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Enforcing Foreign Diktat: Puncturing the Stereotype

3 hours 49 min ago

Moazzam Khan and Shweta Sahu


India has long been regarded as an unappealing centre for arbitration – be it as the seat of arbitration or as the place of final enforcement of the arbitral award. Indian judiciary is often quoted to be over interfering in matters of arbitration and enforcement. If fact could replace fiction, in the last decade, Shylock would have a hard time enforcing his rights to his money with little hope of claiming a pound of Antonio’s flesh. The Indian courts wouldn’t shy from reopening and rehashing the proceedings already happened before the Duke of Venice, a twist in the tale that could make Shakespeare rewrite the famous climax and make Portia’s wit of little consequence indeed. While this reputation may have been well-deserved in the decade past, the ground reality since has seen a galactic shift. The legislature and judiciary have together taken upon themselves to ensure this course correction.

In this article we bust the myth that is an enforcement defiant India in context of foreign awards.

A. The ever-shrinking scope of resisting enforcement of foreign awards in India:

The legislature and judiciary have restricted resistance to enforcement of a foreign award only on established grounds under Section 48 of the Arbitration and Conciliation Act 1996 (“Act”) and, in keeping with the view of arbitrally-progressive jurisdictions, have held that executing courts cannot review the award on merits.

Some (the authors included) would even argue that under the present regime, it is easier to enforce a foreign award in India than a domestic one.

i. Foreign-Seated Awards – no longer open to challenge in India:

The myriad of challenges to enforcement of foreign awards in India had become a nightmare for parties seeking enforcement in India. The uncertainty associated with enforcement of foreign awards reached its zenith with Bhatia International v. Bulk Trading S.A. (2002) 4 SCC 105 which laid down that Indian courts would have jurisdiction in international commercial arbitrations, irrespective of the seat of the arbitration. The resulting jurisprudence saw Indian courts not only refusing enforcement but even setting aside foreign awards. The time was ripe for the proverbial hero to emerge and save foreign seated arbitrations from the un-welcome interventions by Indian Courts. In September 2012, a five judge bench of the Hon’ble Supreme Court of India delivered its much celebrated decision in BALCO v. Kaiser Aluminium (2012) 9 SCC 552 which ousted the jurisdiction of Indian courts in foreign-seated arbitration. Post BALCO, foreign awards cannot be challenged in India. (However, this judgment was applied prospectively, to arbitral agreements executed after 6 September 2012 i.e. the date of the judgment.)

ii. “Patent Illegality” no longer a ground of resisting enforcement of foreign awards:

The introduction of the test of “patent illegality” to the already infamous ground of “public policy”, as interpreted in ONGC v. Saw Pipes (2003) 5 SCC 705, meant that enforcement of a foreign award in India could be challenged on the basis that the foreign award was contrary to the substantive law of India or in contravention of contractual terms etc. – determinations which ought to be in the sole remit of the arbitrator.

After almost a decade, the scope of challenge was restricted in Shri Lal Mahal Ltd. v. Progetto Grano SPA (2014) 2 SCC 433 wherein “public policy” under Section 48(2)(b) of the Act was narrowly interpreted and the recourse to the ground of “patent illegality” for challenging enforcement of foreign awards was no longer available.

The pro-arbitration shift in the judicial mindset can also be gleaned from the fact that the in judgment Shri Lal Mahal Ltd., the Supreme Court (speaking through Hon’ble Mr. Justice R.M. Lodha) overruled its own ruling in Phulchand Exports Limited v. O.OO. Patriot (2011) 10 SCC 300 (an earlier judgment delivered by Justice Lodha himself – wherein the Supreme Court had ruled that a party could resist enforcement of a foreign award on grounds of “patent illegality”).

As the statute reads today, even domestic awards cannot be vitiated on grounds of being patently illegal in India-seated international commercial arbitrations. (Arbitration and Conciliation Act 1996, section 23(2A))

iii. A foreign award need not be stamped under the Indian Stamp Act:

A domestic award may be refused enforcement if it hasn’t been adequately stamped, in accordance with laws of India. However, resisting enforcement of a foreign award on the ground that it is not stamped as per the Indian law, has been shunned as a frivolous ground for delaying and obstructing enforcement of foreign awards. (See Naval Gent Maritime Ltd. v. Shivnath Rai Harnarain (I) Ltd. (2009) 163 DLT 391 (Del))

iv. Intention to arbitrate is paramount:

In a recent appeal, the Supreme Court upheld the finding of the Bombay High Court that in a foreign seated arbitration (and resultant award), an un-signed arbitration agreement would not defeat the award. (See Govind Rubber v Louids Dreyfus Commodities Asia P. Ltd. (2015) 13 SCC 477) The court preferred to give primacy to the intention and conduct of parties for construing arbitration agreements over the mandate of the parties’ signatures required in the agreement.

v. Burden of proof on the resisting party:

Similarly, in a recent ruling, the Bombay High Court placed a “higher burden on party resisting enforcement of giving necessary proof which stands on higher pedestal than evidence” than the burden on the party seeking enforcement of a foreign award, who is only expected to produce necessary evidence. (See Integrated Sales Services Ltd., Hong Kong v. Arun Dev s/o Govindvishnu Uppadhyaya & Ors. (2017) 1 AIR Bom R 715)

vi. No third party or the Government can object to enforcement of a foreign award:

With the Supreme Court taking the lead in a consistent pro-enforcement approach of foreign awards, the High Courts have also been keeping up with the pace, with the High Court of Delhi being the harbinger in this respect. In NTT Docomo Inc. v. TATA Sons Ltd (2017) SCC OnLine Del 8078, the Delhi High Court allowed enforcement of an LCIA award after rejecting the Reserve Bank of India’s objections that the underlying terms of settlement (wherein the Indian entity, Tata Sons, was required to pay $1.17 billion to NTT Docomo, a Japanese company) would be against the public policy of India. The Delhi High Court held that since RBI was not a party to the award, it could not maintain any challenge to its enforcement.

vii. Reciprocating countries for enforcement of foreign awards outnumber the ones for foreign judgments:

48 countries have been notified by the Central Government of India as “reciprocating countries” under the New York Convention, while only 12 nations have been recognized as reciprocating countries under Section 44A of the Code of Civil Procedure for execution of foreign judgments. In respect of judgments emanating from the remaining countries, the parties seeking execution would have to file a suit in India and place in evidence the underlying foreign judgment.

B. The legislative intent: Arbitration and Conciliation (Amendment) Act 2015

Consistent with the pro-enforcement approach adopted by Indian courts, the recent legislative changes to the Act vide the Arbitration and Conciliation (Amendment) Act 2015 clarify the extent to which a foreign award can be said to be in conflict with the public policy of India. Subsequent to these amendments, only the following cases amount to violation of “public policy” under Section 48 of the Act:

i. the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81 of the Act; or
ii. it is in contravention with the fundamental policy of Indian law; or
iii. it is in conflict with the most basic notions of morality or justice.

The tests for these grounds have been summed by the Supreme Court in Associate Builders v. Delhi Development Authority (2014) (4) ARBLR 307 (SC). It has been further clarified that “the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.” Such amendments are to be seen as strong measures in response to the infamous perception of India being liberal to the challenges to enforcement of arbitral awards on grounds of “public policy”.

Furthermore, subsequent to these amendments, even after making of the arbitral Award, a successful party which is entitled to seek the enforcement of the award can apply to the court under section 9 of the Act, for protection by grant of interim measures, pending enforcement of the foreign award. (See, Arbitration and Conciliation Act 1996, section 2(2) proviso)

C. Protectors of the Realm: Commercial Courts in India

The Indian legal system continues to face criticism on account of the time taken in disposal of cases. Thus, with the objective to accelerate disposal of high value commercial disputes, Commercial Courts, Commercial Division and Commercial Appellate Division of High Court Act, 2015 (“Commercial Courts Act”) was enacted.

Under this regime, specialized commercial courts were set up for speedy and effective dispute resolution of all commercial disputes.

The Commercial Courts Act also provided that proceedings emanating from arbitrations (both foreign and domestic), where the subject matter is a commercial dispute, would also be heard and disposed of by the Commercial Courts (Commercial Courts Act, section 10). The statute amended the application of the extant Code of Civil Procedure 1908 to commercial disputes, provided for a mechanism for speedy resolution, and a much needed requirement of appointment of only those judges which have experience in dealing with commercial disputes. (Commercial Courts Act, sections 4, 5)

“Change is the end result of all true learning”

Liberalization of policies and clarified norms of doing business in India have made investments more lucrative and attractive. However, to truly sustain its growing global credibility, India needed to deal with the elephant in the room.

His Lordship Justice D. Desai in 1982, of the Supreme Court of India had, in relation to the then extant arbitral laws, observed that “the way in which the proceedings under the Act are conducted and without exception challenged in Courts, has made Lawyers laugh and legal philosophers weep” (Guru Nanak Foundation v Rattan Singh (1982) SCR (1) 842). India has since come a long way. In face of the legislative and judicial changes brought in and the evident shift in the judicial mindset, India’s current reputation of being enforcement unfriendly is largely undeserving and a remnant of the decade past – the Bhatia Raj. India is no longer emerging as a pro-arbitration and pro-enforcement jurisdiction. It has already arrived. Sit-up and take notice!

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Escalation Clauses – Where Do They Leave the Counterclaimant?

Thu, 2017-07-20 23:47

Natasha Peter

In a judgment of 24 May 2017 (Biogaran v International Drug Development, case n° 15-25.457), the commercial chamber of the French Cour de Cassation (Supreme Court) considered the question of whether a counterclaimant is bound by the requirements of a “multi-tier” dispute resolution clause. The clause in question required the parties to mediate as a precondition to court proceedings, but the court ruled that the defendant could nevertheless pursue a counterclaim that had not been submitted to mediation.

Since at least 2003 (with the landmark judgment of a mixed chamber of the Supreme Court in case n° 0019.42), the French courts have been clear that escalation clauses are in principle capable of imposing negotiation, conciliation or mediation as a condition precedent to litigation or arbitration. However, they have been equally clear that these clauses will only have this effect if they are drafted in terms that are mandatory, unambiguous and sufficiently specific. The decision in Biogaran v International Drug Development is a novel application of this line of reasoning.

The case originated in a claim brought by Biogaran in the Paris commercial court for alleged non-payment of sums due under a pharmaceuticals contract. According to the contract terms, the parties were required to conduct amicable negotiations of any dispute for a period of 60 days. If this did not succeed, the dispute was to be submitted to a mediator who would have a further 60 days to attempt to resolve it, “failing which the parties would submit to the jurisdiction of the Paris court” (free translation).

Biogaran complied with the amicable dispute resolution and mediation requirements before filing its court claim. The defendant, International Drug Development, responded with a counterclaim for termination of the contract – an issue which had not been considered in the mediation. The Paris court of appeal held that the counterclaim was barred for failure to comply with a condition precedent.

In overturning this decision, the Supreme Court reasoned that at the time when counterclaim was made, the proceedings had already been “commenced” (as that term is defined in Article 53 of the French Code of Civil Procedure). It was therefore irrelevant whether the contract required a mediation as a condition precedent to the commencement of proceedings. The question was rather whether it specifically imposed a precondition to the filing of a counterclaim – and without express wording to this effect, the court was not prepared to find that it did.

A careful consideration of the wording of a multi-tier dispute clause is already a recurrent feature of French jurisprudence on the subject. In a number of cases, the Supreme Court has refused to let vaguely worded clauses stand in the way of a party’s right of access to the courts, requiring, for example, that a contractual condition precedent must specify how the negotiation was to be conducted (see the decision of 29 April 2014, n° 12-27.004), and that it must be expressed in mandatory terms (see, for example, its decision of 29 January 2014, n°13-10833).

More recently, however, there have been a number of occasions on which the Supreme Court has found that the hurdle for imposing such a condition precedent has been met. A frequently cited decision is that of the mixed chamber of the Supreme Court on 12 December 2014 (Proximmo v Arnal-Lafon-Cayrou, n° 13-19.684, which has been followed, for example, in case n° 15-17.989 of 6 October 2016 and case n° 16-16.585 of 29 March 2017). The court held that a claim made by a firm of architects was barred because the claimant had not respected a contractual requirement to submit any dispute to conciliation by the order of architects before taking it to court. Notably, the court also held that this failure could not be remedied by the claimant submitting the dispute to the professional body while the litigation was on-going. The contractual requirement had to be complied with before the court action was started. Unlike in some other jurisdictions (such as England & Wales and Switzerland, to name only two examples), the French courts will thus not simply stay the proceedings in order to allow an escalation clause to be complied with – although if a claim is struck out, the claimant is usually free to start a fresh action once it has complied with the necessary preliminary requirements.

In Biogaran the court broke new ground in applying these principles to a counterclaim, but its reasoning is coherent with the previous jurisprudence. In Proximmo v Arnal-Lafon-Cayrou, the court’s refusal to grant a stay to allow the claimant to remedy its default was motivated by the fact that (at least on the facts of that case) the mediation had to be conducted before the court was seized of the case, so a stay would not overcome the problem. In Biogaran, given that the court was already seized, the requirement no longer applied.

Biogaran is particularly interesting given the sparsity of decisions on this subject in other jurisdictions. Certain jurisdictions seem to have adopted a similar line to the French court – for example, the Kansas Court of Appeals in Vanum Construction Co. Inc. v Magnum Block LLC (case no 103,385 of 10 December 2010) decided that a contractual clause which required mediation “as a condition precedent to arbitration or the institution [of] legal or equitable proceedings by either party” did not oblige the defendant to mediate before filing a counterclaim, because the mention in the clause of the “institution” of proceedings referred only to the commencement of a lawsuit and not to the filing of a counterclaim. Conversely, in the context of a FIDIC Red Book dispute resolution clause, the Bulgarian courts (in decision No. 1966 of 13 October 2015, commercial case No. 4069/2014) upheld an arbitral award refusing to consider the contractor’s counterclaims when the contractor had not first referred them to adjudication.

The English courts have adopted a more nuanced view, finding that as a matter of discretion they can exceptionally allow parties to bring additional claims (which presumably must include counterclaims) in the context of on-going litigation proceedings, without first complying with contractual dispute resolution provisions. The issue was considered by the English High Court, also in the context of a construction dispute, in the case of Connect Plus (M25) Limited v Highways England Company Limited [2016] EWHC 2614 (TCC). The claimant in that case argued that some of the issues before the court had not been considered by an expert, in breach of a contractual requirement. On the facts, the court disagreed, but it went on to say that if it were wrong, it would “unusually” exercise its discretion against staying the proceedings to allow these issues to go to expert determination, because the allegedly “new” claims were too closely interwoven with the pre-existing claims to allow any sort of sensible division between them. It is clear from the judgment, though, that the more usual approach would be for the English courts to stay any new claims until the relevant contractual preconditions had been complied with.

The issue is also expressly dealt with in some arbitral procedural rules. For example, both the Institution of Civil Engineers Arbitration Procedure (rule 5.2) and the Construction Industry Model Arbitration Rules (rule 3.5) expressly grant the arbitral tribunal jurisdiction over issues that are connected with and necessary for the determination of the dispute, irrespective of whether there has been compliance with any condition precedent to arbitration.

Nevertheless, absent any guidance in the rules of arbitration or applicable case law, counterclaimants are still left with a large degree of uncertainty as to their obligations, particularly where (as is often the case) the wording of the contract is not crystal clear. And of course the question of the continuing relevance of an escalation clause after a court or tribunal has been seized is not confined to situations where there is a counterclaim. Parties who have complied with a contractual precondition in respect of one aspect of their dispute are often faced with the question of whether their compliance was extensive enough. Are they required to submit exactly the same claim to the court or arbitration tribunal as was considered in the negotiation, mediation or adjudication? Or do they have some latitude to amend their arguments or even add new claims at a later date? These questions are of quite some practical importance given that parties often only engage lawyers when they file for litigation or arbitration, so the nature of the dispute will frequently evolve at that stage.

Although one should not attempt to read too much into a single decision, particularly one that does not have the force of binding precedent, the reasoning of the French Supreme Court in the Biogaran case proposes an interesting approach to this question. It suggests that there is distinction to be drawn between preconditions to commencing proceedings and preconditions to joining additional claims to proceedings that have already commenced. At least when the escalation clause is worded in general terms, one might infer that once proceedings have been commenced, the clause is no longer applicable to additional claims between the same parties (counterclaims or otherwise). This has the advantage of ensuring that once proceedings have been started, the court or tribunal has more scope to determine all the issues between the parties in a single set of proceedings. Very often, this will give effect to the underlying aim of the parties when they agreed to the escalation clause – that their dispute be resolved efficiently and with a minimum of cost.

Nevertheless, as we have seen, the French courts will pay close attention to the wording of the escalation clause itself (as of course will tribunals and courts in other jurisdictions), so each case must be considered on its own terms.

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When Is It Too Late To Object: The Seoul Central District Court’s Judgment Regarding The Waiver Of The Right To Object

Wed, 2017-07-19 22:26

Hongjoong Kim and Umaer Khalil

A recent decision of the Seoul Central District Court provided guidance as to when a party should be considered to have waived its right to object to instances of non-compliance in arbitration proceedings. This post provides a summary of the Court’s judgment case and considers the possible ramifications of the Court’s reasoning for parties involved in arbitration proceedings in Korea.

The Arbitration Proceedings

The decision arose out of a challenge to an arbitration award issued under the Korean Commercial Arbitration Board’s (“KCAB”) Domestic Arbitration Rules 2011. Two Korean companies (the “Claimants”) had initiated arbitration proceedings against a Russian national (the “Respondent”) pursuant to a Joint Guarantee Agreement between the parties. The Joint Guarantee Agreement referred any disputes arising thereunder to arbitration by the KCAB, but did not specify which set of the KCAB’s rules would apply.

The KCAB has two sets of arbitration rules: domestic and international. One of the ways in which the domestic and international rules differ is the method of appointing the arbitral tribunal. Under the KCAB Domestic Arbitration Rules 2011, the KCAB provides each of the parties with a list of candidate arbitrators that the parties are required to rank in order of preference. The tribunal is then appointed by the KCAB based on the parties’ cumulative ranking of the candidate arbitrators. On the other hand, under the KCAB International Arbitration Rules 2011, the tribunal is appointed in a much more familiar fashion, with each side appointing a co-arbitrator, followed by the two co-arbitrators agreeing upon the chair-arbitrator. If the co-arbitrators are unable to agree, the chair is appointed by the KCAB.

Normally, an arbitration involving at least one party with its principal place of business outside Korea will be considered an “international arbitration,” and will therefore be subject to the KCAB International Arbitration Rules 2011. (Since the arbitration in this case was filed before the KCAB International Arbitration Rules 2016 came into effect, those rules are not considered in this post.)

However, in the present case, the Respondent, a Russian national, was a second generation Korean Russian with a Korean name. In addition, the Claimants’ Request for Arbitration had indicated that the Respondent was domiciled in Korea (the address had been provided to the Claimants by the Respondent for the purpose of the parties’ transaction). Based on the information available to it immediately after the Request for Arbitration was filed on 9 December 2014, the KCAB designated the dispute as one governed by the KCAB Domestic Arbitration Rules 2011.

In accordance with the Domestic Arbitration Rules 2011, on 11 December 2014, the KCAB wrote to the Respondent informing him of the arbitration and presenting him with a list of arbitrator candidates that he was asked to rank. The Respondent appointed its legal counsel on 24 December 2014 and returned the ranked list of arbitrators to the KCAB on 26 December 2014, without making any mention of the applicable rules or reserving his rights in this regard. The arbitral tribunal was constituted on 2 January 2015, pursuant to list-and-rank method under the KCAB Domestic Arbitration Rules 2011. On the same day, the KCAB informed the parties of the formation of the tribunal and that the first hearing date had been fixed for 26 January 2015. Upon a request by the Respondent, the date of the first hearing was changed to 9 February 2015. On 5 February 2015, the Respondent submitted its Answer to the Request for Arbitration.

In its Answer, the Respondent stated that since his principal place of business was located in Russia, the formation of the arbitral tribunal in accordance with the Domestic Arbitration Rules 2011 was against the parties’ arbitration agreement and the arbitral rules that should properly apply to the proceedings, i.e., the KCAB International Arbitration Rules 2011. The Respondent’s Answer requested an interim award in connection with this issue.

On 14 July 2015, the tribunal issued its final award in favor of the Claimants, together with its decision on the pre-merits issue of the constitution of the tribunal. Regarding the issue of the constitution of the tribunal, the tribunal found that the arbitration was properly subject to the KCAB International Arbitration Rules 2011, therefore the tribunal should have been constituted in accordance with those rules. However, the tribunal held that pursuant to Article 50 of the International Arbitration Rules 2011, if a party was aware of any non-compliance with the rules but still proceeded with the arbitration without promptly raising an objection, the party would be deemed to have waived its right to object. Since the Respondent had taken until the filing of its Answer on 5 February 2015 to make its objection, the tribunal found that the Respondent had waived its right to object to the constitution of the tribunal.

The Court’s Judgment in Set-Aside Proceedings

The Respondent sought to set aside the award in the Seoul Central District Court (the “Court”) pursuant to Article 36(2)(1)(d) of the Korean Arbitration Act (i.e., on the basis that the composition of the arbitral tribunal was not in accordance with the agreement of the parties).

The Court based its decision on Article 5 of the Korean Arbitration Act, which states that if a party knows that a non-mandatory provision of the Arbitration Act or an arbitration agreement has been breached, and still proceeds with the arbitration without raising an objection without delay, it “shall be deemed to have forfeited its right to object.”

The Court held that, based on the facts before it, it appeared that the Respondent had not been aware that the application of the KCAB Domestic Arbitration Rules 2011 was in violation of the parties’ agreement when he returned the ranked list of candidate arbitrators to the KCAB on 26 December 2014. The Court considered that the purpose of Article 5 of the Arbitration Act – to ensure the stability and economy of arbitral proceedings – had to be carefully balanced with need to ensure that the parties were afforded their right to select a tribunal in accordance with their agreed procedure. Since depriving a party of its rights in connection with the constitution of the tribunal formed grounds to annul an award, the waiver of such a right had to be considered very carefully.

Based on the foregoing findings, the Court held that raising an objection by the time of the Answer did not risk harming the stability and the economy of the proceedings, because of which the Respondent should not be considered to have waived its right to object to the constitution of the tribunal. Under the circumstances, the Court set aside the arbitral award on the ground that the composition of the tribunal was not in accordance with the parties’ agreed procedure.

Possible Ramifications

Given the novel situation that was before the Court, it is probable that the Court’s decision will serve as an important reference to parties involved in international arbitration proceedings in Korea.

In this regard, the Court’s decision raises several interesting issues, two of which are briefly discussed below:

(i) At first sight, the Court’s reasoning seems to suggest that a high standard should be applied to determining whether a party has waived its right to object by reason of a delay in raising the objection. It is possible that the Court’s reasoning will be referred to in future cases to suggest that a mere failure to raise an objection promptly is not enough to waive the right to object, but that the delay should be such as to indicate an intention by the delaying party that it waives its right to object to the non-compliance in question. In this regard, it would be important to note that while the Court did state that one had to be careful in applying Article 5, it does not seem to have expressly stated that such caution would necessarily mean applying a higher standard to whether there was delay in raising an objection or not. The Court’s decision in this regard seems to be based on the factual finding regarding the Respondent’s knowledge of the non-compliance, and not on a particular interpretation regarding the permissible duration of delay.

(ii) In considering the purpose of Article 5 of the Arbitration Act, the Court considered that Article 5 of the Arbitration Act was intended to ensure the stability and economy of arbitration proceedings. In addition to the purpose enunciated by the Court, it is also possible that Article 5 serves the purpose of preventing parties from taking a wait-and-see approach with respect to important stages in the proceedings. For example, there may be cases where a party would be required to object to the procedure for the constitution of the tribunal before the names of the arbitrators have actually been disclosed to the parties, to ensure that a party does not withhold its objection with the intent of raising it only if it does not like the tribunal resulting from the relevant procedure. While the present case was one in which the Respondent had very limited time to respond to the KCAB’s notice after engaging its counsel, it is possible that the reasoning in the present case can be referred to in other cases where this is not the case. In such cases, it may be necessary for the Court to consider whether Article 5 of the Arbitration Act should serve to prevent such wait-and-see tactics.

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A Note to in House Lawyers: When Do You Appoint a Law Firm for an Arbitration?

Wed, 2017-07-19 01:21

Sadaff Habib


Firms will often write that for effective representation it is best to engage law firms at an early stage in the dispute process. Whilst there may be some merit in this, it may not necessarily be entirely true. It is evident that in-house roles are not what they were initially thought to be. In house lawyers today are expected to do more than just ‘manage’ the dispute. The result: it is possible for some cases to be managed entirely in house and/ or for law firms to be involved at a later stage. So how does the in house lawyer decide when the time is ripe to get external counsel. Below are four (4) points that the in house lawyer should consider when deciding to get an external law firm on board.

1. Complexity and value of the dispute

It is true some disputes are more complex than others. In complex disputes, for example high profile shareholder disputes or construction disputes involving public works or infrastructure projects, it is preferred for a law firm to be on board at an early stage. This is because if your company is filing an arbitration for recovery of outstanding sums and the matter is relatively complex it may be fitting to have a firm on board before you file the case to determine if there is a case and the position of the company. Such a strategy would assist the company in saving costs.

If the case involves a subject matter outside the realm of the in house lawyer’s experience, then the in house lawyer is better suited to refer the dispute to the law firm from the outset.

The claim amount also plays a key role. Complexity is often associated with the value, and shareholders and board members with their commercial sense often associate the two together. In house lawyers are often persuaded to appoint law firms for high value disputes irrespective of complexity to play safe and ensure senior management is comfortable with the dispute management.

2. Cost

Some cases simply do not justify the cost of external counsel. As an in house lawyer, remember you yourself are a cost to the company. Therefore, you would best be served to come up with ways of reducing the company’s costs by internal dispute management, subject to your team’s capacity as opposed to outsourcing the matter. This is especially true if the dispute is relatively less complex and the value of the case is low. For such cases, in house lawyers should asses the strengths and weaknesses of their company’s position and suitably advise top management on the next steps. It may be that such cases are better off being settled particularly if the case has been filed against the company.

3. Time

Depending on your capacity, it might not be possible to handle the entire arbitration process especially if it is anticipated that lengthy pleadings will be involved. In such cases, in house counsel can work on the case at the initial stage that is can draft and submit the Request for Arbitration or Reply to the RFA as the case may be, and appoint arbitrators. At times, particularly if you are the respondent, the company may best be served for the in house lawyer to draft and respond to the submissions, because he is likely to be most familiar with the facts and the commercial goings-on of the company.

4. It’s your job to prepare your law firm

At the end of the day, some disputes by their very nature will require a firm to be pulled on board at the onset or after the initial submissions. For effective case management, it is the in house lawyer’s job to ensure the firm has all the documents and information it needs to prepare the case. It cannot be stressed enough that communication channels be open. In house lawyers will be benefited from preparing full factual and evidentiary briefs for their firms. This is because in house lawyers are best placed to gather all the information and relevant documents and collate them for the firm. This in turn reduces costs such as law firm billing hours and prevents wasting of time in the firm sending requests for information and the in house lawyer responding to their queries.

At the end of the day, it all depends on whether the ends justify the means. It’s a matter of cost, time and efficiently running the dispute to obtain a favourable outcome. Regardless, of when the law firm is involved, the in house lawyer is responsible for feeding the law firm with information in as much a collated a manner to achieve the desired results – cost efficiency and possible triumph.

The views expressed in this article are those of the author alone and should not be regarded as representative of, or binding upon ArbitralWomen and/or the author’s law firm.

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Hungary: Are Interim Measures Hard to Enforce?

Mon, 2017-07-17 23:19

Alexandra Bognár


The Hungarian Parliament recently passed new legislation on arbitration (Act LX of 2017 on Arbitration, the “2017 Act”) that will reform Hungarian arbitration law as of 1 January 2018.

The 2017 Act, considering both the shortcomings of the current Hungarian legislation (Act LXXI of 1994 on Arbitration, the “1994 Act”) and the amendment of the UNCITRAL Model Law on International Commercial Arbitration adopted in 2006 (the “Model Law”), repositions arbitration by reforming the choice of arbitrators, the institutional system of Hungarian arbitration panels, and the power of the panels ordering interim measures and preliminary orders.

Interim measures in arbitration today

Though interim measures are recognised in the 1994 Act, their effectiveness is somewhat questionable and worrisome for parties seeking quick and effective legal protection. As such, it has long been a shortcoming of arbitration in Hungary.

Under the 1994 Act, the arbitration tribunal may order either party to implement interim measures to the extent the tribunal deems necessary. The 1994 Act adds that the interim measure shall remain in force until a new decision of the arbitration tribunal is adopted to replace it or until it makes an award in the same matter. In line with international practice, the arbitration tribunal has the power to impose interim measures even prior to the commencement of the arbitration proceedings.

On the other hand, such an order would only be effective between the parties, but not towards third parties (eg it does not have absolute effect restricting parties not participating in the procedure). In other words, the decision of the arbitration panel is not enforceable under Hungarian law. Therefore the success of an interim measure imposed by arbitral tribunals greatly depends on the voluntary compliance of the party against whom it is imposed. The consequences of non-compliance, however, would ultimately be drawn up in the final award, although the arbitration panel is powerless to “penalise” the non-performing party in due time.

The above regulation is not in conformity with international arbitration practice and makes arbitration less effective in Hungary compared to regular court proceedings, where such an order would be enforceable.

Interim measures by means of regular court assistance

The ineffectiveness of arbitration panels is currently addressed by court assistance provided for under the 1994 Act, namely that the parties are entitled to turn to the regular court either before or during the arbitration proceedings for assistance in imposing interim measures.

Regular court assistance in light of an arbitration procedure is already very exceptional, not to mention interim or protective measures, which would automatically lead to the fragmentation of the case with (sub)proceedings before multiple courts or panels. Despite its rarity, court assistance has the benefit that regular court decisions are enforceable, unlike decisions by an arbitration panel.

By forcing the parties to turn to the courts for effective legal protection, this scenario, while a safer solution for the party requesting the interim measure, clearly has not made arbitration more favourable.

Interim measures and preliminary orders in the future

The 2017 Act departs from the differentiation between interim measures ordered by an arbitration panel and a regular court, elevating the decisions of the arbitration panel to the same level as those of the regular court. The 2017 Act will thus broaden the authority of arbitration panels.

The provisions on interim measures are adopted almost verbatim from the Model Law, clarifying both the means of interim measures and the circumstances the panel should analyse. Thus, the arbitral tribunal may grant interim measures upon the request of the party if (a) harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and such harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted; and (b) there is a reasonable chance that the requesting party will succeed on the merits of the claim.

By explicitly stipulating that the above orders of the arbitration panel should be enforced in accordance with the rules of judicial enforcement (ie the same way as regular court orders), the 2017 Act makes up for the legislative deficiencies of the 1994 Act.

The 2017 Act will introduce preliminary orders, too. A party may submit a request for an interim measure together with an application for a preliminary order directing the other party not to frustrate the purpose of the interim measure requested, ie without the prior notification of the opposing party.

In addition, the arbitral tribunal will have the power to order security in connection with the above orders of the parties. The tribunal may require the party requesting an interim measure to provide appropriate security in connection with the measure while it must require the party applying for a preliminary order to provide security unless the tribunal considers it inappropriate or unnecessary to do so.

The above innovations will to a certain extent eliminate uncertainties about interim measures, hopefully making arbitration more attractive for contractual parties in dispute and convincing them to agree in arbitration more frequently.

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Stockholm Treaty Lab: Combating Climate Change through Legal Crowdsourcing

Mon, 2017-07-17 03:21

Anja Havedal Ipp

On the very same day that U.S President Donald Trump announced that the United States would withdraw from the Paris Agreement on Climate Change, the Stockholm Treaty Lab Prize opened for registration. An initiative of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), this global innovation contest aims to crowdsource a model treaty that puts the Paris Agreement into practice. Several teams have already signed up.

The idea of the Stockholm Treaty Lab formed when the SCC, a major player in investor-state arbitration, decided to explore whether it would be possible to harness the power of international arbitration and investment law to serve the aims of the Paris Agreement and the Sustainable Development Goals. Climate agreements and international environmental law are often criticized for lacking teeth and being unenforcable. Yet those of us active in the field of investor-state arbitration see international law being enforced every day. The Stockholm Treaty Lab seeks to bridge this gap.

Fulfilling the promises in the Paris Agreement will require investments amounting to trillions of dollars across the globe. Enormous investments are needed for innovation in areas such as green aviation and carbon capture and storage, and to ramp up the use of existing technologies like wind and solar energy. Such “green” investments present exciting and lucrative opportunities for investors, but they are unlikely to materialize on a meaningful scale as long as no reliable and enforceable international law exists to encourage and protect them. What if there was a framework of policy-oriented treaties specifically aimed at encouraging green investments – treaties that could be enforced using international arbitration? This is the ultimate goal of the Stockholm Treaty Lab innovation contest.

The Stockholm Treaty Lab Prize will be awarded to the contestant team that drafts the model treaty with the highest potential to encourage foreign investment in climate change mitigation and adaptation. Several multi-disciplinary teams from across the globe have already registered. Submissions will be assessed based on how well they meet the following criteria:

  • Compatibility. The Model Treaty is compatible with the Paris Agreement and the Sustainable Development Goals. It aims to facilitate states’ achievement of the climate-change objectives set out in those instruments.
  • Efficacy. If adopted by states, the Model Treaty will lead to a significant increase in green investments related to climate change mitigation and adaptation. To this effect, the Model Treaty proposes incentives and protections that serve foreign investors’ needs and interests. The claimed efficacy of the proposed incentives and protections is supported by research and data.
  • Viability. The Model Treaty is likely to be adopted by states around the world because it serves the states’ needs and interests, facilitates the achievement of climate-change goals, and does not unduly restrict the states’ ability to legislate and regulate.
  • Universality. The Model Treaty appeals to the potentially diverging interests of states and investors in different parts of the world. Where necessary, the Model Treaty includes alternative provisions from which contracting states may select the most appropriate based on context and circumstances.
  • Enforceability. The Model Treaty is binding and enforceable. It contains an effective dispute resolution mechanism, through which both investors and states can bring claims related to the Treaty.

The submissions will be judged by a jury consisting of experts in international law, economics and climate science. David Rivkin is a chair of Debevoise & Plimpton’s International Dispute Resolution Group and the past president of the International Bar Association (IBA). Per Klevnäs is partner of Material Economics in Stockholm and has extensive international consulting experience relating to energy, environment and climate. Annette Magnusson is the SCC Secretary General and a frequent speaker on international arbitration and the development of legal services on a global level. Michael Lazarus is the Director of the U.S Center of the Stockholm Environment Institute and has more than 20 years of experience in energy and environmental analysis. M Sornarajah is Professor of Law at the National University of Singapore and has extensive experience in international law.

The winning model treaty will be presented to high-level stakeholders in global forum in 2018.
The Stockholm Treaty Lab is an initiative of the SCC. Supporters and partners include the IBA, the Haga Initiative and Stockholm Environment Institute (SEI). The competition is run by HeroX, a crowdsourcing platform where thousands of innovators compete to solve a wide range of challenges.

For more information on the Prize and how to participate, go to www.stockholmtreatylab.org.

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Hong Kong Approves Third Party Funding for Arbitration

Sat, 2017-07-15 21:40

Abdulali Jiwaji


The Hong Kong Legislative Council (LegCo) recently adopted a new law permitting the third party funding of arbitration. This comes as a welcome development, bringing Hong Kong into line with other common law jurisdictions and ensuring that it keeps pace with its international rivals. It also strengthens the position of the Hong Kong International Arbitration Centre (HKIAC).

This is something of a boost for Hong Kong as an international arbitration hub as the legislation should enable parties involved in arbitrations seated in the jurisdiction to access a much wider spectrum of funding arrangements. An appropriate Third Party Funding for Arbitration Code of Practice in Hong Kong is to be drawn up and will take effect later this year.

According to a 2015 survey, conducted by Queen Mary University of London, Hong Kong and Singapore are respectively the third and fourth preferred venues for international arbitration, behind London and Paris. While third party funding has traditionally been regarded with suspicion throughout much of Asia, the move to recognise third party funding to support arbitration in Hong Kong matches Singapore, which passed a similar law earlier this year – the competition continues between the two centres for the position of leading Asian arbitration venue.

The Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016, which allows third party funding for arbitrations seated in Hong Kong, will apply equally to domestic and international arbitrations. This follows their unification into a single regime in 2011. The term ‘third party funder’ has a distinctly broad meaning under the new Hong Kong guidelines. In addition to professional funders, it can also include any party without personal interest in the proceedings. The funded party will be obliged to disclose the existence of the funding agreement, together with the identity of the funder, to the other party and the tribunal or court hearing the case.

LegCo’s adoption of the bill follows the Final Report of Hong Kong’s Law Reform Commission (LRC) Sub-Committee, which was published last October. This showed that express authorisation of third party funding in arbitration had overwhelming support in the territory. Some 97% of those who took part in the consultation process – arbitrators, barristers, solicitors, government bodies and arbitral institutions – favoured the legislative amendments as recommended by the Commission, namely that the archaic common law torts of champerty and maintenance should no longer apply to arbitration, mediation or proceedings before the court connected to the arbitration.

In its response to the consultation, The Hong Kong Bar Association (HKBA) commented: ‘Hong Kong can be better placed to compete with other international commercial arbitration centres, like London where legal practitioners (save in class actions) are now allowed to practise on a contingency basis. The same is allowable in the US and Mainland China.’ It further noted that ‘the HKSAR government with the objective of maintaining and consolidating its premier position as an international dispute resolution centre, proposed the reform of the current arbitration legislation regime by expressly allowing third party funding.’

Arguably, the territory has not invested as much in self-promotion as some other regional arbitration centres, notably Singapore. This means that there is some catching up to do if it is to maintain a competitive position.

Looking ahead, some parties may be interested in the possibility of proceedings being funded when making choices about the jurisdiction when negotiating their contractual arrangements. This might draw parties involved in a Hong Kong connected contract to choose arbitration rather than litigation for dispute resolution, should they consider that the potential for obtaining funding is a decisive factor. And in general terms, this development will at least maintain Hong Kong’s relative attractiveness as a centre of arbitration for disputes about transactions involving China. We can look forward to an increase in the volume and scope of arbitrations which will be heard, taking into account also arbitrations which might not otherwise have moved forward without third party funding.

The LegCo report specifies that the bill will not apply to litigation in Hong Kong courts, where funding by third parties will generally remain prohibited, except for any court proceedings which specifically relate to arbitration – such as enforcement and challenges. Longer term, this development will be monitored as part of the process of considering the potential extension of third-party funding of court proceedings – assuming that LegCo deems such further reform to be desirable.

Third party funding has the potential to have a significant impact on the local dispute resolution market in Hong Kong. Third party funding is becoming the norm in other common law jurisdictions, and has really taken root in the London market by way of example, for litigation as well as arbitration. Judging by the recent experience of London, we have seen claims being advanced, using the help of funders, which would not previously have been possible. This applies especially to group litigation against large institutions, with a combination of claimants coming together to advance proceedings. It is hard to imagine these sorts of cases being maintained without funding. Even parties which are experienced in handling, and in a position to fund, their own litigation are increasingly considering third party funding as an attractive option.

Over time, it will be interesting to see what progress can be made in Hong Kong towards the wider admission of litigation funders to fund domestic commercial litigation – particularly in the context of securities litigation. Given the very active local securities markets in Hong Kong, there would be some interesting angles for litigation funders to assemble group actions of the type which are becoming more prevalent in Europe. If that path were to open up, it would require some adjustment by the Hong Kong legal profession, since the involvement of litigation funders fundamentally changes the approach to case management.

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Whose Line of Credit is it Anyway? Third Party Funding Issues in Arbitration

Sat, 2017-07-15 05:00

Noor Kadhim (Assistant Editor for the Middle East)

SHYLOCK “Is that the law?”
PORTIA “Thyself shalt see the act.
For, as thou urgest justice, be assured
Thou shalt have justice more than thou desir’st.

(The Merchant of Venice. Act 4.)

In the middle of uncertainty over the economic implications of a European Union without Britain and against a continuing rise in the popularity of arbitration as an avenue for redress by corporate investors, a barristers’ chambers’ round-table discussion on third-party funding of disputes on Tuesday 12 July 2017 could not have come at a more important time. The discussion involved less than a dozen legal practitioners, was organised by Frederico Singarajah, and was chaired by Peter Goldsmith QC. Aptly, it focused on third party funding in the arbitration sector.

Third-party funding in some shape or form of impecunious parties’ arbitrations is almost as old as the modern process of arbitration itself. One cannot deny that arbitration is, in general, a luxury that few can afford. And arbitration clauses that were historically negotiated sometimes blithely without forward-looking costs assessments have become steadily more expensive to employ over the years. This has contributed to the perceived lacuna in the attainment of justice for many otherwise meritorious and frustrated claimants. The unfortunate situation led Lord Neuberger in 2013 to conclude, in support of third-party funding, that “access to the courts is a right and the state should not stand in the way of individuals availing themselves of that right.”1) jQuery("#footnote_plugin_tooltip_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The origins of modern third-party funders have been said to be traceable back to the late 19th century in the establishment of mutual before-the-event insurance associations (Freight, Demurrage and Defence (FD&D) Clubs) which were formed to fund the costs of shipping claims. FD&D Clubs have been funding international arbitration claims for well over a century and they continue to do so with success. Indeed, Nordisk Skibsrederforening, a FD&D club set up in 1889, registered over 2,300 cases in just one year (2015) in its two offices in Oslo and Singapore. These are staffed by lawyers dedicated to working exclusively on funded arbitrations. Over time, the economic benefits associated with taking a stake in the financial gains started to appeal to a greater cross-section than the insurance market. The so-called disparity of approach between the legal treatment of insurance against a party’s losses (which did not offend historic champerty and maintenance laws) and third-party funders’ contributions to a party’s costs in the expectation of profit from gain (which had previously been forbidden in England and other arbitration-friendly jurisdictions) was seen by many as a distinction without a real difference. One commentator pointed out in 2014 that the core similarity between liability insurance and third-party litigation funding is the transfer of litigation risk: “[b]y purchasing insurance, a potential defendant trades a fixed loss in the present for a carrier’s willingness to bear an uncertain loss in the future. Third-party litigation funding is the mirror image of this arrangement”1) jQuery("#footnote_plugin_tooltip_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

Certainly, the upward trend in third party funding in England has been prompted by the relaxation of the rules of champerty and maintenance. Equivalent rules forbidding unconnected third-party interests in claims in other states (such as Australia, Switzerland, and the United States, to name three prominent arbitration-friendly jurisdictions) have also been relaxed, paving the way forward for more funds to enter the financing scene. More recently, other jurisdictions have started to follow suit. Singapore changed its laws only three months ago to allow third party-funding in international commercial arbitration. Just over a week ago, Burford Capital announced that it was funding a claimant in a Singapore-seated arbitration.

Against this background, Lord Goldsmith invited us to explore three topics.

First, which reasons underlie the increase in third party funding in arbitration, and will this trend continue? In particular, why the increased focus on arbitration as a ripe field for funding? In large part, the thinking was that this appetite was mostly associated with the high value of arbitration claims, the perceived finality of awards, and the relative ease of enforcement of awards. The question whether enforceability may be hampered by arbitrators’ limited ability to grant interim relief to claimants in arbitration compared to litigation was not investigated at the roundtable, however. It is a question to consider seriously, especially in jurisdictions where the courts are not as supportive of the arbitral function as the UK.

Second, which issues – particularly ethical and conflict issues – does third-party funding give rise to, and how can these be addressed? Lord Goldsmith noted that the UK Litigation Funder’s Code of Conduct issued in 2014 identified the following areas of concern: (i) confidentiality of funding arrangements (a thing that lawyers take for granted but should not necessarily be the norm for third-party funding), (ii) protection of claimants being funded, (iii) the permissibility or otherwise of control of the litigation proceedings by a third-party funder (this is apparently condoned by Australian law but is at risk of breaching English law), (iv) responsibility of funders for costs, and (v) the obligation that funds must in fact be readily available by a funder. A very recent procedural decision with respect to a respondent state’s (Venezuela’s) application for security for costs against a third party-funded litigant in an ICSID case reveals that at least that particular tribunal did not take for granted the fact that a claimant investor in a treaty arbitration had adequate funds to bring the case. It has, I believe, placed renewed emphasis on this last aspect (v) of the Code of Conduct.

As to control of litigation proceedings, one participant emphasised that this varies from funder to funder, with some being more interventionist than others. Against the prospect of an adverse costs order against a funder – which has not yet, to participants’ knowledge, been imposed – I would suggest that it is difficult not to be interventionist and to step in to ensure that an arbitration is being run effectively. In my view, the temptation, however, is to take on a matter without adequate due diligence (for example, failing to conduct adequate checks as to whether the law firm/ lawyer chosen by the client to represent it is capable of handling the case being funded). This may cause irresolvable problems later in the process. On this, Lord Goldsmith’s opinion was that if funders should indeed be allowed to control the arbitration, it would stand to reason that their liability in the proceedings (i.e. whether they could face an adverse costs order) would become unlimited.

Linked to the issue of interference are ethical concerns and conflicts of interest. Third-party funders may have pre-existing relationships with arbitrators who may hold advisory positions within the fund. This rings obvious alarm bells. It recently prompted the decision of a prominent arbitrator to decline an appointment. Without the obligation of disclosure of the funding arrangement, it is uncertain how many similar relationships continue to pass under the radar. Another ethics related issue arises, I think, with regard to the identity of the funder itself. With the emergence of more and more players on the market, including foreign funders, the source of funds becomes an issue in itself. To what extent does an arbitrator or a court need to investigate whether the funds themselves are clean and untainted by fraud, corruption or links with potentially criminal or terrorist organisations? Should funders be subject to the “know-your-client” checks and to what extent would the stricter imposition of these checks in some jurisdictions cause discrimination compared to funding clients in less stringent states? Accordingly, although disclosure of funding arrangements is not required in some jurisdictions, it should be expected across the board and is an inevitable condition for the legitimacy of the system.

Unconnected with disclosure but intertwined with conflict issues is the problematic scenario of settlement discussions. Specifically, how does one resolve a conflict of interest between a funder whose interests in settlement conflict with those of a client who may wish to fight the case all the way to a final hearing, given that he/she is not responsible for the legal costs? There is, as yet, no satisfactory answer to this issue.

This last topic led to the final discussion area: costs. The ICC arbitration of Norscot Rig Management Pvt Limited (Norscot) v Essar Oilfields Services Limited (Essar) was discussed in detail. In this case, the arbitrator, Sir Philip Otton, issued a ground-breaking fifth partial award in the case to allow the claimant to recover the costs of funding based on a permissive interpretation of section 59(1)(c) of the English Arbitration Act 1996 (EAA) embracing litigation funding as part of a party’s “other costs”. Essar’s later application to set aside the award in the English High Court due to “serious irregularity” was rejected. The latest award had followed earlier awards in which Essar had been found liable to pay damages for the repudiatory breach of an operations management agreement. If this case is to be taken as a precursor of the future, the door is open for the recovery of third party funding costs, which in Norscot’s case amounted to 300% of uplift on the funding provided (35% of the recovery). Indeed, arbitrators in England, by virtue of section 63 of the EAA, have wide latitude in determining the costs of arbitration assuming that an alternative procedure for costs has not been set out in the arbitration clause.

However, as a Deputy Counsel at the ICC who was involved in the administration of this matter, I would agree that the Norscot case turned on its facts and I believe it should not be used as a template. The arbitrator found this respondent’s behaviour to be oppressive towards Norscot. He held that Essar crippled Norscot’s finances by withholding payments due under the agreement such that Norscot did not have sufficient resources to fund its case. The benchmark of “reasonableness” under the EAA was met regarding the costs decision. This does not mean that future claimants will generally be successful in recovering their funding costs. But it is almost certain that most claimants will try, albeit that it is questionable whether they should be allowed to have their cake and eat it. When entering into the funding agreement, the claimant makes a choice: in return for the funding, he foregoes a part of the damages. In essence, a discounted product is accepted and the losing party should not have to pay extra for that decision.

In my opinion, the above discussion boils down at its core to a question of ethics. What are the moral contours applicable to each aspect of an arrangement in which an unconnected party may indirectly profit from the claim of an actual owner? Naturally, the conversation about arbitration funding these days has moved on from simply asking whether an arrangement is morally acceptable. For parties who are unable to fight their claim, third-party funding is often the only way. There is nothing inherently distasteful in this. The funder’s return should be commensurate with the risk it undertakes.

But this debate gave me some food for thought in a different respect. If we pass beyond arbitration funding and into the next frontier, that of arbitration award trading (selling of awards to third parties at a fraction of their potential enforcement value), the ethical line really does become obfuscated. Of course, access to justice can be impeded at more than one stage. This is because the process of enforcement of an award is where the real obstacles can arise. The struggle can become even more of an uphill battle for high value and politically sensitive claims (for this, one only has to take the Yukos saga as an example). However, lawmakers – and arbitrators – need to be careful in this relatively uncharted territory. The soil is fertile, not just for winning parties in need of ready cash, but also for corruption, and complex strategizing by unscrupulous opportunists.

1-Lord Neuberger, “From barretry, maintenance and champerty to litigation funding”, Gray’s Inn speech, May 8, 2013
2-Charles Silver, Litigation Funding versus Liability Insurance: What’s the Difference?, DePaul Law Review, Volume 63 Issue 2 Winter 2014: Symposium – A Brave New World: The Changing Face of Litigation and Law Firm Finance, Article 15

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Interim Relief through Emergency Arbitration: An Upcoming Goal or Still an Illusion?

Thu, 2017-07-13 23:11

Alessandro Villani and Manuela Caccialanza


So called “emergency arbitration” is raising considerable interest among international arbitration practitioners, as the importance of this tool aimed at protecting the parties’ rights either during the period between the filing of an arbitration request and the constitution of the arbitral tribunal or in the course of the proceedings, before the award is rendered, is now widely recognised.

Until recently, a party seeking relief on an emergency basis had no choice but to resort to the ordinary courts. In recent years, however, most of the major arbitral institutions have developed procedures and incorporated rules aimed at granting the parties interim protection in circumstances where the time required for rendering an award would cause irreparable harm, either providing for the appointment of emergency arbitrators or empowering already established tribunals to deal with interim measures.

In 2012 the ICC Arbitration Rules introduced the role of the emergency arbitrator, providing that “a party that needs urgent interim or conservatory measures that cannot await the constitution of an arbitral tribunal” may file an application under the Emergency Arbitration Rules set forth in Appendix V (Article 29). Furthermore, Article 28(1) of the ICC Rules provides that “unless the parties have otherwise agreed … the arbitral tribunal may, at the request of a party, order any interim or conservatory measure it deems appropriate”.

The ICSID Arbitration Rules provides that “at any time after the institution of the proceeding, a party may request that provisional measures for the preservation of its rights be recommended by the Tribunal” (Article 39). Similarly, the UNCITRAL Arbitration Rules provides that “the arbitral tribunal may, at the request of a party, grant interim measures” (Article 26).

Article 25 of the Arbitration Rules of the London Court of International Arbitration (LCIA) provides that the arbitral tribunal is empowered to order appropriate interim measures. Article 6 of the Arbitration Rules of the International Center for Dispute Resolution (ICDR) provides that a party may apply for emergency relief before the constitution of the arbitral tribunal when urgency reasons exist. Similar provisions are included in the Rules of Arbitration of other primary arbitral institutions such as the Singapore International Arbitration Centre (SIAC), the Hong Kong International Arbitration Centre (HKIAC) and the Stockholm Chamber of Commerce (SCC).

The Arbitration Rules of the Chamber of Arbitration of Milan merely state that “the Arbitral Tribunal may issue all urgent and provisional measures of protection, also of anticipatory nature, that are not barred by mandatory provisions applicable to the proceedings” (Article 22(2)); this practically results in a lack of interim relief if Italian law is applicable to the dispute, as under our domestic procedural rules arbitrators are generally barred from rendering interim and protective measures, unless expressly authorised by specific rules of law.

While only a few sets of arbitration rules (such as the ICC, the ICSID, the ICDR and the SCC Rules) deal with the parties’ need to obtain urgent protective measures before the constitution of the tribunal that will deal with the merits of the dispute, most arbitral institutions merely provide for the tribunal’s power to give interim measures in the course of proceedings, once the tribunal has been formed. This, given the length of time (sometimes months) that the constitution of a tribunal may take, results in the party seeking relief on an urgency basis being forced to seize ordinary courts, therefore frustrating the function of emergency arbitration.

Besides, despite their growing popularity, emergency arbitration provisions still raise several doubts in terms of effectiveness and efficacy of the protection they are meant to ensure, as uncertainties persist regarding the enforceability of rulings given by emergency arbitrators or by tribunals on an interim basis. The responsibility for enforcing interim measures usually lies with national courts, but this raises issues as much arbitral legislation does not address the enforcement of those measures.

The main concerns have to do with (i) the nature of decisions of emergency arbitrators (whether they are rendered in the form of an “order” or an “award”) and (ii) whether such rulings are enforceable under the New York Convention, which only applies to “arbitral awards” also in consideration of their temporary rather than final nature. Although most of the arbitral institutions which provide for emergency arbitration expressly clarify that those rulings are binding on the parties, none provide a precise route for their enforcement in the event of non-compliance.

Different designations are adopted by arbitration rules as to the nature of interim arbitral decisions: while for example the SCC and the ICDR Arbitration Rules empower emergency arbitrators to give decisions in the form of an interim award, the ICC Rules specify that “the emergency arbitrator’s decision shall take the form of an order” which shall be binding on the parties and which the parties undertake to comply with (Article 29(2)).

However, the ICC Rules remain silent on whether and how such decisions shall be enforceable, nor do they specify whether the emergency arbitrator’s order has the same effects as an interim measure rendered by a tribunal under Article 28(1). Finally, Article 29(4) of the ICC Rules allows tribunals to take into consideration (even for the allocation of costs) any non-compliance with an emergency arbitrator’s decision.

In such a context, it is still unclear whether an interim ruling made by an arbitrator would be considered enforceable in the same manner as a final award rendered by a tribunal or if the party which fails or refuses to comply with it should instead be considered in breach of contract.

In terms of enforcement, the approach varies from one jurisdiction to another. For example, interim measures (whether in the form of an order or award) are not considered enforceable before the Swedish courts; in contrast, other countries such as Hong Kong have adopted legislation that empowers their national courts to enforce interim measures issued by arbitral tribunals.

In 2003 the Paris Court of Appeal, ruling on a ICC’s Pre-Arbitral Referee procedure, reasoned that the Pre-Arbitral Referee order was binding only as a matter of contract deriving from the arbitration clause which referred requests for interim measures to the Pre-Arbitral Referee procedure (Societé Nationale del Petroles du Congo v. Total Fina Elf. Congo, 2003). Thus, it appears that in France an order of a Pre-Arbitral Referee is not enforceable as an award, but must be regarded by the court as having the same effects of a contract.

In Australia the Supreme Court of Queensland, called to examine whether an interim award was capable of recognition and enforcement under the New York Convention, came to a negative conclusion on the basis of the interlocutory, rather than final, nature of the decision (Resort Condominiums International Inc. v. Ray Bolwell and Resort Condominiums, 1995).

Only the US courts seem to have taken a less formalistic approach, finding that interim measures issued by arbitrators are sufficiently final for the purpose of their enforcement, both under the New York Convention and the Federal Arbitration Act. In Publicis Communications v. true North Communications Inc. (2000) the US Court of Appeals for the Seventh Circuit dismissed the attempts of the defendant to challenge enforceability of an interim measure and rejected the theoretical distinction between “orders” and “awards”. In Southern Seas Navigation Ltd v. Petroleos Mexicanos of Mexico City (1985) the District Court for the Southern District of New York observed that an interim award is not “interim” in the sense of being an “intermediate” step but has the purpose to clarify the parties’ rights in the “interim” period pending a final decision on the merits.

Given the lack of precedents, there is no well-established guidance as to whether an arbitral interim measure would be recognized and enforceable in Italy. Domestic arbitral legislation provides that a foreign award may be recognized and enforced upon filing an application with the Court of Appeal; then the Chairman of the Court, if the award is formally correct, declares its effectiveness in the Italian jurisdiction, unless (i) the award is deemed to violate public policy or (ii) has determined a dispute which could not be referred to arbitration under Italian law. This second condition particularly gives raise to doubts about the possible recognition and enforcement of such kind of awards in Italy, where emergency measures do fall outside the arbitrators’ powers.

A solution may be to adopt a position at an institutional level: for example, in 2012 the Singapore Parliament amended the International Arbitration Act ensuring that orders granted by emergency arbitrators are given the same legal status as regular and final awards rendered by tribunals.

However, although emergency arbitration is becoming more and more essential in the context of international arbitration, its benefits are still undermined by the persisting uncertainty over the nature and enforceability of interim measures issued by arbitrators. Although the overall scenario is quite promising, an international instrument of recognition of interim measures given by arbitrators would help to enhance the effectiveness of this tool, reducing the need of recourse to ordinary courts.

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Corruption and Investment Arbitration (Part 1): Should a Host State Bear the Consequences of Crimes Committed by its Officials?

Wed, 2017-07-12 22:50

Asaf Niemoj

The fact that allegations of economic crimes are frequently part of investment treaty arbitrations makes this topic an important one, particularly in light of the impact that these alleged crimes could potentially have on the merits of the case.

If an organ acting on behalf of the state took part in the alleged crime, then the question arises as to whether the state should also be liable for this misconduct. If so, then this could mean that the investor will not have to bear the consequences of the wrongdoing alone.

(A) State responsibility and state attribution in the context of corruption

State responsibility means that a breach of international law by a state entails its international responsibility. An internationally wrongful act committed by a state may consist of one or more actions or omissions, or a combination of both.

Attribution to a state means that the conduct of an organ of the state is attributable to the state for the purpose of state responsibility. The conduct of such an organ shall be considered as the conduct of the state under international law. It matters not whether the said organ exercises legislative, executive, judicial, or any other function, or what position it holds

In the context of corruption and investment treaty arbitration the question is, in essence, whether in light of the two principles described above, the host state should be held responsible for the criminal acts committed by its organs. In other words, should the host state bear any consequences which arise from the fact that one of its officials was bribed or otherwise involved in economic crimes?

It should be noted that the International Law Commission’s Articles on State Responsibility (ILC) provide that the two principles above-mentioned prevail even if the organ exceeded its authority or acted in contradiction to instructions. In light of this, it seems as if the answer to the question above can easily be yes. However, Llamazon (Aloysius P Llamzon, Corruption in international investment arbitration, Oxford international arbitration series, Oxford University Press, 2014) notes that international investment tribunals are surprisingly reluctant to apply these principles in scenarios where corruption was performed by state officials. He notes [Page 240, para 10.04]:

“[A]ll internationally wrongful acts committed by public officials… are attributable to the State and thus potentially its international responsibility”


“[T]here has simply never been a case in international investment arbitration where public official corruption has been attributed to the host state”.

The result of the above-mentioned situation is that when economic crimes are committed by corporate officers this always generate severe consequences for the investors. However, in the case of public officials of the host state their participation in economic crimes almost never leads to similar consequences on the part of the state on whose behalf they act. Corruption allegations, when pleaded by the host state, thus now serve a complete defense by the state.

(B) Tribunals’ main approaches to state responsibility for economic crimes

The two main approaches in this area can be demonstrated by the following two cases.

In one case, EDF (Services) Limited v. Romania [ICSID case no. ARB/05/13 (EDF) Award, 8 October 2009 para. 221], the tribunal held that a state could be held responsible for solicitation of bribes by one of its organs. As the tribunal noted:

“[A] request for a bribe by a State agency is a violation of the fair and equitable treatment obligation owed to the Claimant pursuant to the BIT, as well as a violation of international public policy, and that “exercising a State’s discretion on the basis of corruption is a […] fundamental breach of transparency and legitimate expectations”.

EDF (Services) Limited v. Romania indicates that the tribunal was willing to attribute economic crimes to the host state and hold it accountable on the basis of state responsibility. However, it found that the claimant did not prove corruption and it was of the opinion that “[t]he evidence before the Tribunal in the instant case concerning the alleged solicitation of a bribe is far from being clear and convincing.” In light of this the attribution mechanism was left unused.

However, when this argument arose in the course of another case, World Duty Free v The Republic of Kenya [ICSID CASE NO. ARB/00/7, Award 4 October 2006 para 176], the tribunal refused to uphold it. It held that the law applicable to the case before it (in this case English and Kenyan Law) precludes any balancing between the claimant and the host state’s misconduct.

“The Claimant also submitted that this Tribunal has a discretion to adjust the application of English public policy, by a balancing operation reflecting the relative misconduct of the Claimant and the Kenyan President so as to relieve the Claimant from the one-sided burden of public policy in this case…”.
“…There is accordingly no legal basis at English law for the Tribunal to operate a discretionary balancing exercise, as requested by the Claimant”.

(C) Findings of corruption made by tribunals and their attribution to the host state

There are only two publicly available cases where positive findings of corruption were made. WDF is one of them; Metal Tech Ltd. V The Republic of Uzbekistan [ICSID Case No. ARB/10/3, Award 4 October 2013] is the other.

Metal-Tech has some very interesting aspects. However, in this case the fact that corruption was established resulted in the tribunal’s decision to deny jurisdiction. The tribunal stated that the wrongful acts violated Uzbek law and, therefore, the investment was not implemented in accordance with the laws and regulations of the host state as required by the relevant BIT. The tribunal thus did not touch upon questions of state responsibility (it did so implicitly only when deciding that in light of the state’s involvement it should bear its own costs).

As mentioned above, in WDF the case was different given that in this case the attribution was considered as part of a judgment dealing with the merits. Although it can be argued that the case contradicts the approach taken in EDF the following points may indicate that this is not precisely the case.

First, the tribunal’s decision not to hold Kenya accountable was grounded on its analysis of English and Kenyan law which the tribunal found contain no legal basis on which the tribunal could operate a discretionary balancing. No analysis of international law was provided.

Second, the question of attribution of the Kenyan president’s economic crimes to the state itself was discussed in the context of a waiver, namely, whether Kenya waived its right to argue corruption. Again analyzing English and Kenyan law alone, the tribunal looked at the state’s knowledge as a matter of fact, rather than as a matter of law in the sense provided for by the ILC.

Thirdly, the tribunal’s jurisdiction was based on a choice of forum made by the parties in the contract. It was not based on a BIT. If such was the case then it would be more likely that the tribunal would be required to apply elements of international law. The two systems – a dispute relying on a contract and a dispute relying on a BIT – should be distinguished.

(D) Attribution of economic crimes to states – the approach taken by commenters

Although ILC Art 7 indicates that a state may be held responsible for economic crimes of its officials, Llamzon points out that the commentaries to the ILC provide that cases where officials acted in their capacity as such albeit unlawfully or contrary to instructions, must be distinguished from cases where the conduct is so removed from the scope of their official function that it should be assimilated to that of private individual, not to the state.

Llamzon concludes his approach by stating, inter alia, that (a) if public officials of a host state solicit or extort bribes from investors, and the other party does not freely pay the bribe, the international responsibility of the host state is engaged. However, (b) if the public official accepts a bribe, the state of that corrupted official is arguably not responsible towards the party that paid the bribe. The reason is that such corruption amounted to purely private conduct, which was known to be so by the investor and thus cannot be attributed to the state. The host state may, according to Llamzon, be responsible towards a third party who neither knew about nor participated in the corruption.

A different approach is demonstrated by Spalding (Deconstructing Duty Free: Investor-State Arbitration as Private Anti-Bribery Enforcement, U.C. Davis Law Review, Vol. 49, Issue 2 (December 2015)) who suggests an alternative analysis to WDF:

”The panel also held that the state was not liable for the conduct of President Moi. This leg of the Duty Free stool proves no less faulty. The state liability rationale has three potential sources of legal justification: English and Kenyan law; the arbitral precedents; and international law. None of them can justify the panel’s holding.”

Spalding also criticizes Llamzon’s approach and holds, with regards to WDF, that international law principle document on state liability almost “certainly” recommends the opposite outcome.

Other commenters take a position which seems to justify the zero tolerance approach taken by the tribunal in WDF. There are even suggestions to uphold this approach by inserting appropriate clauses into BITs.

(E) Conclusions

The question of state responsibility and attribution to the state of economic crimes performed by its organs is yet to be settled. In light of recent cases which indicate that tribunals are more willing to make findings of economic crimes, it is also likely that this issue will arise again soon, and so further developments are expected. It will be interesting to see what approach is chosen (for example in cases such as Vladislav Kim and others v. Republic of Uzbekistan [ICSID Case No. ARB/13/6]).

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Caribbean Islands in the Mood for Arbitration

Tue, 2017-07-11 17:01

Anne-Sophie Gidoin and Antoine Cottin

In an interview given to the Paris Review in 1981, Colombian writer Gabriel Garcia Marquez observed that “Caribbean reality resembles the wildest imagination.” This myth (or reality) of the Caribbean as a wild region declines into various aspects such as its unsettled climate, ruthless history, or multicultural society.

This might explain, on top of their location at the heart of America, the key role of the Caribbean islands as an international political and economic playground since the Conquista. In view of the many disputes generated in this context, this article wishes to emphasize the recent trend in these islands in favor of one means of international dispute settlement: arbitration.

This article focuses on the sovereign Caribbean islands i.e. Antigua & Barbuda, the Bahamas, Barbados, Cuba, Dominica, the Dominican Republic, Grenada, Haiti, Jamaica, St Kitts & Nevis, St Lucia, St Vincent & Grenadines, and Trinidad & Tobago.

At first sight, the Caribbean islands characterize by their great diversity, having followed different social and economic models. David Berry notably explains this diversity as follows: “[b]oth the peoples and islands of the Caribbean were shaped by territorial and commercial ambitions of a number of European powers […] The colonial empires of Europe both unified and divided Caribbean islands” (Caribbean Integration Law (Oxford University Press, 2014), 17). Most of these islands yet play a key role into international transactions and foreign investment. FDI has exponentially increased over the past 40 years in all of these islands. Whereas these economies are traditionally driven by agriculture (mostly exporting hard liquor, tobacco, sugar), and oil and gas/mining, they also offer industrial goods, and have developed their tertiary sector through tourism and financial services. Most commercial partners are located outside of the Caribbean. The US is the biggest export destination and China appears the most for import. 

Along with this position at the heart of international transactions and foreign investment, and, resultantly, at the heart of the related disputes, these islands have set a solid basis for arbitration. The New York Convention is in force in all islands, to the exception of Grenada, St Kitts & Nevis and St Lucia, and the ICSID Convention is in force in all islands to the exception of Antigua & Barbuda, Cuba, Dominica and the Dominican Republic. Since 1973, the sovereign Caribbean islands have concluded over 140 IIAs.

The unfolding of arbitration-friendly initiatives in the Caribbean islands has marked the last decade.

To start with, arbitration benefits from great promotion in the region. Lately, new arbitration institutions have been created in the BVI (the BVI International Arbitration Centre, “BVIIAC”) and Jamaica (the Mona International Centre for Arbitration and Mediation, “MICAM”). Antigua & Barbuda, the Bahamas, and Barbados announced imminent creation of similar institutions. In addition, many conferences are routinely held in the region. The ICC has been particularly active co-organizing with the Cuban Court of Arbitration a conference to celebrate the 50th anniversary of the latter in Havana in August 2016 and holding its 3rd International Forum on ICC Arbitration in Santo Domingo in May 2017. The ICC YAF further created its “Caribbean series,” a special set of events in the region to contribute to growing regional dialogue on the usefulness of international commercial arbitration. Other significant initiatives, such as the Fifth Annual Arbitration and Investment Summit in Nassau in January 2017, or the Cuban International Arbitration Moot taking place annually in Havana since 2013, are also worth noting.

Further, the modernization of the relevant legislations and practice of arbitration confirm the same trend. New commercial arbitration laws have been adopted in Barbados and Cuba in 2007, the Dominican Republic in 2008, the Bahamas in 2009, the BVI in 2013, and Jamaica is currently debating an arbitration act. Furthermore, the adoption of Law No. 118, Cuba’s Foreign Investment Act, in 2014, represents a milestone for foreign investors in the region. Several Caribbean islands have been involved in ICSID arbitrations, either as the country of nationality of the Claimant (the Bahamas, Barbados, Grenada, St Kitts & Nevis) or as the Respondent State (the Dominican Republic, Grenada, St Kitts & Nevis, St Lucia, Trinidad & Tobago). The Dominican Republic and Barbados have also recently appeared as Respondents in investment disputes registered with the PCA. Finally, arbitration has been relied on in interstate disputes such as Barbados v Trinidad and Tobago and Italian Republic v Republic of Cuba, respectively settled in 2006 and 2008.

This trend in favor of arbitration raises the issue of regional integration.
Despite the existence of some regional organizations in the region, those are not “all-inclusive” and the islands have different interests in integration.

This incomplete integration first results in a disparity of legal regimes related to arbitration. As far as commercial arbitration is concerned, this may be less true since the latest laws on commercial arbitration mentioned above are all aligned on the UNCITRAL Model Law. In addition, the OHADAC, a regional organization inspired from African OHADA which started acting in 2007 and includes all islands listed above, also drafted Model Rules of Arbitration and Conciliation. As far as investment law is concerned, the divergence in protection standards constitutes another challenge, not only between islands, but also in the same island when derogatory regimes are implemented (i.e. ZED Mariel in Cuba). The two main regional organizations contribute to this multiplicity. Both the revised Treaty of Chaguaramas, establishing the Caribbean Community (“CARICOM”), and the revised Treaty of Basseterre, establishing the Organization of Caribbean States Economic Union (“OECS”), include arbitration among the modes for the settlement of disputes concerning the interpretation or application of the relevant Treaty. Nonetheless, both treaties leave open the choice of the arbitral institution to administer such disputes.

Luckily, the development of arbitration in the Caribbean islands is also full of opportunities.

First, it illustrates the significant role to be played by the “big islands.” The Dominican Republic established itself as a leading forum for commercial arbitration in the region, thanks to the dynamism of its Centro de Resolución Alternativa de Controversias (“CRC”) and the hosting of multiple arbitration events. The participation of the State to proceedings initiated against it by foreign investors, including under the ICSID Additional Facility Rules since the ICSID Convention is not in force in this island, shows its reliance on this method of alternative dispute settlement. As far as Cuba is concerned, its dynamism in terms of commercial arbitration and its recent moves to attract foreign investors offers this island a unique opportunity to play a leading role in the region in favor of arbitration.

Second, the development of arbitration in the Caribbean islands could benefit from experiences coming from other regions. Inspiration could be found, in particular as to the balance between investment protection and sustainability, in the Pan-African Investment Code, or the new Protocol for the Cooperation and the Facilitation of Investment within the Mercosur.

Overall, this recent trend in favor of arbitration in the Caribbean islands places arbitration as a reality, which resembles, what still was, some years ago, the wildest imagination. At a time when arbitration is often criticized, this trend in this particular region raises the interesting issue of whether its development responds to national, regional or international dynamics. The development of arbitration might simply show that this region, although not integrated as such, obeys to its own rules, and is able to set them.

The views set forth in this post are the personal views of the authors and are not intended to reflect those of their employers or clients.

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What is Brazil Bringing to the Table? Dispute Prevention and Resolution under the Brazilian Agreements on Cooperation and Facilitation of Investments (ACFI)

Mon, 2017-07-10 17:03

Rabih A. Nasser, Nathalie S. Tiba Sato and Marina Y. Takitani

For a long time, Brazil remained one of the few main economies without foreign investment agreements – in the 1990s, 14 Bilateral Investment Treaties (“BITs”) were signed, but never ratified.

This landscape began to change in 2015, with the emergence of the model Agreement on Cooperation and Facilitation of Investments (“ACFI”), promoted by the Brazilian government as an alternative to the “traditional” BITs.

Up to now, Brazil has signed ACFIs with seven countries (Mozambique, Angola, Malawi, Mexico, Colombia, Chile and Peru) and entered into a Protocol on Cooperation and Facilitation of Investments (“PCFI”) with its Mercosur partners.

One of the main features that sets the ACFIs apart from the traditional BITs model is the absence of an Investor-State dispute resolution mechanism. With a view to promote foreign investment without sacrificing regulatory autonomy, the ACFI model focuses on dispute prevention and bilateral governance, limiting arbitration to the State-to-State level. But with investors not having what is allegedly their most effective guarantee, this question resounds: what is Brazil bringing to the table?

Foreign investment-related claims under the ACFIs are addressed in two different manners: (i) a dispute prevention mechanism, that can be accessed by both investors and States, and (ii) a dispute settlement phase, comprising a State-to-State arbitration.

In terms of the procedural aspects, the ACFIs already signed vary slightly from each other. Although the dispute prevention provisions remained practically the same, the dispute settlement mechanisms became increasingly complex and detailed.

The ACFIs provide for the creation of two institutional arrangements in order to maximize the chances of dispute prevention being successful: (i) the Focal Point or ombudsman, within each government, which addresses concerns of investors; and (ii) the Joint Committee, with representatives of the governments, responsible for the administration of the agreement.

The Focal Point was established in Brazil by Decree n. 8.863/2016 and is named Ombudsman for Direct Investments (“OID”). It was included in the structure of the Foreign Commerce Chamber (“CAMEX”), an inter-ministerial body in charge of the trade and investment policy in Brazil.

Its main functions are addressing foreign investors’ concerns (orientation and problem-solving) and engaging in a permanent discussion with the other Focal Points and with the Joint Committee. The Ombudsman procedure, that can only be accessed by ACFI-covered investors, has been further detailed by CAMEX Regulation n. 12/2017, as summarized in the Flowchart 1 below.

In brief, whenever a foreign investor is concerned with a measure that affects its investment in the host-State, it may submit a request for consultation to the Ombudsman Secretariat. The Advisory Group and the Network of Focal Points will aid the CAMEX Secretary in assisting, providing information and guiding the investors. The CAMEX Secretary may establish an Issue Resolution Group to analyze the issue presented by the investor. In a final report, the OID will provide a summary of the issue and possible proposals and recommendations formulated by the Issue Resolution Group.

The second institution for dispute prevention is the Joint Committee. In general terms, parties request a meeting to the Joint Committee in which their concerns will be presented and they may engage in negotiation procedures. After 60 days of the request to establish the meeting, the Joint Committee will issue a report with its recommendation concerning the dispute.

If the parties are not satisfied with the Joint Committee report, they can move on to the dispute settlement phase, in which the parties can resort to State-to-State arbitration – or to the Mercosur dispute settlement mechanisms in the PCFI.

However, while the first ACFIs limit themselves to providing for the option to arbitrate, the complexity of the arbitration procedure increased incrementally in the subsequent ACFIs. The most recent ones foresee the possibility of ad hoc and institutional arbitrations, prescribing deadlines, form of nomination of the arbitrators, requests for clarifications and enforcement.

Three of the ACFIs have already been ratified by the Brazilian Parliament, but are not yet in force because the promulgation decrees by the Brazilian President and ratification by the other State-Parties are still pending. Since December 2016, Brazil and India have been negotiating an investment agreement.

The exclusion of investor-State arbitration may seem disappointing to those who feel uncomfortable with the States having the power to decide which disputes are worth taking to arbitration and interfering in the conduct of the case. However, the ACFIs have the advantage of bringing a new and potentially useful tool for both Brazilian companies investing abroad and foreign investors in Brazil. These agreements also have the benefit of re-introducing Brazil – after a long absence – in the discussion of the international legal framework for foreign investments.

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What You Should Know About Nevada’s Specific Authorization Rule for Arbitration Agreements

Sun, 2017-07-09 23:18

Charles Harris, Sarah Reynolds and Louis Balocca

Businesses that are party to an arbitration agreement governed by Nevada law should understand that a little-known Nevada statute renders these agreements unenforceable if a contract lacks so-called “specific authorization” indicating that a person affirmatively assented to the arbitration provision itself. While the Nevada Supreme Court has applied this rule to invalidate arbitration agreements, a recent United States Supreme Court opinion reiterated that the Federal Arbitration Act (the “FAA” or “Act”) preempts state rules that treat arbitration agreements differently than other contracts. While a court has yet to consider whether the FAA preempts the Nevada statute, it is unlikely to survive a preemption analysis.

Nevada’s Specific Authorization Rule

Nevada’s general arbitration statute, like the FAA, contains a savings clause that allows arbitration agreements to be invalidated “upon a ground that exists at law or in equity for the revocation of a contract.” NRS 38.219(1). The key difference is that the Nevada statute also includes a specific authorization rule, Nevada Revised Statute 597.995, which provides an additional ground to void an arbitration agreement. This rule renders only the arbitration provision “void and unenforceable” if an underlying contract is devoid of “specific authorization” indicating that the person has affirmatively agreed to that provision. NRS 597.995(1). The rule does not define “specific authorization,” but, as shown below, the standard is exacting.

Fat Hat, LLC v. DiTerlizzi (“Fat Hat”)

The Nevada Supreme Court’s unpublished opinion in Fat Hat “does not establish mandatory precedent” for Nevada appellate courts (see NRAP 36), but it’s notable in that the court addressed Nevada’s specific authorization rule for the first time. In particular, the court considered whether arbitration clauses in several contracts between a Las Vegas nightclub and its employees were valid under the rule. It held that some of the contracts did not contain the required “specific authorization” because the employees signed a “general signature line indicating consent to all the terms of the contract,” but gave no indication of specific assent to the arbitration provision itself. The court was not persuaded by the fact that this signature line immediately preceded the arbitration provision. Similarly, the court was not convinced that an employee affirmatively agreed to the arbitration provision even where she “initialed at the bottom of every page,” including the page with the arbitration provision. Fat Hat, LLC v. DiTerlizzi, 385 P.3d 580 (Nev. 2016).

The Fat Hat court held that other contracts did pass muster under the rule. “In addition to a signature line at the end of the contracts,” the employees filled “in their names and addresses in the blank spaces of the [arbitration] provision, explicitly stating that the agreement to arbitrate was effective.” Id. Likewise, in Larson v. D. Westwood, Inc., a Nevada federal court held that a three-page arbitration provision forming part of an eight-page contract satisfied the Nevada’s specific authorization rule because “[t]he arbitration provision is set apart from the other provisions by boldface capital letters,” “required a separate initialing,” and the contract’s signature page contained a boldface heading stating that “Employment Shall be Deemed to Be Acceptance of the Arbitration Policy.” Larson v. D. Westwood, Inc., 2016 WL 5508825, at *2 (Sept. 27, 2016). The federal court rejected the plaintiff’s argument that an arbitration provision must be a standalone agreement to comply with Nevada’s specific authorization rule.

Still, neither Fat Hat nor Larson considered whether Nevada’s specific authorization rule is preempted by the Act. In fact, the Fat Hat court confirmed that the parties made “no argument that the [Act] applies” and “[w]e therefore do not address NRS 597.995’s validity of application under the FAA.” Fat Hat, LLC, 385 P.3d at 580 n.1.

The FAA’s Equal Treatment Principle

It is well established that the FAA is broad in its scope: it preempts state law and governs the enforceability of all arbitration agreements in contracts involving interstate commerce. See 9 U. S. C. § 2. In Kindred Nursing Centers L.P. v. Clark, a nearly unanimous decision issued just last month, the United States Supreme Court reaffirmed the Act’s “equal treatment principle” in striking down Kentucky’s “clear-statement rule,” which, as discussed below, is similar to Nevada’s specific authorization rule. The Court explained that, while courts “may invalidate an arbitration agreement based on ‘generally applicable contract defenses,’” they may not do so based on “legal rules that ‘apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.’” 581 U. S. __ (2017) (slip op. at 4). Indeed, the Act preempts “any state rule discriminating on its face against arbitration” or disfavors contracts that “have the defining features of arbitration agreements.”

In Clark, the petitioner nursing home (represented by Mayer Brown LLP) sought to enforce two arbitration agreements executed by the relatives of its now-deceased residents; each relative had a power of attorney. But the Kentucky Supreme Court invalidated the agreements based on its court-created clear-statement rule—i.e., “a power of attorney could not entitle a representative to enter into an arbitration agreement with specifically saying so.” Id. (slip op. at 3). The court said that, because the right to trial by jury is a constitutional right, “an agent could deprive her principal an ‘adjudication by judge or jury’ only if the power of attorney ‘expressly so provide[d].’” Id. The Court held that the clear statement rule “fails to put arbitration agreements on an equal plane with other contracts” and its required “specific authorization” to waive a jury trial couldn’t “survive the FAA’s edict against singling out” arbitration agreements “for disfavored treatment.” Id. (slip op. at 4).

Likewise, in Doctor’s Associates, Inc. v. Casarotto, the Court held that a Montana law declaring an arbitration agreement unenforceable unless notice of it is “typed in underlined capital letters on the first page of [a] contract” was incompatible with the Act. 517 U.S. 681, 683 (1996). Moreover, state and federal courts, following the Supreme Court’s direction, have regularly struck down laws requiring special notice for arbitration agreements, (see, e.g., Erickson v. Aetna Health Plans of California, Inc., 71 Cal. App. 4th 646 (Cal. Ct. App. 1999)), that arbitration agreements be in writing, (Brown v KFC Nat’l Mgmt. Co., 921 P.2d 146 (Haw. 1996)), or prohibiting mandatory arbitration clauses for certain types of disputes (In re Managed Care Litig., 132 F. Supp. 2d 989 (S.D. Fla. 2000)).


Where a plaintiff challenges the enforceability of an arbitration agreement that is governed by Nevada law based on a lack of specific authorization, defendants should look to FAA preemption arguments in response. To avoid the expense and delay involved in litigating preemption, parties entering into arbitration provisions incorporated into broader contracts should require explicit assent to those provisions, separate and distinct from the contract as a whole.

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Wolters Kluwer Partners with Arbitrator Intelligence – A Personal Story

Sun, 2017-07-09 00:38

Gwen de Vries

In June 2014, at the ITA Workshop in Dallas, I heard a passionate woman presenting her mission of increasing fairness, transparency, accountability, and diversity in the arbitrator selection process, and how she intended to do this. “I want to support this” is what I thought. Roger Alford was so kind to introduce me to this energetic woman, Catherine Rogers. That meeting was the beginning of what I hoped then, and still believe, will be a long and productive relationship between Arbitrator Intelligence (AI) and Wolters Kluwer – our formal cooperation was announced last week.

This is an intensely personal story. For those of you who don’t know me, I’ve been with Wolters Kluwer for almost thirty years, either leading or being involved in our arbitration portfolio, first as publisher and since 2004 as publishing director. This portfolio has always been special to me. One reason for my enthusiasm is that it’s a portfolio for which we tried out new things, and often succeeded. For example, it was the first portfolio to move online, the first for which we started a blog, and the first for which we created successful tools such as the IAI Arbitrator Tool and Smart Charts. But also because I care about the arbitration process and its community. I believe with many of you that a good international dispute settlement system is crucial for global trade and investment. In return, its community has always welcomed me, and I have seen it grown fast. (In 1996, I attended my first ICCA conference in Seoul, together with just 200 participants; last year in Mauritius there were 1,000 of us.)

I wholeheartedly agree with Catherine that, in order for arbitration to stay the most preferred international dispute resolution system, it has to continue to develop. The appointment of arbitrators is a crucial decision in the process of arbitration. Parties to arbitration now rely on informal and anecdotal information, which in this age of open access to information is quite unheard of in other industries. There is a need in international arbitration for a more reliable, neutral, data-driven resource for sharing information about arbitrators and their decision-making history.

As Catherine has explained before in various posts on this blog (see here for her last post), AI intends to gather this data through the AI Questionnaire that parties and counsel can fill in after an arbitration. The AI Reports will analyze and summarize the information gathered through the questionnaires. As a non-profit academic-based enterprise, AI is uniquely positioned to ensure independent and high quality reports. However, none of this will happen if you do not fill in the questionnaire. I realize that it’s an effort, and perhaps an effort that does not directly benefit you. On the other hand, I hope that Catherine, in the many articles she has written and speeches she has given, has been able to convince you that this is important. I also hope that the place you work will allow you to contribute to something that may not directly benefit you or your firm in the short term, but that is important in the long run for the arbitration process you work for and the arbitration community to which you belong.

I realize more and more that I am very fortunate to work for a company that has given me the freedom to develop products that don’t always directly have the highest margin, but that are important for other reasons. A perfect example is this arbitration blog. Roger and I started this because we wanted to connect people in the arbitration world. With 26,000 unique visitors each month we certainly seem to have succeeded.

Just like Catherine, I am passionate about arbitration, believe that it has to become more transparent and diverse and that AI will make this happen. But only if you help! So, join the growing community of arbitration specialists that believe the same and help improve the process: fill out the AI Questionnaire after your next arbitration and convince others to do the same. You are all important for this enterprise and can make this happen!

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Kluwer Mediation Blog: June digest

Sat, 2017-07-08 03:35

Anna Howard

From the mediation of sports disputes to a recent mediation law in Brazil and onto lessons learnt from teaching mediation and negotiation courses in universities in Germany and New Zealand, the past month on the Kluwer Mediation Blog has provided a rich assortment of posts. A short summary of each post follows.

In Investing In Your Future, John Sturrock raises the important and challenging following questions: What are we doing to improve ourselves? To understand better who we are, what we want to achieve and what is important? What about our clients and our understanding of them? John notes that reflecting on these questions really gets us thinking about what our clients may need, rather than what we might offer.

In Win-Win In Practice: Mediation Helping With Sports Disputes And Sports Disputes Helping Mediation, Martin Svatos explores the use of mediation in sports disputes, in particular, in football and ice-hockey disputes. Martin considers how mediation may not only help athletes and sports association with the resolution of sports disputes but also how sports disputes might help mediation.

In The Collaborative Imperative – Or The Existential Imperative For Modern Mediators, Ian Macduff draws on his recent negotiation and mediation classes to identify the three uppermost concerns of his students’ generation. Ian notes that his students’ blog conversations “suggest that negotiation and mediation are an existential necessity; collaboration is not a fringe activity or policy tool but a moral imperative.

In The Things You Can Achieve In Mediation: A Day In The Life Of A University Lecturer, Greg Bond draws on a recent experience in teaching negotiation and mediation to highlight the unexpected outcomes that can sometimes occur.

In How Long Is Your Average Mediation, Constantin-Adi Gavrila considers how long an average mediation might take and identifies some factors which affect the duration of a mediation.

In Lawyers As Mediators in Brazil: To Be Or Not To Be?, Andrea Maia provides a brief history of Brazil’s journey to its first mediation law. Andrea then considers a particular issue raised by the New Civil Procedure Code (Law 3105/2015) which states that mediators registered to work in a court annexed mediation program, if also lawyers, can no longer act in their capacity as lawyers in that particular jurisdiction.

In Letter From America: What We Can All Learn From U.S. Research Into Court ADR Schemes, Charlie Irvine draws on recent research on court-annexed ADR programmes in Utah, California and Oregon which explored whether people who used those courts were aware of the ADR schemes. Charlie considers the relevance of this research to Scotland and explores how court ADR schemes might be brought to people’s attention.

In Book Review – Mediation Ethics by Ellen Waldman, Sabine Walsh provides a detailed and enthusiastic review of this book noting that “whether you are new to mediation, or a season peacemaker who recognises that the more you know, the less you know, this is a great read.

In the wonderfully creative Sergeant Pepper, Nostalgia and Missing Socks, John Sturrock applies the concept of nostalgia and the letting go of single socks to the puzzle that we are still thinking about how we can promote mediation on a wide-scale, twenty to thirty years after it began to show itself, world-wide, to be a really useful process.

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The Case for Public Regulation of Professional Ethics for Counsel in International Arbitration

Thu, 2017-07-06 23:17

Stephan Schill


Who Should Regulate the International Bar?

The regulation of professional ethics of the international bar is among the most hotly debated issues in international arbitration (inter-state, investor-state, and commercial). It reflects the regulatory gap that has developed as proceedings before international courts and tribunals have proliferated and counsel diversified. Addressing this issue is crucial, as diverging national regulation as well as a lack of clarity about acceptable standards of conduct may jeopardize the integrity and effectiveness of proceedings and cast the legitimacy of the administration of international justice into doubt.

So far, the debate on professional ethics in international arbitration has focused on both developing the basic conceptual and normative framework and producing codes of conduct that are workable and acceptable in practice. It has brought about thorough academic studies, such as those of Catherine Rogers and Arman Sarvarian, and detailed codes of conduct, including the 2010 Hague Principles, the 2013 IBA Guidelines, and the Guidelines for Party Representatives annexed to the 2014 LCIA Arbitration Rules.

Less addressed are questions of who should regulate professional ethics in international proceedings and who has the legitimacy to do so. Much of the present debate is based on the widespread assumption, if not agreement, that private bodies and professional self-regulation are the institutions and instruments best suited to address the regulatory gap. Public actors—international courts and tribunals, as well as international organizations such as the Permanent Court of Arbitration (PCA) or the International Centre for Settlement of Investment Disputes (ICSID)—are rarely considered as potential regulators of counsel conduct and enforcers of sanctions for misconduct. This is all the more surprising as these actors are uniquely positioned to play a key role in the regulation of the international bar.

Public Regulation versus Self-Regulation or National Approaches

Ensuring the integrity and efficiency of international proceedings by upholding basic procedural principles is an objective that seems best pursued by regulation through international courts, tribunals, or administering institutions, as opposed to private (professional) organizations or national bar associations. The particular advantage of international courts, tribunals, and administering institutions, especially those that have broad membership, such as the PCA or ICSID, is that they are public actors serving a public purpose in the peaceful settlement of international disputes,.

Public institutions are particularly well placed to address those aspects of professional ethics that concern the relationship between counsel and court (or tribunal) and therefore form part of the law of procedure. Examples of this category include the nature and scope of counsel duties with respect to the presentation of truthful evidence, questions concerning the preparation of witnesses, and the permissibility of ex parte communications between counsel and court or tribunal. International courts, tribunals, and administering institutions are less suited to regulate other aspects of professional ethics, such as the regulation of the legal services market to ensure equal and fair competition among counsel and to protect clients’ interests against professional malpractice.

In contrast, arbitral tribunals face limitations in developing rules on professional ethics, due to their one-off nature and the resulting risk of fragmentation. Likewise, administering institutions that are in essence organs of the international business community face limitations in terms of the legitimacy they can confer on the regulation of the international bar. Regulation by such bodies may be seen in the eyes of the general public as self-serving instruments that have the ‘private’ interest of international lawyers in mind, rather than the ‘public’ interest of the international community in the administration of justice. Public regulation of counsel conduct in international proceedings would alleviate that concern. Furthermore, in the absence of some other international body in charge, only an international court, tribunal, or administering institution would be able to ensure that all actors appearing in international proceedings are subject to the same rules of professional conduct.

While largely public, national regulation of professional ethics also has important limitations. Allocating responsibility to regulate counsel conduct and sanction breaches to national bar associations or state courts cannot provide a level playing field in international proceedings. National institutions may establish different rules, administer identical rules differently, and differ in their enforcement and sanctioning practices. Additionally, such regulation would not reach non-lawyers appearing as counsel before an international court or tribunal. At least in theory, giving national institutions power to regulate counsel conduct and sanction breaches could also undermine the integrity of international proceedings. Conceivably, national institutions could be captured by one of the (state) parties to an international proceeding and used to sabotage the proceeding by taking action against the opposing party’s counsel. Such a result would be avoided if international courts, tribunals, or administering institutions were in charge of developing and administering rules for counsel conduct in international proceedings.

Regulatory Power of International Courts and Tribunals

International courts and tribunals are not only well placed to ensure uniform and legitimate regulation of counsel conduct in international proceedings, they also possess the legal authority and competence to develop and enforce such rules. Rules governing counsel conduct in relation to an impending or ongoing international proceeding can be enacted as part of the competence to ‘lay down rules of procedure’ that many international courts and tribunals are expressly given. Examples include Article 30(1) of the Statute of the International Court of Justice (ICJ) or Article 16 of the Statute of the International Tribunal for the Law of the Sea.

Such competence encompasses not only questions concerning the organization of hearings, the presentation of evidence, and the decision-making process of the court or tribunal, but also the procedural rights and obligations of the parties and the standards of conduct for their counsel in relation to the proceedings. Thus, on the basis of Article 30(1) of its Statute, the ICJ has laid down in its Practice Directions some, albeit limited, standards of conduct for counsel. Similarly, under the competence conferred to ICSID’s Administrative Council under Article 6(1)(c) of the ICSID Convention to ‘adopt the rules of procedure for … arbitration proceedings,’ rules on counsel conduct could be adopted.

International courts and tribunals lacking such express authorization to develop rules of procedure can rely on their inherent powers to take all necessary measures for the preservation of the integrity of the proceedings before them and to ensure the effectiveness of their judicial function. In fact, the HEP v. Slovenia tribunal, an arbitral tribunal established under the ICSID Convention, and the International Criminal Tribunal for the Former Yugoslavia have successfully done so.

These inherent powers could also serve as a basis for international courts and tribunals to develop rules on how counsel should conduct themselves in international proceedings and to implement sanctions in case they are breached. For example, the International Criminal Court and the International Residual Mechanism for Criminal Tribunals have adopted codes of conduct that include wide-ranging sanctions, including admonition, public reprimands, the imposition of fines, and even suspension or permanent ban on practicing before the respective court or tribunal. Likewise, courts and tribunals in interstate or hybrid proceedings have used various means to sanction counsel misconduct, including reprimanding counsel in the award or judgment, imposing costs on the party whose counsel engaged in professional misconduct, taking into account misconduct in weighing evidence, and even excluding counsel from further proceedings (for a survey I co-authored with Charles Brower, see here). These sanctions, if properly employed, are likely no less effective in ensuring compliance of counsel with standards of conduct than the sanctions that can be imposed by state courts or national bar associations.


One concern regarding public regulation relates to the multitude of existing international courts, tribunals, and administering institutions for arbitral proceedings. If all of such institutions developed rules on professional ethics in isolation, little would be gained in ensuring clarity and uniformity in regulating the international bar. Mechanisms are needed for international courts and tribunals to coordinate their work so as not to impose starkly diverging obligations concerning counsel conduct. Inter-court and tribunal working groups and consultation with administering institutions is one option. Addressing questions of professional ethics in existing inter-governmental platforms and organizations, such as UNCITRAL or the PCA, is another.

At the same time, pushing for more public regulation of the international bar does not mean that the development of rules on professional ethics by private, professional organizations or arbitration institutions has been in vain. On the contrary, such initiatives are highly useful in laying the ground for public regulation of professional ethics in international proceedings. In developing such regulation, public actors can build on, or even endorse, the rules developed by private professional organizations. Such endorsement would not only validate the efforts made by such organizations in the development of rules of professional ethics. It would also give those rules the public imprimatur that is needed to enhance the legitimacy of international arbitration in the eyes of the general public. This would ensure that international dispute settlement is practiced in the interest of the entire international community and in the name of international law, rather than only in the interest and name of international lawyers.

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Can Foreign Investors Sue the UK for Brexit?

Wed, 2017-07-05 22:00

Roger Alford (Editor)

On May 30, 2017, Volterra Fietta and the University of Notre Dame hosted a debate of whether foreign investors can sue the United Kingdom for a hard Brexit. The recorded video is now available for viewing.

Markus Burgstaller and I presented the case that foreign investors may have viable claims against the UK, while Jeremy Sharpe and Luis González García presented a respondent state perspective. Suzanne Sharpe and Martins Paparinskis provided additional commentary.

The British government was invited to attend and present its views, but respectfully declined. Afterwards, a spokesman for the Department of International Trade stated that “The government does not believe that the UK’s decision to leave the EU will provide grounds for valid legal claims under our bilateral investment treaties.”

Following a lively debate, the audience was surveyed and 58 percent voted that foreign investors would not have viable claims against the British government for a hard Brexit, while 42 percent responded that they would.

The event was reported in various news outlets, including the Times, the Daily Mail, and Global Arbitration Review, among others.

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The Global Pound Conference Reaches Its Conclusion: User Focus Is Now Mainstream

Wed, 2017-07-05 00:46

Michael McIlwrath and Phil Ray

Mark Twain once wrote that a person with a new idea “is a crank until the idea succeeds.”1)Pudd’nhead Wilson’s New Calendar, in Following the Equator (1897). The Merriam Webster dictionary defines “crank” as “an annoyingly eccentric person.” jQuery("#footnote_plugin_tooltip_1393_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1393_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Innovations and new ideas on the verge of implementation seem to arrive almost weekly in international arbitration. They range from institutional rule changes, services that provide information about arbitrators, and various proposals from academics and arbitrators themselves. Much of this appears to be driven by a genuine attempt to listen to the voices of in-house counsel like us who have called for greater emphasis on case management, efficiency, and generally helping parties reach an early resolution of their disputes, thereby saving time and costs.2)We are two long-time corporate in-house counsel (one active and one retired). One of us, Michael McIlwrath, is a current General Electric corporate counsel (and the chair of the Global Pound Conference); the other, Philip Ray, is a retired Siemens AG corporate counsel (and co-editor of JURIS Journal of Technology in International Arbitration). jQuery("#footnote_plugin_tooltip_1393_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1393_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

While this service model may seem common sense today, it represents a shift from the environment in-house counsel faced a decade ago. Those of us paying the bills were once largely ignored. At most we were given lip service with the occasional “users panel” at conferences, which one of us ungenerously compared with the children’s tables set up at weddings. Although we continue to face the occasional reminder that not everyone agrees that arbitration should serve primarily the interests of parties,3)In a notorious “open letter to the international arbitration community,“ three international arbitrators upset about the fees assessed by the institution, wrote “[t]he role of an international arbitration institution is to protect the arbitrators that work under its aegis[.]” Catherine A. Rogers, When Arbitrators and Institutions Clash: The Strange Case of Getma vs. Guinea, Kluwer Arbitration Blog, 12 May 2016. jQuery("#footnote_plugin_tooltip_1393_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1393_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); it is undeniable that we now occupy a seat at the main table.

The momentum reaches a new high this week when the Global Pound Conference (GPC) concludes on July 6. A major international initiative to shape the future of commercial dispute resolution, the GPC reaches its final destination in London’s Guild Hall, the 29th GPC event since it debuted in Singapore in April 2016.

At these events, over 2,000 stakeholders in commercial dispute resolution around the world – “Adjudicative Providers” (judges, arbitrators, mediators, arbitral institutions), “Advisors” (external lawyers, consultants) “Users” (corporate counsel) “Influencers”(academics), and ministries of justice, among others – have provided their views on the same 20 “core questions” about current and future dispute resolution practices.

The core questions ask these stakeholders to provide their input on the same topics: what do disputants desire most from the dispute resolution process; what should be changed to meet their expectations; and who should drive these changes?

The answers to these questions arrive at a time in which civil justice around the world is facing a moment of transformation. And international arbitration is now experiencing changes that, in our view, would have been considered heretical or at least highly unorthodox just a decade ago.

ICC Fee Reduction for Delay in Submitting Awards

Ten years ago, an in-house counsel would have been pilloried for suggesting that arbitrators should have their fees docked for delay in delivering the award. Yet in a 2016 Rules update, the ICC did just that.

While not exactly a “money-back” guarantee, the ICC fee reduction is a vivid example of an institution treating arbitration as a service that should meet the parties’ reasonable expectations.

Arbitrator Performance Data: Arbitrator Intelligence

Even before the advent of the Internet, consumers could find information about virtually any products or services before purchasing them. Despite the multiplication of such information via on-line databases and reviews, reliable information about arbitrators remains elusive. Parties must usually infer case management and soft skills through limited information generally transmitted via word of mouth.

In 2014, Professor Catherine Rogers founded a service to make appointing arbitrators a user-friendly process: Arbitrator Intelligence (AI). Notwithstanding resistance from arbitrators, the service has been well received. In fact, Wolters Kluwer, the publisher of this blog, will now include AI reports in its on-line arbitration database.

If AI is a success, it will permit parties to better select the arbitrator whose skills fit the profile they desire, and encourage arbitrators to be mindful of how their performance will appear to the parties (not just to their co-arbitrators and the institution).

Arbitrator-proposed innovations

It was commonplace a decade ago for conference panels to explain why arbitrators should not attempt to facilitate settlements. Although parties generally desire an early resolution, the thinking went, tribunals should be mindful of the due process implications of expressing early positions or appearing to encourage or meddle in settlement discussions.

Both of us found this reasoning troubling, and contradicted by our own experiences. At both Siemens and GE we had encountered cases where, at the parties’ request, one of the co-arbitrators (who possessed mediation expertise) agreed to act as a mediator to facilitate settlement. Not only did the cases survive the predicted due process apocalypse, parties on both sides of the dispute expressed deep satisfaction with the performance of the tribunal (including in the case that did not settle).

Last month, Professors Klaus Peter Berger and J. Ole Jensen published an article that tackled the issue of settlement facilitation not from the perspective of preserving the judicial function of arbitration, but in how to provide a mechanism that parties desire.

InThe Arbitrator’s Mandate To Facilitate Settlement, the co-authors suggest methods by which proactive tribunals can easily facilitate settlement during an arbitration. These range from simply mentioning settlement to the parties, providing an early neutral evaluation, conducting a settlement conference, or even using mediation techniques, in particular caucusing.

The ICC fee reduction for delay, Arbitrator Intelligence, and the Berger/Jensen proposal for settlement facilitation all share a common feature with many other recent innovations or proposals: they seek to make arbitration a more attractive service to the parties, rather than enhancing its purely adjudicative function. This is no small thing.

Not gaining ground: ignoring the service side of the arbitration business

By contrast, consider one proposed innovation that could have generated improvement in the judicial function of arbitration, yet has not gained currency in the seven years since it was first suggested. This is Professor Jan Paulsson’s proposal to eliminate the role of party-appointed arbitrators.

Both of us agree with Paulsson that permitting parties to unilaterally choose an arbitrator does indeed give rise to the risk of moral hazard and inject other dynamics that may compromise the quality of the arbitration award.

The reason that no major institution has adopted this proposal, however, is unrelated to quality of arbitral awards. It is simply deference to the fact that parties want to be able to appoint an arbitrator. If institutions are to treat arbitration as a service, then they cannot prioritize the judicial function if it is not positively received by the parties.

The GPC data: the user-focus trend will continue

The respective founders of our current and former employers – Thomas Edison (GE) and Werner von Siemens (Siemens) – knew that if they did not lead the transformation of the electrification era, someone else would do it. The great challenge facing companies like GE and Siemens today is adapting to the demands of the global and local economies in which we compete for business. Our companies are changing in this marketplace, and dispute resolution institutions will need to continue to innovate to keep pace.

Fortunately, while the final report of the GPC data will be published in the coming months, the data that has been emerging from the events so far suggests that in-house counsel like the trends that they are seeing, and they want more: they want their external lawyers to be more proactive, and emphasize collaboration; they expect institutions to provide a greater range of procedural options, and to explain the choices that are available; they want paths to reaching an early settlement.

As current and former in-house counsel, we are excited and optimistic about the changes that have already occurred and those that are bound to come.

* Philip Ray is the principal of PhilRay-IDR. In 2012, he retired after 23 years as senior in-house counsel for Siemens AG Legal in Germany, counseling the business on international transactions and disputes.

References   [ + ]

1. ↑ Pudd’nhead Wilson’s New Calendar, in Following the Equator (1897). The Merriam Webster dictionary defines “crank” as “an annoyingly eccentric person.” 2. ↑ We are two long-time corporate in-house counsel (one active and one retired). One of us, Michael McIlwrath, is a current General Electric corporate counsel (and the chair of the Global Pound Conference); the other, Philip Ray, is a retired Siemens AG corporate counsel (and co-editor of JURIS Journal of Technology in International Arbitration). 3. ↑ In a notorious “open letter to the international arbitration community,“ three international arbitrators upset about the fees assessed by the institution, wrote “[t]he role of an international arbitration institution is to protect the arbitrators that work under its aegis[.]” Catherine A. Rogers, When Arbitrators and Institutions Clash: The Strange Case of Getma vs. Guinea, Kluwer Arbitration Blog, 12 May 2016. 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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The International Public Policy of the Portuguese State: A Matter of Value?

Mon, 2017-07-03 22:52

Duarte Gorjão Henriques

1. I have written elsewhere about the uncertainty that the Portuguese courts have experienced in defining the “international public policy” of the Portuguese State and, more specifically, in finding in some particular cases that there was a situation amounting to a violation of that standard for the purposes of annulment of (or refusal to recognise) international arbitral awards. (See Duarte G. Henriques, ‘I Will Not Go That Way: What The International Public Policy Of The Portuguese State Is Not’, in MEALEY’S International Arbitration Report Vol. 30, 2 February 2015)

Although the Portuguese courts have been consistent in setting up the theoretical foundations of the “international public policy” (i.e. as the fundamental principles underpinning the national legal order and, therefore, the conception of justice of the Portuguese State regarding the substantive law), the outcome when applying those standards to each case has not always been the same.

2. For example, on 9 October 2003, the Portuguese Supreme Court of Justice decided that the right to a fair and adversarial process, the right of access to justice and the ‘‘pact sunt servanda’’ amount to such fundamental values encapsulated by the notion of international public policy of the Portuguese State. (See decision of the Portuguese Supreme Court of Justice of 09 October 2003, decisions of the “Supremo Tribunal de Justiça”, Ref. 03B1604)

Conversely, in a decision of 21 February 2006, the same Supreme Court considered that a case where the final decision had not been notified ‘‘in persona’’ to the party, but rather to its attorney, did not violate its “international public policy”. (See decision of the Portuguese Supreme Court of Justice of 21 February 2006, decisions of the “Supremo Tribunal de Justiça”, Ref. 05B4168)

3. In a similar vein, the Portuguese courts have already decided that an arbitral award with a short or defective motivation (but not a total lack of reasoning) is not in violation of the public policy of Portugal. (See decision of the Portuguese Supreme Court of Justice of 10 July 2008, decisions of the “Supremo Tribunal de Justiça”, Ref. 08A1698, and decision of the Lisbon Court of Appeal of 29 November 2007, decisions of the “Tribunal da Relação de Lisboa”, Ref. 5159/2007-2)

Significantly, in this case both the Lisbon Court of Appeal and the Portuguese Supreme Court of Justice addressed an issue arising from a penalty that the respondent had been ordered to pay to the claimants by an arbitral tribunal seated in Lisbon. In this case, the claimants and the respondent had entered into a shareholders’ agreement that, among other things, set forth a supplementary capital payment to be made by each shareholder, coupled with a penalty due from any defaulting shareholder. This penalty was to be twice the amount of the supplementary capital payment due. The respondent failed to timely make the additional payment of around € 2,340,000, which was eventually made 15 days after the expiry of the deadline. The claimants initiated arbitration seeking, inter alia and as an alternative to other remedies, the payment of twice such supplementary capital payment (i.e. € 4,680,000). The arbitral tribunal considered the amount resulting from the penalty clause excessive and thus reduced the amount due to the claimants to half that amount (i.e. the original € 2,340,000). The respondent subsequently initiated proceedings aimed at annulling the arbitral award and contended, inter alia, that the “penalty clause” at hand was in violation of the public policy of the Portuguese State. Both the Lisbon Court of Appeal and the Supreme Court of Justice decided that such a stance did not imply a violation. The courts were also asked to consider whether such a clause was a true “penalty clause” or rather a “liquidated damages” clause, and refused to do so because such analysis would force them to look at the merits of the case, which was prevented by law. By the same token, the courts refused to consider whether an “excessive” penalty clause would be in violation of the public policy.

4. This background would seem to show that a penalty clause does not violate the public policy of the Portuguese State, let alone its “international public policy”, which is narrower than the mere “domestic public policy”. However, a recent decision of the Supreme Court of Justice indicates otherwise.

5. Indeed, in its decision made on 14 March 2017, the Portuguese Supreme Court of Justice addressed the question whether a “penalty clause” inserted in the articles of association of an Iberian law firm would entail a violation of the “international public policy” of the Portuguese State. (See decision of the Portuguese Supreme Court of Justice of 14 March 2017, decisions of the “Supremo Tribunal de Justiça”, Ref. 103/13.1YRLSB.S1)

The Iberian law firm in question was subject to a set of contractual regulations, namely an “Agreement for the Professional Integration and Regulation of the Corporate Relationships of the Law Firm C” and its “Articles of Association”, both containing a penalty clause set forth for, inter alia, the breach of “non-competition” and “non-solicitation” obligations, binding its associated and partner lawyers, along with a clause providing for arbitration in Barcelona. The penalty clause provided that a partner in violation of these obligations would be bound to pay compensation of three times the value of the amounts paid in the last three years to the lawyers implicated and an additional compensation of three times the value of the amounts invoiced to the clients involved in the solicitation in the previous three years. In the case at stake, the outcome of applying the penalty clause was a total amount of over € 4,900,000, which was equivalent to more than 25 years of that partner’s income. This penalty clause was upheld by a sole-arbitrator, who decided the case in absentia of the former lawyer-partner in question. This Portuguese partner then resisted the recognition in Portugal of the arbitral award at stake, claiming that such recognition would be in violation of the international public policy of Portugal. The case eventually reached the Supreme Court.

6. Laying down the foundations of the standards applicable to the “international public policy”, the Supreme Court started by noting that the said public policy is formed by principles underpinning the legal order, and that are part of the Constitution itself and of the Acquis Communautaire, especially those protecting fundamental rights such as good faith, “bonos mores”, prohibition of abuse of rights, proportionality, prohibition of expropriation and discriminatory measures, prohibition of penalties in civil matters, and basic principles and rules of competition, both of domestic and European source.

The Supreme Court went on to consider that while those principles are subject to stricter constraints (that is, to a narrower understanding) when applied to the recognition of foreign arbitral awards, this recognition may never result in a manifest disregard of the international public policy. According to the Supreme Court, such disregard occurs when the indemnity awarded comes to a disproportionate amount that blatantly clashes with the Portuguese “bonos mores”, with the principle of good faith, and with the principle of proportionality (or prohibition of excess). Further, such recognition may never result in a restriction of fundamental constitutional rights such as the right of freedom of professional choice, and the freedom of economic initiative.

The Portuguese Supreme Court of Justice thus refused to grant recognition of the foreign arbitral award at hand.

7. There remain no doubts that regarding the potential barring of recognition of a foreign arbitral award, the “international public policy” (of the Portuguese State) must be assessed considering the outcome of that recognition. It is nevertheless disturbing to learn that, in the first case (annulment of an arbitral award), the Supreme Court was very scrupulous regarding looking at the contents of the award that ordered the respondent to pay a penalty, even though there was no evidence that the creditors of such clause (the claimants) had been harmed by a 15-day delay in making a supplementary capital payment, while, in a similar situation, the Supreme Court showed no reluctance in going into the merits of the case only to find the outcome of the foreign arbitral award in manifest contradiction with the “international public policy” of the Portuguese State.

At the same time, the outcome of these two cases is a paradox. In fact, the “international public policy” standards are much narrower when it comes to denying the recognition of foreign arbitral awards—and therefore this bar applies to a substantially lower number of cases—when compared to the standards applicable to the annulment of awards that might contradict the (merely domestic) public policy. Yet, in a case concerned with the recognition of a foreign arbitral award, the Supreme Court used a broader understanding of what amounts to a violation of the “international public policy”.

The least we could posit is that it ought to be the other way around.

Or was it just a matter of value—and if so, what value is it then acceptable to find as not being in violation of the “public policy”? The answer seems hard to find.

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The Call to Remove Unilateral Appointments: Seven Years On

Sun, 2017-07-02 20:50

Andrew Battisson and Cheryl Teo


In April 2010, Professor Jan Paulsson delivered his inaugural lecture as holder of the Michael R. Klein Distinguished Scholar Chair at the University of Miami School of Law where he expressed the view that the practice of unilateral appointments (or nominations) of arbitrators is a moral hazard which should be removed. This lecture sparked debate amongst commentators as to whether the practice of unilateral appointments of arbitrators should be abolished.

Seven years on, arbitration users have responded to Professor Paulsson’s call for the practice of unilateral appointments to be removed with a resounding no: far from being removed, the practice of unilateral appointments remains standard practice in international arbitrations.

Whether the practice of unilateral appointments should be allowed to remain in international arbitrations turns on two key questions:

• Whether unilateral appointments undermine the legitimacy of the arbitral process and its outcome in the eyes of the parties; and
• Whether there are sufficient safeguards to protect against the risk of partiality and bias by unilaterally-appointed arbitrators.

Unilateral appointments enhance, not undermine, the legitimacy of the arbitral process and its outcome

Professor Paulsson argued that “unilateral appointments are inconsistent with the fundamental premise of arbitration: mutual confidence in arbitrators”. According to Professor Paulsson, unilateral appointments result in the appointment of arbitrators who are not trusted by both sides. On the other hand, where each arbitrator is chosen jointly by the parties or appointed by a neutral institution, each arbitrator “is invested with an equal measure of confidence and an equal claim to moral authority”.

But it seems doubtful that “an equal measure of confidence and an equal claim to moral authority” (even if that could be achieved by joint appointment or appointment by a neutral institution, which is itself doubtful) necessarily translates to greater confidence in the tribunal or in the arbitral process as a whole.

As a number of commentators have observed, party involvement in the appointment of arbitrators ensures that the parties are invested in the creation of the tribunal, which legitimises the decision-making process in the eyes of the parties (see, for example, Charles N. Brower & Charles B. Rosenberg, The Death of the Two-Headed Nightingale: Why the Paulsson-van den Berg Presumption that Party-Appointed Arbitrators are Untrustworthy is Wrongheaded, Arbitration International, 2012, Vol. 29, No.1, pp 7-44).

The following are just some of the examples which indicate a clear preference for unilateral appointments by arbitration users.

• According to the 2012 International Arbitration Survey by Queen Mary University of London, 76% of the respondents (comprising private practitioners, in-house counsel and arbitrators) said that for three-member tribunals, they prefer for the two co-arbitrators to be selected by each party unilaterally. This method of selection was favoured by all three categories of respondents, but notably more by private practitioners (83%) than by in-house counsel (71%) and arbitrators (66%).

• According to the 2015 International Arbitration Survey by Queen Mary University of London, respondents ranked “selection of arbitrators” as the fourth most valuable aspect of arbitration (with the three most valuable aspects of arbitration being “enforceability of awards”, “avoiding specific legal systems/national courts” and “flexibility” (in decreasing order)).
• Under the LCIA Rules, the default rule is that all arbitrators are selected and appointed by the LCIA Court, unless the parties agree otherwise. The LCIA statistics show that parties agreed to depart from the default rule in the majority of cases: of the 469 appointments made by the LCIA in 2016, only 197 (or 39% of the total appointments) were selected by the LCIA Court (with the other appointments selected by the parties or co-arbitrators) (see the LCIA Facts and Figures 2016).

Professor Paulsson himself recognised that the practice of unilateral appointments is “popular, in the sense of being perceived as a valuable opportunity on which many parties insist” (see Jan Paulsson, Are Unilateral Appointments Defensible?, Kluwer Arbitration Blog, 2 April 2009).

If arbitration users consider the practice of unilateral appointments to be a valuable aspect of arbitration and insist on it, how then can it be said that this practice undermines the legitimacy of the arbitral process or its outcome?

Further, in a later article published in 2013, Professor Paulsson appeared to have no objection to unilateral appointments where parties have expressly stipulated that there should be unilateral appointments. Professor Paulsson clarified that his proposal was merely that the “default rule (to be applied whenever the parties have neither jointly nominated the entire tribunal nor expressly stipulated that there are to be unilateral appointments) should be that all arbitrators are appointed by the neutral appointing authority” (see Jan Paulsson, Must we Live with Unilaterals?, ABA Section of International Law, 2013, Vol. 1, Issue 1, pp 5-9).

This appears to be a shift from Professor Paulsson’s original position. Consider the following situations where three arbitrators are to be appointed (and the parties are properly advised):

• There is an express agreement to arbitrate under rules which default procedure is that each party is entitled to nominate an arbitrator (for example, the ICC Rules or the SIAC Rules) and no express agreement by the parties to the contrary.
• There is an express agreement to arbitrate under rules which default procedure is that all three arbitrators are to be appointed by the institution (for example, the LCIA Rules) and an express agreement, contrary to the default procedure, that each party is entitled to nominate an arbitrator.

Is there really a material difference between these two situations, such that unilateral nominations in the former situation should not be allowed whilst unilateral nominations in the latter situation should be allowed? I think not: an agreement to arbitrate under particular rules is an agreement on the default procedure of appointment under those rules. In both cases, the parties, with the benefit of legal advice, agreed that each party shall be entitled to nominate a co-arbitrator. Indeed, in both cases the principle of party autonomy dictates that the parties’ agreement that the co-arbitrators are to be selected by unilateral nominations must be upheld.

Safeguards against bias and partiality

Professor Paulsson argued that parties exercise their right of unilateral appointment with the overriding objective of winning in view, which results in “speculation about ways and means to shape a favourable tribunal, or at least to avoid a tribunal favourable to the other side”.

In a similar vein, Professor Martin Hunter wrote: “when I am representing a client in an arbitration, what I am really looking for in a party-nominated arbitrator is someone with the maximum predisposition towards my client, but with the minimum appearance of bias” (Martin Hunter, Ethics of the International Arbitrator, 53 Arbitration 219, 1987, pp 222-223). This is admittedly an honest and largely accurate description of the approach which many take when looking for a party-appointed arbitrator.

But there is little (beyond anecdotal) evidence of a material risk of bias and/or partiality by party-appointed arbitrators. In any event, contrary to Professor Paulsson’s view that existing checks and balances are inadequate to guard against the “menace” of unilateral appointments, I believe that there are sufficient safeguards (both formal and informal) to protect against the risk of bias and partiality by party-appointed arbitrators.

• First, most institutional rules require arbitrators to disclose any circumstances that may give rise to doubts as to the arbitrator’s impartiality and/or independence.
• Second, most institutional rules allow parties to challenge and remove an arbitrator if circumstances exist that give rise to doubts as to the arbitrator’s impartiality and/or independence.
• Third, an award may be challenged if the tribunal has failed to act fairly and impartially (under the English Arbitration Act) or if a party has been denied its right to be heard (under the UNCITRAL Model Law and most national arbitration laws).
• Lastly and importantly, the other members of the tribunal are helpful and effective checks against any improper behaviour by a party-appointed arbitrator which may not be apparent to the parties (for example, attempts by a party-appointed arbitrator to improperly influence the decision of the tribunal during the tribunal’s deliberations). It is unlikely that such behaviour would go unnoticed by the other members of the tribunal (unless such behaviour is so subtle as to go unnoticed, in which case its effect on the decision of the tribunal would be highly questionable). It is not simply that the other members of the tribunal may exclude a biased and partial arbitrator from its deliberations. Indeed, such exclusion would itself be improper. Rather, arbitral rules could provide for a procedure by which members of the tribunal may bring to the attention of the parties and/or the institution any improper behaviour which constitutes impermissible bias or partiality by any member of the tribunal. The parties and/or the institution may then take the appropriate steps to remedy the situation.


There is admittedly some truth to the criticisms which have been levelled against the practice of unilateral appointments. However, I believe that abolishing the practice of unilateral appointments would be an overreaction to these criticisms. It would also undermine the principle of party autonomy, which is undeniably the cornerstone of international arbitration. We should have a little more faith in the decision of parties on their preferred method of constituting a tribunal, the ability of arbitrators to abide by their duties, and the safeguards which protect the arbitral process from impermissible bias and partiality.

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