship concerning a matter that can be resolved by arbitration, decides to initiate proceedings before the organs of the Judicial Power….”

Moreover, the Corporación LSR decisions are contrary to the holdings of the Constitutional Chamber regarding the scope of the negative effect of the Kompetenz-Kompetenz principle. The scope of the negative effect of the principle and how the courts should act vis-à-vis a dispute that is subject to an arbitration clause was also an aspect considered in the Astivenca Astilleros de Venezuela, C.A. v. Oceanlink Offshore III AS, in which the Constitutional Chamber held with binding effect that:

“… the summary review [that courts should perform in application of Article 7 of the Venezuelan Arbitration Act] should (i) be limited to the verification of the written nature of the arbitration agreement and (ii) refrain from analyzing possible defects of party consent arising from the written clause.

As we can see, there is no doubt about the scope of Article 7 of the Venezuelan Arbitration Act limiting the courts to a prima facie review as to the existence of the arbitration agreement. However, the Corporación LSR Constitutional Chamber decision diverted from that holding and went as far as to declare that the first instance decision was null because the judge failed to decide on the issue of the nullity and inapplicability of the arbitration clause.

Hence, the Corporación LSR decisions not only contravene with the Venezuelan Arbitration Act but also go against the binding case law of the very same Constitutional Chamber of the Supreme Court – a clear threat to the uniformity of jurisprudence and integrity of the legislation.

Another aspect to consider is the effect these decisions may have on future lower court rulings. The Corporación LSR decisions have created a no-win situation for first instance judges who are forced to take decisions in breach of the law either way: If they apply correctly the Kompetenz-Kompetenz principle and compel to arbitration, they will contravene with the Corporación LSR decisions. However, if they follow them, any rendered decision will be subject to judicial review due to a lack or unduly application of Article 7 of the Venezuelan Arbitration Act and the binding jurisprudence of the Constitutional Chamber of the Supreme Court of Justice (Astivenca Astilleros de Venezuela, C.A. v. Oceanlink Offshore III AS).

Finally, these decisions go against the international trend on the issue at hand. For instance, the UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration indicates that arbitration clauses referring to non-existing arbitral institutions should, whenever possible, be interpreted in an arbitration-friendly way to provide for arbitration under an existing arbitration institution. This has even more significance in a jurisdiction like Venezuela with only two widely recognized arbitration centers: The Centro de Arbitraje de la Cámara de Caracas and the Centro Empresarial de Conciliación y Arbitraje from the Venezuelan American Chamber of Commerce.

Fortunately, the Corporación LSR rulings do not constitute binding precedents under the Venezuelan legal system, and we can hopefully expect that the Supreme Court will undertake future cases in line with arbitration´s fundamental principles.

Carmine A. Pascuzzo S. is a partner at ADM & Asociados in Caracas, Venezuela. He is also a member of the Board of Directors of the Venezuelan Arbitration Association and alumnus of the Stockholm University´s International Commercial Arbitration Law Program.

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Do Arbitration Users Really Value Finality?

Mon, 2018-06-04 05:00

Peter Hirst

Clyde & Co.

Two recent pieces of recent research raise the question of whether arbitration users really value finality in arbitration or take it for granted. Is it time (again) to discuss whether s69 Arbitration Act 1996 is meeting users’ needs?

Arbitration Act 1996, s69

Section 69 of the Arbitration Act 1996 (AA 1996, s 69) is a non-mandatory section which provides that an arbitral award may be appealed on a point of law in limited circumstances. Permission to appeal can be obtained by either the agreement of all parties to the proceedings (which is unusual) or granted by the court where the court is satisfied that:

· The determination of the question will substantially affect the rights of one or more of the parties

· The question was one which the tribunal was asked to determine

· That on the basis of the findings of fact in the award:

  • The decision of the tribunal was obviously wrong or
  • The question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and
  • That despite the agreement of the parties to resolve the matter by arbitration it is just and proper in all the circumstances for the court to determine the question

On the appeal the court may confirm or vary the award or remit the award to the tribunal in whole or in part for reconsideration, or set aside the award.

Clearly, given the parties’ agreement to arbitrate, the use of the courts to ultimately determine the dispute (though not this is on law only and even then the court can decide to remit the award to the tribunal) is a significant step as, arguably, it makes the court the ultimate legal arbiter of the arbitration.

Commercial Court statistics

The Commercial Court Users’ Group Meeting Report from 13 March 2018 available here gives statistical insight into the number applications made for permission to appeal arbitral awards and even lower success rates for those who are granted permission.

The s69 statistics show that:

  • 2015: 20 out of 60 permission granted, 4 successful appeals
  • 2016: 0 out of 46 permission granted, 0 successful appeals
  • 2017 (to date): 10 out of 56 granted, 1 successful appeal

While the levels of permission granted have fluctuated 2015 to 2017 from 33% to 0% to 18%, there is really no discernible trend to indicate that permission is becoming easier or harder to obtain.

The number of successful appeals remains low with a ‘high’ of 4 successful appeals in 2015 appearing unusual.

The 2017 statistics are stated as being ‘to date’ but it is not clear which date in 2017 they run to. Already in 2018 there have been successful s69 applications including recently in Agile Holdings v Essar in which the award was set aside in its entirety (as the decision was binary the court decided there was no reason to remit it to the tribunal). (Agile Holdings Corporation v Essar Shipping Ltd [2018] EWHC 1055 (Comm)).

These statistics bear out what those who participate in arbitration already know – that it is difficult to obtain permission to appeal and even more difficult to appeal successfully. One potential reason for the low number of applications for permission is the exclusion of s69 incorporated into leading institutional rules such as those of the LCIA and ICC. Under these institutional rules parties exclude the right to appeal which, as it is not a mandatory rules under the Arbitration Act 1996, is permitted.

Do users want a route of appeal?

The recent Queen Mary/White & Case 2018 International Arbitration Survey: The Evolution of International Arbitration showed that only 16% of respondents viewed finality as one of the three most important characteristics of arbitration. This is interesting as finality is often thought/stated to be one of the greatest benefits of arbitration over traditional litigation routes. Perhaps the survey result shows that parties assume finality because of the exclusion of s69 either voluntarily or by incorporation of major arbitral rules. Alternatively, they can see the benefit of some form of appeal process which is a common feature to court systems and therefore ‘arbitration finality’ is not important to them.

It is worth remembering that the inclusion of s69 was controversial at the time of drafting the Arbitration Act 1996 (notably the DAC Report), not least because it is a departure from the UNCITRAL Model Law on which the Arbitration Act and many other international arbitration laws are based. Indeed, it is in large part due to this controversy that s69 is couched in such narrow terms and designed to be so difficult to obtain both the permission to appeal and appeal itself.

More recently the low numbers of cases on appeal has been cited by the Lord Chef Justice Lord Thomas as detrimental to the development of English law as points of law are determined in private by tribunals which then precludes them from becoming of precedential value and thus developing the law (notable several other senior judicial figures disagreed). While for many this is not sufficient reason to widen the scope for arbitral appeals it has opened the door to discussions around what is best for arbitrating parties and whether decisions by tribunals which are not subject to review under law provide fair outcomes for parties.

Where now?

The Commercial Court’s statistics demonstrate that the DAC’s intentions of the Arbitration Act 1996 and the narrow gateway to the court have been successful (most likely aided by arbitral institutional rules). While it is not possible to say for certain, if s69 was not precluded by the ICC and LCIA it is not unreasonable to predict that the number of applications for permission to appeal would rise significantly, though the proportion of successful appeals would not as the ‘high bar’ for success would remain. One interesting side effect of such a change however would be to see the impact it had in other areas of arbitration:

  • Would the public nature of an appeal by which the previously secret arbitration comes into the public eye undermine one of the fundamental benefits of arbitration (confidentiality was rated by 36% of the Queen Mary respondents as one of the three most important characteristics of arbitration)?
  • Would parties then simply decide to litigate (though 60% of Queen Mary respondents valued avoiding national courts)?
  • Would parties ‘opt out’ of s69 in their arbitration agreements (as they are currently free to do) if the institutional rules did not already incorporate this option?
  • Would arbitrators feel a greater weight of responsibility on decided the law knowing that it may be open to judge’s scrutiny?

The questions are endless and many an arbitration conference will no doubt continue to address them.

A key point to be left with is to focus on party autonomy and the parties’ right to choose the arbitration procedure they want. Parties need to be aware of the mon-mandatory nature of s69 and their choice of institutional rules’ impact on their ability to appeal an award on a point of law. This choice should be consciously made and fully understand by all involved.

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Sovereign Immunity From Execution – Caveat Emptor

Mon, 2018-06-04 03:07

Ylli Dautaj

Introduction

The issues pertaining to “sovereign immunity” in international arbitration are not new. Nevertheless, several aspects remain unresolved.1) Kaj Hobér, Sovereign Immunity and International Arbitration – Recent developments, Arbitrators’ Insights, Essays in Honour of Neil Kaplan (Sweet & Maxwell, 2012), 91. jQuery("#footnote_plugin_tooltip_7125_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7125_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Sovereign immunity from execution is said to be “the last fortress, the last bastion of State immunity.”2) ILC Commentary to Art 18, para. 1. jQuery("#footnote_plugin_tooltip_7125_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7125_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For example, states sometimes invoke the “sovereign immunity shield” in the execution of arbitral awards enforced against the respondent-state. The result is that an investor might be awarded compensation through an arbitration award, but still remain unpaid.

Strictly speaking, the aspiration of investment arbitration is to promote and facilitate neutrality, flexibility, efficiency, and finality. Furthermore, arbitral tribunals are under a general duty to render enforceable awards. Despite this, the last fiddle will be played by domestic courts. Unfortunately, the judicial system is not always efficient nor rational. The main reason for arbitration’s widespread reception was a move away from the judicial system. Unfortunately, the independence of the courts is tainted with diplomatic “realities,” e.g. international comity.

My point is simple: the law has failed to facilitate a viable solution to the issue of states hiding behind the shield of sovereign immunity. It is time to reactivate market solutions in conjunction with improving the procedure of executing awards, namely improving the “judicial architecture” of award enforcement. In this piece, I will highlight a few possible market and architectural solutions. I will not discuss any solution in relation to amending, updating, or changing domestic or international law. With the benefit of hindsight, such a discussion would be more theoretical than real.

Regulating Host-State Behavior

I argue that state behavior, just as individual behavior, is regulated by four modalities of constraint: (1) law; (2) markets; (3) architecture; and (4) norms.3)Lawrence Lessig, Commentaries, The Law of the Horse: What Cyberlaw Might Teach FINALHLS.DOC 12/03/99. jQuery("#footnote_plugin_tooltip_7125_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7125_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); I argue that there is a need to move away from steering blindly towards the law. Instead, it would be wise to seek solutions in market and architectural structures. For example, third-party funding or BIT Award Risk Insurance are two possible market venues for redress. Architecture is the way in which procedural rules and legal devices (e.g. discovery tools and burden-of-proof rules) steer the legal process in a certain direction, and therefore also outcomes and behavior.

Sovereign Immunity

It is long accepted that arbitrators derive their power from the arbitration agreement. Arbitration is an entirely private dispute settlement mechanism, and therefore there is nothing to be immune from.4) Hobér, supra note 1 at 93. jQuery("#footnote_plugin_tooltip_7125_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7125_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Consent to arbitration constitutes an irrevocable waiver of immunity from jurisdiction. On the other hand, immunity from execution is not considered implicitly waived through an arbitration clause.

Generally speaking, there are two types of sovereign immunity: “absolute immunity” and “restrictive immunity.” States have gradually shifted from the former to the latter. Restrictive immunity rests on the distinction between commercial activities and sovereign activities.5) Id. at 92. jQuery("#footnote_plugin_tooltip_7125_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7125_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Consequently, states cannot invoke the shield of sovereign immunity for assets stemming from commercial activities. However, rogue states can, and do from time to time, mask commercial assets with a “sovereign label.” Therefore, architectural structures, e.g. lessening the burden-of-proof and broadening the pre-discovery procedure, are extremely important for an investor.

By way of legal solutions, there are none. At least none that are of satisfaction. First, there is no multilateral treaty dealing with sovereign immunity.6) Attempts have been made. For example, the UN General Assembly on 2 December 2004 adopted the “United Nations Convention on Jurisdictional Immunities of States and Their Property.” jQuery("#footnote_plugin_tooltip_7125_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7125_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Even the attempts have been too narrow in scope. Second, different jurisdictions have taken different approaches and the law is not uniform.

Market Solutions

First, “the World Bank solution.”7)See Joseph M. Cardosi, Precluding the Treasure Hunt: How the World Bank Group Can Help Investors Circumnavigate Sovereign Immunity Obstacles to ICSID Award Execution, 41 Pepp. L. Rev. 109 (2013). jQuery("#footnote_plugin_tooltip_7125_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7125_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); ICSID, being an organization of the World Bank could rely more heavily on utilizing the capacities of the Bank to “force” compliance with ICSID awards. The World Bank solutions are not exclusively limited to ICSID arbitration, but to any award held against a member of the World Bank. I will propose four market solutions that can be utilized through the World Bank: (1) it can withhold future loans and increase interest rates; (2) it can increase the role of the Multilateral Investment Guarantee Agency (MIGA) to be a more integral part of ICSID arbitration and then use the overall functions of the World Bank to force compliance, or structure long-term plans for repaying the outstanding credit; (3) it can essentially establish an investment bank and “purchase” unpaid awards by paying out the outstanding debts and use its platform to rein in the credit with interest; and (4) States can turn to the World Bank for a loan in order to settle with the awardee-creditor or to pay the award.

Second, third-party funding can provide an investor with expert assistance in the pursuit of realizing their assets. Third-party funders can fund the enforcement phase of arbitration (e.g. in exchange for a contingency). This can relieve the awardee-creditor. Locating commercial assets may be costly and time-consuming. Efforts to attach state-owned assets require legal and financial capacity. A funder might be more experienced, willing and prepared to over and over again re-strategize with the purpose of identifying new assets to attach that potentially fall under the commercial exception. With large awards, the investor might need to find and attach assets in various different jurisdictions in order to meet the outstanding amount. This complicates things but makes the hunt a viable business for third party funders.

Third, BIT award insurance might help secure assets in case a dispute would arise. However, BIT award insurance is not always a good deal. Insurance can prove to be costly, exposure is almost always capped, terms are adhesive, and it is not accessible to every investor.

Fourth, commercializing BIT awards; that is, “opening-up” the market of arbitral awards for investment and speculation. This would be a viable solution for awardee-creditors holding an award but lacking the desire to chase their credit at any cost. Sometimes parties are, for various reasons, willing to settle for less. That does not mean that the state does not owe the outstanding fee. In some situations, businesses might stand or fall with the credit, or some of the credit at least. However, speculators and investors might be willing to take the risk of owning an unpaid award for the potential gains. The World Bank and third-party funders have the capacity to facilitate this solution. Both have the capacity to rein in the outstanding credit, with interest, and over time.

Architectural Solutions

The courts’ architectural approach will have a significant impact on whether investors will be able to realize their assets under the commercial activity exception. First, parties should include explicit waivers in BITs and contracts. Furthermore, arbitral institutions should amend their rules to this effect. Notwithstanding this, even explicit waivers are not necessarily recognized as waiving immunity from property that is used for – or partly for – sovereign functions. By analogy, in commercial transactions warranties are generally implied. In dealing with a state, a waiver for immunity from execution should be similarly included as a standard feature of business efficacy.

Second, small steps can be taken by courts in an “architectural manner.” Small steps could be that the court would impose a lower burden of proof for the investor in arguing what constitutes a commercial asset. Another way is for the court to broaden its scope of pre-discovery, e.g. allowing for “general asset discovery.”

Concluding Remarks

Despite the fact that sovereign immunity is one of the most traditional topics of international law, it still remains an issue in international arbitration.8)Hobér, supra note 1 at 91. jQuery("#footnote_plugin_tooltip_7125_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7125_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); I argue that investment arbitration can only be effective and functional as long as it provides for effective remedies to private parties in their dealings with States. Effective remedies include effective asset realization. Otherwise, “caveat emptor” is as real today as in ancient unsophisticated times of sovereign dominance. Investors buying into unsophisticated markets, beware!

The law has failed investors. The shield of sovereign immunity remains the most significant barrier to automatic enforcement. It has the potential to undermine the policies that underpin the existence of arbitration clauses in BITs, MITs, and contracts.9) Alexis Blane, Sovereign Immunity as a Bar to the Execution of International Arbitral Awards, 41 N.Y.U.J. Int’l L. & Pol. 453 (2009) 466. jQuery("#footnote_plugin_tooltip_7125_9").tooltip({ tip: "#footnote_plugin_tooltip_text_7125_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Architectural solutions would allow for procedural changes to arbitral institutions and courts. In a similar vein, market solutions can facilitate the investors with either “selling” their awards, “securing” their awards, or hiring experts to “realize” their awards.

When international comity trumps legal rationality, the market and architectural structures are sometimes the only way out. The last bastion of sovereign immunity has not stood the test of time. Time is ripe for a new and more business-friendly wave. The logic of waiving sovereign immunity from jurisdiction but not from execution is cumbersome. In fact, the distinction is flawed and irrational. 

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References   [ + ]

1. ↑  Kaj Hobér, Sovereign Immunity and International Arbitration – Recent developments, Arbitrators’ Insights, Essays in Honour of Neil Kaplan (Sweet & Maxwell, 2012), 91. 2. ↑ ILC Commentary to Art 18, para. 1. 3. ↑ Lawrence Lessig, Commentaries, The Law of the Horse: What Cyberlaw Might Teach FINALHLS.DOC 12/03/99. 4. ↑ Hobér, supra note 1 at 93. 5. ↑  Id. at 92. 6. ↑  Attempts have been made. For example, the UN General Assembly on 2 December 2004 adopted the “United Nations Convention on Jurisdictional Immunities of States and Their Property.” 7. ↑ See Joseph M. Cardosi, Precluding the Treasure Hunt: How the World Bank Group Can Help Investors Circumnavigate Sovereign Immunity Obstacles to ICSID Award Execution, 41 Pepp. L. Rev. 109 (2013). 8. ↑ Hobér, supra note 1 at 91. 9. ↑  Alexis Blane, Sovereign Immunity as a Bar to the Execution of International Arbitral Awards, 41 N.Y.U.J. Int’l L. & Pol. 453 (2009) 466. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Jumping on the TPF Bandwagon: Nigeria’s New Arbitration Bill Embraces Third-Party Funding

Sun, 2018-06-03 02:34

Joshua Karton and Abayomi Okubote

ITA

The past few months have witnessed several momentous developments for international arbitration in Africa. Angola, Cabo Verde, and Sudan acceded to the New York Convention; South Africa adopted a new International Arbitration Act; the OHADA Council of Ministers adopted three new texts on arbitration and mediation; and the Nigerian Arbitration and Conciliation Act (Repeal and Re-Enactment) Bill 2017 was passed by the Nigerian Senate. The Bill is presently before the Committee of the Whole at the House of Representatives and is likely to come into force around the end of the summer. Of all these developments, we believe that the passage of the Nigerian Bill will have the greatest lasting impact because it marks the first time an African state has established a permissive statutory scheme for third-party funding (TPF) in international arbitration.

The Bill addresses some of the flaws in the current Arbitration and Conciliation Act, beginning with adoption of the 2006 amendments to the UNCITRAL Model Law. It contains helpful new provisions on matters like immunity of arbitrator, appointing authorities; recognition and enforcement by courts of tribunal-issued interim measures; and computation of time limits for commencing proceedings to enforce an award. These provisions update Nigerian law to bring it in line with current global standards, and should be welcomed without controversy. What will cement the Bill’s place in history are its provisions on TPF. Assuming the Bill is passed into law with no or limited amendments, as we expect it to be, Nigeria will join Singapore and Hong Kong as the third jurisdiction to adopt a permissive statutory framework for TPF in international arbitration. A description of some of the other innovations in the Bill can be found here.

The legislative response to TPF is driven by a desire to realized its well-known benefits: improved access to justice and support for companies seeking to maintain balance sheet solvency and cash flow. With increasing capital inflows and growing commercial activity (and the attendant growth in commercial and investment disputes) Africa is poised to become a massive funding market. Nigeria should be commended for getting ahead of the curve and putting a permissive regulatory framework in place now.

The provisions of the Bill relevant to TPF are Sections 50 1(g) and 84, as well as Article 41(2)(g) of the Arbitration Rules attached as the First Schedule to the Bill. Section 50 1(g), which is mirrored in Article 41(2)(g) of the Arbitration Rules, provides:

1) The arbitral tribunal shall fix costs of arbitration in its award and the term “costs” includes: …
(g) the costs of obtaining Third-Party Funding

Section 84 defines TPF as “an arrangement between a specialist funding company, an individual, a corporation, a bank, an insurance company or an institution (the funder) and a party involved in the arbitration, whereby the funder will agree to finance some or all of the party’s legal fees in exchange for a share of the recovered damages.”

While these provisions represent progress, we believe that the lawmakers may be missing an opportunity to advance a more comprehensive TPF regulation, as the Bill does not address some of the core concerns about TPF related to the integrity of the arbitral process and the ultimate enforcement of awards. In what follows, we identify three areas where gaps in the current draft of the Bill ought to be filled.

Costs

First, we have concerns about the proposed Section 50(1)(g) of the Bill, which empowers arbitral tribunals to consider the costs of obtaining TPF in granting the costs of the arbitration.

It is widely accepted that arbitral tribunals have broad discretion to award costs (including both legal fees and the costs of the arbitration), unless the applicable rules or the parties’ agreement provide otherwise. However, it continues to be fiercely disputed whether the existence of a TPF relationship should affect the allocation of costs. We believe that tribunals should not consider the fact that a party’s claim has been funded by a third party in granting costs. Here, we differ with the recently- published ICCA-Queen Mary Task Force Principles on Third-Party Funding, which accepts that the costs of funding may be recoverable, depending on the definition of recoverable costs in the applicable law and rules (see paras. C.2-3.), and depending on such factors as whether the respondent’s conduct caused the impecuniosity of the claimant and whether the claimant had no other option but to seek funding from a third-party funder in order to pursue its claim (see p. 158).

If one accepts in principle that costs of funding should be recoverable, the Task Force’s recommendations are sensible. However, costs of funding should not be recoverable in any case, as a matter of both fairness and good policy. First, as to fairness, the funded party’s obligation to repay their funder is undertaken separately from any obligations arising under the main contract or arbitration agreement. Such liability is not a cost of the arbitration, and should not be imposed on the opposing party. Second, as to policy, permitting the recovery of funding costs as part of the costs of arbitration over-incentivizes TPF and is likely to lead to significant increases in the costs of arbitration. Funders will have an incentive to engage in expensive additional processes even if these only marginally increase the likelihood of success on the merits. In addition, including the costs of funding within the recoverable costs can significantly increase the overall costs awarded, leading to awards that may be unenforceable in practice.

On the flip side, and in the event that the Committee of the Whole currently working on the Bill retains the provision permitting tribunals to award funding costs to the prevailing party, it should ensure that information about those costs is disclosed early in the arbitral process. Ordering an unsuccessful respondent to pay the claimant’s funding costs constitutes a significant shift in the risks associated with the outcome of the arbitration. Respondents should be made aware of the scope of that risk early in the proceedings, so that they can make informed decisions on their own tactics and in settlement negotiations. That brings us to the next gap in the Bill.

Disclosure

The Nigerian Bill contains no provision relating to disclosure of funding arrangements for international arbitrations seated in Nigeria. By including a provision empowering tribunals to allocate the costs of funding without an accompanying mandatory provision on disclosure, the Bill leaves a costs award open to challenges of arbitrators or applications for annulment following the belated revelation of a previously undisclosed funder. In particular, without mandatory disclosure of TPF, it will be difficult for arbitrators and arbitral institutions to run conflict checks. We therefore fear a multiplication of challenges, and the potential for even meritorious challenges to be raised late in the proceedings or after an award has been rendered, leading to delays and disappointments. Moreover, a provision on disclosure is needed because the extant provisions of the Bill on independence and impartiality of arbitrators (Sections 8 (1) and (2)) do not deal with the ethical issues that may arise from TPF, in particular conflicts created by prior or ongoing relationships between arbitrators (or their law firms) and funders. Nigeria might look to Hong Kong, whose Arbitration Ordinance, amended in 2017, obligates funded parties to disclose to the administering institution and to the other parties the existence of the funding agreement, its date of commencement, and the identity of the funder.

Champerty and Maintenance

Curiously, the Nigerian Bill contains no provision abolishing the torts of champerty and maintenance. These common law doctrines continue to be in force in Nigeria and have been applied as the framework within which the validity of TPF arrangements is assessed. As recently as 2015, the Nigerian courts have reaffirmed that the financing of a lawsuit for a share in the proceeds of the suit is champertous. See Kessington Egbor & Anor v. Peter Ogbebor [2015] LPELR-24902.

It therefore remains open to a recalcitrant respondent to challenge a costs award that includes the costs of TPF on the basis that the funding relationship is champertous. Practically speaking, permitting TPF requires abolishment or limitation of the common law torts of champerty and maintenance, as Hong Kong and Singapore have done. Given the continuing attachment of the Nigerian courts to maintenance and champerty, and the identified gaps in the Bill, it will be interesting to see how the courts will interpret the TPF provisions in Bill if passed into law. The devil will certainly be in the details.

 

Abayomi Okubote is a PhD Student at Queen’s University, Canada and Dr. Joshua Karton is Associate Professor and Associate Dean at Queen’s University. The authors are both involved with a new initiative, Africa Arbitration, which has been launched to project the continent’s arbitration industry and jurisprudence.

 

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How Should a Court Asked to Apply Article 8 of the Model Law Approach its Task: Challenges for the Arbitral/Court Interface (II) & Request for Comments “Procedure and Evidence in International Arbitration”

Fri, 2018-06-01 23:33

Jeffrey Waincymer

Part 1 of this blog argued that courts that are asked to resolve Article 8(1) Model Law disputes should adopt a deferential approach to tribunal competence under both a contextual and purposive interpretation of the Model Law or similar provisions aimed at giving effect to Art II(3) NYC. On this proposed view, such a court should consider validity under any law that a tribunal could properly apply. If a clause is valid under a law that could reasonably have been selected under the tribunal’s discretion, then the court should not be in a position to conclude to the contrary as to invalidity under the Article 8(1) test. In engaging in this exercise, the court should consider the lex arbitri powers of the tribunal as to applicable law, not its own domestic conflicts rules. In circumstances where the court bars litigation on this approach, it is not concluding that the agreement is valid. It is simply noting that it cannot conclude that the agreement is invalid. In so holding, it would simply be honouring its obligation to recognise an agreement that might be valid,1) A case that simply applies a default rule and then finds validity, is not problematic if it simply does so as part of this exercise, that is, finds that a default rule available as part of the tribunal’s discretion would support validity. Such cases are of concern, however, if they purport to set up the only possible default rule, or if the language in the judgment could be wrongly interpreted to that end, particularly if that then supports a finding of invalidity on future occasions. jQuery("#footnote_plugin_tooltip_6628_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6628_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); leaving it to an annulment or enforcement court to have the final word and only if asked to so rule.

The only practical argument to the contrary would be to the effect that if the court proceedings were in the supervisory court and the evidence showed invalidity, why not have this determined at that stage so as not to force wasted costs via an arbitral determination. There are a number of responses to this. First, if invalidity is clear, the court can so hold and should do so. If it is debatable in circumstances where a tribunal would be more likely than not to find no jurisdiction, there would be little in extra wasted time and cost if the court stayed on the basis of a reasonable possibility of validity without a detailed evidentiary enquiry. To undertake a detailed factual analysis of debatable circumstances in a jurisdiction where even an annulment court has no pre-emptive powers barring a tribunal’s own determination of jurisdiction, would be decidedly wasteful and more-so for courts other than the putative supervisory court.

Secondly, if the court being asked to intervene was not the supervisory court, it not only cannot prevent the tribunal deciding the issue if asked, it is certainly unable to prevent the actual supervisory court reviewing that determination.2) A determination by a court outside the Seat made contrary to the wishes of the party asserting arbitral validity could hardly be res judicata for the supervisory court granted that jurisdiction under the applicable lex arbitri. jQuery("#footnote_plugin_tooltip_6628_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6628_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); So any detailed determination by such a court would be inherently wasteful. There cannot be differing interpretations of Article 8(1) dependent upon whether the court approached is in the Seat or not or whether a court in the Seat has pre-emptive powers.

These questions must also consider the limited evidence before the Article 8(1) court as noted in Part 1. When validity is unclear in arbitration, the tribunal might hear a very broad range of evidence. Even in cases where the common law parol evidence rule must be considered, there will usually be sufficient ambiguity in the impugned arbitration agreement to allow for evidence of the background to the negotiations and to the contract’s drafting. An Article 8(1) court dealing with early procedural challenges is unlikely to be considering the same breadth of such evidence as might be presented to a tribunal. Deference should then apply both as to possible applicable laws and possible evidence. The court would effectively only conclude that an arbitration agreement is “null and void, inoperative or incapable of being performed,” if no reasonable tribunal could come to any other conclusion on potentially applicable law and on available and potentially admissible evidence.3) The one exception to the above thesis is where the court can validly conclude that, not-withstanding the fact that other jurisdictions might respect such a tribunal determination, from the perspective of their own country, the relevant arbitration agreement could never be accepted as valid. But this would not arise from some technical application of conflict of laws rules, but would instead be a result of domestic limitations on the concept of arbitrability. jQuery("#footnote_plugin_tooltip_6628_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6628_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The drafting history of the key provisions does not undermine this view. It shows that Article 8 was inspired by Article II (3) of the New York Convention, which was in turn inspired at the eleventh hour, by the 1923 Geneva Protocol on Arbitration Clauses.4) 27 League of Nations Treaty Series 158 (1924). English translation available here (date accessed 20/11/2017). E/AC.42/2 16 February 1955 ECOSOC. jQuery("#footnote_plugin_tooltip_6628_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6628_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Nothing readily discoverable in the travaux preparatoires contradicts the thesis in this blog, although there is more to be found as to the Geneva Protocol and it is also true to say that very little discussion occurred as to the above questions of applicable law and standard of proof.

Even in the absence of such guidance, some commentators still suggest that contextually, it would only be logical to apply the same default law to Article II (3) NYC, as is mentioned in Article V (1)(a) NYC, that is, the law of the place where the award was made. The same argument could be made as to the Model Law, inviting the applicable law for Article 8(1) purposes, to be discerned from Articles 34(2)(a)(i) and 36 (1)(a)(i), which repeat the default rule found in Article V(1)(a) NYC. The first point to note is that there is a difference between looking to the arbitration law of the Seat as to how it determines validity,5) E.g. Dallah Real Estate and Tourism Holding Company (Appellant) v The Ministry of Religious Affairs, Government of Pakistan (Respondent) [2010] UKSC 46 jQuery("#footnote_plugin_tooltip_6628_5").tooltip({ tip: "#footnote_plugin_tooltip_text_6628_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and instead, utilising the Seat’s domestic contract law for such purposes. Where the Seat has a Model Law based lex arbitri, it gives a broad discretion to tribunals that would not be problematic if viewed deferentially by an Article 8(1) court. Only an interpretation that reverts to the domestic contract law as “the law of the place where the award was made” would be truly problematic, not being binding in any way on a tribunal. The balance of this blog deals with that concern.

While it seems appealing to argue against the application of different governing laws to one and the same question posed at different stages or in different places, the thesis of this blog is that it is not in fact one and the same question. The thesis is that in interpreting Article 8(1) as it typically applies at early stages in litigation, one should adopt a deferential approach, looking to see whether there is reasonable potential for a tribunal to find validity under the applicable lex arbitri or arbitral rules. The proper question in that context, different to an enforcement court, is to discern what a tribunal may do methodologically, not what an annulment or enforcement court must do methodologically if the provisions are interpreted to allow recourse to a contract law of the Seat. If a court is then to ask itself the question that a tribunal would consider, it makes no sense to impose any binding default conflicts rules that do not equally bind the tribunal.

Articles V(1)(a) NYC and Articles 34(2)(a)(i) and 36 (1)(a)(i) Model Law are not truly analogous as they all deal with different scenarios. In these scenarios, annulment or enforcement courts respectively, are asked to definitively either support or overturn the award or definitively support or bar enforcement of the award. Each is making a final determination and must base this on the grounds both positive and negative as contained within the Model Law and the Convention and must limit themselves to the mandated methodology of those provisions, including as to applicable law. Even then, annulment and enforcement courts are given a discretion, even if the grounds for challenge are made out. There is also no guarantee that annulment or enforcement challenges would be brought or that the discretion to uphold would not be applied, even if the default rule led to invalidity.

The only logic in favour of an approach advocating use of the law of the Seat is to stand in the shoes of an annulment court. As noted in Part 1, any court can find invalidity if that is clear. But if it is not clear and if an annulment court may take a different view, its jurisdiction should not be pre-empted. Even if the grounds are made out, how would a different court stand in the shoes of the supervisory court’s discretion, or would it decide that there is no discretion, as none is mentioned expressly in Article 8(1)? If the court considering Article 8(1) was the putative supervisory court, it could rule if clear, but even then, would the exercise of the discretion not be better served by waiting until that country’s lex arbitri contemplated annulment proceedings?

Another way to look at this is to note that the New York Convention had no intention or mandate to decide on the general validity of arbitration agreements as they might found arbitrations. That was to be determined under the relevant lex arbitri. Yet if any non-Seat court could readily find invalidity under a law not binding on a tribunal, this would be the unintended effect.

Stated differently as to applicable law, is it conceivable that the drafters intended that the court and a tribunal each bound by the Model Law could employ different applicable laws in undertaking this exercise, simply because of default annulment and enforcement tests? For what policy reason consistent with Article 2A Model Law and its call for international interpretation of provisions such as Article 8(1), could that be justified? Certainly, an individual country’s court could have a parochial reason for doing so, but that could not be found within a coherent and international interpretation of the Model Law itself.

For the foregoing reasons, it is urged that Model Law courts hearing Article 8 applications should restrict themselves to asking whether a reasonable tribunal could find jurisdiction under the discretions available to it and if so, should respect the intent to recognise arbitration agreements and leave it to annulment and enforcement courts to comprehensively review if asked. Domestic conflicts default rules and presumptions as to implied intent have no determinative place in such an exercise, save when used in support of a finding of prima facie validity.

The author is preparing an article expanding on the above, which will include an analysis of the approach taken in various jurisdictions. Readers with particular thoughts/comments/experiences and/or criticisms of the above argument are invited to contact the author at [email protected].

 

Request for comments – second edition – Procedure and Evidence in International Arbitration

 

This is a call for feed-back following on from the above. I am in the process of completing a second edition of my treatise, Procedure and Evidence in International Arbitration, published in 2012 by Kluwer and also available on Kluwerarbitration (accessed from the homepage). The work aims to deal with all aspects of the arbitral process from beginning to end and aims to combine policy and comparative analysis with as many practical guides and comments as possible. It also seeks to engage with any differences in view on contentious questions, setting these out for the reader’s own reflection.

A work of this magnitude, seeking to cover arbitral practice anywhere in the world, and from beginning to end, will inevitably have gaps and errors. I would be most appreciative of comments from those blog readers who have used the work, as to such gaps, errors and possible misstatements and about any important new developments that I might not easily have been able to find and which I should seek to incorporate. Appropriate acknowledgement will be given unless commentators prefer to remain anonymous.

I am also very happy to receive general comments about style and how readers have found the work and any modifications that might improve its utility. The second edition will be broken into two halves, one on procedure and one on evidence. It will again take a broad approach to the notion of procedure and will as a result again also cover choice of law, remedies, interest and costs. The second edition will have a much-improved index to go with the comprehensive table of contents, each aiming to make it as easy as possible for users to find answers to their queries.

Comments can be sent to me at [email protected]. Ideally, comments should be sent by the end of July to guarantee that they can receive full attention, although I will aim to include whatever I can up until hand-over date.

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References   [ + ]

1. ↑ A case that simply applies a default rule and then finds validity, is not problematic if it simply does so as part of this exercise, that is, finds that a default rule available as part of the tribunal’s discretion would support validity. Such cases are of concern, however, if they purport to set up the only possible default rule, or if the language in the judgment could be wrongly interpreted to that end, particularly if that then supports a finding of invalidity on future occasions. 2. ↑ A determination by a court outside the Seat made contrary to the wishes of the party asserting arbitral validity could hardly be res judicata for the supervisory court granted that jurisdiction under the applicable lex arbitri. 3. ↑ The one exception to the above thesis is where the court can validly conclude that, not-withstanding the fact that other jurisdictions might respect such a tribunal determination, from the perspective of their own country, the relevant arbitration agreement could never be accepted as valid. But this would not arise from some technical application of conflict of laws rules, but would instead be a result of domestic limitations on the concept of arbitrability. 4. ↑ 27 League of Nations Treaty Series 158 (1924). English translation available here (date accessed 20/11/2017). E/AC.42/2 16 February 1955 ECOSOC. 5. ↑ E.g. Dallah Real Estate and Tourism Holding Company (Appellant) v The Ministry of Religious Affairs, Government of Pakistan (Respondent) [2010] UKSC 46 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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How Should a Court Asked to Apply Article 8 of the Model Law Approach its Task: Challenges for the Arbitral/Court Interface (I)

Thu, 2018-05-31 23:31

Jeffrey Waincymer

A crucial issue in arbitration is determining the proper relationship between courts and the arbitration process. In addition to court challenges to preliminary jurisdictional decisions by arbitrators and court applications to annul awards or prevent enforcement, a number of other court actions also raise relationship issues. This blog is concerned with scenarios such as commencement of court proceedings or applications for leave to serve court proceedings out of the jurisdiction which are then contested on the basis of an alleged arbitration agreement;1) For example, Accentuate Ltd v ASIGRA Inc [2009] EWHC 2655 jQuery("#footnote_plugin_tooltip_4593_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); applications for an injunction restraining an arbitrator from proceeding,2) For example, Weisfisch v Julius [2006] EWCA Civ 218; [2006] 2 All ER (Comm) 504. jQuery("#footnote_plugin_tooltip_4593_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); or even applications to a court in support of arbitration,3) For example, a request for assistance in appointing a tribunal or a request for interim measures or an anti-suit injunction. jQuery("#footnote_plugin_tooltip_4593_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); where that is then opposed on the basis that the arbitration agreement is not valid. In most jurisdictions, such applications may lead to a contest under either Article 8 of the UNCITRAL Model Law, Article II (3) of the New York Convention, or provisions with equivalent effect. The court is asked to stay or deny jurisdiction in a case allegedly commenced in violation of an arbitration agreement,4) Civilian jurisdictions decline jurisdiction, while common law jurisdictions tend to stay judicial proceedings, but the effect in each case is the same, recognising and respecting the arbitration agreement and declining to proceed with litigation. jQuery("#footnote_plugin_tooltip_4593_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); or to refrain from assisting arbitration based on alleged defects in the arbitration agreement.

In such instances, the court must consider the status of the alleged arbitration agreement that is contested. Such courts may be asked to consider whether the alleged agreement is in fact an arbitration agreement, whether it relates to a dispute capable of settlement by arbitration and whether it avoids being seen as “null and void, inoperative or incapable of being performed.”5) Article 8(1) Model Law and Article II(3) New York Convention jQuery("#footnote_plugin_tooltip_4593_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); These elements arise from the combined language of Article 8 Model Law and Article II New York Convention. If the agreement does not fall foul of these criteria, the court must deny litigation access where that is sought contrary to the arbitration promise.6) In the scenarios where injunctive relief is sought in aid of either arbitration or litigation, a court may, in addition to considering these gateway elements of validity, also consider its own additional discretionary domestic principles as to when to allow such relief, such as the balance of convenience test, even if it finds the arbitration agreement to be valid or invalid. In the context of this blog, a court asked to support arbitration through some interim measure may also need to form a more definitive view as to arbitral validity, as a precursor to consideration of such a discretion. jQuery("#footnote_plugin_tooltip_4593_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A plaintiff required to demonstrate arbitral invalidity so as to pursue litigation, would naturally assert such invalidity if reluctantly brought before an arbitral tribunal. Thus, both courts and arbitral tribunals might be called upon to address the question of validity. Because the Model Law and New York Convention criteria are found in provisions directed at courts, judges hearing the applications may consider that they have a duty to consider whether the criteria are satisfied or not.7) The Full Federal Court in Australia opined that it remains a discretionary matter in Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170 jQuery("#footnote_plugin_tooltip_4593_7").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); At the same time, Article 16(1) Model Law expressly grants competence to a tribunal to consider any jurisdictional challenge. In addition, Article 8(2) Model Law expressly allows a tribunal to continue with its processes, notwithstanding a conflicting application to a court. Hence, the Model Law expressly allows both courts and tribunals to consider validity, but makes no express stipulations as to methodology or standard of proof, and gives no indication as to whether one such empowered decision-maker should defer to a determination made by the other.8) This blog only addresses jurisdictions that apply the Model Law or whose lex arbitri have the same policy structure. In some other jurisdictions, express variations can either promote the relative role of the courts, or clearly express a position that greater deference should be given to tribunals. jQuery("#footnote_plugin_tooltip_4593_8").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

There are three main questions as to the approach that courts should then take to such applications. First, what is a court essentially being asked to do, given that there is also express competence given to an arbitral tribunal? Secondly, and related to the first question, what is the appropriate standard of proof for the court to apply to any Article 8 determination? As to the latter, should a court in which litigation is sought to be pursued, make a final independent determination of arbitral validity or invalidity, or should it merely undertake a preliminary analysis, and if so, defer to the tribunal in the first instance where there may be a reasonable possibility of validity? Thirdly, by what legal principles of interpretation and by what relevant evidence, will any such question of arbitral validity be determined? Even in jurisdictions with a strong pro-arbitration tradition, an alarming disparity of approaches to these questions is discernible.

As to the first two questions, it is submitted that a proper contextual and purposive interpretation of the Model Law should see courts take a deferential approach and simply determine whether the arbitration agreement may reasonably be valid in cases where court proceedings are opposed on the basis of a submitted arbitration agreement.9) As noted above, the situation is different where the court is asked to aid arbitration via some injunction against pursuing court action or via some interim measure in aid of the arbitration. Here a court would need to be satisfied of arbitral validity before taking such steps. jQuery("#footnote_plugin_tooltip_4593_9").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In aid of this argument, one should consider Article 8(1) both in legal and practical context. As to legal context, there is a need for each court to find a coherent interpretation that integrates the Model Law’s express grant of jurisdictional competence to a tribunal under Article 16(1), as supported by Article 8(2), and the Model Law’s acceptance of a court’s power to consider limited jurisdictional questions at a point in time when Article 8(1) is enlivened. Most importantly, that contextual interpretation should also be integrated with a purposive approach, acknowledging the policy underpinning Article II (3) NYC, as this provision was the impetus for Article 8(1). Article II (3) acknowledged the need for courts to recognise arbitration agreements as well as awards if arbitration is to be viable. On this view, one would not wish to see both courts and tribunals hearing all available evidence concurrently and potentially coming to different conclusions on validity questions. One would instead wish to see all courts interpret the structure of the Model Law as calling for deference to tribunal competence, leaving it to annulment and enforcement courts to comprehensively review if asked. Yet courts must be allowed to do something. The logical corollary of a deferential interpretation would be that courts exercising an Article 8 mandate are asked to recognise arbitration agreements and allow a tribunal to exercise its competence, unless the material before the court shows that no reasonable tribunal could find validity. Article 8 is essentially about promotion of recognition, albeit with a limited exception, and should be interpreted as such.

The practical context aids this argument when one considers the types of proceedings and the potential venues where applications will be made under Article 8. As to type, these will be preliminary applications. In some legal systems, such applications are not even dealt with by a judge. In most cases, presentation and testing of detailed evidence via contemporaneous documents and cross-examination of witnesses would not be the norm. Certainly, most domestic litigation systems would allow a court to hear evidence on these applications, but being preliminary matters, there would invariably be reluctance to allow a full hearing with cross-examination, or allow for the generation of a full body of relevant material evidence, including by way of document production requests. It then makes further sense to conclude that the obligation on a court dealing with an Article 8(1) application is to seek at most a reasonable indication of a valid arbitration agreement. Otherwise, the court would be seeking to make a definitive ruling on arbitral validity without a full body of evidence, and in violation of due process norms that would invariably apply in that jurisdiction.10) The preferred approach would also be consistent with the due process spirit of Article 18 of the Model Law, even though that provision is not directed at courts. jQuery("#footnote_plugin_tooltip_4593_10").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); If the court instead sought full evidence to overcome this problem, it would duplicate the arbitral process and allow for messy arguments about admissibility and inconsistency of evidence between the two fora.

Such duplication is even more problematic when one considers the likely venue of an Article 8(1) skirmish. The courts that will most likely be asked to consider Article 8 applications, will either be courts in the defendant’s country, the plaintiff’s country, or at times, the place of performance of the contract, being the range of places where litigation standing is typically found. In the many cases where a neutral Seat has been selected, the court hearing the application will not even be the designated supervisory court of the alleged arbitration and could not bind the supervisory court. This is a further reason to support a deferential approach.

A majority of national courts state that they do indeed take a deferential approach, although there are significant exceptions and certainly no consensus view as to the proper interpretation of the Model Law. Even courts stating that they are adopting this deferential approach seem to diverge as to the question they purport to consider under such an analysis. Most do not seem to ask the above question as to whether a reasonable tribunal could find validity, but instead, seem to opine as to the validity of the agreement. Some seek to do so definitively, while others see their role as at least seeking to find prima facie validity. Neither a definitive nor prima facie analysis that held against validity and allowed litigation to proceed where a reasonable tribunal could nonetheless find validity, would be consistent with the latter standard.

Inconsistency also arises when courts see a need for identification of an applicable law of the arbitration agreement to assist in determining its validity. Courts then often allow conflict of laws principles to be determinative. Such courts typically note the autonomy of arbitration clauses as enshrined in Article 16 Model Law. They then invariably conclude that even a broad choice of law clause in a contract does not inherently apply to the arbitration agreement. In the absence of an express or implied choice applicable to the arbitration agreement, many courts will default to their domestic conflicts rule for contracts, at least where the arbitration agreement is contractual. In the common law world, this will be the closest connection test. These courts will then use any express, implied or default applicable law, in that order of priority, to determine when and on what basis, the arbitration agreement could be said to be “null and void, inoperative or incapable of being performed.” None seem to speak of what a tribunal might legitimately do as to applicable law in determining validity, even when this ought to be the corollary of the deference they acknowledge. Stated differently, they purport to be deferential, but use a default rule of applicable law, not binding on the tribunal.

Differences are also apparent as to the means to determine both express and implied intent as to applicable law. While all courts accept the doctrine of separability, not all agree on the way that it should impact upon applicable law. Some suggest that a general choice of law clause drafted in broad terms, could still evidence an express agreement as to applicable law for all parts of the contract.11) A tentative suggestion to this effect can be found in the judgment in Arsanovia Ltd & Ors v Cruz City 1 Mauritius Holdings [2012] EWHC 3702 (Comm), although the presiding judge did not so hold as it was not argued. One may agree or disagree as to the conclusion of fact, but that is separate to the core question in this blog as to whether and why there should be a default rule in the absence of express or implied choice. jQuery("#footnote_plugin_tooltip_4593_11").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Some courts instead see such a selection as a rebuttable inference of an implied agreement that such law should be used to interpret the arbitration agreement.12) SulAmérica Cia Nacional De Seguros S.A. and others v Enesa Engenharia S.A. [2012] 1 Lloyd’s Rep 671. The case was outside the main thrust of this blog as it dealt with an application to stay foreign litigation. In such a case, a court needs to take a view on balance that the arbitration agreement is valid before exercising such a power. Even then, it must if necessary, consider by what applicable law that should be determined. The case is problematic as much for how it is likely to be seen to have set up a presumption as to intended law that this blog suggests should not apply to classic Art 8 ML scenarios. It should also be noted that the court held against the presumption it proposed, based in part on an unproven (and unlikely) argument that the clause would have been invalid under Brazilian law, the proper law of the contract. Furthermore the key judgment noted that applicable law was not needed to support its conclusion of validity, yet opined at great length on the issue of how to discern that law. It is also not clear whether the aim of the supposed presumption is to shift the onus of proof in a common law setting, which would be undesirable. jQuery("#footnote_plugin_tooltip_4593_12").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Some courts consider instead, that selection of a Seat provides a rebuttable inference of an implied agreement that the law of the Seat should be used.13) FirstLink Investments Corp Ltd v GT Payment Pte Ltd and others [2014] SGHCR 12 jQuery("#footnote_plugin_tooltip_4593_13").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Inferences as to intent are always problematic, particularly when articulated in generalist terms by appellate courts, as the relevant inferences are about essentially factual questions that will often be dependent on the circumstances.14) In this sense, cases seeking to apply SulAmérica or any other presumption, are likely to take less note than they should of Lord Neuberger’s salutary reminder in that case, that as implied intent is a factual question, it will need to be considered on a case by case basis, hence properly situating and undermining the value of any presumption. jQuery("#footnote_plugin_tooltip_4593_14").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It is one thing to use such presumptions in favour of deferential pro-arbitration determinations by courts hearing Art 8(1) applications. This can be supported on the basis that such a conclusion of fact is open to a tribunal, so invalidity cannot be presumed. The real danger is if later courts noting the appellate determination, seek to apply some illogical inverse, holding that if the agreement would be invalid under the presumptive law, it should be concluded to be invalid by any court in that jurisdiction hearing an Art 8(1) application, no matter what a tribunal might legitimately do.

Common law courts then suggest that if such inferences cannot be drawn, a default closest connection test should apply. Presumably, in applying a default rule, such courts feel that being national courts, they must determine and apply national conflict of laws rules to these uncertain international matters. In the common law world, this often simply flows from opposing counsel presuming that this must be so. There is simply no reason for that view to prevail. For Model Law countries, each court should simply be seeking to give effect to its government’s intent to incorporate the Model Law into domestic legislation. While the Model Law is not a treaty, it operates in not dissimilar manner when individual countries adopt it verbatim and subject their courts to the international interpretation called for by its provisions, in particular, Article 2A. It is argued above that a contextual and purposive interpretation should lead to a deferential approach so as to acknowledge that Article 8(1) is the embodiment of the Art II(3) obligation to recognise arbitration agreements and is coupled with the express competence of tribunals to determine their validity when asked to do so. For a court that rightly takes a deferential approach on this twin basis, that should mean deferring in situations where a tribunal might find jurisdiction.

For these reasons, the court should simply ask whether a reasonable tribunal hearing all evidence could find validity. To engage in such an exercise can only mean considering the factors that a tribunal may consider. Otherwise there is no real deference. Most importantly, when considering which law to apply to determine validity of the arbitration agreement, the actual or potential arbitrator15) Dependent on whether arbitration has commenced or is only proposed. jQuery("#footnote_plugin_tooltip_4593_15").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); is not limited by any particular domestic court’s conflict rules. In many cases, a tribunal is not even bound to apply any national system of law to questions of validity.16) The substantive rules approach accepted in France is also available to most arbitrators and would not normally be overturned by annulment courts. jQuery("#footnote_plugin_tooltip_4593_16").tooltip({ tip: "#footnote_plugin_tooltip_text_4593_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It then makes no sense for a court that might not even be the supervisory court, to apply a single domestic conflicts default rule from its own country in answering the validity question solely for the purpose of mandated recognition of arbitration agreements under the New York Convention. Default conflicts rules were developed unilaterally so as to deal with cross-border matters within the court’s jurisdiction. They were never intended to be the basis for the mandated international interpretation of the Model Law and the treaty promise to recognise arbitration agreements under the New York Convention. That becomes obvious when one sees that there is no consensus as to the default rule for interpreting arbitration agreements, some looking to the otherwise applicable law, with others looking to the law of the Seat.

The key point is that the deferential approach proposed in this blog, is not a normative suggestion as seems to be propounded by some commentators, but is instead, an argument as to the proper way to interpret Article 8 of the Model Law purposively and contextually, which would eschew both parochial conflicts rules or definitive determinations by Art 8(1) courts. The related thesis is that it is also illogical to claim that a deferential approach is being applied, but then ignore the options available to a tribunal and instead apply a domestic default rule or presumption as to implied intent.

Part II continues the analysis, including consideration of the applicable law norms in NYC and Arts 35 and 36 Model Law.

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References   [ + ]

1. ↑ For example, Accentuate Ltd v ASIGRA Inc [2009] EWHC 2655 2. ↑ For example, Weisfisch v Julius [2006] EWCA Civ 218; [2006] 2 All ER (Comm) 504. 3. ↑ For example, a request for assistance in appointing a tribunal or a request for interim measures or an anti-suit injunction. 4. ↑ Civilian jurisdictions decline jurisdiction, while common law jurisdictions tend to stay judicial proceedings, but the effect in each case is the same, recognising and respecting the arbitration agreement and declining to proceed with litigation. 5. ↑ Article 8(1) Model Law and Article II(3) New York Convention 6. ↑ In the scenarios where injunctive relief is sought in aid of either arbitration or litigation, a court may, in addition to considering these gateway elements of validity, also consider its own additional discretionary domestic principles as to when to allow such relief, such as the balance of convenience test, even if it finds the arbitration agreement to be valid or invalid. In the context of this blog, a court asked to support arbitration through some interim measure may also need to form a more definitive view as to arbitral validity, as a precursor to consideration of such a discretion. 7. ↑ The Full Federal Court in Australia opined that it remains a discretionary matter in Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170 8. ↑ This blog only addresses jurisdictions that apply the Model Law or whose lex arbitri have the same policy structure. In some other jurisdictions, express variations can either promote the relative role of the courts, or clearly express a position that greater deference should be given to tribunals. 9. ↑ As noted above, the situation is different where the court is asked to aid arbitration via some injunction against pursuing court action or via some interim measure in aid of the arbitration. Here a court would need to be satisfied of arbitral validity before taking such steps. 10. ↑ The preferred approach would also be consistent with the due process spirit of Article 18 of the Model Law, even though that provision is not directed at courts. 11. ↑ A tentative suggestion to this effect can be found in the judgment in Arsanovia Ltd & Ors v Cruz City 1 Mauritius Holdings [2012] EWHC 3702 (Comm), although the presiding judge did not so hold as it was not argued. One may agree or disagree as to the conclusion of fact, but that is separate to the core question in this blog as to whether and why there should be a default rule in the absence of express or implied choice. 12. ↑ SulAmérica Cia Nacional De Seguros S.A. and others v Enesa Engenharia S.A. [2012] 1 Lloyd’s Rep 671. The case was outside the main thrust of this blog as it dealt with an application to stay foreign litigation. In such a case, a court needs to take a view on balance that the arbitration agreement is valid before exercising such a power. Even then, it must if necessary, consider by what applicable law that should be determined. The case is problematic as much for how it is likely to be seen to have set up a presumption as to intended law that this blog suggests should not apply to classic Art 8 ML scenarios. It should also be noted that the court held against the presumption it proposed, based in part on an unproven (and unlikely) argument that the clause would have been invalid under Brazilian law, the proper law of the contract. Furthermore the key judgment noted that applicable law was not needed to support its conclusion of validity, yet opined at great length on the issue of how to discern that law. It is also not clear whether the aim of the supposed presumption is to shift the onus of proof in a common law setting, which would be undesirable. 13. ↑ FirstLink Investments Corp Ltd v GT Payment Pte Ltd and others [2014] SGHCR 12 14. ↑ In this sense, cases seeking to apply SulAmérica or any other presumption, are likely to take less note than they should of Lord Neuberger’s salutary reminder in that case, that as implied intent is a factual question, it will need to be considered on a case by case basis, hence properly situating and undermining the value of any presumption. 15. ↑ Dependent on whether arbitration has commenced or is only proposed. 16. ↑ The substantive rules approach accepted in France is also available to most arbitrators and would not normally be overturned by annulment courts. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
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Data-Driven Decision-Making: From Fine Wine to Fine Arbitrators

Thu, 2018-05-31 03:10

Catherine A. Rogers

In virtually every sector of modern business, data is enhancing if not replacing intuition as the basis for making decisions. This trend holds even for assessments as seemingly subjective and rarified as predicting the quality—and hence price—of an exquisite French Bordeaux.

In selecting international arbitrators, however, intuition still predominates. For example, a recent industry survey by Bryan Cave Leighton Paisner found that the most important qualities in selecting an arbitrator are identified as “expertise” (according to 93% of respondents) and “efficiency” (according to 91%). Expertise and efficiency, however, are not easy to measure or quantify.

These qualities are not credentials that are listed on arbitrators’ CVs. Instead, expertise and efficiency are cumulative, largely intuitive assessments that are drawn from a number of sources and metrics. Moreover, what constitutes the best expertise or means for achieving efficiency may vary from case to case depending on a client’s needs.

Given the confidential nature of arbitration, gathering the relevant information means personal phone calls with individuals who have appeared before a potential arbitrator or, better yet, sat as a co-arbitrator with that person. This kind of ad hoc individual research largely confines assessment of potential arbitrators to feedback from a limited number of individuals. Despite this limited scope, ad hoc research can be time-consuming (and therefore costly), but not always reliable. Without broad data against which to evaluate these inputs, however, it is impossible to determine whether the feedback is broadly representative, readily transferrable to the case at hand, or just an outlier.

Another problem with ad hoc information gathering is that it creates an information bottleneck. Newer and more diverse arbitrators cannot readily develop international reputations as long as personal references are the primary means for determining expertise and efficiency. This informational bottleneck is increasingly intolerable in light of concerns about the lack of diversity among international arbitrators and in-house counsel with corporate benchmarks and applying greater pressure to find newer arbitrators about whom there is a scarcity of information.

Arbitrator Intelligence (AI) seeks to solve these problems by bringing data-driven analysis to arbitrator appointments. The means to these ends is the recently launched Arbitrator Intelligence Questionnaire, or AIQ.

The AIQ

The idea behind the AIQ is simple. The AIQ seeks to replicate, through systematically collected feedback, the same kinds of information currently sought through personal-to-person inquiries. Data from the AIQ will not eliminate altogether the value of individualized ad hoc inquiries, but it will allow parties and counsel to tap into the collective intelligence of the global international arbitration community.

The AIQ is designed for parties, in-house counsel, external law firms and even third-party funders to complete at the end of each arbitration. The web-based questionnaire asks a number of background questions about the case, and then inquires about a number of features that are relevant for future arbitrator selection. For example (to paraphrase a few questions from the AIQ): Did the arbitrators grant document production? If so, what standard did they use? Did the arbitrators ask questions that demonstrated familiarity with the record? Did contract interpretation in the award reflect a plain meaning analysis of the words in the contract? Or did it consider the drafting history? Or did it seek to adopt a more flexible interpretation to achieve fairness and equity in the outcome of the dispute?

As a practical matter, the AIQ is divided into two phases, and each phase can be completed in 10 minutes or less. Phase I concentrates on objective background information about the case, and can be completed by anyone who has access to the award or case file. Phase II contains questions that relate to the conduct of the arbitration and, in some instances, seek professional assessments. As a consequence, Phase II should be completed by an attorney or party who actively participated in the proceedings. Certain background information from Phase I questions automatically prefills the relevant questions in Phase II to make it even faster to complete.

In developing the questions for the AIQ, AI employed state-of-the-art survey design (in coordination with the Penn State Survey Research Center), as well as extensive public and expert input. The ultimate goals were multiple and ambitious: to ensure quality feedback, to avoid questions that even implicitly preferenced certain cultures or legal traditions, to ensure fairness to arbitrators, and to promote systematic responses.

Achieving systematic completion of AIQs is Arbitrator Intelligence’s biggest challenge. To that end, AI is entering into collaboration agreements with various arbitral institutions around the world. Under these agreements, institutions agree to forward the AIQ to parties and lawyers at the end of each arbitration, and in exchange AI will give collaborating institutions free access to AI Reports (see below).

To date, AI has formally entered into such agreements with a few institutions (such as Singapore International Arbitration Centre and AMCHAM Quito), and is in discussions with more than a dozen other institutions. So watch for emails coming to you from arbitral institutions at the end of your arbitration!

AI is also inviting parties and law firms to support it by signing The Arbitrator Intelligence Pact. By signing the AI Pact, parties, law firms, individual counsel, arbitrators, arbitral institutions, and arbitration organizations commit to supporting AI’s goals of transparency, accountability, and diversity by helping to promote completion of AIQs regularly at the conclusion of arbitrations.

Notably, one of the world’s leading law firms has not only signed The Pact, but also agreed to provide retrospective AIQs on cases completed in the last few years. AI is currently in discussions with several other firms that are also considering providing retrospective AIQs. AIQ data is essential for AI to develop AI Reports, so consider joining these industry leaders by completing AIQs on recently completed arbitrations.

Once sufficient information has been collected through the AIQ, Arbitrator Intelligence will begin publishing AI Reports, through its partner WoltersKluwer.

Arbitrator Intelligence Reports

AI Reports are still in the development phase, and the nature and scope of AI Reports will inevitably evolve over time, particularly as AI’s base of data expands. Nevertheless, it is already easy to see from some preliminary mock-ups how AI Reports will help promote more data-driven decisions about arbitrator appointments.

By way of preview, consider the following chart regarding a (hypothetical) arbitrator’s approach to document production:

Figure A
(based on hypothetical data—for illustrative purposes only)

This basic chart provides a systematic comparison of the arbitrator’s historical practice in granting document production (the light blue bars to the left), as compared with the document production practices of all arbitrators in the sample oil and gas cases (the dark blue bars to the right).

There are several advantages to this approach over ad hoc individual inquiries, or self-reporting by arbitrators. First, when asked to comment on their own practices, most arbitrators explain that their approach will vary depending on the type of case. This chart examines disputes within a particular industry (oil and gas), but it could alternatively evaluate the data based on case size, applicable law, or some combination of these or other variables.

Even more importantly, Figure A above and Figure B below demonstrate the benefits of assessing individual cases in comparison to a baseline of data in similar cases.

Figure B
(based on hypothetical data—for illustrative purposes only)

In Figure B, the y-axis indicates how many days an award is rendered after close of proceedings (defined in the AIQ as the last day of hearings or the day of the last post-hearing submissions). The x-axis indicates the size of the case as a proxy for complexity (on the assumption that more time is needed to draft awards in more complex cases). The blue line shows the relationship between amount at stake and length of hearing for all arbitrators presiding in oil and gas cases in the sample. Each red x is a case decided by the arbitrator of interest.

Like Figure A above on document production, the independent baseline in Figure B (the blue line) provides a valuable check against mistaken assumptions about the representativeness of performance in a particular case. For example, by luck of the draw, ad hoc research may reveal two examples of cases in which an arbitrator rendered awards more than 200 days after the close of proceedings. Based on this feedback, a client may conclude that this arbitrator is simply too slow and thus disqualified from consideration. But that assessment may be different if broader data reveals that only a few of the arbitrator’s awards took longer than 200 days or that, depending on the size of the case, a 200-day timeframe is well within the norm for all similar cases.

These charts and graphs are prototypes for off-the-shelf AI Reports and, again, are based on hypothetical data. AI Reports will provide numerous forms of data analysis on various topics, and the range will inevitably grow and develop over time as more data is generated.

In the future, AI also anticipates being able to produce customized reports as more data is available. For example, in some cases, the ability to obtain (or avoid) document production may be the lynchpin of a party’s strategy. In that case, a party may want a bar chart similar to the Figure A above, but instead each of the three arbitrators on its shortlist.

Of course, AI Reports will identify the limitations of the data, particularly in production of early AI Reports. More generally, there are a number of challenges in analyzing data from phenomena as complex as arbitral disputes. Such challenges include accounting for different institutional rules, differences in appointment of the arbitrator (was the arbitrator party-appointed, or sitting as a chair or sole arbitrator?), and changes in data and to arbitration practice over time.

As an academically affiliated entity, however, Arbitrator Intelligence is uniquely positioned to meet these complex challenges. AI’s Board of Directors will oversee development of the AI Reports and the software needed to generate them. The Board is composed primarily of university professors who collectively possess the essential range of expertise in relevant fields, including empirical research in international arbitration, data analytics in the legal profession, mass data collection and strategic decision-making, econometrics, artificial intelligence, and information systems.

In addition to its Board of Directors, AI also has a Board of Advisors that brings to the project diverse perspectives from among in-house and external counsel, leading arbitrators, institutional representatives, and academics specializing in international arbitration.

Conclusion

When Arbitrator Intelligence was first conceived, major law firms stated (unabashedly!) that they hoped this project would fail. AI would be seeking to gather and make widely available information that they sold to their clients, information that signaled their value-added expertise, information that distinguished them from lesser competitors. And they did not want the competition.

Today, given the size and complexity of the market, the reaction is quite different. Even the leading law firms with the largest networks for collecting information recognize that there is no such thing as “enough information” about arbitrators. In-house counsel are increasingly demanding more than mere intuition to justify arbitrator appointments. They want concrete data and analysis that their colleagues use in making other business decisions and that they will especially need if they have to explain an unexpected result to management. Even arbitral institutions, which also appoint arbitrators, increasingly need more information to optimize their appointments and remain competitive.

For those of us who enjoy drinking good wine, but not necessarily investing in wine futures, we may still prefer the tasting notes of well-known aficionados and recommendations from a sommelier’s tastevin. But for parties selecting the individuals who will pass judgment on their most important disputes, precision is critical and should not be left to intuition alone. Arbitrator Intelligence will liberate arbitrator selection from the 19th Century’s telephone and introduce it to the 21st Century’s data-driven analytic solutions.

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

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ISDS Under the CPTPP and Beyond: Japanese Perspectives

Wed, 2018-05-30 07:00

Yuka Fukunaga

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was signed by 11 of the original TPP Partners on 8 March 2018 in Santiago, Chile. After the United States announced its withdrawal from the original TPP on 23 January 2017,1) The announcement made it clear that the United States was not ‘obliged to refrain from acts which would defeat the object and purpose of’ the TPP, as provided in Article 18 of the Vienna Convention on the Law of Treaties. See Catherine H. Gibson (Assistant Editor for North America), ‘Delayed Ratification, TPP, and the United States’, Kluwer Arbitration Blog, October 20 2016, http://arbitrationblog.kluwerarbitration.com/2016/10/20/delayed-ratification-tpp-united-states/ jQuery("#footnote_plugin_tooltip_2908_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Japan took the lead in the negotiations of the CPTPP, which concluded successfully in an exceptionally short period of time for this type of negotiations.3) Ironically, Japan was the last to join the original TPP negotiations. See David Gantz, ‘Japan’s Entry into the TPP Negotiations Raises the Economic Stakes’, Kluwer Arbitration Blog, May 20 2013, http://arbitrationblog.kluwerarbitration.com/2013/05/20/japans-entry-into-the-tpp-negotiations-raises-the-economic-stakes/ jQuery("#footnote_plugin_tooltip_2908_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Contrary to the expectation that a signing ceremony would be hosted by Japan as a principal driving force behind the successful conclusion, Santiago was chosen as a venue. According to a local newspaper in Japan, the choice was made deliberately with the hope that the then Chilean President Bachelet, whose term was about to expire, would push for the conclusion of the CPTPP in order to add another achievement to her legacy.2) Nikkei, Morning Edition, 9 March 2018. jQuery("#footnote_plugin_tooltip_2908_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Article 3.1 of the CPTPP provides that the “Agreement shall enter into force 60 days after the date on which at least six or at least 50 per cent of the number of signatories to this Agreement, whichever is smaller, have notified the Depositary in writing of the completion of their applicable legal procedures.” Several original signatories have expressed a desire to complete their applicable legal procedures and bring the CPTPP into force before the end of the year.

 

In Japan, while the original TPP has already been approved by the Japanese Diet, the CPTPP as a separate agreement requires a new approval. Japanese Minister of State for Economic and Fiscal Policy, Toshimitsu Motegi, expressed his hope in a press conference that Japan’s quick completion of its domestic procedures would give momentum towards ratification by other signatories. The Japanese government is hoping to obtain the required approval during the current session of the Diet, which runs until 20 June 2018. For this purpose, the Cabinet of Prime Minister Abe officially decided on 27 March 2018 to submit the CPTPP to the Diet for approval together with a bill to make a few minor amendments to domestic law. The Diet started deliberations on the CPTPP and the bill on 17 April 2018.

 

Apart from the fact that the deliberations in the Diet could be stalled due to political scandals haunting Prime Minister Abe and his government, no major objections to the CPTPP and the bill are expected in the Diet. Concerns have been expressed about the potential impact on the agricultural sector that could be caused by the trade liberalization under the CPTPP, but the concerns have already been addressed, at least to some extent, by budgetary measures in accordance with the Comprehensive TPP-Related Policy Framework, adopted by the Cabinet on 24 November 2017.

 

On investment, the Japanese government has been an adamant supporter of the protection and promotion of investment as well as of investor-state dispute settlement (ISDS). Most of the investment agreements and regional trade agreements signed by Japan,4) As an exception, the economic partnership agreement between Japan and the Philippines as well as the one between Japan and Australia do not provide for ISDS, but the latter also provides that the parties shall review the investment chapter of the agreement “with a view to the possible Improvement of the investment environment through, for example, the establishment of a mechanism for the settlement of an investment dispute between a Party and an investor of the other Party.” See Article 14.19 of the agreement between Japan and Australia. See also Jarrod Hepburn, Mark Huber, ‘An Assessment of Australia’s Parliamentary Report on ISDS in the TPP’, Kluwer Arbitration Blog, January 5 2017, http://arbitrationblog.kluwerarbitration.com/2017/01/05/reserved-an-assessment-of-australias-parliamentary-report-on-isds-in-the-tpp/ jQuery("#footnote_plugin_tooltip_2908_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); including the CPTPP,5) Some signatories to the CPTPP have signed side letters to mutually exclude the application of ISDS, but Japan has chosen not to. jQuery("#footnote_plugin_tooltip_2908_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); contain ISDS provisions. Despite the growing skepticism about ISDS in various parts of the world, no skepticism has been publicly voiced by the Japanese government. Japan’s positive assessment of ISDS partly reflects the fact that the Japanese government has never faced investor-state arbitration so far. During the Diet deliberations on the original TPP, the government indicated that it did not envisage the possibility that Japan would be respondent in investor-state arbitration,6) See, e.g., Statements of the then Minister of Foreign Affairs, Fumio Kishida, 192nd Session of the Diet (27 October 2016). jQuery("#footnote_plugin_tooltip_2908_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and that, even if it were, it would not lose.7) Statements of Prime Minister Abe, 192nd Session of the Diet (11 November 2016). jQuery("#footnote_plugin_tooltip_2908_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

ISDS is also supported by the Japanese business community.8) See, e.g., Keidanren (Japan Business Federation), The Japan Chamber of Commerce and Industry, Japan Association of Corporate Executives, & Japan Foreign Trade Council, Inc., Policy Proposal: Seeking the Swift Conclusion of the TPP11, 23 October 2017, www.keidanren.or.jp/en/policy/2017/085.html. jQuery("#footnote_plugin_tooltip_2908_8").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For example, Keidanren (Japanese Business Federation) states in its policy statement that ISDS “plays an important role in facilitating foreign investments and improving the predictability of investment business, and this mechanism contributes to economic growth and employment expansion in investment recipient countries.”9) Keidanren, Calling for Accelerated Conclusion of Investment Agreements — Toward Establishment of 21st-Century International Investment Rules –, 15 December 2015, http://www.keidanren.or.jp/en/policy/2015/119.html. jQuery("#footnote_plugin_tooltip_2908_9").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

It is true that Japanese companies tend to shy away from using arbitration – either commercial or investment.10) Japanese companies are said to have an aversion to judicial procedures and to prefer an amicable solution. jQuery("#footnote_plugin_tooltip_2908_10").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); So far, there have been only three publicly known investor-state arbitration cases commenced by Japanese investors. Two of them were brought in relation to Spain’s renewable energy policies under the Energy Charter Treaty,11) JGC Corporation v. Kingdom of Spain (ICSID Case No. ARB/15/27); Eurus Energy Holdings Corporation and Eurus Energy Europe B.V. v. Kingdom of Spain (ICSID Case No. ARB/16/4). jQuery("#footnote_plugin_tooltip_2908_11").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); while the third took issue with the failure of India to provide promised subsidies to the claimant-investor.12) Lacey Yong, Treaty claims against India get under way, Global Arbitration Review 22 February 2018. jQuery("#footnote_plugin_tooltip_2908_12").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); All of the proceedings are still pending as of today. Japanese investors’ participation in investor-state arbitration may increase in the future as the Japanese government and local lawyers have been intensifying their efforts to raise awareness and understanding of ISDS among the business community.

 

Japan’s support of ISDS is contrasted with the position of the European Union (EU), which seeks to eventually replace ISDS with a permanent investment court system. The disagreement of the two sides was one of the major obstacles to the conclusion of the Economic Partnership Agreement between Japan and the EU (JEEPA). Both sides finalized the negotiations on JEEPA on 8 December 2017, but decided to continue negotiations on investment protection and investment dispute settlement. They later reached an agreement to leave out investment protection and investment dispute settlement from JEEPA. The published text of JEEPA includes certain provisions on investment liberalization, some of which, such as national treatment and most-favoured-nation treatment provisions, could also cover investment protection to some extent. According to news reports, both parties are currently considering holding a signing ceremony of JEEPA in Brussels in mid-July.13) Nikkei, Morning Edition, 13 April 2018. jQuery("#footnote_plugin_tooltip_2908_13").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); According to a press release of the European Commission, JEEPA’s entry into force does not require ratification at Member State level.14) Press Release (18 April 2018): European Commission proposes signature and conclusion of Japan and Singapore agreements, http://trade.ec.europa.eu/doclib/press/index.cfm?id=1826. jQuery("#footnote_plugin_tooltip_2908_14").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Japan and the EU reportedly will continue negotiations on a separate agreement on investment.15) Nikkei, Morning Edition, 1 March 2018. jQuery("#footnote_plugin_tooltip_2908_15").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Japan’s support of ISDS is also reflected in its position in the discussions of the United Nations Commission on International Trade Law (UNCITRAL) Working Group III on reforms of ISDS. During the last year’s session of the Working Group III, the Japanese delegation expressed doubts about the necessity of replacing the current ISDS with a permanent investment court, while showing its openness to discuss reforms to ISDS.16) IA Reporter (Luke Eric Peterson, 9 December 2017), UNCITRAL meetings on ISDS reform get off to bumpy start, as delegations can’t come to consensus on who should chair sensitive process – entailing a rare vote. jQuery("#footnote_plugin_tooltip_2908_16").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In particular, it suggested that the value of consistency and coherence should not be overemphasized to the detriment of the diversity of investment treaty texts, by pointing out that the diversity reflects treaty negotiators’ deliberate intent to address different investment environments of each country.17) Statement of the Japanese delegation on 30 November 2017, Working Group III (Dispute Settlement), 34th session, Audio Recordings. jQuery("#footnote_plugin_tooltip_2908_17").tooltip({ tip: "#footnote_plugin_tooltip_text_2908_17", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

It is somewhat ironic that Japan, one of the least frequent parties to ISDS, either as the claimant investor or the respondent state, is an adamant supporter of ISDS. It might rather be that its lack of experience with ISDS keeps it from being disillusioned with ISDS. In fact, it has to be pointed out that Japan’s views on what reforms to ISDS would be needed, if not replacing it, are not yet fully formed. While Japan is not likely to withdraw its objections to a permanent investment court in any near future, its view on ISDS may develop if it faces more ISDS cases.

 

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References   [ + ]

1. ↑ The announcement made it clear that the United States was not ‘obliged to refrain from acts which would defeat the object and purpose of’ the TPP, as provided in Article 18 of the Vienna Convention on the Law of Treaties. See Catherine H. Gibson (Assistant Editor for North America), ‘Delayed Ratification, TPP, and the United States’, Kluwer Arbitration Blog, October 20 2016, http://arbitrationblog.kluwerarbitration.com/2016/10/20/delayed-ratification-tpp-united-states/ 2. ↑ Nikkei, Morning Edition, 9 March 2018. 3. ↑ Ironically, Japan was the last to join the original TPP negotiations. See David Gantz, ‘Japan’s Entry into the TPP Negotiations Raises the Economic Stakes’, Kluwer Arbitration Blog, May 20 2013, http://arbitrationblog.kluwerarbitration.com/2013/05/20/japans-entry-into-the-tpp-negotiations-raises-the-economic-stakes/ 4. ↑ As an exception, the economic partnership agreement between Japan and the Philippines as well as the one between Japan and Australia do not provide for ISDS, but the latter also provides that the parties shall review the investment chapter of the agreement “with a view to the possible Improvement of the investment environment through, for example, the establishment of a mechanism for the settlement of an investment dispute between a Party and an investor of the other Party.” See Article 14.19 of the agreement between Japan and Australia. See also Jarrod Hepburn, Mark Huber, ‘An Assessment of Australia’s Parliamentary Report on ISDS in the TPP’, Kluwer Arbitration Blog, January 5 2017, http://arbitrationblog.kluwerarbitration.com/2017/01/05/reserved-an-assessment-of-australias-parliamentary-report-on-isds-in-the-tpp/ 5. ↑ Some signatories to the CPTPP have signed side letters to mutually exclude the application of ISDS, but Japan has chosen not to. 6. ↑ See, e.g., Statements of the then Minister of Foreign Affairs, Fumio Kishida, 192nd Session of the Diet (27 October 2016). 7. ↑ Statements of Prime Minister Abe, 192nd Session of the Diet (11 November 2016). 8. ↑ See, e.g., Keidanren (Japan Business Federation), The Japan Chamber of Commerce and Industry, Japan Association of Corporate Executives, & Japan Foreign Trade Council, Inc., Policy Proposal: Seeking the Swift Conclusion of the TPP11, 23 October 2017, www.keidanren.or.jp/en/policy/2017/085.html. 9. ↑ Keidanren, Calling for Accelerated Conclusion of Investment Agreements — Toward Establishment of 21st-Century International Investment Rules –, 15 December 2015, http://www.keidanren.or.jp/en/policy/2015/119.html. 10. ↑ Japanese companies are said to have an aversion to judicial procedures and to prefer an amicable solution. 11. ↑ JGC Corporation v. Kingdom of Spain (ICSID Case No. ARB/15/27); Eurus Energy Holdings Corporation and Eurus Energy Europe B.V. v. Kingdom of Spain (ICSID Case No. ARB/16/4). 12. ↑ Lacey Yong, Treaty claims against India get under way, Global Arbitration Review 22 February 2018. 13. ↑ Nikkei, Morning Edition, 13 April 2018. 14. ↑ Press Release (18 April 2018): European Commission proposes signature and conclusion of Japan and Singapore agreements, http://trade.ec.europa.eu/doclib/press/index.cfm?id=1826. 15. ↑ Nikkei, Morning Edition, 1 March 2018. 16. ↑  IA Reporter (Luke Eric Peterson, 9 December 2017), UNCITRAL meetings on ISDS reform get off to bumpy start, as delegations can’t come to consensus on who should chair sensitive process – entailing a rare vote. 17. ↑ Statement of the Japanese delegation on 30 November 2017, Working Group III (Dispute Settlement), 34th session, Audio Recordings. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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What Causes Inter-Institutional Variations in the Duration of the Arbitration Process?

Tue, 2018-05-29 03:54

Aishwarya Suresh

 

What Causes Inter-Institutional Variations in the Duration of the Arbitration Process?

A significant advantage that arbitration has over litigation is the speed with which proceedings are conducted. The duration of an arbitration, i.e. the time from the date of receipt of the Request for Arbitration to the date of release of the final award, is therefore one method of assessing the performance of an arbitration institution.

The most recent data published by the HKIAC, SIAC, SCC and LCIA show that the median1)While the reports provide statistics on both average and median duration, this post shall use median durations because the median is a more accurate representation of the central tendency. Averages are likely to be affected by outliers. jQuery("#footnote_plugin_tooltip_1752_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1752_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); durations of their arbitrations are 14.3, 11.7, 13.5 and 16 months respectively. However, this post shall refer to their reports in 2016 as the SCC and the SIAC have not published statistics for 2017. This change affects the figures of the HKIAC alone – with a median duration of 11.6 months in 2016, it held the lowest median duration amongst the four institutions. This post shall consider the factors that determine arbitration duration and, from a comparison of the rules of the four institutions, highlight conditions that will likely allow quicker arbitrations.

The time between the final submissions and the award remains almost constant. This is evidenced by the LCIA’s findings. Therefore, prolonged arbitrations are attributable to delays at the claim submission stage. Factors that affect the length of this stage include the following:

Time-Limits on Submissions

Strict time-limits do not always lead to punctual submissions. The LCIA, with a 16-month median duration, imposes the most stringent time-limit. As per Art. 15 of the LCIA Rules of 2014, only 28 days are provided for the submission of all statements unless, as under Art. 15.1, the parties have agreed or jointly proposed, or, the tribunal decides, differently.  The other three institutions leave the time-period “to be determined by the tribunal” (Art. 24 of the 2007 and the 2010 SCC Rules, Art. 16 and 17 of the 2013 HKIAC Rules and Art. 17 of the 2013 SIAC Rules).

Assuming that the 28-day limit is a cause of delayed submissions in the case of the LCIA, this may have to do with the impracticality of the proposed period. This thought receives support from the practice of tribunals of the other three institutions in determining time-limits. While the SCC and the SIAC do not place any ceiling on the time-limit, the HKIAC, under Art. 21 of the HKIAC Rules, places a 45 day ceiling on the time-limit unless an extension is deemed necessary by the tribunal. It is possible that the durations of the HKIAC’s arbitration reflect the feasibility of the 45-day limit.

Tribunal’s Powers in Cases of Delayed Submissions

In cases of delayed submissions, the HKIAC, the SIAC and the SCC grant tribunals the power to terminate proceedings and to continue proceedings without considering delayed submissions. In contrast, the LCIA, under Art. 15.8, only recognises the power to proceed with arbitration, thereby giving LCIA tribunals the least power. This reduced power could possibly be linked to the lengths of LCIA arbitrations.

Under Art. 26 of the HKIAC Rules, tribunals are granted powers to deal with delayed submissions. The SIAC Rules vest tribunals with the same powers, albeit in a roundabout manner. While Art. 17.8 of the Rules grants tribunals the power to terminate proceedings in cases of delayed submissions specifically, Art. 17.9 allows tribunals to continue with proceedings in case of “failure to submit in the manner declared by the Tribunal”. Although it appears that tribunals are granted powers to deal with different situations under both provisions, tribunals under Art. 17.9 are also granted powers to deal with delayed submissions alone. This is because the Rules already provide for the content of the submissions under Art. 17.3.

The SCC Rules meanwhile couch these powers in different language. Under Art. 30 of the SCC Rules, tribunals are granted said powers in case of failure to submit statements “in accordance with the provisions of Art. 24”. Art. 24 considers the content of statements, the timely submission of such statements, and the authority of tribunals to demand additional statements. Thus, the SCC Rules allow tribunals to exercise their powers for reasons other than delayed submissions as well. This would enable tribunals to indirectly avoid extending the prescribed time-limit. For example, under the SCC, a tribunal may terminate proceedings in case the Statement of Claim was filed without a description of the evidence relied on, even if it was submitted in time. In the same situation, tribunals of the SIAC, the LCIA and the HKIAC would be forced to provide an extension for the submission of the corrected statement, thereby extending the duration of the claim submission stage as a whole.

Caseloads and Value of Claims

A significant difference in the caseloads or in the amounts in dispute does not have any relation to the differences in durations of arbitration between the institutions. As an illustration, consider the statistics of the SIAC and the SCC. The data shows that the SIAC significantly outnumbers the SCC on both fronts. Yet, of the two institutions, it is the SIAC that boasts shorter arbitrations.

Expedited Arbitrations per Institution

As only the reports from the SCC and the HKIAC provide a breakdown of the nature of arbitrations conducted, it is probable that the reported median durations are not accurate indicators of the relative efficiency of the four institutions in disposing matters. If an institution takes on a greater proportion of expedited procedures, it is likely to reduce the median duration. However, this too seems unlikely after considering data from the HKIAC and the SCC. In 2016, the HKIAC, hosted only 8 expedited procedures while the SCC hosted 55.

Discretion Exercised by the Tribunals

While both the HKIAC and the LCIA recognise the tribunal’s discretion to extend time-limits, they do so in different ways. The HKIAC, under Art. 21 of the HKIAC Rules, allows extensions on the already granted period of a maximum of 45 days, while the LCIA, under Art. 15.1 of the LCIA Rules, allows tribunals to grant any period other than the prescribed 28 days. The Rules also remain silent on whether, in case of a motion for extended time-periods by the parties, tribunals are bound to recognise the period mutually set by the parties or not. Thus, while an HKIAC tribunal is led by the already elapsed 45-day period and is, thereby, likely to grant extensions keeping this in mind, an LCIA tribunal has complete discretion to decide an alternate time-limit before the start of the proceedings. This could make a significant difference in extensions granted by tribunals under both institutions.

The rules of the SCC and the SIAC meanwhile remain silent on whether tribunals can extend decided time-limits. It is highly probable that this silence will be interpreted in favour of the parties to the arbitration. For example, in 2017, SCC tribunals have granted at least two extensions in both PL Holdings v. Republic of Poland and I.P. Busta and J.P. Busta v. The Czech Republic.

Conclusion

From a study of the available data and the rules of all four institutions, it appears that the ideal combination of factors to ensure quicker arbitration would include:

  • A reasonable time-limit on submissions. While the utility of providing time-limits is unquestionable, it is imperative that these limits are fixed and regularly revised after studying the compliance rates to the prescribed time-limit, and comparing them with limits set by the other institutions. Whether, and, to what extent, these factors weigh into the limit setting process is currently unknown. For example, the original limit of 30 days under the 1998 LCIA Rules was reduced to 28 days under the 2014 version. While this amendment probably seeks to ensure that deadlines fall on working days, it is difficult to determine if the aforesaid factors were considered. It may also help to forego a uniform time-limit for all matters but instead provide different limits per tier of claim values/complexity.
  • Restrained exercise of the discretion to grant extensions and, only after the expiry of the original time-limit. It is also worth mentioning that institutions may appear to differ in their attitude towards granting extensions as a result of their past awards and the time extensions granted therein. Tribunals, while deciding whether to grant extensions, may be influenced by this pattern. The institutions would therefore do well to study past patterns and advice their tribunals accordingly.
  • A broad power to terminate and continue proceedings. Borrowing from the SCC, institutions should allow tribunals to exercise their powers in case of factors that may directly or indirectly lead to protracted submissions. Such factors would include non-compliance to requirements on the form and content of submissions, and failure to produce any documents additionally demanded.

[As the reports use data for differing periods between 2007 and 2016, with the exception of the HKIAC, this post does not reference the most recent version of the rules of the arbitration institutions. This is to ensure that the data used is studied in relation the rules that governed proceedings at the time. This will however have no effect on the validity of the observations made in this post because the cited provisions remain intact under the new versions of the rules as well.]

 

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References   [ + ]

1. ↑ While the reports provide statistics on both average and median duration, this post shall use median durations because the median is a more accurate representation of the central tendency. Averages are likely to be affected by outliers. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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8 Key Points from the ICCA-QM Task Force’s 2018 Third-Party Funding Report

Mon, 2018-05-28 07:00

Christine Sim (Assistant Editor for Southeast Asia)

The Task Force’s 2018 Report on Third-Party Funding has finally been released. Here are comments on eight of the most interesting points.

 

  1. Third-party funding involves an entity, with no prior interest in the legal dispute, providing financing to one of the parties.

 

One of the trickiest issues regarding third-party funding (TPF) has been defining it. Chapter 3 is dedicated to the challenges in reaching a definition. When reading the rest of the Report, keep in mind the scope of this definition (which excludes before-the-event insurance and maritime arbitrations by P&I clubs).

 

The Report presents extensive research on the history of TPF. For basic answers to “what is dispute funding?”, “why is funding sought?” and “how does the funding process work?”, read Chapter 2 for explanations which are fundamental to any meaningful debate on TPF.

 

What alternative funding models currently exist? The Report has done a formidable job in setting these out. There are: insurance, loans, corporate financing, equity-based and inter-corporate funding, and the most problematic—attorneys as funders.

 

It also explains the economics, return structures, risk alignment, and basic funding terms, including what is a ‘waterfall’ agreement:

A document [that] will usually require execution by all “stakeholders” (i.e., those entitled to a share or contingent payment from any recovery, typically including the claim holder, the funder, the law firm and any insurer providing coverage for fees, costs or an adverse costs award).

The waterfall agreement will set out how the claim proceeds are to be divided between the stakeholders.

  1. Future funding arrangements could go beyond funding legal costs.

 

And what about development of funding in the future? Potential directions for development are: portfolio funding; providing working capital, funding to discharge pre-existing liabilities or an advance on claimed damages; equity financing; assignments or sales of entire of part of claims; sale of awards; and enforcement financing.

 

Most interestingly, the Report predicts growth in portfolio financing, in particular two major types of arrangements:

(1) finance structured around a law firm, or department within a law firm, where the claim holders may be various clients of the firm; and

(2) finance structured around a corporate claim holder or other entity, which is likely to be involved in multiple legal disputes over a relatively short period of time.

 

Warnings are sounded regarding situations where clients enter funding agreements with the funder, but its terms or the financing process is dictated by the law firm’s wider relationship with the funder. If the funder’s return is dependent upon the overall net financial performance of the portfolio, as opposed to the outcome of each claim, this raises ethical issues.

 

Equity financing is highlighted as a creative way to enable the funder to take greater or total control over the litigation without running afoul of champerty restrictions. Owning a stake in the claim holder may also bring the funder within the circle of legal privilege.

 

  1. Disclosure of the existence and identity of funders is necessary so arbitrators can make decisions on conflicts of interest.

 

Arguably, revealing the connection between the funder and arbitrator creates the potential for bias, where there was none before.

 

Instead of keeping the arbitrator in the dark however, the Report cites the results of the 2015 QM survey in which 76 percent agreed that disclosure of the existence of TPF should be mandatory. It recommends an “affirmative duty for arbitrators to investigate potential conflicts”.

 

What conflicts of interest are we guarding against? Helpful examples of conflicts of interest are illustrated: if the arbitrator sits as a director of that funder; if an arbitrator is a partner at a firm that received significant financing from a funder based on a portfolio of the firm’s cases; or has been re-appointed in numerous funded cases. These might prove fertile ground for future arbitrator challenges.

 

Recall that the 2014 IBA Guidelines, Rule 6(b) applies equally to funders:

If one of the parties is a legal entity, any legal or physical person having a controlling influence on the legal entity, or a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration, may be considered to bear the identity of such party.

 

The Task Force recommends that the IBA reconsider its definition of “direct economic interest” to take into account portfolio financing.

 

  1. Law firms should maintain their distance from funders.

 

The Report touches upon a sensitive topic for some practitioners—the relationships between funders and law firms. It gives the example of a law firm’s introducing funders to a client, and suggests that some law firms rely upon the funder for financing across a portfolio of matters. What happens when a disagreement arises between the funder and one of the funded clients in the portfolio? It might be difficult to avoid or manage those conflicts of interest.

 

  1. If the claimant is financially reliant upon the funder, this may amount to powerful indirect control.

 

The extent to which the funder has the power to assert control over the arbitration is often the most controversial. In many jurisdictions, especially common law ones where doctrines of maintenance and champerty still exist, a third-party funding agreement could be illegal.

 

The Task Force has found that in reality, the vast majority of third-party funding arrangements are structured carefully to ensure that the funder does not have control over the case, but notes that the funder may still play a highly active role, attending client meetings and/or hearings, being copied on correspondence, and providing strategic input.

 

  1. Provide expressly in the funding agreement how to resolve differences of opinion concerning conduct of the case.

 

What happens when the funder, the party, and counsel disagree over whether to accept a settlement offer or to add additional claims? Who has control of the case should be carefully negotiated and expressly set out. There are competing concerns—TPFs may pressure the funded party to accept short-cuts to save costs, overriding the rights of actual the party to the arbitration, but on the other hand, the risk-averse behavior of TPFs might actually introduce a desirable regulating influence over the arbitration.

 

  1. In a security for costs application, a key consideration is the financial situation of the party against which security is requested.

 

Based on an extensive survey of various investor-state cases, the Report correctly distills the conclusion that the solvency of the claimant is a key focus in a security for costs application. It refers to the most recent cases, Eskosol S.P.A. v. Italy and Garcia Armas v. Venezuela, in which the tribunals considered evidence on the solvency of the claimants.

 

On the other hand, the Report’s discussion of commercial arbitrations was more limited, despite pointing to a rising concern that commercial parties are increasingly applying for security for costs as a tactic to delay arbitrations.

 

In a 2012 ICC commercial arbitration, the tribunal imposed a test of “a fundamental change of circumstances”. This test underlies the bargain struck between the commercial parties, which is hardly applicable in investor-state arbitration ‘without privity’, where the state does not know in advance which investor will accept its treaty offer to arbitrate.

 

Ironically, most investor-state tribunals so far have rejected security for costs applications. The Report notes that “tribunals in [investor-state] arbitration tend to adopt a stricter test”, and suggests that “it is questionable whether such a high threshold is warranted”.

 

  1. Use the Principles ‘codified’ in the Appendix and Due Diligence Checklist

 

The Task Force drafted a helpful Appendix containing Principles regarding:

  1. Disclosure and conflicts of interest;
  2. Privilege and professional secrecy;
  3. Allocation of costs; and
  4. Security for costs.

 

The Appendix might be adopted by arbitrating parties in their arbitration agreement, institutions as guidelines in their rules, or even investment treaty-drafters. However, these Principles  might not be suitable for all arbitrations and should be carefully considered before adoption.

 

For instance, security for costs should be determined “without regard to the existence of any funding arrangement” which reflects a burgeoning international consensus. There is some tension between this principle and the next. Principle D.1 takes the position that:

The terms of any funding arrangement […] may be relevant if relied upon to establish that the claimant (or counterclaimant) can meet any adverse costs award.

 

A tribunal is simultaneously directed to disregard the funding arrangement and asked to apply its knowledge of the terms of that funding arrangement to determine if the claimant can meet an adverse costs award.

 

How could the tribunal be certain that an adverse costs award will be met? The Report acknowledges that given the typical arm’s length commercial relationship and the lack of corporate links between a funder and the funded, nor any involvement in the underlying contract, it would be difficult to bring a funder within a tribunal’s jurisdiction.

 

The Task Force has also drafted a useful Due Diligence Checklist containing a series of questions to ask before seeking TPF, relating to the funder’s capital structures, the scope of funding, and terms of the agreement.

 

Future of TPF

 

The Task Force’s Report is currently the most significant and comprehensive contribution to the development and regulation of arbitration funding. Reading it is a prerequisite to any meaningful future debate about TPF in international commercial and investment arbitration.

 

Most importantly, the Report also flags issues we have yet to resolve regarding the ideal level of control a TPF would exercise over the case, disclosure obligations under different rules and legislation, and shines the spotlight on portfolio financing.

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Could ENI Bring an Arbitral Claim Against Turkey for Obstructing Oil Exploration in Cyprus’ Waters? The Extra-Territoriality of BITs Against Occupying Powers

Sun, 2018-05-27 03:00

Danilo Ruggero Di Bella

This post navigates the possibility of expanding the protection of a Bilateral Investment Treaty (BIT) to foreign investments made in the territory of a country, which is partially occupied by the State that is a Contracting Party to that BIT. By taking into account a real-life situation – which may result into an investment arbitration – and in the lights of the most recent precedents touching upon this matter, the post attempts to argue the viability of wielding BITs provisions against occupying powers and their unlawful interference, thus circumventing recurrent diplomatic deadlocks.

Background

In February 2018, Turkish navy has repeatedly prevented ENI S.p.A., an Italian oil company, from conducting offshore hydrocarbon explorations in Cyprus’ Exclusive Economic Zone. Turkish warships stopped Eni-operated Saipem 12000 drillship as the drillship was approaching the well nicknamed “Soupia” (cuttlefish) located in Block 3, which is licensed to ENI by the Cypriot Energy Service of the Ministry of Commerce, Industry and Tourism (MCIT). The well in question lies southeast of the Cypriot island, in an area of the Mediterranean Sea disputed by Turkey and its Turkish Republic of Northern Cyprus, on one hand, and the Republic of Cyprus, on the other hand. Under the pressure and threats by five Turkish warships, the drillship desisted from exploring Block 3 and changed its route by heading towards North Africa.

Diplomatic standoff

On one side, Cyprus President, Mr. Nicos Anastasiades, drew the attention of the President of the European Council, Mr. Donald Tusk, on the issue to urge Turkey to cease these continuing illegal actions and respect the Exclusive Economic Zone of Cyprus as well as Cyprus’ sovereign rights to explore and exploit its natural resources in accordance with International Law. Italy’s Minister of Foreign Affairs, Mr. Angelino Alfano, also attempted to unlock Turkish navy’s illegal blockade by engaging with Turkey’s Minister of Foreign Affairs, Mr. Mevlut Cavusoglu.

On the other side, however, Turkey stays firm with the block conducted by its navy over the Cyprus-licensed explorations southeast of the island.

To add fuel to the fire, as two ExxonMobil-operated vessels began in mid-March hydrocarbon exploration in the southwestern part of the Cyprus’ Exclusive Economic Zone (in Block 10), three U.S. navy ships arrived in the waters off Cyprus, suggesting the intention to deter any Turkish navy activity against the U.S. energy giant, Exxon Mobil.

In this diplomatic stalemate, before the situation turn into literally a double gunboat diplomacy scenario, could an investment arbitration between the direct stakeholders be the most peaceful and effective way to tackle the issue? In other words, could ENI (or any other extractive company that finds itself in a similar position) initiate an arbitration against Turkey for blocking its operations in Cyprus’ Exclusive Economic Zone?

Jurisdictional hurdle: the territorial scope of Bilateral Investment Treaties

The majority of BITs provides for a jurisdictional requirement that links the protection afforded under the treaty to the territory of the other State Party, where the foreign investment needs to be made, if the foreign investor wish to avail itself of such special protection (please, read Christopher R Zheng for a thorough analysis of arbitral precedents over the territorial boundaries of investment treaties’ protection). Italy-Turkey bilateral investment treaty is no exception to this jurisdictional requirement, since its Article 1.1 defines the term “investment” as any kind of asset invested by a natural or juridical person of one Contracting Party in the territory of the other. This would entail that ENI’s investment in the territory of Cyprus (essentially, a third state with regards to the dispute) may fall – at first glance – outside of the definition of qualified investment under the applicable BIT and, accordingly, could not benefit of the rights thereunder.

However, new precedents are on their way which may score in favour of foreign investors, whose investments have been hampered not necessarily by the host state per se, but rather by the state occupying – partially or totally – the host state, or meddling in the host state’s affairs.

The Crimea jurisdictional precedents

In the aftermath of the Russian annexation of Crimea, many Ukrainian investors suffered consequential damages, including expropriation of their properties. These Ukrainian investors – which were regarded as domestic investors – acquired the feature of “foreign”, following the 2014 annexation. This allowed them to institute multiple arbitral proceedings against the Russian Federation, pursuant to the 1998 “Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the Encouragement and Mutual Protection of Investments” (Ukraine-Russia BIT). In these arbitrations – which are registered with the Permanent Court of Arbitration (PCA) and being conducted under the UNCITRAL Arbitration Rules 1976 (UNCITRAL Rules) – the Ukrainian claimants contend that the Russian Federation violated its obligations under Articles 2, 3 and 5 of the Ukraine-Russia BIT, by interfering with and expropriating their investments in the territory of Crimea. As the proceedings are moving forward to the merits phase, the recent decisions on jurisdiction issued in these arbitrations indicate that the various tribunals (constituted under the UNCITRAL Rules), firstly, uphold their jurisdiction to adjudicate the disputes submitted to them and, secondly, find Claimants’ claims admissible (e.g. LLC Lugzor and Four Others vs Russian Federation, Everest Estate LLC et al. v. The Russian Federation PJSC Ukrnafta vs Russian Federation, and Stabil LLC and Ten Others vs Russian Federation). Furthermore, and more importantly, on 2 May 2018, one of these UNCITRAL tribunals issued a unanimous award in favour of the claimants amounting to approx. $159 million USD in compensation for the unlawful expropriations (Everest Estate LLC and Others v. Russian Federation).

Even though these arbitrations are still pending and the jurisdictional rulings are not publicly available yet, they may already exercise a persuasive influence on future cases, with the effect of giving the green light to a foreign investor’ s arbitral claim a) against the interference of an occupying State over investments situated officially in the territory of another State, and b) arising out a BIT entered into between the investor’s home-State and the occupying State (and not between the investor home-State and the official host-State, where the investment actually lies).

Observations pursuant to Chapters II and I of the Articles on State Responsibility

The Articles on State Responsibility seem to confirm such a possibility by providing for a wide range of attribution options for an internationally wrongful conduct to a State. Articles 4 to 10 cover the whole spectrum of actions that can be attributed to a State, ranging from the conduct of State organs to the conduct of insurrectional movements (namely, Articles 4, 5, and 8 play a pivotal role in addressing attributability issues in investor-State disputes).

In the potential case at hand, the conduct of the Turkish Navy could easily be attributed to Turkey under Article 5, which ascribes the conducts of entities exercising public powers (like the military) to the State.

Such conduct would engage Turkey’s international responsibility under Article 2(b) of the Articles on State Responsibility, since it is incompatible with Turkey’s obligations as per Article 2(2) of the Italy-Turkey BIT, to the extent that ENI’s drillship has been subject to harassment, intimidation, and threat by the Turkish Navy while operating in a territory de facto and unlawfully controlled by Turkey.

In this regard, Desert line v Yemen constitutes a benchmark in terms of framing malicious state actions of harassment, intimidation and threat as a violation of the fair and equitable standard contained in a BIT (Desert Line v Yemen, Award 2008, paras. 151-194, 289-291 and Operative Part C.2).

Estoppel considerations

It goes without saying that the doctrine of estoppel would prevent Turkey from raising a jurisdictional objection as to the inapplicability of such BIT because of its extraterritorial application. Turkey (as a Respondent State) should not benefit from its own wrongdoing (in this case, the unlawful occupation of part of the Cypriot island as well as its waters) in preventing a foreign investor – directly affected by its measures – from instituting an arbitration against Turkey. After all, the doctrine of estoppel prevents a Party from taking unfair advantage of a predicament in which that Party’s own bad behavior has placed its Counterparty.

Conclusion

In sum, should ENI launch an investor-State arbitration against Turkey for breaching Article 2 of the Italy-Turkey BIT by preventing with the use of force its research in Cyprus’ waters, its claims would have good chances of being heard by an UNCITRAL tribunal as well as being considered admissible, in the light of the jurisdictional rulings and recent award in the “Crimea investor-State arbitrations”. Indeed, it is worthy to recall that, although in arbitration precedents are not binding on third parties, they do carry considerable weight with tribunals seized of disputes sharing similar traits with earlier cases.

The views expressed in this article are those of the author and DO represent those of the law firm Bottega DI BELLA.

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The Contents of Journal of International Arbitration, Volume 35, Issue 3, 2018

Fri, 2018-05-25 17:26

Maxi Scherer

We are happy to inform you that the latest issue of the journal is now available and includes the following contributions:

 

Philippe Cavalieros & Janet (Hyun Jeong) Kim, Emergency Arbitrators Versus the Courts: From Concurrent Jurisdiction to Practical Considerations

The 10 November 2017 Dublin International Arbitration Day, organized by Arbitration Ireland, had an entire session devoted to the topic ‘Interim Measures: Emergency Arbitrators Versus the Courts.’ Drawing in part from the various issues discussed at the session, in which Philippe Cavalieros, as one of the first appointed International Chamber of Commerce (ICC) Emergency Arbitrators, participated, this article focuses more specifically on the issue of concurrent jurisdiction to grant emergency relief.

 

Wolfgang Kühn & Hanneke Van oeveren, The Full Recovery of Third-Party Funding Costs
in Arbitration: To Be or Not to Be?

The Essar v. Norscot decision rendered by the High Court of England and Wales in 2016 has opened the door, or at least a window, for the recovery of the full fees of third party funding arrangements in international commercial arbitration.

The recoverability of the success fees or premiums payable under a third-party funding (TPF) agreement as costs in arbitration can be criticized on three fundamental and overlapping bases. First, the distinction between funds actually advanced by the third-party funder and a premium is crucial. Secondly, the arbitrator’s discretion is defined and limited by law and should focus primarily on the allocation of costs rather than the definition of the recoverable costs. Finally, an award for the full recovery of third party funding fees should only be made on a clearly defined legal basis.

In addition, there are a number of policy considerations which point against the recoverability of the full costs of TPF.

The authors recommend modifications to institutional arbitration rules and national arbitration laws to clarify issues related to the recoverability of third party funding costs in arbitration. In the meantime, commercial parties may consider including more detailed contractual provisions to avoid any unforeseen or undesired liability for the costs of TPF.

 

Patrick Dumberry, State Succession to BITs in the Context of the Transfer of Territory of Macao to China: Lessons Learned from the Sanum Saga

This article examines the Sanum award and two decisions of Singapore courts dealing with the question of whether the China-Laos bilateral investment treaties (BIT) extended to Macao after the cession of this territory to China in 1999. The award and the decisions provide the first comprehensive analysis regarding the question of state succession to BITs. The article examines how these decisions have analysed the ‘moving treaty frontiers’ principle and the different exceptions set out under Article 15 of the 1978 Vienna Convention on Succession of States to Treaties in the specific and unique context of a cession of territory. These decisions also contain the first assessment of the territorial scope of application of Chinese BITs regarding Special Administrative Regions (SAR) after their handover to China. The article discusses the likely impact of the findings of the award and the decisions on the application of other Chinese BITs to the territory of Macao and that of Hong Kong.

 

Olga Sendetska, Arbitrating Antitrust Damages Claims: Access to Arbitration

In 2015, the Court of Justice of the European Union (CJEU, Court) delivered a judgment in CDC v. Akzo Nobel finding that broadly worded jurisdiction clauses do not extend to competition-related tortious damages claims. Even though the Court did not address arbitration clauses, a spill over into the area may take place. Both prior to and after the CJEU’s judgment Member States’ courts dealt with the issue of scope of broad arbitration clauses arriving at conflicting outcomes. The most recent decision was delivered in September 2017 by the Dortmund Regional Court. This article analyses the judgment in CDC v. Akzo Nobel, relevant national courts’ judgments, and how the resulting uncertainty may be mitigated.

 

Jingzhou Tao & Mariana Zhong, China’s 2017 Reform of Its Arbitration-Related Court Review Mechanism with a Focus on Improving Chinese Courts’ Prior-Reporting System

The Chinese Supreme People’s Court has devoted relentless efforts into reforming China’s arbitration regime, before a formal amendment of the PRC Arbitration Law is put on the National People’s Congress’s legislative agenda. In order to address several outstanding issues including the ‘dual-track review system’ existing in Chinese courts’ review process of domestic and foreign/foreign-related arbitrations, the Supreme People’s Court (SPC) issued several judicial documents including two judicial interpretations in 2017, focusing on regulating and unifying Chinese courts’ review of parties’ applications relating to the validity of arbitration agreements, enforcement and/or set-aside of arbitral awards. This reform further aligns Chinese arbitration with international practices, and sends a strong signal to the international arbitration community about China’s commitment to evolve into an arbitration-friendly environment.

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