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Setting Aside Arbitral Awards before Japanese Court: Consolidating Japan’s Position as an Arbitration-Friendly Jurisdiction?

4 hours 56 min ago

Koki Yanagisawa and Takiko Kadono

Under the Japanese Arbitration Act, which was established based on the UNCITRAL Model Law on International Commercial Arbitration in 2003, parties may file a petition with a court requesting the court to set aside an arbitral award under certain circumstances. In such petition, parties frequently assert, among others, that “the terms of the arbitral award violated the public policy of Japan” under Article 44-1-8 of the Arbitration Act or that “the composition of the arbitral tribunal or arbitration proceeding violated Japanese laws and regulations” under Article 44-1-6 of the Arbitration Act, as grounds for setting aside the arbitral award.

Recently, the Tokyo High Court referred to the construction of Article 44-1-8 and Article 44-1-6 in a case where Company X (an appellant) filed a petition with a court in Japan, requesting the court to set aside an arbitral award that was rendered in accordance with the rules of the Japan Commercial Arbitration Association (JCAA) (Company X v Company Y, the Tokyo High Court, 2016 (RA) 497, August 19, 2016). In this case, the arbitral tribunal rendered an arbitral award ordering X to pay Company Y (an appellee) a certain amount of money for, among others, compensation for damage arising from X’s breach of its obligations under a distributor agreement between X and Y. X filed the aforementioned petition, asserting that (1) the arbitral tribunal’s construction of the distributor agreement violated the EU competition law and therefore violated the public policy of Japan and (2) the arbitral tribunal’s construction of the burden of proof was not justified under Japanese law, the governing law of the distributor agreement, and therefore the arbitration proceeding violated Japanese law. However, the Tokyo District Court rendered a decision dismissing X’s petition and, in response to the appeal against such decision filed by X, the Tokyo High Court rendered a decision affirming the decision of the Tokyo District Court.

Parties who received an unfavorable arbitral award tend to make an attempt to set aside such award based on the theory of “a breach of public policy” before the Japanese courts. It is also common for such parties to argue that the “arbitration proceeding was in breach of Japanese laws and regulations.” Over the past 15 years since the Arbitration Act came into force, Japanese courts have had opportunities to deal with the issue regarding to what extent the aforementioned grounds should be accepted in determining whether to set aside arbitral awards. Japanese arbitration practitioners have been closely monitoring the court’s construction on this issue since it would indicate to what extent arbitral awards could be set aside by Japanese courts, which would seriously affect the issue as to whether or not Japan is considered as an “arbitration-friendly” jurisdiction in the world.

We envisage that the Tokyo High Court decision reasonably affirmed the district court decision based on a view that not all breaches of a governing law or mandatory laws by an arbitral tribunal constitute “public policy” grounds for the court to set aside an arbitral award under the Arbitration Act. More specifically, the Tokyo High Court took a position that the EU competition law should not constitute the public policy of Japan and the arbitral tribunal’s mere misconstruction of a distributor agreement in violation of mandatory laws would not necessarily constitute a breach of the public policy of Japan under Article 44-1-8 of the Arbitration Act.

Furthermore, we believe it is important for the court to reasonably limit the scope of “issues concerning arbitration proceeding” in order to avoid the situation where parties can readily make an attempt to expand the scope of such issues to make it easier to set aside arbitral awards based on the ground that the arbitration proceeding violated Japanese laws and regulations under Article 44-1-6 of the Arbitration Act. In the present case, while it was discussed by the parties whether or not the construction of the burden of proof is an issue of arbitration proceeding, the Tokyo High Court reasonably concluded that it is a matter of substantive law and therefore the arbitral tribunal’s misconstruction of the burden of proof does not mean that the arbitration proceeding violated Japanese laws.

In Japan, the number of petitions to set aside arbitral awards filed with the court is relatively small and even a single court decision on this issue would significantly affect the construction of the Arbitration Act and arbitration practice in Japan. From that perspective, the Tokyo High Court decision in the present case has made a meaningful contribution in solidifying a reasonable construction of the definition of “public policy” as well as the scope of the “issues concerning arbitration proceeding” in relation to the grounds for setting aside arbitral awards under the Arbitration Act and thereby establishing sophisticated arbitration practice in Japan. We firmly believe that a series of such decisions rendered by Japanese courts will further consolidate Japan’s position as an arbitration-friendly jurisdiction and is expected to attract global business entities to select Japan as the situs of arbitration in arbitration agreements in their international business transactions.

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What is the Future of Intra-EU BITs?

21 hours 44 min ago

Lucian Ilie

After the enlargement of the European Union in 2004, many eastern bloc countries acceded to the European Union. BITs entered into between the eastern bloc and the western bloc were transformed into the so-called “Intra-EU BITs”.

The problems of Intra-EU BITs arose when the European Commission started its campaign against Intra-EU BITs, alleging their incompatibility with EU law. Many EU Member States have taken different actions: Czech Republic, Ireland, Italy, and Romania have terminated their Intra-EU BITs unilaterally, while Poland and Denmark have expressed an intention to do the same; other Member States such as Germany, Finland, the Netherlands, Austria and France proposed a system for multilateral termination of Intra-EU BITs.

European Commission’s War against Intra-EU BITs

The European Commission began to take a soft formal stand against Intra-EU BITs as early as 2006 through a note addressed to the Economic and Financial Committee of the Council (“EFC”). In 2009, the EFC stated in its letter to the President of the Council of the European Union that the majority of Member States wished to maintain their Intra-EU BITs since they did not share the European Commission’s view on the incompatibility between these BITs and EU law.

In addition, the European Commission has petitioned investment tribunals, through amicus curiae, for challenging their jurisdiction and the application of Intra-EU BITs. The European Commission has also made submissions before ICSID annulment committees and national courts in enforcement proceedings.

For instance, in Micula v. Romania the ICSID award was only partially enforced because the European Commission issued in 2014 a suspension injunction calling Romania to suspend the remaining payment due under the award. In its decision of March 2015, the European Commission found that the payment of damages under the award was incompatible with EU State aid provisions, and prohibited Romania from making any further payment.

In June 2015, the European Commission took a further step by initiating infringement proceedings against Austria, the Netherlands, Romania, Slovakia and Sweden in order to formally request them to denounce their Intra-EU BITs. These proceedings had little success since Romania was the only country to have formally terminated, though on a unilateral basis, all of its Intra-EU BITs in March 2017.

Intra-EU BITs and EU Law: Are They Really Incompatible?

The core concern of the European Commission is the alleged incompatibility between Intra-EU BITs and EU law. The European Commission has raised many arguments in support of this position but in all occasions arbitral tribunals refused to uphold these arguments.

The first argument is the principle of lex posterior under Article 59 of the Vienna Convention on the Law of Treaties. This principle is often invoked along with Article 351 of the Treaty on the Functioning of the European Union (“TFEU”), which requires the Member States to take actions against incompatibilities between EU law and an earlier treaty. This argument was raised as a defence to bar the tribunals’ jurisdiction. For instance, the arbitral tribunal in Achmea v. Slovakia did not uphold this argument because (i) Intra-EU BITs provided wider investment protections than EU law, (ii) there was no incompatible provision for protecting an investment under Intra-EU BITs and EU law, and (iii) there was no intention on the part of the Member States to derogate from the application of Intra-EU BITs.

The second argument is the principle of supremacy of EU law, which enables EU law to prevail over treaties concluded between EU Member States. For example, the arbitral tribunal in Achmea v. Slovakia pointed out that it had to apply international law since it derived its power from the Intra-EU BIT, and not EU law. It concluded that international law had to be applied as a matter of law, while EU law may be applied as facts, in assessing whether there was a breach of the afforded substantive protection.

The third argument is the availability of equivalent investment protection under EU law. In the view of the arbitral tribunal in Achmea v. Slovakia, investment protections under Intra-EU BITs were neither covered nor applied in the same scope as under EU law. Particularly, EU law did not grant access to investment arbitration or an equivalent provision that would allow a EU investor to bring a claim against a EU Member State.

The fourth argument is the principle of non-discrimination under Article 18 of TFEU, which prohibits any discrimination on grounds of nationality. The arbitral tribunal in Binder v. Czech Republic refused to accept this argument because in the absence of Intra-EU BITs, investors could bring their claims before national courts. In this regard, arbitration was just a form of adjudication that replaced the access to national courts.

The fifth argument is the violation of State aid rules under EU law. Micula v. Romania is a very controversial ICSID case regarding State aid, in which the European Commission persistently contested the tribunal’s jurisdiction and the enforcement of the award. The arbitral tribunal in this case refused to allow the prevailing application of EU law over the BIT, since the investment was made prior to Romania’s accession to the EU, thus being subject only to the Intra-EU BIT. Furthermore, the arbitral tribunal denied that the issue of enforcement was a matter to be resolved before it.

The last argument is the exclusive jurisdiction of the CJEU on interpreting EU law and that an arbitral tribunal is not competent to seek preliminary ruling from the CJEU. Arbitral tribunals denied this argument on the ground that the CJEU had no jurisdiction over investor-State disputes, and there was no prohibition of investor-State arbitration under EU law. The arbitral tribunal in Achmea v. Slovakia added that EU domestic courts were not always required to seek preliminary ruling from the CJEU for every interpretation of EU law.

Problems of Terminating Intra-EU BITs

Termination of Intra-EU BITs may address the European Commission’s main concern for their alleged incompatibility with EU law. However, without an alternative regime to replace these Intra-EU BITs, such termination can bring other problems.

Firstly, the lack of Intra-EU BITs means that EU investors can no longer benefit from the advantages of international investment arbitration for disputes arising out of their investment in a EU Member State. The sole available option would be to have recourse to national courts. However, the lack of procedural protection via arbitration may affect EU investors’ confidence in their investment in EU countries, and may encourage forum shopping for restructuring the investment in a non-EU country that has a favourable BIT with a EU Member State.

Secondly, many Intra-EU BITs stipulate a sunset clause under which a protected investor continues to enjoy substantive and procedural protections under the BIT upon its termination for a specified period of time. In Gavazzi v. Romania, the investor was able to initiate in 2012 arbitration under the terminated Italy-Romania BIT, as the sunset period was not yet expired. Therefore, termination of Intra-EU BITs would not solve the European Commission’s concern in the short-term.

Lastly, EU law has no equivalent substantive protections to Intra-EU BITs since the latter generally provide a broader scope of protections, as pointed out by the CJEU Advocate General Wathelet in the Achmea v. Slovakia preliminary ruling.

Potential Solutions

On a short-term basis, two solutions may be envisaged to tackle the issue of incompatibility between Intra-EU BITs and EU law.

One solution is to consider the proposal made in the non-paper of April 2016 by Austria, France, Finland, Germany and the Netherlands, which requested a multilateral agreement among the EU Member States, in order to replace and supersede pre-existing Intra-EU BITs. On the substantive aspects, the new multilateral agreement would (i) terminate all Intra-EU BITs and their sunset clause, and (ii) provide for common and wide substantive protections to all EU investors. On the procedural aspects, the multilateral agreement would create a single procedure for resolving Intra-EU BIT claims by either (i) conferring jurisdiction to the CJEU over Intra-EU investment disputes, (ii) establishing a Permanent Investment Court, or (iii) providing investor-State arbitration under the auspices of the Permanent Court of Arbitration.

Another solution is to obtain guidance from the CJEU in 2018, on the relationship and the compatibility between Intra-EU BITs and EU law. Since two-investment arbitration cases are pending before the CJEU (Achmea v. Slovakia and Micula v. Romania), these decisions could have a breakthrough implication on Intra-EU BITs.

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Enforcement in Romania of Awards Set-Aside at their Seat

Sat, 2018-01-20 00:46

Adrian Iordache

The Question

The question of enforcing arbitral awards which had been subject to set-aside proceedings at their seat is long-standing in academic debate1) For instance, Nadia Darwazeh, Article V (1)(e), in Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention 301, 307-09 (H. Kronke, P. Nacimiento et al. eds., 2010); Paulsson, Jan, Enforcing Arbitration Awards under the New York Convention, Experience and Prospects, Papers presented at “The New York Convention Day”, 10 June 1998, United Nations Publication, 24 (1999) jQuery("#footnote_plugin_tooltip_7366_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and it continues to be of acute practical importance.

Yet, and despite the unusual uniformity of legislative drafting on this topic, which we owe to the geographical pervasiveness of the New York Convention, judicial responses in various jurisdictions have been spanning from one end to the other of the spectrum of possibilities.

Here, we briefly test-run some recent judicial practice against the particulars of the Romanian legal system, in the hope of assisting practitioners in tackling the issue in an intelligible manner if and when the matter reaches the courts.

The Romanian Civil Procedure

The New York Convention 1958 applies in Romania since 1961 (see Decree of the Council of State no 186 of 24 July 1961). However, there has not been, to our knowledge, any reported court decision directly on the issue.

The wording of the Romanian Civil Procedural Code 2010, which gives effect to the New York Convention prescription, reads (in our translation):

Art. 1129: Grounds for refusal of recognition or enforcement
Recognition and enforcement of the award is refused by the court, if the party against whom the award is invoked proves any of the following circumstances:
[…]
(f) 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.

The first observation to be made is that the language, in Romanian, is more restrictive than the English authentic version of the Convention, which is express to the effect of preserving the court’s discretion to enforce (i.e. recognition and enforcement “may be” refused).

Arguably, it is also stricter, in its normative part, than the French authentic version of the Convention which stipulates that the recognition and enforcement “will not be refused … unless” (“ne seront refuses … que si”)2) The Romanian translation of the Art V as provided in the Decree by which Romanian adhered to the New York Convention in 1961 appears to be a close translation of the French authentic version of the Convention and reads (in our translation of the relevant part) “The recognition and enforcement of the award will not be refused, upon request by the party against whom it is invoked, unless that party proves …”. jQuery("#footnote_plugin_tooltip_7366_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, thus under-determining what must happen if the condition is indeed met, and which suggests, in the French version, a necessary but not the sufficient condition for the norm. The New York Convention language can be said to be consistent with (i.e. not excluding) a residual discretion of the court to enforce in certain special circumstances (discussed below.)

By contrast, the syntax of the Romanian Civil Procedure Code provision is: if the condition is met, the enforcement “is refused by the court” – i.e. affirming the premise, confirms the conclusion.

Nevertheless, assuming that the language is indeed logically tighter in the Romanian formulation, it remains the case that, where the national provisions fall foul of the general purpose of the Convention to promote enforcement of arbitral awards, the language of the Convention may be held to prevail over the national provision.3) The Romanian Constitution Art 11 consecrates properly ratified international treaties as “internal law”. See also the Vienna Convention on the Law of Treaties 1969 art. 27, replicated in internal law by the Art. 31 (5) of the Law of Treaties no 590/2003, which prevents courts from invoking national law to refuse the application of international treaties, a principle confirmed also by case law, cf. e.g. Romanian Supreme Court Decision no 3283 of 17 Sep 2014. jQuery("#footnote_plugin_tooltip_7366_3").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Before addressing this point further, we turn to the recent arguments by the Netherlands Supreme Court in the Maximov enforcement case.

Maximov

The facts of the dispute between Nikolay Maximov and the Novolipetsky Metallurgichesky Kombinat have been widely reported. Briefly, the dispute concerns an arbitral award obtained by Mr Maximov at the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation, but which was set aside by the Moscow Commercial Court on 21 June 2011, a quashing decision which was upheld on appeal by the Federal Commercial Court of Moscow District on 10 October 2011, and permission to appeal was refused on paper by the Supreme Commercial Court of the Russian Federation on 30 January 2012. Mr Maximov has attempted enforcement of the arbitral award in France, where he was successful4) Cour de Cassation, chambre civile 1, 25 mai 2016, 14-20.532 ; Cour D’appel De Paris Pôle 1 – Chambre 1 Decision of 01 April 2014, 12/15479 ; Order of exequatur by the Tribunal de Grande Instance Paris dated 16 May 2012. jQuery("#footnote_plugin_tooltip_7366_4").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, and in the Netherlands and the UK5) Maximov v Open Joint Stock Company “Novolipetsky Metallurgichesky Kombinat” [2017] EWHC 1911 (Comm).
jQuery("#footnote_plugin_tooltip_7366_5").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, where, in each case he has not.

The Netherlands Supreme Court has issued a decision on enforcement proceedings on 24 Nov 20176) Hoge Raad Decision of 24.11.2017, case number 16/05686. ECLI:NL:HR:2017:2992. jQuery("#footnote_plugin_tooltip_7366_6").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); which further elaborates on the way Art. V (1) e) is approached by the court.

The decision is interesting for our purposes for at least two reasons: one, it contains an interpretative discussion of the normative language of the New York Convention based on the Vienna Convention on the Law of Treaties 1969 and the New York Convention’s travaux préparatoires. Second, it reaffirms the margin of appreciation of the Dutch courts in determining whether to exercise their discretion to refuse enforcement under the New York Convention, and proposes certain landmarks for the exercise of that discretion.

On the first point, the Netherlands Supreme Court proposes that the only interpretation consistent with both authentic languages of the New York Convention art. V (1) e) given the Convention’s general purpose and design, is that the courts retains a margin of appreciation in determining whether to refuse enforcement where the facts at art. V (1) e) are invoked, in special circumstances (see para 3.4.5 of the Netherlands Supreme Court Decision).

On the second point, the Netherlands Supreme Court asserts that such special circumstances where such enforcement discretion could be exercised, include situations where the foreign annulment judgment is incapable of recognition in the Netherlands on the ground that one or more of the conditions that apply under Dutch private international law are not respected for the recognition of a foreign decision (para 3.4.6 of the Netherlands Supreme Court Decision). It is notable that this is so, despite the fact that it may not be procedurally necessary for the party resisting enforcement to introduce a separate action for the recognition of the foreign annulment decision.7) Amsterdam Court of Appeal Decision of 18 Sep 2012, interim judgment. case number 200.100.508/01. jQuery("#footnote_plugin_tooltip_7366_7").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });
The approach is on its face similar to the one used in the case of Yukos Capital8) Amsterdam Court of Appeal Decision of 28 April 2009, case number 200.005.269/01 jQuery("#footnote_plugin_tooltip_7366_8").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); by the same Dutch courts, which, on different facts, led to the opposite conclusion, i.e. enforcement was permitted.

On the one hand, it may be argued that the strengthening of the discretion of enforcement courts in connection to Art. V (1) e) renders the application of that provision unpredictable, thereby defeating the purpose of the Convention drafters.9) Paulsson, Marike R. P., “Enforcement of Annulled Awards: A Restatement for the New York Convention?” Kluwer Arbitration Blog, December 21, 2017 jQuery("#footnote_plugin_tooltip_7366_9").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

However, since the circumstances giving rise to the application of the art V (1) e) exception are inextricably linked to a foreign court judgment, it is difficult to see how national courts can ignore the question of whether that judgment, properly considered, would otherwise be apt to be recognised by the enforcement forum. Conversely, it could be argued that, giving uncritical credence to the annulment decision, would amount to affording the foreign court judgment a level of deference superior to the one conferred upon the foreign arbitral decision. In the context of the purpose of the New York Convention, this is difficult to defend, especially as the annulment proceedings are de plano excluded from the scope of the New York Convention.10) Art. I of the New York Convention as universally interpreted by the courts. See also Albert Jan van den Berg, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation 20 (1981), p 20 and ff. jQuery("#footnote_plugin_tooltip_7366_10").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Foreign judgments

In any event, it is not necessary to dispense with this criticism for the limited purposes of this exercise. We find value in examining what could be the result of such approach in the case of the Romanian Civil Procedure Code, as no other guidance is provided to the courts by the New York Convention itself for the application any residual discretion in the application of Art. V (1) e). In this context, the framework affirmed by the Netherlands Supreme Court would have the merit of providing clear criteria, endogenous to the Romanian law, for examining the matter, albeit without predetermining any future decision on different future facts.

The relevant rules are contained in arts. 1096-1098 of the Romanian Civil Procedure Code and provide for basic conditions to recognition as well as a list of grounds for which a court “may” refuse enforcement. For a foreign court decision to be recognised it must be:

(a) final [definitive] under its own law;
[…]
(c) passed in a jurisdiction in respect of which there is “reciprocity” of recognition of the effects of court judgments.

Among the express grounds for which a court “may” further refuse enforcement, we note in particular the circumstance that the judgment is “manifestly contrary” to public order as reflected in the Romanian private international law; and that this incompatibility is weighed taking account particularly of the intensity of the connection with the Romanian legal order and the gravity of the effect thereby caused. There would also be ground for refusal of enforcement, inter alia, where the judgment in question is subject to challenge in the jurisdiction where it was issued.

We observe here the difference in language: while enforcement of a foreign arbitral award “will be refused … if”, enforcement of a foreign court decision “may be refused.” We note also that the “public order” standard is not only elevated by the requirement of “manifest” incompatibility, but weighed further against the extent of the connection to the forum. Both elements of the standard further emphasise the very limited scope for a refusal of enforcement.

On the other hand, for a recognition and enforcement procedure, the foreign court decision must be “definitive” which would not be the case after a judgment of first instance regularly subject to appeal. On the facts of Maximov, the annulment of the arbitral award would therefore have been apt to be given weight only upon dismissal of its final appeal.11)This is without prejudice to the New York Convention’s own mechanism in Art. VI permitting (but not mandating) an adjournment of enforcement proceedings pending conclusion of set-aside proceedings at the seat. jQuery("#footnote_plugin_tooltip_7366_11").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

More generally, by referring the question of the application of art. V (1) e) to the national rules on enforcement of foreign court judgments, we move beyond a scrutiny of the formal legal grounds invoked by the annulment courts in their quashing decision. Instead, the challenge becomes one of proper grounding and evidencing a refusal of enforcement of the annulment decision, in particular by reference to “manifest incompatibility” with national public order. This task imposes an appropriately “heavy burden”12) We use the words of Sir Michael Burton (Sitting as a Judge of The High Court) in Maximov v Open Joint Stock Company “Novolipetsky Metallurgichesky Kombinat” [2017] EWHC 1911 (Comm), who rendered judgment refusing enforcement in the same dispute in the UK. jQuery("#footnote_plugin_tooltip_7366_12").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); on the party attempting the enforce despite the prima facie application of art. V (1) e).

Conclusions

The Romanian courts are bound by legislative language which purports to limit their discretion to enforce foreign arbitral awards set aside at their seat. Nevertheless, the New York Convention language may be given precedence if more lenient to enforcement and therefore we cannot exclude a certain margin of appreciation subsisting in Romanian courts confronted with the argument.

Furthermore, taking our cue from the Netherlands Supreme Court decision in Maximov, we suggest that introducing criteria from private international law rules on recognition of foreign judgment into the exercise of art. V (1) e) assessment, would lead to a standard not unlike the one used by the Dutch, UK or US courts.13) See for instance Corporacion Mexicana de Matenimiento Integral, S De RL De CV v Pemex-Exploracion y Produccion, No 13-4022 (2d Cir Aug 2, 2016) by reference to language similar to the Art. V (1) found in the Inter-American Convention on International Commercial Arbitration, also known as the Panama Convention. jQuery("#footnote_plugin_tooltip_7366_13").tooltip({ tip: "#footnote_plugin_tooltip_text_7366_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In particular, the threshold for a finding that the foreign annulment decision is to be disregarded for “public order” considerations would be a very high one, and met only in exceptional circumstances.

Finally, we agree that the application of art. V (1) e) has yielded divergent results in various jurisdictions (and even within the same jurisdiction) potentially detracting from a purpose of uniformity which may be said to be implicit in the New York Convention design. However, by way of limited defence, we would argue that this may be the result not of any insurmountable defect in the wording of Art. V (1), but of the diversity of factual circumstances and evidentiary difficulties in defeating a foreign judgment on “public order” grounds. Last but not least, the uncertainty might also be a result of shifts in court attitudes and perceptions surrounding particular foreign justice systems.

This piece is based on a presentation made before the international seminar Current Issues in International Commercial and Investment Arbitration, held in Bucharest on 14 December 2017. We thank Mr Johan Bouman of Wolters Kluwer Romania for his support in understanding original Dutch texts which would be otherwise inaccessible to the writer.

References   [ + ]

1. ↑ For instance, Nadia Darwazeh, Article V (1)(e), in Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention 301, 307-09 (H. Kronke, P. Nacimiento et al. eds., 2010); Paulsson, Jan, Enforcing Arbitration Awards under the New York Convention, Experience and Prospects, Papers presented at “The New York Convention Day”, 10 June 1998, United Nations Publication, 24 (1999) 2. ↑ The Romanian translation of the Art V as provided in the Decree by which Romanian adhered to the New York Convention in 1961 appears to be a close translation of the French authentic version of the Convention and reads (in our translation of the relevant part) “The recognition and enforcement of the award will not be refused, upon request by the party against whom it is invoked, unless that party proves …”. 3. ↑ The Romanian Constitution Art 11 consecrates properly ratified international treaties as “internal law”. See also the Vienna Convention on the Law of Treaties 1969 art. 27, replicated in internal law by the Art. 31 (5) of the Law of Treaties no 590/2003, which prevents courts from invoking national law to refuse the application of international treaties, a principle confirmed also by case law, cf. e.g. Romanian Supreme Court Decision no 3283 of 17 Sep 2014. 4. ↑ Cour de Cassation, chambre civile 1, 25 mai 2016, 14-20.532 ; Cour D’appel De Paris Pôle 1 – Chambre 1 Decision of 01 April 2014, 12/15479 ; Order of exequatur by the Tribunal de Grande Instance Paris dated 16 May 2012. 5. ↑ Maximov v Open Joint Stock Company “Novolipetsky Metallurgichesky Kombinat” [2017] EWHC 1911 (Comm).
6. ↑ Hoge Raad Decision of 24.11.2017, case number 16/05686. ECLI:NL:HR:2017:2992. 7. ↑ Amsterdam Court of Appeal Decision of 18 Sep 2012, interim judgment. case number 200.100.508/01. 8. ↑ Amsterdam Court of Appeal Decision of 28 April 2009, case number 200.005.269/01 9. ↑ Paulsson, Marike R. P., “Enforcement of Annulled Awards: A Restatement for the New York Convention?” Kluwer Arbitration Blog, December 21, 2017 10. ↑ Art. I of the New York Convention as universally interpreted by the courts. See also Albert Jan van den Berg, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation 20 (1981), p 20 and ff. 11. ↑ This is without prejudice to the New York Convention’s own mechanism in Art. VI permitting (but not mandating) an adjournment of enforcement proceedings pending conclusion of set-aside proceedings at the seat. 12. ↑ We use the words of Sir Michael Burton (Sitting as a Judge of The High Court) in Maximov v Open Joint Stock Company “Novolipetsky Metallurgichesky Kombinat” [2017] EWHC 1911 (Comm), who rendered judgment refusing enforcement in the same dispute in the UK. 13. ↑ See for instance Corporacion Mexicana de Matenimiento Integral, S De RL De CV v Pemex-Exploracion y Produccion, No 13-4022 (2d Cir Aug 2, 2016) by reference to language similar to the Art. V (1) found in the Inter-American Convention on International Commercial Arbitration, also known as the Panama Convention. 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: International Arbitration and the Rule of Law
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International Arbitration on Oil Stock Purchase Agreements, Prepaid Oil Agreements and Gas Projects within Latin America

Thu, 2018-01-18 21:00

Alejandro E. Leáñez Rieber

The need to attract foreign oil & gas investment due to the current low price in Latin American countries is creating an environment were once non-friendly arbitration jurisdictions are increasingly accepting international arbitration clauses for complex landmark deals. This trend is being used within Stock Purchase Agreements of Mixed Oil Companies, Prepaid Oil Agreements when the financing comes from Chinese banks and on Agreements for the Development of Offshore Gas Projects.

First, in some countries private participation in upstream hydrocarbon activities as well as “primary activities”, is only possible through joint ventures in which the State has more than 50% equity ownership (the “Mixed Company”), and therefore decision-making control. The rest of the shares can be acquired by private international oil companies. However, issues might arise with the closing of the transaction, if for example one of the parties does not complete the sale and purchase of the shares according to the Stock Purchase Agreement (the “SPA”); if the buyer does not pay the purchase price in accordance with the established installments to complete the full purchase price of the SPA, or if any of the post actions after signing the SPA are not completed, which can include the consent of the Ministry of Oil to the sale.

Disputes under the SPA are generally solved pursuant to the UNCITRAL Arbitration Rules. The Secretary General of the Permanent Court of Arbitration in The Hague has the appointing authority. In some cases, there are fork in the road clauses, if the buyer of the stocks begins court proceedings in the country were the stock purchase was made he is prevented to pursue an international arbitration claim.

If there is a common question of law or fact in connection with the SPA or any other acquisition document, the same arbitrators shall be appointed in relation to such disputes. Moreover, the Parties may add to the SPA the consolidation of disputes, were a related dispute and an existing dispute are consolidated through a “Consolidation Order” before the arbitral tribunal.

Second, state owned oil companies are increasingly using prepaid oil agreements in order to guarantee financing for oil projects. In this type of agreement, the trader prepays, the oil producer with a lump sum, and the oil producer then repays that sum with hydrocarbons. The prepaid amount bears interest at base rate plus a margin.

With respect to each delivery of oil, generally the national oil company shall irrevocably inform the purchaser in writing the payment currency, expected loading quantity, expected loading date and expected payment date. In the event that the oil company increases the barrels of oil delivered, the purchaser undertakes to purchase such additional barrels and to make payments in respect of the additional barrels delivered.

A dispute could arise if the state-owned oil company fails to meet the daily oil exports to the trader or if the national oil company assigns, transfers, novates and/or dispose of to any person any interest in or any rights and/or obligations under the prepaid oil agreement. Usually, the dispute resolution clause is subject to the UNCITRAL Arbitration Rules in effect at the time of termination of the agreement. The administrative center is the Singapore International Arbitration Centre (“SIAC”) in accordance with its practice rules and regulations.

Finally, on major natural gas projects, for the exploitation and development of off-shore gas reservoirs, block licenses are granted by the Ministry of Oil & Gas. In order to ensure the economically viable development of such hydrocarbons, joint ventures are created in which private oil companies own the majority of the shares.

In this type of projects there is an evaluation of gas reservoirs, the terms of the license are negotiated with the Ministry of Oil & Gas, in many of these licenses there is a mandatory bono award which is negotiated between the Ministry and the private oil company, the term of the license is established, the program development of the blocks is set, the royalties required by the Ministry and the exoneration of windfall profit taxes. Usually, international private companies have the exclusive right to commercialize at its sole discretion their production quota in the international markets.

Controversies might arise if the Ministry requires the private oil company to commercialize its production quota in the national market, if the royalties required by the Ministry are not compliant with the agreements and if the tax authorities start charging windfall profit taxes in the case of a sudden rise of gas prices. On the other side, the Ministry could also prompt a dispute if it determines that the private oil company did not follow the program development of the blocks. Usually, the dispute resolution clauses for these projects are under the International Chamber of Commerce (“ICC”) Rules of Arbitration, in which the parties also agree to waive their right to resort to other fora for dispute resolution.

Consequently, private oil companies investing in Latin America require international arbitration clauses to safeguard their investment on major projects and state-owned oil companies together with the Ministries of Oil are increasingly giving their consent to attract foreign investment.

*The views contained in this article only express a personal scenario on possible international arbitration trends.

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Finality of Arbitral Awards in Nigeria- Separating Harm from Hubris (Part 1)

Thu, 2018-01-18 02:43

Adebayo Adenipekun

A feature of arbitration that makes it appealing to the user is the finality of arbitral awards. Parties are encouraged, upon the advice of counsel to submit to the arbitral process because the end result is final and not subject to appeal. However, the reality as users come to find, is that an award is not always the last piece of the dispute jigsaw. Sometimes, the award is itself a source of dispute which results in applications to annul the award, to wholly or partly set the award aside, to remit portions of it for reconsideration, etc. There is a reasonable fear (and risk) that if parties are increasingly and repeatedly confronted with this harsh reality, arbitration will lose its appeal and users will more readily apply the same suspicions they have of litigation to arbitration. There is even a growing clamour for a return to traditional litigation anchored by specialised commercial courts so that parties skip the illusion of arbitration and litigate straightaway.

However, we must be aware that there are a number of disputes in which a rendered arbitral award is fully accepted by the parties which voluntarily abide by it. A number of awards are challenged in part with the unchallenged portions still available for benefit of the award creditor. Furthermore, Nigerian courts have (if at all lately) usually leaned toward arbitrators when an award is challenged on the basis of arbitrator misconduct. The implication of this is the undeniable position that firstly, not all awards get challenged; secondly, not all impugned awards are wholly challenged; thirdly and quite obviously, not all challenged awards result in nullification.

As a result, the persistent and loud criticisms about the finality of awards in Nigeria are sometimes more anecdotal than factual (or legal). No doubt, the Nigerian legal framework needs legislative and judicial intervention to clearly delineate the sphere of the courts’ interference with awards and to give firm legal flooring to the principle of finality of awards in a manner that is both assuring to the arbitration stakeholder and reflective of best, current arbitration trends. However, to exclude oversight altogether (which I concede is not the goal of many critics) will do more harm than good to the practice of arbitration. The need for some oversight is perhaps best underscored by the fact that even in the current arbitration bill pending before the Nigerian federal legislature (which the pro-finality critic hails as a major step forward), an award review committee is to be constituted to entertain award review applications.

Arbitral institutions nullify awards: It is often an immediate and automatic reaction to ascribe reviews of awards to courts. It is usually within the context of subjecting an arbitrable and arbitrated dispute to the same litigation which parties sought to avoid by signing arbitration clauses. However, that criticism is scarcely fair and if fair, it is incomplete. This is because arbitral institutions operated by some of the best, brightest and oldest hands in the practice of arbitration, permit, entertain and resolve challenge applications and sometimes nullify awards.

While all the above may be easily understandable even amongst arbitrators, the OHADA case of Getma v. Guinea is quite interesting, if not disappointing. In Getma, the award of the arbitrators was set aside by the Common Court for Justice and Arbitration (CCJA) on the basis solely that against the rules of OHADA, the arbitrators had negotiated an upward review of their fees! It is thus on record today that an arbitral award has been set aside not because the arbitrators misconducted themselves (within the context of the traditional UNCITRAL interpretations), but because the parties agreed to pay the arbitrators what they thought was fair to the arbitrators. Interestingly, the award that was set aside did not itself include a demand for the reviewed fees (as the CCJA Secretary-General had warned) and the United States’ Court of Appeals for the District of Columbia Circuit did find that the “decision to set aside Getma’s entire award might seem to be a harsh penalty” (although despite that finding, the Court stood by the annulment for reasons I find agreeable and reasonable).

The takeaway, therefore, is that not only arbitral institutions entertain post-award applications that may undermine the finality of an award, they sometimes uphold those applications even for the most controversial reasons. Annulment is not peculiar to the CCJA too – ICSID wholly annulled the Fraport v. Philippines’ award and partly annulled Venezuela v. Tidewater, to name a few.

Model law and laws of perceived arbitration hubs allow for challenge of award – often, the post-award interventions of Nigerian courts are vilified and denounced straight off the bat by arbitrators and arbitration practitioners as an overreach. While that may indeed be so in individual cases, a crucial point that gets lost in the mix is that the option to review/nullify an award is not in itself a vice to arbitration. Otherwise, the renowned hubs of arbitration around the world would not be so. London, home to the LCIA and the Chartered Institute of Arbitration is a favourite arbitration venue. Still, the English Arbitration Act 1996 provides that awards may be challenged in court. The Act further provides that in determining such a challenge under certain sections, the court may confirm the award, set aside in whole or in part or vary the award (the last being a license unavailable in Nigerian law). The Act also allows appeals from arbitral references on points of law by agreement or with leave.

Dubai is another oft-praised venue for arbitral proceedings. Article 216 of the UAE Civil Procedure Code permits parties to apply to court for the nullification of an award upon the occurrence of a limited number of events. And while Article 217 prohibits an appeal from an award, it provides that judgements “approving the arbitrators’ award may be contested in any of the appropriate manners of appeal” – as is the position in Nigeria. Section 48 of the Singapore Arbitration Act also allows the court to set an award aside for 9 different reasons ranging from party incapacity to inarbitrability, while Section 24 of the Singapore International Arbitration Act allows the court to set an award aside for all the reasons provided in Article 34 of the UNCITRAL Model Law, for fraud and breach of any of the rules of natural justice.

Experience tells us the arbitrator is not always right: The Judge (or arbitrator) is not always right. An arbitrator, being human, can err, can be conflicted, can be mischievous and may even with the best of intentions, be wrong. The experience is the same all over the world and in Nigeria, court interventions in the past, though slow and painful, have sometimes been justified. In the Nigerian case of T.E.S.T v. Chevron [2017] 11 NWLR (Pt. 1576) 187, the arbitrator of his own accord raised an issue and on that note, refused a part of the Claimant’s claim which the Respondent had not denied – without hearing the parties on the point. The Claimant successfully applied to have that portion of the award set aside – all the way to the Supreme Court. In Statoil v. FIRS & anor (2014) LPELR-23144(CA), the Court of Appeal concluded that the claims in the reference touched on Federal taxes and were not to be arbitrated and accordingly permitted a third party (the federal tax agency) to take out Summons in Court against the reference.
While most arbitral awards are not disturbed by courts and a good number are not challenged anyway, those that have been set aside or references that have been interfered with by courts demonstrate the point that sometimes, even if not often, the arbitrator may get it wrong and the duty to correct the error may fall to the courts. And these rare instances may be all too important – the Court of Appeal in Statoil observed that the allegation of unremitted sums ran up to a figure well over ₦20 billion!

In sum, post-award interventions are not at all strange to arbitration neither are they an innovation of the Nigerian courts. And insofar as the fear is that arbitration is being converted to litigation by set-aside proceedings or that challenge applications diminish the status of arbitration in Nigeria or even worse, the status of Nigeria as an arbitration destination, the criticism is more frenzied than fact-based.

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Arbitration Institutions: Five Things Your Website Must Do To Attract Cases

Wed, 2018-01-17 01:22

Teresa Garcia-Reyes and Michael McIlwrath

TO: Secretary General, Arbitration Institution

FROM: In-house counsel involved in a major contract negotiation

Madam/Sir,

We are both in-house litigation counsel for a large international company, and your institution was recently proposed for the disputes clause in an important contract. Since neither of us had any previous experience with your institution, we searched your website for information to help us determine whether to accept.

We had no trouble finding your arbitration rules. Unfortunately, we found almost nothing else to give us comfort on the quality and impartiality of their implementation. Therefore, we felt obliged to reject the proposal and recommend a different institution’s rules in this particular contract negotiation.

This is not the first time this has happened. At least once a month, and at times more often, we reject a proposed institution due to the lack of basic information about how they operate.

Therefore, as we move into the new year, we decided to share our suggestions on how your website could be updated to make your institution easier to accept than to reject. Below are some of the most basic things we typically look for when we visit an institution’s website, and we found than none of them were present on yours.

Names and relevant information about the leaders of your institution and/or its arbitration court. This is the minimum level of transparency we expect to see. Information about who runs an institution will tell us much about its competency, international capability, and impartiality. You will have to forgive us for being suspicious when an opposing party proposes an unfamiliar institution that is not transparent about its leadership.

List of arbitrators. Obviously, all parties crave some assurance that the institution will appoint impartial, competent arbitrators in the absence of party agreement. If you have a list, publishing it is the first step towards making a party like us feel more comfortable. From just a quick glance at the names, we can assess how international your list is (are the arbitrators predominantly local lawyers or from different countries?) and whether it is a modern, diverse list or a crusty fraternity. As you can imagine, we’re reluctant to send significant disputes to an “old boys club” of which we are not members. And the more information that you provide beyond just names (such as the arbitrators’ expertise or information about how they manage proceedings), the more we are likely to feel comfortable accepting arbitration under your rules.

Quality assurance. There are three areas of the arbitration process where quality can be an issue: the appointment of arbitrators, the conduct of the proceedings, and the drafting of the arbitral award. With respect to the first, very few institutions publish information about how they identify candidates for arbitrator (for example, how they select from their own lists) or vet their competency. For some institutions, we suspect that paying a fee or being a friend of the senior leadership are the only requirements for arbitrators to be added to their list; and failing to pay a fee or dying are the only ways to be removed. Therefore, if there are criteria you consider in order to add or remove names from your list of arbitrators, it is a pity not to mention this on your website. As to quality during the course of the arbitration, we found no provision in your rules nor any contact information on your website for raising concerns if a party things a case is not being managed properly. We suggest you consider making this addition, so that you can intervene to avoid bad experiences before they happen. With respect to awards, if you have a process for reviewing drafts for errors before they are published to the parties (scrutiny), your website should describe it and the people who are responsible for it.

Data on case load. If this information is not in English, or if it is buried in a massive brochure in downloadable pdf format, we may never find our read it in the short time we have to assess an institution. We should be able to determine, with only one or two clicks, how many cases your institution has administered in recent years, the general nature of the disputes (commercial, real estate, sports, etc.), whether any were international, and average duration of proceedings.

Major initiatives. We have found that people who work with dispute resolution institutions tend to be committed to the quality of justice in the communities they serve. As dispute professionals ourselves, we probably share many interests. For example, are you considering expedited arbitration rules, guidelines for efficient conduct of disputes, ODR rules, or combining mediation and arbitration? Have you made a commitment to diversity, and what are you doing as an institution to promote that commitment? Are you helping to educate the judiciary about arbitration? If your institution is doing good things, we would appreciate being able to read about them on your website.

There is nothing here that should be surprising or difficult, at least for institutions with good governance procedures and knowledgeable staff.

And yet many institutions, like yours, do not make any of this information available or easily accessible on their websites. As a result, we reject proposals to include them in our contracts, just as we recommended rejecting your institution in our company’s current contract negotiation.

We recognize our letter may appear harsh. But please understand that we have had lamentable experiences with several other institutions over the years that did not promote quality, or lacked an appreciation of impartiality, or that simply were not equipped to administer an international case.

In fact, (former) secretaries general of other institutions have on two occasions boasted to us that their appointment procedures consisted entirely of appointing their friends, or calling their friends to ask for recommendations. In both cases, they believed this was a form of quality assurance. But ask yourself, if you had no other experiences with one of those institutions and were not a personal friend of its secretary general, would you accept to resolve disputes under its rules?

In dispute resolution, unfamiliarity gives rise to the perception of high risk. Yet there’s an easy way to combat this. Assuming that you are running your institution to provide high quality dispute resolution, then being open about about how you are doing that – specifically, your governance and operations — will instantly make you more familiar and, as a result, more attractive to parties.

In fact, you would even stand out in comparison with competing institutions that have yet to realize that transparency can help build their caseloads.

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NAFTA Renegotiations Present an Opportunity to Strengthen ISDS’ Public Policy Perspective

Mon, 2018-01-15 17:15

Abdul Mouneimne

Young ICCA

Chapter 11: Where Investors Go to Complain

NAFTA renegotiations began last year and, with attention once again on this 23-year old trade deal, critics are taking the opportunity to voice their concerns. U.S. President Trump has himself propounded, and indeed campaigned on, an abundance of criticism directed at NAFTA. While no part of NAFTA has been safe from the critics, none has been criticized as much as the Investor State Dispute Settlement (“ISDS”) mechanism under Chapter 11.

Chapter 11 establishes a framework which provides investors from NAFTA countries with “a predictable, rules-based investment climate, as well as dispute settlement procedures which are designed to provide timely recourse to an impartial tribunal.” Section B of Chapter 11 establishes the ISDS mechanism which is intended to ensure that investors and NAFTA Parties receive equal treatment in accordance with the principle of international reciprocity and due process before an impartial tribunal.

Chapter 11 is More than a Tool for Investors

Critics of Chapter 11’s ISDS mechanism argue that ISDS allows wealthy investors to undermine the capacity of NAFTA Parties to regulate or legislate in the public interest. This criticism is most commonly directed at the alleged impact of ISDS on each Party’s ability to implement trade-restrictive measures in order to safeguard the environment. Some argue that Chapter 11’s ISDS mechanism encourages NAFTA Parties to shy away from bold regulatory environmental and public policy protections so as to avoid costly arbitrations. While NAFTA’s investment protections and ISDS provisions are certainly not perfect, these arguments are misguided and generally inaccurate. A closer look at the ISDS framework under Chapter 11 reveals a far more nuanced and neutral adjudicative process than what is alleged, which, with the right revisions, could even serve as a tool to advance environmental protection.

Public Policy Can and Has Influenced Chapter 11 Arbitral Tribunals

At the outset, it should be noted that under international law a Chapter 11 tribunal is obliged to interpret NAFTA with regard to the entire treaty as well as the wider legal context within which NAFTA was enacted. In interpreting NAFTA, Chapter 11 tribunals have noted that NAFTA expresses a clear message of environmental protection and enhancement, such as under Article 1114(1), which ensures investment activity will be undertaken “in a manner sensitive to environmental concerns.” Moreover, Chapter 11 tribunals have stated that the simultaneous creation of NAFTA and the North American Agreement on Environmental Cooperation (“NAAEC”) suggests that the Parties viewed environmental protection to be compatible with open trade. While not explicitly referring to public policy considerations as was done in some free trade agreements (see, for example, the EU-Vietnam free trade agreement) NAFTA does recognize the right of States to regulate their internal public policy concerns.

Chapter 11 tribunals have also drawn from a variety of international sources to suggest that NAFTA could be interpreted to protect the environment. For instance, the tribunal in S.D. Myers, Inc. v. Government of Canada relied on Article XX of the General Agreement on Tariffs and Trade (“GATT”) to indicate that restrictive trade measures may be permissible if they are “necessary to protect human, animal or plant life or health”. This is not to suggest that all restrictive trade measures are permissible so long as they are intended to protect the environment: Tribunals have often been wary of restrictions on international trade disguised as environmental or social protections. The tribunal in S.D. Myers held that a trade-restrictive measure intended to protect the environment was not permissible if the same outcome could be “achieved by reasonably available means that are less injurious to trade.” The tribunal rejected Canada’s claim that it had enacted a regulation restricting the export of Polychlorinated biphenyl (“PCB”), an environmentally hazardous chemical compound, to protect the environment and accused Canada of wrapping up raw economic protectionism in the guise of an environmental measure without scientific merit. In reaching this conclusion, it relied on evidence which demonstrated that Canada’s export ban had actually negatively affected its environment by impeding access to affordable waste facilities and interfering with the availability of clean dumping options.

Indeed, environmental protection can serve as an affirmative defense for States facing treaty claims. For example, in Chemtura Corporation v. Government of Canada the claimant alleged that Canada’s Pest Management Regulatory Agency (“PMRA”) had enacted a trade restrictive measure which was disguised as an environmental protection to limit certain pesticides. In its analysis of Chemtura’s 1103 Fair and Equitable Treatment claims and its 1110 Expropriation claims, the tribunal noted that the PMRA had acted “within its mandate, in a non-discriminatory manner, motivated by the increasing awareness of the dangers presented by [the prohibited pesticide].” According to the tribunal, a measure adopted under such circumstances is a valid exercise of the State’s police powers. While it did not make any reference to the reasoning given in S.D. Myers, the Chemtura tribunal applied a similar analysis by considering whether the regulation was necessary to protect the environment and concluded that the outcome had been achieved through appropriate means.

Adjustments Can Be Made so that Public Policy Considerations Provide Clearer Guidance for Chapter 11 Tribunals

ISDS under Chapter 11 of NAFTA can reach beyond the protection of investors. As the cases referenced above suggest, ISDS principles of treaty interpretation can also be employed to protect the interests of the citizens of Canada, Mexico and the U.S. Thus, instead of aiming at dismantling of the ISDS procedure, NAFTA renegotiations should focus on affirming the importance of protecting the Parties regulatory powers. Therefore, the revisions should provide for tribunals to put greater emphasis on NAFTA’s existing environmental protection principles. Furthermore, NAFTA Parties should use the renegotiation talks as an opportunity to draft into the treaty more explicit language as to each Party’s commitment to environmental protection.

While NAFTA’s ISDS mechanism leaves room for improvement, its critics have failed to take into account that Chapter 11 has been interpreted by tribunals to protect the environment, which suggests that it is capable to serve both as a means to further open trade and environmental protection.

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Recognition and Enforcement of Foreign Arbitral Awards in Ukraine: The Impact of the New Procedural Codes

Mon, 2018-01-15 02:41

Ioana Knoll-Tudor and Oleksiy Soloviov

On October 3, 2017, the Ukrainian Parliament adopted the Law on Amendments to Codes of Commercial, Civil and Administrative Procedures of Ukraine, an 800-pages document aimed at solving the blatant problems of Ukrainian justice by replacing the three existing procedural codes. The Law has been promulgated on November 28, 2017 and the new Procedural Codes entered into force, save for a number of aspects, on December 15, 2017 – simultaneously with the enactment of the new Supreme Court of Ukraine.

The new Procedural Codes aim, among others, at improving the procedure of recognition and enforcement of international arbitral awards. Ukraine is a signatory of the 1958 New York Convention, therefore the grounds for refusing the recognition of an award are clearly stated and in practice, such refusals are relatively rare (less than 20% according to recent data). The difficulty, however, is linked to the applicable procedure: on the one hand, the lack of experience and exposure to arbitration procedures of local judges and on the other hand, the misuse by Ukrainian obligors of the appellate procedure, which leads to two and even three different appeals against recognition decisions, on the same and erroneous grounds.

These two factors led to a relatively lengthy recognition procedure, as it usually involved the review by higher courts of the judgements rendered by lower courts (statistically there are seven court hearings, at different instances). Therefore, the recognition was often delayed for 1 or even 2 years, making the quality of enforcement rather illusory.

The provisions of the new Procedural Codes with respect to the recognition of foreign arbitral awards address some of the above mentioned issues.

Exclusive competence of the Kyiv Appellate Court – The Kyiv Appellate Court has exclusive competence for all the matters related to recognition and enforcement of arbitral awards as well as setting aside procedures on the territory of Ukraine. The Supreme Court will serve as an appellate court.

The reform is expected to enhance the specialisation of the Kyiv Appellate Court judges with arbitration related issues. This change echoes the situation that existed before the previous major judicial reform of 2004. The 2004 reform cancelled the late Soviet rule (in existence since 1988) which reserved the recognition of foreign arbitration awards to the higher regional courts of Ukraine (equivalent to the modern appellate courts) to the detriment of local courts. The aim of the 2004 judicial reform was to assimilate the recognition of foreign arbitration awards to that of a regular court procedure, hence attributing this competence to local courts.

Sanction of ungrounded appeals – Misuse of procedural rights is recognized to be a ground for dismissing manifestly ungrounded appeals or otherwise erroneous motions; this provision was long awaited to prevent Ukrainian obligors from multiplying appeals as a way to delay the enforcement.

2 months’ term for the ordinary procedure – The maximum term of a recognition and enforcement of an international arbitral award is now limited to 2 months from the date of registration of the application with the court. Under the current procedural law, the maximum duration of such procedure was not clearly defined, leaving room for delays.

An accelerated procedure (10 days) – In the cases where the recognition is requested by the debtor, the new Procedural Codes provide for an accelerated procedure which has to be completed within 10 days.

Failure to appear in court is no longer a barrier to recognition – Provided that the obligor has been duly notified about the hearing, the failure to appear in court will not prevent the court from recognizing the award and initiating the enforcement measures. Indeed, requests for postponement of a hearing due to mere unwillingness to appear in court and without any valid excuse were often used by Ukrainian obligors as a way to delay the proceeding, at least for several months.

Calculation of interests – Any interest payments granted in the arbitral award must be calculated as of the day the enforcement measures take place. This provision is expected to minimize the financial risks for foreign applicants in case the enforcement against a Ukrainian obligor is substantially delayed. Importantly, this provision will enter into force only on January 1, 2019.

Interim measures – The list of interim measures, which can be ordered by the court during the recognition procedure is expanded. Among others, interim measures are made available against third parties and can be ordered at any stage of the procedure, both prior to and after initiating the recognition procedure.

Conclusion

The revised rules introduced by the new Procedural Codes have the potential of rendering the procedure of recognition and enforcement of international arbitral awards more efficient, fair and user-friendly. In 2017, a number of other CEE countries have also revised their arbitration acts or the procedure applicable to arbitration related issues, among them Russia, Hungary and Bulgaria. Most of these reforms are aimed at modernising national legislation to become more supportive of international arbitration but also at increasing the recourse to domestic arbitration (for example, with the creation of new local arbitration institutions and with a broader concept of arbitrability). Although each country maintains its own specificities, the timing of these reforms demonstrates that arbitration in CEE is a reality and that local companies are slowly starting to perceive arbitration as a common mechanism of resolving their disputes.

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Let’s Stop Talking About the Arbitrator Diversity Problem

Sun, 2018-01-14 01:56

Gary L. Benton

Wouldn’t it be fantastic if 2018 was the year we stopped talking about the problem of diversity in international arbitration? That is, what if we solved the problem today – and no longer needed to discuss it? We can. Today – by recognizing it’s not the problem. I propose a new standard for addressing the issue.

Let’s first put the so-called problem in proper perspective. Much has been said and written about the lack of arbitrator diversity in international arbitral panels and how it is either unjust, unfortunate or detrimental to the process. For years, the group Arbitral Women has, commendably, been raising awareness of the problem. Other groups have rallied to the cause. Leading institutions have responded, nearly across the board, pledging to include women and diverse practitioners in their panels, lists and appointments. Corporate counsel from an array of leading companies and others signed the Equal Representation in Arbitration Pledge committing to take action. ITA-ASIL, ICCA and other leading arbitral organizations are devoting conferences and conference sessions to the topic.

Yet, despite the growing awareness of the issue, many active voices on the issue, and some recent gains, appointments of women to tribunals of leading arbitral institutions hoover around 20% and diverse practitioners are similarly under-appointed. We widely recognize there is something wrong but we haven’t effected a solution.

Embracing the Norm

Professor Catherine Rogers has named this predicament the Arbitrator Diversity Paradox. In a Kluwer Arbitration Blog post at the end of 2017, Professor Rogers articulated the paradox that public consensus increasingly reflects a pervasive concern about the lack of diversity among international practitioners but there is an apparent failure to translate the concern into appointments for women and other diverse practitioners. Professor Rogers argues that the key to unlocking the paradox is better intelligence on arbitrators. Of course, Professor Rogers is right; more information is needed to identify qualified arbitrators and implement change.

More fundamentally, the paradox is resolved by refocusing our view on what is normal. A panel that is diverse should be recognized and embraced as the norm. A panel that is not diverse should be identified as deficient, abnormal and unacceptable.

Think about it, what’s normal and what’s not? What’s not normal are panels that don’t include women or diverse practitioners. It’s topsy-turvy to call a panel composed solely of white males normal when women and minorities constitute the majority of our population. A panel that does not include a woman or diverse practitioner neither represents the majority nor has the benefit of diverse perspectives. It is, in essence, incomplete and defective.

So, while I applaud the many fine initiatives to raise awareness regarding the qualifications of women and diverse practitioners, I suggest it’s time to extend our focus to the fact that there is something fundamentally perverse about consistently appointing panels composed solely of white males. A monotony of panel members does not make a panel better. It denies healthy deliberations and skews the norm.

Once we reconsider what is and what isn’t normal, we’re properly positioned to implement a standard that addresses the situation.

But let me pause and ask: Is it wrong to set a new normal? The answer is absolutely not – because we already recognize there is something wrong with our current perspective. Despite the growing visibility of women and diverse practitioners in the field, appointments are lacking. The 2016 Berwin Leighton Paisner (BLP) survey on diversity in arbitrator panels found that 80% of respondents believe tribunals are not properly constituted on diversity grounds. Apparently, there is significant demand for a new normal.

Setting the Standard

The standard should address the norm. Here is the standard I propose:

All panels should include at least one woman or other diverse practitioner and panels that do not are “Defective Panels.”

Yes, just as poorly drafted arbitration clauses can be pathologically defective so too should we consider panels that aren’t constituted to benefit from the perspectives and contributions of women and diverse practitioners to be pathological and abnormal.

I am not suggesting that a Defective Panel cannot proceed and resolve a case. It has been done, all too regularly, all too often. Rather, I am suggesting that we recognize that a panel so narrowly constituted is neither healthy nor normal. It can possibly do the task but it is not the ideal means. Such panels should be discouraged.

How do we apply the standard? As follows:

1. Parties/Counsel: Parties and counsel are to be informed that the standard for a properly constituted panel in international arbitration is to include at least one woman or diverse practitioner. If neither of the parties selects a woman or diverse practitioner as their appointee, the appointed Chair should be a woman or diverse practitioner. We call a panel that is not properly constituted a “Defective Panel.”

2. Institutions: Institutions should promote the standard and their compliance with it to parties, counsel and arbitrators. Institutions should follow the standard and make institutional appointments to ensure that at least one woman or diverse practitioner is on every panel. Institutions should acknowledge that a panel not properly constituted is a “Defective Panel.”

3. Arbitrators: Arbitrators should support the standard and make Chair appointments to ensure that at least one woman or diverse practitioner is on every panel. Where a woman or diverse practitioner is already appointed by a party to a panel, the wing arbitrators should consider whether there are other qualified women or diverse practitioners to serve as Chair. Arbitrators should acknowledge that a panel that does not include at least one woman or diverse practitioner is a “Defective Panel.”

Objections to the Standard

Being lawyers, our first instinct is to look to flaws. For the sake of the profession, the practice and your own dignity, I suggest you resist the urge here. Rather, allow me to address several potential critiques for you.

Is just calling a Defective Panel “defective” going to solve the problem? No, of course not. Recognizing that a panel is defective merely raises awareness. But implementing the standard in appointments will solve the problem.

Are there enough qualified women and diverse practitioners to serve? Yes, the reality is that there are hundreds of qualified women and diverse practitioners available for every case. Beyond sitting arbitrators, there are many young and diverse qualified arbitration counsel who can serve ably as a third arbitrator on a panel.

But what if I need an Arbitrator with expertise in a particular subject area? Most of the shining stars in our profession are generalists. Not every panel member needs to be a specialist. Moreover, the suggestion that there are no qualified women or diverse practitioners with subject matter expertise to sit on most cases is an absurdity. Look a little harder. Cases where a Defective Panel is required should be the exception not the rule.

Should we wait until we have more data on candidates to implement the standard? There are capable candidates now. There is no doubt that arbitral institutions, initiatives like Arbitrator Intelligence and organizations like Arbitral Women will continue to identify and profile qualified candidates. Implementing the standard will accelerate those intelligence-gathering efforts.

Is the standard a quota? Is it a reverse quota? No, the standard does not set any limit on the number of women or diverse practitioners who may serve on a panel. Nor does it set a limit on the number of men or non-diverse practitioners. Rather, it simply acknowledges that there is something inherently wrong if a panel is not diverse.

Should the standard be higher? It could be but the standard attempts to recognize the norm. Perhaps the standard will evolve over time but, at present, there is broad agreement that there is something wrong with a panel that lacks any diversity.

I’m an older, white male so what’s in it for me? If your self-interest outweighs your willingness to accept that diversity improves the process, consider that most users will welcome the standard and it may improve user acceptance of arbitration, use of arbitration and, accordingly, your number of appointments. If nothing else, diverse panels can add some spice to your life.

Going Forward

Most of the panels I sit on today are Defective Panels. Ideally, we should all have the courage to admit that we’ve sat on or contributed to the constitution of Defective Panels. More importantly, now is the time for all of us to move beyond the past and encourage parties, arbitral institutions and our fellow counsel and arbitrators to resist constituting Defective Panels in the future.

Redfern, Kaplan, Reed, Born and others have brought great innovation to international arbitration. What I propose is, however, much more modest. There is nothing revolutionary in recognizing monotony is not the norm. Let us simply acknowledge what is appropriate in panel appointments – and let us call out Defective Panels when we see them. Recognizing diverse panels as the norm is an accomplishment that can be attributed to us all.

By embracing the standard, we can stop talking about problem of arbitrator diversity and implement the solution.

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Arbitrator Intelligence (AI) is seeking a Social Media Manager

Sat, 2018-01-13 00:33

Catherine A. Rogers

Duties will include: generating, editing and publishing content, and designing a social media strategy to coordinate communication and outreach. This position requires effectiveness in writing/editing, and a combination of practical skills, legal training, and knowledge of the international arbitration field globally. Candidates should ideally have proficiency in search engine optimization (SEO), Google analytics, and social media outlets such as Twitter, LinkedIn, Instagram, and Pinterest.

The Social Media Manager will work remotely, in coordination with AI Founder Catherine Rogers, and will be expected to commit on average a few hours per week. The position is compensated by an annual honorarium of US$3000. If you are interested, please submit a resume and cover letter by email to [email protected]. The deadline for receiving applications is 31 January 2018.

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Problems of Ad Hoc Arbitration in Armenia

Fri, 2018-01-12 02:51

Aram Khachatryan

Ad hoc arbitration in Armenia entails several legal issues.

The first issue discussed here is related to the concept of “place of arbitration”. The problem is generated out of a very specific wording of the Armenian Arbitration Act.

From the perspective of international arbitration, Armenia is classified as a Model Law country, as it adopted an arbitration act based on the UNCITRAL Model Law (version 1985) in 2006.
The initial version of the Armenian Arbitration Act contained a provision in article 6 specifying that a single judicial institution, which was the Court of common jurisdiction of Kentron and Nork-Marash communities of Yerevan, is an authority competent to perform all the functions of court assistance to arbitral tribunals and supervision of their decisions.

However, on June 19, 2015, a package of revisions of the Armenian Arbitration Act adopted by the Armenian Parliament revised, inter alia, the above-mentioned article 6. The revision stated that the functions referred to in articles 9 on interim measures, article 11(3) and (4) on the appointment of arbitrators, article 13(3) on the challenge procedure, article 14 on failure or impossibility to act, and article 27 on court assistance in taking evidence shall be performed by the court of the place of arbitration (emphasis added).

Meanwhile, the rest of the functions (such as those stated in articles 34 (2) on setting aside, 35 -36(2) on recognition and enforcement of arbitral awards) were left to be decided by the Court of common jurisdiction of Kentron and Nork-Marash districts of Yerevan.

The new wording of article 6, however, turned to be problematic in the practice.
Let’s imagine a hypothetical arbitration clause as follows:

“All disputes arising out or in connection with this agreement will be resolved by arbitration according to the UNCITRAL 2010 Arbitration Rules, and the place of the arbitration will be Yerevan, Armenia.”

The problem we may face is the one of determining the exact court which would have jurisdiction to perform functions referred to in articles 9 / interim measures /; 11(3), 11(4) / the appointment of arbitrators /, 13(3) / the challenge procedure /, 14 / failure or impossibility to act/, 27 / court assistance in taking evidence/ of the Armenian Arbitration Act.

The fact is that in Yerevan, the capital of Armenia, there are seven courts of general jurisdiction covering twelve administrative districts of the city. In this situation, when a party in ad hoc arbitration submits an application, e.g., for a preliminary injunction at a stage when an arbitral tribunal has not yet convened, the court, based on article 6(1) of the Armenian Arbitration Act, would refuse to proceed with the application, additionally requesting the determination of the address of arbitration in order to establish its jurisdiction.

A practical and/or contractual solution could be fixing an address of the place of arbitration in advance in the arbitration agreement, e.g., “place of arbitration Yerevan /Armenia/ street xx building xx, apartment xx” or “place of arbitration Yerevan /Armenia/ the address of respondent or claimant”.

Another more effective solution here could be a “legislative intervention” (the revision of the Armenian Arbitration Act) – which shall provide for a backup provision stating for the jurisdiction of a respondent’s domicile Court, unless otherwise agreed by the parties.

Hopefully, this situation will be solved by the legislative soon. However, for now, it would be better for practitioners to be aware of this “legislative trap” and use some contractual solution for it.

The second issue is related to interim measures (preliminary injunctions) granted by a court, before the tribunal in ad hoc arbitration is convened. Both the Civil Procedure Code (article 97 (1)) and the Armenian Arbitration Act (article 17.7 (1)) regulate granting interim measures by national courts in the course of arbitration, i.e. when arbitral tribunals are already formed. In other words, according to the mentioned legal acts, the court may grant an interim measure only in case when there is a pending arbitration.

Hence, Armenian courts request from a party who applies for an injunctive relief an evidence certifying that at least arbitrators or an arbitrator is appointed. The argumentation of the court here is that there is no pending ad hoc arbitration, unless the tribunal has been convened.

One may argue that the above described approach is a “way out” for the Armenian courts, which are unexperienced in commercial arbitration.

However, this approach makes the granting of interim measures in ad hoc arbitration before the appointment of arbitrator(s) practically impossible under the Armenian Arbitration Act, and thus, endangering the perspectives of fostering arbitration as a dispute resolution model in Armenia.

The solution here can be a legislative amendment which would expressly provide for the court’s power and obligation to process the application for interim measures even in cases when an arbitral tribunal is not convened in ad hoc settings.

The third issue is related to the appointment of the arbitrators by a national court if the parties in ad hoc arbitration have not reached an agreement.

The main article regulating this procedure is the article 11.3(1) of the Armenian Arbitration Act, which is a verbatim adoption of the provision on the matter of the Model Law, and which states that failing an agreement on a procedure of appointing the arbitrator or arbitrators in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two arbitrators thus appointed shall appoint the third arbitrator. Furthermore, if a party fails to appoint the arbitrator within thirty days as of the receipt of a request to do so from the other party, or if the two arbitrators fail to agree on the third arbitrator within thirty days as of their appointment, the appointment shall be made, upon request of a party, by the court or other authority specified in article 6.

The problem here is that this provision is not further elaborated in the Civil Procedure Code, and the courts’ obligation to process the request on appointment of arbitrator is not ascertained in any way.

Thus, in the practice this essential step in arbitration procedure may be processed in diverse ways by local courts – one may arrange a court hearing, the other may request some additional information, the third one may react to this application only after 15 days or more. Apparently, all these situations are contrary to the very substance of arbitration and the required court assistance.
For this issue, again, the best solution would be an amendment to the Civil Procedure Code which would expressly regulate the processing of the applications for the appointment of arbitrators by courts. The amendment shall at least stipulate the exact content /minimum requirements/ for such applications, as well set the time limits for processing them.

The “ad hoc arbitration, place of arbitration Yerevan (Armenia)” is a dispute resolution model, that, although having basic legal foundations stated in Armenian Arbitration act, may, still, face several practical problems as describe above. Thus, legal practitioners agreeing on “ad hoc arbitration, place of arbitration Yerevan (Armenia)”, need to have additional, up-front regulations, such as stating some address of place of arbitration and the appointment of arbitrators. to cover the situations that my hinder effectiveness of this dispute resolution mechanism.

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The UNCITRAL Technical Notes on Online Dispute Resolution – Paper Tiger or Game Changer?

Wed, 2018-01-10 17:09

Nadine Lederer

Young ICCA

Is the future of dispute settlement online? There may not be a more relevant topic for the future of dispute resolution, including arbitration, than Online Dispute Resolution (“ODR”), so it was concluded at the 17th ODR Conference organized by the ICC International Court of Arbitration in Paris in June 2017 (see here, also reported on Kluwer Arbitration Blog here and here).

The United Nations Commission on International Trade Law (“UNCITRAL”) recognized the potential of ODR already a few years ago. In 2010, at its 43rd session, it decided to undertake work in this specific legal field. This led to the establishment of Working Group III on ODR (“Working Group”) which developed the recently adopted Technical Notes on Online Dispute Resolution (“Technical Notes”).

There is no universal definition and understanding of ODR. However, for the purposes of the Technical Notes, para. 24 defines ODR as a “mechanism for resolving disputes through the use of electronic communications and other information and communication technology”. The Technical Notes further clarify that “ODR encompasses a broad range of approaches and forms (including but not limited to ombudsmen, complaints boards, negotiation, conciliation, mediation, facilitated settlement, arbitration and others)” (para. 2).

Background and Initial Mandate of the Working Group

UNCITRAL tasked the Working Group with developing a global ODR system for cross-border e-commerce disputes since traditional judicial mechanisms may not offer an adequate solution for resolving these disputes, the number of which is increasing and where the amount in controversy is often quite small. Therefore, UNCITRAL regarded the development of tailored procedures which do not create costs, delays and burdens disproportionate to the economic value at stake as critical (UN Doc A/CN.9/706, para. 50).

The Working Group was given the task to develop a practical avenue for a simple, quick and inexpensive resolution of e-commerce disputes, however, it was not to prepare a new set of arbitration rules (UN Doc A/CN.9/721, para. 17). Its mandate included drafting a generic set of procedural rules which were intended to apply to both business-to-consumer and business-to-business online transactions (UN Doc A/CN.9/WG.III/WP.105, para. 2; all documents of the Working Group are available here). Additionally, guidelines and minimum standards for ODR providers and for neutrals that assist the parties in settling or resolving a dispute (e.g. a mediator or arbitrator), substantive legal principles for resolving disputes and a cross-border enforcement mechanism should be developed (UN Doc A/CN.9/WG.III/WP.112, para. 3). The procedural rules were meant to be of a contractual nature and to apply by agreement of the parties to the extent that there was no conflict with mandatory provisions of domestic law (UN Doc A/CN.9/744, para. 16).

The Working Group envisaged a three-tiered ODR procedure, which would start with negotiations between the parties and, if unsuccessful, it would be followed by facilitated settlement proceedings involving a third-party neutral who would mediate between the parties in order to reach a settlement. The final stage would entail arbitration. The Working Group, however, faced difficulties in agreeing on the nature of the final phase. In particular, disagreement arose on the question whether it were to be binding on the parties, the reason for it being that the legal validity of pre-dispute consumer arbitration agreements is treated differently in the various jurisdictions. The European Union, for example, restricts in Directive 93/13/EEC on unfair terms in consumer contracts and in Directive 2013/11/EU on alternative dispute resolution for consumer disputes the validity of such agreements. In order to deal with this issue, the Working Group considered developing two different tracks, one ending in a binding arbitration phase (Track I) and the other one concluding with a non-binding recommendation by the neutral (Track II). However, in the end, no consensus on this issue could be reached.

The UNCITRAL Technical Notes on ODR

As a consequence of the lack of progress in developing a set of procedural rules, UNCITRAL eventually redefined the mandate of the Working Group. On this basis, it had to develop “a non-binding descriptive document reflecting elements of an ODR process, on which elements the Working Group had previously reached consensus, excluding the question of the nature of the final stage of the ODR process (arbitration/non-arbitration)” (UN Doc A/70/17, para. 352). The Technical Notes, which UNCITRAL adopted at its 49th session in 2016, were born as a result of the redefined mandate.

The Technical Notes are a descriptive document of a non-binding nature and are neither exhaustive nor exclusive (see para. 6). They are “intended for use in disputes arising from cross-border low-value sales or service contracts concluded using electronic communications” (para. 5) and to promote the development of ODR by providing assistance to ODR administrators and platforms as well as to neutrals and the parties to ODR proceedings (see para. 3). Parties can organize their ODR proceedings in accordance with the Technical Notes and have to agree on the exact details and elements of the proceedings in this respect. Moreover, ODR providers may use the Technical Notes as guidance to set up their rules of procedure.

The main elements of an ODR process are reflected in Sections III, VII, VIII and IX. The Technical Notes assume that the whole procedure will be conducted exclusively online through a platform. They foresee several stages: The first two stages were adopted from the draft procedural rules on which the Working Group had already reached consensus, that is technology-enabled negotiation as a first stage (see paras. 37-39), which is followed by a facilitated settlement phase involving a third-party neutral (e.g. a mediator/conciliator) (see paras. 40-44). The final stage only comes into play should the parties not have reached settlement during the first two phases. In such instances, it is desirable that “the ODR administrator or neutral informs the parties of the nature of the final stage, and of the form that it might take” (para. 45). This provision thus leaves the nature of the final stage open, thereby providing for maximum flexibility. It could, for example, consist of binding arbitration proceedings or end with a non-binding recommendation by the neutral, depending on what the parties have agreed.

The Technical Notes also include provisions about the principles which should apply in ODR proceedings (see Section II). They consider approaches to ODR systems that represent principles of independence, impartiality, effectiveness, efficiency, due process, fairness, transparency and accountability (paras. 4 and 7 et seq.). Ideally, ODR proceedings should be subject to the same due process and confidentiality standards that generally apply in offline dispute resolution proceedings (see para. 53).

Furthermore, the Technical Notes deal with the appointment and role of neutrals (see Section X), the language of the proceedings (see Section XI) and governance (see Section XII).

Conclusion

Having invested six years of work, UNCITRAL could not realize its initial ambitious goal of developing an international set of procedural rules including guidelines and minimum standards for ODR platforms/administrators and for neutrals as well as substantive legal principles for resolving disputes and a cross-border enforcement mechanism. Instead, the adopted Technical Notes lay down in a rather general and vague manner the basic concepts and elements of ODR proceedings. Given their non-binding and descriptive nature, it remains to be seen to what extent the Technical Notes will be of any practical relevance.

Even though they fall short of the envisaged creation of a global ODR system, the Technical Notes are a welcome step in the right direction since they offer the opportunity to further promote and build on ODR. While ODR is not a new phenomenon, it remained an unrealized, theoretical concept with high, but untapped potential until now. Besides the European legal framework, i.e. the Regulation (EU) No 524/2013 on online dispute resolution for consumer disputes and the Directive 2013/11/EU on alternative dispute resolution for consumer disputes, the Technical Notes now present another valuable legal instrument of an international organization specifically dealing with ODR. In particular, the Technical Notes highlight its benefits, i.e. that ODR offers a simple, flexible, fast and inexpensive mechanism to resolve disputes that arise out of e-commerce transactions. They may serve as useful guidance for States, ODR platform providers and administrators, neutrals as well as disputing parties on how to effectively organize such proceedings.

The regulatory initiatives of UNCITRAL, the European Union as well as the Council of Europe which has encouraged its Members to further develop and promote ODR mechanisms (see Doc. 13918, para. 5) and is currently preparing a technical study on the development of ODR mechanisms (see here), prove that increased attention has been given to ODR more recently. Albeit gradually, it is becoming an important alternative to traditional offline alternative dispute resolution and court litigation for certain kinds of disputes, in particular those arising out of cross-border e-commerce transactions.

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Anticipatory Renunciation to Challenge Arbitral Awards Under Swiss Law – An Update

Wed, 2018-01-10 01:01

Léonard Stoyanov and Nadia Smahi

On 17 October 2017, the Swiss Federal Tribunal (Switzerland’s highest jurisdiction) rendered a decision (4A_53/2017) on the challenge of an award rendered in the context of an international arbitration where the arbitration clauses of the disputed contracts both contained a wording whereby the parties renounced challenging any possible future arbitral award.

I. Relevant Facts

In 2003, a State which until then had been the sole shareholder of a company (the “Company”) let the main gas company of another State take a stake (apparently minor) in the Company.
This led to the conclusion of a shareholders’ agreement.

In 2008, the gas company became the majority shareholder of the Company.

In 2009, the shareholders entered into a “GAS Master Agreement” and amended their shareholders’ agreement, thereby granting the gas company exclusive managing powers on the Company.

Both agreements contained the same dispute resolution clause, which reads as follows:

“[a]wards rendered in any arbitration hereunder shall be final and conclusive and judgment thereon may be entered into any court having jurisdiction for enforcement thereof. There shall be no appeal to any court from awards rendered hereunder”.

In 2014, the State initiated arbitration proceedings under the UNCITRAL Rules against the gas company claiming that the conclusion of the “GAS Master Agreement” and amended shareholders’ agreement was tainted with corruption. The arbitral tribunal comprised three members, including a well-renowned Professor designated by the State.

On 23 December 2016, the arbitral tribunal decided against the State.

On 1 February 2017, the State challenged the award before the Federal Tribunal by means mainly of a civil recourse (“recours en matière civile”) and in the alternative, of a request for revision (“demande de révision”). The former is the ordinary means of challenge of international arbitration awards mentioned in article 191 of the Swiss Private International Law Act (“SPILA”). The latter is an extraordinary means which is currently not referred to in the SPILA (see however first author’s article of 18 May 2017 on this blog) but which the Federal Tribunal has reckoned admissible in the context of international arbitration.

The grounds on which the civil recourse and request for revision were based were that the State had learnt in January 2017 that the arbitrator it had appointed had already acted in such capacity in an arbitration where he had been appointed (in 2013) by a company controlled by the defendant. This fact, which the arbitrator had not disclosed in the frame of the 2014-2016 arbitration, allegedly cast doubts as to his independence and impartiality. On this basis, the State aimed at having the award set aside and the arbitrator it had initially appointed recuse himself.

The gas company’s prayers for relief were to dismiss the recourse and request primarily for lack of admissibility, alternatively for lack of merits.

II. Anticipatory Renunciation to Challenge an Arbitral Award

A. Validity

The Federal Tribunal started by examining the validity of an anticipatory renunciation to challenge arbitral awards.

It first referred to article 192 (1) SPILA which provides that “[w]here none of the parties has its domicile, its habitual residence, or a place of business in Switzerland, they may, by an express statement in the arbitration agreement or in a subsequent agreement in writing, exclude all setting aside proceedings, or they may limit such proceedings to one or several of the grounds listed in Article 190, paragraph 2”. As neither party had any such link to Switzerland, they were as a matter of principle entitled to renounce their right to challenge the award.

The Federal Tribunal then (re)affirmed that an indirect renunciation was not sufficient.
The renunciation must be direct, without however having to explicitly refer to articles 190 and/or 192 SPILA. For a renunciation to be valid, the parties must univocally express their common renunciation (“de manière claire et nette”), which is notably not the case of the sole mention “sans appel” (no appeal). Determining the parties’ intent is a matter of interpretation.

In the case at hand, the Federal Tribunal was of the view that the wording of the disputed clauses showed the parties’ clear and common intent that the arbitral award could not be “appealed” against. Not only was the last sentence of the dispute resolution clause univocal but the parties’ common intent also derived from the use of the words “final” and “conclusive” and the fact that the parties limited a recourse to a State court only for enforcement purposes. The questioned remained however what “appeal” actually meant.

B. Extent of the Renunciation

1. Overview of Previous Decisions

To support its reasoning, the Federal Tribunal referred to previous decisions where it had interpreted the notion of “appeal” within the same context.

In one decision, it had highlighted two possible interpretations of the word “appeal”, i.e. one wide, the other narrow. The former encompasses any means to challenge a decision (recourse lato sensu) whereas the latter solely designates the ordinary means of challenging a decision which is generally suspensive, devolutive and reformatory (recourse stricto sensu) and is not admissible before the Federal Tribunal in relation to international arbitration. The Federal Tribunal then interpreted the wording of the arbitration clause which read “all and any rights of appeal from all and any awards insofar as such exclusion can validly be made” and held that the use of the words “rights of appeal” and “all and any” clearly ruled out any appeal lato sensu, such that the renunciation was valid and the “appeal” inadmissible.

In two other cases, both involving the same parties and the same dispute resolution clause, the Federal Tribunal had to examine the validity and extent of a renunciation to challenge an award where the disputed agreement provided that “[n]either party shall be entitled to commence or maintain any action in a court of law upon any matter in dispute arising from or concerning this Agreement or a breach thereof except for the enforcement of any award rendered pursuant to arbitration under this Agreement. The decision of the arbitration shall be final and binding and neither party shall have any right to appeal such decision to any court of law”. It held that the word “appeal” had to be interpreted widely and that such clause clearly showed the parties’ common intent to exclude any challenge of the awards. Accordingly, the renunciation was held to be valid and the civil recourses inadmissible.

In a later decision, the Federal Tribunal took the view that the sentence “neither party shall seek recourse to a law court nor other authorities to appeal for revision of this decision” could not be understood in good faith otherwise than the parties’ clear common intent to exclude any right to challenge the arbitral award. The civil recourse was thus regarded as inadmissible.

Lastly, in a decision rendered in January 2017, the Federal Tribunal considered the sentence “[t]he decision of the arbitrator in any such proceeding will be final and binding and not subject to judicial review. Appeals to the Swiss Federal Tribunal from the award of the arbitrator shall be excluded […]” as a valid renunciation making the civil recourse lodged inadmissible.


2. The Case at Hand

a. The Civil Recourse

The Federal Tribunal held that the word “appeal” ought to be understood in its broad meaning in the case at hand (supra, II. B. 1.). Firstly, this resulted from the fact that no challenge of the award before an arbitral tribunal was possible under the UNCITRAL Arbitration Rules, which the parties had chosen (art. 32 (2) of the 1976 Rules). Secondly, the parties could not have wanted to solely renounce an appeal stricto sensu for none of the lex arbitri (Swiss law), the lex causae and the law of the seat of the gas company provided for such a means of recourse. Thirdly, the dispute resolution clauses which provided that the seat of the arbitral tribunal would be in Switzerland had been drafted by lawyers. Accordingly, one could only understand that the parties had renounced the only (ordinary) available means of recourse to challenge an award, i.e. the civil recourse.

As a result, the State’s civil recourse was held inadmissible.

b. The Request for Revision

The State argued that irrespective of a possibly valid renunciation to the ordinary means of challenging an award, i.e. the civil recourse, such renunciation did not encompass the extraordinary means of challenging of an award that is the request for revision (supra, I.).

The Federal Tribunal pointed out that the request for revision had been lodged within the time limit applicable to the civil recourse and that it was as a matter of principle, due to its extraordinary character, secondary in nature to the civil recourse. It then expressed the view that it was difficult to admit that a party having validly renounced the challenge of an award on the ground that the sole arbitrator was improperly appointed or the arbitral tribunal was improperly constituted (art. 190 (2) SPILA) could nonetheless invoke the same ground to challenge the award but through a request for revision. It confirmed the view it had already expressed, i.e. that deciding otherwise would deplete article 192 SPILA of its bearing. Arguing the contrary would “breach good faith to the highest degree”.

Accordingly, the request for revision was considered inadmissible as well.

III. Remarks and Conclusion

The herein commented decision, due to be published in the Federal Tribunal’s collection of its most important decisions, is interesting for arbitration practitioners in several respects.

It serves as a useful reminder on how parties located outside Switzerland may validly renounce their right to challenge arbitral awards, an option which all leges arbitrii do not feature, and is practical insofar as it summarises past decisions where the Federal Tribunal has upheld renunciation clauses. It is also enlightening in terms of the possibly unexpected consequences when agreeing on a renunciation clause, the scope of which is not limited to certain grounds for challenges (art. 190 (2) SPILA), as the renunciation may then affect not only the ordinary civil recourse – which may often be the only challenge contemplated by the parties – but also the extraordinary request for revision – which the parties may not have in mind at that time – whenever the ground asserted can be invoked within both contexts. Accordingly, parties to contracts must be careful what they wish for in terms of dispute resolution as they may just get it… and more.

Also noteworthy are the very significant costs of the decision: the State was ordered to pay the Federal Tribunal no less than CHF 200’000 of legal costs and the gas company CHF 250’000 to cover attorney fees. The fees of the Federal Tribunal are in principle capped to CHF 100’000 when the value at stake exceeds CHF 10 million. However, by way of exception, fees may go beyond that amount and up to CHF 200’000 in particular circumstances not specified in the law. The high fees in casu may certainly be attributed, at least partially, to the three exchanges of submissions.

Lastly and amusingly, the Federal Tribunal, in line with its practice, blanked out the names of the parties. It did however not blank out the dates of enactment of the arbitration laws of the lex causae (the law of the State challenging the award) and of the seat of the gas company which it referred to, thereby undermining the relevance of blank outs.

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A Question of Fairness: Why Costs Submissions should not be Overlooked by Tribunals

Tue, 2018-01-09 01:14

Harry Ormsby

Herbert Smith Freehills

The recent English Commercial Court case of Oldham v QBE Insurance (Europe) Ltd [2017] EWHC 3045 (Comm) (“Oldham v QBE”) serves as a reminder to tribunals that all parties must be given the opportunity of putting their case on costs and responding to the case put to them. In Oldham v QBE, the Commercial Court held that an arbitrator’s decisions on costs could be challenged on grounds of serious irregularity under Section 68 of the English Arbitration Act 1996 (the “Act”) on the basis that the applicant had been denied the opportunity to make submissions. While decided under English law, the case is of international relevance, not least because similar considerations will apply under the major institutional rules and in UNCITRAL Model Law jurisdictions.

Oldham v QBE

Mr Oldham was the subject of civil liability proceedings (“the Civil Liability Claim”). This led to a dispute between Mr Oldham and his professional indemnity insurers, QBE, in relation to the extent of his coverage, and this dispute was referred to ad hoc arbitration seated in London.

In an award dated 7 October 2016, the arbitrator found that the Civil Liability Claim was not covered by Mr Oldham’s policy, and ordered that Mr Oldham reimburse QBE the Civil Liability Claim defence costs which it had already paid (with the arbitrator’s reasons to be set out in a later second part of the award). The arbitrator also awarded costs against Mr Oldham in relation to the arbitration, on the basis that there was no reason to depart from the principle that costs follow the event. This was made despite neither QBE nor Mr Oldham having made submissions in relation to arbitration costs.

QBE then served costs submissions on Mr Oldham, requesting payments of its costs and serving a costs schedule. The arbitrator gave Mr Oldham 28 days to respond to QBE’s costs submissions and this was later extended by 14 days. Before that time had expired, the arbitrator issued the second part of his award and ordered Mr Oldham to make an interim payment on account of QBE’s costs in the arbitration and the Civil Liability Claim defence costs.

Mr Oldham successfully challenged to the parts of the award dealing with arbitration costs pursuant to section 68 of the Act. He argued that he had not been given a reasonable opportunity to address argument in relation to (i) the awarding of arbitration costs to QBE and (ii) the order for payment on account of arbitration costs. A challenge made under section 69 of the Act on the grounds that the arbitrator had made an error of law in awarding the Civil Liability defence costs was unsuccessful.

Section 68 challenge

Under section 68(2) of the Act, a party may challenge an award where there has been a serious irregularity that has caused or may cause a substantial injustice to the applicant. This includes a failure by the tribunal to comply with its general duty under section 33 of the Act to act fairly and impartially as between the parties, and to give each party a reasonable opportunity of putting their case and dealing with that of their opponent.

While the Court noted the “deliberately high” nature of the threshold test for a challenge under section 68(2) of the Act, it found that Mr Oldham had been deprived of a fair opportunity to advance arguments in relation to arbitration costs, and this amounted to a breach of the arbitrator’s duty under section 33 to give Mr Oldham a reasonable opportunity of addressing argument in relation to those costs. The argument which Mr Oldham would have made had he been given opportunity to do so met the threshold as one which an arbitrator might have accepted, and the Court found that a serious irregularity had therefore occurred that caused substantial injustice.

In relation to the arbitrator’s order for payment on account of costs in relation to the arbitration, the Court found that this gave rise to the same irregularity and substantial injustice as the award of costs. The Court further held that, because the arbitrator had requested submissions from Mr Oldham but subsequently decided the point without waiting for the submissions, this was also a clear breach of section 33 and amounted to a substantial injustice.

The Court remitted the orders for arbitration costs and payment on account of costs in relation to the arbitration back to the arbitrator reconsideration after hearing submissions.

Comment

Section 61(2) of the Act establishes that, unless the parties otherwise agree, the tribunal should award costs on the general principle that costs should follow the event, but it retains a discretion to make a different award where it appears to the tribunal that in the circumstances it is not appropriate. The arbitrator in Oldham v QBE followed section 61(2) and made an order that costs should follow the event. Despite making an order which appeared to be compliant with section 61(2), the arbitrator’s failure to give the parties the opportunity to make submissions on costs breached the general duty to act fairly and impartially between the parties and to give each party a reasonable opportunity of putting their case, under section 33.

Oldham v QBE is in line with earlier English case law in relation to arbitration costs, Gbangbola v Smith & Sheriff Ltd [1998] 3 All ER 73. In that case, an arbitrator made an award on costs which relied on matters which neither of the parties had raised. This was found to be in breach of the duty under section 33 of the Act, giving rise to a serious irregularity under section 68. The Court noted that:

“The duty in section 33(1)(a) may be a difficult duty always to observe when it comes to costs. Nevertheless it is a general duty that applies to every part of any case including decisions on costs. Section 33(2) requires compliance ‘with that general duty in conducting the arbitral proceedings, in its decisions of matters of procedure and evidence and in the exercise of all other powers conferred on it’. The power to award costs whether arising under section 61 or under the applicable procedural rules is therefore subject to the general duty which is … a mandatory duty and thus overrides anything that may have been agreed by the parties.”

As noted in Merkin, the opportunity to be heard is “perhaps the most important single aspect of fairness and is codified in the general principle in the Arbitration Act, s.33,” and this has been emphasised by the English Courts (see for example Pacol Ltd v Joint Stock Company Rossakhar [2000] C.L.C. 315). Tribunals seated in London should therefore ensure that they do not overlook the parties’ rights to be heard fairly and impartially in relation to costs, and should allow (and indeed invite) the parties to make submissions on costs.

The lessons from Oldham v QBE and Gbangbola v Smith & Sheriff are also of relevance to arbitrations seated in other jurisdictions and conducted pursuant to institutional rules. A failure by a tribunal to provide the parties with an opportunity to be heard on the issue of costs is likely to expose that part of the award to annulment or non-recognition: Article V(1)(b) of the New York Convention allows a national court to refuse recognition of an award where the party against whom the award is invoked is denied an opportunity to present their case, and Articles 34(2)(a)(ii) and 36(1)(a)(ii) of the UNCITRAL Model law provide that an award may be set aside by a court and refused recognition and enforcement if a party was unable to present its case. Article 18 of the UNCITRAL Model Law provides that “the parties shall be treated with equality and each party shall be given a full opportunity of presenting his case,” and is the provision upon which section 33 of the Act is based.

Similarly, while the ICC, LCIA, SIAC, HKIAC and UNCITRAL Rules all empower the tribunal to make orders as to costs (whether generally or on the presumption that costs follow the event), all of these rules also contain provisions which oblige tribunals to treat the parties fairly and impartially and to afford each party a reasonable opportunity to present its case. These provisions apply as much to a party’s opportunity to present its case on costs as they apply in relation to a party’s substantive case more generally (e.g. on jurisdiction and liability).

Whether seated in London or elsewhere, and where conducted under any of the major rules, the lesson from Oldham v QBE is clear: tribunals should allow (and indeed invite) the parties to make submissions on costs, or risk annulment and non-recognition of the award.

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Reforms on the “Prior Reporting System” — A Praiseworthy Effort by the PRC Supreme People’s Court, or Not?

Sun, 2018-01-07 16:36

Yves Hu and Clarisse von Wunschheim

The Prior Reporting System, established in August 1995 (see SPC Notice on Prior Reporting System (1995)), has been the most notable intervention of the Supreme People’s Court (“SPC”) in the area of arbitration since the PRC Arbitration Law (1994) was enacted.

During the China Arbitration Summit held in Beijing on 20 September 2017, Justice Xuefeng REN, a Presiding Judge of the 4th Civil Chamber of the SPC, informally announced a planned reform of the Prior Reporting System.

On 20 November 2017, the SPC officially passed the Provisions on Questions Concerning Approval and Reporting in the Judicial Review of Arbitration-Related Cases (《关于仲裁司法审查案件报核问题的有关规定》) (“SPC Provisions on Prior Reporting System (2017)”). These provisions were not made public until 29 December, coming into effect on 1 January 2018.

This Article summarizes the key features of the reform.

The Prior Reporting System – The Current Framework

Originally, the Prior Reporting System was designed to apply only in the context of enforcement of foreign or foreign-related arbitral awards or arbitration agreements. It establishes a duty for the Intermediate People’s Court to report and request approval from the High People’s Court if the former intends to refuse enforcement. If the High People’s Court concurs with the position of the Intermediate People’s Court, the former must further report to the SPC.

Although the law prescribes overall time limits for such cases (6 months, plus (for foreign awards) 2 months for recognition), the Prior Reporting System does not provide any deadlines for courts to report or to reply to a report.

In April 1998, through its SPC Notice on Prior Reporting System (1998), the SPC extended this system to the annulment of foreign-related arbitral awards, with essentially identical arrangements as those applying to enforcement cases, except that the new provisions introduced deadlines for the reporting and reply duties in annulment proceedings. Specifically, the Intermediate People’s Court has 30 days from its acceptance of a case to report to the High People’s Court, and the latter, if it concurs, has 15 days from then to report to the SPC.

These deadlines, however, only apply to annulment cases; moreover, in practice, lower courts often disregard them because there are no direct sanctions for non-compliance. In addition, neither the 1995 nor the 1998 provisions include a deadline for the SPC to reply, which has been known to take as long as a year. Finally, the current Prior Reporting System is an internal court process in which parties are neither invited nor allowed to participate.

On account of these inefficiencies, the arbitration community has been pushing for the Prior Reporting System to be reformed.

Changes Planned under the SPC Provisions on Prior Reporting System (2017)

As briefly introduced by Justice REN and later disclosed to the public, the major change envisioned in the SPC Provisions on Prior Reporting System (2017) is the extension of the Prior Reporting System to all arbitration-related cases, whether foreign, foreign-related, or domestic. In other words, no court in China will be able to issue a decision refusing enforcement of an award or an arbitration agreement, or annulling an award, without having obtained the higher court’s prior approval. It is one of the approaches adopted by the SPC to ensure more consistency in the judicial review of arbitration-related cases.

Whilst this idea may at first seem a good one, one must think about what it means for the already time-consuming prior reporting process. According to the authors’ statistical analysis of 220 published court decisions from 2000 to 2015 (case summaries available on the database of Chinese Court Decision Summaries on Arbitration), the time between the initiation of relevant proceedings and the final reply from the SPC under the Prior Report System is not encouraging:

(i) For enforcement of awards, the average time is 870 days and the median is 601 days, the shortest time being 40 days and the longest 3,237 days.
(ii) For enforcement of arbitration agreements, the average time is 107 days and the median is 79 days, the shortest time being 8 days and the longest 445 days.
(iii) For annulment of awards, the average time is 597 days and the median is 506 days, the shortest time being 165 days and the longest 1,791 days.

These figures apply to the current system, which deals only with foreign and foreign-related cases (including Greater China cases). It is not difficult to imagine what impact the extension of the Prior Reporting System will have in terms of delays and inefficiency.

In 2016, while 3,141 foreign-related arbitration cases were accepted by Chinese arbitration institutions, 205,404 domestic arbitration cases were accepted.1)See http://www.legaldaily.com.cn/Arbitration/content/2017-05/05/content_7137563.htm?node=79488, last visited on 28 Dec 2017. jQuery("#footnote_plugin_tooltip_8113_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8113_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This 65-times difference in the number of accepted cases may give an approximation of the order of magnitude increase in the number of cases subject to the Prior Reporting System with the inclusion of domestic cases. How can the courts cope with such an increase? What will it mean in terms of delays?

It seems that the SPC is aware of this issue and is seeking ways to tackle it. After discussing various approaches the SPC has decided that, in domestic cases, the High People’s Courts at each provincial level will have the final say, except in the following two situations (when reporting to the SPC is mandatory):
(i) If the parties are from different provinces.
(ii) If the lower courts intend to refuse enforcement or annual a domestic award due to an alleged breach of public interests.

In addition, the High People’s Court will have the discretion to report to the SPC any other cases for which they consider reporting appropriate.

Remarks

The reform of the Prior Reporting System is part of an overall effort by the SPC to improve the consistency of the Chinese courts’ judicial review of arbitration-related cases. Other efforts include:

(i) The SPC Notice on Issues Relating to the Centralized Handling of Judicial Review of Arbitration Cases (《仲裁司法审件归口办理有关问题的通知》) (issued on 22 May 2017).
(ii) The SPC Provisions on Judicial Review of Arbitration-Related Cases (《最高人民法院关于审理仲裁司法审查案件若干问题的规定》) (passed “in principle” on 4 December 2017), which aims to provide guidelines on how to handle issues that emerged after the promulgation of the PRC Arbitration Law (1994) and the SPC Interpretations on the PRC Arbitration Law (2006).

Although the intention of the SPC to increase consistency is praiseworthy, the SPC risks impairing efficiency and fairness. It is not uncommon for parties against whom enforcement is sought to use their local influence and power to pressure lower courts into sending a case through the Prior Reporting System to delay proceedings. Lower courts also take advantage of the Prior Reporting System to shift responsibility for cases onto higher courts. Given the dearth of deadlines and the lack of sanctions for failure to comply therewith, the current Prior Reporting System is already suffering from costly inefficiencies—the announced reform may only exacerbate the inefficiencies. Will it not be counter-productive to extend this limping system to all arbitration-related cases?

Another major criticism raised against the current Prior Reporting System is the lack of transparency. The arbitration community has been pushing for parties to have the opportunity to participate in the process to ensure that lower courts report the case properly and comprehensively to the higher courts. This concern is not just theoretical. In practice, a lower court may not fully understand certain issues or may not submit the entire set of arguments or files to the higher court. This leads the latter to make a decision based on incomplete and maybe even biased grounds; and the parties have no formal opportunity to correct the mistake in the process and no legal remedies against the result.

Unfortunately, it would seem that the current reforms do not tackle this deficiency of the Prior Reporting System. This is disappointing and somewhat surprising, considering that the SPC has also been discussing ways to make judicial review more transparent and extend party rights to include at least some of those available in commercial litigation, particularly party access to proceedings.

Therefore, although a reform of the Prior Reporting System has been long awaited, and it is certainly positive that the SPC is finally attending to this hobbling system, it seems that the SPC’s current efforts are not directed at tackling the users’ concerns. Instead, the reform seems aimed more at implementing broader governmental policies without considering what it will mean for the effectiveness of arbitration as a dispute resolution mechanism.

It remains to be seen whether the SPC aims to address some of the users’ concerns about the efficiency and fairness of the process in the near future.

References   [ + ]

1. ↑ See http://www.legaldaily.com.cn/Arbitration/content/2017-05/05/content_7137563.htm?node=79488, last visited on 28 Dec 2017. 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: International Arbitration and the Rule of Law
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The New-Found Emphasis on Institutional Arbitration in India

Sat, 2018-01-06 17:10

Mridul Godha and Kartikey M.

Young ICCA

Arbitration in India has traditionally skewed towards an ad-hoc rather than an institutional set up. Due to a lack of adequate emphasis on institutional arbitration, Indian parties have preferred to conduct their arbitrations with a seat in Singapore and London. In fact, 153 of the 307 cases administered by the Singapore International Arbitration Centre (SIAC) in 2016 involved Indian parties. India has been plagued by factors like the lack of a credible arbitral institution, excessive judicial intervention, absence of a dedicated arbitration bar and lack of clarity on the concept of public policy, making it an unfavourable place of arbitration.

However, as arbitration continues to grow between Indian parties, policy makers and courts of law have taken note of its importance. The recent discussion about a BRICS-centric arbitration centre in New-Delhi and SIAC’s tie-up with the Gujarat International Finance Tec-City shows a lot of promise towards making India a more favourable place of arbitration. In this post, we analyse two recent developments to show that institutional arbitration is now probably set to come out of the shadows into the mainstream in India, namely through the developments of new policies and those of the courts.

I. Developments through new policies: The Srikrishna Committee

In December 2016, the Indian Government constituted a High Level Committee under the chairmanship of Justice (Retd.) B.N. Srikrishna (the “Committee”) with the mandate to review and reform the institutionalisation of arbitration. The Government’s move was preceded by statements from key Indian policy makers on their desire to strengthen the infrastructure of institutional arbitration in India.

The Committee submitted its report on August 3, 2017 and suggested some much-needed reforms to arbitration in India. We analyse some of these key recommendations below.

Arbitration Promotion Council of India (APCI)
The Committee recommended the creation of the APCI which would be responsible for grading arbitral institutions in India and accrediting arbitrators. APCI appears to be fashioned on the lines of institutions like the Chartered Institute of Arbitrators (CIArb). The motive behind forming the APCI is the training and accreditation of arbitrators as well as the promotion of arbitration in India. Keeping in mind the autonomous structure of institutions like the CIArb, the Committee clarified that they do not intend the APCI to be a Government-run body. It also stated that they do not consider the accreditation by the APCI to be a condition for the recognition and enforcement of awards administered by that arbitral institution so as to prevent the monopolisation of the accreditation procedure in the hands of the APCI.

• Arbitration Bar and Bench
The Committee recommended the establishment of an arbitration bar and arbitration benches in India. The arbitration bar would comprise of arbitrators who will be trained and accredited by the APCI. The specialist arbitration benches would deal with arbitration disputes before the courts. Judges forming part of this bench would be provided with periodic refresher courses on recent developments in arbitration. This would help reforming arbitration by having lawyers and well informed judges who can promote best practices of international arbitration in India.

• Proposed Changes to the 2015 Amendment Act

The Committee noted that the 2015 amendments to the Arbitration and Conciliation Act, 1996 (the “Act”) created undue hardship for its users, for instance, by the delays in the arbitration process caused by the extensive involvement of the courts. This called for a need for certain changes. The recommendations in this regard have been divided into two parts: a) amendments to correct obvious errors and ambiguities in the Act and incorporate international best practices; and b) amendments specifically aimed at promoting institutional arbitration in India. For the purpose of this post, we focus only on part b).

The Committee has sought to limit the involvement of Indian courts in the procedure of appointment of arbitrators: Drawing from the examples of the appointment mechanisms in Singapore, Hong Kong and the UK, it proposed an amendment to Section 11 of the Act. This amendment provided that the appointment of arbitrators shall only be done by arbitral institutions designated by the Supreme Court or the High Court (as opposed to arbitrators being appointed by the Chief Justice of the Supreme Court or the High Courts directly) and without the requirement for courts to determine the existence and validity of the arbitration agreement first. If undertaken, it would bring a remarkable change to the effectiveness of arbitration seated in India, which is often plagued by court related delays.

• National Litigation Policy

The term “National Litigation Policy” (NLP) was first used by the previous Government as a policy aimed at reducing government litigation. By using the same term, the Committee seems to want to promote arbitration in Government contracts to avoid expensive and time-consuming litigation before courts. The Department of Justice has already developed an action plan to reduce Government litigation. In fact, in a meeting in September 2017, the Government asked the Government departments and autonomous bodies to settle disputes through arbitration and provided a list of 13 institutions for assistance. These included, among others, the ASSOCHAM International Council of Alternate Dispute Resolution and the Bangalore International Mediation Centre.

• Declaration of the International Centre for Alternative Dispute Resolution (ICADR) as an institution of national importance

According to the Committee, this change has the potential of making the ICADR a globally competitive institution. The transformation of the ICADR is much needed. Founded in 1995, the ICADR has received only 49 cases until today. This is largely because it has not been able to market itself to prospective parties at the stage of contract formation. Once the ICADR is given the status of an institution of national importance, the Government will actively promote it and give it the backing required to ensure that at least in Government related contracts the ICADR is the arbitral institution of choice.

• Permission to foreign lawyers to represent clients in international arbitrations with seat in India

The Committee envisages allowing foreign lawyers to participate and represent clients in India seated arbitrations coupled with easing restrictions related to, amongst other things, immigration and taxation. Whilst as a matter of practice foreign lawyers are already participating in international arbitrations seated in India, providing easier access to immigration and clarity on taxation will encourage more foreign lawyers to conduct institutional arbitrations in India.

II. Developments from the Courts: Supreme Court refers the appointment of an arbitrator to the Mumbai Centre for International Arbitration (MCIA)

In July 2017, the Supreme Court of India asked the MCIA in an order to appoint an arbitrator in an international arbitration dispute between the drug maker Sun Pharmaceuticals Industries Ltd. and Nigeria-based Falma Organics Ltd. For the first time, the Court applied Section 11 of the 2015 Amendment Act designating an institution to assist with the appointment of an arbitrator. The amended Section 11 empowers the Supreme Court and the High Courts, upon request of a party, to appoint an arbitrator if a party fails to appoint one within 30 days from the receipt of a request to appoint from the other party.

This order marks a milestone towards promoting institutional arbitration in India. As already mentioned, Section 11 as currently in force, requires the court to examine the existence and validity of an arbitration agreement before appointing an arbitrator. This is highly problematic because only the Supreme Court can hear Section 11 applications concerning an international arbitration (and the High Courts concerning domestic arbitration). The immense amount of time taken by these courts to dispose of Section 11 applications along with their insufficient awareness of suitable arbitration practitioners has made the entire process highly inefficient.

This Supreme Court order promotes the pro-arbitration stance of the Indian judiciary and adds credibility to the newly established MCIA. More importantly, it sets a precedent for the High Courts and the Supreme Court to assign the appointment of arbitrators to arbitral institutions, which have greater access to a network of arbitrators and can act more swiftly without causing unnecessary delays.

Conclusion

The current performance of the arbitral institutions can be considered as a modest start. The Delhi International Arbitration Centre has successfully heard over 900 cases since its establishment in 2009 and the Bengaluru Arbitration Centre has heard 175 cases from its establishment in 2012 until September 2014, including six international arbitration matters. The MCIA, though new, has been structured on the pattern of a truly international arbitral institution. Implementing the recommendations of the Committee can be the first step towards ensuring an increase in these numbers and making India a preferred seat of international commercial arbitration. We hope that the above-mentioned changes will promote international best practices in India and make the process of institutional arbitration speedier and more reliable.

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Kluwer Mediation Blog – December Digest

Sat, 2018-01-06 03:32

Anna Howard

The last month of 2017 offered up a rich assortment of posts on the Kluwer Mediation Blog. These include Sabine Walsh’s very useful summary of the European Parliament’s recent resolution on the implementation of the European Mediation Directive, and an interview by Bill Marsh with Michael McIIwrath on what users really want from mediators and mediators. The festive season also brought a host of particularly reflective posts, including Martin Svatos’ post on the Christmas Truce during the Christmas of 1914 and Greg Bond’s personal Christmas story. Below you will find a brief summary of each post on the Kluwer Mediation Blog last month. We wish all of our readers a very happy new year.

In What The Parties Really Want – Interview 2 – Mike McIIwrath, in the second in a short series of blogs interviewing regular users of mediation about what they really want from mediators and from mediation, Bill Marsh interviews Michael McIlwrath. Michael has been the head of litigation for GE Oil & Gas since 1999. The topics explored in the interview include: what in-house counsel want from providers of dispute resolution services; the key attributes, approaches and mind-sets Michael looks for in a mediator; and the key change which Michael would make to the way mediation is practised around the world.

In Have You Heard The One About The Talking Toad, Charlie Woods draws on James Robertson’s novel To Be Continued to highlight the value of “other shoes” thinking and the opportunities which mediation offers to explore all sorts of possibilities. Charlie also explains Edward De Bono’s “six thinking hats” approach to achieving more creative and productive thinking.

In A Useful Little Resolution – The EU Parliament Resolution On The Implementation Of The Mediation Directive, September 2017, Sabine Walsh provides a very helpful summary of this recent European Parliament resolution which makes a number of findings in relation to what has, and has not worked in the European Mediation Directive, and makes recommendations in this regard. Sabine explores a number of the recommendations identified in the resolution including: the provision of mediation information in order to increase the uptake of mediation; the value of mediation information sessions; and ensuring the free circulation of mediation settlement agreements.

In A Magical Mediation Metaphor, Joel Lee shares a recording from the Singapore Institute of Dispute Resolution Academy’s Symposium on “Rethinking Diversity in Conflict”. The video shows Joel drawing on his skills as a former semi-professional magician to illustrate the contribution of peacemakers.

In The Christmas Truce, Martin Svatos notes the impact of the Christmas spirit and, in particular, provides a detailed account of the truce in the trenches at Christmas 1914 during World War 1. This post certainly gives much food for thought.

In The Lost Smartphone: A Christmas Story, Greg Bond shares a recent experience through which he explores the borders between trust and suspicion. The story illustrates issues which are pertinent to mediation such as: establishing trust; embarking on a path without knowing the outcome; not giving in or up; interpreting between languages; being open for surprises; moving between worlds; being available for the parties; and many more …

In Mediating Minimally, John Sturrock draws on a recent mediation to remind mediators of a couple of central features of what they do. John notes that the reminder is timely as, as we move into another year, it may enable mediators to achieve even more than they do already in their work.

Finally, in I’ve Heard That One Before, I (Anna Howard) challenge the perception that mediators are tree-huggers and I consider how the quality of boldness is relevant to both mediators and mediation.

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When the Bell Doesn’t Save You: Favianca and Jurisdiction After ICSID Denunciation.

Thu, 2018-01-04 16:26

Manuel Casas

This Post analyzes the recent award in Fábrica de Vidrios Los Andes, C.A. & Owens-Illinois de Venezuela, C.A. v. Bolivarian Republic of Venezuela (“Favianca”). This is the first award to rely on Article 72 of the ICSID Convention to decline jurisdiction over a claim filed after Venezuela had noticed it would denounce the ICSID Convention but before the 6-month period set out in Article 71 of the ICSID Convention had elapsed.

It is not uncommon for treaties to establish a delay between the time a State withdraws from the treaty and the time that withdrawal becomes effective. Indeed this is the default solution established by Article 56(2) of the Vienna Convention. That Article provides that when a treaty lacks withdrawal provisions, withdrawal is still possible in some cases, but always requires at least one year’s prior notice prior to the withdrawal becoming effective.

And if the treaty confers jurisdiction on an international court or tribunal, it is not uncommon for potential claimants to rush to file their claims before denunciation becomes effective. Every potential litigant is trying to get saved by the bell. The Claimants in Favianca were no exception: they filed their request for arbitration on 20 July 2012 – just five days before Venezuela’s denunciation of the ICSID Convention became effective.
Investor-State tribunals and international courts have previously dealt with these types of claims. In most cases those courts and tribunals have affirmed jurisdiction. Yet the Favianca Tribunal reached an opposite conclusion. It held that Venezuela’s prior denunciation of the ICSID Convention meant that consent to arbitration could not be perfected after denunciation and thus declined jurisdiction.

The Favianca Award: A Brief Overview

The Tribunal’s decision was based on its interpretation of Articles 71 and 72 of the ICSID Convention. Specifically, the Tribunal concluded that the Convention established a “division of labor” between the two articles. Article 71 provides that “denunciation shall take place six months after receipt of such notice.” While Article 72 states that notice of denunciation “shall not affect the rights or obligations … of that State … arising out of consent to the jurisdiction of the Centre given by one of them before such notice was received.”

In the Tribunal’s view, the two articles have separate purposes. On the one hand, Article 71, is directed to States as contracting parties to the ICSID Convention. On the other hand, Article 72 is directed to States as parties in ICSID arbitrations (para. 269). Based on this division of labor, the Tribunal held that the effect of Venezuela’s denunciation of the Convention on its consent to arbitrate was governed by Article 72, not Article 71.
Therefore, the Tribunal focused on Article 72’s reference to “consent to the jurisdiction.” It then drew a distinction between unilateral consent – that given exclusively by the State through a BIT – and perfected consent – crystallized when the potential claimant accepts the State’s offer to arbitrate (para. 274).

This distinction between the two types of consent led the Tribunal to conclude that a State’s consent to ICSID arbitration only extended throughout the 6 months period in cases of perfected consent (para. 282). In practice, this means when the claimants filed either a request for arbitration or at least a notice of dispute before denunciation.
The Favianca Tribunal’s interpretation of the Convention is detailed and thorough. The issues it tackled are complicated and have divided scholars. Yet the award departs from the interpretation of other tribunals. And the Tribunal’s distinction between the roles of Articles 71 and 72 is debatable. After all, the essential purpose of the Convention is dispute resolution. What other purposes would a State have to join the Convention other
than participating in ICSID Arbitrations?

More importantly, it seems to miss the overarching policy objectives pursued by Article 71 of the Convention: precluding States from opportunistically withdrawing from a treaty without previously granting potential claimants enough time to bring their claims. Instead, the Favianca Tribunal allowed Venezuela to, in practical terms, denounce the ICSID Convention with immediate effects.

Other Tribunals’ Position

Several tribunals had already addressed cases filed against Venezuela during the 6-month period before its denunciation of the ICSID Convention became effective. Several of these cases were not analogous to Favianca, as the claimants had filed notices of disputes before denunciation (and thus had perfected consent to arbitration before denunciation).
But not always. The Tribunals in Venoklim, Rusoro Mining, Blue Bank, and Transban held that claims filed within the 6-month window were valid. Note, however, that some dismissed the claims on other grounds and that Rusoro was under Additional Facility Rules.
For example, the Tribunal in Blue Bank concluded that it had jurisdiction over claims filed within the six months that follow the notice of denunciation. The Blue Bank Tribunal held that otherwise the sentence “the denunciation shall take effect six months after receipt of such notice” in Article 71 of the Convention would be deprived of effet utile (paras. 117-119).

The president of the Blue Bank Tribunal, Christer Söderlund, issued an insightful separate opinion analyzing Article 72 of the Convention. Söderlund views Article 72 in its historical context: a time before States entered into BITs. Thus, he concludes that Article 72 does not apply when States have consented to arbitration through a BIT, as in those cases States have “undertaken … the obligation to submit to international arbitration … for the duration of the treaty.” (para. 41).

For its part, the Venoklim Tribunal considered that Article 72 of the Convention could not be interpreted as establishing a specific rule that would give denunciation of the Convention immediate effect. The Venoklim Tribunal held that such a derogation from the general rule of Article 71 of the Convention would go against “the common sense” of that rule (para. 62, my translation).

Post-Denunciation Claims Before Other International Courts

International courts have also addressed claims filed between a State’s denunciation of a treaty and the date withdrawal becomes effective. They have tended to affirm jurisdiction over those claims. Of course, these courts have not faced treaty provisions akin to Articles 71 and 72 of the ICSID Convention; but their stance is still useful to understand the underlying principles at stake.

The ICJ has addressed analogous situations. After the ICJ decided Territorial and Maritime Dispute (Nicaragua v. Colombia) in 2012, Colombia purported to immediately withdraw from the Pact of Bogotá, the treaty that established the Court’s jurisdiction. The Pact, however, required a one-year notice period before denunciation became effective. Before the expiry of that one-year period, Nicaragua submitted two further disputes to the Court. Colombia challenged the Court’s jurisdiction, arguing that its denunciation of the Pact of Bogotá had been done with “immediate effects.” The objection was not successful.

Instead, the Court in Alleged Violations of Soverign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v. Colombia) held that, because the Pact “requires one year’s notice in order to terminate the treaty, any notification of denunciation begins to take effect immediately in the sense that the transmission of that notification causes the one-year period to begin.” (at para. 46).

The most expansive position to jurisdiction after denunciation is perhaps the Inter-American Court’s. The American Convention on Human Rights provides that denunciation only becomes effective one year after notice. The Inter-American Court, however, has considered that it retains jurisdiction over any dispute that took place during the time the American Convention was in force. The Inter-American Court has applied this in cases brought against Trinidad & Tobago and Venezuela, two States that have denounced the American Convention.
For instance, in Constantine et al. v. Trinidad & Tobago, a case brought almost two years after Trinidad had denounced the American Convention, the Court affirmed its jurisdiction and held that “The facts … occurred prior to the effective date of the State’s denunciation. Consequently, the Court has jurisdiction.” (at para. 28). The Court reached a similar conclusion in Granier v. Venezuela (at para. 14).

Jurisdiction Post-Denunciation: Policy Considerations

There are also important policy considerations for including the expiration of a notice period before denunciation of a treaty enters into force. Without that notice period, States may elect to strategically denounce a treaty conferring jurisdiction to an international court or tribunal when it plans to take an action that it suspects will lead to international claims.

Thus, by strategically withdrawing from a treaty, a State may insulate itself from international responsibility. Treaty provisions requiring some time before withdrawal becomes effective do not completely bar that possibility. But they make it more difficult.
Provisions like Article 71 of the ICSID Convention are meant to avoid that. The Favianca Tribunal, however, was not persuaded by those concerns. Moreover, as shown by Söderlund’s separate opinion in Blue Bank, the Favianca Tribunal’s interpretation is anchored in a potentially anachronistic reading of Article 72. That interpretation allowed Venezuela to effectively denounce the ICSID Convention with immediate effects.

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The Three Hottest Energy Arbitrations of 2017

Wed, 2018-01-03 22:36

Marine de Bailleul

2017 has witnessed a boom in the number of international arbitrations in the energy sector. This is no surprise. Indeed, at the end of 2016, ICSID’s caseload-statistics reported that 42% of cases administered by ICSID arose from the energy sector, which was more than any other sector. As anticipated, this rise has continued throughout 2017. Today, energy is the industry where international arbitration is perceived as the preferred mechanism of dispute resolution, together with construction. The Energy Charter Treaty (“ECT”) is the most frequently invoked international investment agreement.

This popularity is explained by the crucial role played by sources of energy in today’s economies: the world is hungry for oil and for gas. These are the most important sources of energy and meet almost all global energy needs. Demand of, and investment in, sources of energy, are flourishing. Foreign investment became crucial to afford states the possibility of exploring and developing their energy resources, especially where states do not otherwise have the capital to do so.

In this piece, I examine three landmark energy arbitrations that shook up the international arbitration community in 2017. In my view, these are the hottest energy arbitrations of the year. Here’s why.

1. Hot because unattainable: June 2017, Yukos faces additional hurdles to enforce the award

That the shareholders in defunct Russian oil giant Yukos Oil Company (“Yukos”) won the largest arbitration award ever against Russia will be no news to you. On 18 July 2014, an arbitral tribunal sitting in The Hague held unanimously that Russia breached its international obligations under the ECT by destroying Yukos and unlawfully expropriating its assets for political reasons. The mammoth award was final, binding, and enforceable in 150 states under the New York Convention. However, Yukos faced several challenges in its efforts to collect on the USD 50 billion award. Below I set out some of these challenges, the latest of which occurred in June 2017.

First, in April 2016, the District Court of The Hague overturned the award on the basis of the tribunal’s decision on its jurisdiction, finding that Russia had not bindingly agreed to provisionally apply the ECT under article 45 of the ECT. Indeed Russia signed the ECT but never ratified it, because it found that the dispute resolution through arbitration at article 26 of the ECT was at odds with the Russian Constitution.

Second, when Yukos commenced its enforcement efforts by attempting to seize Russia’s assets abroad and freezing Russian bank accounts, including the accounts of Russian space agency Roscosmos, several national courts opposed the seizures in their respective jurisdictions. For instance, a Paris court invalidated the seizures related to Paris enforcement proceedings in June 2016, on the grounds that Roscosmos was a separate legal entity which could not be held accountable for debts owed by Russia.

Third, in June 2017, a Belgian court similarly unfroze Russian assets and lifted all attachments on Russian-owned real estate and bank accounts in Brussels, on the basis that Yukos lacked a valid enforceable title for the attachments. A 2015 amendment to the Belgian Judicial Code made it more difficult for creditors to attach the assets of sovereign states, including by imposing stricter conditions for the attachment; France passed a similar law in 2016.

Fourth, and this is the latest and ultimate obstacle in Yukos’ enforcement efforts, the Paris Court of Appeal confirmed in June 2017 the release of the seizures of Roscosmos’ assets and accounts. It rejected Yukos’ appeal and affirmed the lower court’s ruling that Roscosmos was not an emanation of the Russian state, but instead a separate legal entity not liable for Russia’s debt in the USD 50 billion award. All in all, the Paris Court of Appeal held that the seized funds did not belong to Russia and, as such, lifted attachments on funds held by French satellite launch company Arianespace. Andrea Pinna, counsel to Russia in the Paris enforcement proceedings, noted that “this is the ninth legal decision along these lines. Not once have the oligarchs succeeded with their arguments brought before French courts for the seizure of assets of Russian public corporations”.

The bottom line is that Yukos is facing continuous hurdles in attempting to collect on the award costs. Targeting Russian and French commercial interests in connection with the European space cooperation is proving a difficult task, and Yukos may have to look at other avenues for enforcement. It could also appeal the latest decisions before the Cour de Cassation and seek to renew the attachments.

2. Hot because feisty: June 2017, Total defeats a multi-billion arbitration claim

After an eight-year UNCITRAL dispute with Russian provinces Volgograd and Saratov and with Russian company OOO Interneft over a 1992 oil and gas exploration and production agreement, former Total subsidiary Elf Neftegaz has prevailed in the arbitration by having all claims thrown out on 19 June 2017.

In the arbitration, the parties disagreed on the applicability and effective date of their contract. The agreement, aimed at the development of oil fields in Volgograd and Saratov, was concluded weeks after the collapse of the Soviet Union. The parties were at odds over whether the contract had taken effect, though it was common ground that no oil and gas exploration or production ever occurred. Indeed, Elf Neftegaz argued that it was forced to abandon the project following the claimants’ resistance: Russia implemented federal regulations that were contrary to the contract and sought greater autonomy in the provinces. Other points in dispute concerned: (i) the legal regime applicable in the Soviet Union; (ii) the changing legal and political landscape when the Russian Federation came to light; (iii) whether the claims in the arbitration were time-barred; and (iv) whether the provinces had authority to enter into the 1992 agreement.

More importantly, the amount in dispute is what makes Total’s successful defense particularly noteworthy: the claimants sued Total for USD 22 billion in damages. Total managed to defeat this sizeable arbitration claim, thereby avoiding what would have been one of the largest UNCITRAL awards ever. What is more, the claimants failed to challenge the arbitral award in the Swedish court within the required deadline; therefore, the award is now final and binding. This constitutes another hot arbitration outcome in the energy sector.

3. Hot because harmonious: December 2017, ConocoPhillips and Ecuador settle their dispute

On 4 December 2017, ConocoPhillips and Ecuador agreed to the terms of a settlement under an ICSID arbitration award issued last February. In December 2012, an ICSID panel issued a decision on liability holding Ecuador liable under the USA-Ecuador BIT for unlawful expropriation of the company’s assets in the country – two significant oil blocks. The arbitral tribunal then issued an award on damages in February 2017, ordering Ecuador to pay USD 380 million to ConocoPhillips’ subsidiary Burlington Resources, by way of compensation for the 2009 confiscation. Ecuador then applied to annul the award, and in August 2017 an ICSID Annulment Committee lifted the stay of enforcement of the award, rejecting the state’s argument that payment of the award costs should be postponed due to financial pressures.

Under the settlement agreement, ConocoPhillips will receive USD 337 million from Ecuador. The energy giant has already received USD 75 million from the state in December 2017, and expects to collect the balance by April. The parties have also agreed to an offset for the decision awarding Ecuador USD 42 million on its counterclaims, of which Burlington Resources is entitled to an extra USD 24 million through a third-party contribution to the payment.

The settlement is a positive development, not only because it allowed the parties to resolve their nine-year controversy constructively, in terms which are mutually satisfactory, but also because it contributes to the effectiveness and legitimacy of the arbitral process. Indeed as stated by Ecuador’s attorney general’s office, the state will stick by its “commitment to fulfilling its international obligations”. Put simply, Ecuador will pay the agreed sum to ConocoPhillips. This is an encouraging outcome, especially in light of the recent trend of hostility towards the arbitral process as shown by several states in the Latin American region. By way of example, as discussed in a previous article, Venezuela adopted a stance of non-compliance and opposition to the multiple awards rendered against it in recent years. Venezuela multiplied its annulment requests against such awards, and its cumulative debt at ICSID grew sharply. It is therefore promising to witness countries such as Ecuador engaging in a mutually agreeable resolution of their dispute instead of repeatedly avoiding payment, even if Ecuador has noted that it disagrees with the award findings.

* * *

To put it in a nutshell, the energy sector has clearly emerged as a trendy sector in which to use international arbitration as a tool for resolving disputes. The importance and complexity of the issues at stake, the prominence of the parties involved, and the size of the claims, all partake of the popularity of energy arbitration. It remains to be seen whether 2018 will be taking a step in the same direction…

The views and opinions expressed in this article are those of the author, and do not necessarily reflect the official policy or position of its previous or current employer.

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Non-existence of Contract: An Often Raised Challenge at Recognition and Enforcement Stage in China

Tue, 2018-01-02 18:54

Wei Sun

When applicants seek recognition and enforcement (“R&E”) of foreign arbitral awards in PRC courts, a challenge often raised by respondents is the non-existence of the main contract between the parties, where the arbitration agreement is contained. Respondents contend that the contracts provided by the applicants as the basis for arbitration are not authentic or duly executed, thus non-existent. In particular, the lack of an original copy, of the signature by an officer authorized to sign the particular contract, and of an official stamp of the company being affixed may all call into question the authenticity and existence of the main contracts and, consequently, the arbitration agreement included therein. The note takes a closer look at the facts and the reasoning employed by PRC courts in relevant cotton arbitration cases, intending to show how PRC courts approached the issue of non-existence in R&E proceedings due to negligence occurring during execution of contracts.

Allenberg Cotton v. Jiangsu Nijiaxiang Group (2013) Wuxi, Jiangsu

Allenberg Cotton (“Allenberg”) applied to enforce an International Cotton Association (“ICA”) award (A01/2010/80) against Jiangsu Nijiaxiang Group (“Nijiaxiang”) before the Wuxi Intermediate People’s Court.

Background: The dispute arose out of a sales contract (No. 395080). The parties listed in this contract were Allenberg and Nijiaxiang, but the contract was only signed by a person named Zhang Yongzhong and not stamped by Nijiaxiang. Zhang was the general manager of Tiangong, a subsidiary of Nijiaxiang. In the past, Zhang signed one contract (No.381950) on behalf of Nijiaxiang and several contracts on behalf of Tiangong, with Allenberg. All these contracts had original paper copies and were respectively stamped by Tiangong and Nijiaxiang. However, Contract 395080 as submitted by Allenberg was a fax copy and Zhang denied that the signature was genuine.

Court decision: The court held that, first, Allenberg failed to provide further proof to establish authenticity of Zhang’s signature on Contract 385080. In particular, when the court asked if Allenberg wanted to apply for technical verification of the signature, Allenberg refused to do so. Second, all the previous undisputed contracts between Tiangong/Nijiaxiang with Allenberg were executed by placing Zhang’s signature as well as the company stamp on printed copies of contracts. In contrast, Contract 395080 was a fax copy with only Zhang’s signature, a notable deviation from the past practices. Thus, the court was unable to ascertain whether there was an arbitration agreement between the parties.

Further, the court proceeded to conclude that, under English law, even if Zhang’s signature on Contract 395080 was authentic, Allenberg failed to prove that Zhang was authorized to sign the contract on behalf of Nijiaxiang. The main reasons relied by the court were: (i) Allenberg failed to prove that Zhang was expressly authorized by Nijiaxiang; (ii) based on past practices, Allenberg should check if Zhang was authorized or should request Nijiaxiang to stamp the contract; (iii) except for Contract 381950 (which was also stamped), Zhang had never represented Nijiaxiang in dealing with Allenberg; and (iv) Nijiaxiang declined to ratify Zhang’s signature by applying for non-recognition.

On these grounds, the court concluded that there was no arbitral agreement and the condition for an arbitration agreement set forth in Article II of the New York Convention was not met. Thus, in accordance with Article V.1(a) of the Convention, the court refused to recognize and enforce the ICA award.

In another case Louis Dreyfus v. Jiangsu Nijiaxiang Group (2013) Wuxi, Jiangsu, the factual background and the court’s ground for non-recognition were almost the same.

ECOM Agroindustrial Asia v. Qingdao Golden Yangtze Group Penglai Textile (2014) Yantai, Shandong

ECOM Agroindustrial Asia (“ECOM”) applied to enforce an ICA award against Qingdao Golden Yangtze Group Penglai Textile (“Golden Yangtze”) before the Yantai Intermediate People’s Court.

Background: The dispute arose out of a sales contract and the corresponding confirmation letter between ECOM and Golden Yangtze, both signed and stamped. However, the contract was sent through faxing so there was no original copy. During the R&E proceeding, Golden Yangtze categorically denied the authenticity of the signature and stamp on the copy. ECOM did not provide supplementary evidence in response. Instead, ECOM argued that the authenticity of the contract was a matter of substantive law and should only be decided by the ICA tribunal and not the Chinese court.

Court Decision: The court reasoned that it had the power to determine whether there was an arbitration agreement and whether it was valid on the basis of evidence. In this case, the dispute was whether the signature on faxed copy was genuine or not. This could only be ascertained by analyzing the faxed copy and other evidence materials provided by the parties. As ECOM failed to provide any other evidence materials except for the faxed copy and an ICA statement, there was not sufficient evidence to establish that there was any arbitration agreement between the parties. Hence, the application by ECOM did not meet the requirement set forth in Article II of the New York Convention and should be denied.

In contrast, in ECOM USA v. Foshan Nanhai Zhaoli Cotton Spinning (2014) Foshan, Guangdong, the court upheld the authenticity of a contract only with a fax copy because ECOM used a witness to prove the signing of the contract, whose testimony was supported by the fax number and time of transmission on the fax copy.

Compass Cotton B.V. v. Shandong Yanggu Shunda Textile Co., Ltd (2014) Liaocheng, Shandong

Compass Cotton B.V. (“Compass Cotton”) applied to enforce an ICA award against Shandong Yanggu Shunda Textile Co., Ltd (“Shunda”) before the Liaocheng Intermediate People’s Court.

Background: The dispute arose out of a sales contract between Compass Cotton and Shunda, concluded with the help of an agent company in Shanghai. Compass Cotton only had a fax copy of the contract, signed by a person named Zhang Jie and stamped. Along with other challenges, Shunda also contested the existence of the contract. In particular, Shunda provided payroll and social security records to prove Zhang was not an employee of Shunda and sample contracts to show the stamp on the contract was not the official and registered stamp of the company. In response, Compass Cotton submitted a group of supplementary evidence. First, Compass Cotton provided two contracts between Shunda and two international companies, which were executed in the same pattern, i.e. signed by Zhang and affixed with the unofficial stamp, and records from the Qingdao Customs showing that one of the two contracts was actually carried out by Shunda and Shunda used to recognize such contracts. Second, Compass Cotton provided webpages where Zhang was listed as a representative of Shunda. Third, Compass Cotton provided Shandong precedents to establish that using an unofficial stamp did not affect the contract’s validity in international trade. In addition, the court, at the request of Compass Cotton, interviewed Zhu Xuesong, executive director of the agent company in Shanghai.

Court decision: The court affirmed the existence of contract between Compass Cotton and Shunda based on the testimony of Zhu Xuesong and the supplementary evidence submitted by Compass Cotton. As the court also found other issues in Compass Cotton’s favor, it recognized the ICA award in the end.

Suggestions for Executing Contracts

As analyzed above, arbitral awards may be denied recognition in China for omissions made during execution of the sales contracts. By observing some simple precautions, the possibility of non-recognition can be dramatically reduced.

(a) Legal Representative

Every company in China has a registered legal representative, either the general manager (CEO) or chairman of the board of the company. The legal representative, as the title indicates, does not need any further authorization to represent the company. On the other hand, other directors, officers or employees of a company can only represent the company within their respective authorizations. Thus, it is always a good idea to request the legal representative of a Chinese trade partner to sign the sales contract. If a person other than the legal representative is signing the contract on behalf of a Chinese company, it is prudent to request for a power of attorney.

(b) Official Stamp

Every company in China has an official stamp, which is registered at the local Administration of Industry and Commerce. Companies, however, may use other unofficial stamps, such as so-called accounting stamps, trade stamps, etc. Even if not signed or signed by a person other than the legal representative, a contract affixed with the official stamp is usually sufficient to bind the company. It’s prudent to request a Chinese trade partner to affix its official stamp on the contract.

(c) Keep records

Although, execution of contracts by faxing executed copies or emailing scanned copies can be more efficient, it could relatively hard to verify the authenticity of signatures and stamps on these copies. Records such as original fax transmission pages (showing fax number and transmission time) and email correspondences should be kept for future possible use as evidence. Similarly, it would be a good idea to keep records evidencing prior transactions with repeat trade partners.

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