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How Do You Deal With Data Protection And Cybersecurity Issues In a Procedural Order?

13 hours 35 min ago

Gerald Leong

It would be difficult not to have encountered at least one arbitration event in the past year where data protection or cybersecurity was discussed. As these discussions become more frequent, one may wonder: what are the practical implications of data privacy and cybersecurity on the actual conduct of international arbitrations?

This was what the Singapore Branch of the Chartered Institute of Arbitrators (CIArb) sought to imagine in a unique competition organised a few months back. Armed with a detailed hypothetical fact scenario, competitors were asked to draft a Procedural Order (PO) providing directions on data protection and cybersecurity measures to be implemented in the conduct of the arbitration.

 

The Fact Problem

The problem was set against the backdrop of a rather unique set of ‘facts’. Party A was a US-incorporated company financially backed by an imaginary EU member state, State C. Party A entered into a contract with Party B, a Singapore-incorporated software company. Pursuant to the contract, Party A funded Party B to develop an application, to be deployed on wearable devices, which collected health data from citizens of State C. To that end, Party B set up a branch in State C and its servers for the project were sited there. The personal data of citizens of other EU states were supposed to be excluded. The agreement was governed by Singapore law and provided for UNCITRAL arbitration seated in Singapore.

The dispute arose when Party A claimed that Party B’s servers were hacked by a state-linked actor. Party A sought discovery of documents against Party B while Party B contended that granting discovery would amount to a breach of EU’s General Data Protection Regulation (GDPR). The Tribunal was requested to decide in a PO, among other things, whether: (1) discovery would be a breach of the GDPR and (2) cybersecurity measures for the arbitration should be ordered.

 

Does the GDPR apply to an arbitration seated outside the EU?

The first question likely to be asked in a PO is which data protection laws apply. When, as in the CIArb competition, both the lex arbitri and substantive governing law were not the law of an EU member state, the question as to whether the GDPR nevertheless applies is not straightforward.

One possible approach is to consider if the GDPR is mandatory law. However, the issue of whether, and what, mandatory laws apply in international arbitration is itself fraught with some difficulty. In the CIArb competition, the parties expressly stated in their dispute resolution clause that discovery was subject to any applicable mandatory law.

Even if one takes the view that the GDPR is mandatory law, the next question is whether the activities in the arbitration fall within the scope of the GDPR. The GDPR applies to all matters that fall within its (a) material scope and (b) territorial scope. The former is concerned with the type of activities. According to Article 2(1) of the GDPR, its material scope extends to all “processing of personal data wholly or partly by automated means”. This is a wide definition and it is conceivable that the parties and the tribunal in an arbitration would end up processing personal data; not least during document production and review. This is reinforced by one of the recitals in the GDPR which states that it was intended to apply to “out of court procedures”. That being said, at least one tribunal has thought otherwise. In June 2019, a tribunal in the NAFTA arbitration of Tennant Energy v Canada  decided that the arbitration did not fall within the material scope of the GDPR.

The territorial scope relates to the actors in the arbitration. In that regard, the GDPR applies to any data controller or processor established in the EU, as well as to one outside the EU if he/she offers goods or services to data subjects in the EU. The following actors in an arbitration could potentially fall within the territorial scope of the GDPR:

  • Parties to the arbitration – any party that does business in the EU and collect data there, even if they are based outside the EU
  • Arbitrators – as discussed in this previous blog post, arbitrators residing in any EU member state appear to fall within the territorial scope of the GDPR
  • All the stakeholders to an arbitration if administered by an institution based in the EU.

 

What are the implications if the GDPR is found to apply?           

If the GDPR is found to apply to the arbitration, there are at least two implications. First, data processing is prohibited unless one of the grounds in Article 6(1) of the GDPR is found to apply. Arguably, the most relevant is Article 6(1)(f): processing that is necessary for the legitimate interests of the data controller.

Second, there are restrictions on the transfer of personal data outside of the EU. There must either be grounds for derogation under Article 49 of the GDPR, or there must be appropriate safeguards which comply with Article 46.

Therefore, to comply with the GDPR, a tribunal would likely have to set out in the PO whether data transfer is allowed and if so, whether any safeguards are to be implemented. This is by no means easy as there are very few resources targeted at helping international dispute resolution ensure compliance with the GDPR. One of the few resources currently available is the Working Document 1/2009 on pre-trial discovery for cross border civil litigation. While it pre-dates the GDPR, this EU document discusses some of the principles relevant to balancing discovery with data protection obligations. Further, and more updated, guidance should soon be available as the ICCA-IBA Joint Task Force on Data Protection in International Arbitration is expected to issue a Draft Roadmap on data protection in international arbitration imminently.

 

Cybersecurity

Cybersecurity in international arbitration is a real concern given the growing frequency of cyberattacks. The consequences of a cyberattack on an arbitration could be severe given that sensitive commercial and personal data may be involved in an arbitration.

Presently, cybersecurity standards in international arbitration are primarily being driven by soft law, the most prominent of which is the Protocol on Cybersecurity in International Arbitration prepared jointly by ICCA, the NYC Bar Association and CPR. Launched in late 2019, the Protocol provides the principles and process for establishing cybersecurity measures in an international arbitration, as well as sample measures.

 

Practical measures

Besides deciding whether data protection and cybersecurity measures should be in place, it is possible for the PO to also set out suggested best practices which parties can take to ensure compliance. A well-regarded resource is the Sedona Conference’s International Principles on Discovery, Disclosure & Data Protection in Civil Litigation which comes with an accompanying draft protocol that addresses data privacy issues, among others. Kathleen Paisely, working group member for the Protocol on Cybersecurity in International Arbitration, has helpfully proposed an adaptation of this protocol for international arbitration. Among other things, the protocol identifies and sets out principles regarding:

  • The data controllers and processors
  • Categories of data that are to be processed
  • Legal basis for processing data
  • How data transfers are to be regulated
  • Data minimisation measures
  • Cybersecurity

 

Conclusion

As the need for data protection and cybersecurity in international arbitration becomes more accepted, attention will shift to the practical measures that can be taken to achieve these objectives. There is as yet no widely-accepted method of implementing these measures. It is hoped that as the practice of a tribunal addressing data protection and cybersecurity measures becomes more common, more guidance and consensus will be built.

 

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Delay and Damages in Construction Contracts: A Report from the 4th SCL-CIArb-India International Conference on Construction Law & Arbitration

Mon, 2020-02-17 23:00

Ashish Virmani

A 3-day International Conference on Construction Law & Arbitration was held in December 2019 in New Delhi, co-hosted by the Society of Construction Law-India and the Chartered Institute of Arbitrators-India. During the course of their presentations, the panelists discussed various topics ranging from trends in construction law in the context of arbitration across global jurisdictions to approaches to cross-examination and the role of quantum experts in construction arbitration.

Considering that almost 68% of all construction law disputes pertain to delay, this post focuses on the panel discussion addressing the issue of delays in construction contracts, its treatment by arbitrators, and courts entertaining challenges from arbitral awards. This panel was chaired by Hon’ble Dr. Justice S. Muralidhar, Judge, Delhi High Court and also consisted of Mr. David Brynmor Thomas QC, Mr. Anirudh Krishnan, Mr. Sundra Rajoo, Mr. Mohan Pillay, Mr. Philip Lane Bruner.

 

Concurrent Delays and Consequences

Mr. David Brynmor Thomas QC focused his presentation on the vexed issue of ‘concurrent delays’ in construction contracts and its treatment across various jurisdictions. The different approaches followed by arbitrators and courts across different jurisdictions are as under:

i. Malmaison approach: In the context of an appeal against an interim arbitration award, the Technology and Construction Court (TCC), United Kingdom (UK) in Henry Boot Construction Ltd. v. Malmaison Hotel, [1999] 70 Con LR 32 adopted this approach. This approach holds that if there are two concurrent causes of delay, one of which is a relevant event beyond the control of the contractor (say extremely inclement weather), and the other is not (say shortage of labour of the contractor), then the contractor is entitled to an extension of time for the period of delay caused by the relevant event, notwithstanding the concurrent effect of the other event; but is not entitled to recover any time-related costs. According to Mr. Brynmore, this principle is also followed under Swiss law and is reflected in Article 44 of the Code of Obligations of the Swiss Civil Code.

ii. Apportionment approach: The Scottish Courts in City Inn v. Shepherd Construction Ltd., [2010] CSIH 68 declined to follow the Malmaison approach, and laid down the apportionment approach. Under this approach, where there are two competing causes of delay, neither of which is dominant, the delay should be apportioned between the contractor and the employer, based on the relative culpability of each of the factors in causing delays. This approach is also followed in other jurisdictions, such as in Hong Kong and the United Arab Emirates (“UAE”). In Hong Kong, the High Court in Hing Construction Co Ltd v Boost Investments Ltd., [2009] BLR 339 expressly approved and followed the City Inn judgment of the Scottish Courts. Similarly, Articles 287, 290 and 291 of the UAE Civil Code embody the principle that the liability for the delay ought to be apportioned between the parties in accordance with their respective degrees of fault.

It is noteworthy that while the Malmaison approach has been consistently upheld by English courts, yet there have been various decisions of the English courts factually distinguishing this approach. One of the examples in which the English courts have chosen to distinguish the Malmaison approach is Saga Cruises v. Fincantieri, [2016] EWHC 1875 (Comm.) (English High Court). In Saga Cruises, it was held that a contractor should not be entitled to the benefit of an employer’s delay event if it was already in delay and the employer’s event had no actual impact on the completion date.

It may thus be concluded that while various jurisdictions view concurrent delays differently, arbitrators/courts in the same jurisdiction may still apply settled principles of law differently, depending on the facts and wording of each particular extension of time (“EOT”) clause.

 

Powers οf Arbitrators to Read in Exceptions to ‘Exclusionary Clauses’ – An Indian Law Perspective

The presentation of Mr. Anirudh Krishnan  has to be viewed against the backdrop that Indian government contracts provide the Government with an upper hand to set the terms of a contract while dealing with contractors. This results in widely-worded exclusionary clauses, i.e. even if there is delay attributable to the employer, no liability for damages can be affixed on the contractor. Thus, it was imperative that the courts empower arbitrators to carve out exceptions to such clauses in order to avoid undue advantage to the employer on account of its own delay. These exceptions were broadly laid down in the following judgments:

i. General Manager, Northern Railways v. Sarvesh Chopra, AIR 2002 SC 1272 (Supreme Court of India (SC)): A contractor (the non-defaulting party) would be entitled to claim damages provided that at the time of acceptance of ‘extension of time’ for performance of the contract, the contractor gives notice of his intention to claim damages for the delay.

ii. N. Sathyapalan v. State Of Kerala, (2007) 13 SCC 43 (SC): If a delay is attributable solely to the employer, and is also significant, then a contractor would be entitled to damages, notwithstanding an exclusionary clause.

iii. Asian Techs Ltd. v. Union of India, (2009) 10 SCC 354 (SC): Exclusionary clauses would not be binding on any judicial authority, and would only prohibit the employer from entertaining any claim made by the contractor.

iv. Simplex Concrete Piles v. Union of India, CS(OS) No. 614A/2002, judgment dated 23.02.2010 (Delhi High Court): Any exclusionary clause itself is contrary to law and the public policy of India, and therefore, any such clause would be void ab-initio.

Moreover, under section 54 of the Indian Contract Act, 1872, if a defaulting party has derived `any advantage under a contract, the party in breach cannot retain the benefit and would have to compensate the non-defaulting party.

It is relevant to note that the Supreme Court of India in Central Inland Water Transport Corporation v. Brojo Nath Ganguly, AIR 1986 SC 1571 had held that the courts will not enforce and will strike down an unfair and unreasonable contract/clause entered into between parties who are not equal in bargaining power (followed in Pioneer Urban Land & Infrastructure Ltd. v. Govindan Raghavan, Civil Appeal No. 12238 of 2018, judgment dated 02.04.2019).

Mr. Philip Lane Bruner, Esq. also echoed the sentiments of Mr. Krishnan and shared his experience that courts seeking justice would not ordinarily permit an employer to get away without compensating the contractor on account of its delay.

 

Time is of the Εssence in Construction Contracts

While there is no gainsaying in stating that time is of the essence in construction contracts, Mr. Sundra Rajoo shed light on the practice in the UK to have standard contractual terms in construction contracts requiring the work to be carried out ‘regularly and diligently’. In such cases, an obligation is cast upon the contractor to proceed with the works continuously with appropriate physical resources in accordance with the contractual requirements as to time, sequence and quality of work. Any delay in progress may also entitle either party to suspend or terminate the contract. However, if there are certain clauses in the contract which make issuance of a notice as a pre-condition to invoking claims related to adherence of time schedule (as is the case with various clauses in the FIDIC standard contract), such clauses would be read to be mandatory, before any claim may be made qua the breach of the term. Failure to strictly abide by the notice clauses may result in the employer being completely discharged from his liability. It may, however, be noted that this principle is not universal in nature and different jurisdictions treat notice requirements differently.

 

Foreseeability of ‘Ground Conditions

Mr. Mohan Pillay thereafter focused his presentation on the foreseeability of ground conditions by a contractor, and the expected due diligence/ independent assessment to be carried out by such contractor at the time of bidding to be able to assess the nature and scope of work, failing which the contractor would not be entitled to damages. To buttress his submissions, Mr. Pillay relied upon the judgment of the English TCC in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar, [2014] EWHC 1028 (TCC). In Obrascon, it was held that an experienced contractor must make its own assessment of all available data and come to its own conclusions, rather than to ‘slavishly’ accept the information from the employer. Failure to carry out an independent assessment of grounds conditions would disentitle a contractor from claiming damages, and would entitle the employer to terminate the contract for delay on the part of the contractor attributable to ground conditions.

 

Consequences of Delay – Nature of the Types of Claims

Subsequently, Mr. Bruner highlighted that loss may be claimed by the employer/contractor under the following non-exhaustive heads on account of delay:

i. Employers: Damages for extended financing and project administration costs, extended use of facilities by contractor, loss of profits;

ii. Contractors: Additional cost of labour and field supervision, extended equipment and tool financing costs, extended overheads, lost profits on the contract & on other contracts.

However, the grant of damages is actually dependent on the fulfillment of the twin test of ‘beyond control of the party’ and ‘unforeseeable’ factors leading up to delays. In an American case Mundy v. New York, 27 N.Y.S. 469 (1894), it was held that while a flood was outside the control of the party, the flood delay was inexcusable because similar flooding had occurred previously and was thus foreseeable. These principles also form the basis of the UNIDROIT principles and are thus, universally accepted.

 

Conclusion

While on a normative level, it may appear that there is a disparity in the approaches of various jurisdictions on issues pertaining to construction contracts, a closer examination would reveal that the niche rules applicable to them are in principle uniformly applied by courts/arbitrators across jurisdictions.

 

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Challenges To The Appointment Of An Arbitrator: What Is The Effect Of Non-Disclosure?

Sun, 2020-02-16 22:00

Joe Rich

The award in Serafín García Armas and others v. Venezuela (PCA Case No.2013-3) (administered under the 1976 UNCITRAL Rules) was released in April 2019. This post refers to two decisions by Mr. Hugo Siblesz on challenges brought by Venezuela to the claimants’ appointment of Prof. Guido Tawil as party-appointed arbitrator. Mr. Siblesz was acting in his capacity as Secretary-General of the PCA and was appointed by the parties to rule on the challenges. The first decision (Decisión Sobre La Recusación Contra El Prof. Guido Santiago Tawil) was published on 8 May 2013, the second, by the same name, was released on 12 February 2018 but has only recently been made public.

Examined together, these decisions provide an insight into the handling of challenges to the appointment of an arbitrator – a topic that was the focus of the recent English Supreme Court case of Halliburton v Chubb (UKSC 2018/0100).

 

The 2013 Decision

The claimants appointed Prof. Tawil in late 2012. Soon after, his appointment was challenged by the respondent, Venezuela, on several grounds, including that (i) he had an apparent pre-disposition against states, (ii) was at risk of pre-judging the case as a result of having been involved in similar cases involving foreign investors and sovereign expropriation; and (iii) had a certain affinity with the cause of foreign investors. The challenge was framed as being to Prof. Tawil’s impartiality, not his independence. The respondent also alleged that the fact of Prof. Tawil having worked with Freshfields, counsel for the claimants, in a previous investment case and his failure to provide his declaration of impartiality and independence at the time of the challenge gave rise to justifiable doubts as to his impartiality.

Mr. Siblesz rejected the challenge. First, the circumstances surrounding the return of the declaration of impartiality and independence were disputed and Mr. Siblesz found that Prof. Tawil’s clear intention was to disclose all relevant issues. Second, the respondent had failed to establish any connection between the investment cases (beyond the fact that they concerned sovereign expropriations) or proof that the information obtained in previous investment cases was capable of influencing the tribunal’s handling of points that might arise in the present case. Third, Mr. Siblesz held that there could be no presumption of bias on the basis that Prof. Tawil had previously been involved in similar cases and acted for foreign investors (at ¶64): “although there may in certain cases be a risk that an arbitrator identifies with the interests of parties that he has represented as an advocate, one cannot presume that this is the case.”

 

The 2018 Decision

In late 2017, the respondent challenged the claimants’ appointment of Prof. Tawil for a second time. This challenge was brought on the basis that Vanessa Giraud, a former employee of D’Empaire Reyna (the Venezuelan firm acting as co-counsel for the claimants), had been hired by M&M Bomchil, an Argentinian firm in which Prof. Tawil was a partner and head of the arbitration group. Ms Giraud worked for D’Empaire Reyna between 2014 and 2017. The firm was contracted as local counsel in the arbitration at the beginning of 2016.

The respondent argued that Prof. Tawil’s failure to disclose these circumstances was either intentional, or so serious that it should be treated as intentional. Moreover, the respondent alleged that his professional experience was such that he could not reasonably have considered that the situation should not be disclosed. In the circumstances, Venezuela argued that his conduct objectively and reasonably gave rise to a fear of a lack of independence or impartiality.

The respondent argued that a continuing obligation of disclosure on arbitrators was embodied in Articles 9 to 12 of the 1976 UNCITRAL Rules. Venezuela argued that whilst this continuing obligation was not explicit, it was indicated in the preparatory notes and was consistent with disclosure requirements in other arbitral tribunals and with underlying policy considerations. The respondent also pointed to the IBA Guidelines on Conflicts of Interest in International Arbitration and the approach of the Paris courts (Paris being the seat of the arbitration), which is also that an arbitrator comes under a continuing duty to disclose details relevant to his or her independence and impartiality (see Sociétés Columbus v. Société AGI).

As a result, in the respondent’s view, Prof. Tawil had an obligation to disclose any situation that would objectively give rise to doubts about his impartiality or independence as soon as that situation arose, and, in failing to disclose the link with Ms. Giraud, he had failed to comply with this obligation.

Mr. Siblesz also rejected this challenge. Mr. Siblesz held that while Ms. Giraud’s move from D’Empaire Reyna to M&M Bomchil could in principle have triggered an obligation on the part of Prof. Tawil to disclose that circumstance, there was no clear proof that Prof. Tawil had been aware of Ms. Giraud’s move. Even if Prof. Tawil had been aware of the hiring of Ms. Giraud and had failed to disclose this, there was no evidence of the exceptional requirements under which a lack of disclosure alone would give rise to justifiable doubts having been satisfied. Instead, any such lack of disclosure appears to have been inadvertent or the result of an honest exercise of discretion on the part of Prof. Tawil.

 

How to approach non-disclosure

The Claimants referred in their 2018 challenge to Total v Argentina (ICSID Case No, ARB-04-01, Decision on the Proposal to Disqualify Teresa Cheng, 26 August 2015) in support of the notion that the non-disclosure of a fact that one party considers should have been disclosed can never in itself be sufficient for the challenge to be successful.

The significance of this point is questionable: as suggested in argument in Halliburton, an omission will not be considered in a vacuum and consideration of a non-disclosure necessarily involves consideration of the facts surrounding it. Mr. Siblesz’s reference to the ‘exceptional requirements’ under which a lack of disclosure alone would give rise to justifiable doubts demonstrates this ambiguity: discussion of the effect of a lack of disclosure ‘alone’ or ‘in itself’ is artificial.

In addition, both decisions referred to the principle that Art. 10.1 of the 1976 UNCITRAL Rules constitutes an objective standard and that any doubt as to the independence or impartiality of an arbitrator must be justified from the perspective of an informed, fair and reasonable third party. In the 2018 challenge, the claimants also cited the explanatory notes to the 2004 IBA Guidelines on Conflicts of Interest, which state in the notes to general standard 3 that “the two tests (objective test for disqualification and subjective test for disclosure) are clearly distinct from each other.”

This distinction, which was presumably highlighted in argument because it can be seen to undermine the notion that a failure to disclose can automatically give rise to an appearance of bias, is of limited force: references to the ‘eyes of the parties’ in the IBA Guidelines and to ‘justifiable doubts’ in the 1976 UNCITRAL Rules demonstrate that the arbitrator’s subjective assessment will be measured against an objective or quasi-objective standard. Nevertheless, the difference between the two tests does emphasise the manner in which the deciding authority must undertake a holistic assessment of the severity of any non-disclosure rather than seeking to draw conclusions from the omission itself: any failure to disclose must be examined in its context.

This reasoning was borne out in Mr. Siblesz’s decision, where he stated (with reference to Baker and Davis’ The UNCITRAL Rules in Practice: The Experience of the Iran-United States Claims Tribunal) that the importance of any omission to disclose matters giving rise to a conflict depended on the circumstances of the case, including (i) whether the omission was the result of an honest exercise of discretion, (ii) whether the facts that were not disclosed raised obvious questions about impartiality and independence, and (iii) whether the non-disclosure is an aberration by a conscientious arbitrator or part of a pattern of circumstances raising doubts as to impartiality.

 

Halliburton v Chubb and the development of arbitrator challenges

Halliburton v Chubb is an English Supreme Court case on the question of whether an arbitrator may accept appointments in multiple references relating to overlapping subject matters with a single common party without giving rise to an appearance of bias and without disclosure.

Many of the issues raised in the Garcia Armas challenges are interlinked with those discussed in Halliburton. The Court of Appeal in Halliburton ([2018] EWCA Civ 817 at [95]) found that, where a relevant circumstance has not been disclosed, the question for the court is whether “the non-disclosure, taken together with any other relevant factors would have led the fair-minded and informed observer, having considered the facts, to conclude that there was in fact a real possibility that [the arbitrator] was biased.” In the Supreme Court, the appellant argued for a more robust standard to reflect the international pro-disclosure consensus. As intervenors, the ICC, LCIA and CIArb also submitted that there should be an objective standard higher than that postulated by the Court of Appeal. By contrast, the respondent proposed a holistic analysis on the totality of the material; in determining whether justifiable doubts exist, it is necessary to examine the ‘quality’ of the non-disclosure (i.e. “whether it was inadvertent, innocent or deliberate”) along with the circumstance that is not disclosed. It was also argued that a court should consider whether harm was caused by the non-disclosure, albeit that this involved the use of hindsight.

It remains to be seen whether the Supreme Court will affirm the kinds of holistic assessments argued for by the respondent and upheld in Garcia Armas. However, insofar as the Garcia Armas decisions are an indication of current international practice, they are arguably consistent with a determination based on an examination of the facts of the particular case, rather than the application of broad presumptions.

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The Dispute Resolution Mechanism that Could Lead to the Snap Back of Iranian Sanctions

Sun, 2020-02-16 00:00

Georges Affaki

Amid the celebrations that accompanied the conclusion on 14 July 2015 of the Joint Comprehensive Plan of Action (JCPOA) between the E3/EU+3 (China, France, Germany, Russia, the UK and the U.S., with the EU Commission) and Iran, few observers paid attention to the Dispute Resolution Mechanism (DRM) embedded in two paragraphs, ¶¶ 36 and 37, in the 104-page long treaty. Why should they? The JCPOA was rightly heralded as a tribute to multilateral diplomacy, crowning 12 frustratingly long years of roller-coaster meetings between the foreign ministers of France, Germany and the UK (the E3) and their Iranian counterpart (see prior posts here and here). All the elements of drama were met by adding the back-channel meetings secretively held in Muscat starting in 2013 between U.S. and Iranian envoys, leading to the happy denouement. Particularly complex in its multi-tiered conception, the DRM was thought better shelved in the museum of useless international law artifacts. You seldom bother to read the law on divorce when you are about to be wed. Interest was resurrected when the E3 foreign ministers published their joint statement on 14 January 2020, denouncing Iran’s breach of the JCPOA in freeing itself from the agreed restrictions on enrichment-related matters, and referring the breach to the DRM.

Unprecedented in the history of diplomacy, the five successive steps of the DRM involve some degree of circuitousness reflecting the tedious negotiation by skillful Iranian diplomats, with frequent about turns by their hierarchy seeking to keep a constant pressure.

  • The first step starts with a party to the JCPOA referring to the Joint Commission its claim that the other side is not meeting its treaty commitments. A standing body comprised of representatives of the E3/EU+2 (the U.S. withdrew from the treaty on 8 May 2018) and Iran, the Joint Commission meets on a quarterly basis or at the request of a participant to the JCPOA. It is coordinated by the EU High Representative for Foreign Affairs and Security Policy, and works subject to the UN rules of confidentiality. The Joint Commission would have 15 days to resolve the issue, but can extend that time period by consensus. The JCPOA does not indicate the number of extensions or their duration. The reference in the JCPOA to good faith efforts in carrying out the dispute resolution process comes handy to limit potential abuse. If a participant considers that the Joint Commission has not resolved the issue, that participant can refer that issue to the foreign ministers of the countries party to the JCPOA.
  • That would start the second step of the DRM. The ministers would have a further 15 days to resolve the issue, again extendible by consensus. As an alternative, or in parallel through a second step bis, a participant can refer the issue to an Advisory Board consisting of three members: one appointed by each participant in the dispute and a third independent member. The Advisory Board is expected to provide a non-binding opinion on the issue within 15 days.
  • At the term of this 15+15-day process, if the issue is not resolved, the Joint Commission gets a second chance to reconsider within five days its previous resolution in light of the opinion of the Advisory Board. At the end of this third step, an unsatisfied participant is entitled to cease performing its commitments under the JCPOA.
  • However, the DRM does not end at that stage; a fourth step starts, where the unsatisfied participant may notify the UN Security Council that it considers the issue to be a significant non-performance.
  • That notification triggers the final fifth step where the Security Council will have 30 days to vote on a resolution to continue the sanctions lifting, failing which all the old Security Council resolutions that had been terminated as a result of the JCPOA (1696 (2006), 1737 (2006), 1747 (2007), 1803 (2008), 1835 (2008), 1929 (2010) and 2224 (2015)) would be re-imposed by the end of the 30th day following the adoption of the Security Council’s sanction resolution, unless the Council decides differently. The EU would likely follow up with the restoration of its restrictive measures on Iran in the wake of those ordered by the Security Council.

In addition to being complex, the DRM is also uncertain. This is due both to prolongations that may be decided by each body entrusted with the successive DRM steps and to the contingency of the voting process within the Security Council where a majority of 9/15 is required for the resolution, even where the Permanent 5 abstain from using their veto power. Unlike arbitral panels, none of the bodies that are entrusted with the successive stages of the DRM are neutral as they comprise the very parties to the JCPOA, including the party that referred the other party in breach to the DRM. While the Advisory Board might offer minimal neutrality if the third member appointed from a neutral country acts as an umpire, it only renders non-binding opinions. But then there is little point in seeking further comparison either with the Iran-U.S. Claims Tribunal established on 19 January 1981 in the Algiers Declarations, or with the U.N. Compensation Commission established pursuant to Security Council resolution 687 (1991) after the first Gulf War. The first, an arbitral system, and the second, a quasi-arbitral one, comprised neutral panels empowered to render binding decisions. The DRM is but a diplomatic channel, established as an official framework to keep an open dialogue between the participants before the matter is brought back before the U.N. Security Council.

Regardless of the merit of Iran’s arguments in relation to the frustration of the JCPOA, it is required to go through the tiered process set out in the DRM. Multi-tiered dispute resolution mechanisms are commonplace in international treaties and in contracts alike. They require the parties either to negotiate in good faith to resolve their dispute, to participate in mediation or conciliation proceedings, or to abide by other procedural steps prior to initiating arbitral or court proceedings. They aim to spare the parties the time and cost of proceedings if the dispute could be resolved amicably. Non-compliance with the tiered process may lead to the preclusion of the defaulting party’s bringing subsequent proceedings. If arbitrators or judges disregard the noncompliance by a party with the preliminary steps to bringing its action, their decision could be annulled. Being required to go through a tiered dispute system is not meant to lead to a dead-end. Where the participant evidences its good-faith efforts to exhaust those stages being met by frustrating, dilatory means by the other party, fairness requires to consider the obligation as being met and the matter ripe to move to the next phase. Iran has done none of that. Its successive announcements starting in May 2019, and culminating on 5 January 2020, that it would cease meeting an increasing number of its commitments under the JCPOA amounts to remedying a wrong through one’s own chosen means, outside established legal processes. This goes counter both to Iran’s agreed undertaking in the JCPOA and to elementary rule of law considerations.

For now, Iran’s reaction consists of denying the legal basis for the reference by the E3 to the DRM. Iran would need more cogent arguments in law to challenge the JCPOA. They could possibly revolve around the alleged frustration of the treaty because of the other participants’ nonperformance, or its freeze until all participants reciprocally resume the performance of their respective undertakings. There is an arguable case that the U.S. withdrawal from the treaty outside the international law process devised for that purpose and its restoring its sanctions on Iran may amount to a breach. However, the JCPOA is a multilateral treaty in which Iran affirmed that it will under no circumstances ever seek, develop or acquire any nuclear weapons. That statement was embedded in Security Council Resolution 2231 (2015) that issued the JCPOA as an international law instrument. Importantly, that statement was made to the benefit of, and relied upon by, the E3/EU+3 (now 2) and is not affected by the U.S. withdrawal from the treaty. There cannot be any plausible argument of Iran that the EU has breached its undertakings under the JCPOA as all of the EU restrictive measures against Iran have been terminated.

Understandably, Iran feels frustrated that the economic relief it expected of the JCPOA has not materialized. The EU has allowed Belgian-based SWIFT, the world’s leading provider of secure financial messaging services, to disconnect Iranian banks of its network on 12 November 2018. This in effect prevents Iran from making or receiving payments through normal banking channels with a disastrous impact on its population and its trade. Similarly, French-incorporated INSTEX, a special purpose vehicle initially established by the E3, later joined by Belgium, Denmark, Finland, the Netherlands, Norway and Sweden, aiming to facilitate trade between Europe and Iran, is far from the comprehensive payment netting mechanism that some have imagined. The fear of U.S. secondary sanctions, contrasted with the relative comfort that a breach of the EU Blocking Regulation is unlikely to result in any meaningful sanctions by the member states of their own economic operators, have resulted in virtually no use of INSTEX so far. Absent entries recorded on the credit column of the offset account, no equity will be available for INSTEX’s Iranian counterpart STFI to pay Iranian potential exporters to the EU. INSTEX is not even licensed as a bank in France. It is little more than a Meetic-type database proposing to match European exporters/importers with their Iranian counterparts. While the EU can certainly do more to rebalance the deal after the U.S. withdrew, it can hardly be faulted for not meeting Iran’s expectations where no undertakings feature to that effect in the JCPOA. In any event, for those potential arguments to be admissible, Iran needs to put them forward within the DRM itself.

In parallel to starting a DRM process, Iran could contemplate seeking an advisory opinion on the state of the JCPOA from the International Court of Justice, the principal judicial organ of the United Nations. Because the advisory procedure is only available to international organisations, it could be contemplated that the International Atomic Energy Agency (IAEA) petitions the ICJ for an opinion since the IAEA is mandated in the JCOA to monitor and verify the application of the treaty. Iran knows well the road to the ICJ. On 13 February 2019, the Court ruled that Iran’s claims against the U.S. for its violation of the 1955 Treaty of Amity between the two countries by imposing sanctions on Iran are admissible. The ICJ is still to rule on the merits, but at least Iran has abided by the dispute resolution mechanism in its amity treaty with the U.S. It must do the same under the DRM. A positive opinion by the ICJ can but enhance its chance if the matter is referred to the Security Council. Hopefully, common sense will prevail before that ultimate escalation.

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Kluwer Mediation Blog: December 2019 and January 2020 digest

Sat, 2020-02-15 22:31

Anna Howard

the money’s not about the money…The key to settlement lay not in the realm of calculation and rationality but in the more opaque social world of face, punishment, justice and emotion.” Charlie Irvine in Not about the money?

The end of 2019 and the start of 2020 offered a rich variety of posts on the Kluwer Mediation Blog. Topics addressed include: ICSID’s draft rules for investor-state mediation; the Global Pound Conference’s recently released Miami report; the path, and those who have shaped the path, of the Global Pound Conference; Greece’s recent law on mandatory initial mediation sessions; challenges in the transplantation of mediation in Ukraine; pre-school leadership in conflict resolution; and the design of a sustainable mediation public policy in Romania. Below is a short summary of, and link to, each post published on the Kluwer Mediation Blog in December 2019 and January 2020 . We hope you find this helpful.

 

In Singapore case note: enforceability of settlement agreements, Nadja Alexander and Shou Yu Chong draw on the Singapore High Court case of Law Chau Loon v Alphire Group Pte Ld [2019] [2019] SGHC 275 to identify general legal principles to consider when a settlement agreement is drafted. Nadja and Shou Yu share key learning points for mediators and lawyers representing clients in mediations in which Singapore law may be applicable to enforcement.

 

In Tracking the path through the GPC and acknowledging the footsteps along the way, Alan Limbury reflects on the path, and those who have shaped the path, leading to the Global Pound Conference Series conducted in 2016-2017 in 28 cities around the world. Alan notes that the results already reported from the GPC Series identify education as key to facilitating change, shifting the focus of education from increasing awareness of the various dispute resolution processes to providing practical and skill-based training. Alan also identifies challenges which he has encountered in efforts to increase such education.

 

In How can you make the pie bigger in a finite world? Charlie Woods explores the meaning of productivity, including the recent attention on resource productivity, and whether increased prosperity means having more or better things. Charlie then identifies the contribution which mediators can make in the search for positive sum games in a world with restricted resources.

 

In Not about the money? Charlie Irvine draws on recent mediation cases to examine the meaning of money in disputes. Charlie concludes that “sometimes the money is not about the money”, noting that the key to settlement was not found in the realm of calculation and rationality but rather in the social world of face, punishment, justice and emotion.

 

In Mediation, strategic trust and the seven elements, Joel Lee explores the interconnection between the Seven Element Framework and the Strategic Trust Framework. Joel explains that the Seven Element Framework stems from the Harvard Negotiation Programme and provides a way to prepare for, navigate through, analyse and measure progress in resolving a conflict. The Strategic Trust is a framework which distinguishes strategic trust from emotional trust. Joel identifies ways in which the interconnection between these two frameworks can assist mediators to assist parties in their dispute negotiations.

 

In Designing sustainable mediation public policies, Constantin-Adi Gavrila and Christian Radu Chereji provide an overview of the development of mediation in Romania and then explain the purpose and design of the “Mediation – effective public policy in the civic dialogue” project. Constantin-Adi and Christian explain the analysis which resulted in a public policy paper containing clear recommendations for the steps to be taken in order to improve the current system and to make mediation one of the mainstream methods of dispute resolution in Romania.

 

In Questions of perspective, some thoughts on the year ending, Greg Bond reflects on the benefits of a resource and solutions focused approach to issues, both in mediation and more broadly in larger social and political issues. Greg identifies what we can do in order to focus on ways forward to address these issues, including asking ourselves what unites us and not what divides us.

 

In We can each make a difference in 2020, John Sturrock draws on two contrasting literary works, Manual for Spectrum Agents (Haynes Publishing) and The Boy, the Mole, the Fox and the Horse (Penguin books) to identify how we might address future global threats and challenges. Drawing on Manual for Spectrum Agents, John questions what we could do to move towards an idea of common purpose at world government level. Drawing on The Boy, the Mole, and the Fox and the Horse, John argues that the aspiration of mediators must continue to be to each make a difference, in big or small ways.

 

In Global Pound Conference Miami report released, Rick Weiler provides a summary of the recently released GPC Miami report. Rick explains that the report looks at the needs, wants and expectations of parties using commercial dispute resolution in Miami and divides those users into three groups by level of experience or sophistication. Rick identifies the report’s section on obstacles and challenges as perhaps the most interesting, with these obstacles and challenges being categorised as “easy”, “difficult” and “impossible” to overcome.

 

In A preview of ICSID’s new investor-state mediation rules, Frauke Nitschke summarises the latest draft of ICSID’s rules for investor-state mediation, which were published in August 2019. Frauke outlines the scope of these rules and their key features, including initiation of the mediation, appointment of the mediator/s, conduct of the mediation, and the confidentiality of the mediation. ICSID aims to submit the rules for approval in 2020, and Frauke sets out the next steps in the process.

 

In Kindergarten and conflict – Pre-school leadership in conflict resolution, Rosemary Howell identifies a number of specialised conflict resolution programmes which are revolutionising how children engage with and resolve conflict. These include child-centric programmes across Europe, the US and Australia. Rosemary identifies the key elements of these programmes which include reflecting on how others see things, encouraging collaborative problem solving, sharing positive narratives and scrutinising the positive value of kindness.

 

In A neuro-linguist’s toolbox – self-care and improvement: working with physiology, Joel Lee continues his series of posts on “A neuro-linguist’s toolbox”. In this latest post in the series, Joel starts to explore the topic of self-care and personal improvement for mediators. In particular, Joel considers how to work with physiology to further self-care and improvement, including the way in which we hold our bodies, how we can use our breath and the activation of the peripheral vision response.

 

In Conciliation with a mediation touch – 10 years of consumer conciliation for public transportation in Germany, Greg Bond outlines the recent achievements of Germany’s ten-year old Conciliation Body for Public Transportation and explains the key characteristics and innovations of the Conciliation Body. Greg also shares with readers the wish identified by the director of the Conciliation Body, Dr Christof Berlin, at its recent birthday event.

 

In Greece: Institutionalizing mediation through mandatory initial mediation session (Law 4640/2019), Vassiliki Koumpli examines Greece’s recent Law 4640/2019 which now constitutes the sole legal instrument regulating mediation in Greece. Vassiliki explains that Law 4640/2019 essentially repeats and enhances the pre-existing legal framework concerning the requirement of a mandatory initial mediation session for a broad category of cases, which was suspended until the enactment of this new law. Vassiliki considers the key aspects of Greece’s new mandatory mediation scheme.

 

In It’s the putting it right that counts, Ian Macduff draws on a recent event in New Zealand politics and Maori-Crown restorative relations to reflect on the possibility of a long-term, multi-generational process of recognition, reconciliation and repair. Ian explains that on 19th December 2019 the Rua Kenana Pardon Bill was signed into law and identifies the key significance of this event, including that it was the first time a Bill has been signed into law on a marae, or Maori meeting ground, and the event brought some closure to an injustice committed by British soldiers 103 years earlier.

 

In Citizens Assembly- and kindness, John Sturrock shares his recent experience of facilitating a session at Scotland’s Citizens Assembly, describing the Assembly’s own “conversation guidelines” which include the call to be kind and supportive to each other. John identifies that the courageous thing to do is to be rigorous about issues and robust on problems, while remaining respectful and courteous towards the individuals involved, whoever they may be and however they might act.

 

In Mediation capture Tatiana Kyselova draws on recent experience in Ukraine to illustrate how the transplantation of mediation to contexts which are institutionally and culturally different from the West may bring some unexpected surprises. Tatiana explains the recent attempted capture of mediation in Ukraine and the Ukrainian mediation community’s efforts to prevent its capture.

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Indian Supreme Court Strikes Down Automatic Stay Provisions for Good

Fri, 2020-02-14 22:25

Muskan Arora

The automatic stay provisions in the Indian arbitration regime have been a matter of a long debate. At first blush, the automatic stay seems like the perfect protection mechanism for any award debtor; however, it often puts the award creditor in a difficult spot. Arbitral awards rarely go unchallenged in India. The automatic stay provision enables a party to use arbitration to effectively delay the settlement of legal rights or access to justice. In essence, the provision not just runs afoul of the objects and purpose of arbitration, but also runs the risk of promoting litigation at the expense of arbitration.

Pursuant to Section 36 of the Arbitration and Conciliation Act, 1996 (‘1996 ACA’), on the filing of a setting aside application under Section 34, the arbitral award could be enforced only after the Section 34 petition was rejected. Consequently, any challenge to an award of the arbitral tribunal rendered it unexecutable. In light of the same, in the case of National Aluminum Company Ltd. v. Pressteel & Fabrications Ltd. and Anr, the Supreme Court interpreted Section 34 of the 1996 ACA to allow for an automatic stay of an arbitration award on the filing and pendency of an application for setting aside of an award.

With the Arbitration and Conciliation Amendment Act 2015 (‘2015 ACA’), Section 36 of the 1996 ACA was amended, which did away with the automatic stay provisions. Accordingly, the award debtor was required to make an application seeking a stay. However, there was persistent ambiguity among various High Courts in India over the applicability of the 2015 ACA provisions.

 

BCCI v Kochi – A temporary halt

The 2018 Indian Supreme Court case of BCCI v Kochi revolved around the interpretation of Section 26 of the 2015 ACA (for a previous analysis on the Kluwer Arbitration Blog, see here and here). Section 26 delineates the temporal scope of the 2015 ACA and has been the source of divergent interpretations by various High Courts. The confusion was whether Section 26 is prospective and applies to both arbitral proceedings initiated on or after the commencement of the 2015 ACA and even to court proceedings in relation to arbitral proceedings initiated on or after the 2015 ACA having come into force. Consequently, the accompanying problem, which fell for contemplation before the Court, was whether the amended Section 36 of the 1996 ACA would apply to enforcement proceedings in case a challenge to such awards was made under Section 34 of the 1996 ACA.

The BCCI v Kochi case read Section 26 to imply that the 2015 ACA as a whole was to apply prospectively (i.e., to arbitral proceedings commenced after October 23, 2015 – the date on which 2015 ACA came into force). This position, nonetheless, came with an exception. The Court posited that with respect to enforcement of domestic awards under Section 36 of the 1996 ACA, the 2015 ACA was to be applied retrospectively. This is because the right to obtain an automatic stay under Section 36 was not a vested one. Therefore, there would be no automatic stay of an award unless a separate application was successfully made for such a stay. In delivering the judgment, the Court took into account past recommendations made by this Court, including the suggestions of the 246th Law Commission Report. The Report recommended that the erstwhile Section 36 be substituted, as the automatic suspension of the execution of the award, as soon as a party seeks to challenge the award, defeated the objective of the alternate dispute resolution system to which arbitration belongs.

While one would have believed the BCCI v Kochi case to end the debate, the 2019 Amendment to the Arbitration and Conciliation Act, 2019 (‘2019 ACA’), brought the discussion back to the forefront. The 2019 ACA deleted Section 26 and introduced a new Section 87, which provides that (unless the parties agreed otherwise), the 2015 ACA amendments would apply prospectively — thus bringing back the provision of automatic stays.

 

The Saga Continues 

On November 27, 2019, the Supreme Court rendered a decision in Hindustan Construction Company v UOI (‘HCC Case’), which again did away with automatic stays. The petitioners (infrastructure companies) approached the Court, pointing that they were being forced into insolvency even after the Indian Government and other government-owned companies owed them over INR 6000 crores (approximately USD 850 million) pursuant to various arbitral awards. They argued that they were disabled from recovering the money due to the automatic stay provisions.

In this case, the Court struck down Section 87 as unconstitutional for being arbitrary and revived Section 26 of the 2015 ACA. The Court noted that the automatic stay provision was a “double-whammy” for firms in favor of whom arbitration awards were passed. Despite the arbitral award being in their favor, the creditors were not able to enjoy the fruits of the same, as the principal amount would be automatically stayed due to a Section 34 petition (challenging the award), which in turn takes years for final disposal.

As a consequence, the firm could become financially unhealthy and vulnerable to being declared insolvent under the Indian Insolvency Code. This retrospective resurrection of an automatic stay also results in payments already made under the amended Section 36 to award-creditors in a situation of no-stay or conditional-stay now being reversed.

Along with this absurdity, the Court noted that, on average, about six years are spent in defending these challenges. This delay defeats the very objective of the alternate dispute resolution system. The Supreme Court, therefore, brought back the position laid down by the BCCI v Kochi case, thus providing award creditors the immediate benefit of an award by way of security and not letting any automatic stay stymie the execution for several years.

 

Invalidity of automatic stay provisions: a welcome step?

Arbitration serves to foster profitable relationships by resolving disputes in a way that both parties regard as expeditious. Given that, disabling enforcement of the award after the entire process of arbitration is done renders the exercise pretty much futile. In fact, the automatic stay provision is often used by the award debtors to skirt away from their obligations and encourages them to file objections, howsoever pointless or frivolous. This delays the process of dispute resolution and runs antithetical to one of the most sacrosanct tenets of arbitration that is speedier resolution of disputes.

The interpretation of Section 34 of the 1996 ACA by the judiciary to provide for automatic stays was done with the intention of giving efficacy to the arbitration regime in India, an ironic result. This is particularly surprising because even under the much-criticized Arbitration Act of 1940, no provision was interpreted to provide for automatic stay of the award and the court had to explicitly order stay on awards. The introduction of automatic stay was a result of an incorrect interpretation by an earlier Supreme Court judgment and did not originally belong in the Indian arbitration framework.

To conclude, the application of amended Section 36 and the deletion of Section 87 now mirrors the pro-arbitration approach codified under the UNCITRAL Model Law. Article 36(2) of the same particularly refers to applications for setting aside or suspension of an award, in which the other party may provide appropriate security.  However, Section 36 was read to allow automatic stay of awards as soon as a setting aside petition was filed. With automatic stays now a thing of the past, this anomaly has also been resolved. Several arbitration awards, the enforcement of which was hitherto prevented by pending setting-aside applications, will now be executed with minimum judicial intervention. This would also ease the burden of Indian courts, as parties will be dissuaded from filing strategic setting aside applications. Further, it brings back the vested right of enforcement and binding nature of an arbitral award along with speedy determination and recovery of amounts contained therein. This is a welcome step in the Indian arbitration regime. It is hoped that arbitration will now be more universally and reliably used domestically over other forms of dispute resolution.

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Is Arbitration Contributing to the Revolution? 5th Edition of Casablanca Arbitration Days

Thu, 2020-02-13 18:00

Arnaud Oulepo

Since 2014, the Casablanca Arbitration Days (CAD) have no doubt become one of the most attended arbitration-related events in Africa. Organized on 5-6 December 2019 at Kenzi Tower Hotel Casablanca by the Casablanca International Mediation and Arbitration Centre (CIMAC), this year marked the fifth edition of CAD under the topic ‘Investing and Doing Business in Africa: Is Arbitration Contributing to the Revolution?’ The CAD took off on an excellent note, on 4 December 2019 with three interesting side-events hosted by the Association of Young Arbitrators (AYA) for young arbitration practitioners in Morocco, Chartered Institute of Arbitrators and Accuracy. Some of the key points addressed during the Conference are discussed below.

 

Mapping Investment on the Continent: Actors and Sectors

The first panel was chaired by Dr Jalal El Ahdab (Partner, Bird & Bird) with Pascal Agboyibor (Founding Partner, Asafo & Co), Khaled Houda (Managing Partner, Houda Law Firm) and David Marty (Principal Legal Counsel, African Development Bank) as speakers. The session focused on the potentials in mining, agriculture and infrastructure in Africa and how the sectors can attract interests of foreign investors. This is due, in part, to the privatization drive by many African States that have adopted significant reforms which ultimately resulted in a better ranking in the World Bank’s Doing Business Report.

As far as the regulatory framework is concerned, bilateral and regional agreements are in force between countries in order to facilitate cross-border investment. According to the speakers, the emphasis is now on sustainable investment. Doing business in Africa is not a risk-free venture, so inevitably the question of dispute resolution arose in this panel. Mr Agboyibor and Mr Houda based on their experiences as legal counsels, regularly advise their clients to insert an arbitration clause in their agreements.

Providing insight from a development finance institution perspective, Mr Marty revealed that in many projects funded by the institution, arbitration has helped to mitigate or avoid risks. However, in his opinion, the threat of suspending any funding to countries for failure to observe their commitments was on many occasions a deterrent.

 

How to Protect Investment in Africa?

The second panel was moderated by Professor Mohamed Abdel Wahab (Founding Partner, Zulficar & Partners) with Professor Denis Mouralis (Aix-Marseille University), Eric Teynier (Founding Partner, Teynier Pic) and Benjamin Garel (Legal Counsel, ICSID) respectively as speakers.

Taking the floor, Professor Mouralis addressed the recent innovations observed in bilateral investment treaties drafting. Reflecting the ongoing debate about the ISDS reform, they introduced a balanced relationship between investors and State, in particular the Nigeria-Morocco BIT.

Whilst BITs remain one of the key instruments of investment protection, Benjamin Garel argued that in the specific African context, domestic investment law and State contracts are very often relied upon for investment protection purposes. Notably in 1984, the first ICSID arbitration case by virtue of domestic investment law involved an African State (Egypt) (the SPP case).

Based on his experience as both counsel and arbitrator, Mr Teynier touched upon the issue of investment protection in time of armed conflict -a relevant topic given the ongoing civil crises in some countries within the continent and is at the intersection of both international investment law and international humanitarian law. According to Mr Teynier, an important issue to determine is “responsibility”. Who is responsible when civilian turned themselves into belligerent and commit severe violations to investors’ rights? What happens when the central State is unable to control a significant portion of its territory? Relying on the International Law Commission’s (ILC) Draft Articles on Responsibility of States for Internationally Wrongful Acts, Mr Teynier advanced different scenarios and typical solutions based on his case experience. In one of those cases for example, the State suggested the reinstatement of the investor’s right for the project to be completed.

Although the focus was on arbitration during the conference, the author suggests parties will resort frequently to mediation and other less adjudicative dispute resolution mechanisms in the upcoming years. The recent adoption of the Singapore Convention thus provides a momentum for the development of mediation.

 

Chinese Investment in Africa

With massive investment in Africa, China has challenged the traditional former colonial powers in their investment strategy. The third panel, chaired by Nicolas Bourdon (Founding Partner, Accuracy), Jingzhou Tao (Partner, Dechert Beijing), retraced the origin of the Belt and Road Initiative (BRI) and the policy underlining it. Responding to the question whether there was any Chinese particularity when it comes to investment disputes, Mr Tao suggested three reasons differentiating Chinese investment disputes: First, the first-generation BITs whose wording only allows investors to sue States for compensation. Second, Chinese investors are often reluctant to have recourse to investment arbitration for purely domestic political constraints. Indeed, when dispute arises, diplomatic channel mechanism will be preferred over arbitration. As an example, for a Chinese state-owned entity to file a request for arbitration against a foreign State, a double level of authorization is required (Ministry of Commerce and Ministry of Foreign Affairs).Third, the context has evolved. We witnessed more investment arbitration brought by Chinese investors.

Providing a perspective from a Chinese company operating in Africa, Michael Sun (Legal Counsel MENA, Huawei) mentioned that, for small claims, negotiation and sometimes litigation will be preferred over arbitration. However, where the issues at stake are much bigger, the contract features very often ICC arbitration seated in Paris, Geneva, etc. To reduce or avoid what may be termed as an ‘offshoring’ of Chinese African-related disputes, initiative such as China-Africa Joint Arbitration Centre (CAJAC) has been launched. In Mr Tao’s opinion, CIMAC has a great role to play in particular for Chinese African-related disputes occurring in African francophone countries. In this regard, measures related to the facilitation of travel and visa should be implemented.

This author’s view is that the very existence of those above mentioned Sino-African arbitration bodies clearly suggests the Chinese-African relations in terms of dispute resolution will not bring an innovative feature, despite their common cultural preferences for mediation and negotiation.

 

The Role of the Regional Economic Communities

The fourth panel was chaired by Aicha Brahma (Partner, Brahma Avocats) with Mohamed Oulkhouir (Partner, CWA), Mamadou Konaté (Founding Partner, Jurifis Consult) and Amne Suedi (Founding Partner, Shikana Law Group) as speakers. Regionalization is firmly rooted in African integration efforts. Applying the saying “think global, act local”, the eight regional economic communities contribute to the concretization of African integration.

Aiming at unifying, facilitating trade and investment across Africa, AfCFTA finally entered into force despite nationalism resentment as indicated by Amne Suedi.

As far as OHADA is concerned, as recalled by Mr Konaté, its main function is the harmonization of business law, with the firm belief that it will bring legal certainty to potential investors. In terms of dispute resolution, the unified arbitration act (recently amended) has proven to be efficient 20 years after its adoption. The acting Secretary General of OHADA in a recent declaration called upon AfCFTA to fully integrate OHADA in the implementation of the agreement.

Touching upon ECOWAS, Mr Oulkhouir opined it was mainly tasked with facilitating cross border trade among western African countries. The project of including arbitration among the jurisdiction of the ECOWAS Court was discussed recently in Nigeria, after many years of hesitation.

The panel was unanimous that these efforts are to be encouraged, but we should remain aware of the risks of overlapping competences.

 

The Debate

A debate about the proliferation of arbitral institutions in the African context was definitely the high point of CAD.

Defending the position against proliferation, Domitille Baizeau (Partner, Lalive) recognizes it was an unavoidable consequence. We count today more than 70 arbitration centres in Africa; however, only one or a few of them are truly international arbitration centre. They are generally not always known in the arbitration community for they do not regularly publish statistics, reports, etc.

She suggested instead the regionalization or concentration of arbitral institutions. As an example, CIMAC may be turned into North African dispute resolution centre.

Being in favour of proliferation, Jacob Grierson (Partner, Asafo & Co) suggests it is a reaction to what he called the “offshoring of African-related disputes to foreign or western arbitral institution”. He referred to the recent call for more nationalism in terms of preferences of domestic arbitral institutions. In his opinion, arbitration is truly international where parties are able to resolve their disputes in an arbitration institution located on their continent. Encouraging such trend is Article 42(1) (d) of Pan African Investment Code.

In the same vein, the author would like to mention the approach adopted recently by Egypt and Cote-d’Ivoire in their domestic investment laws. Indeed, the new amendment of the 2018 Ivorian Investment Law designates the Court of Arbitration of Cote-d’Ivoire as the competent organ for the resolution of investment disputes. In Egypt, the Investment Law No. 72 of 2017 contemplates the establishment of ‘[An] Egyptian Arbitration and Mediation Centre’ (Article 91).

 

Update of the Moroccan Arbitration Legislation

Morocco is currently adopting a new standalone arbitration and mediation act detached from the current code of civil procedure containing a chapter on arbitration.

The latest Marrakesh International Justice Conference in October 2019 was the occasion for the highest authorities in Morocco to reaffirm their willingness to provide the country with a modern arbitration act meeting international best standards.

The last panel, chaired by Hassan Arab (Partner, Al Tamimi & Co), consisted of leading Moroccan practitioners – Professors Mohamed El Mernissi (University Hassan II), Tarek Mossadek (Partner, Mossadek Law Firm) and Bensalem Oudija (Director of the Legislation, Ministry of Justice) provided the audience with some insights on the bill currently before the Parliament. Among the novelties, the bill recognizes the validity of electronic arbitration agreement, and contains provision summoning third parties to produce document necessary for the arbitral proceeding.

Pending its adoption, a debate about the impossibility to seize State assets is currently drawing the attention of arbitration practitioners due to a provision (Article 9) contained in the 2020 Budget Act.

 

Conclusion

Casablanca Arbitration Days 2019 was again very successful and engaging. It confirmed its ambition of being a forum of debate about topical issues pertaining to Africa. The continent remains the preferred destination for investments, despite the risks future investors may encounter. As far as African States are concerned, they are very supportive of arbitration, while at the same time contemplating other forms of disputes resolution.

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The Judicial Tribunal Confirms DIFC Courts’ Proper Jurisdiction for Challenge of Awards Under the DIFC Arbitration Law and the Role of the DIFC Courts as a Conduit

Thu, 2020-02-13 01:00

Gordon Blanke

In a ruling of 11 December 2019 (see Cassation No. 8/2019 (JT) – Al Taena: AF Construction Company LLC (formerly Al Futtaim Carillion – Abu Dhabi LLC v. Power Transmission Gulf), the Dubai-DIFC Joint Judicial Tribunal, also commonly known as the “Judicial Tribunal” or simply the “JT”, was required to deal with the conflicting jurisdiction between the onshore Dubai and the offshore Dubai International Financial Centre (the DIFC) Courts for nullification and enforcement of a domestic DIFC-award rendered under the DIFC Arbitration Law, DIFC Law No. 1 of 2008 (the “DIFC Arbitration Law”). In doing so, it essentially confirmed that the DIFC Courts are properly competent to hear actions for nullification of awards rendered under the DIFC Arbitration Law. Unwittingly, it also confirmed the DIFC Courts’ role as a conduit for the enforcement of DIFC awards for onward execution against non-DIFC assets of award debtors based in Abu Dhabi.

 

The JT

By way of reminder, the JT was established by Decree of the Ruler of Dubai (see Decree No. (19) of 2016 forming the Judicial Committee of the Dubai Court and the DIFC Courts, dated 9 June 2016; for reporting on the subject, see my previous blog posts) precisely to deal with conflicts of jurisdiction between the onshore Dubai and the offshore DIFC Courts. Generally speaking, the JT’s competence is confined to situations of genuine jurisdictional conflict, that is where both the onshore and offshore courts have been seized simultaneously in related proceedings or where both courts have declined jurisdiction on the same or related subject-matter.

In an arbitral context more specifically, a qualifying conflict of jurisdiction typically arises in circumstances where an award creditor seeks to enforce a domestic (whether on- or offshore) award before the DIFC Courts pending an action for nullification of the same award initiated by the award debtor before the onshore Dubai Courts. Some of these cases have given rise to the operation of the DIFC Courts as a conduit jurisdiction for the recognition and enforcement of onshore non-DIFC awards for onward execution against the award debtor’s assets offshore by virtue of the area of free movement of judicial instruments, including ratified awards, established by Article 7 of the Judicial Authority Law, Dubai Law No. 12 of 2004, as amended by Dubai Law No. 16 of 2011 (the “JAL”) (see my previous post).

Interestingly, even though the present case appears straightforward on its face, dealing with the nullification and enforcement of a DIFC Award through the DIFC Courts, it is evident that given the registration of both Parties in onshore Abu Dhabi, this is, more likely than not, a case that will ultimately require execution of the award, once ratified by the DIFC Courts, against assets of the award debtor in onshore Abu Dhabi, and in this sense require the DIFC Courts to act as a conduit. To say the least, no mention is made in the JT’s ruling of the presence of any of the award debtor’s assets in the DIFC (despite the passing reference to the purported execution of the subject award by the DIFC Courts, see para. 4 of the ruling).

 

The Facts

By way of background, the Appellant, Al Taena, a subcontractor with registered offices in mainland Abu Dhabi, entered into a subcontract agreement with the Respondent, Power Transmission Gulf, equally registered in mainland Abu Dhabi, for the supply, manufacture, installation, operation and testing of mechanical and electrical works and the plumbing for New York University in Abu Dhabi (the “Subcontract”). The Subcontract contained an arbitration clause providing for any disputes between the Parties to be referred to arbitration under the Arbitration Regulations of the Abu Dhabi Commercial Conciliation and Arbitration Centre(the “ADCCAC”), to be held in Abu Dhabi before a sole arbitrator (the “Arbitration Clause”). The Arbitration Clause was subsequently amended, shifting the arbitral forum from ADCCAC to the DIFC-London Court of International Arbitration (the “DIFC-LCIA”) and providing for a three-member panel to conduct any arbitration under the Rules of Arbitration of the DIFC-LCIA (the “DIFC-LCIA Rules”) and the DIFC Arbitration Law (the “Arbitration Agreement”). In addition, Clause 10 of the Subcontract provided for the exclusive jurisdiction of the DIFC Courts in relation to any dispute arising between the Parties with respect to the Arbitration Agreement.

Subsequently, a dispute arose between the Parties and was referred to DIFC-LCIA arbitration under the DIFC Arbitration Law (see Arbitration Case No. 16068 DL). The arbitral proceedings were conducted in Dubai Marina, that is onshore, i.e. outside the DIFC. On 15 March 2019, the Tribunal rendered an award in favour of the Respondent. In further course, the Respondent in its capacity as award creditor filed for recognition and enforcement before the DIFC Court of First Instance (DIFCCFI) (DIFCCFI Case No. ARB-009-2019).

Around the same time, the Appellant in its capacity as award debtor applied for the nullification of the award to the onshore Dubai Courts (see Petition No. 13/2019) on the basis of the purported invalidity of the award and the purported exclusive jurisdiction of the Dubai Courts given the fact that the arbitral proceedings had been conducted in mainland Dubai and hence outside the DIFC.

 

The JT’s findings

Against this background, the JT held as follows:

  • To start, the JT cited in relevant part Article 5(1) and (2) of the DIFC Courts Law (see DIFC Law No. 10 of 2004), in order to conclude: “Although the DIFC and the DIFC Arbitration Center – London International Arbitration Tribunal are separate entities, the DIFC Arbitration Center is an established institution in the DIFC, and therefore pursuant to Article 5, paragraph 1 / a above, the DIFC Court shall be responsible for monitoring the aforementioned arbitration award and not the Dubai Court.” (para. 9)

I have difficulties following this type of reasoning. The DIFCCFI’s competence to hear actions for recognition and enforcement of DIFC awards stems from Article 42(1) of the DIFC Arbitration Law, which provides that “[a]n arbitral award, irrespective of the State or jurisdiction in which it was made, shall be recognised as binding within the DIFC and, upon application in writing to the DIFC Court, shall be enforced”. Further, the DIFC Courts’ powers conferred by the DIFC Arbitration Law originate in Article 5(1)(E) of the DIFC Court Law, which provides for the “exclusive jurisdiction”of the DIFCCFI “to hear and determine […] any [a]pplication or action that the courts have the power to consider under the Center’s laws and regulations”, one of those laws being the DIFC Arbitration Law. Contrary to the JT’s proposition, the DIFCCFI’s competence in the present circumstances does not result from Article 5(1)(A), which confers exclusive jurisdiction upon the DIFCCFI for any “[c]ivil or commercial applications and claims to which the Center or any of the Center’s bodies, the Center’s institutions or the Center’s licensed institutions are a party” (no such bodies or institutions being involved in the present proceedings).

  • The JT also emphasised the apparent agreement between the Parties to arbitration in the terms set out in the Arbitration Agreement, including in particular the DIFC Courts’ competence to hear actions for recognition and nullification of awards under the DIFC Arbitration Law (see para. 8). This, no doubt, is a correct assessment of the position under the DIFC Arbitration Law, including in particular Article 42(1) in the terms outlined above.

 

  • The JT further confirmed that according to Article 16(2) of the DIFC-LCIA Rules, a DIFC-LCIA tribunal is empowered to hold meetings and hearings outside the legal place or the seat of the arbitration: A resultant award would still be considered issued by the DIFC-LCIA (para. 10). I concur with this proposition in principle, but would add that Article 38(3) of the DIFC Arbitration Law equally confirms that [t]he award shall be deemed to have been made at the Seat of the Arbitration” and according to Article 27(2) of the DIFC Arbitration Law, “the Arbitral Tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties […].”

 

  • That said, the JT also made reference to the “general jurisdiction”of the onshore Dubai Courts (para. 10). It is not clear what this general jurisdiction is. Given that there is no judicial hierarchy between the onshore Dubai and the offshore DIFC Courts, the two courts are of equal status and are as such empowered to determine the limits of their own jurisdiction, neither of the having a “general” jurisdiction that trumps the jurisdiction of the respectively other.

 

Conclusion

In the light of the foregoing, the JT, correctly in my view, concluded in favour of the DIFC Courts’ jurisdiction. For the avoidance of doubt, even without the provision at Clause 10 of the Subcontract, the DIFC Courts are competent to hear actions for nullification in their curial capacity in the terms of Article 41 of the DIFC Arbitration Law. To the extent that parties contract into the DIFC Arbitration Law, the DIFC Courts have competence to exert such curial functions.

On a further note, the JT’s ruling in Al Taena v. Power Transmission Gulfraises the question of the extent to which the DIFC Courts are competent to serve as a conduit for the enforcement of awards (whether on- or offshore) for onward execution outside the DIFC, here in mainland Abu Dhabi. This could be facilitated by the operation of Article 7 JAL, which establishes a system of mutual recognition of DIFC Court orders for enforcement of on- and offshore awards before onshore Dubai Courts, without a review on the merits. A mainland Dubai Court order recognizing the DIFC Court order for recognition and enforcement would in further course be subject to recognition by the Abu Dhabi onshore courts under Article 11 of the UAE Federal Law No. 11 of 1973 (Concerning the Organization of Judicial Relationships Amongst Emirates Members in the Federation, issued 25 July 1973).

In the alternative, the DIFC Court order might benefit directly from the terms of UAE Federal Law No. 11 of 1973, the DIFC Courts qualifying as a court of the Federation. In a further alternative, the DIFC award itself might be enforceable in the terms of Article 13 of UAE Federal Law No. 11 of 1973 (The decisions of the arbitrators issued in one of the emirates shall be executable in any other emirate member of the federation. The juridical body being demanded to carry out the execution cannot reinvestigate the same incident concerning which the decision of the arbitrators was issued.”), there being no need for the more cumbersome enforcement process via the Dubai onshore courts or even the DIFCCFI.

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2019 in Review: India

Wed, 2020-02-12 03:04

Ashutosh Ray (Assistant Editor)

Amazon founder Jeff Bezos on his recent visit to India in January 2020 remarked that the 21st century belongs to India. If that is true, it would also mean a flurry of disputes involving some Indian angle are inevitable and will keep the arbitration industry busy. Thus, even though 2019 may have drawn curtains over the decade, the evolution of arbitration in India will continue to garner immense interest from the rest of the world.

At the start of the new year (and a new decade), it is opportune to reflect the developments and discussions that kept the Indian arbitration community engaged.

 

The 2019 Amendments

The 2019 amendments to the Indian arbitration law came in quick succession since the last amendments in 2015. The amendments garnered global interest and remained a topic of hot discussion. Following are some of the key amendments:

  • The amendments envisage the establishment of an arbitration council (43B) that will grade arbitral institutions in India (S.43I).
  • The appointment of arbitrators may be delegated by the courts to these arbitral institutions to streamline the appointment of arbitrators, especially in ad-hoc arbitrations where the parties are unable to appoint an arbitration tribunal mutually (S.11).
  • The amendments mandate certain qualifications for the arbitrators for their appointment by an accredited institution (by the authority given to them by the court) in an ad-hoc arbitration (where the parties are unable to appoint an arbitrator). Some of the qualifications include that the arbitrator must be one of the following: an advocate in India, a chartered accountant, a costs accountant or a company secretary with certain years of experience (the eighth schedule).
  • There are provisions to ensure that arbitrations are completed in a time-bound manner. They require the pleadings to complete under six months from the appointment of the tribunal (S.23). Similarly, in domestic arbitration, a tribunal shall pass the award within twelve months of the date of completion of the pleadings (S 29A). It is worth noting that these time limits to complete the arbitration do not apply to international commercial arbitrations and are only suggestive in nature (S 29A).

 

A State-supported International Arbitration Institution

The New Delhi International Arbitration Centre Act 2019 (“NDIAC Act”) was passed last year. The passing of the NDIAC Act is to create a state-backed independent and autonomous regime for the promotion of institutional arbitration. The NDIAC Act seeks to declare the New Delhi International Arbitration Centre an institution of national importance and facilitate the promotion of institutional arbitration at both domestic and international levels.

 

A Hands-off Approach Towards BIT Arbitration?

The Delhi High Court’s refusal to grant an injunction against a BIT arbitration in Union of India v. Khaitan Holdings (Mauritius) was seen progressive in international quarters. The judgement was on an interim application and there is a lack of clarity on this point from the Supreme Court and other high courts. However, the decision is the latest on the issue and reflects the judiciary’s forward-looking mindset in terms of its non-interventionist approach to a BIT arbitration. The court, however, mentioned that Indian courts have the jurisdiction to grant anti-BIT arbitration injunctions in rare and compelling circumstances. It noted that the Arbitration and Conciliation Act, 1996 applies only to commercial arbitration and that a court may exercise jurisdiction relating to a BIT arbitration through the Code of Civil Procedure, 1908. It may be viewed in skepticism as well, since, without the application of the Arbitration and Conciliation Act, 1996, parties will find it very difficult to enforce a BIT arbitration award in India.

 

Pre-deposit Requirement Unconstitutional

The Supreme Court in M/s. Icomm Tele Ltd. v. Punjab State Water Supply & Sewerage Board & ANR. struck down part of an arbitration clause that required one of the parties to deposit ten percent of the amount claimed prior to commencing arbitration proceedings. The contract was between a state entity and a private party and the Supreme Court held that such a clause was arbitrary and unconstitutional. It stressed the need for arbitration to be speedy and inexpensive, to help alleviate the burdens of Indian courts. As discussed in this post, the judgement is likely limited to contracts with the state or a state entity. This is because a constitutional challenge such as this may not be available against private parties. Another argument is that where commercially minded private parties have entered into a contract under free volition and considering their business needs, they may not retract from the negotiated terms. Despite this doubt on the scope of the judgement, it has been hailed as another step towards the judiciary’s pro-arbitration stance.

 

Limited Scope of “Public Policy”

Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (“Ssangyong”) was a Supreme Court judgement that clarified the limited scope of the “public policy” ground for setting aside an award as amended by the Arbitration and Conciliation (Amendment) Act 2015. In Ssangyong, the Supreme Court held that the earlier broad interpretation for “fundamental policy” was changed post the 2015 amendments. It relied on the 246th Report of the Law Commission of India which stated that the scope of the public policy ground was different (wider) for the challenge of a domestic award vis-à-vis enforcement of a foreign award. The Supreme Court further relied on the Supplementary to the 246th Report, which stated that the amendments on the issue of setting aside an award ‘were suggested on the assumption that other terms such as “fundamental policy of Indian law” or conflict with “most basic notions of morality or justice” would not be widely construed.’

 

“Group of Companies” Revisited and Reinforced

As covered here, the Supreme Court in Reckitt Benckiser v. Reynders Label Printing and MTNL v. Canara Bank has reinforced the basic principles to be considered while applying the “group of companies” doctrine, such as mutual intention, a direct commonality of subject matter and composite transaction. Both cases provide a fresh and modern outlook through the principles of the settled law in circumstances that are driven by their respective unique facts. They also showcase the Indian judiciary’s maturity, which is mindful of commercial needs and interests, which may require binding non-signatories to an arbitration.

 

Perkins’ Perks

The last quarter of 2019 saw significant developments with the Supreme Court rendering judgments including Perkins Eastman Architects DPC v. HSCC (India) Ltd and Hindustan Construction Company Ltd. & Anr. v. Union of India & Ors. (discussed below) that are forward-looking and will have a lasting effect on how arbitrations are conducted in India. In Perkins Eastman Architects DPC v. HSCC (India) Ltd. the Supreme Court held that a person who has an interest in the outcome of the dispute shall not appoint a sole arbitrator. This judgment will have a deep reforming effect on several government contracts where the government entity is solely entitled to appoint an arbitrator once an arbitration commences.

 

No Automatic Stay on Arbitral Awards

In Hindustan Construction Company Ltd. & Anr. v. Union of India & Ors. the Supreme Court settled that there will be no automatic stay on an arbitral award if it were to be challenged in a court. This is welcome judgment as it has struck down Section 87 (which had resulted in an automatic stay of an award pending the challenge) of the Arbitration & Conciliation (Amendment) Act, 2019 for being manifestly arbitrary under the Constitution of India. The removal of automatic stay was first recommended by the 246th Report of the Law Commission of India consequently adopted by the 2015 amendment to the arbitration law. However, the 2019 amendment had the effect of undoing the changes that were brought in by the 2015 amendment. This judgment should have a decluttering effect on several matters where the parties are unable to recover the arbitration award for several years due to an automatic stay. This may not only encourage the sentiments of the parties to arbitrate, but also provide liquidity to several businesses to expand, as they will be able to secure the award amount pending the outcome of any petition of setting aside of the award.

 

Transitioning into 2020

  • India’s Win in a BIT Arbitration

The beginning of 2020 has been eventful for India. The government recently announced that all claims brought against it in a BIT arbitration by Tenoch Holdings Limited (Cyprus), Mr Maxim Naumchenko (Russian Federation) and Mr Andrey Poluektov (Russian Federation) were dismissed in entirety. The award is not public yet. According to the government’s announcement, the arbitration was the result of the cancellation of Letters of Intent for the issuance of telecommunications licenses to provide 2G services in five telecommunications circles in India. The reason for cancellation cited by the government, among others, was India’s essential security interests. The proceedings were rather swift as the tribunal was constituted only in July 2019.

  • New India-Brazil BIT

According to this report, India has also signed a new BIT with Brazil in January since it revised the model BIT in 2015. The signing comes around two years after the Union Cabinet approved signing and ratification of the Investment Cooperation and Facilitation Treaty (ICFT) between the two countries. Reports suggest that the new treaty incorporates elements from both India’s and Brazil’s model BIT. The text of the ICFT is available here.

***

As India looks forward to 2020, and if Jeff Bezos’ predictions about the 21st century belonging to India are true, the Indian arbitration canvas will continue to be vivid.

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Arbitrating with Saudi Governmental Bodies: Modifying the 56-Year-Old Practice

Mon, 2020-02-10 19:03

Ibrahim Amir

“Recourse to arbitration has now become a right of the competent ministry with the agreement of the Ministry of Finance. Whereas recourse to arbitration was previously an exception, now, this is a clear confirmation by the government of the importance of arbitration and the government’s commitment to participate in more rapid, cost-effective litigation.”

Saudi Minister of Finance, H.E. Mr. Mohammed Al-Jadaan1)statement made at SCCA19 International Conference, organized by the Saudi Center for Commercial Arbitration. See SCCA News, Issue 2, at 8 (2019). jQuery("#footnote_plugin_tooltip_4862_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4862_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In December 2019, the new Government Tenders and Procurement Law (the “GTP Law”), enacted by Royal Decree M/128 on 13/11/1440H (16 July 2019), along with the Implementing Regulations of the Government Tenders and Procurement Law (the“Implementing Regulations”), issued by resolution of Minister of Finance No. 1242 on 21/3/1441H (19 November 2019), came into force. This law, which replaced the old Government Tenders and Procurement Law, enacted by Royal Decree M/58 on 4/9/1427H (27 September 2006), introduces  significant reform with regard to the requirements to enter into arbitration agreements for governmental bodies. Under the new legal framework, governmental bodies have the right to enter into arbitration agreements, whereas previously, government bodies were only permitted to enter into arbitration agreements in exceptional circumstances. Additionally, the GTP law and its Implementing Regulations sets out the required conditions for governmental bodies intending to enter into an arbitration agreement, which was never been the case before. This post discusses how the new legal framework replaces the prior practice that was in place for nearly 56 years.

 

Prohibiting Saudi Governmental Bodies and Agencies from Having Recourse to Arbitration: The 56-Year Old Practice

Since 1963, governmental bodies and agencies in Saudi Arabia have been prohibited from having recourse to arbitration as a means of settling disputes. This was first enacted by the Council of Ministers Resolution No. 58 on 17/1/1383H (25 June 1963) (“Resolution No. 58”). Resolution No. 58 provided in relevant part that “[i]t is prohibited for any Governmental body to accept arbitration as method for settlement of disputes which may arise between it and contracting individuals and companies.” This prohibition was further affirmed in the old Arbitration Law of 1983, enacted by Royal Decree M/46 on 12/3/1403 (11 September 1983), as well as the new Arbitration Law (the “2012 Arbitration Law”), enacted by Royal Decree M/34 on 24/5/1433H (16 April 2012). Article 10(2) of  the latter states that “[g]overnment bodies may not agree to enter into arbitration agreements except upon [the prior] approval by the President of the Council of Ministers, unless allowed by a special provision of law.

While Article 10(2) of the 2012 Arbitration Law allows governmental bodies to resort to arbitration where there is special statutory permission, this is an uncommon scenario. Examples of such statutory permissions can be seen in article 58 of the Mining Investment Law, enacted by Royal Decree M/47 on 20/8/1425H (5 October 2004), and article 13(8) of the Electricity Law, enacted by Royal Decree M/56 on 20/10/1426H (22 November 2005). Under these two laws, a governmental body does not need to obtain the prior approval of the President of the Council of Ministers to enter into arbitration agreements.

This prohibition was further reinforced by Saudi courts. For instance, in OGMPV v. King Abdul-Aziz University, Case No. 235/C/2/1416H, the 9th Administrative Panel, Decision No. 32/D/A/9 dated 1419H,2)Unpublished decision, cited in Khaled Al-Khodeer, Arbitration in the Administrative contracts in Saudi Arabia, 1 Judicial Journal 134, 142-143 (2010). jQuery("#footnote_plugin_tooltip_4862_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4862_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the court refused to enforce an arbitral award rendered against King Abdul-Aziz University on the ground that the arbitration agreement was signed in contravention of Resolution No. 58.

 

Modifying the 56-Year Old Practice: The New Legal Framework

On 19 January 2019, the President of Council of Ministers issued High Order No. 28004 (the “High Order”), signaling a significant shift in policy with regard to arbitrating with governmental bodies and state-owned companies. The High Order states that governmental bodies and state-owned companies seeking to settle their disputes with foreign investors through arbitration shall ensure the arbitration is conducted within the Kingdom in the Saudi Center for Commercial Arbitration or other arbitration centers licensed by the permanent committee referred to in the Council of Ministers Resolution No. 107 of 19 January 2016. The High Order further requires that governmental bodies and state-owned companies obtain the necessary approvals in accordance with established procedures. While the High Order does not elaborate on this requirement and procedures, it designates specific venues for all arbitrations involving governmental bodies and state-owned companies.

The most significant reform, however, was introduced in July 2019, by the enactment of the new GTP Law. This law recently came into force on December 1, 2019, and it applies to all governmental bodies. Article 92(2) of the GTP Law provides that governmental bodies may enter into an arbitration agreement after obtaining the approval of the Minister of Finance and in accordance with the Implementing Regulations. The GTP law vests the authority to grant the required prior approval on the Minister of Finance rather than the President of the Council of Ministers as was the case under article 10(2) of the 2012 Arbitration Law. Notably, the Implementing Regulations do not provide procedures for obtaining the approval of the Minister of Finance. It is, however, likely that such approval would be obtained by submitting a formal request to the Minister of Finance.

Furthermore, Article 154 of the Implementing Regulations, lays out three conditions for governmental bodies intending to enter into an arbitration agreement:

  • The first condition limits arbitration to contracts that exceed SAR 100 million. The Minister of Finance may, however, amend this limitation as he deems it appropriate.
  • Second, the Implementing Regulations specifically require that Saudi laws apply to the subject-matter of the dispute. The Implementing Regulations further provide that governmental bodies may not accept the proceedings to be conducted under the rules of arbitration centers located outside the Kingdom, except in disputes with foreign contracting parties.
  • Third, the Implementing Regulations require that the arbitration agreement and its terms to be stipulated in the contract, which is the subject matter of the dispute.

The new legal framework is undoubtedly welcomed and further reinforces the commitment of the Saudi government to facilitate a pro-arbitration environment for foreign investors. In fact, since the introduction of the new 2012 Arbitration Law, the Kingdom has witnessed significant positive changes in its arbitration regime, as has been reported in this blog. For instance, in 2017-2018, and as was reported in this post, the Kingdom recorded both the highest number of applications for enforcement of judgments and arbitral awards as well as the highest value of applications since 2014. Similarly, and as noted in this post, 2016 witnessed the first female arbitrator in Saudi Arabia, and 2014 witnessed the establishment of the Saudi Center for Commercial Arbitration. These continuing positive developments will further boost foreign investors’ confidence to invest in Saudi Arabia’s rapidly diversifying economy.

References   [ + ]

1. ↑ statement made at SCCA19 International Conference, organized by the Saudi Center for Commercial Arbitration. See SCCA News, Issue 2, at 8 (2019). 2. ↑ Unpublished decision, cited in Khaled Al-Khodeer, Arbitration in the Administrative contracts in Saudi Arabia, 1 Judicial Journal 134, 142-143 (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: Construction Arbitration in Central and Eastern Europe: Contemporary Issues
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Access to Justice in Investment Dispute Settlement

Mon, 2020-02-10 01:00

Stephan Schill

As UNCITRAL Working Group III is proceeding to address concrete proposals to reform treaty-based investor-state arbitration, the future of investor-state dispute settlement (ISDS) is at a historic juncture. Reform proposals include both incremental changes to investor-state arbitration and proposals for further institutionalization, such as the call of the European Union (EU) to establish a Multilateral Investment Court (MIC) or China’s suggestion for an appeals facility for arbitral awards. But there are also suggestions out there to go back to domestic courts or limit international recourses to state-to-state dispute settlement.

This post does not provide a full evaluation of the different reform options; it focuses on one particularly salient aspect: the issue of why investor access to international dispute settlement is a core feature that any reformed system should maintain, independently of whether disputes will be settled through arbitration or by a permanent international court. As further detailed below, the main reason for this is that ISDS provides a form of access to justice and allows for the review of government conduct under international legal standards that cannot be performed with equal vigor by domestic courts or inter-state mechanisms.

 

Protection against political risk in host countries

The principal reason for providing foreign investors with an international recourse against host governments relates to concerns with domestic courts. The domestic judiciary may be, or may be perceived to be, insufficiently independent, impartial, or neutral, or may not offer effective dispute settlement mechanisms, for example due to clogged dockets and excessively lengthy procedures, or because of access limitations for foreign investors. Providing foreign investors with the possibility for recourse in an international forum substitutes for such shortcomings. It provides a form of access to justice in order to have the lawfulness of host state conduct reviewed, and thus reflects an essential tenet of the rule of law.

Granting access to justice to foreign investors is a concern not limited to host countries with weak governance structures. Contrary to often heard arguments that ISDS mechanisms are not needed in countries with well-developed legal systems, deficits with access to justice may also exist there. Such countries, too, may limit or exclude the review of certain government acts, for examples under doctrines, such as the ‘political questions’-doctrine in the United States, or because foreign corporations do not enjoy constitutional protection in the same way as domestic corporations, as is the case inter alia under Article 19(3) of the German Constitution. Furthermore, there is a concern that the host state’s courts, even when they are independent and impartial, may favor their own state to the detriment of the foreign party. Last, but not least, legal systems that have well-functioning judiciaries may change over time. International recourses respond to such concerns and provide access to justice that is independent from domestic courts.

 

Effective enforcement of Investment treaty obligations

A further aspect militating in favor of providing foreign investors with international recourses to settle investor-state disputes relates to applicable law. What investors vindicate under an ISDS mechanism are regularly not rights granted to them under domestic law. Instead, their claims concern alleged breaches of international investment agreements (IIAs). Domestic courts, however, do not necessarily apply IIAs within the internal legal order and do not necessarily give it primacy over conflicting national law. Art 30.6 of the EU-Canada Comprehensive and Economic Trade Agreement (CETA), for example, expressly provides that claims for breach of CETA cannot be brought before the contracting parties’ domestic courts.

Inter-governmental or inter-state mechanisms, such as diplomatic protection, or formal inter-state dispute settlement, in turn, do not provide an adequate substitute for an ISDS mechanism. Affected investors regularly do not have a right vis-à-vis their government to have their claim espoused against a foreign sovereign, making investors dependent on the goodwill of their home country and likely prejudicing smaller compared to larger investors. Giving investors access to an international forum is the most effective means to enforce the substantive rights granted under IIAs.

 

Actively shaping global governance

A third reason that militates for settling investment disputes through ISDS mechanisms consists in the contribution this can make to international cooperation and global governance. In an inter-state system, exercising diplomatic protection could burden the political climate between states, which may be counterproductive to solving other problems for which international cooperation is necessary, be it environmental protection or international security. Granting investors access to ISDS thus creates space for states to cooperate more effectively in other fields without investment disputes clouding their relations, a phenomenon that is also referred to as ‘de-politicization’.

In this context, it is worth stressing that reform solutions to be developed for ISDS preferably are of a multilateral nature, as the protection against political risk is difficult to confine to specific bilateral relationships. This becomes clear when considering that investment flows can be structured so as to fall within the scope of almost any IIA. Even if, for example, CETA had not provided for access to ISDS, Canadian companies could structure their investment into the EU through a company protected by an EU agreement with a third country that contains an ISDS mechanism. The same would apply vice versa for EU investors who invest in Canada. For this reason, it is difficult to limit ISDS to specific bilateral relations. The issue is one of principle: either ISDS is not sought at all, or it is structured so as to be acceptable, in principle, for any foreign investor.

 

Asymmetry problem: investor obligations and enforcement

Yet, ISDS mechanisms also create concerns from an access-to-justice perspective: they asymmetrically provide access to justice for, but hardly against, foreign investors. They serve to protect investor rights, but not to enforce investor obligations and sanction investor misconduct. This is a significant concern as one justification for granting investors access to ISDS, namely deficits in domestic courts, would support granting those affected by investor misconduct access to an international forum as well.

There are, however, also important differences between investor rights and investor obligations that mitigate the asymmetry problem considerably:

  • First, international dispute settlement mechanisms are in many situations not strictly necessary to enforce investor obligations. Investor misconduct can, in many circumstances, be addressed through the means of administrative law and the enforcement mechanisms it provides. Host states regularly do not need to have recourse to dispute settlement to enforce duties they have imposed on investors.
  • Second, ISDS mechanisms, already at present, can be used to enforce investor duties in certain circumstances. Depending on the applicable IIA, breaches of domestic law can bar an investor’s access to ISDS; and counterclaims by states against investors are increasingly accepted as a means to sanction investor misconduct.
  • Third, investor obligations are first and foremost imposed under domestic law; they only appear gradually in IIAs, and often enough only in the form of soft law, such as through references to the OECD Guidelines for Multinational Enterprises. The argument that access to justice in an international forum is needed to enforce obligations that are of an international legal character would therefore not apply.

In any event, the concern for asymmetry should not be resolved by opposing investor access to an international dispute settlement forum, or by not supporting the present UNCITRAL reform process for ISDS. ISDS mechanisms are worth preserving because they can serve as an accountability mechanism for host government conduct, implementing the rule of law’s central idea of subjecting government conduct to effective legal constraints. In this sense, investment dispute settlement, whether through arbitration or before an international court, constitutes a form of access to justice. An appropriate solution to the asymmetry problem could then consist in creating investment dispute settlement mechanisms, for example as part of the current UNCITRAL process, that are sufficiently open, so that its jurisdiction can cover not only claims by, but also claims against, foreign investors. This could constitute an important step in addressing gaps in investor accountability and provide comprehensive access to justice in respect of international investment projects for all actors affected.

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Decisions of the Swiss Federal Supreme Court in 2019 – Part I

Sun, 2020-02-09 01:32

Petra Rihar

This is the 1st part of the report highlighting the most significant arbitration related decisions of the Swiss Federal Supreme Court (the “Supreme Court”) issued in 2019.

 

Arbitrability

In the decisions 4A_244/2019 and 4A_246/2019 of 12 December 2019, the Supreme Court dealt with the issue of arbitrability. In two arbitrations brought before a tribunal under the UNCITRAL Arbitration Rules (PCA Case No. 2015-34 and PCA Case No. 2015-35), Ukrainian companies (“Claimants”) argued that the Russian Federation (“RF”) had taken measures in connection with the integration of the Crimean peninsula in 2014 which affected the Claimants’ assets (petrol stations, storage facilities and office premises) and led to their expropriation. In two awards dated 12 April 2019, the tribunal found that RF expropriated the investments made by the Claimants in violation of Article 5 of the 1998 Investment Protection Agreement (the “ISA 1998”), for which it owed a compensation.

RF appealed against the awards arguing that the dispute was not arbitrable and the awards should be annulled. By holding that the dispute fell under ISA 1998 and that the Claimants had made an investment in Russia, the tribunal had assumed that, as of 21 March 2014, the Crimea had changed its status and was no longer Ukrainian territory. However, the status of the Crimea was a question that could not be determined by the Claimants or by one party to the ISA 1998 on its own. Rather, only the contracting states could determine the extent of their mutual obligations by way of a formal amendment of ISA 1998. The tribunal had thus decided a question which was neither freely determinable nor arbitrable.

The Supreme Court held that the subject of the arbitration was not the status of the Crimea in relation to ISA 1998 or its status under international law, but rather the claim for compensation for the alleged expropriation of the Claimants’ investments, i.e., a pecuniary claim within the meaning of Article 177 PILA. Therefore, the awards were neither void nor contestable.

An award of a tribunal seated in Switzerland can be appealed against, if the tribunal, due to lack of arbitrability, should have, but did not decline its jurisdiction. In case of an appeal, when reviewing the issue of arbitrability, the Supreme Court applies the same law, i.e. the Swiss lex arbitri. By contrast, in recognition and enforcement proceedings under Article V(2)(a) NYC, the courts of the state in which an award is to be enforced, apply their own laws, i.e. lex fori executionis, when deciding on the arbitrability of the dispute.

 

Extension of Arbitration Agreement to Non-Signatories

In the decision 4A_636/2018 of 24 September 2019, the Supreme Court dealt with the issue of whether a state was bound by an arbitration clause signed by a state-owned entity. A Turkish joint-venture A, consisting of two Turkish companies B and C entered into an agreement (“Agreement”) with a state-owned Libyan entity D in order to realize a large infrastructure project. In 2011, as 70% of the project were completed, A, B and C suspended their work due to riots. Subsequently, they filed an arbitration claim against D as well as against the state of Libya. In a partial award, the tribunal, by reference to the Westland decision (P 1675/1987), found the claim against Libya, a non-signatory, inadmissible due to lack of jurisdiction. A, B and C appealed against this decision.

The Supreme Court dismissed the appeal stating that, under the Swiss lex arbitri, entities established under public law and founded by the state are considered to be legally independent. Arbitration agreements concluded by such entities cannot be extended to the states that control them, if they did not sign the respective agreement. With reference to its case law on Article 178 PILA, the Supreme Court stated that there are constellations, where an arbitration clause can be binding on persons who did not sign it, namely in the case of (i) an assignment of claims, (ii) an assumption of debt, (iii) a transfer of contract, and (iv) a contractual interference. In the last mentioned situation, a third party who continuously and repeatedly interferes in the performance of a contract containing an arbitration clause is treated as having joined the contract and submitted to the arbitration clause if she indicates her will expressly or gives the impression under the principle of good faith to be a party to the arbitration clause.

The Supreme Court concluded that A, B and C failed to show any circumstances from which they could have concluded that Libya had acceded to the arbitration clause by interfering in the execution of the Agreement.

The extension of an arbitration clause due to contractual interference was also discussed in the decision 4A_646/2018 / 145 III 199 of 17 April 2019. In 2009, a Slovenian company A entered into a distribution agreement (“Agreement”), valid until 31 December 2014, with a Swiss company BAG. The Agreement contained an arbitration clause providing for arbitration in Ljubljana and Slovenian laws applicable to the resolution of the dispute. With the consent of all parties involved, the Agreement was being performed by BAG’s sister company BSA until the end of 2015. Subsequently, A filed a claim for payments against BSA before the state court. BSA objected the claim, stating that the court lacked jurisdiction due to the arbitration clause contained in the Agreement. The state court found A’s claim against BSA inadmissible and, pursuant to Article II(3) NYC, referred the parties to arbitration. A appealed to the Supreme Court to vacate the lower court’s decision.

The Supreme Court dismissed the appeal stating that Article II(2) NYC, like Article 178(1) PILA, requires that the arbitration agreement is signed by the (original) parties at the time the agreement is concluded. While the formal requirement only applies to the declarations of intent of the (original) parties to the arbitration agreement, the binding of third parties is governed by the applicable substantive law. This differentiation regarding the form requirement applies under Article 178(1) PILA and under Article II(2) NYC. Which third parties are bound by an arbitration agreement is a question of contract interpretation, the decisive factor being the concurrent actual will of the parties. The effect of BSA’s contractual interference did not concern the formal requirements of the arbitration agreement, but must be assessed in accordance with the applicable substantive law.

 

Violation of the Right to be Heard Must be Relevant to the Outcome

In the decision 4A_424/2018 of 29 January 2019, while acknowledging that the appellant athlete’s right to be heard had been infringed, the Supreme Court refused to set aside a CAS-award ordering the athlete’s suspension from the date of the award. The athlete appealed to the Supreme Court arguing that her right to be heard had been violated regarding the starting point of the suspension. The panel, when deciding on the starting point, took into account facts subsequent to the hearing, without giving her an opportunity to express her views on them.

The Supreme Court held that, by assessing the interests of the athlete and the results she had obtained after the hearing, without first giving her the opportunity to make a statement on this issue, the panel infringed the athlete’s right to be heard. However, there was no evidence that the violation of the athlete’s right to be heard could have had any bearing on the panel’s decision.

A false or arbitrary reasoning is not in itself sufficient to cause an award to be set aside. For an award to be set aside for violation of the right to be heard, a party must show that the arguments or evidence presented but not considered by the tribunal were relevant for the outcome of the dispute. If it is not clear what effect the violation of the right to be heard had on the proceedings, the challenged award will not be set aside.

 

Violation of Substantive Public Policy Must Lead to a Manifestly Unjust Result

In the decision 4A_318/2018 of 4 March 2019, the Supreme Court refused to set aside a CAS-award sanctioning a footballer with an ineligibility of 14 months. The sanctioned athlete did not contest having committed an anti-doping rule violation and, when fixing the suspension, the panel held that under the applicable regulations a shorter duration of the suspension was not possible. The athlete appealed against the award arguing, i.a., that the suspension was contrary to substantive public policy as it infringed his right to pursue his professional activity and seriously affected his reputation.

The Supreme Court held that the plea of incompatibility with substantive public policy was unfounded as, in matters of disciplinary sanctions imposed on athletes, when an appeal is based on the violation of the substantive public policy, the Supreme Court only intervenes, if an award leads to a manifestly unjust result or a shocking unfairness.

The Supreme Court reaffirmed its case law in procedural order 4A_248/2019 of 29 July 2019. A CAS-award obliged the athlete Caster Semenya to take medication reducing her testosterone level pursuant to DSD-regulations (“DSD-R”). While acknowledging that DSD-R created a differentiation based on sex and certain innate biological characteristics, the panel considered such discrimination necessary, reasonable and proportionate means to ensure fair competition in female athletic events. Semenya appealed against the award, together with an ex parte request for suspension of DSD-R and a stay of the execution of the award, arguing, i.a., that the DSD-R was contrary to substantive public policy as it violated the principle of the prohibition of discrimination, her personality rights and human dignity.

The Supreme Court held that the European Convention on Human Rights was not directly applicable to arbitration and it was rather unlikely that an infringement of personality rights or human dignity would be contrary to public policy. For an award to be set aside, it is not sufficient that the tribunal’s reasoning violates public policy; it is the result of the award that must be incompatible with public policy.

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Decisions of the Swiss Federal Supreme Court in 2019 – Part II

Sun, 2020-02-09 00:30

Petra Rihar

This is the 2nd part of the report highlighting the most significant arbitration related decisions of the Swiss Federal Supreme Court (the “Supreme Court”) issued in 2019.

 

Ne Eat Arbiter Extra Petita

In the decision 4A_294/2019 / 4A_296/2019 of 13 November 2019, the Supreme Court dealt with an extra petita appeal against an ICC-award. The dispute arose from an agreement between A (Claimant) and B and C (Respondents) regarding the supply of 60 armored vehicles. After various disagreements, A, who was tasked to develop, design, manufacture and supply the vehicles, commenced an arbitration and submitted, i.e., the following request:

“… 3. The Tribunal shall declare Respondents, severally and jointly, liable to compensate Claimant for any and all damages incurred as a result of Respondents’ contractual breaches resulting in Claimant’s partial avoidance of the 4×4 Armored Tactical Vehicle Contract dated 25 January 2015, as amended …“.

In section a. of the award, the Tribunal declared that:

“… ii. The Respondents are jointly and severally liable to compensate the Claimant in the amount of USD 1,605,521.37, for damages incurred as a result of the Respondents’ contractual breaches of the Agreement / Amended Agreement; …“.

A appealed, i.e., against section a.ii. of the award arguing that the arbitral tribunal had decided on points of dispute which had not been submitted to it. While A had sought a declaration that the defendants were jointly and severally liable for the damage arising from the breaches of contract, the tribunal ordered the Respondents to pay damages under joint and several liability.

The Supreme Court upheld the appeal stating that the tribunal, instead of deciding on A’s request for a declaratory judgment, decided on a request for performance which A had not made in the arbitration. By doing so, the tribunal went beyond A’s requested relief.

By contrast, the principle of ne extra petita is not violated where a tribunal, without granting more or something else than requested, relies on different legal reasons than those argued by the parties (iura novit arbiter previously discussed here on the blog).

 

Impartiality and Independence

In the decision 4A_292/2019 of 16 October 2019, the Supreme Court dealt with the admissibility of ex parte communication between an arbitrator and a party’s counsel. A dispute between a claimant Turkish company B and a respondent Swiss Company A was to be solved in an ad hoc arbitration. Addressing the competent court, B requested the appointment of L as co-arbitrator. A opposed this nomination stating the L had previously worked in the same law firm as B’s counsel. The court nominated L as arbitrator stating that this fact does not compromise L’s independence and impartiality. The court further nominated E as the second co-arbitrator. Subsequently, both co-arbitrators nominated S as chairman. Two days after his appointment and four days before the constitution of the tribunal, L had a 12-minute telephone conversation with B’s counsel. According to tribunal’s explanation, L had called B’s counsel to inquire whether the contract contained a choice of law clause, with the purpose of enabling the two co-arbitrators to choose a suitable chairman. L had made the telephone call with the prior consent of the co-arbitrator and had subsequently informed the chairman of the call. The arbitration ended with an arbitral award in favor of B. A challenged the award on the basis of irregular constitution of the tribunal due to L’s lack of impartiality and independence.

The Supreme Court dismissed the appeal stating that unilateral contacts between a party’s counsel and an arbitrator are not generally forbidden. Having regard to paragraph 8 (a) and (b) of the IBA-Guidelines on Party Representation, it is acceptable to contact a potential arbitrator in order to determine her availability or to discuss the appointment of a chairperson. However, following the appointment of the chairperson, unilateral contacts are in principle inadmissible. L’s telephone conversation served the purpose of selecting a suitable chairperson, since the state court’s appointment decision did not contain any information on a possible choice of law and the question was likely to influence the choice of a chairman. Viewed objectively and in the light of all circumstances, L.’s actions did not create an appearance of bias.

 

Recognition and Enforcement

The impartiality and independence was further discussed in the decision 4A_663/2018 of 27 May 2019, concerning the recognition and enforcement of two ICC-awards. The ICC-arbitrations were initiated by B, a Swiss Company belonging to the C Group, against A, the appellant in the case at hand. Chairman in both ICC-proceedings was F, a partner in the US law firm GLLP. After the awards, both in favor of B, were rendered, A challenged F’s impartiality. The challenge was based on the fact that, during the ongoing arbitration, fees in the amount of USD 6.5 million were paid to GLLP by a company of the C Group. However, the client of GLLP was the US Department of Energy (“DOE”) and not the company of the C Group. GLLP advised DOE in connection with the granting of a loan to C Group and the C Group paid the relevant fees based on an agreement with DOE.

B successfully applied for recognition and enforcement of the awards in Switzerland. Referring to Article V(2)(b) NYC, A appealed against the recognition arguing that it was contrary to the Swiss public policy.

The Supreme Court dismissed the appeal holding that, whether F is to be regarded as biased, must be analyzed objectively and in the light of all circumstances. F’s conduct was careless, as he inadequately entered the details of the parties to the proceedings into the conflict of interest system before accepting the mandate. The significant fees paid to GLLP by a company belonging to the same group as one of the parties to the arbitration were also critical. However, this was not sufficient to refuse the exequatur of the awards. The public policy exception must be interpreted restrictively, especially when it comes to the recognition and enforcement of foreign decisions. Only blatant disregard of the principle of independence and impartiality can lead to a refusal. In the field of international arbitration, it is mainly facts that clearly belong on the red list of the IBA Guidelines on Conflicts of Interest.

 

Principle of Good Faith in the Phase of Award Notification

In the decision 4A_264/2019 of 16 October 2019, the Supreme Court dealt with the parties’ obligation to immediately give notice of any procedural errors. After the conclusion of an ICC-arbitration obliging the respondent A to make a payment to the claimant B, the award was delivered to A’s counsel by courier on 23 October 2018, after receiving a copy of the award by email on 22 October 2018. On the basis of the email copy, A filed a request for interpretation of the award. Subsequently A discovered at an undisclosed date that several pages, including the dispositive part and the signature page, were missing from the original award delivered by courier. A’s counsel reported this to the ICC-Secretariat by email on 8 April 2019, requesting that a complete original of the award be sent to him; he received it on 29 April 2019.

In her appeal of 29 May 2019, A requested that the final award, notified to A by courier on 23 October 2018, be declared null and void and the matter referred back to the ICC for rectification so that a new complete original would be delivered to A.

The Supreme Court held that the appeal was not admissible. A knew that an award had been issued and realized that the ICC-Secretariat wanted to send her this award. She was able to see that at least a part of the document and the signature were missing, simply by inspecting the document. She was not only in a position, but also obliged – in good faith and applying due attention – to report the incompleteness of the award to the ICC-Secretariat immediately upon receipt of the original and demand the delivery of a complete document. After failing to do so, A forfeited her right to a new, proper service of a complete original. Whereas a timely request for service of a complete original could have been regarded as the triggering event for the statutory 30-day time limit, the fact that A failed to make such a request in due time resulted in the expiry of the time limit for challenging the award.

The principle of good faith also applies to parties to international arbitrations seated in Switzerland. According to the principle of good faith, the parties must immediately give notice of procedural errors. They forfeit the possibility of contesting the decision if they do not give the deciding instance the opportunity to remedy such errors in due time.

 

Appointment of Arbitrator Not Subject to Appeal

In decision 4A_146/2019 of 6 June 2019, the Supreme Court addressed the question whether a decision by which an arbitration organization appointed an arbitrator can be challenged before it.

Supreme Court held that a decision taken by a private body, such as the ICC or the CAS, to appoint an arbitrator – on the basis of the rules of the arbitration institution – does not constitute an award and is therefore not subject to direct appeal to the Supreme Court. Consequently, the appointment of the arbitrator can only be reviewed in the context of an appeal against the first challengeable award made by that arbitrator.

 

Conclusion

In its decisions issued in 2019, the Supreme Court has confirmed its constant arbitration-friendly jurisprudence. In some decisions, the Supreme Court further developed its case law by clarifying its earlier statements. This was particularly the case with regard the exact requirements that need to be met for it to intervene (see, in particular, 4A_424/2018, 4A_318/2018 and 4A_248/2019). In one decision, the Supreme Court extended its settled case law on PILA to situations where NYC applies (see 4A_646/2018 / 145 III 199).

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2019 in Review: International Investment Agreements and Human Rights

Sat, 2020-02-08 03:58

Nicholas J. Diamond (Assistant Editor)

Several developments in 2019 highlighted the increased presence of human rights considerations in international investment law. As described by our contributors, however, tensions persist.

The 2019 Netherlands Model Agreement, released in March, represented a notably progressive approach to reflecting human rights considerations in foreign investment, as explained by our contributors. This development builds on related drafting considerations for model agreements, as described by our contributors.

The revised draft of a legally binding instrument to regulate under international human rights law the activities of transnational corporations and other business enterprises (TCs/OBEs), released in July, marked crucial progress toward evolving investor obligations regarding human rights on the international plane.

Finally, the much-anticipated final text of the Hague Rules on Business and Human Rights Arbitration was released in December following a public consultation period, as described by our contributors. The final text created a novel pathway for arbitration of business and human rights disputes, as explained by our contributors. We learned from our contributors that challenges remain, but prior experience using arbitration to resolve human rights disputes may offer instructive lessons.

In addition to these developments, several new international investment agreements (IIAs) were signed in 2019, many of which contain preambular text or substantive provisions relevant for human rights. This post provides an overview of these new IIAs, with a focus on their potential implications for human rights considerations in international investment law.

 

New IIAs

According to the UNCTAD as of January 2020, 14 new IIAs were signed in 2019, all of which are not yet in force. The texts of 10 of these 14 IIAs are publicly available. Nine of these 14 IIAs—or nine of the 10 IIAs with a publicly available text—contain preambular text or substantive provisions relevant for human rights. Specifically, this post highlights five categories: (1) preambular text; (2) corporate social responsibility (CSR) provisions; (3) general exceptions provisions; (4) provisions preserving regulatory autonomy; and (5) non-lowering of standards provisions. In some instances, explicit reference is not made to human rights, but the language used is as an interpretative matter nonetheless relevant for human rights.

These developments represent a continuation of trends from prior years. However, 2019 is notable for both the volume of such inclusions across newly signed IIAs and the share of newly signed IIAs in which they appear. As such, these developments both further normalize the presence of human rights considerations in IIAs and advance the broader trend toward reflecting human rights considerations in international investment law.

 

Preambular Text

The preamble to an IIA informs the general object and purpose of the instrument. Article 31(1) of the Vienna Convention on the Law of Treaties requires that the provisions of an IIA be interpreted in view of its object and purpose. Two new IIAs signed in 2019 refer to human rights or specific human rights instruments in their preambles. The CARIFORUM States-United Kingdom EPA broadly refers to the parties’ commitment to respect human rights. Additionally, the EU-Vietnam IPA refers to specific international instruments, affirming the parties’ commitment to the Universal Declaration of Human Rights. In isolation, such preambular text has minimal interpretative impact. However, it can play a supplemental role alongside substantive provisions to inform an interpretation of the instrument that supports the relevance of human rights considerations.

 

Corporate Social Responsibility

IIAs may include substantive provisions regarding CSR that refer to human rights. These provisions are typically nonbinding or directed to State parties, rather than investors. Several new IIAs signed in 2019, such as the Brazil-UAE BIT,  refer to the OECD Guidelines for Multinational Enterprises, which captures recommendations from governments to multinational enterprises on responsible business conduct. Moreover, several IIAs also identify voluntary principles to guide investor conduct, such as respecting the internationally recognized human rights of individuals involved in the investor’s business activities.

At present, such provisions likely have limited practical impact on investor conduct, owing to their voluntary nature or indirect application to investors. However, considered alongside efforts to establish binding human rights obligations for TCs/OBEs on the international plane, they further evidence an ethos of an evolving foreign investment regime that increasingly recognizes the close connection between investor conduct and human rights.

 

General Exceptions

General exceptions provisions permit a State to lawfully undertake actions that would otherwise be inconsistent with its obligations under the IIA. Such provisions often identify public policy objectives which, even if they do not specifically reference human rights, can be interpreted to shield regulatory measures intended to respect, protect, or fulfill the host State’s human rights obligations on the international plane. Indeed, such provisions played a critical role in the various investment disputes that arose following the economic crisis in Argentina in the early 2000s, many of which included human rights considerations.

Many of the new IIAs signed in 2019, such as the Brazil-Morocco BIT, except measures taken for the maintenance of “public order” which, if broadly construed under certain factual scenarios, could be relied upon to justify measures intended to respect, protect, or fulfill human rights obligations. Moreover, several IIAs, such as the Armenia-Singapore Agreement on Trade in Services and Investment, also specifically except measures “necessary to protect human, animal or plant life or health”.

Given that such provisions intend to address a spectrum of situations, not just those impacting human rights, their open-textured language is perhaps appropriate. Narrowing such provisions by, as example, including specific human rights references, would risk undercutting their broader purpose, as well as unduly preferencing State interests, which may be more properly addressed through other provisions, such as those preserving regulatory autonomy, below.

 

Preserving Regulatory Autonomy

Regulatory autonomy, also sometimes called the right to regulate, refers to the “regulatory space” that States enjoy regarding their domestic activities, limited primarily by domestic legal or political constraints. This open-textured authority is particularly relevant for domestic economic activities. It is also the primary way that States provide for the satisfaction of their human rights obligations arising on the international plane.

A few new IIAs signed in 2019, such as the Australia-Hong Kong Investment Agreement, contain preambular text that seeks to preserve regulatory autonomy to “safeguard public welfare, and protect legitimate public welfare objectives”, and one specifically refers to public health in this regard. Others contain substantive provisions that seek to preserve regulatory autonomy. The Brazil-Ecuador BIT, for example, even specifically refers to human rights in this regard.

Such provisions, especially where explicitly connected to human rights in the investment context—and, better still, specific human rights instruments—may prove especially relevant in disputes challenging certain State measures. They may, however, create tensions with substantive investor protections regarding, as example, expropriation, the balance between which a tribunal would have to determine under the facts of the dispute.

 

Non-Lowering of Standards

IIAs may contain substantive provisions that preclude States parties from lowering regulatory standards, including with respect to human rights, for purposes of attracting foreign investment. For example, the CARIFORUM States-United Kingdom EPA precludes State parties from “lowering domestic environmental, labour or occupational health and safety legislation and standards or by relaxing core labour standards or laws aimed at protecting and promoting cultural diversity”. The Brazil-Ecuador BIT contains a similar provision and even specifically refers to human rights in this regard.

 

Looking Ahead

Human rights considerations increasingly arise in discussions around the evolution of international investment law. IIAs continue to play a foundational role in this trend, as noticeably progressed by newly signed IIAs in 2019. The extent to which disputes arise under the abovementioned IIAs in the coming years, and whether such disputes include human rights considerations, will crucially bear on the trajectory of efforts to gradually align human rights and investment interests.

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New Arbitration Rules of the Finland Chamber of Commerce – more expeditious and effective proceedings

Fri, 2020-02-07 01:00

Sampsa Seppala

The Finland Chamber of Commerce has recently revised its Arbitration Rules and the Rules for Expedited Arbitration to address the growing demands of the competitive world of commercial arbitration, as reported by the Arbitration Institute of the Finland Chamber of Commerce ( “FAI” or the “Institute”) in its article from December 2019. The revised Rules, which entered into force on 1 January 2020 (the “2020 Rules”), seek to provide for more expeditious and effective proceedings.

While Finland is internationally not as well-known as an arbitration destination as its western neighbour, Sweden, it has recently been able to build its reputation as a neutral location for the resolution of international disputes. In terms of FAI’s statistics for the last 5 years, its annual caseload has ranged between 52 and 79 new arbitration requests, of which 22-36 % of such cases have had an international element. In 2019, the exact number of cases was 67. Although already an arbitration-friendly state, Finland has also, in addition to the revision of the Rules, commenced efforts to renew the Finnish Arbitration Act from 1992, as discussed in this post. As for the revised 2020 Rules, the most important amendments will be covered below.

 

Changes to the Rules adopted in 2013

Compulsory advance on costs

In comparison to the previous Arbitration Rules and the Rules of Expedited Arbitration (hereafter the “2013 Rules”), the Institute will now require an advance on costs in all arbitration proceedings, and not only in international disputes. Previously, it was within the Institute’s discretion to order an advance to be paid in domestic disputes.

In the past and in arbitrations governed by the 2013 Rules, the parties were entitled to propose an advance to be fixed in domestic arbitrations as well, but the Institute was not bound by such a proposition (cf. FAI’s Arbitrator’s Guidelines). In practice, an advance was effectively only ordered in domestic cases when requested by all parties or under otherwise special circumstances, for example if it was clearly foreseeable that the parties would not be able to fulfil their payment obligations at the end of the arbitration. The detailed rules concerning an advance were formerly found under Article 48 of the 2013 Rules (now covered under Article 50 of the 2020 Rules).

When no advance was fixed by the Institute, arbitral tribunals would nevertheless previously often request an advance from the parties to secure the payment of their fees and expenses. However, in these situations the advance would only cover the fees and expenses of the tribunal, but not the administrative fee of FAI. Consequently, the purpose of the modification is to ensure that in all arbitration proceedings (both domestic and international) all estimated costs of the arbitration are covered by the advance. The amendment also works to ensure a more equal treatment of arbitrators from different professional backgrounds, i.e. attorneys and other legal professionals, as previously attorneys working at law firms were mainly the only ones who had the opportunity to utilise designated client fund accounts as a means to retain advance payments.

 

Electronic delivery

Another key amendment with respect to the streamlining of the proceedings is a modification according to which case documents may be transmitted to the Institute by electronic means alone or by way of a single hard copy. Under the 2013 Rules, documents had to be delivered in multiple hard copies. Naturally, the Institute as well as the arbitral tribunals will still have the possibility to request transmissions in hard copies when this is considered necessary. Additionally, written statements, notices and other communications may be transmitted in any manner that provides a record of the transmission under the 2020 Rules. The wording, specifically found under Article 4 of the 2020 Rules, is intended to allow the adoption of new means of communication and other technologies and, by doing so, address future needs pre-emptively, without a need for further revisions to the 2020 Rules.

 

Added flexibility between standard and expedited rules

Another tool with which the 2020 Rules add flexibility is the possibility to refer a case under the FAI Arbitration Rules to the FAI Expedited Arbitration Rules and vice versa. This referral, enabled under Article 10 of the 2020 Rules, will be possible prior to the confirmation of any arbitrator, is subject to the approval of the parties and is not dependent on any specific financial thresholds as is the case with, for example, the ICC’s expedited procedure (cf. Art. 30 of ICC’s Rules of Arbitration). The parties can even utilise a new model arbitration clause called “the combined clause”, which leaves the ultimate choice of the applicable Rules to the discretion of the Institute. This makes a clear distinction between the 2020 Rules and the 2013 Rules under which the Expedited Arbitration Rules could only be applied if the parties had specifically agreed to their application. Under the 2013 Rules, it was also not possible to refer an ongoing arbitration proceeding to be conducted under the Expedited Rules. The purpose of this addition is to increase the use of the Expedited Arbitration Rules in small and simple cases wherein a full-fledged procedure would not necessarily be the most practical decision. In the aforementioned article, FAI has reasoned the revision as follows:

“When drafting an arbitration clause, parties are often unable to foresee the type of dispute that may potentially arise out of their agreement. For this reason, parties opt for proceedings under the FAI Arbitration Rules more often than expedited proceedings. This means that the FAI Expedited Arbitration Rules, which provide for a procedural framework that is particularly appropriate for small and simple disputes, have remained underutilized. The 2020 Rules aim to encourage the use of expedited proceedings by adding flexibility to the choice between the two sets of Rules”.

In comparison to standard proceedings, in expedited arbitration proceedings the dispute is decided by a sole arbitrator and the arbitral award is rendered within three months from the date on which the sole arbitrator received the case file from the Institute. Another key feature of expedited proceedings under the 2020 Rules is the absence of oral hearings unless one of the parties specifically requests that oral hearings take place and the sole arbitrator deems them necessary. Moreover, the arbitral award shall not contain the reasoning of the sole arbitrator unless a party has requested a reasoned award within the time limit set by the sole arbitrator. The costs of expedited proceedings are also generally lower than those of standard proceedings. It is, however, worth noting that expedited proceedings have, to this date, been relatively rare (only a few cases each year). This is most likely the case due to the fact that disputes governed by the standard Arbitration Rules are generally resolved within 8-9 months after the case file has been transferred to the respective arbitral tribunal.

 

Shortening of time limits and added procedural control under standard proceedings

The 2020 Rules look to expedite the arbitration proceedings by shortening the default time limits for the appointment of a three-member tribunal from 15 days to 10 days. Arbitral tribunals will now also be required to hold the case management conference in principle within 21 days (14 days for expedited proceedings) from the date on which the arbitral tribunal received the case file from the Institute. These changes can be found under Articles 19 and 30 of the 2020 Rules.

With respect to the efficiency of the proceedings, the 2020 Rules also explicitly state under Article 49 that where a party has failed to comply with the orders or other directions of the arbitral tribunal, the tribunal may take such failure into account in its allocation of the costs of the arbitration. To be clear, tribunals also had the option to do this under the 2013 Rules, but this ability was not specifically mentioned in the rules. By way of this amendment, the 2020 Rules work to encourage the parties to act in a manner which promotes the expedience and efficiency of the proceedings.

 

Confidentiality orders

Lastly, the 2020 Rules explicitly provide arbitral tribunals with the power to issue confidentiality orders. Although the 2013 Rules required the parties to keep confidential the documentation related to the proceedings, subject to certain exceptions, the powers of the arbitral tribunal to issue confidentiality orders were not previously explicitly regulated. Comparatively, under Article 51 of the 2020 Rules, arbitral tribunals now have explicit jurisdiction to render such orders, should this prove to be necessary.

 

Conclusion

In a nutshell, the 2020 Rules continue in the footsteps of the 2013 Rules by creating a more attractive option for the resolution of both international and domestic commercial disputes. The FAI Arbitration Rules and the FAI Rules for Expedited Arbitration have proven to be very competitive in an international comparison in terms of speed and cost-efficiency. According to FAI’s statistics, the average duration of arbitration proceedings under the FAI Arbitration Rules was 9 months in 2018. The modifications made in the 2020 Rules will certainly further improve the efficiency and speed of FAI arbitrations.

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Could an Arbitral Award Rendered by AI Systems be Recognized or Enforced? Analysis from the Perspective of Public Policy

Wed, 2020-02-05 20:00

Guillermo Argerich, Juan Jorge and María Blanca Noodt Taquela

Questioning About the (Inexorable?) Future

Could artificial intelligence (AI) carry out decision-making? Is it just a matter of time? Will AI replace human arbitrators? Further, will emotional intelligence always trump AI, or will AI enhance the arbitral process?

Despite the topicality of the subject, the arbitration rules remain silent about AI. However, there is also no express provision regarding the human quality of arbitrators. Does this open the door to AI? In particular: should the recognition or enforcement of an award rendered by these systems be denied on the basis of public policy grounds contained in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)?

 

Public Policy under the New York Convention: Importance of Global Values

According to article V(2) b of the New York Convention, the competent authority in the country where recognition and enforcement is sought may refuse them, if the arbitral award is contrary to the public policy of his or her country.

To answer whether the use of AI for decision-making would imply a violation of such public policy, it is worth starting from the premise that public policy is a variable concept, which continuously evolves to meet the changing needs of political, social, cultural and economic contexts.

The notion of public policy has been considered vague and hard to define. Despite that, to overcome this inconvenience we may resort to globalization, which first appeared as an economic phenomenon, but has later been evidenced in numerous aspects, including political, cultural, legal and ideological concepts. Thus, we can speak of global values that prevail in a global society and that influence the evaluation of international public policy at the time of deciding on the recognition and enforcement of foreign arbitral awards.1)See: M. B. Noodt Taquela / A. M. Daza-Clark, “The Role of Global Values in the Evaluation of Public Policy in International Investment and Commercial Arbitration” in: V. R. Abou-Nigm / K. McCall-Smith / D. French (eds.), Linkages and Boundaries in Private and Public International Law, Oxford, Hart, 2018, pp. 121-144; M. B. Noodt Taquela, “Incidencia de los Valores Globales en la Evaluación del Orden Público Internacional en el Reconocimiento y la Ejecución de los Laudos Arbitrales Extranjeros”, in: Jurisprudencia Argentina 2019–I, Buenos Aires, Abeledo Perrot, 2019, pp. 1187-1193. jQuery("#footnote_plugin_tooltip_8254_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In fact, assuming that countries share some essential values, it seems difficult to imagine a successful defence based on public policy since there will be a coincidence between the prevailing conceptions in the country of the seat of the arbitration, the country whose law is applicable to the substance of the dispute and the country where the recognition and enforcement of the foreign arbitral award is intended.

Furthermore, the existence of global values may be one of the reasons for which there are relatively few decisions in which public policy is debated as grounds for refusing recognition or enforcement of foreign arbitral awards. In addition, we believe that the existence of global values recognized by most countries may explain why some awards set aside in the country of the seat of the arbitration were later enforced in other countries.2)See: France, Cour de cassation, Chambre civile 1, 03/23/1994, “Hilmarton (I)”; United States of America, District Court, District of Columbia, 07/31/1996, “Chromalloy Aeroservices and The Arab Republic of Egypt”; France, Cour d’appel de Paris (1re Ch. C), 09/29/2005, “Direction générale d’ aviation civile de l’Emirat du Dubai v. Bechtel”; United States of America, District Court, District of Columbia, 03/17/2006, “Termorío SA ESP, et al.”, “Plaintiffs v. Electrificadora del Atlántico SA ESP, et al.”; France, Cour de cassation, 06/29/2007, “Société PT Putrabali Adyamulia c. Société Rena Holding et Société Mnogutia Est Epices”. jQuery("#footnote_plugin_tooltip_8254_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); When these global values are not respected by the judge of the seat of the arbitration, such as by annulling an award based on conceptions deviating from these values, then the “international community” allows its enforcement in other countries. Note that this case law arose only in the mid-1990s, precisely when globalization was at its peak. Interestingly, there is no record of judgments having enforced annulled awards during the first decades of application of the New York Convention.

Within these global values, party autonomy is of particular importance, as it is a cornerstone of arbitration. This is reflected in the need for relying on a valid arbitration agreement to get the parties to subject themselves to arbitration, and in the fact that party autonomy prevails over most arbitration rules, provided that the essential principles of due process are respected.

 

AI and Decision-Making in Arbitration

Remembering that the principles of public policy reflect the needs and values upheld by a society at a given time, it should be noted that AI applied to decision-making is still at an embryonic state, and therefore some obstacles may appear in the way of recognition or enforcement of an award rendered by those systems. In fact, arbitration practitioners could raise ethical reasons because of the absence of human qualities (e.g.: emotions) or due process defences based on the so-called “black box”, which refers to the impossibility of directly explaining the results or predictions of the AI system.

Emotions such as empathy, or even anger, play an important role in legal decision-making. In addition, it seems that we assume that there is an intrinsic value in being heard by a human being, who is subject to duties of justice and respect.3)K. Maxwell, “Summoning the Demon: Robot Arbitrators: Arbitration and Artificial Intelligence”, Practical Law Arbitration, 2019. Link: http://arbitrationblog.practicallaw.com/summoning-the-demon-robot-arbitrators-arbitration-and-artificial-intelligence/. jQuery("#footnote_plugin_tooltip_8254_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Nappert, however, relativizes this point: it is no less true that such emotions often lead to nonsense and resolutions contrary to the ideal of justice.4)S. Nappert, “The challenge of artificial intelligence in arbitral decision-making”, Practical Law, 2018. jQuery("#footnote_plugin_tooltip_8254_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Despite a certain scepticism, some authors consider that if the applicable rules do not expressly prohibit AI systems to act as arbitrators, and there is an agreement of the parties regarding those, the public policy defence would not be successful in refusing recognition of an arbitral award.5)I. Ng Šega / V. Benedetti del Río, “Chapter 8: When the Tribunal is an Algorithm: Complexities of Enforcing Orders Determined by a Software under the New York Convention”, in: K. Fach Gomez / A.M. Lopez-Rodriguez (eds.), 60 Years of the New York Convention: Key Issues and Future Challenges, Alphen aan den Rijn, Kluwer Law International, 2019, p. 131; C. Sim, “Will Artificial Intelligence Take Over Arbitration?”, Asian International Arbitration Journal, 2018, p. 3. jQuery("#footnote_plugin_tooltip_8254_5").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Others go further and relativize any prohibition that might exist in this sense: It has been said that if the parties trust AI, then who has authority to stop them from using it, particularly in arbitration where freedom of choice is paramount? Ultimately, all responses will depend on the reception of local courts to technology, and the importance attached to a global value such as party autonomy.

An interesting paper carried out on the basis of the Korean legal regime concluded that an arbitral award rendered by AI could face certain inconveniences (or at least queries) for reasons of public policy, given that the Korean Arbitration Act, subsection 36(2)2(b), states that the court may set aside an award that “is in conflict with the good morals or other public policy of the Republic of Korea.”6)P. Billiet / F. Nordlund, “A new beginning – Artificial intelligence and arbitration”, Korean Arbitration Review, 2018, pp. 27-29. jQuery("#footnote_plugin_tooltip_8254_6").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Ways forward

As can be seen, to use AI systems as arbitrators, normative certainty is extremely important. For AI to be successfully integrated in the international arbitration system, its definition should be crystallized and thus be offered as an option devoid of practical and theoretical uncertainties.

As Kemelmajer de Carlucci points out, novelty and temporariness characterize an increasingly complex society to which, in order to be able to adapt, the Law must be more elastic and receptive to interference from different variables.7)A. Kemelmajer de Carlucci, “El lenguaje en el Código Civil y Comercial argentino”, La Ley, 2019-E, pp. 6, 11. jQuery("#footnote_plugin_tooltip_8254_7").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

At this point, we are faced with two possible paths: the creation of an avant-garde legal framework for arbitration and AI; or the modification of existing international treaties (in addition to national legislation and arbitration rules). It seems that this last option is not the most appropriate, especially with respect to the New York Convention.

Rightly, in 2006, the UNCITRAL Working Group II (Arbitration) warned that “formally amending or creating a protocol to the New York Convention was likely to exacerbate the existing lack of harmony in interpretation and that adoption of such a protocol or amendment by a number of States would take a significant number of years and, in the interim, create more uncertainty”. Therefore, UNCITRAL prepared a recommendation concerning the interpretation of article II, paragraph 2, and article VII, paragraph 1, of the New York Convention. Here, the soft law technique triumphed over a hard law solution that probably would have not prospered.

Should an AI regulation follow the same path? Instead of modifying the New York Convention, some authors propose certain amendments to the UNCITRAL Secretariat Guide on the New York Convention, as “intends to be a more dynamic tool that allows for the adjustment of the provisions of the Convention, to the mutable necessities of the international arbitration system and its changing application by local courts”.8)J. Tirado / A. Acevedo / G. Cosio, “Chapter 18: Time for a New NY Convention? Was Albert van den Berg Right?”, in: K. Fach Gomez / A.M. Lopez-Rodriguez (eds.), 60 Years of the New York Convention: Key Issues and Future Challenges, Alphen aan den Rijn, Kluwer Law International, 2019, p. 310. jQuery("#footnote_plugin_tooltip_8254_8").tooltip({ tip: "#footnote_plugin_tooltip_text_8254_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Although the future is unknown, an unavoidable certainty appears to emerge: AI must be studied and regulated, and either admitted or prohibited (totally or partially), bearing in mind both justice and efficiency.

References   [ + ]

1. ↑ See: M. B. Noodt Taquela / A. M. Daza-Clark, “The Role of Global Values in the Evaluation of Public Policy in International Investment and Commercial Arbitration” in: V. R. Abou-Nigm / K. McCall-Smith / D. French (eds.), Linkages and Boundaries in Private and Public International Law, Oxford, Hart, 2018, pp. 121-144; M. B. Noodt Taquela, “Incidencia de los Valores Globales en la Evaluación del Orden Público Internacional en el Reconocimiento y la Ejecución de los Laudos Arbitrales Extranjeros”, in: Jurisprudencia Argentina 2019–I, Buenos Aires, Abeledo Perrot, 2019, pp. 1187-1193. 2. ↑ See: France, Cour de cassation, Chambre civile 1, 03/23/1994, “Hilmarton (I)”; United States of America, District Court, District of Columbia, 07/31/1996, “Chromalloy Aeroservices and The Arab Republic of Egypt”; France, Cour d’appel de Paris (1re Ch. C), 09/29/2005, “Direction générale d’ aviation civile de l’Emirat du Dubai v. Bechtel”; United States of America, District Court, District of Columbia, 03/17/2006, “Termorío SA ESP, et al.”, “Plaintiffs v. Electrificadora del Atlántico SA ESP, et al.”; France, Cour de cassation, 06/29/2007, “Société PT Putrabali Adyamulia c. Société Rena Holding et Société Mnogutia Est Epices”. 3. ↑ K. Maxwell, “Summoning the Demon: Robot Arbitrators: Arbitration and Artificial Intelligence”, Practical Law Arbitration, 2019. Link: http://arbitrationblog.practicallaw.com/summoning-the-demon-robot-arbitrators-arbitration-and-artificial-intelligence/. 4. ↑ S. Nappert, “The challenge of artificial intelligence in arbitral decision-making”, Practical Law, 2018. 5. ↑ I. Ng Šega / V. Benedetti del Río, “Chapter 8: When the Tribunal is an Algorithm: Complexities of Enforcing Orders Determined by a Software under the New York Convention”, in: K. Fach Gomez / A.M. Lopez-Rodriguez (eds.), 60 Years of the New York Convention: Key Issues and Future Challenges, Alphen aan den Rijn, Kluwer Law International, 2019, p. 131; C. Sim, “Will Artificial Intelligence Take Over Arbitration?”, Asian International Arbitration Journal, 2018, p. 3. 6. ↑ P. Billiet / F. Nordlund, “A new beginning – Artificial intelligence and arbitration”, Korean Arbitration Review, 2018, pp. 27-29. 7. ↑ A. Kemelmajer de Carlucci, “El lenguaje en el Código Civil y Comercial argentino”, La Ley, 2019-E, pp. 6, 11. 8. ↑ J. Tirado / A. Acevedo / G. Cosio, “Chapter 18: Time for a New NY Convention? Was Albert van den Berg Right?”, in: K. Fach Gomez / A.M. Lopez-Rodriguez (eds.), 60 Years of the New York Convention: Key Issues and Future Challenges, Alphen aan den Rijn, Kluwer Law International, 2019, p. 310. 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: The Decision-Making Process of Investor-State Arbitration Tribunals
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2019 In Review: Noteworthy Developments in the United States

Tue, 2020-02-04 20:00

Giorgio Sassine (Assistant Editor for Canada and the United States) and Kiran Nasir Gore (Associate Editor)

2019 was an important year for international arbitration developments in the United States, both in the commercial and investment context.  Some of the more far-reaching developments included the deepening circuit court split on whether “manifest disregard” of the law is a grounds to refuse enforcement of an award, the first U.S. Court of Appeals decision post-Intel, addressing whether an international arbitration tribunal is a “foreign or international tribunal” within the framework of 28 U.S.C. Section 1782, and jurisprudence and thought leadership events on the topic of corruption.  We also witnessed (and continue to witness in 2020) the effect of the United States’ “America First” policy.

As we move into the next decade, 2020 promises to be another exciting year for international arbitration developments in the United States.  This year, the U.S. Supreme Court has already heard oral arguments regarding whether a non-signatory to an arbitration agreement can compel arbitration.  Moreover, we look forward to seeing what may develop with the framework for Section 1782 discovery, following the Sixth Circuit’s recent holding.  We are also entering an election year in the United States, which may have implications for domestic politics and foreign affairs.  Each of these topics is discussed in more detail below.

 

  1. Key Developments Relating to the New York Convention and Arbitrability

2019 saw several key developments concerning the New York Convention, as codified in the U.S. by the Federal Arbitration Act (FAA), and also the broader concept of arbitrability.

 

A. Interpretation and Application of the New York Convention vis-a-vis the Federal Arbitration Act

The writing requirement pursuant to Article II(2) of the New York Convention in the context of non-signatories was considered by the Eleventh Circuit in Outokumpu Stainless USA, LLC, et al. v. GE Energy Power Conversion France SAS, Corp.  As explained by our contributor, Outokumpu entered into supply contracts for mill motors that appended a subcontractor list with mandatory suppliers, one of which was GE.  Each supply contract contained an arbitration agreement.  When the motors failed, Outokumpu commenced suit against GE and GE sought to compel arbitration.  The Court held that “there was no arbitration agreement in writing within the meaning of the Convention between Outokumpu and GE,” reasoning that “private parties … cannot contract around the Convention’s requirement that the parties actually sign an agreement to arbitrate their disputes in order to compel arbitration.”

Oral argument was heard by the U.S. Supreme Court on January 21, 2020 and the core issue under consideration is whether the New York Convention “permits a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel.”  We can anticipate a decision on this question within the next few months.

The concept of “manifest disregard” of the law as a grounds for refusing enforcement of an international arbitration was considered by the Second Circuit in Weiss v. Sallie Mae, Inc.  As explained by our contributors, the Second Circuit accepted the manifest disregard of the law argument as a valid basis for challenging awards.  This further cements a circuit split within the U.S., where certain Circuit Courts, including the Eleventh Circuit, will not accept “manifest disregard” of the law as a valid basis for vacating an arbitral award because it is not expressly provided as a ground under the FAA.  This issue continues to ripen and we can expect that it will, in the coming years, be considered and clarified by the U.S. Supreme Court.  This will be a welcome development, as the U.S. Supreme Court has not considered the matter since 2008, when in Hall Street Assocs., LLC v. Mattel, Inc. as summarized by our contributors, the Supreme Court “ruled that the only bases for vacating an arbitral award are the ones expressly stated in the FAA, which does not included manifest disregard, but declined to rule that manifest disregard was dead.”

 

B. Arbitrability

During 2019, the U.S. Supreme Court considered key principles of international arbitration in Schein, Inc. v. Archer & White Sales, Inc.  The holding in Schein maintains that “courts must respect the terms of the arbitration agreement as written and that, if the parties agreed, an arbitral tribunal has the power to decide questions of arbitrability.”  In summary, The Court maintained its holding in First Options, that “courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.”

We also learned what can happen when state law is not drafted with arbitration mind, reinforcing the importance of choosing a respected arbitral seat.  In Stemcor USA, Inc., this dichotomy was front and center when a party attempted to use state law legal procedures to attach property to support an arbitration award.  Stemcor USA, Inc. involved breaches of multiple contracts due to failures to deliver pig iron.  As a result, Daewoo International Corp. filed an action in Louisiana federal district court to compel arbitration and sought writs of attachment.

While arbitration is often touted as an efficient and quicker way to resolve a dispute, the writ of attachments spawned litigation that ran on for years, as a result of jurisdictional issues, appeals, and the Fifth Circuit certifying the question to the Louisiana Supreme Court.  “Finally, more than six years after getting the attachment, and with three District Court Decisions, three Fifth Circuit decisions, and a Louisiana Supreme Court decision, Daewoo got to hold onto its pig iron proceeds.”

 

  1. Advancements in the Global Discovery Debate

Perhaps the greatest headline-making development during 2019 involved 28 U.S.C. Section 1782, the statutory provision which permits a U.S. district court to order testimony or produce documents in aid of a proceeding before a “foreign or international tribunal.”  Several of our contributors covered new developments, which highlight the deepening circuit split over whether such discovery may be provided to aid a private international arbitration tribunal.   During 2019, a New York federal district court judge allowed such discovery in aid of an LCIA arbitration, another New York federal district court judge declined such discovery in aid of a CIETAC arbitration, the federal district court in the District of Columbia denied a request for production of documents, while allowing a request for written answers by way of interrogatories (as discussed in the following section of this post), and the Sixth Circuit allowed discovery in aid of a DIFC-LCIA arbitration.

As 2019 developments alone create a more deeply entrenched debate, practitioners are working arduously to further relevant jurisprudence and its understanding.  At the end of 2019, the first book considering Section 1782 discovery as an independent discipline was published.  Meanwhile, early this year, the Second Circuit is expected to settle internal disparity among the district courts over which it has jurisdiction through the much awaited appellate decision in In re Hanwei Guo.  Guidance of the U.S. Supreme Court is become increasingly welcome by U.S. practitioners.  Meanwhile, as Section 1782 discovery continues to proliferate, practitioners cannot help but wonder how it might interact with more global views of disclosure and discovery, particularly in light of the French blocking statute and GDPR compliance.

 

  1. Allegations of Bribery and Corruption in Arbitration Proceedings

Issues of corruption were addressed in U.S. international arbitration jurisprudence.  In Vantage Deep Water Co. v. Petrobras Am., Inc., a Texas federal district court denied Petrobras’ motion to vacate Vantage Deepwater Drilling’s arbitral award based on corruption of the underlying contract.  Petrobras submitted that the award should be set-aside pursuant to the Inter-American Convention on International Commercial Arbitration.  While Petrobras argued that the bribery violated U.S. public policy (one of the narrow exceptions to enforcing an arbitral award under U.S. federal law), the Court “took the view that public policy did not refer to any international notion but rather should be examined with respect to Texas law.  In this case, Petrobras continued with recognizing the agreement with the knowledge of the bribery allegations, and thus, ratified the agreement under Texas law.”  As explained by one of our contributors, the case is particularly “notable in that it squarely acknowledges that a state actor or state-owned entity should not use their own misconduct as a defense, particularly when they later ratified that conduct.”

In re Application of The Islamic Republic of Pakistan v. Arnold & Porter Kaye Scholer, LLP demonstrated that various compelling and current issues can intersect in the context of any one case.  The federal district court for the District of Columbia considered Pakistan’s request for Section 1782 discovery from an investor’s American counsel in aid of an ICSID arbitration and pending criminal investigations in Pakistan against the backdrop of corruption allegations.  As explained by our contributor, the Court ultimately denied the request for production of documents, recognizing that the jurisdictional reach of the ICSID tribunal and Pakistani criminal authorities encompassed the scope of relevant materials and, moreover, that attorney-client privilege might undermine the substance of the request.  However, Pakistan’s request for written answers by way of interrogatories was granted.

Reflecting the arbitration community’s increasing interest in bribery and corruption in arbitration proceedings, such allegations were also considered during the ILA American Branch Investment Law Committee’s conference titled “What to Do About Corruption Allegations?  Debating the Options for Investment Law” held on February 19, 2019 in Washington, D.C.  The conference addressed the resolution of corruption allegations in international investment arbitration following the Metal-Tech Ltd. v. Uzbekistan and Spentex Netherlands, B.V. v. Uzbekistan awards.  In the aftermath of those awards, the field of investment arbitration has grappled with questions regarding the proof of corruption and response to findings of corruption.  Those awards combined flexible evidentiary techniques for assessing corruption allegations with the outright dismissal of the arbitration upon finding corruption.  The conference addressed whether and to what degree investment arbitration should follow such approaches to addressing corruption.

 

  1. Domestic and Regional Developments – Carrying Global Significance

Upon his return to the Blog, our General Editor, Prof. Roger Alford, highlighted United States v. Novelis, where the U.S. Department of Justice’s Antitrust Division pursuant to the Administrative Dispute Resolution Act of 1996 (and the Antitrust Division’s implementing regulations) “took a novel approach of using arbitration to challenge [a] merger” for the first time in U.S. history, which typically sues in federal court.

While foreign policy is not usually a focus of the Blog, its interaction with international disputes cannot be denied.  During 2018 and 2019, we have seen a number of developments initiated by the U.S. “America First” protectionist approach to economic sanctions and we enter 2020 with a changed view of the landmark 2015 Joint Comprehensive Plan of Action (JCPOA) Iran nuclear deal.  The U.S. walked away from the deal in 2018, and in response, Iran decreased its compliance efforts.  This created a ripple effect in the world of extraterritoriality, conflict of laws, and secondary sanctions.

In recent weeks, global headlines were made when the E.U. partners of the JCPOA indicated their intent to invoke the deal’s dispute resolution mechanism.  On the private dispute resolution side, challenges concerning available claims and defenses may emerge as international actors encounter disputes related to their international activities. Our contributors directly considered the dilemma and practical concerns faced by international arbitrators.  This is a new and emerging area of law to be closely watched by global practitioners.

Meanwhile, “NAFTA 2.0,” the U.S.-Mexico-Canada Trade Agreement (USMCA), continued toward ratification and entry into force.  As reported in our 2018 year in review post, this is a significant regional development as the USMCA’s Chapter 14 departs from NAFTA’s Chapter 11, both in terms of procedure and substance of protections available to prospective investors.  As reported earlier on the Blog by assistant editor Enrique Jaramillo, the significant advancements made in recent weeks likely mean the USMCA will enter into force in May 2020.  It is also likely time for practitioners to consider the timing of legacy claims under original NAFTA, before it is no longer in force, and its interaction with the USMCA as it enters into force and heralds a new era in regional investor-state dispute settlement.

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The Contents of Journal of International Arbitration, Volume 37, Issue 1, 2019

Tue, 2020-02-04 01:00

Maxi Scherer

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

 

Markus PETSCHE, Restrictive Interpretation of Investment Treaties: A Critical Analysis of Arbitral Case Law

This article critically discusses the recourse to the principle of restrictive interpretation (in dubio mitius) by treaty-based investor-state arbitral tribunals. Although its status as a rule of international law is at best controversial, in dubio mitius has been applied by a number of arbitral tribunals interpreting umbrella clauses and most-favoured-nation (MFN) provisions contained in investment treaties. This article shows that restrictive interpretation is inappropriate and undesirable. It highlights, first of all, that no rational justification for in dubio mitius exists and that the sovereignty-based rationale put forward is obsolete, illogical and largely dysfunctional. It also shows that restrictive interpretation frequently clashes with other, more fundamental, rules of treaty interpretation and that in dubio mitius interpretation of investment treaties has an inherently discriminatory effect on investors.

 

Kabir A.N. DUGGAL & Rekha RANGACHARI, A Challenger Approaches: An Assessment of the Prague Rules on the Efficient Conduct of Proceedings in International Arbitration

It is no secret that some lawyers, and perhaps civil law lawyers in particular, have felt frustration with the status quo of the evidentiary processes of international arbitration, premised primarily on the International Bar Association (IBA) Rules on Taking of Evidence in International Arbitration (‘IBA Rules’). This outcry was vocalized at the Russian Arbitration Association’s Conference held in Moscow in April 2017, which ultimately contributed to the formation of a Working Group that developed the Rules on the Efficient Conduct of Proceedings in International Arbitration (‘Prague Rules’). This article strives to elucidate the mechanics of the Prague Rules. An understanding of these new provisions, however, cannot be achieved in a vacuum; as such, much of the analysis will touch upon the IBA Rules and their relationship to the Prague Rules. This article provides a critical, comparative analysis of the Prague Rules.

 

Jose F. SANCHEZ, Applying the Model Law’s Standard for Interim Measures in International Arbitration

Commentators and practitioners regard Article 17A of the Model Law on International Commercial Arbitration as the international standard for interim measures in international arbitration. Practitioners apply Article 17A often, even when the jurisdiction whose law is relevant to the case has not adopted it as domestic legislation, and even in emergency arbitrations and in investment treaty arbitrations.

To apply Article 17A correctly, however, practitioners must look at Article 2A(1) of the Model Law, which orders practitioners applying any Article of the Model Law, including Article 17A, to follow several mandatory principles of construction. Specifically, Article 2A orders practitioners to have ‘regard’ to the ‘international origin’ of the Model Law, ‘the need to promote uniformity in its application,’ and ‘the observance of good faith.’

Those principles of construction of Article 2A(1) have four specific and mandatory consequences on the application of the standard set forth in Article 17A, namely, that practitioners (1) must consider Article 17A’s travaux préparatoires, and must apply Article 17A in a way that does not contradict those travaux préparatoires; (2) must consider, but are not bound to follow, the publicly-available decisions by courts and arbitrators around the world that have applied Article 17A and the scholarly writings that have analysed it; (3) cannot construe Article 17A only under the canons of construction that they would apply to a domestic statute in the jurisdiction relevant to the case; and (4) must factor in equitable considerations.

This article helps practitioners with the first two of those four consequences. Specifically, to help practitioners apply the standard for interim measures set forth in Article 17A uniformly and correctly, i.e. in a way that complies with Article 2A’s mandatory principles of construction, this article analyses the travaux préparatoires of Article 17A, the scholarly writings that have analysed that article, and the publicly available decisions by courts and arbitrators around the world that have applied it, including decisions issued by arbitrators acting for the International Centre for Settlement of Investment Disputes (ICSID), the Permanent Court of Arbitration (PCA), and excerpts of non-publicly available decisions issued by arbitrators acting for the International Chamber of Commerce (ICC) and the Stockholm Chamber of Commerce (SCC).

For the reader’s convenience, this Article analyses the travaux préparatoires and applicable authorities separately for each of the following elements of Article 17A’s standard: burden of proof; urgency; likely harm not adequately reparable by an award of damages; balance of convenience; reasonable possibility of success on the merits; jurisdiction; and other elements and considerations.

That analysis results in several principles of construction relevant to each element of Article 17A’s standard. The article ends with a chart – effectively a cheat sheet for practitioners – that lists those principles of construction for each element of the standard, and explains the rationale of those principles. It is the author’s hope that this chart will help practitioners apply each element of Article 17A’s standard correctly and uniformly.

 

Alireza SALEHIFAR, Rethinking the Role of Arbitration in International Tax Treaties

The dispute resolution system of Double Tax Agreements (DTAs) has been a major focus for both tax authorities and researchers around the world. For several years Article 25 of the Model Tax Convention of the Organisation for Economic Co-operation and Development on Income and on Capital (‘OECD Model Tax Convention’), and Article 25 of the United Nations Model Double Taxation Convention between Developed and Developing Countries (‘UN Model Tax Convention’) had relied on a negotiation-based Mutual Agreement Procedure (MAP) as the only mechanism for the resolution of disputes arising from a tax treaty. In order to improve the function of the MAP mechanism, the OECD, in 2008, and the UN Tax Committee, in 2011, introduced a binding ad hoc arbitration clause in Article 25(5) of their respective Model Tax Conventions. However, the OECD and UN Model Tax Conventions have reserved very limited role for arbitration in resolving tax treaty disputes. After establishing that the inclusion of the current arbitration clauses in the OECD and UN Model Tax Conventions have not assuaged the tensions created by divergent interpretation or application of rules espoused in DTAs, this article examines possible techniques for improving the dispute resolution system of DTAs.

 

Lars MARKERT & Raeesa RAWAL, Emergency Arbitration in Investment and Construction Disputes: An Uneasy Fit?

This article examines the compatibility of emergency arbitration with (1) investment treaty disputes and (2) construction disputes, respectively. The article begins by giving a brief synopsis of the evolution of emergency arbitration, following which its suitability to investment treaty disputes and construction disputes is considered. The authors provide critical analysis of the compatibility of the emergency arbitration procedure with pre-arbitral requirements in both of these categories of disputes. The authors conclude that the practices surrounding emergency arbitration need to be developed further, and specifically, the issues surrounding enforcement need to be resolved.

 

Kayihura Muganga DIDAS, John Mwemezi RUTTA & Claire Umwali MUNYENTWARI, Striking a Balance Between Assistance and Interventionism: The Role of Courts in Rwanda-Seated Arbitrations

The African Arbitration Association was established in 2018 and its headquarters is in Kigali, Rwanda. This choice of location signals that Rwanda has made meaningful strides in improving its arbitration environment, at least in the opinion of African states. Many questions will arise as to whether Rwanda-seated arbitrations do indeed rest in a legally friendly environment, and receive optimum support of courts which act to foster the efficiency and effectiveness of arbitrations.

The interplay between courts and arbitral tribunals in dealing with Rwanda-seated arbitrations is the subject of this article. Party autonomy, which broadly underscores the freedom of the parties to decide how their disputes should be resolved, is one of the most important principles in arbitration. This principle naturally translates to the autonomy of the arbitral process and notably the freedom of this process from undue judicial interference. While courts are indispensable in the success equation of the arbitral process, too much judicial intervention in matters of arbitration may have serious repercussions on the efficiency of arbitration. This article examines the autonomy of the arbitral process under the law and practice of arbitration in Rwanda. In doing so, the article discusses different practices in the leading places of arbitration on the interplay between courts and arbitral tribunals in dealing with matters of arbitration and compares these with the corresponding law and practice governing Rwanda-seated arbitrations. It concludes that, with the pro-arbitration stance often demonstrated by the courts in Rwanda and their sparing involvement in the arbitral process, the arbitration environment is as friendly as it is in most other states that are signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention, 1958).

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How Do We Get the Best Out of Cross Examination in Arbitrations? Views from the SCL-CIArb India Conference

Sun, 2020-02-02 22:00

Thayananthan Baskaran and Shruti Sabharwal

Introduction

The Society of Construction Law India and the Chartered Institute of Arbitrators India Branch together held an International Conference on Construction Law and Arbitration in New Delhi, India in December, 2019. The conference was well attended by practitioners and participants from various jurisdictions.  Needless to say, the construction industry is one of the fastest growing industries on a global scale. Disputes wise, it takes precedence both in terms of the complicated or technical nature of merits and the quantum of monies involved.

The opening address of the conference was delivered by Honourable Ms Justice Indu Malhotra, presently a judge of the Supreme Court of India. Justice Malhotra alluded to the global state of affairs in the construction and infrastructure industry and how alternative disputes mechanisms, such as arbitration, are the preferred ways to resolve disputes in the sector. She emphasized India’s commitment to be an arbitration friendly jurisdiction and referred to several decisions of the Indian Supreme Court passed in the last five years in support of this commitment. Justice Malhotra concluded her speech by throwing light on the latest amendments of 2019 to India’s Arbitration and Conciliation Act, 1996 (“the Act”) (see further discussion in previous post). As a member of the High Level Committee in the Ministry of Law and Justice to review Institutionalization of arbitration mechanism in India, she discussed the issues relating to institutionalization of arbitration, accreditation of arbitrators and changes to the timeframe prescribed for completing proceedings under Section 29A of the Act.

This blog focusses on the panel discussion held on Cross Examination of Fact and Expert Witnesses. The panel comprised of Amarjit Singh Chandhiok (Senior Advocate, President of Council for Conflict Resolution – Madhyam); Thayananthan Baskaran (Partner at Baskaran, Kuala Lumpur); Jess Connors (Counsel at 39 Essex Chambers); and Shruti Sabharwal (Principal Associate at Shardul Amarchand Mangaldas). The panel was chaired by David Brynmor QC (39 Essex Chambers).

David started the session by introducing the topic and asked whether cross examination was an art, as it is commonly referred to or an acquired skill.

 

Overview of Cross Examination in International Arbitration

Jess gave an overview of cross examination in international arbitration. She raised the pertinent issue as to whether a party must necessarily introduce witnesses and whether every witness should be cross examined. She explained that every witness should serve a purpose beyond that found in documents. A witness could be used to explain the context of a document on record, the understanding of the parties when they entered into a contract, information from meetings or events not documented or to prefer the opinion of an expert. As for cross examination, it was suggested that one must consider how much of the witness testimony was relevant to the case and whether or not cross examining a witness could lead to a dangerous situation. Importantly, as in several international arbitrations, the use of the chess clock method by tribunals should also lead to counsels considering which witnesses and what part of their testimonies are priorities or critical to deal with. Jess also referred to the often confusing practice of introducing documents at the time of cross examination. She highlighted a number of factors to bear in mind, during cross examination, like who created and received the document in question, when, what was the context and was there a response before confronting the witness with it. Another aspect which was interesting was Jess’s advice on how documents could be used in a cross examination – mainly to point out inconsistencies in the witness’s own testimony or in the testimony of other witnesses. Quite rightly, she emphasized the nature of the cross examination to tell the Tribunal a story which is not always so clear in the documents. Jess concluded by encouraging counsels to use the process to speak to the tribunal, especially since in international arbitrations, tribunal members tend to be sophisticated, hailing from different jurisdictions (civil and common), different cultures, etc.

 

Hot Tubbing of Expert Witnesses

Thaya spoke on experts and hot tubbing in international arbitration. He began with an introduction on hot tubbing, or witness conferencing as it is more formally called. Essentially, this approach involves evidence being given by witnesses concurrently and in confrontation with each other. Thaya then spoke about the advantages of hot tubbing, in particular, how it helped to narrow down the issues and allow the witnesses to respond to these issues simultaneously in a collegiate atmosphere. He also noted potential drawbacks to hot tubbing, for example, where the quality of evidence may be affected, and proceedings disrupted, where witnesses in conference prove to be unfriendly, hostile, or even rude to each other. Thaya concluded by suggesting that the advantages of hot tubbing can be best achieved if all parties concerned are suitably prepared. Hot tubbing may remain, though quite rarely nowadays, a relatively novel process to some parties concerned. To overcome this, the experts and the counsel should familiarize themselves with the process. Besides, counsel should describe the hot tubbing process to the expert, so that the expert knows how the hearing room will be set up, how the questions will be posed, who is allowed to ask questions, and that the expert may be under cross examination during the whole of the hot tubbing process, and they will not be allowed to discuss their evidence with anyone (including counsel) during breaks.

 

Cross Examination Techniques for Fact and Expert Witnesses 

Shruti then took the floor to provide some tips for cross examination of fact and expert witnesses. She referred to important considerations to bear in mind while preparing for a cross examination in an international arbitration. These included a multi-cultural setting of both tribunal members and witnesses, language and time considerations. She stressed on the use of leading questions and how it was helpful in controlling the process and witness response. She also advised that counsel should prepare a plan in advance for each witness with a clear objective of what is required to be established. Counsels should be fully prepared to bring out the critical inconsistencies in the witness’s own testimony, in the testimonies of different witnesses or inconsistencies based on the documents on record. She warned counsels against using cross examination as a fishing expedition given the dangers of receiving new evidence one may be unprepared for. Speaking on construction arbitrations in particular, Shruti also guided the audience in the use of technical documents, a common feature of construction arbitrations, during cross examination, which the tribunal members may be unfamiliar with. She suggested that correspondence be used so as to give context to the technical documents and to segregate documents into issues and sub-issues to avoid confusion. Interestingly, she pointed out that the sequence of the questions should also be framed in a manner where the first and last set of questions should be most impactful to create a lasting impression in the minds of the tribunal members.

 

Experienced Practitioners’ Outlook

Amarjit aptly concluded the panel discussion with specific instances in cross examinations from his long career. Not only did he advise the audience on using every witness to make a precise point but he also suggested that counsels should know when to stop pursuing a line of cross examination. Amarjit alluded to the dangers of badgering a witness for answers and suggested the use of cross examination with documents on record to build a story for the tribunal. He also suggested the limited use of techniques such as questioning the credibility of a witness unless counsels were sure of establishing a lack of personal knowledge or expertise. As regards expert witnesses, Amarjit agreed that hot tubbing could be an effective tool but must be approached with caution. He agreed with Thaya that hot tubbing of experts may not be helpful where experts are using completely different methodologies to arrive at their opinions.

Once the panel had concluded their discussions, David opened the question and answer session for the audience. Questions ranged from hot tubbing techniques to whether cross examination could be done away with in arbitration proceedings to the use of confidentiality clauses, all of which were discussed and answered by the panelists.

 

Conclusion

Given that cross examinations continue to play a vital role in arbitrations, the session was well appreciated by the audience comprising both in-house legal officers and practitioners alike. It is needless to state that adopting the correct techniques in conducting cross examinations can go a long way in the outcome of a case. The emerging trends such as adoption of the chess clock methodology, hot tubbing of experts and introduction of witness panels for fact witnesses are techniques, which are increasingly being adopted in proceedings. This is to enable a more efficient system of cross examination, which, when unregulated, has the potential to take up several days, if not weeks on average. No longer do parties have the patience and time, not to mention the money to spend on protracted legal battles in courts or before tribunals. Counsels are more accountable today as to how proceedings are managed. Conferences such as this allow a free exchange of ideas which goes a long way towards the fine tuning of arbitration processes in the construction/ infrastructure industry, which continues to emerge as the largest disputes sector in the world.

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The Current Framework of Consolidation in Arbitration in Bosnia and Herzegovina: No Sustainability Without Reform

Sun, 2020-02-02 01:00

Naimeh Masumy and Edita Marić

Consolidation of arbitral proceedings is commonly regarded as a procedural device designed to deal with the challenges associated with complex cases. It is a method that combines multiple proceedings and harmonizes the final outcome of the disputes that bear significant resemblance, thus eradicating the risk of having contradictory awards rendered on a closely related set of facts. As such, it contributes to consistency as well as procedural and cost efficiency.

However, this post does not build upon the “intuition” that consolidation is inherently advantageous procedure and is cognizant of some of the apparent shortcomings presented by such practice. The post recognizes that the urge to aggregate proceedings must not amount to an abuse of discretion, and nor should it undermine the viability of individual-specific conditions to each case. That said, the ambiguity surrounding the proceeding of consolidation under the legal framework of Bosnia and Herzegovina (‘BiH’) prevents such practice to strike a proper balance between the party autonomy and the necessity of harmonization of arbitration awards.

This blog post first highlights some of the shortcomings associated with the current legal framework of BiH with respect to the consolidation proceedings. Then, it proceeds to elaborate upon the possible adverse implications of such open-textured and abstract regulations on the practice of arbitration. Finally, it proposes some factors to be considered in a much-needed reform.

 

Consolidation under BiH Legal Framework

BiH has a fairly unique and complex legal system due to its multi-layered constitutional regime. Consequently, its lex arbitri is fragmented, and is to be found in several different enactments. More precisely, the relevant provisions are not contained in one stand-alone arbitration act or in several different arbitration-dedicated enactments. Rather, they form part of several different acts of civil procedure, including the Civil Procedure Act of the Federation of Bosnia and Herzegovina 2003 (‘FBiH CPA’), the Civil Procedure Act of the Republic of Srpska 2003 (‘RS CPA’), and the Civil Procedure Act of the Brčko District 2003 (‘District CPA’). All these operate in conjunction with each other and form the national arbitration legal framework.

The concept of consolidation appears in all of these codes, none of which provides a detailed and comprehensive account of the circumstances under which the consolidation ought to be ordered. For instance, the FBiH CPA allocated a section to arbitration (Articles 433-453), but these do not address any issues regarding consolidation. The matter of consolidation is addressed in Article 83 of the FBiH CPA, but this provision deals exclusively with court proceedings, and it provides judges in this regard with substantial discretion. Moreover, the Arbitration Court with the Foreign Chamber of Commerce of Bosnia and Herzegovina (‘Arbitration Court’) briefly refers to the concept of consolidation in Article 40 of its institutional rules (Rules on Organization and Work of the Arbitration Court – hereinafter ‘Rules’) without any significant elaboration.

None of the above provisions envisage further conditions as to the degree to which consolidation is permitted and whether the decision to consolidate is subject to appeal. The vagueness surrounding how the circumstances under which consolidation is permitted has provoked confusion with respect to the nature of consolidation as a procedural or administrative practice. This characterization has a significant bearing on the possibility of challenging an award later on, and also on the rules that the consolidation decision will be subject to. Turning back to Article 83 of the FBiH CPA, while exclusively dealing with the court’s approach to consolidation, this Article captures the legislator’s intent to treat consolidation as a purely administrative process. It requires no consent from the parties, and the court enjoys almost unfettered discretion to determine whether consolidation is justified or not.

It is noted in the Commentary to the FBiH CPA that parties often sought consent to consolidation as a tactic to delay the process and obstruct the smooth operation of the proceeding. Even in cases where one party would grant consent, the opposing party would refuse to do so for no valid reason. As a result, in order to expedite the proceedings, the recent amendments to the Federation CPA removed the requirement of parties’ consent and conferred wide discretion onto court to determine the viability of the consolidation decision. The amendment introduced a number of factors to be taken into account when deciding in relation to consolidation. However, it does not contain information on whether further reasoning is required nor does it stipulate an avenue for a party to appeal the consolidation decision, and the court’s decision is believed to be final.

It is not clear what kind of implications this provision may have on the practice of consolidation within the arbitration context. However, it can be argued that the BiH legal framework, in the absence of hard guidance, is leaning towards treating consolidation as more of an administrative process where judges are afforded wide discretion in making such determination. The practice of ordering consolidation within the arbitration context, both under the BiH institutional and ad hoc arbitration frameworks, is rare. It is perhaps because of the lack of specificity and the ambivalent nature of this procedure that prevented it from being regarded as a useful procedural device to elevate harmony and increase cost-efficiency.

 

Consolidation Practice and Its Adverse Implications on the Arbitral Proceedings

The abstract and open-textured language of consolidation contained in BiH lex arbitri and institutional rules may have negative implications on arbitration in a number of significant ways. Namely, the scope and ambit of the power of arbitral tribunal emanate from the arbitration agreement. Therefore, this consent-driven process would normally prevent the introduction into the proceedings of claims or parties which are not within the scope of the agreement that the contracting parties had agreed to and which forms the mandate of the arbitral tribunal.

The broad scope of the consolidation concept within the BiH legal framework and the lack of sensible constraints on the power of arbitrators may undermine dedication to individual fairness and diminish the party’s autonomy over its case. If the arbitrators are delegated with the prime responsibility of consolidation with no precise and delineated standards, then they may make such determination in an unfettered manner, thus running the risk of rendering the decision in an arbitrary or partial fashion.

If the language of the rules is skewed in favour of consolidation, then there would be some impetus to submerge the individual features of cases. That is, if the disputes are not handled based on their specificity and sensitivity, this may effectively deny meaningful access to justice by deflecting attention from features that distinguish cases from one another. Consolidation may also substantially affect the rights and interests of the parties by impacting discovery incentives on both sides. It may also adversely impact compensation consideration by leaving the strongest claims with insufficient or inadequate compensations, thereby negatively impacting the equilibrium of the parties.

Since the existing regulations provide extensive discretion for arbitrators without advancing coherent guidelines, it is not clear what actions may amount to an abuse of discretion. Thus, the notion of consolidation under BiH rules bears re-examination to ensure proper balance of party autonomy and harmonization of arbitration decisions.

 

The Need for Comprehensive Reforms: Taking into Account Some Critical Considerations

As the above analysis shows, the current legal framework of consolidation in BiH is plagued by opacity regarding the scope of arbitrator’s power and the underlying nature of consolidation. It requires comprehensive reforms to account for a more efficient and sophisticated framework that is consistent with the archetype of modern international standards. In this regard, the arbitration framework of Montenegro, a neighbouring country with a comparable legal system, seems to strike a much better balance between the competing interests by setting out clear guidelines as regards consolidation in Article 11 of the Arbitration Rules of the Arbitration Court at the Chamber of Economy of Montenegro. The mentioned Article 11 recalls the importance of the parties’ consent, and it is on this foundation that any future reform in BiH ought to be built. To this end, we offer some critical considerations that the legislators in BiH ought to take into account when, and if, they decide to rehaul their approach to consolidation in arbitration proceedings.

Firstly, it is important that the application of consolidation practice enshrines a focused and confining regime that articulates the nature of consolidation, the availability of appeal mechanisms either through court or arbitral tribunal, and the necessity that the order be accompanied by reasoning. Defining the nature of consolidation and formulating guidelines with respect to reasoning will remove the possibility of having a different substantive law apply to different cases and will promote the harmonization of the consolidation process.

Secondly, the practice of consolidation should not be self-executing, and the arbitrators should at least adhere to rule-based standards that are sensitive to the competing interests of commonalities, specificity, party autonomy and harmonization. The current framework with its ambiguous and self-executing language seems to tip the scale more in favour of expanding arbitrators’ authority while diminishing party autonomy. Finally, introducing a formula-based threshold that contains conditions that trigger consolidation proceeding will compel arbitrators to adhere to objective standards instead of relying on a wide latitude of discretion to determine the viability of their decision.

 

Conclusion

There exists a strong need to amend the current legal framework of BiH to incorporate standards that enhance the practice of consolidation in the realm of arbitration. Adopting standards that are analogous to those of the modern archetype of consolidation, in particular those that prescribe precise and specific standards, would fortify the practice of consolidation in BiH. To this end, we have suggested several factors to be taken into account in the much-needed reform. If these were to be heeded by the legislators in BiH, the country’s arbitration framework, in our view, would be materially improved.

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