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Malintoppi resigns after challenge over husband’s counsel work

Italian arbitrator Loretta Malintoppi has resigned as chair of an ICSID tribunal hearing a claim against Colombia after being challenged over her husband’s counsel work for the state in a separate dispute....

Egyptian brothers held liable for Eurobond default

Two Egyptian brothers have asked a US court to set aside an ICDR award that held them personally liable to pay US$194 million after their companies defaulted on Eurobonds bought by UBS and several other...

ODR Forum on October 28-29

ADR Prof Blog - Wed, 2019-02-06 10:32
From GFOIs Ben Davis and Amy Schmitz: The ODR Forum 2019 will be held in Williamsburg, Virginia from October 29th-30th with a preconference on October 28th.  Presentation proposals are welcome on any topic relevant to ODR, and topics of particular interest include ODR measures and metrics, ODR in the private and public sector, technologies that … Continue reading ODR Forum on October 28-29 →

Issue Estoppel and Public Order in the Context of International Commercial Arbitration: The Russian Approach

Kluwer Arbitration Blog - Wed, 2019-02-06 05:42

Alexander Kostin and Ekaterina Berezina

The Supreme Court of the Russian Federation recently ruled that initiation of a second arbitration from the same contract violates the principle of legal certainty which forms part of the Russian ordre public (Ruling of the Supreme Court of Russian Federation dated 27.09.2017 docket number N 310-ЭС17-5655, А54-3603/2016).

The reasoning of the decision is comparable to the principle of issue estoppel – one of the pillars of the English procedural law as set in Henderson v. Henderson (3 Hare 100, 67 ER 313):

the parties to a lawsuit shall put forward their entire case and may not in further litigations proceed with a head of claim which could have submitted in the initial litigation.

Given the potential impact of the Ruling to arbitrations seated abroad, it is beneficial to look at the approach of the Russian Supreme Court in light of the principle of legal certainty.

Facts of the Case

JSC Ryazansky Plant of Ceramic Metal Instruments (Russia) and Lugana Handelsgesellschaft mbH (Germany) entered into an agreement for exclusive distribution of electronic components. The distribution agreement provided for arbitration before the German Institution of Arbitration (“Deutsche Institution für Schiedsgerichtsbarkeit e.V. – DIS”).

Due to the alleged breach of the distribution agreement by the Plant, Lugana initiated arbitration proceedings accordingly. The tribunal ruled in favor of Lugana and ordered the Plant to pay the debt in arrears, interest on debt and arbitration costs (“Award DIS 1”). The Award DIS 1 was enforced in Russia.

In 2013, Lugana initiated a new arbitration before the same institution seeking legal relief regarding several heads of claims which have not been adjudicated in arbitration DIS-1 (these heads of claims are referred to as “claims 3b and 3c” in the Ruling of the Supreme Court, without any further particularities). The arbitration tribunal ruled that substantive legal effect of the Award DIS-1 (materielle Rechtskraft) does not preclude bringing forward these heads of claim as they have not been decided in arbitration DIS-1. Thus the tribunal entered an award in favor of Lugana (“Award DIS 2”).

Since Plant did not comply with the Award DIS-2 voluntarily, Lugana sought recognition and enforcement in Russia. The first instance court found that the award complies with Art. V of the New York Convention and, therefore, recognized and enforced it. Plant appealed such decision and the case found its way to the Russian Supreme Court.

The Supreme Court ruled that the Award DIS-1 established legal certainty between the parties in question. Although the Award DIS 2 specifically stated that claims 3b and 3c have not been raised in the proceedings DIS 1, the initiation of the proceedings arising from the same contract and pertaining to the same subject matter violates the principle established by the European Court of Human Rights in LLC Link Oil SPb v. Russian Federation where the court decided on the admissibility of claims (“ECHR Judgement”). Consequently, the Supreme Court ruled that Award DIS 2 violates the Russian ordre public and thus its recognition and enforcement should be denied.

Analysis of the Decision

The Information Letter of the Supreme Arbitrazh [Commercial] court of the Russian Federation dated 26/02/2013 N 153 (“Information letter”) sets out the basic guidelines concerning the scope of order public under the Russian law. It provides that the notion order public refers to the fundamental legal grounds (principles) having superior imperative effect, universal character, specific social and public importance that form the basis of the economical political and legal state system.

One can argue that such principles include the Roman maxima ne bis in idem under which no person shall be penalized twice for the same breach of law (unless such application is specifically provided by the relevant law). In the arbitration context, such principle applies to the situations where an arbitration tribunal fails to discontinue proceedings if there already exists an arbitration award entered between the same parties, concerning the same factual background and with a similar legal relief sought.

The legal reliefs in the two arbitrations differ substantially, as heads of claims 3b and 3c have not been raised in the first proceedings. Thus, Award DIS-2 does not violate the Russian public order in this respect.

Another fundamental principle of Russian law is the prohibition of the parallel existence of judicial acts with irreconcilable conclusions. For instance, the Cassation Court of Western-Siberia in the Judgment dated 05.12.2011 N А27-781/2011 denied recognition and enforcement of an ICC award (place of arbitration – Turkey) on the grounds that the share purchase agreement, which was the subject-matter of the arbitration, had been found null and void by the Russian court under the derivative claim made by the minority shareholder of the Russian party to arbitration. As the conclusions reached in the Award DIS-1 and DIS-2 are not irreconcilable, the Award DIS-2 does not affect the Russian public order in this respect.

The Russian Supreme Court, however, should not have relied on the principle of legal certainty for two main reasons.

First, the Russian procedural law does not oblige the party to bring the entire case in the initial proceedings. Under Russian law, a court may terminate proceedings only if there is a previous judgment rendered between the same parties on the same cause of action and with a similar factual background (triple identity test). As the principle of legal certainty is not enshrined in the Russian procedural law it may not be considered as the fundamental legal grounds (principles) having a superior imperative effect.

Second, the Supreme Court reference to the ECHR Judgment is not persuasive as the ECHR in that instance dealt with the powers of the former Russian Supreme Arbitrazh [Commercial] Court for extraordinary review (peresmotr v poryadke nadzora) of the judgments of the lower courts. Therefore, its application to the arbitration awards is questionable.

With that said, we believe that the principle of legal certainty applied in the matter N 310-ЭС17-5655, А54-3603/2016 is an entirely artificial concept. In fact, the Award DIS-2 in no way violates the genuine principle of international ordre public and should have been granted recognition and enforcement (as did the courts of the lower instance). The ruling of the Paris Court of Appeals in Marriott v. JNAH, which provides that arbitrators enjoy a wide margin of appreciation in the application of Henderson v. Henderson doctrine. In this respect, an exequatur of the relevant award may be denied only if it is irreconcilable with the previous judgment or arbitral award. The approach of the Paris Court of Appeals is not only consistent with the international best practice, but also with the Russian law and as such should have been applied in the matter before the Russian Supreme Court.

In any event, the approach of the Russian Supreme Court and its reliance on the principle of legal certainty raises important practical implications. The parties to arbitrations pending abroad and need to assure that they have brought their entire case before the relevant arbitration tribunal. Otherwise, the relevant award runs the risk of being not recognized and enforced in Russia.

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Essential Tips on Cybersecurity for Arbitrators: Identify, Protect, Detect, Respond and Recover

Kluwer Arbitration Blog - Tue, 2019-02-05 19:01

Mauricio Duarte

Parties to arbitration, just like “millennials”, are dependent on digital data and network systems. Currently, most of the data created is used and stored in digital formats using internet and computer technology. This should not be surprising; the online world enables people to interact and behave in new and efficient ways. However, the resulting dependence on digital records creates significant cyber security vulnerabilities, which can result in major harm to the parties involved in an international arbitration.

In 2018, the White & Case – Queen Mary International Arbitration Survey: The Evolution of International Arbitration (“Survey”) revealed that the use of international arbitration is likely to increase in the technology sector. Furthermore, the Survey showed that technology is widely used in international arbitration and an overwhelming majority favours the use of hearing room technologies, cloud-based storage, videoconferencing, Artificial Intelligence and virtual hearing rooms.

However, as the digital environment continues to grow rapidly, it is time to acknowledge that any effort to achieve a successful relationship between technology and arbitration must also consider related privacy and data security concerns. This post discusses some essential tasks that can be undertaken by key players in international arbitration to protect privacy and data security and ensure a successful arbitration.

 

Cyber Security Scandals

In 2015, the Permanent Court of Arbitration’s (“PCA“) website was hacked as a result of a cyber-attack originated in China. Hackers placed a malicious code, infecting the computers of diplomats, lawyers, and others who visited the website, which caused the PCA to temporarily take the website down. This constitutes the first real example that cyber security is, in fact, becoming increasingly relevant in the context of international arbitration.

Other recent security incidents have made clear that no company is immune from cyber-attacks. For example, the Equifax cyber security scandal shocked data experts around the world in 2017. The incident involved the breach of a security protocol that was easy to decipher and “hackers” accessed sensitive information including: names, social security numbers, birth dates, addresses, driver’s licenses and credit card numbers taken from consumers’ personal data.

As a result of this and many other cyber security incidents, the United States National Institute of Standards and Technology (“NIST”) issued a

Framework for Improving Critical Infrastructure Cyber security. The framework defined high-level goals of any cyber security risk management program. Identify, Protect, Detect, Respond, and Recover are the 5 main goals for any successful cyber security program which could be considered in international arbitration. If these principles were adopted; 2019 could be the year in which there is an awakening for the international arbitration community regarding cyber security concerns in the field.

 

Cyber Security Protocol

International arbitration as a preferred choice of dispute resolution involves sensitive subject matters, which normally might require discovery of confidential information including trade secrets, financial information, and personal identifiable information. In order to preserve international arbitration as a preferred alternative to resolve disputes, arbitral institutions and arbitrators will have to identify critical data and software to protect valuable information. This will enable arbitrators to effectively build procedures that satisfy both cyber security and data privacy concerns at arbitral proceedings.

Parties, as users of international arbitration, expect arbitrators and arbitral institutions to take reasonable measures to protect non-public exchanges of information. This expectation derives from parties’ awareness of the risk of cyber security incidents, which may result in a wide range of losses for them, including: (a) out-of-pocket expenses for legal advice and forensic investigators; (b) regulatory penalties imposed by authorities; (c) potential damages awarded in civil claims; and (d) damages to market reputation. For instance, Facebook is currently facing lawsuits and monetary claims for the recent scandal involving Cambridge Analytica.

In 2018, ICCA, the New York Bar Association and the International Institute for Conflict Prevention and Resolution released a draft of the Cybersecurity Protocol for International Arbitration (Cybersecurity Protocol). The Cybersecurity Protocol originated as an acknowledgement from practitioners that arbitration proceedings are not immune to increasingly pervasive cyber-attacks. This also meant that attention to cyber security is required and essential to ensure that international arbitration maintains the confidentiality of the dispute resolution process.

In a digital era, a variety of factors must be considered when adopting security protocols for the transfer of sensitive information. However, with the new Cybersecurity Protocol, arbitral institutions and arbitrators will have some principles and guidelines to Identify, Protect, Detect, Respond, and Recoverdata from cyber security incidents that might take place in the arbitration proceedings.

Identify

Parties, arbitrators and arbitral institutions will have to work actively to identify what information might be vulnerable to cyber threats. This means, there should be an exhaustive consideration of what type of information is likely to be exchanged by the parties in the case. Intellectual property; trade secrets or other commercially sensitive information; financial information; personal data; and information that is subject to express confidentiality agreements or other relevant obligations should be considered.

However, identifying the relevant data or information is the first step. The arbitral tribunal will also need to identify whether the risk of a cyber attack is high or low, and whether the consequences of a breach are likely to be minor, moderate, or severe. This determination will depend on the identity of the parties; the industry/subject matter of the dispute; the size and value of the dispute; the prevalence of cyber threats and the severity of potential consequences if there is a breach of information security.

Protect

After identifying the data and potential risks, arbitrators will need to establish security protocols for the storage and transfer of sensitive data and information. This protection will require a digitally secure infrastructure that would contain or store the potential information. For instance, it is not recommendable to use a “cloud service” or similar services, such as Dropbox, with a fairly predictable password such as: “1234arbitration”. In this regard, the NIST has recommended that passwords should be based on unique passphrases, at least 8 characters long, and easily remembered. In addition, common dictionary words, past passwords, repetitive or sequential characters and context-specific words should be avoided.

Encryption, pseudonymization, or anonymization of information before it is exchanged could be a reasonable measure, depending on the concerns. Moreover, other protection measures could also address the limiting of exchanges of confidential commercial information and personal data; restriction of access to arbitration-related information and the method of transmission of the information.

Hopefully, the future of a blockchain infrastructure can contribute to cyber security in international arbitration. Blockchain is a distributed and immutable ledger, which stores information, known as blocks. Blocks are structured in the form of a ‘chain’ sequence, stored on various nodes (i.e., computers), which ensure that no single person or entity can manipulate the ledger without everyone else knowing. In other words, a blockchain protocol could serve as a tamper-resistant and resilient repository of data, to modernize and increase cyber security.

Detect

After identifying and enabling protection measures, a tribunal would need to have tools to detect a possible cybersecurity breach. For instance, the use of a program that specializes in detecting both malware and non-malware forms of spyware could be helpful (anti spyware software). Also, the use of antivirus software’s (not the trial versions) should enhance the process to detect a possible breach. Arbitral institutions could also adopt an enhanced digital infrastructure with a security service (i.e., intrusion detection system or intrusion prevention system) that monitors networks or systems for the purpose of finding or detecting, in real-time or near real-time, attempts to access system resources in an unauthorized manner.

Respond

Arbitrators would need to create a Cyber Incident Response Plan, providing instructions or procedures to respond and mitigate the consequences of a cyber incident. For instance, suspending the procedure until the cyber risk is addressed could be an option. Other options could include a strict mandatory 72-hour breach notification requirement; use of computer forensics to address the issue and alternatives to recover information; and the use cryptography for documents that have not been compromised in order to prevent anyone but the intended recipient from reading that data.

Recover

Although sometimes it might be difficult, if a cyber security incident occurs, a tribunal would have the responsibility to try to restore the data that has been lost, accidentally deleted, corrupted or made inaccessible. However, a tribunal could also adopt protection measures (since the beginning) to have a data back-up system in which copy of files and programs is made in order to facilitate recovery, if necessary. This backup should be done routinely and even considering the so-called “3-2-1 rule”, according to which 3 copies of the data should be made, 2 should be stored locally in different storage media, and 1 copy should be stored offsite.

Conclusion

The Cybersecurity Protocol discussed in this post is designed to encourage practitioners to become more familiar with cybersecurity risks and to provide guidance on measures to be taken in light of those risks. Although the lack of regulation in a particular industry could be interpreted as something positive at times, this does not apply to situations in which there could be: (a) economic loss to parties, arbitrators, and arbitral institutions; (b) reputational damage to arbitral institutions, arbitrators and counsel, as well as to the system of international arbitration overall; and (c) potential liability under applicable laws and other regulatory frameworks.

As the frequency and sophistication of cyber-attacks grow, we will need to ensure the adoption of good practices to protect digitally stored information. The incorporation of new technologies will not dismantle arbitral proceedings. On the contrary, technology will boost the appeal of arbitration to resolve disputes, especially in the technology sector. Thus, as practitioners, we shall all be familiar with the need to Identify, Protect, Detect, Respond, and Recover.

 

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Chinese nationals pursue former boss over solar IPO

Three Chinese former employees of a Cayman-registered solar energy company have applied to a US court to enforce a US$13 million HKIAC award that found they were unfairly deprived of the benefits of an...

Hungary hit with another intra-EU BIT award

An ICSID tribunal has ordered Hungary to pay €73 million plus interest to French food voucher services company Sodexo Pass International after rejecting a submission by the European Commission that the...

The DIFC’s Status as a Conduit: A Timely Update in the New Year

Kluwer Arbitration Blog - Mon, 2019-02-04 21:50

Gordon Blanke

At the dawn of the New Year, it is time to provide an update on the Dubai International Financial Court (DIFC)’s role as a conduit. Since the DIFC’s first entry onto the jurisdictional landscape as a conduit for the recognition and enforcement of awards for onward execution against assets of award debtors in onshore Dubai, the DIFC’s status as a conduit jurisdiction has been unstable, wavering between approval, half-hearted support and outright rejection. It did manage to clear the hurdles of constitutional and public policy concerns in the earlier days of its existence before entering into wanton – yet predictable – confrontation with the Dubai-DIFC Joint Judicial Tribunal (the “JT). The JT was established precisely to deal with conflicts of jurisdiction between the onshore Dubai Courts and the offshore DIFC Courts.1)See Decree No. (19) of 2016 establishing the Dubai-DIFC Judicial Tribunal jQuery("#footnote_plugin_tooltip_1460_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The latter half of 2018, however, saw the adoption of encouraging case law precedent, both at the hands of the DIFC Court of First Instance (the “CFI”)2)See Chenshan Liu v. Dubai Waterfront LLC [2016] ARB 004, Order with Reasons of Justice Sir David Steel, 29 July 2018. jQuery("#footnote_plugin_tooltip_1460_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and those of the JT3)See Cassation No. 1/2018 (JT) – Sinbad Marine In. LLC v. Essam Abdulameer Hamadi Alfadli Al Tamimi jQuery("#footnote_plugin_tooltip_1460_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Isai v. Isabelle (CFI)

As I reported in a previous blog, in a ruling of the CFI of early 20184)See ARB 0006/2017 – Isai v. Isabelle, Amended Order with Reasons of H.E. Justice Omar Al Muhairi, dated 28 February 2018 jQuery("#footnote_plugin_tooltip_1460_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the CFI confirmed the concurrent jurisdiction of the onshore Dubai and the offshore DIFC Courts for recognition and enforcement of a DIFC-LCIA award rendered in onshore Dubai (as the seat of the arbitration) even in the absence of any assets of the award debtor offshore. The CFI based its findings in favour of its own jurisdiction on Art. 42(1) of the DIFC Arbitration Law, read together with Art. 5(A)(1)(e) of the Judicial Authority Law as amended5)See Dubai Law No. (12) of 2004 as amended jQuery("#footnote_plugin_tooltip_1460_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Art. 8(2) of Dubai Law No. 9 of 2004.6)As amended by Dubai Law No. 7 of 2011 jQuery("#footnote_plugin_tooltip_1460_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Chenshan v. Dubai Waterfront (CFI)

In Chenshan Liu v. Dubai Waterfront LLC, the CFI extended the logic it applied to the determination of its own jurisdiction in Isai v. Isabelle to an application for the offshore recognition and enforcement of a DIAC award rendered in a Dubai-seated arbitration for onward execution onshore and holding the award debtor, Dubai Waterfront LLC, liable for repayment of a deposit paid for the intended purchase of a plot of land on the Dubai waterfront. The CFI promptly granted an order for recognition and enforcement in the summer of 2016. In response, the award debtor filed an application for setting aside before the DIFC Courts and moved for nullification of the award before the onshore Dubai Courts. In both proceedings, the award debtor raised, inter alia, the purported invalidity of the arbitration agreement as a ground for a successful challenge.

Shortly after, in around September 2016, following the establishment of the JT, the award debtor challenged the jurisdiction of the DIFC Courts before the JT, contending that Arts 42 and 43 of the DIFC Arbitration Law did not apply to DIAC awards. The JT found in favour of the onshore Dubai Court’s jurisdiction to annul and enforce the award on the basis of “the general principles of law embodied in the procedural laws”7)See Cassation No. 2/2016 (JT) – Dubai Water Front LLC v. Chenshan Liu jQuery("#footnote_plugin_tooltip_1460_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. A dissenting minority (composed of the DIFC Courts’ members of the JT) found that the Dubai Courts in their capacity as the curial courts did have jurisdiction to annul the award, but that the DIFC Courts had “compulsory and exclusive jurisdiction to entertain an application for recognition and enforcement within the DIFC”.8)Ibid. jQuery("#footnote_plugin_tooltip_1460_8").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the prevailing circumstances, the DIFC Courts stayed their proceedings.

In 2017, the Dubai Courts rejected the award debtor’s application for nullification, both on appeal and cassation. It was then that the award creditor applied to the DIFC Courts for re-instating the original 2016 DIFC Court Order for recognition and enforcement. The CFI, in turn, found that the CFI retained “residual jurisdiction” for the recognition and enforcement of the award on the basis of (i) the original and exclusive jurisdiction accorded to the CFI over any claim or actions over which the Courts have jurisdiction in accordance with the DIFC laws and (ii) Art. 24(1) of DIFC Law No. 10 of 2004, which accords jurisdiction to the DIFC Courts to ratify any recognised arbitral award. On this basis, Sir Justice David Steel of the CFI concluded as follows:

“There is nothing in the Decree [No. (19) of 2016] to suggest that the Joint Judicial Committee [i.e. the JT] has executory power to override the statutory jurisdiction of either [the onshore Dubai or the DIFC] court. It follows that once the Court of Cassation had dismissed the Defendant’s appeal and the administrative stay had been lifted, the Claimant was entitled to reactivate the recognition proceedings. I reject the submission that the DIFC Courts had no residual jurisdiction in the matter.”9)[2016] ARB 004, at para. 36 jQuery("#footnote_plugin_tooltip_1460_9").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Sir Justice Steel reinstated the original DIFC Court Order for recognition and enforcement. In arriving at this conclusion, he expressly discounted the proposition that under Decree No. (19) of 2016 “once the Joint Judicial Committee decides on the appropriate court to have jurisdiction, there is no room for the other court to make any order whatsoever in relation to the global dispute in any of its aspects”10)[2016] ARB 004, at para. 30b jQuery("#footnote_plugin_tooltip_1460_10").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. According to Sir Justice Steel, “[t]his would lead to a black hole where it would be impossible to recognise and enforce an Award upheld by Dubai Courts within the DIFC, since there is no statutory mechanism for Dubai Courts to directly issue an order for enforcement of an Award within the DIFC save through the DIFC Courts.”11)[2016] ARB 004, at para. 30b jQuery("#footnote_plugin_tooltip_1460_11").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Further, “[t]he reliance on the alleged ‘general principles of law’ as supporting the Dubai Court’s competence to entertain the case is difficult to reconcile with the allocation of ‘exclusive jurisdiction’ to the DIFC Courts pursuant to Article 5 of the Judicial Authority Law No. 12 of 2004.”12)Ibid., at para. 30d jQuery("#footnote_plugin_tooltip_1460_12").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Sinbad v. Al Tamimi (JT)

In Sinbad Marine In. LLC v. Essam Abdulameer Hamadi Alfadli Al Tamimi, a more recent JT pushed the boundaries of the DIFC’s jurisdictional competence further, granting jurisdiction to the DIFC Courts for the recognition and enforcement of a non-DIFC award rendered in an onshore Dubai seat under the DIFC-LCIA Rules of Arbitration. In this case, the award creditor, Mr. Al Tamimi, sought recognition and enforcement of a DIFC-LCIA award for onward execution against a Dubai-based award debtor, Sinbad Marine. In the arbitration, Sinbad Marine had been found to have failed in the renovation of a yacht owned by Mr. Al Tamimi. Sinbad Marine filed for nullification of the award before the onshore Dubai courts and contended for a conflict of jurisdiction that required resolution in favour of the onshore Dubai Courts on the basis that there was no automatic offshore DIFC Court jurisdiction and that both parties were based in onshore Dubai. Mr. Al Tamimi moved for dismissal of the cassation given that a DIFC Court order for recognition and enforcement had already been issued. Against this background, the JT concluded as follows:

“Despite the fact that the DIFC and the DIFC-LCIA […] are separate entities, yet the DIFC-LCIA Arbitration Centre had been established in the DIFC. Accordingly, the supervising court of the arbitration should be the DIFC court [sic] and not Dubai Court.”13)Cassation No. 1/2018, at p. 5 jQuery("#footnote_plugin_tooltip_1460_13").tooltip({ tip: "#footnote_plugin_tooltip_text_1460_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Even though the JT’s finding in favour of the DIFC Courts’ jurisdiction is, in principle, correct for the very reasons adduced by the CFI in its ruling in Isai v. Isabelle, it is difficult to follow the logic of the JT when it concludes from the offshore location of the DIFC-LCIA as the arbitration institution in charge of the administration of the reference in favour of the DIFC Courts’ status as the “supervising” court, a conclusion from which the DIFC Courts’ minority of the JT correctly dissented (a dissent that is presently still pending publication). For the avoidance of doubt, the geographic location of an arbitration institution does not assist in the identification of a competent enforcement court. A court’s jurisdictional competence and more specifically its competence to determine whether it is empowered to hear actions for recognition and enforcement is ultimately a question to be addressed by each court by reference to its own laws on jurisdiction. That said, the JT could have dismissed the cassation with relative ease on the basis that the DIFC Court proceedings for ratification and enforcement had already been closed and therefore, in the absence of two sets of proceedings pending in parallel before the Dubai and DIFC Courts, there was no conflict of jurisdiction within the meaning of Art. 4 of Decree No. (19) of 2016 to start (although, arguably, within the meaning of the Article, potentially divergent outcomes of the onshore and offshore courts – such as a successful nullification on the one hand and an order for enforcement on the other – suffice to accord the JT proper jurisdiction).

Be that as it may, Cassation No. 1/2018 provides good authority for the continued role of the DIFC Courts’ role as a conduit for the offshore recognition and enforcement of a non-DIFC DIFC-LCIA award for onward execution against assets of an award debtor in onshore Dubai.

References   [ + ]

1. ↑ See Decree No. (19) of 2016 establishing the Dubai-DIFC Judicial Tribunal 2. ↑ See Chenshan Liu v. Dubai Waterfront LLC [2016] ARB 004, Order with Reasons of Justice Sir David Steel, 29 July 2018. 3. ↑ See Cassation No. 1/2018 (JT) – Sinbad Marine In. LLC v. Essam Abdulameer Hamadi Alfadli Al Tamimi 4. ↑ See ARB 0006/2017 – Isai v. Isabelle, Amended Order with Reasons of H.E. Justice Omar Al Muhairi, dated 28 February 2018 5. ↑ See Dubai Law No. (12) of 2004 as amended 6. ↑ As amended by Dubai Law No. 7 of 2011 7. ↑ See Cassation No. 2/2016 (JT) – Dubai Water Front LLC v. Chenshan Liu 8. ↑ Ibid. 9. ↑ [2016] ARB 004, at para. 36 10, 11. ↑ [2016] ARB 004, at para. 30b 12. ↑ Ibid., at para. 30d 13. ↑ Cassation No. 1/2018, at p. 5 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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Two Shrewd Legislative Negotiators / Mediators

ADR Prof Blog - Mon, 2019-02-04 20:58
In December, I wrote a post compiling news accounts describing how Nancy Pelosi masterfully negotiated to be elected as Speaker of the House of Representatives. A Washington Post article this week described how she has unified the Democratic Caucus in the House, as described below. I just listened to a recent podcast about how Representative … Continue reading Two Shrewd Legislative Negotiators / Mediators →

Kluwer Mediation Blog – January and December Digest

Kluwer Arbitration Blog - Mon, 2019-02-04 20:42

Anna Howard

The end of 2018 and the start of 2019 brought the usual diversity of posts on the Kluwer Mediation Blog.   Topics addressed include: recent legislation on mandatory mediation in Turkey, lessons on mediators’ liability from a New Zealand Court of Appeal decision, reflections from the recent “Tbilisi Mediation Days” conference in Georgia, and the recent report on ADR and Civil Justice in England and Wales by the Civil Justice Council’s ADR Working Group. You’ll find below a brief summary of, and a link to, each of the posts written by the authors on the Kluwer Mediation Blog in the last two months.

 In “The future of ADR and civil justice in England and Wales”, Rafal Morek provides a detailed summary of the recent final report by the Civil Justice Council’s ADR Working Group on ADR and Civil Justice in England and Wales. Rafal’s summary includes the recommendations to address the three main themes identified in the report, namely a lack of awareness, availability and encouragement of ADR.

In “Everything is difficult before it is easy”, Martin Svatos draws on the negotiating experiences of his students and of his early experiences of negotiating to explain the difference between negotiating and “conscious negotiating.”

In “It’s not cricket. But it is a lesson about why apologies matter”, Rosemary Howell uses the recent Australian cricketing scandal to illustrate what not to do when apologising. Rosemary then applies the work of Debra Slocum and her research colleagues to the cricketing case study to demonstrate how to make a more effective apology. Such guidance will be very useful for mediators seeking to help parties to make things better, and not worse, when apologising.

In “Selecting a mediator; in general, in commercial cases –  and in a kingdom in need”, Greg Bond continues the debate about the qualifications that mediators need to mediate. In particular, Greg applies this issue to the potential involvement and selection of a mediator for the current difficulties between the UK and the European Union.

In “Who gets to talk; who gets to be heard”, Ian Macduff draws on recent research in New Zealand on public participation in local government to highlight the challenges of ensuring that participation and access are open and representative. Ian then uses an example from his experience as a facilitator to illustrate how it is important for facilitators to understand that there will be those who do not expect to be heard in the same way as others.

In “Turkish mandatory mediation expands into commercial disputes”, Tuba Bilecik examines the recent expansion of mandatory mediation in Turkey into commercial disputes. Tuba describes the impact of mandatory mediation to date in Turkey, the key provisions of Turkey’s new law on mandatory mediation and the challenges to its constitutionality.  Tuba also considers what the future may hold for mediation in Turkey.

In “A neuro-linguist’s toolbox – rapport: metaphors”, Joel Lee explores how the identification and adoption of another party’s metaphors can help to build rapport between parties. Joel also explains how a party can then reframe another’s metaphors in order to lead discussions into a more beneficial direction.

In “What would you know about it? Some thoughts on gaining experience as a young mediator”, Haley Weir draws on her own experience as a young mediator to highlight the challenges which can be faced by young mediators. Haley also identifies what she can bring, as a young mediator, to the table and encourages young mediators to continue to pursue opportunities to gain mediation experience.

In “Communication in the Whatsapp era”, Andrea Maia uses recent examples of communications by political leaders, including the Brazilian president, Jair Bolsonaro, to highlight the changing nature of communication. Andrea considers how the application of non-violent communication skills could improve communication via new communication technologies such as Whatsapp.

In “The man who loved dogs”, Rick Weiler draws on Leonardo Paduro’s novel, The Man Who Loved Dogs, to identify some of the key issues faced by mediators, namely, epistemology, fear and compassion. Rick notes that the novel’s treatment of compassion is perhaps the most instructive theme for mediators, and Rick explains the key role that compassion plays in his work as a mediator.

In “Gandalf, Choice, Power and Hope”, Bill Marsh applies the wisdom of Gandalf, the wizard in Tolkien’s famous Lord of the Rings, to the sense of powerlessness which those involved in conflict – mediators, parties and advisers alike – can feel. Bill explains how this sense of powerlessness can be converted into empowerment by turning our focus from the past to the present and the future, and by asking what it is that each of us can do, however small, to contribute in an apparently impossible situation.

In “A Mediator’s Dilemma”, John Sturrock describes a mediation dilemma in which he found himself and explains the steps he took to address the situation. John also asks readers to identify what the mediator may have missed in this situation.

In “Brexit negotiated? Online dispute resolution will be more than an alternative”, Charlie Irvine discusses the rise of online dispute resolution (“ODR”) and reviews recent developments, including a live, online Brexit negotiation, which point to a mainstream future. Charlie concludes that ODR will become an integral part of the justice system.

In “Let mediation be mediation. Conciliation versus mediation in Brazil”, Maria Nazareth de Serpa explains the meaning of each of mediation and conciliation in Brazil. Nazareth describes how these terms are frequently used interchangeably and incorrectly, and highlights the importance of understanding the difference between these two dispute resolution processes.

In “A neuro-linguist’s toolbox – rapport: values”, Joel Lee identifies techniques which can be used to identify values, both our values and those of others, and explains how the identification of another’s values can assist in building rapport. Joel notes how such techniques are similarly used in mediation, though in the context of identifying interests rather than values.

In “Is swapping shoes enough?”, Charlie Woods explores how the concept of “reflexive cartography” and the Design Council’s Double Diamond approach might be used in mediation and facilitation projects to: help people better understand things from different perspectives; and to allow them to work together to see how a place or an organisation might be improved, or a mutually acceptable agreement might be reached.

In “Who pays the mediator for an Ontario MVA mandatory mediation?”, Rick Weiler summarises the recent decision by the Ontario Superior Court regarding who is required to pay the mediator for mediations conducted under the mandatory mediation programme for motor vehicle actions. Rick also considers the impact of the court’s decision.

In “Leading in Conflict”, Bill Marsh draws on the wisdom of Richard Rohr, a Franciscan monk and thinker, to identify the key characteristics of “Creative leaders” when dealing with conflict. While the post focuses on the category of the parties to a conflict, Bill notes that mediators also need to lead and therefore Richard Rohr’s characteristics apply as much to mediators as to parties.

In “Mediation lessons from the cases – Part 1”, Alan Limbury identifies the important lessons regarding mediators’ liability which can be found in the New Zealand Court of Appeal case of Robert Samuel McCosh v David A R Williams.  Alan also uses this case to provide helpful guidance for mediators on how to exclude their liability for their actions during and after the mediation, and whether having anything to do with the mediation or not.

In “My 2018 Christmas notes on algorithms, my own children, sustainability, choice, and the human heart”, drawing on Yuvah Noah Harari’s Homos Deus: A brief history of tomorrow and, in particular, Harari’s vision of a post-humanist world in which Dataism reigns and where choices are made by algorithms, Greg chooses in this Christmas Eve post to write on the topics of sustainability, choice and the human heart.

In “Tbilisi mediation days – a glance into the history, the present, the future”, following the “Tbilisi Mediation Days” international conference in November in Tbilisi, Georgia, Sophie Tkemaladze explains the history of mediation in Georgia and identifies the current and future challenges and opportunities for mediation in Georgia. In particular, as regards the present, Sophie draws on discussions at the conference to identify the following two challenges:  the rights-based approach of Georgia’s legal culture and the way in which lawyers have been trained; and mediators’ inability (so far) to exercise leadership and mediate among themselves.

In “Don’t just do something. Sit there”, Anna Howard draws on her experience in a recent mediation with John Sturrock to explore the challenges, and the impact, of the mediation skill of saying nothing. The points which Anna identifies have relevance far beyond the mediation room.

 

 

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The Statistical Analysis of the Application of the New York Convention in Russia

Kluwer Arbitration Blog - Mon, 2019-02-04 00:47

Roman Zykov

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (New York) celebrated its 60th anniversary in 2018 (“Convention”). Since its inception, 159 Contracting States have joined the Convention. The USSR ratified the Convention on 22 November 1960. The Russian Federation, as a successor of the USSR, continues to be a Contracting State.

The NYC Study

There is a significant body of legal research on the application of the Convention in Russia. However, the Russian Arbitration Association undertook to look at the application of the Convention from a statistical point of view. The Working Group of the Russian Arbitration Association has analyzed all cases decided in the past 10 years, which relate to the application of the Convention. The study represents the first time when the Convention is being studied solely from the angle of Russian case law (“NYC Study”). The full Study is available here.

The NYC Study was commenced over a year ago and comprised three (3) stages. To begin, the Working Group identified approximately 700 court rulings of the first, appeal and supreme instances, in which the courts applied Article V of the Convention or related national legal norms in determining the recognition and enforcement (“R&E”) of the foreign arbitral award. The approximately 700 court rulings were deducted to 472 R&E cases arising out of 472 foreign arbitral awards. Each court ruling was analyzed in accordance with 45 parameters, such as date of the arbitral award, date of the R&E application, date of the first instance ruling, number of instances, results per instance, date when the R&E was granted or rejected, nationality of the claimant, names of the parties, seat of the arbitration, arbitration rules, applicable law, subject matter of the dispute, awarded amounts and currency, number and names of arbitrators, number and names of state court judges in each instance, geography of state courts, requested and granted grounds under Article V of the Convention, and the final result of the R&E application. All extracted data were entered into a master table, which comprised over 21,000 elements in total.

To ensure accuracy, the case search was done through two legal databases, which were kad.arbitr.ru and Consultant Plus. The cases have been cross-checked to ensure that the gathered data is accurate and mostly complete. It should be noted that the existence of publicly available case law databases in Russia is, in itself, a great achievement because it improves court’s transparency and makes case law accessible to anyone.

The second stage of the NYC Study focused on coding the data to make it machine readable. Most of the data groups were assigned binary codes comprising the digits 1 and 0. Various combinations of these digits made a computer read the data.

At the final stage, we built formulas for correlated data and visualized them. By applying formulas to the binary codes we could extract information from a broad range of data types. Practically, these formulas enable us to describe the court practice and tendencies in the application of the Convention in Russia. For example, we can show how amounts in dispute affect Russian court decisions, which courts and judges are arbitration friendly, the judges whose rulings are successfully appealed, and the ratio of successful cases per instance.

The NYC Study Results in a Nutshell

  • The NYC Study reveals that the Convention has been widely invoked by the parties and courts of all instances in Russia in the past 10 years. In total, there were 472 R&E applications, 378 of which were granted, 45 rejected and 49 applications were not considered due to various reasons, which were mostly related to the procedure.
  • The NYC Study shows that Russian courts are arbitration friendly – in various years, 80 to 97% of all R&E applications were granted.
  • During the period 2008 to 2017, the most used Article V grounds were: violation of public policy (Article V2(b)) – 42 cases, the lack of proper notice or inability to present the case (Article V1(b)) – 34 cases, and excess of mandate by arbitrators (Article V1(c)) – 13 cases.
  • Most disputes arose out of sale of goods contracts (341 cases); services agreements (39 cases); and various financial agreements (30 cases).
  • The awarded amounts in approximately 50% of the cases comprised less than EUR 50,000, in about 35% of all cases were less than EUR 1 million, in about 12% of the cases were from EUR 1 to 15 million, and in 5% of cases – over EUR 15 million.
  • Distribution of claimants by country was as follows: Ukrainian (196), Belarussian (101), Kazakhstani (15), Latvian (13), German (11) and Moldovan (11).
  • The most used arbitration rules were those of the ICAC Ukrainian CCI (193 cases), IAC Belarussian CCI (95), LCIA (17), SCC (16), ICC (13) and LMAA (12).
  • The hit ratio of cases finally decided in the first instance, meaning that they were not subsequently appealed, was 77,6% of all cases.
  • The NYC Study shows that the higher the instance, the lower the ratio of recognized and enforced arbitral awards. About 89% of the R&E applications were granted in the courts of the 1st instance; 61% of the R&E applications were approved by the courts of the 2nd instance and there was a 60% hit ratio in the supreme instance.
  • The total value of claims sought under the R&E applications in the period 2008 to 2017 was EUR 8,220,758,910. Russian courts enforced the claims for EUR 4,771,021,582 or, in other words, 58% of all claimed amounts.
  • In the reviewed years, the average duration of the R&E application process in Russian courts was 6 months.
  • From time to time, the Supreme court provides case law overviews, which explain to the lower courts how to apply certain legal provisions. For example, in 2013, the Russian Supreme Arbitrazh (Commercial) Court published the Information letter No.156, in which it explained how to apply the concept of public policy in R&E applications. As a result, the number of court granted public policy motions dropped to 0 in the following years, until 2017.
  • In terms of improving the case law, the courts should consider giving a more detailed account of the invoked Article V grounds, which includes an explanation why such motions were granted or rejected by the court. This will contribute to the development of the case law and will increase the predictability in the application of the Convention.

This is a whole new place to go with numbers, but the NYC Study is just scratching the surface. As more data comes in, we now have a better context to explain what these numbers really mean by comparing the cases, judges, outcomes and many other factors. In a few years, this NYC Study can be used to consider how things have changed in Russia by comparing the measurements and conclusions drawn in this study. This work will continue with the annual updates published at www.newyorkconvention.ru.

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Comparing Hong Kong Code of Practice for Third Party Funding Arbitration with the Code of Conduct in England & Wales

Kluwer Arbitration Blog - Sun, 2019-02-03 23:02

Peter Hirst and Mun Yeow

Clyde & Co.

 

As 2019 dawns the arbitration community looks forward to the Hong Kong Code of Practice for Third Party Funding in Arbitration coming into force on 1 February 2019. In this article we look at the impact of the Hong Kong Code on Hong Kong seated arbitrations and draw comparisons with the voluntary Code of Conduct for Litigation Funders in England & Wales.

 

History of third party funding in Hong Kong

Historically in Hong Kong, and many other common law jurisdictions, third party funding in any legal proceeding was strictly prohibited under the doctrines of maintenance (when a person who has no legitimate interest in a litigation gives assistance, encouragement, or support to the litigation) and champerty (when a person supports the litigation in return for a share of the proceeds).

Prior to the introduction of the Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 (the Ordinance), Hong Kong legislation did not address whether the rules of champerty and maintenance applied to arbitration in Hong Kong. There is however no case law to suggest that an arbitral award in favour of a funded party would not be enforced on that ground.

 

New third party funding legislation in Hong Kong

On 14 June 2017, the Hong Kong Legislative Council passed the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (the Ordinance). The Ordinance distinguishes arbitration and mediation from traditional litigation, and permits the third party funding of arbitration and mediation in Hong Kong.

Pursuant to the delegated powers in the Ordinance,1) Section 98P Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 jQuery("#footnote_plugin_tooltip_5532_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); on 7 December 2018, the Secretary of Justice (SOJ) published the Hong Kong Code of Practice for Third Party Funding in Arbitration (the “HK Code”) which comes into effect on 1 February 2019. The mandatory HK Code shares similarities with the voluntary Code of Conduct for Litigation Funders in England & Wales (the “EW Code”), and sets out the rules, standards and recommended practices of third party arbitration funding in Hong Kong.

 

Comparing the HK Code and EW Code

Application

The HK Code applies to:

  • all Hong Kong seated arbitrations and
  • any arbitration conducted outside Hong Kong to the extent that the costs and expenses of services in relation to the arbitration are provided in Hong Kong2) Section 98N Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 jQuery("#footnote_plugin_tooltip_5532_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

that have a written funding agreement (made on or after the commencement date) entered into between a funded party and a funder.3) Section 98H Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 jQuery("#footnote_plugin_tooltip_5532_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Both Hong Kong and overseas parties should be aware of the provisions within the HK Code when entering into arbitration funding agreements.

Compliance

The provisions of the HK Code are binding on all parties and “applies to any funding agreement”.4) Paragraph 1.2 of HK Code jQuery("#footnote_plugin_tooltip_5532_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Failure to comply with the HK Code does not render any person liable to any judicial or other proceedings.5) Section 98S(1) Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 jQuery("#footnote_plugin_tooltip_5532_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Any non-compliance would only be used as evidence in subsequent court or tribunal proceedings.6) Section 98S(2)(a) Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 jQuery("#footnote_plugin_tooltip_5532_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

By contrast, the EW Code represents the leading practice in England and Wales, but is only to be followed by members of the Association of Litigation Funders. As such, compliance with the EW Code is not mandatory.

Control

One of the concerns for regulators and funded parties is the level of control that a funder exerts over a dispute. There is a perceived risk that the funder may seek to influence and take over proceedings to the funded party’s detriment.

The HK Code requires a funded agreement to set out clearly that the third party funder will not seek to influence the funded party or the funded party’s legal representative to give control or conduct of the arbitration to the third party funder.7) Paragraph 2.9 of HK Code jQuery("#footnote_plugin_tooltip_5532_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The EW Code states that a funder may provide input to the funded party’s decision in relation to settlements,8) Paragraph 2.9 of HK Code jQuery("#footnote_plugin_tooltip_5532_8").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but at the same time, should not seek to influence the funded party’s legal counsel to cede control or conduct of the dispute.9) Paragraph 9.3 of EW Code jQuery("#footnote_plugin_tooltip_5532_9").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

On its face, the HK Code appears to provide more protection for the funded party than the EW Code. However, the rule is followed by the exception of: “except to the extent permitted by law.”10) Paragraph 2.9 of HK Code jQuery("#footnote_plugin_tooltip_5532_10").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This statement is ambiguous as there are no examples or explanation to illustrate the extent of control a funder can have. Neither the HK Code nor the Ordinance set out what controls a funder is permitted to have under the law. It remains to be seen whether the HK Code can adequately protect a funded party’s interest.

Conflict of interest

The HK Code requires a funder to maintain effective procedures for managing any conflicts of interest11) Paragraph 2.6(1) of HK Code jQuery("#footnote_plugin_tooltip_5532_11").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and further lists out examples of effective procedure.12) Paragraph 2.7 of HK Code jQuery("#footnote_plugin_tooltip_5532_12").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In doing so, the HK Code states that “the third party funder has effective procedures for managing a conflict of interest…if it can show through documentation that… [Lists out examples effective procedure]”.13) Ibid. jQuery("#footnote_plugin_tooltip_5532_13").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The use of the word “if” is potentially problematic as it is unclear whether effective procedures can be shown through other means that are not listed in Paragraph 2.7 of the HK Code. The EW Code does not address the issue of conflicts of interest.

In this respect, the HK Code has clearly scrutinized the EW Code and addressed the issues that arose in other jurisdictions. The codification of effective procedures to control the conflict of interest between parties is definitely a welcome addition in safeguarding a funded party’s interest.

Disclosure

The HK Code requires a funded party to disclose in writing the existence of the funding agreement and the name of the third party funder to each other party to the arbitration and the arbitration body.14) Section 98U Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 jQuery("#footnote_plugin_tooltip_5532_14").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In addition, the third party funder has a duty to remind the funded party of its duty to disclose.15) Paragraph 2.10 of HK Code jQuery("#footnote_plugin_tooltip_5532_15").tooltip({ tip: "#footnote_plugin_tooltip_text_5532_15", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Ordinance also clarifies that parties can communicate information relating to the arbitral proceedings to a third person for the purpose of having, or seeking, third party funding of arbitration from the person.

The EW Code is silent on the parties’ disclosure obligations. The inclusion of a disclosure requirement in the HK Code provides a clarity that the EW Code does not.

 

A bright future for funders, parties and Hong Kong as an arbitral centre

The introduction of the HK Code has already sparked a renewed enthusiasm for Hong Kong’s reputation as a leading international arbitration centre. In certain respects, the HK Code deals with issues differently from that of the EW Code and practitioners would be wise to think about the merits of HK Code’s approach. Despite the uncertainties of a funder’s control as well as effective procedures for managing conflicts of interest, we think the HK Code is likely to encourage funding while provide sufficient protection for funded parties.

References   [ + ]

1. ↑ Section 98P Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 2. ↑ Section 98N Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 3. ↑ Section 98H Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 4. ↑ Paragraph 1.2 of HK Code 5. ↑ Section 98S(1) Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 6. ↑ Section 98S(2)(a) Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 7, 8, 10. ↑ Paragraph 2.9 of HK Code 9. ↑ Paragraph 9.3 of EW Code 11. ↑ Paragraph 2.6(1) of HK Code 12. ↑ Paragraph 2.7 of HK Code 13. ↑ Ibid. 14. ↑ Section 98U Arbitration and Mediation Legislation (Third Party Funding)(Amendment) Ordinance 2017 15. ↑ Paragraph 2.10 of HK Code 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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Discovery sought in aid of DIS claim

A company owned by the city of Frankfurt has applied to a US court for discovery in support of a potential claim at the German Arbitration Institute, or DIS, arising from German energy company E.ON’s proposed...

Call for panel proposals and papers – ASCL annual meeting

ADR Prof Blog - Sun, 2019-02-03 12:57
From FOI, Stacie Strong: The American Society of Comparative Law (ASCL) has just issued a call for proposals for (1) concurrent panels and (2) a works in progress conference to be held in association with the ASCL 2019 Annual Meeting, which will be held at the University of Missouri School of Law between Thursday, October … Continue reading Call for panel proposals and papers – ASCL annual meeting →

Workplace Bullying Allegations - How to Deal With Them Effectively

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A New and Improved Investment Protection Regime: Truth Or Myth!

Kluwer Arbitration Blog - Sat, 2019-02-02 22:20

Shilpa Singh J.

With the proposed investment court system, the European Commission aims to limit criticism revolved around Investor-State Dispute Settlement due to its lack of legitimacy, transparency and appellate mechanism. The investment regime under Comprehensive Economic and Trade Agreement with Canada (hereinafter “CETA”) and European Union-Viet Nam Free Trade Agreement (hereinafter “EUVFTA”) could be a solution by bringing transparency, consistency, and institutionalization in investment protection. The article addresses the compatibility of the new system with EU law as any violation of the autonomy of EU law would not be optimistic to its future. Meanwhile, a Member State of the EU (Belgium) has sought an opinion from the Court of Justice (hereinafter “the CJEU”) on whether the investment court system in CETA is compatible with EU law, even though that system is promising and would lay down stepping stones of improved investment protection.

Achmea Ruling and its Effect to the Jurisdiction of the Tribunal under CETA and EUVFTA

The Achmea ruling confirms that intra-EU BITs are incompatible with EU law while its effects reverberate to agreements entered by the EU with third countries. As per the judgment, arbitral tribunals under investment agreements, when entered between Member states, are outside the judicial system of the EU and incompatible with the autonomy of EU law since arbitral tribunals were empowered under the principle of lex loci arbitri to include and interpret EU law (the Community treaties and secondary laws).1)Opinion 1/09 on Creation of Unified Patent Litigation system of 08.03.2011, para 89; Judgment in Achmea, C-284/16 of 06.03.2018, para 58. jQuery("#footnote_plugin_tooltip_6528_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6528_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, the ruling may not be applicable in full since investment protection in CETA and EUVFTA are concluded as mixed agreements meaning the EU and its Member states are parties to them.

A logical conclusion is that the Tribunal established under CETA and EUVFTA would not fall within judicial framework of the EU since its jurisdiction is limited to claims related to breaches of investment agreements and to determine if a measure of a Member state and/ or of the EU is in violation of the standards set in the agreements. It can only resolve a dispute under the applicable law, i.e., the provisions of an investment agreement.

The ECJ places responsibility on the arbitral tribunal to protect the autonomy of EU law by not giving an inconsistent interpretation to it. In the past, the ECJ has protected autonomy of EU in many cases and call it as the “essential” characteristics2)Opinion 2/13 on accession of EU to the European Convention on Human Rights of 18.12.2014 jQuery("#footnote_plugin_tooltip_6528_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6528_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, originating from an independent source of law, i.e., the Treaties.3)Opinion 1/09, para. 65. jQuery("#footnote_plugin_tooltip_6528_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6528_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Further saying that the standard of review to protect the autonomy of EU law is a matter of these tribunals and Member states too. Since the ECJ has never been eager to open doors of interpretation to a tribunal which is out of the EU judicial framework and Member states are obligated to bring issues related to EU law to the ECJ. The reasoning of the judgment is discussed in the blog in posts here, here and here.

On the contrary, if the ECJ finds that the Tribunal under CETA and EUVFTA is part of the judicial framework of the EU and that it could send for preliminary ruling under Article 267 TFEU departing from its previous judgments, even then it has responsibility to protect autonomy of EU law along with uniform and consistent interpretation and application of EU law. In both situations, an interpretation of EU law done by the tribunals may affect the consistency. However, by looking at the features (discussed below) of the Tribunal assure that autonomy of EU law is protected, at least in theory.

Ensure Jurisdiction of Domestic Courts and ECJ

CETA and EUVFTA under Article 8.22(1)(f) & (g) CETA and Article 3.34 (1) EUVFTA preclude parallel proceedings at a domestic or international court or tribunal so as to not to undermine the authority of tribunals which could mean taking away exclusive jurisdiction of the ECJ. The previous posts of the blog discuss the concerning issue from the point of view of human rights, available here and here. Even when the agreements do not allow parallel proceedings for disputes related to an alleged measure which is inconsistent with agreements, the Tribunal is under obligation to stay its proceedings or take into account proceedings under international agreement which may affect the findings of the Tribunal or the compensation awarded due to the use of “shall” found in Article 8.24 CETA and Article 3.34(8) EUVFTA. These agreements assure that in case the Tribunal failed to do so, the appellate body has authority to modify or reverse award on “manifest errors in the appreciation of facts, including….. relevant domestic law” under Article 8.28 CETA and Article 3.42 (1) EUVFTA. It is important that the tribunals under agreements take into consideration decisions of the ECJ and domestic courts effectively and importantly, ensure the supremacy of EU law and full respect to decisions of the ECJ. Perhaps the limited scope of disputes of the Tribunal done by the drafters of the agreements, especially the interpretation and application of EU law is a solution to it. The tribunals under Article 8.31 CETA and Article 3.42(3) EUVFTA are not allowed to interpret and apply the provision of EU Treaties including prevailing domestic laws and shall follow the prevailing interpretation given to the domestic law. While determining the consistency of measures, it has to consider the domestic law as a matter of fact which also includes EU law.

Issue of Competence and International Responsibility

After the opinion on EU-Singapore FTA, it is important to look at the nature of the agreement concluded: CETA and EUVFTA are concluded as mixed. The question of competence would not affect the interpretation of the investment agreements done by the tribunals. The question of determining obligation arising from the agreements whether it would be the responsibility of the EU or Member states requires interpretation of the agreements and, due to their drafting, it would be within the jurisdiction of the ECJ. The agreements have placed the obligation of international responsibility on the EU to determine respondent.

In other words, the right to access tribunal as per the rules to determine respondent by the EU in both agreements would allow foreign investors to initiate proceedings without affecting the autonomy of EU law, supremacy of EU law and would promote legal certainty. This conclusion would also put away any future doubts on competences, inter alia on lawmaking and concluding the agreement between Member states and the EU which would be mutually exclusive of the determination of respondent done to fix international responsibility. The issue of competence would, however, justify the reason to conclude the agreements as mixed agreements since some areas are shared between the EU and its Member states.

Unique Features of the Investment Court System

The institutionalization would ensure legitimacy and consistency to decisions after introducing an appellate body. While allowing participation of non-disputing third parties and interpretations of provisions to the agreements from scholars and person of interest, having compulsory resolution through an amicable mechanism like conciliation and mediation and transparency are front-runners. The members of tribunals are appointed by a committee as per the agreement while cases are allotted on a random basis to a roster of judges much like done in WTO panel. After the award, the Tribunal would be dissolved and the question of sending back to the same tribunal after appellate body’s decision is still unanswered. Moreover, it does not contribute to ‘permanent structure’ since members are paid retainer fees and can take up other occupation unless otherwise decided. It can still be said that the system is not balanced out and independent, instead, it seems semi-permanent or hybrid.

Due to a proliferation of investment agreements, the tribunals organized may give rise to different conclusions relating to a similar commercial situation and similar investment rights to the similar in the provisions of these agreements questioning procedural fairness. None of the agreements deal with the correlation of the tribunals. Additionally, another procedural flaw observed that both the agreements do not directly deal with a question on jurisdiction and thus the parties must wait until the final award is issued to appeal a positive or mixed jurisdiction award.

In sum, the investment protection in the agreement has room for improvement. That can be done by creating a new regime of investment protection with a multilateral investment court which would be permanent in nature with full tenured and impartial judges for the problem of coherence and determinacy. The consistency would be ensured with a permanent appellate mechanism and the treaties would be considered at par with one another. As concluding remarks, the present system in the agreements is a way forward to institutionalize investment protection. But, this optimism should not be taken blindly and hinder improvement and develop a better system.

References   [ + ]

1. ↑ Opinion 1/09 on Creation of Unified Patent Litigation system of 08.03.2011, para 89; Judgment in Achmea, C-284/16 of 06.03.2018, para 58. 2. ↑ Opinion 2/13 on accession of EU to the European Convention on Human Rights of 18.12.2014 3. ↑ Opinion 1/09, para. 65. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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2018 In Review: The Middle East

Kluwer Arbitration Blog - Sat, 2019-02-02 18:05

Dalal Al Houti (Assistant Editor for the Middle East), Gloria Alvarez (Associate Editor) and Zahra Rose Khawaja (Assistant Editor for the Middle East)

The year of 2018 brought a wave of important arbitration events, developments, precedents and legislative reforms in the Middle East.  Join the Kluwer Arbitration Blog’s (KAB) regional editorial team (Dalal Al Houti, Zahra Rose Khawaja, and Gloria Alvarez) as we reflect on a few of these developments and thank the authors who enabled us to provide this important and engaging coverage.

Kuwait’s First ICC Arbitration Day

In November 2017, the ICC, in collaboration with Al Tamimi and Company, organised Kuwait’s first ICC Arbitration Day. This development received coverage on KAB as well. The day involved discussions by prominent practitioners on the advantages and disadvantages of arbitration, recent developments in ICC arbitration and the history and continued progress of arbitration in Kuwait. The speakers specifically laid emphasis on the need for a stand-alone arbitration law that conforms to international standards. Talks are underway to host the second ICC Kuwait Arbitration Day this year.

United Arab Emirates Penal Code Reforms

Since early in 2018, we have been discussing on the KAB the long-awaited reforms to Article 257 of the UAE Penal Code, which finally were enacted in October 2018.  Article 257 had been unsettling arbitrators, experts, translators and investigators in UAE-seated arbitrations for two years following amendments to the law passed in October 2016 which introduced the risk of temporary imprisonment for acting contrary to the duty of objectivity and integrity.  The ambiguous wording of the law had caused widespread concern that it would discourage arbitrators and experts from accepting appointments, damage the UAE’s reputation as an arbitration-friendly jurisdiction and that parties might use it tactically to delay or derail arbitral proceedings.

The revised Article 257 removed arbitrators and party-appointed experts from the list of persons implicated by the law. UAE arbitration practitioners have welcomed this change as imprisonment fears have been put to rest and confidence in the UAE’s arbitration regime has been restored.

ADGM Arbitration Centre

In addition, on 17 October 2018, the new Abu Dhabi Global Market (ADGM, a financial free zone) Arbitration Centre opened its doors for business, offering parties state of the art hearing rooms equipped with advanced technology for hearings to take place.  Whilst the ADGM does not yet have its own institution to administer arbitrations, the ICC has set up its first Middle Eastern representative office within the ADGM.  However, parties may choose any institution to administer arbitrations seated at the ADGM and make use of the centre’s cutting-edge facilities.

United Arab Emirates Arbitration Law Developments

In 2018, the UAE enacted its stand-alone arbitration law, Federal Law No. 6 of 2018 on Arbitration (the New Arbitration Law). Previously, arbitration in the UAE was governed by articles 203-218 of Federal Law No.11 of 1992 on the Civil Procedures Law.

The key features of the New Arbitration Law are that it is largely based on the UNCITRAL Model Law on International Commercial Arbitration, it recognises the doctrine of separability and principle of competence-competence, which are all fundamental principles of international arbitration. In addition, it recognises the use of technology, continuation of arbitral proceedings in parallel upon submitting an application for interim measures or challenging an arbitrator, reducing the time-limits to 15 days and 6 months for the court to determine challenges against the tribunal and date of when the arbitral tribunal shall render its award, respectively.

Additionally, the New Arbitration Law clarifies that the parties waive their rights to arbitration should they not raise an objection before addressing any claim or defence on the merits of the dispute if the matter is referred to the courts.  It also delegated more powers to the arbitral tribunal and reduced court intervention specifically in matters relating to awarding interim measures.

These changes are likely to increase the efficiency of arbitral procedures and attract parties to conduct arbitrations under the New Arbitration Law.

Enforcement of an Arbitral Award in the Kingdom of Saudi Arabia (KSA).

KSA has witnessed significant positive changes in its arbitration regime over the last few years. As noted in this post, in 2017-2018, KSA recorded both the highest number of applications and the highest value of applications since 2014.

This trend has its origins in the country’s updates over 2012 and 2013 to its arbitration regime. In 2012, by Royal Decree No. M/34, KSA replaced its 1983 Arbitration Law, which contained 25 articles with a modern arbitration law (2012 Arbitration Law) which covers the entire arbitral process in 58 articles and conforms to international standards. The 2012 Arbitration Law notably reduced court intervention and increased party autonomy.

Additionally, in 2013, an Enforcement law, by Royal Decree No. M/53 (Enforcement Law) came into force with the aim of providing a smoother and more efficient process of enforcing arbitral awards. Mainly, the Enforcement Law granted Enforcement Judges with powers to enforce decisions and impose sanctions when parties do not comply with the orders issued within the requested time frame. The law additionally sets out a one-month period in which the Enforcement Judges should issue the execution order.

Consequently, KSA has witnessed a continuing growth in the numbers and values of the foreign enforcement applications. As per the Ministry of Justice media reports (see here and here), the total number of applications has now exceeded 600 with a total value passing the USD 3.4 billion mark. Of these 600+ applications, more than 40% were made in 2018. 

Commentary on these Regional Developments

2018 has seen positive developments across the Middle East, albeit in different ways. While Kuwait and KSA moved towards establishing reputations as pro-arbitration jurisdictions, the UAE  took some significant steps towards realising its aspirations of becoming a regional hub for arbitration.

In Kuwait, the inaugural ICC day marks a growing awareness and interest in arbitration. Through the panel discussions, the strengths of the arbitration regime in Kuwait and areas that needed further development were extensively discussed. With talks reportedly underway for organising the second ICC Kuwait Arbitration Day this year, it may be concluded that the Arbitration Day has provided some momentum to the development of the arbitration regime in Kuwait.

In May 2018 alone, the Ministry of Justice in KSA reported three different instances of enforcement of foreign decisions: an American court’s judgment against a Saudi company, a Chinese arbitration tribunal’s award against a Saudi gold mining company and an ICC award against a private Saudi university. In each case, the judgment/award-debtor was ordered to pay within five days from the notification date of the decision by the Riyadh Enforcement Court. These decisions reflect a positive trend, which if continued, can help remedy the problematic reputation that KSA has previously built with respect to the enforcement of foreign awards.

While the UAE is by no means the first country in the region to have adopted a pro-arbitration national law (Bahrain, Egypt, Jordan, Oman and KSA have already done so), the move has been applauded by the arbitration community for finally bringing the UAE in line with international standards. This is a particular success for the country when considered against the failed attempts to update the law in 2008 and 2013. The latest amendment to Article 257 is also likely to have registered on the minds of potential parties to arbitration in the region. By finally plucking this proverbial thorn in the side of the UAE’s claims to being an arbitration-friendly jurisdiction, arbitrators are likely to be more comfortable with appointments in the country. Finally, the establishment of the ADGM and the region’s first ICC representative office is likely to bring in more arbitration into the emirate of Abu Dhabi, and the UAE generally.

With these views in mind, we optimistically look forward to 2019 and additional promising developments in the region.

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Enabling Legislation: Check; Code of Practice for Third Party Funders: Check; Third Party Funding for Arbitration in Hong Kong is Ready for Lift Off!

Kluwer Arbitration Blog - Fri, 2019-02-01 21:00

Roger Milburn

Hong Kong’s legislative regulations

On 7 December 2018, the Hong Kong government published its eagerly awaited Code of Practice for Third Party Funders and confirmed that from 1 February 2019, Hong Kong’s Arbitration Ordinance, as amended, will be fully in force (save for provisions which relate to third party funding of mediation). The sections which are coming into operation are Divisions 3 and 5 of the new Part 10A of the Arbitration Ordinance (Amendment Ordinance): these sections expressly permit the use of third party funding for arbitration in Hong Kong. This development will bring Hong Kong into line with Singapore as jurisdictions which permit the funding by professional third parties of arbitrations and arbitration related litigation.

The Code of Practice For Third Party Funders, which has been awaited since the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (Amendment Ordinance) came into force on 23 June 2017.

The Code of Practice details the standards and practices with which third party funders will be ordinarily required to comply in order to operate in the Hong Kong arbitration market. They include the following which third party funders must do:

  • take reasonable steps to ensure that the funded party is made aware of the right to seek independent legal advice on the funding agreement before entering into it” (with such obligation being regarded as satisfied where the funded client party confirms the same in writing);
  • maintain access to minimum capital of HK $20m, maintain the capacity to “pay all debts when they become due and payable” and maintain the capacity to “cover all of its aggregate funding liabilities under all of its funding agreements for a minimum period of 36 months”;
  • include provisions in funding agreements which set out clearly that the funder “will not seek to influence the funded party or the funded party’s legal representative to give control or conduct of the arbitration to the third party funder, except to the extent permitted by law”;
  • explain in funding agreements whether (and the level to which) it agrees to be liable for adverse costs, insurance premiums or any other financial liability and whether it will provide security for costs if such security is ordered;
  • state in funding agreements the circumstances in which the funder may terminate (with discretionary termination by the funder in circumstances not detailed in the Code of Practice being prohibited);
  • effectively manage any conflicts of interest and maintain an effective complaints procedure; and
  • ensure promotional materials are “clear and not misleading.

Compliance with the Code of Practice will be overseen by an advisory body in Hong Kong to which each third party funder must submit information regarding its financial position and annual returns regarding any complaints received.

As mentioned, this development will bring Hong Kong into line with Singapore, where third party funders also have certain requirements imposed upon them by law in order to enter the market. For example, the funding of dispute resolution costs (whether in Singapore or elsewhere) in actions to which they are not party must be the principal business of a funder and funders must have paid-up share capital of not less than SG $5m or not less than SG $5m in managed assets. They should also pay heed to the Guidelines for Third Party Funders which were published by SIArb (Singapore Institute of Arbitrators) in May 2017 which aim to promote best practices among funders who intend to provide funding to parties involved in international arbitrations seated in Singapore. Unlike in Hong Kong, the Guidelines are non-binding but it is expected that professional litigation financiers will comply with them and there are good reasons for this.

 

Are the regulations welcome?

Professional, reputable litigation funders would welcome the regulations that have been imposed by the legislatures of Singapore and Hong Kong in conjunction with the opening up of the market for third party funding of arbitrations in those jurisdictions. This is evidenced by virtually all, if not all, the main players in the industry providing their views during the respective consultation periods. Whilst differing regimes in different jurisdictions add a degree of administrative burden for funders to ensure compliance with the various regulations or codes of practice for each jurisdiction in which they operate, this is a small price to pay in circumstances where new jurisdictions open up for funders to expand their businesses. Furthermore, and more importantly, professional funders are well aware that the regulatory frameworks are put in place to benefit and protect the ultimate end user clients. Requirements which mean that only professional funders are able to operate in jurisdictions like Singapore and Hong Kong further this important legislative aim.

The corollary advantage to professional funders of this regulation is that the reputation of the funding industry is protected from the damage which could result from an environment where there is no limit on who can financially support arbitration disputes and inexperienced or purely opportunistic financiers are able to operate in an uncontrolled manner.

Unregulated access to the third party funding market could potentially lead to situations where the clients ultimately lose out and these regulations in Singapore and Hong Kong are designed to avoid this eventuality. Imagine the scenario where a finance source dries up at a crucial stage in a case in circumstances where a client has sought outside assistance because they are impecunious. Who loses out? First, the client who is unable to continue with their meritorious claim. Second, professional funders who could be tarred with the same brush in the event the unfortunate occurrence becomes widely known in the market. Similar reputational damage to the third party funding industry could result from a scenario where a case concludes and a recovery is made but the whole of that recovery is paid to the lawyers and the funder, with the ultimate client being left empty-handed having been forced to agree onerous terms with an inexperienced, unprofessional and/or improperly motivated funder.

The reputation of third party funding could be put at risk by a failure by funders to comply with the new regulations. All those entering the funding market in Hong Kong and Singapore have a responsibility to play their part in maintaining and improving the reputation of the industry in Asia, which has been slower to embrace funding than other parts of the world (for example, Australia and the UK). Further, the legislatures of Hong Kong and Singapore have so far merely dipped their toes into the funding world by permitting financing by third parties of arbitration and arbitration related litigation only1)The funding of insolvency disputes is also permitted but this has evolved through developments in case law rather than by legislation jQuery("#footnote_plugin_tooltip_3202_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3202_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. This means that a failure by funders to protect the reputation of the funding industry will likely eradicate any hope that consideration will be given in future to extending the types of disputes for which funding can be provided, such as litigation in the Singapore International Commercial Court or in the high courts of Hong Kong or Singapore. Any such extension will only become likely if professional funders adhere to the well thought out and welcome regulatory frameworks, which are designed to protect funded party clients. It is expected that professional funders will so adhere, since whilst funding assists clients to gain access to justice as well as offering alternative financing methods, it is clearly also in the interests of the funding industry as a whole to do so.

References   [ + ]

1. ↑ The funding of insolvency disputes is also permitted but this has evolved through developments in case law rather than by legislation 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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