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Communication and Conflict Blog - Thu, 2018-12-27 11:26
A free e-book - Contemplations on Communication and Conflict -7 articles on conflict resolution/interpersonal communication articles from the Newsletter archive.

Proposed Repeal of Section 11 (6A) of the Arbitration and Conciliation Act, 1996: Who Decides the Question of Existence of an Arbitration Agreement?

Kluwer Arbitration Blog - Thu, 2018-12-27 05:14

Sugandha Batra

Introduction

Section 11 of the Arbitration and Conciliation Act of India, 1996 (the Act), demonstrates in detail the procedure for appointment of arbitrators. It empowers the court to examine the existence of an arbitration agreement while deciding the application for such appointment. The gravity and significance of such proceedings is vast, in both domestic and international arbitrations, as they ascertain that any inadvertent or conscious failure to constitute an arbitral tribunal does not hold up the commencement of arbitral proceedings.

With the Arbitration and Conciliation (Amendment) Bill, 2018 (the 2018 Bill), progeny of the Justice B.N. Srikrishna Committee (the Committee), the legislature proposes to bring about significant changes to Section 11, to augment the growth of institutional arbitration in India which also include doing away with the requirement of examination of the existence of an arbitration agreement by the courts. Certain amendments proposed at diminishing the role of the judiciary may, however, lead to counter-intuitive ramifications.

I attempt to reason here that some degree of judicial intervention, especially when it comes to the question of determining the existence of an agreement, is necessary to ensure that the dispute resolution process does not become unnecessarily protracted.

The scope of existing Section 11(6A)

Since the decision in SBP vs. Patel Engineering AIR 2006 SC 450, it was within the powers of the court to preliminarily decide its own jurisdiction to entertain the arbitration petition and also the existence of a live claim i.e. one not hit by limitation. Distinct categories of issues, which are within the domain and competence of the Court while exercising powers under Section 11, were discerned by the Supreme Court (the SC) in the subsequent case of National Insurance Company Limited v. Boghara Polyfab Private Limited (2009) 1 SCC 267, vis-à-vis (i) issues which the Chief Justice or his designate is bound to decide i.e. decisions on the jurisdiction and existence of a valid arbitration agreement; (ii) issues which he can also decide i.e. whether the claims made by the parties are tenable., and (iii) issues which should be left to the Arbitral Tribunal to decide.

The position hereinabove was narrowed down altogether under the 2015 Amendment Act with the insertion of Section 11(6A) and the power of the court is now confined only to the examination of the existence of an arbitration agreement. While every other power of the Court under Section 11 was curtailed by the 2015 Act, the legislature thought it appropriate, and rather necessary, to insert clause 6A, leaving it to the court to decide on the existence of a valid arbitration agreement, no more and no less.

In the case of Duro Felguera, S.A. v. Gangavaram Port Limited (2017) 9 SCC 729, one of the initial cases on Section 11 (6A), the SC succinctly analysed its scope and effect. While the factual matrix of the case was rather complex, involving disputes arising out of six agreements, the Court took a simplistic view in appointment of tribunals, limiting itself to deciding the existence of a valid arbitration agreement, strictly in terms of Section 11 (6A). Since there were six arbitrable agreements, each containing an arbitration clause, the SC appointed six separate tribunals.

The SC has, however, redefined the scope of Section 11 in a recent judgment in United India Insurance Co. Ltd. & Anr. vs. Hyundai Engineering and Construction Co. Ltd. & Ors. Civil Appeal No. 8146 of 2018, pronounced on 21.08.2018. The apex court elucidated on the ambit of Section 11(6A) and clarified that holding that no other enquiry (apart from that on the mere existence of an arbitration agreement) can be made by the Court while examining the arbitration agreement, would be misreading the decision in Duro Felguera and the amended provision

Recommendations of the Committee and the 2018 Bill

A cardinal recommendation of the Committee is the constitution of the Arbitration Council of India (the ACI) that would grade arbitral institutions in India and set benchmarks for their performance. The 2018 Bill has finally assigned the pivotal role of appointment of arbitrator(s) to arbitral institutions designated by the Supreme Court.

The 2018 Bill, while specifying that the appointment shall be made by the arbitral institution designated by the SC, proposes to delete Section 11(6A), taking away even, what can be termed, the residual powers of the Court to decide the question of the existence of an arbitration agreement. This recommendation is in consonance with the kompetence-kompetence principle of an arbitral tribunal ascertaining its own jurisdiction.

Who decides on the existence of an arbitration agreement?

The question which begs consideration now is, with the power to appoint an arbitrator being divested to arbitral institutions and the contemporaneous deletion of Section 11 (6A), will an arbitration commence without any decision as to the existence of a valid arbitration agreement on a mere reference to the arbitral institution?

Deciding on the existence of an arbitration agreement is, a small, but a significant power exercised by the Courts. Section 11 (6A) was inserted with the intent to provide relief against frivolous and misconceived actions by implementing a system for actual costs as is implemented in the UK and other jurisdictions. The decision of the Supreme Court in United India Insurance has further clarified that in order to avoid any prejudice being caused to a party, it is not only vital to determine the existence of an arbitration agreement, but it is also imperative that the arbitration clause and the dispute raised may be examined. The repeal of Section 11(6A) would entail automatic appointment of tribunals even for claims that are not legally arbitrable vis-a-vis tenancy, guardianship, insolvency, winding up of companies and various matters which cover rights in rem. The appointment may eventually be rendered futile if the arbitral tribunal were to ultimately conclude that there does not exist a valid arbitration agreement, leading to further delays.

Loopholes in the Committee’s recommendations

The Committee recognized that examining whether a valid arbitration agreement exists or not, could lead to delays as extensive evidence and arguments may be led on the same, and hence recommended the deletion of clause (6A). The committee, with an aim to reduce interference of the judiciary in the arbitration processes, drew inspiration from various regimes vis-à-vis Singapore, Hong Kong, United Kingdom etc., while recommending that similar systems be embraced in India as it would circumvent any delays and set the momentum for institutional arbitration in India.

The Committee has however ignored the provisions of Section 18 of the English Arbitration Act, 1996 (which is in consonance with Section 11 of the Indian Act) which requires that the party applying to the court for appointment of arbitrator must establish a “good arguable case” that a tribunal would have jurisdiction to hear the case, and emphasises that any jurisdictional arguments remain matters for the tribunal to decide in accordance with the principle of kompetenz-kompetenz. (Silver Dry Bulk Company Limited v Homer Hulbert Maritime Company Limited [2017] EWHC 44 (Comm). Thus, there is an initial threshold test that must be met in order for an application under section 18(3) to succeed. In the Indian context, with the proposed deletion of Section 11(6A), the requirement of meeting the initial threshold of the existence of a valid arbitration agreement has been done away with. The consequences of this could be precarious.

Conclusion

The recommendations of the committee, propounded at a) divesting the power of appointment of arbitrators entirely to the arbitral institutions and b) the omission of Clause 6(A) which necessitates a court seized to delve into the existence of an arbitration agreement before progressing with an application filed under Section 11, does carry with it an element of uncertainty and ambiguity. The most common problem likely to arise will be a party challenging the validity of the arbitration agreement as a counter-blast to one party filing an application under Section 11. Explicit rules and guidelines will have to be formed and implemented if the above task is to be deputed to arbitral institutions.

The status quo is insufficient and suffers from various infirmities. The 2018 Bill does not specifically detail the scope of the ACI’s role and its powers, which is rather indispensable if the ACI is to be entrusted with the responsibility of accreditation of institutions which will ultimately be designated by the Supreme Court and the High Court to appoint arbitrators, and may even be ascertaining the existence of a valid arbitration agreement (if so provided in the future). Furthermore, the course of action to be adopted in the event where a party is objecting to the validity of the arbitration agreement itself needs to be specified.

Repeal of Section 11(6A) of the Act is likely to result in more litigation and will rather defeat the aim of expeditiously resolving applications for appointment. In the absence of any legislative clarity on the above aspects, speedy resolution cannot be ensured.

While it is important to minimize intervention of the courts to achieve prompt and expeditious results through arbitration, in the absence of a coherent system in place, some amount of judicial interference is imperative to render a degree of certainty and reduce the number of appeals and challenges arising out of pre-arbitration decisions. One hopes that the Indian judiciary endeavours to provide the requisite clarity on the controversies which inundate the instant situation.

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The US Courts and Their New York Convention Public Policy Gloss Revisited: Hardy Exploration & Production (India), Inc. v. Government of India, Ministry of Petroleum & Natural Gas: Glossing with International Comity

Kluwer Arbitration Blog - Wed, 2018-12-26 02:12

Marike R. P. Paulsson

The decision made in the case of Hardy Exploration & Production (India), Inc. v. Government of India, Ministry of Petroleum & Natural Gas (Civ. Action No. 16-140 (D.D.C. 7 June 2018)) (“Hardy case”) is yet another decision in a string of outcomes under the New York Convention proving that the repeated adagio “if it ain’t broken, don’t fix it” is at least frustrating. Public policy under Article V(2) of the New York Convention was an expression of sovereignty by the delegates agreeing to the text of the Convention in 1958 – as such has a legitimate place in this treaty, and it made sense not to dictate its exact meaning in the text itself. It would have been impossible for legislators and courts of all Contracting States to comply with a narrowly circumscribed and detailed description of public policy.

In the United States, courts have adhered to a narrow concept of public policy: fundamental notions of morality and justice. The landmark case on the matter is Parsons & Whittemore Overseas Co. Inc. v. Societe Generale de l’Industrie du Papier (RAKTA), Bank of America, rendered in the Second Circuit and followed across the nation.1)Rendered by the Second Circuit in 1974, in Yearbook Commercial Arbitration I (1976) (United States no. 7), at 205. See also M. Paulsson, “The New York Convention in Action” (Kluwer 2016), p. 218. jQuery("#footnote_plugin_tooltip_5654_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5654_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This year, the District Court of Columbia, when requested to enforce an award rendered in Kuala Lumpur, denied the enforcement under Article V, after it refused to stay the enforcement due to the pending setting aside proceedings under Article VI of the New York Convention. The award was not one that granted damages to the claimant. It was an award ordering the respondent, the Government of India, to reinstate the investor, i.e. it ordered a government specific performance.

Beware the billiard balls of sovereignty:

“[…]independent sovereigns States act too often like billiard balls which collide, and do not co-operate.” (Fali Nariman, Introduction to the New York Convention – The Convention and Sovereignty)

These are the famous words of Fali Nariman at the occasion of the Judicial Dialogue with the Supreme Court of India. In the Hardy case, the court held that the enforcement of the award would violate public policy of the U.S. (Article V(2)(b)). The Convention allows Contracting States to stop enforcement if that enforcement violates the public policy of the enforcing State. The drafting of that provision demonstrated that the right to impose sovereignty was important: States were not willing to sign on to the Convention if they could not stop enforcement in their territory of awards that somehow clashed with public policy (which, in return, is an expression of sovereignty). This is described by Nariman as the colliding billiard balls. The enforcement of this award would violate the U.S. notions of public policy of Article V(2)(b), but for reasons other than the billiard balls. Indeed, the District Court refused to enforce the award on the basis of Article V(2)(b). However, it was not for imposing on its own right of sovereignty. It was out of respect for the sovereign rights of the country against whom enforcement was requested, i.e. this is an expression of international comity.

After the award was rendered in favor of the investor, India filed for the setting aside in India, not in Kuala Lumpur, whereas an award can only be set aside in the country where the award was rendered by the competent authority. This was confirmed in the Karaha Bhodas case2)Karaha Bodas Co., L.L.C. v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara et al., 335 F. 3d 357 (5th Cir. 2003), in Yearbook Commercial Arbitration XXIX (2004), (no 482), at 1262-1297. jQuery("#footnote_plugin_tooltip_5654_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5654_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, in which the District Court of Columbia held that parties could not exclude the jurisdiction of the competent court.3)M. Paulsson, “The New York Convention in Action” (Kluwer 2016), p. 205, footnote 198. jQuery("#footnote_plugin_tooltip_5654_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5654_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); While respondent – the government of India – filed for the setting aside with the court that was not competent, the claimant filed a request with that same court, but for the enforcement of the award. An enforcement request can be filed anywhere in the world and if the country is a Contracting State to the New York Convention it must comply with its obligations under that treaty. The Indian Court applied the philosophy of Karaha Bhodas and dismissed the request for setting aside as it did not have jurisdiction to address the setting aside request. However, the court held that the court with jurisdiction was not so much a court in Kuala Lumpur but the Madras courts as the site that was the subject of the dispute was closest to that court. Then, the appellate court held that the courts with jurisdiction to address the request for setting aside would be the courts of Malaysia. This is a turn of events that puts to question the proper application of the Indian Arbitration Act. Furthermore, it is the refusal to enforce in the U.S. that begs the question: What to do with the international comity gloss of Article V(2)(b)? For, in the end, the successful party in the arbitration proceeded to request the enforcement of the award in the U.S. but unsuccessfully.

 The U.S. District Court reiterated the U.S. view on public policy under the New York Convention. The U.S. courts tend to construe the notion of public policy narrowly but then they transplant it as a gloss to Article V(1)(e). In the Pemex case, the court allowed for the enforcement of an annulled award by glossing Article V(1)(e) with public policy. The Court of Appeal in Pemex confirmed the lower court’s holding that the award could be enforced notwithstanding the annulment judgment because the latter violated the most fundamental notions of morality and justice of the United States (which is a narrow interpretation of public policy in the respective jurisdiction). However, in the Hardy case, the court went on to hold that it was the sovereign right of the government of India to control and regulate the extraction and processing of natural resources within their own territory. Therefore, the court refused to enforce the award on the basis of Article V(2)(b) because the enforcement would violate the public policy of the United States. It held that the enforcement would effectively be interference in India’s governance over its own territories. That interference – based on international comity – trumped the U.S. favorable attitude towards international arbitration and their so-called pro-enforcement bias.

The Court finds that India does not overstate the United States’ public policy interest in respecting the right of other nations to control the extraction and processing of natural resources within their own sovereign territories. (Hardy Exploration & Production (India), Inc. v. Government of India, Ministry of Petroleum & Natural Gas, Civ. Action No. 16-140 (D.D.C. 7 June 2018), memorandum opinion, p. 21.)

This is not so much the application of public policy under the New York Convention and it is not a clash of sovereignty here, but rather the opposite. It is the application of international comity, i.e. respecting the sovereignty of another State by withholding the reliance on its own sovereignty. Within the premise of the New York Convention, the US courts have done so before in the Thai Lao Ignite case.4)Thai-Lao Lignite (Thailand) v. Government of the Lao People’s Democratic Republic, (2nd Cir. 2017). jQuery("#footnote_plugin_tooltip_5654_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5654_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Over and over again, when enforcing against States, the courts of other nations seem hesitant to play a role in the enforcement against States. Whenever a court of another country is requested with the enforcement of an award against a State or a State-owned entity, there is a real chance that courts will not allow for it. For instance, a court may declare a case inadmissible because it has no jurisdiction under the doctrine of forum non conveniens.

The idea of arbitration was to provide parties in international trade with a fair forum to level the playing field: When commercial parties undertake to engage with governments or state entities for commercial purposes, both parties often agree to submit any disputes to a neutral tribunal, not to State organs – national courts. Somehow, at the end, when the enforcement of binding awards is due, nations are less willing to honor those commitments when it means they must hold other States to their obligations under those agreements to which they were not a party. With that, the U.S. courts have not only developed a practice of glossing Article V(1)(e) with public policy as explained above and in earlier posts on the Pemex case. The U.S. courts want to apply the idea of international comity when applying the New York Convention in cases where the respondent is a State and cases that involve that respondent State controlling and exercising its own sovereign rights. It appears that with these line of cases that the U.S. courts gloss Article V(2)(b) with international comity. It is their way of respecting the sovereign rights of other States and so it seems in that case the billiard balls actually do co-operate.

References   [ + ]

1. ↑ Rendered by the Second Circuit in 1974, in Yearbook Commercial Arbitration I (1976) (United States no. 7), at 205. See also M. Paulsson, “The New York Convention in Action” (Kluwer 2016), p. 218. 2. ↑ Karaha Bodas Co., L.L.C. v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara et al., 335 F. 3d 357 (5th Cir. 2003), in Yearbook Commercial Arbitration XXIX (2004), (no 482), at 1262-1297. 3. ↑ M. Paulsson, “The New York Convention in Action” (Kluwer 2016), p. 205, footnote 198. 4. ↑ Thai-Lao Lignite (Thailand) v. Government of the Lao People’s Democratic Republic, (2nd Cir. 2017). 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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From the Editors of Kluwer Arbitration Blog: 2018

Kluwer Arbitration Blog - Tue, 2018-12-25 02:22

Crina Baltag (Acting Editor)

December is the month when we slow down, enjoy the festive season and (the well-deserved) holidays. December is also the month of retrospection and of planning for the year to begin, always hoping to do better, and today we would like to do the same for the Kluwer Arbitration Blog.

Last year, we were expecting (and predicting) several developments in international arbitration. Most of them have happened and have generated considerable reaction on the Blog: the CJEU judgment in the Achmea Case, characterized as “A Loud Clap of Thunder on the Intra-EU BIT Sky” by Clément Fouchard and Marc Krestin from Linklaters in the post published the next day after the  judgment was issued; the final report of the ICCA-QMUL Task Force on Third Party Funding in International Arbitration, with its findings explained by the co-chairs of the task force, William (Rusty) Park, Stavros Brekoulakis and Catherine A. Rogers; the discussions in the UNCITRAL Working Group III on Investor-State Dispute Settlement Reform, in New York and Vienna, and the latest Free Trade Agreements signed by the EU; and a proactive approach in ensuring diversity, equality and inclusion in international arbitration, one of the main issues highlighted by the 2018 Queen Mary/White & Case International Arbitration Survey. Kluwer Arbitration Blog also continued its series of live coverages of arbitration conferences: ICCA Sydney and 2018 Hong Kong Arbitration Week. Starting with this year, we will publish a “Year in Review”, in several parts, covering geographical regions and areas of significant development reflected in the posts published on Blog.

2019 will mark the Blog’s 10th anniversary. In one of the first posts published on the Blog, Professor Roger Alford summarized the mission of the Blog as follows:

The international arbitration world is a unique epistemic community. We come from every corner of the globe and yet we all deeply care about the same issues. We number in the thousands and yet there is a remarkable degree of collegiality among our members. The arbitration world is marked by an astonishing variety of individuals who share the common attributes of cosmopolitanism, professional competence and emotional intelligence. The people in the arbitration world are a fascinating lot, and we hope to make this new forum as interesting a venue for discussion as the people who occupy this field.

We are looking forward to the next decade of the Blog in which we will make sure that, first and foremost, the Blog genuinely reflects the “unique” and “fascinating” international arbitration community.

For 2019, we are expecting an increased reaction from arbitration institutions on the current issues raised in practice and triggered by changes in national legislations or in ongoing discussions in international forums, such as the UNCITRAL Working Group III. The ICC, for example, has already published the new Notes to Parties and Arbitral Tribunals, to enter into force on 1 January 2019, and addressing the particularities of investment treaty arbitration proceedings before the ICC, as well as the interaction between GDPR and arbitration. Furthermore, 2019 is expected to be the year when arbitration will establish itself as the preferred dispute resolution mechanism in new regions and fields of law and appropriate measures and mechanisms will be implemented for this purpose. As an example, California’s Governor Jerry Brown signed the bill into law under which foreign attorneys may now participate in international arbitrations seated in California. And, of course, we will all be closely following the discussions on the ISDS reform, within the UNCITRAL and outside it.

Of course, this is also the time to acknowledge and recognise the contributions of the Blog’s many collaborators and supporters. 2018 was the year when the Editorial Board welcomed several new Assistant Editors to the Blog. It is, thus, a pleasure to introduce to our readers the Kluwer Arbitration Blog team:

Dr Crina Baltag, Acting Editor, Senior Lecturer in Law, University of Bedfordshire

Dr Gloria Alvarez, Associate Editor, Lecturer in Law, University of Aberdeen

Dr Patricia Živković, Associate Editor, Head of Legal Department at NSoft d.o.o.

Jawad Ahmad, Associate Editor, Associate, Mayer Brown LLP

Kiran Gore, Professorial Lecturer, The George Washington University Law School, Assistant Editor to the Acting Editor

Sadaff Habib, Solicitor, Beale & Company; and Liilnna Kifle, Associate, Mehrteab Leul and Associates, Assistant Editors for Africa

Esme Shirlow, King’s College, Assistant Editor for Australia and New Zealand

Fabian Bonke, Associate, Hogan Lovells; Deyan Dragiev, Associate, CMS Cameron McKenna Nabarro Olswang LLP; and Nevena Jevremovic, Association ARBITRI, Assistant Editors for Europe

Ulyana Bardyn, Senior Managing Associate, Dentons; and Giorgio Sassine, Associate, Stein Ray LLP, Assistant Editors for North America

Benson Lim, Senior Associate, Hogan Lovells, Assistant Editor for PR China, Hong Kong and Central Asia

Daniela Paez-Salgado, Associate, Herbert Smith Freehills; and Enrique Jaramillo, IHS Markit, Assistant Editors for Central and South America

Irene Mira, International Case Counsel, Asian International Arbitration Centre; and Christine Sim, Associate, Herbert Smith Freehills LLP, Assistant Editors for South-East Asia

Dalal Al Houti, Senior Associate, Al Tamimi & Company; and Zahra Rose Khawaja, Assistant Editors for the Middle East

Janice Lee; Mary Mitsi and Ashutosh Ray, Assistant Editors.

 

The Blog is also the result of the fruitful collaboration with its publisher, Wolters Kluwer, and the Editorial Board is grateful to Eleanor Taylor and Vincent Verschoor, editors and content managers with Wolters Kluwer, for ensuring that we deliver the best final product for our readers. Furthermore, the Editorial Board is particularly grateful to the permanent contributors and to the affiliates of the Blog, some being with us from the first days of Kluwer Arbitration Blog.

At Kluwer Arbitration Blog, our mission is not only to bring you the latest developments in arbitration or to encourage discussions about unsettled topics in the field. As mentioned, we strive to ensure that the diverse voices of the arbitration community are equally represented on the Blog, while being aware of the responsibility we have in shaping the arbitration practice. For this, the Blog continues to be committed in promoting young practitioners and welcomes the collaboration with Young ITA, Young ICCA, YIAG, YSIAC and AIAC YPG.

With these thoughts, we would like to thank you for reading the posts and for actively contributing to Kluwer Arbitration Blog. The editors of Kluwer Arbitration Blog are always available at [email protected].

Wishing you the best for the Festive Season and a prosperous 2019!

Dr Crina Baltag, Acting Editor, on behalf of the Editorial Board

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Apple v. EBizcuss.com: Agreeing A Forum For Your Antitrust Disputes

Kluwer Arbitration Blog - Mon, 2018-12-24 22:24

Aren Goldsmith, Rüdiger Harms and Paul Stuart

In a recent judgment providing a preliminary ruling in the case, Apple Sales International et al. v. EBizcuss.com (C-595/17, October 24, 2018) (“EBizcuss.com”), the Court of Justice of the European Union (“CJEU”) affirmed that jurisdiction clauses subject to EU law may be enforced by Member State courts in the context of actions for damages for abuse of dominance based on Article 102 TFEU.

As part of its judgment, the CJEU rejected any requirement that the jurisdiction clause make explicit reference to disputes relating to liability incurred as a result of an infringement of competition law.  The CJEU thereby confined its earlier judgment in CDC v. Akzo Nobel et al. (C-352/13, May 21, 2015) (“CDC”), which had held that such an explicit reference was a prerequisite for applying a jurisdiction clause to cartel-related claims based on violations of Article 101 TFEU.  CDC turned on the CJEU’s view that cartel-based claims would not have been foreseen by the parties at the time of contracting and thus could not be found to have been included within the scope of the jurisdictional agreement, unless explicitly identified. [see here; R. Harms/J. Sanner/J. Schmidt, EuZW 2015, pp. 584-592].  The CJEU reasoned in EBizcuss.com that claims alleging abuse of dominance based on Article 102 TFEU, unlike cartel-damages claims based on Article 101 TFEU, may be foreseeable to parties at the time of contracting.

 

Case Law In The EU Member State Courts Interpreting CDC In Connection With Agreements To Arbitrate

The judgment in EBizcuss.com did not address agreements to arbitrate and as such has no formal significance for questions of arbitral jurisdiction.  Whereas the CJEU has jurisdiction to resolve questions of EU law related to the scope of jurisdictional agreements subject to the Brussels Regulation and its Recast, it is questionable whether the CJEU has jurisdiction to resolve questions related to the interpretation of agreements to arbitrate, which are subject to national law.

Nonetheless, following the CJEU’s ruling in CDC, national courts in various EU Member States have been asked to consider the relevance of the CJEU’s case law related to jurisdiction clauses when deciding whether agreements to arbitrate drafted in general terms should be enforced to refer cartel-based damages claims to arbitration.  These Member State courts have reached different conclusions, which may be relevant where a party is considering invoking or has invoked an agreement to arbitrate in relation to claims based on EU competition law before EU Member State courts.  The CJEU’s most recent decision will likely enter into discussion as part of this emerging case law.

The first decision to consider CDC in relation to the interpretation of the scope of an agreement to arbitrate involved an action seeking damages based on an infringement of Article 81 of the (old) EC Treaty (now Article 101 TFEU).  In a 2015 decision that does not contain detailed reasoning, the Court of Appeal of Amsterdam concluded that there was no “good reason” to depart from the rule in CDC when interpreting an agreement to arbitrate drafted in general terms.  [see Kemira Chemicals Oy v. CDC, Case No. 200.156.295/01 (July 21, 2015, Court of Appeal Amsterdam), para. 2.16.]  The Court of Appeal did not consider in its decision the distinctions that exist between arbitration law and EU law related to jurisdiction clauses.

A second decision emerged from the English High Court in February 2017.  In its judgment in Microsoft Mobile OY (Ltd) v Sony Europe Limited & Ors [2017] EWHC 374 (Ch), the High Court was called upon to determine, in the context of an action alleging liability pursuant to Article 101 TFEU, an objection based on EU law to the enforcement of an arbitration agreement.  Specifically, while the defendant contended that the claim for damages under Article 101 TFEU was precluded by the parties’ agreement to arbitrate in their underlying supply agreement, the claimant contended that that agreement did not reach the claim because it did not refer expressly to disputes concerning liability incurred as a result of a competition law infringement.

The High Court first found that the relevant agreement to arbitrate reached the competition damages claim, relying on the inclusion in the contract of a specific obligation to negotiate pricing in good faith.  The English court observed that this obligation would in principle have been breached if pricing was distorted by the existence of a price-fixing cartel.  As such, there was a contractual claim falling within the arbitration agreement and the parties could be expected to have intended any tortious claim relating to the same matters to be resolved in the same forum as the corresponding contractual claim.  The fact that the claimant asserted a purely statutory tort claim and did not rely upon a contractual breach as the basis for its claims did not alter the court’s analysis, since the claimant could have alleged contractual claims.  To allow otherwise would have allowed the claimant to circumvent the agreement to arbitrate simply by choosing a tortious rather than contractual cause of action.

The High Court then addressed the question of whether enforcement of the relevant agreement to arbitrate would be contrary to the requirements of EU law, which would have rendered the agreement inoperable and ineffective if found to be the case.  In concluding that this was not the case, the English court considered at length the Opinion of Advocate General Jääskinen in CDC, whose arguments in that case were cited by the claimant in opposing arbitration before the High Court.  Specifically, the court was referred to the Advocate General’s argument that allowing arbitration would undermine EU law, including by causing the fragmentation of the relevant litigation.  The High Court rejected this line of argumentation, noting that the opinion had not been followed by the CJEU, whose judgment did not in any event reach arbitration. Thus, the High Court held as a matter of English law that the arbitration agreement could reach the tortious claim for breach of Article 101 based on an alleged secret cartel.

Most recently, in a judgment dated September 13, 2017, the Regional Court of Dortmund agreed to apply agreements to arbitrate drafted in general terms to cartel-related damages claims based on an infringement decision issued by the Bundeskartellamt (Federal Cartel Office). [see Landgericht Dortmund, Judgment of September 13, 2017 – 8 O 30/16 Kart].  The court observed that, as a matter of principle, arbitration agreements need to be interpreted broadly.  Since parties usually do not intend to split claims based on contractual obligations (falling with the scope of an arbitration agreement) and based on statutory tort claims (to be litigated in court unless deemed to fall within the scope of an arbitration agreement), the court found that the arbitration clauses should be fully applied to the relevant competition-based claim.

While the case involved two German parties and was thus not subject to the then-Brussels Regulation, the court explicitly declined to follow the CJEU’s position on foreseeability in relation to jurisdictional clauses, observing that claims of an unforeseeable nature (such as claims alleging fraud), which are unknown to one party at the time of contracting, may validly be submitted to arbitration under German law.  The court questioned the proposition that the CJEU case law relating to jurisdiction clauses subject to EU law could be applied automatically to the interpretation of agreements to arbitrate, and further questioned the competence of the CJEU to interpret agreement to arbitrate in light of the fact that arbitration is expressly excluded from the scope of both the Brussels Regulation and the Brussels Recast.  Finally, like the English High Court, the Regional Court of Dortmund rejected an argument that the principle of effectiveness of EU law would require a different conclusion.

 

Potential Relevance Of Apple Sales International et al. v. EBizcuss.com To Arbitration

The CJEU’s most recent judgment provides helpful guidance in clarifying that the CJEU’s earlier case law should not be construed as automatically precluding reliance on jurisdiction agreements worded in general terms whenever a dispute relates to infringements of EU competition law.  The recent case law should have a similar moderating effect in relation to debates over the applicability of agreements to arbitrate drafted in broad terms, at least in relation to many disputes based on infringements of Article 102 TFEU.

The CJEU’s decision to cabin its earlier case law in CDC was not a foregone conclusion.  Prior to referring this question to the CJEU, France’s Court of Cassation, in an earlier 2015 decision in the same matter, construed CDC  as precluding application of the relevant jurisdiction clause to the distributor’s claims based on an infringement of Article 102 TFEU.  [see Apple Sales International et al. v. EBizcuss.com (C-595/17, October 24, 2018), para. 15 (citing the October 7, 2015 decision of the Court of Cassation).]

While the EBizcuss.com judgment appears to allow for greater contractual flexibility overall, the CJEU’s apparent attachment to the decisional logic of the CDC case law, which turns on the foreseeability of specific types of claims, raises questions.  Just as contracting parties rarely contemplate that their contractual relationship will be affected by a secret cartel, contracting parties rarely anticipate distortions resulting from abusive behaviors by a dominant undertaking.  Parties often seek through the use of broad language to refer all disputes arising out of a commercial relationship to one forum for adjudication, and thereby avoid debates over what might or might not have been foreseen at the time of contracting.

The practical importance of the distinction that has been drawn by the CJEU will depend on parties’ willingness to invoke agreements to arbitrate in relation to different types of claims involving EU competition law.  Whereas disputes related to abuse of dominance claims often are bilateral in nature, and thus may be addressed effectively through a single arbitration, cartel-damages actions in practice usually involve multiple parties and multiple contractual relationships.  Multi-party actions may be more difficult to manage through arbitration clauses found in agreements that bind only a limited number of parties to the action.  This limitation poses particular challenges in the context of damages actions based on EU competition law.  On the other hand, certain features of international arbitration can be particularly appealing for complex disputes involving EU competition law.  For further discussion of related issues, see here; A. Goldsmith, “Arbitration and EU Antitrust Follow-On Damages Actions,” 34 ASA Bulletin 1 / 2016, pp. 10-40 (2016).]

Competition-based claims and defenses are asserted regularly in the context of complex commercial arbitrations in Europe.  Thus, parties considering the use of arbitration for disputes involving European business interests would be well advised to follow the case law discussed in this post and to consider its ramifications both at the time of contracting and when any dispute involving violations (confirmed or alleged) of EU competition law breaks out.

 

The views expressed herein are those of the authors and should not be construed as necessarily reflecting those of their firm or of any of its clients. 

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Do Parties Adopt Model Arbitration Clauses from Arbitral Institutions?

Kluwer Arbitration Blog - Sun, 2018-12-23 22:11

Christopher Drahozal

Institute for Transnational Arbitration (ITA)

Arbitral institutions commonly offer model arbitration clauses for parties to incorporate into their contracts. Gary Born has stated that “[i]n the overwhelming majority of cases, … international arbitration agreements are straightforward exercises, adopting either entirely or principally the model, time-tested clauses of a leading arbitral institution.”1) Gary B. Born, International Commercial Arbitration 212 (2d ed. 2014). jQuery("#footnote_plugin_tooltip_1706_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); But there is reason to question whether that is in fact the case. Almost thirty years ago, Stephen Bond examined clauses giving rise to ICC arbitrations and found that “the standard ICC clause, with perhaps minor variations in wording, was used in 47 arbitration clauses (20%) in 1987 and in 21 arbitration clauses (10%) in 1989, generally with the addition of the place of arbitration.”2) Stephen R. Bond, How to Draft an Arbitration Clause (Revisited), 1(2) ICC Int’l Ct. Arb. Bull. 14, 16-17 (1990), reprinted in Christopher R. Drahozal & Richard W. Naimark, Towards a Science of International Arbitration: Collected Empirical Research 69-70 (2005). jQuery("#footnote_plugin_tooltip_1706_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); So how often do parties use model arbitration clauses from arbitral institutions?

The question is one of many that John Coyle and I consider in An Empirical Study of Dispute Resolution Clauses in International Supply Contracts, 52 Vand. J. Transnat’l L. (forthcoming Mar. 2019).3) The excerpts from the article included in this post are reprinted with permission from the Vanderbilt Journal of Transnational Law. jQuery("#footnote_plugin_tooltip_1706_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); A draft of the article is available on ssrn.com. We find, consistent with the Bond study, that most of the arbitration clauses in our sample depart in notable ways from the model language suggested by international arbitral institutions—in particular, as to how the clauses define the scope of the agreement to arbitrate and how they identify the seat or place of arbitration.

 

Sample and Limitations

The sample we studied consists of 157 international supply contracts collected from filings with the U.S. Securities and Exchange Commission (SEC) from January 1, 2011 through December 31, 2015. Of those 157 contracts, 87 (or 55.4%) included arbitration clauses. The text of one of the arbitration clauses was unavailable (because the contract incorporated an arbitration clause by reference from another contract), leaving 86 arbitration clauses in the sample.

Several characteristics of the sample are worth noting:

  • First, as already indicated, the sample is limited to international supply contracts. Because the use of dispute resolution clauses varies across different types of contracts, one must be cautious in extrapolating our findings to types of contracts other than the one studied.
  • Second, almost all of the contracts in the sample have at least one U.S. party, meaning they almost always were entered into between a U.S. party and a non-U.S. party. Because the empirical results here are essentially limited to international contracts with a U.S. party, they may not be generalizable to contracts between non-U.S. parties.
  • Third, the contracts in the sample were all identified by the filing party as “material” contracts, defined by SEC regulations as contracts “not made in the ordinary course of business.”4) 17 C.F.R. § 229.601(b)(10)(i). jQuery("#footnote_plugin_tooltip_1706_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The contracts we studied thus do not include routine contracts and may not be representative of such contracts.
  • Fourth, the contracts in the sample are concentrated in three industries: the pharmaceutical industry (72 of 157, or 45.9%); companies producing medical supplies (18 of 157, or 11.5%); and manufacturers of electronic components and accessories (12 of 157, or 7.6%). Contracts from other industries may differ.
  • Fifth, while the contracts in the sample were all filed with the SEC from 2011 through 2015, some were entered into between the parties before those years. To the extent the terms of dispute resolution clauses change over time, the results here might not reflect the current state of such provisions.

 

Scope of the Arbitration Clause

An arbitration clause must define the set of disputes that the parties are agreeing to submit to arbitration—i.e., its scope. Almost all of the arbitration clauses in the sample we studied had broad, general language (all but one, which was limited to certain specified types of disputes). But the variation in phrasing of the scope language is striking. Thus, in the international supply contracts in our sample, the parties rarely followed the scope language in the model clauses suggested by leading arbitral institutions: only nine of the arbitration clauses (of 86, or 10.5%) included language matching the model clauses suggested by the International Centre for Dispute Resolution, the International Chamber of Commerce, or UNCITRAL.

Even more notable is the large degree of variation in each of the central elements of the scope language in the clauses. The 86 clauses used 20 different formulations of the disputes subject to the arbitration clause, with “dispute” or “disputes” the most common (29 clauses), “dispute, controversy, or claim” the second most common (23 clauses), and “controversy or claim” the third most common (11 clauses). They used 35 different formulations to describe the source of the dispute, with “contract” or “agreement” the most common (31 clauses) and “contract, or breach thereof” (10 clauses) the second most common. And they used 21 variations of the language describing the relationship between the two, with “arising out of or relating to” the most common (31 clauses) and “arising out of or in connection with” the second most common (11 clauses).

Overall, combining the three elements, the 86 arbitration clauses in the sample contained 70 different formulations of scope language, with no formulation being included in more than four contracts. The four most common formulations were: controversy or claim arising out of or relating to the agreement or breach thereof (4 clauses); dispute arising out of or in connection with the agreement (3 clauses); dispute arising out of or relating to the agreement (3 clauses); and dispute arising under the agreement (3 clauses).

Ultimately, the variations in language likely have little legal significance. Almost all American courts would treat most if not all of these arbitration clauses as broad clauses (rather than narrow ones),5) Restatement of the U.S. Law of International Commercial and Investor-State Arbitration § 2-15, reporters’ note (ii) to cmt. a. jQuery("#footnote_plugin_tooltip_1706_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); likely finding the clause to apply to a range of disputes collateral to the contract. But in drafting the scope language, the parties do not appear to have followed the model clauses suggested by leading arbitral institutions.

 

Choice of the Arbitral Seat

Likewise, the arbitration clauses in the sample did not follow the drafting advice of arbitral institutions in specifying the arbitral seat. The place or seat of an international arbitration is of critical importance because it determines the applicability of the New York Convention, the governing arbitration law, and the country in which actions to vacate the award must be filed.6) Id. § 1-3. jQuery("#footnote_plugin_tooltip_1706_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); All but eight of the 86 arbitration clauses in the sample specified some location for the arbitration. But of those 78 clauses, barely a third (29 of 78, or 37.2%) expressly labeled the location as the “place” or “seat” of the arbitration, or identified it as the place the award would be issued.

The remaining clauses that named a location for the arbitration did not identify it as the place or seat. Instead, they used language that expressly identified the location as where the arbitral hearing would take place (one clause, or 1.3%) or used language that was ambiguous whether it was specifying the place of arbitration or the location of the hearing. The clauses referred to the “venue” or “location” of the arbitration (4 of 78, or 5.1%), stated that disputes would be “referred,” “submitted,” or subject to” arbitration (4 of 78, or 5.1%) or “settled,” “resolved,” or “determined by” arbitration in the specified location (7 of 78, or 9.0%), or provided that the arbitration would be “conducted,” “held,” or would “occur” or “take place” in (or at) the specified location (33 of 78, or 42.3%).

As a practical matter, the ambiguity in the clauses may not matter because courts and arbitral institutions might nonetheless construe the provision as naming the arbitral seat. But at a minimum, the language further illustrates how the international arbitration clauses studied depart from model arbitration clauses. Thus, the ICDR and UNCITRAL, as well as the IBA Guidelines for Drafting International Arbitration Clauses, all recommend that arbitration clauses specifically identify the “place” or “seat” of arbitration.7) See also Born, International Commercial Arbitration, at 2124 (“It is desirable to avoid references to the ‘situs,’ ‘venue’ or ‘forum’ of the arbitration.… [T]he foregoing usages (referring to the venue, situs, or forum) produce unnecessary uncertainty and should be avoided as a drafting matter.”). jQuery("#footnote_plugin_tooltip_1706_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1706_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Most of the clauses in our sample do not follow that advice. A possible explanation is that the drafters were influenced by drafting practices in U.S. domestic arbitration, in which the arbitral seat is not a particularly relevant concept. The extent to which the drafting of domestic arbitration clauses influences the drafting of international arbitration clauses (and vice versa) is worth further research.

* * * * *

Our study of dispute resolution clauses in international supply contracts provides additional evidence that parties often do not adopt the model arbitration clauses provided by arbitral institutions and others. If that is so, it raises the further question of how parties in fact do draft their international arbitration clauses. And this issue barely scratches the surface of the information available from studying the provisions of arbitration clauses (and forum selection and choice-of-law clauses as well) in international contracts.

References   [ + ]

1. ↑ Gary B. Born, International Commercial Arbitration 212 (2d ed. 2014). 2. ↑ Stephen R. Bond, How to Draft an Arbitration Clause (Revisited), 1(2) ICC Int’l Ct. Arb. Bull. 14, 16-17 (1990), reprinted in Christopher R. Drahozal & Richard W. Naimark, Towards a Science of International Arbitration: Collected Empirical Research 69-70 (2005). 3. ↑ The excerpts from the article included in this post are reprinted with permission from the Vanderbilt Journal of Transnational Law. 4. ↑ 17 C.F.R. § 229.601(b)(10)(i). 5. ↑ Restatement of the U.S. Law of International Commercial and Investor-State Arbitration § 2-15, reporters’ note (ii) to cmt. a. 6. ↑ Id. § 1-3. 7. ↑ See also Born, International Commercial Arbitration, at 2124 (“It is desirable to avoid references to the ‘situs,’ ‘venue’ or ‘forum’ of the arbitration.… [T]he foregoing usages (referring to the venue, situs, or forum) produce unnecessary uncertainty and should be avoided as a drafting matter.”). 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 View From the United States

Kluwer Arbitration Blog - Sat, 2018-12-22 20:59

Kiran N. Gore (Assistant Editor to the Acting Editor)

As we head into the new year, it is worth reflecting on major international arbitration-related developments in the United States during 2018 and their coverage on the blog.

 

Early in the year, our authors homed in on the U.S. Federal Arbitration Act (FAA), which embodies U.S. arbitration law, including the New York Convention.  As one of our authors wrote, the FAA “is the oldest – but still functioning – arbitration statute in the world. Case law has rewritten much of its content, so that the statute’s true content is buried in federal decisional law.”  These words might as well become a mantra for relevant developments:

 

  • In January, the Ninth Circuit federal appellate court reviewed an arbitration agreement in a maritime insurance policy and considered whether it was “reverse preempted” by the McCarran-Ferguson Act. The Act permits states to “trump” otherwise applicable federal law, if (i) the state law regulates the business of insurance, (ii) the conflicting federal law does not, and (iii) the federal law would “invalidate, impair, or supersede” state insurance law.  The Court enforced the arbitration agreement under the FAA and concluded that the parties’ sophistication confirmed their ability to agree to AAA arbitration for coverage disputes (original post here).

 

  • In February, a New York state appellate court issued a decision that has curtailed “a procedural loophole in Chapter 2 of the Federal Arbitration Act.” Our author explained that New York provides an alternate path toward enforcement of foreign arbitral awards:  Under Article 53 of the New York Civil Practice Law, parties may first obtain a foreign court judgment recognizing the award, and then seek recognition of that judgment as a foreign money judgment.  This approach allows enforcing parties to obtain recognition of a foreign money judgment even if the enforcing court lacks personal jurisdiction over the debtor party (which, in contrast, is required for enforcement under the FAA).  The Court’s decision limits the utility of this tactic and we will likely see its full impact over time (original post here).

 

  • In March, a Texas federal district court considered whether, under the FAA, a consent award (entered into before a final hearing) is subject to confirmation. The respondent argued that the Court lacked jurisdiction because (i) the New York Convention is generally silent on the treatment of settlement awards and (ii) the issued award was not a reasoned award.  The Court rejected both arguments, finding that the parties requested the award, commented on a draft of it, and that the award otherwise operated within the context of the arbitration (original post here).

 

  • Finally, in May, in Epic Systems Corp. v. Lewis, the U.S. Supreme Court held in a 5-4 majority that one-on-one mandatory employment arbitration agreements must be enforced as written. The Court held that, unless the arbitration agreement violates a party’s basic contract rights (e.g., it was procured through fraud or duress), the clear terms of the arbitration agreement prevail.  Justice Ginsburg issued a thoughtful dissent which dissected the intent of the FAA’s Section 1 (original post here).

 

Out West, California emerged as a true forum for arbitration.  The Silicon Valley Arbitration & Mediation Center (SVAMC) is now a resource for the promotion of dispute resolution in the global technology sector.  Its potential is fully unlocked by foreign attorneys’ new-found ability to participate in international arbitrations conducted within the state (coverage here).

 

Of course we cannot ignore the elephant in our region:  In 2017 President Trump announced his intent to renegotiate NAFTA, which has existed unchanged since 1994.  As we waited patiently for concrete developments, our authors commented on the future of NAFTA, including the opportunity to strengthen ISDS’ public policy perspective and post-Brexit scenarios where the UK might wish to join NAFTA (part 1 and part 2).

 

In October 2018, President Donald Trump delivered what many of us have dubbed NAFTA 2.0.  But of course the treaty has a new name and a different approach to match.  The dispute resolution procedures of the proposed U.S.-Mexico-Canada (USMCA) Trade Agreement depart from NAFTA’s Chapter 11.  Our authors explored their initial impressions, analyzed specific provisions, and discussed the possible effect on ISDS globally.

 

Even after the November 30th signing ceremony at the G-20 Summit in Buenos Aires, the USMCA is not yet the law of the land.  Each country must now follow its domestic procedures for ratification, and in the U.S., this will mean Congressional approval.

 

President Trump tweeted on the same day as the signing ceremony that the USMCA represents “one of the most important, and largest, Trade Deals in U.S. and World History.”  I am inclined to agree with him.  Once finalized it will account for more than $1.2 trillion in trade in one of the world’s largest free trade zones.

 

During 2019 we are sure to see further developments in each of these areas.

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Experience, Transparency and Diversity in the Formation of Arbitral Tribunals: How to Effectively Implement it?

Kluwer Arbitration Blog - Fri, 2018-12-21 22:10

Amanda Bueno Dantas

Young ITA

The Young ITA, Arbitrator Intelligence and Pinheiro Neto Advogados joined forces to promote an edition of #YOUNGITATALKS São Paulo during the São Paulo Arbitration Week (“SPAW”) on October 24, 2018 at Pinheiro Neto Advogados’ head office.

 

Júlio Bueno, of Pinheiro Neto Advogados, Thiago Zanelato, of Pinheiro Neto Advogados and ambassador of Arbitrator intelligence – Latam Campaign, and Pedro Guilhardi, of Nanni Advogados in São Paulo and Young ITA Regional Chair for Brazil, were in charge of the opening remarks. Júlio Bueno started by drawing attention to one of the key issues of the event: diversity, while Thiago Zanelato introduced Arbitrator Intelligence’s role in Latin America and Pedro Guilhardi explained the context of the event and Young ITA’s goal to spread the study arbitration and networking among young practitioners around the globe. Marcela Kolbach, of Leste, Maurício Pestilla Fabbri, of Cescon, Barrieu, Flesch & Barreto Advogados; and Gabriella Bianchini, of Sanders Phillips Grossman UK, were invited to discuss the challenges in the choices of arbitrators and how to balance experience, transparency and diversity in the nomination process and formation of the arbitral tribunal. Rafael Villar Gagliardi, of Demarest Advogados, was the moderator of the evening.

 

The panel did not take long to reach its first conclusions on the importance and benefits of diversity in arbitration. It was overall agreed that a diverse arbitral tribunal:

  • tends to make better decisions on the merits because the combination of varied cultures and life experiences can give them different perspectives on the same issues;
  • may provide different procedural solutions as to how to organise and optimize the conduction of the procedure, enhancing arbitration’s flexibility by pushing aside an already existing common-sense as to how the proceedings should develop.

 

One of the highlighted issues of the debate on diversity was the role of counsels to present to their clients different and more diverse alternatives of potential party-appointed arbitrators.

 

Júlio raised a discussion as to whether it is a challenge for counsels to explain to their clients the advantages of having a newcomer to serve as party-appointed arbitrator. He also agreed that the lack of diversity can affect the decision on the merits since arbitrators who are already used to working together and are acquainted with each other’s views in a set of similar issues, generate a sense of predictability. A more diverse approach could create, in his view, a market where people can innovate in the awards.

 

It was said that law firms are often faced with clients that come up with an already set up mind as to who they want to be their party-appointed arbitrator when a dispute arises: be it either because of the reputation and/or experience of the arbitrator in the still very restrict arbitration market or because they have had a previous positive experience with a certain arbitrator that they wish to repeat (in every single arbitration they engage).

 

In such occasions, it seemed that all participants agreed that it is the counsel’s duty to advise their clients that every dispute is different and has its own particularities. Marcela pointed out that the parties should take advantage of one of the main features of arbitration, which is the possibility of having the dispute resolved by a specialist.

 

Rafael suggested that perhaps persuading the client to appoint a different arbitrator on the grounds of promoting diversity may not be the best approach: a good alternative would be enlightening the client of another qualified professionals on the market, explaining that sometimes the most renowned arbitrator – without any disregard to his or hers credentials – may not be an expert on the merits nor have the best profile to the case the client wants to argue in that specific dispute.

 

Sometimes when lawyers approach clients with new names to serve as party-appointed arbitrators on the argument of diversity they lose an opportunity to promote diversity because parties do not always have that mindset. Gabriella agreed and reminded that usually clients are not specialists in arbitration, and that is exactly where counsels’ duty to educate them that diversity can be an important feature to the arbitral panel comes in. Rafael questioned Marcela if the third-party funder has any kind of influence in the appointment of arbitrators by the funded party. Marcela explained that usually the funder does not intervene in this aspect of the case, even though parties frequently ask the funder’s opinion before appointing an arbitrator given its experience with the most demanded professionals in the field and potential risks of conflicts of interest.

 

The audience stepped in again to inquire the panellists weather including diversity criteria for appointing arbitrators in the arbitration clause rather than leaving the decision for the moment of the constitution of the arbitral tribunal could aid promoting diversity. Marcela responded that such cause would need to be carefully drafted not to be too restrictive and potentially backfire by affecting parties’ right to appoint the most adequate arbitrator to each dispute. Maurício pointed out that drafting such clause could be a challenge since parties more frequently than not resort to midnight clauses, meaning that issues such as diversity are not taken into consideration at the moment of execution of the arbitration agreement.

 

The audience pointed out that there are arbitration chambers in the United States of America, such as JAMS (Judicial Arbitration and Mediation Services), that provide standard clauses to help parties keep in mind the need for diversity in appointing arbitrators without setting a very strict criterion. The JAMS Diversity and Inclusion Arbitration Clause, as it is called, provides that, whenever possible, the parties will consider a diverse panel considering gender, ethnicity and sexual orientation.

 

Other important topics were raised on diversity such a current problem of law firms in progressing women’s career – affecting diversity in arbitration since law firms are the main source of arbitrators – and weather in-house diversity and inclusion policies of the clients can reflect in the appointment criteria to be considered.

 

Maurício concluded the discussion on diversity with a thought that could be taken as advice: law firms should set the example by allowing more women in positions of partnership. The same applies to other minorities. It is harder to explain to your client that there are diverse people that have the qualities to serve as an arbitrator if you do not have any example of that in your own team.

 

The discussion on experience was set by Marcela and Pedro, who pointed out two paradoxical aspects regarding arbitrator’s experience:

  • clients want (and need) to have a varied range of arbitrators with experience but are not willing to give a chance to new professionals to acquire the needed experience;
  • younger arbitrators with less experiences are usually nominated as sole arbitrators, which prevents the exchange of experiences provided by a three-member tribunal where the arbitrators have the opportunity to learn from one another.

 

The debate then shifted to finding solutions to the issues at hand: how to bring younger arbitrators to the game? Meaning: how to make more experienced arbitrators aware of the younger generation since they are not frequently in their networking? Gabriella stated that events are often a good platform. The audience suggested that trainings or guidelines to be drafted by institutions could be a solution. Rafael mentioned initiatives such as ICDR Y&I, an organisation for international dispute resolution practitioners under 40 years-old. There are other important projects to promote arbitration among younger practitioners such as the Young ITA itself. It seemed that, although there are currently a few attempts to engage less experienced professionals in the arbitration community, there is not a pre-set magical formula for making it happen.

 

The last topic of the event was transparency. The discussion was conducted under two different perspectives: commercial and investment arbitration. It was overall agreed that different standards were required depending upon the type of dispute. The panel concluded that transparency regarding appointment and formation of tribunals could be mitigated for purposes of assessing, to some extent, arbitrators’ availability, keeping in mind that the number of cases alone is often not enough to determine if a professional is available to conduct another dispute. Publishing the awards requires extra-caution to prevent the case from being recognised and that there should be a limit to mitigate confidentiality.

 

The discussions held during #YOUNGITATALKS navigated through delicate but important topics for the development of arbitration, turning the event into a very welcome contribution to the SPAW.

 

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The First ICC Kuwait Arbitration Day

Kluwer Arbitration Blog - Thu, 2018-12-20 21:30

Dalal Al Houti (Assistant Editor for the Middle East)

On 6 November 2018, the ICC, in collaboration with Al Tamimi & Company, hosted the first Kuwait Arbitration Day. This involved practitioners from across the Middle East and beyond coming together and discussing the latest developments and trends within arbitration. The event attracted over 100 participants who attended despite the day being announced as an impromptu public holiday due to heavy rain and road washouts. The first ICC Kuwait Arbitration Day was, however, no washout.

The day was divided into three sessions in which panellists from different backgrounds and experiences shared their expertise and knowledge through interactive debates. The first session addressed the advantages and disadvantages of arbitration. The second session shed light on recent developments in ICC arbitration and its impact on providing efficient and transparent proceedings. The third session specifically addressed the history and continued progress of arbitration in Kuwait.

 

Welcome Address and Keynote Speech

Dr Dania Fahs, Deputy Regional Director of the ICC, welcomed the distinguished guests and panellists on behalf of the ICC. Dr Fahs briefly addressed recent developments in the ICC rules and their positive outcome on arbitration procedures.

Essam Al Tamimi, Senior Partner and Founder of Al Tamimi & Company, delivered a keynote speech in which he emphasised the importance of raising awareness of arbitration in Kuwait and the region.

 

The Benefits of Arbitration and Model Arbitration Clauses

The first panel was moderated by Dalal Al Houti (Al Tamimi & Company) and composed of David Hunt (Boies Schiller Flexner), Dr Nagla Nassar (Nassar Law), Thomas R. Snider (Al Tamimi & Company), and Aysha Abdulla Mutaywea (Mena Chambers).

Mr Hunt discussed the advantages of using arbitration to resolve disputes and how to manage costs during proceedings and finally recommended certain disputes that should be referred to litigation rather than arbitration.

Dr Nassar considered uncertainty in arbitration clauses and how to handle arbitration clauses in a group of contracts and concluded with tips on fixing competing jurisdiction clauses.

Lastly, Mr Snider emphasised the importance of the seat of arbitration, presented slides of faulty arbitration clauses, and concluded with tips on how to eliminate ambiguity in arbitration clauses.

 

ICC Dispute Resolution and the Latest Arbitration Developments

The second panel moderated by Dr Dania Fahs (ICC) included Roland Ziadé (Linklaters), Michael Black QC (XXIV Old Buildings), and Victor Leginsky (Arbitralis). Mr Ziadé considered the impact of the recent ICC Rules amendments on the effectiveness of the arbitration procedures. Mr Black shared his insight on the positive and negative effects of third party funding. Finally, Mr Leginsky deliberated on the developments in and emergence of regional arbitration seats like DIFC, ADGM, and the QFC.

 

The ICC Rules

The revised ICC Rules took effect on 1 March 2017. Although only a few changes were made, they nevertheless have had a significant impact on the efficiency and transparency of the arbitration procedures. In line with other leading institutions, the ICC introduced key changes focused on a new expedited procedures for small claims.

Article 30 of the ICC Rules states that the expedited procedures provisions automatically apply to arbitration agreements concluded after the Rules came into force and where the amount in dispute does not exceed USD 2 million or where parties have agreed to use it.

However, parties can agree to opt out of the process and it may not apply where the Court determines that expedited procedures are not suitable.

The expedited procedure involves the Court appointing a sole arbitrator and the elimination of terms of reference. The case management conference must take place within 15 days from the date the file was transmitted to the tribunal. Additionally, the ICC Rules limit the number and length of written submissions and evidence and allow the tribunal six months to render the final award from the case management conference date.

Other changes to the Rules include reducing the time limit for the issuance of the terms of reference from two months to one month. The Rules also allow the Courts to inform the parties, upon their request, of the reasons for its decisions.

The above newly introduced revisions will help ensure that the arbitration procedures are concluded in a timely manner and are cost-efficient.

Since the implementation of the ICC Rules, the ICC has received 84 requests to opt into the expedited procedures. 25 cases have been administered by the ICC using the expedited procedures and were all concluded in accordance with the six-month time limit.

Other statistics presented by the ICC were:

a. In 2017, 219 parties from Central and West Asian countries featured in ICC arbitrations, which marks a 26% increase since 2016.
b. The top 50 countries participating (in terms of case number and number of parties represented) includes the United Arab Emirates, Saudi Arabia, and Qatar.
c. Over the last 10 years, 61 parties originating from Kuwait participated in ICC proceedings. However, in 2017 only three parties originating from Kuwait were involved in ICC arbitrations.

 

Arbitration in Kuwait: Practice and Experiences

The third panel, moderated by Dalal Al Houti (Al Tamimi & Company), consisted of Dr Yousuf Sellili (Ooredoo), Bader Saoud Al Bader, (The Law Office of Bader Saud Al-Bader & Partners), Dr Nasser Al Zaid (Kuwait Arbitration Society), and Dr Anas Al Tourah, (Kuwait Commercial Arbitration Centre). The distinguished panellists shared their expertise and insights on Arbitration in Kuwait.

Dr Sellili discussed the legal framework of the Kuwait arbitration regime, while Mr Al Bader shared his experience of practicing arbitration in Kuwait, discussing the appointment of arbitrators and the challenging of arbitrators. Dr Al Zaid addressed the history of arbitration in Kuwait and Dr Anas elaborated on the progress and functions of the Kuwait Commercial Arbitration Centre (KCAC) and the future of arbitration in Kuwait.

The consensus among the panellists of this session was that the judiciary in Kuwait is arbitration-friendly but there needs to be a stand-alone arbitration law that conforms to international standards.

 

Arbitration Regime in Kuwait

Kuwait does not have a stand-alone arbitration law. Arbitration is governed by the Code of Civil and Commercial Procedure, Law No 38 of 1980 (“CCP”) (which addresses arbitration in chapter 12, articles 173 to 188) and the Judicial Arbitration in Civil and Commercial Matter Law, Law No 11 of 1995 as amended by Law No 12 of 2013 ( “Judicial Arbitration Law”). Neither law is based on the UNCITRAL Model Law.

Kuwait does however have a strong history of supporting international arbitration, being the first GCC state to participate in the New York Convention and the ICSID Convention.

 

The Kuwait Commercial Arbitration Centre (KCAC)

The KCAC was established in 1999 with the objective of supporting arbitration for commercial dispute resolution by providing a flexible and efficient arbitration procedure. The Centre has played an active role in promoting and raising awareness of arbitration within Kuwait. It offers legal and technical assistance as well as courses to arbitrators in order familiarise themselves with the Kuwaiti laws and regulations.

The KCAC Rules provide that the UNCITRAL Rules shall apply in the absence of provisions relating to a specific matter in the KCAC Rules or the CCP.

 

Kuwaiti Courts

The Kuwaiti Courts are generally arbitration-friendly and apply the enforcement laws correctly when recognising and enforcing domestic and foreign arbitral awards. The issue is not with the application of the law but with the law itself.

Issuing a stand-alone Kuwaiti arbitration law will further strengthen Kuwait’s position as an arbitration-friendly country and will allow it to compete with neighbouring jurisdictions, most of which have recently amended their laws to comply with international standards.

 

Closing Remarks

After insightful and thought-provoking sessions, the event ended with closing remarks from Essam Al Tamimi and Jane Rahman (Al Tamimi & Company) who encouraged the Kuwaiti arbitration community to continue with the positive progress within arbitration. Talks are underway to host the second ICC Kuwait Arbitration Day next year.

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7th Asia Pacific ADR Conference Review: Innovating the Future of Dispute Resolution

Kluwer Arbitration Blog - Thu, 2018-12-20 00:00

Sue Hyun Lim

Last month, Seoul was once again brimming with eminent arbitrators and arbitration counsel, and leading alternate dispute resolution practitioners from around the world who had come to attend the Seoul ADR Festival 2018 – a much sought-after yearly event which has grown remarkably in scope and significance since it was first organized in 2015.1)This article was written with the assistance of Vaishali Sharma. jQuery("#footnote_plugin_tooltip_8384_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8384_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Seoul ADR festival finds its conceptual roots in the Asia Pacific ADR Conference first held in 2012, and unsurprisingly the ADR Conference continues to remain the Seoul ADR Festival’s flagship event. The theme of this year’s ADR Conference was “Innovating the Future of Dispute Resolution”.

Following the tradition of previous years, the ADR Conference was co-hosted by the newly launched international division of the Korean Commercial Arbitration Board (“KCAB INTERNATIONAL”), the Seoul International Dispute Resolution Center (“SIDRC”) – which has gone through a significant expansion project earlier this year as it came under the umbrella of KCAB, the Ministry of Justice of the Republic of Korea (“MOJ”), UNCITRAL, and the ICC International Court of Arbitration (“ICC”).

The following provides a review of the key events during the ADR Conference.

DAY 1 (MONDAY 5 NOVEMBER 2018)
Keynote Speech

Mr. Neil Kaplan CBE QC SBS delivered the keynote speech and led the audience through a well-structured discourse analyzing ways to increase efficiency of the arbitration process. He started by noting the multiple players in arbitration – namely the parties, commercial advisers, dispute resolution lawyers, advocating counsel, the arbitrators, arbitral secretary if any, the institution, technical supporters, experts, and lastly, the courts. Next, he discussed the factors that are often blamed for delays and waste of costs associated with each of these players. The key takeaway of the discussion was that all participants in the arbitration process have ample room, each in their own way, to exercise more prudence by giving more thoughtful consideration to whether the resources expended are actually essential rather than being the result of reactive habits. Mr. Kaplan topped off the keynote speech by forecasting which topics would be the next hot topics in arbitration. This list included deliberation on cost-shifting rules, including the need to reduce the recoverable arbitration costs relative to the size of the dispute, and discussions on the topic of reasons provided for and the overall length of arbitral awards.

Challenges Faced by Institutions

The first session of the day was led by an impressive panel of representatives from major arbitral institutions. KCAB INTERNATIONAL, ICC, LCIA, HKIAC, SIAC, and DIS, each had their representatives on stage, reflecting a diversity of legal traditions, geographic locations, and gender. Mr. Christopher Lau of 3 Verulam Buildings moderated the panel, guiding the discussion in a logical sequence of which changes in the past, present, and future have or will shape the development of arbitral institutions.

Ms. Sue Hyun Lim, Secretary General of the KCAB INTERNATIONAL, opened the discussion regarding recent innovations in arbitration by noting that the key words and areas to watch for were transparency, diversity, and the newer procedural innovations aimed at improving efficiency of arbitration. Mr. Kevin Nash, Deputy Registrar and Center Director of SIAC, commented that several arbitral institutions, including the SIAC, have introducing procedural rules tailored to investment disputes and their settlements. Dr. Francesca Mazza, Secretary General of the DIS, pointed out visible changes among institutions to becoming more international, such as appointment of non-nationals to their decision-making boards, and noted the increased emphasis on integrity and rigor in the arbitration process. Mr. Alexander Fessas, Secretary General of the ICC, observed that institutions are increasingly adopting and implementing various mechanisms for expeditious resolution of disputes, and that there has been a marked success of emergency arbitrator reliefs. Mr. Joe Liu, Managing Counsel at the HKIAC, explained the recent innovations by HKIAC in the area of arbitrator fees, multi-party and multi-contract disputes, and arbitral secretarial services. Dr. Jacomijin van Haersolte-van Hof, Director General of the LCIA, listed the recent efforts by LCIA to increase the level of transparency and provide guidelines on ethics. Dr. van Haersolte-van Hof added to the discussions by introducing in detail the ethical guidelines provided in the LCIA Rules and how the LCIA deals with tribunal secretaries.

DAY 2 (6 NOVEMBER 2018)
Expedited Procedures in Arbitration

Day two of the conference was opened by a distinguished panel composed of Mr. Richard Bamforth of CMS Cameron McKenna Nabarro Olswang, Ms. June (Junghye) Yeum of Clyde & Co, Professor Benjamin Hughes, Professor at Seoul National University and Independent Arbitrator, Mr. Robert Wachter of Lee & Ko, and was moderated by Dr. Nikolaus Pitkowitz of Graf & Pitkowitz.

Mr. Pitkowitz started the discussion by introducing the topic of expedited procedures and their essential defining elements. Mr. Pitkowitz also discussed recent efforts by the UNCITRAL Working Group to focus on expedited procedures in view of their growing demand. Mr. Pitkowitz then gave the floor to the panelists to discuss issues and possible steps to enhance the use of expedited procedures. Mr. Wachter spoke first and discussed the standard of what could be considered “expedited” and noted that the current practice is moving away from the initial goal of making arbitration a tailor-made process to something more standardized. Mr. Bamforth presented an analysis of the comparison between expedited procedures introduced in arbitral rules of ICC, HKIAC, and SIAC (noting that LCIA does not provide for it). Ms Yeum. offered her comparison of the AAA/ICDR and CIETAC expedited procedure rules, while emphasizing that the success of the procedure is dependent not so much on the rules but on the right case manager who can enforce the rules.

The Seoul Protocol on Video Conferencing

The second session of the day introduced the much-anticipated draft Seoul Protocol on Video Conferencing – a protocol on the use of video conferencing in arbitral proceedings. The panel consisted of Mr. Kap-You (Kevin) Kim of Bae, Kim & Lee and Vice President of the ICC, who co-incidentally attended and moderated via live video conferencing from London, Mr. Yu-Jin Tay of Mayer Brown, Mr. Ing Loong Yang of Latham & Watkins, and Ms. SeungMin Lee of Shin & Kim.
The session started off with playing of a short demonstration video on the things that could possibly go wrong when running a video conference during arbitral proceedings, such as the witness may not be free to testify or might not be allowed to enter the conference facility. Next, the panelists discussed the importance of arranging the specific logistics of video conference in advance to avoid unnecessary delays and frustrations during arbitral hearings. They also stressed the fairness aspect of why it is so important to ensure that video conferencing allows the proper presentation of each parties’ case. Mr. Kim led the audience through the key provisions in the Protocol and explained the reasoning and objective behind them. The panelists then took turns explaining other provisions in the Protocol and coupled it with narrating entertaining yet very relevant personal accounts of their experience with using video conferencing, and elaborated how that prompted the need to develop a protocol addressing similar and commonly faced issues.

Investor-State Dispute Settlement (ISDS)

The third session was moderated by Professor Hi-Taek Shin, Chairman of KCAB INTERNATIONAL, and the participants included Mr. Arne Fuchs of McDermott Will & Emery, Mr. Nicholas Lingard of Freshfields Bruckhaus Deringer, Mr. Jae Sung Lee of UNCITRAL, Professor Joongi Kim of Yonsei University, and Professor August Reinisch of the University of Vienna.

Professor Shin opened the discussion by pointing out that 10 years ago, issues related to Investor State Dispute Settlement (“ISDS”) were primarily raised from developing States’ perspective. However, now he notes a shift in focus where concerns are being raised by States who initially pioneered and embraced the ISDS system. Professor Shin highlighted changes in the area reflected in recent EU treaties, reform focus of UNCITRAL through its Working Groups, and recent amendments proposed by ICSID. He then invited the panelists to share their expert views regarding these changes.

Mr. Jae Sung Lee gave a detailed overview of the work and progress of the UNCITRAL Working Group III (“WG III”) on possible ISDS reforms. The WG III has so far broadly categorized three concerns as i) outcome, ii) arbitrators, and iii) cost and duration; and has now moved into its second phase where it will deliberate possible action plan. Professor Kim discussed ICSID’s proposed amendments and especially focused on highlighting three issues: i) third-party funding, ii) arbitrator appointment, and iii) general time and efficiency. Mr. Fuchs introduced the recent EU approach to reforming ISDS as a whole. He pointed out that EU’s policy in practice can be gleaned from the CETA, which includes provisions that take a stricter approach to the interpretations of otherwise broad concepts like “fair and equitable treatment” and “full protection and security”. He cautiously characterized this as a retreat, rather than reform of ISDS.

Professor Reinisch discussed the recent mandate of the EU Commission to negotiate the composition of an international investment court with the view of enhancing transparency, consistency, and accuracy. He observed that the current discussions favor a multilateral treaty by which an international organization would be established, and that a two-tiered organizational structure with full appeal was being considered.

Mr. Lingard discussed the recently announced US-Mexico-Canada agreement, which he believes could illuminate some key features of the changing US policy on investment arbitration. He noted with interest that the definition of investment largely incorporated the elements in the Salini test, and that the scope of “fair and equitable treatment” and “most favoured nation” has been clarified somewhat. Another feature of this new investment agreement is that there is mention of double hatting by arbitrators sitting in tribunals under the new US-Mexico-Canada agreement, which depending on the interpretation of the relevant provisions may be prohibited under the agreement.

References   [ + ]

1. ↑ This article was written with the assistance of Vaishali Sharma. 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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The Benefits of a Single-Tier Judicial Court Review of Arbitral Awards

Kluwer Arbitration Blog - Wed, 2018-12-19 22:45

Alexandros-Cătălin Bakos

The finality of arbitral awards is one of the advantages which justify recourse to arbitration, in comparison to longer dispute settlement methods, such as traditional court proceedings. However, while this is the desirable outcome, it is difficult and, to a certain extent, undesirable to isolate the arbitral award from any type of judicial interference. Limited interference by a judicial court regarding the arbitral award – if conducted under a clear predetermined framework – should not be seen as an encroachment upon the parties’ arbitral affairs. In fact, the arbitral award and the judicial review mechanism should be seen as converging towards aiding the arbitral process in reaching its goal.

Thus, I will demonstrate why a limited judicial control of arbitral awards is desirable for all the parties involved in an arbitration. However, because interference must be limited and proportional, the best outcome is reached through a single-tier judicial review framework.

In this context, I will refer to arbitral decisions and their control in general without differentiating between commercial or investor-state arbitration. The present analysis also does not concern ICSID arbitration, as the review or challenge (and subsequent annulment) of an ICSID award is not judicial review. Nonetheless, this is not the case with recognition of ICSID awards, where (a form of) judicial review may still occur. For example, one need only look at the recent decision by the English Court of Appeals, where an appeal challenging the stay of enforcement regarding the award in the first Micula case was rejected.

The arguments presented in this analysis are most relevant to international commercial arbitration. This type of arbitration involves the possibility of review both at the seat of arbitration and during enforcement proceedings in foreign courts and, thus, is faced with the highest possible scope of review.

 

The benefits of a single-tier court review of arbitral awards:

In order to set the framework for analysis, I will refer to the debate between the finality of the arbitral award – no judicial review – against the fairness of the entire dispute settlement process – presence of judicial review.1) Hossein Abedian, Judicial Review of Arbitral Awards in International Arbitration, Journal of International Arbitration 28, no. 6 (2011): 589-626, p. 590, hereinafter referred to as Abedian. jQuery("#footnote_plugin_tooltip_5433_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5433_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Because the best outcome is reached when there is a balance between finality and fairness,2) Phillip J. DeRosier, Judicial Review of Arbitration Awards Under Federal and Michigan Law, Michigan Bar Journal, February 2013, p. 36. jQuery("#footnote_plugin_tooltip_5433_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5433_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); a form of judicial review is necessary.3) Abedian, p. 608. jQuery("#footnote_plugin_tooltip_5433_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5433_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Such review can occur through annulment proceedings and through enforcement proceedings.4) Jan Engelmann, International Commercial Arbitration and the Commercial Agency Directive. A Perspective from Law and Economics, Springer International Publishing, Cham, Switzerland, 2017, p. 39. jQuery("#footnote_plugin_tooltip_5433_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5433_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

To keep the aforementioned interests in balance, any type of arbitral review should be limited to only a strict number of criteria – mainly based on procedural considerations. As such, I will base my arguments on the criteria for review provided for in the New York Convention, which can lead to non-recognition of an arbitral award by a foreign court.

I have chosen this list since it represents a negotiated compromise and it represents a predictable list of review criteria, effectively providing the parties to an international contract with a framework within which they can expect exequatur – especially when exequatur is sought in states parties to the Convention.

As such, I will demonstrate in the following paragraphs why judicial review is beneficial, and I will conclude that all those benefits can be reached through the mechanism of a one-tier judicial review, as opposed to a multi-tier judicial review.

Firstly, a one-tier judicial review mechanism increases confidence in the arbitral process, because there exists a way of setting aside flawed decisions (for example, a decision characterised by procedural errors such as lack of notice regarding the arbitration proceedings to the party against which the award is invoked). This gives the parties to a dispute the incentive to actually pursue arbitration. They know that a review mechanism which guarantees fundamental principles of fairness exists, censuring any serious abuse of procedural fairness. Moreover, because of the possibility of having their award censured by a judicial third party, arbitrators will be incentivised to approach their decision-making cautiously, being less prone to abuses.

This especially helps the party which holds less power. The review mechanism acts as a balancing framework to the economic power of the other party. Since arbitration is consensual, it is clear that the party which holds negotiating power will try to impose favourable arbitration conditions to it. The existence of a (possible) subsequent judicial review of arbitral awards means that even parties which, from the outset, start with a handicap as regards negotiating power are incentivised to accept arbitration.

However, such confidence vanishes when no form of judicial review exists, because the confidence that flawed decisions can be set aside disappears. And this is supported by practical examples: at one point, both France and Belgium resorted to arbitration frameworks where judicial review was non-existent.5)Abedian, pp. 599-600. jQuery("#footnote_plugin_tooltip_5433_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5433_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Arbitration actually decreased because of such developments.6)Ibid. jQuery("#footnote_plugin_tooltip_5433_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5433_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This prompted the two states to change the system to include a system of judicial review. And, while Belgium still kept the possibility of removing judicial review, it effectively gave to the parties to the arbitral proceedings the option to do so – provided none of the parties was a Belgian national/ had its normal residence or place of business in Belgium.7)Idem, p. 600. jQuery("#footnote_plugin_tooltip_5433_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5433_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

According to Abedian (p. 599), another advantage of judicial review – only with regard to review at the place of arbitration – is that it fosters recognition of foreign awards. A judicial court which is faced with the recognition of a foreign arbitral award which has been reviewed at the place of arbitration is much more likely to enforce that award8)Idem, p. 593. jQuery("#footnote_plugin_tooltip_5433_8").tooltip({ tip: "#footnote_plugin_tooltip_text_5433_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); – essentially shortening the recognition and enforcement procedure and, thus, decreasing the costs of the procedure. This argument is especially relevant where there is an international obligation to recognise foreign judgements.9)Such as within the E.U., where judgements rendered in an E.U. state must be recognised by the other member states: see Article 36 of Regulation No. 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters (the Brussels I Regulation). jQuery("#footnote_plugin_tooltip_5433_9").tooltip({ tip: "#footnote_plugin_tooltip_text_5433_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Thirdly, in areas of law where disputes are constantly brought before arbitral tribunals, lack of judicial review may hinder the development of the relevant law. This is because arbitral awards are published according to the will of the parties.10)Chang-fa Lo, On a Balanced Mechanism of Publishing Arbitral Awards, Contemporary Asia Arbitration Journal, vol. 1, No. 2 (2008), p. 236. jQuery("#footnote_plugin_tooltip_5433_10").tooltip({ tip: "#footnote_plugin_tooltip_text_5433_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As such, a one-tier judicial review of arbitral awards has the benefit that the latest issues which arise in arbitration are brought before courts. This leads to the further development of the relevant law. Such evolutions can be considered to be of public interest. And this can happen even if the judicial review does not cover the merits of the case. Knowledge regarding the facts of the case is enough for such development.

Fourthly, judicial review of arbitration awards can correct the information asymmetry which may exist between the parties. While traditional arbitration fields, such as commercial arbitration, may not involve such information asymmetry, other fields which can be subject to arbitration – such as consumer arbitration, if there is no legal prohibition to such arbitration – are more likely to be characterised by information asymmetry. For example, consumer arbitration is prohibited within the E.U. legal system by the Council Directive 93/13 of 5 April 1993 on unfair terms in consumer contracts.11)To this end, see Article 3, 3 of the Directive read together with the Annex contained in the Directive, where it is expressly provided that provisions in consumer contracts which establish that settlement of disputes should be conducted exclusively by arbitration can be considered unfair. jQuery("#footnote_plugin_tooltip_5433_11").tooltip({ tip: "#footnote_plugin_tooltip_text_5433_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Of course, the previous argument implies that the losing party holds at least enough information to challenge the overall unfairness of an arbitral award. However, this level of information is much lower than the level of information needed to deal on a level basis with the stronger party.

All the aforementioned benefits can be availed of through a one-tier judicial review of arbitral awards. Those benefits are all characterised by one common aspect: the dispute must come (or at least be able to come) before the judicial court and the court must have a degree of limited control over the arbitral award. Everything above this is unnecessary, since it does not generate additional benefits.

Moreover, from a strictly legal perspective, judicial review should be limited to a one-tier review mechanism, since review itself is an exception to the general rule of finality.12)Neil Andrews, Arbitration and Contract Law. Common Law Perspectives, Springer International Publishing Switzerland, 2016, pp. 5-6. jQuery("#footnote_plugin_tooltip_5433_12").tooltip({ tip: "#footnote_plugin_tooltip_text_5433_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Therefore, a multi-tier judicial review of arbitral decisions is unnecessary and contrary to the systemic coherence of any legal system which guarantees the effectiveness of arbitration, while a one-tier judicial review actually creates benefits without unjustifiably encroaching upon the arbitral process.

References   [ + ]

1. ↑  Hossein Abedian, Judicial Review of Arbitral Awards in International Arbitration, Journal of International Arbitration 28, no. 6 (2011): 589-626, p. 590, hereinafter referred to as Abedian. 2. ↑  Phillip J. DeRosier, Judicial Review of Arbitration Awards Under Federal and Michigan Law, Michigan Bar Journal, February 2013, p. 36. 3. ↑  Abedian, p. 608. 4. ↑  Jan Engelmann, International Commercial Arbitration and the Commercial Agency Directive. A Perspective from Law and Economics, Springer International Publishing, Cham, Switzerland, 2017, p. 39. 5. ↑ Abedian, pp. 599-600. 6. ↑ Ibid. 7. ↑ Idem, p. 600. 8. ↑ Idem, p. 593. 9. ↑ Such as within the E.U., where judgements rendered in an E.U. state must be recognised by the other member states: see Article 36 of Regulation No. 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters (the Brussels I Regulation). 10. ↑ Chang-fa Lo, On a Balanced Mechanism of Publishing Arbitral Awards, Contemporary Asia Arbitration Journal, vol. 1, No. 2 (2008), p. 236. 11. ↑ To this end, see Article 3, 3 of the Directive read together with the Annex contained in the Directive, where it is expressly provided that provisions in consumer contracts which establish that settlement of disputes should be conducted exclusively by arbitration can be considered unfair. 12. ↑ Neil Andrews, Arbitration and Contract Law. Common Law Perspectives, Springer International Publishing Switzerland, 2016, pp. 5-6. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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An Official Exception to Functus Officio: American Arbitrators Can Alter Their Own Ambiguous Awards

International Arbitration Blog - Wed, 2018-12-19 14:53
The U.S. Second Circuit Court of Appeals joined the Third, Fifth, Sixth, Seventh, and Ninth Circuits to recognize a formal exception to the doctrine of functus officio

Dubai Arbitration Week Recap: Arbitrator Disclosure – Local Flavour or International Standards?

Kluwer Arbitration Blog - Tue, 2018-12-18 16:15

Zahra Rose Khawaja (Assistant Editor for the Middle East)

Participants at this year’s Dubai Arbitration Week gathered for the ICC conference hosted by Al Tamimi & Co on 14 November 2018. The conference featured a lively roundtable discussion on the subject of “Arbitrator Disclosure – Local Flavour or International Standards?” chaired by Nadia Darwazeh. The panel comprised practitioners from across the MENA region and included Mohamed S. Abdel Wahab, Sara Koleilat-Aranjo, Nathan Landis, Hassan Saeed and Asli Yilmaz.

The conference covered recent developments in disclosure in the MENA region and the disclosure standards applied by the ICC. The panel also debated whether there ought to be an international standard for disclosure, or if local specificities have a valid role to play.

 

How has arbitrator disclosure evolved in the MENA region?

The implementation of the new United Arab Emirates Federal Law No. 6 of 2018 (“UAE Arbitration Law”) has recently altered the landscape of arbitrator disclosure in the UAE. Prior to the enactment of the UAE Arbitration Law on 14 June 2018, Articles 114 and 115 of the UAE Civil Procedures Code (“CPC”) governed arbitrator disclosure. The CPC held arbitrators to the same disclosure standards as judges, meaning that arbitrators could be disqualified or recused for being the spouse/relative, agent, trustee or guardian of one of the parties, or for having given a legal opinion or pleaded for any of the parties in the case.

The new UAE Arbitration Law has shifted the standard of disclosure required for arbitrators, bringing the standard in line with that of the UNCITRAL Model Law. Article 10(4) of the UAE Arbitration Law states that anything likely to give rise to doubts in relation to the impartiality and independence of the arbitrator should be disclosed. As the UAE Arbitration Law has only been enacted in the last six months, there are no reported cases that have tested the extent to which this new standard is being applied in practice, so it may be well into 2019 by the time this becomes apparent.

The arbitration laws of Jordan (Arbitration Law No. 31 of 2001) and Bahrain (Arbitration Law No.9 of 2015) hold arbitrators to the same standard as the UAE Arbitration Law; i.e. any circumstances likely to give doubts as to independence and impartiality must be disclosed. However, in Lebanon, where there is no standalone arbitration law, the grounds for challenging an arbitrator are the same as those used to challenge judges (see Art. 770 of the Lebanon Code of Civil Procedure), as was previously the case in the UAE prior to the enactment of the UAE Arbitration Law.

Given the significant damage that is caused to parties in relation to wasted time and costs when an award is set aside after a successful challenge to an arbitrator, holding arbitrators to higher standards of disclosure (as per the arbitration laws of the UAE, Jordan and Bahrain) ought to be creating positive precedents for international arbitration in the region.

However, the panel noted that they had observed instances in practice of parties’ counsel focussing more on finding creative ways to bring challenges to arbitrators than on presenting their clients’ cases. Therefore, whilst the region’s new disclosure regimes aim to bring local disclosure practices in line with the UNCITRAL Model Law, such regimes will only be successful if parties do not use arbitrator disclosures in a tactical manner to raise challenges to frustrate or abuse the arbitral process.

 

What is the standard applied by the ICC?

An arbitrator’s decision regarding disclosure will always be subjective, and in that sense, there will always be a “local flavour” to disclosure based on an arbitrator’s own perceptions of what ought to be disclosed (or not). In addition, what may be appropriate to disclose in one case may not be relevant in another.

Panel member Asli Yilmaz, Counsel at the ICC, noted that arbitrators should keep in mind when completing the ICC disclosure forms that they must gain the trust of the parties and aim for the parties to be comfortable with the appointment. Where the parties are appointing an arbitrator directly, the ICC prefers to receive forms on which no disclosures have been made. However, where the pool of arbitrator candidates is limited (for example, if the parties require the arbitrator to have specific language skills), the arbitrator with the “least unfavourable” disclosures is likely to be appointed.

Arbitrators may have tendencies to worry about making disclosures because they perceive there is a risk that making a disclosure will result in their appointment not being confirmed. However, a failure to make a disclosure is not necessarily a ground for disqualification later on in the arbitral process. The relevant court will assess the grounds for disqualification objectively with reference to standards of independence and impartiality (which are not defined by the ICC). However, the risk presented by not disclosing a fact at the outset must be balanced with the risk of a fact coming to light at a lighter stage, which may be perceived negatively by the parties or give rise to a challenge later down the line.

 

Does the future lie in a universal international standard of disclosure, or do local specificities also have a role to play?

The IBA Guidelines provide a universal international standard of disclosure that practitioners can follow. However, it can also be argued that an experienced arbitrator should be aware of what ought to be disclosed, for example in circumstances where they know either of the parties or have been involved with an affiliated case.

Local specificities do also have a role to play, as familiarity with certain practices in some jurisdictions may mean that parties are able to get comfortable with practices that would be unacceptable for others. For example, parties that are familiar with English law and practice may not take issue with an arbitrator from one barristers’ chambers acting in a case where counsel for one of the parties is from the same chambers. However, for non-English parties unfamiliar with how barristers’ chambers operate, such an arrangement may be perceived as entirely unacceptable.

As such, local specificities will always have a role to play in international arbitration cases where parties are likely to make different assessments of firstly what ought to be disclosed, and secondly whether any disclosures made provide valid grounds for challenging the arbitrator.

 

Conclusions

The disclosure regimes coming into force throughout the MENA region, which hold arbitrators to a higher standard than court judges, signify a positive change for raising standards in the region, as disclosure goes to the integrity of the arbitral process. However, the speakers noted that whilst internationally recognised institutions such as the ICC may already be seeking to uphold those higher standards in the region, there will need to be a transition period for smaller arbitration centres in the region to upgrade their standards of disclosure.

There is a fine line between too much disclosure and insufficient disclosure. Whilst it is likely to be excessive for an arbitrator to make disclosures such as panels they have sat on at events, lunches they have attended and people they have connected with on LinkedIn, at the same time, how can an arbitrator be sure that they have fully complied with their obligations?

To a great extent, arbitrators will have to rely on their own judgment and experience to satisfy themselves that they are in compliance with the relevant disclosure standards and the parties’ expectations. It is for this reason that local flavours will always have a part to play in disclosure, as an arbitrator’s own experience and familiarity with certain practices will shape their view of how disclosure ought to be carried out.

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How the European Court for Human Rights Interferes in (Sports) Arbitration

Kluwer Arbitration Blog - Tue, 2018-12-18 16:05

Nathalie Voser and Benjamin Gottlieb

Schellenberg Wittmer

The applicability of the European Convention on Human Rights (“ECHR”) to arbitral proceedings is a complex issue. The recent decision of the European Court for Human Rights (“ECtHR”) in the so-called Mutu/Pechstein cases brings some clarification in this regard, but also raises some new questions1)ECtHR, Mutu and Pechstein v. Switzerland, Decision of 2 October 2018, application no. 40575/10 and 67474/10. The decision of the ECtHR may still be brought before the Grand Chamber of the ECtHR. jQuery("#footnote_plugin_tooltip_5925_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5925_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Background

The decision concerned two independent claims by the Romanian football player Adrian Mutu and the German speed skater Claudia Pechstein, which were merged into one decision of the ECtHR.

In 2004, the relationship between Mr Mutu and Chelsea, the football club to which Mr Mutu was transferred for €26 million from AC Parma, deteriorated after Mr Mutu was tested positive for cocaine. Chelsea terminated the contract with Mr Mutu, whereupon both Mr Mutu and Chelsea submitted the matter to the Football Association Premier League Appeals Committee (“FAPLAC”). In April 2005, FAPLAC confirmed that Mr Mutu had breached the contract. In December 2005, this decision was confirmed by the Swiss-seated CAS tribunal (CAS, Award of 15 December 2005, CAS 2005/A/876). In a second proceeding following the FAPLAC proceedings, Chelsea requested damages from Mr Mutu resulting from the now-confirmed breach of contract, this time before the Disputes Division of the International Federation of Association Football (FIFA). In 2008, FIFA’s Disputes Division handed down its judgment and ordered Mr Mutu to pay over €17 million in damages. The football player did not accept this decision and again appealed to the CAS. The appeal, however, was unsuccessful (CAS, Award of 31 July 2009, CAS 2008/A/1644). Not accepting this decision either, Mr Mutu applied to the Swiss Supreme Court to set aside the CAS decision. In the setting aside proceedings, Mr Mutu put forward that the CAS tribunal that heard his case was not independent or impartial because the law firm of Professor Luigi Fumagalli, the CAS tribunal’s president, represented Chelsea’s owner, Roman Abramovich. Mr Mutu also argued that co-arbitrator Dirk-Reiner Martens had already been involved as an arbitrator in the previous case in 2005, where a CAS tribunal heard his appeal of the FAPLAC decision, i.e. on liability in principle. This appeal was equally unsuccessful and the Swiss Supreme Court dismissed the application in 2010, holding that the CAS panel was independent and impartial (Swiss Supreme Court, Decision of 10 June 2010, 4A_458/2009, reasons 3.2–3.4.)

A positive blood test was also the trigger of the well-known “Pechstein saga”. At the occasion of the world speed skating championships in 2009, Ms Pechstein’s blood test revealed reticulocyte levels above the permitted value. This led to a two-year ban by the disciplinary board of the International Skating Union (“ISU”) against Ms Pechstein, who lodged an appeal against the decision with the CAS. However, the CAS tribunal confirmed the two-year ban in November 2009 (CAS, Award of 25 November 2009, CAS 2009/A/1912 and CAS 2009/A/1913). Importantly, the hearings before the CAS tribunal were held in private sessions, notwithstanding the fact that Ms Pechstein had requested a public hearing. Ms Pechstein also did not accept the CAS decision and applied to the Swiss Supreme Court seeking to have the CAS award set aside. She advanced three arguments and alleged the following:

  • that the members of the CAS tribunal were not independent and impartial due to the way the tribunal members have been appointed,
  • that the CAS tribunal’s president already had a preformed opinion, because he publicly advocated that a “hard line” should be taken in the fight against doping, and
  • that the Secretary General of the CAS unduly interfered with the CAS tribunal’s award after it was rendered.

In Ms Pechstein’s case as well, the Swiss Supreme Court rejected the application in February 2010. (Swiss Supreme Court, Decision of 10 February 2010, 4A_612/2009, reasons 3 and 4).

Ms Pechstein not only attempted to overturn the suspension in Switzerland but also applied to German courts. The Higher Regional Court of Munich declared the arbitration agreement invalid. Accordingly, the decision rendered by the CAS tribunal in 2009 was inapplicable in Germany. The arbitration agreement’s invalidity, according to the German court, was based on the fact that Ms Pechstein’s consent to the arbitration agreement was not voluntary. According to the German court, Ms Pechstein was de facto forced to sign the athlete agreement containing the arbitration clause in order to be in a position to compete and to earn her living (Higher Regional Court of Munich, Decision of 15 January 2015, U 1110/14 Kart, reason 2./A./II./3). The lower court’s decision was, however, ultimately overturned by the German Supreme Court, which rejected the reasoning that Ms Pechstein’s consent was forced upon her (German Supreme Court, Decision of 7 June 2016, KZR 6/15, para. 69.)

In July and November 2010, respectively, Mr Mutu and Ms Pechstein applied to the ECtHR. Amongst other violations of the ECHR, both athletes alleged that their right to a fair trial according to Article 6(1) ECHR was violated. As before the national courts, they argued that the CAS could not be regarded as an independent and impartial tribunal and, in Ms Pechstein’s case, that she was denied a public hearing. In December 2016, the ECHR joined the two cases.

 

Decision

After eight years, the ECHR held that the CAS tribunals were independent and impartial and that, accordingly, there had been no violation of Article 6(1) ECHR. With regard to Ms Pechstein’s complaint as to the non-public nature of her hearing, however, the ECHR found that the right to a fair trial granted under Article 6(1) ECHR was violated. All other allegations were dismissed.

At the outset of the decision, the ECHR declared itself competent to hear these cases, notwithstanding the fact that the CAS is neither a state court, nor another public Swiss state entity, but a privately-owned institution. In fact, Switzerland was found to be liable under the Convention in cases where its authorities formally or tacitly approve acts of private individuals violating human rights of other individuals. In other words, Switzerland was found to be capable of being sued under the ECHR, because it upheld the CAS decisions, which were alleged to have violated Mr Mutu’s and Ms Pechstein’s human rights.

In line with its previous case law, the ECtHR reiterated that arbitral tribunals are in principle compatible with the “right to a court” under Article 6(1) ECHR. However, the ECtHR distinguished between compulsory (“arbitrage forcé”) and voluntary arbitration, holding that in compulsory arbitration all guarantees provided for in Article 6(1) ECHR must be safeguarded under all circumstances. In contrast, if parties voluntarily consent to arbitration proceedings, those rights may be waived under the condition that this is being done freely, lawfully and in an unequivocal manner.

Against this background, the ECHR found that Ms Pechstein did not freely submit to arbitration. Not accepting the arbitration clause would have meant that she could no longer pursue her professional activities and, as a consequence, to earn her living by practising her sport. This situation set Mr Mutu’s case apart, because according to the contractual agreements applicable to him, he had also the possibility to submit his dispute to the ordinary courts.

The majority of the ECtHR rejected Mr Mutu’s and Ms Pechstein’s arguments regarding the CAS tribunal’s independence and impartiality. However, the Swiss and Cypriot judges (Helen Keller and Georgios Serghides) issued a strong dissenting opinion, criticizing the influence from interested groups on the CAS and on the selection of arbitrators, which ultimately jeopardizes the independence and impartiality of CAS tribunals.

With regard to the right to a public hearing, the ECtHR found that in compulsory arbitration (such as the one of Ms Pechstein) a waiver of the right to a public hearing was not possible and determined that there had been a violation of Article 6(1) ECHR due to the CAS tribunal’s denial of a public hearing. The ECtHR thereby also considered that Ms Pechstein had explicitly requested a public hearing.

 

Comment

This case shows, once more, the important (and ever-increasing) role of human rights in arbitration proceedings. While the ECHR is conceived as an instrument to protect persons against a State, it is now clear that the ECtHR will not shy away from interfering in certain types of what it called “compulsory” arbitration by invoking the responsibility of a State through allowing them in its territory.

For Switzerland in particular, although violations of the ECHR cannot be directly invoked before the Swiss Supreme Court in setting aside proceedings,2)See for example Swiss Supreme Court, Decision of 2 June 2010, 4A_320/2009, reason 1.5.3. jQuery("#footnote_plugin_tooltip_5925_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5925_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the convention is indirectly applicable nonetheless. This is first and foremost because the content of Article 6.1 ECHR forms part of the notion of public policy in the sense of Article 190(2)(e) of the Swiss Private International Law Act (PILA) which, in turn, is one of the grounds for setting aside arbitral awards. Second, as reiterated in this decision by the ECtHR, states are indeed liable for violations of human rights in arbitration proceedings seated in their territory in cases that the ECtHR qualifies as compulsory arbitrations. This was also the reason why in such cases waivers of the right to setting-aside pursuant to Article 192 PILA are not valid.3)ECtHR, Tabbane v. Switzerland, Decision of 1 March 2016, application no. 41069/12; see Voser/George, ECtHR: Waiver of Recourse Against International Arbitral Award Not Incompatible with ECHR, available here (consulted on 11 December 2018). Also this decision of the ECtHR is not yet final and binding and may still be brought before the Grand Chamber of the ECtHR. jQuery("#footnote_plugin_tooltip_5925_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5925_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

By holding that arbitration agreements contained in athlete agreements are non-voluntary, the ECtHR took a strong stance and protected the seemingly weaker parties in the context of sports. Indeed, the CAS announced immediately after the publication of the ECtHR decision that it would ensure the compliance of future CAS proceedings with the ruling, in particular by enabling parties to hold public hearings upon a party’s request.

The rather broad definition of compulsory arbitration will likely lead to interesting developments in other areas where there is notoriously a so-called “weaker party” such as, for example, consumer arbitration and labor arbitration proceedings. This might even open the door to challenges of business contracts before the ECtHR between two sophisticated business entities, if one party could show that without the conclusion of the arbitration clause it would not, due to a simple lack of leverage, have obtained the contract.

References   [ + ]

1. ↑ ECtHR, Mutu and Pechstein v. Switzerland, Decision of 2 October 2018, application no. 40575/10 and 67474/10. The decision of the ECtHR may still be brought before the Grand Chamber of the ECtHR. 2. ↑ See for example Swiss Supreme Court, Decision of 2 June 2010, 4A_320/2009, reason 1.5.3. 3. ↑ ECtHR, Tabbane v. Switzerland, Decision of 1 March 2016, application no. 41069/12; see Voser/George, ECtHR: Waiver of Recourse Against International Arbitral Award Not Incompatible with ECHR, available here (consulted on 11 December 2018). Also this decision of the ECtHR is not yet final and binding and may still be brought before the Grand Chamber of the ECtHR. 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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Dubai Arbitration Week Recap: New Frontiers in Arbitration – The MENA Region

Kluwer Arbitration Blog - Mon, 2018-12-17 16:30

Dalal Al Houti (Assistant Editor for the Middle East)

Since the inaugural programme in 2014, arbitration practitioners from the MENA region and beyond have come together to share and discuss recent developments in the field of international arbitration during the Dubai Arbitration Week, an annual event that takes place in November. Dubai Arbitration Week 2018 was no exception. It was full of seminars, conferences, and presentations, and filled with networking opportunities, breakfasts, lunches, dinners, and others. The week also featured the ‘Fourth Annual Law Rocks! Dubai’.

The underlying theme of Dubai Arbitration Week 2018 was new arbitration-related frontiers in and relevant to the MENA region, such as the new UAE arbitration law, new arbitration institutions (Delos Dispute Resolution), and developments in Africa. This blog post briefly covers some of these. 

New Arbitration Law 

The last three years have witnessed significant pro-arbitration developments in the legislative and regulatory framework of various countries in the Middle East, such as Bahrain (2015), Qatar (2017), Saudi Arabia (2017), Jordan (2018), and the UAE (2018). Dubai Arbitration Week 2018 placed the spotlight on UAE Federal Law No. 6 of 2018 on Arbitration (“New Arbitration Law” or the “Law”), which came into effect in June 2018.

The New Arbitration Law is an important development in the arbitration landscape of the UAE since it repeals the previous outdated Chapter on Arbitration contained in Articles 203 to 218 of Federal Law No. 11 of 1992 on the Civil Procedures Law (“CPC”). Some of the key aspects of the New Arbitration Law highlighted and discussed during the week were:

  1. International best practice and standards. The new Arbitration Law is broadly based on the UNCITRAL Model Law on International Commercial Arbitration. The Law expressly incorporates basic, yet fundamental, principles of international arbitration, such as the doctrine of separability, which recognizes that an arbitration agreement is separable from the underlying contract (Article 6), and the principle of competence-competence, which enables arbitral tribunals to decide on their own jurisdiction (Article 19).

 

  1. Arbitration objection. Under the old regime, if one of the parties initiates an action in the local courts, despite the existence of an arbitration agreement, and the other party does not object to such action at the first hearing or session, the action may proceed. In such cases, recourse to arbitration shall be deemed to have been waived by the parties. The ambit of the first hearing was not expressly clear. Did it, for example, include hearings where the defendant did not appear or instances where the defendant appeared only to ask for an adjournment? This led to confusion. Article 8 of the New Arbitration Law titled “adjudication of the dispute containing an arbitration agreement” clears this confusion as it lays down that the concerned court shall decline to entertain the action if the defendant raises an arbitration objection based on an arbitration agreement before making any claim or defence on the merits. This does away with the ‘first hearing’ requirement along with the confusion associated with it.

 

  1. Interim measures. The CPC was silent as to whether an arbitral tribunal could render interim measures. Article 21 of the New Arbitration Law now recognizes the arbitral tribunal’s power to award interim measures, including ordering an applicant party to provide adequate security to cover the costs of such measures. A party in whose interest an interim measure is granted can, upon a written authorization from the arbitral tribunal, further seek an enforcement order of such before the competent court.

 

  1. Efficiency. The New Arbitration Law significantly improves the efficiency of the arbitration process. A few examples include: continuation of the arbitral proceedings notwithstanding any application for interim measures or a challenge against an arbitrator; a 15-day time limit for the court to determine any challenge to an arbitral tribunal’s positive jurisdictional ruling; and a short six-month time limit from the date of the ‘first hearing’ within which the arbitral tribunal shall render the award. The Law also recognizes and allows the use of technology where possible. Instances include recognition of arbitration agreements concluded via email; the use of virtual hearings, allowing the cross-examination of witnesses and experts not physically present in the hearing room; and permitting awards to be signed electronically.

 

New Arbitration Institution

Delos, a Paris-based international arbitration institute established in 2014, held its Dubai-edition inaugural event during the Week, having held similar events in Hong Kong (March 2018), Paris (April 2018), São Paulo (October 2018) and Madrid (early November 2018). After Dubai, Delos went to New York for their last inaugural event of the year.

Delos was established to meet time and cost efficiency demands of start-ups and small and medium-sized enterprises. The institution seeks to provide an innovative approach to commercial dispute resolution with an emphasis on time and cost efficiency. This approach is enshrined in the four principles of its Rules. The institution issued its first arbitral award conducted under its Rules last year.

 

New Arbitration-Related Developments in Africa

During the Al Tamimi & Company and CRCICA networking lunch, discussions focused on arbitration in Africa. The African Arbitration Association (AfAA), a non-profit private sector-led association, was launched in June 2018. The launch of the Association was the culmination of a process that began with calls for a body to promote the use of African arbitration practitioners, arbitrators, and arbitration institutions. The AfAA will be based in Kigali, Rwanda (hosted at the Kigali International Arbitration Centre) and will hold its first General Assembly in early April 2019.

I-ARB Africa, aimed at shining a light on Africa’s legal and arbitration experts, made its debut at the Dubai Arbitration Week. I-ARB Africa is also the first online portal dedicated to international arbitration developments related to Africa and African parties. This unique initiative provides members with an open list called ‘Africa’s 100’ containing African arbitration practitioners whose experience in and knowledge of arbitration make them eligible to be appointed as arbitrators. I-ARB Africa also started its very own podcast this year which hosts dialogues and debates on arbitration-related developments through interviews with African arbitration experts.

Conclusion

As in previous years, Dubai Arbitration Week 2018 provided a platform for arbitration practitioners across both common and civil law jurisdictions and across the region to network and exchange notes. It provided a rare opportunity to get perspectives from arbitrators, practitioners, and staff of international arbitration institutes on the impact of, among other things, the new UAE arbitration law. The wait for Dubai Arbitration Week 2019 begins.

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Brexit, the Energy Charter Treaty and Achmea: An Unexpected Ray of Light?

Kluwer Arbitration Blog - Sun, 2018-12-16 22:26

Richard Power

Clyde & Co.

Perhaps the one thing that is certain about the UK’s departure from the European Union is that it is uncertain. It is not certain that the UK and the EU will strike a deal on their future trading relationship after the UK leaves the EU on 29 March 2019; it is not known whether the UK parliament will approve the deal governing the proposed 21-month ‘transition period’; indeed, it is not certain that the UK will actually leave the EU at all, as Article 50 can arguably be revoked.  Consequently, making predictions about a post-Brexit world is fraught with difficulty.

Subject to that caveat though, amongst the predictions of economic catastrophe, food and medicine shortages and social unrest, Brexit might offer an unlikely silver lining: it is possible that the UK will become the go-to offshore jurisdiction for EU companies wishing to make investments into other EU countries generally, and specifically in the energy sector.

 

Achmea, BITs and the ECT: where are we now?

After the decision of the Court of Justice of the EU (CJEU) in Slovak Republic v Achmea (Case C-284/16) the institutions of the EU and arbitral tribunals constituted under the Energy Charter Treaty (ECT) and intra-EU BITs are at loggerheads.

As far as the CJEU and the European Commission are concerned, intra-EU investor-state arbitration contravenes EU law. However, the tribunals in Masdar Solar & Wind Cooperatief U.A. v Spain; Antin Infrastructure v Spain; and Vattenfall AB and others v Federal Republic of Germany concluded that Achmea did not apply to arbitrations under the ECT, not least because the EU itself is a signatory to the ECT. UP and CD Holding Internationale v Hungary arrived at the same conclusion with regard to ICSID arbitrations.

All this means that future and even pending intra-EU BIT and ECT arbitrations might be stifled. While claimants can take heart from the consistent rejection of Achmea by arbitral tribunals, enforcement remains a real concern particularly as many disputes of this nature rely on third party funding, and funders may baulk at the exposure given the obstacles to obtaining payment of an award.

 

Enforcing an intra-EU BIT arbitration award in the UK

As matters stand, the UK is bound by the Achmea decision, and so an application to register and enforce an intra-EU BIT arbitration award in the UK would involve a balancing act between the requirements of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (enacted in Part III of the Arbitration Act 1996); or, in the case of an ICSID award, the UK’s international obligations under the ICSID Convention (enacted in the Arbitration (International Investment Disputes) Act 1966 (the 1966 Act)).

  • If enforcement is sought under the New York Convention, there are limited grounds on which enforcement of an award can be refused, but these include the invalidity of the arbitration agreement; the tribunal exceeding its authority; the non-arbitrabilty of the subject-matter of the award and/or enforcement being contrary to the public policy of that state in which enforcement is sought. Any of those grounds could provide the basis for an application to refuse recognition or enforcement of an intra-EU BIT award on the basis of the reasoning in Achmea.
  • If it is an ICSID award, it is final and binding, and immune from appeal or annulment, and must be enforced as a final domestic judgement of the court of the defendant state. The court would have to balance the Achmea decision against a violation of the UK’s international obligations.

How would an English court approach such a dilemma? English courts are generally viewed as being pro-arbitration and might enforce an award even in the face of Achmea-related objections. A clue to the courts’ approach might be in the Court of Appeal’s decision in Viorel Micula and others v Romania and European Commission (Intervener) ([2018] EWCA Civ 1801). In that case, the court considered an appeal of an order staying the enforcement of an ICSID award made against Romania under the Sweden-Romania BIT pending the outcome of Romania’s application to the General Court of the European Union seeking an annulment of the decision. The EC had issued a decision concluding that enforcement of the award would constitute illegal state aid and since the proceedings had been commenced, the Achmea decision had been handed down. Romania argued that s2(1) of the 1966 Act provides that a registered award shall be of the ‘same force and effect for the purposes of execution as if it had been a judgment of the High Court’; a judgment of the High Court would not be enforced if it was a breach of EU law to do so; and so the same should apply to the ICSID award.

Arden and Leggatt LJJ rejected this approach, holding that by enacting s2 of the 1966 Act, Parliament had intended to perform its international treaty obligations under the ICSID Convention; this included the obligation to enforce ICSID awards ‘automatically’; and the 1966 Act could not be understood to override the UK’s enforcement obligation under the ICSID Convention by requiring the court to decline to enforce a judgment contrary to EU law.  There is also the question of Article 351 of the Treaty on the Functioning of the European Union (TFEU), which provides that:

‘[t]he rights and obligations arising from agreements concluded before 1 January 1958 or, for acceding States, before the date of their accession, between one or more Member States on the one hand, and one or more third countries on the other, shall not be affected by the provisions of the Treaties’.

If the courts deemed that there was a conflict between the UK’s obligations under the ICSID Convention and its EU law duties, Article 351 arguably should resolve which should take precedence. It is noted that UK signed the New York Convention and the ICSID Convention before its accession to the EEC (which became the EU).

However, the English courts’ approach to this balancing act remains to be seen.

 

Brexit: an unexpected solution?

Against this background, Brexit might actually provide a solution for existing intra-EU ECT arbitrations.

The applicability of EU law to the UK after Brexit depends on whether the Withdrawal Agreement agreed between the UK and EU is adopted by parliament:

  • If the Withdrawal Agreement is adopted: although the UK will leave the EU at the end of March 2019, the UK will continue to apply EU law for the 21-month ‘transition period’. CJEU judgments made up to the end of the transition period (31 December 2020) will continue to apply to the UK.1)Article 85 of the Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community. jQuery("#footnote_plugin_tooltip_1758_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1758_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

After the end of the transition period, the UK will no longer be bound by EU law, although CJEU case law adopted before exit day will, in effect, form part of EU law which will be ‘retained’ by the UK in principle as part of its domestic law. UK courts, other than the Supreme Court, will continue to be bound by EU laws and court decisions made before the end of the transition period.2)Sections 5 and 6 of the European Union (Withdrawal) Act 2018. jQuery("#footnote_plugin_tooltip_1758_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1758_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

  • If the Withdrawal Agreement is rejected and UK leaves the EU with ‘no deal‘: There will be no transition arrangements, and from 30 March 2019 the UK will no longer be bound by EU law. CJEU case law adopted before exit day will be retained by the UK and UK courts, other than the Supreme Court, will be bound by EU laws and court decisions made before exit day.

As the tribunals in numerous post-Achmea ECT awards have pointed out, Achmea applies to intra-EU BITs and is silent on the question of its applicability to ECT, which is a multilateral treaty to which the EU itself is party.  However, this question has been referred to the CJEU on Spain’s application to the Svea Court of Appeal in Sweden in the context of the Novenergia case.3) Novenergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v The Kingdom of Spain (SCC Case No. 2015/063) jQuery("#footnote_plugin_tooltip_1758_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1758_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  If that is not decided before the exit date (i.e. 29 March 2019 with no transition period, 31 December 2020 with one), then the decision will not bind the UK. That might well provide the necessary latitude to the English courts, known for their supportive attitude towards arbitration, to adopt the same reasoning of the ECT tribunals mentioned above in rejecting Achmea’s applicability to ECT claims.

 

What now?

‘All we know is that we don’t know’, as a popular song goes, and that applies very much to Brexit. We don’t know what shape Brexit will take. If a wide-ranging trade deal is agreed between the UK and the EU, it might supersede the ECT and provide for investor-state disputes to be resolved in a different manner than arbitration: certainly the EU is seeking to include a standing investor-state court in its new trade deals. However, pursuant to Article 47(3) ECT the post-withdrawal period during which the ECT will continue to apply to pre-existing qualifying investments, commonly known as the ‘sunset period’, is 20 years. Thus, those investors who make qualifying investments prior to the UK withdrawing from the ECT would will still enjoy the protections of the ECT for 20 years after that date.

Moreover, even without Brexit, there is uncertainty regarding ECT claims in future. Consultation on the reform of the ECT is currently underway and it is possible that investor-state arbitration will be replaced by some other form of dispute resolution.

Consequently, making any predictions is a difficult exercise. Nevertheless, it is possible that Brexit will offer a way through the Achmea-arbitration stalemate for existing claimants and future investors.

References   [ + ]

1. ↑ Article 85 of the Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community. 2. ↑ Sections 5 and 6 of the European Union (Withdrawal) Act 2018. 3. ↑ Novenergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v The Kingdom of Spain (SCC Case No. 2015/063) 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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