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2022 Year in Review: Australia, New Zealand and the Pacific Islands

Mon, 2023-01-09 00:31

Introduction

In 2022, we witnessed the growth of efforts to understand and promote the use of arbitration across Australia, New Zealand and the Pacific Islands. These efforts largely took the form of empirical studies and reports, as well as the resumption of in-person events. Legal and policy developments in both commercial and investor-state arbitration have also continued through the work of judiciaries and legislatures. In this post, we highlight some of the key progress in the region last year.

 

Australia

Law Reform / Development

ACICA’s Reflections Report published in 2022 highlights that over the past decade, Australia has established itself as a “modern, progressive arbitral jurisdiction with a large and cohesive arbitration community”. This sentiment is also reflective of Australia in 2022.

In 2022, ACICA has continued to support the development of arbitration within Australia by launching a new survey to gather information in an attempt to foster a greater understanding of evidence in international arbitration and consequently use this data to advance arbitration practice in Australia (and abroad).

In the face of climate change, a common theme throughout 2022 across the globe has been renewable energy and green arbitration. This was also reflected in Australia via discussion of arbitration’s role in disputes concerning the decommissioning of oil and gas assets as Australia transitions to other energy resources. It is important that such conversations are taking place to ensure that arbitration is able to cater to the ever-changing disputes landscape and the various challenges that come with it. It also assists stakeholders by preparing them for matters prior to any dispute arising by outlining these projected challenges and issues.

In addition, we saw how Australia’s domestic arbitration legislation and its alignment with the Model Law is not only ensuring uniform decisions across states and territories but also assisting in Australia’s ability to contribute to international jurisprudence and pave the way to establishing itself as a hub for international arbitration. Still, there is room for improvement. In a recent interview with this blog, Caroline Kenny KC expressed the need for the Australian Government to provide more support to international commercial arbitration in order for it to be able to compete with other Asia-Pacific seats.

 

Events

The year 2022 saw a new wave of in-person events in Australia following the last few years of COVID-19 restrictions. These events often continued to cater for virtual attendance, manifesting an inclusive and timely shift to the modern arbitration world. Discussions centred around many of the current prominent themes in the arbitration community, including technology arbitration, emergency arbitration, expert evidence, foreign investors and government policy on investor-state arbitration. These discussions demonstrated the adaptability of arbitration and showcased the benefits of arbitration to its users while ensuring that Australia remains up to date with new trends and developments.

 

Case Law Developments

Last year a number of decisions rendered by Australia’s judiciary reflect the pro-arbitration stance of Australian courts. Among others, these included:

  • In Lee v Lin & Anor [2022] QCA 140, the Supreme Court of Queensland upheld that a dispute resolution clause providing for “final settlement by a single arbitrator” was in fact an arbitration agreement.
  • In WCX M4-M5 Link AT Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd (No 2) [2022] NSWSC 505, the Supreme Court of New South Wales determined that even though the negotiations and expert determinations mentioned in a multi-tiered dispute resolution clause had not taken place, the arbitration agreement was still operative.
  • In Power and Water Corporation v ENI Australia B.V [2022] WASC 376, the Supreme Court of Western Australia stayed judicial proceedings and referred them to arbitration where a party had brought such proceedings on the basis that the arbitration agreement permitted application to the courts for urgent declaratory relief and an urgent declaration of breach of contract had been sought. Essentially, the Court determined that as the arbitration was being conducted in accordance with ACICA’s Expedited Rules, the arbitration proceedings would be sufficiently expeditious.

Additionally, the Full Court of the Federal Court of Australia in Instagram Inc v Dialogue Consulting Pty Ltd [2022] FCAFC 7 looked at the competence-competence principle when deciding whether an arbitral tribunal should exclusively be able to determine whether a right to arbitrate has been waived. This Court’s decision evidenced that whilst the principle permits a tribunal to determine its own jurisdiction, courts will nevertheless retain discretion to exercise this power in totality in appropriate circumstances, i.e., finally determine the question and not just come to a preliminary view on the tribunal’s jurisdiction.

Developments to watch in 2023 will include the result of appeals from the 2021 decision of the Supreme Court of Western Australia in Chevron Australia Pty Ltd v CBI Constructors Pty Ltd [2021] WASC 323 (“Chevron”). There, the Court was confronted with issues regarding the challenge to an arbitral award on grounds that the tribunal inadvertently rendered itself functus officio by a decision to bifurcate issues of liability and quantum. More detailed insights on Chevron can be found here and here.

 

New Zealand

Arbitration Survey

The New Zealand arbitration scene saw several notable developments in 2022. The year saw the release of the inaugural New Zealand Arbitration Survey Report (“Arbitration Survey”), along with case law developments and insights gained from arbitration events and seminars.

The Arbitration Survey was compiled by leading New Zealand arbitrators Royden Hindle and Dr Anna Kirk in collaboration with the New Zealand Dispute Resolution Centre. It reflects responses from 56 arbitrators comprising 213 appointments.

The survey highlights that while the majority of arbitrations conducted in New Zealand remain domestic, a not insignificant percentage (15%) are international arbitrations. The industry expectation is that growth of international arbitration will continue as New Zealand-seated arbitration clauses become increasingly embedded into commercial contracts.

Finally, the Arbitration Survey made clear that work remains to be done in promoting diversity in arbitration, with 93% of respondents identifying as New Zealand European, and only 13% of arbitrators appointed being women.

 

Statutory class action and litigation funding regimes

On 22 June 2022 New Zealand’s Te Aka Matua o te Ture | Law Commission published its final report on the possible regulation of class action and litigation funding in New Zealand. The final report was the outcome of the Commission’s initial review in 2019. Of note was the Commission’s finding that no further regulation was required for arbitration clauses that served to prevent claimants from opting into a class action (or required them to opt out of a class action) in favour of pursuing their claim through arbitration.

The Commission’s finding was made on the basis that the New Zealand Arbitration Act 1996 contains special protections for consumers. The Commission also noted that evident policy is to discourage consumer arbitration, given the likelihood of inequality of bargaining power, standard form contracts, and the absence of true consent.

 

Events

As with elsewhere in the world, 2022 saw the return of in-person arbitration events in New Zealand. The Arbitrators’ and Mediators’ Institute of New Zealand (“AMINZ”) hosted events such as Arbitration Day, and a Gala Dinner (in place of the annual AMINZ Conference). Additionally, the New Zealand International Arbitration Centre launched its Young Practitioners’ Group. While the theme of these events remained peripherally focused on the impact of COVID-19, emphasis was firmly on how New Zealand can maximise its potential as a stable seat for arbitration, and promote the industry to the next generation of practitioners. Nicole Smith, the newly appointed president of AMINZ provided her insights on these topics and more in her interview with this blog in June 2022.

 

Enforcement and Recognition

In late 2021, the New Zealand High Court issued its decision in Sodexo Pass International SAS v Hungary [2021] NZHC 371 (“Sodexo”), which effectively functions as New Zealand’s counterpart to the Australian Federal Court’s decision in Kingdom of Spain v Infrastructure Services Luxembourg SARL [2021] FCAFC 3 (“Infrastructure Services”). These decisions identified the conceptual distinction between enforcement, recognition, and execution of arbitral awards in the context of the application of State immunity. However, they are unlikely to represent the last judicial word on the issue, with the High Court of Australia’s appellate judgment in Infrastructure Services expected in 2023.

This will be a space to watch, with the High Court of Australia likely to pronounce its views on issues around immunity and with the (in)famous Achmea decision affecting the enforcement of extra-EU arbitral awards involving European parties.

 

Pacific Islands

In 2022, this blog’s coverage of ongoing arbitration reforms in the Pacific Islands continued, highlighting how international arbitration can be an instrument of economic development.

In jurisdictions that have already ratified the New York Convention and passed legislative reforms, discussion has turned to the effective implementation of arbitration, including through greater capacity building. These themes and other reflections on emerging trends, challenges and opportunities were shared in our interview with the Lord Chief Justice of Tonga, Hon. Michael H. Whitten KC.

One example of capacity building is ACICA’s five-part hybrid webinar series on conducting arbitration in the Pacific, held in collaboration with Hemmant’s List. Session 1 provided an update on the state of play in the Pacific and an overview of when Pacific parties should arbitrate. Session 2 discussed the mechanics and best practice for Pacific parties when commencing an arbitration.

ACICA’s engagement with the Pacific will no doubt grow as its webinar series continues in 2023. According to ACICA’s Reflections Report, over the past decade, ACICA’s cases have involved parties from Papua New Guinea and Fiji, and 2% of arbitrations were seated in Papua New Guinea. Similar statistics emerged from SIAC’s Annual Report which revealed that across 469 new cases in 2021, 4 parties originated from Fiji, 2 from Tonga and 1 from Vanuatu.

Law societies and associations also collaborated to promote alternative dispute resolution in the region at the LAWASIA ADR Conference in Denarau, Fiji on 9-10 September. The conference attracted 52 delegates from 10 jurisdictions, and covered topics such as online dispute resolution, international commercial arbitration and emerging mechanisms for dispute prevention.

It remains to be seen whether momentum for arbitration reform in other Pacific jurisdictions will build as in-person meetings become possible once more, strengthening the potential for on-the-ground engagement with key stakeholders. As noted during ACICA’s series, Nauru and Samoa have expressed some interest in pursuing reforms. Work may also resume in Papua New Guinea where a draft Arbitration Bill was introduced in 2019. There may also be an appetite to modernise or create frameworks for domestic arbitration, as the focus to date has been on international arbitration reforms.

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KluwerArbitration ITA Arbitration Report, Volume No. XX, Issue No. 15 (December 2022)

Sun, 2023-01-08 00:29

The Institute of Transnational Arbitration (ITA), in collaboration with the ITA Board of Reporters, is happy to inform you that the latest ITA Arbitration Report was published: a free email subscription service available at KluwerArbitration.com delivering timely reports on awards, cases, legislation and current developments from over 60 countries and 12 institutions. To get your free subscription to the ITA Arbitration Report, click here.

 

The ITA Board of Reporters have reported on the following court decisions.

 

Megabar, S.A. v. Article 12.1 of the Law No. 489-08 on Commercial Arbitration, Constitutional Court of the Dominican Republic, TC/0333/21, 01 October 2021

Stephan Adell, Adell & Merizalde, ITA Reporter for the Dominican Republic

The Dominican Constitutional Court held that Article 12.1 of the Law No. 489-08 on Commercial Arbitration (“LCA”) complies with the constitutional requirements for its validity.  Article 12.1 provides that decisions by judicial courts declining jurisdiction (when presented with a dispute subject to an arbitration agreement) cannot be appealed.

 

A professional coach v. AC Kajaani, Court of Appeal of Rovaniemi, Decision No. 262, Case No. S 21/298, 27 September 2022

Ina Rautiainen and Anna-Maria Tamminen, Hannes Snellman Attorneys, ITA Reporters for Finland

The Court of Appeal of Rovaniemi evaluated the binding nature of an arbitration clause in an employment agreement. The employment contract i.e., the coaching contract was terminated on grounds related to the employee’s person without hearing the employee. The Court of Appeal stated that applying the arbitration clause would have led to unfairness and that the claim was admissible in a state court.

The Court of Appeal noted that, as a rule, arbitration clauses are binding on both parties. However, in an ordinary employment contract, unless there is a special reason to deviate from this starting point, an arbitration clause should often be considered an unfair contract term, as was held in this case. According to section 36 of the Finnish Contracts Act, a contract term can be adjusted or set aside if it is considered unfair. The Finnish Employment Contracts Act contains a similar provision on unfair terms or conditions.

The case is a good reminder that the applicability of the Finnish Employment Contracts Act is wide-ranging, with e.g. all managers apart from CEOs being typically considered employees under the Employment Contracts Act. In determining what is unfair in the context of an employment contract and whether an arbitration clause would be considered binding, regard should be had to the entire contents of the contract, the positions of the parties, the circumstances prevailing at and after the conclusion of the contract, and other factors.

(As of 10 October 2022, the quoted decision is still subject to an appeal period and is not res judicata.)

 

Donna Wade v. Brian Wade [2022] NZHC 3254, High Court of New Zealand, CIV-2022-454-056, 06 December 2022

Stephen Hunter, Shortland Chambers, ITA Reporter for New Zealand

This decision concerned whether care of children disputes under the Care of Children Act 2004 (COCA) could be the subject of binding arbitration. The High Court held that it is not possible for parties to submit their care of children disputes to arbitration in a manner that is binding and enforceable by the courts. Care of children disputes are not “capable of determination by arbitration” under s 10 of the Arbitration Act 1996 because COCA creates a comprehensive care of children regime in respect of which the Family Court and High Court have exclusive jurisdiction. Arbitration clauses purporting to bind parties to an arbitrator’s decision on care of children matters are contrary to public policy.

(Note: The reporting of this proceeding is subject to ss 11B, 11C and 11D of the Family Court Act 1980. The parties’ real names have not been used.)

 

Rooney Earthmoving Ltd v. Infinity Farms Ltd and John Walton [2022] NZHC 2078, High Court of New Zealand, CIV-2022-412-67, 19 August 2022

Stephen Hunter, Shortland Chambers, ITA Reporter for New Zealand

This decision concerns the interpretation and application of the expert determination clauses in the Conditions of Contract for Building and Civil Engineering Construction NZS3915:2005 (NZS3915). The Court makes several observations as to the similarities and differences between arbitration and expert determination clauses. The Court held that, unlike arbitration clauses which carry a presumption that they are to be construed generously, expert determination clauses do not attract a presumption in favour of a wide interpretation. The Court also comments on the role of an expert and, subject to contract, the powers of an expert to determine the issue by following a similar process to an arbitrator.

 

Doral S.A. v. Club Olimpia, Court of Appeal in Civil and Commercial Affairs of Asunción, Sentencia 75/2022, 17 November 2022

José A. Moreno Rodríguez, Altra Legal, ITA Reporter for Paraguay

On November 17, 2022, an Asunción Appeals Court rejected an annulment request, as the Applicant did not prove that the alleged annulment ground found in Art. 40 (b) was met in the case at hand.

 

A. SA v. Y and Z. SA, Federal Supreme Court of Switzerland, 1st Civil Law Chamber, 4A_277/2021, 21 December 2021

Angelina M. Petti, von Segesser Law Offices, ITA Reporter for Switzerland

The Swiss Federal Supreme Court (the “Supreme Court”) dismissed an application to set aside an award rendered by a sole arbitrator in a domestic arbitration under the rules of the Swiss Arbitration Centre (“Swiss Rules”), finding that there had been no violation of the right to be heard where a party is refused the opportunity to file a reply to a simultaneously filed post-hearing submission.

 

Sun Yang v. World Anti-Doping Agency (WADA) and International Swimming Federation (FINA), Federal Supreme Court of Switzerland, 1st Civil Law Chamber, 4A_406/2021, 14 February 2022

Angelina M. Petti, von Segesser Law Offices, ITA Reporter for Switzerland

The Swiss Federal Supreme Court (the “Supreme Court”) dismissed an application to set aside an award of the Court of Arbitration for Sport which reversed an earlier ruling of the Antidoping Commission of the International Swimming Federation (“FINA”) and imposed a ban of four years and three months on Chinese swimmer Sun Yang. The Supreme Court confirmed that the timeliness of the appeal to the Court of Arbitration for Sport (“CAS”) does not pertain to questions of jurisdiction, but rather was an issue of admissibility. Furthermore, the Supreme Court ruled that Sun Yang’s right to be heard had not been infringed and the ban issued does not violate fundamental principles of public order.

 

A. v. B., Federal Supreme Court of Switzerland, 1st Civil Law Chamber, 4A_464/2021, 31 January 2022

Angelina M. Petti, von Segesser Law Offices, ITA Reporter for Switzerland

The Swiss Federal Supreme Court (the “Supreme Court”) dismissed an application to set-aside an award rendered by a sole arbitrator seated in Geneva based on an alleged violation of substantive public policy, or alternatively revise the award on the grounds of allegedly newly discovered facts.

 

A. AG v. B. SA, Federal Supreme Court of Switzerland, 1st Civil Law Chamber, 4A_600/2021, 28 February 2022

Angelina M. Petti, von Segesser Law Offices, ITA Reporter for Switzerland

The Swiss Federal Supreme Court (“Supreme Court”) dismissed an application to set-aside a sole arbitrator’s award for lack of jurisdiction and violation of the right to be heard. Although the decision arises in the context of domestic arbitral proceedings, the Supreme Court’s opinion on the doctrine of separability and its limitations are equally applicable to international arbitrations seated in Switzerland.

 

X v. Y, Court of Cassation of Abu Dhabi, Cassation No. 817 of 2021 [Commercial], 12 December 2021

John Gaffney and Malak Nasreddine, Al Tamimi & Company, ITA Reporters for the United Arab Emirates

This case involved an application before the Abu Dhabi Court of Cassation to challenge the Abu Dhabi Court of Appeal’s decision to annul an interim award issued by an arbitral tribunal (“ADCCAC Tribunal” or “Arbitral Tribunal”) under the Rules of Arbitration of the Abu Dhabi Commercial Conciliation and Arbitration Centre (“ADCCAC”). The Appellants argued that the Court of Appeal lacked jurisdiction to set aside the Interim Award. The Court of Cassation upheld the Court of Appeal’s decision to nullify the Interim Award and dismissed the appeal.

 

Aiteo Eastern E&P Company Limited v. Shell Western Supply and Trading Limited [2022] EWHC 2192 (Comm), High Court of Justice of England and Wales, Queen’s Bench Division, Commercial Court, Case Nos CL-2022-000187 and CL-2022-000457, 17 November 2022

Nicholas Fletcher, 4 New Square, ITA Reporter for England & Wales

While a dispute resolution clause could provide that an option to refer to arbitration a dispute which one party has brought to court can only be exercised by the commencement of an arbitration, it would require clear words to achieve that outcome. Whilst it will depend upon the wording of the clause, what matters is whether there is an unequivocal statement requiring a party to refer the dispute to arbitration, whether that takes the form of serving a Request for Arbitration, seeking a stay or some other communication. It is the message which matters, not the medium.

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The Contents of the Yearbook Commercial Arbitration, Volume XLVII (2022)

Sat, 2023-01-07 00:55

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

The final upload of court decisions from the 2022 Yearbook Commercial Arbitration, shortly to be distributed in print, is now available from the KluwerArbitration database. It contains 15 decisions applying the New York Convention and one decision applying the 1975 Panama Convention, as well as two decisions from the highest courts of France and Switzerland that are of general interest. Here are some highlights.

First, in Kout v. Kabab Ji, the Cour de Cassation took the directly opposite approach to the UK Supreme Court on which law applied to determine the scope of an arbitration agreement and its application to a non-signatory. It held that, in the absence of the parties’ intention to the contrary, the law of the seat, that is, French law, governed the issue. On that basis, the French Supreme Court considered Kout to be bound by an agreement to arbitrate, whereas the UK Supreme Court had earlier decided to apply English law, the law chosen as applicable law to the main contract, and held Kout not to be bound as a non-signatory.

Second, the Swiss Federal Supreme Court addressed which procedural safeguards needed to be in place in cases of de facto “compulsory” arbitration before the Court of Arbitration for Sport (CAS). The Swiss Court held that in such cases the fair trial principle laid down in Art. 6(1) of the European Convention on Human Rights applied, requiring above all independence and impartiality of the dispute resolution body. Following the decision of the European Court of Human Right in Mutu, the Swiss Court found that CAS as an institution offered those safeguards.

Finally, the High Court of Justice of the British Virgin Islands rendered a decision dealing with the process of appointing arbitrators in a multi-party dispute. It held that the principle of equality meant that each side to a dispute, rather than each individual party, had the right to appoint an arbitrator, unless the interests of the parties on one side of the dispute diverged. Here, the ICC Court’s initial assessment that the arbitration respondents had the same interests was correct, resulting in them having the right to appoint one arbitrator, rather than several.

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2022 Year in Review: Technology

Fri, 2023-01-06 00:31

The year 2022 was a busy one at the intersection of technology and international arbitration, both for the arbitration community and for the Kluwer Arbitration Blog. Virtual hearings further cemented their status as a mainstay of arbitral practice; we saw a burst of guidance, soft law instruments and rule-setting activity; and our Arbitration Tech Toolbox grew to 12 posts, covering issues as diverse as enforcing automated arbitral awards, cybersecurity training and conducting arbitral proceedings in the Metaverse.

 

Use of technology in arbitrations: to the Metaverse and beyond!

We witnessed a further normalization of the use of videoconferencing technologies to conduct arbitration proceedings and hold meetings of arbitral institutions. In May, ICCA released the findings of its Right to a Physical Hearing Project. Notably, of the 78 jurisdictions surveyed, no lex arbitri expressly provided parties to an arbitration with the right to a physical hearing. Most national reporters further found that the right to a physical hearing is in fact implicitly excluded. As one panelist commented at the 17th ICC New York Conference on International Arbitration, “virtual hearings are here to stay.” Our contributors noted the May 2021 launch of the Protocol for Remote or Virtual Arbitration Hearings by the Latin American Arbitration Association, a tool that incorporates best practices to ensure that procedural rights of arbitration users are protected. Addressing this theme at the 2022 Taipei International Conference, panelists stressed that while virtual hearings may not lead to annulment of an award, arbitrators will place due process and access to technology front and center in assessing the role of technology in arbitral proceedings.

 

As parties, counsel, arbitrators, and institutions came to terms with videoconferencing, technophiles charged ahead with nascent technologies: avatars in the Metaverse and holograms for witnesses. In February, the first-ever international arbitration gathering in the Metaverse was held. The ArbTech-supported event included a mix of video participants and virtual reality (VR) headset-enabled avatars. It sparked several observations on the use cases of VR in international arbitration. In October, our contributor covered a panel at the Future of Technology in Arbitration (#FOTA22) conference, aptly titled “Help me Sophie Wan Kenobi, You’re My Only Hope”. The panel featured a hologram participant who reported being able to see, face and address both the audience and fellow panelists physically present on stage. The tech-minded audience were so impressed that, in a vote, a majority found appearance by hologram to be appropriate for remote hearings and predicted that by 2030 we will have hologram witnesses.

 

One thing is clear. Technology is moving at an increasingly accelerated rate. As new technologies are developed, emerging members of the arbitration community appear poised to take full advantage of the opportunities presented.

 

Technology disputes: nomenclature, rules, and arbitration prospects

Top of mind for many practitioners this year was the role of arbitration in the resolution of technology disputes. UNCITRAL held a Colloquium that explored such issues and provided a forum for debate on a potential set of arbitral rules specifically catered to technology disputes. Key considerations were the need for clarity on the sphere of application for the rules, effective and expeditious case management, and a default rule on confidentiality as between the parties. The value of conceptual clarity in the term “technology disputes” was further underscored during Australian Arbitration Week, where a panel discussed an array of disputes that could fall within the term, including joint venture agreements to co-develop technology, licensing disputes, and tort and compliance actions for massive data breaches.

 

Our contributor provided an overview of the Digital Dispute Resolution Rules (“DDRR”), one of the first major efforts to establish rules for the resolution of digital asset disputes. Created by the UK Jurisdiction Taskforce, our contributor noted that the DDRR are designed to be incorporated into on-chain digital relationships and smart contracts, and they are a welcome addition to other rule-setting efforts, such as the JAMS Rules Governing Disputes Arising out of Smart Contracts, and tech-bespoke dispute resolution mechanisms, such as Kleros and Codelegit.

 

The Metaverse held great interest, with many contributors considering what impact the alternate virtual universe would have on arbitration, in theory and in practice. One contributor noted that arbitrating claims in the Metaverse – particularly through the use of self-executing arbitration agreements – may pose recognition and enforcement challenges under the New York Convention, but saw the “more favorable rule” in Article VII(1) as a way forward, possibly by allowing the incorporation of digital-friendly provisions in the UNCITRAL Model Law on Electronic Commerce and United Nations Convention on the Use of Electronic Communications in International Contracts.

 

Another contributor mused that the Metaverse may enable Julian Lew’s dream of autonomous arbitration to come to fruition, with decentralized arbitration platforms providing greater access to justice in the Metaverse. A further contributor explored the first ever court decision to enforce an arbitral award which relied on a blockchain arbitration protocol.

 

Greater guidance on technology and cybersecurity

2022 was also a busy year for the development and implementation of soft law instruments and other guidance on the use of new and emerging technologies in international arbitration. We began the year with an interview with Dr. Gordon Blanke, lead drafter of the CIArb Framework Guideline on the Use of Technology in International Arbitration. The Guideline seeks to introduce a number of general principles of guidance on the use of technology in arbitration, and serves as a stepping stone for more detailed guidelines on the use of specific technologies in arbitration both now and in the future. Key principles include proportionate, fair, transparent, and secure use of technology.

 

The ICC’s Commission on Arbitration and ADR issued its Report, Leveraging Technology for Fair, Effective and Efficient International Arbitration Proceedings, which identifies prevalent technology used to support international arbitration, describes features and functionality that may enhance the arbitral process, and discusses useful procedural practices and pitfalls to be avoided.

 

The importance of cybersecurity was stressed in both publications and was taken up in an Arbitration Tech Toolbox post which introduced a new CyberArb training on the topic.

 

At the ICCA Congress in Edinburgh in September, the ICCA-NYC Bar-CPR launched its updated Protocol on Cybersecurity in International Arbitration, which aims to increase cybersecurity awareness in international arbitration and provide a framework for incorporating cybersecurity measures in arbitral proceedings.

 

Crypto disputes: surviving the Crypto Winter

The Crypto Winter’s chilling effect on the sector encouraged an assessment of the types of legal, practical or valuation challenges that arise in disputes related to crypto assets. Our contributors noted the heterogeneous approaches taken by regulators with respect to cryptocurrencies and other crypto assets, giving rise to concerns of arbitrability and denial of enforcement based on public policy grounds. A host of other issues affect crypto-related arbitration, including difficulty (i) securing interim measures over crypto assets; (ii) identifying the proper counterparty; (iii) valuing crypto assets; and (iv) enabling class actions to resolve mass-disputes. The post, published September 29th, came one month before the dramatic collapse of FTX and related entities, a development that made the Crypto Winter look like a balmy Spring and injected further uncertainty, both into the long-term viability of the sector and regulatory acceptance of arbitration as a means to resolve crypto asset disputes.

 

Conclusion

It was a busy year for technology and arbitration, but 2023 will no doubt bring more advancements, opportunities, and challenges. Having recently expanded our technology editorial team to include two new assistant editors, we welcome your submissions on the intersection of technology and international arbitration and thank you for your readership this year.

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More Than a Facelift? – New Hungarian Arbitration Rules Take Off in 2023

Thu, 2023-01-05 01:10

The Permanent Arbitration Court attached to the Hungarian Chamber of Commerce and Industry (The Hungarian Commercial Arbitration Court or ‘HCAC’) has recently adopted its revised rules of proceedings that went into effect on 31 December 2022. This development is particularly significant for the Hungarian arbitration landscape given that HCAC has exclusive competence over commercial, financial and energy arbitrations in Hungary. Does this revision count as a mere facelift of the former regime, or will the new provisions increase speed and effectiveness in HCAC arbitral proceedings? This post introduces the context surrounding the revision of the rules before focusing on five of the key novelties that they will introduce from 2023 onwards.

 

Background

In 2018, the Hungarian dispute resolution landscape changed radically. In addition to the entry into force of the new Hungarian Arbitration Act and the former arbitration rules (“Former Rules”) of the HCAC, the new Hungarian Code of Civil Procedure (“CPC”) went into effect in that year as well.

The new CPC entirely reshaped the first instance court procedure, by splitting it into preparatory phase and evidentiary phase, significantly restricting the modification of the claim in the latter. As a result, the length of civil and commercial litigations has been significantly decreased in the last several years in Hungary. This, in turn, exerted pressure on arbitration, which is always considered by dispute resolution users as an alternative to litigation.

With a track record of practice for almost 5 years in this new framework, in late 2022 the time became ripe for the HCAC to review what soon will be the Former Rules.

The objective of the revised arbitration rules (‘Revised Rules’) is to accelerate arbitral proceedings and increase the effectiveness of arbitral awards in order to cope with the competition from domestic courts.

As already noted, the Revised Rules have entered into force on 31 December 2022, and will be applied in arbitral proceedings started after this date. Instead of presenting an exhaustive list of all of the changes under the Revised Rules, this post sheds light on the reasons behind the 5 key changes, and it evaluates the possible effects of the Revised Rules.

 

Accepting Arbitral Appointments – Deadline

Article 5 of the Former Rules set forth a general rule in relation to the duration of the arbitral proceedings by providing that arbitral proceedings shall be closed within 6 months as of the formation of the arbitral tribunal, to the extent possible. At the same time, the Former Rules failed to impose any express obligation for arbitrators to act promptly during the formation of the arbitral tribunal.

While the Revised Rules do not change the general 6 months rule, by leaving it as a soft-law obligation for the tribunal to close the arbitral proceedings within the abovementioned time frame, Article 22 (1) introduces a 30 days’ time limit for arbitrators to accept their appointment.

It is not clear how the failure to respect the new 30 days deadline will be sanctioned in practice, since the mandate of arbitrators comes into existence upon accepting the appointment. By regulating the period before that point, the Revised Rules raise the issue of retroactive application of a legal norm. This issue aside, the new provision sends a clear policy message to would-be arbitrators in Hungary to act diligently under the Revised Rules.

 

Case Management Conference – More Flexibility

Inspired by the arbitration rules of leading arbitral institutions, case management conferences had already been used on an ad hoc basis in Hungarian arbitrations in the past, with the introduction of this procedural technique being one of the most important novelties of the Former Rules.

At the same time, a firm obligation that the Former Rules imposed on arbitrators to hold a case management conference within 30 days after the formation of a tribunal proved to be a rule that is too rigid in practice.

It was not unusual for respondents, after appointing an arbitrator, to request an extension of the 30-day deadline for submitting their statement of defence. In case the time extension would be granted by the tribunal, this would occasionally lead to a situation whereby, at the time of the case management conference, the statement of defence would either not be submitted by respondent, or it would be submitted only a few days prior to the case management conference date. This would in essence result in information asymmetry, since at the time of the case management conference, it was only the respondent who really knew the standpoint of both parties to the proceedings.

In such cases, the vast majority of tribunals acting under the Former Rules decided to set a new case management conference date, which lengthened the proceedings.

To avoid the above, Article 36 (1) of the Revised Rules provides for a more flexible rule, enabling the arbitral tribunal to hold the case management conference within 30 days after the respondent has filed the statement of defence, or after the deadline for the statement of defence has expired.

 

Remote Hearings – Expressly Addressed

Being adopted before the COVID19 pandemic, the Former Rules did not expressly address the possibility to hold arbitral hearings remotely through means of modern telecommunication.

Even if the parties’ right to a physical hearing could not be inferred either from the Hungarian Arbitration Act or from the Former Rules, this gap had the potential to lead to legal uncertainty. This prompted considerations whether tribunals should obtain the parties’ preliminary consent before holding hearings remotely, or not.

This regulatory loophole was posing a risk to the effectiveness of arbitral awards delivered under the auspices of HCAC, as it could not be fully excluded that the tribunal’s decision to hold a remote hearing without preliminary party consent could be invoked as a ground for setting aside the award.

The modified Article 37 (1) of the Revised Rules now expressly sets forth that the arbitral hearing can be held through means of telecommunication “in justified cases”, making it clear that this issue falls into the discretionary powers of the arbitral tribunal.

Besides the effectiveness of the award, the new provision contributes to the speeding up of the arbitral proceedings especially in cases, involving parties and busy arbitrators from different jurisdictions.

 

Unjustified Delay in Rendering the Award – Possibility to Decrease Arbitrator’s Fee

Probably the most debated provision of the Revised Rules will be Article 53 (4) that allows the HCAC to decrease the fee of the arbitral tribunal in case it fails to respect the 45-day deadline for delivering a written arbitral award, counting from the closing of the arbitral proceedings. The HCAC can decrease the arbitrators’ fee, save in case the tribunal requested the prolongation of the said deadline.

While it cannot be questioned that assigning cost consequences to the unjustified delay of the arbitral tribunal can place a pressure on arbitrators to deliver the award in a timely manner, which can prevent the unreasonable lengthening of the arbitral proceedings, the absence of any clear regulations as to the exact amount of the reduction creates legal uncertainty.

In addition, the lack of transparency can easily lead to a diverging practice in relation to the day-to-day application of fee reductions, which can undermine the integrity of the whole institution.

 

Truncated Tribunals and Dissenting Opinions – Detailed Regulation

The Former Rules allowed arbitrators to attach dissenting opinions to the award, expressing a disagreement with the reasoning and the result of the award adopted by the majority of the tribunal, but neither the possible content of the dissenting opinion nor the rules governing the parties’ right to get insight into such opinion were clarified.

The above gap in the Former Rules led to situations where dissenting opinions were attached to the award, and the award-debtor used the opinion to fuel its court action for setting aside the award, by utilizing the arguments of the dissenting arbitrator in the litigation.

In another case, the dissenting arbitrator failed to sign the award. Later on, after the award was delivered and signed by the two remaining members of the truncated tribunal, the dissenting arbitrator made handwritten notes on the award, expressing his dissenting opinion.

To avoid the above situations, capable of undermining the integrity of the arbitral institution, two new provisions have been introduced by the Revised Rules.

First, Article 43 (2) of the Revised Rules clarifies that the absence of the signature of any arbitrators on the award delivered by the truncated tribunal shall be indicated and certified by the HCAC itself.

Second, Article 44 (3) of the Revised Rules clarifies that only the arbitrator, who signs the award can provide a dissenting opinion.

In addition, Article 44 (3) provides that the dissenting arbitrator cannot divulge any information in relation with the in-camera deliberation of the award in its dissenting opinion. Finally, it sets forth that the dissenting opinion shall be put in a closed envelope among the files of the case, and only the President of the HCAC can allow access to the dissenting opinion in justified circumstances.

 

Concluding Remarks

Based on the above, the changes entering into force on the very last day of 2022 are certainly more than a mere facelift of the former regime.

While it is doubtful whether the deadline for accepting appointment, or the blanket rule about decreasing arbitrators’ fees will have the desired positive impact, the more flexible new provisions regarding the timing of the case management conference, the express regulation of remote hearings and the more sophisticated regime regarding dissenting opinions will presumably contribute to the effectiveness of awards and will potentially increase the speed of arbitral proceedings.

Hopefully, due to these minor, but nonetheless, important modifications, HCAC administered arbitrations will be able to stand up to the competition from the Hungarian state courts.

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2022 Year in Review: Key Developments in East and Central Asia

Wed, 2023-01-04 00:30

East and Central Asia made further strides to promote arbitration, including through legislative reforms and enhancement of judicial assistance, as well as the accession, ratification, and creation of treaties.  Some domestic courts clarified views on fundamental issues in arbitration.  On the user side, East and Central Asian parties continued to be active as both claimants and respondents in investment treaty disputes.  In the arbitration community, the resurgence of in-person interactions rejuvenated the cross-pollination of ideas.

 

Domestic Reforms

Several jurisdictions made efforts to update arbitration acts or other arbitration-related laws.

  • In late 2021, the Japanese Ministry of Justice’s Legislative Council outlined proposals to amend Japan’s Arbitration Act (Act No. 138 of 2003) to reflect the 2006 amendments to the UNCITRAL Model Law. In 2022, the same council published proposed legislation for the enforceability of settlement agreements arising out of international and domestic mediation, either through a new law or an amendment of the Act on Promotion of Use of Alternative Dispute Resolution (Act No. 151 of 2004).  Our contributor observed that this enhances prospects for Japan’s adoption of the Singapore Convention on Mediation.
  • Following the amendment of the Law on International Commercial Arbitration in 2021, Uzbekistan amended certain related legislative acts. Our contributor noted that these amendments further align the Uzbek arbitration law with international norms, including the 2006 UNCITRAL Model Law.
  • In December 2021, the Hong Kong Law Reform Commission published its report on Outcome Related Fee Structures for Arbitration (ORFS), as analyzed by our contributors (here, here, and here). The ORFS regime came into full operation in December 2022 and legalized three types of ORFS: conditional fee agreement; damages-based agreement; and hybrid damages-based agreement.
  • Data protection laws enacted in recent years are also impacting arbitration practice. Our contributors discussed the potential delays caused by the PRC’s data protection laws and strategies for the tribunal to minimize their impact.  Such strategies include addressing the issue at the outset of the proceeding and, if appropriate, imposing adverse inferences or cost consequences on a party for failure to comply with required document disclosures or releasing both parties from document disclosure obligations to level the playing field.

The PRC in particular has continued to enhance judicial assistance of arbitration.

  • Following the 2019 Mainland China–Hong Kong Interim Measures Arrangement, Mainland China and Macau signed a similar agreement in February 2022, permitting parties in institutional arbitration seated in Mainland China or Macau to request interim measures from courts in the other jurisdiction.
  • In June 2022, HKIAC became the first arbitral institution outside of Mainland China to be included in the China International Commercial Court (CICC)’s “One-Stop” Platform for Diversified International Commercial Dispute Resolution, allowing parties in certain HKIAC-administered cases to directly request interim relief or enforcement of arbitral awards from the CICC.

Almost all jurisdictions in East and Central Asia are contracting States to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”).  Our contributors reported on some of the last frontiers.

  • In May 2022, Turkmenistan acceded to the New York Convention. This follows Turkmenistan’s other recent efforts to promote arbitration, such as a presidential order in 2021 to create an international arbitration center. With that, all jurisdictions in Central Asia have acceded to the New York Convention.
  • Our contributors also espoused the benefits of enabling Taiwan to join the New York Convention system. They suggested remedying Taiwan’s exclusion at the international level through amendment of the New York Convention, adoption of a new treaty, or adoption of a series of bilateral (or multilateral) treaties, rather than through domestic legislative solutions.

 

National Court Cases

Our coverage featured domestic court cases that provided clarity on fundamental questions in arbitration.

The PRC: In late 2021, the Supreme People’s Court published a lower court decision that recognized the validity of a nonbinding arbitration agreement and struck down the accompanying litigation agreement as violating the principle that arbitration precludes court jurisdiction.  Our contributor inquired as to whether the two agreements are truly separable but also highlighted the decision’s supportive attitude toward foreign-related arbitration, especially when Shanghai (where the lower court is located) is accelerating its efforts to become an arbitration center in the Asia-Pacific region.

Hong Kong: In June 2022, the Hong Kong Court of Appeal clarified in C v D that compliance with procedural pre-arbitration conditions is a matter of admissibility (not jurisdiction), so the tribunal’s decision in this regard is not subject to judicial review.  Our contributor commented that this distinction between admissibility and jurisdiction is in line with international best practice.

South Korea: Our contributors analyzed the Korean Supreme Court’s landmark decision from March 2022 that enforced a Hawaiian court judgment that awarded treble damages, observing that it has positive implications for parties seeking to enforce awards with exemplary damages in Korea.  While the Korean legal system has historically rejected punitive damages, the Court recognized that recently enacted laws allow them.  Thus, the Court found that enforcement was not contrary to Korean damages law principles.

Another post highlighted an under-the-radar 2018 Supreme Court decision that presents a rare instance of a successful “public policy” challenge to enforcement.  The at-issue award involved tax liability that, after the award was rendered, was reduced by the Korean tax authorities.  The Supreme Court remanded the case, and the High Court accordingly partially refused enforcement of the award by subtracting the excluded tax amount.

 

Investment Treaty Disputes

Several East and Central Asian jurisdictions entered into new investment treaties.  Our contributors observed that the Mexico–Hong Kong BIT, which entered into force in June 2021, may be especially useful for PRC investors utilizing Hong Kongese vehicles.  Mexico had previously entered into the Mexico–PRC BIT, which has been in force since 2009.  Another contributor highlighted that, in contrast to some countries, Japan has increasingly concluded BITs since 2011.  In June 2022, Japan signed the Bahrain–Japan BIT.  The Kazakhstan–Qatar BIT was signed in October 2022.

Case activity by Central and East Asian claimants and respondents has been steady.  In September 2022, the ICSID registered the request for arbitration in International Mining Company Invest, Inc. v. Kyrgyz Republic (ICSID Case No. ARB/22/25), instituted under the U.S.–Kyrgyz Republic BIT.  The case is the first to be filed under the ICSID Convention since the Kyrgyz Republic ratified the Convention in April 2022.  PRC claimants have brought several claims in 2022, including Huawei Technologies Co., Ltd. v. Kingdom of Sweden (ICSID Case No. ARB/22/2) (regarding exclusion of Huawei from the 5G network); PCCW Cascade (Middle East) Ltd. v. Kingdom of Saudi Arabia (ICSID Case No. ARB/22/20) (regarding telecommunication enterprise); PowerChina HuaDong Engineering Corporation and China Railway 18th Bureau Group Company Ltd. v. Socialist Republic of Vietnam (ICSID Case No. ARB(AF)/22/7) (regarding construction project).

Other cases have reached the award stage.  The private equity fund Lone Star received the award over the sale of its stake in the Korea Exchange Bank in LSF-KEB Holdings SCA and Others v. Republic of Korea (ICSID Case No. ARB/12/37), bringing the decade-long case that was at the time the first publicly known investment-treaty case against Korea one step closer to conclusion.  A quantum award was also issued in Eurus Energy Holdings Corporation v. Kingdom of Spain (ICSID Case No. ARB/16/4) over Spain’s reform of the renewable energy incentive regime.  Final awards were issued for the treaty-based Gardabani Holdings B.V. and Silk Road Holdings B.V. v. Georgia (ICSID Case No. ARB/17/29) and the contract-based Gardabani Holdings B.V. and Others v. Government of Georgia and Others (ICSID Case No. ADM/18/1 & SCC Case No. V2018/039), both alleging that Georgia failed to uphold its commitment to increase electricity tariffs.

Annulment and enforcement actions across the globe are in progress for several awards.  For example, see JGC Holdings Corporation v. Kingdom of Spain (ICSID Case No. ARB/15/27); Edmond Khudyan and Arin Capital & Investment Corp. v. Republic of Armenia (ICSID Case No. ARB/17/36); and Zhongshan Fucheng Industrial Investment Co. Ltd. v. Federal Republic of Nigeria (UNCITRAL).

 

HK Arbitration Week and Other Events

In-person events resurged in 2022.  The Blog covered several major events.

We continued our live coverage of the Hong Kong Arbitration Week for the fifth year, kicking off with an interview of HKIAC Secretary-General Dr. Mariel Dimsey, who assumed office in August 2022.  We covered panels on the implications of the PRC’s recent data protection laws on arbitration; global debt recovery strategies for creditors and enforcement actions involving parties in financial distress; and the impact of ESG on international arbitration, including climate disputes and industry efforts for greener behaviors.

Our coverage of the Seoul ADR Festival included a session on procedural innovations, as well as one on trends and disputes in the energy marketYonsei Arbitration Day considered the power and challenges of arbitration in connection with armed conflict.

Finally, the third Taiwan International Week included discussions on the challenges and opportunities afforded by the pandemic, digital economy, and ESG.

 

Conclusion

We are grateful for the continued engagement of our contributors and readers, which allows this Blog to cover the numerous jurisdictions of East and Central Asia.  While each jurisdiction may be at a different stage of maturity in terms of its exposure and approach to arbitration, one can sense a sustained shared interest among the jurisdictions to ensure that arbitration remains effective and dependable.  We look forward to continuing and expanding our collaboration in the New Year and to providing up-to-date coverage of the East and Central Asia region.

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Has ISDS Become a Tool for Promoting Business Sustainability? 

Tue, 2023-01-03 00:47

Investor-State dispute settlement (ISDS) has been widely criticized for being a tool in the hands of multinational companies, used to challenge domestic public policy measures even when legitimately adopted in the public interest. Critiques have been notable concerning the asymmetrical nature of international investment agreements (IIAs). While IIAs were concluded to afford protection to foreign investors against host States’ abuses, thereby encouraging foreign investments, it is a fact that IIAs have not been traditionally conceived to hold investors internationally accountable for social or environmental damage caused in the course of their activities.

Yet, recent ISDS decisions and newly concluded IIAs are increasingly supportive of business sustainability. Recent literature further seem to put faith in the ability of ISDS to ensure compliance with principles of corporate social responsibility (CSR). This blog post explores ISDS’s potential to endorse and promote business sustainability within the limits of the existing system and the challenges posed to its ongoing reform.

 

Business Responsibilities under International Law 

Intergovernmental organizations have been at the forefront of promoting responsible business conduct, originally through soft law norms. These include norms focusing on specific areas of CSR, such as the United Nations Guiding Principles on Business and Human Rights (UNGPs), the International Labour Organisation’s Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, or the standards published by the International Organization for Standardization (ISO). International Standard ISO 26000,  for instance, addresses social responsibilities that are relevant to an organization’s mission and vision, while the ISO 14000 family of standards provides practical tools for enterprises to manage their environmental responsibilities. Other norms such as the OECD Guidelines for Multinational Enterprises, cover broad areas of CSR including human rights, social rights, or environmental protection.

Often used by brands as part of their marketing strategies, international guidelines and standards may incentivize businesses to adopt more sustainable conduct. However, because they are not binding, the ability of soft law norms to address violations of CSR-related standards at the international level is rather limited. Further, while investors can be bound by certain obligations contained in international treaties and instruments concluded by States, the application of such principles has been restrained outside the domestic arena by the absence of specific international fora for their implementation.

 

The Role of ISDS Tribunals in Applying CSR Principles  

In the context of this legal vacuum, tribunals resolving investment disputes may increasingly become relevant to ensuring investor compliance with social responsibility principles. This section focuses on key CSR-related findings which could set the ground for the promotion of responsible investment through ISDS.

One important doctrine relevant to the enforcement of CSR standards is the ‘clean hands’ doctrine, albeit not approached homogeneously by ISDS tribunals. Some tribunals have declined jurisdiction to hear claims related to foreign investors’ acts of fraud, bribery, or money laundering, or rejected the admissibility of such claims (e.g., World Duty Free v Kenya, Metal-Tech v Uzbekistan, Niko Resources v Bangladesh). Other tribunals have refused to consider these types of issues at the jurisdiction or admissibility stage, preferring to address claimants’ alleged violations at the merit or quantum stages. For example, in the Yukos and related cases, the tribunals took into account the claimants’ tax avoidance in their analyses of contributory fault, by agreeing to a 25 percent reduction of the damages awarded.

In the last decade, arbitral tribunals have tended to broaden the scope of their findings on CSR violations. In Copper Mesa v Ecuador, the tribunal, following a line of arbitral decisions on contributory fault, assessed for the first time the contribution of the foreign investor’s human rights violations to its own losses. The tribunal determined that the claimant had initiated a ‘reckless escalation of violence’ (para 4.265), thus contributing to the loss of its investment in Ecuador and, therefore, reduced the damages awarded to the investor by 30 per cent (para 6.133).

Furthermore, arbitral tribunals have considered CSR obligations in their decisions on counterclaims for social or environmental damage raised by States against foreign investors. Although rarely successful in practice — damages were awarded based on counterclaims in only two publicly known cases: Burlington Resources Inc v Ecuador, and Perenco Ecuador Ltd v Ecuador and Empresa Estatal Petroleos del Ecuador — tribunals have shown an increased willingness to admit such claims within the limitations imposed by the underlying IIAs or contracts, and the procedural rules applicable to the cases in question.

Several reasons explain the limited incidence and success of counterclaims in investor-State arbitration proceedings. First, most IIAs do not expressly provide for the possibility of claims being brought by States, and some expressly limit claims to those from investors (e.g. article 26(2) of the Energy Charter Treaty (1998) or article XII(3) of the Canada-Venezuela BIT). Often, the underlying IIA neither expressly authorizes nor excludes counterclaims. In this case, the host State has to prove either the existence of a separate agreement to arbitrate counterclaims (see Burlington case), or an implied consent to counterclaims (see Goetz v Burundi, Al Warraq v IndonesiaUrbaser v Argentina and Aven v Costa Rica), for a treaty-based tribunal to establish its jurisdiction over a counterclaim. In addition, counterclaims have to meet admissibility requirements, which include requirements that they be closely related to the investment and the claimant’s claim (e.g. Al Warraq v Indonesia) and that the host State itself, rather than third parties, was damaged as a result of the harm caused by the foreign investor (e.g. Chevron v Ecuador II). Finally, counterclaims shall be based on the violation of either an international obligation directly applicable to the investor, or an international or domestic obligation applicable under the underlying IIA. In the Burlington and Perenco cases, for instance, both tribunals awarded damages to Ecuador resulting from the investors’ violations of Ecuador’s domestic environmental law, which was applicable under article 42(1) of the ICSID Convention. 

 

The Development of More Balanced Approaches in New Generation IIAs

The decisions issued by ISDS tribunals likely have inspired a new generation of IIAs increasingly including standards applicable to foreign investors. However, reform efforts have been too slow and fragmented to mark a significant evolution of the ISDS system.

A number of multilateral and bilateral instruments have reaffirmed the host State’s right to regulate in the public interest and included ‘soft’ standards in their preambles or in discrete provisions. For instance, in the CETA’s Preamble, enterprises operating within the territory of the Parties or subject to their jurisdiction, are encouraged “respect internationally recognised guidelines and principles of corporate social responsibility, including the OECD Guidelines for Multinational Enterprises, and to pursue best practices of responsible business conduct”. More rarely, treaties impose binding obligations on foreign investors.

At the regional level, African States have been particularly innovative in creating investor obligations for CSR. The Economic Community of Western African States (ECOWAS) Supplementary Act on Investments, for instance, requires that investors refrain from corrupt practices (article 13), respect and uphold human rights principles (article 14), and comply with standards of corporate governance (article 15) and CSR (article 16). Other multilateral initiatives have led to the adoption of model instruments imposing CSR obligations that should serve in future negotiations of IIAs. Thus, the Pan-African Investment Code (PAIC) provides inter alia that investors shall meet accepted standards of corporate governance (article 19), refrain from corruption (article 21), contribute to the economic, social and environmental progress of the host State (article 22.3) and comply with business ethics and human rights (article 24).

The new Africa Arbitration Academy (AAA)’s Model BIT for African States goes even further in its definitions of foreign investors’ obligations. These include obligations to respect the principles of human dignity and equality including in their dealings with indigenous people (article 1), to comply with environmental and social assessment processes in the host State (article 9), to respect labour and human rights obligations and promote gender equality (article 10), to abstain from corruption, money laundering and terrorism financing (article 12), to ensure that investments meet or exceed accepted standards of corporate governance (article 13), and to adopt high degrees of socially responsible practices in accordance with the OECD Guidelines for Multinational Enterprises (article 18). All these instruments allow for counterclaims (article 18, ECOWAS Agreement; article 43, PAIC; article 22 G., AAA’s Model BIT).

At the bilateral level, the Morocco-Nigeria BIT, marks an interesting development in the history of investment treaties, by specifically providing for obligations relating to the respect of human rights, environmental, labour, anti-corruption and CSR standards (articles 13 to 19). The treaty notably provides for the mandatory completion of impact assessments (article 14) and requires certain companies to maintain a certification to ISO 140001 or equivalent environmental management standard (article 18). Other recent BITs require that investors “strive to achieve the highest possible level of contribution to the sustainable development” of the host State and engage in responsible business conduct (article 9, Brazil-Malawi BIT; article 14, Brazil-Ethiopia BIT).

 

From the Promotion of Foreign Investments to the Promotion of Responsible Foreign Investments

The ability of ISDS to promote sustainable business is naturally limited as it generally relies on foreign investors’ prerogative to initiate proceedings against host States. However, recent decisions of arbitral tribunals and the new generation IIAs tend to limit investors’ prospects of success if they have not complied with sustainable principles of business conduct.

If ISDS practice continues to evolve in this direction, foreign investors may be both encouraged to respect corporate responsibility norms and dissuaded from bringing claims against host States if they have failed to follow such norms. ISDS would thus still serve its original purpose of promoting foreign investments, with the caveat that it would only promote investments that conform to basic principles of business sustainability.

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MOL v. Croatia Saga: A Two-Faced Janus in the ISDS Reform Debate

Mon, 2023-01-02 01:58

The current debate on the future of the Investor-State Dispute Settlement (ISDS) system seems not to leave anyone indifferent. Two camps can be discerned in the debate; the first comprising those who would argue that ISDS is in need of reform, and the second those who defend the ISDS system as is. The MOL v. Croatia saga, which has been dragging on since 2013, seems destined to further divide the debate, with its peculiarity lying in the opportunity for both camps to use the dispute to their advantage.

 

1. Factual Background

The origin of the dispute between MOL (a Hungarian multinational oil ang gas company) and Croatia can be traced back to 2008 when MOL managed to increase its shares in INA (Croatian multinational oil company) to 47.16 %. This was followed in 2009 by amendments to the Shareholder Agreement between the Government of Croatia and MOL. As per the amendments, MOL was given control over INA, and the Government agreed to take over INA’s gas storage facilities and to take over the business of gas sales. The former Prime Minister of Croatia Ivo Sanader was subsequently arrested on allegations of bribery. When the amendments to the Shareholder Agreement were concluded, Sanader was still in office, and he allegedly accepted bribes from MOL in order to facilitate their conclusion.

In 2013, MOL initiated arbitration proceedings against Croatia before ICSID, claiming that Croatia’s actions were in breach of the Energy Charter Treaty (ECT). Croatia responded in 2014 by initiating arbitration proceedings based on the Shareholder Agreement under the UNCITRAL Rules, arguing that, on account of the alleged corruption on the part of Sanader, the amendments to the Shareholder Agreement were null and void. The two arbitration proceedings were conducted in the shadow of the criminal trial of Sanader before the Croatian courts.

 

2. Croatian Criminal Trial of the Century

The lower court found Sanader guilty and sentenced him to 10 years in prison.1)Please note that this was an aggregate sentence that also covered another criminal offense, that of abuse of position. jQuery('#footnote_plugin_tooltip_43904_24_1').tooltip({ tip: '#footnote_plugin_tooltip_text_43904_24_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The Supreme Court of Croatia confirmed the verdict, but reduced the sentence to 8 years and 6 months in prison.2)Ibid. jQuery('#footnote_plugin_tooltip_43904_24_2').tooltip({ tip: '#footnote_plugin_tooltip_text_43904_24_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The case then reached the Constitutional Court of Croatia which set aside the decision and ordered retrial, which culminated in a guilty verdict and a sentence of 6 years in prison. The Supreme Court then confirmed this verdict. In addition, the Croatian courts tried the CEO of MOL Zsolt Hernádi in absentia, finding him guilty of bribing Sander and sentencing him to 2 years in prison (the Hungarian authorities refused to extradite Hernádi).

While the trial was closely followed in Croatia by the media and the public at large, though largely did not become a divisive or politically-charged affair. That being said, two independent monitors of the trial –Judge Kai Ambos (Chair for Criminal Law at the University of Göttingen and Judge at the Kosovo Specialist Chambers in the Hague) and Lord David Anderson QC (British barrister and judge who was the Independent Reviewer of Terrorism Legislation in the United Kingdom) – wrote a Report in which they expressed concern that the prosecutors and the Croatian judiciary had exhibited bias in favour of Croatian national interests, and that, in the process, Article 6(1) of the European Convention of Human Rights (Right to fair trial) had been violated. This included not giving sufficient time to Sanader’s legal team to prepare the defence, and exclusion of the public from crucial points in the trial while omitting those points from being covered in the court minutes.

 

3. UNCITRAL and ICSID Arbitrations 

While the Croatian courts found the evidence of corruption convincing enough to hand out prison sentences to Sanader and Hernádi, the arbitral tribunals were not convinced.

The UNCITRAL proceedings, while starting later than the ICSID proceedings, resulted in a final award much sooner, in 2016. The arbitral tribunal arrived at a “confident conclusion that Croatia […] failed to establish that MOL did in fact bribe […] Sanader” as it failed to satisfy the standard of proof that the tribunal had deemed applicable, that one of ‘reasonable certainty.’ The tribunal considered that the testimony of the key witness in the case, Robert Ježić, suffered from various implausibilities. The tribunal concluded that it had no choice but to deem Ježić as “a witness unworthy of belief, who had a strong motive to shift the blame onto […] Sanader.” The amendments to the Shareholder Agreement were thus left standing.

The ICSID proceedings wrapped up only this year. The ICSID tribunal found that the act of bribery was not proven, apparently basing its finding on the same grounds as the UNCITRAL tribunal, i.e., that Ježić was an unreliable witness. The ICSID tribunal also found that Croatia violated the ECT as a result of its failure to liberalise the gas market between 2011 and 2014 and owing to the regulations that Croatia had introduced in 2014 to further regulate the gas market.

Unfortunately, the final award from the ICSID proceedings has not been made public as the parties had agreed to keep the text of the award confidential. However, MOL and the Government of Croatia did provide press releases, both of which seem to have been drafted by their respective ‘spin doctors’. While Croatia was the losing party in the ICSID arbitration, the fact of the matter was that the ICSID tribunal granted approximately US$235 million in damages to MOL (including interest), which was a far cry from approximately US$1.1 billion that MOL was seeking to obtain. This allowed the Government of Croatia to portray the outcome of the arbitral proceedings as not entirely unfavorable to the country’s interests while MOL’s take on the matter was, although somewhat more reserved, a proud announcement to the market they had won the case.

One rather interesting question that inevitably arises in these kinds of cases is the extent to which arbitral tribunals should heed the decisions of national criminal courts. The general approach to this has been that a verdict rendered by a national court is in no way mandatory for an arbitral tribunal, but may be taken into account when the arbitrators assess the evidence.

 

4. The Standard of Proof in Corruption Cases

The MOL v. Croatia saga is yet another illustration of just how challenging it is to prove corruption, something that was at the heart of the dispute at hand.

A major challenge in proving corruption – either in arbitration or in court proceedings – is the fact that the act of corruption itself generally leaves little to no trace. As a result, setting the bar too high in terms of the standard of proof – e.g., ‘beyond reasonable doubt’ – would in essence mean that the vast majority of corruption cases would end with a finding that corruption was not proven. Given the universal condemnation of the very practice of corruption and its detrimental impact on all the aspects of a society, coupled with the difficulty of proving it, one may argue that the applicable standard of proof should lie somewhere below ‘beyond reasonable doubt’.

At the same time, the finding of corruption generally results in very serious consequences for the party that has engaged in such an act. For example, in investment disputes, the investor’s claim will generally be dismissed if the state proves that the investment had been procured through corruption. In criminal cases, the person found guilty of corruption may face a prison sentence. Thus, it is the very severity of corruption that lends itself to an argument that the standard of proof in corruption cases must be set higher than the mere ‘balance of probabilities.’

In the world of arbitration, these opposing considerations have been a catalyst for lack of uniformity, with some tribunals applying ‘a high standard of proof’ or the standard of ‘clear and convincing evidence’. One tribunal found the appropriate standard to be ‘higher than the balance of probabilities but less than criminal standard of beyond reasonable doubt.’ Some tribunals have gone for ‘comfortable satisfaction standard,’ while some, cognizant of the sheer difficulty of proving corruption, have adopted the ‘balance of probabilities’ standard. In the UNCITRAL proceedings involving Croatia and MOL, the arbitral tribunal seems to have fallen in the category of those requiring more than the mere ‘balance of probabilities’ by noting that its standard – that of ‘reasonable certainty’ – “is a matter of persuasion, and it may well be that for most minds becoming persuaded of something requires more than accepting that it is more likely than not.”

 

5. Looking at the Bigger Picture

Given the duration and the high stakes involved in this case, it is only natural to ask if the MOL v. Croatia saga could have ramifications for the ISDS system in general, and especially so because of the existence of two opinionated camps as regards the legitimacy of the ISDS system.

Those coming to the defence of the ISDS system will point to the fact that, in contrast to the Croatian courts, two independent arbitral tribunals have not found the presented evidence sufficient for a finding that the bribery had taken place. Coupled with Judge Ambos’s and Lord Anderson’s Report, proponents of ISDS may use this to advance two arguments: (1) that this saga illustrates the importance of ensuring that investors have access to a neutral forum outside of the purview of the host state’s national courts, and (2) that this is relevant also in the intra-EU context, given the fact that both Croatia and Hungary are EU Member States. And as for the staunch critics of the ISDS system, they may use this saga as a case in point that the ISDS system is skewed in favour of the investors. After all, the courts of a full-fledged EU Member State had found the bribery had taken place, and instead of severe consequences for the investor, the ICSID tribunal ended up granting damages to the investor.

The diametrically opposed conclusions of the arbitral tribunals on the one side, and those of the Croatian courts on the other, seem to position this saga as a two-faced Janus looking towards both camps, giving each something to work with.

References[+]

References ↑1 Please note that this was an aggregate sentence that also covered another criminal offense, that of abuse of position. ↑2 Ibid. function footnote_expand_reference_container_43904_24() { jQuery('#footnote_references_container_43904_24').show(); jQuery('#footnote_reference_container_collapse_button_43904_24').text('−'); } function footnote_collapse_reference_container_43904_24() { jQuery('#footnote_references_container_43904_24').hide(); jQuery('#footnote_reference_container_collapse_button_43904_24').text('+'); } function footnote_expand_collapse_reference_container_43904_24() { if (jQuery('#footnote_references_container_43904_24').is(':hidden')) { footnote_expand_reference_container_43904_24(); } else { footnote_collapse_reference_container_43904_24(); } } function footnote_moveToReference_43904_24(p_str_TargetID) { footnote_expand_reference_container_43904_24(); 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_43904_24(p_str_TargetID) { footnote_expand_reference_container_43904_24(); 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 Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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The Contents of the Yearbook Commercial Arbitration, Volume XLVII (2022)

Sun, 2023-01-01 02:58

Subscribers to KluwerArbitration enjoy access to the ICCA Yearbook Commercial Arbitration

A new upload of materials from the 2022 volume of the Yearbook Commercial Arbitration is now available on the KluwerArbitration database.

It consists of 21 decisions and includes, among others, three decisions each from Hungary and Pakistan, and four decisions rendered by the courts of Spain. Here are some of the highlights.

First, in what is becoming another cross-Channel saga, the UK Supreme Court in Kabab-Ji v. Kout affirmed that the choice for English law as the governing law of the contract also applied to the contract’s arbitration agreement, and that the agreement was invalid under English law because it did not extend to Kout, a nonsignatory. This conclusion is famously at odds with the decisions of the French courts in the same dispute that French law governed the issue, and that the arbitration agreement bound Kout under French law.

Second, in a decision that is relevant for the interaction between international arbitration and constitutional law, the German Constitutional Court in Pechstein overturned the Federal Supreme Court, which had upheld the validity of an arbitration agreement in favor of the Court of Arbitration for Sport (CAS) in a dispute with an athlete concerning sanctions for doping. While recognizing that the right to arbitrate was protected by the German Constitution as part of the freedom to contract, the Constitutional Court held that the lack of a public hearing in the CAS proceeding breached the athlete’s constitutionally guaranteed right of access to justice.

Third, deciding on the attempt by Turkmenistan to enforce an ICSID award against a Turkish investor, the Turkish Court of Cassation noted that Turkey had not designated the competent court or authority for enforcement under Art. 54(2) of the ICSID Convention. Finding that the enforcement procedures provided for domestic court decisions could not be applied instead, this prevented enforcement of the ICSID award in Turkey.

Finally, the upload contains the much-discussed decisions of the Court of Justice of the European Union in Komstroy and PL Holdings in which the Court concretized the consequences of its Achmea decision. In Komstroy, the Court held that EU law prevented the resolution of intra-EU investment disputes under the Energy Charter Treaty; in PL Holdings, it held that EU law did not permit disputing parties to rely on an ad hoc agreement to arbitrate in order to circumvent the invalidity under EU law of arbitration agreements formed on the bases of an intra-EU investment treaty.

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The Contents of Arbitration: The International Journal of Arbitration, Mediation and Dispute Management, Volume 88, Issue 4 (December 2022)

Sun, 2023-01-01 01:10

Review of the Arbitration Act 1996: Responses to the Law Commission Consultation Paper

Earlier this year, the Arbitration Act 1996 celebrated twenty-five years from the day it was brought into force. On 22 September 2022, the Law Commission issued its Consultation Paper on the Review of the Arbitration Act 1996. The Law Commission considered the Act’s 25th anniversary a good opportunity to revisit the Act and ensure that the Act remains ‘state of the art [ … ] and in support of London as the world’s first choice for international commercial arbitration’.

The Consultation Paper offers a lengthy and rigorous, yet clear, analysis of the provisions of the Act which has been informed by consultation with a wide range of stakeholders. The Consultation Paper concludes that the Act still works ‘very well’ and, therefore, instead of ‘extensive reform’, it provisionally proposes a number of focused amendments with a view to modernising the Act. The proposed amendments include the question of confidentiality, arbitrator independence and disclosure, discrimination, summary disposal, the court powers in support of arbitral proceedings, arbitrators’ immunity and section 67 on the challenges to substantive jurisdiction of an arbitral tribunal.

The Journal is delighted, and indeed honoured, to have been asked to publish the summary of the Consultation Paper in this issue. By way of further consultation, the Commission has invited responses to the Consultation Paper until 15 December 2022, requesting interested parties to identify any further topics which are worthy of potential reform. The Journal has answered the call of the Commission and has asked a number of leading arbitration commentators, practising in England, to provide their comments on the Consultation Paper. We have received comments (which are published further below after the Summary Consultation Paper) from Clare Ambrose, Ben Giaretta, Ali Malek KC, Christopher Harris KC and Paul Bonner Hughes, Wendy Miles KC and Louis Flannery KC. We are grateful to the commentators for offering their thoughtful and balanced views on the Consultation Paper, which – I am sure – will be very helpful to the Law Commission as they finalise their Review of the Arbitration Act.

We will continue to look closely at the process of the Commission’s review of the Act. In the meantime, we are again grateful to the Law Commission for having asked the Journal to publish the summary of the Consultation Paper and to the distinguished commentators for providing their insightful analysis. I hope that the readers will find the discussion helpful.

We are happy to report that the latest issue of Arbitration is now available and includes the following:

 

ARTICLES

Isaac Motunrayo IBIKUNLE, A Critical Review of the Non-arbitrability of Tax Disputes and Recognition and Enforcement of Tax-Related Foreign Awards in Nigeria

Nigerian Courts have held in several cases that tax disputes are not arbitrable. This article examines whether: (1) the cases are correct in light of applicable tax instruments and emerging trends on arbitrability; (2) the decisions foreclose the arbitrability of all tax disputes in Nigeria; and (3) foreign awards, whose underpinning disputes are tax claims, are no longer enforceable in Nigeria, in view of the decisions. The importance of the foregoing questions cannot be overstated, particularly to foreign investors and Nigeria’s trade partners. With the aid of primary and secondary sources and comparator analysis, this article argues that the decisions were reached per incuriam. It also observes that whilst the decisions remain valid until set aside, the decisions neither foreclose (1) the arbitrability of tax disputes arising from certain domestic and international instruments; nor (2) the recognition and enforcement of foreign awards in at least three identified situations.

 

Komninos KOMNIOS, Legal Consequences for Non-compliance With the GDPR in International Arbitration

Data protection legislation, such as the General Data Protection Regulation (GDPR), aims to protect individuals’ personal data from illegitimate processing. As in any dispute resolution mechanism extensive processing of personal data takes place also in the context of arbitration and at various stages thereof. The broad scope of the GDPR has raised important issues concerning international arbitration, the most discussed of which being whether and how the GDPR applies to the latter. This article places the focus on specific legal consequences on international arbitration in case of non-compliance with the GDPR when it is applicable.

 

Peter Nahmias REISS, Into the Future With Eyes Wide Open: International Arbitration in the Digital Age

Technological developments have long had a major impact on the practice of international arbitration. The progression of technological advances in this practice has already provided indisputable benefits, empowering panels and lawyers to handle increasingly complex disputes more quickly and efficiently. However, important issues arise, particularly with regard to procedural fairness and due process. Major institutions such as the International Chamber of Commerce (ICC) and Chartered Institute of Arbitrators (CIArb) have developed guidelines and recommendations designed to help the international arbitration community address potential risks in these areas. This article considers Marshall McLuhan’s analytical method to dig deeper into the impact of technological advances. The future promises more breakthroughs, and professionals are advised to remain aware of how they can inadvertently adapt their thinking and behaviour to risks in procedural fairness and due process.

 

Daniel ROSENBERG, A Wolf in Sheep’s Clothing: Overlooked Procedural Deficiencies in ICSID’s Annulment Structure

Over the past several decades, the International Centre for the Settlement of Investment Disputes’ annulment procedure has proved an object of consternation for states and investors alike. The substantive principles of Article 52 of the ICSID Convention are commonly criticized as either too expansive or too narrow. The author contends that this criticism is misplaced, however, and that it is procedural deficiencies which will plague ICSID’s annulment proceedings in this time of broad investor-state dispute reform. Overconcentration of annulment committee appointment and challenge power in the hands of the Chairman of the ICSID Committee and ICSID Secretariat, compounded by continued problems of ‘double-hatting’ at the annulment level, threaten the due process rights and autonomy of parties to ICSID annulments. The author proposes a feasible restructuring of annulment appointment and challenge procedure under the ICSID Arbitration Rules as a potential rectification of these procedural flaws, including a dispersal of appointment power, a new pool system for annulment panel members, and the creation of an independent review body to consider challenges to annulment panel members.

 

Colin CHERIAN, A Lapse of Grace: Encryption Bans as Potential Expropriation Claims

Regulatory interventions to prevent perceived harms of emerging technologies may likely pave the way for tech-related disputes between a host state and a foreign corporation. One such emerging technology whose harms and widespread use features in recent debates is end-to-end encryption (E2EE). This article examines an outright ban of end-to-end encrypted instant messaging platforms, based on the ‘going dark’ concerns of governments, as a potential expropriation claim. This article attempts to answer whether there has been a substantial deprivation, and whether non-compensation is justified for such a deprivation by carrying out effects-based, purpose-based, and balancing analyses. The findings of this study demonstrate that although the effects of the ban may be tantamount to expropriation, such a finding is not evident in a purpose-based or proportionality analyses.

 

Peter ASHFORD, The Putative Law of the Putative Contract

If the contract itself is disputed, including whether there is an agreement to arbitrate which in turn is dependent on whether standard terms were incorporated, what is the proper approach to answering those questions (including the proper law)? Does the analysis start with the putative law or the putative contract? The better view is to start with determining the putative law and, applying that, determine whether the putative contract exists.

 

Olu OJEDOKUN & Dominic Obilor AKABUIRO, The Concept of the Seat in International Arbitration: Unlocking the Judicial Challenge of Interpretation of Conflict of Laws

The continuing growth of international commerce has inevitably led to a situation where more and more countries, via their state entities and private companies, find themselves parties in disputes to be resolved through international arbitration. In Africa, particularly following the African Union Free Trade Agreement of 2018, the growth in cross-border and international investment and the maturity of the transaction landscape has led to a proportionate increase in dispute resolution proceedings. In this context, the arbitration ‘seat’ is especially important because previous studies have found that the reasons for preferring any one seat over others are strongly related to observed judicial attitudes toward arbitration and the legal infrastructure in that jurisdiction. In India, for instance, despite the country’s importance as a juridical seat of arbitration given under the 1996 Act, the jurisdiction of the courts over arbitral proceedings has remained with the civil court and high court. Considering international arbitration in general, the conflict between juridical seat and court jurisdiction has persisted because the roles of arbitral seat and venue (as decided by conflict of laws) have not been properly distinguished. This article examines how, in the absence of a clear and unambiguous clause specifying applicable law, the Nigerian courts and indeed other courts have adopted a seat-driven approach to resolving these difficulties. In conclusion, the article outlines the room for improvement that may exist.

 

Isabel PHILLIPS, Ciarb ADR Competence Frameworks, Competence Statements, and Membership Levels

This article presents the results of the original research and design conducted on behalf of Chartered Institute of Arbitrators (Ciarb) to create an integrated set of competence frameworks for Alternative Dispute Resolution (ADR), and the individual ADR disciplines of Arbitration, Adjudication and Mediation. It argues that ADR as a field needs to be clearer on the competence it is providing to users, in line with other professions such as law or medicine. The competence frameworks are presented together with a summary of the underlying premises of the work, the work process – including consultation – and some of the expected challenges in operationalizing the frameworks.

 

BOOK REVIEW

Michael HWANG, Blanke on UAE Arbitration Legislation and Rules: A Multi-volume Article-by-Article Commentary, Volume 1 by Dr Gordon Blanke, Second Edition 2021, Sweet & Maxwell

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Washington Arbitration Week 2022: The Influence of Public International Law in Investment Arbitration – Not to be Taken for Granted

Fri, 2022-12-30 00:11

On 30th of November 2022, Washington Arbitration Week 2022 continued with several panels held in hybrid format. This post presents some highlights of the panel titled ‘The Influence of Public International Law in Investment Arbitration,’ which featured as moderator Mr. Lee M. Caplan (Arent Fox) and as panelists Prof. Dr. Yannick Radi (UC Louvain), Ms. Kiran Nasir Gore (George Washington University Law School), Mr. Josh Simmons (Wiley Rein), and Dr Jose Antonio Rivas (Xtrategy).

Although public international law (PIL) may sometimes be taken for granted in international investment disputes, its role is of paramount importance: PIL principles support determination of State responsibility (i.e. attribution to the State) and determination of a breach under the relevant treaty instrument, often with reference to customary international law (CIL) and/or the law of treaties (the 1969 Vienna Convention on the Law of Treaties).

However, as Mr. Caplan noted in his opening remarks, more discrete but equally paramount issues lie in determination of the international law sources that tribunals select to guide their interpretation and application of law, as reflected in the decisions issued by such tribunals. The panel thus explored the complex interplay between the regimes of PIL broadly, and international investment law (IIL) in particular (a topic previously covered in depth on KAB here). The discussion ranged from sources of such law to rationales and quantifications to guide the awarding of damages. Each of the panelists focused their remarks on the different “sources” of PIL that have relevance to the practice of international investment arbitration.

 

Customary International Law & General Principles of Law: the Paradigmatic Sources of PIL

Starting the panel, Prof. Dr. Radi highlighted the importance of CIL and general principles of law as sources of PIL. He explained that, not only are such sources relevant whenever investor-State relations are not covered by any international investment agreement (IIA), but also when such IIAs are not self-sufficient (e.g. when they display normative vagueness) and tribunals rely on these sources to support the interpretation and application of the relevant agreement’s provisions.

Starting with the discussion of CIL, Prof. Dr. Radi focused successively on the interplay between (i) CIL and treaties and, (ii) CIL and arbitral practice.

As to the former, he recalled that while some arbitral tribunals have suggested that IIAs can develop CIL on their own, others have argued that IIAs only contribute to the CIL process. He linked that latter approach to the ICJ judgment in the North Sea Continental Shelf case in which the Court set out conditions for treaties to play such a role. In this regard, he stressed that the Court discussed therein the interplay between CIL and a multilateral treaty. As a result, when analyzing each of these conditions in relation to IIAs, he insisted that one shall be cautious given the frequent bilateral dimension of these agreements.

As for the interplay between CIL and arbitral practice, Prof. Dr. Radi noted that arbitral tribunals have a strong tendency to refer, not to State practice, but to past arbitral awards when they discuss CIL. Stressing that those past arbitral awards themselves often do not either review State practice and opinio juris, he suggested that this tendency amounts to a self-referential practice where CIL is being replaced by “jurisprudence constante”.

Further, Prof. Dr. Radi discussed CIL in relation to burden of proof, explaining the different views adopted by arbitral tribunals in this regard. As regards the parties, he referred to two main approaches that co-exist in arbitral practice. The first approach puts the burden of proof on the Claimant. The second approach, based on a distinction between CIL existence and CIL content, puts the burden of evidencing CIL existence on the Claimant, but that of evidencing its content on both disputing parties. Prof. Dr. Radi also discussed the role assigned to tribunals themselves, linking this discussion to the iura novit curia principle.

Turning to general principles, Prof. Dr. Radi focused on general principles deriving from domestic legal systems, i.e. on “general principles of law recognized by civilized nations” (GPLRCN) as they are referred to in Article 38 of the ICJ Statute. He pointed out that arbitral tribunals are often criticized when discussing domestic legal systems for two main reasons: (i) the lack of methodology, for instance in determining the content of domestic laws or their degree of similarity, and (ii) their selectivity in picking domestic legal systems. To make sense of these criticisms and appraise their relevance, Prof. Dr. Radi introduced and discussed a trifold distinction: (i) a distinction between those situations where tribunals rely on GPLRCN and those where they rely directly on domestic law; (ii) a distinction between those situations where the reliance plays a gap feeling role and those where it is intended to confirm an interpretation reached on another basis, and (iii) a distinction between legality and  legitimacy as a ground for criticism.

 

The VCLT in the Context of Investor-State Disputes: A Slow but Consensual Process

Ms. Gore put into context the the Vienna Convention on the Law of Treaties (VCLT), which finds its roots in the very early days of the International Law Commission (ILC) of the UN. When the ILC was first formed in 1948, one of its first tasks was to establish a list of the essential topics of international law to be considered and advanced by the ILC, and the law of treaties was selected from that list as one of the first projects to be undertaken.

The VCLT thus is the result of the ILC’s nearly 20-year process of codifying the law of treaties, during which time the ILC’s work on this topic was led by four successive Special Rapporteurs. The ILC’s efforts throughout this period focused on those principles which were widely accepted, including those considered reflective of CIL, and therefore appropriate for codification. In 1969, when the VCLT opened for signature, it did not seem that its substantive provisions were considered controversial as many UN Member States signed without objection to its terms. It took a further 11 years, until 1980, for the VCLT to enter into force for signatory States. It is worth noting that principles embodied in the VCLT have broader relevance as many non-signatory States accept many of the VCLT’s provisions as reflective of CIL, see e.g. the Q&A of the U.S. State Department here. As such, in the investment arbitration field, the VCLT’s rules are relied on extensively, in particular the VCLT’s rules on interpretation, in Articles 31 through 33, which are frequently referred to by counsel and tribunals.

In Ms. Gore’s view, the work of the ILC to develop the VCLT was particularly productive as the mandate of the ILC was to codify existing practices on the law of treaties, and not to develop new or controversial principles. However, Ms. Gore highlighted that today’s world is very different compared to when the iterative work to develop the VCLT took place, in particular because there are more actors (e.g. there are more States in today’s post-colonial world as compared to when the UN was formed), as well as increasing numbers of international treaties. This multitude leads to the potential for treaty overlap, among other challenges.

For Ms. Gore, the VCLT primarily offers solutions: it offers default guidance on how treaties enter into force, how States leave treaties (a topic that is quite relevant in light of current ECT terminations), and how to interpret and apply treaties. It is likely that the VCLT will remain relevant for investment arbitration practice into the future. For example the Kyrgyzstan-Hungary BIT that entered into force in 2020, includes a rare express provision at Article 9.7, that the treaty is to be interpreted using the rules of the VCLT.

Moreover, the VCLT presents a flexible framework that allows States to deviate from its rules to suit their treaty-making goals. Some IIAs contain specialized guidance, for instance, the USMCA provides for a three-year sunset period for termination and winding down of its predecessor, NAFTA (see a prior detailed discussion on KAB here).

 

Attribution by the ILC Articles on State Responsibility

In line with Professor Pierre Marie Dupuy’s opinion (as reflected in the recently published ICSID Review Special Issue on the 20th Anniversary of the ILC Articles), paying tribute to Professor James Crawford, the assessment of the law of State responsibility is aimed at the relation between two States. Intended to be applied solely within the framework of PIL, it is not, in itself, conceived to serve in the context of an investor-State dispute.

There is a fundamental and often misunderstood difference between the three substantive parts of the ILC Articles. Notably as regards the second part of the ILC Articles which defines the consequences for a State having violated one of its obligations in relation to other States, and not in relation with the foreign investor – a national of another State.

Mr. Simmons responded to these ideas by discussing the link between parts 1 (“The Internationally Wrongful Act of a State”) and 2 (“Content of The International Responsibility Of A State”) of the ILC Articles. He noted that Article 33.2 on the “Scope of international obligations”1)Article 33.2, ILC Articles: “2. This part is without prejudice to any right, arising from the international responsibility of a State, which may accrue directly to any person or entity other than a State”. jQuery('#footnote_plugin_tooltip_43991_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_43991_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); recognizes not only a “State to State” application but also that rights “may accrue directly to any person or entity other than a State,” such as in international human rights law.

Mr. Simmons explained that there is no distortion in investment arbitration tribunals calling upon the principles set forth in the ILC Articles. However, at times it should be clarified that it is a matter of CIL’s application “by analogy”, rather than its direct application.

 

Adjudicatory Bodies’ Influential Role on PIL and IIL

Dr Rivas provided a general overview of how relevant decisions of international courts, tribunals and binational commissions have been to PIL and international investment law. He explained that PIL, including practice and decisions of the ICJ and PCIJ, have significantly influenced investment arbitration practice. He referred to three specific substantive obligations as examples related to most favoured nation (MFN) treatment, fair and equitable treatment (FET), and expropriation to demonstrate the point.

With respect to MFN, some earlier cases addressed whether a State (and not an investor) could rely on the MFN to import substantive provisions or dispute settlement provisions from other cases. Thus, in the early days of investment arbitration some State counsel would argue that the ejusdem generis principle2)The principle provides that where general words or phrases follow a number of specific words or phrases, the general words are specifically construed as limited and apply only to persons or things of the same kind or class as those expressly mentioned, see Cornell Legal Encyclopedia. jQuery('#footnote_plugin_tooltip_43991_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_43991_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); prevents importing FET via the MFN clause from a third treaty into the treaty, if FET is not the in the treaty by relying on Ambatielos. However, when that case (based on a bilateral commercial treaty) is read closely, it becomes clear that Ambatielos clarified the protections pertaining to the “administration of justice”  when read in conjunction with “commerce and navigation” where meant to encompass the rights of traders. By analogy, in investment disputes the “Treaty type” is investment, thus allowing importing substantive provisions from a third treaty not included in the applicable treaty. There has thus been a notable evolution in the MFN, now allowing to import substantive provisions leaving aside the unsettled importation (also known as application by reference) of procedural provisions.

With respect to FET, an early standard for FET was set in Neer v. Mexico of US-Mexico Claim’s Commission (1926). That case focused on whether there was a denial of justice or a significant flaw in the Mexican system of justice. The binational Mexican-US commission’s decision although “without attempting to announce a precise formula”, ultimately became a reference point for FET. It based its decision on the standards of “outrage, bad faith, willful neglect or duty or insufficiency of governmental action”.

With respect to expropriation, Dr Rivas explained that PIL, by nature, evolves and is influenced by State and tribunal practice, as further demonstrated by decisions of the Iran-US Claims Tribunal, which  developed various notions and standards related to expropriation in its decisions: the notions of creeping expropriation, regulatory expropriation, and the standard of substantive (as opposed to ephemeral) deprivation for regulatory expropriation, among others.

 

“Full Reparation”: an Easy Concept with a Difficult Application

The issue of damages in international arbitration is often controversial, as it requires application of a well-established principle that can be particularly difficult to apply. International law requires that a State that is held responsible for an unlawful act must provide full reparation (ILC Articles on State Responsibility).The Chorzów Factory case is the prime example and often is referred to by counsel and tribunals in investment arbitrations, but Mr. Simmons presented a more nuanced perspective by explaining that this jurisprudence should be read as a restatement of CIL, rather than a source in itself (quoting the Teinver v. Argentina case).

He also pointed out that the debate should be focused on whether and how the tribunals should use ex post expropriation information. As noticed in her Partial Dissent Professor Stern in Quiborax v. Bolivia (quoted by Mr. Simmons) tribunals could have a tendency to “pick and choose” in regard to the information they will use after the expropriation takes place. The tide might be changing, as seen in the damages award of ConocoPhillips v. Venezuela, with the ex post analysis focusing on causation and proportionality principles derived from the ILC Articles on State Responsibility.

Mr. Simmons concluded that the key issue with reparation is not the concept (which is clear and simple to understand) but rather its application. In his view, investment arbitration plays an important role in clarifying and developing how to apply the principle of full reparation under international law.

 

Conclusion

As put by Xue Hanqin, Judge at the ICJ and former ILC Member, Article 31(3)(c) VCLT functions as a master key to the house of international law, but one could ask – as did Prof. Dr. Radi – what guidance this article really offers as it is unclear what the reference it makes to  “take into account” means.

The VCLT, the Articles on State Responsibility and decisions by international adjudicatory bodies offers a treasure trove of source for rules that could be mined, despite discrepancies in the interpretation of arbitral tribunals. Thus, the landscape of sources of PIL remains fertile for rigorous interpretation and application by investment tribunals.

 

Kluwer Arbitration Blog’s full coverage of Washington Arbitration Week (WAW) is available here

References[+]

References ↑1 Article 33.2, ILC Articles: “2. This part is without prejudice to any right, arising from the international responsibility of a State, which may accrue directly to any person or entity other than a State”. ↑2 The principle provides that where general words or phrases follow a number of specific words or phrases, the general words are specifically construed as limited and apply only to persons or things of the same kind or class as those expressly mentioned, see Cornell Legal Encyclopedia. function footnote_expand_reference_container_43991_30() { jQuery('#footnote_references_container_43991_30').show(); jQuery('#footnote_reference_container_collapse_button_43991_30').text('−'); } function footnote_collapse_reference_container_43991_30() { jQuery('#footnote_references_container_43991_30').hide(); jQuery('#footnote_reference_container_collapse_button_43991_30').text('+'); } function footnote_expand_collapse_reference_container_43991_30() { if (jQuery('#footnote_references_container_43991_30').is(':hidden')) { footnote_expand_reference_container_43991_30(); } else { footnote_collapse_reference_container_43991_30(); } } function footnote_moveToReference_43991_30(p_str_TargetID) { footnote_expand_reference_container_43991_30(); 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_43991_30(p_str_TargetID) { footnote_expand_reference_container_43991_30(); 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 Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Washington Arbitration Week 2022: Class and Collective Action in Investment Arbitration – Old Issues, New Rules

Thu, 2022-12-29 00:45

This post highlights the Third Edition of the Washington Arbitration Week 2022 panel on “Class or Collective Action in Investment Arbitration,” held at the offices of Crowell & Moring LLP on December 2, 2022. The panel was moderated by WAW Co-Founder Mr. Ian Laird (Crowell & Moring/Georgetown Law). He was joined by Mr. Matthew Drossos (White & Case), Dr. Kabir Duggal (Arnold & Porter/Columbia Law), Mr. Robert Houston (The Global Pro Bono Bar Association), and Ms. Lisa Snow (Kroll). The panel discussed the following main topics: (i) Historical context and the early Claims Commissions; (ii) Consolidation of Investment Arbitration cases under NAFTA and issues of consent; (iii) Class Action Claims in Investment Arbitration and the Abaclat case; and (iv) Mass Claims as a Collaborative Response to Injustice.

Mr. Laird kicked off the discussion by highlighting the importance of identifying the categories of claims that shareholders, bondholders, or individuals affected by a common cause of action could use in an arbitration as part of the dispute resolution process. Such a methodology, in his opinion, achieves two objectives: (i) efficiency in minimizing time and costs assumed by the parties and (ii) avoiding contradictory or inconsistent decisions from parallel and multiple arbitration proceedings (read more about class and mass arbitration here).

I. Historical context and the early Claims Commissions

Claims Commissions represent a very unique and relevant form of international adjudication established to consider claims resulting from significant international war-related and traumatic historical events. Claims Commissions primarily aim to determine compensation to individuals and states for certain losses, damages or injuries. (See, generally, Howard Holtzmann and Edda Kristjánsdóttir (eds), International Mass Claims Processes: Legal and Practical Perspectives, Oxford University Press, 2007).

Dr. Duggal began the discussion by elaborating on the historical context of Claims Commissions. For instance, in the earliest known Claims Commission – established in the Jay Treaty (1794) between Great Britain and the U.S. – the treaty provided for the redressal of border disputes, shipping rights, and debts owed to British merchants before the appointed Commissioners, but turned out to be a failure with the next War of 1812 (read more about War and Arbitration here). The U.S. – Venezuela Mixed Claims Commission (1903) provided a mechanism for claims by U.S. citizens against Venezuela which had not been settled by diplomatic agreement or by arbitration. The General Claims Commission (1923) between Mexico and the U.S., which was later abandoned in 1934, provided for the adjudication of claims by citizens of Mexico and the U.S. for losses suffered due to the acts of one government against nationals of the other. The U.S. citizens’ hostage crisis in Iran and the freezing of Iranian assets in the U.S. resulted in the Algiers Accord (1981), and led to the creation of the Iran – U.S. Claims Tribunal, which is still operational. Iraq’s invasion and occupation of Kuwait led to the creation of the United Nations Compensation Commission (1991).

II. Consolidation of Investment Arbitration: Cases and the Issue of Consent

Mr. Laird stated that the tool of consolidation, in addition to achieving the twin objectives noted in his introductory remarks, positively addresses the issue of res judicata between overlapping subject matters in claims between common parties. However, it is important to have party consent for consolidation. He further elaborated by describing the procedural posture adopted in Khan Resources and Others. v. Mongolia, PCA Case No. 2011-09, in which he acted as the claimants’ counsel and where the parties negotiated to consolidate their claims into one proceeding.

Dr. Duggal highlighted the contrasting decisions in the NAFTA context, which permits consolidation under Article 1126. For instance, the tribunal in Canfor v. U.S., administered under UNCITRAL Rules, allowed the U.S.’s consolidation request of Tembec v. U.S. and Terminal Forest Products v. U.S. into a common proceeding, as all the Canadian claimants were softwood lumber producers affected by the countervailing duty and anti-dumping measures imposed by the U.S. However, the tribunal in Corn Products v. Mexico, ICSID Case No. ARB (AF)/04/1 rejected Mexico’s request to consolidate claims brought by ALMEX shareholders against Mexico in relation to the same tax measures on soft drinks containing high fructose corn syrup.

III. Abaclat as the Paradigmatic Case for Class Action Claims in Investment Arbitration

While the 2006 version of the ICSID Rules did not contain an explicit provision for consolidation, the arbitral tribunal in Abaclat (formerly Giovanna a Beccara) and Others v. Argentina, ICSID Case No. ARB/07/5 (“Abaclat”) took a creative approach by consolidating 60,000 bondholders’ claims into one common proceeding. Mr. Drossos addressed this case, which arose out of the 2001 Argentinian international sovereign bond default affecting thousands of bondholders. As a practical takeaway of having acted as counsel to the claimants, he highlighted the coordinated efforts to establish the burden of proof on a massive scale in order to satisfy jurisdictional, merits, and damages requirements such as personal information, nationality, consent, and bond holdings of individual claimants. Collecting a database with standardized consolidation of mass documentation into usable, confirmable form is a necessary procedural step, which can then be verified using underlying evidence for due process purposes by an independent database verification expert. In Abaclat, the tribunal appointed Dr. Norbert Wühler for that precise purpose.

Though Abaclat was ultimately settled, it is highly discussed whether any future claims commission can use the same standards and procedure to handle massive data for the consolidation of claims. In Abaclat, Argentina argued that it did not consent to arbitrate the consolidated claims, but the tribunal in the majority referred to its gap-filling power in Article 44 of the ICSID Convention to allow the procedure to go ahead, keeping in mind the fundamental principle of access to justice. The recently amended 2022 version of the ICSID Arbitration Rules provide for consolidation at Rule 46(2) and coordination at Rule 46(3), but they do not explicitly address how and whether a mass claim can be filed against a common Respondent for the same or similar subject matter of dispute.

From her perspective as a damages expert, Ms. Snow focused her presentation on the valuation of mass claims and highlighted the ability of the respondent to pay ultimately as a determining factor in the settlement negotiations, as witnessed in the Abaclat case. The recent example of Sri Lanka’s financial situation and bankruptcy would raise solvency issues if any investor-state claim is brought against it in the near future. In Corn Products v. Mexico, ICSID Case No. ARB (AF)/04/1, however, the decision to not consolidate was beneficial to the companies involved from a damage’s perspective.

IV. Mass Claims as a Collaborative Response to Injustice

Mr. Houston introduced the efforts of the Global Pro Bono Bar Association titled “Project Treaty Justice”, which seeks to assist investors with financing collective claims against Russia. In response to international sanctions, Russia published and has actively updated a list of “unfriendly countries,” which empowers the government to introduce countermeasures against countries determined to have engaged in “unfriendly” actions against Russia (and investors from those “unfriendly countries”). Such measures include: currency transfer restrictions, transaction approval requirements, prohibition of foreign currency export, debt repayment restrictions, export and import prohibitions, and non-enforcement of intellectual property rights (read more about sanctions here). The 27 “unfriendly countries” with whom Russia has BITs in force are Albania, Austria, Bulgaria, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Italy, Japan, Lithuania, Luxembourg, Netherlands, North Macedonia, Norway, Romania, Singapore, Slovakia, South Korea, Spain, Sweden, Switzerland, Ukraine, and the United Kingdom (read more about Russian BITs here).

Mr. Houston explained the main three objectives of Project Treaty Justice are to (i) bring justice to those negatively impacted by Russia’s actions where they otherwise may have no recourse, (ii) deter future acts of aggression by Russia or other states in order to promote the international rule of law as well as international peace and security, and (iii) democratize the practice of investor-state arbitration around the world by affirming the value of individual investors’ investments. Therefore, Project Treaty Justice is in the process of developing a mechanism to help those affected individuals by Russia’s economic measures, who have no other avenue for access to justice to bring an ISDS claim, even if their claims are smaller in size as long as their rights are protected under any of the 27 BITs with Russia (read more about small value claims here).

Mr. Laird flagged the UN General Assembly Resolution of 14 November 2022 on the furtherance of remedy and reparation for aggression against Ukraine, which amongst many aspects envisioned the creation of a “record of evidence” with a statement of “Claims information […] caused by internationally wrongful acts”, documentary evidence of “damages, loss, or injury,” and expert evidence if required. The scope and extent of the record is all damages, including human rights and commercial losses, to the State of Ukraine and all natural and legal persons concerned (read more about the peaceful resolution of disputes here).

Dr. Duggal highlighted the potential diplomatic issues with the freezing of assets and its reciprocal treatments from an international peace and security perspective (read more about asset freezes here). Since this is an issue that, from his perspective, needs to be addressed by the UN Security Council – where Russia can and will exercise its veto powers – the efficacy of the mass claims process remains questionable.

Conclusion

Collective actions in arbitration have been relatively rare and scarce. This is not to say that such actions did not exist, as the panel took stock of cases of collective actions in investment arbitration with particular attention to Abaclat. However, in recent years the cases and scenarios for group arbitration have increased considerably.

Although the recent ICSID Arbitration Rules 2022 remarkably provide for consolidation of arbitral proceedings at Rule 46(2) and coordination of arbitral proceedings at Rule 46(3), other intricate aspects are still to be tackled, such as the issue of filing mass claims against a common respondent for similar, but not identical, subject matters of dispute, which might raise questions regarding consent.

Despite the challenges involved with such large-scale claims, collective actions could prove useful in addressing systemic issues that arise in arbitration proceedings affecting several parties: (i) efficiency in minimizing time and costs, (ii) avoiding contradictory or inconsistent decisions from parallel and multiple arbitration proceedings, and (iii) the issue of res judicata between overlapping subject matters in claims between common parties. Resorting to collective actions can be a viable option for small value claims, and thus enhance access to arbitration and ultimately, to justice.

Kluwer Arbitration Blog’s full coverage of Washington Arbitration Week (WAW) is available here

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Washington Arbitration Week 2022: International Investment Protection of Space Assets, Quo Vadis?

Wed, 2022-12-28 00:44

The third edition of the Washington Arbitration Week (WAW), founded by Ian Laird (Crowell) and Jose Antonio Rivas (Xtrategy), took place in a hybrid format from November 28 to December 2, 2022 and included 15 panels. On December 1, 2022, the conference held a discussion on the topic of international investment protection of space assets. The panel was moderated by Ben Love (Boies Schiller Flexner, partner), and featured Ernie Chung (FTI Consulting, partner), Petr Polášek (White & Case, partner), Laura Yvonne Zielinski (Holland & Knight, attorney; Space Arbitration Association, founder), and Philippe Oudinot (Airbus, special compliance monitor). This post presents some highlights of the discussion as well as further remarks on the topic.

 

I.  The dominant role of the private sector in an expanding space industry

Oudinot explained that space activities have grown exponentially in the last several years, resulting in a multiplication of space assets. While these objects were traditionally owned by governments, Oudinot pointed out that they now tend to be provided to governments by private actors, such as OneWeb, a constellation of 900 telecommunication satellites, or Airbus, which is developing the “Aibus Zephir”, the first high-altitude platform station to have demonstrated day/night longevity in the stratosphere.

Chung explained that, for many years, space equipment was operated by public institutions, due to high financial barriers to entry. Recent innovations, such as the reusability of space equipment, have led to the multiplication of this equipment (from around 1,500 active spacecraft five years ago to 5,500 today), as well as the growing involvement of the commercial sector (which operated 40% of space equipment five years ago, as opposed to 80% today).

Zielinski mentioned that the Space Foundation 2022 Global Space Report concluded that the global space economy had reached $469 billion in 2021, with the commercial space sector seeing a 6.4% revenue growth since 2020. According to the report, most of the money generated by the space industry in 2021 corresponds to the commercial sector, with more than $224 billion coming from products and services delivered by space firms and nearly $138 billion spent on infrastructure and support for commercial space enterprises. This growth will likely continue, as illustrated by a Euroconsult report of November 2022, which predicts that global government investments in space exploration will reach $31 billion by 2031.

 

II.  The prospect of a space mining industry

Polášek analyzed the development of private activities aimed at exploring and exploiting space resources. He mentioned the Chinese “Chang’e 5” space mission which has recently returned a new mineral from the lunar surface. This new mineral, called “Changesite—(Y)”, contains helium-3, an isotope that could be a fuel for future fusion reactors. In November 2022, the lunar lander “Hakuto”, owned by the Japanese company ispace Inc., was sent to the moon by the Falcon-9 rocket from American  company SpaceX. This Japanese project aims to be the first private mission to land on the moon.

These private initiatives are supported by a number of States, which have made it a part of their space exploration strategies to support the development of space commercial activities. Thus, in December 2021, the White House stated in its U.S. Space Priorities Framework that U.S. space exploration priorities included fostering the development of the commercial space sector, including the recovery and use of space resources.

The growing role of private initiatives in space activities necessarily raises the question of the protection of these private investments. Legal mechanisms similar to those that govern investments in the mining sector could be transposed as a framework to protect operators of space resources.

 

III.  The current international framework regulating activities in space

Zielinski introduced the four treaties constituting the basis of international space law, developed by the UN Committee on the Peaceful Uses of Outer Space (“COPUOS”). The most important is the Outer Space Treaty of 1967 (“OST”), which sets forth the general principles governing human activities in outer-space. Notably, it provides for the principle of “non-appropriation” according to which outer space and celestial bodies may not be claimed as the property of any nation.

Three other treaties followed: the Rescue Agreement of 1968 on assistance in the rescue of astronauts, the Liability Convention of 1972 (“LIAB”) concerning damage caused by a State’s space objects on the surface of the Earth or to aircraft, and providing for the international responsibility of the “launching states”; and the Registration Convention of 1974 (“REG”).

While these treaties are not binding, some of them have been recognized as part of customary international law. For example, the registration of space objects is mandatary for State Members of the REG; and recommended for any other UN Member States under a General Assembly Resolution 1721 (XVI).

Zielinski emphasized the lack of any binding treaty regulating the mitigation of space debris, with only a non-binding agreement dealing with this issue: the UN COPUOS Space Debris Mitigation Guidelines of 2007.

 

IV.  The extraction of space resources

Polášek explained that the OST does not address some of the key questions regarding private commercial issues such as the lawfulness of the extraction of resources. States have therefore developed different stances on this issue.

In 2020, 20 countries participating in the Artemis Program signed the Artemis Accords, a set of agreed principles for the civil exploration and use of the moon and other celestial bodies. It notably introduced the concept of “safety zones”, defined as areas where space operations are conducted, whose purpose is to avoid harmful interference by other actors. The Artemis Accords state that the safety zones may be used for the “safe and efficient extraction and utilization of space resources”.

At the national level, some countries have passed domestic legislation governing private entities’ and individuals’ rights to explore, exploit and utilize space resources. One prominent example of that is the U.S. SPACE Act of 2015 allowing U.S. citizens and industries to engage in the commercial exploration and exploitation of space resources. Similar regulations were passed in other States, like Luxembourg.


V.  The available protection for private investments

Polášek recalled that the LIAB provide for the principle of State responsibility. Under the LIAB, States are internationally liable for damages caused by space objects for which they are the “launching State”. The “launching State” refers to a State which launches or procures the launching of a space object or from whose territory or facility a space object is launched.

Under the LIAB, damage means loss of life, personal injury or other impairment of health, or loss of or damage to property of States or of persons, natural or juridical, or property of international intergovernmental organizations. Liability is absolute for damage caused on Earth or while an aircraft is in flight, and fault-based for damage caused in outer space. The LIAB provides a compensation mechanism which aims to restore the claimant to the condition which would have existed if the damage had not occurred.

Polášek also mentioned that the LIAB provided for a dispute settlement mechanism through a Claims Commission. This Claims Commission is only available to States and not to private parties, and the award rendered by the Claims Commission remains a mere recommendation unless all involved States agree that it will be binding.

The Claims Commission under the LIAB has only been invoked once, in 1978, following the scattering of radioactive debris over northern Canada by a defunct Soviet satellite. Canada issued a claim against the Soviet Union. The dispute was ultimately resolved diplomatically, however, so little precedent exists for the LIAB State-State dispute resolution mechanism.

With respect to investment treaties, Polášek observed that the main issue is that they only apply to investments made in the territories of the signatory States. Yet, international law does not provide for a clear definition of where the territory of an individual State ends and outer space begins. Several limits have been proposed, such as the “Kármán line”, which is set at around 62 miles above sea level. But even the lowest objects currently in space are well above this definition.

However, according to Polášek, if a State acts in a way that damages a space object and subsequently has impacts on Earth (e.g., reducing the value of a space mining company’s shares), it is conceivable that another State would have a claim due to the subsequent damage caused on its territory. When it comes to space investments on Earth, and impacts on such investments, investment treaties remain relevant.

 

VI.  The protection of space assets in investment arbitration case law

According to Zielinski, one must distinguish between (1) the investment cases involving damage to assets located in outer space, where the territorial requirement is controversial, and (2) the more conventional cases dealing with on-Earth investments in the space industry. The three investment treaty cases that have occurred so far all fall in this last category, and did not give rise to any territorial argument.

The Eutelsat v. Mexico case related to a provision contained in a concession contract over the use of geostationary orbital position. Eutelsat argued that the provision, providing that Eutelsat had to reserve a percentage of their overall capacity for free for the Mexican State was violating the fair and equitable treatment provision of the applicable treaty. Eutelsat lost the case.

In Antrix v. Devas and Deutsche Telekom v. India, the Indian State-owned company Antrix leased S-band satellite spectrum to Devas. Five years after the deal was signed, the Devas-Antrix agreement had become mired in controversy, and the government rescinded the contract with Devas, arguing that national security required rescission. The arbitral tribunal ruled that only part of the frequency spectrum was needed for national security reasons, and that for the remaining part, the rescission of the contract constituted a breach of the expropriation and fair and equitable treatment provisions of the applicable treaty.

Zielinski also pointed out that space actors may also have an advantage in using arbitration for their commercial disputes, since these disputes usually present specific legal issues, such as export-control issues, for which State courts may not be well suited.

 

VII.  Space assets: what is next?

Zielinski pointed out in closing remarks that frequency interference disputes will increase in the future, as the Low Earth Orbit spectrum is becoming very saturated. Zielinski also mentioned that there has been one commercial arbitration case dealing with this issue so far: the Eutelsat v. SES case, based on a coordination agreement between the parties.

More generally, panelists agreed that since exploration will continue to need huge amounts of financing, from both domestic and foreign private investors, the protection of international space investments will be a key challenge.

At the international level, the Artemis Accords paved the way for the development of regional and national rules protecting investors. However, panelists were cautious about the prospect of a new global regime for space investments in the coming years; considering that States may continue to enact domestic regulations protecting their own nationals.

This push by certain States in favor of the private exploitation of space resources constitutes a significant paradigm shift. While the panelists did not delve further into this point, it should be noted that this movement runs counter the principle of non-appropriation articulated in the 1960s and 1970s by the first international treaties relating to space activities.

Indeed, the OST established the principle of non-appropriation of space resources from an inter-State perspective in 1967. Its Article II reads: “Outer space, including the moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means”. The Moon Agreement of 1979 consecrated the same principle with respect to the moon, and went further by stating in its Article 11 that “the moon and its natural resources are the common heritage of mankind.”

Despite these pronouncements, there is no official definition of the principle of non-appropriation, and its content has been continuously discussed.. States promoting the exploitation of space resources by private actors rely on an extensive interpretation of this principle. Thus, Section 10 of the Artemis Accords asserts that “the extraction of space resources does not inherently constitute national appropriation under Article II of the Outer Space Treaty”.

States’ support of the expansive interpretation will facilitate the increase of private investments in the space resource industry. Traditional international treaties, designed around the principle of non-appropriation, are unlikely to provide enough protection to private investors. It is therefore likely that States will be interested in adopting new investor protection standards, adapted dispute resolution methods, as well as reliable enforcement mechanisms.

 

Kluwer Arbitration Blog’s full coverage of Washington Arbitration Week (WAW) is available here

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The Permanent Court of Arbitration and the Republic of Ecuador Conclude a Host Country Agreement: What Does this Mean?

Tue, 2022-12-27 00:57

On October 17, 2022, the Secretary General of the Permanent Court of Arbitration (“PCA”) and the Minister of Foreign Affairs of the Republic of Ecuador (“Ecuador”) signed in Quito a “Host Country Agreement” (the “Agreement”). This news has been well received, both in the Ecuadorian and the international arbitration community. It is also the culmination of various efforts made, on the one hand, by Ecuador to position itself as a pro-arbitration, pro-investment dispute resolution hub in Latin America and, on the other hand, by the PCA to continue enhancing its presence and accessibility in the region. What is more, this agreement is poised to have almost immediate effect. Through a streamlined ratification process, it is expected to enter into force early in the new year.

In the following sections, we explore (i) the main characteristics of the Agreement, and its implications from the perspective of both (ii) the PCA and (iii) Ecuador.

 

(i) The Agreement

The PCA’s Host Country Agreements with various of its Contracting Parties allow the PCA to offer the full benefits of its services on an increasingly global basis. These agreements establish a legal framework under which PCA-administered proceedings can be conducted in the country on an ad hoc basis, without the need for a permanent physical PCA presence in that territory, and under equivalent conditions to those guaranteed under the PCA’s Headquarters Agreement with the Kingdom of The Netherlands. In this vein, the PCA and the host country may also establish a PCA hearing facility in the host country.

The principal elements of the Agreement concern the privileges and immunities that are granted by Ecuador to arbitrators, PCA staff, and other participants in PCA-administered proceedings (such as counsel, agents, and witnesses) in the same manner as accorded by Ecuador to officials of comparable rank under the 1946 Convention on the Privileges and Immunities of the United Nations. At its core, this concerns immunities for all spoken or written words and acts in the discharge of participants’ roles in a PCA arbitration taking place in Ecuador, so as to guarantee the independence and neutrality of the proceedings regardless of their situs. As for the PCA, its premises, property, archives, and communications are also granted immunity.

Other practical matters are also addressed. Under the Agreement, Ecuador grants certain tax exemptions, as well as exemptions from financial controls or regulations that may interfere with the PCA’s financial activities, including the administration of arbitration deposits. Further, the prompt and cost-free issuance of any required travel visas is guaranteed for all participants. Importantly, under Article 3 of the Agreement, Ecuador commits to making available, free of cost to parties in PCA proceedings, such office and meeting space as necessary for PCA activities.

 

(ii) Impact of the Agreement for the PCA

To make its dispute resolution services more widely accessible, the PCA has adopted a policy of concluding “Host Country Agreements” with Contracting Parties to either of its founding conventions, the 1899 or 1907 Convention for the Pacific Settlement of International Disputes. These agreements allow the parties in a dispute located in or near the host country to take full advantage of the flexibility and efficiency of PCA-administered proceedings in the host country’s territory.

In particular, the signing of the Agreement with Ecuador represents an important milestone and has strategic relevance for the PCA. Ecuador has actively contributed to the growth of the organization and to its promotion as a preferred institution for handling international arbitrations. Indeed, Ecuador was one of the pioneering countries in including PCA model clauses in its State contracts, an area where PCA arbitration has grown significantly in recent years. An example of this is the renegotiated oil contracts entered into by Ecuador in 2010. These contracts contained uniform dispute resolution clauses that included ad hoc arbitration under the UNCITRAL Rules administered by the PCA. Notably, the Model Concession Contract under the Public-Private Partnership framework and the Model Mining Services Contract also provide for arbitrations administered by the PCA. Additionally, in 2018, Ecuador enacted the Organic Law for Promoting Production, Investment Attraction, Employment Generation, and Fiscal Stability and Balance (“Investment Law”). This law expressly establishes that investment contracts that exceed USD 10 million may be administered under the UNCITRAL Arbitration Rules by the PCA.

Furthermore, Ecuador has agreed to PCA administration of several investment arbitration disputes, including those between Chevron and the Republic of Ecuador, and the related PCA inter-State arbitration between Ecuador and the United States of America. The PCA’s involvement with these arbitrations has confirmed its status as an appropriate institution for highly complex and sensitive proceedings.

Having Ecuador join the list of Latin-American countries with Host Country Agreements is a testament to the PCA’s strong presence in the region. Indeed, the PCA has concluded these agreements with Argentina, Brazil, Chile, Costa Rica, Paraguay, and Uruguay. In part because of this strong network and its rich history with Latin America, the PCA decided to open–just three years ago–its first office in the region, located in Buenos Aires. This office allows the PCA to better serve the needs of the Latin-American community, and the Agreement with Ecuador only reaffirms the PCA’s regional leadership.

 

(iii) Impact of the Agreement for Ecuador

From Ecuador’s perspective, the Agreement is also highly relevant, as it constitutes further evidence of the country’s intention to strengthen arbitration as a preferred mechanism for international dispute resolution. In the last five years, Ecuador has sent important signs to this effect. Among the most relevant, we can highlight the following:

  1. In 2018, the Investment Law, in addition to mandate the inclusion of arbitration as a dispute resolution mechanism in all investment contracts entered into with Ecuador, it also strengthened the process of enforcement of foreign awards. Under this regulation, foreign arbitration awards will have the same effects and will be executed in the same way, as awards issued in domestic arbitration. This is without the need for a prior homologation process.
  2. In 2019, the Constitutional Court issued judgments No. 323-13-EP/19  and No. 31-14-EP/19, where it expressly recognizes that the cases of annulment of awards in Ecuador are exhaustive and emphasizes the principle of minimal court intervention in arbitration. In addition, in judgments No. 1703-11-EP/19 and No.1059-15-EP/20, the Court clarified that the process for annulment of awards in Ecuador was abbreviated and, therefore, appeals provided for in ordinary lawsuits do not apply. These decisions are favorable for Ecuadorian arbitration and the selection of Ecuador as a legal seat of international arbitration.
  3. In June 2021, Guillermo Lasso, the current president of Ecuador, signed for the second time the Convention on the Settlement of Investment Disputes between States and Nationals of other States (“ICSID Convention”), a decision that was upheld  by the Constitutional Court. These acts were well received by the international community as a reaffirmation of the country’s commitment to compliance with its international obligations and to the protection of foreign investment.
  4. In August 2021, Lasso issued the Regulation of the Ecuadorian Arbitration Law (“AML Regulation”), a set of norms that apply to domestic arbitrations and international arbitrations seated in Ecuador. The AML Regulation contains important provisions for arbitration and is considered innovative for both the region and the international arbitration community. Among its main developments are: (i) the recognition of the application of the principles, uses, and best practices of international arbitration; (ii) the possibility of extending the effects of an arbitration agreement to non-signatory parties; (iii) the omission of formalities for the enforcement of foreign awards; (iv) the provision of emergency arbitration as a precautionary measure; (v) the limitation of liability of arbitrators to willful misconduct or gross negligence; and (vi) the limitation of the annulment of awards to those cases in which the reason for the claim causes irreparable damage to the party.
  5. In 2022, Ecuador executed the Host Country Agreement with the PCA, guaranteeing all the benefits and immunities described above for the development of international arbitration proceedings under the PCA’s auspices.  According to the Minister of Foreign Affairs of Ecuador, this Agreement was signed to show the country’s commitment to justice, the rule of law, and international arbitration.

 

Conclusion

Taking into account the mutual interest in strengthening the long-standing cooperation of the PCA and Ecuador, the Agreement should provide numerous benefits and help to:

  • Raise Ecuador’s international profile as an arbitral forum;
  • Attract arbitrations to Ecuador that would otherwise be conducted elsewhere;
  • Increase domestic and regional awareness of arbitration and other methods of dispute settlement offered by the PCA;
  • Strengthen the cooperation between the PCA and national or regional arbitral institutions and facilitate the exchange of expertise; and
  • Increase the accessibility of PCA-administered dispute resolution to Ecuadorian and Latin-American parties.

Building on all the above-noted efforts, the Agreement paves the way forward for both Ecuador and the PCA.

 

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Alternative Fee Arrangements with Counsel: What Should be Noted by Arbitration Users?

Mon, 2022-12-26 00:10

International arbitration is reputed for its flexibility shaped by the underlying principle of party autonomy. Past years have witnessed the development of various types of funding arrangements for arbitration users, including third-party funding (“TPF”) and, most recently, alternative fee arrangements with counsel (“AFAs”) in Singapore and Hong Kong. While these new initiatives undoubtedly increase flexibility for arbitration users and enhance international arbitration’s user-oriented image, one may wonder – are there any accompanying potential pitfalls that arbitration users should take note of? How should arbitration users respond to these potential issues?

This article aims to examine AFAs as one of the funding options for arbitration users emerging most recently in Singapore and Hong Kong, and consider the potential pitfalls and the possible solutions. In particular, several important issues including disclosure and costs allocation of AFAs should be highlighted for arbitration users.

 

Emergence of AFAs in International Arbitration

AFAs differ from the traditional or standard fee arrangement where counsel bill their client solely based on time costs, representing the amount of work performed.

Under AFAs, the party’s counsel may effectively act as a funder and such arrangement is conceptually and structurally similar to TPF in several aspects.1)Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, April 2018, p 36. jQuery('#footnote_plugin_tooltip_43808_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); This being the case, some benefits that arbitration users are able to enjoy from TPF, such as increased access to justice and the ability to pursue a meritorious claim while maintaining enough cash flow to continue conducting business as usual, also apply to AFAs.

AFAs can take various forms, some of which have no connection to the outcome of the case (such as fixed or capped fees), while others depend on the outcome of the case. There are normally two types of outcome-related fee structures, namely (i) conditional fee agreements (“CFAs”), where a part or all of the legal fees and costs, as well as uplift fees, are conditioned on the outcome of the case; and (ii) damages-based agreements or contingency fee agreements (“DBAs”), where legal fees and costs are payable as a percentage or proportion of the damages awarded. In different jurisdictions, the legislation governing different types of AFA may differ.

For instance, Mainland China adopts a flexible approach towards AFAs. Fees based on time costs, fixed or capped fees, as well as contingency fees calculated as a percentage of the amount awarded to the client, are all allowed. Historically, there was a 30% cap of the amount awarded to the client.2)Article 13 of Measures for the Administration of Lawyers’ Fees (律师服务收费管理办法). jQuery('#footnote_plugin_tooltip_43808_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); At the end of 2021, the cap was adjusted to the range of 6% to 18%, depending on the amount awarded to the client.3)Article 3(6) of Opinions on Further Regulating Lawyers’ Service Charges (关于进一步规范律师服务收费的意见). jQuery('#footnote_plugin_tooltip_43808_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Unlike Mainland China, Hong Kong and Singapore have traditionally banned outcome-related fee structures, such as CFAs and DBAs, due to prohibitions against maintenance and champerty. However, the year 2022 witnessed fundamental changes in this respect. Singapore enacted the Legal Profession (Amendment) Act 2022 to remove the historical prohibitions on CFAs in the context of arbitration and certain other types of proceedings, while DBAs continue to be banned. Hong Kong’s Legislative Council introduced the Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Bill 2022, which not only allowed CFAs, but also DBAs in the context of arbitration.

The reforms in both Singapore and Hong Kong provide arbitration users with funding alternatives to pursue meritorious claims, level the playing field for lawyers in Singapore and Hong Kong vis-à-vis their counterparts in foreign jurisdictions such as London and New York who are already able to offer such arrangements, and enhance the competitiveness of Singapore and Hong Kong as leading arbitration centres across the globe.4)Second Reading Speech by Second Minister for Law, Mr Edwin Tong, on the Legal Profession (Amendment) Bill, 12 January 2022, paragraphs 20-21; Hong Kong’s Legislative Council Panel on Administration of Justice and Legal Services, Paper on Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Bill 2022, 28 March 2022, paragraph 10. jQuery('#footnote_plugin_tooltip_43808_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

Pitfalls of AFAs: Singapore’s Wariness towards DBAs

As the number of international arbitration cases employing AFAs is likely to rise in future, interesting questions arise, such as whether there are any potential pitfalls that arbitration users should be aware of when entering into these agreements, and how they should manage these.

Singapore and Hong Kong take different positions with respect to DBAs. Singapore does not allow DBAs at the moment on the basis that the payment received by lawyers under such agreements has no direct correlation with the work done, and the amount of damages that the client may recover is dependent on the client’s particular circumstances and the damage that may be suffered, which would cause added risks of conflicts of interest for the lawyer.5)Second Reading Speech by Second Minister for Law, Mr Edwin Tong, on the Legal Profession (Amendment) Bill, 12 January 2022, paragraph 37. jQuery('#footnote_plugin_tooltip_43808_30_5').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Conversely, Hong Kong takes the position that concerns such as conflicts of interest and parties’ inadequate compensation for losses are outweighed by benefits that include increased flexibility and access to justice.6)The Law Reform Commission of Hong Kong, Report, Outcome Related Fee Structures for Arbitration, December 2021, paragraphs 5.8-5.16. jQuery('#footnote_plugin_tooltip_43808_30_6').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

It is premature to comment on which approach is better. It appears that Singapore wishes to first take a more conservative approach on lifting historical prohibitions on DBAs, without ruling out the possibility of allowing the same in the future. Hong Kong is more inclined to entrust arbitration users with more flexibility. Other contributors to this blog have observed that by allowing all forms of AFAs, including CFAs, DBAs and hybrid DBAs, Hong Kong has enabled arbitration users to benefit from the flexibility of being able to select the type of AFA that best suits their funding needs, which could also potentially be combined with TPF.

Leaving aside the debate on the desirability of allowing DBAs, users of arbitrations seated in Hong Kong or Singapore should note the significant difference between the countries’ legislation and discuss with their counsel to formulate the most suitable arrangement for their cases.

 

Disclosure of AFAs and Costs Allocation

Both Hong Kong7)Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Bill 2022, Article 98ZQ. jQuery('#footnote_plugin_tooltip_43808_30_7').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and Singapore8)Ministry of Law of Singapore, Public Consultation on Conditional Fee Agreements in Singapore, 27 August 2019, paragraph 15. jQuery('#footnote_plugin_tooltip_43808_30_8').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); appear to take the position that disclosure should be limited to the existence of an AFA, which is similar to the approach with respect to TPF.9)Article 98U of Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017; Article 49A of Legal Profession (Professional Conduct) Rules 2015. jQuery('#footnote_plugin_tooltip_43808_30_9').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_9', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); However, there is no express requirement to disclose the AFA agreement or the terms therein. While the agreement or the terms therein may arguably fall within the scope of privileged or confidential documents that parties are entitled to withhold disclosure of, it is unclear under which circumstances such disclosure would be warranted.

Further, Singapore’s view is that in any case, costs orders should not include any part of the uplift fees under CFAs, to avoid satellite litigation arising from the losing party’s challenge of the CFA.10)Second Reading Speech by Second Minister for Law, Mr Edwin Tong, on the Legal Profession (Amendment) Bill, 12 January 2022, paragraph 44. jQuery('#footnote_plugin_tooltip_43808_30_10').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_10', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Hong Kong takes a similar approach but empowers the Tribunal to apportion uplift fees between parties in the arbitration based on the exceptional circumstances of the case.11)Law Reform Commission of Hong Kong, Report, Outcome Related Fee Structures for Arbitration, December 2021, paragraphs 3.10-3.20; Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Bill 2022, Article 98ZU. jQuery('#footnote_plugin_tooltip_43808_30_11').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_11', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

In this regard, further questions arise – should AFAs be completely excluded from the recoverable costs of the successful party in the arbitration? Should the conclusion be different if the AFA agreement or its terms are disclosed to the counterparty at the outset of the proceedings? What constitutes exceptional circumstances under Hong Kong law?

These questions are all useful in providing arbitration users with more certainty on how AFAs may affect the costs recovery of a successful party in an arbitration.

First, the author believes it is preferable to take a more flexible approach and at least provide the Tribunal with certain discretion on deciding the impact of AFAs on costs orders. AFAs take many forms, including CFAs and DBAs, and involve different degrees of costs consequences. It does not appear proper to entirely exclude costs arising from any form of AFAs, considering that:

  • TPF costs have been held to constitute recoverable costs12)See Essar Oilfields Services Limited v Norscot Rig Management PVT Limited [2016] EWHC 2361 (Comm) and Tenke Fungurume Mining S.A. v Katanga Contracting Services S.A.S. [2021] EWHC 3301 (Comm) jQuery('#footnote_plugin_tooltip_43808_30_12').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_12', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and AFAs are similar to TPF in several respects;13)Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, April 2018, p 36. jQuery('#footnote_plugin_tooltip_43808_30_13').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_13', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });
  • There are investment arbitration cases where costs incurred under AFAs were decided by tribunals to constitute recoverable costs;14)See Khan Resources Inc., Khan Resources B.V., and Cauc Holding Company Ltd. v. The Government of Mongolia, PCA Case No. 2011-09, Award on merits, 2 March 2015, paragraph 447, “Although this is not a fee that has been ‘incurred’ to date as required by Article 40(2)(e) of the UNCITRAL Rules, it is a fee that the Claimants have already incurred a legal obligation to pay. The Tribunal thus finds that it is recoverable under this same provision.” jQuery('#footnote_plugin_tooltip_43808_30_14').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_14', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });
  • In certain circumstances, the actual costs arising from AFAs might not largely differ from the costs that would have been incurred on a purely time cost basis;
  • Preventing costs recovery may have negative implications on access to justice, as impecunious respondents might be unable to pay their lawyers’ fees even if their lawyers successfully defended the case;15)Edward Taylor and Kitty Zheng, “No-Win No-Fee” Arbitration: a Win-Win for Hong Kong and Singapore? Kluwer Arbitration Blog, 7 July 2020. jQuery('#footnote_plugin_tooltip_43808_30_15').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_15', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and
  • Some practitioners have advocated that there should not be an absolute bar to recovery of costs incurred under AFAs and that the tribunal should exercise its discretion and consider the specific circumstances of the case.16)See Gretta Walters, ‘Chapter 24: Allocating Costs in International Arbitration: Do Alternative Fee Arrangements with Counsel Require Alternative Considerations?’, in Sherlin Tung, Fabricio Fortese, et al. (eds), Finances in International Arbitration: Liber Amicorum Patricia Shaughnessy (Kluwer Law International 2019), pp 455-456, 460. jQuery('#footnote_plugin_tooltip_43808_30_16').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_16', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Second, similar to TPF, in the event that the AFA agreement or the terms therein are disclosed at an early stage, it does not appear unfair for the funded party to recover its AFA costs where reasonable from the unsuccessful counterparty, as such party would have been fully aware of its potential risk exposure in the event of an adverse costs award. Prior disclosure addresses the concern that the opposing party could not have reasonably foreseen the risk of a higher adverse costs order arising from the counterparty’s AFA.17)See Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, April 2018, p 159. jQuery('#footnote_plugin_tooltip_43808_30_17').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_17', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Third, the ambit of “exceptional circumstances” under Hong Kong law should be further clarified. In this regard, the Law Reform Commission of Hong Kong only refers to the unusual facts of Essar Oilfields Services Limited v Norscot Rig Management PVT Limited [2016] EWHC 2361 (Comm) as an example. In this case, the breaching party deliberately tried to hurt the innocent party financially, with the aim of preventing the innocent party from pursuing its legitimate claim. It was directly because of the breaching party’s conduct that the innocent party had no choice but to obtain TPF to be able to protect its legal rights. This went beyond the usual tussles which feature in contentious proceedings, and beyond the needs of an impecunious party looking for financial assistance to advance a meritorious claim.18)See Law Reform Commission of Hong Kong, Report, Outcome Related Fee Structures for Arbitration, December 2021, paragraphs 3.14-3.20. jQuery('#footnote_plugin_tooltip_43808_30_18').tooltip({ tip: '#footnote_plugin_tooltip_text_43808_30_18', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); This appears to suggest that a party’s reprehensible and unreasonable conduct, which leaves the other party no choice but to obtain funding to vindicate its legal rights, may constitute exceptional circumstances under Hong Kong law.

 

Conclusion

The variety of funding options available provides arbitration users with great flexibility and is a testament to arbitration’s emphasis on party autonomy and a user-oriented approach. However, several issues remain unanswered in practice and the approaches taken are far from uniform, which cause difficulties for arbitration users. In addition to flexibility, arbitration users also expect foreseeability and certainty. More guidance and clearer regulation on funding arrangements in international arbitration (including AFAs) and enhanced uniformity are certainly needed.

References[+]

References ↑1, ↑13 Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, April 2018, p 36. ↑2 Article 13 of Measures for the Administration of Lawyers’ Fees (律师服务收费管理办法). ↑3 Article 3(6) of Opinions on Further Regulating Lawyers’ Service Charges (关于进一步规范律师服务收费的意见). ↑4 Second Reading Speech by Second Minister for Law, Mr Edwin Tong, on the Legal Profession (Amendment) Bill, 12 January 2022, paragraphs 20-21; Hong Kong’s Legislative Council Panel on Administration of Justice and Legal Services, Paper on Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Bill 2022, 28 March 2022, paragraph 10. ↑5 Second Reading Speech by Second Minister for Law, Mr Edwin Tong, on the Legal Profession (Amendment) Bill, 12 January 2022, paragraph 37. ↑6 The Law Reform Commission of Hong Kong, Report, Outcome Related Fee Structures for Arbitration, December 2021, paragraphs 5.8-5.16. ↑7 Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Bill 2022, Article 98ZQ. ↑8 Ministry of Law of Singapore, Public Consultation on Conditional Fee Agreements in Singapore, 27 August 2019, paragraph 15. ↑9 Article 98U of Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017; Article 49A of Legal Profession (Professional Conduct) Rules 2015. ↑10 Second Reading Speech by Second Minister for Law, Mr Edwin Tong, on the Legal Profession (Amendment) Bill, 12 January 2022, paragraph 44. ↑11 Law Reform Commission of Hong Kong, Report, Outcome Related Fee Structures for Arbitration, December 2021, paragraphs 3.10-3.20; Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Bill 2022, Article 98ZU. ↑12 See Essar Oilfields Services Limited v Norscot Rig Management PVT Limited [2016] EWHC 2361 (Comm) and Tenke Fungurume Mining S.A. v Katanga Contracting Services S.A.S. [2021] EWHC 3301 (Comm) ↑14 See Khan Resources Inc., Khan Resources B.V., and Cauc Holding Company Ltd. v. The Government of Mongolia, PCA Case No. 2011-09, Award on merits, 2 March 2015, paragraph 447, “Although this is not a fee that has been ‘incurred’ to date as required by Article 40(2)(e) of the UNCITRAL Rules, it is a fee that the Claimants have already incurred a legal obligation to pay. The Tribunal thus finds that it is recoverable under this same provision.” ↑15 Edward Taylor and Kitty Zheng, “No-Win No-Fee” Arbitration: a Win-Win for Hong Kong and Singapore? Kluwer Arbitration Blog, 7 July 2020. ↑16 See Gretta Walters, ‘Chapter 24: Allocating Costs in International Arbitration: Do Alternative Fee Arrangements with Counsel Require Alternative Considerations?’, in Sherlin Tung, Fabricio Fortese, et al. (eds), Finances in International Arbitration: Liber Amicorum Patricia Shaughnessy (Kluwer Law International 2019), pp 455-456, 460. ↑17 See Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, April 2018, p 159. ↑18 See Law Reform Commission of Hong Kong, Report, Outcome Related Fee Structures for Arbitration, December 2021, paragraphs 3.14-3.20. function footnote_expand_reference_container_43808_30() { jQuery('#footnote_references_container_43808_30').show(); jQuery('#footnote_reference_container_collapse_button_43808_30').text('−'); } function footnote_collapse_reference_container_43808_30() { jQuery('#footnote_references_container_43808_30').hide(); jQuery('#footnote_reference_container_collapse_button_43808_30').text('+'); } function footnote_expand_collapse_reference_container_43808_30() { if (jQuery('#footnote_references_container_43808_30').is(':hidden')) { footnote_expand_reference_container_43808_30(); } else { footnote_collapse_reference_container_43808_30(); } } function footnote_moveToReference_43808_30(p_str_TargetID) { footnote_expand_reference_container_43808_30(); 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_43808_30(p_str_TargetID) { footnote_expand_reference_container_43808_30(); 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 Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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From the Editors of Kluwer Arbitration Blog: 2022

Sun, 2022-12-25 01:32

At Kluwer Arbitration Blog, December is the month to thank our readers, collaborators and editors for their readership, contributions and support. 2022 was a year of hope, after two long years of Covid-19 restrictions, without having the opportunity to meet in person.

But 2022 has been yet another demanding year: We have continued to deal with the end (one would hope!) of the Covid-19 pandemic, while facing new challenges. The war in Ukraine has triggered, as expected, strong reactions from the arbitration community. While the war is still ongoing, and its long-term political, social, and legal ramifications for the nation, the region, and the world are yet to be seen, the arbitration community has already come together. Our community has worked to ensure that the terror of war does not strip out opportunity and hope. Initiatives were launched in the war’s earliest days to support young arbitration practitioners and students, including those involved in various arbitration moot competitions. One of many such initiatives, the Safe Harbor, led by Prof Patricia Shaughnessy, Stockholm University, and Alicja Zielinska-Eisen, of Counsel at Queritius and Lecturer at Humboldt University of Berlin, has facilitated numerous internships for Ukrainian mooties with law firms in Sweden, Poland, Germany, Romania, Austria and beyond.

We continue to be hopeful for 2023. As ‘peace’ and ‘health’ will be the words for 2023.

 

Kluwer Arbitration Blog has celebrated its 13th anniversary in 2022, with a big-bang at ICCA Edinburgh, with the Kluwer Arbitration Live Quiz (live recording available on Arbitration Station), and we took a moment to look at the statistics of the Blog of these past years.

  • From a little over 8,000 readers/month in January 2010, to over 150,000 readers/month since January 2020
  • Kluwer Arbitration Blog frequently referred to in arbitral awards, such as Renco v. Peru, Pezold v. Zimbabwe, Caratube v. Kazakhstan
  • With readers from every corner of the world, from the United States, to India, to Morocco, Rwanda, Lesotho, Barbados, Fiji, Togo, and Belize

 

 

 

2022 has seen numerous – expected or not – developments for international arbitration. Turkmenistan and Suriname acceded to the New York Convention. Angola signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention), while Kyrgyz Republic ratified the ICSID Convention in April 2022, 27 years after it first signed it.

Meanwhile, there were several major developments across the regions. The revision of the 1996 English Arbitration Act has progressed, with the Law Commission publishing a consultation paper containing reform proposals. In North America, the U.S. Supreme Court, in ZF Automotive US, Inc. v. Luxshare, Ltd., has held that 28 U.S.C. § 1782 does not permit discovery assistance from U.S. courts for private foreign or international arbitrations. The 2022 Nigeria Arbitration and Conciliation Bill and the 2022 Sierra Leone Arbitration Act are two notable developments in Africa. In Dubai, following last year’s watershed changes brought by Decree No. 34/2021, which provided for the consolidation of local arbitration centers into a single institution, DIAC released its 2022 revised arbitration rules, which provided the arbitration community with much needed clarity and closure. In Pakistan, the ADR Committee, recently constituted on the initiative of the Secretariat of Law and Justice Commission of Pakistan, is aimed at helping the judiciary reduce the backlog of cases by implementing alternative dispute resolution mechanisms.

Investor-State dispute settlement (ISDS) reform continues under the auspices of UNCITRAL Working Group III, the developments intra-EU ISDS offer imminent developments. After the first arbitral tribunal in the SCC case of Green Power v. Spain upholding the effects of Achmea CJEU judgment; the Higher Regional Court of Cologne has ruled that RWE and Uniper, ECT arbitrations are inadmissible under German law due to their intra-EU nature, while the Swedish Supreme Court has set aside the SCC arbitral award in PL Holdings v. Spain, followed by the Svea Court of Appeal setting aside the award in Novenergia v. Spain, on the basis of Achmea and Komstroy CJEU judgments. In this context, the news that the much needed modernization of the Energy Charter Treaty (ECT) will be postponed, did not came as a surprise. While the ECT Modernization Group has agreed, in principle, in June 2022, on the modernization of the ECT, the European Union could not secure the support of its Member States for the adoption of the modernized ECT by the Energy Charter. With France, Poland, Germany, Spain, the Netherlands, Slovenia, Luxembourg and Austria announcing or contemplating the withdrawal from the ECT, the European Parliament is now calling for a coordinated exit from the ECT by the EU Member States. Interestingly, as we have pointed out in December 2021, we are still expecting that the European Commission will reveal the proposal for the ‘Intra-EU investment protection and facilitation’, as the consultations have been concluded in September 2020.

 

As usual, this is also the time to acknowledge and thank our Editors. We are grateful to our Editors for their tremendous work behind each published post, for actively engaging with our arbitration community, and for maintaining the high standards of quality here at Kluwer Arbitration Blog. Over the years, we have had exceptional editors in our team, all of them continuing to be very close to the Blog. We would like to thank them first of all. The current editors, coming from diverse jurisdictions and with diverse backgrounds, always with exceptional ideas which you often see them materialized on the Blog: Arie C. Eernisse (Associate Editor), Kiran Nasir Gore (Associate Editor), Esmé Shirlow (Associate Editor), Maria Fanou (Senior Assistant Editor), Dina Prokic (Senior Assistant Editor), Daniela Páez-Salgado (Senior Assistant Editor), Leila Kazimi (Assistant Editor), Titilope Sinmi-Adetona (Assistant Editor), Maria José Alarcon (Assistant Editor for Investment Arbitration), Lisa Dubot (Assistant Editor for Investment Arbitration), Fabian Eichberger (Assistant Editor for Investment Arbitration), Ajoo Kim (Assistant Editor for Investment Arbitration), Raoul J. Renard (Assistant Editor for Technology), Hannepes Taychayev (Assistant Editor for East and Central Asia), Hiroko Yamamoto (Assistant Editor for East and Central Asia), Youlin Yuan (Assistant Editor for East and Central Asia), Yue Zhao (Assistant Editor for East and Central Asia), Anne Wang (Assistant Editor for Asia-Pacific), Deborah Loh (Assistant Editor for Southeast Asia), Irene Mira (Assistant Editor for Southeast Asia), Shreya Jain (Assistant Editor for South Asia), Piyush Prasad (Assistant Editor for South Asia), Ashutosh Ray (Assistant Editor for South Asia), Ahmed Durrani (Assistant Editor for the MENA Region), Michael Farchakh (Assistant Editor for the MENA Region), Khushboo Shahdadpuri (Assistant Editor for the MENA Region), Ana Carolina Dall’Agnol (Assistant Editor for Africa), Antoine Cottin (Assistant Editor for Europe), Boris Praštalo (Assistant Editor for Europe), Olga Sendetska (Assistant Editor for Europe), Eric Lenier Ives (Assistant Editor for Canada and the United States), Paige von Mehren (Assistant Editor for Canada and the United States), Aecio Filipe Oliveira (Assistant Editor for South and Central America), Fabian Zetina (Assistant Editor for South and Central America), Emma Garrett (Assistant Editor for Australia, New Zealand and the Pacific Islands), Sam Macintosh (Assistant Editor for Australia, New Zealand and the Pacific Islands).

The Blog is also the result of the fruitful collaboration with its publisher, Wolters Kluwer, and the Editorial Board is grateful to Vincent Verschoor, editor and content manager with Wolters Kluwer, for ensuring that we deliver the best final product to our readers. We are also grateful to the permanent contributors and to the affiliates of the Blog, some being with us from the first days of Kluwer Arbitration Blog.

At Kluwer Arbitration Blog, we are committed to reflecting, in the posts, the arbitration developments and the arbitration community. We also believe that the arbitration community must actively pursue gender, age, racial etc. diversity in international arbitration and Kluwer Arbitration Blog is ensuring that this is reflected in its publications and in its editorial board. We support the diversity initiatives in arbitration, including Arbitral Women, ERA Pledge, R.E.A.L, Mute-Off Thursdays. And for our colleagues – arbitral institutions, law firms and users of arbitration -, the latest resource: Compendium of Unicorns: A Global Guide to Women Arbitrators, a directory of over 170 experienced female arbitrators launched by Mute-Off Thursdays, with the support of Global Arbitration Review and Burford Capital, is a must have in 2023.

 

We would like to thank YOU for all your support, and we send our best wishes for the Festive Season. We wish you a better 2023, with peace, health and joy!

 

Prof Dr Crina Baltag, Managing Editor, on behalf of the Editorial Board

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KluwerArbitration ITA Arbitration Report, Volume No. XX, Issue No. 14 (November 2022)

Sat, 2022-12-24 00:20

The Institute of Transnational Arbitration (ITA), in collaboration with the ITA Board of Reporters, is happy to inform you that the latest ITA Arbitration Report was published: a free email subscription service available at KluwerArbitration.com delivering timely reports on awards, cases, legislation and current developments from over 60 countries and 12 institutions. To get your free subscription to the ITA Arbitration Report, click here.

 

The ITA Board of Reporters have reported on the following court decisions.

 

Swiss Renewable Power Partners S.A.R.L. v. The Kingdom of Spain, Supreme Court of Justice of Colombia, 11001-02-03-000-2022-02569-00, 30 August 2022

Eduardo Zuleta Jaramillo, ZULETA Abogados Asociados S.A.S., ITA Reporter for Colombia

Swiss Renewable Power Partners S.A.R.L. v. Spain is the first time in which the Colombian Supreme Court of Justice deals with the recognition of an investment award against a third State. In less than a page and a half, the Court determined that it lacked jurisdiction to order Spain to appear before it. According to the Court, the “topic raised” was not excluded from Spain’s jurisdictional immunity, more so, when the final objective of the request for recognition was the subsequent execution of the award.

 

Salvador Maestro SL v. Marco Jhonnier Pérez Murillo, Supreme Court of Justice of Colombia, 11001-02-03-000-2022-00385-00, 15 July 2022

Eduardo Zuleta Jaramillo, ZULETA Abogados Asociados S.A.S., ITA Reporter for Colombia

The Supreme Court of Justice admitted the possibility of granting interim measures in award recognition proceedings in Colombia based on pro-recognition and pro-execution principles.

 

CEDIMAT v. Stonhard, Ciprián Ingeniería & Terminaciones, S.R.L. & Center for Alternative Dispute Resolution of the Chamber of Commerce and Production of Santo Domingo, Constitutional Court of the Dominican Republic, TC/0506/18, 30 November 2018

Stephan Adell, Adell & Merizalde, ITA Reporter for the Dominican Republic

The Dominican Constitutional Court held that jurisdictional objections relating to the scope and extension of an arbitration agreement must be decided by an arbitral tribunal pursuant to Article 20 of the Law No. 489-08 on Commercial Arbitration.

 

Kout Food Group v. Kabab-Ji Sal, Court of Cassation of France, First Civil Law Chamber, Arrêt n° 679 FS-B, Pourvoi n° K 20-20.260, 28 September 2022

Nataliya Barysheva and Valentine Chessa, MGC Arbitration, ITA Reporter for France

The French Cour de cassation confirmed the substantive rule of international arbitration law under which the existence and effectiveness of an international arbitration agreement must be assessed subject to the mandatory rules of French law and international public policy without reference to a national law.

 

BGH – I ZB 36/21, Federal Court of Justice of Germany, I ZB 36/21, 21 April 2022

Patrick Gerardy, Cleary Gottlieb Steen & Hamilton LLP, and Harry Nettlau, Willkie Farr & Gallagher LLP, ITA Reporters for Germany

A party’s right to be heard is violated if the arbitral tribunal rejects a request to postpone a hearing in an evidently erroneously fashion and this results in the requesting party not being represented by its counsel at the hearing.  Such a violation meets the requisite standard of potential causality for the outcome of the arbitration.  The reason is that, as a rule, it cannot be excluded that an oral discussion of the dispute with the concerned party and its counsel would have resulted in a different ruling by the arbitral tribunal.

An application to set aside an arbitral award that is filed within the statutory three-month time period does not yet need to include pleadings on the grounds for setting aside.  The applicant may file such pleadings at a later time, subject to a time limit set by the court.

 

OLG Frankfurt am Main – 26 Sch 19/21, Higher Regional Court of Frankfurt am Main, 26 Sch 19/21, 14 July 2022

Patrick Gerardy, Cleary Gottlieb Steen & Hamilton LLP, and Harry Nettlau, Willkie Farr & Gallagher LLP, ITA Reporters for Germany

The parties to an arbitration proceeding are free to agree on the formal requirements of translating witness testimony at a hearing.  The arbitral tribunal in principle has the same discretion as the parties to organize the proceedings.  Absent a party agreement, the arbitral tribunal is not required to retain a sworn interpreter to translate witness testimony.  It does not violate procedural public policy if the arbitral tribunal permits a person, who is on the side of one of the parties, to translate the witness testimony at the hearing.

 

KG Berlin – 12 SchH 6/21, Higher Regional Court of Berlin, 12 SchH 6/21, 28 April 2022 and OLG Köln – 19 SchH 14/21, Higher Regional Court of Cologne, 19 SchH 14/21, 01 September 2022

Patrick Gerardy, Cleary Gottlieb Steen & Hamilton LLP, and Harry Nettlau, Willkie Farr & Gallagher LLP, ITA Reporters for Germany

The German arbitration community has recently seen two important but diverging court decisions in cases in which applicants (who are the state respondents in the respective arbitrations) sought German courts to declare ICSID arbitration proceedings concerning intra-EU investment disputes under the Energy Charter Treaty inadmissible pursuant to Sec. 1032(2) of the German Code of Civil Procedure.  The question in both proceedings was whether a German court has jurisdiction and may (or, in the light of the Achmea case law by the Court of Justice of the European Union: must) decide on such an application in a case where the underlying arbitration proceeding is governed by the ICSID Convention –which has established a self-contained regime for the settlement of investment disputes that expressly excludes state courts’ jurisdiction near-completely.

 

Gobierno Regional del Cuzco v. Consorcio Salud Cusco, Superior Court of Justice of Lima, Expediente Judicial Electrónico N° 00112-2022-0-1817-SP-CO-01, 09 August 2022

Fernando Cantuarias Salaverry, Law School of Universidad del Pacìfico, ITA Reporter for Peru

The Commercial Chamber of the Superior Court of Justice of Lima annuls an award because the arbitrator declared the arbitration claim to have lapsed without the parties having previously had the opportunity to express their views on the matter.

 

EGF v. HVF, HWG, TOM, DCK, HRY [2022] EWHC 2470 (Comm), High Court of Justice of England and Wales, Queen’s Bench Division, Commercial Court, CL-2022-000065, 16 September 2022

Nicholas Fletcher, 4 New Square, ITA Reporter for England & Wales

In assessing whether the court should remove an arbitrator for justifiable doubts as to their impartiality under s. 24(1)(a) of the Arbitration Act, the question is whether what the decision-maker has done, considered fairly in its context, including whatever the decision-maker has said at the time to explain the decision, by nature or effect such an odd thing to have done in the circumstances that a reasonable person might think the explanation might be bias.

A challenge based upon an assertion that the UNCITRAL Rules do not grant the arbitrators a power to order a provisional payment cannot be framed as a challenge that the arbitrators have exceeded their jurisdiction under s. 67 of the Arbitration Act. The logic of such an argument was that whenever an arbitral tribunal exceeded its powers, it would exceed its substantive jurisdiction. That would deprive s. 68(2) of the Arbitration Act of any content.

Article 34 of the UNCITRAL Rules does not permit an award to be made in respect of relief which is provisional or interim in nature.

 

Hulley Enterprises Limited, Yukos Universal Limited & Veteran Petroleum Limited v. The Russian Federation [2022] EWHC 2690 (Comm), High Court of Justice of England and Wales, Queen’s Bench Division, Commercial Court, CL-2015-000396, 26 October 2022

Nicholas Fletcher, 4 New Square, ITA Reporter for England & Wales

Whether a stay of recognition and enforcement proceedings should be lifted was a matter which required the court to balance various factors. A court may lift a stay of such proceedings in order to determine a jurisdictional challenge despite the fact that there are annulment proceedings pending before the court of the seat in circumstances where the courts of the seat had already disposed of jurisdictional issues and there was no danger of the affected party being unable to present its full case on non-jurisdictional issues before the courts of the seat.

The power to order security to be provided as a condition for a stay under s. 103(5) Arbitration Act 1996 does not exist where a claim to state immunity remains unresolved. Further, it is not appropriate in such circumstances alternatively to make an order for security under the court’s general case management powers.

 

Huzhou Chuangtai Rongyuan Investment Management Partnership et al v. Hui Qin, United States District Court, Southern District of New York, 1:21-cv-09221-KPF, 26 September 2022

Hanna Azkiya, King & Spalding LLP, ITA Reporter for the United States of America

The Petitioners are three Chinese companies that initiated China International Economic and Trade Arbitration Commission (“CIETAC”) arbitration under investment agreements with Chengdu Run Yun Culture Communication Co., Ltd. (“Chengdu Run Yun”), which is a Chinese limited liability company that owns and operates movie theaters, and several of Chengdu Run Yun’s affiliates, including the Respondent Hui Qin, alleging that they breached their obligations under the investment agreements. After obtaining an arbitral award in their favor, the Petitioners commenced an action to confirm the arbitral award before the Court, which the Respondent Hui Qin opposed.

The Court first set out the applicable legal principles in determining the Petitioners’ motion. First, because the Petitioners are all incorporated in China, the New York Convention applies. Accordingly, for the Court to disregard a foreign arbitral award, the party opposing enforcement must prove at least one of the seven defenses listed in the New York Convention. The party has a heavy burden of proof because of the “strong public policy in favor of international arbitration,” which results in courts affording foreign arbitral decisions “great deference.”

Second, petitions to confirm a foreign arbitral award are treated as motions for summary judgment, which is warranted when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” The party opposing summary judgment must “do more than simply show that there is some metaphysical doubt as to the material facts” and “set forth specific facts showing that there is a genuine issue for trial.” The Court noted that although it must “construe the facts in the light most favorable to the non-moving party and must resolve all ambiguities and draw all reasonable inferences against the movant,” it should not accord the non-moving party the benefit of “unreasonable inferences, or inferences at war with undisputed facts,” nor should it accept “conclusory statements, conjecture, or speculation by the party resisting the motion.”

The Court granted the Petitioners’ motion for summary judgment, having found that none of the four reasons the Respondent Hui Qin submitted in opposition of the Petitioners’ motion was availing:

  • the Respondent Hui Qin’s defense under Article V(1)(a) of the New York Convention fails for lack of proof that the underlying arbitration agreement was invalid under Chinese law;
  • the Respondent Hui Qin’s defense under Article V(1)(b) of the New York Convention fails for lack of evidence that the arbitral process lacked fundamental fairness; rather, the Respondent was afforded reasonable notice and ample opportunities to present his evidence and arguments;
  • the Respondent Hui Qin’s defense under Article V(1)(d) of the New York Convention fails because the Respondent has not shown that “the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties”; and
  • the Respondent Hui Qin’s defense under Article V(2)(b) of the New York Convention fails because neither of the two theories the Respondent Hui Qin proffered for why the award violates U.S. public policy has any merit.

 

Jiangsu Beier Decoration Materials Co., Ltd. v. Angle World LLC, United States Court of Appeals, Third Circuit, No. 21-3143, 03 November 2022

Alex Levin Canal, King & Spalding LLP, ITA Reporter for the United States of America

Appellant-Plaintiff Jiangsu Beier Decoration Materials Co., Ltd. (“Jiangsu”) initiated arbitration in China against Appellee-Defendant Angle World LLC (“Angle World”) under a memorandum of understanding that contained an arbitration clause that Angle World (“July MOU”) did not sign.

Nevertheless, a Chinese Court ruled that the July MOU, in combination with correspondence exchanged between the parties, constituted a valid arbitration agreement under Chinese Law. Then, an Arbitral Tribunal ruled on the merits in favor of Jiangsu, finding that Angle World had breached the July MOU.

Jiangsu petitioned a U.S. District Court for confirmation of the foreign award.  The District Court dismissed Jiangsu’s petition.  It considered that (i) Jiangsu failed to prove the existence of an arbitration agreement enforceable under the New York Convention (“NYC”), and (ii) it was not bound by the Chinese Court and the Arbitral Tribunal’s decisions on arbitrability.

The Third Circuit first examined the NYC requirement of an “agreement in writing.”  It then criticized the District Court for not sufficiently analyzing the parties’ correspondence and the background principles of contract law in the creation of a valid arbitration agreement.  However, the Third Circuit did agree with the District Court that it should determine arbitrability independently and that it was not bound by the Chinese Court and Arbitral Tribunal’s decision.  The case was remanded for a further determination on the arbitrability of the underlying dispute.

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The Enforcement of Arbitral Awards under the Reciprocal Enforcement of Commonwealth Judgments Act 1921 in Singapore: An Enforcement Regime that Undermines the New York Convention?

Fri, 2022-12-23 00:54

Arbitration’s key strength lies in the near-universal enforcement of its arbitral awards. The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) offers parties the benefit of going under a uniform enforcement regime in all of its Contracting States. But whilst it is a popular choice, the New York Convention may not be the only mechanism to enforce foreign awards in some jurisdictions. For instance, in Singapore’s context, a party may alternatively enforce an arbitral award through the Reciprocal Enforcement of Commonwealth Judgments Act 1921 (“RECJA”).

The RECJA enforcement option has not received much judicial attention in the past. But this article posits that upon closer examination, the RECJA may provide shrewd arbitral award creditors with unintended enforcement advantages in Singapore that they might not otherwise receive under the New York Convention regime encompassed in the Second Schedule of the International Arbitration Act 1994 (“IAA”). More generally, it may be questioned whether a parallel arbitration enforcement regime ought to exist as it arguably undermines New York Convention provisions aimed at safeguarding the procedural integrity of the issuance of arbitral awards. An unwelcome “gaming” of a country’s arbitral award enforcement framework may also ensue. While this article’s primary focus is on Singapore, it may be equally applicable to other jurisdictions with similar legal frameworks.

 

The enforcement of arbitral awards under the RECJA

The starting point is that a party can enforce an arbitral award as a foreign Commonwealth judgment in Singapore under the RECJA.1) The RECJA enforces the judgments of the United Kingdom, Australia, New Zealand, Sri Lanka, Malaysia, Windward Islands, Pakistan, Brunei Darussalam, Papua New Guinea, India (except  Jammu and Kashmir), and Hong Kong (obtained on or before 30th June 1997). jQuery('#footnote_plugin_tooltip_43806_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_43806_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); A “judgment” under Section 2 includes “an award in proceedings on an arbitration if the award has, in pursuance of the law in force in the place where it was made, become enforceable in the same manner as a judgment given by a court in that place”.2) N.B.: The Reciprocal Enforcement of Foreign Judgments Act 1959 (“REFJA”) is intended  to replace the RECJA in the enforcement of Commonwealth judgments in the future. But even in such a case, a “judgment” under Section 2 of the RECJA continues to remain under Section 10(a) of the REFJA. jQuery('#footnote_plugin_tooltip_43806_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_43806_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); There is also precedent for award enforcement under the RECJA. In Westacre Investments Inc v The State-Owned Company Yugoimport SDPR [2008] SGCA 48 (“Westacre Investments”), the Appellant commenced proceedings against the Respondent in England for leave to enforce its Geneva-seated ICC tribunal award terms in the form of a judgment. The Appellant then applied for the English judgment to be registered in Singapore under the RECJA, even though it was brought after the 12-month time-limit for English judgments stipulated in Section 3(1) of the RECJA.3) See also Sri Lanka Cricket v World Sport Nimbus Pte Ltd [2006] 3 MLJ 117 at [13], where Gopal Sri Ram JCA suggested that an arbitral award could be registered as a judgment in the Singapore High Court, and enforced in Malaysia under the Reciprocal Enforcement of Judgments Act 1958 as an alternative to the New York Convention. jQuery('#footnote_plugin_tooltip_43806_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_43806_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); In rejecting the Respondent’s attempt to set aside the Appellant’s application, the Singapore Court of Appeal reasoned that the Appellant’s delay was due to factors outside of its control, and it had brought its application with reasonable diligence – and despite the Respondent’s attempts to conceal its Singapore assets. The enforcement of the English judgment containing the arbitral award terms in Singapore was hence just and convenient under the RECJA.

Thus, the RECJA arguably operates as a parallel enforcement regime to the New York Convention for foreign arbitral awards.

 

The RECJA’s narrower grounds for refusing the enforcement of judgment-cum-awards potentially undermines the New York Convention framework

The trouble with the RECJA starts with its seemingly narrower grounds for refusing the enforcement of foreign judgments under Section 3(2) of the RECJA. Broadly, a judgment would not be registered if: (i) the original court acted without jurisdiction, (ii) the judgment debtor, if not ordinarily resident or carrying out business in the jurisdiction, did not submit or otherwise agree to submit to the court’s jurisdiction – or conversely – if he was ordinarily resident or carrying out business in the jurisdiction, was not duly served with the process of the original court and did not appear, (iii) the judgment was obtained by fraud, (iv) an appeal for the judgment is pending, or the judgment debtor is entitled and intending to appeal, or (v) the judgment is in respect of a cause of action which cannot be entertained for public policy or other similar reason.

Notably absent in the RECJA are grounds refusing the enforcement of judgment-cum-awards under Articles V(1)(a)-(e) of the New York Convention – i.e., (i) the arbitral tribunal lacked jurisdiction by virtue of an improper/invalid arbitration agreement or acted outside the scope of parties’ submissions, (ii) improper conduct of arbitration proceedings, or (iii) the award is not yet binding or has been set aside at the seat.

The first four RECJA grounds focus on the procedural correctness of the foreign judgment a party obtains. The fifth RECJA ground, however, appears to mirror Article V(2) of the New York Convention, although it is unclear whether its application can also be extended to the Article V(1) grounds. The public policy ground under the RECJA seems only to be invoked if the underlying cause of action contravenes Singapore public policy (e.g., foreign judgments on issues related to unregulated gambling), or if the judgment proceedings were contrary to natural justice.4) Global Distressed Alpha Fund I Ltd Partnership v PT Bakrie Investindo [2013] SGHC 12 at [40]; Poh Soon Kiat v Desert Palace Inc (trading as Caesars Palace) [2009] SGCA 60 (“Poh Soon Kiat”) at [14], [97]-[98] jQuery('#footnote_plugin_tooltip_43806_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_43806_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

It is possible that the differences between the RECJA and New York Convention grounds may be bridged through another requirement under Section 3(1) of the RECJA. Foreign judgments are ultimately only registered if the Singapore Court is satisfied in all circumstances and having regard to parties’ rights that it is “just and convenient” to do so.5) See also Westacre Investments at [20], [52] jQuery('#footnote_plugin_tooltip_43806_30_5').tooltip({ tip: '#footnote_plugin_tooltip_text_43806_30_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); While this point is yet to be judicially determined, the New York Convention grounds could arguably be imported under Section 3(1) on the basis that it is only fair and equitable in the circumstances 6) Westacre Investments at [21] jQuery('#footnote_plugin_tooltip_43806_30_6').tooltip({ tip: '#footnote_plugin_tooltip_text_43806_30_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); to resist the enforcement of an arbitral award in a consistent manner to that provided under Section 31(2) of the IAA (i.e., Article V(1) of the New York Convention). But even this position may be challenged on the basis that the IAA and RECJA arbitral award enforcement regimes may have been statutorily intended to remain separate and distinct pursuant to Section 33(1) of the IAA – which preserves parties’ rights to enforce an arbitral award otherwise than provided for under Part 3 (i.e., Section 31) of the IAA.

 

Observations for arbitration parties and policymakers

The RECJA thus creates, rather unnecessarily, a parallel but inconsistent arbitral award enforcement regime to the New York Convention. This is particularly so given that practically all the recognized jurisdictions under the RECJA also adopt the New York Convention.7) Save for Windward Islands jQuery('#footnote_plugin_tooltip_43806_30_7').tooltip({ tip: '#footnote_plugin_tooltip_text_43806_30_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });.

Award creditors may increasingly elect to enforce their awards in Singapore as foreign judgments under the RECJA to minimize the chances of the awards being successfully challenged – especially if they were not too confident about the procedural basis on which the award was issued.

In contrast, award debtors may have to rethink their strategies in resisting award enforcement. Award debtors might have to actively challenge foreign court proceedings where an award is being recorded as a judgment to have a shot at setting it aside under the New York Convention grounds. Previously, they may have refrained from taking such steps for tactical or cost reasons, and only focused their challenge in the enforcing jurisdiction. The corollary would be higher costs, and time expended in a contrived game of international cat-and-mouse.

Finally, for policymakers, it is undesirable for the differences between the RECJA and New York Convention regimes to remain – even if they could be judicially resolved with time. The key concern is addressing the potential for Singapore’s arbitration enforcement framework to be “gamed” and possibly abused by opportunistic parties. The legal and commercial uncertainty that could arise ought to be addressed by a statutory amendment in the RECJA affirming that – for the avoidance of doubt, the New York Convention grounds for resisting the enforcement of judgments-cum-arbitral awards still continue to operate. Alternatively, it may be sensible to amend Section 33 of the IAA such that the New York Convention is the exclusive enforcement regime for Commonwealth-seated arbitral awards that also fall within the scope of the RECJA. These measures would ensure that curial intervention for unfairness, prejudice and other breaches of natural justice in the issuance of arbitral awards continue to be preserved in a jurisdiction, whatever the elected enforcement regime may be.

 

The views and opinions expressed in this article are those of the author, and do not necessarily reflect the views or positions of Drew & Napier LLC.

References[+]

References ↑1 The RECJA enforces the judgments of the United Kingdom, Australia, New Zealand, Sri Lanka, Malaysia, Windward Islands, Pakistan, Brunei Darussalam, Papua New Guinea, India (except  Jammu and Kashmir), and Hong Kong (obtained on or before 30th June 1997). ↑2 N.B.: The Reciprocal Enforcement of Foreign Judgments Act 1959 (“REFJA”) is intended  to replace the RECJA in the enforcement of Commonwealth judgments in the future. But even in such a case, a “judgment” under Section 2 of the RECJA continues to remain under Section 10(a) of the REFJA. ↑3 See also Sri Lanka Cricket v World Sport Nimbus Pte Ltd [2006] 3 MLJ 117 at [13], where Gopal Sri Ram JCA suggested that an arbitral award could be registered as a judgment in the Singapore High Court, and enforced in Malaysia under the Reciprocal Enforcement of Judgments Act 1958 as an alternative to the New York Convention. ↑4 Global Distressed Alpha Fund I Ltd Partnership v PT Bakrie Investindo [2013] SGHC 12 at [40]; Poh Soon Kiat v Desert Palace Inc (trading as Caesars Palace) [2009] SGCA 60 (“Poh Soon Kiat”) at [14], [97]-[98] ↑5 See also Westacre Investments at [20], [52] ↑6 Westacre Investments at [21] ↑7 Save for Windward Islands function footnote_expand_reference_container_43806_30() { jQuery('#footnote_references_container_43806_30').show(); jQuery('#footnote_reference_container_collapse_button_43806_30').text('−'); } function footnote_collapse_reference_container_43806_30() { jQuery('#footnote_references_container_43806_30').hide(); jQuery('#footnote_reference_container_collapse_button_43806_30').text('+'); } function footnote_expand_collapse_reference_container_43806_30() { if (jQuery('#footnote_references_container_43806_30').is(':hidden')) { footnote_expand_reference_container_43806_30(); } else { footnote_collapse_reference_container_43806_30(); } } function footnote_moveToReference_43806_30(p_str_TargetID) { footnote_expand_reference_container_43806_30(); 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_43806_30(p_str_TargetID) { footnote_expand_reference_container_43806_30(); 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 Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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The Contents of the Asian International Arbitration Journal, Volume 18, Issue 2 (2022)

Thu, 2022-12-22 00:13

The contents of this issue of the journal is now available and includes the following contributions:

 

Nolan ‘Youngkwang’ Lee, Richard Garnett & Lee Carroll, Enforcement of Arbitral Awards in South Korea

Not only is South Korea an economic powerhouse, but it is also a pro-arbitration and pro-enforcement jurisdiction. This article examines the enforcement framework of both domestic and foreign arbitral awards in South Korea, considering the latest amendments to the Korean Arbitration Act (KAA). In doing so, the authors argue that South Korea is a sophisticated jurisdiction for arbitration and its regime for enforcement is consistent with leading Model Law jurisdictions in the Asia-Pacific region. Most notably, enforcement proceedings in South Korea follow an expeditious ‘decision to enforce’ process, akin to a common law summary judgment type procedure and South Korean courts only require the bare minimum documents to be submitted as proof. Furthermore, South Korean courts take an internationalist and narrow approach to the defences to enforcement, requiring a serious breach or impact on due process before granting refusal. The pro-arbitration nature of South Korea is particularly noticeable in the context of arbitrability and public policy. Competition and intellectual property matters are now both likely arbitrable in South Korea, and South Korean courts maintain a high threshold for refusing to enforce awards under the public policy ground.

 

S.R. Subramanian, Disclosure, and challenge of arbitrators under the Indian Model BIT: A step towards enhancing the legitimacy of investment arbitration?

Legal provisions for disclosure and challenge of arbitrator are very crucial to restore the confidence of the parties in the arbitral process when it is upset by complaints of lack of independence or impartiality of arbitrators. However, detailed and binding rules on the challenge and disqualification of arbitrators are not forthcoming. Against this backdrop, the revised Indian Model Bilateral Investment Treaty (BIT) of 2015, as a first-of-its-kind, has taken the initiative of including a detailed framework in the form of treaty rules to address the disclosure requirements and the grounds and procedure for challenge of arbitrators. In this connection, the article attempts to determine how the disclosure and arbitrator challenge mechanisms are structured across the leading international (investment) instruments and later use this as a benchmark to evaluate the disclosure obligations of arbitrators and their challenge under the Indian Model BIT.

 

Weiyao Han, Ad Hoc Arbitration Reform in China: A Step Forward

In July 2021, the Ministry of Justice (MoJ) released its proposed revisions to the Arbitration Law (AL) for public consultation, sparking hope for the liberalization of ad hoc arbitration in China. However, the planned reform is unlikely to be comprehensive, as it is limited to foreign-related commercial disputes and burdened with procedural requirements. This study finds that the favourable treatment of foreign-related sectors and the insufficient quality of domestic arbitration contribute to China’s pattern of ‘half-measure’ ad hoc arbitration reforms. Since it will take a long time to reduce the disparity between the legal performance of foreignrelated and purely domestic sectors, China has adopted ‘gradualism’ in its legal reform. In doing so it seeks to minimize instability during its transition and maintain the reliability of arbitration. To achieve these goals, this article suggests that further reform of China’s ad hoc arbitration proceed on its dual track, temporarily shutting out domestic sectors while further internationalizing foreign- related ones.

 

Ankur Singhal, Cox Kings v. SAP India: Questioning the Use of the ‘Group of Companies’ Doctrine

The ‘group of companies’ doctrine had been initially introduced by the Supreme Court of India into the arbitration jurisprudence. Since its introduction, this doctrine has been increasingly used to rope in non-signatories to the arbitration agreement. In a recent landmark judgment of Cox Kings Limited v. SAP India Private Limited and Another, the Supreme Court has questioned the use of the ‘group of companies’ doctrine and has referred the matter to a larger bench. This case comment analyses the judgment, the merits and demerits and the position of this doctrine from an Indian and cross-jurisdictional perspective.

 

Shreya Singh, Enforcing Foreign Awards Against Non-signatories: Analysis of Gemini Bay Transcription Pvt Ltd. v. Integrated sales service Ltd

Even though non-signatories to an arbitration may be affected by the outcome of an arbitration, they are often treated as strangers in the process. However, non-signatories can seek their involvement in an arbitration from the stage of reference to an arbitration, till enforcement of the arbitral award. The Supreme Court in its recent judgment of Gemini Bay Transcription Pvt. Ltd. v. Integrated Sales Service Ltd. & Ors. has clarified the position of non-signatories to the extent of enforcement of foreign awards by allowing the same.

 

Delphine Ho, Book Review: Franco Ferrari & Friedrich Rosenfeld (eds), Handbook of Evidence in International Commercial Arbitration: Key Issues and Concepts (2022)

 

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Australia’s (Dis)Engagement with Investor-State Arbitration: A Sequel

Wed, 2022-12-21 00:12

A seminar on 10 November 2023 during Australian Arbitration Week discussed “Australia’s engagement in the Investor-State Dispute Settlement (ISDS) reform process”. My presentation divided successive governments’ approach into three significant eras over the last decade: anti-ISDS (2011-13), case-by-case ISDS (2014-2021), and uncertainty (since 2022). Some uncertainty has dissipated since the seminar. On 14 November 2022, Australia’s Trade Minister Don Farrell declared that the new Labour Government “will not include ISDS in any new trade agreements”. He added that “when opportunities arise, we will actively engage in processes to reform existing ISDS mechanisms to enhance transparency, consistency and ensure adequate scope to allow the Government to regulate in the public interest”. The renewed anti-ISDS stance has already generated commentary from the Business Council of Australia, legal practitioners and others. Below I locate the Trade Minister’s announcement in context and sketch some implications and motivations, drawing partly also on my 2021 book of selected essays on investor-state and commercial arbitration focused on Australia and Japan.

 

I. Anti-ISDS: 2011-13

Before this sequel, in 2011 the centre-left (Labor/Greens) Gillard Government declared that Australia would no longer agree to any form of ISDS in any future bilateral investment treaties (BIT) or Free Trade Agreement (FTA). That stance derived partly from the Productivity Commission’s recommendation in its 2010 report into international trade policy, preferring unilateral liberalisation measures and sceptical about proliferating FTAs from a laissez-faire perspective. On ISDS provisions, the majority Commissioners asserted that (i) there was insufficient evidence that offering ISDS led to more FDI flows, (ii) Australian investors did not invoke investor-state arbitration, and (iii) ISDS could lead to “regulatory chill”. Additionally, the Government’s anti-ISDS policy was driven by the political left’s opposition to investment and trade liberalisation generally. It was probably also influenced by Philip Morris Asia initiating the first-ever ISDS dispute against Australia, challenging Australia’s tobacco packaging legislation under the BIT with Hong Kong. The anti-ISDS policy delayed conclusion of major FTAs with large exporters of capital to Australia, which pressed for such provisions.

 

II. Case by Case ISDS: 2014-2021

The centre-right Coalition government won the election in 2013 and reverted to the pre-2011 approach of agreeing to ISDS provisions on a case-by-case assessment. FTAs were soon concluded with China and Korea and included ISDS. The FTA concluded with Japan did omit ISDS, but probably because it did not offer Australia sufficient extra market access or other benefits. Japan’s longer positive experience of investing in Australia also meant it could seek ISDS-backed protections through other treaties, which it eventually achieved through both countries ratifying the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Unlike the Greens, the Labor Opposition sided with the Government to pass the tariff-reduction legislation needed to ratify these ISDS-backed treaties, however, declaring the Labor Party’s continued opposition to ISDS but assessing the FTAs as overall in the national interest.

The Coalition Government did omit ISDS in the PACER-Plus FTA given the Pacific Island micro-states’ limited inbound investment prospects and capacity as host states to defend ISDS claims; and in the Regional Comprehensive Economic Partnership (RCEP) ASEAN+5 FTA, probably because almost all pairs of its 15 member states have at least one ISDS-backed treaty among themselves anyway. The Coalition Government also renegotiated a few early FTAs and BITs, replacing them with CPTPP-like provisions to clarify provisions or make them somewhat more pro-host-state considering emerging investment treaty case law. It further solicited public submissions to inform a review of older treaties. Australia ratified the Mauritius Convention in 2020 to retrofit transparency provisions on older treaties, but primarily only if other states also ratify the Convention – and so far few have done so.

Australia’s renewed nuanced approach towards ISDS over 2014-21 may have been influenced by some evidence in Asia and more widely that ISDS provisions do have significant positive impacts on FDI flows. Also, ratifying investment treaties globally certainly impacted FDI, meaning that a minority of states increasingly holding out against all ISDS would have instead reduced ratifications and therefore FDI flows. Other empirical research, highlighted by Dr Sam Luttrell at the 10 November 2022 seminar, adds that ISDS-backed treaties reduce the cost of syndicated loan finance for cross-border investors.

Luttrell’s presentation further reinforced how Australian investors, particularly in long-term resources projects, not only take into account ISDS protections but also started commencing outbound investor-state arbitrations under Australian treaties alleging host states have violated their substantive commitments. This is especially so since the successful White Industries v India award in 2010, which the Productivity Commission seems to have been unaware of. Concerns about “regulatory chill” also seem to have declined as Australia defeated Philip Morris Asia on jurisdiction in 2015, and as no further inbound ISDS arbitrations were commenced against Australia. Nonetheless, perhaps because ISDS remained a live issue in parliamentary hearings and successive Coalition Governments did not control the upper House. Australia does not seem to have been particularly vocal in multilateral ISDS reform discussions in UNCITRAL or ICSID, despiteing.

 

III. Anti-ISDS Again: Since Late-2022

After Labor won the general election in May 2022, the new Government had not yet publicly declared its policy approach towards ISDS, until the Trade Minister’s announcement on 14 November. The foreign ministry’s website had still stated that Australia assesses ISDS on a case-by-case assessment. However, setting policy going into the election, the Labor Party’s 2021 National Platform had reiterated that “Labor will not enter into agreements that include ISDS provisions” (p9 para 45), adding(p94, paras 33-34):

“Labor in government will review ISDS provisions in existing trade and investment agreements and seek to work with Australia’s trading partners to remove these provisions. While this process is underway, Labor will work with the international community to reform ISDS tribunals so they remove perceived conflicts of interest by temporary appointed judges, adhere to precedents and include appeal mechanisms.

Labor will set up a full-time negotiating team within the Department of Foreign Affairs and Trade whose sole job will be to negotiate the removal of ISDS clauses …”

Until 14 November 2022, there had been no public announcement about any such initiatives.

 

IV. Short-term Implications

At the 10 November seminar, I pointed out that Australia’s major ongoing FTA negotiations were with India and the European Union. India unilaterally terminated its BIT with Australia in 2017 as part of its broader policy of winding back protections for foreign investors due to claims against India under other older treaties. Although India’s new Model BIT from 2016 retains ISDS, it provides a narrow window, and its substantive protections are heavily circumscribed. India has been able to conclude only a few new investment treaties from this negotiating position. Even maintaining the second era’s case-by-case assessment policy, I considered that Australia and India could end up agreeing on a parallel investment treaty that only agrees to inter-state arbitration, especially if India offered significant preferential market access to Australian investors.

Omitting ISDS is now the only possibility under the new Labor Government stance, but India now may not offer as much market access or other benefits to Australia. A better compromise, given problems encountered by foreign investors in India as well as JNU Prof Jaivir Singh’s empirical evidence that ISDS-backed treaties cumulatively have had positive impact on FDI inflows for India, could have been a CPTPP-like investment treaty with some further innovations. Those might include mandatory mediation before arbitration, as Australia agreed upon with Indonesia in 2019 but not with Hong Kong.

Australia is also still negotiating an FTA with the EU. Since 2015, the EU offers only a compromise “investment court” alternative to traditional ISDS. Singapore took this option, for example, but Japan did not – maintaining pre-existing BITs with EU member states with traditional ISDS and watching longer term multilateral reform discussions. Australia should probably take the investment court option, to secure an overall better FTA deal, as I have argued also for New Zealand (mimicking Australia’s first anti-ISDS policy from late 2018). Arguably, this option is not “ISDS” so it would not conflict with Australia’s renewed anti-ISDS position. If Australia adopts this interpretation of its stance eschewing ISDS, to conclude a deal with the EU, this would also signal to other regional players and UNCITRAL delegates that there is scope to be flexible in investment treaty negotiations.

 

V. Further Motivations for Australia’s New Policy?

One wild card for Australian policy-makers recently has been that a right-wing politician and mining magnate, Clive Palmer, escalated complaints in 2020 by formally seeking consultations with the federal Government and then notifying an ISDS dispute under multiple treaties with Australia through his Singaporean company (Zeph), after unsuccessful constitutional and other domestic law challenges. They allege expropriation and breach of fair and equitable treaty (denial of justice) related to Western Australian state legislation impacting on iron ore rights and related past domestic arbitration awards. Given his high public profile, and rights originally held by his Australian company being transferred to Zeph in Singapore, if and when an ISDS arbitration is commenced, this risks another Philip Morris Asia moment. On 20 October 2022, a notice of intent to commence arbitration was reportedly filed under the ASEAN-Australia-NZ FTA. An arbitration filing after three months (Art 22(2)) would certainly rekindle media and political interest in ISDS, which peaked in Australia over 2010-16.

In addition, concerns were recently reported about potential ISDS claims from foreign investors in Australian gas resources, under the Labor Government’s plans to deal with the global energy crisis. Announcing now a renewed anti-ISDS policy may help pre-empt public criticisms in this respect as well. However, any such claims would be preserved under existing treaties, while substantive commitments made under Australia’s treaties (especially FTAs) anyway give the host state considerable scope to introduce emergency measures.

 

VI. Wider Implications

Whether or not such potential claims may have influenced Australia’s renewed anti-ISDS posture, that will make it even more difficult for RCEP to add ISDS protections, unless the Labor Government backtracks or loses the next elections in 2025. ISDS must be discussed again among member states within 2 years of RCEP coming into force, with a decision then on whether and how to add ISDS to be reached within another 3 years (Art 10.18).

In addition, the new Labor Government policy will probably have further ripple-on effects particularly across the Asia-Pacific region. It could also potentially impact on wider multilateral discussions about ISDS in UNCITRAL, and even on the “modernisation” of or withdrawal from the ISDS-backed Energy Charter Treaty (which Australia signed in 1994 but never ratified). This is so especially if the Australian government can articulate more specifically the arguments and evidence for adopting its renewed anti-ISDS position.

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