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How to resolve construction disputes in Abu Dhabi - Construction Week Online

Google International ADR News - Tue, 2018-10-09 08:36

Construction Week Online

How to resolve construction disputes in Abu Dhabi
Construction Week Online
Among the reasons behind this, according to Badman, are the maturity of the construction market; the increased number of international contractors requiring certainty and a recognised method of dispute resolution; confidence in the local arbitration ...

and more »

The Blockchain ADR: Bringing International Arbitration to the New Age

Kluwer Arbitration Blog - Tue, 2018-10-09 03:03

Marike R. P. Paulsson

Sometimes, the establishment needs to step aside to let the next promising generation create a new way forward: So it commences with entrepreneurial students at the University of Miami, combining talents of engineering, technology, and international law and arbitration. It is by thinking out of the box that disruptive changes happen and they must in order to break through an outdated status quo. The founder of “Blockchain ADR”, Alexander Fischetti, launched the idea of using blockchain for international arbitration in Sao Paolo, in March 2018. The University of Sao Paolo and the Global Legal Institute for Peace collaborated with the World Economic Forum to understand blockchain from the engineering, the economic, and the legal perspective.

The idea of blockchain is that it is a platform, a technological carrier of data, if one wishes to understand it that way. When an engineer from the University of Sao Paolo, not versed in international arbitration, asks: “Are international arbitrations mostly conducted with written submission and in person hearings?” One could still answer defiantly that in the modern era of electronic communication, institutions handle arbitrations by accepting electronic submissions and facilitating virtual hearings. However, then the engineer asks: “Are those documents submitted through email platforms and similar carriers?” The answer is: “Yes, probably.” Email carriers are far less secure than a blockchain carrier. They are too easy to hack. Blockchain is not. The step from paper submissions to email seemed acceptable when the step to blockchain was not. The resistance to blockchain by the establishment is the resistance to disruptive change but not a rational one, and it is certainly not an informed resistance.

What are the advantages of blockchain? The secure transportation of data, the possibility of storing original data and the almost 100 % guarantee that data will not get lost. What then could the outcome be under the New York Convention? Are there advantages and new challenges? Yes.

Article II of the New York Convention and the Blockchain

Article II of the New York Convention provides that arbitration agreements must be, in principle, recognized as binding. If the requirements listed under Article II are met, a court shall refer the parties to arbitration. This provision was perhaps construed in a timely fashion during the three week conference in 1958 but the consensus to add Article II to the New York Convention was one of the 11th hour and with that came some inevitable drafting errors.

Article II dictates that the arbitration agreement must be valid and its subject matter must be arbitrable. Recognition cannot take place if the agreement would be null and void or incapable of enforcement. Yet, the real hurdle to modern day recognition of the arbitration agreement is the ‘in writing’ requirement of Article II(2) of the New York Convention. The agreement meets the ‘in writing’ requirement if the agreement or the clause has been signed by the parties or has been concluded through an exchange of telegrams or telefaxes. The 2006 UNCITRAL Recommendations addressed the outdated idea of telegrams. UNCITRAL recommends that this requirement must be read to ‘include’ the electronic means of communication, and this would open the door to using blockchain as a means to conclude arbitration agreements.

So what is the advantage of blockchain for arbitration agreements? The arbitration agreement once concluded cannot be altered on this platform. The original is preserved on the blockchain. As far as securing those agreements and not losing the data, it is better placed on the blockchain. Now that UNCITRAL has endorsed the use of electronic communications, parties ought to use a blockchain format rather than other electronic carriers. The blockchain provides the users with unique keys with which only they can access the data. This means that the parties to the arbitration have a unique way to access the original arbitration agreement without being able to alter it (or lose it for that matter). Subsequently, the parties can allow the arbitral institution to have a key as well to the data and they can provide that data to any enforcement court that is called upon to refer the parties to arbitration. Article II with its ‘in writing’ requirement is not simply a matter of evidence as it is under most national arbitration laws. At the time, an ample discussion took place among delegates to feature the idea of tacitly accepting an agreement to arbitrate. At the time, that idea was rejected because the delegates recognized the reality that modern customs in international trade dictated the use of agreements in writing. The takeaway is that the New York Convention including Article II should over time be adapted to modern customs in international trade, and soon that should include arbitration agreements on the blockchain.

Article IV of the New York Convention

If Article II has often led to the premature death of arbitration because most agreements did not meet the now rather stringent ‘in writing’ requirement, one has yet to explore the challenges under Article IV of the New York Convention, which I tend to refer to as the Pandora’s Box. Article III is perhaps the core instruction to courts under the New York Convention: courts of the country where enforcement is sought must recognize awards as binding. There is a presumption of validity. Pieter Sanders, the founding father of the New York Convention, created the allocation of the burden of proof in Articles IV and V (referred to in Article III). Refusal can only take place on the basis of the grounds listed in Article V. A court can grant the enforcement if the applicant has complied with the requirements listed in Article IV. A court will assess the submission of documents under Article IV on a prima facie basis only. Article IV of the New York Convention provides that the successful party in arbitration must supply the original arbitration agreement or a copy thereof, the original award or a copy thereof, and finally, the applicant must provide a sworn translation in the official language of the country where enforcement is sought.

With that, the request for enforcement ought to be simple which supports the idea that enforcement of an award by the successful party in the arbitration should be relatively simple which is in line with the purpose of the New York Convention, which contributes to the effectiveness of international arbitration. Yet, in practice, Article IV became a volatile article and the subject of unscrupulous use by counsel and judges alike. This is because Article IV also requires that copies must be certified and signatures authenticated. However, not a single guideline was provided as to who should do this, where this should be done and what should be authenticated: the daunting ‘Ws’.

If the parties were to use the Blockchain ADR as a platform for international arbitration and enforcement under the New York Convention, many of these obstacles under the New York Convention could be disposed of.

The Blockchain ADR, as discussed above, would be the platform holding all documents and data related to an international arbitration procedure from beginning to end, meaning that the arbitration agreement and the arbitral award(s) would be stored here. This means that the party requesting the enforcement of the award under Article IV of the New York Convention, can simply access the blockchain server with its unique key to find not a copy but the original arbitration agreement and the original arbitral award. Because the data on the blockchain is authentic, no certification of copies or authentication of signatures is required. Blockchain holds originals that are secured, that cannot be altered or lost. It provides an answer to the many questions raised under Article IV of the New York Convention. It would, therefore, be wise for users in arbitration and stakeholders to implement the idea of blockchain in order to preserve some of the core provisions of the New York Convention and transplant those sixty year old texts to the next era.

Moving Forward

In order for users to rely on this, it will again be necessary for institutions and legislators to adapt rules and laws. First, the New York Convention – Article IV – does not include the possibility of using the Blockchain for international arbitration, surprisingly in 1958. UNCITRAL would have to issue recommendations as they did in 2006, to endorse the use of blockchain in addition to the other forms of electronic communication that provides a legitimate basis for including blockchain-based ADR – with its secured storage of data that are originals and authentic – in Article IV. It would have to issue a recommendation that provides that originals are not only paper originals but ‘blockchain originals’ that do not require authentication or certification given the nature of blockchain. No more daunting ‘Ws’. Admittedly, the status of those recommendations under Article 31 of the Vienna Convention on the Law of Treaties is one of soft law only. But realism compels us to resort to this, as one could not imagine a replacement of the treaty itself or even an amendment or supplement to the treaty. Yet, we must allow our disruptive game changers to bring this pivotal form of dispute resolution to the New Age of international trade.

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by Edited by Niuscha Bassiri, Maarten Draye
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People: Family law team bolstered; Trustees appointed at Royal Armouries; and more - The Business Desk

Google International ADR News - Tue, 2018-10-09 02:43

The Business Desk

People: Family law team bolstered; Trustees appointed at Royal Armouries; and more
The Business Desk
I am very much committed to alternative dispute resolution and delivering the best possible service to clients, in what can often be very challenging circumstances.” ::: The Secretary of State has appointed Neil Grant, Paul Kirkman and Jonathan Sands ...

and more »

Nigeria in 1min: Economic, Business and Financial Headlines – 091018 - Proshare Nigeria Limited (press release)

Google International ADR News - Tue, 2018-10-09 01:02

Proshare Nigeria Limited (press release)

Nigeria in 1min: Economic, Business and Financial Headlines – 091018
Proshare Nigeria Limited (press release)
... the Chief Justice of Nigeria, Justice Walter Onnoghen, and the President of the Court of Appeal, Justice Zainab Bulkachuwa, have called on AMCON to leverage the Alternative Dispute Resolution mechanism now available for use in courts in the country ...

Industry watchdog urges new standards on valuing UAE real estate to boost investment - The National

Google International ADR News - Mon, 2018-10-08 21:33

The National

Industry watchdog urges new standards on valuing UAE real estate to boost investment
The National
The Royal Institution of Chartered Surveyors, a global association of property professionals that works to raise ethical and practical standards in real estate, is pushing the UAE to adopt international guidelines on how property is measured and valued ...

2018 Columbus CEO Legal Guide - Columbus CEO

Google International ADR News - Mon, 2018-10-08 19:24

Columbus CEO

2018 Columbus CEO Legal Guide
Columbus CEO
Practice area(s): Alternative dispute resolution; criminal; litigation/trial practice. Gallagher Kavinsky & Burkhart LPA. 8740 Orion ... Practice area(s): Technology/computer; estate planning; international business law. Hill & DeWeese, LLC. 7737 ...

Our international tax and transfer pricing expert authors - MNE Tax

Google International ADR News - Mon, 2018-10-08 16:27

MNE Tax

Our international tax and transfer pricing expert authors
MNE Tax
Yoshio has more than 16 years of experience, and has been engaged as transfer pricing advisor in negotiation processes between the Mexican tax authorities and foreign tax administrations, through different alternative dispute resolution mechanisms such ...

Nancy Rogers Receives Lifetime Achievement Award from IAM

ADR Prof Blog - Mon, 2018-10-08 15:22
I’m proud to announce Nancy Hardin Rogers’ receipt of the International Academy of Mediators Lifetime Achievement Award. I’ll let IAM’s description speak for itself: Nancy Hardin Rogers’ impact on mediation as we currently know it places her among the living legends of ADR. From her work on the initial drafting of the Uniform Mediation Act … Continue reading Nancy Rogers Receives Lifetime Achievement Award from IAM →

Developments in the Interpretation of Arbitration Agreements by Local Courts - Lexology

Google International ADR News - Mon, 2018-10-08 10:31

Developments in the Interpretation of Arbitration Agreements by Local Courts
Lexology
These interpretations stand to influence the confidence parties place in arbitration being an effective alternative dispute resolution method in the Middle-East. Having said that we, as legal practitioners, believe that it is an important part of our ...

Hong Kong looks to finance for arbitral expansion - CDR News Magazine

Google International ADR News - Mon, 2018-10-08 07:41

Hong Kong looks to finance for arbitral expansion
CDR News Magazine
The Special Administrative Region has not been slow in innovating to meet the needs of that community, including in promoting alternative dispute resolution (ADR). The announcement, earlier this year, that the Hong Kong International Arbitration Centre ...

Hong Kong looks to finance for arbitral expansion - CDR News Magazine

Google International ADR News - Mon, 2018-10-08 07:41

Hong Kong looks to finance for arbitral expansion
CDR News Magazine
The Special Administrative Region has not been slow in innovating to meet the needs of that community, including in promoting alternative dispute resolution (ADR). The announcement, earlier this year, that the Hong Kong International Arbitration Centre ...

The Contents of Journal of International Arbitration, Volume 35, Issue 5

Kluwer Arbitration Blog - Mon, 2018-10-08 03:45

Maxi Scherer

We are happy to inform you that the latest issue of the journal is now available and includes the following contributions:

Klaus Peter Berger, The Direct Involvement of the Arbitrator in the Amicable Settlement of the Dispute: Offering Preliminary Views, Discussing Settlement Options, Suggesting Solutions, Caucusing

This article explores the question whether and to what extent international arbitrators should become directly involved in the parties’ efforts towards an amicable settlement of their dispute. It demonstrates that the controversy over the international arbitrator’s role in the facilitation of settlements is just one example of a wider and long-standing debate on the proper role of a tribunal in international arbitral proceedings. The article favours a pragmatic approach based on party autonomy as the foundation of arbitration. The parties may very well agree to expand the tribunal’s mandate so that the arbitrators may also act as conflict resolvers by facilitating a settlement of the parties’ dispute. However, arbitrators may never impose their preliminary views on the parties or employ any other means to promote an amicable settlement against their will.

Michael W. Bühler, Out of Africa: The 2018 OHADA Arbitration and Mediation Law Reform

Almost twenty years after it adopted the Uniform Act on Arbitration (UAA), the Organization for the Harmonization of Business Law in Africa (OHADA) revised its UAA and adopted a new Uniform Act on Mediation (UAM), along with a fresh set of arbitration rules of the Common Court of Justice and Arbitration in Abidjan (the ‘CCJA Rules’). These three texts were revised with the assistance of an external consultant, the author of this article. Among other changes, the 2018 UAA has provided arbitral tribunals with an express power to determine whether compulsory pre-arbitral steps (such as mandatory mediation) have been complied with, and to suspend the arbitration until such requirements have been met. It has also fixed strict time limits for local judges asked to act in support of arbitration. This article further questions whether the few limited improvements to the CCJA Rules will positively impact the future of the CCJA’s arbitration centre, given its very low caseload. With the 2018 UAM, a solid legal platform for the use of mediation in the region is now in place. The training of mediators and arbitrators, and their ability to carry out both the acts and rules in an efficient manner and effectively coexist with the judiciary, remain major challenges for the region.

Gordon Blanke, Free Zone Arbitration in the United Arab Emirates: DIFC v. ADGM: (Part I)

This article is published in two parts and discusses the concept and practice of free zone arbitration in the United Arab Emirates (UAE). More specifically, the article seeks to highlight the status quo of arbitration in the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), both of which may serve as an offshore seat of arbitration in their own right. Both the DIFC and the ADGM offer a common law alternative to arbitration in onshore UAE. Part I of the article focuses on arbitration in the DIFC. It provides an introduction to the judicial and legislative framework of the DIFC, including in particular the main provisions and the operation of the DIFC Arbitration Law, the institutional framework of arbitration in the DIFC, the curial function of the DIFC Courts in DIFC-seated arbitrations, and the recognition and enforcement of domestic DIFC and foreign arbitral awards in the DIFC. Part I also discusses the DIFC Courts’ status as a conduit jurisdiction facilitating the recognition and enforcement of non-DIFC awards for onward execution in onshore Dubai and beyond.

Edgardo Muñoz, Mexican Punitive Damages in Commercial Arbitration: Forecasting the Future

In February 2014, the Supreme Court of Mexico, citing US scholarship and case law, held that punitive damages had to be awarded to a tort plaintiff as part of the indemnity afforded by Mexican law under the heading of moral damages (daños morales). Before this landmark decision, nothing similar to punitive damages existed in the Mexican legal system. In the context of arbitral proceedings, this new interpretation of moral damages gives rise to two questions at the core of the international discussion on punitive damages and arbitration. The first has regard to the power of arbitral tribunals with seat in Mexico to award punitive relief when the applicable substantive law, including Mexican law, contemplates it. The second is the possibility of enforcing foreign-based law punitive damages awards in Mexico. Despite the early stage and still incipient discussion regarding the true nature and application of punitive damages in Mexico, the author forecasts that, while they may be an available relief in arbitration proceedings in Mexico, this decision is a rare exception and their quantum limited. In addition, Anglo-American law based punitive damages awards may still find a public policy obstacle for their enforcement or grounds for their nullity in Mexico.

Mauro Megliani, Thou Shalt Not Arbitrate: Sovereign Debt and Investment Arbitration

This article addresses the issue of the interaction between sovereign debt and investment arbitration. The point has been recently highlighted by the Report of the UN Independent Expert on Sovereign Debt. In this context, investment arbitration has been regarded as capable of disrupting an orderly debt restructuring, since creditors may prefer operating outside a restructuring process and submitting their claims to arbitration. Arbitration becomes an escape route for creditors who do not want to accept take-it-or-leave-it conditions and are faced with domestic courts who decline to hear the case on the basis of the immunity doctrine. Arbitration may well be the ideal venue to balance the interests at stake. Under a human rights approach, creditors are called not to lend or have to cease lending when doing so would affect the socio-economic rights of the population. Under a necessity approach, the obligation of paying interest and reimbursing capital would be suspended to the extent that it would affect the duty of a state to provide essential services to the population. Under a transnational public policy approach, a claim is not enforceable when doing so would infringe the socio-economic rights of the population. Under an expropriation approach, the compensation for a default should consider the speculative intent in purchasing bonds after the default and award not the nominal value but the purchase price.

BOOK REVIEW

Philip Wimalasena, Die Veröffentlichung von Schiedssprüchen als Beitrag zur Normbildung [The Publication of Arbitral Awards as a Contribution to Legal Development] Tübingen: Mohr Siebeck. 2016.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


The post The Contents of Journal of International Arbitration, Volume 35, Issue 5 appeared first on Kluwer Arbitration Blog.

'Oriental experience' for resolving investor-state disputes - Vantage Asia

Google International ADR News - Mon, 2018-10-08 01:22

Vantage Asia

'Oriental experience' for resolving investor-state disputes
Vantage Asia
“Oriental experience” or “Chinese experience” are distinctive words used to describe an uncanny dispute-resolution mechanism, which combines two well-known processes of alternative dispute resolution, namely arbitration and conciliation (or mediation ...

Beyond USMCA: ISDS à la carte

Kluwer Arbitration Blog - Mon, 2018-10-08 01:17

Nikos Lavranos

Zooming out from the excellent analysis of Robert Landicho and Andrea Cohen on the specific changes that the USMCA as the intended successor of NAFTA will bring for investment protection and ISDS, this contribution will place the USMCA in a global perspective, in particular regarding the efforts of the EU to replace ISDS system with the ICS/MIC.

The à la carte approach of Canada and Mexico

Canada is an interesting example of the very flexible à la carte approach regarding ISDS provisions. When CETA was first finalized, Canada agreed to an old school ISDS approach with a few minor tweaks. However, after the backlash against ISDS in Europe, which was mainly focused on TTIP, Canada accepted – after a two year long ‘legal scrubbing’ process – the EU’s proposal for the so-called investment court system (ICS). In parallel though, Canada accepted the old school ISDS system in the CTTP, whereas in the context of the USMCA, Canada was ready to give up ISDS with the US, while maintaining it in a restricted version regarding Mexico.

Also, Mexico has been applying the à la carte approach, depending on the demands of the other Contracting Parties. Like Canada, Mexico also signed up to the old school ISDS system in the CTTP and accepted to maintain it for the USMCA, whereas it recently signed up to the ICS proposal in the updated EU-Mexico FTA.

Thus, on the one hand, both Canada and Mexico have accepted the ICS as the purported successor of ISDS in their bilateral FTAs with the EU, while on the other hand, they are keeping ISDS in the CTTP – and as far as Mexico is concerned in the USMCA.

In contrast, US President Trump has been more consistent in withdrawing completely from the CTTP (formerly known as TTP) on his first day in office and successfully removed ISDS in USMCA regarding Canada. These steps reflect his apparent aversion against ISDS, despite the fact that the US never lost a NAFTA case and US investors have been heavy (and often successful) users of the ISDS system under NAFTA and other US FTAs and BITs.

The à la carte approach of the EU

Whereas the EU has successfully imposed its ICS proposal on Canada, Singapore, Vietnam and Mexico in its FTAs, thereby effectively making the ICS the blueprint for all its future FTAs, it failed to convince Japan to accept it in the recently concluded EU-Japan FTA. Moreover, the EU did not even bother to put it on the table for the currently on-going FTA negotiations with Australia and New Zealand.

The reason for that is not so much that the EU does not want to include some sort of ISDS/ICS provisions in its FTAs, but rather due to the competence debacle after the CJEU determined in its Opinion 2/15 on the EU-Singapore FTA that the EU does not have exclusive competence over ISDS and the “Wallonia-drama” when Wallonia threatened to block the finalization of the CETA negotiations. In other words, the EU now prefers to conclude purely old school trade FTAs, leaving investment protection and ISDS chapters out of the FTAs unless all Member States sign up to them.

Nonetheless, the EU continues its efforts to create traction for a multilateral investment court (MIC), which is currently negotiated within UNCITRAL. In this context, it is interesting to note that Canada is a strong supporter of the EU in the UNCITRAL negotiations and coincidentally managed (together with the EU) to get a Canadian investment treaty negotiator to become chair of the UNCITRAL working group. In stark contrast to that, the US and Japan have been and continue to be the strongest critics of the MIC proposal. The next UNCITRAL negotiation round will take place at the end of October/early November in Vienna. After that, it will be clear to what extent the MIC is supported.

Thus, the bottom line is that far from creating uniformity and consistency with regard to ISDS provisions at a global level, States are in fact introducing different ISDS/ICS configurations and thus create more fragmentation and potential inconsistency. Indeed, the US, Canada and the EU are even dropping ISDS completely from their FTAs, which is exactly what many NGOs, academics, national parliaments and the European Parliament, are calling for.

Accordingly, the future ISDS menu, depending on the States involved, could look as follows (with various combinations possible):

• no ISDS
• ISDS light and restricted
• old school ISDS
• ICS
• MIC

Less Rule of Law and less access to justice

So what are the consequences of restricting or even completely eliminating ISDS?

Firstly, access to justice is limited and made more expensive because it will require – as rightly noted by Robert Landicho and Andrea Cohen – more sophisticated nationality planning and treaty shopping, which in turn means additional expenses to set-up and finance subsidiaries with actual or substantial business activities in countries like Switzerland or post-Brexit UK, which still maintain numerous BITs with old school ISDS provisions. Obviously, many SMEs, who hardly can afford the current ISDS system, will be completely shut out of the system, unless they bring Third Party Funders (TPFs) on board. In other words, increasingly only large multinationals will be able to go through the whole ISDS procedure, including the recognition and enforcement phase.

Secondly, States will increasingly be able to get away with behavior against foreign investors, which otherwise would fall foul of their legal obligations under their BITs and FTAs. Prudent investors are aware of that and will put a risk premium on their products and services, which eventually will have to paid by the end consumers, including those in developing and transitional countries.

So, the main conclusion to be drawn from the above is that States, such as the US, Canada, the EU and its Member States, which used to be the champions of promoting ISDS and thus improving the Rule and access to justice worldwide are now the ones who actively undermine exactly those virtues.

Thus, in future the menu carte will be increasingly accompanied by a note of the Chef stating that “unfortunately, ISDS is not served anymore” or that “unfortunately, as of today, certain ISDS ingredients have been replaced by ICS/MIC ingredients”.

In any event, one thing is certain: the food will not taste as good as it used to be and the bill will be much higher.

Bon appétit!

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
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The post Beyond USMCA: ISDS à la carte appeared first on Kluwer Arbitration Blog.

AALS ADR Works-in-Progress Conference

ADR Prof Blog - Sun, 2018-10-07 19:52
Last Thursday through Saturday, the University of Maryland Francis King Carey School of Law hosted the 12th Annual AALS ADR Section’s Works-in-Progress Conference. Now the standard-bearer as THE scholarly conference in the U.S. in the area of dispute resolution, participants heard presentations from scholars ranging from seeds of an idea to almost-completed papers, and gave … Continue reading AALS ADR Works-in-Progress Conference →

Seeking Nominations for Mangano Award for DR Empirical Research

ADR Prof Blog - Sun, 2018-10-07 19:46
From FOI Elayne Greenberg (St. John’s): About the Mangano Award Given annually through the generosity of esteemed dispute resolution champion Hon. Guy J. Mangano, this $5000 Award honors scholars and practitioners whose published empirical research has furthered the advancement and understanding of the values and skills of dispute resolution. Nomination Criteria You are invited to … Continue reading Seeking Nominations for Mangano Award for DR Empirical Research →

Powerful Words on Inclusion and the Impact to Follow - JD Supra (press release)

Google International ADR News - Sun, 2018-10-07 15:26

JD Supra (press release)

Powerful Words on Inclusion and the Impact to Follow
JD Supra (press release)
In a recent article, Kim Taylor, senior vice president and chief legal and operating officer at JAMS, discusses the importance of inclusion and diversity as it relates to alternative dispute resolution (ADR) and specifically arbitration. ... recognizes ...

Powerful Words on Inclusion and the Impact to Follow - JD Supra (press release)

Google International ADR News - Sun, 2018-10-07 15:26

JD Supra (press release)

Powerful Words on Inclusion and the Impact to Follow
JD Supra (press release)
In a recent article, Kim Taylor, senior vice president and chief legal and operating officer at JAMS, discusses the importance of inclusion and diversity as it relates to alternative dispute resolution (ADR) and specifically arbitration. ... recognizes ...

Powerful Words on Inclusion and the Impact to Follow - JD Supra (press release)

Google International ADR News - Sun, 2018-10-07 15:26

JD Supra (press release)

Powerful Words on Inclusion and the Impact to Follow
JD Supra (press release)
In a recent article, Kim Taylor, senior vice president and chief legal and operating officer at JAMS, discusses the importance of inclusion and diversity as it relates to alternative dispute resolution (ADR) and specifically arbitration. ... recognizes ...

Swiss Federal Supreme Court Confirms the Principles for the Admissibility of a Success Fee

Kluwer Arbitration Blog - Sun, 2018-10-07 00:41

Georg von Segesser and Petra Rihar

In a decision dated 26 July 2018 and published on 29 August 2018, the Swiss Federal Supreme Court (the “Supreme Court”) dismissed an appeal to set aside an arbitral award as it found that Swiss public policy was not violated by a sole arbitrator’s confirmation of a success fee owed to a Swiss law firm by its client. With reference to its previous case law, the Supreme Court held that the disputed success fee did not raise any issues despite the disproportion between its fixed and variable parts and the lack of alignment it created between the client’s and counsel’s interests (4A_125/2018).

Background

B. AG, a Zurich based law firm (“B”), and A. SA, a Portuguese company seated in Oliveira de Frades (“A”), entered into two Engagement Letters agreeing that B would represent A, as claimant and counter-respondent, in two ICC arbitration proceedings: the first against C GmbH and the second against D GmbH. With respect to B’s remuneration, B and A agreed on a combination of a reduced hourly fee and a success fee. The Engagement Letters were subject to Swiss law and contained an arbitration clause in favour of Swiss Rules arbitration in Zurich.

The Engagement Letter concerning the ICC arbitration against D GmbH provided for different remuneration scenarios in case that the amount sought by A would be determined by a decision or a settlement:

“A success fee consisting of 15% on (i) any amount claimed by and awarded to A. SA (ignoring any successful set-off defence) applies.
The success fee becomes payable in addition to the reduced blended hourly rate. The amounts in question do not include any compensation for attorney’s fees or other costs of arbitration and apply irrespective of whether the amount is determined by a decision of [sic] settlement.
In the event of a full settlement disposing of all claims in the arbitration, the success fee is reduced to 4% calculated based on the difference between the aggregate amount in dispute (total of claim, counter-claim and sett-off defence).
Should B. AG consider a settlement offer made by D. GmbH to be appropriate, it may request A. SA to consent to such offer. Should A. SA not wish to agree to the settlement offer, B. AG in its own discretion may opt to be compensated in line with this success fee arrangement as if the settlement offer had been accepted.
In no event may (i) the success fee be negative or (ii) exceed CHF 1’500’000 or its equivalent in other currencies (success fee cap).”

The amounts in dispute for the two proceedings were EUR 10.2M for A.’s claim and EUR 147.2M for the counterclaim in the dispute with C., respectively EUR 3.1M for A’s claim and EUR 1.8M for the counterclaim in the dispute with D.

After A had reached a settlement with respect to both ICC arbitrations for a total amount of EUR 11.5M to be paid by A, B invoiced A for unpaid hourly fees in the amount of CHF 168,633.60 and the payment of a success fee in the amount of CHF 2M, reduced at B’s discretion from CHF 2.5M (i.e. the sum of the fee caps for the two disputes). A contested the invoice.

B initiated arbitration proceedings against A in Zurich seeking the payment of CHF 2.5M plus interest and expenses. The sole arbitrator ordered A to pay B fees in the amount of CHF 1,666,722, plus interest. When analyzing the admissibility of the disputed success fee, the sole arbitrator considered the principles set out by the Swiss Federal Supreme Court in its decision 4A_240/2016 dated 13 June 2017 (BGE 143 III 600). Regarding the permissible amount of the success fee however, the sole arbitrator expressly deviated from said Supreme Court decision.

A appealed before the Supreme Court arguing that the decision of the sole arbitrator violated Swiss public policy (article 190(2)(e) of the Private International Law Act, “PILA”) because his interpretation of the Engagement Letters disregarded the principle of a lawyer’s duty of independence due to both the amount of the contingency fee and the fee arrangement’s different outcomes for resolving the dispute by decision or settlement.

Decision

The Supreme Court begins its considerations with an analysis of the contested fee agreement. It notes in particular that the agreed upon difference in the calculation of the success fee in case of settlement rather than an arbitral award, resulted in an incentive for counsel to get A to settle the dispute. Indeed, the success fee cap amount of CHF 1.5M could only be reached if 97% of the appellant’s claims were granted by an award. By contrast, in case of a settlement, the reduction of the counterclaims by a mere quarter would suffice to reach the cap. The Supreme Court also refers to the sole arbitrator’s determination that the success fee cap amount would be owed in most cases where the parties reached a settlement. Moreover, the Supreme Court notes that the option granted in the third paragraph of the success fee clause effectively guarantees counsel the settlement-based success fee even if the client were to reject the settlement offer.

Noting that a success fee arrangement can only lead to a better representation of a client if it keeps the interests of client and counsel aligned, the Supreme Court finds that the necessary incentive for counsel was absent from the present fee arrangement. Under these circumstances, the acceptance of a settlement may have been an appropriate solution for the client, but not necessarily also the most economically beneficial.

The Supreme Court goes on to state that an arrangement such as the one under review, where the success-based fee amount outweighs the fixed (hourly) amount by a factor of five, is especially problematic with regard to the independence of counsel as well as certain other provisions of the domestic Swiss law governing the legal profession (“BGFA”). However, in light of its restricted scope of review in appeals against arbitral awards pursuant to art. 190 (2) PILA, the Supreme Court deems these issues not decisive for the present appeal.

Delving into its examination of the alleged violation of Swiss public policy (“ordre public”), the Supreme Court restates its longstanding practice in the matter as follows: the substantive determination of a disputed claim only violates public policy if it fails to recognise fundamental legal principles and, as a result, becomes wholly incompatible with the essential, largely recognised system of values, which, according to the prevailing view in Switzerland, should form the basis of every legal system. These principles include pacta sunt servanda, the prohibition of abuse of rights, the principle of good faith, the prohibition of expropriation without compensation, the prohibition of discrimination, the protection of vulnerable persons and the prohibition of excessive commitment (cf. Art. 27 para. 2 CC) if this constitutes an obvious and serious violation of personality.

The Supreme Court then classifies the present dispute as an issue of the conflict between counsel’s pecuniary interests and those of the client, rather than an issue of the lawyer’s independence from the client’s counterparty. It is in this context, that the Supreme Court goes on to review the following precedents regarding the question whether lawyers’ success fees are compatible with the Swiss public policy.

In an enforcement decision, an award granting a success fee of USD 1,837,500 (corresponding to approximately 2% of the total settlement amount) was classified as compatible with Swiss public policy (5A_409/2014). In another decision, the Swiss Federal Supreme Court held that a foreign arbitral award granting a success fee amounting to 30% of the procedural profit did not violate Swiss public policy (5P.201/1994). Even with a success fee of more than CHF 6,500,000, corresponding to approximately 6.5% of the financial interest, a violation of Swiss public policy was denied, even though the fee agreement in question was a pactum de quota litis, which would be inadmissible under domestic Swiss law (5P.128/2005).

Against this background, the Swiss Federal Supreme Court finds that the success fee under the first engagement letter does not raise any issues. With regard to the second engagement letter, it notes that the total amount of fees confirmed by the sole arbitrator amounts to less than 2% of the amount in dispute, which cannot be considered a violation of Swiss public policy. As for the disproportion between the fixed (“Fixhonorar”) and variable parts (“Erfolgshonorar”) of the fee and the lack of aligned interests resulting from the increased fee in case of a settlement, the Supreme Court finds that these elements also fail to amount to a violation of public policy. Consequently, the Supreme Court dismissed A’s appeal.

Comment

In the present decision, the Supreme Court confirms that a success fee (“pactum de palmario”) is in principle admissible under Swiss law. However, due to the international nature of the arbitral award under appeal and its correspondingly restricted scope of review with regard to alleged violations of Swiss public policy pursuant to art. 190 (2) of the PILA, it does not examine the admissibility parameters under domestic Swiss law as set out in BGE 143 III 600. Instead, it validates the sole arbitrator’s explicit departure from those domestic requirements and refers to its established jurisprudence on the compatibility of success fees with Swiss public policy to validate the award. In doing so, it indicates that only the nominal amount of fees or the ratio between the total fees and the amount in dispute are relevant with regard to an alleged violation of public policy; not however any detrimental effect on lawyerly independence or conflicts of interest created by such a fee arrangement.

For reference, under Swiss law, a lawyer’s success fee is admissible only under the following conditions:

(1) Regardless of the outcome of the proceedings, the lawyer must earn an hourly fee which not only covers his own costs, but also enables him to make a reasonable profit.

(2) There must be a reasonable ratio between the performance-related component and the hourly fee which is owed regardless of the outcome of the case to ensure that lawyer’s independence is not impaired and there is no risk of unfair advantage.

(3) The Supreme Court further sets a time limit: The remuneration agreement containing a success fee, may be concluded at the beginning of the mandate or after the end of the legal dispute, but not during the ongoing representation in a dispute.

(4) The Supreme Court also states that success fees must be scrutinized against the background of Art. 12 lit. e and lit. i of the BGFA warranting the lawyer’s independence as well as the maintaining of clear conditions with regard to the invoicing.

One question that the Supreme Court’s decision does not address is whether a fee agreement such as the present one could lead to the sanctioning of counsel by the supervisory body for violation of professional conduct rules.

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