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True Diversity is Intersectional: Escaping the One-Dimensional Discourse on Arbitrator Diversity

Tue, 2018-07-10 02:20

Joshua Karton and Ksenia Polonskaya

ITA

ISDS tribunals have an unfortunately accurate reputation for being “male, pale, and stale”. A welcome backlash to this state of affairs has arisen, but the discourse has focused almost entirely on one aspect of diversity: gender. For example, the Equal Representation in Arbitration Pledge has garnered over 2900 signatories, who have committed to appointing more female arbitrators to arbitral panels (commercial and investor-state). Reportedly, many arbitral institutions have increased the number of female candidates they appoint to panels. These developments are all to the good, although progress has by no means been steady. When investors and co-arbitrators made appointments to ICSID tribunals, they did not appoint a single woman in 2017. International Investment Agreements (IIAs), even those negotiated recently by relatively progressive countries, such as the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), contain no provisions—not even preambulatory ones—relating to arbitrator diversity.

Still, progress is progress. The problem is that while achieving gender parity (or more!) is a laudable goal, there is much more to diversity than gender. Unfortunately, the diversity discourse in ISDS has thus far been almost totally restricted to the issue of gender, and has avoided intersections between different aspects of diversity. (The recent ITA-ASIL Annual Conference, held in Washington in April 2018, was a rare but welcome exception.) After all, female lawyers come from various backgrounds. There are Asian female lawyers, Indigenous female lawyers, black female lawyers, female lawyers from developing states, Muslim female lawyers, and so on. These overlapping characteristics generate different experiences and different struggles to find “points of entry” into the field of investment arbitration. Being an arbitrator is a position of prestige and importance; it is also well remunerated. If we as a community are to take diversity seriously, we must move beyond the kind of token diversity that sees only white women from developed Western countries added to the pool of arbitrators.

At the risk of oversimplifying, “intersectionality” refers to the overlapping effect of different aspects of diversity in a single individual. The term was coined by Kimberlé Crenshaw, an American law professor, in a 1989 paper. Crenshaw was particularly concerned about the experiences of black women in the United States, who suffer from racism and sexism and the intersection between the two, but the concept has broad relevance. Underlying it is the idea that people who belong to more than one group that suffers discrimination experience discrimination differently from those who are discriminated against only on one axis. Thus, the struggles of black women are shaped by different social dynamics than those affecting white women and those affecting black men. Accordingly, potential arbitrators with intersectional backgrounds—for instance, Asian female lawyers from developing states—can experience a distinctive mix of obstacles in seeking arbitral appointments. Intersectionality more generally refers to this way of thinking about inequality, a perspective that acknowledges and recognizes the range of experiences of those who face intersecting axes of discrimination.

A brief look at the ICSID panels formed in 2012-2017 shows very few female arbitrators with intersecting backgrounds. (Note that the prominent arbitration institutions that administer investment disputes, such as ICSID, ICC, and SCC, do not report statistics on the appointments of female arbitrators with overlapping characteristics, and do not account for double appointments; our statistics were generated by checking the biographies of appointed arbitrators one-by-one.) Over that time period, a total of 951 appointments were made in ICSID arbitrations. Only three appointed arbitrators were female, non-white, and from a developing state: Bertha Cooper-Rousseau (Bahamian), Tinuade Oyekunle (Nigerian), and Dorothy Udeme Ufot (Nigerian). Interestingly, all three were members of annulment committees and all three were appointed by ICSID. We found zero arbitrators appointed to ordinary ICSID panels, and zero arbitrators appointed by parties or by other arbitrators, who meet the gender/race/nationality overlap. There are some arbitrators who meet two of these characteristics; for example, Teresa Cheng is a female arbitrator from Hong Hong and can be identified as non-white; Marie-Andrée Ngwe is a black female arbitrator from France; Maria Stanivukovic is a female arbitrator from Serbia.

Yet, in our sample, most of the few women who are appointed to the panels are Caucasians from developed states. Indeed, the majority of all appointments of women to ICSID panels are of either Brigitte Stern or Gabrielle Kaufman-Kohler. Out of 951 appointments in our data set, only 106 (11%) were of female arbitrators, and of these Stern obtained 53 appointments and Kaufman-Kohler 15. Only 38 appointments (4% of the total) went to all other female arbitrators. (ISDS tribunals are hardly unique in suffering from a lack of diversity; non-Western female judges and arbitrators continue to be rare across all international courts and tribunals with only a few notable exceptions, such as Judge Gabrielle Kirk McDonald of the International Criminal Tribunal for the Former Yugoslavia and the Iran-US Claims Tribunal, Judges Joyce Aluoch and Olga Venecia Herrera Carbuccia of the International Criminal Court, and Judges Julia Sebutinde and Xue Hanqin of the International Court of Justice.)

The current gender-focused discourse is partly to blame for the disappointing outcomes of recent efforts to increase arbitrator diversity because it engenders complacency without tackling the most important problems. The key issue that the lens of intersectionality helps us to identify—the issue that is largely absent from recent discussions—is not whether we appoint enough women arbitrators (we don’t) but which women we appoint? In short, the concept of intersectionality gives meaning to the banal observation that diversity is not one-dimensional. People with overlapping backgrounds may experience unique obstacles that prevent them from entering the field as arbitrators, and they would also bring with them unique perspectives should they be appointed. Without representation of intersectional communities on ISDS tribunals, we cannot say that the arbitration community has made progress even on gender diversity.

Why does intersectionality matter? There are at least three reasons why improving diversity by focusing on intersectionality helps everyone, even white males. First, diverse arbitral panels are likely to produce higher quality decisions because diversity disrupts groupthink and short-circuits cognitive biases. For example, in international criminal law, two female judges, Gabrielle Kirk McDonald and Elizabeth Odio-Benito, played an instrumental role in the recognition of sexual assault as a war crime. Second, diversity is a matter of fairness, in any workplace, but especially in one as consequential as that of investor-state arbitrator. As Francoise Tulkens argues, women’s presence need not “justify” or “legitimize” anything; they must be represented on ISDS tribunals simply because there is no good reason for them not to be active decision-makers in the field. Third, diverse representation would improve legitimacy. ISDS depends on widespread political acceptance for its legitimacy, an acceptance that cannot be taken for granted in these days of resurgent populism on the left and right. ISDS can never enjoy global legitimacy unless people from around the globe can see themselves represented in the process.

Just bringing intersectionality into the discourse on arbitrator diversity would be a step forward. But we can do even more to reform the arbitrator appointment process. First, any reforms must be empirically based. Addressing both the obstacles that intersectional candidates experience in seeking arbitral appointments and the perspectives that intersectional arbitrators bring to the deliberations requires more data than we currently have. It may be useful to conduct interviews with arbitration lawyers of diverse backgrounds to identify the key obstacles they encounter in traversing the international arbitration cursus honorum. Second, on the basis of these findings, it may be valuable to consult with arbitral institutions, who will necessarily play an important role in shifting the dynamics of arbitral appointments, as they have already been a driving force in increasing appointments of women. Third, if empirical studies can identify the “points of entry” at which candidates with overlapping backgrounds face the most serious obstacles, tailored programs can be established to help intersectional candidates overcome those obstacles. Not only they, but the whole ISDS community, will benefit.

Joshua Karton is an associate professor and the Associate Dean for Graduate Studies and Research at the Queen’s University Faculty of Law, Canada. Ksenia Polonskaya is a Postdoctoral Fellow at the Centre for International Governance Innovation, Canada.

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A Rollercoaster: The First Half of the Year 2018 for BITs and ISDS

Mon, 2018-07-09 04:04

Nikos Lavranos

The first half of the year has been a rollercoaster when it comes to BITs and ISDS, in particular in Europe. Several developments at various levels can be distinguished with one common denominator: for better or for worse, the European Union (EU) and EU law have become one of the key drivers in shaping international investment law and arbitration. Below are some selected developments.

Last March, the long-awaited Achmea judgment by the Court of Justice of the EU (CJEU) has certainly been the most discussed cause célèbre in investment law and within the arbitration community. After the Advocate General’s courageous attempt to save the ISDS clause in intra-EU BITs by a very innovative Opinion, the CJEU – following its long-standing jurisprudence – used the preliminary ruling-argument to effectively declare ISDS arbitration within the EU as being incompatible with EU law. From an EU law perspective that, in itself, is hardly surprising; however, the very short and unclear Achmea judgment has had and continues to have a significant impact on a wider scale (click here for the blogposts on Achmea).

First and foremost, the Achmea judgment signalled to the EU Member States that it is about time to sort out this issue by removing the possibility for foreign EU investors to be able to use international arbitration when – by virtue of EU law – domestic courts of the Member States are the only venue. Unsurprisingly, several Eastern and Central European Member States have used the Achmea judgment as an argument to announce or even to proceed with the termination of their intra-EU BITs (notably Poland and Romania, although Italy and Denmark had already done so previously). However, the letter of the Dutch Minister for Trade and Development to the Dutch Parliament was somewhat surprising. In her answers to the questions posed by left-wing members of the Dutch Parliament as to the consequences of the Achmea judgment, she stated that all Dutch intra-EU BITs will have to be terminated because of the Achmea judgment. In addition, she also mentioned that it would be necessary to look into the Energy Charter Treaty (ECT) as well. This wide interpretation of the Achmea judgment is arguably not supported by a close reading of it. The CJEU did not declare that intra-EU BITs must be terminated (neither was it asked to). The CJEU also did not declare that all ISDS provisions in intra-EU BITs are incompatible with EU law, but focused only on the particular one in the Netherlands-Slovak BIT, which was at issue in the case. Finally, the CJEU most certainly did not say anything regarding the ECT or intra-EU ECT ISDS disputes, which were definitely not the subject in the Achmea case. However, what is most interesting to note is how quickly and sweepingly the Netherlands changed its position from being a staunch supporter of ISDS (and, indeed, a supporter of Achmea in the setting aside proceedings before the German courts) to a supporter of the European Commission’s crusade against intra-EU BITs and intra-ECT ISDS cases. It remains to be seen whether, to what extent, how (unilaterally or mutually), and when all the 190 intra-EU BITs will be renegotiated or terminated. It is interesting to note that other important Member States such, as for example Germany or France, have apparently not yet drawn the same conclusions as the Netherlands.

The second noticeable development concerns the string of intra-EU ECT awards in the renewable energy sector against mainly Spain, Italy, and Czech Republic. While the first awards finally started to come out in 2017, the speed has picked up in 2018 with some interesting outcomes. While Spain was successful in thwarting off the first two claims against the retroactive removal of feed in tariffs, all other subsequent awards have resulted in losses for Spain and awarding claimants significant amounts of damages (EUR 128 million in Eiser, EUR 53.3 million in Novenenergia, EUR 64.5 million in Masdar). More generally, at least so far, arbitral tribunals have not been impressed by the attempts to ascribe any impact of the Achmea judgment on intra-EU ECT disputes. Indeed, the Masdar arbitral tribunal simply stated that the Achmea judgment has “no bearing on the case at hand”. Nonetheless, Spain is using the Achmea judgment in ICSID annulment proceedings and in setting aside proceedings before domestic courts to escape the payment of these awards. It remains to be seen whether, and if so, to what extent arbitral tribunals will eventually bow to the pressure and follow the CJEU. In fact, the CJEU has already been asked by the Stockholm court to give its views on this matter. So, again, the CJEU will be in a central position to make or break the future availability of the ECT for European investors against EU Member States. In parallel, it appears that also within the ECT, the EU and some EU Member States are increasing the pressure to “reform” or “re-balance” the ECT provisions. In that context, one could expect that the EU and EU Member States might issue a declaration containing a so-called “disconnection clause”, whereby the ISDS provisions would be declared inapplicable for intra-EU ECT disputes.

Speaking of reforms, another interesting development is the recently published new Dutch draft model of a BIT text, which was also opened for public consultation. As I described elsewhere in more detail, the draft text is a significant departure from the 2004 “gold standard” Dutch model BIT text by essentially taking on board many of the new “reform” elements contained in CETA. Since the Netherlands has already concluded almost 100 BITs and since the EU is mainly responsible for the negotiation of Free Trade Agreements (FTAs) – although the competence for the ISDS provisions remains with the Member States – the practical value of this draft model BIT text will probably remain limited. Nonetheless, the political signal is clear in that also the Netherlands is bowing to the pressure of the NGOs and forced to align itself with the EU’s investment policy, which has proclaimed that “ISDS is dead”.

Another reform project, which is driven by the EU and gained more international attention, is the push for a Multilateral Investment Court (MIC), which is currently debated and negotiated within UNCITRAL. The last meeting in April in New York has shown that many states are in the mood of changing the system in their favour and the MIC is one option that is considered by some to be an appropriate solution to deal with the (perceived) concerns regarding the current ISDS system and BITs generally. The next round of negotiations, which is scheduled for late October, will be an important indicator as to whether the MIC proposal will indeed gain traction among a substantial number of states.

Looking ahead into the second half of the year, the CJEU is likely to take again the center stage when it delivers its Opinion on the compatibility of the Investment Court System (ICS) that is now included in CETA, EU-Singapore FTA, EU-Vietnam FTA, and EU-Mexico FTA (a hearing report can be found here). If the Achmea judgment is of any guidance, it seems likely that the CJEU would consider the ICS to be also incompatible with EU law. This would be for the same reason, which is that the ICS also cannot request preliminary rulings from the CJEU and thus is not under its control when it comes to the potential interpretation or application of EU law – something which the CJEU finds unacceptable. If that is, indeed, the outcome, it would mean the end of the EU’s efforts in maintaining some sort of international arbitration for foreign investors in its treaties. In fact, since the CJEU’s Opinion regarding the EU-Singapore FTA in which it held that ISDS is a mixed competence, the appetite of the EU to shape or reform the ISDS proceedings is rapidly fading away. This is also reflected by the fact that most recent EU-Japan FTA already does not include an ISDS chapter and neither is such a chapter envisaged for the currently on-going FTA negotiations between the EU and Australia and New Zealand.

In conclusion, the last half year has been very dynamic, to say the least. While the destruction of international arbitration within the EU seems to linger on, outside the EU investment disputes continue to be initiated and awards are issued. Indeed, in a remarkable move against the current trend, recently Mexico signed up to the ICSID Convention, thereby confirming its consent to arbitrate disputes under the current ISDS system. However, it remains to be seen whether the new Mexican President will ensure that Mexico will ratify the ICSID Convention anytime soon. In any event, the fact remains that States are still negotiating and concluding BITs and FTAs with ISDS provisions, in particular outside the EU. So, ISDS is not dead yet but still alive and kicking, and that will be the case for at least the rest of this year.

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Art-Related Disputes and ADR Methods: A Good Fit?

Sun, 2018-07-08 04:54

Alice Trioschi

In the past few years, the discussion and research about the use of ADR methods in art & cultural heritage has increasingly grown. This is due partially to the rise of art related claims but also to the interest scholars and practitioners are showing to alternative and consensual ways of solving a conflict. Indeed, despite there are instances in which litigation in a national court would be entirely appropriate, such as when a legal precedent is sought (for common law systems) or a party is particularly uncooperative, a lawsuit is not always the best option.

Most claimants are detained from bringing an action to court due to its high expenses, long proceedings, the worsening of relations, the uncertainty of the outcome and the possible embarrassment of an adverse ruling. In addition, lawsuits are not always available: they might be rejected because of lack of jurisdiction or because their limitation period has expired.  Furthermore, in the case of a final and binding decision upon two international parties, the winning one might need to ask the enforcement of the judgement in a foreign jurisdiction. The disadvantages the parties face when entering a lawsuit, pose the question of whether ADR methods such as mediation, arbitration and expert determination could be a better fit for art-related disputes. Which are the benefits of ADR in the art and cultural heritage sector?

Flexibility and creativity – Art-related disputes often involve sensitive non-legal issues that are relevant to the parties and are not normally addressed into court: emotional, moral, political and ethical matters. Therefore, ADR on art-conflicts could be considered a fertile ground for ‘expanding the pie’, meaning that a huge variety of interests can be taken into account to negotiate a mutual gain and a possible agreement between the actors. An example of a flexible and creative solution is the one reached in 2007 by the Tasmanian Aboriginal Centre (TAC) and the Natural History Museum (NHM) of London for the restitution of 17 human remains hold in the NHM’s collection. After 20 years from the first restitution claim, the parties reached a mediation agreement respecting both their interests: the return of the remains to the TAC, with the possibility of the NHM to control part of the material to conduct non-invasive scientific analysis.

Preservation of long-term relationships – it could be said that most of art world relationships are largely based upon trust and personal connections between the parties. When the trust is lost, the actors often embark legal proceedings where the ensuing argument is driven by feelings of betrayal.  The recent and still ongoing high-profile case of Yves Bouvier and Dmitry E. Rybolovlev is an example of this practice. In 2015 Mr. Rybolovlev commenced various trials in Singapore, Hong Kong, Paris and Monaco accusing Mr. Bouvier of having defrauded and overcharged him over $1 billion for the purchase of works of art. The Russian millionaire also accused Mr.Bouvier of selling him stolen paintings, such as Femme se Coiffant and L’Espagnole à l’Èventail by Picasso, claimed back by the artist’s daughter Jacqueline Roque. The two men had a long-term business relationship started in 2003 and ended suddenly with the legal claims. On this basis, ADR methods can help the parties to reach a concerted solution preserving the existing relationship: their agreement could include the provision of works of art in lieu of monetary damages, the shared ownership of an art piece or the use of long-term loans.

Consensus – Apart from the case in which a court mandates a specific ADR mechanism, the latter is generally consensual. The parties can use it when submitting their dispute to ADR, also through a clause previously included in their contract. This characteristic, especially in mediation, leads to a mutual solution of the dispute satisfying the parties.

Neutrality  and expertise – ADR procedures allow the actors to choose a specific arbitrator, mediator or expert coming from the art world. Similarly, they can pick a person with a certain cultural or linguistic background.  The skills and the ability of the arbitrator/mediator to see the art-dispute in its integrity are crucial to the outcome of the procedure. An example is the case faced by WIPO relating a cooperation agreement between a European gallery and e European artist for the promotion of the artist on the art market. Three years after signing the agreement, the parties entered a  dispute and deferred it to three arbitrators experienced in art law issues. As a result, the arbitral tribunal encouraged the parties to negotiate and reach a concerted agreement. Subsequently, the tribunal rendered an award including the parties’ agreement, encompassing the conclusion of the contract between them and the provision of a number of works from the artist to the gallery.

A single, quick and cheap procedure – art-related disputes are often multidimensional (including both institutional and private parties) and international. These two characteristics pose a problem of jurisdiction: judges from different countries could be involved in the same conflict. ADR methods allow the parties to choose a specific international forum, the applicable law and the language preferred, letting them save time and money. For instance, in accordance to the New York Convention2, arbitration offers the advantage of an arbitral award that can be internationally enforced without a review of the case. Similarly, under D.Lgs.28/2010, the legislation for Italian mediation regulates the parties’ possibility to reach an agreement directly enforceable on the Italian territory without further legal actions.

Confidentiality – the art market is renown to be an opaque world where the reputational factor plays a key role. The actors can be involved in court-case proceedings fostering negative publicity or further claims on the same issues. ADR mechanisms keep the dispute confidential and allow the parties to settle it in a more discrete manner, balancing their privacy with public interest requirements such as in the case of illicitly traded objects. Indeed, whatever is said in the presence of the arbitrator, mediator or expert must be kept private: if the agreement is not reached, the information disclosed during the process can’t be further used in court.

 

CAM’s (Milan Chamber of Arbitration) Experience

CAM established its ADR Art & Cultural Heritage (ADR Arte) project in 2015 to respond the need of a specific dispute resolution service for art-related disputes. The preferred method is mediation, intended as a process which facilitates the parties in their negotiation and in reaching a concerted solution to their conflict. The mediation process can be activated under the rules of D.Lgs.28/20103, when the parties are involved in a domestic dispute and strive for an Italian enforceable title, or through the “fast track mediation rules”. These are particularly flexible and appropriate when the dispute is multidimensional, international, foresees the necessity of art experts and lower costs.

From 2015 to 2017, ADR Arte faced 32 art- mediations. Out of these, 25% relate to leasing contracts , 22% to inheritance, 19% to property rights, 16% to the distribution of the estate, 6% to financial contracts, 3% to libel, trading contracts and residual categories. 94% of disputes were compulsory under the D.Lgs. 28/2010, while 6% were voluntary.  53% of mediations was based on a contract liability between the parties while 47% was non-contractual. 6% started because of the judge’s request, while 3% because of a contractual clause deferring the dispute to mediation. Furthermore, the value of the conflict varied greatly: ranging from those < €20.000,00 (16%), the ones between €20.001,00 – €50.000,00 (12%), those between €50.001,00 – €150.000,00 (16%), €150.001,00 – €250.000,00 (34%), the ones from €250.001,00 to €1 million (6%) and those above €1 million (16%). Finally, the results: out of all art-related mediations, the percentage of agreements reached is 28%, a higher result if compared to the one of settlements attained generally during a mediation proceeding (22.5% in 2017). Differently, when the parties decided to move forward with mediation after the first session, the percentage of reached agreements increases to 82% (a higher result than the one of classic mediation, which was of 72.5% in 2017).

In the light of these results, three main conclusions seem to arise. The first, that ADR methods could be considered a good fit for those disputes concerning an ‘artistic’ actor, object or subject. In fact, they do solve most of complex nuances of the art market, such as confidentiality, preservation of long term relationships, quick and cheap procedures through pragmatic and innovative solutions. Second, ADR methods are particularly effective on legal categories as inheritance and division of the estate. Indeed, in arbitration and mediation the sensitive non-legal matters of the parties, often connected to personal relations, are free to arise and be included in their final agreement. The third, that only 3% of CAM’s art mediations started because of a contractual clause deferring the dispute to ADR. This means there is still room for enhancing the use of ADR in art-related disputes, especially with the inclusion of multi-step clauses in the contract concluded by the parties.

 

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Draft Model BIT – The Netherlands

Sun, 2018-07-08 02:31

Nikos Lavranos

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Equality and Inclusion Revolution

Sat, 2018-07-07 03:01

The Alliance Council

Many people now readily recognise that there is still a gaping disconnect between the types of people now involved, at a ‘grass-roots’ level, in dispute resolution globally and those who reach the upper echelons of the industry.  Across all industries, there seems to be daily news reports emphasizing inequality and often with a focus on gender. We hear about the gender pay gap, inequality particularly amongst male dominated industries such as information technology, science and finance, and other issues such as sexual harassment which disproportionately affect women. Yet addressing the issues faced by women alone does not address the issue of diversity and inclusion as a whole. There are many more ingredients necessary for true diversity: social class, race, ethnicity, disability and regional provenance, to name but a few, which must also be taken into account. These attributes can all be barriers to entry and progression within the legal community.

On occasion, in making any selection we may miss a person’s potential, simply because of a lack of awareness of our unconscious biases. In dispute resolution (whether law firms, the Bar, counsel, judiciary or arbitral tribunals) there is an over-representation of middle aged, white (Euro-American) men. Statistics confirm the existence and extent of this imbalance: of all closed ICSID cases between January 1972 and May 2015 only 4% had been arbitrated by an entirely non Anglo-European tribunal;1)Berwin Leighton Paisner, International Arbitration Survey, „Are We Getting There? jQuery("#footnote_plugin_tooltip_4048_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4048_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Africa, Asia and the Pacific represented 32.3% of the parties in ICC cases in 2013, yet less than 15% of arbitrators were from these geographical regions;2)Berwin Leighton Paisner, International Arbitration Survey, Are We Getting There?” jQuery("#footnote_plugin_tooltip_4048_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4048_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in 2015 only 2 females were listed in the Chambers & Partners “Most in Demand Arbitrators” globally, the majority of the other 33 males being white Europeans.3)Ibid jQuery("#footnote_plugin_tooltip_4048_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4048_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

More recently, the 2018 International Arbitration Survey conducted by the School of International Arbitration, Queen Mary University of London, in partnership with White & Case, reported:

In particular, is there any causal relationship between diversity across a multi-member tribunal and the quality of its decision-making? The most popular answer, chosen by a quarter of respondents, was that the effect of diversity across a panel of arbitrators on the quality of that tribunal’s decision-making “depends on the particularities of the dispute in question”. 22% of respondents think that diversity brings about “some improvement in quality” while 18% take the view that diversity leads to a “significant improvement in quality”. A similar number (19%), meanwhile, deem this enquiry to be irrelevant because they consider diversity to be inherently valuable in and of itself. The views that diversity does not make an appreciable difference in quality or can even reduce the quality of the decision-making were less adhered to. It is noteworthy that no single viewpoint attracted a significant majority of supporters.

These are just but a few of those figures that should strike the reader. This is not anyone’s fault, it is a simple reflection of the world in which we all grew up. Striving for true diversity in our field means challenging every element of that group: age, race/colour, ethnicity, regional dominance and gender. There is clearly a great deal of work still to be done if there are to be any improvements. Lip service is not enough.

Knowledge of the disconnection between a diverse community and representation isn’t sufficient; what is needed is real and concrete long-lasting action. Any organisation, new or old, taking steps, bold or small, to increase diverse representation in an otherwise notoriously male-dominated profession, is to be lauded. The Alliance for Equality in Dispute Resolution was launched earlier this year to tackle, in a collaborative and inclusive manner, the lack of diversity and, therefore, equality, in the international dispute resolution community. In the past, this goal has largely been pursued by others on a piece-meal basis or by focusing on only one element of diversity. Yet, what is needed is a concerted effort to eradicate inequality and the lack of diversity. This means all of us taking a stand for equality of treatment, of opportunity and justice universally and also pushing vigorously and consistently for it. The inequality and inequity of the current position amongst the different sexes, ethnic groups and regional practitioners must be addressed.

One of the manners in which this can be achieved is by providing training in unconscious biases. Evidence suggests that this type of training reduces the impact of bias in the workplace. It provides an opportunity to understand the nature of bias that affects us all. The strategy of categorization that gives rise to unconscious bias is a normal aspect of human cognition. Understanding this important concept can help individuals approach their own biases in a more informed and open way. Sharing your biases can help others feel more secure about exploring their own biases. It is important to have these conversations in a safe space – individuals must be open to alternative perspectives and viewpoints. This means developing the vocabulary for that discussion to take place. This training facilitates discussions by promoting bias literacy utilizing the concepts and techniques which have been proven effective in minimizing bias. The Alliance’s first workshop on unconscious bias took place in early June in New York in collaboration with the CPR Institute.4)The Alliance’s Workshop jQuery("#footnote_plugin_tooltip_4048_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4048_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Much can be done at a personal level to enable us all to recognise, monitor, manage and reduce the impact of our personal biases. Organisations can support this in very practical ways within policies, practices and at key people decision making points. An organisation’s culture and values will necessarily evolve from those of the leadership. Individual actions need to be facilitated and authorised by a clear stance being taken on the culture of an organisation by its leaders – and carried through into systems. Role models of every kind are needed to transform workplace culture. Leaders can help by rewarding and supporting diverse role models. It is important to reward inclusive behaviour and interventions, measure and make public the effect of workplace culture initiatives, and ideas that have worked should be broadcast using data and engaging tools that tell people’s stories.

Some control can also be achieved through social norms. In those norms we need to consider accelerators and innovation. Accelerator initiatives work like hot-houses, giving underrepresented groups all the benefits men have such as mentoring, training, and inclusion in networking and communication. Innovation involves considering strategies to address unconscious bias and conventional social norms; these should be individual and institutional strategies.

Thankfully, there is also empirical evidence in the business world and also national judiciaries which shows that diversity enhances decision making and improves the ‘bottom line’. For instance, a report published by McKinsey in 2014 found a statistically significant relationship between diverse leadership and better financial performance.5)McKinsey, “Diversity Matters” jQuery("#footnote_plugin_tooltip_4048_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4048_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); There is no reason why this should not translate into the same types of benefits of enhanced decision making in arbitration. Great work has been done in the space of gender diversity but not enough is being done in relation to ethnic, racial and regional diversity. If initiatives for gender diversity have made some inroads then there is no reason why initiatives encompassing a broader group will not do the same.

Life is full of challenges, some of which we are able to meet head on and others which largely lie hidden but show themselves in subconscious behaviour. We should not shy away from tackling both kinds, the explicit and the implicit, the conscious and unconscious, the deliberate and automatic. Ultimately, in one form or another, they all require us to challenge the status quo to be a part of bringing about the necessary change. The next generation of dispute resolution practitioners deserve to come into a workplace where the role models who came before them forged a path, and fought to change the attitudes and cultures that held them back. Those role models should comprise of not only a gender diverse group but also a racially, ethnically and regionally diverse group.

References   [ + ]

1. ↑ Berwin Leighton Paisner, International Arbitration Survey, „Are We Getting There? 2. ↑ Berwin Leighton Paisner, International Arbitration Survey, Are We Getting There?” 3. ↑ Ibid 4. ↑ The Alliance’s Workshop 5. ↑ McKinsey, “Diversity Matters” function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Prague Rules v. IBA Rules and the Taking of Evidence in International Arbitration: Tilting at Windmills – Part II

Thu, 2018-07-05 17:22

Guilherme Rizzo Amaral

On my latest post, I addressed the announcement of the upcoming Inquisitorial Rules on the Taking of Evidence in International Arbitration (“The Prague Rules”) as a reaction to the alleged “Creeping Americanisation of international arbitration”, represented by the IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules”).

In this post, I will assess whether the Prague Rules really differ from the IBA Rules and whether the former are actually capable of delivering a satisfactory result in terms of arbitration efficiency.

Prague Rules and IBA Rules: not that different after all

The Prague Rules provide for the arbitral tribunal’s active role on the taking of evidence in article 2.5, which states that “[t]he Tribunal may also, if it deems appropriate, order the Parties to produce evidence (including making available fact witnesses or expert reports)”. Furthermore, article 3.1 entitlesand encouragesthe arbitral tribunal to take an active role in establishing the facts of the case, albeit not releasing the parties from their burden of proof. The tribunal may on its own motion“request any of the Parties to produce relevant documentary evidence or make fact witnesses identified by the Arbitral Tribunal available for testimony” (article 3.2, i), appoint experts or instruct the parties to do so (article 3.2, ii), order site inspections (article 3.2, iii) and take other appropriate actions for the purposes of fact finding (article 3.2, iv). The Tribunal may also on its own initiativerequest that both Parties and non-parties to the arbitration produce documents (articles 4.4 and 4.5).

From the declaration of purpose of the Prague Rules, we would expect the IBA Rules to take an entirely different stance on these issues. Yet the reality is much different.

The IBA Rules also encourage the arbitral tribunal to identify any issues (whether factual or legal issues) that it considers relevant to the case (article 2.3) and to order the production of documents (article 3) – and here the tribunal has an even more inquisitorial role as the verb orderis used instead of request, favoured by the Prague Rules. The IBA Rules even allow the arbitral tribunal itself to take “any step it considers appropriate to obtain Documents from any person or organisation” (article 3.10). The same goes for witnesses: the tribunal may order any Party to provide for the appearance for testimony of any person, “including one whose testimony has not yet been offered (article 4.10). As for experts, the tribunal also has discretion to appoint their own (article 6), without prejudice to the appointment of experts by the parties (article 5). The arbitral tribunal may also order inspections on its own motion (article 7). Furthermore, the IBA Rules provide that the arbitral tribunal “shall at all times have complete control over the Evidentiary Hearing (article 8.2), varying the order of the proceeding on its own motion(article 8.3, f) and asking witness questions at any time (article 8.3, g).

Both the Prague Rules (articles 5.2 and 5.3) and the IBA Rules (article 9.2) allow the arbitral tribunal to exclude witness testimony on its own motion if said testimony is not relevant to the case. Both the Prague Rules (5.6) and the IBA Rules (article 8.2) bestow upon the arbitral tribunal the power to limit the number of questions to witnesses. Finally, both the Prague Rules (article 6.3) and the IBA Rules (articles 9.5 and 9.6) allow the arbitral tribunal to make adverse inferences, although the IBA Rules are much more detailed on the issue.

With so many similarities between the Prague Rules and the IBA Rules, especially concerning the arbitral tribunal’s proactive role on the taking of evidence, one may question whether the former might be an overreaction to a misconceived view on what the latter really stands for.

Maybe now is a good time to revisit the note from the Prague Rules’ working group. As we have seen so far, the approach towards document production, fact witnesses and party-appointed experts is quite similar in the two sets of rules. Yet the note from the Prague Rules’ working group points out that (i) the IBA Rules take for grantedthe party’s entitlement to cross-examine witnesses, (ii) many arbitrators are reluctant to actively manage arbitration proceedings, fearing the risk of a challenge, (iii) it is very rare that “document production brings a smoking gun to light”, and that (iv) there are doubts “as to the usefulness of fact witnesses and the impartiality of party appointed experts”.

As to the right to cross-examine, it remains unclear how it harms arbitration efficiency, as both the IBA Rules and the Prague Rules allow the tribunal to curtail undue or ineffective questioning of witnesses.

With regard to the arbitrators’ reluctance to manage proceedings for fear of challenges, this would actually stimulate an adversarialapproach rather than an inquisitorialone, and both the IBA Rules and the Prague Rules provide room for arbitrators to follow the latter path unhindered.

Finally, doubts as to the usefulness of document production or party-appointed experts have not caused either the IBA Rules or the Prague Rules to ever dismiss such proceedings. Quite the contrary, both sets of rules confer to the parties the opportunity to appoint their own experts (IBA Rules, article 5; Prague Rules, article 6.6).

And yet the Prague Rules contain a rather questionable provision stating that the arbitral tribunal “shall avoid extensive production of documents, including any form of e-discovery” (article 4.1). It is important to note, however, that it is one thing to control the usefulness of documents in arbitration – a point that both the IBA Rules and the Prague Rules leave at the discretion of the tribunal. Another entirely different thing is to abdicate methods such as e-discovery, which are fundamental not only due to the way businesses are conducted nowadays but also due to the need to address the imbalance between the parties, assuring both a formal and a substantive due process in arbitration. At first glance, the suppression of e-discovery simply looks backward minded.

Anyhow, if the Prague Rules do not represent a clear departure from the IBA Rules – save exceptional and questionable provisions such as the condemnation of e-discovery – one may question whether there is any gain or even utility in issuing them in the first place.

Conclusion

The Prague Rules operate under the shadow of an apparent war between common law and civil law armies for dominance over the international arbitration landscape. Yet, just like Don Quixote, they mistake windmills for giants.

As commentators have pointed out, “[r]igid distinctions that exist between civil law and common law approaches are not imposed upon international commercial arbitration”, as “the emerging practice for taking of evidence in international commercial arbitration comprises elements of both civil and common law type procedures, other legal systems, and practices especially appropriate for an international process” (LEW, Julian D. M., MISTELIS, Loukas A., et al., Comparative International Commercial Arbitration. Kluwer Law International, 2003. p. 556).

This approximation between the common law and the civil law traditions is not circumscribed to international arbitration. It is rather a universal trend intensified by globalisation and the growth of international trade. For example, while civil law countries have been adopting their own case-law systems, common law countries have been relying more and more on statutes rather than on precedents. Good examples can be taken from the Chinese Case Guidance Systemand from the new Brazilian Code of Civil Procedure, which I have dealt with in a recent publication.

The Prague Rules and the IBA Rules are examples of soft law. In order to succeed, soft law needs to bridge gaps, not burn bridges. Its strength rests upon its network effects:the more agents rely upon the soft law, the more power it acquires (DRUZIN, Bryan H. Why does Soft Law have any Power Anyway? Asian Journal of International Law, vol. 7/no. 2, 2017, pp. 362-363). Therefore, it is not by building an illusionary divide between common law and civil law practitioners that the Prague Rules will thrive. Such approach, in fact, practically sentences them to stillbirth.

There is much to gain from a joint effort of arbitration practitioners and academics from different cultural and legal backgrounds, as long as their shared goal is to put all their might at the service of a more reliable, legitimate and cost-effective international arbitration. It would be a terrible mistake to assume that by defending entrenched legal theories or traditions one could achieve such a goal.

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Prague Rules v. IBA Rules and the Taking of Evidence in International Arbitration: Tilting at Windmills – Part I

Wed, 2018-07-04 17:14

Guilherme Rizzo Amaral

On May 29, 2010, the International Bar Association (“IBA”) adopted the IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules”), a revised version of the original 1999 version which, in turn, had replaced the IBA Supplementary Rules Governing the Presentation and Reception of Evidence in International Commercial Arbitrationof 1983.

Even though the IBA Rules were drafted as a “resource to parties and to arbitrators to provide an efficient, economical and fair process for the taking of evidence in international arbitration”, their main goal was to bridge the gap between different legal systems and their respective procedures on the taking of evidence, which is “particularly useful when the parties come from different legal cultures” (IBA Rules, Foreword).

The IBA Rules have successfully influenced the practice of international arbitration, as arbitral tribunals formed by members from different legal traditions have been applying them, be it on their own motion or at the request of the parties,regardless of an express choice for the IBA Rules in the terms of reference.

However, such success has not prevented a reaction from members of the arbitral community concerned by what they see as a dominance of the common law tradition over the IBA Rules. For instance, the denunciation of a “Creeping Americanisation of international arbitration” set the tone at the IV Russian Arbitration Association Annual Conferencethat took place in in Moscow on April 20, 2017. The outcry gave rise to the proposal of a different set of rules, the so-called Inquisitorial Rules on the Taking of Evidence in International Arbitration, or The Prague Rules, as their drafters intend to launch them in Prague in December 2018.

In a preliminary draft of the Prague Rules, dated March 2018, it is easy to see that while they share one of the goals of the IBA Rules, which is to improve the efficiency of international arbitration, their focus is entirely different when it comes to bridging the gap between different legal traditions.

The Prague Rules are a manifestoin favour of the civil law tradition and of an inquisitorial approach in international arbitration, as well as an attack on the inefficiencies of the adversarial approach. If their official name was not enough evidence of that – InquisitorialRules on the Taking of Evidence in International Arbitration –, the note from the Prague Rules’ working group leaves no room for doubt. It criticises the IBA Rules “from a civil law perspective” for following “a more adversarial approach”. It goes on to say that many of the procedural features of the IBA Rules “are not known or used to the same extent in non-common law jurisdictions, such as continental Europe, Latin America, [the] Middle East and Asia”. It then states that the adoption of an “inquisitorial model of procedure” would contribute to the efficiency in international arbitration, “reducing time and costs of arbitrations”.

Regardless of any assessment on the efficiency of the Prague Rules’ procedural mechanisms to reduce the time and costs of arbitrations, some questions can immediately be raised: Is it true that the IBA Rules are dominated by the common law tradition – that is to say by an adversarial approach? How much do the IBA Rules differ from the Prague Rules? Furthermore, if the problem with the IBA Rules is really the fact that many of their features are uncommon to civil law practitioners, would the Prague Rules not suffer from the same problem in reverse? Considering the existence of domestic arbitration statutes and institutional rules that already reflect different traditions, what would be the purpose of a soft lawon the taking of evidence in international arbitration if not to bridge the gap between different legal traditions?

The Prague Rules and the proactive role of the arbitral tribunal

The classic distinction between the inquisitorial approach and the adversarial approach rests on the distribution of burdens and powers between parties and adjudicators (whether judges or arbitrators). An inquisitorial proceeding relies on an active role of the adjudicator, who may take initiative both in fact-finding (production of evidence) and in the ascertainment of the law. The adversarial approach, on the other hand, burdens the parties with those activities and confers upon the adjudicator the duty to preside over the proceeding and to rule on the dispute as an umpire; definitely a more passive stance for the adjudicator.

That said, the Prague Rules contain many provisions bestowing a proactive role upon the arbitral tribunal. And yet many of such provisions have no direct connection – and sometimes not even an indirect connection – with the taking of evidence, as can be seen in the provisions of article 2 (e.g., holding a case management conference through electronic communication, clarifying the legal grounds on which parties base their position, fixing a procedural timetable, limiting the number of submissions or their length, the tribunal being allowed to share with the parties – during the proceeding – its views regarding the relief sought), article 9 (assistance in amicable settlement), or article 11 (allocation of costs).

These provisions in particular may be useful in ad hocarbitrations, yet their usefulness in institutional arbitrations is questionable as most institutional rules or terms of reference usually address those issues. The Prague Rules themselves concede that due regard should be given not only to the mandatory provisions of the lex arbitribut also to the applicable arbitration rules (article 1.3).

Yet, what about the rules strictly concerning the taking of evidence? How do the Prague Rules differ from the IBA Rules? Are the Prague Rules capable of delivering a better result than the IBA Rules in terms of arbitration efficiency?

These questions will be addressed in the second and final part of this post.

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International Commercial Court in China: Innovations, Misunderstandings and Clarifications

Tue, 2018-07-03 22:03

Wei Sun

On 29 June 2018, the Supreme People’s Court of China (the “SPC”) launched its First International Commercial Court in Shenzhen, Guangdong, and Second International Commercial Court in Xi’an, Shaanxi (the “Courts”). Correspondingly, the Regulations of the Supreme People’s Court on Certain Issues Concerning the Establishment of International Commercial Courts (the “Regulation”) has just taken effect on 1 July, 2018. This is considered an effort by the SPC to provide effective judicial protection for the “Belt and Road” initiative, and to reform China’s international dispute resolution system. In this article, I will introduce the basic mechanisms of the Courts, and then clarify certain misunderstandings which I believe are already circulating within the international community of law practitioners.

 

  1. Courts

 

The Courts are permanent branches of the SPC. The judges of the Courts are appointed by the SPC from experienced judges familiar with practices in international commerce and investment and having language capacity to work with both Chinese and English. Currently, the SPC has appointed eight judges, including Wang Chuang, Zhu Li, Sun Xiangzhuang, Du Jun, Shen Hongyu, Zhang Yongjian, Xi Xiangyang, and Gao Xiaoli. A tribunal hearing a specific case will consist of three or more judges.

 

The Courts will only hear international civil and commercial disputes between equal parties. In other words, they will NOT hear state-state trade or investment disputes or investor-state disputes. According to Article 3 of the Regulation, disputes are “international” where one or both of the parties are foreign, where one or both parties regularly reside outside the territory of the PRC, where the subject matter is located outside the territory of the PRC, and where legal facts that create, change or eliminate commercial relations occur outside the territory of the PRC.

 

Specifically, the Courts will focus on four types of international commercial disputes: first, a dispute where the parties agree to litigate in the SPC according to Article 34 of the Chinese Civil Procedural Law and the amount in dispute exceeds RMB 300 million; second, a dispute which originally should be litigated in a high court but was submitted to the SPC because the high court believes it should be heard by the SPC and the SPC approves; third, disputes that have an impact nationwide; fourth, disputes where one parties applies for interim measures in assistance for arbitration, setting aside and enforcement of arbitral awards according to Article 14 of the Regulation.

 

  1. Clarifying Misunderstandings

 

  1. Determining the Jurisdiction of the Courts

 

The jurisdiction part of the Regulation is mainly drafted with a focus of the jurisdictional relationship between the Courts as part of the SPC and the lower courts. Under the Civil Procedure Law, the SPC already has the right to hear any litigation case, as long as it believes to be necessary, which is within the jurisdiction of a lower court. However, the relationship between arbitration and litigation and between domestic and foreign courts and arbitral institutions are much more complicated. The Regulation does not cover this issue.

 

For instance, let’s say an international sales contract between a Chinese company and a Russian one with the total value of RMB 1 billion designates one of the Courts as the forum, but when a dispute arises the amount in dispute is only RMB 200 million, would the Courts still have jurisdiction? If not, will the lower Chinese courts have jurisdiction? Or will the clause be deemed not applicable at all for this dispute? What if the plaintiff adds a new claim or the defendant makes a counter-claim, thus making the amount in dispute exceed RMB 300 million? Further, let’s say the same contract provides that when the amount in dispute is under RMB 300 million, arbitration under SIAC Rules; when the amount in dispute exceeds RMB 30 million, litigation in one of the Courts. Will this clause be valid? How does it work in practice?

 

  1. Involvement of Foreign Institutions

 

Misunderstanding: Article 11 of the Regulation provides that the Courts will work with international mediation and arbitration institutions to form a one-stop dispute resolution mechanism. Some believe foreign institutions will get involved and will be able to operate within China.

 

Clarification: The wording of “international” in this article refers to both Chinese institutions with experiences and reputation in international dispute resolution and foreign institutions. One good example for Chinese international arbitral institution is the CIETAC.

 

Major obstacles have to be cleared before foreign institutions could actually get involved. Opening up the market for these foreign institutions may happen in the future but it will unlikely be decided by the SPC. Hence, in the near future, institutions that actively work with the Courts will likely be Chinese institutions with an international focus.

 

  1. Interim Measures in Assistance of Foreign Arbitration

 

Misunderstanding: Parties to foreign arbitration proceedings may apply to the Courts for interim measures.

 

Clarification: This misunderstanding stems from Article 14 of the Regulation, which appear to mean that the parties, when choosing an international arbitration institution to resolve their disputes, may apply to the Courts for interim measures, whether before or during the arbitration proceeding.

 

However, Article 14 does not have that effect. The arbitration proceedings in this Article only refer to those conducted under Article 11 of the Regulation, i.e. arbitration proceedings as part of the Platform. The parties to foreign arbitration proceedings involving a Chinese party still cannot apply to Chinese courts for interim measures and cannot have the tribunal’s interim measure orders enforced in China.

 

  1. International Commercial Law Expert Committee (“Expert Committee”)

 

Experts will be mainly foreign nationals, especially those from “Belt and Road” countries with an international reputation and recognition. They may act as mediators if the parties choose so and will also help to ascertain and interpret foreign substantive laws as well as customary international rules.

 

According to Article 9 of the PRC Law on Judges, judges of Chinese courts must be Chinese nationals, so it is impossible for foreign nationals to be judges of the Courts. The Expert Committee is established so that foreign experts can play an active role, despite the restriction on becoming judges. The number of experts sitting in the Expert Committee might be around 30 so as to balance efficiency and diversity. The appointment, tenure, management and remuneration of experts will be provided in more detailed rules to follow. But it’s safe to say that when an expert is requested to work on a specific case, such as ascertaining foreign law, issuing expert opinions, or conducting as mediators, then very likely there will be payments.

 

  1. Procedural Language of the Courts

 

Misunderstanding: The procedural languages for case before the Courts can be English or other foreign languages.

 

Clarification: This common misunderstanding stem from Article 4, which require judges of the Courts to be able to use English as working language, and Article 9, which provides that, if agreed by the other party, a party may submit evidence materials in English without the need of translating into Chinese.

 

However, the Regulation never mentions that procedures before the Courts can be in English or parties can argue their cases in English. In fact, these are not possible under the current legal framework. Article 262 of the Civil Procedure Law in China provides that trials of cases involving foreign elements must be in “language commonly used in the PRC”, meaning Chinese, including languages native to the 55 recognized ethnic minorities in China. Article 6 of the Law on the Organization of Courts also includes a similar requirement. These laws are superior to the Regulation and cannot be modified by the SPC through judicial interpretations. Within the existing legal framework, the SPC is exploring ways to make it more convenient and cost-efficient for parties, hence the flexibility on submitting evidence materials in English.

 

  1. 6. Publication of Dissenting Opinions

 

Article 5 of the Regulation provides that a judgment of the Courts is reached by majority decision, and the dissenting opinion, if any, may be incorporated into the judgment. This is also an innovative measure of the SPC.

 

There have already been attempts (for instance, the Guangzhou Maritime Court) to promote the publication of dissenting opinions in judgments in China. However, this practice has never been widely adopted by other courts or made into a mandatory rule. Article 5 of the Regulation should NOT be viewed as an attempt to promote this practice nationally.

 

Internationally, in common law countries such as the United States, publication of dissenting opinion is a customary practice, but in civil law countries such as France, it is different, where each judgment is seen as the collective decision of the tribunal. In theory, China tends to recognize the practice of civil law countries. One possible major concern of the SPC is that, if the reasoning of each individual judge is known by the parties, then judges may face pressures, threats or reprisals from parties or even from higher-ups.

 

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Arbitrating WTO Disputes

Tue, 2018-07-03 08:20

Matthew Weiniger and Akshay Sewlikar

Linklaters

In light of the tariffs on steel imposed by the United States of America (“USA”), the Europe Union (“EU”) has threatened to impose tariffs of its own on American goods. Additionally, the EU has also filed a claim against USA at the World Trade Organisation (“WTO”). However, as discussed below, it may be that this procedure may be ineffective due to a lack of members at the Appellate Body. Arbitration can serve to resolve disputes effectively until the larger issue at the Appellate Body is addressed by the States at the WTO.

Dispute resolution in the WTO

Under the Understanding on rules and procedures governing the settlement of disputes, Annex 2 of the WTO Agreement (“DSU”), a Dispute Settlement Body (“DSB”) is established for the settlement of disputes. When a dispute arises between the members of the WTO, it is first sought to be resolved through a consultation process (Article 4.2 DSU). Failing such consultation, a panel is appointed to assist the DSB in making rulings or recommendations (Article 4.3 DSU). The panel’s report can only be rejected by consensus within the DSB (Article 16.4 DSU). Each party to the dispute has 60 days from the date of the report to notify the DSB of its intention to file an appeal against the panel report to the “Appellate Body” (Article 16.4 DSU). Once such intention is notified, the DSB cannot consider the panel report for implementation until the appeal is heard (Article 16.4 DSU). Each appeal has to be heard by three members of the Appellate Body (Article 17.1 DSU). On the conclusion of the appeal, the Appellate Body report has to be adopted by the DSB and unconditionally accepted by the parties unless the DSB decides by consensus to not adopt the Appellate Body report within 30 days (Article 17.14 DSU).

Constitution of the Appellate Body and the current crisis

The Appellate Body consists of seven members, who are experts in the field of law and international trade. The DSU requires them to be unaffiliated to any government. Each Appellate Body member is appointed for a four-year term, which may be renewed for a second term. However, in practice, each member’s term is automatically renewed by the DSB for a second time. The appointment and re-appointment of members of the Appellate Body has to be by consensus within the DSB. Therefore, a country can oppose any appointment, or even re-appointment.

Currently, however, there are only four members on the Appellate Body. No new Appellate Body members have been appointed to replace these members who resigned or whose terms ended in 2018. This is due to the opposition of the USA to any new appointments. The USA claims that the Appellate Body members are guilty of judicial overreach, interpreting WTO agreements in a manner which they were never intended to apply and therefore, refused to consent to the appointment of new members. In the past, it has blocked the appointment of certain members who it alleges have indulged in judicial activism. USA argues that the Appellate Body creates new rights and provides decisions on issues not raised by the parties. However, due to the nature of the consensus requirement, there is no check on the adoption of its decisions. It has therefore refused to appoint members to positions vacated recently.

The status of the Appellate Body as a functioning arm of the WTO is under threat due to USA’s stance. By the end of 2019, only one member, Ms Zhao of China would remain on the panel. A panel report cannot be adopted by the DSB if an appeal is filed until it is decided by the Appellate Body. Given that three members are required to hear an appeal (Article 17.1 DSU), it is imperative to consider solutions to this impasse. Otherwise, the WTO dispute resolution procedure will grind to a halt as the DSB will not be able to adopt any panel report under appeal.

Commentators have offered a number of solutions such as agreements between states not to appeal the panel report and appointments to the Appellate Body by majority and not consensus in the DSB. One solution which should be widely considered is arbitrating WTO disputes.

Arbitrating WTO disputes

WTO disputes can be resolved through the arbitration process under Article 25 DSU. An Article 25 DSU arbitration can be initiated at any stage of a dispute, including on appeal from a panel decision. It produces decisions that are binding on the parties and are enforceable in the same way as panel and Appellate Body decisions adopted by the DSB. In the past, USA and EU have used the Article 25 DSU arbitration provision in United States – s 110(5) of the US Copyright Act (the “US Copyright case”). This case concerned an exemption in USA which permitted the playing of radio and television music in public without licenses in certain conditions which the EU argued was in contravention of the Agreement on Trade Related Aspects of Intellectual Property Rights (“TRIPS”). USA agreed to implement the panel report, within a reasonable period of time to be determined by arbitration under Article 21.3 DSU. However, the parties could not agree on the level of nullification or impairment of benefits to the EU as a result of section 110(5) of the US Copyright Act. Therefore, they resorted to arbitration under Article 25 DSU. The arbitrator determined that the level of benefits nullified or impaired were EUR1,219,900 per year. Therefore, arbitration was used to resolve a specific aspect of the dispute in that case.

Article 25 arbitration could function as an alternative to a panel procedure or the Appellate Body procedure. Additionally, the procedure for the arbitration is subject to the agreement of the parties (Article 25(2) DSU). However, in practice and as mentioned in the US Copyright case, it is likely the procedures would be similar to those used in Appellate Body hearings. Thus, arbitration could be the most appropriate solution to the current crisis facing the WTO in respect of Appellate Body decisions.

Conclusion

Thus, until a more permanent solution is evolved, arbitration can be a practical solution to ensure that WTO disputes are not stuck in limbo and can be resolved successfully. There are however, practical barriers to such an approach. The success of this solution depends on States agreeing to it as a solution. Particularly, States who have lost in panel report might be reluctant to agree to arbitration instead of an Appellate Body hearing. Therefore, an agreement should be reached at the earliest possible stage of the dispute to arbitrate the appeal, or the entire dispute. This approach should be promoted by States in order to ensure that the WTO mechanism for the settlement of disputes remains effective and is not rendered defunct.

The views expressed in this article are those of the authors. The authors would like to thank Reyna Ge for her assistance with the article.

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Moneyball for Arbitrators

Mon, 2018-07-02 03:19

Catherine A. Rogers

You might be forgiven if you thought “moneyball” was the name of a new lottery game. It’s an easy mistake if you have not read Moneyball, Michael Lewis’ critically acclaimed book or seen the 6-time Academy-Award-nominated film starring Brad Pitt.1)The analogy for this post is adapted from Professor Chris Zorn, my Penn State colleague, Member of Arbitrator Intelligence’s Board of Directors, and co-founder of Lawyer Metrics, a company he describes as “Moneyball for Lawyers.” The content of this essay was developed for presentations on July 2-3 in Costa Rica at the Centro Internacional de Conciliación y Arbitraje (CICA), and a conference on Innovation, Technology and Law, co-sponsored by CICA, AmCham San Jose, and arbitration specialist Herman Duarte. jQuery("#footnote_plugin_tooltip_7195_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7195_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

If you have read Lewis’ book or seen the movie, however, you would know that the term “moneyball” is slang for sabermetrics, or the practice of crunching data to pick baseball players who are dismissed by conventional wisdom and hence undervalued by the market. As told in the book, sabermetrics enabled the Oakland Athletics baseball team to put together an exceptionally talented team with a pathetically meager budget.2)Moneyball is not without its skeptics and detractors. jQuery("#footnote_plugin_tooltip_7195_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7195_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Instead of spending millions to buy baseball’s flashiest superstars, the Athletics concentrated on players who consistently got on base and brought in understated runs that added up to victories.

“Wait,” you say, “I know nothing about baseball!” Don’t worry. Neither do I.3)An apology is perhaps also in order. Most of the world is more focused on G-O-O-O-O-A-Ls in the World Cup, not on America’s favorite pastime. Unfortunately, I know even less about football than I do about baseball and Michael Lewis has yet to write a book about selecting football players. jQuery("#footnote_plugin_tooltip_7195_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7195_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Fortunately, Lewis’ book is about much more than just baseball.

The book is also about how information can put underfunded outsiders on a level playing field with rich insiders, about how a new, verifiably superior approach can be irrationally rejected by traditionalists, and about the “ruthless drive for efficiency that capitalism demands.” These themes, as it turns out, apply as much to the process of selecting arbitrators as they do to the process of selecting baseball players.

To give some background, future professional baseball players are traditionally recruited after they have been identified by insider “scouts.” In the course of their scouting, these (most often) retired baseball players reject out of hand, and fail to see the value of, players they consider to be misfits. Conventional wisdom counts among these so-called misfits “short right-handed pitchers,” “skinny little guys who get on base,” or “fat catchers.”

For example, in Moneyball we are told that scouts laughed at a catcher who “wears big underwear” (i.e., is overweight), so they overlooked his uncanny ability to “control the strike zone” and hence earn “walks” to first base that accumulate into scored runs.4)In baseball, a batter earns a “walk” if he receives four pitches that the umpire determines were “balls,” meaning that they were outside of the “strike zone” (the space between the batter’s shoulders and knees). When a batter earns a “walk,” he can go directly to first base and cannot be called out, as can only occur if the batter hits the ball and runs to first base. jQuery("#footnote_plugin_tooltip_7195_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7195_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The scouts likewise dismissed a rather puny center fielder who nevertheless had a “gift for getting on base.” And they also considered a “bizarre sight” the double-jointed pitcher (cruelly nicknamed “The Creature”) who had an “84-mph fastball” and ended up being named “the closer on the rookie league All-Star team.”

In addition to failing to see hidden talent, traditional scouts are also reluctant to admit any misjudgment on their own part. They are apparently so confident in their ability to see talent in young ball players, even when their favored player flames out, they talk “as if he’d become exactly what they all said he would be and it was only by some piece of sorcery that he didn’t have the numbers to prove it.”

While obviously not quite the same thing, the process of “scouting” for international arbitrators has something in common with scouting for baseball players. In international arbitration, parties and lawyers often report that they have picked a “big name” arbitrator for the reassurance that comes with a prominent reputation and, presumably, the relative ease with which they can be identified. These big name arbitrators certainly look the part, and have all the conventional credentials that are hard to argue about.

But when, for whatever reason, the outcome of an arbitration is unexpectedly disappointing,5)Losing may not be the only disappointing outcome. Increasingly, in-house counsel are complaining about long waiting times to schedule hearings and inexplicable delays in the time for rendering the award. jQuery("#footnote_plugin_tooltip_7195_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7195_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the big name arbitrator is still regarded as having been a proper, “safe choice.” It must have been some piece of sorcery that made the arbitration come out wrong.

Going forward, the expanding and diversifying the pool of arbitrators will require us to reconsider what makes for a good arbitrator and how they should be identified. Parties often say they want the “the best person for the job,”6)Anonymous posting to [email protected] (9 February 2012, 03.27 CST), cited in Lucy Greenwood & Mark Backer, Getting a Better Balance on International Arbitration Tribunals, 28 Arbitration INTERNATIONAL 653, 661 at n. 42 (2012). jQuery("#footnote_plugin_tooltip_7195_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7195_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but then they fail to inquire further what exactly that means. Let’s consider a few possible examples of features that might make an “unconventional” arbitrator the best choice.

Younger arbitrators who are eager to establish a reputation may redouble their preparation for hearings—a particularly valuable trait in a case with complex facts. An African arbitrator may have unique insights about trade usages in the region that would otherwise require expert testimony,7)This is a point made in Won Kidane’s book, The Culture of International Arbitration (Oxford 2017). jQuery("#footnote_plugin_tooltip_7195_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7195_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and an Asian arbitrator may be more willing to take on allegations of corruption by a multinational. Overall, newer arbitrators may have fewer cases, which will allow them to transform arbitral decisions quickly into written awards.

In Moneyball, Lewis quips that “baseball scouting was at roughly the same stage of development in the twenty-first century as professional medicine had been in the eighteenth.” The same could be said of modern international arbitrator selection. Much like the “fraternity of old scouts” who use their gut instincts to identify future baseball players, parties and attorneys select international arbitrators based on intuition, and supplement that intuition with ad hoc, person-to-person research, usually over the telephone.

One primary obstacle to parties and attorneys making less obvious, but potentially more strategic, choices about arbitrators is that the critical data about newer arbitrators is simply not available in the same way it is about baseball players (or more senior arbitrators). But statistics about baseball players were not always available either. As the forefather of sabermetrics, Bill James, “never turns loose of a statistic unless they get a dollar for it.” This approach was self-defeating, according to James, because:

The entire basis of professional sports is the public’s interest in what is going on. To deny the public access to information that it cares about is the logical equivalent of locking the stadiums and playing the games in private so that no one will find out what is happening.

A similar impatience now exists regarding the unavailability of arbitrator data. Even the most sophisticated lawyers acknowledge that you can never have “enough” information about arbitrators. Meanwhile, a whopping 92% of respondents in a recent survey by Berwin Leighton Paisner (now Bryan Cave Berwin Leighton Paisner, or BCLP), said they want more information about arbitrators.

Some arbitral institutions and outside groups (like ArbitralWomen) are working to expand the pool of arbitrators by making names of arbitrators more readily available for consideration. The problem is that without information to go with these names, even if an arbitrator makes a short list, he or she is unlikely to be chosen, particularly if up against a more known and established arbitrator.

What kind of information is needed? In the same BCLP survey, responders identified the most important qualities in an arbitrator as “expertise” (according to 93% of respondents) and “efficiency” (according to 91%). Expertise and efficiency, however, are not easy to measure or quantify. These qualities are not quantifiable data points listed on arbitrators’ CVs. Instead, expertise and efficiency are cumulative, largely intuitive assessments that are drawn from a number of sources and metrics. Moreover, what constitutes the best expertise or means for achieving efficiency may vary from case to case depending on a client’s needs.

Arbitrator Intelligence (AI), through the AI Questionnaire or AIQ seeks to disaggregate these qualities into data that parties and attorneys can more readily use. For example, in one case, a party might regard “efficiency” as the ability to effectively limit document production, while in another case, that same party may regard “expertise” as the ability to discern that the party can only effectively prove its case with documents held by the opposing party.

To hone in on the critical information, the AIQ asks whether document production was requested (by whom) and, if so, whether it was granted. It then asks what standard was used:

Which of the following describe(s) the document production ordered by the tribunal (please select all that apply)?*
*Descriptions of document categories are based on art. 3(3) of the IBA Rules on the Taking of Evidence in International Arbitration (2010)

  • Production was ordered in accordance with the agreement of the parties
  • Production was ordered of a limited number of individually identified documents
  • Production was ordered of “narrow and specific requested category[ies] of Documents that are reasonably believed to exist”
  • Production was ordered of documents maintained in electronic form based on identification of “specific files, search terms, individuals or other means of searching for such Documents in an efficient and economical manner”
  • Production was ordered of broad categories of documents based on general statements of materiality and relevance

 

When enough data is collected, responses to this question can be triangulated against data from other questions in the AIQ, such as the size of the case, the industry in which the dispute arose, the legal seat, etc. Responses can also be compared with cumulative average among arbitrators in similar cases, or with the specific track records of other arbitrators.

In another example, some cases hinge on interpretation of contract, statutory, or treaty provisions, or on trade usages. The AIQ collects information on arbitrators’ treatment of those issues in the arbitral award. For example, with respect to contract interpretation, the AIQ asks responders:

 

In your professional judgment, which of the following describe(s) the tribunal’s contract interpretation (please select all that apply)?

  • The award reflects a plain meaning analysis of the specific words of the contract
  • The award considers the negotiation and drafting history of the contract
  • The award relies primarily on precedents in relevant cases
  • The award reflects a flexible interpretation of the specific words of the contract in order to give the contract its common sense or commercial sense meaning
  • The award reflects a flexible interpretation of the specific words of the contract in order to achieve fairness and equity in the outcome of the dispute
  • Other (please specify):

Again, responses to this question can be triangulated against various other data points collected through the AIQ, and used to compare particular arbitrators’ past rulings to overall averages or other arbitrators under consideration for appointment.

This data will soon be available in “Arbitrator Intelligence Reports” (AI Reports) that will be available for a fee through Kluwer.

AI Reports will ultimately be based on thousands of data points, not the millions of data points sabermetrics relies on. For this reason, AI Reports will always be a far cry from moneyball. And that is both a necessary and a good thing. Arbitration is not a game, and arbitrators are not players following a set of prescribed rules on a clearly defined field. The complexity of international arbitration, and the task of arbitrating, will defies an easy algorithmic process for selecting arbitrators. But AI Reports will provide a more meaningful starting point for both insiders and outsiders.

In addition to making arbitrator selection more precise and predictable, AI Reports will allow parties and attorneys to consider a broader range of criteria, and open up information about a broader pool of candidates. AI Reports will also force parties and attorneys to at least begin their selection process with a more objective assessment of arbitrators and their professional qualities.

So, at the end of your next international arbitration, take a few minutes to fill out an AIQ.8)The AIQ can be previewed and accessed on the AI website. jQuery("#footnote_plugin_tooltip_7195_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7195_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); You may not end up being mentioned in a book by Michael Lewis or be played by Brad Pitt (or Jennifer Lawrence) in the movie version. But you can help contribute the much-needed data to upgrade international arbitrator selection.

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References   [ + ]

1. ↑ The analogy for this post is adapted from Professor Chris Zorn, my Penn State colleague, Member of Arbitrator Intelligence’s Board of Directors, and co-founder of Lawyer Metrics, a company he describes as “Moneyball for Lawyers.” The content of this essay was developed for presentations on July 2-3 in Costa Rica at the Centro Internacional de Conciliación y Arbitraje (CICA), and a conference on Innovation, Technology and Law, co-sponsored by CICA, AmCham San Jose, and arbitration specialist Herman Duarte. 2. ↑ Moneyball is not without its skeptics and detractors. 3. ↑ An apology is perhaps also in order. Most of the world is more focused on G-O-O-O-O-A-Ls in the World Cup, not on America’s favorite pastime. Unfortunately, I know even less about football than I do about baseball and Michael Lewis has yet to write a book about selecting football players. 4. ↑ In baseball, a batter earns a “walk” if he receives four pitches that the umpire determines were “balls,” meaning that they were outside of the “strike zone” (the space between the batter’s shoulders and knees). When a batter earns a “walk,” he can go directly to first base and cannot be called out, as can only occur if the batter hits the ball and runs to first base. 5. ↑ Losing may not be the only disappointing outcome. Increasingly, in-house counsel are complaining about long waiting times to schedule hearings and inexplicable delays in the time for rendering the award. 6. ↑ Anonymous posting to [email protected] (9 February 2012, 03.27 CST), cited in Lucy Greenwood & Mark Backer, Getting a Better Balance on International Arbitration Tribunals, 28 Arbitration INTERNATIONAL 653, 661 at n. 42 (2012). 7. ↑ This is a point made in Won Kidane’s book, The Culture of International Arbitration (Oxford 2017). 8. ↑ The AIQ can be previewed and accessed on the AI website. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Ninth Investment Arbitration Forum: Valuation of Damages in Changing Economic and Political Circumstances

Sun, 2018-07-01 04:26

Katharina Plavec

On 26 May 2018, the Ninth Investment Arbitration Forum took place at the Juridicum of the University of Vienna jointly organized by Prof. Irmgard Marboe of the University of Vienna, Adriana San Román and Herfried Wöss of Wöss & Partners and ICC Austria. The topic of this year’s forum was “Valuation of Damages in Changing Economic and Political Circumstances” and to what extent lessons learnt in Latin America were relevant for investment arbitration in Europe. The conference was preceded by the ICC Austria Advanced Seminar on Damages in International Arbitration and aimed at analysing discrete key damages and valuation issues in investment arbitration.

Mexico’s Accession to ICSID and ICSID Reform

The conference warmed up with brief reports on two important developments: (i) the accession and ratification of Mexico of the ICSID Convention, and (ii) the ongoing ICSID Reform. The first was addressed by his Excellency Ambassador Hermann Aschentrupp Toledo, deputy-head of mission of the Embassy of Mexico in Austria, who gave an overview of the history of investment protection and the current situation in Mexico, stressing that Mexico is one of the most active countries in the use of dispute settlement mechanism and seeks to strengthen its position as a safe, reliable and attractive country for investment. With respect to the second, Corinne Montineri and Judith Knieper of UNCITRAL gave an overview of ISDS Reform starting with the UNCITRAL Transparency Standards and continuing with the Working Group III mandate to consider possible ISDS reforms to respond to criticism and to perform a thorough review of issues and perspectives.

Lessons learnt in Latin America?

In the first panel Prof. Guillermo Estrada Adán of the Instituto de Investigaciones Juridicas/UNAM, moderating Diego Brian Gosis (GST LLP), Michael Kotrly (Freshfields), Diego Cadena (Foley Hoag) and Herfried Wöss (Wöss & Partners), raised the question whether there were lessons to be learnt from Latin America. Addressing investment cases filed against Argentina on the basis of BITs after Argentina’s abandonment of the peso-dollar parity, Diego Brian Gosis showed how these cases led to different outcomes, despite dealing with the same measures. Michael Kotrly referring to Chavez’ “Bolivarian revolution” asked whether a higher risk of expropriation should be considered in the calculation of damages and presented various cases involving Venezuela from recent years which addressed the issue. He examined whether the existing case law is reconcilable and how precisely expropriation risk can be accounted for.

Diego Cadena introduced Ecuador’s struggle with foreign investors in the petroleum industry referring to a windfall tax set at 50% and later augmented to 99%. The Tribunal in Murphy found that the 50%-tax did not breach claimant’s legitimate expectations, but that it did constitute a violation when applied at 99%. He mentioned that the Tribunal did not determine any other “outer tolerable limit” which leads to uncertainty as regards the damages determination and concluded that one should rely on the objective data reasonably obtained by the investor when placing its investment and not on the picture of the ongoing business.

Referring to the same case, Herfried Wöss raised the issue of how different findings of liability would impact damages under the notion of but-for causality. In Murphy v. Ecuador, the Tribunal considered the second tax increase as violating FET, whereas Burlington v. Ecuador found illegal expropriation leading to a total deprivation of the investment. The Tribunal in Murphy awarded damages for the impact of the second tax increase on its cash flows for the whole contract term. The Tribunal in Burlington considered that the investment was the bundle of contractual rights and obligations which lead to a re-integration of the lost past and future cash flows under the but-for scenario applying the contractual tax-absorption clause. He mentioned that Burlington is worth reading for its clear and detailed reasoning and the precision of the application of the but-for premise.

Changing economic and political circumstances and their effects on damages

Professor Nikos Lavranos of Wöss & Partners and Smaranda Miron of the Energy Community secretariat moderated Prof. Irmgard Marboe (University of Vienna), Alejandro Carballo Leyda (Energy Charter Secretariat), Adriana San Román (Wöss & Partners) and Bernardo V. Preziosi (Curtis, Mallet-Prevost, Colt-Mosle) covering a broad range of discrete topics:

Stressing the difference between lawful and unlawful expropriation, Irmgard Marboe pointed out that the sovereign right to expropriate was solidly based on public international law, but that several conditions had to be met. She focused in particular on the relevance of the payment of compensation. While expropriations were sometimes deemed lawful even though no compensation was paid, in other cases, expropriations were considered unlawful seemingly only because of a lack of compensation. A closer analysis, however, led her to the conclusion that the requirement of due process was in fact the decisive criterion for distinguishing between lawful and unlawful expropriations.

Alejandro Carballo Leyda raised the question of whether changing economic circumstances would be considered under the Energy Charter Treaty, for example pursuant to Art 24.3.a.II ECT (measures necessary in time of war or other emergency in international relations) and Art 24.3.c ECT (maintenance of public order). He concluded that such measures could neither have an effect equivalent to expropriation nor affect the transit or the obligation to compensate for losses. The ECT did not expressly include specific temporary safeguard measures in case of exceptional balance-of-payments difficulties.

Adriana San Román (Wöss & Partners) compared the measure of damages between commercial arbitration and investment arbitration using as examples prominent gas and oil cases such as Bridas v. Turkmenistan and explained how the notion of the hypothetical course of events under the Chorzów formula and the FMV measure of damages ignores extraordinary economic circumstances, which affects the damages to be awarded. Finally, Ms. San Román addressed recent criticisms of the Chorzów formula and ended posting the following questions: Would states not take advantage of investors if there were no full reparation principle and would it not be important to establish a balance between states and investors in order to avoid opportunistic behaviour of states? Would the expropriation risk and the costs of projects not increase by discarding Chorzów? Would discarding the Chorzów formula result in less investments?

Benard V. Preziosi (Curtis, Mallet-Prevost, Colt-Mosle) discussed the effect of contractual limitations on damages in investment arbitration on the basis of Mobil v. Venezuela which establishes that a claimant is only entitled to be compensated for the investment it made. International law protecting that investment does not expand the property rights constituting the investment or eliminate conditions or limitations imposed on the investment by national law at the outset that might impact compensation in the event of later adverse governmental measures. Such conditions and limitations are part of the scope of the investment defined by national law and must be given effect in the calculation of compensation.


Recent developments of investment arbitration in Europe and Latin America

In the next panel (moderators: Dr. Elisabeth Vanas-Metzler, VIAC, and Emmanuel Kaufman, Knoetzl) Antolín Fernández Antuña (State Attorney’s Office, Spain) presented a valuation analysis of various renewable energy cases against Spain. He stressed that the fact that renewable energy plants such as solar plants and wind parks need high subsidies should be taken into account when valuating damages.

Anne-Karin Grill (Vavrovsky Heine Marth) argued that the FMV rationale should not apply to breach of contract cases under umbrella clauses contained in international investment agreements where international legal standards such as the FET standard are not violated and there is no international tort but only a breach of contract protected by the umbrella clause. Rather, one should apply the principle of full reparation of the actual loss through the but-for premise which would lead to market value taking into consideration the prevalent economic circumstances in both the actual and the but-for scenarios.

According to Professor Stefan Weber (Weber & Co) reliance damage is also recoverable in case of a bad business unless the lack of profitability of the investment is proven. The risk of overcompensation (if an investor is compensated for investment that would not pay off in the absence of the breach of contract) might be avoided by means of causation. In this respect the burden of proof and the standard of proof play an important role.

Professor Christoph Schreuer (zeiler.partners/University of Vienna) discussed the consequences of the ICSID denunciations by Bolivia, Ecuador and Venezuela. According to Schreuer’s interpretation of Articles 71 & 72 of the ICSID Convention, rights and obligations based on consent, including the participation in proceedings, remain unaffected by the 6-month period in Art. 71 and will continue indefinitely. Other rights such as participation in the administrative council and the nomination of persons on the board of arbitrators continue only for six months. He concluded that despite the denunciations, the number of arbitrations is likely to rise.
The view of economic and financial experts

The conference ended with a roundtable of prominent financial experts under the moderation of Adriana San Román. Addressing the EU’s Renewable Energy Source (RES), Anton Garcia (Compass Lexecon) mentioned that in order to achieve the EU’s RES deployment, Member States introduced incentives for investors in the form of support schemes, protected from revision by EU Law. Despite this, some states implemented cuts to the support of existing plants. Mr. Garcia argued that DCF, arguably the most widely accepted method for the valuation of damages, is particularly well-suited to value damages in the ensuing arbitrations given the high predictability of cash flows of RES plants. Alternative ad hoc-valuation approaches or asset-based methods do not provide a better alternative.

With respect to differences between damages valuation and company valuation, James Searby (FTI Consulting) explained that damages valuation differs from company valuation as the date of valuation is often in the past, resulting in less certainty. The introduction of counterfactuals, or but-for scenarios, and the need to take account of mitigation introduce further uncertainty. As an alternative to FMV he proposed to use “investment value”, asking what the investment is worth in the hands of the actual owner, before moving to an approach that assumes a transaction between “typical market participants”.

As to the role of hindsight information, Tomas Haug (NERA) examined whether an ex ante or ex post approach is preferable from an economic perspective. He examined unbiasedness (whether risk-neutral agents would be indifferent or whether one approach always leads to over-/ undercompensation of plaintiffs), efficiency (whether neither approach leads to a negative change in behaviour) and practicality (whether one approach increases objectivity). He concluded that there are good arguments for both regimes from an economic standpoint.
Finally, Thierry J. Senechal (Finance for Impact) held his presentation on the time value of money in damage valuation. According to this theory, the delay between the time the injury occurs and the rendering of the arbitral award should be taken into account. While the question of the applicable interest rate is hard to answer due to a lack of a universally accepted standard, there is agreement that a compound interest rate should be used for pre-award interest.

Conclusion and Comments

Recent case law shows a growing sophistication in damages analysis and valuation reflected by high-level contributions also in the academic and professional fields in which the conference’s co-chairs have significantly taken part. However, there are still areas that have not (compensation for a bad business) or only recently (the role of contractual limitations) been tackled in the context of investment cases. The Ninth Investment Arbitration Forum aimed to be thought-provoking in this respect. It also showed that the measure of damages, causality, hindsight and other notions of international damages law leading to “what has to be calculated” are in essence legal questions which require counsel and arbitrators to precisely define their instructions to the financial experts.

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Slovak Republic v. Achmea: When Politics Came Out to Play

Sun, 2018-07-01 02:32

Vivek Kapoor

Young ICCA

The Court of Justice of the European Union (“CJEU”) is not an ordinary court but a political court, which means that it is strongly influenced in making its decisions by the political beliefs of the European Commission. The 6 March 2018 judgment of the CJEU’s Grand Chamber in Slovak Republic v. Achmea BV is a reminder; with a preordained weltanschauung and political outcome, the CJEU then proceeded to forge the jurisprudential basis.

The European Commission has long maintained that investor-state arbitration is incompatible with EU law. In 2015, the European Commission initiated infringement procedures against Austria, the Netherlands, Romania, Slovakia, and Sweden, and requested them to terminate their intra-EU BITs. Some EU Member States, including Romania, Poland, Ireland and Italy, have already begun terminating their intra-EU BITs.

The European Commission has also intervened as amicus curiae in several investor-state arbitrations involving issues of EU law. Much to its chagrin, arbitral tribunals facing questions of EU law have routinely held that investor-state arbitration is not incompatible with EU law, and have found themselves competent to interpret questions of EU law. Two instances that come to mind are Electrabel S.A. v. The Republic of Hungary and European American Investment Bank AG (Austria) v. The Slovak Republic, where the European Commission had submitted amicus briefs.

Background to Slovak Republic v. Achmea

On 7 December 2012, a Frankfurt-sited arbitral tribunal constituted under the 1991 Netherlands-Slovakia BIT (the “BIT”) found Slovakia in breach of its obligations under the BIT, and ordered Slovakia to pay damages to Achmea.

Slovakia brought an action before the Higher Regional Court of Frankfurt to set aside the award, arguing that the BIT’s provision for investor-state arbitration was incompatible with EU law. The Frankfurt Court upheld the award, and Slovakia lodged an appeal to Germany’s Federal Court of Justice. The Federal Court of Justice turned to the Court of Justice of the European Union (“CJEU”), requesting a preliminary ruling on whether Articles 267, 344 or 18(1) of the Treaty on the Functioning of the European Union (“TFEU”) preclude investor-state arbitration under an intra-EU BIT.

Fifteen Member States weighed in; the majority in support of Slovakia’s position. One of the Advocates General of the CJEU also gave a formal opinion. In his Opinion of 19 September 2017, he concluded that intra-EU BITs were compatible with EU law.

The Incompatibility

In its decision, the CJEU held that the provision for investor-state arbitration in the BIT was contrary to Articles 344 and 267 of the TFEU. It found that the investor-state arbitration mechanism threatened the effective application of EU law and was incompatible with the duty of sincere cooperation incumbent upon EU Member States in order to ensure the uniform and effective application of EU law.

The CJEU constructed its reasoning on the basis that in resolving the investment treaty dispute, the arbitral tribunal would invariably be called upon to interpret and apply EU law as part of the law and international norms in force. However, such arbitral tribunal did not qualify as a “court or tribunal of a Member State”, and therefore was not competent (under Article 267 of the TFEU) to request preliminary rulings on the interpretation of EU law from the CJEU.

Emphasizing what is essentially an artificial distinction, the CJEU concluded that, unlike commercial arbitration, investment treaty arbitration effectively removed matters relating to the interpretation and/or application of EU law from the jurisdiction of the domestic courts of EU Member State. Moreover, the nature of the process ensures that awards are subject only to limited judicial review by the domestic courts of EU Member States.

Accordingly, the Court held that investor-state arbitration impaired the autonomy of EU law, which is ensured by Articles 344 and 267 of the TFEU.

Having found investor-state arbitration incompatible with EU law, the CJEU did not rule on the question whether it was also incompatible with Article 18(1) of the TFEU.

The Jurisprudential Manoeuvre

The reasoning of the CJEU is fairly synthetic. First, an arbitral tribunal constituted under a BIT essentially rules on the substance of that particular BIT. At no point in time would it stray into the operational domain of the CJEU under Article 344.

Second, the reasoning could very easily apply to a commercial arbitration tribunal which would also not qualify as a “court or tribunal of a Member State” but could be called upon to interpret and apply EU law as it is a fundamental part of any EU Member State’s domestic law. Then why the express exclusion for commercial arbitration? Moreover, arbitration as a process ensures that awards are subject only to limited judicial review by the domestic courts. Commercial arbitration awards too are subject to judicial scrutiny only on limited grounds and it is unclear whether these limited grounds, similarly defined for a better part in most domestic arbitration codes, would allow an examination of the fundamental provisions of EU law. Public policy is not an easy gateway to an extensive judicial review.

The Aftermath

The CJEU’s judgment is indeed in the particular context of the provision for investor-state arbitration under the Netherlands-Slovakia BIT. But make no mistake, it will change the lay of the land.

While the judgment’s analysis does not concern the substantive protections accorded under intra-EU BITs, it effectively renders the 196 intra-EU BITs currently in force impracticable. The investor-state arbitration mechanism is fundamental to a BIT, intra-EU BITs being no different. Investment treaty tribunals constituted under intra-EU BITs may not be required to decline jurisdiction as a result of the judgment, but their awards could very well be set aside or denied enforcement on grounds of incompatibility with EU law.

Even investors (with awards by tribunals sited in EU Member States) seeking enforcement outside the European Union would not be able to escape the judgment. Courts of EU Member States have to comply with the CJEU’s judgment. Thus, where the courts of an EU Member State are asked to set aside awards made on the basis of an intra-EU BIT, they are likely to annul such awards. Awards set aside at the seat tend not to find much favour in enforcement courts elsewhere.

Having the tribunal sited in a non-EU State may tide over the annulment muddle, but the problems would effectively remain the same at the enforcement stage of the awards in EU States. Investors will now be forced to submit claims protected by an intra-EU BIT to the jurisdiction of the courts of their host State, essentially without the substantive protections provided under the BITs.

Investors could consider restructuring their investments in EU Member States to benefit from protection under BITs with third (non-EU) States. However, it is not inconceivable that in the future, BITs with third States might also run into similar rough weather. Any investment treaty award based on a claim that has an EU Member State as the host State can potentially get stuck in this web, the contours of which have been firmly defined by this judgment of the CJEU.

The path of multilateral treaties for intra-EU claimants may also not remain unravaged for long. The European Commission’s disapproval of the investor-state arbitration mechanism of the Energy Charter Treaty (also due to purported incompatibility with EU law) is well known.

An award by an arbitral tribunal constituted under the rules of the Convention On The Settlement Of Investment Disputes Between States And Nationals Of Other States (“ICSID”) is enforceable as if the award were a final judgment of a court in each Contracting State to the ICSID Convention, with no possibility for it to be set aside by a domestic court. Yet, investors may find it difficult to enforce an ICSID award in the EU due to the incompatibility of investor-state arbitration mechanism with EU law. US courts rejected the arguments of the European Commission against the enforcement of the ICSID award in Ioan Micula, Viorel Micula and others v. Romania, however, courts in EU Member States might not take the same view when called upon to do so.

Tour d’horizon

For EU Member States, the CJEU’s finding of an incompatibility of investor-state arbitration with EU law will make revisions to their existing BITs unavoidable.

The recent weeks have seen the EU unveil the finalized draft of the investment protection agreement with Singapore and the outline of the trade deal with Mexico. Both seek to implement the EU approach to investment protection that “fundamentally reforms the old-style ISDS system” – by providing for a permanent two-tier investment court.

The future of investor-state arbitration is fast evolving, and within the European Union, CJEU’s judgment has taken investor-state disputes to the doorstep of a permanent investment court, as has long been advocated by the European Commission.

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The Great Battle of Intellectual Property versus State Sovereignty: Is Philip Morris v Uruguay a Good Referee? (Part II)

Sat, 2018-06-30 02:29

Michaela Brett Samuel Halpern

In the first part of this article, we discussed the problems of balancing an investor’s intellectual property rights with the sovereign right of a State. Now, we look at how Philip Morris v Uruguay has added to the debate.

In 2010 Philip Morris challenged two measures adopted by the government of Uruguay: (1) a “single presentation requirement” in which brands were allowed to sell products with only one packaging style therefore limiting products to one variant and (2) the “80/80 Regulation” which called for the increase in size of the graphic health warnings on cigarette packages from 50% to 80%. Uruguay defended these measures on the basis that they were adopted for the sole purpose of protecting public health, the measures were within the scope of Uruguay’s sovereign powers and applied in a non-discriminatory manner to all tobacco companies. While the root of the FET standard was not contested, the content and interpretation of the standard was and remains today up for debate.1) Philip Morris ¶ 312. jQuery("#footnote_plugin_tooltip_2131_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In an award dated 8 July 2016, all of Philip Morris’ claims were rejected and the Claimants were required to pay $7 million to cover arbitration costs. The Tribunal unanimously rejected the claim of expropriation, emphasizing that this was a valid exercise by Uruguay of its police powers to protect public health2) Finding that the measures were a “valid exercise of the State’s police powers, with the consequence of defeating the claim for expropriation” Philip Morris, ¶ 287. jQuery("#footnote_plugin_tooltip_2131_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and, by majority, rejected Philip Morris’ other claims.

Is Philip Morris a Good Precedent?

As the President of Uruguay, Tabaré Vázquez, said in the midst of the Philip Morris dispute: “It is not acceptable to prioritize commercial considerations over the fundamental right to health and life…”3) Benedict Mander, Uruguay Defeats Philip Morris Test Case Lawsuit, FINANCIAL TIMES (Jul. 8, 2016) jQuery("#footnote_plugin_tooltip_2131_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Even though Philip Morris tried to differentiate its particular case and claim that their suit had nothing to do with questioning “Uruguay’s authority to protect public health,” the implications of this decision is a milestone in the battle between investor rights and public policy.

As discussed in the previous post, arbitration has been criticized as a method for large, wealthy companies to threaten small countries into conceding or settling in order to avoid the risk of an avalanche of expense and even potential bankruptcy. Philip Morris shows that it is not a given that wealthy multinational corporations can bully smaller countries.4) Todd Weiler, Philip Morris vs. Uruguay: An Analysis of Tobacco Control Measures in the Context of International Investment Law, PHYSICIANS FOR A SMOKE FREE CANADA (Jul. 28, 2010), at 36 said that “the claim is nothing more than the cynical attempt by a wealthy multinational corporation to make an example of a small country with limited resources to defend against a well-funded international legal action…” jQuery("#footnote_plugin_tooltip_2131_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The original intent of developing the field of ISDS was to help developing countries attract foreign capital. Those same developing countries, instead, fear that this system will either bankrupt them or undermine their sovereignty.5) Claire Provost & Matt Kennard, The Obscure Legal System that Lets Corporations Sue Countries, THE GUARDIAN, (Jun. 10, 2015) jQuery("#footnote_plugin_tooltip_2131_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For example, in Guatemala, the risk of a suit appeared to have weighed so heavily on the government that they decided not to challenge a controversial gold mine despite citizen protests and a recommendation of closure from the Inter-American Commission on Human Rights.6)id. jQuery("#footnote_plugin_tooltip_2131_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Tribunal in Philip Morris acknowledge that it is “common ground” that “the requirements of legitimate expectations and legal stability as manifestations of the FET standard do not affect the State’s rights to exercise its sovereign authority to legislate and to adapt its legal system to changing circumstances.”7) Philip Morris, ¶ 422 citing Parkerings v Lithuania, ¶¶ 327-328; BG Group Plc v the Republic of Argentina, UNCITRAL, Award (Dec. 24, 2007), ¶¶ 292-310; Plama Consortium Ltd v Republic of Bulgaria, ICSID Case No. ARB/03/24, Award (Aug. 27, 2008), ¶ 219; Continental Casualty Co v Argentine Republic, ICSID Case No. ARB/03/9, Award (Sept. 5, 2008), ¶¶ 258-261; EDF (Services) Ltd v Romania, ICSID Case No. ARB/-5/13, (Oct. 8, 2009), ¶ 219; AES, ¶¶ 9.3.27-9.3.35; Total S.A. v the Argentine Republic, ICSID Case No. ARB/04/1, Decision on Liability, (Dec. 27, 2010), ¶¶ 123 and 164; Sergei Paushok, CJSC Golden East Company, and CJSC Vostokneftegaz Co v the Government of Mongolia, UNCITRAL, Award on Jurisdiction and Liability, (Apr. 28, 2011), ¶ 302; Impregilo, ¶¶ 290-291; and El Paso, ¶¶ 344-352 and 365-367. jQuery("#footnote_plugin_tooltip_2131_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Tribunal further went on to acknowledge that “police powers” necessarily entail a State’s ability to enact measures to protect public welfare as long as they are bona fide and non-discriminatory.8) Philip Morris, ¶ 305. jQuery("#footnote_plugin_tooltip_2131_8").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); And in fact, in Born’s dissent, he reiterated a multitude of times that he is in no way questioning the host State’s ability to adopt legislative measures to protect health and safety.9) Born Dissent, for example ¶¶ 86, 89, 90, 140, 141, and 197. jQuery("#footnote_plugin_tooltip_2131_9").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Yet even though it seems to be universally agreed and recognized that a State has a right to regulate in the interests of its citizens, we continue to see arbitration proceedings brought and States failing to enact helpful regulations and measures for fear of being brought through arbitral proceedings.

So what does Philip Morris mean for State rights?

The Tribunal acknowledge the supremacy and profound leeway to be granted to the State in regulation. While this is a positive reinforcement of a State’s right to regulate, this does not acknowledge the role that tribunals have increasingly been playing, for better or for worse, in balancing investor rights, intellectual property, and state sovereignty. Governments cannot perform this balancing act alone while the FET standard is still obscure. Tribunals do have a role in the balance; this role is in defining the FET standard.

The core of the problem is in the fact that FET is not fully explored and circumscribed. “The exact contours of FET protection are amorphous and can depend on the language of the relevant IIA, as well as the approach taken by the presiding arbitral tribunal”10) PETER CHROCZIEL ET AL (EDS), INTERNATIONAL ARBITRATION OF INTELLECTUAL PROPERTY DISPUTES: A PRACTITIONER’S GUIDE, 153 (2017). jQuery("#footnote_plugin_tooltip_2131_10").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); with this “deliberate vagueness” being used as a catch-all claim.11) Valentina S. Vadi, Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments, 5 NYU J. INTELL. PROP. & ENT. L. 113, 166 (2015). See also F.A. Mann, British Treaties for the Promotion and Protection of Investment, 52 BRITISH Y.B. INT’L. L. 241, 243 (1981) that FET claims are so broad they cover “all conceivable cases.” jQuery("#footnote_plugin_tooltip_2131_11").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The European Commission has stated that because FET is not clearly defined, “tribunals have had significant leeway in interpreting this in a manner that has been seen as giving too many or too few rights to investors.”12) European Commission, Fact Sheet – Investment Protection and Investor-to-State Dispute Settlement in EU Agreements, 2 (Nov. 2013). jQuery("#footnote_plugin_tooltip_2131_12").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); There needs to be more consistency in the interpretations and applications of the FET claim.

Interpretations of the FET standard range across the whole spectrum. Some tribunals apply the FET standard broadly13) International Thunderbird Gaming Corporation v the United Mexican States, UNCITRAL, Award, (Jan. 26, 2006). jQuery("#footnote_plugin_tooltip_2131_13").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); while some tribunals14) Crystallex International Corporation v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, (Apr. 4, 2016). jQuery("#footnote_plugin_tooltip_2131_14").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); take a narrower approach. With no hierarchical system of precedent in arbitration, these competing awards leave neither guidance nor hope of consistency or stability; ironically, the same complaint brought by a claimant arguing breach of FET.

Instead of taking this opportunity to try to better circumscribe the FET standard, the Tribunal left the door open. The Tribunal rejected reading the BIT as reflecting the minimum treatment standard of international law. Such an application would have provided a better guideline for analyzing the standard. If the Tribunal was to be dissuaded from applying the international law standard to FET cases, it should have at least attempted to delineate the proper standard rather than conclude that each case of FET depends on the particular circumstances and listing out the various ways different Tribunals have attempted to define the standard. The end result is a multitude of tribunals each trying to give a more definite meaning of breaches of the FET standard and ultimately creating a still confusedly applied standard accompanied by a random list of potentially breaching acts from particular circumstances.

While the Tribunal ultimately reached the same conclusion, this methodology does not solve the root of the problem that has been plaguing the ISDS system. The evolving nature of what is “fair” and “equitable” adds another layer of complications. Ideas of fairness and equality do indeed change every generation, even every day, but that does not mean we cannot have a circumscribable standard; it just means the created definition needs to account for flexibility.

Conclusion

The battle of rights has only just begun. State sovereignty and the right for a State to legislate and regulate in the public interest is a deeply engrained and important concept spanning many millennia. The technological revolution and the increasing emphasis on globalization has given intellectual property rights not only a new importance in and of itself, but also entangled IPRs with other fundamental aspects of human society. When the two realms clash, which should prevail?

Investment arbitration, while far from perfect, provides the most suitable forum for resolving these types of disputes. However, the vagueness of standards of review and the lack of a system of precedence has created a climate in which tribunals are seen to emphasize the rights of investors over a State’s public interest regulatory scheme. Private arbitral tribunals cannot be substituting their own judgments on policy issues in place of those of the State.

While Philip Morris is a significant step in equilibrating the balance, it is not sufficient. The root of the issue is the vagueness of the fair and equitable treatment standard and the consequent conflicting tribunal decisions. Rather than attempt to delineate the FET standard, the Tribunal in Philip Morris left the gap open. There needs to be more concrete guidelines on the FET, particularly in an intellectual property context so States are not threatened and discouraged.

Intellectual property is not an absolute right and must be put into perspective and harmonized with other rights.15) Valentina S Vadi, ‘Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments’ (2015) 5 NYU J Intell Prop & Ent L 113, 192–93. jQuery("#footnote_plugin_tooltip_2131_15").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the same vein, even though investment law is aimed at providing investors with certain protections, this does not operate in a vacuum and must work with other aspects of international law. An investor losing millions of dollars is not greater than or equivalent to loss of life due to lack of access to pharmaceuticals or mass tobacco consumption or irreversible environmental damage. Each day new medical and technological discoveries are made which changes our perceptions of the status quo and the legal system needs to account for this and allow for flexibility and adaptation.16) Rochelle Dreyfuss and Susy Frankel, ‘From Incentive to Commodity to Asset: How International Law is Reconceptualizing Intellectual Property’ (2015) 36 Michigan J Int’l L 557, 587. (“Science is not static, and neither can be its interface with the legal system. As new technologies develop and as the impact of old technologies are better understood, countries must have some freedom to adapt both IP legislation and impacted regulatory regimes”). jQuery("#footnote_plugin_tooltip_2131_16").tooltip({ tip: "#footnote_plugin_tooltip_text_2131_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Perhaps now that the Philip Morris Tribunal has published its award, countries will no longer feel this chill however, just because the pressure may be eased, does not mean the problem is fully resolved. Instead of relying on various interpretations and various aspects of international law the next tribunal needs demonstrate the balance of intellectual property rights and Sovereign rights by circumscribing the limits of FET claims.

The author is the editor of the Intellectual Arbitrator.

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References   [ + ]

1. ↑ Philip Morris ¶ 312. 2. ↑ Finding that the measures were a “valid exercise of the State’s police powers, with the consequence of defeating the claim for expropriation” Philip Morris, ¶ 287. 3. ↑ Benedict Mander, Uruguay Defeats Philip Morris Test Case Lawsuit, FINANCIAL TIMES (Jul. 8, 2016) 4. ↑ Todd Weiler, Philip Morris vs. Uruguay: An Analysis of Tobacco Control Measures in the Context of International Investment Law, PHYSICIANS FOR A SMOKE FREE CANADA (Jul. 28, 2010), at 36 said that “the claim is nothing more than the cynical attempt by a wealthy multinational corporation to make an example of a small country with limited resources to defend against a well-funded international legal action…” 5. ↑ Claire Provost & Matt Kennard, The Obscure Legal System that Lets Corporations Sue Countries, THE GUARDIAN, (Jun. 10, 2015) 6. ↑ id. 7. ↑ Philip Morris, ¶ 422 citing Parkerings v Lithuania, ¶¶ 327-328; BG Group Plc v the Republic of Argentina, UNCITRAL, Award (Dec. 24, 2007), ¶¶ 292-310; Plama Consortium Ltd v Republic of Bulgaria, ICSID Case No. ARB/03/24, Award (Aug. 27, 2008), ¶ 219; Continental Casualty Co v Argentine Republic, ICSID Case No. ARB/03/9, Award (Sept. 5, 2008), ¶¶ 258-261; EDF (Services) Ltd v Romania, ICSID Case No. ARB/-5/13, (Oct. 8, 2009), ¶ 219; AES, ¶¶ 9.3.27-9.3.35; Total S.A. v the Argentine Republic, ICSID Case No. ARB/04/1, Decision on Liability, (Dec. 27, 2010), ¶¶ 123 and 164; Sergei Paushok, CJSC Golden East Company, and CJSC Vostokneftegaz Co v the Government of Mongolia, UNCITRAL, Award on Jurisdiction and Liability, (Apr. 28, 2011), ¶ 302; Impregilo, ¶¶ 290-291; and El Paso, ¶¶ 344-352 and 365-367. 8. ↑ Philip Morris, ¶ 305. 9. ↑ Born Dissent, for example ¶¶ 86, 89, 90, 140, 141, and 197. 10. ↑ PETER CHROCZIEL ET AL (EDS), INTERNATIONAL ARBITRATION OF INTELLECTUAL PROPERTY DISPUTES: A PRACTITIONER’S GUIDE, 153 (2017). 11. ↑ Valentina S. Vadi, Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments, 5 NYU J. INTELL. PROP. & ENT. L. 113, 166 (2015). See also F.A. Mann, British Treaties for the Promotion and Protection of Investment, 52 BRITISH Y.B. INT’L. L. 241, 243 (1981) that FET claims are so broad they cover “all conceivable cases.” 12. ↑ European Commission, Fact Sheet – Investment Protection and Investor-to-State Dispute Settlement in EU Agreements, 2 (Nov. 2013). 13. ↑ International Thunderbird Gaming Corporation v the United Mexican States, UNCITRAL, Award, (Jan. 26, 2006). 14. ↑ Crystallex International Corporation v Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Award, (Apr. 4, 2016). 15. ↑ Valentina S Vadi, ‘Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments’ (2015) 5 NYU J Intell Prop & Ent L 113, 192–93. 16. ↑ Rochelle Dreyfuss and Susy Frankel, ‘From Incentive to Commodity to Asset: How International Law is Reconceptualizing Intellectual Property’ (2015) 36 Michigan J Int’l L 557, 587. (“Science is not static, and neither can be its interface with the legal system. As new technologies develop and as the impact of old technologies are better understood, countries must have some freedom to adapt both IP legislation and impacted regulatory regimes”). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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The Great Battle of Intellectual Property versus State Sovereignty: Is Philip Morris v Uruguay a Good Referee? (Part I)

Fri, 2018-06-29 04:27

Michaela Brett Samuel Halpern

The constructive framework of ISDS was intended to promote investment and growth through the establishment of a stable and predictable atmosphere for investment. However, some have argued that this purpose has been warped to allow a small group of private individuals to rule on public matters. Arbitrations such as CMS v Argentina, Tecmed v Mexico, and Metalclad Corp v Mexico have led to a concern that the rights of investors are given prominence over a State’s sovereign rights and the legitimate use of a State’s regulatory power. There have therefore been an increasing number of discussions on the need for greater safeguards. Even though investments are crucial to building the modern international economy, investment arbitration should not be seen as a hindrance to a country’s ability to govern its population and pursue public policy objectives.

In a similar vein, intellectual property rights are essential to a country’s development; a well-balanced intellectual property regime can promote innovation, consumer protection, and are increasingly becoming intertwined with human rights. Occasionally, however, the protection of intellectual property rights and the public interest of a state may clash. As discussed by various scholars including Rochelle Dreyfuss, Susy Frankel, Peter Yu, and Ruth Okediji, intellectual property rights being seen as an “investment” has critical consequences. The increased recognition of intellectual property rights as an investment itself opens the way for intellectual property law to “turn…on its head” by creating the possibility for questions of national innovation policy to be adjudicated by private actors.1) Ruth Okediji, Is Intellectual Property “Investment”? Eli Lilly v. Canada and the International Intellectual Property System, 35 U. PA. J. INT’L. L. 1121, 1122 (2014); Peter K. YU, The Investment-Related Aspects of Intellectual Property Rights 843 (2016) noting that it is not the fact that intellectual property rights are considered investments that is the novel problem, it is the fact that this now means private investors can bring a suit without requiring assistance from the government and support of their home states. jQuery("#footnote_plugin_tooltip_2427_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This series examines this battle between the intellectual property rights of investors and public interest considerations of a host State. In the majority of disputes brought to arbitration, the investor argues that the host State has breached the FET standard and therefore owes the investor appropriate compensation. The issue is that there is a lack of consensus as to the precise content and scope of the FET standard. This lack of a uniform approach or even definition of “fair and equitable treatment” leaves host states at risk of being beleaguered by large multinational corporations burying them in lengthy adjudicative procedures.

In 2016, a tribunal of three arbitrators rejected the claims of tobacco company, Philip Morris, against Uruguay in the World Bank ICSID case, Philip Morris Bran Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland), and Abal Hermanos S.A. (Uruguay) vs. Oriental Republic of Uruguay. Philip Morris is considered to be a significant step towards rebalancing the “battle of rights” and reinforcing that States have a sovereign right to decide the laws for their own populations.

The Battle of Rights

A major concern in ISDS is that decisions of public policy are left in the private hands of arbitrators and corporate lawyers. When investor rights, such as intellectual property rights, conflict with public policy initiatives and national priorities such as health regulations, environmental concerns, and human rights, the perception is that with ISDS, a handful of arbitrators become “the judge of the policies of the state, deciding on the basis of a subjective standard, because there is no public and shared determination about it.”2) Riccardo Fornasari, The Protection of Legitimate Expectations under the Fair and Equitable Treatment Standard, KSLR COMMERCIAL & FINANCIAL LAW BLOG (May 12, 2015). jQuery("#footnote_plugin_tooltip_2427_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The one or three arbitrators adjudicating the dispute are chosen by the parties to the dispute, whereas a state’s legislative power is backed by the “core principles of modern representative democracies” (for the most part). In other words, a country’s legal framework is the result of an elected legislature and/or executive with any changes in the regulatory framework as reflective of the “the will of the people souverain.” 3)id. jQuery("#footnote_plugin_tooltip_2427_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

That said, in resolving disputes that inevitably arise, arbitration provides a number of advantages over domestic litigation for both the investors and States. However, given the private nature of ISDS, we end up with private actors affecting public policy “in a vacuum.”4) Susan D. Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law through Inconsistent Decisions, 73 FORDHAM L. REV. 1521, 1571 (2005) [hereinafter “Franck”]. jQuery("#footnote_plugin_tooltip_2427_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); There is consternation that “as corporations become larger and more influential in global politics and trade negotiations, they will disproportionately control and benefit from [international investment agreements] at the expense of state sovereignty.”5) Leite, fn 14 citing Tamara L. Slater, Investor-State Arbitration and Domestic Environment Protection, 14 WASH. U. GLOBAL STUD. L. REV. 131, 132-133 (2015). jQuery("#footnote_plugin_tooltip_2427_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Some commentators even go so far as to criticize investment arbitration as a “supranational decision-maker” which lacks any of the democratic checks and balances.6) James Gathii & Cynthia Ho, Regime Shifting of IP Lawmanking and Enforcement from the WTO to the International Investment Regime, 18 Minn. J. L. Sci. & Tech. 427, 495 (2017) citing Barnali Choudhury, Democratic Implications Arising from the Intersection of Investment Arbitration and Human Rights, 46 ALTA. L. REV. 983 (2009) and Sergio Puig, The Merging of International trade and Investment Law, 33 BERKELEY J. INT’L. L. (2015). jQuery("#footnote_plugin_tooltip_2427_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Ruth Okediji notes that having private actors adjudicate public policy is a “subver[sion of] a core judicial function” and consequently “alters the contours of state power and responsibility.”7) Okediji, at 1122.
jQuery("#footnote_plugin_tooltip_2427_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Given the notion that intellectual property was originally seen as primarily in the public domain for the purpose of promoting creativity, the expansion and shift of intellectual property rights into an “investment” capable of expropriation risks perturbing the initial public good motivation behind intellectual property as well as the traditional safeguards.8) Rochelle Dreyfuss & Susy Frankel, From Incentive to Commodity to Asset: How International Law is Reconceptualizing Intellectual Property, 36 MICHIGAN J. INT’L L. 557, 559–560 (2015); YU, at 835. jQuery("#footnote_plugin_tooltip_2427_8").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In other words, as Rochelle Dreyfuss and Susy Frankel discuss, intellectual property rights shifted from being seen as an incentive to becoming a commodity in itself.9) See Dreyfuss and Frankel. jQuery("#footnote_plugin_tooltip_2427_9").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The purpose of investment agreements was to provide an unprecedented avenue for private foreign investors to resolve disputes with the State hosting their investment and thereby reduce the risk of investing. However, the system appears to have become somewhat one sided with investment agreements seen as “a charter of rights for foreign investors, with no concomitant responsibilities or liabilities, no direct legal links to promoting development objectives, and no protection for public welfare in the fact of environmentally or socially destabilizing foreign investment…”10) United Nations Conference on Trade and Development, The Development Dimension of FDI: Policy and Rule-Making Perspectives, UNCTAD/ITE/IIA/2003/4 (Nov. 6-8, 2002), 212. jQuery("#footnote_plugin_tooltip_2427_10").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); If the objective of these investment agreements was to reduce investor risk with “risk” defined as a “moral wrong” from which an investor should be protected,11) Azernoosh Bazrafkan & Alexia Herwig, Reinterpreting the Fair and Equitable Treatment Provision in International Investment Agreements as a New and More Legitimate Way to Manage Risks, 7 EUROPEAN J. OF RISK REG. 439, 440 (2016) [hereinafter “Bazrafkan & Herwig”]. jQuery("#footnote_plugin_tooltip_2427_11").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); then it is only logical and moral to allow a state to prioritize and act in accordance with bona fide public interests.

The FET context

Despite the pervasiveness of the FET claim, there is no defined mechanism for factoring into the balancing equation whether the host State had valid reasons for enacting the measure in question. The result is a “regulatory chill” in which smaller and developing countries do not enact necessary legislation for fear of crushing liability.

The case law paints a sporadic and confused picture. In an expropriation context, some tribunals12) Siemens A.G. v The Argentine Republic, ICSID Case No. ARB/02/8, Award, (Jan. 17, 2007), ¶ 270; Compañía del Desarrollo de Santa Elena, S.A. v The Republic of Costa Rica, ICSID Case No. ARB/96/1, Award (Feb. 17, 2000), ¶ 72; AES Summit Generation Limited AES-Tisza Erömü KFT v The Republic of Hungary, ICSID Case No. ARB/07/22, Award (Sept. 23, 2010), ¶¶ 14.3.1-14.3.4 [hereinafter “AES”]; Metalclad Corporation v The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (Aug. 30, 2000), ¶¶ 103 and 107. jQuery("#footnote_plugin_tooltip_2427_12").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); look only at the effects of a host State’s measure, some13) Azurix Corp. v The Argentine Republic, ICSID Case No. ARB/01/12, Award (Jul. 14, 2006), ¶¶ 309-312; Tecnicas Medioambientales Tecmed S.A. v The United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, (May 29, 2003), ¶¶ 121-122. jQuery("#footnote_plugin_tooltip_2427_13").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); look at whether the measure was non-discriminatory, bona fide and had a proportionate legitimate public purpose, and others14) Methanex Corp. v United States of America, Final Award on Jurisdiction and Merits, 44 ILM 1345 (2005), award rendered Aug. 3, 2005, pt. IV, ch. D, ¶ 7: “As a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alia, a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation.” jQuery("#footnote_plugin_tooltip_2427_14").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); try to balance the host State’s right to regulate in the public interest with the protection of the investor’s rights. In an FET context, tribunals appear to be even more split and indeterminate. This lack of clarity, especially in the context of the rapidly changing intellectual property context, can evolve into disastrous results if not properly and promptly resolved.

Hirsch has said that Tribunals find breaches of FET on two grounds.15) Moshe Hirsch, Between Fair and Equitable Treatment and Stabilization Clause, 12 THE JOURNAL OF WORLD INVESTMENT & TRADE, 784, 790, 792–99 (2011). jQuery("#footnote_plugin_tooltip_2427_15").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The first ground being specific government assurances in which FET is treated like detrimental reliance in contract law and the second ground being that the legislative change was accompanied by procedural defects. The problem is that the balance at stake here, investor rights vs. public interests, are not between contractual parties. Instead, what we have is an economic operation, on one side, and a sovereign power resulting from a political commitment to the populous, on the other.16) Fornasari. jQuery("#footnote_plugin_tooltip_2427_16").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_16", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The ability of the FET claim to limit a State from regulating in pursuance of public interest is both unclear and confused as the application of the standard is undeveloped and inconsistent. What qualifies as “fair and equitable treatment” is not yet defined. But “fair” treatment should not mean the investor’s rights are paramount. “Fair” should mean fair which necessarily requires an equitable balancing of all rights and interests at play.

The Intellectual Property Context

There is an emerging “new form of dialectics between the private and public interests in IP governance at the international level”.17) Valentina S. Vadi, Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments, 5 NYU J. INTELL. PROP. & ENT. L. 113, 118 (2015). jQuery("#footnote_plugin_tooltip_2427_17").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_17", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As discussed above, the battle in this case is not an even playing field as we have private interests competing with public national entities.18)id. jQuery("#footnote_plugin_tooltip_2427_18").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_18", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Arbitration provides the most well-equipped forum for such disputes as unlike national courts, arbitration offers an avenue for private investors to file claims against states. The arbitration of disputes concerning intellectual property rights “has the potential to revolutionize IP governance at the national and international levels.”19) Id, 118-119 citing Muthucumuraswamy Sornarajah, Evolution or Revolution in International Investment Arbitration? The Descent into Normlessness , in EVOLUTION IN INVESTMENT TREATY LAW AND ARBITRATION (Chester Brown and Kate Miles eds., 2011), 631-657 arguing that “disparate trends” in international investment law and arbitration “show neither evolution nor revolution but an ongoing conflict [between private and public interests] that either will bring a new system – resulting in a revolution – or will keep the old, simply because one or the other of the camps wins the tussle,” at 632. jQuery("#footnote_plugin_tooltip_2427_19").tooltip({ tip: "#footnote_plugin_tooltip_text_2427_19", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Given the global reach and impact of intellectual property as well as the constantly changing nature of the industry, an international and flexible forum such as arbitration can provide the best medium for resolving intellectual property disputes.

IP rights and their proper enforcement are crucial to the promotion of innovation and, ultimately, to the growth of society as a whole. The importance of IPRs, particularly in the international realm, is becoming increasingly recognized. While a person having their work copied is not the same as someone being stripped of food and shelter, IP is increasingly seen as being entangled with human rights issues. When IP rights are considered important public policy tools in themselves, the question becomes to what extent these rights take precedence over other factors such as public interest and a State’s sovereign rights.

In the second part of this article, we consider how the award in Philip Morris has affected this balance.

The author is the editor of the Intellectual Arbitrator.

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References   [ + ]

1. ↑ Ruth Okediji, Is Intellectual Property “Investment”? Eli Lilly v. Canada and the International Intellectual Property System, 35 U. PA. J. INT’L. L. 1121, 1122 (2014); Peter K. YU, The Investment-Related Aspects of Intellectual Property Rights 843 (2016) noting that it is not the fact that intellectual property rights are considered investments that is the novel problem, it is the fact that this now means private investors can bring a suit without requiring assistance from the government and support of their home states. 2. ↑ Riccardo Fornasari, The Protection of Legitimate Expectations under the Fair and Equitable Treatment Standard, KSLR COMMERCIAL & FINANCIAL LAW BLOG (May 12, 2015). 3, 18. ↑ id. 4. ↑ Susan D. Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law through Inconsistent Decisions, 73 FORDHAM L. REV. 1521, 1571 (2005) [hereinafter “Franck”]. 5. ↑ Leite, fn 14 citing Tamara L. Slater, Investor-State Arbitration and Domestic Environment Protection, 14 WASH. U. GLOBAL STUD. L. REV. 131, 132-133 (2015). 6. ↑ James Gathii & Cynthia Ho, Regime Shifting of IP Lawmanking and Enforcement from the WTO to the International Investment Regime, 18 Minn. J. L. Sci. & Tech. 427, 495 (2017) citing Barnali Choudhury, Democratic Implications Arising from the Intersection of Investment Arbitration and Human Rights, 46 ALTA. L. REV. 983 (2009) and Sergio Puig, The Merging of International trade and Investment Law, 33 BERKELEY J. INT’L. L. (2015). 7. ↑ Okediji, at 1122.
8. ↑ Rochelle Dreyfuss & Susy Frankel, From Incentive to Commodity to Asset: How International Law is Reconceptualizing Intellectual Property, 36 MICHIGAN J. INT’L L. 557, 559–560 (2015); YU, at 835. 9. ↑ See Dreyfuss and Frankel. 10. ↑ United Nations Conference on Trade and Development, The Development Dimension of FDI: Policy and Rule-Making Perspectives, UNCTAD/ITE/IIA/2003/4 (Nov. 6-8, 2002), 212. 11. ↑ Azernoosh Bazrafkan & Alexia Herwig, Reinterpreting the Fair and Equitable Treatment Provision in International Investment Agreements as a New and More Legitimate Way to Manage Risks, 7 EUROPEAN J. OF RISK REG. 439, 440 (2016) [hereinafter “Bazrafkan & Herwig”]. 12. ↑ Siemens A.G. v The Argentine Republic, ICSID Case No. ARB/02/8, Award, (Jan. 17, 2007), ¶ 270; Compañía del Desarrollo de Santa Elena, S.A. v The Republic of Costa Rica, ICSID Case No. ARB/96/1, Award (Feb. 17, 2000), ¶ 72; AES Summit Generation Limited AES-Tisza Erömü KFT v The Republic of Hungary, ICSID Case No. ARB/07/22, Award (Sept. 23, 2010), ¶¶ 14.3.1-14.3.4 [hereinafter “AES”]; Metalclad Corporation v The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (Aug. 30, 2000), ¶¶ 103 and 107. 13. ↑ Azurix Corp. v The Argentine Republic, ICSID Case No. ARB/01/12, Award (Jul. 14, 2006), ¶¶ 309-312; Tecnicas Medioambientales Tecmed S.A. v The United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, (May 29, 2003), ¶¶ 121-122. 14. ↑ Methanex Corp. v United States of America, Final Award on Jurisdiction and Merits, 44 ILM 1345 (2005), award rendered Aug. 3, 2005, pt. IV, ch. D, ¶ 7: “As a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alia, a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation.” 15. ↑ Moshe Hirsch, Between Fair and Equitable Treatment and Stabilization Clause, 12 THE JOURNAL OF WORLD INVESTMENT & TRADE, 784, 790, 792–99 (2011). 16. ↑ Fornasari. 17. ↑ Valentina S. Vadi, Towards a New Dialectics: Pharmaceutical Patents, Public Health and Foreign Direct Investments, 5 NYU J. INTELL. PROP. & ENT. L. 113, 118 (2015). 19. ↑ Id, 118-119 citing Muthucumuraswamy Sornarajah, Evolution or Revolution in International Investment Arbitration? The Descent into Normlessness , in EVOLUTION IN INVESTMENT TREATY LAW AND ARBITRATION (Chester Brown and Kate Miles eds., 2011), 631-657 arguing that “disparate trends” in international investment law and arbitration “show neither evolution nor revolution but an ongoing conflict [between private and public interests] that either will bring a new system – resulting in a revolution – or will keep the old, simply because one or the other of the camps wins the tussle,” at 632. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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U.S. Supreme Court Holds That Individualized Employer-Employee Arbitration Agreements Must Be Enforced As Written

Fri, 2018-06-29 02:05

Cherine Foty

ArbitralWomen

On May 21st, 2018, the Supreme Court of the United States in Epic Systems Corp. v. Lewis (“Epic Systems”) held in a 5-4 majority that one-on-one mandatory arbitration agreements imposed by employers upon their employees must be enforced as written in accordance with the Federal Arbitration Act (“FAA”). The majority opinion, written by Justice Neil Gorsuch, reasoned that the FAA superseded the federal right of employees to bring claims in class or collective actions contained in the National Labor Relations Act (“NLRA”) and the Fair Labor Standards Act (“FLSA”).

Enacted in 1935 during U.S. President Franklin D. Roosevelt’s New Deal Era, the NLRA established a “‘fundamental right’ [of employees] to join together to advance their common interests”. The rationale was that by permitting workers to collectively confront employers with respect to the conditions of their employment, they would “gain strength […] in numbers” and avoid the threat of retaliation. Low-value minimum-wage and overtime claims could thus be brought on a collective level to equalize the employer-employee power imbalance, allowing employees to be an adequate match for the much stronger employers.

However, in recent years, the imposition of mandatory arbitration agreements by employers upon their employees has drastically risen, affecting over 50% of non-unionized companies in the United States (as opposed to 2% in 1992). According to Justice Ruth Bader Ginsburg, who criticized the Epic Systems majority decision as “egregiously wrong” in a scathing dissent, this exponential growth of individualized employer-imposed arbitration is a direct result of recent Supreme Court jurisprudence which has rendered “the cost-benefit balance of underpaying workers […] heavily in favor of [employers] skirting [their] legal obligations”.

The FAA’s Saving Clause

The Epic Systems majority decision debated what exceptions exist to the general requirement that arbitration agreements must be enforced by courts as written. It considered Section 2 of the FAA, or its “saving clause”, which states that a written arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

The majority examined divergent lower court opinions from the Fifth, Seventh, and Ninth Circuits. On the one hand, the Fifth Circuit held that no unfair labor practices were committed by requiring employees to sign individual arbitration agreements waiving their right to pursue class and collective actions. However, on the other hand, the Seventh and Ninth Circuits held that enforcing an arbitration agreement which violates a “substantive federal right” renders the agreement illegal and hence unenforceable under the FAA. They found that enforcing an agreement which requires individualized arbitration proceedings contravenes the “substantive federal right” contained in the NLRA which protects workers’ right to engage in class or collective action.

This was indeed the position taken by the National Labor Relations Board’s (“NLRB”) General Counsel in 2012 that “employer-imposed contracts barring group litigation in any forum – arbitral or judicial – […] unlawfully restricts employees’ Section 7 right to engage in concerted action for mutual aid or protection, notwithstanding the Federal Arbitration Act (FAA), which generally makes employment-related arbitration agreements judicially enforceable.”

However, the majority in Epic Systems drastically departed from the reasoning of the Seventh and Ninth Circuits and the NLRB, holding that the text of the FAA’s “saving clause” only recognizes “defenses that apply to ‘any’ contract”. As such, only general contractual defenses such as fraud, duress, or unconscionability can be invoked to invalidate an arbitration agreement under the FAA. This means that unless the arbitration agreements in question were extracted by fraud or duress, which would serve to invalidate any contract, the clear terms of an arbitration agreement, allegedly validly entered into, should prevail.

In her dissent, Justice Ginsburg criticized this reasoning, suggesting that the illegality of collective litigation waivers contained in employer-imposed arbitration clauses is what qualifies as an excludable contractual provision which would fall under the FAA’s “saving clause”.

She also highlighted Section 1 of the FAA which expressly excluded employment contracts from the scope of the FAA: “but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

In fact, the legislative history of the FAA shows that organized labor had objected to the application of arbitration in the employment context but were contented with the fact that the FAA clearly excluded workers from its scope. That understanding of the Section 1 exclusion in the FAA was confirmed in historic Supreme Court jurisprudence. For example in the 1967 Prima Paint case, the Supreme Court stated that “categories of contracts otherwise within the [FAA] but in which one of the parties characteristically has little bargaining power are expressly excluded from the reach of the [FAA].”

However, more recent jurisprudence has gradually whittled away the employment contract exception in the FAA, beginning with the 1991 Gilmer case which authorized arbitration of claims under the Age Discrimination and Employment Act of 1967. Thereafter, the 2001 Circuit City case ruled that the employment exception should be construed narrowly, only to cover transportation workers. According to Justice Ginsburg, the resulting spike in the number of mandatory employer-imposed arbitration agreements in recent years is a direct result of that decision.

Individualized Arbitration Proceedings and the Issue of Consent (or Lack Thereof)

The Epic Systems majority also found issue with the invocation only of the “individualized nature” of the arbitration proceedings, suggesting that a contract cannot be unenforceable “just because it requires bilateral arbitration”. It likened the employer-employee arbitration agreements prohibiting class actions to company-consumer arbitration agreements with class action waivers recently upheld as valid by the Supreme Court in the 5-4 split 2011 AT&T Mobility LLC v. Concepcion case (with Justice Scalia writing for the majority rather than Justice Gorsuch). When discussing the Concepcion case, the Epic Systems majority held that in both the employer-employee and the company-consumer context, “courts may not allow a contract defense to reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent”.

However, in response, Justice Ginsburg’s dissent highlights that by limiting employees to individualized arbitration proceedings, employers inherently prevent them from utilizing “existing, generally available procedures” to exercise their right to engage in “other concerted activities” as permitted by the NLRA. Employees should be able to use procedures such as joinder, class action litigation, and class arbitrations, permitted under the FLSA, Federal Rules on Civil Procedure, and for example the Supplementary Rules for Class Arbitrations established by the American Arbitration Association (“AAA”).

Interestingly, Justice Ginsburg also took issue with the majority’s use of the word “consent” when referring to individualized arbitration proceedings. She questioned whether the arbitration agreements between the employers and employees in the three lower court decisions in question were truly “bilateral” in nature and whether they were in fact “voluntary”. Indeed, the employers Epic Systems and Ernst & Young in the Seventh and Ninth Circuit decisions respectively, had e-mailed their employees an arbitration agreement imposing individual arbitration, providing that if the employees continued employment, they would be deemed to have accepted those terms. It is debatable whether the employees sufficiently entered into the arbitration agreement on consensual terms.

Justice Ginsburg emphasized that the FAA was designed to apply to “voluntary, negotiated agreements” to arbitrate. It was never meant to support arbitration “where one party sets the terms of an agreement while the other is left to ‘take it or leave it’.”

The Epic Systems decision has served to further increase the divide between the position of the United States and that of France, for example, which has carved out an exception to the primacy of arbitration agreements when it comes to labor and employment disputes. In fact, according to Article L. 1411-4 of the French Labor Code, only the Labor Courts (Conseils des Prud’hommes) are competent to hear employment disputes and recourse to arbitration is hence prohibited. It remains to be seen how the United States and the various EU Member States will continue to diverge on this issue in the future, as class actions continue to take a foothold in Europe.

The views expressed in this article are those of the author alone and should not be regarded as representative of, or binding upon ArbitralWomen and/or the author’s law firm and its clients.

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Corruption as a ‘Sword’ in Investor State Arbitrations

Thu, 2018-06-28 00:10

Edmund Bao

King & Wood Mallesons

That investor state tribunals may deal with allegations of corruption in ISDS disputes is well acknowledged. The seminal World Duty Free1) World Duty Free Company Limited and The Republic of Kenya, ICSID Case No. ARB/00/7 (Award dated 4 October 2006). jQuery("#footnote_plugin_tooltip_5092_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); decision involved the payment (in a briefcase) of USD$2 million dollars cash to (the then) President of Kenya to secure a concession contract. The subsequent decision became (although it was by no means the first)2) See for example earlier decisions such as Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt, ISCID Case No. ARB/84/3 (Award on the Merits dated 20 May 1992); Wena Hotels Ltd. v Arab Republic of Egypt, ICSID Case No. ARB/98/4 (Award dated 8 December 2000). jQuery("#footnote_plugin_tooltip_5092_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the leading authority for the proposition that claims based on contracts tainted by corruption cannot be upheld on the basis of host state illegality and international public policy. In this respect, corruption has been primarily used as a ‘shield’ (i.e. a defence) by host states to challenge the enforcement of a contract, or as in Metal Tech, to challenge the Tribunal’s jurisdiction (see our previous discussion on Metal Tech).

On the other hand, there appears scant commentary on whether corruption may be used as a ‘sword’, such as the basis for a claim under an investment treaty or agreement. This usually involves corrupt solicitation of bribes that are unconsummated, as investors that have engaged in corrupt conduct do not themselves have clean hands. Predominantly, the avenues for a claim will be premised upon a violation of the fair and equitable principle, expropriation or a breach of the full security and protection provisions. Below we analyse two decisions (and their related tests) which demonstrate instances of corruption that have been relied upon by investors to bring a claim against the host state.

 

A. EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 (Award dated 8 October 2009)

The case of EDF (Services) involved the alleged solicitation by (the then) prime minister of Romania for a US$2.5 million-dollar bribe. When EDF Services refused to pay the bribe, it was alleged that Romania (though various governmental departments and regulatory agencies) took retaliatory action by engaging in a concerted effort to destroy EDF’s business, resulting in a total loss of EDF’s operations. EDF claimed this was a breach of the FET principles (among other things). While EDF’s claim ultimately failed for other reasons as discussed below, the EDF Tribunal affirmed as uncontroversial that in the context of an investor claim, acts of corruption “is a violation of international public policy, whereby ‘exercising a State’s discretion on the basis of corruption is a […] fundamental breach of transparency and legitimate expectations’”.3) EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 (Award dated 8 October 2009), [221]. jQuery("#footnote_plugin_tooltip_5092_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });


• The requirement for “clear and convincing” evidence in substantiating allegations of corruption

EDF (Services) demonstrates that tribunals will not entertain corruption allegations on the basis of a claim in the absence of clear and convincing evidence. The Tribunal held that “[t]he seriousness of a corruption charge also requires that the utmost care and sense of responsibility be taken to ascertain the truthfulness and genuine character of the evidence that the party intends to offer in support of its claim.”4) EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 (Procedural Order No. 3), [28]. jQuery("#footnote_plugin_tooltip_5092_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This was highlighted by the Tribunal especially in the context that the bribe was allegedly facilitated at the highest levels of the Romanian government, including the Prime Minister.

In EDF (Services), the oral testimony of EDF’s witnesses in relation to the solicitation of payment was held to be inconsistent with respect to statements made concurrently to the NAD (the Romanian anti-corruption agency) during the course of its investigations. In particular, whereupon the statement made to the NAD expressly disavowed any knowledge of the identity of the bribe solicitants, the arbitration witness statement did name the individual who requested the bribe. This led the Tribunal to characterise the evidence as of doubtful value. In this respect, EDF was also unable to prove that the bribe was not made in the personal interest of the solicitant but rather on behalf of and for the benefit of the governmental authorities.

 

• That evidence of corrupt conduct be authentic, reliable and obtained lawfully

Another crucial piece of evidence sought to be admitted by EDF was an audio recording between one of EDF’s agents and a staffer of (the then) Prime Minister of Romania. The recording was claimed by EDF as capturing a bribe being requested. The Tribunal however also rejected this piece of evidence. First, it was held that there was a lack of authenticity and reliability regarding the recording. The recording was subject to expert scrutiny as it had sections missing, including the beginning and end sections, various irregularities and instances of transient sounds indicative of possible manipulation. The Tribunal therefore ruled that the EDF had failed to discharge the burden of satisfying the court of the authenticity and reliability of the audio recording. A crucial factor in this finding was due to EDF not able to provide the original copy of the recording for analysis.

Second, the Tribunal held that the recording was not obtained lawfully under Romanian law. In particular, the recording was made clandestinely at the private home of a Romanian public servant without her knowledge. The Claimant’s submission that Romanian privacy law did not apply to public servants was held not to be persuasive as the Romanian constitution guarantees all citizens (notwithstanding their public servant status) equal enjoyment of their rights and liberties (such as privacy).

 

B. Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada, ICSID Case No. ARB/10/6 (Award dated 14 October 2010) and related proceedings

The proceeding history is complex. The original merits arbitration was brought under an investment agreement between RSM Production and Grenada. The crux of the dispute related to the cancellation of RSM’s exploration licence by Grenada for offshore hydrocarbon reserves. The merits Tribunal ruled in favour of Grenada and found that the cancellation had been in accordance with the agreement. RSM (the claimants in the first merits hearing) subsequently sought to annul the award (unsuccessfully) under the annulment committee’s inherent powers. RSM then proceeded to bring fresh proceedings under FET, full protection and treatment and expropriation provisions (among others) under the Grenada-United States Bilateral Investment Treaty. RSM did this on the basis of new evidence relating to allegedly corrupt payments received by Grenada from certain Russian parties. RSM alleged that such payments were for the purpose of inducing Grenada to rely on a technicality with licence approval timeframes as a pretext to terminating its agreement (even if arguendo the terms of the Agreement permitted it to do so) and reissue the exploration licence to a Russian company. The following novel issues arose in the context of a claim based corruption argument:

 

• Related corrupt conduct may lead to a breach of investment protections, notwithstanding that there were no breaches of the contractual agreement itself

Despite the fact that a previous Tribunal had found Grenada’s termination of the agreement valid, RSM invited the successor Tribunal to reopen the prior Tribunal’s findings under Article 51 of the ICSID Convention in light of the new corruption evidence. The successor Tribunal declined to do so on the basis that the facts and circumstances which gave rise to the alleged conduct had in fact been available to RSM in the previous case but was not raised by RSM. The Tribunal characterised this as “no more than an attempt to re-litigate and overturn the findings of another ICSID Tribunal, based on allegations of corruption that were either known at the time or which ought to have been raised by way of a revised application and over which the Prior Tribunal had jurisdiction”.5) Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v Grenada, ICSID Case No. ARB/10/6 (Award dated 10 December 2010), [7.3.6]. jQuery("#footnote_plugin_tooltip_5092_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As such, the successor Tribunal held that it was not open to them to revisit the facts and issues that had been distinctly determined by the merits Tribunal.

Distinguishing on the facts of this case, it seems that the Tribunal left open the possibility that fresh evidence in relation to corruption may be sufficient as a standalone basis for ISDS proceedings. This is assuming that the evidence that came to light is in fact new and rises issues not covered under collateral estoppel.

 

• The alleged corrupt conduct must have a causative link with the alleged violation of the BIT

The Tribunal ruled that even if it was established that the Grenadian officials were accepting bribes, the agreement (and exploration licence) was terminated by Grenada by relying on its contractual rights.6) Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v Grenada, ICSID Case No. ARB/10/6 (Award dated 10 December 2010), [7.2.6]. jQuery("#footnote_plugin_tooltip_5092_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As the merits Tribunal found, RSM was solely responsible for its application’s timing which led to the loss of the exploration licence. As such, the causative link between the bribes and RSM losing the licence was broken.

 

Conclusion

The use of corruption as a sword presents many challenges to investors. There is a high evidentiary bar to successfully proving corrupt conduct. Absent clear and convincing proof and reliable evidence of corrupt conduct directly linked to and attributable to the host state, a breach of investment protections is unlikely to be made out. Some of this is linked to practicalities surrounding the nature of corruption; the Tribunal in EDF (Services) acknowledged that “corruption is notoriously difficult to prove since, typically, there is little or no physical evidence”.7) EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 (Award dated 8 October 2009), [221]. jQuery("#footnote_plugin_tooltip_5092_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5092_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This is not withstanding the accepted position in international investment law that allegations of corruption, if made out, is contrary to international public policy and is a breach of the fair and equitable policy. Therefore, despite the current lack of success by investors in using corruption as a sword, corruption as the basis for a claim in international investment arbitration appears nonetheless to be well-established.

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References   [ + ]

1. ↑ World Duty Free Company Limited and The Republic of Kenya, ICSID Case No. ARB/00/7 (Award dated 4 October 2006). 2. ↑ See for example earlier decisions such as Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt, ISCID Case No. ARB/84/3 (Award on the Merits dated 20 May 1992); Wena Hotels Ltd. v Arab Republic of Egypt, ICSID Case No. ARB/98/4 (Award dated 8 December 2000). 3, 7. ↑ EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 (Award dated 8 October 2009), [221]. 4. ↑ EDF (Services) Limited v Romania ICSID Case No. ARB/05/13 (Procedural Order No. 3), [28]. 5. ↑ Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v Grenada, ICSID Case No. ARB/10/6 (Award dated 10 December 2010), [7.3.6]. 6. ↑ Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg, and RSM Production Corporation v Grenada, ICSID Case No. ARB/10/6 (Award dated 10 December 2010), [7.2.6]. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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HKIAC’s New Belt and Road Programme: Does More Need to be Done?

Wed, 2018-06-27 05:04

Stephanie Tang

Linklaters

On 26 April 2018, HKIAC announced its new “Belt and Road Programme” which consists of an industry-focussed Belt and Road Advisory Committee and an online resource platform dedicated to Belt and Road disputes. This is a welcome development in light of the ICC Court’s formation of their own Belt and Road Commission in March (see relevant blog post here), but could the capabilities of the HKIAC’s online resource platform be improved in light of the HKIAC’s premier role in the Belt and Road disputes arena?

By way of background, the Belt and Road Initiative is a push by the Chinese government to invest around US$900 billion in infrastructure along the land-based “Silk Road Economic Belt” and the oceangoing “Maritime Silk Road”, both of which consist of several routes from China through countries including Turkey and Kenya all the way to Italy and the United Kingdom. In total, the initiative will span over 60 countries and will generate investment in roads, railways, ports and other facilities. Chinese construction firms will be cooperating with other international firms in a variety of jurisdictions on a plethora of different contracts. The potential for dispute resolution work is great, and the arbitral institutions are already competing to be the best placed forum to secure their share of the pie.

In the commentaries, HKIAC is a firm favourite. Reasons for this include Hong Kong’s proximity to China while being a separate administrative region; Hong Kong’s stable and independent common law legal system and pro-arbitration judiciary; and Hong Kong being home to multilingual legal and commercial professionals who are familiar with foreign investments and working with Chinese companies. HKIAC itself reports that in 2017 it saw 55% of its arbitrations involving a Mainland Chinese party and one-third of its cases between a Mainland Chinese Party and a Belt and Road jurisdiction in 2017.

Therefore, it comes as no surprise that HKIAC is keen to put itself forward as the premier forum for the resolution of Belt and Road disputes. In line with this aim is the formation of a HKIAC Belt and Road Advisory Committee composed of experts from the finance, infrastructure, insurance, construction and maritime sectors. A full list of members can be found here.

Nevertheless, it could be argued that HKIAC’s new online resource platform might benefit from some improvements. A few suggestions are set out below:

1. Belt and Road Knowledge Database: Currently this is a list of links to publications broadly categorised under ‘Investment and Trade Opportunities’, ‘Dispute Resolution’, ‘Regulatory & Compliance’ and ‘Useful Websites’. Although such broad categorisations may have been sufficient when the resources were sparse, the list is now becoming a little cumbersome. A more user-friendly interface organised around the potential problems that practitioners may face, and which can be surveyed ‘at a glance’, would add value to this useful resource.

2. Model Clauses for Belt and Road Contracts: Currently the HKIAC model clauses for Belt and Road contracts refer disputes directly to arbitration, without recourse to mediation. It is possible that the model clauses on this site would gain greater traction if they included a ‘hybrid’ method combining both mediation and arbitration. In Asia, there is a longstanding culture of mediating disputes, especially when arbitration may still be perceived as expensive and detrimental to commercial relations. As Guiguo Wang, President of the International Academy of the Belt and Road, has put it, conciliation is an “Eastern value and tradition”. Notably, the Supreme People’s Court of China (SPC) is interested in promoting mediation for Belt and Road disputes, as evidenced by the SPC’s endorsements at the September 2017 International Mediation Conference in Hangzhou, China. Further, the Hong Kong government has championed mediation for Belt and Road disputes, as can be seen in its development of an online mediation and arbitration tool, eBRAM.hk, and the discussion at the October 2017 Belt and Road Summit of model Belt and Road dispute resolution clauses that provide for mediation, then arbitration. Finally, the Hong Kong-based think tank, International Academy of the Belt and Road, has published a “Dispute Resolution Mechanism for the Belt and Road Initiative” that proposes a unified dispute resolution clause requiring negotiation and mediation before arbitration. Consistency where possible in relation to model clauses would be ideal for legal certainty in a multifarious legal landscape for Belt and Road disputes.

3. Belt and Road Events: Currently this is a list of events that HKIAC have hosted or will host in various jurisdictions with a very brief description of each. Perhaps each description would be improved by including links to meeting minutes, a video of the lecture or even a transcript, where appropriate. As it stands, it serves only as a log, where otherwise it could itself serve as a useful resource for Belt and Road practitioners across the jurisdictions who seek to stay in the know of how this premier arbitral institution views the various issues and challenges that the Belt and Road initiative presents.

Considering HKIAC’s prime position as an arbitral institution for Belt and Road dispute resolution, its current efforts to support participants with its new Belt and Road Programme are to be welcomed. HKIAC should be encouraged to build on its resources, especially in relation to its database, model clause provision and record of Belt and Road events. It would be safe to say that for the disputes rolling through, the more equipped practitioners are now, the more streamlined resolution will be for Belt and Road disputes in the years to come.

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The Binding Nature of Provisional “Recommendations” in ICSID Arbitration

Wed, 2018-06-27 03:07

Ylli Dautaj and Bruno Gustafsson

Introduction

Pursuant to Article 47 of the ICSID Convention, an ICSID Tribunal may “recommend any provisional measures which should be taken to preserve the rights of either party”. The use of “recommend” is concerning. Its lack of imperative character triggers a debate on whether ICSID provisional measures have legally binding effect, i.e. require mandatory state compliance. Quite controversially, numerous ICSID tribunals have rendered binding provisional measures to suspend domestic criminal investigations or proceedings.1)See following cases for discussions on suspending criminal procedures through provisional measures: Border Timbers Ltd. V. Republic of Zimbabwe, ICSID CASE NO. ARB/10/25, Directions Concerning Claimants’ Application for Provisional Measures of 12 June 2012 (June 13, 2012); Caratube International Oil Company LLP v. Republic of Kazakhstan, ICSID Case No. ARB/13/13, Decision on the Claimants’ Request for Provisional Measures, (Dec. 4, 2014); City Oriente Ltd v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) (Ecuadoran) ICSID case No. ARB/06/21; Italba v. Oriental Republic of Uruguay ICSID Case No. ARB/16/9 Decision on Claimant’s Application for Provisional Measures and Temporary Relief (Feb. 15, 2017); Nova Group Investments, B.V. v. Romania, ICSID Case No. ARB/16/19; and Teinver S.A., Transportes de Cercanías S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Decision on Provisional Measures (Apr. 8, 2016). jQuery("#footnote_plugin_tooltip_4620_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4620_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Thereby, some arbitrators have designated to themselves an implicit or de facto authorization to render orders, even such that extensively interfere with state sovereignty.

The issue of whether these orders are binding in nature rests upon an inherent give-and-take conflict between (1) honoring state sovereignty, and (2) making investor-state arbitration investor-friendly and an effective dispute resolution mechanism. A perfect illustration of this tension comes to light when a tribunal orders a provisional measure to suspend a criminal investigation or procedure.

However, at the outset it should be known that since Maffezini v. Spain (ICSID Case No. ARB/06/21, Decision on Request for Provisional Measures (Oct. 28, 1999) 5 ICSID Rep. 387 para 9. (2002)), there is a generally held view that provisional measures in ICSID are binding. For example, the Tribunal in City Oriente v. Ecuador held that “[f]rom a substantive view, the difference between a recommendation and an order is mainly a question of terminology. [And even] where named recommendation, a decision on provisional measures is substantially binding.”2)City Oriente Ltd v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) (Ecuadoran) ICSID case No. ARB/06/21 Decision on Provisional Measures (Nov. 19, 2007), para. 52. jQuery("#footnote_plugin_tooltip_4620_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4620_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The crux of the matter is, however, that these orders are not explicitly supported in the relevant text.

Provisional measures can secure the efficiency and fairness of the arbitration proceeding

In general, provisional measures lie on the premise that the proceedings should be fair and efficient. Accordingly, the use of provisional measures may be connected to the due process requirements of equal treatment and the right to be heard. This is a natural result of the “judicialization” of investor-state arbitration. And whether – and why – judicialization of arbitration is a bad thing, we can leave for another day. Nonetheless, the tribunal’s authority to render binding provisional measures have oftentimes been described as indispensable in order to uphold arbitration as a fair and efficient way of dispute resolution.3)See Gary Born, International Commercial Arbitration 2425 (2d ed. 2014). jQuery("#footnote_plugin_tooltip_4620_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4620_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

To illustrate the complicated balance between state sovereignty and efficiency we wish to address whether an ICSID tribunal has the authority to suspend domestic criminal procedures. How have previous tribunals justified an “order” suspending criminal investigations or procedures under the ICSID framework?

In Quiborax S.A. v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Provisional Measures (Feb. 26, 2010), the Tribunal stated that Article 47 of the ICSID Convention and Rule 39 of the ICSID Arbitration Rules give the tribunal wide discretion to render provisional measures. (para. 105) The Claimant claimed compensation for the revocation of eleven mining concessions. Some years into the arbitration, Bolivia initiated criminal proceedings on the allegations that the main shareholders of Quiborax had forged documents in order to become “protected investors” under the Bolivia-Chile BIT. Bolivia’s Ministry for Foreign Affairs ordered an audit. The Bolivian authorities reviewed corporate documentation and “noted irregularities,” and brought proceedings regarding “forged documents.” (paras 22-45) The Claimants alleged that the criminal proceedings constituted litigation tactics aiming towards limiting their access to important documents.

The Tribunal concluded that the Claimant had met the requirements for suspending the criminal proceedings, viz. had managed to prove: (1) an existence of rights requiring preservation; (2) existence of urgent protection; and (3) necessity of the provisional measure.(paras 113-165)

In Hydro S.r.l. v. Republic of Albania the Claimant initiated an ICSID arbitration against Albania for alleged breaches of commitments relating to electricity generation enterprises in the host-state. Subsequently, Albania sought to extradite two of the Claimants from the UK on the alleged basis of money laundering and fraud. The Claimants sought an interim measure requesting Albania to desist its action. The Tribunal recommended Albania to (a) suspend the criminal proceedings until the issuance of a final award and (b) take necessary actions to suspend the extradition proceedings.4)Hydro S.r.l. v. Republic of Albania, ICSID Case No. ARB/15/28, Order on Provisional Measures (Mar. 3, 2016), para 5.1. jQuery("#footnote_plugin_tooltip_4620_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4620_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Tribunal first determined whether there was a sufficient basis for it to decide the questions subject of the request for a provisional measure.(para. 3.9) It went on to assess the “appropriate test” to be applied i.e. whether the application was (1) necessary to protect the applicant’s rights; (2) urgent; and (3) proportionate. (para 3.11) The Tribunal was satisfied that the conditions were met and, therefore, saw “no difficulty in recommending an order”. (para. 3.18-20)

Is the word “recommendation” coincidental?

The non-binding language in Article 47 of the ICSID Convention reflects that investor-state arbitration is tainted with issues of state sovereignty. Schreuer wrote that “a conscious decision was made not to grant the tribunal the power to order binding [provisional measures].”5)Christoph H. Schreuer, The ICSID Convention: A Commentary 758 (2001) jQuery("#footnote_plugin_tooltip_4620_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4620_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Furthermore, Redfern and Hunter wrote that: “[t]he use of the word ‘recommend’ in this context stems from the concern of the drafters of the ICSID Convention to be seen as respectful of national sovereignty by not granting powers to private tribunals to order a state to do or not do something on a purely provisional basis”.6)Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration 333 (4th ed. 2004). jQuery("#footnote_plugin_tooltip_4620_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4620_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This sheds light upon what should be an obvious notion of textual legal understanding; namely, that the text is supreme and prevails. The explicit choice of words in the convention indicates that provisional measures were not meant to have legally binding effect.

However, it is not inconceivable that a tribunal may render binding provisional measures in order to safeguard the procedural integrity or the parties’ duty of “good faith”. Allegedly, this should be implied from the text of the ICSID Convention, in part and in whole. In a similar vein, it may be argued that the concept of “state sovereignty” should not force tribunals to tie their hands when serious interference with the arbitration is making the procedure unfair at best, or a nullity at worst. How convincing this argument is – and how far a tribunal can go – should be left for the arbitration community to decide. Nevertheless, decisional law is not binding in investor-state arbitration and, therefore, the decision should be reflected in rules or statute form.

Concluding remarks

The host-state, in its capacity as a sovereign, can interfere with the arbitration in a myriad of ways. For example, a state can utilize its prosecutorial powers in order to frustrate the arbitration by putting immense pressure on the investor. However, it is questionable whether an ICSID tribunal may redress such behavior by “ordering” a provisional measure that interferes with state sovereignty.

Mechanisms that secure procedural efficiency and due process are essential for maintaining investor-state arbitration as the dominant forum for adjudicating investment disputes. As a corollary, it is arguably necessary to grant the arbitrators some scope of authority to make compulsory decisions throughout arbitral proceedings. Nonetheless, the authority of the tribunal to render provisional measures in investor-state arbitration is dependent on the state giving up some traditionally sovereign features.

The drafting states to the ICSID Convention did not attribute a legally binding effect to provisional measures. Therefore, ICSID tribunals treating provisional “recommendations” as binding orders may undermine textual interpretation and state sovereignty. Above all, a lack of textual adherence may impede clarity, consistency and foreseeability.

As a result, provisional “orders” may carry a risk of causing states to question the legitimacy of investor-state arbitration as a valid regime for resolving investment disputes. Moreover, decisions lacking textual authority might discourage states from compliance. Eventually, the lack of textual adherence and interpretation may prove damaging for the sustainability of investor-state arbitration. 

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References   [ + ]

1. ↑ See following cases for discussions on suspending criminal procedures through provisional measures: Border Timbers Ltd. V. Republic of Zimbabwe, ICSID CASE NO. ARB/10/25, Directions Concerning Claimants’ Application for Provisional Measures of 12 June 2012 (June 13, 2012); Caratube International Oil Company LLP v. Republic of Kazakhstan, ICSID Case No. ARB/13/13, Decision on the Claimants’ Request for Provisional Measures, (Dec. 4, 2014); City Oriente Ltd v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) (Ecuadoran) ICSID case No. ARB/06/21; Italba v. Oriental Republic of Uruguay ICSID Case No. ARB/16/9 Decision on Claimant’s Application for Provisional Measures and Temporary Relief (Feb. 15, 2017); Nova Group Investments, B.V. v. Romania, ICSID Case No. ARB/16/19; and Teinver S.A., Transportes de Cercanías S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Decision on Provisional Measures (Apr. 8, 2016). 2. ↑ City Oriente Ltd v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador) (Ecuadoran) ICSID case No. ARB/06/21 Decision on Provisional Measures (Nov. 19, 2007), para. 52. 3. ↑ See Gary Born, International Commercial Arbitration 2425 (2d ed. 2014). 4. ↑ Hydro S.r.l. v. Republic of Albania, ICSID Case No. ARB/15/28, Order on Provisional Measures (Mar. 3, 2016), para 5.1. 5. ↑ Christoph H. Schreuer, The ICSID Convention: A Commentary 758 (2001) 6. ↑ Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration 333 (4th ed. 2004). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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Customary International Law Claims in Contract-based Arbitration

Tue, 2018-06-26 02:33

Patrick Fox and Alexey Vyalkov

Three Crowns LLP

Without the rights and protections of a treaty, a foreign investor who suffers a wrongful act at the hands of a host State traditionally has no legal standing to pursue an international claim against that State.1) Case Concerning the Barcelona Traction, Light & Power Company Limited (Belgium v Spain) (Second Phase) [1970] ICJ Rep 3, 44. jQuery("#footnote_plugin_tooltip_7212_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Instead, the investor must rely on the diplomatic intervention of its home State to protect the investor’s interests—a corollary to the widely-accepted view that a State’s obligations under international law may be engaged only by other States. However, in 1987, Stephen Schwebel argued that private parties in contract-based arbitrations may pursue certain customary international law claims in their own name.2) E.g., denial-of-justice claims: see S Schwebel, International Arbitration: Three Salient Problems (Grotius Publishing 1987) ch 2. jQuery("#footnote_plugin_tooltip_7212_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Decades on, there are now several examples of contract-based arbitrations – under both ad hoc and institutional rules – where investors have sought to invoke a State’s breach of the minimum standards of treatment under customary international law as a separate head of claim.3) Channel Tunnel Group Limited and France-Manche SA v Secretary of Transport of the United Kingdom and Secretary of Transport of France (PCA Case No. 2003-06) Partial Award, 30 January 2007, (Eurotunnel); Dunkwa Continental Goldfields Limited & Continental Construction and Mining Company Limited v The Government of the Republic of Ghana (ICC Case No. 18294/ARP/MD/TO) Award, 9 July 2015 (Dunkwa); Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana (UNCITRAL) Award on Jurisdiction and Liability, 27 October 1989, 95 ILR 184 (Biloune); Cambodia Power Company v Kingdom of Cambodia (ICSID Case No. ARB/09/18) Decision on Jurisdiction, 22 March 2011, (Cambodia Power); Caratube International Oil Company LLP & Mr Devincci Salah Hourani v Republic of Kazakhstan (ICSID Case No. ARB/13/13) Award, 27 September 2017, (Caratube II). jQuery("#footnote_plugin_tooltip_7212_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Such claims have presented few jurisdictional problems in contract-based ICSID arbitrations, given that Article 25 of the ICSID Convention allows any kind of legal dispute to be referred to the Centre, so long as that dispute arises “directly out of an investment” and other jurisdictional preconditions are satisfied. But international claims pursued outside of the ICSID regime raise additional and fundamental issues of international legal theory, such as the power of private parties to pursue international claims where that power has not been delegated through a treaty analogous to the ICSID Convention, or the need to exhaust local remedies in the absence of a provision to the effect of Article 26 of the ICSID Convention.

Still, international claims in both ICSID and non-ICSID arbitrations present a number of common issues, and it is here that we would like to add a few thoughts. Kate Parlett has previously summarised as follows:

the starting point of the analysis must be the scope of consent given in the arbitration clause. In a claim brought pursuant to a contract, it might also be relevant to consider the applicable law of the contract, since that law might incorporate customary international law.4) K Parlett, Claims under Customary International Law in ICSID Arbitration (2016) 31(2) ICSID Review 434. jQuery("#footnote_plugin_tooltip_7212_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Section A of this blog suggests an alternative approach to interpreting an arbitration clause for the purpose of determining whether the scope of the clause encompasses customary international law claims. The essence of this approach is that any such interpretation should be consistent with and draw upon the developed jurisprudence for other types of non-contractual claims in contract-based arbitrations. Section B draws attention to the apparently-overlooked question of whether the tribunal has the power to decide if a particular standard of customary international law is incorporated into the law governing the contract.

A. Customary International Law Claims as Non-Contractual Claims for the Purpose of Determining the Scope of the Arbitration Clause

A tribunal’s jurisdiction is limited by the scope of the parties’ consent in the arbitration agreement, which establishes the subjective arbitrability of a claim. An arbitration agreement may be drafted expressly to include (or to exclude) customary international law claims, in which case it is suggested that the tribunal must apply the principle of lex specialis and decide its jurisdiction ratione materiae accordingly. Absent an express enunciation, however, the question arises as to what contractual language will allow a tribunal to hear such claims (with the caveat that principles of interpretation are determined by the applicable law). Once examined, parallels may be drawn with other non-contractual claims brought under similar contractual language.

In Eurotunnel, the tribunal concluded that it lacked jurisdiction to consider customary international law claims extrinsic to the provisions of a concession agreement. The jurisdiction clause provided that “any dispute between the [parties] relating to this Agreement” would be submitted to arbitration,5) Eurotunnel (n 3) para 97. jQuery("#footnote_plugin_tooltip_7212_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but the tribunal held that its jurisdiction was limited to claims implicating the rights and obligations of the parties under the concession agreement. The contract in Dunkwa featured a similarly broad arbitration clause, covering “[a]ll claims … arising, whether directly or indirectly out of, or in connection with” a Ghanaian-law-governed project agreement.6) Dunkwa (n 3) para 337. jQuery("#footnote_plugin_tooltip_7212_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Contrary to Eurotunnel, however, the tribunal acknowledged that this formulation could include non-contractual claims (the implication being that the tribunal may have found jurisdiction ratione materiae over claims for wrongful expropriation under customary international law). In Biloune, the investor’s claim for violation of his human rights was found to be beyond the tribunal’s jurisdiction on the wording of an arbitration clause which provided that “[a]ny dispute … in respect of an approved enterprise … may be submitted to arbitration”.7) Biloune (n 3) 188. jQuery("#footnote_plugin_tooltip_7212_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In the context of ICSID arbitration, the tribunal in Cambodia Power found that it had jurisdiction to hear customary international law claims where three English-law-governed contracts referred to “any dispute or difference aris[ing] out of or in connection with” the relevant contract.8) Cambodia Power (n 3) para 336. jQuery("#footnote_plugin_tooltip_7212_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Moreover, the claimant was able to bring customary international law claims notwithstanding the designation of English law as the rules of law agreed by the parties pursuant to Article 42 of the ICSID Convention. The same interpretation of Article 42 was applied in Caratube II, where the jurisdiction clause covered “all disputes arising from the Contract”9) Caratube II (n 3) para 27. jQuery("#footnote_plugin_tooltip_7212_9").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and the tribunal found, notwithstanding the choice-of-law clause, that it would be inconsistent with the aims of the ICSID Convention to disregard customary international law.

The above examples demonstrate that tribunals have not been entirely consistent in assuming jurisdiction over customary international law claims under broadly-drafted arbitration agreements. Moreover, this inconsistency does not sit easily alongside the position widely (although not universally) taken in respect of other non-contractual claims, e.g. tort, unjust enrichment, or statutory claims, which most tribunals have agreed to hear under arbitration clauses with similar broad wording.10) See, e.g., G Born, International Commercial Arbitration (Second Edition) (Kluwer 2014) 1345–1355. jQuery("#footnote_plugin_tooltip_7212_10").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While the scope of even broadly-worded arbitration clauses must be determined with reference to the principles of interpretation existing in the applicable law, there appears to be no reason to differentiate between customary international law claims and other non-contractual claims for the purpose of this interpretation exercise. On the contrary, it seems only consistent for tribunals either to allow customary and other non-contractual claims to be heard under broadly-worded clauses, or to disallow both. Thus, when analysing whether a customary international law claim falls within the scope of an arbitration clause, it is submitted that tribunals should take into consideration the much richer jurisprudence pertaining to the permissibility of other non-contractual claims under broadly-worded clauses.

B. The Power of the Tribunal to Decide on the Incorporation of a Customary International Law Standard into the Law Governing the Contract

To the extent that a choice of national law to govern the contract may indeed suffice to open the door to claims based on customary international law, a number of issues remain to be resolved for such claims to be sustained. Kate Parlett has written that, for the purpose of presenting a customary international law claim in a contract-based arbitration:

(i) the relevant customary standard of treatment should be incorporated in the body of municipal law chosen to govern the contract;
(ii) the standard relied on should indeed be of customary nature; and
(iii) this standard should be capable of being invoked by the private party in its own capacity.11) Parlett (n 4) 441–447. jQuery("#footnote_plugin_tooltip_7212_11").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

To these three important prerequisites one might add a further issue of incidental nature. As noted by Dr Parlett, for a customary international law claim in contract-based arbitration to be successful, the customary rule relied on should form part of the body of national law applicable to the contract. However, as a matter of jurisdiction, it is not always clear, first and foremost, whether the arbitral tribunal should have the power to decide if the invoked rule of supposedly-customary nature forms part of the national law chosen by the parties. This issue appears analogous to the one debated by Jan Paulsson and Pierre Mayer—namely, whether an arbitral tribunal should be deemed competent to exclude certain rules from the body of substantive law agreed by the parties where such rules are demonstrated to be in contradiction with the constitution of the State of the agreed applicable law.12) J Paulsson, Unlawful Laws and the Authority of International Tribunals (2008) 23(2) ICSID Review 215; P Mayer, L’arbitre International et la Hiérarchie des Norms (2011) 2 Revue de l’Arbitrage 361; JS Betancourt, Understanding the ‘Authority’ of International Tribunals: A Reply to Professor Jan Paulsson (2013) 4(2) Journal of International Dispute Settlement 227. jQuery("#footnote_plugin_tooltip_7212_12").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

By analogy with the Paulsson / Mayer debate, one may be naturally inclined to answer the above threshold question with reference to the powers of the court of the State of the agreed applicable law. In this respect, the courts of some (not necessarily monist) legal systems are completely autonomous in deciding whether the relevant customary rule forms part of the national law. However, the courts of other (not necessarily dualist) legal systems may be prevented from deciding such issues altogether as a matter of law, or be allowed to resolve them only where the parliamentary body explicitly permits it.13) See AJ Belohlavek, “Czech Republic” in D Shelton, International Law and Domestic Legal Systems (OUP 2011) 202; EA Alkema, “Netherlands” in ibid, at 420. jQuery("#footnote_plugin_tooltip_7212_13").tooltip({ tip: "#footnote_plugin_tooltip_text_7212_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); At the same time, if the arbitral tribunal holds that it lacks jurisdiction to decide on the incorporation of the invoked customary rule in the substantive law chosen by the parties, it may thereby fail to determine the content of the applicable law and, accordingly, violate its duty to apply the law. This is therefore a further issue capable of determining the fate of a customary international law claim in a contract-based arbitration, which in our view merits further consideration.

Patrick Fox is an associate at Three Crowns LLP. Alexey Vyalkov is a trainee at the Stockholm Chamber of Commerce. The views expressed in this post are the authors’ personal views and do not necessarily reflect those of Three Crowns LLP or the Stockholm Chamber of Commerce.

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References   [ + ]

1. ↑ Case Concerning the Barcelona Traction, Light & Power Company Limited (Belgium v Spain) (Second Phase) [1970] ICJ Rep 3, 44. 2. ↑ E.g., denial-of-justice claims: see S Schwebel, International Arbitration: Three Salient Problems (Grotius Publishing 1987) ch 2. 3. ↑ Channel Tunnel Group Limited and France-Manche SA v Secretary of Transport of the United Kingdom and Secretary of Transport of France (PCA Case No. 2003-06) Partial Award, 30 January 2007, (Eurotunnel); Dunkwa Continental Goldfields Limited & Continental Construction and Mining Company Limited v The Government of the Republic of Ghana (ICC Case No. 18294/ARP/MD/TO) Award, 9 July 2015 (Dunkwa); Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana (UNCITRAL) Award on Jurisdiction and Liability, 27 October 1989, 95 ILR 184 (Biloune); Cambodia Power Company v Kingdom of Cambodia (ICSID Case No. ARB/09/18) Decision on Jurisdiction, 22 March 2011, (Cambodia Power); Caratube International Oil Company LLP & Mr Devincci Salah Hourani v Republic of Kazakhstan (ICSID Case No. ARB/13/13) Award, 27 September 2017, (Caratube II). 4. ↑ K Parlett, Claims under Customary International Law in ICSID Arbitration (2016) 31(2) ICSID Review 434. 5. ↑ Eurotunnel (n 3) para 97. 6. ↑ Dunkwa (n 3) para 337. 7. ↑ Biloune (n 3) 188. 8. ↑ Cambodia Power (n 3) para 336. 9. ↑ Caratube II (n 3) para 27. 10. ↑ See, e.g., G Born, International Commercial Arbitration (Second Edition) (Kluwer 2014) 1345–1355. 11. ↑ Parlett (n 4) 441–447. 12. ↑ J Paulsson, Unlawful Laws and the Authority of International Tribunals (2008) 23(2) ICSID Review 215; P Mayer, L’arbitre International et la Hiérarchie des Norms (2011) 2 Revue de l’Arbitrage 361; JS Betancourt, Understanding the ‘Authority’ of International Tribunals: A Reply to Professor Jan Paulsson (2013) 4(2) Journal of International Dispute Settlement 227. 13. ↑ See AJ Belohlavek, “Czech Republic” in D Shelton, International Law and Domestic Legal Systems (OUP 2011) 202; EA Alkema, “Netherlands” in ibid, at 420. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
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The Belgian Government unveils its plan for the Brussels International Business Court (BIBC)

Mon, 2018-06-25 02:59

Guillaume Croisant

Background

In October 2017, in the wake of Brexit, Belgium was one of the first European jurisdictions to announce its intention to set up a specialised English-speaking court with jurisdiction over international commercial disputes, the Brussels International Business Court (“BIBC”).

The stated aim of this new court is to position Brussels as a new hub for international commercial disputes, in line with its international status as de facto capital of the EU and seat of many international companies and institutions (NATO, World Customs Organisation, Benelux, etc.). As discussed in previous posts on this blog, similar projects are ongoing in several jurisdictions throughout the EU, including France, the Netherlands and Germany.

An update version of the bill has been submitted to the Belgian Parliament on 15 May 2018, after that the Government’s initial draft faced criticisms from the High Council of Justice (relating to the BIBC’s independence and impartiality, its source of funding and its impact on the ordinary courts) and was subject to the review of the Conseil d’Etat.

The Belgian Government aims to have the BIBC up and running by 1 January 2020.

Jurisdiction

The BIBC will have jurisdiction over disputes:

  • which are international in nature, i.e. where (i) the parties have their establishment in different jurisdictions, (ii) a substantial part of the commercial relationship must be performed in a third country, or (iii) the applicable law to the dispute is a foreign law. In addition, another language than French, Dutch or German (Belgium’s official languages, which are already used before ordinary courts) must have been used frequently by the parties during their commercial relationship;
  • among “enterprises” (i.e. every entity pursuing an economic purpose, including public enterprises which provide goods and services on a market basis); and
  • provided that the parties have agreed to the BIBC’s jurisdiction before or after the crystallisation of their dispute.

Procedure

Subject to potential amendments in Parliament, the main procedural hallmarks of the BIBC can be summarised as follows:

  • the procedure will be conducted in English (notices and submissions, evidence, hearings, judgments, etc.);
  • the procedure will be based on the UNCITRAL Model Law on international arbitration;
  • the cases will be heard by ad hoc chambers of three judges, one professional and two lay judges (appointed by the president of the BIBC on the basis of a panel of Belgian and international experts in international business law), assisted by the Registrar of the Brussels Court of Appeal;
  • the BIBC will be granted the power to issue provisional and protective measures (including upon ex parte requests);
  • no appeal will be open against the BIBC’s decision (with the exception of an opposition/tierce opposition before the BIBC for absent parties/interested third parties, and a pourvoi en cassation on points of law before the Supreme Court);
  • the BIBC should be self-financing and the court fees are therefore going to be significantly increased (to around € 20,000/case).

A potential competitor to commercial arbitration?

It is clear from the above that the envisaged procedure before the BIBC, based on the UNCITRAL Model Law and drawn up for international commercial disputes, offers many features traditionally associated with arbitration (necessity for the parties to agree on its jurisdiction, specialised judges, absence of appeal, procedural flexibility, etc.), at a much lesser cost.

However, the BIBC will remain a State court. This means, in particular, that its judgments will not benefit from the recognition and enforcement regime of the 1958 New York Convention (although, where the defeating party will have assets within the EU, this consequence will likely be offset by the application of the Brussels I recast regulation). In addition, the BIBC will not offer two procedural hallmarks often perceived by commercial parties as significant advantages of arbitration over State court proceedings: the confidentiality of the hearing and judgment, and the possibility to appoint/nominate the judges who will hear the dispute.

As a result, it remains to be seen whether the BIBC, and similar English-speaking commercial courts which are being established in other jurisdictions, will become a competitor to international arbitration (especially for cases requiring cost-effective proceedings) or if they will merely attract commercial disputes which would have been heard by ordinary courts, potentially from across the Channel. In any case, parties are likely to await the successful completion of a few procedures before trusting these new commercial courts with their more crucial and complex disputes.

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