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Pearl River Delta Blues: Extradition and Hong Kong’s Position as Arbitral Seat

Kluwer Arbitration Blog - 7 hours 59 min ago

Alyssa King

After facing one of the largest protests in the city’s history on June 9, and then repeated protest and clashes with police last Wednesday, the Hong Kong government suspended efforts to pass its extradition bill. The bill would have required the city’s judges to extradite criminal suspects to Mainland China with minimal safeguards and facilitated asset seizure within the territory. Debate has been suspended, but the government promised to introduce a revised version. Today saw another massive march. The episode demonstrates the paradox at the heart of Hong Kong’s status as a legal center. This status depends on Hong Kong’s separation from the PRC legal system, even as its importance to the PRC may make such separation less tolerable to Beijing.

 

Greater Bay Area

Hong Kong is a particularly desirable seat for China-related arbitration. The city has a common law court system strongly influenced by English approaches to contract law. Its laws favor enforcement of agreements to arbitrate and of arbitral awards, and allow the courts to intervene in support of arbitration. Hong Kong has an agreement on award enforcement with the Mainland that resembles the New York Convention and has recently concluded a new agreement that will allow judges on both sides of the border to assist the arbitral process. Its lawyers are typically fluent in English, Cantonese (which means they can read documents in Chinese characters), and, increasingly, Mandarin. Beijing’s influence on the city’s politics, problematic from the perspective of many Hong Kongers, probably increases the comfort-level of Chinese state-owned enterprises. In short, Hong Kong is a convenient location that can cater to Chinese parties, including SOEs, with enough English law influences not to put foreigners off.

Mainland Chinese arbitration providers, such as the China International Economic and Trade Arbitration Center (CIETAC) and Shenzhen Court of International Arbitration (SCIA), have sought to capitalize on Hong Kong’s status. CIETAC, originally China’s only international arbitration provider, remains a leading organization. The SCIA is more of an upstart, having once been a CIETAC office that declared its independence in 2012. The SCIA’s investment rules make Hong Kong the default seat and its arbitrator list includes Hong Kong practitioners, who are conveniently close to Shenzhen. Not to be outdone, CIETAC opened a Hong Kong office in Fall 2012. The smaller China Maritime Arbitration Commission did so in 2014.

Both the local and central governments have promoted the city as a center for arbitration as part of a Greater Bay Area in the Pearl River Delta. Such a status may drive a perceived need for legal integration—and measures like the extradition bill.

 

Neutrality in Question

The extradition bill, however, undercut an important part of Hong Kong’s desirability. Hong Kong maintains its own immigration system and criminal courts. Within the PRC, parties have been known to try to get the local police to file criminal charges in business disputes, and the local police have been known to oblige. A contract interpretation matter that should be arbitrated suddenly also becomes criminal fraud—the suspect’s passport seized until the charges are dropped. The standard advice to parties outside of the PRC is don’t go to Mainland China for the duration of the dispute and don’t send your employees there. By contrast, Hong Kong has been neutral ground. Parties and witnesses can travel to an arbitration in Hong Kong without fear. Bankers and accountants know there will be limits to any criminal liability.

It is perhaps for this reason that the Hong Kong chapter of the International Chamber of Commerce came out against the extradition bill, adding its voice to the American Chamber of Commerce, governments, a large array of NGOs, the Hong Kong Bar Association, and even private businesses.1)Thank you to Susan Finder for alerting me to this letter. jQuery("#footnote_plugin_tooltip_5798_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5798_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The ICC has a Hong Kong office in part to court Mainland Chinese customers—so its intervention was unusual to say the least. The ICC’s letter to the Hong Kong Legislative Council covered the same ground as many others—pointing out that investors choose Hong Kong for their business and related dispute resolution, in part, because it meets “international standards in terms of protecting personal safety and ownership of property” and that “people” might “reconsider” this choice if “there is risk of their being removed to another jurisdiction which does not provide the protection they enjoy in Hong Kong”. [para 4] It also pointed out the PRC Central Government’s reliance on Hong Kong as part of the Belt and Road Initiative and its plans for a greater Pearl River Delta development area. It noted that “the government has worked to promote Hong Kong to be the seat of legal and dispute resolution services on the basis of Hong Kong’s rule of law widely known internationally”. [para 7]

If Hong Kong becomes a less desirable seat, more dispute resolution business may move to Singapore. Only about an hour by plane from Hong Kong, Singapore also boasts a common law legal system, favorable legislation, and lawyers who speak English and Mandarin. Parties may also choose Seoul, which is actively making a bid for regional business and could offer less political risk. Even if businesses constructively seat the arbitrations in Hong Kong but hold the arbitrations elsewhere, the city stands to lose out on the money that having people physically in the jurisdiction brings.

 

Trouble on the Belt and Road?

The PRC stands to lose as well. Through initiatives like the Greater Bay Area dispute resolution hub and China International Commercial Court (ably chronicled by Susan Finder), PRC policy-makers are seeking to influence the development of global civil procedure norms. When arbitration business moves out of Chinese territory and away from Chinese arbitration providers, the PRC loses an important avenue to do so.

The extradition bill now hangs over the city like a suspended sentence. Should hardliners feel they are losing too much control—they can revive it again. Next time, other measures may have eroded the citizenry’s ability to protest. A letter from the ICC is not going to be enough.

References   [ + ]

1. ↑ Thank you to Susan Finder for alerting me to this letter. 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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Latin American States, International Arbitration and Trade in Investment Agreements: Quo Vadis?

Kluwer Arbitration Blog - Sat, 2019-06-15 19:05

Belén Olmos Giupponi

International trade and investment arbitration in Latin America has come a long way over the last two decades as discussed in the book Trade Agreements, Investment Protection and Dispute Settlement in Latin America.  More recently, new generation trade and investment agreements entered into by Latin American states have progressively included innovative dispute resolution mechanisms, shaping a new era for international arbitration.

Latin American states have been gradually deploying international arbitration to settle trade and investment disputes. However, this evolution has not been linear as international arbitration has also stirred controversy in the region. In particular, international investment law has proved to be of significant concern for some countries in the region, which have faced (and still face) claims before international arbitration tribunals. In the trade arena, Latin American states are increasing their participation in the World Trade Organization (WTO) dispute settlement system, with some states becoming figureheads in trade dispute resolution, such as Brazil, Argentina and Mexico. The rest of the states have followed their footsteps, albeit with fewer cases. This has led to a further intertwining relationship between the trade and investment realms in treaty provisions (particularly TRIMs and trade in services chapters), which can also be seen in cases such as soft drinks/corn syrup.

Clearly, there has not been one single approach to international arbitration in the investment and trade agreements concluded with both regional and extra-regional partners. Hence, more than one stance on international arbitration can be observed. In the 1990s, Mexico led the way for change when it signed NAFTA, one of the first treaties comprising both trade and investment arbitration provisions. Central American countries have turned out to be a laboratory for new treaty models, as the agreement with the European Union and,  CAFTA-DR with the US and Canada, were negotiated in parallel. In South America, however, there seems to be a split in regard to the various trade and investment agreements. Whereas the FTAs signed with the US favoured the settlement of disputes through traditional mechanisms, those concluded with EU parties incorporate other alternative means. Three South American states have denounced the ICSID Convention. In turn, MERCOSUR has developed its own model of arbitration for intra and extra regional agreement disputes, while it is negotiating a new treaty with the EU.

 

Seeking to Speak With a Single Voice?

It is not just a stereotype to assert that “Latin America is not a country.” There are almost as many approaches to international dispute resolution as countries in the region, which has led to various dispute resolution mechanisms designed in international treaties regulating foreign investment.

Certainly, there is no single model of international investment treaty, but rather clusters of different agreements ranging from the classic BIT, to new-generation international trade and investment agreements, to International Investment Agreements (IIAs) concluded in various stages since the 1990s. An overview of these different investment agreements may be helpful to better grasp the complexity of the current landscape. Some regional integration agreements regulate intra and extra regional investments, such as the Intra-Mercosur Investment Facilitation Protocol (MERCOSUR Protocol) or the Central American Agreement on Investments and Trade in Services. Extra-regional trade and investment treaties, such as those signed between Latin American states and the EU and the US, have incorporated the traditional investor-state dispute resolution clause in favour of ICSID arbitration, or ad-hoc arbitration under the UNCITRAL Rules, along with chapters on arbitration of trade disputes and international commercial arbitration favouring out-of-court dispute settlement between businesses.

In terms of the impact of foreign investment policies on IIAs in Latin America, from the NAFTA model to the United States, Mexico and Canada Agreement (USMCA), considerable modifications have been introduced to dispute settlement mechanisms regulated therein. In addition to the US, the EU has been actively promoting its model and the reform of the global ISDS system. In contrast, while China’s investments have grown in the region, the same 1990 BIT model is still in force in most Latin American countries, with some exceptions (like Costa Rica and Mexico).

 

Re-shuffling and Re-defining the Roles

Over the first two decades of this century, Latin American countries have performed in a considerable variety of ways in the field of international arbitration. So far, Latin America states have appeared most of the time as respondents in the ISDS system. Deviation from the global ISDS occurred when Bolivia (2007) and, subsequently, Ecuador (2009) and Venezuela (2012) denounced the ICSID Convention. Argentina, for a long time in the spotlight of international investment arbitration, came to terms with ISDS by settling some of the high-profile investment arbitrations arising out of the 2001 economic crisis.  Mexico joined the ICSID Convention last year, on July 27, 2018, marking a new turn in the region. Colombia has recently appeared as a respondent before ICSID: see, for instance, Eco Oro Minerals Corp. v. Republic of Colombia, ICSID Case No. ARB/16/41.

In turn, Brazil has led a new path in understanding international investment arbitration. Still consistent with its traditional slant on IIAs (signature but no-ratification of treaties), Brazil has moved on to take up an active role in the redefinition of international investment arbitration. The Brazilian BIT, created through the adoption of the Cooperation and Facilitation Investment Agreements (CFIA), has been incorporated into the Intra-Mercosur Investment Facilitation Protocol, highlighting some peculiarities concerning the regulation of foreign investment.

While ICSID continues to be predominantly the forum for the settlement of investor-state disputes, the PCA has emerged as another setting for international investment arbitration under UNCITRAL Arbitration Rules (2013).

Other recent developments consist of the increasing participation of Latin American states in mega-regionals such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP); and the launch of new initiatives, like the Pacific Alliance, also incorporating dispute settlement mechanisms.

 

Keeping Up With New Trends in International Arbitration

Overall, Latin American states have contributed to new waves or paradigms in international arbitration which can be observed in a wide range of areas. Emphasis on conflict prevention and the reliance on other ADR methods are addressed in more recent agreements (e.g. some treaties provide for international conciliation and mediation). For instance, institutional dialogue and cooperation mechanisms are set forth in the MERCOSUR Protocol focusing on conflict prevention. The Protocol foresees the creation of a National Focal Point or Ombudsman in each Member State tasked with the responsibility of providing support to foreign investors. Additionally, there is a procedure for dispute resolution between states to be implemented by the Administrative Commission of the Protocol in intra-regional investment.

Despite the struggles and heated debates over international investment arbitration, state practice shows that Latin American states are becoming more active in the proceedings, by challenging the awards and even suing the foreign investor.

In terms of its contribution to International Arbitration 2.0 (a more flexible and efficient system), the enforcement of arbitral awards still remains controversial in some countries. International conflict prevention and resolution mechanisms bring legal certainty; however, this is thwarted if no effective enforcement is granted in domestic jurisdiction.

Other aspects that deserve mention are those related to due diligence and obligations on the part of the foreign investor. The Brazilian CFIA model embodies obligations for foreign investors. Recent cases like Álvarez y Marín Corporación S.A. and others v. Republic of Panama, ICSID Case No. ARB/15/14, have unveiled the relevance of the due diligence that must be exercised by foreign investor and state behaviour when an illegal investment is made.

Some Latin American states are engaging with the proposals for the establishment of an international investment court, having a say in the reform of the world investment system.

The enforcement of norms and the operation of the institutional settings remain key to articulating an efficient system. New initiatives which have been launched, such as the proposed UNASUR Centre for the Settlement of Investment Disputes, did not offer a thick institutional framework. Despite never being implemented, it revealed states’ approaches to international arbitration with the introduction of specific procedural norms. Other initiatives, like Prosur (Forum for the Progress and Development of South America), are rather more a political statement of purpose concerning regional integration and development.

 

Conclusion: What Lies Ahead for Latin America in International Arbitration?

Latin American states are contributing in various ways to the development of international arbitration by bringing new approaches to international dispute settlement and taking their own stance on crucial legal aspects. Although there is a distinctive regional approach, as discussed before, it is segmented.

Whether a new distinctive take on trade and investment dispute settlement develops further will depend on the evolution of the international agreements. The consolidation of positions in a particularly dynamic scenario for trade and investment remains key to Latin American countries.

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With Rights Come Responsibilities: Sustainable Development and Gender Empowerment under the 2019 Netherlands Model BIT

Kluwer Arbitration Blog - Fri, 2019-06-14 23:21

Kabir A.N. Duggal and Laurens H. van de Ven

On 22 March 2019, the Netherlands published its new model BIT (“2019 Dutch Model BIT”). The new model text may well set the scene for a new generation of investment treaties, paving the way with progressive rules on sustainable development and gender empowerment.

The 2019 Dutch Model BIT is a refined version of the initial draft that the Dutch Ministry of Foreign Affairs published on 16 May 2018. This initial draft was subject to public consultation. Based on this input, the Ministry amended the draft. The amended draft was discussed in parliament, pursuant to which further changes, including on women empowerment, were included in the 2019 Dutch Model BIT.

Traditionally, Dutch policy toward investment treaty protection has concentrated on protecting investors’ interests.1)Nico Schrijver, Vid Prislan ‘The Netherlands’ in Chester Brown (ed) Commentaries on Selected Model Investment Treaties (OUP 2013), p. 540; Minister’s Policy Note “Wat de wereld verdient: een nieuwe agenda voor hulp, handel en investeringen” (5 April 2013), p. 36. jQuery("#footnote_plugin_tooltip_9756_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9756_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, since the last Model BIT, which dates from 2004, the public opinion on investor-state arbitration has changed considerably, also in the Netherlands. There have been heated debates on ISDS, regulatory space and mailbox companies that have affected the general stance towards investment treaties.

The 2019 Dutch Model BIT thus incorporates a growing accord that investment is no longer a mere binary relationship between the foreign investor and the host state, but that it is also concerned with many other stakeholders. Both foreign investors and states must account for the wider impact of any projected investments, and take account of negative externalities which investments may bring before, during and after investing. Article 7(3) 2019 Dutch Model BIT outlines this by imposing a duty on the investor to consider the wider impact of the projected investment:

The Contracting parties reaffirm the importance of investors conducting a due diligence process to identify, prevent, mitigate and account for environmental and social risks and impacts of its investment”.

Article 6 of the 2019 Dutch Model BIT (entitled “Sustainable Development”) contains the parties’ obligation to promote and sustain investments that contribute to sustainable development and “encourage high levels of environmental and labor protection and shall strive to continue to improve those laws and policies”.

The 2019 Dutch Model BIT also refers to or incorporates various other international treaties. For example, the 2019 Dutch Model BIT refers to and affirms the G20 Guiding Principles for Global Investment Policymaking (Article 3(3)), the Paris Agreement, the fundamental ILO Conventions, and the Universal Declaration of Human Rights (Article 6(6)), as well as international standards on corporate social responsibility, including the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights and Recommendation CM/REC(206) (Articles 7(2), (5)). Further, the 2019 Dutch Model BIT attempts to put some teeth into this obligation to adhere to standards of corporate social responsibility. Under Article 23, a tribunal is “expected to” take into account non-compliance by the investor of its commitments under the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.2)The UN Working Group on Business and Human Rights has launched a thematic project to “unpack the gender dimension of the [UN Guiding Principles on Business and Human Rights].” See here. If concrete gender-related postulations are identified and connected to the UN Guiding Principles on Business and Human Rights in the future, a failure to meet such gender-related standards by investors could possibly be considered under Article 23 of the 2019 Dutch Model BIT. jQuery("#footnote_plugin_tooltip_9756_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9756_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Next to sustainable development, gender diversity is given more and more attention. Gender diversity was held to be one of ten hot topics in 2018 at the Kluwer Arbitration Blog. This debate, however, often focusses on gender equality in arbitral dispute resolution, specifically the gender division among arbitrators and counsel. The effect of investment treaties on gender equality, and the possibilities investment treaties can bring to empower women’s economic participation, are notions that thus far have gained little concrete foothold in investment treaties. This aspect of the gender discussion is better developed in international forums. According to Goal 5.a of the UN Sustainable Development Goals, UN States shall “undertake reforms to give women equal rights to economic resources, as well as access to ownership and control over land and other forms of property, financial services, inheritance and natural resources, in accordance with national laws”. Further, 118 WTO Members signed the Buenos Aires Joint Declaration on Trade and Women’s Economic Empowerment in 2017, which is poised to catalyse gender focussed multilateral trade policy.

The gender-related provisions in the 2019 Dutch Model BIT are therefore all the more interesting. Article 6(3) 2019 Dutch Model BIT provides:

The Contracting Parties emphasize the important contribution by women to economic growth through their participation in economic activity, including in international investment. They acknowledge the importance of incorporating a gender perspective into the promotion of inclusive economic growth. This includes removing barriers to women’s participation in the economy and the key role that gender-responsive policies play in achieving sustainable development. The Contracting Parties commit to promote equal opportunities and participation for women and men in the economy. Where beneficial, the Contracting Parties shall carry out cooperation activities to improve the participation of women in the economy, including in international investment”.

These provisions make clear that under the 2019 Dutch Model BIT, it no longer suffices for states to merely sit back and steer away from measures that impact foreign investments, but that they have an active duty to empower women to partake in the opportunities of foreign investment. States can no longer ignore women as important stakeholders in international investments.

Further, gender-based discrimination is expressly qualified as a “wrongful ground” that constitutes a breach of fair and equitable treatment under Article 9(2) 2019 Dutch Model BIT. Such discrimination could regard both natural as legal persons, and should prevent unequal treatment based on gender. However, challenging adherence to and enforcement of these gender-related obligations may prove in practice, the incorporation of gender-equalizing standards is a welcome development.

Gender-related considerations in investment treaties are a rare breed, especially as treaty provisions and not merely as preambular language. They can, however, be found in some trade agreements with investment chapters. The 2019 amendment to the Canada-Chile Free Trade Agreement (CCFTA) includes a stand-alone chapter on trade and gender, which lays down numerous commitments on Canada and Chile to promote gender equality and the inclusion of women on economic growth. It provides for cooperation activities between the two countries on this subject, and set up a Trade and Gender Committee to further that process. Nonetheless, none of these commitments are enforceable under the dispute resolution mechanism of the CCFTA pursuant to Article N bis-06.

Similarly, a gender-related provision was introduced by the 2018 amendment to the Canada-Israel Free Trade Agreement. Section 4 lists that one of the treaty’s objectives is to

promote gender equality and encourage women’s economic empowerment and the use of voluntary corporate social responsibility standards and principles, as well as promote access for small and medium-sized enterprises to the opportunities created by the Agreement”.

 A third example is the Chile-Uruguay Free Trade Agreement, which in Article 14 contains elaborate gender-related rules on gender empowerment, gender equality and cooperation activities between the two countries in this area.

The 2019 Dutch Model BIT may, therefore, be seen as taking a concrete step to further to introduce tools improving women’s empowerment in treaty-governed international investment. Together with its provisions on sustainable development, the 2019 Dutch Model BIT thus fosters a more equitable and inclusive investment regime that looks beyond the narrow, binary relationship between that of foreign investor and state. This is undoubtedly a positive development and the authors hope that subsequent treaties incorporate and build upon such obligations.

 

The views expressed herein are personal and do not reflect the views of Arnold & Porter or De Brauw Blackstone Westbroek and their clients. The authors reserve the right to change the positions stated herein.

References   [ + ]

1. ↑ Nico Schrijver, Vid Prislan ‘The Netherlands’ in Chester Brown (ed) Commentaries on Selected Model Investment Treaties (OUP 2013), p. 540; Minister’s Policy Note “Wat de wereld verdient: een nieuwe agenda voor hulp, handel en investeringen” (5 April 2013), p. 36. 2. ↑ The UN Working Group on Business and Human Rights has launched a thematic project to “unpack the gender dimension of the [UN Guiding Principles on Business and Human Rights].” See here. If concrete gender-related postulations are identified and connected to the UN Guiding Principles on Business and Human Rights in the future, a failure to meet such gender-related standards by investors could possibly be considered under Article 23 of the 2019 Dutch Model BIT. 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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11th Annual Securities Dispute Resolution Triathlon

ADR Prof Blog - Fri, 2019-06-14 17:07
From FFOI Elayne Greenberg: The Hugh L. Carey Center for Dispute Resolution at St. John’s School of Law and the Financial Industry Regulatory Authority (FINRA) invite you to participate in the eleventh annual Securities Dispute Resolution Triathlon, a competition of competence in the dispute resolution field. The Triathlon is the first and only competition to include negotiation, … Continue reading 11th Annual Securities Dispute Resolution Triathlon →

Pre-deposit Clauses in an Arbitration Agreement: Are Arbitration Agreements Justiciable?  

Kluwer Arbitration Blog - Thu, 2019-06-13 19:04

Lakshya Gupta

The Indian Supreme Court recently in M/s Icomm Tele Ltd. vs. Punjab State Water Supply & Sewerage Board,  (“Icomm”), struck down a clause in an arbitration agreement as unconstitutional. The clause mandated a pre-deposit of 10% of the amount claimed in the arbitration proceeding. The Court found this clause to be arbitrary and resulting in a discouragement to arbitrate. While giving the judgment, the Court relied on the importance of alternative dispute mechanisms and the need to de-clog the court machinery. However, the judgment seems to raise more issues than it answers by extending the power of judicial review of courts to private agreements. It also brings to light the dichotomy of the Court to put a higher standard whenever the State is impleaded as a party. While, this may be necessary for social justice, it is interesting when similar principles are not extended to private parties.

 

The judgment in Icomm

The decision in Icomm was the result of an appeal to a writ petition filed in the Punjab and Haryana (P&H) High Court. The petitioner company had been awarded a tender for various civil/electrical works in the country by the respondent. Clause 25 of the notice inviting tender contained an arbitration clause which required a 10% of the amount claimed as pre-deposit to avoid “frivolous” claims. The clause also stated that in the event of a favourable award, the deposit will be refunded to him in an amount proportionate to the amount awarded, and the balance, if any, will be forfeited and paid to the other party. The petitioner claimed that this was arbitrary and opposed to public policy. However, the High Court refused to go into the merits of this contention and dismissed the writ. It stated that this was in nature of a private contract which was an open agreement and freely consented to by both the parties.

The Supreme Court on appeal overruled this judgement and accepted the contention of the petitioner. It stated that contracts of tender are justiciable since there is an element of public policy involved. What is interesting to note is that the precedents cited by the Court to support this power of judicial review all tested the procedure of awarding. The scope of judicial review is limited to the check of any bias inherent in the performance of administrative functions as understood in Tata Cellular vs. UOI , (“Tata”), which is cited by both the courts. The Supreme Court relied on this case but unlike the High Court, did not divulge into the application of the principles of Tata in later cases.

The High Court discussed this case in detail and distinguished the application of the principle given from the facts of the case at hand. For instance, in Raunaq International vs. IVR Construction Ltd., (Raunaq)the presence of any direct or indirect harm to the public (in the form of say undue delay in the construction of public utilities) was recognized as the core concern. The Wednesbury principle of unreasonableness was also considered to test arbitrariness wherever such harm was present. Jagdish Mandal vs. State of Orissa, applied and further explained the principles given in Raunaq. The Court here stated that the scope of judicial review in commercial transactions is very limited and the principles of equity and natural justice stay at arm’s length. But even these cases only questioned the fairness of procedure of grant of tenders and not any arbitration clause in their agreement.

The Supreme Court did accept that the review of private contracts is limited when it denied the petitioner’s contention that the notice was a contract of adhesion. In saying this, it held that imbalance of power cannot be claimed in commercial transactions. But, the specific nature of this clause, especially the part which allowed forfeiture of deposit by the party against whom an award had been passed, compelled the Court to hold clause 25 to be violative of Article 14 of the constitution. The Supreme Court distinguished the present case from S.K. Jain vs. State of Haryana (P&H HC), (“SK Jain”), in which a similar pre-deposit clause was challenged but was  held to be valid.

The clause in SK Jain was valid and distinguishable on two grounds – the amount deposit in terms of percentage chargeable increased with the increase in the quantum involved and there was no forfeiture. The pre-deposit was thus considered logical in light of being the balancing factor to prevent frivolous and inflated claims. In the present case the Court did not find any such nexus with frivolousness. This was because the clause required a 10% pre-deposit of the amount claimed in every instance of arbitration, no matter if the claim was genuine. The Court also opined that the courts, and by implication the arbitrator, can always dismiss frivolous claims with exemplary costs. There was no need for a party to have such pre-deposit clauses in their contract.

According to the Court, “Deterring a party to an arbitration from invoking this alternative dispute resolution process by a pre-deposit of 10% would discourage arbitration, contrary to the object of de-clogging the Court system and would render the arbitral process ineffective and expensive”.

 

The doctrine of freedom of contract vis-à-vis government contracts

This is not the first time that the Court has made special concessions to impose a higher degree of public interest in arbitration proceedings where the State is involved. In Datar Switchgears Ltd. vs. Tata Finance Ltd. (2000), (“Datar”), the Supreme Court held a clause which allowed one party to single-handedly choose the arbitrator is the event of a dispute to be valid. This was because of the doctrine of freedom of contract which gave complete discretion to the parties to choose their own terms. This has been upheld in several other cases involving two private parties.

The situation is slightly different when the State is involved. In Voestalpine Schienen GmbH vs. DMRC Ltd., the Court questioned a clause which allowed DMRC to choose a pool of arbitrators from which the other party could proceed to appoint one. It opined on the necessity of independent and impartial arbitrators in an arbitration process and discussed the importance of neutrality of arbitrators as set out in Section 12(3) of the Arbitration and Conciliation Act, 1996 (A&C Act). It also discussed the application of the provision in relation to contracts with State entities and how the balance between procedural fairness and the binding nature of contracts has been titled in favour of the former.

But the court did not invalidate the clause, nor did it extend the interpretation of section 12. It merely stated that there was a need to have a healthier and fairer environment for arbitration and send positive signals to the international business community. It categorically stated that the duty to do so is higher when one of the parties is the government. The case also stated that the theory of forfeiture in Datar is still binding precedent but failed to discuss the implications of freedom of contract where an instrumentality of the State is involved.

 

Conclusion

It is difficult to state that the judgment lays down a clear ratio with respect to the justiciability of arbitration agreements. It is simply restricted to the special facts of the case. Since SK Jain was distinguished and not overruled, thus, pre-deposit clauses are by themselves not banned. What the judgement reflects is the anxiety of the Judiciary to encourage ADR mechanisms in the country and try to keep up in pace with the international pressure to make the country more arbitration-friendly. However, it is not uncommon to see such arbitrary clauses as seen in Icomm, in private contracts. Unlike what the Court might want to believe, there is often a power imbalance which is exploited by the party making the contract. What will be interesting to see is how such an approach could help pierce the domain of arbitrary clauses between two private entities. Perhaps, the Court could test such an agreement via section 23 of the Indian Contract Act which declares contracts against public policy as void. But even this section is attracted when the object of the agreement is against public policy. If it can be used when only one clause in the agreement is questioned only time will tell.

 

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Register Now for the WIP

ADR Prof Blog - Thu, 2019-06-13 12:44
From FOI Lydia Nussbaum (UNLV): Join us for the 13th Annual AALS ADR Section Works-in-Progress Conference in Las Vegas, NV! The conference takes place from October 3-5, 2019, at the UNLV William S. Boyd School of Law & the Saltman Center for Conflict Resolution. Click here for the conference website and registration information. Important Dates … Continue reading Register Now for the WIP →

The Contents of the Brazilian Arbitration Journal, Volume XVI, Issue 61 (March 2019)

Kluwer Arbitration Blog - Wed, 2019-06-12 23:10

João Bosco Lee

In its 61th edition, the Revista Brasileira de Arbitragem [Brazilian Arbitration Journal] presents articles on four different themes. Firstly, Fabiane Verçosa comments on the possibility of submitting individual labor disputes to arbitration in the context of the reform of the Brazilian Labor Code and the rumors about the extinction of specialized Labor Courts. Afterwards, Ronaldo Vasconcelos, César Augusto Martins Carnaúba, and Thais D’Angelo da Silva Hanesaka analyze the possibility of resorting to third-party funding in arbitrations related to bankruptcy and judicial reorganization proceedings. On his turn, José Victor Palazzi Zakia deals with the issue of how arbitral tribunals can and should act when faced with corruption issues. Finally, Pedro Silveira Campos Soares comments on the advance on arbitration costs and the consequences of the non-payment.

In the International Doctrine section, Rory V. Wheeler analyzes the recent approach taken by the Paris Court of Appeal when controlling the conformity of an international arbitral with international public policy, as defined by the French courts, in the context of recognition or enforcement proceedings.

The National Case Law section presents comments by Gustavo Santos Kulesza and Thais Vieira de Souza Pereira on the recent decision rendered by the Brazilian Superior Court of Justice putting an end to the well-known case Paranapanema S/A v. Banco Santander Brasil S/A, where the Court ruled on the objective extension of the arbitration agreement.

In the International Judicial Case Law section, Rômulo Greff Mariani comments on a decision rendered by the Rotterdam District Court on the use of arbitration in the collective action brought by investors against Petrobras due to alleged bribery schemes.

In the General Matters section, commentators bring to our knowledge the highlights of the III Oxford Symposium on Comparative International Commercial Arbitration held in Cambridge on 18 November 2018 (by Ana Gerdau de Borja Mercereau and Ana Carolina Dall’Agnol), the 95th edition of the Summer Course on Private International Law of the Hague Academy of International Law, which took place between 30 July and 17 August 2018 (by Fernanda Bauer, Ana Carolina Beneti, Isabela Lacreta, Bruno Barreto de Azevedo Teixeira and Thiago Del Pozzo Zanelato), and the reform of the Swiss Federal Act on Private International Law, and specifically its 12th chapter, which deals with international arbitrations seated in Switzerland (by Caroline dos Santos).

Lastly, the present edition contains reviews of the following books: Won L. Kidane’s “The Culture of International Arbitration” (by Juliana Gil Felippe); Eckart J. Brödermann’s “Unidroit Principles of International Commercial Contracts: an Article-by-Article Commentary” (by Lauro Gama Jr.); and José Antonio Fichtner, Sergio Nelson Mannheimer, and André Luís Monteiro’s “Teoria Geral da Arbitragem” (by Eleonora Coelho).

Boa leitura arbitral!

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Chinese Court Recognizes and Enforces a KCAB Award: A Closer Look at the Jurisdictional Decision

Kluwer Arbitration Blog - Tue, 2019-06-11 18:30

Sue Hyun Lim

Introduction

In March 2019 China’s Tianjin 1st Intermediate Court (“Tianjin Court”) rendered a decision dated 4 March 2019 (2018 Jin-01-Xie-Wai-Ren No. 1), granting an application for recognition and enforcement of a foreign arbitral award rendered by a sole arbitrator under the rules of the Korean Commercial Arbitration Board (“KCAB”).

The decision reflects an increasing trend of Chinese courts enforcing foreign arbitral awards. It is also noteworthy in that the Tianjin Court firmly rejected the award debtor’s attempt to resist enforcement based on the imprecise drafting of the underlying arbitration agreement and by reference to Articles V.1(a) and V.1(d) of the New York Convention. In doing so, the court accepted that Korean law was relevant to determine this issue as the law of the seat.

 

Nature of the Dispute

The underlying dispute was between a Korean food and beverage enterprise specialized in Korean-style fried chicken (“Rich Foods Co., Ltd”) as the Claimant and a Chinese national individual (“Yuan Chunqiu”) as the Respondent (i.e., the award debtor) under a master franchise agreement (“Franchise Agreement”).

Under the Franchise Agreement, the Respondent had the right to use the brand name of “Chir Chir Chicken” when operating a chain of fried-chicken restaurants in the city of Tianjin, China.

However, the Respondent opened further stores outside of Tianjin and failed to pay royalties. In the arbitration, the Claimant sought payment franchise fees, royalties and reputational damages.

 

The Arbitration Clause in Question

Article 19(2) of the Franchise Agreement stipulated that:

In event of a dispute, disagreement, objection or breach of contract related to this contract, the parties may resolve [the dispute, disagreement, objection or breach] through friendly negotiation. If the negotiation fails, final resolution will be through arbitration at the Korean Trade Arbitration Commission which is based on the laws of the Republic of Korea”.  (Author’s note: translated into English from the original Korean)

The contentious part of the clause was the part in bold, in particular what the parties meant by “Korean Trade Arbitration Commission” and by  “based on the laws of the Republic of Korea” and whether the clause was defective to the extent that there was no agreement to refer the relevant disputes to arbitration at the KCAB, which is the arbitral institution where Claimant commenced proceedings.

 

Respondent’s Jurisdictional Objections

In the arbitral proceedings, the Respondent raised a jurisdictional objection and argued that as a matter of Korean law the arbitration agreement was null and void because:

  • First, the reference to “Korean Trade Arbitration Commission” was clearly not a reference to the KCAB.
  • Second, the arbitration agreement provided for an institution which was established based on Korean law, but no direct legislation in Korea mandates the creation of the KCAB.

 

KCAB Tribunal’s Ruling on the Jurisdictional Objections

The KCAB tribunal (“Tribunal”), as part of the arbitral award, addressed the jurisdictional objection and found that the arbitration agreement was valid and binding on the parties.

In relation to the relevant institution and rules:

  • The Tribunal found that at the very least the parties intended to refer their disputes to some sort of institutional arbitration within Korea.
  • Although the Tribunal recognized that the expression “Korean Trade Arbitration Commission” was ambiguous, it ruled that the ambiguity itself did not amount to indicating a sham or fictitious arbitral institution. On the contrary, considering that the only Korean institution that realistically provided an effective dispute resolution process is the KCAB, it is only reasonable to conclude that the arbitration agreement was drafted with KCAB arbitration in mind.

Regarding the Respondent’s argument that there is no explicit law in Korea that directly mandates the establishment of KCAB:

  • The Tribunal reasoned that KCAB was established in accordance with the Korean Civil Code and receives government support through the Korean Arbitration Act, both of which serve as either direct or indirect legal grounds for KCAB’s existence.
  • It also noted that Respondent did not offer any evidence that the parties had considered another arbitration institution in Korea besides KCAB.

More generally, the Tribunal noted that the prevalent principle of interpretation applied by the Korean courts is to give valid effect to the arbitration agreement and that this was the case even where it suffers from the lack of specifics on the institution, the governing law or the seat of arbitration (e.g., Supreme Court decision dated 31 May 2007, 2005 Da 74344).1)Decision available in Korean here and in English here (see publication titled “2005-2009 Arbitration Related Decisions of the Korean Courts”). jQuery("#footnote_plugin_tooltip_1070_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1070_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Alongside dismissing the jurisdictional objection, the final award on the merits was rendered in favor of Claimant.

 

The Tianjin Court Judgment

The Claimant then sought to enforce the monetary award in Tianjin. The Respondent resisted enforcement before the Tianjin Court on the basis that the arbitral award was in violation of Articles V.1(a) and V.1(d) of the New York Convention.

The Tianjin Court did not accept the Respondent’s position and granted recognition and enforcement. In determining the validity of the arbitration agreement:

  • The court relied on the Korean Arbitration Act in its analysis and observed (in translation) “The Korean Arbitration Act does not stipulate that if the agreement on arbitral institution is ambiguous, it shall render the consensus of arbitration or the arbitration clause invalid”.
  • The court further accepted that the arbitration agreement in the Franchise Agreement indicated the parties’ intention to resolve future disputes through arbitration, and took note that Article 3 (2) of the Korean Arbitration Act states that “arbitration agreement” refers to an agreement between the parties intending to resolve all or part of their disputes, whether contractual or not, which already exist or may arise in the future related to their legal relationship, by means of arbitration. The court appeared satisfied that the arbitration clause in the Franchise Agreement did indeed meet this definition.
  • Next, and possibly more importantly, the court based its decision on Article 17 (1) of the Korean Arbitration Act which stipulates that an arbitral tribunal may decide on its own authority and rule on any objection to the existence or validity of the arbitration agreement. As such, the court ruled that as long the Tribunal had the legal authority to decide on the validity of the arbitration agreement, and that the decision was reasoned, the arbitration agreement was not in violation of Korean law.
  • The court also held that the Respondent was unable to provide evidence indicating that the Tribunal’s decision violated Korean law and therefore rejected Respondent’s argument that the arbitration agreement was somehow invalid under the laws where the award was made.

 

Analysis

It bears noting that the Tianjin Court did not directly analyze or comment the KCAB tribunal’s reasons for declaring the arbitration agreement valid, but instead referred to Article 17 of the Korean Arbitration Act, which provides for competence-competence of an arbitral tribunal. Based on this Article 17, the Tianjin Court’s decision noted that the Tribunal’s decision on its jurisdiction was in accordance with the Korean law, and that the Tribunal elaborated on the reasons for its decision. It is not clear whether there were any criteria applied by the Tianjin Court when deciding whether the reasons were sufficiently elaborated, or whether the conclusion would have been the same if the reasons were not given, or sparsely given.

All in all, the Tianjin Court’s decision recognizing the enforcement of a KCAB Award is a welcome development not only for the Korean arbitration community but for the international community in general, many of whom are keen to see if the Chinese courts will continue to take an increasingly pro-arbitration attitude in recognising and enforcing foreign arbitral awards.

For KCAB, it is particularly welcoming as this Tianjin Court case, in conjunction with the many KCAB awards that were successfully enforced in China during the past years, helps counter the long shadow the 2013 enforcement rejection decision by the Chinese Supreme Court against the KCAB Award, widely known as the Chaolai Xinsheng Sport case.

References   [ + ]

1. ↑ Decision available in Korean here and in English here (see publication titled “2005-2009 Arbitration Related Decisions of the Korean Courts”). 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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‘Existential’ Crisis of Section 11(6A) of the Indian Arbitration Act? – Part I

Kluwer Arbitration Blog - Mon, 2019-06-10 19:30

Gracious Timothy Dunna and Juhi Gupta

What is the meaning of “existence”? While theologians and philosophers continue to debate this endlessly, this metaphysical question has also concerned Indian arbitration law, specifically Section 11(6A) of the Arbitration & Conciliation Act, 1996 (“Act”). It was thought that the scope of a court’s intervention when appointing an arbitrator was solidified via the 2015 Amendment to the Act; however, Indian courts have actively engaged with the question of “existence” in their recent encounters with Section 11(6A), which provides:

“[The court] … shall, notwithstanding any judgment… confine to the examination of the existence of an arbitration agreement.” (emphasis added)

This provision and its judicial interpretation necessarily intertwine with fundamental arbitration tenets of minimal judicial intervention and kompetenz kompetenz, enshrined in Sections 5 and 16, as well as the doctrine of severability.

Prior to the 2015 Amendment, the position of law was that courts had a wide scope of authority while deciding a petition under Section 11 to appoint an arbitrator, which included considering issues of existence, duration, and validity of a live claim (see SBP and Boghara). Since the court’s decision assumed finality on matters referred to it under Section 11(7), these issues had to be decided either on the basis of affidavits and documents produced by parties or the court had to take such evidence on record. Therefore, it was possible that parties could find themselves in a full-blown trial at the very threshold of the arbitral process.

It was the 246th Law Commission Report that recommended the introduction of Section 11(6A) on account of the complications created by SBP and Boghara. Notably, the Law Commission recommended the insertion of an explanation to the provision, which provided that the court must refer parties to arbitration once it is prima facie satisfied that an arbitration agreement exists, leaving final determination of validity of the arbitration agreement to the arbitrator. If the court concluded that the arbitration agreement does not exist and that it is null and void, the conclusion will be final and not prima facie, including the determination as to whether the agreement is null and void. Although the explanation arguably holds the key to understanding the import of “existence” in Section 11(6A), inexplicably, it did not find its way into the provision as enacted.

In 2017, the Supreme Court (“SC”), in Duro Felguera (“Duro”), acknowledged that the 2015 Amendment changed the position from the wide scope under Section 11 and that “after the amendment, all that the Courts need to see is whether an arbitration agreement exists – nothing more, nothing less.” Here, an original tender was consciously split into separate contracts, each containing a separate arbitration clause. The SC noted that parties could not go back to the original tender since now there were separate letters of award, separate subject matters, and separate works; thus, there couldn’t be a single tribunal. The SC not only determined the factum of existence but also the scope of the arbitration clause in the original tender vis-à-vis the separate contracts. It held that for a finding on existence, “it needs to be seen if the contract contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.” The existence of the arbitration agreement was held in the negative.

Thereafter, in United India Insurance (“United India”) the SC declined to appoint an arbitrator since a pre-condition to invoking the arbitration clause had not been satisfied, which was an admission of liability by insurer. The question was whether the denial of liability fell in the excepted category on account of a communication from the insurer to the insured. The SC held that it did, “thereby making the arbitration clause ineffective and incapable of being enforced, if not non-existent.” There could have been no arbitration if the insurer did not admit liability, which was the precondition to arbitration.

United India is viewed by many, at least academically, as having overruled Duro. However, in our opinion, it can be distinguished from Duro on facts. In United India, the SC labelled the exposition in Duro as a “general observation,” which was not binding in the specific context of United India. Rather, United India actually seems to have followed the dictum in Duro that “it needs to be seen if the contract contains a clause which provides for arbitration pertaining to the disputes which have arisen…” This dictum was certainly the basis of the Delhi High Court’s decision in Brightstar Telecommunications, where the issue was again the scope of the arbitration agreement: “[W]hether the arbitration mechanism agreed to by the parties is relatable to the disputes arising out of the transactions, which are the subject matter of the parent contract. In other words, the Court has to relate the existence of arbitration agreement to the disputes, which the parties had anticipated that would arise in connection with and/or in relation to the transactions that they had undertaken.” Here, the Court held that the product in question was excluded from the purview of the contract and, therefore, the arbitration agreement. It observed that if the court were to accept the absence of that product as a typographical error, as argued by the Applicant, it would require taking a leap of faith without any document placed on record. Thus, there was no doubt about the product falling outside the scope of the arbitration agreement.

Interestingly, in NCC Ltd., the Delhi High Court expressly added additional layers to the “existence” test under Section 11(6A) stating that the “space for correlating the dispute at hand with the arbitration agreement is very narrow” and “except for an open and shut case… the matter would have to be resolved by an Arbitral Tribunal.” Thus, where parties contested the scope of the arbitration agreement, the matter would have to be left for resolution by the tribunal, which was the scenario in NCC Ltd.

The most recent decision in the saga came from the SC in Garware, where it amplified Duro and United India. The SC heavily relied on its 2011 decision in SMS Tea (“SMS”) to hold that an arbitration clause contained within an unstamped and unregistered agreement was automatically rendered inadmissible and unenforceable (except unregistered agreements, which are admissible and enforceable for limited purposes). As per the Court, SMS could not be construed as having been specifically excluded by the import of “notwithstanding any judgment” in Section 11(6A) because SMS only gave effect to provisions of a mandatory enactment and neither the 246th Law Commission Report nor the Statement of Object and Reasons of the 2015 Amendment indicated its exclusion. However, the SC concluded that the phrase specifically excluded SBP and Boghara.

Another angle in Garware was that if an unstamped and unregistered agreement was rendered unenforceable by mandatory legislation, it could not be considered a “contract” due to its unenforceability as per Section 2(h) of the Indian Contract Act, 1872, and since Section 7(2) of the Act speaks of an arbitration clause “in a contract,” an arbitration clause in an agreement would not exist if the said agreement was unenforceable. Note here that Garware’s interpretation of “existence” includes the question of whether the arbitration agreement is null and void, a threshold standard that was initially recommended by the Law Commission but did not feature in the 2015 Amendment.

While it is beyond the ambit of this post, an interesting question about Garware is whether the SC correctly applied the doctrine of severability of an arbitration agreement (see Enercon)? In this context, readers are encouraged to read the Bombay High Court’s decision in Gautam Landscapes, which involved the same factual scenario as Garware. The Bombay High Court applied the doctrine in the traditional fashion to hold that the arbitration clause is separate from the main agreement within which it was contained and, therefore, unconcerned with the non-stamping of the main agreement. Garware overruled this decision.

Finally, it important to discuss the decision of the SC in Vidya Drolia (“Vidya”), which was decided prior to Garware. It clarified what existence did not mean: the “validity of an arbitration agreement is… apart from its existence.” As for the court’s jurisdiction to determine subject-matter arbitrability under Section 11(6A), the SC opined that this had to be decided by a larger bench. However, going by the rationale in Garware about the need to have an enforceable agreement, it will not be surprising if the larger bench brings subject-matter arbitrability within the purview of the “existence” enquiry as a threshold standard.

Considering the above decisions, the issue boils down to whether the “existence” inquiry under Section 11(6A) should only encompass a mechanical finding of the factum of an arbitration agreement, or should it even extend to issues of scope, applying a narrow standard, and threshold issues of enforceability? We delve into this in Part II.

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‘Existential’ Crisis of Section 11(6A) of the Indian Arbitration Act? – Part II

Kluwer Arbitration Blog - Mon, 2019-06-10 18:41

Juhi Gupta and Gracious Timothy Dunna

In Part I of the post, we discussed the position of law on the “existence” test under Section 11(6A) of the Act. In Part II, we aim to provide context to the developments relating to the provision and understand the larger picture of the judicial trend. But first, on the basis of the decisions discussed in Part I, we have taken the liberty to restate the law below. We acknowledge that this restatement is not watertight but nevertheless, it may be a useful reference that could be revised as the law develops on this point.

§1: The court, when deciding a petition under Section 11 of the Act for the appointment of an arbitrator(s), shall confine to the examination of the existence of the arbitration agreement

§2: When examining the existence of an arbitration agreement, the court may find:

§2-1: whether the arbitration agreement exists in fact (factum of existence); and

§2-2: whether the arbitration agreement exists in law (legal existence), that is:

§2-2-1: whether an arbitration agreement exists that pertains to the dispute(s) which has arisen between the parties to the contract; or

§2-2-2: whether the arbitration agreement is null and void.

§3: Provided, the scope of enquiry of legal existence shall be narrow and that except in an open-and-shut case or when there is no obvious or apparent doubt, all jurisdictional questions of scope remain in the domain of the arbitral tribunal. Further, provided that the scope of enquiry of legal existence under §2-2-2 shall be prima facie.

§4: When appointing an arbitrator(s), the court shall do so on a prima facie satisfaction that an arbitration agreement exists, leaving the final determination to the arbitral tribunal. Such decision is final and no appeal, including Letters Patent Appeal, shall lie against such decision. Except, if the court determines that no arbitration agreement exists as per §2-1 or §2-2, then the determination of the court shall be final and not barred from appeal.

Here, an interesting observation may be made when comparing the pre-2015 Amendment position with the present position. Pre-2015 Amendment, it was generally considered that through SBP and Boghara, the door was left wide open for the court to decide many preliminary aspects, which ordinarily, should have been left to the tribunal. These included the existence of a valid arbitration agreement, existence of a live claim, and whether parties concluded the underlying contract with satisfaction of their mutual rights and obligations. As for issues of the scope of the arbitration agreement and the merits of any claim, these were to be left exclusively to the tribunal.

In comparison, the shift in the present law is remarkable. Post-2015 Amendment, courts have not only determined the factual existence of an arbitration agreement but also its scope, i.e. whether an arbitration agreement is “relatable” to or “pertains to” the dispute(s), while adopting a narrow standard of enquiry (see NCC Ltd.). In addition, courts determine threshold issues of enforceability (i.e. null and void) of the arbitration agreement (see Garware and United India).

We think that the courts have taken a consistent and valid approach vis-à-vis Sections 5 and 16 of the Act. Some may argue that the legislature’s use of the term “existence” in Section 11(6A) was to be understood as confining the court’s examination to the bare factum of existence of an arbitration agreement, while leaving issues of scope, validity, and time-barred claims to the arbitral tribunal. Such a view, however, possibly neglects various other provisions of the Act. Section 7(1), for instance, defines an arbitration agreement as:

an agreement by the parties to submitdisputes which may arise between them in respect of a defined legal relationship …”

Thus, finding “existence” should not only mean finding the bare factum of the arbitration agreement but also whether it is an agreement by parties to submit disputes in respect of the contract. This explanation also resonates with Section 16, which empowers the tribunal to “rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement.” There is no inclusion of the term “scope,” presumably because “existence” covers issues of scope too, an indication of which appears in Section 16(3) that refers to jurisdictional pleas that the tribunal is exceeding the scope of its authority.

Moreover, where the court makes an appointment under Section 11, the court would have to do so on a prima facie satisfaction that an arbitration agreement exists, leaving the final determination to the arbitral tribunal and only after a narrow standard of enquiry, would a court determine that no arbitration agreement exists. Thus, whichever way it goes, it remains compatible with Sections 5 and 16.

As far as the examination of whether an arbitration agreement is null and void is concerned, we are ambivalent in our opinion. At one level, it makes sense that if the arbitration agreement is undoubtedly null and void, it would be futile to appoint an arbitrator only to arrive at the same conclusion, at the expense of time and cost. Similarly, in this context, the pending decision from the larger bench referred to in Vidya on the inclusion of subject matter arbitrability in the “existence” enquiry is significant. However, we also recognise that giving the court such power, even if the standard is narrow, could be a double-edged sword, which recalcitrant parties may try and abuse. This is coupled by the fact that “null and void” was never introduced by the 2015 Amendment, and if the legislature so intended, it would have introduced the phrase as it did in Sections 16(1)(b) and 45 of the Act. It would seem that the SC may have gone overboard with the introduction of “null and void” in the enquiry into the existence of an arbitration agreement.

Be that as it may, the present position is far away from what Section 11 of the Act may possibly be amended to in the near future. In fact, it was the Justice B.N. Srikrishna Committee, which was set up in 2017 to review the institutionalisation of arbitration in India, which recommended that “to ensure speedy appointment of arbitrators, section 11 may be amended to provide that the appointment of arbitrator(s) under the section shall only be done by arbitral institution(s)…, without the [courts] being required to determine the existence of an arbitration agreement.” This reflects in the Arbitration & Conciliation (Amendment) Bill, 2018 (“Bill”), which repeals Sections 11(6A) and 11(7) (the Bill has been passed by the Lower House of Parliament and is currently in the Upper House).

If, and when, this Bill is passed, it will eliminate judicial supervision under Section 11 and direct all power to the arbitral tribunal, without any judicial determination of any threshold issue of existence. This is problematic in our opinion. Primarily, it would lead to extinguishing justified cases where no arbitration agreement exists, whether factually or legally, including situations where the arbitration agreement is prima facie null and void or pertains to a non-arbitrable subject matter.

We believe that such gateway issues should remain in the quarters of judicial determinations, in order to ensure that there is some balance between courts and arbitral tribunals, which could be achieved through Section 11(6A). Rather than removing Section 11(6A), a better course of action could be improving its import and application through the introduction of an explanation, perhaps on the lines of the one envisaged by the 246th Law Commission. The complete absence of Section 11(6A) could have significant consequences, including unnecessary expenditure of time and costs, and forcing a party to go through an arbitration proceeding, or any part of it, even when the party had a genuine case against arbitration that was determinable by a court at the threshold stage all along. Referring parties to arbitration has serious civil consequences procedurally and substantively and thus, court supervision under Section 11 is an essential parameter that must not be removed.

So, is Section 11(6A) suffering from an ‘existential’ crisis? Keeping aside the fact that the provision may not exist at all if the 2018 Bill is passed in its current form, it is evident that the seemingly innocuous term “existence” in the context of judicial appointment of arbitrators has provided much food for thought. Indian courts have been responsible for steering the development of the country’s arbitration law and providing much-needed guidance, especially in the recent past; however, when it comes to the scope of judicial intervention under Section 11, the courts may not have offered as much clarity or consistency with international practice as one desires. While we have been able to reconcile the courts’ decisions after Duro and believe they have a common thread, differing views exist and whether our analysis is an accurate reflection of the judicial intention is anyone’s guess. To conclude, Section 11(6A) has proven to be troublesome and fascinating, and its future, both legislative and judicial, is definitely worth observing.

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Recognition and Enforcement of Foreign Court Decisions and Arbitral Awards in Greece: Is There a New Trend Towards a More Relaxed Application of the Public Policy Exception to Punitive Damages?

Kluwer Arbitration Blog - Mon, 2019-06-10 03:00

Alexandros Tsirigos, Panagiotis Krystallis and Danai Skevi

A recent court judgment confirms enforceability in Greece of a US judgment awarding USD 10 million in punitive damages 

The Judgment no. 722 of 2019 of the Single Member Civil Court of Piraeus paves the way to a more permissive approach as regards the enforceability of foreign court judgments and arbitral awards on punitive damages in Greece. This is a breakthrough case law development compared to previous, long standing, jurisprudence of the Greek courts, which have generally relied on the public policy doctrine to resist enforcement of foreign court judgments and arbitral awarding punitive damages by finding them excessive or disproportionate compared to the actual loss suffered. While it consistently applies the criteria already set by previously established case law for the assessment of awards on punitive damages in light of the public policy exception, the recent ruling is novel in that it engages in a holistic, ad hoc assessment of the legal and factual matters of the case at hand in a pragmatic manner, without limiting its review to the amount of the punitive damages award, as previous case law has done.

 

Legal Background

In Greece, as in most jurisdictions, the recognition and enforcement of foreign court judgments and arbitral awards can be resisted, inter alia, on the grounds of public policy considerations. The test applied by Greek courts in this respect is premised on the notion of public policy defined as the most fundamental civil, moral, social, legal and economic considerations prevailing in the country. In a nutshell, the scope of the public policy standard of review is both (i) narrow (in the sense that it comprises a very limited group of fundamental rules and not all mandatory provisions of Greek law) and (ii) dynamic (meaning that the perimeter of such fundamental rules varies from time to time depending on the prevailing liberal or conservative approach adopted in the country, as ascertained by Greek courts).

Greek courts have examined on various occasions whether foreign court judgments and arbitral awards ordering punitive damages are enforceable in Greece in light of the public policy exception and the general principles on damages applicable under Greek law. The common law concept of punitive damages is not recognized as such under Greek law, as it contravenes the general principle that any award of damages should be of a compensatory rather than punitive nature. Exceptionally, certain punitive-like statutory remedies are provided for in special legislation – for example, in case of violation of intellectual property rights the claimant may, under certain conditions, bring a claim for damages without being required to quantify actual loss. On the other hand, Greek law does not reject the concept of contractual penalties of sanctionary nature. Although the common law concept of liquidated damages is alien to Greek law, parties are allowed to agree on monetary penalties for contractual breaches. Such penalties are generally upheld by Greek courts, provided that they are not deemed excessive or out of proportion to the relevant circumstances.1)See Supreme Court judgment no. 2049 of 2017, dealing with the distinction between liquidated damages and penalty clause. jQuery("#footnote_plugin_tooltip_8760_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8760_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In fact, parties are not allowed to waive the judicial review of the legality (reasonableness/proportionality) of such contractual clauses, as this is a mandatory rule (ius cogens).

 

The Public Policy Test

Against this legal background and in line with its rulings on the aforementioned narrow and dynamic scope of international public policy rules, the Greek Supreme Court2)See Supreme Court judgment no. 17 of 1999. jQuery("#footnote_plugin_tooltip_8760_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8760_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); has consistently set the applicable standard for the assessment of the enforceability of punitive damages or similar contractual penalties awarded by foreign courts and arbitral tribunals as follows:

(1) the award of punitive damages does not contravene per se the Greek public policy norms;

(2) the enforcement in Greece of a court judgment or arbitral award ordering punitive damages is permitted under condition that the enforcement court has assessed and confirmed, by means of an in concreto analysis, that the punitive damages awarded are not excessive or disproportional in light of the given circumstances.

Namely, although the Greek courts are not allowed to review the foreign court judgment or arbitral award on its merits, they must actively examine the given factual background against which the award on punitive damages was issued and conclude whether the amount of such punitive damages is within acceptable limits, i.e. not excessive or disproportional.

 

Past Case Law: Reserved Position Towards Punitive Damages Awards

When applying the test, Greek courts have in the past resisted recognition and enforcement of foreign court judgments and arbitral awards ordering punitive damages, either on the basis that the enforcement court did not perform at all the required in concreto analysis or on the basis that the punitive damages awarded were considered excessive or disproportional in light of circumstances, such as the nature and significance of the violation or breach by the debtor, the intensity and measure of the debtor’s fault, the creditor’s legitimate interests, the moral and financial status of the parties and any other special circumstances.3)See Supreme Court judgment no. 6 of 1990; Supreme Court judgment no. 17 of 1999; Supreme Court judgment no. 1260 of 2002; Athens Court of Appeals judgment no. 4332 of 2011; First Instance Court of Thessaloniki judgment no. 13432 of 2012. For a more liberal approach on recognition of enforceability of punitive damages, see First Instance Court of Thiva judgment no. 160 of 2010. jQuery("#footnote_plugin_tooltip_8760_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8760_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The past approach of Greek courts in assessing similar cases was rather conservative and confined in two aspects: (1) the amount of punitive damages or penalties awarded and (2) their ratio vis-à-vis the principal claim for actual loss suffered. Notably, the Supreme Court judgment no. 1260 of 2002 ruled that punitive damages awarded in the amount of USD 60,000 were disproportionally high compared to the principal amount due of USD 100,000. In the same vein, the Athens Court of Appeals judgment no. 4332 of 2011 had found that a penalty for a 5-month contractual delay which corresponded to two thirds of the principal amount was excessive.

 

New Court Ruling: Towards a More Flexible and Pragmatic Approach?

Yet, there are signs that Greek courts are gradually adopting a more flexible approach. In a newly issued judgment, the Piraeus First Instance Court in its ruling no. 722 of 2019 upheld the enforceability in Greece of a US court judgment awarding the significant amount of USD 10 million in punitive damages. Furthermore, it did so notwithstanding that the amount of punitive damages materially exceeded the amount of positive damages awarded (ca. USD 7.8 million). This breakthrough decision is important in view of its reasoning: While it endorses and consistently applies the criteria already set by previously established case law as regards the assessment of awards on punitive damages in light of the public policy exception, it does not confine its assessment to the amount of punitive damages as a proportion of the principal claim, as previous case law has done. Conversely, the court in the subject case engages in a holistic, ad hoc assessment of the legal and factual matters of the case at hand in a pragmatic manner, focusing on the particular circumstances of the case, such as the gravity of the fraud perpetrated, the malicious intention of the defendant and the severe adverse impact on the reputation, and the continuation of the business of the claimant as a going concern.

Furthermore, contrary to previous case law, the court does not consider as an obstacle to enforcement the fact that the amount of punitive damages awarded exceeded the amount awarded for actual loss. On the contrary, while not disregarding the importance of the quantum as one (of the many) relevant criteria, the court in essence reverses the previously held presumption that punitive damages should be considerably lower than the actual loss in order to be acceptable under the public policy test, by invoking as a pro enforcement argument that the punitive damages awarded were not significantly higher than the amount of actual loss. Thus, the party seeking enforcement does not need to demonstrate that the amount of punitive damages awarded is considerably lower than the actual loss (positive condition) but merely that it is not significantly higher than the actual loss (negative condition), therefore materially enlarging the scope of enforceable awards on punitive damages.

 

Conclusion

The newly issued court judgment appears to mark a noteworthy shift on case law, paving the way to a more permissive approach as regards the enforceability of foreign court judgments and arbitral awards on punitive damages – and, perhaps, a first step towards the relaxation of the public policy exception on recognition and enforcement in general. It remains to be seen whether future jurisprudence of Greek courts, especially at the Supreme Court level, will confirm and further elaborate on the pragmatic and flexible approach adopted by the first instance court.

References   [ + ]

1. ↑ See Supreme Court judgment no. 2049 of 2017, dealing with the distinction between liquidated damages and penalty clause. 2. ↑ See Supreme Court judgment no. 17 of 1999. 3. ↑ See Supreme Court judgment no. 6 of 1990; Supreme Court judgment no. 17 of 1999; Supreme Court judgment no. 1260 of 2002; Athens Court of Appeals judgment no. 4332 of 2011; First Instance Court of Thessaloniki judgment no. 13432 of 2012. For a more liberal approach on recognition of enforceability of punitive damages, see First Instance Court of Thiva judgment no. 160 of 2010. 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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Winning the 2019 Willem C. Vis Moot Court Competition: The Penn State Law Perspective

Kluwer Arbitration Blog - Sat, 2019-06-08 20:22

Catalina Bizic and William Sandman

“We are!” yells a group in the crowd as the Penn State Law Vis moot team enters the stage excitedly after the tribunal of the final round announces its victory – the first team from the US to win the Vis moot since 2004. “Penn State!” cheers back the team, disregarding the baffled looks of those attending the awards banquet at the Reed Messe Vienna.

The iconic #WeAre chant began in 1948, when the Captain of Penn State’s football team famously pronounced “We are Penn State.” In 1948, this statement was the epitome of inclusion, diversity, and comradery. The captain, Steve Suhey, was responding to calls to prohibit an African-American player, Wally Triplett, from playing in the biggest game of their season in segregated Miami. In 2019, #WeAre once again stands for inclusion, diversity, and comradery, values that also greatly define the Willem C. Vis moot as well as international arbitration in general. This year, it brought together nine individuals from seven different countries and motivated them to achieve something spectacular, to win the world’s largest private law moot.

Most teams know how much hard work, how many sleepless nights, how many internal quarrels it takes to make it through the 8 months of preparation until reaching Vienna (and, on top of it all, argue about frozen racehorse semen along the way). Most teams would also agree you need some luck as well, especially in a record-breaking Vis year, with more than 372 universities from 38 countries, a colossal expansion since the 11 schools from 9 countries participated in first edition of 1993-1994.

Our team had a distinct advantage – instead of limiting our pool of potential students to only J.D. students (like most American teams that we are aware of), Penn State Law combines the best of the J.D. and the LL.M. students to create a balanced civil law-common law ratio between the seven team members and the two coaches.

The abundance of diversity gave us something very special, a multi-legal and multi-cultural lens through which to view, interpret, and understand the Vis moot experience. It also helped by allowing us to be relatable to as many arbitrators as we would have the chance to encounter – a very tough task given the 1406 arbitrators from 81 countries, out of which nearly 1000 came to Vienna for the oral rounds.

The teams that we have met and, most importantly, befriended along the way, either through online practice rounds or at the Fordham and Belgrade pre-moots, as well as in the rounds in Vienna all contributed immensely to our ultimate success as well. As we advanced in the elimination rounds, we faced remarkable competitors that truly challenged our arguments and composure, but we prevailed also because were cheered on by those we had become close with along the way.

The perfect embodiment of that was the final round. Of all the teams in the world we could have faced for our final challenge, the team across the stage from us were our friends from the University of Ottawa, one of the most historically reputed teams in the competition. It was no coincidence that just a month prior to Vienna we had had the honor to host the Ottawa team and their coach, Professor Anthony Daimsis, for a 2-day workshop at Penn State. Over the course of those two days we shared ideas, practiced and tested our arguments also with the help of Professor Petra Butler of Victoria University, Wellington, which helped both teams hone their skills significantly.

Finally, the team would not have made it this far without the guidance on oral advocacy of Mr. Henry Brown, Director of Attorney Training with Morrison & Foerster LLP, faculty supervisors and professors Catherine A. Rogers and Jud Mathews, and former Penn State Vis mooties that all contributed to making this a year that none of us will ever forget.

The Penn State Law team members were J.D. students Ashley Clasen, Alice Gyamfi (who also won an Honorable Mention for Best Individual Oralist), Yousra Jouglaf, Adam Wage, and LL.M. students Augusto Garcia (Panama), Sanya Kishwar (India), and Muhamed Tulic (Bosnia & Herzegovina). The team was coached by J.D. student William Sandman and LL.M. student Cătălina Bîzîc (Romania).

 

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The Muddy Waters of Pre-Arbitration Procedures – Are they Enforceable? Answers from an Indian Perspective

Kluwer Arbitration Blog - Sat, 2019-06-08 19:22

Chahat Chawla

Modern day arbitration agreements usually contain provisions that require parties to take certain steps before the commencement of arbitration. Such clauses, often described as “multi-tiered” clauses, set out a sequence for invoking the arbitration agreement. Typically, pre-arbitration steps include procedures such as time-bound mediations, amicable settlements, cooling-off periods, and other forms of non-binding determinations.

Despite being a recurrent feature in dispute resolution clauses, the legal character of pre-arbitration procedures in India is unclear. An overview of the judgments shows that the courts have addressed this issue on numerous occasions, often rendering conflicting decisions. Broadly, the courts have taken two views. A majority of the courts have given effect to the plain meaning of the arbitration clause (on a case-by-case review) and have held that pre-arbitration procedures are mandatory and go to the jurisdiction of tribunals. Other courts (the minority view) have characterized (as a matter of general principle) pre-arbitration steps as optional and non-mandatory.

 

The majority view – mandatory and jurisdictional nature of pre-arbitration procedures

Supreme Court

In M.K. Shah Engineers, the Supreme Court of India (SCI) considered whether an award could be set aside if certain “procedural pre-requisites” were not achieved. The arbitration clause in this case required the parties to initially submit their disputes to the “Superintending Engineer”, and thereafter to arbitration in the event a party was dissatisfied with the decision of the Superintending Engineer. The SCI formulated the issue in the following terms: “[t]he principle issue for decision is what is the effect of absence of decision by the Superintending Engineer proceeding the demand for reference and commencement of the arbitration proceedings”. Giving effect to the text of the clause, the SCI held that such conditions were “essential” and necessarily had to be observed. However, eventually it was found that the parties had, by conduct, waived this procedural pre-condition.

A similar view was taken by the SCI in S.K. Jain.1)Also see decision of the SCI in Rajesh Construction. jQuery("#footnote_plugin_tooltip_5819_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5819_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });In this case, the tribunal refused to assume jurisdiction on the basis that the appellant had not complied with certain “mandatory requirements”. The petition against the tribunal’s decision was dismissed on the basis that the language of the arbitration clause required prior satisfaction of certain conditions.

Recently, in Oriental Insurance Company and in United India Insurance Co. Ltd., the SCI took the view that arbitration clauses must be construed “strictly”, therefore requiring completion of the “pre-conditions” to arbitration. In these cases, the disputes arose out of certain insurance claims. The arbitration clauses stipulated that disputes could not be referred to arbitration if the insurance company disputed its liability under the applicable policy. The SCI in United India Insurance Co. Ltd., found that the arbitration agreement was “hedged with a conditionality” and the non-fulfilment of the “pre-condition” rendered the dispute “non-arbitrable”. However, even though the existence of an arbitration agreement was not disputed, the SCI found that the arbitration agreement could be “activated” or “kindled” upon the competition of the pre-conditions, and the same was “sine qua non for triggering the arbitration clause.

The appointing authority in Demerara Distilleries took a different approach. In this case, the language of the clause required parties to engage in mutual discussions, followed by mediation. In the absence of a resolution, the parties had the option of referring their disputes to arbitration. In the circumstances, the SCI found that objections relating to the appointment application being “pre-mature” did not merit “any serious consideration”. It was held that various correspondence between the parties indicated that any mutual discussions or mediation would be an “empty formality”.

It appears that in some situations (like in Demerara Distilleries), the SCI, other than being guided by the parties’ intentions (i.e., by the language of the arbitration clause), may also consider the likelihood of success of pre-arbitration procedures. Interestingly, in disputes involving the Indian state or its entities, the courts may also test the constitutional validly of the prescribed pre-conditions. For instance, the SCI in Icomm Tele Ltd struck down a pre-condition requiring a deposit of 10% of the claimed amount as it found this obligation to be “arbitrary”, making the process “ineffective” and “expensive”.

Bombay High Court

A full bench of the Bombay High Court in S Kumar Construction had to decide whether prior compliance with pre-arbitration procedures was mandatory. After reviewing previous decisions on this issue, the Court answered this question in the negative.  The Bombay High Court found that the cases which held such procedures to be compulsory were decided on the basis of a differently worded arbitration clause, and thus could be distinguished on facts. Importantly, the Bombay High Court did not pronounce that as a general rule all pre-arbitration procedures are optional. Instead, it was held that such procedures could be mandatory and go to the jurisdiction of the tribunal depending on the language of the arbitration clause. Similarly, the Bombay High Court in Atlanta Infrastructure declined to set aside an award on the ground of violations of pre-arbitral steps as it found that the satisfaction of such procedures was not mandatory under the dispute resolution clause.2)Similar view was taken by the Bombay High Court in Johnwin Manavalan. jQuery("#footnote_plugin_tooltip_5819_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5819_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

The other view – Delhi High Court

In contrast, the Delhi High Court has adopted a distinct position. In Ravindra Kumar Verma, the Court held that prior requirements before referring a dispute to arbitration are “only directory and not mandatory”. The Ravindra Kumar Verma Court followed earlier decisions of the Delhi High Court in Sikand Construction and Saraswati Construction Company which held that “the procedure/pre-condition has to be only taken as a directory and not a mandatory requirement”.

Following Ravindra Kumar Verma, the Delhi High Court in Baga Brothers, Siemens Limited, and Sarvesh Security Services has reaffirmed that pre-arbitration procedures are not mandatory.

 

Comment

In view of the above, it is difficult to ascertain with certainty whether pre-arbitration procedures are enforceable. However, a reasonable approach is to proceed on the basis (with the exception of the Delhi High Court decisions) that courts in India are likely to interpret arbitration clauses strictly and give effect to the language of clause. The courts however have not expressly examined this question (of pre-conditions to arbitration) as a matter of “admissibility” or “jurisdiction” or “procedure”.  The distinction between these concepts has been discussed in Professor Jan Paulsson’s article here, and Professor Gary Born’s article here.

 

The proper forum to determine if pre-arbitration steps have been satisfied and the consequences

It is also noteworthy that the 2015 Amendments have considerably limited the extent of court intervention whilst making arbitrator appointments. Previously, Indian courts exercised wide jurisdiction at the appointment stage and could decide on a host of issues at this juncture which lead to considerable delays. Accordingly, the amended arbitration act introduced a statutory limitation on the scope of a court’s enquiry at the appointment stage to the “examination of the existence of an arbitration agreement”. The legislative intent behind the amendments was to confine the court’s jurisdiction, and to make the arbitral tribunal the appropriate forum for the determination of such controversies. Accordingly, the SCI in Duro Felguera, held that at the appointment stage, the courts can only “see whether an arbitration agreement exists – nothing more, nothing less”. However, despite these legislative reforms, and the decision in Duro Felguera, a larger Bench of the SCI (three-judge bench in United India Insurance Co. Ltd.) went into the question of whether arbitration “pre-conditions” were met at the pre-constitution stage. With respect, this decision may be inconsistent with the recent legislative effort to designate the arbitral tribunal as the proper forum to determine such questions. Further, there is little clarity regarding the standard of judicial review to be applied whilst making these determinations.

 

Suggested approach

As a middle path, the Indian courts could consider adopting a similar approach taken by the Singapore Court of Appeal in International Research Corp PLC v Lufthansa Systems where the Court took the view that if the pre-conditions are defined with sufficient clarity and specificity, they are mandatory in nature whereas if they are vague and general in nature, they cannot be mandatorily enforced.

Further, the courts could offer clarity on the standard of compliance needed to satisfy the pre-arbitration conditions. Similar to the ruling in International Research Corp PLC, the Indian courts could also require “actual compliance” (or strict compliance) of the pre-conditions as opposed to “substantial compliance”. These determinations could be made on a case-by-case basis and with an underlying objective to uphold the parties’ intentions.

A clear statement of law would also enable parties to achieve a greater understanding on their pre-arbitration obligations and prompt them to make bona fide efforts to comply with the same. This could result in successful settlements in some cases and truly achieve the rationale behind pre-arbitration mechanisms, which is to save time and costs by voluntary settlement.

Finally, legal certainly would be particularly useful in the Indian context where the respondents routinely resist applications for the appointment of arbitrators and raise jurisdictional objections on the basis that certain “pre-conditions” (such as mediation) have not taken place. Clarity on this subject would discourage respondents from advancing unmeritorious objections thereby accelerating arbitrator appointments and the arbitration process as a whole.

References   [ + ]

1. ↑ Also see decision of the SCI in Rajesh Construction. 2. ↑ Similar view was taken by the Bombay High Court in Johnwin Manavalan. 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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Interviews with our Editors- Insights from Dr Rukia Baruti, Secretary General of AfAA

Kluwer Arbitration Blog - Fri, 2019-06-07 19:21

Sadaff Habib (Assistant Editor for Africa)

 

Dr. Rukia Baruti, Secretary General of the AfAA

A common concern for arbitration practitioners in Africa is that when it comes to African seated arbitrations, African practitioners are underrepresented. The African Arbitration Association (AfAA) was set up as a combined vision of practitioners in the region to create a platform that would encourage and create more opportunities for greater representation of African practitioners in African arbitrations.

Kluwer Arbitration Blog invited Dr. Rukia Baruti, an international arbitrator and the Secretary General of the AfAA to provide some insight into her career progression, the establishment of the AfAA and what else can be done to improve Africa as an international arbitration hub.

Dr. Baruti’s key advice to fellow female practitioners is “pay it forward”- wise words for all practitioners.

  1. What attracted you to disputes and arbitration?

I wouldn’t say I was attracted to disputes but I was attracted to arbitration as a dispute resolution mechanism because of its semi-formal setting (I’m not a fan of formality), flexibility in terms of where it can take place and its almost fluid nature insofar as the parties’ ability to choose their own rules of procedure is concerned.

I grew up wanting a career that was “international”. I did not quite know what form that would take. At one stage I thought I wanted to be a diplomat but after working in the dispute resolution department of a law firm for a while, I was naturally attracted to international arbitration.

  1. There have been a number of recent developments in arbitration across the African continent. What in your view has been one of the most significant?

Without wanting to sound biased, I would say it was the establishment of the African Arbitration Association (AfAA). My view is supported by the Best Development Award that the AfAA won at the Global Arbitration Review Awards last month.

To me, the establishment of the AfAA is the most significant development in arbitration across the African continent because it came about as a result of a concerted effort by African arbitration practitioners to address their common concern that they were not getting a fair share of the arbitration work out there – especially Africa-related international arbitration work. What united us all was the frustration we all felt at the lack of acknowledgment of the pool of qualified international arbitration practitioners from or within Africa.

What made it all the more urgent was the realisation that many of us were involved in various arbitration initiatives designed to address the issue in different parts of the world in one way or another. The lack of coordination amongst us as well as a lack of awareness of each other’s initiatives, resulted in a duplication of efforts leading to incoherence as to what is being offered by whom and what distinguished the initiatives. It was against this backdrop that the AfAA was formulated and I think it is the impetus we needed to approach the concern at a continental level.

  1. A common concern for African practitioners is the comparative under representation of African arbitrators and counsel for that matter in arbitrations that are either seated in Africa or concern an African entity. To what extent do you think the AfAA will assist with this concern? How would the AfAA be able to assist with this?

This is one of the main goals (if not the main goal) of the AfAA.

The AfAA would be able to assist with this by creating a globally visible platform to promote not only African arbitrators and African counsel but also African arbitral institutions and African arbitral seats. The AfAA also aims to facilitate the appointment of African arbitrators and counsel and encourage the use of Africanbarbitration institutions.

The AfAA intends to achieve these objectives by among other things, maintaining a searchable online directory of its members consisting of African arbitration experts; promoting its members through various activities of the AfAA, including AfAA promotional initiatives, emails and materials, the AfAA website and newsletters; involving its members in AfAA’s activities, including promotional roles, lecturing and participation in conferences; working with African governments and businesses to raise awareness of the existing arbitration capacity from and within Africa and encouraging African governments and businesses to appoint African arbitrators and African counsel in their arbitration cases as well including African arbitration forums in their international contracts.

  1. I can see that you also sit as an international arbitrator. Have any of the cases you arbitrated had a seat in an African nation. What was the key legal issue in debate?

Only one of my arbitrations has had a seat in an African nation despite the fact that they all involved an African party. In that case there were no legal issues in debate. The issues were purely factual.

  1. In your view, what more needs to be done to improve the visibility of different countries in Africa as an International Arbitration hub?

There needs to be a more proactive approach to international arbitration by African States. This includes, for example, African States demonstrating a willingness to review, update and strengthen their legislative and judicial frameworks on international arbitration. It also includes ensuring that their countries are accessible, not only in terms of means of travel but also in terms of entry requirements.

I also think it is unfortunate in circumstances where both parties are African but end up choosing a non-African seat for their arbitration. In many ways, this hinders the development of potential African arbitration seats because there is no motivation on the part of African countries to develop one of their cities into an international arbitration hub. On the other hand, if African parties regularly chose an African seat, the incentive to develop it into an international arbitration hub in order to encourage more parties to choose it, naturally arises.

There also needs to be an open dialogue between African States and the private sector on how to promote the use of international arbitration within Africa as a means of resolving international disputes. Dialogue can be encouraged through attending and speaking at multilateral forums where African States are represented e.g. the African Union. The AfAA is well-placed to facilitate and be the platform for such dialogue. The AfAA can work closely with Heads of State to ensure they understand the importance of arbitration to the development of their countries. This understanding should lead to policies and programmes being developed and implemented which ensure that arbitration is streamlined into national governments. The AfAA can also work closely with national court Judges by providing technical assistance, which ensures that judges have an enhanced awareness of the practice of international arbitration and its application.

  1. It is acknowledged that African arbitration practitioners are underrepresented in arbitration.

(a) Do you see this particularly challenging as a female arbitrator and lawyer? Do you see introducing quotas as a feasible option?

It is no secret that arbitral tribunals are male-dominated. So, while I find it particularly challenging to get appointments being African as well as female, I also see it as an opportunity to advocate for diversity in arbitration. A good example is what The Pledge has done to advocate for increased representation of women as arbitrators.  Another way is the inclusion by arbitration institutions of criteria requiring diversity for making arbitral appointments. While in theory quotas may seem like a good way to address inequality in arbitration, I think in the long run imposing quotas is not going to be sustainable. I believe arbitration appointments should be based on merit but that opportunities should be offered to both males and females on an equal footing.

(b) What steps do you think need to be taken to improve the representation of Africans in African arbitrations and particularly women?

There are so many steps that can be taken. However, I think it is important for Africans to realise that it is up to them to take these steps. So for instance, African women should make themselves more visible, more vocal and more proactive in letting others know about their expertise in arbitration. They should, for example, write arbitration articles that can get published in relevant journals and online blogs; seek out and secure speaking engagements at arbitration conferences; or get involved in capacity building initiatives or giving lectures on arbitration at seminars. These activities have seemed to work for me to a certain degree.

Furthermore, African States and African parties should be actively appointing qualified Africans in international arbitrations. This will not only build confidence in African arbitration expertise within Africa, but also outside of Africa.  Lastly, those that make appointments e.g. arbitration institutions or parties, should ensure that at least one African and one female is appointed in Africa-related arbitrations.  Without that, there is a danger of perceiving such arbitrations as lacking legitimacy especially if the tribunal is made up entirely of non-Africans in an African-related arbitration.

  1. What would be your key advice to fellow female practitioners in the field?

My advice would be to “pay it forward” by recommending or appointing fellow female practitioners whenever an opportunity presents itself. Mentorship between female practitioners is another very good way to “pay it forward” and I would encourage it as it ensures continuity and the eventual growth of more female arbitration practitioners. There are many experienced female arbitrators out there that I am sure would be more than happy to take on a mentee.  Mentorship is something that the AfAA also wants to establish, although it will not be restricted to female practitioners.

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The Harvest Report of the First Half of 2019

Kluwer Arbitration Blog - Fri, 2019-06-07 04:30

Nikos Lavranos

The regular readers of the Kluwer Arbitration Blog will recall my blog at the beginning of this year in which I predicted that 2019 would be the ‘Year of the big Harvest’ for the European Commission regarding its efforts to permanently change the landscape of international investment law and arbitration.

This posts will review the first half of 2019 and assess to what extent my predictions have come true.

The Intra-EU BITs

Already on 15 January 2019, the European Commission could bring home its first harvest when all Member States issued a political declaration in which they expressed their intention to terminate all existing intra-EU BITs by 6 December 2019. If that is indeed going to happen, the European Commission’s decade long relentless campaign to extinguish intra-EU BITs would be successfully concluded. The aim is apparently to terminate all intra-EU BITs by way of a multilateral treaty among the EU Member States. However, so far this treaty seems not yet to have been finally drafted. In the meantime, Member States are terminating their intra-EU BITs. For example, Poland terminated its BIT with the Netherlands as of February 2019. However, termination of the intra-EU BITs itself will not stop the number of cases unless the sunset clauses contained in the intra-EU BITs are also removed. So, it remains to be seen whether, and if so how, the Member States will execute their stated intention.

The ECT

The above mentioned political declaration also addressed the ever growing problem of the increasing tension between EU law and the Energy Charter Treaty (ECT). In that declaration, 22 EU Member States stated that due to the CJEU’s Achmea judgment, EU investors cannot invoke the ECT against Member States anymore. Moreover, the Member States proclaimed that arbitral tribunals have lost their jurisdiction to hear intra-EU ECT disputes any longer. In addition, these Member States committed themselves to intervene in all proceedings before domestic courts and argue that intra-EU ECT awards are no longer to be recognized or enforced within the EU.

Despite the increasing pressure from the EU and the Member States, ECT arbitral tribunals continue to be unimpressed and are forcefully defending their jurisdiction. In early May, the Ekosol v. Italy tribunal – following the Vattenfall tribunal’s extensive 70-page analysis – also rejected the arguments of the EU and the Member States.

Accordingly, the matter will have to be ultimately settled by the CJEU, once it receives a request for a preliminary ruling from a domestic court. However, the Swedish Court of Appeal reportedly has recently rejected such a request by Spain. On the other hand, Italy has reportedly been successful before the same Swedish court in staying enforcement proceedings regarding ECT awards against it in order to obtain preliminary rulings from the CJEU. Thus, it will be only a matter of time until such a request will land on the docket of the CJEU.

In the meantime and as predicted, the European Commission requested a mandate to start negotiating for reforming the ECT. In light of the dozens of ECT cases against several Member States, one can expect that the European Commission will do its utmost to “cetarize” the ECT and declare the ECT non-applicable for intra-EU disputes. Since the ECT is a multilateral treaty, it remains to be seen to what extent the other ECT Contracting Parties will follow the European Commission.

The “New Generation” EU Trade and Investment Agreements

As far as the investment court system (ICS) as contained in CETA and the other “new generation” EU trade and investment agreements is concerned, the Court of Justice of the EU (CJEU) finally gave its blessing.  In its Opinion 1/17, issued on 30 April 2019, the CJEU concluded that the ICS is compatible with EU law and thus the agreement on the ICS can finally be ratified and enter into force. However, the CJEU made clear that the CETA tribunals, which make up the ICS, may under no circumstances apply or interpret EU law provisions, but are confined to interpret only CETA provisions. Moreover, the CJEU stressed that the CETA tribunals

“[…] have no jurisdiction to call into question the choices democratically made within a Party relating to, inter alia, the level of protection of public order or public safety, the protection of public morals, the protection of health and life of humans and animals, the preservation of food safety, protection of plants and the environment, welfare at work, product safety, consumer protection or, equally, fundamental rights.” para. 160.

Considering the fact that the balancing of public interests against legitimate interests of investment and investor protection is the core business of every investment tribunal, one wonders what is left of the jurisdiction of the CETA tribunals.

In contrast to that, it is noteworthy that the CJEU explicitly prohibited the retroactive application of joint binding interpretations of the CETA parties. In this regard, the CJEU protected the Rule of Law and corrected a situation that was obviously violating the most fundamental principles of law.

However, by and large, the European Commission received full support for its envisaged ICS.

The MIC

Since the CJEU in its Opinion 1/17 also approved the envisaged multilateral investment court (MIC), which is based on the CETA ICS text, this Opinion gives a boost for the European Commission’s efforts to promote its idea of a MIC, which is currently discussed in UNCITRAL Working Group III.

However, at the last meeting of the Working Group in the first week of April, the negotiations did not go as smoothly as the EU had anticipated. Several countries, under the leadership of Japan, continue to question the need for the MIC and instead prefer more incremental changes, which can be implemented much easier and faster. It is also noteworthy to mention that the interest of States in the subject of ISDS reforms has increased dramatically with more than 100 State present in the room. This enlarged group of participants certainly did not help to speed up the process. At the end of the day, the deadlock was resolved by a two-path approach in which both incremental improvements of the ISDS and the MIC proposal will be further discussed in parallel at the next meeting in the autumn. In the meantime, the European Commission will continue to step its efforts in convincing African and Latin American States to support its MIC proposal. It will be interesting to see whether the European Commission can start harvesting in the autumn.

Good Prospects for the Rest of the Year

Looking back to the first half year, it must be concluded that the harvest for the European Commission was very good indeed and the prospects for the rest of the year are good as well. If the intra-EU BITs are indeed terminated by the end of this year, that would finally close this file.

Similarly, the establishment of the CETA tribunals will enable the European Commission to prove to other States that a MIC can indeed be established according to the CETA ICS blueprint. After all, who could question the legality of the CETA tribunals after having received the blessing of the CJEU?

As far as the ECT is concerned, the harvest remains difficult to predict. A lot will depend on whether ECT tribunals will continue to hold the line and whether the CJEU will get an opportunity to pass its judgment on this issue soon. Besides, the ECT reform process will most likely not be concluded by the end of this year.

In short, most of the predictions at the beginning of this year were true. Nonetheless, just as in farming, weather conditions remain unpredictable and so are the predictions for the rest of this year.

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Understanding Actual DR Practice and Communicating Clearly About It

ADR Prof Blog - Thu, 2019-06-06 20:04
At the upcoming Pepperdine Past-and-Future Conference, much of the discussion will be about engaging the real world of dispute resolution.  This post recommends that to help do this, we develop a common language of dispute resolution and increasingly use qualitative research methods. We Should Set a Top Priority to Develop Clearer Common Language of DR … Continue reading Understanding Actual DR Practice and Communicating Clearly About It →

The Dubai International Arbitration Centre’s Founding Statute is Revised – What Has Changed?

Kluwer Arbitration Blog - Thu, 2019-06-06 05:34

Sergejs Dilevka and Maria Darwish

Introduction

The Dubai International Arbitration Centre (“DIAC”) is a regional arbitration centre created by statue in 1994 as part of the Dubai Chamber of Commerce and Industry (the “Chamber”).

On 23 April 2019, the Ruler of Dubai issued Decree No. 17 of 2019 approving a new statute for DIAC (the “New DIAC Statute”). The New DIAC Statute replaced the previous DIAC statute on 2 May 2019, the day of publishing the decree in the Official Gazette.

Unlike the proposed changes to the DIAC Rules, which have been widely circulated in draft form, no proposed changes to the previous DIAC statute were circulated prior to its enactment as far as the authors of this blog post are aware. However, there are important changes recorded in the New DIAC Statute and this brief blog post highlights some of these provisions, specifically with regard to DIAC’s structure, the functions and authority of the relevant bodies, and the recorded process for implementing the long-awaited new DIAC arbitration rules.

1. DIAC’s Structure

According to Article 6 of the New DIAC Statute, DIAC consists of a Board of Trustees (the “BoT”), an Executive Committee (the “EC”), and an Administrative Body. Article 2(B) of the New DIAC Statute states that DIAC “shall enjoy full independence in the provisions of its services for settling disputes through arbitration or conciliation”. However, upon perusing the New DIAC Statute and for the reasons set out below, it is apparent that the Chamber’s Board of Directors appoints the BoT, and that the structure of DIAC is as follows:

Accordingly, based on the contents of the New DIAC Statute, the level of actual independence of DIAC vis-à-vis the Chamber is, arguably, not as apparent as it was under the previous DIAC statute, and DIAC will need to take care to ensure its independence is maintained and seen to be maintained.

A. Board of Directors of the Chamber

The only noteworthy reference to the Chamber in the previous DIAC statute simply recorded the fact that DIAC forms part of the Chamber. According to the New DIAC Statute, however, the role of the Chamber’s Board of Directors (the “BoD”) at DIAC is presently indispensable, for example:

● all members of the BoT are to be appointed by the Ruler upon proposal of the BoD;
● the DIAC Manager (the “Manager”) is to be appointed by a BoD resolution; and
● any amendments to the New DIAC Statute or DIAC Arbitration Rules 2007 (the “DIAC Rules”) are to be prepared in consultation with the BoD, which has the authority to submit said amendments for approval by the competent authorities of the Emirate of Dubai.

The examples above make evident the BoD’s fundamental role, pursuant to the New DIAC Statute, in appointing DIAC’s senior management, overseeing DIAC’s structure and operations, and implementing any important changes. However, we understand the BoD does not have any involvement in the handling of cases which remains with DIAC.

B. Board of Trustees

The BoT is the governing body carrying out the overall responsibility for the management of DIAC.

Similar to the previous DIAC statute, the New DIAC Statute prescribes that the BoT will comprise a chairperson, a vice-chairperson, and a number of members with arbitration experience. The number of BoT members, however, was cut from 20 in the previous DIAC statute to 15 members in the New DIAC Statute. As mentioned in the previous section, the New DIAC Statute now specifically prescribes that the BoT members will be proposed by the BoD to the Ruler for appointment by decree for three years, the same term as in the previous DIAC Statute.
Furthermore, the New DIAC Statute contains a particularised list of the BoT’s functions, for example:

● to adopt DIAC’s general policies;
● to propose amendments to the New DIAC Statute and the DIAC Rules and procedures; and
● to approve DIAC’s organisational structure, regulations and by-laws.

However, as mentioned in the previous section, the BoT’s functions set out in the New DIAC Statute are generally subject to approval of the BoD.

C. Executive Committee

The EC assists with implementing the BoT’s decisions and carries out various functions assigned to it in the DIAC Rules. The EC consists of at least five members, including the EC’s chairperson and vice-chairperson, who are appointed by the BoT chairperson after consulting the members of the BoT.

The BoT also has authority to form and delegate certain EC’s duties and powers to EC’s sub-committees.

D. Manager

The Manager, as the job title suggests, is responsible for controlling and administering DIAC and its Administrative Body. In the previous DIAC statute, the Manager was called a Director. To the authors’ best knowledge, since the departure of the former Director in August 2013, the position of Director (and now Manager) has been vacant.

Under the previous DIAC statute, the Director could be appointed by the BoT. However, the New DIAC Statute prescribes that the Manager may be nominated by the BoT and then ultimately appointed by a BoD resolution.

E. Administrative Body

The Administrative Body is the body responsible for ensuring that the services provided by DIAC and the arbitration proceedings between parties are running in a smooth and effective manner and, importantly, in accordance with the DIAC Rules. The Administrative Body comprising case management and other administrative staff is supervised by the Manager.

2. Implementation of the New DIAC Arbitration Rules

One peculiar feature to note about the DIAC Rules is that they were issued by Decree No. 11 of 2007. Thus, in order to introduce a new set of DIAC arbitration rules, it is necessary for the Ruler to issue a new Decree.

The current DIAC Rules have been in force for more than 12 years. Despite the “Launch and Discussion of the New 2018 Arbitration Rules” during the Dubai Arbitration Week in November 2017 (approximately 18 months ago) and the subsequent flurry of articles and analysis based on various drafts of the new DIAC arbitration rules, the new rules are yet to see the light of day.

It is possible that the New DIAC Statute is another step in this direction as it sets out a process for updating the DIAC Rules, i.e., issuing new DIAC arbitration rules. The process now involves the EC making the relevant proposal to the BoT, which has to be approved by the BoT in consultation with the BoD. Subsequently, the BoD has the authority to submit the new DIAC arbitration rules for consideration by the Dubai government authorities, which may forward the new DIAC arbitration rules to be issued under a decree passed by the Ruler. The process may be visualised as follows:

3. Independence and Autonomy

The UAE Federal Law No. 6 of 2018 on Arbitration brought in significant changes in the UAE arbitration law. More specifically, under Article 10(2), the previously mentioned law provides qualifications required for arbitrators, which provides the following:

“The arbitrator cannot be on the board of trustees or the administrative body of the Arbitration Institution responsible for administering the Arbitration in the State.”

Accordingly, the DIAC Statute seconds the above-mentioned provision in Article 23 dealing with the ‘Appointment in Arbitral Tribunal’, which states the following:

“A member of the [BoT], a member of the Centre’s committees, the Manager or any of the Centre’s staff shall not be the arbitrator who will consider any dispute submitted before the Centre, whether he is an individual arbitrator or a president or a member of the arbitral tribunal”.

Conclusion

Overall, the New DIAC Statute is a more comprehensive document than the previous DIAC statute, which may suggest it is a preparative step to the issuance of the long-awaited new DIAC arbitration rules by Decree of the Ruler. It is difficult to say how important the involvement of the BoD will be on the functioning of DIAC – it may be a tectonic shift in the oversight and control of DIAC in favour of the Chamber; or a simple reflection of the changes at DIAC over the last decade such that no change in DIAC’s functioning will be noticed. In any event, DIAC will need to ensure that it maintains its independence if it is going to keep its position as the most used arbitral institution in the region.

* The authors would like to express their gratitude to Aditya Chauhan and Jana Al Mulla for assistance in preparation of this blog post.

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Is the D.D.C. Becoming a Specialized Enforcement Court?

Kluwer Arbitration Blog - Wed, 2019-06-05 19:00

Jason Rotstein and Jason Rotstein

Introduction

The enforcement bar is becoming more specialized. This development follows the trend in U.S. litigation towards increasing specialization and the growth of niche practice industries; but it also stems from specific changes to the enforcement regime that are addressed in this article and that have important implications for the life-cycle of an international arbitration.

This trend towards specialization is driven by: (1) the number and average length of enforcement actions; and primarily, (2) recent changes to the enforcement procedure, causing more enforcement cases to be brought in the United States District Court for the District of Colombia (“D.D.C.”).

This article examines enforcement actions in the D.D.C. over the last six months, December 2018 to May 2019. Initial experience indicates several tendencies and trends. It posits that a motion/petition to confirm an arbitral award is no longer an adjunct stage to an ICSID award but a standalone procedure and a tough fight; it also considers whether the D.D.C. has become a default venue and “specialized court” for the enforcement of international arbitral awards.

Background

The goal of every arbitration is to secure a final and enforceable award. The same transaction or occurrence can give rise to awards under the New York Convention (1958) and the Washington (ICSID) Convention (1966). Until recently, commentators observed “[a] striking disparity between the two enforcement systems”, distinguishing between ICSID annulment committees, on the one hand, and domestic court proceedings under the New York Convention, on the other. Kenneth B. Reisenfeld and Joshua M. Robbins writing in Finality under the Washington and New York Conventions: Another Swing of the Pendulum? concluded in 2017 that ICSID is a preferable venue based on “ICSID’s potential finality advantage”.

In 2017, the ICSID enforcement stream experienced a systemic change. Mobil Cerro Negro v. Bolivarian Repub. Venezuela, 863 F.3d 96 (2d Cir. 2017), the first federal appellate court to address the procedure for converting an ICSID award into a federal judgment, held that the ICSID Convention and its enabling statute, 22 U.S.C. § 1650(a), are subject to the procedures under the Foreign Sovereign Immunities Act of 1976 (“FSIA”) for obtaining jurisdiction over a foreign sovereign. Previously, there had been a disagreement between and within district courts in multiple circuits as to the procedure for enforcement and whether an ex parte summary procedure was sufficient.

In Mobil Cerro Negro v. Bolivarian Repub. Venezuela, the Second Circuit held that the FSIA requires a plenary procedure for enforcement even of ICSID awards: petitioners must file a complaint and satisfy service (four methods of service) and venue requirements. In addition, the defendant sovereign must have the opportunity to appear and file responsive pleadings. The enforcement action is completed when a motion to dismiss or a motion for judgment on the pleadings/summary judgment is granted. Finally, under 28 U.S.C. § 1391(f) of the FSIA, the D.D.C. is the default (but not exclusive) venue for actions against foreign sovereigns.

Enforcement Outcomes in the D.D.C.

The Second Circuit’s decision has corralled more ICSID enforcement actions into the D.D.C. and extended the lifetime of an ICSID arbitration. Arguably, the plenary proceeding has resulted in delay, additional costs and affected settlement opportunities and enforcement outcomes. A survey of enforcement actions in the D.D.C. in the past six months reveals such trends. The cases discussed below involve enforcement actions relating to ICSID awards against Venezuela and Spain.

Venezuela Cases

Tidewater Inv. SRL v. Bolivarian Repub. Venezuela, No. 17-1457, 2018 WL 6605633 (D.D.C. December 17, 2018) ended in a default judgment after Venezuela failed to appear or respond to the complaint. The court was satisfied that it had personal jurisdiction after Tidewater attempted all four methods of service on Venezuela under the FSIA. Although Tidewater had initially secured an ex parte judgment in the United States District Court for the Southern District of New York (“S.D.N.Y.”) from a 2015 ICSID award, Venezuela was able to vacate that judgment following Mobil Cerro Negro’s change in the law. The enforcement action was filed in the D.D.C. in July 21, 2017. The time to judgment was more than three years.

Another enforcement action of a 2015 ICSID award against Venezuela, OI European Group BV v. Bolivarian Republic of Venezuela, Case No. 16-1533, was confirmed on May 21, 2019. Venezuela moved for a stay as a result of changes in government, but the court found that this stay was “unnecessary” and “would only serve to delay plaintiff’s entitlement to judgment in a case that has been pending for three years and has already been stayed once before”. The case was originally filed in July 27, 2016. The court granted Venezuela’s earlier motion for a stay pending a decision on annulment, which was rendered on December 6, 2018. A similar action is pending from a 2017 ICSID award, Koch Minerals Sàrl v. Bolivarian Repub. Venezuela, Case No. 17-2559. The complaint was filed on November 28, 2017.

Spain Cases

Eiser Infrastructure Ltd. was granted an ex parte judgment, enforcing its 2017 ICSID award on May 23, 2017 in the S.D.N.Y. The same court later vacated that judgment on November 13, 2017, after the Second Circuit’s Mobil Cerro Negro decision. Eiser Infrastructure Ltd. then re-filed its petition to confirm the arbitral award in the D.D.C. on July 19, 2018, Case No. 18-1686.

The enforcement action in the D.D.C. has gone through multiple rounds of briefing on reciprocal motions to dismiss and for summary judgment. Spain is raising jurisdictional objections to enforcement. Judge Kollar-Kotelly has accepted an amicus brief from the European Commission in support of the Kingdom of Spain, March 18, 2019.

Masdar Solar & Wind Cooperatif U.A. also initiated an action on September 28, 2018 to enforce a 2018 ICSID award against Spain—Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, Case No. 18-2254. On May 3, the European Commission filed a motion for leave to enter the case as amicus curiae.

Observations and Conclusions

A foreign arbitral award can always be enforced under the New York Convention; but a major advantage of enforcement of an ICSID award under the ICSID Convention is the supposed simple, streamlined, and spontaneous enforcement at the end of the ICSID’s internal review (annulment) process. However, an examination of a small sample of enforcement cases in the D.D.C. from the past six months suggests that enforcement actions under the ICSID Convention are operating on a similar timeline—due in part to  similar procedural practices—to enforcement actions under the New York Convention.

The effects of Mobil Cerro Negro, however, are still being captured. One effect to watch for is whether the D.D.C. will effectively become the default venue for enforcement actions in general.  Another possible effect is the diminution in value of an ICSID award over a non-ICSID award; or a downgrade of the U.S. as the default country for enforcement. Ex parte enforcement procedures for ICSID awards continue to be used in such countries as the United Kingdom; nevertheless, in the United States, the opportunity for responsive pleadings created by the Second Circuit has turned what was intended to be a summary procedure into new rounds of litigation. This activity has led to a robust enforcement practice centered around the D.D.C. (blocks away from ICSID) and is an interesting development viewed in the context of renewed debate over an ICSID appeals facility.

Time will tell the repercussions to and responses of the ICSID system. Under Article 53(1) of the ICSID Convention, an award “shall not be subject to any appeal or any other remedy” and shall only be “stayed pursuant to relevant provisions of this Convention”, such as a stay of enforcement pending an application for annulment (Article 52(5)). These requirements are arguably not being fulfilled as a result of the Second Circuit’s Mobil Cerro Negro decision. As Judge Kelly states, in Tidewater, district courts have only a “perfunctory role” to play in these actions.

The policy concern behind requiring the FSIA procedures, as registered by the Department of State in its third-party submission in Mobil Cerro Negro, is to afford foreign sovereigns proper notice, the same treatment the United States would hope to be afforded in foreign courts. But these recently clarified procedures for enforcement of ICSID awards are having a major impact on the length and life-cycle of an ICSID arbitration and the choice of arbitral venue.

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Recent Dispute Resolution Scholarship

ADR Prof Blog - Wed, 2019-06-05 18:37
Do you suffer from the imposter syndrome too? I have been in our field for decades and I know only a teeny tiny fraction of our body of knowledge. I feel like Lucille Ball in the chocolate factory as we constantly churn out ever more stuff and I can’t keep up. I generally try to … Continue reading Recent Dispute Resolution Scholarship →

CIArb issues Guidelines on Witness Conferencing

International Arbitration Blog - Wed, 2019-06-05 11:18
The Chartered Institute of Arbitrators (the “CIArb”) recently released Guidelines for Witness Conferencing in International Arbitration on April 23, 2019...
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