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BCLP International Arbitration Surveys: Party Appointed Arbitrators and the Drive for Diversity

Tue, 2018-10-23 23:43

Carol Mulcahy and Victoria Clark

Bryan Cave Leighton Paisner LLP

Party Appointed Arbitrators and the Drive for Diversity

Over the last 8 years, BCLP’s International Arbitration Group has conducted a number of surveys on issues affecting the arbitration process.  In 2017 the survey focused on the issue of diversity [Diversity on Arbitral Tribunals: Are we getting there?] and in 2018 on the issue of party appointed arbitrators [Party Appointed Arbitrators: Does Fortune Favour the Brave?].

These topics are related.  In recent years the system of party appointments has been the subject of some criticism based on concerns over potential arbitrator bias in favour of the appointing party.  It has been suggested that party appointments be replaced with arrangements by which an institution or other independent body appoints all members of the tribunal, which could have the further advantage of improving diversity on arbitral tribunals, increasing the opportunities for younger arbitrators and improving gender and ethnic/national diversity.

The results of our 2017 survey confirmed that there is a desire within the arbitration community to improve diversity. However the results of our 2018 survey show that parties are reluctant to abandon a system of party appointments, in spite of the potential benefits for increased diversity on tribunals.

 

Party Appointments

Arbitrations routinely begin with each side naming an arbitrator.  Arbitration agreements often provide for this and the appointment procedures of many institutional and ad hoc rules permit party appointment or nomination.  Large numbers of users of arbitration favour party appointments and it is said that the ability to select one of the arbitrators gives a party a sense of control and proximity to the arbitration proceedings that engenders confidence in its outcome.  However, there are also criticisms of the system of party appointments, many of which are based on concerns that it can result in the appointment of partisan arbitrators. The practice of party appointments has been described as a “moral hazard” and a practice based on “comfort in the status quo”.  Another concern is that the system does not encourage diversity on arbitral tribunals as parties tend to select the same well-known names.

For the purposes of our 2018 survey, we asked arbitrators, corporate counsel, external lawyers, users of arbitration and those working at arbitral institutions for their views on the arguments for keeping, or for discarding, the system of party appointments.

The results of the survey confirmed that there is a strong body of opinion in favour of retaining party appointments with 66% of respondents considering the retention of party appointments to be desirable.

One of the key reasons for wanting to retain the system of party appointment was party control.  82% of respondents felt that the system gives a party some degree of control over the background and expertise of the tribunal and 79% felt that party appointments give a party greater confidence in the arbitration process.

However, respondents recognised the risk of partisan arbitrators as well as the potential benefits for increased diversity on tribunals if there were fewer party appointments.

52% of respondents saw an increased risk of partisan arbitrators as a legitimate reason for ending party appointments.  When respondents to the survey were asked about individual experiences of the conduct of party appointed arbitrators, 55% of respondents who sat as arbitrators said that they had experience of a party appointed arbitrator who tried to favour the appointing party by some means. 70% of respondents who had acted as counsel had been in a situation where they believed a party appointed arbitrator tried to favour the party that had appointed them.

A significant number of respondents agreed that an increase in institutional appointments would bring about greater diversity on arbitral tribunals and would create greater opportunities for younger practitioners to sit as arbitrators.  41% felt that more institutional appointments would help gender diversity and 31% that it would also help ethnic/national diversity.  45% of respondents felt that it would provide increased opportunities for younger arbitrators.

 

The Drive for Diversity

The results of our 2017 survey confirmed that there is a clear ambition within the arbitration community to improve diversity, in respect of age, gender and nationality/ethnicity.  The survey also demonstrated a recognition that everyone involved in the arbitration process has a part to play. There is some way to go.

80% of respondents thought that tribunals contained too many white arbitrators, 84% thought that there were too many men, and 64% felt that there were too many arbitrators from Western Europe or North America.  On the assumption that all potential candidates have the necessary level of expertise and experience, 50% of respondents thought it was desirable to have a gender balance on arbitral tribunals and 54% thought it was desirable that the tribunal should come from a diverse range of ethnic and national backgrounds.

56% of respondents said that they already consider diversity when drawing up a short list of potential candidates for appointment as arbitrators. 47% said that they were likely to consider diversity more often in the future than they had in the past.

An overwhelming 92% of respondents said that they would welcome more information about new and less well-known candidates.  81% of respondents said that they would welcome the opportunity to provide feedback about arbitrator performance at the end of a case, although only 36% thought that such information should be made publicly available.

As regards responsibility for change, the clear message from respondents was that everyone involved in the arbitration process has a role to play in improving diversity on tribunals.  78% of respondents thought that arbitral institutions have a role to play, 65% thought that counsel for the parties also had an important role and 60% thought that arbitrators had a part to play.

The clear message from respondents to our 2018 survey is that parties wish to have a role in the appointment process.  Our 2017 survey demonstrated that, when considering who to appoint/nominate, some parties and counsel do consider the issue of diversity and would welcome more information about new and less well-known candidates. Initiatives like Arbitrator Intelligence play an important part in this process by making information about arbitrators available for all.

 

The 2019 Survey

BCLP’s 2019 survey considers the issue of cybersecurity in arbitration.

Electronic documents and other information are introduced into international arbitration proceedings in vast quantities. Are participants in the arbitration process sufficiently aware of the need to protect that data against unauthorised access by third parties, and should more be done to promote risk assessment and the taking of active steps to enhance data security?

There has been a dramatic increase in cyber-attacks on corporations, governments and international organisations. Law firms and arbitration proceedings are not immune from these threats.  Disputes referred to international arbitration have characteristics that can lead to an increased level of risk and adverse commercial consequences in the event of a data security breach. These developments have led to debate about the need for reasonable cybersecurity measures in individual arbitration proceedings, and how best to go about initiating and organising those measures.

We would like to obtain the views of our professional colleagues on this topic by requesting their responses to our survey questions. All responses will be treated as confidential and a report and editorial on the results of the survey will be circulated to all participants.

To participate in the survey please follow this link.

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2018 Taipei International Conference: Competitive, Collaborative or Cooperative Relations between Litigation, Arbitration and Mediation?

Mon, 2018-10-22 20:00

Winnie Jo-Me Ma

Are litigation, arbitration and mediation competitive, collaborative or cooperative? Is litigation becoming an “alternative” to “alternative dispute resolution”, especially keeping arbitration on top of its game? Are mixed processes or combined regimes becoming the preference?

These questions were part of the timely and timeless theme for this year’s Taipei International Conference on Arbitration and Mediation on August 27-28, the 12th annual conference co-hosted by CAA (Chinese Arbitration Association, Taipei) and ACWH (Asian Center for WTO & International Health Law and Policy, College of Law, National Taiwan University) since 2007.

There was near-unanimous consensus among conference speakers that the tables are turning and a storm is brewing. This resonates with the “growing ecosystem” and “changing culture” as described by Eunice Chua.

Several meaningful bases of comparison and choice are emerging from the proliferation of international commercial courts and dispute resolution hubs, together with the increasing accession to the Hague Convention on Choice of Court Agreements and the new UNCITRAL Convention on International Agreements Resulting from Mediation. They include: enforceability; efficiency (especially containment of cost and delay); expertise, availability and diversity of decision-makers; appellate review versus institutional scrutiny; transparency versus confidentiality; and flexibility versus predictability (Janet Walker, Osgood Hall Law School; Gary F. Bell, National University of Singapore). Languages and legitimacy were also raised (Ling Yang, HKIAC), which were the recurring and dominating themes of the 2016 Taipei International Conference and this year’s 2018 ICCA Congress respectively.

One may conclude from these considerations that many of the so-called “international commercial courts” are not really “international”, and that arbitration already has their international features (Stephan Wilkse, Gleiss Lutz). In any event, there is room for co-existence and even partnership between international commercial courts and arbitration, as both are fishing in the same pond while enlarging the pie. However, res judicata in litigation and arbitration remains an unresolved problem, risking double recovery and conflict of laws (Philip Yang, Independent Arbitrator).

Another ongoing debate in some jurisdictions is whether international and domestic arbitration regimes should be combined or bifurcated, which requires delicate balancing of party autonomy, arbitrability and public policy (Doug Jones, Independent Arbitrator). For instance, CAA is currently working on a legislative bill to reform Taiwan’s Arbitration Act, which will be based on UNCITRAL Model Law on International Commercial Arbitration and modified by Taiwan-specific features.

Mediation is another source of complexity – be it another choice, contender or challenge. And change is needed, as confirmed by the latest Queen Mary International Arbitration Survey, as well as the four global themes of the Global Pound Conference series (Kathryn Sanger, Herbert Smith Freehills). First, efficiency is the parties’ key priority in their choice of dispute resolution processes. Yet efficiency will not always be the quickest and cheapest. Furthermore, Asia represents a regional trend of preferring enforceability (through increased regulation) over efficiency.

Second, many parties desire pre-dispute protocols and hybrid processes. Yet the debate about whether and when an arbitrator can act as mediator persists. Efficiency cannot compromise impartiality. We need innovative combinations of the existing models such as med-arb, binding mediation and amiable composition to achieve a more informed and just resolution of disputes (Joe Tirado, Garrigues). The dual roles of mediator and arbitrator can create the most dilemmatic conflicts but also the best decisions. In addition, effective use of ex aequo et bono and lex mercatoria may counteract the over-judicialisation of arbitration without over-complicating arbitral procedures (Nobumichi Teramura, UNSW Law Faculty; Horia Ciurtin, EFILA).

Third, the parties expect greater collaboration from their representatives – the traditional role as warriors in battle may be out of step with their needs. This leads to the fourth observation that external lawyers stifle change whereas in-house counsel enable change, fueling further controversy and disparity.

More challenges and opportunities arise from innovative technology and online dispute resolution (Kim Rooney, Gilt Chambers). Artificial intelligence, Blockchain, smart contracts and eBRAM are already well-known work in progress.

Coincidentally, the brewing storm of international tax disputes relating to bilateral tax treaty Mutual Agreement Procedure may be the litmus test or a niche for the competitive/collaborative/cooperative relations between litigation, arbitration and mediation (Michelle Markham, Bond University Faculty of Law). As at July 2018, only 28 of the 83 signatories to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting have adopted the mandatory binding arbitration provision. The main controversy concerns the perceived loss of sovereignty, the ability for revenue authorities to veto arbitral decisions. Mediation is relatively untested, but if it can foster collaborative working relationships and thereby facilitate arbitration, it may be used as an addendum to arbitration, rather than as a stand-alone process. On the other hand, litigation is unlikely to remain costly, complex and time-consuming for taxpayers and tax authorities.

The ultimate goal, and also the ultimate test, is to reach a resolution and closure – to end, move on and away from the dispute. Anyone involved in any dispute resolution process can be expected to aim and strive for this goal.

We may continue to be challenged or comforted by several continuing questions after the 2018 Taipei International Conference. The first is enforceability: what are the prospects of the Hague Convention on Choice of Court Agreements and the new UNCITRAL Convention on International Agreements Resulting from Mediation in comparison with the 60-year-old New York Convention? The second relates to efficiency: will competition truly reduce costs? Will collaboration improve the effectiveness or speed of dispute resolution (by combining the best rather than the worst of multiple worlds)? The third (re)explores legitimacy: what is the appropriate balance between over-regulation and under-regulation, particularly in the context of promoting or preserving public confidence? Will UNCITRAL continue its future work on the ethical regulation of arbitrators and even extend to party representatives or third party funders?

Most of us would agree that one size does not fit all. We are unlikely to predict the outcome, nor dispute the need to do (more) of the following in the meantime: provide integrated training for judges, arbitrators, mediators, practitioners and all service providers in dispute resolution, management and prevention; remove or reduce any legislative and institutional barriers to integrated dispute resolution processes; promote public awareness of all dispute resolution processes.

Turning point or brewing storm, a race to excellence has begun.

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HKIAC Introduces New Rules

Sun, 2018-10-21 20:00

Joe Liu

HK45

In August 2017, the Hong Kong International Arbitration Centre (“HKIAC”) launched a rules revision process to consider amendments to the 2013 HKIAC Administered Arbitration Rules (“2013 Rules”), having regard to the latest trends in international arbitration, feedback from users and HKIAC’s past case management experience.

The 2013 Rules have been widely regarded as one of the market-leading set of rules with a number of innovative provisions, such as the availability of two options to pay arbitrators’ fees, leading HKIAC to receive a nomination for a GAR award in 2014. Notwithstanding this, after multiple rounds of public consultation, HKIAC considers that it is time to update the 2013 Rules with certain amendments that might benefit its users.

HKIAC has announced several new provisions to add to the 2018 Administered Arbitration Rules (“2018 Rules”), which are intended to improve the procedural certainty and cost-efficiency of HKIAC arbitration. These provisions address primarily the following areas:

Use of technology

It is inevitable that technology will transform the conduct of arbitration and be increasingly used to address the constant demand for cost and time-effectiveness of arbitration. In recognition of this, HKIAC encourages the use of technology to manage proceedings and to deliver documents.

There are new provisions to recognise the uploading of documents onto a secured online repository as a valid means of service. Parties may agree to use their own repositories or a dedicated repository provided by HKIAC. The 2018 Rules will also identify the effective use of technology as a factor for an arbitral tribunal to consider when adopting suitable procedures for an arbitration.

Multi-party and multi-contract disputes

HKIAC is at the forefront of developing effective provisions for disputes involving multiple parties and/or contracts. It is known for its comprehensive and far-reaching provisions on joinder, consolidation and single arbitration under multiple contracts. These set the market standard at the time of their introduction in 2013.

In the 2018 Rules, HKIAC further expands those provisions in, among other things, allowing a party to commence a single arbitration under multiple agreements even though these are between different parties. This feature is not available in the 2013 Rules. Further, HKIAC has added provisions to allow expressly the same arbitral tribunal to run multiple arbitrations concurrently with, for example, common procedural timetables and pleadings, concurrent or consecutive hearings, and separate awards, provided that a common question of law or fact arises in all the arbitrations. This new mechanism is intended to enhance efficiency and reduce costs in multiple proceedings, where consolidation is not possible or desirable.

Third party funding

With the imminent implementation of the legislative amendments to permit the use of third-party funding in arbitration and associated proceedings in Hong Kong, the 2018 Rules include express provisions to address the issues of disclosure, confidentiality and costs of third-party funding.

Under these provisions, a funded party is required to disclose the existence of a funding arrangement and the identity of the funder, as well as any changes to these details that occur after the initial disclosure. The confidentiality provisions have been amended to allow a funded party to disclose arbitration-related information to its existing or potential funder for the purposes of obtaining or maintaining funding. In addition, a provision has been added to confer discretion on an arbitral tribunal to take into account any funding arrangement when fixing or apportioning costs of arbitration.

Early determination of points of law or fact

There appears to be a trend among major arbitral institutions to include summary determination procedures in their rules in response to the common criticism that arbitration has no equivalent to the summary judgment or striking-out procedure in court litigation, thereby allowing a party to advance a meritless claim or defence through a full procedure. This trend also reflects users’ demand, as shown in the 2018 Queen Mary and White & Case International Arbitration Survey (“2018 Survey”) where over 20% of respondents selected summary determination procedures as an innovation that would make international arbitration more appealing for the banking, energy, construction and technology sectors.

The 2018 Rules introduce an Early Determination Procedure expressly to empower an arbitral tribunal to determine a point of law or fact that is manifestly without merit or manifestly outside of the tribunal’s jurisdiction, or a point of law or fact that, assuming it is correct, would not result in an award being rendered in favour of the party that submitted such point. The tribunal must decide whether to proceed with a request for early determination within 30 days from the date of the request. If the request is allowed to proceed, the tribunal must issue an order or award, which may be in summary form, on the relevant point within 60 days from the date of its decision to proceed. These time limits may be extended by HKIAC or party agreement. Pending the determination of the request, the tribunal may decide how to proceed with the underlying arbitration.

Procedural certainty

Commercial parties want certainty. 43% of respondents to the 2018 Survey considered “greater certainty” as a factor that would have the most significant impact on the future evolution of international arbitration. To that end, HKIAC has introduced a series of provisions to achieve greater procedural certainty.

HKIAC’s Emergency Arbitrator Procedure has been updated to confirm the timing of filing an application for emergency relief, the test for issuing such relief and the maximum fees payable to an emergency arbitrator. The procedure has been expanded to allow a party to file an application before, concurrent with or after the submission of a Notice of Arbitration, but prior to the constitution of an arbitral tribunal. All time limits under the procedure have been shortened and an emergency arbitrator’s fees are subject to a maximum amount. A new provision has been added to clarify, among other things, that the granting of emergency arbitrator relief is subject to the same test applied by an arbitral tribunal when deciding whether to issue an interim measure.

In its regular procedure, HKIAC has introduced for the first time a default three-month time limit for rendering an arbitral award after the closure of the proceedings or the relevant phase of the proceedings (as opposed to the overall six-month time limit for issuing an award in the expedited procedure). There is also a requirement that, after the proceedings are declared closed, the tribunal must notify the parties and HKIAC of the anticipated date of delivering an award. All these requirements bring certainty as to when parties can expect to receive a decision on their dispute.

Coming into force

With the above provisions and many others, the 2018 Rules provide a procedural framework under which parties and arbitral tribunals can conduct proceedings seamlessly with an unrivaled range of mechanisms to resolve disputes through a highly efficient, cost-effective and procedurally certain process.

The 2018 Rules have been selected for the next Willem C. Vis International Commercial Arbitration Moot in 2019. It will be interesting to see how some of the new provisions are used to address the Moot problem.

The 2018 Rules will come into force on 1 November 2018 and the full text is available at www.hkiac.org.

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Form Requirements For Authorisations To Enter Into An Arbitration Agreement: The Austrian Perspective

Sun, 2018-10-21 00:11

Miranda Mako

Young ICCA

In its decision 6 Ob 195/17w dated 17 January 2018, the Austrian Supreme Court decided that the form requirements for an arbitration agreement also apply to the authorisation to an agent to enter into an arbitration agreement (or a contract containing an arbitration agreement).

I. Stopping the movement towards a liberalisation of form requirements

Austria is among the few countries requiring a special type of authorisation to enter into an arbitration agreement (“Spezialvollmacht”) which must also be in writing. Since the revision of the Austrian Commercial Code (“ACC”) in July 2007, the legislature decided to drop the requirement of a special authorisation when it comes to the (i) power of procuration (“Prokura”) and (ii) general corporate authorisation. They are now deemed to implicitly encompass the authorisation to enter into an arbitration agreement, unless provided differently. This legislative change aimed at finally harmonising the requirements for concluding the contract which includes the arbitration agreement with those of the arbitration agreement itself, in order to avoid the unwanted situation where the contract was validly concluded whereas the arbitration agreement was not. However, the question remained whether, despite removing the requirement for such separate special authorisation within the mentioned context of the ACC, the authorisation was still subject to a written form requirement. Whether the authorisation must take the same form as the act for which it is intended will, in principle, depend on the purpose of the respective form requirement.

Historically, the written form requirement for the arbitration agreement (and the respective authorisation) served both an evidentiary and a warning function, to protect the parties from waiving access to judicial remedies lightly. The 2006 reform of the Austrian arbitration law loosened this strict writing requirement with the adoption of section 583(1) of the Austrian Code of Civil Procedure (“ACCP”): E-mail correspondence or other means of correspondence exchanged between the parties are now deemed to satisfy the writing requirement as long as they provide “proof of the agreement”. According to the prevailing view, these “new” and less stringent forms of the writing requirement would hardly carry a cautionary effect anymore. Hence, the previously advocated warning function of the provision has arguably lost its significance.

Furthermore, when it comes to international business transactions between commercial parties, arbitration as a dispute resolution mechanism can be said to have become the rule as opposed to the exception. Parties often want to avoid ending up before national courts where proceedings could be overly long and additional uncertainties might exist. Therefore, the warning function has to a large extent lost its purpose. However, despite these clear trends of moving away from the historical warning function of the writing requirement, the Supreme Court took a protective stance and decided to continue embracing it.

II. The Supreme Court’s conservative approach

In essence, the facts of case 6 Ob 195/17w are as follows: The respondents in the case were partners in buying and developing real estate with the help of contractors. For one of their properties, respondent A orally gave respondent B the authorisation to manage the development in both their names with the contractor. Accordingly, respondent B signed a contract with the claimant on his and respondent A’s behalf, which included an arbitration agreement.

When a dispute arose, the claimant commenced proceedings before the Austrian courts, claiming compensation. In response, the respondents raised a jurisdictional objection in favour of arbitration due to the arbitration agreement contained in the contract between the claimant and respondents. The issue before the Supreme Court was whether a valid arbitration agreement had formed between the parties.

The Supreme Court decided that an arbitration agreement was only validly concluded if the authorisation to an agent followed the same form requirements as those imposed on the arbitration agreement by section 583(1) ACCP. Hence, even in a commercial context, an authorisation that was given only orally would not suffice. It held that the arbitration agreement had therefore not been validly concluded between claimant and respondent A, the effect of which, according to Austrian case law, also extended to respondent B.

The Supreme Court gave two main reasons for its decision to tie the form requirements for the arbitration agreement to the authorisation to an agent to conclude such an agreement: First, it made reference to the draft bill of section 583. In particular, during the revision of section 583, the draft bill included an express provision that the form requirements for the arbitration agreement would not apply to the authorisation to enter into an arbitration agreement. However, this addition was eventually removed so that the law in its final form did not include such clarification. Hence, although it was considered to explicitly exclude the form requirements of section 583 for the authorisation to enter into an arbitration agreement, the legislature decided not to adopt it.

Second, it explained the historical function of the written form requirement. Keeping the previous version of section 583 ACCP in mind, the Supreme Court discussed at length how the writing requirement mainly served the purpose to ensure that parties do not light-heartedly abandon their right to access judicial remedies. This, it held, was a valid reason which ought to be maintained even post-revision. The Supreme Court explained that by entering into an arbitration agreement, the parties waived their rights of having access to national courts, which gravely limited their possibility of appeal, and thus, their judicial remedy.

Accordingly, the writing requirement not only served an evidentiary but also a warning function which extends to the authorisation. Although the revision of the Commercial Code removed the requirement for a special authorisation to enter into an arbitration agreement in a commercial context, it did not pronounce itself on form requirements. The Court concluded that it was not possible to simply deduce that by removing the special authorisation, the legislature also aimed at adopting the same form requirements for the corporate authorisation as those for the main contract. Therefore, even within a commercial context, the authorisation to enter into an arbitration agreement had to be in writing in accordance with section 583(1) in order to serve the said warning function.

This decision is a considerable step backwards from the progress of easing the form requirements for entering into an arbitration agreement in a commercial context. Although no additional special authorisation is required, an authorisation to enter into a contract containing an arbitration agreement must still be in writing, even if the contract would otherwise not require such specific form.

III. The scope of application of Article II of the New York Convention

In principle, the Supreme Court’s decision would only be of relevance if the validity and form requirements of the authorisation to an agent to enter into an arbitration agreement were to be governed by Austrian law. The ACCP, however, provides for the application of section 583 even if the seat is either not yet determined or abroad, which gives section 583 an overriding mandatory character. Since the Supreme Court has decided that the section 583(1) form requirements equally apply to the authorisation to enter into an arbitration agreement, the question arises whether the overriding mandatory application of section 583 also extends to authorisations which could have an impact on enforcement actions before the Austrian courts.

It is, however, debatable whether the writing requirement for an authorisation to enter into an arbitration agreement would demand a stricter form requirement than Article II of the NY Convention. Since Article II of the NY Convention provides for the maximum standard which the Contracting States may impose, any stricter provision on form requirements in section 583 ACCP would be superseded. The NY Convention does not, however, include any provision on authorisation, questions of which could therefore be left to the applicable national law to answer. Nevertheless, according to Gary Born’s treatise on International Commercial Arbitration, there is a substantial argument that Article II extends to related instruments concerning the formation of the arbitration agreement such as the authorisation.

Under this interpretation, the only form requirements imposed by the NY Convention are those that apply to the arbitration agreement itself. A lack of written form for the authorisation to an agent would therefore not provide grounds for challenging the validity of the arbitration agreement under the NY Convention. Or else, it would open the door to indirectly imposing stricter form requirements and contravene the Convention’s aim to facilitate the enforcement of arbitration agreements.

The Austrian Supreme Court has not yet considered the interplay between section 583 and the NY Convention as the decision was rendered in a domestic context. Therefore, there is hope that this decision’s impact can be confined to a domestic context.

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SOAS Arbitration Report 2018 Bolsters Conversation on Arbitration in Africa

Sat, 2018-10-20 23:20

Osasiuwa Edomwande

Young ICCA

On 2 May 2018, the maiden edition of the School of Oriental and African Studies (SOAS) Arbitration in Africa Survey was launched at the SOAS Arbitration in Africa Research Conference in Kigali, Rwanda. The survey, conducted using an online questionnaire, focused on perspectives of African arbitration practitioners in domestic and international arbitration.

The insufficiency of information on the availability of skilled African arbitration practitioners, and enquiries about the place of the African arbitration practitioner in the global arbitration arena, were some of the reasons that necessitated the survey. This survey debunks the myth that ‘African arbitrators are not available or lack expertise and experience’ by showing that there is a large number of arbitrators on the African continent, and they are well-trained. It serves as empirical data on the skills, expertise and experience of African arbitration practitioners that will aid future discussions and developments in the area of Arbitration and Alternative Dispute Resolution (ADR) in Africa.

Profile of the African Arbitration Practitioner

The survey, which was open for responses between 4 December 2017 and 12 February 2018, received 191 responses during the period. The first group of questions sought to understand the profession, domicile and arbitration experience of the respondents. 90.6% of the respondents to the survey are lawyers, with few representations from academics, engineers, surveyors and other professions, and the majority of the respondents are domiciled in Nigeria. 83.8% of the respondents describe themselves as arbitration practitioners acting in the capacities of counsel, arbitrator, registrar or tribunal secretary, academic, consultant and legal adviser.

Lawyers are known to be the primary professionals who engage in the resolution of disputes, though there are dispute resolvers or resolution specialists who may not necessarily be lawyers. Aside from legal practitioners, respondents to the survey could (in addition to those listed above) also have been architects, accountants, physicians and nurses. The arbitration pool is becoming increasingly diverse in terms of the specialization of arbitration practitioners.

81.7% of the respondents have undergone formal training in arbitration law and practice, while 23% studied arbitration as part of a higher degree at university. 72% of these were trained by the Chartered Institute of Arbitrators (UK) – an arbitration institution with an international network. This lends credence to the fact that Africa has a large pool of arbitrators who can serve dispute resolution needs on the international and domestic scene by applying best practices. It is essential that arbitration practitioners have good training or first-hand experience with the process. This training, which should be continuing, is best served by membership of arbitration organizations/institutions. This affords potential and active arbitration practitioners with the opportunity to garner international best practices that are paramount for work as arbitrator, arbitration counsel or arbitral secretary.

Experience of African Arbitration and ADR Practitioners

The second group of questions analysed information to understand the experience of the respondents in arbitration in the last five years (2012-2017) which served as the reporting period. The survey also measured participation in mediation. The results show that the African arbitration practitioner also engages in other forms of dispute resolution particularly mediation with 45.5% of the respondents stating that they have acted as mediators in the last five years. 64.4% of these respondents reported that they have sat as mediators in one to five mediations over the reporting period.

The Future of Arbitration and ADR in Africa

The survey was conducted in three languages: English, Arabic and French, with the majority of responses in English. The report provides data on active participation in 19 of the 54 countries in Africa. As there are six Lusophone countries in Africa, the survey reporters expect to add Portuguese as one of the languages in future surveys in order to measure the perspectives of arbitration users in those countries and for more representative information about Arbitration in Africa.

Furthermore, only three (Benin, Cameroon and Togo) of the 17-member states of the OHADA (Organisation pour l’harmonisation en Afrique du droit des affaires – Organisation for the Harmonization of Business Law in Africa) are represented in the survey. For the OHADA member states, three revised laws on Arbitration and ADR came into effect in March 2018: the new Uniform Act on Arbitration Law, the revised Arbitration Rules of the Common Court of Justice and Arbitration (CCJA) and a new Uniform Act on Mediation. These developments are sure to increase the use in arbitration and ADR processes of African practitioners and on the African continent. It will be interesting to see future results from more OHADA member states.

The African Continental Free Trade Area Agreement (AfCFTA) signed by 44 out of the 55 African Union member states in April 2018 will also welcome an increase in African trade which inevitably leads to an increase in commercial disputes. The international dispute resolution community looks forward to the benefits of the South African International Arbitration Act no. 15 of 2017 and envisions the reforms that will arise from Nigeria’s Arbitration and Conciliation Bill of 2017 which is currently before the National Assembly. As arbitration and ADR practitioners continue to raise awareness of ADR methods outside of litigation and parties decide to choose arbitration and ADR as methods of resolving disputes, more of this type of surveys will be needed to measure trends and shape the future of arbitration and ADR.

The survey itself has a promising future. I commend the researchers and supporters – the firm of Broderick Bozimo & Company – for taking the step to provide data in this area and encourage everyone to read the full survey report here.

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Tips from the top: Young ICCA interviews Nora Fredstie

Sat, 2018-10-20 21:25

Young ICCA

Young ICCA

Source: personal archive

Nora is an associate in the Paris office of Latham & Watkins and a member of the firm’s International Arbitration Practice. Her work focuses on international investment arbitration, international commercial arbitration, and public international law.

She acts for clients across a broad spectrum of sectors, including investment, oil and gas, energy, construction, pharmaceutical, and automotive. Nora operates in a range of geographic locations and with a current emphasis on South American related and intra-EU disputes. She has acted and participated in international arbitrations conducted under the ICC, ICSID, LCIA, SCC, CRCICA and UNCITRAL arbitration rules. Further to her counsel work, she has acted as administrative secretary to arbitral tribunals, both in commercial and in investment arbitrations. She has also assisted with IBA and ICC projects and speaks at conferences on various international arbitration topics.

Originally from Norway, she completed her LLB/BA at the Australian National University and an LLM in International Dispute Settlement (MIDS) in Geneva, Switzerland. She is an Attorney and Counselor at Law in the State of New York as well as a Solicitor in England and Wales. Prior to joining Latham & Watkins in Paris, Nora gained experience working in Australia, the Netherlands, Chile, Norway, and France.

What drew you to the world of International Arbitration?

The mind-against-mind intellectual challenges you are faced with is what drew me to international arbitration. For example, I love exchanging with experts. There is something uniquely challenging about getting an expert report in a field you do not know, or a legal system you have not encountered, and start learning and challenging the statements of a preeminent expert. In a very short time, you will have to understand the field in order to challenge their conclusions and to undermine their points. It is invigorating. I have the same feeling about cross-examinations.

When did you start laying the groundwork for a career in International Arbitration? (e.g., was it while in law school, during a moot court, during your career or placed on a case within your firm)

ICSID arbitration was the first thing I learned about international arbitration while doing the Jessup moot for the ANU. I remember pronouncing it “I”-“C”-“S”-“I”-“D”. At this point, international arbitration was only a part of the international law career I was pursuing. I therefore did not do any international arbitration related courses in law school. After law school, I did an internship at the ICTY in The Hague, working for the Radovan Karadžić defence team. International Criminal Law did not turn out to be what I expected. I therefore quickly looked around to do something else. In The Hague, I had come across individuals working with the Permanent Court of Arbitration. The way they described their job made it sound like real litigation on an international plane. I decided that it was what I wanted to do and started the MIDS LLM in Geneva, Switzerland. MIDS was my first full introduction to international arbitration. Thereafter, I built my career through an internship with BMAJ Abogados in Chile and Freshfields in Paris until I was hired at Latham & Watkins.

What kind of groundwork did you do to set yourself up? (e.g., what steps did you take to enter the field?)

I first did a masters specialising in international arbitration and then followed-up with internships in the field. I know some older practitioners still advise that candidates pursue a career domestically before moving to international arbitration. It is my opinion that this is less and less true when looking at the candidates being hired for associate positions in the main international arbitration hubs. I believe doing this specialised international arbitration masters gave me the grounding I needed to enter the field. Not only did I leave with a broad knowledge of the field, I also had the insight to know where there were job opportunities and a network that would make me happy living in any of the big international arbitration centres.

Describe a pivotal moment in your career in arbitration and how did that affect your career (e.g., an opportunity to work with a prominent arbitrator/on a pioneering case?)

A pivotal moment of my career is when I decided to join an arbitration group that had just been set up. I joined Latham & Watkins in Paris. Although Fernando Mantilla-Serrano (the group’s leader) and John Adam (the group’s counsel), had a reputation as being excellent practitioners, it was still a gamble. It is obviously more comfortable to join an established team, where everything has been set up and everyone has a specific role.

The gamble paid off in a big way. Within a few weeks, I was working on a number of large cases in a variety of areas. I was given responsibility and tasks that were more akin to mid-level associates in more established groups. For example, I got to do my first cross examination in international arbitration in my second month as a second-year associate. While I initially felt like I was drowning, I would not have wanted it any other way. I cannot imagine that I would learn that much in such a short period if I were not with Fernando and John in Latham’s Paris arbitration group.

It was very educational to see an arbitration practice created around me. Although we are now a bigger team, when I joined it was still so small I genuinely felt I was part of the creation of a team and its processes.

If we look at arbitration as a battlefield, what are the three metaphorical weapons any lawyer needs, and why?

I do not look at international arbitration as a battlefield. Being one of the arbitration/litigation warrior class can make you blind to the real wants and needs of your client. I further believe it blinds you to the real strength and weaknesses of your case, creating pitfalls as you overestimate your skill as a warrior.

That being said, if I could only have three metaphorical weapons I would want: 1) a real team; 2) passion; and 3) attention to detail. I have listed this in the order of importance.

First, it is my opinion that, regardless of who you are, you cannot get anywhere without being part of a real team. You will never learn enough to be strong enough on your own. You need a group that complements and supports you. A team will not only allow you to successfully represent your client, it will build you as a professional and also allow you to be successful in achieving a work/life balance.

Second, when it comes to passion, this is what will help you survive. There is no way around the fact that international arbitration requires an extreme commitment from you in terms of hours. You will also operate in high stress situations. Unless you are truly passionate about what you are doing, you will be miserable. To find the unique arguments, to be happy while working, to be successful in general, you must be passionate about international arbitration.

Third, my final weapon is attention to detail. You must become a detail sniper. You can go far without being the smartest or most knowledgeable person if you are diligent with a good attention to detail. Attention to detail is what will win or lose the case for your client. It is never your knowledge of the deep philosophical principles of international arbitration that does so. Attention to detail is the one trait that is more or less consistent across those who makes it in international arbitration today; it is also the consistent trait in who is and is not hired as an associate.

Upon reflection, are there any decisions you made that you feel aspiring arbitration practitioners could learn from?

Of the decisions I have made, the one I believe is worth sharing is my decision to go off the beaten track and not to be afraid to leave what was not right for me. Moving on from international criminal law is the best decision I have made in my career. I am now in a profession I genuinely like and which I can see myself in for the foreseeable future, instead of sticking with something I had worked to achieve for so long but could not have fulfilled me. Sometimes you just have to jump. When it comes to going off the beaten track, I think this can give you unique perspectives and opportunities. When I finished my masters, most of my classmates were looking for internships in the traditional arbitration law firms in Geneva, Paris, and London. I instead went to do an internship at BMAJ Abogados in Chile. This helped me understand a different way of working, gave me insight into Latin America, helped me learn some Spanish, and let me build a global network. I am currently working on many cases with links to Latin America with underlying documentation in Spanish. Had I not gone off the beaten track, I would not have learned the skills that are now essential to my work.

Is there any additional candid advice or insight that you can offer to assist those who are entering the field, deciding whether to enter the field, or already are in the field of International Arbitration?

You need to find what makes you unique or something that you are better at than anyone else. Maybe you already speak a relevant arbitration language; if not, consider learning one. Are you particularly good at oral advocacy? Then you should hone that skill and use any opportunity to perfect it. Are you a good writer? Perfect your writing style. Start reading literature, like Hemingway, which will improve your legal drafting skills.

You will also need to think about your reputation and what you want it to say about you. Everyone has a reputation, whether you want it or not, whether you care about it or not. Given that you have a reputation, you should control it. Arbitration is a small community; your reputation will always play a pivotal part in your career. Be genuine. Remember, your reputation is not only built on whom you mingle with at conferences. It is a sum of how you come across to all the people you encounter, from opposing counsel to your trainees.

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Brussels Court Holds Arbitration Agreement in FIFA Statutes Invalid: Final Call or Half-Time Whistle for CAS Arbitration in Sports Disputes?

Sat, 2018-10-20 02:00

Maarten Draye and Benjamin Jesuran

The authors write this contribution strictly in their own name.

Most arbitration laws require parties to identify in their arbitration agreement the “defined legal relationship” for which they wish to submit disputes to arbitration. Nonetheless, this requirement has given rise to little case law in practice. In a judgment of 29 August 2018 (“Judgment”), however, the Brussels Court of Appeal (“Court”) assumed jurisdiction over a football-related dispute despite a clause providing for CAS arbitration in the FIFA Statutes, holding this arbitration clause invalid for failure to identify any defined legal relationship. While the Judgment may give rise to debates in ongoing cases, it is not expected to put CAS arbitration of future football disputes in jeopardy, provided that the shortcoming is remedied through appropriate drafting.

Background

At the heart of the dispute lies FIFA’s prohibition of third-party ownership agreements (“3POs”). Under this practice, private investors acquire rights over football players to later profit from transfer fees. 3POs are controversial given their alleged links with game fixing, corruption and money laundering.

In 2015, RFC Seraing – a third division football club affiliated to the Belgian Football Federation (“URBSFA”) – entered into a 3PO with Maltese company Doyen Sports Investments Limited (“Doyen Sports”). Following an investigation, FIFA fined RFC Seraing and imposed a four-year transfer ban. The decision was confirmed by FIFA’s Appeal Committee. In an arbitral award dated 9 March 2017, a CAS tribunal reduced the transfer ban but confirmed all other sanctions.

RFC Seraing applied to set aside the arbitral award before the Swiss Federal Court, which dismissed the application on 20 February 2018.1)Swiss Federal Court, 20 February 2018, 4A_260/2017 and “A Pyrrhic Victory for FIFA?”. jQuery("#footnote_plugin_tooltip_2990_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In parallel, RFC Seraing and Doyen Sports started proceedings against URBFSA, UEFA and FIFA (“Respondents”) before the Belgian Courts, arguing that FIFA’s prohibition of 3POs is incompatible with EU Law. Respondents challenged the jurisdiction of the Belgian courts in light of the arbitration agreement in FIFA’s Statutes, to which RFC Seraing had adhered through its own statutes.

In an interlocutory decision, the Court invited the Parties to address the validity of an agreement that submits any dispute without restriction to arbitration.

Decision

Belgian law – like the UNCITRAL Model Law and the New York Convention – requires the arbitration agreement to identify a “defined legal relationship”.2)Article 1681 and Article 1682, § 1 of the Belgian Judicial Code (“BJC”), which adopt Articles 7 (Option II) and 8 of the Model Law, which mirrors Article II (3) New York Convention. jQuery("#footnote_plugin_tooltip_2990_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

By reference, inter alia, to the ICCA Guide, the Court explained that this requirement seeks to prevent parties from generally referring any and all disputes that may arise between them to arbitration. This requirement finds its ratio in (i) the right of access to justice (Article 6.1 ECHR, and Article 47 Charter of Fundamental Rights of the EU); (ii) party autonomy (notably the necessity to avoid that parties be surprised by the application of the arbitration agreements to disputes not anticipated), and (iii) the concern of preventing the party in a stronger bargaining position from imposing on the other party the jurisdiction of any other court.3)The Court referred to the Advocate-General’s Opinion in Powell Duffryn, C-214/89. jQuery("#footnote_plugin_tooltip_2990_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Against this background, the Court proceeded to analyze the arbitration provisions in the FIFA Statutes.4)In particular Articles 66 and 68 of the FIFA 2015 Statutes, which correspond to Articles 57 and 59 of the FIFA 2018 Statutes currently in force. jQuery("#footnote_plugin_tooltip_2990_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Court considered that these provisions are drafted in very broad terms to generally submit to CAS arbitration all disputes between FIFA and “leagues, members of leagues, clubs, members of clubs, players, officials and other association officials”, without any specification or indication of the legal relationship concerned.

The Court rejected Respondents’ arguments that a limitation of the scope of the arbitration clause ratione materiae is implied by, or could be derived from, external elements. First, neither the nature of FIFA’s statutes or activities, nor the fact that CAS can only be seized for sports-related disputes define a legal relationship. CAS is, moreover, an independent body that could amend its own bylaws. Further, the undertaking in RFC Seraing’s statutes to comply with the “statutes, regulations, directives, and decisions of URBFSA, FIFA, and UEFA” would have represented the source of the duty to arbitrate, not the subject-matter of the arbitration agreement provided in FIFA’s statutes. The court also recalled that the favor arbitrandum principle cannot be relied upon to deviate from a requirement provided by law. Finally, the Court rejected Respondents’ analogy with arbitration clauses in bylaws of companies, which relate only to corporate law disputes between the company and its shareholders.

The Court, therefore, concluded that the FIFA statutes impose CAS arbitration as a general method of dispute resolution for any dispute between the parties, subject only to the exceptions provided for by FIFA. Absent any “defined legal relationship”, these provisions do not constitute a valid arbitration agreement under Belgian law.

Commentary

Despite its widespread existence, the requirement of a “defined legal relationship” rarely gives rise to issues in practice.5)Gary B. Born, International Commercial Arbitration, 2nd edition, Kluwer Law International, 2014, p. 295. jQuery("#footnote_plugin_tooltip_2990_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); From this perspective, the Court’s decision to hold FIFA’s arbitration agreement invalid is surprising at first sight. However, upon closer examination, the Judgment raised a valid point. Three questions arise.

Why the Red Card? Far from the typical arbitration agreement, FIFA generally submits to CAS arbitration, without identifying the subject matter of the disputes submitted to arbitration. In its 2015 Statutes, “FIFA recognizes [CAS] to resolve disputes between FIFA, Members, Confederations, Leagues, Clubs, Players, Officials, intermediaries and licensed match agent”.6)Article 66 FIFA 2015 Statutes jQuery("#footnote_plugin_tooltip_2990_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Confederations, member associations and leagues are compelled to recognise CAS’s authority and must, in turn, include a provision in their statutes or regulations to the effect that their disputes affecting leagues, clubs, plays, and officials must be settled by arbitration. Finally, these Statutes prohibit recourse to state courts even for provisional measures, unless provided otherwise by FIFA.

The Court’s finding that FIFA’s statutes lack any express reference to a “defined legal relationship” should be endorsed. It is telling that Respondents had to infer the existence of a “defined legal relationship” from elements external to FIFA’s statutes. Furthermore, the Court’s insistence on this criterion was based on widely applicable general principles of due process. It is therefore well possible that the Court’s conclusion will receive following in other jurisdictions.

Why Only in Extra Time? Until the Judgment, the broad wording of the arbitration clause in the FIFA arbitration clause appears to have stayed below the radar. Moreover, the same dispute between RFC Seraing and FIFA had already been adjudicated by a CAS tribunal whose arbitral award was upheld by the Swiss Federal Court. What made the Court’s review different?

In this case, the Court was faced with an arbitration exception raised by Respondents. Under Belgian law, courts in such case have to confirm that the dispute before them is the object of a valid arbitration agreement before declining jurisdiction.7)See M. Draye  & E. Stein, “Article 1682” in M. Draye & N. Bassiri (eds.), Arbitration in Belgium – A practitioner’s guide, Kluwer Law International, 2016, p. 93 at para. 22. jQuery("#footnote_plugin_tooltip_2990_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); During this analysis the Court raised the question regarding the validity of the arbitration clause in the FIFA Statutes.

The issue does not necessarily manifest itself in the same manner before an arbitral tribunal or annulment court. When neither party raises an objection to jurisdiction there seems to be little ground for an arbitral tribunal, seized with a specific dispute in which parties voluntarily take part, to raise sua sponte the issue of lack of a defined legal relationship in the FIFA statutes. Furthermore, the lack of validity of the arbitration is generally not a ground that may be raised ex officio by the annulment court if it has not been raised by a party.

In the parallel arbitration, the absence of a “defined legal relationship” was not raised before the CAS tribunal, nor was the lack of a valid arbitration agreement raised as a ground for setting aside before the Swiss Federal Court.

What’s Next? As explained above, the Court only took issue with the general submission to CAS arbitration and rejected the arguments that a defined legal relationship could be implied by external elements. The Court did not rule out the ability for a football club to enter into an arbitration agreement by undertaking in its own statutes to comply with FIFA’s statutes. Nor is there a reason to see an onslaught against CAS’s ability to administer sports disputes, or a desire to deviate from the recent German Federal Court of Justice decision confirming the validity of arbitration agreements imposed to sports players by their federations, 8)See, “Claudia Pechstein’s Challenge to the CAS”, “Invalidity of arbitration agreement when lack of choice to refuse it”, and “Federal Tribunal Rejects Pechstein Petition” jQuery("#footnote_plugin_tooltip_2990_8").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as now confirmed by the ECHR.9)See ECHR, Mutu and Pechstein v. Switzerland (nos. 40575/10 and 67474/10) jQuery("#footnote_plugin_tooltip_2990_9").tooltip({ tip: "#footnote_plugin_tooltip_text_2990_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

It is submitted that, to comply with the “defined legal relationship” requirement, it is sufficient for FIFA to redraft its arbitration provisions so as to expressly identify the disputes that must be submitted to CAS arbitration in the clause itself.

Conclusion

The Court rightly pointed to the existence of the requirement to identify a “defined legal relationship” in arbitration agreements, as well as to its importance in light of due process rights. These principles are prevalent in most arbitration laws. FIFA’s arbitration provisions can be redrafted to ensure compliance with this requirement. The Court’s decision did therefore not sound the death knell of CAS arbitration as a valid forum to arbitrate football disputes. Nor did it create an earthquake like the Bosman ruling. As such, it may instead well constitute a wake-up call to anyone involved in drafting arbitration clauses in statutes or regulations. By contrast, the decision on the compatibility of FIFA’s prohibition of 3POs with EU Law, which is still pending before the Court, may be more consequential and will surely be highly anticipated.

 

 

References   [ + ]

1. ↑ Swiss Federal Court, 20 February 2018, 4A_260/2017 and “A Pyrrhic Victory for FIFA?”. 2. ↑ Article 1681 and Article 1682, § 1 of the Belgian Judicial Code (“BJC”), which adopt Articles 7 (Option II) and 8 of the Model Law, which mirrors Article II (3) New York Convention. 3. ↑ The Court referred to the Advocate-General’s Opinion in Powell Duffryn, C-214/89. 4. ↑ In particular Articles 66 and 68 of the FIFA 2015 Statutes, which correspond to Articles 57 and 59 of the FIFA 2018 Statutes currently in force. 5. ↑ Gary B. Born, International Commercial Arbitration, 2nd edition, Kluwer Law International, 2014, p. 295. 6. ↑ Article 66 FIFA 2015 Statutes 7. ↑ See M. Draye  & E. Stein, “Article 1682” in M. Draye & N. Bassiri (eds.), Arbitration in Belgium – A practitioner’s guide, Kluwer Law International, 2016, p. 93 at para. 22. 8. ↑ See, “Claudia Pechstein’s Challenge to the CAS”, “Invalidity of arbitration agreement when lack of choice to refuse it”, and “Federal Tribunal Rejects Pechstein Petition” 9. ↑ See ECHR, Mutu and Pechstein v. Switzerland (nos. 40575/10 and 67474/10) function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Brazil Warms To The Global Procurement Market Further With New Chile Treaty, But Still No Arbitration For Investors

Fri, 2018-10-19 01:22

Natalie Yarrow and Pedro Henrique Martins

Herbert Smith Freehills

Brazil has been notoriously reluctant to enter into treaties with other States that provide for the protection of investors and investments, viewing them as detrimental to the host State and its national investors. Brazil has no bilateral investment treaties in force, a limited number of its own treaties, named Cooperation and Facilitation Investment Agreements (CFIAs), and is not a signatory to the International Centre for Settlement of Investment Disputes Convention (ICSID Convention). To date, however, this approach has not limited Brazil’s attractiveness to foreign investment, with Brazil being a leading recipient of foreign direct investment.

Yet over the last few years, Brazil’s attitude towards agreements aimed at promoting investment has softened as its own national industries have eyed up opportunities in foreign markets. We have recently seen Brazil enter into a suite of public procurement agreements (PPAs). These PPAs aim to ensure open, fair and transparent conditions of competition in the government procurement markets. Chile is the latest State to enter into a PPA with Brazil, which provides rules for the mutual increase in the participation of Chilean and Brazilian companies in public procurement bids by establishing bilateral equal treatment and internationalisation of procedures.

Brazil’s PPAs represent an interesting approach to tapping into the global public procurement market, a move which has the potential of unlocking billions in revenue, while remaining outside the traditional model of investment agreements. While they include some investor-friendly provisions, they nevertheless limit the direct recourse of investors against the State. The Chilean PPA is silent on dispute resolution, and the Chilean CFIA, whose definition of investment would likely encompass public procurement contracts, reserves arbitration for States only. As such, investors with qualifying contracts under the Chilean PPA will be confined to pursuing any dispute through the national courts or by escalating the dispute to the State level.

Background

Earlier this year, Brazil executed the Acordo de Contratação Pública entre a República Federativa do Brasil e a República do Chile, the PPA with Chile, which aims to expand bilateral trade between the two countries with regard to public procurement processes. This follows the execution of the same type of agreement with the Mercosur (comprising Brazil, Uruguay, Argentina and Paraguay) in December 2017, and with Peru in April 2016, the latter being included within a broader agreement comprising provisions related to investments and services. All three PPAs will enter into force in January 2019. Additionally, the Brazilian government has reported that it is currently negotiating further agreements pertaining to public procurement provisions with Mexico, the European Union and the European Free Trade Association.

In addition to this, Brazil has been an observing member of the Government Procurement Agreement (GPA) since August 2017. The GPA is a plurilateral agreement within the framework of the World Trade Organization whose goal is to open public procurement markets mutually among its State parties.

These events form part of a move of the Brazilian government to enter into the global public procurement market, which is estimated to generate USD 3.4 trillion per year. In the past decades, Brazil has been reluctant to open its internal market for foreign providers of goods and services out of fears that granting the equivalent treatment to foreign companies as that given to Brazilian ones could prevent or hinder its discretion to foster its national industries. This perception seems to have shifted, however, due to the bilateral nature of PPAs allowing Brazilian companies to expand their portfolio abroad. According to the National Confederation of Industry of Brazil, Argentina alone offers a USD 81.5bn market to Brazilian investors, followed by Peru (USD 12bn) and Chile (USD 11bn). That, together with the other countries of the Mercosur, leaves a USB 109bn potential market waiting to be accessed. Furthermore, if the remaining agreements currently under negotiation are signed, this could pave the way for an estimated USD 2trn in public procurements.

Key protections and features of the PPAs

National treatment

As a means to achieving this greater participation in the global public procurement market, the PPAs provide a legal framework that aims to place international companies on a level playing field with Brazilian companies with regard to their competitiveness as well as to facilitate their participation in public bids. The PPAs therefore include specific provisions with regard to national treatment and non-discrimination (Article V(1)(2) of the Chilean PPA; Article 4.4(2) of the Peruvian PPA and Article 6 of the Mercosur PPA), stating that “immediate and unconditional” treatment shall be granted to goods/services providers of the parties in relation to any contracts covered by the relevant PPA.

Non-preferential rules of origin

In the past, many have viewed preference margins as the greatest obstacle to foreign investors seeking to do business with the Brazilian government. In an attempt to tackle this, a specific provision has been included in the PPAs to establish that the parties shall apply the non-preferential rules of origin provided for in Article 1.2 of the Agreement on Rules of Origin of the WTO to contracts covered by the PPAs (Article 12 of the Chilean PPA; Article 7 of the Peruvian PPA and Article 7 of the Mercosur PPA). The WTO Agreement on Rules of Origin determines the country of origin of a product for purposes of international trade. Non-preferential rules of origin are those which apply in the absence of any trade preference — that is, when trade is conducted on a most-favoured nation basis. In Brazil, the general law applicable to public procurement processes is Law n. 8,666/1993. Article 3 allows the Brazilian government to exercise discretion over how it wishes to develop its national industry, providing, for example, the possibility of establishing preference margins that allow national products and/or services to be up to 25% more expensive than foreign products and/or services. The PPAs seem to derogate from the application of the national rule and grant the possibility of discussing the matter under internationally agreed rules.

Dispute Resolution

In contrast to the Mercosur PPA, the Chilean PPA does not contain any mechanism for dispute resolution. As the Chilean PPA deals with a sub-set of investment, namely public contracts, it may be read in the wider context of the Chilean CFIA, signed in November 2015. The definition of “investment” in the Chilean CFIA is considerably broad, including “contractual rights, including turnkey, administration and other similar agreements” (Article 1.4(d)). Public contracts covered by the PPAs could therefore potentially fall within the Chilean CFIA’s scope.

The arbitration agreement provided for in the Chilean CFIA (and also the Peruvian CFIA) is ad hoc (Article 25 and Annex 1, Chilean CFIA). The arbitration agreement only applies to the State parties to the Chilean CFIA, i.e. Chile and Brazil, and not to either of their investors. In addition, the ad hoc provision can only be triggered after extensive attempts through various means of solving the dispute amicably (Article 24, Chilean CFIA). Such amicable mechanisms include an ombudsman for each Government to address the foreign investor’s complaints, and also a Joint Committee, which will issue a recommendation for the disputing parties. If none of these methods succeed, or if the parties dispute the Joint Committee’s recommendations, the dispute can then be submitted to arbitration.

What this means is that, if a dispute arises under the Chilean PPA, only the State can submit the claim to arbitration. In addition, the Chilean CFIA does not contain an umbrella clause, in contrast to some BITs, meaning that an investor does not have the possibility to elevate a potential breach of contract with a State to a breach of an international treaty. An investor therefore has no recourse to arbitration and must pursue its claim through the national courts, unless the investor’s home State wishes to bring the claim itself. Otherwise, arbitration only remains an option for foreign investors if the contract entered into with the Brazilian public authority includes an arbitration clause and the dispute concerns patrimonial rights, such as rights to assets of a commercial nature.

Comment

The approach to dispute resolution adopted in the Chilean PPA and Chilean CFIA is unsurprising given Brazil’s distrust of investor-state arbitration. In practice, the lack of recourse to investor-state arbitration does not seem to have dampened foreign investors’ interest in the country so far. Brazil has been a regular receiver of foreign direct investment in the past decade, including foreign companies becoming shareholders of SPVs for infrastructure projects. It can be inferred from the lack of such mechanisms in the Chilean PPA and Chilean CFIA that Brazil is not concerned that the lack of investor-state arbitration will have any negative consequences for future investment.

However, there is a softening in Brazil’s attitude and the execution of the PPAs may also suggest that Brazil is reviewing its past position with regard to protectionist measures. Brazil introduced the PPA/CFIA model to offer a greater balance between investor protection and the host State’s development agenda. Some might argue that, particularly with regard to concession agreements, whose long-term duration and high value usually require a greater level of certainty when it comes to dispute-solving mechanisms (compared to a single-time provision of goods), the PPAs could have provided a good opportunity for Brazil to adopt an approach more aligned with international practice with regard to investor-state disputes with a view to attracting investments to a sector that has high demand for qualified contractors.

It is unlikely that we will see a change in stance on investor-state arbitration any time soon. However, as Brazil’s domestic industries expand and the outflow of investment increases, it may be interesting to see if that stance softens further.

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A Data-Driven Exploration of Arbitration as a Settlement Tool: How Can We Express Confidence in Small Data Samples?

Thu, 2018-10-18 23:40

Brian Canada, Debi Slate and Bill Slate

Recently, CRC Press published Data-Driven Law: Data Analytics and the New Legal Services by Edward J. Walters. The volume’s contributed chapters cover a wide range of topics at various levels of mathematical rigor, but they all underscore the importance of how data science can greatly improve the quality and efficiency of the legal process from document discovery to predicting potential judgments. While Data-Driven Law does not specifically discuss arbitration or other alternative dispute resolution mechanisms in which Dispute Resolution Data (DRD) specializes, we nonetheless believe that the book’s publication is a strong leading indicator of the growing role that data analytics will play throughout the legal profession. Certainly, we recognize that many strategic decisions in this profession are informed by the invaluable wisdom that practitioners have accumulated over a career’s worth of experience. What we aim to provide is a means to help augment that wisdom with knowledge derived from the analysis of data that have been collected thoughtfully, thoroughly, and systematically. In this way, practitioners need not rely exclusively on hunches or educated guesses to guide their decision-making processes. With the power of data, they can now provide their clients with more definitive and fact-based assessments of how likely a case will result in a particular outcome, given a set of defined input parameters.

 

To that end, we presented the first in a series of blog posts discussing the results of data-driven analyses which support the notion that the most frequently observed outcome of international arbitration cases is settlement or withdrawal. In most cases, settlement/withdrawal is reached relatively quickly, often less than a year following the claim date, and also prior to any counter-claim, preliminary hearing, or hearing on the case’s merits. Our results were derived from an aggregate view of all available international commercial arbitration case data in the DRD repository, which presently consists of nearly 4,000 cases dating back to 2005.

 

In our September 2018 follow-up blog post, we demonstrated that because this data sample was relatively large, we can be quite confident that our statistical estimate of cases ending in settlement/withdrawal (currently 54%) has a low margin of error (hereafter abbreviated “MOE”). That is, our estimate (specifically, 54% ± 2%, with 95% confidence) is likely to be representative of the entire “population” of all international arbitration cases, when viewed as an aggregate across all case types and case regions. We invite the interested reader to review our September 2018 blog post, which includes a primer on how to compute the MOE while explaining, in accessible language, what the MOE actually means from a statistical standpoint.

 

However, just as having a large sample size yields a narrow MOE, a smaller sample size typically results in a wider MOE, given the same 95% level of confidence. And while the aggregate estimate of 54% (±2%) of cases ending in settlement/withdrawal speaks to the potential power of arbitration as a settlement tool in a broad sense, parties are likely to be more interested in estimates that pertain to a specific case type, or to a specific geographic region in which the arbitration took place, or perhaps to other, even narrower data segments extracted from the spectrum of international commercial arbitration. More specific criteria will, necessarily, reduce the size of the data sample to be analyzed. Here, we use selected results from analyzing the DRD database to demonstrate the effect of sample size on MOE, and we discuss how stakeholders may interpret such results with varying degrees of confidence.

 

For example, let us consider how the proportion of cases resulting in settlement/withdrawal varies by case type. In the DRD repository, the four largest sectors (by number of cases entered in the database) presently include commercial contracts (817 cases), hospitality & travel (456), construction (369), and wholesale & retail trade (314). From Figure 1, we can see that in all but one of these case types, settlement/withdrawal is the most frequent outcome, but in addition, the MOE varies inversely with the number of cases.

Figure 1: Percentages of international commercial arbitration cases (since 2005) resulting in settlement/withdrawal for each of four major case types (with a similar result for all case types shown for comparison). Margin of error (indicated by error bars) is computed at the 95% confidence level. To simplify the MOE computation, other case outcomes are grouped into a single “not settled/withdrawn” category.

 

For the four major case types shown in Figure 1, the MOE is about ±5%, which is arguably an acceptable degree of uncertainty for parties exploring arbitration as a dispute resolution mechanism. Such a relatively narrow MOE mainly results from each of these case types having a relatively large sample size (about 300 or more). In contrast, Figure 2 shows the arbitration case outcomes (and associated margins of error) for four selected case types that, at least presently, have smaller sample sizes. For example, there are currently 39 cases in the agriculture sector in the DRD database, approximately half of which resulted in settlement/withdrawal. The associated MOE of ±16% means that the actual percentage of all international commercial arbitration cases in the agriculture sector reaching settlement/withdrawal ranges between 33% and 65%, based on a 95% level of confidence.

 

Such a wide range may still guide the decision-making processes of the stakeholders exploring arbitration as a settlement tool. For example, in the mining & raw materials sector, the MOE is relatively high at ±11%, but the likely maximum proportion of cases reaching settlement/withdrawal is no higher than 50%. This suggests that, at least for this case type, one can be reasonably confident that the chances of reaching settlement prior to a hearing (or, for that matter, reaching settlement at any point in the arbitration process) is not insignificant, but it is still relatively low.

Figure 2: Percentages of international commercial arbitration cases (since 2005) resulting in settlement/withdrawal for four selected case types currently represented by fewer than 300 cases in the DRD database.

 

The fact that the degree of uncertainty of the case outcome is larger for reduced sample sizes does not imply the data are of poor quality; rather, the uncertainty is a function of the quantity of data. Consequently, in an effort to provide DRD’s customers with helpful guidance as to whether the sample size for a given scenario is large enough so that uncertainty is relatively minimal, DRD is introducing a “signal strength” metric intended to provide its users with a simple visual indicator of the confidence that a given DRD data sample is likely to be representative of the “population” of all cases associated with the category of data to which the sample corresponds, whether or not those cases are recorded in the DRD database.

 

Aesthetically, the signal strength indicator resembles the familiar “signal bars” that are a ubiquitous feature of the modern mobile phone’s user interface. Functionally speaking, the number of bars is based on a proprietary computation involving such inputs as sample size, the margin of error associated with the reported statistic, and the level of confidence on which the MOE is based. In short: the greater the number of bars, the greater the degree of confidence that the reported statistic lies within an acceptably low MOE (at most ±5%). Figure 3 illustrates several examples of the DRD “signal strength” as determined for statistical results selected from those presented in Figures 1 and 2.

 

Figure 3: Selected results annotated with DRD’s new “Signal Strength” metric: an “at-a-glance” indicator of the level of confidence that the associated statistic represents all cases meeting the same criteria.

 

We at DRD acknowledge the value of practitioner experience. We do not claim that our results should replace the wisdom of lawyers and other legal professionals who are keenly aware of the myriad possibilities of how cases play out in practice. Rather, we believe that our data-driven offerings can enhance “the human factor” with additional, largely quantitative knowledge that can inform the decision-making process, particularly within the alternative dispute resolution spectrum. In our next blog post, we will share further examples of results derived from a continually finer-grained analysis of DRD’s dataset. For example, we will present results demonstrating how the likely outcome of an international commercial arbitration case changes when settlement is not reached prior to a hearing on the merits. We will also report on how the magnitude of the claim amount can affect the case’s chances of yielding an award that meets or exceeds some threshold percentage of the original claim amount. These examples, combined with those presented in our prior blog posts, merely scratch the surface of what a comprehensive dataset like ours can offer, and we look forward to enabling the alternative dispute resolution community to learn the analytical tools needed to extract valuable insights that can potentially guide future strategic decisions.

 

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Blockchain and Cryptocurrencies: The New Frontier of Investment Arbitration?

Wed, 2018-10-17 23:39

Armand Terrien and Alexandra Kerjean

Blockchain and cryptocurrencies (including bitcoin) have garnered significant attention in legal scholarship over the last few years, mirroring and to some extent anticipating on the public debate over the impact of blockchain technology on the new world economic landscape and the adequate level of regulatory response to such impact – Is a cryptocurrency taxable income or property (the IRS thinks so)?  Is it an asset subject to lien or attachment (courts are starting to think so)?  Is it an investment contract (security) susceptible to make initial coin offerings (ICOs) subject to securities regulation (the SEC thinks so)?  Or perhaps a commodity (the CFTC thinks so)?

When it comes to arbitration, the literature (including on this blog, here, here, here, here, here, here and here) largely focuses on how the technology is going to change the way disputes are settled, i.e., how it will revolutionise the ADR game, either by boosting Online Dispute Resolution (ODR) or by altogether substituting smart contract dispute resolution mechanisms to arbitration as we know and practice it.  In other words, what blockchain can do for arbitration.

Of equal interest, but much less in the spotlight, is what arbitration can do for blockchain.  In particular, we submit that within the next few years, blockchain technology and cryptocurrency industries will become an increasingly active playing field for investment arbitration.  Blockchain technology and crypto industries are therefore arguably set to replace solar and renewable energy ventures as the new frontier of investment arbitration.

In this post, we anticipate some of the ways investment arbitration can serve blockchain and crypto actors in light of the uniqueness of this digital industry, as well its rapidly evolving regulatory framework.

  1. Crypto ventures and assets as the object of foreign investment legislation

Leaving aside jurisdictions unfriendly or downright hostile to blockchain and crypto (such as Brazil, which in early 2018 elected to prohibit investments in crypto by investment funds and ruled that cryptocurrencies are not financial assets), there are arguably two strands to the regulatory rush to address the development of the industry.  First, regulators and legislators can chose to tackle, on a piecemeal basis, discrete legal issues raised by the industry, notably as they relate to tax and securities regulation.  Second, countries that have identified the potential for development of the industry and which are eager to attract foreign capital, can decide to embrace liberal, far-reaching, legislation.

In December 2017, Belarus became the first country in the world to enact such broad legislation.  The Belarus “Digital Economy Development Ordinance” not only authorises ICOs at national level, it also recognises crypto mining (the act of creating bitcoin or other cryptocurrencies by solving complex algorithms), exchange services, and the use of smart contracts, as legitimate business activities.  Compared to more restrictive regulatory frameworks, such as the one in place in Russia, the new Belarus legislation is evidently designed to attract foreign investors willing to develop blockchain and crypto activities in the region.

Other countries, such as Switzerland, have already signalled their positive stance towards cryptocurrencies.  France is preparing legislation legalizing ICOs and generally establishing an attractive regulatory framework for companies using cryptocurrencies so as to attract financial start-up businesses.  Venezuela, a country no stranger to investment arbitration, has even gone further and launched its own cryptocurrency pegged to oil, called the “Petro”, so as to sidestep U.S. sanctions.

  1. Crypto ventures and assets as protected investments under international law

Having established that States may increasingly identify blockchain and crypto technology ventures as worthy objects of foreign investment legislation, we must first turn to the question of whether this investment can be a “protected investment” under international law.  To our knowledge, there is no publicly available award discussing the jurisdiction of an arbitral tribunal over a dispute concerning blockchain or crypto investments.  There are however a number of staple issues in investment arbitration which call for reasonably obvious comments as they apply to blockchain and crypto-related investments, with the risk, of course, of fuelling long-standing and lively debates.

  • “Protected investment” under traditional BIT definitions

Moving from the obvious (but not to be overlooked) to the more novel, there are a number of elements of any blockchain or crypto venture that would qualify as protected investments under traditional BIT definitions.

First, it is worth recalling that the production of bitcoin and other cryptocurrencies is costly and time consuming.  Mining farms require significant capital commitment (lease of land; purchase of servers) and generate massive operating costs (mostly electricity).  In this sense, a crypto-mining farm is just like any industrial plant, and easily identifiable as a protected investment.  By way of example, the majority of mining farms are located in Canada, Iceland, or China, where energy is less expensive, and investors are setting up farms in Siberia, the Ukraine, or Kazakhstan, in an effort to reduce production costs as they might in any other industry (see here and here).  Any change in legislation or political shift in one of these countries may potentially trigger investment claims similar to those we have become accustomed to in the past 20 years.

Second, the question arises whether the crypto asset itself, the bitcoin for instance, can be a protected investment for purposes of a BIT.  In this respect, the use of the word “currency” is somewhat deceiving, as a cryptocurrency is not a legal tender or fiat currency (with the notable exception of Japan, where bitcoin is indeed a “legal tender”).  However, much like money which is kept in bank accounts held at financial institutions, cryptocurrencies can be held in so-called “wallets” (more accurately, it is the private keys necessary to access one’s bitcoin and sign off on transactions which are held, or stored, in the wallet).  There are different types of wallets, including “custodial wallets”, which are held by third-parties to whom one entrusts storage of one’s private keys much like one would trust one’s bank to place valuables in a safe.  Investors and tribunals have been toying with the notion that money held in a bank account could constitute a form of protected investment under a BIT.  Reasoning by analogy, if a bitcoin or other cryptocurrency “held” (with all the ambiguity that attaches to this term, see infra) in a wallet became unavailable to its owner through any act of a State (such as new legislation forbidding the use of crypto, or nationalising the wallet’s custodian), an arbitral tribunal could likely find that the contents of the wallet are a form of protected investment.

Third, expending from the narrow definition of “currency” (as vague as it is) to other uses of the blockchain technology, one could easily envision “coins” as protected investments.  The reasoning would indeed be even more intuitive if the tribunal were to find that the crypto-asset was more akin to a financial instrument or intangible asset (a “coin” acquired through ICO for instance), than traditional currency.  In this situation, and depending on the definition of “protected investment” in BITs potentially applicable to the dispute, an investor could make a colourable case that their crypto asset is indeed a “protected investment”.

The move towards regulating crypto assets of various shapes and forms as securities, taxable income, or intangible property for tax and securities law purposes, would suggest that in the not so distant future, tribunals could be amenable to extend the protection of BITs not only to blockchain businesses and industries, but to the very assets they generate, or trade in, as well.  Of course, as soon as such a trend is identified in investment arbitration case law, there is a good chance that States will tailor the definitions of protected investments in their model BITs in an effort to rein in any such trend.  The extent to which States will adapt their model language, however, will largely depend on the impact blockchain technology will have had on international trade when the issue finally arises.

Finally, of course, the investment must be located in the territory or dominion of the host State to be deemed “protected” under a BIT.  This will not be an issue where the arbitration concerns a mining farm.  The situation is however much more complicated where the crypto assets (coins or tokens of various shapes and forms) exist only in the blockchain, i.e., in a distributed ledger system that by definition knows no geographical border.  However, a colourable claim that the investment is located in the territory of a host State can be made in cases where certain rights or obligations linked to the asset only arise in the territory of that State, or where sufficient connections can otherwise be established under more traditional tests.  For instance, a “coin” deemed a financial asset by the Japanese regulator, issued by an issuer registered with the Japanese regulator, and traded on a crypto exchange under the supervision of the Japanese regulator presents evident connections to Japan, such that Japan could be identified as the home State of an investment in such a “coin” for investment arbitration purposes.

  • “Protected investment” for purposes of Article 25 of the ICSID Convention

The ICSID Convention provides no definition of the notion of investment.  In determining whether a certain crypto asset or venture qualifies as such for purposes of Article 25 of the Convention, a tribunal may seek to ascertain whether the asset or venture meets the requirements of the so-called Salini test: (i) a contribution of money or assets; (ii) a certain duration; (iii) an element of risk; and (iv) a contribution to the economic development of the host State.

For purposes of this post, we will simply open two avenues for future discussion.

First, there is no apparent bar to a crypto asset constituting the means of acquisition or holding of an investment for purposes of the first prong of the Salini test.  Second, the nature of blockchain technology and decentralised ledgers will in some cases make it more difficult for an investor to meet the fourth prong of the test (contribution to the economic development of the host State).  This criterion has of course come under fire in recent years.  Even if the criterion is retained, however, there will likely be colourable arguments to be made on a case-by-case basis that a specific crypto-asset meets this requirement (see supra).

Investments in mining farms, made via traditional currencies or cryptocurrencies, would of course constitute a more traditional form of investment, falling less controversially under the Salini test.

  1. What about substantive protections and damages ?

Once a protected investment has been identified, the whole gamut of substantive protections should be available to the investor, along easily identifiable lines.  If legislation banning cryptocurrencies is enacted and a mining farm shuts down as a result, there is ample expropriation and legitimate expectations precedent that would readily translate to the situation.  If new tariffs or barriers are enacted, legitimate expectations and fair & equitable arguments likewise immediately come to mind.  The list could go on.

As for damages, under the scenarios outlined above, the much-discussed volatility of cryptocurrency should not be a dominating factor of any quantum analysis.  Specifically, it should not serve as a means for substantial diminution of any award on damages, should a tribunal recognise the liability of a State for violation of its international obligations towards a more traditional form of blockchain or crypto-related investment.  This issue may however be worth revisiting, for instance in situations where the investment was made by commitment of cryptocurrency, or where issues of assumption of risk are particularly salient – for instance were the form of investment is most akin to an investment in a financial instrument.

 

The authors are senior associates in the international arbitration practice of Quinn Emanuel Urquhart and Sullivan’s Paris office.  They would like to thank Mauricio Pizarro Ortega and Magdalena Bulit Goni for helpful research assistance in the preparation of this post.  The views expressed in this post are the authors’ personal views, and do not reflect the opinions of Quinn Emanuel.

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Why Arbitration Needs Conflict of Laws Rules

Tue, 2018-10-16 23:39

Giuditta Cordero-Moss

ITA

It’s been decades since arbitration has started its emancipation from conflict of laws rules (private international law). Many were of the opinion, and still are, that conflict of laws rules are an undesirable straitjacket forcing the arbitral tribunal to determine the applicable law according to rigid and complicated rules and thus hindering it from considering whatever rules it deems appropriate. The private international law method for determining applicable law, so goes the criticism, is unnecessary, complicated and leads to results that may come as a surprise to the parties. Underlying is the known philosophy according to which arbitration is international and not rooted in any specific national legal system. According to this philosophy, arbitration owes no obedience to national laws. It is delocalized. It owes obedience only to the parties. The logical consequence is that there is no need to apply conflict rules to determine the applicable law. Under most sources of arbitration law, the arbitral tribunal is obliged to apply the law chosen by the parties. Failing a choice by the parties, this philosophy requires that the tribunal determine the applicable law directly, without having to apply any conflict rules (the voie directe). The ICC was first out in introducing the voie directe, and many arbitral institutions followed suit. Other instruments of arbitration law are less radical, for example the UNCITRAL Model Law makes still reference to conflict rules – albeit not necessarily belonging to the law of the place where the tribunal has its seat.

There is no question that party autonomy is crucial in arbitration.

However, this does not necessarily mean that conflict rules have no function in arbitration.

Firstly, where the parties have not chosen a law, the result will be much more predictable if the applicable law is determined on the basis of objective criteria known in advance (i.e., applying conflict rules), than if it is the result of the tribunal’s complete discretion.

Secondly, and perhaps more importantly, conflict rules may contribute to the efficiency of the specific proceedings and (thirdly) to the effectiveness of arbitration in general.

Let’s discuss first the efficiency of the specific proceedings.

It is quite evident that a proceeding will not be efficient, if it results in an award that eventually is set aside as invalid or is refused enforcement. How can conflict rules contribute to avoiding such an inefficient proceeding?

If the parties have chosen the applicable law, conflict rules will generally confirm their choice – party autonomy is the most important conflict rule for contract disputes. However, following the parties’ choice may lead to disregarding other laws, and, in some cases, this may result in an award that is invalid or unenforceable. Imagine a contract containing the choice of a law belonging to a non-EU state. If the contract violates EU competition law, the defaulting party may invoke EU competition law as a defence: that party has not fulfilled its obligations, because doing so would have infringed EU-competition law. The other party will point at the choice of law made in the contract and exclude that EU competition law is applicable. As known and as confirmed by the famous Eco-Swiss decision, an award infringing EU-competition law may violate public policy and may thus risk being set aside or refused enforcement. The tribunal, therefore, may wish to take into consideration EU-competition law, so as to avoid rendering an invalid or unenforceable award. But does the tribunal have the power to disregard the choice of law made in the contract? If the tribunal exceeds its power, the award will be invalid and unenforceable.

How does the tribunal solve this dilemma?

This is where conflict rules may be extremely useful: they give the tribunal a basis upon which it can take into consideration EU-competition law, without disregarding the parties’ choice of law and exceeding its power.

If the parties’ choice is considered as a conflict rule (rather than being considered as being based on an absolute principle of arbitration law, as is assumed by the delocalization theory), it will follow that it has a certain scope, usually confined to matters of contract law and possibly of tort law. The choice made in the contract, therefore, will not affect issues of competition law. If the tribunal considers EU competition law, it has not disregarded the parties’ choice, because the parties’ choice did not cover competition law. In addition to having given the tribunal a basis to avoid rendering an invalid and unenforceable award, conflict rules have given the tribunal a basis to do so without exceeding its power. Furthermore, conflict rules have contributed to the predictability of the result.

It is certainly more predictable to acknowledge that the parties’ choice is a conflict rule and that therefore it follows the criteria and has the scope regulated in the private international law, than promising that the parties’ choice is an absolute principle. This promise may not be kept if the award is to be valid and enforceable. Hence, the tribunal will have to restrict party autonomy. Without the benefit of conflict rules, it will come as a surprise that party autonomy is not absolute. Moreover, there will be no objective criteria for restricting party autonomy, and the tribunal will have to do so on the basis of discretionary considerations. Conflict rules, therefore, may contribute to the predictability and efficiency of the specific proceeding.

Thirdly, conflict rules may contribute to the effectiveness of arbitration in general. If arbitration only obeys by the will of the parties, there is a risk that it becomes the instrument for evasion of important regulatory provisions. Parties who desire to ignore competition law, for example, choose for their contract a governing law without competition rules, and insert an arbitration clause. If the tribunal only follows the will of the parties, it will disregard competition law of the state that is actually affected by the disputed transaction. It is deleterious to the effectiveness of regulatory law such as competition law, if such a wide spread mechanism for dispute resolution such as arbitration permits to avoid its application. This is why, decades ago, disputes that involved issues of regulatory law such as competition law were deemed not to be arbitrable. With the famous Mitsubishi decision, an era of arbitration-friendliness was introduced: US courts, and later courts in many other states, accepted that disputes involving regulatory issues be arbitrated, because courts maintained the possibility to give a “second look” to the award. Through set aside or enforcement proceedings, courts would have the possibility to annul or refuse enforcement of an award that violated public policy.

This arbitration-friendliness, however, shows signs of erosion. The second look approach is not always sufficient to ensure the effectiveness of regulatory law or other mandatory rules that are deemed particularly important. If the losing party does not challenge the validity of the award, there will be no set aside proceedings. If the winning party does not need enforcement, there will be no enforcement proceedings. Enforcement may be sought in other jurisdictions, so that the courts of the system whose law has been avoided will not be involved. In these situations, courts will have no possibility to give a second look at the award.

The pendulum seems to be swinging now, and numerous courts in member states of the EU have rendered decisions restricting arbitrability of disputes regarding agency agreements, because they could not be sure that the arbitral tribunal would apply mandatory EU rules on protection of the agent.

Courts might be more prone to trust arbitration, if they could count on the use of conflict rules for the selection of the applicable law in arbitration.

Far from being the useless, arbitration-hostile cage from which arbitration should seek to liberate itself, conflict of laws rules are a useful tool that contributes to predictable and efficient arbitral proceedings, as well as to the effectiveness of arbitration as a dispute resolution mechanism.

Conflict rules are, in other words, more arbitration-friendly than the delocalization theory.

This post is a short summary of part of my scholarship. Various of the mentioned issues are not uncontroversial and require more extensive analysis. More extensive analysis may be found in my publications, a list of which is available here.

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Open Position: Assistant Editor of Kluwer Arbitration Blog

Mon, 2018-10-15 20:40

Crina Baltag (Acting Editor)

The Editorial Board of Kluwer Arbitration Blog announces the opening of the following position with Kluwer Arbitration Blog: Assistant Editor for North America, covering Canada and USA.

The Assistant Editor reports directly to the coordinating Associate Editor and is expected to (1) collect, edit and review guest submissions from the designated region for posting on the Blog, while actively being involved in the coverage of the assigned region; and (2) write blog posts as contributor. You have the opportunity to work with a dynamic and dedicated team and liaise with the best arbitration counsel in the world.

The Assistant Editor will work remotely. Please note that this is a non-remunerated position. If you are interested, please submit a resume and cover letter by email to [email protected], with cc to Dr Crina Baltag, [email protected]. The deadline for receiving the applications is 4 November 2018.

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BCCI v. Kochi – (Un)tangled Issues?

Mon, 2018-10-15 18:05

Anu Shrivastava

The Supreme Court of India (“Court”) in an landmark decision titled “BCCI vs. Kochi Cricket Pvt. Ltd. (previously covered in a blog post) clarified the applicability of the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Act”) to pending arbitration and court proceedings commenced under the Arbitration and Conciliation Act, 1996 (“1996 Act”). The Court held the following:

  1. Subject to party autonomy, the amendments would not apply to “arbitral proceedings” that had commenced before the commencement of the 2015 Act.
  2. The amendments would apply to court proceedings which have commenced, “in relation to arbitration proceedings”, on or after the commencement of the 2015 Act.

Exception: The amendments under the 2015 Act would apply to enforcement of an award under Section 36, even if the court proceedings relating thereto have been filed before the commencement of the 2015 Act.

Section 36 of the 1996 Act provides for enforcement of an arbitral award in the same manner as if it were a decree of a court in India.  The Court carved an exception to  Section 36 of the 1996 Act on the ground that enforcement proceedings are entirely procedural in nature, and could be applied retrospectively since no rights are vested in the parties seeking such enforcement. This post seeks to analyse the Court’s decision in carving out the exception for Section 36 and also to highlight practical problems which may arise in the aftermath of the decision.

Section 36 of the 1996 Act to apply retrospectively and no automatic stay on enforcement of the award – exception to the general rule.

The Court held that the 2015 Act was prospective in nature and would apply in relation to arbitration proceedings commenced after the commencement of the 2015 Act, i.e., 23 October 2015.  In the pre-amendment scenario, Section 36 provided for an automatic stay on the enforcement of an award until the expiry of the time limit for challenging the award, or until the disposal of such a challenge. Under the 2015 Act, there was no longer a provision for automatic stay on enforcement of an award and such stay could only be granted upon a request being made to the court.

The Court held that the amended Section 36 would apply to those applications for setting aside an arbitral award under Section 34 which had been filed after the commencement of the 2015 Act. Further, the amended Section 36 would apply retrospectively to Section 34 applications that had been filed prior to the commencement of the 2015 Act.

In declaring that Section 36 applies retrospectively, the Court analysed Section 6 of the General Clauses Act, 1897 which provides that the repeal of any enactment does not affect any right or privilege accrued or incurred under the repealed enactment. According to the Court, an automatic stay of awards could not be claimed as a vested right under Section 6 because enforcement is purely procedural and not substantive. Therefore, the provisions of the amended Section 36, being purely procedural, could apply retrospectively.  The operative portion of the judgment which concludes that Section 36 is purely procedural reads as follows:

“Since it is clear that execution of a decree pertains to the realm of procedure, and that there is no substantive vested right in a judgment debtor to resist execution, Section 36, as substituted, would apply even to pending Section 34 applications on the date of commencement of the Amendment Act”

In concluding so, the Court seems to have only considered precedents on execution of a decree, and not on enforcement of an award under Section 36. The Court did not consider if the un-amended Section 36 was also purely procedural or if there was a change in its nature due to the 2015 Act vis-à-vis substance and procedure. In arriving at the conclusion that Section 36 of the 1996 Act is purely procedural, the Court only considered the post-amendment scenario which does away with automatic stay on awards.

The essential issue which escaped the Court’s consideration is whether Section 36 could have been considered as purely procedural even before the amendments were introduced. Enforcement of an award, as provided for under Article 36 of the Model Law, does not only relate to procedural aspects but also contains substantive grounds of challenging an award.  Similarly, the Article V of the New York contains substantive objections to resist the enforcement of an award.  While such objections and grounds for setting aside a domestic award are provided for under Section 34 of the 1996 Act, perhaps the Court should have considered if Section 36 of the 1996 Act could be read in isolation from Section 34 of the 1996 Act. An argument was raised before the Court that Section 36 proceedings could not be considered as a proceeding which was independent of a proceeding under Section 34 of the 1996 Act. However, the Court considered it unnecessary to go into the “by-lane of forensic argument” about Section 36 standing independent of Section 34 of the Act.  Once the Court had decided that the 2015 Act was to apply prospectively, there should have been compelling reasons to the carve an exception to this general rule.

Practical considerations

The Court’s decision that Section 36 of the Act applies retrospectively because it is purely procedural may lead to further litigation on retrospective application of other similarly placed provisions which concern only procedural issues. The Court did not undertake a detailed analysis as to why the proceedings under Section 36 were not proceedings “in relation to arbitration”. This leaves room for further attempts at seeking retrospective applicability of other similarly situated provisions on the basis that they are purely procedural. For instance, what would be the fate of an interim order rendered by a tribunal under Section 17 of the Act? Section 17 of the 1996 Act is modelled on Article 17 of the UNCITRAL Model Law and confers powers upon an arbitral tribunal to issue interim measures. Before the amendments, Section 17 of the Act did not provide for any court assisted measure for enforcing an interim award. The 2015 Act has led to the insertion of Section 17(2) to provide that an interim order shall be enforceable as if it were an order of the court. On the basis of the Court’s decision, it may be possible to argue that enforcement of an award being procedural and “in relation to arbitration”, Section 17(2) should also apply retrospectively for enforcement of an interim award made before the enactment of the 2015 Act.

To consider another instance, an arbitration commences under the 1996 Act and a challenge is made to the appointment of one of the arbitrators on the ground of independence or impartiality. The tribunal decides under the 1996 Act as it stood before amendments, rejects the challenge and delivers the final award. After the amendments are introduced, a party approaches the Court under Section 34(2)(a)(v) of the 2015 Act for setting aside the award on the ground that the composition of the tribunal was improper. The 2015 Act led to the insertion of the Fifth Schedule which lists down the grounds which give rise to justifiable doubts as to the independence or impartiality of arbitrators. The tribunal while deciding under the 1996 Act would not have considered the grounds listed in the Fifth Schedule since it was inserted subsequently. However, the court while considering the Section 34 application under the 2015 Act would scrutinize the award on the basis of the Fifth Schedule. This would lead to different grounds being considered by the tribunal and the court in deciding the same issue.

The Court’s decision goes a long way in granting relief to award-debtors who have been waiting to enforce their awards,but has also caused it has also led to certain an uncertainty in the law of arbitrationies relating to the arbitration regime in India.The decision also runs contrary to the recommendations made by the Srikrishna Committee that the 2015 Act should not apply retrospectively lest it would result in inconsistency and uncertainty, and would cause prejudice to the parties.

The Arbitration and Conciliation (Amendment) Bill, 2018 (“2018 Bill”) tries to resolve these uncertainties and clarifies that the 2015 Act would not apply to arbitral proceedings and court proceedings (arising out of such arbitral proceedings) that have commenced before the 2015 Act.  The 2018 Bill further provides that the 2015 Act would only apply to arbitral and court proceedings which commence after the 2015 Act. It may be important to note that the provisions of the 2018 Bill were brought to the Court’s attention during the hearing for BCCI v. Kochi but the Court was not inclined to consider it.  The Court had observed that the amendments in the 2018 Bill would put all the important amendments of the 2015 Act on a “back-burner”.  Yet, the 2018 Bill has been passed by the Lower House of the Parliament without making any substantive modificationsin the same form, without making any changes. Once enacted, it will be interesting to see how courts interpret the 2018 Bill on applicability of the 2015 Act.

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Could Blockchain Become The New Standard For Transparency in Investment Arbitration?

Sun, 2018-10-14 16:20

Mauricio Duarte

In a world hurtling through one technological breakthrough after another, we are entering into an exciting new era. In recent contributions to this Blog, blockchain and its potential applications in arbitration have been well-documented by practitioners and early-adopters. However, there is one exceptional feature in blockchain that might be useful in investment arbitration.

The notion of transparency was once unfamiliar in international arbitration. Nonetheless, recent regulations have popularized the concept and the debate about transparency in investment arbitration shows little sign of fading. Investment arbitration has moved from being a highly confidential mechanism to one where transparency is a key component to the legitimacy and credibility of the system.

Transparency is a procedural notion that corresponds to openness, clarity, and reliability. At the same time, transparency, accessibility, openness, and democratization are concepts that lie at the heart of the value of blockchain. Blockchain is more than just a platform that further enhances our ability to communicate. Blockchain is a technology that tackles the issue of trust between peers. So, could we use this enhanced form of technology in investment arbitration?

The Rise of Transparency

The debate about transparency lies around the notion of a greater democratic participation in a globalized world. To many, the turning point towards greater transparency was the decision in SD Myers Inc. v. Government of Canada arbitrated pursuant to the North American Free Trade Agreement. The tribunal went on to determine that confidentiality was not an inherent component of the investor-state arbitration. The trend acquired a new flavor in Methanex Corp. v. United States of America when the tribunal permitted a joint amicus curiae brief from several interested civil society groups.

The fundamental argument became whether increased transparency would enable the state to better explain their actions to the people. The argument relies on the concept that is the obligation of a state to seek the welfare of its citizens at all times and transparency is a key mechanism for democracy to keep the State accountable for its actions. This was a compelling argument to promote transparency on all parts of the arbitration procedure, including the hearings, to ensure democracy and allow access to policy decision-making.

It was under this context that the UNCITRAL Rules on Transparency in Treaty-based investor-State Arbitration (“UNCITRAL Transparency Rules”) sought to clarify the extent of confidentiality and transparency in investment arbitration. The rules are a compilation of previous pro-transparency trends such as the publication of arbitral documents, amicus curiae submissions by third parties and, perhaps most controversially, the accessibility to arbitral hearings. This trend was later cemented with the subsequent Mauritius Convention on Transparency .

Despite the advantages, transparency in investment arbitrations does have some disadvantages. Primary among them is the notion that transparency can result in delays and higher costs. Allowing the stream of information and involvement of non-parties would require more time and, consequently, higher costs.

The Transparency Registry

Under Article 2 of the UNCITRAL Transparency Rules, information is made public through the UNCITRAL Transparency Registry, which is the central source for the publication of information and documents in treaty-based investor-state arbitrations managed by the UN Secretary-General through the UNCITRAL secretariat.

Under the Rules, the Transparency Registry is freely accessible to the public; hence information and documents in the arbitration process are made public, subject to certain safeguards, including the protection of confidential information or the integrity of the arbitral process.

The Registry, as the central repository for the publication of information and documents in treaty-based investor-state arbitrations, requires that the arbitral tribunal appoints a person from the tribunal from whom the Registry will receive information and to whom the Registry can revert for questions. In all cases in which the Transparency Rules are applicable, the arbitral tribunal has to submit the documents by email, through upload to http:// or by courier, on USB stick, CD-ROM or DVD. Furthermore, the documents sent to the Registry are required to be in searchable PDF format, 300 dpi, and not exceed 5 MB. If a document exceeds this size, it should be divided into smaller documents. Finally, any costs for submission of documents shall be borne by the submitting party or the submitting tribunal.

In principle, the service of the Registry is at no cost to the parties, tribunals, and the public. However, it would be remiss, to neglect the issue of the transaction costs associated with transparency (e.g., courier of documents, information chain, and time elapsed).

Merging with Blockchain

Everywhere, people are demanding more transparency. Curious individuals want distributed access to information. Now, everyone wants to increase trust and transparency in information exchanges of all shapes and sizes, and blockchain technology has the answer.
Blockchain removes the need for a central authority (i.e., Transparency Registry) to manage information, making it highly secure and impenetrable to hackers. Blockchain systems include a fully auditable and valid ledger of information. Entries into the ledger can only be made if they are validated by the system, and in order to change it, every single other blockchain in the system would also need to be changed. Therefore, the “trust mechanism” does not reside solely in a central authority, but in the members of the chain itself.

In the not too distant future, arbitrators should have the power to share the information that the UNCITRAL Transparency Rules mandates directly to a blockchain system. With the use of this enhanced form of technology, a protocol could be introduced to protect highly sensible information under the limits of the Transparency Rules. Consequently, the system would be automated to minimize the discretion to be exercised by the arbitral tribunal and enhance the efficiency in the process.

With higher transparency comes the need for information to be passed in a faster way. Currently, transparency is achieved with a long chain of information and parties involved, starting from the contracting parties to the arbitral tribunal and subsequently ending with the Transparency Registry. However, higher transparency requires that the information be shared with all participants simultaneously in a fast-paced manner.

Using a blockchain system to share the information directly by the arbitrators could mean that third parties and non-disputant parties can learn about a given dispute faster. This could enhance the participation in the arbitration process earlier while it is ongoing; for example, as observers at oral hearings or as drafters of amici curiae. With blockchain, a person wholly unconnected to the dispute, a third person requesting participating rights, and a non-disputing Party to the relevant investment treaty, are all entitled to the same level of access, encouraging a pre-award transparency in a low-cost and efficient manner.

Conclusion

Blockchain and the Transparency Rules are compatible; both strive to achieve an effective balance between that necessary cost – imposed on behalf of the public interest in transparency– and ensuring the efficiency and fairness of the proceedings for the disputing parties.

UNCITRAL’s Rules on Transparency, with a complementary enhanced form of technology present an opportunity for States to improve investor-State arbitration. The primary cost of opting out of transparency is the loss of an opportunity to legitimize a State’s actions under investment treaties and the loss of an opportunity to legitimize investor-State arbitration itself. These critiques could translate to a legitimacy problem, which could have more consequences for the future of the institution.

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It’s All Chinese To Me: Preparing And Cross-Examining Mandarin-Speaking Witnesses

Sat, 2018-10-13 19:26

Dorothy Murray, Meg Utterback, Llewellyn Spink and Zhen Ye

King & Wood Mallesons

Witness evidence is an integral part of international arbitration, but challenges can arise from the interaction of different legal cultures, norms and languages.  Although issues can arise with any testimony given through an interpreter, Mandarin-speakers are more challenged, and challenging, because of 1) the stark differences between Mandarin and English (the lingua franca of IA); and 2) the differences between international arbitration and the PRC legal system and process.

This article outlines practical considerations for preparing Mandarin-speaking witness evidence and conducting cross-examination in international arbitration. Mandarin-speaking witnesses will also find it useful in understanding the process and challenges of cross-examination.

 

Tips for being a witness

The role of a fact witness in international arbitration is to explain facts that are within his or her knowledge to the Tribunal to assist them in making their decision. The witness should present as honest and reliable so that the Tribunal believes their explanation of events.

Cross-examination is used by the cross-examiner to put their case to the opponent’s witness, and in doing so, to educate the Tribunal. The cross-examiner seeks to establish and advance their case whilst undermining the other side’s case, usually achieved by undermining the credibility of their witnesses.

In common law legal systems, the process of witnesses giving evidence orally and being tested by cross-examination, is considered one of the most effective means of discovering the truth.  English arbitrators are increasingly unwilling to give much weight to written witness statements, prepared and polished by a party’s lawyers.  They therefore rely more heavily on cross-examination and hearing directly from the witness at the hearing.

While PRC law permits witnesses to appear in Court, this rarely happens in practice.  When witnesses do appear, the process is more akin to a deposition than oral testimony in a common law court.  The witness may give a brief oral statement, generally for no more than 30 minutes. The witness may then be questioned by the lawyers from both sides and the judge.  However, the PRC court system is more inquisitorial than adversarial with the judge having the discretion to end the questioning of witnesses or to forego witness testimony and cross-examination entirely.

Oral witness testimony is little used in practice because it is not held in the same regard as in common law systems. Judges consider written statements and documentary evidence to be more reliable than oral evidence. Witnesses are assumed to be biased in favour of the party for whom they testify, and their testimony given little weight.

A Chinese witness must therefore appreciate that, in contrast to domestic Chinese procedure, their oral testimony is an important part of an international arbitration and the Tribunal will consider what they say carefully. Honest and reliable witnesses, who persuade the Tribunal, can win the arbitration.

 

Tips for preparing a Mandarin-speaking witness

Witnesses familiar with Chinese court procedure are likely to be focused on demonstrating the authenticity of documents that evidence the facts. Reassure them that the Tribunal wants to hear their personal recollection of facts with which they were directly involved, even where there are no documents available on the point.

Witnesses may be privy to information that they are not able to reveal to you as foreign counsel or to the Tribunal, for example where there are ongoing criminal investigations in the PRC or where the matters are considered a Chinese state secret.  Ensure the boundaries are clear to you and the witness, that they are raised in advance with the other side and Tribunal, and that the client is willing to risk having adverse inferences drawn if the witness refuses to answer a question.  Should the witness still be called to testify or is the risk to the client too great?

A Mandarin-speaking witness will be inclined to only answer the exact question asked.  This poses two problems.  First, the witness will not tell his lawyer everything he knows unless the right questions are asked.  A lawyer should have a detailed interview with the witness when preparing the witness statement and should ask questions in different ways to insure all information is being elicited. Second, witnesses will find it difficult to provide robust answers on cross-examination. The witness may fear saying the wrong thing.

Respect for hierarchy is an important Chinese cultural norm so it is useful to understand a witness’s position within the company.  A junior witness may be uncomfortable in giving testimony, especially before his or her superiors, and may look toward their superiors or their lawyers when testifying to seek approval of their testimony.  Conversely, a senior executive may be offended by the process of cross-examination and may become defensive to deflect any challenge to his credibility.

When interviewing and preparing senior witnesses and experts, Chinese lawyers are usually more deferential than common law lawyers. It is important to strike a balance between adequate deference and thorough fact-finding.  Be deferential but persistent.

If your witness speaks English as well as Mandarin, consider whether it is be better to give evidence in their imperfect English and avoid the delay and confusion that can arise from interpretation.

If the witness can read English but is less able or confident with the spoken word, a real-time transcript will be extremely useful to help him or her (and likely the interpreter) to understand the questions more accurately.

 

Cross-examining a Mandarin-speaking witness

First and foremost, do not attempt any Mandarin terms unless you are very confident of your pronunciation.  Mandarin is a tonal language, and a misplaced inflexion can mean that you and your witness end up speaking about different things, both of which may make sense to the speaker in context.

There are several key differences between the Mandarin and English languages and their grammar. In Mandarin, much of the meaning is contextual. Cross-examiners must state the question clearly and accurately. Moreover, Mandarin does not use tenses. Be careful formulating questions that involve different tenses as these will all be lost in translation.

Mandarin can be ambiguous and flowery. Unlike legal English, Mandarin expressions evoke more than just the words spoken. This can make accurate interpretation difficult. Often witnesses can reply in a vague manner that is open to interpretation if not further clarified.  This may explain why Mandarin interpreters often have a lengthy dialogue with the witness before replying, “The witness said ‘Yes.’”  The process can be frustrating for the cross-examiner and the Tribunal, if they cannot understand the Mandarin discussion resulting in the simple answer.  Thus, having a fluent Mandarin speaker at counsel table is crucial to the integrity of the transcript.  Often counsel must correct or at least question the interpreter’s understanding of the answer and be prepared to explain any “lost in translation” moments to the Tribunal. Waiting until the end-of-day transcript, or a post-hearing review of the tapes, will be too late.

Legal concepts may differ as well.  The cross-examiner should ensure that the witness, especially an expert witness on PRC law, understands what is being asked. Concepts such as indemnification, liquidated damages, and indirect loss may have a slightly different meaning in Chinese.  The cross-examiner must word their questions carefully and understand its implications.

 

Tips for counsel on both sides

Given the importance of the interpreter, the parties may wish to meet with him or her and test their interpretation prior to the hearing, particularly any relevant legal or technical industry terms. Consider if the interpreter will need experience with accented Mandarin or specific dialects. Consider too that Mandarin expressions may differ between Mandarin-speaking countries or regions.

There may simply be no translation of a term into or from Mandarin.  It may be necessary to ask the interpreter to explain what synonym has been used and ensure all are content it is the best available.

People, ships, places, and companies may have both an English name and a completely different Mandarin name. Be aware that words may also have a Pinyin transliteration of the Chinese name. As such, a short bi-lingual glossary of key terms and names agreed between the parties can be a useful tool for the interpreter, counsel and the Tribunal.

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Are Unilateral Option Clauses Valid?

Sat, 2018-10-13 02:07

Youssef Nassar

A unilateral option clause (“UOC”) can take many forms. It may grant its beneficiary the exclusive right to choose between litigation and arbitration when a dispute arises, or to choose to litigate before a specific jurisdiction, while constraining the non-beneficiary to a specific forum or a specific mode of dispute settlement. Consequently, UOCs are undoubtedly exclusively advantageous to one of the parties and they are frequently used in specific industries, such as banking and construction.

Due to a lack of statutory guidance as well as judicial approaches that fall on opposite ends of the spectrum, the validity of UOCs remains susceptible to a great deal of uncertainty and debate. Courts that uphold their validity rely on party autonomy. Courts that reject such validity rely on a wide array of arguments. This essay briefly analyzes the arguments used by courts rejecting the validity of UOCs and concludes that none constitutes adequate basis for invalidation.

  1. The potestative nature of an option clause

The first argument for the invalidity of UOCs, and possibly the least convincing and most criticized, is that a UOC is potestative. The concept of “caractère potestatif” is used in French law to describe a situation where performance of a contract is subject to a condition precedent the fulfillment of which falls within the discretion of one of the contracting parties.

In 2012, the French Cour de Cassation in Rothschild held that a UOC is a potestative condition and invalidated it. The UOC in the case granted exclusive jurisdiction over any disputes to the courts of Luxembourg, while maintaining the bank’s right to bring an action before the courts of the client’s domicile or any other court of competent jurisdiction. The obligation of each party to submit to the jurisdiction of the contractually chosen court was not subject to any condition. Further, “the ability of one party to bring actions before any court which would otherwise have lawful jurisdiction over the other party does not impose any obligation on such other party.” 1)Martin Gdanski & Marc Robert, The validity of unilateral hybrid clauses has become less certain under French law, Norton Rose Fullbright (2012).  jQuery("#footnote_plugin_tooltip_6511_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6511_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Additionally, the UOC cannot be considered to impose a condition upon which the performance of the contract is dependent.

In relying on the concept of potestative, the Cour de Cassation also used domestic legal principles to interpret the applicable EU provision where it had no basis to do soIn fact, this goes against the purpose of the Brussels Regulation, which is to provide a uniform and predictable legal framework.

  1. Lack of mutuality (consideration)

Consideration requires a ‘bargained-for exchange.’ “It is a common law doctrine of ‘mutuality of obligation’ that ‘either both must be bound, or neither is bound.’”2)Cristopher Drahozel, Nonmutual Agreements to Arbitrate, 27 J. Corp. L. 537, 538 (2002). jQuery("#footnote_plugin_tooltip_6511_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6511_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While both parties must manifest assent for a contract to be formed, that manifestation need not be symmetric in time, place, or form. Contract provisions need not give the parties the same positions, and it is rather illogical to require this. It is enough that value be given on both sides. If the law required the terms of contracts to be symmetrical such that the parties merely traded the same thing for the other, no exchanges would take place.

The only context in which this argument would work is if the UOC is severed from the rest of the agreement when assessing consideration. This proposition is as absurd as requiring specific consideration for any other clause in the agreement.

The circumstances that one of the provisions in an integrated agreement grants certain rights to only one of the parties does not in other instances render that provision ineffective for lack of consideration or mutuality, as long as appropriate consideration can be found in other provisions of the agreement or elsewhere.There appears to be no good reason for deviating from this rule merely because an arbitration, rather than some other, clause is involved.3)Hans Smit, The Unilateral Arbitration Clause: A Comparative Analysis, 20 American Rev. Int. A. 391, 401 (2009). jQuery("#footnote_plugin_tooltip_6511_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6511_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

However, courts rejecting the validity of unilateral arbitration agreements based on lack of mutuality seemingly adopt this specific approach. The clause is severed from the agreement and assessed separately. Inevitably, it is found lacking in consideration and, consequently, invalidated. “Severability” was developed in a different context for a different purpose and it is inapplicable in this respect. It is a rule developed to effectuate the salvation, not the condemnation, of arbitration clauses.” 4) Id. jQuery("#footnote_plugin_tooltip_6511_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6511_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Ultimately,“it is sufficient to note that under general rules of contract law, consideration should be present, but need not be adequate … the unequal position[s] of the parties, including presumably the imbalanced consideration, should not be grounds for invalidity.”5)Deyan Draguiev, Unilateral Jurisdiction Clauses: The Case for Invalidity, Severability or Enforceability, 31 J. Int’l Arb. 19, 41 (2014). jQuery("#footnote_plugin_tooltip_6511_5").tooltip({ tip: "#footnote_plugin_tooltip_text_6511_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

  1. Violation of EU law

In addition to its reliance on the widely criticized potestativedoctrine, the court in Rothschild       held that UOCs were in violation of article 23 of the Brussels I Regulation concerning “prorogation of jurisdiction” (the equivalent of article 25 in the Recast Brussels Regulation). This interpretation was rejected by many and, although the issue has never been considered by the European Court of Justice (“ECJ”), some commentators are of the view that, had the matter been referred to the ECJ, it may well have concluded that the Cour de Cassation misinterpreted Article 23. The Cour de Cassation in Rothschildheld that the UOC was contrary to “the finality of the extension of jurisdiction provided for in Article 23” and its objectives.6)Supra note 1. jQuery("#footnote_plugin_tooltip_6511_6").tooltip({ tip: "#footnote_plugin_tooltip_text_6511_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The UOC exclusively enabled the bank to bring an action before the courts of the domicile of Mrs. X, the courts of Luxembourg or any other court of competent jurisdiction. Despite potentially being numerous, these options are both limited and foreseeable. Further, article 23 explicitly states that the parties may agree on conferring exclusive jurisdiction unto courts other than those of competent jurisdiction. In that sense, Article 23 is the “epitome of party autonomy, as declared in recital 14 to the Brussels I Regulation … [its] primary purpose … is to establish an avenue in favor of choosing a competent court other than the normally competent court under the rules of the Regulation.”7)Supra note 5, at 37. jQuery("#footnote_plugin_tooltip_6511_7").tooltip({ tip: "#footnote_plugin_tooltip_text_6511_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Therefore, the position of the Cour de Cassation that the clause in Rothschildwas not compatible with the object and purpose of the Brussels I Regulation is based on a misinterpretation of the Brussels I Regulation.

  1. Equality of treatment and unconscionability

Prima facie a UOC is imbalanced, as it serves the interests of only one party. “This designation potentially follows the natural lack of balance between the parties, especially regarding their bargaining power. In effect, one of the parties to the clause has to ‘adhere’ to the unfavorable terms of the clause.”8)Supra note 5, at 33. jQuery("#footnote_plugin_tooltip_6511_8").tooltip({ tip: "#footnote_plugin_tooltip_text_6511_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This gives way to two grounds for invalidity: imbalance between the parties and unconscionability.

With respect to the first ground for invalidity, it has been submitted that UOCs violate article 6 of the European Convention on Human Rights pertaining to the right to a fair trial. The Supreme  Arbitrazh Court of Russia in the Sony Ericsson case has also implied that the “right to equality of arms” is violated by a UOC. In essence, the argument here, whether articulated in the contours of article 6 of the European Convention on human Rights or otherwise, pertains to the right to a fair trial. More specifically, the right to have equal opportunity to present one’s case before a court. This argument is based on a misinterpretation or a misunderstanding of the concept in question. The principle of “a fair trial” means that the parties have equal procedural rights (due process) once the proceedings have begun. In other words, equal footing before a specific forum not with regards to the choice of forum.

The second ground for invalidity is that of unconscionability. It may be argued that it is unconscionable “for a party to exploit its economically powerful position or the ignorance of the party who agrees to a unilateral arbitration clause without understanding the unfair advantage it gives to its contract partner by insisting upon acceptance of a unilateral arbitration clause.” 9)Smit, supra note 3, at 404. jQuery("#footnote_plugin_tooltip_6511_9").tooltip({ tip: "#footnote_plugin_tooltip_text_6511_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This argument is not convincing for a number of reasons. First, an agreement may include a number of imbalanced clauses and lack of balance is rarely a per se ground for invalidity. Secondly, submitting to this argument would lead to the absurd result of invalidating a great number of agreements simply because they contain a clause that is favorable to one of the parties. Finally, a defense of unconscionability requires both procedural and substantive unconscionability. Procedural unconscionability is manifested by unfair surprise. It is difficult to argue that such a condition is satisfied in the context of UOCs where both parties negotiated the agreement and accepted the UOC.

  1. Conclusion

Despite the variety of arguments, none constitutes acceptable grounds to invalidate UOCs. On the other hand, the argument for upholding their validity is well established. Neither arbitral tribunals nor courts deciding on the validity of a UOC should curb or contain party autonomy absent adequate grounds to do so. Without explicit statutory guidance, however, it seems that the debate will continue on.

References   [ + ]

1. ↑ Martin Gdanski & Marc Robert, The validity of unilateral hybrid clauses has become less certain under French law, Norton Rose Fullbright (2012).  2. ↑ Cristopher Drahozel, Nonmutual Agreements to Arbitrate, 27 J. Corp. L. 537, 538 (2002). 3. ↑ Hans Smit, The Unilateral Arbitration Clause: A Comparative Analysis, 20 American Rev. Int. A. 391, 401 (2009). 4. ↑ Id. 5. ↑ Deyan Draguiev, Unilateral Jurisdiction Clauses: The Case for Invalidity, Severability or Enforceability, 31 J. Int’l Arb. 19, 41 (2014). 6. ↑ Supra note 1. 7. ↑ Supra note 5, at 37. 8. ↑ Supra note 5, at 33. 9. ↑ Smit, supra note 3, at 404. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Efficient Arbitration – Part 4: Document Production in International Arbitration

Fri, 2018-10-12 23:48

Pawel Halwa and Jakub Kaczmarek

Schoenherr

In Parts 1 – 3 of our Efficient Arbitration Series, we introduced various efficiency tools. In Part 4 we will discuss one of these tools which has considerable savings potential: “document production”.

Presenting the right evidence is key in arbitration. But, what if a party does not have the documents it needs to prove its case, because they are in the possession of its opponent?

This is where “document production” comes into play: the party will request these documents from its opponent, and the arbitral tribunal will decide whether and to what extent the opponent needs to comply with that request.

As with most aspects of arbitration, document production is also agreed by the parties. The requirements and procedure are best addressed already at the Case Management Conference. This, in particular, as parties do not always see eye to eye when it comes to document production: For one, parties and arbitrators with a common law background are familiar with ‘discovery’. They are likely to provide for more extensive document production than parties and arbitrators with a civil law background. For another, of course, the party seeking documents to prove its case will argue for more extensive document production than its opponent, who would prefer these documents to remain off record.

The commonly used procedure for document production, as set forth by the 2010 International Bar Association Rules on the Taking of Evidence in International Arbitration, includes the following steps:

• To avoid ‘fishing expeditions’, a party’s request under these IBA Rules should describe the requested documents (or a narrow and specific category of documents), and state that they are relevant and material to the outcome of the case, and not in the possession, custody or control of the requesting, but of another party.
• The other party may either produce the documents or object to the production. The IBA Rules specify the detailed reasons for refusing to produce documents.
• The tribunal will then decide which documents to order the party to produce. To help the tribunal determine the contentious issues and to assess whether a document may be relevant and material, Parties often used the so-called Redfern Schedule. Also, the parties may appoint an impartial and independent expert, the so-called Document Production Master.

Reaching a decision on producing the documents or maintaining objections is often difficult. If the opposition is based on formal grounds, e.g. insufficiently precise application for submitting a category of documents it may, in principle, be resolved without knowledge of the evidence sought. However, deciding on an opposition based on substantive grounds (such as privilege, commercial or technical confidentiality of the documents) may require the tribunal to read the contents of the documents. In such cases appointment of an impartial and independent expert may help the tribunal decide whether to order the party to produce documents.

The expert’s task is to opine if the objection is legitimate without disclosing the contents of the documents to the tribunal and other parties. However, even in such a case, the decision to uphold the objection is taken by the arbitral tribunal.

The expert appointed in this way may also be able to decide on the legitimacy of the objections and perform other functions, such as inspecting the parties’ headquarters to search for the relevant documents to be submitted in the proceedings.

Ultimately, the decision to appoint an expert, as well as the scope of its competence and powers, is with the parties.

For its complex procedure, document production can be time-consuming and expensive. However, when used properly, it is a powerful tool to strengthen (or weaken) a party’s case — in particular if, without document production, one of the parties will lack the evidence that will likely make or break their case.

This makes document production such a great example of an efficiency tool:
If mishandled, document production is an expensive, lengthy process without much of a result. But, if handled properly, it will indeed improve the chances to win the arbitration.

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¡Entra la cancha!: The Arbitrator Intelligence LatAm Campaign

Fri, 2018-10-12 02:41

Augusto Garcia Sanjur and Muhamed Tulic

Arbitrator Intelligence

We write in our capacity as Arbitrator Intelligence’s “Country Team Leaders” with an update about Arbitrator Intelligence’s Latin American Campaign.

As most Kluwer readers know, Arbitrator Intelligence (AI) aims to promote transparency, diversity and accountability in arbitrator appointments. The primary means to this end is the Arbitrator Intelligence Questionnaire (or AIQ). The AIQ is a confidential, online survey to be completed at the end of each arbitration by parties, in-house or outside counsel, and third-party funders. In the AIQ, responders provide feedback about the arbitral proceedings and the arbitrator’s case management.

The value of the AIQ is that this important information can be accessed while still protecting parties’ confidentiality (the AIQ does not ask for parties’ names or other confidential information) and the independence of responders (responders must register for security purposes, their submissions are anonymous). The AIQ collects key data that will facilitate assessment and analysis of arbitrator decision-making and case outcomes.

With a focus on its goal to promote diversity through more information, on October 1, Arbitrator Intelligence launched its six-week Latin American (LATAM) campaign. The main purpose of the campaign is to collect as many AIQs as possible about Latin American arbitrators and arbitrations in Latin America.

Information from the AIQs collected will allow Arbitrator Intelligence to highlight trends and arbitrators in the region by generating Arbitrator Intelligence Reports on Latin American Arbitrators, which parties can use in future arbitrator selection.

The LATAM campaign focuses on Brazil, Colombia, Mexico, Costa Rica, Guatemala, Panama, Ecuador, Peru, Argentina and Chile, but AIQs from all countries are welcome.

The Campaign is organized around a core group of Country Team Leaders—Giorgio Sassine, Catalina Bizic, Augusto Garcia Sanjur, Muhamed Tulic, Elizabeth Zorilla, and Jose Maria de la Jara—and designated AI Ambassadors in each of the identified countries. Ambassadors were chosen out of more than one hundred outstanding arbitration experts who responded to our call for applications (a list of our Ambassadors is available here).

Many of the Ambassadors volunteered out of interest and commitment to Arbitrators Intelligence’s goals to promote transparency, accountability, and diversity. But it also did not hurt that we have come up with some good prizes as incentives. After the six weeks long campaign, the Ambassador who generates the most AIQs will have an opportunity to co-author an article with Gary Born and, the second most another article with Catherine Rogers. Other prizes include professional opportunities, such as attendance at the ITA Dallas Workshop in June, and the ITA-ASIL Conference in April, signed copies of Gary Born’s treatise (generously donated by Kluwer) and designated access to books on Kluwer’s Digital Book Platform (again thanks to Kluwer).

The first week of the campaign started with the theme ¡Entra la cancha!, which was meant to encourage arbitration practitioners to join in creating their own future opportunities by generating information about arbitration in Latin America.

So far response has been overwhelming—thanks to our outstanding Ambassadors!

Arbitrator Intelligence has collected over 60 AIQs in just the first 10 days of the Campaign, and hence information about hundreds of arbitrators in those cases. We are also getting ready to launch in the coming weeks of the campaign both a Spanish version and a Portuguese version (thanks to Vitor Vieira!) of the AIQ so it is accessible to more parties in the region.

In the process of organizing the LATAM campaign, we also developed another important innovation, which we are calling the Moot Arbitrator Intelligence Questionnaire, or Moot-AIQ. For those of us who have competed in moot competitions, we know the challenges in finding information about moot arbitrators. For example, it would be helpful in your final preparations to know if your arbitrators tend to ask many questions or few, and questions more about facts or law, orand whether they are flexible in granting time extensions. But it is virtually impossible to know this information apart from the moot grapevine, which (just as in real life!) works better for some than for others.

To address this moot problem, we developed a specialized AIQ that mirrors the real AIQ for moot competitions. Apart from making valuable information more available, completing an end-of-hearing AIQ is a lot like feedback that is now so common in many industries. From Uber’s tradition of both passenger-to-driver and driver-to-passenger feedback, to McKinsey Consulting’s 360-degree-feedback program for executives, information about an experience can be a valuable resource when given in both directions.

Like the original AIQ, the Moot-AIQ seeks mostly factual information (like that described above) and maintains confidential the names of individual respondents.

In working on the LATAM Campaign, to test the Moot-AIQ we teamed up with the International Competition of Arbitration (XI Competencia Internacional de Arbitraje) for its eleventh edition which was organized by Universidad de Buenos Aires (Argentina) and the Universidad del Rosario (Colombia).

For those who do not know, the ICA Moot is the most important regional arbitration moots in Latin America. In the eleventh edition of the competition, there were 54 teams competing, 607 participants of which 447 were students and 160 were coaches and 260 arbitrators. The participants and arbitrators came from 16 different countries.

At the ICA, coaches and student competitors were provided with a link, which lead them to the ICA-AIQ (International Competition of Arbitration-Arbitrator Intelligence Questionnaire). (The ICA-AIQ is a special version of the Moot-AIQ tailored for the purposes of that competition.)

Arbitrator Intelligence will provide general information from the responses and, after the organizers have an opportunity to review the responses, they will determine if arbitrator-specific information would be useful for either their future planning or for use by competitors next year.

We are exceedingly grateful to the Universidad de Buenos Aires and the Universidad del Rosario, for being brave enough to welcome innovation and be the first moot to test the Moot-AIQ. We are hopeful that this experiment may be inspiration for future moot court programs and look forward to working with interested organizers.

In the meantime, back in the LATAM Campaign, we encourage everyone (whether in the region or not) to use this period to submit AIQs on recent arbitration cases. Like so many other aspects of international arbitration, Arbitrator Intelligence is a collaborative project. Its ends are part of its means—to succeed, it needs to collect input from many participants, while its success will make information more generally available to all participants.

Specifically in a region as dynamic as Latin America, the value of more information about newer arbitrators will be an essential resource both to make regional arbitrators more known globally and to give regional practitioners greater access to information about foreign arbitrators. ¡Vamos!

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Accreditation of Arbitrators in India: A New License Requirement?

Thu, 2018-10-11 06:05

Ajar Rab

The current government in India is undertaking sweeping policy changes to increase India’s rank on the global index of ease of doing business. In order to attract more investments, it is also focusing on revamping the ailing judicial system and attempting to bring India at par with global arbitration standards. In pursuance of the same, the Union Cabinet has approved the Arbitration and Conciliation (Amendment Bill 2018) (the “Bill”) and the  New Delhi International Arbitration Centre Bill, 2018 (the “NDIAC Bill”) which has already been tabled before the Lower House of the Parliament (covered previously in this post).

Highlighting the salient features of the Bill, the Press Information Bureau of India issued a press release stating that the Bill will, inter-alia, provide for the creation of an autonomous body called the Arbitration Council of India (“ACI”) aimed towards grading arbitral institutes and accrediting arbitrators. The press release also noted that the amendments were based on the recommendations of a High-Level Committee under the Chairmanship of Justice B. H. Srikrishna, Retired Judge, Supreme Court of India, which was to provide recommendations and suggestions with respect to “Institutionalisation of Arbitration Mechanism” in India (“Committee”).

The Bill, inter-alia, provides for the insertion of Section 43G in the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”) specifying the norms for accreditation of arbitrators as provided in the Eight Schedule (to be added to the Arbitration Act). Though there are many instances of an existing gap between cup and lip between the provisions of the Bill and the report of the Committee, Section 43G of the Bill is going to have a severe impact on international arbitration and arbitrators in India.

Section 43G of the Bill states the norms for accreditations shall be as specified in the Eighth Schedule. However, instead of providing an inclusive definition, the Eighth Schedule provides a list of who can be an arbitrator and anyone not falling within the below-mentioned list shall “not be qualified to be an arbitrator”:

  • is an advocate within the meaning of the Advocates Act, 1961 having ten years of practice experience as an advocate; or
  • is a chartered accountant within the meaning of the Chartered Accountant Act, 1949 having ten years’ of practice experience as a chartered accountant; or
  • an officer of the Indian Legal Service; or
  • an officer with a law degree having ten years’ experience in legal matters related to the Government, Autonomous Body, Public Sector Undertaking or at a senior level managerial position in private sector; or
  • an officer with an engineering degree having ten years’ of experience as an engineer in the Government, Autonomous Body, Public Sector Undertaking, or at a senior level managerial position in private sector or self-employed; or
  • an officer having senior level experience of administration in the Central or State Government or having experience of senior level management of a Public Sector Undertaking or a Government company or a private company of repute; or
  • in any other case, a person having educational qualification at degree level with ten years’ of experience in scientific or technical stream in the fields of telecom, information technology, Intellectual Property Rights or other specialised areas in the Government, Autonomous Body, Public Sector Undertaking or at a senior level managerial position in a private sector, as the case may be.

It is pertinent to mention that the Committee report categorically mandated that no new body is to be created for accreditation of arbitrators and instead recognition is to be given to professional institutes which have a robust and well-defined system of accreditation such as the Chartered Institute of Arbitrators (CIArb), the Singapore Institute of Arbitrators (SIArb), the Resolution Institute (RI), or the British Columbia Arbitration or Mediation Institute (BCAMI). Thus, the recommendation of the Committee was to recognize international bodies/professional institutes providing accreditation of arbitrators as their criteria is based on (a) professional education (b) attendance of arbitration hearing (c) qualifying examinations (d) peer interviews/assessment by a panel of approved arbitrators. This would lead to professional and well-qualified arbitrators. While this intent is duly reflected in Section 43D(2)(b) of the Bill which states that one of the functions of the ACI will be to recognize professional institutes providing for accreditation of arbitrators, based on the current wording of Section 43G, it is unclear whether the ACI will simply (i) recognize such institutes; or (ii) recognize such institutes only if the accreditation provided by them meets the criteria mentioned in the Eighth Schedule; or (iii) whether the ACI alone will accredit arbitrators as Section 43G does not provide for recognition of professional institutes for the purposes of accreditation.

It is pertinent to highlight that as per the criteria laid down under the Eighth Schedule, there is no room for any method by which the quality, experience and professional qualification of an arbitrator can be gauged. The Eighth Schedule reflects the conservative and outdated thinking of the government as the criteria relies solely on seniority and a basic professional degree or employment in a government service. None of these are sufficient or even remotely reflective of a person’s knowledge of arbitration law or his/her capability to effectively discharge the duties and role of an arbitrator.

The current list provided in the Eighth Schedule assumes that by merely practicing as an advocate or chartered accountant for 10 years, a person is deemed to have gained knowledge in the field of arbitration and can discharge the role of an arbitrator which is judicial in nature. The list gives preference to seniority in managerial positions, matters related to government functions and government enterprises without defining what is the scope and extent of such seniority. Again, fallaciously, the list assumes knowledge of arbitration and basic tenets of justice only on account of age and association with the government or managerial positions in the private sector.

As many internationally renowned arbitrators would testify, mere age or seniority or association with government work does not in any manner equip a person to become an arbitrator. Even as an advocate with 10 years of practice in India, there is no guarantee that an advocate would actually be well versed in arbitration or that he or she would have handled arbitration matters in those 10 years. Therefore, the result of the Eighth Schedule being passed as a law would be that all those persons mentioned in the Schedule can become accredited arbitrators since there are no other criteria to evaluate their knowledge and understanding of arbitration. The catastrophic result would be accredited arbitrators without any knowledge, education, experience in arbitration law or the practice of arbitration.

The Committee report had specifically stated that the ACI should not be a body which provides accreditation but one that merely recognizes the accreditation provided by international bodies/professional institutes. The establishment of another body for accreditation would only result in duplication of efforts and would involve substantial financial commitment from the government. Despite such a clear recommendation that the ACI is not to become a regulator or a license granting body, the Bill has managed to achieve just that. If the proposed amendment is passed in its current form, it remains unclear if all internationally accredited arbitrators would again require accreditation in India by the ACI or will their existing accreditation be given due recognition, and if so, under what circumstances.

The other problems with Section 43G and the Eighth Schedule are that they fail to account for persons who even though internationally accredited and recognized as arbitrators, may not fall in the list of persons provided in the Eighth Schedule. Furthermore, while most bodies/professional institutes such as the CIArb, SIArb etc. encourage students to enrol and get accreditation as arbitrators, the Eighth Schedule in effect provides an age/seniority threshold which runs counter to the idea of promotion of arbitration.

Unless suitably addressed, creating another body for accreditation would neither benefit nor bolster arbitration in India. In fact, it would just become another certification for arbitrators without any serious reputation in the international market. Moreover, if professional institutes are not recognized, international arbitrators would have to re-apply for accreditation in India before arbitrating disputes in India.

Arbitration was already moving at a snail pace in India and suffered on account of judicial interference at every stage of the arbitration proceedings, the last thing it needed was government interference as well. In effect, the current text of Section 43G and Eight Schedule of the Bill will create more problems for arbitrators and the arbitration landscape in India. Instead of reducing the scope of judicial intervention, the Bill manages to create a new licensing requirement for arbitrators under the garb of providing accreditation.

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A Debate About the Not So Straightforward Applicability of the Articles on State Responsibility to Investor-State Arbitrations

Wed, 2018-10-10 00:34

Danilo Ruggero Di Bella

At a time when Spain is targeted by investment arbitrations (with almost thirty ICSID cases pending against it), the second ICSID-CIAMEN Forum held in Madrid could not be more auspicious.  The event – organized by Marta Lya Martini Briceño and José María Beneyto from the CIAMEN (Centro Internacional de Arbitraje, Mediación y Negociación) with the collaboration of Gonzalo Flores (ICSID Deputy Secretary-General) – was hosted at CEU-San Pablo University and gathered arbitration practitioners from a variety of jurisdictions. The hot topics of the Forum were the most recent ICSID jurisprudence, the future amendments to the ICSID Arbitration Rules and Spain’s renewable energy cases.

During the conference, a debate about the applicability of the International Law Commission’s Articles on State Responsibility (ILC Articles) to investor-state arbitrations struck my attention. This post attempts to report on that debate and add a few observations.

 

A different view on the ILC Articles

During his presentation, while highlighting diverging interpretations of the FET standard in the recent awards rendered against Spain, Derek Smith (Foley Hoag) expressed the singular view that it is a widespread mistake to apply the full reparation principle – enshrined in Art. 31 of the ILC Articles – when assessing damages in investor-state arbitral proceedings. Although this has been a common practice by many arbitral tribunals, Smith considered it to be an error and argues his position based on the Chorzów Factory case, the Commentaries of the ILC to the provisions of the ILC Articles dealing with the legal consequences of an internationally wrongful act of a State, and the stance maintained by Professor James Crawford.

Smith argued that the Chorzów Factory case – regarded as the starting point by any investment arbitration tribunal called upon to quantify damages – has been repeatedly misinterpreted to the extent that its application has been overstretched to disputes where an individual is arbitrating against a State. Smith submitted that the Chorzów Factory case and the principle of full reparation stemming from it (according to which reparation should wipe out all the consequences of an illegal act and re‐establish the status quo ante) is applicable exclusively to State-to-State disputes, as in that case the PCIJ intended to rule solely on the reparation due by one State to another. Smith backed up his argument by referring directly to the 1928 Judgement on the Merits of the Chorzów Factory case, where, indeed, the German-Polish Mixed Arbitral Tribunal emphasized that “Rights or interests of an individual the violation of which rights causes damage are always in a different plane to rights belonging to a State, which rights may also be infringed by the same act. The damage suffered by an individual is never therefore identical in kind with that which will be suffered by a State[…]”. This may find confirmation in another excerpt from that case, where the Mixed Arbitral Tribunal stressed that “The present dispute is…a dispute between governments and nothing but a dispute between governments. It is very clearly differentiated from an ordinary action for damages, brought by private persons[…]”.

Smith further supported his view by referring to the Commentaries of the ILC which clarify that Part Two of the ILC Articles – including Art. 31 – “does not apply to obligations of reparation to the extent that these arise towards or are invoked by a person or entity other than a State.”1)ILC Commentaries, pages 87-88 jQuery("#footnote_plugin_tooltip_5941_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5941_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, and again, that “[t]he articles do not deal with the possibility of the invocation of responsibility by persons or entities other than States, and paragraph 2 [of Art. 33] makes this clear. It will be a matter for the particular primary rule to determine whether and to what extent persons or entities other than States are entitled to invoke responsibility on their own account.”2)ILC Commentaries, page 95 jQuery("#footnote_plugin_tooltip_5941_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5941_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Finally, Smith quoted Professor Crawford who confirms that “the ILC Articles make no attempt to regulate questions of breach between a state and a private party such as a foreign investor. Those rules must be found elsewhere in the corpus of international law, to the extent that they exist at all.”3)Crawford, “Investment arbitration and the ILC Articles on State Responsibility,” (2010), ICSID Review—Foreign Investment Law Journal, Volume 25, Issue 1, page 130 jQuery("#footnote_plugin_tooltip_5941_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5941_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

From all the above it follows – according to Derek Smith – that to award full reparation to an investor constitutes an excessive and legally unjustified compensation.

 

The majority view by the other Panelists   

At this point, during the conference, other members of the panel replied by affirming that applying the full reparation principle to estimate damages in investment arbitrations cannot be regarded as a mistake.

Pedro Claros (DAC Beachcroft) contended that, as the full reparation principle has been applied in diplomatic protection cases (where a State indeed takes up an individual’s claim against another State), it is not bizarre its use by way of analogy – and, therefore, the use of Art. 31 of the ILC Articles – in awarding damages to individuals in non-State-to-State disputes.

At that point Derek Smith rebutted that analogy cannot be used as a basis to justify the application of the full reparation principle to individual vs. State disputes, because arbitral tribunals’ jurisprudence is not a source of international law (only the jurisprudence of the ICJ is), according to Article 38 of the Statute of the ICJ. Smith submitted that the application of such a principle (and Part Two of the ILC Articles) to investor-State arbitration require a legal ground other than analogy.

Subsequently, Gabriel Bottini (Uría Menéndez) replied that the Commentaries to the ILC Articles make many references to human rights treaty-based cases, where individuals confront States. By consequence, the application of these Articles to individual vs. State disputes, such as investor-state arbitration, is in line with their scope.

 

Observations

Although the Chorzów Factory Tribunal underlines that it is mandated to adjudicate a dispute between States, as opposed to an ordinary action for damages brought by an individual, still it considers that the calculation of the reparation due to the State could be liquidated on the basis of the actual damages suffered by the individual, whose case was espoused by the Claimant State. 4)Factory at Chorzów (Merits), Judgment of 13 Sept.1928, page 28 jQuery("#footnote_plugin_tooltip_5941_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5941_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Accordingly, it was that tribunal to draw a first parallelism between the damages suffered by the individual and the damages suffered by the individual’s home-State, thus pointing out a straightforward correlation between the losses incurred by the individual and the claimable amount due from the State as form of full reparation. Consequently, the analogy drawn by Pedro Claros appears well-founded.

Even though, unlike the ICJ, arbitral tribunals supporting the application of the full reparation principle may not be a source of international law, they do contribute to the development of international law, especially by building a jurisprudence constante, whose authority resides in its persuasiveness. Apart from their influence, we should not be oblivious to the fact that the members constituting those tribunals are often incumbent or former judges of the ICJ itself5)Listen to the interview of Bruno Gelinas-Faucher by Joel Dahlquist on The Arbitration Station jQuery("#footnote_plugin_tooltip_5941_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5941_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

As correctly pointed out by Gabriel Bottini, the ILC Commentaries to the ILC Articles draw several examples from human rights cases, i.e. individual vs. State cases. Additionally, the Commentaries make direct reference to the practice of ICSID tribunals (again, individual vs. State cases).  They do so particularly with respect to the power of ICSID tribunals to award full reparation as compensation, by covering ongoing and also expected lost profits (as long as non-speculative)6)ILC Commentaries at pages 100 (footnote 522), 104 (footnote 566) jQuery("#footnote_plugin_tooltip_5941_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5941_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); More importantly, the Commentaries draw such a reference with respect to Part Two of the ILC Articles, which purportedly is not meant to be applied to individual vs. State disputes. Could this be an inconsistency in the ILC Commentaries?

Lastly, the missing legal ground (other than simply analogy), required by Smith’s view in order to apply Art. 31 of the ILC Articles to investor-state arbitrations (and more in general to individual vs. State disputes), could be found in the residual character of the ILC Articles. Quoting Professor Crawford himself: “The ILC Articles are residual articles and an adjudicator must first look at the treaty under review and see what it says on the subject. If the treaty (such as a BIT) covers the field of the issue at stake, the ILC Articles have no role to play.”7)Crawford, “Investment arbitration and the ILC Articles on State Responsibility,” page 131 jQuery("#footnote_plugin_tooltip_5941_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5941_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The corollary of this, of course, is that if the BIT is silent about the standard of compensation, then Part Two of the ILC Articles should apply (full reparation principle included).

 

Conclusion  

Derek Smith’s opinion is intriguing, since it questions something – the applicability to investor-State disputes of Art. 31 of the ILC Articles, together with the principle of full reparation – that is taken for granted and part of well-established tribunals’ practice. Such a position may come particularly handy if one’s goal is getting a quantum reduction as state-appointed counsel. However, confining the full reparation principle only to State-to-State disputes stands at odds with the majority view.

 

References   [ + ]

1. ↑ ILC Commentaries, pages 87-88 2. ↑ ILC Commentaries, page 95 3. ↑ Crawford, “Investment arbitration and the ILC Articles on State Responsibility,” (2010), ICSID Review—Foreign Investment Law Journal, Volume 25, Issue 1, page 130 4. ↑ Factory at Chorzów (Merits), Judgment of 13 Sept.1928, page 28 5. ↑ Listen to the interview of Bruno Gelinas-Faucher by Joel Dahlquist on The Arbitration Station 6. ↑ ILC Commentaries at pages 100 (footnote 522), 104 (footnote 566) 7. ↑ Crawford, “Investment arbitration and the ILC Articles on State Responsibility,” page 131 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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