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Rescuer Syndrome and how it hinders conflict resolution

Communication and Conflict Blog - Fri, 2019-09-06 11:45
The Rescuer Syndrome - the main obstacle to being able to provide effective conflict resolution support.

Foreign Administered Arbitration in China: The Emergence of a Framework Plan for the Shanghai Pilot Free Trade Zone

Kluwer Arbitration Blog - Thu, 2019-09-05 18:00

Martin Rogers and Noble Mak

On 6 August 2019, the State Council of the People’s Republic of China (PRC) (the “State Council”) published the “Framework Plan for the New Lingang Area of the China (Shanghai) Pilot Free Trade Zone” (the “2019 Framework Plan”).

Under Article 4 of the 2019 Framework Plan, reputable foreign arbitration and dispute resolution institutions may register with the Shanghai Municipal Bureau of Justice and the judicial administrative authority of the State Council, and set up operations in the New Lingang Area of the Shanghai Pilot Free Trade Zone (“Shanghai FTZ”).

Registered institutions can conduct arbitrations involving civil and commercial disputes arising from areas including international commerce, maritime affairs and investment. This appears to allow foreign arbitration institutions to handle investor-state disputes seated in China, though in reality this will largely depend on whether the state involved will agree to such an arrangement.

Also, according to Article 4, registered arbitration institutions will be permitted to enact rules to allow interim measures in favour of both the PRC and foreign parties to support the conduct of dispute resolution processes, including through preservation of assets and evidence. (The relevant parts of Article 4 as summarised above shall be referred to as the “Statement” in this blogpost.)

The Statement is in line with the “Plan for Further Deepening the Reform and Opening-up of China (Shanghai) Pilot Free Trade Zone” issued by the State Council in 2015 (the “2015 Plan”). The Statement represents an important step towards developing Shanghai into an international arbitration hub with a leading role in the Asia-Pacific region. In contrast, equivalent framework plans in relation to other free trade zones in the PRC have not placed as strong an emphasis on arbitration.

 

Status of Arbitrations Seated in mainland China but Administered by Foreign Arbitration Institutions

Prior to the publication of the 2019 Framework Plan, there were no express provisions allowing foreign arbitration institutions to administer cases with a seat in mainland China.

In 2013, in a reply to a request for instructions from a lower court, the Supreme People’s Court (“SPC”) acknowledged the validity of an arbitration clause providing for an arbitration seated in mainland China but administered by a foreign arbitration institution. (See an earlier blogpost on this here.) However, as the SPC’s reply is not technically binding on Chinese courts, and the nationality of such an arbitration award is unclear (as discussed in the succeeding section), the prevailing view among legal practitioners remained that parties should avoid foreign-administered arbitrations seated in mainland China in light of the uncertainty.

Since 2015, foreign arbitration institutions have been allowed to set up representative offices in the Shanghai FTZ. Currently, representative offices have been set up by the Hong Kong International Arbitration Centre (“HKIAC”), the Court of Arbitration of the International Chamber of Commerce (“ICC”), the Singapore International Arbitration Centre (“SIAC”), and the Korean Commercial Arbitration Board (“KCAB”). Thus far, perhaps because of the uncertainty, these representative offices appear to have focused on promotional efforts and logistical support in arranging for arbitration hearings, rather than administering cases seated in mainland China.

The Statement is therefore a significant step towards certainty as it suggests that, subject to successful registration, foreign arbitration institutions are permitted to administer cases seated in mainland China.

 

Status of Awards

Whilst this is clearly a positive development, uncertainty remains as to the status of awards: domestic or non-domestic? As discussed in a previous blogpost, the SPC has been shifting its approach in determining the nationality of an arbitral award, which in turn affects whether an award is “domestic” or “non-domestic”. Under PRC law, there are procedural differences in relation to the annulment and enforcement of domestic as opposed to non-domestic awards. Hence, it would be very helpful if future guidance or regulations issued by Shanghai governmental bodies could clearly delineate whether awards made in foreign-administered arbitrations seated in mainland China would be considered domestic awards or non-domestic awards.

 

Alignment of Arbitration Rules

In the 2015 Plan, the State Council stated its goal to align with international dispute resolution rules, improve the arbitration rules of the Shanghai FTZ, and strengthen the internationalisation of commercial arbitration in mainland China.

With respect to various important aspects (such as the appointment of arbitrators, hearings, memorials, procedural orders, discovery, documentary evidence, witness evidence, expert evidence, confidentiality, joinder and consolidation, etc.), CIETAC arbitration rules and guidelines on evidence are, on paper, broadly in line with usual international practices. Nevertheless, the general perception is that the application of Chinese arbitration procedural laws involves, and results in, significant procedural uncertainty.

In our view, such perception is less about what is on paper (the law and rules) and more about what happens in practice. Notwithstanding the similarities in the rules (which are stated in general terms to allow for flexibility), there is quite often a significant difference in the way arbitrations, particularly domestic ones, are handled in mainland China, and the way international arbitrations are handled outside mainland China. For example, the use of witness testimony and cross-examination is not common in arbitrations in mainland China, and practitioners are generally unfamiliar with the relevant procedures and requirements. What remains to be seen is how these China-seated foreign-administered arbitrations will be conducted. There may well be no consistency in approach as it ultimately comes down to how individual arbitrators manage a specific arbitration.

In any event, as foreign arbitration institutions start to administer cases seated in China, there will be a “cultural exchange” at a deeper level as more PRC lawyers get involved in foreign-administered cases, and more foreign parties get involved in China-seated cases. This will certainly be a welcomed development towards the improvement of the PRC arbitration rules and practice, as well as towards the internationalisation of commercial arbitration in mainland China.

 

Impact on Hong Kong

When the Statement has been fully implemented, and foreign arbitration institutions begin to operate directly in mainland China, Shanghai will likely become a much more important arbitration hub than it is currently. Foreign commercial parties, who previously preferred arbitrations seated in Hong Kong, may be increasingly willing to have arbitrations seated in mainland China if they are administered by a reputable foreign arbitration institution. This is particularly the case with respect to the Belt and Road Initiative, where Chinese parties have strong bargaining power and would most likely prefer to have arbitrations seated in mainland China.

As Shanghai becomes a more important arbitration centre, there is some prospect of Hong Kong gradually losings its competitive advantage as the leading disputes resolution hub in Asia.

Nevertheless, an important factor in selecting an arbitration seat is court supervision. Hong Kong is still perceived to have a very strong rule of law. For example, the World Bank Group, as part of its World Governance Indicators project, ranked Hong Kong as second in Asia and fourteenth globally for the rule of law for the year of 2017. The World Economic Forum’s Global Competitiveness Report 2018 has ranked Hong Kong’s judiciary as the number one most independent in Asia and eighth globally. Mainland Chinese courts still do not reach the perceived standards of independence and reliability of the Hong Kong courts. The Hong Kong common law system is perceived as very stable and predictable, with its system of precedent and stare decisis.

Moreover, there are well established frameworks for Chinese courts to grant interim measures in connection with arbitrations seated in mainland China and Hong Kong. (See this previous blogpost with respect to the arrangement with Hong Kong.) To date, the PRC has not established any similar arrangements with other jurisdictions. In other words, Hong Kong will remain an attractive option for PRC-related international arbitration disputes: for court supervision by an independent and reliable judiciary system and procedural convenience in connection with interim measures in mainland China.

 

Concluding Remarks

It goes without saying that China’s economic development has been, and still is, at high speed, with six new free trade zones announced just days ago in six provinces (including border regions) across China. The Shanghai FTZ (whose size doubled recently following the inclusion of the New Lingang Area) takes the lead in all this. The Statement comes as a bold step to bolster international confidence in Shanghai’s disputes resolution system – a crucial element to establish Shanghai’s status as a “world city”— and a demonstration of China’s commitment to deepen its reform as laid out in the 2015 Plan. This is certainly a positive initiative, both for Shanghai and for foreign parties with commercial interests in China. As for Hong Kong – it retains its unique edge but tough competition is waiting ahead.

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Consequences of the Judicial Nature of Arbitration: An Egyptian Perspective

Kluwer Arbitration Blog - Wed, 2019-09-04 19:00

Moamen Elwan, Mohamed Samy and Khaled Abou El Wafa

Introduction

Although the nature of arbitration is still a matter of debate in the Egyptian legal system, the arbitration-friendly jurisprudence of Egyptian courts now supports the idea that the arbitration process is indeed of a judicial nature.

A clear example is provided by the Supreme Constitutional Court (“SCC”),1)Supreme Constitutional Court, Challenge No. 95 of 20 JY, session dated 11 May 2003. See also Supreme Administrative Court, Challenge No. 35839 of 57 JY, session dated 7 February 2018 holding that arbitration is of judicial nature. jQuery("#footnote_plugin_tooltip_9408_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9408_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); which previously deemed Article 66 of the Public Sector Agencies and Companies Law No. 97 of 1983 (“Public Sector Law”) unconstitutional. Article 66 stipulated that the decisions of arbitral tribunals constituted pursuant to Public Sector Law may not be subject to challenge by any means. In support of its stance, the SCC held that arbitral tribunals’ awards rendered under Public Sector Law should be treated the same as courts judgements and voluntary arbitration awards governed by the Egyptian Arbitration Law (“EAL”), and that each of these types of judgments and awards are of judicial nature. Therefore, if arbitration under Public Sector Law is equal to voluntary arbitrations,2)Voluntary Arbitration or Regular Arbitration is meant to be arbitration that is subject to Arbitration Law No. 27 of 1994. jQuery("#footnote_plugin_tooltip_9408_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9408_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); voluntary arbitrations are equally of judicial nature.

The same idea is reflected in the Court of Appeal’s3)Cairo Court of Appeal, Circuit (50), Challenge No. 17 of 135 JY, session dated 31 December 2018. jQuery("#footnote_plugin_tooltip_9408_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9408_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); prior holding that “arbitration is a technical mean with a judicial nature that aims to settle a dispute”.

Therefore, the authors are of the view that arbitration proceedings in Egypt are indeed of judicial nature and the consequences of such view is the subject of this blog.

 

Consequences of Considering Arbitration Proceedings as Having a Judicial Nature

There are various consequences of arbitral proceedings being considered of a judicial nature related to (i) referral of disputes to and from arbitral tribunals; (ii) contradictions between court judgements and arbitral awards; (iii) conflict of jurisdiction between arbitral tribunals and domestic courts; and (iv) pleas of unconstitutionality. Each is discussed in turn.

 

(i) Referral of Disputes to and from Arbitral Tribunals

Article 110 of the Civil & Commercial Procedural Law (“CCPL”) allows a domestic court to refer a case to another court, if the first court finds it lacks jurisdiction over the case in question. If we assume that arbitration proceedings are of a judicial nature, arbitral tribunals would be able to refer a certain case to a domestic court in the event that a tribunal decided it lacks jurisdiction over the dispute.

This is supported by the Supreme Administrative Court’s decision that an arbitral tribunal constituted under Public Sector Law may refer a dispute to the competent court, if it lacks competence.4)Supreme Administrative Court, Challenge No. 35839 of 57 JY, session dated 7 February 2018. jQuery("#footnote_plugin_tooltip_9408_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9408_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Although this decision was rendered within the context of arbitration under Public Sector Law, the same principle could be understood to apply equally to regular arbitration constituted according to the EAL. Thus, voluntary arbitration proceedings should be equal to arbitration under Public Sector Law.

Similarly, the Court of Cassation held that if the case lies within the jurisdiction of a Public Sector Law tribunal, the court still has to refer the case to that tribunal.5)Court of Cassation, Challenge no. 634 JY 45, dated 27 March 1979. jQuery("#footnote_plugin_tooltip_9408_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9408_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Court of Cassation explained that although the travaux preparatoires of Article 110 referred to the main judicial branches (the civil and administrative courts), Article 110 was drafted with general and absolute terms. Thus, it applies also when the case falls within the jurisdiction of an entity with judicial competence.6)Ibid. jQuery("#footnote_plugin_tooltip_9408_6").tooltip({ tip: "#footnote_plugin_tooltip_text_9408_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Arbitral tribunals (even those other than the Public Sector tribunals) thus were held to be entities with judicial competence as will be explained below.

This conclusion could be practically problematic though, due to the special nature of arbitration if compared to state courts. First, arbitral tribunals do not have the same standing as domestic courts. A tribunal is normally constituted after the initiation of the arbitral proceedings, and is often appointed by the parties. Thus, if a court finds it has no competence and decides to refer the dispute, which entity should the court refer the dispute to? Even if this problem can be avoided to some extent (for example, in case of institutional arbitration, by referring the dispute to the relevant institution), what if the agreed arbitration is ad hoc?

However, this does not undermine the judicial nature of arbitration, nor does it affect the validity of a court’s referral of cases to arbitration in theory. It only concerns a practical impediment that might affect the application of the rule in some exceptional cases (in cases of ad hoc arbitration), but does not affect the validity of that rule (exceptio probat regulam).

By way of example, before the current CCPL, referral did not previously occur between ordinary (civil) courts and State Council courts, for reasons related to both branches’ independence vis-a-vis each other, before expressly providing for such referral in the current law. This did not mean that any of those branches was not a judicial entity.

Second, it could be argued that such referral is inconsistent with the voluntary nature of arbitration, which is based on the consent of the parties. Suppose that the claimant raised court proceedings against the respondent, and the latter made a jurisdictional plea that the court supposedly accepted. In that case, the claimant might not be willing to go to arbitration. To that effect, we may find arbitration proceedings initiated against the will of one party.

A possible response is that referral does not equate forcing the claimant to arbitration against its will. In any case, the claimant can request termination of arbitration proceedings according to Article 48 of the EAL.

Third, in case the domestic court referred the dispute to the relevant institution, such referral decision may be challenged by the parties. Will the relevant institution proceed with the constitution of the arbitral tribunal to decide over the referred dispute or will the relevant institution decline to proceed with the arbitration and suspend the case while awaiting the outcome of the challenge against the referral decision?

An answer can be inferred by analogy from Article 13 of the EAL, which provides that if proceedings are initiated before a court in a matter that is subject to an arbitration agreement, such proceedings shall not hinder the initiation of the arbitration proceedings and the continuance thereof until an award is rendered. Thus, by the same means, if the referral judgment is challenged before the competent court, this should not prevent the arbitration proceedings from moving on until an award is rendered.

Fourth, what is the situation if the said relevant arbitration institution decided that it is incompetent to decide the referred dispute? Will the arbitration institution re-refer the dispute to the domestic court or refer the dispute to the other relevant arbitration institution? Or will it only decide its non-jurisdiction without any referral?

Yet, this is a case of passive conflict of jurisdiction that might also occur in cases of referral to domestic courts. In such case, the SCC shall be competent to decide on such conflict of jurisdiction, in accordance with Article 25 of the SCC Law.

It is to be noted that the Cairo Court of Appeal has recently stimulated some confusion concerning the nature of arbitration in Egypt. The judgement rendered by the Court of Appeal7)Cairo Court of Appeal, Circuit (62), Challenge No. 39 of 130 JY, session dated 6 August 2018. jQuery("#footnote_plugin_tooltip_9408_7").tooltip({ tip: "#footnote_plugin_tooltip_text_9408_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); was related to annulment proceedings of an arbitral award that was rendered on 22 March 2013 by an ad hoc tribunal at the Cairo Regional Center for International Commercial Arbitration.

The Court annulled the award based on the non-jurisdiction of the ad hoc tribunal, as the dispute was under the auspices of the Unified Agreement for the Investment of Arab Capital in the Arab States, which provides for the jurisdiction of the Arab Investment Court to decide on disputes under its provisions. The Court, however, refused to refer the dispute to the entity that has jurisdiction (the Arab Investment Court) according to Article 110 of the CCPL.

Nevertheless, this should not cast doubt on the judicial nature of arbitration, since the Court was clear in its reasoning that the Arab Investment Court is not an Egyptian court, and thus the dispute may not be referred to it in accordance with Article 110 of the CCPL.

It is worth noting that Article 110 only allows the court to refer a dispute to an Egyptian court, stating that “If the court decided that it lacks jurisdiction, it [the court] shall refer the dispute to the competent court…”. According to the Court’s interpretation of this article, the referral of a case may only be to a domestic Egyptian court. Thus, the Court’s reasoning may imply, a contrario, that if the tribunal had been Egyptian, the Court would have referred the dispute to it under Article 110. This is reinforced by the above-mentioned Supreme Administrative Court decision which held that arbitral tribunals constituted under Public Sector Law may refer a dispute to the competent court.8)Supra note 4. jQuery("#footnote_plugin_tooltip_9408_8").tooltip({ tip: "#footnote_plugin_tooltip_text_9408_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

(ii) Contradictions Between Court Judgements and Arbitral Awards

Article 25 of the SCC Law grants an exclusive jurisdiction to the SCC to resolve conflict pertaining to enforcement of two contradictory judgements, one issued from a judicial authority or an authority with a judicial competence and the other from another of said authorities. Therefore, if the arbitration proceedings are to be considered of judicial nature, any conflict between an award rendered by an arbitral tribunal and a court judgement shall be resolved by the SCC.

Nonetheless, the above conclusion might be in contradiction with Article 58 of the EAL, which requires that an arbitral award not contradict a previous court judgement.

However, the SCC previously decided that it had competence to decide on the enforcement of two contradictory arbitral awards and a domestic court judgement. In this case, the SCC held that the arbitral award would be enforceable, since the arbitral tribunal had the exclusive jurisdiction over the subject matter of the dispute.9)Supreme Constitutional Court, Challenge No. 8 of 22 JY, session dated 4 August 2001. jQuery("#footnote_plugin_tooltip_9408_9").tooltip({ tip: "#footnote_plugin_tooltip_text_9408_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

(iii) Conflict of Jurisdiction Between Arbitral Tribunals and Domestic Courts

The SCC is competent to decide on cases where there is a conflict of jurisdiction between a domestic court or an authority with judicial competence and another court or authority with judicial competence. If arbitration is to be considered of judicial nature, the SCC would have the final word in cases where the same dispute is filed before an arbitral tribunal and the other party rushes to file the same dispute before the domestic court. In this scenario, the SCC would have the final word on which proceedings would continue and which would be terminated.

 

(iv) Pleas of Unconstitutionality and Arbitration

The judicial nature of arbitral proceedings would mean that, pursuant to Article 29 of the SCC Law, an arbitral tribunal would be competent to refer constitutional pleas to the SCC in order to decide on the constitutionality of a law or regulation.

This could be achieved either by a party claiming the unconstitutionality of a certain provision of law or regulation, or the arbitral tribunal’s initiative to suspend the arbitral proceedings and refer the question of constitutionality of a certain provision of a law or regulation to the SCC for its decision.

 

Conclusion

Based on the above, Egyptian law recognizes that arbitration is indeed of judicial nature. Although some of the consequences of this conclusion might be problematic from the practical aspect, practice will indeed be able to overcome such issues while reserving the judicial nature of arbitration.

 

This Blog expresses the authors’ point of view only and not the firm’s view.

References   [ + ]

1. ↑ Supreme Constitutional Court, Challenge No. 95 of 20 JY, session dated 11 May 2003. See also Supreme Administrative Court, Challenge No. 35839 of 57 JY, session dated 7 February 2018 holding that arbitration is of judicial nature. 2. ↑ Voluntary Arbitration or Regular Arbitration is meant to be arbitration that is subject to Arbitration Law No. 27 of 1994. 3. ↑ Cairo Court of Appeal, Circuit (50), Challenge No. 17 of 135 JY, session dated 31 December 2018. 4. ↑ Supreme Administrative Court, Challenge No. 35839 of 57 JY, session dated 7 February 2018. 5. ↑ Court of Cassation, Challenge no. 634 JY 45, dated 27 March 1979. 6. ↑ Ibid. 7. ↑ Cairo Court of Appeal, Circuit (62), Challenge No. 39 of 130 JY, session dated 6 August 2018. 8. ↑ Supra note 4. 9. ↑ Supreme Constitutional Court, Challenge No. 8 of 22 JY, session dated 4 August 2001. 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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Symposium / Conference on Comparative Law and International Dispute Resolution at Missouri, Oct. 17-19

ADR Prof Blog - Wed, 2019-09-04 09:03
From my colleague, S.I. Strong: In about six weeks’ time (Oct. 17-19), the University of Missouri will host the American Society of Comparative Law’s Annual Meeting.  The theme of the meeting is “Comparative Law and International Dispute Resolution Processes,” and panelists will be addressing a variety of DR mechanisms in cross-border contexts.   In addition to … Continue reading Symposium / Conference on Comparative Law and International Dispute Resolution at Missouri, Oct. 17-19 →

Chinese Court’s New Approach to Interpreting the Validity of a Pathological Foreign-Related Arbitration Clause

Kluwer Arbitration Blog - Tue, 2019-09-03 21:00

Xu Zhihe and Li Tingwei

Under China’s arbitration regime for foreign-related arbitration and international arbitration, the concept of a juridical seat is a statutory juncture where, in cases with no express agreement on the applicable law between the parties, Chinese courts must determine the applicable law (statutory text is available in Chinese here and unofficial English translation here).1) See Article 18 of the Law on the Application of Laws to Foreign-Related Civil Relations of the PRC. This Article reads: “The parties may by agreement choose the law applicable to their arbitration agreement. Absent any choice by the parties, the law of the place where the arbitration institution locates or the law of the seat of the arbitration shall be applied”. jQuery("#footnote_plugin_tooltip_3259_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3259_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Recently, in the case of China Light Tri-union Int’l Co., Ltd. (“Plaintiff”) v Tata International Metals (Asia) Limited (“Defendant”) (2017 Jing Min 04 Min Te No. 25), the Beijing No. 4 Intermediate People’s Court (“Beijing Court”) of the People’s Republic of China (“PRC”) rendered a judgment reviewing a foreign-related arbitration clause that re-affirmed the Chinese courts’ pro-arbitration attitude while it sought to determine which law, in the absence of an express agreement, should apply.

 

Background

In 2015, the Plaintiff entered into a sales contract with the Defendant which provides in the arbitration clause that

any dispute arising out of or in connection with this contract shall be settled through friendly negotiation. If the negotiation fails, the dispute shall be submitted to Singapore International Economic and Trade Arbitration Commission for arbitration in accordance with the American arbitration rules. The arbitral award shall be final and binding on both parties”.

Disputes arose between the two parties during the performance of the sales contract. In August 2016, relying on the above-quoted arbitration clause, the Defendant initiated arbitration proceedings in the Singapore International Arbitration Center (“SIAC”) against the Plaintiff, which was accepted by the SIAC in the next month. In May 2017, the Plaintiff applied to the Beijing Court for a judgment to confirm that the arbitration clause is invalid under Chinese law.

Meanwhile, the sole arbitrator of the SIAC proceedings decided that it had jurisdiction over the substantive disputes and issued a procedural order banning the Plaintiff from continuing its action in the Beijing Court.

The Plaintiff argued on two major issues before the Beijing Court: (a) as an import agent, whether the Plaintiff was bound by the underlying contract; and (b) whether the disputed arbitration clause was valid or not.

Specifically, in relation to the second issue, the Plaintiff disputed that the arbitration clause lacked both choice of applicable law and juridical seat of arbitration. The Plaintiff also contended that there was an error in the wording of the agreed arbitration institution, i.e., “Singapore International Economic and Trade Arbitration Commission”, which the Plaintiff argued did not point to any specific arbitration institution. Thus, the Plaintiff’s position was that none of the three statutory junctures for determining the applicable law, as stipulated in Article 18 of the Law on the Application of Laws to Foreign-Related Civil Relations of the People’s Republic of China (“Law on Foreign Related Civil Relations”), could be found in the disputed arbitration clause.

The Plaintiff then referred to Article 14 of Judicial Interpretation issued by China’s Supreme People’s Court (“SPC”) on the Law on Foreign Related Civil Relations2) Article 14 of the Judicial Interpretation reads: “Where the parties did not choose the law applicable to a foreign-related arbitration agreement, nor did they agree on the arbitration institution or the place of arbitration, or where their agreement to arbitrate cannot be ascertained, the people’s court may apply the law of the People’s Republic of China to determine the validity of the arbitration agreement”. jQuery("#footnote_plugin_tooltip_3259_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3259_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });(“Judicial Interpretation on Law of Application”), Article 18 of the Arbitration Law of the People’s Republic of China (“Arbitration Law”)3)Article 18 of the Arbitration Law reads: “Whereas an agreement for arbitration fails to specify or specify clearly matters concerning arbitration or the choice of arbitration commission, parties concerned may conclude a supplementary agreement. If a supplementary agreement cannot be reached, the agreement for arbitration is invalid”. jQuery("#footnote_plugin_tooltip_3259_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3259_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Article 3 of the Judicial Interpretation of the Arbitration Law4)Article 3 of the Judicial Interpretation of the Arbitration Law of the PRC reads: “If the name of the arbitration institution agreed upon in an arbitration agreement is not described in an accurate way, but the specific arbitration institution is determinable, it shall be deemed that the arbitration institution has been selected”. jQuery("#footnote_plugin_tooltip_3259_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3259_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); to argue that Chinese law should apply to determine the validity of the disputed arbitration clause, since pursuant to the law governing foreign-related arbitrations, the disputed arbitration clause would be invalid for its lack of designation of an arbitration institution.

The Defendant argued that Singaporean law, rather than Chinese law, should apply to determine the validity of the disputed arbitration clause. The Defendant gave three reasons in this regard:

Firstly, the Defendant argued that where an arbitration institution or the juridical seat of arbitration could not be ascertained from an arbitration clause, the Chinese court should adopt the principle of proximity and apply the most closely related law as the applicable law.

Secondly, the Defendant contended that the Plaintiff knew that both parties agreed on a Singaporean arbitration institution. Since the agreed arbitration institution was in Singapore and the place of an arbitration institution is a statutory juncture for determination of the applicable law, Singaporean law should apply as the applicable law to the disputed arbitration clause.

Thirdly, the Defendant further argued that since Singapore had been agreed to as the place of the arbitration institution and the disputed arbitration clause did not provide for arbitration in any other place, Singapore should be construed as the juridical seat of the arbitration.

 

Ruling of the Beijing Court

The Beijing Court firstly confirmed the foreign element of the disputed arbitration clause, as the Defendant was incorporated under the laws of HKSAR. As a result, it decided to apply the Law on Foreign Related Civil Relations and the Judicial Interpretation on Law of Application to determine the applicable law.

The Beijing Court also confirmed that the disputed arbitration clause did not include an express agreement on its applicable law. Therefore, pursuant to the afore-mentioned statutes and judicial interpretation, it reasoned that the law of the place of the arbitration institution or the juridical seat should be adopted, if any of those two statutory junctures could be found.

Looking at the text of the arbitration clause, although there was no arbitration institution bearing the name “Singapore International Economic and Trade Arbitration Commission” in Singapore, the Beijing Court found that the parties’ intention to resolve disputes through arbitration was undoubted. From the wording of the dispute arbitration clause, the Beijing Court construed that the parties wanted their arbitration to be conducted under the legal framework of Singapore, and accordingly decided that the seat of arbitration should be Singapore and that the applicable law to the arbitration clause should be Singaporean law.

In its judgment, the Beijing Court also re-emphasized the pro-arbitration position that has been expressed in the Judicial Interpretations issued by the SPC. In the case at hand, application of Chinese law and that of Singaporean law would lead to contradictory results on the finding of validity of the disputed arbitration clause. In deciding to apply Singaporean law, the Beijing Court thus showcased the pro-arbitration attitude of the Chinese courts.

Further, the Beijing Court considered the Plaintiff’s argument on Article 402 of the Chinese Contract Law5)Article 402 of the Chinese Contract Law reads: “Where the agent, acting within the scope of authority granted by the principal, entered into a contract in its own name with a third person who was aware of the agency relationship between the principal and agent, the contract is directly binding upon the principal and such third person, except where there is conclusive evidence establishing that the contract is only binding upon the agent and such third person.” jQuery("#footnote_plugin_tooltip_3259_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3259_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (“Contract Law”) and found that none of the parties disputed having signed the sales contract. In this regard, since the dispute as to whether the Plaintiff or its principal should be bound by the sales contract was a question of law, the Beijing Court opined that the question of how the contractual rights and obligations should be borne between the parties could only be answered through subsequent hearing on merits. Thus, the Beijing Court concluded that such question did not fall within the ambit of its jurisdiction.

In the end, the Plaintiff’s application for a declaration of invalidity of the disputed arbitration clause was rejected.

 

Comments

The first comment should be made on the impact of a principal-agent relationship on the binding force of a contract under Chinese law, as the question of whether a principal should be bound by the arbitration clause in the underlying contract signed by its agent and the third party is still unsettled in the judicial practice of China.

A thought-provoking comparison could be made between the Convention on Agency in the International Sale of Goods (“Convention”) and the relevant provision in the Contract Law. Article 12 of the Convention provides that

“[w]here an agent acts on behalf of a principal within the scope of his authority and the third party knew or ought to have known that the agent was acting as an agent, the acts of the agent shall directly bind the principal and the third party to each other, unless it follows from the circumstances of the case, for example, by a reference to a contract of commission, that the agent undertakes to bind himself only”.

However, Article 402 of the Contract Law provides that a contract signed by the authorized agent on behalf of the principal shall directly bind the principal and the other signatory party to the contract.

In this regard, the Chinese courts have attempted to clarify their position. In a recent judgment (2019 Hu 01 Min Zhong No. 5542), the Shanghai No. 1 Intermediate People’s Court confirmed that a principal should be bound by the underlying arbitration clause concluded between its agent and a third party, where it was aware of the existence of principal-agency relationship.

Another example (2015 Si Zhong Min Shang Te Zi No. 166) is where a third party who has signed the underlying contract sought to vacate an arbitral award for reason that the winning party, i.e., the principal, was not a signatory party to the contract. After finding that the third party was completely informed of the fact that the actual buyer of the disputed contracts was the principal, the Court concluded that the rights and obligations arose from the disputed contracts signed by the third party and the agent, including but not limited to resolving their disputes by arbitration, directly bound the principal. On other occasions, it was decided that whether an underlying contract would bind the principal was a substantive question that should be left to the arbitration tribunal’s determination.6)See for example, Judgment No. (2015) Luo Min San Chu Zi 874. jQuery("#footnote_plugin_tooltip_3259_6").tooltip({ tip: "#footnote_plugin_tooltip_text_3259_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

However, the Chinese judicial practice up to today has mostly focused on the binding effect of the arbitration agreement on the unsigned principal, while the question in the case before the Beijing Court was whether an agent could rely on Article 402 of the Contract Law and deviate itself from the arbitration clause.

On such issue, one point of view is that since the underlying contract directly binds the principal and the third party as a matter of law, so does its arbitration clause.7)Chen Zhidong (2015), challenges from Article 402 of the Chinese Contract Law on our country’s foreign-related commercial arbitration, Fa Xue. jQuery("#footnote_plugin_tooltip_3259_7").tooltip({ tip: "#footnote_plugin_tooltip_text_3259_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Another point of view is that as a signed party, the agent should be bound by the arbitration clause. If a tribunal decides in its award that the underlying contract directly binds the principal and the third party, then the agent should be discharged from the arbitration clause by virtue of a final and binding arbitral award.8)Compilation of CIETAC Award between 1995-2002, (2002), Law Press, p. 548. jQuery("#footnote_plugin_tooltip_3259_8").tooltip({ tip: "#footnote_plugin_tooltip_text_3259_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The second point of view was adopted by the Beijing Court in the present case.

The second comment is on the determination of applicable law for the arbitration clause. It can be said that the arbitration clause before the Beijing Court was pathological in a way that it provided for an arbitration institution which does not exist in reality.

In this respect, the power to decide the juridical seat is not expressly vested in the Chinese courts under the relevant laws.9)As Article 18 of the Law on Foreign Related Civil Relations and Article 14 of the Judicial Interpretation on Law of Application both confer the relevant Chinese court with the power to decide the applicable law on the basis of a statutory juncture, but remain silent on whether and how the court should examine the existence of a statutory juncture. jQuery("#footnote_plugin_tooltip_3259_9").tooltip({ tip: "#footnote_plugin_tooltip_text_3259_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It is noted that as a result, court judgments swing in their approaches when interpreting whether a juridical seat has been agreed upon or not in vaguely worded clauses.

In past judicial practice, a Chinese court might directly use Chinese law as the applicable law if the arbitration clause does not include a designation of an arbitration institution or a juridical seat. If this approach is taken, such arbitration clause would be declared invalid under Chinese law. However, in this case, the Beijing Court confirmed the parties’ intention to arbitrate their disputes and to do so under the Singaporean legal framework and presumed Singapore as the seat of arbitration.

 

Conclusion

It is noted that when determining the validity of foreign-related arbitration agreements pursuant to the applicable law, the Chinese courts have referred to applicable conflict rules and selective conflict rules to make an arbitration agreement as effective as possible. The present case reflects the judicial philosophy of the Chinese courts to respect parties’ autonomy, and to promote and support commercial arbitration.

In this regard, the reasoning of the Beijing Court’s judgement specifically mentioned that,

where the laws of the place in which the arbitration institution is located and the laws of the place in which the arbitration is conducted are different, the applicable law that makes the arbitration agreement effective shall be chosen to determine the validity of the arbitration agreement, which reflects the court’s principle to support validity of an arbitration agreement in its judicial review of an arbitration.

From the New York Convention on the content as well as the developing trend of international commercial arbitration, to the regulations of judicial interpretation in China, the broadening of criteria of effectiveness of an arbitration agreement in order to allow such arbitration agreement to be as effective as possible, is not only beneficial to respecting the intent of the parties to choose arbitration as a means to settle their disputes, but also conducive to promoting and supporting the development of arbitration, and to create a good legal environment for international commercial arbitration”.

This supportive judicial approach to arbitration is undoubtedly very worthy of affirmation.

However, there are still unresolved issues pertaining to the interpretation of conflict of laws rules such as identification of private international law and definition of points of contact. In this case, the Beijing Court’s judgement lacked an explanation on why it considered “Singaporean legal framework”, rather than “Singaporean arbitration institution” or “American arbitration rules”, to be the point of contact in deciding to apply Singaporean law.

In order to construct Chinese modern rule of law with regard to international arbitration, it is necessary for the Chinese courts to apply reasonable and normative legal interpretation methods, which are regulated in the code of private international laws, i.e., the above-mentioned articles of the Law on Foreign Related Civil Relations and the Judicial Interpretation on Law of Application, and to use methods of contract interpretation to identify the parties’ true intentions through wordings of an arbitration agreement as a complete approach to interpretation, while considering the given facts and the rules of application of laws to justify the corresponding conclusion.

References   [ + ]

1. ↑ See Article 18 of the Law on the Application of Laws to Foreign-Related Civil Relations of the PRC. This Article reads: “The parties may by agreement choose the law applicable to their arbitration agreement. Absent any choice by the parties, the law of the place where the arbitration institution locates or the law of the seat of the arbitration shall be applied”. 2. ↑ Article 14 of the Judicial Interpretation reads: “Where the parties did not choose the law applicable to a foreign-related arbitration agreement, nor did they agree on the arbitration institution or the place of arbitration, or where their agreement to arbitrate cannot be ascertained, the people’s court may apply the law of the People’s Republic of China to determine the validity of the arbitration agreement”. 3. ↑ Article 18 of the Arbitration Law reads: “Whereas an agreement for arbitration fails to specify or specify clearly matters concerning arbitration or the choice of arbitration commission, parties concerned may conclude a supplementary agreement. If a supplementary agreement cannot be reached, the agreement for arbitration is invalid”. 4. ↑ Article 3 of the Judicial Interpretation of the Arbitration Law of the PRC reads: “If the name of the arbitration institution agreed upon in an arbitration agreement is not described in an accurate way, but the specific arbitration institution is determinable, it shall be deemed that the arbitration institution has been selected”. 5. ↑ Article 402 of the Chinese Contract Law reads: “Where the agent, acting within the scope of authority granted by the principal, entered into a contract in its own name with a third person who was aware of the agency relationship between the principal and agent, the contract is directly binding upon the principal and such third person, except where there is conclusive evidence establishing that the contract is only binding upon the agent and such third person.” 6. ↑ See for example, Judgment No. (2015) Luo Min San Chu Zi 874. 7. ↑ Chen Zhidong (2015), challenges from Article 402 of the Chinese Contract Law on our country’s foreign-related commercial arbitration, Fa Xue. 8. ↑ Compilation of CIETAC Award between 1995-2002, (2002), Law Press, p. 548. 9. ↑ As Article 18 of the Law on Foreign Related Civil Relations and Article 14 of the Judicial Interpretation on Law of Application both confer the relevant Chinese court with the power to decide the applicable law on the basis of a statutory juncture, but remain silent on whether and how the court should examine the existence of a statutory juncture. 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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Lainey Feingold to Deliver OSU’s 2019 Lawrence Lecture

ADR Prof Blog - Tue, 2019-09-03 11:27
On Tuesday September 10, 2019, Lainey Feingold will deliver The Ohio State University Moritz College of Law’s 2019 Lawrence Lecture on Dispute Resolution: Forget the Shark and be a Dolphin: Advancing client rights and interests with collaborative negotiating tools. Here is the description from OSU’s website. Lainey will share the tools and strategies that have … Continue reading Lainey Feingold to Deliver OSU’s 2019 Lawrence Lecture →

Effective Active Listening and its importance in conflict resolution

Communication and Conflict Blog - Tue, 2019-09-03 04:30
Effective listening - It's not just down to eye contact and nodding! In fact they don't represent active listening at all.

4-word-build, A Conflict Resolution Exercise and Teamwork Exercise

Communication and Conflict Blog - Tue, 2019-09-03 04:13
4-word-build - a conflict resolution exercise for gaining a shared understanding of a concept in a group or team. The exercise enables all present to participate in the creation of the shared view.

Financial Services Arbitration under the LCIA Rules: An Outlook

Kluwer Arbitration Blog - Tue, 2019-09-03 00:57

Aaron McDonald and Jerome Temme

In 2018, financial services disputes accounted for the largest share of disputes referred to the London Court of International Arbitration (LCIA). With indications that the LCIA may adopt a form of summary dismissal procedure in its revised Arbitration Rules this autumn, the LCIA could become an even more important forum for banking and financial services disputes in the coming years.

 

The LCIA – attracting more financials services disputes than other institutions

29% of all cases commenced at the LCIA in 2018 arose in the financial services sector. This figure is up from 24% in 2017 and significantly higher than comparable figures for other major institutions (to the extent that they publish figures for the banking and finance sector separately). At the Hong Kong International Arbitration Centre (HKIAC), 12% of disputes in 2018 were allocated to the finance sector (up from 6% in 2017), whereas at the International Chamber of Commerce (ICC) the “Financing and Insurance” sector accounts for somewhere between 5% and 8% of all cases. At the Singapore International Arbitration Centre (SIAC) – based in another financial hub – “banking and financial services” is included in the catch-all category for “other” sectors, which covers 10% of new cases in 2018 (up from 4% in 2017) but which also includes energy, insurance, and intellectual property disputes.

Another significant figure from the LCIA’s 2018 statistics is that 21% of all new arbitrations were commenced under a “Loan or Other Facility Document” (24% in 2017) which indicates that the nature of the dispute is inherently financial rather than merely a commercial dispute involving a financial institution.

 

London – a financial (and arbitration) hub

London’s status as a global financial hub goes some way to explaining the importance of financial services disputes under the LCIA Arbitration Rules. Lower figures in Hong Kong and Singapore-based institutions show, however, that this cannot be the only explanation.

Many finance documents entered into by international parties are governed by English law – even if there is no direct connection with England – because English law is seen as a good choice for finance contracts, providing practical and commercial solutions to a number of issues. English-seated arbitration is also a popular choice, for example because under English law unilateral option clauses are permissible. These clause are frequently requested by financial institutions (for example in loan transactions and derivatives involving emerging markets), as they allow the institution to choose the dispute resolution mechanism (e.g. arbitration or litigation) after the dispute has arisen depending on the circumstances of the case. However, such unilateral option clauses have been challenged under the laws of some other seats (e.g. France).

Where a contract is governed by English law, parties may therefore be inclined also to choose London-seated arbitration. The choice of the LCIA then often follows naturally when selecting an arbitration institution.

 

Arbitration – a dispute resolution mechanism which has become increasingly attractive to financial institutions

Historically, the financial services sector had been less enthusiastic about arbitration than other sectors (e.g. construction and energy). This was in large part due to perceived downsides of arbitration such as difficulties in conducting proceedings with multiple parties and under multiple contracts, a lack of binding precedent and the lack of expedited or summary proceedings.

That arbitration is used more and more in financial disputes is, at least in part, thanks to modern institutional rules which facilitate the joinder of parties to existing arbitration proceedings and the consolidation of parallel proceedings. Most modern rules also offer expedited timetables for straightforward claims and interim or emergency measures for especially urgent cases.

The ease of enforcing arbitral awards in foreign jurisdictions under the New York Convention – when compared with the difficulties of enforcing court judgments abroad, at least outside the European Union – is another reason why banks increasingly opt for arbitration at a time where their business is increasingly conducted in emerging markets.

Many banking and finance disputes also involve financial products which are becoming ever more complex. In this context, financial institutions value the ability for the parties to choose their own arbitrators, in particular arbitrators with extensive experience in, for example, the type of financial products to which the dispute relates. A number of highly qualified arbitrators with finance expertise are available and arbitral bodies are also sharing their panel lists to make the process of selecting a suitably qualified arbitrator easier.

Another reason for using arbitration is the relative convenience with which parties can agree to keep their arbitration private and confidential. This can be particularly attractive in the securitisation context or where, during the course of the dispute resolution process, details of a party’s financial difficulties would emerge.

 

Summary or early dismissal – making arbitration even more attractive in future for the financial services sector?

The latest development in arbitration practice is the introduction of summary or early dismissal. Such a procedure – the equivalent of a summary judgment procedure in the English courts – allows parties to request that claims, issues or defences that clearly lack merit be dealt with quickly, without the need to go through all the steps of an arbitration, including a hearing.

The lack of a summary or early dismissal procedure in arbitration has, for a long time, been cited as one of the key reasons why clients in the banking and finance sectors preferred litigation in the English courts over arbitration.

In LCIA arbitrations, banking and finance parties appear more often as claimants (21% of claimants vs 12% of respondents in 2018, and 23% vs 9% in 2017). Some of these cases arise where a debtor is in contractual default and has no arguable defence. In the absence of summary dismissal procedures, however, the claimant financial institution will have to conduct a full arbitration, potentially including a full merits hearing, before receiving an award determining that the money is in fact due and the debtor has no defence. The early dismissal procedure allows the claimant to apply to the tribunal and receive an award without going through all the steps, thereby saving both time and expense.

While there are concerns that arbitration awards obtained through summary or early dismissal might not be enforceable in certain jurisdictions because a party has been deprived of its right to have its case heard, most institutions appear to consider that this concern is outweighed by the benefits of a summary dismissal. Whether an enforcement risk exists depends, in the end, on the jurisdictions and parties involved. The English courts have been open to the idea of summary processes in arbitration; for example, in Travis Coal v Essar Global Fund [2014] EWHC 2510 (Comm), the High Court found that the tribunal had complied with its duties to be fair and treat parties equally despite having issued an award using some summary processes.

Institutions such as the SIAC, HKIAC and the Stockholm Chamber of Commerce introduced summary dismissal procedures in their latest set of rules and the ICC clarified in a practice note that ICC tribunals have the power to summarily dismiss claims or issues. It is widely expected that the LCIA will introduce an early dismissal procedure in its 2019 revised rules to be published this autumn.

This could further strengthen the trend of parties to financial transactions choosing the LCIA Arbitration Rules as a go-to dispute resolution mechanism in their finance documents.

 

Future growth for financial services arbitration at the LCIA?

A growing number of financial services arbitrations are seated in London, and this trend is likely to continue, at least in the short to medium term. An increasing number of financial documents entered into in recent years contain LCIA arbitration clauses, and some of these contracts will give rise to disputes which will be submitted to arbitration at the LCIA.

The anticipated LCIA rule change providing for some form of summary dismissal procedure may also encourage financial institutions to include LCIA arbitration in their contracts, and thus lead to more financial services arbitrations in the medium term. This trend may be amplified by the uncertainty surrounding Brexit, which may encourage some parties to move away from English court litigation to London-seated arbitration.

In the longer term, whether financial services arbitration in London continues to grow will depend to some extent on whether the UK will leave the EU with or without a deal, and how banks react to the final outcome. If London maintains its status as a thriving financial centre and an attractive place to do business, the LCIA is likely to benefit from a continued influx of new financial services arbitrations in the long term as well.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The New OAS Guide on International Contracts and International Arbitration

Kluwer Arbitration Blog - Sun, 2019-09-01 23:08

José Antonio Moreno Rodríguez

The Guide on the Law Applicable to International Commercial Contracts in the Americas (the “Guide”) was recently approved by Resolution 249 of 2019 of the Inter-American Juridical Committee (CJI) of the Organization of American States (OAS).

The instrument particularly takes into account the OAS Mexico Convention of 1994 “on the law applicable to international contracts” and the Hague Principles “on the choice of law for international contracts,” approved by the Hague Conference on Private International Law in 2015. UNCITRAL, the ICC, the IBA and other organizations related to the arbitral world intervened in the Working Group that drafted these Principles. When dealing with applicable law in arbitration, the Guide focuses in particular on the 1958 New York Convention, and the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on Arbitration, among other arbitral instruments.

I acted as Rapporteur for the Guide, benefiting from significant input from several jurists and organizations. The document was submitted to the United Nations Commission on International Trade Law (“UNCITRAL”), the International Institute for the Unification of Private Law (“UNIDROIT”) and the Hague Conference on Private International Law, as well as to the ABA Section on International Law, the American Association of Private International Law and the Department of Justice Canada. It received comments from prominent experts of the arbitral world.

The Guide has several objectives. Among others, it seeks to support efforts by the OAS Member States to modernize their domestic laws on the subject. Furthermore, the Guide can provide assistance to contracting parties in the Americas and their counsel in drafting and interpreting international contracts. In addition, it can serve as guidance to judges and arbitrators, who may find the Guide useful both to interpret and supplement domestic laws.

The Guide is preceded by a summary of specific recommendations to legislators, adjudicators, and the parties and their advisors on international contracts.

The Guide itself contains an explanatory introduction (Part One), followed by its context and background (Part Two). Part Three describes the recent developments with uniform law, mostly based on the standardization efforts undertaken by UNIDROIT and UNCITRAL, in addition to efforts by the private sector and other developments in the arbitration arena. Part Four, in turn, describes the uniform method of interpreting international texts. Adjudicators are encouraged to consider its advantages and to take into account the development and dissemination of international jurisprudence in this regard.

Part Five pertains to the scope of the Guide, in terms of international commercial contracts with their corresponding classification and in terms of topics that are excluded, such as those related to capacity, family and inheritance relationships, insolvency, etc.

Part Six deals with the complex problem of non-State law and various related terminologies, such as uses, customs and practices, principles, and lex mercatoria. The Guide adopts the expression “rules of law”, as equivalent to non-State law and other terms referring to the matter. This, in order to take advantage of the extraordinary casuistic and doctrinal developments in the world of arbitration with regards to this expression.

The Guide follows the Hague Principles, according to which the rules of law must be “generally accepted on an international, supranational or regional level as a neutral and balanced set of rules”. In the current state of affairs, the applicability of the UNIDROIT Principles as non-State law if chosen by the parties clearly emerges from the Hague Principles and the Guide. The same applies to the UNCITRAL (Vienna) Convention on Contracts for the International Sales of Goods of 1980 that can be chosen even if not applicable to the case at hand under its own terms.

Part Seven of the Guide deals with the problem of party autonomy in international contracts. Disagreements still exist regarding modalities, parameters, and limitations of the principle. These include, for example, as regards the method of choice – which could be explicit or tacit – whether a connection is required between the chosen law and the domestic laws of the State of the parties to the contract; whether non-contractual issues can be included in the choice of law; which State, if any, can impose limitations on choice; and whether non-State rules can be chosen. Those issues are addressed in the Guide.

Part eight of the Guide refers to express or tacit choice of law, stressing that, one way or another, the choice should be evident or appear clearly from the provisions of the contract and its circumstances.

Part Nine, regarding formal validity of contracts, advocates against any requirements as to form, unless otherwise agreed by the parties or as may be required by applicable mandatory rules.

Part Ten refers to the law applicable to the choice of law clause. In principle, the Guide favors the applicability of the law chosen by the parties. However, it admits that the law of the State in which a party has its establishment may prevail under certain circumstances. The Guide also refers to the innovative provision of the Hague Principles addressing the issue of choice of law when the standard terms submitted respectively by the parties coincide or differ.

Part Eleven deals with separability, whereby the invalidity of an international contract does not necessarily affect the choice of law agreement. Moreover, the effectiveness or invalidity (regardless of whether substantive or formal) of the contract must be evaluated according to the law chosen in the agreement in which it was selected. This separability principle is aligned with the Hague Principles and with the UNCITRAL Model Law.

Part Twelve deals with other problems of law applicable to the field of international contracts. It advocates that a choice of law can be modified at any time and that any such modification does not prejudice its formal validity or the rights of third parties. It also provides that no connection is required between the law chosen and the parties or their transaction. This is still a requirement in some systems, such as the US in its Restatement (Second) of Conflict of Laws. However, a tendency exists towards its abandonment, as reflected in recent international instruments, among them the Mexico Convention and the Hague Principles.

The Guide also deals with renvoi, or the matter if the application of a specific domestic law also includes its private international law provisions. If so, those provisions may refer the matter back to another law. In this case, the Guide advocates for the exclusion of renvoi, to provide greater certainty as to the applicable law, consistent with the Mexico Convention and the Hague Principles.

Part Thirteen deals with the absence of an effective choice of law by the parties. In this case, the Guide advocates the solution of the closest connection contained in the Mexico Convention, and discards others such as the “place of performance” contained in the Montevideo Treaties. The Guide advocates that if adjudicators find that transnational rules are more appropriate and thus more closely connected to the case than national law, they will apply them directly. In this regard, the Guide clarifies an interpretative problem related to the Mexico Convention.1)13. During the process of drafting the inter-American instrument, the United States delegation proposed the formula of the closest connection, the intention being that it would lead to a transnational, non-State law, rather than to a domestic law. Around the same time, the UNIDROIT Principles, some two decades after their inception and drafting, were coming into the limelight. It was the opinion of Friedrich Juenger, member of the United States delegation, that the reference to “general principles” should clearly lead to the UNIDROIT Principles. After considerable discussions during CIDIP-V, a compromise was reached. Regarding the rule that was ultimately adopted, one interpretation is that the role of lex mercatoria or non-State law has been reduced to that of an auxiliary element that, together with the objective and subjective elements of the contract, help the adjudicator to identify the law of the State with the closest connection to the contract. Another interpretation, in line with Juenger´s advocacy, favors the application of non-State law in absence of choice. See the discussion in the OAS Guide, Numbers 353-354. jQuery("#footnote_plugin_tooltip_7052_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7052_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

With respect to arbitration, there are major differences regarding the approach that should be used to determine the applicable law in the absence of an effective choice by the parties. The Guide exposes the different approaches in comparative law and shows how the Mexico Convention can serve as an effective guide for international arbitrations seated in jurisdictions within the Americas.

Part Fourteen deals with dépeçage, or “splitting” of the law, so that different parts of the contract can be governed by different laws. According to the Guide, when granted interpretive discretion, adjudicators are encouraged to admit dépeçage.

Part Fifteen refers to the flexibility to interpret international contracts, to mitigate the harshness of a strict application of the law. In the Americas, a flexible formula has been accepted for many years through Article 9 of the 1979 OAS Inter-American Convention on General Rules of Private International Law, ratified by several countries in the region. The Mexico Convention also contains a flexible formula that can be applied in the determination of the applicable law. In the arbitral world, Article 28(4) of the UNCITRAL Model Law, copied in many arbitral regulations in the Americas, also includes a flexible formula, explained in the Guide.

Part Sixteen of the Guide refers to the scope of the applicable law, and the aspects that will be governed by that applicable law. Specification of these aspects reduces the likelihood of their being otherwise classified as non-contractual and the uniformity of outcomes is thereby encouraged.

Part Seventeen of the Guide deals with public policy. This highly contested notion lacks consensus in regard to the various terms used to refer to it and its relevance and applicability. Also, certainly, there is a lack of effective communication among academics and practitioners. Moreover, this obscure subject is rendered even more opaque by the imprecision, diversity and confusion of the vocabulary used.

In line with the Hague Principles and the Mexico Convention, the Guide attempts to clarify this mess and to simplify the terminology. It addresses the two facets of public policy in the international context. One comprises the overriding mandatory rules of the forum that must be applied irrespective of the law indicated by the conflict of laws rule. The other precludes application of the law indicated by the conflict of laws rule if the result would be manifestly incompatible with the public policy of the forum.

The Guide notes that the question of public policy in arbitration was one of the “most sensitive” issues addressed in the drafting of the Hague Principles. In line with them, the Guide does not advocate for “any additional powers on arbitral tribunals and does not purport to give those tribunals an unlimited and unfettered discretion to depart from the law” that is applicable in principle. On the contrary, tribunals might be required to take account of public policy and mandatory rules, and where appropriate ascertain the need for them to prevail in the specific case.

Part Eighteen of the Guide addresses other issues, such as those related to the existence of other conventions, or states with more than one legal system or territorial units.

By way of example, George Bermann’s recent lecture at the Hague Academy on “International Arbitration and Private International Law” appears in a more than 600 pages book. This publication is sufficient testimony of the complexities, obscurities and gaps existent in relation to international contracts and arbitration. The Guide represents an important step forward in addressing the matter in an effective way.

References   [ + ]

1. ↑ 13. During the process of drafting the inter-American instrument, the United States delegation proposed the formula of the closest connection, the intention being that it would lead to a transnational, non-State law, rather than to a domestic law. Around the same time, the UNIDROIT Principles, some two decades after their inception and drafting, were coming into the limelight. It was the opinion of Friedrich Juenger, member of the United States delegation, that the reference to “general principles” should clearly lead to the UNIDROIT Principles. After considerable discussions during CIDIP-V, a compromise was reached. Regarding the rule that was ultimately adopted, one interpretation is that the role of lex mercatoria or non-State law has been reduced to that of an auxiliary element that, together with the objective and subjective elements of the contract, help the adjudicator to identify the law of the State with the closest connection to the contract. Another interpretation, in line with Juenger´s advocacy, favors the application of non-State law in absence of choice. See the discussion in the OAS Guide, Numbers 353-354. 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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Gender & Negotiation: What if the question(s) were wrong?

ADR Prof Blog - Sun, 2019-09-01 11:48
That’s essentially the provocative, and ultimately persuasive, message from Andrea Schneider’s latest article: What’s Sex Got to Do With it: Questioning Research on Gender & Negotiation Nevada Law Journal, Vol. 19, No. 3, 2019 available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3433926 Central to her thesis is the (in my view correct) observation that most research on negotiation and gender … Continue reading Gender & Negotiation: What if the question(s) were wrong? →

Mandatory Shareholder Arbitration: Moving the Debate to India

Kluwer Arbitration Blog - Sun, 2019-09-01 01:21

Avani Agarwal and Aditi Ramakrishnan

Class action suits were introduced in India by the 2013 Companies Act, with the hope that costs of litigation might reduce in comparison to individual cases. However, not a single class action case has been filed in the past five years. This suggests that litigation is currently not serving the interests of shareholders. Given arbitration’s various advantages as a dispute resolution mechanism, mandatory shareholder arbitration may be a good alternative for Indian investors.

While the Indian state has been actively encouraging arbitration over the past few years, domestic securities law has been growing stricter as a result of multiple large scale scandals. These conflicting trends raise questions about the legality of mandatory arbitration clauses in shareholder agreements. This post explores both the law of securities and of arbitration on the matter in order to ascertain the viability of mandatory shareholder arbitration in India.

India’s Arbitration Law – The Arbitration and Conciliation Act 1996, as amended in 2019, lays out India’s arbitration law, inspired largely by the UNCITRAL Model Law. Section 7 simply provides that an arbitration agreement is any agreement by “the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not”. The conditions provided for such an agreement, such that it has to be in writing, are unlikely to impose any restrictions. Section 8 provides that a judicial authority before which a dispute, that is the subject of an arbitration agreement, is brought, must refer the parties to an arbitration. Disputes related to corporate law in India are dealt with by a parallel structure of tribunals, established in 2013 by the Companies Act. While these National Company Law Tribunals are quasi-judicial authorities, they are entitled to refer parties to arbitration under this section (see – Richa Kar v. Actoserba Active Wholesale Pvt. Ltd).

When the word ‘mandatory’ is used, the first concern that may arise is that such a set up might violate the necessity of consent for arbitration. Indeed, the Indian Supreme Court has held that no reference can be made to arbitration unless all the parties explicitly consent (see – Afcons Infrastructure ltd v. Cherian Varkey Construction Company Pvt.). However, this requirement is not necessarily undermined by mandatory shareholder arbitration. Whenever the proposal is brought up, the existing shareholders will have to vote on it. Only those who accept the idea of arbitrating future disputes will vote positively. Shareholders who do not agree may let go of their shares or agree to be bound by the agreement nonetheless. Since the provision introduced by the agreement will be a part of the company’s public documents, all prospective shareholders are legally required to be aware of it. Based on this knowledge, they can make an informed decision about buying the company’s shares and will only agree if they consent to having any conflicts arbitrated. Consequently, Indian arbitration law does not serve as a hinderance to mandatory arbitration for shareholders.

With respect to Indian Corporate Law – There are two conceivable laws that may potentially come into conflict with and impact the viability of mandatory shareholder arbitration in India: the Companies Act 2013, and Securities and Exchange Board of India Act 1992 (“SEBI Act”).

Companies Act – An agreement for mandatory shareholder arbitration can be entered into either in the Articles of Association of a company, or a separate private agreement between the shareholders. Section 6 of the Companies Act states that the provisions of the Act would override any provisions of the articles of association that contradict it. The Companies Act also provides for a National Company Law Tribunal (“NCLT”) for the redressal of any grievances of shareholders. The question then is whether an arbitration proceeding can take place or whether the jurisdiction of the NCLT would override such a proceeding.

The Supreme Court of India has defined a standard rule as to whether or not a matter can be referred to an arbitral tribunal, in the Booz-Allen case. The test is essentially to see whether or not the actions relate to actions in rem or in personam. Actions in rem are to be adjudicated upon by courts, and those in personam may be referred to arbitration. The Bombay High Court has held that arbitration cannot be referred to even when the remedy asked for is in rem. However, the decision has been criticised and the Booz-Allen test continues to be the binding law on the matter. Therefore, it stands to reason that only cases such as winding up or certain cases of oppression and mismanagement cannot be referred to arbitration. In consonance with the broadening acceptability of arbitration, this position has been altered by some courts who say that even in cases of oppression and mismanagement, if the tribunal or court finds the petition to be mala fide, vexatious, or submitted with the intent of avoiding the arbitration clause, the dispute will be duly referred to arbitration.

Additionally, rights in personam that are derived from rights in rem are arbitrable. It must be noted at this point however, that under section 8 of the Arbitration Act, a cause of action cannot be split up to be adjudicated upon.

SEBI Act – A bare reading of the SEBI Act makes it clear that the SEBI performs public functions – it deals with matters of securities that have a larger impact on public and economic development. It ensures investor confidence, which is beneficial for economic progress. The SEBI Act creates and governs special rights. The Bombay High Court has held that if there is a legislation governing special rights and obligations, and the adjudication is reserved exclusively for a specific authority (SEBI in this case), it is contrary to public policy to allow for arbitration.

Given this, there seems to be a bar on arbitration in securities disputes. However, the SEBI itself has promulgated certain norms promoting arbitration in disputes of this nature. It has published a circular laying down procedures and guidelines for arbitration in redressing investor grievance. Further, SEBI bye-laws also provide for arbitration to resolve disputes arising out of trading between members. The bye-laws of the National Stock Exchange also contain similar provisions. It is to be noted that the disputes made explicitly arbitrable by the securities laws and rules in India are rights in personam. It seems clear, therefore, that both the company law in India and the securities law in India arrive at the same conclusion – that so long as the rights affected are in personem, they shall be referred to arbitration whenever an agreement requires this.

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The Singapore Mediation Convention: What Does it Mean for Arbitration and the Future of Dispute Resolution?

Kluwer Arbitration Blog - Sat, 2019-08-31 03:00

Iris Ng

International arbitration and mediation are often viewed as opponents in an antagonistic battle for the hearts, minds and wallets of disputants. The fear of arbitration losing its status as the most preferred form of alternative dispute resolution is palpable: Mediation’s key disadvantage has long been the difficulty of enforcing mediated settlement agreements. But the United Nations Convention on International Settlement Agreements Resulting from Mediation (“Singapore Convention”) would promote the widespread international enforceability of settlement agreements, which directly erodes the edge of arbitration, considering that the enforceability of arbitral awards is usually ranked as arbitration’s most important feature. In this post, I argue that mediation will not eclipse arbitration anytime soon, but at the same time that the Singapore Convention is a positive development for the dispute resolution system as a whole.

By way of introduction, at the time of writing, the Singapore Convention has been signed by 46 countries including the US, China, India and South Korea. It needs to be ratified by three countries before it comes into force.


Uncertainties in the operationalisation of the Singapore Convention

The first reason why there is room for some healthy scepticism over the Singapore Convention is that there is some uncertainty over how the Singapore Convention will be operationalised. This has several facets, which I will consider in turn.

First, as arbitration practitioners may think with a bit of schadenfreude, the take-up rate of the Singapore Convention is still up in the air. A treaty’s effectiveness hinges on its widespread adoption and acceptance, and the Singapore Convention is still in its infancy compared to the New York Convention. While the initial response to the Singapore Convention has been positive, the fate of the UNCITRAL Model Law on International Commercial Conciliation, 2002 (“Conciliation Model Law”) provides reason to be circumspect. Legislation based on or influenced by the Conciliation Model Law has been adopted in only 33 States in a total of 45 jurisdictions. The corresponding figures for the UNCITRAL Model Law on International Commercial Arbitration is 80 States in 111 jurisdictions. But this comparison is flawed. The Conciliation Model Law was designed to apply in cases where parties could not agree or had not included on a set of mediation rules into their contract.1)Peter Binder, International Commercial Arbitration and Mediation in UNCITRAL Model Law Jurisdictions (Kluwer Law International, 4th Ed, 2019) at p 552. jQuery("#footnote_plugin_tooltip_6279_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6279_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This was revised in 2018 by the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation, 2018 (amending the UNCITRAL Model Law on International Commercial Conciliation, 2002) (“Mediation Model Law”), which added, among others, the regime for enforcement that parallels the Singapore Convention. Thus, the slow uptake of the Conciliation Model Law does not necessarily bode ill for the Mediation Model Law or the Singapore Convention.

Second, it is an open question how Article 12(4) of the Singapore Convention will affect its implementation in member states of regional economic integration organisations. Article 12(4) provides that the Singapore Convention “shall not prevail over conflicting rules of a regional economic integration organization” if the settlement agreement is sought to be relied on in a member state, and the states involved that make the mediation “international” under Article 1 of the Singapore Convention are member states. The enforcement regime under the Singapore Convention would therefore be subject to any additional preconditions imposed by regional organisations, such as obtaining the counterparty’s consent, as required under the EU Directive on Mediation, before a settlement agreement may be relied on.

Third, Article 5(1)(d) of the Singapore Convention has the potential to greatly limit the applicability of this Convention. Article 5(1)(d) affords a defence if granting relief would be contrary to the terms of the settlement agreement. On this view, which is supported by the travaux préparatoires,2)See the discussion in T Schnabel, “The Singapore Convention on Mediation: A Framework for the Cross-Border Recognition and Enforcement of Mediated Settlements” (2019) 19 Pepp Disp Resol LJ 1 at 48–49. jQuery("#footnote_plugin_tooltip_6279_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6279_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); parties would be allowed to “contract out” of enforcement of their settlement agreement under the Singapore Convention by so providing in their settlement agreement. Although Article 5(1)(d) might still be limited in effect if courts adopt a strict approach towards interpreting clauses that purport to contract out of the Singapore Convention, legally advised commercial parties are unlikely to face difficulty drafting a sufficiently clear and enforceable clause.

 

Arbitration and mediation: Frenemies in mutualistic competition

The second reason why arbitration practitioners need not panic just yet is that arbitration and mediation are not true enemies, but “frenemies”.

Although arbitration and mediation compete in the same conceptual space of “alternative dispute resolution” to litigation, this dynamic should be viewed as a manifestation of mutualistic, rather than zero-sum competition. Zero-sum competition involves competing against others and according primacy to outcomes because one party’s loss is another’s gain. Mutualistic competition involves competing with others and focuses on the pursuit of an objective (e.g., winning the game) through trying to surpass the competition. To characterise the arb-med relationship as zero-sum competition would be to make two wrong assumptions: (a) that it is impossible to increase the attractiveness of a jurisdiction as a whole as a dispute resolution hub, such that arbitration and mediation advance in tandem (the “fixed pie” assumption); and (b) that disputant-consumers inevitably choose either arbitration or mediation, but not both (the “either/or” assumption).

First, the “fixed pie” assumption is contradicted by empirical evidence. The availability of mediation at several renowned arbitral institutions has not dampened demand for arbitration services. The ICC, SCC, and LCIA are amongst the institutions which have all recorded robust growth over the years despite offering mediation services. This phenomenon arises from the fundamental differences between arbitration and mediation, and how disputants choose one mode of dispute resolution over another for their different competitive advantages. Arbitration is regarded as a “litigation-substitute” pathway to a final and binding determination, which carries precedential value in fact if not in law (especially for test cases with multiple similar claims). By contrast, mediation is a less adversarial mode of dispute resolution that saves “face” and preserves relationships at lower financial cost. In view of the different cost-benefit analyses for disputes of different natures (such as complexity and dollar value), the “fixed pie” assumption is incorrect.

Second, the “either/or” assumption underlying a zero-sum mentality is that parties choose arbitration or mediation, but not both. That is disproved by the existence of various combinations of the two under arb-med, med-arb and arb-med-arb protocols (collectively referred to as “AMA protocols”), which are increasingly popular. According to the 2018 Global Pound Conference Series report, the combining of adjudicative and non-adjudicative processes features in the top three ways to improve the future of commercial dispute resolution. The question then is not whether AMA protocols should be adopted, but which of its forms has the most potential. In this connection, it is significant that the Singapore Convention carves out from its scope of application, under Article 1(3)(b), settlement agreements that have been recorded and are enforceable as an arbitral award.


The New York Convention, the Singapore Convention, and the future of dispute resolution

Speaking in 2016, the Chief Justice of Singapore called for a shift from viewing “ADR” as alternative dispute resolution, to appropriate dispute resolution. The underlying idea is that modern legal systems should provide a diversified range of dispute resolution options so parties can pick the mode of justice that is most suited to the subject matter, parties and desired outcomes. Taking that perspective, the Singapore Convention is but another piece in the jigsaw of global conventions that work towards this end. It joins the ranks, but does not seek to usurp the place, of the New York Convention for arbitration and the 2005 Hague Convention on Choice of Court Agreements for litigation. All things considered, the Singapore Convention is a development that the arbitration and mediation fraternity alike has cause to celebrate.

 

*The article is written in the author’s personal capacity, and the opinions expressed in the article are entirely the author’s own views.

References   [ + ]

1. ↑ Peter Binder, International Commercial Arbitration and Mediation in UNCITRAL Model Law Jurisdictions (Kluwer Law International, 4th Ed, 2019) at p 552. 2. ↑ See the discussion in T Schnabel, “The Singapore Convention on Mediation: A Framework for the Cross-Border Recognition and Enforcement of Mediated Settlements” (2019) 19 Pepp Disp Resol LJ 1 at 48–49. 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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Is Singapore Convention to Mediation what New York Convention is to Arbitration?

Kluwer Arbitration Blog - Sat, 2019-08-31 01:00

Ashutosh Ray (Assistant Editor)

If the number of signatories at the launch of a convention is any measure of success, then the Singapore Convention on Mediation (Singapore Convention) had close to five times the signatories as the New York Convention (NYC) which had 10 signatories (by the time the NYC came into force there were 24 signatories). The NYC was signed in 1958, a different world than today. Therefore, drawing parlance between the two conventions based on the number of signatories on the signing date must not be considered an indication of the future success of the Singapore Convention.

The signing ceremony of the Singapore Convention warrants a preliminary dialogue on its ability to break the hegemony of the NYC. This piece is not a clause by clause semantical comparison between the two conventions. Rather, it largely discusses how the Singapore Convention may have to undergo a hiatus due to a combination of factors stemming out of the NYC.

The first factor is the all-encompassing nature of the NYC. Several dispute resolution tools can bask in the NYC’s framework. Any settlement by way of mediation, negotiation and expert determination can be confirmed by an arbitral tribunal as a settlement award enforceable under the NYC. Similarly, an arbitration award can be the result of other hybrid procedures such as med-arb and arb-med-arb. As an example, med-arb enables the parties to secure an arbitral award reflecting their settlement on a few issues and the tribunal’s decision on the remaining issues, all under the framework of the NYC. Similarly, arb-med-arb enables the parties to filter issues by way of arbitration and then mediate those issues while pausing the arbitration proceedings. If the mediation is successful the parties return to the tribunal to pass a settlement award. If the mediation is unsuccessful, they resume the arbitration from where they had paused.

The limited application of the Singapore Convention could be a reason for its delay to gather steam. Unlike the NYC, the Singapore Convention does not support hybrid dispute resolution methods involving arbitration and litigation. This may not find favor with large international businesses who usually enter into elaborate dispute resolution clauses combining more than one dispute resolution tool. Surely, parties may still draft clauses in a manner allowing the application of Singapore Convention and the NYC alike. This will need careful drafting of the dispute resolution clause where mediation proceedings are divorced from the arbitration or litigation proceedings. The settlement agreement will be then enforceable under the Singapore Convention. If the mediation fails, the parties may then initiate a fresh arbitration proceeding and enforce the emanating award under the NYC. The parties may consider stipulating a time-frame to complete the mediation exercise so that their claim is not barred by limitation in the event of a failed mediation. Once the arbitration proceedings are initiated and the parties enter into mediation as part of the arbitration proceeding, any resulting agreement would take the form of a settlement award passed by the arbitral tribunal for it to be enforceable. It will no longer be enforceable under the Singapore Convention as it would be enforceable as an arbitral award. Perhaps, the parties could still use the Singapore Convention to enforce a settlement agreement from a mediation initiated mid-way during arbitration by ensuring that the arbitral tribunal is dissolved by the parties without an award. However, this convoluted mechanism may not be commercially or logistically viable.

Thus, parties might still find it easier to mediate their dispute as part of an arbitration proceeding where the success or failure of mediation will not affect the enforceability of the final award rendered by the arbitral tribunal.

The second factor is the NYC’s coverage. The NYC has been instrumental in promoting international trade and business, and in drawing the international legal world closer. The NYC has 160 signatories to date and is one of the most successful conventions ever. Thus, from the enforcement perspective, parties may still prefer a settlement award under the NYC than a settlement agreement under the Singapore Convention. Until such time that the Singapore Convention has an equal number of signatories (if not more) as the NYC, the latter may remain an attractive option for the parties to enforce their mediated agreements as settlement awards. As for now, existing hubs for international dispute settlement such as the UK, France, and Switzerland have not signed the convention. None of the EU member states have signed the Singapore Convention either. On the brighter side, some of the largest and fast-growing economies such as India, USA, China, and South Korea have signed the Singapore Convention which will encourage several others to sign and ratify the Singapore Convention.

The third factor is the parties’ ability to enforce an arbitration agreement under the NYC.  Singapore Convention does not allow enforcement of agreements to mediate. Thus, a party will have no protection under the Singapore Convention if an opposing party breached the agreement to mediate. The party wishing to enforce an agreement to mediate will have to resort to other protracted avenues to enforce the mediation agreement, just like any other contractual agreement. Therefore, parties may prefer entering into a hybrid arbitration agreement enforceable under the NYC and mediating within its framework instead.

The fourth factor is the lack of national laws on mediation. Ratifying the Singapore Convention would mean that the signatories also enact domestic laws to support the Singapore Convention. It is for this reason, the UNCITRAL Model Law mediation was recently adopted. It aims to guide the signatories to draft laws suited to their needs to support the Singapore Convention. Depending on each signatory’s legislative and administrative process, an exercise such as this across all the signatories will need time. The NYC, on the other hand, is already supported by tried and tested arbitration laws of its signatories, many of which have been amended several times to suit the framework of the NYC.

The fifth factor relates to soft law, protocols and institutional rules. The users of international arbitration complain that international arbitration has become complex, overtly procedural, time-consuming and expensive. They lament that it has become what it sought to address. While these criticisms are valid, it is also true that over the years international arbitration has streamlined across most jurisdictions and has become predictable. International arbitrations in Brazil proceed the same way as they would in Japan. International arbitration, for practical purposes, is no longer an “ADR” tool. It has become mainstream and is the “primary” mechanism for resolving international commercial disputes. While on one hand mediation under the Singapore Convention does hold the promise to be an effective “ADR” tool for resolving international commercial disputes, it is without the safety nets that the NYC affords. As an example, there is yet to be convergence on issues such as what constitute conflicts of interest for a mediator. Compare that to IBA Guidelines on Conflicts of Interest in International Arbitration which has been extensively used by the international arbitration community. Similar aspects of divergence on the conduct of mediation will surface as more settlement agreements are challenged in different jurisdictions (although this is unlikely, given the nature of mediation). Thus, it may be a perceived lack of safety net in adapting to something new that might bother large businesses to mediate their disputes under the Singapore Convention. They may want to wait and watch Singapore Convention’s functioning before including international mediation clauses independent of arbitration clauses in their contracts.

The sixth factor is the liberty of a signatory to limit the application of the Singapore Convention to itself and any of its agencies. So far two States, Iran and Belarus have made such reservations. The NYC does not allow such reservations. Several NYC enforcements emanate from arbitrations involving state agencies. Possibility of such reservations by signatories may hinder the wide and uniform application of the Singapore Convention. The implications would stand out if more signatories made such reservations.

The seventh factor is the possibility for the parties to opt-out of the Singapore Convention. The Singapore Convention states that enforcement of a settlement agreement may be refused if it is contrary to the terms of the settlement agreement. Thus, individual parties may agree to opt-out of the application of the Singapore Convention in their settlement agreement. While this may appear counter-intuitive, the possibility appears to exist.

Singapore Convention’s future looks bright despite the comfort that the NYC affords to the users. While the Singapore Convention seeks to emulate the NYC in the mediation space, it stands on a different pedestal. It comes at a time when international trade is peaking to new heights every day. The Singapore Convention will enter into force after its ratification by at least three signatories. Hopefully, it will be as successful as the NYC and play an important role in aiding the amicable settlement of international commercial disputes.

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Proposals at the UNCITRAL Working Group III for the Establishment of an Advisory Centre: A Possible Path to ISDS Reform?

Kluwer Arbitration Blog - Fri, 2019-08-30 01:00

Pablo Pérez-Salido

Introduction

There are parallel initiatives currently considering a potential reform of the international Investor-State Dispute Settlement (“ISDS”) system. Particularly, the work presently taking place at the United Nations Commission on International Trade Law (“UNCITRAL”) by its Working Group III (WGIII) is one of the forums that continues to attract attention as we get closer to its 38th Session scheduled for October 14, 2019, in Vienna, Austria (a detailed list of the WGIII’s public documents is available here). The progress at the WGIII has been previously addressed in this blog here and here.

To date, conversations at the WGIII continue to be government-led. In particular, amongst the different governments’ proposals submitted so far, several support the establishment of an advisory centre for investment disputes. Although the idea of an advisory centre is not entirely new,1)See e.g. the Advisory Centre on WTO Law; the UNASUR advisory centre project; and the ASEAN Forum initiative. jQuery("#footnote_plugin_tooltip_7842_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7842_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); it is certainly innovative in the context of ISDS. These submissions argue that an advisory centre is a crucial mechanism to solve issues related to access to legal aid, or lack thereof, by developing countries within the context of international treaty disputes. In essence, this reasoning is mainly motivated by the growing concerns around the costs and duration of ISDS proceedings in the existing system. In fact, this ISDS reform option appears to be a natural response by some national governments to the growing number of recent ISDS cases they are facing and to increasing budgetary constraints resulting from the 2008 financial crisis.

For these reasons, the establishment of an advisory centre could represent a significant opportunity to facilitate access to legal services and expertise necessary to better articulate an efficient defense in investment treaty disputes. However, there are numerous challenges connected to the establishment of such an advisory mechanism. For instance, ISDS is currently a decentralized system, and logistically it could be very difficult to create and, most importantly, finance an international advisory entity with global reach. These concerns are further discussed below in more detail.

 

The Working Group III’s Mandate

Since the summer of 2017, when the WGIII received its mandate2)Official Records of the General Assembly, Seventy-second Session, Supplement No. 17 (A/72/17), paras. 263 and 264. jQuery("#footnote_plugin_tooltip_7842_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7842_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); to identify issues regarding the existing ISDS system and assess whether its reform would be desirable, a total of four sessions have taken place with remarkable results. First, during the 37th Session held in New York in April of this year, numerous issues were identified, and classified under three main groups: (i) the lack of certainty and predictability of ISDS decisions; (ii) the lack of impartiality and independence of the party-appointed arbitrators; and (iii) the costs and duration of the proceedings (A/CN.9/970, para. 16). Subsequently, and in light of these concerns, consensus was ultimately reached by member States that ISDS reform was desirable. Since then, the WGIII has focused its efforts to narrow down the different reform proposals received and to establish a workplan to accomplish such reform.

To date, only the following governments have filed submissions with the WGIII: Indonesia, the EU and its Member States, Morocco, Thailand, Costa Rica, Brazil, Colombia, Turkey, Ecuador, South Africa, China, South Korea, Chile, Israel, and Japan.3)The Governments of Chile, Israel, and Japan submitted a join proposal (A/CN.9/WG.III/WP.163). jQuery("#footnote_plugin_tooltip_7842_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7842_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, it is expected that other delegations will file their submissions before October 2019. While some of the received proposals call for a ‘gradual’ reform, focusing first on resolving the most urgent deficiencies of the ISDS system (namely, third-party funding, code of ethics, dispute prevention mechanisms, and issues related to multiple proceedings), other proposals advocate instead for a more comprehensive ‘structural’ reform. As such, while a final workplan for reform is still being designed, the proposal for the establishment of an advisory centre appears to be compatible with these two predominant approaches for reform.

 

Proposals for the Establishment of an Advisory Centre

In preparation of the upcoming 38th Session, the WGIII published its Annotated Provisional Agenda and preparatory papers on a number of topics, including on the establishment of an advisory centre. Amongst the above-mentioned governments’ submissions, only six include a specific proposal for the establishment of such an advisory centre. Although each proposal offers a different approach to the scope of its services and potential beneficiaries, the rationale behind all of them is the same: the costs and duration of the ISDS proceedings in the current system create a burden on States that typically lack the financial muscle and/or the experience to efficiently handle this type of disputes (mainly, developing countries, but also SMEs and individual investors) (A/CN.9/WG.III/WP.168, para. 4). Consequently, an advisory centre could help developing States, at a low-cost, to better understand, manage, and defend themselves when facing investment disputes. Additionally, it could aid in the exchange of information and create better practices and protection standards for foreign investors.

For instance, Thailand advocates, inter alia, for the establishment of an Advisory Centre for International Investment Law (ACIIL), following the example of the Advisory Centre on WTO Law established in 2001 (A/CN.9/WG.III/WP.162, paras. 26 and 27). This ACIIL, it is argued, would serve a double purpose. First, it would provide States with legal advice before any investment dispute arises; and second, in the event of an existing dispute, it would then act as legal counsel. Further, Thailand suggests that this ACIIL could also help States to build their own institutional capacity and to develop a “Guideline on Dispute Prevention” (A/CN.9/WG.III/WP.162, para 25).

South Korea supports Thailand’s proposal and recognizes its merits. In its submission, South Korea shares its experiences in defending a series of recent ISDS cases and emphasizes the value of accumulated expertise, knowledge, and institutional capacity in both dispute-prevention and post-dispute regulatory efforts (A/CN.9/WG.III/WP.179, page 5, section 2). These factors, South Korea asserts, usually play a crucial role in an effective defense, especially during the early stages of the proceedings. Therefore, South Korea suggests that an advisory centre could allow States to benefit from a system of shared information and experiences between countries. Furthermore, South Korea argues that an advisory centre could also be a platform in charge of the creation and dissemination of new policy guidelines and educational materials on investment law, ultimately contributing to the prevention of investment disputes.

Turkey advocates for reducing costs and the duration of ISDS proceedings through, inter alia, the creation of a non-profit mechanism that would provide low-cost advocacy services to developing countries, SMEs, and individual investors alike. Costa Rica also includes the establishment of such an advisory centre on its list of priorities for ISDS reform. Similarly, Morocco supports the establishment of an aid mechanism for developing countries facing ISDS cases, and emphasizes that a low-cost advisory centre is the only way to enable such countries to better navigate proceedings and efficiently prepare their defenses in this type of disputes (A/CN.9/WG.III/WP.161, paras. 18 to 20). The EU and its Member States agree with this last proposition of a low-cost advisory centre, but further clarify that such mechanism may also work as part of the process of establishing a standing investment court with an appeal mechanism (A/CN.9/WG.III/WP.159/Add.1, para. 38).

 

Challenges to the establishment of an advisory mechanism

Despite the existing support by the aforementioned States, it is uncertain as to whether the establishment of an advisory centre is likely to gain the necessary support from other States in order to be considered a viable reform option. In this regard, some preliminary questions need to be clarified before this proposal can possibly move forward. For instance, who would be the beneficiaries of this hypothetical advisory centre? Would it be limited to developing countries and countries with little experience in defending ISDS cases? Or would it be more expansive and include all respondent States, regardless of their economic status or prior experience defending investment treaty disputes? Finally, as some submissions suggest (i.e. Turkey), could SMEs and individual investors also become beneficiaries of this advisory centre? Determining the list of beneficiaries is crucial because it will have a significant impact on the financial needs, geographical reach, and organizational structure of the advisory centre.

Once determined, it is also imperative to identify the true needs of such potential beneficiaries. Thus, what would be the scope of services provided by this advisory mechanism? For instance, would it only provide services in connection with investment disputes prevention? Or would it also offer active legal services and advocacy support once an investment dispute has arisen? Additionally, would the centre provide support to its beneficiaries in their institutional capacity-building efforts as well as for the development of best practices in investment law?

The response to these and other questions is crucial to evaluate the viability of the proposal. A broader set of services for a larger group of beneficiaries would proportionally impact the magnitude of the organizational structure of the advisory centre and, more importantly, the resources necessary for its financing.

Session 38th at UNCITRAL WGIII appears to be the best platform to discuss these proposals and facilitate consensus around the viability of establishing an advisory centre.

References   [ + ]

1. ↑ See e.g. the Advisory Centre on WTO Law; the UNASUR advisory centre project; and the ASEAN Forum initiative. 2. ↑ Official Records of the General Assembly, Seventy-second Session, Supplement No. 17 (A/72/17), paras. 263 and 264. 3. ↑ The Governments of Chile, Israel, and Japan submitted a join proposal (A/CN.9/WG.III/WP.163). 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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Would You Like to Write a Book – and Support the ABA?

ADR Prof Blog - Thu, 2019-08-29 10:06
Consider the benefits of writing a book.  Of course, there may be benefits to you personally, such as enhancing your reputation and advancing your career.  By writing a book, you have the opportunity to share your ideas with a larger and wider range of readers than with law review articles. There also are potential benefits … Continue reading Would You Like to Write a Book – and Support the ABA? →

The Invisible Arm of GDPR in International Treaty Arbitration: Can’t We Make It Go Away?

Kluwer Arbitration Blog - Thu, 2019-08-29 03:00

Emily Hay

Tribunal Directions re GDPR in Tennant Energy vs. Canada

A NAFTA tribunal in the Tennant Energy vs. Canada case recently issued directions by email to the parties stating that “the Tribunal finds that an arbitration under NAFTA Chapter 11, a treaty to which neither the European Union nor its Member States are party, does not, presumptively, come within the material scope of the GDPR”.

The tribunal had received submissions from the parties in which the claimant argued that EU General Data Protection Regulation 2016/679 (“GDPR”) should be taken into account and procedures developed to comply with it, since one of the tribunal members is based in the UK. Canada, on the other hand, argued that the GDPR does not generally govern the arbitration proceedings because, among other things, the claim was made under a treaty to which neither the EU nor its Member States are a party, and the arbitration is therefore outside of the material scope of the GDPR.

The tribunal appears to have accepted Canada’s argument that the entire arbitration proceedings fell outside of the material scope of the GDPR. This decision is premised on the fact that Tennant is a treaty-based arbitration. The finding is therefore not relevant to the application of GDPR in commercial arbitration, which has not been questioned.

 

GDPR: Can’t We Make It Go Away?

The GDPR came into effect on 25 May 2018. The GDPR’s obligations are onerous and the sanctions for non-compliance are strenuous. With the aim of ensuring the effective protection of personal data in a world of rapid technological change, the GDPR is a regulation with broad material and territorial scope of application. In international arbitration proceedings, where parties, counsel and tribunal members may be based in different jurisdictions, which may or may not coincide with the place of arbitration and law governing the parties’ relationship, the envisioned broad reach of the GDPR presents a particular conundrum. This is particularly the case when only one or some of the participants in an arbitration have a link with the EU.

In this context, the Tennant tribunal’s directions raise several interesting points about the application of GDPR to international arbitration proceedings, some of which are addressed below.

 

Territorial Scope of the GDPR

The Tennant tribunal concluded that “an arbitration under NAFTA Chapter 11” does not fall within the scope of GDPR since “neither the European Union nor its Member States” are a party to the treaty from which the tribunal derives its mandate. This finding is difficult to reconcile with the provisions on the territorial scope of the GDPR.

Provided the activity comes within the material scope of the regulation, the GDPR does not purport to regulate activities, but rather the actors that undertake such activities. The GDPR’s obligations attach to processing by data controllers and data processors “in the context of the activities of an establishment of a controller or a processor” in the EU (Article 3(1)) or where those outside the EU have targeted sales of goods or services to data subjects in the EU or monitored their behaviour inside the EU (Article 3(2)).

The GDPR therefore does not regulate any arbitration proceedings in the abstract, but it does regulate the processing activities of data controllers and processors that fall within its territorial and material scope. This was highlighted by Canada before the Tennant tribunal in response to the tribunal’s question as to “the applicability of the GDPR to the proceedings in question”. Canada stated that the question as to whether the parties, the arbitrators or the Permanent Court of Arbitration (“PCA”) which administers the dispute are subject to the GDPR “is a separate issue that they each bear the responsibility to determine independently” (Canada’s submission of 11 June 2019, p. 3). This highlights the point that data protection obligations attach to arbitrators, counsel, parties, and institutions across all of their cases, rather than being a set of rules attaching to a particular arbitration.

The question is what are the consequences for the arbitration proceedings when only one or some of the participants in the arbitration are subject to the GDPR. It may be that only one member of the tribunal, or counsel for one party, is a data controller under the GDPR. In that case, the data controller may have obligations under the GDPR even though they are the sole EU “connection” in the proceedings. There is no general exemption for arbitration that would relieve the data controller of its obligations, although there may be specific exemptions under the GDPR or national legislation that are relevant to particular aspects of arbitration proceedings. In practice, the fact that even one tribunal member, party, or counsel is subject to GDPR may potentially have implications for the other participants in the arbitration and the arbitration proceedings as a whole. Whether specific data protection arrangements should be put in place, as well as the nature of such arrangements, must be considered on a case-by-case basis.

 

The Material Scope of the GDPR

The Tennant tribunal held that an arbitration under NAFTA does not “presumptively” come within the material scope of the GDPR. While the tribunal’s communication does not reveal the details of its analysis, it seems to refer to Article 2 of the GDPR, entitled “Material scope”.

The material scope of the GDPR broadly includes all processing of personal data “wholly or partly by automated means” (Art. 2(1) GDPR). However, there are certain exclusions from this material scope, including processing of personal data “in the course of an activity which falls outside the scope of Union law” (Article 2(2)(a)).

Canada argued, and the tribunal appears to have agreed, that arbitrations based on treaties to which the EU is not a party are governed by rules that do not constitute Union law (in this case, NAFTA Chapter Eleven), and therefore fall outside the material scope of the GDPR under Article 2(2)(a).

The excluded subject matter would therefore be “all treaties to which the EU is not a party”. This proposed carve-out is difficult to square with the fact that Article 2(2)(a) GDPR is geared at the internal competence of the EU under the EU treaties, and with the broad application of the GDPR generally.

Article 2(2)(a) was intended to define the internal competence of the EU and its Member States, in particular with respect to national security. Recital 16 of the GDPR sheds some light on this. It states that “[t]his Regulation does not apply to issues of protection of fundamental rights and freedoms or the free flow of personal data related to activities which fall outside the scope of Union law, such as activities concerning national security”.

The specific subject matter of national security is one which “falls outside the scope of Union law”, in that it is not within the EU’s competence under the treaties between the EU and its Member States.

Indeed, in the draft text of GDPR proposed in 2012, the original wording of Article 2(2)(a) was an exclusion of processing “in the course of an activity which falls outside the scope of Union law, in particular concerning national security” (25.1.2012 COM(2012)11 final). This follows similar language in Article 2 of the previous Data Protection Directive 95/46/EC, which excluded a number of further subject matters as falling outside the scope of EU law.

The Explanatory Memorandum to the Irish Data Protection Act 2018 (Ireland’s national legislation implementing the GDPR) states that in light of the case-law of the Court of Justice of the European Union, the exclusion in Article 2.2(a) “appears to be limited in practice to data processing in the context of national security, defence and the international relations of the State” (p.4).

Recital 16 of the GDPR is non-exhaustive, in that it lists subject matters outside EU law “such as” national security. There is room for debate about which activities fall outside the scope of EU law. However, regardless of whether the subject matters excluded from the GDPR are limited to those identified in the Irish Explanatory Memorandum, the issue remains that Article 2(2)(a) is essentially a provision made for internal EU law.

 

International Organisations and Privileges and Immunities

A further issue that was the subject of the parties’ submissions in the Tennant case was whether the PCA is subject to the GDPR because of its status as an international organisation and whether the arbitrators benefited from privileges or immunities derived from the PCA’s Headquarters Agreement with the Netherlands. The Headquarters Agreement governs the PCA’s relationship with the Netherlands and grants certain immunities to “PCA Adjudicators” within the meaning of that Agreement. The issue of the status, and privileges and immunities, of international organisations and their consequences under data protection law (including for any obligations of arbitrators) is a complex one which is outside the scope of the present contribution. For present purposes, it suffices to say that the Tennant tribunal made no finding with respect to the privileges and immunities of the PCA.

 

Conclusion

As illustrated above, the reach of the GDPR can easily be both overestimated and underestimated. Because of the fact that it may appear to merely add complexity to arbitration proceedings, tribunals could be reluctant to recognise and accommodate the obligations arising from this regulation. However, with GDPR serving as a standard for updates to data protection regimes globally, and the growing centrality of data and its protection to doing business, data protection is here to stay. Along with issues of VAT compliance, sanctions, legal privilege, and the protection of sensitive commercial information, it is one more legal regime to factor into the constellation of international arbitration.

In recognition of the need to better understand the role of data protection in arbitration proceedings, ICCA and the IBA have established a Joint Task Force on Data Protection in International Arbitration Proceedings. The task force is developing much-needed guidance to assist arbitration professionals with their data protection obligations during arbitration proceedings, which is due to be issued for public comment later in the year.

 

Emily Hay is rapporteur to the ICCA-IBA Joint Task Force on Data Protection in International Arbitration Proceedings. The views expressed here are her own.

 

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The post Who Decides Who Decides? – The Turf War Continues appeared first on Marc J. Goldstein - Arbitration & Mediation.

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International Arbitration Blog - Wed, 2019-08-28 10:16
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