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Indonesia: Enforceability of Foreign Anti-Suit Injunctions under Indonesian Law

Fri, 2018-03-02 22:32

Turangga Harlin

YSIAC

There have been a number of occasions in Indonesia when domestic court proceedings and foreign arbitration proceedings of the same matter were carried out concurrently. In some of those occasions, the arbitral tribunal, upon the claimant’s request, issued an anti-suit injunction in respect of the Indonesian court proceedings brought by the respondent. In Astro Nusantara International B.V. et al. (Astro) v. PT Ayunda Prima Mitra et al. (Ayunda) [2010 and 2012], the Indonesian Supreme Court refused to recognize and enforce a foreign anti-suit injunction issued by a tribunal constituted under the Singapore International Arbitration Centre (SIAC) Rules. This post will discuss the Supreme Court’s reasoning behind the decision and, at the same time, will attempt to identify whether there are actually bases to recognize and enforce a foreign anti-suit injunction in Indonesia.

Anti-Suit Injunction under Arbitration Law

Indonesia is a member of the New York Convention, which was ratified through Presidential Decree No. 34 of 1981. As a follow-up to the ratification, the Supreme Court issued Regulation No. 1 of 1990 on Enforcement of International Arbitration Awards. In 1999, the Indonesian government enacted the Arbitration Law. The contents of the Supreme Court regulation are more or less similar to the provisions of the Arbitration Law concerning the enforcement of foreign arbitral awards.

While the Arbitration Law is silent on issues related to the issuance of anti-suit injunctions (or foreign anti-suit injunctions) to prevent opposing parties from commencing or continuing court proceedings, the law recognizes certain procedural orders for various purposes. Article 32 of the Arbitration Law provides that, at the request of one of the parties, a tribunal may make a provisional award or other interlocutory decision on how to organize the examination of the dispute, including passing a procedural order for security attachment, deposit of goods to third parties, and sale of perishable goods. It is worth noting, however, that practically speaking, there has been no known cases of the Indonesian National Board of Arbitration (BANI) issuing a security attachment order.

Supreme Court’s Position on the Enforceability of Foreign Anti-Suit Injunctions

In Astro v. Ayunda, the Indonesian Supreme Court decided to uphold the Chairman of the Central Jakarta District Court’s refusal to recognize and enforce an SIAC award on the basis that the award contained an anti-suit injunction. According to the Supreme Court: (1) the anti-suit injunction amounted to interference in an ongoing Indonesian judicial process, and hence it violated the principle of state sovereignty of the Republic of Indonesia; (2) it violated Indonesian public order; and (3) it did not fall within the commercial sector, rather it fell within the field of procedural law.

The dispute between Astro and Ayunda originally concerned a failed joint venture under a Subscription and Shareholders Agreement (SSA). Pursuant to the arbitration clause in the SSA, Astro commenced arbitration against Ayunda under SIAC Rules. However, prior to such event, Ayunda filed a case against Astro at the South Jakarta District Court. During the arbitral proceedings, Ayunda raised a jurisdictional objection contesting the Tribunal’s jurisdiction. The Tribunal issued an award dismissing Ayunda’s jurisdictional challenge, and granted an anti-suit injunction prohibiting Ayunda from continuing its court proceedings against Astro in Indonesia because the subject matter of the dispute fell within the arbitration clause set out in the SSA.

Interference in an ongoing Indonesian Judicial Process

In arriving at its conclusion on this issue, the Supreme Court appeared to have considered that the anti-suit injunction was addressed to the South Jakarta District Court vis-à-vis the panel of judges who presided over Ayunda’s case against Astro. Thus, the Supreme Court was of the view that the anti-suit injunction amounted to interference in an ongoing Indonesian judicial process, and that it violated the principle of state sovereignty of the Republic of Indonesia.

In reality, the anti-suit injunction was issued to order Ayunda (and not the South Jakarta District Court) to discontinue its case before the court because Ayunda was bound by the arbitration clause set out in the SSA. In fact, under the Indonesian Civil Procedural Law, Ayunda as the plaintiff always had the right to discontinue the case by withdrawing its statement of claim and the civil courts were not empowered to preclude a plaintiff from withdrawing its case. If Astro had submitted its statement of defence, Ayunda’s withdrawal could only be made with Astro’s consent. Given that Astro had commenced the arbitral proceedings against Ayunda at SIAC, it is likely Astro would have consented to Ayunda’s withdrawal.

The Supreme Court’s treatment of the anti-suit injunction as an order against the Indonesian court also appears to be questionable since it is commonly accepted that, in the arbitration context, a tribunal only has jurisdiction over the disputing parties bound by the arbitration agreement based on which the tribunal is constituted. Arbitration is a creature of contract, and hence there is generally no way for a tribunal to issue an order against a third party, let alone against a foreign court. Indonesian Arbitration Law has a similar concept whereby the authority of a tribunal to render an award or order lies in the parties’ arbitration agreement, meaning that the tribunal can only address its awards or orders to those who are bound by the arbitration agreement. Thus, saying that the anti-suit injunction (actually addressed to Ayunda) amounts to a form of intervention against the Indonesian court or judicial process is debatable.

Violation of Indonesian Public Order

There is no precise or clear definition of public order or matters which are deemed to be contrary to public order. The Arbitration Law is silent on the meaning of public order. Article 4 para (2) of Regulation of the Supreme Court No. 1 of 1990 broadly describes public order as “the fundamental principles of the Indonesian legal system and social system in Indonesia”. In other words, public order is an open-ended concept.

“Fundamental principles of the Indonesian legal system” can be found in various pieces of Indonesian legislation. In the arbitration context, one should look at the Arbitration Law to discern the fundamental principles under Indonesian law. One of the most essential articles in the Arbitration Law is Article 11, para (1) in which provides that “the existence of a written arbitration agreement eliminates the rights of the parties to submit the resolution of their disputes or differences of opinion contained in the contract to the District Court”. Article 11 para (2) goes further by saying that “the District Court must reject and must not interfere in any dispute settlement which has been agreed to be done through arbitration”.

It is therefore arguable that the anti-suit injunction is in line with Article 11 para (1) of the Arbitration Law based on which Ayunda has no right to submit any dispute under the SSA to the Indonesian courts. The anti-suit injunction is also not in contravention of para (2) of Article 11 because, under this provision, the South Jakarta District Court has no jurisdiction to hear any dispute arising out of the SSA. One may fairly say that the anti-suit injunction essentially supports the enforcement of Article 11 of the Arbitration Law. Some may argue further that the anti-suit injunction was instead meant to maintain public order by preventing the risk of conflicting decisions on the same matter. In this context, leading scholars have opined that the notion of a court’s jurisdiction is a matter of public order. This is the reason why under the Indonesian Civil Procedural Law, civil court judges are, by their office, obliged not to take jurisdiction over a case where the parties are bound by an arbitration agreement. This means that, even if no party raises a jurisdictional objection, the judge must dismiss the case.

“Commerciality” Principle

Despite the fact that the dispute between Astro and Ayunda arose out of a contractual relationship under the SSA, the Indonesian Supreme Court ruled that the content of the SIAC award does not fall within the commercial sector, rather it falls within the field of procedural law since the award contains the anti-suit injunction.

The question that arises is what needs to fall within the commercial sector: the subject matter of dispute, the legal relation between disputing parties, or the orders set out in foreign arbitral awards?

The Arbitration Law specifically refers to the term “disputes” when setting down the rules of arbitrability. Article 5 provides that “disputes that can be settled by arbitration are those in the commercial sector and the merits of which concern rights that are fully controlled by disputing parties”. This provision underpins Article 66 letter b of the Arbitration Law stating that Indonesia will only recognize and enforce international arbitration awards which fall within the scope of commercial law. Elucidation of Article 66 letter b elaborates on the meaning of the “the scope of commercial law”, i.e. “activities” in the field of commerce, banking, finance, investment, industry, and intellectual property rights. Further, the Presidential Decree on the ratification of the New York Convention provides that Indonesia will apply the New York Convention only to differences arising out of “legal relationships” which are considered to be commercial under the Indonesian law.

Given those provisions, the “commerciality” principle appears to concern the nature of the dispute or legal relationship between disputing parties, rather than the orders set out in foreign arbitral awards, let alone the procedural orders. Leading scholars have opined that the existence of procedural orders in a foreign arbitral award cannot in any way negate the commercial nature of the award so long as the dispute based on which the award is issued arises from a commercial arrangement. Thus, applying the “commerciality” test to a procedural order such as a foreign anti-suit injunction may sound perplexing.

Conclusion

In view of the foregoing discussion, it appears that the nature of the anti-suit injunction issued in Astro v. Ayunda is consistent with Article 11 and 32 of the Arbitration Law.

The real issue here is perhaps the “actual” enforcement of the anti-suit injunction, i.e. how to procure Ayunda to withdraw its case before the Indonesian court. The same problem in fact arises in an Indonesian court case where the court passes an order for specific performance (say to perform the agreed service) as opposed to an order for monetary damages. It is generally difficult to execute the former if the losing party refuses to voluntarily comply with the order, especially because there is no clear sanction for not obeying a civil court order. In contrast, Indonesian courts can execute an order for monetary damages by seizing and auctioning off the losing party’s assets before eventually handing over the proceeds to the winning party. It is common for Indonesian litigants who seek a court order for specific performance to also request a “dwangsom” (order for monetary penalty) at the same time. If the request for dwangsom is granted by the court, the losing party will be required to pay a penalty of an amount determined by the court for each day of delay in complying with the order for specific performance. If the losing party continues refusing to perform the required act, the court can execute the dwangsom as any other orders for monetary damages. This will put certain pressure on the losing party to comply with the order for specific performance.

Given the above, it may be worth considering seeking an anti-suit injunction accompanied by a monetary penalty that is payable if the party against which the injunction is issued (such as Ayunda) refuses or fails to comply with the injunction. Having said that, one needs to be very cautious about asking for an anti-suit injunction if it intends to enforce its case in Indonesia as Indonesian courts may not only refuse to recognize the anti-suit injunction, but also the entire award as in Astro v. Ayunda (although like other civil law countries, Indonesia does not follow the rule of binding precedent).

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Kluwer Mediation Blog: February Digest

Fri, 2018-03-02 03:18

Anna Howard

With posts on the new Japan International Mediation Centre, on reflections from the coach of the winning team in the recent ICC Mediation Competition, on top TED talks for mediators, and finally on analogies between cricket and mediation, there is something for everyone in the posts from the Kluwer Mediation Blog in February. Below you’ll find a brief summary of each of the posts on the blog last month.

In “Wa And the Japan International Mediation Centre – Kyoto”, James Claxton and Luke Nottage introduce the Japan International Mediation Centre-Kyoto which is due to open soon. James and Luke also consider the centre’s potential as a leading centre for international mediation services.

In “Educating the dispute resolvers of the future”, Sabine Walsh considers how the ICC’s Mediation Competition in Paris, and the growing number of others like it, are contributing to a change in the way disputes are going to be resolved in the future. Sabine also explains two important initiatives discussed at a recent conference on ADR in legal education at the University of Maastricht.

In “The map is not the territory”, Charlie Woods explains how things are often not what they at first seem and how we frequently see, hear or sense things differently, depending on where and in what circumstances we find ourselves. Charlie then identifies how, in the mediation process, we might use the mental maps that parties have of their truth.

In “Empathy”, Charlie Irvine and Laurel Farrington consider what empathy means and requires. They also apply Bowlby’s attachment theory to mediation practice and explore whether mediators need to be empathic.

In “A neuro-linguists toolbox – rapport: non-verbal behavior”, in the second in a series of posts on neuro-linguistic programming, Joel Lee explains how we can build rapport by using non-verbal behaviours. In particular, Joel describes how we can pace posture, gesture, facial expressions and breathing to achieve rapport.

In “Settlement is not success, impasse is not failure: it is the perseverance to mediate that counts”, Ting-kwok IU draws on the recent film “The Darkest Hour” to identify the importance in mediation of grit, of moving from the substantive to the emotional dimension and of language. Ting-kwok also explains why “settlement is not success, impasse is not failure.”

In “The immovable elephant: motivating lawyers towards early ADR efforts”, Jeff Trueman draws on Chip and Dan Heath’s Switch: How to Change Things When Change is Hard to explain how our emotional side, the “elephant” may deter us from using mediation and steer us in the direction of litigation. Jeff then identifies how the real potential for early resolution starts with a determination from lawyers to do business differently.

In “The 13th ICC International Commercial Mediation Competition – reflections on what it takes to be a winner”, Rosemary Howell, the coach of the winning team from the University of New South Wales, shares the lessons which have supported her teams’ continued success – not just in the competition, but in the lives of the students as they move on to pursue their chosen careers. They include: “Be prepared to lose and, when you do, lose with grace” and “Doing the right thing for the right reason should be the ethical and strategic goal of every team.”

In “Cutting down a tree with an aircraft carrier”, against the backdrop of the recent Winter Olympic Games in South Korea, Martin Svatos considers some of the conflicts between North and South Korea, including how a tree nearly triggered World War III.

In “TED talks I have enjoyed – and that resonate with the mediator in me”, Greg Bond lists ten TED and TEDx talks that he has found inspiring and that relate to mediation, in the broadest sense of the word.

In “The Power of Feedback”, Angela Herberholz shares the inspiration behind her new approach to providing feedback as a judge in the recent ICC Mediation Competition and identifies the impact which this new approach has had.

In “The coincidental mediator: a cautionary tale”, Ian Macduff draws on his recent experience of an informally-requested intervention to identify some risks for the coincidental mediator.

In “Mediation: a cricketing metaphor”, John Sturrock explores some analogies between cricket and mediation. John also identifies what sets apart a really effective mediator from the average.

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Why Should Countries with Limited Recognition Start Concluding BITs? – Several Overlooked Motives

Thu, 2018-03-01 00:01

Danilo Ruggero Di Bella

Introduction

The two main reasons why countries generally agree to sign bilateral or multilateral investment treaties (BITs or MITs) are to attract foreign direct investments, while at the same time protecting their own citizens’ investments abroad by reducing political risk. Arguably, there might be multiple added values on top of these reasons for a specific group of countries or quasi-countries, meaning States with a limited recognition as such. This post will explore these added values by providing theoretical foundation and practical examples.

Building up consensus for their recognition

One of the four criteria that defines a State – according to article 1 of the 1933 Montevideo Convention on the Rights and Duties of States – is the capacity to enter into relations with other States. Now, the most obvious way a State may enter into relations with other States is through the conclusion of international treaties, bilateral or multilateral ones. One particular type of international treaty – that happens to be one of the most successful international instruments in terms of diffusion – is indeed the so-called BIT, with over 3,000 different BITs having been negotiated, signed and ratified all around the world by many different State Parties.

For States with limited recognition, there might be several other reasons to conclude bilateral investment treaties, other than enticing reciprocal investments from and to other States. One of these reasons would be to strengthen and increase the recognition of their statehood by the international community. In fact, should a State conclude a BIT with a country with limited recognition, that State would recognize the latter as a full-fledged State. Depending on whether the former State had previously recognized or not the latter, its recognition would be either express or implicit, respectively. Put differently, States’ opinio juris confirming the statehood of the new emerging country would be reflected in the State practice of concluding international agreements with the new international entity.

The good thing about these kind of treaties is that both capital-exporting States as well as capital-importing States are inclined to sign as many BITs as they can (or at least they used to be, until recent years), because of the legal certainty with which these BITs vest the investment of their nationals and because of their capacity of boosting foreign investments. Besides, many States – that once used to be regarded as capital-importing States – are increasingly becoming capital-exporting powers with the new need of protecting their own citizens’ investments abroad. Consequently, the foreign policy of countries with a limited recognition may use these BITs to leverage other States into recognize them (expressly or implicitly).

Effective control over national resources

Another of the four criteria that defines a State – always according to article 1 of the 1933 Montevideo Convention on the Rights and Duties of States – is the capacity to exercise effective control over the territory claimed by a State. And, indeed, these BITs may additionally represent for these partially recognized States an opportunity to make clear, officially and internationally, their formal and effective control over key resources or lands disputed by neighboring countries. On one hand, these States would formally claim their sovereignty over national resources by signing these treaties with other States – that subsequently would back up this sovereignty – and on the other hand, these countries would exercise effective control by virtue of entering into investment agreements with foreign companies to develop such resources. This way foreign investors, instead of entering into investment agreements with the neighbor or competing country over the disputed territory, might feel more comfortable in dealing directly with the authorities of the State, whose universal recognition is underway.

An opportunity to draw new and more suitable economic policies and delimit their international obligations

Further, the new BITs negotiated by these countries with limited recognition will clear any doubt about whether the BITs concluded by their bordering States, or predecessor State (or the State that allegedly continues to claim rights over their territories) are applicable or not to them. Obviously, a newly emerged country that negotiated its own BITs, whereby it pursues and reflects its own economic policy and goals shall not be dragged to an investment arbitration based on a BIT concluded by its neighbor or predecessor State (more often than not, an old BIT that presumably pursues different economic policies, not necessarily shared by the new State). The newly emerged State should not be bound by that treaty, unless, of course, that State expressed its consent to that BIT in writing and the other High Contracting Party to that treaty agrees to be bound by a BIT with a different Contracting Party, for instance, by means of Exchange of Notes. Consequently, the negotiation of new BITs will reinforce the fact that an emerging country possesses a different international legal personality from its predecessor or eventual trespassing neighbor State, whose international obligations shall not bind the emerging or seceding State.

This active treaty-making policy could avoid some surprising and undesirable outcomes in Investor-State arbitrations, such as the Decision on Jurisdiction in World Wide Minerals Ltd. v. The Republic of Kazakhstan (19 October 2015, UNCITRAL arbitration) holding the respondent State bound by the 1989 Canada-Soviet Union BIT for facts that occurred between 1996-97 (viz. five years after the dissolution of the Soviet Union) and despite the fact that Russia – and not Kazakhstan – is regarded as the legal successor of the Soviet Union.

ISDS by arbitration

The inclusion of arbitration as investor-State dispute settlement (ISDS) mechanism is desirable both for investors and the countries with limited recognition. For the former, it provides for a neutral forum and ensure the effectiveness of the rights bestowed by the BITs. For the latter, arbitration is also the optimum solution because of their specific problems and the possibility to define clearly the contours of a dispute. Indeed, these countries often face interferences from surrounding States which could affect investors’ assets located in their territory and trigger their responsibility for any omission of protection. Since arbitration is based on consent, it allows to curtail in a clear way the scope of parties’ consent to arbitrate and, accordingly, the tribunal’s mandate. Thus, these countries could expressively leave every dispute with investors arising from compensation claims for damages due to armed conflict or civil disturbances outside of the scope of the arbitration provision.

A practical comparison

An example of a country with a limited recognition that, consciously or unconsciously, adopted this policy of concluding BITs is the Republic of Kosovo, whose independence was declared on 17 February 2008. For instance, Kosovo entered into a BIT with Switzerland on 27 October 2011, in force as of 13 June 2012. Currently, 111 out of 193 United Nations Member States have recognized it as a full-fledge State. And according to some critics (whether rightly or wrongly), Kosovo enjoyed a somehow hasty recognition indeed.

Whereas an example of a country that is missing out on this opportunity (and, actually, is paying the price thereof) is the Sahrawi Arab Democratic Republic (SADR or Western Sahara), whose independence was proclaimed on 27 February 1976. This State has not concluded any BIT yet. Currently, 84 out of 193 United Nations Member States have recognized it as a full-fledged State. Missing out on this opportunity has taken its toll on the SADR, since British and French oil companies have applied for and been granted oil exploration and production licenses in Western Sahara with the Office National des Hydrocarbures et des Mines (ONHYM), the Moroccan state oil agency (instead of applying with the SADR Petroleum Authority). Despite the UN Legal Office stating that any oil exploration and exploitation in the SADR’s territory would be in violation of the international law, unless obviously the Saharawis consent to it, these foreign companies preferred to enter into petroleum agreements with Morocco. In this respect, it is noteworthy to remember that Morocco has signed around 80 BITs. Maybe if the SADR had signed as many BITs, these foreign investors would have instead negotiated with the SADR authorities the relevant Producing Sharing Contracts for their respective projects. Plausibly, deciding with whom to enter into these contacts, either Morocco or the SADR, is not a matter of financial or technical resources of the given State party involved (since probably Morocco also does not have the required know-how, financial means, or the will to allocate public money for these projects, otherwise it would have conducted the explorations by itself). It is, arguably, more a question of legal certainty and what State can offer more guarantees for the projects at hand. Being that the very purpose of these BITs is to provide the foreign investor with such additional guarantees, the SADR will conceivably have better luck with foreign investors (meaning investors will see in the SADR a business partner and will sit at the table of negotiations with its Government to develop its national resources in Western Sahara), when the SADR starts concluding BITs. Most importantly, in this respect, the inclusion of an arbitration provision as ISDS mechanism in these BITs is of the essence to gain the trust of those foreign investors.

Conclusion

In a nutshell, the conclusion of BITs by countries with a limited recognition may:
1. strengthen their statehood,
2. boost their effective control over natural resources for the good of its people,
3. help to redefine new economic policies consistent with their actual needs, and
4. clarify their international obligations vis-à-vis other States.


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

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Arbitrating Fast and Slow: Strategy Behind Damages Valuations?

Tue, 2018-02-27 17:18

Felipe Sperandio

Clyde & Co.

Mr Daniel Kahneman is a Nobel Prize winner in Economic Sciences, and the author of the bestselling book “Thinking, Fast and Slow”. His book focuses on behavioural science, and explains how cognitive biases fool us into making suboptimal decisions. In December 2017, PwC updated its International Arbitration damages research (“PwC Research”). It reviewed multiple international arbitration proceedings with the view of establishing a correlation between the value of damages calculated by parties’ experts and the value of damages actually awarded by tribunals.

Critical questions arise when we compare Mr Kahneman’s work with the PwC Research’s findings. In particular, questions relating to whether parties in international arbitration are able to influence the value of damages in awards, by (mis)leading arbitrators into cognitive biases.

Anchoring effect

Mr Kahneman describes “anchoring effect” as a cognitive bias phenomenon. It occurs when a person is asked to consider a particular initial value, relating to an unknown quantity, before estimating that quantity. What follows is that the person’s estimate tends to remain close to that value initially considered; even in situations where the latter bears no correlation with the former.

Any number we are asked to consider as a possible solution to an estimation problem will induce an anchoring effect. Mr Kahneman illustrates the power of anchors through an experiment conducted with German judges with an average of 15 years of experience. The judges reviewed a case relating to a woman who had been arrested for shoplifting. The judges were then asked to roll a rigged dice, which would stop at either three or nine. Right after, the judges were asked whether they would sentence the woman for a term in jail longer or shorter, in months, than the number showing on the dice. The judges were then instructed to hand down the sentence to the shoplifter. On average, those who rolled a nine would sentence her to eight months; those who rolled three would sentence her to five months. The anchoring effect in this case translated into a difference in jail time of more than 50% – even though the dices were obvious random anchors.

Compatible results have been found in experiments with other experienced professionals asked to consider an initial value; such as real estate agents asked to estimate the price of houses, and investment fund managers asked to estimate the price of companies’ shares.

It turns out the anchoring effect is one of the most reliable phenomena in experimental psychology. And anchors that are obviously random can be just as effective as potentially informative anchors.
On the basis the anchoring effect has been proved by scientific research, the questions that follow in international arbitration are:

(i) Are claimants incentivised to set out an inflated amount for damages at the outset of the arbitration, in order to anchor tribunals? and;

(ii) Should respondents assume that claimants usually attempt to anchor tribunals and, for that reason, equally attempt to anchor tribunals on the lower side of the spectrum?

PwC Research

PwC Research reviewed 116 publicly available awards. It draws a correlation between the value of the damages claims calculated by parties’ appointed experts, and the value of damages actually awarded by tribunals (in the cases where claimants obtained a favourable award). The PwC Research is interesting in a number of fronts. For the purpose of this post, the relevant findings are:

(iii) Tribunals awarded on average 36% of the value of damages calculated by claimants’ experts.

(iv) Respondents’ experts on average assess a claim at 12% of the value calculated by claimants’ experts.

(v) In situations where respondents’ positions move closer to the claim value calculated by claimants’ experts, the tribunal’s award does the same.

How is it possible that skilled and impartial experts calculate values so far apart? The PwC research rightly explains that often (a) experts answer to different questions; (b) experts are instructed to treat facts differently; and (c) experts genuinely have different opinions.

But even where tribunals instruct experts to consider the same legal and factual assumptions in their calculations; in many cases, experts find significantly distant values. This is caused by, amongst other things, the application of different (seemingly valid) complex mathematical models, which tribunals may or may not understand.

In any event, should it be acceptable to leave tribunals to their own devices? As the PwC Research shows that tribunals have been asked to consider values with a delta of 88% between claimants and respondents’ experts’ damages calculations?

Moreover, does point (iii) above suggest that claimants have inflated their claims? Does point (v) above suggest that respondents have an incentive to depart wildly from the value of damages put forward by claimants?

Discussion

Comparing Mr Kahneman’s work with the PwC Research’s findings raises difficult questions. In international arbitration, could parties influence the conclusions of tribunals by anchoring strategies?

If the answer is yes, there is (arguably) a risk of international arbitration becoming a dysfunctional process. Should tribunals, therefore, seek to deter anchoring strategies? If yes, should tribunals consider such strategies as parties’ misconduct?

One could argue that tribunal’s power to allocate the costs of the arbitration should per se discourage parties from deploying anchoring strategies. For example, if claimant does exaggerate the value of its damages claim, with the view of anchoring the tribunal; even if claimant succeeds in the arbitration, tribunals are (usually) empowered to allocate costs according to the proportion of claimant’s success.

That argument is potentially flawed, because tribunals generally pay particular attention to the outcome of the arbitration when allocating costs. If the outcome of the arbitration was tainted by anchoring strategies (i.e., the damages awarded were based on a distorted valuation); then the basis for allocating costs would be artificial.

Alternatively, should tribunals focus exclusively on parties’ conduct to allocate the costs of the arbitration? Besides denying the recovery of the arbitration costs, tribunals may order successful claimants – that have deployed anchoring strategies – to pay the costs of the defeated party on an indemnity basis (e.g., ICC Rules and LCIA Rules empower tribunals to do so, if the arbitration agreement does not provide otherwise).

That may also be insufficient to deter anchoring strategies. Parties willing to adopt such strategies could calculate the cost of the potential penalty (i.e., not recovering its costs and even paying the costs of the other side); and compare it with the potential reward (i.e., anchoring the tribunal on value substantially higher or lower than the actual value of damages).
If the risk does not outweigh the reward, the party deploying the strategy could take a commercial decision on the basis of a cost benefit analysis.

Lastly, the most difficult question: how can tribunals detect anchoring strategies deployed by parties in international arbitration?

Way forward

While scientific research has proven the anchoring effect, many will be confident that they understand such phenomenon, and can temper their decisions accordingly. This is caused by another cognitive bias namely “an illusion of explanatory depth”; which deserves a separate post.
This post advances more questions than answers, and hopes to raise the debate as to whether cognitive biases have critical implications for international arbitration.

Compelling indications, especially after the PwC Research, suggest that anchoring strategies could influence the value of an award on damages (at least for the time being, before human arbitrators are substituted by robots).

The invitation is out for the international arbitration community to discuss whether anchoring effect could (unduly) impact the conclusions of a tribunal. If we are prepared to accept that premise, we should then proceed to the second step and propose measures to counteract cognitive biases – with the overriding aim of increasing consistency in international arbitration.

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Arbitrator Intelligence: The Basics

Tue, 2018-02-27 04:00

Catherine A. Rogers

Today, most arbitration practitioners have heard about Arbitrator Intelligence. They have seen it referenced in this blog space, heard it mentioned at a conference, or noticed that it has been identified as an important new innovation. But as often as people say they have heard of Arbitrator Intelligence, they also still have basic questions about what AI is, what it aims to accomplish, and why it needs support from you.

This post answers those and other basic questions about Arbitrator Intelligence, or AI.

What is Arbitrator Intelligence?

Arbitrator Intelligence is a non-profit, academically affiliated entity. The mission of Arbitrator Intelligence is to increase transparency, accountability, and diversity in arbitrator selection by making key information about arbitrators’ past decisionmaking more generally available through publication of AI Reports.

Why is AI a Non-Profit?

Being a non-profit comes with many challenges, most notably limited financial resources. Despite these challenges, AI’s status as a non-profit permits it to commit to the larger goals in its Mission Statement (transparency, accountability, and increased diversity in arbitrator selection), rather than focus primarily on earning profits. As an academically affiliated entity, AI is able to benefit from the expertise of leading scholars (see below description of the AI Board of Directors that will develop AI Reports).

What is the AIQ?

The AIQ is an online survey administered on a secure website maintained by Penn State University. The AIQ facilitates systematic collection of feedback at the end of each arbitration regarding information about arbitrators’ case management and decisionmaking that has historically been only available through individualized person-to-person inquiries, usually over the telephone.

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

Why are there Two Phases to the AIQ?

The AIQ is divided into two phases to ensure that responders can provide feedback quickly, typically in less than 10 minutes per phase. Phase I concentrates on objective background information about the case, and can be completed by anyone who has access to the award or case file. At the end of Phase I, the responder will be asked to nominate one or more persons to take Phase II of the AIQ.

Phase II contains questions that are evaluative and, in some questions, request professional assessments. Phase II should be completed by an attorney or party who actively participated in the case. Certain background information from Phase I questions is used to prefill the questions in Phase II to make it even easier to complete Phase II.

How does the AIQ protect the parties’ confidentiality?

To protect parties’ confidentiality, the AIQ does not ask for information that would readily identify the case or the parties. Instead of these details, the AIQ asks for key data that will facilitate assessment and analysis of arbitrator decisionmaking and case outcomes in the absence of identifying information. For example, the AIQ asks for the date of filing, the industry in which the dispute arose, the date of the award, and arbitrator names. The AIQ does not ask for parties’ names or the names of law firms or lawyers. For security and quality assurance purposes, responders will be required to register in order to complete an AIQ, but their identities will be kept confidential and will not be published or otherwise connected with any AIQ responses.

How does the AIQ ensure that information provided will be relevant, accurate, and reliable?

The quality of information generated by the AIQ is key. For this reason, the AIQ was specially designed in consultation with the Penn State Survey Research Center, with other survey design experts, and after extensive public consultation with arbitration experts.

At a more substantive level, the AIQ includes questions that will facilitate qualitative assessment of responses and filtering of data from AIQ responses. For example, responders must identify their perspective (in-house counsel, outside counsel, etc.), their level of experience, and whether the award was more or less favorable than expected, etc. Moreover, questions that require subjective evaluation, such as questions addressing the extent of document production ordered by the tribunal, are asked only after responders provide responses to several objective questions. Responses can be assessed against the background information about the case, such as the amount in dispute, the governing law, the seat, or the industry in which the dispute arose. Responses can also be assessed for their consistency with the objective information derived from related responses on a particular topic.

Who can complete the AIQ?

AI aims to have a range of participants—including parties, their in-house counsel, and their outside or external counsel, and third-party funders—routinely fill out AIQs. Multiple responses from different participants in a single case are welcome as they will facilitate increased quality control and more nuanced data assessment. Arbitrators, arbitral institutions, and arbitral secretaries, however, are not invited to participate to avoid disclosure of any confidential information.

How will information from the AIQs be made available?

Once sufficient data are collected from responses to the AIQ, those data will be made available (usually for a fee) to parties, counsel, institutions, and arbitrators through “AI Reports.” AI Reports will be published by Wolters Kluwer. The specific features and content of AI Reports are still being developed.

When complete, AI Reports will provide analytics on a number issues on which information is collected through the AIQ. These issues include arbitrators’ historical practices on ordering interim measures, document production, and case management, the nature and quality of questions asked during hearings, interpretative methodologies in the reasoning of awards, and timeliness in issuance of awards.

Who is developing the AI Reports?

AI’s Board of Directors is overseeing development of the AI Reports and the software needed to generate them. The Board is composed primarily of university professors who collectively possess the essential range of expertise in relevant fields. Professor Chris Drahozal (University of Kansas Law School) is a leading scholar of empirical research on international arbitration. Professor Chris Zorn (Penn State Political Science) has experience in cutting edge data analytics in the legal profession, including as co-founder of Lawyer Metrics. Professor Scott Gartner (Penn State School of International Affairs) is expert in mass data collection (notably in his role in building the award-winning Historical Statistics of the United States) and strategic decision-making and conflict management. Professor Lee Giles (Penn State Professor of Information Sciences and Technology, Computer Science and Engineering, and Director of the Intelligent Systems Research Laboratory) is internationally recognized in search engine design and artificial intelligence. The newest addition to the Board is Professor Johannes Fedderke (Penn State School of International Affairs), a South African economist who specializes in econometrics and is globally recognized for data analytics of complex phenomena in a range of fields.

How will AI ensure that AI Reports are fair to arbitrators?

The AIQ has a number of features designed to ensure that the information it provides is not only accurate, but also fair in its assessments of arbitrators. The primary assurance of fairness is that the overwhelming majority of questions asked in the AIQ seek objective information, not subjective assessments. Questions that do not seek purely objective responses instead as for “professional judgment” (not purely subjective assessments) about arbitrator specifically identified conduct and qualities.

Meanwhile, to promote accuracy, AIQ responses will be treated as anonymous, but responders will be required to register and verify their identities before completing the AIQ. Before any AI Report about an arbitrator is published, that arbitrator will be asked to consent to publication of the Report. Arbitrators will also have an option of withdrawing consent, in which case AI will no longer offer Reports on that arbitrator.

Meanwhile, AI is working to establish editorial policies to ensure that only AIQ responses that meet minimum indicia of reliability will be incorporated into AI Reports. Open-text feedback provided through AIQs will similarly be vetted through established editorial policies and generally published in summary form, similar to existing practices used by the International Mediation Institute and the Almanac of the Federal Judiciary for mediators and U.S. judges. AI is also exploring other means of ensuring that feedback is fair to arbitrators.

How can AI Reports be used?

Most obviously, AI Reports will be useful to parties and counsel in selecting party-appointed arbitrators. AI Reports will also be useful, however, in quickly assessing the opposing party’s nominated arbitrator, as well as any proposed or appointed chairpersons. Other data collected through the AIQ will provide useful information for case strategy planning and potential future reforms in international arbitration more generally.

Who supports AI?

Arbitrator Intelligence enjoys broad interest and support from around the world by arbitration practitioners who share AI’s belief that more information about arbitrators will improve international arbitration for all. In particular, young and diverse arbitrators see the value of breaking the information bottleneck that prevents newer arbitrators from developing reputations that will increase the likelihood of future appointments.

AI is also supported by its publishing partner, Wolters Kluwer, and by its Board of Advisors, which represents diverse leading perspectives from among in-house and external counsel, leading arbitrators, institutional representatives, and academics specializing in international arbitration. The Board’s members include: Chiann Bao, Gary B. Born, Stavros Brekoulakis, Charles N. Brower, Petra Butler, Yemi Candide-Johnson, Alan Crain, Stephen Denyer, Elisabeth Eljuri, Huascar Ezcurra, Babatunde Fagbohunlu, Juan Fernández-Armesto, Isabelle Hautot, Gabrielle Kaufmann-Kohler, Jeffrey Kovar, Deborah Masucci, Michael McIlwrath, Sundaresh Menon, Luke Nottage, Maria Irene Perruccio, Mirèze Philippe, Sundra Rajoo, Peter Rees, Cecilia Flores Rueda, Patricia Shaughnessy, Delissa Ridgeway, Frederico José Straube, Albert Jan van den Berg, Mohamed S. Abdel Wahab, David B. Wilkins, and Mathias Wolkewitz.

Why should you complete AIQs?

The biggest challenge AI currently faces is collecting AIQ responses, meaning collecting data needed to develop AI Reports. Without more responses to the AIQ, AI cannot generate AI Reports. In addition to collecting AIQ responses at the conclusion of each arbitration, AI is also seeking “retrospective” AIQs for arbitrations completed in the past 2 years (in exchange for free access to AI Reports for 2 years from when AI Reports become available).

To date, Gary Born and Wilmer, Cutler, Pickering, Hale & Door have committed to provide such retrospective AIQ responses. Several other firms are currently in discussions with AI to follow suit.

Completing AIQs, and particularly retrospective AIQs, involves a relative minor time-commitment compared with other pro bono activities. But by completing AIQs, however, you can contribute to the collectivized data needed to generate AI Reports, which will in turn ensure more and more equally accessible information about arbitrators, which will in turn promote transparency, accountability, and increased diversity in the arbitrator selection process.

* * *

Arbitrator Intelligence is an ambitious project that seeks to harness the collective intelligence of the international arbitration community. It can only be truly successful with your help, by completing AIQs. Please, join your professional colleagues today by taking a few minutes at the end of each arbitration to complete an AIQ or, better yet, committing to provide retroactive AIQs for those arbitrations you have participated in over the past few years. Your contribution will hasten development of the AI Reports and contribute to increase transparency, accountability and diversity in arbitrator selection.

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Corporate Counsel Considerations in Choosing Dispute Resolution Methods

Mon, 2018-02-26 06:00

Cameron Ford

Introduction – the usual reasons

Assumptions are made about the reasons corporate counsel choose particular methods of dispute resolution in contracts. It is said that the usual factors of enforcement, confidentiality, flexibility, informality, time, cost and so on are determinative. For some corporate counsel they might be. For others, as I have written elsewhere, the method might be chosen because it is in the template, because it is a compromise, because of anecdotes drafters have heard from others, or merely because of counsel’s instinct. Many in-house counsel come from a transactional background and may not be overly familiar with the nuances of each method.

Other considerations

For those with greater familiarity, other, more practical considerations come into play such as:

  • whether default judgment might be a possibility, knowing the counterparty and the likely areas of dispute;
  • what pace of proceedings might suit;
  • which counsel you might want to instruct;
  • whether you might want to conduct the proceedings yourself up to a point;
  • whether you have security;
  • whether the counterparty might be difficult to serve;
  • the type of message to be sent to the counterparty;
  • whether mediation is desired;
  • whether the disputes are likely to be more factual or legal;
  • whether the possibility of appeal might be desirable;
  • which courts are the “natural” courts for the contract;
  • ability to choose your arbitrator;
  • possibility of natural justice paralysis;
  • joinder of parties;
  • joinder of proceedings.

Most of those considerations will depend on the nature of the contract, the “personality” of the counterparty and the types of disputes that might be expected to arise. Naturally this is something of an educated guess based on experience with similar contracts and counterparties. After some time in a particular company or industry those factors can be fairly accurately predicted.

None of the questions here would be decisive in itself, I suggest. Instead, they are issues which are not commonly thought of by many as being considered by in-house counsel in choosing between arbitration and litigation and would be weighed in the balance along with the typical considerations mentioned above. I will touch on each for a little more detail, separating them into those which favour each method and those which could go either way. Of course, in some cases the degree of favour or particular considerations will be marginal.

Favouring arbitration

Choosing arbitrator

Some in-house counsel highly value the ability of being able to choose their arbitrator over having a judge imposed on them by the court. I do not have that preference and in fact, as a very general rule, lean towards common law judges who have been appointed after 20-30 years of commercial litigation experience and risen to the peak of the profession.

Default judgment

If there is a decent chance that the counterparty is the type who would be able to be served but would not respond to proceedings, litigation might be more suitable to enable default judgment to be entered. The SIAC rules have provision in r 29 for early dismissal of claims and defences but they presuppose the existence of a defence, that is, the respondent has responded to the proceedings and delivered some form of defence.

Counsel

Companies are accustomed to finding different lawyers in different countries but have their preference for certain specialties. For example, a party might have briefed a particular barrister on this form of construction contract a number of times with success and wishes to rely again on her expertise on the contract and familiarity with the party. Such considerations can be strong and can drive the party to arbitration rather than litigation in a jurisdiction where that barrister cannot appear.

Conducting proceedings

If the issues in potential disputes are likely to be relatively simple, the value not high and documents few, in-house counsel might prefer to conduct the proceedings themselves up to a point. This is easier with arbitration than with litigation. It is not often that this would be relevant but it remains a consideration.

Joinder of proceedings

If multiple proceedings in different countries are possible, arbitration might be preferred now that some rules have the equivalent of SIAC r 8 enabling consolidation of arbitrations. This may prove easier than consolidating court proceedings in different countries.

Favouring litigation

Pace of proceedings

It is not always necessary to race to trial and judgment, and there are occasions when a more leisurely pace can produce an outcome at lower cost than a trial while preserving the parties’ relationship. These days, particularly in commercial lists, courts can grab plaintiffs by the scuff of the neck and drag them kicking and screaming to trial. Usually if one files in a commercial list one is prepared for the surrendering of control, but if greater autonomy and a more relaxed approach is better suited to the dispute, arbitration will be preferable.

Security

Not everyone will have the luxury of security from the counterparty, but its existence and location could well be decisive or a weighty factor in the choice between dispute resolution options. If the security is located in a jurisdiction where the courts are developed and trusted, litigation would be the natural choice. Of course, the opposite is also true, and arbitration will be chosen if the courts of the security’s jurisdiction are not so developed and the country has acceded to the New York Convention.

Mediation

Many commercial courts now have almost a presumption of mediation in their rules or their practice at some stage of the interlocutory process. Even if not mandatory, this leaning towards mediation might be desirable if a settlement should be possible. Having the court order parties to mediation saves the face of both in that neither has to be the party to suggest mediation first and to fear being thought of perceiving it to have a weaker case. These days, however, this can be dealt with by using the SIAC-SIMC arb-med-arb clause if the counterparty will agree.

Appeal

No-one wants the right of appeal until they lose, and then it is their first question. Some institutes make provision for appeals but the general rule remains that there is no appeal in arbitration. If there is a decent chance that an appeal might be desirable, litigation might be preferred. This can be related to the question of whether the disputes are likely to be more legal or factual, with appeals being more useful for the former.

Natural justice paralysis

Some arbitrations become slow, expensive or even moribund due to natural justice paralysis, with the tribunal being overly fearful of being accused of denying a party procedural fairness. Judges are usually much more robust and are supported by appellate courts in holding parties to timetables and reasonably curtailing rights of amendment, adjournment, reply and so on. For example, in 2009 the High Court of Australia reversed its former position and held that courts may take into account case management principles when exercising discretion in procedural applications, even to the prejudice of a party: Aon Risk Services v Australian National University (2009) 239 CLR 175.

Joinder of parties

While some arbitral rules now allow for the joinder of parties to an arbitration, such as SIAC r 7, the conditions of those joinders may be more difficult to meet than the requirements of joining parties to litigation. This is particularly the case where there is a natural third party to the dispute, such an insurer, who is not party to the arbitration agreement. Such a joinder does not usually even require the permission of the court where it is within the time allowed by the rules.

Either way

Service

Arbitration would be indicated if the counterparty could prove difficult to serve since service can be effected less formally than in court proceedings. For example, SIAC r 2.1 provides for five different locations for service and five different methods (although by their nature, some of those methods are not appropriate to some of those locations). However if there is a real possibility that the counterparty will be able credibly to deny receipt of arbitration papers by those methods, the facility of substituted service in litigation might tip the scales in its favour.

Messaging

A Writ bearing the seal of a State’s court commanding the defendant’s appearance tends to send a sterner message to a counterparty than a notice of arbitration. Sometimes this sterner message is desired to indicate the plaintiff’s concern and determination. Other times a softer message might be desired in an attempt to grab the respondent’s attention but to preserve the relationship, in which case arbitration might be indicated.

Factual or legal disputes

I would not suggest that arbitrators cannot deal with legal issues but if the dispute is likely to be over the meaning of a clause or statute relatively free from factual contention, litigation might be preferred, having a single, experienced judge deal with the question quickly and definitively. The scales are more evenly balanced if the disputes are potentially more factual than legal.

Natural courts

If the courts most naturally and closely associated with the contract and any likely dispute are developed and trusted, it may be that the dispute is best left to them. However if they are not, it would be better to opt for arbitration than the courts of another jurisdiction since a party might still attempt to invoke the jurisdiction of the natural courts. It is something of a gamble when untrusted natural courts are a possibility as there is no guarantee they will decline jurisdiction in favour of the parties’ choice of arbitration or other courts.

Summary

Different corporate counsel may well have other factors they consider in choosing between arbitration and litigation, and the considerations mentioned here will differ in weighting for almost every contract.

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International Arbitration and Artificial Intelligence: Time to Tango?

Fri, 2018-02-23 02:00

Lucas Bento

Besides the inverted initialism, what does international arbitration (“IA”) and artificial intelligence (“AI”) have in common? Sure, both IA and AI are leading alternatives to the status quo: IA to traditional dispute resolution, AI to traditional methods of production. The former promotes freedom from the judiciary, the latter freedom from cognitive limitations. Beyond that, comparisons would appear, well, artificial.

Yet closer analysis reveals synergistic opportunities for both AI and IA, at a time when professions and their well-guarded domains are being threatened by disruptive technological forces. The use and impact of AI on the legal profession is slowly becoming a hot topic in legal, technology, and academic circles. Conferences in the international arbitration sphere have begun to address how the AI-IA alliance could play out in practice. Could the future of IA lie in AI? In this short post, I sketch possible ways in which AI-infused tools could help the international arbitration community provide greater value to stakeholders.

Enhanced Legal Representation

AI can augment human cognitive abilities and automate time-consuming labor. A number of AI-powered products and services already exist to help lawyers parse through submissions, identify better legal authorities, review documents and agreements (e.g. predictive coding), estimate costs, and predict outcomes. A number of start-ups are focusing on disrupting the legal industry, with some already offering case management and forecasting services to the international arbitration community.

Looking to the future, AI tools could play a significant role throughout the entire arbitration process. For example, it could recommend drafting suggestions for arbitration clauses, helping clients and lawyers identify blind spots and bulletproof their interests. Parties could agree to use AI for some aspects of the arbitration itself e.g. discovery, to lower costs. AI-infused products and services could help lawyers also better manage cases by, for example, diagnosing inefficiencies and automating management tasks. Clients could also pre-screen a legal team’s fit for a particular case (e.g. success rate, extent of prior experience, peer-reviewed evaluations), and obtain a second opinion on their legal team’s analysis. The potential for disruption is immense. While the technology underlying AI is still experiencing teething issues, its capacity to enhance the quality of legal services while lowering costs and inefficiencies cannot be ignored. International arbitration lawyers should seriously consider adding AI tools in their offerings to clients.

Enhanced Adjudication Services

AI could also help with the appointment of arbitrators, the preparation of the award, and the simulation of judicial review. Case management could be automated, or significantly streamlined with the aid of software, giving arbitrators more time to do what they do best: arbitrate. Synopses of longer awards (particularly of investor-state arbitrations) could be automatically generated to help readers navigate through decisions. Tribunal secretaries could be replaced by AI decision support systems. And perhaps one day an AI-powered “arbitrator” (or “AIA”, artificially intelligent arbitrator) could preside over a dispute. Ultimately, it would be up to the parties to appoint such “machine arbitrators”. As with any disruptive innovation, trust would be the overriding consideration (can I trust the AIA to make a fair and reasoned decision?). If the parties trust the AIA, then who is to stop them from using it, particularly in arbitration where freedom of choice is paramount?

Additional Institutional Services

Arbitral institutions could also offer additional services powered by artificial intelligence. As noted above, in institutional arbitrations, case management could be automated by software. AI could also be used to predict costs, duration, and, perhaps more ambitiously, the merits of an arbitration. In an effort to promote a speedy resolution of the dispute, arbitral institutions could, at the request of the parties, propose settlement ranges based on arbitrations of similar size and complexity. This could nudge the parties toward settlement.

These innovations will ultimately depend on the parties’ willingness to allow arbitral institutions to use their data to inform future predictions. A simple revision to the institution’s arbitration rules could do the trick. Confidentiality would be preserved as the parties’ data would be merely used as training data (size of arbitration, number of parties, duration, type of dispute etc.) and anonymized for algorithms to generate desired outputs (e.g. settlement ranges based on prior data points).

Parties may also benefit from AI-powered recommendations on how to resolve their dispute in more subtle ways, such as whether to employ an Online Dispute Resolution service to save costs.

And, who knows, to correct the diversity-deficit in arbitral appointments, a diversity algorithm could be employed to recommend arbitrators from a broader pool of candidates.

Better Insights For Scholars and Third-Party Funders

AI could also assist academics and third-party funders. Scholars would be able to benefit from more sophisticated data about cases and general trends in the law. Third-party funders would also be able to draw deeper insights to help decide which cases to fund.

Potential For Self-Regulation

If we are to think big, could AI and blockchain technology ultimately help parties resolve disputes themselves by using self-contained tools without the need for adjudicatory intermediaries?

Time To Sober Up?

While AI has the potential to transform international arbitration for the better, its use does not come without risks: bias, hacking, and the amplification of human mistakes. To guard against some these risks, AI decisions must be explainable and cannot operate as a “black box”. This is particularly important in the dispute resolution world where parties expect decisions to be reasoned.

The parties may also limit the use of AI technology in any aspect of their dispute. But if the business and legal case for AI proves to deliver a better and quicker service for less, then it will only be a matter of time until parties opt for AI-assisted dispute resolution (“AI-ADR”).

We now know that human beings do not always make rational decisions. But human irrationality can be predicted. Richard Thaler, winner of the 2017 Noble prize in economics, noted as much in his 2008 book Nudge (co-authored with Cass Sunstein), where he argued that if irrationality can be predicted, human decisions can be nudged to maximize better outcomes. AI should be welcomed by the arbitration community as a tool to improve efficiencies, reduce costs, and reach fairer—and more transparent—decisions.


Lucas Bento FCIArb is Chair of the AI & International Law Subcommittee at the New York City Bar Association. He is currently writing a book on AI and the Law (forthcoming 2019). The views expressed in this post are the author’s personal views, and do not reflect the opinions of Quinn Emanuel or of the New York City Bar Association.

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Can A Party Challenge The Application Of The IBA Guidelines On Conflict of Interest?

Thu, 2018-02-22 13:41

Anushka Mittal

The IBA Guidelines on Conflict of Interest in International Arbitration (hereafter, Guidelines) have gained widespread legitimacy across jurisdictions and types of arbitrations. The Guidelines lay down General Standards (Part I) and provide Practical Application List (Part II). Its soft law nature is an example of codification by compilation (Part I) and innovation (Part II). The Guidelines clarify their aim and intent in the Introduction i.e. they do not aim to override any applicable national law or arbitral rules chosen by the parties and are not legal provisions.  Generally, they perform a gap-filling function.

How To Use The IBA Guidelines?

There are various ways to introduce the Guidelines. A tribunal may use it on its own by the exercise of its inherent power. Alternatively, it may be contractually agreed upon by the exercise of party autonomy by parties. It may also be used by one party, without any opposition by another during the course of the arbitration, leading to an ex-post agreement on the application of the Guidelines.

However, there may be cases where a party rejects the application or challenges the application of the Guidelines. In such cases, on what basis does the tribunal accept or reject its application? Most tribunals answer that the Guidelines are not binding but provide international best practice. Yet the jurisprudence of the law under Guidelines has been shaped in a distinctive manner. For example, in ICS v. Argentine Republic, multiplicity of Orange List circumstances led to disqualification of an arbitrator while in EDF International v. Argentine Republic, a financial interest of the arbitrator in a related party led to the laying down of the de minimis principle without disqualification of the challenged arbitrator. Apart from such differences in substantial application, there is still lack of clarity on the process of its application.

Since the Guidelines do not override any applicable law, should they be introduced by the tribunal using its inherent power or by the parties? If by either, can it be susceptible to challenge? On what basis must the Tribunal decide the challenge? Does the application of Guidelines undercut the principle of party autonomy? In view of its widespread acceptance, the Guidelines are perceived to be slowly transforming into lex mercatoria and soft law. However, the contours of the application of soft law also cannot satisfactorily answer these questions. Any attempt to understand the Guidelines in the framework of soft law assumes that all parties agree to its force and the underlying principles. The present enquiry seeks to take a step back and envisage a situation where its application is not beneficial to a party and it challenges its application. An academic discussion and the success of the Guidelines aside, an enquiry on the possibility of a valid challenge to the Guidelines would resolve future instances where newer instruments such as the IBA Guidelines on Party Representation in International Arbitration may be challenged.

It is pertinent to note that the Working Group expressly provided against the inclusion of a Model Clause to apply the Guidelines. The intent was to ensure that the lack of such a clause would not suggest the disagreement to apply the Guidelines. In this context, what is the difference if certain parties agree to apply it while others do not? For example, in Perenco Ecuador Limited v. the Republic of Ecuador (Decision on Challenge), the Permanent Court of Arbitration highlighted that the parties agreed to apply the IBA Guidelines to decide the challenge. The applicable law was the ICSID Convention. The agreement on the use of IBA Guidelines allowed the parties to invoke its standards for disclosure and disqualification (justifiable doubts) and not invoke the ICSID standard of ‘manifest bias’. This agreement seems to have converted soft law into hard law.

Party Autonomy v. Inherent Powers

There is a tug of war between the doctrines of party autonomy and inherent power of a tribunal to apply the Guidelines. If one party does not agree to its application, then a tribunal can exercise its inherent powers to maintain ‘integrity of the tribunal’ and ‘equality between the parties’. However, if both parties reject the application of the Guidelines, in situations of cross-challenges of arbitrators or where both parties challenge the opposite party’s arbitrator, can the tribunal still introduce and depend upon IBA Guidelines?

This enquiry is relevant due to inconsistent practice of the use of the Guidelines where certain parties expressly agree to it while in other cases where courts criticize the Guidelines, rejecting their application yet basing the decision on its parameters! The resolution of the enquiry can also enable one to understand if a party can be obliged to disclose third party funding under General Standard 7, where most arbitration rules have not dealt with the issue, as well as other obligations such as the duty of the arbitrator and the party to investigate conflicts.

There would be strength in a party’s opposition to the application of IBA Guidelines if an award is subsequently challenged on the basis of the tribunal’s sustained use of the IBA Guidelines. The grounds for challenge of an arbitral award under Article V (1) (d) of the New York Convention includes award rendered when ‘arbitral procedure was not in accordance with the agreement of the parties’. Since an applicable law usually contains grounds for challenge of an arbitrator which the Guidelines seek to supplement, the ground may be raised validly. A possible challenge would also lay down the clear juxtaposition of soft law against hard law. Setting aside an award due to usage of the Guidelines, despite a party’s objection may amplify the status of such soft law to hard law. Yet, does the usage of soft law affect party autonomy in any way? Can it lead to an outcome that it sought to vanquish in the first place; namely inequality of arms?

A Possible Way Forward

In short, certain clarity is required in the process of incorporation of the Guidelines in an arbitration. This is possible either by parties incorporating it or by tribunals determining what General Standards can be incorporated without any expression by the parties. For example, can the duty to disclose third party funding be implied from the Guidelines if a tribunal uses Part II to determine conflicts? At the same time, does the explicitly non-binding nature of the IBA Guidelines dispense the need of an agreement between the parties?

To determine applicability, if say, a distinction was made between the General Standards and Practical Application List, for guidance, then the actual benefit of the IBA Guidelines in terms of an authoritative resolution of third party funding disclosure, advance waivers, a party’s responsibility to disclose etc. may be lost. On the other hand, General Standards 2 and 3, which provide for conflict of interest and disclosures do not provide any supplemental guidance vis-à-vis the applicable law.

Since the Guidelines seek to take a balanced and objective approach, another solution can be to require a party to give reasons to its opposition or seek a reasoned opposition. The onus must rest on the party opposing it. However, this amounts to IBA Guidelines being applicable by default whenever an arbitrator is challenged. Practices and usage must evolve to indicate what direction such soft law must take. The question remains whether such soft law must carve out a niche for itself or would the basic principles determine its space in the field of arbitration.

Thus, there is a need for jurisprudential content and clarity on the nature of IBA Guidelines and the tools of interpretation that may be used to interpret and apply them; ‘with robust common sense and without unduly formalistic application’.

 

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Protection of States’ Diplomatic Assets in France

Wed, 2018-02-21 05:44

Shaparak Saleh and Yann Dehaudt-Delville

The views expressed herein are the personal views of the authors and do not reflect those of their law firm.

In France, until recently, rules governing the issue of sovereign immunity from enforcement, and in particular those setting out the scope and conditions under which such immunities apply, derived from case law. Although relevant international instruments (e.g. the 1961 Vienna Convention on Diplomatic Relations and the 2004 Convention on Jurisdictional Immunities of States and their Property) occasionally served as the basis for court decisions, the legal regime governing sovereign immunity from enforcement remained uncodified. It was hence subject to significant fluctuations.

On 9 December 2016, a statute known as “Sapin II” was promulgated. It has been enshrined through Articles L. 111-1-1, L. 111-1-2 and L. 111-1-3 of the Code of Civil Enforcement Proceedings, which currently regulate most of the issues pertaining to sovereign immunity from enforcement in France.

In a notable decision dated 10 January 2018 rendered in the landmark Commisimpex v République du Congo case (No 16-22.494), the Supreme Court has made clear that, although they do not apply to enforcement measures performed prior to their entry into force, the abovementioned provisions should nonetheless be considered when ruling on such measures. Making an explicit reference to new articles L. 111-1-1, L. 111-1-2 and L. 111-1-3 of the Code of Civil Enforcement Proceedings, the Supreme Court decided that a State’s waiver of its immunity from enforcement in relation to its diplomatic assets had to be specific and express so as to be valid. By so ruling, the Supreme Court overturned its own precedent rendered in the same case on 13 May 2015, which held that “customary international law only requires that such waiver be made expressly to be effective” (No 13-17.751).

In the Commisimpex v République du Congo case, Commisimpex, a Congolese company, was seeking the enforcement of an ICC award against the Republic of the Congo in France. Commisimpex was relying on the Republic of the Congo’s written promise that it would finally and irrevocably waive any immunity from jurisdiction and from enforcement in the context of the settlement of the dispute. On this basis, in October 2011, Commisimpex attached bank accounts held at Société Générale under the name of the Congolese diplomatic mission and the country’s delegation to UNESCO in Paris.

On 15 December 2011, the first instance court of Nanterre lifted the attachments. The Versailles Court of Appeal upheld the first instance court’s decision on 12 April 2012 (No 11/09073). The Court held that, under customary international law, foreign States’ diplomatic missions enjoy an autonomous immunity from enforcement, which can only be waived by expressly and specifically providing that the waiver shall be effective against assets protected by diplomatic immunity. The court thus considered that the Republic of Congo’s general waiver did not specifically relate to diplomatic assets.

The Versailles Court of Appeal’s decision was in line with consistent case law coined by the Paris Court of Appeal on 10 August 2000 in the Commpagnie Noga d’importation et d’exportation v Embassade de la Fédération de Russie case (No 2000/14157). The mentioned case law considered that a general waiver of immunity from enforcement was not sufficient for a State to waive its immunity vis-à-vis the assets of its embassies and diplomatic missions abroad. Diplomatic immunity from enforcement was thus consistently held to be independent from general State immunity from enforcement. Accordingly, even where a State had waived its immunity from enforcement, diplomatic immunity still applied, unless the State had expressly provided otherwise (the “Noga test”). This doctrine was based in turn on the principle of State sovereignty, on a particular reading of the 1961 Vienna Convention on Diplomatic Relations (CA Paris, 10 August 2000, No 2000/14157), and on customary international law (Cass civ 1, 28 September 2011, No 09-72.057).

Commisimpex filed a recourse against the Versailles Court of Appeal decision before the French Supreme Court, contending that there was no legal basis for the Court of Appeal’s finding. In a decision dated 13 May 2015, the Supreme Court quashed the Versailles Court of Appeal’s ruling and remanded the case to the Paris Court of Appeal. The Supreme Court held that customary international law only requires an express waiver of immunity (as opposed to an express and specific waiver). This finding applied even in relation to diplomatic assets. While the 13 May 2015 Commisimpex decision was also based on customary international law, it nevertheless arrived at an opposite conclusion to the Versailles Court of Appeal decision and traditional case law, which applied the Noga test and hence considered that diplomatic assets should be afforded a specific protection.

On 30 June 2016, the Paris Court of Appeal, to which the Commisimpex case was remanded, accordingly held that customary international law only requires that a waiver of immunity from enforcement be made expressly to be effective. The Paris Court of Appeal thus considered that the attachments performed by Commisimpex on the bank accounts of the Congolese diplomatic mission and the country’s delegation to UNESCO in Paris were valid. To reach this decision, the Paris Court of Appeal strictly followed the Supreme Court’s instructions by adopting the exact same rationale.

One would thus have expected that the Republic of the Congo’s challenge against the 30 June 2016 ruling of the Paris Court of Appeal be dismissed by the Supreme Court. However, in a last unanticipated turn-about, the Republic of Congo’s petition was upheld by the Supreme Court.
In its 10 January 2018 decision, after having summarised the procedure set out above, the Supreme Court observed that the Paris Court of Appeal had complied with its 13 May 2015 ruling. The Supreme Court then made lengthy reference to new Articles L. 111-1-1, L. 111-1-2 and L. 111-1-3 of the Code of Civil Enforcement Proceedings, emphasizing that these statutory provisions require that a State’s waiver of its immunity from enforcement in relation to its diplomatic assets has to be specific and express in order to be valid. Interestingly, along with this new statute, the Supreme Court also referred to the 1961 Vienna Convention on Diplomatic Relations (reference that it had abandoned in its 13 May 2015 decision).

The Supreme Court then ruled that “these statutory provisions, which subject the waiver of its immunity from enforcement by a foreign State to the double condition that such waiver be express and specific, contradict the isolated doctrine resulting from the 13 May 2015 ruling, but enshrine prior case law [i.e. case law promoting the Noga test] […]; yet, these provisions apply only to enforcement measures performed after their entry into force and hence do not apply to the present dispute; nonetheless, as regards State sovereignty and the preservation of States’ diplomatic representations, given the compelling necessity to deal with identical situations in an identical manner, the purpose of consistency and legal certainty demands to apply prior case law as comforted by the new legislation”.

On this basis, the Supreme Court quashed the Paris Court of Appeal’s 30 June 2016 ruling and confirmed the 15 December 2011 judgment of the Nanterre first-instance court that had lifted Commisimpex’s attachments (not remanding the case to any further court).

The 10 January 2018 decision is worth reporting in two respects.

First, taking a conservative view on procedural points, one could have expected that the Supreme Court would dismiss the Republic of the Congo’s challenge, given that the Paris Court of Appeal had followed the French Supreme Court’s ruling in the 13 May 2015 decision. In order to depart from its 13 May 2015 precedent and apply its previous and established case law that promoted the Noga test to this issue, the Supreme Court not only overturned its own recent ruling in this case, but it also referred to such ruling as having generated an “isolated approach”, which strongly contrasted with prior established case law.

Second, in light of the extensive reference made to the new statute and the substance of the decision, one may argue that the Supreme Court retroactively applied new Articles L. 111-1-1, L. 111-1-2 and L. 111-1-3 of the Code of Civil Enforcement Proceedings to the Commisimpex case, despite these statutory provisions not providing for their retroactive application. However, on a formal level at least, the Supreme Court was mindful to base its decision on the application of prior case law, rather than on the new legislation (although the court underlines that its prior case law that championed the Noga test was indeed comforted by the new legislation). The Supreme Court proffered a policy argument, emphasizing that in a matter of public interest, the consistency of solutions should prevail, although, in the present case, this led to overriding a private party’s enforcement rights (in the absence of any vested right of the parties to the stability of court decisions).

Finding comfort in the inapplicable provisions of the “Sapin II” statute to operate a turn-about and apply a judicial doctrine previously relinquished, the Supreme Court has sought to reassemble the diplomatic shield it had shattered in 2015.

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Journal of International Arbitration

Mon, 2018-02-19 17:59

Maxi Scherer

Issue 35/1

Guilherme Rizzo Amaral, Burden of Proof and Adverse Inferences in International Arbitration: Proposal for an Inference Chart

Abstract: This article addresses two subjects that are relevant to the finding of facts in international arbitration, namely, the burden of proof and the power of the arbitral tribunal to draw adverse inferences. Regarding the burden of proof, it shows that despite the existence of a general rule stating that the party making the allegation carries the burden to prove it, there are other factors – such as the applicable law to the merits or to the procedure – that may play a role in defining it. In circumstances where the party carrying the burden of proof is not able to discharge it without evidence that the opposing party possesses, the tribunal has the power to order the opposing party to produce said evidence. Non-compliance with the tribunal’s order calls for the drawing of an adverse inference, which is not a reversal of the burden of proof nor a lowering of the standard of evidence, but rather the filling of the gap left by the missing (non-produced) evidence by a complex gap-filler. This article explains the elements within such gap-filler and presents an original methodology (a step-by-step approach) for the drawing of adverse inferences, represented in an Inference Chart.

David Ryan & Kanaga Dharmananda SC, Summary Disposal in Arbitration: Still Fair or Agreed to be Fair

Abstract: Parties may well opt for arbitration as a dispute resolution method because it is fast, flexible, and allows for rapid disposition. Where attempts are made for summary disposition, the traditional view was to resist such processes for fear of offending the fair hearing rule. Close attention to the question, and to recent developments in institutional rules, and the treatment of challenges based on procedural fairness grounds, reveals a picture that is more nuanced than the traditional view. Together with a consideration of waiver provisions, this article considers summary disposition in the face of the requirement for procedural fairness.

Hossein Abedian & Reza Eftekhar, Consent to Investor-State Arbitration in the Second Largest International Investment Protection Agreement: The Correct Interpretive Approach to Article 17 of the OIC Investment Agreement

Abstract: The Organization of the Islamic Conference (OIC) Investment Agreement is the second largest multilateral investment treaty worldwide. Attentions were attracted to this deeply dormant Agreement when the tribunal in Hesham Talaat M. Al-Warraq v. Republic of Indonesia rendered its Award on Jurisdiction in 2012, interpreting the critical Article 17 of the Agreement, holding that it contains binding state consent to investor-state arbitration. The jurisdictional question before the tribunal, which may be at issue in the pending cases or which may very well arise in subsequent cases brought under this Agreement, was twofold: (1) whether investor-state arbitration is contemplated in the OIC Investment Agreement; and (2) whether the consent to arbitration contained in Article 17 is binding. In its jurisdictional analysis, in addition to references to Article 31 of the Vienna Convention on the Law of Treaties (VCLT), the tribunal resorted to the principles of contemporaneity and evolutionary interpretation to conclude that Article 17 of the OIC Investment Agreement contained binding state consent to investor-state arbitration. This article considers the viability of the reliance on the principles of contemporaneity and evolutionary interpretation in this context. It argues that the tribunal’s jurisdictional analysis in this regard lacks adequate precision: none of these principles, it seems, could successfully be employed to show the existence of a binding consent to investor-state arbitration in the OIC Investment Agreement. Nonetheless, relying on a proper textual and contextual analysis, the article concludes that Article 17 of the OIC Investment Agreement does seem to contain a binding consent to investor-state arbitration. This conclusion is in line with the ultimate outcome reached by the Al-Warraq tribunal. Nevertheless, the textual and contextual interpretive approach proposed by this article finds fault with the interpretive exercise by the Al-Warraq tribunal to the extent that the issue of existence of binding consent to arbitration under Article 17 of the OIC Investment Agreement is concerned.

Tim Wood, State Responsibility for the Acts of Corrupt Officials: Applying the ‘Reasonable Foreign Investor’ Standard

Abstract: Under the ‘reasonable foreign investor’ standard – which flows from the general law of state responsibility – the conduct of corrupt officials is attributed to their state insofar as those officials reasonably appear to act within the scope of their authority. Whereas the standard has been conceived of as a liberal one, which will normally result in state responsibility for the conduct of corrupt officials (especially of high rank), this note argues for a more stringent approach. In general, and by virtue of states’ international anti-corruption obligations, it is suggested that a foreign investor cannot reasonably assume an official (no matter how high-ranking) to be authorized to engage in and act upon corruption. Consequently, the conduct of a corrupt official should seldom, if ever, be attributable to the state.

Gauthier Vannieuwenhuyse, Arbitration and New Technologies: Mutual Benefits

Abstract: New technologies such as Big Data, blockchain, machine learning, and text-mining have made it to the legal world, simplifying all phases of the dispute resolution process. Arbitration and these new technologies share a mutually beneficial relationship. On the one hand, new technologies will improve efficiency, cut costs, promote the expansion of arbitration into new segments of the market, and improve outcomes for clients. On the other hand, the proliferation of new technologies will inevitably generate disputes that arbitration is best-suited to resolve. For example, although self-execution limits certain litigation risks concerning the performance of smart contracts, conflicts regarding their definition, interpretation, and general framework are likely to arise. The delocalized nature of the arbitral regime, the flexibility of proceedings, and the straightforward enforcement of awards are key features that make arbitration the optimal dispute resolution mechanism for new technology disputes. New technologies can thus reinforce arbitral proceedings, and arbitration can provide insurance to these emerging practices – these reciprocal benefits should be exploited.

Alain Farhad, Two Steps Forward, One Step Bank: A Report on the Development of Arbitration in the United Arab Emirates

Abstract: Optimists will note that arbitration in Dubai has made great progress in the past decade. Thus, the United Arab Emirates acceded to the New York Convention in 2006 and the number of arbitration cases relating to the economy of the United Arab Emirates (UAE) has increased significantly. Pessimists will retort that much of this progress has been overshadowed by a small number of incongruous court decisions disregarding the New York Convention or revealing an overly formalistic approach to arbitration.
The most recent developments in the practice of arbitration in the UAE, addressed in this report, confirm that development is not always linear. It is sometimes a succession of steps forward and steps back. But beyond these ups and downs, observers of arbitration in the UAE should not lose sight of the bigger picture: arbitration in the UAE has made significant progress in a very short period of time. A much awaited and much debated new arbitration legislation, which reportedly has been in preparation for years, would be helpful to consolidate this progress and give the UAE the place it deserves on the global map of international arbitration.

BOOK REVIEW

Dr Andreas Hacke, Nadja Alexander, Sabine Walsh & Martin Svatos (eds), EU Mediation Law Handbook: Regulatory Robustness Ratings for Mediation Regimes (Wolters Kluwer, 2017; ISBN 978-90-411-5859-8)

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Arbitrability of Lease Deed Disputes in India – The Apex Court Answers

Mon, 2018-02-19 07:00

Binsy Susan and Himanshu Malhotra

The (Indian) Arbitration and Conciliation Act, 1996 does not specify which disputes are arbitrable and which are not. The arbitrability of disputes is a contested issue and has been left for the courts to decide on a case-by-case basis. In Himangni Enterprises v. Kamaljeet Singh Ahluwalia (“Himangni Enterprises”), the arbitrability of disputes under a lease deed was questioned. In India, lease deeds are ordinarily governed by the Transfer of Property Act, 1882 (“TP Act”).

Previously, in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (“Booz Allen”), the Supreme Court held a gamut of disputes to be non-arbitrable (see here and here). One such category of disputes was “eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction”.

The Court also recognised a distinction between disputes involving rights in rem and those involving rights in personam. It ruled that disputes concerning rights in personam may be decided by a private forum (such as an arbitral tribunal) but those concerning rights in rem should necessarily be decided by a public court. The case of A. Ayyasamy v. A. Paramasivam  (“Ayyasamy”) further clarified this rule by carving out the following two categories of disputes which may not be subject to arbitral proceedings:

  1. Disputes falling within the exclusive jurisdiction of a special court under a special statute; and,
  2. Disputes which are generally considered by the courts as appropriate for decision by public fora, for instance, disputes pertaining to rights in rem (the 6 categories of disputes specified in Booz Allen).

The Issue of Arbitrability

While the law is clear on disputes arising under a lease deed governed by special statutes such as the Rent Control Act, conflicting judgments of various High Courts exist on the issue of whether disputes arising under a lease deed governed by the TP Act (a general statute on the transfer of property) can be a subject-matter of arbitration.

In Penumalli Sulochana v. Harish Rawtani, the Andhra Pradesh High Court extended the rule evolved in Booz Allen and held that disputes under a lease deed, governed by the TP Act are non-arbitrable. The court reasoned that since the eviction of a tenant, governed by special statutes, cannot be the subject-matter of arbitration, a similar case which falls under the TP Act cannot be a subject-matter of arbitration either.

In Ambuja Neotia Holdings Pvt. Ltd v. M/s Planet M Retail Ltd., however, the Calcutta High Court held that lease deed disputes, governed by the TP Act are arbitrable, as the TP Act codifies the general law of transfer of property and is not a special statute. The Court was of the view that Booz Allen does not render all eviction or tenancy matters non-arbitrable, but covers only such disputes which are governed by a special statute.

The Deciding Case – Himangni Enterprises

On 12 October 2017, the Supreme Court in Himangni Enterprises, ruled on this specific issue. The Court was dealing with a civil suit that had been filed before the trial court for eviction of a tenant, recovery of unpaid arrears of rent and grant of injunction against his possession of the property. The defendant filed an application before the trial court seeking referral of the disputes to an arbitrator on the basis of an arbitration clause in the lease deed. The trial court dismissed the application. The dismissal was later challenged before the Delhi High Court and then the Supreme Court. It was argued before the Supreme Court that since a special rent legislation was not applicable to the premises, the dispute had to be referred to arbitration.

Relying on Booz Allen and Natraj Studios Pvt. Ltd. v. Navrang Studios (“Natraj Studios”), the Apex Court held that the disputes under the TP Act would also necessarily have to be tried by a public court and not by an arbitrator.

Comment

Since the question of arbitrability of lease deed disputes under the TP Act was not considered in either Booz Allen or Natraj Studios, the Court’s reliance on the aforementioned judgments appear to be misplaced. While Booz Allen considered the arbitrability of a mortgage deed, Nataraj Studios considered a leave and licence dispute governed by a special rent legislation. Ideally, the Court should have focused on the facet of non-arbitrability of disputes concerning rights in rem and clarified the jurisprudential basis for its decision. However, this case is logically consistent with the ratio in previous cases such as the Ayyasamy judgment. The decision is also in line with an earlier judgment (Vimal Kishore Shah v. Jayesh Dinesh Shah), wherein the Court held that a reference to arbitration for deciding disputes under a trust deed is barred by implication, as the Indian Trust Act, 1882 provides a sufficient and adequate remedy (see here).

It is clear that a lease deed, whether governed by the TP Act or by a special statute, involves disputes concerning rights in rem. Since a lease involves a transfer of interest in the property, such a transfer invariably involves creation of rights qua third parties, as far as the rights of possession and enjoyment of the property are concerned.

This becomes relevant in situations where a third person may claim possession over a property on the basis of another lease deed. A dispute of this nature would involve a determination of the parties’ respective interest in the property, which would necessarily be a determination of rights in rem. Therefore, a hearing should be afforded to all persons whose rights may be affected that can be adjudicated only by a public court. An arbitral tribunal, being a creature of a contract between parties, cannot possibly decide on any impact on third party rights or allow for such a procedure. Additionally, an arbitral tribunal’s decision would not be binding on a third person and would thus frustrate the process of dispute resolution between all parties.

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The New OHADA Arbitration and Mediation Framework : A Glass Half Full?

Sat, 2018-02-17 21:43

Armand Terrien and Sidonie Commarmond

Founded 20 years ago, the Organization for the Harmonization of Business Law in Africa (OHADA) is a group of 17 African States who have joined efforts to enact unified legislation in all areas of business law in order to promote investments by fostering legal certainty across member States.  The OHADA Treaty acknowledged the importance of arbitration as a modern business dispute resolution mechanism, and in 1999 a first Uniform Arbitration Act was enacted and the Common Court of Justice and Arbitration (CCJA) was created in Abidjan.  Almost 18 years later, on 23-24 November 2017, the OHADA Council of Ministers adopted a Uniform Mediation Act (UMA) and a new Uniform Arbitration Act (UAA), along with new Arbitration Rules for the CCJA.  These three texts were published in the OHADA Official Journal on 15 December 2017 and will become applicable on 15 March 2018 in all 17 OHADA States.

Together, the three documents offer a new framework for alternative dispute resolutions in OHADA countries.  The avowed purpose is to further attract investors and foster confidence in OHADA-seated arbitrations and mediations (most notably by considerably streamlining court application schedules) to capitalize on the economic growth of the continent.  The reform also tackles some criticism leveled at OHADA arbitration in the not-so-distant past.

The UMA fills a gap, as there was virtually no framework for mediation, ad hoc or institutional, in place prior to its enactment.  For that reason alone, it is a most welcomed addition to the OHADA tool-box of uniform acts.

On the other hand, while the new UAA and revised CCJA rules do address certain issues that have cast a shadow on OHADA arbitration in recent years and reflect current trends in international arbitration (including promoting CCJA investment arbitration), one fails to be completely reassured that all is now well with OHADA arbitration.

This post will briefly examine the most welcomed features of the new ADR framework, before turning to some unanswered questions and, alas, new causes for concern.

First and foremost, the Uniform Mediation Act, which by virtue of the OHADA Treaty, becomes directly applicable in the 17 State Parties, will apply to all mediations commenced after 15 March 2018, irrespective of the date of signature of the applicable mediation clause.  It applies to ad hoc and institutional mediations alike, be they initiated by the parties, a national court, an arbitral tribunal, or an administrative entity.

The UMA enshrines the hallmarks of modern mediation: confidentiality, timely court validation of settlements, and independence of the mediator from the parties.  In addition, a mediator cannot act as expert or arbitrator in the same dispute absent an agreement of the parties to the contrary.

There is no real consensus between arbitrators on the question of whether provisions for mediation in multi-tiered dispute resolution clauses in particular, is one of jurisdiction or admissibility.  Too often respondents use pre-litigation mandatory mediation requirements as delay tactics, even where it is obvious that the parties will not reach an amicable settlement through mediation, and the issue would be better treated as one of admissibility.  The UMA and UAA seem to provide an adequate level of flexibility.  The UMA starts with the bright-line rule that pre-litigation requirements must be fulfilled, and that a court or tribunal will have to give them effect.  It does, however, also aptly reserve the possibility for courts and tribunals to issue interim and provisional measures, even as they direct the parties to comply with pre-litigation steps, therefore striking a welcomed balance.  The UAA adds for its part, that if mandatory steps have been initiated (but not necessarily fully complied with), a tribunal may acknowledge their failure.

Turning specifically to arbitration, the new CCJA Rules do indeed address concerns raised in the (in)famous Getma v. Guinea case discussed elsewhere on this blog (here, here and here).  The 2014 EUR 34 million Getma award was set aside by the CCJA in 2016 on the ground that the fee arrangement agreed upon between the tribunal and the parties was in breach of CCJA rules.  The arbitrators then took the unusual step of writing an open letter questioning the CCJA’s impartiality before seeing a D.C. court uphold the decision to set-aside the award.  The D.C court found that there had been no evidence of bias at the CCJA and that the fee arrangement was in breach of CCJA Rules.  In the wake of this unfortunate episode, the CCJA Rules now explicitly provide that any fixing of fees without the CCJA’s approval is null and void, but that this is not a ground to set-aside an award.

Other welcomed features include a clarification of the scope of the competence-competence principle: national courts must now decline jurisdiction unless the arbitration agreement is not only manifestly invalid—as already provided for in the 1999 UAA—but also—going forward—manifestly inapplicable.  The UAA also includes an innovative provision allowing the parties to waive their right to seek to set-aside an award.  On both counts, the reform embraces the liberal philosophy which prevailed at the time of enactment of the OHADA Treaty and first UAA.  Finally, the UAA now expressly enshrines the arbitral tribunal’s power to issue interim or conservatory orders.

Perhaps the most disheartening feature of the new UAA, however, is that the language of Article 1 related to the territorial scope remains unchanged: it is limited to arbitrations with their seat in a OHADA State Party.  The reality is that the vast majority of arbitrations with respect to disputes in OHADA countries, particularly those involving foreign investors, will be seated in third-party countries.

The drafters of the new UAA could at least have seized this opportunity to clarify the language of Article 34, which unfortunately also remains unchanged and still provides that “arbitral awards rendered on the basis of rules other than those of the present Uniform Act shall be recognized in the States Parties in accordance with any international conventions that may be applicable and, failing any such conventions, in accordance with the provisions of this Uniform Act.”  While this language has been read to include awards rendered in third-party countries, the clash with the territorial scope of Article 1 remains.  Short of a rewriting of Article 1, a straight-forward, broad, reference in Article 34 to awards rendered in countries other than the OHADA country in which recognition or enforcement is sought would have made things considerably easier for arbitration practitioners.

Article 34 of the UAA could have benefitted from further clarification on two grounds.  First, it provides a complex and unsatisfactory system where recognition of foreign awards will be granted, depending on the particulars of the case, on the basis of either applicable multilateral agreements (such as the ICSID and New York Convention), bilateral agreements, or the UAA itself.  Second, it addresses recognition only, and is silent on enforcement.  An argument that it applies mutatis mutandis to enforcement, while highly plausible, is of course unsatisfactory.  The fact that the New York Convention criteria for enforcement are more stringent than those of the UAA further leads to the paradoxical result that seeking enforcement of an award in a OHADA State party may be easier if that State is not a signatory to the New York Convention (5 out of 17 OHADA States are still not signatories of the New York Convention).

Finally, a number of timeframes have been aggressively streamlined.  For instance, a national court now has fifteen days to rule on a request for exequatur.  If the court does not issue a ruling within those fifteen days, exequatur is deemed to have been granted.  The UAA expressly provides that a decision declining exequatur is subject to direct appeal to the CCJA, and that a decision granting exequatur cannot be appealed.  What the UAA fails to provide for, unfortunately, is the situation in which a court fails to rule within fifteen days on an award for which, for whatever reason, a party has a legitimate argument that it should not be granted exequatur.  This is all the more surprising as the UMA for its part expressly provides for direct appeal to the CCJA in cases where a party would contest a mediation settlement agreement on public policy grounds but automatic approval or exequatur is deemed granted because the court having jurisdiction failed to issue a decision within fifteen days.  This discrepancy between mediation and arbitration is certainly troubling.  While institutional arbitration offers parties the safeguard of award scrutiny by a reviewing body, this is not foolproof, and the occasional ICC award for instance, does warrant setting aside.  The risk is even greater with ad hoc arbitration, where no such safeguard exists.  This is a strong argument in favor of institutional arbitration if recognition or enforcement is expected to be sought in an OHADA State Party.

Overall, however, the reform provides a solid framework for ADR in OHADA countries.  Experience will hopefully alleviate the limited concerns raised in this post.

The views expressed in this post are the authors’ personal views, and do not reflect the opinions of Quinn Emanuel or Sciences Po Paris.

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Developing Country Opposition to an Investment Court: Could State-State Dispute Settlement be an Alternative?

Sat, 2018-02-17 03:34

Trishna Menon and Gladwin Issac

The Comprehensive Economic and Trade Agreement (CETA) made waves in a post-Trump era of hostility towards free trade. But not all press is good press and CETA’s investor–state dispute settlement (ISDS) mechanism has come under fire.

While all chapters of the CETA entered into force at midnight on September 21, 2017, one didn’t: the controversial Investment Court System (ICS). After concluding CETA, Canada and the EU vowed to “work expeditiously” to create a permanent investment court, and certain issues arose during the exploratory discussions hosted in December 2016. This would mean a leap from the current regime of ad hoc investor–state arbitration included in around 3200 investment treaties in force today towards a WTO-like multilateral system. Such a radical shift signifies turbulent times for developing economies.

Multilateral Investment Court and the EU ICS Proposal
Traditional ISDS mechanisms have faced much criticism. They are alleged to increase the power of large corporations at the expense of national sovereignty, and allow corporations to bypass national judicial systems. Further, “regulatory chill” is the fear that ISDS could discourage governments from adopting regulations for public welfare in health, environment, labour and other areas. Investor claims also have a strong impact on the public exchequer, as the average cost of defending an investor claim is estimated at US$4.5 million. In addition to this, there is no guarantee of recovering costs even if the respondent state is successful. There is also a perception of conflict of interest on the part of arbitrators, many of whom are also practitioners. Lack of procedural transparency is another issue.

Based on the above concerns and the backlash against ISDS, the European Commission has moved away from traditional ISDS towards a different ISDS mechanism. This can be seen as a compromise that addresses many of the criticisms while preventing states from abandoning ISDS entirely. The EU proposal includes in the first place, an appellate mechanism, as part of a two-tier system; a roster of 15 members who may be chosen to form the first-instance tribunal, who are prohibited from acting as counsel, party-appointed expert, or witness in an investment dispute during their terms; and full transparency, with proceedings and key documents publicly available.

Developing Country Opposition—to ISDS, the EU ICS and the Multilateral Investment Court

In recent years, countries including Brazil, India and South Africa have significantly rethought their approach to investment protection, leading to many policy innovations. Brazil follows a model of signing “Cooperation and Facilitation Investment Agreements” which have no mention of “protection of investments” or an ISDS system. Similarly, India’s new model Bilateral Investment Treaty (BIT) excludes the Fair and Equitable treatment (FET) and Most-Favoured-Nation (MFN) treatment clauses. Before turning to investor–state arbitration, investors must exhaust local remedies for five years. Since the model BIT has been publicised, most of India’s BITs have lapsed, with many partner-nations unwilling to renegotiate with the new model BIT as its basis. South Africa has also developed a domestic bill that fully excludes recourse to international arbitration and relies on mediation instead.

Other states that are attempting to disengage from the bonds of traditional BITs and the ISDS regime are are Bolivia, Ecuador, Venezuela, South Africa and Indonesia. The reason for this is that many countries concluded BITs without fully understanding their implications. When Pakistan was first sued in 2001, based on a 1995 BIT with Switzerland, no one in the government could find the text and had to ask Switzerland for a copy. It is unlikely that developing countries would make this mistake again.

Argentina, Brazil, India, Japan and some other countries have reportedly rejected the initiative to establish a multilateral investment court. This suggests that some of the strongest opposition to the ICS is likely to come from developing countries based on the following factors:

1. Costs
If Japan, the world’s third largest economy, rejected ICS citing the heavy costs involved in international arbitration, this consideration is even more relevant for developing countries. In one case, Libya was ordered to pay US$935 million to a company which had only invested US$5 million. Legal costs average roughly US$4.5 million for each side per case, but can be much higher. In the case against Russia, Yukos’ lawyers alone billed US$74 million and fees of the three arbitrators amounted to US$7.4 million. As legal costs are not always awarded to the winning party, states can end up footing the bill even if they do not lose.

2. Sovereignty
The idea that a panel of three individuals can sit in judgment over a sovereign state in a dispute initiated by a private individual or corporation may still be hard for many countries to digest. Galling examples are the cases of Philip Morris’ claims against Australia and Uruguay over plain tobacco packaging laws intended to reduce the rate of smoking and Vattenfall’s pending €4.6 billion claim against Germany arising out of the phase-out of nuclear power in the wake of the Fukushima nuclear disaster in Japan. These issues invite the question: what gives a corporation the right to challenge a sovereign state’s legislative actions meant to protect its citizens’ health and safety?

3. Regulatory chill
In Guatemala, citizens protested against a controversial gold mine owned by Canadian mining giant Goldcorp, and the Inter-American Commission on Human Rights recommended closing it down. Even so, as revealed by internal government documents obtained through the country’s Freedom of Information Act, the risk of an investor–state dispute weighed heavily on the state’s decision, and the mine was ultimately allowed to stay open. The risk or threat that ISDS may discourage States from regulating in the public interest concerns all states. However, the stakes are higher for developing and least developed countries, many of which are in greater need for legislation and may be more susceptible to cave when intimidated by foreign investors threatening to pull out their investment.

State–State Dispute Settlement as an Alternative?
States have a number of alternatives to granting excessive procedural rights for corporations. Not to grant them in the first place is one. For example, neither the Australia–United States Free Trade Agreement (FTA) nor the Australia–Japan Economic Partnership Agreement allow for ISDS: in case of a dispute, foreign investors must resort to domestic courts. Investors going abroad can insure their investment against political risks by purchasing private insurance, rather than relying on ISDS.

Another alternative would be working out a multilateral system for state–state dispute settlement instead of the ICS. Just as States provide diplomatic protection, if a private investor believed a host state was in breach of its investment obligations, it could ask its home state to bring a case on its behalf, and the home state could then decide whether it believed the case merited initiating a formal claim. States would have the power to prevent controversial claims from going forward. This would place checks on the power of corporations to initiate claims and assuage the fear of developing countries of expensive lawsuits, since home states would be expected to have considerations other than the profits of its corporations.

Recourse to state–state dispute settlement would not be unprecedented. The Australia–United States FTA allows for state–state dispute settlement when domestic remedies are unsuccessful. Since 2014, Brazil has negotiated investment agreements based on a model that prominently features state–state dispute settlement in place of ISDS. The Southern African Development Community (SADC) amended its Finance and Investment Protocol in 2016 to exclude the ISDS clause, leaving state–state dispute settlement as the only option. The recently negotiated Australia­–China FTA, while not fully excluding ISDS, provides for a state–state filter: if both states agree a potential ISDS claim is about a non-discriminatory regulatory issue, the claim may not proceed.

Consider India, which has never indicated any particular inclination towards the state-state dispute settlement model. However, as India prepares to resume FTA negotiations with many EU nations this year, ten months after its unilateral termination of BITs, it is likely that the state–state dispute settlement mechanism would find the greatest favour with India and the EU. Given India’s stand on the ISDS, as reflected in the 2016 model BIT, India would find this outcome favourable.

Conclusion

All of this leads us to the importance of addressing the concerns of developing nations in the arena of investment arbitration. Since it is almost-universally agreed that the ISDS, system as existing, is  unsustainable for developing nations, a multilateral state–state dispute settlement mechanism, coupled with other mechanisms to guarantee participation and access to justice to all stakeholders affected by foreign investment, could help rebalance public and private interests in the investment regime, ensuring states, rather than corporate interests or the legal community of arbitrators, maintained control.

 

“Acknowledgement: The authors would like to thank Mr Martin Dietrich Brauch, Associate – International Law Advisor, at the International Institute for Sustainable Development (www.iisd.org/itn) for reviewing in detail, an earlier version of this article.”

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FAI Board’s Recent Practice on the Consolidation of Arbitrations under the FAI Rules

Fri, 2018-02-16 01:49

Mika Savola

Introduction

Consolidation means combining two or more arbitrations that are pending under a specific set of rules into a single arbitration proceeding. In appropriate circumstances, consolidation has various advantages. Most importantly, it eliminates the risk of having contradictory awards rendered in different proceedings on closely related sets of facts. Additionally, it makes for procedural and cost efficiency as all issues in dispute will be decided by a single arbitral tribunal in one proceeding, rather than by different tribunals in two (or more) separate arbitrations.

The FAI Rules permit consolidation of different FAI arbitrations on conditions set forth in Article 13. In principle, consolidation is possible irrespective of whether the proceedings to be combined are pending between the same or different parties, provided that at least one of the following requirements (1)-(3) is met: (1) all parties to all arbitrations have agreed to consolidation; or (2) if all claims in the arbitrations are brought under the same arbitration agreement; or (3) where the claims in the arbitrations are brought under different arbitration agreements, if (i) the disputes in the arbitrations arise in connection with the same legal relationship (in practice, the same economic transaction, e.g. a common construction project or corporate transaction involving formally different but related contracts); and (ii) the arbitration agreements do not contain contradictory provisions that would render consolidation impossible (e.g. different seats, different number of arbitrators or different method of appointing the tribunal).

The FAI Board decides in its discretion whether to accept or deny a request for consolidation by taking into account the factors listed in Article 13.2. These include the identity of the parties in the different arbitrations, the connections between the claims made in the different arbitrations, whether any arbitrator has been confirmed or appointed yet in any of the arbitrations (and if so, whether the same or different persons have been confirmed or appointed), and any other relevant circumstances (such as the progress already made in the arbitration that was commenced first and into which the second arbitration would be consolidated).

Turning to the FAI practice, since the adoption of the revised FAI Rules on 1 June 2013, there have been a total of eight requests for consolidation. Six of them were accepted, whereas two were denied. In 2017, the FAI witnessed four new applications for consolidation. This suggests that the number of consolidation requests may be on the increase.

It is not unheard of that all parties to all different arbitrations specifically agree to, and jointly request, consolidation. In such event, the FAI Board will normally accept the parties’ joint request almost as a matter of routine, provided only that all the proceedings to be combined are indeed FAI arbitrations (and not, for instance, ad hoc cases). But problems may arise if one or more parties to one or more of the proceedings raises an objection against the other party’s request for consolidation.

The FAI faced this situation first time in 2015, in a case where the Board ultimately decided to dismiss the consolidation request (see an anonymous case comment posted on the FAI website). However, more recently, the FAI experienced the first case where the Board did order consolidation of two separate FAI arbitrations regardless of the objections of the respondent parties to those arbitrations. The formal justification for such “non-consensual” consolidation lies in the fact that, when incorporating the FAI Rules to their arbitration agreement, the parties are deemed to have consented in advance to the consolidation of arbitrations on conditions laid down in Article 13.

Below is a brief description of the factual circumstances of the case and the FAI Board’s reasons for consolidation.

First FAI case where consolidation was ordered over the objection of respondents

Two Finnish companies, A and B, had entered into an Asset Purchase Agreement (“APA”) whereby A acquired certain business from B. Clause 16 of the APA provided that the APA was governed by Finnish substantive law and that any disputes arising out of or relating to it shall be finally settled in FAI arbitration seated in Helsinki.

Some time after the transaction, a dispute arose between A and B in relation to certain intellectual property rights that B had allegedly granted to A under the terms of the APA. The APA contained also the following undertaking by B’s non-Finnish parent company C: “[C] hereby (…) acknowledges [A’s] right to use [certain intellectual property rights], as set out in Clause 8.5. Clause 16 (Governing Law and Dispute Resolution) shall apply to this undertaking.”

As the parties could not settle their dispute amicably, A commenced FAI arbitration against B and requested e.g. that the arbitral tribunal declare that A had the right to use certain intellectual property rights granted by B under the APA. Soon after that, A commenced separate arbitration proceeding against C, seeking effectively the same relief as in the first case and requesting that the two proceedings be consolidated. Respondents B and C objected to the consolidation mainly because of the alleged lack of a valid and binding arbitration agreement.

The FAI Board allowed both arbitrations to proceed, being prima facie satisfied that there may exist a valid and binding FAI arbitration agreement. After that – and once the Board had consulted with all parties and the arbitrator nominated by A – the Board ordered consolidation pursuant to Article 13 FAI Rules mainly on the following grounds: (1) Although the parties in the two proceedings were formally different (A vs. B / A vs. C), they were closely related (as C was B’s parent company); (2) disputes in both proceedings arose from the same legal relationship and economic transaction (i.e. the APA, including C’s undertaking that was part of it); (3) both proceedings were based on the same FAI arbitration agreement (set out in Clause 16 of the APA); and (4) the relief sought by A was essentially the same in both proceedings.

The Board concluded that, for the above reasons, the arguments and evidence that A, B and C were likely to put forward in both proceedings could be expected to be virtually identical. Non-consolidation would mean that the parties would have to present the same arguments and evidence twice in two separate proceedings, which would cause unnecessary extra expenses. Also, in the event of non-consolidation, the parties would face a risk of conflicting decisions in separate proceedings. Therefore, in the interest of procedural efficiency and fairness, and in order to avoid conflicting decisions on effectively the same dispute under the same arbitration agreement, the Board decided to consolidate the cases.

Conclusions

The outcome of the FAI Board’s decision was hardly surprising. In light of the factual circumstances, consolidation was undoubtedly well-founded. On a more general level, this case – together with other existing FAI practice on “non-consensual” consolidation – lends support to the conclusion that the undersigned presented already when commenting on the FAI Board’s first decision on consolidation in 2015 (see the case reference and hyperlink above). Accordingly, even though the consolidation regime under the FAI Rules is flexible and allows, in principle, far-reaching applications, the FAI Board may be expected to apply Article 13 somewhat restrictively. To illustrate, the Board is likely to accept a request for consolidation mainly in cases where the arbitrations are pending between the same (or closely related) parties and they are based on the same arbitration agreement. Conversely, it is probably safe to say that the threshold for consolidation is high if the parties are different and the proceedings are based on different arbitration agreements (unless all parties expressly agree to consolidation). Further, consolidation is also unlikely if different arbitrators have already been confirmed in the different arbitrations, absent special reasons to the contrary.

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The DIS Rules of Arbitration of 2018

Thu, 2018-02-15 01:48

Mathias Wittinghofer, Catrice Gayer, Tilmann Hertel and Nils Kupka

Herbert Smith Freehills

The new arbitration rules of the German Institution of Arbitration (Deutsche Institution für Schiedsgerichtsbarkeit – “DIS”) will enter into force on 1 March 2018 (“DIS Rules 2018”).

It is the first revision of the DIS Rules since the current version was adopted in 1998 (“DIS Rules 1998”). The revision process involved nearly 300 persons sitting in three different commissions, but took only 18 months. The DIS Rules 2018 were drafted concurrently in English and German. The result: The DIS maintained and enhanced those civil law elements which were already decisive for the success of the DIS Rules 1998. But it also adopted new rules to reflect the changes and developments of international arbitration practice of the last two decades.

One of the most prominent features – as under the DIS Rules 1998 – of the DIS Rules 2018 is the promotion of early settlements (I.). Further, a newly founded body, the “Arbitration Council” will enhance the transparency and the integrity of the arbitration process (II.). Next, several new rules have been adopted in order to increase the already high efficiency, quality and expeditious character of DIS arbitration proceedings (III.). Lastly, along with the amendments of several institutional rules, the DIS Rules 2018 contain several new rules for multi-party and multi-contract arbitrations (IV.).

I. Promotion of early settlements

For many medium, small and big-sized companies in Germany and abroad the early settlement of disputes is an important feature of any dispute resolution mechanism which they might chose in their contracts. This tradition is reflected by the different mechanisms which already existed in the DIS Rules 1998 and which have been further strengthened in the DIS Rules 2018. Two of the most salient features are:

o The arbitral tribunal shall encourage an amicable settlement between the parties at every stage of the arbitration (Article 26). Reflecting the long-standing practice, the DIS Rules 2018 provide that arbitral tribunals will seek to do so unless any party objects.

o During the case management conference, the arbitral tribunal must address whether it can give a preliminary legal and factual assessment of the case (Article 27.4(i) and annex 3). The latter is a common feature in civil law proceedings: by identifying disputed and relevant facts and salient legal issues at an early stage of the proceedings, arbitral tribunals can often streamline proceedings, shorten submissions and enhance settlement negotiations between the parties. By not objecting to the arbitral tribunal exercising this power, the parties waive their right to invoke doubts regarding the arbitral tribunal’s impartiality or independence.

II. Involvement of the DIS in the arbitration process – Transparency is strengthened

The role and the powers of the DIS as an institution will be strengthened and expanded. In particular, a new body, the “Arbitration Council”, is founded. The purpose is to ensure that many controversial decisions will be taken by an independent body of the DIS and not by the arbitral tribunal itself. The Arbitration Council’s competencies comprise in particular:

o Decision to appoint a sole arbitrator upon request of any party and if the parties did not agree on the number of arbitrators (Article 10.2). The Arbitration Council will decide, after hearing the other party, whether the arbitral tribunal shall be comprised of one or three members.

o Decision on the challenge of an arbitrator (Article 15.4): Under the DIS Rules 1998 the decision on the challenge of an arbitrator was made by the arbitral tribunal itself and not by the DIS. Although it was common practice that at least in three-member tribunals the challenged arbitrator would not participate in the challenge decision, many practitioners criticized that the arbitral tribunal had to make this decision. To shift the competence for this kind of decision to a body embedded within the institution will certainly enhance the acceptance of a challenge decision and reduce the risk that an unsuccessful party will appeal the challenge decision with the state courts.

o Decision on the arbitrator’s removal from office if the Arbitration Council considers that the arbitrator is not fulfilling its duties according to the DIS Rules 2018 or will not be fulfilling its duties in the future (Article 16.2).

o Decision on the arbitrators’ fees in case the arbitration has been terminated prior to the making of a final award or by an award by consent (Article 34.4). Under the DIS Rules 1998 the decision on the fees in these cases was made by the arbitral tribunal itself and not by the DIS.

o Decision to reduce the arbitrators’ fees based upon the time it has taken the arbitral tribunal to issue its final award (Article 37).

o The arbitral tribunal will determine the amount in dispute after consultation with the parties. Based on the amount in dispute the DIS will determine the arbitrators’ fees. Upon request of any party the Arbitration Council can modify or confirm the arbitral tribunal’s determination. This is a feature which in contrast to many institutional rules is unique. It ensures that the arbitrators being closest to the matter in dispute decide upon the amount in dispute. At the very same time it also ensures the integrity of the arbitral tribunal in cases a party appeals the arbitral tribunal’s decision upon the amount in dispute.

o The DIS will now request and administer the deposits for the arbitrators’ fees payable by the parties. This is an important amendment. Under the DIS Rules 1998 the arbitral tribunal had to request and administer the deposits which was heavily criticised by many arbitrators.

o The case management team will review the award with regard to form (Article 37.3).

III. Efficiency, quality and expedition of arbitration proceedings are enhanced

Under the DIS Rules 2018 the DIS has adopted several rules to enhance more expeditious and efficient proceedings than under the DIS Rules 1998. The most prominent amendments are:

o Quicker constitution of a three-member tribunal: Respondent has to nominate its arbitrator within 21 days (instead of 30 days under the DIS Rules 1998) after receipt of the request for arbitration (Article 7.1 (i)) also, the deadline – set by the DIS – for the co-arbitrators to nominate the president was shortened from 30 days to 21 days (Article 12.2).

o Respondent has to file the answer to the request for arbitration within 45 days after receipt of the request (Article 7.2). The DIS Rules 1998 did not stipulate any deadline for a respondent at all. Instead, the arbitral tribunal had to set respondent the deadline to file its answer. This former procedure was often criticized. Delays in the constitution of the arbitral tribunal often meant that respondent had very long deadlines to submit its answer.

o The DIS Rules 2018 stipulate that a case management conference has to take place, in principle, within 21 days after the constitution of the arbitral tribunal (Article 27.2).

o As regards the agenda of such case management conference the DIS Rules 2018 go one step further than many other institutional rules: Article 27.4 obliges the arbitral tribunal, parties and in-house counsel to address and discuss the adoption of those measures which are listed in annexes 3 and 4 of the DIS Rules 2018. These measures increase the procedural efficiency and reflect the common international arbitration practice. The measures listed in annex 3 are, inter alia, the limitation of rounds and length of submissions, the exclusion or limitation of production of documents by the party not having the burden of proof and the power of the arbitral tribunal to give a preliminary legal and factual assessment of the case.

o Further, the parties, the arbitral tribunal and in-house counsel are also obliged to discuss the application of the rules of expedited proceedings (annex 4) during the case management conference. The DIS Rules 2018 provide for the opt-in system. The revision process of the DIS Rules showed that in-house counsel considered it more appropriate and efficient to evaluate the application of the rules of expedited proceedings at the outset of the arbitration during the case management conference rather than at the stage of concluding the arbitration agreement. At the stage of the case management conference, the amount in dispute, the kind of dispute, and further the availability of counsel, witnesses and experts can be assessed and therefore also the appropriateness of the application of expedited proceedings rules.

IV. Multi-party, multi-contract and joinder of additional parties

The DIS Rules 1998 addressed only the constitution of an arbitral tribunal in case of multiple claimants or respondents (section 13 DIS Rules 1998). Apart from that, the DIS Rules 1998 stipulated that it was within the arbitral tribunal’s discretion to decide on the admissibility of multi-party proceedings. The term “multi-party” comprised multi-party and multi-contract proceedings, the consolidation of two or more arbitration proceedings or the joinder of additional parties. The requirements of the admissibility of these different procedural constellations were not set out in the DIS Rules 1998.

The DIS Rules 2018 contain new and multi-faceted provisions for multi-party proceedings, multi-contract proceedings and the joinder of additional parties (Articles 8 and 17-19).

V. What will the future bring?

The revision of the DIS Rules reflect the best practice of a modern set of arbitration rules which meets the expectations of users for cost-efficient, expeditious and transparent arbitration proceedings. Nonetheless, the DIS has consciously chosen to maintain and enhance those distinct features which characterize civil law proceedings. With this, the DIS underlines its role as one of the leading international arbitration institutions, but honours its civil law traditions which have been attractive to parties from all over the world.

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Specialised Chambers for International Commercial Disputes: Paris in the Spotlight

Wed, 2018-02-14 03:40

Ioana Knoll-Tudor

Jeantet

In 2010, the Commercial Court of Paris created a specialised international and European court chamber in order to judge all international complex commercial cases in the first instance. Although French procedural rules continue to apply before this court chamber, evidence and oral debates can take place in a foreign language, if the judges and the parties so agree. Judges of this special chamber are competent, both linguistically and substantially, to adjudicate complex international commercial cases. Parties cannot elect this special chamber to hear their dispute, they can only chose the Commercial Court of Paris as the competent jurisdiction. Once the dispute is submitted to the Commercial Court, it is distributed among the different court chambers. Disputes with an international character are more likely to be heard by the international chamber (although in practice it is difficult to predict if that will be the case). If the decision in first instance is appealed, the ordinary procedure designates the Paris Court of Appeal as competent to hear the case since no international chamber exists at the Court of Appeal.

Background

On 7 March 2017, the French Minister of Justice asked the High Legal Committee of the financial market of Paris (HLCP) to prepare a report on the opportunity of creating court chambers specialised in hearing international commercial litigation disputes within the Paris Court of Appeal.
This initiative aimed at increasing French jurisdictions’ international visibility, especially for those businesses choosing London to solve their disputes. The success of the Commercial Court of London with foreign companies is a reality: each year, 80% of the cases submitted have at least one foreign party and in almost 50% of these cases both parties are foreign companies. Moreover, in the UK, the market of commercial litigation legal services, represented a total of 16 billion euros in 2016. The success of London in the field of commercial litigation is justified, among others, by the UK’s access to the mechanisms of mutual recognition of awards among the Member States of the European Union. This access will certainly be modified once the UK will no longer be part of the EU.

The report of the HLCP was rendered on 15 May 2017 and proposed the creation of specialised court chambers competent to judge all international commercial disputes, including the recourses against international arbitral awards.1)In France, the Paris Court of Appeal is generally competent to hear all actions against international arbitral awards and against exequatur procedures of international arbitral awards or awards rendered abroad. All such actions initiated after 1 March 2018 will take place in front of the International Chamber. jQuery("#footnote_plugin_tooltip_1434_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1434_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
The agreements creating an international court chamber within the Paris Court of Appeal (the « International Chamber ») have been signed on 7 February 2018 and define the procedure applicable before these specialised court chambers, both in first and second instance.

What Are the Cases Judged by the International Chamber?

The International Chamber will be competent for hearing appeals introduced against decisions rendered by the international court chamber of the Commercial Court of Paris, between a French and a foreign entity as well as between two foreign entities, or whenever a foreign law is applicable to the dispute.

The competence of these international court chambers should be automatic whenever at least one of the parties is a foreign entity or a foreign law is applicable to the dispute. If either of these two criteria is fulfilled, the contractual designation of the Commercial Court of Paris should be sufficient to have the case heard by these international court chambers. Parties can also make a specific reference to these court chambers in the contract.

What Are the Particularities of the International Chamber?

The creation of the International Chamber allows France to have two degrees of jurisdiction in front of which international commercial disputes can be heard according to adapted procedural rules, partly in English and by experienced and highly qualified judges.

  • The use of English or of another foreign language during the procedure

In front of the International Chamber, in accordance with the agreement of the parties:
– all documentary evidence can be presented in the language chosen by the parties without need for a translation,
– witnesses, experts, parties and foreign lawyers will be able to intervene orally in the chosen language2)As a default rule, pleadings will be held in French. jQuery("#footnote_plugin_tooltip_1434_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1434_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });,
– all procedural acts will be drafted in French,
– the award will be drafted in French, with a sworn translation in English.
The possibility to chose English in front of these court chambers will not only save time and expenses – because the parties will no longer have to produce sworn translations – but will also give access to a larger pool of international lawyers and experts.

  • Qualified judges

The specialised court chambers will be composed of permanent judges, experienced in commercial, financial and economic cases, with a knowledge of the main foreign applicable laws but also able to use English during the procedures. In addition to these permanent judges, the possibility of having highly qualified part-time judges is currently under discussion.

  • Adapted procedure

The procedure in front of the specialised courts will be shorter and more efficient, with, for example, time extensions more difficult to obtain than in front of ordinary courts. Judges will define procedural timetables in close cooperation with the parties and their representatives.

A large place will be given to testimonial evidence: witnesses and experts can be called to testify in court, to answer questions by the judges, and be cross-examined by the parties’ counsels (which is currently not a common feature of French commercial litigation).

  • Recognition and enforcement of French decisions

In the context of Brexit, the fact that France will continue to benefit from the automatic recognition and enforcement of the French decision in all Member States is an advantage. The UK’s exit from the European Union will also mean that it will no longer be integrated in the EU legal system. In practice, all decisions rendered in London will have to be submitted to the exequatur procedures of each Member State, in order to be recognised and enforced.

  • Start of the operations

The International Chamber will be operational as soon as its President and his/her two advisers will be appointed by the Superior Council of Magistrates. All procedures initiated after 1 March 2018 will be heard by the International Chamber.

  • An increased choice of French law

The International Chamber will judge cases in which a foreign law is applicable to a dispute, but also cases in which French law has been chosen by the Parties, whenever at least one party is not French. The authorities expect that once these specialised court chambers become operational and popular with the Parties, French law will be chosen more frequently as the governing law of international contracts.

Similar European Initiatives

The French initiative to set up court chambers specialised in international commercial litigation in which English can be used is not unique. Similar projects are ongoing in different EU countries. The Irish bar is in talks with large solicitor firms in Dublin and the solicitors’ professional body in order to see how to best market the Irish legal system abroad. In the Netherlands, the new Netherlands Commercial Court is due to open in 2018 with English and Dutch as the languages of the proceedings, specialised Dutch judges and effective and shorter proceedings. The Brussels International Business Court should be operational in 2018, with proceedings and judgements in English, no appeal possible and a procedure inspired by international arbitration. Finally, also in 2018, the regional court of Frankfurt will establish an English-speaking chamber for commercial matters, in front of which – if the parties so request – the dispute can be litigated in English.
France hopes to benefit from the eminent place it already occupies in international arbitration and litigation. The ICC and its Arbitration Court are based in Paris and the only ICSID hearing facilities outside of Washington D.C. are in Paris. The market of legal services counts an important number of law firms offering strong international arbitration and litigation practices and court costs remain rather modest compared to the high quality of services delivered. The success of these different European specialised court chambers will depend on the procedural features offered to the Parties, but most importantly on the trends that will emerge from the case law and which will allow international litigators to make an informed choice.

References   [ + ]

1. ↑ In France, the Paris Court of Appeal is generally competent to hear all actions against international arbitral awards and against exequatur procedures of international arbitral awards or awards rendered abroad. All such actions initiated after 1 March 2018 will take place in front of the International Chamber. 2. ↑ As a default rule, pleadings will be held in French. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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A View toward the Post-Brexit Future: the UK in the NAFTA? Part II

Tue, 2018-02-13 01:21

Patrick Pearsall and Thomas Wingfield

In the first part of this article, we discussed the need to broaden the debate about the UK’s future trading relationships, touched upon some potential advantages of the UK joining the NAFTA and traced the idea’s limited history.

Is there political will?

These days, the idea remains on the periphery, even out of sight.

Each of the three NAFTA members is open to agreement with the UK, at least unilaterally.1) The UK Commons International Trade Committee has heard that “Both the Mexicans and the Canadians have publicly stated that they would welcome the UK to accede to NAFTA” (Oral evidence: UK-US Trade Relations, HC 481-I, 25 October 2017, Questions 70-71). jQuery("#footnote_plugin_tooltip_7772_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); President Trump has stated that “no country that could possibly be closer than our countries […] We have been working on a trade deal which will be a very, very big deal, a very powerful deal, great for both countries and I think we will have that done very, very quickly.”2) G20 Press Conference, 8 July 2017. jQuery("#footnote_plugin_tooltip_7772_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Mexico has separately publicised its openness to negotiation with the UK. Likewise, Canada. Outside government, John Weekes, former chief NAFTA negotiator for Canada, has stated that “[i]n many ways it would make a lot of sense for the UK to join the NAFTA […] You wouldn’t have to sit down and work out de novo what a trade agreement with the US would look like, you would start with something that is already there.” Likewise, “it would make a lot of sense from a UK perspective to have one agreement with the three North American countries rather than three agreements with the North American countries – especially when the North American countries have one agreement with each other.”3) Prosperity Conference, 26 April 2017, Trade Panel: Prospects of a North Atlantic and other Free Trade Agreements. Australia’s High Commissioner to the United Kingdom, Alexander Downer, said much the same with respect to the TPP: “Setting up new structures would be a laborious way to start.” jQuery("#footnote_plugin_tooltip_7772_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In the UK itself, the NAFTA has been mentioned surprisingly few times in parliamentary debate, and generally only in passing. Last year, in the House of Lords following the EU referendum, Daniel Brennan observed “[a United States trade agreement with the UK] might bring us into or next to the NAFTA with Canada and Mexico. I am not recommending it but pointing out that there is an actual alternative.”4) Outcome of the European Union Referendum, 5 July 2016, Lord Brennan, 15:48 (Hansard). jQuery("#footnote_plugin_tooltip_7772_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Again in the House of Lords, following the last Queen’s Speech, former Foreign Secretary David Owen asked “What would happen if we were able to get a NAFTA mark 2 with Canada and the United States? That is not at all impossible.”5) Queen’s Speech, 5th Day, 28 June 2017, Lord Owen, 19:09 (Hansard). jQuery("#footnote_plugin_tooltip_7772_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The new House of Commons International Trade Committee has re-commenced the first session of an inquiry into UK-US trade relations, which was originally interrupted by the June 2017 general election. Its terms of reference include “what involvement, if any, the UK should seek to have in the North American Free Trade Area or any future regional free trade agreement involving the USA.”6) ‘UK-US trade relations inquiry launched’, ITC, 16 October 2017. jQuery("#footnote_plugin_tooltip_7772_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Its Chair commented that “Ministers are only at the point of informal discussions with the US” and “[c]learly the Government has a lot of work to do before negotiators sit down for formal talks with their US counterparts”.

For now, the Government itself seems to be keeping its cards close. Effectively, the official position remains unchanged since before the election: “it is too early for the Government to outline the details of our position relating to a future trade agreement with the US.”7) Liam Fox letter to Angus MacNeil, 26 February 2017. jQuery("#footnote_plugin_tooltip_7772_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

However, it has more recently been reported that the NAFTA is one of several options considered as part of “Project After”, the Department of International Trade’s plan B brainstorming in the event of no deal with the EU. Here the NAFTA sits alongside other theoretical possibilities including the Trans-Pacific Partnership (“TPP”), free ports and unilateral free trade i.e. removing all tariffs altogether. The Department for International Trade stated: “We are confident that we will find a deal that works for Britain and Europe too. But it is our responsibility as a government to prepare for every eventuality, and that is what we are doing.”8) Newsnight, 9 October 2017; ‘Brexit: Liam Fox, transition and “Project After”’, BBC, 9 October 2017. jQuery("#footnote_plugin_tooltip_7772_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

What can the UK do now?

Prime Minster May has said she is “optimistic” about a deal with the US, but that there is a “limit” as to what can be done before Brexit.9) G20 Press Conference, 8 July 2017. jQuery("#footnote_plugin_tooltip_7772_9").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The EU is, amongst other things, a customs union. Pursuant to the EU’s common commercial policy, the EU has exclusive competence to negotiate trade agreements on behalf of the member states as a collective. Hence, the UK is restricted in what it can do whilst still a member of the EU. The UK Government has repeated that the UK will honour its obligations as an EU member state prior to Brexit.

It is clear, then, that the UK will not conclude any new free trade agreements until after Brexit. It is less clear, however, what the UK can do before Brexit. According to Secretary of State Liam Fox, “[r]emaining true to those obligations does not […] preclude us from having discussions on our future trading relationships.”10) Liam Fox letter to Angus MacNeil, 26 February 2017. jQuery("#footnote_plugin_tooltip_7772_10").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Commons International Trade Committee reported that “[w]hile there seems to be broad consensus that the UK can, legally, undertake informal discussions with non-EU countries about future trade relationships, it is not clear how far the Government can go towards negotiating new agreements on the spectrum from having informal discussions to having a deal ready to sign the day after the UK leaves the EU.”11) UK trade options beyond 2019, House of Commons International Trade Committee, First Report of Session 2016-17, published 7 March 2017, ¶165. jQuery("#footnote_plugin_tooltip_7772_11").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Committee concluded that, “[g]iven that striking new FTAs is a major strand of the UK’s Brexit strategy”, this lack of clarity was “untenable”. Whilst “accept[ing] that there is no precedent for this situation—and that the EU’s view could differ from that of the UK”, the Committee requested that the Government set out clearly its position on how far it can go.12) UK trade options beyond 2019, ¶201. jQuery("#footnote_plugin_tooltip_7772_12").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Although the answer was waylaid for seven months by the intervening election,13) Liam Fox letter to Angus MacNeil, 20 April 2017. jQuery("#footnote_plugin_tooltip_7772_13").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the Government did respond, albeit with questionable clarity. The Government drew a distinction between negotiations of trade agreements and “discussions on our future trading relationships”, but declined to elucidate further: “it would not be appropriate to publish anything that may undermine our negotiating position”.14) ‘UK trade options beyond 2019: Government Response to the Committee’s First Report of Session 2016–17’, published 17 November 2017, responses 21 & 22. jQuery("#footnote_plugin_tooltip_7772_14").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

There may be some irony that the EU’s legal competence currently prevents the UK from concluding new trade agreements to trade outside of the EU. Ultimately, however, the more important issue may be what the UK is able to achieve in a post-Brexit transition period. Very recently, the EU declared that “[d]uring the transition period, the United Kingdom may not become bound by international agreements entered into in its own capacity in the fields of competence of Union law, unless authorised to do so by the Union.”15) XT 21004/18 ADD 1 REV 2, 29 January 2018, ¶16. jQuery("#footnote_plugin_tooltip_7772_15").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Is it either-or?

The UK Parliament’s International Trade Committee also asked “whether the UK should use informal discussions with the US to influence its formal trade negotiations with the EU.”16) First session, UK-US trade agreement examined, ITC, 25 October 2017. jQuery("#footnote_plugin_tooltip_7772_16").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Further questions spring to mind – would doing so poison the EU negotiations? or show that the UK means business when it says ‘no deal is better than a bad deal’? will non-EU nations be willing to reach agreements in principle when there is such uncertainty about the UK’s agreement with the EU? Arguably however, these kind of questions do not go deep enough into viewing the UK’s global negotiations in the round.

Even if joining the NAFTA would actually be to the UK’s benefit, there may be no NAFTA to join.17) It also appears increasingly probable that the TPP (without the US) will come into existence. Recently, the remaining 11 TPP members announced their intention to sign a Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) in March 2018. Much of the discussion in this article would also apply to a future CPTPP. Britain has held informal talks with CPTPP members. Greg Hands, UK Minister of State for Trade Policy, is reported as saying “Nothing is excluded […] With these kind of plurilateral relationships, there doesn’t have to be any geographical restriction” (Financial Times, 2 January 2018). Liam Fox, International Trade Secretary, is reported as saying that press reports were “rather overblown” and the UK wanted to see how the TPP evolved after the US exit before making such a move (BBC, 3 January 2018). jQuery("#footnote_plugin_tooltip_7772_17").tooltip({ tip: "#footnote_plugin_tooltip_text_7772_17", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the first part of this article, we described the NAFTA as bringing a degree of certainty, but the NAFTA has perhaps never been so uncertain. Prime Minister Trudeau has said renegotiations could end in a “win, win, win”, but President Trump has never renounced his statement that the NAFTA is “the worst trade deal ever”.

Yet, the renegotiations continue. In itself, that is telling. Talks have been extended. The reality may not be as dramatic as some reports suggest.

And, at times of flux for both sides, the NAFTA may also be at its most flexible and welcoming. After all, President Trump is on record both for threatening to terminate the NAFTA and for being willing to cut a quick deal with the UK. Perhaps these should not be considered separately: perhaps the UK might inject some new lifeblood into the NAFTA.

Joining the NAFTA may or may not be a solution to the UK’s trade in the post-Brexit future. Even if the possibility is far-fetched, it is a useful exercise to consider the question. What might initially seem no more than a stimulating idea may look increasingly worthy of consideration. These are the kind of questions that should be asked now, before it becomes too late.

References   [ + ]

1. ↑ The UK Commons International Trade Committee has heard that “Both the Mexicans and the Canadians have publicly stated that they would welcome the UK to accede to NAFTA” (Oral evidence: UK-US Trade Relations, HC 481-I, 25 October 2017, Questions 70-71). 2, 9. ↑ G20 Press Conference, 8 July 2017. 3. ↑ Prosperity Conference, 26 April 2017, Trade Panel: Prospects of a North Atlantic and other Free Trade Agreements. Australia’s High Commissioner to the United Kingdom, Alexander Downer, said much the same with respect to the TPP: “Setting up new structures would be a laborious way to start.” 4. ↑ Outcome of the European Union Referendum, 5 July 2016, Lord Brennan, 15:48 (Hansard). 5. ↑ Queen’s Speech, 5th Day, 28 June 2017, Lord Owen, 19:09 (Hansard). 6. ↑ ‘UK-US trade relations inquiry launched’, ITC, 16 October 2017. 7, 10. ↑ Liam Fox letter to Angus MacNeil, 26 February 2017. 8. ↑ Newsnight, 9 October 2017; ‘Brexit: Liam Fox, transition and “Project After”’, BBC, 9 October 2017. 11. ↑ UK trade options beyond 2019, House of Commons International Trade Committee, First Report of Session 2016-17, published 7 March 2017, ¶165. 12. ↑ UK trade options beyond 2019, ¶201. 13. ↑ Liam Fox letter to Angus MacNeil, 20 April 2017. 14. ↑ ‘UK trade options beyond 2019: Government Response to the Committee’s First Report of Session 2016–17’, published 17 November 2017, responses 21 & 22. 15. ↑ XT 21004/18 ADD 1 REV 2, 29 January 2018, ¶16. 16. ↑ First session, UK-US trade agreement examined, ITC, 25 October 2017. 17. ↑ It also appears increasingly probable that the TPP (without the US) will come into existence. Recently, the remaining 11 TPP members announced their intention to sign a Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) in March 2018. Much of the discussion in this article would also apply to a future CPTPP. Britain has held informal talks with CPTPP members. Greg Hands, UK Minister of State for Trade Policy, is reported as saying “Nothing is excluded […] With these kind of plurilateral relationships, there doesn’t have to be any geographical restriction” (Financial Times, 2 January 2018). Liam Fox, International Trade Secretary, is reported as saying that press reports were “rather overblown” and the UK wanted to see how the TPP evolved after the US exit before making such a move (BBC, 3 January 2018). 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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Kluwer Mediation Blog – January Digest

Mon, 2018-02-12 03:25

Anna Howard

From lessons learnt from Lord Hope’s diaries and the memoirs of Ken Newell (a Presbyterian Church minister in Northern Ireland) to a debate at the recent Lex Infinitum competition on whether the role of the mediator can be overrated, the first month of 2018 has offered up the usual variety of posts on the Kluwer Mediation Blog. A brief summary of each post can be found below.

In “Mediation and Dialogue Facilitators: One Profession or Competitors”, Tatiana Kyselova shares the preliminary findings of her research on mediation and dialogue facilitation in the Ukraine and identifies some distinctions between these two fields.

In the honest and uplifting “Mediators and Self-Doubt”, John Sturrock draws on Lord Hope’s Diaries to identify what we can learn, as mediators and professionals, from Lord Hope’s admissions of self-doubt and anxiety.

In “Odd Conversations: four vignettes”, Ian Macduff reflects on recent conversations and identifies mediator strategies to address the challenges presented by these types of conversations.

In  “(This house believes) The Role of the Mediator can be overrated”, Greg Bond sets out the key arguments presented during a debate at the recent Lex Infinitum mediation competition on the motion of: “The Role of the Mediator Is Overrated”.

In “The History of Mediation in the Middle East and its Prospects for the Future“, Negin Fatahi  provides an overview of the history of mediation in the Middle East and identifies some of the differences between mediation in this region and the West. Negin also considers the factors which may lead to an increase in the use of mediation in the Middle East.

In “Reputation Bias”, Constantin-Adi Gavrila considers whether mediators have their own interests in the mediation processes in which they are involved and, if so, the further issues which this raises.

In “A Neuro-linguists toolbox – A Starting Point and Building Rapport”, in the first in a series of posts on this topic, Joel Lee provides an introduction to Neuro-Linguistic Programming and explains how it can assist in the practice of amicable dispute resolution.

In “A Light at the end of the tunnel for labour disputes in Brazil”, Andrea Maia explains recent changes to labour laws in Brazil which may result in the greater use of mediation and negotiation for labour disputes.

In “Lex Infinitum – Celebrating Three Years of Inspiration”, Anna Howard interviews the founders of the Lex Infinitum mediation competition, Jonathan Rodrigues and Prof. M.K. Prasad. Jonathan and Prof. Prasad offer their insights on the aspirations behind the competition, its impact on the participating students and professionals, and its influence on the growth of mediation in India.

In “A Minister’s Mediation Challenges”, Bill Marsh explains how his horizons have been challenged and expanded by reading Ken Newell’s memoirs, “Captured by a Vision”. Ken (a Presbyterian Church minister in Northern Ireland until his retirement some years ago) played a central role in bringing together representatives of both sides of that region’s long-running conflict.

In particular, Bill identifies some of the key characteristics which Ken’s role required of him, and which go with the territory of being “in the middle”.

More from our authors: International Arbitration and the Rule of Law
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A View toward the Post-Brexit Future: the UK in the NAFTA? Part I

Sun, 2018-02-11 01:17

Patrick Pearsall and Thomas Wingfield

To many, it would seem foolish even to ask whether the UK might join the North American Free Trade Agreement. Yet, the UK should explore all possibilities open in a post-Brexit world. As we explain, the idea that the UK might join the NAFTA is not only conceptually interesting, but also merits entertaining with a degree of seriousness.1) See discussion with Patrick Pearsall on “Predictions for a post-Brexit UK/US trade agreement”. jQuery("#footnote_plugin_tooltip_6494_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6494_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

How do the NAFTA and the EU compare? In many ways, there is no comparison. The NAFTA is a free trade agreement. The EU is an economic and political union. There are 3 states in the NAFTA. There are 28 states in the EU. There is no NAFTA parliament. There are no NAFTA elections. There is no NAFTA legislation. There is no NAFTA court of justice. The NAFTA Trade Commission is not the equivalent of the European Commission in purpose or powers. There is no NAFTA central bank. There is no NAFTA single currency. There is no NAFTA common external tariff. There is no NAFTA common trade policy. The NAFTA does not require anything like the level of bureaucrats employed in Brussels.

The things that the NAFTA is not are the same things that many supporters of Brexit most dislike about the EU. It is a recurrent argument that the EU is a free trade arrangement which has got out of hand, taking too much control and interfering in too many areas. Many Brexit supporters say that the EU has overreached itself over time. Many who voted to leave in 2016 voted to enter in 1975. For such voters, perhaps the EU should be more like the NAFTA: free trade without a super-state. Certainly, the NAFTA represents an alternative to the EU model.

Should the UK be talking about the NAFTA?

So far, to the limited extent that UK membership of the NAFTA has been spoken about at all, it has been introduced principally as a contingency plan in the event that negotiations with the EU fail to come to an acceptable conclusion. In other words, the NAFTA would come into play only on a ‘no deal’ scenario with the EU. But is it correct to view the question as a binary choice? Would NAFTA membership be compatible with a future agreement with the EU? That, of course, depends upon the terms of that agreement. Hence, it is important that these issues are evaluated now, rather than later. An agreement with the EU and agreements with non-EU countries should not be considered in isolation from one another. For the same reason, it is unlikely to be the most effective strategy to negotiate them purely sequentially. There should, at the very least, be simultaneous consideration and discussion.

However, the current focus in the UK is on the UK’s future relationship with the EU. Every day, folks are eager for updated news, gossip and speculation about the state of negotiations. This question – how the UK will deal with the EU in the future – is undoubtedly important, affecting incalculable aspects of living and doing business in the UK. But the EU question is not the only question. There is also the question of the UK’s future relationships with non-EU states. It is a mistake to focus on the EU to the exclusion of the non-EU. But it is an understandable mistake. Individuals, media outlets and even governments can only direct their attention in so many directions and only have finite resources to bring to bear.

The almost exclusive prominence (at least in column inches) currently given to agreeing a “new partnership” with the EU is also encouraged by the UK Government’s goal in those negotiations to secure “a time limited implementation period” of perhaps two years, during which access between the markets will continue on current terms. According to the Government, the “UK would intend to pursue new trade negotiations with others during the implementation period.”2) Preparing for our future UK trade policy, Department for International Trade, 9 October 2017, p.8. jQuery("#footnote_plugin_tooltip_6494_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6494_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In other words, this is largely a question for another day.

However, there is no guarantee that the EU will agree to such a standstill period following legal Brexit. (The EU’s guidance for the next phase of Brexit negotiations states that transitional arrangements should cease 21 months after Brexit day.3) COM (2017) 830, 20 December 2017, ¶21. jQuery("#footnote_plugin_tooltip_6494_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6494_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });) Nor that, if agreed, either period would be long enough for the UK to conclude the new trade agreements desired. The UK-EU Article 50 negotiations effectively have a two year cut-off, and time may already be feeling tight.

The Government’s white paper ‘Preparing for our future UK trade policy’ is by its own admission only an “early step”.4) Preparing for our future UK trade policy, p.5. jQuery("#footnote_plugin_tooltip_6494_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6494_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As negotiations move onto new ground, now is an appropriate time to take stock. The EU accounts for very roughly half of the UK’s trade.5) UK Overseas Trade in Goods Statistics August 2017, Office for National Statistics (ONS), 10 October 2017. jQuery("#footnote_plugin_tooltip_6494_5").tooltip({ tip: "#footnote_plugin_tooltip_text_6494_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The other half must be considered alongside.

According to its Prime Minister, “it is time for Britain to get out into the world and rediscover its role as a great, global, trading nation.”6) ‘The government’s negotiating objectives for exiting the EU’, Theresa May, 17 January 2017. jQuery("#footnote_plugin_tooltip_6494_6").tooltip({ tip: "#footnote_plugin_tooltip_text_6494_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Secretary of State for International Trade, Liam Fox, has spoken of having around 40 free trade agreements ready to go “the second after midnight” after Brexit in March 2019.7) Subsequently, provided for in the Trade Bill 2017-19. jQuery("#footnote_plugin_tooltip_6494_7").tooltip({ tip: "#footnote_plugin_tooltip_text_6494_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, these planned agreements are proposed only to replicate those trade agreements already existing between the EU and non-EU states. When the UK leaves the EU, it will leave more than the EU. Here again, the aim is to preserve the status quo a while longer, avoiding a cliff edge and disruption of trade. So, if these future agreements become reality, they would be essentially transitional, neither moving the UK forward nor offering an alternative to the EU model.

What might be the benefits of joining the NAFTA?

The figures vary according to the source, but the US, Canada and Mexico have a combined GDP of around the same as, if not more than, the combined GDP of the EU. Britain, the US, Canada and Mexico account for more than 30% of the global economy. They are connected by the Atlantic and the internet. The US and Canada are, like the UK, in the G7. The US is the UK’s largest single country trading partner. Together the NAFTA nations account for 13% and 20% of the UK’s imports and exports respectively (comparing with 53% and 45% for the EU).8) ‘Who does the UK trade with?’, ONS, 21 February 2017. jQuery("#footnote_plugin_tooltip_6494_8").tooltip({ tip: "#footnote_plugin_tooltip_text_6494_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Joining the NAFTA may have certain advantages.9) For the avoidance of doubt, it is beyond the scope of this article to evaluate, and we take no position on, whether NAFTA membership would actually make sense for the UK. jQuery("#footnote_plugin_tooltip_6494_9").tooltip({ tip: "#footnote_plugin_tooltip_text_6494_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The US and Canada, in particular, are obvious present and future trading partners with the UK in whatever form that takes. They have substantial common cause with the UK, in economic as well as other matters. They share many principles of law. The 23-year old NAFTA brings with it a degree of certainty, perhaps unobtainable with less established or yet-to-be-agreed arrangements. There is a degree of certainty about the jurisprudence. The existing NAFTA relationship is well-known and well-analysed. The UK would have a sense of what it was getting into.

The UK would not be starting from scratch. Joining the NAFTA could be construed as an extension of the UK’s present pragmatic policy of adopting/adapting existing trade agreements with the EU. Provided the NAFTA survives and the existing three states are open to a new member, the UK could sign up relatively quickly by the standards of treaty negotiation (if not quick, then quicker). Canada, Mexico and the US have effective and experienced negotiating teams up and running (perhaps worryingly effective and experienced). The UK Government is under significant time and resources pressure. Brexit brings new challenges to Whitehall and exposes existing challenges which have long been absorbed by the intervening bureaucratic infrastructure in Brussels.

What is the history of this idea?

The idea of the UK joining the NAFTA is not entirely novel, although its history is patchy. In 1998, Newt Gingrich, then Speaker of the House of Representatives, mooted the UK as an associate member. In 2000, Republican Phil Gramm, then chairman of the Senate Committee on International Trade, announced that doors would be opened in Washington “in a matter of a week” if the UK knocked. Kenneth Clark, now Father of the House of Commons, responded “I hope nobody believes that Senator Gramm is typical of American opinion, because he ain’t.” UK Foreign Secretary Robin Cook described the idea as “barmy”, agreeing with a leaked Foreign Office memo. To all this, Senator Gramm replied that “[Barmy] is not a word in the American-English dictionary, which reminds me we have been separated too long […] I was still unsure whether I was being complimented.”10) ‘We back Britain joining Nafta, says US Senator’, The Telegraph, 5 July 2000. jQuery("#footnote_plugin_tooltip_6494_10").tooltip({ tip: "#footnote_plugin_tooltip_text_6494_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Senate Finance Committee had requested an investigation into the impact of including the UK in the NAFTA “in order to determine whether the success […] can be replicated with other trading partners”. The subsequent International Trade Commission report found that “[b]ecause trade between the UK and the North American countries is subject to relatively low tariffs, […] elimination of these tariffs would have minimal effects on the economies of the countries in question.”11) Investigation 332-409, Publication 3339, August 2000. jQuery("#footnote_plugin_tooltip_6494_11").tooltip({ tip: "#footnote_plugin_tooltip_text_6494_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

To the extent that the idea subsequently had any significant traction, it was largely amongst the politically conservative and Euro-sceptical of both sides of the Atlantic. Conrad Black, sometime transatlantic media tycoon and prison inmate, has been another notable advocate of the idea as “based on the Anglo-American free market model”, predicting that “Britain would be received [by the US] with rejoicing and extensive reminiscences about Churchill and Roosevelt” and “[i]f America were jubilant, Canada would be ecstatic.”12) Britain’s Final Choice: Europe or America?, Centre for Policy Studies, 1998, pp.13, 27. jQuery("#footnote_plugin_tooltip_6494_12").tooltip({ tip: "#footnote_plugin_tooltip_text_6494_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); He did not speculate how Mexico would feel.

In the second part of this article, we consider the present degree of appetite for this idea, the restrictions on the UK’s freedom to negotiate whilst still a member of the EU and the implications of the uncertainty about the future of the NAFTA itself.

References   [ + ]

1. ↑ See discussion with Patrick Pearsall on “Predictions for a post-Brexit UK/US trade agreement”. 2. ↑ Preparing for our future UK trade policy, Department for International Trade, 9 October 2017, p.8. 3. ↑ COM (2017) 830, 20 December 2017, ¶21. 4. ↑ Preparing for our future UK trade policy, p.5. 5. ↑ UK Overseas Trade in Goods Statistics August 2017, Office for National Statistics (ONS), 10 October 2017. 6. ↑ ‘The government’s negotiating objectives for exiting the EU’, Theresa May, 17 January 2017. 7. ↑ Subsequently, provided for in the Trade Bill 2017-19. 8. ↑ ‘Who does the UK trade with?’, ONS, 21 February 2017. 9. ↑ For the avoidance of doubt, it is beyond the scope of this article to evaluate, and we take no position on, whether NAFTA membership would actually make sense for the UK. 10. ↑ ‘We back Britain joining Nafta, says US Senator’, The Telegraph, 5 July 2000. 11. ↑ Investigation 332-409, Publication 3339, August 2000. 12. ↑ Britain’s Final Choice: Europe or America?, Centre for Policy Studies, 1998, pp.13, 27. 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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Arbitrating in Brazil: Arbitration and Binding Precedents

Fri, 2018-02-09 21:50

Teresa Arruda Alvim

This post covers the main topics broached in my lecture given in Oxford, in the Conference “II Oxford Symposium on Comparative International Commercial Arbitration”, which took place on November 20, 2017.

The question is: are arbitrators bound by precedents or by a clear line of case law, when parties have decided, in the arbitration agreement, that Brazilian law should be the basis of the final award.

To solve this problem, firstly, something has to be said about arbitration and, secondly, something has to be said about the law, which is much more difficult.

1). A quick look at the several theories on the nature of arbitration is useful here.

There are at least four theories which have been created to explain the legal nature of arbitration. They are known as the jurisdictional, contractual, mixed (or hybrid) and autonomous theories.

According to the first theory – jurisdictional – the arbitrator’s award is comparable to a judgment rendered by official courts.

Arbitrators, say those who adopt this theory, draw their powers from national law – exactly like judges do. The only difference is that arbitrators are appointed by the parties. But both make final and binding decisions.

According to the contractual theory, the arbitration agreement is the most important element of arbitration. The submission to the agreement and the award are two phases of the same contract.

The mixed theory, it seems to me, is the one that explains arbitration in the best way possible.  It is highly accepted, and recognizes both worlds in arbitration: elements of public and private law.

On the one hand, what happens during arbitration proceedings and to the award has to stick necessarily and perfectly to the arbitration agreement.

On the other hand, the main principles of procedural law have to be given consideration.

Arbitrators undoubtedly exercise a public function, as some legal writers say, a quasi-judicial role, because they solve disputes and make binding decisions (on the parties).

The fourth and last theory is the autonomous theory. It considers that arbitration is a phenomenon which can operate outside the constraints of positive law or national legal systems. This approach is intimately linked to the idea that arbitration is something that “floats”, having no connection with any national law.

In my point of view, this theory makes arbitration rather unattractive. In a country like Brazil, the possibility of judicial control, even if very rare, inspires trust and encourages its use.

In fact, parties shall exercise control over the arbitrator’s conduct. If arbitration stems from an agreement where parties delegate power to a third person in order to make binding decisions in a specific dispute in a certain prescribed way, this power is naturally not absolute. Arbitration proceedings are obviously bound by the arbitration agreement.

So, even if there is a clear tendency to consider the judicial review of arbitral awards undesirable, it cannot be taken to extremes.

Well, as I said, the approach that recognizes elements of public and of private law in arbitration is, in my view, the correct one.

It stems from a contract, so it must be respected.

If arbitrators do not comply with the agreement, this should be considered grounds for the award to be challenged before the courts.

2). On the other hand, what does a clause saying that “Brazilian law must be applied” effectively mean? What is law?

Currently, most law philosophers or people who just reflect about the law, not in a technical way, have perceived that law (in civil law jurisdictions) cannot be identified with statutory law.

The complexity of modern societies has already shown that statutory law is not enough to completely regulate human conduct.

If law is the rule that individuals have to obey, it is evident that legal writing and case law play a very important role in its formation.

Statutory law must be interpreted and its final “design” is given by courts according to legal scholarship.

As we know, in civil law jurisdictions, legal writings are a very prestigious source of law.

The last version – the one that really counts – of the rule is given by the Courts – normally the Supreme or Superior Courts.

In sum, when a potential client asks us ‘is the law on my side?’, ‘Am I going to win?’, We have to do more than just read the statutes to give them a reliable answer. We do have to consult case law and legal literature.

Even in civil law jurisdictions, where precedents are ordinarily not binding, there are cases where there is a clear set of precedents along the same lines, where courts have been firmly adopting the same position for years.

Furthermore, in Brazil we have now binding precedents, in a small number of cases. For instance, the decisions made in proceedings joined as a result of what is very similar to a group litigation order are binding on other future cases where the dispute revolves around the same quaestio iuris.

Binding precedents should be considered as law. They are conceived and regulated by statutes as MANDATORY. A clear and predictable line of precedents in the same direction, in some cases, as well. They are law in the sense that they are benchmarks or rules of conduct which have to be respected by individuals in their day-to-day conduct, in planning their business, in distinguishing the licit from the illicit.

To a certain extent, judges create law, even in civil law countries. In civil law jurisdictions, it normally happens in the interpretation of statutes or in solving disputes not expressly solved by the statutes.

3). So, if arbitrators are judges (for the parties), they have to decide according to the law chosen by them. They cannot interpret statutes in their own way, independently of binding precedents or established case law. These elements are part of the law.

Arbitrators are in many ways comparable to judges: they analyze facts, assess them and then, in the light of the law chosen by the parties in the arbitration agreement, make their decision. But in my view, they cannot be creative, for example, solving the dispute departing from all possible interpretations already given by official courts, from a clear line of case law or – even worse – from binding precedents (so considered by statutes). And this, because it could be considered that they could create law, as judges do.

So, in fact, lawyers should refer to binding precedents as grounds of their pleading, as well as to establish case law. In the former case, if a precedent applies, that is, if the facts are the same or similar to those underpinning the precedent, the arbitrator cannot refuse to respect it. Unless, a distinction can be made.  In the latter case, there is a duty, from which the arbitrator can depart only if there are powerful arguments.

In any case, even if the binding precedent is not referred to, iura novit curia applies.

So, binding precedents have to be respected by the arbitrators.

In some exceptional cases, even stablished case law.

Why? For several reasons:

i. Because not to respect them would be a breach of contract – the parties having said in the arbitration agreement that they want Brazilian law to be applied;

ii. If this were possible, there would be substantive law of arbitration and substantive law of courts. Arbitrators have to apply the same law that courts do: and the latter have the last word on what law is;

iii. If this were possible, arbitration would be a world apart, in terms of predictability. Even the possibility of the creation of specific case law in the world of arbitration would not justify this possibility.

Arbitration is a choice of method; of path. It is just a choice of the road, but parties want to arrive at the same place, as if they had chosen to have their dispute solved by courts. So much so that in the arbitration agreement Brazilian law has been chosen to be the basis of the arbitrator’s award; arbitrators lack legitimacy to innovate in law.

iv. If Brazilian law is not applied, parties may be surprised. Law cannot surprise. Predictability is inextricably linked to the idea of law.

This breach of contract can be grounds for challenging the arbitral award before the Judiciary. The power delegated to the arbitrator is limited: so, these limits must be controlled by someone, otherwise they would be putative limits. This “someone” is the judge.

Despite the trend of suppressing judicial control of the arbitrator’s award, in my view, there is a small group of grounds which cannot be deprived of judicial appreciation. Disrespect of the arbitral agreement is certainly one of them.

If the possibility of controlling the award did not exist at all, the limits created by the parties in the agreement would be nothing but an illusion.

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