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2018 In Review: Blockchain Technology and Arbitration

Kluwer Arbitration Blog - Sun, 2019-01-27 00:06

Nevena Jevremović (Assistant Editor for Europe)

For those of us interested in the intersection of technology and law, 2018 has been a fascinating year. Lawyers across jurisdictions, areas of expertise, and industries have engaged in debates about the use of emerging technologies and the impact that they will have on the future of the legal industry. Blockchain, smart contracts, artificial intelligence (“AI”), machine learning and natural language processing – they have ceased being mere buzz-words and have entered the sphere of technologies that are actively shaping today’s society.

Arbitration is no exception in this increased trend of convergence between technology and law. Kluwer Arbitration Blog (“KAB”) has seen a stark increase in the number of posts discussing the various impacts these new technologies have had or might have on international commercial and investment arbitration (see the overview of technology related posts here). Aside from presenting fascinating points for reflection, these articles show that the key theme of 2018 was blockchain and its use in arbitration. Three core topics emerged over the course of 2018: understanding blockchain, its possible application to enhance existing processes, and its potential to reshape the arbitration process.

Where to Start when Thinking about the Use of Blockchain in Arbitration?

A starting point in an arbitration-blockchain discussion inevitably begins with defining, and more importantly, understanding blockchain technology. Essentially, a blockchain is a shared database filled with entries that must be confirmed and encrypted. The name blockchain comes from the “blocks” that get added to the “chain” of transaction records. The benefit of this technology is its easy adaptation for different purposes. When linked with other technologies, blockchain finds plenty of meaningful applications. A prime example of this is smart contracts – a set of coded contractual clauses that sit on the blockchain and enable self-enforcement of parties’ rights and obligations.

Blockchain as a standalone tool can decentralize, and therefore, streamline existing processes in managing arbitration proceedings. The role of blockchain as a facilitating tool focuses mostly on the aspects of the process that can be enhanced. The scope is limited and partial. The picture changes if blockchain is connected with another technology, such as, for example, AI or Internet of Things (“IoT”).

Is Blockchain only a Management Facilitating Tool?

In the quest for a tool that would reduce cost and time, but still ensure all due process requirements are duly complied with, blockchain is just one in the line of technologies that have been explored thus far (the most common ones so far being audio and video conferencing tools). While implementing any new technology in a field with as many repercussions as the legal field, it is important to consider if the introduction of the technology is even warranted. The benefits of using blockchain technology to authenticate and validate smart contracts are worth the technological transition that the field will have to accommodate.

As a community, we have mostly explored the limits of using blockchain without affecting the analog nature of arbitration proceedings. Such partial automation revolves around the notion of confirming the authenticity of documents via a blockchain based system. The authentication may include various aspects of an arbitration lifecycle: from an arbitration clause, through submission and taking of evidence, to enforcement of arbitral awards, each using the benefits of the technology to enhance the efficiency of proceedings. (See examples of these discussions on KAB here and here)

Simultaneously, looking at a wider market, one can notice a dozen blockchain-based platforms aiming at a different degree of automation. (See, for example, Confideal, Coinlancer.io, Jury.online and Kleros). The full automation of the process, but for the arbitrator’s assessment of the case and the decision, is something we still need to explore.

Will Blockchain Be the Innovative, Disruptive Industry Force that will Reshape Arbitration as We Know It?

With emerging technologies, one can imagine automated dispute resolution platforms where these technologies are interoperable, thus enabling more efficient and better-secured proceedings. Such full automation, however, requires careful procedural design, translated and adjusted to the conditional logic of a given programming language. Special care must be employed in drafting policies relating to those aspects that require a more nuanced understanding of legal proceedings than those that can be conveyed through conditional logic and 1s and 0s.

As a starting point, an arbitration clause would need to become a smart arbitration clause – i.e. translated into a block of code and stored on the blockchain. The first question here is would such a clause meet the requirements of Art. II of the New York Convention? Looking at smart contracts as another form of executing agreements, one could make the argument that a smart arbitration clause would be compliant with New York Convention Art. II requirements. As has been discussed on KAB here and here, at the very minimum, blockchain technology could preserve the validity of an original arbitration agreement stored therein.

By its very nature, an arbitration clause is passive. For it to be triggered, there needs to be a dispute that parties cannot otherwise resolve. While in an analog environment this means that an arbitration clause can be physically independent from the main agreement, in an automated environment that would not necessarily be the case. Rather, such a clause would need to be conditionally programmed and its activation made dependent on a particular event constituting breach of the parties’ agreement. In simple contract terminology, an arbitration clause would be triggered if the goods are not delivered or the price has not been paid as per the terms of the contract.

A blockchain-based dispute resolution platform would exclude oral hearings and the arbitrator’s decision on the case. Aside from that, theoretically, all other aspects of the process can be automated: the submission of claims and counter-claims, submission of evidence, or communication with the tribunal, to list a few.

To design the automation of a dispute resolution system, one needs to look at the nature of the process itself and find ways to enable the same outcome in a blockchain-based platform. As an example, if triggering an arbitration clause means the submission of a notice of arbitration to an institution, what comes next? Notifying the party of the breach and instructing a commencement of proceedings, or automating the commencement notification?

In the former case, it seems that the automation would stop there. The interested party would submit its notice of arbitration and the remainder of the proceedings would be administered in very much the same way as we are accustomed to. The latter option, however, seems to lead further down the path of automation to the first crossroad: Is there a need to integrate a smart arbitration clause within a dispute resolution platform of an arbitral institution?

Even if we, as the arbitration community, opt for “no”, the market may still decide “yes”. The businesses that transition to smart contracts, and integrate smart arbitration clauses therein, might want an integration with the institutionally designed dispute resolution platforms. They would likely see the security and stability of the system as the key advantages of such integration. The decisive element, in that case, sits with arbitral institutions.

On one hand, waiting for the tech-market to offer some stability is the best choice. We currently find ourselves in the wild west days of this technology, with insufficient standards and best practices. The technology is continuously changing and expanding. We are yet to fully grasp the potential of blockchain, either as a standalone technology or coupled with another one. The global hype around blockchain is simply not enough to incentivize any major tech investments in the development of a platform that would be integrated with a smart contract.  So far, no institution has announced its intention to undertake such an endeavor. Whether and to what extent we will see arbitration institutions jumping on the tech wagon will depend on the technologies themselves, the regulatory environment, and the need of the industries.

At the same time, the last couple of years have brought independent dispute resolution blockchain-based platforms. However, we are yet to see how these platforms will operate in the future. The mere fact that they exist, even tailored to specific types of transactions, should signal to the arbitral institutions that they need to adjust and adapt to the trends by finding ways to make the technology work for their benefit and the benefit of their clients.

So, What Will 2019 Bring?

It is fascinating to think how far the application of blockchain can lead us. As this technology develops, and new ones emerge, it will take some time to see the extent of their application in practice, and a long time before these technologies become the standard.

We, as a community, have the opportunity to shape the direction in which these technologies are applied. To effectively do so, we will need to expand the audience and include the individuals who are creating these technologies. It is a fundamental shift in the legal industry calling for more discussion across legal and tech industry lines. To effectively code a contract, design a document-storage platform or design an entire dispute resolution platform, we, as a community, need to speak the same language as the programmers. This, in turn, will require us to re-think our approach to arbitration in analog terms and transition to a digital environment.

If you were setting policies for smart-contracts on the blockchain, what checks and balances in the application of the technology would be required to ensure no violation of due process?

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Can an Arbitral Tribunal Admit Evidence Obtained through a Cyber-Attack?

Kluwer Arbitration Blog - Sat, 2019-01-26 21:14

Nitya Jain

With the increase of cyber-attacks, arbitral tribunals face the question whether to accept evidence obtained via such an unlawful breach. The question even found its way to this year’s Vis Moot problem, confirming the timeliness and need for a debate on a global level.

Current Framework on Admissibility of Evidence

An arbitral tribunal is not under an obligation to explicitly follow a binding evidentiary code, unless, of course, the parties agree otherwise. Most national arbitration laws and arbitration rules follow this approach. For example, Article 19(2) of the UNCITRAL Model Law states:

Failing such agreement, the arbitral tribunal may, subject to the provisions of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence.”

The arbitral tribunal will determine and adapt the procedure to the specifics of a given case. Consequently, each procedure will differ. In doing so, the tribunals have little guidance from the IBA Rules on the Taking of Evidence in International Arbitration. Article 9(2) of the IBA Rules provides some standards of admissibility of evidence. The provision, however, is not exclusive and does not include the issues reflected in certain jurisdictions, such as limiting or excluding the admissibility of the evidence. At the same time, the inclusion of illegally obtained evidence can lead to an unreasonable conclusion, endangering due process, subjecting the award to a potential challenge.

Often, the importance of the evidence has overshadowed the illegality of its source: gaining evidence as a result of unauthorized access to data in a system or computer. Attaching the term illegal with evidence prima facie perturbs its admissibility. How can tribunal admit and use evidence primarily obtained through an unlawful breach? On the face, such a stance may seem to resonate with the travesty of justice. Certain circumstances, however, may call for the admission of an illegally obtained evidence in the interest of justice.

Arbitral Tribunal Can Admit Evidence Obtained via an Unlawful Breach

First, the tribunal needs to consider if a party to the proceedings was itself involved in the illegal activity. The clean hands doctrine plays a seminal role in deciding the admissibility of an illegally obtained evidence.

If a party seeking admission of evidence has clean hands the possibly unlawful nature of that disclosure cannot be held against it. Evidence originally obtained through unlawful conduct should be considered prima facie admissible if it has found its way to the tribunal through the hands of a third disinterested party. In other words, such evidence should be regarded as prima facie of superior credibility. Where a party seeks to benefit from its own unlawful conduct (i.e., if it does not have clean hands), the evidence should be considered inadmissible. Even in such case, the wrongdoing needs to be egregious for evidence to be deemed inadmissible. The tribunal may show less willingness to admit evidence when the illegal activity through which it was obtained was particularly grave.

In Bible v. United Student Aid Funds, Inc., Seventh Circuit Court declined the application to strike references to documents that had been released by others on WikiLeaks. There, the plaintiff obtained the evidence through WikiLeaks disclosure websites and argued for its admission in the proceedings. The court held that the evidence is admissible as the information was already in the public domain. Public domain implies to be a state wherein the evidence is accessible to the public at large without undue hardship. In this particular case, as the evidence was available on the internet for five (5) years, the court saw no problem in using the evidence for a more accurate assessment of the case. The court also stressed upon the probative value of the evidence.

Second, the arbitral tribunal has the duty to ensure the parties’ right to be heard. A failure by the arbitral tribunal to observe the rights of fair trial and due process constitutes a violation of public policy and exposes the award to the risk of annulment.

The right to be heard includes each party’s right to propose evidence on pertinent facts. Dismissal of evidence that is material to the outcome of the case impairs party’s procedural right to a fair trial. Equality of arms, or a fair balance principle, must be preserved between the parties in adversarial proceedings. Each party must be afforded a reasonable opportunity to present their case – including their evidence – under conditions that do not place them at a substantial disadvantage vis-à-vis their opponent. With that said, illegally obtained evidence should be admitted if there is no other evidence available to prove a necessary aspect of a case

In Conoco Phillips v. Venezuela, Venezuela sought to rely on US diplomatic cables obtained through Wikileaks. The case was different on the grounds that the Respondent presented the illegally obtained documents only post the Decision on the Merits had been rendered and the proceedings had entered the quantum phase. Arbitrator George Abi-Saab stated that since the leaked cables were relevant to the outcome of the case, they should have been given proper weight by the arbitral tribunal. Mr. Abi-Saab concluded that, in his view, the cables should have been admitted as valid evidence because of their “high degree of credibility” and “level of detail”.

Third, ignoring illegally obtained evidence may not provide a just solution and may even lead to an award that is factually wrong. The relevance and materiality of the evidence play a fundamental role. The evidence is relevant when it is reasonably necessary for a party to support, contradict, or weaken any contention or fact in the proceeding or to discharge its burden of proof. In dealing with the admissibility of evidence the tribunal considers the likely or prima facie materiality of evidence. The evidence is considered to be material to the case when it would help to assess whether a factual allegation is true or not and would assist in bearing upon the final award. Uncovering the truth outweigh the unlawfulness in which submitted evidence was obtained.

Striking a Balance between the Interest of Justice and Due Process

Today, cyber-intrusion can be accomplished with utmost ease and the almost daily reports of hacks suggest that arbitrators are likely to be presented with issues related to breaches of cybersecurity. The reasons outlined here may compel a tribunal to overlook the illegality of the source. It is, however, difficult to strike a balance between the requirements of due process and right to be heard and the prohibition of accepting evidence obtained via illegal means.

The nature of illegality cannot be ignored as an admission of illegally obtained evidence will likely endanger enforceability of an award on the grounds of public policy violation. Beyond that, it may influence parties’ procedural behavior in other proceedings. For example, it may encourage illegal behavior in future – showcasing illegally obtained evidence may incentivize future unlawful disclosures. When an arbitral tribunal hands down an order to the effect upholding that illegally obtained evidence is admissible, it may encourage the parties to resort to illegal means of obtaining evidence.

To counter such outcome, the relevancy and materiality of the evidence should be given utmost importance. It is of crucial importance for a tribunal to know the complete facts and circumstances of the case for proper resolution of the dispute. In those cases, exclusion of evidence would be an infringement of a party’s right to be heard.

There is no straight-jacketed formula that can outrightly decide the fate of evidence; rather, it comes down to the facts and circumstances of a given case.  Nonetheless, to achieve the necessary balance, the tribunal should consider two factors when deciding on the admissibility of evidence obtained via an unlawful breach of data or computer. First, the evidence should be accepted if obtained without the claiming party’s involvement in the illegal act. Second, such evidence should be accepted only if it is material to the outcome of the case. This would cover, for example, materials already available on the internet. Where, however, the illegal activity is direct and of severe nature, the tribunal should prima facie deny admissibility of evidence. Such two-prong test preserves due process and procedural fairness, and, therefore, safeguards the award.

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Back to the Future: Young Voices Reflect on How the Past Year in International Arbitration Will Inform Upcoming Years at CIArb, YMG and Young ITA Event

Kluwer Arbitration Blog - Sat, 2019-01-26 03:22

Rocío Digon, Ana Gerdau de Borja Mercereau and Alexander G. Leventhal

Young ITA

Key developments in international arbitration in 2018 were the focus of an end-of-the-year conference held on Wednesday, 19 December 2018, organized by CIArb YMG, the young members’ group of the Chartered Institute of Arbitrators, and Young ITA, the young members’ group of the Institute for Transnational Arbitration.  The event’s faculty members were Alexander G. Leventhal (Quinn Emanuel), Ana Gerdau de Borja Mercereau (Derains & Gharavi), Diego Romero (Latham & Watkins), Jil El Ahdab (Bird & Bird), Paula Henin (Freshfields), Rocío Digón (White & Case), and Saadia Bhatty (Gide).  The event was hosted by Latham & Watkins.

The event began with a welcome from Rocío Digón, Young ITA’s Continental Europe Chair. Digón set the stage for the panel’s discussion and introduced the panel’s moderator, Jil El Ahdab, the Chair of CIArb’s European Branch.  She noted that 2018 had been an exciting year for international arbitration with developments in all spheres of the profession – including the taking of evidence, diversity, and investor-state arbitration.  Digón remarked that the attendees were fortunate to have Jil El Ahdab and a distinguished panel to guide them through these topics.

 

The Panel’s View

The panel then tackled the following three developments in 2018:

 

Evidence Taking in International Arbitration:  With the official launch, just a few days before the event, of the Rules on the Efficient Conduct of Proceedings in International Arbitration (also referred to as the Prague Rules) and developments in the use of Section 1782 (Assistance to foreign and international tribunals and to litigants before such tribunals) of the U.S. Code, 2018 has been an interesting year for evidence-taking in international arbitration.  The panel’s first speaker, Paula Henin, guided discussion on this issue.

Henin first explained that Section 1782 allows interested persons to elicit the assistance of a U.S. federal district court to obtain evidence from persons and entities residing or found in its district, for use in foreign and international proceedings. Its availability in aid of international arbitration proceedings, once rejected, has been confirmed in several, but not in all, federal districts since the Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), decision. Henin observed that 2018 brought to light interesting developments in Section 1782 practice in the context of international arbitration. Among those were cases in which litigants sought to use Section 1782 to obtain documents held by US-based law firms on behalf of their clients,1) See Kiobel by Samkalden v. Cravath, Swaine & Moore LLP, No. 17-424-CV, — F.3d —-, 2018 WL 3352757 (2d Cir. July 10, 2018); In Re Application of Hulley Enterprises Ltd., Yukos Universal Ltd. & Veteran Petroleum Ltd. for an order pursuant to 28 U.S.C. Section 1782 to conduct discovery for use in a foreign proceeding, No. 1:18-mc-00435 (S.D.N.Y.); In Re Application of Hulley Enterprises Ltd., Yukos Universal Ltd. & Veteran Petroleum Ltd., for an order pursuant to 28 U.S.C. Section 1782 to conduct discovery for use in a foreign proceeding, No. 2:18-mc-00176 (E.D. Penn.). jQuery("#footnote_plugin_tooltip_9889_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9889_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); or even documents held by arbitrators.2) See D Charlotin & L E Peterson, Challenge against three high-profile arbitrators is spurred by misdirected email to arbitral secretary; Gary Born submits expert report in defence of arbitrators (IA Reporter Nov. 5, 2018). jQuery("#footnote_plugin_tooltip_9889_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9889_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In other cases, parties looked for new ways to resist Section 1782 discovery, eliciting the assistance of courts outside the US to enjoin their arbitration adversary from enforcing a Section 1782 discovery order rendered against them.3) See Dreymoor Fertilisers Overseas Pte Ltd v Eurochem Trading GmbH & another [2018] EWHC 2267 (Comm) (24 August 2018) (Males J). jQuery("#footnote_plugin_tooltip_9889_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9889_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Against that background, the panelists discussed whether Section 1782 strengthens, or instead undermines, the authority of arbitral tribunals to manage the taking of evidence in arbitral proceedings. The consensus among the panelists was that the answer depends on whether the parties are using Section 1782 to work with, or instead against, the arbitral tribunal.

As for the Prague Rules, Henin explained that these Rules were devised as a more civil-law focused answer to the IBA Rules.  In main part, they limit the scope of document production to specific documents – avoiding the type of expansive discovery that results from allowing requests for categories of documents – and allow for a more robust role in the process for the tribunal, which may provide its preliminary views on the arbitration at the case management conference, assist the parties in reaching an amicable settlement, and take a proactive role in fact finding.  Henin noted that it is still too early to say whether they were will become an alternative or a supplement to the IBA Rules.  However, she noted that, while the Prague Rules may provide an alternative to some of the IBA Rules’ provisions on evidence-taking, they also go beyond what is provided in those Rules and expressly propose the conferral of additional management powers to arbitral tribunals – for example, in regards to mediating a settlement – where the IBA Rules are silent.

 

Investor-State Arbitration in a Post-Achmea World:  The conference’s second speaker, Diego Romero, tackled two recent proposals for change in the post-Achmea international arbitration landscape.

First, Romero dissected the proposal for amendment of the ICSID arbitration rules, which includes provisions on third party funding, expedited proceedings, and security for costs.  He argued that these proposals went a long way towards dissuading frivolous claims by including an express provision on security for costs and lowering the bar for security for costs applications (to date, only two security for costs applications have been successful under the ICSID Rules).  Romero then referred to the Proposed Arbitration Rule 21(2) on the parties’ obligation to disclose whether they have third-party funding and the identity of the third-party funder immediately upon registration of the Request for Arbitration or upon conclusion of a funding arrangement after registration of the case.  He also argued that the proposals would increase transparency – by creating an opt-out rule in favor of publication of awards and decisions and clarifying rules for the submissions of non-disputing parties – and independence – by requiring parties to disclose the identity of any third party funder for the conflicts purposes.  The panel agreed that whether such measures would be “sufficient” to satisfy critics would remain to be seen.

Second, Romero explored the new face of investment disputes in North America under the United States-Mexico-Canada Agreement (USMCA), signed in November 2018.  Although the USMCA unquestionably curtails access to investment treaty arbitration to its parties, the panel acknowledged that the USMCA at least brings much needed certainty and predictability regarding certain substantive provisions, such as the minimum standard of treatment and the most favored nation clause.  Romero concluded that these reformative movements should not be seen as existential threats to investment arbitration but rather, opportunities to improve it and fix some of its problems.

 

Diversity in International Arbitration:  The final panelist, Saadia Bhatty, touched upon diversity in international arbitration – in all its forms and apparitions.

Noting that there is a general consensus in the arbitration community that diversity is not only beneficial but crucial in international arbitration, Bhatty began by discussing the recent case of Shawn C. Carter, et al. v. Iconix Brand Group, Inc. et al., Index No. 655894/2018, a case before the Supreme Court of New York in which rapper Jay Z challenged the validity of an arbitration clause in favor of AAA arbitration.  Carter argued that enforcement of the arbitration clause would be against public policy because the AAA roster of arbitrators did not include any African-American arbitrator.  According to Bhatty, the Carter case revealed that, despite substantial efforts made by the arbitration community in the past year – the publishing of diversity statistics by major arbitration institutions, the release of toolkits to increase diversity in international arbitration, and the raising of awareness to the importance of diversity in all forms – a lot of work still remains to be done.

Bhatty then discussed another aspect of diversity in international arbitration receiving increasing attention: regional diversity.  She noted that China’s One Belt One Road (OBOR) project, an Asian infrastructure project led by China whose cost is estimated to go well above USD 5 trillion and which, when completed, will provide infrastructure connecting around 60 countries, would inevitably create a new market for arbitration disputes that would, in part, be serviced by Asian arbitration institutions.  Bhatty noted that, while beneficial, diversity also created a risk of parcellisation of international arbitration.  She raised the question whether the original purpose of international arbitration was to be transnational, and for arbitrators to be neutral, rather than to be “representative” of the end-users.

 

The Public’s View

After the panel, Alexander G. Leventhal led a discussion with the audience, which included the use of a live poll.  While the issue of technology in arbitration may not have been discussed by the panel, it was center stage in the post-panel discussion as attendees were able to voice their opinions to poll questions using their telephones.  In the first question, attendees were asked to offer their thoughts on the future of the Prague Rules.  Leventhal noted that while a plurality (48%) of attendees believed that the Prague Rules would be a useful supplement to the IBA Rules, a majority either found that they would soon be forgotten (32%) or were not even familiar with the Prague Rules (20%).  When asked the most pressing issue of diversity, attendees responded gender diversity (29%), national diversity (29%), and age diversity (27%).  Leventhal noted that, despite the recent Carter case, only 7.5% of attendees listed racial diversity.  As for the USMCA, a majority of attendees (76%) believed that the agreement would not be passed by the US Congress and would remain a dead letter (a response that, panel moderator Jil El Ahdab noted, was more political than legal).  Lastly, a majority of attendees (56%) said that they believed 2019 would be most marked by a reevaluation of existing investor-State dispute settlement procedures and agreements.  Leventhal noted the coming year promised to be an interesting one as at least 12% of attendees also believed that 2019 would be marked by a revolt by international tribunals against restrictions imposed by politicians and national courts.

Ana Gerdau de Borja Mercereau closed the conference with recap of the evening’s developments and her three wishes for 2019.  Her first wish was that arbitrators have the courage to take difficult decisions and not fear the ex post review of State courts.  She sustained that today’s due process paranoia often prevents or slows down arbitrators’ decision-making and that a “procedural judgment rule”4) See Klaus Peter Berger & Ole Jensen, “Due process paranoia and the procedural judgment rule: a safe harbour for procedural management decisions by international arbitrators”, 32 (2016) Arbitration International 415 (Proposing the “procedural judgment rule”). jQuery("#footnote_plugin_tooltip_9889_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9889_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); could serve as tool to fight this, based on the principles of transparency, proactivity, interactivity, and proportionality in procedural management decisions.  Her second wish was that the arbitration community not lose sight of its professional raison d’être: to solve dispute and, in doing so, render the best possible dispute resolution services.  Mercereau’s third and last wish but perhaps the most important one was that the “enduring social institution”5) See Jan Paulsson, The Idea of Arbitration (Oxford 2013), p. 298. jQuery("#footnote_plugin_tooltip_9889_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9889_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  of international arbitration continue evolving with a quickly changing world.

 

References   [ + ]

1. ↑ See Kiobel by Samkalden v. Cravath, Swaine & Moore LLP, No. 17-424-CV, — F.3d —-, 2018 WL 3352757 (2d Cir. July 10, 2018); In Re Application of Hulley Enterprises Ltd., Yukos Universal Ltd. & Veteran Petroleum Ltd. for an order pursuant to 28 U.S.C. Section 1782 to conduct discovery for use in a foreign proceeding, No. 1:18-mc-00435 (S.D.N.Y.); In Re Application of Hulley Enterprises Ltd., Yukos Universal Ltd. & Veteran Petroleum Ltd., for an order pursuant to 28 U.S.C. Section 1782 to conduct discovery for use in a foreign proceeding, No. 2:18-mc-00176 (E.D. Penn.). 2. ↑ See D Charlotin & L E Peterson, Challenge against three high-profile arbitrators is spurred by misdirected email to arbitral secretary; Gary Born submits expert report in defence of arbitrators (IA Reporter Nov. 5, 2018). 3. ↑ See Dreymoor Fertilisers Overseas Pte Ltd v Eurochem Trading GmbH & another [2018] EWHC 2267 (Comm) (24 August 2018) (Males J). 4. ↑ See Klaus Peter Berger & Ole Jensen, “Due process paranoia and the procedural judgment rule: a safe harbour for procedural management decisions by international arbitrators”, 32 (2016) Arbitration International 415 (Proposing the “procedural judgment rule”). 5. ↑ See Jan Paulsson, The Idea of Arbitration (Oxford 2013), p. 298. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Call for nominations: AALS ADR Section BEST ARTICLE

ADR Prof Blog - Fri, 2019-01-25 14:58
AALS Alternative Dispute Resolution Section Best Article of 2018 The AALS Section on Alternative Dispute Resolution is seeking nominations for the second annual Section Award for best article published in print or online in 2018 in the field of ADR. To be eligible, the article must be already published in a law review or other … Continue reading Call for nominations: AALS ADR Section BEST ARTICLE →

PCA to weigh in on challenge to Vattenfall panel

In a break from recent practice, ICSID has agreed to seek a non-binding opinion from the Permanent Court of Arbitration regarding Germany’s attempt to disqualify the three arbitrators hearing its high-profile...

“Final-Offer Arbitration”: A Procedure to Save Time and Money?

Kluwer Arbitration Blog - Fri, 2019-01-25 00:00

Danilo Ruggero Di Bella

This is an introduction to the so-called “Final Offer Arbitration” (FOA), sometimes also referred to as pendulum or baseball arbitration. FOA is a model of arbitration that originated in the late 1940s and consolidated in the 1970s in the USA to resolve labour disputes in the public sector and the baseball league, hence the name. FOA differentiates itself from conventional arbitration owing to the incentives it sparks in parties’ conduct to reach a mutually agreeable settlement, its celerity in issuing an award and, accordingly, its overall ability of keeping proceedings costs in check.

As arbitration hubs are stepping on the gas of creativity to a) compete among themselves in providing their prospective users with the most efficient and innovative ways to solve their disputes, and b) not lose market share in favour of blooming regional arbitration centres, FOA may deserve consideration since it is a relatively unknown model of arbitration, and yet it aims at achieving the very same goals and implementing the same principles (procedural economy, swiftness, and fairness) by which arbitral institutions are shaping their reforms.

After presenting FOA’s special procedure and pondering its advantages and challenges, the reader will be left with a question.

 

FOA proceedings

In a FOA, the tribunal is obliged to render an award by selecting in its entirety one of the parties’ final proposal on the contentious issue or issues. Arbitrators cannot seek to bridge the gap between parties’ positions by coming up with a compromise decision. Because it is the final offer of one of the parties that will be chosen inevitably over the other, this raises the fear of losing the whole case. Hence, parties are spurred to make more realistic proposals, since an unreasonable position will most likely be rejected by the tribunal in favour of the more sensible competing offer.

The procedure is quite straightforward, although there exist several variations. After the round of written pleadings and the hearing where the contradictory points are singled out and evidence is presented to sort out those very points, each party simultaneously submits its proposal of the draft award. Afterward, the tribunal must make its award in the form of either party’s draft award without amending it.

The foregoing is the “package FOA”, according to which parties deliver an offer addressing the dispute as a whole, and the tribunal picks one complete package or the other. A less stringent version is the “issue-by-issue FOA” version, where each party submit its final offer on each separate question in dispute, and then the tribunal can mold the award by siding with one party’s offer on some points and with the other party’s offer on others, thus combing the two drafts. This issue-by-issue FOA obviously shares more similarities with conventional arbitration. Another variety allows each party to put forward a twofold offer so that it gives parties some leeway in presenting at least a more ambitious position together with a more moderate stance to choose from. Some other modalities also envisage its inclusion in a multi-tier process, where mediation precedes the resort to the FOA. Some forms of FOA expressly provides for tribunal’s obligation to give reasons for its choice, while others do not require arbitrators to state any reason.

 

Pros

Several advantages flow from such a streamlined procedure. The chance of succumbing to the opposing party’s draft award instils in both parties enough uncertainty as to the possibility of a devastating outcome, that it drives both parties and their respective lawyers (who are risk-averse by nature) to engage in serious negotiations to reach a satisfactory agreement before the award is even rendered. FOA strongly incentivizes fruitful negotiations to settle the dispute, as opposed to conventional arbitration where disputing parties pass the ball to a third party (the arbitrator) who will have the responsibility to resolve their conflict, so that they are free to exacerbate the dispute (since it is not up to them to settle it) by taking the most radical positions.

On the assumption that arbitrators are usually reluctant to sanction extreme arguments, FOA pushes parties to act more reasonably, since this increases their chances of having their own draft chosen over the other party’s offer. So, each party makes more realistic demands and concessions to secure against the tribunal going with the other party’s draft. Therefore, a party may effectively steer the tribunal in its favour by consciously being more rational and considerate towards the other party’s needs, something ideal to preserve long-term business relationships.

The time between the hearing and the rendering of the award is drastically reduced and so is the tribunal’s workload – who, instead of going again through the statements of claim and defence to assemble its award, will simply have to decide which of the two drafts better reflects its view of justice in that case and sign it. A shorter timeframe for the proceedings translates into a less expensive procedure and, eventually, a better service for the parties.

Counsels and quantum experts will not have to defend extreme stances, strategically adopted only because of tribunals’ tendency to make compromise awards halfway between the parties’ demands. Such a defusing effect positively affects the costs of the proceedings.

In sum, FOA presents a tantalizing alternative to conventional arbitration for the parties, because it appears to be more prone to productive negotiations, faster, cheaper, it helps to safeguard long-term relationships, and parties collectively retain more control over the case as they will be able to influence the outcome by simply being more reasonable, and will not be blindsided by the contents of an outrageous award or annoyed by a decision aimed merely at “splitting the difference”.

 

Cons

The package FOA, with or without the obligation to give reasons, is the more transparent and more appealing variation of FOA maximizing all the benefits of this type of arbitration. However, it is also the variation of FOA which could be more exposed to possible challenges. Hence, the analysis of the main drawback of this swift type of arbitration is focused on this type of FOA assessed against the 1958 NY Convention and the UNCITRAL Model Law (and a few national arbitration laws to test the concrete validity of such an assessment).

A package FOA award, that does not contain any reasons why one party’s offer was chosen over the other but simply ratifies the preferred offer in its entirety, might be easily subjected to a challenge at the seat of the arbitration to be set aside or to objections to its recognition and enforcement in a third country.

Even though the NY Convention does not prescribe the requirement of stating reasons upon which the award is based and Article 31(2) UNCITRAL Model Law allows the parties to agree that no reasons are to be given, in some jurisdictions the lack of reasons is per se a ground to annul the award. For example, Article 37 of the Spanish Arbitration Act provides that the award shall always state the grounds upon which it is based (unless it contains the settlement between the parties in the form of an award) and, pursuant to Article 823(5) of the Italian Civil Procedure Code, the award shall briefly give reasons. Conversely, other jurisdictions are silent on such a requirement (e.g. Section 31 Swedish Arbitration Act, dealing with the contents and form of an award, does not explicitly require the award to be reasoned).

Such an award could be also set aside because the arbitrators exceed their powers by choosing a draft award that fails to rule on the dispute on its entirety, (viz. infra petita exception, as per Article 34(2)(iii) and 36(a)(iii) UNCITRAL Model Law and Article V(1)(c) NY Convention). A consequence of having each party drafting its own award is that becomes improbable that it mention in its proposal the objections or counterclaims raised by the opposing party, unless it does so to rebut it. Hence, such an award could not fulfil arbitrator’s mandate to address every relevant issue of the dispute.

By the same token, it would be hard to show that a party was able to present its case since the award (drafted by the opposing party) is unlikely to include the arguments or counterclaims of the party whose draft award was not selected, thus making the award challengeable on the ground of Article 34(2)(ii) UNCITRAL Model Law or unenforceable on the grounds of 36(a)(ii) UNCITRAL Model Law and Article V(1)(b) NY Convention.

Careful considerations should be given when drafting a package FOA clause whose ensuing award lacks written reasons. Attention should be paid to confining the remit of the tribunal, waiving explicitly the right of appeal against the award, and agreeing on the procedure and contents of the award.

Consequently, despite its almost instantaneous deliberative process, a package FOA requiring the tribunal to state at least some brief reasons should be preferred to avoid the above challenges or objections. The reasons given could be well confined to the appreciation of the evidence presented.

 

Final question

Undoubtedly, FOA may help arbitration institutions to regain the advantage in terms of lower costs as compared to State courts, an edge that arbitration is ostensibly losing. Could this FOA be a new feature to be added as an alternative procedure by leading arbitration institutions or could it maybe inspire the creation of a brand-new arbitration centre characterized by this seemingly cheaper, faster, and fairer process?

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The Contents of the ASA Bulletin, Volume 36, Issue 4 (December 2018)

Kluwer Arbitration Blog - Thu, 2019-01-24 23:32

Matthias Scherer

We are happy to inform you that the latest issue of the ASA Bulletin is now available and includes the following articles and cases:

ARTICLES

Karin GRAF, Brigitte UMBACH-SPAHN, Berücksichtigung ausländischer Schiedsurteile in der Insolvenz – Lehren aus den Bundesgerichtsentscheiden in Sachen Swissair [Recognition and Enforcement of Foreign Arbitral Awards in Swiss Insolvency Proceedings – Lessons Learnt from the Decisions of the Swiss Federal Supreme Court in the Causa Swissair]

According to the New York Convention, enforcement of a foreign arbitral award may be refused if the subject matter of the dispute is non-arbitrable. Insolvency matters are not entirely arbitrable. Karin GRAF and Brigitte UMBACH-SPAHN explore when a foreign arbitral award can be enforced in Swiss insolvency proceedings against an insolvent defendant. The spectacular bankruptcy of the Swiss national carrier Swissair has spawned a series of decisions of the Swiss Federal Supreme Court, which the authors apply to arbitration.

Bernhard BERGER, Insolvenz und Schiedsvereinbarung in der Schweiz [Insolvency and Arbitration Agreements in Switzerland]

This paper presents the Swiss practice concerning insolvency and how it affects arbitration agreements in the international context. About ten years ago, on 31 March 2009, the Swiss Federal Supreme Court ruled in the Vivendi case that foreign insolvency statutes might affect the validity of an arbitration agreement in an international arbitration in Switzerland. A few years later, the Court nuanced this controversial finding (Decision of 16 October 2012, 138 III 714). The risk remains that the issue of insolvency and arbitration agreements rises (again) at the stage of recognition and enforcement of an arbitral award, particularly where enforcement is sought in the country of the lex concursus. BERGER advocates that the provisions of a national bankruptcy law, which aim to invalidate arbitration agreements, should be disregarded in cross-border transactions. This must reasonably apply both in the arbitration and in subsequent enforcement proceedings.

Mahutodji Jimmy Vital KODO, Aperçu général de l’actuel régime de l’arbitrage OHADA [Overview of the OHADA Arbitration Regime]

The author provides a general overview of the current OHADA Arbitration legal framework by presenting the regime governing arbitral agreements, the arbitral proceedings and the award and emphasizing the particularities of both the institutional arbitration governed by the Regulation of the CCJA on Arbitration and the Uniform Act on Arbitration.

Sami TANNOUS, Matei PURICE, Mohamed KHANATY, The New UAE Federal Arbitration Law: Was it Worth the Wait?

The UAE has finally modernised its arbitration framework by promulgating Federal Arbitration Law No 6 of 2018. While the Federal Arbitration Law is largely based on the Model Law, certain changes have created unnecessary ambiguities and uncertainties. A welcome development is the broad powers granted to arbitral tribunals, including the power to issue interim and conservatory measures, and to rule on their own jurisdiction.

The authors consider that despite all the ambiguities and a number of missed opportunities, the Federal Arbitration Law is a positive development which will strengthen the UAE’s position as a leading regional hub for arbitration.

Bernd EHLE, SIA 150:2018 – Modern Swiss Arbitration Rules for Construction Disputes

The Swiss Society of Engineers and Architects (SIA), Switzerland’s leading professional association for construction, technology and environment specialists, has issued new arbitration rules for construction disputes. The SIA Standard 150:2018 entered into force on 1 January 2018. It features state-of-the-art procedural rules which evidently strive towards efficiency and emphasize settlement facilitation, including through the use of a mandatory instruction hearing at which the arbitral tribunal provides the parties with a preliminary assessment of the case. EHLE presents the most remarkable innovations namely the arbitral tribunal’s power to appoint a technical expert as a consultant, and the possibility for the parties to agree on a procedure for an urgent determination of specific legal issues, e.g., whether the employer has the right to order a variation or whether the contractor is entitled to an extension of time for the performance of the works.

Daniel GREINEDER, The Limitations of Soft Law Instruments and Good Practice Protocols in International Commercial Arbitration

This article considers the value of “soft law” instruments in international commercial arbitration. It starts from the practical uncertainty arising from the procedural freedom afforded to parties and arbitrators under liberal arbitration legislation. While good practice guidelines may help to overcome this uncertainty and manage parties’ expectations, the article identifies the following three difficulties for soft law in achieving this goal: (1) that it is utopian in aspiring to create a transnational legal order; (2) that it is practically unworkable, because it is open to abuse and misunderstanding; and (3) that it is superfluous in stating the painfully obvious. The article concludes by recommending limiting soft law to areas where it is strictly necessary and where a meaningful international consensus can be reached.

Stavroula ANGOURA, Interface between Arbitrators’ Disclosure and Parties’ Investigation Duties

In the judgment SAAD Buzwair Automotive Co v. Audi Volkswagen Middle East Fze LLC, the Paris Court of Appeal set aside an ICC arbitral award on the ground of irregular composition of the arbitral tribunal under Article 1520 para. 2 CPC. It found that a co-arbitrator had failed to disclose that his law firm had a relationship with the party’s affiliate company in another ongoing dispute. S ANGOURA analyses the judgment and what it means in terms of arbitrators’ duty to disclose

Caroline DOS SANTOS, The RFC Seraing’s Saga Goes on: Arbitration Clause Contained in FIFA’s Statutes Held Invalid under Belgian Law

Caroline DOS SANTOS reports on a decision of the Brussels Court of Appeal of 29 August 2018 in the RFC Seraing v FIFA saga. RFC Seraing, a Belgian football club, challenged the legality of FIFA’s ban on certain Third-Party Ownership (“TPO”) agreements. In its decision, the Court while deciding upon its own jurisdiction over the matter, reached the conclusion that the arbitration clause enshrined in the FIFA’s Statutes is overly broad and therefore, illegal in the eyes of Belgian law.

DECISIONS OF THE SWISS FEDERAL SUPREME COURT

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Verhoosel resigns after ICSID challenge

Three Crowns partner Gaëtan Verhoosel has resigned from an ICSID tribunal hearing a claim against Peru over an airport concession after being challenged by the state. Tribunal chair Lucinda Low of the...

What Will Be the Future of ADR in US Legal Education?

ADR Prof Blog - Thu, 2019-01-24 07:16
Recently, Doug Yarn (Georgia State) posted a message on the DRLE listserv describing his school’s decision to cut back its ADR program. This was shortly after I saw a post by Nicholas A. Mirkay (formerly Creighton and now Hawaii) and Palma Joy Strand (Creighton), Disruptive Leadership in Legal Education, about their experience at Creighton, where … Continue reading What Will Be the Future of ADR in US Legal Education? →

Port authority prevails in Brazilian saga

A tribunal at the Brazil-Canada Chamber of Commerce has issued an award in favour of the state entity that oversees South America’s largest container port, resolving a US$700 million dispute that began...

2018 in Review: A View from PR China, Hong Kong, and Central Asia

Kluwer Arbitration Blog - Wed, 2019-01-23 22:04

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

As the end of the Year of the Dog approaches, we look back at five noteworthy developments in the arbitration world in PR China, Hong Kong and Central Asia and their coverage on our Blog.

1. New HKIAC Arbitration Rules and the Prominence of Hong Kong as an Arbitral Seat

Hong Kong International Arbitration Centre (“HKIAC“) introduced its new Administered Arbitration Rules, which came into force on 1 November 2018 during HK Arbitration Week. These revisions were eagerly anticipated and reflected HKIAC’s insights into the latest trends and next innovation in international arbitration. Joe Liu, Deputy Secretary General of HKIAC, wrote a succinct summary of the revisions on our Blog.

Hong Kong also continued as one of the world’s leading arbitration hubs. In the Queen Mary University of London 2018 International Arbitration Survey, Hong Kong remained one of the five most preferred seats of arbitration globally.

Part of Hong Kong’s appeal as an arbitral seat, of course, lies in its pro-arbitration legislative regime. One of the hot topics in 2018 was the discussion on the effect and scope of third party funding legislation in Hong Kong. In particular, our contributors discussed disclosure obligations and potential pitfalls when dealing with third-party funding.

Discussions on arbitration issues in Hong Kong would inevitably bring up comparisons with Singapore – one contributor discussed this right before the Opening of the Legal Year in Singapore. An anticipated development in is the expected signing of the Singapore Mediation Convention on 7 August 2019.

2. First Emergency Arbitrator and New International Commercial Courts in China

China saw its first emergency arbitrator (“EA”) procedures under Beijing Arbitration Commission in PR China in 2018. Our Blog was the first to report on this with reflections by the emergency arbitrator himself on the conduct of the EA proceedings. This was a positive development and entirely in line with our expectation of increasing numbers of EA procedures in the upcoming year. Additional commentators also wrote on what a practice note on EA procedures should likely contain.

Further, there was talk about whether China’s new international commercial court would replace arbitration as a preferred dispute resolution forum for Belt-Road disputes. Our Blog published articles from contributors which provided clarifications on what the commercial courts actually are and analysed difficulties in choosing the commercial courts.

In 2019, we expect more developments regarding enforcement of international arbitral awards in China. Official statistics continue to be hard to come by notwithstanding the demand from arbitration users, but we hope to broaden the dialogue on this topic during the course of 2019.

3. Belt-Road Arbitrations in Europe, Africa and Latin America

China’s Belt-Road Initiative continued to be a hot topic in discussions on China-related arbitration topics. The main difference in 2018 was that we saw such discussions from other parts of the world – from Europe, Africa, North America to Latin America.

For example, a contributor discussed the implications of Belt-Road arbitration in Eurasia. Arbitral institutions also got on board: CIETAC (HK)’s Managing Counsel wrote about CIETAC opening its second arbitration centre outside mainland China in Vancouver, Canada; our Blog interviewed the CEO of China Africa Joint Arbitration Centre; ICC created the Belt and Road Commission in January 2018; and HKIAC announced a similar Belt and Road Programme in April 2018.

4. Live Coverage of HK Arbitration Week 2018

For the first time, our Blog gave real-time coverage of HK Arbitration Week this year with event reports and analyses from our contributors in the same week.

HK Arbitration Week has always been a highly anticipated event in the arbitration event calendar for the quality of the events. Our contributors wrote on efficiency in international arbitration proceedings for Asian users; how arbitration can be made fit for the future; how the vision of arbitration should be revised; and how the new HKIAC Rules may help in resolving IPP project disputes.

We enjoyed having each of you share in the events and insights virtually and look forward to reprising this coverage for HK Arbitration Week in 2019.

5. Central Asia and the Rise of the Astana International Arbitration Centre

With regard to Central Asia, our Blog discussed the new arbitration rules of Astana International Arbitration Centre. We think the lesser lights shone on arbitration in Central Asia in our Blog coverage do not reflect the obvious potential and reality of arbitrations involving Central Asia and we look forward to watching, and continuing to cover, developments in the region.

Finally, we thank you readers, contributors, Permanent Contributors, and affiliates for your fantastic support of our Blog.

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Shutdowns, Trump, and Negotiation Theory

ADR Prof Blog - Wed, 2019-01-23 14:30
The stalemate in Washington D.C. has numerous pundits commenting on the negotiation strategies of the primary actors but I am going to just highlight a few from our colleagues. First, Russell Korobkin accurately predicted how the LA strike might end while the federal shutdown would not in his L.A. Times Op-ed last week. As he … Continue reading Shutdowns, Trump, and Negotiation Theory →

Nigeria wins reprieve to contest mega-award in London

UPDATED: The Commercial Court in London has ruled that Nigeria should be permitted to present arguments against the enforcement of a US$9 billion arbitral award despite having missed a filing deadline...

Nigeria wins reprieve to contest mega-award in London

UPDATED: The Commercial Court in London has ruled that Nigeria should be permitted to present arguments against the enforcement of a US$9 billion arbitral award despite having missed a filing deadline...

Are Arbitral Anti-Suit Injunctions Enforceable before Egyptian Courts?

Kluwer Arbitration Blog - Wed, 2019-01-23 02:34

Ibrahim Shehata

In May 2018, the Cairo Court of Appeals issued an intriguing judgment concerning the enforcement of an arbitral interim measure. In the words of the Court, the arbitral tribunal has issued a procedural order against Damietta International Ports (“DIP”) ordering the latter to refrain from suing the guarantor bank regarding the liquidation of a letter of guarantee issued in favor of DIP (“Order”). The Order was, in fact, an anti-suit injunction. DIP raised three arguments against the enforcement of the Order as follows:

  1. The Order is issued in favor of the guarantor bank which is rather a third party and is not a party to the arbitration agreement;
  2. The Order is a temporary conservative order and is not a final conclusive arbitral award, and therefore lacks the required res judicata effect to be enforced before Egyptian Courts; and
  3. The Order contravenes Egyptian public policy because it orders DIP to refrain from litigating a non-arbitral party in Egypt.

The Cairo Court of Appeals held explicitly that interim orders are covered by the New York Convention, provided that:

  1. The interim order is final;
  2. The interim order is issued based on a valid arbitration agreement;
  3. Both parties were offered the opportunity to present their case in the arbitration; and
  4. The interim order does not violate the Egyptian public policy.

Upon applying these criteria, the court determined that the Order satisfied all of these requirements. The question then becomes whether the Order in question was actually a final or a temporary one. In reciting the facts of the judgment, the Cairo Court of Appeals referred to the Order as a “procedural order providing for temporary and conservatory measures.” However, it seems that the Court has surprisingly reversed its opinion in its holding by considering that the Order was final rather than temporary.

On a side note, the final ICC award in this case was issued in January 2018, while the Cairo Court of Appeals reviewed the enforcement of the Order in May 2018. It is not clear whether the Order was later amended by the ICC arbitral tribunal in its final award.

If the Order was, in fact, a temporary one rather than a final one, then we should begin by citing Mr. Bravin who indicates that:

“The New York Convention has an enforcement regime that applies to awards. National courts that have applied the Convention have pretty uniformly concluded that an order imposing a provisional measure for relief is not an award. National courts cannot look to the Convention for authority to enforce such interim orders. It is not there.”1)Ziyaeva, Interim and Emergency Relief in International Arbitration (2015), at p.147. jQuery("#footnote_plugin_tooltip_3747_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3747_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In this regard, an order imposing a provisional temporary relief cannot be considered an award. Therefore, a clear distinction should have been made by the court between a temporary arbitral award that provides for a temporary relief, and interim awards that decide upon a certain issue in a final and conclusive manner. The reason why temporary arbitral orders are consistently not considered within the scope of the New York Convention is that temporary arbitral orders are usually accompanied with fewer integral formalities than arbitral awards. For example, a temporary arbitral order can be issued by the presiding arbitrator solely, and without any reasoning. Also, in the case of an ICC arbitration, a temporary arbitral order would not be subject to the typical scrutiny process followed by the ICC Court of International Arbitration with respect to arbitral awards. In a nutshell, temporary arbitral orders are not accompanied by the same safeguards accompanying arbitral awards. Further, article 298 of the Egyptian Code of Civil and Commercial Procedure (which concerns the provisions pertaining to the enforcement of foreign arbitral awards in Egypt) mandates that the foreign arbitral awards have the res judicata effect, and contain a decision upon the substantive matters of the dispute.

Furthermore, allowing an anti-suit injunction is still a blatant violation of the Egyptian Constitution and the Egyptian public policy. 2)Article (97) of the Egyptian Constitution provides that “Litigation is a safeguarded right guaranteed to everyone.” jQuery("#footnote_plugin_tooltip_3747_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3747_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This is because the Order was restricting the right of an arbitral party to sue a non-arbitral party (a third party). This is, in fact, an extension of a benefit to a non-party to the arbitration agreement. Arbitral tribunals should not be considered to have any authority to create rights for third parties. The Cairo Court of Appeals concluded that it does not have the authority to delve into the merits of the Order. The fact of the matter is that public policy mandates the reviewing courts to delve into the merits of the arbitral awards to a certain extent to verify their compliance with the public policy principles of the place of enforcement.

Furthermore, several other civil-law jurisdictions have uniformly considered that arbitral anti-suit injunctions violate their national public policy. In the words of a German Court dealing with an arbitral anti-suit injunction it stated that “such injunctions constitute an infringement of the jurisdiction of Germany.” 3)Judgment of 10 January 1996, Re the Enforcement of An English Anti-Suit Injunction, 3 VA 11/95, [1997] I.L.Pr. 320 (Oberlandesgericht Düsseldorf). jQuery("#footnote_plugin_tooltip_3747_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3747_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Moreover, Jean-Franðcois Poudret and Sébastien Besson assert that it is unlikely that an arbitral anti-suit injunction would be enforced under the auspices of the New York Convention. This is because it is an order and not an award 4)Jean-Franðcois Poudret, Sébastien Besson, Comparative Law of International Arbitration (2nd edn, Sweet & Maxwell, 2007) para. 639. jQuery("#footnote_plugin_tooltip_3747_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3747_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In this regard, a recent study reiterated the fact that anti-suit injunctions “will remain unrecognized under Egyptian law” unless article 298 undergoes an amendment by the Egyptian Legislative Authority.5)Shalaan, Wael S. E. Interim Measures in International Commercial Arbitration – A Comparative Study of the Egyptian, English and Scottish Law. jQuery("#footnote_plugin_tooltip_3747_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3747_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In conclusion, the Cairo Court of Appeals might have filled a void, but sorrowfully, it did so at the expense of confusing temporary arbitral orders with interim awards under the New York Convention, and also at the expense of fundamental rights under the Egyptian Constitution. Luckily, this is not a final conclusive judgment, and it is currently in the process of being reviewed by the Egyptian Court of Cassation.

References   [ + ]

1. ↑ Ziyaeva, Interim and Emergency Relief in International Arbitration (2015), at p.147. 2. ↑ Article (97) of the Egyptian Constitution provides that “Litigation is a safeguarded right guaranteed to everyone.” 3. ↑ Judgment of 10 January 1996, Re the Enforcement of An English Anti-Suit Injunction, 3 VA 11/95, [1997] I.L.Pr. 320 (Oberlandesgericht Düsseldorf). 4. ↑ Jean-Franðcois Poudret, Sébastien Besson, Comparative Law of International Arbitration (2nd edn, Sweet & Maxwell, 2007) para. 639. 5. ↑ Shalaan, Wael S. E. Interim Measures in International Commercial Arbitration – A Comparative Study of the Egyptian, English and Scottish Law. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Schein, Inc. v. Archer & White Sales, Inc.: Upholding Principles of Arbitration, but Leaving Open Question Regarding Competence-Competence in Arbitral Rules as “Clear and Unmistakable” Evidence that Parties Agreed to Arbitrate Arbitrability

Kluwer Arbitration Blog - Wed, 2019-01-23 00:00

Giorgio Sassine (Assistant Editor for North America) and Zachary A. Pestine

1. The Holding in Schein, Inc. v. Archer & White Sales, Inc. Maintains Principles of Arbitration

In a recent unanimous decision dated 8 January 2019, Justice Kavanaugh delivered his first opinion of the United States Supreme Court (the “Court”) in Henry Schein, Inc. v. Archer and White Sales, Inc.  As set-out below, the Court’s decision in Schein is in line with principles of international arbitration – namely that courts must respect the terms of the arbitration agreement as written and that, if the parties agreed, an arbitral tribunal has the power to decide threshold questions of arbitrability.

In Schein, Archer and White brought suit in the United States District Court for the Eastern District of Texas alleging violations of federal and state antitrust law, seeking monetary damages and injunctive relief.  The contract’s arbitration agreement in part stated:

Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief … shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [(AAA)] …

The issue before the Court was whether there was a “wholly groundless” exception to the widely-established principle that an arbitral tribunal and not a court has the power to decide “threshold” questions of arbitrability. Previously, the Fifth, Sixth, and other Federal Circuits had upheld an exception when the notion that a claim is subject to the arbitration agreement is “wholly groundless.”  The Court granted certiorari to address the disagreement among circuit courts over whether a “wholly groundless” exception comports with the FAA and Court precedent.

The Court held that the “wholly groundless” exception was inconsistent with the Federal Arbitration Act (the “FAA”) and that the Court was “not at liberty to rewrite the statute passed by Congress and signed by [then-President Coolidge in 1925].”  The Court further reasoned that “the courts must respect the parties’ decision as embodied in the contract.”  Relying upon the text of the FAA, the Court stated that “arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.”  With that in mind, and relying upon First Options (514 U.S. 938, 943 (1995)), the Court stated that “parties may agree to have an arbitrator decide not only the merits of a particular dispute but also ‘gateway questions of arbitrability, such as whether their agreement covers a particular controversy.’”

The Court also noted precedent in AT&T Technologies (475 U.S. 643, 649-650 (1986)) “that a court may not ‘rule on the potential merits of the underlying’ claim that is assigned by contract to an arbitrator, ‘even if it appears to the court to be frivolous.’” The Court stated that this “principle applies with equal force to the threshold issue of arbitrability.” The Court thus held that “when the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract, even if the court thinks that the arbitrability claim is wholly groundless.” With that, the Court struck down the “wholly groundless” exception.

 

2. The Court Leaves Open the Question Regarding Whether Competence-Competence in Arbitral Rules is “Clear and Unmistakable” Evidence that Parties Agreed to Arbitrate Arbitrability

In rejecting the “wholly groundless” exception, the Court declined to conclude that “the contract at issue in this case in fact delegated the arbitrability question to an arbitrator.”  Instead, the Court restated its holding in First Options that “courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” 514 U.S., at 944.  For those not accustomed to U.S. arbitration law, the court even asking this question may seem at odds with other jurisdictions, such as France, where a court will decline jurisdiction and will allow an arbitral tribunal to decide validity, existence and scope questions if it has already been seized of the matter.1)See French Code of Civil Procedure, Article 1448; see also Varady, Barcelo, von Mehren, International Commercial Arbitration, at 103 (4th ed.). jQuery("#footnote_plugin_tooltip_3855_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3855_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In any event, in declining to rule on the issue, the Court did not address an important arbitrability issue, stated by Professor George A. Bermann in his amicus brief in support of Respondent in Schein as “whether the incorporation in a contract of arbitral rules containing a provision empowering a tribunal to determine its own jurisdiction satisfies the ‘clear and unmistakable’ evidence test.” Such incorporation is known as “competence-competence”

While the majority of courts in the U.S. have held that the incorporation of arbitral rules that maintain the principle of competence-competence satisfies the “clear and unmistakable” test, Professor Bermann states the issue is not so clear cut, as “the [American Law Institute (the “ALI”)] Restatement of the U.S. Law of International Commercial and Investor-State Arbitration has concluded, after extended debate, that these cases were incorrectly decided because incorporation of such rules cannot be regarded as manifesting the ‘clear and unmistakable’ intention that First Options requires.”

In his amicus brief, Professor Bermann considered the ALI’s position that the courts have not offered any rationale for their holdings.  As an example, Professor Bermann cited Rent-A-Center, West Inc. v. Jackson, 561 U.S. 63, 69 n.1 (2010) to demonstrate the manifest intent necessary to satisfy the “clear and unmistakable” test.  In Rent-A-Center, the parties agreed that “the Arbitrator, and not any federal, state or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this [Arbitration] Agreement.”

Whereas the delegation of authority in Rent-A-Center was clear and unmistakable, Professor Bermann noted that the language in First Options was “dramatically different”.  In First Options, the arbitration clause provided for binding arbitration “in accordance with the arbitration rules of the American Arbitration Association.” Rule 6 of the Commercial Arbitration Rules of the AAA has a competence-competence provision, stating the “arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.”

Professor Bermann noted that Rule 6 does not by itself divest courts of the power to determine arbitrability and stated several reasons why courts are incorrect in holding otherwise. First, he reiterated that competence-competence does not strip a court’s ability to determine arbitrability. Second, he noted that First Options explicitly held that reserving courts’ authority to determine arbitrability is the rule, and that divesting such power is the exception. Because competence-competence clauses have become “ubiquitous” and “boilerplate”, such a rule could no longer stand under the courts’ interpretation.

Based on the above reasons, the ALI was not in favor of applying the reasoning set-out in the majority line of cases. Although Professor Bermann adopted the ALI’s reasoning and conclusion in his amicus brief in Schein, the Court did not consider this argument. Therefore, although the ALI’s arguments may be sound, its conclusion is not yet law, and the courts’ view that competence-competence clauses satisfy the “clear and unmistakable” standard is the law in jurisdictions where Courts of Appeals have ruled in this manner. It will be interesting to see if the Court considers this issue in the future.

 

References   [ + ]

1. ↑ See French Code of Civil Procedure, Article 1448; see also Varady, Barcelo, von Mehren, International Commercial Arbitration, at 103 (4th ed.). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Corruption Defense: Practical Considerations for Claimants

Kluwer Arbitration Blog - Mon, 2019-01-21 17:13

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

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

 

The Current State of the Defense

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

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

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

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

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

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

 

Practical Considerations

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

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

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

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

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

 

References   [ + ]

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