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Tesla rival settles dispute with Chinese investor

US-based start-up Faraday Future, which has ambitions to overtake Tesla in the market for intelligent electric cars, has settled an HKIAC arbitration with a Chinese investor after it generated two emergency...

Tesla rival settles HKIAC dispute with Chinese investor

US-based start-up Faraday Future, which has ambitions to overtake Tesla in the market for intelligent electric cars, has settled an HKIAC arbitration it initiated with its Chinese investor after it generated...

IFFCO v. Bhadra Products: Increasing Confusion or Clarifying on Matters of Jurisdiction?

Kluwer Arbitration Blog - Sun, 2019-01-06 17:43

Pragya Chandak and Harsh Salgia

Section 16 (1) of the Arbitration and Conciliation Act, 1996 [“the Indian Act”] confers power upon the arbitral tribunal to decide on matters relating to its jurisdiction. Under section 16 (5), a decision accepting the plea of lack of jurisdiction shall be an appealable order; while decision rejecting the same plea can be challenged only with the final award. Though the term jurisdiction has not been defined, the courts in India have interpreted it to include inter alia scope of the arbitration agreement and arbitrability of disputes.

Recently, the Indian Supreme Court [“the Court”] in M/s Indian Farmers Fertilizers Co-operative Limited v. M/s Bhadra Products (Civil Appeal No. 824 of 2018) [“Bhadra Products”] restricted the scope of section 16 (1), declaring that issue of limitation is not covered under the primitive sense of the term ‘jurisdiction’. It is important to distinguish matters of jurisdiction from that of the merits of claims, as the former goes to the root of the dispute and absence of the same can render the ultimate decision null and infructuous. While relying heavily on English jurisprudence, the Court in Bhadra Products gave a very narrow interpretation to the term ‘jurisdiction’. It was held by the Court that similar to the Arbitration Act, 1996 [“the English Act”] matters of only substantive jurisdiction such as the validity of arbitration agreement and/ or of arbitral tribunal and arbitrability of disputes shall be considered within the scope of section 16(1) of the Indian Act. However, the reasoning is inaccurate on various fronts:

At first, the term jurisdiction derives its meaning from the context in which it is used. The Indian Act provides the tribunal with the power to pass a ruling on any issue that is related to its jurisdiction. In the case of National Thermal Power Corporation v Siemens Atkeingesellschaft 1) (2007) 4 SCC 451 jQuery("#footnote_plugin_tooltip_2475_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2475_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, it was reasoned that any refusal to go into the merits of the claim lies within the realm of jurisdiction. Like any other issue of jurisdiction, the issue of limitation is decided without going into the merits of the particular claim. In other words, while determining the issue of limitation, the tribunal enquires only into the fundamental facts such as when the claim arose and the time period which has lapsed and nothing more.

Secondly, section 16 (1) of the Indian Act is wide enough to permit the tribunal to decide any matter, including any issue relating to jurisdiction which goes to the root of the matter.  In Pandurang Dhoni Chougule v. Maruti Hari Jadhav2) AIR 1966 SC 153 jQuery("#footnote_plugin_tooltip_2475_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2475_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the Court held that plea of limitation is an issue that goes to the root of the matter and affects the jurisdiction of the tribunal conducting the proceedings. Applying the rationale in a case, the Bombay High Court determined that while ruling on the issue of limitation, the tribunal shall be ruling on its jurisdiction.

Thirdly, the English Act restricts the principle of Kompetenz-Kompetenz by using the term ‘substantive’ jurisdiction. However, the Indian Act has no such restriction and provides for wider amplitude as it reflects tribunal’s power to determine any issue relating to its ‘own’ jurisdiction. Further, it has been held in the case of Union of India v. East Coast Builders 3) 1998 (47) DRJ 333 jQuery("#footnote_plugin_tooltip_2475_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2475_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that guidance should not be taken from the English Act when the Indian Act expressly deviates from it. Therefore, issue of limitation must be construed as an issue of jurisdiction as provided under section 16(1) of the Indian Act.

 

Decision on limitation: Order or Interim award?

Section 31(6) of the Indian Act lays down that an interim award can be passed on any matter on which a final award can be passed. In Bhadra Products, the Court held that as issue of limitation is one of the matters raised by parties at dispute, a decision on the same would be an interim award. The Court arrived at this conclusion by wrongly interpreting the term ‘interim award’, as issue of limitation is not a matter on which a final award can be passed. Though the term interim award has not been defined in the Indian Act, the courts have consistently ruled that for a decision to be an interim award, it must finally settle one or few of the claims or issues of liability raised by the parties. For instance, a decision on breach of the contract can be an interim award on which a final award clearly specifying the amount of damages can be passed subsequently. However, adjudication on an issue of jurisdiction does not settle any claim or issue of liability and is a necessary step to be undertaken before determining the substantial relief sought by parties. It is for this reason that under the Indian Act, a ruling on jurisdiction has been classified as an order.

 

Anomaly based on a different decision on the issue of jurisdiction

A lot of confusion hovers around the tribunal’s decision with respect to its jurisdiction, that is, whether it is an award or an order. This arises primarily because the Indian Act is silent on this aspect. In other words, when an objection regarding tribunal’s lack of jurisdiction is accepted, it has been termed as an appealable order under section 37 of the Indian Act. However, the Indian Act does not expressly categorize the decision of the tribunal accepting its jurisdiction as an order. It is for this reason it had been argued various times that such decision shall be an interim award so that the court can be approached to set aside the same. However, such contention should be rejected for the basic reason that the order under section 16 cannot change its nature based on different outcome that is become an interim award if the tribunal rejects plea of no jurisdiction and is only appealable if plea of no jurisdiction is allowed.

 

Removing the discrepancy

Section 37 of the Indian Act does not provide a right to appeal against the order if the tribunal accepts its jurisdiction and it can be challenged only later with the ultimate final award. It is believed that such a distinction was created to reduce the role of the courts in the proceedings. But this can result in a waste of time and money in arbitral proceedings in case the court determines that tribunal did not have jurisdiction in the first place. To fill this gap, it is suggested that preferably an amendment should be introduced in section 37 wherein (i) any order whether accepting plea of lack of jurisdiction or rejecting the same shall be appealable and (ii) that the court should decide the matter expeditiously.

However, this might lead to a dilemma of whether the arbitral proceedings should continue or come to a standstill. In such a situation, the arbitral tribunal should have the prerogative to decide whether to continue with the proceedings or not. In this way, a balance can be attained between parties having right to appeal against the order and having an efficient arbitral proceeding.

References   [ + ]

1. ↑ (2007) 4 SCC 451 2. ↑ AIR 1966 SC 153 3. ↑ 1998 (47) DRJ 333 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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Is Brazil an Arbitration-Friendly Jurisdiction?

Kluwer Arbitration Blog - Sat, 2019-01-05 16:02

Andre Luis Monteiro, José Antonio Fichtner and Sergio Nelson Mannheimer

Recently, the 2018 White & Case International Arbitration Survey confirmed London, Paris, Singapore, Hong Kong, Geneva, New York and Stockholm as the most in-demand places for arbitration in the world.

Brazil is well represented by São Paulo – the economic hub of the country – which occupied eighth place in the overall ranking. This result gives rise to the following question among those not familiar with the country: is Brazil an arbitration-friendly jurisdiction?

In previous Kluwer posts, it has been discussed Brazilian arbitration developments in franchising, extension of arbitration agreements, and facilitation and cooperation investment agreements (here and here),This post aims to answer that question, providing a concise but comprehensive overview of the Brazilian legal framework for arbitration.

 

Legal Framework

In Brazil, arbitration is governed by Law 9.307, which came into force in 1996. The Brazilian Arbitration Act (hereafter BAA) is partially based on the UNCITRAL Model Law and the 1988 Spanish Arbitration Act.

The BAA adopts the monism regime, which means that its provisions apply equally to international arbitration and domestic arbitration. However, the Act is considered modern, particularly because it leaves plenty of space for party autonomy.

Brazil has not signed the Washington Convention (ICSID Convention) and, therefore, all arbitrations follow commercial standards, even when the State is one of the parties.

Nevertheless, a few mandatory provisions apply to arbitrations involving “State entities”. This term encompasses the Union, states, municipalities, government agencies, government foundations, wholly-owned state companies and state-controlled companies, although not all entities are subject to the same mandatory provisions (explained below).

 

Arbitrability 

The scope of arbitrability in Brazil is wide. Article 1 of the BAA declares that “those who are capable of entering into contracts may use arbitration to resolve conflicts related to negotiable and pecuniary matters”. Article 1(1) establishes that “State entities may use arbitration to resolve conflicts related to negotiable and pecuniary matters”. In short, any civil or commercial matter in Brazil can be resolved through arbitration, even when the case involves “State entities”.

Most arbitral proceedings in Brazil arise from construction contracts, corporate conflicts (company v. shareholders, controlling shareholder v. minority shareholder, parties to shareholders’ agreements etc.), energy and insurance contracts and contractual disputes in general.

 

Choice of Law

According to Article 2 of the BAA, in arbitrations seated in Brazil, parties are unrestrained in the choice of law applicable to the merits, to the arbitral process (lex arbitri) and to the arbitration agreement. This rule applies not only to arbitrations involving foreign parties but also to purely domestic arbitrations. There are a few exceptions: in some cases, if the arbitration involves “State entities”, the application of Brazilian Law is mandatory.

 

Arbitrators

Parties have complete autonomy in selecting the arbitrators who shall rule upon the claims submitted in arbitration. There are no limits regarding nationality, age, gender, religion or language proficiency. As set forth in Article 13 of the BAA, “any individual with legal capacity, who is trusted by the parties, may serve as arbitrator”. This rule also encompasses arbitrations involving “State entities”, where parties in general can even nominate foreign arbitrators.

 

Arbitral Institutions

Parties are entirely free to choose the arbitral institution, whether international arbitral institutions like the ICC (which has an office in São Paulo) and the LCIA, or one of the renowned Brazilian arbitral institutions: CAM-CCBC (whose rules of arbitration were adopted for the 2017 Vienna Vis Moot), CAMARB, Ciesp/Fiesp, CBMA, Amcham and others.

 

Language

Finally, parties have total autonomy in choosing the language of the arbitration. Again, there are a few exceptions: in some cases, where the arbitration involves “State entities”, Portuguese is compulsory. However, this does not prevent parties from adopting a bilingual arbitration (Portuguese and English, for example).

 

Kompetenz-Kompetenz

Brazilian Arbitration Law recognises both positive and negative effects of Kompetenz-Kompetenz.

According to Article 8(1) of the BAA, “the arbitrator has jurisdiction to decide ex officio or at the parties’ request, any issues concerning the existence, validity and effectiveness of the arbitration agreement, as well as the contract containing the arbitration agreement”. Article 20 of the same Act complements this provision. In turn, the second part of Article 485(VII) of the Brazilian Code of Civil Procedure states that “a judge shall not rule on the merits when (…) the arbitral tribunal confirms its jurisdiction” (i.e., the judge has to dismiss the case).

Legal scholars interpret this latter provision as guaranteeing the chronological priority rule in favour of the arbitral tribunal deciding on its own jurisdiction. Among other cases, the Superior Court of Justice declared in SPPATRIM v. BNE that “as a consequence of the Kompetenz-Kompetenz principle, set forth in Articles 8 and 20 of Law n. 9.307/96, the Brazilian legislation on arbitration establishes a chronological priority rule in arbitral proceedings, allowing access to the courts only after the delivery of the arbitral award”.

 

Interim Measures

As Article 22-B(1) of the BAA states, “if arbitration proceedings have already commenced, the request for the interim measure will be directly addressed to the arbitrators”. In short, pursuant to that provision, arbitrators have the power to grant interim measures. Before the appointment of the arbitrators, parties can seek an interim measure before Brazilian courts. Whether granted or denied by the courts, the arbitrators have the power to confirm, modify or reverse any such judicial decision following their appointment (Article 22-A(1)). If the party against whom the interim measure was granted does not voluntarily comply with the arbitral decision, the interim measure can be enforced before the courts.

 

Awards

The BAA provides in Article 31 that “the arbitral award shall have the same effect on the parties and their successors as a judgement rendered by the courts and, if it includes an obligation for payment, it shall constitute an enforceable instrument thereof”. This means that the arbitral award has the same effect as decisions issued by Brazilian courts, which shall encompass the res judicata effect.

 

Appellate Proceedings

The BAA does not give the losing party the right to appeal against arbitral awards (neither awards on jurisdiction nor awards on the merits). There are no appellate proceedings in arbitrations seated in Brazil. As described below, parties can apply for annulment of the arbitral award.

 

Enforcement of Arbitral Awards

Arbitral awards issued in Brazil can be directly enforced before Brazilian courts (Article 32 of the BAA and Article 515(VII) of the Brazilian Code of Civil Procedure). There is no need for exequatur or any kind of judicial authorisation to give effect to arbitral decisions. Arbitral awards are enforced as judicial decisions, following the same legal proceedings, which means that the winning party can seize the losing party’s bank accounts and other assets.

There is only one exception: when the losing party is the Union, a state, a municipality, a government agency or a government foundation, a “certificate of judgment debt” (the so-called precatório) shall be issued in favour of the winning party. Hence, it is legally impossible to seize their bank accounts or other assets. Payment in these cases occur only after inclusion of the debt in the State entity’s budget, in average two years after the decision becomes enforceable. However, investors in Brazil can be reassured that in most cases the State uses state-controlled companies to carry out its largest projects. These companies are subject to normal foreclosure proceedings, what means that their assets can be seized and the precatório regime does not apply to them.

 

Annulment of Arbitral Awards

Arbitral awards can be set aside before Brazilian courts should the losing party apply for such within 90 days of receiving the award (Article 33(1) of the BAA), either partial or final. Article 32 of the BAA states that there are seven limited grounds upon which annulment can be sought. In a few words, the grounds are related to formal requirements, validity of the arbitration agreement, due process, impartiality of the arbitrator, excess of power, arbitrability and public policy. In Brazil, courts are not allowed to control arbitral awards on the merits.

 

Recognition of Foreign Arbitral Awards

Brazil ratified the 1958 New York Convention in 2002, and the country thus adopts international standards for the recognition of foreign arbitral awards (i.e., awards made in another State). The court with jurisdiction to recognise foreign awards is the Superior Court of Justice. This court is the second highest court in Brazil (only below the Supreme Federal Court), which means there are no avenues for endless appellate proceedings. In addition, case law has largely been in favour of the recognition of arbitral awards.

 

Courts

In assessing whether a jurisdiction is arbitration-friendly, one must naturally judge the quality of decisions rendered by courts of the seat in connection with arbitral proceedings. In Brazil, the Supreme Court demonstrated its pro-arbitration approach by declaring the constitutionality of the BAA in 2001. In its turn, the Superior Court of Justice is also undoubtedly pro-arbitration. To cite one example, the Court said in SERPAL v. Continental do Brasil that “arbitration, as an alternative dispute resolution method, fulfils precisely the fundamental right of access to justice, provided by Article 5(XXXV) of the Brazilian Constitution”. It is the current understanding that Brazilian courts support arbitration when faced with any challenge concerning that procedure.

 

Anti-arbitration Injunctions 

Brazilian courts have in few cases granted anti-arbitration injunctions that prevented parties from commencing arbitral proceedings. There are two decisions that became notorious among international arbitration practitioners: (i) a 2003 decision by a first-instance judge in Paraná in the case Copel v. UEG; and (ii) a 2012 ruling by the São Paulo Court of Appeals in the case Sulamérica v. ENESA (also known as the “Jirau case”). It is well established in Brazil that these decisions represent exceptions.

 

Conclusion

In conclusion, based on all the above mentioned reasons, we can affirm with confidence that Brazil is currently an arbitration-friendly jurisdiction.

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Ode to Librarians

ADR Prof Blog - Sat, 2019-01-05 12:03
Librarians are the nicest, most helpful people I have ever met. I don’t remember meeting any librarian who wasn’t. They are particularly helpful for students, teachers, and scholars – like most of the readers of this blog. Although librarians sometimes get acknowledgment, often they are unsung heros who bail us out when we have desperate … Continue reading Ode to Librarians →

4-word-build, A Conflict Resolution Exercise and Teamwork Exercise

Communication and Conflict Blog - Sat, 2019-01-05 06:40
4-word-build - a conflict resolution exercise for gaining a shared understanding of a concept in a group or team. The exercise enables all present to participate in the creation of the shared view.

Using I-statements in effective communication

Communication and Conflict Blog - Sat, 2019-01-05 06:34
Why and how I-statements support effective communication and conflict resolution. Examples of I-statements to illustrate.

Can Article 25 Arbitration Serve as a Temporary Alternative to WTO Dispute Settlement Process?

Kluwer Arbitration Blog - Fri, 2019-01-04 21:45

Bashar H. Malkawi

The World Trade Organization (WTO) was born on January 1, 1995 and its Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) provides a binding means for WTO members to resolve disputes arising under WTO agreements.  This post summarizes WTO DSU dispute settlement and considers, whether in light of recent developments, article 25 of the WTO DSU, which provides for binding arbitration, can provide a temporary alternative.

When the WTO was first formed, DSU dispute settlement effectively replaced the weaker dispute settlement process that had existed before under the General Agreement on Tariffs and Trade (GATT) 1947, which until then had served as the principal multilateral agreement whereby contracting parties negotiated liberalizing trade by reducing tariffs.

Under the GATT, the Tokyo Round (which lasted from 1973 to 1979, with 102 countries participating) established separate dispute resolution procedures in some of the separate codes negotiated during that period, such as the code on subsidy and anti-dumping. In effect, the GATT consisted of independent agreements with their own dispute settlement mechanism. Moreover, under GATT, dispute panels handed down findings that had to be accepted by both sides and other GATT Contracting Parties before they were adopted. Refusal by one Contracting Party, such as the losing party, meant that a panel report was simply set aside. Thus, under the GATT dispute settlement mechanism, the losing party in a dispute could block the adoption of a panel ruling.

WTO DSU dispute settlement created a more potent dispute settlement process than had existed previously and was part of the global gradual shift from a diplomatic and power-based approach in the settlement of international disputes to a more legalistic, law-based approach for dispute resolution.

To summarize, the WTO DSU dispute settlement is administered by a Dispute Settlement Body (DSB) which consists of the WTO’s General Council. Among its powers, the DSB has the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize suspension of concessions and other obligations under WTO agreements.

The WTO DSU provides a dispute resolution forum and its rules establish firm deadlines to file initial submissions, appeals, and enforce rulings (Understanding on Rules and Procedures Governing the Settlement of Disputes, arts. 4.4, 4.7). Also, the DSU rules govern notice, consultations, discovery, panel establishment and proceedings, and report circulation. Furthermore, the DSU set up a permanent Appellate Body to review appeals of panel decisions. Throughout its existence, the DSU has proved its efficiency in settling disputes between WTO members covering many WTO agreements.

WTO DSU dispute settlement has now been in effect for nearly twenty-three years and has been described as the “crown jewel” of the WTO legal system. Over the span of its existence, the WTO has decided 350 cases through its dispute settlement process. As a result, the WTO has succeeded in serving as a forum for negotiating international trade agreements and the monitoring and regulating body for enforcing these agreements among member nations.

Yet, today, the WTO dispute settlement process is in a critical stage as the U.S. is preventing filling vacancies in the seven-member Appellate Body. Of the seven-member Appellate Body, right now there are  only three seats filled.  Two of these vacancies were created at the end of 2018 when the incumbents’ terms expired.  The U.S. blockade further affects the Appellate Body’s ability to function even as disputes continue to pile up. The lack of full panels put huge pressure on other Appellate Body members who would have to decide many cases and within tight schedules. Under these circumstances, it is worth considering whether article 25 in the WTO DSU, which provides for binding arbitration, can serve as a “temporary alternative”? Theoretically, the answer is in the affirmative.

Article 25.1 of the WTO DSU allows “for expeditious arbitration within the WTO as an alternative means of dispute settlement which can facilitate the solution of certain disputes that concern issues that are clearly defined by both parties”. Recourse to arbitration under the DSU is permitted only as an alternative. Types of disputes that can be resolved under the article 25 mechanism are wide open. However, these types of disputes must concern issues that are defined by the concerned parties to the dispute at hand.

As a procedural matter, all WTO members should be notified of agreements to resort to arbitration sufficiently in advance of the actual commencement of the arbitration process (art. 25.2). The purpose of this language is to ensure transparency and that multilateralism is maintained by informing all members. Parties to article 25 arbitration can agree on the procedures to follow (art. 25.2). In other words, parties to a dispute have the freedom to choose their own procedures in the arbitration process. There are no limitations on procedures for selecting arbitrators, evidence submitted, hearings, and other relevant matters.

Once rendered, the arbitral award is binding on the concerned parties (art. 25.3) and there is no ability to object to or appeal enforcement of an award. WTO members can only raise certain points regarding the award such as the evidence presented or interpretation of the panel. Therefore, the arbitral award under article 25 is final. The award also should be notified to the DSB and other WTO members who can raise any point regarding the award.

Although the use of article 25 arbitration seems attractive especially in the current environment, as a practical matter, article 25 would not serve as a “viable or permanent solution” to the ordinary WTO dispute settlement process. Over the past decades, WTO members have developed a wealth of expertise and knowledge regarding WTO DSU, which they cannot simply forgo. Reports of WTO Appellate Body and panels helped define and shape many treaty provisions. It is hard to envisage that WTO members would put aside such experience and enter into article 25 arbitration, which is essentially uncharted territory.

Throughout the history of the WTO, article 25 has been used only one time, in U.S-Section 110(5) of the U.S. Copyright Act- Recourse to Arbitration under Article 25 of the DSU, WT/DS160/ARB25/1, Nov. 9, 2001 (Award). That arbitration concerned a narrow issue of whether it was reasonable for the European Community (EC) to calculate losses for all potentially realizable income.  The arbitrators in US – Section 110(5) Copyright Act observed that recourse to article 25 arbitration is not subject to multilateral control and that, accordingly, “it is incumbent on the Arbitrators themselves to ensure that it is applied in accordance with the rules and principles governing the WTO system” (Award, para. 2.1). The arbitrators in the case also ruled that international tribunal may consider the issue of its own jurisdiction on its own initiative. The arbitrators decided that the U.S., the defendant in the original panel proceedings, had to provide a prima facie proof that the methodology and estimates proposed by the EC did not accurately reflect the EC benefits being nullified or impaired (Award, para. 4.4). To maintain confidentiality, the arbitrators decided that two versions of the award would be prepared. One, for the parties, which would contain all the information used in support of the determinations of the arbitrators. The other, which would be circulated to all WTO members, would be edited so as not to include sensitive information (Award, para. 1.24). In general, arbitrators in US – Section 110(5) Copyright Act determined important issues regarding jurisdiction and procedures so that future article 25 arbitrators can follow suit.

Add to all of this, that article 25 arbitration does not provide any appeal mechanism. As discussed above, arbitral awards under article 25 arbitration are final and there is no appeal process. Nor is there any need for article 25 arbitration award to be adopted by the DSB. This is in contrast with the WTO ordinary dispute settlement mechanism, where appeals are available regarding issues of law covered in the panel report and legal interpretations adopted by the panel (DSU, art. 17.6). The panel’s findings on factual issues thus escape from appellate review. The appellate review process is limited to upholding, modifying or reversing the panel’s legal findings and conclusions. Under WTO ordinary procedures, panel decisions are adopted unless all WTO members present at the meeting of the DSB decide by consensus not to adopt panel decisions (known as inverted consensus).

Conclusion

While theoretically article 25 arbitration seems to be a viable alternative past practice and wealth of experience and knowledge developed under WTO ordinary dispute settlement mechanism would prevent utilization of such an alternative. However, WTO members should not shy away from utilizing article 25 arbitration. The dispute settlement mechanism as a whole – including article 25 arbitration – is not only about disputes; it is an evolving body of international trade law principles.

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Morocco and Mexico face ICSID claims

A German scrap recycler and US construction materials company have had their claims against Morocco and Mexico registered by ICSID, while an almost decade-old dispute at the centre between a US investor...

Romanian electricity supplier wins against Swiss trader

Romanian state-owned company Hidroelectrica has defeated a €43 million ad hoc claim brought by a Swiss energy trader that accused it of failing to comply with an energy supply contract in the face of insolvency...

Romanian electricity supplier wins against Swiss energy trader

Romanian state-owned company Hidroelectrica has said that it has defeated a €43 million ad hoc claim by a Swiss energy trader alleging that it failed to comply with an energy supply contract in the face...

Peeking Behind the Curtains: Insights from the Swiss Supreme Court’s Recent Public Hearings in Appeals against Investor-State Dispute Settlement Awards

Kluwer Arbitration Blog - Fri, 2019-01-04 02:05

Michael Falck

In a marked departure from its usual closed-doors policy, the Swiss Federal Supreme Court (the “Supreme Court”) recently held public deliberations in two separate appeal proceedings concerning foreign investment arbitrations. In both cases, a public deliberation by all five judges of the first civil chamber was necessitated due to the lack of unanimity among the regular panel of three (Articles 20 and 58 of the Swiss Federal Tribunal Act). In both cases, the majority decided to uphold the decisions in the relevant UNCITRAL arbitrations that favored investment protection, with a dissenting minority advocating for a more restrained interpretation of the scope of application of the relevant bilateral investment treaties (“BITs”).

The first hearing, held on 16 October 2018, concerned two cases in which the Russian Federation sought to set aside the interim awards in two PCA-administered UNCITRAL arbitrations with seat in Switzerland for lack of jurisdiction (4A_396/2017 and 4A_398/2017, published on 16 November 2018). The disputes centered on the territorial scope of the Russia-Ukraine BIT of 27 November 1998 (the “R-U BIT”), namely on whether the Crimea was part of the host state territory from the perspective of a Ukrainian investor.

The Supreme Court confirmed the arbitral tribunal’s finding that the BIT extended to the Crimea, over which Russia exercised de facto control. As for the scope of investments covered by the BIT, the Supreme Court backed the arbitral tribunal’s finding that the term “investment” included investments initially located in the investor’s home state that ended up in the host state only subsequent to a change in territorial borders.

Judge Kathrin Klett, the lone dissenting judge, criticized the majority’s finding, arguing that the arbitral tribunal’s jurisdiction should have been declined for two reasons. For one, the investment notion under Article 1 (1) of the R-U BIT was in Klett’s view transaction-based, i.e. it only covered investments that were made by investors of one state in the territory of another state. Judge Klett argued that, by contrast, the majority wrongly based their assessment on an asset-based definition of investment, which she considered to be a definition more commonly used in recent BITs. Judge Klett found that her view was also in line with a systematic interpretation of the R-U BIT, which specifically mentions the need for a cross-border investment ab initio (based on the wording in Article 12 of the R-U BIT: “… investments carried out by the investors of one Contracting Party on the territory of the other Contracting Party …”), thereby excluding investments that only become international later on. She further opined that her stance was supported by the BIT’s goal of attracting foreign investment. Secondly, Judge Klett criticized the majority’s approach as an impermissible supplementation of a lacuna in the BIT. In her view, Russia and Ukraine in 1998 did not consider the possibility that investments would change ‘nationality’ as a result of shifting borders and this gap in their agreement could not be filled by a judicial or arbitral body.

In the second hearing, held on 11 December 2018 and for which the reasoned judgement is still outstanding, the Supreme Court rejected India’s set-aside appeal to an interim arbitral award in a satellite telecommunications dispute with Deutsche Telekom. In the UNCITRAL arbitration with seat in Switzerland, the tribunal had rejected India’s jurisdictional objections and found the force-majeure repudiation of the contract by the Indian state-owned entity to be a violation of the fair and equitable treatment standard. The Supreme Court confirmed the arbitral tribunal’s finding that the subjective scope of the 1995 Germany India BIT (the “G-I BIT”) extended to both direct and indirect foreign investments and thus covered Deutsche Telekom’s Indian investment made through a Singaporean subsidiary.

The majority considered that the G-I BIT covered indirect investments despite not being mentioned explicitly in the text. It based its interpretation on the BIT’s purpose of promoting foreign investment. Christina Kiss, the presiding judge, explained that a state should not be allowed to restrictively interpret such a treaty to exclude the type of investment it intended to attract when entering into the BIT. The majority also found support for its position in the fact that the use of special purpose investment vehicles was common in foreign investment and should not be disallowed by way of a restrictive interpretation. By contrast, the two dissenting judges adhered to a more literal interpretation, with Judge Klett emphasizing that Deutsche Telekom’s investment was in Singapore and not in India. Judge Martha Niquille expressed the view that the treaty’s silence on indirect investments should be interpreted as a conscious omission by the treaty partners since some contemporary BITs explicitly included such investments.

While no assessment on the basis of a sample size of two can be conclusive, the two decisions nevertheless invite a joint assessment in light of the fact that their contested and, in the case of the Crimean decision, politically sensitive subject matter led both to be publicly deliberated in the space of only two months. Seen together, the two decisions betray the possibility of an ideological divide among the judges of the first civil chamber. In common terms, this divide would distinguish Judges Klett and Niquille as the more ‘conservative’ faction favoring a more restrictive interpretation of BITs’ scopes of application, which ultimately favors states’ sovereignty. By contrast, the majority seems to show a willingness to interpret the BITs brought before it based on their objective purpose, thereby maintaining their broad scope (as reflected e.g. in Article 2 of the G-I BIT by the phrase “all investments made”) and refusing to exclude investments that a more restrictive historical or literal interpretation of the BIT would not cover.

It remains to be seen whether this divide follows the described lines or even truly exists. In any case, the Supreme Court’s recent jurisprudence in investor-state dispute settlement disputes can still be said to reflect its customary and long-standing practice as a gate-keeper: it assiduously uses its broad power of review when assessing an arbitral tribunal’s legal reasoning on jurisdiction yet exercises the judicial restraint mandated by Article 190 (2) of the Swiss Private International Law Act on all other grounds of appeal. The result is a body of established precedents that is very consistently in favor arbitri, which is good for investor-state arbitrations with seat in Switzerland and good for business.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Procedural Reform: Two Party-Appointed Arbitrators and a Presiding “Expert”

Kluwer Arbitration Blog - Fri, 2019-01-04 00:00

Ylli Dautaj and William F. Fox

Arbitration in the 21st Century requires some bold, fresh thinking.  We must seek flexibility and innovation if legal civilization is to survive. 1) Thomas E. Carbonneau, The Law and Practice of United States Arbitration, xxix (6th. ed. 2018) jQuery("#footnote_plugin_tooltip_2608_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2608_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Similarly,  when the market speaks strongly, we should  listen very carefully. We believe that open and free markets, receptive to innovation, have proven superior for economic growth and political and legal stability.

It is not a coincidence that arbitration has been the dispute resolution choice of merchants for hundreds of years. While it has never been perfect, arbitration grew out of  free markets and promotes rule of law and private justice. Procedural workability and reasonable substantive fairness have trumped the need for a full-blown, court-like procedure.

Even so, arbitration should not be exempt from criticism. In the past, arbitration has been attacked on the false assumption that it usurps the courts’ inherent prerogatives. Some argue that party-appointed arbitrators take justice in their own hands, and overriding the twin goals of fairness and justice.  We disagree.  Arbitration has not usurped the role of judges. The arbitral procedure merely provides for an alternative to court litigation—not a complement to the courts. The free choice of expert arbitrators enhances private justice and overall freedom. Like free and open markets, the desire for private justice through arbitration is evidenced by arbitration clauses in international commercial agreements. The bottom line is this: arbitration’s workability has been demonstrated by the test of time.

These days, most of the debate on the efficacy of arbitration involves a discussion of potential changes that can improve an already efficient arbitral procedure. Most current debate focuses on procedural efficiency and cost-reduction and how these two features can be balanced in light of substantive quality. Spotting the contemporary issue with respect to increased costs and lengthier procedures is easy. Proposing possible solutions is more difficult. One recent proposal that is gaining traction—and is to be applauded—is that of “expedited procedures” (e.g. fast-track arbitration).

There is another procedural reform that we find both provocative and intellectually stimulating. We propose one significant change for appointment and composition of arbitral tribunals. In an arbitration with three arbitrators, the presiding arbitrator could be selected subsequent to the exchange of written submissions, or, perhaps,  subsequent to the case management conference. Appointing the presiding arbitrator before the case review conference, or before the first procedural order, would reduce costs and allow the third arbitrator to be appointed based on his or her relevant experience and expertise vis-á-vis the issues at hand—or, put a bit differently, the presiding arbitrator will be appointed only after a showing of demonstrated experience and expertise.

ARBITRATOR EXPERTISE 

Traditional practice among international merchants is to refer disputes to a tribunal comprised of three arbitrators under the supervision of a recognized arbitration institution. Usually each party nominates one arbitrator and the party-appointed arbitrators choose the presiding arbitrator.  Much less frequently, an arbitral institution (or national court) may be the final appointing authority. The freedom to choose one’s own arbitrator is considered a major advantage and central hallmark of arbitration. But there is frequently a great deal of disagreement and contentiousness when the two party-appointed arbitrators begin the selection process for the presiding arbitrator.  We urge two changes: first, the credentials of the presiding arbitrator should include not only competence as an arbitrator but also significant expertise and relevant education in the subject matter of the dispute. Second, if the presiding arbitrator is appointed later in the process, it will be much easier to identify the specific expertise necessary to resolve the dispute.  These two innovations may reduce excessive hostility and contentiousness and the parties may be more prone to settle. If the presiding arbitrator is appointed subsequent to the exchange of written submissions—the parties can appoint an acknowledged expert in the relevant subject matter. Moreover, this procedural reform would potentially allow parties to save money since the presiding arbitrator will be a qualified expert by experience, expertise, and relevant educational background. With this “built-in” expertise parties might be willing to forego the expense and hassle of appointing their own expert.

COST-REDUCTION AND PROCEDURAL EFFICIENCY

Lack of speed and excessive costs are among the worst perceived features of international commercial arbitration. 2)White & Case, 2018 International Arbitration Survey: The Evolution of International Arbitration, 2 (2018) jQuery("#footnote_plugin_tooltip_2608_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2608_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As has been said in this blog: “the key to efficiency is to identify when resources are being invested and when they are being wasted.” Reducing costs and minimizing procedural intricacies while at the same time delivering on procedural workability and substantive fairness is a tough task. Conducting a preliminary case assessment is a good practice prior to selecting the tribunal. In a “best case” scenario a dispute might settle subsequent to a preliminary case assessment. At the very least the important issues might be identified and narrowed with some certainty.  Similarly, letting the parties work out the crux of the matter and the time table with their own party-appointed arbitrator might reduce adverserialism and hostility and promote cooperation leading to, hopefully, early settlement. If not, at least costs will be significantly reduced and appointing a true expert might be an easier task.

One step in implementing our proposal will require arbitral institutions to investigate the credentials of their arbitrators in terms of both arbitration experience and subject matter expertise and to provide lists of potential arbitrators that are broken down into various subject matter areas.  So, for example, the institution could provide a list of experienced arbitrators who have a minimum of, say, ten years’ experience in international energy matters.3)We acknowledge that our proposal is a work in progress.  We believe a ten-year level of expertise (while perhaps a bit arbitrary) to be close to the minimum necessary to achieve our ultimate goal of dispensing with party-appointed expert witnesses jQuery("#footnote_plugin_tooltip_2608_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2608_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.  A similar list could be compiled from arbitrators with significant expertise in communications law or securities regulation or employment law.  Diligent parties may be able to identify experts on their own with no assistance from the arbitral institution.  The second step is drafting an arbitration agreement that reflects the requirement of presiding member expertise.

PROPOSED LANGUAGE IN AN ARBITRATION CLAUSE

The following language, based heavily on language suggested by the London Court of International Arbitration (LCIA) in its Model Arbitration Clause, could be added to arbitration clauses and submission agreements:

“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause, except for the establishment of the Tribunal.

The number of arbitrators shall be three. One arbitrator shall be chosen by each party and the two shall chose the presiding arbitrator within 30 days after the exchange of written submissions. The choice of the presiding arbitrator shall be based on both demonstrated experience as an arbitrator and specific expertise in the subject matter of the underlying agreement.  If an agreement cannot be reached, the [arbitral institution] shall appoint the presiding arbitrator by identifying presiding members who have both arbitration experience and subject matter expertise. If a provisional measure is sought, an emergency arbitrator will be appointed by the LCIA to issue an order. The seat, or legal place, of arbitration shall be Washington DC, United States. The language to be used in the arbitral proceedings shall be English. The governing law of the contract shall be the substantive law of the State of New York, United States.”

We recognize that inserting the “expertise” element in the choice of the presiding member can seriously complicate the search for an appropriate person.  But if our prediction bears out–that a presiding member with bona fide subject matter credentials will eliminate the need for party-appointed expert witnesses—such additional time and expense will be well-justified.

While arbitral institutions have an important role in shaping arbitral procedure, the users of international arbitration should make the final decisions on procedure. Arbitration is after all a reflection of party autonomy. As has been said here, institutional reform “should never be a substitute for meaningful self-reflection and self-discipline by the parties, their counsel and the arbitrators that they themselves select.”

CONCLUSION

We believe our proposal is consistent with the main theoretical advantages of arbitration: flexibility, procedural efficiency, cost-reduction, and expertise, reflecting best practices, legal theory, and rational doctrine. Most importantly, the proposal like arbitration itself, is grounded in party autonomy and that classic expression of freedom—Liberté, Egalité, and Fraternité.  Giving parties the autonomy to tailor the procedure and choose their expert presiding member is directly related  to the broader goal of freedom. We believe our proposal will fulfil the purpose and destiny of arbitration without disturbing its underlying mandate. It keeps the process in the hands of and under the control of the users.

References   [ + ]

1. ↑ Thomas E. Carbonneau, The Law and Practice of United States Arbitration, xxix (6th. ed. 2018) 2. ↑ White & Case, 2018 International Arbitration Survey: The Evolution of International Arbitration, 2 (2018) 3. ↑ We acknowledge that our proposal is a work in progress.  We believe a ten-year level of expertise (while perhaps a bit arbitrary) to be close to the minimum necessary to achieve our ultimate goal of dispensing with party-appointed expert witnesses 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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Impressive Report on Worldwide Dispute System Needs and Design

ADR Prof Blog - Thu, 2019-01-03 11:43
The Hague Institute for Innovation of Law recently released a report entitled, Understanding Justice Needs: The Elephant in the Courtroom. The Institute describes the report as follows: “For the first time, we quantify and pinpoint the yearly need for fair solutions. In this report, we estimate that each year, 1 billion people face a new … Continue reading Impressive Report on Worldwide Dispute System Needs and Design →

“Sham” Cairo award - ICC seeks to intervene

The ICC International Court of Arbitration has asked a US court for permission to file an amicus curiae brief in support of Chevron’s attempts to prevent enforcement of a US$18 billion award that the energy...

ICC seeks intervention over “sham” Cairo award

The ICC International Court of Arbitration has asked a US court for permission to file an amicus curiae brief in support of Chevron’s attempts to prevent enforcement of a US$18 billion award that the energy...

The ICC Secretariat Behind the Scenes: A Chat with Ana Serra e Moura

Kluwer Arbitration Blog - Wed, 2019-01-02 16:05

Gloria Alvarez (Associate Editor)

The endeavours of the ICC go beyond the definition of an arbitration institution; it is indeed one of the most important agents of cultural integration, incubator of diversity and best arbitration practices. 1)Stavros Brekoulakis, The Culture in International Arbitration: Integration or Fragmentation?, CBAr Conference, Salvador Bahia, 18 September 2018 jQuery("#footnote_plugin_tooltip_4403_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4403_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); A true manifestation of this is the ICC Young Arbitrators Forum (YAF); a global space for the young arbitration community which provides networking opportunities while engaging with the highest quality in the debate of topical issues.

To celebrate the end of the year and a successful UK ICC YAF cycle; Maria Claudia Procopiak and Rachael O’Grady invited the ICC Deputy Secretary: Ana Serra e Moura to a Q&A session in London. The interviewer, Luiz Aboim distilled some of the most relevant information we need to know as members of the young arbitration community.

As starting point of the discussion, Ana mentioned her own personal experiences, including her first arbitration job at a boutique arbitration firm in Madrid. Ana highlighted the importance of new learnings and mentoring:

“Sometimes, you are too young to make decisions yourself and it is the arbitration market that make those decisions for you, so be ready and open to learn, either as administrative secretary or counsel.

In building an arbitration career, Ana advised not to focus exclusively on the ultimate result, but instead to work hard in the learning process. Maria Claudia added that it is crucial to work on your experience and exposure and most importantly: make the most of your first arbitration opportunity!

Empirical research supports Ana’s advice. Consistent with the 2018 White & Case Survey, parties are likely to select institutions capable of handling arbitrations in a multitude of locations and respond to specific needs. These specific needs also apply in seeking the right arbitrator’s profile; including its ability to speak different languages. Therefore, for young practitioners aspiring to become an arbitrator; an extra language(s) on your pocket is always a bonus.

According to a the 2018 White & Case Survey, the ICC is the preferred institution by 77% of the arbitration users. Therefore, it is not a surprise that the ICC has 11 teams organised by regions in the world. The 11 teams are managed by: 1) the Secretary General, 2) the Deputy Secretary General, and 3) the Managing Counsel. In addition to the seven teams based in Paris; the ICC also has offices in Hong Kong, New York, Singapore and São Paulo. The Deputy Secretariat also continues to work on further improvements and developments including the ICC’s IT system composed by an internal and external platform and several other projects, including research.

 

Source: ICC Secretariat.

Founded in 1923 with more than 24,000 cases – the ICC Court has achieved full gender parity (88 women and 88 men). This endeavour will continue to be one of the flagship commitments of the ICC at ensuring genuine diversity. The ICC also understands that parity and equality is also achieved with regional presence. The ICC Africa Commission illustrates the Secretariat’s commitment on this matter. The Africa Commission’s main objectives comprise: raising arbitration awareness on the region, while focusing their efforts on expanding the pool of African arbitrators qualified and available to resolve the increasing number of disputes in the region.

Source: ICC Secretariat.

Source: ICC Secretariat.

Another example on genuine diversity; is the ICC’s long-term commitment and trust in Latin American arbitration practice, which continues to be a story of success and mutual prosperity. The ICC has contributed at bringing down cultural barriers to the ever-expanding Latin American arbitration market. The 2018 White & Case Survey highlighted the efforts made by the ICC at opening an office in São Paulo, Brazil, which also includes a modern hearing centre. In less than one year, the São Paulo office have registered 40 cases, involving 123 parties (117 Brazilian parties and 6 foreign parties).

The ICC owes much of its success to its international external structures, namely its Court Members, National Committees, and ICC YAF Representatives. Ana explained that all decisions submitted to the ICC Court help the Secretariat to develop the best practices on the ICC Arbitration Rules. In terms of appointments, the ICC receives proposals from their national committees when seeking a specific profile for an arbitrator.

Luiz Aboim asked the Deputy Secretary General about Expedited Procedures, an arbitration process for disputes below USD 2 million, where the final award should be rendered within 6 months. So far 85 parties from 38 countries have been involved in an ICC Expedited Procedure. This is another example of the ICC constantly adapting to the needs of the market and broadening the portfolio of its services. The most frequent type of disputes are sales and purchase of goods; construction and engineering; consultancy and agency.

In responding to Luiz’s request on predictions for the future; Ana concluded that technology will continue changing the way young arbitrators work and probably double-hatting will be less common in the future. While remaining confident arbitrators are not going to be replaced by AI; Ana suggested to keep an eye on predictive justice.

Lastly, Alina Sartogo joined the panellists for a Mock ICC Arbitration Court Plenary Session. The ICC Court Plenary Sessions are open to all Court members and take place once per month to discuss relevant issues with respect to ICC awards involving states and state entities and challenges.

The key message from the ICC Deputy Secretary General to us, young aspiring arbitrators, is to focus on our learning process and networking; the first appointment will then come naturally.

References   [ + ]

1. ↑ Stavros Brekoulakis, The Culture in International Arbitration: Integration or Fragmentation?, CBAr Conference, Salvador Bahia, 18 September 2018 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Whispered Conversation: Hong Kong v. Singapore

Kluwer Arbitration Blog - Tue, 2019-01-01 20:00

Gary L. Benton

Hong Kong v. Singapore. It’s not the next big football match or title of an upcoming Japanese monster film. It’s the question of where to bring international arbitration claims in Asia. It’s a topic whispered at cocktail receptions and routinely reserved for hushed discussion in law firm conference rooms. It’s the topic rarely if ever discussed with sincerity at arbitration conferences – and it’s certainly not a topic to debate too loudly while in Singapore or China, especially if you’re on the “wrong” side of the debate.

The West has slowly come to recognize Hong Kong and Singapore as credible seats for international arbitration in Asia and one can barely deny that Hong Kong and Singapore are rapidly becoming global arbitral seats in their own right.

Their development is very much an Asia-first model, fueled largely by economic potential and, in considerable part, by disregard from the West. With European nations and the US focusing arbitration resources on the Atlantic and largely ignoring the Pacific Rim, East Asia simply took matters into its own hands, building arbitral centres that attract Asia-related disputes. With the rise of credible seats in Asia, there is rarely a need to travel to Paris or London for arbitration and, in turn, Asia may soon be challenging the West for matters without regional ties.

The potential for further expansion in Asia is significant. The International Monetary Fund ranks the US, China and Japan as the world’s largest economies and, in fact, most of their economic activity is focused on Asia and the Pacific Rim. In the US, California, ranked alone, is the fourth largest economy in the world, with China, Hong Kong and Japan ranking among its top 5 export regions. California companies, particularly companies in the technology sector, look principally to Asia for trade and, not surprisingly, are under growing pressure to submit disputes to courts and tribunals in Asia for resolution. The same holds true for companies supplying raw materials and finished goods from Western Canada and throughout much of Latin America – the focus is largely on trade with China and other Asian countries. Looking North from Oceana or East from Central Asia, particularly with China’s planned Belt and Road Initiative, the epicenter of further global economic growth appears to be Asia.

Accordingly, a question increasingly asked in jurisdictions facing Asia is where to arbitrate in Asia. At present, the choice is largely between Singapore and Hong Kong. Although regional centers in Seoul, Tokyo, Kuala Lumpur, mainland China and elsewhere in Asia are developing, and may be a solution for specific cases, there is no doubt that Hong Kong and Singapore remain the standard-bearers.

Both have their virtues. Singapore is a modern, vibrant shopping mecca; Hong Kong is a cosmopolitan cultural delight with ready access to mainland China. But, of course, the answer more importantly turns around each jurisdiction’s receptiveness to arbitration and the rule of law.

As rich and cosmopolitan as Singapore and Hong Kong may be, there is an underbelly to both to be considered. Freedom House, the leading international research institute that ranks freedom, democracy and the rule of law around the world, ranks Singapore as only partly free giving it a freedom score of 52/100. Freedom House ranks Hong Kong as partly free as well giving it a slightly better score of 59/100. Similarly, judicial independence rankings by The World Economic Forum place Hong Kong 13th in the world and Singapore at 19th.

Relative to much of the world, these rankings are not bad but the question can be asked whether jurisdictions that have less than ideal rankings for freedom and judicial independence can be entrusted with administering international arbitrations and enforcing arbitration awards. And, as between Hong Kong and Singapore, putting aside the relatively minor differences in their pro-arbitration laws and the rules of their leading institutions, which is to be preferred as an arbitral seat?

Starting with Singapore, the little city-state is on steroids when it comes to government initiatives to promote Singapore as an international dispute resolution mecca. Anchored by Singapore International Arbitration Centre and the well-accoutered Maxwell Chambers, Singapore is attracting a growing share of international work notably from Southeast Asia and India while regularly taking strategic steps to gain footholds in mainland China. The ICC, ICDR and other global players are scrambling to implement strategies to strengthen their positions there and Singapore has seen a large influx of Western practitioners who hope to benefit from Singapore’s rise.

Behind the curtain, Singapore’s political system receives mixed marks. Singapore’s parliamentary political system has been dominated by the ruling People’s Action Party (PAP) and the family of current prime minister Lee Hsien Loong since 1959. According to Freedom House, the electoral and legal framework allows for some political pluralism and considerable economic prosperity but critics contend that what effectively amounts to a one-party system limits freedoms of expression, assembly, and association. Death penalties for drug traffickers, canings for some 35 other offenses and prohibition on chewing gum are reminders that Singapore adheres to different standards than many Western jurisdictions.

That said, it is not believed that political interests unduly influence the judicial system, at least when it comes to international commercial matters. The courts in Singapore are well-respected and have a strong record for following a British tradition honoring the rule of law. Nonetheless, the question remains how independent the courts can truly be given the political constraints and the pressures faced by the small, regionally isolated city-state.

Hong Kong has a far different past and faces a far different future than Singapore largely because of its intertwined relationship with mainland China. Despite China opening its doors to international business, Hong Kong remains an important gateway to the mainland. Hong Kong’s continuing strength as an international banking and financial center, combined with its access to mainland markets, provide strong economic advantages. The international arbitration sector in Hong Kong, built largely around the HKIAC and a talented legal and academic community, have made Hong Kong the traditional leader in Asia Pacific-based international arbitration. ICC is active in Hong Kong and CIETAC and other arbitral institutions are also looking to reap rewards.

Hong Kong residents have traditionally enjoyed substantial civil liberties and economic freedoms. As a Special Administrative Region of China, Hong Kong abides by the rule of law under its local constitution, the Basic Law. However, the Chief Executive and half of the Legislative Council are chosen through indirect electoral systems that are widely viewed to favor pro-Beijing interests, and the territory’s freedoms and autonomy have come under threat in recent years due to growing political and economic pressure from the mainland.

In the meantime, Hong Kong remains a stubborn bastion of democracy. Its legal system is fitted with a long history of English law jurisprudence including a court system that remains independent and widely respected. Hong Kong maintains a system of appointing pre-eminent jurists from around the world as non-permanent judges on its highest court. Hong Kong is an attractive forum for enforcement of arbitral agreements and the recognition of awards and, to date, the courts have not hesitated to enforce awards against Chinese state-owned enterprises. Like Singapore, Hong Kong is proactive with respect to legislation favoring arbitration.

Hong Kong has the added benefit of ties to the mainland and some argue mainland courts are more likely to enforce arbitral awards coming from Hong Kong than from foreign jurisdictions. The Arrangement Concerning Mutual Enforcement of Arbitral Awards made between Hong Kong and China has proven to work in enforcing awards and mainland China has taken steps to ensure international arbitration awards are given protections.

For the immediate future, Hong Kong and China remain intertwined in a way that favors international arbitration. China benefits from Hong Kong’s positioning as a global financial center and well-deserved reputation as the epicenter for the rule of law in Asia. China is surging forward with new economic initiatives. The Belt and Road initiative, representing US$900 billion of investment infrastructure investment, is expected to bring strong returns and, undoubtedly, international arbitration work. The growth of arbitration in mainland China, largely through CIETAC and many other impressive regional institutions like BAC/BIAC in Beijing and SCIA-SAC in Shenzhen will likely benefit mainland China and Hong Kong in providing a broad network of domestic and international arbitration resources. So long as Hong Kong and Beijing work to find a proper balance in their relationship that protects Hong Kong’s judicial independence, both will thrive from their relationship.

For both Singapore and Hong Kong, the next step is to move from being the leading regional Asian seats to leading global seats. For that, they need to demonstrate they can provide fair and independent dispute resolution – for Western and Asian parties – consistent with the leading seats in the West.

For Singapore, the challenge is to not lose sight of political pluralism and to expand beyond parochial interests by maintaining a judiciary which remains impartial and independent, by ensuring international arbitration initiatives are not driven largely by local interests and short-term economic goals and, relatedly, by providing genuine opportunities for non-local practitioners and arbitrators. As well, Singapore must find some way to manage its dependence on India for legal work. While Singapore will undoubtedly remain an important shipping port, it needs to find a way to remain relevant legally and economically as India develops its own infrastructure. If Singapore achieves these goals, Western and Asian parties will be comfortable looking to Singapore as a global seat.

Hong Kong has an advantage given the long history of its independent judiciary and its intimate access to mainland China. However, its challenge is to convince Beijing that democracy and an independent judiciary in Hong Kong will further long-term economic growth throughout China and not threaten state security. Hong Kong’s related challenge is to ensure Beijing understands that Hong Kong can’t be replaced. China has made extraordinary investment and generated extraordinary growth in the Pearl River Delta Economic Zone, just as it is now doing in many other parts of the country, but Beijing needs to understand that arbitral seats governed in socialist law will always be a second choice for foreign parties, particularly Western parties. If Hong Kong achieves these goals, Western and Asian parties will continue to hold it in high regard and it will be able to expand its base.

Certainly, practitioners in Singapore and Hong Kong, and in jurisdictions around the world, will have their own perspectives. Ironically, it’s a topic that can’t be too openly debated in Singapore or China given the political pressures that come to bear. But a genuine debate is needed for Hong Kong and Singapore to rise to the top of the Queen Mary seat survey.

Until then, it will remain mostly a topic for those whispered cocktail parties, those closed conference rooms – and, of course, the Kluwer Arbitration Blog.

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