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Michael Buenger’s Great Keynote Address at the ABA Court ADR Conference

ADR Prof Blog - Sun, 2019-04-21 20:01
I liked virtually all of the sessions I attended at this year’s ABA conference and I especially appreciated the Court ADR Conference keynote address, delivered by Michael Buenger, the executive vice-president and chief operating officer of the National Center for State Courts. He kindly agreed to let me post his provocative, wide-ranging talk, which I … Continue reading Michael Buenger’s Great Keynote Address at the ABA Court ADR Conference →

What To Do About Corruption Allegations? – A Conference Report

Kluwer Arbitration Blog - Sun, 2019-04-21 17:52

David Attanasio and Ana Duran (Dechert LLP)

The conference “What to Do About Corruption Allegations? Debating the Options for Investment Law”, was presented by the ILA American Branch Investment Law Committee and the Georgetown International Arbitration Society, and hosted at Dechert LLP’s Washington D.C. office on 19 February 2019. The conference was dedicated to an in-depth exploration of the proof required for corruption allegations and the consequence of corruption in an investment dispute.

As David Attanasio (Co-Chair of the ILA American Branch Investment Committee; Associate, Dechert) set out in his opening remarks, the conference addressed the resolution of corruption allegations in international investment arbitration following the Metal-Tech and Spentex awards.  In the aftermath of those awards, the field of investment arbitration has had to grapple with a set of questions regarding the proof of corruption and response to findings of corruption.  Those awards combined flexible evidentiary techniques for assessing corruption allegations with the outright dismissal of the arbitration upon finding corruption.  The conference addressed whether and to what degree investment arbitration should follow such approaches to corruption allegations.

This blog post will discuss several (of many) important contributions from the conference, focusing on two principal threads: proof of corruption, and the proper response when corruption is found.

  1. What is sufficient proof of corruption?

The first panel, moderated by Susan D. Franck (Professor of Law, American University), focused on the question of the proof of corruption.  This issue has become increasingly heated against the background of the Metal-Tech tribunal’s invocation of red flags to find corruption (see a previous discussion of Metal-Tech on the Blog) and the Spentex tribunal’s finding of corruption on the basis of “connecting the dots.”

To stimulate discussion, Prof. Franck put to the panelists a 2014 empirical study, carried out during the biennial Congress for the International Council for Commercial Arbitration (ICCA) and presented in the article “International Arbitration: Demographics, Precision and Justice”.  The study concluded that practitioners consider that the burden of proof is frequently outcome determinative in international arbitrations, but that it is only occasionally or never identified in advance.

In this regard, Aloysius Llamzon (Senior Associate, King & Spalding) observed that the failure to identify the applicable standard of proof in advance is a common flaw in the adjudication of corruption allegations.  Jason Yackee (Professor of Law, University of Wisconsin) too was of the opinion that parties should know what standard of proof they will be judged by, given that it may be outcome determinative.

There is a question, however, as to the degree to which knowing the standard of proof in advance would significantly alter party behavior, since parties might present whatever evidence they have in order to support their allegations regardless.  This is true even if the standard of proof would be relevant to the tribunal’s analysis of the case.

Nevertheless, the panel reported that the field has splintered in its views on the applicable standard of proof for such allegations.  One division, highlighted by Prof. Yackee, is the difference between the civil law standard of proof of intimate conviction and the probabilistic standards used in the US.  A second division, noted by Mr. Llamzon, is that regarding the stringency of the standards of proof, where there are two main camps: one advocating a higher standard, versus the other advocating an ordinary standard of proof.

As Mr. Llamzon observed, much of the difference is derived from national conceptions of fraud and corruption.  In his view, these different national conceptions are likely to lead to disagreement regarding the standard to adopt when a tribunal is comprised of arbitrators from both civil and common law traditions.

Prof. Yackee observed that, when a probabilistic standard of proof is employed, one analytic approach to setting the standard is to compare the costs of a false positive (i.e., an erroneous finding of corruption) with the costs of a false negative (i.e., an erroneous finding against corruption).  In this regard, a higher standard of proof may be required if the costs of a false positive (for example, the denial of the forum) are considered to be higher than the costs of a false negative.

A major further question is whether the applicable standard of proof can be satisfied by identifying so-called red flags of corruption—an increasingly common tactic by parties following the Metal-Tech award.  Mr. Llamzon took a skeptical view, observing that the concept of red flags comes from the world of compliance where it is used to assess, ex ante, the risks of entering into an agreement with a third party, not for the evidentiary purpose of assessing, ex post, the existence of corruption.  By contrast, in Prof. Yackee’s view, red flags of corruption could go into the “bucket” of evidence, albeit taking into account the specific evidentiary weight of a given red flag.

Nevertheless, the question remains as to whether red flags should in fact constitute evidence and how strong that evidence might be.  This is a question that tribunals will continue to confront in light of the contrast between the seriousness of allegations of corruption, on the one hand, and the limitations on the tribunal’s evidence-gathering powers, on the other.

Meriam Al-Rashid (Partner, Dentons) noted that, whatever standard of proof is ultimately adopted, in accordance with the principle of equality of arms, arbitrators have a duty to apply the same standard of proof to allegations of corruption made by an investor against the state as it applies to allegations of corruption made by the state against an investor.

  1. What is the right response when corruption is found?

The second panel, moderated by Jan Paulsson (Professor of Law, University of Miami School of Law; Partner, Three Crowns), addressed the appropriate response from an investment tribunal following findings of corruption.  This issue too has become increasingly challenging given that some investment tribunals are inclined to take a more flexible evidentiary approach to finding corruption and it is increasingly recognized that “it takes two to tango”—i.e., alleged corruption often involves both the state and the investor.

The panel had doubts as to whether a binary response to corruption—i.e., either ignore the corruption or dismiss the arbitration entirely—is appropriate.  Lucinda Low (Partner, Steptoe) noted that the binary response incentivizes the respondent state not to investigate allegations of corruption.

Arif H. Ali (Partner, Dechert) considered the binary response problematic at its core: a tribunal’s role is not to mete out punishment for corruption.  However, according to him, refusing to address the legality or the economics of the situation on the moral grounds that some tribunals have invoked is an abdication of the arbitrator’s function.  This could be the case, for example, when the tribunal relies on standards of public policy as did the tribunal in World Duty Free.

Further, Mr. Ali noted that arbitrators usually do not examine questions of fact in the same detail and depth as, for example, domestic courts do in a criminal trial, and the procedural forum is far too limited in its evidence-gathering to accommodate the evidentiary challenges of corruption allegations.

Two potential alternatives to the binary response emerged from the panel.

Mr. Ali proposed that the concept of contributory fault could be employed to balance the pertinent considerations of law, morality, and economics.  The corruption could be taken into account (if relevant) in determining the compensation due to the investor for the state action at issue in the investment arbitration. In this case, the compensation could be reduced based on the investor’s contribution to its own loss through its participation in the corruption.  This is an approach that some investment tribunals, such as the MTD tribunal, have adopted, albeit not in connection with corruption.

By contrast, Ms. Low set out—albeit for provisional consideration only—a proportionality approach.  Such an approach might ensure that the state has proper incentives to eliminate corruption, consistent with obligations assumed under international anti-corruption treaties.  Under this approach, tribunals would look to a set of relevant factors to determine the appropriate remedy for its findings of corruption, but would not automatically dismiss the arbitration simply because corruption is found.  Among the factors that a tribunal might consider for this purpose:

  • Was the public sector involved in the investment or the corruption?
  • Did the investor freely offer the alleged bribe, or did a host state official extort it from the investor?
  • Did both the investor and the state comply with their obligations to prevent or investigate the corruption?

A third new option, suggested by these panelist comments, could be to apply a merged version of these two approaches. For example, tribunals might consider some of the factors identified by Ms. Low in order to determine each party’s fault in the case and, thus, the compensation that should be awarded to the investor.

The conference concluded with closing remarks from Malika Aggarwal (Georgetown International Arbitration Society).

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Brexit: Screaming for Vengeance? Enforcing Intra-EU Arbitral Awards in the Post-Brexit UK

Kluwer Arbitration Blog - Sun, 2019-04-21 04:00

Danilo Ruggero Di Bella and Josep Gálvez

Introduction

The approaching BREXIT, in conjunction with the recent Svea Court of Appeal‘s decision upholding largely an intra-European Union (EU) Stockholm Chamber of Commerce (SCC) award against Poland, provides the opportunity to further discuss the ramifications of the preliminary ruling by the Court of Justice of the EU (CJEU) in the Achmea case (Case C-284/16). The Achmea ruling has notoriously precluded intra-EU investment arbitrations because they may undermine the full effectiveness of the autonomy of EU law, ensured by Articles 267 and 344 of the TFEU. This situation begs a response to the question: Could Brexit turn the United Kingdom (“UK”) into a “safe” island for enforcing the contested intra-EU awards?

 The Swedish Perspective

The Svea Court of Appeal confirmed the existence of a valid arbitration agreement between PL Holding, the Luxembourgish investor, and Poland, and accordingly confirmed the ensuing SCC award. The Court reached this conclusion since Poland failed to raise – in due time during the arbitration – objections as to the validity of the arbitration agreement in article 9 of the Belgium-Luxemburg Economic Union (BLEU)-Poland BIT, which allegedly stands in contravention of EU law. By failing to raise such an objection – which should have been raised, at the latest, in its Statement of Defense according to the applicable Stockholm Chamber of Commerce (SCC) Arbitration Rules (namely, articles 5(1)(i) and 24(2)(i)) – Poland accepted the jurisdiction of the arbitral tribunal. Without making such a timely and clear objection based on EU law, Poland was deemed to have waived this right to object as per article §34(2) of the SAA.

A contrario sensu, it could be argued that if a Respondent State had raised the invalidity of the arbitration agreement contravening EU law at the right procedural moment, then the ensuing award would have run the risk of being set aside. By comparison, the Swedish Court noted 1)At page 56 (of the English translation) jQuery("#footnote_plugin_tooltip_9399_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9399_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that in the Achmea v. Slovakia arbitration – where the award was annulled by the German Supreme Court – Slovakia, indeed, raised promptly the jurisdictional objection as to the incompatibility of the arbitration agreement with EU law, thus preserving its chance to have the award annulled based on this ground before the German court. Therefore, the decision of the Swedish court reconciles with the ruling of the German court.  This suggests that whenever a Respondent State raises, in due time, the incompatibility between EU law and intra-EU investment arbitrations as a jurisdictional objection, then the ensuing award will be annulled in the case the arbitral proceedings are seated in an EU Member State.

Surprisingly, neither Poland nor the Swedish Court deemed necessary to ask for a preliminary ruling from the CJEU. Interestingly, despite its rulings not being ordinarily subject to appeal, the Svea Court of Appeal granted the parties leave to appeal to the Swedish Supreme Court.

Brexit Meets Achmea

Unless the UK Parliament decides otherwise, Brexit will become effective in 31 October 2019, placing the UK outside the autonomous EU legal order. After Brexit, English courts may take distance from the approach of the EU Member States’ courts, which will have to set aside intra-EU awards in order to conform with the preliminary ruling of the CJEU on Achmea. In other words, the UK may become a favorable place for seeking enforcement of the several intra-EU awards that might be on the verge of being annulled because of where they were seated.

To test this theory, it becomes worthy to examine the following points:

1) the standard of review used by English Courts in reviewing jurisdictional challenges to an investment arbitration tribunal;

2) the deference paid by English courts to the findings of investment arbitration tribunals;

3) the English courts’ approach with respect to the enforcement of annulled awards (in other words their deference to foreign courts’ decisions).

1) Standard of Review

Section 67 of the 1996 English Arbitration Act confers broad power upon judges to review the jurisdiction of a tribunal seated in England. English courts will re-examine the jurisdiction of arbitrators by carrying out an independent and full investigation of the arbitration agreement with the view of testing the court’s conclusion against the tribunal’s decision to find out whether the tribunal was indeed correct in its decision on jurisdiction.

2) Deference to Tribunals’ Decisions by English Courts

Given the post-Achmea reactions by investment tribunals – which have been either to disregard or reject Achmea-based arguments – it is crucial to examine if the English courts usually pay any deference to arbitrators’ decisions.

Despite the exercise of these full re-examination powers, eventually, English courts have found themselves agreeing with investment tribunals reaffirming their jurisdiction since the very first investment award was ever challenged before English courts, which was Republic of Ecuador v Occidental Exploration.

This approach has been confirmed by a relatively recent English High Court ruling setting aside for the first time an investment treaty award, which declined jurisdiction over part of the Griffin v Poland arbitration. 2)GPF GP S.à.r.l v. Republic of Poland, SCC Case No. V 2014/168 jQuery("#footnote_plugin_tooltip_9399_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9399_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Since this SCC arbitration is seated in London, the High Court re-examined its interim jurisdictional award, the applicable BIT – coincidentally, it is the same BLEU-Poland BIT as the one underlying the challenge before the Svea Court of Appeal – and concluded that the tribunal erred in limiting the scope of its substantive jurisdiction to direct expropriation only (similarly to the Swedish Supreme Court when in 2008 it annulled the award in Petrobart v Kyrgyz Republic because the tribunal wrongly declined jurisdiction).

These are all indications pointing in the direction that, should an investment award be challenged before an English court, the competent judge will tend to either uphold or even expand the tribunals’ jurisdiction. By the same token, seemingly, an application for the enforcement of a foreign investment award should be easily granted, or at least not thwarted by objections limiting the scope or validity of the arbitration agreement. In this context, the next question that arises is the following: Would an English court keep the same line in case the award was annulled or ought to be annulled at its seat?

 3) Deference to Foreign Courts’ Decisions by English Courts

The view that international awards are not the exclusive products of the given legal system where the arbitral proceedings are anchored, coupled with the pair of discretionary “may” in Articles V(1)(e) and VI of the NY Convention, give certain leeway in enforcing a nixed award. Consequently, the enforceability of an annulled award is unpredictable. It varies depending on the jurisdiction where enforcement is sought and the ground/s on which the annulment is based. It is also not unusual that the same jurisdiction has adopted inconsistent stances.

English courts have been consistent in that they are not barred from enforcing an award by the existence of an annulment decision by the supervisory court at the seat of the arbitration. However, a high threshold has to be satisfied to warrant such enforcement. By a coordinated reading of Yukos v Rosneft [2014] EWHC 2188 (Comm) and Maximov v OJSC Novolipetsky Metallurgichesky Kombinat [2017] EWHC 1911 (Comm), a foreign award will be enforced if the home court’s decision setting it aside the award was so extreme and incorrect so as to be found contrary to basic principles of honesty, natural justice and domestic public policy.  This means that domestic public policy provides a benchmark for determining the enforcement of an annulled award. However, after Brexit, the English concept of public policy may drift apart from EU Member States public policies. Accordingly, English courts may not be swayed by EU-based objections and disregard them merely as “Local Standard Annulments”.

A taste of this approach can be found in the way Justice Bryan refrained from addressing any Achmea-based argument in Griffin v Poland.3)[2018] EWHC 409 (Comm) at. 3 jQuery("#footnote_plugin_tooltip_9399_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9399_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); At the time when the Claimant challenged the interim jurisdictional award, the CJEU had not ruled on Achmea yet. Still, Poland reserved any rights it may have in the context of that pending decision. On this point, Justice Bryan preferred to say nothing about whether Poland did or did not have any such rights.

It is worthy to recall that Griffin v Poland is an intra-EU arbitration seated in UK, an EU Member State at the time the arbitral proceedings was instituted. Therefore, this arbitration will provide the perfect opportunity to see how post-Brexit English courts will tackle Achmea-based exceptions attempting to set aside the award. Griffin v Poland is now pending at the liability stage (after the partial annulment of the interim award by Justice Bryan, who ordered the tribunal to re-expand its jurisdiction to also hear the Claimant’s indirect expropriation and FET claims). Undoubtedly, as soon as the arbitration comes to an end, Poland will attempt to have the award set aside. It will then be that the English courts will confirm or dispel the hypothesis that the UK may become a favourable jurisdiction either for enforcing intra-EU awards or for being the seat of intra-EU arbitrations.

Conclusion

Before Brexit, English courts have always proven to be strong as well as critical supporters of the investment arbitration regime as a whole, rather than blind advocates of any findings of investment arbitration tribunals. In fact, the full standard of review gives them a totally independent stance when it comes to scrutinising the correctness of a tribunal’s determination on its own jurisdiction. Moreover, English courts have not felt compelled to recognize the decision of foreign courts ordering the annulment of an award. Thanks to the flexibility recognised on this point by the New York Convention, English courts have enforced, from time to time, annulled awards based on a domestic public policy benchmark. After Brexit, English Courts most likely will keep all these features, with the sole exception that their public policy will no more be aligned with the EU. As a result, post-Brexit UK will be theoretically a suitable jurisdiction to enforce intra-EU awards.

References   [ + ]

1. ↑ At page 56 (of the English translation) 2. ↑ GPF GP S.à.r.l v. Republic of Poland, SCC Case No. V 2014/168 3. ↑ [2018] EWHC 409 (Comm) at. 3 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Listening Exercise - A listening skills activity: 'Facts and Feelings'

Communication and Conflict Blog - Sat, 2019-04-20 03:32
A listening exercise which enables participants to reflect on the experience of listening and being listened to and what this tells us about effective listening.

Determining Quality FDI: A Commentary on the OECD’s “FDI Qualities Project”

Kluwer Arbitration Blog - Sat, 2019-04-20 00:36

Karl Sauvant

The OECD Secretariat launched, in 2018, a “FDI qualities project”. Its objective is to provide governments with a tool kit to attract investment that contributes as much as possible to sustainable development. For that purpose, the project has identified five clusters of “FDI qualities indicators”: productivity-innovation, skills, job quality, gender, and carbon footprint. These indicators were selected on the basis of a detailed assessment of how FDI can contribute to specific Sustainable Development Goals, and in cooperation with an FDI Qualities Network (consisting of interested stakeholders) established to provide feedback to the project.1)OECD, “FDI Qualities Toolkit: Investment for Inclusive and Sustainable Growth. Progress Report III” (Paris: OECD, March 2019). See also the earlier report “FDI Qualities Toolkit: Investment for Sustainable Growth: Progress Report II” (Paris: OECD, October 2018). jQuery("#footnote_plugin_tooltip_3613_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3613_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This note is a commentary about the OECD’s FDI qualities project, knowing that FDI qualities indicators are the first part of the project, and that the indicators will be complemented (beginning October 2019) by a discussion of policies on FDI qualities, in recognition of the fact that sustainable development outcomes may depend on the country context as well as domestic and international policies. This work will—and should—have implications for future arbitral proceedings, as well as the WTO’s Structured Discussions on investment facilitation.

 

It is no doubt laudable that the OECD is examining questions related to the quality of FDI.

It would be desirable, too, if the Secretariat, at one point, could look not only into the question of how countries can attract higher quality FDI and ensure that FDI has a positive impact on sustainable development, but also how investors can increase the contribution of their investments to the host countries in which they are established, based on the work already done in relation to the OECD Guidelines for Multinational Enterprises. Since policy questions will be addressed at a later stage of this project, maybe then it is the time to look at this question as well.

We all realize, of course, that “quality”, like “beauty”, is in the eyes of the beholder—and the principal beholder in this case is the host country government. It is therefore necessary to develop quality indicators that reflect the different priorities that governments have, as indicated also in their differing SDG implementation plans.

This leads to the question of how to identify quality indicators.

One approach, the approach that the OECD Secretariat has taken, is to look to the literature, firm and other databases and to experts. That is of course a reasonable approach, and the resulting five indicators are certainly very useful, very well developed and very well discussed in the excellent background paper prepared by the Secretariat.2) OECD, 2019, op. cit. jQuery("#footnote_plugin_tooltip_3613_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3613_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

But one could also take another—perhaps complementary—approach to identify quality indicators or quality characteristics of FDI. And that approach is to look at, on the one hand, what governments say they expect FDI to contribute to the sustainable economic development of their countries and, on the other hand, to look at what investors say they contribute to the sustainable economic development of their host countries. The underlying assumption of this approach is of course that—regardless of what academic experts say—the principal actors in the FDI relationship know best what is good for them (in the case of governments) and what they can contribute (in the case of investors).

This is the approach Howard Mann and I have taken when we sought to develop a list of “FDI sustainability characteristics” (or what the OECD Secretariat calls “qualities indicators”).3) Karl P. Sauvant and Howard Mann, “Towards an indicative list of FDI sustainability characteristics” (Geneva: ICTSD and WEF, 2017). jQuery("#footnote_plugin_tooltip_3613_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3613_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); We looked at a wide range of instruments—ranging from international investment agreements to the corporate social responsibility statements of MNEs—to determine what governments expect that investors contribute to the development of their economies, and what investors say they contribute to the development of host countries.

What is interesting is that this research shows that there is in fact a substantial overlap between the qualities that governments seek in FDI and the qualities investors say they bring to host countries to advance sustainable economic development. These include (apart from those identified by the OECD Secretariat), labor rights, human rights, transparency, supply chain standards, and stakeholder engagement. In fact, one could even go so far as to speak about an emerging consensus between governments and investors as to various “quality” indicators. It is a consensus that includes the five indicators identified by the OECD Secretariat.

But the research undertaken by Howard Mann and myself also shows something else, namely that there are considerably more “quality indicators” (or “FDI sustainability characteristics”) than the five indicators identified by the OECD Secretariat. That is important when creating a “toolkit”, as it reflects the reality that different governments do indeed look for different qualities in FDI when seeking to advance their sustainable development.

This, in turn, suggests that the OECD Secretariat might want to aim for a list of “FDI qualities indicators” that is longer than the five clusters it has identified so far and that, in the end, would constitute an indicative list of FDI quality indicators that could provide guidance to governments—and, for that matter, investors—that are interested in seeking to increase the contribution of FDI to sustainable development. Such an approach would also be in line with my earlier observation, namely that “quality” is in the eye of the beholder—and the principal “beholder” in this exercise is, as noted before, the host country.

Importantly, the issue of FDI quality, in terms of the contribution that FDI can make to development, is also beginning to be considered in arbitral proceedings, by bringing various aspects of the sustainability characteristics into their deliberations. Examples include Salini v. Morocco, Biwater v. Tanzania, Inmaris Perestroika Sailing v. Ukraine, and Alpha Projektholding v. Ukraine. These decisions include references to contribution to infrastructure,4) Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, ¶ 57 (23 July 2001). jQuery("#footnote_plugin_tooltip_3613_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3613_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); technology transfer,5) Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, ¶ 320 (24 July 2008). jQuery("#footnote_plugin_tooltip_3613_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3613_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); local employee training,6) Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction, ¶ 132 (8 March 2010). jQuery("#footnote_plugin_tooltip_3613_6").tooltip({ tip: "#footnote_plugin_tooltip_text_3613_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and the generation of government revenue7) Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award, ¶ 330 (8 November 2010). jQuery("#footnote_plugin_tooltip_3613_7").tooltip({ tip: "#footnote_plugin_tooltip_text_3613_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as characteristics associated with the notion of an investment contribution to development. An indicative list of FDI sustainability characteristics/quality indicators could be a helpful tool for future arbitral tribunals when considering individual cases.

Finally, I should like to note that the work of the OECD Secretariat is especially important and timely at this particular moment, for an additional reason. And that reason is that the WTO Structured Discussions on a multilateral framework on Investment Facilitation for Development are moving along quite rapidly.8) See the “Joint Ministerial Statement on Investment Facilitation for Development”. For an analysis of these Discussions, see ICTSD, “Crafting a Framework on Investment Facilitation” (Geneva: ICTSD, 2018). jQuery("#footnote_plugin_tooltip_3613_8").tooltip({ tip: "#footnote_plugin_tooltip_text_3613_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Most of these discussions have focused so far on the “facilitation” part of the objective, while the explicit and direct “development” part of the objective has not yet received much attention.

Accordingly, the work that the OECD is undertaking in the framework of its “FDI qualities project” could make an important input into the WTO Structured Discussions. It should, therefore, be brought to the attention of the WTO process, to help inform the development part of its deliberations.

 

Karl P. Sauvant is Resident Senior Fellow at the Columbia Center on Sustainable Investment, a joint center of Columbia Law School and the Earth Institute at Columbia University. This note is based on an intervention prepared for the Third Policy Network Meeting, Paris, OECD, 13 March 2019, on FDI qualities.

References   [ + ]

1. ↑ OECD, “FDI Qualities Toolkit: Investment for Inclusive and Sustainable Growth. Progress Report III” (Paris: OECD, March 2019). See also the earlier report “FDI Qualities Toolkit: Investment for Sustainable Growth: Progress Report II” (Paris: OECD, October 2018). 2. ↑ OECD, 2019, op. cit. 3. ↑ Karl P. Sauvant and Howard Mann, “Towards an indicative list of FDI sustainability characteristics” (Geneva: ICTSD and WEF, 2017). 4. ↑ Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction, ¶ 57 (23 July 2001). 5. ↑ Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, ¶ 320 (24 July 2008). 6. ↑ Inmaris Perestroika Sailing Maritime Services GmbH and Others v. Ukraine, ICSID Case No. ARB/08/8, Decision on Jurisdiction, ¶ 132 (8 March 2010). 7. ↑ Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award, ¶ 330 (8 November 2010). 8. ↑ See the “Joint Ministerial Statement on Investment Facilitation for Development”. For an analysis of these Discussions, see ICTSD, “Crafting a Framework on Investment Facilitation” (Geneva: ICTSD, 2018). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Israel Reflections–Final Thoughts…Leave with More Questions

ADR Prof Blog - Fri, 2019-04-19 11:36
Most of this blog post is from my colleagues Alex Lemann and Rebecca Blemberg who joined Natalie Fleury (our fabulous DR program coordinator) and me on the trip.  It was such a delight to have them with us on this great and educational adventure.  And, as they note, we are all likely returning with more … Continue reading Israel Reflections–Final Thoughts…Leave with More Questions →

What’s “Next” for Arbitration in Korea

Kluwer Arbitration Blog - Thu, 2019-04-18 17:01

David MacArthur

Sometimes described as “a shrimp among whales,” Korea is situated between China to the west and Japan to the east. Historically, the ambitions of the two large, neighboring countries—and, in more recent times, other larger powers—have sometimes threatened to overwhelm or subsume Korea. Indeed, during the Cold War, the political maneuverings of global powers divided the country in half, reducing South Korea’s population and geographical footprint even further, not to mention the devastation inflicted on the country in economic and other terms. But while its northern sibling may grab more headlines, South Korea has not only persisted in maintaining its independence of sovereignty, culture and spirit, it has thrived. The upshot of this history is that, out of sheer necessity, Koreans have developed a powerful resilience and capacity to seize and magnify opportunities when they arise.

This is no less true in the field of international arbitration. South Korea has seen a dramatic rise in international arbitrations involving Korean parties (as well as Korean counsel) over the past two decades, with a quantity and quality of cases comparable to—or even the envy of—many more established or much larger jurisdictions.

 

Growth of Arbitration in Korea

Serendipitously, this came about by historical accident, through the catalyst of the Asian Financial Crisis in the late 1990s. As the Korean economy teetered on collapse, the IMF infused the largest bailout in its history, on terms that required many corporations and conglomerates to achieve fiscal stability by dispensing of non-core assets, resulting in rapid and large-scale FDI in Korea, with international arbitration clauses inserted in most of the resulting deals. This crucible of forced corporate divestments predictably resulted in many hotly contested disputes arising in the ensuing years, mostly resolved in international arbitrations. Moreover, these cases tended to be relatively high value, complex, and often culminated in a final award (rather than settlement at an earlier stage).

Korean parties soon grew to be among the most frequent users of international arbitration under various institutional rules. In the case of ICC arbitrations, for instance, Korean parties became overall more active than Chinese and Japanese parties in objective numbers despite the country being significantly smaller in nearly every relevant measure, whether land mass, population, size of economy, or volume of international trade.1) With an estimated 1.4 billion people (as of 2018 data), China is the world’s most populous country, with Japan at 126 million and Korea 51 million. In landmass, China has 9,326,410 sq km, Japan 364,485 sq km and South Korea a mere 96,920 sq km. Likewise, looking at recent data for comparative purposes, China has the world’s highest national GDP at 23.21 trillion in USD (as of 2017 data), with Japan at 4th with 5.443 trillion in USD, and Korea at 14th, with 2.035 trillion in USD. In trade volume, China had import/export volumes of USD 2.216 trillion/1.74 trillion respectively (as of 2017 data), while Japan had USD 688.9 billion/644.7 billion, and Korea USD 577.4 billion/457.5 billion. Data drawn from https://www.cia.gov/library/publications/the-world-factbook/. jQuery("#footnote_plugin_tooltip_3107_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3107_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For example, over the two-decade period from 1998 to 2008, there were 665 Korean parties in ICC arbitrations, 422 Japanese parties and 499 mainland Chinese parties.2) Data for 1999 to 2009 has been drawn from ICC International Court of Arbitration Bulletin, Vol. 19, No. 1 (2008), Vol. 20, No. 1 (2009), and Vol. 21, No. 1 (2010); data for 2009 to 2018 was directly provided to the author by ICC staff. jQuery("#footnote_plugin_tooltip_3107_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3107_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In addition, over the same time period, over 1,100 international cases were filed with the KCAB, typically involving one or more Korean parties.

As this wave of arbitrations began sweeping over Korea, several young, ambitious partners at major Korean firms saw an opportunity. Initially through co-counseling with more experienced international firms in significant cases, they formed teams of young practitioners who soon became deeply familiar with global ‘best practices’ in international arbitration while also advancing in advocacy skills. Since then, through the rapid growth in the field, several of those early arbitration teams have grown exponentially, with the top practices reaching upwards of 25 active practitioners. And, as the market has matured, other local firms have also established dedicated international arbitration practices while a number of international firms have set up offices in Seoul as well.

 

Growth of International Arbitration Community in Korea

One of the notable ways that the first generation of arbitration leaders in Korea—who have since joined the ranks of the global and regional leaders in the field—was able to capitalize on this burgeoning practice area was through deliberate efforts to share know-how, forming organizations expressly for this purpose, including the Korean Council for International Arbitration (“KOCIA”), the ICC Korea and the Federation of Korean Arbitrators, working to enhance the arbitration chops of the local bar.

In addition, they began to directly recruit talent from outside of Korea, including from the Americas, Europe and across Asia. In this way, they were able to add a variety of capabilities in language, law and advocacy to their already skilled local teams. I was one of the lucky ones to stumble into this small but very active arbitration scene in the mid-aughts, as was my co-chair, Robert Wachter of Lee & Ko, along with Sue Lim—who is now Secretary General of KCAB International—and several other members of the KCAB Next Steering Committee. Notably, three or more Korean firms have ranked in the GAR 100 global rankings every year since its inception in 2008, with the top firms occasionally breaking into the GAR 30.

In tandem with the rise of arbitration among parties and counsel in Korea, the country also took proactive steps to establish and enhance its reputation as a reliable and attractive seat for arbitrations. Among them:

  • Korea was the first East Asian country to adopt the UNCITRAL Model Law in 1999, which has since been updated from time to time, including most recently to reflect certain aspects of the 2006 revisions to the Model Law.
  • The Korean judiciary, with a high rating for independence and lack of bias or corruption, regularly provides focused training on matters particular to international arbitration. The courts tend to be supportive of the arbitral process, not intrusive.
  • In 2012, following the example set by Singapore’s Maxwell Chambers, Korean authorities established the Seoul International Dispute Resolution Center (SIDRC) with attractive and convenient hearing rooms utilizing the latest multi-media screen technology from Samsung and Apple. In 2018, the SIDRC was moved to even more spacious facilities.
  • In addition, Seoul offers travel infrastructure on par with any modern international city as well as, increasingly, transcription, translation and other essential services for arbitral hearings and a location that might be considered convenient and neutral in cross-border deals involving parties in the Asia-Pacific region.

 

KCAB and KCAB International

Over this same time period, Korean Commercial Arbitration Board (KCAB), as the official arbitral institution of Korea, steadily developed into a globally recognized and reliable institution. It did this in a number of ways including the establishment of a separate set of rules for international disputes in 2008, which have since been updated several times.

In recent years, it has received substantial governmental funding for purposes or promotion and development of international arbitration services in Korea. In 2018, KCAB International was established as an independent division of the KCAB to meet the growing demand for cross-border commercial dispute resolution, with leadership drawn from the ranks of the most experienced practitioners and arbitrators in Korea, demonstrating a commitment to world class case handling for international disputes. This commitment is manifest in the appointment of Ms. Lim, who as mentioned above, is its first Secretary General and previously practiced for over a decade at one of the premier arbitration practices in Seoul; as well as the appointment of Prof. Hi-Taek Shin, a highly respected and experienced international arbitration hand based in Seoul, as the Chairman of the organization. In addition, an International Arbitration Committee comprised of many well-known figures in the field worldwide, has been established to consult on issues relating to the appointment, challenge, replacement, and removal of arbitrators by KCAB International. The organization now also has offices in Los Angeles and Shanghai.

 

KCAB Next

It is with this historical and institutional backdrop that KCAB International led the creation of KCAB Next. It is tasked with aiding the next generation of arbitrators, leaders and practitioners with a nexus to Korea in developing their career and skills. Unlike various “young” groups formed under the auspices of various arbitral organizations, this group has no specific age limitation and invites the involvement of anyone falling within those categories who believes they can contribute to or gain something from the group.

KCAB Next aims to aid in the professional development of its members through various initiatives, including workshops and training events, social networking events, and encouraging and providing opportunities to publish on various topics in international arbitration, including in partnership with the Kluwer Arbitration Blog, as well as other innovations currently under discussion. The Steering Committee is optimistic that the organization will be able to offer unique and valuable opportunities to its members in the development of their careers in the field of international arbitration, at various levels. Like the organizations set up by the early practice leaders in Korea, its primary aim is to facilitate the sharing of know-how and build-up of skills through collaboration among its members. In this way, we hope that the KCAB Next will facilitate the growth of Seoul’s arbitration services cluster, boosting its creative and intellectual capital even further. One key difference from the first decade of arbitration growth in Korea, reflecting the more mature and established position of Korea in the global field of international arbitration, is that the KCAB Next has an expressly more international mission, which is to connect those practicing in Korea with their peers abroad who have a nexus with or interest in Korea, and vice-versa.

In this regard, KCAB Next aims to collaborate with various organizations, institutions and individual practitioners in other jurisdictions around the globe. Readers of this blog with an interest in the Korean arbitration market are invited to register with the organization by emailing [email protected].

References   [ + ]

1. ↑  With an estimated 1.4 billion people (as of 2018 data), China is the world’s most populous country, with Japan at 126 million and Korea 51 million. In landmass, China has 9,326,410 sq km, Japan 364,485 sq km and South Korea a mere 96,920 sq km. Likewise, looking at recent data for comparative purposes, China has the world’s highest national GDP at 23.21 trillion in USD (as of 2017 data), with Japan at 4th with 5.443 trillion in USD, and Korea at 14th, with 2.035 trillion in USD. In trade volume, China had import/export volumes of USD 2.216 trillion/1.74 trillion respectively (as of 2017 data), while Japan had USD 688.9 billion/644.7 billion, and Korea USD 577.4 billion/457.5 billion. Data drawn from https://www.cia.gov/library/publications/the-world-factbook/. 2. ↑ Data for 1999 to 2009 has been drawn from ICC International Court of Arbitration Bulletin, Vol. 19, No. 1 (2008), Vol. 20, No. 1 (2009), and Vol. 21, No. 1 (2010); data for 2009 to 2018 was directly provided to the author by ICC staff. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Israel Reflections 2019–Feminism & Women

ADR Prof Blog - Thu, 2019-04-18 16:43
Our last chunk of speakers were strong women who work to make Israel more inclusive and safer. Kylie Owens shared her thoughts on our first speaker. Professor Halperin-Kaddari is a renowned expert in family law, who earned both her L.L.M. and J.S.D. from Yale Law School. Our visit with Ruth Halperin-Kaddari, a family law professor … Continue reading Israel Reflections 2019–Feminism & Women →

Assumptions - A Communication and Conflict TRAINING EXERCISE

Communication and Conflict Blog - Thu, 2019-04-18 07:17
This page describes a training exercise used to explore the assumptions we make about others when we meet them and how this affects communication and conflict.

Vienna Arbitration Days: How to Deal with Biases and Cultural Differences and Other Practical Issues

Kluwer Arbitration Blog - Thu, 2019-04-18 00:11

Floriane Lavaud and Edna Sussman

In the beautiful surroundings of the Palais Niederosterreicher, the 200+ delegates at Vienna Arbitration Days (VAD) 2019 were warmly welcomed by members of the Organising Committee, representing ArbAut, VIAC, AYIA (the Austrian Yearbook of International Arbitration), ICC Austria, YAAP (Young Austrian Arbitration Practitioners), and UNCITRAL.  Anna Joubin-Bret, UNCITRAL’s Secretary, provided an overview of UNCITRAL’s work streams, including its work on ISDS procedural reforms and expedited proceedings under the UNCITRAL rules.

The keynote speech from Professor Catherine Rogers of Penn State University and Queen Mary, University of London discussed the development of Arbitrator Intelligence, which is due to launch later in 2019.  Adopting an engaging presentation, Catherine considered the points of relationship between the storylines of James Bond films and the sorts of scenarios which arise in international arbitration, contrasting Bond’s gadgets with the most-used gadget in arbitrator selection, i.e., the old-fashioned word-of-mouth recommendations.

Arbitrator Intelligence seeks to unlock a wider range of options for parties and appointing counsel by using an in-depth data-driven analysis of an arbitrator’s track record to assist parties in making more informed selections of arbitrators.  Delegates were encouraged to explore the AIQ (the Arbitrator Intelligence Questionnaire) to see the depth of information which it seeks to extract. Such information being objective and factual, there is a limit to how much a disgruntled party, for example, can affect the feedback on a particular arbitrator.  The more data submitted via the AIQ, the more likely it is that the reports generated by Arbitrator Intelligence will be of high value to users.

The first panel session of the VAD featured four ArbitralWomen: Edna Sussman (independent arbitrator and mediator), chair, Philippa Charles (Stewarts, London), Giuditta Cordero-Moss (University of Oslo) and Claudia Winkler (Negotiation Academy), as well as Dr Philip Anthony from DecisionQuest (a leading mock trial/arbitration provider based in the U.S.).  Within the umbrella topic of psychology and its impacts in arbitration, the four speakers each gave a short presentation on a particular psychological dynamic in arbitration, which may affect the outcome if not anticipated and managed by participants.

Edna Sussman opened the discussion on cultural differences by reference to the Hofstede Dimensions and the studies that have demonstrated that people from countries with a higher “power distance” and who accept that some people have more power than others are more likely to be persuaded by expert testimony.  Philippa Charles noted that far from being cultural chameleons, arbitration practitioners are—at least, to some extent—influenced by their nationality and the approaches to society which that nationality imports.  She explained Professor Hofstede’s six cultural hard-wiring characteristics, where a high or low score tends to illustrate a particular national characteristic which is distinctive.  She drew out the overwhelming influence, for example, in US nationals, of a preference for individualism, and how that feeds into, for example, a drive for success.  Philippa also referred to high-context and low-context cultures, which can greatly impact a tribunal’s understanding of evidence.

Giuditta Cordero-Moss focused her presentation on the imprinting of a decision-maker’s home legal culture on their approach to legal issues.  Using as an example a contractual pricing mechanism dispute, she contrasted the instinctive, textual approaches of a Norwegian-trained lawyer and a British-trained lawyer.  The differing approaches led to different results in Giuditta’s example: the challenge for practitioners -and especially for arbitrators- is to apply the relevant applicable law without being influenced by one’s personal legal culture.

Claudia Winkler drew on her experiences training negotiators and mediators to look at framing and its effect on one’s receptiveness to a proposition.  In the negotiation context, the way in which an offer or proposal is framed may affect the recipient’s response, engaging either the recipient’s risk adversity or risk acceptance.  The effect of the choice of presentation has far wider implications, including in cross-examination questioning and a tribunal’s appreciation of the gulf between the parties’ positions. Being aware of the other party’s alternative framing and addressing it proactively, rather than being defeated in a “battle of the frames,” is also key.

Closing the session with practical guidance on how counsel can counter these biases, Edna quoted Lucy Reed comment that “what mock arbitration therefore does is to change the lawyers’ biases about their own cases. It allows them to see whether what they think are the most important points to make are (or are not) as good as they think, and therefore whether their clients are likely to win (or not).”  Dr. Philip Anthony highlighted two particular advantages of mock arbitration: First, having the mock judge’s private feedback assists the party in addressing any quasi-emotional or experientially-driven responses.  Second, the effect and influence of a dominant arbitrator or judge on the rest of the panel can be explored.  By matching the mock arbitrators as closely as possible to the selected panel, parties have an opportunity to assess how much a dominant arbitrator may affect the proceedings and potentially the outcome.

The second panel, consisting of Wendy MacLaughlin (GBsqd LLP), Howard Rosen (Secretariat International), and Manuel Conthe (Independent Arbitrator), was chaired by Dr. Günther Horvath (Dr. Günther J. Horvath Rechtsanwalt GmbH) and focused on the importance of mathematics and economics in arbitration. Wendy MacLaughlin explained the complexity in establishing reasons for the late completion of a project by means of forensic analysis.  She emphasised that delay analysis in construction projects should not be perceived as a “black box.” One of the challenges faced by arbitrators is that the use of the different methodologies can lead to different results, despite being based on the same facts (for example, relying on the actual progress records vs. using software with hypothetical calculations). Wendy explained that one methodology is not necessarily better than the other. The arbitral tribunal has to make its choice based on the available data and contractual requirements.

Howard Rosen explained the importance of the ability of counsel and arbitrators to manage economic and industry skills. Experts, in turn, should use plain language and provide practical examples that would complement an academic approach with practical market knowledge.  Bringing the message across in a clear and understandable manner requires time and cannot be underestimated by counsel. Arbitrators should also approach the presentation of the quantification of damages in an efficient manner and not leave it for the end of a long hearing.  Howard noted, although AI tools are very useful in the quantification of damages, they raise various ethical, practical and legal issues, such as who should be designing and maintaining the system, what should be the basis used by the system to “learn,” and whether the result should be considered valid evidence.

Manuel Conthe focused on the role and impact of time warps in the assessment of risks.  Manuel referred to the “curse of knowledge,” a cognitive bias under which an individual assumes that others have the technical and legal expertise to understand what he/she is explaining.  In arbitral proceedings, the time-lag between the events that led to a dispute and the actual time of arbitration unavoidably imposes a “curse of knowledge” upon arbitrators and causes discrepancies between the assessments of facts at the different stages of the dispute.  It is important for tribunals and parties to be aware of this phenomenon as both influence the decision-making process.

Building on the preceding panels, the third panel considered—from the perspective of counsel—the myriad of ways in which unconscious bias affects arbitral proceedings.  The panel featured two ArbitralWomen: Floriane Lavaud (Debevoise & Plimpton) and Cecilia Carrara (Legance), as well as Paul Oberhammer (WilmerHale), Carsten van de Sande (Hengeler Mueller), and moderator Klaus Peter Berger (Center for Transnational Law).  After discussing the different types of bias that affect arbitration proceedings, the panel suggested possible solutions and mitigating measures, including through the use of technical tools.

Floriane and Cecilia discussed the effect of the arbitrators’ legal background and training on their decision-making, particularly with respect to evidentiary rulings, and how to mitigate such bias.  For instance, practitioners from civil law jurisdictions may undertake a more inquisitorial approach to evidence, thereby limiting party-initiated disclosures, while arbitrators from common law jurisdictions may more broadly permit such disclosures.

Next, the panel considered a range of other biases, including self-serving bias, where decision-makers resolve ambiguities in a manner favourable to themselves, and hindsight bias, where decision-makers perceive certain facts as being more predictable than they actually were at the time.  The panel focused especially on the cultural biases of arbitrators vis-à-vis gender and race, in connection with how arbitrators assess the reliability of witnesses.  The panellists cited numerous efforts to tackle such biases in the selection of arbitrators, including the Pledge on Equal Representation in Arbitration and the ArbitralWomen arbitrator database.

Among the technical tools for mitigating bias, Floriane mentioned the hidden bias tests and training modules, such as the Implicit Association Test and Project Implicit (Harvard University- University of Virginia). Carsten discussed the increasing use of artificial intelligence (AI) in arbitration, but also the risk of AI tools leading to dysfunctional results, because not all relevant elements to disputes are taken into consideration when developing the original algorithms.  Cecilia discussed the Council of Europe’s first European Ethical Charter on the Use of Artificial Intelligence in Judicial Systems. They all stressed the importance of ensuring equal access, warning that any existing procedural unfairness may be further entrenched otherwise.

To conclude, Paul raised the importance of not losing sight of the fundamental goal to ascertain the underlying truth and distinguished between “scientific” and “legal” truths and the influence of such modalities on advocacy techniques. The panel emphasized that arbitrators are often self-aware of their biases and will indeed try to look beyond the manner and style of presentation of counsel to ascertain the underlying facts.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
by Edited by Niuscha Bassiri, Maarten Draye
€ 185


Pace’s securities arbitration clinic students go to the SEC

ADR Prof Blog - Wed, 2019-04-17 12:22
Because most disputes between individual investors and their brokerage firms are arbitrated through FINRA’s Dispute Resolution forum, many legal issues impacting retail investors do not make their way through the courts but instead end up being resolved in a private forum with little transparency (i.e., awards are published but usually contain no reasons or explanations). … Continue reading Pace’s securities arbitration clinic students go to the SEC →

The Problem of Assistance in Investment Arbitration?

Kluwer Arbitration Blog - Wed, 2019-04-17 01:00

Abhisar Vidyarthi

Most investment treaties do not expressly provide for the appointment of assistants or secretaries to the arbitral tribunal. It is an institutional practice that has been subsequently codified by several arbitral institutions, while some institutions are still silent on the subject. Despite the significant attempts being made, the apprehension that arbitral secretaries may overstep their limits continues to haunt the parties and the arbitral process. The same apprehension was shared by Popplewell J in P v Q, wherein he illustrated the considerable and understandable anxiety in the international arbitration community that the use of arbitral secretaries risks them becoming the fourth arbitrators. It is an established institutional practice that the arbitral tribunal may appoint assistants or secretaries after consulting the parties. The tribunal is further required to present the curriculum vitae of the assistants to the parties. Moreover, the same standards of independence and impartiality extend to such assistants and they are required to comply by the disclosure requirements. However, it cannot be assumed that entrusting the assistant with substantive arbitral functions was contemplated by the parties while giving the consent to their appointment.

 

Prevailing Rules Regarding the Role of Arbitral Secretaries

The ICCA Guide on Arbitral Secretaries attempts to enlist the best practice principles for the appointment and exercise of assistance by secretaries. It also provides that the delegation of work to secretaries may legitimately go beyond the administrative roles. The ICCA Guide elaborates that the role played by arbitral secretaries may include, researching questions of law and questions relating to factual evidence and witness testimony. Moreover, the task of secretaries may extend to drafting and reviewing procedural orders, parties’ submissions and evidence. They may also attend the arbitral tribunal’s deliberations and draft appropriate parts of the award’. Other institutions such as the SCC and LCIA limit the extent of tasks of assistants to purely organisational and administrative work of the arbitral tribunal. The UNCITRAL Notes on Organizing Arbitral Proceedings limits the task of secretaries to listing and briefing in light of fostering a timely decision by the tribunal. The SCC’s 2017 Arbitrator’s Guidelines further provide that, subject to any agreement of the parties to the contrary, ‘the administrative secretary’s duties shall be limited to organisational, clerical and administrative functions’. While there is no conclusive determination as to what the administrative functions might entail, the guidelines explicitly state that the tribunal shall not delegate any decision-making authority to the administrative secretary’. The Singapore International Arbitration Centre (SIAC) is not elaborate on the subject and provides that a secretary may only be appointed with the consent of all the Parties. However, it does not entail the ambit of the secretary’s duties and the same is subject to the   agreement between the parties. Moreover, the same standards of independence and impartiality are extended to the assistants. This is evident from the comparison given in the IBA Guidelines on Conflict of Interest in International Arbitration 2014 (“IBA Guidelines”) that both “secretaries and assistants to the Arbitral Tribunal are bound by the same duty of independence and impartiality (including the duty of disclosure) as arbitrators”.

 

Impact of delegation of Substantive functions to the Assistants or Secretaries

Over the years, the arbitral practice in Investment Arbitration, shows that arbitral assistants are sometimes appointed to assist the arbitrators. The complexity of the cases and the abundance of the submissions made by the parties triggers the appointment of assistants. The arbitral tribunal in Caratube v. Republic of Kazakhstan justified the appointment of the tribunal’s assistant by the need for logistical assistance on the file in this case. Furthermore, the appointment of assistants is in line with the objective of arbitration i.e. to ensure expedient and efficient resolution. The tribunal secretaries increase the efficiency of the arbitration proceeding by supplementing the arbitrators during the arbitral process. Moreover, they allow the arbitrators to focus on deliberating on the merits, and enable them to decide the cases expediently. Therefore, the appointment arbitral secretaries provide a cost effective mechanism to ensure the efficiency and expediency of the proceedings.

 

However, it is important to draw the line between the essential functions of the arbitrators and the functions that can be delegated to the assistants. The excessive involvement of arbitral assistants raise the following concerns.

 

  1. It shall be a ground for the disqualification of the Arbitrator

The delegation of substantive functions breaches the President’s duties to perform his function personally. Article 14 of the UNCITRAL Model Law provides that if an arbitrator becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay, then either party may request the court for the termination of his mandate. Article 14 of the ICSID Convention requires the arbitrators to be of high moral character and recognized competence.1) ICSID Convention, 1986, Art. 14(1). jQuery("#footnote_plugin_tooltip_7778_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7778_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Moreover, the arbitrator must fulfill his role by exercising independent judgement to the best of his skill. The involvement of arbitral assistants and secretaries is contrary to the exercise of independent judgement. Furthermore, the position of arbitrators is voluntary and the same can be declined if they want to delegate essential functions to the secretary. Thus, the delegation of substantive functions by the arbitrator shall be a ground for a disqualification as it would render him unable to perform his duties.

 

  1. The delegation of substantive functions would raise doubts over the credibility of the award

The duties of the arbitral assistant must be limited to organisational and administrative work not extend to substantive functions such as collecting evidence and drafting the award. It was highlighted by Professor Jan Hendrik Dalhuisen, in his Additional Opinion in Compañía de Aguas v Argentina, that the appropriate role of a tribunal secretary is one of ‘administration and support’ and that the secretary is not the ‘fourth member of ICSID tribunals or ad-hoc committees. The assistants’ role must be limited to organisation and maintenance of the tribunal’s files and other administrative work such as organising hearings and meetings, attending deliberations, performing legal research, and proofreading procedural orders and awards. The ICCA note on arbitral secretaries expressly states that under no circumstances may the Arbitral Tribunal delegate decision-making functions to an Administrative Secretary. The delegation raises concern of quality, impartiality and objectivity. Arbitral Institutions prescribe for certain qualifications for arbitrators in investment arbitration that ensure the integrity of the tribunal. Therefore, as the arbitrators in investment arbitration possess considerable expertise in the subject, the involvement of secretaries and assistants in decision making would raise claims against the authenticity and credibility of the award.

 

  1. It shall be a ground for subsequent Annulment of the Award

The use of assistants in carrying out the substantive tasks of an arbitrator can directly impact the validity of an arbitral award. It must be noted that almost all domestic jurisdictions as well as international institutions recognise a serious procedural irregularity as a ground for annulling an arbitral award. The question was dealt by the Italian Supreme Court in Sacheri vs Robotto, wherein it was held that delegation of the decision-making function to a third party amounted to a violation of due process and annulled the impugned award. Therefore, the delegation of substantive functions is a fundamental departure from rule of law and would be a ground for annulment of award. The issue was brought to the forefront in the Yukos cases wherein the Russian Federation challenged the delegated substantive responsibilities to the Tribunal’s assistant and argued that the award must be set aside  on the basis of Article 1065(1)(c) of the Dutch Code of Civil Procedure as the arbitrator failed to fulfill its mandate. Though the District Court did not address the issue as it set aside the awards on the grounds that the ECT had not been ratified by the Russian Parliament, the appeal against the assistant playing role in decision making did raise questions of legitimacy over the involvement of secretaries in International Arbitration.

 

Conclusion

The limited role for tribunal secretaries stems from the intuitu personae nature of appointment of the arbitrators. Therefore, while the appointment of assistants makes the arbitral process smooth and expedient, there should be a line differentiating the role played by party appointment arbitrators possessing the requisite standards set by the arbitral institutions and the assistants appointed by the tribunals to assist in organisational and administrative tasks. In order to ensure greater transparency and evade the possible consequences mentioned in the last section, the work of the secretary must be clearly agreed by the parties, and known to them throughout the process. Moreover, there is a need for uniformity of regulation as the uncertainty regarding the proper role of the secretaries adds a negative connotation to the perceived legitimacy of the arbitral process and the award. Thus, risking the annulment of the award after a lengthy arbitral process.

 

References   [ + ]

1. ↑ ICSID Convention, 1986, Art. 14(1). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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DSD and the Catholic Church

ADR Prof Blog - Tue, 2019-04-16 14:14
This week’s New Yorker has a great article on Ken Feinberg’s work helping the Catholic Church manage its sexual abuse crisis. Feinberg and Camille Biros created and run the Independent Reconciliation and Compensation Program (IRCP), which processes claims of sexual abuse by priests. The IRCP started in New York in 2016 and other dioceses from … Continue reading DSD and the Catholic Church →

Israel Reflections 2019–Justice Aharon Barak

ADR Prof Blog - Tue, 2019-04-16 09:36
It is always such a highlight of our trip to hear from Justice Barak and this was no exception–student Lucas Baker reflected on the meeting: It was an incredible opportunity to meet with retired Chief Justice of the Israeli Supreme Court, Justice Aharon Barak. Rarely do law students have the chance to learn from a … Continue reading Israel Reflections 2019–Justice Aharon Barak →

Mark Your Calendars: ABA Conference Next Year April 22-25 in New Orleans

ADR Prof Blog - Tue, 2019-04-16 08:27
I just came back from the ABA conference, which I thought was great.  Unfortunately, the weather prevented some people from getting there on time or at all. Next year, it will be April 22-25 at the Sheraton in New Orleans. I predict that there will not be more than five inches of snow nor a … Continue reading Mark Your Calendars: ABA Conference Next Year April 22-25 in New Orleans →

Data Protection in India and Arbitration: Key Questions Ahead

Kluwer Arbitration Blog - Tue, 2019-04-16 01:00

Tarun Krishnakumar

 

For a country with a significant corpus of the world’s personal data, India’s data protection framework is notoriously deficient. Improperly scoped, imprecisely drafted, and with no real enforcement culture, the extant framework1)as contained within the Information Technology Act, 2000 and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011. jQuery("#footnote_plugin_tooltip_9618_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9618_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); often tends to create more problems than it solves.

With a view towards overhauling this framework, the Government of India, in July 2017, constituted a Committee of Experts (‘CoE’) under the Chairmanship of Justice (Retd.) BN Srikrishna to recommend a new data protection framework for India. After a year of deliberations, the CoE released the Personal Data Protection Bill (‘Draft Bill’), along with a detailed report, in July 2018. After further consultations, the Draft Bill was to be introduced in Parliament for enactment. However, ongoing General Elections have put these plans on hold.

Partially modeled along the lines of the GDPR, the Draft Bill proposes an omnibus framework which includes detailed obligations relating to the manner of processing personal data2)‘Personal data’ is defined at Clause 3(29) of the Draft Bill. jQuery("#footnote_plugin_tooltip_9618_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9618_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, grounds on which such data may be processed3) ‘Processing’ is defined at Clause 3(32) of the Draft Bill. jQuery("#footnote_plugin_tooltip_9618_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9618_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, data principal4) ‘Data principal’ is defined at Clause 3(14) of the Draft Bill. jQuery("#footnote_plugin_tooltip_9618_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9618_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); rights, accountability measures, and the constitution of a Data Protection Authority. While this progress is welcome, there are concerns that several provisions of the Draft Bill are unclear, excessively burdensome, or impractical in their current form.

Alongside other gaps, there is no clarity on the applicability of the proposed framework to alternative dispute resolution mechanisms such as arbitration. While data protection frameworks typically exempt judicial proceedings from compliance, it is critical to examine if these exemptions equally apply to arbitration. This is as a significant amount of personal data is likely to be processed in the course of a typical commercial dispute. If arbitration is not exempt, compliance concerns arise not only for parties processing personal data (as part of pleadings, evidence, or arguments) but also for the tribunal in collecting and storing it. Despite the significant overhead that data protection compliance could bring to arbitration, no discussions have begun on this interplay.

Arbitration in context of the Draft Bill

A key issue in the Indian context is whether the proposed framework applies to arbitral proceedings at all. The Draft Bill, in Chapter IX, contains a suite of processing activities which are exempted from compliance with all or parts of the proposed framework. In this regard, the question is whether the exemption granted to ‘Processing for the purpose of legal proceedings’ would extend to cover arbitration-related processing. The relevant provision (Clause 44(1)) provides that:

Where disclosure of personal data is necessary for enforcing any legal right or claim, seeking any relief, defending any charge, opposing any claim, or obtaining any legal advice from an advocate in any impending legal proceeding such processing shall be exempted from the following provisions of this Act— (a) Chapter II, except section 4;  (b) Chapter III; (c) Chapter IV; (d) Chapter V; (e) Chapter VI; and (f) Chapter VII, except section 31.

The import of this provision depends on whether arbitration would be considered as being a proceeding to ‘enforce [a] legal right or claim’, ‘defend any charge’, or ‘oppose any claim’. While arbitration is, no doubt, a mechanism to resolve disputes between parties by adjudicating upon their rights, its core nature is controversial.

Specifically, it is unclear if arbitration may be described as being for the purpose of enforcing a legal right or claim. While courts ultimately enforce arbitral awards, it would be wrong to suggest that all responsibilities for enforcing legal rights lie solely with the judiciary. In many cases, arbitral tribunals are empowered to determine disputes and the legal rights implicated by them.

In contrast, it is relatively easier to conclude that arbitration is a type of proceeding where parties ‘seek any relief’ or ‘oppose any claim’ – terms which are sufficiently broad to include stages of almost any dispute resolution mechanism. While a detailed examination of the nature of arbitration is beyond the scope of this post, it would seem prima facie that arbitration would be covered under Clause 44(1) of the Draft Bill.

What are ‘Legal Proceedings’?

Further the Supreme Court has interpreted ‘legal proceedings’, the term used in the section heading to Clause 44, to include arbitral proceedings. Albeit in a different context, the generality of the Court’s observation provides useful guidance. In General Officer Commanding v. CBI5)(2012) 6 SCC 228 (at Para 29). jQuery("#footnote_plugin_tooltip_9618_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9618_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the Court observed that:

The phrase ‘legal proceeding’…is not synonymous with the ‘judicial proceedings’. Every judicial proceeding is a legal proceeding but not vice-versa, for the reason that there may be a ‘legal proceeding’ which may not be judicial at all, e.g. statutory remedies like assessment under Income Tax Act, Sales Tax Act, arbitration proceedings etc. So, the ambit of expression ‘legal proceedings’ is much wider than ‘judicial proceedings’.

Even if this were not conclusive, it may be noted that Clause 44(2) of the Draft Bill exempts processing related to judicial functions. By necessary implication, this indicates that Clause 44(1) was intended to cover non-judicial and quasi-judicial legal proceedings such as arbitration.

Implications of exempting arbitration under the Draft Bill

If arbitration is indeed exempt under Clause 44, most obligations under the proposed framework would not apply to its conduct. This would include the standards for processing in Chapter II, the requirement for legal grounds to process personal data in Chapter III, data principal rights in Chapter VI, and all but one of the transparency/accountability measures in Chapter VII. However, two significant caveats exist:

  • The exemption under Clause 44(1) only applies where disclosure of data is necessary for “enforcing any legal right or claim, seeking any relief…”. Therefore, where personal data that is not strictly necessary for such purpose is disclosed in an arbitration, it will likely not be covered by this exemption.
  • The following obligations continue to apply regardless of the exemption:
    • Fair and Reasonable Processing: Personal data must be processed in a fair and reasonable manner that respects the privacy of the data principal.
    • Security Safeguards: Data fiduciaries and processors6)‘Data fiduciary’ and ‘Data processor’ are defined by Clauses 3(13) and 3(15) of the Draft Bill. jQuery("#footnote_plugin_tooltip_9618_6").tooltip({ tip: "#footnote_plugin_tooltip_text_9618_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); must implement (and periodically review) security safeguards including: (a) methods such as de-identification and encryption; (b) steps to protect the integrity of personal data; and (c) steps to prevent misuse, unauthorised access to, modification/destruction, disclosure of personal data. These safeguards must be risk-based considering the nature, scope and purpose of processing, and the likelihood and severity of harm that may result from such processing.
    • Data Transfers: Restrictions on cross-border transfers of data (contained in Clauses 40 and 41) would also continue to apply.

Concluding Remarks

Based on the above, it would appear prima facie that arbitration-related data processing would be exempt from most compliance under the Draft Bill. However, several niggling uncertainties remain. For instance, neither the preliminary White Paper nor the final Report of the CoE makes any reference to arbitration in discussions of Clause 44.

In fact, in commenting on Clause 44(1), the Report (p.136) notes that disclosure of personal data “in pursuance of a legal claim” would occur where data is required to be produced “in connection with any legal proceeding”. However, in apparent disconnect, the Draft Bill adopts a different, narrower standard: exempting disclosure where necessary for “enforcing any legal right or claim, seeking any relief, defending any charge, opposing any claim, or obtaining any legal advice”. It is this unexplained narrowing of scope that raises questions concerning Clause 44(1) and its applicability to arbitration.

Further, the Report lists the ‘Arbitration and Conciliation Act, 1996’ as a legislation that would be impacted by the passage of the Draft Bill7)Annexure C, Point E(1) at Page ‘i’ of the Report of the CoE. jQuery("#footnote_plugin_tooltip_9618_7").tooltip({ tip: "#footnote_plugin_tooltip_text_9618_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, no elaboration is provided on this point.

Lastly, like much of the Draft Bill, Clause 44(1) itself proves difficult reading. As extracted above, this exemption applies where “disclosure of personal data is necessary”. However, the second part of this provision exempts “such processing”. This inconsistency creates avoidable doubt if only disclosure (and not other types of processing) is covered by this exemption.

Despite these inconsistencies and lack of clarity, on balance, it is likely that arbitral proceedings will be covered under the present framing of Clause 44(1) and, therefore, be exempt from compliance with significant portions of India’s proposed data protection framework. However, whether such a broad exemption is in the interests of privacy, cybersecurity, and transparency remains to be seen. While there is nothing to suggest that significant changes are likely to be made to the current text of the Draft Bill, a Government looking to establish India as a ‘global arbitration hub’ should take this opportunity to clarify and definitively settle this issue from the get-go.

References   [ + ]

1. ↑ as contained within the Information Technology Act, 2000 and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011. 2. ↑ ‘Personal data’ is defined at Clause 3(29) of the Draft Bill. 3. ↑ ‘Processing’ is defined at Clause 3(32) of the Draft Bill. 4. ↑ ‘Data principal’ is defined at Clause 3(14) of the Draft Bill. 5. ↑ (2012) 6 SCC 228 (at Para 29). 6. ↑ ‘Data fiduciary’ and ‘Data processor’ are defined by Clauses 3(13) and 3(15) of the Draft Bill. 7. ↑ Annexure C, Point E(1) at Page ‘i’ of the Report of the CoE. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Israel Reflections 2019–Immigration, Racism & Refugees

ADR Prof Blog - Mon, 2019-04-15 16:22
On our first full morning in Tel Aviv, we turned to some (other) hard issues facing different parts of the population in Israel.  Our first speaker was Mazal Bisawer, a PhD candidate and student leader at Tel Aviv University.  Mazal spoke to us about the Ethiopian population in Israel—a minority within a minority—most of whom … Continue reading Israel Reflections 2019–Immigration, Racism & Refugees →

The PCA’s Assistance in the Constitution of an Arbitral Tribunal: Last Breath for Investor-State OIC Arbitrations?

Kluwer Arbitration Blog - Mon, 2019-04-15 02:51

Katia Bennadji

On 27 March 2017, the Secretary-General of the Permanent Court of Arbitration (“PCA“) designated an appointing authority in an OIC arbitration by applying the UNCITRAL Arbitration Rules, despite the absence of any reference to these Rules in the OIC Agreement.

This decision, which concerns a pending case, DS. Construction v. Libya , could mark the beginning of future changes to OIC investor-State arbitration regime, especially concerning the interpretation of the OIC Agreement’s provisions regarding recourse to arbitration.

The current interpretation of the OIC Agreement following the Al Warraq v. Indonesia case

With a membership of 57 States, the Organisation of Islamic Cooperation (“OIC“), which was established in 1969 to “safeguard and protect the interests of the Muslim world in the spirit of promoting international peace and harmony”, is the second largest intergovernmental organization after the United Nations. Member States of the OIC signed the Agreement on Promotion, Protection and Guarantee of Investments among Member States of the OIC (the “OIC Agreement“), a copy of which may be accessed here.

The OIC Agreement was signed in 1981, entered into force in 1988 and was ratified by 28 countries.1)The following countries have ratified the OIC Agreement: Burkina Faso, Cameroon, Egypt, Gabon, Gambia, Guinea, Indonesia, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Mali, Morocco, Oman, Pakistan, Palestine, Qatar, Saudi Arabia, Senegal, Somalia, Sudan, Syria, Tajikistan, Tunisia, Turkey, Uganda, and the United Arab Emirates. jQuery("#footnote_plugin_tooltip_5937_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5937_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For over 25 years after its entry into force, the OIC Agreement remained unused in investor-State arbitrations until it was invoked for the first time in 2012, by a Saudi national in the famous Al-Warraq v. Indonesia case.

In this case, the claimant, a Saudi national, initiated an arbitration against Indonesia, the respondent, on the basis of Article 17 of the OIC Agreement, of which both Saudi Arabia and Indonesia are member-States. The claims concerned the alleged expropriation of an indirect ownership of capital in a bank.

At the jurisdictional stage, Indonesia argued that Article 17 of the OIC Agreement does not provide a forum for investor-State arbitrations, but only refers to a forum for resolution of inter-State disputes.

The Tribunal finally resolved the dispute between the parties, concluding that Article 17 contained a binding consent to participate in investor-State arbitration.

First, Article 1 of the OIC Agreement defines the “contracting parties” as “[t]he Member States of the OIC signatories to the Agreement“. However, contrary to many other provisions of the OIC Agreement that refer to “contracting parties“, Article 17 refers to “parties to the dispute“, thus leading the Tribunal to conclude that Article 17 should be construed as encompassing not only inter-State disputes, but also investor-State disputes.

Moreover, under the OIC Agreement, the investor is also bound by some obligations regarding the respect of public order, morals and public interest.2)See Article 9 of the OIC Agreement. jQuery("#footnote_plugin_tooltip_5937_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5937_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); For this reason, the Tribunal considered that excluding the investor from recourse to arbitration would result in an asymmetry, such that the investor would be bound by obligations without having recourse to sanctions in the event of the State’s non-compliance with these obligations.

The Tribunal also took into consideration in its reasoning the fact that the OIC Agreement contains a “fork in the road” clause which gives the investor the right to choose between national courts and an arbitral tribunal, immediately followed by Article 17, referring to arbitration. Accordingly, the Tribunal considered that Article 17 combined with Article 16 leads to the conclusion that Article 17 refers to investor-State arbitration as well.

Since this decision was rendered, requests for arbitration invoking the OIC Agreement have significantly increased. However, a problem has arisen in recent years because the OIC Agreement provides that if a party to the dispute does not appoint an arbitrator, the OIC Secretary-General will step in and make the appointment on the party’s behalf. However, in previous cases (notably, in three cases against Egypt in 2014) the Secretary-General has refused to make such appointments, and as reported by some practitioners, this refusal is essentially due to political pressure from some OIC member-States.

The potential interpretation of the OIC Agreement in the aftermath of DS Construction v. Libya

In DS Construction v. Libya, a still pending case which is mentioned in the introduction above, an Emirati investor has brought a claim against Libya under the OIC Agreement concerning contracts for 19 construction projects in Libya affected by the Arab Spring in 2011. The investor alleges that the State’s acts and omissions before, during and after the outbreak of the conflict led to the indirect expropriation of its investment.

In this case, the claimant appointed Stanimir Alexandrov as arbitrator, but Libya refused to appoint an arbitrator. In view of this refusal, the claimant requested the Secretary-General of the OIC to appoint an arbitrator on behalf of Libya. The Secretary-General, however, did not respond favorably to this request and did not explain the reasons for his refusal to appoint an arbitrator.

The claimant then decided to use the most favored nation clause contained in the OIC Agreement to import Libya’s consent to the application of the UNCITRAL Arbitration Rules in the Austria-Libya BIT to apply Article 7(2) (b) of the 1976 UNCITRAL Rules which provides that the Secretary-General of the PCA shall designate the appointing authority if the previous designated appointing authority refuses to act or fails to appoint the arbitrator. The PCA agreed with the claimant and designated the French academic Pierre-Marie Dupuy as the appointing authority, who in turn appointed Nassib Ziadé as arbitrator. Thereafter, the two arbitrators appointed Bruno Simma as chairman.

This intervention by the PCA is significant for several reasons. In the short term, this decision would probably have positive consequences for investors, because the PCA has provided a legal precedent for investors seeking to constitute a tribunal to hear their claims under the OIC Agreement. However, in the long term, this decision may also push OIC member-States to decide on how they wish such disputes to be handled. If both the member-States and the OIC Secretary-General continue to refuse to appoint arbitrators, they will likely be placing the constitution of the tribunals in the hands of the PCA rather than the OIC, which is completely contrary to the spirit and the objectives of the OIC.

Potential establishment of the International Islamic Court of Justice

It is important to take into consideration the fact that one of the most important reasons behind the constitution of the OIC is to solve problems and difficulties by finding local solutions without foreign interventions. This is why the OIC has planned to establish a dispute settlement “organ”, the International Islamic Court of Justice (“IICJ“).

To date, no such organ has been established by the OIC, but its statute has already been drafted and adopted by the member-States.3)The statute of the International Islamic Court of Justice was adopted on the 29 January 1987. jQuery("#footnote_plugin_tooltip_5937_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5937_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This organ is the same one envisaged by Article 17 of the OIC Agreement:

Until an Organ for the settlement of disputes arising under the Agreement is established, disputes that may arise shall be entitled through conciliation or arbitration in accordance with the following rules and procedures.

It follows that recourse to arbitration is only a temporary solution, until this “organ” is established. In other words, if the OIC finally decides to establish the IICJ, resorting to arbitration will no longer be possible, as only the IICJ would be competent to resolve the disputes. However, if we look at the statute of the IICJ, it is mentioned in the Section “Competence of the Court” in Article 21 that: “Member States of the Organization of the Islamic Conference alone have the right to appear before the Court“, which means that this possibility is clearly not offered to a private investor.

Conclusions

It is for the reasons highlighted above that the decisions discussed in this blog post could represent the end of investor-State arbitration under the OIC Agreement. Firstly, recourse to arbitration on the basis of Article 17 will no longer be possible if the OIC member-States decide to establish the IICJ, and secondly, according to the statute of the IICJ, investors will not have a right to appear before the IICJ.

It will be interesting to see if the OIC Member-States take the initiative to establish the IICJ in order to avoid PCA interventions and, at the same time, to finally evade investor-State arbitrations under the OIC Agreement. Further indications will become apparent in the near future, particularly after the issuance of the much awaited decision of the French court concerning the set-aside proceedings introduced by Libya to contest the PCA’s assistance.

In any event, the PCA’s decision will undoubtedly mark the start of future changes in investor-State OIC arbitration: the question to be determined is whether these changes will be in favor of private investors, or Member-States.

References   [ + ]

1. ↑ The following countries have ratified the OIC Agreement: Burkina Faso, Cameroon, Egypt, Gabon, Gambia, Guinea, Indonesia, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Mali, Morocco, Oman, Pakistan, Palestine, Qatar, Saudi Arabia, Senegal, Somalia, Sudan, Syria, Tajikistan, Tunisia, Turkey, Uganda, and the United Arab Emirates. 2. ↑ See Article 9 of the OIC Agreement. 3. ↑ The statute of the International Islamic Court of Justice was adopted on the 29 January 1987. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Israel Reflections 2019–Shared Society Continued!

ADR Prof Blog - Sun, 2019-04-14 14:10
Great to see so many of us at the ABA conference this past week!  We will have blogs soon about conference sessions and lessons…And, in the meantime, here’s another from Israel: Our work out for the week was held at Budo for Peace (BFP). BFP is an innovative non-profit educational organization based in Israel that … Continue reading Israel Reflections 2019–Shared Society Continued! →

Legal Shrapnel: Brexit, Micula and Europe’s Banker

Kluwer Arbitration Blog - Sun, 2019-04-14 04:00

Adrian Iordache

Introduction

It has by now become amply clear that nothing truly prepares the jurist for an analytical maze run of predicting the effects of Brexit. In some way, it reminds one of “Nebel des Krieges”, the “fog of war” faced by military decision makers once on the battlefield. The best you can hope for is sound judgment when facing the unexpected (which, ironically, is inevitable).

Enforcing Micula

Here is one example of the unexpected scenarios: The state of the enforcement of the Micula ICSID Award in the High Court in England and its impact on the money market. The outline of the legal conundrum is notorious, but it bears recapping briefly to bring the issue into relief. Micula et al1)More precisely: Viorel Micula, Ioan Micula, S.C. European Food S.A., S.C. Starmill S.R.L., and S.C. Multipack S.R.L. jQuery("#footnote_plugin_tooltip_4442_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4442_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, relying on the bilateral investment treaty between Romania and Sweden 2)The Sweden-Romania Bilateral Investment Treaty had been ratified in 2002 by Law no 651/2002 and has now been denounced unilaterally by Romania alongside other intra-EU BITs by Law no 18/2017 jQuery("#footnote_plugin_tooltip_4442_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4442_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, have brought an ICSID claim in 2005, which they won in 2013. The dispute concerned the withdrawal by Romania of tax incentives in furtherance of EU State Aid rules and became a test case for the EU Commission assault on Intra-EU BITs as incompatible with EU law.3) Some of the legal and practical issues arising out of this conflict between EU Law and BITs have been usefully reviewed here. jQuery("#footnote_plugin_tooltip_4442_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4442_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In any event, ever since the Award, the claimants have tried to enforce it both in Romania and elsewhere with only limited success, despite the tenacity of the ICSID enforcement mechanism.4)Article 54(1) of the ICSID Convention provides for enforcement of money awards to be enforced by each Contracting State “within its territories as if it were a final judgment of a court in that State”. jQuery("#footnote_plugin_tooltip_4442_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4442_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

One reason for the difficulty, at least in the enforcement attempts within the EU, has been the role played by EU law within the legal orders of Member States. For itself, Romania has been enjoined by the Commission pursuant to its powers under art 108 of the Treaty on the Functioning of the European Union (TFEU) from voluntarily complying with the ICSID Award and was even ordered to seek the recovery of whatever it had already granted to the claimants pursuant to the Award.5)Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517) (known as the “Final Decision” by reason of a provisional order having also been issued earlier in 2014. jQuery("#footnote_plugin_tooltip_4442_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4442_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Other Member States face a separate hurdle in dealing with enforcement actions, namely to choose between complying with the ICSID framework for enforcement as instituted by their respective national law, and their obligations of sincere cooperation under the Treaty of the European Union (TEU).

The United Kingdom (UK) is the case in point. In the UK, under the 1996 Arbitration Act, ICSID Awards gain, essentially, the status of a High Court decision by registration and follow thereafter a regular enforcement route.6)Registration is by right (section 1(2) of the 1966 Act) and there is no public policy exception to be raised to the registration of an ICSID Award; Section 2 of the 1996 Act lays out the effects of “registration” of an Award and its status. jQuery("#footnote_plugin_tooltip_4442_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4442_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This is what happened with the Micula Award, which was registered in 2014. Following registration, on application by Romania, the High Court decided to stay enforcement, pending a decision by the General Court of the European Union (GCEU) on the challenge lodged by the claimants against the Final Decision of the Commission. That decision by the High Court was affirmed by the Court of Appeal.

In sum, the High Court stayed the enforcement on account of the corroborated effects of:

(1) the Final Decision of the Commission issued under the authority of the TFEU;

(2) the “sincere cooperation” principle in the TEU; and

(3) the real prospect of a decision by the GCEU which would be incompatible with a High Court decision.

Brexit

Since no one really knows what the terms of Brexit will be, it is not for us to say with any certainty whether specific TEU provisions will be clearly regulated by a withdrawal agreement or by national legislation. The political signs, however, are not particularly edifying. The current draft Withdrawal Agreement does not expressly regulate the fate of the sincere cooperation principle, apart from disclaiming any limitation on it that the provisions of the Withdrawal Agreement itself may be construed to have.7) See Art. 5 of the November 2018 Withdrawal Agreement containing the disclaimer, which, remains, however, silent on what happens after the Union law ceases to have effect. jQuery("#footnote_plugin_tooltip_4442_7").tooltip({ tip: "#footnote_plugin_tooltip_text_4442_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A fortiori, a withdrawal on the basis of Article 50(3) of the TEU (in the absence of any specific withdrawal terms) means essentially what it appears to mean on its face, namely that the TEU ceases to apply from the relevant exit date, taking with it (presumably) Article 4(3) and the sincerity out of the cooperation. In such a case, it is safe to expect that the High Court would no longer consider itself bound by the principle.

Nevertheless, irrespective of any withdrawal agreement, the UK Government has indeed begun a legislative and administrative process of preparing the country for an effective regulatory transition by adopting national legislation which perpetuates substantial EU rules, in particular related to standards, trade and myriad of other areas.

This spirit applies to State Aid and the UK authorities rightfully reassure businesses that the thinking about State Aid is not likely to change dramatically on “day 1” after Brexit. In fact, the European Union (Withdrawal) Act 2018 effects a far-reaching transposition of primary EU legislation into UK domestic law to ensure “day 1” continuity in substantive rules.

Notwithstanding that spirit, however, it remains the case that the stay of enforcement decided by the High Court in the Micula case is not issued in application of substantial state aid rules (however considerate they may remain to EU soon-to-be-neighbors), but in deference to the sincere cooperation obligations of Member States under the TEU.

We are yet to receive any sign of willingness on the part of an exiting UK to uphold that principle after ceasing to be a Member State. If one may venture a negotiation prediction, it would be surprising if the UK took any steps in that direction. The sincere cooperation principle is reminiscent of a “further assurances” boilerplate and one would be rightfully surprised if the parties continued to volunteer such overarching cooperation after parting ways without further agreement. In other words, unless further grounds are mustered, it is difficult to see how the current High Court stay of enforcement of the Micula Award can survive an unregulated Brexit.

Europe’s Banker

What does that mean, apart from the proper enforcement? The UK is not merely another country where diligent lawyers can look for assets (aircraft, buildings, etc.) following ICSID Awards, but one of the most active actors on the money market.

A great majority (perhaps as much as 70%) of EU government bond issuance (estimated to a total of 150 billion euro a year) is facilitated by London banks. Italy, Spain and France reportedly use Barclays Bank plc, JP Morgan Securities plc and Nomura plc (all UK incorporated) for bond issues. According to industry report, and the industry became rightfully concerned with the effects of Brexit on the London investment banking offering to the EU sovereign debt in 2017, when fears of the loss of ‘passporting’ privileges prompted contingency planning.8) See here. Also, solutions sought by banks vary widely, see Reuters 20 December 2018 report on the topic here. jQuery("#footnote_plugin_tooltip_4442_8").tooltip({ tip: "#footnote_plugin_tooltip_text_4442_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In addition to acting as ‘primary dealers’, countries hold accounts with London banks, for secondary market trading (e.g., interest rate and currency swaps) as well as to service coupons.

This is what emerged in fact in the case of the enforcement of the Awdi et al v Romania ICSID Award (ICSID Case no Arb 10/13). Romania used Citibank N.A. London Branch for debt service, when the claimants succeeded in temporarily attaching the accounts of Romania held with the bank and delaying the service of sovereign debt coupons by one day.

Will Brexit and the death of “sincere cooperation” inside London courts render London banks less safe for sovereign money? Should EU States even become concerned with legal recourse to the funds raised for them by London banks?9) An anonymous eurozone official quoted by Reuters intimated as much. jQuery("#footnote_plugin_tooltip_4442_9").tooltip({ tip: "#footnote_plugin_tooltip_text_4442_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });In a sense, this may be too bleak a vision. No doubt, the legal complexities of the Micula Award are somewhat peculiar to its circumstances. However, as a core proposition, it remains the case that enforcement of the Award in the UK has been stayed in order to avoid court conduct potentially conflicting with a CJEU decision. So framed, the circumstances are not that unusual. In the seminal Achmea decision on the conflict between EU law and intra-EU Bilateral Investment Treaties, the CJEU asserted the priority of EU over public international law obligations between Member States, materially on the basis of the “sincere cooperation” obligation. This raises the specter (or, as has previously been mentioned, the “unexpected ray of light”) of the UK’s becoming a preferred basis for investment structures into the EU away from the Achmea reach.

But while this may indeed be a “ray of light” for the UK from that angle, it is bound to compound the question of enforcement of investment arbitration decisions under UK-EU Member States after Brexit discussed here. Releasing the High Court from its “strong bond of comity” towards EU institutions under Article 4(3) of the TEU, may be seen as an opportunity for third party enforcement actions where the EU law otherwise provides a shield against investment arbitration decisions, and consequently as a vulnerability for the banks acting as conduits for the service of global sovereign debt.

References   [ + ]

1. ↑ More precisely: Viorel Micula, Ioan Micula, S.C. European Food S.A., S.C. Starmill S.R.L., and S.C. Multipack S.R.L. 2. ↑ The Sweden-Romania Bilateral Investment Treaty had been ratified in 2002 by Law no 651/2002 and has now been denounced unilaterally by Romania alongside other intra-EU BITs by Law no 18/2017 3. ↑ Some of the legal and practical issues arising out of this conflict between EU Law and BITs have been usefully reviewed here. 4. ↑ Article 54(1) of the ICSID Convention provides for enforcement of money awards to be enforced by each Contracting State “within its territories as if it were a final judgment of a court in that State”. 5. ↑ Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517) (known as the “Final Decision” by reason of a provisional order having also been issued earlier in 2014. 6. ↑ Registration is by right (section 1(2) of the 1966 Act) and there is no public policy exception to be raised to the registration of an ICSID Award; Section 2 of the 1996 Act lays out the effects of “registration” of an Award and its status. 7. ↑ See Art. 5 of the November 2018 Withdrawal Agreement containing the disclaimer, which, remains, however, silent on what happens after the Union law ceases to have effect. 8. ↑ See here. Also, solutions sought by banks vary widely, see Reuters 20 December 2018 report on the topic here. 9. ↑ An anonymous eurozone official quoted by Reuters intimated as much. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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