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Protection of the Environment in Investment Arbitration – A Double-Edged Sword

6 hours 3 min ago

Kate Parlett and Sara Ewad

The potential clash between protection of investors under investment treaties and protection of the environment has emerged in a number of recent arbitrations. More than 60 investment disputes filed since 2012 have had some environmental component. Amongst them, there have been several cases in which States have sought to enforce environmental law against investors in investment arbitration. On the flip side, there is also potential for investors to seek to enforce a State’s environmental obligations through investment arbitration. This post explores the current state of play concerning protection of the environment and protection of investments, by examining the ways in which environmental laws and regulations might be used either by States or by investors in the context of investment arbitration disputes.

With respect to States enforcing environmental law against investors, the first possibility is that the State brings a counterclaim in proceedings commenced by an investor. There are five possible bases upon which an investment tribunal might find that it has jurisdiction over a counterclaim by a State against an investor.

First, the relevant treaty might explicitly provide for States to bring counterclaims. However, these are rare, and most treaties do not address the matter.

Second, an investment tribunal might consider that it has jurisdiction over counterclaims even in the absence of a specific treaty provision. Other international courts and tribunals have recognised the possibility of counterclaims. The International Court of Justice, the International Tribunal for the Law of the Sea and the Iran-US Claims Tribunal have all adopted procedural rules to adjudicate counterclaims, even though they are not explicitly provided for in their constituent instruments. That might provide a basis for investment tribunals to conclude that their jurisdiction extends to counterclaims even in the absence of an express grant of jurisdiction in the underlying investment treaty.

A third possibility is that the agreed arbitration rules permit counterclaims, and the parties’ consent to those rules constitutes consent to a tribunal’s jurisdiction over counterclaims. An example is Article 47 of the ICSID Convention, which provides that “except as the parties otherwise agree, the Tribunal shall, if requested by a party, determine any … counterclaims arising directly out of the subject-matter of the dispute provide that they are within the scope of consent of the parties and are otherwise within the jurisdiction of the Centre.” Other arbitration rules, such as the ICC Rules, the LCIA Rules, and the 2010 UNCITRAL Rules also provide for a respondent to make a counterclaim.1) Rule 40(1) of the ICSID Arbitration Rules; Article 5 of the ICC Rules; Article 4 of the UNCITRAL Rules 2010; Article 2 of the LCIA Rules; Articles 4.1(b) and 25.2 of the SIAC Investment Arbitration Rules 2017. jQuery("#footnote_plugin_tooltip_6581_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6581_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A fourth possibility is that the parties themselves consent to the tribunal taking jurisdiction over counterclaims. This occurred in the recent case of Burlington Resources v Ecuador, where Ecuador advanced a counterclaim alleging breaches of Ecuadorian environmental law and contractual obligations, seeking compensation of approximately $2.8 billion. While the proceedings were pending and after Ecuador presented its counterclaims with its Counter Memorial in January 2011, Burlington agreed not to contest jurisdiction over the counterclaim by a separate agreement entered into with Ecuador.2)Burlington Resources Inc v Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Ecuador’s Counterclaims, 7 February 2016, para 6. jQuery("#footnote_plugin_tooltip_6581_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6581_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A fifth possibility is that the dispute resolution clause in a BIT may permit claims to be brought by a State. This was the interpretation given by an ICSID tribunal to the Argentina-Spain BIT in Urbaser v Argentina, and was one of the grounds on which it permitted a counterclaim by the State against the investor in that case.3)Urbaser v The Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016, para 1144. jQuery("#footnote_plugin_tooltip_6581_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6581_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Provided that a counterclaim is permissible, the question that then arises is: what is the source of the obligation? Here there are two possibilities.

The first is that the investor may be (and usually is) obliged to comply with domestic laws of the host State governing environmental protection. An investment contract may explicitly provide that an investor has to comply with applicable host State law; if there is no investment contract, the applicable BIT may require that the investment be made and maintained in accordance with host State law.

In two recent cases involving Ecuador, environmental counterclaims were brought by Ecuador on the basis of domestic environmental law. In Burlington v Ecuador, the ICSID tribunal awarded US$39.2 million to Ecuador for environmental harm caused by the investor in breach of the Ecuadorian statutory environmental regulation regime4)Burlington Resources Inc v Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Ecuador’s Counterclaims, 7 February 2016, para 1075. jQuery("#footnote_plugin_tooltip_6581_4").tooltip({ tip: "#footnote_plugin_tooltip_text_6581_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Burlington’s partner in the same investment in Ecuador, Perenco, brought a second ICSID arbitration against Ecuador that has proceeded in parallel to the Burlington case. In that case, Ecuador also brought counterclaims in relation to Perenco’s operation of its concession, and the effect of those operations on the environment. In a 2015 decision, the tribunal said that it was likely to hold Perenco liable for some contamination,5)Perenco Ecuador Ltd v Republic of Ecuador, ICSID Case No. ARB/08/6, Interim Decision on the Environmental Counterclaim, 11 August 2015, para 582. jQuery("#footnote_plugin_tooltip_6581_5").tooltip({ tip: "#footnote_plugin_tooltip_text_6581_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but in the light of the significant disagreement between the party-appointed experts on the extent of contamination and Perenco’s responsibility for it, the tribunal has appointed its own expert to investigate the relevant sites.6)Ibid, paras 568-585. jQuery("#footnote_plugin_tooltip_6581_6").tooltip({ tip: "#footnote_plugin_tooltip_text_6581_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In its decision, the tribunal encouraged the parties to attempt to settle the dispute.7)Ibid, paras 593-594. jQuery("#footnote_plugin_tooltip_6581_7").tooltip({ tip: "#footnote_plugin_tooltip_text_6581_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); That appears not to have happened: the tribunal appointed an expert in mid-2016, but since then the claimant has filed an application to dismiss the counterclaims which remains pending before the tribunal.

A second possibility for investor liability is on the basis of directly applicable international law rules governing the environment. In the context of a counterclaim based on international human rights law, the tribunal in Urbaser v Argentina recently held that the investor could, in principle, be bound by international human rights obligations concerning the right to water.8)Urbaser v The Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016, paras 1182-1192. jQuery("#footnote_plugin_tooltip_6581_8").tooltip({ tip: "#footnote_plugin_tooltip_text_6581_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It could thus be argued that investors are also directly subject to obligations arising from international environmental treaties. However, the difficulty with this argument is that most international environmental treaties which address the activities of non-State actors assume that State parties will establish a domestic institutional framework for their operationalization. For example, the Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and Their Disposal obliges contracting State parties to enact legislation to establish a domestic regulatory regime.9)Article 4.4, Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and Their Disposal jQuery("#footnote_plugin_tooltip_6581_9").tooltip({ tip: "#footnote_plugin_tooltip_text_6581_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It is difficult to read the provisions of that convention as establishing legal rights capable of enforcement against non-State actors. As a result it is unlikely that they are capable of imposing obligations directly on investors.

Turning then to the other side of the equation: can investment arbitration be used by investors to enforce the environmental obligations of States?

Here there are two possibilities. The first is that environmental treaties – as incorporated in host State domestic law – might be enforced by investors directly. Provided that the host State’s laws impose obligations on the State in respect of environmental protection, an investor might be able to claim damages for the State’s failure to comply with an environmental obligation where such failure has caused damage to a protected investment. In an UNCITRAL arbitration, Allard v Barbados, the claimant alleged that the State had not taken adequate measures to prevent environmental degradation impacting on its investment in an ecotourism facility. However, in the final award issued in late 2016, the tribunal dismissed the claims relating to the environment, finding that the claimant had not discharged its burden of proof.10)Peter A. Allard v The Government of Barbados, PCA Case No, 2012-06, Award, 27 June 2016, para 110 jQuery("#footnote_plugin_tooltip_6581_10").tooltip({ tip: "#footnote_plugin_tooltip_text_6581_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A second possibility is that an investor might formulate a claim for breach of an environmental norm – whether based in domestic law or in international law – by reference to one of the investment protection obligations in the treaty, such as fair and equitable treatment, or full protection and security.

In 2015, a majority of a NAFTA tribunal in Bilcon v Canada accepted an investor’s arguments that Canada had breached Canadian environmental law, which also amounted to a breach of the minimum standard of treatment. The claim concerned a proposed quarry and marine terminal in the province of Nova Scotia. The allegations of breach focused on the handling of the lengthy environmental review project by a Joint Review Panel. Following the decision on liability, Canada has applied to its Federal Court seeking to set aside the award on jurisdiction and liability, on the grounds that the tribunal exceeded its jurisdiction and that the award is in conflict with the public policy of Canada. That challenge remains pending. In the context of environmental regulation, in a subsequent decision, the NAFTA tribunal in Mesa v Canada afforded a higher degree of deference to the respondent State in the implementation of regulatory measures, in the context of renewable energy.11)Mesa Power Group LLC v Government of Canada, PCA Case No. 2012-17, Award, 24 March 2016, para 672. jQuery("#footnote_plugin_tooltip_6581_11").tooltip({ tip: "#footnote_plugin_tooltip_text_6581_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In the context of the full protection and security, the tribunal in Allard v Barbados suggested that a State’s international environmental obligations “may well be relevant in the application of the [full protection and security] standard to particular circumstances”, although it ultimately rejected the claimant’s claim for breach.12)Peter A. Allard v The Government of Barbados, PCA Case No, 2012-06, Award, 27 June 2016, para 244. jQuery("#footnote_plugin_tooltip_6581_12").tooltip({ tip: "#footnote_plugin_tooltip_text_6581_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

These recent cases highlight the potential for environment law to be used as a sword by both States and investors in investment arbitration. But there have been few cases in which the basis of and limits to claims concerning environmental protection have been clearly articulated. Given the increasing number of cases involving some environmental component, it is likely that we will see these issues being addressed by investment tribunals in the near future.

References   [ + ]

1. ↑ Rule 40(1) of the ICSID Arbitration Rules; Article 5 of the ICC Rules; Article 4 of the UNCITRAL Rules 2010; Article 2 of the LCIA Rules; Articles 4.1(b) and 25.2 of the SIAC Investment Arbitration Rules 2017. 2. ↑ Burlington Resources Inc v Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Ecuador’s Counterclaims, 7 February 2016, para 6. 3. ↑ Urbaser v The Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016, para 1144. 4. ↑ Burlington Resources Inc v Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Ecuador’s Counterclaims, 7 February 2016, para 1075. 5. ↑ Perenco Ecuador Ltd v Republic of Ecuador, ICSID Case No. ARB/08/6, Interim Decision on the Environmental Counterclaim, 11 August 2015, para 582. 6. ↑ Ibid, paras 568-585. 7. ↑ Ibid, paras 593-594. 8. ↑ Urbaser v The Argentine Republic, ICSID Case No. ARB/07/26, Award, 8 December 2016, paras 1182-1192. 9. ↑ Article 4.4, Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and Their Disposal 10. ↑ Peter A. Allard v The Government of Barbados, PCA Case No, 2012-06, Award, 27 June 2016, para 110 11. ↑ Mesa Power Group LLC v Government of Canada, PCA Case No. 2012-17, Award, 24 March 2016, para 672. 12. ↑ Peter A. Allard v The Government of Barbados, PCA Case No, 2012-06, Award, 27 June 2016, para 244. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitrators as Lawmakers
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Legitimate Expectations in the Absence of Specific Commitments According to the Findings in Blusun v. Italy: Is there Inconsistency Among the Tribunals in the Solar Energy Cases?

Fri, 2017-08-18 03:13

Ivaylo Dimitrov

Introduction

The investment solar energy saga triggered by the regulatory reforms in the renewable energy undertaken by Spain and Italy is likely to be the new Black Swan in the investment arbitration world, reaching the importance and controversy of the Argentinian crisis of 2001. In addition, the question whether the ISDS system has learnt the lessons from the latter and is now capable of producing consistent results amidst the ocean of criticism remains open.

In June 2017, the Final Award of the ICSID tribunal in the first investment arbitration proceedings instituted against Italy arising out of the Italian reform in the solar energy sector (Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic (ICSID Case No. ARB/14/3)) was made available to the public. Although the Tribunal dismissed the infamous intra-EU jurisdictional objection raised by the European Commission as amicus curie, all claims were subsequently rejected on the merits. Similarly to other European solar energy cases, the dispute revolved around the central question whether the regulatory changes were contrary to the foreign investors’ legitimate expectations and, hence, in breach of Art. 10(1) Energy Charter Treaty (ECT). After a thorough examination, the Tribunal concluded that no violations of the said provision have occurred. The analysis which led to this conclusion included a critical assessment of the findings reached by the tribunal in the previously resolved Spanish solar energy dispute in Charanne v. Spain, a process recently called by another author “cross fertilization”. This cross fertilization, however, produced results which are far from consistent as the following notes demonstrate.

A Brief Factual Description

The dispute arose from the same facts as the Eskosol S.p.A. in liquidazione v. Italian Republic (ICSID Case No. ARB/15/50), which is currently pending and was recently commented by Gabriele Gagliani. The Claimants in Blusun v. Italy were Blusun S.A., a Belgian company, and Messrs. Lecorcier and Stein, who own 80 % and 20% respectively of the shares in Blusun. Blusun was established in 2009 as a holding company in order to carry out the development, through two Italian subsidiaries (Eskosol and SIB), of a 120-MW photovoltaic project in Puglia, Italy. The project consisted of 120 smaller (up to 1 MW) photovoltaic plants which were to be joined through a medium-voltage grid (rings) and were to be connected to the national grid through two substations (Award, paras. 53, 56).

The Disputed Measures

The Claimants disputed several measures undertaken by the Italian central and local authorities, namely:

  1. the Constitutional Court decision of 2010, which declared the provisions of the Puglia’s Regional Law 31/2008 enabling the application of the lighter DIA (Declaration of Initiation of Activities) regime with respect to solar plants up to 1 MW unconstitutional;
  2. the Romani Decree, which limited the application of the feed-in tariffs to plants entered into operation before 31 May 2011 instead of 31 December 2013 as previously established;
  3. the Fourth Energy Account, which allegedly further limited the scope of application of the incentives regime;
  4. the Brindisi Stop-Work Order, which prevented any further work on investors plants following a police report and a local prosecutor’s allegations of criminal activities violating zoning regulations.

Main Claims and Tribunal’s Analysis

The Tribunal in Blusun v. Italy agreed with the investors that the first and the second sentences of Article 10(1) of ECT contain two separate obligations. Consequently, the first sentence of the said paragraph, namely: “Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area.”) embodies an obligatory commitment towards investments and, in this sense,

  1. should not be considered as a part of the fair and equitable standard (FET) embodied in the second sentence of Art. 10(1) ECT;
  2. is not merely preambular or hortatory, as argued by the Respondent (Award, para. 319).

In contrast, the tribunal in Charanne v. Spain opined that the FET standard forms part of Spain’s obligation to encourage and create stable, equitable, favourable and transparent conditions to foreign investors under Art. 10(1) ECT (Charanne v. Spain Award, paras. 476-477) rejecting, therefore, the asserted existence of two separate obligations in the first two sentences of Art. 10(1) ECT. The violation of the obligation in the first sentence of Art. 10(1) ECT was the key assertion on which the Claimants in Blusun v. Italy based their legal instability claim.

The Tribunal, however, further specified that the core commitment under Art. 10(1) ECT is to be found in the second sentence, which contains the FET standard. Thus, although the Claimants’ position was based on the separate existence of two obligations under Art. 10(1) ECT, the Award analyzed the case through the prism of the alleged existence of legitimate expectations of the investors and the boundaries of the regulatory freedom entertained by Italy.

Legitimate Expectations in The Absence of Specific Commitments

The framing of the investors’ case in the above-described manner allowed the Tribunal to use the findings of the arbitrators in Charanne v. Spain with regard to investors’ legitimate expectations and regulatory changes in the renewable energy sector as a starting point of its analysis. Having determined that RD 661/2007 and RD 1578/2008 do not constitute specific commitments to foreign investors, the Charanne v. Spain Tribunal opined that the investors’ legitimate expectations can nonetheless be frustrated by modifications of the existing regulatory framework provided that, in enacting such modifications, the State acted unreasonably, disproportionately or contrary to the public interest (Charanne v. Spain Award, paras. 513-516). As to the proportionality, the changes would not be proportionate if they are capricious or unnecessary and amount to sudden and unpredictable elimination of the essential characteristics of the existing regulation.

The arbitrators in Blusun v. Italy seemed to disagree with Charanne v. Spain tribunal regarding the criteria which need to be observed in order to determine whether the regulatory changes in the Italian energy law violate the legitimate expectations of foreign investors protected by the FET standard under ECT in the absence of specific commitments by the host State.

In particular, the arbitrators stated that:

“Of the three criteria suggested in Charanne, ‘public interest’ is largely indeterminate and is, anyway, a judgement entrusted to the authorities of the host state. Except perhaps in very clear cases, it is not for an investment tribunal to decide, contrary to the considered view of those authorities, the content of the public interest of their state, nor to weigh against it the largely incommensurable public interest of the capital exporting state. The criterion of ‘unreasonableness’ can be criticized on similar grounds, as an open-ended mandate to second-guess the host state’s policies. By contrast, disproportionality carries in-built limitations and is more determinate. It is a criterion which administrative law courts, and human rights courts, have become accustomed to apply to governmental action.” (Award, para. 318)

On the basis of this disagreement, the tribunal in Blusun v. Italy defined the standard to be when assessing the legality of regulatory changes in light of the foreign investors’ legitimate expectations in the absence of specific commitments as follows:

“In the absence of a specific commitment, the state has no obligation to grant subsidies such as feed-in tariffs, or to maintain them unchanged once granted. But if they are lawfully granted, and if it becomes necessary to modify them, this should be done in a manner which is not disproportionate to the aim of the legislative amendment, and should have due regard to the reasonable reliance interests of recipients who may have committed substantial resources on the basis of the earlier regime.” (Emphasis added) (Award, para. 319(5)).

Interestingly, the criteria of public interest has also been outlined in the past in the Electrabel v. Hungary award, where it was emphasized that notwithstanding the investor’s promised protection against changes in the legislation, the host State is entitled to maintain a reasonable degree of regulatory flexibility to respond to changing circumstances in the public interest. (Electrabel v. Hungary Award, para. 7.77). Thus, the Blusun v. Italy tribunal deviated to a certain extent from this practice determining that the public interest and reasonableness are largely indeterminate criteria in deciding whether the regulatory changes are contrary to the investor’s legitimate expectations and relying solely on the proportionality test. It seems that the other Spanish cases recently resolved, namely Eiser v. Spain and Isolux v. Spain are more in line with the opinion of the Charanne tribunal to the extent that award in the first case determined that “…[a]bsent explicit undertakings directly extended to investors and guaranteeing that States will not change their laws or regulations, investment treaties do not eliminate States’ right to modify their regulatory regimes to meet evolving circumstances and public needs” (emphasis added) (Eiser v. Spain Award, para. 362), while the award in the second one relied on the “standard of reasonableness and proportionality” to assess whether the legislator changes infringe the investors legitimate expectations (Isolux v. Spain Award, para. 430).

According to the 2012 UNCTAD study on FET standard many previous tribunals have relied on the assessment of the reasonableness and the accordance with the public interest of regulatory measures when reconciling them with legitimate expectations purported by investors absent specific commitments by the host State. Whether the Blusun v. Italy criticism of those requirements will initiate a discussion as to their necessity remains to be seen. It is the present author’s opinion that the balance between the regulatory flexibility of the States and the legitimate expectations of foreign investors should be defined on a case by case basis taking into consideration all relevant factors. In this sense, all abstract standards should have nothing than an instructive character. That being said, the opinion of the Blusun v. Italy Tribunal that the public interest consideration should generally be domaine réservé of the State itself and not to be decided by an arbitral tribunal, deserves support as it takes into account the sovereign character of public interest notion.

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Journal of International Arbitration: Issue 34/4

Wed, 2017-08-16 03:09

Maxi Scherer

ARTICLES SECTION

Christopher R. Seppälä, Why Finland should adopt the UNCITRAL Model Law on International Commercial Arbitration

Abstract: This article describes why a small country like Finland, which has excellent natural attributes as a place for arbitration (political neutrality and stability, respect for the rule of law, freedom from corruption and a central location between East and West), but which is little resorted to for this purpose, being over- shadowed by its neighbour, Sweden, should adopt the United Nations Commission on International Trade Law (‘UNCITRAL’) Model Law on International Commercial Arbitration (the ‘Model Law’). The indispensable condition for any country to develop as a place for arbitration is for it to have a modern and internationally acceptable arbitration law. However, Finland’s arbitration law is relatively old (dating from 1992) and based on an antiquated Swedish model. What is more serious is that Finland’s legal infrastructure for arbitration, that is, its arbitration law and court system, is not perceived by international arbitration users and arbitral institutions as being internationally acceptable. By contrast, the Model Law is recognized today as the ‘baseline for any state wishing to modernize its law of arbitration’ Accordingly, if Finland wants to become an attractive place for international arbitration, as it should do, the obvious solution is for it to adopt the Model Law. This will make Finland instantly recognizable around the world as having a modern and internationally acceptable arbitration law.

Monica Feria-Tinta, Like Oil and Water? Human Rights in Investment Arbitration in the Wake of Philip Morris vs. Uruguay

Abstract: Whether considered ‘wholly distinct, autonomous, or even antagonistic legal domains’, or seen as two sets of legal regimes belonging to the same legal system with ‘meaningful relationships between them’, the international law of investments and the law of human rights appear to have, in the practice of arbitration, an uneasy, tense, strained relationship.For some commentators, public international law (of which human rights is a part) and international investment law would have ‘structural differences’, which have ‘led investment tribunals to grant precedence to the contractual rules that have been agreed upon by host states and investors’. For others, human rights are ‘a marginal issue in investment law’, ‘peripheral at best’, to fulfil ‘no more than an ancillary role in the settlement of investor- state disputes’.This article looks into the fundamental relationship between human rights and investment law in the wake of the recent Philip Morris v. Uruguay and Urbaser v. Argentina cases. In doing so it addresses questions such as: Are human rights and investment arbitration animals of a different nature? Are human rights arbitrable within an investment claim?

Juan Pablo Moyano, Impecuniosity and the Courts’ approach to the validity of the arbitration agreement

Abstract: As a private dispute resolution mechanism, arbitration depends on the availability of funds from the parties. However, not infrequently one side will be unable, or unwilling, to advance its share of the costs. Courts faced with such cases can either uphold the validity of the agreement or set aside the agreement and retain jurisdiction over the dispute. This article examines several legal theories courts have relied on when doing so. Initially, it will present the various positions by way of case examples, including that the agreement is rendered invalid due to public policy principles, denial of justice, contractual breaches or waiver. Afterwards, it will analyse various issues that arise from court practice, including conflicts regarding the applicable law, jurisdiction and the burden of proof. The article concludes with the author’s suggestions on how decisions over the potential invalidity of the agreement could be guided.

Giovanni Zarra, Orderliness and Coherence in International Investment Law and Arbitration: An Analysis through the Lens of State of Necessity

Abstract: The article addresses the need for orderliness and coherence in international investment law. It does so by reference to Argentina’s various claims to necessity in CMS, LG&E, Continental Casualty Co., Enron and Sempra. After having analysed the various doctrinal positions regarding orderliness of international investment law and the need for coherence in this area of international law (both from the perspective of the consistency among investment awards and from the perspective of the integration of other areas of international law within investment disputes), the work reaches the conclusion that arbitrators should endorse an approach according to which, on the one hand, they should not ignore what is done by other tribunals (we can talk of investment arbitration as a network needing internal coherence) and, on the other hand, they should always take into consideration values protected by other areas of international law and general international law (in which investment arbitration is fully integrated).

Nelson Goh, Court-Ordered interim Relief against States in Aid of Arbitration: Sovereign Immunity, Waiver and Comity

Abstract: States and state entities are increasingly involved in commercial arbitration. Despite the fairly settled principles concerning state immunity from adjudication and state immunity from execution, the principles concerning state immunity from interim relief by domestic courts in aid of arbitration remains poorly defined. Adopting Professor McLachlan’s approach toward foreign relations law, this article attempts to sketch the principles which may govern state immunity in the context of interim relief against states in aid of arbitration by applying the rules of state immunity in an allocative manner. It is suggested that it is at least arguable that a state’s consent to arbitration in many cases could amount to a waiver of state immunity from court-aided interim relief by the court located at the seat of the arbitration. This conclusion is likely to strike a balance between over-deference to states by virtue of their sovereign status, and a liberal erosion of the immunity rules in favour of private counterparties.

Wilson Koh, Think Quality Not Quantity – Repeat Appointments and Arbitrator Challenges

Abstract: Repeat appointments of an arbitrator by the same counsel or party are not uncommon in arbitration, with some even claiming that an ‘inner mafia’ decide the majority of cases. Whether this poses a problem for arbitrator independence or impartiality has been described as ‘highly controversial’. The 2014 IBA Guidelines on Conflicts of Interest expressly identifies repeat appointments as an Orange List circumstance providing possible grounds for challenge, but this has been described by commentators such as Gary Born as ‘poorly-considered’ and ‘relatively extreme’.This article suggests that reports of systemic favouritism have been exaggerated and numerical limits on repeat appointments should be rejected. I begin by outlining in section 2 the two contrasting approaches that authorities faced with such challenges have adopted: a quantitative approach and a qualitative approach. Section 3 examines the legal standards that parties typically subscribe to and argues that they cannot and should not be interpreted to favour the quantitative approach. Section 4 scrutinizes the main reasoning processes that allegedly link repeat appointments to an appearance of bias and suggests that they rely on untenable generalizations. Finally, section 5 assesses the quantitative approach from its impact on party autonomy. I suggest that respecting party autonomy means that the quantitative approach must not be adopted except where parties have explicitly agreed so.

BOOK REVIEWS

Claudio Salas, Annabelle Möckesch, Attorney-Client Privilege in International Arbitration (Oxford University Press, 2017)

Raphael Heffron, Burnett, H. G. and Bret L.-A. Arbitration of International Mining Disputes: Law and Practice (Oxford University Press, 2017)

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Federal Court Enforces Foreign Arbitral Award Resolving Jones Act Seaman’s Personal Injury Claim

Mon, 2017-08-14 23:28

Jason P. Minkin and Jonathan A. Cipriani

The U.S. District Court for the Western District of Washington has enforced a settlement between a Jones Act seaman and his employer for maintenance and cure payments, pursuant to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Castro v. Tri Marine Fish Co., LLC, 2017 WL 3262473 (W.D. Wash. July 31, 2017). Because the employment contract between the employer and the Jones Act seaman calling for arbitration satisfied all the requirements of an arbitration agreement under the New York Convention and was not contrary to public policy, it was irrelevant that it called for arbitration in a nation other than the one where the settlement of the personal injury claim was formalized. Despite the Jones Act seaman’s status as a ward of admiralty, the court found that the arbitral award approving the settlement did not offend the United States’ “most basic notions of morality and justice.” For that reason, according to the court, the award “can and will be enforced.”

Plaintiff Michael Castro, a citizen of the Philippines, signed an employment contract with Tri Marine Fish Co. that contained a clause calling for arbitration of any disputes in American Samoa. Two weeks later, he suffered torn knee ligaments while working on Tri Marine’s fishing vessel. Tri Marine transported him to the Philippines, made arrangements for his medical care, and paid him maintenance and cure. Castro negotiated, and received, an advance on any final settlement amount with Tri Marine. The advance agreement provided that Castro would be bound by the arbitration agreement in his employment contract.

Castro and Tri Marine later entered into a final settlement pursuant to which he received a lump sum payment. During the settlement negotiations, Castro received a document explaining his rights as a seafarer and the extent of the waiver he would be agreeing to; had the documents translated into his native language, Tagalog; and was given the opportunity to ask questions. Notwithstanding the employment contract calling for arbitration in American Samoa and the advance agreement referring back to the employment contract, Castro and the claims executives who negotiated the release then took the settlement documents to an accredited Maritime Voluntary Arbitrator at the Philippines’ Office of the National Conciliation and Mediation Board. The arbitrator explained to Castro the legal consequences of the settlement in both English and Tagalog, including the permanent waiver provision. Castro told the arbitrator that he understood the implications of the settlement agreement. The arbitrator then entered an order finding that the signed release and compromise were “not contrary to law, morals, good customs, and public policy.” The arbitrator dismissed the case between the parties.

Nearly three years later, Castro sued Tri Marine in Washington state court, asserting claims for negligence, unseaworthiness, maintenance and cure, and statutory wages. Tri Marine removed the suit to the Western District of Washington and moved to enforce the arbitral award to which it and Castro had agreed in the Philippines. The court noted that a federal statute, specifically 9 U.S.C. § 7, provides that a reviewing court shall confirm an arbitral award unless it is subject to one of seven enumerated grounds for refusal: (1) incapacity; (2) lack of proper notice; (3) the award exceeds the scope of the arbitration agreement; (4) composition of the arbitral authority did not comply with the parties’ agreement or the law of the place of the arbitration; (5) the award is not yet binding; (6) the subject matter is incapable of arbitration in the country where enforcement is sought; or (7) enforcement would be contrary to the public policy of that country. Castro challenged the award on six grounds, all of which the court rejected. We discuss Castro’s defenses below.

Lack of jurisdiction; scope of the arbitration agreement; selection of the arbitrator: Castro argued that the settlement agreement and arbitral award failed on each of these grounds because they had been formalized by a Filipino arbitrator, notwithstanding that Castro’s employment contract called for arbitration in American Samoa. The court disagreed. The court noted that the employment contract and the written receipt for the cash advance providing that Castro agreed to be bound by the arbitration provision in the employment contract qualified as “agreements in writing” to arbitrate and therefore were subject to the New York Convention. Acknowledging that the arbitration had not occurred in American Samoa, the court nonetheless noted that arbitration agreements are subject to general contract law principles. Accordingly, because Castro had accepted the benefits of the arbitral award—i.e., his final maintenance and cure payment—in the Philippines, he was equitably estopped from arguing that the arbitration was invalid because it did not occur American Samoa. The court determined that it had jurisdiction to enforce the award.

Coercion: citing Supreme Court precedent holding that seamen’s releases are subject to special scrutiny because seamen are “wards of admiralty,” Castro argued that he had not entered into the release agreement freely and voluntarily. The court found that Tri Marine had met its burden to prove otherwise. Tri Marine produced testimony from multiple witnesses confirming Castro had been informed of his rights and the consequences of the waiver, both orally and in writing, and in English and Tagalog. Castro affirmed that he understood, and ultimately received an award that exceeded the payment schedule amount for seamen’s disability allowance claims in the Philippines given the nature of his injuries.

Lack of notice: Castro said he did not receive adequate notice that the settlement proceedings in the Philippines were “arbitration proceedings.” But the court noted that “this defense applies where a party is unable to participate meaningfully or in the proceedings at all.” Because Castro had negotiated the settlement in person and appeared in person before the arbitrator, this defense was inapplicable, regardless of whether he knew the process was an “arbitration proceeding.”

Public policy: Castro argued that the arbitral award violated public policy because it did not comply with Jones Act requirements granting special legal protection to seafarers. The court noted that this defense is narrow and applies only where enforcing an award would violate the forum state’s “most basic notions of morality and justice.” The court also observed that provisions of the Federal Arbitration Act exempting seamen’s employment contracts from arbitration do not apply to agreements that are subject to the New York Convention. Ultimately, the arbitral award did not violate public policy because Castro had received most of the benefits afforded under U.S. maritime law, including transportation to his home country, medical care, maintenance and cure payments, and robust notice of his rights during the settlement process. Castro complained that the proceedings overly emphasized the Philippines disability payment schedule, but the court observed that a Filipino regulatory agency had created those guidelines to protect the interest of Filipino citizens. And, in any event, Castro was paid more than twice the prescribed amount under the guidelines.

As we have discussed in a prior post, the New York Convention is a powerful tool for the enforcement of international arbitration awards. The Castro decision is an example of the broad reach of the New York Convention and the considerable deference that U.S. courts will give to agreements that fall within the Convention. Tri Marine also appears to have benefited from a well-developed record that showed ample consideration for the rights of the seaman during the settlement process, and a settlement payment that exceeded local standards.

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Post

Mon, 2017-08-14 23:24

Crina Baltag (Associate Editor)

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Privilege and International Arbitration

Mon, 2017-08-14 01:52

Richard Levin

The law of privilege as relating to in-house counsel (especially in civil law jurisdictions) is indeed a controversial and much debated issue. Well-spoken advocates from the “internal” as well as “external” bar have written and spoken on this this issue forcefully. In reading DLA Piper’s Legal Professional Privilege Global Guide (2017), it is absolutely mind boggling how the world’s attorney/client privilege rules are so different, with many nuances that attach to each country, such as competition investigations and dawn raids in the EU (Akzo Nobel), in-house counsel rules of no privilege, professional secrecy, advocate secrecy, business secrecy, commercial secrecy, the English rules, the US rules, and the lack of rules in China and other countries. I tend to very much agree with the eminent Phillip Capper that privilege is an area that needs more guidance in an international arbitration context, perhaps from the Institutions themselves.

Clearly, a tribunal can decide to admit or exclude evidence on the basis of privilege, although few Institutions directly deal with the issue. See IBA Rules on Taking of Evidence in International Arbitration, Art 9. As to which privilege rules generally apply, conflicts rules can encompass a whole myriad of factors: the seat of the arbitration, an agreement of the parties, the provenance of the document (the law applied is the law with the closest connection to the particular document), of course the citizenship of the parties, and more, including especially Institutional rules. Tribunals most frequently seem to apply the law of the seat of arbitration when there are no clear rules. The Institutions should speak to set everything straight, and in an arbitration in which there is the possibility of differing privilege laws applicable, an arbitrator, in my judgment, should apply a ”most-favored nation” approach and apply the privilege law with the most protection equally to all parties.

In an application of the most-favored nation rule, the tribunal will determine which of the potentially applicable rules has the broadest privilege protections and then apply that privilege to both or all parties. This achieves two of the most important central principles in arbitration: fairness and protection of the expectations of both parties. By adopting the same standard for all parties (an “equality of arms”), they are treated fairly during arbitration. Additionally, no circumstance would occur in which a company or party believed a document would be protected by privilege, and prepared with that expectation, only to find out in the arbitration dispute that it was not protected. The ICDR rules (the international arm of the AAA) seem to prefer this approach, with Article 22 indicating that the tribunal should “giv[e] preference to the [privilege] rule that provides the highest level of protection.” In addition, the well-crafted note of the ICDR on the Exchange of Information (Guidelines for Arbitrators) states: “The tribunal should respect applicable rules of privilege or professional ethics and other legal impediments. When the parties, their counsel or their documents would be subject under applicable law to different rules, the tribunal should to the extent possible apply the same rule to both sides, giving preference to the rule that provides the highest level of protection.” And always, a civil law party to an arbitration that employs the most favored nation approach could waive the protection afforded by the tribunal and use the material should it be necessary to do so, just as the common law party could.

Then again the words in the ICDR guideline note “to the extent possible” might lead to some head scratching. A most-favored nation approach, perhaps it could be argued, could lead to public policy or ordre publique concerns should the lack of privilege be embedded in the public policy of the jurisdiction that does not recognize the privilege. I would submit this is unlikely and on balance should not lead a tribunal to apply anything other than the most favored nation approach. For example, I do not think French policy would be implicated on this ordre publique point on the research I have done, but I have not looked at China and other similar countries with no privilege. Thus, any award could be vulnerable in those countries if there are public policy issues.

I would submit, however, there are likely not to be any such public policy issues in those countries. While privileges generally reflect the public policy of the legal system that created them, see Rachel Reiser, Applying Privilege in International Arbitration: The Case For a Uniform Rule, Cardozo J. Conflict Resol., 653, 659 (2012), the primary concern of this policy must be to protect the secrecy of documents thought to be confidential when they are made; that is, applying privilege to documents according to the party’s expectation that they receive privilege. The public policy is that State’s policy directed to protecting the confidentiality of the document or testimony, which is of greater concern or is a higher public norm than even the determination of the truth in the specific case. While some have suggested that Akzo Nobel indicates that the European Union has a general public policy against in-house counsel’s communication being disclosed, the decision is most likely limited to the EU competition proceeding context only.

Thus, I do not think a “least favored nation” approach would be fair or a “most favored nation” approach would trigger any public policy concerns. Fairness in a privilege issue implicates directly the expectations of the parties. A tribunal’s decision to apply no privilege to either party (the least favored nation approach) would of necessity be unfair to the party who created a document or evidence with the expectation that it be kept in confidence. Accordingly, it is unlikely that protecting documents that were not initially thought to be protected by privilege would violate any public policy, especially when attempting to treat both parties equally, the hallmark principle of arbitration practice. This is not even addressing the policy of the attorney client privilege itself, that by allowing otherwise privileged documents to be disclosed subsequently in an arbitration may have the effect of parties simply not seeking legal advice in the first place. Finally, ethical issues could emerge as a least-favored nation approach (no privilege for either party) might lead to a situation in which a document which was prepared under the expectation of confidentiality, would in turn not be confidential, and thus create ethical issues in some jurisdictions (counsel being required to disclose otherwise privileged material).

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The Rise of a New Law to promote ADR Mechanisms in Mexico: Challenges and Opportunities

Sat, 2017-08-12 21:39

Fernando Pérez-Lozada

As a result of a reform of Mexico’s Constitution, on 25 February 2017 a Presidential Decree was enacted, whereby the Congress received the mandate to pass a new law on Alternative Dispute Resolution mechanisms (“ADR Law”) in August  2017.[1]  For the first time, the right to “access to ADR mechanisms” was recognised at constitutional level, setting an important precedent for the country and perhaps for Latin America.

The ADR Law will establish the rules for the amicable settlement of domestic disputes (i.e. civil and family law disputes) excluding criminal matters and any other regulated by a lex specialis. The reform has also triggered an initiative to introduce a new title (Title V) on “Commercial Conciliation” in the Commerce Code (“CC”), applicable to both national and international conciliation, under a “monist” approach.

Both instruments have adopted the UNCITRAL Model Law on International Commercial Conciliation 2002 (“UNCITRAL Model Law”). There are currently only 16 countries that have followed it, two of which are from Latin America (Honduras and Nicaragua).[2]

The reform has attracted the attention of institutions (such as the ICC) and experts in the field that have participated in working sessions with public authorities.[3] As discussed below, some of the rules on commercial conciliation involve: A) international nature criterion; B) party autonomy; C) nomination of conciliators; D) confidentiality; and E) enforceability.

I. Title V on Commercial Conciliation

The initiative to include a new Title V at the CC would regulate both national and international conciliations seated in Mexico. As a result, Mexico could become an important forum for ADR in Latin America.

Other jurisdictions in Asia (i.e. Vietnam) have recently promulgated similar laws based on the UNCITRAL Model Law as a step forward towards an international trend.[4]

A) International nature criterion

Following a similar approach of the UNCITRAL Model Law,[5] conciliation would be “international” if: (i) the parties have their places of businesses in different States; or (ii) when either the place of performance of a substantial part of the commercial obligation, or the place with which the subject matter of the dispute is most closely connected, is different from the parties’ places of business.

1. Party autonomy

The proposed reform has embodied the supremacy of party autonomy as a guiding principle considering that (1) the parties would have ample freedom to opt-out or modify any statutory provision; and (2) the procedural rules would be applicable by the sole agreement of the parties as a stand-alone criteria.

The latter may resemble the French approach to international arbitration –and its potential difficulties– under which parties may choose a procedural law from a country different from the arbitral seat, under the “delocalisation” principle developed in the Gotaverken case.[6]

2. Nomination of conciliators

Parties would be free to nominate one or more conciliator(s). They may chose institutional rules, and/or request the assistance of institutions to appoint conciliators. The new rules would establish impartiality and independency criterion, with a system of administrative sanctions for conciliators.

Institutions assisting in the nomination may appoint conciliators of a nationality other than that of the parties whenever suitable, as envisaged by the reform. The certification of conciliators would not be mandatory, in contrast to domestic conciliations for civil and family law disputes under the ADR Law.

3. Confidentiality

All information relating to conciliation would remain confidential, unless the parties agree otherwise or disclosure is required by law. Conciliators may disclose information received from one party to the other, unless such party requests otherwise.

Parties and facilitators would be prevented to disclose any information used in conciliation proceedings to any other arbitral, judicial or administrative tribunal. This includes: (i) conciliation agreement; (ii) views as to a possible settlement; (iii) declarations or facts; (iv) proposals for solutions; and (v) declarations of either party willing to accept any solution.

However, courts in other jurisdictions have had access to the parties conduct in ADR; for example when deciding on the allocation of cost of a judicial trial. As illustrated in Halsey v Milton Keynes, English courts have considered that a departure of the rule that “cost follow the event” is justified when the successful party acted unreasonably in refusing to agree to ADR.[7] In that case one party made a settlement offer, but the other rejected it.[8]

B) Enforceability

For an ADR system to operate effectively, there are two equally important components that may require enforceability: (1) a Conciliation Agreement; and (2) a Settlement Agreement.

1. Conciliation Agreement

Under the draft reform, when parties agree to conciliate and “expressly” agree not to commence arbitral or judicial proceedings vis-à-vis the same dispute, either (1) within a certain time or (2) pending a certain event, courts and arbitral tribunals are compelled to give effect to such agreement (negative effect of the competence-competence).[9]  By the same token, the initiation of judicial or arbitral proceedings would not be deemed as an abandonment or termination of a Conciliations Agreement.

Indeed, this rule aims to ensure that conciliation may not be obstructed by either party’s refusal. However, careful attention should be given when drafting ADR clauses, as they may be subject to interpretation by domestic courts.

A supportive practice has been developed by the English Commercial Courts, under which “reference to ADR is analogous to an agreement to arbitrate”, capable of enforcement.[10]  However, a more recent decision refused ADR to avoid a delay and additional costs, being the exception rather than the rule.[11]

Furthermore, in Health Service Executive v Keogh Software, following the parties’ application for interlocutory relief (performance and payment, respectively) an Irish Court stayed the proceedings pending the completion of ADR proceedings.[12]

2. Settlement Agreement

Settlement agreements arising from commercial conciliation would be as enforceable as final court judgments and arbitral awards having also a res judicata effect. However, there is no special mechanism for their enforcement before the courts.

Up until now, hardly any settlement agreement enjoys such legal force, save for those arising from conciliation before the Federal Consumer Protection Agency (PROFECO) and the National Commission for the Protection and Defence of Users of Financial Services (CONDUSEF).[13]

Beyond the domestic sphere, the European Union has advanced a Directive on Mediation, under which Member States shall establish mechanism by which agreements resulting from mediation can be rendered enforceable, unless it is contrary to the law of the Member State.[14]

II. Conclusion

One of the main challenges for the rise of ADR mechanisms is indeed a cultural one.

While some consider ADR mechanisms as an unnecessary layer, others believe they could reach the same results by themselves. Thus, some may still prefer a “winner vs. loser” decision by an adjudicator.  However, ADR mechanisms may offer wider options to find a reasonable solution for both parties.[15]

Indeed, not all disputes are suitable to conciliation, for example cases involving allegations of fraud, uncertainty in the law, or binding precedents being necessary. Although some disputes may be best resolved via ADR. For example property or commercial disputes where (i) reputation and long-term relationships are most valued; or (ii) where the remedies sought are not always available under an adversarial system (i.e. flexibility in financial repayments or continuation of the business relationship).[16]

Mexico is taking the lead in Latin America by venturing in the development of ADR, and most importantly, of international commercial conciliation including an on-line facility. A new legislation may be a step in the right direction, but not the only one needed. The right identification of disputes suitable for ADR, with adequate judicial support and the enforcement of settlement agreements, would facilitate the rise of ADR to complement both judicial and arbitral procedures.

1)

[1] Decree promulgated on 25 February 2017 whereby diverse provisions on ADR mechanisms were reformed and added (i.e. Articles 25 and 73, new section XXIX-A).

[2] UNCITRAL Texts & Status, http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/2002Model_conciliation_status.html

[3] Roundtable held on 31 May 2017 with the Ministry of Economy, ICC Mexico, Arbitration Centre of Mexico, Lawyer’s Mexican Bar, Mexican Institute of Arbitration, etc.

[4] Nguyen Manh Dzung, ‘Enforcement of Mediated Settlement Agreements in Vietnam: A Step Forward the International Trend?’, Kluwer Arbitration Blog, 2 July 2017, http://kluwerarbitrationblog.com/2017 /07/02/deposition-japan-u-s-based-international-arbitration/

[5] Article 1(4)(5)(6).

[6] General National Maritime Transport Company v Société Gotaverken Arendal A.B., Cour d’appel de Paris (21 February 1980) 20 ILM 884.

[7] Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 (11 May 2004), §§13,16.

[8] Id. §20.

[9] Draft Article 1515 (10 march 2017).

[10] Cable and Wireless case [2002] EWHC 2059 Comm, [2002] C.L.C. 1319.

[11] CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd & Ors [2014] EWHC 3546.

[12] Health Service Executive v Keogh, trading as Keogh Software [2009] IEHC 419.

[13] Article 1391(VII) of the Code of Commerce (subject to reform).

[14] Directive 2008/52/EC of The European Parliament and of the Council on Certain Aspects of Mediation in Civil and Commercial Matters (21 May 2008), Article 6, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:136:0003:0008:En:PDF

[15] Antonio M. Prida, ‘La Mediación como Alternativa a los Tribunales’, El Semanario (7 July 2017) https://elsemanario.com/colaboradores/antonio-m-prida/212353/la-mediacion-alternativa-los-tribunales/

[16] Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 (11 May 2004), §17.

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References   [ + ]

1. ↑

[1] Decree promulgated on 25 February 2017 whereby diverse provisions on ADR mechanisms were reformed and added (i.e. Articles 25 and 73, new section XXIX-A).

[2] UNCITRAL Texts & Status, http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/2002Model_conciliation_status.html

[3] Roundtable held on 31 May 2017 with the Ministry of Economy, ICC Mexico, Arbitration Centre of Mexico, Lawyer’s Mexican Bar, Mexican Institute of Arbitration, etc.

[4] Nguyen Manh Dzung, ‘Enforcement of Mediated Settlement Agreements in Vietnam: A Step Forward the International Trend?’, Kluwer Arbitration Blog, 2 July 2017, http://kluwerarbitrationblog.com/2017 /07/02/deposition-japan-u-s-based-international-arbitration/

[5] Article 1(4)(5)(6).

[6] General National Maritime Transport Company v Société Gotaverken Arendal A.B., Cour d’appel de Paris (21 February 1980) 20 ILM 884.

[7] Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 (11 May 2004), §§13,16.

[8] Id. §20.

[9] Draft Article 1515 (10 march 2017).

[10] Cable and Wireless case [2002] EWHC 2059 Comm, [2002] C.L.C. 1319.

[11] CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd & Ors [2014] EWHC 3546.

[12] Health Service Executive v Keogh, trading as Keogh Software [2009] IEHC 419.

[13] Article 1391(VII) of the Code of Commerce (subject to reform).

[14] Directive 2008/52/EC of The European Parliament and of the Council on Certain Aspects of Mediation in Civil and Commercial Matters (21 May 2008), Article 6, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:136:0003:0008:En:PDF

[15] Antonio M. Prida, ‘La Mediación como Alternativa a los Tribunales’, El Semanario (7 July 2017) https://elsemanario.com/colaboradores/antonio-m-prida/212353/la-mediacion-alternativa-los-tribunales/

[16] Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 (11 May 2004), §17.

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Life after ICSID: 10th anniversary of Bolivia’s withdrawal from ICSID

Fri, 2017-08-11 21:30

José Carlos Bernal Rivera and Mauricio Viscarra Azuga

It has been ten years since Bolivia denounced the International Centre for Settlement of Investment Disputes Convention (“ICSID Convention”), becoming the first country to withdraw from the ICSID Convention in history. True, several countries have never even signed the ICSID Convention in the first place (including large economies such as Brazil and India), but until 2007, no countries had denounced the treaty.  After Bolivia´s denunciation, Ecuador and Venezuela soon followed.

Several articles have touched upon the apparent crisis of ISDS in Latin American countries as a result of the ICSID withdrawals, and the attempt of UNASUR to establish a new regional investment arbitration center for South America. It would be interesting to analyze the influence of Bolivia´s withdrawal over foreign direct investment in the country, but any such analysis would need to factorize many features of the Bolivian economy and political environment. That task is not, by any means, an easy one.

Instead, we would like to use this brief article to “commemorate” the inauspicious anniversary of the first denunciation of the ICSID Convention, by describing Bolivia´s life after ICSID. In the last ten years, several international arbitration cases have been filed against Bolivia, and there are certain lessons to be learned from them, in connection to the denunciation of the ICSID Convention.

  1. Arbitration claims filed prior to the denunciation

Although 10 years have passed since Bolivia denounced the ICSID Convention, a still active ICSID case involves the country.  In Quiborax S.A. and Non Metallic Minerals S.A. v. Plurinational State of Bolivia (ICSID Case No. ARB/06/2), the Chilean company Quiborax sought compensation for the revocation of mining concessions in the department of Potosí by the government. The arbitration claim was filed against Bolivia at ICSID on October 5, 2005, almost two years before Bolivia denounced the ICSID Convention. In September of 2015, the arbitral tribunal issued an award in favor of Quiborax and ordered Bolivia to pay approximately US$ 50 million. Bolivia filed an annulment request, and the case is now pending a decision from the annulment committee.

While there is consensus on the fact that claims filed at ICSID against a particular country, are not affected by the subsequent denunciation of the Convention by that country (pursuant to article 72 of the ICSID Convention), it is still mesmerizing to realize that Bolivia remains subject to the decisions of an ICSID tribunal, even ten years after leaving ICSID.  In this case, one of the reasons for the delay was the multiple time extensions requested by the parties in order to reach a settlement agreement, which was ultimately unsuccessful.

  1. Arbitration claims filed during the six month term of Art 71 of the ICSID Convention

Article 71 of the ICSID Convention establishes that “[t]he denunciation [of the ICSID Convention] shall take effect six months after receipt of such notice.”  Using this article, an investor filed a claim against Bolivia during that six-month gap between the submission of the denunciation and the entry into effect of the denunciation. In E.T.I. Euro Telecom International N.V. v. Plurinational State of Bolivia (ICSID Case No. ARB/07/28), the Italian company filed a claim against Bolivia for the nationalization of its investment in the telecommunications company “Entel.”

The interesting aspect of this arbitration claim is that it was filed on October 12, 2007, five months and ten days after Bolivia submitted a notice of denunciation of the ICSID Convention, but within the six month waiting period required for the denunciation to take effect. Bolivia objected to the jurisdiction, but the claim was validly registered at ICSID, as it seemed not to be manifestly outside the jurisdiction of the center.

The claim of the Italian company was later settled with Bolivia for approximately US$ 100 million, so we did not get to see whether Bolivia had compelling arguments to object to the jurisdiction of ICSID under this article. The preliminary registration of the arbitration claim at ICSID, and later cases against Venezuela (see e.g. Venoklim Holding B.V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB 12/22), seem to show that the scale would have leaned in favor of the investor on the topic of jurisdiction in this case.

  1. Arbitration claims filed long after the withdrawal of the country

It seems logical that after the six-month period, the doors to ICSID arbitration would be closed. However, article 72 of the ICSID Convention leaves room for another interpretation.

Article 72 states that “[n]otice by a Contracting State pursuant to Articles 70 or 71 [i.e. denunciation of the Convention] shall not affect the rights or obligations under this Convention of that State […] arising out of consent to the jurisdiction of the Centre given by one of them before such notice was received by the depositary” (emphasis added).  The logic of the argument would be that a withdrawing State, such as Bolivia, is still subject to ICSID jurisdiction even after denouncing the ICSID Convention, if it has already given its consent unilaterally, for example, in a BIT, or in a contract (as was the case in Alcoa Minerals of Jamaica Inc. v. Jamaica, ICSID Case No. ARB/74/2).

Arbitration clauses in BITs are commonly understood as irrevocable signs of consent granted by states to arbitrate investment disputes with nationals of the other states. Following the exact wording of Article 72, there would be room for interpreting that Bolivia would still be bound to ICSID arbitration by its BITs, where specific consent to ICSID arbitration was granted to certain investors.

It might be a long shot for investors to try to convince an arbitration tribunal that states are permanently subject to ICSID jurisdiction even after denouncing the Convention. There are, now, precedents of more strict interpretations of Article. 71, which could play against any such attempt (e.g. Venoklim v. Venezuela), but these cases did not exist in 2007.  The wording of the specific BIT would also be important, as it can condition ICSID arbitration on membership of both states to ICSID (in which case, the article 72 interpretation would not apply).

A relevant case for Bolivia regarding this point was Pan American Energy LLC v. Plurinational State of Bolivia (ICSID Case No. ARB/10/8). It was registered at ICSID on April 12, 2010, more than two years after the denunciation of Bolivia became effective, and it would have been the first practical approach to the correct interpretation of article 72 of the Convention under this theory. The case was, however, settled for US$ 357 million, and we did not get to hear the arguments of the parties on this issue.

  1. Bolivia’s exposure to investment arbitration in other fora

It is also important to note that, if the intention of Bolivia by denouncing the ICSID Convention was to completely close investors’ access to international arbitration against the state or state-owned entities, the goal was not met. During the ten years after denouncing ICSID, Bolivia was involved in several international arbitration cases arising from expropriations and nationalizations carried out by the government of president Evo Morales. In the absence of ICSID as an alternative, the investors sought other fora for pursuing their claims.

They did so on the base of bilateral investment treaties (“BITs”) entered into by Bolivia.  Bolivia had 23 BITs in place before denouncing the ICSID Convention. In 2009, after the new Constitution of Bolivia was enacted, the government announced that it would start a process of denunciation and renegotiation of all these bilateral treaties, as they were deemed to be contrary to the new Constitution. It is not completely clear when exactly did Bolivia denounce all its BITs, as no hard data can be found on the status of the BITs, but it is relevant that the BITs had survival clauses which allowed investors to continue to rely on them, at least for some years, for protection of their investments. The BITs also provided for other available dispute settlements forums.

BITs entered into with France, Sweden and the UK had survival clauses of 20 years; those entered into with Argentina, the Netherlands and Peru had survival clauses of 15 years; and so forth. Some BITs also granted investors the possibility of filing ad-hoc arbitration claims using UNCITRAL rules, or the possibility of using the Additional Facility Rules of ICSID, and even ICC arbitration. Among the arbitration claims filed against Bolivia after the denunciation of the ICSID Convention are i) Guaracachi America, Inc. and Rurelec PLC v. The Plurinational State of Bolivia (UNCITRAL, PCA Case No. 2011-17); ii) South American Silver Limited v. The Plurinational State of Bolivia (UNCITRAL, PCA Case No. 2013-15); and iii) Iberdrola S.A. and Iberdrola Energía, S.A.U. v The Plurinational State of Bolivia (UNCITRAL, PCA Case No. 2015-05). As can be seen, arbitration under UNCITRAL rules, and administered by the Permanent Court of Arbitration, are the preferred options for the investors nowadays.

  1. Conclusions

Even if a state denounces the ICSID Convention, the doors for investment arbitration are not completely closed to foreign investors. Articles 71 and 72 of the ICSID Convention provide for mechanisms that allow investors additional protection periods (for at least six months and questionably for even longer), and survival clauses of BITs also keep states exposed to investment arbitration in other arbitration forums. As Bolivia learned the hard way, denouncing the ICSID Convention is not an immediate escape valve for regretful states.

The views expressed are those of the authors alone, and should not be regarded as representative of or binding upon the authors’ law firm.

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ICC Moves Offshore: Clash of the Titans?

Thu, 2017-08-10 23:00

Gordon Blanke

According to a recent announcement, the International Chamber of Commerce (ICC) International Court of Arbitration is set to open a representative office in the Abu Dhabi Global Market (ADGM), a free zone founded by the Ruler of Abu Dhabi on Al Maryah Island, a man-made island on the shores of the Emirate of Abu Dhabi. I have extensively reported on the ADGM as a seat of arbitration on Kluwer Blog previously (see G. Blanke, “Arbitration in the Abu Dhabi Global Market: Ready, Steady, Go …!”, Kluwer Arbitration Blog, 7 February 2016 ; and G. Blanke, “Arbitrating in the ADGM: Some further thoughts and considerations”, Kluwer Arbitration Blog, 10 March 2016) ,and do not intend to belabour the subject unnecessarily here. Suffice it to recall that the ADGM is a free zone common law jurisdiction with its own stand-alone arbitration law, the 2015 ADGM Arbitration Regulations, which are modeled on the UNCITRAL Model Law. Arbitrations seated in the ADGM will be governed by the Regulations and given their UNCITRAL pedigree benefit from best standard international arbitration procedure.

The establishment of the ICC in the ADGM will add to arbitrations in the ADGM an endemic institutional dimension that will promote a choice for the administration of ADGM-seated arbitration under the ICC Rules of Arbitration. This, no doubt, marks a smart strategic move for the ICC that in free zone arbitration had lost ground to the London Court of International Arbitration (LCIA), its long-time rival, which was the first to set up as a free zone arbitration centre in the Dubai International Financial Centre (DIFC) about nine years ago. Regular followers of this Blog will know that the DIFC is the first common law jurisdiction established on the free zone model in the UAE. The DIFC-LCIA has since become the best-known free-zone arbitration centre internationally, soon registering in excess of 100 cases (beating the Qatar International Financial Centre and its home-grown arbitration centre to it). Taking account of the novelty of the concept of free zone arbitration and the lead-time for any disputes to originate from DIFC-LCIA arbitration clauses, this is no mean feat. Going forward, the DIFC-LCIA’s case portfolio looks to grow, conservatively speaking, by an average 30 to 50 references annually.

Admittedly, the ICC has been a strong contender for institutional arbitration in the Middle East even without a presence in the ADGM. The ICC has had a UAE national committee in place for a long time, assisting in the appointment of suitable arbitrators in references with Middle East and North Africa significance. Through its tireless advertising throughout the region, the ICC has also built a solid reputation amongst actual and potential users. That said, the move offshore will, no doubt, further strengthen this position and disperse the perception that common law style arbitration will only be possible within and is therefore reserved for a DIFC-LCIA institutional framework.

Leaving aside the institutional rivalry between the titans for a moment, the additional free zone arbitration offering of the ICC will further embellish and promote the reputation of the UAE as a leading regional arbitration hub. It will offer users a choice of institutional and ad hoc arbitration within the UAE, between the DIAC (with an offshore offering in the DIFC, see G. Blanke, “The DIAC goes offshore: Strategic move or promotional ploy?”, Kluwer Arbitration Blog, 6 June 2016, available online at http://kluwerarbitrationblog.com/2016/06/06/the-diac-goes-offshore-and-the-proverbial-proof-of-the-pudding/) and the ADCCAC in Abu Dhabi, as well as the many arbitration centres in other Emirates, in addition to the DIFC-LCIA and the ADGM-ICC.

At the operational level, future users should be aware, however, that the new ADGM-ICC will only be a representative office and not a fully-serviced operation of the size you will find at the ICC headquarters in Paris. Importantly, whereas the ADGM-ICC will be able to process requests of arbitration, the existing MENA case management teams of the ICC in Paris will remain in charge for the full administration of an individual reference. This is similar to the way the DIFC-LCIA operated initially (relying heavily on the capabilities in place at the LCIA parent in London) although it has become more self-sufficient in recent years. On the plus side, it is understood that the office will have state-of-the-art hearing facilities, which will serve as neutral ground for conducting hearings under the ICC Rules in arbitrations seated in the ADGM.

The ADGM-ICC is presently expected to become operational by the beginning of 2018. Until then, the ICC will no doubt endeavor to ponder further changes to its Rules, in particular to cater for seating an arbitration in the ADGM in order to facilitate true free zone arbitration. This could be achieved by amending the standard ICC arbitration clause to create a ADGM-ICC-specific clause that provides for the ADGM as a seat of arbitration for choice by the parties. That said, it is unlikely that the ICC will wish to alter its long-standing policy of leaving the designation of a default seat to the ICC International Court of Arbitration for determination in the event that the parties fail to agree. That said, it is presently not known whether the ICC will issue a new set of Rules for use in ADGM-seated arbitrations. It is unlikely to do so other than naming its standard Rules for use in the ADGM the “ADGM-ICC Rules” or a derivative of (again following the model of the DIFC-LCIA Rules).

At this stage, it is difficult to tell whether through its opening in the ADGM, the ICC will steal business from the DIFC-LCIA. That said, a true clash of the titans is probably some way off given that ADGM arbitration is likely to remain confined to arbitrations that exhibit a link to the ADGM. In this context, it is important to recall that the scope of arbitration in the ADGM is much more limited than arbitration in the DIFC. Unlike the case in the DIFC, disputing parties cannot contract into the resolution by arbitration of any disputes in the ADGM without demonstrating subject-matter nexus to the ADGM. This essentially means that arbitration in the ADGM is limited to (i) the resolution of civil or commercial disputes involving the ADGM or any ADGM stakeholders (i.e. ADGM authorities or establishments) or to (ii) the resolution of disputes arising out of a contract or a transaction conducted in whole or in part in the ADGM or out of an incident that occurred in the ADGM (see Arts 6-7, Law No. (4) of 2013 Concerning Abu Dhabi Global Market). As a consequence, DIFC arbitration remains an attractive option to those who wish to arbitrate in a common law environment in the Middle East. It will, as such, maintain the DIFC-LCIA’s competitive advantage as an institutional framework for free zone arbitration in the UAE.

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Another Win for European Commercial Agents: Overriding Mandatory Austrian Law Provisions to Supersede Arbitration Agreement

Thu, 2017-08-10 00:12

Tobias Gosch

Schoenherr

On 1 March 2017 the Austrian Supreme Court (Oberster Gerichtshof) ruled on whether potential claims under the Austrian Commercial Agents Act (Handelsvertretergesetz) can be brought before an Austrian court even if the underlying agency agreement contains an arbitration clause and is governed by the laws of New York (OGH 1.3.2017, 5 Ob 72/16y). The judgment addresses international overriding mandatory provisions on the compensation of commercial agents and builds on two related ECJ decisions.

As early as the year 2000, the European Court of Justice (“ECJ”) ruled in its judgment Ingmar (9.11.2000, C-381/98) that Articles 17 and 18 of Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents (the “Directive”), “which guarantee certain rights to commercial agents after termination of agency contracts, must be applied where the commercial agent carried on his activity in a Member State although the principal is established in a non-member country and a clause of the contract stipulates that the contract is to be governed by the law of that country.” Thereby, the ECJ established the international overriding mandatory applicability of Articles 17 and 18 of the Directive.

However, as some Member States made use of the possibility to extend the scope of the Directive in their transposition into national law, the ECJ was eventually concerned with a follow-up question in that respect. In its judgment Unamar (17.10.2013, C-184/12) the ECJ declared that national law provisions which go beyond the scope of the Directive also may be regarded as overriding mandatory national law “if the court before which the case has been brought finds, on the basis of a detailed assessment, that the legislature of the State of the forum held it to be crucial, in the legal order concerned, to grant the commercial agent protection going beyond that provided for by [the Directive], taking account in that regard of the nature and of the objective of such mandatory provisions.” This principle shall also be relevant vis-à-vis Member States of the European Union which decided to transpose the minimum protection requirements laid down by the Directive.

In the case recently decided by the Austrian Supreme Court, an Austrian limited liability company (the “Agent”) entered into an agency agreement in order to provide for the procurement of sea freight business in Austria and other Member States of the European Union for a New York based principal (the “Principal”). The agency agreement contained a choice of law and an arbitration clause stipulating that the agreement will be governed by the laws of New York and all disputes arising from it will be settled by an arbitral tribunal in New York in accordance with the rules of the Society of Maritime Arbitrators. The Principal terminated the agency agreement and filed a claim against the Agent for outstanding accounts and damages before a New York based arbitral tribunal. In the arbitral proceedings, the arbitral tribunal refused to consider the Agent’s counter-claim for compensation as a commercial agent resulting from the allegedly wrongful termination of the agency agreement.

The Agent therefore filed a lawsuit against the Principal before an Austrian court, seeking compensation under Section 24 of the Austrian Commercial Agents Act, as the Principal allegedly terminated the agency agreement unlawfully. Section 24 of the Austrian Commercial Agents Act is rooted in Articles 17 and 18 of the Directive. Also, the Austrian legislator extended the scope of the applicability of the compensation provisions in its transposition of the Directive into national law. Whereas the Directive defines the term commercial agent as “a self-employed intermediary who has the continuing authority to negotiate the sale or purchase of goods on behalf of another person”, the Austrian definition in Section 24 is broader and applies to anyone who is commissioned and authorised to convey or conclude business transactions in another person’s name and account.

In accordance with Article II Paragraph 3 of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“NYC”) and Section 584 Paragraph 1 of the Austrian Code of Civil Procedure, an Austrian court shall not abandon a lawsuit if it finds that the arbitration agreement is non-existent or unenforceable. An arbitration clause shall be unenforceable if it aims to circumvent the applicability of mandatory procedural or material law provisions to the governed contract. In the present case, the Austrian Supreme Court concluded that there “cannot remain reasonable doubt that the Agent, who mainly acted in the territory of the European Union, is entitled to a mandatory compensatory claim in accordance with Articles 17 and 18 of the Directive which have been transposed by Section 24 Austrian Commercial Agents Act.” As the applicable laws of New York do not offer a comparable compensation regime for commercial agents and the arbitral tribunal refused to apply the relevant overriding mandatory Austrian law provision, the Austrian Supreme Court declared that “the refusal of recognition of the arbitration clause remains the only possibility to secure the international mandatory scope of application of Articles 17 and 18 of the Directive in favour of the Agent, who shall be protected by the provisions of the Directive and its transposition in Section 24 Austrian Commercial Agents Act.” Therefore, the arbitration clause in the agency agreement must be deemed invalid and must not oppose the lawsuit filed by the Agent.

The Supreme Court’s reasoning is not entirely uncontroversial. The Agent conducted the procurement of sea freight business in Austria and other countries of the European Union for the Principal. Whilst the territorial scope of the Agent’s activities complies with the conditions for the international overriding mandatory applicability of the compensation provisions of the Directive as set out by the ECJ in Ingmar, the procurement of business is not covered by the relevant definition in the Directive, which only refers to the sale or purchase of goods. As already pointed out above, the ECJ in Unamar opened the door for Member States to consider transposed Directive provisions with an extended scope of applicability as national overriding mandatory principles if the national court holds such provisions to be crucial after a detailed assessment. As Eckardt (IHR 2017, 123 et seq) correctly remarks, no such detailed assessment can be found in the reasoning of the Austrian Supreme Court judgment. The court in fact based its judgment on the general statement of the ECJ that such provisions can be national overriding mandatory law if this is crucial in the relevant legal order. Hence, the judgment does not provide an assessment and explanation of why it would be crucial, from an Austrian law perspective, that agents conducting the procurement of business should also be entitled to a compensatory claim on the basis of a national overriding mandatory provision. The justification that such a compensatory claim of the Agent is rooted in Articles 17 and 18 of the Directive is therefore not convincing.

The present case shows the power of overriding mandatory law, but also the power of national courts when interpreting such provisions in the context of international arbitration. Therefore, and especially when it comes to European Union law and the respective transposed national law provisions, it is advisable to look more closely and check whether international or national overriding mandatory law could be an issue.

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To NYC or Not: Dealing with Discrepancy in Enforcement Requirements between the New York Convention and the Domestic Arbitration Act

Tue, 2017-08-08 22:26

Junu Kim and Bhushan Satish

As arbitration gains prominence, legislative regimes governing domestic arbitration are fast liberalizing globally, and in some instances, like in South Korea, liberalizing faster than the regime governing international arbitration. The question we consider in this post is whether Contracting Parties to the New York Convention on the Enforcement of Foreign Arbitral Awards (“New York Convention”) must mandate the enforcement of foreign awards under the New York Convention alone? With the convergence of legislative regimes governing domestic and international arbitration, which regimes also go by the moniker “monist regimes” (as opposed to “dualist regimes”), this question becomes increasingly material. In the context of monist regimes the answer to this question seems to be in the affirmative. However, when the evolution of the regime governing domestic arbitration outpaces international arbitration, then this response ceases to become obvious. The example presented by the 2016 Korean Arbitration Act, which offers a more liberalized enforcement regime for domestic awards than for foreign awards, offers an opportunity to probe this question further.

Article VII of the New York Convention

Article VII of the New York Convention states “[t]he provisions of the present Convention shall not … deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law … of the country where such award is sought to be relied upon.” According to this provision, if the law of a Contracting State, where the enforcement is sought, makes enforcement of a domestic arbitration award more favorable than the New York Convention, then the award creditor has the right to apply for enforcement under the more favorable law.

It bears mention that there is some divergence in doctrine and case-law on whether Article VII applies to the exclusion of the more favorable national law in toto, or whether an award creditor applying for enforcement under the national law can additionally cherry pick those provisions of the New York Convention which it seeks the selective application of. However that is not the subject of this post and will not be explored further.

The Curious Case of the 2016 Korean Arbitration Act

Given the historic sovereign reluctance to accede judicial power, the public interest surrounding notions of access to municipal courts, and the accompanying strictures associated with domestic arbitration, the regulation of domestic arbitration was stricter than international arbitration. However as arbitration gains wider acceptance, this is no more the case. This, as a result, has upended certain assumptions underlying the traditional understanding of international arbitration. One such understanding is that international arbitration, compared with domestic arbitration, enjoys more favorable treatment under national laws. However this is increasingly not the case and the 2016 Korean Arbitration Act serves as a suitable case in point.

Article 39(1) of the Korean Arbitration Act expressly states that the recognition and enforcement of foreign awards is be governed by the New York Convention. However Article 39(1) raises the question whether this provision, by itself, excludes the application of the law on enforcement of domestic awards from application to foreign awards. This question arises because the requirements for the enforcement of domestic awards under the 2016 Korean Arbitration Act are more favorable than those prescribed under the New York Convention.

The Korean Arbitration Act, amended in 2016, makes the enforcement of domestic awards easier. For example, parties applying for enforcement do not need to submit a copy of the arbitration agreement to the enforcing court, nor do the copies of the award need to be certified. However the said dual requirements continue to exist under Article IV of the New York Convention. Hence the question arises, can an award creditor enforcing a foreign award now dispense with these requirements?

It is arguable that Korean Courts ought to apply the recently adopted and more favorable provisions concerning enforcement of domestic awards, to the enforcement of foreign awards. Although this issue has not reached the Courts yet, it is easily foreseeable that Courts might hold the opinion it has no legislative leeway on the application of Article 39(1) because the 2016 amendment expressly provides that the New York Convention applies to the enforcement of foreign awards. We believe the legislators ought to have considered this issue more carefully, and it might be better to delete Article 39 altogether and to extend the New York Convention-compliant domestic award enforcement regime to cover foreign awards too.

To conclude, whilst the South Korean example might be relatively rare in a world where arbitration continues to be viewed with some suspicion, it offers food for thought on the possibility of revisiting the traditional distinction drawn between domestic and international arbitration, and in recalibrating the future course for the arbitration community in general.

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Let the Show Begin: Poland Has Commenced the Process of BITs’ Termination

Tue, 2017-08-08 03:00

Marcin Orecki

After a few declarations of intention to terminate BITs (see my previous post), Poland put words into actions. On 18 July 2017, the Polish Government submitted to the Sejm (the lower house of Polish Parliament) a draft law (“Draft Law”, available in Polish here) which empowers the Polish President to unilaterally terminate the Agreement on the Promotion and Reciprocal Protection of Investments signed between Poland and Portugal on 11 March 1993 (“Poland-Portugal BIT”). Ironically, the process began at the worst possible time – when Poland’s governing party tries to put the judicial system under its political control.

As it can be read in the justification to the Draft Law (“Justification” available here), there are a few reasons for Poland-Portugal BIT’s termination.

The first and the most important are the objections of the European Commission to the so-called intra-EU BITs. The decision about the termination of the Poland-Portugal BIT complies with the Polish declaration provided within the PILOT procedure, namely that Poland is willing to terminate intra-EU BITs by joint declarations of all EU Members, or by a mutual agreement between BITs contracting parties, or by a unilateral termination.

As it is stated in the Justification, Poland conducted informal consultations and invited Portugal to terminate the above-mentioned BIT (including a sunset clause which provides ten years of investment protection) by a mutual agreement; however, Portugal refused.

Taking into account the fact that the Poland-Portugal BIT is automatically renewed every five years, unless it is terminated within 12 months before the lapse of the current five year period, and the next deadline for termination is on 8 October 2017, Poland decided to unilaterally terminate the Poland-Portugal BIT. It is underlined in the Justification that Poland will conduct further consultations with Portugal in order to terminate the Poland-Portugal BIT (including sunset clause) by a mutual agreement until the Draft Law enters into force.

Interestingly, the Justification refers to the Achmea case pending before the European Court of Justice. Poland joined the proceedings before the ECJ and submitted a statement in which argues that intra-EU BITs do not comply with the EU law.

Second, according to the Polish government, the termination of the Poland-Portugal BIT should not have any political and social implications, as Poland and Portugal were called by the European Commission to terminate intra-EU BITs. Moreover, as the Justification states:

“it should be expected that [termination of the Poland-Portugal BIT] will be positively received due to the public criticism of intra-EU BITs and international investment arbitration in Poland”.

Third, according to the Polish government, the termination of the Poland-Portugal BIT should not negatively impact on commercial relations between Poland and Portugal. The Poland-Portugal BIT was concluded before Poland became the member of the EU and currently, according to the Polish government:

“the law, as well as access to courts in Poland, guarantees foreign investors the protection of their investments with a possibility to execute investors’ rights before courts”.

This sounds at least questionable in the light of the recent attempts to reform the Polish judicial system, which were widely commented around the world (see, for example, here, here, here, here). The Polish government, firstly, politically dealt with the Polish Constitutional Tribunal rendering it (at least partially) non-legitimate (see the report of the Venice Commission available here). In the past weeks, it tried to put the judicial system under its political control via three acts concerning common courts, the National Council of the Judiciary and the Supreme Court. An appalling provision was art. 87 of the Law on the Supreme Court, which would have forced the resignation of all Supreme Court Judges and allowed their replacement to be selected by the Minister of Justice. Fortunately, the President of Poland blocked the laws on the National Council and the Supreme Court. However, the law concerning common courts was signed by the President and published in the Official Journal on 28 June 2017 (available here). The European Commission has already launched infringement proceedings against Poland for alleged breaches of EU law (see here).

Finally, another argument in favor of Poland-Portugal BIT’s termination are consultations with Polish entrepreneurial organizations, according to which Polish investors do not use protection granted in intra-EU BITs, including investment arbitration as a dispute settlement mechanism, mainly due to the high costs of arbitration. The Ministry of Development presented similar data according to which both Polish and Portuguese investors have not commenced any arbitration under the Poland-Portugal BIT. Polish investors commenced only three arbitrations under intra-EU BITs (Poland-Romania BIT, Poland-Slovakia BIT, and Cyprus-Poland BIT). Since 2006 Poland was or still is a party to twenty-two arbitrations (twelve of them are under intra-EU BITs: BITs with Austria, France, Germany, Cyprus, Netherlands, Belgium, Luxembourg, Czech Republic). As it is set in the Justification, investment arbitrations are extremely expensive for Poland (even though a majority of them are won), so the termination of Poland-Portugal BIT may increasingly reduce the financial burden of the state.

To sum up, it is not surprising that Poland ultimately decided to terminate BITs. The Poland-Portugal BIT is the first in a line of twenty-three intra-EU BITs which will probably be terminated sooner rather than later. Arguments for the alleged nonconformity of intra-EU BIT with EU Law are well known. The Polish government argued in favor of termination of intra-EU BITs saying that

“Poland is, an EU Member State, established democracy which respects market rules and has a confident, independent, and impartial judiciary system” (see here).

In the light of recent events in Poland concerning attempts of the governing party to put the judicial system under its political control, the termination of intra-EU BITs is not obvious and straightforward as it was before. The “Polish case” should definitely serve as an example taken into account by the opponents of investment law and arbitration. It should also be considered during the discussion about the proposed reform of investment arbitration reform.

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Portugal: A New Hub for International Arbitration Disputes

Sun, 2017-08-06 23:49

André Pereira da Fonseca

Young ICCA

Introduction

There are over 250 million people who speak Portuguese, being commonly identified as the sixth most spoken language in the world.

It is an official dialect in Angola, Brazil, Cabo-Verde, Equatorial-Guinea, Guinea-Bissau, Macau, Mozambique, Portugal, São-Tomé and Principe and Timor-Leste.

Business transactions are entered into daily within a vast territorial space that reaches from Macau’s ruins of Saint Paul, passing through the exotic city of Maputo unto the Brazilian State of the Amazonas. The area of the globe occupied by the current members of the “Community of Portuguese Language Countries” is of 10,742,000 km2 scattered over four continents.

A common heritage

While having their own distinctive identity, these countries share a common historical and legal heritage.

Indeed, besides the fact that all jurisdictions share a civil law base, they are strongly influenced by Portuguese law. For example, Guinea-Bissau, Angola, São Tomé, Cabo-Verde and Mozambique still use the same Civil Code enacted by the Portuguese Government in 1966. The arbitral laws of the latter four countries are influenced by the old Portuguese arbitral law – Law n.º 31/86 of 29 August 1986 (while Guinea-Bissau follows the OHADA Uniform Act on International Arbitration). Timor-Leste 2011 Civil Code and Macau’s 5 major codes (the core of the country’s legal system) are based on its Portuguese equivalents. It is frequent for lawyers, judges and arbitrators in these jurisdictions to resort to Portuguese academics and case law to reason their arguments and decisions.

A space-time to invest

The Lusophone space is bursting with investment opportunities.

Just to name a few, Angola is the world’s top diamond producer, the largest oil producer in Sub-Saharan Africa and an alternative to the current dominance of the Middle-East. Operators such as Total, BP or Chevron regularly conduct business in the country. The end of the civil war in 2002 opened the country to foreign investment and, next to the natural resources sector, opportunities exist in the agriculture, transport and construction sectors.

In Mozambique a recent discovery of massive gas reserves in the Rovuma Basin (around 180 trillion cubic feet) has triggered one of the world’s largest LNG projects. Estimations indicate that more than US$30 billion is to be invested in order to produce 20 million tons of LNG per year, with exports to start in 2021. This has resulted in major investments by Anadarko and ENI, as well as from other Asian and European investors. This discovery has the potential to transform Mozambique’s economy and boost other economic sectors.

Macau is today seen by many as the gaming capital of the world and a regional center for conventions and tourism. In 2015, Macau’s gross gaming revenue topped US$28.9 billion, exceeding the combined revenues of Nevada and Atlantic City. Other growth areas include finance, insurance, construction, real estate, and retail.

Cabo Verde is currently pursuing a strong policy to promote investment in renewable energies. The country implemented the first commercial-scale, privately financed, public private partnership wind farm in sub-Saharan Africa (“Cabeolica”). With wind farms built on four islands, renewables account for more than 20% of the total electricity generated and is set to provide as much as half of all electricity production by 2020.

Brazil needs no introductions. With a domestic market of nearly 210 million inhabitants, it is the world’s ninth largest economy. Despite the current recession, it is accredited as the largest recipient of foreign investment in Latin America and the eighth largest recipient in the world. The country is currently the fourth largest investor in emerging markets and the largest in Latin America.

Timor-Leste is seeking to attract investment in the oil and gas sector. Unexplored offshore oil and gas deposits, as well as onshore resources such as gold, manganese and marble present prospects for development. Other opportunities exist in the services, tourism and agriculture sectors particularly regarding timber and coffee (Starbucks is a major purchaser).

Finally, Portugal is recovering from a financial crisis which bolstered the execution of long-needed reforms. It has a friendly economic environment with some of the lowest operational costs in Western Europe and is called by many as the next Silicon Valley due to the many startups that recently chose to set up in the country. Investment opportunities exist in the sectors of tourism, real estate, construction (particularly since the “Golden Visa” program which allows permanent residence for foreigners who invest more than € 500.000,00 in real estate) and renewable energies.

Arbitrating disputes

Portugal poses as a strategic platform for arbitration disputes arising out of the Lusophone space. The fact that the country shares the same historic and legal roots as the other Portuguese speaking countries has shown to be a decisive factor in the execution of bilateral agreements and in the launching of projects for legal cooperation. The common language puts aside the need for procedural translations and generates comfort amongst parties, lawyers and arbitrators.

Portugal also has all the conditions to become a seat for other international disputes. The country is a member of the most important international arbitral conventions such as the 1958 New York Convention and the 1965 “ICSID” Convention. Furthermore, it has 60 BIT’s signed with different nations.

A new arbitral law was recently enacted which entered into force in March 2012 (Law 63/2011 of 14 December) and follows the UNCITRAL Model law (as amended in 2006).

The law embodies fundamental principles such as party autonomy, Kompetenz-Kompetenz, separability, equality of the parties, due process and finality of the award. It includes all the legal tools embodied in modern arbitral laws regarding matters such as the constitution of the tribunal, interim measures and recognition / enforcement of arbitral awards. It has a wide criterion for arbitrability considering that any dispute can be subject to arbitration as long as it is not exclusively submitted to the state courts (or to a form of “mandatory arbitration”) and it concerns economic interests. Even disputes that do not involve economic interests can be subject to arbitration as long as the issue at stake is capable of being subject to a settlement by the parties (under the applicable law). It also opens the door for arbitrations arising from labor agreements (historically in the exclusive realm of judicial courts) although making it dependent on the enactment of specific statutes.

Indeed, arbitration has already spread to different domains. A pioneering tax arbitration regime was designed to settle disputes between taxpayers and the Administration (Decree-Law n.º 10/2011 of 20 January 2011). Furthermore, a mandatory arbitration procedure for disputes arising out of industrial property rights related to reference and generic medicines was created (Law 62/2011 of 12 December 2011) and a sports arbitration framework that requires that disputes arising out of acts or omissions from sports bodies and appeals from decisions regarding the breach of anti-doping rules should be resolved through arbitration (Law 74/2013 of 6 September 2013).

Portuguese Courts have shown to be “pro-arbitration”, and in most cases, requests for court intervention will be heard by the Courts of Appeals, thus assigning arbitration matters to experienced judges. Anti-arbitration injunctions are expressly forbidden.

Arbitrators, parties and institutions should keep proceedings confidential, without prejudice of making any facts public if this is necessary to defend their rights or required by law.

The leading arbitration institution is the Arbitration Centre of the Portuguese Chamber of Commerce and Industry (“CCIP”) (established in 1987) with vast experience in domestic and cross-border arbitrations. The Centre recently modernized its facilities with state of the art hearing rooms and audiovisual technology. Located in the heart of Lisbon, it is easily accessible from the airport and conveniently close to numerous hotels.

CCIP last revised its rules in 2014. They are available in Portuguese, English and Spanish and now including rules regarding emergency arbitrators, a fast-track arbitration procedure and an arbitrator Code of Ethics that should be interpreted according to the IBA Guidelines on Conflicts of Interest. The CCIP panel includes the most prominent Portuguese legal authorities as well as international arbitrators. Many are experienced academics who have played an important role in the enactment of several statutes in Portugal and throughout the Lusophone world, thus being skilled to resolve disputes related to different jurisdictions. Furthermore, the panel is “open” allowing the parties to appoint arbitrators that are not on the panel.

Procedures under the CCIP Rules are swift. A study provided by the Centre in 2014 evidenced that the average duration of an arbitration is 15 months. Several proceedings are conducted in English and both lawyers and arbitrators are often experienced in international law with an excellent proficiency of other languages such as Spanish or French thus equipped to deal with any dispute.

In conclusion, Portugal has all the conditions to affirm itself as a first-rate arbitration seat. It is now up to Portuguese arbitral institutions, universities, arbitrators and practitioners to promote the country’s potential in order to increasingly host more international disputes.

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The Astana International Financial Centre: AIFC Court and International Arbitration Centre Legal Systems to be based on English Common Law

Sat, 2017-08-05 23:31

Philip Kim

Herbert Smith Freehills

The President of the Republic of Kazakhstan (President) signed the constitutional law “On the Astana International Financial Centre” (Law) on 7 December 2015, which provides a legal framework for the establishment and operation of the Astana International Financial Centre (AIFC). The launch of the AIFC is part of the President’s “100 Concrete Steps” Plan of the Nation (Plan) to bring Kazakhstan into the world’s 30 most developed countries by 2050.1)See “Kazakhstan: 100 Steps Toward a New Nation“, Erlan Idrissov, The Diplomat, 25 July 2015 jQuery("#footnote_plugin_tooltip_1019_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1019_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Plan will implement five institutional reforms aimed at creating a favourable and attractive environment for foreign investment and the provision of financial services in accordance with global best practice.

The AIFC is scheduled to begin operations on 1 January 2018, and will position itself as a major financial hub for Central Asia, the Caucasus Republics, Eurasian Economic Union, the Middle East and Europe. It aims to become one of the top 10 Asian financial centres by 2025.

This blog article seeks to provide some background on the functions of the AIFC, and to give an overview of the legal system governing the AIFC in particular the creation and development of the AIFC Court and the AIFC International Arbitration Centre (International Arbitration Centre).

FEATURES OF THE AIFC

The objectives of the AIFC include the creation of an attractive environment for investment in the financial services industry, the development of the securities market, the insurance market, banking services and Islamic financing market in Kazakhstan as well as the development of financial and professional services based on best international practices.

The AIFC will introduce a preferential tax regime, where members of the AIFC will be exempt from corporate income tax, property and land taxes until 1 January 2066.(Article 6 of the Law) Citizens of countries of the OECD, Singapore, Malaysia, the UAE and Monaco as well as other countries identified by the Kazakhstan government will also have visa-free entry to the country for a period of 30 days.(Article 7(5) of the Law)

The AIFC will comprise of the following five main bodies:
1) AIFC Management Council;
2) AIFC Authority;
3) Astana Financial Services Authority;
4) AIFC Courts; and
5) Arbitration Centre.

AIFC Management Council

The AIFC Management Council is the top executive body and will be headed by the President. Its key task will be to determine the development strategy of the AIFC.(Article 11(1) of the Law)

AIFC Authority

The AIFC Authority is the main governing and operational body and is created as a joint stock company.

Astana Financial Services Authority

This institution will develop and exercise regulation of the financial services and financial services-related activities at the AIFC.

On a related note, the Astana International Exchange (AIX) – AIFC’s international stock exchange and the main platform for the initial public offering of Kazakhstan’s major companies – is targeted to launch in the fourth quarter of 2017.2)See “AIFC to launch its international stock exchange in fall“, Zhazira Dyussembekova, The Astana Times, 14 April 2017´ jQuery("#footnote_plugin_tooltip_1019_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1019_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); NASDAQ has been selected to implement the AIX trading platform,3)“Astana International Financial Centre JSC and Nasdaq sign technology deal for new AIFC Exchange“, International Finance Magazine, 7 June 2017 jQuery("#footnote_plugin_tooltip_1019_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1019_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and the Shanghai Stock Exchange will be taking a 25% stake in AIX.4)“Shanghai Stock Exchange to Become Shareholder of New AIFC Stock Exchange”, Kazakhstan News Gazette, 22 June 2017 jQuery("#footnote_plugin_tooltip_1019_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1019_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The key functions and powers of each governing body are further set out in Articles 10 to 14 of the Law.

LEGAL SYSTEM AND LANGUAGE OF THE AIFC

The governing law of the AIFC will be based on the Constitution of Kazakhstan and will have a special legal regime, consisting of the Law and its own independent judicial system and jurisdiction which will be based on English common law and standards of leading international financial centres. The current law of Kazakhstan will also apply to the extent it does not conflict with the Law or Acts of the AIFC.(Article 4(1) of the Law)

It is expected that the AIFC legal system will have similarities with the principles and standards of the Dubai International Financial Centre (DIFC) in Dubai.5)”The new Astana International Financial Centre“, The Law Society, 14 March 2016 jQuery("#footnote_plugin_tooltip_1019_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1019_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, it should be noted that rules of ratified international treaties will prevail over those set out in the Law.( Article 4(4) of the Law)

The official language of the AIFC has been designated to be English (Article 15 of the Law), and all legislation of the AIFC will be drafted and adopted in the English language.

Acts of the AIFC for the purpose of implementing the Law should be developed and adopted by the AIFC bodies within two years from the entry into force of the Law i.e., no later than 19 December 2017.(Article 21 of the Law)

THE AIFC COURT AND INTERNATIONAL ARBITRATION CENTRE

The AIFC Court and International Arbitration Centre are set up to deal with investment disputes within the AIFC.

Rt. Hon Lord Woolf, the former chief judge for England and Wales, is advising on the establishment of both institutions, with a planned launch date of 2018.6)“Kazakhstani Center to Use English Law for Arbitration”, Natalie Olivo, Law360, 28 June 2017 jQuery("#footnote_plugin_tooltip_1019_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1019_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The DIFC Court in Dubai is also a key partner in advising and assisting with the establishment of the AIFC Court system.7)“DIFC Courts to advise planned Astana International Financial Centre”, DIFC Courts, 30 August 2015 jQuery("#footnote_plugin_tooltip_1019_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1019_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

AIFC Court

The AIFC Court will be an independent court external to the judicial system of Kazakhstan.(Article 13(1) of the Law) This will be a two-tier court system consisting of the Court of First Instance and the Court of Appeal, and will be made up of international judges with previous experience in common law jurisdiction countries. The AIFC Court will have exclusive jurisdiction over disputes between AIFC participants, AIFC bodies and their employees, disputes relating to operations conducted in AIFC or subjected to AIFC laws, and disputes directed to AIFC Court by third parties.(Article 13(4) of the Law) It will not have jurisdiction over criminal and administrative proceedings (Article 13(4) of the Law), including criminal or administrative offences committed in the territory of the AIFC. The AIFC Court will also have exclusive jurisdiction to interpret the acts of the AIFC.(Article 13(10) of the Law)

Decisions of the AIFC Court will be final, with no right to appeal and binding on all individuals and legal entities.(Article 13(7) of the Law) Enforcement of the AIFC Court decisions will be in accordance with the normal court enforcement procedures in Kazakhstan.(Article 13(8) of the Law)

International Arbitration Centre

The International Arbitration Centre will be established within the AIFC, and this will offer an alternative dispute resolution option for AIFC participants and other investors.

The International Arbitration Centre will adjudicate disputes in cases where there is an arbitration agreement between the parties. Foreign arbitrators are expected to sit in these tribunals. The procedure for the recognition and enforcement of decisions of the International Arbitration Centre will follow that of the process set out for the recognition and enforcement of arbitral decisions made by arbitration courts in Kazakhstan.(Article 14(3) of the Law)

Court proceedings will be conducted in English (Article 19 of the Law), and legislations will also be built on English common law and enacted by the AIFC Court and International Arbitration Centre.

CONCLUSION

The commitment of the AIFC to operating under the principles of English common law has been met with support and interest from investors and legal representatives alike, and this will advance Kazakhstan as an attractive financial centre for business that upholds internationally recognised standards. The establishment of the AIFC Court and International Arbitration Centre based on English law with independent judicial system and jurisdiction, foreign qualified judges and arbitrators will further promote transparency and affirm the impartiality of the courts and tribunals as trusted institutions for the resolution of investment disputes.

References   [ + ]

1. ↑ See “Kazakhstan: 100 Steps Toward a New Nation“, Erlan Idrissov, The Diplomat, 25 July 2015 2. ↑ See “AIFC to launch its international stock exchange in fall“, Zhazira Dyussembekova, The Astana Times, 14 April 2017´ 3. ↑ “Astana International Financial Centre JSC and Nasdaq sign technology deal for new AIFC Exchange“, International Finance Magazine, 7 June 2017 4. ↑ “Shanghai Stock Exchange to Become Shareholder of New AIFC Stock Exchange”, Kazakhstan News Gazette, 22 June 2017 5. ↑ ”The new Astana International Financial Centre“, The Law Society, 14 March 2016 6. ↑ “Kazakhstani Center to Use English Law for Arbitration”, Natalie Olivo, Law360, 28 June 2017 7. ↑ “DIFC Courts to advise planned Astana International Financial Centre”, DIFC Courts, 30 August 2015 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitrators as Lawmakers
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Kluwer Mediation Blog – July Digest

Sat, 2017-08-05 03:37

Anna Howard

July saw a collection of thought-provoking and passionate posts from our writers, including the particular challenges of conducting research on mediation, insights from the Global Pound Conference in London and reflections on how little we know about our neighbours. A brief summary of all the posts in July can be found below.

In Research on Mediation – Why It’s Tricky And Why We Need To Do It, Sabine Walsh considers the unique challenges posed by research in conflict and mediation, and explores how these might be overcome.

In this passionate piece, The Road To Becoming A Mediator, Virginie Martins De Nobrega charts the enriching, unpredictable and often lengthy road to becoming a mediator.

In And A Little Child Shall Lead Them – Peacemakers Conference 2017, Joel Lee shares visual metaphors for mediation created by students at the Peacemakers Conference held in June in Singapore.

In What’s Wrong With Trust And Respect, Charlie Irvine probes the usefulness of the words “trust” and “respect” in mediation. Charlie concludes that “By showing the parties respect, and trusting their words and judgements, we provide a glimpse of reasonable human interaction. That’s an invitation that’s hard to reject.”

In The German Mediation Act Five Years On: The Perspective Of Two Judge Mediators, Greg Bond shares his discussion about the Act and its effects with two experienced mediator-judges working in German courts: Anne-Ruth Moltmann-Willisch and Pia Mahlstedt. Both are pioneers of mediation in Germany, who were involved in coordinating pilot court mediation programmes that preceded the German Mediation Act.

In The Global Pound Conference, London – The Grand Finale, Nicky Doble identifies her key insights from attending this conference and, in particular, highlights the key points made by users of mediation.

In Invidious Choices: Mediators As Homeric Navigators, Ian Macduff extensively explores the issue of the relationship and choice between rights and cultural values; the tension when legal rights point in one direction and cultural norms in the opposite.

In Knowing Our Neighbours – A Mediator’s Reflection, John Sturrock notes how little we know about each other, how much we are prepared to assume however and how easily we are led to judgements. John argues that these tendencies seem detrimental to building sustainable relationships which will enable us to survive and thrive, whoever and wherever we are, adding that the same applies to the commercial disputes in which many of us now participate as mediators.

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Lithuania takes Steps to Facilitate Post-Arbitral Court Proceedings and to Maintain Confidentiality during the Arbitral Process

Thu, 2017-08-03 23:45

Tadas Varapnickas

Young ICCA

Since 1996, commercial arbitration in Lithuania has been regulated by the Law on Commercial Arbitration which was based on the provisions of the 1985 UNCITRAL Model Law on International Commercial Arbitration. In 2012, the Lithuanian Parliament revised the Law in accordance with the 2006 amendments to the UNCITRAL Model law. Furthermore, in order to emphasize its international origin, Article 4(5) of the Law establishes that the provisions of the Law should be interpreted in light of the UNCITRAL Model law.

Hence, since more than twenty years Lithuania has a regulation based on the most modern arbitration provisions recognised worldwide. In addition, Lithuanian courts have proven that they are willing to protect arbitration agreements and arbitration itself.

Nevertheless, the application of the law in practice has shown that some lacunae remain. In particular, this regards the involvement of national courts in post-arbitral proceedings related to the annulment and/or enforcement of arbitral awards.

Consequently, a draft law amending the Law on Commercial Arbitration was proposed to Parliament by the Government on 21 August 2015. After considerations, the Lithuanian Parliament adopted the draft law on 8 November 2016 and it came into force on 1 July 2017.

Although the amendments do not entail essential changes to the arbitration proceedings, it is still worthy to analyse what changed in Lithuanian arbitration law as of July 2017.

Confidentiality vs. Publicity in Court Assistance to Arbitration

The Lithuanian Law on Commercial Arbitration emphasizes confidentiality as one of the main characteristics of arbitration. Indeed, Article 8(3) of the Law explicitly states that arbitration proceedings are confidential, meaning that nothing that happens during the arbitral process can be revealed to anyone. On the contrary, civil procedure in the Lithuanian national courts, as in most countries, is based on the opposite principle – court proceedings are public except where public or private interest requires differently (for example, cases concerning child adoption are strictly confidential).

This divergence between the Law on Commercial Arbitration and the Civil Procedure Code becomes relevant when there is a need for court assistance during arbitration proceedings. Although arbitration is confidential, and this may even have been the reason why the parties decided to choose it, when a particular issue comes before national courts, e.g. an application for the removal of an arbitrator, the arbitration in essence becomes public as the civil case concerning the arbitrator’s removal will be heard in public.

In order to resolve this divergence and to create legal certainty for the parties, the amendments to the Law on Commercial Arbitration foresee that cases concerning court assistance to arbitration, such as default arbitrator appointments, removal of arbitrators or applications for interim measures, are also confidential. However, it should be noted that the new confidentiality provisions do not cover court proceedings for the annulment or recognition of arbitral awards. These cases continue to be heard in public.

Enforceability Issues under Lithuanian Arbitration Law

One of the key amendments to the Law on Commercial Arbitration is related to the enforcement of national arbitral awards. Pursuant to the old Article 41(4) of the Law, an arbitral award is an enforceable document which can be enforced in accordance with the rules provided in the Civil Procedure Code. In practice this meant that in cases where the losing party refused to comply with an arbitral award, the other party could apply to the competent court and request a writ of execution. However, in practice it remained unclear which court was actually competent to issue such a writ.

In state court proceedings, a writ of execution is issued by the court which heard the respective case in the first instance. There are 54 courts of general jurisdiction that hear first instance civil cases, 49 district courts and five regional courts, and each of these courts issues writs of execution.

For national arbitral awards there was naturally no first instance court which had examined that case before. In lack of guidance in the laws, it therefore remained unclear which of the 54 first instance courts should be responsible for issuing the writ of execution.

This indeterminacy led to phantasmagorical situations: In one enforcement case, after the losing party refused to voluntarily comply with the arbitral award, the winning party applied to the Vilnius District Court for a writ of execution. However, the District Court refused to issue the writ, reasoning that the application should be made to the Vilnius Regional Court, as the case would have fallen within the first instance jurisdiction of the Regional Court but for the arbitration agreement. The winning party complied with the ruling of Vilnius District Court and applied to the Vilnius Regional Court. The Regional Court also refused to issue the writ of execution reasoning that this fell into the jurisdiction of the Vilnius District Court. Finally, after the winning party reapplied to the Vilnius District Court, the District Court issued the writ of execution. However, it was of no use, as the losing party had become insolvent in the meantime (A. ŠEKŠTELO. “Problems of the enforcement of an arbitral award – do we need a writ of execution”. [2014] Justitia, 2014(79), p. 104).

In order to resolve this issue, the amendments to the Law on Commercial Arbitration determine that writs of execution shall be issued by the District Court at the place of arbitration (for example, if an arbitration is seated in Kaunas, the Kaunas District Court will be competent to issue writs of execution for an award resulting from the arbitral proceedings). A district court can only refuse to issue a writ of execution under limited grounds established in the Law. Those grounds are: 1) the documents submitted are insufficient to determine the contents of the writ of execution; 2) the arbitral award has been annulled; and 3) the prescription period for applying for a writ of execution has expired. If a district court refuses to issue a writ of execution, that ruling may be appealed to the competent regional court.

Thus, the amendments bring more certainty to Lithuanian arbitration law as they clarify both the courts which have the jurisdiction to issue writs of execution for national arbitral awards and the circumstances under which courts can refuse to issue such a writ. Finally, it should be mentioned that before the amendments were adopted, relevant voices within the Lithuanian arbitration community suggested that the Vilnius Regional Court should receive the sole jurisdiction for issuing writs of execution, because it already has the sole jurisdiction for actions assisting arbitrations during the proceedings (V. MIKELĖNAS, V. NEKROŠIUS, E. ZEMLYTĖ. Lietuvos Respublikos komercinio arbitražo įstatymo komentaras. Vilnius: Registrų centras, 2016, p. 141-142).

Acceleration of Annulment Proceedings

The last amendment to the Law on Commercial Arbitration is related to the pace of annulment proceedings before national courts.

The amendments foresee that cases concerning the recourse against arbitral awards before the Court of Appeal of Lithuania shall be examined within 90 days of the Court’s acceptance of the setting aside application.

According to the explanatory note of the draft law, this amendment aims to increase the effectiveness of arbitration and consequently will help to strengthen the position of arbitration as a method of dispute resolution.

The ruling of the Court of Appeal may be appealed to the Supreme Court of Lithuania, the sole court of cassation for reviewing judgements, decisions, rulings and orders of the courts of general jurisdiction in Lithuania. However, neither the Law on Commercial Arbitration nor the Civil Procedure Code provide for a time-limit for a case to be examined before the Supreme Court. The draft law also does not contain a provision regarding the length of proceedings before the Supreme Court. According to the statistics of the Supreme Court, it takes around 160 days to examine a case in this Court. Therefore, the amendment concerning the acceleration of annulment proceedings does only half the job, as it only accelerates the proceedings before the Court of Appeal and not the Supreme Court.

Conclusion

The current amendments are the first revision of the Law on Commercial Arbitration after its fundamental reform in 2012. Although the amendments are limited in scope and do not impact the arbitral process itself, it is clear that the Lithuanian legislators are making efforts to create better conditions for commercial arbitration in Lithuania. The increasing number of arbitration proceedings in Lithuania further proves that Lithuania is on the right track.

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Is America First the End of FET?

Wed, 2017-08-02 23:44

Eric van Eyken

Young ICCA

Despite apparent “America First” language in the US Summary of Objectives for the NAFTA renegotiation which appear contrary to the minimum standards of treatment and fair and equitable treatment, those protections are likely to remain in a new NAFTA.

On 17 July 2017, the US Trade Representative published the “Summary of Objectives for the NAFTA renegotiation” as required by US law (the “Summary”). This Summary outlines the negotiating position of the United States with regard to the re-negotiation of the NAFTA announced on 18 May 2017 and on which President Trump campaigned.

With regard to investor state dispute settlement (“ISDS”), the Summary is brief, providing in full:

– Establish rules that reduce or eliminate barriers to U.S. investment in all sectors in the NAFTA countries.
– Secure for U.S. investors in the NAFTA countries important rights consistent with U.S. legal principles and practice, while ensuring that NAFTA country investors in the United States are not accorded greater substantive rights than domestic investors.

The second bullet in the Summary appears to contain a bombshell with regard to fair and equitable treatment (i.e., FET). The statement that “investors in the United States are not accorded greater substantive rights than domestic investors” would appear to run contrary to the international law concept of a minimum standard of treatment as reflected in NAFTA Article 1105. NAFTA Article 1105 provides for the customary international law standard of minimum treatment, i.e., FET, with regard to foreign investment:

Article 1105: Minimum Standard of Treatment
1. Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security.

The FET standard is based upon the customary international law rule that host states are required to provide foreign investors and their investments with a minimum standard of treatment, regardless of whether such substantive protections are offered to the domestic citizens of the host state.

The FET standard is not without controversy, going back to the modern origins of the debate on this customary international law standard. As explained by Professor Rob Howse of NYU in a blog posting of 18 July 2017 regarding ISDS in the Summary, the 2017 US position appears to reverse the long running American (and capital exporting world’s) stance against the 19th century Calvo Doctrine, as explained by Professor Howse:

Those familiar with the history of international investment law will recognize this principle as part of the Calvo Doctrine, which was, ironically, a position taken by states in the global South against the United States, and other developed-country exporters of capital; they should not have to provide rights to foreign investors beyond those provided to domestic investors in the same circumstances. Now with the Trump Administration, the United States is propounding the Calvo Doctrine (or at least that part that concerns substantive rights rather than dispute settlement) against its NAFTA partners, Canada and Mexico.

Such a stance, while consistent with Trump’s “America First” nationalistic views is even more remarkable given that the US does not appear to have ever lost a NAFTA or BIT ISDS arbitration. To the contrary, US investors in Canada, Mexico, and beyond win their fair share of investment arbitration cases.

Why would the US Trade Representative adopt a stance that appears completely against US commercial interests, America First rhetoric aside? The answer is that the US Trade Representative is required by the US Congress to adopt the position set forth in the 2017 Summary.

Identical wording is found in US law going back at least until the early 2000s.

This position is found in Section 2(b)(4) of the 2015 Trade Promotion Authority (TPA) for the Trans-Pacific Partnership (TPP) Act, which establishes this position as part of the US TPP trade negotiating objectives:

…ensuring that foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States…

It is similarly found in the 10 May 2007 US Bipartisan Agreement on Trade Policy.

Going back further, the same wording is found in the US Trade Act of 2002:

…ensuring that foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States…

And yet, despite this statutory requirement, FET protection is included in the text of the TPP (Article 9.6), the US-Peru Agreement (Article 10.5), the US-Chile Agreement (Article 10.4), and the US-Colombia Agreement (Article 10.5), all agreements post-dating the US Trade Act of 2002.

The answer to this apparent contradiction is in the elaboration provided in the US Trade Act of 2002 regarding FET. Section 2012(b)(E)(3) of the Trade Act provides that the US objectives in this regard are met by:

seeking to establish standards for fair and equitable treatment consistent with United States legal principles and practice, including the principle of due process

This identical requirement is maintained under Section 2(b)(4)(E) of the 2015 Trade Promotion Authority under which the TPP was negotiated and under which President Trump is acting in his renegotiation of the NAFTA, including the 17 July 2017 Summary position.

As such, while my own initial reaction to the US Summary of its position on the NAFTA renegotiations was similar to Professor Howse, that Trump’s nationalism has killed FET, it appears that like so much in the Trump era, the reality is far different than the rhetoric.

America First is not the end of the FET standard. Indeed, given that the United States, Canada, and Mexico already agreed on modern language regarding ISDS as part of the TPP, it would be unsurprising to see Article 9.6 of the TPP text on FET included in a re-negotiated NAFTA.

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Will Adverse Inferences Help Make Document Production in International Arbitration More Efficient?

Wed, 2017-08-02 00:21

Claire Morel de Westgaver and Ellina Zinatullina

Bryan Cave LLP

The process of document production in international arbitration is important. Documentary evidence is often the primary category of evidence; and legal costs associated with it tend to constitute a significant proportion of the overall costs of arbitral proceedings. Document production may also be one of the very reasons why arbitration has been preferred over litigation. Depending on the parties’ legal traditions and expectations, arbitration may offer the possibility of having more limited or broader disclosure than that available in a particular national court.

Yet disclosure rarely hits the evidentiary happy medium: parties are typically either overwhelmed by the number of documents made available to them or find themselves lacking even a bare minimum of information pertaining to a particular issue. If the latter happens due to a failure of one of the parties to comply with a reasonable document request and/or an order to produce, the other party may request that adverse inferences be drawn from such failure. Adverse inferences can be a useful tool in filling an evidentiary gap and assisting a party in presenting its case. On the other hand, adverse inferences may bring in the risk of the ensuing award being challenged on that basis.

Save for the arbitrators’ general discretion with respect to the conduct of the proceedings and evidentiary matters, most arbitration rules and laws are entirely silent on the tribunals’ power to draw adverse inferences (see however s. 41(7)(b) English Arbitration Act 1996). The IBA Rules on the Taking of Evidence in International Arbitration (the “IBA Rules”) do expressly mention such power in Article 9.5, which provides as follows: “[i]f a Party fails without satisfactory explanation to produce any Document requested in a Request to Produce to which it has not objected in due time or fails to produce any Document ordered to be produced by the Arbitral Tribunal, the Arbitral Tribunal may infer that such document would be adverse to the interests of that Party”.

Adverse inferences formed part of the reasoning of an ICC award that was recently upheld by the Paris Court of Appeal in a decision which paves the way to a more vigorous use of adverse inferences (CA Paris, 1, 1, 28-02-2017, No. 15/06036).

The Decision of the Paris Court of Appeal

The arbitral proceedings were initiated in 2012 by twelve Spanish companies in relation to a share price dispute and pursuant to a share purchase agreement by which the Spanish entities had agreed to sell shares in a Spanish company, Grupo Guascor SL, to a Delaware company, Dresser-Rand Inc. Dresser-Rand Inc. had in turn transferred the shares to a Spanish company, Dresser-Rand Holdings Spain. Dresser-Rand Inc. and Dresser-Rand Holdings Spain (the “Dresser-Rand Companies”) were both respondents in the arbitration. During document production, the respondents failed to produce the pre-sale reports prepared by UBS and KPMG which had been requested by the claimants. In February 2015, the tribunal composed of Jean Yves Garaud, Carmen Núñez-Lagos and Clifford Hendel (the “Tribunal”) rendered an award in favour of the claimants on the basis of inter alia an inference that the UBS and KPMG reports were adverse to the interests of the respondents pursuant to Article 9.5 of the IBA Rules.

The Dresser-Rand Companies applied for the annulment of the award on the basis that: first, the Tribunal had gone beyond its mandate by applying the mechanism contemplated in the IBA Rules without prior consultation with the parties; and second, that the inferences had been drawn in violation of due process. With respect to the latter, the respondents complained, in particular, that the Tribunal had concluded that the UBS and KPMG reports were prejudicial to the respondents’ position despite having failed to (a) order the production of the reports; and (b) seek the parties’ submissions on the matter. In addition, the respondents argued that the claimants had not specifically requested the drawing of such inferences from the Tribunal.

On 28 February 2017, the Paris Court of Appeal upheld the award rejecting all of the arguments brought forward by the Dresser-Rand Companies. In considering the applicability of the IBA Rules, the Court found that the parties through various exchanges had allowed the Tribunal to apply the IBA Rules which were referred to in its procedural order No. 1. The Court held that in being guided by the IBA Rules, the Tribunal had therefore fulfilled its mandate which did not require any further consultation with the parties.

The Court further ruled that the Tribunal had observed due process requirements. In particular, the Court indicated that since the mechanism of adverse inference was available to the Tribunal by virtue of the IBA Rules, there was no need to invite the parties to comment on the matter. Given that the request for production of the audit reports was “perfectly clear and precise” and that the respondents had an opportunity to comment on such request and made no objection, it was not necessary for the Tribunal to issue an order for production of said documents to properly exercise its discretion to draw adverse inferences.

Potential ramifications

Anecdotal evidence suggests that tribunals tend to avoid relying on adverse inferences in any express way in their awards. Arbitrators may be concerned about a challenge being brought on the ground that their decision is based on inferences rather than evidence in the arbitration record. As such, the recent decision of the Paris Court of Appeal sends an important message to arbitrators. With the endorsement from a national court, tribunals’ general power to draw adverse inferences becomes more tangible and the decision may encourage its more assertive use.

The decision also reinforces the deterrent function that the adverse inference mechanism is designed to have. Production of evidence can be a burdensome and costly task. Yet if parties fail to comply with their obligations to produce certain documents (generally those harmful to their case), document production can turn into a moot exercise. In this context, there seems to be a real benefit in encouraging tribunals to sanction parties who fail to comply with disclosure obligations. The decision of the Paris Court of Appeal appears to support this view; and parties faced with a document request and/or order to produce may want to consider the risks associated with withholding documents without any valid reason.

As for any procedural pre-requisite that an order to produce the missing documents must have been issued, in most cases adverse inferences will be founded on a party’s failure to produce documents which were subject to a disclosure order from the tribunal. By agreeing to arbitrate parties impliedly undertake to engage in the arbitral process (including document production) in good faith. This decision of the Paris Court of Appeal suggests that, provided that the parties have been given an opportunity to object to the requests, an arbitral tribunal is within its powers to draw an inference that documents known to exist and being withheld without a valid reason are prejudicial to a party’s case even if no production order has been made.

Due to their nature, whether adverse inferences may be drawn depends on the circumstances of each case, including any applicable rules. In this regard, parties may expressly agree to give the tribunal discretion with respect to the drawing of adverse inferences. However, even if such express discretion exists, the tribunal does not have carte blanche and must exercise it in light of the requirement that each party must be given a reasonable opportunity to present its case. Tribunals should also be minded of the principle of non ultra petita when drawing an inference that has not been sought for by any party (Art. V(1)(c) of the New York Convention).

In the Dresser-Rand case, the Paris Court of Appeal underlined that the Tribunal’s decision did not turn on adverse inferences, but was instead mostly based on the evidence filed in arbitration. One may wonder whether the outcome of the annulment proceedings would have been different had the inferences been central to the Tribunal’s decision on the merits. Further, whether courts in other jurisdictions would be prepared to adopt the approach of the Paris Court of Appeal remains to be seen. In this respect, the fact that this decision on the discretion to draw adverse inferences, a concept of common law origins, was rendered by a court in a civil law jurisdiction is certainly interesting.

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Mediation Digest – July

Tue, 2017-08-01 03:31

Anna Howard

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Federal Court Upholds P&I Club’s Coverage Determination as Valid, Binding ADR Decision

Sun, 2017-07-30 22:07

Jason P. Minkin, Jonathan A. Cipriani and Nicole Gallagher

The U.S. District Court for the Southern District of New York has enforced a P&I Club’s internal claims appeal process as a legally binding alternative dispute resolution (“ADR”) method, rejecting allegations brought by one the Club’s Members that the procedure was “fundamentally unfair.” TransAtlantic Lines LLC v. Am. Steamship Owners Mut. Prot. & Indemn. Ass’n, Inc., 2017 WL 2334995 (S.D.N.Y. May 30, 2017). The court’s holding is a reminder that a coverage decision, rendered in connection with an ADR procedure voluntarily entered into by the parties, is not lightly set aside.

American Steamship Owners Mutual Protection and Indemnity Association (“American Steamship”) is a non-profit, mutual protection and indemnity insurance association that provides marine insurance to its Members. American Steamship’s claims handling and coverage determinations are carried out by its manager, Shipowners Claims Bureau, Inc. (“SCB”). Members can appeal a denial of coverage to American Steamship’s Board of Directors, which is composed of the association’s Members’ officers and representatives. The appeal process does not permit oral argument. The Board is required to issue written decisions within six months, which are “intended to be final and binding.” Further review of the Board’s decision may take place in federal court under an “arbitrary and capricious standard.”

One of American Steamship’s Members, TransAtlantic Lines LLC (“TransAtlantic”), sought reimbursement from American Steamship for costs expended in litigation involving lost and damaged cargo. SCB allowed the claim in part, but denied it as to attorneys’ fees TransAtlantic paid to a third party. TransAtlantic filed an appeal with American Steamship’s Board. The appeal was fully briefed, and the Board issued a 22-page decision upholding the coverage determination.

TransAtlantic then sued American Steamship in the Southern District of New York. The threshold issue was the applicable standard of review. TransAtlantic sought de novo review of the Board’s decision, and brought various tort and contract claims against American Steamship, rather than a single challenge to the Board’s coverage determination. According to TransAtlantic, the ADR process was “fundamentally unfair” because: (i) the Board had a financial interest in the decision, rendering it impermissibly biased; (ii) the procedure permitting Board members (who are officers or representatives of other American Steamship Members) to act as an ADR panel violated American Steamship by-laws prohibiting directors from acting upon any claim in which they have an interest; (iii) it was “unlikely” that the Board provided meaningful consideration of the appeal because the claim was adjudicated at a regular Board meeting without oral argument; and (iv) the Board members may not have taken an oath of impartiality and failed to disclose their financial or personal interests. TransAtlantic also argued that de novo review was appropriate because the Board’s decision violated public policy.

The court rejected each of TransAtlantic’s arguments. The court declined to apply a de novo standard of review, first noting that at least two Southern District of New York decisions have treated American Steamship’s Board hearings as ADR proceedings that are subject to a deferential standard of review. See Progress Bulk Carriers v. Am. S.S. Owners Mut. Prot. & Indem. Ass’n, Inc., 939 F. Supp. 2d 422 (S.D.N.Y. 2013) (Magistrate’s Decision and Order), aff’d, 2 F. Supp. 3d 499 (S.D.N.Y. 2014). The court agreed with these prior rulings, reasoning that “American Steamship’s hearings bear all the hallmarks of a voluntary ADR proceeding.” The court explained that the agreed-to rules at issue: (i) refer to the Board’s hearings as “adjudications;” (ii) provide that the Board’s decisions are “intended to be final and binding;” and (iii) allow for review in federal court only under an “arbitrary and capricious” standard of review.
On the issue of whether the hearing itself was fundamentally unfair, the court rejected this argument, reasoning that: (i) any supposed bias was inherent in the ADR process agreed to by TransAtlantic when it joined American Steamship; (ii) the by-laws only disqualified Members from presiding over claims involving their own companies, which was not the situation here; (iii) there was no factual support for the allegation that the Board did not meaningfully consider the appeal, and the fact that the Board issued a 22-page decision one month after hearing the appeal “strongly suggest[ed] that the Board’s consideration was, if anything, conscientious and thorough;” and (iv) there was no requirement in the agreement (which TransAtlantic voluntarily entered into) for the Board to take an oath of impartiality or disclose financial or personal interests. The court also found that TransAtlantic was aware of the “unfair” aspects of the hearing process, but failed to raise any objections before the Board. This failure to object, according to the court, was another reason why the “fundamental fairness” argument failed.

As to TransAtlantic’s argument that the ADR decision should be reviewed de novo because it violated public policy, the court, again, disagreed. The court found that TransAtlantic had not satisfied either element of the two-prong test under New York law to determine whether the ADR decision violated public policy. Specifically, TransAtlantic had pointed to no statute prohibiting the use of ADR for disputes of this nature, and no evidence that the award violated a “well-defined constitutional, statutory, or common law” of New York state.

TransAtlantic also requested to defer ruling on the summary judgment motion to permit discovery into the alleged unfairness of the Board’s consideration of the appeal. This request was denied. Citing the discretionary standard to be applied, the court noted that, in post-ADR proceedings, discovery is available only in limited circumstances and that, in order to take discovery of the ADR panel itself, a litigant must present “clear evidence of impropriety,” such as bias or corruption. Here, discovery was not allowed because, as the court previously determined, there was no colorable argument of impermissible bias. The court stated: “Having agreed to the challenged features ahead of time, TransAtlantic cannot now take discovery into whether they were unfair.”

Finally, having concluded that the correct standard of review was the more deferential “arbitrary and capricious” standard set forth in American Steamship’s rules, the court reviewed the bases for the coverage determination and concluded that none of the Board’s reasons for denying coverage were arbitrary or capricious.

The TransAtlantic decision is a reminder that courts are loath to set aside the results of voluntary ADR proceedings. That is particularly so where, as was the case here, the participants do not raise any objections to the process until after the award has been issued.

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