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The Corruption Defense: Practical Considerations for Claimants

Mon, 2019-01-21 18:13

Julissa Reynoso, Michael A. Fernández, Ariel Flint and Erin Baldwin

In recent years, a number of arbitral tribunals adjudicating treaty-based investment disputes have been confronted with the question of what to do when the state party to such a dispute alleges that the investors acquired the investment through corrupt means. In some instances, tribunals have applied the defense as a jurisdictional bar, preventing the investors accused of corrupt acts from even presenting the merits of their case to the arbitral body. In other matters, the tribunals have found that the accusations speak more to the merits rather than jurisdiction. As a consequence, the law is far from settled and attorneys litigating this issue operate in largely uncharted terrain. Beyond the legal uncertainties, investors and attorneys faced with accusations of corruption are often faced with a domino effect of unexpected consequences, including parallel criminal proceedings and related civil proceedings. This has made the “corruption defense,” as it is known, a serious hurdle for investors and their lawyers.  This article looks to past experience in order to offer a way forward for lawyers and clients confronting accusations of corruption in the course of arbitration.

 

The Current State of the Defense

The 1963 award by Judge Gunnar Lagergren in ICC Case No. 1110 is widely cited as lending credence to the corruption defense in the international arbitration context. In that case, Judge Lagergren, the sole arbitrator, declined jurisdiction of a dispute between a British corporation and an Argentinian engineer whom the corporation had contracted with solely in the hopes of benefitting from his government connections in Argentina. In his opinion, Judge Lagergren stated that the parties had “forfeited any right to ask for assistance of the machinery of justice,” when they entered into the contract that involved “gross violations of good moral and international public policy.”

Several decades later, the logic of Judge Lagergren’s opinion began to be followed in the context of investor-state contractual disputes. In the well-known World Duty Free v. Republic of Kenya arbitration, investors brought a claim against Kenya for its expropriation of their duty-free stores. During the course of the arbitration, evidence was presented revealing that World Duty Free had donated $2 million to the Kenyan president’s reelection campaign in order to obtain contracts with the Kenyan government. After canvassing various sources of law, the tribunal concluded that bribery is contrary to public order and a basis for declining to consider contractual claims based on corruption.1) The High Court of Kenya recently reinforced this decision by setting aside an arbitral award in favor of World Duty Free that, while arising from different grievances on the part of the Kenyan government, was rooted in the same corruption on the part of World Duty Free. jQuery("#footnote_plugin_tooltip_5606_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5606_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  The tribunal then found that World Duty Free was not entitled to maintain its action against Kenya and decided in favor of the state.

Tribunals adjudicating treaty-based claims have since cited the international public policy against corruption but generally not relied upon it to dismiss investor’s claims. For example, in an early award on the issue, Wena Hotels Ltd. v. Arab Republic of Egypt, the tribunal acknowledged that corruption alleged by Egypt was generally against international bones mores.  Nonetheless, the tribunal observed that Egypt had not provided evidence concerning the alleged corruption. Crediting the evidence in support of the contract’s legitimacy, the tribunal was unwilling to absolve Egypt of liability.

Recent tribunals adjudicating investor-state disputes have instead preferred to focus on the provisions of the particular investment treaty giving rise to a claim in ruling upon a corruption defense. In the oft-cited case of Metal-Tech Ltd. v. Republic of Uzbekistan, the tribunal focused on the Israel-Uzbekistan BIT in applying the corruption defense as a jurisdictional bar. In that matter, Metal-Tech Ltd., an Israeli company, initiated arbitration proceedings claiming that Uzbekistan had breached the relevant BIT and Uzbek laws by expropriating Metal-Tech’s property without due process, amongst other claims. The tribunal focused on the applicable BIT’s requirement that arbitration of disputes “concern[] an investment,” defined as “any kind of assets, implemented in accordance with the laws and regulations of the Contracting Party in whose territory the investment is made…” The tribunal concluded that since corruption occurred in the establishment of the joint venture and the joint venture was not in compliance with the law when it was established, it did not fall under the definition of an “investment” under the applicable BIT and therefore the tribunal had no jurisdiction over the dispute.

In Kim v. Uzbekistan, the tribunal similarly focused on the text of the Uzbekistan – Kazakhstan BIT. In contrast to the Metal-Tech tribunal, the arbitrators found that the defense could not be used as a jurisdictional bar, though it might be a factor at the merits stage. Specifically, the tribunal issued a decision on jurisdiction that asserted its ability to decide the case on its merits, even though the corruption defense was raised. In that case, a private equity group from Kazakhstan submitted a dispute under the relevant BIT after the Uzbekistan government interfered in its investment in two cement plants in Uzbekistan.

The existing inconsistency in this area of law creates significant opportunities and risks for investors and their counsel.   The applicability of the corruption defense in published awards has almost exclusively turned entirely on the investor’s conduct—irrespective of the behavior of the state invoking it.  This means that an investor’s claim may be dismissed under existing jurisprudence, even when the state has otherwise engaged in serious breaches of its international obligations to foreign investors.  Moreover, there has been no consensus as to the evidentiary showing that a state is required to make to establish a successful corruption defense.2) See, e.g., Vladislav Kim v. Republic of Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction, ¶ 377 (Mar.  8, 2017) (“The Tribunal observes that the international community and many nations have placed a high priority on combatting corruption and that it may be the case that the standard of proof is shifting in this area of law.”); compare EDF (Servs.) Ltd. v. Romania, ICSID Case No. ARB/05/13, Award, ¶ 221 (Oct. 8, 2009) (‘The seriousness of the accusation of corruption in the present case, considering that it involves officials at the highest level of the Romanian Government at the time, demands clear and convincing evidence.’) with Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, ¶ 243 (Oct. 4, 2013) (“the Tribunal will determine on the basis of the evidence before it whether corruption has been established with reasonable certainty.”) jQuery("#footnote_plugin_tooltip_5606_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5606_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  More significantly, there is still considerable uncertainty as to what payments, etc. by an investor will be deemed corrupt acts.3) See, e.g., Vladislav Kim v. Republic of Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction, ¶¶ 548-553 (Mar.  8, 2017) jQuery("#footnote_plugin_tooltip_5606_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5606_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Practical Considerations

The possibility of facing a corruption defense requires a degree of introspection at the outset of a dispute on the part of investors. When a multinational company is operating in a jurisdiction with a high level of perceived corruption, any decision to arbitrate should be made after outside counsel has consulted with the compliance department.  That is because even minor payments could be construed as attempts at bribery. Moreover, although the corruption defense has largely been limited to allegations of corruption in the context of making an investment, any conceivably illicit payment that occurred after the investment was made will need to be considered, since a tribunal could always find that corruption in maintaining an investment is against international public norms or in violation of an investment treaty’s text.

If an internal review exposes potential payments to a public functionary, or to individuals and companies with strong ties to the state, the safer, less expensive path may be to reach a negotiated resolution rather than proceed to a full-blown arbitration. While there are arguments that an investor can make in pursuing an arbitration (e.g., that a state is estopped from pursing a defense,4) See, e.g., M, Reeder, State Corruption in ICSID BIT Arbitration: Can it be Estopped?  (March 9, 2017) jQuery("#footnote_plugin_tooltip_5606_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5606_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that a state is contributorily at fault,5) See, e.g., Yarik Kryvoi, Bribery, Corruption, and Fraud in Investor-State Disputes: How Should Tribunals Approach Economic Crimes? (Aug. 10, 2018) jQuery("#footnote_plugin_tooltip_5606_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5606_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); or that the defense should only affect how damages are apportioned through a comparative fault regime), the mere allegation of corruption can create significant problems. Negative headlines can hurt or embarrass the investor; and government agencies can catch wind of the issue and launch a parallel criminal investigation, further complicating the arbitral proceeding. There may be a tension, for example, between the need to answer questions as part of the arbitral proceeding, and the privilege against self-incrimination in the parallel criminal proceeding.

More troubling still, a parallel criminal proceeding can expose investors to governments’ vast arsenal of investigative tools – a more invasive form of discovery than they would otherwise be exposed to. In the United States, for example, prosecutors can subpoena bank records, execute search warrants, and conduct surveillance – all in secret. And if the criminal investigation reveals new information, the process can become a vicious circle: arbitration leads to a criminal probe, which can in turn reinforce defenses in the arbitration, and even launch new civil actions against the investor, including shareholder securities litigation.

For lawyers, the corruption defense poses unique challenges. Should an investor face a parallel criminal proceeding, the tension between the criminal and arbitral proceedings may be difficult to manage. Asking that the tribunal to consider a comparative fault regime that also holds the state responsible, for example, might be considered a tacit admission in the criminal case that your client engaged in bribery.

Given the distinctive challenges posed by the corruption defense, it is particularly important for potentially at risk investors to ensure that they undertake diligence when evaluating a potential investment arbitration.  The failure to do so may unnecessarily expose an investor to significant collateral risks.

 

References   [ + ]

1. ↑ The High Court of Kenya recently reinforced this decision by setting aside an arbitral award in favor of World Duty Free that, while arising from different grievances on the part of the Kenyan government, was rooted in the same corruption on the part of World Duty Free. 2. ↑ See, e.g., Vladislav Kim v. Republic of Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction, ¶ 377 (Mar.  8, 2017) (“The Tribunal observes that the international community and many nations have placed a high priority on combatting corruption and that it may be the case that the standard of proof is shifting in this area of law.”); compare EDF (Servs.) Ltd. v. Romania, ICSID Case No. ARB/05/13, Award, ¶ 221 (Oct. 8, 2009) (‘The seriousness of the accusation of corruption in the present case, considering that it involves officials at the highest level of the Romanian Government at the time, demands clear and convincing evidence.’) with Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, Award, ¶ 243 (Oct. 4, 2013) (“the Tribunal will determine on the basis of the evidence before it whether corruption has been established with reasonable certainty.”) 3. ↑ See, e.g., Vladislav Kim v. Republic of Uzbekistan, ICSID Case No. ARB/13/6, Decision on Jurisdiction, ¶¶ 548-553 (Mar.  8, 2017) 4. ↑ See, e.g., M, Reeder, State Corruption in ICSID BIT Arbitration: Can it be Estopped?  (March 9, 2017) 5. ↑ See, e.g., Yarik Kryvoi, Bribery, Corruption, and Fraud in Investor-State Disputes: How Should Tribunals Approach Economic Crimes? (Aug. 10, 2018) function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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2018 in Review: Australia and New Zealand

Sun, 2019-01-20 22:02

Esme Shirlow (Assistant Editor for Australia & New Zealand)

Last year was a busy one for arbitration practitioners in Australia and New Zealand, and 2019 looks set to be even busier. In 2018, both countries initiated a range of arbitration reforms, initiatives and negotiations which give insights into the likely general direction of travel for both countries in the coming year. This post focusses upon the practice of these States in respect of investor-State arbitration in particular. It highlights two common themes that have emerged from developments in 2018 which are likely to have a continued impact on the approaches of both countries to investor-State arbitration in 2019.

Is there a Future for Investor-State Dispute Settlement (‘ISDS’) in Australia’s and New Zealand’s Treaties?

Throughout 2018, both Australia and New Zealand confronted questions about the future inclusion of investor-State arbitration in their trade and investment treaties. While New Zealand’s 2018 practice indicates the likelihood of continued opposition to ISDS, Australia’s approach was more mixed, though may stabilise following the 2019 federal election.

An event of key significance for both countries in 2018 was the ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”, or “TPP-11”). Many years in the pipeline, this significant trade pact entered into force on 30 December 2018 for Australia, Canada, Japan, Mexico, New Zealand and Singapore. This followed Australia’s ratification, which brought the number of ratifications to the requisite threshold for the agreement to enter into effect. True to its 2017 announcement that it would seek to “oppose ISDS in any future trade agreements”, New Zealand in early 2018 signed side letters with CPTPP States to either exclude ISDS entirely, or to restrict its application (for example, by subjecting ISDS to specific consent following the failure of other attempts at settlement). While Australia signed a side letter to exclude ISDS between itself and New Zealand, it has agreed to ISDS with all other CPTPP parties. This reflects the Australian government’s continued approach of considering the inclusion of ISDS provisions “on a case-by-case basis in light of the national interest”. While Australia’s opposition party supported Australia’s ratification of the CPTPP, it has nevertheless indicated that it will – if elected in 2019 – “seek to remove ISDS provisions from existing free trade agreements and legislate so that a future Australian government cannot sign an agreement with such provisions”. Depending upon the outcome of the coming federal election, then, Australia’s case-by-case approach may be replaced by opposition akin to New Zealand’s.

Australia and New Zealand also continued negotiations throughout 2018 of the Regional Comprehensive Economic Partnership (“RCEP”). New Zealand hosted one of the 2018 negotiating rounds at which the negotiating States continued negotiations towards an Investment chapter. The RCEP has largely been negotiated in secret, and the Guiding Principles and Objectives do not detail whether or not RCEP States will include ISDS in any future agreement. Early indications are that ISDS may be provided in a reduced form, but it is nonetheless possible that New Zealand and/or Australia will seek to exclude the application of ISDS using an approach similar to that employed by New Zealand in respect of the CPTPP. There are indications, however, that both countries may in any case be asked to withdraw from RCEP negotiations in the future.

In 2018, both Australia and New Zealand initiated negotiations with the European Union (“EU”) towards respective bilateral free trade agreements. The EU has not included the issue of ISDS in its mandate for negotiations due to requirements related to Member State approvals of such provisions. It is possible, nonetheless, that the EU will seek separate agreements in the future to cover such issues. The EU has been a vocal proponent of a multilateral investment court in opposition to the traditional model of investor-State arbitration. To the extent that future bilateral negotiations extend to issues of investment protection, both Australia and New Zealand may need to consider EU proposals to this effect. The coming year (and beyond) is therefore likely to prompt both countries to consider how far their opposition to ISDS extends, and whether it applies only to arbitration or also to the EU’s judicial model.

Can Investor-State Arbitration be Reformed to Address Existing Concerns?

During 2018, Australia and New Zealand also tackled difficult questions related to existing structures of investor-State arbitration. Australia, for example, conducted parliamentary scrutiny processes focussing upon the Peru-Australia free trade agreement and the CPTPP. A range of concerns about ISDS emerged during these processes, including scope for developing appellate mechanisms, codes of ethics, and rules on precedent. The scrutiny process also brought to light challenges associated with Australia’s current (flexible) approach to the negotiation of trade and investment treaties, including its case-by-case negotiation of ISDS provisions. The Joint Standing Committee on Treaties, for example, issued two reports on the Peru-Australia FTA (a first in August 2018, and a second in November 2018). The second committee process was initiated to respond to the opposition party’s concern about potential overlaps between the Peru-Australia FTA and the CPTPP, which it feared would result in a “noodle bowl effect of multiple and overlapping trade agreements”. It also sought consideration of its position that “there is no good reason for ISDS mechanisms at all”.

The government majority in the Committee dismissed these concerns, adopting the position that ISDS mechanisms currently being negotiated by Australia have been accompanied by “improved safeguards”. The majority also dismissed “ongoing concerns over the increasing complexity created by the number of trade agreements, particularly multiple agreements with the same partner”. Noting that Australia already has “multiple existing agreements” with the same partners, the majority endorsed such overlaps as a means for Australia to “achieve greater market access” and to “produce benefits for exporters”. Such overlaps are likely to continue, particularly in a context where Australia is negotiating other multilateral agreements (like the RCEP) with existing multilateral treaty parties. The issues associated with such overlap will be further compounded by the absence of a model treaty (or even a standard approach to ISDS), which might assist Australia to secure a better level of consistency between instruments under negotiation.

In 2018, New Zealand also turned its attention to improvements to existing ISDS frameworks, including a more detailed analysis of how ISDS might impact the rights and interests of indigenous peoples. To this end, New Zealand launched a consultation process to consider the possible development of an “ISDS Protocol” to better fulfil its obligations under the Treaty of Waitangi. The consultation paper proposes consideration, inter alia, of the possibility of appointing a lawyer with expertise on “Treaty of Waitangi issues, te ao Māori, and tikanga Māori” where an ISDS claim is filed against New Zealand. The proposal envisages that such an expert could productively “work as an integral part of the New Zealand government legal team defending the ISDS case”. This initiative mirrors initiatives launched by other countries to make trade and investment agreements more inclusive (including, for example, Canada, which has launched a consultation on trade and gender).

Both Australia and New Zealand have also sought to engage multilaterally with ISDS reform efforts. Australia is, for example, a member of the United Nations Commission on International Trade Law and so has participated in the deliberations of the Commission’s Working Group III on investor-State dispute settlement reform. New Zealand has also participated in the sessions of the Working Group as an observer. In this setting, Australia has emphasised the need for measures to secure greater transparency in investor-State arbitration, public confidence in the independence of arbitrators, and the predictability of arbitral decision-making. These discussions will continue into 2019, giving both countries an opportunity for continued consideration of whether reform to investor-State arbitration is desirable and, if so, what reform might be necessary.

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Recent Investor-State Arbitration Trends in the Middle East: #YoungITATalks in Dubai

Sun, 2019-01-20 03:23

Mayssa Khattar

Young ITA

Young ITA has organised over fifteen successful events this year all over the world including in Sao Paolo, Buenos Aires, Guatemala City, Miami, Washington DC, New York City, London, and India. The first Dubai Young ITA talk took place on Wednesday 5 December 2018. The event hosted by Vinson & Elkins featured two panel discussions with leading arbitration practitioners from all over the Middle East offering their insights on the latest arbitration trends in the region.1) The first panel, chaired by Robert Landicho (Vinson & Elkins, Houston), and composed of Charlotte Bijlani (Watson Farley & Williams, Dubai), Sami Tannous (Freshfields, Dubai), Aseel Barghuti (Eversheds Sutherland, Amman) and Laila El Shentanawi (Al Tamimi & Co, Dubai), focused on recent developments in investment arbitration and inter-State arbitration in the Middle East. The second panel, chaired by Lara Hammoud (Senior Legal Counsel at Abu Dhabi National Oil Company), and composed of Emily Beirne (Vinson & Elkins, Dubai), Sana Belaid (Senior Legal Counsel at Cisco), Dilpreet Dhanoa (Squire Patton Boggs, Abu Dhabi) and Aditya Singh (White & Case, Singapore), focused on the findings of the 2018 QMUL survey in the context of arbitration in the Middle East. While the content and subject-matter of this report stem from the discussions at the #YoungITATalks event, the views and analysis expressed herein are those of the author. jQuery("#footnote_plugin_tooltip_5010_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5010_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Amongst the topics discussed were the impact of the Qatari blockade and the uncertain legislative landscape of Bilateral Investment Treaties (BITs) and Multilateral Investment Treaties (MITs) in the Middle East.

 

Impact of the Qatari Blockade on Investment Arbitration and Inter-State Arbitration in the Middle East

Qatar ratified the 1907 Convention for the pacific settlement of international disputes pursuant to which member states agreed to arbitrate or mediate their inter-state disputes. As such, the blockade against Qatar will inevitably have wide implications on the arbitration scene in the Middle East, in particular taking into account the projects related to the upcoming 2022 FIFA World Cup in Qatar. It is anticipated that commercial claims will arise from difficulties of performing contracts in Qatar, such as force majeure claims in relation to World Cup infrastructure projects. Investment claims are also expected to be filed by Qatari investors against states implementing the blockade. In fact, an international investment arbitration case has already been launched by Qatar’s beIN sports network against the Kingdom of Saudi Arabia contending that it has been unlawfully driven out of the Saudi market. All these recent developments create an interesting landscape that will undoubtedly have an impact on investment arbitration and inter-State arbitration in the region.

 

Uncertain legislative landscape: BITs and MITs in the Middle East

Investor-State disputes in the Middle East have increased from 6% to 14% of ICSID’s current caseload. While there was a debate on whether the Arab Spring had a negative impact on investment arbitration in the Middle East, in practice, recent trends have shown to be positive. For instance, despite having been involved in a large number of ICSID claims, Egypt continues to enter into BITs, diluting any sign of backlash. A backlash would not be sensible as it would compromise the international standing of the relevant countries and affect their credibility before the World Bank.

That said, Middle Eastern countries currently face problems of clarity and precision in the terms of their BITs and MITs which threaten the certain and effective resolution of investment disputes in the Middle East.

By way of example, the dispute resolution clause in the BIT between the UAE and Russia   is unclear as to which administrative body is competent to resolve investment disputes and as to which procedures are referred to in that clause. It is primordial that the legislative landscape of investment treaties be certain enough to avoid legal issues arising from the absence of terms and/or the interpretation of the terms of the investment treaties themselves.

With regards to the terms of MITs, there are two main MITs in the Middle Eastern region:

First, the 1980 Unified Agreement for the Investment of Arab Capital in the Arab States amended in 2013. In practice, this agreement is not often used as an investment claim instrument given (i) the uncertainty as to whether there is an agreement to arbitrate in the first place and (ii) the strict requirements of Arab capital for the agreement to be applicable.

Second and most importantly, the Organization of Islamic Cooperation (OIC) Agreement2) The Organization of Islamic Cooperation (the “OIC”, formerly the Organization of the Islamic Conference) is an intergovernmental organization with a membership of 57 states spread over four continents, describing itself as “the collective voice of the Muslim world”. The OIC agreement has been ratified by 27 states, including Egypt, Saudi Arabia and the United Arab Emirates. jQuery("#footnote_plugin_tooltip_5010_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5010_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); entered into force in 1988. Until recently, investors have only had theoretical access to the guarantees of investment protection set out in that agreement. In 2012, the Hesham Al-Warraq v. the Republic of Indonesia case established, for the first time, the possibility of using the OIC Agreement as an option for investors to bring investment claims. Jurisdiction was recognized under Article 17 of the OIC Agreement to allow investors to take host States to arbitration. The existence of the consent to arbitrate under the OIC Agreement was recently reconfirmed in the 2017 KCI v. Gabon case.

However, a recurring problem that creates a deadlock when arbitrating investment disputes under the OIC Agreement is the lack of fulfilment of the Secretary-General of the OIC of its role as appointing authority when parties fail to agree on the appointment of a tribunal, frustrating the claimants’ attempts to resolve disputes by arbitration.3) According to Article 17.2 b) of the OIC Agreement, if the parties do not agree on the appointment of a tribunal, “either party may request the Secretary General to complete the composition of the Arbitral Tribunal“. jQuery("#footnote_plugin_tooltip_5010_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5010_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This refusal to act and fulfil its role as appointing authority under the OIC Agreement threatens investors’ protection rights under the OIC agreement. In this context, in March 2017, the Secretary-General of the Permanent Court of Arbitration (PCA) appointed an arbitrator on behalf of Libya in the D.S. Construction v. Libya case brought by a UAE-based company under the terms of the OIC Agreement. In its reasoning, the PCA imported the UNCITRAL Arbitration Rules4) 1976 UNCITRAL Rules, Art. 7.2(b); 2010 UNCITRAL Rules, Art. 6(4). jQuery("#footnote_plugin_tooltip_5010_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5010_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); through the Most Favoured Nation (MFN) clause to designate an appointing authority in an arbitration conducted under different rules. By doing so, the PCA did not use the MFN clause to create an agreement to arbitrate but rather to give effect to the existing agreement to arbitrate contained in the OIC Agreement. Had the PCA rejected the Claimant’s application, the Claimant would have been faced by a denial of justice. The PCA’s creative decision is very welcomed and undoubtedly provides legal certainty to investors in the enforceability of investment-protection rights under the OIC Agreement, encouraging greater investment. It remains unknown whether the PCA’s reasoning will lead Libya to eventually attempt to set aside the award once issued.

It should be noted in this context that, in the recent 2018 notice of arbitration filed by beIN Corporation against the Kingdom of Saudi Arabia under the OIC Agreement, beIN immediately relied on Articles 3(4)(a) and 6(1) of the UNCITRAL Rules to request the Secretary-General of the PCA to be the appointing authority for the arbitration. (para. 96) In other words, beIN did not even attempt to apply to the Secretary-General of the OIC to be the appointing authority prior to resorting to the PCA.

More recently, a UAE investor in a joint venture that operated Libya’s largest oil refinery commenced arbitration against Libya under the OIC Agreement. It will be interesting to witness whether, in the absence of an agreement between the parties as to the appointment of a tribunal, the Claimant will once again resort to the Secretary-General of the PCA in the event the Secretary-General of the OIC fails to make a default appointment.

 

The event was sponsored by Vinson & Elkins. Further information on Young ITA can be found here.

 

References   [ + ]

1. ↑ The first panel, chaired by Robert Landicho (Vinson & Elkins, Houston), and composed of Charlotte Bijlani (Watson Farley & Williams, Dubai), Sami Tannous (Freshfields, Dubai), Aseel Barghuti (Eversheds Sutherland, Amman) and Laila El Shentanawi (Al Tamimi & Co, Dubai), focused on recent developments in investment arbitration and inter-State arbitration in the Middle East. The second panel, chaired by Lara Hammoud (Senior Legal Counsel at Abu Dhabi National Oil Company), and composed of Emily Beirne (Vinson & Elkins, Dubai), Sana Belaid (Senior Legal Counsel at Cisco), Dilpreet Dhanoa (Squire Patton Boggs, Abu Dhabi) and Aditya Singh (White & Case, Singapore), focused on the findings of the 2018 QMUL survey in the context of arbitration in the Middle East. While the content and subject-matter of this report stem from the discussions at the #YoungITATalks event, the views and analysis expressed herein are those of the author. 2. ↑ The Organization of Islamic Cooperation (the “OIC”, formerly the Organization of the Islamic Conference) is an intergovernmental organization with a membership of 57 states spread over four continents, describing itself as “the collective voice of the Muslim world”. The OIC agreement has been ratified by 27 states, including Egypt, Saudi Arabia and the United Arab Emirates. 3. ↑ According to Article 17.2 b) of the OIC Agreement, if the parties do not agree on the appointment of a tribunal, “either party may request the Secretary General to complete the composition of the Arbitral Tribunal“. 4. ↑ 1976 UNCITRAL Rules, Art. 7.2(b); 2010 UNCITRAL Rules, Art. 6(4). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Here Comes the Revolution? Here Comes the Revolution! Provisional Measures Under the New Proposed ICSID Arbitration Rules: Where Are We Heading Now?

Fri, 2019-01-18 22:45

Asaf Niemoj

A. Introduction

The ICSID Convention and the corresponding Arbitration Rules contain certain provisions that, apparently, are not uniformly applied by arbitral tribunals. Article 47 of the ICSID Convention can be considered as one of them. In light of the proposal for new ICSID Arbitration Rules, a discussion about the use of provisional measures in the context of ICSID-based arbitration, under Article 47, seems to be timely. This post will look into the wording of Article 47 of the ICSID Convention, the current Rules 39 of the ICSID Arbitration Rules, as well as into the proposed Rule 50 of the new ICSID Arbitration Rules and the relevant commentary in ICSID Working Paper vol. 3.

 

B. Article 47 ICSID Convention – Recommend Means Binding? ICSID Case Law: Yes. Working Paper: No.

The first point which we are to examine is the approach currently adopted by tribunals with regard to the effect of an order for provisional measures versus the approach presented by the ICSID Working Paper. It seems that we can safely state that the approach taken by the Working Paper is no less than a revolutionary one.

Article 47 refers to the use of provisional measures and provides that

Except as the parties otherwise agree, the Tribunal may, if it considers that the circumstances so require, recommend any provisional measures which should be taken to preserve the respective rights of either party.

Article 47 uses the word “recommend”, which seems to indicate that and arbitral tribunal has no power to compel the parties to abide to its ruling. Despite this presumption, the common view is that provisional measures which are rendered pursuant to ICSID Convention are, indeed, binding. One ICSID tribunal noted that:

Despite the wording of the cited provision that indicated that the Tribunal may (only) “recommend” provisional measures, it is well settled among ICSID tribunals that such decisions are binding. Accordingly, the term “recommend” is to be understood as meaning “order” [RSM Production Corporation V Saint Lucia, ICSID Case no. ARB/12/10, August 13 2014]

Contrary to this statement, it appears that the reality is different. In fact, even the RSM Tribunal was split. The minority was of the opinion that the tribunals can only recommend provisional measures. It stated that “entry of an ’order’ simply flies in the face of the explicit direction in both Article 47 and Rule 39 that a tribunal may ‘recommend’ provisional measures” [RSM V Saint Lucia, ICSID Case no. ARB/12/10 Dissenting Opinion of E. Nottingham, August 13 2014].

The proposed ICSID Arbitration Rules try to deal with this issue. The new Rule 50, maintains the same terminology and uses the verb to “recommend”. By doing so the new Rule signals that, unlike the common view adopted by tribunals, provisional measures rendered pursuant to ICSID Convention are not binding. Indeed, the Working Paper clearly states that because the term recommend appears in the Convention it can only be modified through an amendment to the Convention. It also mentions the disagreements between states during the drafting of the ICSID Convention with regard to the consequences of the failure to comply with such a recommendation. It states that “taking into consideration the contentious debates during the drafting of the Convention and the objection of some States to binding provisional measures, the WP does not propose a new provision in this regard”. This shows that the drafters of the new Rules are of the view that an order rendered pursuant to Article 47 is not binding. This seems to be a good start towards more clarity in this area, as it may elucidate this controversial issue.

However, some points should be noted. First, the proposed Rule 50 and the Working Paper overturn the existing case-law and make it clear that provisional measures are not binding. As stated above – this is no less than a revolutionary approach which stands contrary to the approach commonly adopted by many ICSID tribunals. Secondly, although the new Rule and the Working Paper make it clear that provisional measures are not binding, the Working Paper also states that tribunals “remain free to draw inferences from the failure of a party to follow a recommendation for provisional measures”. This comment might still be misinterpreted by tribunals and lead, again, to lack of clarity and inconsistent rulings.

 

C. Article 47 – Security for Cost: So Is It or Is It Not a Type of Provisional Measure? ICSID Case law: Yes. Working Paper: No.

Another interesting point to examine is the approach taken by the proposed Rules towards  security for costs, namely the arbitral tribunal`s ability to order a party, usually the claimant, to guarantee payment of potential future costs he might be ordered to pay to the other side to the dispute. The current set of Rules is silent with regard to the ability to order security for costs. However, tribunals have ruled that they can do so based on Article 47. One tribunal noted that it “agrees with the general proposition that security for costs can be ordered based on Article 47 ICSID Convention and ICSID Arbitration Rule 39” [See RSM v Saint Lucia, para 54]. However, the minority held a different approach. It stated: “I do not think that an order requiring Claimant to secure costs which may be awarded to Respondent is encompassed within the class of `provisional measures` which may `be taken to preserve the rights ` of the Respondent”.

The above demonstrates that although it is not clear whether Article 47 of the ICSID Convention includes the power to order security for costs, in practice tribunals did assume such power (although only rarely used it). The proposed Rules solve the debate by adding a new rule, Rule 51, which is dedicated to the issue, and which makes it clear that under the new regime tribunals are allowed to render orders for security for cost.

However, under the structure of the proposed Rules, it appears that security for costs is not a type of provisional measure, as it is provided for in Rule 51, separated from Rule 50 dealing with provisional measures. It can also be noticed that, unlike proposed Rule 50, Rule 51 on security for costs uses the verb to “order”. This indicates that an order for security for cost is indeed binding. Indeed, the proposed Rule 51 provides arbitral tribunals with the power to sanction a party that refuses to comply with such an order, by suspending or discontinuing the proceedings. Similar sanctions (or any other sort of sanctions) do not exist under proposed Rule 50 in relation to provisional measures. It can also be noted that while the initiative to order provisional measures may be either the parties’ or the tribunal’s, an order for security for cost can only be rendered following a request submitted by one of the parties. Furthermore, the criteria tribunals are asked to apply when considering a request for provisional measures is different from the criteria applied when a request for security for cost is considered. In particular, a tribunal is allowed to recommend provisional measures only if it considers it to be urgent and necessary to do so. This is not required when a tribunal considers a request for security for costs.

 

D. Conclusions

The first conclusion derived from the above analysis is that we may still be facing inconsistent rulings or disagreements, particularly with regards to the effects of provisional measures. In light of the importance of this instrument such outcome is, of course, not desired. Nevertheless, the limitations imposed by the ICSID Convention are inevitable in this context.

The second conclusion is a welcome note for the express provision of the power of an ICSID arbitral tribunal to order security for costs. In the face of the increasing demand for such measures, it is an opportune development in the context of the new ICSID Arbitration Rules.

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UAE as Friendly Hub for Arbitration Again

Fri, 2019-01-18 18:36

Bashar H. Malkawi

Young ICCA

As a development in the arbitration scene and as a bid to attract investment, the UAE modified article 257 of its Penal Code so as to exclude arbitrators from its coverage (Federal Code No. 24 of 2018).

The old version of article 257 of the UAE Penal Code (as had been introduced by Federal Code No. 7 of 2016) read as follows:

Any person who issues a decision, gives an opinion, submits a report, addresses a case or proves an incident for the benefit or against a person, failing to maintain the requirements of integrity and impartiality, in his capacity as an arbitrator, expert, translator or investigator, appointed by administrative or judicial authority or selected by parties, shall be sentenced to temporary imprisonment. Said subjects shall be banned from being re-assigned to such tasks, and shall be subject to the provisions of Article 255 of the present Law.

It was unclear for what purpose this provision had been introduced. After all, every profession listed in the provision has its own law that governs its members’ behaviour and conduct. With respect to arbitrators, the arbitration law would have appeared to be the ordinary place for determining requirements of impartiality and any connected sanctions (cf. article 10.4 of Federal Law No. 6 of 2018 on Arbitration). Criminal law on the other hand would normally determine different types of crimes such as murder, establish criminal procedures, and define applicable punishments. It was unique for the UAE that it addressed the conduct of the members of specific professions such as arbitrators, expert witnesses and translators in the UAE Penal Code, subjecting certain actions of these professionals to prison terms. This was unprecedented.

Although, as far as the author knows, there are no reported cases in the UAE whereby an arbitrator was subject to proceedings under the old Article 257 of the UAE Penal code, many arbitrators were naturally hesitant to arbitrate disputes in the UAE fearing possible retaliations from losing parties. That such fears were not unfounded is shown by a recent case from another Middle Eastern country where arbitrators were criminally prosecuted (Abdullah bin Khalid v Société d’Entreprise et de Gestion). Under the old Article 257 of the UAE Penal Code, either party to an arbitration could claim that the arbitrator in question had not maintained the requirements of “integrity and impartiality”. These terms were not defined by the UAE Penal Code. Is the term “integrity” the same as “impartiality” or is there a difference? The terms were ambiguous. As the UAE Penal Code did not define their meaning, the terms remained open-ended and could have led to frivolous criminal complaints. Moreover, the consequences determined in the law were harsh. Any arbitrator found guilty of violating the standards of “integrity and impartiality” could be sentenced to jail, a penalty reserved for felonies (article 28 of the UAE Penal Code).

Even without this provision there were and are several options available if the impartiality of an arbitrator is in doubt or in fact violated. The arbitrator can be challenged and the arbitration award can be set aside (articles 14.1 and 53.1 (f) of Federal Law No. 6 of 2018 on Arbitration). The arbitrator could also be subject to civil liability. Finally, criminal liability could arise in flagrant cases such as bribery.

Fortunately, the UAE legislator has now acted to address the above concerns by amending article 257 of the UAE Penal Code to read as follows:

Any person who, while acting in the capacity of an expert, translator or investigator appointed by a judicial authority in a civil or criminal case, or appointed by an administrative authority, confirms a matter contrary to what is true and misrepresents that matter while knowing the truth about it, shall be sentenced to imprisonment for a minimum term of a year and a maximum term of five years.

The new version of article 257 UAE Penal Code deletes arbitrators from its coverage altogether, leaving only experts, translators and investigators in its coverage. In addition, the new article 257 of the UAE Penal Code deleted any reference to “integrity and impartiality”. Instead, it describes the penalised behaviour as the act of “…confirm[ing] a matter contrary to what is true and misrepresent[ing] that matter while knowing the truth about it”. This language appears to limit the provision’s application to acts of intentional deceit or fraud. In contrast, the wording of the old article 257 UAE Penal Code could have also penalised a lack of impartiality resulting from an innocent mistake or other unintentional behaviour. It also opened the possibility of criminal liability in case an arbitrator judged whether there was a violation of integrity or impartiality differently than the criminal judges hearing a case. These risks are now mitigated by the new wording of article 257 UAE Penal Code.

In conclusion, the exclusion of arbitrators from the scope of article 257 of the UAE Penal Code and the precise definition of the panelised acts are a welcome step in the right direction to maintain the UAE as a friendly hub for arbitration and foster international confidence in UAE seated arbitration. It allows practitioners and arbitrators to breathe at ease and act in a more predictable environment, knowing that criminal liability under article 257 of the UAE Penal Code is out of question.

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A Teaching Session for the Efficient Management of Technical Evidence in International Arbitration

Thu, 2019-01-17 22:00

Klaus Peter Berger, John Gilbert, Julian Lew, Michael McIlwrath and David Perkins

Experts play a pivotal role in many international arbitrations. Usually, they are there to testify what went wrong. However, their know-how of the subject matter of the arbitration and their technical expertise may also be used to explain what went right. One approach to giving an arbitral tribunal the benefit of such an explanation, when confronted with complex technical questions that extend beyond the members of the tribunal’s own training, is for them to appoint their own expert. This is, of course, permitted by the IBA Rules on the Taking of Evidence and most arbitration rules. Another approach is for the experts retained by the parties to provide that explanation and training directly to the tribunal, so that they do not feel the need for their own expert and are, as a consequence, more capable decision-makers.

The co-authors of this post were the arbitral tribunal and counsel in an LCIA international arbitration that took the latter approach, and which ended in an award issued over three years ago. We write to describe our experience with a so called “teaching session” in that case, and to recommend it for consideration in all cases involving a high quantity of technical evidence.

This was not the first time that some of the co-authors had used or participated in an arbitration where some form of teaching session was adopted. While one of the co-authors first saw it used approximately 20 years ago, we do not know its origin, and are surprised the technique is not employed more frequently, especially in disputes over technology. We are not aware of any formal or published guidelines for it, and therefore offer our own at the conclusion of this post, with apologies if we tread on ground that someone else has already covered.

 

Our arbitration

The arbitration in which we all participated had arisen under an agreement to jointly develop cutting-edge technology in subsea oil and gas extraction. The dispute was over claims of ownership of key design elements, and a patent obtained by one of the parties Almost all of the evidence was technical, consisting of expert reports submitted by each side and ample engineering materials generated by the parties in the course of their contractual relationship.

While relations among counsel were cordial, we cannot understate the importance of the technology and the relevance of the dispute to the businesses represented in the arbitration. This was a bitterly contested dispute that was seen by the clients as critical to their future business.  The parties had specifically appointed arbitrators known for their experience in cases involving technology.

In our arbitration, the arbitral tribunal, with the consent of the parties’ counsel, reserved the morning of the first day of the hearing for a “teaching session” with language similar to the following in its procedural order:

With the consent of the Parties, the Arbitral Tribunal may reserve all or a portion of the first day of the hearing or some other convenient time during the proceedings for an off-the-record (non-transcribed) session with the Parties’ experts and key technical witnesses to understand [______] that is the subject matter of the dispute. This “teaching session” shall not be used to advance or defend any of the requests in the arbitration, but merely to aid the Arbitral Tribunal in its ability to grasp the [technical issues] in dispute. Neither the Parties nor the Tribunal shall refer on the record to the teaching session or statements made therein, whether during the hearing or in subsequent submissions.

 

Should the teaching session be recorded? 

Knowledge of the technical issues was distributed across the parties’ external experts and their internal engineers, and it appeared sensible that both groups should be included in a teaching session if it was to cover all aspects of the technology.

From the perspective of the parties’ counsel: we shared with each other our initial trepidation about the arbitrators engaging in open discussion with our experts and witnesses without having a record of it.

From the perspective of the tribunal: we initially expressed a desire to have the session recorded for our subsequent reference, even if off the record.

In the end, the parties and tribunal agreed simply that none of the session would be transcribed or recorded, and nothing in the session could be quoted or referred to when on the record.  While a complete off-the-record rule was reached as a compromise, we believe it was a main contributor to success.

Free of the constraints and adversarial nature of the subsequent hearing, the atmosphere of our teaching session was collaborative and interactive, more conference room than a hearing room with participants all on the same ground and engaged in a fact-based educational co-presentation rather than one side physically or metaphorically raised above the others.  Since the discussion was not on the record, counsel did not interfere except to offer helpful clarifications, for example by identifying where pertinent documents could be found in the hearing exhibits.

In our case, the parties had provided 3D models and a computer simulation of the technology as exhibits, and the tribunal and experts interacted together with the models. From the view of all concerned, the presence of 3D models at the teaching session was highly useful, facilitating the tribunal’s appreciation of what the design features of the equipment were intended to accomplish, what the equipment looked like, and how it would fit together with other parts of the system.

Each party was given advance notice of the model/simulation to be put forward by the other party to ensure that they were not controversial, and an opportunity to inspect them at the hearing location before the teaching session commenced.

From a practical point of view, a teaching session would have posed a significant challenge for the stenographer if it had been conducted on-the-record. The free-flowing conversation of several people pointing at different parts of 3D objects either would have required a markedly slower pace with formal designations of each speaker or would have resulted in a muddled transcript that failed to capture the discussion.

 

Perspectives on the teaching session

In the eyes of all members of the tribunal and counsel, the first day of the actual hearing was conducted with the proficiency typically seen only at the last day of a hearing, if at all.  Not only did the arbitrators all have a shared, high-level understanding of the disputed technology from day one, but counsel (and experts and witnesses) did not feel obliged to over-explain technical matters.  Little time was needed, and none was lost, in getting to the key technical points in dispute.

From the perspective of the counsel: the hearing that followed was conducted by a hot bench that centered quickly on the most salient technical issues, moved the proceedings quickly, and saved our clients’ money by ending earlier than anticipated. For example, it had originally been suggested that a “hot tubbing” session should be carried out with the two expert witnesses – this was unnecessary because the tribunal had had the opportunity to present their questions that they wanted to be asked to the expert witnesses during their testimony as a result of their improved understanding of the technical issues following the teaching session. We also felt their award could have been written by engineers with a competent grounding in the underlying technical dispute. While counsel could take issue with some of the conclusions reached in the award, there would not be issues relating to a failure to appreciate the disputed technology.

From the perspective of the arbitrators: the teaching session provided the perfect start into the hearing as it allowed us to develop a profound understanding of the complex technology of the subject matter of the dispute and to clarify questions that had arisen during their study of the parties’ briefs early on. For example, the parties had used a particular term in their briefs to describe the way in which the technology was applied. As a result of the dialogue with the experts the arbitrators’ doubts as to the meaning of that term were quickly removed and we understood that behind the use of the term was a fascinating technological concept for the relatively easy maintenance of complex machines.

At the same time, that dialogue at the outset of the hearing and the collaborative atmosphere in which it took place allowed the tribunal members to establish good rapport with the experts and engineers from both sides. That clearly improved the atmosphere during the subsequent, more formal parts of the hearing. The members of the tribunal sensed that the collaboration from the teaching session also further improved the work atmosphere between the experts who had presented a joint expert report at the request of the tribunal.

 

Suggested guidelines for conducting a teaching session

From the authors’ perspective, the types of cases that may benefit from a teaching session are principally technology cases or other cases where there is a large volume of technical evidence, on which the case turns.  A teaching session is likely to be particularly helpful where the technology/technical issue is addressed by factual and expert witnesses.

Based on our experience, we suggest the following guidelines below can help ensure the success of a teaching session.

Who should propose the session?  Either the tribunal or parties can propose a teaching session at any time before the hearing, and may be planned as early as the first procedural order. We have provided a suggested text at the beginning of this post.  We do believe, however, that consent of all parties should be a necessary requirement, as we are skeptical that a teaching session will be successful if one side is an unwilling participant, as it relies on a considerable degree of co-operation and a desire on both side to make it work.

When should it be conducted?  We believe the best time is the outset of the hearing, but do not rule out the possibility of it taking place at any time the tribunal and parties feel it would be most appropriate.

Who should “teach”?  We suggest that cases may differ, and tribunals should ask the parties to propose those they believe are best able to explain the technology to lead the teaching session.  These may be engineering witnesses who have considerable experience with the disputed technology, employees with technical backgrounds who are not witnesses, or the parties’ external experts. In our arbitration, the parties’ engineers, who were later witnesses in the case, participated in the teaching session, and all concerned felt this was enhanced the process and the tribunal’s understanding of the technology.  It will often be the case that the parties’ own engineers are the “real experts, with the deepest understanding of a particular technology and ability to explain it.

– “Off the record,” i.e., no transcript. We recommend parties and tribunals consider the impact that recording or memorializing the teaching session may have on the open collaboration between experts and tribunal (and the willingness of counsel to accede to this) and also the logistical challenges this can present. The teaching session is effective because it is conversational, and in conversation people often speak with imprecision as they try to best communicate their ideas. The purpose of the teaching session, after all, is to help the tribunal get up to speed on the disputed technical issues, not to win the case. Being off the record also allows the parties’ counsel to relax, and not rigorously supervise the experts and witnesses.  In our case, the counsel may well have not consented to the teaching session taking place as it did, had the tribunal insisted on it being recorded.  Further, because the teaching session is a collaborative process, obtaining a clean transcript may pose significant challenges, especially where the tribunal and experts interact together around exhibits.1) The authors are not unanimous in their view that, on balance, it is generally better not to record the teaching session. One of the arbitrators has found recording the tribunal’s interaction with the experts to be helpful later in the case. jQuery("#footnote_plugin_tooltip_1188_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1188_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

– Staying off the record.  What is said in the teaching session, should stay in the teaching session.  Because the teaching session is so effective in providing a common understanding of the technology, counsel and the members of the tribunal may be tempted to refer back to what was explained informally. Thus, both counsel and tribunal should be alert to any reference to what was “illustrated during the teaching session”.

– No pleading. The tribunal should emphasize that no party may use the session to plead its case.  The purpose of the session should be purely for purposes of the arbitrators on the technology in dispute, and counsel’s involvement should be mainly hands-off.

 

To conclude, we believe that teaching sessions, when conducted with the consent and active involvement of the parties, can be a very effective means of making an arbitral hearing more efficient and lead to higher-quality awards by tribunals that have a better understanding of the disputed technical issues.

References   [ + ]

1. ↑ The authors are not unanimous in their view that, on balance, it is generally better not to record the teaching session. One of the arbitrators has found recording the tribunal’s interaction with the experts to be helpful later in the case. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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2018 In Review: A Tug of War for International Arbitration in Africa

Wed, 2019-01-16 22:57

Sadaff Habib (Assistant Editor for Africa)

The year of 2018 has seen arbitration as a dispute resolution forum in the resource rich continent of Africa pendulum between boosting countries in the region as a seat of arbitration and reinforcing court sovereignty in disputes.

The year began with optimism in the wake of the OHADA reforms. In late 2017, the Organization for the Harmonization of Business Law in Africa (OHADA) (a group of 17 African countries geared towards unifying business laws to boost investment) enacted the Uniform Mediation Act, the Uniform Arbitration Act (UAA) and Arbitration Rules for the CCJA, all of which were introduced with the intention of attracting investors and boosting confidence in OHADA seated arbitrations. These reforms made important changes to the arbitration landscape. For example, the UAA, expanded the scope of the Act such that,

  • in addition to States, public establishments and local governments any local entity governed by public law can be a party to arbitration; and
  • arbitration can be initiated on the basis of an arbitration agreement or an investment related instrument including an investment code or a bilateral or multilateral investment treaty.

Moreover, under the UAA, parties may expressly waive the right to file an application to set aside an award (except where this may be counter to international public policy as defined in the Act). Alongside French law, this makes it one of the rare texts that allows such waiver. Further the new CCJA Rules addressed concerns that arose in the infamous Getma v Guinea case where the award was set aside on the premise that the fee agreed between the tribunal and the parties was in violation of the CCJA Rules. The Rules now clarify that any fixing of fees without the CCJA’s approval is null and void but is not a ground to set aside an award.

Following the ‘Belt and Road Initiative’ other positive developments in the region have been the establishment of the China Africa Joint Arbitration Centre (CAJAC). The CAJAC is set up to provide a neutral and cost-effective mechanism for resolving commercial disputes that involve Chinese and African parties. As Deline Beukes, the CEO of the CAJAC Johannesburg comments “The purpose of the creation of CAJAC is to address China-Africa disputes as an integral part of the Belt and Road interaction. This implies the harmonization of China and Africa business practice, centralized norms and arbitral systems and requires a cadre of arbitrators familiar with the cultural norms and practices of China and Africa who will build together a shared jurisprudence. This is a unique purpose and it is anticipated that African and Chinese investors will benefit from the use of such an institution.”

Other positive developments include Nigeria’s Arbitration and Conciliation Act (Repeal and Re-enactment) Bill (the Bill) which is yet to come into force. Some key provisions of the Bill include:

  • an arbitration agreement can be concluded by electronic communication;
  • an implied provision on the recognition of third party funding in arbitration; and,
  • a guarantee of the power of arbitrators to grant interim measures of protection.

Whilst on the one hand the above developments encourage the use of African countries as a seat of arbitration and development of their reputation as “arbitration friendly” jurisdictions, on the other hand some African countries have taken a step in the opposite direction.

In May 2018, the Supreme Court of Ethiopia in the National Minerals case ruled that notwithstanding the parties’ agreement to waive their right of appeal on the final award, the Supreme Court has jurisdiction to review the arbitral award on fundamental errors of law. This was in direct contrast to the Supreme Court’s ruling in National Motors Corp. v. General Business Development case where the Court recognized and upheld the parties’ final intention to be bound by an arbitration award and ruled that such an arbitral award would not be subject to review by courts, including the cassation bench. Shortly after the National Minerals case, the Supreme Court annulled a Euro 20 million award issued in favour of Italian contractor Consta JV in an arbitration case against  CDE (a joint enterprise between the Ethiopian and Djibouti government).

Another key development which changed the shape of international arbitration in East Africa is Tanzania’s Public Private Partnership (Amendment) Act which came into force in September this year. Under Section 22 of the Act any dispute arising during the course of the PPP agreement shall in case of mediation or arbitration be adjudicated by judicial bodies or other organs established in Tanzania and in accordance with its laws.International arbitration is no longer permitted in PPP Agreements particularly those projects relating to natural resources.

There appears to be a disharmony in the pattern of international arbitration in the Africa region and whilst some developments have caused positive excitement in the international arbitration community others have given a cause for concern and will likely deter investors from entering into arbitration agreements or even from investing in the particular country in the first place. It remains to be seen how the above developments will fair with the passage of time.

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2018 In Review: The Achmea Decision and Its Reverberations in the World of Arbitration

Tue, 2019-01-15 22:53

Deyan Dragiev (Assistant Editor for Europe)

Very rarely would a single arbitration-related decision produce as significant an impact as the judgment of the Court of Justice of European Union (“EU” and “CJEU” respectively) in the Achmea case did during 2018. We should not doubt that Achmea will remain a cornerstone issue in the world of arbitration for a long period of time. This post attempt to summarize the Achmea debate thus far.

What the CJEU Reasoned in Achmea?

The CJEU succinctly ruled on a number of issues that were important for the supremacy of EU law and, indirectly, the role of EU institutions. The investment treaty arbitration system (“ITA”) had long been, if not rejected, at least not heartily welcomed by the EU. The clash could have been foreseen and cracks appeared long ago before Achmea, especially in the context of the Micula case against Romania. So, an Achmea judgment was something inevitable – it had to come to the scene.

However, the actual decision did not say much. It approached the issue of clash/overlap between ITA and EU law from the standpoint of EU law. In para 33, the CJEU reiterated the autonomy and supremacy of EU law. In para 34, the CJEU stressed the mutual trust between EU Member States. In para 42, the CJEU considered that an arbitral tribunal may have to apply EU law to questions such as freedoms provided in the Treaty on the Functioning of the European Union. According to para 54, the outcome of commercial arbitration may be subject to review by Member State courts for the purpose of enforcement. In para 56-58, the CJEU reasoned that the effectiveness of EU law may be undermined as EU-related disputes are referred to bodies that are outside the EU jurisdiction. Hence, concluded the Court, the Netherlands-Slovakia BIT in particular, is not compatible with EU law.

What Achmea Was Silent About?

The CJEU did not usher a word regarding the Vienna Convention on the Law of Treaties (“VCLT”), although it is the international treaty governing the conclusion, interpretation, validity and invalidity of treaties. Neither did it mention the New York Convention, although it is the treaty governing the Achmea judgment. This left a number of questions unanswered.

Firstly, if EU law precludes ITA, what happens with the ITA itself, i.e., does it make it invalid altogether? However, the invalidity of international treaties is regulated by the VCLT, yet, the CJEU did not refer to it. Moreover, if EU law precludes ISDS, what happens with the arbitration clause? How should it be treated in the course of attempted enforcement or setting aside of the arbitral award – as invalid? On what grounds of invalidity?

The next line of questions concerns the scope of the Achmea decision. What is the ambit of Achmea, i.e., does it encompass all ITA, or should it be read only strictu sensu regarding the particular dispute under the Netherlands-Slovakia BIT? Does Achmea refer to all BITs, if it is read expansively, or should be even wider and encapsulate also multilateral agreements such as the Energy Charter Treaty (“ECT”), which is the basis for a significant number of arbitration proceedings? How does Achmea sit with ICSID arbitration, as the ICSID system is based on a multilateral treaty? Should there be any difference between an EU-seated tribunal that is bound by the CJEU and EU law, and a non-EU-seated one? In other words, how far does the Achmea go – from being a specific and idiosyncratic ruling to a global condemnation on ITA in the way it currently is?

The questions posed would in effect delimit the perimeter of Achmea – and its ultimate significance. As these questions were not answered by the CJEU, we can expect that the answers will be given by other stake-holders in the near future: states, EU Member States, institutions like ICSID, EU institutions, national courts of EU Member States and non-EU Member States alike, investors, and others. These questions are the tidal wave, and the reality of investor-State relations and disputes is the shoreline this wave has been hitting since Achmea appeared on the stage.

Achmea’s Aftermath: Tribunals and National Courts about Achmea

Achmea has already been interpreted and reflected upon by a number of stakeholders.

Firstly, the ITA tribunals.

In Masdar Solar v. Spain (ICSID Case No. ARB/14/1), the tribunal considered that Achmea decision is merely silent on the relevance of ECT. It can be inferred that the tribunal deemed Achmea not applicable to multilateral agreements like ECT.

Another tribunal, in UP and C.D Holding Internationale v. Hungary (ICSID Case No. ARB/13/35) where a BIT is applicable, considered that Achmea cannot excuse non-compliance with public international law. It can be inferred that the tribunal reasoned that issues of EU law should not stand against treaty obligations of States and an ITA tribunal applies the particular treaty at hand, without regard of other legal regimes such as EU law.

The most comprehensive ruling of an ITA tribunal thus far is in the Vattenfall v. Germany (ICSID Case No. ARB/12/12) case. First, the tribunal rejected application of Art. 31 of VCLT as the tribunal accepted that EU law is not part of general international law and cannot constitute principles applicable as between the parties. The tribunal’s primary purpose was that the treaty at hand is applied without reading into it other laws/agreements/international obligations. Moreover, the ECT could even be assumed as a later concluded treaty (lex posterior) or a special regime (lex specilis). On whichever of these grounds, the tribunal unflaggingly assumed that the Achmea decision is not relevant to ECT-based cases. Moreover, Art. 16 of the ECT should be directly applied to preclude the relevance of other international agreements/obligations. Further, the more favourable regime to an investor is the ECT in terms of dispute resolution, so the tribunal accepted EU law should not be overriding the ECT.

However, the EU Commission took a different view. In its 19 July 2018 Communication, the Commission not only cited the Achmea judgment, but took the position that it should be extended to multilateral agreements such as the Energy Charter Treaty: “The Achmea judgment is also relevant for the investor-State arbitration mechanism established in Article 26 of the Energy Charter Treaty as regards intra-EU relations. This provision, if interpreted correctly, does not provide for an investor-State arbitration clause applicable between investors from a Member States of the EU and another Member States of the EU. Given the primacy of Union law, that clause, if interpreted as applying intra-EU, is incompatible with EU primary law and thus inapplicable. Indeed, the reasoning of the Court in Achmea applies equally to the intra-EU application of such a clause which, just like the clauses of intra-EU BITs, opens the possibility of submitting those disputes to a body which is not part of the judicial system of the EU. The fact that the EU is also a party to the Energy Charter Treaty does not affect this conclusion: the participation of the EU in that Treaty has only created rights and obligations between the EU and third countries and has not affected the relations between the EU Member States.”

Finally, it is worth mentioning that a number of national courts reviewed Achmea thus far.

The German court reviewing the application for setting aside of the Achmea award took CJEU’s words verbatim and set aside the Achmea award. The German court accepted that EU law precludes arbitration and the tribunal seated in Germany did not have jurisdiction to render award. The EU obligations did obstruct Slovakia to provide relevant consent for validity of arbitration.

The issue remains in flux: Currently, a plea to this extent is pending in two courts – in Sweden, and in New York. In the context of an action to set aside the award under the Novenergia v Spain award in Swedish courts, Spain requested that the court seeks preliminary ruling from the CJEU with focus on ECT. The same award is also resisted in US courts, as in the court of District of Columbia Spain has put forward Achmea opposition as well.

Where Do We Go from Here?

Achmea has two potential outcomes – either to dramatically change the world of ITA, or to have very limited impact and gradually fade away. It seems that Achmea is and will be an important factor in the world of arbitration. Arbitral tribunals apparently struggle to restrict its significance and find a way to pass it by. However, the Achmea decision is the flag that the EU Commission needed to reinvigorate its campaign against intra-EU ITA. The EU Commission is currently very active to request participation in pending ITA cases and the Commission, along with states, raises Achmea-based challenge to the jurisdiction of arbitral tribunals. The matter had reached national courts, too – inside and outside the EU. Hence, Achmea reminds us once more of the ancient curse of living in interesting times.

 

 

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Can’t Knock the Hustle … [To Broaden Diversity in Arbitration]

Mon, 2019-01-14 22:31

Rekha Rangachari

Young ICCA

Begin at the Beginning

On November 28, Rapper Jay-Z filed a petition in Manhattan Supreme Court pertaining to an ongoing arbitration administered by the AAA-ICDR.  He sought (i) a temporary restraining order to halt Iconix from pursuing claims in arbitration; (ii) a preliminary injunction staying arbitration for a period of ninety days for the parties to find suitable African-American arbitrator candidates; and (iii) a permanent stay of the arbitration.

A flurry of press reported on the matter, of arbitration under fire.  On November 30, Judge Scarpulla, sitting in for Judge Ostrager, ordered the proceedings on hold until December 11, when Judge Ostrager could conference with the parties.

According to the Petition filed by Counsel for Jay-Z, the AAA-ICDR did not “ensure a diverse slate of arbitrators” on a preliminary arbitrator selection list (NYSCEF Doc. No. 1 – Petition ¶7).  Ironically, at Exhibit 4 of the Petition, the list of 12 arbitrator candidates includes diversity on several fronts.  However, the particularity of Jay-Z’s petition is rather curious – the ask was not a battle cry for diversity generally but rather for the inclusion specifically of male African-American candidates, of whom there were two on the list (and one African-American female).  Even more curious in light of his argument is that Jay-Z’s legal representation includes no African-American lawyers.

The Transcript of the proceedings on November 28 begins with Judge Scarpulla’s reminder of the supremacy of party autonomy in arbitration:

You voluntarily choose AAA, you know what AAA has … why are you alleging now something that you chose, that you’ve agreed to, and now you’re dissatisfied because you think that African-American arbitrators are somehow going to decide a commercial dispute differently than Asian-Americans, than women, than gay arbitrators, than all of the other protected classes?  What is that about? (NYSCEF Doc. No. 18 – Transcript 5: 16 – 23).

On November 30, Counsel for Iconix replied and discussed Opposing Counsel’s delay tactics within its Affirmation, “After business hours on the Strike List Deadline, the Carter Parties contacted the AAA ex parte to complain, for the first time, that they “could not identify a single arbitrator of color with suitable experience” (NYSCEF Doc. No. 28 – Affirmation of C. Flanders ¶16).  If diversity of the nature desired and described by Counsel for Jay-Z was indeed paramount, it begs the question why it was not raised on the October 31 administrative conference call or prior to the November 12 deadline to select an arbitrator.

On December 6, the AAA-ICDR sent a Letter to the parties responding to their queries, confirming that metrics on race and ethnicity are provided at the discretion and self-identification of the arbitrator, with “priority to identify and recruit diverse candidates” and optionality for parties to mutually agree and select party-appointed arbitrators that fit “particular expertise and backgrounds” (NYSCEF Doc. Nos. 31, 50 – Letter pp. 1, 2).  Of note, 89 of 152 candidates, or 58.5%, self-identified as African-American and “were appointed to a case in 2017” (Id. at 4).

On December 7, Counsel for Iconix filed its Memorandum of Law in Opposition, arguing that:

The implicit premise behind the Carter Parties’ race theory is that an arbitrator who shares the same race as a litigant … is inherently less likely to be biased toward that litigant; while arbitrators of different racial background are prone to inherent bias. This is a patently false presumption … By analogy, the race or ethnicity of a presiding judge is not the basis for recusal (NYSCEF Doc. No. 47 – Memorandum of Law in Opposition p. 20).

On December 9, Counsel for Jay-Z filed a Letter with Judge Ostrager withdrawing their motion to enjoin the arbitration, and noting in the opening paragraph:

Following the filing of the Petition in this action, the American Arbitration Association (“AAA”) has committed to work with Petitioners to identify and make available African-American arbitrators … (NYSCEF Doc. No. 50 – Letter p. 1).

AAA-ICDR’s commitment to diversity arguably did not change in the 11 days elapsed between November 28 and December 9.  Notwithstanding, perhaps something did change in Counsel for Jay-Z’s attitude and posturing of the case, and even the cognition that arbitration was the previously selected and more appropriate forum for the dispute rather than a public showdown (with public access to all filings referenced repeatedly in this blog).

This unfinished story hits at the crux of working definitions of diversity and unconscious bias.  Put a different way, are clients of arbitration modifying the system from alternative dispute resolution to alternative diversity resolution?

The issue of diversity or lack thereof is a collective action problem.  While much pressure has been placed on arbitral institutions in ensuing years, it is a shared burden amongst all practitioners.  As preliminary considerations, how do we define diversity?  How are metrics culled within the community to identity diversity?  How do we reply to examples like Rachel Dolezal, the white woman who posed as black?  And then, what of the pool who abstain from designation?

 

Empire State of Mind: There’s Nothing You Can’t Do

Most arbitral institutions have implemented diversity initiatives to respond to the perceived gaps within the arbitrator pool.  This is a starting point.  A snapshot of these innovations is provided from an institution operating within Jay-Z’s Empire State and under fire by Jay-Z, the AAA-ICDR, their Mission and Vision Statement demonstrating a “shared commitment” to diversity with arbitrator lists “that comprise at least 20% diverse panelists where party qualifications are met” (AAA-ICDR Roster Diversity & Inclusion).  For example, “87% of lists sent to parties [in 2017] met that goal” (NYSCEF Doc. Nos. 31, 50 – Letter p. 4).  The list provided by the AAA-ICDR to the afore-mentioned parties included 7 of 12 arbitrator candidates from diverse categories of gender, race, ethnicity, and sexual orientation, or 58%.  This does not consider other diversity categories including social background, age, religious beliefs, and other ideologies, necessarily increasing the diversity percentage.  Separate from this, the AAA-ICDR spearheads the Higginbotham Fellows Program, a reason for which the AAA-ICDR was honored in 2015 by the NYLJ’s Diversity Initiative Project.  The AAA-ICDR also created a Foundation to address funding needs on projects increasing access to alternative dispute resolution.

The AAA-ICDR is one amongst many in New York advancing diversity thought leadership, including: the ICC and its North America Office, SICANA (focused on gender parity and a recent cultural diversity initiative with ICC interns); the CPR (issuing an annual Diversity Award and offering a Young Lawyer Rule and Diversity Statement; JAMS (offering a Diversity Inclusion Rider) and FINRA (hosting an annual Diversity Summit).  These institutions embrace transparency, disclosing available statistics and creating pipeline initiatives.  Admittedly, this is only a small snapshot of the hard work advanced by leading arbitral institutions in the global marketplace.

The larger arbitral community must also buttress the case for diversity and encourage apt candidates.  Distinct from the arbitral institutions, many affinity groups have suggested solutions to address diversity in the practice.  One example tethered to the Empire State was the inaugural launch of the ArbitralWomen DiversityToolkit ™ on November 8, in commemoration of ArbitralWomen’s jubilee celebration of 25 years bringing together global women of dispute resolution.  The Toolkit is noteworthy in defining a training module whereby trainers lead participants through various exercises to recognize the moral, equal access, and business case for diversity, problem solve in dialogue, and brainstorm ideas for critical change.  Of special mention, a headline supporter of the Toolkit was the Equal Representation in Arbitration (ERA) Pledge, launched in 2015 in recognition of the under-representation of women on international arbitral tribunals and also offering an Arbitrator Search platform from the databases of leading arbitral groups.  As of December 7, there are 3,250 organization and individual signatories, numerically demonstrative that our system is dynamic and constantly improving from the inside.

 

Where Do We Go from Here?

The Jay-Z arbitration headlines created undue hysteria.  Now, in the aftermath, the arbitration community must come together thoughtfully and productively in response, to change the rules of the game.  The lack of diversity falls on global communities, to recharge and reinvigorate for market demands.  Gender parity is one case for diversity gaining momentum, but what of the other diversity categories that also need support and community leadership to flourish?

International lawyer Gary Born aptly noted during his 2018 Freshfields Lecture that “the ending [to arbitration] hasn’t been written yet – it depends on us; it depends on you.”  This applies equally to the state of diversity in arbitration and the perpetual query: are we getting there?  Does our system improve diversity at a sufficient rate across fluid categories each quarter, each year, each decade?  Our ending is far from being written, as new law graduates join the practice and redefine how we look at education, the law, and representation.  A famous quote of Jay-Z’s parlays opportunely here, as a reminder to be “hungry for knowledge.  The whole thing is to learn every day, to get brighter and brighter.”  With the calls for change growing ever louder, learn we will, and change we will enact, together.

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Belt and Road Initiative: Joint Interpretation Mechanism in Investment Agreements

Mon, 2019-01-14 21:00

Yang Xinglong

In 2013, China proposed to jointly build the “Belt and Road” Initiative. While the international investment agreements (“IIAs”) proposed to be concluded with China and its counterparties along the “Belt and Road” will provide a robust source of potential investor protections, they must be easily understood among investors, states, and international tribunals.

IIAs, as the products of compromise between or among states, will likely contain vague and ambiguous provisions. In order to limit tribunals’ otherwise broad discretion over treaty interpretation and ensure the treaty texts best reflect the states’ intent, states may choose to incorporate a binding joint interpretation mechanism into the treaty texts. Although the words describing the mechanism under different IIAs may differ, such mechanism typically entrusts an organ or the states themselves with the explicit power to issue binding interpretative statements on contentious provisions.

For the last decade, China has increasingly adopted a joint interpretation mechanism in the new generation of IIAs. Currently, at least six Chinese IIAs, namely the treaties concluded with Canada, Australia, Uzbekistan, Cuba, New Zealand, and Tanzania, have officially adopted the mechanism aiming to strike a better balance between the interpretative right between contracting states and tribunals.

However due to the insufficient practice in China on the issuance of joint interpretation statements in investment arbitration, China may rush into concluding IIAs containing template joint interpretation provisions with little consideration of the following factors:

1. Entrusting a Specific Organ with Authority to Issue Joint Interpretation

Among the above six IIAs stated above, only the China-Australia FTA1)Adopted November 2014, entered into force 20 December 2015, accessed 20 Oct 2018. jQuery("#footnote_plugin_tooltip_7878_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7878_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); has set up an organ, the Committee on Investment (“CI”), to be entrusted with the authority to issue a joint decision declaring its interpretation of a provision of the FTA pursuant to Article 9.7.3(b). The joint decision shall be binding on a tribunal of any ongoing or subsequent disputes. However, the other five Chinese IIAs containing joint interpretation provisions do not designate a specific organ to be responsible for issuing interpretative statements.

Reaching a common understanding on contentious provisions would be difficult because states might not always aware of how their IIAs practice aligns with that of other states, and may not know the issues of international investment law on which they agree or disagree.2)Geoffrey Gertz and Taylor St John, “State Interpretation of Investment Treaties: Feasible Strategies for Developing Countries” (2015) GEG & BSG Policy Brief, 4. jQuery("#footnote_plugin_tooltip_7878_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7878_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the absence of a prior designated organ to issue joint interpretation decisions, states tend to reach their joint decision only in the circumstances of potential acrimonious negotiations or arbitrations.3)Xinglong Yang, “Implementation of the Joint Interpretation Mechanism under the ASEAN Comprehensive Investment Agreement: Obstacles and Pragmatic Steps for the ASEAN” (2018) 11(1) Contemp. Asia. Arb. J, 130. jQuery("#footnote_plugin_tooltip_7878_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7878_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In addition, if a tribunal requests China and its counterparties to reach a joint decision on contentious provisions, the states are bound to plan meetings or send visiting delegations. There can be heavy costs involved. Also IIAs normally provide a fixed period of time for states to issue joint decisions. This can vary from 60 days to 90 days. Even though the fixed period of time aims to ensure the efficiency of arbitral proceedings, it can be difficult in practice to spur states’ bureaucracies into action to reach a joint statement within the time period.

Confronted with the above obstacles, it is important for China and its counterparties to designate an organ to be entrusted with the authority to issue joint interpretation statements in their upcoming IIAs. The designated organ should comprise senior government officials and investment law experts. The organ, with the assistance of academics and non-governmental organizations dealing with investment laws, should aim to “compile evidence of which states have asserted similar legal arguments in arbitration hearings, identifying commonalities across states and groups of states which may form the basis for joint interpretative statements.”4)Gertz (n 4) 5. jQuery("#footnote_plugin_tooltip_7878_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7878_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Hence, through the assistance of the organ, a joint statement may be produced to guide the tribunal on the determination of the meaning to a contentious provision without delay.

2. Distinguishing the Nature of Joint Understanding on Contentious Provision

An interpretation statement clarifies the meaning of unclear provisions or what the norm has always been, so a true interpretation has retroactive effect in examining conduct of the state after IIA has entered into force. On the contrary, an amendment, as an agreed modification to the original IIA, creates new norms and thus has no retroactive effect to previous conduct of the state.5)Eleni Methymaki and Antonios Tzanakopoulos, “Master or Puppets? Reassertion of Control Through Joint Investment Treaty Interpretation” (2016) Oxford Studies Research Paper 10, 22. jQuery("#footnote_plugin_tooltip_7878_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7878_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In particular, when a joint interpretation statement is issued at the time when an investment case is pending, the nature of the joint statement may be disputed, namely whether the statement is a true interpretation or a disguised amendment of the IIA. This is so even if an IIA stated that a joint interpretation statement should bind tribunals of ongoing and subsequent cases as the previous practices of the NAFTA arbitrations show.

When the Pope & Talbot Inc. v. Canada (“Pope & Talbot”) arbitration6)Pope & Talbot Inc. v. Government of Canada (“Pope & Talbot”), UNCITRAL (NAFTA), Award in Respect of Damages, accessed 15 October 2018. jQuery("#footnote_plugin_tooltip_7878_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7878_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); was ongoing, the Free Trade Commission (“FTC”) of the NAFTA, on July 31, 2001, jointly issued the Notes of Interpretation of Certain Chapter Provisions (“the Notes”),7)Adopted on 31 July 2001, accessed 20 Oct 2018. jQuery("#footnote_plugin_tooltip_7878_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7878_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); aiming to present the three contracting states’ joint understanding on the minimum standard of treatment of Article 1105.

Notwithstanding the Notes, the tribunal ruled that Article 1131 (1) of the NAFTA granted the tribunal the right to decide the issues in dispute in accordance with the NAFTA and applicable rules of international law. Therefore, the tribunal had a duty to consider and decide that question and not simply accept that whatever the FTC stated to be the true interpretation. In the final award, the tribunal held that the Notes were an amendment to the NAFTA, but did not analyse the binding effect of the Notes because it found that the conclusion reached in the partial award would stand even if the interpretation contained in the Notes was accepted.8)Pope & Talbot, para 47. (For the reasons, were the Tribunal required to make a determination whether the Commission’s action is an interpretation or an amendment, it would choose the latter. However, for the reasons discussed below, this determination is not required. Accordingly, the Tribunal has proceeded on the basis that the Commission’s action was an “interpretation””) jQuery("#footnote_plugin_tooltip_7878_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7878_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

To take into consideration the possibility of tribunals following the Pope & Talbot ruling, China and its counterparties need to expressly clarify in the treaty that it is within the states’ power to determine conclusively in the nature of a joint statement, the binding interpretation of a particular provision. The states also need to provide for the designated organ to have the power to debate and decide on the contents of the joint statement. When the organ holds that the joint statement aims to clarify the possible meanings that fall within the interpretative radius of a norm, both pending and subsequent tribunals should be strictly bound by the joint decision. On the contrary, if the understanding is in effect a modification to the treaty, the designated organ, on behalf of the contracting states, may decide the joint statement shall have binding effect from a specific date.

Such practice aims to serve two goals. Firstly, it will avoid a disguised amendment to have binding effect on tribunals of pending cases. In addition, a joint statement reflects the common understandings of all contracting states on any key issues which have not been addressed before or have been brought into public spotlight recently, so issuing the statement aims to regulate states’ subsequent behaviours, which will contribute to the consistency of treaty interpretation by subsequent tribunals.

3. Protecting States’ Legitimate and Non-discriminatory Public Welfare Regulation

As pointed out by an earlier blog, “Rebalancing the Asymmetric Nature of International Investment Agreements?”, the last decade has witnessed the growing debate regarding one of the key asymmetric natures of IIA. It is claimed that IIAs impose a number of obligations on the states, but do not seem to hold investors accountable for the social, environmental and economic consequences of their investment activities.

Faced with the concern, one attempt to protect states’ legitimate and non-discriminatory public welfare regulation from investor-state claims is to provide “an innovative feature that goes beyond existing safeguards for protecting the regulatory autonomy of states by providing a mechanism for joint treaty party control.”9)Anthea Roberts and Richard Braddok, “Protecting Public Welfare Regulation through Joint Treaty Party Contorl: a ChAFTA Innovation.” (REGNET, 24 June 2016), accessed 15 Oct 2018. jQuery("#footnote_plugin_tooltip_7878_9").tooltip({ tip: "#footnote_plugin_tooltip_text_7878_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Such innovation has been incorporated into the China-Australia FTA.

Pursuant to Article 9.11.4 of the China-Australia FTA, a measure of a contracting state is non-discriminatory and for the legitimate public welfare objectives of public health, safety, the environment, public morals or public order shall not be the subject of a claim under the FTA. A respondent state, within 30 days of the date on which it receives a request for consultation made by an investor, should deliver the investor and the non-disputing state a “public welfare notice” clarifying that it considers a measure alleged to be in breach of an obligation set out in the FTA is of kind described as “Public Welfare”. Upon receiving the notice, both states should carry out a negotiation in a timely manner. During the negotiation, the dispute resolution procedure will be automatically suspended. Any joint statement reached by China and Australia will have binding effect on the tribunal.

It is suggested that this feature be adopted by China in negotiating IIAs with its counterparties along the “Belt and Road”. The innovative approach would serve as a strong safeguard for China and its counterparties to regain their control over regulatory autonomy in the future.

References   [ + ]

1. ↑ Adopted November 2014, entered into force 20 December 2015, accessed 20 Oct 2018. 2. ↑ Geoffrey Gertz and Taylor St John, “State Interpretation of Investment Treaties: Feasible Strategies for Developing Countries” (2015) GEG & BSG Policy Brief, 4. 3. ↑ Xinglong Yang, “Implementation of the Joint Interpretation Mechanism under the ASEAN Comprehensive Investment Agreement: Obstacles and Pragmatic Steps for the ASEAN” (2018) 11(1) Contemp. Asia. Arb. J, 130. 4. ↑ Gertz (n 4) 5. 5. ↑ Eleni Methymaki and Antonios Tzanakopoulos, “Master or Puppets? Reassertion of Control Through Joint Investment Treaty Interpretation” (2016) Oxford Studies Research Paper 10, 22. 6. ↑ Pope & Talbot Inc. v. Government of Canada (“Pope & Talbot”), UNCITRAL (NAFTA), Award in Respect of Damages, accessed 15 October 2018. 7. ↑ Adopted on 31 July 2001, accessed 20 Oct 2018. 8. ↑ Pope & Talbot, para 47. (For the reasons, were the Tribunal required to make a determination whether the Commission’s action is an interpretation or an amendment, it would choose the latter. However, for the reasons discussed below, this determination is not required. Accordingly, the Tribunal has proceeded on the basis that the Commission’s action was an “interpretation””) 9. ↑ Anthea Roberts and Richard Braddok, “Protecting Public Welfare Regulation through Joint Treaty Party Contorl: a ChAFTA Innovation.” (REGNET, 24 June 2016), accessed 15 Oct 2018. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Does Final Mean Final? Arbitrators Can “Clarify” Award, Second Circuit Holds

Mon, 2019-01-14 07:00

Lucas Bento and Michael Carlinsky

One of the main benefits of arbitrating a dispute is obtaining a final binding award.  A number of principles work to promote this fundamental building block of the arbitration ecosystem. For example, the functus officio doctrine dictates that, once arbitrators have fully exercised their authority to adjudicate the issues submitted to them, their authority over those questions is ended, and the arbitrators have no further authority, absent agreement by the parties, to redetermine those issues.  But there are exceptions to that doctrine.  In Gen. Re Life Corp. v. Lincoln Nat’l Life Ins. Co., No. 17-2496-CV, 2018 WL 6186078 (2d Cir. Nov. 28, 2018), the Second Circuit Court of Appeals[1] recognized “an exception to functus officio: where an arbitration award is ambiguous, . . . the arbitrators retain their authority to clarify that award.”  What constitutes ambiguity and clarification, of course, is open to interpretation.

 

Factual Background

 

The case involved a dispute between an insurance company and its reinsurer over premium increases.  The insurance company elected to arbitrate the rate increase as provided under the parties’ agreement.  The arbitration panel held a multi-day hearing in June 2015, and then issued its award on July 1, 2015 (“Award”).  The Award directed the parties to work together in calculating the amount of monies owed, and stipulated that “[a]ny disagreement over the calculations shall promptly be submitted to the [arbitral panel] for resolution.”  The arbitration panel also explicitly retained “jurisdiction over this matter to the extent necessary to resolve any dispute over the calculation and payment of the amounts awarded herein.”

 

The parties subsequently failed to reach agreement on how to calculate some of the premiums.  The insurance company wrote to the arbitral panel, set forth the parties’ dispute regarding the language of the Award and what that meant regarding the calculation of premiums, and requested that the panel settle the issue.  The reinsurer objected to that request, arguing that it was beyond the authority of the arbitrators because it sought reconsideration of, and a fundamental change to, the calculation methodology unambiguously ordered in the Award.

 

On November 19, 2015, over a dissent, the arbitral panel issued a clarification (“Clarification”).  The panel stated that the Award contained “ambiguities requiring clarification,” and that both parties were reading the Award in a manner inconsistent with the language of the reinsurance agreement.   The panel then ordered the reinsurer to make certain payments under the agreement.  This prompted the reinsurer to petition a U.S. federal district court to confirm the original, unclarified Award, and the insurance company filed a cross-petition to confirm the Clarification.   The district court denied the reinsurer’s petition to confirm the original Award and granted the insurance company’s petition to confirm the Clarification.  The reinsurer subsequently appealed that decision.

 

The Second Circuit’s Decision

 

On November 28, 2018, the Second Circuit upheld the district court’s decision.  In recognizing the principle of functus officio, the court noted that “[t]he functus officio doctrine dictates that, once arbitrators have fully exercised their authority to adjudicate the issues submitted to them, their authority over those questions is ended, and the arbitrators have no further authority, absent agreement by the parties, to redetermine those issues.”  The court explained that the rationale for the principle was that “it is necessary to prevent re-examination of an issue by a nonjudicial officer potentially subject to outside communication and unilateral influence.” As the Seventh Circuit Court of Appeals[2] in another case noted,

 

“The doctrine is based on the analogy of a judge who resigns his office and, having done so, naturally cannot rule on a request to reconsider or amend his decision. Arbitrators are ad hoc judges—judges for a case; and when the case is over they cease to be judges and go back to being law professors or businessmen or whatever else they are in private life, like Cincinnatus returning to his plow. [But] [o]nce they return to private life, arbitrators are less sheltered than sitting judges, and it is feared that disappointed parties will bombard them with ex parte communications . . . .”[3]

The practical consequence of functus officio is that an arbitrator cannot revisit its decision, thus providing finality to the arbitration process.  However, in affirming the district court’s decision, the Second Circuit recognized that functus officio carries an exception where the award “fails to address a contingency that later arises or when the award is susceptible to more than one interpretation.”  The court further found that the exception is consistent with the well-established rule that when asked to confirm an ambiguous award, the district court should instead remand to the arbitrators for clarification.

 

In seeking to provide some guidance to stakeholders, the Second Circuit held that an arbitrator does not become functus officio when it issues a clarification of an ambiguous final award as long as three conditions are satisfied: (1) the final award is ambiguous; (2) the clarification merely clarifies the award rather than substantively modifying it; and (3) the clarification comports with the parties’ intent as set forth in the agreement that gave rise to arbitration.  In doing so, the court noted that the exception is necessary to further “the twin objectives of arbitration: settling disputes efficiently and avoiding long and expensive litigation.”

 

In confirming the Award, the Second Circuit joined five other circuit courts that have also recognized an exception to functus officio.  For example, in Sterling China Co. v. Glass, Molders, Pottery, Plastics & Allied Workers Local No. 24, 357 F.3d 546 (6th Cir. 2004) the Sixth Circuit Court of Appeals[4] held that the arbitrator retained the authority to clarify an award requiring an employer to compensate workers for work previously performed at a higher base rate that other workers received.  Clarification was necessary because the award was ambiguous as to exact definition of what constituted a higher base rate, and thus the arbitrator retained jurisdiction in the award to resolve disputes between employer and union with respect to implementation of an appropriate remedy.[5]  Similarly, in Brown v. Witco Corp., 340 F.3d 209 (5th Cir. 2003), the Fifth Circuit[6] held that an arbitrator was allowed to clarify how the parties should calculate  an employee’s back pay award.

 

Keep Calm and Clarify: Where Do We Go From Here? 

 

What constitutes ambiguity in an award is of course unclear and subject to interpretation.  The same could be said of what constitutes a “clarification”.  These issues will need to continue to be litigated and clarified, acting as a further reminder of the ongoing conversation and symbiotic relationship between arbitration and litigation..  But the decision highlights the importance of understanding how the applicable law of the arbitration may affect an arbitrator’s authority to take a second look at the award where necessary.

 

Michael B. Carlinsky is Chair of Complex Litigation and Co-Chair of Insurance Litigation at Quinn Emanuel Urquhart & Sullivan LLP and a founder and managing partner of the firm’s New York office.  Lucas Bento FCIArb FRSA is a Senior Associate at the firm. The views expressed in this post are the authors’ personal views, and do not reflect the opinions of Quinn Emanuel

 

 

 

[1] The United States Court of Appeals for the Second Circuit is the U.S. federal court of appeals overseeing the states of Connecticut, New York, and Vermont.

[2] The United States Court of Appeals for the Seventh Circuit is the U.S. federal court of appeals overseeing the states of Illinois, Indiana, and Wisconsin.

[3] Glass, Molders, Pottery, Plastics & Allied Workers Int’l Union, AFL-CIO, CLC, Local 182B v. Excelsior Foundry Co., 56 F.3d 844, 846–47 (7th Cir. 1995).

[4] The United States Court of Appeals for the Sixth Circuit is the U.S. federal court of appeals overseeing the states of Kentucky, Michigan, Ohio, and Tennessee.

[5] See also Brown v. Witco Corp., 340 F.3d 209, 219 (5th Cir. 2003) (“An arbitrator can … clarify or construe an arbitration award that seems complete but proves to be ambiguous in its scope and implementation.”); Glass, Molders, Pottery, Plastics & Allied Workers Int’l Union v. Excelsior Foundry Co., 56 F.3d 844, 847 (7th Cir. 1995) (same); Colonial Penn. Ins. Co. v. Omaha Indem. Co., 943 F.2d 327, 334 (3d Cir. 1991) (“[W]hen the remedy awarded by the arbitrators is ambiguous, a remand for clarification of the intended meaning of an arbitration award is appropriate.”); McClatchy Newspapers v. Central Valley Typographical Union No. 46, 686 F.2d 731, 734 n.1 (9th Cir. 1982) (same).

[6] The United States Court of Appeals for the Fifth Circuit is the U.S. federal court of appeals overseeing the states of Louisiana, Mississippi, and Texas.

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Arbitration X Technology: A Call For Awakening?

Mon, 2019-01-14 01:25

Lito Dokopoulou

On the 5th of December 2018, the stake of arbitration amidst the technological evolution was in the spotlight; Sciences Po Law School hosted the first conference of the Arbitration X Technology saga, organized by the Sciences Po Arbitration Society (SPAS), under the framework of the LL.M in Transnational Arbitration and Dispute Settlement (T.A.D.S). The former is an autonomous association that aims to bring together Sciences Po alumni, future graduates, lawyers and academics interested in the law and practice of arbitration.

This first part of an upcoming Arbitration X Technology series of events, was, indeed, a  true “Call for Awakening”. Highly regarded practitioners and scholars, addressed the most pressing questions on the topic, in order to set the baseline of the interaction between technology and arbitration: What is the stake of AI in dispute resolution?; what does the GDPR means for arbitration?; could cybersecurity and request for confidentiality coexist?; and would smart contract disputes even need arbitration? The moderator, Peter Rosher, finely guided the panel in the discussion of those topics, triggering more questions and setting the stage for further debate.

The conference was opened by Sophie Nappert, on the topic of artificial intelligence (AI) and arbitration. She highlighted that “technology is not a new partner of arbitration”, but now is more present than ever. She proceeded with real examples of algorithms that are currently being used for enhancing the arbitral proceedings in different aspects and she identified those areas where artificial intelligence might be key (such as pinpointing at red flags to establish corruption). She concluded that this “algocracy” is ready to change the very scope of justice.

Taking it from there, Hafez R. Virjee presented some takeaways on the interaction between artificial intelligence and arbitration. He reassured that algorithms will not take over the legal profession, by observing that only low-level legal skills can be automated, such as issue-spotting. However, this evolution might challenge the education of junior lawyers, whom are traditionally charged with such tasks. Finally, he observed that algorithms might prove a very useful tool for enhancing diversity in arbitrator appointments, by creating automated and easily accessible short lists of arbitrators, a fact that will render the procedure of appointment more “open”. The conversation over artificial intelligence was concluded by the remarks of Philippe Bordachar on predictive justice in investment arbitration, i.e. the method of calculating the probabilities of the success of the case, by rationalising previous decision-making.

The discussion later shifted to the impact of the General Data Protection Regulation (GDPR) in arbitration, with Philippe Pinsolle and José Ricardo Feris taking the floor. First, Philippe Pinsolle explained that the GDPR, due to its broad definition of “personal data”, it applies to virtually all arbitrations where those involved are established in the European Union. The collateral problem created is the individual liability for compliance for the parties, their counsel, the arbitral tribunal, the institutions etc., the breach of which entails very serious sanctions. However, this burden, was considered, at least, “unpractical” for actors that engage in activities in the international arena, where processing of personal data is in effect, found, in every routine activity, from exchanging e-mails, to crossing the borders with personal data stored in a computer. José Feris highlighted that there is no practical solution to address this difficulty created. An answer, might lie with the application by analogy of the GDPR state court exception from its scope, to international arbitration. The panel informed that this action has been taken so far only by the Irish legislator. Philippe Pinsolle proposed as a “mitigating measure”, the creation of a Data Protection Protocol at the beginning of the arbitration (for example, at the drafting of the Terms of Reference) which aims to address GDPR compliance, including its potential impact on data transfer, disclosure and possible indemnities.

Closely linked to the subject of GDPR, is the demand of cybersecurity. Clément Fouchard commenced by confirming that cyberattacks constitute a real issue for international arbitration. The latter, is, indeed, under attack, mainly because the users are already prominent targets. Meanwhile, due to the fact that large arbitration databases include information that is not necessarily publicly available, and that actors in international arbitration usually travel a lot and thus can be more easily hacked, renders arbitration a tempting target. For these reasons, cybersecurity, is inextricably linked to the legitimacy and reliability of the dispute resolution system and, as such, it should thus be part of every practice, even accompanied by sanctions. Former ICC Deputy Secretary General, José Feris provided the institutional perspective, where the topic is even more relevant. The confidentiality obligation of arbitral institutions, that has now -due to GDPR- been upgraded from a contractual, to a legal obligation, creates an imperative need for institutions to take several measures for protecting sensitive data. Among them, would be the idea to create electronic platforms (such as the ICC will soon launch) which would allow users to exchange information securely.

The last topic of the roundtable discussion was smart contract arbitration. Commencing with the definition of blockchain technology, Gauthier Vannieuwenhuyse shifted to the function of smart contracts (or, else, self-executed contracts) and potential disputes that the latter may generate. Main examples provided were the discrepancies between the contract and its coded version, the inability to code specific concepts and the lack of a legal basis for their operation. “In a galaxy not too far away”, he considered the use of robots in smart contract arbitration; accordingly, two possibilities where identified. First, what Gauthier Vannieuwenhuyse characterized as “off-chain arbitration”, where the proceedings will remain as such, but the decision will be registered in a blockchain and will be self-executed; and, “on-chain arbitration”, where, robots (primarily in the form of algorithm), will enhance the arbitral process. Lastly, constitutional considerations and enforcement problems were addressed.

The conference was concluded with Gauthier Vannieuwenhuyse‘s reassurance that “arbitration by humans is not over yet”; artificial intelligence, is here not to replace us, but, rather to provide us with better sources to be used in arbitration. The exact ways of achieving this, together with fruitful takeaways of this first conference, are to be explored in the next series of “Arbitration X Technology” events.

 

Conference organized by the Sciences Po Arbitration Society (SPAS): Alexandre Senegacnik, Bruno Rodrigues, Dimitrios Andriopoulos, Lito Dokopoulou, Tiphaine Leverrier and Akhil Chowdary Unnam.

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Hungary Gives the Green Light for the Conclusion of a Termination Agreement for Intra-EU BITs

Mon, 2019-01-14 00:00

Veronika Korom and Lénárd Sándor

On 17 December 2018, the Prime Minister of Hungary issued a decision entitled “Decision authorizing the conclusion of an Agreement to terminate bilateral agreements on encouragement and reciprocal protection of investments concluded between governments of certain Member States of the European Union”1)see also  here at p. 35105. jQuery("#footnote_plugin_tooltip_1679_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1679_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The rather succinct Decision confirms the Prime Minister’s approval of the commencement of negotiations on an agreement for the termination of Member State BITs and, in line with the relevant Hungarian regulation on the domestic procedure with regards to international treaties (Act No. L of 2005), the Decision authorises the Minister of Foreign Affairs to conduct the negotiations and to sign the resulting text on behalf of Hungary. It further calls on the Minister of Foreign Affairs and the Minister of Justice to draw up a text to be submitted to the Government for the ratification of the agreement by Hungary once it has been finalised.

The Hungarian PM’s Decision comes in the aftermath of the ground-breaking Achmea judgment of March 2008 (discussed in the numerous posts at the blog here), in which the Court of Justice of the European Union (“Court”) held that investor-State arbitration clauses contained in intra-EU BITs are incompatible with EU law because they undermine the principle of autonomy of EU law by impairing the Court’s exclusive jurisdiction to interpret EU law. The Court’s ruling in Achmea is authoritative and binding on all EU Member States, who have an obligation to eliminate the incompatibility identified. Following Achmea, the Commission announced in its Communication on the Protection of intra-EU Investment of July 2018 that it had intensified its dialogue with the Member States, calling on them to take action to terminate their intra-EU BITs.

Hungary’s Intra-EU IIAs

Hungary currently has 54 BITs in force, 22 of which are so-called intra-EU BITs.

Hungary was one of the first Member States in Central Europe to adopt bilateral investment treaties in an effort to attract large-scale foreign investment. Although certain safeguards for foreign investment had existed under domestic Hungarian law since the 1970s, BITs were considered to represent stronger guarantees for foreign investors. Hungary signed its very first BIT with Germany in April 1986, and entered into further BITs with France, Belgium, and Luxembourg that same year. By the time Hungary gained independence and concluded the so-called Europe Agreement in 1993, which formed the legal framework for Hungary’s accession process to the EU and specifically encouraged the conclusion of BITs with Member States of the then European Communities, Hungary had BITs in place with all Western European States. In addition, in the course of the 1990s, Hungary entered into BITs with nine countries in Central and Eastern Europe (“CEE”). Hungary also became a signatory to the New York Convention and the ICSID Convention, later also joining the Energy Charter Treaty (“ECT”). Upon Hungary’s accession to the EU in 2004 and the EU’s subsequent enlargements, Hungary’s BITs (as well as the BITs of the other CEE countries) concluded with EU Member States became intra-EU BITs.

ISDS Proceedings against Hungary on the Basis of its Intra-EU IIAs

The majority of the sixteen known investor-State arbitration proceedings that have been commenced against Hungary to date concern investments made by Western European investors during the privatisation years of the 1990s. In the 1990s, in order to avoid bankruptcy following the collapse of the socialist regime, Hungary set about privatising large segments of its national economy to foreign investors who were willing to acquire formerly State-owned companies and other assets. In addition, owing to its successful economic and political transformation, Hungary attracted a growing number of greenfield investments, soon becoming one of the most popular destinations for Western capital investment in CEE.

Twelve of the sixteen arbitrations brought against Hungary were commenced on the basis of intra-EU BITs or the ECT by investors incorporated in an EU Member State.

Hungary’s Changing Position on the Applicability of its Intra-EU IIAs

In these intra-EU arbitrations, contrary to other CEE States, most notably Slovakia and the Czech Republic, Hungary has long sought not to contest the validity or applicability of its intra-EU BITs or the ECT. When the European Commission was allowed to intervene as amicus curiae in the AES Summit v. Hungary, Electrabel v. Hungary, and EDF International v. Hungary arbitrations, Hungary distanced itself from the jurisdictional objections raised by the Commission based on the inapplicability of the ECT in the context of intra-EU disputes, expressly confirming that it considered the tribunal to have jurisdiction to entertain claims against Hungary on the basis of the ECT.2)Electrabel S.A. v. Hungary (ICSID Case No. ARB/07/19), Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, ¶¶ 4.54, 5.26-5.30. jQuery("#footnote_plugin_tooltip_1679_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1679_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

It, therefore, came as something of a surprise that Hungary chose to contest the validity of intra-EU BITs before the Courts of the European Union by intervening in both the Achmea and the Micula cases, in the latter as the only other Member State besides Spain.

Since the Achmea judgment, however, Hungary has officially changed course and has begun to openly invoke the inapplicability of the arbitration clauses contained in its intra-EU BITs as an objection to jurisdiction.3)See, e.g., UP and C.D Holding Internationale v. Hungary (ICSID Case No. ARB/13/35), Award, 9 October 2018, ¶¶ 207-279. jQuery("#footnote_plugin_tooltip_1679_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1679_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It is also seeking the annulment of two unfavourable intra-EU BIT awards on this basis, despite the fact that it had not raised any intra-EU jurisdictional objections in the underlying arbitration proceedings.4)Hungary seeks to annul intra-EU BIT award, GAR, 3 April 2018; Three Crowns partners resign from panels considering Achmea, 9 August 2018; Another resignation from panel weighing Achmea, GAR, 5 September 2018. jQuery("#footnote_plugin_tooltip_1679_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1679_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Hungary Finally Moves to Terminate its Intra-EU BITs

Despite this recent change to Hungary’s defence strategy, Hungary remained silent until 18 December 2018 as regards the fate of its intra-EU BITs. Unlike other EU Member States, such as Italy, Denmark, Romania, Latvia, Poland and the Czech Republic,5)UNCTAD, Recent developments in International Investment Agreements (2008-June 2009), IIA MONITOR No. 3 (2009) International Investment Agreements, p. 5. Cecilia Olivet, A test for European solidarity – The case of intra-EU Bilateral Investment Treaties, Transnational Institute, January 2013, p. 6; Czech Republic terminated investment treaties in such a way as to cast doubt on residual legal protection for existing investments, IAReporter, 1 February 2011; Denmark and Czech Rep to terminate BIT, but not all EU Members agree with Czech view that intra-EU BITs are unnecessary, IAReporter, 17 July 2009; Investigation: Denmark Proposes Mutual Termination of its Nine BITs With Fellow EU Member-States, Against Spectre Of Infringement Cases, IAReporter, 2 May 2016; Nikos Lavranos, Romania’s termination of its intra-EU BITs: a counterproductive move, Practical Law Arbitration Blog, 14 October 2016; Tom Jones, Romania paves way for intra-EU BITs termination, GAR, 15 March 2017; Latvia to terminate bilateral investment treaties with Poland, Czech Republic at EU request, the Baltic Times, 2 February 2018; Analysis of Bilateral Investment Treaties, Ministry of Treasury of the Republic of Poland, 25 February 2016; Marcin Orecki, Bye-Bye BITs? Poland Reviews Its Investment Policy, 31 January 2017; Marcin Orecki, Let the Show Begin: Poland Has Commenced the Process of BITs’ Termination, Kluwer Arbitration Blog, 8 August 2017. jQuery("#footnote_plugin_tooltip_1679_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1679_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Hungary did not follow the recommendation of the European Commission, repeatedly addressed to the Member States since 2007, to voluntarily terminate their intra-EU BITs.6)See, for example, Annual EFC Report to the Commission and the Council on the Movement of Capital and the Freedom of Payments, 4 January 2007, ¶ 16; Eastern Sugar B.V. v. The Czech Republic (SCC Case No. 088/2004), Partial Award, 27 March 2007, ¶ 126. jQuery("#footnote_plugin_tooltip_1679_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1679_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The PM’s Decision marks a clear departure from Hungary’s former position and paves the way for the termination of Hungary’s intra-EU BITs. The Decision would seem to suggest that Hungary is contemplating the conclusion of a multilateral termination agreement with its EU counterparts.

The idea of a multilateral termination treaty was first raised by Austria, France, Finland, Germany and the Netherlands in their 2016 Non-Paper, which recommended that Member States terminate and replace their existing intra-EU BITs with an appropriate level of substantive and procedural protection for all EU investors.7)Intra-EU Investment Treaties: Non-paper from Austria, Finland, France, Germany and the Netherlands, 7 April 2016. Following the Achmea judgment, the Netherlands again suggested to terminate all intra-EU BITs through the adoption of a multilateral treaty between Member States, see Marie Davoise, Markus Burgstaller, Another One BIT the Dust: Is the Netherlands’ Termination of Intra-EU Treaties the Latest Symptom of a Backlash Against Investor-State Arbitration?, Kluwer Arbitration Blog, 11 August 2018. jQuery("#footnote_plugin_tooltip_1679_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1679_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In light of Achmea and the Commission’s Communication, which considers states that EU law provides for adequate and sufficient protection for cross-border EU investments, it would seem increasingly unlikely that Member States who have repeatedly been respondents in intra-EU investor-State arbitrations (such as Hungary) would voluntarily agree to an alternative EU-wide investment protection regime.

The text of the PM’s Decision also leaves open whether the contemplated termination agreement will deal with the intra-EU application of the ECT’s investor-State arbitration provisions. In this regard, it is noteworthy that Hungary’s oil and gas company MOL, the second largest company in CEE, is currently pursuing a highly politicised ECT claim against Croatia over the treatment of its investment in Croatia’s national oil and gas company, INA.8)MOL Hungarian Oil and Gas Company Plc v. Republic of Croatia (ICSID Case No. ARB/13/32). jQuery("#footnote_plugin_tooltip_1679_8").tooltip({ tip: "#footnote_plugin_tooltip_text_1679_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Any change to the intra-EU applicability of the ECT would likely be acceptable to Hungary only if it contains an appropriate carve-out for pending proceedings.

The Hungarian PM’s Decision is likely to be followed by similar authorisations issued by other EU Heads of State in preparation for the adoption of what is expected to be a common effort for the end game for intra-EU BITs.

 

References   [ + ]

1. ↑ see also  here at p. 35105. 2. ↑ Electrabel S.A. v. Hungary (ICSID Case No. ARB/07/19), Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, ¶¶ 4.54, 5.26-5.30. 3. ↑ See, e.g., UP and C.D Holding Internationale v. Hungary (ICSID Case No. ARB/13/35), Award, 9 October 2018, ¶¶ 207-279. 4. ↑ Hungary seeks to annul intra-EU BIT award, GAR, 3 April 2018; Three Crowns partners resign from panels considering Achmea, 9 August 2018; Another resignation from panel weighing Achmea, GAR, 5 September 2018. 5. ↑ UNCTAD, Recent developments in International Investment Agreements (2008-June 2009), IIA MONITOR No. 3 (2009) International Investment Agreements, p. 5. Cecilia Olivet, A test for European solidarity – The case of intra-EU Bilateral Investment Treaties, Transnational Institute, January 2013, p. 6; Czech Republic terminated investment treaties in such a way as to cast doubt on residual legal protection for existing investments, IAReporter, 1 February 2011; Denmark and Czech Rep to terminate BIT, but not all EU Members agree with Czech view that intra-EU BITs are unnecessary, IAReporter, 17 July 2009; Investigation: Denmark Proposes Mutual Termination of its Nine BITs With Fellow EU Member-States, Against Spectre Of Infringement Cases, IAReporter, 2 May 2016; Nikos Lavranos, Romania’s termination of its intra-EU BITs: a counterproductive move, Practical Law Arbitration Blog, 14 October 2016; Tom Jones, Romania paves way for intra-EU BITs termination, GAR, 15 March 2017; Latvia to terminate bilateral investment treaties with Poland, Czech Republic at EU request, the Baltic Times, 2 February 2018; Analysis of Bilateral Investment Treaties, Ministry of Treasury of the Republic of Poland, 25 February 2016; Marcin Orecki, Bye-Bye BITs? Poland Reviews Its Investment Policy, 31 January 2017; Marcin Orecki, Let the Show Begin: Poland Has Commenced the Process of BITs’ Termination, Kluwer Arbitration Blog, 8 August 2017. 6. ↑ See, for example, Annual EFC Report to the Commission and the Council on the Movement of Capital and the Freedom of Payments, 4 January 2007, ¶ 16; Eastern Sugar B.V. v. The Czech Republic (SCC Case No. 088/2004), Partial Award, 27 March 2007, ¶ 126. 7. ↑ Intra-EU Investment Treaties: Non-paper from Austria, Finland, France, Germany and the Netherlands, 7 April 2016. Following the Achmea judgment, the Netherlands again suggested to terminate all intra-EU BITs through the adoption of a multilateral treaty between Member States, see Marie Davoise, Markus Burgstaller, Another One BIT the Dust: Is the Netherlands’ Termination of Intra-EU Treaties the Latest Symptom of a Backlash Against Investor-State Arbitration?, Kluwer Arbitration Blog, 11 August 2018. 8. ↑ MOL Hungarian Oil and Gas Company Plc v. Republic of Croatia (ICSID Case No. ARB/13/32). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Expedited Procedure under the 2017 ICC Rules: Does the ICC’s Priority for Efficiency and Cost Effectiveness Come at the Expense of the Parties’ Rights?

Sat, 2019-01-12 23:17

Matilde Flores

Young ICCA

Article 30 of the 2017 ICC Rules of Arbitration, along with Appendix VI, constitute the Expedited Procedure Provisions (“Provisions”). These new provisions are among the most notable innovations of the 2017 ICC Rules, and are part of the ICC’s efforts to increase the efficiency and transparency of arbitrations. However, certain aspects of this Provisions may leave its users questioning whether the ICC has stricken the right balance between time and cost effectiveness on the one hand, and due process and other substantive rights on the other hand.

 

Scope of the Provisions

Pursuant to the 2017 ICC Rules, the Provisions apply to arbitrations where (i) the amount in dispute does not exceed US$2,000,000 (Article 30(2); Article 1(2) Appendix VI); (ii) the arbitration agreement was concluded after 1 March 2017 (Article 30(3)(a)); and (iii) the parties have not opted out of the Provisions (Article 30(3)(b)). In addition, the Provisions will apply to disputes that do not fall within the above criteria if the parties so agree (Article 30(2)(b)).

The distinct features of the Provisions include the ICC Court’s power to appoint a sole arbitrator, notwithstanding any provisions to the contrary in the arbitration agreement (Article 2(1) Appendix VI), and the arbitral tribunal’s power to, at its discretion and in consultation with the parties, limit the length and scope of the submissions, including witness and expert evidence, or exclude requests for document production (Article 3(4) Appendix VI). After consulting with the parties, the tribunal can even decide the dispute without a hearing and without examining witnesses and experts (Article 3(5) Appendix VI). Finally, the Provisions fix the time limit for rendering the final award to six months from the case management conference (Article 4(1) Appendix VI).

 

Particular Features of the Provisions

It should be emphasized that if the parties agree to the 2017 ICC Rules, which is the case for any arbitration agreement concluded from 1 March 2017 designating the ICC Rules, and if the dispute falls within the scope of the Provisions, then the Provisions will take precedence over the arbitration agreement (Article 30(1)). That is, the Provisions will apply automatically and determine how the arbitration is to be conducted despite any contrary specific terms in the arbitration agreement. This could lead to cases where the arbitration agreement and the Provisions come into conflict.

For instance, if an arbitration agreement explicitly provides for a three-member arbitral tribunal, but the Provisions also apply, which favor the appointment of a sole arbitrator, then the latter take precedence. A similar situation can arise if the parties specify time limits in the arbitration agreement that are different to those imposed by the Provisions. Again, the Provisions relating to the time limits of the arbitration will be favored over any contrary terms in the arbitration agreement. This derives from the fact that the ICC Rules specify that an agreement to opt out of the Provisions shall be clearly stated in the arbitration agreement.

 

Rationale Behind the Provisions

The introduction of an expedited procedure in the 2017 ICC Rules was motivated by the aim to render arbitrations more efficient in terms of time and cost and to enhance transparency. This is in line with additional efforts carried out by the ICC towards these ends, such as the ICC Guide on Effective Management of Arbitration, which emphasizes the importance of managing the time and cost of an arbitration in light of the value and complexity of the dispute.

The provisions also follow the trend that has been adopted by other arbitral institutions seeking to develop expedited procedures and resolve disputes in a faster and less expensive manner.

 

Controversial Aspects of the Provisions

Given the novelty and distinction of the Provisions, their application in practice will likely come with certain controversies or uncertainties for users.

1. Is Consent Overridden by the Provisions?

As stated above, the automatic application of the Provisions to an arbitration that falls within their scope may impose terms on the parties that differ from what they agreed to in the arbitration agreement. This has been criticized mainly in terms of overriding the parties’ consent to appoint a three-member arbitral tribunal, since the provisions call for the appointment of a sole arbitrator (Article 2(1) Appendix VI).

According to some critics, the consent on which arbitration is based is infringed if the parties are stripped off their right to have their case heard by a three-member arbitral tribunal if this was clearly and explicitly specified in the arbitration agreement. Thus, the argument is that the ICC’s priority for efficiency and transparency deprives the parties from a right to which they explicitly agreed.

Nevertheless, by agreeing to the application of the ICC Rules in the arbitration agreement, the parties implicitly consented to the application of the Provisions, which in turn provide for the possibility to appoint a sole arbitrator. In this regard, the interactions between such implicit consent and an explicit contrary consent in the arbitration agreement pend final clarification.

The text of Article 2(1) Appendix VI states that “the Court may, notwithstanding any contrary provision of the arbitration agreement, appoint a sole arbitrator.” As such, the provision does not impose a strict obligation on the Court to appoint a sole arbitrator. According to the ICC, “[t]he Court may nevertheless appoint three arbitrators if appropriate in the circumstances. In all cases, the Court will invite the parties to comment in writing before taking any decision and shall make every effort to ensure that the award is enforceable at law.” (ICC Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration, dated 30 October 2017, p. 13.)

Therefore, the relevant question at issue is whether the safeguard in place, i.e. allowing the Court to appoint a three-member tribunal at its discretion, sufficiently protects the parties’ rights and consent. Much of the answer will depend on the practice developed by the ICC Court and by state courts dealing with enforcement and setting aside proceedings.  Of particular relevance is the interplay between the Provisions and Article V(1)(d) New York Convention, which provides as a ground for refusing enforcement of an award the fact that the composition of the arbitral tribunal was “not in accordance with the agreement of the parties.”

2. Is the Value of a Dispute Indicative of its Complexity?

Another area of uncertainty or controversy under the Provisions relates to the quantification of claims. In order to determine whether the amount in dispute exceeds US$2,000,000, and thus whether the Provisions apply, all quantified claims, counterclaims and cross-claims are considered (Article 30(2); ICC Note to Parties, p. 12). This however, imposes the expeditious procedure to all disputes with an amount in dispute which does not exceed US$2,000,000, without taking into consideration the complexity of the dispute. In effect, this assumes that the value and complexity of a dispute are always directly proportional. While this may be the case in many arbitrations, it will not always be true, and concerns may arise when the complexity of the dispute warrants more scrutiny and a more thorough procedure, despite a low amount in dispute.

Although the ICC Court has pledged to preserve the quality of awards by providing scrutiny at the highest level, there is no guarantee that shorter time limits, no document production, or no expert or witness evidence at the hearing will not affect the outcome of the dispute. In fact, the expeditious nature of the proceedings under the Provisions could even constitute a potential ground to challenge the enforcement of the final award pursuant to Article V(1)(b) New York Convention, since a party may argue that it was “unable to present his case.” This adds to the uncertainty of how the Provisions will be interpreted and dealt with by state courts in enforcement or setting aside proceedings and by arbitral tribunals.

On the other hand, the ICC Rules provide safeguards to ensure that a complex dispute be decided with sufficient scrutiny, regardless of the amount of the claim. Article 3(b) of the ICC Rules for instance, states that the parties may opt out of the Provisions in the arbitration agreement or thereafter. Similarly, Article 1(4) Appendix VI states that the Court may decide at any time, on its own motion or upon a party’s request, that the Provisions shall no longer apply.

Thus once again, the issue is whether the safeguards in place are enough to preserve the parties’ right to adequately present their case.

In all likelihood, the Provisions will prove to be adequately equipped to address both of these concerns; none of their features are strictly mandatory and the parties ultimately have the last word in determining how to conduct the arbitration. However, it remains to be seen, with the aid of arbitral awards and judicial interpretation, whether the Provisions will in fact achieve greater efficiency and transparency without jeopardizing the rights of its users.

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The Nature of Pre-Arbitration Procedural Requirements in Pakistan: Mandatory or Optional?

Sat, 2019-01-12 20:02

Ahmed Tariq

Young ICCA

Pre-arbitration procedural requirements come into operation before the commencement of arbitration proceedings where parties have agreed on a multi-tiered dispute resolution mechanism. They are especially common in construction and engineering contracts. The Islamabad High Court (IHC) in Pakistan has addressed issues related to the nature of these requirements and consequences of non-compliance in its recent judgment Pak. U.K. Association (Pvt.) Ltd. v. Hashemite Kingdom of Jordan [2017 CLC 599].

A contract (the “Contract”) was entered into between the parties for certain works to be executed by the Pak. U.K. Association (Pvt.) Ltd. (the “Applicant”) at the Jordanian Embassy and the Jordanian Ambassador’s residence in the Diplomatic Enclave, Islamabad. The Hashemite Kingdom of Jordan appointed an Engineer to oversee the works.

Clause 67.1 of the Contract provided that any dispute arising in connection with or out of the Contract was to be referred firstly to the Engineer for his decision. If either party was aggrieved by the Engineer’s decision, or if the Engineer failed to give a notice of his decision within a certain time period, Clause 67.3 of the Contract provided that either party could refer the dispute to arbitration under Pakistan’s primary arbitration legislation, the Arbitration Act, 1940 (the “Arbitration Act”).

Section 20 of the Arbitration Act provides for the intervention of a court to compel arbitration where a party to an arbitration agreement refuses to take steps necessary to initiate arbitration proceedings. The Applicant filed an application under Section 20 of the Arbitration Act with the IHC, seeking to initiate arbitration proceedings without first referring the dispute to the Engineer, as provided for in the Contract. It argued that there was a suspicion of bias against the Engineer, which disqualified him from adjudicating upon the dispute.

The IHC expressed the view that if parties have agreed on certain conditions that precede the operation of an arbitration clause, such conditions precedent need to be fulfilled before the arbitration clause can be invoked. The Court noted that in construction or engineering contracts which provide for a multi-tiered dispute resolution process, an aggrieved party’s right to refer contractual disputes to arbitration is pre-conditioned with a reference of such disputes, prior to the commencement of arbitration, to the dispute resolution mechanism agreed upon by the parties.

The IHC placed reliance on the well-settled principles of contract law in common law jurisdictions that a court cannot rewrite an agreement between the parties, or exempt a party from complying with contractual obligations. The case was decided on the premise that the contractual requirement to refer a dispute firstly to the Engineer can be dispensed with only in those situations where a reference to the Engineer cannot be made because he has resigned or has been disengaged by the employer, or where he has refused to entertain the dispute.

On the issue of bias, the IHC concluded that a pre-condition to the invocation of an arbitration clause cannot be dispensed with on the ground of bias, unless the court is satisfied that a substantial miscarriage of justice will take place. Consequently, a party cannot be relieved from approaching an agreed upon forum simply because the forum might decide against it.

The Supreme Court of India has similarly held in International Airport Authority v. K.D. Bali [AIR 1988 SC 1099] that where the Chief Engineer of a party has unilaterally appointed an arbitrator under the parties’ arbitration agreement, a mere apprehension in the mind of the other party, without any tangible evidence of bias, could not constitute a ground for the arbitrator’s removal.

The IHC ultimately held that an application under Section 20 of the Arbitration Act is to be dismissed as premature without the fulfilment of a contractually agreed upon pre-condition.

The principle of mandatory compliance with pre-arbitration procedural requirements has been discussed by Pakistani courts in prior cases. In Board of Intermediate and Secondary Education, Multan v. Fine Star & Company, Engineers and Contractors [1993 SCMR 530], the Supreme Court of Pakistan dismissed an application under Section 20 of the Arbitration Act because the applicant had failed to approach the Chairman of the appellant Board for his decision on the dispute, as provided for in the applicable dispute resolution clause. The Sindh High Court followed this decision in Hanover Contractors v. Pakistan Defence Officers Housing Authority [2002 CLC 1880] and the Lahore High Court in WAPDA v. S.H. Haq Noor and Company [2008 MLD 1606], with both courts holding that a pre-condition contained in a dispute resolution clause is binding upon the parties.

The IHC decision and the prior decisions of Pakistani courts cited above show that Pakistani courts have opted to follow the precedents established by the courts of other common law jurisdictions. In Emirates Trading Agency LLC v. Prime Mineral Exports Private Ltd [2014 EWHC 2104 (Comm)], the English High Court has held that it is in the public interest to enforce conditions precedent to arbitration agreements, since commercial entities expect courts to enforce obligations that they have entered into freely. In International Research Corp PLC v. Lufthansa Systems Asia Pacific Pte Ltd [2013 SGCA 55], the Singapore Court of Appeal determined that preconditions for arbitration must be fulfilled where the parties have clearly contracted for a specific set of dispute resolution procedures. In United Group Rail Services Limited v. Rail Corporation New South Wales [2009 NSWCA 177], the New South Wales Court of Appeal in Australia found a dispute resolution clause in an engineering contract, which required senior representatives of the parties to undertake “good faith negotiations” prior to commencing arbitration, to be valid and enforceable.

The IHC’s decision in Pak. U.K. Association (Pvt.) Ltd. v. Hashemite Kingdom of Jordan has implications on the admissibility of arbitration proceedings seated in Pakistan, and also on the enforceability of arbitral awards in Pakistan.

In relation to the admissibility of arbitration proceedings seated in Pakistan, it can be ascertained from this decision that a failure to perform a pre-arbitration procedural requirement will render the initiation of an arbitration proceeding inadmissible, meaning that any arbitral tribunal asked to conduct such a proceeding would have to decline jurisdiction.

Moreover, if an arbitration was seated in Pakistan, any award made by an arbitral tribunal lacking jurisdiction could be set aside by Pakistani courts. This is based on the conclusion that an arbitral tribunal that hears a case, despite a pre-condition for arbitration not being met, exceeds the parties’ arbitration agreement, and, therefore, lacks jurisdiction.

As for the issue of enforceability of arbitral awards in Pakistan, it follows from this decision that if a pre-arbitration procedural requirement forms a condition precedent to the arbitration agreement and remains unfulfilled, any award given on the merits of a dispute based on such an arbitration agreement would be unenforceable.

Notwithstanding the above implications, the IHC’s decision has left certain key issues unaddressed. For example, the Court has failed to decide

  1. whether it is possible to fulfil a pre-arbitration procedural requirement after an arbitration proceeding has already been initiated, and, thereby, retrospectively rectify the previous non-compliance; and
  2. whether a new arbitration proceeding in respect of the same dispute can be initiated once an application under Section 20 of the Arbitration Act has been dismissed as premature.

While the answers to the above issues depend upon the facts and circumstances of each individual case, it should be possible, as a matter of procedural efficiency, to retrospectively fulfil a pre-arbitration procedural requirement after the commencement of an arbitration. It should also be possible to initiate a new arbitration proceeding once an application under Section 20 of the Arbitration Act has been dismissed as premature, since such a dismissal would not invalidate the arbitration agreement itself, and would also not constitute a decision given on the merits of the claim for the purposes of res judicata and issue estoppel.

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Hong Kong: A Listed Company’s Duty of Confidentiality in Arbitration and its Duty of Disclosure to the Public

Sat, 2019-01-12 04:02

Joanna Du

Herbert Smith Freehills

Confidentiality is frequently promoted as a key advantage of international arbitration.  It preserves the information exchanged in the arbitration proceedings and prevents the parties from disclosing information relating to the arbitration.  The extent of confidentiality afforded to the parties varies from jurisdiction to jurisdiction.  In certain jurisdictions, the law does not recognise the concept of confidentiality in arbitration proceedings, for example, in the US and Australia.  In other jurisdictions, confidentiality is seen as being implied in the arbitration agreement, for example, in England and Wales.

In Hong Kong, the Hong Kong Arbitration Ordinance (Cap. 609) which came into effect on 1 June 2011 (“Arbitration Ordinance“) expressly provides for statutory duty of confidentiality in arbitration.  The 2018 HKIAC Administered Arbitration Rules effective on 1 November 2018 (“2018 HKIAC Rules“) also contains similar provisions on the duty of confidentiality.

Despite the laws and institutional rules, the parameters of confidentiality are by no means clear-cut.  In particular when the arbitrating party is also a company listed on the stock exchange – which is therefore subject to disclosure duty – one inevitably will ask the question: what is the boundary between the duty of confidentiality and the duty of disclosure?

 

Hong Kong law provides statutory protection over confidentiality in arbitration

The arbitration agreement between the parties, law of the seat of the arbitration, and the rules of the arbitral institution administering the arbitration would normally dictate the extent of duty of confidentiality in arbitration.

Hong Kong is one of few jurisdictions explicitly providing for statutory protection over confidentiality in arbitration.  Pursuant to Section 18(1) of the Arbitration Ordinance, unless agreed by the parties, no party may publish, disclose or communicate information relating to the arbitral proceedings and awards.  Section 5 further states that the duty of confidentiality applies as long as the seat of arbitration is in Hong Kong.  Notably, the scope of confidentiality is worded very widely preventing disclosure of even the existence of arbitration proceedings.

The 2018 HKIAC Rules largely mirror the position under the Arbitration Ordinance.  In line with Section 18(1) of the Arbitration Ordinance, Article 45.1 imposes the duty of confidentiality on the parties.  It further clarifies the scope of confidentiality to cover the arbitration itself, any award, and decision of the emergency arbitrator.  As to the parties bound by the duty, Article 45.2 states that the duty applies to the arbitral tribunal, any emergency arbitrator, expert, witness, tribunal secretary and HKIAC.

Few jurisdictions adopt the same position as Hong Kong.  In England and Wales, by comparison, the Arbitration Act 1996 contains no provision on confidentiality.  This is intentional.  The rationale is that it is difficult and controversial to define the scope of the duty of confidentiality and its exceptions.  As a result, the English courts have been developing the parameters of confidentiality over the years through cases.  The classical position, as confirmed in Ali Shipping v Shipyard Trogir [1998] 1 Lloyd’s Rep 643, is that the duty of confidentiality is implied in the arbitration agreement.  This case has however been tested in various subsequent cases challenging the existence of an absolute duty of confidentiality.

 

Exceptions to the duty of confidentiality

In Hong Kong, while the parties to the arbitration are bound by the duty of confidentiality, they are permitted to disclose information relating to arbitration in limited circumstances.  In Housing Authority v Sui Chong Construction & Engineering Co Ltd [2008] 1 HKLRD 84, the Hong Kong Court of First Instance considered that an arbitrating party could disclose confidential information relating to an arbitration if it is “reasonably necessary” for the protection of the party’s legitimate interest in a claim brought by a third party.  In reaching this conclusion, the court made reference to Ali Shipping, which is one of the leading English authorities on the duty of confidentiality.  In Ali Shipping, the English Court of Appeal recognises an exception to the duty of confidentiality, i.e. where disclosure to a third party is “reasonably necessary” for the protection of the disclosing party’s legitimate interest.

Section 18(2) of the Arbitration Ordinance also explicitly sets out exceptions to the confidentiality duty.  Particularly under Section 18(2)(b), a party may publish, disclose or communicate information to any government body or regulatory body to which the party is obliged by law to do so.  This is echoed by Article 45.3(b) of the 2018 HKIAC Rules.

In practice, the Section 18(2)(b) exception would apply to a public company listed on the Hong Kong stock market, which is subject to strict regulatory rules on disclosure.  Specifically, under Rule 13.09 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules“) and Part XIVA of the Securities and Futures Ordinance (Cap. 571) (“Securities and Futures Ordinance“), a listed company shall disclose inside information to the public as soon as reasonably practicable after such inside information has come to its knowledge.  “Inside information” is defined as specific information about the corporation that is not generally known to the public but would, if generally known, be likely to materially affect the price of the listed securities.

The regulations will be seen as an exception to the duty of confidentiality.  They impose a mandatory duty on listed companies to disclose arbitration-related information to the public as soon as reasonably practical.  The duty of disclosure arises if the arbitration will likely materially affect the company’s share price.  Having said that, the regulations are silent on what constitutes materiality.  In practice, the listed company will usually exercise discretion on the level of materiality, for example, by comparing the claim value against its annual revenue to decide if the arbitration is indeed material.

Some commentators further categorise the listed company’s disclosure duty as one concerning public interest – because a listed company owes a duty to the public to disclose information likely to materially affect the share price to enable an investor to make an informed assessment of the activities, assets, and liabilities of the company.  Failure to make prompt and fair disclosure would endanger the benefits of the investors and the wider public.

 

What is the boundary between the duty of confidentiality and the duty of disclosure?

It is reasonably clear that in Hong Kong, a listed company is obliged to disclose information relating to arbitration to the public if the dispute is considered to likely materially affect the share price.  Its obligation is imposed by the regulations thus constitutes an exception to the duty of confidentiality.

However, this is never the end of the story. When the listed company intends to comply with its disclosure duty, there seems to be no clear guidance on what the listed company shall disclose, or what constitutes disclosure “as soon as reasonably practical“.  Some commentators hold the view that the listed company will have to at least disclose the existence of arbitration proceedings as it is likely to materially affect the price of the listed securities.

In the real world, listed companies face myriad uncertainties surrounding disclosure.  To name a few:

  • When does the duty of disclosure arise? The Listing Rules and the Securities and Futures Ordinance require disclosure by the listed company as soon as reasonably practicable after any inside information has come to its knowledge. It is uncertain if the listed company would have to disclose the existence of the arbitration as soon as arbitration commences, or if it could disclose the arbitration only after it has received the arbitral award.  In our view, this will depend on the nature of the disputes and expectation of how that arbitration will impact on the listed securities.
  • More importantly, what should a listed company disclose, and not disclose? The listed company should be cautious about disclosing more information than is reasonably necessary, as suggested in Housing Authority.  In practice, Hong Kong courts recognise that injunctions can be used to prevent the disclosure of confidential information.  Moreover, bearing in mind that the duty of confidentiality concerns a duty towards the parties in the arbitration, the listed company shall consider carefully the likely impact on the other party in case of disclosure.

 

Although there is no universal answer, to minimise the uncertainties, parties are encouraged to expressly agree on the extent of disclosure in the arbitration agreement, for example, that the parties agree to keep all information relating to the arbitration and the award confidential to the extent possible.  Parties should also carefully consider the confidentiality positions under the applicable laws as well as the applicable institutional rules when drafting the arbitration agreement.

In case of disclosure, public companies should act with caution to disclose the information that is reasonably necessary for investors to make an informed decision.  The public company must seek proper advice and carefully consider the timing and scope of disclosure before doing so. Needless to say, each instance will need to be examined on a case-by-case basis.

 

 

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A Fireside Chat With Gary Born: How to Become a Star in International Arbitration in Five (Easy?) Steps, and Is It Still Possible?

Sat, 2019-01-12 02:11

Gary Born and Mikhail Kalinin

WilmerHale

On 23 October, Gary Born participated in a Fireside Chat titled “How to Become a Star in International Arbitration in Five (Easy?) Steps, and is it Still Possible?”. The interview took place in Moscow and was conducted by Sergey Usoskin of Double Bridge Law, and Mikhail Kalinin of Norton Rose Fulbright. It was moderated by Alexandra Shmarko of Baker McKenzie and covered a series of questions about careers in, and the future of, international arbitration.

Key takeaways are summarised below, while the full interview is available to watch here.

 

The chat kicked off with Mr Born’s thoughts on the five steps proposed as key to start a career in international arbitration.

First, international arbitration requires its practitioners to speak a variety of languages. While English is a prerequisite, speaking other languages represents a potential advantage. Mr Born noted that Spanish is becoming increasingly important and that Latin America enjoys enduring strength as a source of disputes. Portuguese may present an opportunity to stand out, as Brazilian arbitrations have been increasing in number over the last two years. Other languages, such as Russian, are important for the critical client relationship aspects of work as counsel.

Second, Mr Born shared his opinion on international moot courts. While acknowledging that they are great fun, he suggested that participation in a moot court is not in and of itself decisive for hiring. However, he observed that there is a natural affinity between the characteristics required for successful participation in moot courts and those characteristics which law firms seek. He also stressed the value of activities such as taking other law courses, attending international events, undertaking internships at law firms, and writing articles to demonstrate ambition and ability.

Third, Mr Born addressed a question on LL.M. programmes and internships at arbitral institutions. He answered that specialised LL.M. programs would not be his first choice and suggested taking a general LL.M. instead. The reason for that is twofold; firstly, a lot of firms operate firmwide hiring and evaluate the general legal knowledge of graduates, and secondly arbitration requires knowledge in other substantive legal areas, often including corporate and commercial law.

He recommended internships at arbitral institutions as a more effective way forward for graduates, both timewise and in terms of the costs. Inside an arbitral institution you can experience arbitration in a completely different way; instead of the details of a particular case you will see the broad sweep of the entire process. In three to six months 150 cases come in, and you will see 150 different requests for arbitration, tribunals and awards, which is an enlightening experience. You will also have an important addition to your CV, which law firms will value as a resource and a sales point to potential clients.

Fourth, Mr Born was asked whether it is crucial to start one’s career in an arbitration practice of a leading international law firm. He asserted that experience in a quality institution – including strong domestic firms and regardless of the practice – is a plus. He explained that when someone moves from one international arbitration practice to another you are tempted to ask why. On the other hand, when someone moves to arbitration from a strong litigation or corporate practice in a high-quality domestic firm, he or she brings with them valuable new experience in a distinctive area of practice.

Fifth, Mr Born commented on authoring articles and speaking at conferences. In his opinion, writing is a more valuable exercise, as written papers last forever, while conferences have a one-day impact and attention is divided across all the other speakers at the conference. He stressed that neither can be a one-shot effort – building a career is like building a snowman. Other practitioners cite your article, then invite you to write a chapter in a book, and in this way your reputation grows.

 

Having addressed the beginning of one’s career in arbitration, the chat moved on to discuss how to further develop an arbitration practitioner’s profile.

Firstly, Mr Born was asked when a young practitioner should get a chance to speak before a tribunal and whether younger colleagues appear equally persuasive to more senior arbitrators. He answered that this will depend on when the individual in question feels comfortable in front of a tribunal, but stressed that law firms should provide younger practitioners with such opportunities and push them beyond their comfort zone. Firms should delegate the examination of less important witnesses to their younger associates and deliberately take on smaller cases on which they can assign substantive roles, including presenting opening statements, to more junior lawyers.  He also confirmed that the increasing diversity of international arbitration must include not only gender or ethnic diversity, but also age diversity, and that younger associates may sometimes appear even better prepared than their senior colleagues.

Mr Born was then asked to share any tips on surviving lengthy hearings and managing stress. He agreed that one cannot simply say to oneself that “it doesn’t matter,” and suggested other options including – crucially – getting enough sleep. Mistakes sometimes occur and Mr Born advised the audience to accept that fact and address a mistake rather than pretend that nothing has happened. Finally, it is important to acknowledge that one person cannot be responsible for everything, and having a good team and being able to delegate is of paramount importance.

Another aspect of stress related to hearings is the adversarial nature of arbitration proceedings, which often entail exchanging harsh words between counsel on different sides. Mr Born’s advice was to always try and be the politest person in the hearing room, not least because building a good profile with peer practitioners is important, and that even if one has to play rough, play fair. Even when the other side acts unreasonably and makes it difficult to stick to that, he suggested, this approach will strengthen your position in the proceedings and undermine the other party’s tactics.

Mr Born was asked for his advice on time management and to shed some light on how he manages to write so much. He explained that the International Commercial Arbitration treatise was based on a US casebook that he had authored previously, but that his initial idea to restructure the original casebook turned into an entirely new work, which took him five years and at least 5,000 hours to write. Yet, he treats both editions as drafts and always has in mind the advice given to him by a judge he once worked with, who said, “Once you have done 90% of the work, you are finished.”

The discussion then touched upon the importance of an academic background in arbitration. Mr Born agreed that it serves as an important complement to arbitration practice, along with other related activities in the spheres of politics, government and public affairs. At the same time, he suggested that a PhD is not necessarily the best way to build one’s academic experience. For example, by teaching and therefore having to think through every point, a lawyer actually learns more than by simply studying. He also acknowledged that his own professorial and other academic appointments boost his reputation as counsel and arbitrator.

 

Lastly, the chat moved on to discuss the future of arbitration, in particular the growing competition between arbitration and national courts, as well as on the development of technology.

Mr Born argued that national courts – whether those established in Europe and operating in English or common law courts, including those established in Dubai and Kazakhstan – cannot compete with international arbitration. Despite styling themselves as “international courts”, they remain national courts established by national authorities and comprising judges appointed by national authorities and then imposed on the parties to a dispute. Mr Born stated that the development of such national courts is, in principle, a positive development, as courts need to stay up-to-date with international commerce. At the same time, he expressed concern that there might be a subtext of jealousy of the arbitral process, which could undermine national courts’ commitment to supporting international arbitration.

As regards technology, Mr Born was asked to comment on what new technology could be introduced to assist arbitration lawyers in their practice. He mentioned the elimination of paper, which people keep saying is just around the corner. However, all the bundles and boxes are still there. He also talked about video conferencing. With good connectivity, examination of witnesses can actually be clearer to the tribunal via video conferencing and he sees no reason why an evidentiary hearing should not take place in a virtual space, saving time and cost.

 

Baker McKenzie and Double Bridge Law co-sponsored the event, which was organized by RAA40 and RAA25, the younger branches of the Russian Arbitration Association.

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Emergency Arbitrator Procedures: What Should a Practice Note of Best Practices Consider?

Thu, 2019-01-10 21:00

Stephanie Khan and Benson Lim (Assistant Editor for PR China, Hong Kong and Central Asia)

Hogan Lovells

Emergency arbitrator (“EA”) applications are fast gaining popularity among both arbitral institutions and international arbitration users.

EA provisions were first introduced in the 2010 SIAC Rules to address the need for emergency interim relief before a tribunal is constituted, and many arbitral institutions have adopted relatively similar EA procedures over the past decade. For example, SIAC has administered a total of 72 EA applications as at December 2017,1)http://siac.org.sg/images/stories/articles/annual_report/SIAC_Annual_Report_2017.pdf jQuery("#footnote_plugin_tooltip_4394_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); while 84 applications for ICC EA procedure have been made as of July 2018.2)ICC News 31 July 2018, https://iccwbo.org/media-wall/news-speeches/icc-court-releases-full-statistical-report-for-2017/ jQuery("#footnote_plugin_tooltip_4394_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The types of relief sought through these applications include preservation orders, freezing orders, Mareva injunctions and general injunctive relief.

Given these developments, it is now worth considering compiling the best practices for both EAs and parties to employ once such an EA procedure is established. We consider several such practices below.

Establishing the procedures early in the process: In general, EA rules permit the arbitrator to set his own procedure, which should be clear from the outset. Such procedures may include the timelines for exchange of submissions, a hearing (if any), the scope of the reply submissions, the mode of communications between the parties and evidence which can be adduced.

Tribunal secretaries / arbitral clerks can be of real assistance to both an EA and parties in view of the tight timelines. Parties should be informed at the outset of the option of and the practical advantages of speed and efficiency in appointing a tribunal secretary / arbitral clerk to assist the EA.

Establishing points of agreement between the parties: EAs should identify points of agreement between the parties, especially on issues which go towards the EA’s jurisdiction. For example, it would be prudent to confirm parties’ positions on the seat of the arbitration and applicable arbitration rules at the outset, which may be determinative of the scope and limits on the EA’s powers to order emergency relief sought.

Clarity on the standards for awarding emergency relief: As suggested by the point raised above, different national courts apply different standards in awarding emergency relief. Clarity would be welcome as to what these standards applied should be and whether they should be the same for the EA and main tribunal. We think no arguable grounds exist as to why an EA should apply different standards in granting relief simply because the parties’ application came before the main tribunal was constituted.

Holding a hearing versus conduct on paper: In a time of greater user dissatisfaction with the time and costs involved with the arbitration process, due consideration should be given as to whether the parties are heard via an in-person hearing, or solely on written submissions. The EA may also consider whether any hearing is held by phone or video conference, with such options specifically referred to in various institutional rules including the SIAC, the LCIA and the ICC.3)See SIAC Rules 2016, Schedule 1, item 8; LCIA Arbitration Rules 2014, Article 9.7; ICC Rules of Arbitration 2017, Appendix IV(f) jQuery("#footnote_plugin_tooltip_4394_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Such options should be expressly stated in the practice note of best practices in an EA procedure.

Orders versus Awards: The nature of decisions of EAs (and whether they are rendered as an “award” or an “order”) should be a consideration for reasons of enforceability. Although most institutions which provide for emergency arbitration expressly clarify that those rulings are binding on the parties (for example, SIAC Rules 2016 Schedule 1, Item 12), none provide a precise route for enforcement in the event of non-compliance, and the issue of enforcement remains uncertain.

The EA should keep in mind that the New York Convention applies to the “recognition and enforcement of arbitral awards” (emphasis added). Whilst the SIAC 2016 rules provide the EA with power to order an award or any interim relief deemed necessary,4)SIAC Rules 2016, Schedule 1 item 8 jQuery("#footnote_plugin_tooltip_4394_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); not all institutions are as accommodating. For example, the ICC Rules provide that the EA’s decision shall take the form of an order,5)ICC Arbitration Rules 2017, Appendix V, Article 6(1) jQuery("#footnote_plugin_tooltip_4394_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); thus avoiding the ICC’s scrutiny process for awards which would delay the issuance of the decision. Article 29(2) of the ICC Rules also notes, however, that “the parties undertake to comply with any order made by the emergency arbitrator“, which may generate reluctance on a party to breach such an undertaking. More generally, however, there is still uncertainty regarding whether a national court would enforce the EA’s decision under the provisions of the New York Convention.

When it comes to the form of the order sought, the EA may also wish to consider adopting some standard forms, in particular for more typical relief such as Mareva injunctions. In litigation, the parties often look to the standard forms located in the civil procedure rules, and as there is no guidance currently offered to EAs, it may prove useful to adopt similar practices into the EA process.

Dealing with non-responsive parties in urgent situations: Although there is a general assumption that parties to an arbitration agreement will cooperate and actively participate in the proceedings, this is not always the case, and institutional rules often fail to deal with this situation, particularly in the context of an EA. As a first step, EAs should ensure that the non-participating party received proper notice of the EA application. Further, given the urgency of the proceedings, an EA should continue the proceedings despite such a situation so that the process is not stopped or frustrated by the party’s non-participation. In this regard the EA should also satisfy him or herself that the applying party has demonstrated that there is an urgency that cannot await the constitution of the tribunal, that there is risk of irreparable or serious harm, proportionality and a prima facie case on jurisdiction and the merits.

Dealing with non-compliance: While the 2012 amendments to the Singapore International Arbitration Act provides for the enforceability of awards and orders issued by EAs, enforceability of decisions by EAs remains a real concern to parties.6)http://arbitrationblog.kluwerarbitration.com/2017/07/14/interim-relief-emergency-arbitration-upcoming-goal-still-illusion jQuery("#footnote_plugin_tooltip_4394_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While “the record of enforcement of emergency arbitrator decisions is, on the whole, quite positive“7)Santens and Kudrna, ‘The State of Play of Enforcement of Emergency Arbitrator Decisions”, in Maxi Scherer (ed), Journal of International Arbitration at [8] jQuery("#footnote_plugin_tooltip_4394_7").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, EAs and the main tribunal should consider whether they have the powers to order costs for non-compliance with the EA’s decision. Cost allocation has the promise of having direct impact on the parties’ compliance with an EA’s decisions. In practice, parties may also be motivated by the perception that non-compliance may adversely affect the main tribunal’s opinion of the party in breach.

Cross-undertakings and when to fortify with security: A cross-undertaking refers to an undertaking made by a party applying for interim relief to compensate the respondent if it is subsequently determined that the applicant was not entitled to the interim relief granted. The EA may consider requiring security in cases where there appears to be a sufficient risk of loss (including the likely kind and degree) requiring fortification.8)Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2014] EWCA Civ 1295, as referenced in Practical Law, ‘Court’s wide discretion regarding conditions for granting or continuing an injunction (High Court) jQuery("#footnote_plugin_tooltip_4394_8").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); EAs may also consider whether an undertaking from the respondent would be more appropriate on balance than the emergency relief sought.

Dealing with applications for costs: Many arbitral rules require the EA to allocate costs in their decision. For example, the SIAC arbitration rules (Schedule 1, Rule 13) give power to the EA to provide an initial apportionment of the costs, subject to the power of the main tribunal to determine finally the apportionment of such costs. Note however that this power is discretionary and, in addition, no further guidance is provided. Accordingly, it may be desirable to defer the issue of costs to the arbitral tribunal or at least until after the substantive application has been dealt with. Alternatively, the EA may wish to make an initial order for costs, but defer payment of the costs until the tribunal has been appointed, leaving it open to the tribunal to incorporate the costs of the emergency arbitration into the costs award of the arbitration as a whole.9)Kluwer Arbitration, ‘The Practice of Emergency Arbitration’, Belgian Review of Arbitration (van Hooft and Tossens (eds); Jan 2017, at 9 jQuery("#footnote_plugin_tooltip_4394_9").tooltip({ tip: "#footnote_plugin_tooltip_text_4394_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Closing Observations

EA caseloads for various institutions remain on the rise and parties continue to see value in EA proceedings as opposed to relief from national courts for reasons of confidentiality, time and cost effectiveness and impartiality of the relevant national court. Accordingly, guidance for EAs and parties would be of value now more than ever. Speed is often the aim of the game when it comes to EA proceedings and the above are just some of the factors that should be considered to improve efficiency in the process.

References   [ + ]

1. ↑ http://siac.org.sg/images/stories/articles/annual_report/SIAC_Annual_Report_2017.pdf 2. ↑ ICC News 31 July 2018, https://iccwbo.org/media-wall/news-speeches/icc-court-releases-full-statistical-report-for-2017/ 3. ↑ See SIAC Rules 2016, Schedule 1, item 8; LCIA Arbitration Rules 2014, Article 9.7; ICC Rules of Arbitration 2017, Appendix IV(f) 4. ↑ SIAC Rules 2016, Schedule 1 item 8 5. ↑ ICC Arbitration Rules 2017, Appendix V, Article 6(1) 6. ↑ http://arbitrationblog.kluwerarbitration.com/2017/07/14/interim-relief-emergency-arbitration-upcoming-goal-still-illusion 7. ↑ Santens and Kudrna, ‘The State of Play of Enforcement of Emergency Arbitrator Decisions”, in Maxi Scherer (ed), Journal of International Arbitration at [8] 8. ↑ Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2014] EWCA Civ 1295, as referenced in Practical Law, ‘Court’s wide discretion regarding conditions for granting or continuing an injunction (High Court) 9. ↑ Kluwer Arbitration, ‘The Practice of Emergency Arbitration’, Belgian Review of Arbitration (van Hooft and Tossens (eds); Jan 2017, at 9 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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PRC Court Upholds ICDR Award Relating to International Franchise Agreement

Wed, 2019-01-09 22:00

Pan Huiwen

On 12 June 2018, the Xiamen Intermediate People’s Court of PRC (“Court”), in Subway International B.V. v Xiamen Woguan Enterprise Management Co., Ltd, upheld an ICDR award made by sole arbitrator Charles J. Moxley Jr., Esq.1)The author would like to thank Judge Chen Yanzhong of Xiamen Maritime Court for his comments on the earlier drafts of the piece. jQuery("#footnote_plugin_tooltip_2071_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2071_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This case raised some important questions in the recognition and enforcement of arbitral awards in China, which have been previously covered on the Blog: determination of arbitration agreement’s foreign applicable law; application of international conventions and arbitration rules of foreign arbitration institutions; and above all, the arbitrability of contractual parties’ tax disputes.

Case Summary

On behalf of Subway International B.V. (“Subway”), two authorized directors Patrica Demarals and David Worroll from Subway signed two separate franchise agreements (“Agreements”) with Xiamen Woguan Enterprise Management Co., Ltd (“Woguan”) in October 2010. According to the Agreements, Woguan was obliged to pay royalty, advertisement fees and other fees to Subway. However, Woguan failed to pay and Subway applied for arbitration in accordance with the arbitration clause in the Agreements. The sole arbitrator found Woguan to have breached the Agreements. It granted RMB 76,823 in liquidated damages to Subway and ordered Woguan to pay arbitration fees and arbitrator’s fees in the amount of USD 23,615.

Since Woguan failed to comply with the ICDR award, Subway applied to the Court for recognition and enforcement of the award.

In its pleadings, Woguan sought to have the arbitral award’s recognition and enforcement be refused on various grounds: (ⅰ) Invalid arbitration clause; (ⅱ) Breach of due process by the arbitral tribunal; and/or (ⅲ) Breach of arbitrability principle by the arbitral tribunal in dealing with the issue of the taxes payable.

As regards the validity of the arbitral agreement, Woguan argued that Patrica Demarals and David Worroll were not authorized to sign the Agreements on behalf of Subway. Furthermore, although the Agreement provided for the intention to arbitration and arbitration rules, it did not mention the specific arbitral tribunal, so the arbitral agreement was invalid. The Court rejected Woguan’s argument. It found that, according to commercial register from the Netherlands’ Chamber of Commerce, Patrica Demarals and David Worroll are both Subway’s directors with independent authority to sign the Agreement. A Director’s authority is a matter of legal fact, the existence of which is not affected by whether authority certificate was shown to Woguan or not. Moreover, by initiating the ICDR arbitration, Subway has confirmed its attitude towards the Agreements. Article 10 of the Agreement provides that contractual disputes should be referred to ICDR for arbitration and UNCITRAL Arbitration Rules should apply. The seat of arbitration should be New York. Thereby, the Court concluded that Woguan’s argument was baseless both in fact and law, the arbitration agreement was valid indeed.

As regards breach of due process by the arbitral tribunal, Woguan argued that relevant persons did not have the authority from Subway to apply and submit materials to the tribunal. However, the Court found that Subway raised no objections as to this point. Woguan further argued that it was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case. The Court held that Woguan’s argument was contrary to the Agreements it signed with Subway. According to article 10 of the Agreements, both parties agree to complete the arbitration proceeding as soon as possible. Unless one party wishes an oral hearing, at the request of the parties or with their consent, the arbitrator may hear and decide the case on the basis of documents only. Meanwhile, the procedural history section of the arbitral award found that when applying for arbitration, Subway requested for the case to be heard on the basis of documents only and Woguan raised no objections. The tribunal provided opportunity for both parties to request for an oral hearing. However, both parties waived the right. Furthermore, both parties had submitted a large amount of materials to support their respective positions and claims. During the arbitral hearing, Woguan even filed a counter-claim. In conclusion, the Court held that Woguan’s breach of due process allegation is without factual basis. Woguan had received proper notices of the arbitration proceeding and presented his case accordingly.

As regards arbitrability relating to the tribunal’s dealing of taxes payable, Woguan asserted that taxes payable in the Agreements was not arbitrable. The Court did not agree with Woguan in this point, holding that it was contractual parties’ agreement as to the burden of taxes payable which did not involve or impact the exercise of administrative right by China’s tax authority. The Court ruled that the tribunal’s founding was consistent with the principle of arbitrability. As to the burden of arbitration fees and arbitrator’s fees, according the Agreements and UNCITRAL Arbitration Rules, the Court ruled that it was within the scope of the tribunal’s authority to determine on this point. Woguan’s argument was rejected accordingly.

Analysis

The ruling once again shows PRC court’s approach of minimal intervention in judicial review of foreign arbitral award. It gives effect to party autonomy and that of arbitral tribunals empowered by the will of the parties. International commercial and arbitration community may make positive reference from the ruling when assessing Chinese court’s attitude towards judicial review of foreign arbitral award.

The ruling by the Xiamen Intermediate People’s Court of PRC touches on one contentious issue in international arbitration: the degree of judicial review over tax burden agreed by parties in commercial contract. Arguments do exist to suggest that tax issues should remain beyond the reach of private adjudicators. However, arbitration of tax-related disputes proves very much a reality despite the doctrinal objections. Arbitrators routinely address problems of taxation in the context of ordinary commercial contracts. The arbitrability of tax disputes remains highly fact-intensive.2)William W. Park, Part II Substantive Rules on Arbitrability, Chapter 10 – Arbitrability and Tax in Loukas A. Mistelis and Stavros L. Brekoulakis (eds), Arbitrability: International and Comparative Perspectives, (Kluwer Law International 2009) pp. 179. jQuery("#footnote_plugin_tooltip_2071_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2071_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Although no hard-and-fast rule prohibits all tax arbitration per se, the Court ‘s ruling clarifies that if contractual parties’ agreement as to tax burden does involve or impact the exercise of administrative right by China’s tax authority, relevant disputes will not be arbitrable. Through prudent review, the limit between exercise of administrative right in public law and freedom of contract in private law was drawn, excessive judicial review of foreign arbitral award was avoided and substantial rights of both parties were legally protected under New York Convention (“Convention”).

It is worth mentioning that Subway’s application to the Court was to have the award recognized and enforced. According to the Notice concerning Relevant Issues of Centralized Handle over Cases of Judicial Review of Arbitration issued by the Supreme People’s Court (“SPC Notice”) in 2017, division specialized in the trial of foreign-related lawsuits is responsible for handling cases of judicial review of arbitration in China, including the judicial review of application for recognition and enforcement of foreign arbitration award. In judicial practice, according to research on court judgments published on http://wenshu.court.gov.cn/, most courts do comply with the SPC Notice recognizing and enforcing foreign arbitration award by the same division and in one proceeding and ruling. However, the Court opined that Subway should file the enforcement application with other competent authority (i.e. the Court’s enforcement division). The Court confined its finding to the conditions upon which recognition was satisfied or not. Not only would such practice result in conflicting rulings by different court divisions when handling recognition and enforcement separately, but also lead to unnecessary delay in the enforcement of arbitration award which may discourage business people from choosing Xiamen as the seat of enforcement.

National courts are required under Article III of the Convention to recognize and enforce foreign awards in accordance with the rules of procedure of the territory where the application for recognition and enforcement is made and in accordance with the conditions set out in the Convention. However, the competent court/court division to be seized with the enforcement application is not regulated by the Convention and thus regulated by national law. Hopefully, with the further implementation of the SPC Notice, court practice of judicial review of arbitration award in China will be more efficient and harmonized to further strengthen the pro-arbitration position of Chinese courts.

References   [ + ]

1. ↑ The author would like to thank Judge Chen Yanzhong of Xiamen Maritime Court for his comments on the earlier drafts of the piece. 2. ↑ William W. Park, Part II Substantive Rules on Arbitrability, Chapter 10 – Arbitrability and Tax in Loukas A. Mistelis and Stavros L. Brekoulakis (eds), Arbitrability: International and Comparative Perspectives, (Kluwer Law International 2009) pp. 179. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Give Me the Facts and I’ll Give You the Law: What Are the Limits of the Iura Novit Arbiter Principle in International Arbitration?

Wed, 2019-01-09 21:00

Christian Collantes

The discussion about whether and how the arbitral tribunals can apply the iura novit arbiter (INA) principle has been widely debated in different studies of international arbitration. INA allows the arbitrator to amend and to replace wrongly invoked law or the law not invoked by the parties. However, the arbitrator cannot go beyond the request, base its decision on facts other than those claimed by the parties, or exceed the mission entrusted in the arbitration agreement as to the applicable law, under penalty of putting the future award at risk of possible cancellation for contravening the principles of congruence, contradiction, and due process.

Determining what law governs in international arbitration is a complex task that has been the subject of several studies,1) KAUFMANN-KOHLER, Gabrielle. The Arbitrator and the Law: Does He/She Know It? Apply It? How? And a Few More Questions. Arbitration International, Volume 21, Issue 4, December 2005, p. 631-638. jQuery("#footnote_plugin_tooltip_7523_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as arbitrators normally deal with different rules that could be simultaneously applicable: the substantive law or lex causae, the law applicable to the agreement of arbitration, the lex arbitri and the regulation of the arbitration institution. Many times these refer to different national rights and even different legal systems.

To contextualize the above, according to ICC statistics,2) ICC Dispute Resolution Bulletin, Issue 2, 2018, ICC Practice and Procedure, p. 61. jQuery("#footnote_plugin_tooltip_7523_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); in 2017, the laws of 104 different nations was applied. In 99% of the cases, the arbitrators chose the applicable national law while only 1% of the contracts opted for soft law, e.g. UN Convention on the International Sale of Goods (5), EU legislation (5), the UNIDROIT Principles of International Commercial Contracts (1), Lex Mercatoria (1), “International Customary Law” (1), UNCITRAL Law (1) and the ICC Incoterms (1).

On the other hand, there are precedents from ICSID annulment committees that have accepted that INA is a “power” that arbitrators must apply. Likewise, the application of INA has been accepted in non-ICSID investment treaty arbitrations, e.g., in Bogdanov v. Moldova, Case SCC 93/2004.

 

Who is in a better position to know the law?

Arbitral tribunals are in a better position to know the law. A decision-making process that eliminates the discretion of arbitrators in applying the law is not consistent with the purpose of the mission entrusted to them by the parties through the arbitration agreement.

“Knowledge of law” must be understood in a manner related to the specific case. The arbitrator is not obliged to know all the laws, but his mission is to use the legal tools (within the rules of the game) to settle the dispute in accordance with justice. Is it not precisely for this reason that they were appointed by the parties? It would be absurd to say that a tribunal exercises its powers to settle the dispute only on the basis of what has been said by the parties.

If within their analysis of the laws the arbitrators identify some rule or principle that has been ignored by the parties (involuntarily or intentionally) and that could be crucial for the decision of the case, should the tribunal simply ignore said rule or principle because the parties did not mention it? The task of the tribunal to submit an award strictly according to law is not bound by what has been said by the parties.

This has been understood, e.g., in Duke Energy International Peru Investments No. 1 v. Republic of Peru, ICSID Case No. ARB / 03/28, annulment (March 1, 2011), paragraph 96:

The concept of the ‘powers’ of a tribunal goes further than its jurisdiction, and refers to the scope of the task which the parties have charged the tribunal to perform in discharge of its mandate, and the manner in which the parties have agreed that task is to be performed.

Also, that the arbitral tribunals do not pronounce on a question that the parties have submitted constitutes a breach as well of the mandate that the parties have granted them in the agreement.3) Vivendi c. Argentina, Decision on Annulment, paragraph Nº 86. jQuery("#footnote_plugin_tooltip_7523_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Faculty or duty?

INA is not a faculty of the tribunal, because the institutionality of arbitration would be jeopardized if the arbitrators had the freedom to decide, at their discretion, to apply the laws. Likewise, and by definition, a faculty does not contain any obligation or burdensome consequences for its owner due to its non-observance.

Instead, INA constitutes an imperative and it is the responsibility of the arbitrator to redirect the legal foundations of the parties when they are insufficient (whether involuntarily or intentionally) to resolve the dispute with justice. Therefore, it would not be an arbitrary act that the arbitrators can apply the appropriate rules to the facts exposed by the parties.

Our position is the application of the INA is a duty that must be exercised by the arbitrator but under certain limits, mainly based on the need to protect the future award of the arbitral tribunal, since accepting the contrary would violate the right to due process.

 

Possibility or reality?

The INA principle is widely accepted in judicial litigation, particularly in Civil Law jurisdictions such as Germany, Switzerland, Sweden and Finland. In the Common Law jurisdictions where the adversarial system prevails and it is the parties who contribute the integrally to the debate, this principle is not even known.4) Lew, Julian; Mistelis, Loukas; Kroell, Stefan. Comparative lnternational Commercial Arbitration, La Haya: Kluwer Law International, 2003, pp. 725-726. jQuery("#footnote_plugin_tooltip_7523_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

However, the applicability of INA is not linked to a division between Civil Law and the Common Law jurisdictions. Rather, the central axis of the problem is the evaluation by the courts of the extent to which the arbitral tribunals have taken the parties by surprise when applying the INA.

In this regard, it is worth bearing in mind the criteria raised from Article 34(1) and (2)(g) the English Arbitration Act 1996,5) “(1) It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter. (2) Procedural and evidential matters include (…) g) whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law“. jQuery("#footnote_plugin_tooltip_7523_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); or to follow the International Law Association Recommendations on Ascertaining the Contents of the Applicable Law in International Commercial Arbitration (Resolution Number 6/2008), whose points 10 and 11 indicate that “If arbitrators intend to rely on sources not invoked by the parties, they should bring those sources to the attention of the parties and invite their comments, at least if those sources go meaningfully beyond the sources the parties have already invoked and might significantly affect the outcome of the case. Arbitrators may rely on such additional sources without further notice to the parties if those sources merely corroborate or reinforce other sources already addressed by the parties […]”.

Along the same lines, Fouchard, Gaillard and Goldman argue that the use of INA is inadequate in arbitration; however, they suggest a practical solution: arbitrators should offer the parties the opportunity to discuss the laws that they intend to apply. The exception to this rule would be if the rule invoked is of such a general nature that it was understood to be included implicitly in the allegations.6) FOUCHARD, GAILLARD & GOLDMAN. International Commercial Arbitration. Boston: Kluwer Law International, 1999, p. 692. jQuery("#footnote_plugin_tooltip_7523_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7523_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The pathological scenario in the application of INA in international arbitration arises when any of the parties is not allowed to adequate defense on the arguments presented by the arbitral tribunals. Since the arbitration does not have a second instance to review the merits of the dispute, the position of arbitrators regarding the application of the principle is somewhat skeptical, careful and reserved.

 

Recommendations

In order to allow courts to fulfill their duty and legally shield their decisions, we make the following recommendations:

  • Parties should be guaranteed sufficient opportunity to present their cases.
  • The petitum and the factual grounds of the causa petendi are not a matter of discussion in the application of INA.
  • The general rule is that the tribunal cannot find a ratio decidendi in an element other than the causa petendi invoked (principle of congruence).
  • If the arbitral tribunal omitted the application of rules of public order, this would jeopardize the validity of the arbitral award, its subsequent recognition and enforcement.
  • For its application, it is not enough for the arbitral tribunal to conclude that the application of the jura novit curia principle is acceptable at the seat of arbitration.
  • The application of INA should be analyzed in the context of the provisions of lex arbitri regarding the annulment of arbitral awards, since they constitute the external limits of the tribunal’s authority to determine the content of the lex causae.
  • The court should also examine the context of the denial of execution rules in the different jurisdictions in which it is necessary to apply the award.

In conclusion, in international arbitration, it is an inherent duty of the arbitrator arising from the agreement of the parties that, in case they have legitimate doubts about specific points of the law, arbitrators can investigate on their own to clarify these doubts and take into account such inquiry at the moment of forming their criteria for the resolution of dispute, under the limits indicated here.

References   [ + ]

1. ↑ KAUFMANN-KOHLER, Gabrielle. The Arbitrator and the Law: Does He/She Know It? Apply It? How? And a Few More Questions. Arbitration International, Volume 21, Issue 4, December 2005, p. 631-638. 2. ↑ ICC Dispute Resolution Bulletin, Issue 2, 2018, ICC Practice and Procedure, p. 61. 3. ↑ Vivendi c. Argentina, Decision on Annulment, paragraph Nº 86. 4. ↑ Lew, Julian; Mistelis, Loukas; Kroell, Stefan. Comparative lnternational Commercial Arbitration, La Haya: Kluwer Law International, 2003, pp. 725-726. 5. ↑ “(1) It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter. (2) Procedural and evidential matters include (…) g) whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law“. 6. ↑ FOUCHARD, GAILLARD & GOLDMAN. International Commercial Arbitration. Boston: Kluwer Law International, 1999, p. 692. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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