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Investment Arbitration in Latin America is Here to Stay

Sun, 2019-07-21 21:00

Rebeca Mosquera and Alejandro Chevalier

The Latin Lawyer – GAR Live 3rd Annual Arbitration Summit took place on Tuesday, April 30, 2019 (the “Summit”). Practitioners from the United States and Latin America gathered for a third consecutive year in Miami to discuss the importance of dispute boards in constructions contracts, the issue of social licenses, the challenges facing the energy sector in Latin America, and the status of renewable energy disputes in Spain. The Summit, chaired by Jonathan Hamilton of White & Case LLP and Jose Daniel Amado of Miranda & Amado Abogados, showcased a US senate committee style hearing where the panelists explored the question of whether investment disputes in Latin America are phasing out or are here to stay.

Before introducing the first panel, Jonathan Hamilton emphasized the fact that Miami offers a solid ground for arbitration, and that the region has come a long way since the first ever treaty arbitration case, Santa Elena v. Costa Rica (ICSID Case No. ARB/96/1).

The first panel, moderated by Carlos Concepcion, Shook, Hardy & Bacon, dealt greatly with the issue of social license, specifically, Carlos Concepcion referred to the relationship between the community, the sovereign, and the investor/contractor. He stressed the importance of the community to endorse the investment or project for its entire duration. The Bear Creek v. Peru arbitration was mentioned as an example of the importance that investors and the host state involve the local community to ensure that the community is receptive to the project.

Marco Tulio Venegas, Von Wobeser y Sierra S.C., explained the issue of social license from the perspective of Mexico. He noted that in reaction to President Trump’s immigration policies, Mexico has been focused on developing the south of the country, but there it found resistance from local communities to new construction megaprojects. Mexico has tried to address the issue by imposing on the local government the duty to obtain the consent from the community before the project is undertaken. Ana Maria Legendre, White & Case, commented that, in Panama, the issue of social license is primarily left to the investor, which is to engage with the community. After securing a concession, the investor must obtain the consent from the Saila—a political and religious leader in certain indigenous communities in Panama. Carlos Ortega, FTI Consulting, focused on whether fines paid to the local government/community due to violations of the social license could be included by the investor as part of its claim. Carlos Ortega discussed that the unquantifiable value of the license and the project must be measured in light of the benefits that the project gives to the country and the community. Lastly, Katherine Gonzalez Arrocha, International Chamber of Commerce, introduced the subject of dispute boards in arbitration. Katherine Gonzalez Arrocha said that there has been an increasing use of dispute boards in construction arbitration. The rest of the panelists agreed that dispute boards are increasingly used in construction arbitration in Latin America.

The second panel, moderated by Jose Daniel Amado, focused on the latest developments in the energy sector in Latin America. Gino Sangalli, Inkia Energy, discussed his experience as a general counsel for an energy company. He and his team perform what he calls a “BIT due diligence”. This due diligence allows the company to form an idea of which jurisdictions have the best protections for investors and potentially foresee how a regulatory change may affect their project. On the other hand, Isabel Kunsman, AlixPartners, focused her presentation on the renewable energy cases involving Spain. When the Spanish government decided to revoke incentives designed to attract investors to the country’s renewable energy market, a series of legal battles and international arbitrations ensued. Isabel Kunsman highlighted that, with respect to the calculation of damages, the RREEF v. Spain award refused to follow the “all or nothing” approach that had been followed by tribunals in other ECT-based claims against Spain. The RREEF tribunal held that because Spain had the right to endorse “reasonable” changes to its regulatory regime, the investor should only be compensated on his reasonable expectation on return.

On a slightly denser issue, Christian Leathley, Herbert Smith Freehills, discussed the interface of criminal actions in international arbitration and the gathering of evidence in these types of claims. Leathley stressed the fact that investments related to energy giga-projects could most likely be exposed to corruption given that they are typically handled or require the involvement of many people. This speaker reminded the audience how States have used allegations of corruption as a defense. In this context, he affirmed that during the gathering of evidence, tribunals, in commercial arbitrations, are likely to grant the request for documents and hear allegations of corruption within the merits phase; while in investment arbitration, tribunals deal with this issue at the jurisdictional stage. Co-panelists commented that these document requests might sometimes evolve into a fishing expedition. They also agreed that corruption has had a ripple effect in the region. On the other hand, Silvia Marchili, White & Case, noted that energy projects normally involve complex, long-term, high-stakes investments that are frequently located in challenging jurisdictions, and are sensitive to changes to volatile variables like commodity prices, making them prone to high-stakes disputes. She noted that when it comes to what the future holds for energy disputes, elements that may be relevant include public-private partnerships (PPPs), the renewables subsector, and environmental issues.

Jose Astigarraga, Reed Smith, moderated the third panel. This panel focused on lessons learned from disputes in the mining sector. Patricia Arrazola Bustillo, Gomez-Pinzon, delivered a practical approach regarding arbitration clauses in mining concession contracts with the Colombian government. Arrazola Bustillo noted that, although the concession agreement is an adhesion agreement, there is a possibility of including a dispute resolution clause through negotiation with Colombia. From an institutional perspective, Luis Martinez, International Centre for Dispute Resolution, discussed several factors, such as licensing and mobilization, surrounding project finance transactions, particularly EPC contracts. In addition, Martinez stressed the importance of parties to reach a consensus on the dispute resolution mechanisms that will be adopted by them. Furthermore, Martinez addressed the use of step or tier clauses and their possible benefits. He reasoned that by incorporating multi-tier dispute resolution clauses in their contracts, parties could get familiar with the issues giving rise to possible disputes through early negotiations or mediation, before reaching arbitration proceedings or alternatively, resolving these issues before reaching arbitration. The figure of “amigable componedor” used in Colombia was mentioned as an example.

On the other hand, Adolfo Jimenez, Holland & Knight, stressed the importance of taking into account while developing a project, the interests and well-being of the local communities. Jimenez noted that politics have transitioned to corruption in different cases, especially in the mining industry in which multiple ministries are involved. Thus, he recommended that the investor must make sure that it delivers on its promises. The next speaker, Jose Antonio Rivas, Vannin Capital, discussed the life-cycle of a mining project, which, he said, comprises five (5) main stages. With the support of visual aid consisting on a timeline showing the events giving rise to several investment disputes in Latin America, Rivas compared and contrasted different placements of quantum results, thus showing the audience possible damages valuation scenarios. Finally, extending the conversation on valuation and damages issues, Chris Milburn, Secretariat International, spoke about the different approaches that Tribunals could take while analyzing damages in the context of mining claims – income approach, market approach, and cost-asset approach. Milburn also stated that environmental issues might give rise to mining claims. In fact, when asked where the social license enters into a valuation, Milburn generally recommended the following: (i) a base line industry risk level could be included for discount rate, depending on case specifics, and (ii) risk may be diversified by the investors by developing projects in different jurisdictions where the risks assumed are equally diverse.

The fourth panel, moderated by Jonathan Hamilton, White & Case, focused on the destiny of investment disputes in Latin America and asked whether it is a historical moment or it is here to stay. He notes that original objectives of investment arbitration were to have lawyers resolve foreign investment problems instead of soldiers or politicians and asked whether that still exists today. Additionally, the panel discussed the dispute resolution clauses contained by new and renegotiated treaties and the future of regional treaties and arbitration centers. Mark Kantor, Independent Arbitrator, stated that dispute resolution and dispute settlement are inevitably political in part. Kantor noted that it is difficult to predict the future of investment arbitration given U.S. policies under the current Administration and recent E.U. Court of Justice decisions further supporting the idea that with sovereignty in re-ascendance, new challenges for foreign investments could arise. In other words, the future of foreign investments is uncertain given a rise in nationalism, as advanced by policies developed by different administrations and rulings by different courts, located in more than one continent. Kantor further stated that there is a fundamental rationale: not an evolution towards military control, but populism, and the idea of people rejecting the establishment system. Marike Paulsson, Albright Stonebridge, discussed whether politics used to try to resolve investment disputes aggravates proceedings. Patrick Pearsall, Jenner & Block, discussed the current role of the U.S. in the investment treaty regime. Ignacio Torterola, GST, discussed the approaches of regional governments in transition. Juan Marchan, Perez Bustamante & Ponce, posited that politicians interfere with arbitration. However, Marchan emphasized, economic development most probably depends on access to arbitration given that new investments are of a contractual nature.

Jonathan Hamilton shared his experience and reasoning on how investment arbitration has supported the development of projects such as the Quito Airport in Ecuador. The panelists and the audience further proceeded to discuss other topical issues: (i) is Washington backtracking from its pro investment treaty position? (ii) Who is investing and in which projects in the current regulatory environment? (iii) Do foreign direct investments face a new battleground? Having explored the question of whether investment disputes in Latin America are phasing out or are here to stay, the audience and panelists agreed that investment treaty arbitration is here to stay!

 

 

The authors would like to thank Estefania San Juan, White & Case, for her invaluable input in the drafting of this blog post and for her assistance in organizing a successful Summit.

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Developments in Financial Services Arbitrations in Shanghai

Sat, 2019-07-20 21:00

Li Tingwei and Xu Zhihe

Arbitration is often used to resolve financial disputes in China. For example, China’s financial regulation organs, i.e., People’s Bank of China, China Securities Regulatory Commission, China Insurance Regulatory Commission and China Banking Regulatory Commission, each have made efforts in promoting the use of arbitration in their regulated areas of business. Data released by the Ministry of Justice of China shows that 544,535 arbitration cases were accepted by the 255 Chinese arbitration institutions in 2018. Among these, 120,358 (roughly 22.1% and the highest) were financial disputes. The total amount of these financial disputes reached some 233.4 billion RMB (roughly 33.6% and the highest). Several Chinese arbitration institutions, like Shanghai Arbitration Commission (“SAC”), Guangzhou Arbitration Commission and Jinan Arbitration Commission, have also set out arbitration rules specially tailored for resolving financial disputes.

In major financial centers like London and Hong Kong, data shows that London Court of International Arbitration (“LCIA”) accepted 317 cases in 2018, where 29 percent of them are banking and financial disputes; while Hong Kong International Arbitration Center (“HKIAC”) accepted 460 cases (262 arbitrations), where 29.3% of them are financial disputes. An earlier post discussed, amongst others, LCIA’s traditional role in derivatives arbitrations.

 

Arbitrating Financial Services Disputes in Shanghai

 

  1. Strong Government Support and Increasing Numbers of Cases

Finance is a core sector in the city of Shanghai. The Chinese government has offered strong support in developing Shanghai as both a finance hub and an arbitration hub.

Back in 2009, the State Council of China announced the national strategy of Shanghai International Financial Center. In order to realize the goal, Shanghai introduced an action plan, which includes 32 actionable policies in 6 aspects. In particular, the action plan sets the tone of the city to become an international hub for asset management.

As to arbitration, in 2015, the State Council of China mentioned in its Plan for Furthering Reforms of the Shanghai Free Trade Zone to accelerate the pace of building Shanghai as an Asian arbitration center for the globe. In October 2017, Shanghai released an action plan to lead the country’s “One Belt, One Road” (OBOR) Initiative, in which the goal to build OBOR international arbitration center was set. In January 2019, the Committee of Comprehensively Furthering Reforms of Shanghai announced an implementation opinion on perfecting the arbitration mechanism, improving the credibility of arbitration and accelerating the pace of building Shanghai as an Asian arbitration center for the globe (“Implementation Opinion”), in which the task of becoming an international arbitration center was included as a major part of the overall mission of constructing Shanghai as a global city with excellent legal and business environment.

In the past three years, the percentage of financial arbitrations has consistently been the highest among the disputes submitted to the two arbitration institutions based in Shanghai. For Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Center, “SHIAC”), 636 financial arbitration cases were filed in the past three years, which is roughly 26% of all cases. In 2018, the amount of financial disputes in SHIAC reached 7,888 million RMB. Those financial disputes involved stock, bond, fund, futures, insurance, financial leasing, derivatives, trust, factoring, credit card, Internet finance, bank entrusted loan, share-holding entrustment and valuation adjustment agreements.

 

  1. International Pool of Specialized Arbitrators

Currently, SHIAC and SAC have made some progress in promoting arbitration for resolving financial disputes in Shanghai. For example, SHIAC updated its panel of arbitrators in May 2018. There are 367 (roughly 38%) arbitrators with financial expertise in the new panel. Among these, 294 of them are from Mainland China, the remaining 73 arbitrators are from HK, Macau, Taiwan and other jurisdictions. Those financial arbitrators have experience with both traditional financial matters and newly emerged ones.

 

  1. Support from the Courts

Over time, the Chinese courts have enhanced the mechanism of judicial review on arbitral awards, through a number of judicial interpretations and regulatory opinions. With the same efforts, an alternative dispute resolution system for resolving financial disputes has been created. By the end of 2018, the Financial Court of Shanghai accepted 1,897 cases. Their dispute amounts reached 25.2 billion RMB. The types of disputes include false statement in securities transactions, financial lending contract, corporate bond trade, pledged securities repurchasing, financial leading contract and business trust, etc.

In particular, according to Rule on the Jurisdiction of the Shanghai Financial Court promulgated by the Supreme People’s Court on 7 August 2018, the Financial Court of Shanghai is charged with the judicial review on arbitration-related issues as the intermediate people’s courts of first instance in Shanghai over financial civil and commercial cases, such as confirming the validity of the arbitration agreement and reviewing the application for setting aside arbitral awards. In the light of the case data published on the China Judgements Online, amongst the 16 decisions on arbitral awards to date, 7 decisions were made on the validity of fundamental arbitration agreements; 7 decisions were made on the jurisdictional challenges; 2 decisions were on the revocation of awards. In all the 7 cases on the validity of fundamental arbitration agreements, the applicant’s requests against the validity were rejected by the court. In the 7 cases on the jurisdictional challenges, the court confirmed in 3 cases that a valid agreement excludes the jurisdiction of a court. In the 2 cases seeking revocation of awards, the court rejected the applicant’s requests for revocation in both cases.

It is worth noting that the first case accepted by the Financial Court of Shanghai on the validity of arbitration agreement (2018 Hu 74 Min Te 3 Hao) was about a pledged bond repurchasing contract dispute, and the court confirmed the agreement on SHIAC arbitration in the contract was valid. In 2019 Hu 74 Min Te 1 Hao, the Financial Court of Shanghai also heard an application on the revocation of an arbitral award rendered by SHIAC for an insurance contract dispute, and the court rejected the applicant’s request of revoking the award. Therefore, it can be concluded that the abilities of Shanghai arbitration institutions to arbitrate financial disputes have been testified and the Shanghai courts’ supportiveness in enforcing arbitral awards have been demonstrated. Together, they lay a solid foundation for Shanghai to establish itself as an international financial and arbitration center.

 

Future of Shanghai for Financial Disputes

Though financial arbitration in China has made rapid development in these years, the number of disputes accepted by arbitration institutions is incomparable to that by the courts. A 2017 survey report issued by the ICC reveals that, in the 50 respondents of financial institutions and bank consultants, 70% of them have no experience of international arbitration. The room for arbitration to grow and resolve financial disputes in China is huge. The aforementioned Implementation Opinions urges Shanghai to “put forth efforts in innovating arbitration mechanism”, “perfect a coordinated system for arbitration, litigation and mediation”. In this sense, the task of building Shanghai as an international financial center would require not only the thriving of arbitration, but also the engagement of other alternative dispute resolution methods, in particular, to increase the usage of arbitration and mediation for emerging financial disputes.

There has been progress in forging a “litigation-mediation” working capacity in Shanghai. In 2017, the Joint Mediation Committee for the securities, funds and futures was established in Shanghai. Shanghai High Court and China Securities Regulatory Commission signed a memorandum on building “litigation-mediation” working mechanism for disputes in securities, funds and futures. As summarized in this article, compared with litigation, the values relied upon by the mediation process, i.e. voluntary, equal, inclusive, efficient and cost-saving, are more easily realized through arbitration.

Taking SHIAC arbitration rules as an example, in SHIAC’s 2014 version of Free Trade Zone Arbitration Rules, SHIAC was the first Chinese arbitration institution to provide for “mediation before the constitution of the arbitral tribunal” and formed a panel of mediators for the disputants. In practice of SHIAC, a joint venture dispute worth an amount over 500 million RMB was submitted to arbitration under the SHIAC Free Trade Zone Arbitration Rules, and successfully settled through mediation.

The future of combining arbitration with mediation for dispute resolution purposes may be written in the two following ways.

First, the model in Singapore may be adopted. The Singapore International Mediation Center (“SIMC”) would recommend the disputants to seek mediation after they have submitted the case to Singapore International Arbitration Center (“SIAC”) and SIAC has constituted the arbitral tribunal. If the disputants agree to SIMC mediation, SIAC and the tribunal would stop the arbitration process and give the disputants a maximum of 8 weeks to mediate their disputants with the help from SIMC. If the mediation is successful, SIMC would request SIAC to enter the mediation agreement into an arbitral award, which can be enforced through the courts.

Second, arbitration institutions, mediation institutions and industrial organizations may jointly conduct training for commercial dispute resolution experts. In Shanghai, most of the mediators sitting on the panels of commercial mediation institutions are legal experts and they also sit on the panel of arbitrators. But the fundamental requirements of a successful mediation may depend more on industrial experience and knowledge than legal expertise. Top-notch training is important. Since SHIAC formed its panel of mediators in 2014, over 30 mediators from legal, economic and trade sectors have received professional training in this respect.

 

Conclusion

In the new area, the basic policy orientation of the Chinese financial regulators goes for: “serving the real economy”, “preventing and controlling financial risks” and “furthering financial reforms”. Against this background, a modern dispute resolution mechanism must be created to resolve and prevent financial disputes, and to embrace and encourage financial innovation. For commercial arbitration, it must cope and grow with the new trend of financial development in China.

The building of Shanghai as an international financial center relies on three basic elements: innovation, risk-prevention and one-stop ADR services. Under the correlation between financial activities and the arbitration, the legal communities represented by arbitration institutions, practitioners and mediation institutions are faced with great opportunities.

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Do the Prague Rules Provide for an Efficient Resolution of Construction Arbitration Disputes?

Sat, 2019-07-20 03:00

Fabian Bonke (Assistant Editor for Europe)

The main concerns of parties when considering arbitration are the costs and length of arbitration proceedings (see, e.g., Queen Mary University of London 2018 International Arbitration Survey). The popularity of arbitration as a method of resolving construction disputes thus depends largely on whether costs can be reduced and efficiency maintained. This is particularly the case for construction cases of major international energy or infrastructure projects which are often very complex and lengthy due to certain key features: high factual and technical complexity, time pressure caused by the progress of the works that shall not be suspended, the involvement of multiple parties with a fragmentation of responsibilities, the involvement of voluminous evidence to be examined, and many witnesses and experts to be heard.

Whether arbitration proceedings can accommodate the particular features of construction disputes depends largely on the procedures for taking evidence which the arbitral tribunal applies. In this regard, the IBA Rules on Taking of Evidence in International Arbitration (“IBA Rules”) take precedent, and in the years since their launch have been widely used within the arbitration community. However, there have been concerns over the IBA Rules being common law influenced in their approach by allowing for a too expansive approach to evidence.

Against this background, the Rules on the Efficient Conduct of Proceedings in International Arbitration (“Prague Rules”) were drafted and published in December 2018 (for related posts on the Prague Rules on Kluwer Arbitration Blog click here, here, here, here and here). The Prague Rules aim at increasing the efficiency of arbitral proceedings by adopting a more inquisitorial style of proceedings. As opposed to the adversarial approach by the IBA Rules, the tribunal is to take a more active role in managing the proceedings, as is traditionally done in many civil law countries. However, do the Prague Rules provide a suitable set of rules for the efficient adjudication of arbitration cases in the construction sector with its particularly complex disputes? Are these Rules able to add to the appeal of arbitration as forum for major construction disputes? These questions will be addressed in view of the key features of the Prague Rules.

 

The Role of the Tribunal

The key feature emphasized by the Prague Rules is the proactive role played by the arbitral tribunal. The arbitral tribunal may “take an active role in establishing the facts of the case which it finds relevant for resolution of the dispute” (Art. 3.1). The IBA Rules, on the contrary, do not expressly bestow an active role on the arbitral tribunal for the gathering of evidence. This, on the one hand, has the advantage that the parties are not limited in how to establish their facts. On the other hand, this adversarial approach bears the risk that the parties may provide too much evidence which would thus result in unnecessary costs.

Whether disputes in the construction industry are resolved in a more efficient way under the guidance of a proactive tribunal proves difficult to project. In particular, an arbitral tribunal experienced in construction disputes might be able to give directions as to which aspects of the case it finds relevant and which issues may require further elaboration. This might avoid lengthy descriptions of the irrelevant facts (e.g., for an extension of time claims on events that were not time-critical for the project completion). This would then in turn contribute to also limiting legal counsels’ fees, which make up for a major portion of the overall costs of arbitration.

Some additional features of the active role of the tribunal set forth in the Prague Rules seem less relevant, in particular for arbitrations under institutional rules. This applies, for example, to the tribunal’s authority to hold a case management conference without undue delay, in which the tribunal provides, if it deems appropriate, preliminary indications to the parties and fixes a procedural timetable (Art. 2). These issues are usually addressed in institutional rules which would supersede the Prague Rules (Art. 1.3).

 

Document Production

Document Production is a controversial topic between civil law and common law jurisdictions (for latest posts on Kluwer Arbitration Blog click here, here and here). In contrast to countries adopting a civil law approach, parties from a common law background apply a more extensive approach when requesting documents or electronically stored information as deemed necessary to prove ones case. Likewise, the IBA Rules oblige a party to produce the documents requested to the counter party (Art. 3.4). Yet, the documents requested must be detailed (Art. 3.3) and may be objected based on the grounds in Art. 9.2.

Although the Prague Rules follow a more restrictive approach, the concept of document production is not entirely excluded. As a general rule, “the arbitral tribunal and parties are encouraged to avoid extensive production of documents”, Art. 4.2 Prague Rules. According to the civil law rationale, the tribunal is to decide based on the facts as presented by the parties, Art. 4.1. If a party chooses to request documents, it needs to address such request to the arbitral tribunal at the latest in the Case Management Conference, Art. 4.3. Thereby, it must explain the reasons why document production may be necessitated and refer to specific documents only (Art. 4.5).

Document production can be a costly and time-consuming process. Particularly in construction proceedings, which habitually include copious drawings, notices of defects and contract documents, restrictions may contribute to efficiency. With their restrictions, the Prague Rules may thus be beneficial in terms of efficiency. However, it seems as if the Prague Rules went a step too far, by abdicating methods such as e-discovery, particularly nowadays when most documents, also in construction projects, are only saved electronically. As to the IBA Rules, it needs to be pointed out that they merely allow that parties may request the production of only “narrow and specific” categories of documents (Art. 3.3 lit. a. ii.). As another limitation, the tribunal may exclude those documents from production without relevance to the case (Art. 9.2). If the condition of “relevance” is interpreted in a narrow sense, and if the document production is generally managed properly by the arbitral tribunal, document production also under the IBA Rules can be an efficient exercise.

 

Expert Evidence

A key issue in almost all construction disputes is the resolution of complex technical issues which require expert evidence.

The IBA Rules regulate in detail both the use of party appointed and of tribunal appointed experts. Yet, in practice, under the IBA approach, the proceedings are generally only attended by party appointed experts who often provide the tribunal with conflicting reports. The Prague Rules, on the contrary, have a focus on tribunal appointed experts and only mention party appointed experts incidentally (Art. 6.5-6.7 of the Prague Rules). This preference for a tribunal appointed expert has the benefit of being cost-saving. The sole reliance on tribunal appointed experts is, however, not without its downsides. Critiques argue that tribunal appointed experts gain too much influence on the decision since their findings are almost taken as dispositive. To address this issue, the Prague Rules allow the parties to appoint their own experts who can be called upon for examination during the hearing (Art. 6.5 of the Prague Rules). It can be expected that also under the Prague Rules, parties will thus appoint their own experts in order to challenge the tribunal-appointed expert in the hearing, where necessary.

It is thus not very clear whether the choice of the Prague Rules will bring about an increased efficiency in the use of experts. Independent of the applicable rules it seems key in the context of efficiency to identify the areas of agreement and disagreement. To this end, one might defer to the use of tools such as expert conferencing (Art. 8 Abs. 3 lit. of IBA Rules and Art. 6.7 Prague Rules) or joint-party expert reports (see e.g. Art. 6.5 Prague Rules), which have proven to be particularly helpful in finding a solution to multifaceted construction disputes.

 

Hearings

According to the IBA Rules, an evidentiary hearing must be held – whether in person, by telephone conference, or another method of oral evidence. In practice, a hearing requires large amounts of time, personnel and costs. In line with the stronger emphasis in civil law jurisdictions for written proceedings, the arbitral tribunal and the parties shall on the contrary, under the Prague Rules, seek to resolve the dispute on a documents only basis (Art. 8.1). Yet, the Rules allow a party to request a hearing, while they remain silent on whether this request must be granted or whether it lies within the discretion of the tribunal.

Whether or not a hearing is necessary and considered as appropriate in construction disputes must be decided on a case-by-case basis. Regularly, a hearing will be indispensable since factual witnesses and expert witnesses need to be heard and complex issues need to be discussed. In order to have an efficient hearing in construction disputes, written witness statements are often useful, a fact which is also recognised in the Prague Rules (see Art. 5.2-5.8). The hearings themselves should then focus on the examination of witnesses and experts and avoid the repetition of legal arguments that were made in written submissions.

 

Conclusion

The Prague Rules undoubtedly contain some beneficial aspects for the efficient resolution of complex construction arbitration disputes in major projects. The more proactive role of the arbitral tribunal, as well as certain limitations on document production, seems preferable particularly for civil law practitioners. In that sense, the Prague Rules provide a valuable supplement for the IBA Rules offering the parties additional options. However, it needs to be pointed out that an efficient dispute resolution very much depends on how the arbitral tribunal uses its wide discretion to proactively manage the proceedings. With a robust arbitral tribunal experienced with the complexity of construction disputes this efficiency can without a doubt be realized under the IBA Rules.

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Expect the Unexpected: A Report from the 31st Annual ITA Workshop on Adjudicating Changed Circumstances in Commercial and Treaty Arbitration

Thu, 2019-07-18 22:47

David J. Stute

Reflecting on fallout from economic and geopolitical turmoil since the financial crisis of 2008, the 31st Annual ITA Workshop and Annual Meeting, held in Dallas on June 19-21, 2019, focused on how to adjudicate changed circumstances in international arbitration.

Keynote speakers and panelists engaged in lively debates on how domestic and international legal principles on changed circumstances have evolved in response to major events, such as the imposition of tariffs and sanctions, political upheaval, sustained swings in commodity prices, coercive pressures from rent-seeking state actors, and the particular challenges associated with long-term contracts in light of such changes. Co-chairs Dean Céline Lévesque (University of Ottawa), Tomasz Sikora (Exxon Mobil), and Gaëtan Verhoosel (Three Crowns) led the two-day Workshop, which featured a stellar faculty of practitioners, academics, and in-house counsel from around the world, including keynote speakers Yas Banifatemi (Shearman & Sterling) and Professor Klaus Peter Berger (University of Cologne), as well as a lively debate with active audience participation.

Among other examples, the Workshop drew on the transformation of the natural gas economy. Before 2009, natural gas prices were strongly correlated with oil prices. But this changed with the fracking boom in the United States and elsewhere, which led to a shift in the economics of producing, selling, and purchasing natural gas. Moreover, the boom in natural gas production, its commoditization, and increased global trade in LNG (liquefied natural gas) also affected the prices of other energy sources—chief among them lignite or brown coal. Massive swings in currency exchange rates due to sanctions (e.g., on the Russian Federation and Iran) or monetary crises (e.g., in Argentina and Turkey) also proved troublesome for contracting parties located or invested in affected markets. Geopolitical developments—from the Arab Spring, to Brexit, to China’s Belt and Road Initiative—likewise led to disputes over the continued enforceability of previous contractual arrangements.

Faced with these and many other developments bearing on long-term transnational contracts and investments, the international arbitration community has routinely been tasked with considering the extent to which changed circumstances should affect bargains reached before such circumstances were, or could have been, foreseen.

This question poses a classic dilemma for legal systems, pitting the ancient Roman legal doctrine of pacta sunt servanda (sanctity of contracts, or stability of contractual relations) against that of clausula rebus sic stantibus (recognizing the need for change in light of evolved conditions). Put simply, should legal certainty prevail even if continued performance of the contract on its original terms would no longer be fair vis-à-vis the circumstances present at the time of the contract’s formation? There was broad agreement among Workshop panelists that the answer lies in striking a balance between the two doctrines—a balance that must be based on the particular circumstances of a given case. A decade of tremendous volatility appears to have bolstered awareness—both at the contract formation stage and in arbitral disputes—that the governing law must address changed circumstances in some manner.

Professor Klaus Peter Berger, in his keynote address, examined developments in substantive law as well as international arbitral practice. He discerned a trend away from formalistic insistence on the sanctity of contracts and toward a more pragmatic approach that has as its primary objective the maintenance of the “contractual equilibrium”, which takes into account not only the terms of the contract but also the parties’ assumptions when the contract was formed. In other words, if circumstances change to such an extent as to disturb this equilibrium, the applicable law should provide mechanisms for recourse.

Force majeure and hardship exceptions,1) For a recent analysis of ICC awards addressing the interplay of force majeure contract clauses and domestic law, please refer to Klaus Peter Berger, Force Majeure Clauses and Their Relationship With the Applicable Law, General Principles of Law and Trade Usages, in Hardship and Force Majeure in International Commercial Contracts 137 (Fabio Bortolotti & Dorothy Ufot eds., 2018). jQuery("#footnote_plugin_tooltip_4769_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4769_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); whether as contractual provisions or as operative legal doctrines found in domestic law or international contract principles, are such mechanisms. While the former is generally limited to circumstances that render performance impossible, the latter tends to be more permissive in scope—performance may be technically possible yet onerous. Civil law countries once resisted the inclusion of hardship provisions in their codified contract law. As Professor Berger pointed out, however, Germany was among the first to reevaluate its stance, or as he put it, Germany allowed “what [was] thrown out through the door [to] reenter through a window”. Although the German Civil Code of 1900 had failed to recognize changed circumstances as an exception to legal certainty, the hyperinflation of the early 1920s gave rise to a codified right to terminate a contract in particular circumstances, which is now contained in Civil Code Section 313. More recently, in 2016, French Civil Code Section 1195 came to recognize a similar, albeit narrower, right when changes in circumstances have rendered performance “excessively onerous”. Other jurisdictions, among them Italy and the Netherlands, have similar provisions. The same principle is reflected in the UNIDROIT Principles of International Commercial Contracts (Articles 6.2.1 and 6.2.3).

From these and other developments, Professor Berger discerned a trend that, while arguably running the risk of undermining legal certainty, may give better effect to the parties’ commercial intent, particularly in long-term contracts of ten years or more requiring large front-loaded investments that are only recoupable over the life of the contract.

Professor Berger proposed that, in tackling changed circumstances, tribunals should adopt a three-step analytical framework:

  1. Tribunals should verify that the lex arbitri provides procedural authority for adapting a contract to changed circumstances. This authority, according to Professor Berger, may be derived from either an explicit statutory warrant, such as the gap-filling provisions in Swedish and Dutch law, or as a function of plenary arbitral powers granted to tribunals in jurisdictions such as Germany.
  2. Tribunals should confirm that they have explicit substantive authority to adapt the contract—either in the contract itself or in the contract’s governing law. If not, tribunals must ask whether the governing law provides an implied duty of good faith that could support adapting the contract. According to Professor Berger, an implied duty of good faith provides a tribunal with sufficient authority to adapt a contract in light of changed circumstances under the clausula.  Because such a duty is recognized broadly, with at least one notable exception, Professor Berger’s rationale would lead to widespread acceptance of a duty to renegotiate,2) See Klaus Peter Berger, Renegotiation and Adaption of Int’l Investment Contracts: The Role of Contract Drafters and Arbitrators, 36 Vand. J. Transnat’l L. 1347, 1357 (2003) (asserting that “there are good reasons to assume the existence of such a transnational legal principle”). jQuery("#footnote_plugin_tooltip_4769_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4769_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); as well as recognition of arbitral tribunals’ authority to adapt contracts in light of changed circumstances.
  3. Finally, what standard should govern the adaption of a contract? Drawing on several ICC awards, Professor Berger argued that the governing standard should consist of reestablishing the parties’ contractual equilibrium. He acknowledged that hardship and force majeure may introduce uncertainty into commercial relationships, but emphasized that principles of good faith and reasonableness “can promote commercial predictability and efficiency, provided that their application remains within the confines of the parties’ initial bargain”.

 

Beyond doctrinal considerations, the ITA Workshop presented a host of perspectives on changed circumstances in commercial and investment arbitration across the globe. For example, Laura Sinisterra (Debevoise & Plimpton) explained how arbitral tribunals have recognized, at least in principle, Ecuador’s right under established contracts to effect significant increases in oil-revenue percentages payable to the government. Considering changed circumstances from yet another angle, a panel, comprised of current and former government officials and moderated by Dean Lévesque, considered states’ efforts to protect their right to regulate. In negotiating recent multilateral agreements, such as the TPP and CETA, governments were reported to have worked toward that objective by maximizing the specificity of investor protections.

In an ideal world, parties could foresee all future eventualities at the contract formation stage and tailor their contracts accordingly. Short of such clairvoyance, conference participants generally agreed that a modicum of contractual flexibility is arguably unavoidable. Recognizing this alone, of course, would be only an initial step in defining the legal doctrines addressing changed circumstances; ultimately, their application by arbitral tribunals will be determinative.

References   [ + ]

1. ↑ For a recent analysis of ICC awards addressing the interplay of force majeure contract clauses and domestic law, please refer to Klaus Peter Berger, Force Majeure Clauses and Their Relationship With the Applicable Law, General Principles of Law and Trade Usages, in Hardship and Force Majeure in International Commercial Contracts 137 (Fabio Bortolotti & Dorothy Ufot eds., 2018). 2. ↑ See Klaus Peter Berger, Renegotiation and Adaption of Int’l Investment Contracts: The Role of Contract Drafters and Arbitrators, 36 Vand. J. Transnat’l L. 1347, 1357 (2003) (asserting that “there are good reasons to assume the existence of such a transnational legal principle”). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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The Intersection of Corruption in International Arbitration and Discovery Pursuant to 28 USC § 1782

Thu, 2019-07-18 00:03

Ava Borrasso

Corruption in the context of international arbitration is at the forefront of current discussion and analysis. At the same time, innovative efforts to obtain evidence in the U.S. through 28 USC § 1782 to support or counter a wide variety of international (i.e. non-U.S.) cases continue to evolve (including its recent extraterritorial application discussed more fully here). A recent case from the D.C. District Court highlights the interplay of access to evidence for foreign proceedings in connection with claims of corruption against the backdrop of an ongoing ICSID arbitration and a pending foreign state criminal investigation.

In re Application of The Islamic Republic of Pakistan v. Arnold & Porter Kaye Scholer, LLP, analyzes The Islamic Republic of Pakistan’s (Pakistan) request to obtain evidence located in the U.S. from Arnold & Porter Kaye Scholer, LLP (Arnold & Porter) in connection with a pending ICSID arbitration and a proceeding before Pakistan’s National Accountability Bureau (NAB).  The request related to dealings between Pakistan and Arnold & Porter’s client, a Turkish company called Karkey Karedeniz Elektrik Uretim A.S. (Karkey).

Karkey obtained a large contract from Pakistan in 2008 to provide Powerships pursuant to Rental Power Projects contracts to aid Pakistan during its 2006-2007 energy crisis. Following complaints of prima facie corruption in procuring those agreements, the Supreme Court of Pakistan held them void ab initio and ordered the NAB to investigate possible corruption. Pakistan froze Karkey’s bank accounts and vessels pending the NAB inquiry. In 2012, the NAB essentially cleared Karkey of liability under Pakistan’s anti-corruption laws.

The Supreme Court of Pakistan disagreed. It unilaterally abrogated the NAB’s determination and required $120 million USD from Karkey to release its vessels while directing the NAB to pursue criminal charges against individuals involved in the underlying projects. When the NAB objected, the Court held it in contempt. The NAB then instituted proceedings into possible corruption during which several of Karkey’s vessels were detained.

As stated, the dispute resulted in two ongoing proceedings: the NAB investigation and the 2013 ICSID arbitration initiated by Karkey alleging that the Supreme Court of Pakistan’s ruling (that the contract was void ab initio) was arbitrary. In response, Pakistan argued that the tribunal lacked jurisdiction to hear the claim due to Karkey’s fraudulent and corrupt procurement of the underlying contract.

Documents were exchanged in the course of the arbitration proceeding. While Karkey produced documentation, it advised Pakistan that some electronic documentation prior to April 2010 was contained on inaccessible backup tapes that were unduly burdensome to search. In an effort to obtain evidence to support its claims, Pakistan brought three separate motions before the ICSID tribunal to obtain the backup tapes – each of which was denied. The tribunal entered an award in favor of Karkey in August 2017 after which Pakistan filed a request for annulment.

In August 2018, Pakistan filed an ex parte Section 1782 application in the United States District Court for the District of Columbia, seeking the backup tapes from Karkey’s counsel, Arnold & Porter. In September 2018, that application was denied and service of the application on Arnold & Porter required. Pakistan sought information regarding negotiations of the underlying agreements and documents reflecting payments or items of value by Karkey to various Pakistan agents or employees. In addition, Pakistan propounded interrogatories seeking the manner in which the tapes were preserved and stored as well as identification of Arnold & Porter’s client document retention policies. Importantly, Arnold & Porter attested under oath that it was not in possession of the backup tapes.

The Court then analyzed Pakistan’s application pursuant to both the ICSID proceeding and the criminal investigation. First, the Court easily determined that it had authority to grant the relief and found that the prima facie factors necessary for Section 1782 were satisfied with respect to both proceedings. Namely, (a) the request was made by an “interested person” or a foreign or international tribunal (b) sought evidence (c) for use before a “foreign or international tribunal” (d) from a person residing or found in the district where the application was made.

Next, the Court analyzed the discretionary factors implicated by Section 1782: (a) whether discovery is sought by a participant in the foreign proceeding; (b) review of the nature of the foreign tribunal, the status of the proceedings and receptivity of the foreign court, government or agency to judicial assistance from a U.S. federal court; (c) whether the applicant is seeking to circumvent foreign proof-gathering restrictions or policies; and (d) whether the discovery requested is unduly burdensome.

As to the ICSID arbitration, the Court determined that the discretionary factors were somewhat split. The factors weighing against granting relief included that the matter was within the jurisdictional reach of the ICSID tribunal and would circumvent its proof-gathering policies (because Karkey was a party and the tribunal had repeatedly denied Pakistan’s request for the tapes). Most significantly, the fact that Arnold & Porter was not in possession of the backup tapes strongly militated against Pakistan’s application. By contrast, the tribunal’s announced receptivity to additional evidence with respect to ongoing proceedings weighed in favor of granting the relief.

As to the pending NAB investigation, the Court similarly determined that Karkey was within the jurisdictional reach of Pakistan to the extent its assets were located there, including three of its ships. This factor weighed against granting the application as the information could be compelled in that proceeding. However, the parties failed to present evidence with respect to the NAB’s proof-gathering practices. The lack of evidence weighed in favor of granting the application.

The Court then determined that the foreign court would likely be receptive to the evidence. The contention that the foreign proceeding was incompatible with U.S. standards of fairness was balanced against the strong U.S. policy favoring international comity. While caution was warranted due to the conflicting postures of the case taken by the NAB and the Pakistan Supreme Court, the fact that the relief requested was limited to a request for civil discovery further tipped this factor in favor of granting relief.

After weighing the various factors, the Court ultimately denied the subpoena for documents and request for the backup tapes (that, nonetheless, were not in Arnold & Porter’s possession). However, the Court granted Pakistan’s request for interrogatories regarding issues related to inquiry of the storage methods, access and possession of the tapes (recognizing that privilege issues would likely be implicated due to the fact that the application was directed to a law firm). By including the interrogatories in its application, Pakistan broadened the scope of relief requested and access to evidence.

This case illustrates the flexibility of discovery pursuant to 28 USC § 1782 to obtain evidence for a variety of claims (here, to locate potential evidence regarding corruption) as well as the importance of framing the application in a manner to maximize the potential for relief (by seeking not only the tapes or documents but information by way of interrogatory as well).

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Interviews with Our Editors: Cairo in the Spotlight with Dr Ismail Selim, Director at CRCICA

Tue, 2019-07-16 23:07

Zahra Rose Khawaja (Assistant Editor for the MENA Region)

Dr Ismail Selim, thank you for joining us on the Kluwer Arbitration Blog! We are grateful to have the opportunity to share your unique perspective with our readers.

 

1. Could you give our readers a brief introduction to yourself and your route to becoming Director at CRCICA?

I graduated from Cairo University in 1997 with an LL.B., where I also obtained an LL.M in International Business Law from the Institut du Droit des Affaires Internationales (I.D.A.I) in 1999. I then moved to France and earned my Master’s degree in Public Administration (MPA) from the National School of Administration (E.N.A.) in 2001. I was seconded to the CRCICA from 2003 until 2007, where I acted as Legal Advisor. I also earned a Certificate in International Commercial Arbitration from the School of International Arbitration, Queen Mary University of London in 2005. In 2007, I did an internship at the ICC Court of International Arbitration. In 2009, I earned my PhD with highest honours from Burgundy University (Dijon – France). The title of the thesis is “L’ordre public international in favorem arbitrandum – Etude de droit Comparé” (International Public Policy in favor of Arbitration – a Comparative Study). The thesis was published by Edition Universitaire Européenne.

I started off my career as a Public Prosecutor, then a civil Judge, until I joined Zulficar & Partners Law Firm in 2009, as a leading member of its Arbitration Group and where I was promoted to Partner in 2013. Further, in May 2015, I joined Nour and Selim in association with Al Tamimi and Company as Partner and Head of Dispute Resolution, Cairo. Further, I became a member of CRCICA Advisory Committee as of 1st May 2016. Then, I became Director of CRCICA in January 2017.

Today, I am Vice-President of the Egypt Branch of Chartered Institute of Arbitrators (MCIArb). I also teach at the I.D.A.I. in Cairo, Sorbonne University (and at the Sorbonne University Middle East) – Laws LLM in Paris. I frequently sit as an arbitrator and I am also a certified Mediator from the London School of Mediation.

 

2. GAR has previously described CRCICA as the “granddaddy” of arbitration in the MENA region. Does CRCICA still identify with that description?

Indeed, CRCICA is still identified as the “granddaddy” or the “Godfather” (I would say) of arbitration in the MENA region and Africa. It has been operating for 40 years, during which time it has administered more than 1,337 cases, many with an international or at least a regional element. CRCICA, through its late Director (Dr. Mohamed Abul-Enein), has created a pro-arbitration environment in the Arab world and we are doing our very best to maintain such stature.

CRCICA has signed, since its establishment until now, around 90 Cooperation agreements with international arbitration institutions and Chambers of Commerce. More than 550 conferences and seminars have been held under the auspices of CRCICA, dealing with different subjects such as construction, state courts, finance and banking, investment and others. CRCICA has also held, co–organized and participated in more than 180 training courses and workshops in both arbitration and mediation.

 

3. What do you perceive as being the top three advantages to users of administering an arbitration via CRCICA, as opposed to other international arbitration centres?

The first advantage is the selection of highly experienced counsels, who have been long-serving at the Centre, along with highly educated new generation case managers who are able to administer cases in Arabic, English and French languages. The number of administered cases per counsel/case manager usually does not exceed 25-30 cases, which shows that they are not overloaded. They are therefore able to provide efficient services under the supervision of the Director of CRCICA and/or its Deputy Director, as well as CRCICA’s Advisory Committee, whose functions include:

  1. deciding on requests for challenge of arbitrators;
  2. requests not to proceed with arbitration proceedings; and
  3. in exceptional circumstances, and in order to prevent the frustration of the arbitral proceedings, the Advisory Committee may authorize the tribunal to proceed on truncated basis or deprive a party from its right to appoint a substitute arbitrator.

The second advantage is the cost effectiveness of the administrative fees charged at the Centre compared to other arbitration institutions in the world, as illustrated in Global Arbitration Review (GAR)’s 2019 survey of arbitration costs. This is because CRCICA is not financed by any entity and is fully self-sustained. In addition, the average income salary in Egypt is lower than in Western and GCC countries, especially since the floatation of the Egyptian pound in 2016, which is a factor that permits CRCICA to monitor its running costs.

The third advantage is the neutrality of the Centre, which is manifested through its headquarters’ agreement ensuring its neutrality and immunity vis-a-vis the host state, to the extent that the Centre has been recommended by the Lalive/African Development Bank Report published in 2014 to administer cases filed against public entities of the host state. The neutrality of the Centre is also manifested through guaranteeing party autonomy in appointing arbitrators. When the Centre is requested to appoint a sole arbitrator or a presiding arbitrator, it endeavours to do so through the “Identical List Procedure” being sent to the parties, thereby maximizing the parties’ control over the process of the constitution of the entire arbitral tribunal.

 

4. Since the launch in 2017 of the CRCICA Rules in French (in addition to the English and Arabic versions that were already in place), have you seen an increase in the numbers of users from North Africa and in the number of cases being administered in French?

The issuance of the French version of the CRCICA Rules is responsive to users’ needs as well as global criterial reviews. The development came specifically after the issuance of a report by the African Development Bank ranking CRCICA as one of the best arbitration centres across the African continent and elsewhere, and which recommended that CRCICA should consider issuing a French version of the Rules to facilitate administering cases in French. Releasing the French version of the Rules strikes a chord with the Centre’s strategic vision to exceed its level of cooperation within Africa.

Last year, the CRCICA registered a case involving a party from Algeria, but the language of the arbitration was English. During the Arab spring, the CRCICA also registered an investor-state case based on the BIT between Libya and Morocco, but the language of the arbitration was Arabic. However, to date we have not had any cases registered in the French language, despite the regular use of CRCICA by French parties. However, we are trying to raise more awareness in Francophone Africa that CRCICA has very capable and competent case managers fluent in the French language. For the language of arbitration to be French, it seems that all the parties (not only one of them) shall be Francophone.

 

5. What was the driving factor behind CRCICA entering an agreement with the Permanent Court of Arbitration, and has CRCICA benefited from this agreement in terms of sharing facilities and expertise?

For the Centre, there will be more visibility, especially from the parties to investment arbitration, as CRCICA features in about 32 Bilateral Investment Treaties (BITs). Also, CRCICA enjoys immunities and privileges which will encourage the holding of hearings at the state of the art hearing facilities of the CRCICA. Finally, the agreement permits the parties to CRCICA proceedings to hold hearings at the stunning premises of the PCA at the Peace Palace.

 

6. Since CRCICA’s signing of the Pledge for Equal Representation in Arbitration in 2017, what initiatives has the centre undertaken to uphold its commitment to ensuring unbiased gender and age diversity in appointing arbitrators?

In application of the Pledge for Equal Representation in Arbitration, the Centre now includes in its reports data on female arbitrators and arbitrators under the age of 40.

In 2018, 11 female arbitrators were appointed by the Centre, as well as by the parties and the co-arbitrators. We also witnessed the appointment of an all-female tribunal this year.

Additionally, 13 arbitrators under the age of 40 were appointed.

 

7. Are there any upcoming CRCICA developments that you would like to share with our readers?

Well, we are working on revising our CRCICA Arbitration Rules by amending the actual rules and including certain matters that are not currently in the Rules, such as provisions for emergency arbitrators, consolidation and expedited rules. We are also working on promoting other ADR services such as our mediation rules, and we are currently working on Dispute Board Rules (DAB & DRB).

 

8. CRCICA is celebrating its 40th birthday in 2019. How will it be marking the occasion? What milestones would you like to see CRCICA reach by its 50th birthday?

In relation to CRCICA celebrating its 40th birthday, there is a film project that we are currently working on including short interviews with some of the pioneer practitioners and arbitrators relating to the role of international arbitration in the development of the Afro-Asian region. We hope to show the movie next year in a special celebratory conference.

A milestone that CRCICA would wish to reach by its 50th anniversary is having considerable accreditation in the number of cases being registered at the Centre from parties performing contracts all over the region, and gaining the utmost international recognition.

On the one hand, it is quite vital that Cairo as a seat of arbitration be quite receptive to international arbitration cases and the role of the state courts in Cairo, prior to the commencement of the arbitration case, during the lifetime of the arbitration and after the arbitration award is rendered (especially when handling the setting aside and enforcement procedures). This will enable it to be helpful, cooperative and understanding of the procedures in arbitration. CRCICA wishes to maintain its stature in educating the younger generations (future lawyers, law students, in house counsels and future judges) through organizing seminars, conferences, events, ICCA New York Roadshows and training courses educating them in arbitration and its procedures in Egypt. By accomplishing that goal, this would in turn increase foreign investors and parties when negotiating contracts with the Egyptian Government in choosing Cairo as the seat of arbitration, as it would be perceived as extremely receptive of arbitration awards and its procedures.

On the other hand, CRCICA is raising awareness as to the possibility of being chosen to administer arbitration cases where the seat of arbitration is not Cairo, but in other friendly seats such as Kigali, Paris and London.

 

Dr Ismail, thank you for your time and perspectives – we wish you and CRCICA continued success!

This interview is part of Kluwer Arbitration Blog’s “Interviews with Our Editors” series. Past interviews are available here.

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IP Arbitration on the Rise

Mon, 2019-07-15 23:12

Michael Woller and Michaela Pohl

The relevance of intellectual property in business is on the rise, in particular concerning cross-border transactions. Accordingly, the willingness to defend such rights is also becoming stronger.

Disputes concerning intellectual property rights are traditionally mainly dealt with before national courts. Yet, in recent years there has been a considerable shift towards arbitration. The acknowledgement that national courts are not always the appropriate forum for IP disputes is driven by the fact that comprehensive technical knowledge is required to decide those cases. Paired with the ever more common multi-state components of such disputes, companies increasingly prefer disputes to be resolved by arbitral tribunals in lieu of state courts.

To meet the particular needs in IP and technology disputes, the World Intellectual Property Organisation (WIPO) established the WIPO Arbitration and Mediation Center (WIPO-Center) and specific arbitration (expedited and non-expedited), mediation and expert determination regimes. Key figures published by the WIPO Center show widespread use of its services in the fields of TMT and IP (WIPO Mediation, Arbitration and Expert Determination Cases) and the number of cases handled by the WIPO Center is consistently growing, showing rising demand for such specialized services:

In a nutshell, the key aspects of the WIPO arbitration regime are:

  • WIPO Neutrals: the WIPO Center administers a comprehensive list of experts specialised in various fields acting as arbitrators;
  • Specific rules on interim injunctions: quick suspension of infringements is often key in IP disputes – thus, the WIPO arbitration regime provides specific focus on interim decisions;
  • Confidentiality regime: IP and technology arbitration often involves secret know-how and trade secrets; the WIPO Rules provide for a specific set of provisions dealing with confidential information introduced in arbitration proceedings;
  • Evidence proceedings: the WIPO Rules provide specific sets of provisions on taking evidence via expert witnesses, including arranging for experiments to be conducted during arbitration.

But: IP disputes and arbitration – how do these fit together? When talking about IP arbitration, two main issues must be considered:

  • Is an arbitration clause in place? A core element of many IP disputes is the IP owner’s right to prevent others from using its IP (cease and desist claim). As a matter of fact, usually there is no contract in place between the rival parties. And even if there is (for instance licence agreements, technology agreements, trademark co-existence agreements or even transaction agreements also containing IP-related issues), such agreements often do not contain IP-specific arbitration clauses or any arbitration clauses at all.
  • Is the matter of the dispute arbitrable? In IP disputes, the existence, validity, ownership or scope of certain IP rights are at least preliminary questions to be resolved before the merits of a case can be determined. With regard to registered IP (such as patents, utility models, trademarks or designs), the question of whether such IP right has been lawfully registered by the authorities is typically resolved in front of the national courts and authorities, and not by private arbitrators.

This can lead to a situation where company A, which owns patent registrations in several countries, is faced with a competitor, company B, which is marketing potentially infringing products in several markets. A and B become involved in patent infringement litigation before several national courts in order for A to prevent the sale of the competitor’s product and in the end to obtain appropriate damages. This may lead to inconsistent national decisions as to (i) the validity of the very same patent in different countries, (ii) whether or not the competitor product infringes the patent, and (iii) the calculation of damages in each market.

Concerning the arbitrability of disputes about the validity of registered IP rights, as long as the preliminary question could also be subject to a settlement between the parties, it is commonly held that this question should be arbitrable.

Here we come full circle: the possibility to arbitrate IP disputes is shown by the ever-increasing number of IP cases solved by WIPO arbitrations. Nevertheless, the question of whether IP disputes are arbitrable in principle recurs time and again. This is historical owed to the assumption that IP rights are of public policy interest. These days it is beyond dispute that the vast majority of cases are arbitrable – at least when it comes to an international context.

This also has to do with the fact that the objection of a lack of arbitrability is not raised as often as assumed in the academic discussion. The reasons for the rather rare objection of non-arbitrability are as follows (see T. Cook and A. Garcia, International Intellectual Property Arbitration, 2010, p. 52/53):

  • Most IP disputes brought as arbitrations revolve around contractual problems. Contractual disputes, however, are regularly regarded as being arbitrable in most countries, even if they are related to intellectual property rights (the validity and scope of which may be a preliminary question also in contractual disputes).
  • The area of IP disputes that invites the objection of lack of arbitrability is further limited by the fact that only certain categories of IP rights are prone to be excluded from the scope of arbitrations. These rights are, as mentioned above, all those that revolve around the (in)validity and (in)existence of a registered IP right.
  • The last limitation of the problem-prone area is that the parties often do not contest the validity of the underlying IP right because they cannot or do not want to. This happens quite often because many IP arbitrations are based on licensing agreements. Yet relatively often these have “non-contest” or “non-challenge” clauses which prevent the validity of the IP right from being attacked. If the validity of IP rights is not in itself a question of arbitration, arbitrability related problems are prevented from arising.

It becomes clear: if certain criteria are met, disputes over IP rights may very well be decided by arbitral tribunals. Of course, the result of such arbitration cannot cause any third-party effect and cannot bind national register authorities to carry out any specific acts as to the registration of the IP rights that were subject to arbitration. But an arbitrator may well decide with inter partes effect whether a patent can be enforced against the defendant or not. However, due to uncertainties in this respect, it is important to check whether such circumstances may render an arbitration award unenforceable under certain national laws.

When drafting arbitration clauses in IP contracts, oftentimes the question arises whether claims for injunctive relief (or preliminary injunctions) should also be subject to arbitration or whether such should be decided on by ordinary courts. However, a limited arbitration clause applying arbitration to any dispute arising under or related to a specific agreement, but excluding actions for specific performance, such as injunctive relief (which particularly in IP disputes usually is a key claim), could turn out to be tricky in practice. In a recent decision in Henry Schein, Inc., et al. v. Archer & White Sales, Inc., 586 U.S. (2019), the Supreme Court of the United States held that the preliminary question as to whether such excluded claims brought by the claimant in front of the ordinary courts itself would have to be determined by arbitration. This leads to a situation (at least in the US) where firstly, it may have to be determined in arbitration proceedings whether a particular claim (e.g. for injunctive relief) is to be heard in arbitration or in front of the ordinary courts, and secondly, such claims may then need to be pursued in front of the ordinary courts (or maintained in arbitration, as the case may be).

When drafting IP and technology agreements or even when being confronted with a (multijurisdictional) dispute scenario, parties should consider specialised IP arbitration as a valid alternative to court litigation. Nevertheless, careful thought must be given to whether this option indeed is fit for the intended purpose.

 

 

 

 

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Interviews with our Editors – In Conversation with Dr Emilia Onyema, Senior Lecturer at SOAS

Mon, 2019-07-15 03:38

Sadaff Habib (Assistant Editor for Africa)

Dr Emilia Onyema, Senior Lecturer at SOAS

A common concern for parties when opting for an African country as a seat of arbitration is the extent of judicial intervention in the arbitration. Whilst certain African national courts have swayed back and forth between exercising sovereignty and upholding party autonomy in arbitration there is a positive inkling that African national courts are more keen to recognize arbitration agreements and take a more “supportive” approach to arbitration.

Kluwer Arbitration Blog invited Dr Emilia Onyema, senior lecturer at SOAS in the UK, pioneer of the SOAS Arbitration in Africa Conferences and editor of the recently published book Rethinking the Role of African National Courts in Arbitration, to share her experience as an academic in arbitration and share her insight on African national courts and arbitration.

 

1. What attracted you to disputes and arbitration?

The fact that disputes can be resolved by professionals outside of the court system with the time saving this entailed.

 

2. There have been a number of recent developments across the African continent. What in your view has been one of the most significant developments in arbitration in Africa to increase its appeal as a seat in international arbitration?

Africa is a continent of 54 independent states of different hues. It is more apt to look at developments across each state or group of states (e.g. the OHADA region). When we talk of seat of arbitration, we generally look at specific cities. For me, one of the most significant developments across the continent as it relates to arbitration, is the momentum our SOAS Arbitration in Africa conferences have generated. Our conference series has provided the opportunity for an identifiable community of African arbitration practitioners to meet and engage with each other in an African city annually. The conferences have held in various African cities: Addis Ababa, Lagos, Cairo, Kigali, and Arusha with Douala, Accra, Nairobi and Cape Town in tow to host the conference in the next years.

 

3. In your view, what more needs to be done to improve the visibility of different countries in Africa as an international arbitration hub?

Continued promotion or publicising of what is already happening in the different and major states (and cities such as Cairo, Casablanca, Johannesburg, Cape Town, Kigali, Nairobi, Addis Ababa, Abidjan, Lagos, Accra, Abuja, etc.). This include the growth of a vibrant arbitration community in these states, engagement of the judiciaries of the states, modern arbitration laws and the existence of viable arbitration centres that administer arbitration references in these cities.

 

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

 a. Do you see this particularly challenging as a female arbitrator and academic?

Arbitration is still dominated by males (whatever their colour/race) but female arbitration practitioners are beginning to make an inroad. In my opinion, the break comes when a female is given that first opportunity to sit as arbitrator. We generally excel and this opens the door to more appointments. As an academic, I (in similar fashion to other academics) have an added advantage of being ‘perceived’ as having greater expertise of a subject and analytical skills. I must add that such perception is not misplaced. Being female (and an academic) gives me the opportunity to bring different skills to the arbitral tribunal.

b. What steps do you think need to be taken to improve the representation of Africans in African arbitrations?

If I can rephrase this question; fairness and equality demand not just that African arbitrators are considered for appointment in Africa-related disputes (though this is a minimum) but that the best candidates are appointed for any dispute regardless of gender, race, nationality, etc. This is the goal. I must mention that there are African arbitrators who sit over disputes that have no connection to Africa. My first arbitration in which I sat as arbitrator had no connection to Africa. However, this is not the norm. To answer your question, I agree with the qualitative comments to this question from our SOAS Arbitration in Africa survey report 2018:  “change the narrative which leads to the negative perception of African arbitration practitioners (as lacking in expertise) and one way to do this is for those who have had positive experience of African counsel, expert, tribunal secretary, institution, or arbitrator to also say so”. The second is for Africans to appoint Africans as counsel and arbitrator. The third for me is the growth of the domestic arbitration market in African states. It is at the domestic level that aspiring arbitrators can gain experience and help develop an arbitration consciousness among the domestic and intra-African businesses, in particular, the small and medium enterprises. This is a fertile ‘disputes mine’ waiting to be exploited.

 

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

Excel at your primary profession and be the best you can be at your job while continuing to seek that appointment. It will come. And remember that arbitration is a marathon race. Finally, enjoy your job/career pursuits. Life, surely, is more than getting appointed an arbitrator.

 

6. You recently edited a book Rethinking the Role of African National Courts in Arbitration where you also write about the Role of African Courts and Judges in Arbitration. What do you think African national courts can do to make them more arbitration friendly?

The first for me is for the courts/judges to understand the arbitration process and its relationship with the courts. This requires continued dialogue between both professions. The second is to have a clear understanding of what we mean by ‘arbitration-friendly’. This does not mean that a judge basically rubber stamps all arbitration related issues before her. In my view, being arbitration friendly refers to judges deferring to arbitrators within the provisions of their laws. For example, it is not for a judge to annul an award simply because s/he disagrees with the decision of the arbitrator.

 

7. Do you think a balance can be struck between national sovereignty amongst African nations and party autonomy in choosing arbitration as an alternative dispute resolution mechanism?

Yes and this is already evident in the number of African states that are parties to various international investment agreements, for example, containing arbitration clauses; those that have ratified the ICSID Convention, and conclude arbitration agreements in commercial transactions whether with foreign or domestic entities. Therefore, as an alternative process, I can confidently claim that African states recognize and themselves, use arbitration. There are still economic sectors in different jurisdictions which need to be opened up to arbitration – this is work in progress. Participation in the arbitration process, as parties, in my opinion is not the problem. For me, the gap is in African states and their entities accepting the outcomes of arbitrations they participate in and as good citizens, paying up on valid awards.

 

8. During arbitration, a party may seek to obtain an interim measure such as an attachment against the other. Such measures are often sought on an urgent basis. Do you see that the African courts are equipped to adequately deal with such interim measures during an arbitration? Have you come across any practical examples?

National courts in African states have experience of granting urgent applications and in most common law jurisdictions on an ex parte basis. In my view, most courts in African states will grant interim measures in support of arbitration: the question is whether they will grant this to arbitrations seated outside their jurisdiction and the speed of granting such applications. For cases on this see Part II of Rethinking the Role of African National Courts in Arbitration (edited by Emilia Onyema) and published by Wolters Kluwer, 2018.

This interview is part of Kluwer Arbitration Blog’s “Interviews with Our Editors” series. Past interviews are available here.

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Energy Disputes in a Disruptive World – A Take on Business and Human Rights Arbitration

Sun, 2019-07-14 05:07

Julianne Hughes-Jennett

During the London International Dispute Week in May this year (which was covered at the Kluwer Arbitration Blog in depth, see here), a panel on “energy disputes in a disruptive world” focused on the increasing prevalence of claims against energy companies in relation to climate change or for involvement in human rights impacts. I had an opportunity to speak, in particular, on a new initiative to use arbitration to resolve business and human rights disputes: the Elements Paper on the “Hague Rules on Business and Human Rights (BHR) Arbitration” (Rules) (for additional information on the Rules see also here, in a separate post published recently at the Kluwer Arbitration Blog).

The Rules were initiated by the Business and Human Rights Arbitration Working Group, a private group of international practicing lawyers and academics. They aim to create an international private judicial dispute resolution avenue available to parties involved in business and human rights issues as claimants and defendants, thereby contributing to filling the judicial remedy gap in the UN Guiding Principles on Business and Human Rights.

“Human rights disputes” in this context means:

  1. The Victim-Business scenario – the typical scenario in which “victims” bring claims against a company alleging that their human rights have been impacted by the activities of that company. For example, the recent litigation against Vedanta Resource Plc in the United Kingdom (see our blog post here); and
  2. The Business-Business scenario – with the growth of obligations to monitor and conduct due diligence down a business’ supply chain, we can expect to see a rise in disputes between businesses – e.g., where a manufacturer imposes obligations on a contractor or supplier to comply with certain human rights standards in the performance of its obligations and that contractor or supplier breaches those obligations.

Currently, these disputes are resolved by various legal/judicial and non-legal/judicial mechanisms. These can include, in extreme cases where a criminal offence has been committed (e.g., someone has been killed on the instructions or with the knowledge of a company’s executives), criminal proceedings before national courts. However, most commonly, we see claims against companies framed by reference to tort law, as in the recent case before the UK Supreme Court Vedanta PLC and Anor v Lungowe and Ors. v [2019] UKSC 20, in which over 1,800 members of communities affected by pollution from mining operations in Zambia are seeking damages from a UK registered parent company, Vedanta Plc and its Zambian subsidiary on the basis that the UK Plc owes a duty of care in tort to the claimants because of the extent of its intervention in the management of the Zambian subsidiary. The UK Supreme Court decision is a jurisdictional decision providing that the courts of England and Wales have jurisdiction over both the UK company and its Zambian subsidiary, but provides interesting insights into the circumstances in which a duty of care could be said to be owed by a parent company in relation to the activities of its subsidiary.

There also exist a range of non-judicial avenues for resolving BHR disputes, for example, the OECD National Contact Point system provides a forum for complaints by victims and their representatives and seeks to facilitate the consensual resolution of adverse impacts, including through mediation and settlement. The Elements Paper proposes the drafting of arbitration rules that could be used in the context of BHR disputes. The proposal does not call for the establishment of a new arbitration institution or a standing BHR arbitration panel/tribunal.

During my presentation, I flagged some of the potential challenges with respect to the Rules, but also the potential advantages. Inevitably, the issue of consent to arbitration will be challenging for disputes not arising out of an existing contract containing an agreement to arbitrate. In such a scenario, there would need to be a voluntary submission to the arbitral process after the harm or event in question has occurred, which may in practice be difficult to achieve. While the Elements Paper suggests that commercial contracts could specifically identify classes of victims that could initiate or participate in future arbitrations as “third-party beneficiaries“, it is, however, likely to be challenging in practice to provide for such beneficiaries in commercial contracts. There is also the question of what norms or laws would be applied by the arbitral tribunal? Should they include “soft law” such as the United Nations Guiding Principles on Business and Human Rights (UNGPs)? What should happen in the event of a conflict between the applicable law and international human rights law?

The issue of transparency is also of major importance in BHR arbitration. Traditionally, arbitration proceedings are confidential. Still, should transparency be a guiding principle and a default rule of BHR arbitration proceedings, or should it be left to party autonomy (as it is the case in the ICSID Rules)? More fundamentally, is a private forum like arbitration appropriate for resolving human rights disputes?

The supporters of the proposal point to the greater neutrality and impartiality offered by arbitration, which may be welcomed in politically or emotionally charged disputes, and to the possibility of modifying the process to make it more transparent and public.

Conversely, the Rules could be a means to improve access to remedy for victims of human rights under Pillar 3 of the UNGPs, which provides that

“As part of their duty to protect against business-related human rights abuse, States must take appropriate steps to ensure, through judicial, administrative, legislative or other appropriate means, that when such abuses occur within their territory and/or jurisdiction those affected have access to effective remedy”.

Businesses may also be more willing to engage with a dispute resolution process they are familiar with and may feel like they have more control over. Further, the flipside of the challenge of identifying what law/rights and obligations would apply is that this may force the clarification and development of enforceable BHR norms against which business conduct can be measured with a greater degree of certainty.

In conclusion, while we are a long way off from establishing specific arbitration rules for BHR disputes, there was already precedent for the use of arbitration to resolve human rights disputes. The Accord on Fire and Building Safety in Bangladesh (“Accord”) was a legally binding agreement signed in 2013 between global brands and retailers and trade unions in the aftermath of the Rana Plaza building collapse that led to many deaths and injuries. The Accord committed the signatory companies to ensuring a safe working environment in the Bangladeshi textile industry, including independent inspection programs, health & safety committees, and training. The dispute resolution clause in the Accord provided for arbitration. The first two cases under the Bangladesh Accord were filed in July and October 2016 by two Swiss-based non-governmental labour groups against two global brands (also signatories). The labour groups argued, inter alia, that the brands did not require its factories to remedy hazards in a timely manner—leaving thousands of workers in dangerous conditions. The labour group also charged that the brands did not ensure that it was financially feasible for its factories to fix ongoing safety issues, as required by the Accord. The cases settled but offer an interesting case study for how business and human rights arbitrations may work in practice.

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Is The Scope Of Arbitration Agreement In Shareholders’ Agreement Wide Enough? Lessons On Drafting From A Hong Kong Case

Fri, 2019-07-12 19:00

Martin Kwan

Introduction

In the recent Hong Kong decision of Dickson Holdings Enterprise Co Ltd v. Moravia CV and Others [2019] HKCFI 1424, the court considered whether the arbitration agreement contained in the parties’ shareholders’ agreement covered disputes arising from any affairs of the company. As elaborated below, the decision is instructive for how similar arbitration agreements may be interpreted by courts and also provides valuable insights to guide future drafting of arbitration agreements in shareholders’ agreements, especially when the parties intend for the agreement to cover a broad range of disputes. The approach taken by the Hong Kong court is analogous to approaches taken in other jurisdictions, thereby reinforcing the soundness of the court’s approach and the value of this decision as precedent for future disputes.

 

Background

Dickson Holdings Enterprise (“DHE”) and Moravia CV (“Moravia”) set up a Hong Kong company (“Company”) for a property development project in China and all three parties jointly entered into a shareholders’ agreement (“Shareholders’ Agreement”). The relationship of the parties eventually deteriorated. In particular, DHE alleged that Moravia caused the Company’s board to pass a wrongful and arbitrary resolution which resulted in the forfeiture of DHE’s shares. DHE did not receive any notice for the board meeting where this result was decided. DHE thus asserted a claim for unfair prejudice based on a breach of fiduciary duties of directors (for the directors’ exercise of powers for wrongful purposes) and also a claim for breach of the Company’s articles of incorporation (for the failure to give notice of the board meeting and the wrongful application of the forfeiture provisions to paid-up shares).

 

The Arbitration Agreement in Concern

Clause IX of the Shareholders’ Agreement provides the arbitration agreement:

“Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity thereof, shall be settled by arbitration under the Hong Kong International Centre Administered Arbitration Rules in force at the date of this Agreement”.

 

The Main Issue

Moravia applied to stay the court litigation in favour of arbitration. However, the argument was moot because claims on breach of fiduciary duties and the articles were not based on the Shareholders’ Agreement. In fact, the court held (at [41]) that the “Shareholders Agreement makes no provision concerning notice of board meetings, payment for shares or forfeiture of shares”. Instead, the Shareholders’ Agreement focused mainly on how the project would be implemented. Thus, the issue was whether the disputes could still be said to be “arising out of or relating to” the Shareholders’ Agreement.

 

The Judgement

The court recognized the approach taken by the English House of Lords (as it then was) in Fiona Trust and Holding Corporation v. Privalov [2007] UKHL 40, providing that the words “relating to” should be interpreted broadly. Nevertheless, the court found it difficult to see how these disputes could fit within the scope of the arbitration agreement. It held that the dispute was out of the scope of the arbitration agreement, and hence the application for the stay was dismissed. Persuasively, the court recognized that, apart from the Shareholders’ Agreement, the parties were also “governed by the company law of Hong Kong as well as the articles of the Company arising simply from the fact that they were shareholders in the Company”. This means the parties are vested with rights and obligations that do not directly arise from the shareholders’ agreement, which may later result in disputes that are to be resolved. On the facts, “the Shareholders Agreement is neither relied upon for the claim nor for the defence”, and the “proprietary rights of a member to its shares in the Company is not the subject matter of the Shareholders Agreement at all, but governed by ordinary company law”.

The court acknowledged (at [40]) that it is possible to draft an arbitration agreement with a wider scope. Thus, the court vitally distinguished between two types of arbitration clause in a shareholders’ agreement, namely (1) a broader clause providing for the right to arbitrate on any corporate affairs, and (2) a narrower one which provides only for the right to arbitrate on matters out of the shareholders’ agreement.

 

Analysis

Hong Kong courts are well-known to have adopted a pro-arbitration approach. However, a natural concern may be whether this case, which holds that the scope of the arbitration agreement was not wide enough, would suggest the court has deviated from such an approach. It is submitted that this is not the case, because the court was seemingly mindful about this and it especially supported its decision with cases from other pro-arbitration jurisdictions.

First, the court cited the Australian decision of ACD Tridon Inc v. Tridon Australia Pty Ltd [2002] NSWSC 896 (where a claim based on the director’s equitable duties was not covered by the scope of the arbitration agreement). It also cited the Singaporean case of BTY v. BUA [2018] SGHC 213 (where the court held that the dispute arose out of the articles, not from the shareholders’ agreement). Thus, the court found precedent to support its holding that the scope of the arbitration agreement in concern would not necessarily cover every dispute.

This approach is not only adopted in Australia and Singapore. In Canada, the same arguments were made and the same decision reached in Bouchan v. Slipacoff, 2009 94 OR (3d) 741 — 58 BLR (4th) 96 (where the court held that the arbitration agreement in question was not wide enough to cover a claim on oppression of shareholder, but could only cover disputes on the interpretation of the shareholders’ agreement).

 

Takeaways

It is tempting to think that just because a shareholders’ agreement regulates the relationship between the shareholders themselves and the company, it will cover any disputes on corporate affairs such as unfair prejudice. This assumptive view should be abandoned. Whilst the arbitrability of unfair prejudice has long been confirmed since the English decision in Fulham Football Club (1987) Ltd v. Richards [2011] EWCA Civ 855, the scope of the arbitration agreement remains a vital issue not to be ignored (the scope was not a concern in Fulham, as it was held to be very wide, as stated at [91], which provides valuable insights on drafting).

Firstly, in terms of drafting, the Hong Kong court suggested (at [40]) that had a broader coverage to include disputes on corporate affairs been intended, a better clause could have been drafted.

An exemplar arbitration clause was analysed by the Hong Kong court in Newmark Capital Corporation Ltd and Others v. Coffee Partners Ltd and Another [2007] 1 HKLRD 718 and provided:

“Whenever any difference arises between the Company on the one hand and any of the members or their executors, administrators or assigns on the other hand, touching the true intent and construction or the incidence or consequences of these Articles or of the Act, touching anything done or executed, omitted or suffered in the pursuance of the Act or touching any breach or alleged breach or otherwise relating to the premises or to these Articles, or to any Act or Ordinance affecting the Company or to any of the affairs of the Company such difference shall, unless the parties agree to refer the same to a single arbitrators, be referred to two arbitrators one to be chosen by each of the parties to the difference and the arbitrators shall before entering on the reference appoint an umpire”.

(Readers are reminded that this clause is taken from the company’s articles of incorporation, and such a clause would need to be adapted for a shareholders’ agreement.)

Secondly (or alternatively), parties may consider expanding the scope of the shareholders’ agreement itself (for example, incorporating provisions on corporate governance). This is because depending on the drafting of the arbitration agreement, the scope of it is usually dependent on the scope of the shareholders’ agreement. In the present case, the Hong Kong court noted that there were only “limited provisions with regard to the affairs of the Company” and hence the claims were out of the scope.

This solution has previously been adopted in a Canadian dispute. In Swanson v. Mitchell Bay Properties Ltd., 2002 BCSC 1434, the shareholders’ agreement contained a number of provisions on corporate governance. Similarly, it was alleged that the claims on breach of fiduciary duties were out of the scope of the arbitration agreement. However, the court held that the shareholder’s agreement was wide enough to cover those claims, because it has touched on corporate governance.

In conclusion, this important Hong Kong decision reminds parties and lawyers should pay more attention to whether the scope of the arbitration agreement contained in a shareholders’ agreement is wide enough.

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The Brave New and Old World of Arbitration: CEA’s Code of Best Practices

Fri, 2019-07-12 03:00

Mihaela Maravela (Assistant Editor to the Acting Editor) and Alexandru Stanescu

In June 2019, the Spanish Arbitration Club (“CEA”) launched a new Code of Best Practices in Arbitration (the “Code”). This post briefly describes the scope of the Code and provides insights on the specific best practices proposed by CEA. The initiative is commendable, as it reflects the CEA community experience and tackles hot topics in international arbitration.

The Spanish Arbitration Club is a non-profit association dedicated to promoting the use of arbitration as a method of conflict resolution. CEA’s second purpose is to develop arbitration in Spanish and Portuguese or with an Ibero-American component.1)More about CEA on https://www.clubarbitraje.com/quienes-somos/. jQuery("#footnote_plugin_tooltip_9593_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Code is the result of the work carried for almost two years to adjust CEA’s Code of 2005 to the challenges of today’s arbitration practice. As such, the Code is the natural response to the growing interest in adopting codes of ethics or codes of conduct for arbitrators, counsel, and other participants in the process.

The Code’s philosophy puts at the forefront the aspiration of arbitration users that all participants in the proceedings adhere to enhanced standards of independence, impartiality, transparency and professionalism. The Code brings a novel perspective, as it includes, in addition to the recommendations for the arbitration institutions, – as the 2005 CEA Code did -, new ones for the participants in the arbitral process: arbitrators, counsel, experts, funders. The Code is non-binding soft law which can become binding if adopted by the parties through their arbitration agreement or during the arbitration proceedings.

 

Recommendations related to arbitration institutions

Confidentiality has been traditionally presented as one of the advantages of commercial arbitration. However debates have been, for example, on whether this implies that the award should not be published, or could be published after some time, and/or with the name of the parties and other sensitive information redacted.2)For a more detailed discussion see, Alexis Mourre, Arbitral Jurisprudence in International Commercial Arbitration: The Case For A Systematic Publication Of Arbitral Awards In 10 Questions, 28 May 2009, Kluwer Arbitration Blog. jQuery("#footnote_plugin_tooltip_9593_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Over the last years the need to strike the right balance between confidentiality and transparency has been voiced. On one side, confidentiality provides the protection of commercial and other business interests of the parties. On the other side, transparency is voiced to inter alia, ensure efficiency of the process, strengthen the legitimacy of the system, increase consistency and certainty. The question on where the balance should be placed received various answers: for example (i) the SIAC rules as amended in 2016 positioned that the awards should be published only upon consent of the parties and the tribunal, (ii) ICC adopted an opt-out approach to the publication of awards, in the 2019 Note to parties and arbitral tribunals on the conduct of the arbitration under the ICC Rules of Arbitration.

The CEA Code tips the balance in favor of transparency and recommends that all the awards are published shortly after being approved, anonymizing the name of the parties, but keeping the name of the arbitrators and of the counsel. In certain cases that justify confidentiality, the award could be published only as an excerpt, keeping the name of the arbitrators and of the counsel.3)Rec. 62, 63, C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Taking a stance on the highly discussed issue of diversity in appointment of arbitrators, the Code gives prevalence to parties’ choice. The Code does not remove party appointment – a measure that has been positioned to respond to challenges of diversity. However, the Code provides for the arbitration institution to establish objective criteria for a selection process that promotes diversity, in particular in terms of age, gender and origin.

The Code includes recommendations that arbitration institutions take measures to adequately protect personal data.4)Rec. 40, 41, C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Given the strong emphasis on data protection in the EU via the GDPR, such recommendations are in line with global privacy endeavors. Such rules also create a strong incentive for arbitration institutions to digitalize and create sound internal procedures, especially in relation to cybersecurity, automation and flow of information.

 

Recommendations related to the arbitral process

Arbitration institutions could envisage adopting arbitration rules similar to the Code’s, in order to increase the foreseeability and, thus, the legal certainty that arbitration offers to its users, as the arbitration institutions play an important role in the promotion, development and legitimacy of the arbitration.

CEA recommends that the parties use the model arbitration clause. Additionally they should consider certain recommendations such as: (i) the seat or place of arbitration should be in a jurisdiction that ratified the New York Convention of 1958; (ii) arbitrators should apply the (rules of) law, rather than decide ex aeqo et bono (in equity); (iii) hybrid clauses are a no-go, such as those submitting certain disputes to arbitration and others to litigation.

 

Recommendations related to arbitrators

The Code promotes a higher degree of transparency. It reinforces the standard of independence and impartiality of arbitrators, which is essential for arbitration to continue to be a proper dispute resolution mechanism and selected as such. To this end, the Code targets disclosure duties via an extensive questionnaire (31 questions) for the arbitrators as to possible connections between arbitrators and the parties, with the dispute, with the counsel of the parties, with the other arbitrators or with other persons involved in the arbitration, such as third-party funders, witnesses, experts or the arbitration institution.5)Rec. 84 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Code also takes a stance on the debated issue of party appointed arbitrators. As a general view, the purpose thereof is to have a balanced and fair panel while understanding various cultural or local particularities. The Code states that the party-appointed arbitrators have no duty to ensure that the case of the party appointing them is adequately understood by the other members of the tribunal, or any other special obligation or function concerning the case of the party appointing them, save if otherwise agreed by the parties.6) Rec. 73 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_6").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Recommendations related to counsel

The recommendations take into account that counsel is subject to a variety of deontological or ethical rules. Counsel should strive for the arbitration proceedings to be time and cost-effective. For example, after the tribunal’s constitution, if there are changes with regard to the initial legal team, the arbitrators may reject such modification by reasoned decision, after hearing the parties, with a view to safeguard the integrity of the proceedings. The Code explains what is considered to impair the proceedings.7)Rec. 111, 112 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_7").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Counsel must refrain from knowingly making false statements, both in written pleadings and in oral submissions, or from submitting witness statements and expert reports they know to contain false information.

Unlike the IBA Guidelines on Party Representation in International Arbitration, that refer only to submissions on facts, the Code recommends that counsel refrain from knowingly citing inexistent legal authorities or from distorting their true meaning through incomplete or tendentious citations.8) Rec. 118 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_8").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Recommendations related to experts 

The Code provides that experts should preserve the objectivity and independence of their opinions. For this, the Code recommends a non-exhaustive list of fifteen questions on potential areas of disclosure by experts, with reference to possible connections with the parties, with the dispute, with the counsel designating them, or with other stakeholders involved in the arbitration, such as third-party funders, witnesses or arbitration institution.

The Code takes a step forward and proposes that experts include in their report aspects both in favor and aspects that may prejudice the party appointing them, and that they maintain an objective distance from all parties involved in the arbitration.9)Rec. 133, 134 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_9").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Code adds that the expert will act with respect and loyalty to the arbitrators and all parties.10)Rec. 147 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_10").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Recommendations related to third party funders

The Code posits that the party receiving funds or any other type of financing from a third party in connection to the results of the arbitration should disclose the identity of the funder in the request for arbitration or within a reasonable term, in case financing is obtained at a later stage. The recommendation is meant to protect the independence and impartiality of the arbitrators that would be then capacitated to disclose any relationship with the funders.

This rule goes in line with the standards in the IBA Guidelines on conflicts of interest in international arbitration, that require parties to disclose the existence of the funder at the earliest opportunity. The disclosure of funders for the purposes of conflicts of interest has been a matter of interest in the arbitration community and had been tackled in the last couple of years by ICC,11)The 2019 ICC Note to parties and arbitral tribunals on the conduct of the arbitration under the ICC Rules of arbitration refers to a duty of the arbitrators to disclose relationship with any entity having a direct interest in the dispute or an obligation to indemnify a party for the award, but does not include an obligation for the party to disclose the existence of the third-party funder. The arbitrators are encouraged to consult the Secretariat which may assist the arbitrators in this regard. jQuery("#footnote_plugin_tooltip_9593_11").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and other institutions, such as ICSID with the proposal for amendment of the ICSID rules released in March 2019.

For the time being, the Code recommends a limited disclosure, in that the beneficiary party should only inform the tribunal and the other party about the existence and the identity of the funder. However, should the tribunal consider relevant, the funded party ought to submit additional confidential information, especially the economic conditions of the transaction.12)Rec. 154-156 C.BB.PP/CEA 2019. jQuery("#footnote_plugin_tooltip_9593_12").tooltip({ tip: "#footnote_plugin_tooltip_text_9593_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The authors are co-founders with others of the Romanian Chapter of the Spanish Arbitration Club.

References   [ + ]

1. ↑ More about CEA on https://www.clubarbitraje.com/quienes-somos/. 2. ↑ For a more detailed discussion see, Alexis Mourre, Arbitral Jurisprudence in International Commercial Arbitration: The Case For A Systematic Publication Of Arbitral Awards In 10 Questions, 28 May 2009, Kluwer Arbitration Blog. 3. ↑ Rec. 62, 63, C.BB.PP/CEA 2019. 4. ↑ Rec. 40, 41, C.BB.PP/CEA 2019. 5. ↑ Rec. 84 C.BB.PP/CEA 2019. 6. ↑ Rec. 73 C.BB.PP/CEA 2019. 7. ↑ Rec. 111, 112 C.BB.PP/CEA 2019. 8. ↑ Rec. 118 C.BB.PP/CEA 2019. 9. ↑ Rec. 133, 134 C.BB.PP/CEA 2019. 10. ↑ Rec. 147 C.BB.PP/CEA 2019. 11. ↑ The 2019 ICC Note to parties and arbitral tribunals on the conduct of the arbitration under the ICC Rules of arbitration refers to a duty of the arbitrators to disclose relationship with any entity having a direct interest in the dispute or an obligation to indemnify a party for the award, but does not include an obligation for the party to disclose the existence of the third-party funder. The arbitrators are encouraged to consult the Secretariat which may assist the arbitrators in this regard. 12. ↑ Rec. 154-156 C.BB.PP/CEA 2019. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Roebuck Lecture 2019: Has Arbitration Always Been Favoured in England?

Thu, 2019-07-11 01:54

Kateryna Honcharenko

The Roebuck lecture, delivered this year on 13 June 2019, is an annual gathering of renowned scholars, practicing lawyers, arbitrators, students and arbitration enthusiasts. It pays tribute to Professor Derek Roebuck MCIArb, the arbitration historian who made an invaluable contribution to the Institute’s work and development, in particular as editor of the CIArb’s prestigious academic Journal.

This year the Institute was honored to invite the current editor of the Journal, Professor Stavros Brekoulakis (Queen Mary University of London; 3 Verulam Buildings), as the speaker. The purpose of his presentation was to demonstrate that, throughout history, English law and the judicial system, notwithstanding popular misconception, adhered to a policy that favored promotion and use of arbitration, rather than restricted it. Tracing back the development of arbitration in England supports and elaborates on current debates as to the legitimacy of arbitration and strengthens its future positions, in particular taking into account UK’s current uncertainty in light of Brexit.

Professor Brekoulakis started with the purpose of his research: to highlight a misconception that English law in 17-19th centuries did not favor pro-arbitration policies and that they have only been taking place within the last few decades, with a climax after adoption of the 1996 Act. The general perception of the judicial and legal approach to arbitration seemed to be antagonistic and “jealous” of arbitration (Scott v. Avery), in particular due to a rapid rise of common law and, as a result, authority of courts. The perception of arbitration as a threat to such authority, therefore, by most accounts, prevailed.

To the contrary, Professor Brekoulakis stated that arbitration in the last few centuries developed hand in hand with common law and English courts.

 

Background

Professor Brekoulakis’ survey of arbitration begins in the 17th century, when merchants, attracted by lower price and time efficiency of arbitration, chose it as a method to resolve their disputes, before resorting to litigation. Arbitration was also a default dispute resolution provision in construction and insurance contracts. At those times, arbitration agreements already contained the number of arbitrators, as well as their preferred specialization.

Historical writings show that not only private parties, but also the Government and even the Crown sought to resolve their disputes by means of arbitration, conducted swiftly and voluntary by individuals, entrusted to this end by their community. Arbitrators easily assumed jurisdiction over cases, even notwithstanding parties of different nationalities.

 

Peace and Trust

Communities preferred for disputes to be resolved by compromise decisions, serving as a basis for the prevailing nature of arbitration over litigation among people: arbitral proceedings involved not only a review of the bare facts of a case, but also the overall picture of relationships between parties. A sensitive and individual approach to each case was thus guaranteed and supported the desire for a sense of peaceful community. For these reasons, at the end of the 17th century, the advantages of arbitration were considered by merchants as the best way to not only resolve disputes, but also maintain peaceful environment in the trading community.

Two main types of arbitration eventually developed: submission of the parties to arbitration and reference to arbitration by courts. Decisions in arbitration initiated by submission were, however, not enforceable. This issue was resolved by a later commitment of parties to enter into an arbitration agreement in case disputes arise. This, however, still bound parties to go to courts to enforce awards and thus implied additional costs.

Reference of the parties to arbitration was made at the complete discretion of courts, which negated the time and cost savings of arbitral proceedings.

 

English Arbitration Acts

The first Arbitration Statute (the Locke Act) was adopted by the Parliament in 1698, as a response to an unfavorable arbitration environment and provided the first legal basis “for Promoting of Trade and for rending the Awards of Arbitrators the more effectual in all Cases” (John Locke). Parties, therefore, got an opportunity to resort to arbitration without the necessity to commence litigation.

A third type of arbitration, statutory arbitration, was introduced by the Act and increased the number of arbitrations in the 18th century, while subsequent Acts contributed to the policy favoring arbitration: statutory powers to refer the parties to arbitration, where their disputes were covered by an arbitration agreement, were first embodied in the 1854 Act, followed by making all arbitration agreements irrevocable in the Act of 1889 and giving power to arbitrators to grant interim relief in the 1950’s Act.  By the 1979 Act, arbitral awards could no longer be subject to a judicial review for the matters of law. Finally, the process reached its pinnacle with the adoption of the 1996 Act, which complexified the awards’ challenge procedure.

 

Position of the English Courts

Despite the revolutionary arbitration acts, arbitration agreements still lacked protection, whereas private agreements could not overshadow the jurisdiction of English courts. Therefore, the theoretical mechanisms to refer disputes to arbitration existed, however the tools were not yet in harmony. The matter of enforceability of arbitration agreements, for example, was first delved into in the Scott v Avery (1856).

Even though arbitration in 17-18th centuries could not be perceived as a pure alternative to courts’ jurisdiction, allegations regarding hostility to arbitration are not grounded, since the latter already operated as a part of English judiciary system.

Professor Brekoulakis brought the attention of the audience to the courts’ perception of arbitration in previous centuries, describing it as “cautious trust”.  The incentive was the respect of English courts to party autonomy and overpressure by hundreds of thousands of cases brought for litigation annually. This, however, did not strengthen hand of arbitration as a mechanism, since arbitration agreement were not irrevocable until the 19th century: private agreements could not be a substitute for judicial power.

 

Comparative Analysis

Everything is relative, however, and boundaries put on arbitration in England pale by comparison to those presented in some other jurisdictions. Here the authority of a state, restrictions of private arrangements, historical circumstances and governing constitutions are inextricably connected with the reluctant acceptance of the usefulness of arbitration. This was due to, in particular, to political and judicial instability in young, developing governments.

For instance, in the French Code of Civil Procedure, created after the French Revolution, arbitration posed a threat to the rule of law and was widely restricted. One could not imagine a possibility for arbitration to thrive in those circumstances. Professor Brekoulakis here cited French Cour de Cassation, whose position was that efficiency of arbitrators cannot be compared to that of judges in terms of impartiality and skills.

The US jumped on the same bandwagon in the 18-19th centuries. The ability of arbitrators to handle complex cases where significant experience and knowledge was required to give parties a valuable advice was questioned. Throughout 19-20th centuries arbitration agreements were considered as non-conforming to US public policy.

Likewise, in 1930s in Germany, one of the aims of national socialists’ regime was to limit use of arbitration. An attempt to resolve a dispute outside a court proceeding was viewed as an attempt to circumvent the ruling government.

 

Conclusion

“So, why does it matter to challenge the prevailing narrative about the traditional hostility of English courts and law to arbitration?” Professor Brekoulakis asked the audience. The discussion is foundational for examinations of the legitimacy of arbitration or possible arbitration reforms. Some also argue that arbitration is one of the wheels in the neoliberalism vehicle. The latter statement implies that the initial idea of arbitration was to outweigh the power of state courts and governments.

Considering legislative developments and historical circumstances, arbitration in England, on the contrary, was not a project originally kept tightly reined from 17th century, though not restricted or abolished by courts and the government themselves. Rather, it developed as an ancillary part of the judicial system. Only with the passing of a long period of time did arbitration gain momentum and became an independent alternative to litigation, by means of gradual adjustments of legislation.

This conclusion gives us an opportunity to brighten dark predictions of a possible Brexit future and believe that absence of antagonism between English courts and arbitration, even far back in the past, might secure the position of arbitration in the future.

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Section 1782 Discovery: Recent Decisions Highlight Splits in the Second Circuit

Wed, 2019-07-10 03:00

Julia Sherman

The use of 28 U.S.C. Section 1782 to obtain through U.S. courts evidence in support of foreign proceedings is at its zenith. But a number of questions regarding the scope of the statute are still open. As recent decisions from the United States Federal Court for the Southern District of New York (SDNY) demonstrate, considerable uncertainty remains regarding (a) the post-Intel meaning of “foreign or international tribunals” under Section 1782, (b) the extraterritorial reach of the statute, and (c) the impact of applicant delay on a district court’s exercise of its discretionary power to grant discovery. The time may be ripe for the Second Circuit Court of Appeals (Second Circuit) to weigh in on the post-Intel scope of Section 1782 discovery.

 

For Use in a Foreign or International Tribunal

First, recent SDNY decisions indicate that the question of whether private arbitrations constitute a “foreign or international tribunal” for purposes of Section 1782 discovery appears no closer to being resolved in the Second Circuit. The ambiguity is twofold. In the first place, there is the pressing question of whether the Second Circuit’s pre-Intel decision on this issue in NBC v. Bear Stearns, which held that Section 1782 discovery cannot be provided for use in private arbitrations, is still controlling in light of the Supreme Court’s reference to “arbitral tribunals” in Intel. But even in a world where NBC is good law, uncertainty exists regarding which arbitral institutions should properly be considered “private” arbitral bodies in 2019.

As discussed in a prior post on the subject published on the Kluwer Arbitration Blog, in Children’s Investment Fund Foundation, Judge Broderick of the SDNY held in January 2019 that a tribunal formed under the rules of the London Court of International Arbitration (LCIA) is a “foreign or international tribunal” for Section 1782 purposes. In so holding, Judge Broderick declined to follow NBC’s finding that a commercial arbitration administered by a tribunal acting under the rules of the International Chamber of Commerce (ICC) does not fall within the scope of Section 1782, and looked instead to the dictum in Intel from Professor Hans Smit that “the term ‘tribunal’ includes investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts”.

Judge Broderick’s opinion is consistent with Judge Marrero’s 2016 decision in Kleimar, the SDNY’s only previous post-Intel decision on the private arbitration question. In Kleimar, Judge Marrero notably held that the London Maritime Arbitration Association is a “foreign tribunal” for Section 1782 purposes, implicitly determining that NBC was not controlling post-Intel.

However, any notion that the case law in the SDNY was settling following Kleimar and Children’s Investment Fund Foundation was dispelled with Judge Furman’s decision in February 2019 in Hanwei Guo, which held that an arbitration before the China International Economic and Trade Arbitration Commission (CIETAC) does not satisfy the “for use” requirement of Section 1782. There, Judge Furman summarily rejected the notion that the dictum in Intel overturned NBC. Expressly dismissing the approaches taken by his colleagues, he stated that NBC was still good law, and thus was binding upon the district court until overturned by the Second Circuit or Supreme Court.

Applying NBC to the application at hand, Judge Furman assessed the degree to which CIETAC could be said to be “an arbitral body established by private parties.” Reviewing CIETAC’s history, he acknowledged that it presented a closer question than the ICC proceedings did in NBC, as CIETAC “was originally established by an entity of the Chinese government”. However, in his view, today’s CIETAC was “closer to a private arbitral body” than a governmental or intergovernmental tribunal. Accordingly, under NBC, the CIETAC proceedings were outside the scope of Section 1782.

Hanwei Guo indicates that the scope of the “for use” requirement in the Second Circuit post-Intel is still far from clear. Further, it highlights two key questions for the Second Circuit: first, whether NBC is still good law; and second, if it is good law, which proceedings should be considered “private” arbitrations. If CIETAC was a close question for the court, one wonders how a commercial arbitration administered by the Permanent Court of Arbitration, established by states during the Hague Peace Conferences, might be viewed under NBC.

While the Second Circuit has yet to weigh in on these issues (and noting also that uncertainty exists within and across other Circuits on this question), the stark split in the SDNY illustrated by these cases suggests that the issue may shortly be before it. Both the unsuccessful respondents in Children’s Investment Fund Foundation and the unsuccessful petitioner in Hanwei Guo have since filed notices of appeal. Accordingly, the Second Circuit may soon provide answers to at least some of these questions.

 

Extraterritorial Application of Section 1782

Another split exists within the Second Circuit, and indeed even within the SDNY, regarding whether Section 1782 can be applied extraterritorially to obtain discovery of documents located outside of the United States. At least four decisions in the SDNY have held that the statute has no extraterritorial application, while two SDNY decisions and a decision of the District of Connecticut have held in favor of extraterritoriality. In the February 2019 opinion in Hulley, an SDNY magistrate judge added further color to the debate, finding in favor of extraterritoriality while noting this uncertainty.

In the Hulley application, former Yukos shareholders sought documents from White & Case LLP in relation to Dutch court proceedings arising from the Yukos Arbitration. White & Case, for its part, contended that the bulk of the documents sought—if they exist at all—are likely overseas, and likely privileged.

Considering the extraterritoriality question at the outset, the SDNY magistrate judge acknowledged the split within the Circuit. The opinion also observed that dicta from the Second Circuit’s pre-Intel decision in Sarrio suggested that its view was that Section 1782 could not reach documents abroad, while the Second Circuit’s 2018 decision in Kiobel assumed (without holding) the same.

In the Hulley magistrate judge’s view, however, the more persuasive reasoning was that expressed by the Eleventh Circuit in its 2016 decision in Sergeeva v. Tripleton. There, the Eleventh Circuit noted that the Federal Rules of Civil Procedure authorize extraterritorial document production where those documents are within the custody or control of the party before the U.S. court, and that applying this rule in the Section 1782 setting would be consistent with the Supreme Court’s 2016 decision in Nabisco on the extraterritorial reach of RICO. Accordingly, the magistrate judge held in Hulley that Section 1782 can compel production of documents located outside of the United States in accordance with the Federal Rules of Civil Procedure.

The opinion in Hulley is consistent with (among others) the June 2018 SDNY opinion in Accent Delight, which similarly relied on the Eleventh Circuit’s reasoning. At the same time, as noted above, several  other  decisions in the SDNY have also come out the other way. The unsuccessful petitioners in Hulley are currently seeking to overturn the magistrate judge’s opinion, and thus attention will need to be paid to the district court judge’s forthcoming decision on the application.

Nevertheless, the Hulley opinion reveals how this area of the Section 1782 jurisprudence is also far from settled and suggests that the extraterritorial reach of discovery under the statute may be another question ripe for the Second Circuit’s docket.

 

Delay in Pursuing Section 1782 Discovery

In addition to the issue of extraterritoriality, the February 2019 Hulley opinion is notable for its discussion of applicant delay in pursuing Section 1782 discovery.

In considering the discretionary Intel factors, the Hulley court concluded that the first three factors (participant in the foreign proceeding; nature and receptivity of the foreign tribunal; and circumvention of foreign proof-gathering restrictions) generally weighed in favor of the production of certain unprivileged documents by White & Case. Yet the magistrate judge ultimately denied the application due to applicant’s delay of almost six years in seeking the documents—a consideration that the judge felt did not fit neatly into any of the Intel factors—combined with a finding under the fourth Intel factor that the request was unduly intrusive/burdensome.

The consideration of the applicant’s delay in seeking Section 1782 discovery is not entirely novel. The Second Circuit has indicated that an “inexcusably untimely” request would not be consistent with the statute’s “twin aims” of “providing efficient assistance to participants in international litigation and encouraging foreign countries by example to provide similar assistance to our courts”, and district courts in other circuits have raised questions regarding the timeliness of requests in their general consideration of the discretionary Intel factors.

However, the Hulley opinion advances this area of Section 1782 jurisprudence by explicitly identifying delay as a distinct element from the four Intel factors for courts to consider when exercising their discretionary power under the statute. Whether other courts will build on this discussion and establish delay as a separate discretionary factor to be assessed when reviewing applications for Section 1782 discovery remains to be seen.

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The Contents of the ASA Bulletin, Volume 37, Issue 2 (June 2019)

Tue, 2019-07-09 21:12

Matthias Scherer and Catherine Anne Kunz

We are happy to report that the latest issue of the ASA Bulletin is now available and includes the following articles and cases:

ARTICLES

Elliott GEISINGER, Simplicity and Sophistication (Of Furniture, Nails, Screws and Glue)

In his message, ASA President Elliott GEISINGER lauds the art of simplicity and questions the necessity of some of the proposed revisions of Chapter 12 of the Swiss Private International Law Act governing international arbitration in Switzerland.

Philip WIMALASENA, The Publication of Arbitral Awards as a Contribution to Legal Development – A Plea for more Transparency in International Commercial Arbitration

Philip WIMALASENA calls for more transparency in commercial arbitration through the systematic publication of arbitral awards. WIMALASENA analyses the structural prerequisites of a comprehensive publication practice and makes concrete recommendations for the anonymous publication of arbitral awards.

Thomas LEGLER, Arbitration of Intellectual Property Disputes

Thomas LEGLER outlines the benefits of arbitration for intellectual property (IP) disputes, discusses recent developments, such as the European Union’s future Unitary Patent Court system, and provides an overview of the specific arbitration procedures available in that field before examining the possibilities offered by blockchain technologies, in particular smart contracts.

Johannes LANDBRECHT, Strong by Association: Arbitration’s Policy Debates, Mandatory Rules, and PIL Scholarship

Building on a recent publication by Sagi PEARI, Johannes LANDBRECHT submits that arbitration could benefit more from private international law (PIL) thinking. LANDBRECHT highlights five developments in general PIL thinking and demonstrates how they might apply also in arbitration, in particular when dealing with mandatory substantive rules.

Michael WIETZOREK, Luxembourg’s Rejection of the French Approach to the Recognition and Enforcement of Annulled Arbitral Awards

Michael WIETZOREK analyses the series of recent decisions rendered by the Luxembourg Court of Appeal in the internationally well-known Pemex and Gold Reserve cases, which reject the French courts’ approach to the recognition and enforcement of annulled arbitral awards.

Falco KREIS, Markus KAULARTZ, Smart Contracts and Dispute Resolution – A Chance to Raise Efficiency?

In their article, Falco KREIS and Markus KAULARTZ present the basics of blockchain technology and smart contracts before shedding light on the dispute resolution mechanism suitable to that technology and exploring whether efficiency could be increased further through the automation of the dispute resolution process.

Eliane FISCHER, Flavio PETER, The Consequences of a Tribunal Secretary’s Breach of Duties – the Games of Thrones Edition

Taking inspiration from the epic series Games of Thrones, Eliane FISCHER and Flavio PETER provide an overview of the remedies available in cases where a tribunal secretary exceeds his/her powers or lacks independence and impartiality.

DECISIONS OF THE SWISS FEDERAL SUPREME COURT

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Innovation in Dispute Resolution: Sci-Fi or Future Reality?

Tue, 2019-07-09 03:00

Maria Polakova

Report from a Workshop Hosted by Squire Patton Boggs and Delos on 30 May 2019 in Prague

It has been a while now that buzzword of innovation has made its way into the traditionally conservative legal world. While a number of smart tech tools for lawyers such as contract automation or document management systems with numerous integrated functionalities are already out there, a question mark arises as to whether innovative tools of this kind can ever be of major significance in dispute resolution. And with the surge of AI and the appearance of AI-based tools capable for example of identifying risk clauses in due diligence reviews or of a smart review of case-law, a new question has arisen as to whether the very process of dispute settlement can one day be driven by artificial as opposed to human—intelligence. However, as most dispute lawyers surely feel, the biggest hurdle for innovation and tech solutions in dispute resolution—and specifically in international arbitration—is that each dispute1)Save perhaps of generic disputes related to the same topic such as disputes for non-payment of utility fees and the like. jQuery("#footnote_plugin_tooltip_6623_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6623_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); has a very specific factual matrix whilst the legal arguments used by opposing sides also tend to be far from straightforward. Dispute resolution, therefore, in most cases represents a highly individualized legal field and thus prima facie does not appear as a prime candidate for commoditization towards which most current innovative legal tools are headed.

It is with these wider issues in mind that Squire Patton Boggs joined forces with Delos — the arbitration institution which received the prestigious GAR Award for Innovation from 2018, in order to host a workshop titled “Innovation in dispute resolution: sci-fi or future reality?”. The ambition of the workshop was to bring legal and tech minds together to discuss whether, and if so how, dispute resolution is fit for innovation. The workshop was organized within the framework of a larger event, the Innovative Legal Services Forum held annually in Prague which has already gained a reputation for bringing together legal innovators from around the world.

The workshop was held in the morning of 30 May 2019 in a lovely setting of an art deco ballroom of the Grand Hotel Bohemia in downtown Prague, as if to somehow symbolize the clash between tradition and innovation. The event spread for three hours and included two debates focusing respectively on the “today” and the “tomorrow” of dispute resolution.

The first debate, which I had the pleasure to moderate, was centered on the status-quo of innovative techniques as applied in dispute resolution. As pointed out during the opening remarks, if the meaning of innovation is making things better, easier and more efficient, then international arbitration, in fact, represents innovation in its own right. This is because the very concept of arbitration was designed with the aim to provide a better and quicker alternative to court dispute resolution, and thanks to the miracle of the New York Convention, this concept has become both international and transnational. But even so, international arbitration has become a subject of numerous criticisms for being too expensive, too elitist and not even so quick as traditionally advertised. The question thus legitimately arises as to how innovative techniques can make arbitration more efficient, less costly and overall more accessible.

The first debate kicked off with Lucia Raimanova, counsel with Allen&Overy based in Bratislava, Slovakia. As a high-profile arbitration lawyer in a law firm which has openly embraced legal tech, Lucia offered her practical insights on a variety of tech and non-tech innovative techniques she has experienced: From AI-powered document review tools designed to make the review of huge quantities of documents quicker and thus less costly to a variety of innovative techniques relating to project management, such as flexible project-based staffing for cases enabling the involvement of non-full-time lawyers and support staff. Hafez Virjee, the president of Delos, then shared his perspective on innovation in disputes from the point of view of an arbitration institution. Hafez started off from a premise that innovation need not necessarily be just about technology; on the contrary, there are a number of non-tech innovative ideas and tools which may improve the landscape of disputes.  Hafez gave an example from the Delos rules regarding registration of contracts: In everyday life, arbitrations get complicated by the fact the original contract with an arbitration clause gets lost or a dispute arises between the parties as to which version of the contract is the authentic one – and such complications occur more often than one would think. Delos thus came up with a simple idea that contracts which include a Delos arbitration clause may be registered with Delos for the purpose of a potential dispute (and if such a dispute indeed arises, it then benefits from lower arbitration fees). This simple idea indeed epitomizes the gist of true innovation: The innovative idea surely need not be complicated, but it does need to be practical and address real daily needs of dispute resolution users. Finally, Olivier Mosimann, partner with the second largest Swiss law firm Kellerhals Carrard based in Basel, offered his perspective on innovation in evidentiary matters. As he explained, efficient and persuasive presentation methods by counsel at hearings, such as augmented or virtual reality which are already being used not just in arbitration but also before courts in some countries, represent a true innovation in the presentation of evidence specifically in cases of high technical complexity where verbal or graphic presentations simply do not do enough to explain the factual issue at stake.

A lively discussion with the audience followed. Questions primarily focused on the current experience and challenges relating to the use of document review tools, specifically in the context of dispute lawyers’ willingness to entrust substantial amounts of document review work to a “machine” rather than to junior associates and the related issues of liability for error. As Lucia Raimanova pointed out, these concerns become much less relevant in a world where document review tools have a lesser probability of error than human associates.

After the break, the workshop continued with a more futuristic debate focusing on the landscape of disputes tomorrow. The panel discussion brought together tech and AI experts and lawyers and it was moderated by Rostislav Pekař, partner with Squire Patton Boggs based in Prague and the firm’s co-head of investment arbitration practice.

This round was opened by an NLP expert Otakar Smrž, a PhD holder from the Charles University in Mathematical Linguistics and a former research scientist for IBM, and who currently leads innovative efforts in MSD as an Associate Director for Emerging Technologies. Otakar gave a broad introduction of recent advances in AI and natural language processing (NLP) and elaborated on specific NLP technologies that may already have matured enough for practical utilization in dispute resolution: named entity recognition, document summarization, question answering, text classification, semantic entailment. Next to speak was Tomáš Polák, a data scientist with a Prague-based consultancy firm Profinit. Tomáš is also involved in efforts to apply AI&NLP methods to dispute resolution based on semantic entailment techniques. Tomáš dove into more concrete technical details of some NLP methods and explained the basic concepts behind neural networks. Specifically, Tomáš described how words and sentences can be turned into numbers and vectors before being processed by an NLP algorithm and illustrated it on the example of the TF-IDF (term frequency – inverse document frequency) scoring method applied to a search in a publicly available investment arbitration award. As he concluded, AI&NLP techniques have a lot to offer to dispute resolution users, for example by substantially reducing the time and costs needed to process large quantities of diverse documents.  However, because each dispute is factually and legally different and thus features a specific set of documents, the development of truly efficient tools requires close cooperation between tech experts and dispute lawyers whose focused and targeted feedback is needed to properly train such tools. At least until the sci-fi idea of a universal AI tool has truly materialized. The debate was closed with the remarks of Izzat-Begum B. Rajan, who has recently joined the Pharo Foundation as its COO in Africa. Izzat has experienced disputes from a multitude of perspectives in her rich professional life – as a lawyer, in-house counsel as well as a consultant and a certified trainer in mediation and alternative dispute resolution for the AKDN (not mentioning her black belt in judo). Izzat engaged in a lively brainstorming exercise and offered the audience several inspiring scenarios of the future of dispute resolution, including a world where the AI&NLP methods previously introduced drive us into a future where dispute resolution becomes partially or fully automated. Again, a lively discussion followed, centering primarily on sharing of visions for the future of dispute resolution.

All in all, the workshop has made clear that innovation in disputes is not only possible, it is already happening. But it has also made clear that real innovation is not something that dispute lawyers should just observe and wait for to happen. Improving the landscape of disputes in both tech and non-tech sense requires efforts by dispute lawyers to identify real needs of dispute users, to think of simple ways to remedy existing drawbacks, and finally, to learn to speak a common language with tech experts in order to make real and full use of what tomorrow’s world can offer.

References   [ + ]

1. ↑ Save perhaps of generic disputes related to the same topic such as disputes for non-payment of utility fees and the like. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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An Overview of Chile’s International Investment Agreement Program

Mon, 2019-07-08 03:08

Charles ('Chip') B. Rosenberg and Eduardo Bruera

Chile is one of the most dynamic states in Latin America.  The World Bank has observed that “Chile has been one of Latin America’s fastest-growing economies in recent decades”.  And foreign direct investment has increased significantly in recent years.  As investment interest in Chile grows, it is important for both investors and international law practitioners to understand Chile’s international investment agreement (“IIA”) program, particularly as it has evolved in recent years.

Notably, on February 5, 2019, the Amending Agreements to the Canada-Chile Free Trade Agreement (“CCFTA”) entered into force, updating several key provisions of the CCFTA, including in its investment chapter.  For example, the amended CCFTA now contains a dedicated article on corporate social responsibility (“CSR”) that reaffirms the parties’ commitment to globally endorsed CSR standards.  It also includes procedural enhancements to the investor-state dispute settlement mechanism with respect to a host of modern considerations, including preliminary objections, awarding of costs, ethical considerations, third-partying funding, and transparency.

The amendment of the CCFTA was in line with Chile’s IIA program in recent years.  Historically, Chile’s IIA program centered on bilateral investment treaties (“BITs”).  Between 1991 and 2000, Chile signed more than 50 BITs with states such as Bolivia, France, Germany, Malaysia, Spain, the UK, and Venezuela.  However, since 2000, Chile has signed only a handful of BITs, opting instead to concentrate on comprehensive FTAs with investment chapters.  In fact, Chile has signed at least 10 FTAs with investment chapters since 2000 with states such as Argentina, Colombia, Korea, and the United States, as well as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) with Australia, Brunei, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

The differences between Chile’s BITs and FTAs are important and worth considering.  The investment chapters in Chile’s FTAs are much more detailed than Chile’s BITs.  There also are several substantive differences that become apparent when evaluating Chile’s BIT and FTA regimes holistically.

Dual Nationals:  The vast majority of Chile’s BITs protect dual nationals.  However, a notable exception is the Germany BIT, which provides in its Protocol that the treaty “shall not apply to investors who are nationals of both Contracting Parties”.  Another exception is the Switzerland BIT, which provides that the treaty “shall not apply to investments of natural persons who are nationals of both Contracting Parties unless such persons have at the time of the investment and ever since been domiciled outside the territory of the Contracting Party in which the investment was made”.  The France BIT also contains a unique provision in its Protocol which specifies that the treaty “shall not apply to investments made by natural persons who are nationals of one of the Contracting Parties and who, at the date of investment in the . . . other Contracting Party, have their domicile in the territory of that other Contracting Party for more than five years, unless the necessary funds for the investment come from abroad”.

Several of Chile’s FTAs protect dual nationals but only if the investor satisfies the dominant and effective nationality test.  For example, the U.S. FTA provides that a “a dual national shall be deemed to be exclusively a national of the state of his/her dominant and effective nationality”.

Fair and Equitable Treatment:  Nearly all of Chile’s BITs contain fair and equitable treatment (“FET”) protections unqualified by the minimum standard of treatment under customary international law.  For example, the Croatia BIT provides that “[e]ach Contracting Party shall extend fair and equitable treatment to investments made by investors of the other Contracting Party on its territory”.  However, there are a few notable exceptions.  For example, the Uruguay BIT provides that “[e]ach Party shall accord covered investments treatment in accordance with customary international law, including fair and equitable treatment”.

By contrast, nearly all of Chile’s FTAs expressly limit the FET standard to the customary international law standard.  For example, the U.S. FTA provides that “[e]ach Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment”.  The U.S. FTA specifies that “[f]or greater certainty . . . the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments” and that FET does “not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights”.

Umbrella Clause:  Chile generally has included umbrella clauses only in its BITs with European states.  For example, the Greece BIT provides: “Each Contracting Party shall observe any other obligation it may have entered into with regard to investments of investors of the other Contracting Party”.

None of Chile’s FTAs contain umbrella clauses, reflecting a broader trend in investment treaty practice.

Most Favored Nation (“MFN”) Clause:  The vast majority of Chile’s BITs include an MFN clause but do not specify whether the clause applies to the dispute settlement provisions in the treaty.  That said, there are two notable exceptions.  The Uruguay BIT provides that “[f]or greater certainty, the Parties agree that [the MFN clause] is not applicable to procedural or jurisdictional matters”.  Conversely, the UK BIT provides that “[f]or the avoidance of doubt it is confirmed that the [MFN] treatment . . . shall apply to the provisions of Articles 1 to 10 of this agreement”.

Several of Chile’s FTAs expressly provide that the MFN clause does not apply to dispute settlement.  For example, the Argentina FTA provides that “[f]or greater certainty, the [MFN] treatment . . . is not applicable to procedural or jurisdictional matters”.

Statute of Limitations:  Chile’s BITs rarely contain a statute of limitations.  The notable exception is the Uruguay BIT, which provides that “[n]o claim may be submitted to arbitration . . . if more than three (3) years have elapsed from the date on which the claimant had or should have been aware of the alleged violation . . . and known that the claimant . . . suffered losses or damages”.

In contrast, all of Chile’s FTAs contain a statute of limitations.  The most common term is 3 years.  The only exceptions are the Colombia FTA (39 months) and the CPTPP (3 years and 6 months).

*          *          *

Investors and international law practitioners involved with Chile related investments should understand Chile’s IIA program.  While it is foremost critical to assess and apply the language of the specific BIT or FTA at issue, understanding Chile’s IIA practice – and in particular whether Chile deviated from its IIA practice – can be an important supplementary means of interpretation to ascertain the meaning of the BIT or FTA.

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Can You Enforce an Agreement Involving Bribery? From World Duty Free v. Kenya to Vantage Deep Water Co. v. Petrobras Am., Inc.

Sat, 2019-07-06 19:17

Diogo Pereira

Discussions of corruption carry strong moral sentiments.  After all, the abuse of public office for private gain erodes people’s trust in government and institutions, makes public policies less effective and fair, and siphons taxpayers’ money away from schools, roads, and hospitals. More generally, broad-based corruption weakens the foundations of a healthy economy, degrades social norms, and undermines civic virtues.  Unsurprisingly, it is easy to provoke outrage with a nuanced or concise discussion of this issue.

 

Illegality and Corruption in Commercial and Investment Arbitration: A One-Sided Proposition?

In the context of international commercial arbitration, illegality and corruption can serve as a basis to deny jurisdiction or admissibility of a dispute, can be dispositive of claims on the merits, and can serve as a basis to deny enforcement. Arbitral practice is well developed on issues relating to illegality of underlying contracts with notable commercial cases like Fiona Trust & Holding Corp v. Privalov, which provide rich discussions of foundational arbitral principles such as kompetenz kompetenz, and severability, which are necessary for a tribunal to even entertain allegations of illegality and corruption. See Fiona Trust & Holding Corp v. Privalov, [2007] UKHL 40. Similarly, cases such as Soleimany v. Soleimany provide for the unenforceability of an arbitral award based upon a contract that was illegal in the jurisdiction of enforcement. See Soleimany v. Soleimany [1999] Q.B. 785, 798.

In investment arbitration, the number of cases involving allegations of corruption is increasing.  One of the most notable examples, which reads like a Hollywood script, is the case of World Duty Free v. Kenya. In that case, the claimant’s only witness, Mr Nassir Ibrahim Ali of Dubai, testified to the following facts relating to how the concession contract had originally been procured:

 “protocol in Kenya required that I should in addition make a “personal donation” to President Moi. … X advised me that the appropriate donation … was US$2 million. I was further advised by him that the donation should be in cash. … I brought [part of the cash in Kenyan shillings] to my meeting with President Moi in a brown briefcase. When we entered the room where the President received us, [I] put the briefcase by the wall and left it there. After the meeting [I] collected the briefcase from where [I] had left it. On the departing journey I looked in the briefcase and saw that the money had been replaced by fresh corn”.

This case was disposed of on the merits in favor of Kenya under the skilled representation of Jan Paulsson and Constantine Partasides. The tribunal noted that, due to the bribery, the respondent Kenya:

“was legally entitled to avoid and did avoid legally … the Agreement  … [and] [t]he Respondent, Kenya, did not lose its right to avoid the said contract by affirmation or otherwise … under these applicable laws;” (emphasis added)

This award, while widely commended, has not been without criticism and has raised valid concerns. While anti-corruption norms are important, legitimate concerns about fairness arise if tribunals privilege anti-corruption laws over all other normative considerations. After all, the payment of a bribe is not a unilateral act and always implicates at least two guilty parties.  Notwithstanding its pari delicto nature, it is also concerning to notice that it is usually the host states or government entities that allege corruption as a defense against allegations of their own later misconduct.1)It is important to note here that government officials who accept bribes do not necessarily do so in their official capacity and as a result their conduct is often not attributable to the State. jQuery("#footnote_plugin_tooltip_7518_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7518_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The availability of a remedy to the host state only where both are involved in the illegitimate conduct can be seen as unfair and can also create a moral hazard.  After all, a cynical State could conclude that it should encourage an act of corruption at the inception of an investment to inoculate themselves against future investor claims.

 

Vantage Deep Water Co. v. Petrobras Am., Inc.

On 17 May 2019, in Vantage Deep Water Co. v. Petrobras Am., Inc., the U.S. District Court for the Southern District of Texas (the “Court”) denied Petrobras’ effort to vacate an arbitration award obtained by Vantage Deepwater Drilling on the basis that the underlying contract was procured through bribery.

By way of background, petitioners (“Vantage”) and respondents (“Petrobras”) entered into an eight-year Agreement for the Provision of Drilling Services (“DSA”), for which performance of offshore drilling services commenced on 2 December 2012. On 27 October 2014, Vantage and Petrobras executed the Third Novation and Amendment Agreement to the DSA (“Third Novation”) which provided that all disputes were to be resolved before the International Centre for Dispute Resolution (“ICDR”) of the American Arbitration Association (“AAA”). See Vantage Deepwater Company et al v. Petrobras Americas Inc. et al, Civ. Action No. 4:18-CV-02246.

Petrobras’ premature termination of the DSA on 31 August 2015 led Vantage to commence the arbitration proceeding. During the arbitration, Petrobras argued “that the DSA was void or unenforceable for allegedly being procured through bribery”. Notwithstanding, the majority found Petrobras liable to Vantage for US$615.62 million. On 8 July 2018, Vantage petitioned the Court to confirm the final award under U.S.C. §§ 301-307. Subsequently, Petrobras filed a response opposing confirmation of the final award, arguing that it should be set-aside under two provisions of Article V of the Inter-American Convention on International Commercial Arbitration of 30 January 1975 (the “Inter-American Convention”).

Petrobras argued that Article V(2)(b)2)Article V(2)(b) allows a signatory country to refuse enforcement of an award if such enforcement would conflict with public policy. jQuery("#footnote_plugin_tooltip_7518_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7518_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); of the Inter-American Convention provides such ground to refuse enforcement because it would violate public policy to require a party to pay for damages resulting from a contract that was invalidly obtained by bribery. However, the Court noted that defenses to enforcement of the Inter-American Convention are construed narrowly and there is an “empathetic federal policy” in favor arbitral dispute resolution. Although Petrobras argued that confirming the award involving a contract procured through bribery would violate the public policy of the United States, that was not the case. The Court stated a public policy defense is only applied where enforcement would violate the forum state’s most basic notions of morality and justice. The Court here took the view that public policy did not refer to any international notion but rather should be examined with respect to Texas law. In this case, Petrobras conducted a bribery audit two months before executing the Third Novation. This, the Court explained, is evidence that Petrobras continued with recognizing the agreement with the knowledge of the bribery allegations, and thus, ratified the agreement under Texas law. Therefore, the question before the Court was whether enforcing a contract alleged to have been procured through bribery—and subsequently ratified by the non-bribing party—would violate public policy.

The Court cited further case law and explained that public policy does not favor allowing a party engaged in fraud to attempt to use fraud as a defense to a valid arbitration in favor of its alleged co-conspirator. Thus, enforcement of the final award did not violate public policy where the parties who were alleged to have mutually engaged in some misconduct during the formation of a contract, particularly when that contract was later ratified. As a result, the Court granted Vantage’s petition to confirm the arbitral award.

 

The Competing Roles of International Arbitrators

In its treatment of allegations of bribery and illegality, the District Court’s opinion in Vantage Deep Water Co. is consistent with the decisions of previous commercial and investment tribunals at both the merits and enforcement stages. Notably the tribunal in World Duty Free specifically noted that there was no subsequent affirmation of the contract in question that would have compromised the state party from avoiding the contract. Nevertheless, this case is notable in that it squarely acknowledges that a state actor or state-owned entity should not use their own misconduct as a defense, particularly when they later ratified that conduct.

The intersection of anti-corruption norms and international arbitration raises important theoretical questions about arbitration and exposes inherent tensions. Arbitration arises out of an agreement between parties, but at the same time, arbitrators must consider issues that could impact the wider public. Questions of corruption in particular straddle the line between civil and criminal law and raise questions of public interest that extend beyond the limits of party autonomy. This intersection exposes the reality that arbitration lies at the center of divergent claims of authority and arbitrators must delicately balance competing functions. As repugnant as bribery is, a finding of bribery is not necessarily dispositive of a case. International tribunals must consider various important public and private legal principles in reaching their decisions. Future cases will continue to grapple with the contours of these principles as they are fundamental and of recurring importance.

The views in this post represent the view of the author only and do not represent the view of De Almeida Pereira.  This post was prepared with the invaluable support of Wilson Carneiro, Summer Associate at De Almeida Pereira in Washington DC.

References   [ + ]

1. ↑ It is important to note here that government officials who accept bribes do not necessarily do so in their official capacity and as a result their conduct is often not attributable to the State. 2. ↑ Article V(2)(b) allows a signatory country to refuse enforcement of an award if such enforcement would conflict with public policy. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Ssangyong v. NHAI: Supreme Court of India Fixing Some Troubles, and Creating Some?

Sat, 2019-07-06 00:00

Shivansh Jolly and Sarthak Malhotra

The decision of the Supreme Court of India (“SC”) in Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI) (“Ssansyong”), has led to three notable developments: (1) it clarifies the scope of the “public policy” ground for setting aside an award as amended by the Arbitration and Conciliation (Amendment) Act 2015 (“2015 Act”), (2) affirms the  prospective applicability of the 2015 Act and (3) adopts a peculiar approach towards recognition of minority decisions.

Facts

The dispute arose out of a contract between the parties for construction of a four-lane bypass on a National Highway in the State of Madhya Pradesh. The appellant, Ssangyong Engineering, was to be compensated under the contract for inflation in prices of components to be used in construction of the highway. The agreed method of compensation for inflated prices was the Wholesale Price Index (“WPI”) following 1993 – 1994 as the base year. However, National Highways Authority of India (“NHAI”) subsequently issued a circular revising the WPI to follow 2004 – 2005 as the base year for calculating the inflated cost, which was disputed by Ssangyong. The parties referred this dispute to a three member arbitral tribunal. The majority award upheld the revision of WPI as being within the terms of the contract. The minority decision opined otherwise, and held that the revision was de hors the contract. Aggrieved by the majority finding, Ssangyong unsuccessfully challenged the award as being against public policy before Delhi High Court, and consequently sought remedy from the SC in appeal.

Scope of “Public Policy” under Section 34

The public policy ground under Section 34 (2)(b)(ii) (challenge to domestic awards) and Section 48(2)(b) (conditions for enforcement of foreign awards) of the 1996 Act became a cause for concern due to a broad interpretation given to the phrase “fundamental policy of Indian law” by the SC in ONGC Ltd. v. Western Geco International Ltd. (“Western Geco”) – one of the three explanations given to public policy under the aforesaid provisions. This has already been discussed here. The impact of Western Geco, and later Associate Builders v. DDA (“Associate Builders”) following Western Geco, was such that “fundamental policy of Indian law” was left to be exploited for refusing enforcement to foreign awards, and allowing domestic awards to be reviewed on merits. This was changed by the 2015 amendments. The SC in the Ssangyong case held that the broad interpretation given to “fundamental policy” in Western Geco does not find place under Section 34, as amended by the 2015 Act. It relied on the 246th Report of the Law Commission of India which stated that public policy ground cannot have the same scope under Section 34 and Section 48 [para 18]. The Report further stated that even though grounds of court intervention in a domestic award ought to be wider, the same was recognized by introducing “patent illegality” in Section 34(2A) by the 2015 Act without making the same amendment to Section 48. The SC also relied on the Supplementary to the 246th Report which was released in February 2015 as a consequence of the SC’s judgments in Western Geco and Associate Builders [para 20]. The Report stated that the amendments to Section 34 ‘were suggested on the assumption that other terms such as “fundamental policy of Indian law” or conflict with “most basic notions of morality or justice” would not be widely construed.

Therefore, the SC held that the wide import given to “fundamental policy of Indian law” in Western Geco and Associate Builders is improper, and not in accordance with the intent and purpose of the amended Sections 34 and 48 of the 1996 Act [para 23]. The SC also clarified that the following interpretation be given to the respective species of public policy under Section 34(2)(b)(ii), and to “patent illegality” under Section 34(2A):

  • “fundamental policy of Indian law” – contravention of a law protecting national interest; disregarding orders of superior courts in India; principles of natural justice such as audi alteram partem (in line with Renusagar Power Co. Ltd. v. General Electric Co.) [paras 23 – 25];
  • “most basic notions of morality or justice” – the SC adopted the ratio of Associate Builders wherein it was observed that an award would be against justice and morality when it shocks the conscience of the court; morality, however, would be determined on the basis of “prevailing mores of the day” [para 24];
  • “patent illegality” – illegality which goes to the root of the matter, but excluding erroneous application of law by an arbitral tribunal or re-appreciation of evidence by an appellate court. However, this ground may be invoked if (a) no reasons are given for an award, (b) the view taken by an arbitrator is an impossible view while construing a contract, (c) an arbitrator decides questions beyond a contract or his terms of reference, and (d) if a perverse finding is arrived at based on no evidence, or overlooking vital evidence, or based on documents taken as evidence without notice of the parties [paras 26 – 30].

The SC also affirmed its findings in BCCI v. Kochi Cricket where it held that the 2015 Act amending Section 34 is entirely prospective in nature and shall apply to applications filed on or after 23.10.2015 (date of commencement of the 2015 Act), even if arbitration proceedings were commenced prior to the said date [paras 10 – 12]. This would allow parties to such arbitrations to also benefit from the findings of the SC in Ssangyong, eliminating exploitative use of “public policy” and “patent illegality” to unduly interfere with domestic and foreign awards.

Minority Decisions

The SC in Ssangyong set aside the judgments of the Single Judge and Division Bench of the Delhi High Court. It also exercised its plenary power under Article 142 of the Constitution of India to declare the minority decision as the award between the parties. Article 142 gives the SC power to make such orders which may be necessary for doing “complete justice” in a case. This power has been deliberately left undefined and elastic enough to grant suitable reliefs in a given situation [Delhi Development Authority v. Skipper Construction Company]. However, the prevailing view is that the SC cannot by-pass statutory considerations while exercising its power under Article 142 [Supreme Court Bar Association v. Union of India].

The SC’s approach in Ssangyong raises questions about the overall efficacy of the remedy available to the parties under Section 34 of the 1996 Act.

It is the prevailing position that the Act does not allow Indian courts to modify an award while dealing with a Section 34 application [Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express].1)An appeal against the judgment is currently pending in the Supreme Court. jQuery("#footnote_plugin_tooltip_2301_1").tooltip({ tip: "#footnote_plugin_tooltip_text_2301_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The SC appeared to have endorsed this scheme of the Act when it observed that if the majority award was set aside, the parties would have to re-agitate their claims afresh before a new arbitral tribunal [para 49]. The Court further stated that the delay in resolution of disputes between the parties caused due to the foregoing would be contrary to the objective of 1996 Act, i.e. to promote speedy resolution of disputes. However, the Court overcame the limits prescribed under Section 34 by exercising its plenary power under Article 142 and declared the minority decision as the enforceable award between the parties.

The precedential value of this judgment is limited in light of the previous SC decision of State of Punjab v. Rafiq Masih where it observed that orders under Article 142 do not constitute a binding legal precedent. Nevertheless, it raises an important issue of the power of the Indian courts to effectively deal with an application for setting aside an award. There have been instances in the past where courts have set aside majority awards and upheld the minority decision as the award between the parties. [Modi Entertainment v. Prasar Bharati; ONGC v. Interocean Shipping]. The SC’s approach of invoking its plenary power under Article 142 to declare the minority decision as the award between the parties suggests that the approach adopted by the courts in the past to uphold minority decisions was not proper. It further appears to be against the principles enunciated by it in previous cases that Article 142 cannot lose sight of the provisions of a statute.

As such, the Ssangyong judgment appears to indicate that if a majority award is set aside by a court under Section 34 of the 1996 Act, the minority decision cannot be upheld and the parties shall have to commence arbitral proceedings afresh. On the other hand, the approach of the SC in Ssangyong may lead the parties to agitate the dispute up to the SC in the hope to revive minority decisions through Article 142 of the Constitution of India. It is therefore necessary to bring in suitable clarifications / amendments to the Act to address this uncertainty.

 

The views of the authors expressed above are purely independent, and do not necessarily reflect the views of their organisations

References   [ + ]

1. ↑ An appeal against the judgment is currently pending in the Supreme Court. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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ISDS As a Means of Addressing Challenges for the BRI in Central Asia

Thu, 2019-07-04 18:53

Tiange "Tim" Chen

Background

Since its announcement in 2013, China has invested more than US $120 billion into the target countries along the Belt and Road Initiative (“BRI”) on infrastructure projects ranging from ports and railroads to pipelines. Central Asia will become part of nearly the entire major trade corridor identified under the BRI. Hence the BRI presents a rare opportunity for Central Asian countries to attract foreign investment and to upgrade their Soviet-era infrastructure. Yet, at the Second Belt and Road Forum held in Beijing during the last weekend in April, Chinese President Xi Jinping went to great lengths to reassure foreign leaders, many of them from Central Asia, that the BRI was not a debt-trap amid growing fear of loan defaults in BRI-related projects. Specifically, Xi promised to establish a “debt-sustainability framework” and to encourage compliance with international infrastructure-contracting standards.

These reassurances notwithstanding, the debt fears associated with the BRI are very much alive and are cited by many observers as the primary basis for potential legal disputes arising out of the BRI. Particularly in Central Asia, China’s dominance in inbound FDIs and imports means that a number of Central Asian states bear an unusually high debt burden to Chinese investors.1)The Council on Foreign Relations have published an index on BRI countries’ debt to China. In 2017, debts to China represent 12.1%, 42.3%, 24.0%, 16.9% and 7.1% of GDP for Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, respectively. jQuery("#footnote_plugin_tooltip_8559_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8559_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This post considers challenges and solutions for these tensions and draws from the analysis presented at a panel discussion called “China’s New Route to the Silk Road: Challenges and Opportunities for the Eurasian Region” held in April 2019 in Washington, DC as part of the American Bar Association’s Section of International Law Annual Conference (“ABA Conference”). The panel consisted of Olga Boltenko (Partner, Fangda LLP – Hong Kong), Matthew Erie (Associate Professor, University of Oxford), Dmitry Lysenko (Counsel, Baker McKenzie LLP – Moscow), Richard Hoagland (former U.S. Ambassador), and Madina Tursunova (Partner, Legalmax Law Firm – Tashkent), and was moderated by Diana Tsutieva (Associate, Foley Hoag LLP – Washington, DC).

 

A. Challenges Presented by the BRI in Central Asia

Legal disputes arising in the BRI context present several unique challenges:2)As many of the challenges that BRI poses for the Central Asian countries remain uncertain, some of the panelists have interestingly drew comparisons to the experience of some Southeast Asian countries to provide some insights. For example, Sri Lanka’s handing over of the Hambantota port to a Chinese SOE for failure to pay off its debt and Malaysia’s renegotiation of its East Coast Rail Link suggested that the debt fear would only continue, and that future disputes, especially investor-state ones, would be a very likely outcome. jQuery("#footnote_plugin_tooltip_8559_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8559_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

  • First, the BRI disproportionately involves state-backed players or sovereign governments themselves. At the ABA Conference, Ms. Boltenko observed that BRI projects are predominantly built by Chinese investors, and such projects are disproportionately backed by Chinese state financiers, especially the China Development Bank, the Silk Road Fund and the China EXIM Bank. On the other side, many of the projects are directly backed or guaranteed by the BRI-targeted countries, especially in Central Asia.
  • Second, legal institutions along the BRI routes are still embracing international dispute resolution. It would take time for investors to build confidence in these domestic legal systems. There are also significant challenges created by the different legal systems involved in the cross-border BRI projects. Ms. Tursunova pointed out that the BRI creates significant risks for investors because many of the large projects’ contracts are negotiated and executed separately on a country-by-country basis, meaning that investors sometimes have to fight in different fora with different countries at the same time.
  • Third, the Chinese’s preferred way of friendly consultation, rooted deeply both in culture and in its international legal instruments, remains a barrier for non-Chinese counterparts to bring the Chinese parties before an arbitration panel, rather than a negotiation table. While the Chinese Government has signed dozens of MOUs with BRI countries, these MOUs are not legally binding, and almost none of them introduce any specific or new dispute resolution mechanism. This is not unique for bilateral or multilateral agreements signed between China and Central Asian countries. As pointed out by Mr. Lysenko at the ABA Conference, no agreement within the Eurasian Union framework or any of the economic cooperation agreements between Russia and the Eurasian countries contain any form of binding dispute resolution mechanism.

 

B. Possible Solutions

Faced with these unique challenges, the choice on venues and choice of the appropriate dispute resolution mechanism are critical questions. 

 

  1. Venues for Dispute Resolution

Both China and the Central Asian countries recognize the potential of BRI disputes. China has been establishing ISDS options, including the establishment of a new International Commercial Court and CIETAC’s publication of new investment arbitration rules. At the same time, two newly established arbitration centers are filling in the vacuum in Central Asia, i.e., the Astana International Financial Centre (AIFC) and International Arbitration Centre and the Tashkent International Arbitration Centre (TIAC).

However, as discussed previously on this Blog, while the Chinese and Central Asian governments have high hopes for the value of these new institutions, many traditional challenges associated with these options, including perceived lack of trust, transparency or judicial experience, cannot be effectively addressed any time soon.

As such, it remains unlikely that major players would choose these new institutions over more established arbitration seats, given that the new institutions not only lack experience and expertise, but also could see potential difficulties for parties in enforcing their awards. In my view, the preferred venues would likely continue to be HKIAC and SIAC, where BRI-oriented programs and rules are well-established. Through its BRI Commission the ICC could also see an increased caseload based on disputes coming out of this Central Asian region.

 

  1. Protection through Regional BITs

In addition, BITs are particularly valuable for addressing cross-border disputes. As recognized by some, consistent with the rise of Chinese outbound investment and the development of BRI, Chinese investors may increasingly choose to take advantage of protection measures under international investment treaties for their investments. This trend arguably reassures Chinese investors in using dispute resolution mechanisms in BITs to resolve BRI disputes.

Within the Central Asian region, China has BITs with the following countries:

 

BIT with China Effective date Generation Central Asian countries Kazakhstan Y 1994 2nd Uzbekistan Y 2011 (updated) 3rd Kyrgyzstan Y 1995 2nd Turkmenistan Y 1995 2nd Tajikistan Y 1994 2nd Afghanistan X – – Caspian countries/regional players Russia Y 2009 3rd Turkey Y 1994 2nd Iran Y 2005 3rd Azerbaijan Y 1995 2nd Armenia Y 1995 2nd Georgia Y 1995 2nd Mongolia Y 1993 2nd

 

A key issue with the many BITs that China signed with Central Asian countries is that they are mostly the so-called 2nd generation BITs, those that was negotiated and signed by China and its partners during the 1990s after China accession to ICSID.3)See also Gallagher & Shan, China Investment Treaties: Policies and Practice, Oxford University Press 2009. jQuery("#footnote_plugin_tooltip_8559_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8559_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); These 2nd generation BITs provide better protection for investors under the National Treatment standard. While 2nd generation BITs are not as toothless as the 1st generation ones, which usually cover amount-of-compensation disputes arising out of expropriation cases only, the terms of these 2nd generation BITs remain vague and are difficult to interpret. Chinese BITs also did not adopt the U.S. model of using negative lists for BIT negotiations until the late 2000s.

While these Chinese BITs, as do many legal instruments executed by the Chinese government, have their unique “Chinese characteristics”, including the emphasis on consultation and mediation, and many carve-outs for investment protections (especially in the older BITs), they do provide a framework for investors to seek relief from State actors. For example, Huawei’s recent attempt to build a case against the Czech Republic under the China-Czech BIT could be seen as a bellwether on the potential for settling BRI disputes under IIAs.

 

Concluding Thoughts

While Chinese BITs are often textually ambiguous and frequently overlooked, they do provide an available avenue for ISDS under the BRI framework. As debt fear continues and legal uncertainty persists, BIT-based dispute resolution in traditional venues might be one of the more credible choices for ISDS in the region.

References   [ + ]

1. ↑ The Council on Foreign Relations have published an index on BRI countries’ debt to China. In 2017, debts to China represent 12.1%, 42.3%, 24.0%, 16.9% and 7.1% of GDP for Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, respectively. 2. ↑ As many of the challenges that BRI poses for the Central Asian countries remain uncertain, some of the panelists have interestingly drew comparisons to the experience of some Southeast Asian countries to provide some insights. For example, Sri Lanka’s handing over of the Hambantota port to a Chinese SOE for failure to pay off its debt and Malaysia’s renegotiation of its East Coast Rail Link suggested that the debt fear would only continue, and that future disputes, especially investor-state ones, would be a very likely outcome. 3. ↑ See also Gallagher & Shan, China Investment Treaties: Policies and Practice, Oxford University Press 2009. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Take-Aways from the Copenhagen Arbitration Day 2019

Thu, 2019-07-04 03:00

Andrew Poole

 

The Danish Institute of Arbitration (DIA) and ICC Denmark hosted Copenhagen Arbitration Day earlier this year. Discussion took place on a wide range of topics such as the criticism of arbitration, diversity and the Prague Rules.

The day began with three lunchtime seminars. The first took place at the University of Copenhagen, where four speakers focused on investment arbitration in a post-truth world.

Jan Heiner Nedden of Hanefeld Rechtsanwälte noted that the criticism of arbitration, which was centered on issues such as transparency, legitimacy and the alleged favouring of investors, was mainly based on rumours, inaccurate information and tenuous assumptions. He stated that it was up to the arbitration community to change arbitration’s reputation and highlighted that investment, rather than commercial, arbitration bore the brunt of the criticism.

Steffen Hindelang of the University of Southern Denmark supported the position that there was not an overwhelming favouring of investors in investment arbitration by showing that nearly half (47%) of the already concluded intra-EU investment arbitration cases, between 1987 and 31 July 2018, were decided in favour of a state. However, he noted that statistics could be used to argue almost any position on this.

Ole Spiermann of Bruun & Hjejle followed by noting that the statistics overlooked “no clear winner” outcomes such as if an investor were awarded less than anticipated, and so suggested that states may benefit more than what is generally perceived. He also added that the current criticism might be a reaction to the high praise of investment arbitration when it first began.

Joanna Jemielniak of the University of Copenhagen next highlighted the EU’s strong support of its Investment Court System, which is often portrayed as a response to arbitration’s criticism. However, she noted that this new system still relies heavily on existing arbitral rules. She also anticipated the importance of the CJEU opinion on the Investment Court System in the EU-Canada trade agreement, discussed in the Kluwer Arbitration Blog post here.

At the second seminar held at Gorrissen Federspiel, Henriette Gernaa discussed the importance of nationality, forum and legal traditions. She noted that international arbitral procedure could often reflect regional styles and illustrated her case by presenting different configurations regarding seat, arbitrator nationality, party nationality, etc. and queried to what extent the differences could affect factors such as disclosure, experts and tribunal proactivity. She suggested that a single international style could aid predictability for users as well as reduce the likelihood of overly regulated and extensive arbitration clauses, while emphasising that any interplay between international and regional practice should focus on what serves the users best.

The third seminar took place at Kromann Reumert, where the former president of the Danish Supreme Court, Torben Melchior, highlighted the advantages of Danish arbitration including: lower DIA costs, pro-enforcement judgments and Denmark’s top ranking in the World Justice Project’s Rule of Law Index. Frank Bøggild of Kromann Reumert then followed and spoke about the rise of M&A arbitrations owing to issues such as warranty breaches and shareholders’ liability, and the consequent increase in toughened rhetoric, horse-trading of claims and forensic expertise. He advised that topics such as discovery and standard arbitration clauses should be commonly considered when drafting M&A agreements.

After lunch, the day continued at the 17th century Old Stock Exchange. The host speakers, Steffen Pihlblad, Secretary-General of the DIA, and René Offersen of DLA Piper and of the ICC International Court of Arbitration, focused on diversity. Steffen discussed the United Nations Sustainable Development Goal 5 of gender equality, the Arbitration Pledge and that proportionally, the DIA selects more women arbitrators than parties do. René highlighted that the ICC Court has gender parity among its members for the 2018-2021 term, and that its scrutiny process supports the quality of awards, noting that awards should be “self-explanatory and convincing”.

The first keynote speech picked up on regional perspectives, with Peter Rees QC of 39 Essex Chambers providing a commentary on the Prague Rules. He highlighted that the rules state that they supplement the agreed procedure, rather than replace it (see here for a previous Kluwer Arbitration Blog post comparing the Prague Rules with the IBA Rules). However, he also remarked that the rules focused on the tribunal’s proactivity, for instance the tribunal can decide which witnesses to call and how they are examined. Regarding oral evidence in particular, he stated that any decision to limit cross-examination must be taken carefully as a tribunal needs to be sceptical about documents. In support of his case, he provided two engaging examples where witness examination had crucially changed the interpretation of the evidence.

Dan Terkildsen of Lundgrens next moderated a panel of four. Johan Tufte-Kristensen of the University of Copenhagen began by discussing confidentiality; he highlighted that different jurisdictions and institutions can vary in their approaches, and there are different degrees of confidentiality, from privilege to trade secrets to NDAs. He discussed possible solutions ranging from procedural orders to confidentiality agreements to unilateral statements. He also raised the possibility that penalties could be agreed if confidentiality were to be breached.

Anna-Maria Tamminen of Hannes Snellman followed and focused on different considerations for witness evidence. For instance, three issues which can come into play are: 1) how the evidence is gathered (whether from notes, documents or interviews); 2) who gathers the evidence (whether in-house or external counsel, with their own jurisdictions and personal styles); and 3) why the evidence is gathered (to prove facts, help the narrative or assist in understanding technical aspects?). Moreover, regarding how evidence is received, cognitive bias based on whether the claimant or the respondent called the witness could arise. The understanding of the evidence could be affected by issues such as leading or open questions, whether a tribunal tells a witness that it is acceptable to say “I don’t know”, or how counsel responds to a witness’ responses, such as by summarising or just a nod of the head. Lastly, Anna-Maria highlighted how individuals may remember facts differently. She exemplified this by starting her presentation with three reasons why she liked visiting Copenhagen, and ending the presentation by asking the audience members which reasons they had remembered.

Jon Stokholm, Justice of the Danish Supreme Court, focused on witness statements. He discussed the Danish approach of not generally having them, and of rather relying on examination-in-chief and cross-examination so that a judge is able to obtain an immediate impression of the witness. He noted that written statements could be expensive, time-consuming and restrict a witness’ memory, but was also aware that a lack of statements could lead to misunderstanding because of the limited ability to prepare. He recommended that the earlier the terms of evidence were discussed, the better, as there could be different opinions on issues such as whether the parties or the tribunal question the witness, and whether a witness statement is admitted or dismissed if it does not give rise to cross-examination.

Lastly, a technological perspective was voiced by Kasper Mortensen of Kammeradvokaten/Poul Schmith. He highlighted the finding in a 2017 ICC Commission Report on IT in international arbitration, that the absence of negative data suggested that IT use in arbitration was relatively problem-free. Regarding recognised challenges, he provided practical tips such as if a party sends out files in a non-standard format, that party should also provide software so that the recipients can read the files and if there are numerous files, to ensure that there is an appropriate filing system to facilitate identification.

Dr Inka Hanefeld of Hanefeld Rechtsanwälte gave the second keynote speech on inherent powers, which she said could both reinforce and comfort practitioners when in doubt as to what to do. She observed that there was no single accepted approach, as the need and basis of inherent powers can depend on institutional rules and jurisdictions. She also suggested that inherent powers found by tribunals can anticipate institutional rules, such as the power to effect summary proceedings under the ICC rules. She concluded by noting that the scope of inherent powers was uncertain, but she suggested that their understanding could allow for a realisation of arbitration’s full potential and counter due process paranoia (see here and here for previous Kluwer Arbitration Blog posts on inherent powers and due process paranoia, respectively).

At a dinner held at the Royal Danish Library, Georg Lett of DLA Piper ended the day with a speech on arbitrators’ impartiality, which highlighted the influence of culture and legal traditions on arbitration.

 

Concluding Remarks

Denmark bridges the legal traditions of common and civil law systems, such as by emphasising the importance of advocacy on the one hand and by limiting disclosure on the other. The international speakers and audience for the Copenhagen Arbitration Day attested to this mix of traits, and afforded a balanced hub for reflection on different arbitral practices, not least demonstrated by the Prague Rules, seen by some as a civil law response to the IBA rules’ favouring of common law. This neutral position, alongside Danes’ flair for English and the day’s success, herald strong foundations for future developments and discussion. The next edition of the day is scheduled for 2 April 2020.

 

The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of Gorrissen Federspiel.

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