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Decrypting Cryptocurrencies: Why Borderless Currencies May Benefit from Borderless Dispute Resolution

Thu, 2017-11-02 00:19

Simon Maynard and Elizabeth Chan

Three Crowns LLP

Cryptocurrency is a term that is becoming increasingly familiar. But how many of us have considered its implications for the world we live in—let alone for the practice of international arbitration?

Cryptocurrencies—essentially digital cash—and the blockchain technology on which they are built, have the potential to revolutionise the way funds are raised, traded and stored. Cryptocurrency transfers are not only faster, simpler, and less expensive than those offered by many financial services companies, but processing cryptocurrency transactions is also far cheaper than the cost of many traditional payment systems.

In June 2017, the total market capitalisation for all cryptocurrencies surpassed US$100 billion, while trading between cryptocurrencies has grown to in excess of US$2 billion a day. So mainstream have cryptocurrencies become that a number of international law firms have confirmed that, in principle, they would accept payment of their fees in cryptocurrency.

With the proliferation in the use—and potential abuse—of cryptocurrencies, the possibility for disputes can only increase—and with it, the need for an effective and efficient means of “off-blockchain” dispute resolution.

Decrypting cryptocurrencies

Cryptocurrencies are digital currencies. But unlike a fiat currency, the value of which is backed by a third-party institution (such as a central bank), cryptocurrencies are a decentralised digital asset represented by line items on a distributed public ledger called blockchain. Instead of relying on a financial institution to record transactions, blockchain leverages the resources of large peer-to-peer networks to verify and confirm each cryptocurrency transaction.

Blockchain ledgers are described as “distributed” because financial information is stored across multiple sites (which can be anywhere in the world), without the need for a central administrator. Every time a cryptocurrency transaction is made, that transaction is verified, confirmed and stored on a cryptographically secure public ledger—or “block”—that is linked to the preceding block, thus creating the blockchain. The blockchain is replicated across the entire network of peers, thus allowing parties to transact securely without a third-party intermediary.

The largest—and most widely known—cryptocurrency remains bitcoin, which was invented in 2009 by the still unidentified Santoshi Nakamoto. However, there are now over 900 different digital currencies, with bitcoin now representing less than half the world’s total cryptocurrency value.

Initial Coin Offerings and other potential cryptocurrency disputes

One of the most innovative and growing uses of cryptocurrencies is as a means to crowdfund investment capital via an Initial Coin Offering (ICO).

In an ICO, a company sells digital coins or tokens in exchange for payment in cash or an established cryptocurrency. The coin or token may function like a share, giving its owner an equity stake in the issuing company, with voting rights and a right to dividends. Alternatively, coins may operate more like points earned in a retailer loyalty programme, enabling their owner to access particular features (for example, goods or services) offered by that company.

In either case, like a share, the value of the coin or token can increase if the business is successful. In theory, it can then be traded globally on exchanges that handle cryptocurrencies. And as with any venture where funds are put at risk by investors, uncertainties as to the allocation of that risk, or the basis on which the risk was assumed, can give rise to disputes.

For instance, in order to attract investment, a company launching an ICO will provide certain information about its business, which may include an offering memorandum or prospectus, in some respects comparable to an offering circular issued by a company engaging in a rights or bond issue. Arbitration clauses could be the logical dispute resolution mechanism to include in such documents.

It is not just a possible breach of the terms and the conditions of these memoranda that could give rise to a claim. The manner in which an ICO is conducted also has the potential to form the basis of a dispute.

To take a recent example, in an ICO conducted earlier this year, network congestion resulting from high subscriber demand prompted the issuing company to keep the offering open for longer that it had initially planned. This resulted in complaints from early investors who argued that, in consequence, the funds raised had been allowed to succeed the issuer’s capped target, with the effect of decreasing the value of the coins purchased prior to reaching that target. Again, given the international profile of ICO investors, arbitration could provide the most effective means of resolving such disputes.

The potential for cryptocurrency disputes does not stop at ICOs. Despite the security provided by end-to-end encryption, there remains the possibility for disputes arising out of failures in the underlying blockchain system itself. Last year, in a high-profile hacking incident involving the popular Ethereum cryptocurrency platform, a hacker siphoned off millions of dollars worth of cryptocurrency contributed by investors. Investors who suffer harm arising from similar failures in the blockchain underlying their cryptocurrency investments may naturally wish to seek damages from the platform provider.

Finally, while uncertainty remains as to whether cryptocurrency-based economic activities can be classified as “investments” for the purposes of the existing investment arbitration regime, the rush of certain States to regulate—and even ban—cryptocurrency investment means that investment arbitration may well yet be deployed as a means to resolve regulatory disputes.

Arbitration as a means of resolving cryptocurrency disputes

Although the cryptocurrency industry is still relatively nascent, it has the potential for significant growth. As some cryptocurrency providers have already recognised, disputes arising from borderless currencies may be best served by a commensurately borderless form of international dispute resolution.

Not only does international arbitration offer a neutral alternative to domestic courts and result in an award that is enforceable in 157 countries under the New York Convention, it also allows cryptocurrency issuers and investors to choose expert decision-makers equipped to deal with technically complex disputes, as well as protect the confidentiality of sensitive proprietary information. Indeed, arbitral rules could be specifically tailored to suit the peculiarities of cryptocurrency disputes, just as they have been for, amongst other things, intellectual property disputes and disputes arising from the space industry.

However, a recent survey by the Silicon Valley Arbitration and Mediation Center suggests that while lawyers in the tech sector are increasingly likely to use international arbitration over litigation—with key benefits identified as specialist expertise, time to resolution, and increased privacy—only 35% had actually used arbitration in their last claim, compared to 44% for litigation and 37% for mediation.

There is, therefore, a pressing need for arbitration practitioners to promote the benefits of arbitration to the tech community, including those involved in developing and investing in cryptocurrencies. As a starting point, there would appear to be scope to develop model arbitration clauses tailored to cryptocurrency disputes, and to ICOs in particular, and to examine what (if any) modifications to institutional rules may be required to accommodate such disputes better. This could include, for example, providing for a list of specialist arbitrators able to handle the unique questions generated by cryptocurrency-related disputes. These might include complex conflict of laws issues, arising from the tension between international law, domestic regulatory regimes and the governing law of any relevant contractual agreement(s).

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Argentina’s Arbitration Legal Reform: Steps in the Right Direction?

Tue, 2017-10-31 16:39

Nicolás Costabile

Argentina’s Arbitration Legal Reform: Steps in the Right Direction?

Argentina is arguably one of the countries with the most untapped economic potential worldwide. Argentina’s government, led by President Mauricio Macri, is trying to change that. Together with undertaking economic and political reforms aiming at stimulating private investment, the Argentine government is pushing for an exhaustive legal reform. This reform includes revising its outdated arbitration legal framework as, it is often said that, an arbitration-friendly regime is regarded as crucial for foreign investors.

In the past couple of years, Argentina has enacted a new Civil and Commercial Code (“CCC”) including substantive provisions on arbitration, passed a law on Public-Private Partnership Contracts (“PPPC”) expressly providing for arbitration clauses in such contracts, and this year, the government introduced two bills into Parliament: (1) an international commercial arbitration law, based on the 2006 UNCITRAL Model Law, and (2) a reform to Section 29 (Contract of Arbitration) of the CCC.

A. Argentina’s Current Arbitration Legal Framework: A Need for Reform.

Argentina’s arbitration legal framework is fragmented and outdated. As opposed to other Latin American countries, in Argentina there is no unified international or domestic arbitration statute. Arbitration legislation is divided into federal (nationwide) legislation and provincial (local) legislation. While at the federal level, arbitration is regulated in at least two different statutes, most of the 23 Argentine provinces have arbitration-specific provisions in their provincial procedural codes. Arbitrations seated in the city of Buenos Aires are governed by federal legislation.

The two main federal (nationwide) statutes are the CCC and the Civil and Commercial Procedural Code (“CCPC”). The CCC, which was enacted in August 2015, introduced a set of substantive provisions under its Section 29 (Contract of Arbitration) in an attempt to modernise the substantive legal framework for arbitration at the federal level. Although not entirely based on the Model Law, the CCC was a step in the right direction as it adopts many of its core principles.

On the other hand, Section VI of the CCPC governs the arbitration procedure. This section has remained almost unchanged since the CCPC entered into force in 1967. Many of its provisions are therefore outdated. For example, there is no express provisions on separability and kompetez-kompetenz; if the parties’ agreement to arbitrate is in a separate document to the contract, it must have the formalities of a public or private instrument or be approved by the court (Art. 739); and if the parties have failed to agree upon a specific procedure, the arbitral tribunal must follow the procedure for court proceedings (Art. 751).

Although these two codes appear to regulate different facets of arbitration, i.e., substantive issues (the CCC) and procedural issues (the CCPC), there is in fact some overlap and contradiction between the two. For example: (1) under the CCPC, when it is not clear whether the tribunal should act as amiable compositeurs or resolve the dispute based on the law, it has to be the former (Art. 766), whereas under the CCC (Art. 1652) it has to be decided based on the law; (2) while under the CPCC (Arts. 746-747) the challenge to an arbitrator shall always be decided by the court, under the CCC (Art. 1663), it shall be decided by the institution that administers the arbitration or, in the absence thereof, by the court; and (3) while under the CCC (Art. 1656), parties have the right to review final awards by way of appeal before national courts, under the CPCC (Arts. 758-760), this right can be waived. The right to set aside the award cannot be waived under either code.

Some of the uncertainty created by these contradictions have been clarified by the courts. For example, on whether awards should always be subject to appeal, as provided by Article 1656 of the CCC, courts have held consistently that the wording in Article 1656 regarding the possibility to appeal the arbitral award should be interpreted as the setting aside of the award and the only available recourse against final awards.

Other relevant arbitration provisions are included in the recent PPPC law enacted in November 2016. This law governs contracts between bodies and entities comprising the national public sector and private or public individuals or entities, as contractors. It applies to projects in the infrastructure, housing, services, production, applied research and technological innovation sectors. The main arbitration-related provisions included in the PPPC law are Articles 25 and 26 which essentially provide that: (i) the parties may choose arbitration as a means of dispute resolution. If so, an arbitration clause, which must be approved by the Executive Branch of the government and communicated to the Argentine Congress, shall be included in the contract, and (ii) arbitral awards rendered in Argentina can only be reviewed by the setting aside procedure or be subject to clarification of any of the terms of the award, as provided by law. These reviews cannot include a reconsideration of the facts of the case or the application of the provisions of the applicable law.

Unlike other countries, in Argentina there is no clear guidance as to what constitutes “international” arbitration. The same set of scattered provisions govern both domestic and international arbitrations. The distinction between domestic and international arbitrations is relevant because international (or “foreign”) arbitration awards are enforceable in more than 157 countries through the New York Convention. In contrast, parties to domestic arbitrations cannot avail themselves of the New York Convention mechanism to enforce domestic awards. With no clear rules as to whether arbitrations seated in Argentina are considered “international”, there is thus no certainty as to whether such awards will be enforced, if needed, via the New York Convention.

In sum, as it currently stands, Argentina’s arbitration legal regime is dispersed across different statutes, sometimes overlapping in crucial issues and providing contradicting solutions. Parties to international arbitrations seated in Buenos Aires, for example, do not have an easy task where Argentine law governs and Buenos Aires’ courts may need to assist in such arbitrations. As the Argentine Government has reasoned, a reform is therefore necessary.

B. Argentina’s Proposed Arbitration Legal Reform

As part of a wider legal reform of the Argentine justice system, two bills have been introduced into parliament to modernise its arbitration framework: (1) an international commercial arbitration law, based on the Model Law, and (2) a reform to Section 29 (Contract of Arbitration) of the CCC.

  1. Proposed International Commercial Arbitration Law

On 7 September 2017, the Argentine Senate approved the proposed International Commercial Law bill which is now pending approval from the Representatives Chamber before it comes into force. The new law will govern international commercial arbitrations seated in Argentina.

The new law mirrors the Model Law almost entirely except for a few substantive differences. Under the proposed bill: (1) parties cannot agree that the subject matter of the arbitration agreement relates to more than one country, as one of the possibilities for an arbitration to be considered “international” as provided under the Model law (proposed Art. 4), (2) the “in writing” requirement of arbitration agreements cannot be recorded “orally, by conduct, or by other means” as provided by the Model Law (proposed Art. 15), (3) all awards have to be reasoned, as parties cannot agree otherwise as under the Model Law (proposed Art. 87), and (4) the time frame for setting aside an award is reduced substantially from three months under the Model Law, to thirty days in the proposed bill (proposed Art. 100).

  1. Proposed Amendment to the CCC

Although the CCC has come into force fairly recently (in August 2015), an amendment of its arbitration section (Section 29) has been sent to Parliament in March 2017. Its discussion by Parliament has yet to start, but the reform is aimed at unifying the Argentine arbitration regime by modifying (or removing entirely) certain provisions that are considered problematic and contrary to key provisions of the proposed international commercial arbitration law. Among the proposed amendments, three are the most significant.

First, Art. 1651, which expressly excludes the “national or provincial state”, consumer, labour, and family disputes from being capable of settlement by arbitration, is changed entirely. Its proposed wording broadens the scope of arbitrable issues considerably as it only excludes from arbitration “issues that are not capable of being settled”. The proposed amendment also provides that an arbitration agreement may not be opposed on the ground that the rules applicable to the settlement of the dispute are public policy rules.

Second, the last sentence of Art. 1655, that provides that interim measures may be challenged before state courts if they ‘violate constitutional rights’ or if the courts ‘deemed them unreasonable’, is eliminated. This is to avoid giving courts broad discretion to invalidate measures adopted by arbitral tribunals as “unreasonable”.

Third, the last sentence of Article 1656 is cut out, as it provides that parties cannot waive the right to judicial review of final awards by way of appeal. The proposed amendment also clarifies that when parties have agreed to submit their disputes to arbitration, courts should deny jurisdiction unless they find that the arbitration agreement is “null, ineffective or inapplicable”

C. Are these Reforms the Best Move Forward?

The proposed reforms are certainly a big step in the right direction. The arbitration community as a whole, but particularly investors, should welcome these measures as they are aimed at making Argentina more arbitration-friendly. These measures will simplify the Argentine arbitration legal framework by eliminating outdated provisions and including modern arbitration provisions in line with other countries in the region. This will increase Buenos Aires’s attractiveness as a seat of arbitration.

Having said that, there is still room for improvement. Assuming that both reforms are approved by Parliament, there would be two different legal regimes for international and domestic arbitrations. While international commercial arbitrations would be governed by the new arbitration law, domestic arbitrations would be governed by a combination of the CCC and the CCPC. To prevent the inconsistencies discussed above between these two codes, one way forward would be to also amend the CCPC. This, however, may take too long. A better option would be to extend the scope of application of the new arbitration law to domestic arbitrations as well, as other countries in the region (such as Peru, Paraguay and Colombia) have done.



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Will 2018 Mark a Tipping Point for Binding Investor-State Arbitration?

Mon, 2017-10-30 22:09

Colin Trehearne

Herbert Smith Freehills

The international economic order is today bound together through a network of bilateral (and multilateral) investment treaties which provide investors with a variety of protections. Such Bilateral investment treaties (“BITs”) are a relatively young species dating back to 1959’s Pakistan-Federal Republic of Germany BIT. While the exact content of BITs varies by agreement, most contain binding investor-State dispute settlement (“ISDS”) pursuant to which investors of one State party to an agreement are able to bring arbitral claims directly against the investment-receiving host State (without the need for their home State to act, as was historically the case). From the investor’s perspective, effective dispute settlement is a clear boon: it helps to increase levels of predictability and certainty by ensuring that the host country (receiving the investment) abides by its obligations under the BIT. ISDS was also designed to provide investors a fair hearing, free of politics, and before an independent tribunal. Like all arbitration, ISDS was also seen as creating enforceable decisions through a customizable and inexpensive process.

By their nature, bilateral agreements focused on the protection and promotion of investments were of interest to developed States. Developed States were generally capital exporting, had well-developed legal systems, and had the capacity to analyse, develop, and conclude BITs. Developed States were also, importantly, less likely to face the claims of investors. Over time the trend of BIT creation changed course and in the 2000s developing States too began demonstrating an independent interest in concluding BITs. By 2005 the United Nations Conference on Trade and Development (UNCTAD) was hailing a proliferation in global ‘south-south’ investment agreements developing alongside ‘north-north’ and ‘north-south’ agreements. States seemed to be of one mind that BITs were a desirable tool of policy: before 2012 only three BIT terminations had ever been declared and a 2015 OECD study found that States have rarely terminated, by agreement or unilaterally, investment treaties. With nearly 3000 BITs concluded (and with hundreds of other treaties containing investment provisions) there was little reason to question the continued existence of ISDS. Little reason, that is, until of late.

The international community today faces a unique moment in which ISDS may be exceptionally vulnerable to challenge. This is possible for four reasons. First, the number of BITs in effect has been under pressure due to recent terminations (including some bilaterally agreed terminations) by developing states. As some developing states have turned against ISDS, recent years have seen threatened, planned, or completed BIT terminations announced by, amongst others: Indonesia, Argentina, Poland, India, South Africa, Ecuador, Bolivia, and Venezuela. Although the reasons underpinning this varies by State, many seem likely to be motivated by a combination of recent record high numbers of investor-State disputes being filed and the regularity with which some of these States face claims. The number of new agreements being concluded has also seen a significant slowdown since reaching a peak in the 1990s. According to UNCTAD data, the number of BITs concluded in 2016 (18) was the smallest number in about three decades.

Second, in light of the initial validity periods and related terms of many BITs, UNCTAD has estimated that by the end of 2018 there will be approximately 1600 BITs that can be terminated or renegotiated at any time. This is approximately 70% of all BITs presently in force and a significant number of these – at least 350 – will reach the end of their initial durations between 2014 and 2018. Although some States (including Japan, South Korea, and China) have continued to conclude new trade and investment agreements, a majority of bilateral investment treaties are now vulnerable to change. Third, some parts of civil society have begun questioning different aspects of BITs and in particular, the ISDS provisions. Such critiques (leveled too at the TTIP and TPP) tend to focus on perceived legitimacy, transparency, cost, and potential impacts on state regulatory powers. While such critiques are not unanswerable they have contributed to the emergence of the fourth (and most important, most uncertain, and most recent) reason 2018 may mark a tipping point: some major developed States – those that have long driven the development of BITs and ISDS – also appear to be questioning the merits of ISDS.

The United States, European Union, Canada and Australia represent just shy of 50% of world GDP; they have also all recently expressed opposition in some form to ISDS. In the United States, the U.S. Trade Representative, Robert Lighthizer, said in Senate testimony that he was “always troubled by the fact that nonelected non-Americans can make the final decision that the United States law is invalid.” While the US supported including ISDS in the Trans-Pacific Partnership (and continues to include it in its model BIT), media reports of the first round of NAFTA renegotiations suggested the US was considering an ‘opt-in’ system under which NAFTA member States would individually choose whether or not to allow investors of other States to bring ISDS claims. The position of the Trump administration on this point remains unclear but skepticism also has been visible amongst some Democrats and some Republicans. The EU, for its part, has recently said (in the context of its drive towards a multilateral investment court) that “[f]or the EU ISDS is dead” and that “[u]nder no conditions can old-style ISDS provisions be included” in the new EU-Japan Economic Partnership Agreement.

Some middle powers, developed but historically dependent on trade, have also joined this trend. Canada agreed to the EU’s desired multilateral investment court, rather than ISDS, in the newly concluded EU-Canada Comprehensive Economic and Trade Agreement and the Canadian Foreign Affairs Minister later described this and other changes as examples of the kind of “progressive” trade deal Canada wants NAFTA to become. For its part, Australia has recently had a government that refused to accept ISDS provisions in new trade agreements and 2016’s general election saw the largest opposition party publicly opposed to including ISDS provisions in future agreements. When coupled with certain developing States terminating BITs and refusing the inclusion of ISDS in future agreements, a majority of the world’s economy is now overseen by governments either wary of, or openly opposed to, ISDS. In circumstances where roughly 70% of BITs will soon be able to be renegotiated or terminated, 2018 seems a crucial year for both opponents and proponents of investor-state arbitration to make their respective cases to maintain, reform, or abandon today’s ISDS system.

The views expressed are those of the author.

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Ecuador’s Ordeal: Is International Jurisdiction a Journey with No Return? (Part II)

Mon, 2017-10-30 06:47

Enrique Jaramillo

This post is the conclusion of a two-part publication regarding the situation of investors in Ecuador vis-á-vis the country’s efforts to elude the substantive and procedural protections afforded by investor-state dispute settlement (ISDS).

The first part consisted of a review of the law applicable to entering and withdrawing from the International Centre for Settlement of Investment Disputes (ICSID) Convention (the “Convention”), as well as its different interpretations; and, of Ecuador’s concrete steps to distance itself from ISDS. The first part concluded by stating that, even in light of such steps, Ecuador is still subject to international tribunals until 2036.

This part, in turn, refers to investors’ alternatives in the current environment; what might be Ecuador’s last standing BIT; and, the nation’s petroleum sector need of investment protections.


Investors’ Final Fig Leaf

Investors unwilling to submit their claims to national courts still have one way to resort to arbitration. As mentioned in the previous post, a country can consent to arbitration by treaty, but also by contract.

Ecuadorian law still allows the Government to consent to international arbitration in certain instances. For example, for claims arising out of public/private partnerships, as well as of investment, and petroleum contracts. Such consent, however, is subject to some constraints.

The Constitution provides the most important restriction. It prohibits the Government from submitting disputes to the jurisdiction of international arbitration tribunals, unless such disputes are submitted to Latin American tribunals, whose jurisdiction stems from instruments among Latin American parties. In light of such limitation, one particular venue seems to be well-suited to hear claims against Ecuador: Santiago de Chile.

In 2004, Chile adopted, without reservations, the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”). The Model Law, whose scope includes investments, is favored by many experts because its provisions not only restrict intervention by local courts, but also make the latter aides of arbitration tribunals.  Chile’s capital is also home to the well-reputed Centro de Arbitraje y Mediación de Santiago, which is managed by the Cámara de Comercio de Santiago along with 22 bi-national commerce chambers, including the U.S.-Chile Chamber of Commerce.

Furthermore, because Chile is a signatory of both the New York and the Panama conventions, awards issued in Santiago are enforceable in 157 jurisdictions.


Treaty Shopping: A Chain is only as Strong as its Weakest Link

By denouncing its BITs, Ecuador pretended to elude the power of international arbitration tribunals. However, such endeavor can succeed only by terminating every BIT. Leaving only one “alive”, would make Ecuador vulnerable to treaty shopping. Namely, foreign investors could incorporate in a country with which Ecuador still has a BIT, and gain access to the protections granted by such a treaty.

This practice has been successfully used in the past by companies such as ExxonMobil and ConocoPhillips, which used the BIT between The Netherlands (NL) and Venezuela to assert claims against the latter (see, e.g., Venez. Holdings, B.V. v. Bolivarian Republic of Venez., ICSID Case No. ARB/07/27, Decision on Jurisdiction, ¶204 (June 10, 2010)). Generally, investors prefer the BITs of NL because they afford protection to any company incorporated in that country, even if not domiciled therein.

Regarding Ecuador, there is a strong argument to claim that it did not denounce its BIT with Bolivia properly. Ecuador denounced such treaty via a note verbale delivered to Bolivia’s embassy in Quito on 19 May 2017. However, Article XII of the BIT states that the denunciation must be notified “one year before the expiration of the validity term”, which ends on 15 August 2027. Namely, Ecuador would have to denounce the treaty on 15 August 2026, hence, the note verbale mentioned above would be ineffective.

Two arguments this claim. The first one is the very text of the BIT. Unlike other BITs, such as Ecuador’s BIT with NL, Article XII of the Bolivia BIT does not say that the denunciation must be submitted at least one year before the expiration of the treaty, giving contracting parties leeway to denounce it at any time before that date.  It just says that the denunciation must be made “one year before” the expiration.

The second argument stems from an integral interpretation of the BIT. The treaty’s survival clause states that, in case of unilateral termination, the treaty will still be valid for ten years from the date in which the denunciation is notified. As mentioned above, Ecuador notified Bolivia on 19 May 2017, which means the treaty should be valid until 19 May 2027. However, the current validity term of the treaty expires only three months later, on 15 August 2027. Hence, interpreting Article XII of the BIT as allowing parties to denounce it at any point in time at least one year before its expiration would produce the absurd result of-in this scenario-making the survival clause to shorten, instead of extending, the life of the treaty.

The continued existence of the Ecuador-Bolivia BIT would have significant consequences. On one hand, it would continue to provide some investors with substantive protections such as fair and equitable treatment. On the other hand, it would subject Ecuador to the jurisdiction of international arbitration tribunals-at this point-indefinitely.

Even if this BIT continues to exist, however, it is worth to mention that it is not as propitious for treaty shopping as the BIT with NL. In order to benefit from the protections of the former, an investor would not only have to be incorporated in Bolivia, but it would also have to be domiciled therein.


The Return of the Production-Sharing Agreement

In July 2010, Ecuador’s Hydrocarbons Law was amended mandating to switch all the country’s production-sharing agreements (PSA) to service contracts. With a currently lower oil price, Ecuador now needs to allure foreign capitals to increase its reserves and boosts its production. The formula to attract investors is no secret: increasing profits, and reducing risk.

In order to increase investors’ profits, Ecuador is reintroducing the PSA in its next “Intracampos” bidding round to take place in the first quarter of 2018. The PSA, unlike the service contract, compensates investors by giving them ownership over a share of the extracted oil. Nevertheless, the PSA might not be enough to bring foreign capitals ashore. Ecuador’s stormy relationship with international oil companies, its withdrawal from ICSID, and the termination of its BITs, will certainly be factors that businesses will consider prior to investing in the country.

There are at least three alternatives capable of reducing investors’ risk. The first one consists of submitting disputes arising from petroleum contracts to the jurisdiction of arbitration tribunals in Santiago de Chile.

The second option is treaty shopping. Even assuming that Ecuador denounced all its BITs properly, some of those treaties, such as those with Bolivia and NL, have provisions protecting not only existing, but also new investments, for a fixed term after their denunciation. The Ecuador-NL BIT, for example, protects all investments made before 1 July 2021. Even if this is only a short-term solution, it is worthy of being mentioned because, as mentioned above, investors can easily avail themselves of the protections of this treaty; and, such practice has already been successfully implemented in the past.

The third option is potentially the most effective one, but it is also the most unlikely. Under customary international law and the Vienna Convention on the Law of Treaties (“VCLT”), a state can withdraw a denunciation notice, at any time before such notice takes effect. This practice is not usual but it is not unheard of either. In the sixties, for example, the U.S. withdrew a notice of denunciation to the 1929 Warsaw Convention. Likewise, this year both Gambia and South Africa withdrew their denunciations to the Rome Statute of the International Criminal Court.

Ten of Ecuador’s denunciations will only take effect in mid-2018, thus, theoretically, it could still go back on such denunciations. Withdrawal of the denunciations is, however, improbable because it would entail breaching Ecuador’s Constitution, which, as mentioned previously, restricts arbitration to Latin American fora.


Final Thoughts

Ecuador’s exposure to international arbitration is an issue full of both certainty and doubt. Although, one can safely assert that the nation is-for the time being-subject to the jurisdiction of non-ICSID tribunals, the jurisdiction of ICSID tribunals is still an open question (see first part of this post). Likewise, one can confidently say that investors can avail themselves of the protections of the NL BIT, which applies to investments made before July 2021. However, whether investors can do the same with the Bolivia BIT will depend of how tribunals decide to interpret such treaty in the future. From a legal viewpoint, arbitration in Santiago seems to be a safe bet but-in absence of precedent-it falls short of providing the same assurances as other venues.

If the South American nation aims to attract foreign capitals, it would be well-advised to revisit its approach to ISDS, and to provide investors with the same certainty as other countries in the region.

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Moving Beyond Rhetoric: Positioning Australia as an Upcoming Regional Arbitration Hub

Sat, 2017-10-28 18:56

Jonathan Mackojc


In 2015, the Chief Justice of the Supreme Court of Victoria highlighted the importance of positioning Australia as one of the next significant regional commercial hubs. Her Honour reiterated this position in a 2017 speech. Interestingly, similar, yet more subtle, comments were featured in a speech in 2009. Other Australian courts have made similar remarks over the years: a speech delivered by Justice Douglas in 2015, a speech delivered by Chief Justice Martin AC in 2014, and in a speech delivered by Chief Justice Bathurst in 2016. These are only several, among many, references that indicate Australia has for a significant period sought to establish itself as a leading hub for international dispute resolution services. However, it has struggled to move beyond rhetoric, which can be attributed to the lack of collaboration across the legal industry. The judiciary, alone, cannot drive such change without significant input from other stakeholders.

This post serves a four-fold purpose. The first is to identify the end goal. The second is to demonstrate that Australia must carefully position itself against a realistic target. The third is to outline Australia’s strengths in international arbitration. The fourth is to propose a list of action points, if Australia is to be recognised as an upcoming Regional Arbitration Hub by 2020.

Identifying the End Goal

Over the last few years, several buzzwords have dominated the arbitration landscape. These terms are often used interchangeably, loosely, and thus incorrectly. It is important to understand the differences, as this will help inform Australia’s desired position in the international arbitration arena. While four key terms are discussed, they must not be relied upon as technical definitions. They include: Global Commercial Hub, Global Dispute Resolution Hub, Global Arbitration Hub, and Regional Arbitration Hub.

A Global Commercial Hub (GCH) is the broadest of the three terms and is often referred to alongside the notion of a World City or Global City. Along with a strategic geographic position and world-class infrastructure, each is regarded as a global financial centre, capable of facilitating cross-border trade and investment with ease. The top five jurisdictions include: London, New York, Singapore, Hong Kong and Tokyo. Each of these are economically powerful cities.

On the other hand, a Global Dispute Resolution Hub (GDRH) can be defined as being highly capable of administering and enforcing cross-border commercial and investor-state disputes – whether this be via litigation or arbitration. Features of a GDRH include a strong and independent judiciary, a highly specialised international pool of legal professionals, and a hub which understands the importance of deference and comity.

A Global Arbitration Hub (GAH) is a more specific term, as its focuses solely on the administration of international arbitration. Such hubs include London, New York, Paris, and Geneva. Hong Kong and Singapore are two cities that have fought long and hard to achieve the title of GAH, and are probably now there. While global forces have assisted, the key drivers have been universities, arbitral centres and their respective judiciary and government. As former Chief Justice of the Federal Court of Australia observed, their commitment to the development of international arbitration has been ‘energetic and unequivocal’, and they are now reaping the rewards as a result of their diligence.

As the title suggests, a Regional Arbitration Hub (RAH) is one which caters for a specific region, yet works diligently in the hope that it will soon transition to a GAH. A current example of a RAH is Malaysia, which has sought to differentiate itself from Singapore in that it provides cost-effective arbitration, targets diverse stakeholders, and promotes innovation. As such, it can be said that Malaysia has been punching above its weight, considering that Singapore has been a popular arbitration destination within the last decade.

This then begs the question – where exactly does Australia fit into the picture?

A Positioning Exercise

This largely depends on where Australia sees itself in 2020. Three years is a fair amount of time for a jurisdiction to refine (or even overhaul) its approach to dispute resolution, particularly international arbitration. If Australia seeks to immediately claim the title of GCH or GAH, it will face disappointment. A GCH requires time, a strong economy, and a significant investment in infrastructure. Chief Justice Warren highlighted the need for the latter in a speech delivered in 2011, commenting that Melbourne ought to model its development on the Singapore International Arbitration Centre, which is situated in modern premises, and in a convenient location. The same can be said about other leading arbitral institutions such as the Hong Kong International Arbitration Centre, where parties can arrive at the arbitral centre in under 30 minutes when travelling from the Hong Kong International Airport. In short, significant commercial hubs require outstanding infrastructure.

Similarly, a GAH requires time, and parties will need to be convinced that world-class services are on offer. In the author’s view, a jurisdiction is most unlikely to achieve the status of a GAH until it has been recognised as a RAH.

A GDRH is equally difficult to achieve as it requires a multitude of stakeholders to promote cross-border legal services on a larger scale. Flexibility in domestic laws is also important. Victorian judges have discussed the need to establish an International Commercial Court, but it is likely that international parties would rather see an improvement in international arbitration offerings in Australia.

Thus, from a dispute resolution perspective, if the end goal is to be considered a GDRH or GAH, the clear first step is for the development of Australia as an upcoming RAH. In order to do so, the entire Australian legal profession must move beyond rhetoric to a plan of action.

Australia’s Strengths

Australia is already regarded as a significant economy in the Asia-Pacific region, and is respected internationally. It is also an important conduit for investment between countries in the Asia-Pacific region, acting as an intermediary in important transactions.

Australian lawyers are highly respected by clients and lawyers in overseas jurisdictions. Australia has always had a strong emphasis on training and retention, yet has inevitably lost a significant number of local lawyers who have chosen to advance their careers in other common law jurisdictions. Many of these lawyers now practice in international arbitration.

Australian judges are highly regarded abroad. Several retired Australian judges now sit on the Singapore International Commercial Court as ‘International Judges’. One of these judges includes The Honourable Justice Dyson Heydon, who retired from the High Court of Australia in 2013. Other retired Australian judges now sit as Non-Permanent Judges in the Hong Kong Court of Final Appeal, the most recent being The Honourable Mr Justice Robert French AC, former Chief Justice of the High Court of Australia.

Australia has a strong understanding, respect for, and application of the rule of law. This is important to parties who are seeking to have their disputes heard in a jurisdiction which boasts of an impartial, independent, and arbitration-supportive judiciary at a state and federal level. Regarding the latter, one recent example is in Lahoud v The Democratic Republic of Congo [2017] FCA 982, where the Federal Court of Australia recognised and enforced two decisions of the International Centre for Settlement of Investment Disputes (ICSID), which involved a foreign state. Other cases demonstrating a pro-arbitration stance include: Uganda Telecom Ltd v High-Tech Telecom Pty Ltd [2011] FCA 131; TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia [2013] HCA 5; Ultrapetrol SA v Jindal Steel & Power (Mauritius) Ltd [2015] FCA 1091; Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2016] VSC 326; and Sanum Investments Ltd v ST Group Co., Ltd [2017] FCA 75.

Recent developments in Australia include The Civil Law and Justice Legislation Amendment Bill 2017, which proposes several amendments to the International Arbitration Act 1974 (Cth) to further assist with the recognition of foreign awards in Australia. As of 1 July 2017, Australia now has uniform laws across all States and Territories, with respect to domestic commercial arbitration.

The Australian Centre for International Commercial Arbitration (ACICA) has also played a significant role in promoting Australia. The 2016 ACICA Rules are a modern set of institutional rules, which are in line with the rules of other leading arbitral centres and now offer parties emergency arbitration, expedited procedure, and interim measures.

Critics will, however, continue to argue that Australia is restrained due to its geographic position. Frankly, this is an argument that lacks substance, as parties are increasingly able to utilise electronic means for most steps in an arbitration and most are more than willing to travel in order to have their disputes resolved efficiently, and by highly skilled, impartial, and respected legal professionals. In 2016, ACICA published a Draft Procedural Order regarding the use of technology such as video conferencing and WebEx for preliminary conferences as well as interim and final arbitration hearings. Such developments clearly demonstrate ACICA’s willingness to embrace technology in order to assist parties who may be otherwise unable to attend an international arbitration hearing in person.

Vision 2020

Australia is not alone in the race to establish an arbitration hub. Other jurisdictions include Saudi Arabia, India, and Scotland.

The following is a list of 10 target areas that will help Australia achieve the status of a RAH by 2020:

1. lawyers (both private practice and in-house) must move beyond the default position of recommending litigation as the first instance/primary dispute resolution mechanism – parties must understand the benefits of arbitration. The first step involves ensuring that consideration is given to inserting an arbitration clause into new contacts, where applicable and appropriate;
2. reform at a grassroots level – universities must further promote and develop their international arbitration offerings. They must also be willing to revise their course guides, and work together with international partner universities to further promote Australia as an attractive place to study arbitration;
3. a harmonised and unified approach across all Australian courts that avoids competition and promotes collaboration;
4. educating private practitioners and in-house counsel of the advantages that flow from the procedures involved in choosing and conducting international arbitration;
5. continuing legal education – law firms and universities training a new generation of arbitration professionals, with learned skills and knowledge;
6. world-class infrastructure – public transport, rail connectivity, airport transfers, and easily accessible modern arbitral centres;
7. focus on leading in investment arbitration, as this area has significant growth prospects;
8. repatriation of Australian lawyers currently working as arbitration lawyers abroad to help build Australia as an upcoming hub, by sharing their insight and experience. This involves creating a competitive legal environment;
9. push for a greater number of strong Australia-based arbitration associations, which promote international engagement and diversity; and
10. all stakeholders must lobby state and federal governments for greater recognition of, and funding for, international arbitration.

While the action points above require time, the first step necessarily involves self-promotion. In 2015, Justice Croft, another strong supporter of international arbitration and the Judge in Charge of the Arbitration List at the Supreme Court of Victoria, highlighted why Australia has struggled to emerge as a contestant in the international arbitration arena:

‘We are not out there enough telling people about the arbitration-friendly environment in Australia…’

The views expressed in this article are solely those of the author.

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Technology Dispute Resolution Survey Highlights US and International Arbitration Perceptions, Misperceptions and Opportunities

Fri, 2017-10-27 21:57

Gary L. Benton

A recently released study on technology sector dispute resolution highlights significant distinctions in the sector’s perceptions of US domestic and international arbitration. The study conducted by the Silicon Valley Arbitration & Mediation Center (SVAMC), a non-profit educational foundation based in Palo Alto, California, was directed to understanding technology sector views regarding litigation and arbitration.

The SVAMC study surveyed corporate counsel, law firm counsel, neutrals and users in the technology sector, representing wide expertise in technology business and law. Most respondents were US-based, and the survey responses reflect the views of an industry segment with limited exposure to international arbitration.

The results appear to suggest the technology industry – including IT, biotech and alternative energy among other segments – is increasingly dissatisfied with litigation, increasingly accepting of arbitration and widely uniformed as to international arbitration.

Top US Litigation Challenges: Cost, Time to Resolution and Lack of Expertise

Cost, time to resolution and inexperienced and unqualified decision-makers top the list of challenges with litigation involving technology companies, according to the study. These results are not surprising. Law firm billing rates for complex cases in the US courts are relatively high, and complex cases typically involve extensive discovery and other costly pretrial and trial expenses. For example, the litigation cost of major patent disputes ranges from $3M-$5M, accordingly to the latest AIPLA study.

Likewise, it takes a relatively long time to obtain a US court judgment, in large part due to overcrowded court dockets and time-consuming pretrial and appellate procedures. Recent studies suggest it takes 2-3 years to obtain a judgment in larger cases; however, many high-profile technology cases in the US courts are in appeals or facing new trials after five years. It is a serious problem when parties are fighting over technology that quickly becomes obsolete.

The expertise of decision-makers is of particular concern in technology-related disputes. Like nearly all jurisdictions, technology disputes in the US trial courts are decided by judges with limited technology law or industry expertise. And even more concerning, cases are typically tried before juries who have no legal training or subject matter knowledge.

Perhaps more interestingly, overly intrusive discovery, random jury verdicts and lack of international enforcement were not viewed as among the top litigation concerns by the survey respondents. While US technology counsel may be comfortable with US discovery and jury practices, the lack of concern over international enforcement is somewhat surprising. Most likely, the result reflects limited experience with international dispute resolution and efforts to enforce judgments abroad.

US Tech Sector Views on Arbitration: Specialized Expertise, Time Savings and Privacy

According to the SVAMC survey responses, the top benefits of arbitration are specialized expertise, time savings and privacy. The survey did not distinguish between US and international arbitration but it appears the responses were largely directed to domestic disputes.

While specialized expertise and privacy are attributes of both domestic and international commercial arbitration, there has been debate over whether international arbitration, as routinely practiced, provides significant time or cost savings.

The survey respondents’ focus on privacy likely reflects both a distaste for public court proceedings and an industry concern for protection of confidential business information and trade secrets. Yet, it is the exception to the rule to find arbitration clauses containing confidentiality protections.

Factors associated with the sector’s historical ambivalence to arbitration, particularly concerns over arbitrators exceeding the scope of their authority and perceived limitations on the availability of injunctive relief, ranked low in terms of areas where improvement in arbitration was needed. This suggests that US technology companies may be increasingly accepting of the use of arbitration to resolve disputes.

Notably, however, international enforcement of awards ranked low among identified benefits of arbitration just as it ranked low among concerns with litigation. This reinforces the conclusion that most US technology counsel are unfamiliar with the value of the New York Convention and other international conventions. This is particularly ironic because the conventions provide significant benefits, especially for an industry sector that has globalized and could take great advantage of multinational enforcement of awards involving intellectual property.

Advising the US Tech Sector on the Benefits of International Arbitration

Although directed principally to distinctions between litigation and arbitration, the survey responses appear to highlight a lack of appreciation for many of the benefits of arbitration, particularly in regards to international arbitration.

Understandably, the US technology sector has thrived despite, and perhaps in part due to, its historical reliance on the US courts. Its capability to continue to do so is impeded by the time, cost and expertise challenges identified in the survey. More importantly, its capability to do so is being increasingly challenged by the growing strength of competitors in newly developed markets, their resistance to dispute resolution in the US courts, and their growing insistence that disputes be resolved in their own national courts or regional arbitral institutions.

That said, there is no industry that evolves faster than the technology sector. Perhaps its legal counsel may be less quick to adapt but it is certain that the economic pull between established companies in the West and companies in Asia and other developing regions will compel increased reliance on international arbitration to resolve technology company disputes.

Looking Forward

It is unlikely that the problems associated with technology litigation will be resolved in any significant way any time soon. That leaves arbitration as the most viable mechanism for resolution on the merits. The US technology sector’s views regarding US and international arbitration are evolving, and we can expect further change as rising companies in developing regions reject US courts and press for resolution in local forums.

The likely result is that technology companies, and undoubtedly companies in other evolving sectors, will increasingly turn to international arbitration for resolution of disputes. Providers and practitioners who prepare for that transition will likely be well-rewarded.

Gary L. Benton is an internationally recognized arbitrator and mediator with over thirty-years law firm and in-house expertise in US and international business, private investment, technology and emerging growth matters. He has handled hundreds of cases around the world, is qualified as a US lawyer and an English solicitor, and is a Fellow of the College of Commercial Arbitrators (FCCA) and the Chartered Institute of Arbitrators (FCIArb). He is the founder and Chairman of the Silicon Valley Arbitration and Mediation Center (SVAMC).

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The Launch of the 2018 Queen Mary and White & Case International Arbitration Survey

Fri, 2017-10-27 05:12

Dipen Sabharwal and Mona Wright

White & Case LLP and the School of International Arbitration at Queen Mary University of London (QMUL) are partnering once again to carry out cutting-edge empirical research in the field of international arbitration, with the launch of the 2018 International Arbitration Survey.

International arbitration is the natural choice for resolving business disputes because it is able rapidly to evolve in response to the needs of its users. As Stavros Brekoulakis, Professor in International Arbitration and Commercial Law at QMUL, explains, “In the last 30 years, the field of international arbitration has evolved on a great scale and in a number of ways, including in terms of legislation, jurisprudence and practice.”

The 2018 Survey, therefore, focuses on the evolution of international arbitration: comparing trends over recent years, exploring current perceptions, and examining what users want and expect from the international arbitration system in the future. Professor Brekoulakis notes further, “Importantly, the survey also aims to identify key innovations and factors that may impact on the future development of international arbitration, including the role of information technology.”

Previous surveys carried out by QMUL in partnership with White & Case in 2010, 2012 and 2015 considered themes including corporate choices in arbitration, current and preferred practices in the arbitral process, and innovations and improvements in international arbitration.

The 2018 Survey builds on these past themes and also explores both current perceptions and key issues for the future of international arbitration community.  Topics covered in the 2018 Survey include:

  • Perceptions of the system of international arbitration: what works well and what continues to frustrate users?
  • Which arbitral institutions and seats are favoured by users, and why?
  • What is the impact of diversity across arbitral tribunals and what else can be done to encourage more diversity?
  • Are users more familiar with third party funding than they used to be and, if so, what are their perceptions of it?
  • Who is responsible for the security of data when using information technology and what role will information technology play in the future?
  • Who and what will influence the future direction of international arbitration?

The 2018 Survey once again aims to explore the views of the international arbitration community as a whole. Participation is encouraged from all stakeholders in the arbitral sphere, including private practitioners, in-house counsel, arbitrators, academics and those with experience working for arbitral institutions.

The survey questionnaire will be open until 8 December 2017 and can be accessed at http://www.arbitration.qmul.ac.uk/research/2018/index.html . The questionnaire can be filled out online or by completing a PDF version. The questionnaire should take approximately 20 minutes to complete.

In parallel, there will also be a qualitative, interview phase. If you would like to participate in an interview, please contact the White & Case Research Fellow in International Arbitration at QMUL, Adrian Hodis ([email protected]).

The report reflecting the participants’ responses is expected to be published in Spring 2018. It is hoped that the responses to the survey will provide unique insights into the future development of international arbitration and the factors that will inform it.


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“Costs Follow Conduct” – A Musical Altercation

Thu, 2017-10-26 02:27

Eliane Fischer and Flavio Peter

When ABBA launched “The Winner Takes It All” in 1980, modern arbitration was still in its infancy. The ICC case numbers were just about to become four-digit, while the cases administered by ICSID could still be counted on two hands.

Yet already at that time, “The Winner Takes It All” exemplified one of the two predominant methods for apportioning costs in international arbitration: the “costs follow the event” rule.

The Winner Takes It All

ABBA’s lyrics “I don’t wanna talk, about things we’ve gone through, though it’s hurting me, now it’s history” read like a typical cost submission of an attorney who petitioned the tribunal not to take his numerous unsuccessful procedural motions into account when apportioning costs, not least because the opposing counsel also did her share to complicate the proceedings (“I’ve played all my cards, and that’s what you’ve done too, nothing more to say, no more ace to play”).

The “winner takes it all” approach, commonly referred to as “costs follow the event” rule stipulates that the losing party compensates the winner for its costs. It is one of two dominant approaches adopted by tribunals in civil as well as common law countries and stands in contrast to the so-called “American Rule” according to which each party bears its own legal costs, regardless of the outcome of the dispute.

But just as in the music world, “the winner takes it all” is only half the story. Along with other criteria, the parties’ conduct is also an aspect that is regularly considered by tribunals when apportioning the costs of the proceedings. The UNCITRAL Arbitration Rules 1976 already provided for the possibility to allocate the costs, “taking into account the circumstances of the case”. And while ABBA’s melody still resonated, arbitral tribunals had already factored in the party’s conduct in their cost decisions, laying the foundation of the “costs follow conduct” approach.

In LETCO v. Liberia, ICSID Case No. ARB/83/2, para. 378, the tribunal awarded the full costs of arbitration to the claimants including their own expenses holding that “the decision is based largely on Liberia’s procedural bad faith. Not only did Liberia fail to partake in these arbitral proceedings, contrary to its contractual agreement, but it has also undertaken judicial proceedings in Liberia in order to nullify the results of this arbitration.” Similarly, in Ultrasystems Inc. v. Islamic Republic of Iran, Iran-US Claims Tribunal, Award No. 27-84-3 (4 March 1983), the tribunal apportioned the costs holding that “extra costs were incurred by the Claimant through Isiran’s failure to provide information as to its status until a late stage of the proceedings“1)reprinted in Iran-US CTR 100, 113; cf. excerpt in CARON/CAPLAN, the UNCITRAL Arbitration Rules – A Commentary, 2nd ed. 2013, p. 894 jQuery("#footnote_plugin_tooltip_3347_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3347_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

And even as parties yelled the chorus of Queen’s “I want it all” (1989), tribunals considered and weighed the parties’ conduct in their cost decisions2)cf. eg. Dadras International and Per-Am Construction Corp. vs. The Islamic Republic of Iran and Tehran Redevelopment Company, Iran-US Claims Tribunal, Award No. 567-213/215-3 [7 November 1995] jQuery("#footnote_plugin_tooltip_3347_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3347_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, where the arbitral tribunal held that “the respondents have caused considerable disruption of the arbitral process and have unnecessarily occupied the resources of this Tribunal by pursuing their unfounded allegations of forgery and belatedly proffering the unconvincing testimony of Mr. Golzar”.

What goes around…comes around

Nowadays, it is impossible to ignore a tribunal’s competence to take the conduct of a party into account. The Rolling Stones had tried to explain that “You can’t always get what you want” (1969); but ever since Justin Timberlake’s number-one hit “What goes around…comes around” (2006) it should be clear to everyone involved that the conduct displayed during (or even prior to) the proceedings might show consequences. Whereas most of arbitration rules contain the generic wording (as e.g. used in the UNCITRAL Arbitration Rules 1976 or 2013; cf. art. 40(1) and (2) Swiss Rules; art. 35.1 and 37 SIAC Rules; art. 35.2 DIS Rules; art 34 ICDR Rules), other arbitration rules make the application of a “costs follow conduct” approach very explicit: art. 38(5) of the revised 2017 ICC Rules (and already art. 37(5) of the 2012 ICC Rules) provides that “[i]n making decisions as to costs, the arbitral tribunal may take into account such circumstances as it considers relevant, including the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner” (see also art. 49(6) and 50 of the 2017 SCC Rules).

There are various scenarios that might warrant considering the parties’ conduct in cost decisions. In general, the circumstances that call for the application of the “costs follow conduct” rule have been described such as falsifying witness or expert evidence, late counsel appointments that create a conflict of interest, repeated unsuccessful challenges against an arbitrator, voluminous or continuous document requests, unjustified failure to meet deadlines, false submissions to the tribunal, failure to comply with procedural orders, excessive legal arguments or exaggerated claims, dilatory tactics, due process paranoia etc.3)DOUG JONES, Using Costs Orders to Control the Expense of International Commercial Arbitration, The International Journal of Arbitration, Mediation and Dispute Management, 2016, p. 298 et seq.; CARON/CAPLAN, p. 872, with further references; ICC COMMISSION REPORT, Decisions on Costs in International Arbitration, ICC Disp. Resolution Bull 2015/2, para. 78-84, and Appendix A, p. 23 jQuery("#footnote_plugin_tooltip_3347_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3347_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In practice, it’s difficult to determine when a legal argument is “excessive” or whether it was clear that the challenges would be “unsuccessful”. Publicly known cases where costs were allocated for party conduct typically combine several of these factors (see LETCO v Liberia, ICSID Case No. ARB/83/2, Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/12, Maritime International Nominees Establishment v. Republic of Guinea, ICSID Case No. ARB/84/4). An illustrative example is the award of 16 September 2003 in Generation Ukraine Inc. v. Ukraine, ICSID Case No. ARB/00/9, para. 24.2 in which the arbitral tribunal concluded:

[t]he Claimant’s written presentation of its case has also been convoluted, repetitive, and legally incoherent. It has obliged the Respondent and the Tribunal to examine a myriad of factual issues which have ultimately been revealed as irrelevant to any conceivable legal theory of jurisdiction, liability or recovery. Its characterisation of evidence has been unacceptably slanted, and has required the Respondent and the Tribunal to verify every allegation with suspicion.

Karma Police

Recent developments suggest that the “costs follow [party] conduct” principle is gradually extending to further encompass counsel conduct. Following Radiohead’s call for a “Karma Police” that would “arrest this man” since “he talks in maths, he buzzes like a fridge, he’s like a detuned radio” (1997), sanctions for unnecessary “buzzing” of legal representatives are increasingly discussed in the arbitration world. Under the 2013 IBA Guidelines on Party Representation in International Arbitration, arbitral tribunals can take the party representative’s misconduct into account when allocating the costs of the proceedings. The 2014 LCIA rules further bestow arbitral tribunals with the power to sanction the legal representative in case of breach of the LCIA General Guidelines for the Parties’ Legal Representatives.4)art. 18.6 of the LCIA Rules; see also GONZÁLEZ-BUENO, Arbitral tribunals’ decisions on costs sanctioning the parties for counsel behavior: A phenomenon expected to increase?, Kluwer Arbitration Blog, April 16, 2014 jQuery("#footnote_plugin_tooltip_3347_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3347_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Yet, the emergence of this “costs follow [party and counsel] conduct” principle is no novelty. Already in Abrahim Rahman Goshani v. The Government of the Islamic Republic of Iran, Iran-US-Claims Tribunal Award No. 546-812-3 (concurring and dissenting opinion of 2 March 1993, paras. 14 and 15) the arbitrator referred to previous case law where the tribunal had taken into account a counsel’s conduct during the arbitral proceedings. It was held that the case had been

unnecessarily complicated – and the time and energy of all concerned (…) wasted – by the Respondent’s representatives. […] while vigorous argumentation is understandable and expected, chimerical theories and careless contradictions – whether they are a product of overzealous lawyering or other questionable behavior – are not acceptable”.

However, the allocation of costs in consideration of the legal representatives’ conduct raises a myriad of questions regarding, inter alia, the arbitral tribunal’s jurisdiction over the party’s counsel, the law and ethical standards to be applied and the risk of double jeopardy for counsel’s breaches of professional rules that are sanctioned by disciplinary authorities and could potentially also be taken into account by an arbitral tribunal.5)see also criticism in ASA BOARD Position on IBA Guidelines, paras. 1.1-1.4, 2.1, and conclusions 2 and 5) jQuery("#footnote_plugin_tooltip_3347_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3347_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In light of these concerns, arbitral tribunals are unlikely to develop into a full-fledged “Karma Police” and may – in case of doubt – come full circle and apportion the costs in favor of the winner, as foreboded by ABBA all these years back.

References   [ + ]

1. ↑ reprinted in Iran-US CTR 100, 113; cf. excerpt in CARON/CAPLAN, the UNCITRAL Arbitration Rules – A Commentary, 2nd ed. 2013, p. 894 2. ↑ cf. eg. Dadras International and Per-Am Construction Corp. vs. The Islamic Republic of Iran and Tehran Redevelopment Company, Iran-US Claims Tribunal, Award No. 567-213/215-3 [7 November 1995] 3. ↑ DOUG JONES, Using Costs Orders to Control the Expense of International Commercial Arbitration, The International Journal of Arbitration, Mediation and Dispute Management, 2016, p. 298 et seq.; CARON/CAPLAN, p. 872, with further references; ICC COMMISSION REPORT, Decisions on Costs in International Arbitration, ICC Disp. Resolution Bull 2015/2, para. 78-84, and Appendix A, p. 23 4. ↑ art. 18.6 of the LCIA Rules; see also GONZÁLEZ-BUENO, Arbitral tribunals’ decisions on costs sanctioning the parties for counsel behavior: A phenomenon expected to increase?, Kluwer Arbitration Blog, April 16, 2014 5. ↑ see also criticism in ASA BOARD Position on IBA Guidelines, paras. 1.1-1.4, 2.1, and conclusions 2 and 5) function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitrators as Lawmakers
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Current Issue of the Journal of International Arbitration

Tue, 2017-10-24 16:51

Maxi Scherer

Volume 34, Issue 5 contains:

Anthony C. Sinclair & Epaminontas E. Triantafilou, Specific Performance Under Commercial Contracts with Sovereign States

Abstract: Awarding specific performance against a state is widely considered an affront to principles of sovereignty and non-interference. Even when permitted under the applicable law and arbitral rules, specific performance against a state may therefore be considered not to be appropriate or desirable. The scarcity of specific performance awards against states is thus likely attributable to practical and policy-based considerations as much as legal principle. Exploring its use as a remedy when a sovereign state breaches a commercial contract, this article recognizes the need for tribunals to exercise caution when entertaining pleas for non-pecuniary relief. To give effect to specific performance without encroaching on sovereignty, and while catering for the economic and practical realities of broken contractual relationships, the authors discuss a hybrid approach. This proposal allows tribunals to award specific performance and monetary compensation as alternatives, while affording the ultimate decision to the state.

Marte Knigge & Pauline Ribbers, Waiver of the Right to Set-Aside Proceedings in Light of Article 6 ECHR: Party-Autonomy on Top?

Abstract: Party autonomy is an important principle in arbitration. Parties that opt for arbitration are, to a certain extent, free to organize the arbitral process. The exact scope of this freedom is unclear, especially where fundamental rights of the European Convention of Human Rights (ECHR) are at stake. On 1 March 2016, the European Court of Human Rights (ECtHR) rendered a decision that can shed more light on the scope of the autonomy of parties in arbitration proceedings. In the decision Tabbane v. Switzerland the parties had concluded a so-called ‘exclusion agreement’. By means of such an agreement parties waive, in advance, their right to seek set-aside proceedings at the state court.

This article analyses the decision of the European Court and addresses questions such as: must parties, who have agreed to exclude the right to set aside an award, be regarded as having waived all of their rights guaranteed by Article 6 ECHR? And, how far does the responsibility of states extend for the course of affairs during arbitral proceedings?

Nathan Yaffe, Transnational Arbitral Res Judicata

Abstract: Commercial arbitral awards are universally recognized to give rise to res judicata, but confusion reigns over what law applies to the res judicata effect of a prior arbitral award asserted before a subsequent tribunal. National res judicata laws diverge on key questions such as the availability of issue estoppel and the construction of the ‘triple identity’ test. Yet the normal tools used to manage divergence in potentially applicable laws – choice of law and codification – have failed to work when it comes to the res judicata effect of awards. I argue the answer is to adopt a transnational approach to res judicata in arbitration. Although this approach has support in principle, questions remain about how it would work in practice. I propose that a modified version of Gaillard’s ‘transnational rules method’ contains the seeds of a promising answer. Specifically, tribunals could look to both other commercial tribunals’ awards, as well as International Centre for Settlement of Investment Disputes (ICSID) and International Court of Justice (ICJ) case law on res judicata, to develop a sui generis transnational preclusion standard for international arbitration. This is consistent with informal practices arbitrators have developed with respect to other interstitial issues where choice of law processes do not yield satisfactory results. Finally, I evaluate the implications of taking this approach, as well as its prospects for success.

Silke Noa Elrifai, Equity-Based Discretion and the Anatomy of Damages Assessment in Investment Treaty Law

Abstract: This article looks at the manifestation of equity-based arbitrator discretion as a tool to balance treaty-based investor rights with extrinsic public law obligations of states. The article breaks down the process of damages assessment into four separate decision stages and analyses at each stage (1) a dataset of previous International Centre for the Settlement of Investment Disputes (ICSID) awards; (2) the answers to a survey of arbitrators, jurists and practitioners; as well as (3) scholarly opinion. The article argues that equity-based discretion happens at each stage of the conceptualized decision-making chain and contributes to the incoherence of damages awards. The author argues that although arbitrators’ resort to discretion must remain unfettered, it is preferable for vague concepts such as equity to be kept to a minimum to protect the continued legitimacy of the investment treaty system. Instead, it is the language of investment treaties that needs to be adapted in the long-term, thus keeping pace with developing international investment law standards.

Boris Kasolowsky & Eric Leikin, Eli Lilly v. Canada: A Patently Clear-Cut Dismissal on the Facts, but Opening the Door for Future Claimants on the Law

Abstract: In March 2017, the Tribunal in Eli Lilly v. Canada issued a unanimous final Award, dismissing all claims on the basis that the claimant ‘failed to establish the factual premise of its case’. Despite finding against Eli Lilly on the facts, the Lilly decision appears to have opened the door (at least slightly) for investors on two novel points of law. First, the Tribunal suggested that a judicial decision which does not constitute a denial of justice may nonetheless qualify as a breach of the North American Free Trade Agreement’s (NAFTA’s) minimum standard of treatment (Article 1105) and/or protection against expropriation (Article 1110). Second, the Tribunal did not reject – and indeed appeared willing to consider – the proposition that an investor may support its investment arbitration claims by relying on a host state’s international commitments on the treatment of intellectual property rights. Given the potential importance of these issues in future arbitrations, this article first provides an overview of the Lilly decision. It then explores in greater depth the two legal issues raised above, examining the arguments put forward by the parties, the view expressed by the Tribunal and the potential effect on the development of international investment law, with a particular focus on how these issues may come into play in any future claims arising from the issuance of a compulsory license.

Amr Omran, The Appearance of Foreign Counsel in International Arbitration: The Case of Egypt

Abstract: The ability of arbitrating parties to select their representatives in international arbitration is an extension of the principle of party autonomy. In Egypt, some uncertainty has existed as to the ability of the parties to appoint non-lawyers and foreign counsel as their representatives in arbitral proceedings. The Egyptian Legal Profession Law restricts the right to appear before arbitral tribunals to members of the Egyptian bar, who must be Egyptian nationals. Recent decisions by the Cairo Court of Appeal and the Egyptian Court of Cassation go some way in amending this position, holding that foreign lawyers can represent parties in arbitrations conducted in Egypt, subject to the parties’ agreement. However, unless the Legal Profession Law and the Arbitration Law are amended, uncertainty will remain.


Bernard Hanotiau & Iuliana Iancu, Antonio Parra, The History of ICSID (Oxford University Press, 2017)

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The Proven Benefits of ISDS and BITs –Even for SMEs and Small Claims

Tue, 2017-10-24 00:27

Nikos Lavranos

Recently, it was reported that after 14 years since Zimbabwe had illegally evicted Dutch farmers from their farms, it finally agreed to pay the damages awarded under the ICSID award, which dates back in 2009.

In the Funnekotter et al case, the arbitral tribunal rejected Zimbabwe’s necessity defence, which was based on the claimed need to “correct” the inequality between white farmers and black farmers by expropriating white farmers and it ordered Zimbabwe to pay €8.2 million damages plus 10% compounded interest every six months, which means that the award is now worth about €30 million.

In the context of ISDS disputes, this award is a relatively small claim filed by Small and Medium Enterprises (“SMEs”).

Nonetheless, the group of thirteen Dutch farmers have been trying for years to put pressure on Zimbabwe to fulfill its international obligations through all possible avenues (including through the Dutch Government). Indeed, as time passed and the farmers were running out of their financial resources, it looked increasingly unlikely that justice and the Rule of Law would prevail and that they would receive some form of compensation.

The eventual victory of the farmers proves the anti-ISDS critics wrong that ISDS is only actually useful for large corporations claiming large amounts.

It is interesting to note the deafening silence (which I also have highlighted in the tobacco cases) of the anti-ISDS critics regarding this case whereas it should have been acknowledged and appreciated that this case powerfully proves the benefits and the need for ISDS and BITs – also or in particular for SMEs and small claims.

After all, without the Netherlands-Zimbabwe BIT and without access to ICSID arbitration provided for by the BIT, the Dutch farmers would have been left completely empty-handed.

The silence of the anti-ISDS groups could, of course, be explained by the fact that they may actually agree with Zimbabwe’s expropriation programme against white farmers as a kind of “correction” of the colonial injustice done to black farmers in the past. However, correcting prior injustice with new injustice should never be found just.

Be that as it may, it is important to underline the fact that Zimbabwe has finally accepted its responsibility under international law and started to fulfil its international obligations it has entered into under its ten BITs, which are in force, and the ICSID Convention.

Therefore, the chances may have increased now for other German and Swiss farmers, who have also brought arbitration claims against Zimbabwe and who have been awarded damages by international arbitral tribunals for the same illegal acts of Zimbabwe.

These ICSID claims have been brought by the Von Pezolds – a family of Swiss and German farmers – and their forestry company Border Timbers.

In the Von Pezold et al and the Border Timbers (which remains unpublished) cases, the arbitral tribunals unsurprisingly also concluded that the so-called “land reform programme” discriminated against white farmers and ordered Zimbabwe to return the estates to the family or to pay damages of around US$230 million.

The tribunal also ordered the Zimbabwe to pay US$1 million of moral damages for its failure to protect one claimant from death threats from “settlers” on his land.

However, Zimbabwe has since applied to annul the awards in favour of the von Pezolds. In April 2017, an ad hoc Annulment Committee rejected the Zimbabwe’s request to continue the stay of enforcement of the awards, and it ordered it to return the estates to the claimants by 23 July 2017 or to pay compensation by 22 August 2017.

It is unclear whether Zimbabwe has complied with the ad hoc Annulment Committee’s order. On 22 August 2017, the ad hoc Annulment Committee issued a decision on provisional measures followed by a third procedural order last month.

Meanwhile, a group of white Zimbabwean farmers issued a notice of dispute against Zimbabwe based on the finance and investment protocol drawn up by the SADC. The farmers allege that Zimbabwe violated the protocol and the SADC treaty when Mugabe’s supporters seized their farms. They threaten to file a claim if the dispute is not settled within the six-month cooling off period in the protocol, which provides for ICSID arbitration or ad hoc arbitration under UNCITRAL rules.

In conclusion, although Zimbabwe continues to face claims because of its illegal expropriation of white farmers, it at least made a start of accepting its international obligations. This may be a first sign that Zimbabwe may have changed its path of not being an international pariah any longer. It is, of course, too early to say whether that will indeed be the case. For that, Zimbabwe would have to fully comply with all other outstanding awards.

This change of attitude of Zimbabwe would not have been possible without the powerful tools of ISDS and BITs, which is another reason why those who call for the complete demolition of ISDS and BITs should think twice because that would also take away a useful, effective and necessary tool for access to justice and the enforcement of the Rule of Law.

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Consumer Data Breach: Equifax and Arbitration

Mon, 2017-10-23 00:20

Matthew H. Adler

The latest large consumer data breach, this time involving Equifax, has also shed a sharp light on an ongoing controversy about consumers’ access to justice. In taking steps to ameliorate its PR crisis, Equifax found itself right in the middle of the dispute about class actions and arbitration clauses.

On September 7, Equifax revealed that the personal data of 143 million individuals was potentially compromised. In response, Equifax created a website for consumers to identify whether they were one of the 143 million victims. Equifax then offered victims free credit monitoring. So far, so good, right, in terms of proactively getting out in front of a controversy? But then Equifax stepped on its own tail. In order to sign up for the free service, Equifax required that consumers agree to its terms of service, including this language:

Agreement to resolve all disputes by binding individual arbitration. Please read this entire section carefully because it affects your legal rights by requiring arbitration of disputes (except as set forth below) and a waiver of the ability to bring or participate in a class action, class arbitration or other representative action. Arbitration provides a quick and cost effective mechanism for resolve disputes, but you should be aware that it also limits your rights to discovery and appeal.

This created a backlash for Equifax. Consumers objected that by signing up for the free monitoring service, they would effectively waive any right to legal recourse against Equifax for the data breach. In response to the further bad press this created, Equifax reversed course and deleted the arbitration clause: “In response to consumer inquiries, we have made it clear that the arbitration clause and class action waiver included in the Equifax and TrustedID Premier terms of use does not apply to this cybersecurity incident.” (A Progress Update for Consumers, September 8, 2017)

Two days later, Equifax issued another statement, further clarifying its position, stating that it had removed the arbitration and class waiver language from the website and that victims would not waive any rights by signing up for the free protection. (A Progress Update for Consumers, September 13, 2017)

Why all the fuss about what might look to many like legal boilerplate? Because over the last decade, fueled by a number of US Supreme Court cases, arbitration clauses have been used to change consumer litigation. Businesses have administered an effective one-two punch, first requiring consumers to agree to arbitration in their contracts (such as credit card, cable TV and cell phone agreements), and then second, including language in that arbitration which bars the consumer from joining in a class action over any grievance that may arise under the agreement. No courts, no massive suits – just individual versus business on a single issue and contract.

Arbitration has long been judicially blessed1)Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). jQuery("#footnote_plugin_tooltip_2206_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2206_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but its combination with class action waivers is of more recent vintage. Like a hurricane picking up force, arbitration’s swallowing up of class action rights came in a series of US Supreme Court opinions beginning in 2011. The first case, AT&T Mobility LLC v. Concepcion, faced head on a California rule designed to prevent precisely what has since occurred. That state law made class action waivers in arbitration agreements unenforceable.2)AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 336 (2011). jQuery("#footnote_plugin_tooltip_2206_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2206_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The majority found the state rule to be an attack on arbitration that was contrary to the Congressional purpose of the Federal Arbitration Act (FAA) to promote arbitration.3)Concepcion, 563 U.S. at 346–47. jQuery("#footnote_plugin_tooltip_2206_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2206_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Justice Breyer’s dissent focused on the disincentives of lawyer to take on small consumer cases: “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?”4)Concepcion, 563 U.S. at 365. jQuery("#footnote_plugin_tooltip_2206_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2206_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As the Seventh Circuit similarly found, “[t]he realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”5)Carnegie v. Household Int’l, Inc., 376 F.3d 656, 661 (7th Cir. 2004) (emphasis in original). jQuery("#footnote_plugin_tooltip_2206_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2206_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Supreme Court took this further in Am. Express Co. v. Italian Colors Rest, 133 S. Ct. 2304 (2013). In that case, the Court held that courts must enforce class action waivers even when doing so may effectively prevent an individual from being able to meaningfully vindicate his rights.6)Italian Colors, 133 S. Ct. at 2306; see also DIRECTV v. Imburgia, 136 S. Ct. 463 (2015). jQuery("#footnote_plugin_tooltip_2206_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2206_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In Italian Colors, an antitrust plaintiff argued that it had to hire an expert to have a chance of winning, but could not afford that expert unless plaintiff could join with others in the case and pool that cost. The Court upheld the class action waiver anyway, prompting these sharp remarks from Justice Kagan in dissent: “The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse. And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.”7)Id. at 2313. jQuery("#footnote_plugin_tooltip_2206_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2206_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

All this led to a legislative and administrative backlash under the Obama Administration. In 2010, as part of the Dodd Frank reforms, Congress created the Consumer Financial Protection Bureau (CFPB) and directed the new agency to study and promulgate regulations on the use of mandatory arbitration provisions in consumer financial contracts. The CFPB released its study in 2015. It criticized mandatory arbitration provisions and specifically called out the use of class action waivers. In July 2017, the CFPB issued a rule that goes far, prohibiting “providers of certain consumer financial products and services” from including class action waivers in arbitration agreements.

The irony and anomaly of the CFPB rule is that the underlying study took so long that by the time the rule finally issued, there was a new Administration and new Congress. Whether the rule survives that change is a pending and close question. The Rule’s fate oddly resembles that of Obama care: it was rolled back in the House this past July, but the Senate has so far not even scheduled a vote.

Even if Congress never acts, the new CFPB rule may face its demise in the courts. On September 29, the US Chamber of Commerce and other organizations filed suit in federal court in Texas claiming the rule violates both the Administrative Procedures Act and the agency’s organic act, Dodd Frank, because it fails to advance the public interest or consumer welfare. To add to the mix, this week the Supreme Court will hear argument on whether class action waivers conflict with the National Labor Relations Act.8)Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil US. jQuery("#footnote_plugin_tooltip_2206_8").tooltip({ tip: "#footnote_plugin_tooltip_text_2206_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Into this controversy between the courts, the agencies, Congress, and business and consumer groups stepped Equifax. In trying to appear to be doing something valuable for consumers, it stubbed its toe by creating precisely the kind of clause that has so infuriated consumer activists. That Equifax’s attempt received such immediate publicity met by such an immediate retraction shows that passions run high. The debate on this thorny social issue of access to justice promises to be an ongoing battle irrespective of the outcome of Congressional action.

References   [ + ]

1. ↑ Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). 2. ↑ AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 336 (2011). 3. ↑ Concepcion, 563 U.S. at 346–47. 4. ↑ Concepcion, 563 U.S. at 365. 5. ↑ Carnegie v. Household Int’l, Inc., 376 F.3d 656, 661 (7th Cir. 2004) (emphasis in original). 6. ↑ Italian Colors, 133 S. Ct. at 2306; see also DIRECTV v. Imburgia, 136 S. Ct. 463 (2015). 7. ↑ Id. at 2313. 8. ↑ Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil US. 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: Arbitrators as Lawmakers
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Reminder: Open Positions with Kluwer Arbitration Blog

Sat, 2017-10-21 22:43

Crina Baltag (Acting Editor)

The Editorial Board of Kluwer Arbitration Blog announces the opening of the following positions with Kluwer Arbitration Blog: Assistant Editor for Europe, Assistant Editor for Asia (Hong Kong and PR China) and Assistant Editor for Africa.

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

The Assistant Editors will work remotely. Please note that these are non-remunerated positions. If you are interested, please submit a resume and cover letter by email to [email protected], with cc to [email protected] The deadline for receiving applications is 25 October 2017.

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Young ICCA Interview

Fri, 2017-10-20 23:10

Young ICCA

Young ICCA

Gretta Walters is an Associate at Chaffetz Lindsey LLP in New York, where she represents individual and corporate clients in international and cross-border disputes in arbitration and in state and federal court. She has experience in arbitral proceedings under the arbitration rules of the International Court of Arbitration of the International Chamber of Commerce (ICC), the International Centre for Dispute Resolution (ICDR), and the Arbitration Institute of the Stockholm Chamber of Commerce (SCC). Prior to joining Chaffetz Lindsey, Gretta was an Associate at Mayer Brown, Legal Counsel at the SCC, and a Visiting Lecturer at Stockholm University.

Gretta is a Global Advisory Board member of ICDR Young & International (ICDR Y&I) and Secretary of the International Commercial Disputes Committee of the New York City Bar. She also co-coaches the Foreign Direct Investment and Vis International Commercial Arbitration moot court teams at New York University Law School. She received a J.D. degree from American University, Washington College of Law (Washington, DC) and an LL.M. in international commercial arbitration from Stockholm University (Sweden). She is admitted to the New York bar.

1. What drew you to the world of International Arbitration?

I first learned about International Arbitration through the Vis moot court competition, and—if I’m being totally honest—I really had no idea what it was. The moot offered the potential of traveling to Vienna for a week as a law student, which sounded great to me. As I immersed myself in the substance of the competition, however, I knew International Arbitration was a field that I was interested in pursuing. The Vis was unlike any of my other law school coursework— it forced me to approach legal problems more creatively and from different perspectives, while considering unique legal issues and cultural backgrounds— and I loved it.

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

I unintentionally started laying the groundwork for my career when I joined the Vis moot court team in law school with an eye on a trip to Vienna. Interestingly, however, this initial involvement with the Vis has been a constant throughout my career—I went on from being a competitor, to a student coach, to a judge, and now to a co-coach of the NYU Vis team.

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

Once I knew I was interested in pursuing a career in International Arbitration, I did what I could to get my foot in the door while I was still in law school. (I had seen the hundreds of students with ambitions similar to mine at the Vis in Vienna and recognized that International Arbitration is a competitive field to enter.) My approach was to learn as much as I could about International Arbitration and to begin to network with those already practicing in the field. I took all the classes my law school offered in arbitration, continued to participate in the Vis, and attended all the arbitration conferences and events (either as a participant or volunteer) that I could.

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

The pivotal moment in my career was when I made the decision to move to Sweden to pursue an LL.M. in International Commercial Arbitration Law at Stockholm University. I anticipated that the experience would teach me a great deal more about International Arbitration, but I had planned to return to New York immediately after the program ended, where I primarily would be working in US litigation. My decision to move to Stockholm ultimately changed my plans and kicked off a chain of unexpected experiences and opportunities that shaped my career.
First, the Stockholm program gave me a network of classmates and alumnae from all over the world that are some of my closest friends and professional colleagues today. They have each been invaluable to me as I’ve grown throughout my career. Second, the experience gave me an incredible mentor, Patricia Shaughnessy, the head of the Stockholm program. Without the academic, professional, and personal advice from Patricia, who I like to call my arbitration mom, I know I would not be where I am in my career today. And third, the move to Stockholm led to positions at Stockholm University and at the SCC after I completed my studies. There, I experienced International Arbitration on new, practical levels, which have been formative in my development as an attorney. For example, at the SCC, I was exposed to seasoned practitioners and arbitrators from all over the world and got to observe different styles of advocacy and arbitrating. In addition, I learned firsthand how various aspects of the institutional process, like arbitrator appointments and challenges, function. My time in Stockholm also gave me the opportunity to meet practitioners in the field and develop my own network. One of those practitioners was James Hosking, whom, several years later, I am now working with at my current firm of Chaffetz Lindsey and am also lucky enough to rely on as another invaluable mentor.

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

A level head, an open mind, and an eye for detail. When you are working under tight deadlines and passionately fighting for your client, it can be easy to get stressed and frustrated at the process, opposing counsel, your colleagues, and others involved in the case. But even in those moments (or maybe particularly in those moments), approaching problems or issues calmly and with an effort to understand other peoples’ perspectives will give you the most success.
These three weapons are also important when you approach a new case. Many of my recent cases at Chaffetz Lindsey have involved disputes over financial transactions or construction projects. Regardless of the subject matter, however, I’ve learned to approach a new case the same—there is no substitute for a careful review of the key details and documents to understand the issues. And keep an open mind about the issues—a dispute over the strength requirements of structural steel can be much more interesting than it may sound like at first!

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

As I mentioned above, the decision to move to Stockholm changed my career, but making that decision was a risk for me. I was set to begin my career in New York, practicing in US litigation, and LL.M. degrees are uncommon for many US practitioners to pursue. But I was still interested in one day working in International Arbitration and thought that the Stockholm program could maybe lead to opportunities in the field. Once I decided to take the risk, I decided to give 100% to my time in Stockholm. I worked hard and jumped on every opportunity I could to pursue the career I wanted, even though it sometimes put me outside of my comfort zone. That combination of being willing to take a risk, working hard, and putting myself out there was what worked for me. I would encourage other aspiring arbitration lawyers to do the same!
Another decision I made early on in my career was to actively engage with the larger arbitration community. While I was a student, these efforts started with attending International Arbitration conferences and events. As a practitioner, I now try to take a more active role, such as by taking on leadership positions (like with the ICDR Y&I) and publishing and speaking on arbitration issues. These “extracurricular” activities keep forcing me to step outside of my comfort zone, but they are rewarding. I’ve developed a great network of colleagues, had the opportunity to travel to great locations (like Costa Rica in winter), and been involved in interesting projects (like a forthcoming book on enforcement issues in New York).

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

Don’t neglect learning how to actually practice law in the courts of at least one jurisdiction. It’s easy to want to jump immediately into International Arbitration from day one of your career (I was guilty of this too), but, at least for me, learning how to be a lawyer in my home jurisdiction has been invaluable. After my time in Stockholm, I did end up starting my law firm career with a majority of my cases in US litigation, and I still balance my caseload between a mix of US litigations and International Arbitrations. Understanding how a domestic judicial and legal system operates in practice and learning how to navigate procedural and substantive issues in that system have made navigating the International Arbitration procedures and processes easier. In addition, litigation, in my experience, can put you before the court or opposing counsel more frequently than in arbitration and can give younger attorneys greater opportunities to develop written and oral advocacy skills, which can be transferred to arbitrations.

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Examining the Validity of Unilateral Option Clauses in India: A Brief Overview

Thu, 2017-10-19 23:09

Nishanth Vasanth and Rishabh Raheja

Young ICCA

The decision of the Singapore Court of Appeal in Wilson Taylor Asia Pacific Pte Ltd v. Dyna-Jet Pte Ltd ([2017] SGCA 32) added another chapter to the debate on the validity of unilateral option clauses (or ‘sole option clauses’) in contracts. The Singapore Court of Appeal reaffirmed the Singapore High Court’s decision to uphold the validity of a unilateral option clause, thus adding to the varying decisions on this question across jurisdictions since 2010. During this period, courts in the UK, Italy and Spain have upheld such clauses as valid, while those in France, Russia, Bulgaria, Dubai and Poland have struck down such clauses. In this context, the authors consider the challenges faced by unilateral option clauses in various Indian courts.

What are unilateral option clauses and why are they controversial?

A unilateral option clause is a dispute resolution clause which confers an exclusive right to elect a specific dispute resolution method, i.e., it provides the option of resorting to arbitration or litigation; however, this option is conferred upon only one party. Courts have had to consider whether they should uphold such clauses in the interest of party autonomy or intervene due to public policy considerations.

In the Clifford Chance Unilateral Option Clauses – 2017 Survey, it is noted that courts in the UK and several other Common Law jurisdictions have upheld unilateral option clauses as they represent the bargain of the parties, irrespective of the advantage the clause confers on one side. On the other hand, some jurisdictions such as Russia and Poland have found such clauses to violate the parties’ equality of arms and procedural rights, reading these as ‘bilateral’ and not ‘unilateral’ option clauses. There have been other jurisdictions such as Bulgaria, China, and some US State courts, where these clauses have been wholly invalidated on public policy grounds of ‘morality’, ‘good faith’, ‘fairness’ and ‘unconscionability’. Some other grounds include the absence of a potestative condition, legal uncertainty, and lack of consideration.

Position in India:

Decisions on the validity of unilateral option clauses have been few and far between in India, with the only notable decisions being rendered by the Delhi and Madras High Courts (HC):

1. In Bhartia Cutler Hammer v. AVN Tubes (1995 (33) DRJ 672), the Delhi HC held that a party could not have an exclusive right to initiate arbitration as the Indian Arbitration and Conciliation Act, 1996, presupposed that there must be a mutual arbitration agreement between the parties, and an opportunity for bilateral invocation. Notwithstanding parties’ express consent to such a clause, it would not be deemed a valid arbitration agreement.

2. In Emmsons International Ltd. v. Metal Distributors (2005 (80) DRJ 256), the Delhi HC arrived at the same conclusion as in Bhartia Cutler, based on different reasoning. The court observed that unilateral option clauses were void as they restrained one party’s recourse to legal proceedings, in contravention of Section 28 of the Indian Contract Act, 1872. The court noted additionally (without substantiation) that a unilateral clause would be void for being contrary to the public policy of India.

3. In Lucent Technology v. ICICI Bank (2009 SCC OnLine Del 3213), the Delhi HC again held a unilateral option clause to be invalid. The court relied on both Bhartia Cutler and Emmsons International and invoked Section 28 of the Indian Contract Act, 1872, implying that the party’s right to recourse through legal proceedings had been infringed.

4. The Madras HC decided to go against the tide in Castrol India Ltd. v. Apex Tooling Solutions ((2015) 1 LW 961 (DB)) and did not dispute the general principle that arbitration clauses need not necessarily have mutuality. However, on the facts, the court held that the party seeking to invoke arbitration through its sole option could not do so, having failed to object, and having even participated during the preliminary stages of litigation.

5. In a slight deviation from its previous decisions, the Delhi HC in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. (MANU/DE/3204/2009), upheld the validity of a unilateral option clause. However, the impact of this decision on the position of the court is unclear, as the clause was upheld not under Indian law, but under applicable English law.

From the above decisions it would appear that the three grounds upon which unilateral clauses have been successfully challenged before the courts in India are – lack of mutuality, public policy, and restraint of a party’s right to legal proceedings. However, the Madras HC’s decision to uphold these clauses calls for closer scrutiny of these grounds. Should the Supreme Court of India examine the validity of unilateral option clauses under Indian law, some of the counter-grounds it could consider include:

1. The absence of an explicit requirement for mutuality in the Indian Arbitration and Conciliation Act, 1996. Section 7 of the Act lists out the requirements for a valid arbitration agreement and does not include the mutuality of invocation of the arbitration clause among these. At the most, the stipulation under Section 7 for there to be an ‘agreement by the parties’ requires mutuality of consent, and not mutuality of invocation or consideration. While the Madras HC relied on this lack of an explicit requirement for mutuality to uphold unilateral option clauses, the Delhi HC invalidated unilateral option clauses even when the presence of mutual consent was proven. The Delhi HC’s insistence on mutuality of consideration appears to stem from Section 25 of the Indian Contract Act, which invalidates agreements lacking consideration. This raises interesting questions of separability of the arbitration agreement— whether the consideration for the main agreement is sufficient for and coextensive with the arbitration agreement, or whether the arbitration agreement requires separate consideration through mutual rights of invocation? Adopting the latter approach could lead to an intriguing situation where the mutuality of consideration and invocation takes priority over the mutuality of consent to such a clause. The latter approach would also not account for a situation where the consideration for the unilateral option clause is present in the main agreement, through a substantive concession or benefit provided to the party without the unilateral option. These complex questions of Indian contract and arbitration law merit the careful consideration of the Supreme Court.

2. The 2015 Amendment to the Indian Arbitration and Conciliation Act, 1996, and its pro-arbitration tenor could also have an impact on the Supreme Court’s approach to unilateral option clauses. Specifically, the scope of ‘public policy’ as a ground for challenge of awards has been defined explicitly and enumerated exhaustively under the 2015 Amendment. The Delhi HC’s decisions invalidating unilateral option clauses on grounds of ‘public policy’ were pronounced prior to the Amendment. Thus, a re-evaluation of whether such clauses violate the recently revised ambit of public policy will be necessary. Moreover, the increasing commercial acceptance of unilateral clauses could also be a consideration under a public policy challenge in this new regime.

3. Section 28 of the Indian Contract Act, 1872, invalidates agreements in restraint of legal proceedings. The provision, however is attracted only when there is an absolute and not a partial restraint on legal proceedings. In this light, the mere provision of an option to one party does not necessarily and absolutely undermine the other party’s right to approach the default forum for dispute settlement. Thus, Indian courts may have to deal with this question on a case-by-case and clause-by-clause basis, preventing misuse, delay, and equivocation from the party with the unilateral option of forum.

4. In addition to determining whether the clause in question is an absolute restraint in the terms of Section 28, another question demanding scrutiny is the stated exception to Section 28. Exception 1 to Section 28 permits an agreement to refer to arbitration – it would not be considered invalid for restraint of a party’s right to pursue legal proceedings. None of the Delhi HC decisions cited above considered either the requirement for an absolute restraint, or this exception to Section 28, in invalidating unilateral option clauses. This thus calls for clarification by the Supreme Court.

Given the above considerations, the authors are optimistic that unilateral option clauses will be held valid under Indian law. The fact that the Delhi HC — which had consistently invalidated these clauses — has taken a step towards accepting these clauses in Fuerst Day Lawson is indicative of a positive shift of stance. Moreover, the Delhi HC’s recent reluctance to allow public policy challenges to awards in two of its decisions following the Amendment weakens the likelihood of a successful public policy challenge to unilateral option clauses. Despite these positive developments, it would be prudent for parties to avoid the incorporation of unilateral option clauses when there is a possibility that Indian courts may be involved. In the meantime, one can only hope that the Supreme Court thoroughly tests the above three grounds for challenge and arrives at a position best representative of Indian law, and most beneficial to parties.

The authors would like to thank Clifford Chance LLP and AZB & Partners for sharing detailed material with the authors on the validity of unilateral option clauses in several jurisdictions, including India.

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“Notwithstanding the Non-obstante clause” can the Courts refuse to refer Non-Arbitrable Disputes to Arbitration?

Thu, 2017-10-19 06:00

Sai Anukaran

Non-arbitrability of disputes is a ground for setting aside the arbitral awards under Sections 34(2)(b) and 48(2) of the Arbitration and Conciliation act 1996 (the “Act”), the award is against the public policy of India. Arbitrability, here, refers to the objective arbitrability of the disputes, i.e., whether the national law imposes any restriction on the resolution of the dispute by the arbitral tribunal.  However, in Indian law confusion has arisen as to whether the courts can at a pre-arbitration stage, i.e., at the time of referring parties to arbitration in pursuant to a valid arbitration agreement decide upon the arbitrability of the dispute. The Supreme Court of India in the Case of Booz Allen Hamilton v. SBI Home Finance ((2011) (5) SCC 532), held that:


Where the issue of `arbitrability’ arises in the context of an application under section 8 of the Act in a pending suit, all aspects of arbitrability have to be decided by the court seized of the suit, and cannot be left to the decision of the Arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under section 8 of the Act, to refer the parties to arbitration, if the subject matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal. (Emphasis in italics added).


The Supreme Court further carved out a non-exhaustive list of six disputes that are incapable of being subject to private arbitration:


  • Disputes relating to rights and liabilities which give rise to or arise out of criminal offenses;
  • Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
  • Guardianship matters;
  • Insolvency and winding up matters;
  • Testamentary matters (grant of probate, letters of administration and succession certificate);
  • Eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction.

Further, the Supreme Court in Shri Vimal Kishor Shah v. Jayesh Dinesh Shah & Ors (Civil Appeal No. 8614 of 2016) further carved out a seventh category of dispute that is incapable of being subject to private arbitration: disputes arising out of trust deeds and under the Trust Act.


The 2015 amendment to Section 8 of the Act has, however, created uncertainty with respect to the court’s power to decide upon arbitrability of dispute at the pre-arbitration stage.


The amended Section 8 introduces a non-obstante clause, which reads as follows:


 . . . notwithstanding any judgment, decree or order of the supreme court or any other court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

In contrast, Section 8 of the 2006 UNCITRAL Model Law and Section 45 of the Act provide that:


. . . unless it finds that the agreement is null and void, inoperative and incapable of being performed.


This phrase, however, does not find its place in Section 8 of the Act. Thus, a plain reading of amended Section 8 appears to have rendered nugatory the interpretation of courts regarding the arbitrability of disputes at the stage of Section 8. The amended Section 8 suggests that the courts can only inquire the prima facie existence of a valid arbitration agreement and leave the rest to be determined by the arbitral tribunal by virtue of the principal of Komptenz-Komptenz as enshrined under Section 16 of the Act. The courts only have the power to set aside the arbitral award under Sections 34(2)(b) or 48(2) of the Act on the ground that the subject matter of the dispute is not arbitrable as per the public policy of India


The Supreme Court in the case of Ayyasamy v. A. Paramasivam & ors (Civil Appeal Nos. 8245-8246 of 2016, decided on 04.10.2016), while dealing with a reference with respect to an agreement entered into prior to the 2015 amendment, have held in respect of Section 8 of the Act that


while mere allegation of fraud simplicitor will not confer jurisdiction on the courts to assume jurisdiction, however, in case of serious allegations of fraud the court can sidetrack the arbitration agreement.


Thus, the Supreme Court has imposed a restriction on arbitrability on account of fraud. However, the court in its judgment has not referred to the amended Section 8 and it is not clear whether the judgment was intended to be made applicable to the amended Section 8. If that were the scenario the judgment would be per incuriam in light of the amended Section 8 of the Act.


However, an alternate argument could be that serious fraud and non-arbitrability of the dispute would in itself affect the validity of the arbitration agreement. Even in such a case, it is doubtful if the court can undertake an in-depth analysis into the question of arbitrability (even on account of serious fraud) since the amended Section 8 of the Act restricts the power of the court to undertake only a prima facie view of the validity of the arbitration agreement. Thus, the decision in Ayyasamy is per incuriam, since the court would have to delve into the merits of the dispute to determine the degree of fraud.


The full bench of National Consumer Disputes Redressal Commission (NCDRC) in Aftab Singh v. Emaar MGF Land Limited & Anr. (Consumer Case No. 701 OF 2015, Order Dated 13.17.2017) while rejecting the plea of the respondent-builder to refer consumer dispute to arbitration, reiterated the view of Supreme Court in Booz Allen and Ayyasami that disputes governed by statutory enactments creating special tribunals (such as NCDRC) for a specific public purpose cannot be mandatorily referred to arbitration. The court further held that amendment to Section 8 of the Act does not intend to nullify erstwhile statutory interpretation of the Act by the courts and the sole purpose of the amendment is to curtail wide enquiry by the courts.


The effect of the non-obstante clause on pre-arbitral jurisprudence by the courts is yet to be determined by the Supreme Court. Once the parties to a dispute have agreed to resolve their disputes through binding arbitration, the purpose of arbitration would be defeated and precious time of the parties would be wasted in the determination of the validity of arbitration agreement before the national courts. This apprehension was also taken into account by Chandrachud, J. while delivering the judgment in the case of Ayyasamy v. A. Paramasivam & ors. Therefore, the correct view would be that while non-arbitrable disputes should not be referred to arbitration, the courts under Section 8 have only a limited scope of interference and cannot undertake an in-depth analysis into the merits and arbitrability of disputes at a pre-arbitration stage. Further, a dispute should be categorized as non-arbitrable only on limited grounds, in cases of compelling public interest.

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Ineligible Arbitrator Also Ineligible to Nominate Arbitrator: Indian Supreme Court – Does the Judgment Open Pandora’s Box?

Wed, 2017-10-18 06:00

Pranav Rai

This post critically examines the recent Supreme Court judgment in TRF Limited vs. Energo Engineering Private Limited where the court held that a person who is ineligible to be appointed as an arbitrator cannot even nominate an arbitrator. This judgment was in the context of a unilateral arbitration clause (“unilateral clause”) in which one party had control over the appointment of the arbitrator.


The arbitration clause here provided that, any dispute connected to the agreement is to be referred to sole arbitration of one party’s (Respondent’s) Managing Director (subsequently referred to as “official” for apposite appreciation) or his nominee. The official was ineligible to be appointed an arbitrator here in view of the Seventh Schedule (taken and adapted from the Red List of IBA Guidelines and inter alia prescribing ineligibility criteria for a party’s official being appointed arbitrator) of the arbitration statute (“Act”) and this ineligibility was not even contested between the parties.


The question before the court was whether such official was also ineligible to nominate an arbitrator. Relying on the maxim qui facit per alium facit per se (“the Principle”), i.e., what one does through another is done by oneself, or as elaborated by court, what cannot be done directly may not be done indirectly by engaging another outside the prohibited area, the court concluded in the affirmative.


Albeit the case settles the law on such unilateral clauses, I would argue that it raises issues with respect to unilateral clauses in general causing confusion and uncertainty.


General legal principle prevailed over legislative intent. The Act, which is based on UNCITRAL Model Law and also underwent extensive amendments in 2015 to address several issues that plagued the arbitration regime in India, nowhere suggests a legislative intent to make an arbitrator’s appointment/nomination dependent upon his appointer’s/nominator’s eligibility. Sufficient ineligibility criteria for arbitrator were already provided in the Act. For example, to protect against violation of natural justice (that an interested person cannot be an adjudicator), the Act inter alia provided for Fifth Schedule (taken and adapted from the Red and Orange List of IBA Guidelines) and Seventh Schedule. With a self-sufficient Act (at least with respect to arbitrator’s ineligibility) and absence of any legislative intent to add additional ineligibility criteria, the rationale for applying the Principle to arbitrator appointment/nomination is not entirely clear.


In support of the judgment, it can be contended that there was not much occasion for the court to consider the true legislative intent or the sufficiency of the arbitrator ineligibility grounds present in the Act. Since, a) the court applied a general legal principle, so the legislative intent for the Act and the arbitration principles are not relevant in this context; b) neutrality of arbitrator was not even an issue here and the court clarified that it was never its concern that the nominated arbitrator (a retired judge) would not be independent or impartial; and c) its only concern was the legal issue that it was inconceivable that a statutorily ineligible person can nominate a person, so adequacy of the ineligibility grounds in the Act are also not relevant.


The court should have considered the legislative intent regarding the objectives of alternate dispute resolution and principles of party autonomy, the sanctity of arbitration agreement and arbitrator neutrality, and then should have weighed them against any wrong likely to happen if the Principle is not applied here. It is also my argument that since arbitrator neutrality was not a concern here and the appellant was raising the ineligibility argument only as a legal point, the Principle should be applicable only if it can be applied consistently for all other arbitrator appointments (unilateral and mutual). But as has been discussed below, application of the Principle on all kind of arbitrator appointments would result in unintended consequences which makes it all the more important for the court to have considered the legislative intent here before selectively applying the Principle.


Why should the Principle not apply to mutual appointments? The judgment does not clarify why the Principle is not applicable to mutual appointments, where, a) each party appoints its own arbitrator; or b) parties mutually appoint a sole arbitrator, since even in these cases appointments will effectively be made by the (ineligible) official of each party (presuming that the parties are body corporate and thus can only act through its officials). The court distinguished the present unilateral clause from the situation in point a), stating that in such cases authority to nominate cannot be questioned, but it did not expressly distinguish it from point b). Notwithstanding this, it is apparent that the court did not intend to apply the Principle in case of mutual appointments for the obvious (but insufficient) reason that if the Principle is applied even to those cases, then the arbitration mechanism will not be able to function.


The reason for such selective application of the Principle to the present unilateral clause, but not to mutual appointment clauses, may have been the arbitrator’s neutrality aspect (as it would arguably be questionable in the case of unilateral clauses). But since arbitrator neutrality was not a concern for the court here, it is not entirely clear what this selective application of the Principle achieves in this case.


Uncertainty on how far the Principle can be stretched in other unilateral clauses. This was an “either/or” case in which the unilateral clause provided either the official will be the arbitrator, or he can nominate the arbitrator. So, the court had to first consider whether he was eligible to be an arbitrator. Only after this was determined (or in this case agreed by the parties) did the court conclude that ineligibility to be an arbitrator also means ineligibility to nominate one.


It is unclear what the fate is for unilateral clauses that give the official only a power to nominate/appoint (and not be a named arbitrator), as in such event the court will not get an opportunity to decide the official’s ineligibility. Will the courts still apply the Principle in such other unilateral clauses by using the Principle itself as a rationale for its application? In other words, can the courts say that it is immaterial whether or not the official was also a named arbitrator, and that the Principle should be applied even to such cases? Otherwise, it would be akin to allowing the official to do the same thing indirectly what he is not allowed to do directly. Logically, the answer should be “no,” because stretching the Principle so far would mean that all unilateral appointment clauses (or at least the unilateral appointment part therein) are invalid. Nevertheless, a question mark remains on the fate of such other unilateral clauses since there is no clear line drawn by the court on how far the Principle can be stretched vis-à-vis unilateral clauses.

No heed to Competence-Competence doctrine. While authorities were cited by Respondent to establish that authority of arbitration can be challenged only before the arbitrator, the court distinguished them on facts and relied upon another authority postulating that an appointment which is ex facie invalid cannot be raised before the arbitrator. On this basis, the court noted that it is incorrect to say that the arbitration proceedings once initiated cannot be interfered with by the courts while exercising its powers in relation to the appointment of an arbitrator and that a statutory disqualification (such as the one in present case) can be raised before the court.


Setting up of such precedence may result in undesirable consequences for the whole arbitration system. Encouraged by this ruling, several arbitration appointments under unilateral clauses may now be challenged in courts by the party that did not have a say in the appointment and matters that were intended to be arbitrated will now be litigated. Also, the High Courts may rely on this judgment and entertain such challenge applications and determine the eligibility of the appointed arbitrators themselves at the cost of Competence-Competence doctrine.


Conclusion. This judgment effectively adds one more ineligibility criterion to the already loaded Seventh Schedule, despite the fact that such criterion is not at all related to arbitrator’s neutrality. Uncertainty regarding enforceability of unilateral clauses (other than the one in the present case) will likely increase and the party challenging unilateral clauses will be armed with one more ground of challenge in the form of the Principle, until the court clarifies the limits to which the Principle can be stretched. A quicker and foolproof solution can be by way of a much-needed legislative intervention clarifying the position on unilateral arbitration clauses.

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Kluwer Mediation Blog: September Digest

Tue, 2017-10-17 02:41

Anna Howard

From cultural confusion to cognitive biases and recent apology legislation in Hong Kong, the recent posts on the Kluwer Mediation Blog continue to address a compelling assortment of topics.

In Cultural Confusion – A Good Thing for Mediation?, Nadja Alexander shares an encounter she had with a group of mediators to highlight the cultural confusion surrounding mediation. Nadja then considers the shift to a recognition of the real diversity of mediation practice.

In the Elephant in the Room – Part 1, Sabine Walsh explores what distinguishes mediators who get work from those who struggle to do so. In the second part of this series, Sabine will identify what successful mediators do differently and the lessons we can learn from them.

In Hong Kong Apology Ordinance, Ting-Kwok IU provides a comprehensive summary of Hong Kong’s Apology Bill which will become law on 1 December 2017. This is the first piece of apology legislation in Asia.

In ADR in Consumer Conciliation – The Example of the German Conciliation Body for Transport (Söp), Greg Bond shares his interview with Edgar Isermann, Söp director. Topics addressed include how the conciliation process works, how Söp measures its success, the value of conciliation and the future of conciliation and ADR.

In Your Truth, My Truth And The Truth, Charlie Woods draws on a recent CIArb Mediation Symposium in London at which Kenneth Cloke, John Sturrock and Charlie discussed some of the biases that can have most influence on conflict and its resolution. Charlie then identifies tools which mediators can use to address these biases.

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The Dubai-DIFC Judicial Committee and DIFC Conduit Jurisdiction: A Sequel in Four Parts – Game over? (Part 4)

Sun, 2017-10-15 16:40

Gordon Blanke

This is the final one in sequel of four parts on the status of the DIFC Courts as a conduit jurisdiction. It reports on a further number of recent decisions of the Dubai-DIFC Judicial Committee – also known as the Judicial Tribunal or in shorthand the JT – that question the DIFC Courts’ role as a conduit jurisdiction in the recognition and enforcement of arbitral awards for onward execution in mainland Dubai. Two of these decisions consolidate the position that it is the onshore Dubai courts – and not the DIFC courts – that retain proper jurisdiction for the recognition and enforcement of awards in onshore Dubai absent any geographic link to the DIFC. Both these decisions have met with strong criticism from the DIFC members of the JT, led by the Chief Justice of the DIFC Courts Michael Hwang. A third decision appears to confirm that despite the controversial developments of the JT’s case law, the concept of the DIFC conduit survives for now. Read in their proper context, there is even an argument for saying that these recent decisions preserve an opportunity for the JT to rely on a first-seized rule – in the terms that I have presented in previous blogs – as an ultimate solution to the jurisdictional dilemma between the Dubai and DIFC Courts.


The first decision (Cassation No. 1/2017 – Gulf Navigation Holding PJSC v. Jinhai Heavy Industry Co Ltd, hearing of 22nd May 2017) deals with a jurisdictional conflict between the Dubai Centre for Amicable Settlement of Disputes, which forms part of the Dubai Courts, (the “Settlement Centre”) and the offshore DIFC Courts in relation to the recognition and enforcement of a New York Convention award rendered in London under the London Maritime Arbitration Association (LMAA) Rules. The award found in favour of Jinhai Heavy Industry Co Ltd (JHIC), Chinese shipbuilding enterprise, ordering Gulf Navigation Holding PJSC (GNH), a UAE-incorporated company, to pay JHIC an outstanding installment of USD 14.55 million plus interest under a shipbuilding contract concluded with JHIC as builders in 2011. In October 2015, GNH failed in an application for setting aside before the English courts given the “unarguable” nature of the application. JHIC, as award creditor, secured an ex parte order for recognition and enforcement of the award from the DIFC Courts in December 2016, relying on Art. 42 of the DIFC Arbitration Law (see DIFC Law No. 1 of 2008), which, in turn, replicates the enforcement provisions of the 1958 New York Convention (on the recognition and enforcement of foreign arbitral awards). By way of reminder, pursuant to Art. 42(1) of the DIFC Arbitration Law, the DIFC Courts are bound by international enforcement instruments that bind the UAE, including for present purposes the New York Convention. Importantly, GNH did not challenge the DIFC Court order for recognition and enforcement and has hence to be taken as having accepted the supervisory jurisdiction of the DIFC courts. In early February 2015, i.e. around eight months before JHIC’s application for recognition and enforcement before the DIFC Courts, GNH filed a claim with the Settlement Centre seeking the appointment of an expert for examination of the issues that had already been decided in the earlier arbitration and that were therefore res judicata. Nevertheless, the majority of the JT found that “[a]ccording to the general principles of laws embodied in the procedural laws and since Dubai Courts have the general jurisdiction, […] they are the competent courts to entertain this case” (see Cassation No. 1/2017, p. 4). Further, the majority concluded that “[…] this case is not similar to cases in which the Courts apply the provisions of the New York Convention 1958 because the two courts are in one Emirate, viz, Dubai Emirate).” (ibid.)


In a dissenting opinion of 4 June 2017 (Cassation No. 1/2017, Dissenting Opinion), Chief Justice Michael Hwang, Deputy Chief Justice Sir David Steel and H.E. Justice Omar Al Muhairi – all three of the DIFC Courts – categorically disagreed with the JT’s findings: There was no principle of general jurisdiction according precedence to the onshore Dubai Courts in the event of a jurisdictional conflict between the onshore and offshore courts (see Dissenting Opinion, para. 16). To the contrary, a combined reading of Art. 5(A)(1) and Art. 5(A)(1)(e) of the Judicial Authority Law (see Dubai Law No. (12) of 2004 as amended), which defines areas of exclusive jurisdiction of the DIFC Courts, including in particular “[a]ny claim or action over which the Courts have jurisdiction in accordance with DIFC laws and DIFC Regulations”, such as Art. 42(1) of the DIFC Arbitration Law (see Dissenting Opinion, at paras 17-19), militate in favour of the DIFC Courts’ exclusive jurisdiction in the present circumstances. Further, the majority’s statement on the New York Convention was “an incorrect statement of international law” (Dissenting Opinion, at para. 21): “If the DIFC [Courts] were to be prevented from enforcing this foreign Award, this would place the UAE in breach of its obligations under Article III of the New York Convention, which requires all States which have acceded to the Convention to enforce foreign awards.” (ibid.) According to Hwang, Steel and Al Muhairi, Art. 4 of Decree 19 of 2016 (establishing the JT) require the JT to determine conflicts of jurisdiction “in accordance with the legislation in force and the rules of jurisdiction applicable in this regard”, including the DIFC Courts’ exclusive jurisdiction to interpret the DIFC’s laws and regulations, and not general principles of law in the terms wrongly stipulated by the majority (see Dissenting Opinion, at paras 22-23).


No doubt, the JT’s reliance on the general jurisdiction of the Dubai Courts taking precedence over the DIFC Courts challenges a natural reading of the distribution of competence between the onshore Dubai and offshore DIFC courts pursuant to the existing laws and regulations in the terms outlined by the JT’s dissenting members. The Dubai Courts are simply not hierarchically superior in jurisdiction to the DIFC Courts, both courts qualify, constitutionally speaking, as UAE courts with their respsective jurisdictional limits defined in the prevailing legislation. Pursuant to that legislation, the DIFC Courts are clearly competent to hear applications for ratification and enforcement of both domestic and foreign arbitral awards, even absent any assets of the award debtor in the DIFC. The onward execution of DIFC Court orders for the ratification and enforcement of those awards in onshore Dubai, in turn, is sanctioned by the regime of mutual recognition in place between the Dubai and DIFC Courts by virtue of Art. 7 of the Judicial Authority Law. In relation to foreign awards, the enforcement obligations under the New York Convention add further weight to this position, requiring the DIFC Courts to comply with the terms of the Convention in their capacity as a UAE court. The only way that the JT could reconcile its present position with the statutory status quo is by introducing a first-seized rule, the court first seized taking jurisdictional precedence on a case-by-case basis (on the present facts, the Settlement Centre was seized first by the award debtor, i.e. before the award creditor filed an application for recognition and enforcement with the DIFC Courts and could be attributed preferential jurisdiction on that basis). On a further note, though, it is not clear whether the JT had proper jurisdiction in the present circumstances in the first place given that (i) the recognition and enforcement proceedings before the DIFC Courts were already complete at the time of GNH’s application to the JT and (ii) the subject matter of that application (appointment of an expert) was different from the subject of the dealings before the DIFC Courts (recognition and enforcement), there being hence no competing proceedings between the onshore and offshore Dubai Courts nor a risk of contradictory outcomes.


In the second decision (Cassation No. 3/2017 – Ramadan Mousa Mishmish v. Sweet Homes Real Estate, hearing of 22nd May 2017), the JT relies upon the same rule (read: assumption) of general jurisdiction, finding in favour of the jurisdiction of the onshore Dubai Courts. That case dealt with the recognition and enforcement of a domestic award (rendered under the DIAC Rules in Dubai) before the DIFC Courts for onward execution in onshore Dubai, i.e. a classic conduit jurisdiction case. The award debtor, Mr. Ramadan Mousa Mishmish, filed for nullification before the onshore Dubai Courts sometime in 2016 whilst the award creditor, Sweet Homes Real Estate, secured a DIFC Court order for recognition and enforcement in March 2016. That order remained unchallenged. The dissenting members of the JT – again Hwang, Steel and Al Muhairi – confirmed that “while the Dubai courts have sole jurisdiction in regard to the validity of the award [Dubai being the seat of the arbitration and the onshore Dubai Courts having curial jurisdiction over an award rendered there], there is concurrent jurisdiction in regard to enforcement.” (see Cassation 3/2017, Dissenting Opinion of 5 June 2017, at para. 11). Further, the dissenting members found that there was no jurisdictional conflict given the concurrent jurisdiction for enforcement of the onshore and offshore Dubai Courts (ibid., at para. 13). One may add that there further is a pre-requisite of proceedings being pending before both courts at the time of the application to the JT, which is not the case here (this application only having been filed in January 2017). Whatever the formal points that could be raised against the proper competence of the JT, the JT’s findings in the present case would only be compatible with the existing statutory status quo if the JT were to introduce a first-seized rule (the nullification proceedings before the onshore Dubai Courts having been initiated before the award debtor’s application for recognition and enforcement before the DIFC Courts).


In the third decision (Cassation No. 5/2017 – Emirates Trading Agency LLC v. Bosimar International N.V., hearing of 22nd May 2017), the JT confirmed that there was no conflict of jurisdiction between the onshore and offshore courts (there being no proceedings pending before the onshore Dubai Courts), thus rejecting the application. The JT confirmed that the DIFC Courts had issued a final and binding order for recognition and enforcement of a foreign award rendered in London and that the JT was not competent to hear questions of the constitutionality of the DIFC Court’s conduit jurisdiction (such determinations being reserved for the Union Supreme Court under Art. 99 of the UAE Constitution).


Taking the above developments in the round, the game for the DIFC Courts as a conduit is not quite over yet. Importantly, given that the JT decisions are not binding on future JTs, there is a chance that going forward, the general jurisdiction assumption which presently forms the basis of the JT’s support for the attribution of preferential jurisdiction onshore, may be substituted with a first-seized rule that will accord jurisdictional precedence to the court first seized, whether onshore or offshore. Such an approach would be compatible with the existing regime of mutual recognition in place between the Dubai and DIFC Courts under Art. 7 of the Judicial Authority Law and mark a promising way forward in the co-operation between the onshore and offshore Dubai Courts.













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New Arbitration Act in Hungary

Sun, 2017-10-15 00:08

Zoltán Novák

Young ICCA

The Hungarian Parliament has recently adopted a new Act on Arbitration, which will enter into force on 1 January 2018 (the Act). The new Act (based on the UNCITRAL Model Law on International Commercial Arbitration as amended in 2006 (the Model Law)) implements changes that are likely to have a considerable impact on the Hungarian dispute resolution landscape. The previous Arbitration Act from 1994 was based on the 1985 UNCITRAL Model Law, but it was found to be outdated in several aspects. The new Act basically applies the same rules for domestic and international arbitration but provides that, in the case of international arbitration, the presiding arbitrator should have a nationality different from that of the parties.

The new Act adopts the Model Law’s broad concept of arbitrability. Previously, arbitration was restricted to cases in which the parties could “freely dispose of the subject matter”. In the new Act arbitration is defined simply as a dispute resolution method chosen by the parties in the event of a dispute arising from a commercial relationship. The term “commercial” covers all commercial or business matters, whether contractual or not. Only certain special procedures – like family or employment matters – and consumer cases shall be excluded from arbitration. The new approach may mean that the range of arbitrable matters shall widen in the future.

The new Act adopts the provisions on interim measures and preliminary orders included in the Model Law. Accordingly, the arbitral tribunal can – at any time prior to the award – order a party to maintain or restore the status quo, to take actions preventing harm or prejudice to the arbitral process or to preserve evidence relevant to the case. If the tribunal considers that prior disclosure of the request for interim measure would jeopardize its purpose, it may grant a preliminary injunction without hearing the affected party.

The new Act also contains new provisions that have not been taken from the Model Law but had been inspired from from ordinary litigation procedure. One of these innovations is the opportunity of intervention. Upon the request of any of the parties, the arbitrators can invite a third party to join that party in order to support its cause. The intervener may submit evidence and take part in hearings.

Another important litigation concept the new Act introduces into arbitration is retrial. In case any relevant new fact or evidence emerges within one year upon receipt of the award that was not known at the time of arbitration, a party may request retrial of the case by the arbitral tribunal. If the retrial is likely to succeed, the arbitrators may suspend the enforcement of the contested award. This procedure may go against the principle of finality of awards but its applicability is very limited and the parties can exclude its application in the arbitration agreement.

The law also tries to increase the accountability of arbitrators by providing that arbitration will become free of charge with regard to arbitrators’ fees in case the award is set aside. This means that the arbitrators shall reimburse their fees to the parties if the award rendered by them does not stand up to scrutiny by the courts. This rule might encourage arbitrators to conduct proceedings more carefully.

Another change in the landscape is that the leading Hungarian arbitration institution (the Arbitration Court attached to the Hungarian Chamber of Commerce and Industry) will merge with two specialised arbitration courts (the Permanent Arbitration Court for Energy Matters and the Permanent Arbitration Court for Money and Capital Markets) to form the “Commercial Arbitration Court”. This new arbitration institution will have almost complete jurisdiction to act as the permanent arbitration court for the administration of arbitration cases in Hungary. Only sport and agricultural matters shall retain their specialized arbitral institutions. Apart from these courts, only ad hoc arbitration tribunals may be set up to hear individual cases.

A practical example of the possible impact of the new Act concerns avoidance actions in liquidation procedures. If the receiver of a company under liquidation files a court action for the avoidance of a contract containing an arbitration clause, the other contracting party as defendant often moves for the court to refer the dispute to arbitration. Under the previous law, courts usually declined such motions holding that such cases were not arbitrable. In reaching this conclusion, courts referred to two main reasons: First, the parties no longer disposed freely of the subject matter because, in the context of liquidation, the interests of creditors of the insolvent company also needed to be taken into account. Second, the unavailability of intervention made the assertion of these third party interests practically impossible in arbitration. In the new Act, both obstacles have been removed, which may cause courts to reconsider the issue of arbitrability of avoidance actions and honour arbitration clauses even in contracts challenged during liquidation. Of course this would be a most welcome change for foreign investors, who expect arbitration clauses to preclude state courts from any interference with their contract and particularly from declaring it void.

All in all, the above mentioned changes might help international investors to feel more comfortable in doing business in Hungary by having the safeguard of a modern dispute resolution system.

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Open Positions: Assistant Editors of Kluwer Arbitration Blog

Sat, 2017-10-14 00:04

Crina Baltag (Acting Editor)

The Editorial Board of Kluwer Arbitration Blog announces the opening of the following positions with Kluwer Arbitration Blog: Assistant Editor for Europe, Assistant Editor for Asia (Hong Kong and PR China) and Assistant Editor for Africa.

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

The Assistant Editors will work remotely. Please note that this is a non-remunerated position. If you are interested, please submit a resume and cover letter by email to [email protected], with cc to [email protected] The deadline for receiving applications is 25 October 2017.

More from our authors: Arbitrators as Lawmakers
by Dolores Bentolila
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The post Open Positions: Assistant Editors of Kluwer Arbitration Blog appeared first on Kluwer Arbitration Blog.