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The Quest for Uniformity in Ethical Standards for Party Representatives in International Arbitration

Kluwer Arbitration Blog - Mon, 2017-12-25 20:45

Daniel Waldek

Herbert Smith Freehills

The lack of consensus on ethical standards of conduct for counsel in international arbitration has given rise to two enduring problems. First, lawyers may find it hard to know how they should act where the professional rules of their home jurisdiction differ from, or conflict with, those at the seat of arbitration. Second, parties themselves may be unfairly disadvantaged where their counsel is subject to more restrictive ethical obligations than counsel for the other side.

A common example of the ethical challenges faced by counsel in practice is witness preparation. In the United Kingdom, the solicitors’ code of conduct prohibits lawyers from preparing their witnesses for testimony. This restriction is also imposed upon lawyers from many other common law jurisdictions. By contrast, lawyers in the United States are allowed, and indeed expected, to do so. In an international arbitration, a prudent U.S. counsel will thus proceed as usual and prepare his witnesses for testimony; the U.K. lawyer, on the other hand, could be disbarred for the same conduct. In this case, the U.K. lawyer’s client could be disadvantaged for no other reason than that, under the professional rules of his home jurisdiction, their counsel is more restricted when it comes to their dealings with witnesses.

This is clearly an undesirable state of affairs. It would instead be preferable to level the playing field of ethical obligations in international arbitration without offending local codes of conduct. Precisely how we should do this remains the challenge to the question.

A Global Arbitration Ethics Council

One potential solution that has been put forward by the Swiss Arbitration Association (“ASA”) is to create a transnational body – the Global Arbitration Ethics Council – with its own set of core ethical principles. The council would comprise arbitration practitioners from the major international arbitration associations and institutions. Its primary responsibility would be to resolve all claims of ethical misconduct in international arbitration, taking into account the cultural, geographical and other idiosyncrasies of the case. A complaint brought before the council would be entirely separate from the main arbitration proceeding.

Vesting the regulatory function in a single, transnational body would also remove the risk of fragmentation and inconsistency. Also, if the major arbitration institutions and associations were to endorse the council, the council could have access to a far broader range of sanctions than is currently available to tribunals.

However, the fundamental flaw in this proposal is that it is overly idealistic to suggest that the major international arbitration institutions and associations would be able to suddenly reach a consensus as to the “core principles” of ethical conduct in international arbitration. As appealing as this proposal might appear, it expects too much of the major international arbitration institutions and associations as things currently stand.

Other unanswered questions involve the council’s jurisdiction and the extent of the council’s disciplinary powers. Proponents of the idea have suggested that all that is needed would be for the major arbitration institutions to require lawyers participating in arbitrations under their rules to be subject to the council’s jurisdiction. But how far would this jurisdiction reach? Would the council have the power to sanction lawyers for conduct that is in breach of the council’s core principles, even though such conduct is permitted under the counsel’s local bar rules? And would the council’s powers be limited to admonishment or would they include the power to exclude counsel from future arbitrations? Clearly there are many important issues that would need to be addressed before a transnational body such as the Global Arbitration Ethics Council can be established and, perhaps more importantly, obtain global recognition.

Binding Codes of Ethical Conduct

Another potential solution would be for the major arbitration institutions to individually adopt binding codes of ethical conduct which would automatically be incorporated into their rules of arbitration. One such example is the LCIA’s General Guidelines for the Parties Legal Representatives (2014). The LCIA Guidelines are binding on any counsel who appears in an arbitration administered under the LCIA Rules. They provide guidance in areas such as ex parte communications with arbitrators, submissions to the tribunal, disclosure and the preparation of evidence. In the event of a breach, the LCIA Guidelines empower the tribunal to reprimand the relevant counsel and take any other measure to fulfil the tribunal’s general duties under the LCIA Rules.

The benefit of such an approach is that if key international arbitration institutions were to adopt similar binding codes of conduct, more and more parties to institutional arbitration would be forced to adopt them and thus become familiar with them. This, in turn, would lead to greater uniformity in ethical standards of conduct in international arbitration.

However, the key problem with this proposal is that a mandatory, binding code of conduct may not cohere well with the inherently flexible nature of arbitration. Moreover, compelling party representatives to comply with a binding code of conduct seems to overlook the fact that standards of ethical conduct may vary across regions and jurisdictions. This does not solve the immediate problem of bridging the ethical gap. While the end goal would be the creation of a universal and uniform code of ethical conduct, we should not, in our attempts to move towards that goal, think that standards of ethical conduct are independent of culture and context.

The ability of a tribunal to use adverse costs orders as a sanction for unreasonable conduct by counsel can be a powerful tool to regulate procedural conduct – although such orders inherently penalise the end user, not their lawyer. Therefore, another problem is whether a tribunal, which has power over the parties to an arbitration, should also have the power to adjudicate on the conduct of the parties’ representatives. Critics of this approach argue that decisions regarding the ethical conduct of counsel are alien to the arbitral process and should remain separate from it. On this view, the responsibility of the tribunal is simply to resolve the arbitration proceedings in an orderly manner; decisions about whether a lawyer has acted unethically should be left to the local bar association. Indeed, one concern is that requiring tribunals to determine whether counsel have acted unethically may compromise the impartiality and independence of the tribunal when it comes to deciding on the merits of the case.

Non-Binding Codes of Ethical Conduct

A third potential solution, which has drawn recent support from former Singaporean attorney-general V.K. Rajah, would be for international arbitration institutions to adopt non-binding ethical codes of conduct. The IBA Guidelines on Party Representation in International Arbitration (2013) are one such example. The IBA Guidelines cover similar areas to the LCIA Guidelines, though they provide for broader sanctions including adverse costs orders. The key difference between the two is their legal force. Unlike the LCIA Guidelines, the IBA Guidelines only apply where the parties or tribunal agree that they shall apply, and subject to any amendments that they might make.

The main benefit of an approach based on non-binding instruments is that it would facilitate greater uniformity in ethical standards while preserving the parties’ freedom to adopt and amend them. However, this approach does have its limitations. First, the IBA Guidelines were intended to provide guidance in areas where party representatives commonly encounter some degree of ethical uncertainty. They do not, however, cover all aspects of party representative conduct in international arbitration. Second, there is still the risk of conflicting ethical obligations where the institution’s code of conduct conflicts with or remains silent on areas covered by applicable national bar rules. Third, the sanctions available to a tribunal under the IBA Guidelines are directed largely at the parties rather than their counsel. There therefore remains some doubt as to the efficacy of such guidelines in actually shaping the conduct of party representatives. Finally, as the ASA has pointed out, there is the concern that the IBA Guidelines draw primarily on common law practices, thereby limiting its applicability in civil law jurisdictions. The extent to which such guidelines can bridge the common and civil law divide, remains to be seen.

The Future

Clearly, the IBA Guidelines are not perfect. However, they do provide a blueprint for a practical, short-term approach, which, in the long run, will help bring party representatives closer to a common understanding of what should and should not be done. Admittedly, there will be some practices, such as witness preparation, on which a consensus will not easily be reached. That being said, non-binding codes of conduct should go so way to helping establish a common ground in many other areas of practice in international arbitration. The immediate challenge lies in garnering support for non-binding codes of conduct among major international arbitration institutions like the SIAC. In the longer term, this approach could be improved by making the codes of conduct more comprehensive, ensuring that they draw on both common law and civil law practices, and transferring the regulatory function from tribunals to the arbitration institutions themselves. Though non-binding codes of ethical conduct may not create international consensus overnight, they provide a meaningful way forward in the quest for uniformity in ethical standards for party representatives in international arbitration.

*With thanks to Tim Tabalujan for his assistance.

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Stone Soup Assessment:  Rafael Gely’s Negotiation Course

ADR Prof Blog - Mon, 2017-12-25 19:46
I am extremely fortunate that Rafael Gely, the director of Missouri’s Center for the Study of Dispute Resolution, has been my partner in developing the Stone Soup Project. A year ago, when I first emailed him about it, the subject line was “a crazy idea?”  Rafael’s immediate response was, “I love this idea!  (Of course … Continue reading Stone Soup Assessment:  Rafael Gely’s Negotiation Course →

Stone Soup Assessment: Bob Dauber’s Evidence Course

ADR Prof Blog - Mon, 2017-12-25 19:44
Much legal education in the US is like telling someone how to ride a bike or having them read an instruction manual.  It’s important, but most people wouldn’t get very far if that’s all you did.  You could simply give them a bike and tell them to go, but that could lead to some sudden … Continue reading Stone Soup Assessment: Bob Dauber’s Evidence Course →

ADR need of the hour, says Sawang - The Hindu

Google International ADR News - Mon, 2017-12-25 08:06

The Hindu

ADR need of the hour, says Sawang
The Hindu
Police Commissioner D. Gautam Sawang has said that the formal structure of criminal justice system could not render justice to the common man in time due to various challenges and Alternative Dispute Resolution (ADR) system is necessary for plea ...

DR Faculty Seminar in Israel – Israel’s Military Courts: Adjudicating Alleged (Palestinian) Crime and Terror in the West Bank and Gaza

ADR Prof Blog - Sun, 2017-12-24 22:25
Maureen Weston (Pepperdine) provides this intriguing post from the Ofer military base in Israel. The conflict over the sacred land in the West Bank, which includes East Jerusalem, in Israel is deeply rooted and profoundly intense.  This region has been under rule by the Turks in the Ottoman Empire (1517- 1917), Britain (1917-48), Jordan (1948-67), … Continue reading DR Faculty Seminar in Israel – Israel’s Military Courts: Adjudicating Alleged (Palestinian) Crime and Terror in the West Bank and Gaza →

From the Editors of Kluwer Arbitration Blog

Kluwer Arbitration Blog - Sun, 2017-12-24 22:14

Crina Baltag (Acting Editor)

In January 2018, Kluwer Arbitration Blog will enter its 9th year of existence and we are pleased to see the Blog developing into such a successful forum of international arbitration. The scope of the Blog – as unveiled in 2009 – is to include high quality discussions on international arbitration, commercial and investment related, and to offer a platform to established, as well as to new voices in the arbitration community. We believe that the Blog reflects the arbitration world, a diverse and unique community, which brings together professionals from all corners of the world, with their specific cultures and interests, gathered under the common umbrella of international arbitration.

2017 was a busy year for arbitration: from third-party funding, with relevant changes in the legislations of some jurisdictions such as Singapore, to the ongoing reform of the ISDS and of the relevant treaties, including the NAFTA, and with a rich development of the case law in both commercial and investment arbitrations (Maximov case, ConocoPhillips etc.).

Kluwer Arbitration Blog had a productive 2017 and we would like to highlight here some of these developments. In August 2017, Prof. Roger Alford, the Editor of the Blog, was appointed to a leadership position at the U.S. Department of Justice. Dr Crina Baltag was invited to replace Prof. Alford during his leave from the Blog and to continue as the Acting Editor.

Mindful to the developments in different industries, and with a growing number of jurisdictions actively promoting arbitration, in November 2017, the Editorial Board welcomed the new Assistant Editors of Kluwer Arbitration Blog. It is a pleasure to introduce to our readers the Kluwer Arbitration Blog team:

Dr Crina Baltag, Acting Editor, Senior Lecturer in Law, University of Bedfordshire
Dr Gloria Alvarez, Associate Editor, Lecturer in Law, University of Aberdeen
Dr Patricia Zivkovic, Associate Editor, Chief Legal Officer NSoft d.o.o.
Jawad Ahmad, Associate Editor, Private Law Clerk to Judge Charles N. Brower
Sadaff Habib, Solicitor, Beale & Company; and Liilnna Kifle, Associate, Mehrteab Leul and Associates, Assistant Editors for Africa;
Esme Shirlow, King’s College, Assistant Editor for Australia and New Zealand;
Fabian Bonke, Associate, Hogan Lovells; Deyan Dragiev, Associate, CMS Cameron McKenna Nabarro Olswang LLP; and Nevena Jevremovic, Association ARBITRI, Assistant Editors for Europe;
Catherine Gibson, Associate, Covington, Assistant Editor for North America;
Benson Lim, Associate, Hogan Lovells, Assistant Editor for PR China and Hong Kong;
Daniela Paez-Salgado, Associate, Herbert Smith Freehills, Assistant Editor for Central and South America;
Irene Mira and Christine Sim, Research Associate, Centre for International Law Singapore, Assistant Editors for South-East Asia;
Noor Kadhim, Vanin Capital, Assistant Editor for the Middle East;
Janice Lee; Mary Mitsi, Teaching Assistant, Queen Mary University of London; and Ashutosh Ray, Associate, Three Crowns LLP, Assistant Editors.

We are sure that we are all expecting a 2018 rich in developments in international arbitration. Some outcomes are already at the horizon, such as the ruling of the CJEU in the Achmea Case and of the GCEU in the Micula Case, the final report of the ICCA-QMUL Task Force on Third Party Funding in International Arbitration and the upcoming project of ICCA on Cybersecurity in International Arbitration, the UNCITRAL Working Group on ISDS or the dispute resolution scheme under the Belt and Road, just to name a few. Arbitration institutions are also promising interesting discussions on the arbitration proceedings (see SIAC proposal on cross-institution consolidation). We are also seeing an increase in the activities of the young arbitration associations and also new young associations established at regional level (see INOVARB in Brazil) and these initiatives shall be properly encouraged here on this Blog. The Young ICCA Mentoring program is one of the most successful programs of this kind, linking young professionals with the reputable names in arbitration. ICC YAF announced its new representatives in early 2017, with a good number of events planned for 2018. The Young ITA named its new leaders, joining Silvia Marchili, Chair, Elizabeth Devaney, Vice-Chair and Robert Landicho, Communications Chair: Dr Crina Baltag, Thought Leadership Chair; Laura Sinisterra, Mentoring Chair; and Rocio Digón, Tomas Vail, James Egerton-Vernon, Karima Sauma, Pedro Guilhardi, José María De la Jara, Regional Chairs.

We would like to thank you for following Kluwer Arbitration Blog and for your contributions in posts, comments and valuable feedback. We are always available at [email protected]

Wishing you the best for the Festive Season and a prosperous 2018!
Dr Crina Baltag, Acting Editor, on behalf of the Editorial Board

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The post From the Editors of Kluwer Arbitration Blog appeared first on Kluwer Arbitration Blog.

When 2018 comes, let us thank God we survived - Vanguard

Google International ADR News - Sun, 2017-12-24 20:13

Vanguard

When 2018 comes, let us thank God we survived
Vanguard
They want an Alternative Dispute Resolution mechanism that will not only save jobs but increase them, and ensure a win-win outcome for all. This is wisdom springing from a community, and hopefully, the federal and state governments will soak themselves ...

and more »

UN Resolution:US bullying didn't deter Sri Lanka - The Island.lk

Google International ADR News - Sun, 2017-12-24 13:39

UN Resolution:US bullying didn't deter Sri Lanka
The Island.lk
It was reported explaining further that the vote in favour of the resolution was "on the basis of Sri Lanka's long held traditional and principled position, which is in keeping with the international understanding that Jerusalem is a final-status issue ...

and more »

UN Resolution:US bullying didn't deter Sri Lanka - The Island.lk

Google International ADR News - Sun, 2017-12-24 13:39

UN Resolution:US bullying didn't deter Sri Lanka
The Island.lk
It was reported explaining further that the vote in favour of the resolution was "on the basis of Sri Lanka's long held traditional and principled position, which is in keeping with the international understanding that Jerusalem is a final-status issue ...

and more »

Mosten and Scully’s New Book on Unbundled Legal Services

ADR Prof Blog - Sun, 2017-12-24 07:02
I have known Forrest (Woody) Mosten for quite a while.  He co-authored several articles on collaborative law with me, putting him at risk of tarnishing his stellar reputation.  We also co-authored an article, Family Lawyering:  Past, Present, and Future.  Much more significantly, Woody is known as the “father of unbundling” (as well as being a … Continue reading Mosten and Scully’s New Book on Unbundled Legal Services →

Journal of International Arbitration

Kluwer Arbitration Blog - Sat, 2017-12-23 16:03

Maxi Scherer

Issue 34/6

ARTICLES SECTION

Mauro Rubino Sammartano, A Second (Quasi-Perfect?) Storm Also in Arbitration?
Abstract: Many users of international arbitration, particularly in-house counsel, have repeatedly expressed concern about the lack of adequate information on arbitrators, resulting in arbitrator selection based on a vague and general reputation often informed by word of mouth or anecdotal information. Arbitral institutions and arbitration circles cannot remain indifferent to this need. A first step to deal with this issue is the disclosure by arbitrators of the information contained in the arbitrator’s pledge launched by the European Court of Arbitration; another step is the issuance of an official acknowledgement as a ‘certified arbitrator’ by arbitral institutions, and eventually the requirement that certified arbitrators abide by a universal code of ethics.

Michael Polkinghorne & Benjamin Ainsley Gill, Due Process Paranoia: Need We Be Cruel To Be Kind?
Abstract: Due process paranoia is one of arbitration’s ‘hot topics’, but does it merit the heat? This article takes a view of the sources of and supposed justifications for due process paranoia in those (fortunately rare) cases where parties or counsel try to rig the arbitral process. It looks at who might be to blame for the reluctance of arbitrators to take measures to combat such activity, and considers some of the solutions that have been proposed to help deal with it. Overall, the authors suggest that all arbitration stakeholders are to a certain extent to blame, although arbitrators perhaps have the most work to do. It is therefore fortunate that they have the wide support of domestic judges and the arbitral institutions, as well as a substantial toolbox at their disposal with which to combat recalcitrant or bad faith parties.

Hanno Wehland, Blue Bank International v Venezuela: When Are Trust Assets Protected Under International Investment Agreements?
Abstract: The award rendered by a tribunal in proceedings conducted under the auspices of the International Centre for Settlement of Investment Disputes (ICSID) between Blue Bank International and Venezuela in April this year is the first public decision addressing in detail the question of whether trustees can be considered protected investors with regard to trust assets under International Investment Agreements. This article analyses the findings of the Blue Bank tribunal with a view to more generally identifying requirements for the protection of trust assets under investment treaties. Based on a review of the relevant treaty provisions and the jurisprudence of arbitral tribunals it concludes that, in the absence of beneficial ownership, trustees will typically not be protected. By contrast, trust assets can be protected either where a treaty admits trusts themselves as investors or where the rights of beneficiaries are specific enough to amount to beneficial ownership.

Luke Nottage & James Morrison, Accessing and Assessing Australia’s International Arbitration Act
Abstract: This review identifies many positive trends in international commercial arbitration law and practice in Australia, especially over the last decade. Yet much work remains to be done, in light of some ongoing uncertainties in the statutory regime and associated case law, and comparatively few international arbitration case filings. The biggest challenge is for law reformers in relation to more controversial issues such as the arbitrability of various types of disputes, mandatory laws impacting on forum selection and choice of laws, the precise contours of the competence-competence principle, and confidentiality of arbitration-related court proceedings. Hopefully, a new phase of comprehensive legislative reform will be conducted through more open and structured public consultation than the three piecemeal amendments since 2015.

Lucian Ilie & Amy Seow, International Arbitration and EU Competition Law Complement Rather than Contradict One Another
Abstract: The relationship between international arbitration and EU competition law is of practical importance because of the increasing number of cases in which arbitrators are called on to apply competition rules. This article addresses both the theoretical and practical aspects of arbitrating competition law disputes, to give an overall picture of the relationship between international arbitration and competition law.
This article shows that the two are not in conflict. Rather, they complement each other, and arbitration can be a method of resolving competition law disputes. This article considers the arbitrability of competition law disputes (section 2); the powers and duties of arbitrators in applying competition law (section 3); the relationship between arbitrators and public enforcers of competition law (section 4); and the scrutiny of awards in which competition law issues are implicated, under both the New York Convention and the International Centre for Settlement of Investment Disputes (ICSID) Convention (section 5).

BOOK REVIEW
Prof Dr Gerhard Wagner, Jake Lowther & Anastasios P. Andrianesis, Orsolya Toth, The Lex Mercatoria in Theory and Practice (Oxford University Press, 2017; ISBN 978-0-199-68572-1)


Readers would be interested in the End of Year Sale of Wolters Kluwer. Until 31 December 2017, the titles from our extensive Arbitration collection have a 20% discount. Use discount code SRECCADCFM.

More from our authors: International Arbitration and the Rule of Law
by Andrea Menaker
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The post Journal of International Arbitration appeared first on Kluwer Arbitration Blog.

DR Faculty Seminar in Israel – I Don’t Recognize My Country Any More

ADR Prof Blog - Sat, 2017-12-23 14:15
This guest post comes from one of the blogs founders, Nancy Welsh (Texas A&M). Dr. Moshe Ma’oz is Professor Emeritus of Islamic and Middle Eastern Studies at the Hebrew University of Jerusalem and was Director of the University’s Harry S. Truman Research Institute for the Advancement of Peace.  His presentation explored the complexity of Israel’s … Continue reading DR Faculty Seminar in Israel – I Don’t Recognize My Country Any More →

Awareness on alternative dispute resolution very poor in Telugu ... - NYOOOZ

Google International ADR News - Sat, 2017-12-23 13:09

Awareness on alternative dispute resolution very poor in Telugu ...
NYOOOZ
Speaking on the occasion, he said ADR methods needs to be adopted by both investigating, and prosecution officers in dispute resolution. ADR methods are popular in many advanced countries, and they have to be adopted here, said Sawang. Any case can be ...

and more »

Awareness on alternative dispute resolution very poor in Telugu states - Times of India

Google International ADR News - Sat, 2017-12-23 12:41

Awareness on alternative dispute resolution very poor in Telugu states
Times of India
Vijayawada: About 80% pending cases can be resolved through alternative dispute resolution methods, said JLN Murthy, in-charge and secretary of The International Centre for Alternative Dispute Resolution's (ADR) regional centre, on Saturday. Speaking ...

and more »

Nigeria's First Agritech Start-up Firm Secures $1m Seed Funding - THISDAY Newspapers

Google International ADR News - Fri, 2017-12-22 22:15

THISDAY Newspapers

Nigeria's First Agritech Start-up Firm Secures $1m Seed Funding
THISDAY Newspapers
Nigeria's first and leading digital agritech start-up company, Farmcrowdy, said it had secured $1 million seed funding from a range of international and local investors. A release by the company said the investors included Cox Enterprises, Techstars ...

The Duty of Disclosure and Conflicts of Interest of TPF in Arbitration

Kluwer Arbitration Blog - Fri, 2017-12-22 21:40

Napoleão Casado Filho

Arbitration, especially in its international perspective, has experienced such a tremendous growth in the past few decades that it has now become a victim of its own success. Current debates are centered on the prohibitive costs, the difficulty in finding high-level arbitrators and conflicts of interests often exclusive to relatively diminished groups, demonstrating that themes once considered to be “hot topics”, such as the separability of the arbitration agreement and competence-competence, are now slightly relegated to the past.

One of such controversial circumstances is the recent interest that arbitration has piqued in investors, who have suddenly found the frequently elevated costs of arbitral proceedings and the millionaire awards thereof to be an investment opportunity. It is the so-called Third-Party Funding, a phenomenon that was born in Australia, spread throughout Common Law jurisdictions and is today commonplace in countries that had never once imagined it, such as France, Brazil and Peru.

Wherein there is money, therein interests lie. It should come as no surprise that a desire for regulation has likewise surged. As soon as the topic gained relevance in 2014, the ICCA (International Council for Commercial Arbitration), alongside the prestigious Queen Mary University of London, created a joint Task Force to study the theme and propose best practices. For that, experts from all corners of the world were assembled. After three long years, an initial Draft was made available for public and professional scrutiny in September 2017.

The initiative warrants praise. Firstly, for assembling many relevant figures to debate a theme that, indeed, deserves attention from the international arbitration community.

Secondly, because the Task Force seems genuinely interested in listening to the market and its practitioners, as before publishing the Final Report, it made a preliminary iteration available for public debate. The debate has been intense and last month we had the opportunity to join it in the II Oxford Symposium on Comparative International Commercial Arbitration. The core of the dispute was an a apparent regulatory appetite from the members of the Task Force.

This regulatory appetite must, in our view, be slightly halted, lest we experience increases both in the duration of proceedings and in the costs of funding methods such as Third-Party Funding. If I may elaborate.

One of the Task Force’s pressing wishes is to render a general duty to disclose the existence of a third-party funder in any and all arbitral proceedings. On Chapter 4 of the Report, entitled “Disclosure and Conflicts of Interest”, the Task Force suggests two options:

[ALTERNATIVE A]: 1. A party should, on its own initiative, disclose the existence of a third-party funding arrangement and the identity of the funder to the arbitrators and an arbitral institution or appointing authority (if any), either as part of its first appearance or submission, or as soon as practicable after funding is provided or an arrangement to provide funding for the arbitration is entered into.

[ALTERNATIVE B]: 1. Arbitrators and arbitral institutions have the authority to, during the selection and appointment process, expressly request that the parties disclose whether they are receiving support from a third-party funder and, if so, the identity of the funder

The qualm seems to be centered on whether arbitrators should be given the power to order the disclosure of an investment or if it falls entirely upon a Party’s own will. And yet, under both scenarios, a general and unrestricted duty of disclosure is established, even if an investor has no relation at all with the arbitrators. The ostensible consensus within the arbitral community that “it falls upon the arbitrator to analyze whether or not a conflict of interest exists” is adopted as a premise. In fact, this consensus is enshrined in the Report itself, when it says: “there is a general agreement that disclosure of the identity of a funder is necessary for an arbitrator to undertake analysis of potential conflict of interests”. (pg. 78 ICCA-QMUL Report).

Generally, I am cautious of consensus and unanimities. I’ve had the opportunity of defending, when analyzing the Third-Party Funding phenomenon on a purely academic level, that it would be desirable to have some limits on the duty of disclosure [1]. In that opportunity, I had already defended that a breach of this duty should not amount to a presumed nullity of the arbitral award rendered in proceedings that had been funded, as it should instead be a burden of the party challenging the validity of the award to prove, for example, an effective conflict of interest between the investor and any of the arbitrators or experts.

However, practical experience denotes that even my once-defended extension of the duty of disclosure must be relativized. What we have observed on case-by-case analyses wherein disclosure does in fact occur is the outbreak of extremely complex and unnecessary procedural challenges. Effective due diligence on the investor is thus initiated, entailing devastating effects on arbitral practice itself.

The establishment of a general duty of disclosure, regardless of potential conflicts of interest with the investor, seems to be misguided, as it overlooks the economic consequences of such a duty and fails to foresee the practical effects thereof.

Investment funds have increased their investments in arbitral proceedings. In addition to individual investments, portfolio investments comprising all cases of a given law firm are ever more common, even amongst some of the largest global firms. This is the solution that the arbitral system has found to provide further access to a means of dispute resolution that would otherwise not concern itself with such access.

In creating such a general duty, the cost of compliance will fatally upsurge, forcing parties to disclose, under ALL circumstances and at the very first moment, information that may have been disclosed anyway in a near future, that is, upon enforcing an award that has possibly favored the funded Party.

Another practical consequence will be an increment of notorious “guerrilla tactics”, also highly debated and faced by modern arbitration. After all, Respondents are usually the ones to employ these delaying tactics. With the establishment of such an overarching duty, these Parties will be awarded with yet another reason to seek information on the investor, trying to pierce multiple levels of the corporate veil until finding the very individuals backing the investment, as to maximize their procrastinating maneuvers. The result will inevitably be a greater delay in the conclusion of arbitral proceedings.

With longer proceedings and higher expenses for the investor to fulfill a duty of disclosure, an increase in the costs of such investment is certain, as these are upscale from the outset, often reaching ten times the value of the original investment. It is market price. And the market follows a rather clear logic: increase the risks and the costs, and prices shall follow.

Another nefarious consequence of a general duty of third-party investment disclosure is that, in breaching this duty, the Party and the investor are presumed to be tainted by some irregularity, which may make life easier for a losing Respondent seeking to annul the arbitral award.

Therefore, it must be pondered: would it not be the case of rethinking this ostensible consensus that it falls upon the arbitrator to effect a preliminary analysis on whether a conflict of interest exists?

In the context of Third-Party Funding, the Party interested in an enforceable award, not subject to challenges, is precisely the investor. He is fully capable of ascertaining if an arbitrator, in the case that may be invested, has any relation to the Fund itself, its members and relevant parties. This relation may, in fact, render the investment prima facie unfeasible. If any relation exists, it would then seem that a duty of disclosure should be placed upon the Arbitral Tribunal, so that it may analyze the effects of this relation on its independence and impartiality.

Should the funded Party remain silent and the other Party come to know of some ulterior motive behind the funding (for instance, if the funder and an arbitrator are relatives), the consequences are obvious: any award issued in this proceeding would be null and void, for being rendered by one who could not be an arbitrator (art. 32(II) Brazilian Arbitration Act), which would also probably warrant grounds for non-recognition of the award in other jurisdictions, as per art. 5(1)(d) New York Convention.

However, in the absence of any such relation between investor and arbitrators, what would be the reason for disclosure? It seems to be a relevant obstacle that promotes no real protection or safeguard for any of the parties concerned.

It would thus seem that the Task Force should halt its regulatory ambitions and instead adopt a path similar to that of Brazil’s leading Arbitral Institution: the CAM-CCBC. Last year, the Center issued a Recommendation on the disclosure of Third-Party Funding, a mere recommendation that is not encompassed by the institution’s Procedural Rules. Something that does not oblige ALL Parties (and currently their lawyers) to indistinctly disclose their financial strategies; and yet, should it remain unfulfilled when ulterior motives in fact existed, it shall bolster any ostensible wrongfulness that may amount to the nullity of the arbitral award.

To regulate a market is always a complex task, with potentially terrible consequences. Almost 100 years ago, Lord Keynes stated that “[c]ontemporary experience of trade restrictions in post-war Europe offers manifold examples of ill-conceived impediments on freedom which, designed to improve the favorable balance, had in fact a contrary tendency.” May this attempt to regulate a market still in its infancy, that has promoted access to the arbitral system, not be faced with a similar fate.

[1] In this sense, see CASADO FILHO, Napoleão. Acesso à Justiça e Arbitragem: o novo Paradigma do Third Party Funding, São Paulo: Editora Saraiva, 2017 – pg. 211.

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OHADA's 17 African States Adopt the Uniform Act on Mediation - JD Supra (press release)

Google International ADR News - Fri, 2017-12-22 19:06

OHADA's 17 African States Adopt the Uniform Act on Mediation
JD Supra (press release)
The Organization for the Harmonization of Business Law in Africa ("OHADA") is an international organization based in Yaoundé, Cameroun. It is made up of 17 states from mostly Central and Western Africa with a total population of about 200 million ...

New Year’s Greeting

ADR Prof Blog - Fri, 2017-12-22 11:26
I’m looking at a new year’s card printed by my friend, Steve Harris, proprietor of Hands Press in Berkeley, that really expresses the values of our community.  Let us hope that these values will be increasingly honored in the coming year. Happy New Year Wishing You a New Year Filled With Old-Fashioned Values: kindness modesty … Continue reading New Year’s Greeting →

Legal expert Dr Kariuki Muigua appointed to NEMA Tribunal - Capital FM Kenya

Google International ADR News - Fri, 2017-12-22 08:21

Capital FM Kenya

Legal expert Dr Kariuki Muigua appointed to NEMA Tribunal
Capital FM Kenya
Advocates, a firm that specialises in environmental and commercial law litigation and Alternative Dispute Resolution, Dr Muigua is an accomplished Mediator and a Chartered Arbitrator, with widespread training and experience in both international and ...

and more »

Dr. Muigua appointed to serve on National Environmental Tribunal - Kenya Broadcasting Corporation

Google International ADR News - Fri, 2017-12-22 07:29

Kenya Broadcasting Corporation

Dr. Muigua appointed to serve on National Environmental Tribunal
Kenya Broadcasting Corporation
Advocates, a firm that specialises in environmental and commercial law litigation and Alternative Dispute Resolution, Dr Muigua is an accomplished Mediator and a Chartered Arbitrator, with widespread training and experience in both international and ...

and more »
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