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Third Party Funding in Investment Arbitration: Time to Change Double Standards Employed for Awarding Security for Costs?

Sun, 2018-07-29 03:36

Umika Sharma

Introduction

Security for costs is a controversial territory in international arbitration, especially in investment arbitration. On one side is the respondent State which seeks security for defending a claim with the taxpayers’ resources. However, on the other side, there is the claimant who might become financially incapable of accessing justice if it is asked to put up security for costs. Add a Third-Party Funder to the mix, and a tribunal’s challenges get multiplied. Moreover, the unclear standards as to an award for the security of costs adds more layers to the considerations that any tribunal needs to keep in mind while making an award for security for costs.

It is possible that the existence of a TP Funder might be a red flag and has the potential to raise concerns as to the claimant’s poor financial situation that might affect its ability to pay an award for costs. Also, the presence of a TP Funder might create an imbalance in the arbitration equation because of the possibility of an “arbitral hit and run”. 1)Nadia Darwazeh and Adrien Leleu, “Disclosure and Security for Costs or How to Address Imbalances Created by Third-Party Funding’, Journal of International Arbitration” (2016) 33 (2) Kluwer Law International 125 jQuery("#footnote_plugin_tooltip_3877_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3877_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Higher Threshold for awarding of security for costs in the ICSID mechanism

ICSID tribunals tend to employ a higher threshold for awarding security for costs and rely on exceptional considerations, broadly including abuse of process or bad faith in addition to the impecuniosity of the claimant. It is possible to argue that the presence of TPF may be taken as the exceptional considerations that a tribunal requires to award security for costs. 2)Report of ICCA-QM Task Force on Third-Party Funding in International Arbitration (2018) jQuery("#footnote_plugin_tooltip_3877_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3877_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

There has been only one case where the presence of TPF influenced the awarding of security for costs. 3)RSM Production Corporation v Saint Lucia [2014] ICSID Case No. ARB/12/10 jQuery("#footnote_plugin_tooltip_3877_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3877_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the case, the claimant’s conduct and the fact that the identity of the TP Funder was not revealed were essential issues that were noted. The Tribunal also doubted the unknown funder’s willingness to comply with a cost award. The case was peculiar because the Tribunal, while holding the claimant liable for security for costs, referred to the conduct of the claimant in two unrelated previous ICSID arbitrations, noting that the claimant had defaulted on a cost award 4)Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Corporation v Grenada [2010] jQuery("#footnote_plugin_tooltip_3877_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3877_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and had also failed to pay an advance on costs. But there are cases where Tribunals have shown a tendency not to attach value to the presence of TPF. 5)South America Silver Limited v The Plurinational State of Bolivia, [2016] PCA Case No. 2013-15 jQuery("#footnote_plugin_tooltip_3877_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3877_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The fact that Tribunals set up a high threshold for the award of security for costs can be easily attributable to its awareness in ensuring that the claimant’s access to justice is not hampered. At the same time, the Tribunal also needs to consider that the respondent State needs protection against frivolous and unmeritorious claims and is likely to spend vast resources in defending the claim. It is particularly onerous for States that have limited resources that could be better employed elsewhere.

Why the standards for awarding security for costs need to be lowered down?

The first reason why there is a need to lower the standards is that it levels the playing field for the respondent. If tribunals readily award security for costs, the respondent gets a shield against a disbalanced situation where the claimant can go scot-free against an adverse costs award if it is funded by a TP Funder who has no liability to meet such costs.

Secondly, the respondent might also be protected from frivolous claims if the tribunal more readily awards security for costs. It is so because, if the claimant or its funder is asked to put up security for costs, the odds of a funder still supporting a worthless claim gets lowered down because once a financial liability is imposed, it is only prudent for an investor to support claims that are strong on merits.

Lastly, lower and set standards will also result in predictability. An impecunious claimant who has relied on TPF to bring a claim can now reasonably be expected to put up security for costs. It might also affect the terms with the TP Funder and might lead to the desired result of the funder being prepared to put up security for costs.

How can standards for awarding security of costs be lowered?

Clear principles for security for costs

Investment arbitral tribunals are still in the process of evolving set standards and principles for an award of security for costs. A move from the traditional ‘pay your own way’ to the ‘costs follow the event’ mindset is becoming common in investment arbitration. But there are no definite rules or principles that guide tribunals in deciding the question of awarding security for costs and often, a cautious approach is adopted and that too in exceptional circumstances. This approach might then turn into reluctance in a situation where a TP Funder is present.

To tackle unclear standards, it is possible to use tests that clarify the standards for awarding security for costs. Tribunals ought to attach value to the presence of TPF and order security for costs readily in such scenarios. A two-stage test can be developed that might be useful in shifting the burden of proof concerning awarding security for costs from the respondent to the claimant6)Nadia Darwazeh and Adrien Leleu, “Disclosure and Security for Costs or How to Address Imbalances Created by Third-Party Funding’, Journal of International Arbitration” (2016) 33 (2) Kluwer Law International, 132 jQuery("#footnote_plugin_tooltip_3877_6").tooltip({ tip: "#footnote_plugin_tooltip_text_3877_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and ought to be taken as meeting the exceptional circumstances requirement. At the first stage, the tribunal should take into account the presence of TPF. It is largely dependent on the claimant’s disclosure and could be the starting point for the tribunal. Secondly, the claimant’s unwillingness or inability to satisfy an adverse costs award may be a relevant issue. Inability can be gauged through ‘appearance of mere insolvency’ or ‘lack of assets of the claimant’.7)Ibid, at 133 jQuery("#footnote_plugin_tooltip_3877_7").tooltip({ tip: "#footnote_plugin_tooltip_text_3877_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It is here that the tribunal should consider ordering security for costs. Further, the unwillingness of the claimant can be established through its previous conduct or through terms of the TPF arrangement which protect the funder from any adverse costs liability. Once both of these criteria are met, the burden of proof ought to be shifted to the claimant to prove as to why security for costs should not be awarded. The claimant can always discharge such a burden by disclosing its financial position to establish that it is willing and able to pay a security for costs award.8)Ibid, at 134 jQuery("#footnote_plugin_tooltip_3877_8").tooltip({ tip: "#footnote_plugin_tooltip_text_3877_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Limited disclosure of third-party funding

A cautionary tale where the respondent was at the receiving end of a possible arbitral hit and run is the case of S&T Oil v Romania, ICSID case no. ARB/07/13 [2010]. In the case, the claimants had filed an expropriation claim against the respondent. The claim was filed after the backing of a TP Funder. Issues arose when the counsel for the claimant resigned after the TP Funder’s withdrawal. After another arrangement between the claimant and the funder, the case was revived. However, the TP Funder withdrew again, and consequently, the claimant was unable to pay advance on costs leading to discontinuation of the arbitration. The whole saga came to light because of the litigation between the claimant and the funder. The respondent was not aware of the claimant’s difficult financial position or the existence of TPF and thus never applied for security for costs. Such a case could have quickly turned into a scenario where the respondent State could not have been able to recover its costs because of the impecuniosity of the claimant.

Limited disclosure can be the way out of such a risky proposition. The disclosure of the existence of a TP Funder could be a pre-requisite for investment arbitration. The idea has recently been incorporated by the Singapore International Arbitration Centre in Rules 24(1) of its Investment Arbitration Rules. It provides that the tribunal has additional powers to order disclosure of third-party funding arrangements. Furthermore, it also provides for the tribunal to seek disclosure of the funder’s commitment towards adverse costs liability. A similar provision can be found in newer generation BITs like the Iran-Slovakia BIT [Article 21(6)] which expressly provides for the circumstances in which the tribunal may order security for costs if it considers that there is a reasonable doubt that claimant would be not capable of satisfying a costs award or consider it necessary because of other reasons. Such provisions are a move toward ensuring that the presence of a TP Funder does not unduly affect a party and its ability to seek security for costs. It is also essential to ensure that there are safeguards against respondents using disclosure of TPF as a weapon instead of a shield. For instance, it is unnecessary to seek disclosure of all the aspects of the TPF agreement. The liability as to the costs for the TP Funder should be the focal point for disclosure.

Therefore, the presence of a TP Funder has the possibility of creating disbalances in the arbitral process which tilts the scales against a respondent who faces the danger of being stuck with a worthless costs award. These disbalances need to be corrected by the Tribunal to ensure that the arbitral process remains fair through awarding security for costs.

References   [ + ]

1. ↑ Nadia Darwazeh and Adrien Leleu, “Disclosure and Security for Costs or How to Address Imbalances Created by Third-Party Funding’, Journal of International Arbitration” (2016) 33 (2) Kluwer Law International 125 2. ↑ Report of ICCA-QM Task Force on Third-Party Funding in International Arbitration (2018) 3. ↑ RSM Production Corporation v Saint Lucia [2014] ICSID Case No. ARB/12/10 4. ↑ Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Corporation v Grenada [2010] 5. ↑ South America Silver Limited v The Plurinational State of Bolivia, [2016] PCA Case No. 2013-15 6. ↑ Nadia Darwazeh and Adrien Leleu, “Disclosure and Security for Costs or How to Address Imbalances Created by Third-Party Funding’, Journal of International Arbitration” (2016) 33 (2) Kluwer Law International, 132 7. ↑ Ibid, at 133 8. ↑ Ibid, at 134 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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The Contents of Journal of International Arbitration, Volume 35, Issue 4, 2018

Fri, 2018-07-27 17:33

Maxi Scherer

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

Cherie Blair, CBE, QC, Ema Vidak-Gojkovic & Marie-Anaïs Meudic-Role, The Medium Is the Message: Establishing a System of Business and Human Rights Through Contract Law and Arbitration

This article seeks to paint a picture of an emerging system of business and human rights (BHR) law by following certain developmental trends across normative, substantive and procedural realms. These trends show that there is acknowledgment for the concept of corporate responsibility for BHR, and that the lines between ‘soft’ and ‘hard’ law are becoming blurred. Through contractual and arbitral mechanisms, a binding system of law is taking shape.

At the forefront of recent trends, international arbitration is increasingly becoming a procedural venue of choice for BHR disputes. Furthermore, arbitration promises to offer an environment that will both kindle the evolution of substantive rights and permit their enforcement and effective redress. The medium, indeed, is the message.

 

Paul Lefebvre & Dirk De Meulemeester, The New York Convention: An Autopsy of Its Structure and Modus Operandi

The purpose of the New York Convention is to facilitate the enforcement of arbitral awards. It introduces different regimes, i.e. the regime provided by the New York Convention itself, and the two regimes referred to by Article VII.1 of the New York Convention. Little attention has so far been given to those different regimes and, especially, to the possibility of an interaction between those regimes and whether or not such should be authorized. The aim of this contribution is to highlight that the New York Convention is structured and worded precisely to avoid interferences between those different regimes which each operate independently, even if complemented by provisions of domestic law. It is the enforcing party’s privilege to choose between the different regimes. However, in order to respect the rights of defence of the party against whom the award is enforced, this choice should be express, in toto, final and binding for the judge. Failure to expressly opt for a regime leads to the application of the New York Convention regime. Such an approach offers not only the advantage of clarity and simplicity as far as the applicable rules are concerned, but also enhances the equality between foreign and domestic awards, and puts an end to the nineteenth century era of bilateral treaties.

 

Tamás Szabados, EU Economic Sanctions in Arbitration

Sometimes, the application of the economic sanctions imposed by the European Union (EU) arises in arbitration proceedings. This article examines the extent to which unilateral EU sanctions are applied uniformly in arbitration. Opting for arbitration between the parties instead of court proceedings, as well as the selection of a particular arbitration venue, may be used to avoid the application of EU sanctions. Although arbitral tribunals have considerable freedom in deciding whether to give effect to EU economic sanctions, which involves an inherent uncertainty in terms of their claim for uniform application, the fact that the parties choose arbitration does not necessarily exclude their application. EU sanctions constitute the public policy of the Member States. The potential for the annulment of the arbitral award by a competent court in an EU Member State or the denial of the recognition and enforcement of the arbitral award in the EU may therefore be an incentive for the arbitrators not to disregard these sanctions and may discourage the parties from choosing arbitration or a particular location for arbitration only to escape the application of EU sanctions.

 

Stepan Puchkov, Psycholawgy: What Dispute Resolution Practitioners Overlook?

This article brings to the readers’ attention several particular subconscious ‘blinders’ together with their potential implications in the field of dispute resolution and offers practical recommendations in relation thereto from both the counsel and judge/arbitrator perspective.

The article does not aim to provide the readers with an exhaustive theoretical background of the psychology of decision-making. Instead, it will put into the spotlight only ‘blinders’ that (1) are likely to emerge in dispute resolution; (2) are easy to explain and exemplify without going too deeply into psychology; (3) suggest very concrete practical inferences; and (4) can be used to produce tips for practitioners.

Finally, it is suggested that it may be the time to rethink the approach to dispute resolution by taking more account of non-legal influences affecting disputes’ outcomes, which might in some cases be as influential as blackletter law.

 

Michael Kotrly & Barry Mansfield, Recent Developments in International Arbitration in England and Ireland

This article considers developments in international arbitration in England and Ireland by way of a review of arbitration-related judgments rendered in 2017 by the countries’ respective courts.

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Investment Arbitrations: Do Tribunals Take the Role of a Supra-National Appellate Court above National Courts?

Fri, 2018-07-27 04:00

Asaf Niemoj

  1. State Responsibility for State Organ’s Conduct

The fact that a state can be held liable for its organs’ conduct is part of a wider notion that sees states as responsible for their internationally wrongful acts. This notion was codified in the ILC Articles of State Responsibility. Article 1 states that “every internationally wrongful act of a State entails the international responsibility of that State”. Article 4 continues by stating, inter alia, that “the conduct of any State organ shall be considered an act of that State under international law…”.

In my previous post which can be found here, I have reviewed an Israeli Supreme Court decision that declined a request to set aside a multi-million class action suit against foreign investors. Among other things, I mentioned that the Israeli Attorney General was a party to the proceedings and that in his submissions to the Court, he took the same position as the investors, namely: that the class action should indeed be set aside. I then noted that if an opposite approach was to be taken by the Attorney General (namely, one which sided with the public rather than with the investors) then in light of the fact that the Attorney General is a state organ then this could, potentially, be seen as a breach of the state’s undertakings under the BIT, and hence could potentially also lead to arbitration proceedings against that state.

Recent cases and awards show that proceedings in national courts entail risks that could be greater than described above. In fact, recent developments show that proceedings in national courts could potentially themselves be the subject of international arbitration proceedings.

 

  1. Eli Lilly and Company v Government of Canada

The award rendered in Eli Lilly and Company v. Government of Canada [ICSID Case No. UNCT/14/2] was already discussed in this blog here, but in the context of judicial economy. The case concerned two patents which belonged to the Claimant and which the Canadian Courts invalidated because they did not meet certain requirements of Canadian law. The basis for the invalidation was a legal doctrine adopted by the Canadian Courts in the mid-2000s. The Claimant argued that the doctrine was radically new, arbitrary and discriminatory against pharmaceutical companies and products. It therefore initiated NAFTA arbitration proceedings against Canada and argued that the Court’s decision can serve as a ground for Canada’s liability.

The parties to the proceedings agreed that a state is responsible for the conduct of all of its organs, including the judiciary. They also agreed that a state is responsible for the acts of judicial authorities when they are a result of denial of justice. However, the question was whether a state can be liable for the conduct of its judicial authorities based on grounds other than denial of justice.

The Claimant argued that a judicial act that violates a substantive rule of international law can also serve as ground for state liability in international arbitration. In the context of expropriation, for example, the Claimant argued that judicial measures qualify as indirect expropriations when they result in a substantial deprivation and violate a rule of international law. In other words, according to the Claimant, judicial measures may constitute an expropriation, even in the absence of a denial of justice. A similar argument was raised by the Claimant in the context of alleged breach of minimum standard of treatment. The Claimant argued that denial of justice is not the only legal basis that offers protection to investors.

The Respondent, on the other hand, argued that the only substantive obligation under NAFTA with respect to judicial measures is to ensure that an investor is not denied justice. Therefore, according to the Respondent, denial of justice is the only basis on which a domestic court judgment on the validity of a property right could constitute an expropriation. It further argued, with regard to the minimum standard of treatment of aliens, that denial of justice is the only rule of customary international law applicable to state organs exercising an adjudicative function.

The decision of the Tribunal is quite interesting. It first noted, with regard to expropriation claims, that “it is possible to contemplate circumstances in which a judicial act (or omission) may engage questions of expropriation”. It then went on to say, with regard to the minimum standard of treatment requirement, that it “is unwilling to shut the door to the possibility that judicial conduct characterized other than as a denial of justice may engage a respondent’s obligations under NAFTA Article 1105”.

Despite those interesting remarks, the Tribunal was unwilling to sustain the claim because it had found that the necessary facts were not established.

 

  1. GPF GP S.a.r.l. v. Republic of Poland

The second interesting case is GPF GP S.a.r.l. v. Republic of Poland [SCC Case no. V.2014/168] which was also discussed in this blog here. Although the documents of this case (which is still pending) are not publicly available, an English High Court judgment delivered this year [2018] EWHC 409 (Comm)] reveals some of the factual background and the legal arguments.

Here the Claimant is a company based in Luxemburg named Griffin and the dispute concerns a property located at 29 Listopada Street, Warsaw, which was the subject of a Perpetual Usufruct Agreement (PUA) – an agreement the aim of which was to commercially develop the property.

In 2007, a recommendation was issued by the Warsaw Monuments Conservator supporting the development of the property. Based on that recommendation, the Claimant invested in the property and provided the financing required to obtain the ownership rights. However, thereafter the recommendation was reversed on the basis that the development was unacceptable from a conservation point of view. A permit to develop the property was therefore not granted.

Following legal proceedings, the PUA was terminated by the Warsaw Regional Court, for failure to develop the property within the time limits specified. Appeals to the Warsaw Court of Appeal and to the Supreme Court were dismissed.

In its judgment, the English High Court states that the Tribunal found that it had jurisdiction to rule upon one aspect of Griffin’s claim in the arbitration, namely: whether the judgment of the Warsaw Court of Appeal, as confirmed by the Polish Supreme Court, constituted an “expropriation, nationalization or any other similar measures affecting investments” in violation of the BIT.

The Tribunal’s award is, therefore, interesting. Although not dealing with the merits of the case, it found that it had jurisdiction to examine a judgment of the Warsaw Court of Appeal. This means, in practice, that the Tribunal is of the opinion that the judgment of the Polish court could be the subject of investment treaty arbitration. We do not know, however, whether in its award the Tribunal goes into discussing possible ground for review of national court judgments by an investment arbitration tribunal. If so then this discussion is highly interesting and important.

 

  1. The Interface Between Decisions Rendered by National Courts and Investment Treaty Arbitrations

The cases discussed above demonstrate that tribunals are willing to attribute acts of the judiciary to the states in which they operate and, potentially, also hold states as responsible for the outcome of judgments rendered by their national courts.

At first glance it seems reasonable to argue that at least in certain circumstances arbitral tribunals should indeed have the power to examine judgments rendered by national courts, particularly because in some countries the legal system is not detached from the political system and the former can be influenced by the latter. However, such an approach also entails risks. Among them is the risk that arbitral tribunals will become a supra-national appellate court overseeing judgments rendered by national courts, including national supreme courts. Indeed the Eli Lilly Tribunal was aware of the risk and so it emphasized “that a NAFTA Chapter Eleven tribunal is not an appellate tier in respect of the decisions of the national judiciary”. The Tribunal therefore noted that such intervention should be reserved only to rare circumstances.

The issue is therefore complicated. The first question that arises is whether tribunals should indeed be allowed to examine judgments of national courts. If not, then one can argue that common-law based countries will be placed in a better position because in those countries courts take a substantive role in shaping the legal system and because a court judgment in those countries may lead to a shift from the regular jurisprudence (indeed this was one of the arguments asserted by the Respondent in Eli Lilly).

If the answer is yes, then different questions may arise. For example, what are the circumstances in which decisions rendered by national courts can be the subject of an investment treaty arbitration? Even if denial of justice is the only legal basis from which liability can be drawn, then still there would be a need to define the term denial of justice and its limits.

Although these questions are yet to be answered, it is clear that more developments are expected in this area.

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Global Lessons in Mandatory and Voluntary ADR Systems

Fri, 2018-07-27 02:36

Shahla Ali

ITA

The question of voluntary and mandatory ADR including arbitration has been a richly debated topic in many jurisdictions. Since the mid-twentieth century, the question of achieving procedural and substantive justice in the context of judicial dispute resolution has received significant attention beginning with the work of Owen Fiss and Lon Fuller who articulated early insights into the role, forms and limits of adjudication. Fiss argued that the purpose of adjudication is to provide a public forum to enact public values and not a forum for settlement proceedings.1) See Fiss, O., 1979. The Forms of Justice. Faculty Scholarship Series. Paper 1220; Fiss, O., 1984. Against Settlement. Yale Law Journal, 93(6), pp.1073-1090. jQuery("#footnote_plugin_tooltip_5870_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5870_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Fuller saw alternative processes such as dispute settlement as potentially appropriate in cases where adjudication reached “its limits.”2) See Fuller, L.L., 1978. Forms and Limits of Adjudication. Harvard Law Review, 92(2), pp.353-409. jQuery("#footnote_plugin_tooltip_5870_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5870_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This occurred, Fuller argued, when adjudication attempted to resolve what he described as “polycentric” type disputes (such as when there is no clear issue subject to proofs and contentions).3) Ibid. jQuery("#footnote_plugin_tooltip_5870_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5870_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); According to Fuller, mediation or other forms of ADR are commonly directed towards the creation of relevant interpersonal norms rather than the conformity to such norms.4) L.L. Fuller, Mediation Its Forms and Functions, 44 S. CAL L. REV 308 (1970). jQuery("#footnote_plugin_tooltip_5870_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5870_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Mediation is especially useful when the parties concerned are locked in a relationship of “heavy interdependence”, such that each is dependent on some form of collaboration with the other.5) Id. at 310-312. jQuery("#footnote_plugin_tooltip_5870_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5870_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In general, the facilitation of the mediator can speed the discussion, reduce the likelihood of miscalculation and help parties reach an optimal agreement by adjusting the parties’ divergent valuations.6) Id. at 318. jQuery("#footnote_plugin_tooltip_5870_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5870_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Recent work has highlighted the growing inefficiencies of civil litigation in economically advanced countries, while at the same time, caution is given to the potential denial of justice through exclusive reliance on extra-judicial procedures7) See: Amy J. Cohen, Revisiting Against Settlement: Some Reflections on Dispute Resolution and Public Values (August 21, 2011), Fordham Law Review, Vol. 78, p. 101 (2009). jQuery("#footnote_plugin_tooltip_5870_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5870_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Building on a growing body of empirical cross-jurisdictional research examining ADR reform and policy8) See: Steffek, F., et al. (2014). Regulating Dispute Resolution: ADR and Access to Justice at the Crossroads (Oxford, U.K.: Hart 2013); Schonewille & Schonewille. (2014). Variegated Use of Mediation: A Comparative Study of Mediation Regulation and Practices in Europe and the World. (The Hague: Eleven International Publishing, 2014); Stienstra, D., Willging, T. E., & Federal Judicial Center. (1995). Alternatives to litigation: Do they have a place in the federal district courts?. Washington, D.C. (One Columbus Circle, N.E., Washington 20002-8003: Federal Judicial Center); Wissler, R. L. (1995) Mediation and adjudication in the small claims court: the effects of process and case characteristics. Law and Society Review 29, 323-358; Menkel-Meadow, C. (2013). Regulation of Dispute Resolution in the United States of America: From the Formal to the Informal to the ‘Semi-formal’ in Regulating Dispute Resolution: ADR and Access To Justice at The Crossroads (Felix Steffek, Hannes Unberath, Hazel Genn, Reinhard Greger & Carrie Menkel-Meadow, eds., Oxford, U.K.: Hart 2013); Stipanowich, Thomas, The International Evolution of Mediation: A Call for Dialogue and Deliberation (2015). 46 Victoria University of Wellington Law Review 1191 (2015); Strong, S.I., Realizing Rationality: An Empirical Assessment of International Commercial Mediation (February 24, 2016). Washington and Lee Law Review, 2016 (Forthcoming); Genn et al. Twisting Arms: Court Referred and Court Linked Mediation Under Judicial Pressure (Ministry of Justice Research Series, 2007); De Palo, G., and Harley, P. (2005). Mediation in Italy: Exploring the Contradictions 21 Negotiation Journal 469.; Macfarlane, J. (2004) Experiences of Collaborative Law: Preliminary Results from the Collaborative Lawyering. Research Project Journal of Dispute Resolution, 2004: 179-228.; Farrow, T. C. W. (2002) Negotiation, Mediation, Globalization Protests and Police: Rights Processes; Wrong System, Issues, Parties and Time. Queen’s Law Journal, 28: 665; Lisa Blomgren Amsler (formerly Bingham), Janet K Martinez and Stephanie E. Smith, Christina Merchant, The State of Dispute System Design (November 12, 2015). Conflict Resolution Quarterly, 33: S7-S26; Andrea Kupfer Schneider, Foreword: The Future of Court ADR: Mediation and Beyond (February 24, 2012), Marquette Law Review, Vol. 95, No. 3, Spring 2012; Tania Sourdin and Archie Zariski, The Multi-Tasking Judge: Introduction to Comparative Judicial Dispute Resolution, (Australia, Thomson Reuters, 2013); Dorcas Quek Anderson and Joel Lee, The Global Pound Conference: A Conversation on the Future of Dispute Resolution (September 20, 2016), Asian Journal on Mediation 70 [2016]. jQuery("#footnote_plugin_tooltip_5870_8").tooltip({ tip: "#footnote_plugin_tooltip_text_5870_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, recent research has explored initial comparative findings examining the association of judicial voluntary and mandatory mediation structure with perceptions of justice, efficiency and confidence in courts. These findings are of significance to arbitration practitioners since many of the same issues surrounding voluntary and mandatory access may apply to arbitration as well.

Courts in multiple jurisdictions face the challenge of reconciling procedural and substantive justice in designing court mediation programs. How such programs provide opportunities for party directed reconciliation on the one hand, while ensuring access to formal legal channels, remains an area of continued inquiry. In some jurisdictions, mandated programs require initial attempts at mediation, while in others, voluntary programs encourage party-selected participation. Recent research by Shahla Ali has explored comparative empirical findings examining the impact of judicial mediation structure (mandated or voluntary) on perceptions of justice, efficiency and confidence in courts in ten jurisdictions. It does so by investigating whether, and if so how, variation in civil mediation policy as one factor, affects variation in judicial efficiency, confidence in courts, and perceptions of justice. Given the highly contextual nature of court mediation programs, the study highlights achievements, challenges and lessons learned in the implementation of mediation programs for general civil claims.

The principal finding of the research indicates that overall, while both voluntary and mandatory mediation programs demonstrate unique programmatic strengths and are associated with positive gains in the advancement of civil justice quality, the selection of program design involves some trade-offs. For example, sampled voluntary mediation programs are associated with a higher proportion of longitudinal advancement over a five year time period in levels of efficiency, with a slightly higher proportion of advancement in terms of confidence and perceptions of justice within sampled civil justice systems. At the same time, from the perspective of the 83 court mediation practitioners surveyed, practitioners report slightly higher levels of confidence in mandatory mediation programs, higher perceptions of efficiency with respect to voluntary programs, and regard voluntary and mandatory mediation programs with relatively equal perceptions of fairness. Program achievements largely depend on the functioning of the civil litigation system, the qualities and skill of the mediators, safeguards against bias, participant education, and cultural and institutional support.

More information on the study can be found here.

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References   [ + ]

1. ↑ See Fiss, O., 1979. The Forms of Justice. Faculty Scholarship Series. Paper 1220; Fiss, O., 1984. Against Settlement. Yale Law Journal, 93(6), pp.1073-1090. 2. ↑ See Fuller, L.L., 1978. Forms and Limits of Adjudication. Harvard Law Review, 92(2), pp.353-409. 3. ↑ Ibid. 4. ↑ L.L. Fuller, Mediation Its Forms and Functions, 44 S. CAL L. REV 308 (1970). 5. ↑ Id. at 310-312. 6. ↑ Id. at 318. 7. ↑ See: Amy J. Cohen, Revisiting Against Settlement: Some Reflections on Dispute Resolution and Public Values (August 21, 2011), Fordham Law Review, Vol. 78, p. 101 (2009). 8. ↑ See: Steffek, F., et al. (2014). Regulating Dispute Resolution: ADR and Access to Justice at the Crossroads (Oxford, U.K.: Hart 2013); Schonewille & Schonewille. (2014). Variegated Use of Mediation: A Comparative Study of Mediation Regulation and Practices in Europe and the World. (The Hague: Eleven International Publishing, 2014); Stienstra, D., Willging, T. E., & Federal Judicial Center. (1995). Alternatives to litigation: Do they have a place in the federal district courts?. Washington, D.C. (One Columbus Circle, N.E., Washington 20002-8003: Federal Judicial Center); Wissler, R. L. (1995) Mediation and adjudication in the small claims court: the effects of process and case characteristics. Law and Society Review 29, 323-358; Menkel-Meadow, C. (2013). Regulation of Dispute Resolution in the United States of America: From the Formal to the Informal to the ‘Semi-formal’ in Regulating Dispute Resolution: ADR and Access To Justice at The Crossroads (Felix Steffek, Hannes Unberath, Hazel Genn, Reinhard Greger & Carrie Menkel-Meadow, eds., Oxford, U.K.: Hart 2013); Stipanowich, Thomas, The International Evolution of Mediation: A Call for Dialogue and Deliberation (2015). 46 Victoria University of Wellington Law Review 1191 (2015); Strong, S.I., Realizing Rationality: An Empirical Assessment of International Commercial Mediation (February 24, 2016). Washington and Lee Law Review, 2016 (Forthcoming); Genn et al. Twisting Arms: Court Referred and Court Linked Mediation Under Judicial Pressure (Ministry of Justice Research Series, 2007); De Palo, G., and Harley, P. (2005). Mediation in Italy: Exploring the Contradictions 21 Negotiation Journal 469.; Macfarlane, J. (2004) Experiences of Collaborative Law: Preliminary Results from the Collaborative Lawyering. Research Project Journal of Dispute Resolution, 2004: 179-228.; Farrow, T. C. W. (2002) Negotiation, Mediation, Globalization Protests and Police: Rights Processes; Wrong System, Issues, Parties and Time. Queen’s Law Journal, 28: 665; Lisa Blomgren Amsler (formerly Bingham), Janet K Martinez and Stephanie E. Smith, Christina Merchant, The State of Dispute System Design (November 12, 2015). Conflict Resolution Quarterly, 33: S7-S26; Andrea Kupfer Schneider, Foreword: The Future of Court ADR: Mediation and Beyond (February 24, 2012), Marquette Law Review, Vol. 95, No. 3, Spring 2012; Tania Sourdin and Archie Zariski, The Multi-Tasking Judge: Introduction to Comparative Judicial Dispute Resolution, (Australia, Thomson Reuters, 2013); Dorcas Quek Anderson and Joel Lee, The Global Pound Conference: A Conversation on the Future of Dispute Resolution (September 20, 2016), Asian Journal on Mediation 70 [2016]. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Reputation Arbitration: Building a Decentralized Reputation System for Arbitrators?

Wed, 2018-07-25 17:29

Mauricio Duarte

Under arbitration, the parties submit their disputes to an arbitral tribunal (or sole arbitrator) who rules on pre-hearing disputes, conducts the arbitration, and issues a binding award on the parties.  However, the desirability of arbitration as a dispute-resolution mechanism rests largely on the perception of the reputation of the arbitrators. On the one hand, the arbitrator has a reputational concern, in the sense that he/she wishes to appear competent, independent, and impartial to the parties. The reputational concern could stem from a desire to boost his/her prestige, his/her revenue, or his/her experience.  On the other hand, clients value arbitration when an independent, impartial, and correct decision is made.  Now, could a blockchain based reputation system be implemented for arbitration?

Importance of Reputation

Reputation is the result of all your previous interactions with another person in a specific context. For example, if one has a history of calmly talking about contemporary trends in the field of Mergers and Acquisitions (M&A) with a professional colleague, both can be reasonably confident that any future trends that come up will be discussed calmly. A negative interaction might signal that he or she is not the right person to discuss contemporary trends the M&A context. The same goes for arbitration. If an arbitrator has a bad history (or reputation) in any past or pending cases involving a party, the arbitrator is unlikely to be appointed for a future dispute.

Some arbitral institutions have been creative enough to develop mechanisms to select and monitor their recommended arbitrators, to reduce problems of reputation and bias. For example, the parties may consult, eliminate, and rank names from list of arbitrators held by arbitration institutions. For example, with the “list and appointment” service provided by the American Arbitration Association (AAA), if the parties are unable to agree on an arbitrator, each party ranks the arbitrators in order of preference. The AAA invites the highest–ranked mutually agreeable candidate and simplifies conflicts check. In the event and arbitrator declines, the AAA invites the next highest-ranked candidate. Similarly, the Permanent Court of Arbitration (PCA) uses a “list-procedure”. The PCA communicates to each of the parties an identical list containing at least three names for a potential arbitrator. Each party may return the list after having deleted the name or names to which it objects and number the remaining names on the list in the order of its preference.

However, in practice, we observe that many clients are unable to choose an arbitrator, given the lack of information. The confidential nature of the proceedings and of the arbitral awards has precluded, to some extent, the market from monitoring arbitrators’ decisions and competence. As a result, we have seen the rise of an exceptionally creative platform called Arbitrator Intelligence (AI). AI has provided a platform to collect and store reliable feedback about arbitrators through their AIQ initiative. Consequently, it has been proven that technology could solve, to some extent, reputational problems in arbitration.

With limited technology, people in our past created centralized entities as intermediaries to help solve reputation related problems. For example, let’s consider the way eBay works. Most people will not  buy from a seller with a few or bad reviews, or, in some cases, without a ranking of near 100%. As a result, a seller account with a long and positive history acquires significant value. AirBnB and Uber provide another good example, in which you are likely to feel safe to interact if the host or driver has a good rating (or reputation). The same could happen with arbitration using an enhanced form of technology.

Decentralized Reputation System

Blockchain technology is more than just a trustless foundation in which transactions are transparently shared and stored. Using distributed-ledger technology to establish and maintain reputation, could mean that reputation is not susceptible to forgery, collusion of individuals, or ownership by a centralized entity.

Reputation management across distributed systems is one of the most important protocol developments supporting blockchain applications. Some of the current developments store reputation events, such as ratings or personal reputation, using blockchain technology. Civil, SOURCE, and Codementor are some of the few uprising blockchain based reputation systems.

In arbitration, with blockchain technology, parties could agree to voluntarily share their experience with a given arbitrator. This would mean that both parties would have to agree whether to share a positive or negative review on the competency of the arbitrator. If both parties do not agree to submit a review, the losing party does not have the right to unilaterally give a review on the competency of the arbitrator. The software protocol, powered by a system of public-private key encryption and digital signatures, would create a mechanism in which both parties must agree beforehand. By creating this “pre-consensus” mechanism, malicious and dishonest reviews could be avoided. With this system in place, parties to an arbitration would police themselves. That is the essence of a peer-to-peer network.

It is possible that the losing party will not agree to submit a good review on the arbitrators. Furthermore, is possible that the losing party would like to submit a misleading or false review. Nonetheless, this “fear” should not preclude good arbitrators from receiving an honest and fair review. In case the parties do not agree on a given review, there could be another alternative. Parties could submit their comments and reviews to the institution that administered the arbitration. Subsequently, the institution could make the “final determination” into which review should be submitted in the system. While this would mean going back to some form of centralized mechanism, this is a viable complementary alternative in arbitration.

Effect of a Decentralized Reputation System in Arbitration

Maybe is not conceivable to create a completely decentralized reputational system for arbitrators. However, even by partially using blockchain technology, the parties could give immutable, public, and contextual information about arbitrators. Also, since reputation exists on a distributed ledger, it can follow the arbitrator from location to location.

Blockchain based reputational systems could help arbitration in two ways. First, competent arbitrators could have international exposure outside their small circle of colleagues. Furthermore, competent arbitrators could have more possibilities to serve as arbitrators in other markets. In other words, blockchain could get rid of the asymmetry of information in the market for arbitrators. Prosperity for arbitrators could come by interacting outside of their most trusted circles.

Second, we must protect arbitration from bad actors. Reputational concerns affect the credibility of arbitration. That is why blockchain based reputation is so critical. It gives the parties the ability to agree and provide a reputation score according to their own experience.

Blockchain does not guarantee that the parties will not lie. The “pre-consensual” mechanism, with a complementary alternative, could limit the malice in some losing parties. Furthermore, clients are not compelled to trust the system. Clients might prefer to use AI or other reputational systems laid out by arbitral institutions. Blockchain, however, guarantees that the good reviews could be seen directly by other clients around the world with the same simplicity as googling for information today.

This could sound ridiculous, illogic, and even amusing. But, let’s remember that people who are the most different from you, may have the most unique perspective, and perhaps can offer tools, knowledge, and information you might have never even consider. That idea has been the driving force behind Arbitrator Intelligence (AI).

In the book Reputation Economics, Joshua Klein explains why the rules of the new economy mean that your reputation is worth more than how much money you have. Reputation has become the new value of the digital world and is being used by the new blockchain reputational systems like Civil and SOURCE. The same could happen in arbitration.

A new reputation system based on the blockchain technology could store single dimensional reputation, with the parties leaving either a 1 for a positive experience, or a 0 for a non-satisfactory experience. Unlike most previous generation reputation systems, where the reputation is controlled by a centralized entity, this reputation system is client controlled. In a peer-to-peer network environment, every peer would have access to that information without necessarily revealing confidential information of the arbitral proceedings.

Conclusion

As with any network there are some limitations in the deployment and use of this system.  While I have proposed a system that solves a limited number of issues with current reputational systems, is not immune to the malice that might be exercised by some parties. However, this system could expand the horizons for arbitrators. Blockchain is just in the early years of development, and there are still many avenues of research left to pursue in this area. This is just the foundation of the idea and there is a lot more research to be conducted in the future to ensure that this system can replace other reputational systems.

Right now, technology is no longer a luxury; it is increasingly becoming a necessity that will have a transformative effect on the practice of law. Technology, so far, is not replacing lawyers but it is contributing to the demise of the traditional legal culture, replacing it with a competitive, customer-aligned, accessible, and cost-effective tradition. If we embrace it, technology can become a collaborative tool that enables arbitrators to expand to an enormous pool of new clients and to better serve existing ones.

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Information about Arbitrators – An Empirical Assessment

Tue, 2018-07-24 17:30

Stavros Brekoulakis and Adrian Hodiș

On 9 May 2018, the School of International Arbitration at Queen Mary University of London, in partnership with White & Case LLP, launched the 2018 Queen Mary/White & Case International Arbitration Survey: The Evolution of International Arbitration. As its title suggests, the survey sought to assess user perceptions of the evolution of key issues in international arbitration, both by looking at recent developments but also by challenging respondents to predict what the future of international arbitration might hold in store. The findings of the survey draw from an unprecedented pool of 922 questionnaire responses and 142 interviews.

One of the key topics addressed by the 2018 Survey is information about arbitrators. While based on the report of the Survey, this post aims to explore in a slightly greater depth the following four sub-topics mainly by resorting to the data collected during the Survey’s research phase.

  • Most used sources of information about arbitrators

Many people in the arbitration community would argue that the arbitrator selection process is probably the most important stage in an arbitration. What is one of the key features of arbitration—the parties’ ability to participate in the arbitrator selection process, that is—thus turns into a significant responsibility for arbitration users and their external and in-house counsel. It was only natural, therefore, that we asked our respondents about the sources of information they call on when faced with the task of shortlisting and appointing their sole arbitrator or, more frequently, their respective co-arbitrators. Respondents were provided with a list of six options [“word of mouth”, “from internal colleagues”, “publicly available information (e.g., industry reviews, legal directories and other databases or review tools)”, “arbitrator’s own online profile”, “from external counsel”, “arbitral institutions”, “other”] but were also free to add other sources.

The four most selected sources of information about arbitrators were: “word of mouth” (77%), “from internal colleagues” (68%), “publicly available information (e.g., industry reviews, legal directories and other databases or review tools)” (63%), and “arbitrator’s own online profile” (55%). The top source of information in this ranking is reflective of the considerable competitive edge that some users and their counsel enjoy by being part of a network of sophisticated peers. Understandably, the quest for arbitrators is sensibly less of a challenge when one is able to collect all the necessary information about this or that arbitrator by simply making a few phone calls. In fact, as some interviewees have confirmed, in many instances the research on potential arbitrator candidates is done by merely making use of the internal resources of the organization, whether it be a global law firm or a large multinational corporation. Indeed, several of the legal professionals that have been interviewed during the research for the Survey mentioned that, being mindful of this practice, their respective law firms are working on devising real databases with various types of data on the arbitrators that the firm interacted with. Needless to say, however, all this information would mostly be used for internal purposes only as the current perception among sophisticated counsel is that access to such data still constitutes a competitive advantage.

The in-house counsel subgroup reflected a markedly different outcome: 80% of respondents fitting this profile, listed “from external counsel” as their primary source of information about arbitrators. This heavy reliance of in-house counsel on the information and advice of external counsel is largely consistent with a similar finding of our 2010 Survey (p. 27).

It should not come as a surprise, then, that the second most selected source of information was “from internal colleagues”. While this result is likely to reflect the rather high number of private practitioners amongst respondents,1)Nearly half of respondents declared that their primary role is “private practitioner” and that the primary industry in which their organization operates is “legal”. jQuery("#footnote_plugin_tooltip_2052_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2052_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); it also shows the considerable advantage enjoyed by practitioners who, by virtue of their position in large international law firms, have access to a sophisticated professional network in which intelligence on arbitrators is easily within their reach.

Arguably, there is a stark substantive contrast between these first two most popular sources of information and the following two, namely “publicly available information” and the “arbitrator’s own online profile”. What separates the two categories is, of course, public availability: while the two most popular sources suggest the idea of a closed network, inaccessible to users outside of it, the third and fourth sources are by definition made available to the public at large. The significant popularity of the two “public” resources may well serve to explain what has come to be known in the arbitration community as the informational asymmetry.´2)See, e.g., C. A. Rogers, A Window into the Soul of International Arbitration: Arbitrators Selection, Transparency and Stakeholder Interests, 46 Victoria U. Wellington L. Rev. 1179 (2015). jQuery("#footnote_plugin_tooltip_2052_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2052_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Indeed, there appears to be a troubling gap between, on the one hand, users and practitioners with easy access to arbitrator intelligence through their own internal or external network of peers and, on the other, less well-placed users and counsel who for various reasons are not in the position to make use of such readily available avenues. Understandably, then, those who fall into the latter category turn to publicly available resources for information about arbitrators. Indeed, both respondents and interviewees have commended the existence of public databases containing information on arbitrators (the ones that stood out were GAR’s Arbitrator Research Tool and Arbitrator Intelligence).

  • Level of access to information about arbitrators

There seems to be a general consensus in the arbitration community about the fact that users are in need for more—or, rather, for more easily accessible—information about arbitrators. What is more, this perceived lack of information seems to be on a lot of people’s minds as almost every other arbitration-related conference features a panel on the topic. As more than nine out of ten respondents to the Survey indicated that international arbitration continues to be the preferred method of resolving cross-border disputes (p. 5, Chart 1), the practice of arbitration is expected to reach new heights in the foreseeable future. It would follow that the need for more proficient arbitrators will increase accordingly. In this likely scenario, the first signs of which are already manifest, access to relevant and reliable information about arbitrators becomes as important as ever. With this in mind, we asked respondents whether they were satisfied with their level of access to enough information to make an informed choice about the appointment of arbitrators.

It may come as a surprise to some that nearly three quarters of the total respondent pool (70%) responded in the affirmative (p. 21, Chart 20). Admittedly, it is likely that this high percentage is partly a reflection of the large number of private practitioners who participated in this study. That said, when results were broken down by respondents’ primary role, some interesting variations surfaced. The full-time arbitrators’ subgroup, for instance, reflected an even higher level of satisfaction: more than 80% of the subgroup indicated that they have enough information about their fellow arbitrators. Most notably, however, in the in-house counsel subgroup just over half of in-house counsel (57%) declared themselves satisfied with the level of information on arbitrators they have access to. This figure is particularly important in this analysis as in-house counsel, together with the companies they represent, are the end users and the central players of arbitral proceedings. It further reflects that information about arbitrators among arbitration users is scant and the need for more transparency in this regard has become obvious.

  • What other information do users want?

Having established that there is certainly a perceived need among users of arbitration for more information about arbitrators, the survey sought to determine what kind of data would respondents like to have, or would like to have more of. Hundreds of respondents provided various answers to this enquiry but ultimately four recurrent themes emerged. It is perhaps noteworthy that all of these themes are in effect centered on the current and past professional engagements of the arbitrators.

By far the most sought-after pieces of information are prior decisions and awards rendered by arbitrators. Their relevance, respondents argue, is twofold. On the one hand, prior awards seem to be a window into the arbitrators’ stance on various substantive issues. In order to make an informed choice, users want to have a clear picture of the arbitrators’ prior experience in various industry sectors and to learn more about their views on this or that legal issue. As for the merits of a case, respondents were keen to know whether arbitrators have a predisposition to follow the strict letter of the law and its established understanding or, on the contrary, have shown openness to novel interpretations of the applicable statutes. On the other hand, and slightly more importantly, respondents found previous awards and decisions to be highly relevant for the information they contain on the arbitrators’ procedural skills and preferences. Here, case management skills and the level of involvement during proceedings were often cited.

Respondents also showed interest in data that would indicate how busy the arbitrators are. To that end, users would appreciate any information that would reflect the number of ongoing engagements, including the number of cases in which the arbitrator is presiding.

However, no realistic proposals were advanced for how to address this issue effectively. Instead, a large part of the respondent pool cited arbitral institutions as the best placed stakeholders to take charge of the task. However, as several respondents and interviewees pointed out, this seemingly popular suggestion is not entirely feasible as a series of practical concerns would render its success doubtful (who would incur the significant additional costs? would institutions really have the qualified manpower to take on such a task? in niche industries with a scarcity of players, would parties really consent to publication of awards even in a heavily redacted version? etc.). Some are in fact convinced that this could be achieved only through a concerted effort made by everyone involved in the arbitral process.

  • Assessing the arbitrators

The Survey set out to evaluate whether respondents would like to have the opportunity to provide an assessment of the arbitrators at the end of proceedings. The most popular answer speaks for itself: eight out of ten respondents indicated that they would. Some variations were noticeable in the subgroups based on primary role, however. While only 65% of full-time arbitrators stated that they would like to be able to provide feedback on their peers’ performance, 90% of in-house counsel said that they would welcome the opportunity to provide an evaluation of arbitrators at the end of a dispute. The latter figure further reinforces the findings of the 2010 Survey which reported that three out of four corporations expressed the same view (p. 28, Chart 23).

On several occasions, the findings of the 2018 Survey underscore the key role played by arbitral institutions. By way of example, no less than 80% of respondents believe that it is the institutions that are best placed to influence the future evolution of international arbitration. These findings, however, must be read in light of the nuances provided by respondents and interviewees alike. Probably the most important qualification is that very few desired improvements can be achieved by arbitral centers alone and ensuring equal access to reliable information about arbitrators is surely not an exception.

 

 

References   [ + ]

1. ↑ Nearly half of respondents declared that their primary role is “private practitioner” and that the primary industry in which their organization operates is “legal”. 2. ↑ See, e.g., C. A. Rogers, A Window into the Soul of International Arbitration: Arbitrators Selection, Transparency and Stakeholder Interests, 46 Victoria U. Wellington L. Rev. 1179 (2015). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Human Rights and Environmental Disputes in International Arbitration

Mon, 2018-07-23 23:24

Crina Baltag (Acting Editor)

Based on the panel discussion moderated at the 30th Annual ITA Workshop and Annual Meeting, with panelists Lorraine de Germiny, Robert Landicho, and Laura Sinisterra.1) This post is a summary of the first panel discussion of the Young ITA Roundtable, 30th Annual ITA Workshop and Annual Meeting: Multiple Proceedings, Multiple Parties, and International Arbitration: What a Tangled Web We Weave, 20-22 June 2018, Dallas, Texas, USA, moderated by Dr. Crina Baltag (University of Bedfordshire, Young ITA Thought Leadership Chair); and with panelists Lorraine de Germiny (LALIVE); Robert Landicho (Vinson & Elkins LLP, Young ITA Communications Chair); and Laura Sinisterra (Debevoise & Plimpton LLP, Young ITA Mentorship Program Chair). The views expressed in this article are those of the author alone. jQuery("#footnote_plugin_tooltip_6752_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6752_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

While there are more than 3,000 international investment agreements (IIAs), the majority of them fail to provide guidance as to how issues of human rights and environmental protection should be addressed in the context of investment protection and promotion. Correspondingly, arbitral tribunals faced with claims touching upon these issues (or even directly being called to address these issues), are generally reluctant to open the Investor-State Dispute Settlement (ISDS) door to these matters.

In light of the many initiatives attempting to tackle issues of legitimacy and efficiency of the ISDS system,2) See, (i) the new generation of IIAs, in particular the FTAs signed by the EU, but also the new models of BITs; (ii) the amendment process of the ICSID Arbitration Rules; (iii) the mandate of the UNCITRAL Working Group III (Investor-State Dispute Settlement Reform) in assessing the concerns with the ISDS system and in finding possible solutions to address them; (iv) initiatives of other institutions and organizations in dealing with particular issues relevant in the context of investment protection and promotion and arbitration, such as the drafting of a set of Business and Human Rights Arbitration Rules, the establishment of an International Court for the Environment, and even a UN Treaty on Business and Human Rights. jQuery("#footnote_plugin_tooltip_6752_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6752_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); one challenge that might be addressed is the lack of a proper mechanism to address human rights and environmental claims and counterclaims. Such claims might be dealt with by arbitral tribunals on a presumption of reciprocity “host State ↔ investor.” In fact, some commentaries argue that an efficient ISDS system can only exist if participants are granted both rights and obligations, and, in any case, such rights should be accompanied by proper remedies—including redress for human rights and environmental claims.3) Jose Daniel Amado, Jackson Shaw Kern and Martin Doe Rodrigues, Arbitrating the Conduct of International Investors, Cambridge University Press 2018, p. 5. jQuery("#footnote_plugin_tooltip_6752_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6752_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As it stands now, arbitral tribunals rarely address human rights or environmental issues, given in particular the jurisdictional and applicable law challenges that arise. These can touch upon issues of the scope of jurisdiction of arbitral tribunals, content of protected rights and even the accountability of investors, the adequate forum, and the participation of third parties in the proceedings.

This post shall discuss briefly how the existing ISDS framework addresses issues of human rights and the environment, before turning to possible solutions to current concerns. As a threshold matter, this post first discusses issues of jurisdiction and applicable law.

 

Jurisdiction and Applicable Law – How do issues of human rights and environmental law come into play in investment disputes?

No doubt, arbitral tribunals called to discuss issues of human rights and environmental law can do so only if they have jurisdiction to hear claims related to these rights and if the law applicable to the merits covers these matters.

First, in order for an investor or State to raise a claim or counterclaim pertaining to an environmental or human rights issue, the tribunal must have jurisdiction to hear such claims. There are a variety of dispute resolution provisions in IIAs, some offering broader jurisdiction than others, for example, from limiting jurisdiction to the quantum of compensation for expropriation, to jurisdiction over all disputes concerning investments. The more broadly worded the jurisdictional clause, the easier it will be for the claimant to bring in arbitration claims related to environmental and human rights issues.

For example, in Biloune v. Ghana, the contract provided for arbitration of “[a]ny dispute between the foreign investor and the Government in respect of an approved enterprise.” The tribunal found that it lacked jurisdiction over claims of arbitrary detention of the Syrian investor by state security forces because the words “in respect of” meant its competence was limited to so-called “commercial disputes” arising under the investment contract.4) Biloune and Marine Drive Complex Ltd. v. Ghana Investments Centre and the Government of Ghana (UNCITRAL), Award on Jurisdiction and Liability of 27 October 1989, 95 ILR 184, 202. jQuery("#footnote_plugin_tooltip_6752_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6752_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Similarly, the dispute resolution clause must be broad enough to include counterclaims, reflecting the consent of the parties. At least one investment tribunal has found that a human rights-based counterclaim brought by a respondent State had met the specified requirements, including those of Article 46 of the ICSID Convention providing for the condition that the counterclaim arises directly out of the subject-matter of the dispute. Specifically, in Urbaser v. Argentina, Argentina filed a $190 million counterclaim, alleging that the investors had violated their obligations in relation to the human right of access to water. Although the tribunal ultimately rejected the counterclaim on the merits, it deemed the BIT to be worded broadly enough to afford jurisdiction over the counterclaim, and deemed the factual connection between the claim and the counterclaim to be “manifest” since they were based on the same investment and involved claimants’ compliance with the concession commitments at issue.5) Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award of 8 December 2016, paras 1217 et seq. jQuery("#footnote_plugin_tooltip_6752_5").tooltip({ tip: "#footnote_plugin_tooltip_text_6752_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Second, after surmounting the jurisdictional hurdle, the party raising an environmental or human rights issue must identify a substantive norm, standard of protection, or other obligation falling within the law applicable to the dispute.

In investment arbitration, tribunals generally have broad discretion to determine the applicable law. For instance, Article 42(1) of the ICSID Convention provides that, in the absence of party agreement on the applicable law, the tribunal “shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.”

Many BITs also contain a list of sources of law for the tribunal to apply, including the BIT itself, the domestic law of the host state, and “principles of international law,” or a similar phrase. Often, the question boils down to whether “principles of international law” encompass the human rights and environmental norms at issue.

It appears that there is no consensus on this issue. Some scholars have suggested that human rights are part of the applicable law, as they are a “component of international law.”6) Clara Reiner & Christoph Schreuer, Human Rights and International Investment Arbitration, in HUMAN RIGHTS IN INTERNATIONAL INVESTMENT LAW AND ARBITRATION (Dupuy et al. eds. 2009) 82, 84–85 (for BITs containing composite choice of law clauses including international law, “human rights, as a component of international law, are part of the applicable law.”). jQuery("#footnote_plugin_tooltip_6752_6").tooltip({ tip: "#footnote_plugin_tooltip_text_6752_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Urbaser v. Argentina tribunal acknowledged but ultimately did not answer this question.7) Urbaser v. Argentina, para. 1204: “Beyond these sources of law, it remains to be examined, in light of the openly framed provision of Article 31 § 3(c) of the Vienna Convention, whether other parts of international law may be relevant in the instant case. This leads to the question whether the human right to water and sanitation as part of the general notion of human rights is pertinent in the instant case….” jQuery("#footnote_plugin_tooltip_6752_7").tooltip({ tip: "#footnote_plugin_tooltip_text_6752_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Other tribunals have rejected this view, narrowing the reference to “international law” only to international law relevant to the BIT. For instance, third parties applied to make amicus curiae submissions in Von Pezold v. Zimbabwe regarding the application of indigenous rights, which they argued were applicable by virtue of the Germany-Zimbabwe BIT’s reference to “international law.” The tribunal found that the “rules of general international law as may be applicable does not incorporate the entire universe of international law such as international human rights law on indigenous peoples—only the international law relevant to the BIT, such as international law standards for “fair and equitable treatment.8) Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Procedural Order No. 2 of 26 June 2012, paras 39, 57. jQuery("#footnote_plugin_tooltip_6752_8").tooltip({ tip: "#footnote_plugin_tooltip_text_6752_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });


Three Categories of Cases

There are three distinct categories of cases in which arbitral tribunals have dealt with issues of human rights and environmental protection:

a. Investor-State Decisions where Claimant invoked human rights principles. International investment law and international human rights law, having the same historical roots, may touch on issues of procedural and substantive due process, and investor-State tribunals have made reference, by analogy, to human rights norms and binding obligations set forth in the International Covenant on Civil and Political Rights (ICCPR) or other conventions. Substantive due process violations have been addressed through the “fair and equitable” (FET) and/or the “full protection and security” standards. In particular, in applying the legitimate expectations test, a State’s binding human rights obligations, as set forth in relevant treaties that have been incorporated into municipal law or otherwise have effect, have been deemed relevant in shaping both positive and negative expectations of investors. In Al Warraq v. Indonesia, the tribunal held that “the Claimant did not receive fair and equitable treatment as enshrined in the ICCPR for the above reasons….”9) Hesham T. M. Al Warraq v. Republic of Indonesia, UNCITRAL, Final Award of 15 December 2016, para. 621. jQuery("#footnote_plugin_tooltip_6752_9").tooltip({ tip: "#footnote_plugin_tooltip_text_6752_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

b. Investor-State Decisions where Respondent State invoked an investor’s alleged non-compliance with environmental law/human rights law, making claims for compensation inadmissible, or subject to reduction under “contributory fault” principles. To justify actions taken against an investor, a state may rely on an investor’s alleged non-compliance with local or international human rights or environmental laws. In S.D. Myers v. Canada, Canada relied on the alleged non-compliance of investor with local environmental laws. In Aven v. Costa Rica, Costa Rica raised the defense that investors did not follow local environmental laws, justifying measures taken against investors or, alternatively, giving rise to a defense of “unclean hands.” Similarly, in Cooper Mesa Mining v. Ecuador, the Tribunal took into account that the claimant had resorted to recruiting and using armed men to use force against civilians and held that the claimant’s contribution to its own injury was at least 30%.

c. Inter-State or Commercial Arbitrations where human rights principles/environmental law is part of the subject-matter of the dispute. The types of cases in the third category, dealing with commercial and inter-state arbitration where the subject matter of the dispute involves human rights or environmental law issues, are wide-ranging. For example, the Iron Rhine Arbitration (Belgium v. Netherlands) involved activation of the Iron Rhine railway, and the entitlement of the Netherlands to insist on Dutch laws pertaining to environmental impact studies. The tribunal held that the environmental impact studies required under Dutch law were applicable to the reactivation of the Iron Rhine, so long as it did not amount to a denial of Belgium’s right of transit or rendered the exercise by Belgium of its right of transit unreasonably difficult. Likewise, environmental issues often form the subject matter of the dispute in commercial cases: in the cases between Romania and Energy Group OMV (Austria) (ICC), OMV claimed that the Romanian government failed to reimburse expenses for decontamination of historically polluted locations, which had been privatized, given that the environmental clean-up was provided for in the parties’ contract.

Finally, considering the immediate solutions available for addressing concerns related to the protection of human rights and environment within the ISDS system, two suggestions can be put forward: (1) amending the language of IIAs to better address human rights and environmental issues, and (2) developing a binding international legal framework through which corporate conduct in violation of human rights or environmental law might be taken into account. These two suggestions are discussed below.

 

The New Generation of IIAs

The new IIAs entered into force or recently signed, as well as the proposed drafts, appear to take a positive approach towards addressing human rights and environmental issues. These new IIAs acknowledge at least an obligation on investors to make and maintain their investments in accordance with the host State laws and regulations, and that, although recognizing the importance of foreign investments, host States should not relax their labour, public health, safety or environmental measures only to attract such investments.10) Iran-Slovakia BIT, 2017, arts. 2 and 10. jQuery("#footnote_plugin_tooltip_6752_10").tooltip({ tip: "#footnote_plugin_tooltip_text_6752_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Other IIAs, such as the new draft of the Dutch Model BIT, contain more incisive provisions, such as allowing arbitral tribunals, when deciding on the amount of compensation, to take into account “non-compliance by the investor with its commitments under the UN Guiding Principles on Businesses and Human Rights, and the OECD Guidelines for Multinational Enterprises.”11) Draft Dutch Model BIT, art. 23. jQuery("#footnote_plugin_tooltip_6752_11").tooltip({ tip: "#footnote_plugin_tooltip_text_6752_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); States, as main stakeholders of the ISDS system and of investment law can adopt suitable approaches when negotiating or renegotiating their IIAs and address their direct concerns about the protection of human rights and the environment within their territory or concerning their nationals.

 

Binding Corporate Social Responsibility?

Corporations have become, alongside states, actors in the field of public international law. While most human rights treaties impose obligations upon States, not non-State actors, like corporations, the latter are often guilty of or, at least, complicit in human rights abuses, including violations of environmental law. A 2006 UN interim report regarding corporate violations of human rights noted that human rights abuses take place mostly in low-income countries, with weak governance and a low rule of law index (and high rates of corruption), with most allegations of the worst corporate abuses occurring in the extractive sector.

As mentioned, while States have a duty under international law to protect human rights, corporations arguably have a reciprocal responsibility to respect those rights. This view goes hand in hand with the recognition that States are no longer the sole actors or participants in the field of public international law. The responsibility of corporations to protect human rights results from/may be found in various guidelines of corporate social responsibility, including the 31 “Guiding Principles” prepared by the UN Special Representative in 2011 on “Business and Human Rights.” There are also various codes of conduct, including the UN Global Compact, the 2011 OECD Guidelines for Multinational Enterprises, and industry-specific codes of conduct such as “The Voluntary Principles on Security and Human Rights” for the extractive sector. Although commendable, these initiatives represent soft law and corporations are not bound to follow them.

Nevertheless, as mentioned, the notion that corporations have a responsibility to protect human rights is also increasingly found in IIAs. For instance, the 2017 intra-Mercosur agreement provides that investors have a “best efforts” obligation to respect the human rights of the people involved in investment activities. Other IIAs concluded in 2016-2017 reflect a trend towards generally affirming the importance of respecting human rights, including the right to a clean environment. For example, the 2017 amendment to the Canada-Chile investment chapter in their FTA provides that:

“The Parties reaffirm their commitment to internationally recognized standards, guidelines and principles of corporate social responsibility that have been endorsed or are supported by the Parties, including the OECD Guidelines for Multinational Enterprises, and each Party should encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate these standards, guidelines and principles into their business practices and internal policies. These standards, guidelines and principles address issues such as labour, environment, gender equality, human rights, community relations, and anti-corruption.”

As explained above, where a corporation appears before an investment arbitral tribunal to vindicate its rights, the lawfulness of its conduct may be tested against its responsibility to protect human rights. Violations of human rights by corporations could be deemed contrary to international law and/or international public policy and thus deprive the tribunal of jurisdiction and/or render the claims inadmissible. In Phoenix Action v. Czech Republic, the tribunal held that “[t]he purpose of the international mechanism of protection of investment through ICSID arbitration cannot be to protect investments made in violation of the laws of the host State or investments not made in good faith, obtained for example through misrepresentations, concealments or corruption… In other words, the purpose of international protection is to protect legal and bona fide investments… In the Tribunal’s view, States cannot be deemed to offer access to the ICSID dispute settlement to investments made in violation of their laws…”

The UN is currently contemplating a binding treaty on Business and Human Rights and it appears that it has secured the support of the EU. In the 2018 Annual Report on the implementation of the common commercial policy, the European Parliament highlights the expected engagement of the EU Member States in the deliberations within the UN regarding this proposed Treaty.12) EU Parliament, Annual Report on the implementation of the common commercial policy, 30 May 2018, para. 16. jQuery("#footnote_plugin_tooltip_6752_12").tooltip({ tip: "#footnote_plugin_tooltip_text_6752_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

***

Young ITA is pleased to launch the annual Young ITA Writing Competition and Award “New Voices in International Arbitration”, as a unique opportunity for young professionals to contribute actively to the research of international arbitration The Competition is open to practitioners and students who are members of Young ITA. The papers must be submitted via email to [email protected] under subject line “Young ITA Competition” by on or before January 2, 2019. For more information, please visit the webpage of Young ITA where you can find more information. Alternatively, please feel free to send an email to the Young ITA Thought Leadership Chair, Dr Crina Baltag, at [email protected]. The Competition is organized with the support of Wolters Kluwer.

***

References   [ + ]

1. ↑ This post is a summary of the first panel discussion of the Young ITA Roundtable, 30th Annual ITA Workshop and Annual Meeting: Multiple Proceedings, Multiple Parties, and International Arbitration: What a Tangled Web We Weave, 20-22 June 2018, Dallas, Texas, USA, moderated by Dr. Crina Baltag (University of Bedfordshire, Young ITA Thought Leadership Chair); and with panelists Lorraine de Germiny (LALIVE); Robert Landicho (Vinson & Elkins LLP, Young ITA Communications Chair); and Laura Sinisterra (Debevoise & Plimpton LLP, Young ITA Mentorship Program Chair). The views expressed in this article are those of the author alone. 2. ↑ See, (i) the new generation of IIAs, in particular the FTAs signed by the EU, but also the new models of BITs; (ii) the amendment process of the ICSID Arbitration Rules; (iii) the mandate of the UNCITRAL Working Group III (Investor-State Dispute Settlement Reform) in assessing the concerns with the ISDS system and in finding possible solutions to address them; (iv) initiatives of other institutions and organizations in dealing with particular issues relevant in the context of investment protection and promotion and arbitration, such as the drafting of a set of Business and Human Rights Arbitration Rules, the establishment of an International Court for the Environment, and even a UN Treaty on Business and Human Rights. 3. ↑ Jose Daniel Amado, Jackson Shaw Kern and Martin Doe Rodrigues, Arbitrating the Conduct of International Investors, Cambridge University Press 2018, p. 5. 4. ↑ Biloune and Marine Drive Complex Ltd. v. Ghana Investments Centre and the Government of Ghana (UNCITRAL), Award on Jurisdiction and Liability of 27 October 1989, 95 ILR 184, 202. 5. ↑ Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, Award of 8 December 2016, paras 1217 et seq. 6. ↑ Clara Reiner & Christoph Schreuer, Human Rights and International Investment Arbitration, in HUMAN RIGHTS IN INTERNATIONAL INVESTMENT LAW AND ARBITRATION (Dupuy et al. eds. 2009) 82, 84–85 (for BITs containing composite choice of law clauses including international law, “human rights, as a component of international law, are part of the applicable law.”). 7. ↑ Urbaser v. Argentina, para. 1204: “Beyond these sources of law, it remains to be examined, in light of the openly framed provision of Article 31 § 3(c) of the Vienna Convention, whether other parts of international law may be relevant in the instant case. This leads to the question whether the human right to water and sanitation as part of the general notion of human rights is pertinent in the instant case….” 8. ↑ Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Procedural Order No. 2 of 26 June 2012, paras 39, 57. 9. ↑ Hesham T. M. Al Warraq v. Republic of Indonesia, UNCITRAL, Final Award of 15 December 2016, para. 621. 10. ↑ Iran-Slovakia BIT, 2017, arts. 2 and 10. 11. ↑ Draft Dutch Model BIT, art. 23. 12. ↑ EU Parliament, Annual Report on the implementation of the common commercial policy, 30 May 2018, para. 16. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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The Choice of Remedies Doctrine – a Jack-In-The-Box?

Mon, 2018-07-23 07:00

Danna Er, Annia Hsu and Lavan Vickneson

Introduction

The case of Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Private) Limited [2018] SGHC 78 (“Rakna Arakshaka“) was a timely opportunity for the Singapore High Court (“SGHC”) to address a lacuna with respect to whether an award debtor who chooses not to raise jurisdictional challenges early in the arbitral proceedings, is later entitled to raise jurisdictional objections as a ground to set aside a final award. The case of Rakna Arakshaka is also food for thought on whether the choice of remedies doctrine in the Model Law, that was advocated by the Singapore Court of Appeal (“SGCA”) in PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others and another appeal [2014] 1 SLR 372 (“PT First Media“) and endorsed in an article by Nicholas Poon (“Nicholas Poon’s article”), is satisfactory for the arbitration landscape in Singapore.

Brief background to PT First Media and Rakna Arakshaka

In PT First Media, Astro sought to enforce an award that it had obtained against Lippo but Lippo resisted enforcement of the award on the basis that the tribunal had joined some parties to the arbitration in excess of its jurisdiction. In response, Astro argued that Lippo cannot raise such jurisdictional objections at the enforcement stage because Lippo failed to raise any jurisdictional objections following the tribunal’s preliminary ruling on its jurisdiction pursuant to Article 16(3) of the Model Law. The SGCA endorsed the choice of remedies doctrine and held that Lippo was not precluded from raising jurisdictional objections to resist enforcement of the award under Article 36 (a passive remedy), notwithstanding its failure to raise such jurisdictional objections at an earlier stage of the arbitration proceedings pursuant to Article 16(3) (an active remedy).

Weight was given to the fact that, although Lippo actively participated in the arbitration proceedings until the end, it expressly reserved its rights in relation to the tribunal’s jurisdiction throughout the arbitration proceedings. The SGCA found that Lippo did not do anything that would amount to a waiver, or would estop Lippo from raising objections to the tribunal’s jurisdiction.

In contrast, in Rakna Arakshaka, Rakna Arakshaka Lanka Ltd (“RALL”) did not participate in most parts of the arbitration proceedings. RALL did not file a response, did not nominate an arbitrator, refused to pay any fees, did not file a statement of defence, raised a jurisdictional challenge by way of a terse letter, absented itself from the preliminary meeting, refused to file any supporting submissions and allowed the arbitration to proceed without participation. The SGHC followed obiter dicta in PT First Media and held that the challenging party is precluded from raising jurisdictional objections in a setting aside application if it failed to raise it earlier under Article 16 as both are active remedies in arbitration.

The SGHC further opined that it would be an abuse of process to allow RALL, who raised a jurisdictional challenge but chose not to participate in the arbitration proceedings, to wait to challenge the tribunal’s jurisdiction in a setting aside application in blatant disregard of Article 16(3) of the Model Law.

Food for thought

Where the tribunal rules that it has jurisdiction as a preliminary question, the party wishing to challenge the tribunal’s jurisdiction has to raise any jurisdictional objections with the supervisory court within thirty days after having received notice of that preliminary ruling pursuant to Article 16(3) of the Model Law. If that party fails to do so, following Rakna Arakshaka, that party would be precluded from subsequently raising jurisdictional objections to set aside the arbitral award under Article 34 of the Model Law. However, that party would still be able to resist enforcement of the award under Article 36 of the Model Law, pursuant to PT First Media.

One would question if the difference between Rakna Arakshaka and PT First Media is artificial. If RALL had chosen to resist enforcement proceedings in Singapore, applying PT First Media, it would have been entitled to do so despite not having raised its jurisdictional objections at an earlier stage under Article 16. Yet, the SGHC held that RALL was not entitled to set aside on jurisdictional grounds where it had failed to raise jurisdictional objections under Article 16. This is in spite of the fact that the grounds for setting aside and resisting enforcement are almost exactly the same under the Model Law, save for the additional ground under Article 36(1)(a)(v) of the Model Law.

One possible way to get around the risk of a respondent resisting enforcement of an arbitral award on the ground of jurisdictional objections is to apply to the Singapore courts under Article 16 to confirm the ruling. Such a decision by the High Court will be non-appealable pursuant to Article 16(3). In this event, if an evasive respondent tries to resist enforcement of an arbitral award in Singapore, the issue of the tribunal’s jurisdiction would be considered to have already been decided in the earlier High Court decision, which should be a sufficient reason to dismiss any resistance against enforcement proceedings on jurisdictional grounds. However, such a mechanism is limited in scope. Where enforcement proceedings are brought in jurisdictions other than Singapore, whether the Singapore Court decision would have effect in foreign jurisdictions would depend on those jurisdictions’ laws on enforcement of foreign judgments. For instance, in India, a foreign judgment which has not been decided on the merits may not be enforced in India pursuant to Section 13 of the Code of Civil Procedure, 1908.

Another possible approach to overcome the risk of a party challenging enforcement of an arbitral award on the ground of jurisdictional objections is to request the tribunal to codify its jurisdictional ruling in an award, and thereafter enforce the same. However, such an approach is, with all due respect, flawed at least in Singapore, because a tribunal’s ruling on jurisdiction is not an award that can be subsequently enforced: see International Research Corp PLC v Lufthansa Systems Asia Pacific Pte Ltd and another [2013] 1 SLR(R) 973. Thus, such an approach is unlikely to work in Singapore.

This then raises the further interesting question of whether the choice of remedies doctrine should be tempered by policy considerations of good faith and efficiency. The outcomes reached in both PT First Media and Rakna Arakshaka are no doubt correct since the conduct of the respondent in PT First Media was less reprehensible than the conduct of the respondent in Rakna Arakshaka. This still leaves open the debate of whether a respondent, whose conduct is truly recalcitrant, will be entitled to keep silent and resist enforcement of an award at a later stage. Since the Singapore courts have recognized the concept of abuse of process, perhaps an overriding policy consideration of preventing an abuse of process could also be recognized in arbitration proceedings, as was alluded to in PT First Media and Rakna Arakshaka. Such a policy consideration is even more important in arbitration, given that it is intended to serve as a cheaper form of alternative dispute resolution mechanism to the courts.

Finally, there is at least one commentary (see Nicholas Poon’s article) that took the view that the “choice of remedies” doctrine is not anti-arbitration. It was reasoned that since the arbitration rules seek to protect award debtors from unjustified awards, a successful challenge to an award is not anti–arbitration because it is a principled application of the arbitration rules and therefore upholds the integrity of the arbitral process. Moreover, even if an award debtor succeeds in resisting enforcement in one jurisdiction, the award remains valid and may still be enforced in another jurisdiction.

However, the lack of certainty, where a recalcitrant respondent refuses to participate in the arbitration proceedings and later raises objections like a jack-in-a-box, may be anti-arbitration. Under the present legal framework, a claimant seeking certainty that it would be able to realize the fruits of its labour has to expend significant time, effort and costs in not just the arbitration, but also court proceedings to obtain curial blessing of the tribunal’s jurisdictional ruling. Instead of getting its bargain of having the private dispute resolved by arbitration, a claimant may end up having to commence proceedings in multiple forums. While it may be extreme to suggest reconsidering the choice of remedies doctrine, it may be timely for the legislature to take a leaf from the position in England under Section 73(2) of the Arbitration Act 1996, which draws no distinction between the ‘active remedy’ of setting aside and the ‘passive remedy’ of resisting enforcement – Section 73(2) indiscriminately precludes a party who could have but did not object to the tribunal’s ruling on its jurisdiction, from later raising objections to the tribunal’s jurisdiction on a ground which was the subject of that ruling.

 

 

 

 

 

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The Fate of Finality Clause in Ethiopia

Sun, 2018-07-22 02:00

Mintewab Afework

The cassation bench of the Supreme Court of Ethiopia, whose decisions have precedential value, in National Motors Corp. v. General Business Development case has ruled that parties’ final intention to be bound by an arbitration award shall be final and may not be subject to review by courts, including the cassation bench. The bench, however, reversed the favourable precedent in the National Mineral Corp. Pvt. Ltd Co. v. Danni Drilling Pvt. Ltd Co. (“National Mineral case”), where the parties have agreed to submit their disputes to arbitration and waived their right of appeal on the final arbitral award. The bench ruled that it still has the power to review the award on fundamental error of law grounds despite parties’ express agreement on the finality of the arbitral award.

 

In the recent arbitral award in the famous case of the government of Ethiopia and Djibouti (represented by the Chemin de Fer Djibouto-Ethiopien (“CDE”)), and Consta Joint Venture (“Consta”) the majority of the tribunal under the Permanent Court of Arbitration awarded Consta in excess of 20 million Euros, rejecting all of CDE’s defenses and counterclaims. The governing law was Ethiopian while arbitration was conducted under the Procedural Rules on Conciliation and Arbitration of Contracts Financed by the European Development Fund (“EDF Rules”). This award was challenged before the cassation bench on the precedent set by the National Mineral case. The bench, on 24 May 2018, ruled that it not only has the jurisdiction to review an EDF arbitral award for fundamental errors of Ethiopian law but also that such errors existed in the case.

 

Experts say that this jurisdictional ruling could be a groundbreaking precedent affecting existing and future EDF cases in many profound ways and hence calls for a further study. This article, however, is based on the previous National Mineral case on which the Consta’s case was based upon.

 

With the sweeping precedence in the National Mineral case, parties are denied of their right to waive appeal. This creates another wide avenue of review of final arbitral awards besides appeal and annulment (set-aside) under the existing Ethiopian laws of arbitration. Such approach is not consistent with the legislative and judicial approach followed by many contemporary jurisdictions that are progressively abandoning judicial review on substantive grounds including on grounds of error of law.

 

Jurisdictions like the United States are moving away from ‘manifest disregard of the law’ as a ground of annulling awards in the Hall Street Associates v. Mattel case. Many other jurisdictions such as France, Switzerland and countries that have modelled their national laws after the UNCITRAL Model law International Commercial Arbitration do not allow appeal on international arbitral awards on the point of law. Only limited numbers of jurisdictions allow appeal on a mistake of law. One such example is the 1996 English Arbitration Act, §69, which provides that, in a limited category of cases, an award may be subject to appellate review by the English courts for substantive errors of law. However, the right is subject to several restrictions and most importantly allows the parties to waive their rights of appeal by agreement. The English Courts, in practice, have taken a very restrictive approach to allow challenges on error of law ground.

 

One cannot deny the merit of judicial review in order to guard against mistakes of law. It is to safeguard against unjust and arbitrary awards and avoid the risk of inconsistent decisions to ensure uniform application of the law. Such argument is in line with the cassation bench’s rationale in the National Mineral case. However, international arbitral practice dictates that this public interest of ensuring consistency and predictability has been significantly weighed down in favor of the need for finality of awards, except in very limited circumstances.

 

Interference in a private agreement is contrary to the fundamental goals of international arbitration as it frustrates parties’ choice of arbitration as a neutral and independent forum with no risk of national bias or political pressure. Allowing parties to agree on a neutral playing field promotes international business transactions, while protracted multi-stage litigation through appeals and retrials discourages such involvement in the state. A national legal framework hampered by excessive court intervention could negatively affect the effort to attract foreign investment and participate in international commerce. The restrained intervention also makes courts more efficient by avoiding unnecessary diversion of judicial resource.

 

As we speak, Ethiopia’s arbitration regime makes final arbitral awards susceptible to review by the cassation bench for error of law. This position has been solidified by the recent cassation bench’s annulment of the PCA’s award.

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Efficient Arbitration – Part 3: Winning an Efficient Arbitration

Sat, 2018-07-21 02:36

Victoria Pernt and Marina Stanisavljevic

Schoenherr

Following up on Efficient Arbitration – Part 2: Launching an Efficient Arbitration, where we addressed efficiency tools available at the early stages, we now provide an overview of options to save time and costs up until the award. As we continue our efficiency series, we will zone in on a selection of efficiency tools and discuss our experience using them.

5. Focusing the Evidence

Gathering and presenting the right evidence is key.

This often requires close cooperation between counsel and the parties who have the best access to documentation and fact witnesses. Where documentation is kept by the opposing party, agreeing on a document production phase might be advisable. However, document production should be a focused exercise. To avoid fishing expeditions, discovery requests are best addressed at the CMC. This permits the tribunal to direct the parties to the evidence required to determine the case.

Expert witnesses play an important role. They should be carefully selected and thoroughly briefed. While in-house experts might be cheaper, parties should be mindful of their potential (at least perceived) partiality (IBA Compendium of Arbitration Practice 2017).

Preparing fact and expert witnesses for the hearing is a costly exercise; in particular, if mock hearings are held for counsel and the witnesses. However, witness and expert testimonies are valuable. The costs of preparing the witnesses will often prove worth it.

Other relevant tools may include expert conferencing, electronic filings (see also Leon Kopecký’s A Case for Paperless Arbitration), splitting exhibits into “core” and “supplementary” categories (i.e. exhibits likely and unlikely to be referred to at the hearing), and pleading the applicable law rather than relying on legal experts.

6. Streamlining the Hearing

Hearing practicalities have the potential to save (or waste) significant resources. Efficiency considerations will include: selection of venue, adoption of a tight hearing schedule (chess-clock process), decisions on which witnesses to call (and cross-examine), agreement on paperless hearings (see also Leon Kopecký’s A Case for Paperless Arbitration), and the use of video conferencing (ICC Guide on Effective Management of Arbitration).

Transcript services should also be borne in mind. Less complex, low value disputes may not justify the expense of live daily transcripts. Similarly, consecutive interpretation may be more accurate, but will certainly prolong the duration of the hearing (ICC Guide on Effective Management of Arbitration).

Finally, where issues have been fully covered in submissions, counsel should consider whether opening statements are really necessary, and if so, whether they could at least focus only on the key issues. Naturally, this will depend on the tribunal’s familiarity with the submissions and supporting documentation.

7. Post-Hearing

Post-hearing briefs are popular among parties who wish to seize this last opportunity to (re-)present their case. In reality, however, the time to present evidence has passed. This limits the benefit of post-hearing submissions. At the same time, these submissions are costly, as preparing them requires a thorough review of the previous submissions, the evidence submitted and the hearing transcripts.

If at all necessary, post-hearing briefs should be limited in scope, length and timing (see ICC Guide on Effective Management of Arbitration). They should be drafted to assist the tribunal, and not restate the parties’ submissions and closing statements.

While parties might be tempted to re-plead their strongest arguments, or to sneak in new ones, the cost/benefit analysis will often speak against post-hearing submissions.

In conclusion…

Designing an efficient arbitration is an important and daunting responsibility. Counsel has to determine in every case and at every stage whether resources are being invested or wasted. While utilizing the right efficiency tools will save time and costs, selecting the wrong ones might jeopardize the party’s chances of success in the arbitration.

The quest for efficiency therefore remains a balancing act. But the goal is not more than just saving: it is achieving the best possible outcome with the least amount of resources. After all, there is one thing that is more important than saving.

Winning.

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New Model BIT proposed by Ecuador: Is the Cure Worse than the Disease?

Fri, 2018-07-20 05:44

Javier Jaramillo

Like a chronicle of a death foretold, the  systematic denunciation by Ecuador of the Bilateral Investment Treaties (“BITs”) signed with various states formally began in 2009.  Although, the origin of the complaints goes back to 2008, when the current Constitution of the Republic of Ecuador was enacted and specifically forbid the execution of any international treaty in which the Ecuadorian State “surrendered jurisdiction to international arbitration entities”.

In 2010, Ecuador approved the termination of treaties executed with Finland, the United Kingdom and Germany; in 2011, those signed with Sweden and France, and in 2017, the remaining 12 BITs in force with Argentina, Bolivia, Canada, Chile, China, Spain, USA, Italy, Netherlands, Peru, Switzerland and Venezuela.

On this basis, in 2013, former President Rafael Correa created the Commission for Sovereignty, Integration, International Relations and Security of the National Assembly (“CAITISA”) in charge of reviewing the provisions of all the BITs executed by Ecuador, which, in its final report, deeply criticized the text of the majority of them. Many of its observations are reflected in the new Model Bilateral Investment Agreement (“BIA”).

This document intends to (non-exhaustively) outline the salient characteristics of the BIA that Ecuador intends to negotiate with other States.

Definition of Investment

Regarding the definition of investment, in principle, the BIA provides for the requirements of the Salini test to establish the existence of an investment in article 3(2). These requirements are: (i) a contribution of money or assets; (ii) a certain duration; (iii) risk; and (iv) a contribution to the host State’s economy. However, the BIA also introduces requirements that must be met in addition to the test. These additional requirements are: (i) respect for human rights obligations; (ii) respect for environmental obligations; and (iii) subjection to national legislation, which is tied to the condition that there are no acts of corruption in order for the investment to exist. Consequently, article 15(5) of the BIA includes the clean hands doctrine to prevent arbitration for investors who commit acts of corruption; something that was adopted in the iconic World Duty Free case.

The same article provides a list (which given its literalness seems to be specific rather than illustrative) of the types of capital deployment that constitute an investment provided they meet the requirements determining its existence. Some examples are: (i) shares and participations in companies; (ii) real property rights; (iii) contractual rights; and (iv) concessions. The same article, at the end of section 2, contains a specific list of activities that are not considered investments under the Treaty. In essence, it excludes activities such as the following: (i) portfolio investments; (ii) intellectual property rights that are not protected by the host State; (iii) commercial contracts for the sale of goods and services; (iv) bank loans; and (v) debt instruments from some contracting states. Any activities that are not considered as investments on the basis of the BIA are excluded from its protection.

Definition of Investor

Article 3 (3) of the BIT prescribes two regimes to define an investor. Firstly, for a natural person, it implements the International Law test of effective nationality; that is, the individual will be a national of the State with which he/she has the closest connection. For an investor with dual nationality, one of these nationalities cannot be of the host State. Secondly, for a legal person, the BIA provides for the theory of effective control. Therefore, only a company with an activity in the issuing State will be considered an investor, provided that it is not controlled by a national of the host State or a third party of another State. In both cases, the investor must have an investment in the host State to be considered as such.

Fair and Equitable Treatment (FET)

FET is one of the most important substantive protections for investors under International Investment Law. This standard is included in article 7 of the BIA. Its definition equates Fair and Equitable Treatment to the minimum standard of international treatment, similar to article 5 in Chapter 11 of the NAFTA. The definition is complemented by the standard of national treatment for foreign investors, stipulated in article 5 of the BIA. The exception to this is in article 6, which refers to the different types of treatment that the host State may accord investors of Small and Medium-sized Enterprises (SMEs). Lastly, article 7 states that investor treatment will be guided by Customary International Law.

Despite the above, and somewhat contradictorily, the BIA limits violations of FET to two specific situations: i) denial of justice, and, ii) discrimination.

Firstly, FET can be violated by denial of justice. The BIA provides for two situations where there is a denial of justice: (i) illegal judicial decision; and (ii) wrongful refusal by the judicial authority to hear the claim. In any case, the investor must exhaust “all national levels of jurisdiction”, in order to be able to file a claim for breach of this standard. In principle, it would seem that this requirement is limited to the scenario where the authority fails to hear the claim; thus excluding the standard of effective means recognized in previous cases against Ecuador.

Secondly, FET is violated in the case of discrimination. The BIA defines it as “an exceptional and singular treatment of the investor”. However, this type of treatment only breaches FET when it is based on “reasons of nationality, sex, race or religion”. Other types of singular treatment, even if illegal, are not protected under the treaty.

Expropriation

The BIA meets the standard of the Chorzow case. Any legitimate expropriation must: (i) be in the public interest; (ii) observe due process; and (iii) provide a just, adequate and prompt compensation.

There are two special circumstances that are regulated by the BIT. Firstly, article 17 provides for the scenarios that must be considered in order to quantify the compensation for the investment, namely: (i) the use of the investment; (ii) pending obligations of the investor; (iii) fault of the investor in the damage caused; and (iv) any type of environmental damage. These situations are above all illustrative. The host State may analyze “any other relevant consideration to achieve an adequate balance between the public interest and the interests of the investment or investor”.

Secondly, article 7 (9) expressly excludes claims for indirect expropriation from the treaty. This would seem to be a response to a historical reason relating to ICSID arbitrations pursued by certain oil companies against Ecuador, which had differing results. For example, in the Burlington case, the Tribunal ruled that there was no indirect expropriation. On the contrary, in the face of similar events, in the Perenco case, the  Tribunal concluded that there was an indirect expropriation. In any case, there is a certain risk in the exclusion, since creeping expropriation cases would be left unprotected, something which occurred in the Yukos case, and there would be no way to file a claim under the BIA.

Dispute Resolution

In accordance with the BIA, arbitration for violation of the treaty is only possible if it is submitted to “arbitration mechanisms in regional proceedings in Latin America” or to arbitration centers of the host State, under the premise that the “place of arbitration is a Latin American country agreed by the Contracting Parties”.

Claims for violation of the treaty seek to protect the investment. In this case, there is a multi-tiered clause that provides for direct negotiation before arbitration.

The claim only begins when the other party is notified of the dispute. The BIA establishes the extinguishment of the right to arbitration if the arbitration claim has not been filed within three years following notice of the dispute. Furthermore, if the claimant has not begun negotiations within 90 days, the claim will be understood to be abandoned and it will not be possible to re-file the claim. Another distinction of the notice of dispute is that the BIA requires the notice of dispute to have the same subjective and objective subject matter as the arbitration claim that is subsequently filed.

On the basis of the experience in the Burlington case, article 21 of the BIT provides standing to the host State of the investment to file counterclaims in arbitration based on violations by the investor of its obligations under the treaty (e.g. human rights, environment, corruption, etc.).

Additionally, in keeping with the inclination towards local legislation concerning public private partnerships and investment promotion, for investor-State claims, article 21 of the BIA requires local administrative proceedings to be exhausted as a prior condition for arbitration. This requirement does not apply to State-State disputes.

Tax matters are expressly excluded from the subject-matter jurisdiction of arbitral tribunals formed under the BIA.

Also, the BIA limits the sanctions that can be imposed by arbitral tribunals on the host States of the investment, stating that such sanctions may only be economic and, under no circumstances, of specific performance.

Lastly, the BIA states that the award is final for State-State disputes, but provides for the possibility of filing (i) a horizontal motion for clarification; (ii) a vertical motion of appeal (pursuant to the method in the BIA); or (iii) an action for annulment of the arbitral award in cases of investor-State disputes. The action for annulment is admissible on specific grounds that concern: (i) violation of due process; (ii) inconsistencies and (iii) lack of jurisdiction of the arbitral tribunal.

***

It is clear then that the new BIA brings significant changes compared to the current BITs in force around the world. Many of the changes seem positive, but many others eliminate protections that are necessary for promoting investment, which could negatively affect its acceptance by other States.

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Interpreting Contracts Under Singapore Law in International Arbitration — The Sequel

Wed, 2018-07-18 21:53

Darius Chan

YSIAC

Article 16(3) of the Model Law provides in relevant part that, “if the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request … the court … to decide the matter”. One question that arises is, to the extent issues of evidence arise, what rules of evidence should the court apply when “decid[ing] the matter”? Does the court apply national rules of evidence, or does the court apply the same rules of evidence, if any, that the tribunal was obliged to apply?

 

This thorny question reared its head recently in a Singapore High Court decision of BQP v BQQ [2018] SGHC 55, which follows an earlier discussion by a different Judge in HSBC Trustee (Singapore) Ltd v Lucky Realty Co Pte Ltd [2015] SGHC 93.1)See also the previous post discussing this decision. jQuery("#footnote_plugin_tooltip_8771_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8771_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Background

 

By way of background, subject to various exceptions and as a general rule under English law, pre-contractual negotiations, such as prior drafts of contracts, are inadmissible to interpret a contract.  At least where Singapore litigation proceedings are concerned, the issue of whether pre-contractual negotiations are admissible in evidence to construe written agreements, and if so, the applicable limits or safeguards (the “admissibility issue”), remains an unsettled question.

 

The Singapore Court of Appeal has held that extrinsic evidence (including pre-contractual negotiations) to interpret a contract is admissible under Singapore law only if it is “relevant, reasonably available to all the contracting parties and relates to a clear or obvious context” (Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] SGCA 27 (hereinafter called the “Zurich criteria”)).

 

Subsequently, the Court of Appeal formulated specific court pleading requirements to ensure that the Zurich criteria are met (Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] SGCA 43), namely:

 

(a) parties who contend that the factual matrix is relevant to the construction of the contract must plead with specificity each fact of the factual matrix that they wish to rely on in support of their construction of the contract;

 

(b) the factual circumstances in which the facts in paragraph (a) above were known to both or all the relevant parties must also be pleaded with sufficient particularity;

 

(c) parties should in their pleadings specify the effect which such facts will have on their contended construction; and

 

(d) the obligation of the parties to disclose evidence would be limited by the extent to which the evidence is relevant to the facts pleaded in paragraphs (a) and (b).

 

In 2015, the Singapore Court of Appeal (eg, Xia Zhengyan v Geng Changqing [2015] SGCA 22 and other cases) sounded the caution that the admissibility issue is still an open question under Singapore law. Reliance on prior drafts of contracts should not be permitted as a matter of course.  At a minimum, the Zurich criteria must still be met.

 

In the 2015 High Court decision of HSBC Trustee (Singapore) Ltd v Lucky Realty Co Pte Ltd [2015] SGHC 93, the Judge opined, by way of dicta, that a dispute over how a contract is to be construed must yield the same final determination whether the contract is construed by a court or in arbitration.  The Judge’s observation did not sit comfortably with Singapore’s Evidence Act, which provides expressly in section 2 that certain parts of the Evidence Act do not apply to “proceedings before an arbitrator”.  The Judge’s observation also does not sit well with institutional rules which typically provide that an arbitral tribunal can determine whether to apply strict rules of evidence to determine the admissibility of evidence.  For instance, the current SIAC Rule 19.2 expressly provides that evidence need not be admissible in law.

 

The Judge’s observation also raises questions concerning whether, and if so how, arbitral tribunals ought to apply the Court’s caution in Xia Zhengyan v Geng Changqing when considering whether to admit or rely on pre-contractual negotiations.  Is extrinsic evidence admissible in international arbitrations where the underlying contract is governed by Singapore law? If an arbitral tribunal finds jurisdiction by construing a contractual provision in a certain manner by relying on prior drafts of the relevant contract, is the tribunal’s decision on jurisdiction susceptible to challenge?  In BQP v BQQ, the Court was confronted with these issues.

 

Facts

 

In BQP v BQQ, the arbitral tribunal, after admitting and relying on evidence of prior drafts and negotiations in construing a certain contractual provision, found that the tribunal enjoyed jurisdiction.

 

The plaintiff applied before the Singapore courts to challenge the tribunal’s jurisdiction ruling under section 10 of Singapore’s International Arbitration Act read with Article 16(3) of the Model Law.  After meticulously analysing the evidence (including extrinsic evidence) that had been adduced before the tribunal, the Singapore High Court agreed with the tribunal’s interpretation, and dismissed the plaintiff’s challenge.

 

The plaintiff applied for leave to appeal, contending inter alia that the issues surrounding admissibility of pre-contractual negotiations were questions of importance or questions of general principle to be decided for the first time. The Court refused, holding that the Singapore Court of Appeal had already decided that rules concerning admissibility of evidence are rules of evidence or procedural law (which generally would not bind arbitral tribunals), and not a matter of substantive law.

 

In essence, the Court held that national rules concerning admissibility of evidence, including the Zurich criteria, are procedural in nature, and do not bind international arbitration tribunals.  The Judge made the following observations:

 

(a) There is a specific provision in Singapore’s Evidence Act that precludes the Act’s applicability to “proceedings before an arbitrator”.

 

(b) Parties resort to international arbitration precisely because they wish to avoid national laws shackling their quest for a speedy, commercial and practical outcome to their dispute, and preclude the application of laws and procedures which may be alien to them.

 

(c) To the extent parties may have agreed to institutional arbitration, many institutional rules give the tribunal broad discretion to decide on the admissibility, relevance, materiality and weight of evidence offered.

 

Discussion

 

The Court in BQP v BQQ had meticulously reviewed the evidence (including extrinsic evidence) adduced before the tribunal before eventually reaching the same interpretation of the relevant contract as the tribunal.  This can be understood as an exercise where the Court was simply applying rules of contractual interpretation (found in the law of contract) against the body of evidence that had already been adduced before the tribunal.

 

Separate from the issue of whether a tribunal was bound to apply national rules concerning admissibility of evidence (which the Court in BQP v BQQ ruled in the negative), it is not evident whether there was any argument questioning whether the Court itself was bound to apply national rules concerning admissibility of evidence in an Article 16(3) application.  Yet, at the same time, the Court in BQP v BQQ (at para 123) stated that the Zurich criteria (which according to the Court was a rule of evidence) had, in fact, been met.  Whilst this may have been a statement made out of prudence, it provokes the vexed question: what if the Zurich criteria had not been met? In those circumstances, would the Court exclude certain extrinsic evidence which had been adduced before the Tribunal?

 

A possible argument would be that it should not matter whether the Zurich criteria had been met — the Court should not revisit a tribunal’s decisions concerning admissibility of evidence because that would effectively frustrate the parties’ expectation (or agreement) that the tribunal has wide discretion to deal with issues of evidence and procedure unfettered by national rules of evidence and procedure.  In the context of an Article 16(3) or Article 34(2)(a) application, whether the Zurich criteria had been met may well be an academic question.  Practically speaking, to the extent the Court disagrees with the tribunal’s reliance on a certain piece of evidence that had already been adduced before the tribunal, the Court can simply assign limited weight to that evidence, rather than revisit a tribunal’s decision on admissibility.

Be that as it may, one can imagine scenarios where national rules of evidence may, in fact, be relevant.

 

Under Singapore law, in applications under Article 16(3) or Article 34(2)(a) of the Model Law, parties are not precluded from advancing new arguments that were not previously advanced before the Tribunal (see, for instance, the dicta in Tan Poh Leng Stanley v Tang Boon Jek Jeffrey [2000] SGHC 260).   It is also the position under Singapore law that parties may adduce new evidence for the purposes of an Article 16(3) application (Government of the Lao People’s Democratic Republic v Sanum Investments Ltd [2015] SGHC 15) or an Article 34(2)(a) application (AQZ v ARA [2015] SGHC 49).  In determining whether new evidence could be adduced, the Singapore High Court in Sanum had applied what the Court called a “modified Ladd v Marshall test” which, in fact, stems from national rules of evidence.

 

Imagine further an Article 16(3) or Article 34(2)(a) application where the applicant seeks to introduce a new argument based on interpreting a contract using new extrinsic evidence (such as prior drafts of contracts).  In this scenario, can an objection based on the Zurich criteria be sustained in relation to the new evidence sought to be adduced?  Perhaps more practically, would the caution in Xia Zhengyan v Geng Changqing (namely, reliance on prior drafts of contracts should not be permitted as a matter of course) apply in this scenario?  A possible argument would be that the Court can decide the issue of admissibility by applying national rules of evidence when there has been no prior decision on admissibility by the tribunal.

 

Given the steady stream of arbitration cases flowing through the Singapore Courts, one might not have to wait long before the Court has to grapple with these issues again.

References   [ + ]

1. ↑ See also the previous post discussing this decision. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Has Acting as Arbitrator Become a Risky Business?

Wed, 2018-07-18 03:00

Nathalie Voser

Schellenberg Wittmer

Comments on the Decision of the Paris Court of Appeal Dated 27 March 20181)CA Paris, Pôle 1, Chambre 1, 27 mars 2018, n°16/09386. jQuery("#footnote_plugin_tooltip_6326_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6326_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Neither the author nor Schellenberg Wittmer was personally involved in any of the cases mentioned in this blog, and all information disclosed is publicly available.

The appellant in the case before the French Court of Appeal, Saad Buzwair Auotomotive and Co., (SBA) is a Qatari car distributor who in 2007 concluded two agreements (one regarding Audi and one regarding Volkswagen vehicles) with Audi Volkswagen Middle East Fze (AVME) limited to the distribution of cars, spare parts and after-sales services for the territory of Qatar.

In February 2013, SBA initiated arbitration under the ICC Rules after AVME informed SBA that it would not renew the two distribution agreements. In an award of March 2016, the three-member Paris-seated tribunal fully rejected SBA’s claim of USD 150 million, holding that AVME was entitled not to renew the distribution agreements. In April 2016, SBA filed a request to set aside the award. Almost two years later, on 27 March 2018, the Paris Court of Appeal granted the request and annulled the award.

The Paris Court was called upon to decide whether a partner of a German law firm appointed by SBA was conflicted. In the five-page “whereas”-decision there were several, also evidentiary, issues at stake. The key findings regarding the issue of conflict are as follows:

  • Based on the 2015/16 edition of a JUVE, a German legal magazine, the Court considered it as established that the co-arbitrator’s law firm represented Porsche, an entity of the Volkswagen group, in a case before German state courts in the years 2014 and/or 2015. Since this representation took place during the arbitration, and because this case was important to the firm, such circumstance could create reasonable doubt as to the co-arbitrator’s independence and impartiality.
  • In addition, the co-arbitrator had not disclosed, when being appointed, that his firm had provided banking law advice to Porsche between June and November 2010. According to the testimony of an in-house counsel of Porsche, this was a one-time occurrence and the fees amounted to EUR 7,520.80.

It is common ground that justifiable doubts as to an arbitrator’s impartiality and independence exist if there is, from the point of view of a reasonable third person, a likelihood that an arbitrator “may be influenced by factors other than the merits of the case as presented by the parties in reaching his or her decision” as expressed in GS 2(c) IBA Guidelines on Conflicts of Interest.

The most striking feature of the decision of the Paris Court is that it does not explain why the co-arbitrator’s assessment of the merits of the case before him could have been influenced by his firm’s representation of Porsche, a representation which was terminated at the time when the award was rendered. The only fact that is mentioned is that Porsche is an entity of the Volkswagen group. The Paris Court obviously assumed that this was per se sufficient to constitute an appearance of a conflict.

According to GS (6)(a) IBA Guidelines “if one of the parties is a member of a group with which the arbitrator’s firm has a relationship, such fact should be considered in each individual case, but shall not necessarily constitute by itself a source of a conflict of interest […].” Furthermore, according to GS 6(b), “If one of the parties is a legal entity, any legal or physical person having a controlling influence on the legal entity, or a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration, may be considered to bear the identity of such party.”

While the IBA Guidelines are obviously not binding, this nevertheless shows the general understanding that an affiliation is not sufficient per se to create a conflict, but rather that additional elements must occur. The IBA working group chose the elements “controlling influence”, “direct economic interest”, or “duty to indemnify”, to identify an affiliate to a party in the arbitration. One can consider this threshold as too high but it shows that as a minimum, there must be a real and actual interest of the affiliate in the outcome of the arbitration.

Other courts have shown what constitutes an adequate analysis in similar situations and have considered when the representation of an affiliate by the law firm of the arbitrator constitutes an appearance of a conflict.

The Swiss Supreme Court addressed the issue at stake in 2013. The so-called “Nespresso-decision”2)DSC 139 III 433 dated 27 August 2013. jQuery("#footnote_plugin_tooltip_6326_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6326_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); was rendered in the context of patent infringement proceedings before the Federal Patent Court between Nestlé and Denner over Nespresso-compatible coffee capsules. The Supreme Court had to decide on the appearance of a conflict of a judge in the following situation: A French sister company of Denner had instructed a partner of the judge’s law firm regarding trademark matters. The Supreme Court rejected a rigid approach to conflicts in a ‘group-of-companies’ situation which would consist in treating all affiliates as one entity. However, the Supreme Court found that the mother company, Migros-Genossenschafts-Bund, had an immediate interest in all its trademarks, including all trademarks held by any of its subsidiaries, and in related disputes. Therefore, Migros-Genossenschafts-Bund itself was to be treated both as a party to the proceedings before the Federal Patent Court and a client of the judge’s law firm. The Supreme Court, therefore, concluded that there was an appearance of bias.

In another 2013 decision, the Southern District of New York Second Circuit3)Ometto v. ASA Bioenergy Holding A.G., 2013 WL 174259 (SDNY), aff’d, 2014 WL 43702 (2d Cir.). jQuery("#footnote_plugin_tooltip_6326_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6326_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); applied § 10(a) of the Federal Arbitration Act providing for setting aside of an award in cases where there was “evident partiality” of an arbitrator. Ometto argued that in three instances the chairperson’s law firm had advised an affiliate of the opposing party. While these mandates were not disputed, Judge Rakoff found no evidence refuting the sworn testimony of the arbitrator that he had no knowledge of the circumstances put forward by Ometto. The mistakes made when recording the conflict could not create evident partiality nor could the deficiency of the law firm’s conflict check system. Therefore, he rejected the request for setting aside.4)Other Circuit courts apply a lower threshold and to date there is no subsequent Second Circuit or Supreme Court decision on “evident partiality” clarifying this issue. The latest Circuit Court decision is Hawaiian Supreme Court decision in Noel Madamba Contr. LLC v. Romero (2015); 133 Haw. 447, 329 P.3d 352, 2014 Haw. App. LEXIS 252 (Haw. Ct. App., May 23, 2014). jQuery("#footnote_plugin_tooltip_6326_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6326_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Swiss Supreme Court discussed the simultaneous representation of an affiliate by the arbitrator’s law firm again in 2016 in the “CMS-Case”.5)See DSC 4A_386/2015 dated 7 September 2016. jQuery("#footnote_plugin_tooltip_6326_5").tooltip({ tip: "#footnote_plugin_tooltip_text_6326_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); An arbitration partner in the Swiss branch of CMS acted as sole arbitrator. Respondent lost over a damage claim and filed a petition to the Supreme Court to vacate the award. It claimed that only then did it discover a press release of CMS Germany revealing that CMS Germany had represented a German company belonging to the same group of companies as the claimant in the arbitration. The Supreme Court analyzed the specific circumstances and held that that the arbitrator’s subjective impartiality could not be doubted since he was undisputedly not aware of the advice provided by CMS Germany to the affiliate of the claimant. Therefore, the arbitrator had no reason to favor the claimant. Regarding the objective impartiality, given that CMS constituted a network of financially independent firms, the link between the arbitrator and claimant’s affiliate was too tenuous to be relevant.

The decision of the Paris Court of Appeal is in stark contrast to these decisions. There is no discussion of any reasons why the previous representation of Porsche by the co-arbitrator’s law firm could have influenced his decision. Considering the territorial and strictly pecuniary aspect of the dispute between SBA and AVME, it seems difficult to see an overreaching interest of the whole Volkswagen group and thus also of Porsche in the arbitration. Furthermore, the assumed representation was apparently over when the award was rendered. Finally, it is unclear whether the Paris Court assumed that the co-arbitrator was aware of the representation and how this impacted its decision.

As to the second leg of the reasoning put forward by the Paris Court of Appeal, the advice in question was given more than two years prior to the co-arbitrator’s appointment. While it should have been disclosed, the relevant question is whether non-disclosure as such justifies setting aside the award. The more convincing and reasonable position is that this is not the case.6)See Explanation (c) to GS (3) IBA Guidelines. jQuery("#footnote_plugin_tooltip_6326_6").tooltip({ tip: "#footnote_plugin_tooltip_text_6326_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Setting aside has too important consequences to warrant using it to reprimand an arbitrator whose lack of disclosure was possibly the consequence of circumstances outside the scope of his or her personal responsibility.

In order to maintain the legitimacy of arbitration, the impartiality and independence of arbitrators is of the highest importance. However, courts have the obligation to explain why there is a real likelihood that an arbitrator might have been influenced by factors other than the merits of the case.

Where courts limit themselves to a cursory analysis, accept very tenuous connections to disqualify arbitrators, or take a non-disclosure as such as a basis for setting aside an award, they open the door to potential liability claims against arbitrators. Then, yes, being an arbitrator has become a very risky business.

References   [ + ]

1. ↑ CA Paris, Pôle 1, Chambre 1, 27 mars 2018, n°16/09386. 2. ↑ DSC 139 III 433 dated 27 August 2013. 3. ↑ Ometto v. ASA Bioenergy Holding A.G., 2013 WL 174259 (SDNY), aff’d, 2014 WL 43702 (2d Cir.). 4. ↑ Other Circuit courts apply a lower threshold and to date there is no subsequent Second Circuit or Supreme Court decision on “evident partiality” clarifying this issue. The latest Circuit Court decision is Hawaiian Supreme Court decision in Noel Madamba Contr. LLC v. Romero (2015); 133 Haw. 447, 329 P.3d 352, 2014 Haw. App. LEXIS 252 (Haw. Ct. App., May 23, 2014). 5. ↑ See DSC 4A_386/2015 dated 7 September 2016. 6. ↑ See Explanation (c) to GS (3) IBA Guidelines. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Judicial Clarification on Anti-suit Injunctions: The Right Approach?

Tue, 2018-07-17 03:50

David Ndolo

On 6 June 2018, Justice Males at English High court in Nori Holdings Ltd v Bank Financial Corp [2018] EWHC 1343 (Comm) (Nori Holdings) provided clarifications on some of the legal issues on anti-suit injunctions.

The facts revolved around an application for an anti-suit injunction to restrain the court proceedings commenced by the defendant (Bank) in Russia and Cyprus, which were alleged to be brought in breach of a London arbitration clause. The application raised the following legal issues in relation to anti-suit injunctions in the arbitration context.

Do Courts Have Jurisdiction to Grant an Anti-Suit Injunction When an Arbitral Tribunal Has Been Constituted?

It is well established under English law that senior courts in England have ‘general power’ to grant anti-suit injunctions in support of arbitration under s.37 of the Seniors Courts Act 1981. However, they exercise this general power cautiously and ‘sensitively’ in the arbitration context ‘with due regard for the scheme and terms’ of the Arbitration Act 1996 (AA 1996) (see Lord Mance, Ust-Kamenogorsk Hydropower Plant [2013] UKSC 35, at 60).

Of interest in Nori Holdings was s.44(5) AA 1996 which states that in any case ‘the court shall act only if or to the extent that the arbitral tribunal … has no power or is unable for the time being to act effectively.’ Accordingly, the defendant argued that, because the arbitral tribunal had already been constituted, the court should allow the arbitrators to decide whether to grant an anti-suit injunction.

Justice Males held that there is ‘no reason why the court should not exercise the jurisdiction to grant anti-suit relief which it undoubtedly has‘ (at 41). To further strengthen his decision, he referred to Lord Mance’s decision in AES Case [2013] UKSC 35 (at 58-60), in which his lordship held that ‘it is inconceivable that the 1996 Act intended or should be treated sub silentio as effectively abrogating the protection enjoyed under s.37.’ It follows, therefore, that a constitution of an arbitral tribunal and the tribunal’s power to issue an anti-suit injunction, was not a valid reason for a court to refuse to grant an anti-suit injunction or grant a limited injunction until arbitrators consider it (Nori Holdings, at 42).

Justice Males’ decision does indicate that the outcome would have been different if the defendant had made a claim for a stay in proceedings under s.9 AA1996 (at 41). However, it was impractical for the defendant to make such a claim because they denied the jurisdiction of the arbitral tribunal and that the foreign proceedings (in Russia) were in breach of the arbitration proceedings.

Is West Tankers Good Law?

In a controversial and extensively analysed West Tankers case [(C-185/07) EU:C:2009:69 (ECJ (Grand Chamber)], the Court of Justice of the European Union (CJEU) held that the anti-suit injunctions of this nature run counter to the principle of mutual trust among the EU member states as required by the Brussels I Regulation (the Regulation). As a result, EU member state courts, including English courts, cannot issue an anti-suit injunction in favour of arbitration where a party commences foreign court proceedings in an EU state. In Nori Holdings case, the defendant argued that under West Tankers the English Court cannot issue an anti-suit injunction to stop the proceedings in Cyprus as both countries are EU Member States.

The claimant sought to rely on the fact that the Regulation was replaced by the Brussels I Recast (the Recast), which expressly removed arbitration from its scope (Recital 12 para.4). Furthermore, the claimant relied on the Advocate General Wathelet (AG) decision in Gazprom [EU:C:2014:2414], where the AG held that;, if West Tankers had been decided under the Recast, anti-suit injunctions in favor of arbitration would not have been held to be incompatible with the Regulation due to the arbitration exception:

‘…also excludes ancillary proceedings, which in my view covers anti-suit injunctions issued by national courts… supporting… the arbitration’ (Opinion of the AG in Gazprom, at 138).

According to the claimant, that stance indicates a departure from West Tankers under the Recast.

However, Justice Males held that ‘the opinion of the Advocate General on this issue was fundamentally flawed’ for, inter alia, several reasons (at 91-98).  First, the CJEU did not adopt the AG’s approach; instead, it reaffirmed the decision in West Tankers and emphasized the importance of the mutual trust principle among the national courts of the EU Member States. Second, the Recast replaced the Regulation with the aim to explain how the Regulation should be interpreted. As a result, it did not bring any change in the law. Indeed, in Gazprom, the CJEU affirmed such reasoning by reaffirming the interpretation in West Tankers. Third, the approach of the AG to treat the arbitration exception to mean excluding any proceedings in which the validity of an arbitration agreement was contested is a ‘far too sweeping’ and incorrect. Instead, the exception states that such a ruling should not be subject to the rules of recognition and enforcement listed in Chapter III of the Recast. Fourth, the AG’s approach incorrectly envisaged the court proceedings related to anti-suit injunctions as valid under the Recast if the court first seized issued the anti-suit injunction. The Court held such an interpretation as incorrect given that it (a) creates legal uncertainty and unpredictability, and (b) leads to jurisdictional conflicts as to which court was in fact seized first, both of which are contrary to the fundamental principles of the Recast.  Following this, Justice Males held that ‘there is nothing in (the Recast) to cast doubt on the continuing validity of the (CJEU) decision in West Tankers case’ (at 99).  As a result, the English court could not grant an anti-suit injunction to stop the proceedings in Cyprus.

The Nori Holdings decision reaffirms West Tankers as good law and in doing so clears up most of the confusion that had been brought up by the AG opinion in the Gazprom case in relation to the arbitration exception in the Recast. The CJEU’s strong decisions against the issuance of anti-suit injunctions in the arbitration context within EU Member State courts in West Tankers and Gazprom, coupled with the importance and effect they have had does indicate that if there was to be a change in practice it would come directly from a clear CJEU decision.

Is the Fragmentation of Proceedings a Strong Reason Not to Issue an Anti-Suit Injunction?

English courts usually exercise their power to grant anti-suit injunctions in favor of arbitration, unless there are strong reasons not to do so (see in Donohue v Armco Inc (Donohue) [2002] 1 Lloyd’s Rep 425, (at 24)). In Nori Holdings, the defendant argued that there are strong reasons not to issue an anti-suit injunction to stop the foreign proceedings. Specifically, in the interest of justice, it would be necessary to allow the whole dispute to be decided in a single forum that is the Russian court as some of the claimants did not agree to the London arbitration.

However, Justice Males held that if the anti-suit injunction is issued, it would not be possible to submit the whole dispute to a single forum as some of the claimants had agreed to arbitration in London (at 113). Importantly, this case was distinguished from the Donohue, where the court refused to grant an anti-suit injunction to allow, inter alia, the whole dispute to be decided by a single forum. Nori Holdings was materially different as such a result was not possible. Moreover, Nori Holdings also adds to precedence that the fragmentation of proceedings by itself, especially where a single forum for the dispute resolution cannot be achieved either way ‘is not a strong reason not to grant an anti-suit injunction’ (at 113).

Conclusion

Unsurprisingly, the English courts continue to protect their power to grant anti-suit injunctions, in this instance, it remains unfettered even where an arbitral tribunal is constituted. Pragmatically, if there is fragmentation of proceedings, in the interest of justice these courts will exercise that power depending on whether it is possible to submit the whole dispute to a single forum. With regards to issuing anti-suit injunction between EU Member state courts, despite the controversy that the AG’s opinion raised in Gazprom, the English courts still firmly apply the CJEU’s approach in West Takers. But what is yet to be seen is whether the English courts will still favor this approach post-Brexit.

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Arbitration, Jurisdiction and Culture: Apropos the Rules of Prague

Sun, 2018-07-15 17:07

Paula Costa e Silva

On the occasion of the German-Portuguese International Arbitration Symposium  experienced practitioners in international arbitration described what is going on in their national systems and, to some extent, what is going on in the world.

Following Duarte’s introduction and as announced in this conference’s program, Klaus Peter Berger, in his brilliant keynote speech on Civil vs Common Law in International Arbitration – The Beginning or the End? gave a complete and exhaustive overview of the possible impact of the Rules of Prague. On this same blog, Guilherme Rizzo Amaral, a Colleague from Brazil, when comparing the IBA and the Prague Rules, states: “The Prague Rules and the IBA Rules are examples of soft law.” Borrowing the expression from Bryan H. DRUZIN, Why does Soft Law have any Power Anyway?, Asian Journal of International Law, vol. 7/no. 2, (2017), pp. 362-363, Guilherme goes on saying that, in order to succeed, soft law needs to bridge gaps, not burn bridges. Its strength rests upon its network effects: the more agents rely upon the soft law, the more it acquires power.

Aware of these facts, I have chosen to address some topics I brought together under the title Arbitration, Jurisdiction and Culture.

First, arbitration must observe the fundamental principles of jurisdiction, under the clause of the principle of due process of law: the right to be heard and the right to a fair trial. Without diminishing the relevance of international civil procedure, arbitration was beyond reasonable doubt the longa manus of international trade, the instrument that enabled the rational allocation of financial resources, notably in countries where State courts are said to be ineffective and/or partial. The civil procedure was, by its nature, so straightly attached to the concept of sovereignty (let us remind the dominance, in Europe and for centuries, of the canon law procedure) that it was of little use in resolving the conflicts involving huge corporations that traded in foreign markets.

Secondly, having observed and studied for 30 years the evolution of arbitration, mainly international arbitration, civil procedure in Europe (the publication of the CPR, the constant amendment of the regulations on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters as the political and economic Europe became larger in its frontiers)  arbitration became the cosmopolis for justice in a substantial way.

If there is an institute where the differences between legal traditions are substantial, it is the institute of liability; here one cannot even find a unique civil law tradition, opposed to a common law one. And what can be noted in arbitral awards deciding on damage, imputation, causation and causation tests, liability? If I’m not mistaken and despite the tribunals refer to the applicable law, considered as a fact, as is typical in civil law systems (art. 7 RofP), tort law, here taken in a broad sense, becomes a sort of supranational liability law. With the advantages and risks such an approach bears in itself. And when we look at the proceedings, the phenomenon is even more striking: proceedings are all very much alike, no matter where the arbitrators come from. Arbitration is the cosmopolis for Justice, English became its mother tongue and its terms the new legal Esperanto; Arbitration is the new level playing field for jurisdiction.

Recently, I was asked to gather the experience of the world’s key arbitrators from different legal cultures on some of the most sensitive IBA Rules on the taking of evidence, my findings where that: the interviewed practitioners gave me almost the same answers whatever their legal background was.

Thirdly, arbitration is culture. As a species of adjudication, arbitration must comply with the clause of due process, I cannot forget that this clause is the result of a cultural evolution and the reflex of a given cultural subsystem. As we all know, even nowadays the due process clause does not have common contents; and for that we politely never refer to the unspoken dissensus under an imaginary consensus when invoking this clause. Furthermore, we cannot forget that the rights to be heard and to a fair trial are superseded in legal cultures where the access to the reality doesn’t depend on the confrontation of the parties’ versions on the facts, but from revelation. And although, as Taruffo explained in his so interesting paper Cultura e Processo, I couldn’t say what the word culture accurately means, one thing can be taken for granted: the evolution of a culture, here understood as the set of philosophical, political and moral beliefs and ideas existant in a society. As Max Planck once said, a new idea will not impose itself by virtue of its correctness but when the generation who defended the one that is being overruled dies.

But what  is the relevance of this bunch of reflections?

Let me go back to the beginning: the Rules of Prague in its relation to the IBA Rules. When considered per se, the Prague Rules on the taking of evidence it is easy to understand them and to accept the main political option underlying: the way powers and burdens are allocated to the parties and the decision maker is exactly the same than in certain civil procedure systems. And let me unravel one of the most gnawing misunderstandings. When those, stemming from the civil procedure, speak about the similarities between adjudication by an arbitrator and adjudication by a state court, they are not talking about certain provisions of a specific civil procedure code. The argument is much more complex than that; what is being referred to, is the legal theory on adjudication construed after the analyses of the legal system considered.

Why are the Prague Rules familiar to me? Simply because they have different rules that underline the powers of the arbitrators. First, in Article 2, the proactive nature of the role of the tribunal. In addition, Article 3, launches a bridge to the Untersuchungsmaxime, one of the most relevant instrumental principles characterizing an adjudication system. Article 7, unties the tribunal from the Dispositionsmaxime in what concerns the law, a maxime that is applied in such an awkward manner in international arbitration that I have caught myself thinking lately whether or not the arbitrators, while deciding a case, should feel themselves bound to the excerpts of the legal authorities submitted to them, considering they are barred from reading the whole book or other books!

In this digression we will get to a hot topic in international arbitration: the statute of foreign law in connection to the principle iura novit arbiter. The Rules of Prague explicitly affirm its validity. But one cannot forget that the foreign law, the one that is applicable to the merits by neutral arbitrators (wherefore third parties to legal system they will have to apply), must be proven by the parties. Let us underline this topic again: in international arbitration, the applicable law isn’t international law; the applicable law is typically national law to, at least, one of the parties and foreign law at least to the president, if not to the majority or all the arbitrators.

Under the Rules of Prague, the arbitrator, as the judge, explicitly plays the game; he is not a simple onlooker. Can we really say that the arbitrator is a simple onlooker when playing the game by the IBA Rules? I think we cannot draw this conclusion solely from the text of the rules. However, one thing can be said: the IBA Rules on the taking of evidence seem more agnostic than the Prague Rules. The Prague Rules are fitted to conflicts involving adjudicators from, at least, similar civil law systems that have to apply substantive civil law. The IBA Rules on the taking of evidence, just one piece of the puzzle that is adjudication, will probably be considered more adequate if the conflict involves different legal traditions.

In his paper, which I have already mentioned, Guilherme Amaral has a critical approach to what he considers a climate of confrontation between different legal cultures that the IBA Rules tried successfully to supersede. At this level, his words are harsh and one can understand his reasons: as the IBA Rules are agnostic, one could have considered introducing any changes considered necessary thereto instead of creating a new set of them. This was not the choice of the group who proposed the Rules of Prague: in their initial version they were presented as Inquisitorial Rules on the taking of evidence. The opposition to the so said Adversarial Rules on the taking of evidence is explicit; the opposition between legal traditions is emphasized.

From a methodological point of view, I suppose the Prague Rules must be evaluated from the angle of the rules themselves, of their ability to solve problems in the best way one can idealize; the political statements or intentions that justify or determine their enactment must be placed in second. Law is politics and politics can lead both to war and to peace. So let us never forget that leges silent inter arma. And let us look at the Prague Rules as a set of dispositions on the taking of evidence bearing in mind that they will prove to be intelligent if they prove capacity of adaptation. Their starting point is very clear: they were set up to correct the excessive Americanization of the IBA Rules, the one that I could not trace in the answers I got to the questionnaire. The Prague Rules are the newcomers in arbitration; and they entered the ballroom with noise. Dealing with the new is always defying. Albeit their historical roots, resistance and confrontation will be part of their history. Let them tread their path under the sign of Saint Augustine: ”Patience is the companion of wisdom.”

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The 2018 Hungarian Arbitration Act: Implications of the New Setting Aside Provisions

Sun, 2018-07-15 03:02

Ioana Knoll-Tudor

Jeantet

On 17 May 2018, the Central European University and Jeantet co-organized a conference to discuss the new Hungarian Arbitration Act (the “New Act”), following the first months of its entry into force on 1 January 2018 (the “Conference”). The Conference was held in Budapest and the organizing committee was composed of Csongor Nagy (CEU, University of Szeged), Davor Babic (CEU, University of Zagreb), Markus Petsche (CEU) and Ioana Knoll-Tudor (Jeantet, Budapest & Paris). The debates were divided into four panels in which selected issued raised by the New Act were discussed by speakers practicing in Hungary and in other regional and international jurisdictions.

Closing the debates, a panel composed of Zsolt Okány (CMS, Budapest), Moritz Keller (Freshfields Bruckhaus Deringer, Vienna) and Philippe Cavalieros (Simmons & Simmons, Paris) and moderated by Ioana Knoll-Tudor examined in detail the modifications brought by the New Act in relation to the setting aside proceedings. Three specific novelties of the New Act have been addressed by the panel, namely (1) the suspension and rectification of setting aside proceedings, (2) the effect of setting aside an award on the arbitrators’ fees, and (3) the stay of enforcement of the award during the setting aside proceedings.

1. The Suspension and Rectification of Setting Aside Proceedings

Although based on the UNCITRAL Model Law as amended in 2006, the New Act brought significant changes to the provisions applicable to Hungarian commercial arbitration. It notably introduced the possibility for State courts to suspend setting aside proceedings to give the arbitral tribunal an opportunity to eliminate the grounds for setting aside. Building upon Article 34(4) of the 2006 UNCITRAL Model Law, Section 47(4) of the New Act reads as follows:

“At the justified request of either party, the court may suspend the hearing in the proceedings for the setting aside of the arbitral award, for a maximum of 90 days so that the arbitral tribunal, within the limitations set by Section 46, may re-initiate the arbitral proceedings or undertake any other procedural measures with which, in the opinion of the arbitral tribunal, the cause of invalidity can be eliminated. In this case, the arbitral proceedings terminated by the award shall continue for the purpose and duration determined by the court. The setting aside of the award adopted in the re-initiated arbitral proceedings may be requested by an amendment of the claim or by a counterclaim within 60 days from the receipt of the award.

1.1 The Duration of the Suspension

As discussed by the panel, the duration of the suspension of the setting aside proceedings is not certain. While the court may suspend the proceedings “for a maximum of 90 days“, the arbitral proceedings can also be re-initiated and continue “for the purpose and duration determined by the court“. It is, therefore, not clear whether the court may extend the suspension beyond 90 days. According to one panelist, the duration of the suspension is flexible since the purpose and duration of the suspension are determined by the court. For another, however, 90 days should be mandatory since the purpose of the suspension is precisely to offer to the arbitral tribunal a possibility for a short and effective review of the award. If the ground for setting aside was lack of due process, would 90 days be sufficient to address such a question (especially in a large arbitration)? Should the court fix the time limit, or should this be left to the agreement of the parties? From an arbitrator’s perspective, there is a logistical issue: while arbitral institutions such as the ICC require prospective arbitrators to provide their availabilities for the two years following their appointment, under the New Act, the unplanned commitment of an arbitrator would be requested for a period of 90 days in order to render a fully-fledged decision. As noted by one panelist, this situation is similar to that of an emergency arbitrator, except that the arbitrator may not be alone, in case of a three-member panel.

1.2 The Mission of the Arbitral Tribunal

Section 47(4) of the New Act also suggests that judges may interfere with the mission of the arbitral tribunal. No further clarification is given as to how exactly State courts should remit the challenged award to the arbitral tribunal. However, judges should refrain from specifying the issues to be reviewed or from indicating their thoughts on the validity of the award, since the arbitral tribunal should decide by referring to the statement of claims in the annulment procedure. Yet, some judges’ attitude could infringe the principle of absence of State court’s intervention in the arbitral process. Moreover, since there is a risk for arbitrators not to be in position to be paid their fees if the award is set aside (as it will be discussed below), if a State court enjoins an arbitral tribunal to carefully review a specific issue, arbitrators would probably feel compelled to comply with such indication in order to secure the enforcement of the award and their full payment.

1.3 Article 34(4) of the 2006 UNCITRAL Model Law in Other Jurisdictions

The purpose of Article 34(4) of the 2006 UNCITRAL Model Law is to offer an opportunity to “save” the award and similar provisions are found in the Netherlands (Article 1065a of the Dutch Code of Civil Procedure) and in Belgium (Article 1717.6 of the 2013 Law on Arbitration). In Germany, courts can remit the award to the arbitral tribunal without suspending the setting aside proceedings: rectification by the tribunal will occur instead of the annulment procedure before the courts. French law does not provide for a suspension of setting aside proceedings. Without going as far as the New Act, French law alleviates the risk of setting aside an award by dismissing as valid grounds for annulment some legal requirements of the arbitral award (e.g., lack of the arbitrator’s name or lack of the date the award was rendered).

2. The Effects of Setting Aside an Award: No Arbitrators’ Fees?

Section 57(2) of the New Act provides that, in the event an award is set aside, the arbitrators will not be entitled to their fees, irrespectively of the reason of the setting aside:

“If the arbitral award is set aside, the arbitral proceedings terminated by the set aside award shall be free from arbitrator’s fees, and the arbitral tribunal that adopted the set aside award shall not be entitled to a fee. In the continued proceedings following the setting aside, the parties shall not be obliged to pay administrative costs.

If some arbitral institutions, such as the ICC, introduced negative incentives for arbitrators if the award is not rendered within the allocated time (e.g., reduction of their fees), Section 57(2) of the New Act is of a different nature. As noted by the panel, this provision sanctions arbitrators for substantive matters over which they bear no control: While a delay in rendering an award may be directly attributable to arbitrators, only a few grounds for setting aside fall within the scope of arbitrators’ influence.

The panel has identified two main consequences of Section 57(2) of the New Act. First, in addition to the reimbursement of its fees, a party could claim it is entitled to the amount granted in the annulled award. By way of illustration, parties under French law often argue the loss of opportunity (perte de chance). In a 2015 decision, a 114 million award was set aside because it was rendered only once the time limit during which the tribunal was supposed to render its award had elapsed. After the setting aside, the parties had agreed to settle but one of them sued the arbitrators for the difference between 114 million and the settlement amount. French courts considered that, by settling, the parties had lost the right to sue for such a difference. Second, the obligation to reimburse the fees will inevitably create tensions among the arbitrators. The possible consequences of not complying with the procedural timetable could affect the serenity of the collegial decision-making process, even leading some arbitrators to withdraw from the tribunal. Through repercussion, more and more liability actions could be initiated by arbitrators against their colleagues. Similarly, the number of dissenting opinions could increase in an attempt for arbitrators to distance themselves from the content of an award that could be successfully set aside, triggering the reimbursement of fees. As a consequence, it could be more and more difficult to appoint arbitrators willing to sit on cases to which the New Act applies.

3. The Stay of the Enforcement of the Award During Setting Aside Proceedings

 While the previous Hungarian Act on Arbitration only referred to the possibility to suspend the enforcement of the award, Section 7(5) of the New Act supplemented this reference by adding a set of conditions that have to be met in order to obtain a stay of enforcement of the award during setting aside proceedings. These conditions are:

(i) the parties’ ability to bear the burden of the award’s enforcement, and

(ii) the likelihood of the party succeeding in the setting aside proceedings.

These conditions are similar to those required for granting an interim measure.

Conclusion

The aim of the Conference was to bring together Hungarian and international practitioners to discuss the possible implications of the New Act from a comparative perspective. Having entered into force only on 1 January 2018, the provisions of the New Act have not yet been tested in practice. Therefore, the international arbitration community will follow closely the evolution of these provisions and their interpretation by Hungarian courts and arbitral tribunals.

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The Future of Investment Arbitration in Europe: AIA Conference, June 2018

Sat, 2018-07-14 03:45

Iuliana Iancu

Also reporting: Chuba Nwokedi (Association for International Arbitration), Mateusz Rys (University of Antwerp), Maryam Salehijam (Ghent University), Anmol Sheth (Association for International Arbitration), Arthur Van Den Bossche (University of Antwerp), Antonia Zydek (University of Strathclyde)

It has long been said that investment treaty arbitration is at crossroads. This is probably most true within the European Union, where a profound recalibration and reform of the system is underway. On 6 March of this year, the Court of Justice of the European Union (the “CJEU”) rendered its judgment in Case C-284/16 Slowakische Republik v. Achmea BV (“Achmea”), finding that arbitration clauses included in international agreements between the Member States providing for investor-State arbitration are incompatible with Articles 267 and 344 of the Treaty on the Functioning of the European Union (“TFEU”). The CJEU is also expected to issue shortly its Opinion 1/17 on a Request for an opinion submitted by the Kingdom of Belgium pursuant to Article 218(11) TFEU regarding the compatibility of Chapter Eight (“Investments”), Section F (“Resolution of investment disputes between investors and states”) of the Comprehensive Economic and Trade Agreement between Canada and the European Union (“CETA”) with the EU Treaties and fundamental rights. Adding more complexity to the debate, the United Kingdom is soon to withdraw from the European Union, which raises fundamental questions regarding the implications for the United Kingdom’s bilateral investment treaties (“BITs”) and, particularly, the Energy Charter Treaty (“ECT”).

These issues were explored on 1 June 2018 in Brussels by arbitration and public international law specialists during the aptly-titled conference “The Future of Investment Arbitration in Europe”, organized by the Association for International Arbitration (AIA).

The first panel of the conference discussed the possible fate of intra-EU BITs after the Achmea judgment and canvassed the options available to investors for the enforcement of their rights. Moderated by Prof. Nikos Lavranos, the panel included Dr. Anna Plevri (University of Nicosia), Dr. Richard Happ (Luther Hamburg), Andras Nemescsoi (DLA Piper Budapest) and Johan Billiet (Billiet & Co. Brussels). The first question that was addressed was the scope of the Achmea judgment and whether it was limited to the Netherlands-Slovakia BIT or it was applicable to other intra-EU investment treaties as well. A consensus appeared to emerge on the panel and in the audience that the CJEU’s findings will ultimately affect all arbitrations under intra-EU BITs, including ICSID arbitrations. However, some panelists considered that the ECT, as an international agreement to which the European Union itself is a party, remained at this stage outside the scope of application of Achmea. It was agreed that the Achmea judgment will prevent new cases from being filed on the basis of intra-EU BITs, but may also affect ongoing cases where either no award has been issued or where the State may still apply for the annulment or revision of an award upholding jurisdiction. It was added that, despite the limitations of the judgment, it is not certain that the CJEU will not in the future find fault with the substantive protections included in BITs or even with commercial arbitration. Looking at the options available to investors for the protection of their rights, the panelists explored whether domestic courts could be a forum for their claims. It emerged that no uniform answer to this question exists, as the courts of some Member States may be prevented from hearing such claims on account of the dualist nature of their legal systems. Mediation was explored as a possibility, with the caveat that in the absence of an enforceable dispute resolution mechanism, the incentive to use this tool may be considerably diminished. Other available options that were discussed included the conclusion of investment contracts, parliamentary lobbying and the restructuring of investments.

The second panel explored the degree to which the international arbitration landscape has changed due to greater gender, cultural and legal diversity. Moderated by Diego Brian Gosis (GST LLP Miami), the panel included Prof. Verónica Sandler (Austral University), Grant Hanessian (Baker McKenzie New York), Dr. Alejandro López-Ortiz (Mayer Brown Paris) and Saadia Bhatty (Gide Loyrette Nouel London). The panel looked into how women are represented in various types of disputes and made the provocative suggestion that gender should be used as a tool in making appointments to arbitral tribunals, in a way that is not too dissimilar to jury selection in the United States. The panel also explored the degree to which perceived cultural differences or stereotypes play a role in the appointment of arbitrators. It was agreed that, as best practices of the arbitration community are being developed, the differences in approaches between common lawyers and civil lawyers in arbitration have diminished. Where they appear to persist is with regard to evidence. For instance, in answer to the perceived common-law bias of the IBA Rules on the Taking of Evidence in International Arbitration, a draft of the Inquisitorial Rules on the Taking of Evidence in International Arbitration (or the “Prague Rules”) has recently been published. The panel discussed whether and how the Prague Rules could mark the beginning of a dialogue to recalibrate arbitration so that it can better reflect the needs of all its users.

The third panel, moderated by Dr. Todd Weiler and including Dr. Martins Paparinskis (UCL Faculty of Laws), Prof. Dr. Eric De Brabandere (Leiden University), Louise Woods (Vinson & Elkins London) and Robert Volterra (Volterra Fietta), looked into whether the proposed investment court model included in the CETA is compatible with European Union law and whether it could provide a useful template for investor-State dispute resolution. No consensus emerged between the members of the panel or in the audience regarding the compatibility of the proposed court with European Union law. In one view, in Achmea, the CJEU intentionally omitted to analyze a number of points so as to retain sufficient flexibility that would later allow it to find the investment court in the CETA compatible with the European Union treaties. In another, it is questionable whether the envisaged investment court could be considered a “court or tribunal of a Member State” so that it could be found compatible with the European Union treaties in light of Achmea. The panel also examined whether the proposed investment court answered the objections raised against the current investment arbitration system. Some members of the panel considered that the latter’s alleged pro-investor bias had no support in the statistics and debated whether creating a system where only States were in control of appointments was a solution to this perceived problem. The panelists considered that the perceived inconsistency between different awards was to some extent justified by the different wording employed in the multiple investment treaties that were applicable. Finally, there was some disagreement among the panelists about the review of awards under the CETA on the grounds of manifest errors of fact or law, some panelists strongly suggesting that it would result in a de novo review of the entire case and could not work towards the stated goal of improving cost and efficiency of these proceedings; others being less persuaded.

The fourth panel was moderated by Graham Coop (Volterra Fietta) and included Gordon Nardell QC (20 Essex Street), Kathleen Paisley (Ambos Law), Bernhard Maier (Squire Patton Boggs London) and Frederic Yeterian (Philax International (UK) Ltd). The panel concentrated on the effects on the ECT of the United Kingdom’s withdrawal from the European Union. A common thread during the discussions was that, at the moment, there is considerable uncertainty in the energy markets as a result of not knowing the terms of the withdrawal. The panelists were of the view that, until there is clarity on the United Kingdom’s position with regard to the treaties it benefits from, its relationship with the ECT is unlikely to change. The panel debated whether Achmea could apply in intra-EU ECT arbitrations and noted that presently there is uncertainty surrounding this point. In one view, the principles set out by the CJEU in Achmea are equally apposite in the ECT context, which could result in situations where the treaty is interpreted differently, depending on the parties to a dispute. The panelists also debated whether investors could file claims under the ECT as a result of Brexit, for instance by arguing the breach of their legitimate expectations due to changes in the regulatory framework. It was mentioned that the answer to this question depends on whether a tribunal would consider that Article 50 of the Treaty on the European Union acts as a bar to a claim based on legitimate expectations. Finally, the panelists looked into whether claims arising before Brexit based on intra-EU BITs or the ECT could nonetheless be asserted post-withdrawal, when the Achmea judgment could be seen as no longer applicable. There was some support for this view, provided that the European Union and the United Kingdom did not agree otherwise in the withdrawal agreement.

The closing address was given by Iuliana Iancu (Hanotiau & van den Berg Brussels), who summarized the day’s remarks and invited the audience to reflect on whether what some perceive as the gradual reduction in investment protection throughout the European Union will have an effect on foreign direct investment volumes.

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Efficient Arbitration – Part 2: Launching an Efficient Arbitration

Fri, 2018-07-13 02:56

Victoria Pernt and Marina Stanisavljevic

Schoenherr

Kicking off our series on efficiency in arbitration, our first article, Efficient Arbitration – Part 1: Metrics sets out our idea of an efficient arbitration:

Achieving the best possible outcome with the least amount of resources.

A balancing act.

A range of tools are available to focus the spending of resources. Resources should be invested, not wasted. The selection of the right tools to do so often falls to counsel. It is crucial that counsel is aware of the available tools, stays on top of new efficiency developments, and is experienced in selecting and utilizing the right tools for each case.

This article is the first of a two-part overview of efficiency tools, focusing on those available at the early stages of the proceedings. The second part will address efficiency in presenting evidence and at the hearing and post-hearing stages.

As our series continues, we will discuss our experience with various efficiency tools.

  1. Preliminary Case Assessment

The course for an efficient arbitration can be set even before the arbitration is initiated.

A preliminary case assessment, involving a detailed review of the documentation and legal analysis, permits the drawing out of real issues and likely outcomes. The advantages of this are evident. To highlight a few:

  • For matters of low value or with little chance of success, mediation or other forms of ADR may be the better means for resolving the dispute.
  • Knowing the real issues informs the decision of whether to pursue joinder or consolidation, so as to avoid the cost of potential multiple proceedings (see “Efficiency at all cost – arbitration and consolidation”); and whether a simplified procedure applies or should be proposed (i.e. expedited or summary procedure).
  • A thorough case assessment may attract stronger third-party funding. De-risking the dispute, third-party funding allows parties to pursue their claim without bearing all the costs and risks.
  • Finally, one of the advantages of arbitration is that the parties are free to design the proceedings to fit their issues and needs. To benefit from that advantage, counsel should be aware of the real issues already at the outset of the arbitration.

Accordingly, early case assessment is an important efficiency tool. If utilized properly, it will save time and money in the long run.

  1. Initiating the Arbitration

Already drafting the first submission to initiate the arbitration, often called the Request for Arbitration (RFA), raises important efficiency questions:

How much detail, and how much evidence, should actually go into the RFA?

This, of course, depends on strategy, and parties should tread on a case-by-case basis.

Generally, a shorter RFA may save time and money, but will require additional information in further submissions. The case may be perceived as weaker if less or no evidence is presented, hampering chances of early settlement. A more detailed RFA, on the other hand, may assist the tribunal in laying out a more tailored procedure. However, the respondent party may seek an extension for filing its equally detailed Answer (and potential counterclaim) (ICC Guide on Effective Management of Arbitration). Moreover, while possibly enhancing chances of early settlement, revealing the “smoking gun” in the RFA gives the other party significantly more time to prepare a rebuttal, which may jeopardize a favourable outcome.

  1. Selecting the Tribunal

Once the arbitration is initiated, the next – and important – task is selecting the right arbitrators. Many considerations are relevant, in particular the arbitrators’ experience, background and preferences.

But personality may also play a role. In our experience, the efficiency of proceedings is greatly enhanced by arbitrators who, for instance, restrain “particularly litigious counsel” tempted to “take advantage of arbitrators who were softer; generously granted exceptions; always sought to achieve a compromise in lieu of simply deciding, and so allowed counsel to disregard set deadlines and procedures with impunity” (see Leon Kopecký and Victoria Pernt’s A Bid for Strong Arbitrators).

When selecting arbitrators, counsel may also seek confirmation as to their availability and commitment not to take on new appointments that may interfere with the efficient conduct of the arbitration.

  1. Designing the Arbitration

The early stages of the proceedings lend themselves to designing the most efficient arbitration for the particular case.

Parties may agree on a fast-track schedule (with fixed deadlines) or page limits for submissions. Should subsequent submissions give rise to new issues, parties may schedule a further procedural conference to modify the proceedings accordingly.

An important tool gaining more and more traction is the effective use of the case management conference (CMC). The CMC aims to engage the tribunal at an early stage. It helps streamline the proceedings and determine and focus the real issues. The benefits are significant: focusing the real issues may simplify the arbitration, or even dispose of it altogether by encouraging early settlement (IBA Compendium of Arbitration Practice 2017).

… to be continued

The above are just some of the tools at the parties’ disposal in the early stages of arbitration. Counsel will have to determine in every case and at every stage whether and which of these tools to implement. That decision will be based on a cost/benefit analysis. A balancing act.

Importantly, no two tools and no two stages should be viewed in isolation. The efficiency tools adopted in the early stages will inform and affect the remainder of the proceedings – a stage we will explore in our next article.

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Kluwer Mediation Blog – June Digest

Thu, 2018-07-12 04:00

Anna Howard

“We believe that it is in the interests of our world as a whole and our own communities in particular that difficult issues are discussed with civility and dignity.”

 

These are the opening words of the Edinburgh Declaration of International Mediators, which was launched at the International Academy of Mediators Conference in Edinburgh in May. Our monthly summary of posts on the Kluwer Mediation Blog includes three posts on this conference and the seminal declaration, together with posts from around the world including from Singapore, Canada, France, Germany and England. You’ll find below a brief summary of each post on the Kluwer Mediation Blog last month.

In “The Edinburgh Declaration of International Mediators, May 2018”, John Sturrock, who chaired and hosted the International Academy of Mediators conference in Edinburgh, shares the Edinburgh Declaration which sets out what international mediators believe in and commit to. Following addresses emphasising the value of principled and interest-based negotiation delivered by world-renowned negotiation expert William Ury and Scotland’s First Minister, Nicola Sturgeon, the declaration was signed at the conference by nearly 100 mediators from around the world. The declaration is available for all to use and share.

In  “Beware Unreasonable Refusal to Mediate”, Rick Weiler considers the recent cost decision of Justice Graeme Mew in the Canadian case of Canfield v Brockville Ontario Speedway. The case provides an instructive review of the principles which the court will consider when weighing the cost consequences to an unsuccessful party of unreasonably refusing to participate in a mediation.

In “Principled Negotiation’s Greatest Hits”, following the International Association of Mediators Conference in Edinburgh, Charlie Woods shares his ‘desert island discs’ selection of some of the greatest hits from the principled negotiation approach as set out in William Ury’s Getting to Yes. These include: giving to gain, separating the people from the problem and getting into their shoes.

In “A Neuro Linguist’s Toolbox – Rapport: Representational Systems (Part 2)“, in the fourth part of a series of posts on the application of neuro-linguistic programming, Joel Lee explains four representational systems: visual, auditory, kinesthetic and digital. Joel also explains how to identify which representational systems are in use.

In “The Trump-Kim Summit: Is “attitude” more important than preparation?”, Nadja Alexander considers the role of “gut feeling” or intuition in negotiation. Drawing on Kahneman’s Thinking, fast and slow, Nadja explains two sets of assumptions (or heuristics) which may have been of relevance in the Trump-Kim Summit: the affect heuristic and the over-confidence heuristic.

In   “The Soul of Mediation & leaving a legacy for the next generation”, Anna Howard shares some of the insights gained from workshops at the International Academy of Mediators conference on the topic of the soul of mediation and leaving a legacy for the next generation. Anna also shares her reflections on talks by William Ury and three times Nobel Peace Prize nominee – Dr Scilla Elworthy.

In  “Commercial Mediation & the exhibition industry”, Angela Herberholz considers the findings from her research on the use of, and knowledge about, mediation in the exhibition industry. Angela’s  research found that the majority of the surveyed exhibition industry professionals stated that commercial mediation is not a conflict resolution mechanism which is used to treat business-to-business disputes in their industry.

In “Haltung – on the meaning of a word and its relevance for mediation”, Greg Bond explores the meaning of the German word Haltung, a key term in mediation training in Germany. Haltung can be translated insufficiently as “attitude.” Greg’s comprehensive explanation of the term invites mediators to reflect on what they bring to mediation.

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UAE’s Federal Arbitration Law – Another Missed Opportunity?

Wed, 2018-07-11 03:00

Aishwarya Suresh

On May 3rd, the President of the United Arab Emirates (UAE) signed Federal Law No. 6 of 2018 (‘Law’) – the nation’s first federal arbitration legislation. According to the Federal National Council, this law has been formulated with the objective of maintaining and encouraging inflow of investments, and to comply with the UAE Vision 2021. This is the UAE’s third attempt at instituting such a law since acceding to the New York Convention in 2006 and is said to be modeled on the UNCITRAL Model Law on International Commercial Arbitration.

Unlike the previous outings in 2008 and 2013, the law repeals all the provisions of the UAE Civil Procedures Law that had so far governed arbitration in the UAE. However, one aspect of the previous arbitration regime remains, quite conspicuously, unaddressed: Art. 257 of the UAE Penal Code (‘Code’). This provision imposes criminal liability on an arbitrator deemed to have issued a decision contrary to the duty of fairness and unbiasedness. Punishment under Art. 257 is temporary imprisonment which, as per Art. 68 of the Code, can be anywhere from three to fifteen years.

The Preamble to the Law lists the Code as one of thirteen laws studied before its issuing. This may be interpreted as a reference to Art. 257 as it is the only relevant provision in the Code. Despite this, Art. 60 of the Law, while discussing the legal effect of provisions in conflict with the Law, repeals only the Civil Procedures Law.

Art. 257 – Content, Effects and Application

Art. 257, in its current form, came into effect in 2016, following Federal Law No. 7 of 2016. The pre-amendment Art. 257 imposed criminal liability on court-appointed experts and translators alone. The amendment widened Art. 257 to include arbitrators and experts appointed by judicial or administrative authorities as well as those appointed by the parties themselves.

Aside from a prohibition on undertaking similar responsibilities in the future which remains common to both versions of Art. 257, punishment under the original version was confinement for a minimum period of one year and temporary imprisonment only in criminal cases. The amended version however, directly sentences the individual to temporary imprisonment.

Under the Code, temporary imprisonment has several adverse implications. Art. 28 of the Code notes that temporary imprisonment is imposed only in felony crimes. As a more serious category of offenses, the branding of having committed a felony could have a far more deleterious effect on an arbitrator’s future appointments than a fine or disqualification. Art. 78 of the Code further provides for removal from office of a punishee who is commissioned with a public service. Art. 113 of the Code entitles the Judge to prohibit the punishee from residing in specified places for the period of imprisonment. Any of these associated effects would be especially troubling for non-resident arbitrators.

The scope of Art. 257 is also problematic. The duty of ‘fairness and unbiasedness’ is not defined under the Code or the Civil Procedures Law. Art. 257 could therefore be extended to include any type of action. For example, under Sec. 33(1)(b) of the English Arbitration Act, an unnecessarily protracted or expensive arbitration could also be interpreted as the tribunal’s failure to ensure a ‘fair’ means of resolution.

Art. 257 is also likely to create confusion in arbitration governed by other rules. For example, General Standard 4 of the IBA Guidelines on Conflicts of Interest in International Arbitration (‘Guidelines’) allows the parties to appoint an arbitrator whose impartiality is doubted if the parties agree with full knowledge of the alleged impartiality. Thus, in case of arbitrations commenced in the UAE which apply the Guidelines, the arbitrator risks punishment under Art. 257 for reasons known to the parties despite their consent at the time of appointment. Similarly, Art. 22 of the DIFC Arbitration Rules and Art. 24 of the DIAC Statute Rules require proof of intention before holding an arbitrator liable for any act or omission. This is in direct conflict with Art. 257’s blanket approach.

International Approach

Internationally, it is uncommon to subject arbitrators to criminal liability. Accordingly, there is very less commentary on the subject. Countries that currently impose penal liability include Germany (German Penal Code, Arts. 331, 332), China (Criminal Law of the People’s Republic of China, Art. 339A), Spain (Spanish Criminal Code, Arts. 419-423)  and Argentina (Argentine Penal Code, Art. 269). Switzerland (Art. 315 and 316 of the Swiss Penal Code) and Norway (Art. 114 of the Norwegian Penal Code) had similar provisions but these were repealed in 2000 and 2003 respectively.

It is crucial to note that in these countries as well, criminal sanctions apply only in specific instances such as bribery, money laundering or illegal negotiations. China is the only one of the abovementioned states to have opened up criminal liability to cases of “perversion of law and fact” and has, as can be expected, been subject to repeated condemnation as noted here.

Even in these countries, the punishment is not as severe. The maximum sentence out of these countries is in Germany: 10 years for accepting a bribe for performing an unlawful act. Most of these countries also provide differing scales of punishment depending on the gravity of the offense and, in some cases, provides the option of paying a fine in lieu of imprisonment.

Decoding the Legislative Intent

The imposition of criminal liability on an arbitrator does not find any justification under Shari’a or in the civil law countries upon whose laws UAE laws have been modelled. The Medjella, the first civil codification of Islamic Law, provides that in case of flagrant injustice or unfair hearing, the parties’ remedy is to set aside the award. Shari’a provides simply for the challenge of an arbitrator before the award is rendered. Similarly, France recognizes only civil liability. Egypt and Jordan also follow suit.

A Practical Conclusion

Since its introduction, no reported case has been brought against any arbitrator under Art. 257. Furthermore, as can be observed from here and here, the courts in UAE require a high standard of proof in case of complaints of impartiality against a judge or arbitrator. Thus far, it is safe to say, Art. 257 has therefore been of very little utility. However, it has caused significant unease in the international arbitration community leading to a reduced preference of the use of UAE law to govern arbitrations. The retention of Art. 257 would therefore significantly undermine the success of the Law and counteract the UAE’s attempts to align the nation’s arbitration law with international standards.

After weighing the pros and cons, the most reasonable conclusion is that Art. 257 must be repealed. The Law, under Art. 14, specifically provides for the challenge of an arbitrator in cases of justifiable doubts as to their impartiality or independence or qualifications rendering Art. 257 unnecessary. As the Law has already been issued, the best alternative now remains to amend the Law so as to include Art. 257 within the ambit of Art. 60 as well. Alternatively and more effectively, to repeal Art. 257, insofar as it deals with arbitrators, entirely.

Further commentary on the UAE arbitration law can be found here.

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