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'Restructuring possible without constitution amendment' - The Nation - The Nation Newspaper

Google International ADR News - Tue, 2018-11-20 17:11

The Nation Newspaper

'Restructuring possible without constitution amendment' - The Nation
The Nation Newspaper
Movement Co-chairman Dr Olisa Agbakoba (SAN) yesterday said the country can be restructured administratively pending constitution amendment.
Nigeria's Justice Sector Dead – Agbakoba — Leadership NewspaperLeadership Newspaper (press release) (blog)

all 4 news articles »

Pease, CLF still apart on $100M pollution suit - Foster's Daily Democrat

Google International ADR News - Tue, 2018-11-20 12:16

Foster's Daily Democrat

Pease, CLF still apart on $100M pollution suit
Foster's Daily Democrat
The mediation is an effort to settle a lawsuit filed by the CLF alleging stormwater discharges from the Pease International Tradeport contain pollutants, “including but not limited to petroleum hydrocarbons, nitrogen, phosphorus, total suspended solids ...

and more »

Pease, CLF still apart on $100M pollution suit - News ... - Seacoastonline.com

Google International ADR News - Tue, 2018-11-20 12:06

Seacoastonline.com

Pease, CLF still apart on $100M pollution suit - News ...
Seacoastonline.com
PORTSMOUTH -- After a Monday mediation session in the U.S. District Court of New Hampshire, scheduled to try to settle a $100 million-plus lawsuit, the Pease ...

and more »

Hong Kong award remitted for serious irregularity

The Hong Kong Court of First Instance has partially remitted an HKIAC award in a construction dispute to a sole arbitrator for reconsideration after finding it was marred by serious irregularity. In...

BRYAN CAVE: Bryan Cave Leighton Paisner Elects 23 New Partners - Legal News Line

Google International ADR News - Tue, 2018-11-20 11:03

Legal News Line

BRYAN CAVE: Bryan Cave Leighton Paisner Elects 23 New Partners
Legal News Line
By a vote of the partnership, the international law firm Bryan Cave Leighton Paisner has elected 23 new lawyers to partnership in the firm, effective Jan. 1, 2019. This brings the number of partners firmwide to 576. The new partners are: Shannon Barks ...

Iraqi oil suit dismissed in Virginia

A judge in Virginia has dismissed a Swiss commodities trader’s lawsuit against two US-based brothers over a deal to export fuel oil from Iraq, adding that she would have ordered the dispute to go to LCIA...

Bolivian mining claim partly clears hurdle

An ICC tribunal has allowed an Indian company’s US$86 million claim to proceed against a Bolivian state-owned mining entity – while throwing out claims against the state itself and another state-owned...

Bolivian mining claim partly clears hurdle

An ICC tribunal has allowed an Indian company’s US$86 million claim to proceed against a Bolivian state-owned mining entity – while throwing out claims against the state itself and another state-owned...

Issues, challenges of arbitration dominate 2018 CIArb conference - Daily Trust

Google International ADR News - Mon, 2018-11-19 21:13

Daily Trust

Issues, challenges of arbitration dominate 2018 CIArb conference
Daily Trust
... field of international dispute resolution,” she had said. She identified a supportive judiciary as the bedrock of successful arbitration and ADR (Alternative Dispute Resolution). A supportive judiciary, she said, “is essential to the continuing ...

Land swap talk sparks fears in Kosovo village - POLITICO.eu

Google International ADR News - Mon, 2018-11-19 21:03

POLITICO.eu

Land swap talk sparks fears in Kosovo village
POLITICO.eu
It wasn't until 2001, with the help of the International Red Cross, that they began building new houses “from the basement up,” says Kamberi. With funds raised by the Body Shop Foundation (a ... Lazar Rakić, 30, who grew up in Zupče and is now program ...

Canada faces NAFTA claim over coal phase-out

A struggling US coal mining company has filed a US$500 million NAFTA claim against Canada over alleged discrimination that it faced following a decision by the province of Alberta to phase out the use...

Multiparty Investment Arbitration and Derivative Claims: Initial Thoughts on the NAFTA Case of B-Mex and Others v Mexico

Kluwer Arbitration Blog - Mon, 2018-11-19 16:14

Ridhi Kabra

The last decade has seen multiparty arbitration emerge as a contentious issue in investment treaty arbitration. Beginning with Abaclat v Argentina, investment tribunals have grappled with whether similarly-situated, but otherwise unrelated investors with distinct investments, can bundle their claims in a single arbitration. While decisions on this issue continue to evolve, a new ground for challenging multiparty arbitrations has emerged in the context of derivative claims in the NAFTA case of B-Mex and others v Mexico. Under NAFTA Article 1117, a foreign investor enjoys the derivative right to bring a claim on behalf of a local enterprise, if the investor ‘owns or controls’ the enterprise ‘directly or indirectly’. In the currently-pending B-Mex case, a group of 37 US shareholders have asserted their right to pursue a derivative claim on behalf of Mexican companies on the grounds that they collectively own/control the companies through their ownership of a majority of the companies’ shares. In this post, I offer a brief account of jurisdictional issues concerning the multiparty nature of the proceedings and present brief (initial) observations on the viability of Mexico’s objections.

Relevant case facts

The case concerns Mexico’s allegedly arbitrary and discriminatory interference with the claimants’ investments in five casinos in the Mexican gaming industry. Three US nationals were responsible for identifying the investment opportunity and making the initial investment.

They channeled their investments through corporate entities established in the US and Mexico. Each casino was owned by a locally-incorporated company (the ‘Mexican Companies’). In all, the principal investors in the Mexican Companies comprised the three US nationals and five US-incorporated companies owned by the US nationals (the ‘Original Claimants’).

The notice of intent to submit to arbitration listed only the Original Claimants as the intended claimants. The remaining 29 shareholders in the Mexican companies (the ‘Additional Claimants’) were included subsequently as claimants in the request for arbitration. Mexico contends that this later addition of the Additional Claimants was made necessary because the Original Claimants, by themselves, lacked ownership/control over the Mexican Companies. This contention is better explained by describing the shareholding structure of the Mexican Companies.

Broadly speaking, shares in the Mexican Companies were designated into two classes – Class A and Class B. Class A shareholders enjoyed limited voting rights. Class B shareholders had broad voting rights and could control shareholder resolutions through a majority vote. The Original Claimants owned between 41% and 82% of all shares in the Mexican companies. However, in four out of the five Mexican Companies, the Original Claimants owned less than 50% of the Class B shares. By joining the Additional Claimants to the arbitration, the claimants’ combined shareholding increased to between 56% and 82%, and their cumulative ownership of Class B shares (and the associated voting rights) crossed the 50% threshold.

Mexico has challenged the claimants’ standing on two grounds. First, Mexico contends that ownership of a local company requires full (and not majority) ownership of shares. Secondly, Mexico asserts that a group of unrelated shareholders – in this case the Original Claimants and the Additional Claimants – cannot be said to collectively control a company simply because they own a majority of the company’s shares.

Proof of collective ownership – full or majority shareholding?

In its bid to defeat the claimants’ standing, Mexico argues that investors can collectively present a derivative claim under the ownership limb of Article 1117’s ‘own or control’ only if they enjoy ‘full ownership’ over the local enterprise. Absent full ownership, investors must prove control to pursue a derivative claim (Reply on Jurisdictional Objections).

NAFTA does not define the terms ‘own’ or ‘control’. NAFTA tribunals have presumably considered it unnecessary to enunciate a test of ownership, because proof of majority shareholding in a local enterprise carries with it the presumption of control (Caratube v Kazakhstan). The B-Mex tribunal might find it relevant to clarify whether majority ownership tantamounts to ownership under NAFTA. Judicial economy would dictate that if the tribunal found positively on this issue, it would not need to consider Mexico’s objections to claimants’ standing based on collective control.

The phrase ‘own(ed) or control(led)’ appears in investment treaties in various contexts – including in the definition of ‘investment’, denial of benefits clauses, and investor standing to bring an investment claim. Yet, it is notoriously undefined. Definitions have begun to emerge recently, particularly in treaties concluded by Japan (see example, Japan-Australia Economic Partnership Agreement, art 14.17.[/fn] These treaties define ownership of an enterprise as ownership of a majority of the enterprise’s shares. The definition seems to be borrowed from the General Agreement on Trade in Services (GATS). Under GATS Article XXVIII, a company is deemed to be owned by the person who owns more than 50% of the company’s equity interests. Control, on the other hand, covers situations in which a person has the power to appoint a majority of the company’s directors or otherwise direct the company’s actions.

Mexico hinges its contention on the claim that the ‘control’ limb would be rendered redundant if ownership were to include majority ownership. This contention is arguably unsustainable. Indeed, situations of ownership and control can overlap – as in the case of full or majority ownership. But, a steady line of jurisprudence clarifies that ‘control’ reaches beyond ownership and covers situations of de facto control, such as when minority shareholders have sufficient voting strength to assert control (Thunderbird v Mexico), or when foreign investors exert substantial influence over the management of the enterprise (Vacuum Salt v Ghana). This is unsurprising given that shareholding in modern corporations is widely dispersed, and different voting rights attach to different classes of shares. Decision-making power is thus not necessarily connected to majority share ownership. Control – as distinct from ownership – allows jurisdiction over a local enterprise’s claims when control rests in the hands of a foreign investor, even though ownership might not. The Aguas del Tunari v Bolivia tribunal similarly explained the difference between ownership and control as:

“the Tribunal views this provision as meaning “owned [established by majority ownership] or controlled [established by minority ownership plus voting rights].

Whether ownership is restricted to cases of full ownership is the less contentious of the two objections raised by Mexico. As the tribunal’s Procedural Order No. 5 indicates, the tribunal has sought detailed analysis of the legal standards for proving collective control from the parties in their post-hearing briefs.

Collective control by a group of majority shareholders

Having asserted that ‘control’ and not ‘ownership’ should determine claimants’ standing in the case, Mexico argues next that a group of shareholders that collectively own more than 50% of an enterprise’s voting rights cannot be said to ‘control’ the enterprise, unless they are bound by a legal instrument, such as a shareholders’ agreement, to vote collectively.

Exclusive control v control by a group of shareholders

In the early stages of the written proceedings, Mexico reserved its right to challenge multiparty arbitration under  NAFTA Article 1117 ‘by a group of claimants contending that they collectively control an enterprise’ (Memorial on Jurisdiction). Relegated to a footnote in Mexico’s memorial, it was unclear at that stage whether Mexico was arguing for an objective bar against multiparty arbitration. Such an objection would not be novel. It has arisen in the context of ‘control’ under the ICSID Convention Article 25(2)(b) (which allows jurisdiction over claims by a foreign-controlled local enterprise). The tribunal in Vacuum Salt v Ghanaacknowledged that ‘an issue may exist’ as to whether ‘control’ is limited to ‘exclusive control’ or covers collective control by a group of shareholders. That tribunal left the question unanswered, but some authors (see example Douglas) have asserted that the ICSID Convention’s use of a singular ‘national’ requires control to lie in the hands of one controlling foreign investor. 1)Douglas, Z. (2009). The International Law of Investment Claims. Cambridge: Cambridge University Press. doi:10.1017/CBO9780511581137. jQuery("#footnote_plugin_tooltip_3075_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3075_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Article 1117 does not expressly permit multiparty arbitration. NAFTA parties have previously opposed multiparty arbitration, but such a challenge has not been based on any objective bar in the text of Article 1117. In Loewen v USA, for instance, the US conceded that Article 1117 ‘does not expressly provide that only one investor may file such a claim’ (US Memorial on Jurisdiction). In that case, the US’s objection to multiparty arbitration was born out of the case facts and the structure of the claimants’ corporate relationship. The claimants in Loewen comprised the local enterprise’s direct shareholder (The Loewen Group) and its ultimate indirect shareholder (Raymond Loewen). The two claimants did not appear jointly in the arbitration; they retained separate counsels and presented separate submissions. Furthermore, the claimants were in a vertical corporate relationship with the local enterprise. As each claimant could independently sustain a claim on behalf of the enterprise, the US feared that allowing multiparty arbitration in such a situation would create the possibility of claimants offering divergent and conflicting theories on behalf of the same enterprise, which it would have to separately defend. Accordingly, the US suggested that limits to multiparty arbitration should be read into NAFTA Article 1117 so as to ‘prevent multiple claims on behalf of the same enterprise’, and only the direct shareholder should be allowed to present the derivative claim. 2)The tribunal did not pronounce on the US’s objections. jQuery("#footnote_plugin_tooltip_3075_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3075_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The US’s line of objection is of limited assistance in this case. As described, the US was opposed to the pursuit of multiple claims on behalf of the same company. That objection does not apply when a group of horizontal shareholders – as in B-Mex – pursue a derivative claim. No single investor enjoys independent standing to present the claim, as the collective might of all investors is necessary to demonstrate ownership/control over the enterprise.

NAFTA tribunals have not limited standing under Article 1117 to cases of exclusive control. Horizontal shareholder groups have successfully pursued derivative claims, but in the relatively few examples of such cases, the group has normally comprised shareholders who had collectively decided to invest in the host State (see example Azinian v Mexico).

As arguments have developed in the case, it has become clear that Mexico is not seeking to limit standing under Article 1117 to situations of exclusive control. Instead, Mexico seeks to distinguish between collective control by related and unrelated shareholders (Post-Hearing Brief). Mexico concedes that related shareholders can be said to exercise control if they are collectively the majority shareholders of a local enterprise. Unrelated majority shareholders, in Mexico’s view, need to additionally prove their obligation to vote as a bloc through the existence of a binding agreement.

Unrelated majority shareholders and proof of collective control

At the heart of Mexico’s argument lies the difference between proof of the ability to exercise collective control and proof of actual exercise of collective control. Majority shareholding indicates only the ability to exercise collective control. Whether a group of shareholders actually exercise collective control depends on the existence of a formal or informal agreement to act together.

This is an accepted distinction in domestic corporate laws. Under domestic definitions of ‘control’ or ‘controlling shareholder(s)’, a group of persons are treated as controlling shareholders only when they are ‘acting in concert’ (see example Companies Act, Listing Rules and Takeover Code). Proof of concert requires a case-specific analysis. Concert is presumed for related shareholders, such as family members or business associates. Otherwise, concert is proved through a formal shareholders’ arrangement or tacit evidence of concert, such as repeated pattern of bloc voting.

By contrast, proof of actual exercise of collective control is not required in the only known treaty description of collective control – the Iran-US Claims Tribunal’s Claims Settlement Declaration (art VII(2). At the Iran-US Claims Tribunal, a group of shareholders could bring an indirect claim on behalf of a company if their ownership interest was collectively sufficient to control the company. As the ability to exercise collective control, without more, was sufficient to prove control under the treaty, the Tribunal has consistently found it of no import that collective control is based on the aggregation of individual shares of different shareholders (see example Mcharg and others v Iran).

Investment treaties, whilst occasionally defining control, do not expressly address the issue of collective control. Control is commonly defined as the ability to exercise substantial or decisive influence over a company’s management, including by way of ownership of a majority of the company’s voting rights (see example Energy Charter Treaty, art 1(6), Australia-India BIT, art 1(h), Netherlands-Argentina BIT, Protocol).

Given that the NAFTA does not define ‘control’, the B-Mex tribunal could distinguish the example of the Iran-US Claims Tribunal, and import the test of ‘concert’ from domestic laws. Some support for this view can be found in the case-law on ‘collective control’ in the similarly-undefined test of control in ICSID Convention Article 25(2)(b). In Sempra v Argentina and Camuzzi v Argentina, the tribunal decided that a foreign investor could aggregate its shares with another foreign investor to establish control, if the evidence proved that the shareholders were acting in ‘alliance’ or operating ‘jointly’.

Other tribunals have found the ability to exercise collective control sufficient to prove control. In Transgabonais v Gabon, the tribunal held that ICSID Convention Article 25(2)(b)’s test of ‘control’ is met if foreign investors collectively own a majority of a local company’s voting rights; proof of actual control through a shareholders’ agreement is not required. Notwithstanding, the tribunal conceded that the existence of foreign control by a plurality of entities is a question of ‘pure fact’. Ultimately, the tribunal held that allegations of ‘dissonant conduct among the different foreign nationals’ could affect a finding of control.

What amounts to collective control requires further in-depth analysis, but preliminary research suggests that actual exercise of control by unrelated investors has a role to play in jurisdictional assessments. It is also clear that, contrary to Mexico’s assertion, collective control does not require proof of formal agreement. The question might ultimately be one of burden of proof. Under the Sempra/Camuzzi approach, the claimants would have the burden of demonstrating actual control. Under the Transgabonais approach, actual control by majority owners of voting rights is presumed unless the respondent establishes otherwise.

Conclusion

Mexico’s objections in the case have created the opportunity for an investment tribunal to address not only the issue of collective control, but also clarify comprehensively the legal standards for proving ownership and control. It has been shown that Mexico’s arguments regarding ‘ownership’ as being ‘full ownership’ are unlikely to hold water. Such a reading would depart from established jurisprudence. It has also been shown that the NAFTA does not limit control to situations of exclusive control. Where the tribunal is likely to break new ground is on the issue of proving collective control by unrelated shareholders. The tribunal should not be persuaded by Mexico’s argument that only a formal agreement can prove collective control. There is no authority for such a proposition in domestic or international law. However, it would not be erroneous for the tribunal to build into the test of control, proof of actual exercise of collective control. Whether the tribunal would require such proof from the claimants at the outset, or whether majority share ownership would create a presumption of collective control in the absence of evidence to the contrary, is yet to be seen.

References   [ + ]

1. ↑ Douglas, Z. (2009). The International Law of Investment Claims. Cambridge: Cambridge University Press. doi:10.1017/CBO9780511581137. 2. ↑ The tribunal did not pronounce on the US’s objections. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The post Multiparty Investment Arbitration and Derivative Claims: Initial Thoughts on the NAFTA Case of B-Mex and Others v Mexico appeared first on Kluwer Arbitration Blog.

2018 Mangano Dispute Resolution Advancement Award

ADR Prof Blog - Mon, 2018-11-19 12:11
FOI Elayne Greenberg  (St. John’s) has been gently reminding us of the Mangano Award given by St.John’s every other year to “honor scholars and practitioners whose empirical work furthers the advancement and understanding of the values and skills of dispute resolution.”  This is a major award, and it comes with a $5,000 prize !  Applications … Continue reading 2018 Mangano Dispute Resolution Advancement Award →

Papua New Guinea faces claim over gas field

Spain’s Repsol and its Australian partner Horizon Oil are to commence arbitration against Papua New Guinea over the state’s attempt to terminate a US$300 million agreement for the development of a gas...

HMRC logs 62% rise in disputed tax collected through mediation - International Adviser

Google International ADR News - Mon, 2018-11-19 10:16

HMRC logs 62% rise in disputed tax collected through mediation
International Adviser
London-headquartered law firm RPC, which analysed the statistics, also noted that the number of successful HMRC tax dispute settlements through alternative dispute resolution (ADR) increased by 23% from 370 in 2016-17 to 455 in 2017-18. Adam Craggs ...

Blowing Hot and Cold: Assessing the Permissibility of Fresh Jurisdictional Challenges During Setting-Aside Proceedings

Kluwer Arbitration Blog - Mon, 2018-11-19 04:59

Anirudh Lekhi

The Supreme Court of India (“SC”) in its recent decision M/s Lion Engineering Consultants v. State of M.P. & Ors. (“Lion”) has held that a party that had failed to raise a jurisdictional challenge before the arbitral tribunal under Section 16 of the Arbitration and Conciliation Act, 1996 (“Act”), would yet be permitted to raise such a challenge during setting-aside proceedings under Section 34 of the Act. The sole reason for this inference is that setting-aside proceedings are independent of proceedings before an arbitral tribunal. However, Lion’s observations are ostensibly against the scheme of Section 16, which allows jurisdictional challenges to be raised only before the arbitral tribunal. Additionally, the decision is in conflict with existing judicial precedents addressing the same issue.

In order to resolve this ensuing confusion, it is imperative to appreciate the distinct nature of each jurisdictional challenge and the objects underlying Section 16. In this light, I explore whether new jurisdictional challenges can be urged during setting-aside proceedings.

 

Anatomy of Section 16

The relevant part of Section 16 reads as follows:

  1. Competence of arbitral tribunal to rule on its jurisdiction-

(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objection with respect to the existence or validity of the arbitration agreement…

(2) A plea that the tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence;

It is evident from the above that a tribunal may determine any objection to its jurisdiction on its own. The appearance of the word “including” in Section 16(1) denotes that jurisdictional challenges to the existence or validity of the arbitration agreement are merely illustrative and not exhaustive. Thus, various kinds of jurisdictional challenges are permissible under Section 16.  In order to appreciate the varying facets of jurisdictional challenges, it would be useful to refer to the International Arbitration Practice Guideline on Jurisdictional Challenges (“Practice Guideline”).

According to Article 2 of the Practice Guideline, most jurisdictional challenges arise in relation to whether—(i) the arbitration agreement exists; (ii) the parties to the dispute are the same as the parties to the arbitration agreement; (iii) the arbitration agreement is defective; (iv) the arbitration agreement was made in the required form; (v) the subject-matter falls within its scope; and (vi) the arbitrators have the necessary powers. Therefore, jurisdictional challenges akin to those envisaged in the Practice Guideline may also be raised before the arbitral tribunal under Section 16.

Further, as per Section 16(2), objections to the jurisdiction of the tribunal can only be raised prior to the submission of the statement of defense. The objectives of this provision are two-fold. First, it ensures that the tribunal determines its jurisdiction at the very threshold. This precludes belated adjudication on questions of jurisdiction and preserves time and expense of the parties. Second, the provision reduces the supervisory role of Courts if parties fail to raise jurisdictional challenges within the period prescribed under Section 16(2). Consequently, the inability of Courts to revisit certain questions of jurisdiction may encourage parties to raise jurisdictional challenges promptly. Any interpretation of Section 16 should not lose sight of these objects.

 

Conflict in judicial precedents

The SC’s observations in Lion are at odds with its previous decision in Narayan Prasad Lohia v. Nikunj Kumar Lohia & Ors. (“Lohia”). The jurisdictional challenge in Lohia pertained to the composition of the arbitral tribunal. It was not raised before the tribunal and urged for the first time during setting-aside proceedings. In this regard, the SC observed— “Such a challenge must be taken under Section 16(2), not later than the submission of the statement of defence…If a party chooses not to so object, there will be a deemed waiver under Section 4.” Therefore, Lohia opined that a party’s failure to raise a jurisdictional challenge before the arbitral tribunal would result in a waiver of its right to raise such challenge subsequently. Since Lohia and Lion have been decided by benches of equal strength (three judges), it is unclear which of the two decisions holds the ground.

The SC in Gas Authority of India Ltd. v. Keti Constructions (I) Ltd. (“GAIL”) also determined a similar issue. Negating a jurisdictional challenge during setting-aside proceedings, GAIL held that since the objective of the Act is to secure expeditious resolution of disputes, such challenges must be made before the arbitral tribunal itself. However, the SC qualified its conclusion by observing— “If a plea of jurisdiction is not taken before the arbitrator as provided under Section 16 of the Act, such a plea cannot be permitted to be raised in proceedings under Section 34 of the Act for setting aside the award, unless good reasons are shown.” Thus, GAIL permitted fresh jurisdictional challenges during setting-aside proceedings if good reasons were shown. However, GAIL was decided by a smaller bench of two judges and to that extent, its qualification appears to ignore Lohia.

Additionally, two decisions of the High Courts of Bombay and Allahabad have offered very compelling reasons for allowing parties to raise jurisdictional challenges for the first time during setting-aside proceedings. These decisions opine that an inherent lack of jurisdiction cannot be sanctified by the failure of a party to raise an objection promptly. Accordingly, since questions of jurisdictions go to the root of the matter, a party may raise a jurisdictional challenge at any stage.

 

Way Forward

It is true that the lack of a tribunal’s jurisdiction cannot be rectified by a party’s failure to raise a jurisdictional challenge. However, it is also essential to keep an unscrupulous party from delaying proceedings through frivolous challenges during setting-aside proceedings. Therefore, an intermediate view may be deduced by recalling the different kinds of jurisdictional challenges provided under the Practice Guideline.

These jurisdictional challenges can be classified into two categories—(i) challenges relating to a defect in the jurisdiction and (ii) challenges on account of a lack of jurisdiction. This classification is rooted in the decision of the Privy Council in Ledgard v. Bull, which postulates that though a consent or waiver may cure a defect in the jurisdiction, it cannot cure an inherent lack of it. Therefore, jurisdictional challenges raised due to a defect in the jurisdiction must be distinguished from those based on an inherent lack of it.

In this regard, a jurisdictional challenge that the subject matter is not arbitrable is an illustration of a ground based on an inherent lack of jurisdiction. For instance, an objection that the subject matter relates to penal laws should be permitted during setting aside proceedings under Section 34, even if it was not urged before the tribunal under Section 16. This is because a party’s failure to raise this challenge before the tribunal, cannot confer jurisdiction upon the tribunal when the claim itself is not arbitrable.

However, the same latitude may not be given to fresh jurisdictional challenges relating to defects in the jurisdiction. Since jurisdictional defects are capable of a cure, the Courts should permit fresh jurisdictional challenges relating to defects in jurisdiction only if “good reasons are shown”. For example, jurisdictional challenges questioning the constitution of an arbitral tribunal or the existence of an arbitration agreement are illustrations of challenges based on defects in the jurisdiction. In such cases, a party’s failure to raise a challenge before the tribunal under Section 16(2) may lead to a waiver of the right to object subsequently.

The SC in Prasun Roy v. Calcutta M.D.A considered a fresh challenge to the constitution of an arbitral tribunal during setting-aside proceedings and surmised—“The principle is that a party shall not be allowed to blow hot and cold simultaneously. Long participation and acquiescence in the (arbitral) proceedings precludes such a party from contending that the (arbitral) proceedings are without jurisdiction.” In this light, it appears that the conduct of a party and the time taken to raise a jurisdictional challenge may be considered by the Court to ascertain whether there was a waiver or not.

In view of the above, the Court’s inquiry into the existence of “good reasons” may also include a determination of whether there was a waiver of the right to object or not. This would be in keeping with the SC’s verdict in GAIL as well as the objectives of Section 16 as parties would now have to establish cogent reasons for raising new jurisdictional challenges during setting-aside proceedings.

 

Conclusion

The arbitral regime in India is clogged with decisions that do not appreciate the unique nature of each jurisdictional challenge. Evidently, decisions such as Lion and Lohia have painted every jurisdictional challenge with the same brush and yet reached plainly opposite conclusions. It is, therefore, crucial to distinguish jurisdictional challenges based on an inherent lack in the jurisdiction from those founded on defects in the jurisdiction. Their nature would determine whether a party would be precluded from raising such challenges or be allowed if “good reasons” so warrant. This intermediate approach may resolve the prevailing confusion and preclude parties from employing dilatory tactics.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The post Blowing Hot and Cold: Assessing the Permissibility of Fresh Jurisdictional Challenges During Setting-Aside Proceedings appeared first on Kluwer Arbitration Blog.

Dispute System Design for Facebook

ADR Prof Blog - Sun, 2018-11-18 19:20
The New York Times published an interesting article worth reading, which riffs on Mark Zuckerberg’s statement that Facebook would develop an independent body to make decisions about acceptability of posts on its platform.  He mused that the body might be like a supreme court to make final decisions reflecting global social norms. The article was … Continue reading Dispute System Design for Facebook →

Improving access to justice - The News International

Google International ADR News - Sun, 2018-11-18 18:30

The News International

Improving access to justice
The News International
Access to justice remains an elusive concept for most citizens of Pakistan. The new government, as part of its 100-day agenda, has announced various legislative amendments to improve the justice system in the country and the opposition parties will ...

and more »

Australian biotech company loses SIAC claim

An Australian biotechnology company has lost a US$300 million SIAC claim over the development of a medicine designed to treat skin and bloodstream infections. Melbourne-based Phosphagenics announced...

Ex Aequo et Bono: An Overlooked and Undervalued Opportunity for International Commercial Arbitration

Kluwer Arbitration Blog - Sun, 2018-11-18 01:43

Nobumichi Teramura

Ex aequo et bono1)The author is grateful to Professors Leon Trakman and Luke Nottage for their comment on early drafts of this blog article.This blog post is based on the author’s PhD thesis. jQuery("#footnote_plugin_tooltip_5472_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5472_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); is a legal concept that confers on arbitrators the power to decide a dispute in accordance with their sense of fairness and good conscience, instead of rigorously applying terms of a specific body of law. The principle has been unpopular in contemporary arbitration practice because there has been a tacit understanding among arbitration lawyers that to apply ex aequo et bono is to ruin arbitral procedure. This blog posting challenges this perception and urges the international arbitration community to de-mystify and revitalise ex aequo et bono, particularly to redress the ‘over-judicialisation’ (encroaching formalisation) of international commercial arbitration.

‘Negative’ Reputation Undeserved

While ex aequo et bono can be found in various legal instruments2)Article 28(3) of the Model Law. jQuery("#footnote_plugin_tooltip_5472_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5472_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and institutional rules3)For example Article 31 of CAAI Arbitration Rules; Article 21 (3) of ICC Rules of Arbitration; Article 29.2 of ACICA Arbitration Rules; Article 22.4 of LCIA Arbitration Rules; Article 33.2 of Swiss Rules of International Arbitration; Article 27(3) of SCC Rules; Article 35.2 of HKIAC Administered Arbitration Rules; Article 31.2 of SIAC Rules; and Rule 60.3 of JCAA Rules. jQuery("#footnote_plugin_tooltip_5472_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5472_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, it has long been perceived by some arbitration lawyers as arguably causing negative impacts on arbitral procedure: unpredictability of results and the potential for abuse of discretion (if any) by arbitrators. As to the former, it is suggested that the uncertain nature and scope of ex aequo et bono may undermine certainty in arbitration4)Karyn S. Weinberg, Equity In International Arbitration: How Fair is Fair? A Study of Lex Mercatoria and Amiable Composition, 12 Boston University International Law Journal 227, 246-7 (1994); Edouard Bertrand, Amiable Composition: Report of the ICC France Working Group, International Business Law Journal 753, 763 (2005); Regis Bonnan, Different Conceptions of Amiable Composition in International Commercial Arbitration: A Comparison in Space and Time, 6 Journal of International Dispute Settlement 522, 538 (2015). jQuery("#footnote_plugin_tooltip_5472_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5472_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. As to the latter, it is argued that to adopt ex aequo et bono is to permit arbitrators to ‘ignore’ the actual intentions of the parties5)Emmanuel Vuillard & Alexandre Vagenheim, Why Resort to Amiable Composition, International Business Law Journal 643, 650 (2008). jQuery("#footnote_plugin_tooltip_5472_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5472_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. These concerns seem to have been a major cause of the limited application of the principle in arbitration practice. According to Born, tribunals in only 2-3% of arbitration cases annually apply ex aequo et bono6)Gary Born, International Commercial Arbitration 2770 (Kluwer Law International 2nd ed. 2014). jQuery("#footnote_plugin_tooltip_5472_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5472_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

However, these criticisms of ex aequo et bono may be misplaced.

Commentators pointing out the unpredictability of results seem to assume that international commercial arbitration, through the strict application of legal rules, is more predictable than that of under ex aequo et bono. But is this assumption true?7)See, e.g., Edouard Bertrand, Under What Circumstances is It Suitable to Refer Disputes to Amiable Composition, International Business Law Journal 609, 610-11 (2008). jQuery("#footnote_plugin_tooltip_5472_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5472_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Concepts such as good faith or reasonableness inherently contain a degree of discretion and vagueness. If legal norms containing such concepts are enforced, there is already no absolute certainty in the arbitrators’ decision-making. Therefore, the old saying ‘the only certainty is that nothing is certain’ may apply to arbitration in general.

Moreover, are arbitrators allowed to overturn party intentions through applying ex aequo et bono, if they must respect the principle of party autonomy? Arbitrators decide a dispute by exercising powers granted by the parties, even in arbitration adopting ex aequo et bono.8)Article 28(2) of the Model Law. jQuery("#footnote_plugin_tooltip_5472_8").tooltip({ tip: "#footnote_plugin_tooltip_text_5472_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); If they confer authority to decide ex aequo et bono on themselves and ignore the actual intentions of the parties, this would certainly constitute an undue exercise of discretion.

Such a situation would rarely happen because the parties must expressly agree to adopt ex aequo et bono for the principle to be applied under the UNCITRAL Model Law. Article 28(2) states that ‘[t]he arbitral tribunal shall decide ex aequo et bono … only if the parties have expressly authorized it to do so’; arbitrators are not able to rely on their idea of fairness without clear authorisation by parties. Article 28(4) also provides that ‘the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction’.

In addition to these explicit limitations imposed by the Model Law, arbitrators with the power of deciding ex aequo et bono must observe applicable mandatory rules of law. For example, the award should not violate mandatory rules of the seat of arbitration. This is because an important duty for arbitrators is to issue an enforceable arbitral award. According to the 2018 QMUL Survey and many other empirical studies, enforceability of arbitral awards is one of the most valuable characteristics of arbitration. Parties expect arbitrators to issue an enforceable decision.

What these limitations clarify is that ex aequo et bono under the Model Law mandates arbitrators to implement the principle of party autonomy thoroughly but flexibly. The arbitrators are not allowed to abuse their discretion and ignore the express intentions of the parties.

Potential in Ex Aequo et Bono to Respond to ‘Over-Judicialisation’

In fact, there can be benefit in using ex aequo et bono more often in international arbitration.

The flexibility inherent in ex aequo et bono has potential to improve the practice of international commercial arbitration, by redressing excessive formalisation in arbitral procedures.

Although international commercial arbitration was originally developed as a cost-effective and flexible dispute resolution system,9)Nigel Blackaby, Redfern and Hunter on International Arbitration 1,2 (Constantine Partasides, et al. eds., Oxford University Press 6th ed. 2015). jQuery("#footnote_plugin_tooltip_5472_9").tooltip({ tip: "#footnote_plugin_tooltip_text_5472_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); it can be seen as expensive and inefficient in some cases. In particular, the increasing number of procedural guidelines and the importation of litigation-style techniques have possibly made arbitration more cumbersome. In fact, international arbitration institutions revise their rules every few years, almost always adding new provisions. Professional associations, in turn, draft new guidelines, sometimes introducing new procedural steps. Due to the development of information technology, the amount of evidence submitted during an arbitral procedure is sharply increasing. While the aim of these initiatives is not to make arbitration burdensome but to decrease procedural ambiguities10)Luke R Nottage, The Procedural Lex Mercatoria: The Past, Present and Future of International Commercial Arbitration, Sydney Law School Research Paper No. 06/51; CDAMS Discussion Paper No. 03/1E, at 5. jQuery("#footnote_plugin_tooltip_5472_10").tooltip({ tip: "#footnote_plugin_tooltip_text_5472_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the efforts can often (unfortunately) exacerbate procedural complexities.

However, this may not be the direct cause of delay in arbitral proceedings. Unless otherwise agreed by parties, arbitrators have no legal duty to observe procedural guidelines, which are default rules, and litigation-style techniques, which are alien to arbitration. Arbitrators nevertheless appear to be forced to follow these default rules by their so-called ‘due process paranoia’: the ‘reluctance by tribunals to act decisively in certain situations for fear of the arbitral award being challenged on the basis of a party not having had the chance to present its case fully’ (see for example, here, here, and here). In short, arbitrators’ psychological state seems to be a significant underlying cause of inflexibility and delay.

Ex aequo et bono may improve this mentality of arbitrators. The primary aim in applying the principle is to give them the authority to make decisions flexibly to deliver effectively on the arbitrators’ mandate to decide the dispute as granted by the parties. By agreeing to ex aequo et bono proceedings, at least for some types of disputes, the parties permit arbitrators to act robustly to provide efficient dispute resolution. The arbitrators, therefore, do not have to become overly sensitive to every single procedural issue. They only have to observe norms arising from the principle of party autonomy: contract terms, trade usages, and mandatory rules of law at the seat of arbitration.

This real feature of ex aequo et bono needs to be disseminated more broadly in the arbitration community; otherwise, it would be impossible, through ex aequo et bono, to cure arbitrators’ due process paranoia and thereby to counter-balance the over-judicialisation of international commercial arbitration. Since the application of ex aequo et bono requires express agreement by the parties to resort to the principle, it is crucial to make those parties – as users of arbitration – to realise that ex aequo et bono has a potential to make arbitration more efficient. Ex aequo et bono alone is not effective enough to combat against the encroaching over-judicialisation; the parties’ agreement for the tribunal to use it is essential.

Conclusion

Unlike their counterparts in the European Middle Agents, modern merchants are not inclined to resort to ex aequo et bono. This blog posting suggests that the contemporary business world’s disinclination to use ex aequo et bono derives from an inadequately informed perception of the principle. Their arguably erroneous understanding is that ex aequo et bono hampers arbitral procedures by giving rise to irreconcilable uncertain outcomes and by encouraging arbitrators to abuse their discretion. However, uncertainties persist in arbitration under the strict application of legal terms, while ex aequo et bono arbitration is in fact bound by significant elements of party autonomy. Accordingly, it is unclear if we should keep emphasising the allegedly negative features of ex aequo et bono. This blog has instead proposed to use (or at least plan to use) the flexibility inherent in the principle in order to boost the efficiency of international commercial arbitration.

References   [ + ]

1. ↑ The author is grateful to Professors Leon Trakman and Luke Nottage for their comment on early drafts of this blog article.This blog post is based on the author’s PhD thesis. 2. ↑ Article 28(3) of the Model Law. 3. ↑ For example Article 31 of CAAI Arbitration Rules; Article 21 (3) of ICC Rules of Arbitration; Article 29.2 of ACICA Arbitration Rules; Article 22.4 of LCIA Arbitration Rules; Article 33.2 of Swiss Rules of International Arbitration; Article 27(3) of SCC Rules; Article 35.2 of HKIAC Administered Arbitration Rules; Article 31.2 of SIAC Rules; and Rule 60.3 of JCAA Rules. 4. ↑ Karyn S. Weinberg, Equity In International Arbitration: How Fair is Fair? A Study of Lex Mercatoria and Amiable Composition, 12 Boston University International Law Journal 227, 246-7 (1994); Edouard Bertrand, Amiable Composition: Report of the ICC France Working Group, International Business Law Journal 753, 763 (2005); Regis Bonnan, Different Conceptions of Amiable Composition in International Commercial Arbitration: A Comparison in Space and Time, 6 Journal of International Dispute Settlement 522, 538 (2015). 5. ↑ Emmanuel Vuillard & Alexandre Vagenheim, Why Resort to Amiable Composition, International Business Law Journal 643, 650 (2008). 6. ↑ Gary Born, International Commercial Arbitration 2770 (Kluwer Law International 2nd ed. 2014). 7. ↑ See, e.g., Edouard Bertrand, Under What Circumstances is It Suitable to Refer Disputes to Amiable Composition, International Business Law Journal 609, 610-11 (2008). 8. ↑ Article 28(2) of the Model Law. 9. ↑ Nigel Blackaby, Redfern and Hunter on International Arbitration 1,2 (Constantine Partasides, et al. eds., Oxford University Press 6th ed. 2015). 10. ↑ Luke R Nottage, The Procedural Lex Mercatoria: The Past, Present and Future of International Commercial Arbitration, Sydney Law School Research Paper No. 06/51; CDAMS Discussion Paper No. 03/1E, at 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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