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New York Arbitration Week Revisited: Stronger Together: Colloquy on Diversity and Perseverance

Fri, 2020-12-04 00:08

ArbitralWomen promotes women and diversity in many different ways. We share statistics that reflect the incremental progress toward gender parity in dispute resolution. We share news about the professional achievements and qualifications of women so that the international arbitration community can more readily identify well-qualified women to serve as arbitrators, mediators, experts, and lead counsel. We publish interviews of leading women to make accessible the journeys of female leaders and how they succeeded—against the odds.

But reading about someone’s journey is different from hearing it live. Therefore, for New York Arbitration Week 2020, ArbitralWomen organised an event focused on the theme ‘Stronger Together: Colloquy on Diversity and Perseverance’ that featured two keynote presentations by Mélida Hodgson and Caline Mouawad, in which each shared their respective professional and personal journeys as multicultural female citizens ‘of the world’. The video recording can be found here. Each woman’s journey is poignant and inspiring. This post shares some highlights of each keynote and offers advice to women building careers in international arbitration.

 

Mélida Hodgson’s Keynote

Mélida Hodgson began by emphasising that perseverance is key. She summarised her path with four epithets ‘outsider’, ‘invisible me’, ‘what is not mine is not mine’, and ‘just do it!

Mélida described her journey as a multicultural woman in international arbitration as one of ‘constant adaptation.’ An immigrant from the East Coast of Nicaragua where the Moravian Church was central to her cultural experience as a child, Mélida explained that this background defined her and equipped her to manage life as a diverse woman in the United States. Mélida observed that she has always been an outsider, as an immigrant, a female, and with brown skin. She did not have steady professional mentors and emphasised the importance of mentors, sponsors, and allies to progress diversity.

Mélida first observed efforts to promote diversity when she was a junior associate at a large law firm. Thereafter, she left private practice and held government roles at the US Department of Justice and the Office of the US Trade Representative, where she handled WTO cases, NAFTA arbitrations, and negotiated bilateral investment treaties. She observed less focus on diversity in government than in private practice.

When Mélida returned to private practice and even since, she felt some colleagues looking past or through her – disappointingly what she described as the ‘invisible me’ syndrome. Even with her unique experience and qualifications to handle treaty arbitrations, she felt unwelcome by the ‘arbitration club’, which she attributed to both conscious and unconscious bias. Nonetheless, Mélida persevered. She accepted that life is not fair —and that ‘what is not mine is not mine.’ She was grateful for any opportunities and worked intensely to make the most of them to build her practice. She chose not to dwell on obstacles and instead to focus on successes and steps forward. Her overwhelming message was that, notwithstanding any challenges and obstacles, ‘just do it!

With hard work and perseverance, Mélida succeeded in advancing to the top of the international treaty arbitration field. She is head of the New York International Arbitration Practice of Jenner & Block, recognized in numerous directories, and recently elected Vice Chair of the International Chamber of Commerce (ICC) Institute of World Business Law, effective 1 January 2021.

However, Mélida has never taken her success for granted and she invests substantial energy toward making the path for others less difficult. She urges that promoting women and diversity at every level starts with each of us and that we must all contribute to achieve progress. If you are an ally of women and diverse people, recruit and hire women and diverse people. If you are a client that wants to progress diversity, select diverse counsel, and appoint diverse arbitrators. Mentor and sponsor diverse talent. Mélida highlighted the importance of educating clients on diversity issues and supporting clients that are seeking diverse counsel teams and teams led by diverse members.

In closing, Mélida said that it was important to remember to be kind to each other and to support each other. With the support of allies, sponsors and the members of your community, ‘just do it’ as best you can!

 

Caline Mouawad’s Keynote

Caline Mouawad began on a personal note, stating: ‘Everything I needed to know to build a career in international arbitration, I learned from my father.’ Caline described her father as an inspirational figure who ‘did not fear change or sacrifice’, safely moving the family out of Lebanon to Paris during the Lebanese Civil War and later at the height of the hostage crisis in Beirut to Houston, Texas. Caline observed that her father was ‘unsentimental’ about such difficult moves because ‘he knew it was necessary for his five daughters’ futures.’ She described her father as fiercely traditional and patriarchal, yet he raised five daughters who are all extraordinarily accomplished in their respective professions doing their best to balance personal and professional demands.

Her father distilled the sum of his life experiences into three key pieces of advice that have been instrumental and path-determinative in Caline’s personal and professional journey. First: ‘get your education.’ This encompassed not only formal academic education, but also the informal school of life. He instilled a desire to learn, a refusal to stagnate, and a willingness to take chances and embrace change. When Caline was accepted to Harvard Law School, he did everything he could to help, from organising her financial aid application documents to moving Caline’s personal items into her dormitory room. Caline derived inspiration from her father to have the courage to seek a 1L summer internship in Paris, where she ‘had the opportunity to work for Laurie Craig, one of the deans of international arbitration.’ Little did she know that this summer internship would decide the course of her career. After law school, she joined Simpson Thacher in New York. Later she moved to Salans in Paris and then New York, and eventually joined King & Spalding in New York, where she spent ten years before recently joining Chaffetz Lindsey in New York. These life experiences and the relationships she developed enriched her personally and professionally – a mix of the formal and informal ‘education’ to which her father referred.

Second, ‘be your full, complicated self.’ Caline struggled to reconcile her identity and sense of belonging – was she Lebanese, French, American, Texan? She asked her father for advice on how to prioritize these different allegiances and how he dealt with the different parts of his identity. Her father’s answer was simple: ‘I am a citizen of the world.’ He explained that Caline was privileged to belong to all these groups – that it was a strength and competitive advantage. It took time for Caline to fully appreciate this advice. Ultimately it became her license to be her ‘full, complicated self’ and an asset.

Being her ‘full, complicated self’ meant being a New York lawyer who is involved in her Lebanese Catholic Church, spends every Christmas in Texas with family and friends, is married to an American, speaks French to her children, Arabic to her mother, and feels at home in her 3,000-people hometown in the mountains of Lebanon. She described these as ‘but a few of the ways that I have the privilege, every day, of being multi-dimensional, of living out this global citizenship without having to choose an identity to the exclusion of others.’ She naturally gravitated to international arbitration.

Third, ‘follow your path with conviction’ and trust yourself and your chosen path. After having her first child, Caline chose to return to the practice of law on a reduced hours schedule, an ‘unconventional’ choice at the time. Her firm supported her and she found her rhythm. She maintained a reduced hours schedule as her career advanced, even though it meant she made partner later than her peers. It was not always easy to manage, but she was determined to follow her ‘path with conviction’ and ultimately prevailed.

Now Caline is a recognised leader in international arbitration. In addition to serving as counsel in arbitrations conducted in English and French administered by the leading institutions, she is on the ICDR and AAA panel of arbitrators, serves as Vice-Chair of the Steering Committee of the ICC Commission on Arbitration and ADR and is the former Chair of the International Law Committee of the New York City Bar Association.

In closing, Caline noted that in all her personal and professional choices, she has tried to live up to her father’s expectations and hopes for her. His advice has been a beacon to her. She continues to follow his advice as ‘a guiding light’ in her continuing arbitration journey. She concluded, ‘my hope is that it may offer you some light as well.

 

Concluding Remarks and Inspired Impressions

I knew there was a chance as a moderator I might tear up during the live event, having seen Mélida’s and Caline’s outlines beforehand. I shared that concern right before the live broadcast, and Caline aptly replied, ‘There’s no crying on the baseball field!

Attendees were empowered by Mélida’s and Caline’s candid narration of their respective journeys. Some are sharing the video with their daughters.

I asked Caline to share more about her reduced hours of experience in private practice. She made every effort to get home in the evenings to spend time with her children, hopping back online to work again once the children were in bed. But extensive business travel made it challenging. She valued her support network to care for her children while away.

Both Mélida and Caline observed it is possible in the ‘virtual world’ to attend events without travel, a silver lining of the pandemic. They encouraged taking advantage of virtual programming and networking as much as possible.

We all look forward to gathering in-person again. Until then, we must make the most of virtual platforms to expand our professional connections and learn new skills to be among the well-qualified women in the field. The ArbitralWomen member directory is a searchable resource to find talented women leaders in dispute resolution. Mélida and Caline are two shining examples.

 

Recordings for all New York Arbitration Week 2020 events are available here, and Kluwer Arbitration Blog’s full coverage is available here

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
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New York Arbitration Week Revisited: Non-Signatories Before And After Arbitration, Closing In On An International Approach?

Thu, 2020-12-03 00:08

Day three of New York Arbitration Week 2020 featured a panel discussion on non-signatories in arbitration sponsored by the Chartered Institute of Arbitrators New York Branch and the New York International Arbitration Center (NYIAC). The session was broken into two parts: compelling arbitration (before arbitration) and enforcing an award (after arbitration), each framed by the relevant Articles of the New York Convention. This post highlights key takeaways from both panels and provides additional thoughts.

 

Panel One: Compelling Arbitration By A Non-Signatory

The first panel session was led by Eric A. Schwartz, an independent arbitrator and co-chair of the NYIAC Global Advisory Board. The panelists were:

  • Benjamin G. Davis, Professor, University of Toledo College of Law
  • Teresa Giovannini, Senior Counsel, LALIVE (Geneva)
  • Richard Kreindler, FCIArb, Partner, Cleary Gottlieb Steen & Hamilton (Frankfurt)

 

A Consistent Outcome, But A Variety of Approaches

The discussion was framed by the recent U.S. Supreme Court decision in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020) (which was previously discussed on the Blog). After being sued for damages related to the failure of motors it provided, GE Energy Power Conversion France SAS, Corp.—a subcontractor—moved to compel arbitration pursuant to the main construction contract as a non-signatory under the domestic doctrine of equitable estoppel. The Supreme Court ultimately held that the New York Convention does not conflict with the domestic equitable estoppel doctrine thereby allowing a non-signatory, like GE Energy Power Conversion France SAS, Corp., to enforce an arbitration agreement even though it was a non-signatory.

Although the panelists all agreed that most courts would ultimately compel arbitration in such a circumstance, they analyzed the approaches of different countries which differ considerably.  Article II does not explicitly state that non-signatories can enforce arbitration agreements. This creates a vacuum, which has been filled by a patchwork of domestic doctrines and substantive law.

Professor Davis began by framing the pathway to arbitration as the Autobahn, with the court’s role as gatekeeper. While many cases—such as those between two signatories—are allowed an express lane to arbitration by U.S. courts, others—such as Outokumpu—face a stoplight, delaying traffic to arbitration by analyzing substantive claims such as equitable estoppel. Prof. Davis was concerned that the Supreme Court’s decision creates a rabbit hole within the New York Convention which will result in further delays to reaching arbitration. This framework would give each subcontractor a route to arbitration, adding cost and uncertainty in settlement discussions. Prof. Davis thus argued the need to preserve an “express lane” for international commercial arbitration clauses in which the court was more of a “gate opener”, while allowing greater court involvement in a “local lane” for domestic arbitrations.

Mr. Kreindler offered a German perspective, which is apt given that Germany was both the seat and the choice of substantive law in Outokumpu. Mr. Kriendler explained that the outcome of Outokumpu would have been similar had a German court been asked to compel arbitration under the same circumstances. German courts have interpreted Article II to allow enforcement of arbitration agreements at the request of a non-signatory, with the operative question being whether the signatories had an intent to extend the agreement to non-signatories. Further, under German case law and commentary, Article VII(1) does not limit a court’s analysis to domestic law. Thus, in cases such as Outokumpu, a German court could apply a foreign doctrine—such as equitable estoppel—that is more permissive in extending jurisdiction to a non-signatory, even if that doctrine was disfavored by German courts.

Finally, Ms. Giovannini concluded with competing European perspectives on the Outokumpu question. The Swiss Federal Supreme Court has held that Article II does not prevent extension to third parties. The court applied Swiss substantive law, finding that a clause can bind individuals who have not signed the contract. Comparatively, the English and French courts would look to the law of the seat, rather than substantive domestic law. Regardless, most courts would find that Article II is not a barrier and extend the arbitration clause’s jurisdiction to non-signatories.

The key takeaway from this panel was that courts around the world consistently find that Article II of the New York Convention is not a barrier to enforcing arbitration agreements by or against non-signatories to the agreement. It is rather a question of domestic law that provides the vehicle to enforcing an arbitration agreement in relation to a non-signatory. This is where courts diverge in their approach.

 

Patchwork Doctrines Remain A Barrier

Though courts are consistent in not interpreting the New York Convention as a barrier to binding non-signatories in an arbitration, the reliance on domestic legal doctrines as the pathway to compelling arbitration has made for a bumpy ride. An expanded role for courts as gatekeepers leads to delay, and therefore greater cost. On the other hand, leaving this patchwork of doctrines to arbitral tribunals creates a landscape in which substantive local doctrines are interpreted by international arbitrators with little to no familiarity with this body of law. Either way, the lack of consensus in doctrine for allowing a non-signatory to compel arbitration remains a problem, and one that still demands an international approach—such as a uniform doctrine of consent—if parties are to avoid getting stuck in the traffic jam of traditional litigation.

 

Panel Two: Enforcing Arbitral Awards Against Non-Signatories

The second panel session focused on enforcing awards against non-signatories who participated in the arbitration or against those who first become involved at the award enforcement stage. The panel was led by Nancy M. Thevenin, FCIArb, an international arbitrator, Adjunct Professor at St. John’s University School of Law, and General Counsel at the United States Council for International Business (USCIB). The panelists were:

  • Teddy Baldwin, Partner, Steptoe & Johnson LLP
  • Victoria Shannon Sahani, Associate Dean of Faculty Development and Professor, Sandra Day O’Connor College of Law at Arizona State University
  • William H. Taft V, Partner, Debevoise & Plimpton LLP

 

U.S. Patchwork of Laws Leaves Open Question For Parties

The panelists agreed that a non-signatory could be bound by an arbitration, in this case after a proceeding. This frequently arises in cases where a party seeks to hide its assets to prevent enforcement of the award. However, unlike the conclusions regarding non-signatories reached by the first panel, the patchwork of laws does not always lead to the same outcome.

Mr. Taft illustrated the U.S. approach to enforcement through a recent U.S. case. In CBF Industria de Gusa S/A v. AMCI Holdings, Inc., 850 F.3d 58 (2d Cir. 2017), the U.S. Court of Appeals for the Second Circuit, after amending its previous decision partially due to the New York City Bar Association’s amicus curiae brief, held that the enforcement against non-signatories was governed by the law of the forum, under such doctrines as alter ego, piercing the corporate veil, and vicarious liability.

Professor Sahani next provided a snapshot of the framework of U.S. laws affecting the analysis of enforcing against a non-party. Normally, a U.S. court would find that, under Article V, a non-signatory is not bound by an award. However, Federal Rule of Civil Procedure 17—which is applicable as forum law—allows the court to apply an equitable remedy, such as piercing the corporate veil, instead of dismissing a claim against a non-party in interest. Prof. Sahani suggests that when facing fraud such as asset hiding, this could open the door to enforcement against non-signatories.

Mr. Baldwin in turn focused on the application of a claim for piercing the corporate veil when the non-signatory is a sovereign government. This scenario involves the Foreign Sovereign Immunities Act (FSIA), which generally bars a U.S. court’s jurisdiction over a foreign sovereign. However, FSIA has an exception in cases confirming an award pursuant to an arbitration agreement. If, at bottom, a party can show that the related entity is so controlled by the sovereign that it would be considered an agent of the state, then it may be entitled to the exception under FSIA. Mr. Baldwin explained that courts often interpret this like the doctrine of alter ego, which allows for limited pursuit of sovereign non-signatories.

 

The Strategic Choice

Parties are then left with a choice: attempt to join non-signatories to the arbitration proceeding or wait to seek enforcement of the award against the non-signatory (non-party to arbitration).  Because the U.S. is not bound by a finding of the arbitral tribunal that the non-signatory is a proper party and because the patchwork legal framework is fraught with uncertainties, it appears that in most cases parties would benefit by taking two bites at the apple: attempting during the proceeding and if denied, taking a second chance during enforcement.

 

Conclusions

An international principle seems to be emerging from these discussions: the New York Convention will not be a barrier to binding a non-signatory to an arbitration agreement or enforcing an arbitral award against it. However, the shifting landscape of domestic principles that are then used as a pathway forward in compelling or enforcing against a non-signatory can provide strategic advantages to some and costly delay to others. This inconsistency in substantive approach remains a challenge, and one that calls out for an international consensus.

 

Recordings for all New York Arbitration Week 2020 events are available here, and Kluwer Arbitration Blog’s full coverage is available here

More from our authors: International Arbitration and the COVID-19 Revolution
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New York Arbitration Week Revisited: The In‐House Counsel’s Virtual Roundtable – Discussion on their Approach to an International Arbitration

Wed, 2020-12-02 00:07

On November 16th, 2020, the AAA-ICDR hosted a webinar entitled In-House Counsel’s Virtual Roundtable as part of New York Arbitration Week. The session comprised of in-house counsel from various industries discussed their views and approach to international arbitration from their respective fields. It was moderated by Eric P. Tuchmann, the Senior Vice President, General Counsel and Corporate Secretary for the AAA-ICDR, and featured in-house counsel Suzana Blades (Associate General Counsel, ConocoPhillips), Kai-Uwe Karl (Global Chief Litigation Counsel, GE Renewable Energy), and Michael L. Martinez (Senior Vice President & Associate General Counsel, Marriott/Bonvoy).

 

Background and Introduction

The panelists provided an overview as to how their legal teams worked on disputes their companies faced. Kai-Uwe Karl noted that because they are a construction company, their team handles disputes from across the world in litigation, arbitration, and mediation venues (depending on the needs and forum selection clauses of the particular case). Mr. Karl added that his specific team participates more in larger cases, while providing input and support to regional counsel in smaller cases. Suzana Blades mentioned that she and her team try to participate more in the pre-dispute phase in an attempt to mitigate potential conflicts and resolve disputes before they reach arbitration or litigation. Ms. Blades noted that they remain active in all their cases, citing that they consider their relationship with outside counsel to be a partnership and that they want to be part of any important decisions. Michael Martinez noted that they have a similar approach. Most of their litigation or arbitration matters arise out of their management or franchise agreements. Mr. Martinez notes that for domestic matters, they use United States courts and prefer arbitration for international matters, but further noted that they have been transitioning more towards arbitration in domestic matters as well.

When asked about selecting arbitration versus litigation, the panel’s consensus was that it depends on the venue. For example, Mr. Karl noted that if they were asked to consider arbitration versus litigation in Switzerland, they would be willing to accept both. Ms. Blades agreed, citing her own example that they would be fine with litigation before the UK courts. She added that for domestic disputes in the United States they would opt for the courts as well, unless it involved relationships with long standing partners or if there were confidentiality concerns. Ms. Blades further noted that they opt for arbitration in international disputes. Eric Tuchmann noted that from the AAA-ICDR’s perspective, the common hands-on approach favored by all panelists (as opposed to just handing these matters off to outside counsel) results in cases that proceed more efficiently.

 

The Panel’s Views on Arbitrator Selection

When it comes to selecting arbitrators, the panel agreed that arbitrator selection is probably one of the most important decisions and shared a common approach when using the party-appointed method. The panel further agreed that the aim is to find the best person for the case. In that regard, they also agreed that the first step was to reach a consensus with respective outside counsel on the arbitrator’s characteristics they would be seeking for the particular matter. Ms. Blades mentioned that they work with outside counsel to receive a list of 5 or 10 names that fit their agreed upon profile and then narrow the list down from there, noting that it can be an intense process. For the panelists, the highly recognized arbitrator was not always important, as they noted each case is unique and prefer the right person for the particular dispute. Important attributes for a strong arbitrator include that the person is well regarded, has the ability to persuade the fellow tribunal members and able to be a “consensus builder,” citing a preference for unanimous awards. The panelists also agreed on the need to ensure that the prospective arbitrators have the availability to dedicate the time that is needed for a case, and they all expressed their commitments to diversity when considering potential appointments. Eric Tuchmann noted that the panel shared the same commitment to diversity which is also shared by the AAA-ICDR and is certainly considered when it prepares its lists of arbitrators for the cases it administers. Additionally, when considering the appointment of the presiding arbitrator they considered strong case management skills and the ability to make tough decisions to keep the case on track as important characteristics.

Eric Tuchmann asked the panel about their experience with using the AAA-ICDR’s list method for appointing their arbitrators. Ms. Blades mentioned that she had used the list and was a proponent of that process. She also noted that her company has had good experiences with the list, citing a comfort level with the work that the AAA-ICDR does by vetting and training the people on that panel so that they will wind up with a good choice. They have even duplicated the process in some ad-hoc cases. Messrs. Martinez and Karl shared similar approaches, stressing collaboration with outside counsel and their commitment to diversity.

Mr. Karl added that they also consider the type of dispute and its applicable law, as in many of their cases they lean towards a preference for an arbitrator with a civil law background who will focus more on the documents, less discovery, and arguably less hearing days.

 

The Panel’s Views on Using Mediation

Mr. Martinez mentioned that he is always open to mediation and the early resolution of these cases before they may get to arbitration or litigation. He added that timing is important as, while it may work early on, it seems that mediation may be more effective if conducted after you have had some exchange of documents as you get closer to the hearing. Mr. Martinez noted that he believes mediation should always be encouraged but not a mandatory step. Mr. Tuchmann added that the AAA-ICDR’s practice is to offer mediation in every case it administers, which is incorporated in its rules.

Mr. Karl stated that they were great supporters of mediation and that it should be included in the toolbox of processes used to resolve disputes. He also stressed that their outside counsel should consider mediation and be well versed in the process and its possibilities. Mr. Karl was in favor of including mediation in its arbitration agreements as a mandatory first step of their escalating clause, citing that if it’s not included in the arbitration agreement, it is difficult to get the parties to agree to mediate once the dispute has arisen. Mr. Tuchmann noted that the AAA-ICDR rules contemplate that mediation can be conducted concurrently with the arbitration so as to avoid delay. Ms. Blades also expressed support for the use of mediation, noting that she sees it being used more often domestically in the United States. Ms. Blades prefers that it would be optional but believes it would be used more often internationally if arbitrators suggest its use to the parties at the appropriate time (including reminding the parties of its use prior to the hearing).

Mr. Karl also noted that mediation offers another advantage, in that parties most often overestimate their case’s strength and may not fully appreciate weaknesses in their position. Parties and their counsel are trained to think of their legal rights and while working with their team and outside counsel they all may be reinforcing their version of reality (i.e., confirmation bias). This dynamic may also be happening with opposing counsel and that diminishes possible opportunities for early settlement. Mr. Karl said that participating in mediation may result in a reassessment of the parties’ respective views and result in an early settlement.

 

Selecting New York as a Seat or Venue

Since the webinar was taking place during New York Arbitration Week, Mr. Tuchmann asked the panel for their views in selecting New York as a venue for litigation or arbitration.

Mr. Martinez mentioned that historically they opted for United States’ courts to resolve domestic disputes and include contract terms providing for the application of New York law when agreeing to a New York juridical forum. He has had good experiences with New York state courts’ specialized commercial division, noting that the judges were sophisticated and provided well-reasoned decisions fairly quickly. In terms of arbitration, he stated that his company has found New York as a fine venue, although cites that the costs of arbitration can be high (which is true of many of the often used arbitral hubs, such as Geneva and London). Ms. Blades generally agreed, adding that if your contract has New York law, New York is a great option as a seat. Ms. Blades stressed the importance of selecting the right seat for their arbitrations and it was a part of the arbitration agreement that they would insist on more so than other issues, as the choice of the seat is so important because the courts at the seat will have supervisory jurisdiction over the arbitration.

Mr. Karl noted that New York like other major cities (for example Geneva) has high-quality lawyers and arbitrators and a quality process. Mr. Karl noted that if you are participating in a domestic US arbitration it could be more expensive, as you may have depositions, more witness testimony, the potential for more discovery, and more hearing days consistent with the common law practice. Mr. Karl expressed a preference for an international arbitration proceeding which he noted could also be conducted in New York as well by the agreement of the parties.

 

The COVID-19 Impact on International Arbitration

The panel generally agreed that they were seeing fewer disputes during the pandemic and that there was a focus on trying to resolve disputes faster and on quicker business terms. They added that if one good thing could be said about the COVID experience it is that there has been a leap forward in the use of technology in international arbitration. The increased use of virtual hearings is here to stay, including in some hybrid capacities for case management and procedural conferences. They have also added the possibility of more settlement conferences conducted when the possibility may arise without the travel costs and the logistical challenges. We now have more options for our international arbitrations.

The recording of this program can be accessed here.

 

Recordings for all New York Arbitration Week 2020 events are available here, and Kluwer Arbitration Blog’s full coverage is available here

More from our authors: International Arbitration and the COVID-19 Revolution
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Arbitrator Intelligence Investment Reports: Catching Lightning in a Bottle

Mon, 2020-11-30 23:03

Legend has it that in 1752, Benjamin Franklin flew a kite in a thunderstorm, with a house key dangling from the string, to attract lightning and store it in a Leyden jar.

Similarly, academics, policymakers, lawyers, and parties have for years sought to capture the answers to transcendent questions about investment arbitration. Which variants justifiably determine wins or losses? Which proceedings should be considered fair? How should costs be allocated? Which measures are sufficient to promote transparency or protect confidentiality? What are the primary drivers of delay? When and how should prior investment arbitration awards be treated as having precedential value?

As clear answers have proven elusive, arbitrators have become the lightning rod (another of Ben Franklin’s inventions) for disagreements about these questions. One obvious reason is that the arbitrators decide each of these issues in individual cases.

Another, perhaps more subtle, reason is that the parties choose the arbitrators who will decide their cases. Thus, when appointing arbitrators in an individual case, the parties seem to have the power, indirectly, to affect if not control the answers to these questions. But that perceived power can be elusive as appointing parties often have limited insights into individual arbitrators’ attitudes and practices on these issues.

Today, in investment arbitration, the two primary sources of information about arbitrators are: 1) individualized research in professional networks to collect feedback from those who have had recent experiences with relevant arbitrators, and 2) summaries of relevant aspects of prior investment awards involving the relevant arbitrators prepared by associates.

These processes are both analogue approaches in an increasingly digital world. These ad hoc methods are seriously out of sync with modern practices in corresponding national litigation.

In a 2020 study by ALM Intelligence and LexisNexis, 98% of US legal professionals surveyed confirmed that legal analytics about clients, counsel, and judges improve their firms’ knowledge, competitiveness, and efficiency. Meanwhile, 81% indicated such analytics were appreciated and encouraged by their commercial clients, whose companies are inevitably data-driven on the business side.

As Burford’s Jeffrey Commission and Giulia Previti have recently explained, such analytics are “even more relevant in the context of international arbitration, where the parties and counsel exert a greater degree of control over key features of the dispute resolution process.” Perhaps most importantly, legal analytics in international arbitration can provide meaningful insights about individual arbitrators’ track records on such all-important issues as case management and procedural rulings, previous patterns in outcomes and rates of recovery, use of prior arbitral awards and other authorities, approach to costs and interest rates, and duration of proceedings and deliberations.

Even when awards are publicly available, it is time-consuming to read and analyze applicable awards, and difficult if not impossible to distil key data that may reveal patterns otherwise hidden within the texts and as among different arbitrators.

In recent years, there have been efforts to transition international arbitration research from manual, text-driven practices into the age of technology and data analytics—law firms have developed resources to organize their internal data and some important data tools have come on the market.1)See Kluwer Arbitration Practice Plus, Dispute Resolution Data, Jus Mundi. jQuery("#footnote_plugin_tooltip_7396_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7396_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Now, Arbitrator Intelligence (AI) Investment Reports represent a major breakthrough heralding a new era of data analytics in international arbitration.

As previously noted in this blog, AI has created an online platform that enables hundreds of practitioners from around the world to exchange information on a confidential and anonymized basis. This feedback is not only collected, but it is also extensively analyzed and made available to arbitration users in the form of AI Reports on individual arbitrators. The result is a resource providing data-driven and aggregated first-hand insights about arbitrators, even when the arbitrations in which they sat remain secret.

AI is taking some of the most innovative methodologies and insights used by academics and policymakers to empirically assess trends in the field of investment arbitration, and applying them to individual arbitrators. We are also supplementing data collected from investment awards with evaluative insights from individual practitioners collected through our online platform.

The remainder of this Blog unveils selected data analytics on a sample AI Report on a real arbitrator—let’s call her or him “Arbitrator X”—who regularly sits in investment arbitrations. These analytics showcase the kinds of insights that will soon be available to parties and counsel on all investment arbitrators.

 

Analytics on Duration of the Proceedings

One of the most enduring debates in international arbitration—heightened by increasing client concerns about run-away costs and the arrival of third-party funders—is what variables affect the overall duration of proceedings? Does one particular arbitrator consistently sit in arbitrations that take longer than other comparable arbitrations? Does the use of bifurcation or trifurcation procedures correlate with arbitrations that are longer or shorter? Are delays added because arbitrators take too long to render awards? Does the presence of a dissenting arbitrator correspond with expediency or delay in rendering the final award?

On the first question, a good way to understand an arbitrator’s track record is to compare their outcomes to other benchmarks, such as the average duration for all other similar arbitrations for which data is available.

AI Reports provide BOTH data regarding the overall duration of arbitrations from start to finish and (when available) data regarding the duration of deliberations and award drafting (i.e., the date of the close of proceedings, meaning date of final hearing or party submissions, to the rendering of the final award). Our reports often provide additional metrics (for example, median) in order to provide users with an insight into how outlier values impact the averages.

 

For Arbitrator X, the overall average duration seems longer, but only because there was one particularly drawn out case. Our Report explains that, when this unusual case is accounted for, this arbitrator actually has a relatively good track record on duration.

Apart from general benchmarking, our data examines the duration of an arbitrator’s cases based on the amount in dispute, on the assumption that the amount in dispute is a rough proxy for the complexity of the case.

The Figure also identifies cases in which Arbitrator X sat as a chairperson or as a party-appointed arbitrator. The assumption behind this analysis is that when serving as chairperson, an arbitrator may have greater control over proceedings. Thus, if arbitrations are more quickly resolved when a particular arbitrator is serving as chair, we might infer that they are efficient managers of proceedings.

 

If the role of the arbitrator does not have a significant impact on duration, what about whether the arbitral proceedings are bifurcated or trifurcated?

 

In this Figure, Arbitrator X had only one known trifurcated case and only one bifurcated case, but those two arbitrations were among the longest. Benchmarking data in our Reports from all known investment arbitrations could provide a more nuanced perspective on these numbers.

Another question sometimes raised regarding duration is whether the participation of a dissenting arbitrator correlates with arbitrations that take longer. One hypothesis might be that the presence of a dissenting arbitrator on a tribunal generally results in significantly longer proceedings. The assumption is that a dissenting award signals internal tribunal disagreements throughout the proceedings, and dissenting opinions may require longer deliberations and more extensive exchanges of drafts.

Let’s see what the data on Arbitrator X arbitrator says:

 

 

As it turns out, the data on Arbitrator X is inconsistent with the first hypothesis, but consistent with the second: There is no meaningful correlation between dissents and the overall length of proceedings,2)In other words, the differences are not statistically significant, particularly in light of the extremely small data set for one particular arbitrator. jQuery("#footnote_plugin_tooltip_7396_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7396_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but there is a modest but measurable difference in the time for deliberations and award drafting.

It is somewhat surprising that award-drafting can take longer, but that increased time does not seem to have a corresponding impact on the length of the overall proceedings. It may be that Arbitrator X is conciliatory and effective at managing tribunal disagreements during proceedings or that disagreements only arose during the award-drafting stage.

Questions like these about what explains difference in the data require a brief note on methodology.

 

A Note on Methodology

These competing possible explanations for the data results reveal some important methodological issues regarding data analytics, particularly in the field of dispute resolution.

First, data can show correlation, but not causation.3)Even trained scholars sometimes mistake correlation for causation. See Catherine A. Rogers, The Politics of Investment Arbitrators, 12 Santa Clara Int’l L. Rev. 217, 226 (2013). jQuery("#footnote_plugin_tooltip_7396_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7396_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Data can reveal correlations between one variable (the presence of dissenting opinions) and another (duration), but it cannot explain the reasons for that correlation. Additional analysis based on other variables (the role of the arbitrator on the tribunal, the industry or size of case, identity of other tribunal members, etc.) can illuminate the most likely causes.

Second, it is impossible to understand the true value of a data point without some comparative benchmark.4)This insight is one of AI-Friend Chris Drahozal’s favorite refrains. Christopher R. Drahozal, Arbitration Innumeracy, Y.B. ON ARB. & MEDIATION (forthcoming) (manuscript at 6). jQuery("#footnote_plugin_tooltip_7396_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7396_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For example, 900 days may be outrageously long to a client that unreasonably expects even multi-billion-dollar cases to be resolved in a few months, but impressively efficient if compared with an average of more than 1250 in other investment cases. A 65% rate of recovery may seem meager until it is known that no Claimants received more than 90% of amounts requested, and less than 10% of parties received more than 50% of the amount requested. In our Reports, we benchmark both to publicly available data (such as from UNCTAD and published scholarly research) and to our own internal data.

Third, quantitative data is valuable on its own, but it is even more valuable when complemented by qualitative research.5)Gregory C. Sisk, The Quantitative Moment and the Qualitative Opportunity: Legal Studies of Judicial Decision Making, 93 CORNELL L. REV. 873, 877 (2008); see also Rogers, supra note 5, at 222 (arguing that empirical research about investment arbitration can be improved by “situate[ing] and supplement[ing it] with qualitative research and comparative institutional analysis regarding other international tribunals.”). jQuery("#footnote_plugin_tooltip_7396_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7396_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Qualitative data, such as evaluative feedback from actual participants, can help us to better understand reasons for observed data. For example, through our online platform, we ask parties and counsel to indicate (for particularly long arbitrations) whether they thought the duration was reasonable in light of the size and complexity of the case or whether they know of any particular reasons for delay. This qualitative data is especially important for individual arbitrator data, which evaluates at best dozens of cases instead of the thousands of cases on which individual judicial analytics rely.

 

Other Topics for Analytics

In addition to timing, AI Reports provide analysis on issues such as methods for allocating costs between parties and rates at which parties were ordered to pay costs and lawyers’ fees.

Reports also include rates of recovery (not pictured) and a breakdown of outcomes on particular jurisdictional challenges and claims:

 

 

One of the most innovative and ambitious categories of data analytics in our Reports examines how tribunals treat prior arbitral awards. For example, we analyze, both with respect to jurisdiction and the merits, the reasons why Arbitrator X’s tribunals rely on or decline to rely on frequently cited prior awards.

 

 

Our Reports also include tables identifying all counsel, expert witnesses, and arbitrators from prior cases, and a host of analytics on other topics such as the appointment of tribunal secretaries, procedural rulings, questions asked by arbitrators during hearings, methods of interpretation adopted in awards, sources relied on (including prior non-investment awards and decisions), rates of recovery, costs, lawyers’ fees, and interest rates.

 

*       *       *

 

Soon you will be able to catch lightning in a bottle, and without risking electrocution.

Before the end of December, our Investment Reports will be available for individual purchase on a per-case basis. In the future, we will also offer other analytic tools that provide enhanced comparison of different arbitrators and that can identify arbitrators by characteristics identified in the data rather than by name.

The analytics in our Investment Arbitrator Reports will give users super-charged insights to assist with arbitrator research and selection, tribunal constitution, and case strategy.

Our Investment Arbitrator Reports are priced to reflect the extensive time and research that has gone into producing these exclusive insights. You can obtain significant discounts on that pricing, however, by becoming a Member of Arbitrator Intelligence. From now until the end of April, current and new subscribers to Kluwer Arbitration Practice Plus can also receive three free Reports and a discount on the non-Member price for additional Reports.

Membership is open to law firms, corporate and State parties, and third-party funders. And until the end of December, Membership is free of charge, but still entitles Members to special discounted Member-pricing.

In exchange for these benefits, Members commit to submitting feedback through our online platform at the end of each arbitration, providing both anonymized quantitative data on non-public awards and qualitative data to enable us to produce increasingly sophisticated and nuanced analytics.

To sign up for Membership, please contact [email protected]

References   [ + ]

1. ↑ See Kluwer Arbitration Practice Plus, Dispute Resolution Data, Jus Mundi. 2. ↑ In other words, the differences are not statistically significant, particularly in light of the extremely small data set for one particular arbitrator. 3. ↑ Even trained scholars sometimes mistake correlation for causation. See Catherine A. Rogers, The Politics of Investment Arbitrators, 12 Santa Clara Int’l L. Rev. 217, 226 (2013). 4. ↑ This insight is one of AI-Friend Chris Drahozal’s favorite refrains. Christopher R. Drahozal, Arbitration Innumeracy, Y.B. ON ARB. & MEDIATION (forthcoming) (manuscript at 6). 5. ↑ Gregory C. Sisk, The Quantitative Moment and the Qualitative Opportunity: Legal Studies of Judicial Decision Making, 93 CORNELL L. REV. 873, 877 (2008); see also Rogers, supra note 5, at 222 (arguing that empirical research about investment arbitration can be improved by “situate[ing] and supplement[ing it] with qualitative research and comparative institutional analysis regarding other international tribunals.”). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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U.K. Supreme Court Rules on Arbitrator Bias in Halliburton v. Chubb

Mon, 2020-11-30 22:00

On 27 November 2020, the U.K. Supreme Court in Halliburton Company v. Chubb Bermuda Insurance Ltd (formerly known as Ace Bermuda Insurance Ltd) [2020] UKSC 48 ruled on the approach under English law to determining whether an arbitrator’s failure to make disclosure of appointments in multiple arbitrations with overlapping subject matter and only one common party gave rise to justifiable doubts as to his impartiality such that he should be removed.

 

Background

The underlying facts and the decisions of the High Court (which rejected the application for removal) and Court of Appeal (which dismissed Halliburton’s appeal) are set out here. Previous blog posts relating to the case are also to be found here and here.

In summary, the case concerned the involvement of one arbitrator (Mr. Kenneth Rokison QC) in three arbitrations arising out of the Deepwater Horizon disaster in the Gulf of Mexico.

Arbitration 1 was between Halliburton Company (“Halliburton”), which provided cementing and well-monitoring services in relation to Deepwater Horizon, and Chubb Bermuda Insurance (“Chubb”). It began in early 2015. The arbitration related to Chubb’s refusal to pay Halliburton’s claim under the Bermuda Form insurance policy that Halliburton held with Chubb. Mr. Rokison was appointed by the English High Court (pursuant to the contractual mechanism between the parties) as chairperson of the tribunal in June 2015.

Arbitration 2 was between Chubb and Transocean Holdings LLC (“Transocean”), the owner of the Deepwater Horizon rig. It related to an excess liability claim by Transocean under its Bermuda Form policy. Mr. Rokison was appointed as Chubb’s co-arbitrator.

Mr. Rokison gave disclosure before his appointments in Arbitrations 1 and 2. However, in an omission which was central to the dispute before the Supreme Court, Mr. Rokison did not disclose to Halliburton his proposed appointment by Chubb in Arbitration 2.

Mr. Rokison also subsequently accepted joint appointment in a claim made by Transocean against a different insurer in another arbitration arising out of the Deepwater Horizon incident (Arbitration 3). This was not disclosed to Halliburton but did not form the focus of the appeal.

In November 2016, Halliburton discovered Mr. Rokison’s appointment in the two Transocean arbitrations and raised its concerns with Mr. Rokison. Mr. Rokison explained that his failure to make the necessary disclosure was an oversight for which he apologized. He said that he had not learned anything in Arbitrations 2 and 3 about the facts of the incident that was not public knowledge, but that he would be prepared to consider tendering his resignation in Arbitrations 2 and 3 if they did not shortly come to an end of their own accord (through preliminary determinations on issues of construction). He subsequently offered to resign from Arbitration 1 if the parties were able to agree on a mutually acceptable replacement chairperson who would be available before the hearing in the arbitration in January 2017.

 

Lower court decisions

In December 2016, Halliburton issued its claim in the English High Court seeking removal of Mr. Rokison and appointment of another chair on the grounds that circumstances existed giving rise to justifiable doubts as to Mr. Rokison’s impartiality. In January 2017, Mr. Justice Popplewell heard the application. He dismissed it in February 2017, finding that (i) the circumstances did not give rise to any justifiable concerns about Mr. Rokison’s impartiality and (ii) there was accordingly nothing to be disclosed. The Court of Appeal dismissed Halliburton’s appeal just over a year later, finding (among other things) that while disclosure ought to have been made, something more than mere non-disclosure was required to justify an inference of apparent bias.

The case came before the Supreme Court in November 2019. Due to the importance of the issue, the Supreme Court allowed and received written and oral submissions from the ICC and the LCIA, as well as written submissions from the Chartered Institute of Arbitrators (“CIArb”), the London Maritime Arbitrators Association (“LMAA”) and the Grain and Feed Trade Association (“GAFTA”).

 

Supreme Court Decision

In an expansive judgment which sought to clarify the state of English law on the topic, the court held that:

  • To determine whether there is an appearance of bias such that removal of an arbitrator is required, English law will apply the objective test of whether an informed, fair-minded observer would conclude that there is a real possibility of bias.
  • The hypothetical informed, fair-minded observer will have regard to context, and may take account of the particularities of international arbitration such as: the debate over the role of party-appointed arbitrators (albeit that English law does not recognise any difference in impartiality obligations between a co-arbitrator and a chairperson); an arbitrator’s reputation or experience (subject to a recognition that parties’ knowledge of an arbitrator’s reputation or experience will vary according to the circumstances); and, the possibility of tactical challenges.
  • There may be circumstances in which the acceptance of appointments in multiple references concerning the same or overlapping subject matter with only one common party might reasonably cause the objective observer to conclude that there is a real possibility of bias. This will depend on the facts of the particular case and especially the custom and practice in the relevant field of arbitration.
  • Unless the parties to an arbitration agree otherwise, an arbitrator is subject to a legal duty of disclosure under English law in relation to facts and circumstances which would or might give rise to justifiable doubts as to his or her impartiality. This duty (which had not previously been clearly established in English law) derives from an arbitrator’s statutory duties under section 33 of the Arbitration Act 1996 (“1996 Act”), which in turn give rise to an implied term in the contract between the arbitrator and the parties that the arbitrator will act with impartiality. An arbitrator will not comply with that term if the arbitrator has knowledge of undisclosed circumstances that render him or her liable to be removed under section 24 of the 1996 Act.
  • Disclosure is subject to an arbitrator’s privacy and confidentiality obligations. Where such obligations apply, the parties’ express or inferred consent is required for disclosure to be made. The ICC Rules (article 11(2)), LCIA Rules (article 5.4) and ICSID Rules (rule 6(2)) all provide a basis for consent to be inferred, and consent may also be inferred from the arbitration agreement itself in the context of the practice in the relevant field.
  • A failure by an arbitrator to make disclosure is a factor for the fair-minded and informed observer to take into account in assessing whether there is a real possibility of bias. The hypothetical assessment will have regard to facts and circumstances as at and from the date the duty arose and will be made as at the date of the hearing to remove the arbitrator.

Applying these principles to the facts of the case, the Court dismissed the appeal. It did so on the basis that the question relevant to Mr. Rokison’s removal was whether a fair-minded and informed observer at the date of the hearing for removal in January 2017 would have concluded that there was a real possibility of unconscious bias on Mr. Rokison’s part. In the Court’s view, the observer would not have so concluded. By the time of the hearing for removal, Mr. Rokison had given an explanation of his failure to disclose the appointments (oversight) and that explanation was not challenged by Halliburton.

An objective observer would not have inferred from such oversight that there was a real possibility of unconscious bias because: (i) there was a lack of clarity in English law as to whether there was a legal duty of disclosure and whether disclosure was needed; (ii) the time sequence of the three references (with Arbitrations 2 and 3 following Arbitration 1) provides some explanation for why Mr. Rokison did not identify the need for disclosure; (iii) it was not likely that there would be any overlap in evidence or legal submissions between Arbitrations 2 and 3 and Arbitration 1, so there was no likelihood of Chubb gaining any advantage by reason of the overlapping references; (iv) there was no question of Mr. Rokison having received any secret financial benefit merely by reason of the appointments; (v) there was no basis for inferring unconscious bias due to subconscious ill-will in respect of the robust challenge made by Halliburton. (See judgment, at para. 149)

 

Analysis

The Supreme Court’s judgment brings welcome clarity in respect of certain discrete points of English law, such as the existence of a legal duty of disclosure applicable to arbitrators under English law, an arbitrator’s duty to disclose multiple appointments with overlapping subject matter and only one common party in Bermuda Form arbitrations (unless the parties have agreed otherwise) and the fact that consent to disclosure by an arbitrator in the disclosure process of certain limited details concerning an arbitration may be inferred from institutional rules and/or the arbitration agreement itself in the context of practice in the relevant field.

Further, in discussing the interaction between an arbitrator’s privacy and confidentiality obligations and his or her duty of disclosure (a topic in which the court was clearly interested and in respect of which it invited further submissions after the hearing), the Court explored an issue that is not always fully investigated in debates on the topic. The IBA Guidelines on Conflicts of Interest, for example, make only passing reference to the risk that “professional secrecy rules or other rules of practice or professional conduct” prevent disclosure (see Explanation to General Standard 3(c)). The Court’s conclusion as to inferred consent appears pragmatic and it is possible that this will be adopted more widely, should the issue arise elsewhere.

As to the practical implications of the judgment, the court’s obiter comment that an arbitrator should proceed on the basis that a proposal to take on a further appointment involving a common party and overlapping subject-matter is likely to require disclosure of a potential conflict of interest appears to be sound advice. However, the judgment emphasises the holistic and contextual nature of the assessment of (i) whether information must be disclosed and (ii) whether a failure to disclose relevant information gives rise to an appearance of bias. In effect, any non-disclosure must be assessed in context.

In specialised fields where non-disclosure of multiple appointments and/or appointments arising from the same subject matter is common (as described by GAFTA and the LMAA), it may be that the Supreme Court’s suggestion that institutions and/or parties operating in such fields should specify that disclosure of such circumstances is unnecessary in their rules or arbitration agreements will be taken up. This would help to clarify the distinction between arbitrations where disclosure of such circumstances is required, and those where it is not.

Finally, it is important to note that while the Supreme Court upheld the High Court’s decision not to remove Mr. Rokison, it considered as a relevant factor in assessing his failure to make disclosure the uncertainty of English law in relation to an arbitrator’s disclosure obligations. This uncertainty now having been resolved, it may well be that an English court would not come to the same conclusion on similar facts in the future. This further highlights the importance of timely disclosure.

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Human Rights and Arbitration: A discussion between the President of the European Court of Human Rights and Neil Kaplan

Mon, 2020-11-30 01:04

The intersection between human rights and arbitration is often complicated and ambiguous. The recent discussion between the President of the European Court of Human Rights (“ECtHR”), Judge Robert Spano, Neil Kaplan CBE QC SBS and Chiann Bao during Delos’ In conversation with Neil webinar (the recording is also available here) unpacked a number of complex issues concerning the applicability of the European Convention on Human Rights (“ECHR” or “Convention”) principles to arbitral proceedings.

 

Margin of Appreciation and Fair Compensation

The ECtHR deals with cases at the intersection of sovereignty and international jurisdiction. As it is grounded in a treaty-based system, Member States are able to retain an element of control over the internal application of ECHR principles. The doctrine known as the margin of appreciation is how this balance is achieved. The margin of appreciation is accordingly a spectrum of deference, which the Strasbourg court bestows on contracting States, dependent on the case. While the margin will be wider in cases concerning economic and social policy, it is more narrow in cases involving breaches of certain rights, such as freedom of expression, freedom of manifesting religion, freedom of assembly, and non-existent in cases of state-agent imposed torture or the taking of life.

The rise of surveillance activities within Member States has led to a number of applications demanding the ECtHR establish to what extent do human rights principles allow for the bulk surveillance of the general public. The recent ECtHR case, Catt v UK is illustrative of how the ECtHR applies the doctrine of margin of appreciation. The ECtHR found the UK violated a peace activist’s right to privacy under Article 8 by allowing the police to collect and retain information about him in an “extremist database” without a pressing need for this. While the ECtHR affirmed previous case law which found that the broad collection of information could pursue a legitimate purpose, it held that, in light of the specific circumstances of the case, it was disproportionate and unnecessary to retain personal data beyond established limits and without scheduled review.

The margin of appreciation is also found in the context of disputes arising from foreign investments: as part of considering the host State’s defence to the claims, an arbitral tribunal will have regard to the public policy rationale for the State actions in question and the extent to which said actions were taken in the public interest. The analysis in this context will be different to that performed by domestic courts, as the competing rights at stake are typically different. President Spano points out that many pre-agreed international investment agreements contain certain investor rights and State obligations to protect foreign investment, which serve to balance individual public interest rights against the interpretation of the provisions. States are therefore typically obliged to pay fair compensation even where dire economic conditions render this extremely burdensome. The margin of appreciation arguably exists in this context to ensure that the fundamental right to fair compensation, as guaranteed under international investment agreements, is protected in parallel to those human rights guaranteed under the Convention.

 

Arbitration and/vis-à-vis the guarantees under Article 6(1) ECHR

Where two parties opt for a private model of dispute resolution, they are waiving their right to have access to a regular court and public hearing, which is granted by Article 6(1) ECHR. From an ECHR perspective, there is nothing suggesting that voluntary recourse to arbitration is intrinsically anathema to due process. A clear distinction can be observed between voluntary and compulsory arbitration in the ECtHR’s caselaw, which is illustrated below through analysis of an example of voluntary arbitration in a commercial contract and an example of compulsory arbitration in a sporting contract.

President Spano demonstrated how the ECtHR handled a recent application concerning a commercial arbitration Tabbane v. Switzerland (discussed here). The parties to the initial dispute were Tabbane (the applicant), a Tunisian businessman, and Colgate. President Spano relayed, “The tribunal composed [because of the dispute] refused to appoint an expert. After seeking aid from the Swiss Federal Supreme Court, the applicant applied to the ECtHR to claim the arbitral tribunal’s refusal to appoint an expert violated Article 6 on procedural fairness. The ECtHR had to decide whether Article 6 could apply in a voluntary arbitration and, whether, even if it did, there had been a violation of due procedural fairness. The Court left the direct applicability of Article 6 open using an ‘even assuming’ rationale. Hence, even assuming Article 6 applies, the way the arbitral tribunal refused the expert opinion was in line with the general case law of ECtHR”.

By contrast, there has been an evolution in the analysis of compulsory forms of arbitration from the formal concept of legal imposition towards an examination of whether a party has been forced into arbitration because of the consequences of not entering into the agreement. This has been recently explored by the ECtHR in the field of sports arbitration (discussed here) where the structural imbalance between sports governing bodies and athletes impacts the integrity of the arbitration agreement.

The recent case Ali Riza et al. v. Turkey (discussed here) is a clear example demonstrating the ECtHR’s power to check whether compulsory consent to an arbitration agreement constituted a violation of Article 6(1) ECHR. The ECtHR grouped five individual complaints together to address the common challenge to the independence of the Turkish Football Federation’s Arbitration Committee. The ECtHR found that a certain legal framework was required to exist in order to ensure that compulsory arbitration would not amount to an infringement of Article 6(1) ECHR. The ECtHR concluded that a violation of Article 6(1) had occurred due to i) the structural imbalance between athletes and governing bodies; ii) the lack of independence of the arbitral body; iii) an insufficient mechanism to challenge arbitrators; and iv) the inability to set aside the award. The importance of independence and impartiality of an arbitral tribunal is therefore greater in cases of compulsory arbitration than party autonomy is in cases of voluntary arbitration. The reasoning behind this is related to the nature of arbitration. Whereas an understanding of arbitration as purely contractual may lead to some considering compulsory arbitration a barrier to due process, a hybrid theory of arbitration clarifies that State support in recognizing arbitration as a private method of dispute resolution validates the unilateral nature of consent in compulsory arbitration.

The above shows the distinction drawn by the ECtHR between the ability to pursue private dispute resolution such as arbitration, and thus waive some of the procedural guarantees provided for by Article 6(1) of the ECHR, and the inability to waive those rights forming part of the inherent concept of human dignity. These cases further show the increasing recognition of the role of human rights in arbitration and the corresponding assumption of power taken by the ECtHR to assert them.

 

Conclusion

Despite the initial welcome and spectacular development of human rights and private dispute resolution mechanisms, both now face legitimacy crises amplified by global issues, such as climate change, growing inequality and COVID-19.

Human rights and arbitration have come under greater scrutiny over issues of efficiency in recent years. President Spano remarked that case management must be improved to reduce the time and costs needed to resolve disputes for the ECtHR to remain relevant in the next 5-10 years. He made clear that such internal reforms within the Court would form the cornerstone of his mandate as President of the ECtHR. Parallels can be drawn between the ECtHR and arbitral institutions in this respect. Because a lack of support is particularly prevalent at the grassroots level, it is essential for the ECtHR and arbitral institutions to reform to inspire greater confidence and communicate this to the wider public.

President Spano and Mr Kaplan concluded that a harmonious integration of human rights principles into all areas of law and society is crucial, with human rights and contract law to start being taught in schools.

Concepts like the margin of appreciation, which has been employed to balance public interest objectives with individual human rights in the ECtHR and for rights granted through other pre-agreed international instruments, such as investment agreements, are gaining greater attention. The applicability of the concept in arbitration has been noted in a number of recent cases concerning investor-state and commercial arbitrations. It is therefore vital that the level of deference or discretion used by the judiciary and arbitral tribunals is monitored so as not to exceed their powers.

The role of the ECtHR in safeguarding the rights of individuals against the exploitation of vulnerable parties in situations of unilateral consent to compulsory arbitration is also exercised with support for arbitration as a mechanism of dispute resolution. It is clear that while agreement to private dispute resolution requires a waiver of Article 6(1) ECHR, this does not equate to a waiver of a right to due process and ensures that arbitration is carried out in an efficient and effective manner.

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The Contents of Journal of International Arbitration, Volume 37, Issue 6

Mon, 2020-11-30 01:02

We are happy to inform you that the latest issue of the journal is now available and includes the following contributions:

 

Johannes Landbrecht & Andreas R. Wehowsky, Transnational Coordination of Setting Aside and Enforcement of Arbitral Awards – A New Treaty and Approach to Reconciling the Choice of Remedies Concept, the Judgment Route, and the Approaches to Enforcing Awards Set Aside?

The rendering of a final arbitral award can be the starting signal for a multiplicity of state court proceedings. Not all of those will be illegitimate, for instance if an award creditor needs to commence several enforcement proceedings in order to enforce the whole award. More critical, however, and more likely to invite abuse, is the relationship of setting aside and enforcement. Where an award debtor fails to request that an award be set aside, or fails to raise grounds for setting aside, or loses setting aside proceedings, should this award debtor be allowed to rely on those very same grounds again in subsequent enforcement proceedings? Or in turn, if the award is set aside, should the award creditor be allowed to enforce it? All this raises questions of how to coordinate setting aside and enforcement. While coordination mechanisms exist under domestic law, it is submitted that coordination at the transnational level leaves much to be desired. We will therefore take critical inventory of the current level of coordination at the domestic and the New York Convention level, assessing its respective strengths and weaknesses, also in light of well-known doctrines such as the choice of remedies concept and the judgment route. We will then propose wording for a new international treaty, complementing the New York Convention, to improve coordination of setting aside and enforcement and discuss the feasibility of such a project.

 

Jan Frohloff, Per arbitrum ad astra

‘Non est ad astra mollis e terris via’ – there is no easy passage from the Earth to the stars. Along the way, parties engaged in space activities might find themselves entangled in disputes. To facilitate the efficient settlement of such disputes, the Permanent Court of Arbitration has introduced the Optional Rules for Arbitration of Disputes Relating to Outer Space Activities. This article describes the key features of this special set of arbitration rules and how it supplements international space law and space disputes, so that the parties through arbitration can continue their journey to the stars.

 

Aiswarya Murali & Vivek Krishnani, ‘Minority Awards’ in India: A Low-Hanging Fruit for Judicial Interference?

While Indian courts are entitled only to ‘set aside’ an arbitral award under section 34 of the Indian Arbitration and Conciliation Act, 1996, there have been numerous instances of modification of arbitral awards and this interventionist tendency has driven Indian courts to further devise new tools for interfering with the arbitral process. One such tool is the opinion of the dissenting arbitrator(s). The ‘minority awards’, which were completely overlooked back in time, are now being referred to not only for finding defects in the majority award but also for replacing them altogether. In fact, Indian jurisprudence in this regard has been very peculiar as no other Model Law jurisdiction has witnessed such overemphasis on the significance of the awards of the minority. This article analyses the various reasons cited by the Indian judiciary to approach arbitral awards in the foregoing manner. Particularly, the article addresses the conflict between these reasons and one of the most fundamental objectives sought to be achieved by the 1996 Act, viz. limiting judicial intervention.

 

Nima Nasrollahi Shahri, Mohammad-Reza Narimani & Navid Sato Rahbar, Arbitrability of Disputes Under Iran’s Bilateral Investment Treaties: Article 139 of the Iranian Constitution Reconsidered

This article intends to investigate a major set-back to arbitration under Iranian law, i.e. the requirement of receiving an authorization from the Iran Council of Ministers and/or Parliament to refer disputes relating to public and state-owned assets to arbitration. This requirement is enshrined in Article 139 of Iranian Constitution (‘Article 139’).

The article examines this provision through the prism of arbitrability focusing on treaty-based investment arbitration. To this end, the existing practice and court precedence pertaining to Article 139 are studied and critically analysed. In particular, the implications of this requirement on the jurisdiction of arbitral tribunals and enforcement of awards are considered in depth in the light of the wording of bilateral investment treaties (BITs) concluded between the Islamic Republic of Iran and other countries.

Overall, we conclude, that Article 139 is not as serious a problem in BIT arbitration as it may be in commercial arbitration, especially as far as enforcement of awards is concerned. This has to do, partly, with the wording of Iran’s BITs, the risk of state responsibility for nonenforcement of awards in investment arbitration, and, of course, the possibility to enforce arbitral investment awards outside of Iran.

 

Gustavo Guarín Duque, The Termination Agreement of Intra-EU Bilateral Investment Treaties: A Spaghetti-Bowl with Fewer Ingredients and More Questions

This article deals with the issue of the implementation of the Achmea judgment of the Court of Justice of the European Union (CJEU) through the Termination Agreement of Bilateral Investment Treaties (‘Termination Agreement’, TA) between some Member States of the European Union (EU). The article focuses on the analysis of the TA provisions that terminate Bilateral Investment Treaties (‘intra-EU BITs’) and investor-State dispute settlement (ISDS) among EU Members. It also describes TA provisions regulating concluded, new, and pending arbitration proceedings having as a reference the date the CJEU issued the Achmea judgment. Also, it examines how the TA regulates pending arbitration proceedings and discusses how TA Members are allowed to resort to transitional measures to resolve their dispute, throughout an amicable resolution proceeding, if they fulfil some conditions. Further, the article analyses some systemic issues of the TA, some related to the EU investment protection regime, others regarding the legal implications for intra-EU BIT provisions for EU Member States which did not sign the TA. Further, the article examines some possible issues related to the legal nature of the TA under international law and EU law.

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The 9th Asia Pacific ADR Virtual Conference Recap: 2020 and Beyond

Sat, 2020-11-28 23:53

On 5-6 November 2020, reputable arbitration practitioners joined together for the 9th Asia Pacific ADR Conference and shared their experiences and insights on the latest developments in the arbitration landscape. Due to the ongoing COVID-19 pandemic, the annual conference took place virtually. It successfully attracted approximately 15,000 participants across 50 countries. The event was co-hosted by UNCITRAL, the Ministry of Justice of the Republic of Korea, KCAB INTERNATIONAL, the International Chamber of Commerce (“ICC”), and the Seoul International Dispute Resolution Center.

 

Session 1: Year One of the New Normal: What Has Changed, What Must Change, and Are These Changes Here to Stay?

In the first session, speakers representing leading arbitral institutions reported on various measures the arbitral institutions have undertaken in coping with the challenges caused by the pandemic. Despite the global pandemic, arbitral institutions have continued to operate seamlessly by swiftly adapting their procedures and case management to the current challenges.

Alexis Mourre shared the ICC’s experience in ensuring the continuation of the services of the court and its secretariat and in implementing mitigating measures to avoid unnecessary delays.  In response to the pandemic, the ICC also released a Covid-19 Guidance Note and made its pre-existing rule regarding tribunals’ power to hold virtual hearings more explicit.

Annette Magnusson, representing Stockholm Chamber of Commerce (“SCC”), acknowledged the importance of keeping close communication with users as well as other arbitral institutions. In response to the pandemic, leading arbitral institutions, including the KCAB INTERNATIONAL and SCC, joined in a truly cross-institutional initiative and released a joint statement to their end-users.

Kevin Nash, representing the Singapore International Arbitration Centre (“SIAC”), agreed on the importance of close connection with its users. To improve the accessibility to arbitration, SIAC added a chat function on its website to consult with users on SIAC procedural matters. Moreover, SIAC created a practical checklist for users to help them assess their circumstances.

The pandemic has also affected the preference of users and institutions in the arbitrator selection process. Nils Eliasson of Shearman & Sterling, speaking on the Hong Kong International Arbitration Centre experience, identified flexibility, adaptability, and proactiveness as preferred qualifications of arbitrators, all of which may indicate the arbitrator’s ability to stay on top of the case.

Fedelma Smith of Permanent Court of Arbitration-Singapore agreed that being prompt, accurate, and flexible is desirable. She expected these qualifications would meet higher demand as time goes by, assuming that the virtual world would not end soon and that technology would stay in the arbitration community. Particularly, the benefits of the digitalization of arbitration proceedings with the enhanced cyber-security were echoed by other speakers.

Meg Kinnear of the International Centre for Settlement of Investment Disputes (“ICSID”) shared ICSID’s pioneering efforts in the digitalization of arbitration proceedings. Even before the pandemic, ICSID had embraced the digital future by encouraging parties to conduct electronic filings and use electronic hearing bundles instead of hard copies.

 

Session 2: Time for a New Momentum in Commercial Arbitration?

The second session was driven by five speakers representing a user, counsel, institution, and tribunal. Panelists highlighted certain drawbacks of the old-fashioned approach to arbitration proceedings that led to inflexibility and high costs.

From the tribunal’s perspective, Chan Leng Sun SC of Essex Court Chambers Duxton expressed the view that tribunals should be mindful of the different circumstances of each party in holding virtual conferences and should be proactive in case management.

Robert Wachter of Lee & Ko introduced ideas to enhance the efficiency of the arbitration process from the counsel’s perspective. He expressed hopes that, as a result of the pandemic, the arbitration community can fundamentally restructure arbitral proceedings. For more efficient arbitration, he suggested having an oral hearing after the main submission and a limited document production period before the main submission. He further proposed to separate the opening statement from cross-examination to reduce the burden on counsels.

From the user’s perspective, Narae Kim of Daewoo Shipbuilding & Marine Engineering Co., Ltd. explained that users will likely seek more cost-effective resolution methods as a result of their experience with the pandemic and the economic downturn. The proactiveness of tribunals, procedural flexibility, and increased access to arbitration indicate that arbitration is becoming faster and less expensive.

Following the discussion, the moderator Sae Youn Kim of Kim & Chang voiced concern about a possible risk that certain users might opt out of arbitration during the economic downturn. In response to such a risk, Francesca Mazza of the German Arbitration Institute (DIS) addressed that the pandemic can serve as an opportunity for “de-legalization” of the arbitration and that such “de-legalization” can mitigate the drawbacks caused by the arbitration’s tendency to mimic litigation. Jae Sung Lee from UNCITRAL echoed Ms. Mazza’s assertion and further proposed “de-arbitration” of disputes given the availability of other efficient dispute resolution tools, particularly mediation.

 

Session 3: Current Status and Progress of Reforms in the Investor State Dispute Settlement and Its Impact on Investment Treaty Policies

Opening Day 2, session 3 was tailored to a discussion of investor-state dispute settlement (“ISDS”) reforms, particularly projects led by UNCITRAL Working Group III, and countries’ responses to such reform efforts.

Anna Joubin-Bret of UNCITRAL shared updates on the activities of UNCITRAL Working Group III in amending the ISDS procedures. In recent years, the foreign investment regime has been subject to an increasing amount of criticism. UNCITRAL has been, inter alia, exploring the feasibility of introducing an appeal mechanism as proposed by the EU.

Patrick Pearsall of Allen & Overy predicted the US government under the new administration would take a position of “Local Multilateralism” in response to ISDS. That is, the new administration would shift back to a multilateral approach but with local sensitivity. The new administration would first consider the impact of ISDS reform on local people in terms of various issues, such as labor and environment.

Maria Malaguti of UNIDROIT presented the EU’s policies on ISDS.  She shared her view on far-reaching reform which introduces a proper appellate body mechanism within the EU. The goal of the reform is to protect and attract more foreign investors.

Guiguo Wang of Zhejiang University provided an overview of China’s policy on ISDS by categorizing its approach into five categories. He explained that China has become more tolerant and progressive in dealing with international legal standards.

Lastly, Sae Rom Yoo of the Republic of Korea’s Ministry of Justice explained Korean investment treaty practice and policy. Korea continues to negotiate investment treaties to strike the right balance between providing adequate investment protection for investors and preventing abusive use of ISDS. The Minister of Justice regularly holds a series of special training sessions for state agencies to prevent them from violating Korea’s obligations under Korea’s investment agreements. Korea also opened the Ombudsman office under the Korea Trade-Investment Promotion Agency (KOTRA) dedicated to investment support and has been providing additional legal protection by working with professionals from all sectors relevant to investment. Further, the general policy of the state is aimed at promoting dispute avoidance, therefore, most of the investment agreements signed by Korea contain alternative dispute resolution provisions.

 

Session 4: Innovative Suggestions for Virtual and Remote Hearings

The final session focused on proposing creative ways to improve the efficiency of arbitration. Sue Hyun Lim from KCAB INTERNATIONAL started the discussion by giving a brief overview of the Gangnam Principles and Seoul Protocol. The Gangnam Principles were proposed by Kevin (Kap-You) Kim of Peter & Kim, the moderator of this session, as a means of increasing the efficiency of arbitration.

Two distinctive features of the Gangnam Principles are having a first substantive oral argument during the case management conference and having 1-3 intermediate hearings before the main hearing in the form of a group discussion. Both of these are intended to push for interactive communication between the tribunal and parties so that each party dedicates time to the issues that matter.

Toby Landau QC of Essex Court Chambers opened the discussion by identifying significant benefits associated with remote hearings, particularly avoidance of certain financial expenditures. He acknowledged that virtual hearings have challenged the Anglo-US approach to hearings in international arbitration and have forced tribunals to actively participate in managing their cases. However, an inevitable drawback of virtual hearings is that counsel may not be able to build good rapport with the tribunal.

Speakers entered into a discussion of creative ideas of how to maintain and augment the efficiency of virtual hearings. By focusing on various innovative projects, including Gangnam Principles and Prague Rules, Yu Jin Tay of Mayer Brown addressed the confluence of opinions voiced in the arbitration community in terms of what the future holds for international arbitration. Ingloong Yang of Latham Watkins stressed the use of technology in arbitration (electronic bundles, cloud-based data storage server) to think about how to redesign the process. Lars Markert of Nishimura & Asahi suggested scheduling an early hearing after the first round of submissions and disclosure of the tribunal’s preliminary view at the end of such hearing, both of which emphasize more frequent and interactive communication. Similarly, Chie Nakahara of Nishimura & Asahi introduced the idea of short interactive sessions after main hearings and of an initial or preparatory hearing. Agreeing on the benefits of technology to arbitration, SeungMin Lee of Peter & Kim posed a question on whether setting virtual hearings as a default form would infringe the fundamental due process right to be heard.

Changes might feel frightening, but it is also extremely exciting to predict what the future holds for international arbitration. Looking to the future, the arbitration community will benefit from the advances in technology, whilst parties in international arbitration will likely be eager to use various electronic tools more prominently even in the post-COVID era. It is hoped that this pandemic will be the driving force to develop a more efficient system of international arbitration.

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When the Answer is Becoming the Question: Impact of Arbitrations on the Environment

Sat, 2020-11-28 20:54

For a long time, the word ‘environment’ occurred in the realm of arbitration only when disputes between parties had some connection to it. Lately, however, there has been a shift from environment only being a subject-matter specific issue in arbitrations to a more diverse theme of discussion among the global arbitration community. Credit for this shift goes to, among others, the awareness raised by the GAR’s “Best Development Award 2020” winning initiative – the Campaign for Greener Arbitrations – an initiative spearheaded by International Arbitrator, Lucy Greenwood along with members of the Steering Committee, on the issue of the negative impact of arbitrations on the environment.

 

Resolving Environment Related Disputes through Arbitration

Environmental protection has been the underlying theme of a series of regulatory frameworks, including international declarations, treaties and national legislations. Disputes over environmental issues were earlier often seen in State-to-State context (under international treaties such as United Nations Convention on the Law of the Sea (UNCLOS), or bilateral relationship between nations), but swiftly made their way into other domains including investor-State (often concerning disputes where the protections granted to investors under a bilateral or multilateral investment treaty clashed with the host State’s regulations aimed at environment protection) and commercial contractual disputes.

Given that there is no permanent international court for resolution of environment-related disputes, the International Court of Justice (ICJ), since its establishment in 1945, was often perceived to be the primary forum for resolving such disputes. With the evolving nature of environmental laws and global recognition for the need to provide an effective dispute resolution framework, however, there has been a rise in the number of forums for resolving environment-related disputes – to name a few, Permanent Court of Arbitration (PCA); International Tribunal for the Law of the Sea (ITLOS); WTO Dispute Settlement Body; ICSID arbitral tribunals, etc. A steady increase in environment-related disputes witnessed formulation of specialised arbitral rules to deal with such disputes (See PCA Optional Rules for Arbitration of Disputes Relating to the Environment and/or Natural Resources). Various associations and bodies also volunteered to be at the vanguard of legal and institutional reforms to integrate the existing environmental framework with the dispute resolution procedure (See IBA Climate Change Justice and Human Rights Task Force Report). Certain arbitral institutions have also made notable efforts to “enhance the existing procedures to further improve their effectiveness for resolving climate change related disputes” (See ICC Commission Report on Resolving Climate Change Related Disputes through Arbitration and ADR).

A cumulative effect of having advantageous features such as flexibility of choosing specialised and experienced arbitral tribunal; choice of procedural rules (including specialised rules for environment-related disputes); robust enforcement mechanism for arbitral awards globally (under enforcement mechanism of ICSID Convention or New York Convention); and the above-mentioned efforts made at multiple fronts, has certainly made arbitration an attractive forum for resolving environment-related disputes and its use is likely to go up in the future.

 

Environmental Impact of Arbitration 

At this juncture, it may seem that the arbitration community is effectively playing its part in resolving environment-related disputes. However, due to its negative impact on the environment, as will be seen below, that part is only half addressed. One might wonder how arbitration can harm the environment. When looked in isolation, carbon emission figures of one arbitration may not seem that drastic, however, when the cumulative effect of all the arbitrations is taken into account, the numbers are alarming. To put things into perspective, a study conducted by Dechert LLP last year revealed that carbon footprint of one medium-size arbitration could be around 418,531 Kg CO2e – which may require planting up to 20,000 trees to offset its effect on the environment. This figure was reached by adding the carbon emissions of various individual constituents of an arbitration such as long and short-haul flights; printing of hearing bundles; couriers; hotel stays etc. The study noted that flying contributed the most to carbon emissions. Whilst this figure may not be the same for every arbitration and would go higher or lower depending on the underlying constituents, nature and size of the arbitration, but it certainly gives a sense of how high the carbon emission of one arbitration could be.

The scale of carbon emissions in environment-related disputes – which usually involve complicated technical issues often requiring parties to present expert evidence – are set to be even higher, since a higher number of expert witnesses (either appointed by the parties or by the arbitral tribunal) would invariably require more number of flights for cross-examination hearings and therefore would add up carbon emissions. Even looking conservatively at the yearly number of institutional arbitrations in the year 2019 (leaving aside ad hoc arbitrations and arbitration events etc.), it is clear that the overall impact of the arbitral community on the environment is significant.

Anecdotally, a photograph reproduced in the Decision on Counterclaims (at pg. 22) in Burlington Resources Inc. v. Republic of Ecuador, showing a ‘site visit’ to the Amazon region of the Ecuadorian Oriente by the tribunal, its secretary and assistant, party representatives, counsel, experts, witnesses, and interpreters, could give a clear idea of the complicated nature of environment-related disputes, requiring the involvement of multiple technical experts, witnesses etc. The level of carbon emissions released from only flying for that one single ‘site visit’, may come as surprise to some.1)As per the Authors’ calculation, the air travel for the ‘site visit’ would have released around 159,451 Kg CO2e – requiring planting of more than 7000 trees to offset its impact on the environment. jQuery("#footnote_plugin_tooltip_9463_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9463_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Way Forward

The mammoth scale of carbon footprint of the arbitral community poses a serious question, now more than ever, as to whether, and if so, how it can be reduced. The short answer to the former is a big ‘yes’. The latter requires examination of some solution-driven options, which can help in achieving that goal. In the present times, where the world is facing the profound impact of COVID-19 pandemic, the arbitral community is not untouched. However, unlike others, it has remarkably embraced the ‘virtualization’. An important aspect here is whether the fundamental changes brought in conducting arbitrations due to the pandemic are there to stay when the pandemic is over? The answer to this surely lies in the future, but from the carbon emissions point of view, it is imperative that at least some (if not all) changes are seamlessly embodied in the conduct of arbitrations even in the post-COVID-19 era.

 

  • Avoid flying unless necessary 

Flying, as noted above, is the most carbon emission contributing constituent of an arbitration. Whether done for hearings, evidence preparations meetings, or any other aspects of the arbitration, flying could be (or rather should be) avoided, or at least done only where absolutely necessary. As has been seen in the past few months, conducting all aspects of the arbitral process (including witness cross-examinations and even final hearings) virtually is seamlessly possible. In arbitrations of environment-related disputes, where the number of technical experts and witnesses can be substantially higher than usual, conducting witness examinations virtually through video conferencing could rein in the need of flying. Even for circumstances where, due to the technical nature of disputes, flying to take stock of the situation on the ground is unavoidable, use of technology – such as videography or live streaming from the site (as opposed to flying the entire team to the site), could avoid flying and ultimately help in reducing carbon emissions.

 

  • Avoid printing of documents 

Printing is another aspect of arbitration, which adds up to carbon emissions. Need for paperless arbitrations has been urged in the past here. In practice, however, it seemed like a unicorn dream, until the advent of the unprecedented COVID-19 times, which turned this dream into reality (or at least brought it closer to reality). Printed hearing bundles, which were commonplace in the practice of arbitration globally, are substituted by the filing of soft copies through online e-filing platforms and other electronic means. This practice, even though a result of necessity imposed by the pandemic, if continued to be followed, will go a long way in reducing the carbon footprint of arbitrations. Particularly, in arbitrations of environmental-related disputes, where the disputes are technical and usually involve presentation of evidence in the form of scientific data by the parties – which can run into thousands of pages, soft copy filing would certainly help in saving paper and in-turn reducing carbon emissions from printing.

 

  • Offsetting your carbon footprint 

Achieving ‘net-zero’ arbitrations (with zero carbon emissions) may be a tad too optimistic – especially because it may not be possible to completely cut-down carbon emissions released in arbitrations by energy consumption, use of emails and other means of communications etc. To reduce its carbon footprint, the arbitral community has to therefore consider offsetting the remaining carbon emissions, which despite best efforts may still be released into the environment. Offsetting should be considered at both individual (by arbitrators, counsels, witnesses, experts etc.) as well as the organisational level (by law firms, arbitral institutions, arbitrator chambers etc.). Offsetting can be tricky and it is important therefore to identify genuine offsetting projects being offered by a surfeit of service providers in this field (a study conducted by Öko-Institut (Berlin) in partnership with Infras (Switzerland) and Stockholm Environment Institute (USA) suggested that “85% of the covered [offsetting] projects and 73% of the potential 2013-2020 CER supply have a low likelihood of ensuring environmental integrity”. It is also important to bear in mind that offsetting should not be equated to the medieval notion of ‘indulgences’ (a way to reduce the amount of punishment one has to undergo for sins) and the primary focus should be on reducing the carbon footprint by changing the way arbitrations are conducted.

 

Conclusion

To be an effective and efficient dispute resolution forum for environment-related disputes, the time has now come for the global arbitral community to realise the negative impact of its activities on the environment and act to reduce it. Small behavioural changes at the individual level i.e. avoiding flying and printing can be a good start. At an organisational level, more comprehensive and robust steps to reducing carbon footprint of arbitrations, such as the use of renewable and clean energy; reuse and recycling; reducing and composting of food waste etc., should be considered.

Recently, the Financial Times reported that even emails are responsible for thousands of tonnes of carbon being pumped into the atmosphere. The arbitration community must be mindful of this reality as well.

 

The Authors being part of the Steering Committee encourage the readers to support the Campaign for Greener Arbitrations by clicking here

References   [ + ]

1. ↑ As per the Authors’ calculation, the air travel for the ‘site visit’ would have released around 159,451 Kg CO2e – requiring planting of more than 7000 trees to offset its impact on the environment. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Interviews with Our Editors: Understanding CIICA, Pakistan’s First International Arbitration Centre, with Mr. Rana Sajjad Ahmad, Founder & President

Fri, 2020-11-27 23:28

Mr. Rana Sajjad Ahmad, thank you for joining us on the Kluwer Arbitration Blog! We are grateful to have the opportunity to learn more about the Center for International Investment and Commercial Arbitration (CIICA) and your experience with enhancing the role of international arbitration in Pakistan.

 

  1. Could you briefly introduce yourself to our readers?

In two words, I would describe myself as an “arbitration enthusiast”. In terms of background and professional experience, I am a dual-qualified lawyer (licensed in Pakistan and New York) based in Lahore, Pakistan. At my law firm, Rana Ijaz & Partners, my practice areas include contracts, cross-border transactions, commercial litigation and domestic and international arbitration. I learned about international arbitration while pursuing an LL.M. at Columbia Law School, New York, back in 2001-2002 and also had the opportunity to practice international arbitration at a leading large law firm in the U.S. In 2015, I launched the Center for International Investment and Commercial Arbitration (CIICA), Pakistan’s first and only international arbitration center.

 

  1. Can you take us through your journey in launching CIICA five years ago and tell us about its achievements thus far?

CIICA is a manifestation of my passion for shining a light on international arbitration in Pakistan. My primary motivation for setting up CIICA was the glaring lack of awareness of international arbitration in Pakistan and how the misplaced views about it were adversely affecting the outcomes of the cases in which Pakistan was involved.

Since its launch, CIICA has tried to address this issue by organizing several groundbreaking conferences with a view to discussing and analyzing critical issues in connection with international commercial and investment arbitration. The Pakistan component of the Belt and Road Initiative (BRI), commonly referred to as the China Pakistan Economic Corridor (CPEC), has also been extensively discussed at these conferences. I believe change happens one conversation at a time and CIICA has set in motion the process of raising awareness of the important issues and proposing recommendations for modifying Pakistan’s approach to international arbitration.

As part of its mission of capacity building, CIICA and its officials have conducted training workshops at leading universities in Pakistan, the Lahore High Court, Pakistan Engineering Council and the Punjab Judicial Academy that are aimed at training and building capacity of law students, lawyers, engineers and commercial court Judges.

Earlier this year, CIICA became the first and only dispute resolution organization in Pakistan offering online filing services. Amidst the COVID-19 pandemic, in order to facilitate dispute resolution involving Micro, Small and Medium Sized Enterprises (MSMEs), CIICA lowered its fees substantially and raised the upper limit of the amount in dispute for its expedited arbitration services.

To further its objective of modernizing Pakistan’s legal framework for arbitration, a few months ago, CIICA launched its legislative reforms committee.

 

  1. You have previously written about developing a culture of arbitration (both investor-state and commercial) as a parallel mode to judicial dispute resolution in Pakistan. From your perspective, what are the top three challenges to enhancing the use of arbitration in Pakistan?

The first and foremost challenge is the judiciary’s lack of a deep understanding of the substantive and procedural aspects of arbitration, which impairs its ability to develop a pro-arbitration mindset and approach. The second is the inadequate framework for domestic and international arbitration. The third is the lack of awareness or misperception of the advantages of arbitration over litigation.

In one respect, these three challenges are inter-linked because certain provisions of the outdated arbitration law are misinterpreted by Pakistani Judges who do not have an adequate understanding of the law’s nuances and implications. This leads to either undue court interventions to stay arbitral proceedings or unsatisfactory court decisions that refuse enforcement of arbitral awards. Consequently, a vicious circle is set in motion whereby the value of the arbitration process is undermined and the users are dissatisfied with the entire process that in turn engenders a reluctance to arbitrate disputes in the future. A common complaint of some disgruntled users of arbitration in Pakistan is that it is pointless to arbitrate if the court still wields such broad powers and virtually unfettered discretion to delay and derail the process, a clear case of “once bitten, twice shy”.

 

  1. We have previously published on the Blog about the burning need to modernize Pakistan’s Arbitration Act 1940 (“Act”). We understand that national efforts to do so are now underway and you are involved in the Committee appointed to spearhead the Act’s redesign. Can you walk us through some of the Committee’s major considerations and how it aims to achieve this important goal?

As mentioned, a few months ago, CIICA  formally constituted a legislative reforms committee. The committee’s broad objectives include:

  • Examining Pakistan’s current legal framework for domestic and international arbitration to identify specific provisions that need to be amended;
  • Providing the reasons for and the language of the proposed amendments;
  • Proposing enactment of the UNCITRAL Model Law; and
  • Engaging with relevant government bodies and private sector entities to lobby/advocate for the reforms.

 

  1. Asia is home to both leading arbitration jurisdictions like Singapore and Hong Kong as well as India and Pakistan, where the framework for (and use of) arbitration is in flux. What do you think has led to this unequal development of arbitration in Asia and, in particular, why is South Asia lagging behind some of its neighbors?

I think the primary reason for the difference is the vision of the governments and the will to bring that vision to fruition. I believe that if the government of a country itself spearheads or supports reforms in connection with the law, practice and procedure of arbitration, it creates an enabling environment for the growth and success of globally recognized arbitral institutions such as the ones in Singapore and Hong Kong. In the absence of such a vision or policy of the government, members of a country’s business and legal community need to step up and play a pivotal role to promote and adopt arbitration. In Pakistan, there certainly are bright spots in both these communities and CIICA continues to bring them together to facilitate discussions with the goal of creating a vibrant ecosystem for arbitration in Pakistan.

 

  1. You represented CIICA at recent meetings of UNCITRAL Working Group II. What are some unexpected highlights of your experience?

It was an invaluable learning experience in international relations, especially in the context of international trade and commerce. Specifically, I witnessed how States engage in a back-and-forth on critical issues of national interest. In some cases, the degree to which political considerations underpinned the discussions was a bit unexpected and I found the divide between certain States fairly pronounced. Nonetheless, it was also fascinating to see how the efficient mechanisms designed by UNCITRAL enabled States to reach an agreement on contentious issues and avoid potential impasse.

 

  1. Earlier in this interview you mentioned CIICA as a platform for resolving BRI disputes, particularly those relating to CPEC and you have written about the various such options previously. Indeed, in 2019, to support the resolution of such disputes, CIICA signed a Memorandum of Understanding with the China International Economic and Trade Arbitration Commission (CIETAC). Do you consider that international arbitration offers the most suitable mechanism for resolving such disputes? With the Singapore Convention on Mediation coming into force recently, does it make mediation a viable alternative for stakeholders?

I think in the foreseeable future, international arbitration would still be the predominant method for resolution of disputes across the Belt and Road states. This is primarily due to its wider acceptance and recognition among the States participating in this initiative in particular and around the world in general. Although the Singapore Convention is a significant and welcome development in the realm of international dispute resolution, it may still take a few years before it gains wider adoption among the Belt and Road states. In view of the divergent approaches and preferences of certain States across the Belt and Road states, the hybrid dispute resolution methods of Arb-Med, Med-Arb and Arb-Med-Arb may also gain traction allowing parties more freedom to design the dispute resolution procedures based on their unique preferences and the particular context of their transactions and commercial relationships.

 

  1. Can you briefly discuss the impact of the COVID-19 pandemic on arbitral practice in Pakistan? Is there an increased demand for CIICA’s Online Arbitration and Mediation Filing System?  How has CIICA enhanced its virtual and online services to meet stakeholder demands?

Amidst the COVID-19 pandemic, CIICA launched its online arbitration and mediation filing system and is currently the only institution in Pakistan that is offering these online services. However, online arbitration and mediation do not appear to have gained much traction in Pakistan yet and consequently, there has been no significant impact on the demand for arbitration or mediation in Pakistan.

 

  1. As we look forward, can you tell us the top three goals you hope CIICA will have achieved by 2025, at the time of its tenth anniversary?

By 2025, I hope:

  1. CIICA is recognized as an innovative arbitral institution that can adapt its services to cater to the evolving needs of the users in Pakistan in particular and the region in general.
  2. CIICA is successful is bringing about the legislative reforms that its committee is currently working on.
  3. CIICA is able to create a fairly large pool of well-trained international arbitration practitioners and arbitrators in Pakistan. I hope CIICA has also had the opportunity to build the capacity of Judges in Pakistan to enable them to develop a deeper understanding of the context, nuances and implications of the substantive and procedural aspects of international arbitration. This would minimize undue court intervention and facilitate enforcement of arbitration agreements and awards that would ultimately help develop pro-arbitration jurisprudence in Pakistan and bolster its image as a favorable destination for foreign investment.

 

Thank you for your time and perspectives – we wish you and CIICA continued success!

 

This interview is part of Kluwer Arbitration Blog’s “Interviews with Our Editors” series.  Past interviews are available here.  

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An Arbitration Paradise? The Importance of Dispute Resolution for Hainan’s Development

Thu, 2020-11-26 23:23

The designation of Hainan province as a Free Trade Zone (FTZ) in 2018 has sparked a great deal of interest for foreign investors. The proposal for a globally influential free trade port, by the middle of the century, makes Hainan an exciting prospect and a potential venue for new foreign investment. Such a proposal demonstrates a strong commitment by the central government, to turn Hainan into a highly developed centre for international trade. China’s plans for Hainan reveal that a great deal of thought has been put into dispute resolution, in order to make the island arbitration friendly to further attract foreign investment.  The guiding policy for Hainan’s development strongly emphasises the need for effective dispute resolution mechanisms and has specifically called for the “establishment of multiple dispute resolution institutions such as international economic and trade arbitration institutions and international dispute mediation institutions”.1)This is the author’s courtesy translation. jQuery("#footnote_plugin_tooltip_3641_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3641_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This policy highlights the importance placed on building an effective dispute resolution network, which is needed to safeguard foreign investment.

 

The Hainan FTZ

Although the 1994 PRC Arbitration Law provides the legislative framework for arbitration in Hainan, the province is subject to several policies that make it unique, when compared to the conventional dispute resolution framework adopted in the mainland.

Firstly, as is the case with the Shanghai Pilot FTZ, the definition of ‘foreign related’ arbitration has been expanded in Hainan to permit the enforcement of arbitration awards made outside of China. Such awards may be enforceable in Hainan if they are made between or among FTZ registered wholly foreign owned entities, or between Hainan FTZ registered commercial entities. This policy differentiates arbitration in Hainan from standard practice in China, which provides no legal basis for Chinese domestic entities to submit domestic disputes to arbitration outside of China. The expansion of the term ‘foreign related’ to incorporate Hainan FTZ entities increases the scope for the enforcement of foreign arbitral awards involving a Hainan FTZ company. The 2018 Supreme People’s Court Opinion (Opinion)  on the provision of legal services in Hainan, appears to take a more flexible approach to the term ‘foreign related’ than has traditionally been adopted in the past. The Opinion states that extraterritorial arbitration between commercial or civil entities within free trade zones or free trade ports, “should not be deemed invalid on the grounds of no foreign-related factors”.2)This is the author’s courtesy translation. jQuery("#footnote_plugin_tooltip_3641_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3641_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  This Opinion is important because it appears to widen the scope for the enforcement of foreign arbitral awards within the Hainan FTZ. This Opinion follows the trend within China which has seen an expansion of the term ‘foreign related’ in cases such as Ningbo and Shanghai Golden Landmark, both of which relate to contracts for the sale of goods in the Shanghai FTZ– more on these decisions can be found in a previous blog post here.

Secondly, in order to improve the efficiency in which foreign related disputes are dealt with, the Hainan government has created multiple tribunals, specifically established to deal with international cases. This policy is testament to the central government’s efforts to make Hainan a reliable venue for the resolution of international disputes. These tribunals will centralise the Hainan courts’ jurisdiction over foreign related civil and commercial cases, thereby creating a greater harmonisation in how such cases are dealt with. These tribunals are China’s first provincial-level cross-regional tribunals specifically created to hear first-instance foreign related cases. The establishment of such tribunals demonstrates that a lot of thought has gone into making Hainan’s legal system more international and better prepared for dealing with foreign cases.

Aside from dispute resolution, the Hainan FTZ has adopted several policies in order to further promote foreign investment. Such policies include lower rates of income tax, 30-day visa free access for foreigners and an attractive policy for the recruitment of overseas talent, which are all elements of a strategy, designed to turn Hainan into a centre for global trade. This strategy has also seen the establishment of the Hainan International Arbitration Court (HIAC) (sometimes referred to as the Hainan International Arbitration Commission), a new arbitral institution which was set up in 2018, to facilitate the resolution of international disputes and promote Hainan as a venue for arbitration.

 

The Importance of the HIAC

The HIAC was set up to administer arbitration and mediation cases through its team of over 60 staff. It has invested heavily into the recruitment of international arbitration practitioners in order to increase its global focus. As a result, the HIAC currently has access to around 600 arbitrators over 200 of which are foreign nationals.

A distinctive feature of the HIAC that differentiates it from other arbitration institutions relates to the permitted use of mediation at any stage of the arbitral process. The HIAC, like the China International Economic and Trade Arbitration Commission (CIETAC) and the Beijing Arbitration Commission (BAC), permits the use of Med-Arb during proceedings in order to facilitate a settlement between the parties. The HIAC follows the trend of dispute resolution in China, which includes the use of Med-Arb as a tool to resolve disputes. The legislative basis for the use of Med-Arb can be found in Article 51 of the 1994 PRC Arbitration Law which states that “[t]he arbitration tribunal may carry out conciliation prior to giving an arbitration award”.

Article 48 of the HIAC’s Arbitration Rules states that “[u]pon the request of or with the consent of the parties, the arbitral tribunal may conduct mediation during the arbitral proceedings”. If a settlement is reached, the parties can prepare a settlement agreement themselves, or ask the tribunal to either produce one or write an award by consent based on what is agreed in the settlement. If the parties fail to reach a settlement, the tribunal will proceed with issuing an award. However, under the HIAC Rules “[i]f the mediation fails to lead to a settlement, neither party shall be permitted to adduce evidence of or to refer to or use any statements, opinions, views or proposals expressed by the other party or by the arbitral tribunal during the mediation in support of any claim, defense or counterclaim in the subsequent arbitral proceedings, or as grounds in any judicial or other proceedings”. This requirement also extends to the arbitrators, who cannot produce an award based “on the opinions expressed by the parties during the mediation”.

A distinctive feature that differentiates the HIAC from arbitral institutions within China relates to the way the HIAC is governed. The HIAC is one of only two arbitral institutions within China that adopts a ‘corporate governance’ style of management. The other being the Shenzhen Court of International Arbitration Court (SCIA). This corporate governance style of management relates to a structure which incorporates a board of directors (some of whom are non-Chinese nationals) that operates at the core of the institution. Further to this, the HIAC is the only arbitral institution in China that has received Administrative Measures from a provincial government, which is the first provincial document released separately to an arbitration institution in China and they specify that the HIAC is a statutory body established for the benefit of the public as a non-profit organisation. The establishment of the HIAC is an important milestone for the development of Hainan, given that a global arbitration institution with a strong international focus would strengthen Hainan’s position as a potential venue for foreign investors. Although newly established, the HIAC will foreseeably play a key role in the rapid development of a province which recorded a GDP growth of 5.8% in 2018.

 

Looking Ahead

Hainan is a tropical island with a significant supply of minerals and over 70 types of natural resources, the island features large coastlines that are typical of any global trading port. It is therefore likely that as the island develops, disputes will arise that reflect the increased volume of investments typically made in the province. The construction, energy and maritime sectors are likely to experience an increase in demand for dispute resolution services as Hainan’s development advances. The HIAC’s sector specific offices specialising in financial and maritime arbitration are one answer to this trend.

Going forward, the establishment of Hainan specific FTZ dispute settlement rules may be an option in order to further develop arbitration on the island. Hainan could follow a similar path to the Shanghai FTZ in order to make itself more arbitration friendly, this could include the acceptance of foreign arbitral institutions to administer cases with a Chinese seat in the FTZ and the permissibility of ad-hoc arbitrations, which if enacted, could further develop arbitration within Hainan.

This is an exciting time for Hainan. The establishment of the Hainan FTZ alongside the HIAC represent significant steps that may well turn the island into an arbitration paradise.

References   [ + ]

1, 2. ↑ This is the author’s courtesy translation. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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International Law Talk Podcast and Arbitration: In Conversation with Professor Joshua Karton

Thu, 2020-11-26 21:46

Welcome to the second post in the series of International Law Talk. During a series of podcasts, Wolters Kluwer will bring you the latest news and industry insights from thought leaders and experts in the field of International Arbitration, IP Law, International Tax Law and Competition Law. Here at Kluwer Arbitration Blog, we will highlight the podcasts focused on international arbitration.

In the second podcast of the series, Dr Maria Fanou, Assistant Editor of Kluwer Arbitration Blog, interviews Joshua Karton, Associate Professor and Associate Dean at Queen’s University. Professor Karton is the General Editor of the Kluwer Arbitration Practical Insights, a new online research service for international arbitration practitioners (launched this year), and also the co-founder and the Managing Editor of the Canadian Journal of Commercial Arbitration.

 

Professor Karton generously offered his invaluable insights on his rich experience and on various relevant topics pertaining to international arbitration, including the following:

 

http://arbitrationblog.kluwerarbitration.com/wp-content/uploads/sites/48/2020/11/KLI-2.-trailer.mp4

 

  • His experience about his early years in law and his path towards becoming an international arbitration lawyer and scholar, emphasizing the role of the Vis Moot as a formative experience which contributed to his discovering the magical world of arbitration.
  • His experience as an editor, including in particular as one of the three General Editors (along with Simon Greenberg and Fan Yang) of the Kluwer Arbitration Practical Insights, a tool that is part of Kluwer Practice Plus set of resources. As Professor Karton explains, Kluwer Arbitration Practical Insights is like a treatise or a handbook but reimagined for the online environment.
  • The role of comparative law as a constituent (and not simply a set of techniques) of international arbitration, as inspired by his article ‘International Arbitration as Comparative Law in Action’.
  • Drawing on his significant work on diversity (see also here) Professor Karton builds on a popular post of his, and discusses the benefits that diversity brings in arbitration.

 

As a final thought answering a question that we will pose to all interviewees in this podcast series, Joshua Karton predicts that we will see more fragmentation of the international arbitration field as it grows and, hopefully diversifies, as well as more specialization, more regionalization and more arbitral institutions focusing on specific industries. He further foreshadows that international arbitration will continue to reflect the pluralism of its users.

Listen to the podcast ‘Comparative Law in Action in Arbitration’ with Joshua Karton.

 

Follow the coverage of the International Law Talk arbitration podcasts on Kluwer Arbitration Blog here.

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Enforcement of Foreign Arbitral Awards in the U.S. Post Daimler AG v. Bauman

Thu, 2020-11-26 00:53

In this post, we discuss some of the challenges created by the personal jurisdiction requirements under U.S. law (explained below) in enforcement of foreign arbitral awards in the U.S. We also delve into details of hurdles posed by the implementation of the personal jurisdiction standard as enunciated in Daimler AG v. Bauman to recognition and enforcement proceedings. Personal Jurisdiction is a U.S. law concept that signifies the power of a court to determine the rights and liabilities of a party involved in a lawsuit.

Given these challenges, we propose a potential solution to bypass these hurdles, to wit, modifying arbitration clauses to include a waiver of jurisdictional objections to the subsequent enforcement of an arbitration award.

 

A Primer: Enforcement of Foreign Arbitral Awards in the U.S.

While the vast majority of arbitration awards are voluntarily complied with, there are still many cases in which a losing party will refuse to satisfy an outstanding award against it. Because “[a]rbitral awards are not self-enforcing” in the U.S., they must therefore “be given force and effect by being converted to judicial orders by courts.” Power Partners MasTec, LLC v. Premier Power Renewable Energy, Inc., 2015 WL 774714 (S.D.N.Y. Feb. 20, 2015). To that end, many U.S. courts require a party seeking to reduce a foreign arbitral award to a judgment to establish compliance not only with the relevant provisions of the New York Convention and the Panama Convention (the “Conventions”) but also federal and state constitutional and legal requirements governing personal jurisdictional. In that connection, the U.S. Court of Appeals for the Second Circuit (the “Second Circuit”) has held that both Conventions limit the ways of challenging a request for recognition and enforcement of an arbitration award. Frontera Res. Azerbaijan Corp. v. State Oil Co. of Azerbaijan Republic, 582 F.3d 393, 397 (2d Cir. 2009). However, the Conventions do not alter the fundamental constitutional requirement that the party against whom enforcement is sought be subject to personal jurisdiction of the court before which enforcement is sought. Id. The Second Circuit has also found that, even when jurisdictional requirements are satisfied, it has authority to dismiss an enforcement proceeding on the grounds that the state in which it was initiated is an inconvenient forum. Monegasque De Reassurances S.A.M. (monde Re) v. Nak Naftogaz of Ukr., 311 F.3d 488, 495-96 (2d Cir. 2002).

Broadly speaking, there are three ways that an enforcing party can meet U.S. federal and state constitutional and legal requirements governing personal jurisdiction. First, the enforcing party can seek to establish “general” or “all purpose” jurisdiction based on the award debtor’s ties to the state where enforcement is sought. Second, an enforcing party may seek to establish so-called “specific” jurisdiction based on the commission of some single or occasional acts of the corporate agent or individual in a state that gives rise to the lawsuit. Third, there is case law permitting a party to rely on the U.S. assets of the award debtor to establish so-called “in rem” (property based) jurisdiction. CME Media Enters. B.V. v. Zelezny, 2001 WL 1035138 (S.D.N.Y. Sept. 10, 2001).

 

Daimler Standard

In 2014, the U.S. Supreme Court (the “Supreme Court”) issued an opinion in Daimler AG v. Bauman 134 S. Ct. 746 (2014) which has been described here as “almost certainly its most important jurisdiction decision in some seventy years.” In that case, the Supreme Court essentially held that, in the absence of extraordinary circumstances, a party will only obtain “all purpose” jurisdiction over a corporation by suing it at its place of incorporation or principal place of business and, over a foreign individual, by suing the individual at her or his domicile. The Supreme Court’s decision is discussed to have “mark[ed] a dramatic change in the law” since it arguably abrogated “[t]he once familiar standard for general jurisdiction—corporate ‘presence’ in a state in which it ‘does business’ both ‘continuously and systematically.’” Naturally, it has had a significant impact on arbitration award enforcement proceedings in the U.S.

 

Implementation of the Daimler Standard

Federal appellate courts in the U.S. have applied the rule articulated in Daimler to recognition and enforcement proceedings. See, e.g., Sonera Holding B.V. v. Cukurova Holding A.S.,750 F.3d 221, 223 (2d Cir. 2014). This shift in the threshold requirement of “general” jurisdiction to a stricter threshold of having a place of incorporation from the erstwhile lower threshold of having continuous and systematic business activities has created potential hurdles for parties in such proceedings that cannot establish the kind of contacts with a state that would authorize “all purpose” or “general” jurisdiction. Consequently, foreign parties may find themselves potentially engaged in expensive and/or otherwise protracted litigation aimed at finding assets and/or contacts that will authorize a U.S. court to exercise “specific jurisdiction” with no ultimate guarantee of success. In practice, this means that a foreign party may be involved in a litigation in the U.S. over several years only to find out that they will be unable to enforce their arbitration award.

 

Does Property-based Jurisdiction Provide a Respite from the Daimler Standard?

As noted above, a party seeking to enforce a foreign award may rely upon the assets of a foreign award debtor to establish jurisdiction. However, there are certain limitations when relying upon such property-based jurisdiction. Generally, there is a limit on the recovery amount, as courts will confirm the award only to the extent of assets present in the jurisdiction. See, e.g., CME Media Enters. B.V. v. Zelezny, 2001 WL 1035138 (S.D.N.Y. Sept. 10, 2001). In addition, courts may be reluctant to order any kinds of additional remedies besides orders against the property. Id. Because such jurisdiction relies on the contemporaneous presence of the property in the forum state, award debtors can also potentially defeat in rem jurisdiction by moving their property out of the forum state. To preempt such situations the award creditors often obtain a pre-judgment attachment of properties under the applicable state law (For example: under N.Y. C.P.L.R. § 5305 (2016)) which is possible when the foreign arbitral award is converted into a foreign judgment, as explained below.

Thus, an enforcing party may also rely upon a double exequatur or dual enforceability approach as discussed in a previous post. This is an indirect route to enforce a foreign arbitration award by converting the award into a foreign judgment recognizing the award, and then seeking recognition of that foreign judgment in the U.S. The personal jurisdiction rules for recognition of foreign judgments are somewhat more flexible when there is no opposition to the enforcement proceeding but not when the defendant challenges or opposes the enforceability of the judgment on substantive grounds. AlbaniaBEG Ambient Sh.p.k v. Enel S.p.A., 160 A.D.3d 93 ( N.Y. 1st Dept 2018).

Although “specific” jurisdiction may offer an easier alternative to satisfying a party’s jurisdictional burden, an enforcing party seeking to rely on such a basis for asserting personal jurisdiction will generally need to show that the award debtor “transacts any business within the state or contracts anywhere to supply goods or services in the state” and the cause of action arises from this conduct. N.Y. C.P.L.R. § 302(a)(1).

 

A Plausible Way for Establishing Personal Jurisdiction 

Faced with the above conundrums, parties may want to include a provision in their arbitration clause addressing enforcement issues in the U.S.

Many U.S. courts have found consent of parties as a valid way of establishing personal jurisdiction for purposes of enforcing a foreign arbitral award, as courts have recognized that personal jurisdiction stems from due process rights of the parties itself, rather than Article III powers of the judiciary, and hence parties can consent to personal jurisdiction. Brown v. Lockheed Martin Corp., 814 F.3d 619, 625 (2d Cir. 2016). Parties usually express their consent through forum selection clauses or contractual consent provisions. For instance, in the case of EGI-VSR, LLC v. Huber, 2020 U.S. Dist. LEXIS 54405 (S.D.N.Y. Mar. 27, 2020) concerning enforcement of a Chilean arbitration award, the court held that the award debtor’s (a Chilean resident) agreement with a forum selection clause providing that “any dispute under this Agreement shall be resolved in a court of competent jurisdiction in New York, New York” conferred personal jurisdiction over the award debtor. Similarly, in the case of D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 104 (2d Cir. 2006), the court found that the award debtor (a Florida resident) was subject to personal jurisdiction of the court for purposes of a confirmation proceeding to reduce an award to a judgment, as the defendants had consented to personal jurisdiction through forum-selection clauses.

Contractual consent to personal jurisdiction should eliminate the need for a separate due process analysis required by the U.S. constitution. See, e.g., EGI LLC, 2020 U.S. Dist. LEXIS 54405 at *14; Recurrent Capital Bridge Fund I, LLC v. Isr Sys. & Sensors Corp., 875 F. Supp. 2d 297, 306 (S.D.N.Y. 2012). Forum selection clauses are especially useful insofar as courts have generally interpreted forum selection clauses broadly and enforced them, unless the clause was obtained through fraud, D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 104 (2d Cir. 2006) or enforcing it would be unreasonable or unjust, see, e.g., EGI LLC, 2020 U.S. Dist. LEXIS 54405 at *15-16. Thus, a party may be able to construct a forum selection clause designating New York as the seat of the arbitration which would permit it to enforce an award stemming from such an arbitration in New York. Similarly, a party may also theoretically designate a seat of arbitration in another, foreign jurisdiction while including a provision in their arbitration clause that would permit them to enforce their arbitral award in the U.S.

Thus, given that “general” jurisdiction is the preferred way of establishing personal jurisdiction in recognition and enforcement proceedings, and the U.S. courts have applied Daimler’s more stringent threshold of establishing “general” jurisdiction over foreign parties, parties may want to include a forum selection clause in their arbitration agreement to address enforcement issues in the U.S.

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New Terrain for International Arbitration: The International Dispute Resolution Track at the 99th Annual International Law Weekend

Tue, 2020-11-24 23:00

The 99th Annual Meeting of the American Branch of the International Law Association (“ILA (American Branch)”), known as International Law Weekend (“ILW”), took place virtually this year in New York City on 22-24 October 2020.  This year’s conference included 27 panels, as well as an Opening Plenary Panel, a United Nations 75th Anniversary Plenary Panel, and numerous virtual networking sessions hosted by ILA (American Branch)’s committees.  The conference continued to include a dedicated International Dispute Resolution track with a specific slate of panels in that area.

The keynote address was delivered by Catherine Amirfar (Co-Chair of the Public International Law Group, Debevoise and Plimpton LLP; President, American Society of International Law) and moderated by Chiara Giorgetti (University of Richmond School of Law).  Ms. Amirfar’s remarks were framed against the backdrop of the United States standing at a crossroads for the international rule of law.  She recalled that international lawyers have a commitment to the progressive ideal that international affairs should be governed by law, not merely power.  As she explained, it is the duty of international lawyers and institutions to ensure this ideal continues to advance even when backward steps are taken in the international sphere.

Ms. Amirfar observed that such backward steps do not constitute a failure of the entire enterprise, but instead allow international lawyers to take a hard look at what is not working and figure out ways to improve so we may move forward.  In her view, there are no inevitabilities in the story of international law; history is replete with examples of how institutions and individuals have made a difference.  At this important juncture in the history of international law, she left the audience with a powerful reminder: across party lines and political divides lies a set of shared norms and common interests that can unite us and allow us to progress slowly but steadily.

The panels forming part of ILW’s International Dispute Resolution track echoed these themes as they considered whether international legal mechanisms for dispute resolution should be extended to address new areas of conflict.  One overarching issue raised during these discussions is how to determine if a particular conflict calls for an international dispute resolution mechanism.  Key questions for this determination included:

  • Is there a need for any additional dispute resolution mechanism to resolve this type of conflict?
  • Is the proposed international mechanism an appropriate means to resolve the conflicts that arise in that area?
  • Can the proposed international mechanism be made accessible enough to contribute meaningfully to the resolution of conflicts in this area?

Two panels stood out as particularly illustrative of these questions and the debates that they engender: one on investor-state dispute resolution as a means to resolve disputes in the global banking and finance sector, and another on international arbitration as a means to resolve disputes over human rights abuses at sea.

 

The Role of Investor-State Arbitration in Regulation of Global Banking and Finance

“Investor-State Disputes, International Finance, and Economic Crisis,” was moderated by Virág Ilona Blazsek (Associate Legal Officer, United Nations Joint Staff Pension Fund).  This panel considered whether investor-state dispute settlement may contribute to the resolution of banking- and finance-sector disputes in times of economic crisis—particularly in light of the emergency measures that States often take to combat such crises.

The answer—as the panel developed it—boiled down to two separate issues: whether investor-state tribunals should address the substance of those disputes, and whether there is sufficient access to these types of tribunals for them to matter.

The panel’s initial discussion centered on the degree to which an investor-state tribunal should second-guess state regulatory measures taken in the face of economic crisis—when many, or even most, state regulatory actions are legitimate and essential.  Anna de Luca (Of Counsel, Macchi di Cellere Gangemi) took the view that tribunals should not evaluate state regulations in the banking and finance sector merely on the basis of their objective correctness.  Prof. Michael Waibel (University of Vienna) later added that because of the uncertainty surrounding which regulatory action is correct, the State should be afforded a margin of appreciation.

Nevertheless, the panel only scratched the surface, leaving unaddressed how, exactly, the standard of review should be calibrated—between the two extremes of review for absolute correctness and no review at all.

Next, the panel turned to whether banking and finance investors have broad enough access to investor-state arbitration for it to play an important role in regulating state crisis measures.  Prof. Waibel argued investor-state arbitration has a fairly limited role simply because any State measure taken during a crisis will affect domestic investors more than international investors.  Indeed, both he and Ms. de Luca underscored that investor-state arbitration may be further curtailed within the European Union, following the Court of Justice of the European Union’s Achmea judgment and subsequent termination of multiple intra-EU bilateral investment treaties.

However, David Attanasio (Associate, Dechert LLP; co-author of this post) noted that, given the lack of alternative avenues of international recourse for banking and finance investors, some may seek to restructure their investments in order to obtain access to international investment protections and to investor-state arbitration.

Despite identifying key factors affecting the scope of access to investor-state arbitration, the panel left open a range of questions affecting investor-state arbitration’s potential significance for resolving conflicts over crisis measures in the banking and finance sector.  These questions included whether international investors make up a meaningful portion of all investors in the banking and finance sector, and whether investors in that sector are able to secure access to international investment protection, including through investment structuring.

 

The Role of International Arbitration in Remedying Human Rights Abuses at Sea 

“Arbitration of Human Rights at Sea: Giving International Law Teeth by Empowering Victims to Enforce It” was moderated by Dr. Anna Petrig (Professor and Chair of International Law and Public Law, University of Basel).  This panel considered whether international arbitration can contribute meaningfully to accountability for human rights abuses committed at sea.

Resolving this issue—as the panel addressed it—requires answering two key questions: whether there is a need at all for accountability for human rights abuses committed at sea, and whether international arbitration, in particular, is the right mechanism to fill that need.

The panel first considered the need for accountability mechanisms for human rights violations at sea, addressing that need from both the supply and demand sides.

  • Regarding the supply side, Dr. Irini Papanicolopulu (Associate Professor, Università degli Studi di Milano-Bicocca) reported that the existing international fora have limited jurisdiction and are therefore ill-equipped to resolve many potential human rights disputes. To her point, even the European Court of Human Rights and the Inter-American Court of Human Rights often do not have jurisdiction to resolve cases of human rights abuses, such as those that are allegedly committed by corporations.
  • On the demand side, Elisabeth Mavropoulou (Lecturer in Law, University of Westminster; Trustee, Human Rights at Sea) set out basic statistics regarding maritime operations: There are 197 states included in this group, 1.6 million commercial seafarers, and at least 56 million people involved in fisheries and aquaculture. As she explained, the maritime sector, then, is a significant area of commercial and social activity that can generate a variety of human rights abuses.

Despite these key observations, the panelists did not delve into the nature and extent of actual human rights abuses occurring at sea, leaving unresolved the extent to which this is a problem calling for a solution.

The panel next took up whether and how arbitration can be made available to those who allege human rights abuses at sea.  As Dr. Ursula Kriebaum (Professor of Public International Law, University of Vienna) noted, the Hague Rules on Business and Human Rights Arbitration were designed precisely to enable arbitration to provide an appropriate forum for human rights disputes.

However, Prof. Emmanuel Gaillard (Head of Shearman & Sterling’s International Arbitration Practice; Visiting Professor of Law, Yale Law School, Harvard Law School) identified the root issue: consent.  As he explained, if victims of human rights abuses committed at sea cannot obtain consent to arbitration in the first place, then these disputes cannot be resolved through arbitration.  Without consent, international arbitral tribunals would lack jurisdiction to hear the disputes and to serve as an accountability mechanism for those human rights abuses.

In Prof. Gaillard’s view, the need for consent would not necessarily be a barrier to resolving disputes over human rights abuses at sea through arbitration.  He noted that States and corporations could be incentivized to give advance consent through political pressure from international organizations or simply civil society itself, or alternatively through economic pressure applied by banks and other financial-service providers.  If they gave such advanced consent with sufficient scope, then international arbitration might be able to play a meaningful role in the area.

That said, the panel did not hazard a guess about the degree to which consent would actually be forthcoming, even in a scenario where such incentives were used.  So it remains an open question whether pressure alone can ensure arbitration becomes available widely enough to act as a real accountability mechanism for human rights abuses committed at sea.

 

The Path Ahead

These and other panels at the 99th International Law Weekend provided a clear reminder of the opportunities for expanding the role of international dispute resolution in novel directions.   As the world looks ahead to possible changes in light of new American leadership, they may guide us toward further establishing an international community governed by law and not power.

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The Role of Arbitral Institutions in Cybersecurity and Data Protection in International Arbitration

Tue, 2020-11-24 00:00

Cybersecurity and data protection have been dominating conversations in the international arbitration community in recent years. From an analysis of how the stakeholders may be best equipped to address cybersecurity risks, to considerations on maintaining confidentiality in international commercial arbitration, as well as calls to address the impact of the General Data Protection Regulation (“GDPR”) on virtual arbitration proceedings, much scrutiny has been afforded to these issues. Discussions on this topic have been further enhanced following the release of the IBA Cybersecurity Guidelines (the “IBA Guidelines”), the ICC-NYC Bar-CPR Protocol on Cybersecurity in International Arbitration, the latest being the 2020 Edition (the “Cybersecurity Protocol”), as well as the public consultation draft of the ICCA-IBA Roadmap to Data Protection in International Arbitration. The author opines that cybersecurity and data protection go hand in hand as both involve the receipt, usage, processing, transmission, and preservation of data in any given setting. The ongoing COVID-19 pandemic has further heightened the importance of these issues since more proceedings with high value and business-sensitive information are being conducted wholly online, are frequently held in different jurisdictions, and often involve unencrypted digital exchanges.

A previous article has highlighted how arbitral institutions are uniquely positioned to address cybersecurity risks both consistently and sustainably. This post now aims to further examine the measures that arbitral institutions may take to alleviate cybersecurity risks and to ensure that data protection principles are adhered to in institutional proceedings.

 

Institutional Rules and Case Management

Effectively, most arbitrations are currently managed, if not completely, through electronic and digital means, e.g. where correspondences and procedural papers are transmitted via email or digital file transfers. It is foreseeable that in time, more and more of these ‘paperless’ proceedings will take place. Undoubtedly, institutions should be up to date to the technological needs of the parties and their institutional rules and procedural guidelines should factor in cybersecurity concerns. One such example can be found in the Hong Kong International Arbitration Centre (“HKIAC”) 2018 Administered Arbitration Rules, where Article 3.1(e) specifically mandates the uploading of files “to any secured online repository that the parties have agreed to use” as a recognised means of communication. Another example is found in the London Court of International Arbitration (“LCIA”) 2020 Arbitration Rules that incorporate new provisions on data protection, cybersecurity and regulatory issues. Specifically, Article 30A provides that “at an early stage of the arbitration the Arbitral Tribunal shall…consider whether it is appropriate to adopt:

(i)        any specific information security measures to protect the physical and electronic information shared in the arbitration; and

(ii)       any means to address the processing of personal data produced or exchanged in the arbitration in light of applicable data protection or equivalent legislation.

In circumstances where such considerations have yet to be incorporated in the institutional rules or guidelines, possible steps to take would be for the administering institution to either alert the tribunal, upon confirmation of its appointment, of the existence of the Cybersecurity Protocol, or to include the protocol as part of the institution’s code of conduct of arbitrators.

The Cybersecurity Protocol neither lists any specific measures to be taken, nor does it establish any liability standards for any purpose (Principle 14). Instead, the Cybersecurity Protocol authorises the tribunal to determine the appropriate cybersecurity measures (Principles 11 and 12). Although the commentary to Principle 11 acknowledges such authority, determination of applicable information security measures should fall back to parties’ agreement.

In terms of case management, the arbitration community can look forward to the soon to be released Protocol for Online Case Management in International Arbitration by the Working Group on LegalTech Adoption in International Arbitration (the “LegalTech Working Group”). Having just released its Consultation Draft in July 2020, the focus of the LegalTech Working Group is the development of a consistent approach to the adoption and use of online case management tools that encompasses confidentiality, data protection, and sustainable values thereof.

 

Internal Management Systems

Arbitral institutions hold large volumes of valuable, highly commercial, and sensitive information pertaining to matters they administer, access to which may have far reaching impacts. This makes arbitral institutions a highly attractive target for cybercriminals. Previous incidents such as the intercepted correspondence in Libananco v Republic of Turkey (ICSID ARB/06/8), and the attack on the Permanent Court of Arbitration (PCA) website during the China–Philippines maritime boundary dispute, have further emphasised the need for arbitral institutions to have effective cybersecurity technology and mechanisms in place to safeguard the confidentiality of proceedings.

What steps then should arbitral institutions take? As a reference, the IBA Guidelines, although aimed at lawyers and legal firms, contains several recommendations which are worth considering by all stakeholders in the arbitral process. They include the following three areas:

  1. Technology: implementing endpoint protections, ensuring the use of secure networks, encrypting data and devices, strictly managing access control, implementing audit logs as well as implementing data retention, and loss recovery capabilities.
  2. Organisational processes: implementing strong username and password management with multi-factor authentication, implementing protection protocols, conducting periodic system testing, implementing a cybersecurity policy, implementing vendor and third-party provider risk management, and considering cyber liability insurance.
  3. Staff Training: educating employees about the importance of cybersecurity and common threats as well as providing staff with essential cybersecurity tips and advice.

In the Data protection, privacy, confidentiality and cybersecurity session at the 22nd Annual IBA Arbitration Day in 2019, Catherine Amirfar further posited some concrete prevention techniques and tips, which included limiting the collection and use of sensitive data, understanding the organisational assets and electronic architecture, as well as establishing a cyber threat mitigation plan in the early stages. Although limiting the collection of sensitive data may be impracticable for arbitral institutions, implementing cybersecurity and data protection measures by design within the institutional structure may limit any risk of breaches exponentially.

 

Virtual Proceedings

Since the outbreak of the COVID-19 pandemic, virtual hearings have become the norm in present times. It is likely that the trend will stay due to its efficiency and convenience. Many arbitral institutions have also introduced their own guidelines to manage and support the conduct of virtual hearings. A quick comparison across some of the protocols and guidelines issued indicates that the minimum standards of cybersecurity and data protection measures in virtual proceedings include, amongst others, usage of access-controlled video conferencing platform/software with an authentication process, usage of encrypted communications, clear identification of data storage facilities, and the applicable laws as well as robust administrative controls in order to maintain the security and integrity of data. The utility of checklists is also encouraged to ensure that the proceedings are conducted in compliance with local as well as regional data protection laws, such as the GDPR.

 

Conclusion

The benefits for arbitral institutions to push for greater emphasis and devoting resources towards cybersecurity and data protection cannot be understated. With the threats of cybersecurity constantly growing coupled with the profound impact of strict data protection laws, addressing these concerns through innovative means provides institutions with the advantage to promote institutional arbitrations particularly to security-conscious high-value commercial arbitration users. Most importantly, it considerably minimises the chances of untoward incidents such as the PCA website hack ever happening again. As the maxim goes, abundans cautela non nocet (abundant caution does no harm). 

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Is 11th of March 2020 a Critical Date for Potential Investment Treaty Arbitration Disputes in Eastern Ukraine?

Mon, 2020-11-23 00:40

The effect on investment protection stemming from Russia’s annexation, and therefore effective control over Crimea, has been a hot topic since 2014. Meanwhile, Ukraine has dealt with an armed conflict in Eastern Ukraine since April 2014 as a result of Russian expansionist maneuvers. Ukraine is now left with the difficult task to, on the one hand, maintain its pro-investment status, while, on the other, handling two territorial interferences simultaneously.

Notably, each action or official communication from the state may eventually be considered a material fact in a potential investment case by investment tribunals. This has the potential effect of working in an adverse manner against Ukraine and/or its investors.

The latest development in this situation took place on 11 March 2020. Ukrainian government intended to sign documents with non-legitimate representatives of the illegal formations within Trilateral Contact Group forum in Minsk. Fortunately, before and after that it stated that Ukraine does not recognize any other authorities in the Eastern Ukraine as legitimate. In this post I analyse what happened on that date, and its potential negative consequences for investment protection and the position of Ukraine in investment arbitration.

 

What are the Trilateral Contact Group and the Minsk Agreements?

On 11 March 2020, the ordinary meeting of the Trilateral Contact Group in Minsk (“TCG”) took place. The main aim of this meeting, as well as previous meetings, was the resolution of the armed conflict in Eastern Ukraine.

The TCG is a forum for negotiations between Ukraine, Russia and the Organization for Security and Co-operation in Europe (“OSCE”) regarding the conflict in the East of Ukraine. These negotiations produced the “Minsk Agreements”. The First Protocol to the Minsk Agreements was signed on 5 September 2014. The Second Minsk Agreement, named the “Complex of measures for implementation of the Minsk protocol”, was agreed in February 2015.

Significantly, the Minsk Agreements are not considered to be international agreements or treaties. However, these documents are important for Ukraine because: 1) they express the official position of Ukraine concerning the situation in the East of Ukraine; 2) measures for their implementation were prescribed by the UN Security Council Resolution 2202 (2015), and therefore gained a somewhat official status; 3) the non-performance by Russia of a package of measures for Immediate and comprehensive ceasefire in certain areas of the Donetsk and Luhansk regions of Ukraine as per United Nations Security Council Resolution is one of the grounds of the EU sanctions regime against Russia; and 4) these may carry evidentiary value in potential future investment arbitration cases.

At its 11 March 2020 meeting, the TCG adopted a Protocol to the Minsk Agreements (the “Protocol”). This Protocol could have potentially shifted the responsibility for any violations of international law that have taken place in certain Eastern Ukraine areas since 2014 from Russia to Ukraine. The Protocol contained the plan to sign a document called “Decision on creating of the Consulting Council” on 25 March 2020. This Decision was not signed, including but not limited to the fact that Ukrainian international law specialists and politicians were against it.

This Protocol could have jeopardized the amount of work by Ukrainian lawyers and diplomats in international courts and arbitrations; that is, a) it could have redefined the international nature of the conflict in the Eastern Ukraine, and b) it could have shifted the responsibility away from the Russian Federation for the violations of human and investors’ rights in Eastern Ukraine since the inception of the territorial dispute in 2014.

 

May the Russian Federation be held responsible for investment arbitration purposes?

There are no Eastern Ukraine conflict-related arbitration cases for the time being, but they might arise in the future based on the ECHR and Crimea-related arbitration experience.1)Ukraine v. Russia (re Eastern Ukraine) (no. 8019/16). jQuery("#footnote_plugin_tooltip_4127_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4127_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The first question for a potentially aggrieved investor will be: who is responsible for all the violations and damages, namely, who is the Respondent? Ukraine may use the strategy widely described in Crimea-related arbitrations.2)See O.Kuchmiienko, How does the change in effective control over the territory influence the application of the Ukraine-Russia or other BITs, Austrian Yearbook on International Arbitration, Wien (2020). jQuery("#footnote_plugin_tooltip_4127_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4127_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In other words, Ukraine could assert that Russia holds (under protest) effective and/or general control over the territory. Therefore, it might contend on this basis that Russia is responsible for all violations in this Ukrainian area under armed conflict with Russia, including but not limited to the breach of investors’ rights.

To unequivocally state that Russia is a Respondent, Ukraine must be consistent in this strategy, insisting that it is Russia that controls “separate regions of Luhansk and Donetsk districts” as illegal formations in the territory. Moreover, Ukraine does not recognize these illegal formations as separate entities.

The Protocol as of 11 March 2020 may ruin this mentioned position and jeopardize the chances of an investor would have to recover damages from Russia. The reason is that arbitral tribunals in potential arbitration cases may consider this Protocol as a matter of fact, including to read it as the de facto acknowledgement by Ukraine that the territories in question are not under Russian general and/or effective control. That could mean that Russia is not liable for potential disputes there. However, Ukraine reasonably has an opposite view.

In general, there were three provisions that could create big concerns and risks for the Ukrainian position in international arbitrations and courts.

 

Ukraine objects to the presence of any authorized representatives in Eastern Ukraine

Firstly, the Protocol is problematic because it was signed by the representatives of the Donetsk and Luhansk regions as “authorized representatives”. These are pro-Russian representatives and represent an illegal formation on the Eastern territory of Ukraine, which are involved in armed conflict with Russia.

Donetsk and Lugansk are regions in a territory of Ukraine where armed forces of the Russian Federation are engaged in an international armed conflict. The status of the conflict has already been established by the International Criminal Court. In particular, the International Criminal Court’s Report on Preliminary Examination Activities concluded that “direct military engagement between the respective armed forces of the Russian Federation and Ukraine, indicated the existence of an international armed conflict in eastern Ukraine from 14 July 2014 at the latest, in parallel to the non-international armed conflict.”

For arbitration purposes this means that, if Ukraine signs the document together with the “authorized representatives” (as two parties of one agreement), it could indirectly be taken to have recognized the territories as separate state entities. This may cause it to lose any argument that Ukraine is not responsible for the actions of these entities because it “did not permit and objected [to the] presence of unlawful representatives” in Eastern Ukraine.

 

Ukraine does not recognize the power of the unlawful representatives for any actions

The second reason for concern is that the “separate regions of Donetsk and Lugansk districts” were combined in one entity based on wording of the document and its representative was empowered “to present written proposals of the terms and mechanisms of the opening of certain checkpoints”. As these entities are not recognized by Ukraine and are illegal, it is incorrect to attribute mandate and powers to their representatives, including the authority to provide any proposals. These sentences raise deep concerns because they can jeopardize analysis of 1) the international character of the conflict and 2) who is responsible for any violations on the territory in question. In potential arbitration an agreement with such a provision may be considered to constitute the agreement of Ukraine to the substitution of state authorities in part of its territory (such that it cannot blame Russia for the activities of these authorities).

 

Consulting Council as an illegal entity

Finally, the Protocol dated 11 March 2020 contained the Draft of a Decision creating a Consulting Council that would have consisted of “10 representatives of Ukraine, 10 representatives of Separate Regions of Donetsk and Lugansk Districts.” Under this Draft, firstly, Russia was not considered to be a part of the conflict anymore, having instead the status of an observer along with OSCE, Germany, and France. Secondly, representatives of Ukraine and illegal formations of Donetsk and Lugansk Districts were supposed to become members of the Council with equal rights. This could again jeopardise Ukrainian’s position vis-à-vis investment protection: does this mean that Ukraine de facto acknowledged these territories as separate entities? Hopefully not.

 

Why is this important for investment arbitration?

How may the Protocol influence an arbitral tribunal’s decision on jurisdiction, or why, in a worst case scenario, may a claimant try to file a claim against Ukraine as respondent?

If a Tribunal does not find that Russia controls the territory where the violation occurs, it can find no jurisdiction over Russia in such case. The alleged reason may be that Russia as a potential respondent is not responsible for the violations on the territory of another state. We can assume that the investor may then pursue either of two actions, namely, 1) abandon the claim and with it the possibility of any redress, or 2) initiate another case against the alleged “true” respondent – Ukraine.

 

Is the situation critical for Ukraine right now?

The situation is not critical, even after the concerns outlined above. Firstly, the decision on creating the Consulting Council with illegal formation representatives was not signed. Secondly, the attitude of Ukraine to the illegal formations must be assessed in general on the basis of the position of Ukrainian government, as evidenced in public officials’ declarations communicated in international courts and organizations.

Finally, the temporal aspect is important. Russian control over the Eastern Ukraine started in 2014 and Ukraine has constantly communicated its objections to the situation. Theoretically, the Protocol and decision might have influence on the situation after March 2020, even though this fact might be used for the opposite position. However, I do not believe that it is the case as Ukraine persistently asserted that the formations were controlled by Russia before March 2020.

 

Conclusion

11 March 2020 has not become a turning point for potential investor-claimants and Ukraine as a third party. However, this document might have reduced the strength of the position of Ukraine (and Ukrainian investors) in potential investment arbitration disputes. For the time being, we are in good shape, but the task of Ukrainian arbitration practitioners is to ring the bell of investment protection interests when it is necessary, and therefore I am ringing this bell here. In order to avoid the risks associated with Minsk Agreements, Ukraine must clearly articulate its position with the international community; that is, 1) Russia holds effective control over the territory in Donbass, and 2) Russia is responsible for all violations there.

References   [ + ]

1. ↑ Ukraine v. Russia (re Eastern Ukraine) (no. 8019/16). 2. ↑ See O.Kuchmiienko, How does the change in effective control over the territory influence the application of the Ukraine-Russia or other BITs, Austrian Yearbook on International Arbitration, Wien (2020). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Arbitration Corruption? The U.S. Fifth Circuit Says No

Sun, 2020-11-22 00:30

In the second half of 2020 there have been two heavily discussed challenges to arbitration awards stemming from an arbitrator’s nondisclosure. The more recent, OOGC America, L.L.C. v. Chesapeake Exploration, L.L.C, was an appeal in the U.S. Fifth Circuit. The other, Eiser Infrastructure Limited and Energia Solar Luxemburg S.À.R.L. v. Kingdom of Spain, was heard by an ICSID annulment committee. As more fully discussed below, the reviewing bodies came to opposite conclusions, even though they were reviewing the matters under remarkably similar standards of review.

 

The Dispute Before the Fifth Circuit

On September 14, 2020, in OOGC America, L.L.C. v. Chesapeake Exploration, L.L.C; Cause No. 19-20002, the Fifth Circuit vindicated an arbitrator accused of tainting an arbitration. The court ordered an opinion from the Southern District of Texas titled “Opinion on Arbitration Corruption” to be vacated.

This arbitration originated from claims by OOGC that Chesapeake was overcharging fees to it and overpaying affiliates to the tune of $210 million. The arbitration panel was tasked with determining who were “affiliates” or “related parties” under the Development Agreements and JOA between the parties and if Chesapeake paid those entities at market rates. One of these entities was FTS International. The arbitration panel unanimously found that FTS was paid at the market rate, so it took no further action to determine if FTS was an “affiliate” or “related party.” Subsequently, the award was challenged by OOGC.

That district court opinion accused the arbitrator of “deceit” and “corrupt[ion].” The specific conduct complained of by OOGC to the district court included the arbitrator’s business relationship with FTS’s chairman, connections to the chairman’s daughter, and connections to FTS’s general counsel. The latter two were both former coworkers of the arbitrator. Accordingly, OOGC sought to vacate the arbitration awards on the grounds that the arbitrator’s connections to FTS showed “evident partiality” and “misbehavior by which the rights of all parties have been prejudiced.” Both are grounds to vacate an award under the Federal Arbitration Act (FAA). According to the district court, the former was satisfied by the arbitrator failing to disclose professional and social connections with the parties or witnesses. Reviewing the matter de novo, the Fifth Circuit was not convinced that corruption existed. However, the Fifth Circuit was clear that it did not condone the arbitrator’s actions in the matter.

 

Implications for Further Analysis before U.S. Courts

For practitioners in the United States, the Fifth Circuit further developed its precedent regarding what constitutes “evident partiality” and “exceeding arbitral authority.” Notably, it did not buy OOGC’s argument that the facts presented to the court satisfied the Fifth Circuit’s Positive Software “evident partiality” test, nor did the facts evidence that the arbitrator had exceeded his authority, analogous to PoolRe Insurance v. Organizational Strategies, Inc., 783 F.3d 256 (5th Cir. 2015) .

Positive Software Solutions, Inc v. New Century Mortgage Corp., 476 F.3d 278 (5th Cir. 2007) (en banc), as a nondisclosure case, was directly on point. In that opinion, the Fifth Circuit made it clear that the nondisclosure must evidence a “reasonable impression of bias” deriving from a “significant compromising connection to the parties” that is “concrete and not speculative.” The Fifth Circuit found that the facts and theories presented to it by OOGC were speculative since OOGC could only speculate that the arbitrator was aware of specific provisions since neither party made the arbitrators aware of the potentially disqualifying condition. Further, the court noted that FTS was properly compensated, meaning the question of whether FTS was an “affiliate” was moot. Accordingly, the arbitrator’s connections to FTS was not a significant compromising connection to the parties as required. Alternatively, OOGC argued that the arbitrator only ruled in favor of Chesapeake so as to not jeopardize future work from FTS. Again, the Court found this to be too speculative and ripe for opening the door to post-award investigations, which would undercut arbitration as an alternative to litigation.

Moreover, OOGC argued that the arbitrator exceeded his powers, permitting vacatur under 10(a)(4) of the FAA. OOGC argued that PoolRe Insurance was instructive. Specifically, OOGC argued that the arbitrator did not remain “neutral” as the contract required. Again, the court did not bite. It found that staying neutral was a “qualification” and not a failure to correctly choose an arbitrator according to the contract’s terms, making it distinguishable from PoolRe Insurance.

In summary, the Fifth Circuit’s opinion was a clear reminder of the burden that those seeking to vacate an arbitration award in the United States must overcome. Particularly, the Court clarified that Fifth Circuit courts must give deference to the arbitrators when possible and resolve all doubts in favor of upholding the award. Overall, it is a stern reminder that arbitral awards are only vacated under extraordinarily narrow circumstances, and this is not one of those circumstances.

 

Placing the Fifth Circuit’s Approach in Context with International Approaches

The outcome of OOGC America is very different from the outcome of the recently decided Eiser Infrastructure Limited and Energia Solar Luxemburg S.À.R.L. v. Kingdom of Spain (ICSID Case No. ARB/13/36), even though both reviewing bodies were faced with the similar nondisclosure complaints. Like in OOGC America, the arbitrator in Eiser failed to disclose a relationship. As discussed more fully in another Kluwer blog post, the arbitrator appointed by the investors, Stanimir Alexandrov, and his former law firm, worked closely and frequently with the claimant investors’ damages expert Carlos Lapuerta and his firm. Based on these facts, the Annulment Committee annulled the arbitral award on the grounds that that a reasonable outsider “would find a manifest appearance of bias.” This is similar to what the Fifth Circuit standard applied in OOGC America, yet that challenge resulted in upholding the arbitration award. There was an important factual difference between the disputes. In Eiser, the relationship that was complained of was between an arbitrator and the damages expert, which was actively part of the arbitration; while in OOGC America, the relationship complained of was between the arbitrator and persons that were unanimously held not to be part of the dispute.

Moreover, the different rulings likely stem from a difference in judicial concerns. The Fifth Circuit expressed a reservation in examining personal relationships, based on future concerns of abuse of procedure by unscrupulous counsel. Specifically, the Court was concerned that those unhappy with the award would examine every personal relationship involved in a dispute to attempt to vacate an award it was not pleased with. The Court stated such actions would defeat one especially important tenant of arbitration, expediency. This opinion is not without merit. In fact, others have expressed similar concerns regarding parties misconstruing personal relationships to attempt to gain a more favorable tribunal or annulment of an unfavorable award. Similar concerns were raised by Daniel Greineder’s article regarding the Eiser dispute. In that article Greineder notes the desire for transparency is still subject to abuse by unscrupulous counsel who will challenge arbitrators to deny their opponents their chosen arbitrator, and delay proceedings.

Further, Eiser reflects the modern movement of hyper-disclosure for international disputes. This movement has been obsessed with categorizing conflicts of interest and erring on the side of disclosure. While disclosure of conflicts of interest are critical to fair decisions, some level nondisclosure must be tolerated. (i.e., non-disclosure should not become the go-to basis for annulment or vacation of an award). It is clear that ICSID and the Fifth Circuit have very different tolerances for nondisclosure failures. In Eiser, there was not a showing of specific acts by the arbitrator that evinced bias or otherwise improper influence. Instead, ICSID was focused on the principle that disclosure is a fundamental rule of procedure which should not be violated. This fundamental rule of fairness was of greater importance than an actual showing of a “significant compromising connection to the parties” that is “concrete and not speculative” to prove a “reasonable impression of bias,” as required in the Fifth Circuit.

 

Concluding Remarks

Moving forward, reviewing bodies, across the globe, will have to decide what they require to annul or vacate an award based on nondisclosure. Will they require complainants to speculate and merely show a nondisclosure of a relationship could have had a material effect on the award as required in Eiser? Or will reviewing bodies require concrete facts and not speculation as was required in OOGC America? The answer to this question will be based on public policy concerns, fundamental fairness to the parties, judicial economy, soft and hard power regarding enforcement and comity.

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UK Government is Seeking Arbitrators for Free Trade Agreement Rosters

Sat, 2020-11-21 21:48

Many of the free trade agreements that the UK has signed or that are currently under negotiation include a requirement for the parties to create rosters of individuals who could act as arbitrators for disputes launched under the state-to-state dispute settlement mechanisms within those agreements. The Department for International Trade (DIT) is seeking to appoint suitably qualified people to be included in these rosters.

 

The Role

We’re seeking to nominate people to serve on general dispute settlement rosters and also specialised rosters for disputes related to financial services, sustainability or labour rights. If a dispute were to occur under an agreement, individuals from the roster may be called upon to serve on an ad hoc arbitration panel to adjudicate on the dispute. The duration of disputes can vary considerably, however, the responsibilities associated with chosen arbitrators may extend beyond 18 months.

Candidates must demonstrate:

  1. Specialised knowledge of law and international trade with eight years proven experience in these fields;

They must also demonstrate at least one of the following requirements:

  1. Experience as an adjudicator (judge, tribunal member, panellist, arbitrator, mediator) in disputes arising under international agreements;
  2. Experience as lead counsel in a state-to-state trade dispute under the WTO Dispute Settlement Understanding or a free trade agreement;
  3. Experience as an academic teaching and/or researching in the field of international trade law for at least ten years;
  4. (For specialised rosters): specific expertise in financial services law or regulation, international environmental law or international labour law (including resolution of disputes arising under relevant international agreements).

Panellists would be remunerated in line with the specific terms set out in the relevant FTA, which is likely to be equivalent to the rates for WTO panellists. Please note that successful candidates will only be remunerated if their services are required and provided.

More information on the role, requirements and recruitment process can be found on the Department for International Trade .GOV webpages here.

Applications should be submitted by 11:59pm on 6 December 2020.

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“Don’t Walk Behind Me, I May Not Lead; Don’t Walk in Front of Me, I May Not Follow “ – Article 29(7) of the ICC Rules and Concurrent Judicial Jurisdiction

Fri, 2020-11-20 23:27

It is a generally accepted rule that while state courts have concurrent jurisdiction to hear and decide motions for interim relief prior to the constitution of an arbitral tribunal, they will only maintain such concurrent jurisdiction in appropriate or exceptional cases following such constitution.

The ICC Rules are unique in the sense that they apply the same rule when dealing with an Emergency Arbitrator (“EA”) and impose restrictions on the jurisdiction of state courts following the making of an application for EA, which are the same as those applicable following the constitution of a tribunal.

In this blog post, we analyze how the courts in Israel perceived their own jurisdiction following the making of an EA application and suggest that the ambiguous and inconsistent interpretation and application of this rule should be taken under careful consideration in any future revisions of the ICC Rules. At the outset, it bears noting that the ICC has recently publicized a revision of the Rules which are due to enter into force in 1 January 2021. This revision does not revise Article 29(7) and the wording of the Article under the 2017 Rules shall remain following the coming into force of the new Rules in 1 January 2021.

 

The Concurrent Jurisdiction of State Courts under Article 29(7) of the ICC Rules

One of the key features in EA proceedings under the 2017 ICC Rules of Arbitration (“ICC Rules“) is that found in Article 29(7), which states:

“The Emergency Arbitrator Provisions are not intended to prevent any party from seeking urgent interim or conservatory measures from a competent judicial authority at any time prior to making an application for such measures, and in appropriate circumstances even thereafter, pursuant to the Rules. Any application for such measures from a competent judicial authority shall not be deemed to be an infringement or a waiver of the arbitration agreement. Any such application and any measures taken by the judicial authority must be notified without delay to the Secretariat.” [Emphasis added]

Similar language is used in Article 28(2) of the ICC Rules which provides “Before the file is transmitted to the arbitral tribunal, and in appropriate circumstances even thereafter, the parties may apply to any competent judicial authority for interim or conservatory measures”. [Emphasis added] Article 28(2) has been interpreted to suggest that after the tribunal is constituted, judicial relief is permitted only in the event that ‘appropriate’ circumstances exist and not automatically.

Implementing this feature to EA procedures by the ICC is unique, considering other arbitral institutions and the UNCITRAL Arbitration Rules (“UNCITRAL Rules”) only provide similar guidelines to that of Article 28(2), i.e., only to interim applications submitted to national courts following the constitution of an arbitral tribunal (see e.g., Article 9.13 of the2020  LCIA Arbitration Rules, Article 30.3 of the SIAC Arbitration Rules, Article 23.9 of the HKIAC Administered Arbitration Rules and Article 26.9 of the UNCITRAL Rules).

 

The Interpretation of Section 29(7) of the ICC Rules

It is common interpretation and practice that Article 29(7) of the ICC Rules sets out the concurrent jurisdiction of national courts and EA and the non-exclusive nature of the EA (See, Emergency Arbitrator Proceedings – Commission Report, 2019, p. 15 (“ICC EA Report)), an exception to the general principal of exclusivity and judicial non-interference in the arbitral procedure.1)Gary B. Born, International Commercial Arbitration (Second Edition, 2014), Volume II: International Arbitral Procedures p.2522- 2523; 2544-2545, §17.04. jQuery("#footnote_plugin_tooltip_5367_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Article 29(7) was introduced to the ICC Rules due to concerns of members of the ICC Commission on Arbitration and ADR (“Commission”) that the existence of EA Provisions on its own “could lead to the adverse consequence of some state courts deciding to deny their own jurisdiction to issue interim or conservative measures”.2)Nathalie Voser, “Overview of the Most Important Changes in the Revised ICC Arbitration Rules”, ASA Bulletin, Vol. 29, No. 4, 2011, p. 814. jQuery("#footnote_plugin_tooltip_5367_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Following the amendment of the ICC Rules in 2012, and the introduction of Article 29, the interpretation of the Rules in the Secretariat’s Guide to ICC Arbitration3)J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration, ICC Publication 729 (Paris, 2012), p. 310. jQuery("#footnote_plugin_tooltip_5367_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); followed the same interpretation suggesting that the “Emergency Arbitrator Provisions are not intended to be the only means of seeking urgent relief”, but simultaneously noting that “Article 29(7) slightly qualifies” this concurrent jurisdiction when the application to the court is made following the EA application, and highlighting that in such circumstances the “Rules require circumstances that make it ‘appropriate’ for the party to resort to a state court”.4)Ibid, § 3-1106. jQuery("#footnote_plugin_tooltip_5367_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Although these were the initial concerns and intentions of the drafters of the Rules and the members of the Commission, following the introduction of the EA provisions to the ICC Rules, the Commission and scholars gave little attention to the way in which state courts apply this “concurrent jurisdiction”.

In practice, on the occasions where a respondent asserts that by applying to a state court for interim relief the applicant waived the EA jurisdiction and its right to commence arbitration, such “waiver” arguments were rejected by the EA themselves, based, inter alia, on the language of Article 29(7) (ICC EA Report, p. 15).

In fact, most arbitration rules also explicitly confirm that applying to national courts for interim relief shall not constitute a waiver or infringement of the arbitration agreement (See e.g., Article 28(2) of the ICC Rules, Article 26(9) of the UNCITRAL Rules, Article 24(3) of the ICDR Rules) and judicial precedent generally arrives at the same conclusion.5)Gary B. Born, International Commercial Arbitration (Second Edition, 2014), Volume II: International Arbitral Procedures pp.2549-2551, §17.04. jQuery("#footnote_plugin_tooltip_5367_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, the mirror image, of the national courts’ position towards their “concurrent jurisdiction” alongside EA was rarely examined (ICC EA Report, p. 15).

And thus, although the drafters of Article 29(7) were concerned with courts denying their own jurisdiction, the language of the article did, at least to a certain extent, exactly that, and while the “concurrent jurisdiction” exists before making the application for EA, it only partially exists after the EA application was filed, and only in “appropriate circumstances”. The language of Article 29(7) overturned the presumption of jurisdiction – meaning that by default the court should deny jurisdiction unless “appropriate circumstances” persuade it to determine otherwise.

This position is in line with Webster & Buhler’s interpretation, namely that the actual effect of Article 29(7) will depend on the applicable law of the state court where a party applies for relief.6)T. Webster & M. Buhler, Handbook of ICC Arbitration (Fourth Edition, 2018), p. 501, §29-137. jQuery("#footnote_plugin_tooltip_5367_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); An illustration to this approach, deferring the application of the concurrent jurisdiction to the state courts and the applicable law, is that of Gerald Metals SA v. Timis, [2016] EWHC 2327 (Ch), where the English court denied jurisdiction, inter alia, based on the fact that Gerald Metals previously applied for an EA and was denied by the LCIA.

However, bearing in mind the drafters’ concerns, it is interesting to note that the language of Article 29(7) does not address these concerns in a conclusive manner, leaving the concurrent jurisdiction aspect of the EA Provisions to the discretion of different courts in different jurisdictions, rather than to that of the parties and the institutions.

 

The Position Taken by The Courts in Israel

Earlier this year, a decision by the Tel-Aviv District Court in O.M. (Tel-Aviv) 56844-10-19 Mer Telecom Ltd. v. Sint Maarten Telephone Company N.V. (Nevo, 17.3.2020) (“Mer Telecom Decision”) provided insight on how courts in Israel may view EA applications, and their effect on the jurisdictional level and specifically the concurrent jurisdiction aspect.

In the past, the Supreme Court of Israel determined that when parties authorized an arbitral tribunal to issue interim measures and orders, such tribunal shall have the jurisdiction to decide motions for interim measures instead of a local court (see RCA 9389/06 Advanced Highway Systems Ltd. v. FTS Formula Telecom Solutions (Nevo, 14.10.2009)). The court, in turn, will be authorized to give only ex-parte or temporary emergency orders, and only prior to the constitution of the Tribunal.7)When an ex-parte motion is filed or if the petitioner cannot wait until the constitution of the Tribunal or the EA. See also: T. Webster & M. Buhler, Handbook of ICC Arbitration (Fourth Edition, 2018), pp. 501-502. jQuery("#footnote_plugin_tooltip_5367_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, until of late, the Israeli courts did not directly address the EA Provisions and their interplay with past case-law and precedents.

Earlier this year, the Tel-Aviv District Court had to address these matters in the Mer Telecom Decision, where the court was requested to issue an interim injunction against the payment of a bank guarantee.

In that case, Mer Telecom petitioned the Court to issue an interim injunction against the payment of a bank guarantee until the final disposition of its main claim. Mer Telecom informed the Court that it intends to file for EA under the ICC Rules and that the interim petition and the main claim it filed with the Court were filed as a temporary relief, until such time that the EA or the Tribunal can decide on the merits of the interim measure (The Mer Telecom Decision, ¶¶ 24-25).

Although the Court initially granted Mer Telecom’s petition for emergency temporary injunction, it eventually denied the motion for interim injunction, stating that once the arbitration has commenced there was no place for the proceedings in the Israeli Court to continue, thus, denying the motion on jurisdictional grounds. The District Court also reasoned that its conclusion is in line with the Israeli case-law and with the parties’ pleadings.

Surprisingly, the Court did not analyze Article 29(7) and did not inquire if the circumstances of the application before it are appropriate circumstances which justify applying jurisdiction regardless of the EA application, and satisfied itself by noting that the EA application was dismissed. A motion for leave to appeal to the Supreme Court was denied on other grounds on April 4, 2020 in the framework of RCA 2388/20 (Justice Solberg).

 

Concluding Remarks

It is possible that the Court in the Mer Telecom Decision did not analyze the question of its concurrent jurisdiction as the application itself highlighted that it is only a temporary application pending the Tribunal’s decision, but nevertheless, the decision  highlights the risks of too wide of a discretion given to national courts. Such wide discretion and the variances between courts in different jurisdictions and legal traditions may lead applicants to “forum shopping”, favoring the jurisdictions which will hold a looser approach to the concurrent jurisdiction principle.

Although a “tight” approach to the interpretation of the concurrent jurisdiction principle or the “silent” approach taken by other arbitral institutions and the UNCITRAL Rules may lead to abuse of the EA Provisions, it would be advisable for the arbitral institutions and in particular the ICC, to define in greater detail the appropriate circumstances which will lead to the exclusion of the concurrent jurisdiction of the EA and state courts.

 

Shai Sharvit is an of counsel at Gornitzky & Co. and a member of the LCIA Court, the ICC Commission on Arbitration and ADR and the task force on Emergency Arbitrator; Nuna Lerner is a partner at Gornitzky & Co. The authors’ practice focuses mainly on international arbitration and complex multi-jurisdictional commercial disputes.

References   [ + ]

1. ↑ Gary B. Born, International Commercial Arbitration (Second Edition, 2014), Volume II: International Arbitral Procedures p.2522- 2523; 2544-2545, §17.04. 2. ↑ Nathalie Voser, “Overview of the Most Important Changes in the Revised ICC Arbitration Rules”, ASA Bulletin, Vol. 29, No. 4, 2011, p. 814. 3. ↑ J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration, ICC Publication 729 (Paris, 2012), p. 310. 4. ↑ Ibid, § 3-1106. 5. ↑ Gary B. Born, International Commercial Arbitration (Second Edition, 2014), Volume II: International Arbitral Procedures pp.2549-2551, §17.04. 6. ↑ T. Webster & M. Buhler, Handbook of ICC Arbitration (Fourth Edition, 2018), p. 501, §29-137. 7. ↑ When an ex-parte motion is filed or if the petitioner cannot wait until the constitution of the Tribunal or the EA. See also: T. Webster & M. Buhler, Handbook of ICC Arbitration (Fourth Edition, 2018), pp. 501-502. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Challenging the Validity of An International Arbitration Agreement at the Pre-Arbitration Stage: Is There a Remedy Available under the Pakistani Arbitration Laws?

Thu, 2020-11-19 23:00

In Pakistan, the law governing international arbitrations resulting in a foreign award is the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 (“2011 Act”). To those who are unfamiliar with the 2011 Act, it may come as a surprise that it does not provide any remedy to an applicant challenging the arbitration agreement at the pre-arbitration stage. But there is a way out!

When promulgating the 2011 Act, the legislature intended to design a law which limits judicial intervention in order to create a pro-foreign investment climate in Pakistan. A brief overview of the 2011 Act reveals that it significantly restricts the discretion of the courts to declare the arbitration agreement invalid prior to the commencement of arbitration.

The dilemma of which provision to apply for a challenge to the validity of an international arbitration agreement first arose in Pakistan before the High Court of Sindh in Karachi Development Company Limited v. IM Technologies Pakistan (Private) Limited, 2017 CLCN 157, in which Justice Shafi Siddiqui held that a possible remedy available for the applicant to challenge an international arbitration agreement is under Section 9 of the Civil Procedure Code, 1908 (“C.P.C.”), which relates to residuary proceedings of the court.

In the author’s opinion, there is a lacuna in the 2011 Act which fails to provide opportunity to the applicant to challenge the validity of the international agreement and the answer to it does not lie by invoking Section 9 of the C.P.C. This is for two reasons:

  • Firstly, under the Arbitration Act, 1940 (“1940 Act”) which is applicable to domestic arbitration agreements, Section 33 allows the applicant to challenge the arbitration agreement at the pre-arbitration stage. Such a provision is completely missing under the 2011 Act leaving an applicant without a remedy at the pre-arbitration stage.
  • Secondly, C.P.C. is general law and Section 9 is a procedural provision as opposed to a substantive one. It confers jurisdiction upon courts and does not grant a substantive right of action. The right of action is to be established by reference to substantive law which in this case is the 2011 Act.

Interestingly, under the 2011 Act, an applicant can challenge the validity of the arbitration agreement both post commencement of arbitration and again once an arbitral award has been rendered under Section 4 and Section 6 respectively. One of the reasons to explain the scheme of the 2011 Act to allow challenge to the validity of the arbitration agreement during and post arbitration may be to allow the arbitrator to decide the question of jurisdiction as opposed to the courts deciding it. This is because in Pakistan, court cases tend to proceed at a slow pace due to overcrowded dockets and inherent delays in the system. Another reason would be to give effect to the purpose of the New York Convention incorporated under the 2011 Act which is summarised by the Lahore High Court in Louis Dreyfus Commodities Suisse S.A. v. Acro Textile Mills Ltd., PLD 2018 Lahore 597 as follows:

The general pro-enforcement bias which permeates the 2011 Act is the policy of the law and must be the underlying thrust to liberalise procedures for enforcing foreign arbitral awards. The courts, on a proper objective analysis must give effect to the intention of the legislature and the purpose of the New York Convention, in the enforcement of foreign arbitral awards. The centrality of the statutory enterprise consists in shunning a tendency to view the application with scepticism and to consider the arbitral award as having a sound legal and foundational element.”

The legal position in Pakistan can be juxtaposed with that in India, which shares common history with Pakistan in relation to the 1940 Act up until 1996 when India enacted its Arbitration and Conciliation Act, 1996 (“1996 Act”). Unlike the 2011 Act, the 1996 Act codifies the principle of competence-competence in the statute itself under sub-section (1) of section 16 which provides that the “the arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement.”

In principle, pursuant to an application under sub-section 3 of section 16 of the 1996 Act,1)A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. jQuery("#footnote_plugin_tooltip_1783_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1783_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); an Indian court cannot refuse the arbitral tribunal to determine its own jurisdiction if a party wishes to challenge the validity of the arbitration agreement. In case an arbitral tribunal upholds a challenge to its jurisdiction, the aggrieved party can immediately file an appeal against the said order under section 37(2)(a) of the 1996 Act.2)37. Appealable orders – … (2) An appeal shall also lie to a court from an order of the arbitral tribunal – Accepting the plea referred to in sub-section (2) or sub-section (3) of section 16. jQuery("#footnote_plugin_tooltip_1783_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1783_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This is a marked distinction from the 2011 Act which does not contain any provision authorising the arbitral tribunal to rule on its own jurisdiction.

In this author’s opinion, the approach adopted under the 1996 Act is much more preferable given that it acts as a deterrence for frivolous claims raised by the party before the courts of its home jurisdiction. In Pakistan, it is a standard practice for a party which fears an unfavourable award may be passed against it, to adopt obstructionist and dilatory tactics. If Pakistan were to codify the principle of competence-competence under the 2011 Act, the legislature could indirectly ensure that only genuine claims challenging the validity of the arbitration agreement are raised before the arbitrators.

So, what is the solution under the 2011 Act to challenge an international arbitration agreement prior to the commencement of arbitration? The answer is that one may institute a suit for declaration and injunction in a Pakistani court pursuant to the provisions of the Specific Relief Act, 1877 without challenging the arbitration agreement at all. The opposing counsel would then file an application under Sections 3 and 4 of the 2011 Act to stay the legal proceedings. Such an application would then have to be contested under the limited grounds provided under Section 4 of the 2011 Act which are confined to an arbitration agreement being null and void, in operative or incapable of being performed.

Recently, in Ovex Technologies (Private) Limited v. PCM PK (Private) Limited and others, PLD 2020 Islamabad 52 = 2020 CLD 15, the Lahore High Court discouraged the practice of filing cases in court by roping in other parties who are not signatories to the arbitration agreement  alongside those who are party the arbitration agreement as co-defendants in a suit to avoid the proceedings in the court from being stayed. The reasoning given by the court was that this results in abuse of process as the matter which is supposed to be resolved through arbitration is unnecessarily dragged to the court.

On the contrary, in Aroma Travel Services (Pvt.) Ltd. v. Faisal Al Abdullah Al Faisal Al-Saud and 20 others, PLD 2018 Sindh 414 = 2017 YLR 1579, the High Court of Sindh dismissed an application under Sections 3 and 4 of the 2011 Act to stay the legal proceedings on the grounds that an unwritten and unsigned arbitration agreement would result in a futile exercise of referring the matter to the arbitrator. Thus, the discretion of the courts to stay the legal proceedings depends on the facts and circumstances of each case and whether or not the grounds provided under Section 4 are met with certainty.

Overall, it appears that the real issue lies with poor drafting of the 2011 Act. Ultimately, it is the Parliament which through an amendment to the 2011 Act should legislate on whether or not challenge to the arbitration is permissible at the pre-arbitration stage.

References   [ + ]

1. ↑ A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. 2. ↑ 37. Appealable orders – … (2) An appeal shall also lie to a court from an order of the arbitral tribunal – Accepting the plea referred to in sub-section (2) or sub-section (3) of section 16. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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