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Jumpstarting Arbitration through Tax Incentives? Macau’s Tax Incentive Scheme for Choosing Arbitration

Kluwer Arbitration Blog - 15 hours 1 min ago

If you are a party to a lease agreement or a grant of right to use commercial space in Macau, tax considerations may now be critical for determining whether “to arbitrate or not to arbitrate”. In fact, aside from the typical advantages of arbitration over litigation, tax reduction has now become an additional advantage for choosing arbitration to resolve a dispute in Macau following the introduction of the amendment bill on Macau Stamp Duty on 16 December 2020.

 

The new arbitration law of Macau

More than a year has passed since Macau’s new arbitration law (Law No. 19/2019) came into force on 4 May 2020 (2019 Law). The new law incorporates the best practices in international commercial arbitration and is consistent with the goal of the Macau Special Administrative Region (SAR) government to promote Macau as a preferred Lusophone arbitration seat. Based on the UNCITRAL Model Law, the 2019 Law transformed the dual arbitration system in Macau into a unified system for both domestic and international arbitration. Also, the new law is more flexible than its predecessor with regard to the formalities of an arbitration agreement, allowing for the conclusion of arbitration agreements by electronic communications evidenced in writing. Under the 2019 Law, arbitral tribunals have wide-ranging powers to issue interim measures. In addition, both the parties and the arbitral tribunal may now seek the Macau courts’ assistance in obtaining evidence. All these characteristics have established an arbitration regime in Macau that is fully in line with international practice.

The 2019 Law has presented an opportunity in Macau to launch a new industry. The city has long been very dependent upon its gaming industry. As such, the drive for economic diversification has been one of the government’s political and economic goals. Macau’s unique position, international characteristics, and legal system have long suggested that legal services and dispute resolution in particular could serve as an economic niche that the city could explore further. Many of Macau SAR’s top officials have urged the need to vigorously promote the development of arbitration, so as to give full play to Macau’s advantages as a Sino-Portuguese platform and turn Macau into an arbitral platform for resolving disputes in the context of the PRC’s ambitious Greater Bay Area economic plan. In 2020, of 946 cases, ICC registered 199 disputes involving parties from Portuguese-speaking countries, and 21 awards were issued in Portuguese.

Still, those in Macau are well aware of the difficulties of establishing Macau as a major arbitral seat given the heavy competition from Hong Kong and Singapore. The current chief executive, Mr Ho Iat Seng, has pointed out that, given the relative underdevelopment of arbitration in Macau, faith in Macau as a reliable seat of arbitration can only be firmly established by increasing the number of cases and developing sufficient experience.  Indeed, Macau, albeit having shown ambitions in the arbitration field for a long time, has never been a major player in this area. While there is no doubt that the new law has provided a better legal framework for the development of arbitration in Macau, cases in the Macau SAR’s arbitral institutions (namely, World Trade Center (WTC) Macau Arbitration Center and Voluntary Arbitration Center of the Macau Lawyers’ Association) have remained scarce, with many of the businesses in Macau opting instead to use Hong Kong as their preferred seat of arbitration.

 

Macau’s new Stamp Duty regime

In view of this, the Macanese legislature has decided that if arbitration is to become a more commonly used dispute resolution mechanism, more radical supporting measures are needed. Most innovatively, tax incentives have been introduced in the recent amendments of the Stamp Duty Law (Law no. 24/2020), which entered into force on 30 March 2021, to attract and encourage individuals to use the Macanese arbitration system to resolve disputes. More specifically, a 50% tax reduction in Stamp Duty is offered if an arbitration clause stipulating that a dispute should be resolved through an arbitral institution in Macau is included in (i) a lease contract for immovable property or (ii) a grant of right to use commercial space (see Articles 27(3) to (5) and 30B(4) to (6), Stamp Duty Law).

This tax advantage is especially significant in the context of the grant of right to use commercial space, which, under the new Stamp Duty law, is now subject to a 0.5% stamp duty like normal lease agreements. In Macau, it is very common for gaming operators to include large-scale shopping malls within the complex (the so-called integrated resort model). In this case, the rent payable by the retailers can be rather hefty, as the taxable scope is extensive and includes annual remuneration resulting from the grant of right to use the commercial space, machines, furniture or other movable assets within the complex. The introduction of an arbitration clause, however, halves the payable stamp duty on such agreement.

It should be underlined that the tax benefit is only applicable if the arbitration clause submits the dispute to one of the recognized arbitration centers in Macau. This means that an arbitration clause that provides for ad hoc arbitration will not be relevant for the purposes of the tax reduction. Currently, for resolving matters arising from lease or grant of right to use of commercial space agreements, parties can resort to (1) the WTC Macau Arbitration Center or (2) the Voluntary Arbitration Center of the Macau Lawyers Association.

Also, importantly, the law sets out several situations that will lead to the loss of this tax benefit, namely:

  1. The arbitration agreement is revoked or expired;
  2. There is a decision, with res judicata effect, from a court or arbitral tribunal that rules that the arbitration agreement does not exist, is ineffective, or does not produce any effects;
  3. The landlord or the grantor filed a lawsuit with the court on an issue that falls within the scope of the arbitration agreement;
  4. The landlord or the grantor, as the defendant in a court case, failed to raise the jurisdictional objection that the case should be heard by the arbitral tribunal.

If one of the above circumstances occurs, the landlord or the grantor must pay back the reduced stamp duty to the Financial Services Bureau within 30 days of the date of the occurrence.

 

Conclusion and expectations

The introduction of the tax incentive at issue shows how serious the Macau government is with regard to not only encouraging and promoting the use of arbitration but also developing the arbitration industry in Macau. The usage of this tax reduction is ingenious, with Macau taking a radical step toward making sure that its own arbitral institutions will see a steady and growing number of cases. Although the full effectiveness of the measure remains to be seen, this measure has aroused much interest especially for retailers operating in the many large shopping malls and outlets in Macau.

It should be noted that the development of arbitration in Macau is still hampered by its relative lack of experience in this field and its arbitral institutions. In this respect, it is worth noting that the rules of Macau’s two main arbitral institutions were heavily revised and updated, with the changes having come into effect earlier this year. Still, in comparison with the HKIAC and SIAC rules, they have not incorporated some of the recent arbitral developments such as provisions addressing third-party funding, disputes involving multiple contracts and/or multiple arbitrations, and the possibility of an arbitral tribunal making an early determination regarding a point of law or fact that is manifestly without merit or manifestly outside of the tribunal’s jurisdiction.

At the same time, seeking recognition and enforcement in Macau of an award rendered in an arbitration seated outside Macau presents its own challenges. Aside from the parties not being able to benefit from the tax incentives described above, the recognition and enforcement process of a foreign arbitral award in Macau is substantially lengthier than that for a domestic (Macau) award, and it is procedurally more complicated than in Hong Kong. The two-step procedure is first initiated by an application for the recognition of the foreign arbitral award filed with the Macau Second Instance Court. It typically takes at least between three and six months for the court to recognize a foreign award, while in Hong Kong this takes a matter of days. Then the applications for enforcing the reviewed award should be filed with the Macau First Instance Court, which will in turn take at least 12 to 18 months to conclude the enforcement proceedings.

Altogether this means that Macau’s more ambitious goal of becoming the main Sino-Portuguese arbitral platform and a major arbitral player is still, somehow, a remote dream. Nonetheless, with its new legislative setting, Macau is now one step closer to developing a more mature arbitration practice.

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“Breaking In: How International Arbitration Becomes More Diverse” – A Report from the GAR Connect Event

Kluwer Arbitration Blog - Sat, 2021-10-16 01:29

On 1 September 2021, Global Arbitration Review (GAR) launched a new diversity-themed addition to its GAR Connect series, “Breaking In: How international arbitration becomes more diverse.”1)The authors would like to thank Racial Equality for Arbitration Lawyers (R.E.A.L.) for providing a scholarship to attend the event. jQuery('#footnote_plugin_tooltip_39140_6_1').tooltip({ tip: '#footnote_plugin_tooltip_text_39140_6_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The event, co-chaired by Adriana Braghetta (Adriana Braghetta Lawyers), Nayla Comair Obeid (Obeid & Partners), Vladimir Khvalei (Baker McKenzie), and Kevin Kim (Peter & Kim), showcased individuals and ideas from seats or regions newer to international arbitration, along with some of the challenges that newcomers to the world of international arbitration face.

 

Keynote Address

The keynote address was delivered by Gaston Kenfack Douajni (Director of Legislation, The Ministry of Justice, Cameroon). Mr. Douajni raised criticisms on appointments of arbitrators specifically in Africa. He shared his exchange with the late Emmanuel Gaillard, who agreed with him that arbitration will only be “truly international” when renowned arbitral institutions appoint African arbitrators in cases that do not necessarily involve African parties.

He remarked that the “condescension and paternalism” with which some practitioners view African arbitrators and institutions are “not likely to promote diversity in international arbitration.” He also observed that a small pool of international arbitration practitioners from developed countries are regularly appointed in international arbitration. As a result, the arbitrations take longer as it is “not humanly possible” for arbitrators sitting simultaneously in several cases to manage them.

In concluding his address, Mr. Douajni quoted Winston Churchill: “criticism can be disagreeable, but it is necessary. It’s like pain to the human body: it calls attention to what’s wrong.” He explained that calling attention to the lack of geographical diversity in the appointment of arbitrators emphasizes that this deficit impacts the effectiveness of international arbitration.

 

Building a Local Arbitration Bar

The panel was moderated by Adriana Braghetta (Adriana Braghetta Lawyers) and featured speakers Lucas Britto Mejias (TozziniFreire), Una Cho (Kim & Chang), Ahmed Ibrahim (Independent Arbitrator), and Sanjeev Kapoor (Khaitan & Co). Each speaker explained the steps taken in their jurisdictions—Brazil, South Korea, Egypt, and India—that led to the rise of international arbitration and the establishment of a local arbitration bar.

For Brazil, Mr. Mejias stated that there are four main factors: (1) modern and strong arbitration law; (2) courts supporting arbitration; (3) a strong arbitration community; and (4) a large and diverse business community that favors arbitration, particularly due to delays in decision by the courts and arbitration being a better mechanism to resolve specialist disputes.

Ms. Cho stated that the same factors helped the development of international arbitration in South Korea. She stated that the Asian financial crisis in 1997 also played a role, as insolvencies of companies were resolved through arbitration.

Mr. Ibrahim highlighted the fact that all four countries were business hubs in their region. In Egypt, the economy relies heavily on sectors like telecom, which in turn promotes dispute resolution through arbitration.

Mr. Kapoor also noted that similar factors led to the expansion of international arbitration in India. He added that a very reactive legislature and reduction of court interference in arbitral awards have played a major role. Mr. Kapoor mentions that talented Indian lawyers who study and train abroad have returned to India to develop the market. High-proficiency in English and the fact that India follows the common law system have also helped.

 

Barriers to Real Diversity; How to Expand the Arbitrators Pool?

Clients, institutions, counsel, and arbitrators argue that the pool of arbitrators should reflect the world it serves. However, it is easier said than done to introduce young faces, particularly from less popular legal systems. Speakers Diamana Diawara (Africa Director for Arbitration and ADR, ICC), José Feris (Squire Patton Boggs), Kevin Nash (Deputy Registrar & Centre Director, SIAC), Emilia Onyema (Professor, School of Oriental and African Studies, University of London), and moderator Vladimir Khvalei (Baker McKenzie) discussed methods to do so while maintaining international arbitration’s reputation for excellence.

There are three types of diversity issues to becoming an arbitration practitioner: gender, age or experience, and ethnic diversity.

As for gender, based on 2020 ICC Dispute Resolution Statistics, the number of women arbitrators increased by 2.3 percent. However, there is regional disparity, and female arbitrators in Europe lead in the number of appointments compared to female arbitrators in other regions.

As for age and experience, while prior knowledge and trust are essential in arbitral appointments, there has been a tendency to appoint younger practitioners as arbitrators in institutions, as seen in the ICSID list of arbitrators. They will provide fresh ideas that would encourage the parties to appoint them instead of traditional names. For practitioners in some regions with fewer arbitrations, achieving the requisite experience level may require practicing abroad—but that changes once arbitration becomes more popular.

However, as to national origin, while French, English, or American arbitrators often practice anywhere, there is an obstacle for arbitrators from other jurisdictions to practice outside their regions. Even though there is a talent pool of arbitrators in Latin America, developing them in the other areas requires more time. Local arbitration institutions could offer a solution by appointing young arbitrators with diverse characteristics as arbitrators, for example, on behalf of the non-participating respondent in cases or nominating young arbitrators as chairs of arbitral tribunals.

Diverse students and practitioners should also consider internships in international organizations such as the United Nations Conference on Trade and Development (UNCTAD), joining young arbitration groups, publishing or speaking at events, and differentiating themselves by getting a degree in international law or obtaining a Ph.D. to build their way in the arbitration world.

Even though education in other jurisdictions helps students and young practitioners build a global network of future arbitrators, there are some obstacles to pursuing these goals, such as financial difficulties. In this regard, several initiatives such as the Racial Equality for Arbitration Lawyers (R.E.A.L.) aim to provide opportunities to diverse students and practitioners.

 

Debate: Is the Future of International Arbitration Regional?

Nakul Dewan SA (Twenty Essex), Mustafa Hadi (Berkeley Research Group), Ucheora Onwuamaegbe (Arent Fox), and Janet Walker (Independent Arbitrator) argued for and against the debate motion. The debate was judged by Sheika Haya Rashed Al Khalifa (Haya Rashed Al Khalifa), Nayla Comair Obeid (Obeid & Partners), and Elie Kleiman (Jones Day).

The first group argued that international arbitration in the future would focus on regional hubs, as shown in the 2021 Queen Mary report that found that the regional seats in arbitration are increasing. In this regard, Singapore and Hong Kong are as popular arbitration seats as Paris or London. The key reasons that made the regional seats more attractive are more support for arbitration by local courts, improved neutrality, impartiality of the local legal system, and a better track record in implementing agreements to arbitrate and arbitral awards.

BITs have also caused the development of regional arbitration centers, such as in the case of Turkey for the China-Turkey BIT. The customers determine the future, not the suppliers, and the parties prefer some centers with shared languages and business cultures. Parties engaging in regional transactions are keen to find someone who understands their needs and the business environment.

The second group argued that the future of international arbitration is not regional. Arbitral awards are enforced globally through the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Technology and new types of transactions will make participation in arbitration easier, and arbitration over these new transactions (such as cryptocurrency) is often focused on subject matter, not geography. All countries must come together to protect the future of international arbitration, and students and young practitioners can benefit from learning from those in other regions.

 

Concluding Thoughts

The event shed light on several questions and issues that are not often touched upon in international arbitration conferences and literature. One issue that was briefly addressed was access to training for junior lawyers from newer arbitration jurisdictions. One of the participants mentioned that only one arbitration center is currently running a virtual internship. Inequalities in access to training exist and have long-term ramifications. More initiatives and broader discussions on reducing inequality in access to training are the need of the hour.

The discussions, especially with people who likely share the same experiences relating to diversity, allowed attendees to reflect not only on the current shortcomings but also the ways forward to achieving more diversity—whether in race, gender, or age—in international arbitration. There is no dearth in initiatives on the part of organizations in achieving diversity. To name a few, organizations such as ArbitralWomen, Rising Arbitrators Initiative and the Racial Equality for Arbitration Lawyers (R.E.A.L.) were launched towards this goal. Recently, Arbitrator Intelligence also launched a diversity campaign to collect feedback that will make it easier for parties, counsel, and institutions to appoint diverse and newer arbitrators.

The event gave a unique opportunity to connect practitioners from across the world and hear inspirational figures share their experience in tackling the challenges to “break in” the world of international arbitration. The authors believe that although there is still much work to be done, the recent increase in the number of initiatives and events like this show that we are moving in the right direction.

References[+]

References ↑1 The authors would like to thank Racial Equality for Arbitration Lawyers (R.E.A.L.) for providing a scholarship to attend the event. function footnote_expand_reference_container_39140_6() { jQuery('#footnote_references_container_39140_6').show(); jQuery('#footnote_reference_container_collapse_button_39140_6').text('−'); } function footnote_collapse_reference_container_39140_6() { jQuery('#footnote_references_container_39140_6').hide(); jQuery('#footnote_reference_container_collapse_button_39140_6').text('+'); } function footnote_expand_collapse_reference_container_39140_6() { if (jQuery('#footnote_references_container_39140_6').is(':hidden')) { footnote_expand_reference_container_39140_6(); } else { footnote_collapse_reference_container_39140_6(); } } function footnote_moveToReference_39140_6(p_str_TargetID) { footnote_expand_reference_container_39140_6(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_39140_6(p_str_TargetID) { footnote_expand_reference_container_39140_6(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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The Contents of the Yearbook Commercial Arbitration, Volume XLVI (2021), Upload 4

Kluwer Arbitration Blog - Sat, 2021-10-16 01:00

Subscribers to KluwerArbitration.com enjoy access to the ICCA Yearbook Commercial Arbitration.

A selection of major CRCICA awards concerning contracts for the supply of commodities and dealing with a variety of notorious issues – parallel arbitration proceedings, non-signatory parties, res judicata, corruption, and force majeure ‑‑ is now available on KluwerArbitration.com.

Two awards, rendered in Madrid and Cairo, relate to the same dispute, and discuss issues connected to parallel proceedings. In the Madrid proceedings, the tribunal held that the claim for shortfall compensation had already been decided in an ICSID arbitration initiated by the same claimant against the State rather than the State entity involved in the Cairo arbitration. The tribunal applied Art. 26 of the ICSID Convention to decline jurisdiction. In the Cairo arbitration, the arbitrators held that the claimant had not breached the arbitration clause that was at the basis of the Cairo proceedings by commencing the parallel Madrid arbitration, as the clause provided for the possibility of multiple arbitrations.

Another award addresses to which extent a non-signatory party was bound to the arbitration clause in the parties’ contract under Egyptian law, addressing doctrines, such as the group-of-companies doctrine. universal succession, implied consent, piercing the corporate veil, and doctrines relating to the creation of confusion as to who the proper party was to the agreement.

Finally, the upload contains four awards rendered in the same case, in which the tribunal discusses the preclusive effect of a related ICC award in a parallel proceeding, arguments that a supply contract had been obtained through corruption, and the role of the doctrine of force majeure.

These awards will also appear in Volume XLVI (2021) of the Yearbook Commercial Arbitration in January 2022.

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Clarity in Dispute Resolution Clauses

Kluwer Arbitration Blog - Fri, 2021-10-15 01:21

How do English and BVI courts address inconsistencies in arbitration clauses? The English Court of Appeal decision in AdActive Media Inc v Ingrouille [2021] EWCA Civ 313 demonstrates that English courts will make every effort to honour the express terms of a contract.

In AdActive, the Court of Appeal examined three apparently inconsistent dispute resolution clauses which appeared sequentially in an agreement. The issue was whether there was an irreconcilable inconsistency between a “Governing law” clause (clause 15) and the provision for arbitration in a “Disputes” clause (clause 17). The result of the appeal was that a California judgment could not be recognised or enforced in England, because section 32 of the English Civil Jurisdiction and Judgments Act, 1982 prohibited the recognition or enforcement of a foreign judgment if bringing those proceedings was contrary to the underlying arbitration agreement.

The “Governing law” clause designated the law of the Federal or State Court of the Los Angeles County in California as the governing law and provided that the state courts in Los Angeles County have jurisdiction. Federal courts are more formal in nature and deal with cases involving federal laws, whilst county courts preside over state and local municipal law cases. A second clause, headed “Consent to Suit” (clause 16), provided that the parties consented to the jurisdiction of the courts of California in relation to “any legal proceedings arising out of or relating to the agreement.” Although the phrase “legal proceedings” could have been misleading because it is relatively wide and lends itself to different meanings, the Court of Appeal found that there was no inconsistency between this clause and the Governing law and Disputes clauses. The Court of Appeal found that the phrase could only be interpreted as referring to court proceedings especially since the agreement contained an arbitration clause which immediately followed the consent to suit clause. Clause 17, the “Disputes” clause, provided that except for claims in relation to certain specific clauses in the agreement, all disputes in relation to the agreement were to be settled or decided by way of arbitration.

First, the Court of Appeal in AdActive reiterated the well-established principle under English law that English courts should, “give effect to every clause of the agreement and not to reject a clause unless it is manifestly inconsistent with or repugnant to the rest of the agreement”.1)Chitty on Contracts (33rd ed.) (2018 and 2nd cumulative supplement 2020) at 13-071. jQuery('#footnote_plugin_tooltip_38949_12_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38949_12_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Upon an examination of the relevant dispute resolution clauses, the Court of Appeal found that it was apparent from each clause and their respective headings that they generally dealt with different aspects of jurisdiction and there was no irreconcilable inconsistency between all three dispute resolution clauses (clauses 15, 16 and 17).  The court relied on the judgment in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, [2020] 1WLR 4117 (previously discussed here and here) for the principle that contracting parties could not have intended that a significant clause, such as an arbitration clause, would be invalid.  This principle originates from a purposive interpretation approach. Based on this reasoning, the court adopted a purposive interpretation of the language of the contract to give effect to, rather than defeat, the underlying aim or purpose of the contract. The court noted that an interpretation resulting in an arbitration clause being void and of no legal effect at all gives rise to a powerful inference that such a meaning could not rationally have been intended by the parties.

The court found that the structure of the provisions provided consistency and noted that the clauses were grouped together, not scattered in unrelated areas. This meant that it was objectively less probable that the clauses were inconsistent. The court reconciled the various dispute resolution clauses contained in the agreement by finding that all claims and disputes arising under the agreement were to be referred to arbitration pursuant to clause 17 except for the specified exceptions under clauses 7 and 8. The excepted category of claims brought under clauses 7 and 8 which related to the use and protection of confidential information and protection of the work product respectively, were specifically to be dealt with by the federal and state courts of Los Angeles County.

Secondly, the court found that the language used in the various dispute resolution clauses lacked similarity and demonstrated the absence of any inconsistency. The court noted that the thrust of the “Disputes” clause as contained in clause 17 was to subject all claims, disputes, etc. to arbitration save for the specified exceptions, of claims brought under clauses 7 and 8 of the contract which could only be brought by way of court proceedings before the federal and state courts of Los Angeles County. This was in contrast to the “Governing law” clause 15 which was concerned with the appropriate court as the venue for cases, suits, actions, etc. which fell within the specified exceptions.

The Court of Appeal’s decision suggests that parties should exercise care when drafting an agreement. As the English courts will seek to reconcile potentially inconsistent clauses where possible and are reluctant to declare an arbitration agreement void or unenforceable unless it is manifestly inconsistent with or repugnant to the rest of the agreement.

A similar warning was echoed in the BVI case of Anzen Limited and others v Hermes One Limited [2016] UKPC 1 in litigation that went up to the Judicial Committee of the Privy Council on the interpretation of an arbitration clause in a shareholder’s agreement providing that either party ‘may submit the dispute to binding arbitration.’ The question was whether that clause entitled the appellant to a stay of litigation under section 6(2) of the relevant act of the time, the BVI Arbitration Ordinance, 1976. There, the Judicial Committee of the Privy Council cautioned that ‘clauses depriving a party of the right to litigate should be expected to be clearly worded.’  However, the court recognised the public policy shift towards upholding arbitration clauses and continued: ‘even though the commercial community’s evident preference for arbitration in many spheres makes any such presumption a less persuasive factor nowadays than it was once.’  The court allowed the appeal, rejected the High Court and Court of Appeal rulings and found that the shareholder was entitled to enforce the arbitration clause by a stay of litigation pursuant to the Arbitration Ordinance, 1976. Whilst the court recognised that the term ‘may’ suggested that arbitration was optional and not mandatory, the court applied the principle in the House of Lords case Bremer Vulkan Schiffbauund Mashinenefabrik v South India Shipping Corp Ltd [1981] AC 909 that parties to arbitration agreements are mutually obligated to cooperate in the pursuit of arbitration. Consequently, whilst the clause did not prohibit shareholders from commencing litigation, its wording permitted the other party to enforce the arbitration clause by the imposition of a stay of litigation and insisting on arbitration.

By the advent of the current BVI Arbitration Act, 2013 the mechanisms for upholding arbitration clauses are now even more robust. For instance, section 59(1) of the BVI Arbitration Act, 2013 provides useful guidance and parameters for binding arbitration agreements, whether signed or unsigned or whether those agreements are for determination of all or some specific disputes by way of arbitration. The Act provides for the recognition of arbitration agreements irrespective of whether they were entered into in the BVI or elsewhere and Part III of the Act provides that arbitration agreements must be in writing and can take the form of a separate agreement or be contained in a clause of an existing contract. The Act also provides guidance on how the tribunal of choice will determine the governing law of the substantive dispute. Section 32 of the Act even includes mechanisms for severing arbitration clauses and treating it as an independent agreement – a useful mechanism for upholding the power to arbitrate even if the main agreement fails or is later found to be invalid.

For users of arbitration, the crucial lesson to be taken from these cases is that careful attention should be paid to ensuring that the dispute resolution clauses accurately and clearly state the intended objective and avoid ambiguity. Clarity of language and intent is critical for ensuring that parties are able to enforce the use of the intended jurisdiction, choice of law and forum when disputes arise. Should there be any ambiguity, this could lead to potentially costly and drawn-out issues that could require a court judgment to resolve. In the BVI, the courts will make every effort to honour the express terms of a contract, and the BVI Arbitration Act, 2013 contains robust mechanisms for upholding arbitration clauses in order to provide a level of reassurance for parties which is also supported by past case law. Nonetheless, the ambiguous wording in AdActive and Anzen Limited resulted in extensive litigation and delay for both cases; a cautionary tale for all.

References[+]

References ↑1 Chitty on Contracts (33rd ed.) (2018 and 2nd cumulative supplement 2020) at 13-071. function footnote_expand_reference_container_38949_12() { jQuery('#footnote_references_container_38949_12').show(); jQuery('#footnote_reference_container_collapse_button_38949_12').text('−'); } function footnote_collapse_reference_container_38949_12() { jQuery('#footnote_references_container_38949_12').hide(); jQuery('#footnote_reference_container_collapse_button_38949_12').text('+'); } function footnote_expand_collapse_reference_container_38949_12() { if (jQuery('#footnote_references_container_38949_12').is(':hidden')) { footnote_expand_reference_container_38949_12(); } else { footnote_collapse_reference_container_38949_12(); } } function footnote_moveToReference_38949_12(p_str_TargetID) { footnote_expand_reference_container_38949_12(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_38949_12(p_str_TargetID) { footnote_expand_reference_container_38949_12(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Conflicting Dispute Resolution Clauses in Related Contracts in the UAE: Which Forum?

Kluwer Arbitration Blog - Thu, 2021-10-14 01:00

The purpose of a dispute resolution clause is to provide for a process and a forum through which disputes can be resolved efficiently. However, dispute resolution clauses are too often ignored and relegated to the end of contractual negotiations or considered boilerplate provisions without regards to the overall context. Issues may arise from the parties’ chosen dispute resolution forum where parties conclude multiple related contracts with conflicting dispute resolution clauses. Efficiency considerations play in favour of having mutual claims arising out of the same fact pattern heard in a single forum although such disputes arise under separate agreements. This is particularly relevant in the context of construction disputes, which frequently involve multiple related contracts and various stakeholders who are not always signatories to the same agreements.

This post reports on a recent decision of the Dubai Court of Cassation dated 21 April 2021 in Case No. 209/2021, which involved claims under two distinct contracts relating to the same transaction but only one of which contained an arbitration agreement. As the arbitration agreement was not binding on all parties, the Dubai Court of Cassation held that the local courts were the proper forum to resolve the parties’ dispute “in the interests of justice” and to “avoid contradictory judgments”.

 

The Background Facts

In this case, a real-estate developer entered into (i) a construction contract for the performance of enabling works for the construction of a tower (the “construction contract”) and (ii) a separate agreement with a consultant for the provision of engineering, design and supervisory services over the enabling works to be performed by the contractor (the “consultancy contract”). The consultancy contract contained an arbitration clause while the construction contract did not.

Following completion of the enabling works, the real-estate developer hired another contractor for the erection works of the tower, but the new contractor faced issues in completing its own works because of inadequate enabling works. Upon the developer’s request, a panel of court appointed experts confirmed that both the first contractor and the consultant defaulted on their respective obligations and were jointly liable to pay damages to the developer.

 

The Judgments

Relying on the experts’ opinion, the developer commenced proceedings before the onshore Dubai court against both the contractor and the consultant jointly, seeking damages for the harm suffered as a result of the consultant having mistakenly certified the enabling works as complete when in fact they were not.

The Dubai Court of First Instance (“Court of First Instance”) accepted the claim against the contractor but dismissed the case against the consultant for lack of jurisdiction based on the existence of a valid arbitration agreement in the consultancy contract, as was raised by the consultant. This decision is in line with the provisions of Article 8 of the 2018 UAE Federal Arbitration Law, which provides that:

[t]he Court before which the dispute is brought in a matter covered by an Arbitration Agreement, shall declare the inadmissibility of the action, if the defendant has raised such plea before any claim or defence on the substance of the case, and unless the Court finds that the Arbitration Agreement is null and void or incapable of being performed”.

Nevertheless, upon appeal by the developer, the Court of Appeal overturned the Court of First Instance decision and rejected the jurisdictional challenge raised by the consultant. In reaching its decision, the Court of Appeal stated that:

(i) A finding of liability on part of the consultant was dependant on a finding of liability on part of the contractor. In other words, to determine whether the consultant was in breach of its obligations under the consultancy contract, it was necessary first to establish a breach by the contractor of its own obligations under the construction contract.

(ii) In the interests of justice and to avoid contradictory decisions, all related issues, should be determined in one forum.

(iii) Given that the arbitration agreement in the consultancy contract was not binding upon the contractor, the claims could not all be determined by arbitration, and the proper forum with jurisdiction was the local court.

Upon further appeal by the consultant, the Court of Cassation upheld the Court of Appeal’s decision and agreed with the reasoning of the lower court that where disputes related to a transaction that was the subject of multiple but closely related contracts, these disputes should not be divided and determined separately. In circumstances where it was not possible for the whole dispute to be determined by arbitration, the forum with jurisdiction must be the court with original competence. The Court of Cassation also noted, in line with previous decisions, that arbitration under UAE law remains an exceptional means of dispute resolution, and arbitration agreements are to be construed narrowly and cannot bind third parties who have not consented to arbitrate, as have been commented on in some previous posts here.

 

Commentary

The Dubai Court of Cassation disregarded an express choice of dispute resolution forum in favour of its own jurisdiction. This decision illustrates that a party may find itself having to litigate before the local courts despite having signed a contract with a valid and otherwise binding arbitration clause if the “interests of justice” so require. However, the decision is fact specific and should be understood in the light of all the circumstances of the case. In this case, the consultancy contract included the arbitration agreement whilst the construction contract, which was arguably the main underlying agreement, did not. The Court of Cassation may possibly have ruled differently if it was the construction contract that contained the arbitration agreement rather than the consultancy contract or if the issue in dispute was a different one, i.e. if the resolution of the parties’ dispute did not depend on a finding of liability under the construction contract.

This decision is interesting as it highlights the importance of ensuring consistency in the choice of dispute resolution in the context of multiple and distinct but related contracts.

If multiple parties to a construction project wish for all their potential disputes to be determined by arbitration, they should ensure that all related contracts contain compatible arbitration agreements allowing for joinder of additional parties and consolidation of arbitrations. Otherwise, they run the risk of having to litigate before the local courts. In this context, it is noteworthy that, unless contracts are entered into on a back-to-back basis, not all parties will necessarily be aware of the contractual terms entered into by others in relation to the same project and/or one party may not be in a strong negotiating position and therefore not able to impose its preferred choice of dispute resolution forum. It will not always be possible to ensure consistency in the choice of dispute resolution forum across all distinct but related contracts at the outset of a particular project. Once a dispute arises, it remains open to the parties to agree to submit their dispute (or a particular aspect of it) to arbitration by signing a separate submission agreement. Submission agreements that allow parties without pre-existing arbitration clauses to choose to submit a particular dispute to arbitration may possibly remedy the absence of a pre-existing arbitration agreement. In practice, parties may sign a submission agreement while engaged in negotiations for resolution of their disputes or even where a dispute is already being litigated before the courts. In the context of multiple contracts, parties should carefully consider how the submission agreement aligns or conflicts with all concerned agreements to ensure it achieves the desired relationship between all contracts. When negotiating and drafting a submission agreement, parties will have to consider (as with any arbitration clause) whether the arbitration should be administrated by an institution or conducted ad hoc, which arbitrations rules are to apply, what the seat of the arbitration and number of arbitrators should be. Once a dispute has arisen, parties have the benefit of understanding the precise issues and amounts in dispute, which will allow them to better tailor the process to best suits their needs.

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What I’m Reading – PBS Documentary on William Randolph Hearst

ADR Prof Blog - Wed, 2021-10-13 20:02
I learned a lot about William Randolph Hearst by watching the PBS American Experience documentary about him.  He is best known as a purveyor of “yellow journalism,” promoter of the Spanish-American War, and the target of the Orson Welles film, Citizen Kane.  The documentary shows that he has had a huge and continuing impact on … Continue reading What I’m Reading – PBS Documentary on William Randolph Hearst →

The Impending Binance Arbitration: a Primer on the World of Cryptocurrencies, Derivatives Trading and Decentralised Finance on the Blockchain

Kluwer Arbitration Blog - Wed, 2021-10-13 01:07

Introduction – What is Binance?

The rise of the cryptocurrency industry has spawned some of the fastest growing and most profitable companies since the original dotcom boom, with those like Coinbase, which was valued at almost US$100 billion after its recent IPO, being prime examples. However, Coinbase, as a cryptocurrency exchange, is dwarfed by the runaway success and size of the Chinese-founded exchange, Binance. On average, around US$100 billion is traded there daily. The current size of this exchange and trading platform is equally impressive in light of the fact that the company was originally founded in 2017 (five years after Coinbase). The reasons for Binance’s rapid development have obviously mirrored the cryptocurrency industry’s massive expansion, but they are also likely due to its unorthodox approach to providing its services in every corner of the globe over the past four years. This latter point is one of the many interesting parts of the impending arbitration to be filed by disgruntled traders against the platform.

 

News of a dispute involving Binance originally broke in mid-August 2021, when mainstream news outlets such as CNBC and the Financial Times released stories about a recently created third-party funder based in Switzerland called Liti Capital, which was planning to fund a ‘class action’ style HKIAC arbitration with potentially up to 700 claimants. The circumstances of the dispute arise out of a shutdown of many parts of the Binance online trading platform on
19 May 2021, the day of one of the largest percentage drops in the value of Bitcoin ever, and allegedly resulting in huge losses for traders who could not access their accounts.

 

What has brought a lot of mainstream media attention to this dispute is Binance’s long-standing, ambivalent approach to regulation when providing its services around the globe. The corporate entities behind the platform have shifted around the world regularly as its success has grown, avoiding stricter regulation as regulators have reacted to Binance’s presence within their remit. Critics have pointed to comments by Binance’s CEO Changpeng Zhao (known colloquially as ‘CZ’) repeatedly touting Binance’s ‘decentralised’ – implying “stateless” or “lawless” – nature.  Let us look at the publicly-known facts.

 

From a corporate legal point of view, Binance appears to have originally been founded in mainland China in 2017, before moving its servers and headquarters to Tokyo, Japan later that year in advance of China’s crackdown on Bitcoin exchanges and initial coin offerings (ICOs). After hints of stricter regulation in Japan in 2018, Binance announced plans to move some of its operations to Malta, and later also to Bermuda and Jersey. Today, the platform has entities in the Cayman Islands, The Seychelles, Singapore, South Korea, Uganda, Ireland, U.S.A and the UK, amongst many other countries, without any clear indication as to which of the entities are parent companies, which are subsidiaries or how they are related.

 

However, in an article published by the South China Morning Post on 16 September 2021, CZ admitted that the platform would need a centralised entity to “work well with regulators”. This marks a turning point from Binance’s prior “catch-me-if-you-can” approach to regulation, and the platform’s recognition that it cannot continue to operate wholly outside of national regulatory boundaries. This recent sequence of events puts to rest the media narrative that Binance as a whole is a stateless and decentralised set of entities with no corporate foundations and therefore a minimal level of obligations to either customers or regulators. An important distinction should be made between the fact that the Binance corporate entities are undoubtedly grounded in the corporate structures of each of their respective countries (and, as such, are clearly subject to their laws) and the fact that a number of services hosted on the Binance platform operate in a legal vacuum, raising the open question of whether the platform is a legal entity distinct from those corporate underpinnings and, if so, what legal regime governs it?

 

The Dispute, and the Billions behind Cryptocurrency Derivatives

While no requests for arbitration or other statements of case have been made publicly available (it is not known, for example, which Binance entity is a respondent), a video interview by CNBC with Liti Capital CIO, David Kay, along with other print interviews, have revealed some details around the potential allegations involved and approximate quantum of the claims. Of the 700 potential traders as claimants, six individuals allege losses of over US$20 million in aggregate, with the size of the total claims possibly reaching more than US$100 million. From the information available, most if not all of the potential claimants appear to have been trading cryptocurrency derivatives, a factor which is key not only to understanding the crux of the dispute but also Binance’s commercial success and the recently heightened regulatory scrutiny of cryptocurrency trading in jurisdictions around the world. Generally speaking, derivatives are contracts created on top of financial assets that have set correlations in relation to those assets.

 

Crypto derivatives on exchanges like Binance are almost identical to those that one might see on stocks, commodities or indexes in traditional financial markets, except for the fact that the underlying financial assets are obviously cryptocurrencies. Where crypto derivatives can be especially risky, and potentially catastrophic, for traders is through the high volatility of cryptocurrencies, especially over short periods of time.

 

What is alleged by the potential claimants in the Binance dispute is that they were unable to access their accounts and/or trading positions during one of the most volatile days in the history of cryptocurrencies.  This was due to Binance’s platform shutting down, preventing them from either limiting their losses, or posting more collateral to avoid liquidation. These types of claims are not unheard of in regulated traditional markets (see India’s NSE outage for four hours in February 2021).  However, in the case of Binance, cryptocurrency trading is unregulated by any jurisdiction other than by subjecting it to de facto bans on crypto derivatives trading in countries such as the U.S., China and the U.K.

 

Unique Aspects of the Binance International Arbitration

On the surface, this is a dispute that presents several features in common with many other disputes regularly brought to international arbitration:

 

  • Binance has Terms of Use that provide a clear reference to HKIAC arbitration, a seat of arbitration in Hong Kong and Hong Kong law as governing law;

 

  • Binance has a number of corporate vehicles behind the platform, one of which is Binance Holdings Limited, a company incorporated and with an address in the Cayman Islands and another being Binance Limited, a company incorporated and with an address in Hong Kong; and

 

  • Although, according to the information shared by Liti Capital, the prospective claimants may attempt to file a class arbitration against Binance, the Terms of Use provide a waiver of class arbitrations, albeit this could have been added after the current dispute started.

 

However, some aspects of this dispute present very unique challenges arising from the world of cryptocurrencies.  Some of these challenges include the following:

 

i. Identifying Proper Parties

While the consistent media characterisation of Binance as an ephemeral, stateless and decentralised platform may be overblown, from a contractual point of view, the Terms of Use for Binance.com remain equivocal as to what Binance corporate entities control and are responsible for the platform’s operations. The Terms of Use refer only to “Binance Operators” as being the parties that run Binance, without naming any incorporated legal persons, and conversely, including language to the effect that the identities of these operators are subject to change. This is likely to be a very hotly contested legal issue in the impending arbitration due to the fact that Binance’s global corporate structure continues to be opaque and unknown, even to regulators such as the UK’s FCA, who reportedly requested this information and was refused by Binance’s UK entity.

 

Further, in a jurisdictional context, the question arises whether Binance would be able to argue that the trading services provided on its platform are decoupled from nearly every Binance entity (especially those which own the majority of its assets) except those entities which Binance could essentially select due to the open drafting of the Terms of Use. This leads to the larger, and unanswered, question of identifying the legal status of the Binance platform itself and how its prior approach to providing its services around the globe has contributed to ‘muddying the waters’ of its corporate governance.

 

ii. Applying Substantive Legal Standards & Potential Arbitrability Concerns

The next question is which substantive legal and liability regimes govern the derivatives trading services allegedly used by foreign claimants on the Binance platform, considering that Hong Kong law (the governing law of the Terms of Use) does not allow unlicensed derivatives trading in its territory and its residents are ostensibly banned from using Binance derivatives services according to the Terms of Use. While we do not know the nationalities of the claimants, it is likely that they comprise a large number of countries. This raises the question of the propriety of the sole application of Hong Kong legal standards to an arguably international and decentralised set of services, performed by the parties outside that jurisdiction. This also has the potential to bring up serious illegality concerns and the question of arbitrability under Hong Kong law.

 

iii. Traditional Enforcement against Cryptographic Assets & On-chain Enforcement

Decentralised services provided through blockchain technology bring about a range of obstacles, and also opportunities, when confronted with the traditional commercial and corporate world.

 

Firstly, the legal nature of cryptographic assets remains uncertain in many jurisdictions, leading to doubts as to the enforceability of a successful award over certain amounts of cryptocurrencies. There are a small number of countries where Bitcoin and other cryptocurrencies are banned or highly restricted but many other countries have simply not yet legislated for their existence. For example, India has not yet attributed any legal status to cryptocurrencies but a legislative bill is being discussed at the present time.

 

Secondly, and perhaps more interestingly from both a technical and practical point of view, is the possibility of on-chain enforcement, e.g. where ownership of cryptographic assets can be automatically transferred to the winning parties of an arbitration through the execution of smart contracts on the blockchain, therefore dispensing with the necessity of resorting to the traditional levers of enforcement such as national courts. Practically, it would appear unlikely that the Binance dispute would culminate with the execution of any type of on-chain enforcement mechanism. However, there are crypto/blockchain disputes which have or currently are being resolved in this manner. Traditional arbitral institutions, such as JAMS, are beginning to look at drafting arbitration rule sets relating to disputes involving smart contracts.

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Negotiation Recipes for Your Students

ADR Prof Blog - Tue, 2021-10-12 13:08
Many of us have used the teaching tool of having our students write their own recipes for negotiation success.  (link to original article here and to earlier blog post here) I so enjoyed these last week for my students that I wanted to share (and encourage everyone to do this–students really enjoyed and I think … Continue reading Negotiation Recipes for Your Students →

Webinar Oct 14 (“Settle and Sue: Managing Malpractice Risks for Mediators and Lawyers”)

ADR Prof Blog - Tue, 2021-10-12 10:39
Later this week, I’ll be part of a webinar on malpractice in the mediation & settlement arenas. This is part of the willworkforfood.news project, (introduced to me by Jeff Kichaven) in which webinar participants are charged no fee, but are invited to make contributions to a local food bank. (My contributions go to: foodforlanecounty.org.) October … Continue reading Webinar Oct 14 (“Settle and Sue: Managing Malpractice Risks for Mediators and Lawyers”) →

Can an Arbitral Tribunal Award a Claim in a Different Currency Than Requested? – The Case of Switzerland

Kluwer Arbitration Blog - Tue, 2021-10-12 01:35

Swiss substantive law allows a debtor to pay a debt in the national currency of the place of payment even though the debt is actually owed in a foreign currency, except for cases where the contract expressly requires fulfillment of the debt in “actual currency” by using the term “actual” or words to that effect (Article 84(2) of the Swiss Code of Obligations). A creditor has to accept fulfillment of a monetary debt payable in Switzerland by means of payment in Swiss francs even if the debt is owed in a foreign currency. In contrast, a creditor cannot claim compensation in a currency other than the currency owed (see, e.g., the decision of the Federal Supreme Court, ATF 134 III 151, consid. 2.2). Thus, a Swiss court cannot award a claim in the national currency of the place of payment if the compensation is actually owed in a foreign currency but has to dismiss such claim (see, the decision of the Federal Supreme Court, ATF 134 III 151, consid. 2.4). Likewise, a Swiss court may not award a claim in the currency owed if the creditor has wrongly claimed compensation in a different currency – by doing so, the Swiss court would violate the Swiss procedural law principle of ne extra petitawhich forbids a court to award “something else than what has been claimed” as set out in Article 58(1) of the Swiss Civil Procedure Code (see, e.g., the decision of the Federal Supreme Court, dated 1 October 2015, Case no. 4A_319/2015, consid. 3). This blog post will shed light on this issue in the context of international arbitration against the background of a recent decision rendered by the Swiss Federal Supreme Court.

 

Swiss Lex Arbitri: Enshrining the Principle of Ne Extra Petita

In international arbitration proceedings, the lex arbitri of Switzerland, as set out in Chapter 12 of the Swiss Private International Law Act (“PILA“), also requires an arbitral tribunals to adhere to the principle of ne extra petita. An arbitral award that disregards this principle may be set aside on the ground as set out in Article 190(2)(c) PILA. Article 190(2)(c) PILA reads as follows:

An arbitral award may be set aside only:

[…]

c. where the arbitral tribunal ruled beyond the claims submitted to it, or failed to decide one of the claims;

[…]

An arbitral award can thus be set aside if it grants a party more than it has claimed (ultra petita), if it grants a party something else than it has claimed (extra petita), or if it fails to decide on one or more claims (infra petita).

In the context of the topic at hand, the question one must ask is whether an award can be set aside in which the arbitral tribunal has awarded payment of a claim in a different currency than the currency claimed, as would be the case under Swiss substantive and procedural law as described above. In a recent decision rendered on 8 April 2021 in French, the Federal Supreme Court was presented with the opportunity to assess this question (Case no. 4A_516/2020, no English translation yet available at the time of this posting).

 

What Does the Federal Supreme Court Have to Say?

The background of the Federal Supreme Court’s decision was an international investment arbitration proceeding under the ICC Rules. The dispute concerned the investment of several Turkish investors in cement plants in Syria. In the course of the Syrian war, in April 2012, the Syrian government lost control over the region where the plants were located. As a consequence, the investors had to abandon their plants. In order to obtain compensation for the value of their investment in the plants, the investors commenced arbitration against Syria and requested payment of damages in USD. In its award rendered on 31 August 2020, the Arbitral Tribunal awarded the investors compensation of their claim in Syrian pounds (SYP) but allowed the investors to request payment in USD at the official exchange rate of the Syrian Central Bank on the day of payment. However, because of the Syrian pound’s significant currency devaluation between 2012 (when the investors lost control over the plants) and 2020 (when the award was rendered), the USD value of the amount awarded in SYP in 2020 was considerably lower than USD value of the amount of damages suffered by the investors in 2012.

The investors commenced setting aside proceedings before the Federal Supreme Court arguing, among others things, that the Arbitral Tribunal had violated the principle of ne extra petita by awarding the investors compensation in SYP rather than in USD.1)The investors also claimed that the award was against substantive public policy as the investors were only awarded a fraction of their loss on investment incurred. This argument was rejected by the Federal Supreme Court. jQuery('#footnote_plugin_tooltip_38927_21_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38927_21_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The Federal Supreme Court considered that the compensation in SYP was “technically” something else than what the investors had claimed (in the words of the Court, an aliud) but nonetheless refused to set aside the award. Rather, the Court considered the investors to lack a legitimate interest in having the award set aside (as required by Article 76(1)(b) of the Swiss Federal Supreme Court Act). According to the Federal Supreme Court, it was uncertain whether a setting aside of the award and a remand to the Arbitral Tribunal for a new decision would be more favorable to the investors. The Court assumed that the Arbitral Tribunal in such case would reject the investors’ claim in USD. Although the investors could commence new proceedings claiming compensation in a currency other than USD, the Court considered that there was nothing to suggest that such a solution would be more favorable for the investors (Case no. 4A_516/2020, consid. 5.5).

Eventually, the Federal Supreme Court left open the question whether an arbitral tribunal can award a claim in a different currency than the currency claimed by the plaintiff. Instead, the Court submitted that the principle of ne ultra/extra petita may be less rigorously applied in a case concerning international commercial law than in a case governed by Swiss law (Case no. 4A_516/2020, consid. 5.5).

 

Federal Supreme Court’s Reasoning Leaves One Unsatisfied

The Court did not answer the question whether an arbitral tribunal can award payment of a claim in a different currency than the currency claimed, although the Court considered that in this case the Arbitral Tribunal awarded something else than what had been claimed. Rather, the Court noted that the principle of ne infra petita might be applied less strictly in an international commercial setting, without however defining what this means.

Moreover, the Federal Supreme Court simply assumed that the Arbitral Tribunal would reject the investor’s USD claim if the case were remanded without detailing the basis of this assumption. The Court’s conclusion that the investors lack a legitimate interest in having the award set aside ignores the fact that the award of a sum in a currency other than the one claimed resulted in a significant loss for the investors because of that currency’s devaluation.

In any case, this decision confirms the high threshold to be met to successfully set aside an award in Switzerland.

 

Key Takeaways

Parties to international arbitration proceedings seated in Switzerland involving different currencies are well advised to assess the correct currency of their claim and, in case the claim is for a currency other than the apparent currency, to show the arbitral tribunal why a different currency is claimed.

In commercial arbitration proceedings, parties should also consider to designate in their contract the currency for all claims arising out of or in connection with the contract. Absent such a clause, under Swiss substantive law, the contractually agreed currency designates the currency of a claim for performance. In case of a claim for damages, the correct currency is usually the currency of the state where the damages occurred (see, e.g., the decision of the Federal Supreme Court, dated 10 February 2017, Case no. 4A_341/2016, consid. 2.2).

In investment arbitration proceedings, the bilateral investment treaty may designate a specific currency for compensation claims, e.g. the currency of the investor’s state of domicile or the currency of the state where the investment is made. In the case at hand, the bilateral investment treaty in question did not designate the currency and the Federal Supreme Court considered that there was no established international rule determining the currency for compensation in investment arbitration (Case no. 4A_516/2020, consid. 4.3.2). In such a case, it is up to the claimant to convince the arbitral tribunal that the claimed currency is the correct one.

References[+]

References ↑1 The investors also claimed that the award was against substantive public policy as the investors were only awarded a fraction of their loss on investment incurred. This argument was rejected by the Federal Supreme Court. function footnote_expand_reference_container_38927_21() { jQuery('#footnote_references_container_38927_21').show(); jQuery('#footnote_reference_container_collapse_button_38927_21').text('−'); } function footnote_collapse_reference_container_38927_21() { jQuery('#footnote_references_container_38927_21').hide(); jQuery('#footnote_reference_container_collapse_button_38927_21').text('+'); } function footnote_expand_collapse_reference_container_38927_21() { if (jQuery('#footnote_references_container_38927_21').is(':hidden')) { footnote_expand_reference_container_38927_21(); } else { footnote_collapse_reference_container_38927_21(); } } function footnote_moveToReference_38927_21(p_str_TargetID) { footnote_expand_reference_container_38927_21(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_38927_21(p_str_TargetID) { footnote_expand_reference_container_38927_21(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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What I’m Reading – The Social Dilemma

ADR Prof Blog - Mon, 2021-10-11 19:56
“Facebook is like a pocketknife:  You can use it to peel an apple or stab a janitor at school.”  So said tech analyst (and talk-show host) Jimmy Kimmel. Noam Ebner (not a talk-show host) wrote, “Its positive characteristics and opportunities notwithstanding, the Internet has become something similar to a bad neighborhood after dark. … Even … Continue reading What I’m Reading – The Social Dilemma →

The Contents of the Yearbook Commercial Arbitration, Volume XLVI (2021), Upload 3

Kluwer Arbitration Blog - Mon, 2021-10-11 01:00

Subscribers to KluwerArbitration.com enjoy access to the ICCA Yearbook Commercial Arbitration.

A new upload of materials for the 2021 volume of ICCA’s Yearbook Commercial Arbitration is now available on the KluwerArbitration website. The upload consists of 27 decisions. Here are some highlights.

The Federal Supreme Court of Germany held that the need to avoid contradictory results required that the applicable-law rules of Art. V(1)(a) of the New York Convention, which concern the enforcement of awards, have to be applied by analogy in proceedings concerning the enforcement of arbitration agreements.

In its decision in the PAO Tatneft v. Ukraine case, which saw judgments in three jurisdictions, the UK High Court rejected Ukraine’s application to deny enforcement of a French investment treaty award under the 1998 Russia-Ukraine BIT, finding that Ukraine could not object to enforcement arguing that the tribunal had lacked jurisdiction, because it had not raised that issue in the arbitration.

Consequences of the COVID-19 pandemic were discussed in two decisions of the Southern District of Florida. In Fnu Isanto, the Court granted a motion to compel arbitration under an employment contract for a dispute concerning the death of a seaman due to a COVID-19 infection he allegedly contracted on a cruise ship because of the failure of his employer to timely implement social distancing measures. In Maglana, the issue was whether the arbitration agreement in the employment contracts of several seamen had become null and void because the cruise ship operator had failed to pay wages when all cruises were cancelled and the seamen were forbidden to disembark due to the pandemic.

Finally, two decisions in the Hulley v. Russian Federation dispute granted or confirmed a stay of the proceedings to enforce three PCA awards, pending a set-aside action in the Netherlands. In November 2020, the United States District Court for the District of Columbia held that a stay was appropriate in terms of judicial economy, balance of hardships, and considerations of international comity – since denying the stay would risk the possibility of inconsistent results in the primary (Dutch) and secondary (US) jurisdictions. Similarly, in April 2021, the English High Court of Justice denied the application to lift the stay previously granted, finding that the grounds for annulment invoked by the Russian Federation in the Dutch annulment action had at least a realistic prospect of success.

More from our authors: International Arbitration and the COVID-19 Revolution
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What I’m Reading – Constructing Good ODR Systems

ADR Prof Blog - Sun, 2021-10-10 21:02
ODR is likely to be an increasingly important part of legal and dispute resolution processes in the future, with potential benefits and risks.  It particularly has great potential to help self-represented litigants (SRLs, aka “pro se” parties). So I was interested to read a draft paper by my colleague, Amy Schmitz, and John Zeleznikow, Intelligent … Continue reading What I’m Reading – Constructing Good ODR Systems →

Cultural Heritage Law and Investment Treaty Law: A Balancing Act?

Kluwer Arbitration Blog - Sun, 2021-10-10 01:45

Investor-state disputes often involve an interplay of different bodies of international law.  In addition to investment law, disputes may invoke issues involving public international law, international human rights law, and international environmental law – and tribunals are faced with the challenges of trying to reconcile the sometimes conflicting rights created under these different bodies of law.  International cultural heritage law is one of the areas of law that can sometimes be relied on in the context of investment treaty disputes, particularly where an investment touches upon an area that has been granted international recognition and protection either by the competent authorities of the host State, and/or by the United Nations Educational, Scientific and Cultural Organization (“UNESCO”).  Relevantly, the 1972 Convention Concerning the Protection of the World Cultural and Natural Heritage (“1972 World Heritage Convention”) creates obligations on States to protect and conserve sites that are inscribed on the UNESCO World Heritage List (article 5), and UNESCO publishes Operational Guidelines requiring States to take legislative and regulatory measures to protect listed sites.

The recent designation of the land at the center of the 4.4 billion USD dispute in Gabriel Resources Ltd. and Gabriel v Romania (ICSID Case No. ARB/15/31) (“Gabriel Resources v. Romania) as a UNESCO World Heritage site brings to the fore the conceptual challenges that may arise where an investment dispute concerns a site of international cultural significance.  In this case, the inscription of Roşia Montană as a World Heritage site came after the tribunal had heard oral arguments and received post-hearing briefs.  Accordingly its significance may be limited for the decision.  However, the case provides a useful opportunity to reflect on past developments in investment treaty disputes involving culturally or environmentally significant sites, and how tribunals might approach these two different bodies of law.

 

Gabriel Resources v Romania

In 2015, Gabriel Resources Ltd. and Gabriel Resources (Jersey) Ltd. (“Claimants”) initiated a claim against Romania under the Romania-Canada BIT and the Romania-United Kingdom BIT.  The claim alleged that the government had breached its treaty obligations by failing to approve the Claimants’ environmental impact assessment and issue an environmental permit to allow exploration at the Roşia Montană gold mining project.

The Claimants’ project was planned for Roşia Montană, which is located in the Apuseni Mountains in the western region of Romania.  The site was used extensively for gold mining during the Roman Empire, and evidence of the infrastructure and mining techniques used during these times is preserved to this day.  The Roşia Montană site is now renowned as the most “significant, extensive and technically diverse underground Roman gold mining complex”.

In 2017, Romania applied to UNESCO to have the Roşia Montană site listed on the World Heritage List.  In 2018 however, Romania suspended this process, reportedly pending ICSID’s determination in the ongoing proceedings.  In February 2020, the Romanian government resumed its application to include Roşia Montană on the World Heritage List.  In July 2021, at the 44th Session of the World Heritage Committee, the Roşia Montană site was inscribed on the UNESCO World Heritage List.  Relevantly, UNESCO noted that “the current mining proposal means that the integrity of the property is highly vulnerable.”  UNESCO also indicated the need for the Romanian government to take adequate controls to prevent active mining licenses on the site from being extended.

As noted above, the tribunal in Gabriel Resources v Romania has already heard oral argument, and received post-hearing briefs. It is unclear accordingly what effect, if any, the UNESCO inscription will have on the dispute.

 

Previous Investment Treaty Cases Involving UNESCO Listed Sites

While the UNESCO listing of the Roşia Montană site came after the hearing in Gabriel Resources v. Romania, there have been a number of earlier cases where tribunals have had to consider the relevance of this cultural designation in determining an investor’s rights.

This issue featured significantly in the proceedings in Thomas Gosling and other v. Republic of Mauritius (ICSID Case No. ARB/16/32), determined in February 2020.  In that case, the claimants alleged that Mauritius had infringed the UK-Mauritius BIT by not granting them the right to build a luxury tourism development in Le Morne, an area in southwest Mauritius that was used as shelter for runaway slaves in the 18th and 19th centuries.  The State had initially provided the claimants with a letter of intent to issue a tourism development certificate.  At the same time however, the State was pursuing UNESCO listing for Le Morne.  After having the application for UNESCO listing twice rejected, the State submitted a further application for listing to UNESCO that stated that development at the site would not be permitted.  Following that statement, the site was approved by UNESCO.  The claimants argued, inter alia, that the revised UNESCO application, which excluded the possibility of future development at Le Morne, constituted an expropriation of their contractual rights.  The majority dismissed the claim.  However, this was not due to the UNESCO listing, but rather on the basis that the State had not yet granted the claimants any development rights nor provided them with any assurances that could give rise to a treaty violation.

Other tribunals have also had to grapple with the relevance of a UNESCO World Heritage Listing for an investment dispute, with varying results.  For example:

  • In Compañia del Desarrollo de Santa Elena SA v. Republic of Costa Rica (ICSID Case No. ARB/96/1), Costa Rica reclaimed property owned by American investors in order to expand the Santa Rosa National Park in the Guanacaste Conservation Area. The investors brought proceedings claiming that the State had expropriated their investment without providing compensation.  While the proceedings were pending, Costa Rica applied for and received UNESCO World Heritage Listing for the Guanacaste Conservation Area.  The tribunal accepted that the property had been expropriated and ordered the State to pay the investors fair market value.  The tribunal noted that while takings for environmental reasons may constitute takings for a public purpose, this does not affect the State’s obligation to pay compensation (Award, February 17, 2000, para 71).
  • In Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt (ICSID Case No. ARB/84/3), the Investors had commenced excavation and construction works to build a tourism complex at the pyramids of Giza, when they uncovered artefacts of archaeological importance. The Egyptian Government then declared the land surrounding the pyramids to be “public property” , and withdrew approval for the project.  Two years later, the Pyramid Fields became a World Heritage Listed site.  The Investors later instigated proceedings claiming that the State had expropriated its investment. Similar to the Tribunal in Saint Elena v. Costa Rica, the Tribunal in this case found that there had been expropriation, but that the taking was in the public interest as it was for the purpose of protecting the State’s antiquities (Award, May 20, 1991, paras 158).  Interestingly however, the Tribunal limited the award of damages to lost profits accrued up to the date that the site was listed as a World Heritage site.  Its rationale for doing so was that the sale of land on a heritage listed site is illegal under Egyptian and international law, and that “any profits that might have resulted from such activities are consequently non-compensable” (Award, May 20, 1992, paras 190-191).
  • In Parkerings-Compagniet AS v Republic of Lithuania (ICSID Case No. ARB/05/8), the Municipality of Vilnius in Lithuania granted the Investor the right to construct parking facilities in the historic city center of Vilnius, a World Heritage Listed site. However, the Municipality later terminated the agreement, due to both technical difficulties and concerns regarding the effects that the project would have on the city’s archaeological heritage.  The Municipality then signed an agreement with a Dutch company for construction of the parking lot.  Relevantly, the Dutch company’s construction plans did not involve excavating under the historic city centre.  The Investor brought proceedings, claiming that Lithuania had breached the 1992 Lithuania-Norway Bilateral Investment Treaty.  The Tribunal however found that the State had not breached its obligations under the treaty, and “historical and archaeological preservation and environmental protection could be and in this case were a justification for the refusal of the [Claimant’s] project” (Award, September 11, 2007, para 392).

 

Takeaways for Investment Law and Cultural Heritage Law

This brief survey of investment law cases involving UNESCO World Heritage Listed sites shows the difficult task that tribunals face in seeking to balance what can be two competing areas of international law.  This challenge is not unique to international cultural heritage law, as tribunals are often required to undertake similar tasks in disputes involving, for example, international human rights law, or international environmental law.

It is clear from this brief survey that tribunals do recognize the legitimacy and, indeed, the value in States taking steps to protect their cultural and natural property.  However, while such actions may be necessary, this does not necessarily relieve States of their obligations under investment law – with these tribunals holding that investors must be compensated for any rights that are transgressed in the process of the State attempting to protect its cultural property.  However, the measure of compensation may vary depending on when the site is listed by UNESCO and whether the tribunal takes this cultural designation into account in determining the investors’ loss.

It remains to be seen whether the designation of Roşia Montană on the World Heritage List at such an advanced stage of proceedings in Gabriel Resources v Romania will be considered by the tribunal in that case.  However, with the number of natural and cultural sites inscribed on UNESCO World Heritage Listing continuing to increase, the issue of how investor’s rights will be balanced against the State’s obligations under the 1972 World Heritage Convention will inevitably come up again, and it will be interesting to see how tribunals continue to balance cultural heritage against an investor’s rights under international law.

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Estonia: Public Policy Must Be Interpreted Narrowly

Kluwer Arbitration Blog - Sat, 2021-10-09 01:30

The 168 parties to the New York Convention, including Estonia, have made a promise to recognize and enforce foreign arbitral awards. One of the few grounds – and probably the most discussed one – to refuse the recognition and enforcement is, under Article V(2)(b) of the New York Convention, the contradiction to the public policy of the country where the recognition and enforcement is sought. The New York Convention Guide admits that public policy forms part of a wider range of tools that allow a court to protect the integrity of the legal order to which it belongs.

Estonia has demonstrated itself to be an arbitration friendly country by defining public policy in a narrow way.

 

Selected case law on public policy

In case 2-18-4731 the Supreme Court of Estonia explained that not all of the country’s mandatory provisions constitute public policy, but only those that reflect the core values of the country’s legal system.

In the same decision, the Supreme Court dealt with enforcement of an arbitral award rendered in a case where the respondent – that was about to become bankrupt – did not dispute the claim. The decision also notes that it was possibly the parties’ joint intent to rapidly obtain an enforcement deed against the respondent before the start of bankruptcy proceedings. This would allow the claimant to have an automatically acknowledged claim in the bankruptcy procedure. The court found that these circumstances do not result in a conclusion that the arbitral award contradicts public policy. Since arbitral awards obtained in Estonia in proceedings where the parties do not argue about the existence and extent of the claim are enforceable, the same should be applied to foreign arbitral awards. Hence, an allegation that the parties have used arbitration to achieve an advantage in the domestic bankruptcy proceedings does not render the arbitral award unenforceable.

Previously, in case 2-16-15675, the Supreme Court had also outlined that the recognition and enforcement of an arbitral award does not contradict public policy merely because the domestic laws of the country where the recognition and enforcement is sought were not followed – in this case, the procedure of service under Estonian law. The Supreme Court opined, however, obiter dictum that Article V(2)(b) of the New York Convention might be triggered where Estonian law does not allow to arbitrate the type of disputes at all. Sections 718 and 7181 of the Estonian Code of Civil Procedure respectively render the residential lease, employment termination and consumer credit disputes non-arbitrable and provide for strict rules applicable to arbitration agreements with consumers.

In contrast, when defining public policy, the Supreme Court found in an earlier case 3-2-1-186-15 that the independence of the arbitrator is a core value of the legal system and constitutes public policy. Estonia would not recognize an arbitral award rendered by an arbitrator who would simultaneously protect the interests of one party.

 

Conclusions

In summary, Estonian courts define public policy in a narrow way. They see arbitrator’s independence and impartiality, as well as non-arbitrability of some disputes, as core values of Estonia’s legal system. An award that contradicts any of these values is not recognized and enforced pursuant to Article V(2)(b) of the New York Convention. Most of the other mandatory provisions do not fall within the scope of Estonia’s public policy and are not grounds to refuse the recognition and enforcement of a foreign arbitral award.

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Aligning Human Rights in Business with International Commercial Arbitral Rules

Kluwer Arbitration Blog - Sat, 2021-10-09 01:00

This year marks the 10th anniversary of the UN Guiding Principles on Business and Human Rights (“UNGPs”), which set out the duties of States and responsibilities of companies to embed human rights considerations in business activities. Of the three Pillars in the UNGPs, Pillar II (principles 11-24) specifically sets out human rights principles by which businesses should abide, including responsibilities to:

  • Avoid infringing on the human rights of others and address adverse human rights impacts (Principle 11);
  • Seek to prevent or mitigate adverse human rights impacts even if they have not contributed to those impacts (Principle 13);
  • Have a human rights due diligence process in place, including the remediation of adverse human rights impacts (Principles 15 and 22); and
  • Seek ways to honor internationally recognized human rights when faced with conflicting requirements (Principle 23).

Despite the enactment of these principles, the scorecard for the first decade has been rather disappointing. According to the UN Working Group on Business and Human Rights, business-related abuses are still a major concern and a source of deep frustration. Child labor implicates 160 million children worldwide. Other abuses range from one-bathroom-break rules to slavery to torture.

As was recognized at UNGPs’ inception, “there is no single silver bullet solution to the institutional misalignments in the business and human rights domain” and all social actors “must learn to do many things differently.” For these reasons, UNGPs have been adopted by standard-setting bodies in the corporate,  investment and accounting communities. In this same line, bar and trade groups are mapping out implementation strategies of UNGPs.

The commercial arbitration community, however, has been largely non-committal. As a recent report on UNGPs notes, commercial arbitration is seen as a “problematic forum” for resolving human rights-related disputes. According to the report, this is due to various features of commercial arbitration, including its “confidentiality, lack of transparency and participation by affected stakeholders, and the lack of human rights expertise of commercial arbitrators.”

While the new Hague Rules on International Arbitration of Business and Human Rights Disputes have been justifiably hailed as a milestone in providing a new forum for human rights matters, as with any arbitral rules, the Hague Rules kick in only if the underlying contract so provides or the parties so agree post-dispute.

Against this backdrop, this post examines the possibility of aligning UNGPs with pre-existing international commercial arbitral rules such as those promulgated by the ICC, ICDR, SIAC, LCIA, UNCITRAL, and HKIAC, with a view to assisting businesses in enhancing their human rights practices.

This post will shed a light on questions such as: (a) should an arbitral tribunal be empowered to consider evidence of human rights violations without fear of breaching its duty to render an enforceable award? and, (b) what if arbitral rules were amended to specifically include language authorizing tribunals to factor in human rights considerations as akin to trade usages?

Such a reference will enable global corporations to assign increased risk factors to human rights abuses (especially when transacting in countries where such abuses are more prevalent). Business decision-makers will thus be able to financially justify reducing human rights abuses.

There are numerous concerns raised by the application of human rights principles to commercial arbitrations; however, such legitimate fears should not be insurmountable, provided that participants are willing to endeavor, with an open mind, to “do many things differently”.

Below are some likely objections and answers to the integration of human rights in international commercial arbitration:

 

Objection 1: Arbitral rules are no place for substantive, non-contractual rights.

Many of the widely-used arbitral rules such as Article 21 of the ICC Rules, SIAC Rule 39 and Article 34 of the ICDR Rules require tribunals to consider trade usages in their determination of liability. According to some practitioners, these types of provisions “underscore arbitration’s historic roots in, and objective of, providing resolutions of disputes in a manner that accords with commercial expectations and practices.” In turn, globally recognized standards are routinely proffered as evidence of trade usages. Given the universally accepted nature of fundamental human rights, UNGPs could be considered analogous to trade usages if deemed applicable to the contract. Accused parties would be hard pressed to argue it is not industry practice to respect human rights in conduct relating to the contract at issue.

The international arbitration community should not disregard the power of institutions to impact business human rights practices. Arbitral rules typically provide that the current version govern even where the operative contract predates rules amendments. Tribunals and national courts have held that a reference to an institution or its rules means the rules themselves form part of the parties’ agreement by incorporation. And, while tribunals’ rulings are sometimes vacated as contrary to national law or public policy, arbitral rules themselves are rarely questioned under party autonomy principles.

One might argue that institutions lack a mandate to meddle in human rights issues. However, institutions are becoming increasingly proactive in shaping arbitration’s operative framework. NIMBY phenomena could be avoided if leading institutions joined forces, as many did last year in issuing their “Arbitration and COVID-19” joint statement.

 

Objection 2: Victims won’t benefit. What’s the point?

One could argue that because arbitration is inter-partes, the application of UNGPs may not benefit non-party victims. However, a reference to human rights considerations should still have an indirect, deterrent effect. Further, a tribunal’s finding that a company violated UNGPs could have a binding, collateral estoppel effect in subsequent or parallel proceedings involving the victims themselves, especially in arbitration-friendly jurisdictions where corporations are often headquartered.

Given tribunals’ broad power to fashion remedies, evidence of UNGP violations could even in some cases lead to an order directing the breaching party to correct its wrong and/or compensate victims. Tribunals might even provide an avenue for victims to join in as third-party beneficiaries or necessary parties, enabling them to obtain relief in the arbitral proceeding itself.

 

Objection 3: Since commercial arbitration is private, will victims even know?

Due to arbitration’s confidential and private nature, victims may never even learn of a finding implicating them. Certain arbitral rules such as SIAC Rule 39 have robust built-in confidentiality protections. That said, in practice, the confidentiality of arbitral proceedings is increasingly called into question, as parties sometimes compromise the confidentiality of proceedings or the award. Taking a page from the Hague Rules mentioned above, arbitral rules could include a carveout allowing evidence of human rights violations a higher degree of transparency in the proceedings.

 

Objection 4: Is this an improper importation of equitable principles?   

One could argue that such provisions grant tribunals equitable powers whereas many arbitral rules prohibit tribunals from deciding as amiable compositeur absent consent. However, such a scenario is unlikely where the reference to human rights or UNGPs is expressly made in the rules, which are considered part of parties’ agreement by incorporation. Parties will remain free to modify or opt out as prescribed in other parts of the various arbitral rules. A tribunal should thus have comfort that it is not acting beyond its mandate from the parties.

 

Objection 5: Delay, costs, and existential threats: will there be user support for this proposal? 

Injecting human rights concepts into arbitral rules could reduce the predictability of the outcomes, delay proceedings and increase costs, at a time when the arbitration community is striving to do the opposite. Amidst a renewed debate on international commercial courts and the Hague Choice of Court Agreements Convention, such references could discourage arbitration. However, if fairness, security, or conflicts of interest are worthy of consideration in arbitral proceedings, human rights deserves its own seat at the table. Moreover, the risk of counsel or parties abusing human rights issues is mitigated by already-existing rules empowering tribunals to determine relevance, weight, admissibility, and materiality of evidence.

 

Objection 6: Will it be a toothless addition?

UNGPs use predominantly permissive language (e.g., “should” and “responsibility” instead of “shall” or “duty”). While human rights will not likely confer a separate cause of action for breach of UNGPs until codified in national laws, the commercial arbitral community should begin somewhere. Empowering counsel and parties to proffer, and tribunals to consider, evidence of UNGPs or human rights considerations would be a good starting point.

Notably, Commentary to UNGP 11 notes: “The responsibility to respect human rights…exists over and above compliance with national laws and regulations protecting human rights.

 

Conclusion:

The most frequent opposition might be “it’s just not done.” As others have noted, we must “learn to do many things differently.” Commercial arbitration should not be considered a problematic forum in businesses’ efforts to promote human rights.

Throughout history, arbitration has flourished in societies that prioritized human rights, and floundered in those that did not. The arbitration community owes its existence to a humane society. Even if the most we achieve is giving rhetorical power to business’ human rights decisions, that would be a start. Ultimately, we need to find ways to do our share.

 

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Arbitrability of IPR Disputes through the Lens of the Iranian Legal System

Kluwer Arbitration Blog - Fri, 2021-10-08 01:00

A significant number of disputes related to Intellectual Property Rights (“IPR”) that have been settled by arbitration are reflected in the 2011-2020 World Intellectual Property Organization (“WIPO”) Caseload Summary. The expansion of the notion of arbitrability to include IPR disputes in recent years illustrates the global trend toward arbitration of IPR disputes despite concerns over the capability of resolving such disputes through arbitration in some jurisdictions, which include Iran, Brazil and South Africa.

This post explores the Iranian approach to the аrbitrаbility of IPR disputes. In doing so, this post will briefly explain the intellectual property landscape of Iran before discussing the arbitrability of IPR disputes in Iranian intellectual property and arbitration legislations.

The IPR Legal Regime in Iran

IPR essentially deal with creativity and innovation. The IPR regime seeks to “balance the moral and economic rights of creators and inventors with the wider interests and needs of the society” through legislation. In the Iranian legal system, the main legislature related to IPR at the domestic level currently are the Act for the Protection of Authors, Composers and Artist Rights 1970, Patents, Industrial Designs and Trademarks Registration Act 2008, the Act on translation and reproduction of books, publications and audio works 1974 and the Act on the protection of rights of computer software creators 2000.

At the international level, Iran is a member of WIPO and has acceded to key intellectual property treaties such as the the Paris Convention for the Protection of Industrial Property, the Madrid Agreement and Protocol for International Registrations of Trademarks, the NICE Agreement for International Classification of Goods and Services, Lisbon Agreement for the Protection of Appellations of Origin and their International Registration. In the context of copyrights, however, Iran has not signed the Berne Convention for the Protection of Literary and Artistic Works. Hence, Iran has not gone as far as the west with respect to its intellectual property legislation.

Arbitrability refers to whether a dispute is capable of resolution by arbitration or whether it can only be adjudicated through the domestic courts. Generally, non-arbitrability is dependent on a number of factors and each state determines whether a dispute is arbitrable by considering its own economic, social and legal circumstances The arbitrability of IPR disputes in the existing Iranian IPR regulations and in the current arbitration legislations will be discussed below.

Arbitrability in the IPR Legislation

Neither of the existing IPR domestic legislation in Iran expressly prohibits recourse to arbitration for IPR disputes. However, pursuant to article 59 of the Industrial Designs and Trade Marks Registration Act, “disputes related to the application of this Act and the relevant bylaws shall fall within the scope of jurisdiction of the general courts of Tehran that shall be designated by the head of the Judiciary within a maximum period of six months, from approval of the present Act”. The wording of this provision is ambiguous and leads to confusion as to whether it provides for the exclusive jurisdiction of the courts in resolving disputes falling under this statute or whether it merely comments on the exclusive jurisdiction of Tehran general courts. Legal scholars note that this article is concerned with the exclusive jurisdiction of the courts of Tehran in cases where they are the only or chosen dispute resolution forum, and not the exclusive jurisdiction of the courts over IPR disputes. This particular article should be read alongside other articles like 18, 41 and 29 dealing with the jurisdiction of the courts over disputes regarding the annulment of the registered patents and trademarks. Therefore, it would seem that only those IPR disputes that require registration at the Iranian Industrial Property Office are to be exclusively settled in the courts. Under this interpretation, state sovereignty and the right of a state to legislate in the public domain is preserved when IPR disputes are arbitrable and article 59, as mentioned above, is indicative of the exclusive jurisdiction of domestic courts over some IPR disputes.

Arbitrability in Iran’s Arbitration Legislation

The criteria for arbitrability is mainly set forth in the Iranian Civil Procedure Code and Law on International Commercial Arbitration 1997 (“LICA”). Article 496 of the Iranian Civil Procedure Code provides an illustrative list of the non-arbitrable disputes, which include disputes related to insolvency, marriage, divorce and paternity. Additionally, article 34.1 of LICA stipulates that if “[t]he subject matter of the dispute is not capable of settlement by arbitration under the laws of Iran”, the arbitral award is unenforceable, null and void. There is no express reference as to whether IPR disputes are arbitrable in the arbitration legislations.

There is also a restriction under article 139 of Constitution which requires authorization from the board of Iranian Ministers/Parliament before disputes pertaining to public and state properties can be referred to arbitration. Yet, this article is vague as to the arbitrability concept. Its wording gives rise to doubts as to which disputes may be arbitrable. Indeed, Iranian courts have interpreted the wording in different ways. For instance, the First Instance Court had ruled that there was no restriction on referring disputes involving governmental companies to arbitration and article 139 was merely applicable to governmental properties (judgement number 8809970228700102, 3 May 2009). However, in the same case, the Appeal Court reversed this and held that since the party was an insurance company and the shares belonged to the government, the properties also belonged to the government. Therefore, the dispute was not deemed to be arbitrable.

More importantly, the Comprehensive Draft Bill on Arbitration (“Comprehensive Draft Bill”) was recently drafted with contribution by the Judiciary and the Iran Chamber of Commerce in order to foster the use of arbitration in light of the Sixth Development Plan which sets out the general goals and the economic, cultural and social development plans of Iran for 2016 to 2021. The Sixth Development Plan has also adopted a pro-arbitration policy by stating that arbitration should be promoted in Iran. At the time of writing, the Comprehensive Draft Bill has not yet been ratified in the Parliament but can be relied on to better understand the latest approach of the legislator. Article 5.3 of the Comprehensive Draft Bill states that “if one of the parties is a governmental entity like Industrial Patent Office or the Ministry of Culture and Islamic Guidance, the IPR disputes are not arbitrable”. In other words, both disputes that require registration in the governmental authorities like the disputes related to the registered IPR, patents, designs or trademarks are not arbitrable. This is due to the exclusive jurisdiction of the Iranian domestic courts over some registered IPR disputes. Disputes related to marriage, divorce, paternity, custodianship and insolvency are also considered non-arbitrable pursuant to articles 5.1 and 5.2.

Further, according to the note in article 5 of the Comprehensive Draft Bill, “the disputes related to infringement of rights, transfer of rights, exploitation privileges and similar to these issues are arbitrable”. For the first time, Iranian legislation contains a provision on the resolution of IPR disputes in Iran that expressly allow for it to be arbitrable. Contrary to the registered IPR that are territorial in nature, disputes regarding the transfer of trade secrets, for example, which do not require to be registered and have private and confidential nature do not raise the sovereignty or public policy defense. The logic behind this categorization here is to avoid a situation where the arbitrators invalidate actions undertaken by the governmental authorities in response to the respondents’ challenging the registered IPR and initiating a jurisdictional defense.

While disputes concerning breaches of IPR, assignments of ownership or interpretation of license agreements ought to be arbitrable, challenges on the validity of IPR should not be resolved through arbitration. Given the fact that the issues of validity and ownership of IPR are associated with enforcement by the governmental IPR offices, the protection of these rights is territorial. These include, for instance, patents that are granted by a government for an invention.

On the global front, public policy restrictions and accordingly reservation of the exclusive jurisdiction of the state courts are the major grounds for the non-arbitrability of certain types of IPR disputes. It seems that the prescribed arbitrability of the IPR disputes in the Comprehensive Draft Bill are not merely concerned with whether they fall within the ambit of public policy. Instead, it is whether they fall under the exclusive jurisdiction of the national tribunals over registration of these rights.

Concluding Remarks

The current position on the arbitrability of IPR disputes under Iranian law still remains unsettled. It remains to be seen whether the Comprehensive Draft Bill will eventually be ratified in the Parliament or not. No specific case law has been reported in this regard and future case laws would be welcomed to clarify the issues discussed above.

However, the existing domestic regulations and the Arbitration Bill suggests that the types of IPR disputes need to be differentiated. To this effect, only the disputes related to a governmental entity or those that require registration should be deemed non-arbitrable. It is recommended that the domestic laws include express provisions which authorize the resolution of certain IPR through arbitration. In other words, there exists a strong need to modify the current legal framework for arbitration in order to have an enhanced arbitration-friendly environment to resolve complex IPR disputes more efficiently and effectively. Until such a reform is achieved, parties should take into account whether the applicable law of their contract and the law of the state where the award will finally be enforced recognizes the arbitrability of the IPR or not.

At the international level, the heavy caseload, highly technical subject matter of disputes, as well as agility, neutrality, specialty and confidentiality of the proceedings are reasons to shift towards arbitration as the preferred forum of dispute resolution for IPR disputes. In Iran, however, some of the IPR practitioners are not yet acquainted enough with the peculiarities of arbitration and prefer litigation. Hence, more initiatives should be taken to promote training in arbitration generally as well as for the IPR disputes.

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Can Derivative Action Claims Be Arbitrated? Scenes From A Convoluted Indian Approach

Kluwer Arbitration Blog - Thu, 2021-10-07 01:00

There is no statutory provision that covers derivative actions by shareholders in India. However, the chapter on Prevention of Oppression and Mismanagement in the Companies Act, 2013 (“the Companies Act”) comes the closest. While Indian courts have generally adopted a stance against the arbitrability of oppression and mismanagement matters (Rakesh Malhotra v. Rajinder Malhotra, Sporting Pastime India Ltd. v. Kasturi & Sons Ltd.),  their stance on derivative action suits is unclear. At the outset, oppression, mismanagement, and class action claims are considered to be quite different from typical derivative action suits in the Indian context because of two reasons: (1) derivative suits implicate corporate/economic rights of the shareholders instead of their personal rights; and (2) due to this, in oppression, mismanagement, and class action lawsuits, the shareholders file applications on behalf of members for personal reliefs to protect themselves, whereas in derivative actions remedies are sought on behalf of the company. In that regard, the rationale to justify the non-arbitrability of oppression and mismanagement matters cannot always apply to derivative action suits. Thus,  derivative action claims were first held to be arbitrable in “Rashmi Mehra”) by the Bombay High Court that distinguishes them from oppression and mismanagement cases.

 

Review of Judgments

The status quo changed when the Bombay High Court delivered its judgement in Onyx Musicabsolute.Com Pvt. Ltd. v. Yash Raj Films Pvt. Ltd. & Ors. (“Onyx”) after dealing with an application under (“the Act”), which was essentially in the nature of a derivative action. Section 9 of the Act deals with interim measures that can be granted by the Court before or during the arbitral process, or any time after the arbitral award is made but before its enforcement. In Onyx, the plaintiff and defendant no. 1 formed defendant no. 2 as a joint venture, each holding 50% of the shares. Thereafter defendant no. 1 and no. 2 entered into a licensing agreement where mobile rights of films produced by the former would be licensed to the latter. Certain disputes arose due to defendant no. 1 allegedly breaching the agreement and licensing certain films to a third party instead of defendant no. 2. Arbitration proceedings were initiated, pending which an injunction was requested by the plaintiff under Section 9 to bar defendant no. 1 from licensing rights to the third party. The court refused to enjoin defendant no. 1 under Section 9, citing two reasons: first, the license agreement containing the arbitration clause was between the defendant no. 1 and 2 and not the plaintiff, which disentitled it from invoking said clause; and second, since the Section 9 petition was essentially in the form of a derivative action, it was much better suited for a public forum and not a private mode of dispute resolution such as arbitration. Interestingly, it did not refer to Rashmi Mehra, a judgment delivered by the same court only a couple of years earlier.

Onyx was later distinguished in Rajiv Vyas v. Johnwin Manavalan Groge Mandavalan & Ors. (“Rajiv Vyas”) and Welspun Enterprises Ltd. v. ARSS Infrastructure Projects Ltd. ( “Welspun”). In Rajiv Vyas, the petitioner (holding approx. 33.3% of the total shares) and the respondents entered into a shareholders’ agreement to form an entity for their business. When the respondents tried to alienate certain rights of the company, the petitioner initiated arbitration proceedings and filed an application under Section 9 of the Act to restrain the respondents from acting against the interests of the company. Since the shareholders’ agreement contained an arbitration clause and the conduct of the respondents affected not only the company but also the petitioner, the court allowed the Section 9 application. Welspun also relied on Rajiv Vyas instead of Onyx, thereby allowing the Section 9 application despite the petition partly containing requests to protect the personal rights of the shareholders, and partly to protect the company’s. It reasoned that if there is a shareholders’ agreement between the shareholders, and if one shareholder wants to protect his rights as well as the rights of the company itself by virtue of any breach committed by another shareholder, he would be entitled to pursue arbitration provided such shareholders’ agreement contains an arbitration clause.

 

Observations and issues

There are two elements that could make a derivative action claim arbitrable, each associated with certain challenges.

First: There should be an agreement to arbitrate between the shareholders, or the shareholders and the third party against whom reliefs are to be claimed on behalf of the company. This does not seem to be as rigid a rule as Onyx makes it out to be, since, in Rashmi Mehra, the contract did not contain an arbitration clause. Instead, there were several interconnected contracts, only one of which provided for an arbitration agreement. The court held that since the contract containing the arbitration clause was the backbone of the entire transaction, a shareholder could invoke arbitration under an ancillary agreement and bring derivative action matters before the tribunal. A similar argument could be made in favour of arbitrability of the derivative action claim in Onyx as well. As mentioned before, the plaintiff-shareholder was not a party to the breached licensing agreement, but rather the defendants no.1 and no. 2 (the company) were. However, the license agreement stated that it would remain valid as long as the JV agreement concluded between the plaintiff, defendants no. 1 and no. 2 remained in full force and effect. Therefore, applying the interconnectedness test laid down by Rashmi Mehra, even if the plaintiff was not a party to the license agreement, it could have derived the right to arbitrate on behalf of the company through the JV agreement since the validity of the former was wholly dependent on the validity of the latter, making it the “backbone” of the entire transaction.

In a way, this reasoning is in concert with the very nature of what a derivative action claim is: a shareholder simply acting in the shoes of the company to secure its interests. Since the derivative action is brought on behalf of the company, the shareholder would be bound by the company’s intention to arbitrate even if the shareholder is not a specifically-stated party. This is the very principle In re: Salomon Inc. Shareholders’ Derivative Litigation relied on to allow arbitrability of derivative claims in the US, adducing that since the company is the true plaintiff in a derivative action, a pre-dispute arbitration agreement between the company and a third-party would inevitably bind the shareholders to arbitration as well.

Second: According to Onyx even if an arbitration clause exists, the court can refuse referral of the dispute to the tribunal on the ground that it is better suited to adjudication by the public forum, implying that public policy is affected. This rationale seems rather regressive, especially considering that in the US, it is already well-established that shareholders of close, privately-owned corporations can arbitrate derivative claims. For example, in Lane v. Abel-Bey, a New York court explicitly dismissed the contention of public policy precluding arbitration of derivative action claims, holding instead that this would not be the case in privately owned, close corporations. This was also the situation in Onyx, where the company on behalf of which the plaintiff-shareholder approached the court was a private, closed one. Further, refusing arbitration of derivative claims on the premise of public policy, especially in a private company with merely two shareholders, would go starkly against party consent, a principle so dearly held on a pedestal by the court itself.

Another problem flows from the decisions of Rajiv Vyas and Welspun. Both decisions considered the Section 9 applications as affecting the shareholders’ as well as the company’s rights. It was considered to be a derivative action only in part, which was enough to permit arbitration. In fact, Rajiv Vyas distinguished itself from Onyx on this very ground, surprisingly so since an injunction similar to the one in Onyx was sought by a shareholder with even less shareholding than the plaintiff-shareholder in Onyx. Yet, the court opined that not granting the injunction would cause irreparable injury not only to the interests of the company but also to the plaintiff in his capacity as a shareholder. Similar reliefs were claimed in both, but the court reached a different conclusion in Rajiv Vyas, reasoning that the reliefs claimed were in part personal and in part derivative, making the dispute amenable to arbitration. This approach of the court seemingly stands against the test of Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya (“Sukanya Holdings”), which held that a cause of action cannot be bifurcated when referring a dispute to arbitration. If, on the other hand, the court considered Rajiv Vyas to be an exception to Sukanya Holdings, there seems to be no reason for the court to refuse arbitration for even fully derivative claims that affect solely the corporation’s rights. Nevertheless, there appears to be no straitjacket criteria to determine which reliefs claimed in the name of the company are derivative or personal. These need to be culled out by the judiciary as the test for arbitrability of derivative claims hinges on the same.

 

Concluding remarks

Onyx has been used time and again by courts to refuse arbitration of derivative claims despite it being untenable and flawed. Given that Indian courts have started adopting a general policy in favour of arbitration, there is no reason why derivative action claims cannot be arbitrated when the requisite intent is present. Since the Companies Act does not provide for derivative action claims, such claims continue to rely on judicial determinations only, which as demonstrated in this post, have faced differing interpretations and approaches. It is high time the Indian judiciary adopts an approach consistent with international standards regarding the arbitrability of derivative claims.

 

 

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The Future of International Arbitration: The Road to Greener Arbitration and Reflections on the upcoming 2022 NAI Arbitration Rules and Recently Revised Arbitration Rules

Kluwer Arbitration Blog - Wed, 2021-10-06 01:47

On 15 September 2021, the Netherlands Arbitration Institute (NAI) and Young NAI organized a webinar that focused on the upcoming 2022 NAI Arbitration Rules and also covered other developments related to green arbitration, transparency, diversity and efficiency in international arbitration. Allen & Overy hosted the webinar, with Marieke van Hooijdonk opening the event.

 

The 2022 NAI Arbitration Rules

The webinar commenced with a presentation on the forthcoming 2022 NAI Arbitration Rules by Gerard Meijer (Chair of the NAI) and Camilla Perera-de Wit (Secretary General of the NAI). Key features covered included:

  • The creation of a Court of Arbitration at the NAI, alongside the NAI’s existing bodies. The idea is that the NAI Court would perform the tasks that are presently assigned to the NAI Administrator. The advantage would be to have special external members in the Court, who could be involved where the NAI appoints an arbitrator, this in order to safeguard a widely supported, objective appointment process, in all respects (in terms of quality, conflicts, repeat appointments, diversity, etc.).
  • Under Article 13 of the 2022 NAI Arbitration Rules, the mechanism for the default appointment of arbitrators – i.e., the appointment of an arbitrator if a party fails to appoint an arbitrator – will no longer use a list procedure, but be through direct appointment by the NAI.
  • In relation to challenges to arbitrators, the NAI intends to introduce a fee for the challenging party and to facilitate the challenges against members of the Challenge Committee. The NAI also intends to sanction abuse of rights in relation to (repeat) challenges. Lastly, where a challenge to an arbitrator is upheld, the NAI will provide a determination as to what should happen to that arbitrator’s fees.
  • Opt-out expedited rules, which will apply if the amount in dispute does not exceed EUR 2 million. The expedited rules will provide for the appointment of a sole arbitrator through the list procedure, one round of written submissions and a single virtual hearing. Awards will have to be rendered within 5-6 months after the date of the case management conference (CMC).
  • Although virtual hearings were already possible under Article 21(10) of the 2015 NAI Arbitration Rules, the 2022 NAI Arbitration Rules will confirm the option in a more prominent way. The NAI also intends to explicitly reference The Hague Video Conference and Virtual Hearing Guidelines 2020, jointly drafted by the NAI and the Dutch Arbitration Association.
  • Article 44(5) of the 2022 NAI Arbitration Rules will provide a basis for the scrutiny of arbitral awards by the NAI.
  • Parties who agree to arbitration with a place of arbitration in Amsterdam may designate the Netherlands Commercial Court as the appropriate court for any post-award – and sometimes even pre-award – court litigation, enabling the parties to conduct the proceedings in English. The NAI and the Netherlands Commercial Court have drafted a model clause for this . The NAI is also looking into the possibility of including in its Rules that, absent party agreement otherwise, Amsterdam will be the standard place of arbitration for arbitrations conducted in the English language. In such situations this would then allow the parties to fully agree to arbitration related litigation at the Netherlands Commercial Court, even after the arbitral award is rendered.
  • In order to improve transparency, the NAI is currently looking to provide for the publication of decisions on challenges to arbitrators, alongside the publication of appointments of arbitrators in NAI arbitrations. Furthermore, the NAI is looking to provide for the disclosure of third party funding in arbitral proceedings.
  • The NAI will include provisions on data protection and cybersecurity in the 2022 NAI Arbitration Rules.
  • The 2015 NAI Arbitration Rules already established a move from hard-copy communication to electronic communication. Taking this further, the 2022 NAI Arbitration Rules will provide for the possibility of rendering e-awards, as permitted by the Dutch Arbitration Act. The NAI is also exploring fully incorporating the Green Protocols in the 2022 NAI Arbitration Rules.

 

Keynote speech: green arbitration

The panel discussion on the 2022 NAI Arbitration Rules was followed by a keynote speech by Lucy Greenwood, arbitrator and initiator of the Campaign for Greener Arbitrations. Ms. Greenwood referred to climate change and set out what arbitration professionals can do to address it. According to Ms. Greenwood, arbitral institutions have key role in encouraging changes and promoting initiatives to facilitate greener arbitrations; such as allowing virtual hearings to limit (air) travel and providing for digital submissions. To assist in implementing these changes, the Campaign for Greener Arbitrations has drafted Green Protocols, which provide guidance on how stakeholders can adopt more environmentally sustainable behaviours.

 

2nd panel discussion

Ms. Greenwood’s keynote was followed by a panel discussion, which included Thomas Stouten as moderator, Bregje Korthals Altes-van Dijk, Jacomijn van Haersolte-van Hof, Vanessa Foncke and Sophia von Dewall.

The panel first discussed sustainability measures in arbitral proceedings. The panel agreed that arbitral institutions should take a leading role in relation to sustainability, while being mindful that a one size fits all-approach may not be appropriate (e.g., with regard to the use of virtual hearings or the use of platforms for the submission of documents).

The panel then discussed the introduction of a registry fee in the NAI Arbitration Rules with regard to the challenge of arbitrators. One of the speakers noted that this could be a good instrument to avoid frivolous challenges, but wondered whether a flat fee would be the most desirable approach. The same speaker argued that an hourly fee rate would be preferable. Another speaker stated that the NAI is yet to decide between a flat fee or an hourly rate. If the NAI chooses to establish a flat fee, it should be low enough so as to ensure that parties have proper access to challenge proceedings. The third speaker concurred with the first speaker, while the last speaker questioned if a registry fee would form a sufficient hurdle to prevent frivolous claims. In the last speaker’s opinion, devising other mechanisms can also assist in deterring parties from abusing challenges.

The panel then discussed the change to the role of the list procedure in case of direct appointments by the NAI. One of the speakers emphasized that the proposed changes do not mean that the list procedure would disappear: parties would still be able to agree on the application of the list procedure. However, only where a party fails to appoint an arbitrator will the arbitrator be appointed directly by the NAI. That same speaker mentioned that the change will have several benefits. The direct appointment will enhance efficiency while the direct appointment of an arbitrator by the NAI Administrator will also contribute to increased diversity. Two of the other speakers largely concurred, with one agreeing that an NAI Court should be designated as the appointing body instead of the NAI Administrator. The last speaker advocated maintaining the current use of the list procedure and stated that the list procedure is a unique selling point of Dutch arbitration, which is gaining popularity internationally. Whilst said speaker recognized the difficulties that arise with regard to the application of the list procedure, that person urged not to underestimate the importance of it, even as a fallback appointment mechanism. All panel members agreed that the list procedure would need to be maintained, as also envisaged, in case of multi-party arbitration.

The panel also discussed the thresholds for the applicability of expedited rules. One of the speakers observed that CEPANI maintains a different threshold for expedited proceedings than the one suggested in the 2022 NAI Arbitration Rules. Another speaker confirmed this, while emphasizing that it can be difficult to establish criteria for the application of expedited proceedings. That person expressed doubt as to whether a monetary value is an appropriate threshold, as disputes of lower values are not necessarily less complex. An alternative could be to establish more flexible criteria. UNCITRAL circumvented these problems by making expedited proceedings opt-in, but the speaker argued that this may reduce the utility of these proceedings, as parties would have to opt-in to them in advance, concluding that a financial threshold would still be the best option. A third speaker concurred that establishing a threshold may be challenging and encouraged offering the possibility of expedited proceedings, but argued that flexibility is needed. That person asserted that the rules should also allow for a rejoinder as well as other available options that would be applied at the discretion of the arbitrators. Another speaker noted that establishing a threshold remains a process of trial and error. The threshold in the NAI proposal is based on its own experience and experiences of other arbitration institutes. Finally, the last speaker urged the NAI to consider the impact of the threshold and stated that, with the proposed threshold, the measure would likely affect a large number of cases and would impose a rather big difference from the procedural route that parties might expect when agreeing to arbitration under the NAI Rules.

The panel discussions ended with a summary of the discussions and the conclusion that, although the panel members made some critical remarks regarding some of the details of the proposed amendments to the NAI Arbitration Rules, the overall approach was rather positive.

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What I’m Reading – Worth

ADR Prof Blog - Tue, 2021-10-05 21:15
Who’d expect Netflix to produce a movie about dispute system design?  Or that it would be really good? Its docudrama, Worth, about the process of designing and implementing the 9/11 Victims’ Compensation Fund, actually is terrific.  (Note that this What-I’m-Reading series isn’t limited to just reading stuff.) It is based on Kenneth Feinberg’s book, What … Continue reading What I’m Reading – Worth →
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