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Making Mediation More Attractive For Investor-State Disputes

Mon, 2019-03-25 20:24

Daniel Weinstein and Mushegh Manukyan

For many years, arbitration has been the de facto vehicle of choice for the resolution of investor-state disputes. However, despite the wholesale and widespread adoption of mediation in every sort of dispute, mediation is used rarely in investor-state disputes (Systra v. Philippines is one example). As of this writing, only 11 (1.3% of total ICSID cases) known conciliations—a procedure similar to mediation—have been recorded by ICSID. Even rarer are instances of tribunals encouraging parties to try mediation (see, e.g., Achmea v. Slovakia).

In recent years, there have been extensive discussions about the use and potential superiority of mediation for these disputes. In this short piece, we address the main concerns against the use of mediation in investor-state disputes, offer some comparisons to the more popular path for investor-state arbitration, and then present several advantages of mediation to encourage its wider use in the international dispute resolution.

Concerns And Objections To Mediating Investor-State Disputes

Unsurprisingly, only 36% of ICSID cases settle or discontinue. Moreover, according to PITAD, of the total number of 1,056 investment cases, only 186 settled and 104 discontinued (including after the jurisdictional stage). This number renders sufficient proof that there is an ample potential for investor-state disputes to settle through mediation. Despite this, States and investors remain reluctant to use mediation due to various concerns, with the most frequently cited objections outlined below.

State actors may avoid mediation for at least five reasons (see more details in the Report: Survey on Obstacles to Settlement of Investor-State Disputes). First, they may wish to avoid taking responsibility for a settlement, and many disputants prefer a terrible outcome imposed upon them to a better, but imperfect outcome that they own. Second, they may find it easier to obtain buy-in or budgetary approval for a binding award relative to a voluntary settlement. Third, they may be unwilling to publicly accept guilt for previous state actions that ran afoul of agreements or treaties. Fourth, officials may fear being accused of corruption and may have concerns about personal liability. Finally, the relevant government officials may have conflicting perspectives, interests, and knowledge about the dispute and its settlement. These concerns are largely mitigated in arbitration through shifting the responsibility to external counsel and arbitrators with the power to make a binding decision. In case of a failure, counsel and arbitrators are to blame.

From the investors’ perspective, arbitration has become a natural choice to resolve investor-state disputes. Investors even threaten States with arbitration in an attempt to incentivize a State to negotiate. But investors often avoid mediation because they fear that preferring settlement to adjudication may make them appear weak, because they are naïve or overconfident regarding the risks and costs of obtaining an arbitral award, or because they underestimate the challenges of enforcing an arbitral award.

Overcoming These Concerns And Objections

The following ideas are our suggestions for getting past the myriad concerns to mediating investor-state disputes.

Utilizing the Mediator’s Proposal. Contrary to arbitration where there is no voluntary exit from the process without legal consequences, an exit from mediation may take many forms. One of the commonly used forms is the mediator’s proposal. A mediator’s proposal is a mediator’s settlement proposal to all parties at the appropriate stage of the mediation—usually when there’s an impasse or stuck point in the bargaining, and each party is given the option of accepting or rejecting it without modification. If both parties accept, settlement occurs. If either rejects, bargaining continues.

We suggest several additional features to a traditional mediator’s proposal, namely that upon parties’ acceptance of the proposal the mediator—if he or she feels appropriate to do so—issue a letter confirming that (i) the negotiated deal is fair; (ii) the terms agreed upon by the parties are commercially reasonable; and (iii) negotiations were conducted in good faith. It is critical that the mediator be highly credible and trusted so his or her opinion can have an ample weight for executive officials, State leadership, and the general public. The proposal would allow government officials to minimize if not eliminate most of their concerns regarding settlement.

Appreciating the Value of an “Unsettled” Mediation. The success in arbitration is frequently measured by the victory and the size of the awarded damages. In the same vein, mediation is often wrongly perceived to be successful only if the dispute is settled. Simply because a mediation concluded without a settlement does not mean that the mediation failed. An unsettled mediation can also yield benefits, such as: (i) a better understanding of the dispute and the interests involved; (ii) a chance to evaluate the opposing party’s counsel; and (iii) an opportunity to assess the merits of each side’s arguments. These qualities of a “failed” mediation may lead parties to productive direct negotiations or streamlined adjudication. This is particularly relevant for parties who find themselves in the cooling-off period of an investment treaty because they can evaluate their case prior to launching arbitration.

Appointing the Right Mediator. Appointing a professional arbitrator as a mediator who would likely lack extensive mediation experience is a rookie mistake. While an experienced arbitrator would have a better insight into the substantive issues of the investment dispute, mediation is firstly about the fair process and techniques to encourage effective discussion between the parties. Empaneling two mediators—an expert in the process and an expert in substantive issues—may be an optimal solution.

Mandatory Investor-State Mediation. The rise of investment arbitration was largely caused by investment treaties that envisaged arbitration for the resolution of investor-state disputes. Parties often need a little push to try new things. Lawyers who fell prey to litigation inertia found that the judicial push to attend mandatory mediation (not to be confused with mandatory settlement) served them and their clients well. They say, “you can lead a horse to water but you can’t make it drink.” But when the leader is a judge or legislature the “horse,” (parties or their lawyers) who may be subject to the proclamations of the bar, judiciary or business community, drinks and typically feels better after a long, cool sip. Mandating mediation for certain types of investment disputes, such as disputes below or above a certain financial threshold, may encourage litigants to embrace mediation and use it for a wider range of investment disputes.

The Arguments In Favor Of Investor-State Mediation

It is not enough to shoot down the arguments against mediation in investor-state disputes—there must be stand-alone, positive reasons to break inertia and change the system. Here, we present five distinct benefits, as compared to arbitration, that mediation may provide for investor-state disputes—and we are sure we have neglected some.

Parties can save significant money and time. A recent study shows, on average parties spend four years in an investment arbitration; investors and States spend at least US$ 6 million and US$ 4.8 million, respectively, on representation fees. In addition, the average cost for a three-member tribunal amounts to at least US$ 920,000. The time and money spent in investment arbitration are extraordinary compared to the time and money the parties could be spending in mediation.

Certainty of settlement versus uncertainty of arbitration. While a settlement is tangible and certain, the arbitration proceedings are only the tip of the iceberg of the final resolution of the dispute. Not only is the award unpredictable, but even after benefitting from an award in its favor, the prevailing party needs to take substantial steps to recover. And the successful party would likely face fierce hostility from the opposing party in trying to enforce the award.

Preserving relationships. Mediation is very useful when there is an ongoing or potential relationship between the parties. This may explain the widespread success of mediation (including mandatory mediation) in family disputes. Similarly, when an investor resorts to investment arbitration it should realize the likelihood of burning bridges and alienating the host country. In only a limited number of cases (e.g., CME v. Czech Republic), have funds recovered through investment arbitration been reinvested in the host state.

Business and policy considerations. Investors or States may have business or sovereign reputational concerns in filing or sustaining an arbitration claim. Further, the investor’s or its shareholders’ priorities may change in relation to the dispute throughout arbitration proceedings. Similarly, a new government may want to send positive messages to foreign investors by attempting to settle existing disputes with investors.

Confidentiality. Mediation is confidential. This means that, by and large, anything said in mediation cannot be used in courts. Indeed, parties often expand the scope of the confidentiality through a separate agreement or applicable rules. Although investment arbitrations in many cases have been conducted confidentially (while only awards and a few procedural decisions become public), recent trends toward transparency tend to undermine confidentiality in investor-state arbitrations.

Conclusion – A Dam Ready To Break?

We do not suggest that parties should mediate all investor-state disputes. The most politically contentious disputes would likely be resolved through a binding arbitration. We rather propose that disputing parties employ mediation as one of the tools in their dispute resolution arsenal, which could be used prior to filing an arbitration claim (e.g. during the cooling-off period), during the arbitration proceedings, or even after the award is rendered.

To that end, some States have steadily encouraged mediation for investor-state disputes largely due to their disappointment from investment arbitration (see, e.g., the  European Commission’s 2017 consultation document or the 2016 Guide on Investment Mediation of the Energy Charter Conference). On their part, the IBA, ICSID, and others have also encouraged the use of mediation. We hope that this trend continues and that investor-state mediation takes its rightful place alongside the successful use of mediation in so many other realms.

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The Law Applicable to Arbitrators’ Civil Liability from a European Point of View

Mon, 2019-03-25 03:00

Tadas Varapnickas

Young ICCA

Without any doubt, international commercial arbitration found its place in the system of international dispute settlement. Many natural and legal persons choose to solve their disputes via the means of arbitration and in most of the cases arbitration is international in many aspects: Parties are from different countries, arbitrators are of different nationalities, sitting in a neutral arbitral seat. Consequently, many laws may influence arbitration proceedings. One of the issues in respect of applicable law is what law should govern arbitrators’ civil liability. The issue of arbitrators’ civil liability is in itself a taboo in international commercial arbitration, and also as such is the question of applicable law. This blog post, based on the author’s PhD thesis,1)Varapnickas, Tadas. Arbitrator‘s civil liability and its boundaries. Vilnius: Vilniaus universiteto leidykla, 2018. This PhD thesis was defended at Vilnius University on December 3, 2018. A summary of the thesis is available in English here. jQuery("#footnote_plugin_tooltip_8611_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8611_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); intends to provide some guidelines regarding this issue.

To begin with, it is the parties to the dispute who are interested the most in the arbitrators’ civil liability primarily because they are subject to the arbitrator’s decision, and because the arbitrators provide paid service to them. Arbitrators’ misconduct can appear in many aspects. An example of misconduct could be a failure to remain impartial throughout the proceedings, or a failure to render an enforceable award. Failures may lead to the delay of the proceedings or even to the annulment or non-recognition of the award. Consequently, unsatisfied parties may see arbitrators as the ones to be blamed for the damages incurred. Although often parties fail to prove all the conditions of arbitrators liability because the standard of liability is very high and sometimes even equal to the immunity of a state judge, there are examples when arbitrators were found liable for their own misconduct, for example, in the famous Puma case in Spain. The fact that there is no unanimous approach to arbitrator’s liability makes this issue even more important and worth analyzing.

Before determining the law applicable to arbitrators’ civil liability, one needs to examine the relationship between the parties and the arbitrators. Neither the New York Convention nor the UNCITRAL Model Law help in this examination as both acts are silent on arbitrators’ status. Although the convention and the laws are silent, the arbitration doctrine provides quite a clear answer to this question. According to Born, “the better view is that arbitrators’ status, rights and obligations are the result of a contract which operates within, and incorporates, a specialized legal regime – that regime being the international and national law framework governing the international arbitral process.”2)BORN, Gary B. International Commercial Arbitration. Second edition. Volume II: International Arbitral Procedures. Alphen ann den Rijn: Kluwer Law International, 2014, p. 1973. jQuery("#footnote_plugin_tooltip_8611_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8611_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Most of the authors also believe that this contract between the parties and the arbitrators should be qualified as a sui generis contract.3)KAUFMANN-KOHLER, Gabrielle, RIGOZZI, Antonio. International Arbitration: Law and Practice in Switzerland. Oxford: Oxford University Press, 2015, p. 232; Fouchard, Gaillard, Goldman on International Commercial Arbitration. Edited by Emmanuel GAILLARD, John SAVAGE. The Hague: Kluwer Law International, 1999, p. 607-608. jQuery("#footnote_plugin_tooltip_8611_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8611_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Given the arbitrators and the parties’ contractual relationship, the law governing the arbitrator’s contract would also govern the issue of arbitrators’ liability. Therefore, in order to determine what law will apply to the civil liability of arbitrators, it is necessary to determine the law applicable to the arbitrator’s contract.

The general rule of private international law is simple: Parties are free to choose the law applicable to their contractual relationship.This rule is provided, for example, in Article 3(1) of the Rome I Regulation applicable within the European Union, Article 116(1) of the Swiss Federal Code on Private International Law, but also in other jurisdictions. However, the problem is that in most of the cases parties to the arbitrator’s contract do not agree on the applicable law, leaving this issue to be determined by the rules of private international law. On the other hand, private international law usually does not provide an answer to what law to apply to the arbitrator’s contract, and neither do the rules say what law governs sui generis contracts as they may differ in many aspects. Therefore, it is necessary to determine what types of contracts have the closest link to arbitrator’s contract. Again, the doctrine provides several stances.

Some authors4)YU, Hong-Lin. Who is an arbitrator? A study into the issue of immunity. International Arbitration Law Review, 2009, vol. 12(2). jQuery("#footnote_plugin_tooltip_8611_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8611_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and courts5)George Watts & Son, Inc. v. Tiffany and Co., 248 F.3d 577 580 (7th Cir. 2001). jQuery("#footnote_plugin_tooltip_8611_5").tooltip({ tip: "#footnote_plugin_tooltip_text_8611_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); consider a contract of agency to be the closest to an arbitrator’s contract since the arbitrators act as representatives of the parties. In the author’s opinion, this approach to the arbitrator’s contract should not be applicable. If it was claimed that arbitrators are parties’ representatives, then it would be impossible to explain why arbitrators have an obligation to be impartial and neutral. This approach is also inconsistent as it fails to explain why arbitrators cannot reveal to the parties what they discussed when adopting the award since normally parties’ representatives have an obligation to provide reports on the actions undertaken for the principal. Therefore, the contract of agency should not be regarded as having the closest connection with the arbitrator’s contract.

As the agency approach is not widely accepted, the consideration that the arbitrators are service providers is more readily accepted.6)LEW, Julian D. M., MISTELIS, Loukas A., KROLL, Stefan M. Comparative International Commercial Arbitration. Alphen aan den Rijn: Kluwer Law International, 2003, p. 277; ALESSI, Dario. Enforcing Arbitrator’s Obligations: Rethinking International Commercial Arbitrators’ Liability. Journal of International Arbitration, 2014, vol. 31(6), p. 753-754 jQuery("#footnote_plugin_tooltip_8611_6").tooltip({ tip: "#footnote_plugin_tooltip_text_8611_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Still, although the approach that arbitrators are service providers is tempting, the arbitrator’s contract cannot be purely qualified as the contract for the provision of services since it would lose its judicial aspect which is inseparable from arbitrator’s functions. The supporters of this approach refuse to agree that arbitrators act as quasi-judges; in their opinion, this judicial function should not play any role when determining what type of legal relationship develops between the parties and the arbitrators. Having said that, it does not mean that rules for the provision of services cannot be applied mutatis mutandis to the arbitrator’s contract. Through such a sui generis approach, it is not denied that arbitrators provide services to the parties, though it is also emphasized that the nature of these services is not ordinary but rather similar to the functions entrusted by the states to national judges.

If the arbitrator’s contract is closely linked to the contract for the provision of services, Article 4(1)(b) of the Rome I Regulation provides that the latter contract shall be governed by the law of the country where the service provider has his/her habitual residence. This leads to a possibility that in the case of an arbitral tribunal consisting of three arbitrators from three different countries, three different laws may govern arbitrator’s contract and, ultimately, arbitrators’ civil liability. In other words, it would be possible for every single arbitrator to be liable under different legal rules. This would not be acceptable since the rights and obligations of arbitrators should be equal from the parties’ perspective.

Yet, even if one disagrees to apply the rules of the provision of services mutatis mutandis to the arbitrator’s contract, the result would remain the same: Article 4(2) of the Rome I Regulation determines that where the contract is not covered by general rules, the contract shall be governed by the law of the country where the party required to provide the characteristic performance of the contract has his/her habitual residence, which would again lead to the application of the arbitrators’ national laws. This would create undesirable consequences because different laws may provide for different standards concerning arbitrators’ liability. This may lead to situations where the claimant considers all three arbitrators to be liable for the same act, for example, failure to render an enforceable award, but in practice, some of the arbitrators would be liable while others would not.

Therefore, it is more desirable for Article 4(3) of the Rome I Regulation to apply. Pursuant to this provision, where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with a country other than indicated in other paragraphs, the law of that other country should apply. The same is provided in Article 117(1) of the Swiss Federal Code on Private International Law.

In the author’s opinion, for the purposes of the said provision, the country with “a closer/the closest connection to the contract” should be considered to be lex arbitri. Lex arbitri regulates the numerous procedural aspects of a proceeding, and arbitrators are bound by the mandatory provisions of the seat of arbitration, which speaks for the law of the seat of arbitration as the law most closely connected to the arbitrator’s contract. For the same reason, it is the law of the seat of arbitration that should be applied to the issue of arbitrator’s civil liability. This approach would also allow avoiding the above-described problem when the arbitrator’s contract may be governed by more than one law, and it would ensure the equality of arbitrators and predictability of their liability to the parties.

References   [ + ]

1. ↑ Varapnickas, Tadas. Arbitrator‘s civil liability and its boundaries. Vilnius: Vilniaus universiteto leidykla, 2018. This PhD thesis was defended at Vilnius University on December 3, 2018. A summary of the thesis is available in English here. 2. ↑ BORN, Gary B. International Commercial Arbitration. Second edition. Volume II: International Arbitral Procedures. Alphen ann den Rijn: Kluwer Law International, 2014, p. 1973. 3. ↑ KAUFMANN-KOHLER, Gabrielle, RIGOZZI, Antonio. International Arbitration: Law and Practice in Switzerland. Oxford: Oxford University Press, 2015, p. 232; Fouchard, Gaillard, Goldman on International Commercial Arbitration. Edited by Emmanuel GAILLARD, John SAVAGE. The Hague: Kluwer Law International, 1999, p. 607-608. 4. ↑ YU, Hong-Lin. Who is an arbitrator? A study into the issue of immunity. International Arbitration Law Review, 2009, vol. 12(2). 5. ↑ George Watts & Son, Inc. v. Tiffany and Co., 248 F.3d 577 580 (7th Cir. 2001). 6. ↑ LEW, Julian D. M., MISTELIS, Loukas A., KROLL, Stefan M. Comparative International Commercial Arbitration. Alphen aan den Rijn: Kluwer Law International, 2003, p. 277; ALESSI, Dario. Enforcing Arbitrator’s Obligations: Rethinking International Commercial Arbitrators’ Liability. Journal of International Arbitration, 2014, vol. 31(6), p. 753-754 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Contents of Journal of International Arbitration, Volume 36, Issue 2, 2018

Sun, 2019-03-24 17:15

Maxi Scherer

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

Dina D. Prokić, SIAC Proposal on Cross-Institution Consolidation Protocol: Can It Be Transplanted into Investment Arbitration?

Investment arbitration has been increasingly criticized as being, among other things, slow, cumbersome and unpredictable, in light of contradictory awards arising from similar factual situations. Recent renewable energy proceedings against Spain, Italy and the Czech Republic have prompted the author to revisit the idea of creating a consolidation facility in order to address some of these short-comings. Unlike earlier attempts, however, which focused on the possibility of consolidating disputes that are conducted under one set of procedural rules, the author, inspired by the recent Singapore International Arbitration Centre (SIAC) Proposal on Cross-Institution Consolidation Protocol, explores the possibility of consolidating disputes that are conducted under different rules. After analysing SIAC’s Proposal, the author assesses the need for a similar instrument in the realm of investment arbitration. The article subsequently discusses existing consolidation mechanisms of NAFTA, certain BITs and newer trade agreements (CETA, TTIP and the EU-Singapore Investment Protection Agreement). The author then considers different aspects of this new consolidation facility. The article concludes with a brief overview of potential hurdles that this consolidation facility might face on route to acceptance.

Hanno Wehland, Domestic Courts and Investment Treaty Tribunals: The Effect of Local Recourse against Administrative Measures on the Breach of Investment Protection Standards

Investment treaty tribunals have repeatedly held that an investor’s failure to use available local remedies against administrative measures may reduce its chances of being successful in claiming that investment protection standards have been breached. At the same time, where an investor seeks local recourse against an administrative measure in the host State’s domestic courts and the measure is confirmed, a number of tribunals have taken the view that this confirmation can limit the review in a later investment treaty arbitration. The combined effect of these findings is that local remedies risk becoming simultaneously a requirement for and an impediment to successfully bringing claims under an investment treaty. This situation makes it difficult for investors to decide whether or not to pursue them.

This article seeks to solve this conundrum by reassessing the relationship between investment treaty tribunals and domestic courts. It shows that the confirmation of an administrative measure by the courts of a host State can neither preclude a treaty tribunal from considering whether that measure breaches an investment treaty nor undo a treaty breach that already exists. It further suggests that proceedings in the domestic courts can breach an investment treaty even without amounting to a denial of justice. Finally, it argues that the decisions of the domestic courts of a host State should never have any binding effect for a treaty tribunal. By proposing clear rules in an area that has lent itself to a considerable amount of confusion in the past, the article aims to provide investors with much-needed certainty regarding the effect of local recourse.

Markus Burgstaller & Agnieszka Zarowna, Effects of Disposal of Investments on Claims in Investment Arbitration

In case of a perceived violation of an investment treaty, an investor may no longer be interested in retaining their investment. They may be faced with strategic decisions as to whether to continue with their investment and whether and how the potential divestment will affect their recourse against the host State under the investment treaty. This article considers the situation of investors who decide to dispose of their investments and effects of such a disposal on the transferor’s claims in investment arbitration. It sets out international arbitral practice on point and considers certain issues pertaining to the effects of disposal of investments on the rights of the transferor. It also looks at the implications that the disposal of an investment may have on the quantum of any claim.

William Hooker, Nathalie Allen Prince & David Turner, How Can Arbitrators Best Protect Their Deliberations from Disclosure: New Challenges and Opportunities in England

A 2017 decision in the English High Court, together with a 2017 decision of the UK Information Commissioner, have left open the possibility that arbitrators may be compelled to disclose their deliberations, communications and working papers to the parties in certain circumstances. Whilst such circumstances are likely to be rare, it remains uncertain precisely when arbitrators are entitled to withhold such documents, and when disclosure will be required. It will require further litigation or new statutory developments to establish the precise boundaries of confidentiality and what circumstances, if any, will justify an order for disclosure. This article argues that the best path to clarity would be through recognition of a category of legal professional privilege that attaches to documents prepared by arbitrators for the sole or dominant purpose of their conduct of the arbitration. It explains that while such a category of privilege ought to be capable of being established via the common law, it may be appropriate for necessary changes to be reflected in any forthcoming amendment to arbitral law in England.

Andrea Martignoni, Christopher Holland & Freya Dinshaw, Australia’s Bilateral Investment Treaties: A Laid-Back Approach to Consent?

This article considers the requirement in a number of Australian investment treaties that a host state, following the referral of a dispute to arbitration before the International Centre for the Settlement of Investment Disputes, provide written consent to arbitration. The uncertainty around the practical operation of such provisions is problematic. It remains to be seen how International Centre for the Settlement of Investment Disputes (ICSID) tribunals will address this requirement as Australian investors become more engaged with investor-state arbitration. One would hope that a more ‘laid back’ approach to consent prevails.

BOOK REVIEW

Maud Piers & Christian Aschauer (eds), Arbitration in the Digital Age (Cambridge University Press, 2018), reviewed by Gauthier Vannieuwenhuyse

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On Why Corporations Should Care About Investment Treaty Protection Now More Than Ever

Sun, 2019-03-24 00:19

Trinidad Alonso

Introduction

In their Fourth Turning Theory, Howe and Strauss put forward the thesis that every cycle in Anglo-American history had concluded with a great crisis, a fourth turning, from which a new order with a new set of beliefs had emerged. According to their predictions, a new crisis should have started sometime around 2005 and would last some 20 years. Today, many support the idea that we are immersed in such a crisis. Rising political risk around the world indicates that Howe and Strauss may have been right. Global risks intensified during 2018 with geopolitical tensions at the forefront.1)World Economic Forum, The Global Risks Report 2019, 14th Edition, p. 6. jQuery("#footnote_plugin_tooltip_3120_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3120_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The prospects for 2019 reinforce that trend: seven out of the top ten risks expected to increase in 2019 relate to the political environment.2)Ibid, page 12. jQuery("#footnote_plugin_tooltip_3120_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3120_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); A related and perhaps inherent feature of the current political environment is the ongoing discussion on the reform of the international investment regime and particularly, of investor-state dispute settlement (ISDS), which has sometimes translated in reduced investment protection.

Political risks are a major concern for companies with foreign investments. When deciding to invest abroad, companies typically take into account, among others, the existence of a double taxation agreement. Investors less frequently seem to consider securing investment treaty protection (ITP) to benefit from a suitable bilateral or multilateral investment treaty. Unlike in previous fourth turnings, today corporations have these treaties at their disposal. Against the backdrop of rising political risk and hostile stances towards investor-state arbitration, corporations are strongly advised to obtain and take advantage of ITP, which will allow them to protect their current investments, pursue new investment opportunities and ultimately strengthen their business overall.

 

Why investment protection is important, today more than ever

Over the past years, unfair governmental interference has proved to be a reality all around the world, both in developing and advanced economies. Political risks have a direct impact on businesses active in foreign markets: more than 55% of large corporations ($1bn+ revenues) reported to have suffered losses from political risks in recent years.3)Oxford Analytica for Willist Towers Watson, How are leading companies managing today’s political risks? 2018 Survey and Report, p. 3. jQuery("#footnote_plugin_tooltip_3120_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3120_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Due to the current risk climate, the majority of large companies have scaled back operations or avoided new investments altogether, thereby foregoing expansion.

But ITP is not only a suitable device for large multinational companies. In fact, while some up-front costs and planning is necessary to implement ITP, small and medium-sized companies likewise stand to benefit significantly. Claims before investment arbitration tribunals are not always in the hundreds of millions as it is not uncommon for damage claims to amount to seven-digit figures. In fact, ITP may be even more suitable for smaller companies who cannot afford political risk insurance premia but, due to the nature of their business, are drawn to markets where political risk is especially high.

Looking a year back, an array of politically risky events can be brought quickly to mind: from the continued rise of populism and protectionism around the world and the currency and debt crisis in Turkey, to the more recent crisis in Venezuela which has already resulted in confiscations.

Yet ITP is not only a protective device against black-swan events, those that occur rarely and unpredictably. ITP is also a versatile tool that allows for an optimal structuring (or restructuring) of investments. Recent developments have highlighted this versatility.

The past months have witnessed a turning point in investment protection within the EU since the Achmea decision was rendered in March last year. The development has been extensively discussed in this blog. This post summarizes this development, including the latest three declarations of the EU Member States on the legal consequences of Achmea (one by 22 Member States, a second one by Finland, Luxembourg, Malta, Slovenia and Sweden and a third one by Hungary alone). Crucially, EU Member States have aligned with the European Commission’s position that intra-EU BITs are inapplicable between EU Member States and have expressed their intention to terminate intra-EU BITs. In line with the European Commission, Member States also consider that EU law sufficiently protect cross-border investors’ rights. This is certainly not the position of arbitration tribunals who had an opportunity to express their views on that point: intra-EU investment protection has already been deemed insufficient by the tribunals in Achmea, Marfin Investment and WNC Factoring.4)Achmea B.V. v. The Slovak Republic, UNCITRAL, PCA Case No. 2008-13 (formerly Eureko B.V. v. The Slovak Republic), Award on Jurisdiction, Arbitrability and Suspension of 26 October 2010, para 262, Marfin Investment Group v. The Republic of Cyprus, ICSID Case No. ARB/13/27, Award of 26 July 2018, para 589, WNC Factoring Limited v. The Czech Republic, PCA Case No. 2014-34, Award of 22 February 2017, para 300. jQuery("#footnote_plugin_tooltip_3120_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3120_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Member States do not appear themselves to be placing much confidence in the current EU investment protection system having committed to discuss the current dispute resolution mechanisms and to assess the need for new ones. As suggested in this other post, however, a deeper understanding of investment protection under EU law may be required. For now, structuring foreign investments to ensure optimal protection under a relevant treaty appears not only a reasonable and prudent course of action, but also one owing to proper due diligence. In the absence of an intra-EU BIT (or its inapplicability), an EU investor in the territory of another EU state may wish to structure its investment through a non-EU country.

The North America region has also seen a development in a similar direction with the signing of the new United States-Mexico-Canada Agreement (USMCA) in November last year. USMCA eliminates investor-state arbitration between the US and Canada and between Mexico and Canada and curbs investment protection – both procedurally and substantively – for US investors in Mexico and vice versa. The implications of USMCA have been discussed in this blog in more detail here. Although USMCA has not yet been ratified by any of its signatories, it is already necessary to assess its impact: investors relying on the protections of NAFTA may want to consider restructuring their investments to secure more robust investment protection through more suitable investment treaties.

The legitimacy of these suggestions is in line with case law dealing with corporate restructuring. It is uncontroversial that structuring or restructuring an investment in order to benefit from the protections of a BIT is permitted.5)Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility of 17 December 2015, para 585. jQuery("#footnote_plugin_tooltip_3120_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3120_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In any event, and until the dust settles, investors may want to integrate these considerations into their investment decision-making process to protect their current investments and avoid foregoing investment opportunities in their markets of interest.

 

Conclusion

In the face of the turbulent political climate and its associated political risks, ITP should be placed at the forefront of investment decisions within corporations. Due to its value, flexibility and resource-efficient implementation it is imperative to corporate counsels to familiarize themselves with investment treaties and their implications. Integrating ITP into investment considerations and structuring investments in a timely manner can protect their assets, prevent losses and further their expansion.

This proposition has become more forceful in the face of rising political risks and the recent unfriendly stance towards investor-state arbitration around the world. It is premature and undoubtedly difficult to predict what type of world order will emerge out of the current crisis but it would be in any case desirable that it be one where investors’ rights are adequately protected, and foreign investment preserved and facilitated.

 

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

References   [ + ]

1. ↑ World Economic Forum, The Global Risks Report 2019, 14th Edition, p. 6. 2. ↑ Ibid, page 12. 3. ↑ Oxford Analytica for Willist Towers Watson, How are leading companies managing today’s political risks? 2018 Survey and Report, p. 3. 4. ↑ Achmea B.V. v. The Slovak Republic, UNCITRAL, PCA Case No. 2008-13 (formerly Eureko B.V. v. The Slovak Republic), Award on Jurisdiction, Arbitrability and Suspension of 26 October 2010, para 262, Marfin Investment Group v. The Republic of Cyprus, ICSID Case No. ARB/13/27, Award of 26 July 2018, para 589, WNC Factoring Limited v. The Czech Republic, PCA Case No. 2014-34, Award of 22 February 2017, para 300. 5. ↑ Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award on Jurisdiction and Admissibility of 17 December 2015, para 585. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Practice of International Construction Arbitration in Russia

Fri, 2019-03-22 23:02

Rustem Karimullin

Unlike some Western arbitration institutions which enacted institutional arbitration rules dedicated to construction disputes, such as the 2015 American Arbitration Association (AAA) Construction Industry Arbitration Rules, to date, the leading Russian arbitration providers have not developed any specific rules for construction-related disputes. However, such disputes hold rather high positions in the caseload, with a peak of 16.4% in 2010, of all the cases before the Moscow-based International Commercial Arbitration Court at the RF Chamber of Commerce and Industry (ICAC). Insofar, arbitration is the preferred method of dispute resolution for construction disputes regarding international infrastructure projects or involving foreign companies, in Russia.

To provide a practical mini guide to international construction arbitration law in Russia, we consider the following issues herein: the use of ADR at pre-arbitration stage; arbitral costs; challenge of arbitrators, tribunal secretary and expert witnesses; consolidation and joinder of an additional party; and interim measures.

 

ADR and Prevention

Negotiation or, less often, mediation clauses are added to dispute resolution provisions of construction contracts. If the Russian law governs the dispute, the parties must negotiate, within thirty calendar days before filing a claim before a local commercial [Arbitrazh] court (see Article 4(5) of the RF Arbitrazh Procedure Code). While it is true that even where the parties cannot settle a technically complex dispute in advance of arbitration, efficient contract administration can only help in presenting evidence before the arbitral tribunal.

At the enforcement stage, the Russian courts would verify whether a Russian or foreign arbitral tribunal had properly considered pre-arbitration settlement procedure. If it was disregarded, an award may be set aside or its enforcement denied (see Articles 34(2)(1)(3) and 36(1)(1)(4) of the RF Law of 07 July 1993 No. 5338-1 “On International Commercial Arbitration”). In a recent decision, the Arbitrazh Court of Moscow ruled that failure to comply with contractual duty to assign an independent expert at pre-arbitration stage was a ground for non-enforcement of the Swiss award in Russia (No. A40-169104/2018 dated 5 December 2018).

 

Payment of Arbitral Costs

On filing of a statement of claim with the ICAC, the claimant should pay registration and arbitration fees. The payment of the registration fee of USD 1,000 shall suspend the running of the limitation period. The failure to pay the arbitration fee has an impact on the progress of the proceedings. The ICAC Secretariat will not transmit the statement of claim to respondent until the advance payment of the arbitration fee has been made. In a 2017 dispute, a Russian contractor withheld its arbitration fee payment for 42 days. Referring to equality principle, the foreign subcontractor convinced the administrator to grant it additional 42 days to prepare its counterclaims (Case No. 31/2017).

The ICAC Schedule of Arbitration Costs 2017 does not address calculation of arbitration fees for non-monetary claims, such as a claim for terminating a construction contract by an arbitral tribunal or a claim for release of an advance payment bond by a bank. However, the claimant should justify its calculation and pay the respective arbitration fee. In case of delay, the non-monetary claim would be left undecided.

 

Challenge of Arbitrators, Tribunal Secretary and Expert Witnesses

Pursuant to Section 17(1) of ICAC International Commercial Rules, arbitrators, tribunal secretary and expert witnesses should be impartial and independent. In the ICAC practice, this rule applies to tribunal-appointed experts only. However, where a party-appointed expert testimony is involved, the party is free to claim for its exclusion as improper evidence based on general evidence rules. Generally, the tribunal is free to decide whether to appoint or not an expert witness, for e.g., as to detect defective work or to determine the volume and value of the work performed (Decree of the RF Supreme Court No. 60pv-01 of 19 June 2001). It is understood that, if the tribunal does not possess the necessary expertise to determine the claim before it, it will often appoint an expert (see, ICAC Award No. 31/2010 of 29 June 2010).

 

Consolidation and Reconsolidation of Proceedings

Construction projects invariably involve many contracts and many parties. One of the first ICAC consolidations involved a large project for the construction of a rail road in Africa. The foreign subcontractor was assigned to build two different sections of the rail road based on two contracts, which textually duplicated an ICAC arbitration clause. Immediately upon obtaining the statement of claim, the subcontractor sought consolidation of two parallel proceedings. In follow-up to claimant’s objections, the ICAC Presidium initially denied the request. However, after the subcontractor filed its counterclaims and the tribunal consisting of the same three arbitrators was formed, the consolidation request was admitted (Case No. 31/2017).

In another construction dispute, the general contractor filed two consolidated claims for recovery of advance payment in one statement of claim under two contracts for construction and design of corresponding working documentation, with different arbitration clauses. (Case No. 118/2017) Under the first contract, the presiding arbitrator was selected by the two party-appointed arbitrators. Under the second arbitration clause, the ICAC Nomination Committee was bound to appoint the presiding arbitrator. Due to incompatibility of the arbitration clauses, the ICAC Secretariat offered the claimant to re-consolidate its claims. After the claimant filed two statements of claims separately, he applied for consolidation of two proceedings, which ICAC being satisfied of the respondent’s consent.

 

Joinder of an Additional Party

A Russian customer and a French provider entered into a service contract, under which the customer paid an advance payment. Since the services were not rendered in full, the customer terminated the contract and sought to recover 50% of the installment of the advance payment. He sought for relief not only against the French party to an arbitration agreement, but also against its partner from Malta. The seal of the Maltese partner was used in the contract and its directors simultaneously acted for the French provider on signing the contract and the additional acts and contacting the customer in the course of the contract implementation. The tribunal agreed with the joinder of the Maltese co-respondent and adjudged recovery from both respondents (ICAC Award of 02.11.2017 No. 21/2017).

 

Interim Measures

Section 34 of the ICAC International Commercial Rules allow for the parties to a construction dispute to seek interim relief from the ICAC or from a judicial authority.

For instance, a subcontractor might be interested to freeze the status quo until the tribunal renders an award. In one interesting case, the District Court Vienna (Einstweilige Verfügung des Bezirksgerichts Innere Stadt Wien vom 15.07.2014 in Sachen 55 C 630/14a4) prohibited a Russian general contractor to claim for immediate payment under the bank guarantee, whereas the Austrian guarantor bank was prohibited to make the payment. Through this interim relief, the Austrian subcontractor, which filed a statement of claim with ICAC for the payment of the works performed, had blocked immediate payment of advance payment bond issued by the bank in favor of the general contractor.

 

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Will an Understaffed Brussels Enterprise Court Incite Parties to Call upon Arbitration?

Fri, 2019-03-22 03:00

Flip Petillion

Background

The Dutch-speaking division of the Brussels Enterprise Court has been understaffed in recent years. On 5 February 2019, the Court’s president issued a press release (here) revealing rather troublesome news that, imminently, the Court will comprise only six full time judges and hearings will be delayed by some two years.

The Brussels Enterprise Court is in charge of commercial disputes and is solely competent in Belgium to rule on specific matters such as disputes related to, inter alia, patents, European trademarks and designs, and class actions.

To ensure efficient functioning, the Court should have at least 16 full-time judges. Some judges have been on extended sick-leave and seem not to have recovered quickly. Other judges will take on new positions in other courts. The problem is not so much that judges are poorly paid or undervalued – although the job is financially unattractive to many lawyers. Rather, there is simply no call being made for additional suitably qualified applicants.

A standing panel of six judges is insufficient to handle the approximate 10,000 cases that are initiated on a yearly basis. Therefore, in new cases, hearings will be scheduled at the earliest 24 months following their initiation. The Court’s president has stated that, as a consequence, standard commercial disputes will not be handled by priority. Contrarily, the Court will prioritize specific proceedings such as summary proceedings and bankruptcy proceedings, which might lead to an increase in the number of requests for summary proceedings.

The Logical Solution: The Appointment of Additional Judges

1. No appointments are expected in the near future

There has been a repeated call for additional financial resources to remedy the above situation and to correct decades of neglect. One should, indeed, wonder why one of the three major powers of the Belgian State has been mistreated by the other two upon which it financially depends constitutionally. This shows the inherent imbalance between the three constitutional powers and has an indisputable impact on the quality of the Belgian rule of law.

The current crisis is unlikely to change in the foreseeable future. Following the Government’s resignation in December 2018, Belgium is currently led by a caretaker government, which is expected to stay until after the general elections in May 2019. The Minister of Justice has no budget with which to appoint new judges.

The situation is remarkable as a special criminal court is currently handling a highly public trial which costs millions of euros.

2.  A long-term solution

A more permanent solution will need to be found by a new government with the support of the new parliament. To this day, a reform of the Special Financing Act has proven to be impossible and may even have fostered regional tensions. The Sixth reform of the Belgian State in 2011 and the Special Financing Act of 2014 resulted in an overall decrease of the budget available to the federal government and a limitation of resources for several departments, including the Department of Justice, the Department of External Affairs, and the Department of Internal Affairs.

Due to the urgency of the situation, the next government will promptly need to adopt measures – even temporary ones – so as to avoid the crisis from escalating even further. The budget for the Justice department will need to be substantially increased and distributed more evenly between criminal and private/commercial cases.

3. Intermediary solutions

In any event, an escalation of the judicial backlog seems unavoidable in the near future and requires creative solutions.

The Enterprise Court could be allowed to call upon lawyers and invite them to act as deputy judges on a case-by-case basis or, potentially, more permanently.

Within the current framework, the Enterprise Court already calls upon lawyers to act as so-called substitutes or deputy judges on a case-by-case basis. Enhancing the existing deputy judges’ involvement is a first option. However, working with deputy judges requires quite some planning and administration. Agendas must be aligned with lawyers who typically have fluctuating time schedules. Also, it is well-known that this approach is not well perceived by the legal community as peers question the independence of lawyers acting as judges and judges themselves may perceive them to be too much of an outsider.

A more systematic solution may be more effective. In the past, the Belgian Government has appointed deputy judges in the Brussels Court of Appeal to special-purpose chambers for several years. The Constitutional Court considered that the use of special-purpose chambers was justified insofar as it remained a temporary measure, even if they were in place for several years. However, it found that these chambers should not be systemic. Therefore, to respond to the current shortage of judges, the Brussels Enterprise Court might benefit from the introduction of new temporary special-purpose chambers.

Alternative Solutions

1. Forum Shopping

Parties could opt to initiate proceedings before other Enterprise Courts of the country but strict rules on competence and exclusive competences attributed to the Brussels Enterprise Court for the entire country (such as with regard to patent disputes, European Trademarks and designs, and class actions) would limit the parties’ ability to engage in so-called forum shopping.

2. Alternative Dispute Resolution

Clearly, litigants should not wait for the Belgian Government to work out a permanent solution to resolve the judicial backlog. In the author’s view, business entities that intend to initiate standard proceedings, inter alia, related to the unfair termination of an exclusive distributorship agreement, the ill-performance of a software development contract, the termination of long lease disputes, breach of contract in construction agreements – should consider an alternative – alternative dispute resolution mechanisms in general, and mediation and arbitration in particular.

The current climate calls for a rise of alternative resolution mechanisms to resolve commercial disputes. Legal counsels have a duty of information to their clients and may be required to demonstrate solution-driven initiatives like cease and desist letters and even mediation attempts to avoid that, later on, in proceedings on the merits, judges rule that parties and counsel have been insufficiently seeking solutions out of court.

3. Arbitration

Arbitration can assist in reducing the workload of traditional courts and offer parties a more efficient resolution of their disputes. It would unquestionably be recommended for disputes between contracting parties, even if they had not previously agreed on an arbitration clause. Also, in a non-contractual context, parties may have an interest in negotiating arbitration agreements. Admittedly, it is not always easy to convince defendants that they have no interest in postponing dispute resolution and that protracted disputes are a risk to a company’s financial position.

The current climate should stir up a sense of realism. As key players in the judiciary system, legal counsels have an undeniable societal duty to seek an efficient and effective administration of justice.

In Belgium, commercial disputes can be brought before the local arbitration centre (CEPANI), which has an excellent reputation, and boasts a network of experienced arbitrators, specialized in different aspects of commercial law. CEPANI can also take on urgent cases and appoint an emergency arbitrator who can grant interim and conservatory measures prior to the appointment of the arbitral tribunal.

Alternatively, and especially in complex international disputes, parties can agree to ask the ICC to administrate proceedings and have the arbitration governed by Belgian law and choose Belgium as the place of arbitration. Belgium has a modern arbitration law that was updated in 2013 bringing it largely in tune with the UNCITRAL Model Law. Belgium is also arbitration-friendly jurisdiction. Provisional measures in support of arbitration proceedings or incidents that arise during arbitration proceedings are dealt with by the Courts of First Instance and not the Enterprise Courts. Currently, these courts are not understaffed.

Parties who elect to have their dispute decided by an arbitral tribunal may value the autonomy and flexibility offered by arbitration in Belgium. Especially in cases involving documents drafted in different languages or when the parties speak different languages, parties are likely to find efficiencies in arbitration proceedings that are not available in traditional court proceedings. Courts are bound by rigid laws requiring the mandatory use of languages and that submit the use of foreign languages to strict conditions. In contrast, in arbitration proceedings, parties are free to decide on procedural issues and they can agree to use specific technologies to facilitate the management of the case.

While it is unfortunate that Belgian traditional courts are lacking the capacity to serve litigants in an acceptable timeframe, the current situation offers opportunities for parties to agree on alternative forms of dispute resolution and to regain control over their legal dispute. Importantly, the understaffing of the Enterprise Court does not impact proceedings on the annulment and enforcement of arbitral awards, as these matters are within the exclusive competence of the Courts of First Instance.

This situation may help businesses and counsels to realize that arbitration truly has become the new normal for resolving commercial disputes.

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Arbitration in Nigeria: Latest News about the Arbitration Bill and an $8.9 Billion Award

Thu, 2019-03-21 03:00

Joseph Onele

Matters Arising on Proposed Changes to Arbitration Law in Nigeria

In February 2018, the Senate of the Federal Republic of Nigeria passed the much-anticipated Arbitration and Conciliation Act (Repeal and Re-Enactment) Bill 2017 (‘Bill’). Since then, the Bill has been pending before the House of Representatives (HoR) of the Federal Republic of Nigeria, the second legislative chambers, and awaiting the passage. The Bill includes provisions which give the impression that Nigeria is ready to join the bandwagon of pro-arbitration legislative regimes for TPF. Other important provisions in the Bill concern the emergency arbitrator and the interim measures of protection, as well as emergency reliefs.

While the innovations in the Bill that relate to TPF have not yet fully addressed all concerns in this regard, the efforts made thus far are commendable. A cursory reading of the Bill will reveal that the Bill tacitly recognizes TPF in arbitration. Apart from defining the ‘costs’ in arbitration to include TPF in Article 41(2)(g) of the Bill, Article 50(1) empowers the arbitral tribunal to fix ‘costs of arbitration’ in its award and further defines the term ‘costs’ to include ‘the costs of obtaining Third Party Funding.’ Additionally, Article 83 defines TPF as an arrangement between an individual or corporate entity (the funder) and a party involved in the arbitration, whereby the funder agrees to finance some or all the party’s legal fees in exchange for being remunerated from proceeds of the award.

Further to the foregoing, TPF enthusiasts could conveniently argue that the above-stated provisions impliedly recognize TPF in arbitration in Nigeria, to the extent that the provisions contemplate increasing access to justice and preventing a situation where a party is unable to arbitrate a dispute on account of costs associated with arbitration. However, it is quite instructive to note that the provisions of the Bill earlier alluded to, which give the impression that Nigeria is ready to join the moving train of nations that allow TPF in arbitration, are only limited to the implicit recognition of TPF in Arbitration in Article 41(2)(g) (Definition of Costs), Article 50(1) (Costs of the Arbitration), and the Definition Section of Article 83 but no more.

The foregoing in mind, it is strongly recommended, however, that the Bill goes beyond the definition of TPF and contain substantive provisions allowing TPF in arbitration in Nigeria. Nigeria can draw ready-made examples from Singapore and Hong-Kong in this regard. The Singaporean Parliament, on 10 January 2017, passed the Civil Law (Amendment) Act (Bill No. 38/2016) (the Act), which entered into force in March 2017. The Act amends Singapore law to permit TPF for international arbitration and related court proceedings under certain conditions, with further regulations prescribing specific eligibility requirements for funders. Similarly, further inspiration can be drawn from the Hong-Kong Legislative Council which recently adopted a new law permitting the TPF of arbitration, bringing Hong Kong into line with other common law jurisdictions and further strengthening the position of the Hong Kong International Arbitration Center.

Taking into consideration the attraction of Nigeria as a preferred seat of arbitration and the potentials of such offer for the Nigerian economy, the Nigerian lawmakers, upon return to the National Assembly of the Federal Republic of Nigeria after the conclusion of the 2019 elections, must go beyond the tacit recognition of TPF in arbitration in Nigeria and enact substantive provisions allowing TPF in arbitration in Nigeria. Once this is done, the Bill, upon being passed to law, would have effectively overridden the common law position precluding champerty and maintenance in Nigeria. This is because it is a well-settled principle of Nigerian law that where a statutory provision is in conflict or differs from common law, the common law gives way to the statute. This much has equally been alluded to by the Supreme Court of Nigeria in Patkun Industries Ltd v. Niger Shoes Ltd (1988) NWLR (Pt. 93) 138; (1988) LPELR-2906(SC), Per Nnamani JSC.

Informal engagement with the arbitration community in Nigeria reveals the optimism in several quarters that the passage of the Bill will position Nigeria to become one of the preferred seats for arbitration. It remains, however, to be seen whether the HoR will pass the much-awaited Bill before the end of the second quarter of 2019, upon the conclusion of elections and resumption of legislative functions.

Matters Arising on the $8.9 Billion Arbitration Award Against the Nigerian Government

Another interesting development of 2018 and which has surfaced in 2019 is the $8.9 billion arbitration award issued against Nigeria. As it currently stands, Nigeria risks losing about $9 billion worth of assets in the UK to a British firm, Process and Industrial Developments Limited (“P&ID”). It remains to be seen whether P&ID, through the English Court, will seize Nigeria’s commercial assets in England, in a bit to levy execution of the award earlier obtained.

By way of background, it will be recalled that the Nigerian government was accused of reneging on its obligation to supply gas to P&ID under an agreement to build and operate an Accelerated Gas Development Project (Gas Project) to be located in Cross River State, Nigeria. It was P&ID claim that the negligence of the Federal Government of Nigeria frustrated the construction of the Gas Project, and as a result, depriving P&ID the potential benefits expected from 20 years’ worth of gas supplies. It is worth noting that the Award against Nigeria was about $6.59 billion but following the refusal by the Nigerian government to settle the Arbitral Award , the arbitral award attracted an accumulated interest at 7 per cent rate per annum, making the entire sum due from the Nigerian government – $8.9 billion award.

The final award, notwithstanding an out-of-arbitration agreement for the payment of $850 million (about 9.6 per cent of the $8.9 billion award), was successfully reached with P&ID during the erstwhile President Goodluck Ebele Jonathan government. However, the responsibility for the disbursement of funds to P&ID was passed on to the then incoming administration of President Buhari. Rather than taking the recommended action, the President Buhari led administration opted to set aside the settlement agreement, directing its lawyers to return to the tribunal for renegotiation with the engineering firm, while seeking to set aside the award completely.

It remains to be seen, however, whether and how soon, the Nigerian government will leverage on this seemly little window of grace to work towards an amicable resolution of this matter with P&ID.

Final Remarks

Given the imminent change to the arbitration law in Nigeria, there is a good business case for foreign investors to invest in Nigeria after the 2019 general elections. More developments regarding enforcement of international arbitral awards are to be expected. Going forward, it augurs well for the Nigerian government to see to an amicable resolution of the $8.9 billion award. Such a lingering matter does no good to the “commercial attractiveness” of Nigeria.

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New 2019 BAC Rules for International Investment Arbitration: A Chinese Approach to the Concerns over Investment Arbitration Regime

Tue, 2019-03-19 17:19

Yihua Chen

Overview

On 11 February 2019, Beijing Arbitration Commission/Beijing International Arbitration Center (‘BAC/BIAC’) launched its draft of ‘Beijing Arbitration Commission/Beijing International Arbitration Center International Investment Arbitration Rules’ (the ‘BAC Rules’) for public comments, comprised of its main text and six appendixes. The BAC Rules are the second investment arbitration rules promulgated by a Chinese international arbitration institution after the 2017 CIETAC Investment Arbitration Rules (the ‘CIETAC Rules’). The BAC Rules have made a series of innovations and proposed a ‘Chinese approach’ to the issues and drawbacks of the current investment arbitration regime. In this post, the author will first discuss the major innovations of the BAC Rules and then provide some recommendations.

 

Main innovations

1. Strengthening the correction system of arbitral awards

The BAC Rules introduce multi-layered mechanisms to ensure the enforceability and credibility of the arbitral award. Apart from provisions for the correction and interpretation of award and power to issue the supplementary award, the arbitral tribunal is required to send the draft of an award to the Parties before finalizing an award, and the Parties may provide their comments on it. The tribunal may take into consideration those comments where it considers this necessary (Article 42.5). This mechanism allows the Parties to highlight serious errors in the award and to do so early, which decreases the likelihood of other correction mechanisms being required.

In addition, the BAC is the first arbitral institution to introduce an appellate procedure in investment arbitration rules. In the Asia-Pacific region, neither the SIAC nor the CIETAC incorporates the appellate procedure in their investment arbitration rules. The ICSID Convention Arbitration Rules also do not permit ICSID to re-examine any substantive issues of an arbitral award. Hence, this new appellate mechanism may encourage parties to choose to bring their claim before the BAC or choose the BAC Rules. Under the BAC Rules, the Party may submit the Notice of Appeal within 60 days from the date on which the award is made (Article 46.3). Since the appellate procedure is not a compulsory mechanism, the Rules require the Party wishing to appeal the award to submit the Parties’ written agreement to this procedure before the deadline to file comments on the draft award (Article 46.2). This requirement sufficiently protects party autonomy and ensures the efficiency of the proceedings. Moreover, the grounds of appeal are limited to 1) errors in the application or interpretation of the applicable rules of law, 2) manifest and material errors in the appreciation of the facts, or 3) the lack of jurisdiction (Rule 3 of Appendix E), which balances the desire for finality in the award.

2. Balancing confidentiality with the transparency of investment arbitration

The BAC Rules provide that any recordings, transcripts or documents associated with the arbitral proceedings shall remain confidential unless the Parties have agreed that the hearing shall be conducted in public (Article 24). Considering the public interest involved in investment disputes, the BAC Rules set a baseline with regard to the compulsory publication of certain arbitration documents, including the Notice of Arbitration, the Notice of Appeal, other orders, decisions and awards (Article 50.2). Moreover, to maintain a flexible scope of transparency and permit parties’ adoption of the latest thinking in international arbitration, the BAC Rules also allow the Parties to apply the 2014 UNCITRAL Transparency Rules to the arbitration (Article 50.1), in which the party autonomy concerning transparency gets full respect.

3. Improving the efficiency of arbitral proceedings

The BAC Rules adopt several innovations to improve the arbitral efficiency, for example, the 24-month time limit for the render of arbitral awards since the constitution of the arbitral tribunal (Article 19), the digitalization of the written submissions (Article 23), an indicative timetable for the stages of arbitration (Appendix B), and a set of rules of expedited procedure (Appendix C).

Under the expedited procedure rules, the time for the written submission and the length of the document are restricted. After consulting the Parties, the arbitral tribunal may not allow the requests for document production, and the decision may be made solely on the basis of the written documents with no hearing or examination of witnesses or experts.

4. Expanding the scope of applicability

The BAC Rules are applicable to both institutional arbitration and ad hoc arbitration under the UNCITRAL Arbitration Rules administered by the BAC (Article 2). Appendix F provides detailed procedural guidelines for arbitration under the UNCITRAL Arbitration Rules in terms of the functions and duties of the BAC. Both investment treaty-based and contract-based investment arbitration can be referred to the BAC.

 

Recommendations

In my view, the draft BAC Rules would benefit from a few changes to the following Articles:

1. Article 5 and Article 6: the commencement of arbitration and response to the Notice of Arbitration

Article 5 provides that ‘the date the Claimant validly submits the Notice of Arbitration (the ‘NOA’) shall be deemed to be the date of the commencement of the arbitration.’ A valid submission of the NOA shall include providing a complete NOA, sending a copy of NOA to the Respondent and successfully paying the registration fee in accordance with Article 5.5. Consequently, the date of commencement of arbitration shall be the latest of the dates on which the previous conditions are met. However, Article 6 provides that ‘the Respondent shall file a Response to the BAC within 30 days of receipt of the NOA’. Assuming that a complete NOA is sent to the BAC and the Respondent on 1 January, but the registration fee is paid 15 days later, it would be inconsistent that, in the interim, the Respondent has been preparing a Response to the NOA but the arbitration has not been commenced.

Since the BAC is required to issue a Notice of the Commencement of Arbitration to the Parties, I have the following recommendation for Article 6: ‘The Respondent shall file a Response to the BAC within 30 days of the Receipt of the Notice of the Commencement of Arbitration…’, or for Article 5(6): ‘The Arbitration shall be deemed to commence on the date on which the NOA is received by the BAC’.

2. Article 11: Sole arbitrator

Article 11 lacks detailed rules as to how the sole arbitrator is appointed by the Chairman when the Parties fail in their attempts to jointly nominate one. Thus, I recommend adding ‘unless the Parties otherwise agree, the Chairman shall appoint the sole arbitrator in accordance with Article 10 (2)’ to Article 11, so as to ensure the consistency in the rules.

3. Article 33: Objections to jurisdiction

It is a common practice that the arbitral tribunal shall have the power to rule on its own jurisdiction as required by the competence-competence doctrine. However, should arbitrators ruling on the merits of a dispute decide jurisdictional issues? The existing arbitration rules, either commercial or investment rules, acknowledge that the same arbitrators may rule on both issues, but the doubts can still be raised that arbitrators are inclined to make a positive jurisdictional judgement so as to maintain their positions to gain financial interests or reputational benefits, particularly in investment arbitration cases. It is undeniable that there have been some decisions where investment arbitral tribunals declined their jurisdiction, for example, the ICSID case Supervisión y Control S.A. v. Republic of Costa Rica. However, the conflict-of-interest standards should not be only based on the actual arbitrator bias, which is almost impossible to measure and even prove, but the risk of bias.1)Morelite Construction Corp. v. New York City District Counsel Carpenters Benefits Fund, 748 F.2d 79 (2d Cir. 1984), para. 18. jQuery("#footnote_plugin_tooltip_2902_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2902_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The expectation of the transparency of arbitral proceedings and the significant public interests involved have raised the bar higher for arbitrator impartiality in investment arbitration. As Gerard Meijer mentioned in his suggestion to the amendments to the ICSID Arbitration Rulesthe system of international arbitration … should be made as transparent and ethical as possible, particularly in investment arbitration’. Considering the increased criticism investment arbitration has encountered, a mechanism should be set up to prevent the conflicts of interest between the arbitrator and the party who raises the objection. Therefore, I recommend the following addition to Article 33 (3) based on the structure of the BAC Rules:

The Arbitral Tribunal shall have the power to rule on its own jurisdiction. Unless otherwise agreed by the Parties, the objection to jurisdiction shall be ruled by a new sole arbitrator or new arbitrators nominated by the Parties or appointed by the Chairman pursuant to the Appendix D [Expedited Procedure], if an objection to jurisdiction is raised after the arbitral tribunal is constituted. While such an objection is pending, the arbitral tribunal may continue the arbitral proceedings and make an award’.

4. Article 17: Assistant to Arbitral Tribunal

It is a common practice to use an assistant or a secretary by the arbitral tribunal within the community of arbitrators in both international commercial and investment arbitration. Although the BAC Rules have tried to differentiate the assistant from the arbitrator and the secretary, it is still unclear what duties that the assistant shall or may exercise. Therefore, it is recommended to illustrate these duties directly in the Rules, for example, ‘administrative, logistical assistance or liaison duties.’

5. Article 39: Third-Party funding (‘TPF’)

It is a good initiative of the BAC Rules to explicitly obligate the Party to disclose ‘the relationship between the third-party funder and the arbitrator’ since the arbitrator’s independence and impartiality are guaranteed. However, the first issue is that Article 39(2) seems to impose too broad a mandatory disclosure requirement on the Party. Apart from the basic information of TPF, the details of the interest of the funder in the outcome of the proceedings and whether or not the funder covers the adverse fee award, subject to the confidentiality of the TPF agreement, are also required to be disclosed. Considering the scope of mandatory disclosure should not exceed the extent required for the legitimacy of proceedings, the alternative measure is to grant the tribunal the power to order the disclosure where it considers necessary.

The second issue is about the lack of clarity as to whom the disclosure shall be made. Article 39(3) requires the disclosure to be made only to the BAC, which does not make sense since the arbitral tribunal and particularly, the opposing party ought to have the right to know the disclosed information. It remains uncertain in the draft BAC Rules whether and how the BAC distributes the disclosed information to the other parties. Therefore, I recommend that the BAC Rules state clearly that ‘the notice [disclosing third-party funding] … shall be sent to the other party or parties, the arbitral tribunal, and the BAC by the Claimant or the Respondent’.

References   [ + ]

1. ↑ Morelite Construction Corp. v. New York City District Counsel Carpenters Benefits Fund, 748 F.2d 79 (2d Cir. 1984), para. 18. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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From the Archives: Follow the Yellow Brick Road to Danubia, Procedural Guidance for this Year’s Vis Moot

Mon, 2019-03-18 17:25

Kiran Nasir Gore (Associate Editor)

Introduction

Each spring, the global international arbitration community arrives in Vienna for the Willem C. Vis International Commercial Arbitration Moot and in Hong Kong for its younger counterpart, the Vis Moot East.  Students, after many months of research, drafting, and practice, are eager to present the fruits of their hard work through oral advocacy.  Practitioners, for their part, seek to regroup with colleagues and friends over coffee, tea, sachertorte, and dim sum, while supporting students in their advocacy development.  The common thread is an interest in emerging topics in commercial arbitration and sales law, as presented by the current Vis Moot problem.  This year is no exception.

No matter if you will soon travel to Hong Kong or Vienna, the editors of the Kluwer Arbitration Blog seek to saddle you (pun intended) with guidance from our archives.

This year’s backdrop is the Hong Kong International Arbitration Centre (HKIAC)’s newly revised Administered Arbitration Rules.  Shortly after their release in October 2018, Joe Liu, Deputy Secretary-General of the HKIAC, wrote on the Blog to introduce the Rules and explain key highlights and revisions.  No doubt, these changes should be the starting point for any procedural analysis of the Vis problem.

 

The Issue

Contracts are rarely perfectly suited for the events that later unfold.  This is precisely what we see in this year’s Vis problem.  The Frozen Semen Sales Agreement identifies the choice of Mediterranean law for the main contract and selects Vindobona, Danubia as the place of arbitration.  But the drafting history suggests that perhaps the intended choice of law for the arbitration procedure was different.

In our past discussion of the 2014 HKIAC Model Clauses, our authors noted the “growing body of discordant judicial decisions on this issue demonstrates that it is important for parties to expressly agree upon the law that will govern an agreement to arbitrate.”  If only the parties to the contract had followed this advice…

 

Wisdom From Our Archives

So what should parties do under these circumstances?  Follow the yellow brick road, as paved by our Blog contributors, of course!

In 2012, we introduced our readers to Sulamérica Cia Nacional De Seguros S.A. and others v Enesa Engenharia S.A (Sulamérica)1) [2012] EWCA Civ 638. jQuery("#footnote_plugin_tooltip_4893_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4893_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Abuja International Hotels Limited v Meridien SAS (Abuja),2) [2012] EWHC 87 (Comm). jQuery("#footnote_plugin_tooltip_4893_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4893_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); two English cases which confirmed the test to determine the proper law of an arbitration agreement in the absence of the parties’ express choice.  The three stages of this inquiry are:

  1. whether the parties expressly chose the law of the arbitration agreement;
  2. whether the parties made an implied choice of the arbitration agreement; and
  3. in the absence of express or implied choice, identification of the law with the “closest and most real connection” to the arbitration agreement.

In Sulamérica, the Court recognized the distinct identity afforded to arbitration agreements under the doctrine of separability.   In both cases, the Court emphasized that the analysis is fact-specific, but where the parties have agreed to England as the seat, the Court will not hesitate to find that English law has the closest connection to the agreement.

In 2014, we revisited the Sulamérica test through the lens of Habas Sinai Ve Tibbi Gazlar Istihsal Andustrisi AS and VSC Steel Company Ltd. (Habas),3) [2013] EWHC 4071 (Comm). jQuery("#footnote_plugin_tooltip_4893_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4893_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); an English Commercial Court decision.  In Habas, the Court found that the law of the arbitration agreement was the law of the country of the seat, i.e. English law.  In dicta, the Court added nuance to the three stage Sulamérica test:  It observed that Stage (2) often merges into Stage (3), though as a matter of principle the stages should be embarked upon separately and in order.  As our author noted, “The Court’s observation in Habas thus has the potential to muddy the waters surrounding the determination of the law of the arbitration agreement, not helped by the fact that the Court did not apply it to the case at hand.”

Sulamérica and Habas were soon incisively considered by the Supreme Court of India in Enercon India v. Enercon GMBH.4) [Civ. App. 2086/7 of 2014]. jQuery("#footnote_plugin_tooltip_4893_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4893_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  In 2014, we discussed the fact-specific complexities of this case.  The arbitration agreement (1) designated Indian law as the substantive law, (2) stated that the Indian Arbitration and Conciliation Act, 1996 (Indian Arbitration Act) was applicable, and (3) identified London as the “venue” for arbitration proceedings.  The Court considered whether the word “venue” was intended to be used interchangeably with “seat” or “place” of arbitration – a legally loaded designation – or whether London was designated as only the venue of the hearings.  Applying the Sulamérica test and Indian precedent, the Court determined that the parties actually intended New Delhi be the seat of arbitration, vesting the courts in India with exclusive supervisory jurisdiction.  The Court assumed that, by expressly making the Indian Arbitration Act applicable, Indian law was designated as both the procedural and substantive law.

A post in 2016 considered a similar problem – how to proceed when the parties have failed to clearly designate a seat?  Although our author’s discussion is tangential to this year’s Vis problem, it very helpfully presents the Swedish perspective and discusses international views regarding the “default” approach of applying the law of the seat as the law of the arbitration.

Not to be left out of the debate, the Singapore High Court has also grappled with the tension between the procedural law of an arbitration agreement and the substantive of a contract.

In the 2012 decision, FirstLink Investments Corp Ltd v GT Payment Pte Ltd and others (FirstLink),5) [2014] SGHCR 12 jQuery("#footnote_plugin_tooltip_4893_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4893_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the Singapore High Court ruled that in the absence of contrary indications, parties impliedly choose the law of the seat of the arbitration to govern the agreement to arbitrate. Our authors observed that case signaled an international (horse) race to the bottom – ongoing difficult and expensive litigation could result each time a court is presented with this question.  They further identified the HKIAC’s Model Clauses, which include an option to designate the law of the arbitration, as reflecting industry best practices.  This observation was repeated by another author who considered its impact on Chinese arbitration practice through the lens of a case before the China Supreme People’s Court.

In 2017, our authors considered another case from Singapore, BCY v BCZ.6) [2016] SGHC 249. jQuery("#footnote_plugin_tooltip_4893_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4893_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  Echoing the priorities of the Sulamérica test and applying FirstLink, the Court followed the three-step inquiry and focused on Step (2) – the implied choice of the parties.  The Court also added a nuance:  if the arbitration clause is part of a main contract the “governing law of the main contract is a strong indicator of the governing law of the arbitration agreement unless there are indications to the contrary.”  The choice of a seat different from the law of the governing contract could justify moving away from the starting point of applying the governing law of the main contract.  However, it could not in itself suffice to displace the starting position.  In contrast, if the arbitration clause is a freestanding arbitration agreement and there is no express choice of law of the arbitration agreement, the law of the seat would most likely govern the arbitration agreement.

In this last case, the parties agreed that there was no material difference between the two choices of governing arbitration law (New York law or Singapore law, respectively).  The Court proceeded to determine the governing law of the arbitration agreement in an effort to settle the debate on this issue.

Where the applicable law is determinative, as it is in this year’s Vis problem, the stakes are much higher.  For analysis in this respect, have a look at our contributor’s recent views regarding conflict of laws analysis in arbitration generally.

 

Concluding Thoughts

The Vis problem offers many fact-specific cues that allow for a persuasive argument in either direction.  If following the Sulamérica test, it seems impossible to move past Step (2) of the analysis – the record includes enough negotiating history to suggest that Mediterranean law was intended to govern the arbitration agreement.  Yet the importance of the arbitral seat cannot be minimized.7) See also Gary Born, International Commercial Arbitration (2d ed.), Vol. 2 (Selection of Arbitral Seat in International Arbitration) (Kluwer Law International, 2014). jQuery("#footnote_plugin_tooltip_4893_7").tooltip({ tip: "#footnote_plugin_tooltip_text_4893_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  It is not merely a convenient place for the hearings, but rather a designation of legal framework for the arbitral proceedings.

No matter whether you are more persuaded by the arguments of Claimant or Respondent, we hope you found this foray into our archives illuminating and wish you all happy mooting!

References   [ + ]

1. ↑ [2012] EWCA Civ 638. 2. ↑ [2012] EWHC 87 (Comm). 3. ↑ [2013] EWHC 4071 (Comm). 4. ↑ [Civ. App. 2086/7 of 2014]. 5. ↑ [2014] SGHCR 12 6. ↑ [2016] SGHC 249. 7. ↑ See also Gary Born, International Commercial Arbitration (2d ed.), Vol. 2 (Selection of Arbitral Seat in International Arbitration) (Kluwer Law International, 2014). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Interviews with Our Editors: 360 Degrees of Perspective with Noah J. Hanft, President and CEO of CPR

Sun, 2019-03-17 21:05

Kiran Nasir Gore (Associate Editor)

Mr. Hanft, welcome to the Kluwer Arbitration Blog!  I appreciate the opportunity to share your perspective with our readers at an exciting moment, where conversations about politics, diversity, and technology are intersecting and transforming the way globalized corporations and their lawyers conceive of and approach dispute resolution.  

  1. Before we delve in, can you briefly introduce yourself and the path that brought you to CPR?

Of course, and thank you for the invitation. Before coming to CPR, I was the General Counsel and Chief Franchise Officer at Mastercard and it was there that I truly gained an appreciation for the power and potential of alternative dispute resolution (ADR). After years of handling disputes, which resulted in both wins and losses, I found myself growing frustrated by the traditional litigation process. At the same time, I was increasingly turning to mediation to resolve some major cases. I became more and more intrigued by the process, and soon also introduced early dispute resolution to the company, including a sophisticated early case assessment protocol. As a forward-thinking and customer-centric business, Mastercard was extremely receptive, embracing alternatives to litigation and a thoughtful approach to addressing inevitable business disagreements.

 

  1. CPR is more than just a provider of arbitration rules and ADR services. Can you tell us how CPR draws on its membership to establish itself as a thought leader in ADR?

We are indeed much more. We are also the world’s leading ADR think tank, utilizing our powerful and member-driven committee structure—comprising top corporations and law firms, academic and public institutions and leading mediators and arbitrators around the world—to foster and inspire thought leadership. This, in turn, leads to the development of cutting edge tools, trainings and resources and drives CPR’s efforts to promote and develop an ADR culture globally. This unique and multi-level structure is part of CPR’s heritage, going back to 1977 when the organization was founded by a group of corporate counsel that knew there had to be a better way, and who wanted to help themselves, and each other, prevent and resolve commercial disputes more effectively and efficiently.

 

  1. In your prior role, at Mastercard, your responsibilities and focus were much broader than only dispute resolution. What about ADR generally, and arbitration specifically, attract you and how does this support a corporation’s day-to-day business and prosperity?

You are correct, at Mastercard, I had responsibility for the traditional law and law-related functions (policy, compliance and regulatory), but also business responsibilities (that included licensing, franchise development, information security and diversity).  I think the expanded business role helped me in thinking more broadly about dispute prevention and resolution and the importance of maintaining ongoing relationships with customers, suppliers and even competitors.  Once you see your role as extending beyond just dispute resolution and combine it with the early identification of disputes and dispute prevention it becomes an extremely broad and important component of the job. It then puts you in a position to create a business imperative in terms of structuring relationships, focusing on early resolution as a way to preserve those relationships and increase commerce. Once executive management gets behind these efforts, recognizing the benefits of such a thoughtful approach, it becomes part of the day-to-day business. And, if you’re doing it right, the management and even the board actually start to adopt ADR thinking in reviewing and weighing in on matters that come up, instead of going straight to an adversarial or litigation mindset.

 

  1. For which parties, and in what types of disputes, is arbitration likely to be of most benefit?

I think it is generally accepted that, if parties know each other and want to maintain a relationship, arbitration is often the preferred approach to dispute resolution as it offers the potential to be somewhat less adversarial, speedier and more efficient—a good partner with mediation, as part of a multi-step process, if the mediation fails to resolve the matter. Of course, there are cases where one wants to establish a published precedent, where litigation is a better option. But with respect to the overwhelming number of disputes, mediation is an attractive method for resolving disputes early on in the process. And, if that fails, arbitration is often the best option for commercial disputes. It is a particularly good choice where two consenting entities want a private proceeding and want to have a say on who the decider or deciders are? In fact, I believe that if arbitration is approached and practiced in the right fashion, its inherent flexibility makes it the right choice for many different types of disputes. One such example is in the intellectual property sphere, where the expertise of an arbitrator may serve to the advantage of the parties. At the end of the day, if parties understand what arbitration can achieve and how best to utilize it depending on the nature of a dispute, it is an excellent tool for reducing expense and obtaining a reasoned opinion from an expert.

 

  1. What is a common misconception about arbitration percolating within corporate legal departments and what can we do to address it?

One common misconception is that arbitrators tend to “split the baby.” There is this notion that, in arbitration, there is often no clear victor, that the parties often receive a compromise decision, where both parties win or lose a little. Studies on the subject bear out that this is simply not the case. This misconception gives rise to a misplaced view that if one has a strong case, they are better off litigating than arbitrating. Other misconceptions stem from a lack of understanding of arbitration including that there is no appellate right (there can be if the parties choose) and arbitration costs as much as litigation (not if the parties take control of the process). CPR was the first to add an appellate option and now most ADR organizations have followed suit. As to cost, at CPR we’ve addressed the concern by building into our Rules an efficient process that provides for reasonable, but strict timeframes and allows arbitrators to limit disclosure and control the process. One final misconception, that we very clearly addressed in our new Rules for Administered Arbitration, is that one can’t obtain an early disposition of a claim or defense. In fact, arbitrators have the authority to dispose of claims and defenses before a hearing, if a proper showing can be made.  All of the misconceptions can be addressed through education. There is a surprising lack of understanding amongst some very sophisticated people as to how arbitration works, its benefits and potential. I believe it is incumbent upon all of us to take every opportunity we have to make it clear to users and potential users what arbitration can offer if used thoughtfully.

 

  1. What are some “best practices” for outside counsel as they collaborate with corporate clients to resolve disputes?

That’s a really good and important question. One of the things CPR has made available to our corporate members is a supplement to their requests for proposal (RFPs) for outside law firms which seeks information about their approaches to and expertise in dispute resolution. Our view is that it is not only important for law firms to know how to litigate and/or arbitrate, but also how to approach settlement and mediation. For outside counsel, it is important to understand, not only the nature of the dispute, but the specific corporate or commercial culture of an organization, which dictates how a resolution might practically work within the company. It really helps to understand a company’s business practices, and the personalities involved in the dispute.

Also in terms of best practices, law firms need to be really upfront about both the strengths and weaknesses of their clients’ cases. They also need to be prepared to move beyond mere litigation or arbitration strategy, and to think about the best way to resolve disputes from very early on, which will often involve mediation and negotiated settlements.

 

  1. How do emerging views on diversity support effective dispute resolution?

Just as diversity strengthens a legal team, it strengthens the reasoning process and the resulting nuance of the outcome. In fact, a highly-regarded study has suggested that diversity can lead to better decisions. Thus one can expect a tribunal that has arbitrators from different backgrounds and/or perspectives to achieve better results than a less diverse group. Supporting effective dispute resolution, stimulating new types of creative and strategic thinking, and nudging people out of old ruts and habits, is important to the continuous development and improvement of ADR. At CPR addressing the diversity challenge has been a long-standing objective of the organization. To that end, we have been very focused on not only adding diverse neutrals to our panel, but encouraging consideration of them. Our selection rate for diverse neutrals has reached 31% and we are very proud of the progress we have made. We believe there is more to be done and, in an effort to address gender diversity, we recently published, Look Who’s Joined ADR’s Most Exclusive Club, which highlights many of our leading female neutrals.

 

  1. Why should corporations and dispute resolution practitioners pay attention to emerging technology trends, and how can they employ new technology to support the dispute resolution process?

Whether we are talking about diversity or new technologies, corporations and practitioners need to pay attention to any and all learnings and new developments that could possibly improve the process. The ADR world needs to take into account the increasing importance of issues like cyber and data privacy as well as the opportunities presented by AI and ODR. And there will undoubtedly be many more new technologies just around the corner, which will bring both new complexities and potential new benefits. It is an ongoing process, and certainly never boring!

 

  1. I understand that you recently announced that, in a few months, you will step down as President & CEO of CPR and transition to launching your own ADR practice in collaboration with CPR Board member Richard Ziegler. Congratulations!  Can you tell us more about your forward-looking plans, and how the lessons you’ve learned in-house and at CPR will inform your vision and approach?

Well, thank you. I’m very excited about this new phase in my career. I plan to be a mediator, arbitrator and  settlement counsel and to consult with law departments on various dispute prevention and resolution issues and, in all of these areas, I will be applying and benefitting from the best practices I’ve gained from CPR. That includes participating and learning from the outstanding work done by CPR Committees as well as the many fabulous CPR training opportunities.  Richard and I have both taken the intensive and exceptional CPR/CEDR mediation training and are CEDR accredited mediators. Additionally, we both benefitted from the outstanding CIARB training and are both fellows of the Chartered Institute.

In terms of the lessons I’ve learned, and how they will inform my future vision and approach, from an in-house perspective I’ve learned how important it is to think about early resolution and mediation during the life cycle of a dispute.  When I was in-house, I came to realize how important it is that a mediator both be able to effectively listen and create an environment where parties are able to actively listen to each other.   But now, after 5 years at CPR and having mediated many cases, I have an even richer understanding of what it takes to be a good mediator. As important as it is to create the right environment for parties to work towards a collaborative result, there is no substitute for understanding the facts underlying a dispute and the relevant law. Also, given my in-house background, I understand some of corporate counsel’s concerns about arbitration, and as an arbitrator I believe I will be well positioned to address those concerns, again in large part as a result of learnings from CPR. I also believe that the learnings I’ve gained from other arbitrators and the best practices that I’ve been privy to for the last 5 years will enable me to effectively manage an arbitration and handle the many issues that arise. I am excited about this upcoming new phase and am deeply appreciative of CPR and my friends in the ADR community that have been so welcoming to me from the day I joined CPR 5 years ago.

 

Mr. Hanft, thank you for sharing your time and unique perspective.  We wish you and CPR continued success!

 

This is the first of two interviews that cover CPR’s innovative approach to aiding corporate legal departments with global dispute resolution.  Keep an eye out for a follow up interview with Olivier P. André, Senior Vice President, International at CPR.

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Taking a Second Bite of the Cherry: When is it Appropriate to Remit an Award Instead of Setting it Aside in Singapore?

Sat, 2019-03-16 23:51

Raghav Kohli

Young ICCA

Much ink has been spilt on the legal consequences of remitting an award back to an arbitral tribunal vis-à-vis setting it aside. The Singapore Court of Appeal in the seminal decision of AKN v. ALC [2015] SGCA 63 has settled that remission is not possible after an award has been set aside. Rather, remission is a curative alternative available in circumstances where setting aside of an award is preventable. These two remedies available under Article 34(4) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) are thus mutually exclusive.

 

Background of the Case

In its earlier decision in AKN v ALC [2015] 3 SLR 488, the Singapore Court of Appeal allowed appeals in part against a High Court decision to set aside an arbitral award. The crux of the dispute at the arbitration was whether or not the liquidator and secured creditors of an insolvent corporation had breached their obligation under an Asset Purchase Agreement to deliver certain assets free from encumbrances to the purchasers. The Tribunal found for the purchasers. However, the High Court set aside the award in its entirety on the grounds of breaches of natural justice and excess of jurisdiction. On appeal by the purchasers, the Singapore Court of Appeal held that only some parts of the award should be set aside. The Court also directed parties to file written submissions on costs and consequential orders. The decision being analysed arose from these subsequent proceedings.

The Court framed the following issues, inter alia, for adjudication: (1) Does the court have the power to remit matters to a new tribunal? (2) Can the court remit any matter, which is the subject of an award that has been set aside, to the same tribunal that made the award? (3) What are the various consequences of setting aside an arbitral award? While the issues were worded broadly, the Court confined its analysis to cases governed by the Singapore International Arbitration Act and the Model Law.

 

Decision of the Singapore Court of Appeal

On the first issue, the parties agreed that courts have no power to remit an award to a newly constituted tribunal. The Court cited its decision in BLC v BLB [2014] 4 SLR 79, where it was observed that the clear language of Art 34(4) of the Model Law only envisions the possibility of remitting an award to the same tribunal which delivered it.

On the second issue, the Court held that remission operated as an alternative to setting aside. Thus, the question of remitting an award after it had been set aside could not arise in any case. Since a tribunal becomes functus officio after issuing a final award, a court may only direct it to review its award in accordance with Article 34(4), which requires a court to ‘suspend setting aside proceedings for this purpose. Based on ‘good sense’ and an ordinary reading of Article 34(4), the Court held that it was not competent to remit an award after it had been set aside. Support for the proposition that remission was meant to be an alternative curative provision to prevent the setting aside of an award was also found in the travaux préparatories of the Model Law.

On the third issue, the Court considered the consequences of setting aside an award. It found that while an award ceases to have legal effect, it does not affect the continued validity and force of the arbitration agreement between the parties. A tribunal’s mandate also ends with the making of an award, unless it is restored pursuant to an order remitting it back for further consideration of the tribunal.

 

Commentary

Previously, Singapore courts have employed remission both after setting aside an award (see Kempinski Hotels SA v. PT Prima International Development [2012] SGCA 35), and to refer matters to newly constituted tribunals (see Front Row Investment Holdings v. Daimler South East Asia [2010] SGHC 80). The decision in AKN v ALC is welcome, as it has resolved that the power to remit under Article 34(4) of the Model Law may only be invoked for reconsideration by the same tribunal before an award has been set aside.

However, the significant question of when it is appropriate to remit an award to the same tribunal instead of setting it aside has not been adequately addressed by both courts and the academic community in Singapore. For example, in BLC v. BLB [2014] SGCA 40, the Court of Appeal reversed the High Court decision remitting the matter to a new tribunal. Although the issue was not strictly before the Court, it went on to summarily hypothesize about an appropriate case for remission. Without laying down any definitive threshold, the Court weighed in two relevant factors to determine whether or not to remit an award: the pure oversight of the arbitrator in overlooking an issue, and his ability to determine it again. Thus, in an application for remission vis-à-vis setting aside in the future, courts will have little assistance from national precedents on the scope and substance of this remedy. While the AKN decision has provided clarity on some aspects, it remains to be seen how Singapore courts will carve out meaningful contours for determining the appropriateness of remission under Article 34(4) of the Model Law.

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The Applicability of the Ukraine-Russia BIT to Investment Claims in Crimea: A Swiss Perspective

Sat, 2019-03-16 00:00

Simon Bianchi

Young ICCA

Since the annexation of Crimea by the Russian Federation in 2014, a substantial number of investment claims, in particular expropriation claims, have been raised by Ukrainian nationals against the Russian Federation in relation to investments made in Crimea prior to the annexation. In this regard, a fundamental legal issue concerns the applicability of the Agreement on the Encouragement and Mutual Protection of Investments entered into in 1998 between Ukraine and the Russian Federation (the “Ukraine-Russia BIT”) to such investments. In a landmark decision 4A_396/2017 dated 16 October 2018, the Swiss Supreme Court upheld an award on jurisdiction (the “Award on Jurisdiction”), rendered by an arbitral tribunal in the case PCA No. 2015-34 (the “Arbitral Tribunal”), recognizing that (i) investments made by a Ukrainian company in Crimea prior to its annexation were protected under the Ukraine-Russia BIT and thus (ii) the Arbitral Tribunal had jurisdiction to hear the corresponding investment claims.

 

Background

On 21 March 2014, following the annexation of Crimea, the Russian Federation adopted the treaty of accession of Crimea and, in this context, took various economic measures relating to Crimea, in particular to the energy sector. Within this framework, PJSC Ukrnafta, a Ukrainian company active in the fuel market (“PJSC”), alleged that the measures implemented by the Russian Federation interfered with and ultimately expropriated its investments in petrol stations located in Crimea and violated the Ukraine-Russia BIT.

On 3 June 2015, PJSC initiated arbitration proceedings under the UNCITRAL Arbitration Rules against the Russian Federation based on Article 9(c) of the Ukraine-Russia BIT and sought payment of USD 50,314,336 as compensation for the alleged expropriation (the “Dispute”). The Russian Federation contested the jurisdiction of the Arbitral Tribunal, refused to take part in the arbitral proceedings and did not appoint an arbitrator nor submit an answer to PJSC’s statement of claims.

On 26 June 2017, the Arbitral Tribunal rendered the Award on Jurisdiction acknowledging its own jurisdiction to hear the Dispute and made the following findings:

  • The territorial scope of application of the Ukraine-Russia BIT was fulfilled as the concept of “territory” defined in Article 1(4) encompassed regions over which a contracting State exercised de facto In casu, the Russian Federation exercised de facto control over Crimea and it was unnecessary, for the purpose of the application of the Ukraine-Russia BIT, to determine whether the annexation of Crimea was lawful under public international law.
  • The Dispute fell within the scope ratione materiae of the Ukraine-Russia BIT since the notion of “investments” (Article 1(1) of the Ukraine-Russia BIT) did not require that the relevant investments be initially made in the territory of the Russian Federation. Investments located in the territory of the Russian Federation only as a result of subsequent border changes were also protected under the Ukraine-Russia BIT.
  • PJSC, being a company duly incorporated under the laws of Ukraine and legally capable of carrying out investments in the territory of the Russian Federation, qualified as an “investor” according to Article 1(2)(b) of the Ukraine-Russia BIT (scope ratione personae).

In light of the above, the Arbitral Tribunal concluded that it had jurisdiction to hear the Dispute under Article 9(c) of the Ukraine-Russia BIT.

 

The Swiss Federal Supreme Court Decision

On 14 August 2017, the Russian Federation lodged an appeal to the Swiss Supreme Court against the Award on Jurisdiction and contested the jurisdiction of the Arbitral Tribunal based on three main arguments.

First, the Russian Federation submitted that the concept of “territory” in the Ukraine-Russia BIT only encompassed territories belonging to a contracting State at the time of contracting and any subsequent extension to further territories had to be agreed between the contracting States. Second, PJSC facilities, subject of the alleged expropriation, did not constitute “investments” under the Ukraine-Russia BIT as the latter required an act of a cross-border investment at a certain point in time. Third, PJSC did not qualify as an “investor”.

The Supreme Court rejected the Russian Federation’s appeal and confirmed the jurisdiction of the Arbitral Tribunal to hear the Dispute on the following grounds.

Concerning the notion of “territory”, the Supreme Court noted that the Russian Federation did not contest that (i) the legality of the annexation of Crimea was irrelevant for the purpose of the application of the Ukraine-Russia BIT and (ii) the notion of “territory” encompassed regions over which a contracting State exercised de facto control. This said, the Supreme Court recalled that, under Article 29 of the Vienna Convention on the Law of Treaties (“VCLT”), an international treaty is binding upon each contracting State in respect of its entire territory. Therefore, even in case of subsequent territorial changes, a treaty remains applicable to the entire territory of each contracting State, without the need for a supplementary agreement. In the present case, Crimea became a territory of the Russian Federation as the latter has exercised de facto control since 21 March 2014 at least. Therefore, the Supreme Court confirmed that Crimea was a territory of the Russian Federation under Article 1(4) of the Ukraine-Russia BIT.

With regard to the notion of “investments”, the Supreme Court recalled that such notion had to be interpreted pursuant to the principles set out in Article 31 of the VCLT and resorted to various methods of interpretation to determine whether the Ukraine-Russia BIT covered only investments made ab initio in the territory of the Russian Federation or also investments being located in its territory as a result of subsequent border changes.

First, the Supreme Court found that the wording of Article 1(1) of the Ukraine-Russia BIT in itself did not support the restrictive position defended by the Russian Federation.

Second, the limitation of the notion of “investments” to investments initially made in a foreign State (cross-border investments) results from the “transaction-based” model, which reflects earlier bilateral investment treaties focused on liberalisation of capital movements. On the contrary, the “asset-based” model includes the protection of investments in the form of assets and rights which are not directly related to a cross-border transaction. As Article 1(1) of the Ukraine-Russia BIT contained a non-exhaustive list of assets qualifying as investments, the Supreme Court found that the definition of “investments” was broad and followed an “asset-based” model. Thus, it did not refer to specific cross-border transactions, which could be attributed to a specific point in time, and did not contain a limitation with regard to the moment of border crossing.

Further, a teleological interpretation supported the fact that the Ukraine-Russia BIT served two purposes, i.e., the promotion and protection of investments. For this reason, the Supreme Court did not follow the argument of the Russian Federation according to which the purpose of protection was only secondary. Furthermore, a broad protection of investments, including investments located in the territory of the Russian Federation only as a result of subsequent border changes, did not contradict the meaning and purpose of the Ukraine-Russia BIT. Indeed, the general principle underlying bilateral investment treaties is that the host State should not interfere with or expropriate investments made by nationals of the other contracting State without compensation. In casu, the protection offered by the Ukraine-Russia BIT only took effect at the time of the alleged expropriation. Therefore, the necessary conditions to benefit from the protection granted by the Ukraine-Russia BIT should be fulfilled at the time of such infringement (and not at the time of contracting). This also corresponds to the well-established principle that the conditions for jurisdiction ratione personae (i.e., nationality or seat) must be fulfilled at the time of the infringement.

In the view of the Supreme Court, neither a systematic interpretation of the Ukraine-Russia BIT, in particular Articles 1(2)(a), 2(1) and 12, nor the principle of good faith could support a limitation of the protection solely to investments made ab initio in the territory of the Russian Federation. On the contrary, such limitation would exclude from protection investments made within the ratione temporis scope of application of the Ukraine-Russia BIT (i.e., after 1 January 1992 according to Article 12) and would be incompatible with the principle of good faith and the purpose of the Ukraine-Russia BIT.

As to the concept of “investor”, the arguments raised by the Russian Federation were similar to those related to the notion of “investments”; thus, there was no reason to dismiss the Arbitral Tribunal’s conclusion that PJSC qualified as an “investor”.

In conclusion, the Swiss Federal Supreme Court confirmed that the Ukraine-Russia BIT was applicable and that the Arbitral Tribunal had jurisdiction to hear the Dispute. In my opinion, the takeaways of this decision are twofold:

  • The Swiss Supreme Court does not hesitate to use its broad power of review when assessing an arbitral tribunal’s legal reasoning on jurisdiction.
  • A majority of the judges of the Supreme Court tend to adopt a broad definition of the notion of investments relying on the purpose and meaning of bilateral investment treaties and to reject a more restrictive definition based on a historical and/or literal interpretation.
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X CAI Costa Rica 2019: Developments and Challenges in International Arbitration

Fri, 2019-03-15 00:05

Marlon Meza-Salas

The X CAI Costa Rica held by the Costa Rican Chapter of the ICC and its Arbitration Commission, took place in San Jose, Costa Rica between February 24 and 27, 2019. Ten years have led to its consolidation as one of the most important ICC events in the region. This year’s intensive program included several academic panels and practical workshops, as well as a meeting of young arbitrators ICC-YAF. The event brought together more than 50 high-level speakers from the U.S. and other countries in Latin America and Europe.

Insights on the Topics Discussed

Making a tight summary of the issues discussed, the Congress began with references to what has happened in the last 10 years in international arbitration, in general, and in some Latin American countries, in particular, such as changes in some legislations confirming the tendency to continue adopting the UNCITRAL Model Law in a greater number of countries. It was also mentioned the amendment of some arbitration rules, or proposals from associations linked to arbitration such as the Club Español del Arbitraje (Spanish Arbitration Club, “CEA” for its initials in Spanish), as for example the CEA Code of Good Practice for Arbitration and the CEA Code for Good Practice for Mediation. The amendment of the Spanish Arbitration Law in 2011 was also commented, which allows the arbitrability of intra-companies disputes, better known as statutory or corporate arbitration.

It was also highlighted that according to the results of recent reports such as the Queen Mary University survey, arbitration remains the preferred method for resolving international disputes. The main reason for this preference continues to be the final nature of the awards, and how easy it is to enforce them in most countries of the world thanks to the New York Convention (“NYC”), on which an entire panel focused on. Among other things, the speakers discussed some practical problems at the time of requesting the recognition and enforcement of an award, the effects of applications for annulment that have not yet been settled, or what happens when an award is vacated at the seat of the arbitration. The future of the NYC was not out of the discussions either.

Recent reports and surveys also showed that the ICC continues to be the preferred institution in the world to administer cases of international arbitration, and currently has offices in New York, Hong Kong and Brazil, from which –and not exclusively from Paris– the institution is able to administer arbitration procedures. Among the initiatives of the ICC are its efforts to reduce the time and cost of arbitration proceedings by the introduction of the expedited procedure in the latest amendment of the ICC Rules of Arbitration. The advantages and disadvantages of that Fast Track arbitration were discussed in one of the panels because, although brevity is very well received, it entails some procedural issues and concerns about due process when certain procedural acts such as the Terms of Reference or a hearing are excluded.

The speakers also mentioned the constant attacks against arbitration, which have focused more on investment arbitration where the issuance of inconsistent awards is criticized due to inadequate or contradictory reasoning. Both international commercial arbitration and investment arbitration continue to be criticized for their high costs, which is attributed –among other reasons– to high attorneys’ fees or complex document production that extend the lifespan of the proceedings. However, criticisms have been much greater in investment arbitration than in commercial arbitration.

The discussions from Europe on the proposal to create a Multilateral Investment Court, or the possible ban of arbitrations based on intra-European bilateral investment treaties –following the Achmea case– were not ignored. It was clarified, however, that this last view would not affect the arbitrations based on the Energy Charter Treaty. It was also said that it is possible to see in the near future the use of financial vehicles through Switzerland or the United Kingdom post-Brexit, to continue using investment arbitration in intra-Europe disputes.

One of the panels dealt with the differences between common law and civil law, as well as, the influence of both systems in the practice of international arbitration. In this and other panels, the recent Prague Rules were mentioned, comparing them with the IBA Rules on the Taking of Evidence in International Arbitration. The comparison was mainly focused on the document production stage in arbitration proceedings –a topic on which there are very different approaches from both legal systems–, and the proactive role that the Prague Rules propose for the arbitral tribunal, granting broad powers to the arbitrators. It was pointed out that this latter could be a problem to enforce an arbitral award in some countries. Among the interesting things that were mentioned about the new Prague Rules, was that these have been described as “reactionary” by many common law practitioners, but surprisingly, they have also received a lot of criticism from civil law practitioners, even if the latter are its main target.

Another subject that was discussed was the different approaches of the above-mentioned legal systems on the value of documents and witnesses statements, since the former tend to be more valued in civil law systems and the latter tend to be preferred in common law systems. This different point of view can explain the importance and high value that common law practitioners give to the examination of witnesses and experts through cross-examination, not only in state courts but also in arbitration.

Another interesting topic that was discussed was the issue related to multi-party arbitrations and the possibility of incorporating into an arbitral proceeding non-signatories of the arbitration agreement. It was commented that this topic has been expressly regulated so far only in the Peruvian legislation, where it is required that the non-signatory has had an active participation in the negotiation, execution, performance or termination of the relevant contract.

Some Challenges to International Arbitration

It is expected that arbitration will continue to grow in many sectors, in which disputes were previously litigated before state courts, as has been happening in areas such as construction, energy, finance, technology and others. As good news, it was highlighted that arbitration has grown not only because of a greater number of cases, but also because of the nationalities of the parties and arbitrators, and in general it has grown in diversity, and the greater challenge is that diversity and inclusion continue to grow. It is foreseeable that the growth of arbitration will continue as long as it is able to evolve and adapt to the needs of its users, who increasingly demand a greater reduction of time and cost.

Consensus was reached on that it is necessary to continue encouraging and promoting arbitral culture, for which the convenience and importance of understanding technology –which is not an option, but something mandatory nowadays – and learning to work with it was highlighted. The speakers referred to the multiple challenges in this subject, and also mentioned many times terms such as “digital assets”, “databases”, “encrypted documents”, “clouds”, “cyber security”, “blockchain”, “arbitrator intelligence”, and many others.

The importance of continuing to adopt best practices in international arbitration was also highlighted. These best practices could come from both common law and civil law, whose differences tend to be reduced and harmonized when incorporated into arbitration. Each arbitration is different and it is influenced by many factors such as the nationality of the parties, their counsel’s and the arbitrators’, or the law applicable to the merits of the dispute. However, beyond these differences and the particularities of each case, the importance of avoiding assuming biased positions was emphasized, always having in mind the reduction of costs and time for the benefit of arbitration users. It must then be understood, what generates real value for the client.

Finally, it was mentioned that, only to the extent that the challenges to arbitration are understood and solved by arbitration practitioners, the myth that arbitration only works for large cases may be destroyed. The goal seems viable in international commercial arbitration, as has been happening in domestic arbitration in some countries that have knocked down that myth, such as Peru, where domestic arbitration has become the rule and important disputes are no longer discussed in state courts but in the arbitral jurisdiction.

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Ukraine’s Supreme Court Takes an Unexpected Approach on Sovereign Immunities

Thu, 2019-03-14 03:55

Oleksii Maslov

Investment arbitrations with respect to Ukrainian assets in Crimea have been in the spotlight of the international arbitration community for some time now1)E.g., see here  jQuery("#footnote_plugin_tooltip_8204_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. After the Claimants in Everest Estate LLC et al. v. the Russian Federation (“Everest”) obtained the merits award in their favour in May 20182)See this post by Mykhaylo Soldatenko. jQuery("#footnote_plugin_tooltip_8204_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, the focus started to shift to the enforcement and set aside stages of the Crimean cases.

In July 2018, Claimants applied for recognition and enforcement of the Everest award in Ukraine. They have also requested provisional measures to be granted against the shares in three Ukrainian subsidiaries of Russian state banks (VTB Bank, Prominvestbank, and Sberbank, together the “Banks”). In September 2018, the Kyiv Appellate Court (acting as the court of first instance) granted both applications.3)See here and here in Ukrainian. jQuery("#footnote_plugin_tooltip_8204_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Unfortunately, the court mostly overlooked inevitable issues of the Banks’ separate legal personality and sovereign immunities of the Russian Federation.

Conversely, the Ukrainian Supreme Court in its recent judgment on the Banks’ appeal (“SC Judgment”) directly addressed these issues.4)See here in Ukrainian. jQuery("#footnote_plugin_tooltip_8204_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It, among other things, concluded that Russia waived its immunity by means of the Russia-Ukraine BIT.5)A brief summary of the judgment may be found here. jQuery("#footnote_plugin_tooltip_8204_5").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In this post, we focus on the Supreme Court’s quite unexpected take on the issue of sovereign immunities. We will start by explaining applicable provisions of Ukrainian law, proceed to the reasoning of the Supreme Court, and then highlight the most thought-provoking takeaways from the SC Judgment.

Foreign States’ Sovereign Immunities in Ukraine

Ukraine is not a party to the United Nations Convention on Jurisdictional Immunities of States and their Property, 2004 (“UNCSI”) or to the European Convention on State Immunity, 1972. Under the Constitution of Ukraine6)See here in Ukrainian. jQuery("#footnote_plugin_tooltip_8204_6").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, ratified international treaties are incorporated into the Ukrainian legal system. The Constitution, however, does not establish direct applicability of rules of customary international law. They, thus, cannot be applied directly by Ukrainian courts.

Under the domestic legislation, in particular the Law of Ukraine on Private International Law (“PIL Law”)7)See here in Ukrainian. jQuery("#footnote_plugin_tooltip_8204_7").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, foreign states enjoy absolute immunity in respect of themselves and their property from 1) suit, 2) provisional measures, and 3) execution of court judgments. There are only two exceptions to this rule, namely:

1) where the competent authority of a state concerned waives its immunity, or

2) where an applicable international treaty provides otherwise.

Neither the law nor relevant court practice specify the manner in which the waiver of immunity can be made. Thus, in line with applicable Ukrainian legislation, the Russian Federation should have had full immunity with respect to itself and its property in the territory of Ukraine.

Supreme Court’s Reasoning

Although the Russian Federation did not participate in the proceedings before the Ukrainian Supreme Court, the court record demonstrates that the Russian Ministry of Justice sent a letter to the Ukrainian Supreme Court, invoking Russian sovereign immunity. The sovereign immunity defence was also mentioned in the appellate claims of some of the Banks.

A separate section of the SC Judgment deals with sovereign immunities.8)See here, paragraphs 68-78. jQuery("#footnote_plugin_tooltip_8204_8").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The SC Judgment first acknowledges provisions of the PIL Law on absolute immunity of foreign states. Then it refers to the practice of the European Court of Human Rights (“ECHR”) in Cudak v Lithuania (Application No. 15869/02, “Cudak”) and Oleynikov v Russia (Application No. 36703/04, “Oleynikov”)9)See here and here. jQuery("#footnote_plugin_tooltip_8204_9").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, where the ECHR analysed customary nature of certain provisions of the UNCSI. The Supreme Court then stated that although the UNCSI is not ratified by Ukraine, the “restrictive immunity concept [set out in the UNCSI] is applicable in accordance with customary international law and taking into account the judgment of the ECHR in Oleynikov v Russia”. The Supreme Court further quoted paragraph 68 from Oleynikov, where the ECHR found that Russia had breached applicant’s right to fair trial by denying court review of his claim against North Korea on the basis of sovereign immunity.

The SC Judgment noted that the European Convention on Human Rights (“European Convention”) and the jurisprudence of the ECHR are directly applicable sources of Ukrainian law.10)Direct applicability is established by the Law of Ukraine “On Execution of Judgments and Application of Jurisprudence of the European Court of Human Rights”, see here in Ukrainian. jQuery("#footnote_plugin_tooltip_8204_10").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Having done so, the Supreme Court referred to Article 19 of the UNCSI, listing ways in which state immunity from execution may be waived. It concluded that the dispute settlement clause in the Russia-Ukraine BIT (Article 9) constitutes Russian waiver of immunities from “1) jurisdiction, 2) measures of constraint and 3) execution of court judgments”11)See the BIT here. jQuery("#footnote_plugin_tooltip_8204_11").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); for the purposes of the UNCSI and the PIL Law.

Food for Thought in Supreme Court’s Reasoning and Implications

The Supreme Court’s departure from the (now nearly extinct) rule of absolute sovereign immunity should be welcomed. It has close parallels with Lithuanian Supreme Court’s abortion of legislatively prescribed absolute immunity in early 2000s. At the same time, the court’s reasoning raises a lot of questions.

First, it is true that the ECHR has tackled the question of sovereign immunities and referred to customary nature of the UNCSI in a number of cases. However, in both Cudak and Oleynikov it has done so exclusively in the wider context of the right to fair trial under the European Convention. The ECHR recognises that sovereign immunity limitation pursues a “legitimate aim” and may, in principle, validly limit right to fair trial. In each Cudak and Oleynikov the ECHR analysed, whether the limitation of right to fair trial through sovereign immunity was proportionate in light of the relevant customary international law.

 On this backdrop, it is debatable whether the jurisprudence of the ECHR indeed may outright ‘import’ provisions of the UNCSI to national legislation, as the correlation is more nuanced. This question looms over the SC Judgment, as it seems to apply the UNCSI without considering Everest Claimants’ right to fair trial.

Second, assuming the applicability of the UNCSI, the Supreme Court’s reasoning with respect to the waiver of immunity from execution seems hasty. The UNCSI operates on a distinction between immunity form jurisdiction and that from execution. Article 17 of the UNCSI, dealing with arbitration agreements, states that arbitration agreements bar the state from invoking immunity in proceedings relating to “confirmation … of the award” (e.g., recognition proceedings). At the same time, Article 19, dealing with immunities from post-judgment measures of constraint (e.g., execution of an award), separately requires an express consent to such measures “by an arbitration agreement”.

The SC Judgment refers only to the latter Article and generally does not seem to recognise the UNCSI’s distinction between two immunities. Furthermore, Article 9 of the Russia-Ukraine BIT, relied on by the Supreme Court, may be viewed as lacking such express consent to execution required by the UNCSI. It refers only to State Parties’ obligation to “execute such [arbitral] award in accordance with its national law.” For instance, ICSID in its model clauses recommends a much clearer waiver of immunity from execution.12)See here. jQuery("#footnote_plugin_tooltip_8204_12").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Meanwhile, the Supreme Court’s approach is consistent with that applied by the German Supreme Court in Werner Schneider v Kingdom of Thailand.13)German court, while analysing Germany-Thailand BIT (with wording very similar to that in the Russia-Ukraine BIT) decided that it constitutes Thailand’s waiver of immunity from execution, see here, referred to by Alexey Vyalkov. jQuery("#footnote_plugin_tooltip_8204_13").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Thus, the SC Judgment adds to the wider debate on whether and in which circumstances an arbitration agreement constitutes waiver from state immunity from execution. It should be viewed in the light of evolving national jurisprudence limiting sovereign immunities.14)Detailed analysis in Ben JURATOWITCH (2016). Waiver of State Immunity and Enforcement of Arbitral Awards. Asian Journal of International Law, 6, pp 199-232 here. jQuery("#footnote_plugin_tooltip_8204_14").tooltip({ tip: "#footnote_plugin_tooltip_text_8204_14", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Apart from adding to international context, the SC Judgment fundamentally alters Ukrainian legal framework for recognising and enforcing arbitral awards against sovereign states. By using the provisions of the UNCSI on waivers as directly applicable law, the Supreme Court has likely paved the way for application of its other provisions (e.g., those on commercial exception from immunity). It remains to be seen whether and how parties to Ukrainian proceedings and Ukrainian courts will use this significant body of newly applicable law.

The submission is made in my personal capacity. The views contained in this post are not necessarily the views of AVELLUM or its clients.

References   [ + ]

1. ↑ E.g., see here  2. ↑ See this post by Mykhaylo Soldatenko. 3. ↑ See here and here in Ukrainian. 4. ↑ See here in Ukrainian. 5. ↑ A brief summary of the judgment may be found here. 6. ↑ See here in Ukrainian. 7. ↑ See here in Ukrainian. 8. ↑ See here, paragraphs 68-78. 9. ↑ See here and here. 10. ↑ Direct applicability is established by the Law of Ukraine “On Execution of Judgments and Application of Jurisprudence of the European Court of Human Rights”, see here in Ukrainian. 11. ↑ See the BIT here. 12. ↑ See here. 13. ↑ German court, while analysing Germany-Thailand BIT (with wording very similar to that in the Russia-Ukraine BIT) decided that it constitutes Thailand’s waiver of immunity from execution, see here, referred to by Alexey Vyalkov. 14. ↑ Detailed analysis in Ben JURATOWITCH (2016). Waiver of State Immunity and Enforcement of Arbitral Awards. Asian Journal of International Law, 6, pp 199-232 here. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Oil & Gas: Is Italy Doing It Wrong All Over Again?

Tue, 2019-03-12 22:17

Danilo Ruggero Di Bella and Josep Gálvez

The Italian Republic – for better or for worse – is cracking down on hydrocarbon explorations and extractions. Kicking off with the regulatory changes recently brought about by the Italian Government, this post gauges their possible consequences for the stakeholders by going through a pending arbitration which may be ripe enough to become a benchmark for future cases on the horizon. The post ends with a possible amicable solution, following the steps of a previous KAB contribution.

 

Regulatory changes

In February this year, the Italian Parliament converted the Decree-Law No. 135/2018 into Law by passing the Act No. 11/2019. Article 11-ter of this Act has massive implications for the upstream oil & gas industry in Italy. It suspends all the exploration permits, as well as any new application for production concession for a period of 18 months, which can be stretched up to 2 years. During this temporary ban on upstream activities, the Minister of Economic Development, together with the Minister of Environment, is supposed to enact a Decree containing a Plan (named “PiTESAI”) to determine, once and for all, the suitable areas for sustainable hydrocarbon exploration and production activities by having special regard for the marine ecosystem, fishery stocks and the impact on the coastline.

As soon as the Plan is adopted, the exploration permits – which are not compatible with the Plan – will be revoked accordingly. Any production concession application, pending during the adoption of the Plan and concerning areas later declared incompatible with the Plan, will be rejected, unless those production concessions are awarded before the adoption of the Plan (which is a relatively unrealistic event, given the objectives that led the Government to adopt the Decree-Law No. 135/2018 in the first place). Whereas any application for time extension regarding ongoing production concessions, which will fall within the incompatible areas with the Plan, will be declined.

Further, Article 11-ter of the Law 11/2019 is going to increase the administrative fees on hydrocarbon activities by 25 times as of 1 June 2019, in the bid to set up a fund to edge against potential investment arbitrations. The government is, indeed, well aware of the concrete risk posed by foreign oil & gas investors’ arbitral claims, because of the pending Rockhopper v. Italy case. Hence, any investors’ claims for direct or consequential damages, which may originate from the implementation of the Plan, will be covered (at least in theory) by the companies whose hydrocarbon production is left unharmed by the Plan itself. The Government estimates that such a fund will amount approximately to 470 million euros. However, this sum is far from being satisfactory to make up for the damnum emergens and lucrum cessans caused by the Government, according to the potentially affected companies (concerning at least 73 exploration permits).

As a result, the entire upstream industry in Italy – including both the companies whose explorations or productions have been halted, and those whose operational costs will exponentially rise – is disgruntled with the present situation and on the warpath.

 

The (almost ready) precedent

The Rockhopper v. Italy arbitration1)See also the forward-looking Master Thesis from 2015 of Danilo Di Bella. jQuery("#footnote_plugin_tooltip_7616_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7616_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); was launched in 2017 and is now arriving at its finish line. On February 4, 2019, a hearing on jurisdiction, liability and quantum was held in Paris, bringing the case to its closure. Therefore, according to the ICSID Arbitration Rules 38 and 46, the tribunal will have to render the award within 120 days from the closing of the proceeding (i.e. presumably around May or June 2019, unless, of course, the tribunal will extend this period by 60 additional days.

Reportedly, Rockhopper claimed compensation of 275 million euros from Italy for having breached its obligations under the ECT. This case is particularly important for the future arbitrations the oil & gas companies are now threatening to commence against Italy, because it shares similar, if not identical features, with their current situation:

  1. The introduction and retroactive application of a Legislative Act to the existing concessions, thereby exploration and possible production activities are paralyzed;
  2. A Plan, that will most likely turn into a ban, imposing completely different zoning regulations (just like Article 2 of the Legislative Decree 128/2010 did) and which will end up forbidding hydrocarbon explorations and extractions in blocks previously destined for such purpose as well as imposing additional limitations or burdensome compliance mechanism;
  3. Probable retraction of promises given by previous governments contravening specific representations and inconsistencies all along the administrative procedures;
  4. A further increase of the government’s take on hydrocarbons, just like it occurred by means of Law No.134/2012 which raised off-shore royalties by more than 40% to finance sea protection and operational safety;
  5. Possible failures to observe the time-frame to conclude the administrative procedure for the issuance of the relevant Environmental Impact Assessment Decrees concerning the production concession applications pending during the adoption of the Plan.

These analogous facts laid the foundation for Rockhopper’s claims of ECT-grounded legitimate expectation violations and may now constitute the pillars for the looming arbitrations mirroring Rockhopper’s case and its recurring pattern.

Despite Italy’s denunciation of the ECT in January 2015, which became effective one year afterwards, Article 47(3) ECT, the ECT sunset clause, will protect for 20 more years investments in the oil & gas sector made in Italy before January 2016. Should the sunset clause fall short to light up the expectations of some foreign investors, Italy is a Contracting Party to an array of BITs, all containing a FET clause safeguarding investors’ legitimate expectations. Hence, awaiting the adoption of the new Plan, investors have the time to rearrange their investments through one of the many countries which Italy has a BIT with.

 

Risk analysis

Given this picture, it is worth running a risk analysis for both sides. From Italy’s perspective, there is the tangible risk of facing not just one, but multiple arbitrations; the possible defeat in the ongoing Rockhopper case (even though, arguably, the risk of being ordered to pay the 275 million euros is remote, as that sum could be reduced substantially); and the ensuing risk of setting an unfavorable precedent to be relied upon by the next belligerent oil & gas company.

From the disgruntled oil & gas companies’ standpoint, there is the risk of losing time and money pending their arbitrations (which can go on from three to five years); the risk of having the tribunal drastically reducing the compensation they aspire to get; the risk of Italy non complying with the pecuniary obligations set in the award, thus causing further delays; and the ensuing risk of being compelled to choose between trying to enforce the award or selling it for less than what it was originally worth.

 

Circumventing double-sided risks: an amicable solution

In slightly different cases, where there happen to be a long-standing dispute among the different parties of a public-private joint venture for the exploitation of natural resources, the full course of an arbitral process may prolong, if not intensify, the conflict itself without making anyone happy. In these instances, if the State party’s responsibility can be promptly ascertained, but its financial liability is below what the claimants are demanding, arbitrators have often come up with sensible solutions. A customary proposal by tribunals, for example, envisages the purchase by the State-party of the private parties’ interests in the joint venture at the price the investment was made, plus a 2% annual interest rate from the date each investment was made, plus the payment of a reasonable bonus reflecting the end of the private parties’ opportunity to obtain future profits from the concession. Understandably, such an overall payment should be secured by way of a bank guarantee and could be spread over a short number of years to be affordable.

This approach could be easily transferable – with the appropriate adjustments – in a consolidated mediation to solve the looming arbitrations unfolding before us, whose real causes are rooted in many years of a somewhat confused energy policy incapable of a long-term predictability (which is something pivotal to a sector where billions of euros are poured in with the hope of recouping gradually those investments with a reasonable profit over a long time span).

As to a positive example of a desirable amicable settlement, in the mid-eighties, Norway was in the midst of having to face multiple claims by oil & gas companies enraged at the retroactive application of a royalty payment regulation to their licenses. Right after the first leading case (Ekofisk Royalty Case) was ruled in favor of the claimant by the Norwegian Supreme Court on 19 December 1985, the Norwegian Government entered into negotiations with the other oil & gas companies providing them with a serious offer, instead of fueling their anger. Those companies, which waited for the outcome of that case and settled their dispute out of court, cut even a better deal (meaning a 3% higher compensation, plus interest on the overdue repayments) compared to the company that first commenced the court proceeding (which, in our case, could be Rockhopper). Simultaneously, Norway came out of that heated energy-related quarrel appearing even more trustworthy and appealing towards foreign energy companies.

As also indicated in an earlier KAB contribution, consolidated mediations could be the answer to multiple ongoing or potential arbitrations revolving around the same fact pattern, especially when a decision on a similar matter has already emerged and declared the victorious side by making following predictable awards. Eventually, both sides will avoid unnecessary risks, benefit more favorable terms and gain international credibility.

 

References   [ + ]

1. ↑ See also the forward-looking Master Thesis from 2015 of Danilo Di Bella. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Abu Dhabi Global Market Courts Enhances its Attractiveness as an Arbitral Seat

Tue, 2019-03-12 05:40

Peter Smith

The Abu Dhabi Global Market (“ADGM”) is an international financial free zone and an important emerging seat of arbitration in the GCC region. The ADGM’s arbitration law is based on the UNCITRAL Model Law, with a number of significant enhancements relating to the confidentiality of proceedings, the joinder of third parties, and the waiver of the right to bring an action for setting aside.

The Court of First Instance (“CFI”) of the ADGM Courts (“ADGMC”) is the court designated as the supervisory court for arbitrations seated within the ADGMC’s jurisdiction. 2018 saw the CFI exercising that function for the first time in the cases of A1 v B1 (9 January 2018) and A2 v B2 (11 October 2018). One of these cases involved a pre-claim ex parte application for interim relief which demonstrated the ability of the CFI to organise hearings quickly, use sophisticated document management and international telephone conferencing facilities, and to grant swift and appropriate relief when necessary.

These cases are part of a wider trend. As the ADGMC enter 2019, they can be expected to build on the progress made in 2018. Last year saw an increase to 14 of the numbers of cases brought in the CFI, up from 7 the year before, i.e. a 100% increase. Many of the cases listed cover real property and employment disputes but, as more companies take offices on the island and residential developments grow, the volume and range of the CFI’s docket will surely increase with the ever-greater numbers of contracts subject to the ADGMC’s jurisdiction.

The CFI’s increased workload comes as the ADGMC signed a memorandum of understanding (the “2018 MOU”) revising and updating the mutual and reciprocal recognition and enforcement of, inter alia, ratified arbitral awards between the ADGMC and the Courts of the Emirate of Abu Dhabi represented by the Abu Dhabi Judicial Department (“ADJD”). The 2018 MOU builds on an earlier MOU signed between the same parties in 2016 and Article 13(11) of Abu Dhabi Law No. 4 of 2013, but provides further clarity on the specific processes for reciprocal enforcement which the 2013 law did not cover. The 2018 MOU fills a gap in the relationship between the ADJD-ADGMC identified previously. The 2018 MOU establishes that mutually ratified or recognised awards are to have the same force as a judgment of either of the courts without the requirement of any further ratification or recognition by the other court. Mutual recognition and enforcement also extends to include court-approved settlement agreements (known as ‘memoranda of composition’) certified by either court. Parties are already benefitting from these enforcement regimes, which are the result, as may be seen, of the collaborative efforts of the ADGMC and ADJD.

As a court of the UAE, the ADGMC is bound by the UAE’s international obligations under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, the Riyadh Arab Agreement for Judicial Cooperation 1983 and Gulf Cooperation Council Convention for the Execution of Judgments, Delegations and Judicial Notifications 1996.

In October 2018, the ADGM’s Arbitration Centre opened. The new centre provides parties with state of the art meeting and hearing room facilities. In December, the ADGMC launched “the world’s first fully digital courtroom”, allowing parties and their representatives to access court documents including court forms and bundles and to attend hearings remotely.

In summary, and as a result of its sophisticated arbitral law, its collaboration with the ADJD, and the effective performance of the CFI of the ADGMC of its arbitration related functions, ADGM is establishing itself as a leading arbitration seat in the region.

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Third Party Funding in Nigerian Seated Arbitrations: Setting the Law Straight

Mon, 2019-03-11 22:30

Opemipo Omoyeni

Introduction

This post addresses the topical issue of Third-Party Funding (“TPF”) in relation to Nigeria-seated arbitrations, and posits in variance with recent work on the subject that there is no extant law prohibiting TPF in Nigeria-seated arbitrations. This post points out that there has been an apparent misapplication of the common law principles of champerty and maintenance as is obtainable in courtroom litigation to privately convened arbitrations. Further, there seems to be a narrow conception of TPF in terms of direct funding of a proceeding by a funder (funders). The author argues that the scope of TPF is broader than envisaged as TPF also includes attorney financing (pro bono and contingency or success fee type arrangements) and Nigerian law permits the latter concept.

Origins and Scope

Nigeria is a common law country. Although English case law is considered largely persuasive, certain corpus of laws were imported into the Nigerian legal system by virtue of it being a former British Colony. This is known as the Received English Law which comprises of the principles of Common Law and Equity and Statutes of General Application (being statutes in force in England on the 1st day of January, 1900).

Historically, the English courts developed concepts like “champerty” and “maintenance” in response to what was considered to be interference by non-interested third parties with ongoing proceedings. Unfortunately, these doctrines of champerty and maintenance still form part of the Nigerian legal system on account of its association with the Common Law system and the reinforcement of these principles by local courts. Thus, in order to ascertain the scope and applicability of these doctrines in Nigeria, recourse must be readily had to the English Common Law system where these doctrines originated from. It has been posited that to understand the scope of a concept, one must readily refer to the mischief the law sought to remedy 1)Steyn L.J in Giles v Thompson[1994] 1 A.C. 142; [1993] 2 W.L.R. 908. jQuery("#footnote_plugin_tooltip_8071_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8071_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

In the medieval British era, there was a prevalent mischief of influential persons (barons) purchasing weak claims with the expectation that they could use their power and wealth to influence the administration of justice and to eventually win those claims. This mischief was aptly pointed out by the Hong Kong High Court in Cannonway Consultants Ltd v Kenworth Engineering Ltd citing an extract from Jerry Bentham’s work:

“A mischief, in those times it seems but too common, though a mischief not to be cured by such laws, was, that a man would buy a weak claim, in hopes that power might convert it into a strong one, and that the sword of a Baron, stalking into court with a rabble of retainers at his heels, might strike terror into the eyes of a judge upon the bench. At present, what cares an English judge for the swords of a 100 barons? Neither fearing nor hoping, hating nor loving, the judge of our days is ready with equal phlegm to administer, upon all occasions, that system, whatever it be, of justice or injustice, which the law has put into his hands.”

Nigerian Jurisprudence and TPF

Indeed, the mischief that both doctrines were devised to remedy, were prevalent in the public justice system as administered in court rooms and the application of the doctrines at common law was confined to litigation. Their applicability cannot be extended beyond that remit. The concerns for holding otherwise have been noted to include, among others, the erosion of the party autonomy doctrine and the same have been reinforced elsewhere 2)Giles v Thompson [1994] 1 A.C. 142; [1993] 2 W.L.R. 908 jQuery("#footnote_plugin_tooltip_8071_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8071_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

In view of the foregoing, the contention that TPF extends to arbitration appears rather curious. The scale of the application of the doctrine of champerty and maintenance under common law cannot be readily stretched or modified to apply to circumstances and situations not otherwise contemplated at common law except modified by local legislation(s) in that regard. It is, therefore, pertinent to note that at the time of penning this article, there are no local legislations or case law positing that the doctrine extends to the field of arbitration 3)See Miscellaneous Offences Tribunal v. Okoroafor(2001) 18 NWLR (Pt. 745) 295 jQuery("#footnote_plugin_tooltip_8071_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8071_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });. The attendant consequence is, indeed, that TPF in Nigeria-seated arbitrations are, in all intents and purposes, legal. The law remains that whatever is not prohibited is allowed 4) Oyo v. Mercantile Bank (Nig) Ltd. (1989) 3 NWLR 229 jQuery("#footnote_plugin_tooltip_8071_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8071_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

On another note, there are various incidences of TPF that do not entail the funding of a claim/defense by a formal funder for an agreed consideration. The financing of a claim by a lawyer or law firm on a pro bonoor contingency basis also falls under the umbrella of TPF. These arrangements, either in arbitration or litigation, are legal and permissible under Nigerian Law. Earlier decisions of Nigerian Courts adjudging contingency fee arrangements as at best unprofessional and at worst champertuous 5) Oyo v. Mercantile Bank (Nig) Ltd. (1989) 3 NWLR 229 jQuery("#footnote_plugin_tooltip_8071_5").tooltip({ tip: "#footnote_plugin_tooltip_text_8071_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); have since been supplanted by subsidiary legislations enacted pursuant to the Legal Practitioners Act 6)Rule 50 of the Rules of Professional Conduct for Legal Practitioners, 2007 allows Nigerian Legal Practitioners to enter into contingency arrangement with clients provided that these arrangements are reasonable. jQuery("#footnote_plugin_tooltip_8071_6").tooltip({ tip: "#footnote_plugin_tooltip_text_8071_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

Conclusion

Whilst the Arbitration and Conciliation (Repeal and Re-enactment) Bill 2017 has been extensively reviewed with calls for a more explicit recognition of TPF in the Bill among others, the law as it stands does not prohibit the incidence of TPF in Nigeria-seated arbitrations. A better approach, the author suggests, will be to demand for an enactment of a comprehensive regulatory framework for TPF, as is obtainable in other jurisdictions, by calling for a holistic revision to the Bill to provide for issues  bordering on disclosure of funding arrangements, conflict of interest considerations as it pertains to the arbitrators,  element of control and influence of the funder in the proceedings as well as other concerns in this space. An adoption of this approach will make Nigeria an attractive choice as a seat for contracting parties in arbitrations.

References   [ + ]

1. ↑ Steyn L.J in Giles v Thompson[1994] 1 A.C. 142; [1993] 2 W.L.R. 908. 2. ↑ Giles v Thompson [1994] 1 A.C. 142; [1993] 2 W.L.R. 908 3. ↑ See Miscellaneous Offences Tribunal v. Okoroafor(2001) 18 NWLR (Pt. 745) 295 4. ↑ Oyo v. Mercantile Bank (Nig) Ltd. (1989) 3 NWLR 229 5. ↑ Oyo v. Mercantile Bank (Nig) Ltd. (1989) 3 NWLR 229 6. ↑ Rule 50 of the Rules of Professional Conduct for Legal Practitioners, 2007 allows Nigerian Legal Practitioners to enter into contingency arrangement with clients provided that these arrangements are reasonable. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Interpretation of the New York Convention by the UAE Courts: a Geneva Flavor?

Sat, 2019-03-09 21:19

Abdelhak Attalah

Introduction

The United Arab Emirates (the “UAE”) is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the “NYC”), which was adopted into UAE law by Federal Decree No. 43 of 2006. However, there have been instances where the lower courts of the UAE have come to interpret the NYC requirements for enforcement, and the concept of “double-exequatur” has arisen (i.e., the need for it to be shown that the arbitral award has been rendered enforceable in the jurisdiction in which it was made before it can be enforced in any other jurisdiction).

This has created uncertainty, which undermines one of the NYC’s fundamental objectives: to establish uniform international standards for the recognition and enforcement of foreign arbitral awards in signatory countries.1) Pieter Sanders, Quo Vadis Arbitration?: Sixty Years of Arbitration Practice, A Comparative Study (Kluwer Law International, The Hague 1999) 67-69; Gary B. Born, The New York Convention: A Self-Executing Treaty (2018) 40 MJIL 116,119 (accessed on 3 January 2019) jQuery("#footnote_plugin_tooltip_3499_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3499_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Recent UAE Case Law on Double-Exequatur

Fortunately, to the relief of arbitral award creditors, in a ruling of the Federal Court of Cassation (the “FCC”) of 15 January 2019 in the joint Commercial Appeals Nos. 620/2018 and 654/2018, the FCC overturned a refusal by the Khor Fakkan Court of Appeal (the “Court of Appeal”) to recognize and enforce a foreign arbitral award issued under the Rules of the London Court of International Arbitration (“LCIA”) in London, UK, (the “LCIA Award”) on the basis that it had not been granted exequatur by the English Court before being enforced in the UAE.

The FCC found that (i) the Court of Appeal’s ruling amounted to a “double-exequatur” requirement, which was abolished by the NYC; and (ii) the lower court’s refusal to recognize and enforce the LCIA Award was due to its misinterpretation of the term “authenticated” set forth in sub-paragraph (a) of Article IV(1) of the NYC which states that:

To obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply:
(a) The duly authenticated original award or a duly certified copy thereof.

In the FCC’s view, the Court of Appeal had confused the meaning of the term authentication (an international certification comparable to a local notarization/legalization of any document) with the meaning of enforceability/exequatur set forth in Article 4 of the Geneva Treaties.2) The Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927, the predecessors of the NYC. jQuery("#footnote_plugin_tooltip_3499_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3499_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The requirement for a leave for exequatur from the court under whose law the award was made was abrogated by Article VII(2) of the NYC, and hence the ruling of the Court of Appeal contradicts the prevailing legal position in the UAE.

The FCC confirmed that, pursuant to Article 238 of the UAE Civil Procedures Code, the UAE courts are bound by the NYC. In this matter, the FCC stated verbatim that:

The argument based on which the lower court rejected the recognition and enforcement of the said award was because it was not granted exequatur in the country where it was issued, and, is therefore, unlawful. This is because of the term authentication, which caused confusion in the mind of the lower court, does not mean ratification of the award and granting it exequatur as per the meaning taken from article 236 of the Civil Transactions Law, rather, it means authentication or legalization as required for the official documents issued by a foreign country and invoked within the State, and since the appealed judgement had a contrary opinion, it shall be declared as a wrongful application of the law, which prevented the lower court to adjudicate the case in its proper legal scope and under the provisions of the NYC mentioned above, the Court of Appeal has erred in its judgment and therefore, it must be overturned. (emphasis added)

The Evolution of the Double-Exequatur Concept: The Geneva Convention

As for the concept of double-exequatur, it should be noted that Article 4(2) of the 1927 Geneva Convention required the party relying upon an award or seeking its enforcement to supply, inter alia, “[d]ocumentary or other evidence to prove that the award ha[d] become final […] in the country in which it was made”.

While Albert Jan van den Berg explains3) Albert Jan van den Berg, The New York Convention of 1958: An Overview in (Emmanuel Gaillard & Domenico Di Pietro (eds), Enforcement of Arbitration Agreements and International Arbitral Awards: The New York Convention in Practice (Cameron May 2008) 61 jQuery("#footnote_plugin_tooltip_3499_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3499_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); that:

The NYC’s predecessor, the Geneva Convention of 1927, required that the award had become ‘final’ in the country of origin. The word ‘final’ [used in Article 4(2) of the Geneva Convention of 1927] was interpreted by many courts at the time as requiring a leave for enforcement (exequatur and the like) from the court in the country of origin. Since the country where enforcement was sought also required a leave for enforcement, the interpretation amounted in practice to the system of the so-called “double-exequatur”. The drafters of the NYC, considering this system as too cumbersome, replaced the term “final” in Geneva Convention, qualifying the award, with the word “binding” in NYC. Accordingly, no leave for enforcement in the country of origin is required under the New York Convention. This principle is almost unanimously affirmed by the courts.

The meaning of the term authentication stated in sub-paragraph (a) of Article IV(1) of the NYC was clarified by the FCC as per the meaning of the UAE statutes, especially Article 13 of the UAE Law of Evidence, in addition to the legal precedents explaining the meaning of the authentication of documents. Indeed, authentication shall be executed as per the Hague Convention of 1961 or as per the UAE modalities and requirements through which a document issued in a foreign country shall be certified i.e., by a solicitor or a notary public and by the respective Foreign Ministry. This interpretation is almost unanimously affirmed by the UAE courts.

The Position under the NYC

As a reminder, the NYC was established as a result of dissatisfaction with the Geneva treaties of 1923 and 1927, and one of the basic actions contemplated by it is the abrogation of the double-exequatur requirement. Article VII(2) of the NYC states that:

[t]he Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927 shall cease to have effect between Contracting States on their becoming bound and to the extent that they become bound, by this Convention.

Moreover, pursuant to Article IV of the NYC, the arbitral award creditor is required to provide the court with only two documents (with translations certified by an official or sworn translator or by a diplomatic or consular agent if either document is not made in an official language of the country in which the award is relied upon):

(a) The duly authenticated original award or a duly certified copy thereof; and
(b) The original agreement referred to in Article II or a duly certified copy thereof.

Therefore, pursuant to Article IV of the NYC, enforcement of a foreign award is not conditional upon presentation by the award creditor of proof that the award is final and enforceable in the country of the seat, as the drafters of the NYC did not set such a requirement. Rather, it is for the party resisting recognition and enforcement to provide such proof as clearly required in Article V(1)(e) of the NYC which states:

1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

(e) The award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

Conclusions

Taken in the round, it is clear that Article V(l)(e) and Article VII(2) of the NYC were drafted with a view to put an end to the mechanism of double-exequatur required by Article 4 of the Geneva Treaties, by which a party seeking recognition and enforcement of a foreign award had to prove, among other conditions, that the award had become “final” in the country of the seat.

Indeed, Article V(l)(e) of the NYC allows national courts to refuse the recognition or enforcement of an award if the party resisting enforcement establishes that the award: (a) has not yet become binding on the parties; or (b) has been set aside or suspended. Thus, the binding character of a foreign arbitral award in the hand of a creditor seeking recognition and enforcement in the UAE shall not depend on an exequatur by the courts of the country of the seat.

References   [ + ]

1. ↑ Pieter Sanders, Quo Vadis Arbitration?: Sixty Years of Arbitration Practice, A Comparative Study (Kluwer Law International, The Hague 1999) 67-69; Gary B. Born, The New York Convention: A Self-Executing Treaty (2018) 40 MJIL 116,119 (accessed on 3 January 2019) 2. ↑ The Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927, the predecessors of the NYC. 3. ↑ Albert Jan van den Berg, The New York Convention of 1958: An Overview in (Emmanuel Gaillard & Domenico Di Pietro (eds), Enforcement of Arbitration Agreements and International Arbitral Awards: The New York Convention in Practice (Cameron May 2008) 61 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Arbitrability of IP Disputes in India – A Blanket Bar?

Sat, 2019-03-09 01:00

Saniya Mirani and Mihika Poddar

Arbitration of IP disputes has inherent advantages of saving time and costs and ensuring confidentiality while also maintaining long-term business relations (see here). In India, arbitration will be especially useful in light of the enormous pendency of judicial cases.

However, arbitrability of any subject-matter is dictated by a country’s public policy. In India, what forms part of arbitrable subject-matter is determined as per the test laid down in the Booz Allen Case, expanded upon by the Ayyasami Case. The following two categories of disputes are thereby inarbitrable in nature:

  1. Disputes involving the adjudication of actions in rem as opposed to actions in personem, such as, disputes relating to criminal offences, guardianship matters etc. (hereinafter, the first test of arbitrability);
  2. Disputes arising out of a special statute, which are reserved for exclusive jurisdiction of special courts, such as, matters reserved for small causes courts1) Natraj Studios Private Ltd v. Navrang Studios & Another, 1981 AIR 537 jQuery("#footnote_plugin_tooltip_7053_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7053_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (hereinafter, the second test of arbitrability). (See here and here)

These tests evince that arbitrability is dependent upon the nature of the claim made in a dispute, i.e., whether the claim is in rem or statutory in nature. This principle should guide the arbitrability of IP disputes too.

 

The IP Regime in India: A Primer

Before understanding the arbitrability of IP disputes, it is essential to understand the functioning of IP regime in India. The scope of this article is limited to analysing arbitrability of patent, copyright and trademark regimes. These regimes allow a “statutory monopoly” to be given to the creator of an intangible asset, conferring an exclusive right to exploit it. There are corresponding statutory remedies to enforce this right. For instance, there exist statutory remedies for infringement of copyright, trademark and patent.2) See, Chapter XII, Copyright Act, 1957; Section 135, Trade Marks Act, 1999; Chapter XVIII, Patents Act, 1970. jQuery("#footnote_plugin_tooltip_7053_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7053_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As per the statute, these remedies must be granted by civil courts. The statutory mention of courts, as a forum to grant these remedies, creates the first hurdle in arbitrating IP disputes.

 

Lack of a Supreme Court precedent settling the issue

The Supreme Court of India has not conclusively settled the issue of arbitrability of IP disputes. In the Ayyasami Case, patents, trademarks and copyrights were listed in the category of inarbitrable disputes. However, the main issue before the court was of arbitrability of fraud (discussed here and here). Thus, categorization of IP disputes as inarbitrable was only obiter dictum. Therefore, this decision cannot be read to bar arbitrability of IP disputes.

 

Different positions of Indian High Courts

Both the aforementioned tests of arbitrability have been used to hold IP disputes inarbitrable. In the Mundipharma Case, the issue was whether a claim of ‘copyright infringement’ was arbitrable. The Delhi High court held the dispute to be inarbitrable given that infringement of copyright is a statutory claim, having definite statutory remedies that are to be granted exclusively by civil courts. This ruling thus seems to echo the second test of arbitrability that bars arbitrability of disputes arising out of special statutes which are reserved exclusively for civil courts.

Subsequently, in the SAIL Case [Suit No. 673/2014], a claim of ‘trademark infringement’ was held to be inarbitrable by Bombay High Court reasoning, “the rights to a trademark and remedies in connection therewith are matters in rem and by their very nature not amenable to the jurisdiction of a private forum chosen by the parties”. Accordingly, the dispute was held to be inarbitrable on the basis of the first test of arbitrability that makes actions in rem inarbitrable.

The Eros Case brought about the first winds of change to this negative trend. The Respondent was granted a copyright license to distribute the Petitioner’s films. The license contained an express negative covenant which prohibited the use of copyrighted films upon termination of contract. Respondent violated this term. Thus, the Petitioner initiated arbitration for ‘violation of the contractual covenant’ – a claim although sourced purely in contract, still required an infringement of copyright to be established.

The Bombay High Court held for the first time that it would be too broad, impractical and against all commercial sensibilities to hold that the entire realm of IP disputes is inarbitrable. Accordingly, the case rightly noted the nuance that that IP disputes arising purely out of contracts are arbitrable because they are actions in personam, i.e. “one party seeking a specific particularized relief against a particular defined party”. Thus, the case applied the first test of arbitrability. The court went a step ahead to state that, a finding of infringement had to be made for proving such a contractual breach and that an arbitrator was empowered to make such a finding of infringement as ‘infringement’ can only be in personam. Thus, an infringement claim could now be determined by arbitration.3) Note that this ratio had been upheld by an earlier case from the same high court called Eurokids International Media Ltd. v. Bhaskar Vidyapeeth Shikshan Sanstha (2015) 4 Bom CR 73. However, Eurokids case was never referred to by EROS, as should have been done in light of the precedential system followed by India. jQuery("#footnote_plugin_tooltip_7053_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7053_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

However, even when the dispute is in personam, the second test of arbitrability can be applied, to hold the disputes arising out of special statutes as inarbitrable. This test was refuted in EROS reasoning that the statute nowhere provides that the court is an ‘exclusive’ forum, and thus, arbitration should be allowed. We argue that the holding of inapplicability of the second test was correct. The second test is applied where there is an underlying public policy objective in keeping disputes in the hands of courts. For instance, labour disputes are made inarbitrable by Industrial Disputes Act, 1947, for the reason that a public fora can address the power imbalance prevalent between employers and employees in labour disputes. However, in such IP disputes, similar considerations are not always in play. Thus, the EROS decision rightly refuted the second test of arbitrability.

Since the Eros and Euro Kids cases, other IP disputes that are purely born out of such negative covenants in contracts have also been upheld as being arbitrable.4) Deepak Thorat v. Vidli Restaurant Limited, 2017 SCC OnLine Bom 7704 jQuery("#footnote_plugin_tooltip_7053_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7053_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Analysis and conclusion

In earlier cases of Munidpharma and SAIL, where arbitrability of IP disputes was tested, the petitioners raised statutory claims of infringement of copyright/trademark, and expected statutory or public law-based remedies in return. Thus, the only gamut of IP disputes whose arbitrability had been tested hitherto were those that were purely born out of IP statutes. However, IP disputes are not merely statutory, but can be contractual as well.5) In some cases, an entire contract may be about an IP right. For instance, license agreements, joint research and development agreements, etc. In other cases, the IP rights may form a part of a larger commercial transaction, such as, mergers, acquisitions, distribution agreements. jQuery("#footnote_plugin_tooltip_7053_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7053_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); With increase in quantum and complexity in commercial transactions, the arbitrability of purely contractual IP disputes arose very recently in recently in the EROS and Eurokids cases. These cases have rightly not applied SAIL’s holding about the inarbitrability of purely statutory I.P. claims to contractual IP claims.

Thus, as per the current position in India, there is no blanket bar on arbitrability of IP disputes. Instead, arbitrability is determined on the basis of nature of claims raised. Disputes of royalty, geographical area, marketing and other terms of the license agreements, which are purely contractual, would be arbitrable. Parties in India can and should freely arbitrate such disputes. However, a dispute of validity/ownership of an IP right should be decided by the court/assigned public administration, for the dispute would result in a judgement affecting the general public’s right to use the respective asset.

The position of infringement claims is dependent upon each case. Statutory infringement simpliciter would not be arbitrable in accordance with the Mundipharma and SAIL cases; while infringement arising purely out of contract will be arbitrable in accordance with EROS, Euro kids cases. However, often as is the case, if a counter-claim about the validity of IP right is raised against an infringement claim, the counter-claim needs to be resolved by the court for it would then be an action in rem. Pending such resolution, the arbitration may be stayed.

This position on arbitrability will ensure a balance of rights between inventor/author and the general public, with inventor/author retaining the right to arbitrate contractual rights and courts retaining jurisdiction over claims that affect the general public. Such a balance is desirable for effective functioning of the IP regime as well. The possibility of easy dispute resolution would encourage inventors. Retaining the courts’ jurisdiction over matters where the public’s right to use copyrighted works and patented inventions is affected, would also ensure a robust public domain and safeguard public interest.

References   [ + ]

1. ↑ Natraj Studios Private Ltd v. Navrang Studios & Another, 1981 AIR 537 2. ↑ See, Chapter XII, Copyright Act, 1957; Section 135, Trade Marks Act, 1999; Chapter XVIII, Patents Act, 1970. 3. ↑ Note that this ratio had been upheld by an earlier case from the same high court called Eurokids International Media Ltd. v. Bhaskar Vidyapeeth Shikshan Sanstha (2015) 4 Bom CR 73. However, Eurokids case was never referred to by EROS, as should have been done in light of the precedential system followed by India. 4. ↑ Deepak Thorat v. Vidli Restaurant Limited, 2017 SCC OnLine Bom 7704 5. ↑ In some cases, an entire contract may be about an IP right. For instance, license agreements, joint research and development agreements, etc. In other cases, the IP rights may form a part of a larger commercial transaction, such as, mergers, acquisitions, distribution agreements. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Section 1782 Discovery For Use In Private Arbitrations: The New York Saga Continues

Fri, 2019-03-08 03:00

Lucas Bento

United States Code Section 1782 has become the weapon of choice for international litigants seeking discovery in aid of foreign proceedings. Section 1782 allows an “interested person” (such as a foreign litigant) to apply for discovery over a person or entity “found” in the U.S. “for use” in a proceeding “in a foreign or international tribunal.” Significant uncertainty exists, however, in whether Section 1782 discovery can be sought for use in a private arbitration abroad.  In a prior Kluwer Arbitration Blog post, I reviewed a decision of the U.S. District Court of the Southern District of New York (“SDNY”) that granted an application for Section 1782 discovery for use in a foreign arbitration governed by the London Maritime Arbitration Association (“LMAA”).

While the Second Circuit has not weighed on this issue post-Intel (the leading Supreme Court case on Section 1782), a recent decision from the SDNY provides some additional insight on how New York federal courts interpret the statute, particularly in light of Second Circuit precedent (“NBC”) holding that Section 1782 does not apply to proceedings before private arbitral panels—until now one of only two circuit court decisions addressing the issue.  That precedent was called into question by a passage in Intel that parenthetically quoted a law review article authored by Professor Hans Smit—one of the principal advisers to Congress on the drafting of Section 1782—that included arbitration proceedings in an illustrative list of “tribunals.”1) See Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 258 (2004); citing Smit, International Litigation under the United States Code, 65 Colum. L.Rev. 1015, 1026–1027, and nn. 71, 73 (1965) jQuery("#footnote_plugin_tooltip_6829_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6829_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In Children’s Investment Fund, the SDNY declined to follow NBC by holding that an arbitration governed by the London Court of International Arbitration (“LCIA”) rules fall within the purview of Section 1782.  The applicants were investors in a group of Mauritius private equity funds that were formed to invest in real estate in India.  Disputes eventually arose relating to the management of the funds, and the applicants initiated a series of actions in Mauritius, India, and an LCIA arbitration in the United Kingdom.  The applicants subsequently filed a Section 1782 application seeking discovery over certain individuals and entities in the United States for use in those foreign proceedings, including the LCIA arbitration.

In considering the threshold issue of whether an LCIA tribunal qualifies as a “foreign or international tribunal” under Section 1782, the SDNY noted that “the question of whether a private, foreign arbitration panel satisfies the ‘for use’ requirement of § 1782 is unsettled in th[e] [Second] Circuit.”  While the Court explicitly acknowledged NBC, it went on to note that “five years after NBC…. the Supreme Court cited an article by Professor Hans Smit including the text, ‘the term ‘tribunal’ includes investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts.”

In noting that the Second Circuit has not considered whether a private arbitration tribunal satisfies the “for use” requirement since Intel, the SDNY sided with the U.S. District Court of the Northern District of Georgia, which held that NBC no longer applies since Intel.  The Court consequently found that

“a private arbitration tribunal is a ‘proceeding in a foreign or international tribunal’ for the purposes of § 1782; therefore, the LCIA satisfies this statutory requirement.”

The decision is significant for foreign litigants who wish to use Section 1782 to obtain evidence from persons that “reside” or are “found” in New York for use in a foreign private arbitration.  It departs from the “shadow” of NBC and falls more heavily within the gravitational pull of the “weight of Intel” and the district court decisions citing Intel for the proposition that Section 1782 authorizes discovery for use in private arbitral proceedings.  While other SDNY decisions have also recently gone the other way,  perhaps the time is ripe for the Second Circuit to finally weigh in on the issue.

 

Lucas Bento FCIArb FRSA is the author of The Globalization of Discovery under 28 U.S.C. § 1782: Law and Practice (Kluwer Law International, forthcoming 2019).  He is a Senior Associate at Quinn Emanuel Urquhart & Sullivan and President of the Brazilian-American Lawyers Association.  The views expressed in this post are the author’s personal views, and do not reflect the opinions of Quinn Emanuel, its clients, or of the Brazilian American Lawyers Association.

References   [ + ]

1. ↑  See Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 258 (2004); citing Smit, International Litigation under the United States Code, 65 Colum. L.Rev. 1015, 1026–1027, and nn. 71, 73 (1965) function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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