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Challenges to the Legitimacy of International Arbitration: A Report from the 29th Annual ITA Workshop

10 hours 20 min ago

Michelle Grando

ITA

The 29th Annual Workshop of the Institute for Transnational Arbitration (“ITA”), which took place on 14-15 June 2017 in Dallas, focused on a timely subject of much importance to the future of international arbitration, namely, the “Challenges to the Legitimacy of International Arbitration.” The event was co-chaired by Caline Mouawad (King & Spalding), Jeremy K. Sharpe (Shearman & Sterling), and Jarrod Wong (McGeorge School of Law).

The tone of the workshop was positive and constructive, starting from the keynote speech delivered by Gary Born (WilmerHale). Gary Born demonstrated through historical references spanning more than two hundred years that the current criticisms of international arbitration are not new. Yet, international arbitration continues to exist and has become more widespread. Born argued that ultimately the success of international arbitration lies in the fact that it is an expression of individual rights such as the right to contract and the right to form relationships with others that are widely recognized and considered fundamental to any healthy society. He noted that States have not been able to come up with a better alternative, and concluded that it is difficult to imagine the world without international arbitration.

Following the keynote address, the speakers identified several challenges to the legitimacy of international arbitration, including issues regarding the decision-makers, the conduct of counsel, the efficiency of the proceedings, and domestic court oversight, among others. These issues are addressed in turn and are followed by concluding considerations about whether the existing criticisms indicate that international arbitration is in crisis.

Decision-makers

One of the characteristics of international arbitration is the right of the parties to choose the decision-makers. While this characteristic is often presented as one of the main advantages of international arbitration, it has also given rise to criticism. In particular, critics have raised questions about the legitimacy of an award issued by privately appointed arbitrators.

The discussion during the workshop revealed that the right to nominate arbitrators actually enhances the legitimacy of the process in many ways. In particular, party-appointed arbitrators play an important role in ensuring that the tribunal considers the evidence and arguments presented by the parties that appointed them. Apart from ensuring that the award accurately takes into consideration the views of the parties, this enhances the likelihood that the losing party will accept the award and comply with it. It was noted that this reflects the view not only of private parties, but also of many states.

The speakers agreed, however, that it is necessary to adopt and enforce strong conflict rules; procedural controls on appointments so that the parties do not abuse the right to nominate arbitrators (e.g., by nominating arbitrators that are unfit or forcing their nominee to resign in order to delay the proceedings); and rules of ethics to ensure that arbitrators act diligently and impartially. Jan Paulsson suggested that the legitimacy of party-appointed arbitrators might also be strengthened if the parties were to agree on the President of the tribunal first and then nominate the other two arbitrators with her/his input.

Conduct of counsel

While the parties’ counsel play a fundamental role in international arbitration, due to their diversity of backgrounds and legal cultures they are not always guided by the same values and ethical principles. The lack of a binding uniform code and a global authority to enforce it make the regulation of counsel conduct challenging in practice, raising questions about the legitimacy of international arbitration.

The subject of regulation of counsel conduct has been widely discussed in the last few years, and there seems to be an emerging consensus about the need to regulate and sanction counsel for unethical conduct. The speakers argued that the standards should focus on objective issues such as, for instance, the filing of futile challenges to arbitrators and arbitrator conflicts caused by the appointment of new counsel during the proceedings. This is, in fact, the approach adopted by the two most well-known guidelines, the IBA Guidelines on Party Representation in International Arbitration and the LCIA’s General Guidelines for the Parties’ Legal Representatives.

No general consensus, however, has been reached yet as to who should be the regulator – options include national bar associations, courts at the seat of arbitration, arbitral institutions, and a global ethics counsel. The preference of the speakers was for arbitral institutions to take the role of adopting standards. This is a reasonable approach, as it would allow for greater experimentation and refinement of the standards over time. The LCIA has pioneered this route with the adoption of its Guidelines in 2014. Under the LCIA rules, however, the application of the standards is left to international tribunals (see Article 18.6). According to the representative of the LCIA, the enforcement of the standards is better left to tribunals because counsel conduct is a due process issue.

Efficiency of the proceedings

International arbitration has come under attack for being costly and slow. In the 2015 Queen Mary/White & Case International Arbitration Survey, the survey respondents indicated that the cost (68%), lack of insight into arbitrators’ efficiency (39%), and lack of speed (36%) were among the worst characteristics of international arbitration. Against this backdrop, the workshop provided an opportunity to discuss options to increase the efficiency of the proceedings.

One option that was considered was the use of bifurcation and motions for summary judgment. The speakers agreed that these procedures can increase efficiency if the issue in question is discrete and its early resolution can dispose of the case or a significant part of it. However, when the issue is connected with other aspects of the case, bifurcation and motions for summary judgment might actually lead to inefficiencies such as repeat presentation of the same evidence and multiple appearances of the same witnesses. The most important aspect to ensure that bifurcation and motions increase efficiency is for the parties and the tribunal to discuss and establish clear ground rules at the outset of the proceedings. Rule 41(5) of the ICSID Arbitration Rules was cited as an example of a procedure for summary judgment that has worked well.

The panelists also explored ways to deal with the perceived problem that arbitral tribunals are taking too long to issue their awards. In this regard, in 2016, the ICC announced that it would reduce the fees paid to arbitral tribunals that fail to submit a draft award within three months of the last substantive hearing or the last substantive post-hearing submission. Depending on the length of the delay, the reductions can vary from 5% to 20% or higher. Other options discussed at the workshop included having institutions and parties ask more questions about how much time the arbitrators have available for the drafting of the award before appointing or confirming their appointment; and creating a reporting mechanism requiring arbitrators to report to the parties on their progress periodically after a certain amount of time has passed. As regards the latter, there was consensus among the speakers that shame might provide a strong incentive for arbitrators to render the award in a timely manner.

Domestic court oversight

It has been argued that the arbitral process is too autonomous from domestic law and domestic court oversight. In light of this, the speakers considered whether courts should exercise more oversight over the arbitral process. It was noted that States have defined the respective roles of national courts and arbitral tribunals through instruments such as the New York Convention, the ICSID Convention, and domestic laws. Therefore, it is for States to change the existing balance through legislation or treaties if a more active role for the courts is deemed appropriate. The panelists were skeptical about this because most domestic courts do not have the resources, time, and technical expertise necessary to exercise greater oversight. In fact, this is one of the reasons why many States have embraced arbitration in the first place and why it has become popular.

Ultimately, as one of the speakers noted, giving courts a more active role over the arbitration process would blur the line between arbitration and litigation. It would be contrary to the very idea of having arbitration as an alternative method of dispute resolution. It would also be contrary to the expectations of the users of international arbitration, who in the 2015 Queen Mary/White & Case International Arbitration Survey observed (64% of the respondents) that one of the most valuable characteristics of international arbitration is “avoiding specific legal systems/national courts.”

Is international arbitration in crisis?

While it is undeniable that international arbitration has been the subject of criticism from certain corners, in particular as regards the investor-state system, the opinion of the workshop participants and available data indicate that international arbitration is not in crisis and about to disappear.

Major institutions such as the ICC and ICSID continue to report solid or record numbers of arbitrations filed. 157 States are now parties to the New York Convention and 153 States are parties to the ICSID Convention. While some States such as Ecuador, Bolivia, India, South Africa, and Indonesia have terminated various BITs with investor-state arbitration provisions, the overwhelming majority of States, including States that are notorious critics of investor-state arbitration, such as Venezuela, has not withdrawn from the investor-state arbitration system. Moreover, States increasingly provide for arbitration in contracts with private parties or in investment legislation. This includes States that have been notoriously skeptical of investor-state arbitration, such as Brazil.

If anything, criticisms have contributed to the health of the system. Arbitral institutions have revised their rules and practices to increase the efficiency and fairness of the arbitral process. These include the LCIA in 2014, the ICC in 2015 and 2017, the ICDR in 2014, and SIAC in 2016. ICSID is currently in the process of amending its Arbitration Rules for the fifth time. Professional associations such as the International Bar Association have revised and adopted guidelines addressing relevant subjects such as conflicts of interest and counsel conduct. All this activity shows the vibrancy of international arbitration. As long as the arbitral community does not become deaf to relevant criticisms, international arbitration will not become irrelevant. It will continue to be a legitimate – and the most effective – way of resolving international disputes.

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Lesotho sets aside award before the Singapore High Court

Mon, 2017-09-18 07:00

Darius Chan

YSIAC

In a 172-page judgment, the Singapore High Court in Kingdom of Lesotho v Swissbourgh Diamond Mines (Pty) Limited [2017] SGHC 195 (Lesotho), set aside an investor-state arbitration award rendered against Lesotho after an extensive review of international investment jurisprudence.

This is the second investor-state matter that has confronted the Singapore courts following Sanum Investments Ltd v Government of the Lao People’s Democractic Republic [2016] 5 SLR 536.

Similar to Sanum, the dispute in Lesotho had no connection to Singapore other than the fact that, with the benefit of parties’ submissions, the Tribunal in Lesotho had decided on Singapore as the seat of arbitration.

 

Background

In Lesotho the investors contended that their mining leases in Lesotho, a member of the Southern African Development Community (SADC), had been unlawfully expropriated between 1991 to 1995.

The SADC was established by the SADC Treaty.  Under the SADC Treaty, a regional tribunal was established to hear disputes regarding adherence to and interpretation of the SADC Treaty.  In 2006, SADC signed a Protocol on Finance and Investment which granted protections to investors.  Under Annex 1 to the Protocol, investors could commence international arbitration against signatory States if the dispute arose after 16 April 2010.  The precise scope of the arbitration agreement in Annex 1 to the Protocol extended to “disputes between an investor and a State Party concerning an obligation of the [State] in relation to an admitted investment…after exhausting local remedies”.

In June 2009, the investors commenced a claim before a SADC tribunal constituted under the SADC Treaty and a Protocol on Tribunal in the SADC.  However, that SADC tribunal was dissolved by resolution at a summit of the SADC before the claim could be heard.

In response, the investors commenced arbitration against Lesotho in 2012, this time before the Permanent Court of Arbitration (PCA) under Annex 1 to the Protocol.  The investors alleged that Lesotho had breached its obligations under the SADC Treaty after 16 April 2010 by contributing to or facilitating the shuttering of the SADC tribunal, without providing alternative means of recourse.

By a majority, the PCA Tribunal rendered an award in favour of the investors, and directed the parties to constitute a new tribunal to hear the expropriation claims.  Lesotho applied to the Singapore courts to set aside the award on the basis that the PCA Tribunal lacked jurisdiction and/or the award exceeded the scope of the submission to arbitration.

 

Singapore High Court’s decision

The Singapore High Court, applying a de novo standard of review, set aside the award in its entirety under Art 34(2)(a)(iii) of the Model Law. Among other things:

  • The Court disagreed with the Tribunal that the investors’ right to submit disputes to the SADC tribunal qualified as an “investment” under Annex 1.
  • The Court disagreed with the Tribunal that the dispute before the PCA Tribunal involved an “obligation of the [State] in relation to” the investors’ right to submit disputes to the SADC tribunal.
  • The Court disagreed that the investors had exhausted local remedies.

 

Comments

 There are at least three take-away points for readers.

  1. The first point concerns whether Lesotho had invoked the correct grounds to set aside the award. The Court, following a previous decision, held that Art 16(3) of the Model Law does not apply to an award that deals with the merits of the dispute, however marginally.   Additionally, the Court rejected the investors’ reliance on various textbooks for the proposition that Art 34(2)(a)(iii) of the Model Law is only applicable in cases concerning excess of jurisdiction (rather than the absence of any jurisdiction at all).

The Court clarified that any argument concerning the existence and validity of the arbitration agreement belonged to the specific province of Art 34(2)(a)(i).  On the other hand, any argument concerning the scope of the Tribunal’s jurisdiction, as in the present case, belonged to the province of Art 34(2)(a)(iii).

 

  1. The second point concerns the definition of “investment”. Readers will immediately appreciate that the question of what qualifies as an “investment” has attracted much ink in foreign investment law jurisprudence.  Typically, “investment” is defined to mean “every kind of asset, including ”.  In this case, the Court placed significant weight on how the definition of “investment” was narrower; an “investment” means “the purchase, acquisition or establishment of productive and portfolio investment assets, and … includes ”.

Readers will also recall the case of White Industries Australia Limited v India, where the Tribunal, citing Mondev v USA, Chevron Corporation v Ecuador and Frontier Petroleum Services v Czech Republic, held that awards made by tribunals arising out of disputes concerning investments made by investors represent a “continuation or transformation of the original investment”.  Such awards “constitute part of the investor’s original investment”, being a crystallisation of its rights.

By dint of reasoning, the investors’ argument in this case was that the mining leases created a bundle of rights which were protected, and that bundle included “secondary rights to seek remedies”.  The majority of the Tribunal in Lesotho accepted the investors’ argument.  However, the Court was not persuaded, reasoning that the purported “secondary right” was not reciprocal with the investors’ contractual obligations under the mining leases; the investors’ right of recourse to the SADC Tribunal arose much later in 2001 when the Protocol on Tribunal in the SADC entered into force.

Yet, at the same time, the Court observed that it does not matter whether an “investment” arose before or after the entry into force of Annex 1 to the Protocol.  If that were the case, it is suggested here that, even if the investors’ right of recourse to the SADC Tribunal arose only in 2001, that would not ipso facto preclude that “secondary right” from forming part of the bundle of rights, that would, in turn, qualify as an “investment” for the purpose of the Annex 1 to the Protocol.

 

  1. The third point concerns the exhaustion of local remedies. Applying Articles 14 and 15 of the ILC Draft Articles on Diplomatic Protection on the basis that they are reflective of customary international law, the Court held that the local remedies to be exhausted must be reasonably available to provide effective redress.  In the Court’s view, whether local remedies have been exhausted ought to be referenced with reference to the shuttering dispute, and not the underlying expropriation claim.

The Court accepted that Lesotho’s domestic courts recognise a tortious claim for pure economic loss, known as an “Aquilian” action. However, although Lesotho identified an Aquilian action as a potential remedy, in the words of the Court “what is less clear or even unclear is whether such an [Aquilian] action is available in a case such as this”.

 Consequently, what is noteworthy for readers is that, this issue was ultimately decided based on the burden of proof.  The investors bore the burden of establishing that they had exhausted local remedies.  To discharge this burden, the investors had to, in the words of the Court, adduce “evidence positively demonstrating” that an Aquilian action is unavailable or ineffective with reference to the shuttering dispute.  With the Court recording that the investors had acknowledged that no steps had been taken in Lesotho’s legal system regarding the shuttering dispute, this would have been a tall order.

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Public Consultation Paper on Proposed Amendments to the 2013 HKIAC Administered Arbitration Rules

Sat, 2017-09-16 23:51

Joe Liu

HK45

The HKIAC Rules Revision Committee (the “Committee”) is considering amendments to the current version of the HKIAC’s Administered Arbitration Rules, which came into force on 1 November 2013 (the “2013 Rules”).

The 2013 Rules, while maintaining the “light touch” approach of the 2008 Administrated Arbitration Rules, made important contributions to international arbitration by introducing unprecedented provisions on multi-party and multi-contract arbitrations (including joinder, consolidation and single arbitration under multiple contracts). The 2013 Rules have been well-received by users and are widely recognised as one of the market-leading sets.

Considering that the number of arbitrations brought under the HKIAC Administrated Arbitration Rules has grown significantly since 2013, and the 2013 Rules have been working well in practice, the Committee does not contemplate a wholesale revision. However, drawing upon HKIAC’s experience implementing the 2013 Rules for almost four years, and in light of the latest arbitration developments in Hong Kong and globally, the Committee nevertheless considers that certain amendments might usefully be made.

This Consultation Paper outlines the major amendments proposed by the Committee at this stage, which include the following:

Online Document Repository

Provide for use of secured online repositories to store any written communications submitted in an arbitration upon all parties’ agreement. Add provisions to recognise written communications uploaded to the online repository as an alternative means of service. The Committee seeks views on whether this should be a repository established and maintained by HKIAC, or whether the Rules should permit the parties to use their own online repositories (e.g. by using systems hosted by one party’s law firm), upon all parties’ agreement and subject to HKIAC’s approval. See Articles 2.1(c), 2.2 and 2.3.

Alternative Means of Dispute Settlement (e.g. “Arb-Med-Arb”)

Include a provision to allow expressly parties to pursue other means of dispute settlement after the commencement of the arbitration and resume arbitration upon a party’s request. Stipulate that an arbitrator or emergency arbitrator may not participate in the other dispute settlement process if he or she may be privy to ex parte communications with any party, except with the express consent of all parties. See Article 13.9.

Multilingual Procedures

Introduce a set of default procedures on the conduct of arbitral proceedings in two or more languages, such as the language(s) to be used by the arbitral tribunal, the parties and other participants at hearings and conference calls, as well as the language(s) of all written communications. See Article 15.4 and Schedule 5.

New Grounds for Joinder

Introduce new grounds to permit the joinder of (i) an additional party that is not bound by the arbitration agreement giving rise to the arbitration, provided that all parties, including the additional party, expressly agree; and (ii) an additional party that is bound by a different arbitration agreement under the Rules, provided that a common question of law or fact arises, the rights to relief claimed arise out of the same transaction or a series of related transactions, and the arbitration agreements are compatible. See Article 27.1(b) and (c).

Expanded provisions for single arbitration under multiple contracts

Add a provision permitting parties to commence a single arbitration under multiple contracts, even where there is not complete identity of parties to each relevant contract. This would allow a claimant to commence one arbitration to resolve disputes arising under, for example, a head contract and related sub-contracts. See Article 29.

Concurrent Proceedings

Incorporate a provision to state expressly that the same arbitral tribunal and (possibly) different arbitral tribunals may hear multiple proceedings at the same time, or one immediately after another, or suspend any of those proceedings until after the determination of any other of them, in situations where a common question of law or fact arises and the arbitrations have not been consolidated under the Rules. See Article 30.

Third Party Funding

Add a new provision on disclosure of third party funding (“TPF”) and amend the confidentiality provisions to allow disclosure of information to a third party funder, having regard to the TPF amendments to the Arbitration Ordinance (Cap. 609). The Committee seeks views on whether an express provision should be added to allow the arbitral tribunal to award costs of third party funding as part of costs of arbitration? See Articles 34.1(d), 44 and 45.3(e).

The Committee seeks views on whether express provisions should be introduced in relation to the following:

Investment Treaty Arbitrations

Whether HKIAC should issue a set of rules suitable for both international commercial and investment treaty arbitration, with provisions applicable to investment treaty arbitration possibly contained in a new schedule. The Committee invites views on what provisions should be included.

Early Determination Procedure

Whether a procedure should be introduced to allow the arbitral tribunal to determine one or more issues of fact or law in a preliminary or a separate phase, and in a summary fashion.

Please click here for a copy of the Rules which incorporates all proposed amendments. If you wish to obtain a track-change copy of the Rules reflecting amendments to the 2013 Rules, please send a request to [email protected]
Users are invited to submit comments on the proposed amendments to [email protected] by Monday, 2 October 2017. The Committee then intends to consult further before making a final decision as to the timing and form of any amendments to the Rules.

HKIAC Rules Revision Committee, Current Members: Nils Eliasson (Chair), Matthew Gearing QC, Cameron Hassall, Briana Young, Sarah Grimmer, Joe Liu.

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Is India losing the Litmus Test on Investor Protection by Preventing Vodafone from Invoking Arbitration under UK-India BIT?

Fri, 2017-09-15 17:47

Sumit Rai

India’s dispute with Vodafone has been one of its most publicized and long pending disputes with a foreign investor. Despite attempts at conciliation, parties remain locked in international arbitration under the relevant BIT. It may not be hyperbole to suggest that India’s approach to this dispute effectively defines its attitude to investor protection, at least so is the perception Therefore, when it recently chose to obtain an ex-parte injunction against Vodafone from starting an arbitration under UK-India BIT from a domestic municipal court (Delhi High Court), it came as a surprise to many.

The Delhi High Court decision is far from being the last word on the issue. It is capable of being modified by the same court after hearing Vodafone’s objections. Yet, the order has attracted substantial attention and for good reasons.

Three questions immediately arise: first, is India’s action to move a domestic court to restrain arbitration under an international treaty in bad faith? Second, under what jurisdictional basis did the Delhi High Court entertain such action? Third, does the Orascom award hold that multiple claims by companies in a vertical structure under different treaties against same State measure will always be an abuse of rights?

Before considering this, a short recap of what led to this dispute. Vodafone (Netherlands) bought a Cayman Island entity of Hutchison (Hong Kong) group, in order to acquire controlling interest in the Indian entity Hutchison – Essar Ltd. The entire transaction was outside India and did not involve transfer of shares of any Indian entity. As the Indian tax statute then stood, it did not specifically provide that if the effect of a transaction was change in control of an Indian entity, it would be taxable in India. The Indian Supreme Court in January 2012 rejected the Indian government’s contention that the text of the statute as it then stood could be interpreted to include such a tax demand.

To overcome this decision, India amended the statute to bring such transactions within the tax net and made it retrospective in application. Considering this to be in breach of India’s commitment under India-Netherlands BIT, Vodafone (Netherlands) notified disputes in April 2012 and invoked arbitration in April 2014. Subsequently, in June 2015, Vodafone (UK) sent a notice of dispute under the UK – India BIT and invoked the arbitration January 2017.

In the arbitration under Netherland – India BIT, India had raised a preliminary jurisdictional objection. In June 2017, the tribunal decided to consider the issue with the merits of the case. Soon thereafter, Indian government filed a suit before the Delhi High Court, seeking a declaration and permanent injunction against Vodafone (UK) from initiating arbitration under the India – UK BIT. From information available in public domain, it seems India contends that Vodafone (UK) seeks to claim the same reliefs arising out of the same cause of action (i.e. the same measures) with respect to which Vodafone (Netherlands) is already engaged in an arbitration with India. Therefore, the duplication of claim amounts to abuse of process and is oppressive and vexatious.

There may be valid grounds for the India to contend, even successfully, that Vodafone’s action of initiating multiple arbitration at multiple times under different treaties with respect to the same measures is an abuse of rights. But, India cannot legitimately contend that this is an issue that is capable of being determined by an Indian court. It would be absurd to suggest that a State can commit to resolving all disputes with foreign investors by a specific dispute resolution mechanism under international treaties and then seek to restrain the invocation of such right by recourse to its domestic courts. If nothing else, such act would be in breach of its good faith performance of international treaty, contrary to the principle enshrined in Article 26 of the Vienna Convention.

It is not as if India would have no remedy. It would be an issue fully capable of being addressed in the arbitration itself. It is well established that an arbitral tribunal has the competence to determine its own jurisdiction – including any issues of abuse of such jurisdiction. Additionally, there might be a remedy available through the court of the seat of arbitration, as selected under Article 18.1 of UNCITRAL Rules, 2010.

As to the basis to exercise jurisdiction, the Delhi High Court merely observes that Indian courts have “natural jurisdiction” to adjudicate the disputes in question. Seen strictly from a municipal law point of view, it may not sound very strange for an Indian court to prima facie suggest that it would be the ‘natural court’ for resolution of a tax demand raised by Indian authorities. The issue in question is, however, not a municipal law dispute – it is a claim for breach of an international investment treaty – rooted in public international law.

To block access to arbitration under such treaty, which itself is an international law guarantee by the State, by invoking municipal legal principles of the State party is problematic to say the least. If this was permissible, would it not be the very antithesis of an investor protection treaty – allowing the State party to prevent access to arbitration under the treaty by moving its domestic court? Application of common law principles relating to anti-suit injunction by the Delhi High Court is itself erroneous in the present case, let alone the fact that in the final analysis, even the threshold prescribed by those principles are not likely to be met in the present case. One of the fundamental principles of international law, as provided in Article 27 of the Vienna Convention, is that a State cannot invoke its domestic law to justify breach of a treaty. India cannot reason that the Delhi High Court action is valid under its laws (if it is eventually so held to be). It will still fail the test of meeting its international law obligations, particularly that of good faith observance of treaties.

This brings us to the award in Orascom TMT Investments S.a.r.l v. Algeria. India has placed reliance on it to convince the Delhi High Court that its request for injunction is well founded in investment treaty jurisprudence. The Orascom award has been interpreted to suggest that invoking multiple treaties at multiple times with respect to the same measures by vertically structured corporations is of and by itself an abuse of rights. It is difficult to derive such a wide proposition from the Orascom award.

It is true that the last sentence of paragraph 543 of the Orascom award records what appears to be a widely worded proposition and capable of being misread. However, when read in context and as a whole – as any judicial determination must be read – what Orascom establishes is far from this. The award expressly notes that abuse of right in the investment jurisprudence has previously only been considered in situations where an investment was restructured to attract BIT protection after a dispute arose. Orascom, therefore, is the first award to consider the issue in case of multiple actions from vertically structured entities.

In its analysis, the Orascom tribunal does not simply find that as a matter of law raising multiple claims under multiple treaties amounts to abuse of right resulting in the rejection of claim. It painstakingly considers each claim, with the assistance of extensive fact and expert evidence, to determine that they overlap with the claims made under a previous settled arbitration. It is only after such factual determination that the tribunal finds Orascom’s actions to be in abuse of the right to invoke arbitration.

Therefore, what Orascom establishes is that multiple claims under multiple treaties at different times by companies in a vertical chain might amount to an abuse of the right to invoke arbitration under the investment treaty. It also, in the process, shows that to arrive at such a conclusion, it might become necessary to consider the claims in detail, including with the assistance of relevant evidence. It cannot be read as an authority to support an action to restrain the very invocation of the arbitration in which such question ought to be decided.

Vodafone now has time until end of October to respond to the injunction and raise its objections. While it could be a valid strategic call to refuse to appear on grounds that it would not voluntarily submit to the jurisdiction of Indian courts, it will be a difficult choice given it operates a massive telecom operations in India and cannot simply ignore an Indian court’s order – even one that may appear to be without jurisdiction. This dispute is India’s litmus test in its approach to investor protection and this new innings that it has been ill advised to start will be closely watched – and to its disadvantage.

 

 

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The Future of Intra-EU ECT Claims in the Face of EC Opposition: Boom or Bust?

Fri, 2017-09-15 00:48

Eric Leikin and Martina Magnarelli

Young ICCA

Reliance on the investor-state dispute resolution (ISDS) mechanism of the Energy Charter Treaty (ECT) is booming, with at least ten new cases registered in the past year alone. Notably, nine of these ten cases – and almost 60% of all publicly reported cases initiated to date – have been brought by an investor from a Member State of the European Union (EU) against another EU Member State. Not everyone, however, shares the enthusiasm for such “intra-EU ECT claims” – most importantly, the European Commission. In almost all recent cases, the EC has filed amicus curiae submissions attempting to persuade the arbitral tribunal to refuse jurisdiction on the basis that the ECT cannot give rise to intra-EU disputes. The EC concedes that, unlike more than 20 other treaties to which the EU (or its predecessor the EEC) is a party, the ECT does not contain an explicit “disconnection clause” providing that, in the case of conflict, EU rules prevail. Nonetheless, the EC has argued that an implied disconnection clause must be read into the ECT. The EC has also argued that because the EU is a signatory to the ECT, investors from one Member State do not have standing to bring arbitration claims against a fellow Member State, as they are essentially nationals of the same contracting party (i.e., the EU). The question is: Will the EC be successful at shutting off the flow of intra-EU ECT claims, or will the boom continue?

Recent developments

The past 18 months have brought a number of setbacks to the EC’s attempt to end investor-state arbitration proceedings arising under the ECT. At least five published decisions have flatly rejected the EC’s arguments. Listed in chronological order, these are: Charanne v. Spain, SCC Case No. V062/2012 (21 January 2016); REEF v. Spain, ICSID Case No. ARB/13/30 (6 June 2016); Isolux v. Spain, SCC Case V2013/153 (17 July 2016); Blusun v. Italy, ICSID Case No. ARB/14/3 (27 December 2016); Eiser Infrastructure v. Spain, ICSID Case No. ARB/13/36 (4 May 2017). Each successive award has not only solidified the pro-intra-EU ECT claims position, but also shed more light onto the reasons behind it.

Already the Charanne v. Spain tribunal found that “although the EU is a party to the ECT, EU Member States also remain contracting parties to the ECT”, and therefore, both the EU and its Member States “can have legal standing as respondents.” The tribunal in Eiser v. Spain expanded on this point, explaining that because there is no translational body of European law regulating the organization of corporate entities, for the purposes of the ECT, “there can be no ‘EU’ investors”, only investors of the individual Member States. Thus, the diversity requirement imposed by ECT Art. 26(1) and (2) is plainly satisfied in a dispute brought by an investor from one Member State against another Member State.

The tribunal in REEF v. Spain rejected the possibility for an implied “disconnection clause” by reference to the fundamental pacta sunt servanda principle of customary international law. This principle entails that states that enter into multilateral agreements with the intention that certain provisions not apply must either make a reservation or insert an “unequivocal” disconnection clause. The tribunal noted that the attempt to construe an implicit disconnection clause into Article 26 of the ECT is particularly “untenable”, given that the ECT already contains other express exceptions to the submission of disputes to arbitration. Subsequent panels have followed this line of reasoning, with the Eiser tribunal adding that because treaties must be interpreted in good faith, “hidden meanings” and “sweeping implied exclusions” – such as a disconnection clause – cannot be read into the ECT.

Finally, on 16 May 2017, the EC’s position suffered a further blow – this time from the Court of Justice of the European Union (CJEU). In its Opinion 2/15, the CJEU rejected the notion that the EU has exclusive competence over Investor-State Dispute Settlement (ISDS) mechanisms, finding that this competence is shared between the EU and the Member States.

Thus, the current state of play may be summarized as follows: First, the ECT (and specifically its ISDS provision) is a so-called mixed agreement, covering subject-matter over which the EU enjoys only shared competence together with its Member States. Second, according to the EU’s long-standing practice, where it intended for EU laws to trump treaty provisions in mixed agreements, it has included an explicit disconnection clause saying so. Third, there is no explicit disconnection clause in the ECT. Fourth, arbitral tribunals have unanimously and unambiguously rejected the EC’s argument that the ECT cannot give rise to intra-EU investment arbitration proceedings.

The EC’s remaining options

Against the backdrop of these recent developments, it seems very unlikely that the EC’s strategy of intervening in arbitration proceedings to contest jurisdiction will produce any positive results. Yet, it is equally unlikely that the EC will abandon its opposition to intra-EU ECT claims. The question is then whether there are any other measures the EC could take which might have a greater impact.

With regard to the closely-related issue of intra-EU BITs, the EC has already experienced some success. Ireland and Italy ended all of their intra-EU BITs in 2012 and 2013, respectively. When other Member States were hesitant in following suit, in June 2015, the ECT initiated infringement proceedings against Austria, Finland, France, Germany and the Netherlands. In April 2016, the delegations of these five countries presented a “non-paper” to the EU Council’s Trade Policy Committee suggesting the possibility of “phasing-out of existing intra-EU BITs”. Thus, while the process is still ongoing and the ultimate outcome remains unclear, there appears to be a significant prospect that the end of intra-EU BITs as we know it may be near.

However, this approach is unlikely to be replicated with regard to intra-EU ECT claims. First, it is not possible for EU Member States alone to amend the ECT to exclude the application of its ISDS provision inter se. Under ECT Art. 42, any amendment to the treaty requires the consent of three quarter of the contracting parties – and EU Member States make up only 54% of the contracting parties. As pointed out by the REEF v. Spain tribunal, the fact that Art. 46 ECT forbids reservations “tends to confirm the intent of the contracting parties to have the ECT unconditionally and integrally applied by all Parties” and there is no reason to expect non-EU contracting parties to change this approach as a favor to the EC.

Although the EC could theoretically work to persuade all EU Member States to withdraw from the ECT entirely, it is not likely to do so. Indeed, the EC was reportedly unhappy when Italy became the first (and thus far, only) Member State to announce its withdrawal from the ECT in early 2015 (effective 1 January 2016). Despite the EC’s opposition to intra-EU ECT claims, this reaction is understandable, considering that the EC assumed a leading role in negotiating the ECT, aiming to extend an EU-comparable level of protection in energy investment and trade to non-EU Eurasian nations. Moreover, a third of all ECT claims registered to date have been brought by an investor of an EU Member State against a non-EU Contracting Party. Should all EU Member States withdraw from the ECT, their investors would no longer have recourse to ISDS protection for its energy investments in non-EU, ECT member countries – and of course, would also not have the protection of EU law. Given the nature of the energy business in many of the non-EU ECT member countries, this would be a serious loss for EU-based energy companies, as the EC is surely aware.

The final tool in the EC’s current arsenal is fighting enforcement of any intra-EU ECT award on the basis that it constitutes illegal state-aid, as it is currently doing in the Micula enforcement proceedings. Yet, even if this approach is successful in Micula (which is far from certain), it would likely be of relatively limited application going forward, confined to those cases where the EU provisions on state aid came into play on the merits.

Prediction

Making predictions is always a dangerous business. Nonetheless, at least in the short-term, the EC looks unlikely to be able to end the intra-EU ECT boom. Indeed, the EC itself seems to have recently reached this conclusion. On 25 July 2017, it announced a new initiative designed to promote mediation for intra-EU investment disputes, with an eye particularly on the energy sector. Whether any proposed non-binding mediation mechanism will prove fruitful remains to be seen. It will in any case serve merely to supplement – and not replace – the possibility of bringing intra-EU claims under the ECT.

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Arbitrability Of Fraud In India – Anomaly That Is Ayyasamy

Wed, 2017-09-13 17:02

Ayushi Singhal

The decision of the Indian Supreme Court in A. Ayyasamy v. A. Paramasivam (‘Ayyasamy’) [(2016) 10 SCC 386] has been previously discussed on this blog here, and here. This post seeks to analyse the distinction between arbitrability of fraud concerning India-seated arbitrations and foreign-seated arbitrations created as a result of this judgment.

The court in World Sport Group Ltd. v. MSM Satellite (‘World Sport’) [(2014) 11 SCC 639] had concluded that disputes involving fraud are arbitrable (without making a differentiation between mere allegations of fraud and serious allegations of fraud as made in Ayyasamy), so far as foreign-seated arbitrations are concerned. However Ayyasamy declares that serious allegations of fraud are inarbitrable in India-seated arbitrations, thus creating an artificial difference concerning arbitrability of fraud between foreign-seated and India-seated arbitrations. While all disputes involving fraud are arbitrable for foreign-seated arbitrations, serious allegations of fraud are inarbitrable for domestic arbitrations.  There appears to be no legal basis for this differentiation.

Indian case law, as well as jurisprudence in other countries have indeed differentiated between domestic and international public policy, the latter often construed more narrowly than the former for considerations of international trade and commerce. However courts haven’t used public policy as the reason for having different standards for arbitrability of fraud for domestic and international arbitrations, which but would have also required making differentiation between international commercial arbitrations seated in India, and pure domestic arbitrations seated in India.

The reasoning of courts rather, is rooted in the competence of the arbitral tribunal; though there exists no evidence to the effect that tribunals appointed in foreign-seated arbitrations are more competent than those appointed for arbitrations seated in India, nor do these form two separate groups – the same arbitrator can be appointed for both foreign and India seated arbitrations. The argument that it is more legitimate to interfere in domestic awards than in foreign awards might be plausible, but has not been fleshed out by the court either.

  • §8 and 45 provide for the powers of the Indian courts to refer disputes to arbitration, when there exists an arbitration agreement concerning the dispute prescribing for India-seated and foreign-seated arbitrations respectively. The difference in the language of §§8 and 45 of the Indian Arbitration and Conciliation Act, 1996, where the latter allows for more interference than the former, can be argued as a source of this differentiation similar to the rationale in the case of Swiss Timing Ltd. v. Organising Committee [(2014) 6 SCC 677, ¶28]. However there is a difference between the issues of court interference in the determination of arbitrability and determination of whether a particular dispute is arbitrable. The former is a procedural enquiry, while the latter is substantive. The difference in the language of the aforementioned sections can at best be a source of the procedural enquiry, i.e. for the argument that courts can decide arbitrability of the dispute before making a reference under §45, as against under §8; but not for the substantive enquiry. Though the difference in the substantive enquiry resulting from the difference in the languages of §§ 8 and 45 has been undertaken in previous cases as well. [See, Shin-Etsu Chemicals Co. v. Aksh Optifibre Ltd., (2005) 7 SCC 234; Kalpana Kothari v. Sudha Yadav, (2002) 1 SCC 203; Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641; India Household & Healthcare Ltd. v. LG Household & Healthcare Ltd., (2010) 1 SCC 72; Sundaram Brake Linings v. Kotak Mahindra Ltd., (2010) 4 Comp. L.J. 345 (Mad).]

If anything, the difference in language demanded explanation from the bench in World Sport, when it expanded the ambit of arbitrability under §45 in comparison with §8. This is because even assuming that the difference in language can be a source of the substantive enquiry as well, language of §45 is more permissible than that of §8 (allowing for greater interference in foreign-seated arbitrations), leading to a reverse conclusion from the present position of law.

Chandrachud J. in his concurring opinion in Ayyasamy indeed misses the opportunity to notice this flaw. In the course of his opinion, he draws attention to the difference in the language of §8 of the Act, and the corresponding provision in the UNCITRAL Model Law, the latter also allowing the courts to decline reference to arbitration when the AA is “null and void, inoperative and incapable of being performed”. This leads the court to conclude that §8, as against the provision in UNCITRAL Model Law, is mandatory in nature (though the conclusion reached by the court in Ayyasamy does not seem to be in accordance with this peremptory language). §45 mirrors the language of UNCITRAL Model Law, yet ironically, the court concludes that the ambit of arbitrability while making a reference under §8 is narrower than §45 (while the court does not state so explicitly, though the legal position after the pronouncement of Ayyasamy is exactly this).

At another level, it is suspect if Indian law should at all govern the question of arbitrability in all foreign arbitrations, unless Indian courts also have exclusive natural jurisdiction over the dispute. If such jurisdiction does not exist, the issue should be decided in accordance with the law of the seat or the law of the place of enforcement. Hence, application of Indian law to the question of arbitrability in foreign-seated arbitrations is in itself problematic. Indian courts, as against elsewhere in the world, have applied the substantive law of contract to the question of arbitrability (Reliance Industries Ltd. v. Union of India, 2014 SCC Online SC 411, ¶76: Note that this judgment was passed after World Sport). Yet, in the context of arbitrability of fraud, without making the analysis of the applicable law, courts have used Indian law for making the determination. For instance in World Sport, the substantive law of contract was that of England and Wales, where fraud, irrespective of its seriousness, is arbitrable (Fili Shipping v. Premium Nafta Products, [2007] UKHL 40), yet this did not find traction in the judgment of the court.

Lastly, the position as it stands right now goes against the precedent in National Insurance Co. Ltd. v Boghara Polyfab Pvt. Ltd. [(2009) 1 SCC 267], which had explicitly denied the court the power to rule upon the question of arbitrability at the stage of reference, ruling this to be the mandate of the arbitral tribunal under §16 of the Act. [See also, Meguin GmBH v. Nandan Petrochem Ltd. (2007) 5 RAJ 239 (SC) (appointed arbitrator in accordance with §11, despite involvement of issues of fraud in the dispute); SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618; Arasmeta Captive Power Co. (P) Ltd. v. Lafarge India (P) Ltd., (2013) 15 SCC 414].

Incidentally, §7 as well was sought to be amended by the 246th Report, making it clear that the subject matter of the arbitration had to be capable of settlement by arbitration for it to be a valid AA, however this suggestion was not introduced in the final amendment act.

As suggested previously, the language of neither §45, nor §§8 and 11, warrant the court to answer the question of arbitrability. Indeed both Swiss Timing and World Sport are decisions based on this reasoning, rather than arbitrability of fraud. Ayyasamy on the other hand, licenses the court to determine the question of arbitrability and analyse the merits of the dispute to the extent required in determining whether allegations of serious fraud are involved. The tribunal might in fact feel obligated by such determination by the court, even when it might think otherwise.

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Expropriation under the U.S. Foreign Sovereign Immunities Act: Raising the Jurisdictional Bar

Wed, 2017-09-13 00:48

Christopher Smith

Young ICCA

Overview

On May 1, 2017, the United States Supreme Court issued its unanimous decision in Bolivarian Republic of Venezuela v. Helmerich & Payne Int’l Drilling Co. (137 S.Ct. 1312). In its ruling, the Court addressed the expropriation exception to the Foreign Sovereign Immunities Act (the “FSIA”). The expropriation exception permits plaintiffs to bring claims in United States federal courts where a foreign state takes property rights in violation of international law through an agency or instrumentality that is engaged in commercial activity in the United States. (28 U.S.C. § 1605(a)(3)).

The dispute arose when Venezuela, in arrears to Helmerich & Payne International Drilling Co. and Helmerich & Payne de Venezuela, S.A. (“Plaintiffs”) for oil rigs they were supplying to State companies, nationalized Plaintiffs’ rigs in order to prevent Plaintiffs from withdrawing their business from the country. Plaintiffs sued Venezuela in the U.S. District Court for the District of Columbia. The district court found that it had jurisdiction under the expropriation exception to the FSIA with respect to the U.S.-based parent company, but not the local Venezuelan subsidiary, on the basis that the Venezuelan affiliate did not qualify as a foreign investor under international law. After both parties appealed the decision, the U.S. Court of Appeals for the District of Columbia (the “D.C. Circuit”) partially reversed, holding that the exception applied not only to the parent company, but also to the Venezuelan subsidiary. The court reasoned that if the State unreasonably discriminated against the subsidiary on the basis of the parent company’s nationality, such an action could comprise a violation of international law vis-à-vis the Venezuelan subsidiary.

Regarding the standard for determining whether the court had jurisdiction under the exception, the D.C. Circuit held that a plaintiff needed only advance a “nonfrivolous argument” that the defendant State had violated international law. The court described this standard as creating an “exceptionally low bar” to establishing jurisdiction under the exception to the FSIA. This ruling conformed to the D.C. Circuit’s earlier precedents, including in Agudas Chasidei Chabad of U.S. v. Russian Fed’n. (528 F.3d 934, 941 (D.C. 2013)). In response to Russia’s argument that the Agudas Chasidei plaintiff’s claims suffered from “various legal and factual inadequacies,” the D.C. Circuit held that the plaintiff needed only plead claims that were not “wholly insubstantial” or “frivolous” in order to ground the court’s jurisdiction under the FSIA.

The Supreme Court rejected the D.C. Circuit’s “nonfrivolous” standard. The Court noted that “whether the rights asserted are rights of a certain kind, namely, rights in ‘property taken in violation of international law,’ is a jurisdictional matter that the court must typically decide at the outset of the case, or as close to the outset as is reasonably possible.” (Helmerich, 137 S.Ct. at 1319). The Court discussed at length the policy considerations behind the FSIA, noting that the starting premise is immunity, subject to a limited number of exceptions where foreign states are involved in commerce or hold immovable property in the United States. This approach is meant to conform to the general principles of international law under a “restrictive” theory of sovereign immunity.

The Court found that permitting plaintiffs to bring claims based upon merely “nonfrivolous” allegations of expropriation in violation of international law – even where those arguments might ultimately fail – did not accomplish the objectives of the statute. The Court discussed the fact that in congressional hearings, the U.S. State Department had indicated that the FSIA was drafted in a manner that conformed to the applicable standard under international law. Moreover, in an amicus brief in support of Venezuela, the Department of State noted that one of the goals of limiting the exposure of foreign states to litigation in the United States was to increase the likelihood that the United States would receive similar treatment in foreign courts.

Thus, the Supreme Court held that in order for a federal court to have jurisdiction under the FSIA’s expropriation exception, district courts must determine that a taking violates international law. Several commentators have noted that this will likely require district courts to make factual determinations regarding the merits of a dispute in the jurisdictional phase. This point was not lost on Court, which recognized that “merits and jurisdiction will sometimes come intertwined. . . .the court must still answer the jurisdictional question. If to do so, it must inevitably decide some, or all, of the merits issues, so be it.” (Id.).

Outlook

Following the Supreme Court’s decision, arbitration practitioners in the United States have generally fallen in one of two camps. The first group argues that the Supreme Court’s decision makes arbitration of international takings disputes under an investment treaty a more attractive alternative, where the jurisdictional hurdles are generally lower than under the Helmerich standard. Depending on how district courts apply Helmerich, this may indeed be the correct conclusion. Indeed, pushing these disputes into arbitration – and thus out of U.S. courts – would appear to accomplish the policy goals underlying the FSIA that the Supreme Court discussed in its decision.

On the other hand, a second group of practitioners have rightly pointed out that Helmerich may lead to accelerated “mini-trials,” complete with jurisdictional discovery. Indeed, it is possible that in pushing district courts to resolve many of the disputed merits issues early on, Helmerich will expedite, rather than hinder, expropriation claims in U.S. federal courts. For a plaintiff with a strong case, especially where extensive discovery is not required to demonstrate a taking, this could lead to a speedier resolution than would be available in arbitration, where expropriation disputes can take years to resolve.

It is still unclear how the federal courts will apply the Helmerich standard. In De Csepel v. Hungary, the D.C. Circuit was able to avoid this issue, although it did cite the Supreme Court’s Helmerich decision. (859 F.3d 1094, 1102, 1111–12 (D.C. 2017)). On appeal for the second time, the circuit court stated in De Csepel that “the defendant [S]tate bears the burden of proving that the plaintiff’s allegations do not bring its case within a statutory exception to immunity.” (See id. at 1100 (internal quotation marks omitted)). The D.C. Circuit did not need to address Helmerich directly, however, apparently because its earlier precedent had already determined that “Hungary’s seizures of Jewish property during the Holocaust constituted genocide and were therefore takings in violation of international law.” (De Csepel v. Hungary, 859 F.3d at 1102 (internal citation omitted)). Thus, De Csepel had already cleared Helmerich’s jurisdictional hurdle. The D.C. Circuit also applied Helmerich in Owens v. Republic of Sudan. While the circuit court noted that Helmerich overruled one basis for the district court’s jurisdictional ruling, Helmerich did not affect the second basis for the district court’s conclusion. (See 864 F.3d 751, 779). Thus, Owens did not elaborate on how the district courts should apply the elevated jurisdictional standard.

In this writer’s view, it is not a foregone conclusion that Helmerich will necessarily make treaty arbitration the more attractive forum for every expropriation case. Expropriation claims can sometimes take years to adjudicate in arbitration. Notably, Helmerich does not create an enhanced pleading standard for takings, such as is required for fraud or mistake claims under Rule 9 of the Federal Rules of Civil Procedure. Rather, when confronted with an expropriation claim, district courts will have to engage early on in an analysis of the merits of the dispute, which may require more substantial factual development in an early phase of the litigation, perhaps warranting jurisdictional discovery. Such tools may help plaintiffs to present their cases expeditiously, rather than having to wait for the merits phase of the dispute. Ultimately, time will determine the effect of the Helmerich decision in the district courts.

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Equal Access to Information & Justice: The Huge Potential of Online Dispute Resolution Greatly Underexplored (II)

Tue, 2017-09-12 00:13

Mirèze Philippe

ArbitralWomen

As mentioned in Part I, a two-day conference on “Equal Access to Information & Justice, Online Dispute Resolution”, organised by the ICC took place in Paris on 12-13 June. Over 160 lawyers, magistrates, academics, researchers, dispute resolution organisations and online dispute resolution providers, from over 30 countries and representing each continent attended.

The first panel chaired by ambassador Zimeray explored how “Promoting the use of ICTs in the face of Justice, violence, discrimination and denial of human rights” can be translated into opportunities to reduce injustice as well as prevent and resolve conflicts. Three programmes were presented: “Everywoman Everywhere”, a programme for refugees in Greece and a programme to give access to justice to those suffering from homelessness and poverty in Argentina. Using devices in these programmes has allowed them to learn about their rights and accessing such rights.

In recent years there have also been notable achievements in courts using ODR. Graham Ross, chair of the panel on “Why are certain courts living the ODR revolution and what will it take to get the courts and the legal profession to engage?”, identified ways in which change can be accelerated. He said that online court processes should not try to emulate existing processes that often tend to be designed for use mainly by lawyers, but be novel, simple and intuitive for self-represented parties. Ross advised to involve judges in system designs and encourage courts to speed up implementation, by using existing technology and services rather than feeding an army of developers to build from scratch. This panel also shared the experience of digitised courts in France, Jordan and the Netherlands.

The following panel conducted by Fabien Gélinas addressed issues related to “Government and public-sector platforms in civil conflicts” and presented public sector’s programmes from Brazil, China and the U.S. The panel explored the potentials and the challenges of government-sponsored ODR. Procedural laws are increasingly favourable to ADR in many jurisdictions such as in Canada, said Gélinas, but they also tend to emphasise private initiatives and the importance of private innovations. We see a lot of public-private partnerships on the horizon, he added. Gélinas presented programmes mixing private initiatives and public services to settle consumer disputes and co-ownership disputes; the platforms are provided by the Cyberjustice Laboratory that he co-founded.

The following panel chaired by Abdel Wahab, on “Corporate in-house legal process innovation to default ODR policies and practices”, discussed what corporate in-house currently do with the means available to them to resolve disputes, and whether they see online dispute services as a useful tool and why? Three corporate in-house counsel from Cisco, Airbus and Cofco presented the users’ experience and agreed that online tools to settle disputes became indispensable. They need processes which are swift and much less costly, while concentrating their efforts on their businesses as opposed to wasting time and energy on resolving disputes through traditional processes. It was also recognised that ODR may help addressing misunderstandings before they escalate to disputes. Ebay’s very successful dispute resolution merchant service was built on and following a pilot project led by the Massachusetts university. Therefore, pilot projects may be the way forward to build platforms in cooperation with corporates so that both expertise join forces to offer a service which is still missing on the market. ODR will allow saving money and making money.

Benjamin Davis moderated the panel on “Consumer and civil disputes: do the existing systems offer means of free access to justice or access at low-cost?”, and presented the experience of consumer ODR in the EU which benefits from an ADR directive. The panel also discussed the ODR regulation which complements the ADR directive, and which is meant to put in place an European ODR platform which allows consumers and merchants from EU countries to settle disputes online. It was noted that there is a clear institutionalisation of the process of consumer ODR in the EU and an increasing deployment of public function that goes beyond private dispute resolution; cooperation between the industry and public regulators is expected.

The last panel of the first day on “Technology used by dispute resolution organisations” shared the experience of the ICC, CEDR, the Camera Arbitrale di Milano and the Russian Arbitration Association. The chair Mark Appel noted that institutions are uniquely qualified and are in an ideal position to make ODR work. They listen to parties and respond with systems that are efficient, and they maintain the quality and the competency. The problems regarding ODR are that successful implementation requires organisational leadership and behavioural change, he said. Systems also need to be as easy as picking up a pen. The panel also noted that everything is online except justice. Building platforms is not rocket-science, it requires expertise in the mechanism of the service to be offered, competent engineers, and realism and pragmatism are the order of the day. It also requires dedication, patience, and to take risks without which no progress can happen. There is a real expectation that technology should be used for any business including dispute resolution. Without an efficient case management system it would be impossible to deliver the work in most organisations. It was also noted that using online platforms for mediation was boosted by the EU directive. Finally, ODR implementation requires feedback and education.

The next morning was dedicated to ethics and standards and started with a panel on “Ethics and ODR systems design” chaired by Leah Wing, co-Director of the National Center for Technology and Dispute Resolution. The panel explored ethical principles and standards for ODR and specific challenges and opportunities created by the application of Artificial Intelligence (‘AI’) to dispute resolution. AI and big data magnify challenges and opportunities for access to justice through ODR, said Wing. Multidisciplinary collaboration and stakeholder engagement will enhance creation of ethical and transparent monitoring and accountability mechanisms, she added. There are too many people who cannot afford lawyers and would like to be able to use legal services but there are not enough resources to provide legal services for everyone, so technology is a solution. Given that ODR encompasses a broad range of technology, methods, purposes, and applications, we need to consider what types of ethical guidance may be universal, and what is the best way to provide ethical guidance for particular forms of ODR.

The panel on “Artificial intelligence and expert systems in ODR, predictive justice, data collection and analysis, privacy, cyber security” was chaired by Catherine Rogers and presented an innovation on data collection with the ‘Arbitrator Intelligence’ project highlighting the role of information and technology in improving the arbitrator selection process. Like fellow panelist, Debbie Slate of Dispute Resolution Data, Rogers’ project was short-listed for the GAR Awards in March 2017. The panel also explored the topic of predictive justice which is a promise for predictability, transparency and to have more equality before the law.

“Governing the field of ODR, standards, practices” was the last panel addressing issues related to regulation of the field of ODR as these issues are becoming one of the focus of attention. What these standards should be and how they might differ with the ethics of the ADR field were discussed. The moderator Daniel Rainey addressed the difficulty of implementing standards for ODR in legal environments, outlined the benefits of creating ODR standards for business process improvement, and noted the potential differences in creating standards for e-commerce systems and standards for use by practitioners engaged in more traditional ADR work. The panel raised concerns about introducing ODR into court systems and indicated that people engaging in such work should be prepared for strong resistance. There is a need to take advantage of intelligence systems whether they are systems which decide or assist the parties in making a decision.

After having discussed access to justice and redress systems during the first day and a half, the next panel presented “Online dispute resolution platforms, providers and mechanisms”. The panel moderated by Jeff Aresty presented various platforms to demonstrate that ODR is possible for any type of dispute: Modria provides services to public organizations and dispute resolution organisations; e-just provides online settlement to commercial disputes; AnOliveBranch offers a friendly mediation process; and HiiL which mission is to sustainably improve the justice journeys experienced by users of the justice.

“Challenges facing ODR and future application of ODR” was the topic of the next panel chaired by Andy Lee. ODR has ambitious goals but also faces a number of challenges from established institutions and approaches. One panel discussed how these obstacles can be overcome. ODR has quickly become an important venue to settle various disputes. In e-commerce ODR is a standard tool for consumer disputes and cross-border transactions. ODR is also used in community, medical, traffic disputes and many new applications are emerging. The panel also explained where things stand with the use of paperless procedures and said that arbitrators and lawyers should give more consideration to such issues from the outset of the case. An innovative concept was also presented about reputational feedback mechanisms and black-listing and blocking on the internet. This tool is enhancing voluntary compliance by traders and increasing the number of transactions. They are also enhancing justice by preventing conflicts.

2017 has already been an exciting year due to the publication of three books about ODR: Digital Justice: Technology and the Internet of Disputes, The New Handshake and Dealing with Disputes in the Digital Age. This session moderated by Ethan Katsh explored the themes present in the three books.

The final panel on “Lightening rounds on evolution or revolution and pilot projects in ODR” chaired by Mirèze Philippe presented some projects undertaken around the world. Technology in India is so advanced that it exports experienced engineers, undertakes many projects, build platforms, firms from around the world subcontract projects to Indian high-tech companies, and some universities are putting in place pilot projects for resolving disputes online and for proposing to the government an institutionalised system. In the US and Canada where most platforms and pilot projects were born, others have been developed and are perfect examples to build on, such as the Florida Justice Technology Center. A family law platform has been put in place in Canada. A project is currently being undertaken in Spain to resolve conflicts within the tourism sector. Finally, a speaker shared her experience when contributing to build a platform and analysing the needs of the clients, that allowed them to learn about the state of mind which can prevent or facilitate the transition from the traditional to the digital world.

“So much was covered over the course of two days, the ideas, inspiring individuals and innovative projects are too much to list in a single article” said Natasha Mellersh in her GPC Blog. The papers of the two-day conference will be published in the Journal of Online Dispute Resolution (see odr.info).

Mirèze Philippe is a special counsel at the Secretariat of the ICC International Court of Arbitration. She is founding co-president of ArbitralWomen, member of the Steering Committee of the Equal Representation in Arbitration Pledge, member of the Board of Advisors of Arbitrator Intelligence, member of the Advisory Board of Association Arbitri, and fellow of the National Center for Technology and Dispute Resolution.

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Equal Access to Information & Justice: The Huge Potential of Online Dispute Resolution Greatly Underexplored (I)

Mon, 2017-09-11 00:03

Mirèze Philippe

ArbitralWomen

A two-day conference on “Equal Access to Information & Justice, Online Dispute Resolution”, organised by the ICC took place in Paris on 12-13 June. Over 160 lawyers, magistrates, academics, researchers, dispute resolution organisations and online dispute resolution providers, from over 30 countries and representing each continent attended. The conference was jointly chaired by Ethan Katsh co-founder of the National Centre for Technology and Dispute Resolution (NCTDR), and Mirèze Philippe, Special Counsel at the ICC International Court of Arbitration and co-founder of ArbitralWomen.

Alexis Mourre, President of the ICC International Court of Arbitration opened the conference, describing ODR as perhaps the most relevant topic on the future of dispute resolution and stating that “we are indeed in the infancy of what we will see in the years to come”. Technology now offers several means and allows among others to save time and costs in arbitration, “as there is a real prospect that in the near future there will be no longer a need to organise physical hearings, and why not use holograms for hearings instead of travelling” he added. Katsh noted that it was unbelievably remarkable “for the President of the ICC Court to say that there is no more relevant topic, given what we started with two decades ago”.

Mourre’s speech was followed by inspiring words from Mohamed Abdel Wahab Founding Partner & Head of International Arbitration at Zulficar & Partners Law Firm, and one of the vice-presidents of the ICC International Court of Arbitration, Diana Paraguacuto partner at NGO Jung & Partners, who organised the very successful Global Pound Conference (‘GPC’) end of April in Paris, Colin Rule the former director of online dispute resolution for eBay and PayPal, and co-founder of Modria alongside Chittu Nagarajan (which recently merged with Tyler Technologies).

Abdel Wahab stated that “we no longer speak of technology and online dispute resolution (‘ODR’) as a luxury or a by-product. In ODR we think of technology as an integrated use of artificial intelligence through dispute resolution processes not only for resolution but for avoidance of disputes”. While Paraguacuto, pressed for a more progressive approach, quoting Mark Zuckerberg, she reminded the audience that “ideas do not come out fully formed, they only become clear as you work on them, you just need to get started. It is good to be idealistic but be prepared to be misunderstood”. She indicated that the GPC in Paris attempted to think differently about dispute resolution and that this could not be achieved without a chapter on ODR.

Rule referred to Silicon Valley where it is common to say that there are four stages to a new idea. “The first stage when you announce a new idea, people ignore you. The second stage, they make fun of you. The third stage, they argue with you, and they finally tell you at the fourth stage that they always knew you were right. “The good thing about ODR is that we see that we are now entering the fourth phase” he said “with all the progress we have made and all the ODR meetings, we are still at the beginning”.

In her opening remarks Philippe pointed out that organising the 17th ODR edition in Paris was essential, Paris being among the most important places of arbitration in the world with its long history and a wealth of experience in dispute resolution. The Paris courts and the ICC have often been innovators in the field, the ICC was also a pioneer in building the NetCase platform to give access to parties and arbitrators to their cases online. However, France has not yet succeeded to move entirely to the digital world in resolving all types of disputes online like Singapore. Therefore it seemed vital to bring the debate about using technology in dispute resolution to Paris and to demonstrate that using technology for access to justice is not science-fiction, but reality and may help to find other avenues to prevent and resolve all types of disputes.

Diversity criteria are meaningful to the ICC and seeing speakers from all profiles with a wide regional diversity, and an equal representation of male and female speakers, is a testament to this. Philippe asked women present in the room to stand up, showing that women made up more than half of the men in the room – demonstrating that female practitioners in dispute resolution and in online dispute resolution exist, contrary to the common perception. Philippe also paid tribute to ODR pioneers who considerably contributed to this field since the mid-1990s and invited those present to stand up when they hear their name. The most eminent pioneers were present. It is important to recognise the people who have made ODR possible, added Philippe. Although ODR is at its infancy, the room could sense that ODR has a history on which to build to continue progress.

The ODR 2016 conference examined whether ODR can help courts improve access to justice and this year’s topic focused on equal access to information and justice. While the topic in itself is nothing new, Philippe said that when individuals and firms do not benefit from access to justice, this equates to a denial of justice. Raising awareness and finding concrete tools which may help overcome unequal access to information and justice is everyone’s concern. “Today, almost everything is available online except justice, which continues to be denied to millions of people who cannot afford going to courts, or who are disabled or in remote places with no means to seek remedy” she added. After nearly 70 years of progress in technology and telecommunications, it is high time that both public and private justice offer a fair and simple access to justice around the globe. She concluded that we cannot stop progress, so why not join the process and make online justice happen.

François Zimeray, ambassador of France in Denmark and former human rights ambassador gave a keynote speech about human rights. He stated that putting ethics on the market in general can be a huge leverage for improvements in human rights. We live in a global world with an increase of exchanges but also of inequalities. There is a lot of analogy between my mission in human rights and the work you are doing he said: mediation is 50% law and 50% diplomacy. He added that what is being developed in online dispute resolution is impressive and opens a lot of perspectives in dispute resolution for human rights and we are at the beginning of something which is extremely important.

The second keynote speaker, Sanjana Hattotuwa, special advisor at the ICT4Peace Foundation, joined via Skype from Sri Lanka. He spoke about the connection between business and human rights, highlighting the impact of technology on the way people access information and engage politically, stating that data is key to the transformation of dispute resolution – especially when looking at factors such as gender in political conflict resolution, which can play a huge role (drawn from Natasha Mellersh’s blog, full article on GPC blog).

The 60 speakers (see full programme) explored the future of dispute resolution and the role of technology in all legal fields, from mediation in conflict zones, to commercial and civil disputes. They explained why and how information and communication technologies (‘ICTs’) offer increased access to information and justice, and demonstrated concrete examples. Field experts coming from both the public and private sectors have discussed innovative applications of ICTs and ethical principles and standards of ODR systems.

Mirèze Philippe is a special counsel at the Secretariat of the ICC International Court of Arbitration. She is founding co-president of ArbitralWomen, member of the Steering Committee of the Equal Representation in Arbitration Pledge, member of the Board of Advisors of Arbitrator Intelligence, member of the Advisory Board of Association Arbitri, and fellow of the National Center for Technology and Dispute Resolution.

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Professor Roger Alford Appointed to Leadership Role at the U.S. Department of Justice

Sun, 2017-09-10 01:02

Crina Baltag (Acting Editor)


Professor Roger Alford, the Editor of Kluwer Arbitration Blog, was appointed to leadership role at the U.S. Department of Justice, where he will promote the enforcement of antitrust laws around the world. Professor Alford will be the deputy assistant attorney general for international affairs in the DOJ’s Antitrust Division, in which capacity he will manage all aspects of the division’s international work. Having focused on international economic law throughout his career, the link between trade and antitrust law is one of Professor Alford’s core interests.

During his appointment at the U.S. Department of Justice, Professor Alford will take leave of absence from the editorial commitments with Kluwer Arbitration Blog.

Dr Crina Baltag, Associate Editor, will be the acting Editor during Professor Alford’s leave. Any inquiries related to the Blog may be addressed directly to her at: [email protected] or to the editorial board of Kluwer Arbitration Blog at: [email protected]

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Comparative Arbitration Law Reflected through Examples of Document Drafting

Sat, 2017-09-09 00:14

Sigvard Jarvin and Corinne Nguyen

Since 30 years, international arbitration of business disputes continues to increase. It has become the primary form, some say “the natural way”, of settling commercial disputes between companies or individuals from different countries. As international arbitration becomes more popular and wide-spread it has also become more sophisticated, developing its own procedures and documents.

The steady growth means that an increasing number of new people enter the international arbitration community, on all continents. Young lawyers, fresh out of university and law school, enter law firms where they get involved in international arbitration. More experienced attorneys, who previously practiced predominantly in the courts of their own country, must now represent their clients in disputes governed by a set of arbitration rules, mostly held in another country. Retiring judges are asked to sit as arbitrators and apply international rules and procedures, different from the familiar practices of their own courts, a new experience. In-house lawyers in large private companies, in-house counsel in state-owned companies and ministers and directors in state agencies appear as counsel or advisors in international arbitrations or supervise and manage outside counsel. Law professors and other experts sit as arbitrators and/or draft legal opinions to be submitted in international arbitrations.

During our long practice of international arbitration we have seen a variety of drafting styles, of different ways of approaching a problem, of explaining a case, of presenting convincing evidence, of making an effective opening speech at a hearing, of summing it up at the end. We have also come across less fortunate examples. We have seen different ways of drafting an application to an arbitral tribunal, to an arbitral institution or to a local court for interim measures, all reflecting the style of the drafter’s legal family – be it common law, civil law, Islamic law, hybrid law.

Today’s arbitral process has become formalistic, technical and generally complicated. The procedural pattern is largely identical irrespective of the values at stake and where in the world the proceedings take place. The standard procedure in any ICC, ICDR, LCIA or UNCITRAL case is: two rounds of written pleadings (Statement of claim, Statement of defence, Reply and Rejoinder), or even more where a counterclaim is involved. Before the hearing parties submit skeleton arguments, at the beginning of the hearing they make opening statements (often reading from a script). Witnesses and experts submit written statements before the hearing, they are cross-examined at the hearing and after the hearing the parties submit post-hearing briefs.

Although the literature on international arbitration is extensive, and seminars take place every week somewhere on the globe, and universities and law schools teach international arbitration, and mock arbitrations gather an increasing number of students, there is no systematic collection of the documents used in international arbitration. We thought it was time to put some of these documents together in a book so that new arbitration practitioners could see them and make use of them. In fact, not only the newcomers, but also more experienced counsel and arbitrators who, we hope, will be inspired by the examples and learn from what others have done.

The Compendium of International Commercial Arbitration Forms, written by Sigvard Jarvin and Corinne Nguyen is thus a collection of documents (or ‘Forms’) which are used in international commercial arbitration, both institutional and ad hoc. It is a book made by practitioners for practitioners. The examples originate from disputes under arbitration rules of general application in the commercial field, e.g. ICC, LCIA, ICDR, CRCICA and many others, both Asian, European, Middle Eastern, North American and others. It covers a range of topics. The Forms, which are taken from real cases, offer readers a critical mass of documents drafted in different styles by lawyers and arbitrators coming from different legal and cultural backgrounds. We have selected examples typical and representative for the kind of procedural document in question. Emphasis is on procedural aspects, not the merits of a dispute submitted to arbitration. Most of the Forms are provided with a short explanatory comment based on our professional experience to raise the readers’ awareness on a specific issue or discussion.

To contact the authors, please send an email to [email protected]

For the Table of Contents, click on the following link: CCE30082017

For samples of Request for Arbitration, click on the following links: CCE30082017_2 and CCE30082017_3

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Prima Facie Case on the Merits in Emergency Arbitrator Procedure

Thu, 2017-09-07 19:00

Kyongwha Chung

Introduction

It has been almost seven years since the introduction of the concept of emergency arbitrator procedure by major arbitral institutions, and the procedure has become an invaluable option for arbitration users who seek protection and preservation of their rights before the constitution of a full tribunal. However, most arbitral institution rules that include rules on emergency arbitrator procedure fail to set out clear requirements for the issuance of emergency measures, creating confusion among arbitration community. Referring to various sources for the elements for granting emergency relief, emergency arbitrators generally require a showing of (1) prima facie jurisdiction, (2) urgency, (3) prima facie case on the merits, and (4) a risk of serious or irreparable harm. Among the requirements, this article focuses on whether some form of merits review is necessary prior to the issuance of an emergency measure, and if so, what the most appropriate standard is, considering the purpose and nature of the emergency arbitrator procedure.

Rules and Precedents of Emergency Arbitrator Procedure

A recent report on emergency arbitrator decisions in 2015–2016 issued by the Stockholm Chamber of Commerce (“SCC”) reveals mixed interpretations of the meaning of prima facie case on the merits standard even among SCC emergency arbitrators. On the one hand, in SCC Case No. EA 2016/046, the emergency arbitrator stated that, although described as a prima facie test, the standard of “reasonable prospect of success on the merits” should be a “colorable claim,” which is “more than a prima facie showing, which requires no evidence at all.”1)Anja Avedal, SCC Practice Note: Emergency Arbitrator Decisions Rendered 2015–2016 (June 2017), at 7. jQuery("#footnote_plugin_tooltip_2044_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2044_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); On the other hand, the emergency arbitrator, in SCC Case No. EA 2016/142, found that the reasonable possibility of success on the merits should be assessed on a “prima facie basis and should not be set too high.” 2) Id.,at 15. jQuery("#footnote_plugin_tooltip_2044_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2044_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The recent SCC report on emergency arbitrator decisions clearly shows that two different frameworks are emerging as to the standard of the merits review in the emergency arbitrator procedure: (1) a prima facie, “showing that the elements of a claim are present,” and (2) a higher threshold of requiring a finding by the arbitrator that the claimant’s claim is “more plausible” or that the claimant appears “more likely than respondent to succeed on the merits.”3) Id., at 18. jQuery("#footnote_plugin_tooltip_2044_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2044_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The divergence of views arises from the fact that most of the rules on emergency arbitrator procedure are silent as to the requirements for the determination of an emergency measure. 4)Among various arbitral institution rules which introduced emergency arbitrator proceedings, only the Australian Centre for International Commercial Arbitration Rules set out specific elements to be satisfied for the issuance of an emergency measure (See Schedule 1 of the ACICA Rules, Article 3.5). jQuery("#footnote_plugin_tooltip_2044_4").tooltip({ tip: "#footnote_plugin_tooltip_text_2044_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The rules grant broad discretion to an emergency arbitrator to issue such measure,5) For instance, Article 37(1) and Article 1(2) of Appendix II to the SCC Rules 2017 provide an emergency arbitration with the power to “grant any interim measure it deems appropriate.” However, nowhere do the SCC Rules stipulate requirements for emergency relief. jQuery("#footnote_plugin_tooltip_2044_5").tooltip({ tip: "#footnote_plugin_tooltip_text_2044_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but lack specific mention of the elements or conditions for granting emergency relief.

Although tribunals seem to agree that some type of merits review should be conducted, there appears to be no agreed standard. Emergency arbitrators of the SCC, therefore, took guidance from the following sources: lex arbitri, the UNCITRAL Model Law on International Commercial Arbitration 2006 (“UNCITRAL Model Law”), precedents on emergency relief, treatise by commentators, and/or arbitration practice. Many of them turned to Article 17A of the UNCITRAL Model Law, which requires a “reasonable possibility that the requesting party will succeed on the merits of the claim.” However, it still appears unclear as to how to assess the “reasonable possibility that the requesting party will succeed on the merits of the claim.” In some instances, an emergency arbitrator interpreted it to require that claimant must appear more likely than respondent to prevail on the merits of the claim, but in other instances, an emergency arbitrator simply required a showing of a plausible claim.

The confusion in the standard also exists across, as well as, within various jurisdictions. Traditionally, English courts require a “real (as opposed to a fanciful) prospect of success on the merits,” whereas the U.S. courts require likelihood of success on the merits that ranges from a “substantial likelihood,” a “possibility,” or a “likelihood” to a “probability.” Civil jurisdictions, such as Germany and Spain, require a more stringent standard of the “fumi boni juris (literally: smoke of a good fire).” 6)Cameron Miles, Provisional Measures Before International Courts and Tribunals (Cambridge University Press, 2017), at 193. jQuery("#footnote_plugin_tooltip_2044_6").tooltip({ tip: "#footnote_plugin_tooltip_text_2044_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); These diverse standards of review show the hardship in formulating a precise standard.

Appropriate Degree of Merits Review in Emergency Arbitrator Procedure

In deciding the appropriate standard of merits review in an emergency arbitrator procedure, the following aspects of the procedure need to be taken into account.

First, the purpose and the nature of an emergency arbitrator procedure should be considered. An emergency arbitrator has a limited role to provide an expeditious relief for those who cannot wait for the constitution of a full tribunal. An emergency relief is inherently temporary so much as it can be revisited by the subsequently constituted tribunal. The very purpose to provide an expeditious measure and the temporary mandate of an emergency arbitrator militate against a substantive review of the merits of a case.

Second, the time constraint that an emergency arbitrator faces distinguishes the emergency arbitrator procedure from other provisional measures proceedings of international courts and tribunals. Unlike other international proceedings, arbitral institution rules prescribe a specific time limit for the issuance of an emergency measure. Under the ICC Rules, an emergency arbitrator is required to render a decision within 15 days from the date on which the file is transmitted to him/her, and the SCC Rules set out a more stringent timeline of five days from the date upon which the application was referred to him/her. Under such strict timeframe, parties are limited in presenting their evidentiary and legal evidence, and naturally an emergency arbitrator is ill-equipped to decide on the merits of a case.

Third, the impact of an emergency arbitrator’s misjudgment on the merits of a case could have unexpected ramifications on the main dispute. Although many arbitral institution rules include a provision that a decision by an emergency arbitrator would not have res judicata or a preclusive effect, it cannot be denied that an emergency arbitrator’s decision on the merits of a case would have de facto influence on the decision of the subsequently constituted full tribunal, which is difficult to rectify at a later stage.

Conclusion

The inherent subjectivity of the standard might render the efforts to articulate a specific standard of review in terms of merits impossible.7) Jose Maria Abascal, “The Art of Interim Measures,” in International Arbitration 2006: Back to Basics?, 13 ICCA Congress Series No. 13, ed. Albert Jan van den Berg (The Hague: Kluwer Law International, 2007), at 764. jQuery("#footnote_plugin_tooltip_2044_7").tooltip({ tip: "#footnote_plugin_tooltip_text_2044_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); That said, at a minimum, the level of merits review should not be so high as to conflict with the purpose and nature of emergency arbitrator procedure.

Prima facie, according to Black’s Law Dictionary, means “at first sight” or “on first appearance but subject to further evidence or information.” Prima facie test should remain as a prima facie test, being a low threshold only to prevent a frivolous or vexatious claim that is “manifestly without merit.”

The views expressed in this article are those of the author and do not represent those of Bae, Kim & Lee LLC.

References   [ + ]

1. ↑ Anja Avedal, SCC Practice Note: Emergency Arbitrator Decisions Rendered 2015–2016 (June 2017), at 7. 2. ↑ Id.,at 15. 3. ↑ Id., at 18. 4. ↑ Among various arbitral institution rules which introduced emergency arbitrator proceedings, only the Australian Centre for International Commercial Arbitration Rules set out specific elements to be satisfied for the issuance of an emergency measure (See Schedule 1 of the ACICA Rules, Article 3.5). 5. ↑ For instance, Article 37(1) and Article 1(2) of Appendix II to the SCC Rules 2017 provide an emergency arbitration with the power to “grant any interim measure it deems appropriate.” However, nowhere do the SCC Rules stipulate requirements for emergency relief. 6. ↑ Cameron Miles, Provisional Measures Before International Courts and Tribunals (Cambridge University Press, 2017), at 193. 7. ↑ Jose Maria Abascal, “The Art of Interim Measures,” in International Arbitration 2006: Back to Basics?, 13 ICCA Congress Series No. 13, ed. Albert Jan van den Berg (The Hague: Kluwer Law International, 2007), at 764. 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: Arbitrators as Lawmakers
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Pearl & Others v The KRG of Iraq: The DIFC Courts’ Tough Stance on State Immunity and Other Lessons

Wed, 2017-09-06 17:59

Gordon Blanke

A recent ruling of the DIFC Court of First Instance (see Claim No. ARB 003/2017 – Pearl Petroleum Company Limited & Others v. The Kurdistan Regional Government of Iraq [2017] DIFC ARB 003) deals with the question as to whether a State immunity defence may be available to a State entity or a governmental defendant in response to a DIFC ex parte order for recognition and enforcement of a foreign arbitral award. It also addresses other related issues, including in particular the obligation of full disclosure within the context of an ex parte application for an order for recognition and enforcement and the requirements of service of such an application under the 1983 Riyadh Convention.

The proceedings before the DIFC Courts originate in an application by the Defendant, the Kurdistan Regional Government of Iraq (the “KRG”) – the governmental entity of the Kurdistan Region of Iraq (the “KRI”), a constituent region of the Federal Republic of Iraq (“Iraq”) – to set aside an order made by the DIFC Court of First Instance ex parte on 29 May 2017 (the “Order”). By that Order, the DIFC Court recognised and enforced a pair of arbitration awards rendered under the LCIA Rules in London and permitted alternative service of the Order on KRG’s Counsel in London (rather than the Defendant itself in Iraq). In support of its enforcement endeavours, the Claimant, in turn, applied for an order that the KRG disclose its worldwide assets in order to allow the Claimant to obtain a global freezing injunction over the KRG’s assets. The awards essentially found that the KRG was in breach of its payment obligations under a contract with the Claimant for the production and sale of petroleum products, including in particular condensate and liquefied petroleum gas (“LPG”), (the “Contract”) and ordered monetary compensation in billions of USD in favour of the Claimant. More specifically, under the Contract, the Claimant enjoyed long-term exclusive rights to develop and produce LPG within specially designated gas fields in the KRI in return for the construction of gas production facilities at those fields and a pipeline for the supply – free of charge – of a specified amount of gas to two power plants in the KRI. The Claimant also had the right to market and sell, including by way of export, all excess gas to third parties. In the event that the Claimant was unable to market and export the LPG for “political reasons beyond [its] control”, the KRG was obligated to lift and pay for the LPG. In breach of this obligation, the KRG failed to make full payment for LPG that the Claimant was prevented from exporting due to an ongoing political dispute between the KRG and the Federal Government of Iraq (the “FRI”) in relation to the proper ownership of the right to manage hydrocarbons located within the KRI. The Contract further contained an express waiver stating that “the KRG waives on its own behalf and that of the [KRI] any claim to immunity for itself and its assets”.

Over the course of the arbitration, the tribunal granted interim relief requiring the KRG to continue to make payments to the Claimant under the Contract pending the outcome of the arbitration. In the light of the KRG’s continued failure to comply, the tribunal ultimately granted a peremptory order against KRG in the same terms pursuant to section 41(5) of the English Arbitration Act 1996, the governing procedural law of the arbitration (the “Peremptory Order”). This was followed by an order for enforcement of the Peremptory Order by Burton J of the English High Court, with an application for permission to appeal dismissed by Briggs LJ in May 2016 on the ground that the Peremptory Order rightfully stopped the Claimant from being held at ransom by the KRG over non-payment of continuing supplies under the Contract at the risk of insolvency. In further course, the KRG attempted a section 68 action before the English High Court to set aside one of the awards for serious irregularity in the arbitration process (such as failure to accord a fair hearing), which it subsequently withdrew without explanation.

In response to the defence of State immunity from these proceedings raised by KRG, Justice Sir Jeremy Cooke, sitting in the DIFC Court of First Instance, was resolute in finding that the DIFC Courts constituted an autonomous judicial body that could not be subjected to the wholesale application of a body of English common law on the basis of the so-called “cascade” or “waterfall” provisions of Article 8 of DIFC Law No. 3 of 2004 (on the Application of Civil and Commercial Laws in the DIFC), which lists “the laws of England and Wales” as the ultimate position to which the applicable law on the merits is defaulted where the parties have failed to agree otherwise or in the absence of a law with a closer connection to the underlying dispute. In Sir Jeremy’s own self-explanatory words,

“Whilst this Court is a common law court, there is no basis for incorporation of a body of substantive ‘common law’, whatever that may mean, into the substantive law which falls to be applied in the DIFC. The KRG sought to argue for such a body of common law, including state immunity as recognised generally by common law courts throughout the world, to be treated as part of the law of the DIFC, because it was said to incorporate, in turn, customary international law in relation to state immunity. I can see no basis for any such contention as a matter of substantive law, given the nature of the jurisdiction of the CFI […]. That jurisdiction is founded on statutory provision which requires the law of the DIFC to be first applied and only in absentia to move on to the cascading subparagraphs’ provisions, of which the last is the law of England and Wales, which for reasons which are apparent, in the light of the decisions of the English Courts set out above (Burton J and Briggs LJ) on the absence of immunity of the KRG in the present case, does not assist the KRG. The KRG effectively wishes to stop the clock at a time prior to the English State Immunity Act of 1978, and to apply in the DIFC what it contended was the common law position at that time, which was said to reflect the common law position throughout the world and which is said to form part of DIFC law. This is untenable.  Whilst the law of the DIFC is interpreted in accordance with the methodology of the common law and proceeds incrementally, the courts have no power to create law by incorporating some external body of law for which there is no provision in Article 8 of DIFC Law No 3 of 2004. The DIFC creates its own precedents on the basis of the law to be applied under the provisions of the statutory framework.” (DIFC ARB 003/2017, para. 18)

As regards the substance of immunity, Sir Jeremy found the contractual waiver in the terms contained in the Contract to be express and, as a matter of contractual interpretation, to amount to a “full waiver of immunity”, including immunity from execution (DIFC ARB 003/2017, para. 28). Sir Jeremy concurred with the findings of Burton J and Briggs LJ in the English courts to the effect that the waiver given by KRG in the Contract was “concise”, “robust” and “general” (ibid.) and, given the plain reference to KRG’s assets, extended beyond a simple immunity from injunctive relief to immunity from execution (ibid.). In doing so, Sir Jeremy distinguished the decision of the Court of Final Appeal of the Hong Kong Special Administrative Region in Democratic Republic of Congo and others v FG Hemisphere Associate LLC [2011] HK CFAR 395 inter alia on the basis of the disputed waiver in that case being implied (rather than express) (DIFC ARB 003/2017, paras 33-34) and found support in Article 7 of the 2004 UN Convention on Jurisdictional Immunities of States and their Property (albeit not binding on the UAE, nor on the FRI or Iraq as non-parties), which provides for the effectiveness of a waiver of immunity from suit and execution by way of a written contract, as current international thinking at the time of the Contract (DIFC ARB 003/2017, paras 30-32). In any event, Sir Jeremy found obiter that the State immunity defence had to fail by virtue of an issue estoppel, the proper interpretation of the waiver provision having already been the subject of the proceedings before the English courts (DIFC ARB 003/2017, para. 36).

On service, Sir Jeremy was understandably strict in finding that “the terms of Article 6 [of the Riyadh Convention on service of documents on a opponent party (‘Legal and non-legal documents […] required to be served […] shall be dispatched’) (my emphasis)] are self-evidently mandatory” (DIFC ARB 003/2017, para. 59) and required service on the Defendant in Iraq. This also applied to any inter partes application for disclosure of assets. No alternative method of service was admissible under the Riyadh Convention, regardless of the DIFC Courts’ more generous rules of service. In this context, Sir Jeremy did not hesitate to confirm that the DIFC Courts, in turn, were bound by the terms of treaties that formed part of the domestic legal order of the UAE by virtue of Article 5 of UAE Federal Law No. 8 of 2004, including the Riyadh Convention. (DIFC ARB 003/2017, para. 57) As a consequence, the service of the Order had to be set aside, although the ex parte Order itself remained in place (DIFC ARB 003/2017, para. 60). In this context, Sir Jeremy confirmed that the Claimant was not in default of its obligations of full disclosure in support of its ex parte application for the Order given that in the prevailing circumstances (especially after having failed on a related account before the English courts), the Claimant could not have (reasonably) anticipated that the KRG would advance (afresh) a defence of State immunity (DIFC ARB 003/2017, para. 63), nor – given uncertainties in the translation of Article 6 of the Riyadh Convention that only emerged during the hearing before the Court – properly gauged the mandatory nature of that provision and the need for service of the KRG in Iraq, (DIFC ARB 003/2017, paras 65-66).

Finally, Sir Jeremy found obiter that taken altogether, the overall devious and recalcitrant behaviour exhibited by the KRG over the course of the legal proceedings ad datum, including its systematic attempts to avoid payment and delay the proceedings by advancing and withdrawing a section 68 action as well as evidence showing the KRG’s attempts to conceal assets to avoid payment, meet the test for the risk of dissipation of assets to grant an order for disclosure of the KRG’s assets worldwide. Sir Jeremy would have made an order to that effect had the Court’s order for alternative service not been set aside.

These are all valuable lessons on the operation of the DIFC Courts’ rules of service and the role that the defence of State immunity may play in proceedings before the Courts. It is reassuring to see that the DIFC Courts are not unduly impressed by arguments of sovereign immunity and by governmental award debtors that attempt to avoid compliance with arbitral awards entered against them at any cost. Sir Jeremy, correctly in my view, unerringly – even though obiter – found in favour of an order for disclosure of the KRG’s assets worldwide, being no doubt determined to facilitate the successful enforcement of the awards through ring-fencing efforts made by the Claimant whilst prioritizing strict compliance with the rules of service under the Riyadh Convention.

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Kluwer Mediation Blog – August Digest

Wed, 2017-09-06 03:09

Anna Howard

August offered an eclectic mix of posts ranging from recent developments regarding mediation in investor-state disputes, the potential offered by mediation in environmental disputes in India, and the meaning of true voluntariness in mediation. Below is a brief summary of each of the posts published on the Kluwer Mediation Blog last month.

In Where Might Ambiguity Add Value, Charlie Woods considers the value which ambiguity can add in addressing the many challenges we face in our increasingly interdependent and uncertain world.

In Elementary My Dear Watson, Andrea Maia explores the impact of artificial intelligence on mediation, with a particular focus on consumer disputes in Brazil.

In Of Perception, Impasse and A**holic Behaviours – Creating Movement in our Minds, Joel Lee identifies two mental shifts which are helpful in overcoming challenging situations.

In What Do We Mean By Dialogue, Constantin-Adi Gavrila explores whether the term “dialogue” can have different meaning and considers whether the dialogue process could be more effective should these differences be clarified before the process commences.

In the Future of ADR Between Investors and Public Authorities, Rafal Morek identifies key recent developments regarding mediation in investor-state disputes including the European Commission’s recent consultation document on the ‘Prevention and amicable resolution of disputes between investors and public authorities within the single market’.

In Typewriting the Mediated Settlement Agreement, Martin Svatos draws on his recent experience of finalising a settlement agreement to consider how difficult it would be to draft a settlement agreement using a typewriter

In Mediation of Environmental Disputes in India, Dhruv Shekhar draws on important recent developments to highlight the role which mediation could play in environmental disputes in India.

In Some Thoughts on the Voluntary Nature of Mediation, or Why Mediators Should Not Overestimate What They (Can) Do, Greg Bond considers voluntariness as regards real engagement by the parties in mediation. Greg then uses two stories to highlight why the mediator’s role within a dispute should not be overestimated.

In Working on Water # 4: tapping into dialogue issues, Ian Macduff shares the latest developments regarding water quality and allocation in New Zealand and identifies the potential roles for mediation in this pressing matter.

Finally, in The Path To Mediation Excellence – Not A Sprint But A Marathon, Angela Herberholz offers encouraging advice for those who are seeking to achieve excellence in mediation.

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Appointment Of Arbitrators In India – Finally Courts Divest Some Power

Mon, 2017-09-04 19:00

Ayushi Singhal

As on May 1, 2017, 60751 cases were pending in the Indian Supreme Court. Likewise, as per the data available, a total of 41,53,957 cases are pending in the twenty-four High Courts in India. The rate at which these cases are disposed, for various reasons like the vacancies for the position of judges, inefficient procedures, etc., nowhere matches with the pendency. Unlike many countries in the world, in addition to the judicial function of decision-making, the Chief Justice of India (Supreme Court), and the Chief Justices of the various High Courts (collectively ‘Chief Justices’) are also vested with the performance of administrative functions. These functions include maintenance of roster, allocation of matters to other judges, etc.

 

Along with these functions, so far as arbitration is concerned, before the 2015 Amendment to the Indian Arbitration and Conciliation Act, 1996, the Chief Justices, where the parties failed to do so, were also required to appoint arbitrators in pursuance of an arbitration agreement for arbitrations seated in India.

 

Also, this power of appointment of arbitrators on the failure of parties to do so, was characterized as a judicial power, instead of an administrative power, which meant that the scope and nature of this judicial intervention in an arbitration, was broader than it would otherwise be. In other words, the Chief Justices while appointing arbitrators could hold a detailed trial and hear detailed arguments concerning whether the arbitration agreement exists or not (as opposed to making a prima facie determination, and leaving the final determination for the arbitrator). [See, SBP v Patel Engineering, (2005) 8 SCC 618; National Insurance Co. Ltd. v Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267]

 

This naturally led to delays in the appointment of arbitrators, sometimes the Section 11 [the concerned provision in the Arbitration Act for the appointment of arbitrators] applications being pending for years, consequently resulting in delay in the making of arbitral awards as well. Even when speedy disposal of the disputes indeed might have been one of the reasons why parties might have opted for arbitration over litigation at the first place.

 

In this background, the Law Commission of India in its 246th Report recommended that the appointment of arbitrators be made instead by the High Court or the Supreme Court, such power being administrative in nature, and thus delegable to an arbitral institution. The possibility of such a delegation was made explicit in the amended Section 11. Section 11 provides, inter alia, “the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court” can appoint the arbitrator(s) when a party(s) fails to do so, with the stated purpose of the amendment being to “provide greater incentive for the High Court and/or Supreme Court to delegate the power of appointment (being a non-judicial act) to specialized, external persons or institutions”. The amendment also prescribed a time limit of sixty days from the date of service of notice on the opposite party, within which the court should endeavor to dispose of the application requesting appointment of arbitrators.

 

The UNCITRAL Model Law also does not disallow for such a possibility, as is evident from a combined reading of Articles 6 and 11, which suggests that any suitable authority as prescribed by the legislature, not necessarily courts, can appoint arbitrators.

 

Yet, neither the Supreme Court nor any of the High Courts have yet designated an institution/expert to make appointments. Until now, this power was not even exercised on an ad hoc basis. However recently in Arbitration Case no. 33 of 2014, the Supreme Court of India, has by order dated May 3, 2017, directed the Mumbai Centre for International Arbitration (MCIA) to appoint an arbitrator, in an international commercial dispute between Sun Pharmaceutical Industries Ltd., Mumbai and M/s Falma Organics Limited Nigeria. This is the first instance where the Supreme Court has made use of the power under Section 11, and this is indeed a pro-arbitration development in India. It is hoped that this process is systemized whereby the parties can approach designated arbitral institutions directly for such purpose, instead of the court acting as an intermediary for every such appointment.

 

Indeed this function can be systemized by assigning it to a central arbitral institution like the ICADR (International Centre for Alternative Dispute Resolution), after creating the necessary infrastructure, which would in turn also help in popularizing the Institution, which presently hardly deals with any cases in comparison with its competitors. Regional institutions like the MCIA in Mumbai or the Nani Palkhivala Arbitration Centre (NPAC) in Chennai, etc. can also be designated, depending upon the seat of arbitration, which would also promote institutionalized arbitration in India.

 

This is also along the lines of how the appointment of arbitrators takes place in Singapore [thanks to Jeet Shroff for making me notice this]. Not only will such delegation leave space for the judiciary to adjudicate other matters, but will also speed up the process of appointment of arbitrators, by reducing one time-taking step from this process.

 

One issue which however remains to be clarified in this regard is the appealability of the decision of the Court or such arbitral institution, where it decides that the arbitrator should not be appointed. Section 37 of the Arbitration Act, which lists appealable orders does not mention this order, despite recommendation to this effect by Law Commission’s 246th Report (which led to the introduction of the progressive 2015 Amendment to the Act). As against this, where the party resisting arbitration has initiated court proceedings, and the opposite party requests the court to refer the matter to arbitration and the court denies reference, the same can be appealed under Section 37 (orders passed under Section 8 are appealable). This results in an anomaly, whereby a party might be better off waiting for the matter to be referred to arbitration, than in initiating appointment of arbitration, so far as appealability is concerned, though there appears no reason for such difference. This, however, forms the subject of a separate discussion.

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Public Comment Period Now Open on Draft Report of the ICCA-Queen Mary Task Force on Third-Party Funding

Mon, 2017-09-04 03:31

William (Rusty) Park, Stavros Brekoulakis and Catherine A. Rogers

As the Co-Chairs of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration (Task Force), we are pleased to announce that the draft report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration is now available for public comment until 31 October 2017. The draft report is available here.

Overview of the Task Force

The Task Force is composed of over fifty members from over twenty different jurisdictions around the world, and includes representation of stakeholders from diverse perspectives, including arbitrators, in-house counsel, State parties, external counsel, representatives with experience at arbitral institutions, academics, and a range of third-party funders and brokers.

The Task Force aims generally to improve understanding about third-party funding through multi-lateral dialogue about the issues it raises in international arbitration, and to promote greater consistency in addressing these issues. In approaching these aims, the Task Force generally limited its work to those issues that: (1) directly affect international arbitration proceedings; and, (2) are capable of being addressed at an international level.

The current draft was assembled from several separate reports that were initially drafted by various Sub-Committees. Those reports and this Draft also benefitted from discussion at multiple roundtable meetings of the Task Force and comments submitted on the various Sub-Committee reports. The Co-Chairs are enormously grateful for all the hard work and careful deliberation of the Task Force Members in producing this Draft.

Overview of the Draft Report

In terms of the structure of this Draft Report, after Chapter One’s general introduction and overview of the Task Force’s work, Chapter Two provides an overview of the market and mechanics of third-party funding. It begins with an examination of the reasons parties seek funding, and the process funders use to evaluate whether to fund a dispute. It then provides a descriptive overview of the range of means for financing disputes, including both modern case-specific non-recourse funding and a range of other sources that serve similar functions.

Building on Chapter Two’s overview of the forms of funding, Chapter Three then analyses the definition of third-party funding. Specifically, Chapter Three provides a broad working definition and examines different possible definitions, surveys the range of definitions that have been adopted by various other sources, and concludes by examining how different definitions affect analysis of different issues addressed in subsequent chapters.

Each of the three subsequent chapters addresses a specific substantive issue, and begins by articulating Principles for each of the following topics: Disclosure and Conflicts of Interest (Chapter 4), Privilege (Chapter 5), and Costs and Security for Costs (Chapter 6). The body of each of these chapters then delineates the sources and competing viewpoints the Task Force considered in reaching these Principles, as well as the reasons why particular viewpoints were eventually incorporated into the Principles instead of others.

Chapter Four addresses the issue of disclosure and potential arbitrator conflicts of interest. Consistent with other recent sources, the principle it articulates requires disclosure of the existence and identity of third-party funders to facilitate analysis of potential conflicts. In its current form, this Report includes proposed alternative versions of the Principles regarding disclosure in order to facilitate specific input regarding those issues for which there was disagreement on the Task Force.

Chapter Five addresses privilege. It provides a survey of national differences regarding privilege, which is supported by an Annex that collects national reports indicating how different jurisdictions treat it articulates an international principle regarding waiver of information that is otherwise determined to be subject to privilege. Specifically, it recommends that tribunals do not treat privilege as waived by virtue of information being shared with a third-party funder.

Chapter Six takes up the issue of costs and security for costs. It analyzes existing standards for granting costs and security for costs, concluding that the existence of funding is not generally relevant to such determinations.

Chapter Seven summarizes best practices for funding agreements. Task Force members generally agreed that a statement of existing best practices would be useful to new parties seeking funding, new funders entering the market, and the increasing number of arbitrators and counsel that are encountering funding for the first time.

Finally, Chapter Eight examines third-party funding in investment arbitration. The analysis in each of the foregoing chapters also analyzes the relevant issues as applicable to investment arbitration. This Chapter, however, seeks to provide additional discussion of both the policy issues that might affect application of the Principles in the Draft Report in investment arbitration, and a limited range of specialized issues that arise with respect to funding in investment arbitration.

The Public Comment Period

It is important to emphasize that this is a working draft. The Task Force continues to be actively engaged in its analysis, and for that reason we request that the Draft not be cited in publications. The Co-Chairs and Task Force look forward, however, to adding public feedback and comment to their continued reflections.

To that end, the Task Force has organized, or is cooperating with the organization of, a number of invitational and public discussions to facilitate discussion and feedback on the Draft during the public comment period. A list of events at which the Task Force’s work and earlier drafts have been or will be presented will be kept up to date here.

During this public comment period, we also welcome direct feedback on the Draft, which can be submitted to the Task Force at the following address [email protected]. It is also possible to post public comments and view other public commentary here. We note that this latter website is independent of ICCA, however comments submitted via this platform will also be forwarded to the Task Force.

Conclusion

The Task Force was established on the premise that meaningful and engaged dialogue can be of benefit to all. Dialogue alone will not necessarily generate consensus, but it can help identify more clearly areas of actual agreement and disagreement, sharpen focus and analysis, and help collectively distinguish between what are priorities and what is background noise.

The Task Force Co-Chairs look forward to receiving public feedback directly, and we hope such input will further advance the Task Force’s work and understanding of the relevant issues.

Should you have any queries, please contact [email protected].

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Why Picking an Arbitrator is Like Playing Guess Who™?

Fri, 2017-09-01 00:46

Paul Baker

Clyde & Co.

(a.k.a why is it always Bill?)

To those unfamiliar with this popular Hasbro™ family game, each team has a board with 24 faces on it – the faces vary in colour, shape, gender, facial hair and attire. In the conventional game each side ‘picks their person’ and the other player has to whittle down the people on the board by asking questions (to which the responder answers yes or no), ‘knock down’ those on the board who do not meet the relevant criteria and continue until they have correctly guessed who their opponent ‘picked’ by virtue of them being the only face left standing.

Common questions would be:
‘Does this person wear glasses?’
‘Does this person have blue eyes?’
‘Does this person have hair?’ (note to players – this is always open to interpretation)

Imagine now an advanced game of Guess Who™ snappily titled ‘Arbitrator Guess Who’ with the cheeky characters replaced by upstanding members of the arbitral community from whom parties choose their arbitral nominations or appointments. To be clear, it is not proposed that all with blue eyes, glasses and no hair be promoted to the upper echelons of arbitration or dismissed from the game entirely depending on the answer to the question, but there is, perhaps, a certain similarity between a good Sunday-evening family game of Guess Who™ and a Monday-morning meeting to discuss potential arbitrators.

So how do you choose an arbitrator?

While there are noteworthy moves afoot to develop more formal directories of arbitrators, at present party-appointed arbitrators will largely be chosen based on research backed up by prior experience and recommendation. In a sense, the potential arbitrators are lined up in their rows and columns and knocked down based on criteria they either reach or fail to meet. Questions in this version of the game include:

‘Are they of the same nationality as either party? (and if so does this discount them?)’
‘Are they qualified or experienced in the particular area of law in question?’
‘Do they have a strong reputation for procedural robustness/case management?’
‘Are they efficient?’
‘Are they available to do the work in the given timeframe?’

The list goes on until a shortlist of up to say five are identified and ‘remain standing’ on the Arbitrator Guess Who board. In this version of the game these potential arbitrators would be discussed at length amongst the team and the client before one is nominated or appointed depending on the relevant procedure.

This is not to make light of the importance of choosing the right arbitrator or the research that goes into that process – choosing the right decision-maker can make or break a dispute for a number of reasons ranging from ability to grasp technical issues, through procedural preferences to ability to make correct although tough decisions. Arbitrator Guess Who is not meant to bely this complexity but by framing suitable questions the ‘Arbitrator Guess Who’ game remains in play.

So why is it always Bill?

In the family game of Guess Who™ the character ‘Bill’ always seems (although shockingly no scientific experiments appear to have been conducted) to be ‘picked’ more often than other characters. Bill has a largely bald head with a smattering of ginger hair around his ears, no glasses, brown eyes, rosy cheeks and a ginger goatee. Maybe it is some combination of his features that attracts players to him, or maybe it’s that he fits a ‘least controversial’ category. In our Arbitrator Guess Who game ‘Bill’ would be the arbitrator who was not of the same nationality as the parties, with experience in all relevant fields, with a good reputation for efficiency who is available to take the appointment – in reality there are likely to be several ‘Bills’ all of whom could do a perfectly respectful job as arbitrator. But does this lead back to the perennial thorny issues of repeat appointments and the difficulties of widening the pool? Of course the pool in Arbitrator Guess Who is not limited to 24 individuals but, in reality, how many individuals make it onto the ‘long list’ before the narrowing begins? Likely not many more than 24. Also, if it is known that one of the ‘Bills’ could do a perfectly good job, is there any incentive to search further afield?

Of course, the above is hyperbolic (and the author is certainly not rushing out to trade mark ‘Arbitrator Guess Who’). However the analogy is such that perhaps next time the reader is selecting an arbitrator, they could prepare a two cm square photo for 18 of the Arbitrator Guess Who pieces and six ‘new’ pieces for the game and see whether ‘Bill’ is still the chosen one.

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post

Thu, 2017-08-31 23:25

Crina Baltag (Associate Editor)

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Third-Party Funding’s Older Sibling: Legal Costs Insurance and The Issue Of Regulation

Thu, 2017-08-31 05:27

Trinidad Alonso

The views expressed in this article are those of the author and do not represent those of Luther Rechtsanwaltsgesellschaft.

Third-Party Funding (TPF) has certainly captured the attention of the arbitration community in the last few years. This has led to an interesting debate on its implications and potential need for regulation that has, however, failed to include all stakeholders. Insurance has been, in this sense, the Great Forgotten.

TPF is only one of the shapes that funding can take in international arbitration. Yet, it has been perceived as a new phenomenon that raises a number of novel issues such as conflicts of interest, disclosure, security for costs, control over the claim or confidentiality, among others. In order to determine whether TPF is in fact a new, stand-alone phenomenon that deserves special treatment -and regulation- it is necessary to take a comprehensive look at the funding market in international arbitration.

Funding of claims by third parties in arbitration has existed for hundreds of years, notably in the form of insurance. Yet, little or inconsistent consideration has been given to insurance throughout the debate on regulation. Of the insurance schemes available in international arbitration, BTE (‘before the event’) legal costs insurance deserves special attention for its resemblance to TPF. In return for a premium paid in advance, the BTE insurer covers the risk of the legal costs of a potential litigation. It will fund the costs of bringing or defending a claim in arbitration, but it will not take a share in the proceeds of a successful award.

BTE is not liability insurance as it does not cover the amount at the core of the dispute. It is also not ATE (‘after the event’) insurance, which is coverage purchased once a dispute has arisen. ATE provides cover against an adverse costs award or against non-recovery of ‘own costs’ and is usually paid for by a contingent premium, that is, only if the claim succeeds, which is why it is sometimes equated with TPF. However, this type of insurance does not usually provide funding: it is not the purpose of this insurance scheme.

Most saliently, one key form of BTE insurance is of crucial importance in international arbitration due to its ubiquity: FD&D (Freight, Demurrage and Defense) cover. This type of insurance is BTE mutual legal costs cover offered by P&I Clubs or FD&D Clubs in the shipping industry. As BTE insurance, it funds legal costs associated with bringing or defending a claim. Interestingly, and in parallel to TPF, FD&D is discretionary: only when Clubs have carried out an extensive assessment of the prospects of success of a claim brought by one of its members will they agree to support the claim. FD&D thus considerably resembles TPF: both schemes fund the legal costs of a proceeding in return for an economic benefit, whether in the form of a premium (in the case of FD&D) or a share in the proceeds (in the case of TPF). 1)Clanchy, J. (2016). Navigating the Waters of Third Party Funding in Arbitration. The International Journal of Arbitration, Mediation and Dispute Management, 82(3), 222 – 232. jQuery("#footnote_plugin_tooltip_2739_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2739_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This parallel between FD&D, as a form of BTE insurance, and TPF generates its overarching significance from FD&D’s long-established and highly successful roots in the historically significant realm of maritime arbitration – a field that represents approximately a quarter of international commercial arbitrations per year globally.

This qualifies BTE insurance, and more specifically FD&D insurance, as a yardstick to evaluate the question of necessity for regulation.

BTE insurance, particularly FD&D, and TPF may be considered as sibling phenomena. Issues such as control over the claim, conflicts of interest or confidentiality do arise in both contexts. Yet, insurers supporting parties in arbitration have not been considered in the need of regulation as a form of TPF. The disclosure of BTE insurance has never been required and there has been no demand for it. As noted below, the revisions to the IBA Guidelines, which added TPF and ATE insurers, did not include BTE insurers. Objections arising solely in the context of TPF may not be justified and could possibly be better addressed by examining insurance practices which have not been made subject to regulation in arbitrations at any point throughout their centenary and successful existence.

It can be argued that in the current debate on TPF the approach taken towards TPF has been inconsistent in the light of the broader funding context. Attempts at putting together a definition have been made by practitioners, arbitral institutions, legislatures, and academia alike.

The ICCA-Queen Mary Task Force took the lead in addressing the supposedly new issues raised by TPF. Its working definition2)Park, W. W., & Rogers, C. A. (2014). Third-Party Funding in International Arbitration: The ICCA Queen-Mary Task Force. Austrian Yearbook on International Arbitration, 2015, Forthcoming; Boston Univ. School of Law, Public Law Research Paper No. 14-67; Penn State Law Research Paper No. 42-2014. jQuery("#footnote_plugin_tooltip_2739_2").tooltip({ tip: "#footnote_plugin_tooltip_text_2739_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); brings both TPF and ATE insurers under the same umbrella. The Task Force convened that ordinary insurers (arguably BTE legal costs insurers) would be excluded as a separate feature of dispute resolution and on the basis that they do not get involved in case management as much as TPF providers do. This is certainly not the case in BTE insurance, however: BTE insurers monitor cases closely because, without an interest in the outcome, it is important to ensure money is well spent. In any case, the inclusion of another type of insurance – ATE – in the definition of TPF seems inconsistent and unjustified: an ATE insurer is indeed a third party in a proceeding, but providing funding is neither a common feature nor the purpose of this type of insurance.

A similar approach to the Task Force’s has been propagated in the IBA Guidelines on Conflicts of Interest in International Arbitration. According to the IBA Guidelines (see General Standard 6b)), liability and ATE insurers can be equated to TPF while, paradoxically, BTE insurers cannot, as follows from the Guidelines’ wording. Neither do BTE insurers have a direct economic interest in the outcome of the case nor do they indemnify a party. Thus, the fact that liability and ATE insurance are included while BTE insurance remains outside of its scope is again inconsistent.

With regards to legislative efforts, Hong Kong and Singapore have recently permitted TPF in arbitration under local law for the first time. Legislation at both seats envisage regulation of TPF in arbitration but not of insurance.

Recent academic literature on the topic of TPF has generally approached it as a unique phenomenon focusing on the alleged new issues that it is said to raise while failing to address other funding practices from which parallels to TPF can in fact be drawn. Other authors, however, have already taken note of insurance and carried out a more extensive research into the broader funding market concluding that some of those issues are not new or particular to TPF. Here, Michele DeStefano’s contributions are a bright spot in an otherwise compartmentalized debate.3)DeStefano, M. (2012). Nonlawyers Influencing Lawyers: Too Many Cooks in the Kitchen or Stone Soup? Fordham L. Rev., 80, 2791 – 2845. jQuery("#footnote_plugin_tooltip_2739_3").tooltip({ tip: "#footnote_plugin_tooltip_text_2739_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This notion shall be emphasized here: as the discussion on TPF continues and develops, it would be commendable to elevate the perspective of the debate and take a holistic, consistent and comprehensive look at the broader arbitration funding practices -notably to those that most resemble to TPF, i.e. BTE insurance. BTE’s successful unregulated existence may justify its exclusion from attempts at regulation while it serves as a yardstick with the help of which to assess the need for regulation of TPF. Ultimately, this discussion may or may not lead to the conclusion that there is an imminent need for the regulation of TPF.

Either way, approaching insurance practices consistently and with transparency not only pays tribute to the quality of the debate on TPF, but it provides its users with clear and defined parameters on how to proceed when making use of the advantages of international arbitration.

References   [ + ]

1. ↑ Clanchy, J. (2016). Navigating the Waters of Third Party Funding in Arbitration. The International Journal of Arbitration, Mediation and Dispute Management, 82(3), 222 – 232. 2. ↑ Park, W. W., & Rogers, C. A. (2014). Third-Party Funding in International Arbitration: The ICCA Queen-Mary Task Force. Austrian Yearbook on International Arbitration, 2015, Forthcoming; Boston Univ. School of Law, Public Law Research Paper No. 14-67; Penn State Law Research Paper No. 42-2014. 3. ↑ DeStefano, M. (2012). Nonlawyers Influencing Lawyers: Too Many Cooks in the Kitchen or Stone Soup? Fordham L. Rev., 80, 2791 – 2845. 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: Arbitrators as Lawmakers
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Navigating the Labyrinth: Indian Courts on One-Way Arbitration Clauses

Wed, 2017-08-30 05:30

Siddharth S. Aatreya

The primary purpose of an arbitration clause is to represent the parties’ common agreement to resolve disputes arising out of their contractual relationship by arbitration. One-way arbitration clauses, however, serve this primary purpose while giving only one party the right to commence arbitration proceedings. Consequently, the other party only has the option of approaching a domestic court to pursue a claim.

 

In countries like India, banks and other financial institutions that engage in lending and trading activities on an international scale take on a high litigation risk. To dilute this risk and maintain profitability, they deny the benefits of opting for arbitration to their borrowers in an attempt to ensure that only legitimate claims against them are made before domestic courts. At the same time, they reduce the cost and risk involved in pursuing claims in different jurisdictions for themselves by compelling both parties to arbitrate only if they choose to initiate it. The clause’s ability to dilute the bank/financial institution’s litigation risk has been responsible for its growing popularity.

 

Despite this growing popularity, the enforceability of such clauses has been a matter of great controversy around the world, with courts in different countries taking divergent positions. In India, however, no clear stance can be culled out of conflicting judgments rendered by different High Courts.

 

The Development of the English Position

The first reported judgment in England on the enforceability of one-way arbitration clauses is Baron v. Suderland Corporation 1966 (1) All ER 555, rendered in 1966.  Here, the Court held that “mutuality” was necessary for a valid arbitration agreement, and defined it to mean that all parties to an agreement should have “equal procedural rights.” Since one-way clauses gave only one party the right to commence proceedings, the court held that the clause gave the parties unequal procedural rights and was, therefore, void. In 1985, this position was reiterated in Tote Bookmakers v. Development and Property Holding [1985] 2 WLR 603.

 

A year after Tote, however, the position was changed in Pittalis v. Sherefettin  [1986] 1 QB 868. Here, the court held that a one-way arbitration clause is a consequence of the nature of the commercial relationship between the parties, and would satisfy the mutuality requirement laid down in Baron as long as both parties were aware of and had freely consented to it. Consequently, such clauses continue to be enforceable in England today.

 

Enforceability in India

The Calcutta High Court has consistently upheld one-way arbitration clauses. In Kedarnath Atmaram v. Kesoram Cotton Mill, 1949 SCC OnLine 382 it first used the “prior knowledge and consent of both parties” requirement to find that one-way clauses would be valid as long as this condition was met. In 2002, the Court’s decision in S&D Securities v. Union of India, 2005 124 CompCas 340 traced the development of English law in this regard and finally relied on the reasoning in Pittalis to uphold their validity. The Calcutta High Court’s position is, therefore, consistent with the current position in most common law countries, as observed in the Singapore High Court’s recent decision in Dyna-Jet Pte Ltd v. Wilson Taylor Asia Pacific Pte Ltd. [2016] SGHC 23.

 

Unenforceability in India

The only other Indian High Court that has decided upon the enforceability of such clauses is the Delhi High Court, which has adopted the opposite view. In Bhartia Cutler Hammer Ltd. v. AVN Tubes, 1995 (23) DRJ 672, the court first decided upon this matter, holding that the apparent inequality in rights given to parties under the clause would render it void.

 

Most recently, in Lucent Technologies v. ICICI Bank, MANU/DE/2717/2009 the Delhi High Court succinctly clarified its position. The court found, first, that such a clause would amount to an agreement in restraint of legal proceedings since it restricted the rights of only one party to seek an alternative form of dispute resolution (arbitration). On this basis, the Court held that the clause was void under the Indian Contract Act. The court then overlooked Pittalis and relied instead on Tote in holding that a one-way clause would, in any case, violate the “mutuality” requirement of a valid arbitration clause.

 

The argument for uniform enforceability in India

Notwithstanding the Delhi High Court’s finding to the contrary, I would argue that the uniform Indian position should be that such clauses are enforceable since they fulfill the two broad conditions of a valid clause – fair terms and free consent from all parties to it.

 

First, one-way arbitration clauses are a consequence of the high litigation risk that financial institutions face. However, while the right to commence an arbitration reflects this risk, the terms of the arbitration itself are in no way tilted in favour of the financial institutions. This means that the fairness of a potential verdict is not affected at all.

 

Furthermore, the Delhi High Court’s decision that such a clause amounts to an agreement in restraint of legal proceedings in Lucent is unfounded. The right to commence an arbitration is merely a contractual right, which can be distributed in an unbalanced manner between the parties as long as the parties to the contract consent to it. In any case, the unbalanced distribution of this right does not leave any party without a remedy in case of a breach, since the right to pursue a claim before a domestic court remains untouched.

 

Second, on procedural fairness. Here, the requirement of “prior knowledge and consent” laid down by the Calcutta High Court and contemporary English courts is of importance. This means that no blanket assumption of procedural unfairness can be made in such cases – the court must instead analyse this on a case-to-case basis. Thus, a one-way arbitration clause would be struck down on procedural grounds only if it can be established that there was a gross inequity of bargaining power that vitiated consent to the clause in that particular case.  See Central Inland Water Transport Corporation v. Brojo Nath Ganguly, 1986 SCR (2) 278 for a discussion on procedural unconscionability of contracts in Indian law. As long as both parties to the clause validly consent to it, however, it should be enforced.

 

Conclusion

As noted above, no consensus has been arrived at on the enforceability of one-way arbitration clauses around the world. India has seen two High Courts consistently adopt opposite viewpoints on this issue. In the absence of a conclusive judgment from India’s Supreme Court or any legislative direction specific to one-way arbitration clauses, this confusion will persist. Thus, while it is possible to argue that such clauses should be uniformly enforceable across India, it is prudent for financial institutions to avoid the use of such clauses in India for now.

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