Feed aggregator

Product liability in Canada - Lexology

Google International ADR News - Thu, 2018-07-05 08:15

Product liability in Canada
Lexology
These acts legislate into consumer contracts (which encompasses most retail sales of products) implied conditions as to description, fitness, merchantability and durability. Further, the United Nations Convention on Contracts for the International Sale ...

Nigeria: Buhari to Reorganise Judiciary for Anti-Corruption War - AllAfrica.com

Google International ADR News - Thu, 2018-07-05 00:38

Nigeria: Buhari to Reorganise Judiciary for Anti-Corruption War
AllAfrica.com
He stressed the crucial role of the maritime sector in the nation's economy, and called for efficient use of the Alternative Dispute Resolution (ADR) mechanisms which, he noted, has a proven record of expeditious resolution of maritime cases. The CJN ...

and more »

Nigeria: Buhari to Reorganise Judiciary for Anti-Corruption War - AllAfrica.com

Google International ADR News - Thu, 2018-07-05 00:38

Nigeria: Buhari to Reorganise Judiciary for Anti-Corruption War
AllAfrica.com
He stressed the crucial role of the maritime sector in the nation's economy, and called for efficient use of the Alternative Dispute Resolution (ADR) mechanisms which, he noted, has a proven record of expeditious resolution of maritime cases. The CJN ...

and more »

Buhari to reorganise judiciary for anti-corruption war - Guardian (blog)

Google International ADR News - Wed, 2018-07-04 23:25

Guardian (blog)

Buhari to reorganise judiciary for anti-corruption war
Guardian (blog)
He stressed the crucial role of the maritime sector in the nation's economy, and called for efficient use of the Alternative Dispute Resolution (ADR) mechanisms which, he noted, has a proven record of expeditious resolution of maritime cases. The CJN ...

and more »

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

Kluwer Arbitration Blog - Wed, 2018-07-04 17:14

Guilherme Rizzo Amaral

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

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

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

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

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

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

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

The Prague Rules and the proactive role of the arbitral tribunal

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

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

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

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

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

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post Prague Rules v. IBA Rules and the Taking of Evidence in International Arbitration: Tilting at Windmills – Part I appeared first on Kluwer Arbitration Blog.

Product liability in Switzerland - Lexology

Google International ADR News - Wed, 2018-07-04 09:02

Lexology

Product liability in Switzerland
Lexology
In terms of product regulation and liability law, Switzerland has kept up with international developments. On 12 June 2009, the Swiss Parliament enacted the Product Safety Act (SR 930.111) which governs the safety of products that are placed on the ...

CJN harps on training of judges for efficient operation in maritime - NIGERIAN TRIBUNE (press release) (blog)

Google International ADR News - Wed, 2018-07-04 05:52

NIGERIAN TRIBUNE (press release) (blog)

CJN harps on training of judges for efficient operation in maritime
NIGERIAN TRIBUNE (press release) (blog)
The CJN stressed the need for the expeditious resolution of maritime cases through Alternative Dispute Resolution mechanisms such as Conciliation and Mediation. According to him, the adoption of technology is helping to transform the maritime industry ...

International Commercial Court in China: Innovations, Misunderstandings and Clarifications

Kluwer Arbitration Blog - Tue, 2018-07-03 22:03

Wei Sun

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

 

  1. Courts

 

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

 

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

 

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

 

  1. Clarifying Misunderstandings

 

  1. Determining the Jurisdiction of the Courts

 

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

 

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

 

  1. Involvement of Foreign Institutions

 

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

 

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

 

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

 

  1. Interim Measures in Assistance of Foreign Arbitration

 

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

 

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

 

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

 

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

 

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

 

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

 

  1. Procedural Language of the Courts

 

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

 

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

 

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

 

  1. 6. Publication of Dissenting Opinions

 

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

 

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

 

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

 

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post International Commercial Court in China: Innovations, Misunderstandings and Clarifications appeared first on Kluwer Arbitration Blog.

McGeorge Wins ABA International Negotiation Competition

ADR Prof Blog - Tue, 2018-07-03 14:41
This dispatch comes from our good friend (OGF?) Michael Colatrella (McGeorge). McGeorge School of Law, University of the Pacific students Doug Leach and Leah Parrish, representing the United States, won the American Bar Association’s (ABA) International Negotiation Competition held from June 26-30, 2018 in Wales, UK. The McGeorge negotiation team qualified to compete in the … Continue reading McGeorge Wins ABA International Negotiation Competition →

Former Justice Holland gets UK designation; Directors named at Richards, Layton & Finger: Law notes: July 3, 2018 - delawarebusinessnow.com

Google International ADR News - Tue, 2018-07-03 08:38

delawarebusinessnow.com

Former Justice Holland gets UK designation; Directors named at Richards, Layton & Finger: Law notes: July 3, 2018
delawarebusinessnow.com
... of the Delaware Supreme Court, Randy Holland became a door tenant, a rarity in the United Kingdom. To have international lawyers and former judges as door tenants is not unusual: Australian, Singaporean, South African and Indian nationals are ...

Arbitrating WTO Disputes

Kluwer Arbitration Blog - Tue, 2018-07-03 08:20

Matthew Weiniger and Akshay Sewlikar

Linklaters

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

Dispute resolution in the WTO

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

Constitution of the Appellate Body and the current crisis

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

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

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

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

Arbitrating WTO disputes

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

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

Conclusion

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

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

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post Arbitrating WTO Disputes appeared first on Kluwer Arbitration Blog.

Potter Anderson a Sponsor for A Night at Nemours Gala - Law.com

Google International ADR News - Tue, 2018-07-03 08:06

Law.com

Potter Anderson a Sponsor for A Night at Nemours Gala
Law.com
Since its beginnings in 1826, Potter Anderson has grown to provide a full range of legal services to its local, national and international clients. Practice areas include alternative dispute resolution, corporate counseling, intellectual property ...

Ashurst taps Mayer Brown's City office in disputes drive as White & Case adds Macfarlanes rising deal star Jones - Legal Business (blog)

Google International ADR News - Tue, 2018-07-03 05:58

Ashurst taps Mayer Brown's City office in disputes drive as White & Case adds Macfarlanes rising deal star Jones
Legal Business (blog)
The City lateral market has kicked off after an uncharacteristic hiatus in recent weeks, seeing Ashurst recruit disputes partner Tom Duncan from Mayer Brown as Macfarlanes loses private equity rising star Emmie Jones to White & Case's relentless hiring ...

Exciting ADR Developments in China and Hong Kong - Mediate.com

Google International ADR News - Tue, 2018-07-03 01:47

Exciting ADR Developments in China and Hong Kong
Mediate.com
... by the Shanghai Commercial Mediation Center, the Joint Mediation Helpline Office and the Hong Kong Mediation Council, participants learned about international trends and opportunities in the rapidly changing world of alternative dispute resolution ...

and more »

Appeal Court mediation centre'll enhance justice delivery – CJN - Daily Trust

Google International ADR News - Mon, 2018-07-02 19:24

Daily Trust

Appeal Court mediation centre'll enhance justice delivery – CJN
Daily Trust
The Chief Justice of Nigeria (CJN), Walter Onnoghen, has said the adoption of Alternative Dispute Resolution (ADR) is now the mechanism for justice dispensation and decongesting courts' caseloads in the country. ... In her address, President of the ...

New Casebook on Arbitration

ADR Prof Blog - Mon, 2018-07-02 18:36
Along with my wonderful co-authors, Maureen Weston, Kristen Blankley and Stephen Huber, I am proud to announce the publication of our new casebook for use in a course on Arbitration. Arbitration: Law, Policy, and Practice, published by Carolina Academic Press, provides the ideal blend of arbitration case law, problems, and experiential exercises for students. This … Continue reading New Casebook on Arbitration →

Moneyball for Arbitrators

Kluwer Arbitration Blog - Mon, 2018-07-02 03:19

Catherine A. Rogers

You might be forgiven if you thought “moneyball” was the name of a new lottery game. It’s an easy mistake if you have not read Moneyball, Michael Lewis’ critically acclaimed book or seen the 6-time Academy-Award-nominated film starring Brad Pitt.1)The analogy for this post is adapted from Professor Chris Zorn, my Penn State colleague, Member of Arbitrator Intelligence’s Board of Directors, and co-founder of Lawyer Metrics, a company he describes as “Moneyball for Lawyers.” The content of this essay was developed for presentations on July 2-3 in Costa Rica at the Centro Internacional de Conciliación y Arbitraje (CICA), and a conference on Innovation, Technology and Law, co-sponsored by CICA, AmCham San Jose, and arbitration specialist Herman Duarte. jQuery("#footnote_plugin_tooltip_1103_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1103_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

If you have read Lewis’ book or seen the movie, however, you would know that the term “moneyball” is slang for sabermetrics, or the practice of crunching data to pick baseball players who are dismissed by conventional wisdom and hence undervalued by the market. As told in the book, sabermetrics enabled the Oakland Athletics baseball team to put together an exceptionally talented team with a pathetically meager budget.2)Moneyball is not without its skeptics and detractors. jQuery("#footnote_plugin_tooltip_1103_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1103_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Instead of spending millions to buy baseball’s flashiest superstars, the Athletics concentrated on players who consistently got on base and brought in understated runs that added up to victories.

“Wait,” you say, “I know nothing about baseball!” Don’t worry. Neither do I.3)An apology is perhaps also in order. Most of the world is more focused on G-O-O-O-O-A-Ls in the World Cup, not on America’s favorite pastime. Unfortunately, I know even less about football than I do about baseball and Michael Lewis has yet to write a book about selecting football players. jQuery("#footnote_plugin_tooltip_1103_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1103_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Fortunately, Lewis’ book is about much more than just baseball.

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

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

For example, in Moneyball we are told that scouts laughed at a catcher who “wears big underwear” (i.e., is overweight), so they overlooked his uncanny ability to “control the strike zone” and hence earn “walks” to first base that accumulate into scored runs.4)In baseball, a batter earns a “walk” if he receives four pitches that the umpire determines were “balls,” meaning that they were outside of the “strike zone” (the space between the batter’s shoulders and knees). When a batter earns a “walk,” he can go directly to first base and cannot be called out, as can only occur if the batter hits the ball and runs to first base. jQuery("#footnote_plugin_tooltip_1103_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1103_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The scouts likewise dismissed a rather puny center fielder who nevertheless had a “gift for getting on base.” And they also considered a “bizarre sight” the double-jointed pitcher (cruelly nicknamed “The Creature”) who had an “84-mph fastball” and ended up being named “the closer on the rookie league All-Star team.”

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

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

But when, for whatever reason, the outcome of an arbitration is unexpectedly disappointing,5)Losing may not be the only disappointing outcome. Increasingly, in-house counsel are complaining about long waiting times to schedule hearings and inexplicable delays in the time for rendering the award. jQuery("#footnote_plugin_tooltip_1103_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1103_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the big name arbitrator is still regarded as having been a proper, “safe choice.” It must have been some piece of sorcery that made the arbitration come out wrong.

Going forward, the expanding and diversifying the pool of arbitrators will require us to reconsider what makes for a good arbitrator and how they should be identified. Parties often say they want the “the best person for the job,”6)Anonymous posting to [email protected] (9 February 2012, 03.27 CST), cited in Lucy Greenwood & Mark Backer, Getting a Better Balance on International Arbitration Tribunals, 28 Arbitration INTERNATIONAL 653, 661 at n. 42 (2012). jQuery("#footnote_plugin_tooltip_1103_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1103_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but then they fail to inquire further what exactly that means. Let’s consider a few possible examples of features that might make an “unconventional” arbitrator the best choice.

Younger arbitrators who are eager to establish a reputation may redouble their preparation for hearings—a particularly valuable trait in a case with complex facts. An African arbitrator may have unique insights about trade usages in the region that would otherwise require expert testimony,7)This is a point made in Won Kidane’s book, The Culture of International Arbitration (Oxford 2017). jQuery("#footnote_plugin_tooltip_1103_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1103_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and an Asian arbitrator may be more willing to take on allegations of corruption by a multinational. Overall, newer arbitrators may have fewer cases, which will allow them to transform arbitral decisions quickly into written awards.

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

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

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

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

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

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

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

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

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

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

 

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

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

 

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

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

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

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

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

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

So, at the end of your next international arbitration, take a few minutes to fill out an AIQ.8)The AIQ can be previewed and accessed on the AI website. jQuery("#footnote_plugin_tooltip_1103_8").tooltip({ tip: "#footnote_plugin_tooltip_text_1103_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); You may not end up being mentioned in a book by Michael Lewis or be played by Brad Pitt (or Jennifer Lawrence) in the movie version. But you can help contribute the much-needed data to upgrade international arbitrator selection.

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

References   [ + ]

1. ↑ The analogy for this post is adapted from Professor Chris Zorn, my Penn State colleague, Member of Arbitrator Intelligence’s Board of Directors, and co-founder of Lawyer Metrics, a company he describes as “Moneyball for Lawyers.” The content of this essay was developed for presentations on July 2-3 in Costa Rica at the Centro Internacional de Conciliación y Arbitraje (CICA), and a conference on Innovation, Technology and Law, co-sponsored by CICA, AmCham San Jose, and arbitration specialist Herman Duarte. 2. ↑ Moneyball is not without its skeptics and detractors. 3. ↑ An apology is perhaps also in order. Most of the world is more focused on G-O-O-O-O-A-Ls in the World Cup, not on America’s favorite pastime. Unfortunately, I know even less about football than I do about baseball and Michael Lewis has yet to write a book about selecting football players. 4. ↑ In baseball, a batter earns a “walk” if he receives four pitches that the umpire determines were “balls,” meaning that they were outside of the “strike zone” (the space between the batter’s shoulders and knees). When a batter earns a “walk,” he can go directly to first base and cannot be called out, as can only occur if the batter hits the ball and runs to first base. 5. ↑ Losing may not be the only disappointing outcome. Increasingly, in-house counsel are complaining about long waiting times to schedule hearings and inexplicable delays in the time for rendering the award. 6. ↑ Anonymous posting to [email protected] (9 February 2012, 03.27 CST), cited in Lucy Greenwood & Mark Backer, Getting a Better Balance on International Arbitration Tribunals, 28 Arbitration INTERNATIONAL 653, 661 at n. 42 (2012). 7. ↑ This is a point made in Won Kidane’s book, The Culture of International Arbitration (Oxford 2017). 8. ↑ The AIQ can be previewed and accessed on the AI website. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post Moneyball for Arbitrators appeared first on Kluwer Arbitration Blog.

African arbitration association is a welcome initiative - The New Times

Google International ADR News - Sun, 2018-07-01 17:08

The New Times

African arbitration association is a welcome initiative
The New Times
According to its article 1, AfAA will “act as a reference point for information concerning activities in international arbitration and alternative dispute resolution within the African continent; increase coordination amongst its members in respect of ...

Ninth Investment Arbitration Forum: Valuation of Damages in Changing Economic and Political Circumstances

Kluwer Arbitration Blog - Sun, 2018-07-01 04:26

Katharina Plavec

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

Mexico’s Accession to ICSID and ICSID Reform

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

Lessons learnt in Latin America?

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

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

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

Changing economic and political circumstances and their effects on damages

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

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

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

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

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


Recent developments of investment arbitration in Europe and Latin America

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

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

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

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

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

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

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

Conclusion and Comments

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

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post Ninth Investment Arbitration Forum: Valuation of Damages in Changing Economic and Political Circumstances appeared first on Kluwer Arbitration Blog.

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

Kluwer Arbitration Blog - Sun, 2018-07-01 02:32

Vivek Kapoor

Young ICCA

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

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

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

Background to Slovak Republic v. Achmea

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

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

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

The Incompatibility

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

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

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

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

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

The Jurisprudential Manoeuvre

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

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

The Aftermath

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

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

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

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

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

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

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

Tour d’horizon

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

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

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

To make sure you do not miss out on regular updates on the Kluwer Arbitration Blog, please subscribe here.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
€ 240


The post Slovak Republic v. Achmea: When Politics Came Out to Play appeared first on Kluwer Arbitration Blog.

Syndicate content