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Costa Rican Supreme Court Enforces against Non-Signatory

Sat, 2021-05-08 01:42

On February 28, 2021, the First Chamber of the Costa Rican Supreme Court (“the Court”) confirmed a US$ 23 million ICC award won by Panama-registered Hidroeléctrica San Lorenzo S.A. against Saret de Costa Rica S.A.

When it comes to the recognition and enforcement of foreign arbitral awards, Costa Rica is party to relevant international conventions, but has also recently enacted domestic legislation that regulates this matter further. Costa Rica ratified the Inter-American Convention on International Commercial Arbitration (the “Panama Convention”) in 1998, and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) in 1988. Additionally, Costa Rica’s International Commercial Arbitration Law is based on the UNCITRAL Model Law with the 2006 amendments.

In 2018, Costa Rica enacted a new Code of Civil Procedure in which it included provisions related to the recognition and enforcement of foreign arbitral awards. These provisions added a thin layer of confusion to the legal interpretation because these new provisions seemed to forget the regime already in place via the instruments mentioned above.

The Costa Rican Supreme Court, as the judicial authority in charge of deciding all applications for recognition and enforcement of foreign awards, has the prerogative to decide how the interplay between all of these legal instruments will play out. In certain decisions, such as the one discussed here, the Court limited its analysis to the Civil Procedure Code, and did not mention the other (very) relevant instruments pertaining specifically to the enforcement of foreign arbitral awards.

 

Background to the Dispute

Hidroeléctrica San Lorenzo S.A. filed a request for arbitration in December 2014 for breach of contract against Saret de Costa Rica S.A. and Grupo Corporativo Saret de Panamá S.A. The case was decided by an ICC tribunal – sole arbitrator Fernando del Castillo – seated in Panama City.

Hidroeléctrica San Lorenzo (HSL) and Saret de Panamá entered into a contract to construct and exploit the San Lorenzo Hydroelectric Central located in the Fonseca River in the Province of Chiriquí, Panama. The dispute related to various claims for breach of contract.

Hidroeléctrica San Lorenzo alleged that the Respondents willfully breached the contract, intentionally harming HSL. Additionally, HSL submitted that Saret de Panamá and Saret de Costa Rica acted together in the execution of the works, which is why their actions should be considered as a unit.

On April 11, 2016, the tribunal issued a Partial Award on Jurisdiction (the “Partial Award”) in which it decided that it had jurisdiction and could hear claims against both Saret de Panama and Saret de Costa Rica. Saret de Costa Rica argued that it was not a party to the contract, and therefore, had not agreed to be bound by the underlying arbitration agreement.

In its decision, the tribunal explained that in general terms, Panama’s Arbitration Law expressly established the competence-competence principle. Additionally, the tribunal pointed that the “Sala Cuarta de Negocios Generales” of the Panamanian Supreme Court had previously allowed the extension of the effects of an arbitration agreement to non-signatories in other cases.

In particular, the tribunal decided that the following elements were necessary in order to determine its jurisdiction over Saret de Costa Rica: i) the existence of a corporate group, ii) the non-signatory’s participation in the preparation and negotiation of the contract, iii) the non-signatory’s participation in the drafting of the documents on which the dispute was based, iv) the non-signatory’s participation in the performance of the contract, and, if applicable, in its termination, and v) the presumption that the non-signatory had previous knowledge of the arbitration agreement. Ultimately, the tribunal considered that Saret de Costa Rica met all the requisites.

Saret de Costa Rica sought to set aside the Partial Award before the Supreme Court of Panama, but the challenge was ultimately rejected.

On October 20, 2017, the tribunal issued the Final Award in which it granted Hidroeléctrica San Lorenzo S.A. approximately US$ 23 million in damages plus interest. Saret de Costa Rica tried to set aside the Final Award before the Supreme Court of Panama, but the Court also upheld the Final Award.

 

Costa Rican Proceedings

Hidroeléctrica San Lorenzo S.A. requested the enforcement of the Partial Award and the Final Award mentioned above before the First Chamber of the Costa Rican Supreme Court.

In its analysis, the Court highlighted the fact that it did not have jurisdiction to reopen the discussion on the merits of the case, but rather its reach was limited to the verification of the requirements established in Article 99.2 of the Civil Procedure Code.

Saret de Costa Rica opposed the enforcement by alleging: i) the incorrect application of the arbitration clause; ii) the lack of consent to the arbitration agreement; iii) lack of due process; iv) infringement with respect to the constitution of the arbitral tribunal and the arbitral procedure; and v) the existence of a pending litigation in Costa Rica.

With respect to the first two claims, Saret de Costa Rica argued that it was not a party to the arbitration clause, and that it never expressed consent in a way that would allow the tribunal to extend its effects to it. The Court explained that this point was already studied and decided by the arbitral tribunal in the Partial Award and by the Supreme Court of Panama, so it was not up to the Court to review it again.

As to the lack of due process argument, Saret de Costa Rica submitted that Hidroeléctrica San Lorenzo S.A. did not comply with the conflict resolution phase provided for in the contract before submitting a claim to arbitration. Here, the Court again explained that this pertained to the merits of the case and was an argument that was already rejected by the Panamanian judicial authorities. The Court also used this explanation to reject the fourth claim, that also had to do with the general arbitration procedure.

As for the final claim regarding a pending litigation in Costa Rica, the Court rejected it because the complaint for the parallel litigation was filed by Saret de Costa Rica against Hidroeléctrica San Lorenzo S.A. on the same day that that it filed its response to the petition for enforcement. The Court added that in order for this to be an obstacle for the recognition and enforcement of an award, the parallel procedure must be filed before, not after, the petition to enforce.

 

Conclusion

The Court finally rejected Saret de Costa Rica’s arguments and enforced the Partial Award and the Final Award in Hidroeléctrica San Lorenzo S.A.’s favor. This decision shows that Costa Rica’s Supreme Court is respectful of international arbitration and of the relevant authorities in charge of addressing matters such as the ones raised by Saret de Costa Rica. In its decision, the Court limited the scope of its analysis and generally deferred to the arbitral tribunal’s and the Panamanian courts’ decisions.

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Arbitration and Public Contracts in Brazil: The New Government Procurement Act

Fri, 2021-05-07 01:43

Introduction

On April 1st, the new Government Procurement Act (“GPA”) came into force (Law n. 14,133/2021). The new Act brings many positive changes to the processes of tendering and bidding conducted by state entities. Its legal provisions intend to bring greater legal certainty for those who want to invest in large projects in Brazil led by the Federal, State or Local Governments. A remarkable novelty within the Act is a chapter exclusively dedicated to dispute resolution (ss. 151 to 154), which reinforces Brazil’s arbitration-friendly framework.

As many readers may know, Brazil has not yet signed the ICSID Convention, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or BITs with investor-state dispute settlement mechanisms. Unlike the vast majority of countries, Brazil believes that it does not need to sign any investment treaties to attract foreign investment. Therefore, the new GPA is designed to establish most of the rights of investors interested in playing a part in a market that generated roughly USD 72 billion from 2017 to 2020.

The new Act expressly encourages parties to public contracts to solve their disputes by non-judicial methods, notably conciliation, mediation, dispute boards, and arbitration. The legislator wanted to make explicit that parties may deploy these different mechanisms for resolution of conflicts arising from public tenders and contracts based on Law n. 14,133/2021. It is important to note that such methods can be used not only in new public contracts, but also in pre-existing public contracts. An express provision makes it clear; therefore, that mediation can be initiated, for example, to resolve any outstanding issue. Likewise, arbitration can be adopted to solve a dispute related to a state contract signed before the enactment of the new GPA.

 

Particular features of arbitration in public contracts

With regard to matters that can be taken to arbitration (i.e., objective arbitrability), the sole para. of s. 151 limits them to negotiable and pecuniary matters, which means, for example, non-performance of obligations, economic imbalance of contracts, assessment of damages due to breach of contracts etc. Basically, the only limitation rests on matters in connection with the narrow concept of acta iure imperii.

Unlike arbitrations between private parties, arbitrations involving public contracts must be decided by applying statute law, as set forth in the first part of s. 152 of the GPA. In other words, parties to public contracts are prohibited from adopting ex aequo et bono arbitration. Likewise, arbitral tribunals cannot render their decisions based on usages of trade or general principles of law or lex mercatoria. The same provision can be found in para. 2 of s. 2 of the Brazilian Arbitration Act (“BAA”).

In addition, arbitrations involving public contracts are not confidential, but public, pursuant to the second part of s. 152 of the GPA. Indeed, publicity is a principle provided for in s. 37 of the Brazilian Constitution, which seeks to safeguard better control of the Public Administration, i.e., public accountability. Again, the same requirement is set forth in para. 2 of s. 2 of the BAA. It is important to say, however, that in some circumstances the law imposes confidentiality, as for example when the arbitration involves contracts containing national security issues.

As for the arbitrators, the GPA does not demand any specific personal requirement, not even nationality, years of experience, or qualification in Brazilian law. In other words, it is a market open to foreign arbitrators, not only Brazilian ones. In this regard, s. 154 only mentions that the process of choosing arbitrators or arbitral tribunals should be based on technical, fair and transparent criteria. In practical terms, this process will follow the provisions contained in institutional rules of arbitration, where, in general, one arbitrator is nominated by the claimant, the other one is nominated by the defendant, and the presiding arbitrator is chosen by the co-arbitrators already appointed.

The GPA does not address the choice of the arbitral institution in charge of administering the arbitral proceedings. As a rule, in arbitrations involving public entities in Brazil, parties are free to choose the arbitral institution, as long as the institution is registered with the federal, state or local attorney’s general office. Currently, not only well regarded local arbitral institutions (CAM-CCBC, Ciesp/Fiesp, Camarb, CBMA, Amcham etc.) are registered, but also the International Chamber of Commerce – ICC.

Unlike other Brazilian statutes governing the public sector, the GPA is silent regarding the seat of the arbitration, the applicable law to the merits, and the language of the arbitral proceedings. It is our understanding that nothing prevents a state entity from entering into an arbitration agreement where the seat is outside of Brazil, the applicable law is not Brazilian, and the language is not Portuguese. In practical terms, however, it is very likely that state entities in Brazil will try to favour domestic features in negotiating/drafting the public contracts.

Needless to say: such domestic preferences run against foreign investors’ interests for neutrality, who will manage this risk by simply increasing the financial return for the projects. Maybe it is time for Brazilian state entities to start weighing up the advantages of offering investors more options in terms of law, seat and language, as happens in some investment treaty arbitrations.

 

Conclusion

The GPA represents another welcome initiative taken by Brazil, which is strengthening its arbitration-friendly legal framework, and promoting arbitration as a means of solving disputes arising from public contracts. Other specific statutes already contained provisions in the same sense, but it is the first time in the country that the main Procurement Act expressly adopts arbitration.

The provision of arbitration and other alternative dispute resolution methods in the GPA has the potential to bring many benefits to state entities and to those looking to invest in Brazil, whether Brazilian or foreign investors, with the main benefits being efficiency and speed in the resolution of contractual conflicts with state entities. Efficiency is favoured by the flexibility of arbitration in comparison to court proceedings. Also, arbitral tribunals are specialists in the subject matter of the case, which increases the chances of having a highly technical decision. In addition, speed speaks for itself when Brazilian courts sometimes take 10 years to render a final decision (by the end of 2019, the last official national report informs that there are currently more than 77 million ongoing cases before Brazilian courts).

In the end, arbitration will reduce transaction costs in public contracts, which represents a more cost-effective solution for state entities (and, of course, for the taxpayer) and potential investors.

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The Annulment of Eiser v. Spain: A Call for Improvements to the System?

Thu, 2021-05-06 01:21

In 2017 Spain was ordered to pay Eiser €128 million on account of its failure to afford fair and equitable treatment. This award was subsequently annulled because the claimant-appointed arbitrator omitted to disclose a professional relationship with the claimants’ damages expert which led to, inter alia, the tribunal being improperly constituted. The full costs of the proceedings, including Spain’s legal fees and expenses, were shifted to Eiser.

The Annulment Decision reignited conversations about arbitrator impartiality, disclosure requirements and double hatting (including on this blog, here, here and here). Without addressing the correctness of the Annulment Decision,1) See e.g. Gary B. Born, International Commercial Arbitration, 3rd ed. (Kluwer Law International, 2021), Chapter 12, fn 1476, who states that the Annulment Decision is “an unrepresentative and clearly erroneous decision in the investment arbitration context.” jQuery('#footnote_plugin_tooltip_37299_9_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_9_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); it highlighted the lack of (i) uniform decision-making; and (ii) appropriate mechanisms for dealing with non-disclosure in an international setting, neither of which contributes to certainty or legitimacy of ISDS.

This post takes a closer look at these two issues, before concluding with some concrete solutions.

 

Lack of Uniformity

Compared to the total number of ICSID awards ever rendered, a rather small portion are annulled. Applications for annulment on the ground of improper constitution of the tribunal have been extremely rare and, up until the Annulment Decision in Eiser v. Spain, unsuccessful.

Despite the infrequent reliance on this ground, several Committees have analyzed Article 52(1)(a) of the ICSID Convention rather extensively. Yet, many Committees interpreted this provision almost anew because they did not consider themselves bound by earlier annulment decisions and contrary views expressed therein.2) See, e.g. Suez 03/19, para. 76; Eiser, para. 158  jQuery('#footnote_plugin_tooltip_37299_9_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_9_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

In Azurix v. Argentina the latter’s annulment request was refused because Article 52(1)(a) could only give rise to annulment “if there had been a failure to comply properly with the procedure for challenging members of the tribunal set out in other provisions of the ICSID Convention.” If the grounds for disqualification became known only after the issuance of the award, such newly discovered fact could provide a basis for revision under Article 51 of the ICSID Convention, but not annulment.

Although in Vivendi v. Argentina (Vivendi II) the ground for disqualification became known only after the issuance of the award, the Committee deemed that the facts in question could give rise to annulment.

Similarly, in EDF v. Argentina the Committee held that “changes in the circumstances of an arbitrator may mean that a tribunal which was properly constituted at the outset may cease to be so during the course of the proceedings.”

If there was a decision on a proposal for disqualification, a Committee could only find a ground of annulment if the refusal to disqualify the arbitrator in question was “so plainly unreasonable that no reasonable decision-maker could have come to such a decision.” This approach was subsequently followed in annulment proceedings in Suez 03/19 and Suez 03/17.

In the absence of a tribunal’s disqualification decision, the Committee would, after ensuring that there was no waiver under Rule 27, examine, de novo, “whether there exist grounds which a reasonable third party would consider give rise to reasonable doubts whether a member of the tribunal was sufficiently independent and impartial.” If so, the Committee would finally determine whether the lack of impartiality or independence on the part of the arbitrator could have had (and not whether it actually had) a material effect on the award.

The Committee in OI European Group B.V. v. Venezuela reverted to the Azurix approach, holding that the lack or loss of qualities listed in Article 14(1) were to be dealt with through provisions on disqualification, found in Articles 57 and 58 of the Convention, and not through annulment.

As appears from the above, two schools of thought have developed: whereas one addressed newly discovered facts through revision (Azurix and OI European Group B.V.), the other allowed for annulment (EDF and the others). If the latter view is followed (as the Eiser Committee did), is a tribunal to be considered in statu nascendi throughout the proceedings? How is this reconciled with the provisions of the ICSID Convention and the ICSID Rules that refer to tribunal constitution as a specific point in time?3) See, e.g. Article 56 of the ICSID Convention and the following Rules of the ICSID Convention Arbitration Rules: 6, 13, 20, 30 and 41(5). jQuery('#footnote_plugin_tooltip_37299_9_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_9_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Considering that the statement of ICSID’s founding Secretary General, Mr. Aron Broches (“if the grounds for disqualification only became known after the award was rendered, this would be a new fact which would enable a revision of the award”) was disregarded, has the drafting history become an obsolete source of guidance? Since the view of the EDF Committee is that “it is difficult to imagine a rule of procedure more fundamental than the rule that a case must be heard by an independent and impartial tribunal”, what is the value of Article 52(1)(a), in light of Article 52(1)(d)?

Regardless of one’s views on the correctness of the outcome in each of these cases, the fact remains that the same provision was applied differently, causing parties to spend valuable resources only to end up, years later, in the same or even worse position than before. Though a plurality of interpretations is sometimes desirable, fundamental questions such as “what is ‘constitution’ and when is a tribunal deemed ‘constituted’” should not be debatable.

 

Unenforceability of Disclosure Duties

The Eiser Annulment Decision also casts doubt on the effectiveness of disclosure duties. Undisputedly, arbitrators must be neutral and must disclose facts or circumstances that may (or may be perceived to) cloud their judgment.4) See, e.g. the CCAC Code of Ethics, Art. 11. jQuery('#footnote_plugin_tooltip_37299_9_4').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_9_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Many codes and rules specify that this duty is continuous.5) See, e.g. BCDR Arbitration Rules, Art. 10.6; LCIA Notes for Arbitrators, Section 2, para. 9; WTO Rules of Conduct, Section III, para. 1 and Annex 2; Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement, Art. 10(4), and other codes of conduct: CETA (Art. 3(3)), HKIAC (Rule 2), NAFTA (Section II, para. C), SIAC (para. 2), Vietnam International Arbitration Centre (para. 3). jQuery('#footnote_plugin_tooltip_37299_9_5').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_9_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Yet, the vast majority of these instruments envisage no consequence for non-disclosure. This, coupled with the fact that arbitrators enjoy immunity from legal process pursuant to Article 21 of the ICSID Convention, leaves room for nonchalance when disclosing potential conflicts.

Though the Eiser Committee stated that “even a disclosure by [the expert] would not have absolved [the arbitrator] from his disclosure obligations,” one cannot help but notice that neither the expert, nor the Claimants’ counsel saw fit to disclose the existing relationship, though both arguably have this duty. In its Article 4(4)(b), the CIArb Protocol for the Use of Party-Appointed Expert Witnesses in International Arbitration, requires the expert to state in their written opinion “any past or present relationship with any of the Parties, the Arbitral Tribunal, counsel […] other witnesses and any other person or entity involved in the Arbitration” (admittedly, the CIArb Protocol did not apply in Eiser). Lawyers likewise have a duty of candor to the tribunal, as appears from both international 6) e.g. the IBA International Principles on Conduct for the Legal Profession, Principle 2 jQuery('#footnote_plugin_tooltip_37299_9_6').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_9_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and national 7)e.g. the ABA Model Rules of Professional Conduct, Rule 3.3; the Québec Code of Professional Conduct of Lawyers, Art. 112 jQuery('#footnote_plugin_tooltip_37299_9_7').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_9_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); authorities. Whatever the reasons for non-disclosure were in Eiser v. Spain, it remains that there is no satisfactory way to address non-disclosure in the international context.

 

Solutions?

The creation of a multilateral investment court, which has been suggested as a better alternative for resolving investor-State disputes, appears to enjoy little support, at least among the respondents to the latest Queen Mary Survey. Asking the Secretary-General to scrutinize annulment decisions before their issuance to the parties is also unlikely, as the Secretary-General ought to perform “purely administrative” duties.8) Gabriel Bottini, “Present and Future of ICSID Annulment: The Path to an Appellate Body?”, 31(3) ICSID Review –FILJ 712, p. 726, citing the History of the ICSID Convention, p. 108. jQuery('#footnote_plugin_tooltip_37299_9_8').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_9_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Perhaps, what the system needs to achieve uniform interpretation of the ICSID Convention is an initiative similar to the CISG Advisory Council. This private initiative comprised of leading experts promotes a uniform interpretation of the UN Convention on the International Sale of Goods by issuing opinions on specific subjects/articles. Taking this a step further, during the ongoing revision of the ICSID Rules, provisions on annulment could be supplemented to provide for something similar to the preliminary reference procedure to the European Court of Justice. Persons who are already on the ICSID Panel of Arbitrators, from which members of Committees are selected, could provide opinions to Committees regarding the Convention’s specific provisions, thus ensuring their uniform interpretation and consistent application.

The consequences of non-compliance with disclosure duties could be written into the Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement (“Draft Code”). A provision similar to Article 13 of the Code of Ethics of the Milan Chamber of Arbitration, which empowers the Chamber of Arbitration to replace or refuse to confirm the non-complying arbitrator in subsequent proceedings by taking into consideration the seriousness and the relevance of the violation, may prove helpful. The SIAC Code of Ethics for Arbitrators, which in paragraph 1.3 enables the Registrar of SIAC to consider an arbitrator’s failure to ensure a fair determination of the dispute when fixing the quantum of their fees, may likewise serve as inspiration. Though not precisely in this context, several institutional rules (e.g. the Rules of the ICC, Appendix III, Article 2, and the Vienna International Arbitration Centre, Articles 16(6) and 44(7)) link the arbitrators’ fees to the performance of their duties. Envisaging any kind of consequence for a breach of disclosure obligations would likely increase the effectiveness of the Draft Code.

 

In the meantime, law firms and states could guard against Eiser-like situations by keeping centralized records of all experts retained in any past or present matters.

 

 

*The views expressed herein are those of the author and do not necessarily reflect the views of Woods LLP or its partners.

References[+]

↑1 See e.g. Gary B. Born, International Commercial Arbitration, 3rd ed. (Kluwer Law International, 2021), Chapter 12, fn 1476, who states that the Annulment Decision is “an unrepresentative and clearly erroneous decision in the investment arbitration context.” ↑2 See, e.g. Suez 03/19, para. 76; Eiser, para. 158  ↑3 See, e.g. Article 56 of the ICSID Convention and the following Rules of the ICSID Convention Arbitration Rules: 6, 13, 20, 30 and 41(5). ↑4 See, e.g. the CCAC Code of Ethics, Art. 11. ↑5 See, e.g. BCDR Arbitration Rules, Art. 10.6; LCIA Notes for Arbitrators, Section 2, para. 9; WTO Rules of Conduct, Section III, para. 1 and Annex 2; Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement, Art. 10(4), and other codes of conduct: CETA (Art. 3(3)), HKIAC (Rule 2), NAFTA (Section II, para. C), SIAC (para. 2), Vietnam International Arbitration Centre (para. 3). ↑6 e.g. the IBA International Principles on Conduct for the Legal Profession, Principle 2 ↑7 e.g. the ABA Model Rules of Professional Conduct, Rule 3.3; the Québec Code of Professional Conduct of Lawyers, Art. 112 ↑8 Gabriel Bottini, “Present and Future of ICSID Annulment: The Path to an Appellate Body?”, 31(3) ICSID Review –FILJ 712, p. 726, citing the History of the ICSID Convention, p. 108. function footnote_expand_reference_container_37299_9() { jQuery('#footnote_references_container_37299_9').show(); jQuery('#footnote_reference_container_collapse_button_37299_9').text('−'); } function footnote_collapse_reference_container_37299_9() { jQuery('#footnote_references_container_37299_9').hide(); jQuery('#footnote_reference_container_collapse_button_37299_9').text('+'); } function footnote_expand_collapse_reference_container_37299_9() { if (jQuery('#footnote_references_container_37299_9').is(':hidden')) { footnote_expand_reference_container_37299_9(); } else { footnote_collapse_reference_container_37299_9(); } } function footnote_moveToAnchor_37299_9(p_str_TargetID) { footnote_expand_reference_container_37299_9(); 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 * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Is there Room to Hope for Non-Treaty-Based ISDS in the EU? Remarks on AG Kokott’s Opinion in Case C-109/20 Poland v. PL Holdings

Wed, 2021-05-05 01:26

Many have long feared that the end of intra-EU BIT arbitration brought about by Achmea would soon be followed by the end of contract-based intra-EU ISDS. Although Advocate General (AG) Kokott’s recent Opinion in Case C-109/20 Poland v. PL Holdings allows for a glimmer of hope for non-treaty-based investment disputes, a closer reading of the Opinion reveals that this fear may in fact be justified.

 

Background

On 4 February 2020, the Supreme Court of Sweden requested a preliminary ruling from the CJEU on whether Articles 267 and 344 TFEU require it to set aside an arbitral award rendered in a dispute between an EU Member State and an EU investor where the Member State was found to have consented to the arbitration proceeding through its conduct, due to its belated objection to jurisdiction (Case No. T 1569-19, see here and on this blog here).This question arose in the setting aside proceedings commenced by Poland in Sweden against the PL Holdings awards (here and here) that had been rendered on the basis of the BLEU-Poland BIT in the summer of 2017 and awarded close to 180 million EUR in compensation for the forced sale of the investor’s shareholding in a Polish bank.

The Stockholm Court of Appeal accepted that Achmea rendered Poland’s consent to arbitration contained in the BLEU-Poland BIT invalid but found that Poland’s belated EU law objection to the tribunal’s jurisdiction in the arbitration (raised for the first time some 1.5 years after the proceedings had begun) could be understood as new and valid consent to arbitrate. The Stockholm Court therefore refused to set aside the challenged awards (Svea Court of Appeal, Cases T 8538-17 and T 12033-17, 22 February 2019). Poland appealed these findings to the Supreme Court of Sweden, which sent a reference for a preliminary ruling to Luxembourg.

 

The Kokott Opinion

In answering the Swedish Supreme Court’s question, AG Kokott begins by recalling the CJEU’s finding in Achmea – that investor–State arbitration provisions in a BIT between Member States is incompatible with EU law – and applies the three-prong test developed by the CJEU:

First, the AG points out that although the PL Holdings tribunal did not apply EU law, the dispute was nevertheless an “EU law dispute” because EU law applied to the case as part of Polish law. In such cases, there is a risk that the arbitral award will fail to have regard to EU law and will result in an infringement of EU law.

Second, the AG notes that arbitral tribunals are not part of the EU judicial system and are not entitled to make a reference for preliminary ruling. Individual arbitration agreements therefore allow EU law disputes to be removed from the EU judicial system in the same way as arbitration agreements formed on the basis of an offer to arbitrate contained in intra-EU BITs.

Third, according to the AG, the risk that arbitral awards will infringe EU law can be countered only if Member State courts can “comprehensively verify compliance with EU law and refer the matter to the Court if necessary”. Although the AG accepts that only the Swedish courts can assess whether Swedish law allows for such “comprehensive” review of arbitral awards, she finds it “doubtful” that Swedish law does. In this regard, the AG notes that if an award infringes EU law, the full effectiveness of EU law cannot be ensured by infringement proceedings or claims for compensation because they are “relatively cumbersome” proceedings.

The AG then discusses the CJEU’s case law on commercial arbitration, which accepts the limited review of commercial awards for their compliance with EU law, and the distinction drawn by the CJEU in Achmea between commercial arbitration, which is permissible under EU law, and intra-EU BIT arbitration, which is not. She recalls that, according to Achmea, commercial arbitration between private parties “originates in the freely expressed wishes of the parties”, adding that in commercial arbitration, not only the “arbitration agreement but also the disputed legal relationship itself … is based on the autonomous will of the parties” who “operate on an equal footing”.

Applying these criteria to the case at hand, the AG finds that the PL Holdings dispute is not a commercial dispute between parties on an equal footing, but one where “there can be no question of free will” because it relates to the exercise of “sovereign measures for enforcing EU law” by the Polish authorities. Therefore, the exemption allowed for commercial arbitration in Achmea is inapplicable to the PL Holdings case.

The Kokott Opinion further states that individual arbitration agreements between Member States and investors must be compatible with the principle of equal treatment and confirms that the temporal effect of Achmea is not limited.

AG Kokott concludes that individual arbitration agreements between investors and Member States concerning the “sovereign application of EU law” are compatible with Articles 267 and 344 TFEU only if national courts can comprehensively verify the award’s compliance with EU law and refer the matter to the CJEU if necessary.

 

Remarks

Against the need for greater clarity and certainty on the contours of permissible intra-EU investment arbitration following Achmea, the Kokott Opinion may perhaps come as a disappointment. While identifying the precise implications and consequences of the Opinion will require more time, the following preliminary remarks can be made.

First, any dispute involving a Member State is an “EU law dispute”, and a non-treaty-based arbitration agreement (whatever its form) concluded with the Member State to settle that dispute will have to comply with Articles 267 and 344 TFEU. Recent attempts by the arbitration community to limit the reach of Achmea to intra-EU BIT disputes in which EU law was part of the applicable law or the tribunal in fact applied EU law may therefore be futile.

Second, arbitrations involving Member States do not automatically qualify as “commercial” merely because they arise on the basis of an individual arbitration agreement rather than a treaty. Therefore, they do not automatically come under the commercial arbitration exemption confirmed in Achmea. In order to qualify as commercial, they must arise from the “free will” of the parties operating on an “equal footing”. It is regrettable that the AG hangs on to the – rather unconvincing – distinction drawn by the CJEU between commercial and investment arbitration based on the parties’ “free will”. Not only is “free will” a philosophical concept rather than a legal criterion, but contrary to the CJEU’s and AG Kokott’s finding, Member States do exercise “free will” both when they conclude BITs containing offers to arbitrate and when they enter into non-treaty-based arbitration agreements. The AG’s new “equal footing” criterion is equally unconvincing (and surprisingly naïve). Furthermore, it is also unclear why the alleged risk of undermining the uniform application of EU law is acceptable if it is based on the “free will” of “equal parties” but unacceptable otherwise. It is perhaps for these reasons that the AG adds that arbitrations involving “sovereign measures for enforcing EU law” are in any event not “commercial”. By defining such “sovereign measures” very broadly, the Opinion may be seen as casting doubt over the Member States’ ability to enter into arbitration agreements that will automatically qualify as “commercial” and thus as compatible with EU law.

Third, for such non-treaty-based arbitrations over “sovereign measures for enforcing EU law” to comply with Articles 267 and 344 TFEU, the resulting award must be open to “comprehensive” review by the Member State courts as to its compatibility with EU law. This is so, inter alia, because infringement proceedings are ineffective and cumbersome and cannot ensure compliance with EU law, according to the AG. It is noteworthy that in the aftermath of Achmea, the Commission attempted to reassure EU investors that in the absence of intra-EU BITs their cross-border investments will be protected by EU law which will be enforced via such infringement proceedings. It is unclear what the AG means by “comprehensive” review of arbitral awards, although she seems to suggest that the Swedish courts should have comprehensively examined the compatibility of the PL Holdings awards with EU law of their own accord, including by reviewing the correctness of the tribunal’s application of the Polish banking supervision rules derived from EU law. The limited review of non-ICSID awards under Member States’ arbitration laws excludes the review of awards on their substance, and ICSID awards are exempt from review by Member State courts altogether. The AG has left it to the Swedish Supreme Court to decide whether the review of awards allowed for under Swedish law is comprehensive enough to ensure their compliance with EU law (rather than deciding that it is not, as the CJEU did in Achmea in respect to German law). Therefore, if the CJEU follows the Kokott Opinion in this regard, and the Swedish Supreme Court answers the question in the affirmative, there may be grounds to hope that at least a narrow category of intra-EU ISDS proceedings will survive Achmea.

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Arbitration Tech Toolbox: Arbitrators and Their Online Identities, a Double-Edged Sword?

Tue, 2021-05-04 01:21

Social media are meant to facilitate connections. They make it possible to meet inspiring people from all over the world, especially now that we are subject to travel bans due to the protracted sanitary emergency. Connections are indeed a wonderful asset. However, as professionals involved in disputes, have we reflected thoroughly on how these connections could be perceived from an outside perspective? And how do we secure our virtual environment?

On 15 April 2021, the webinar “Arbitrators and their online identity: a double-edged sword” took place, jointly organised by the Madrid International Arbitration Center (MIAC), the Chartered Institute of Arbitrators Young Members Group (CIArb YMG), Arbitrator Intelligence, AMCHAM Quito and CyberArb. The event consisted of two panels: the first one, moderated by Sebastiano Nessi of Schellenberg Wittmer, featured a discussion on the potential risks faced by arbitrators in handling their online identities. The second panel, moderated by Wendy Gonzales of CyberArb, focused on practical tips to secure arbitrators’ online identity.

 

Can interactions on social media give rise to arbitrator challenges?

Following the year of the pandemic and of virtual hearings, LinkedIn has become the new conference room, with 700 billion users from 200 countries. Nowadays, arbitrators use LinkedIn as a powerful personal branding tool. However, Michele Potestà of Lévy Kaufmann-Kohler warned against the overwhelming flow of updates celebrating others’ achievements which could put unnecessary pressure on those who view them and make those people lose sight of their own goals, especially at early stages of their career.

As known, the IBA Guidelines on Conflicts of Interest in International Arbitration consider doubts as to the arbitrator’s impartiality or independence as ‘justifiable’ on an objective basis. Could social media connections give rise to conflicts of interest and consequent challenges? Yasmin Lahlou of Chaffetz Lindsey recalled that contacts with other professionals through a social media network are expressly included in the Green List (at article 4.3.1) and thus do not need to be disclosed and noted that no challenge brought on such basis has been successful yet.

It was then asked whether the different types of reactions available for LinkedIn posts which go beyond a simple ‘like’ – i.e. ‘celebrate’, ‘support’ , ‘insightful’, ‘curious’ and their different interpretation in foreign languages – may reflect different degrees of intensity in the relationship between the involved users. A reasonable doubt could arise whether the reaction was towards the content of the post or rather towards its author. The panellists unanimously agreed that while proceedings are pending arbitrators should avoid interacting with stakeholders involved. However, the panellists disagreed on the degree of self-restraint: while Niuscha Bassiri of Hanotiau & van den Berg suggested filtering through the connections and removing the parties’ counsels and even their law firms, Potestà considered that excessive. Lahlou observed that caution reflects deep comprehension of the issue and that it should therefore be practiced until a standard is set by the courts.

Ultimately, social media connections and interactions are not the problem per se, but they could become problematic if they constitute evidence of underlying substantial and close relationships between the arbitrator and other professionals. When in doubt, disclosing such close relationships is the best way to avoid subsequent challenges.

 

How far does the parties’ duty to investigate go?

When carrying out due diligence on potential arbitrators, parties’ counsels are now expected to explore their background on social media – Bassiri drew a parallel with due diligence conducted by human resources when hiring someone. Particularly, LinkedIn makes a user’s connections plainly visible. In contrast, it would not normally be expected of counsels to do extensive research on Twitter, because arbitrators normally do not use and abuse that platform by continuously posting materials. Things might change, however, following the recent Sun Yang case.

 

How can arbitrators secure their online identities?

As a greater part of our personal and professional lives moved online, so did the security risks. In fact, every 11 seconds a cyber-attack occurs. It is therefore paramount for arbitrators to secure their online identity. Thus, the second panel offered three practical tips, bearing in mind that the list is not exhaustive.

First, secure your network. Social media connections can compromise the security of one’s network when coming from fake accounts. Once connected and masqueraded as trusted profiles, they could launch phishing attacks, i.e. send malicious links or documents through e-mail or instant messaging services that are also available within social media.

Thus, when receiving hyperlinks or attachments from connections we are unsure about, Sophie Nappert of 3 Verulam Building recommended avoiding clicking on them and double-checking using ‘old-fashioned’ methods, such as directly calling the sender, to make sure that there is a real and trusted person on the other side. Furthermore, Catherine Rogers of Arbitrator Intelligence noted that connections can be used as guerrilla tactics, when parties’ counsels or agents make an attempt at connecting with the appointed arbitrator and engage him or her in those which could be perceived as ex parte communications.

Nonetheless, Kabir Duggal of Columbia University acknowledged the benefits of using social media and suggested that most problems could be avoided simply by using common sense. He noted that challenges can always be raised, yet parties need to make sure to ‘shoot to kill’ and common sense could serve as a robust shield against the bullet.

Second, secure your tools. It is becoming a common practice in virtual settings that arbitration stakeholders utilise instant messaging tools to exchange confidential arbitration related content, especially for quick communications during virtual hearings. WhatsApp is the undisputed big player in the field, yet even though WhatsApp features end-to-end encryption, it is questionable how suitable WhatsApp is for confidential proceedings, including arbitration proceedings. Duggal explained that some arbitrators prefer to use such external tools due to the high chances of making mistakes when using the chat box within Zoom or other video conference platforms, especially when dealing with high-intensity, crowded, proceedings.

Third, secure your content. Rogers remarked that social media platforms are owned by companies that systematically profile their users for commercial purposes. Parties to an arbitration are aware that information is all over the place, given the plethora of online platforms available and, due to the lack of information publicly available on arbitrators, there may be efforts to use their online activity to profile them in order to predict their behaviour. She also warned that the audience on social media is not limited to one’s connections. The content one shares can be re-shared and reach a potentially unlimited public, and even deleted content can still be accessible. This is the kind of personal scrutiny everyone should get used to.

 

Conclusions

More challenges based on ‘justifiable doubts’ as to the impartiality and independence of the arbitrator are expected to be brought based on the arbitrators’ connections and activity online. The lack of guidance on the matter could be troublesome, yet any dedicated soft law might not have sharp teeth, due to the infinite number of variables in the context of online interactions.

Arbitrators’ online identities must be handled pondering every click with common sense. Letting someone connecting to your network is no different than letting him or her inside your house. Arbitrators need greater awareness about cyber-risks and should not settle for unsafe tools just because they are familiar. Meanwhile, online dispute resolution (ODR) platforms are encouraged to develop and provide safer and more user-friendly integrated instant messaging functions for arbitration related communications. As aptly stated in the ICCA-NYC Bar-CPR Cybersecurity Protocol for International Arbitration (2020), cybersecurity requires effort from all stakeholders. Currently, ongoing initiatives aiming to bridge the gap between theory and practice might be of help.

To sum up, online identities can potentially become a double-edged sword, and — similar to a certain TV series — this could determine the fate of attempts to control the mysterious land of Westeros or, analogically, social media.

=======

Further posts on our Arbitration Tech Toolbox series can be found here.

The content of this post is intended as educational and general information only. It is not intended for any promotional purposes. Kluwer Arbitration Blog, the Editorial Board, and this post’s authors make no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information in this post.

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Resolution on the Authentication of Arbitration Awards in Commercial Matters

Mon, 2021-05-03 01:15

In the constitutional lawsuit (amparo) with court docket number 7856/2019, the First Chamber of the National Supreme Court of Justice analyzed the constitutionality of Article 1461, second paragraph, of the Commercial Code, which states, in its relevant part, that a party interested in enforcing an arbitration award must file the original arbitral award “duly authenticated”.1)Precedent generated by Contributors (CAMYA ABOGADOS) jQuery('#footnote_plugin_tooltip_37205_18_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37205_18_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

It is relevant to stress that, in the Mexican legal system, authentications are mostly conducted by public notaries and brokers. Thus, the point to elucidate is to understand how this requirement is met.

It should be noted the existence of a judicial precedent issued by the Fourteenth Collegiate Circuit Court in Civil Matters from the First Circuit (Mexico City). The referred precedent established that duly authentication implies that the interested party proves that the arbitral award was issued by the respective arbitrator or arbitrators.  Hence, the arbitrator or arbitrators shall attend before a notary public or public broker to certify that the signatures in the award are their own.

 

Relevant background

In the case at hand, the parties involved in this arbitration, seated in London, and conducted under the rules of the London Maritime Arbitrators Association, settled the respective dispute, and the arbitrators issued a consent award.

Due to the fact that the consent award was not fully complied with by the losing party (the respondent), the claimant initiated the special procedure for recognition and enforcement of the arbitration award in Mexico, under the application of the Commercial Code.

Therefore, the plaintiff submitted before the competent judge a copy certified by a notary public in Mexico City, in which this one certified that the photostatic copy of the consent award was consistent with the original.

 

Legal issues to be resolved

As it was stressed before, one of the legal issues to determine in the recognition and enforcement procedure was to establish whether the notarial certification of an arbitration award, complied with the formality contained in Article 1461, second paragraph of the Commercial Code. The foregoing with respect to the obligation that the interested party needs to exhibit the original award duly authenticated.

In the case at hand, the Fifteenth Collegiate Circuit Court in Civil Matters from the First Circuit (Mexico City), stated that the authentication requirement is met with the presentation of the original award or a certified copy. The court reasoned that the award enjoys a presumption of validity, hence, it is presumed valid unless the defendant proves  the falsity of its content or of the arbitrators’ signatures. Therefore, if the lack of authenticity is not accredited, the award can be executed even if it is not authenticated by a public notary. Otherwise, it would be contrary to article 17 of the Political Constitution of the United Mexican States (“Mexican Constitution”), which guarantees parties’ access to justice.

Due to the discrepancy of its decision with the previous judicial precedent issued by the Fourteenth Collegiate Circuit Court in Civil Matters from the First Circuit, the Fifteenth Collegiate Circuit Court raised this issue before the Circuit Plenum in Civil Matters from the First Circuit.

However, in parallel to the foregoing, the defendant filed an extraordinary challenge against the decision issued by the Fifteenth Collegiate Circuit Court, which was admitted by the First Chamber of the Supreme Court of Justice.

 

Analysis and resolution of the First Chamber of the Supreme Court of Justice

In a thorough analysis of the fundamental right to an effective judicial protection, the First Chamber considered the following arguments:

  1. Judges must resolve conflicts that arise before them without obstacles or unnecessary delays.
  2. It is within judges’ duties to avoid formalisms or unreasonable or unnecessary interpretations that impede or hinder the judicial process on its merits.
  3. The requirements established by the legislator to admit lawsuits are of strict interpretation so as not to limit the fundamental right to an effective judicial protection. Hence guaranteeing -essentially- the exercise of this right based on the pro homine and in dubio pro actione.

With these aspects in consideration, the First Chamber noted that the United Nations Commission on International Trade Law (UNCITRAL) revised the Arbitration Model Law in 2006 and, among other aspects, modified Article 35. Such provision, like the New York Convention, originally required parties seeking enforcement to submit the duly authenticated original award. Nevertheless, as a result of the revision, such provision now reads: “(…) 2) The party relying on an award or applying for its enforcement shall supply the original award or copy thereof (…)”

The First Chamber also stressed out that, in the explanatory note of the amendment, the UNCITRAL specified that the Model Law does not lay down procedural details of recognition and enforcement. The latter in order for this aspect to be determined by the laws and procedural practices of each country. In the same vein, footnote of article 35 of the Model Law states:

“(…) The conditions set forth in this paragraph are intended to set maximum standards. It would, thus, not be contrary to the harmonization to be achieved by the model law if a State retained even less onerous conditions.”

The First Chamber also pointed out that the aforementioned amendment is viable, even though it removed a requirement set forth in Article IV of the New York Convention. This is so because, pursuant to Article VII of such convention, its procedural provisions may be waived if the law of a State Party offers more favorable terms to parties seeking to enforce awards therein.

It is recognized that, Article 1461 of the Commercial Code, which resembles the former version of Article 35 of the Model Law, has not been amended yet. Furthermore, since the Model Law is only a guiding document this situation cannot be an argument in favor or against the constitutionality of the regulatory portion of the provision in question. In this sense, the analysis in question is not whether Article 1461 matches the Model Law, but whether it is in line with Article 17 of the Mexican Constitution.

 

Conclusion

The Court concluded that Article 1461 of the Commercial Code was disproportionate and, hence violated Article 17 of the Mexican Constitution.

The First Chamber emphasized that arbitral awards enjoy a presumption of validity, which is binding for parties within the arbitration and for the judicial authorities, in accordance with the commitments acquired by the Mexican State under international treaties on the matter.

Consequently, “due authentication” cannot be understood as a requirement aimed at endorsing or demonstrating the formal and material validity of the award or its binding nature. Hence an authentication can only be understood as a mechanism to provide the award with greater certainty as to its authenticity, in order to reduce the probability of a possible imputation of falsity by the respondent. The ultimate purpose of the due authentication of the award is the legal certainty of the judicial process, and primarily, to avoid as far as possible that the respective procedure may be hindered or delayed with disputes over the award’s authenticity. In such way, that the lack of authentication cannot conduct to assume its falsity.

The authentication through the intervention of a notary public or public broker, in order to satisfy the requirement set forth in the provision under study, as a general rule will and must be through the recognition and ratification of the signature of the arbitrator or arbitrators. However, regarding an arbitration award, it is not expected, nor can it be required, that the authentication referred to in the legal rule under analysis be performed through the presence of the notary public at the time of signing the award. It is not customary in the arbitration field, under the principle of good faith, and it is not contemplated in this way under the Commercial Code.

Based on the aforementioned considerations, the First Chamber concluded that the authentication requirement is disproportionate and unnecessary, due to the fact that there is no dispute over the authenticity of the award. Therefore, inasmuch as the necessity of the measure has not been demonstrated, this was sufficient to hold its unconstitutionality.

References[+]

↑1 Precedent generated by Contributors (CAMYA ABOGADOS) function footnote_expand_reference_container_37205_18() { jQuery('#footnote_references_container_37205_18').show(); jQuery('#footnote_reference_container_collapse_button_37205_18').text('−'); } function footnote_collapse_reference_container_37205_18() { jQuery('#footnote_references_container_37205_18').hide(); jQuery('#footnote_reference_container_collapse_button_37205_18').text('+'); } function footnote_expand_collapse_reference_container_37205_18() { if (jQuery('#footnote_references_container_37205_18').is(':hidden')) { footnote_expand_reference_container_37205_18(); } else { footnote_collapse_reference_container_37205_18(); } } function footnote_moveToAnchor_37205_18(p_str_TargetID) { footnote_expand_reference_container_37205_18(); 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 * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Standard v. Indemnity Costs in an Unsuccessful Application to Set Aside an Arbitral Award: A Singapore Perspective

Sun, 2021-05-02 01:00

Where a plaintiff unsuccessfully applies to set aside an arbitral award or resist enforcement of the same, should the costs of the application, as a default rule, be awarded to the defendant on a standard or indemnity basis? The recent string of Singapore decisions on BTN v BTP address this question from a Singapore perspective.

 

Background

In BTN v BTP [2019] SGHC 212 (“First Proceedings”), the Singapore High Court dismissed the plaintiffs’ setting aside application and awarded costs to the defendants. On appeal by the plaintiffs in BTN v BTP [2020] SGCA 105 (“Second Proceedings”), the defendants tried to persuade the Court of Appeal to order the costs in the First Proceedings on an indemnity basis instead of a standard basis (which is generally the default position for costs awards in Singapore). The Court of Appeal dismissed the plaintiffs’ appeal, declined to disturb the costs order below and awarded the defendants fixed costs with regard to the costs of the appeal. As the parties were not able to amicably resolve the quantum of costs, parties made submissions on that to the High Court, which issued a supplementary judgment on the quantum of costs in BTN v BTP [2021] SGHC 38 (“Third Proceedings”).

In the Third Proceedings, the High Court:

  1. Highlighted that the Court’s reference in the First Proceedings to ‘costs’ meant that the costs would be considered as ‘standard costs’. The High Court stated that “[u]nless the court orders otherwise, a dismissal with costs means that the party and party costs would be taxed on a standard basis” (para 3).
  2. Noted that the Court of Appeal had already decided in the Second Proceedings that it would not disturb the costs order made in the First Proceedings, and therefore it was impermissible for the defendants to try to re-argue that issue before the Court in the Third Proceedings (para 3).

Therefore, the Court held that the defendants were not permitted to argue for a higher quantum of costs by seeking to switch the basis of the costs ordered from standard to indemnity basis (para 3).

 

Whether the default rule should be assessment on a standard or indemnity basis

Interestingly, after having reached that decision, the High Court nonetheless went on to explain why the Court in the First Proceedings ordered standard costs instead of indemnity costs.

The Court explained that the usual course is to award a successful litigant party and party costs on a standard basis. Costs on an indemnity basis is dependent upon there being exceptional circumstances to warrant a departure from the usual course of awarding costs on a standard basis (para 8). This general rule applies equally in an unsuccessful application to set aside an arbitral award or to resist enforcement of the same, as such applications are not treated as a category of exceptional circumstances in which indemnity costs may be ordered (para 9).

The High Court also considered whether the grounds outlined by the defendants constituted exceptional circumstance that would warrant an order for indemnity costs, and stated obiter that they did not (para 14). The Court explained that the defendants’ claims that the plaintiffs, “in mounting other grounds of challenges, added to the complexity of the proceedings and protracted the same, thereby causing the defendants to incur substantial costs, including the expense of instructing senior counsel”, did not constitute exceptional circumstances that warranted an order of indemnity costs (para 11). A critical requirement for indemnity costs is the existence of some conduct that takes the case “out of the norm” (para 15).

 

The Hong Kong position

In contrast to the Singapore position, the default rule in Hong Kong is that indemnity costs will be granted where an arbitral award is unsuccessfully challenged in court proceedings, unless special circumstances can be demonstrated: A v R [2010] 3 HKC 67 (“A v R”). This case has previously been featured on the Blog. The rationale behind this rule is that the parties, by submitting their dispute to arbitration, have undertaken to respect the enforcement of the arbitral award and therefore have the duty to assist the court in the just, cost-effective and efficient resolution of the dispute.1)A v R at para 69. jQuery('#footnote_plugin_tooltip_37091_21_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37091_21_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Consequently, unmeritorious challenges against an award “should be regarded as exceptional events, and where such a party unsuccessfully makes such an application, the court will normally award indemnity costs, absent special circumstances”.2)A v R at paras 68 to 72. jQuery('#footnote_plugin_tooltip_37091_21_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37091_21_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

This default rule has been affirmed by the Hong Kong Court of Appeal.3)Gao Haiyan and another v Keeneye Holdings Ltd and another [2012] HKCU 226. jQuery('#footnote_plugin_tooltip_37091_21_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37091_21_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); However, further guidance is required from the Hong Kong courts on what amounts to “special circumstances” that would warrant a departure from the general rule.

As seen from BTN v BTP, the Singapore courts have intentionally chosen to take a different approach by retaining the usual position that costs are awarded on a standard basis, even in an unsuccessful application to set aside an arbitral award or to resist enforcement of the same. In this way, the burden of proof with regards to proving that indemnity costs is warranted is reversed, in comparison to the Hong Kong position.4)CCM Industrial Pte Ltd v Uniquetech Pte Ltd [2009] 2 SLR(R) 20 at [32]. jQuery('#footnote_plugin_tooltip_37091_21_4').tooltip({ tip: '#footnote_plugin_tooltip_text_37091_21_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Commenting on the different positions in the two jurisdictions, the Singapore High Court in the Third Proceedings highlighted the different objectives of the two legal systems (para 15):

“[T]he Hong Kong court’s approach in justifying indemnity costs is intended to give effect to the underlying objectives of its Civil Justice Reform, one of which is the cost-effective and efficient resolution of a dispute (A v R at [69]; Gao Haiyan at [7] and [10]). While these considerations are also acknowledged in Singapore in variant forms when the court evaluates how the party conducted its case in the litigation, they are not absolute trumps. […]O 59 r 5 sets out several non exhaustive factors which a court exercising its discretion would take into account in considering whether it is “appropriate” to make an exceptional award of indemnity costs.”

 

Further analysis

By contrasting the Singapore and Hong Kong positions, it is clear that the default rule adopted by national courts in relation to the costs award in unsuccessful applications to set aside an arbitral award or resist enforcement of the same is significant in a few ways:

  1. First, the default rule will determine the burden of proof for an award of indemnity costs. If the court opts for standard costs as the default rule, the defendant will need to prove exceptional circumstances to obtain indemnity costs, and vice versa.
  2. Second, and relatedly, a jurisdiction that chooses a default rule of indemnity costs may therefore appear to be more pro-enforcement of arbitration awards. A default rule of indemnity costs may incentivise parties to voluntarily comply with the arbitral award and also deter unmeritorious challenges to the award, since the quantum of costs assessed on an indemnity basis would be higher than that assessed on a standard basis.

In any event, a national court’s choice between the two default rules will largely depend on the jurisdiction’s legal culture and objectives as regards arbitration and civil justice.

References[+]

↑1 A v R at para 69. ↑2 A v R at paras 68 to 72. ↑3 Gao Haiyan and another v Keeneye Holdings Ltd and another [2012] HKCU 226. ↑4 CCM Industrial Pte Ltd v Uniquetech Pte Ltd [2009] 2 SLR(R) 20 at [32]. function footnote_expand_reference_container_37091_21() { jQuery('#footnote_references_container_37091_21').show(); jQuery('#footnote_reference_container_collapse_button_37091_21').text('−'); } function footnote_collapse_reference_container_37091_21() { jQuery('#footnote_references_container_37091_21').hide(); jQuery('#footnote_reference_container_collapse_button_37091_21').text('+'); } function footnote_expand_collapse_reference_container_37091_21() { if (jQuery('#footnote_references_container_37091_21').is(':hidden')) { footnote_expand_reference_container_37091_21(); } else { footnote_collapse_reference_container_37091_21(); } } function footnote_moveToAnchor_37091_21(p_str_TargetID) { footnote_expand_reference_container_37091_21(); 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 * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Is Arb-Med Un-Australian?

Sat, 2021-05-01 01:00

New arbitration rules for the Australian Centre for International Commercial Arbitration (ACICA) came into force on 1 April 2021. The 2021 ACICA Rules update the 2016 Rules outlined here to bring them in line with other major institutional rules. Changes include express provisions regarding “e-arbitrations” (e.g. Rule 14) and to consolidate proceedings even in “chain of contract” situations (Rule 16(1)(c)).

When arbitral institutions announce changes to their arbitration rules, it is also useful to consider if any provisions have not made the cut. The 2021 ACICA Rules notably do not include detailed provisions on “Arb-Med”, whereby hybrid arbitrators actively encourage the parties to reach settlement, thus potentially saving significant costs and delays or preserving business relationships better. Arb-Med provisions had been proposed in Draft Rule 55 of the Draft Consultation Rules (Draft Rules) released in mid-2020 by ACICA, adopting a “dual consent” approach. Under Draft Rule 55 (reproduced here) parties have to agree first to authorise arbitrators to facilitate settlement. If settlement facilitation efforts fail, and they involve caucusing (i.e. ex parte meetings) or parties provide information on some other confidential basis, any party could veto the arbitrators continuing on in the arbitration to give an award.

This approach was designed to minimise concerns and possible court challenges for violating mandatory laws on arbitrator bias or equal treatment of the parties. It is similar to the approach adopted by section 27D of the (otherwise Model Law based) uniform Commercial Arbitration Act (CAA) legislation introduced from 2010 for domestic arbitrations in all Australian States and Territories. The approach contrasts with an earlier Arb-Med provision introduced in the pre-2010 New South Wales Act, requiring consent by parties given at the initial stage, which had not proven popular in practice.

One downside in the dual-consent model is that it may lead to more delays overall, if settlement facilitation fails frequently and then the parties (especially the recalcitrant respondent) do not agree to let the tribunal revert to arbitration mode. To reduce such delays, Draft Rule 55.6 added an innovative feature. It allowed ACICA to appoint “back-up” arbitrators (if parties could not do so promptly) who are ready to step in and resume the arbitration if any party refuses to agree to the original set of arbitrators reverting to arbitration mode.

Nonetheless, feedback through public webinars was mixed regarding these draft Arb-Med provisions, in contrast to almost all other changes in the Draft Rules. This may reflect the fact that Arb-Med remains rare in Australia. It also does not seem to be much practiced even in the Asian region, apart from China and to a lesser extent Japan. Some Arb-Med provisions were added in Hong Kong and Singapore international arbitration legislation but they seem to be little used. Attempts to promote Arb-Med by the London-based Centre for Effective Dispute Resolution (CEDR), through different 2009 Rules (and a related Report), also apparently generated little extra enthusiasm among arbitration practitioners internationally – and they in fact vanished from the CEDR website at one stage when that was revamped. This was despite strong support for the CEDR initiative from former senior British judge Lord Harry Wolff and leading arbitrator Prof Gabrielle Kaufmann-Kohler from Switzerland, where (as in other legal systems in the German legal tradition) both judges and arbitrators typically encourage settlement. Related research by Kaufmann-Kohler and others suggested little risk of successful court challenges to Arb-Med, if conducted carefully. This was borne out by the Hong Kong Court of Appeal enforcing an award from China following failed settlement facilitation, in the much-discussed case of Gao Haiyan and Xie Heping v Keeneye Holdings and another CACV 79/2011, although enforcement was refused at first instance.

Because the Draft Rule 55 is inspired by the CAA legislative regime for domestic arbitrations, it seems unlikely that such Arb-Med would be successfully challenged by courts in Australia if chosen as seat (as is the default under ACICA Rule 27(1)), under the federal International Arbitration Act (IAA). However, to maximise certainty and publicise the potential for Arb-Med, it would be useful for the IAA to be amended to include Arb-Med provisions along similar lines. Some sort of Arb-Med provision for the IAA has been urged by myself and other commentators for over a decade, but the IAA amendments introduced since 2010 (adopting most of the revised Model Law) have been quite limited. Chances for further legislative reform may be reduced by the 2021 ACICA Rules not having adopted provisions like Draft Rule 55. Instead, Rule 55 of the 2021 ACICA Rules limits itself to requiring the tribunal to raise for discussion with parties the possibility of separate mediation or ADR, allowing the tribunal to suspend the arbitration for such separate ADR, and requiring the parties choosing separate mediation to use the ACICA Mediation Rules (although parties could vary that requirement in writing under Rule 2(1)).

Meanwhile, users and in-house or other counsel keen to minimise costs and delays in arbitration could write into their dispute resolution clauses some Arb-Med provisions along the lines of Draft Rule 55. Draft Rule 55.6 could then be varied to allow an institution other than ACICA, if selected by parties for the arbitration, to make the back-up appointment of arbitrators when initiating Arb-Med (for example, parties could ask CEDR to assist with ad-hoc arbitrations conducted under UNCITRAL Rules); or it could be omitted completely.

Other institutions might also consider adopting or adapting Arb-Med provisions like these, particularly to deal with lower-value or less complex cases. After all, many institutions (including ACICA) already provide an expedited sole-arbitrator track for such cases, which arguably require fewer procedural justice safeguards. If such an amendment were still felt to be far-reaching, the Rules could be amended so the Arb-Med provisions only apply to arbitration agreements concluded after the amended Rules come into force.

Such innovations by arbitral institutions, parties and legislators seem particularly timely as disputes and arbitration filings have proliferated in the wake of the COVID-19 pandemic. They may also help reduce the overall formalisation of international arbitration, with consequent costs and delays despite ever-growing globalisation. Further initiatives in this field would also be consistent with the push to promote mediation techniques through the 2019 Singapore Mediation Convention and even to resolve investor-state disputes. Those developments are already pushing many arbitration practitioners to broaden their dispute resolution skill set.

 This post reflects personal views, not necessarily those of other ACICA Rules Committee members or ACICA itself.

 

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Third Party Funding in Japan: Opportunity for a Clear Policy

Fri, 2021-04-30 01:00

The economic turmoil brought about by the COVID-19 pandemic will undoubtedly give parties pause in weighing the potential benefits of pursuing an arbitration claim, no matter how strong it is believed to be.1)The author thanks and acknowledges Mr. Akihiro Hironaka and Mr. Mihiro Koeda for their comments on this piece. jQuery('#footnote_plugin_tooltip_37015_27_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37015_27_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Yet international disputes and arbitration cases will only increase as parties tussle to determine the allocation of risk and responsibility for additional costs, delays, or disruptions flowing from the pandemic. Indeed, even as businesses tightened their belts during this economic climate, statistics for 2020 show that international commercial and investor state arbitration cases remain on the rise, with the ICC, the LCIA, ICSID, and the SIAC reporting record filings.

Japanese companies have likewise had to grapple with the specific issues caused by the pandemic’s disruptive effects on supply chains and the free movement of people. In addition, a future rise in international disputes involving Japanese parties or Japanese-seated arbitration proceedings is inevitable given Japan’s ambitious goals for her own energy and construction sectors, her continued policy of investing in and developing overseas energy and connectivity infrastructure, and her trade commitments under recently signed bilateral and multilateral economic agreements.

A user of arbitration would be prudent to consider financing options to hedge the inherent financial risks of arbitration and remove some financial pressure from its resources and cash flow. We can expect third party funding to become a more common feature of international arbitration, having now found its place in the latest version of the ICC arbitration rules, and with pro-arbitration jurisdictions Singapore and Hong Kong shedding their historical impediments to permit and regulate third party funding in arbitration and in court proceedings related to arbitration. Even when third party funding is permitted, there are various rules and jurisprudence parties must consider. In this post, I take a look at the status of third party funding in Japan.

 

Current Position in Japan

The option of financing the costs of arbitration proceedings through third party funding could provide some financial reprieve for Japanese parties. Yet uncertainty hovers over the question of whether a third party funding arrangement is legal or operable in Japan as there are currently no laws forbidding, permitting, or regulating the use or the provision of third party funding in Japan, even if in principle, concepts of champerty and maintenance, which derive from a fear of encouraging manipulation or gambling in litigation, do not exist in Japan.

Thus, while the Japanese Arbitration Act (Law No. 138 of 2003, amended by Act No. 147 of 2004) does not mention funding, and while a funding arrangement for arbitration proceedings may not directly infringe Japanese law per se, it may contravene laws and regulations designed to preserve the integrity of legal services and intended to prevent non-lawyers from circumventing the qualification, conduct, and ethical requirements and regulations applicable to lawyers2)Japanese Supreme Court Judgment, 14 July 1971, Keishu Vol. 25, No. 5, p. 690. jQuery('#footnote_plugin_tooltip_37015_27_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37015_27_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and to prevent non-lawyers from abusing process.3)Japanese Supreme Court Judgment, 22 January 2002, Minshu Vol. 56, No. 1, p. 123. jQuery('#footnote_plugin_tooltip_37015_27_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37015_27_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The Japanese Attorney Act (Act No. 205 of 1949, amended by Act No. 87 of 2004), for example, contains a blanket prohibition on the provision of legal services by non-attorneys (Article 73). Attempts to circumvent this may be restrained by other provisions that prohibit the business of non-lawyers enforcing assigned rights (Attorney Act, Article 72), creation of a trust structure for the prosecution of legal suits (Trust Act (Act No. 108 of 2006, amended by Act No. 53 of 2011), Article 10), and sharing legal fees with non- lawyers (Japan Federation of Bar Associations, Basic Rules of Duties of Lawyers, Article 12).

Depending on how a funding arrangement is structured, Japanese financial regulations pertaining to raising funds, money lending, and interest—in particular, the Money Lending Business Act (Act. No. 32 of 1983, amended by Act No. 69 of 2014) and the Interest Rate Restriction Act (Act No. 100 of 1954, amended by Act No. 115 of 2006)—may apply. It is also not known whether a funding arrangement would be recognised by a Japanese court or arbitral tribunal. It is understandable, therefore, that Japanese parties would be more inclined to choose the prudent course of self-funding, even if they meet the funder’s criteria for funding.

 

Future Developments

The benefits that third party funding may offer Japanese international arbitration have been acknowledged at a policy level, but it is not clear when or how Japanese third party funding will be developed. Specifically, the session notes of a meeting between the Japanese Ministry of Justice (“MOJ”), the Japanese Commercial Arbitration Association, and the Japan International Dispute Resolution Center (“JIDRC”) record that third party funding may play a role in promoting the use of international arbitration by mitigating the burden of arbitration costs on Japanese arbitration and Japanese parties.

That said, it is possible that a regulatory framework for third party funding will follow only after changes to the more foundational aspects of the international arbitration infrastructure have been implemented. Since announcing its intent to stimulate Japanese international arbitration in 2017, the Japanese government has called regular meetings with the private sector, including arbitration practitioners, to discuss practical measures. Recent changes include the establishment of the JIDRC and amendments to the Foreign Lawyers Act (Act No. 66 of 1986, amended by Act No. 33 of 2020) which, among other things, expand the scope of international arbitration services that foreign lawyers can provide. Separately, the Japanese MOJ is currently working on amending the Arbitration Act to bring it in line with the latest UNCITRAL Model Law. A provisional draft of the amendment has been made available for public comments.

Even without a regulatory framework, arrangements with foreign funders may be available. Given the private nature of the arbitral process, there is no comprehensive data published on how many Japanese parties have actually availed themselves of third party funding, or how many parties to Japan-seated arbitration proceedings have been funded. Funders spoken to report that substantial Japanese companies and conglomerates show an active interest in third party funding. This is perhaps particularly unsurprising with regard to the heavy industries and infrastructure sector, which gives rise to the sorts of complex, multi-faceted disputes that lend themselves well to the funding process.

However, in terms of usage, there have been only limited reports of actual funding arrangements involving Japanese parties, including at least one investor-State arbitration. This suggests that arrangements that a party considers to be acceptable can be reached through careful drafting, although where the proceedings were seated, which jurisdictions the parties were incorporated in, how funds were moved, and precisely what contractual framework was used are not known. In the context of Japanese court proceedings, it does appear that Japanese litigants have received the benefit of financing in class action suits (see examples here and here). But again, there are doubts about the basis of this funding arrangement. Practitioners have noted that there is no express permission for third party funding in the context of litigation in the Japanese courts.4)See also A. Hironaka and Y. Takahata, Is the Opt-in System Doomed to Fail? An Experience with the New Japanese Legislation on Collective Redress (Dispute Resolution International, Vol. 14, No. 1, p. 27, at p. 37). jQuery('#footnote_plugin_tooltip_37015_27_4').tooltip({ tip: '#footnote_plugin_tooltip_text_37015_27_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Japanese international arbitration would benefit from clear legislative and regulatory frameworks for the implementation of funding arrangements. This would conceivably be implemented by amendments to existing legislation (including the Arbitration Act and the Attorneys Act), as well as ancillary regulations and guidelines. In addition to specifically permitting funding arrangements for international arbitration proceedings, these frameworks would address, among other things:

  • the class of dispute resolution proceedings that may be funded (and, if appropriate, any exclusions of proceedings that must not be funded);
  • the regulatory, licensing, capital adequacy, or reporting criteria a funder must comply with;
  • any concessions considered appropriate to encourage the establishment of funders in Japan;
  • the role of the funder and the extent to which a funder may be involved or control the proceedings;
  • the consequences of a funder failing to comply with regulatory or conduct obligations; and
  • the role of the lawyer in a funding arrangement, including whether and how client introductions to third party funders may be made, how a lawyer should manage potential conflicts of interest (for example, any financial interest the lawyer may have in the funder), and the disclosure of the funding arrangement to the court or tribunal.

 

Conclusion

As things stand, Japan appears to tacitly permit third party funding, but there is an opportunity for Japan to affirm her support for international arbitration by offering a comprehensive system expressly enabling parties’ access to financing by professional funders. Now more than ever, this would benefit Japanese parties and Japanese-seated arbitration, and enhance Japan’s position as a pro-arbitration jurisdiction.

References[+]

↑1 The author thanks and acknowledges Mr. Akihiro Hironaka and Mr. Mihiro Koeda for their comments on this piece. ↑2 Japanese Supreme Court Judgment, 14 July 1971, Keishu Vol. 25, No. 5, p. 690. ↑3 Japanese Supreme Court Judgment, 22 January 2002, Minshu Vol. 56, No. 1, p. 123. ↑4 See also A. Hironaka and Y. Takahata, Is the Opt-in System Doomed to Fail? An Experience with the New Japanese Legislation on Collective Redress (Dispute Resolution International, Vol. 14, No. 1, p. 27, at p. 37). function footnote_expand_reference_container_37015_27() { jQuery('#footnote_references_container_37015_27').show(); jQuery('#footnote_reference_container_collapse_button_37015_27').text('−'); } function footnote_collapse_reference_container_37015_27() { jQuery('#footnote_references_container_37015_27').hide(); jQuery('#footnote_reference_container_collapse_button_37015_27').text('+'); } function footnote_expand_collapse_reference_container_37015_27() { if (jQuery('#footnote_references_container_37015_27').is(':hidden')) { footnote_expand_reference_container_37015_27(); } else { footnote_collapse_reference_container_37015_27(); } } function footnote_moveToAnchor_37015_27(p_str_TargetID) { footnote_expand_reference_container_37015_27(); 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 * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Per Aspera and Yukos: Has the Biggest Arbitration Claim in History Affected Russian-Western Space Programmes?

Thu, 2021-04-29 01:54

The dispute between the former owners of the Yukos oil company and the Russian Federation concerning damages of more than US$50 billion is the largest in the history of arbitration. With thousands of pages written on the topic, the dispute has been summarized in earlier posts (see, amongst others, here and here). Following three arbitrations at the Permanent Court of Arbitration (PCA) in the Hague ending with the final awards laid out on more than 600 pages per arbitration, the former shareholders attempted to enforce the awards by seizing assets allegedly associated with the Russian Federation. Those assets varied from intellectual property rights for vodka brands in Benelux to a historic building in Paris (the Russian cultural orthodox centre), but also assets associated with space programmes. This post will provide an update concerning enforcement actions in Europe regarding enforcement actions vis-à-vis Russian Federation-linked space assets. It will also briefly refer to other assets associated with space activities that may, in the author’s view, be subject to further enforcement actions in the Yukos matter.

 

Enforcement Actions in Europe against Russian Federation-Linked Space Assets

Already, the former shareholders involved in the Yukos claims have initiated various enforcement actions to recover the compensation awarded through the PCA arbitrations from the Russian Federation. One set of enforcement actions relates to Eutelsat and RSCC. A 2021 report released by the French Institute of International Relations states that “the Russian space sector suffers from legal disputes that affect its cooperation with its Western partners”. For instance, the Yukos shareholder, Hulley Enterprises, registered in Nicosia, Cyprus, attached a EUR 380 million debt of the French satellite operator Eutelsat to the Russian satellite operator, Russian Satellite Communications Company (RSCC) in 2015. The Paris Court of Appeal lifted the attachment and released this sum in 2016. This was on the grounds that RSCC had a distinct legal personality and was not liable for debts due by the Russian Federation. The court indicated that RSCC was not the debtor under the abovementioned arbitral awards against the Russian Federation.

In proceedings parallel to the ones regarding Eutelsat and RSCC, Hulley Enterprises together with another former Yukos shareholder, Veteran Petroleum, attempted to seize a EUR 300 million payment of Arianespace to Roscosmos. Roscosmos was a counterparty to a contract under which Russian companies provided medium-lift Russian Soyuz rockets for use by Arianespace. Hulley Enterprises and Veteran Petroleum seized debts in the hands of Arianespace, making the latter’s obligations unavailable towards the Russian Federation and its federal agencies, including Roscosmos. The former Yukos shareholders argued that for all intents and purposes RSCC and Roscosmos were acting on behalf of the Russian Federation. The enforcement judge of Evry lifted the attachment in 2016, which led the former Yukos shareholders to appeal against such ruling.

In 2016, the Paris Court of Appeal suspended the execution of judgment to seize these payments. The debts seized in the hands of Arianespace could not serve as a pledge to Veteran Petroleum under French law. One of the main arguments to support this was that Roscosmos was not responsible for the obligations of the Russian Federation under the arbitration, as Roscosmos was a proper and autonomous entity, did not act in the name and on behalf of the Russian Federation during its contractual relations with Arianespace, and that the debts of Arianespace were not due to the Russian Federation itself. It is worth noting that France had intervened in this litigation as an indirect shareholder in Arianespace, arguing that the confirmation of the attachment could have adverse effects on the value of the company.

Eventually, the Paris Court of Appeal confirmed the lifting of the attachment of Roscosmos receivables in 2017. The cooperation between Arianespace and Roscosmos continues, and, on 25 March 2021, the Russian Soyuz-2.1b rocket has put 36 OneWeb satellites in orbit, which means the business ties between the French and the Russian counterparts remain intact despite the Yukos enforcement actions.

The Roscosmos receivables were not the only assets attached by the former Yukos shareholders. Other receivables from Arianespace, which were attached in 2016, included those of the Russian aerospace company, NPO Lavochkin (known for spacecrafts that have explored the Moon and Venus) and the cosmodrome facility builder, TsENKI (which runs the Baikonur and Vostochny launch pads). In the year thereafter, the enforcement judge of Evry lifted said attachments earlier levied by Veteran Petroleum. The former Yukos shareholder appealed against this decision, with the Paris Court of Appeal dismissing the case in 2018.

 

Future Enforcement Actions against (Allegedly) Russian Federation-Linked Space Assets?

With attachments of amounts owed under space contracts lifted in Europe, litigation linked to the Yukos awards is still pending in the U.S., with ex-Yukos shareholders currently seeking the lifting of a recent stay of enforcement. At present, it remains unknown what assets the former Yukos shareholders would wish to attach in the U.S.

At the time of writing, one of the most recent U.S. court decisions in Yukos was issued in November 2020 by the District Court for the District of Columbia, where the Yukos shareholders had filed a petition to enforce the Yukos awards in 2014.1)It is noted that at the time of writing, the U.S. Court of Appeals for the District of Columbia Circuit issued an order (on 9 April 2021), denying the motion for summary affirmance of the Yukos awards and ordering that the motion to dismiss be referred to a merits panel. jQuery('#footnote_plugin_tooltip_37173_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37173_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The D.C. courts had stayed enforcement proceedings in 2016 as the arbitration awards were being reviewed by the Court of Appeal of the Hague, and did so again in November 2020 with the abovementioned decision, pending the setting aside proceedings before the Supreme Court of the Netherlands. The relevant court’s relevant memorandum opinion states that Russia “has significant assets in the United States”, however, none of them in particular are mentioned.

In the space sector, Russia and the U.S. have contracts that have survived sanctions and political tension. Following the abovementioned attempts to seize payments due under satellite launch and services contracts already taken in Europe, Russia-U.S. space programme-related assets may be subject to enforcement actions in the Yukos matter.

One of the relevant assets may be payments for RD-180 rocket engines built by the Russian company, NPO Energomash (see also here). These engines are installed and used for the core lift stage of the American Atlas V rocket, produced by United Launch Alliance (ULA), a joint venture between Boeing and Lockheed Martin Co. The U.S. rocket builders used to import the engines, but faced the obstacle of sanctions imposed against Russia in 2014. Further to a complaint filed with the U.S. Court of Federal Claims alleging contracts between ULA and Energomash violated U.S. sanctions against the then Russian Deputy Prime Minister Rogozin (now head of Roscosmos), the court temporarily barred United Launch Alliance and the U.S. Air Forces “from making any purchases from or payment of money to NPO Energomash or any entity (…) that is subject to the control of Deputy Prime Minister Rogozin” on 30 April 2014 until receiving opinions from the Departments of State and Commerce that such payments would not violate the sanctions imposed on Rogozin.

Although the temporary injunction was lifted beginning of May 2014, the U.S. Congress issued a ban against the further purchase of the Russian-made engines. However, such a ban was eventually lifted, allowing ULA to purchase RD-180 engines for its Atlas V fleet – for which the company immediately submitted an order for 20 more RD-180s. In total, NPO Energomash was reported to have delivered a total of 122 RD-180 engines to the U.S., with an average price of US$15 million per unit, as of 2018. The last batch of 6 such engines was built in 2020 and was handed over to the buyers on 14 April 2021.

One more US rocket – Antares – is also built using the RD-181 Russian rocket engines. The Antares rockets are used to launch the Cygnus resupply spacecraft to service the International Space Station (ISS). Media reports at least 4 successful launches so far. A contract for 20 RD-181 engines has been signed with RSC Energia, the parent company of NPO Energomash, and could also lead to enforcement actions in the U.S.

Another flow of payments to the Russian Federation linked with the ISS that may be subject to enforcement actions has been the delivery of NASA astronauts on the Soyuz spacecraft, which started in 2006. Russia has earned US$3.9 billion for these contracts by 2020, according to researchers. While the U.S. may eventually replace these contracts and hire other companies to lift the astronauts to orbit in the near future, an intervention by the state in support of space programmes in potential enforcement proceedings would not be unimaginable, considering the French state’s intervention in the Arianespace case. The U.S. stance towards space programmes can also be derived from the recent U.S. Department of Commerce’s Bureau of Industry and Security (BIS) decision to specially temporarily waive its ban on exports to Russia on items in support of commercial space launch activities.

 

Conclusion

While enforcement proceedings have already taken place regarding assets concerning space programmes, it seems that the Yukos dispute has only affected such projects indirectly to date. However, it is not to be excluded that the Yukos case can lead to further enforcement requests with regard to assets concerning space activity in the future.

The fate of such requests is to be seen, especially considering that space activities mainly remain in the realm of the states. While potential battles regarding space cooperation programmes will be fought in court, the political interests of the states concerned may not be ignored.

Disclaimer: The views and opinions expressed in this article are those of the author’s only and not of the Russian Arbitration Association.

 

[1]      It is noted that at the time of writing, the U.S. Court of Appeals for the District of Columbia Circuit issued an order (on 9 April 2021), denying the motion for summary affirmance of the Yukos awards and ordering that the motion to dismiss be referred to a merits panel.

References[+]

↑1 It is noted that at the time of writing, the U.S. Court of Appeals for the District of Columbia Circuit issued an order (on 9 April 2021), denying the motion for summary affirmance of the Yukos awards and ordering that the motion to dismiss be referred to a merits panel. function footnote_expand_reference_container_37173_30() { jQuery('#footnote_references_container_37173_30').show(); jQuery('#footnote_reference_container_collapse_button_37173_30').text('−'); } function footnote_collapse_reference_container_37173_30() { jQuery('#footnote_references_container_37173_30').hide(); jQuery('#footnote_reference_container_collapse_button_37173_30').text('+'); } function footnote_expand_collapse_reference_container_37173_30() { if (jQuery('#footnote_references_container_37173_30').is(':hidden')) { footnote_expand_reference_container_37173_30(); } else { footnote_collapse_reference_container_37173_30(); } } function footnote_moveToAnchor_37173_30(p_str_TargetID) { footnote_expand_reference_container_37173_30(); 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 * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Halliburton v. Chubb: Waiving a Mandatory Duty

Wed, 2021-04-28 01:58

In November last year, the UK Supreme Court (the “Court”) pronounced judgment in Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48. It held, among other things, that there was a duty of disclosure for arbitrators in English law. Recognizing the importance of the principle of party autonomy, the Court concluded that parties could, by agreement, waive this duty. This presents a problem since the duty itself has been implied in a mandatory provision of the English Arbitration Act 1996 (the “1996 Act”) and thus ought to, by definition, be beyond waiver.

In brief, Halliburton concerned an ad hoc arbitration governed by the laws of New York and seated in London. Halliburton sought the removal of the presiding arbitrator before the High Court on various grounds, including that his failure to disclose certain appointments had given rise to justifiable doubts as to his impartiality. A useful overview of the underlying facts and the Supreme Court’s judgment may be found here. The decisions of the High Court and the Court of Appeal have been discussed here. This post discusses the role disclosure plays in arbitration. It notes the Court’s decision to base the duty of disclosure in a mandatory provision of the 1996 Act before examining whether the duty should, as a consequence, be capable of waiver.

 

The role of disclosure

Arbitrators perform a judicial function. They are required to act as judges would, without fear or favour, affection or ill-will. One way of satisfying the parties as to an arbitrator’s impartiality is disclosure. The role of disclosure was neatly summarised in the decision by Lord Hodge in Halliburton, who delivered the opinion of the Court:

“70. An arbitrator, like a judge, must always be alive to the possibility of apparent bias and of actual but unconscious bias. … One way in which an arbitrator can avoid the appearance of bias is by disclosing matters which could arguably be said to give rise to a real possibility of bias. Such disclosure allows the parties to consider the disclosed circumstances, obtain necessary advice, and decide whether there is a problem with the involvement of the arbitrator in the reference and, if so, whether to object or otherwise to act to mitigate or remove the problem…”

 

Locating the duty of disclosure

Unlike arbitration laws in France, Singapore or India, the 1996 Act places no express obligation on potential or serving arbitrators to make disclosures to parties regarding matters that concern their independence or impartiality. Further, such a duty had not been previously established by the courts in England. The Supreme Court in Halliburton was thus required to determine where such a duty existed in English law.

The Court found that the duty of disclosure for arbitrators was implicitly based in section 33 of the 1996 Act, which provides that arbitral tribunals shall act fairly and impartially as between the parties. As the Court said at [78], the legal obligation to disclose matters that could give rise to justifiable doubts as to an arbitrator’s impartiality was “encompassed within the statutory obligation of fairness.” It was “also an essential corollary of the statutory obligation of impartiality.” Further, while discussing the duty, the Court considered at [77] the example of an arbitrator who had a financial relationship with a party to the dispute in which he or she was appointed. It found that in such cases it would “be incumbent on the arbitrator to disclose the relationship in order to comply with his statutory duty of fairness under section 33 of the 1996 Act.” The Court concluded at [81] that there was a legal duty of disclosure in English law which was “encompassed within the statutory duties of an arbitrator under section 33,” while adding at [154] that this duty, which was “a component of the arbitrator’s statutory duty to act fairly and impartially,” did not override the separate duty of privacy and confidentiality.  

The nature of the duty is thus clear. The duty is implicit in or “encompassed within” section 33. The Court has read into that provision a duty that requires arbitrators to disclose matters that would or might give rise to justifiable doubts as to their impartiality. It follows that this obligation, though termed a “legal duty” by the Court, is in fact a statutory duty. Once found encompassed within section 33, the duty is as much a part of that provision as its express words. There is, then, no difference between the express and the implied. As Francis Bennion wrote in his seminal work on statutory interpretation, “neither portion is more compelling than the other.” For the courts, they are of equal force.

 

Can the duty be waived?

Section 33 of the 1996 Act is a mandatory provision. By virtue of section 4 and Schedule 1 of the Act, it applies to all arbitrations seated in England and Wales or Northern Ireland “notwithstanding any agreement to the contrary.”  Parties cannot contract out of section 33.

Thus, with the decision in Halliburton, it ought to have followed that parties could not opt-out of an arbitrator’s duty of disclosure. As a necessary consequence of implying the duty in section 33, it ought to have been incapable of waiver. And yet, it is not. The court held that parties can expressly or implicitly waive the disclosure requirement (See [78] and [154]).

A likely justification for this conclusion is a single sentence in the judgment which proposes that the duty lies in contract. The Court said at [76] that the statutory duty of arbitrators to act fairly and impartially “gave rise to an implied term in the contract between the arbitrator and the parties that the arbitrator will so act.” How this leap from statute to contract occurs is hard to see. Regrettably, the judgment is bereft of any reasoning on this point. It provides little guidance for future courts faced with similar questions. This problem is only aggravated in light of the several instances where the duty of disclosure is described as one encompassed within statute.

Notably, Lady Arden concludes in a separate opinion that the duty of disclosure is rooted in both section 33 and the contract of appointment between the arbitrator and the parties. This, she said, was also the opinion of the majority. Even if this were the case, waiver would remain impermissible. Once found encompassed within a mandatory provision, the duty is mandatory. In fact, while speaking of the obligation to disclose, the Court itself said that “an arbitrator who knowingly fails to act in a way which fairness requires to the potential detriment of a party is guilty of partiality.”  In other words, by failing to make necessary disclosures, an arbitrator would be violating his express duty under section 33. There should, therefore, be no possibility of waiver.

 

Conclusion

Principally, the duty of disclosure does not exist for the benefit of the parties and, therefore, it is not for the parties to waive any right to it. The duty exists because adjudication by a fair and impartial tribunal is an element of public policy and an indispensable requirement of the Rule of Law. Any benefit to the parties is incidental. This is, however, not the position the Court adopted.

We are left then with the most peculiar of situations. A duty of disclosure has been declared waivable despite it forming part of a mandatory provision in the 1996 Act. It seems to me that deference to the parties’ choice has been stretched too far in Halliburton. Among the principles on which Part I of the 1996 Act is founded is that “the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest” (section 1(b)). These safeguards include the mandatory provisions of Part I. While party autonomy is unquestionably important, judicial reasoning cannot always mould itself to support it, ignoring the language and purpose of legislation. What appears to be a victory for party autonomy comes at the cost of supporting an untenable legal proposition.

Another approach available to the Court in Halliburton would have involved holding that the duty was mandatory while leaving its precise contours to be determined by the parties. Parties (through contract or institutional rules) could then address matters such as the form in which disclosures should be made and the detail with which arbitrators should disclose relationships and appointments. Parties could even be permitted to limit the matters that an arbitrator ought to disclose, though they would not be able to waive or abandon the duty in its entirety. This approach would have paid sufficient service to the principle of party autonomy and maintained the sanctity of mandatory provisions.

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The Contents of the Yearbook Commercial Arbitration, Volume XLVI (2021), Upload 1

Tue, 2021-04-27 01:00

Subscribers of KluwerArbitration.com enjoy access to the ICCA Yearbook Commercial Arbitration. The first upload of materials for the 2021 volume of the Yearbook contains a small selection of interesting cases. These are my favorites.

First, the French Cour de cassation and the United States District Court for the Western District of Washington both dealt with the enforcement of an ICC award rendered in respect of a contract for the construction and operation of two satellites between two Indian companies, Antrix and Devas. The issues discussed were whether the arbitration clause in the contract, which provided for arbitration in India in accordance with either the ICC or the UNCITRAL Rules, was pathological, and whether Devas could rely at the enforcement stage on the ground of the improper constitution of the ICC tribunal, which it had not explicitly raised in the arbitration.

Second, the landmark UK Supreme Court decision in Halliburton affirmed the decision of the lower courts not to remove an arbitrator in a London arbitration commenced by a policy holder against an insurer in respect of the Deepwater Horizon disaster. While the arbitrator had violated his duty to disclose his appointment in other related arbitrations, the Court held that a fair-minded and informed observer would not conclude under the circumstances of the case that there was a real possibility of bias.

Finally, for the first time, this upload includes three cases from Iran and one case from Cuba, showing how courts in these jurisdictions engage with the New York Convention.

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Checking In With Competition In Europe: Where Do International Commercial Courts Stand?

Mon, 2021-04-26 01:00

Over the last few years, the arbitration community’s attention was drawn to the establishment of English-speaking international commercial courts in various jurisdictions around Europe, Asia and the Middle East. Some said these courts would become a competitor of arbitration, providing an alternative forum to the international business community. Others were sceptical that the mere promise of court proceedings in the English language would be enough.

Some years and one pandemic later, arbitration is thriving, but what about the international commercial courts? Where are they now and are they in a position to challenge arbitration?

This post follows several contributions on this blog, including here, here, and here as well as in the Journal of International Arbitration, which provide a more detailed overview of the procedures before international commercial courts. The present contribution aims to check in on the European international commercial courts and their positioning on the disputes market.

 

Germany

The trailblazer of English language proceedings in Germany has been the Cologne Higher Regional Court with its English-speaking senate. It first experimented with running proceedings in English in 2010.

Since then, Germany has seen a boom of international commercial courts. In 2018, two courts were set up: the Chamber for International Commercial Disputes at the Regional Court of Frankfurt am Main and the English-Speaking Civil Division and Commercial Division at the Regional Court of Hamburg. Amidst the pandemic, in 2020, the state of Baden-Württemberg established what it markets as a fully independent Commercial Court with two locations in Stuttgart and Mannheim and a Commercial Court of Appeal. However, those are in fact chambers at the Mannheim and Stuttgart Regional Courts as well as senates at the Higher Regional Courts of Stuttgart and Karlsruhe. In 2021, two International Chambers were also set up at the Regional Court of Berlin. Next to a chamber for commercial disputes, the latter also has an international chamber on construction law and general civil disputes.

These chambers have jurisdiction over disputes with an international element that are filed with the respective court. English will be used during the hearing upon parties’ request, for example for witness and expert testimony. English documents also need not be translated. There is, however, no other difference between the normal German court proceedings and proceedings before the international chambers: written and oral pleadings would, for instance, still be submitted in German. Instead, to appeal to international parties, these chambers focus on the freedoms and wiggle room already available within the tight corset of German procedural law. For example, case management conferences as well as block trials have always been legally possible but are not part of the normal practice in German civil courts. The parties also already have the option to limit court proceedings to one instance by waiving their right to appeal, if they want to have a one-stop-shop. These tools could be implemented by the international chambers without the need for additional legislative reform.

Based on the limited information available, the uptake of what these international chambers offer appears to vary. The Mannheim court completed one proceeding from its inception in November 2020, while the related Stuttgart court appears to have over 100 cases on its docket (but it is not clear whether the number includes purely domestic matters); the Frankfurt court had just one case pending before it within a year of establishment. Universally, however, the use of English appears to be very limited. For instance, the Hamburg court has only ever had two cases (currently in the preliminary stage of proceedings) where the use of the English language was requested.

 

France

In a major hub of international arbitration, Paris, two courts have been set up: the international chambers of the Paris Commercial Court (in 2010) and the Court of Appeal (in 2018).

The procedures of the Paris courts require that “written submissions in English may be given without translation”, however, pleadings must be conducted in French. The parties, witnesses, experts, and foreign legal counsel authorised to appear before the Paris courts are allowed to interact with the court in English. The judgment will be issued in French with an option to request a translation. Some elements of the procedure have also been borrowed from common law, for example, the holding of a case management hearing or the establishment of a procedural timetable. These innovations, however, appear to still be within the confines of the existing procedural rules, i.e. no reform of the French civil procedure rules has taken place.

Since the establishment of the international chamber at the Paris Court of Appeal in 2018, it heard 64 cases. 19 of them were arbitration-related matters in setting aside and enforcement proceedings. It is not apparent in how many cases parties actually made use of English, but translations are available for about 31 judgments, which may be an indicator.

 

Netherlands

The Netherlands Commercial Court (NCC) was created in 2019 with three chambers. The first instance courts are the NCC District Court and the NCC Court in Summary Proceedings. The latter deals with matters requiring expedited proceedings, e.g. interim measures. The second instance is the NCC Court of Appeal.

The NCC accepts international disputes, which are heard in English from start to finish including the final judgment, if the parties give their consent to English language proceedings. Documents submitted in Dutch, English, German or French do not require any translation. The NCC has a fully digital case management system, where the court file remains confidential while the hearings are still public. Otherwise, the NCC functions on the basis of the procedural law applicable in the Netherlands.

Since its establishment in 2019, the NCC issued only nine judgments. Four of the cases landed with the NCC as a result of a jurisdiction clause and subsequent agreement by the parties on the use of the NCC, and one case even involved a waiver of the right to resolve the dispute through ICC arbitration.

 

Belgium

The Brussels International Business Court project was the most ambitious in Europe. The one-stop-shop proceedings were to have no option for appeal and run completely in English including submissions, hearings and judgments on the basis of the UNCITRAL Model Law on International Commercial Arbitration. The court was set to start operating in 2020, but the project has now been abandoned by the government as the project lost the support in the Belgian Parliament.

 

Can European International Commercial Courts Compete with Arbitration?

The above European international commercial courts were designed largely within the confines of local procedural law and in a way that ties them closely to the national court system. It therefore follows that they do not offer the same features as available in arbitration. For example: parties are not able to choose their own adjudicators or agree on confidentiality of proceedings. The latter is something that is particularly unlikely to change – it is hard to imagine European judicial systems dismantling the principle of open justice.

The issue of enforcement is also likely to remain a major benefit of arbitration for the foreseeable future. Arbitration provides parties with access to enforcement in 167 jurisdictions through the New York Convention. European international commercial courts, on the other hand, offer enforcement in the 27 EU jurisdictions through the Recast Brussels Regulation, further seven jurisdictions through the Lugano Convention and the Hague Convention on Choice of Court Agreements, and other jurisdictions through reciprocity.

In the future, however, the Hague Judgments Convention may bring the number of enforcement jurisdictions for court judgments up as it enters into force and is signed by additional countries. The Convention allows for recognition and enforcement of foreign judgments in civil or commercial matters.

An option to conduct hearings and submit documents in English is a great opportunity for the parties to save cost on translations and in-hearing interpreters for witness or expert testimony. It is also great to see various jurisdictions re-discover already existing procedural frameworks to make court proceedings more efficient. These changes, are, however, unlikely to convince the frequent arbitration users to make the switch. On the other hand, however, the frequent court users have gained additional options and flexibility with these internationally specialised courts.

The number of judgments coming out of the international commercial courts appears to be still rather low. But this is something that may improve over time as a bigger investment is made into the visibility and marketing of these courts to the international business community. On this front, the situation varies from the Paris first instance commercial court having a blank English website version to a high quality online presence of the Stuttgart and Mannheim Commercial Court or the NCC.

At this time, European international commercial courts seem to be best placed to market themselves not as an alternative to arbitration but perhaps rather an alternative to courts of other European jurisdictions and even other courts within their own jurisdiction, or as competition to the post-Brexit London. These courts could also be excellent venues for setting aside and enforcement of arbitral awards where the proceedings and the award are already in English therefore not requiring extensive translations, as advertised by the Netherlands Commercial Court.

A better approach may therefore be not to question whether these international commercial courts compete with arbitration, but rather how the two co-exist. Arbitration may have gained an ally on the path to simpler enforcement, setting aside proceedings, and court assistance in support of arbitration.

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Can hybrid mechanisms bridge gaps in arbitration and mediation?

Sun, 2021-04-25 01:00

It is important to first define what are hybrid mechanisms in international dispute resolution. As Voltaire once stated, ‘If you wish to converse with me, define your terms’.  Hybrid mechanisms refer to processes that involve and combine more than one dispute resolution mechanism. Hybrid mechanisms take a variety of forms. By way of illustration, Singapore International Arbitration Centre (SIAC) and Singapore International Mediation Centre (SIMC) jointly provide the Arb-Med-Arb Protocol.

Issues relating to hybrid mechanisms have been covered in previous posts. Emmanuel Chua, in this Blog, discussed the perspectives of Arb-Med-Arb Protocol in Singapore and how it represented a boost for ADR in Asia. The use of mediation at different stages of the arbitral process is not a novel feature and a number of jurisdictions had already provided such a possibility before the adoption of Arb-Med-Arb Protocol. By way of example, Emmanuel Chua refers to sections 16 and 17 of the International Arbitration Act of Singapore, which states that an arbitrator may act as a conciliator if parties consent in writing. The same possibility exists under sections 32 and 33 of the Arbitration Ordinance of Hong Kong.

The inclusion of mediation and conciliation provisions in investment treaties are also on the rise. Romesh Weeramantry, Brian Chang, and Joel Sherard-Chow examined an Asian perspective of the use of mediation and conciliation in the context of investor-State disputes in this Blog. As the authors note, some investment treaties already provide for mandatory mediation and conciliation as a precondition to arbitration for the resolution of investor-State disputes. By way of example, Article 8(3) of the Hong Kong-United Arab Emirates BIT and Article 14.23 of Indonesia-Australia Comprehensive and Economic Partnership Agreement contain an investor’s obligation to refer disputes to conciliation before commencing any other available dispute resolution processes. Furthermore, Article 30 of the ASEAN Comprehensive Investment Agreement consists of a hybrid dispute resolution mechanism, which states that disputing parties may at any time agree to conciliation, which may begin at any time and be terminated at the request of the disputing investor at any time.

Following the International Dispute Resolution Survey: 2020 Final Report (the “SIDRA Survey”) on 3 July 2020, SIDRA has launched the 2021 SIDRA Survey, which calls for responses from lawyers, legal advisers, in-house counsel, and corporate executives who have experience in international commercial disputes and investor-State disputes resolution. The 2021 SIDRA Survey is available in 6 languages (English, French, Spanish, Mandarin Chinese, Russian and Arabic) and will be open until 16 May 2021. Among other dispute resolution processes (international arbitration, mediation and litigation), the 2021 SIDRA Survey will examine and study users’ perspectives, preferences, and experiences in hybrid dispute resolution mechanisms during the years 2019-2020 and provide the findings in the second half of this year. For the purposes of the 2021 SIDRA Survey, hybrid mechanisms refer to any combination of arbitration and mediation.

The findings of the 2021 SIDRA Survey will build on the observations regarding hybrid mechanisms below.

 

Hybrid mechanisms are the third most popular dispute resolution method in 2016-2018

In recent times, after international arbitration (74%) and international litigation (49%), hybrid mechanisms are the third most used dispute resolution mechanism (27%). When the usage was divided between legal and client users, the SIDRA Survey shows that more legal users (30%) opted for hybrid mechanisms compared to client users (23%). Overall, it was interesting to note that hybrid mechanisms are more popular than standalone mediation, as more users opted for hybrid rather than standalone mediation (26%).

Source: 2020 SIDRA Survey, Exhibit 4.1.1 and Exhibit 4.1.2

 

Why are hybrid mechanisms preferred over standalone arbitration and mediation?

The most important factor for users in the selection of a hybrid mechanism over standalone arbitration was the preservation of a business relationship (73%), followed by efficiency (47%), cost (47%), and speed (40%). It may come as a surprise, however, that when the usage was divided between legal and client users, the SIDRA Survey shows that preservation of business relationship was more important for legal users (81%) than for client users (56%). This finding directly challenges the popular belief that legal users tend to prefer more litigious approaches to dispute resolution.

Source: 2020 SIDRA Survey, Exhibit 9.2.2

Users of dispute resolution cited efficiency (53%) and cost (53%) as the most important factors for their choice of a hybrid mechanism over standalone mediation. This was followed by enforceability (48%), speed (45%) and finality (45%). Both legal and client users were on the same page in this regard, as there was not a significant difference when the usage was divided between legal and client users. For client users, cost (56%) and efficiency (52%) were the most important factors and for legal users, speed (53%), efficiency (53%), and cost (52%) were the decisive aspects of their choice of a hybrid mechanism.

Source: 2020 SIDRA Survey, Exhibit 9.2.4

 

Are users dissatisfied with standalone arbitration and mediation?

Users are not satisfied with the cost and speed of arbitration, and the efficiency of arbitrators and arbitral institutions. The SIDRA Survey shows that users were least satisfied with the cost (25%) and speed (30%) of international arbitration even though these criteria played a significant role in selecting arbitration as a dispute resolution mechanism. In addition, while efficiency was one of the most important criteria (85%) in selecting an arbitrator, users’ experience shows that only 59% of them were satisfied with this criterion. Efficiency was also the most important factor (88%) in selecting an arbitral institution. However, only 60% of users were satisfied with their experience in the efficiency of an arbitral institution.

Unlike international arbitration, users were satisfied with the speed (68%) and cost (65%) of mediation.

Source: 2020 SIDRA Survey, Exhibit 6.1.2

Only about half of the users of dispute resolution mechanisms had experiences where mediation was final (55%) and enforceable (55%). Reflecting their experiences, in ranking the factors influencing the choice of mediation as a dispute resolution mechanism, users did not rank the enforceability (67%) and finality (65%) of mediation highly.

Source: 2020 SIDRA Survey, Exhibit 7.1.3

 

Hybrid mechanisms can reduce the perceived disadvantages of standalone arbitration and mediation

The SIDRA Survey shows that hybrid mechanisms have the potential to reduce the perceived disadvantages of standalone arbitration and mediation, and in doing so, to achieve the efficiency that client and legal users take into account in the selection of a dispute resolution mechanism.

While arbitration remains the dispute resolution mechanism of choice for users in both common law and civil law jurisdictions, users are very dissatisfied with the costs and speed of the mechanism, which can make the whole process highly inefficient. With respect to mediation, while the Singapore Convention on Mediation establishes a regime for the enforcement of international mediated settlement agreements, it will take several years before the Singapore Convention on Mediation achieves widespread acceptance and its intended harmonizing effect similar to that of the New York Convention.

Hybrid mechanisms have the potential to reduce and minimize these disadvantages. While it is true that some users may have concerns regarding prolonging already time-consuming arbitration, mediation during ongoing arbitral proceedings may help parties to come to a settlement, which can save a significant amount of time and cost. Mediating a dispute can also save parties’ business relationship, which is usually a high priority for client users. When it comes to mediation, hybrid processes can provide the enforcement regime of the New York Convention to mediated settlement agreements that are recorded as consent arbitral awards. As a result, hybrid processes can reduce the perceived disadvantages of mediation in relation to the lack of finality and enforceability.

 

Have users’ attitudes towards hybrid mechanisms changed since 2018?

Hybrid processes are becoming more and more popular. After the SIAC-SIMC Arb-Med-Arb Protocol, a number of international dispute resolution service providers have followed suit, including the Vienna International Arbitral Centre’s Arb-Med-Arb model clause and Vietnam International Arbitration Centre and Vietnam Mediation Centre’s Arb-Med-Arb protocol.

While the SIDRA Survey has studied the perspectives, preferences, and experiences of users during the years 2016-2018, it is important to analyze any new developments in users’ attitudes towards and experiences in hybrid dispute resolution processes.

The 2021 SIDRA Survey can be accessed at: https://smusg.au1.qualtrics.com/jfe/form/SV_eJRTOTOlwNtYf5P?so=05

The author gratefully acknowledges the valuable comments received from Ryce Lee.

 

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Moldova v. Komstroy and the Future of Intra-EU Investment Arbitration under the Energy Charter Treaty: What Does the ECT’s Negotiating History Tell Us?

Sat, 2021-04-24 01:12

Intra-EU investment agreements and arbitration have been a highly divisive issue in European policy circles for decades. The European Commission has been forcefully pushing for the termination of these agreements since the early 2000s. It criticised inter alia that intra-EU investment agreements and arbitration undermine the European legal order and create inequality among European investors within the Single Market. Many Member States and law firms, in turn, rejected these legal concerns and praised intra-EU investment agreements and arbitration as policy tools to protect European investors against mistreatment in Member States with flawed legal systems and – contested in the economics literature (for an overview see Bonnitcha et al. 2017, pp. 192-193) – to promote investment and economic development in struggling EU economies.

The Court of Justice of the European Union’s (CJEU) Achmea ruling (C-284/16, 2018), partially, resolved this long-standing debate in that it found intra-EU investment agreements and arbitration provisions to be incompatible with the EU law principle of mutual trust and autonomy of the European legal order (see blog coverage here). In August 2020, Member States – many somewhat unwillingly – concluded an agreement on the termination of their 190 intra-EU investment agreements in order to comply with the CJEU ruling. Intra-EU investment arbitration, nonetheless, remains possible under the Energy Charter Treaty (ECT). As of late 2020, the ECT has been invoked in 43 extra-EU investment disputes but also in 83 often high-value intra-EU investment disputes. The ECT is not directly affected by the Achmea ruling as it is not a pure intra-EU agreement among Member States only but a plurilateral energy trade and investment agreement that the EU and its Member States concluded as a ‘mixed’ agreement with a sizeable number of third countries. The EU herself is bound by the ECT under public international law. Ever since the publication of the Achmea ruling, scholars have thus been debating its ramifications for intra-EU investment arbitration under the ECT.

 

Moldova v Komstroy: The AG Opinion

These discussions entered a new important phase with the publication of the opinion of the Advocate General Szpunar in Moldova v Komstroy (C-741/19) in March 2021. In this complex opinion, the Advocate General inter alia assesses the compatibility of Art. 26 ECT, which deals with dispute resolution and notably investment arbitration, with the European legal order. Following the CJEU’s reasoning in the Achmea ruling, Advocate General Szpunar concludes that Art. 26 is in all likelihood incompatible with the European legal order in that it undermines its autonomy. The Advocate General explicitly invites the CJEU to take up this opportunity to finally evaluate the compatibility of intra-EU investment arbitration under the ECT and to conclude this long-standing debate.

 

The Negotiating History of the ECT: Why Mixed Ratification without Disconnection Clause?

The time is thus ripe to take a look at the negotiating history of the ECT (1990-98) and address a number of salient questions in view of the upcoming CJEU ruling: What was the original purpose of the ECT? Why did the EU and Member States conclude this treaty as a ‘mixed’ agreement arguably providing for its intra-EU application today? Why did they not include a disconnection clause to shield intra-EU relations from the ECT? And what does all that mean for reform options to modernise the ECT? I will address these questions in turn below. A more detailed account of the ECT negotiating history and its implications for intra-EU investment arbitration can be found in my recent article in the Journal of International Economic Law.

The EU and her Member States conceived the ECT project in 1990 to promote political-economic integration between Western Europe and the Soviet bloc in Central and Eastern Europe and Eurasia. The ECT project indeed echoed the very founding idea of the European Coal and Steel Community to foster peace and friendship among historically antagonistic states through energy cooperation and economic integration. While the EU and Member States were hoping to turn their Eastern neighbours into stable and peaceful democracies and improve access to Soviet energy resources and markets, the Soviet Union and Central and Eastern European countries were hoping to attract badly needed foreign direct investment, hard currency through energy exports and Western known-how to stabilise their faltering economies. To attain these objectives, Western and Eastern European policy-makers agreed that the ECT should contain inter alia rules on energy trade, investment liberalisation and provisions on investment protection and arbitration. The EU and its Member States thus approached the ECT negotiations with an outward-looking perspective – much like the EU negotiates trade and investment agreements with Australia, India or China nowadays – and indeed negotiated with a ‘single voice’ vis-à-vis notably the Soviet Union and then Russia. Individual Member States only exceptionally took the floor and left negotiating mostly to the European Commission and Council Presidency.

Why then did the EU and Member States conclude the ECT as a ‘mixed’ agreement, which arguably provides for its intra-EU applicability nowadays? This answer lies in the EU-internal allocation of competences and ECT negotiating dynamics. While the EU manifestly sought to appear as a cohesive unitary international actor vis-à-vis the Soviet Union and its Eastern neighbours, it was nonetheless clear that both the EU and the individual Member States would have to accede and ratify the ECT. The EU held an exclusive competence over trade as well as shared and fringe competences over capital movements, energy, transport and environmental matters. The Member States, in turn, remained competent over foreign direct investment, investment protection, services trade and alike. The breadth of the ECT thus made a ‘mixed’ ratification unavoidable – notably in that the allocation of competences in foreign economic relations was a highly sensitive topic in the early 1990s as CJEU Opinion 1/94 illustrates.

To avoid any misconceptions, the EU delegation insisted that the ECT should not govern intra-EU trade and investment relations. It proposed a disconnection clause that clarified that in as far as applicable European law rather than the ECT should govern intra-EU trade and investment relations. This draft disconnection clause, however, at some point disappeared from the negotiating documents and did not become part of the final ECT text. Why is that? Here we enter the realm of speculation though some informed guesses are possible. Towards the end of the core negotiations in 1993/94, the US, EU and Russia zeroed in on a number of challenging negotiating items. The USA demanded an ECT carve-out for her federal states. The EU, in turn, insisted on disconnection and Regional Economic Integration Organisation (REIO) clauses. Russia, finally, started growing weary of the ECT’s ramification for its energy sector and sovereignty and demanded a lengthy transition period to gain more experience with Western economic law and schedule its final investment liberalisation commitments. Each of these demands was met with considerable hesitation from the other parties. Discussions got so tense that the USA ultimately walked away from the negotiations. These developments created a sense of urgency among EU negotiators to avoid that Russia would follow suit. It seems possible that the EU thus dropped its demand for disconnection clause to speed up the conclusion of the negotiations and probably assumed that it was unlikely for the ECT to get successfully invoked in intra-EU relations and disputes. One should indeed recall here that investors had filed only a handful of disputes in the first half of the 1990s.

 

Concluding Remarks: What Way Forward?

These observations are noteworthy. While we do not know with certainty why the EU dropped its demand for disconnection clause, we do know that the EU initially proposed such a clause and that the ECT parties considered it but that the final treaty text does not contain one. The European Commission’s recent claim that the ECT contains an ‘implicit’ disconnection clause and cannot be applied in intra-EU disputes is thus unconvincing against the background of the travaux préparatoires. It is unclear how the CJEU will tailor these observations into its legal assessment in Moldova v Komstroy or indeed Belgium’s recent request for Opinion 1/20 on the modernisation of the ECT. After all, the CJEU’s reasoning in Achmea leaves little doubt that intra-EU arbitration is incompatible with the European legal order. Nonetheless, the EU has manifestly entered into a public international law commitment to that effect. The situation is certainly complex from a legal point of view.

From a political point of view, the situation looks somewhat clearer. The EU will need to take action to stop the intra-EU applicability of the ECT in that it is legally and politically unsustainable. To that end, the EU and Member States could either terminate their ECT membership. Or they could seek the inclusion of a disconnection clause as part of ongoing ECT modernisation negotiations. The second option may seem more appealing to many European policy-makers and lawyers. Though, two important caveats apply. First, third countries may oppose such a disconnection clause. Second, a reformed ECT with arbitration provision in all likelihood will need to undergo mixed ratification due to the CJEU’s findings in Opinion 1/15. Many Member State parliaments and the European Parliament may have little appetite to ratify an agreement with conventional investor-to-state dispute settlement (ISDS) provisions and insist on replacing conventional ISDS with the EU’s new Investment Court System. Yet, convincing all ECT parties of the Investment Court System may show difficult. Finally, it needs mentioning that Russia stopped provisionally applying the ECT in 2009. From the EU’s point of view the ECT thus lost its historic raison d’ être, which was to embed Russia into a rules-based regional energy framework. Instead, in the context of Brexit and the clampdown on intra-EU investment arbitration, the UK is likely to turn into a hub for energy investments and disputes against the EU and Member States putting additional strain on already delicate post-Brexit relations. In sum, the question arises whether the balance of costs and benefits under the ECT is still positive from the EU’s perspective. Moldova v Komstroy may turn out to be a moment of reckoning for the EU and ECT.

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Interviews of Our Editors: Irene Mira, Keilin Anderson, Maria Fanou, and Nicholas Diamond on Arbitration Tech

Fri, 2021-04-23 01:00

Hello, World!

 

Big Tech is a term more commonly used to describe the largest and most dominant technology companies. No doubt Big Tech’s technology has been making extensive and significant impact on our day-to-day lives. The impact of arbitration tech on the arbitration world has also been noticeable. As our readers would know our Blog recently launched a new series called Arbitration Tech Toolbox. It is apt today that our fellow editors share their candid perspectives on arbitration tech. The fifth of our Interviews of Our Editors series continues with our interview of four of our fellow editors: Irene Mira (Assistant Editor for Southeast Asia), Keilin Anderson (Assistant Editor for Australia, New Zealand and the Pacific Islands), Maria Fanou (Assistant Editor), and Nicholas J. Diamond (Assistant Editor).

 

  1. Thank you all for joining me! Please describe yourself with meme(s), in no more than 280 characters, or in a shorter than 60-second GIF.

IM: 

KA:

MF:

ND:

 

  1. What do you think has been the biggest impact of arbitration tech on your arbitration practice and career?

IM: Even though all case management related matters and some of the institutional projects can now be done without in-person interactions at all, arbitration tech has yet to dominate my work as an International Case Counsel at the Asian International Arbitration Center (“AIAC”). It is worth mentioning, however, that the AIAC has launched AIAC Tech Expert Committee (“AIAC TEC”). The AIAC TEC envisions coming up with, amongst others, standard form contracts (“SFCs”) in the tech industry. I do believe that it is just a matter of time before we witness an eruption of tech disputes being resolved by arbitration, be it institutionally administered or ad-hoc.

In terms of my arbitration career, I suppose presently everyone in the arbitration community has embraced virtual aspects of the work, such as virtual proceedings, conferences and webinars alike. This trend will continue to stay even after the pandemic ends. A positive impact that trickles down into the arbitration industry is that more young practitioners can use the online platform to collaborate with other members of the arbitration community. As the current Co-Chair of the AIAC Young Practitioners Group (“AIAC YPG”), I can attest to such development!

KA: As flagged by Irene, it would be impossible in the Covid-19 “new normal” for tech to not have significantly impacted my arbitration career. The move to virtual proceedings, conferences and networking events has meant a proliferation of more accessible career development opportunities for young practitioners – no matter where they are based. For example, during last year’s Australian Arbitration Week we had the fortune of hearing from an array of eminent speakers from every corner of the globe. One panel on gender diversity in arbitration highlighted how a more virtual arbitration community could benefit the push for greater diversity. The combination of arbitration tech and Covid-19 has in many ways, removed the isolation of being an arbitration practitioner “down under”. Suddenly, we can participate in both virtual hearings and virtual professional development opportunities without the long-haul flight (even if the time difference can be cruel!).

MF: Both Irene and Keilin are making a very interesting point linking arbitration tech and Covid-19 to a push for greater diversity, such as gender and age diversity. Although I generally like to see the glass half full, I am not entirely convinced. The pandemic might also be bad news for diversity. Whilst it is true that we have seen a widening of the pool of speakers (and attendees) at events, networking has become more difficult for junior members of the arbitral community in a fully online environment. We should also not neglect the fact that there is unequal access to affordable and reliable technology in all parts of the world.

On a more personal note, arbitration tech and the post-pandemic virtual reality have had an impact on my work in many ways. A notable example is the 2020 QMUL/W&C International Arbitration Survey on which I have been working. The twelfth empirical study of the School of International Arbitration has been inspired by these tech developments. It included, inter alia, questions on the use of information technology in arbitration, remote participation in hearings and other forms of interactions, as well as data protection and cybersecurity issues in the conduct of arbitrations.

ND: I share the sentiments of my Blog’s colleagues on this issue. In my view, the recent emphasis on arbitration tech has had a “net positive” impact. In particular, as we seek new opportunities for the international arbitration community to encourage diversity and inclusiveness, arbitration tech has certainly been a helpful tool. I have seen this in my own work on the intersection of international arbitration and human rights. But, as Maria aptly underlines, not all communities have access to some or all of these tools. This is a new challenge that I hope that the international arbitration community takes on in the coming years – that is, acknowledging and seeking to respond to these access barriers with broader efforts to build a more inclusive professional environment.

 

  1. What new tools in the arbitration tech toolbox would you like to see?

ND: I take a simple view on these issues. In general, we all benefit from new tools (or new iterations of old tools) that can either enhance how we communicate with our team and clients or ensure the highest levels of data privacy and security for our clients. Ultimately, my hope is that we see continued innovation on both of these fronts in the coming years, particularly because the international arbitration field looks to be adopting more of hybrid in-person / virtual approach for post-pandemic professional activities.

 

  1. Artificial intelligence in arbitration: Yea or Nay?

KA: I will go with “sometimes”. I think there is clearly real scope for artificial intelligence (“AI”) to improve arbitration, particularly from an efficiency and cost perspective. For example, the use of AI for e-discovery appears to be a welcome development. However, I am far less sold on the possibility of AI-arbitrators replacing human beings. Whilst we obviously want arbitrators to adjudicate objectively and dispassionately, legal decision-making surely requires some level of cognitive and emotional intelligence that AI does not possess (at least not yet…).

MF: I would say “Yea” but I cannot resist the temptation to go with the favourite lawyers’ answer: “it depends”. Ιt depends on whether, on the one hand, it concerns AI tools for legal research and tools for facilitating the procedure (e.g. technology assisted document review) or, on the other hand, whether it concerns AI tools of predictive justice. With regard to the first, “Yea” comes more naturally with the only caveat being that AI tools are not always affordable. Otherwise, anything that could enhance efficiency should be embraced. With regard to the use of AI tools in the adjudication process, we need to exercise caution. We are certainly not there yet and the questions raised are of a complexity that do not allow for black or white answers.

 

  1. Finally, please share one arbitration tech prediction of yours for 2021.

IM: This is my favourite section indeed as I get to gaze into the crystal ball, metaphorically speaking of course! Considering the necessity of conducting business virtually and the demands from stakeholders of the ever fast-paced of arbitration industry these days, I predict there will be proliferation of not just virtual arbitration protocols (“VAPs”) but cross-institutional VAPs will also be possible in the near future. Additionally, arbitral institutions will play a prominent role in cybersecurity and data protection in international arbitration as elucidated by one of our contributors.

KA: In addition to the inclusion of VAPs in institutional rules (as predicted by Irene), it will be interesting to see whether parties drafting arbitration agreements in 2021 expressly refer to virtual proceedings and the use of other arbitration tech in their arbitration agreements. Whilst such references were, in practice, relatively rare prior to COVID-19, 2021 might be the year parties seek to identify in some detail the extent to which they consent (or do not consent) to the use of particular arbitration tech.

MF: My new year’s resolution was to refrain from any predictions – this was a key takeaway lesson in 2020. I fully agree with Keilin and look forward to seeing whether virtual arrangements will become the norm and if so, how this might be reflected in dispute resolution clauses. Cybersecurity considerations are currently somewhat overlooked, but they will come to the fore. To this effect, as Irene noted, arbitral institutions have a significant role to play. One final thought is that 2021 will hopefully be the year when electronic submissions become the default option – thus a more sustainable year!

ND: I, too, try to avoid predictions! But if I had to read the tea leaves, as they say, I see a convergence between the newfound emphasis on arbitration tech and efforts to encourage a “greener” international arbitration community (as discussed on the Blog). For example, as we look to encourage VAPs, as Irene highlighted, such efforts can facilitate the role of our community in promoting sustainability and broader environmental goals. Electronic filings, virtual moots, and other related efforts are all part of encouraging sustainability in our community, which I hope that we will see more of in 2021.

  

We look forward to seeing if your arbitration tech prediction comes true!

Further interviews in this series of Interviews of Our Editors are published here.

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The Campaign for Greener Arbitration’s Green Protocols: Actions Not Words

Thu, 2021-04-22 01:01

The Campaign for Greener Arbitrations was founded by Lucy Greenwood in 2019 with the goal of reducing the carbon footprint of international arbitrations.  Led by a Steering Committee comprised of various stakeholders from the arbitration community, the Campaign produced a set of Guiding Principles outlining suggested actions to this end.

While the Guiding Principles define broader measures for consideration, the Steering Committee determined early on that a set of tangible action items with clear instructions would aid those eager to reduce the environmental impact of their arbitration practices.

A working group was formed in early 2020 with the goal of developing practical steps which could be implemented to accomplish the Campaign’s Guiding Principles.  Members of law firms, institutions, hearing centers, and arbitrators came together in the working group to produce a set of Green Protocols, a concise set of directives intended to guide members of the community in the effort to reduce the environmental impact of international arbitrations.

Members of the Green Protocols Working Group: Anish Patel, Three Crowns; Cherine Foty, Jones Day; Christine Falcicchio, Sopra Legal; Kiran Sanghera, HKIAC; Maguelonne de Brugiere, Herbert Smith Freehills; Nicola Peart, Three Crowns; Rekha Rangachari, NYIAC; Sarah Vasani, Addleshaw Goddard; Stuart Bruce, ICC UK Energy & Environment Committee.

The Green Protocols primarily focus on three critical areas in which changes in the behavioural practices of arbitration practitioners could have the largest impact in substantially reducing our carbon emissions. Specifically, the community is encouraged to: (i) adopt clean forms of energy, (ii) reduce or eliminate long–haul travel and (iii) minimize waste, for example by eliminating hard copy filings altogether.

Arbitration stakeholders who are committed to effectuate change should begin by reviewing the Protocol(s) which are most relevant to their practices. The below summaries provide an overview of each Protocol prepared by the Working Group.

 

The Framework for the Adoption of the Green Protocols

All stakeholders should begin with a review of the Framework file.  This document provides the roadmap to help navigate through the Protocols and outlines the sustainable measures that reoccur throughout each Protocol. In addition, the Framework highlights the accompanying matters to be contemplated when endeavouring to adopt the Protocols, such as diversity and cost considerations.

The Green Protocols are proposed as a voluntary commitment for members of the arbitration community. They are not intended to derogate from any existing rules, arbitration agreements or orders.

 

The Green Protocols

The Green Protocol for Arbitral Proceedings and the Model Green Procedural Order

Perhaps the quintessential Protocol, the Arbitral Proceedings Green Protocol (and accompanying Model Procedural Order) offers guidance from inception through completion of an arbitration matter.  It outlines a series of measures suggested to conduct proceedings in a more environmentally mindful manner. Use of this Protocol may be initiated by the Parties or Tribunal, and it is best followed from the outset of a matter.

As with all Protocols, the suggested measures are intended to be adopted individually or in their entirety, as appropriate. To the extent possible, stakeholders are encouraged to subscribe to as many of the measures as practical. Examples of measures contained in the Arbitral Proceedings Protocol include conducting remote proceedings, refraining from printing materials and avoiding unnecessary travel.

The associated Model Procedural Order is included to catalyse efforts to conduct greener arbitrations. The clauses herein may be inserted into Procedural Orders, or used in their entirety, to direct the measures to be used during the course of an individual arbitration.

 

The Green Protocol for Law Firms, Chambers and Legal Service Providers Working in Arbitration

This Protocol shifts focus to the day-to-day operations of organisations. To encourage compliance amongst colleagues, firms are urged to appoint “Green Ambassadors”, whose role shall be to help develop policies and best practices within their organisations to subscribe to more environmentally friendly procedures. Firms may also explore the use of incentive programs to motivate adherence to this Protocol and the adoption of its suggested sustainable measures.

 

The Green Protocol for Arbitrators

Individual arbitrators may seek guidance from this Protocol. Once again, the key components of energy, travel and waste considerations are noted as they pertain to the working enviroments and proceedings practices of arbitrators.

As arbitrators are appointed to matters, they are encouraged to set the tone by suggesting the use of the Green Protocols, specifically by integrating the Model Procedural Order.

 

The Green Protocol for Arbitral Institutions

With direct input from Institutional representatives, the Working Group developed this Protocol to provide guidance for both the internal operations of Institutions and in their case management. Institutions are encouraged to empower and guide Tribunals and Parties toward the goal of operating more environmentally sound proceedings conducted under their rules. While the COVID-19 pandemic has forced temporary remote proceedings, Institutions should continue to provide options for remote proceedings where practical thereafter.

 

The Green Protocol for Arbitration Conferences

Stakeholders who plan and host arbitration events should consult the Arbitration Conferences Protocol. Here, the Working Group addresses event planning and implementation, as early on as venue selection through execution and follow-up measures. Organisers are encouraged to partner with “green” organisations, those that practice sustainable behaviours in their operations and offerings. This applies to venue selection, accommodations (for in-person events), caterers and the like.

While the goal of conferences is to gather and engage participants, consideration should be given to hosting virtual events rather than in-person at times, particularly for those who plan multiple conferences annually.

 

The Green Protocol for Arbitration Hearing Venues

Facilitators of hearing venue spaces are referred to the measures included in this Protocol. Among the actions offered here, Facilitators are encouraged to employ technology platforms to promote digital presentations and file sharing as a way to reduce the reliance on paper during proceedings. Particular consideration should be given to powering venues through the use of cleaner forms of energy, wherever practical.

 

Conclusion

The global launch of the Green Protocols in early 2021 was followed by a public consultation period during which the Working Group has sourced feedback on the draft protocols from the global arbitration community.  A series of regional roundtables and workshops for public comment were organized in regions worldwide.  The community voiced overwhelming support for this initiative, with the Campaign winning the GAR Award for Best Development in 2020.  Participants in the consultation process further indicated a commitment to do their part to adhere to these measures.

Following the integration of the comments received, the final Green Protocols are now available on the Campaign’s website.  The final Protocols officially launch today on Earth Day 2021 (22 April), but they must be heeded every day in order to truly effectuate change.

The Working Group, in conjunction with newly formed Regional Sub-Committees of the Campaign designed to implement the Green Protocols in each region of the world with particular attention to regional specificities, will now focus in the coming year on implementation efforts.  These bodies will focus on providing tools, instructions, support, and resources to members of the international arbitration community in order to enable them to practically and effectively implement the Green Protocols.  Individuals and companies can sign the Green Pledge to stay informed of all future developments and initiatives to promote greener arbitrations.

The guidance shared in the Protocols is part of the Campaign’s larger effort of a voluntary agreement among the arbitration community to shift behaviours and act with continuous attention to the impact of our actions on the environment. The collective effect of even small shifts of behaviours, particularly in terms of travel and energy, will have a tangible impact when practiced by this global community. While some of the suggested measures outlined in the Protocols may seem inconvenient or difficult, they will ultimately lead to positive developments in the field and a better future for this community and beyond.

Now is the time for actions not words.

 

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The First Year of Tanzania’s 2020 Arbitration Act

Wed, 2021-04-21 01:52

With the coming into force of the 2020 Arbitration Act, Tanzania certainly has the potential to become a go-to place for international arbitration, at least in Eastern Africa. In addition to its favourable geographical location, now the country also has modern arbitration legislation largely based on the well-established and often tested English model.

Section 1 of this post describes the legislative history of the 2020 Arbitration Act, and Section 2 turns to a controversy about its coming into operation, which has been solved in the meantime. Then, Section 3 analyses the possible impact of the creation of the Tanzania Arbitration Centre, followed by Section 4, which discusses the somewhat confusing regulation of the situation where a party brings a substantive claim in an ordinary court despite an agreement to arbitrate. Finally, Section 5 concludes with a brief look into the future.

 

  1. The Legislative History

A little more than a year ago, on 7 February 2020, the National Assembly of Tanzania passed a new Arbitration Act, and it then took a little less than a year for it to come into operation on 18 January 2021. The 2020 Arbitration Act now applies to Mainland Tanzania – and thus not to Zanzibar, the second entity of the United Republic of Tanzania. On 5 January 2021, four supplementary regulations were approved: (i) the 2021 Arbitration (Rules of Procedure) Regulations, (ii) the 2021 Reconciliation, Negotiation, Mediation and Arbitration (Practitioners Accreditation) Regulations, (iii) the 2021 Code of Conduct for Reconciliators, Negotiators, Mediators and Arbitrators Regulations, and (iv) the 2021 Arbitration Centre (Management and Operations) Regulations.

The structure and content of the 2020 Arbitration Act are largely based on the 1996 Arbitration Act currently applicable in England, Wales, and, for the most part, Northern Ireland. Commentators have therefore labelled the 2020 Arbitration Act “a copy-paste-search-replace of the English Arbitration Act” or at least stated that it “appears to be similar in many respects to the English Arbitration Act”. Yet – as will be illustrated below by two examples – the two acts are by no means the same, the 2020 Arbitration Act also had other sources of inspiration, and it additionally contains genuine Tanzanian provisions. The 2020 Arbitration Act replaces the former Tanzanian Arbitration Act of 22 May 1931, which traces its origins back to the English Arbitration Act of 1889 and was amended several times, for the last time on 30 November 2019.

 

  1. In Operation or Not in Operation?

After the legislative steps taken in February 2020, there was some confusion even within Tanzania as to whether the 2020 Arbitration Act would already apply or not, as evidenced by five decisions of the Commercial Division of the High Court of Tanzania at Dar es Salaam, handed down by the same judge:

In other decisions rendered after February 2020, other judges did not discuss the question of whether the old or the new arbitration acts would apply, but routinely referred to the 1931 Arbitration Act, as amended, in the following decisions:

 

  1. The Tanzania Arbitration Centre

One example of a genuine Tanzanian provision is Section 77 of the 2020 Arbitration Act, which sets forth that “[t]here shall be a centre to be known as the Tanzania Arbitration Centre”, which will perform the tasks of an arbitration institution. The creation of the Tanzania Arbitration Centre could be a positive or a negative sign – which one it will be depends on how the institution will operate in practice. On the one hand, the fact that the Centre would have the legislator’s support could show the potential users of arbitration that the institution is legitimate, since it is based on a law and not mere private “justice behind closed doors”, to quote Lord Thomas of Cwmgiedd, the former Lord Chief Justice of England and Wales. On the other hand, any link between the state and the institution could lead to debates on the independence and impartiality of the institution, in particular in arbitral proceedings involving both Tanzanian and foreign parties. In this context, it is noteworthy that “[t]he funds of the Centre shall consist of … allocation from government, where available” (Section 13(1)(c) of the 2021 Arbitration Centre (Management and Operations) Regulations).

The creation of the Tanzania Arbitration Centre raises yet another question: what will be the new institution’s relationship to the Tanzania Institute of Arbitrators (TIArb), which has been operating officially in Tanzania since its launch in 1999? Only time will tell whether the Tanzania Arbitration Centre and the TIArb will coexist, cooperate, compete – or perhaps even converge. On the one hand, the 2020 Arbitration Act appears to assume that the Tanzania Arbitration Centre and the TIArb may coexist while, however, granting the Tanzania Arbitration Centre a certain superiority. This is evidenced by Section 26(2) of the 2020 Arbitration Act, which provides that “[w]here there is an arbitral tribunal or other institution or person vested by the parties with power to remove an arbitrator, the Centre shall not exercise its power of removal unless satisfied that the applicant has first exhausted any available recourse to that institution or person.” On the other hand, the legal basis for the Tanzania Arbitration Centre to enter into cooperation agreements in Section 16 of the 2021 Arbitration Centre (Management and Operations) Regulations only extends to “arbitration Centres and associations in other countries or jurisdictions”, which, by implication, might not include the TIArb. As a general observation, the 2020 Arbitration Act entrusts the Tanzania Arbitration Centre with tasks which the ordinary courts would exercise in other jurisdictions, notably the function of appointing authority (Section 19 et seq. of the 2020 Arbitration Act).

 

  1. Arbitration Agreement and Substantive Claim before Court

One example of a regulation which took inspiration from various sources can be found in the provisions covering the situation of a substantive claim before an ordinary court despite an arbitration agreement.

Section 13 of the 2020 Arbitration Act, which – according to its title – is dedicated to the “Stay of legal proceedings” appears to have taken inspiration from Section 9 of the English 1996 Arbitration Act, which contains the following subsection (3):

“An application may not be made by a person before taking the appropriate procedural step (if any) to acknowledge the legal proceedings against him or after he has taken any step in those proceedings to answer the substantive claim.”

The corresponding provision of Section 13(3) of the 2020 Arbitration Act reads as follows:

“A person shall not make an application under this section unless he has taken appropriate procedural step to acknowledge the legal proceedings against him or he has taken any step in those proceedings to answer the substantive claim.”

Thus, while the English provision does not allow an application to stay legal proceedings after a party has taken any step to answer the substantive claim, the Tanzanian provision seemingly requires the contrary: It would appear that a party must first take any step to answer the substantive claim before being entitled to apply for a stay of the proceedings in court.

In addition to this difference, Section 13(3) of the 2020 Arbitration Act appears to be at odds with Section 12(1) of the 2020 Arbitration Act, which reads as follows:

“A court, before which an action is brought in a matter which is the subject of an arbitration agreement shall, where a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement of claim on the substance of the dispute, and notwithstanding any judgment, decree or order of the superior court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.”

This Section 12(1) appears to be inspired by Section 8 of the 1996 Indian Arbitration and Conciliation Act, which, in turn, appears to be an adaptation of Article 8(1) of the UNCITRAL Model Law on International Commercial Arbitration, a provision based on Article II(3) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Tanzanian arbitration scholar Madeline Kimei thus rightly noted the confusion created by including both Section 12 and 13 in the 2020 Arbitration Act. Ultimately, it will be for the Tanzanian courts to determine the interplay of these provisions.

 

  1. The Potential Future

No one can predict with certainty what the future will hold in store for arbitration in Tanzania. As of today, there appears to be no published court decision interpreting the provisions of the 2020 Arbitration Act (with the exception of the decisions quoted above in the cases of Petrolube Tanzania, High Hope International, and Nextgen Solawazi). However, given that the 2020 Arbitration Act has now come into operation, we will be looking forward to the next developments.

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REAL Gets Real: Launch of Racial Equality for Arbitration Lawyers

Tue, 2021-04-20 01:20

The launch of Racial Equality for Arbitration Lawyers (REAL) took place on 18 January 2021.The date to launch this initiative coincided with Martin Luther King’s Day, to commemorate the birth of this influential civil rights leader, known for his fight for racial equality.

The initiative is led by Kabir Duggal, Rekha Rangachari, and Crina Baltag, with the support of lawyers from all around the world. The energy and enthusiasm surrounding REAL have provided a strong foundation for the initiative, with members and allies representing diverse groups, genders, ethnicities and their intersections. This initiative is already backed by over 70 arbitral institutions.

REAL aims to build a dialogue and generate process-oriented action to address the lack of diversity and inclusion in international arbitration (IA). Some of the core goals of REAL include access and advocacy; to open the door for people of diverse backgrounds to the practice of arbitration, building pipeline opportunities and increasing the number of spotlights on diverse talent.

The launch of REAL was divided into two sessions, with six keynote speakers with impressive credentials leading positive change in their practice and communities. The speakers brought to the table important aspects that need to be addressed in the practice of international arbitration.

 

Why Diversity Matters in Adjudicative Bodies

Judge Navanethem Pillay explained why diversity matters in adjudicative bodies and pointed out that the practice of exclusion (e.g., women and people of color) still happens in international institutions all over the world.

From her experience as the first non-white woman to sit on the bench of the High Court of South Africa and the only woman sitting on the International Criminal Tribunal for Rwanda, she reflected on the importance of the presence of women on tribunals. “Whenever a bench delivered judgments including on rape and sexual violence, invariably women were sitting as judges. Whenever there weren’t any of these convictions, no women had sat on the bench.” The importance of diversity is clear in the ability of the tribunal to evaluate the claims made by the victims.

She also reflected on the impact her upbringing – as a non-white female in Apartheid Africa, with a judiciary entirely integrated of white males – had on her approach to the issue of compensation for victims, and how she advocated for a more restorative form of justice rather than solely retributive. This novel approach was possible because she related to the victims’ experiences, coming from a similar background herself.

For Judge Pillay, diversity and inclusion matter in international arbitration and domestic situations for comparable reasons. Initiatives such as REAL help traditionally excluded groups to achieve the visibility they require and lessen issues of representation.

 

Lack of Diversity Finds its Root in the Lack of Access to Capacity Building

Mr. Kevin Kim shared his personal experience as a young practitioner in international arbitration to demonstrate how the lack of access to capacity building derives in lack of diversity. During the early years of his career, he was surprised to see that clients routinely retained big international law firms for international arbitration cases. He was disappointed but saw an opportunity to change the norm. He focused on enhancing the capabilities of Korean lawyers so that clients across the world sought out their services.

He decided to address the issue of a lack of diversity by passing on his experience and sharing his knowledge with colleagues and competitors alike, to help build a thriving community of international lawyers in Seoul.

The lesson learned is that if the people are equipped with the right skill set, they can perform wonders. Kim stressed the importance of capacity building of people of diverse backgrounds and to give minorities access to the best procedures and practices. He assures “It is through our excellence that clients will start noticing us”.

On the other hand, Kim emphasized that the IA community needs to move away from the raw notion of diversity itself, but encourage a healthy diversity where people are respected and hired for their unique perspectives and skills and not for diversity factors as racial identity.

International arbitration transcends borders and thus, there is a greater need for diversity than in other areas of law. In a case where we encounter different nationalities; diversity becomes the instrument to harmonize differences. Moreover, virtual hearings may be the new norm for IA and, therefore, distance, cannot continue to be an excuse for ignoring the underrepresentation of minorities, since technology has truly brought people together.

The arbitration industry must make an effort to showcase the talent of diverse lawyers and bring them into the spotlight so that they do not go unnoticed by potential clients. This is where REAL could serve as a medium.

 

Being a Woman in International Arbitration

Dr. Nayla Comair-Obeid delivered a thought-provoking speech where she addressed the challenges of being a woman in international arbitration. As a woman arbitrator originally from Lebanon, she was born at a time when being a judge was a position reserved for men and she battled in this professional world. The first time she was proposed as a Chair in a domestic arbitration, one of her co-arbitrators refused to serve in a Tribunal where the chairperson would be a woman. His male colleague argued that “The brain of a woman cannot rule like the brain of a man”.

The challenge grew bigger when she started developing her career internationally and gained more appointments as an arbitrator, where she faced similar prejudices and stereotypes as those of her home jurisdiction. Further, she has learnt to reconcile the roles of being a mother, a wife, and an arbitrator. Dr. Comair-Obeid shared three stories of bias and prejudice she encountered over the years.

First, in 2017 she was appointed president of the Chartered Institute of Arbitrators (CIArb) and was the first woman of the Middle East to occupy that position. Despite having worked many years in the Institution and opening the Lebanon office, her election still prompted skeptical comments about a woman from the Middle East presiding CIAarb.

Second, she noted that unconscious bias and prejudice are present when appointing arbitrators. While arbitral institutions play an important role when appointing arbitrators from diverse backgrounds, this sentiment is not always shared by the parties. For instance, in an ICSID arbitration, one of the parties challenged her appointment exclusively because she was a Lebanese national.

Third, she recounted an experience where she suffered intimidation from a witness in a proceeding where she was acting as sole arbitrator. She felt this would have unlikely occurred if she were a man.

Finally, Dr. Comair-Obeid highlighted that arbitral institutions have a key role in promoting diversity and can help to fight biased perceptions and create bridges between countries and regions.

 

Diversifying ICSID

Ms. Meg Kinnear, as the Secretary-General of the International Centre for Settlement of Investment Disputes (ICSID) at the World Bank, addressed the institutional efforts being undertaken to address diversity issues.

From her unique position, Ms. Kinnear spoke about the role that ICSID plays within the institutional effort of the World Bank to foster equal opportunity and end racial discrimination.

She highlighted that a crucial way to nurture diversity is by nominating arbitrators from diverse backgrounds. She also noted that it is important to shine a spotlight on people with diverse backgrounds to make sure the community and the parties are aware of these profiles when they select arbitrators. Lastly, she acknowledged the positive progress in this regard, with the Secretariat selecting arbitrators from 40 different nationalities in the past year.

Finally, Ms. Kinnear stressed on the importance of accountability. Diversity, she concluded, has to be nurtured and cannot be taken for granted.

 

Diversity and the Importance of Personal Accountability

Professor Dr. Emilia Onyema, a senior lecturer at SOAS University of London and a Fellow of the CIArb, emphasized the importance of personal accountability.

As part of her efforts to foster diversity, Dr. Onyema remarked upon the African Promise and AFAS initiatives. The first is an initiative inspired by the ERA Pledge to help secure fair representation of African lawyers in arbitration bodies and institutions. The latter is intended to help African students with mentorship and opportunities to publish, among others.

She further provided examples of what each practitioner can do to advance diversity. First, she encouraged practitioners to challenge themselves and seek opportunities to make a difference and not to fall back on their comfort zone by opening doors for others. Additionally, she noted that the local arbitration scenes are often dominated by a small clique of people and that practitioners should be inclusive and more generous by sharing their space.

 

Diversity Makes Us Uncomfortable 

Dr. Ucheora Onwuamaegbu remarked that diversity is a topic people are uncomfortable addressing and that not too long ago, these conversations would have been professionally risky.

Dr. Onwuamaegbu has had a very diverse professional background. From a small law firm in London to the United Nation’s Compensation Commission, to ICSID, and again to private practice. From his experience, he shared five lessons:

  1. It is important to be open to different approaches and work cultures. If people do something different is not because they are incompetent or lazy. Accents only mean that people are smart enough to speak different languages.
  2. No one is born knowing international arbitration. People that might have initially been very insecure, now have blossomed to be highly regarded experts in the field. The only difference between those people and the rest, is that they were given the opportunity to grow. We need to extend this privilege to everyone.
  3. Diversity is not rhetoric. Cultural and racial diversity in international arbitration is important because it brings novel perspectives leading to more balanced results. This strengthens the legitimacy of the system.
  4. Achieving diversity is possible and this is done through equal opportunities for all.
  5. All stakeholders have a role to playing ensuring diversity and inclusion.

 

Final Remarks

In both sessions, all participants were presented with certain questions as polls.  The results for these questions were fairly consistent, albeit disappointing.  Below are the results of the polls for us to reflect upon:

Session 1:

 

Session 2:

 

The initiatives shared by the keynote speakers suggest that international arbitration is changing, undoubtedly for the better. Institutional efforts to ensure diversity in tribunals and commitments that promote fair representation are steps in the right direction. Still, the polling results remind us that there is an important lack of diversity and inclusion. The REAL initiative has a key role to play in shining a limelight on talent from diverse backgrounds that can help breach the diversity gap. The time is right to get real about diversity and inclusion. The full recordings of the launch of REAL are available here and here.

Membership to REAL is open to the public for free. Consider signing up here.

 

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Is The Remedy Under Section 9 of India’s Arbitration and Conciliation Act, 1996 Available Post-Award to the Losing Party?

Mon, 2021-04-19 01:00

Similar to Article 9 of the UNCITRAL Model Law (the “Model Law”), Section 9 of India’s Arbitration and Conciliation Act, 1996 (“the Act”) entitles the parties to arbitration proceedings to obtain interim relief from courts. However, there is one major difference between these two provisions. Article 9 of the Model Law allows parties to obtain interim relief from the courts at two stages, i.e. (i) before the commencement of arbitration proceedings and (ii) during the course of arbitration proceedings. On the other hand, in addition to the two stages mentioned above, Section 9 of the Act also entitles parties to obtain interim relief from Indian courts after the arbitral award is made but prior to its enforcement. Section 9 of the Act itself does not bar any party from approaching the court to seek interim measures under any given situation. However, recent court judgments have consistently held that after the arbitral award is made, only the winning party in the arbitration proceedings (“successful party”) is entitled to obtain interim reliefs from the courts, whereas, the losing party in the arbitration proceedings (“unsuccessful party”) is not entitled to seek any remedy under Section 9. This approach of the courts gives rise to a debatable issue which is currently pending for the consideration of the Supreme Court of India in Home Cares Retail Marts Pvt. Ltd. v. Haresh N. Sanghavi (SLP (C) No. 29972 of 2015). This post highlights the important judgments given by various High Courts regarding this issue and then briefly analyses whether an unsuccessful party in the arbitration proceedings should be entitled to seek a remedy under Section 9 of the Act.

 

Key Judgments Highlighting This Issue

The Bombay High Court delivered the landmark judgement on the issue in Dirk India Pvt. Ltd. v. Maharashtra State Power Generation Company Ltd. (2013) (“Dirk India”). In this case, a Division Bench of the Bombay High Court observed that after an arbitral award is made, interim relief can only be sought to safeguard the fruits of the proceedings until the enforcement of the award. It further held that the purpose of providing interim relief after the passing but before the enforcement of the arbitral award is to secure its value for the benefit of the party that seeks the enforcement of the award. Thus, after the award is made, the remedy under Section 9 can only be obtained as a step-in aid of enforcement of the arbitral award. On the aforesaid basis, it held that as the unsuccessful party in the arbitration proceeding has no right over the subject matter of the dispute at the stage of enforcement, such party is not entitled to seek any remedy under Section 9 of the Act.  The Bombay High Court followed Dirk India’s rationale in Windworld India Ltd. v. Enercon Gmbh and Ors. (2017) and Home Care Retails Pvt. Ltd. v. Haresh N. Sanghavi (2015), and the Delhi High Court in the recent case of Technimont Pvt. Ltd. v. ONGC Petro Additions (2020).

Another important point for consideration regarding this issue is whether a party whose claims are partly rejected and partly accepted in the arbitral award would be entitled to obtain interim relief from the Court under Section 9. The Delhi High Court addressed this issue in Nussli Switzerland Ltd. v. Organizing Committee Commonwealth Games (2014) where it was held that a party whose claims are partly rejected and partly accepted in the arbitral award, will not be entitled to seek interim relief under Section 9 if the amount of its claims subsume into a larger amount awarded in favor of the opposite party. This judgment impliedly clarifies that after the award is made, only the parties whose claims are pending for enforcement against the opposite party, i.e., the successful party, would be entitled to seek the remedy provided under Section 9.

 

Analysis

While it seems that High Courts have largely agreed with each other on the availability of interim relief following the passing of an arbitral award, there are additional factors that these judgments have not factored in.

Firstly, as already stated, Section 9 of the Act itself entitles ‘any party’ to obtain interim relief from the Court at three stages, i.e. (i) before the commencement of arbitration proceedings; (ii) during the course of the arbitration proceedings; and (iii) after the arbitral award is made but prior to its enforcement. The term ‘party’ has been defined under Section 2(1)(h) of the Act as a ‘party to an arbitration agreement’. Hence, applying the literal rule of interpretation of statutes, all parties, i.e. the successful and the unsuccessful parties, are equally entitled to approach the Court to avail the remedy provided under Section 9 at any stage. The text of Section 9, thus, draws no distinction between the rights of the successful and the unsuccessful party in the arbitration proceedings to seek interim relief from the Courts. Therefore, so long as Court finds merit in the Section 9 application filed by an unsuccessful party in the arbitration proceedings, the courts may grant appropriate relief to the unsuccessful party even after the arbitral award is made.

Secondly, the courts should not incapacitate themselves from granting interim relief in favor of the unsuccessful party in cases where the relief sought creates no negative impact on the rights of the successful party over the subject matter of the dispute. For instance, in Wind World (supra), the interim relief sought by the unsuccessful party under Section 9 was the continuation of confidentiality of certain documents during the pendency of the Section 34 application filed before the court for setting aside the arbitral award. However, the Bombay High Court placed reliance on Dirk India (supra) and dismissed the application. It is pertinent to mention that in Wind World (supra), the Court failed to notice that the aforesaid relief sought by the unsuccessful party did not create any hindrance on the rights of the successful party over the subject matter of the dispute. Such reliefs are preventive measures that ensure the protection of the unsuccessful party’s rights, in case the arbitral award is set aside by the Court. Therefore, in such situations, there can be no justified reason to completely prevent the Courts from granting interim relief in favor of the unsuccessful party.

Lastly, while hearing an application for setting aside an arbitral award under section 34 of the Act, when a Court orders a stay on the enforcement of the arbitral award during the pendency of such application, the unsuccessful party may be entitled to obtain interim relief from the court under Section 9Section 36 of the Act states that courts must have due regard to the provisions of the Code of Civil Procedure 1908 (“CPC”) while granting a stay on the enforcement of the arbitral award. As per the provisions of the CPC, the courts have to be satisfied that there exists a prima facie case, irreparable harm, and balance of convenience in favor of the Petitioner before granting the interim relief on any order/decree, etc. Therefore, once the court is satisfied that the aforesaid pre-conditions are fulfilled in the case filed for setting aside the arbitral award by the unsuccessful party, the remedy under Section 9 may be made available to the unsuccessful party. One instance that highlights the aforesaid proposition is when a court grants a stay on the enforcement of the arbitral award on being satisfied that the unsuccessful party has made out a prima-facie case on the ground of fraud. In such a case, it is essential to protect the rights of the unsuccessful parties by providing them with the remedy under Section 9 even after the making of the arbitral award, in order to protect the subject matter of the dispute during the pendency of the Section 34 petition.

 

Concluding Remarks

In the light of the above, it can be argued that the power of the Courts to grant interim measures under Section 9 should extend to both the parties, i.e. successful and the unsuccessful party in the arbitration proceedings, at any amongst the three stages provided under Section 9 of the Act. An outright restriction on the Court’s power to provide any interim measure to an unsuccessful party in the arbitration proceedings is neither a feasible precedent nor the intention of the legislature. However, the Courts should provide the Section 9 remedy to the unsuccessful party only in exceptional cases and ensure that Section 9 is not used as a tool to abuse the process of law.

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