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Where Angels Fear to Tread: The Availability of Disclosure in Support of an Application to Remove a Tribunal

Sun, 2017-04-23 22:44

Richard Power

Clyde & Co.

The recent decision in P v Q [2017] EWHC 148 (Comm) provided, for the first time, guidance on how a Court will approach an application for disclosure in support of an application to remove Arbitral Tribunal members under s.24 Arbitration Act 1996.

Background

The Claimant had brought an application to remove two wing members (the “Co-Arbitrators”) of an Arbitral Tribunal under s.24(1)(d)(i) Arbitration Act 1996 (“AA 1996”).1)Judgment was handed down on this application on 9 February 2017 and is reported at 2017 EWHC 194 (Comm) jQuery("#footnote_plugin_tooltip_3660_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3660_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Claimant had previously applied before a specialised LCIA Division (appointed by the LCIA Court) for dismissal of the entire Tribunal, based on the arbitrators’ alleged failure to appropriately conduct the arbitral proceedings by delegating their roles to the Tribunal Secretary. Further, serious doubts were raised as to the Chairman’s impartiality. This application culminated in the removal of the Chairman but not the Co-Arbitrators, and so the Claimant applied to Court for their removal.

In support of that application, the Claimant applied for disclosure of various documents from the Co-Arbitrators, including “instructions, requests, queries or comments from the Co-Arbitrators (or from [the Chairman] to which the Co-Arbitrators were copied) to the Secretary” and all communications sent or received by the Co-Arbitrators which related to the role of the Secretary and/or the tasks delegated to the Secretary.

The principles governing the disclosure application

The Claimant contended that the governing principles were those in respect of specific disclosure pursuant to CPR 31.12, from which the Court derived its power to make the order sought. Provided the documents were relevant, the Court had discretion to order disclosure, to be exercised in accordance with the overriding objective.

The Defendants argued that given that the material sought was especially sensitive (being akin to documents relating to Judge’s deliberations); the nature of the s.24 proceedings; and the policy considerations reflected in sections 1, 33, and 40 of AA 1996, disclosure should only be granted in “rare and compelling cases” where there was a strong prima facia case on the merits of the s.24 challenge, and disclosure was strictly necessary for the fair disposal of the s.24 application.

Popplewell J acknowledged that there was no existing case law on such an application. He held that the following principles should govern an application for disclosure of a Tribunal’s materials:

Principle 1 – real prospect of success

Popplewell J declined to impose a merits threshold which was higher than the default position on “normal” interlocutory applications. He reasoned that the relevance and nature of the material sought, and the merits of the removal application, could be taken into account in the exercise of the Court’s discretion. The correct test was that which would have to be established if facing a summary dismissal, i.e. namely that the s.24 application has a real prospect of success.

Given the Claimant’s failure to fulfil the necessary criteria laid down under Principles 2 and 3 (see below), Popplewell J did not consider it necessary to express his views on whether this test was satisfied in the current case.

Principle 2 – strict necessary

Popplewell J held that the documents sought in the disclosure application must be “strictly necessary for the fair resolution” of the s.24 application, for the following reasons:

This is the test generally applicable in interlocutory proceedings.
Perhaps more significantly, the arbitral context (and the overriding objective) requires cases be resolved without unnecessary delay or expense and with minimal Court intervention. Popplewell J commented that the s.24 process is an intrusion by the courts into the arbitral process (especially where, as here, the arbitral institution has already considered and ruled on the question) and an order for disclosure would likely delay the resolution of the dispute, enforcement of the award and increase the costs.
Where disclosure is sought in litigation from non-parties, the test is one of necessity. While the Co-Arbitrators were technically parties to the s.24 application, their position was analogous to non-parties.

Popplewell J held that the documents sought were not strictly necessary, pointing out that s.24 and s.68 AA 1996 claims are regularly concluded without disclosure, as are recusal applications to judges.

Principle 3 – factors affecting the exercise of discretion

Popplewell J held that in exercising its discretion, the Court will have regard to the overriding objective and all the circumstances of the case. In particular, given the arbitral context:

disclosure in support of Arbitration Claims will usually be inimical to the principles of efficient and speedy finality and minimal Court intervention which underpin AA 1996;
where an arbitral institution has the power to grant disclosure and has declined to do so, the Court will not normally order disclosure;
the Court will not normally order disclosure of documents which the parties have expressly/implicitly agreed with each other and/or the Tribunal should remain confidential; and
it will only be in the very rarest of cases, if ever, that arbitrators (who are in a position analogous to the judiciary) will be required to give disclosure of documents; it would require the most compelling reasons and exceptional circumstances for such an order to be made.

On the facts, Popplewell J held the case was neither wholly exceptional nor rare. Moreover, the documents sought would amount to disclosure of the confidential deliberations of the Tribunal, which would be impermissible under the principles applying to disclosure of a Judge’s deliberations and under the parties’ agreement on confidentiality in Article 30.2 of the LCIA Rules.

Conclusion

The theme throughout Popplewell J’s judgment is that the Court will respect its role in the context of arbitral proceedings of supporting Tribunals and arbitral institutions, and the principle of party autonomy, with minimal intervention. This is as laudable as it is clear.

Practically speaking, it is apparent that a Claimant is unlikely to obtain disclosure from the Tribunal in support of an s.24 application, meaning that he will face considerable (if not insurmountable) evidential difficulties.

In the circumstances, parties should give serious consideration as to whether to bring a removal application under s.24 AA 1996, given the unavailability of disclosure, the reluctance of Courts to intervene in the arbitral process, and the damage it will do to relations with the Tribunal.

References   [ + ]

1. ↑ Judgment was handed down on this application on 9 February 2017 and is reported at 2017 EWHC 194 (Comm) 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:

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Taming the “Mercantile Adventurers”: Third Party Funding and Investment Arbitration – A Report from the 14th Annual ITA-ASIL Conference

Thu, 2017-04-20 23:32

James Egerton Vernon

ITA

In his 2014 Assenting Opinion on a security for costs motion in RSM v. Saint-Lucia, arbitrator Dr. Gavin Griffith Q.C. described third-party funders as “mercantile adventurers” and associated their activities with “gambling” and the “gambler’s Nirvana: Heads I win and Tails I do not lose.” This was no voice in the wilderness. The increasingly prevalent role of third-party funding (“3PF”) in international arbitration has raised concerns with many stakeholders that it will fuel a rise in frivolous claims. In particular, the role of 3PF in investment arbitration raises unique concerns for policy-makers because, ultimately, a State’s taxpayers will be liable for satisfaction of any award favoring the claimant. For their part, funders, and the claimants and law firms with which they generally collaborate, decry as unfounded the criticism of Dr. Griffith and those of his ilk, and note that their careful screening of claims acts as an effective filter for any unmeritorious action. Funders, after all, have a nakedly capitalist motivation; what do they stand to gain from supporting claims unlikely to turn them a profit?

These starkly divergent views have led to similarly contrasting opinions as to how, if at all, 3PF in international arbitration should be regulated. Calls for regulation have historically embraced two extreme options. At one end of the spectrum a “do not ask, do not tell” approach – viz. no regulation at all. At the other “a total ban on 3PF.” How, then, should the arbitral community proceed in the face of such a fractious debate?

The answer came in 2014 when the International Council for Commercial Arbitration and London’s Queen Mary School of Law formed a joint taskforce on “Third-Party Funding in International Arbitration” (the “Task Force”) co-chaired by three leading arbitration academics, Profs. Catherine Rogers, William (Rusty) Park and Stavros Brekoulakis. The Task Force’s aim is to “systematically study and make recommendations regarding the procedures, ethics, and related policy issues relating to third-party funding in international arbitration.” A working draft of the Task Force’s findings was presented, for discussion purposes, at the 14th Annual ITA-ASIL Conference on Third-Party funding, held in Washington, D.C. on 12 April 2017 (the “Draft Report”).

Proceedings commenced with a keynote from Professor Park, in which he highlighted four “musketeers” (viz. issues) identified by the Task Force as needing to be addressed:

First transparency, without which the very legitimacy of the arbitral process risks being undermined.

Second privilege. While in the U.K. and the U.S. common interest privilege would likely cover a claimant and funder working together on a case, this may well not be the case in civil law jurisdictions.

Third the issue of costs. To what extent should the existence of 3PF be taken into account in allocating costs in an increasingly “loser pays” legal environment? Should it be a factor when considering whether to grant an order on security for costs?

Fourth and finally (or as Professor Park put it, the “d’Artagnan” issue of the musketeers of 3PF), the question of definitions. Who or what exactly is a third party funder?

Thereafter two prestigious panels consisting of commercial funders and representatives from the worlds of academia and public policy entered into a lively discussion of the issues raised in the Draft Report. Below, with a focus on the role of 3PF in investment arbitration, I detail five key take-aways.

1. 3PF in Investment Arbitration: ‘Relatively Widespread’

While the generally-confidential nature of 3PF and the consequent lack of publicly-available empirical evidence has militated against certainty, it has been the accepted wisdom in recent years that 3PF is becoming increasingly prevalent in investment arbitration. The Eurogas v. Slovak Republic tribunal confirmed as much when it described 3PF, in a 2015 Procedural Order, as “a common practice” in investment arbitration. It was thus particularly instructive to be provided, at the conference, with hard data confirming that:

• In the 2015 Queen Mary and White & Case International Arbitration Survey “39% of the respondent group” “[had] encountered [3PF] in practice.” This “suggest[ed] that its use is relatively widespread.
• 3PF has been used by claimants in at least 19 investor-state arbitrations.
• In the 2013 Queen Mary / PwC Arbitration Survey49% of respondents reported having used discounted hourly rates with … a success fee …”.
• Contingent or conditional fee agreements have been used by claimants (and at least one respondent) in at least 10 investor-state arbitrations.
• Investment tribunals have awarded success fees in both ICSID (Siag v. Egypt – ordering payment of $6.9m in legal fees, of which $3.2m was a success fee) and UNCITRAL (Khan Resources v. Mongolia – awarding claimants $6m to pay their counsel’s contingent legal fees) arbitrations.

2. Issue 1: Uncertainty Remains – What is 3PF in Investment Arbitration?

As Professor Park noted in his opening comments, the definition of 3PF – who or what exactly is a third-party funder? – is key. Ensuring this definition is both accurate and fair is crucial if any proposed regulations are to be effective. As one prominent voice from the funding community recently noted, regulations based on too narrow a definition could result in a situation where “it is proposed that [a funder’s] 5% interest in a matter should be disclosed, but a creditor’s 10% interest need not be.”

While the Task Force members acknowledged that the definition of 3PF is contentious, and that there remained much debate on this even within Task Force’s subcommittee on definitions, the Draft Report adopted the following Working Definition:

The term ‘third-party funder’ refers to any natural or legal person who is not a party to the dispute but who enters into an agreement either with a disputing party, an affiliate of that party, or a law firm representing that party: a) in order to provide material support or to finance part or all of the cost of the proceedings, either individually or as part of a selected range of cases, and b) such support or financing is provided either through a donation or grant or in return for remuneration dependent on the outcome of the dispute.

While scholars and funders have provided their own varying suggestions as to what the definition of 3PF should encompass (and the issue of how after-the-event insurance should be categorized remains especially contentious), states have also been responsive to this issue. The Draft Report notes, for example, that the revised Comprehensive Economic and Trade Agreement, ratified by Canada and the E.U. in October 2017, includes the following definition of 3PF:

Third party funding means any funding provided by a natural or legal person who is not a disputing party but who enters into an agreement with a disputing party in order to finance part or all of the cost of the proceedings either through a donation or grant, or in return for remuneration dependent on the outcome of the dispute.

The treaty further provides for disclosure of “the name and address of the third party funder.” Similar provisions are contained in the (as yet unratified) E.U.-Vietnam Free Trade Agreement, as well as the French and Slovak Model Bilateral Investment Treaties. The E.U. has, further, put forward specific language defining and addressing 3PF to be included in its Transatlantic Trade and Investment Partnership with the U.S.

This, however, remains the extent of state involvement to date. While it is thus possible to discern a relatively uniform E.U. approach to the definition of 3PF in investment arbitration, we remain none-the-wiser as regards the views of other major investor-state stakeholders such as the U.S., China, Africa and Latin America. This is thus an area where the conclusions of the Draft Report will be especially helpful.

3. Issue 2 – Conflicts of Interest

The issue of 3PF and potential conflicts of interest was a key theme throughout the conference, with potential conflicts identified as being those:

Between the arbitrator and the funder, including: where the arbitrator is a member of the investment advisory panel of a funder; where he or she serves as a consultant to the funder; where the same arbitrator is regularly appointed in cases financed by a particular funder; or where the arbitrator has acted as counsel or an expert in other proceedings financed by the same funder.

Between the attorney and the funder, including: the risk of a waiver of privileges (such as the attorney-client privilege) through disclosure to the funder during the due diligence process; “intermeddling” by the funder in the attorney-client relationship (e.g. through the funder attempting to influence the attorney in key strategic decisions); and the funder appointing one or more nominees to the board of the funded company.

Between the claimant and the funder, including: the funder “intermeddling” in the attorney-client relationship (e.g. by influencing the attorney in key strategic decisions); and through appointing directors to the board of the funded company.

Between the claimant and the contingent fee attorney, including: the possibility of discord when it comes to settlement; issues as to what is covered and not covered in the contingency arrangement (e.g. funding may be required for more than just legal fees); and the potential need to revise a contingent fee arrangement should the budget be exceeded and the claimant require additional funding from a funder.

4. Issue 3 – 3PF Can Adversely Affect the Conduct of Investors

A number of pertinent observations were also made regarding the influence the availability of 3PF may have on investors vis-á-vis host states, as follows:

• The object and purpose of a number of bilateral investment treaties is to advance sustainable development, a goal potentially at odds with the involvement of profit-driven funders.
• The availability of 3PF to fund an investment claim could adversely incentivize investors, in particular at a time when relations with the host state are beginning to deteriorate. Will the availability of funding weaken an investor’s resolve and render it more likely to abandon attempts to settle in favor of leaving and claiming damages? Does the availability of lost profits in investment claims perversely incentivize such behavior?
• While the counter-argument to the “adverse incentive” point is that it makes no sense for funders to fund frivolous cases, perhaps we should instead be considering whether the presence of 3PF enables more marginal, as opposed to frivolous, investment claims to be brought, and whether that, in turn, is a good thing.
• Finally, the research of two scholars (Chen & Abrams) into the effects of 3PF on Australian litigation was highlighted. This study confirmed not only that 3PF leads to more claims, but also that funders have tended to support cases raising novel issues. Funders can thereby enjoy an outsized influence over the development of the law in influential areas, which in turn warrants particular caution as concerns 3PF in investment arbitration.

5. Possible Solutions & Conclusion

While the aim of the Draft Report was limited to stimulating a preliminary debate (a goal which was certainly achieved at the conference), some potential solutions to the issues identified above were nevertheless discussed, all of which, interestingly, utilize existing arbitral tools:

• Conflicts of interest involving funders could be resolved through the careful application of the IBA Guidelines on Conflicts of Interest in International Arbitration;
Tribunals can order disclosure of the existence of a third-party funder (as they did in both Muhammet Ҁap v. Turkmenistan and South American Silver v. Bolivia); and
• As noted above, states can and some have included specific provisions pertaining to 3PF in their investment treaties.

In sum, the Draft Report marks but an initial step in a lengthy process, particularly as regards the role of 3PF in investment arbitration. As Prof. Franck noted in her closing remarks, there remains a great deal of work to be done. The Task Force will be revising the Draft Report and posting a version for formal public comment in July 2017, as well as organizing further public events.

The arbitration community will be monitoring these developments with a keen interest.

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Arbitral Institutions Are Doing Their Bit; What About The Other Players?

Thu, 2017-04-20 10:14

Andrew de Lotbinière McDougall and Fiona Candy

White & Case

White & Case’s recent research should provide some comfort to the arbitral community by showing that arbitral institutions are becoming increasingly flexible and responsive to users’ needs. Flexibility was in fact a characteristic which the 2015 survey conducted by White & Case with Queen Mary University of London established as being one of the most valuable ones in arbitration.

What proved to be positive in itself was the very data gathering process from the various institutions in that it revealed a growing willingness by the institutions to publish and share data, some of which up until now they had either been reticent to disclose or at least considered not relevant to disclose. Statistics regarding female arbitrator appointments, for instance, were only made available, if at all, from 2014. Given the apparent increased drive by institutions to please their users as well as the heightened competition amongst them all, it will be a safe bet to say that many more institutions will be publishing data on female appointments (as well as other issues) in the coming year and years.

The results of the research, put simply, show that (a) more parties are wishing to use expedited proceedings, a tool that is becoming more widely on offer by the institutions; (b) there is an increase in, even preference for in some cases, single member tribunals over three member tribunals, and (c) more female arbitrators are being appointed, at least by the institutions themselves.

These steps and attitudes displayed by the arbitral institutions no doubt have a positive impact on the arbitration process by recognising that parties are wishing to exercise more control in an effort to save time and costs. This however should not be considered in a vacuum; indeed, to gain the optimal benefit from this welcome move by institutions, the other players must co-operate and play their part as well.

Taking female arbitrator appointments, it is all very well that the institutions themselves are making impressive efforts to appoint females, but what about the appointments by parties and co-arbitrators which is lagging behind considerably? There is room for much improvement here. It is noteworthy that the Equal Representation in Arbitration Pledge has been signed by about 2,000 users, including individuals, lawyers, law firms, corporates and arbitral institutions but parties and co-arbitrators are not yet, in practice, appointing nearly as many female arbitrators as the institutions. Why is this so? Is it perhaps due to a mindset along the lines of “in the ideal world, it makes sense for more females to act as arbitrators but in my particular case, especially given it’s my money and my reputation at stake, I prefer to go with the known figures”? Maybe in part. What’s the solution? A start could be law firms providing more opportunities to women internally which could have a snowball effect with good female counsel being appointed as arbitrators. There is also probably room for counsel to better enlighten and educate clients as to the benefits (or at least lack of harm) of appointing female arbitrators. Perhaps a conscious change of mentality is required amongst co-arbitrators as well where they tell themselves that old habits should be broken and that they can really make a difference.

The rise in the use of sole member tribunals is also to be welcome in light of the obvious benefits of speed and cost. This though cannot be looked at in isolation of the circumstances of each case. This is where counsel and parties must carefully analyse the possible risk of losing out on quality, especially in a particularly complex and large case, when a sole member tribunal is appointed.

Similar concerns apply to expedited proceedings. It is applaudable that parties are optimising an ever increasing array of tools on offer by institutions to allow for expedited proceedings but again, this will not be appropriate in all circumstances. There is an argument that something is inevitably lost in the name of efficiency. To illustrate that expedited proceedings are not necessarily appropriate for all cases lies in the fact that the institutions will not necessarily accept all applications. What is appreciated in any event is that the parties have the choice and that after careful consideration with counsel, can opt for this procedure.

Finally, it would be amiss not to make mention of time and cost. The results of the research indicate that there is room for improvement by the institutions. To stop there though would be to ignore the fundamental role of parties, counsel and arbitrators. Much is also in their hands to maximise efficiency and minimise cost such as avoiding unnecessary delay tactics by parties and counsel and stronger case management by arbitrators.

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When Does a Tribunal Secretary Overstep the Mark?

Mon, 2017-04-17 23:23

Peter Hirst

Clyde & Co.

The use of tribunal secretaries in arbitration is a hotly debated topic. For some time now, the use of a secretary has been increasing in the interests of cost and time efficiency. For some however, there is a fear that arbitrators delegate their duties and for a ‘second’ or ‘fourth’ arbitrator to be involved in the decision-making process (contrary to the very ethos of arbitration). A recent decision of the English High Court gives lessons for parties and arbitrators when considering tribunal secretary appointments.

P v Q

In P v Q [2017] EWHC 194 (Comm) (handed down in February 2017 but published in anonymised form this week) the Hon. Mr Justice Popplewell in the English High Court considered an application (the removal application) under s24(1)(d)(i) of the Arbitration Act 1996 (AA 1996) to remove two co-arbitrators from their positions in an ongoing LCIA arbitration. Section 24(1) (d) (i) provides that a party to arbitral proceedings may (upon notice to the other parties, to the arbitrator concerned and to any other arbitrator) apply to the court to remove an arbitrator on grounds that he has refused or failed to properly conduct the proceedings.

The application was founded on conduct in three procedural decisions made by the tribunal relating to the sharing of documents between two related arbitrations, an application for a stay and production of documents. Concerns were particularly raised when an email from the chairman intended for the tribunal secretary was mistakenly sent to a paralegal at P’s solicitors containing a letter from P to the tribunal and asking for ‘Your [the secretary] reaction to the latest from [P]?’.

P had previously applied to the LCIA Court (which appointed an LCIA Division to determine the matter) for the removal of all three members of the tribunal. The LCIA Division had revoked the chairman’s appointment (though on different grounds relating to comments made at a conference), but refused to revoke the two co-arbitrators’ appointments.

In its application to the High Court, P complained that the arbitrators had:

• improperly delegated their role to the tribunal secretary by systematically entrusting the secretary with a number of tasks beyond that permissible under the LCIA Rules and LCIA Policy on the use of tribunal secretaries
• breached their mandate as arbitrators and their duty not to delegate by not sufficiently participating in the arbitration proceedings and the decision-making process
• negligently and/or innocently misrepresented to P the position as to the existence and/or nature and/or extent and/or effect of delegation of their roles to the secretary (this argument was put to the court but had not raised before the LCIA Division)

P also applied to the High Court for disclosure from the arbitrators of instructions, requests, queries or comments from the co-arbitrators (or from the chairman to which the co-arbitrators were copied) to the secretary. As well as all responses from the secretary to those emails and all communications sent or received by the co-arbitrators which related to either the role of the secretary of the tasks delegated to the secretary. This ‘disclosure application’ was refused.

As the disclosure application had been refused, P’s removal application was largely based on the comparable time recorded by the arbitrators and the secretary along with one ‘Misguided Email’ which was accidentally sent by the original chairman to a paralegal at P’s solicitors’ firm instead of the intended tribunal secretary.

Applications dismissed

Popplewell J dismissed the removal application finding that ‘there is no merit in any of the arguments, either singly or cumulatively, that the co-arbitrators failed properly to conduct proceedings’. He also held that no substantial injustice had been proven even if there had been merit in the claims made.

Claims on the merits

In considering the argument that the arbitrators improperly delegated their role, Popplewell J reviewed the time spent by the arbitrators on the case and their written evidence as to the work they had done on the interlocutory issues in question. He also drew on his own experience of arbitration and found that there could be no valid criticism of the manner in which they went about their adjudicatory functions in the way articulated in their letters. He found that it is entirely proper for co-arbitrators to consider submissions, leave it to the chairmen to prepare a draft of the decision consider the draft and approve or revise it as appropriate – such an approach avoids unnecessary delay or expense on procedural matters and is the way in which international arbitration panels commonly function. He noted that this was consistent with LCIA Art 14.3 which provides for the chairman to make procedural rulings alone with the consent of the co-arbitrators.

In reaching his conclusion, Popplewell J was keen to emphasise the court’s supervisory and non-interventionist role noting that ‘this court should be very slow to differ from the view of the LCIA Division’. He noted that the LCIA was the parties’ chosen forum, had considerable experience and was well placed to judge how much time was required for a co-arbitrator to properly consider interlocutory issues of the type in question.

Substantial injustice

The test of substantial injustice was the same as that for an appeal under AA 1996, s 68, namely that the arbitrator’s conduct goes ‘beyond anything that could reasonably be defended’ (Departmental Advisory Committee Report on the Arbitration Bill 1996). This places the burden on the applicant to show that the arbitrators’ failure caused the tribunal to reach a decision(s) which, but for the failure it might not have reached (Maass v Musin Events [2015[ 2 Lloyd’s Rep. 383; Terna Bahrain Holding v Al Shamsi [2012] EWHC (Comm) 3283). Popplewell J found no grounds for such a finding. He also noted that P’s professed loss of confidence in the tribunal could not constitute substantial injustice ‘absent some concrete or substantive prejudice’.

Tribunal secretary

Since the questions over the use of tribunal secretaries came to the fore in Yukos (Yukos Universal Limited v Russian Federation, UNCITRAL, PCA Case No AA. 227), the use of secretaries has been under greater scrutiny. In this decision, Popplewell J noted the ‘considerable and understandable anxiety in the international arbitration community that the use of tribunal secretaries risks them becoming the ‘fourth arbitrators”. He noted the divergent views among practitioners and commentators as to the appropriate use of tribunal secretaries, reviewing several sources of information on the role of tribunal secretaries including:

• Art 14 of the LCIA Rules 1998 (the rules applicable in this case1)Similar wording is at Article 14.5 of the LCIA Rules 2012 jQuery("#footnote_plugin_tooltip_5089_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5089_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });) which provide that unless otherwise agreed by the parties under Art 14.1, the tribunal shall have the widest discretion to discharge its duties permitted by the applicable law. The judge noted that in this case, the parties agreed to the appointment by the chairman of a secretary, they did not place any constraints on the tasks and functions which the secretary might perform and no agreement as to the limits of his permitted involvement in the process.
• The LCIA’s Notes for Arbitrators (29 June 2015) which are for guidance only, which provide at section 8 that subject to the parties’ express written agreement a tribunal may appoint a secretary ‘to assist it with the internal management of the case’. It states that the duties of the secretary should not, however conflict with those for which the parties have contracted with the LCIA nor constitute any delegation of the tribunal’s authority. (Note that unlike the HKIAC for example the LCIA has no formal guidelines on the use of tribunal secretaries).
• The LCIA’s Frequently Asked Questions which state that the LCIA has no objection in principle to the appointment of a secretary to the tribunal provided that the parties agree and subject to the usual conflict checks. It continues that administrative secretaries should confine their activities to such matters as organising papers for the tribunal, highlighting relevant legal authorities maintaining factual chronologies keeping the tribunal’s timesheets and so forth.
• The 2014 Young ICCA Guide on Arbitral Secretaries which provides that ‘it shall be the responsibility of each arbitrator not to delegate any part of his or her personal mandate to any other person, including an arbitral secretary’. The guide (commentary to Art 1(5)) acknowledges the risk of ‘dilution in mandate’ but states that there is significant acceptance in the arbitration community that this is a risk outweighed by the benefits inherent in the use of arbitral secretaries and that to minimise the risk tribunals must ensure that they maintain tight control over the tasks entrusted to the arbitral secretary and provide close oversight of their responsibilities. The guide provides that with appropriate direction and supervision by the tribunal, the secretary’s role may go beyond the purely administrative and may include handling and organising correspondence, submissions and evidence on behalf of the tribunal, requesting questions of law, researching discrete questions relating to factual evidence and witness testimony and drafting appropriate parts of the award.

Popplewell J surmised that ‘the safest way to ensure that the secretary does not become a ‘fourth arbitrator’ is for the secretary not to be tasked with anything which involves expressing a view on the substantive merits of an application or issue’. His key message was that the use of tribunal secretaries must not involve any member of the tribunal abrogating or impairing their non-delegable and personal decision-making function. This requires each member of the tribunal to bring their own personal and independent judgment to bear on the decision in question, taking account of the rival submissions of the parties; and to exercise reasonable diligence in going about discharging that function. Popplewell J clarified however that soliciting or receiving views from a tribunal secretary would not of itself demonstrate a failure to discharge the arbitrator’s personal duty to perform the decision-making function and responsibility themselves.

Be clear as to the secretary’s role and remit

While no party would make an application to remove arbitrators lightly, this case demonstrates the difficulties of such an application both in terms of the ability to obtain potential evidence and to demonstrate that the tribunal has breached its duty and substantial injustice has been caused. Questions as to the role of tribunal secretaries in the abstract, and the influence of secretaries within a case, will most likely continue for some time. Parties and arbitrators should be alive to the rules and guidance on the role of tribunal secretaries including the guidance now given in this decision and address any concerns and parameters with the tribunal at the outset of any tribunal secretary appointment.

References   [ + ]

1. ↑ Similar wording is at Article 14.5 of the LCIA Rules 2012 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:

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Rome Wasn’t Built in a Day: Progress Report on the Creation of a UNCITRAL Convention on Enforcement of Conciliated Settlement Agreements

Sun, 2017-04-16 23:40

Michael Stimakovits

Schoenherr

Over the past few decades, alternative dispute resolution (“ADR”) has become the preferred method of conflict management in the commercial world. Contemporary trends in dispute resolution aim at consolidating ADR in this position by finding an appropriate way to enforce settlement agreements resulting from mediation/conciliation or in the course of judicial or arbitral proceedings.

A topic at the heart of this discussion is whether a legal framework for enforcement of international settlement agreements harmonised at the international level should be established. Many scholars, researchers and practitioners have participated in the discourse of the international professional community (see, for example, in 2015 in The UNCITRAL Convention on Enforcement of Conciliated Settlement Agreements – An Idea Whose Time Has Come?)

The door to establish an enforcement mechanism for settlement agreements reached through international commercial conciliation is not only open, but in fact the United Nations Commission on International Trade Law (UNCITRAL) Working Group II (Dispute Settlement) has already taken the first steps through it. In July 2014, the UNCITRAL agreed that Working Group II would put the issue of enforcement of settlement agreements resulting from international commercial conciliation on its agenda. Since then, it has been gathering twice a year to draw up the provisions of the legal framework for such an instrument. Of course, Rome wasn’t built in a day, and neither will this legal framework for enforcement of settlement agreements.

At the Vienna Arbitration Days this past February, Natalie Yu-Lin Morris-Sharma, Chairperson of Working Group II shared her insights on the development of a conciliation convention and/or model provisions as a legal framework for the enforcement of settlement agreements. The aim of these tools is to bolster the general application of mediation and to provide for a proper enforcement regime of settlement agreements resulting from it. In fact, an effective enforcement mechanism would allay one of the parties’ biggest fears about tedious settlement negotiations: the prospect of a costly case and lengthy litigation or arbitration if one party fails to abide by the settlement terms. Moreover, according to Ms Morris-Sharma, the scope of application of the conciliation convention would not be confined to settlement agreements with mere monetary implications (ie settlement payments), but would also apply to other forms of settlement agreed between the parties (eg return of goods exchanged under the preceding contract).

It was also explored in Vienna whether with the prospect of enforcing settlement agreements resulting from mediation or ADR in general, consent awards might become obsolete. Having an enforcement regime for settlement agreements at one’s disposal would mean that a settlement agreement does not necessarily have to be in the form of a consent award to be enforceable. Accordingly, there might be no demand to “shape” settlement agreements as consent awards. Given this, the new legal framework could further strengthen the importance of ADR in international dispute settlement.

In the course of its latest session held in New York from 6–10 February 2017, Working Group II presented its “compromised proposal” with “a uniform text on enforcement of international commercial settlement agreements resulting from conciliation” (the latest Report of Working Group II (Dispute Settlement) is available here), and resumed its deliberations on the preparation of an instrument for enforcing international settlement agreements resulting from conciliation (the “instrument”). In this context, Working Group II also touched upon settlement agreements concluded in the course of judicial or arbitral proceedings.

Working Group II reiterated its common understanding that settlement agreements resulting from judicial or arbitral proceedings but not recorded as judicial decisions or arbitral awards (consent awards) should certainly fall within the scope of the instrument. The same holds true for settlement agreements reached with the mere involvement of a judge or an arbitrator in the conciliation process.

It was also proposed and examined whether to exclude settlement agreements approved by a court, or which have been concluded before a court in the course of proceedings, and which are enforceable in the same manner as a judgment, or recorded as an arbitral award.1)Draft provision 1(3): this instrument does not apply to settlement agreements: (a) approved by a court, or (b) that have been concluded before a court in the proceedings, either of which are enforceable in the same manner as a judgment, or (c) recorded and enforceable as an arbitral award. jQuery("#footnote_plugin_tooltip_1193_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1193_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In this way, possible gaps or overlaps with existing and future conventions such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), the Convention on Choice of Court Agreements (2005), and the 2016 Preliminary Draft Convention on Judgments, under preparation by the Hague Conference on Private International Law could be avoided.

Some members of Working Group II raised concerns that this proposal might create another gap, if it did not provide that a settlement agreement recorded as an arbitral award but not enforceable as an arbitral award would fall under the scope of the instrument: for example, the denial of enforcement of a consent award refused under the New York Convention due to the lack of an underlying dispute. Another question was whether the assessment of enforceability should be subject to (i) the law of the state where the settlement agreement was recorded as a judgment (the originating state) or (ii) in accordance with the law of the state where enforcement was sought. Working Group II affirmed that it should be the law of the originating state, since it would be in accordance with the approach adopted in the 2016 Preliminary Draft Convention on Judgments under preparation.

As a consequence, however, parties might be deprived of the opportunity to enforce a settlement agreement in cases where it was recorded as a judgment or an arbitral award, but the state where enforcement is sought does not permit enforcement under those regimes. Therefore, settlement agreements recorded as a judgment or an arbitral award should be expressly included in the text of the final instrument so as to fall within its scope of application, all the more so as it is common in many jurisdictions for parties to request the court to record a settlement agreement.

Working Group II also expressed a need to clarify in the instrument that settlement agreements concluded before a court in the course of proceedings but not recorded as judgments would fall under the scope of the instrument to the extent that they were not enforceable in the same manner as a judgment. According to the reasoning of Working Group II, the instrument should not apply to settlement agreements approved by a court, or which have been concluded before a court in the course of proceedings, and which are enforceable in the same manner as a judgment, or recorded as an arbitral award (since they would already be subject to other conventions – see above).

From the above it is clear that (i) mediated settlement agreements resulting from freestanding mediations, (ii) settlement agreements resulting from judicial or arbitral proceedings but not recorded as judgments or arbitral awards, and (iii) settlement agreements reached with the involvement of a judge or an arbitrator would be within the scope of a conciliation convention.

Apparently, only settlement agreements reached with third-party assistance should be subject to a convention on the enforcement of settlement agreements resulting from international commercial disputes. But why should only these settlement agreements be privileged and benefit from an internationally available enforcement process? In fact, both mediated settlement agreements and those resulting from unassisted (private settlement) negotiation are subject to the rules of contract law. Accordingly, some jurisdictions understandably object to the different treatment of these settlement agreements for the purpose of enforcement. Perhaps there is still room for discussion about the inclusion of settlement agreements resulting from unassisted negotiations, ie negotiations that have been conducted exclusively between the parties involved.

With its “compromise proposal” Working Group II has created a sound basis for an effective enforcement regime for settlement agreements. Although many details still require further consideration by the working group members, considerable progress has already been made. It is only a matter of time before settlement agreements resulting from international commercial conciliation are enforceable under a uniform regime. Irrespective of whether this will come in the form of a convention or supplementary model law provisions, it will further bolster mediation and ADR in general and thus lead to a global trend in dispute resolution.

References   [ + ]

1. ↑ Draft provision 1(3): this instrument does not apply to settlement agreements: (a) approved by a court, or (b) that have been concluded before a court in the proceedings, either of which are enforceable in the same manner as a judgment, or (c) recorded and enforceable as an arbitral award. 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:

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Settling Well

Wed, 2017-04-12 23:04

Michael McIlwrath

Savvy litigators often tell their clients that “a bad settlement always beats a good litigation”. That may be partly because there is embarrassingly scant guidance in the literature, or even in the world’s law schools, on how lawyers can help their clients settle well rather than badly.

I recently had the honor of writing the forward to Michael Leathes’ new book, Negotiation: Things Corporate Counsel Need to Know But Were Not Taught. For those who do not know him, Michael could be considered the godfather of commercial mediation in Europe. A long-time in-house corporate counsel with several leading companies, he’s one of the co-founders of the International Mediation Institute, and the reason many younger (but now senior) corporate dispute lawyers have developed a special affinity with mediation.

In my private correspondence with Michael when he was writing his book, I argued that he should not limit the focus to corporate, in-house counsel, because dispute lawyers generally would benefit from his views. But Michael believes that in-house lawyers are the ones who ultimately call the shots and drive changes, and that is where he kept his focus.

While I was unable to convince Michael to change his mind, I still wish to plead the case that dispute lawyers of all types need to invest time into understanding more about negotiation. I offer as evidence this passage from his book on how opening offers contributed to a good settlement result of a large arbitration. The lesson is particularly relevant because so many counsel (external and internal) are reluctant to make a first move when trying to settle, wrongly assuming they should always let the other side go first.

In the early 1980s, I was a member of a small corporate negotiation team that met with representatives of the revolutionary Iranian Government. The meeting took place in Austria, and at the insistence of the Iranians the location was their Consulate in Vienna. I recall the magnificent tall ceiling, silk wallpaper and a huge portrait of Grand Ayatollah Khomeini surveying the French-polished antique table with a steely gaze. The aim of the negotiation was to resolve a claim that my company had filed with the Iran-US Claims Tribunal in The Hague, established in 1981 in the wake of the Hostage Crisis in 1980 and the seizure of Iranian assets, to recover the value of our expropriated Iranian operating company.

As the meeting was taking place on territory of the Revolutionary Government of Iran, we were cordially invited to present our arguments first. We began with an anchor, a copy of an audit report of our subsidiary’s operations that had been routinely prepared during the final months of our ownership by one of the large international accounting firms. The audit had assessed the net worth of the subsidiary at X million, and on top of that we claimed loss of the net present value of future income from the subsidiary’s operations. The Iranian negotiators politely listened to our explanation, but did not open the audit report, which lay untouched before them on the table. When we had finished, the lead Iranian negotiator, with some ceremony, discarded his unopened copy of our audit, and passed to us a document in Persian that he said was an audit by the Ministry of Finance of the Revolutionary Government. He simply remarked that this audit, carried out more recently, indicated that our former subsidiary that the Government had since “inherited” had a negative net worth of Y, and that we should be the ones providing compensation by leaving the Iranian Republic with a costly liability.

The negotiation on that day did not progress. Some time later, the case settled close to our audit-backed claim [instead of continuing to litigate] our claim in The Hague. Anchors that lack the force of credibility, or are less robust than those presented by the other party, generally weaken your position.

For that reason, many negotiation specialists point to a natural human reluctance to “shoot first”. For example, in their book, The First Move: A Negotiators Companion (2010), professors Alain Lempereur and Aurélien Colson, suggest that most people prefer not to be the first to drop an anchor. They give two risk-related reasons for this. First, the danger of being overly optimistic and therefore appearing unreasonable to the other party. Secondly, the opposite, by being overly pessimistic and having their proposal snapped up by the other party, leaving potential value on the table. By encouraging the other party to be first to drop an anchor, so the argument goes, there is at least a prospect that you may be pleasantly surprised and able to react accordingly.

If all parties feel this way about anchoring, and no one is willing to anchor first, a standoff ensues.

Although this instinctive hesitation to drop the first anchor is explainable, it is risk-averse, and you need the confidence to overcome it. My rule is that negotiators should try to anchor as soon as they have gathered sufficient information to enable them to state a claim that is as far above their [worst case] as it is possible to get while retaining genuine credibility for their anchored claim. This emphasizes the importance of pre-negotiation preparation in order to greatly reduce the first-to-anchor risks, and secure the leverage and persuasive benefit of getting the other party to negotiate from your anchor, not theirs.

Where the other party beats you to it, and drops an anchor that is nowhere near your own perception of reasonableness, think fast how to respond. You could challenge them to justify their anchor, but that can cause them to retrench and become unwilling to move away from it, which can lead to deadlock. Another response is immediately to table your best possible anchor and explain your justification for it, stimulating a discussion on your rationale rather than theirs. Alternatively, change the subject and move the discussion away from the unreasonable anchor.

Guidance like this is invaluable for all lawyers who advise the decision-makers. At the end of the day, company managers and corporate clients are all the same people. Seeing opportunities to settle before they do, and helping them get there successfully, can generate longer, more lasting relationships than relatively good results delivered after hard-fought, expensive, time-consuming arbitrations and court proceedings. (And that’s assuming you get a good result!)

To further support my case, I would like to share a story Michael himself told me many years ago, about what he once did after being irritated by an article about a dispute he had read while flying from London to Asia. The article quoted a prominent outside counsel of a national company boasting about how the costs of the case would make the other side, a key partner of his client, miserable. When Michael landed, he called the reception desk of the national company and asked to speak with the general counsel. When he was put through, he introduced himself as a fellow corporate counsel with no relationship with either of the parties and said he was shocked by what he had read.

The general counsel did not hang up. Instead, he agreed to have lunch, where they discussed the case and the strategy. Shortly after this, Michael was able to help convene the parties to identify a mediator and settle their dispute. He and the general counsel struck a relationship that led to their future cooperation in setting up mediation facilities in the country, and collaboration on other projects with a public interest.

And on that, I rest my case, Mr. Leathes.

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Iraq May Have Energy, But Can It Meet Agility with Resilience?

Wed, 2017-04-12 02:00

Noor Kadhim (Assistant Editor for the Middle East)

Three decades, two wars, one occupation, and multiple democratic elections later, I found myself back in my country of birth, Iraq, in April 2017. I was invited to Baghdad by the Iraq Energy Institute (IEI) as a speaker at the 2017 Iraq Energy Forum (IEF), under the patronage of the Iraq government and the Iraq Ministries of Oil and Finance. The IEI is a non profit advisor to the Iraqi government on energy matters. Given the high proportion of foreign investors’ interests in Iraq’s mineral resources and the state’s recently assumed international and contractual obligations under international bilateral and multilateral treaties for the protection of investments, it was a decisive moment at which to address an audience composed mainly of international oil companies, banks and government ministers on the legal risks of investing in Iraq.

And some investors don’t waste time when they get burned. One year after Iraq’s ratification of the 1965 Washington Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention), there are now two claims against Iraq. Hot on the heels of the pending claim by telecommunication company Agility Public Warehousing Company K.S.C.(Agility) against Iraq under the Kuwait-Iraq bilateral treaties of 1964 and 2013, I have learned that a new case has just been filed against the state in the same sector, this time by a different Arab investor under two treaties. The name of the company cannot be disclosed, but will likely appear on ICSID’s site in due course if it is accepted. The floodgates have been opened; it remains to be seen whether other well-advised investors will know how to navigate through them.

A week before the IEF, a colleague and I conducted workshops on investment arbitration for Iraqi postgraduate business students as part of an annual diploma course, the Iraq Public Policy and Leadership Programme at the American University of Sharjah (currently sponsored by Crescent Petroleum). There, we sought to impress that there is a big difference between business confidence and legal confidence. I repeated this at the IEF, because it cannot be stressed enough. Business confidence is to do with having faith in the mechanics and economics of a project and those involved. Legal confidence is about having confidence in the regulatory framework surrounding the project and the ability to enforce one’s rights if unexpected or unpalatable events happen. Lawyers should not be there to add more red tape and prevent you carrying out projects, but to assist you to get things done. If they’re not, then you had better change your lawyer.

All developing countries with exploitable mineral wealth have different legal, cultural, and political structures. But they share one thing in common: the need to reassure foreign investors that the legal terrain is safe enough for them to enter and invest. As we know, these are long term projects in which there are a lot of sunk costs, the rewards for which will only be gained years later. Reduced security drives up expectations of return. Less legal risk equals greater negotiating power for Iraq. Iraq has recognised this and has embarked on a course of reassuring investors through a sort of international treaty signing bonanza in recent months, with the the Convention Establishing the Multilateral Investment Guarantee Agency (MIGA Convention) and the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (New York, 2014) (Mauritius Convention on Transparency) now activated. But this course can lead to problems of its own for Iraq, whose accountability is now triggered. Advising on dispute resolution is not just about fighting fires when differences arise. More often than not, and often in Iraq’s case, it is about preparing for the battle and getting your ducks in a row, before a dispute crystallises.

Iraq’s largest source of wealth is its oil resources

It is a well-known fact that since the 1950s, mineral wealth has been crucial to Iraq’s development. Iraq is the fourth largest oil exporter and holds the fifth largest oil reserves. Yet we cannot ignore the cracks that are appearing. One of these is the emergence of competition from Iran, the unlocking of energy in North America through advanced extraction technologies, the reduced influence of OPEC, and the effect of falling oil prices. In addition, Iraq’s oil wealth could be much better exploited in a sustainable way. Poor governance has led to a situation of dependence on oil. According to the most recent World Bank report, Iraq’s reliance on oil revenues translates to 58 percent of the country’s GDP, 99 percent of its exports, and more than 90 percent of central government revenue in 2015.

The Iraqi Investment Law of 2006 (as amended)

Before turning to the international regime as it applies to Iraq, we start with the country’s own national laws. Before Saddam Hussein’s overthrow in 2003, non-Iraqi foreigners were not allowed to invest directly in Iraq through shareholding or direct control of Iraqi-incorporated companies. This changed when foreign direct investment was permitted after 2003. Unsurprisingly, while many other laws did not receive much attention, after the upheaval of the political regime in Iraq, the laws that were updated and amended by the Bremer administration included the investment laws. The aim was to align these laws with Iraq’s commitment to make necessary reforms to improve its business climate, making it more attractive to foreign investors.

Applying on a federal level, the Iraq Investment Law 2006 (as amended) (IIL) is the domestic law that regulates foreign investment in everything except the petroleum and banking and insurance sectors in Iraq. These are two important carve-outs. However, it is not inconceivable that the IIL will be updated in future to include these sectors, at the pressure of the oil companies, banks and insurance companies. Apart from this restriction, the scope of the IIL is wide: the definition of investment under Article 1 is “the investment of capital in any economic or service activity or project that results in a legitimate benefit for the country”. Under Article 10, foreign investors are to have the same rights and privileges as Iraqi nationals. This provision, independently of any contract the public sector may have signed with a foreign investor or anything contained in a generic bilateral treaty, gives a foreign investor a basis in Iraqi law for the expectation that the investment will be treated fairly and without discrimination.

Iraqi bilateral investment treaties

What happens if the nature of a dispute falls outside the scope of the IIL (such as petroleum disputes) or the IIL does not contain adequate protection (for instance, the weak dispute resolution mechanism the IIL is known to have)? We can, if we meet certain relevant criteria, turn to bilateral investment treaties for financial recourse.

As far as I am aware, there are two bilateral investment treaties in force between third states and Iraq: with Kuwait and Japan. Possibly also Jordan; the status is unclear. A recent article by a Dubai-based international law firm incorrectly referred to others (Germany and Belarus) having been ratified by both state parties but upon further verification these treaties are still dormant. In relation to the German BIT, upon enquiry, the German Ministry of Justice earlier this week confirmed that “the treaty did not come into force after the responsibilities for all trade and investment agreements were taken over by the European Commission“. The government communication also confirmed that while Germany was re-authorized to ratify the treaty by the European Commission (as the negotiations pre-dated the Lisbon treaty), the ball was now in Iraq’s court to decide whether certain amended clauses (which needed to be brought in line with EU requirements) were acceptable. The same is likely to be true of the other BITs that Iraq has signed with European countries, including France, Italy, Belgium and others, according to the Chairman of Iraq’s National Investment Commission (NIC), who is the delegate of the Iraqi cabinet in this area. We shall have to wait and see.

Before the ICSID Convention was ratified, treaties were disused because the method of enforcement was uncertain, with Iraq having neither ratified the New York Convention nor the ICSID Convention. Iraq’s ratification of the ICSID Convention has unlocked the power of the investment treaty protections, for better or for worse. The filing of a claim between the Kuwaiti subsidiary of Agility, a telecommunication company, and Iraq at ICSID earlier this year under the 2013 Kuwait BIT should have come as no surprise. At the time of writing, as mentioned above, I understand that there is a second claim to be filed at ICSID by another company, under different treaties. With other treaty ratifications on the horizon, there will be more claims down the line. There is expected to be a halt in the current ‘signing spree’ of treaties at the government level. But the awareness might have come too late. Deferment is only a temporary remedy, akin to trying to slow the spread of cancer.

Do bilateral investment treaties in fact attract foreign direct investment (FDI)?

Before the year 2000, investment treaties were thought to be relatively innocuous and likely to be used in only rare circumstances. By the end of 2010, this was no longer the case: treaty arbitration was becoming a commonly used tool for dispute settlement. Further, even if investors want to continue a business relationship, arbitration can be threatened to show they do in fact mean business.

As I outlined in a previous KAB post, it is surprising that Iraq ratified the ICSID Convention, or signed the various treaties it has, rather than taking what is likely to be the less economically impactful and more commercially advantageous route of entering into the New York Convention of 1958. Recent statements from the Chairman of the NIC have revealed that it is likely to have been in some part because of external investor pressure. However, it remains the case that there is no evidence that investment treaties attract FDI, or significantly more FDI such as to justify their onerous implications for host states. On the contrary, in fact. In 2003, the direct relationship BITs enjoyed with increasing investment flows was called into serious question with a study released by a World Bank economist. The study suggested that any effect of BITs in attracting investment into developing countries was at best minimal, and more likely did not exist. This was confirmed by later studies. There are many examples of countries with large FDI inflows and few, if any, BITs. Brazil, for instance, has been attracting FDI for years and it has never been a member of ICSID. The benefits of treaties from the Iraqi government perspective are, therefore, questionable and should be re-evaluated.

Why is the ICSID Convention important in Iraqi cases?

The usual investor protections guaranteed under Iraq’s investment treaties (such as expropriation, FET, MFN and full protection and security) can now be given real force by international tribunals constituted under ICSID. They used to be dogs with a bark and no bite, because the courts of Iraq (where most of Iraq’s assets are located) have get out of jail free cards under its arbitration law, from enforcing large awards against Iraq. ICSID takes the keys of enforcement away from the State courts and into a private sphere in which arbitral awards cannot be appealed, and can only in very limited cases be annulled by an ad hoc ICSID committee.

It matters if Iraq does not comply with an award because there will be singeing consequences at the levels of the International Monetary Fund and the World Bank, under whose auspices ICSID functions. Iraq relies heavily for support on these institutions. IMF loans are important for Iraq, as well as the World Bank Iraq Trust Fund. Although it is now classed by the World Bank as a middle income country who borrows, and therefore no longer qualifies for International Development Agency aid, or the International Reconstruction Fund Facility of $1 billion, as it used to, there are still some grants that Iraq can access where it can justify it for specific World Bank projects, through other ad hoc trust funds. Therefore, politically and diplomatically, non-compliance with an ICSID award will have repercussions for Iraq’s relationship with these entities.

Negotiation of future treaties with Iraq

Given Iraq’s ratification of the ICSID Convention, and the importance of the substantive protections under bilateral investment treaties, the negotiation and drafting of future Iraqi bilateral treaties is extremely important. Treaty arbitration is a matter about which Iraq cannot afford to be complacent. Similarly, investors with potential claims are well advised to seek advice on their options from lawyers who are both culturally connected with the region and experts in the specialist issues concerned. Shrewd and well-advised foreign investors will increasingly start to capitalise on the benefits of treaty arbitration in all manner of cases under which a project could conceivably fall under the scope of the definition of ‘investment’. Whether these claims will succeed or fail may come down to a simple matter of language, and words said here and there.

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How Should “Bare” Arbitration Clauses Be Enforced By The Courts?

Mon, 2017-04-10 22:32

Darius Chan

YSIAC

In K.V.C. Rice Intertrade Co Ltd v Asian Mineral Resources Pte Ltd [2017] SGHC 32, the Singapore High Court enforced so-called “bare” arbitration clauses, i.e., clauses that specify neither the place of arbitration nor the means of appointing arbitrators.

In Singapore, the President of the SIAC Court of Arbitration is designated as the statutory appointing authority under Section 8(2) of Singapore’s International Arbitration Act (IAA) and Article 11(3) of the Model Law. Critically, Article 11(3) applies only if the place of arbitration is Singapore. This case is noteworthy because the Court considered that, even when the place of arbitration is unclear or not yet determined, the IAA nevertheless allows the President of the SIAC Court to act as the statutory appointing authority.

While the ultimate pro-arbitration ruling will not come as a surprise to readers, it is not an easy decision. This note briefly highlights two select issues which may have affected the outcome of the case:

(a) Does Article 11(3) of the Model Law apply when there is no agreement that Singapore is the place of arbitration?

(b) What condition should the Court have applied when granting a stay in favour of a “bare” arbitration clause?

Facts

The case involved two contracts for the sale and purchase of rice. Under each contract, the sellers were different, but the buyer was the same. Each of the two contracts contained an arbitration clauses. Both arbitration clauses are similar. The arbitration clause in the first contract reads as follows:

The Seller and the Buyer agree that all disputes arising out of or in connection with this agreement that cannot be settled by discussion and mutual agreement shall be referred to and finally resolved by arbitration as per Indian Contract Rules.

The arbitration clause in the second contract reads as follows:

The Seller and the Buyer agree that all disputes arising out of or in connection with this agreement that cannot be settled by discussion and mutual agreement shall be referred to and finally resolved by arbitration as per Singapore Contract Rules.

Disputes arose between the sellers and buyer. Initially, both sellers proposed ad hoc arbitration in Singapore with a sole arbitrator. The buyer refused to cooperate. This led to the sellers commencing litigation before the Singapore courts. The buyer applied for a stay of proceedings in favour of arbitration under section 6 of Singapore’s International Arbitration Act (IAA).

The Court observed that the enforcement of “bare” arbitration clauses would give rise to practical difficulties over how the arbitral tribunal would be appointed.

Decision

The Court’s decision can be summarised as follows:

First, the effect of Article 11(3) is that the President of the SIAC Court cannot act in a case where it is clear that the place of arbitration is not Singapore. However, it does not necessarily follow that the President of the SIAC Court is powerless to assist in cases where the place of arbitration is unclear or not yet determined.

Second, notwithstanding the silence in the IAA and Model Law, there is a prima facie case that, even when the place of arbitration is unclear or not yet determined, the President of the SIAC Court can still act as the “statutory appointing authority”.

Third, before the President of the SIAC Court exercises his statutory powers, he needs to be satisfied that there is a prima facie case that Article 11(3) applies, viz Singapore is the place of arbitration.

Fourth, considering the arbitration clauses at hand, the President of the SIAC Court can form a prima facie view that his powers of appointment under Article 11(3) applies.

Fifth, even if the President of the SIAC Court declines to appoint the arbitrators for whatever reason, the Singapore court retains “residual jurisdiction” to ensure that the arbitration under both arbitration clauses proceed notwithstanding any deadlock between the parties on the appointment of arbitrators.

Before the Court, the buyer’s position was that, the President of the SIAC Court can appoint the arbitrator in the absence of mutual agreement. The Court ultimately ordered a stay but on a condition. The condition was that the buyer will raise no objections to the President of the SIAC Court’s jurisdiction to appoint an arbitrator under Article 11(3) of the Model Law in the event that the parties cannot reach agreement on the appointment.

Further, if the President of the SIAC Court declines to make an appointment, either party may apply for further orders or directions as part of the Court’s “residual jurisdiction”.

Comments

A. Can Article 11(3) of the Model Law apply when there is no agreement on the place of arbitration?

In the Court’s view, the travaux suggests that the answer is yes.

In this writer’s view, the travaux can be read differently. Where the place of arbitration has not been determined, such as the case at hand, Article 11(3) arguably does not apply—this is left to domestic laws. Unlike countries such as England and France, there is no other provision in Singapore’s IAA empowering the President of the SIAC Court to act as the appointing authority.

As the Court recognised, the travaux states that “the prevailing view was that the model law should not deal with court assistance to be available before the determination of the place of arbitration”. The USSR and United States representatives in particular expressed the view that “the case where the place of arbitration had not yet been agreed upon should remain outside the scope of the Model Law”.

In a paragraph not cited by the Court, the travaux records that “[i]n the subsequent discussion concerning the territorial scope of application of the model law, the Commission decided not to extend the applicability of articles 11, 13, 14 to the time before the place of arbitration was determined”. (Report of the UNCITRAL on the work of its 18th Session, 3-21 June 1985, UNCITRAL, Yearbook Volume XVI, U.N. Doc. A/CN.9/SER.A/1985, paragraph 111)

B. Should a different condition have been imposed by the Court in granting the stay?

Ultimately, the Court enforced the arbitration clauses under a condition that the buyer will raise no objections to the SIAC President’s jurisdiction to appoint an arbitrator under Article 11(3) of the Model Law in the event that the parties cannot reach agreement on the appointment.

There are a number of difficulties. First, it is doubtful whether Article 11(3) is applicable in the first place. Second, it is unclear how Article 11(3) should be applied because Article 11(3), on its terms, requires clarity on the number of arbitrators. It is further unclear on what basis the Court assumed that the Tribunal(s) in this case should comprise a sole arbitrator. If that assumption was based on section 9 of the IAA read with Article 10 of the Model Law, section 9 and Article 10 arguably applies only if the place of arbitration is Singapore—which has not yet been determined in this case.

Given the difficulties surrounding the applicability and application of Article 11(3), it is arguable the Court could have enforced the arbitration clauses on the facts of this case without having to invoke Article 11(3). Neither was it necessary to find that the Court enjoys some kind of “residual jurisdiction” not otherwise expressed in the IAA.

The Singapore apex court in Tomolugen Holdings Ltd and another v Silica Investors Ltd [2015] SGCA 57 held that, a court hearing a stay application under the IAA should grant a stay in favour of arbitration if the applicant can establish a prima facie case, inter alia, that:

(a) there is a valid arbitration agreement between the parties to the court proceedings; and

(b) the arbitration agreement is not null and void, inoperative or incapable of being performed.

In a case where the arbitration clause is a typical “model” arbitration clause commended by major arbitral institutions, an applicant seeking a stay likely does not have to do much more than show the existence of that clause in a contract signed by both parties.

However, in a case where the arbitration clause is a “bare” arbitration clause, the applicant seeking a stay could be asked how the “bare” arbitration clause could be capable of being performed. After a position is taken by the applicant on that issue, assuming all other requirements for a stay are met, a stay could be granted on the condition that the applicant abide by the position it had taken before the Court.1)The Singapore High Court in Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2017] 3 SLR 267 highlighted there may be a potential inconsistency on the burden of proof articulated in Tomolugen and an earlier decision of the Singapore apex court in Tjong Very Sumito v Antig Investments Pte Ltd [2009] 3 SLR(R) 732. In Tjong Very Sumito, the Singapore apex court earlier held that the burden is on the party resisting the stay to show that the arbitration agreement is incapable of being performed. According to the High Court in Dyna-Jet, the party resisting the stay must establish that “no other conclusion on this issue is arguable”. Even if the legal burden may ultimately rest on the party resisting the stay, it would not be inconsistent for the applicant to articulate its position on how the “bare” arbitration clause could be capable of being performed. jQuery("#footnote_plugin_tooltip_6637_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6637_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

For instance, in the present case, the buyer took the position that the clause was capable of being performed because the President of the SIAC Court could appoint the arbitrator. There appears to have been no dispute between the parties that any arbitral tribunal under each of the clauses shall comprise a sole arbitrator. Given these particular facts, the Court could have ordered a stay on the condition that the buyer will consent should the seller(s) propose that the parties appoint SIAC as the appointing authority to appoint a sole arbitrator for each of the two clauses.

Major arbitral institutions, such as SIAC and ICC, offer their services as appointing authority for ad hoc arbitrations upon the agreement of the parties and upon the payment of certain fees to the institution. Such powers of appointment can be consensual and not statutory in nature. Any appointment by the President of the SIAC Court would be based on the consensual subsequent agreement of the parties, and not pursuant to Article 11(3) of the Model Law.

An additional benefit of this approach is that the President of the SIAC Court would not be left with the unenviable task of having to determine whether his statutory powers under Article 11(3) apply, and if so, how he should apply Article 11(3) when there is no clarity on the number of arbitrators in the first place.

The writer is grateful to Nicholas Poon for his thoughtful input on an earlier draft. All errors are the writer’s alone.

References   [ + ]

1. ↑ The Singapore High Court in Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2017] 3 SLR 267 highlighted there may be a potential inconsistency on the burden of proof articulated in Tomolugen and an earlier decision of the Singapore apex court in Tjong Very Sumito v Antig Investments Pte Ltd [2009] 3 SLR(R) 732. In Tjong Very Sumito, the Singapore apex court earlier held that the burden is on the party resisting the stay to show that the arbitration agreement is incapable of being performed. According to the High Court in Dyna-Jet, the party resisting the stay must establish that “no other conclusion on this issue is arguable”. Even if the legal burden may ultimately rest on the party resisting the stay, it would not be inconsistent for the applicant to articulate its position on how the “bare” arbitration clause could be capable of being performed. 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:

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Arbitration of International Factoring Disputes: Back to the Origins

Sun, 2017-04-09 22:09

Guillermo García-Perrote and Robin Wood

Herbert Smith Freehills

Text books will tell you that, in its origins, the concept of arbitration as a method of resolving disputes was a simple one: two merchants, arguing over damaged merchandise, would settle their dispute by accepting the decision of a fellow merchant. And they would do so not because of any legal mandate, but because it was expected of them within the community in which they carried on business.

This is exactly what you can expect from this article: the arbitration of commercial disputes back to its origins. Specifically, the arbitration of disputes within the international factoring community.

The authors recently took part in an arbitration under the Rules of Arbitration of Factors Chain International (FCI Rules). In this article we share some of the lessons which we learned during the arbitration, and highlight some of the specific features of the FCI Rules which differ from the more familiar arbitral institutions.

What is factoring?

At its simplest, factoring is a transaction which enables a seller of goods to assign its receivables (generally invoices) to a third party (the factor) which, in exchange for a commission, collects the receivable and assumes the credit risk of the buyer of the goods. In other words, in exchange for the factor’s commission, the seller of goods can pass on the risk of bad debts and the inconvenience of collecting and managing receivables. Factoring in this form began in the US in the mid-19th century.

By the 1960s, in order to overcome the practical challenges associated with factoring cross-border transactions, the process had evolved (led by the European market) into the more complex process of “two factor international factoring”. This system of factor involves two factoring organisations: one in the country of the seller (the Export Factor) and another in the country of the buyer (the Import Factor). The advantage of a two-factor system is that each factor is familiar with the local requirements for the assignment and collection of receivables, and the Import Factor is located in the same jurisdiction as the Buyer, which is helpful in collecting the debt, especially if the Buyer defaults. This approach was reflected in the 1988 UNIDROIT Convention on International Factoring (the Ottawa Convention), which has proven to be an influential soft law mechanism to harmonise practices and regulations around the factoring industry.

In summary the process works like this:

1. The seller signs a factoring contract with the Export Factor. To avoid the risk of the seller only factoring its risky debts this frequently provides that the seller must assign all approved receivables to the Export Factor (this is referred to as the principle of globality).
2. The Export Factor selects a counter party, the Import Factor, usually in the country where the buyer is based and, under the terms of an interfactor agreement, assigns the receivables to the Import Factor.
3. The Export Factor may advance a proportion of the value of the receivable (usually up to 80%) to the seller.
4. The Import Factor collects the receivable and forwards the funds (less a commission) to the Export Factor which, in turn, deducts its commission and pays the balance to the seller.
5. The Import Factor guarantees the debt so that the seller receives payment even if the buyer fails to pay.

What is the role of FCI?

FCI is arguably the leading institution overseeing factoring and has produced a set of rules, the General Rules on International Factoring (GRIF Rules), which are used by many of the leading financial institutions.

Under the GRIF Rules the factoring companies enter into umbrella interfactor agreements and then agree individual credit lines using an electronic messaging system called edifactoring.com (governed by its own set of rules).

Factoring under the GRIF Rules is a highly commoditised process, which operates on low commissions. There are a number of standard messages (EDI messages) used to, for example, offer a new transaction, approve a credit line or confirm payment. The system is designed to cause as little friction as possible to the underlying commercial transaction.

How are disputes relating to factoring transactions resolved?

Given the commoditised nature of factoring transactions under the GRIF Rules, disputes are comparatively rare. Where such disputes do arise, it is generally because the buyer has defaulted and the Import Factor feels that the circumstances are such that it should be relieved of the obligation to pay the sums owed under the guarantee.

In this regard, the factoring transaction is similar to an insurance policy: like an insurer, the Import Factor must guarantee the buyer’s debt unless the Export Factor has failed to comply with the interfactor agreement. The GRIF Rules expressly set out the very limited circumstances in which the Import Factor will be relieved of liability – in essence, this will be the case if, either:

1. a misrepresentation or non-compliance by the Export Factor has prevented the Import Factor from properly assessing the risk it was taking on; or
2. the Export Factor has failed to assign the receivable correctly so that the Import Factor cannot collect the debt.

To resolve such disputes, FCI has produced the FCI Rules. These are designed to offer a swift, streamlined process, and are heavily focussed on delivering a commercial solution.

The arbitrations are formally seated in Amsterdam (where FCI is based) and, for disputes worth under €100,000 can be heard by a sole arbitrator. For larger disputes the FCI Rules require a tribunal of three arbitrators.

Arbitrators must be senior executives of FCI member companies (there is no requirement that they are lawyers nor that they have any dispute resolution experience) and, in the case of a three-member tribunal, the chair must be selected by the party nominated arbitrators from a list published by the FCI.

The tribunal has broad procedural discretion and, although the FCI Rules anticipate an award within three months of signature of the terms of reference, our experience has been that the FCI secretariat is quite willing to extend this period at the tribunal’s request.

The arbitration process is commenced with a Request for Arbitration which must be served within three years of the events in dispute. The Respondent has 30 days to file his Response and the file is then passed to the nominated arbitrators who have a further 30 days to appoint a chairman from the FCI list.

Once constituted, the tribunal will draw up (in consultation with the parties) terms of reference which will indicate the procedure to be followed.

The process is intended to be one of commercial equity rather than the strict application of national laws and Article 18 of the FCI Rules provides that “[t]he arbitrator shall not be bound by any strict rules of law or procedure or evidence. He shall be entitled to make his decisions in accordance with what he thinks is fair and equitable between the parties in accordance with normal commercial practice and the customs of international factoring based on the GRIF”.

From an advocate’s perspective this means that a thorough understanding of the commercial dynamics at play in a factoring transaction is key. Indeed, the tribunal is going to be more interested in exploring the commercial aspects of the case than in arguments fully based on the black-letter of the GRIF Rules.

The use of the edifactoring.com messaging system also has a significant impact on the dynamics of the arbitration. Since all contractual communications happen through the messaging platform, in effect, all of the contract documents and all of the relevant facts are to be found in the EDI messages. The EDI messages themselves, however, are highly standardised, with limited scope for “free text” comment. Since the tribunal members are all senior executives within FCI member organisations, they are very familiar with the EDI messages, and advocates are expected to master the industry mechanics.

Once handed down the award is final and binding and, by Article 1(3) of the FCI Rules, the parties shall be deemed “to have waived their right to any form of appeal or objection, whether as to procedures or otherwise, in so far as such waiver can validly be made.”

The focus on a swift and final commercial resolution of disputes with little recourse to national law is understandable in the context of a highly commoditised cross-border transaction, and it certainly provides a thrilling challenge for lawyers accustomed to arguing points of law before international arbitration tribunals made up of experienced lawyers. Advocacy is just as interesting and challenging, and the interaction with the Tribunal is even more dynamic.

For those facing the prospect of an arbitration under the FCI Rules, our advice would be to become thoroughly familiar with the commercial dynamics of the transaction and the EDI messages, and to adapt the advocacy preparations and delivery accordingly.

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Government Procurement, Bribery, and an Olympic Size Scandal at the ICC

Fri, 2017-04-07 03:16

Ioannis Glinavos

It is well known that Greek public finances have been in a precarious state since the country’s debt crisis erupted in 2010. In an environment of tough fiscal consolidation, compensation awards running in millions present a significant economic and political challenge. This post discusses a case before the Greek Supreme Court that resulted in a pending liability of €39.8 million (reaffirmed in January 2017) which exposes a trail of corruption and administrative inefficiency all the way back to the Athens Olympics of 2004. This case is an aspect of the famous Siemens corruption scandal that has plagued Greek public life for over a decade.

The case involves a dispute arising from a 2003 contract between Science Applications International Corporation (SAIC) and Greece for the supply of a public security infrastructure system, which was to be used at the 2004 Athens Olympics. SAIC is a US based multinational with prior experience in security systems for Olympic games. The company won the contract to build the C4I security system after a bidding process that lasted for more than a year. SAIC contracted Siemens as its subcontractor to carry out the actual work of software design and material deployment. Subsequently, it was claimed that SAIC won the contact because bribes were paid via Siemens to Greek officials as part of a wider network of underhand transactions organised by the German company in order to obtain a variety of defence and infrastructure contracts in Greece over a number of years.

The security system in question was delivered just weeks before the opening ceremony for the Olympics, but never worked properly. Due to the operational failure of the system, the Greek government refused to formally accept delivery and pay SAIC. SAIC in response initiated arbitration proceedings at the ICC’s International Court of Arbitration in April 2006. The Greek government partially settled, but a second dispute arose in 2008, when Greece refused to make the final payment on the contract, prompting additional arbitration proceedings. The ICC tribunal concluded that the Greek government had breached its contract with SAIC for the design and installation of the system and rendered a €39.8 million award in favour of the claimant in July 2013.

Arbitral awards are capable of enforcement in Greece as per standard international practice. The Greek arbitration statute, introduced in 1999, is based on the UNCITRAL Model Law and deals with international commercial arbitrations, while other legislation and provisions in the Civil Procedure Code cover domestic arbitrations. Greek law is welcoming of commercial arbitration and there has been an effort to harmonise the treatment of arbitral awards with international standards. Even tax disputes are arbitrable if an investment agreement between the state and a foreign investor so provides. Greek courts will determine their jurisdiction over an award on the basis of the arbitral seat. An award can be set aside for the same reasons as those provided in the UNCITRAL Model Law. Under the arbitration statute, the Court of Appeal is the only competent court to decide an application for setting aside an award. Greek law does not provide for recourse against foreign arbitral awards, but enforcement can be refused for the reasons laid out in the New York Convention, which Greece joined in 1961.

Attempting to block enforcement of the ICC award in favour of SAIC, Greece turned to the Athens Court of Appeal, arguing that the award went against international public policy and that the arbitration procedure did not comply with the parties’ agreement. The Greek Government filed an application for annulment and suspension of the award’s enforcement before the competent Athens court as the enforcement place. Jurisdictional issues aside, a key question before the court was whether, as a matter of public policy, the presence of corruption in procuring a contract with a public authority spoils an arbitration clause present in the agreement, therefore rendering subsequent awards invalid. The Court of Appeal seemed to think so. The Athens court annulled the ICC award in June 2014 (decision n.3690/2014). The court noted that the five year delay in the delivery of the agreed system illustrated the fact that SAIC had never been in the position to deliver on-time. Further, it found that SAIC was acting on behalf of its sub-contractor SIEMENS (Hellas) SA, a company part of a group (SIEMENS, Germany, AG) investigated for corruption between 2002-2007. The Court of Appeal concluded that the contract between SAIC and the Greek Government had been the outcome of corrupt practices used by SIEMENS companies against Greek interests and the ICC award was therefore annulled as contrary to public policy.

SAIC applied to US courts objecting to the Greek judgment, arguing that the decision of the Court of Appeal was repugnant to U.S. public policy and that domestic courts lacked authority to overturn foreign arbitral awards. SAIC also brought the matter before the Greek Supreme Court arguing that the decision was incompatible with Greek legislation, which – as was mentioned above – precludes national courts from invalidating foreign arbitral awards. The American court invited the U.S. government to submit evidence on the petition in 2015, asking for guidance on how much deference it had to afford the Athens court’s decision. The U.S. ultimately declined in January 2016, and the Judge then decided to hold the pending motions until the Greek Supreme Court made its decision.

The Greek Supreme Court concluded (decision n.517/2016) in May 2016 that the Court of Appeal, by reviewing the substantive facts, retried the merits of the case, which is beyond its powers. Therefore, its decision no. 3690/2014 was quashed and the case was returned for re-consideration to the Court of Appeal by a differently staffed bench. On the back of this decision, the US court issued confirmation of the ICC award in January this year, making the €39.8 million liability enforceable against the Greek state, pending once again the outcome of the Greek appeal under a re-convened Court of Appeal.

What is the conclusion that we can draw from this case? Highly politicised disputes (high ranking members of the Greek political elite were implicated in the Siemens bribery scandal and a variety of commissions and investigations are still in the process of untangling a web of corruption in both Greece and Germany) will inevitably take a long time to resolve. An arbitral process however that has not ended with enforcement of an award more than 10 years after it started, especially when the award itself can have significant consequences on the financial position of the parties, is not something to celebrate. One wonders whether Greek officials regret their decision to appeal, considering that an early settlement of the dispute would have cost significantly less and could have been achieved when fiscal space was wider than it is now. The message to draw therefore? Settling an ICC case may be better than appealing the resulting award.

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Arbitrator-ordered Costs of Injunctive Relief Proceedings in National Court: When Should a Party Be Able to Recover its Costs?

Wed, 2017-04-05 23:17

Mika Savola and Anna-Maria Tamminen

One of the topics discussed by the panels at last week’s 20th Annual IBA Arbitration Day was parallel proceedings. We heard well-prepared and interesting presentations on many aspects of parallel proceedings such as confidentiality and the taking of evidence. As we all know, such parallel proceedings often also take the form of court proceedings initiated to seek conservatory or other interim measures of protection from a national court. One interesting aspect that arises in this context is whether costs related to such proceedings are recoverable in a subsequent or parallel arbitration and if so, when.

Bernard Hanotiau has concluded that, “[i]t seems that the allowability of these costs as costs of the arbitration is generally not accepted. They should be claimed and allocated in the relevant procedures. Some of them might also be claimed as damages.” (See Hanotiau, The parties’ costs of arbitration, in Derains, Yves – Kreindler, Richard H. (ed.), Evaluation of Damages in International Arbitration, Dossiers of the ICC Institute of World Business Law, ICC Publication No. 668, Paris 2006, p. 215.) Sometimes this analysis is, however, affected by the applicable cost regime. In some jurisdictions (including Finland) the law provides that the costs of interim measure proceedings shall be determined and allocated between the parties only in connection with the decision on the merits of the dispute, i.e., in a final award rendered by the arbitral tribunal (provided that there is a valid and binding arbitration agreement, and the party initiates an arbitration following the interim measure proceedings). In such cases, a party is allowed to request reimbursement of its costs of ancillary interim measure proceedings only in conjunction with the arbitration.

The above-mentioned question was specifically addressed in a final award recently rendered in an FAI arbitration between two Finnish parties, A and B. The main issue in dispute concerned the allegedly unlawful termination of the parties’ co-operation agreement by B. Before the arbitration proceedings were launched, A sought an injunction from Finnish state courts prohibiting B from terminating the co-operation agreement. The application was dismissed in both the District Court and the Court of Appeal. In the meantime, A commenced FAI arbitration proceedings against B, requesting inter alia that the arbitral tribunal (i) declare that the termination had been unlawful and (ii) order B to pay to A the costs and expenses arising out of the injunction proceedings, together with default interest in accordance with the Finnish Interest Act.

The arbitral tribunal ultimately found that the termination of the co-operation agreement by B had been unlawful. As regards the compensation of A’s costs related to the injunction proceedings, the arbitral tribunal stated as follows (direct quotation from the award, with only the names of the parties anonymized):

“A has claimed that as B has not been entitled to terminate the Agreement, A has had the right to seek an injunction. According to A, the Arbitral Tribunal has the power to decide who will bear the costs and expenses arising out of or in connection with the injunction proceedings in front of the national court in accordance with Chapter 7, Section 10 of the Finnish Code of Judicial Procedure. This provision of law reflects the principle that the party who has lost the main proceedings shall also be ultimately liable for the costs and expenses arising out of or in relation to the injunction proceedings.

B has asserted that A should be liable to pay the costs as [it] has lost the injunction proceedings in both instances. The courts have found that no legal grounds for an injunction order have existed. A’s injunction application has therefore not been necessary. (…) B has further asserted that the Arbitral Tribunal is in fact bound by the findings of the Court of Appeal, according to which there have been no legal grounds for an injunction order (…)

The Arbitral Tribunal first notes that Chapter 7, Section 10 of the Finnish Procedural Code provides that the question as to which of the parties in the injunction proceedings shall finally bear the cost, shall be resolved when ruling on the main issue in the main proceedings and provided that a party has so requested. Furthermore, Section 11 of the same Chapter provides that an applicant who has unnecessarily resorted to injunction proceedings shall be liable to compensate the opposing party for the damage caused by the precautionary measures and their enforcement, and to cover the expenses incurred. In other words, the question as to who is liable to pay the cost arising from the injunction proceedings is to be decided based on who wins the main issue and whether the injunction proceeding in the light of the outcome of the main issue has been unnecessary. (…) The Arbitral Tribunal also notes that under Finnish law, as a main rule, the binding finality of court decisions is usually limited to the outcome of the decision, not to its reasoning. Furthermore the findings of a court in an injunction proceeding are not legally binding on the court or arbitral tribunal that is competent to decide on the main issue (…) Accordingly, the decisive matter here is whether the injunction proceeding initiated by A was unnecessary in light of the outcome of this arbitration. The answer is no – B has terminated the Agreement without grounds and therefore A’s attempt to obtain an injunction to try to prevent the unlawful termination was necessary. (…) For the reasons stated above, the Arbitral Tribunal finds A’s claims justified and accepts them and orders accordingly.”

The rule contained in Chapter 7, Section 10 of the Finnish Procedural Code – according to which the costs of the injunction proceedings shall be allocated in the main proceedings – hardly lends itself to any other conclusion than the one adopted by the arbitral tribunal, i.e. that it is up to the tribunal to allocate such costs. What this means to a party filing for such injunctive relief in national courts is that that party can seek to recover its costs first once the subsequent or parallel arbitration has been concluded.

More importantly, however, in the light of the decision in the above discussed case, a party seeking injunctive relief from a national court should carefully assess whether it has good grounds to do so at the time of filing its application. Yet, from a costs perspective, the party does not need to worry about whether or not the arbitral tribunal will ultimately agree with the national court on the merits of the case. Rather, the test is only one of necessity at the time of filing the application for injunctive relief.

The above tribunal’s decision thus underlines that a party should subsequently be able to prove that its application for injunctive relief was necessary and made in good faith at the time it was submitted to the court. The decision certainly also discourages any party from bringing injunctive proceedings in bad faith, unless that party is willing to carry the cost of such proceedings.

What this case leaves unanswered is how should an arbitral tribunal weigh the necessity of such application for injunctive relief in a case where a party chooses, for whatever reason, to seek the same interim relief simultaneously from a state court and the arbitral tribunal. To our knowledge, there is no reported case law addressing this question in Finland.

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U.S. Federal Courts’ Broad Jurisdiction Under the New York Convention

Tue, 2017-04-04 23:00

Jason P. Minkin and Jonathan A. Cipriani

The 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) is a lynchpin of the international arbitration system.  The New York Convention provides a means for parties in one member state to enforce judgments issued by arbitration tribunals in another member state.  In the United States, Congress has incorporated the New York Convention into federal statute, at 9 U.S.C. § 201 et seq.  These statutory provisions provide a sweeping grant of jurisdiction to U.S. federal courts to enforce arbitration agreements falling within the New York Convention—a powerful tool for any party seeking to enforce a foreign arbitration clause.

A recent district court decision illustrates the broad deference that U.S. courts will give to parties asserting federal jurisdiction under the New York Convention.  In James Edward O’Connor v. Maritime Management Corp., 2017 WL 1018586 (E.D. La. Mar. 16, 2017), there was a dispute involving a plaintiff (O’Connor) who alleged he suffered asbestos exposure from years spent working as a machinist for the defendants in the early 1980s.  O’Connor sued his former employer Cove Shipping, Inc. and Maritime Management Corporation (collectively, “Cove Shipping”).  Suing in Louisiana, he was also able to use that state’s direct action statute, La. R.S. 22:1269, to name Cove Shipping’s insurer, West of England Shipowners Mutual Insurance Association, as a defendant.  West of England sought to remove the lawsuit from Louisiana state court to the U.S. District Court for the Eastern District of Louisiana, citing 9 U.S.C. § 205.  That statutory provision permits removal to federal court “at any time” before trial of an action that “relates to an arbitration agreement or award falling under the [New York] Convention.”  West of England relied on an arbitration clause in its Club Rules that it contended were in effect at the time of O’Connor’s alleged employment, even though O’Connor is a non-party to the insurance agreement.

Seeking remand to Louisiana state court, the plaintiff raised a bevy of merits-based arguments, including that English law prohibited application of the arbitration agreement to a non-signatory; that the costs of enforcing the arbitration agreement were prohibitive and thus infringed on the plaintiff’s ability to vindicate his rights; that West of England had waived its right to arbitrate; that federal Jones Act claims, such as the plaintiff’s, are not subject to arbitration; and that Louisiana law forbids arbitration in insurance disputes.  The court quickly dispensed with these arguments, noting that they were premature.  Under Fifth Circuit precedent, the court determines, as a threshold matter, whether it has jurisdiction “to decide the arbitration issue, ‘which is a distinct question from how to resolve that issue correctly.’” O’Connor at *2, quoting Beisler v. Weyler, 284 F.3d 665, 670 (5th Cir. 2002).  The court noted that plaintiff’s arguments could still be raised in opposition to a motion to compel arbitration.

With plaintiff’s arguments dispatched, the court concluded that the West of England arbitration agreement met the requirements for removal to federal court under 9 U.S.C. § 205.  That provision requires an arbitration agreement within the meaning of the New York Convention—i.e., a written commercial agreement providing for arbitration in a Convention-signatory nation, with at least one party that is not a U.S. citizen—and an action that “relates” to the agreement.  The court found it clear that the Convention applies to the arbitration agreement at issue, “given the obvious commercial nature of marine insurance,” the fact that the agreement provides for arbitration in a signatory nation of the Convention (the United Kingdom), and that one party to the agreement (West of England) is not an American citizen.

Because it appeared “beyond dispute” that the arbitration agreement itself falls under the New York Convention, the dispositive issue, according to the court, was whether the arbitration agreement “relates to” O’Connor’s lawsuit, despite him not being a party to the insurance policy that contained the arbitration agreement. Citing circuit precedent, the court noted that a plaintiff’s suit “relates to” an arbitration agreement where it is “not completely absurd or impossible” that the arbitration agreement will conceivably have an effect on the outcome of the case. Id.  With the arbitration agreement having cleared this “low bar,” the court denied the plaintiff’s motion to remand the case to state court.

The OConnor decision is an example of the broad grant of jurisdiction that U.S. federal courts have to resolve disputes relating to international arbitration agreements.  The court swiftly dismissed plaintiff’s numerous merits-based challenges and articulated a strikingly easy standard for determining whether disputes “relate to” an agreement under the New York Convention.  While the plaintiff may raise his substantive arguments at a later, procedurally appropriate time, O’Connor is an example of how U.S. federal courts correctly recognize the inherently federal and international character of disputes touching the New York Convention.

The effect of such a broad application of the New York Convention in United States federal courts should not be underestimated. Courts of the United States have developed particular applications of New York Convention provisions, such as detailed requirements for establishing the existence of an agreement in writing under Article II(2), and the public policy gloss of Article V(1)(e), which permits United States courts to disregard an annulment judgment if it violates notions of morality and justice. As the New York Convention is interpreted broadly, the impact of such interpretations likewise grows.

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Trade and Investment Agreements in Disputed Territories: The case of Western Sahara

Tue, 2017-04-04 01:15

Kate Parlett

The long-standing dispute over the territory of Western Sahara has been the subject of a treaty, an advisory opinion of the International Court of Justice, an armed conflict, a United Nations-brokered ceasefire, and several General Assembly and Security Council resolutions. It has also recently come to the fore in several cases before the EU and English courts, raising questions about the legality of the EU’s trade and other international agreements with Morocco being applied to Western Sahara. These cases have brought into focus the need for treaty parties to take account of potential human rights implications in the application of trade and investment agreements, particularly where there are issues concerning the right to self determination. Over time, this consideration of human rights has the potential to result in more explicit human rights protection being built into the text of these treaties, and may in due course form the basis of claims and arguments before investment arbitration tribunals. Moreover, human rights impact assessments – which are likely to be performed more frequently in advance of concluding treaties – will potentially form part of the travaux préparatoires which could be a useful interpretive tool for arbitrators deciding claims under investment treaties.

An area of some 100,000 square miles in the north-west coast of Africa, with nearly 700 miles of coastline and a population of around half a million, two-thirds of Western Sahara territory is currently occupied by Morocco. The international community has repeatedly emphasized the right of self-determination for the indigenous Saharawi people. The UN has recognised the Front Polisario (from the Spanish acronym for Frente Popular de Liberación de Saguía el Hamra y Río de Oro) as the legitimate representative of the Saharawi people and in the peace negotiations with Morocco.

In 2012, the Front Polisario commenced proceedings before the General Court of the European Union, seeking annulment of the decision of the EU Council adopting a 2010 trade agreement with Morocco concerning reciprocal liberalisation measures on agricultural products, processed agricultural products, fish and fishery products.1)Agreement in the form of an Exchange of Letters between the European Union and the Kingdom of Morocco (OJ 2012 L 241, p 2, 8 March 2012). jQuery("#footnote_plugin_tooltip_1429_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The 2010 Agreement is a development of the existing free-trade agreement between the EU and Morocco: the 2000 Association Agreement2)Association Agreement between the European Union and the Kingdom of Morocco (OJ 1/70/2, 18 March 2000). jQuery("#footnote_plugin_tooltip_1429_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and it applies to the same area, specified to be the “territory of the Kingdom of Morocco.” The Front Polisario complained that the 2010 Agreement was being applied by Morocco to the territory of Western Sahara, facilitating the export to the EU of agricultural products grown in Sahrawi land and fish caught in Sahrawi waters, violating the rights of the Sahrawi people to self-determination and to permanent sovereignty over their natural resources. It argued that this was in violation of EU fundamental rights, as well as international law, including the right to self-determination.

In December 2015, the General Court upheld the challenge to the EU Council’s adoption of the 2010 Agreement. It noted that although neither the 2010 Agreement nor the 2000 Agreement expressly stated that they applied to the territory of Western Sahara, the EU was aware that the Moroccan authorities had applied the 2000 Agreement to parts of Western Sahara for an extended period of time, and the EU institutions had not opposed this practice.3)Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, paras 99 and 102. jQuery("#footnote_plugin_tooltip_1429_3").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Before the Court, the Commission conceded that the Agreements were in practice applied to products originated in Western Sahara 4)See Case C-104/16P, Council of the European Union v Front Polisario, Opinion of Advocate-General Wathelet, 13 September 2016, para 65. jQuery("#footnote_plugin_tooltip_1429_4").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });, and a significant number of listed approved Moroccan exporters were based in that territory.5)Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, para 84. jQuery("#footnote_plugin_tooltip_1429_5").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

While the General Court noted that there is no “absolute prohibition” on the EU concluding an agreement which may be applied to disputed territory, if it does so, the EU must consider whether the agreement will be applied to the detriment of the population of that territory, or in breach of their fundamental rights, including those set out in the EU Charter of Fundamental Rights. 6)Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, paras 227-228. jQuery("#footnote_plugin_tooltip_1429_6").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In approving the 2010 Agreement, the EU Council had not conducted that analysis, and it followed that the decision approving the 2010 Agreement was annulled insofar as it applied to the territory of Western Sahara.7)Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, paras 247-248. jQuery("#footnote_plugin_tooltip_1429_7").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A year later, the Grand Chamber of the Court of Justice overturned the decision, but in doing so it confirmed that neither the 2000 Agreement nor the 2010 Agreement apply to the territory of Western Sahara. The Grand Chamber considered that the question was one of legal interpretation of the Agreements, rather than their application in practice. It held that the principles of interpretation reflected in Article 31 of the Vienna Convention on the Law of Treaties, taken together with the customary principle of self determination, precluded an interpretation of the “territory of the Kingdom of Morocco” as including Western Sahara.8)Case C-106/16P, Council of the European Union v Front Polisario, 21 December 2016, paras 88-92. jQuery("#footnote_plugin_tooltip_1429_8").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It therefore concluded that the General Court had erred in finding that the Agreements applied to the territory of Western Sahara, and as a consequence, the Front Polisario did not have standing to seek annulment of the Council decision approving the 2010 Agreement.9) Case C-106/16P, Council of the European Union v Front Polisario, 21 December 2016,126, 131. jQuery("#footnote_plugin_tooltip_1429_9").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); So formally the claim by the Front Polisario was dismissed, but in substance the Grand Chamber concluded that the EU trade Agreements are not applicable to the territory of Western Sahara.

In parallel to the proceedings before the EU courts, an NGO, “Western Sahara Campaign UK”, has brought proceedings before the English courts against the UK, claiming that the UK’s application of EU law implementing the 2000 Association Agreement and a 2006 Fisheries Partnership Agreement between the European Community and Morocco is unlawful. The 2006 Agreement has been quite controversial: it provides for the issuance of licences to fish in the waters within Morocco’s territory or jurisdiction, and under that Agreement EU Member States have issued licences to vessels to fish in the Moroccan fishing zone, and such fishing has taken place in the territorial waters of Western Sahara. 10)Fisheries Partnership Agreement between the European Community and the Kingdom of Morocco (OJ l 141/4 29 May 2006). See The Queen on the application of Western Sahara Campaign UK v The Commissioners for Her Majesty’s Revenue and Customs and The Secretary of State for the Environment Food and Rural Affairs [2015] EWHC 2898 (Admin), paras 28-29. jQuery("#footnote_plugin_tooltip_1429_10").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In May 2016, the English High Court referred several questions for a preliminary ruling by the ECJ. These included (1) whether the 2000 Association Agreement applies to products originating in Western Sahara; and (2) whether the 2006 Fisheries Partnership Agreement is valid, having regard to the principles of international law.11)Case C-266/16, Reference for a preliminary ruling by from the High Court of Justice (England & Wales), made on 13 May 2016 – Western Sahara Campaign UK v Commissioners of Her Majesty’s Revenue and Customs, Secretary of State for Environment, Food and Rural Affairs. jQuery("#footnote_plugin_tooltip_1429_11").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Following the Grand Chamber’s Judgment in December 2016, the High Court has withdrawn the first question, on the basis that the Grand Chamber’s Judgment establishes that the 2000 Agreement does not apply to Western Sahara. The question of the validity of the 2006 Fisheries Agreement remains pending for preliminary ruling by the ECJ, and is likely to be given later this year, with a final judgment from the English High Court to follow.

The decisions of the EU courts in the Front Polisario cases suggest that there are limitations on the EU concluding trade and investments which will be applied to territory that is disputed, and in certain circumstances the EU will be precluded from doing so.

The decisions also suggest that where there are human rights concerns with trading partners, including concerns about the right to self-determination, a prior human rights impact assessment will be required. A commitment to conclude such assessments was incorporated in the 2012 EU Strategic Framework and Action Plan on Human Rights and Democracy, (available here), and the European Ombudsman recently found that the European Commission’s failure to carry out a prior human rights impact assessment for the free trade agreement between the EU and Vietnam without valid reasons constituted maladministration.12)Case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, available here, para 28. jQuery("#footnote_plugin_tooltip_1429_12").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); These human rights impact assessments will potentially form part of the travaux préparatoires, which may eventually feature in tribunals’ considerations of claims in arbitration under investment treaties.

As to circumstances in which the EU will be precluded from entering into trade and investment agreements which are likely to have adverse impacts on human rights, the position is unclear. The General Court implied that any agreements which are likely to entail breaches of fundamental rights would be not be permissible, but the Grand Chamber did not address the issue. Advocate-General Wathelet, in an opinion preceding the Grand Chamber’s judgment, suggested a more restrictive approach than that taken by the General Court, which would require the EU’s institutions and its Member States only to ensure compliance with jus cogens and erga omnes obligations, and not with the full range of fundamental rights.13) Case C-104/16P, Council of the European Union v Front Polisario, Opinion of Advocate-General Wathelet, 13 September 2016, para 276. jQuery("#footnote_plugin_tooltip_1429_13").tooltip({ tip: "#footnote_plugin_tooltip_text_1429_13", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Since 2013, the EU and Morocco have been negotiating a Deep and Comprehensive Free Trade Area, which is anticipated to cover both trade and investment. In late 2013, the European Commission commissioned an independent trade sustainability impact assessment in relation to the Comprehensive Agreement, which identified several human rights issues in relation to Western Sahara (available here). Given the divergent opinions about the extent to which the EU may be constrained by human rights considerations in negotiating trade and investment agreements, it is likely that these issues will be contested in the context of those ongoing negotiations with Morocco. This is likely to give the EU – both its institutions and its courts – an opportunity to bring much-needed clarity to the relationship between trade and investment and human rights, and in that respect it is to be welcomed.

References   [ + ]

1. ↑ Agreement in the form of an Exchange of Letters between the European Union and the Kingdom of Morocco (OJ 2012 L 241, p 2, 8 March 2012). 2. ↑ Association Agreement between the European Union and the Kingdom of Morocco (OJ 1/70/2, 18 March 2000). 3. ↑ Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, paras 99 and 102. 4. ↑ See Case C-104/16P, Council of the European Union v Front Polisario, Opinion of Advocate-General Wathelet, 13 September 2016, para 65. 5. ↑ Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, para 84. 6. ↑ Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, paras 227-228. 7. ↑ Case T-512/12, Front Polisario v Council of the European Union, 10 December 2015, paras 247-248. 8. ↑ Case C-106/16P, Council of the European Union v Front Polisario, 21 December 2016, paras 88-92. 9. ↑ Case C-106/16P, Council of the European Union v Front Polisario, 21 December 2016,126, 131. 10. ↑ Fisheries Partnership Agreement between the European Community and the Kingdom of Morocco (OJ l 141/4 29 May 2006). See The Queen on the application of Western Sahara Campaign UK v The Commissioners for Her Majesty’s Revenue and Customs and The Secretary of State for the Environment Food and Rural Affairs [2015] EWHC 2898 (Admin), paras 28-29. 11. ↑ Case C-266/16, Reference for a preliminary ruling by from the High Court of Justice (England & Wales), made on 13 May 2016 – Western Sahara Campaign UK v Commissioners of Her Majesty’s Revenue and Customs, Secretary of State for Environment, Food and Rural Affairs. 12. ↑ Case 1409/2014/MHZ on the European Commission’s failure to carry out a prior human rights impact assessment of the EU-Vietnam free trade agreement, 26 February 2016, available here, para 28. 13. ↑ Case C-104/16P, Council of the European Union v Front Polisario, Opinion of Advocate-General Wathelet, 13 September 2016, para 276. 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:

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Kluwer Mediation Blog: March Digest

Mon, 2017-04-03 05:40

Anna Howard

March was a particularly busy month on the Kluwer Mediation Blog. From legislative developments in Ireland and Singapore, a report on the Berlin Global Pound Conference, and a more provocative post on whether grey hairs are needed to mediate, there is a lively assortment of posts below.

In “Too much or too little”, Bill Marsh explores how mediators might find the appropriate balance of care and attachment to their work. Bill offers some thoughtful questions to prompt thinking on how to attain this elusive balance.

In “Brazilian Mediation – Ten Years in One”, Juliana Loss de Andrade provides a comprehensive overview of the recent developments in alternative dispute resolution in Brazil.

In “About Hacksaw Ridge”, drawing on the film Hacksaw Ridge, Andrea Maia considers how mediators might encourage empathy in particularly challenging mediations.

In “The Evolution of the Partnership and the Predatory Partner”, Peter Garry explains the evolution of partnerships, the rise of the “predatory partner” and how these changes have altered how many partnership disputes tend to arise and are resolved.

In “Something Wicked This Way Comes – Mediators’ Duties in Ireland’s New Mediation Bill”, Sabine Walsh offers a detailed analysis of the obligations that mediators can be subject to under this Bill in cases of court referred mediation.

In “Singapore Developments – The Mediation Act 2016”, Joel Lee provides a thorough overview of the purpose of this act and its provisions.

In “Towards a Harmonised Approach To Mediation legislation in Asia”, Nadja Alexander provides an overview of Singapore’s dispute resolution services for commercial cross-border disputes. Nadja also offers further analysis on the recent Singapore Mediation Act.

In “Do You Need Grey Hairs To Mediate?”, Suzanne Rab considers the composition of the mediation market and explores the challenges faced by mediators who are new to the field.

In “Global Pound Berlin, March 24, 2017”, Greg Bond identifies certain recurring themes at this conference and shares some of the local questions raised and their answers.

In “Working on Water – Again: A Collapsing Consensus”, Ian Macduff builds on his earlier two posts on the work of the Land and Water Forum in New Zealand. In this post, Ian considers the recent developments which undermine the optimism that the consensus achieved, and the recommendations on water quality, will be implemented.

In “A Pop-Up Mediation: Brexit and Devolution”, John Sturrock reflects on a recent event in Edinburgh at which John and his colleague, Charlie Woods, acted as mediators in a simulation of a mediated process involving 10 delegations representing different interests in the current Brexit negotiations.

More from our authors:

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Does Cultural Diversity Improve or Hinder The Quality of Arbitral Justice?

Thu, 2017-03-30 23:48

Won Kidane

ITA

The answer to this question might seem simple, but consider an instance of a commercial arbitration between a Chinese company and an African state arising out of a failed railway project in Africa. Assume that all three arbitrators are European and from the civil law legal tradition. Assume further that they are experienced arbitrators of the highest integrity and reputation with no conflict of interest. The applicable law is Chinese law, and all the witnesses are either speakers of Mandarin or Yoruba. Consider another similar scenario: the dispute is between a Chinese business and a European state, but the arbitrators are all African with equivalent qualifications as the European arbitrators but who do not speak any Chinese or any European languages. What should concern the reasonable neutral observer in each one of these scenarios?

There are many concerns, but there is only one word that could capture them all without fear, favor, or irony: culture. Although cultural diversity structured in the above-cited way could be a source of misunderstanding, structured differently, it could also improve the quality of the outcome. These scenarios offer a somewhat extreme example of the lack of cultural proximity between the decision-makers and the parties who must suffer the consequences of the inevitable cultural incommensurability. The process of determination of facts and application of the facts to the law (and the interpretation thereof) is a deeply cultural exercise. Facts always grow out of cultural interactions. When arbitrators are asked to determine facts that grew out of interactions within unfamiliar cultural milieu on the basis of evidence offered by “cultural others,” they appreciate the limitations of their comprehension. If a witness who had an orange-colored identification card (the color copy of which the arbitrators have seen) says during cross-examination that his identification card was yellow, assuming that the color is an issue of material fact and the outcome depends on the credibility of this witness, the case would probably have a different result depending on which one of the two above-referenced panels decides credibility. The African arbitrators would probably not be dumbfounded by a witness who points to an orange identification card and calls it yellow because in many African cultures yellow represents a range of colors, including orange. An extreme position would argue that “judges – are unable to adequately conceptualize the thought and practice (and associated material artifacts) of the members of different cultures.”1)See e.g., ANTHONY J. CONNOLLY, CULTURAL DIFFERENCES ON TRIBAL: THE NATURE AND LIMITS OF JUDICIAL UNDERSTANDING 167 (2010) “They do not possess and cannot acquire…’culturally different concepts.” Id. at 2. jQuery("#footnote_plugin_tooltip_3198_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3198_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Another somewhat extreme position would suggest that “you will never understand Chinese people unless you understand Chinese language.”2)Niall Lawless, Cultural Perspectives on China: Resolving Disputes through Mediation, 4 TRANSNAT’L DISP. MGMT. 4 jQuery("#footnote_plugin_tooltip_3198_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3198_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

For example, in the English case of Balraj v. Balraj, the court was called upon to determine a petition for divorce by a UK resident Indian man under a law that permitted divorce upon showing of five years of separation unless the other spouse (in this case residing in India) could prove grave hardship. Part of the court’s opinion is pertinent here: “For a judge to try to achieve the insight necessary to grasp the prospect of this lady in the outskirts of Hyderabad and the prospects of the daughter of the family living with the mother in Hyderabad calls for the exercise of perhaps grater insight than any English judge should be required to exercise.”3)Quoted in SEBASTIAN POULTER, ENGLISH LAW AND ETHNIC MINORITY CUSTOM 6 (Butterworth-Heinemann 1986) (citing 11 Fam. Law 110 (1981)). jQuery("#footnote_plugin_tooltip_3198_3").tooltip({ tip: "#footnote_plugin_tooltip_text_3198_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The same set of facts could be attributed different meanings because of the fact finders’ cultural backgrounds.4)See Susan Bryant, The Five Habits: Building Cross-Cultural Competence in Lawyers, 8 CLINICAL L. REV. 33, 42 (2001). jQuery("#footnote_plugin_tooltip_3198_4").tooltip({ tip: "#footnote_plugin_tooltip_text_3198_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Inaccurate attributions often lead to erroneous findings.5)See Susan Bryant, The Five Habits: Building Cross-Cultural Competence in Lawyers, 8 CLINICAL L. REV. 33, 45 (2001). jQuery("#footnote_plugin_tooltip_3198_5").tooltip({ tip: "#footnote_plugin_tooltip_text_3198_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Erroneous arbitral fact-finding is very difficult to correct or set aside, if not impossible, more so than judicial fact-finding.

Professor John Crook says that “‘[n]othing a court does affect the public perception of its fairness so clearly as its examination and weighing of the relevant facts.”6)John Crook, Fact-Finding in the Fog: Determining the Facts of Upheaval and War in International Disputes in CATHERINE A. ROGERS & ROGER P. ALFORD, THE FUTURE OF INVESTMENT ARBITRATION 313, 314 (2009). jQuery("#footnote_plugin_tooltip_3198_6").tooltip({ tip: "#footnote_plugin_tooltip_text_3198_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); What do arbitrators do? In answering this question, Professor Crook again says: “[s]hould they pause to reflect, most international lawyers would likely accept the thought that the science and art of deciding legal disputes involves at least three inter-related components. The first two involve determining relevant law and the relevant facts. Then comes stage three—applying the law to the facts.”7)John Crook, Fact-Finding in the Fog: Determining the Facts of Upheaval and War in International Disputes in CATHERINE A. ROGERS & ROGER P. ALFORD, THE FUTURE OF INVESTMENT ARBITRATION 313, 314 (2009). jQuery("#footnote_plugin_tooltip_3198_7").tooltip({ tip: "#footnote_plugin_tooltip_text_3198_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The algorithm for the selection of arbitrators must thus account for the ability to determine facts, identify and interpret law, and apply the law to the facts. The determination of fact is probably the most culturally sensitive step, but the ability to correctly determine facts is perhaps the most ignored of all criteria for arbitrator selection. There is no doubt that ordinarily Chinese judges would understand Chinese witnesses better than European or African arbitrators because of the cultural proximity. Would the ability of the tribunal to determine the facts correctly improve if the composition of the members of the tribunals in the above scenarios is mixed? Say, for example, a Chinese, a European, and an African arbitrator on both tribunals (assuming all other qualifications being equal)?

In the United States, the jury is often the mechanism used to determine facts in certain civil and criminal proceedings. Studies have shown that “[t]he most important determinant of how a jury decides a case is the juror’s own values, attitudes, and beliefs.”8)See Doak Bishop & James H. Carter, The United States Perspective and Practice of Advocacy, in THE ART OF ADVOCACY IN INTERNATIONAL ARBITRATION 532 (2nd ed. 2010). jQuery("#footnote_plugin_tooltip_3198_8").tooltip({ tip: "#footnote_plugin_tooltip_text_3198_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the United States, some doctors specialize in jury psychology. Trial lawyers hire them. Underneath the struggle for composing the tribunal “right” in international arbitration always lurks the desire to gain the cultural upper-hand because the cultural composition of the tribunal sets the invisible balance of power in the arena making one party more understood, more acceptable, and more comfortable than the other. And indeed, the science of persuasion has long established that “[t]he ability to persuade is dependent on … the speaker’s credibility and likability, and his or her understanding of the audience….”9) BRAD BRADSHAW, THE SCIENCE OF PERSUASION: A LITIGANT’S GUIDE TO JUROR DECISION-MAKING 1 (2nd ed. 2015). (It’s a tribute to Aristotle’s ethos, pathos, logos.) jQuery("#footnote_plugin_tooltip_3198_9").tooltip({ tip: "#footnote_plugin_tooltip_text_3198_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As Brad Bradshaw puts it: “[w]e also tend to like people who are similar to us…. Similarities lead to likability, and likability can increase the ability to persuade. This is especially true in ambiguous situations…. When information is ambiguous we are more likely to rely on the opinions and actions of those who are similar to us.”10) BRAD BRADSHAW, THE SCIENCE OF PERSUASION: A LITIGANT’S GUIDE TO JUROR DECISION-MAKING 1 (2nd ed. 2015). (It’s a tribute to Aristotle’s ethos, pathos, logos.) jQuery("#footnote_plugin_tooltip_3198_10").tooltip({ tip: "#footnote_plugin_tooltip_text_3198_10", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Some specific decision-maker psychology studies in the context of the jury system have also found, for example, that “[w]hites demonstrated a more complex thinking when assigned to a diverse group than when assigned to an all-white group.”11)Samuel R. Sommers, On Racial Diversity and Group Decision Making: Identifying Multiple Effects of Racial Composition on Jury Deliberations, 90(4) J. PERSONALITY & SOCIAL PSYCHOLOGY 597-612, 598 (2006) jQuery("#footnote_plugin_tooltip_3198_11").tooltip({ tip: "#footnote_plugin_tooltip_text_3198_11", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); And, indeed, “research indicates that when jurors of different ethnic groups deliberate together, they are better able to overcome their individual biases.”12)JEFFREY ABRAMSON, WE, THE JURY: THE JURY SYSTEM AND THE IDEAL OF DEMOCRACY 104 (Basic Books, 1994) citing social science studies. jQuery("#footnote_plugin_tooltip_3198_12").tooltip({ tip: "#footnote_plugin_tooltip_text_3198_12", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As the United States Supreme Court said in Taylor v. Louisiana 419 U.S. 522, 532 (1975), “[t]he broad representative character of the jury should be maintained, partly as assurance of a diffused impartiality.”

In international arbitration circles, diversity is often discussed in light only of political legitimacy and the ethical considerations of exclusion. What is not often discussed is the role diversity plays in improving the quality of arbitral justice. This author’s newly released book, The Culture of International Arbitration (Oxford University Press, March 2017), explores these issues in great detail. The book includes summaries of interviews with several leading international arbitration specialists from different legal traditions, including three judges of the International Court of Justice.

As to whether cultural diversity improves or hinders the quality of justice in terms of the accurate determination of facts and application of law, consider a typical scenario of seven actors in the arbitration room: three arbitrators, two party representatives, and two witnesses. If all three members of the tribunal share a cultural background with each other but not with the party representatives or the witnesses, that alignment of diversity would probably have a negative impact on comprehension. But if, assuming interchangeability, two of the arbitrators change positions with the party-representatives or witnesses, comprehension could improve. In any case, the worst possible outcome is if the group with the least cultural comprehension is the one that makes the decision. That is what needs to be avoided. Seeking diversity for its own sake is a legitimate objective but it is even more compelling if it is sought for the sake of improving justice.

References   [ + ]

1. ↑ See e.g., ANTHONY J. CONNOLLY, CULTURAL DIFFERENCES ON TRIBAL: THE NATURE AND LIMITS OF JUDICIAL UNDERSTANDING 167 (2010) “They do not possess and cannot acquire…’culturally different concepts.” Id. at 2. 2. ↑ Niall Lawless, Cultural Perspectives on China: Resolving Disputes through Mediation, 4 TRANSNAT’L DISP. MGMT. 4 3. ↑ Quoted in SEBASTIAN POULTER, ENGLISH LAW AND ETHNIC MINORITY CUSTOM 6 (Butterworth-Heinemann 1986) (citing 11 Fam. Law 110 (1981)). 4. ↑ See Susan Bryant, The Five Habits: Building Cross-Cultural Competence in Lawyers, 8 CLINICAL L. REV. 33, 42 (2001). 5. ↑ See Susan Bryant, The Five Habits: Building Cross-Cultural Competence in Lawyers, 8 CLINICAL L. REV. 33, 45 (2001). 6, 7. ↑ John Crook, Fact-Finding in the Fog: Determining the Facts of Upheaval and War in International Disputes in CATHERINE A. ROGERS & ROGER P. ALFORD, THE FUTURE OF INVESTMENT ARBITRATION 313, 314 (2009). 8. ↑ See Doak Bishop & James H. Carter, The United States Perspective and Practice of Advocacy, in THE ART OF ADVOCACY IN INTERNATIONAL ARBITRATION 532 (2nd ed. 2010). 9, 10. ↑ BRAD BRADSHAW, THE SCIENCE OF PERSUASION: A LITIGANT’S GUIDE TO JUROR DECISION-MAKING 1 (2nd ed. 2015). (It’s a tribute to Aristotle’s ethos, pathos, logos.) 11. ↑ Samuel R. Sommers, On Racial Diversity and Group Decision Making: Identifying Multiple Effects of Racial Composition on Jury Deliberations, 90(4) J. PERSONALITY & SOCIAL PSYCHOLOGY 597-612, 598 (2006) 12. ↑ JEFFREY ABRAMSON, WE, THE JURY: THE JURY SYSTEM AND THE IDEAL OF DEMOCRACY 104 (Basic Books, 1994) citing social science studies. 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:

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Have the Singapore Courts Faltered in the Enforcement of Arbitration Agreements?

Wed, 2017-03-29 19:22

Darius Chan

YSIAC

In TMT Co Ltd v The Royal Bank of Scotland plc [2017] SGHC 21, the Singapore High Court took the view that an arbitration clause did not meet the prima facie standard to warrant a stay of court proceedings because it designated an inapplicable arbitral institution. Commentators have suggested that the decision is “surprising” and out of line with the prevailing judicial policy of upholding arbitration agreements. This note takes the view that the ultimate decision is defensible because, on a proper interpretation of the dispute resolution clauses, there was no clear intention to arbitrate the dispute at hand.

Facts

TMT Co., Ltd (“TMT”), a Liberian ship-owning company, opened a trading account with the Royal Bank of Scotland plc (“RBS”) in May 2007. The trades were cleared by RBS through the London Clearing House, of which RBS was a Clearing Member.

In 2010, TMT commenced proceedings against RBS in England for breach of the trading account agreement (referred to in the judgment as the “FFA Account Agreement”) negligence, breach of statutory duty concerning risk management and other obligations and negligent misrepresentation as to the margin requirements of the trading accounts. It was essentially alleged that incorrect information was provided by RBS and relied upon by TMT to make trading decisions, leading to substantial losses. The FFA Account Agreement is governed by English law. Clauses 20 and 22 of the FFA Account Agreement provide as follows:

20. Arbitration
Any dispute arising from or relating to these terms or any Contract made hereunder shall, unless resolved between us, be referred to arbitration under the arbitration rules of the relevant exchange or any other organization as the relevant exchange may direct and both parties agree to, such agreement not to be unreasonable [sic] withheld, before either of us resort to the jurisdiction of the Court.

22. …
Subject to term 20 [the arbitration clause] above, disputes arising from these terms or from any Contract shall, for our benefit, be subject to the jurisdiction of the English courts to which both parties hereby irrevocably submit, provided however that we shall not be prevented from bringing an action in the courts of any other competent jurisdiction.

In 2012, the parties entered into a settlement agreement to settle the English proceedings (referred to in the judgment as the “Settlement Agreement”). The Settlement Agreement is governed by English law. The Settlement Agreement contains an exclusive English jurisdiction clause.

In 2015, TMT sued RBS’s Singapore branch and a number of RBS’s officers (collectively the “Defendants”) for losses arising from imposing improper and erroneous margin requirements, improper and erroneous valuation, diversion of monies and delay of instructions, wrongful or fraudulent assistance, and conspiracy to carry out the wrongful acts, relating to TMT’s margin trades.

The Defendants applied for a stay of the Singapore proceedings and succeeded before an Assistant Registrar. On appeal before the Singapore High Court, TMT argued, inter alia, that:

(a) The Settlement Agreement covered only claims raised in the English proceedings.

(b) The arbitration clause in the FFA Account Agreement was inoperative and incapable of being performed. There was no relevant exchange because the London Clearing House is not an exchange.

(c) The arbitration rules governing the London Clearing House Clearing Members are inapplicable because they are intended solely for Clearing Members. TMT is a non-clearing member.

(d) Under the jurisdiction clause in the FFA Account Agreement, TMT must submit to the jurisdiction of the English courts if RBS commenced proceedings there. Otherwise, both parties are entitled to commence legal proceedings anywhere else.

On the other hand, the Defendants raised various alternative arguments, including:

(a) Any dispute about the scope of the Settlement Agreement should be determined by the English courts pursuant to the exclusive jurisdiction clause in the Settlement Agreement.

(b) All the claims in the Singapore proceedings arise from or relate to the terms of the FFA Account Agreement, and would be subject to the arbitration clause under the FFA Account Agreement.

(c) All the claims are subject to the exclusive jurisdiction of the English courts under the FFA Account Agreement.

Eventually, the Singapore High Court decided that the Singapore proceedings fell within the scope of the Settlement Agreement properly construed. The Court also found that, even if there was any dispute about the scope of the Settlement Agreement, such a dispute would fall within the scope of the exclusive jurisdiction clause in the Settlement Agreement. The proceedings in Singapore should thus be stayed.

By way of obiter, the Court proceeded to examine whether a stay would be warranted on the basis of the arbitration clause in the FFA Account Agreement. The Court’s reasoning was that, because there is no relevant exchange in this case, the arbitration clause does not on its face apply to the present dispute. On the evidence before the Court which appears to be undisputed, the trades that were executed under the FFA Account Agreement were carried out through a clearing house, which is different from an exchange.

The Defendants tendered an English legal opinion which took the view that the English courts would not limit the arbitration clause to only situations where an exchange is involved. The English courts would focus on the provision for arbitration, treating the rest of the clause as the relevant mechanism which could be modified to the situation at hand.

The Court rejected the Defendants’ argument on the premise that the Courts would be slow to override the plain words in the parties’ agreement. The Court was unable to conclude on the evidence that there is any absurdity or that parties had intended to give an expanded meaning to the word “exchange”. The Court took the view that the threshold for granting a stay under section 6 of the International Arbitration Act was not met.

Comments

Observers have suggested that the Court’s decision is “unusual” because the arbitration clause in this case was coherently drafted—the Singapore Courts have on previous occasions, such as HKL Group Co Ltd v Rizq International Holdings Pte Ltd [2013] SGHCR 5 and Insigma Technology Co Ltd v Alstom Technology Ltd [2009] SGCA 24, saved other defective arbitration agreements between commercial parties when the defect was more apparent. These observers have suggested one way of rationalizing this decision: a bad arbitration clause is more likely to be saved than one that is coherent but inapplicable, because the Court would be reluctant to “rewrite” the clause.

In this writer’s view, the Court’s decision is defensible. The outcome of such cases does not simply turn on how well-drafted the clause is; a fundamental touchstone is whether the parties have evinced, prima facie, an intention to arbitrate the specific dispute at hand. On the facts of this case, the intention of the parties is gleaned by reading both the dispute resolution clauses in the FFA Account Agreement, i.e. clauses 20 (arbitration clause) and 22 (jurisdiction clause), together.

It is uncontroversial that, as a starting point, Singapore courts strive to uphold arbitration clauses—a paradigm example would be K.V.C. Rice Intertrade Co., Ltd v Asian Mineral Resources Pte Ltd [2017] SGHC 32, where the Singapore High Court recently enforced “bare” arbitration clauses which specified neither the seat or means of appointing arbitrators. However, unlike a typical case where the parties only included an arbitration clause but not a jurisdiction clause, in this case the dispute resolution mechanism included a jurisdiction clause. One would need to give effect to the existence and language of the jurisdiction clause.

On a plain reading of clauses 20 and 22 of the FFA Account Agreement, it is arguable that, under the FFA Account Agreement:

(a) Before parties “resorted to the jurisdiction” of the courts, parties would first submit disputes that are amenable for resolution “under the arbitration rules of the relevant exchange or any other organization as the relevant exchange may direct”; and

(b) Any disputes not so amenable would then be resolved by way of the jurisdiction clause in clause 22.

If the Defendants’ expansive interpretation of clause 20 were accepted, clause 22 may be rendered practically otiose. There is no evidence that was the intention of the parties. Furthermore, that outcome would be inconsistent with the language of clause 20 because clause 20 itself refers to the possibility of parties “resort[ing] to the jurisdiction” of the courts. On its terms, clause 22 applies to any disputes that are not amenable for arbitration under clause 20.

Put simply, it is arguable the scope of the arbitration agreement here is expressly limited to disputes that are amenable for resolution “under the arbitration rules of the relevant exchange or any other organization as the relevant exchange may direct”. There appears to be no evidence, prima facie or otherwise, that the Singapore proceedings fell within that scope.

The decision at hand is a good example of how, despite adopting a pro-arbitration policy, the Singapore courts will not enforce arbitration clauses indiscriminately. The mere existence of an arbitration clause does not, without more, carry the day.

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The German Media Arbitral Tribunal

Wed, 2017-03-29 03:25

Nadine Lederer

Since 1 January 2017, national and international media companies can initiate arbitration proceedings with the German Media Arbitral Tribunal (Deutsches Medienschiedsgericht – “DMS”). The DMS, which was established in 2016 in Leipzig, is a specialized arbitral institution that exclusively deals with media law disputes. In addition to arbitration proceedings, the DMS offers conciliation proceedings and expert determinations.

Background

Media-related disputes frequently involve publishing houses, broadcasting and internet enterprises, media companies as well as copyright collecting societies. These disputes often deal with complex legal issues of intellectual property, copyright, film, music and press law, as well as with difficult technical questions which may require special expertise. In many cases, proceedings before national courts take place over several years. Therefore, and as expressed by the DMS on its website, there is a risk that such proceedings may become obsolete due to technical development.

By taking into account the special needs of media companies, the DMS aims at providing a faster and more economical alternative to litigation proceedings. It offers an alternative dispute settlement mechanism which allows for flexibility and confidentiality, and provides also for tailored services to meet the requirements of the evolving area of media law.

The DMS Rules of Arbitration in a Nutshell

Parties that wish to have their dispute administered by the DMS may use the model arbitration clause provided on the DMS website. Arbitration proceedings are conducted on the basis of the DMS Rules of Arbitration (“DMS Rules”). The DMS Rules include provisions that deal with the organization of arbitration and conciliation proceedings, as well as with expert determinations.
Some of the most important aspects of the DMS Rules are analyzed in this post:

The Jurisdiction of the DMS: Media Law Disputes

Article 3(1) of the Rules stipulates that the DMS only deals with media law disputes.
According to the definition provided in Article 3(2) of the DMS Rules,

“[a] media law dispute shall be deemed given if at least one of the parties directly involved in the proceedings creates, utilises, uses or markets media and the dispute focuses on such an activity. Media within the meaning of sentence 1 comprise means of communication that are disseminated by way of technical duplication and disseminated to users by word, pictures or sound content. These include, in particular, the print media (e.g. newspapers, magazines, posters and flyers) and electronic media (e.g. broadcasting and online services).”

Based on this definition, it is to be expected that relevant disputes will include, for example, copyright and licensing issues. Also, pursuant to Article 18(2) of the DMS Rules, the minimum amount in dispute must be EUR 100,000.00.

The DMS may come to the conclusion that it does not have jurisdiction with regard to certain disputes. As clarified by Article 3(3)(b) of the DMS Rules, such a decision may be issued in the event that the matter is not sufficiently significant for the development of media law. The notion of “insufficient significance” gives the DMS a wide discretionary power to reject cases. However, this threshold is vague and may cause legal uncertainty for the parties. How the DMS will interpret this term remains to be seen.

Place of the Arbitration and Applicable Laws

According to the model arbitration clause, the place of the arbitration proceedings is Leipzig, where the DMS has its headquarters (Article 2 of the DMS Rules).

The Rules provided for an application of the provisions of the German Code of Civil Procedure (Zivilprozessordnung – “CCP”) relating to arbitration proceeding when the DMS Rules are silent on the matter (Article 19(2) of the DMS Rules). Also, unless otherwise agreed by the parties, German law is the applicable substantive law (Article 4(1) of the DMS Rules). If the parties agree on the application of foreign law, they must bear the additional costs for obtaining any necessary legal opinion (Article 4(2), read with Article 18, of the DMS Rules).

This shows that the DMS arbitration proceedings are largely based on and dictated by German law. To some extent, this may restrict the parties’ flexibility to shape their arbitration proceedings. Against this backdrop, it remains to be seen how attractive arbitration proceedings under the DMS Rules will be not only for German, but also for international media companies.

DMS Arbitrators

The DMS provides a list of arbitrators (currently 21), each with special expertise and a reputation in media law (Article 6 of the DMS Rules). The parties must choose their arbitrators from this list (Article 12(1) DMS Rules).

Furthermore, the parties must decide whether the arbitral tribunal shall consist of either three, five or seven members. Ideally, the parties should agree on the number of arbitrators in advance (i.e. in their arbitration agreement). The model arbitration clause provides specific wording in this respect. However, in the absence of a clear stipulation of the number of arbitrators in the arbitration clause, and failing an agreement between the parties at a later stage when the dispute has already arisen, the arbitral tribunal cannot be constituted (Article 12(2) of the DMS Rules). As such, one party may effectively block arbitration proceedings by simply not engaging in discussions with the other party about the number of the arbitrators.

Arbitral Award

An arbitral award has the effect of a final judgement (Article 31 of the DMS Rules), and as such it may be subject to annulment pursuant to Article 1059 of the CCP. However, before the initiation of arbitration proceedings, the parties may agree in their arbitration agreement “to the contrary that the legal action is to remain pending before a state court without any restriction”. Thus, recourse to domestic courts remains open to the parties if they so agreed. The model arbitration clause provides specific wording should the parties take the advantage of this possibility, which reads as follows:

“All media law disputes that arise in conjunction with [describe matter in dispute in detail] shall be ultimately decided upon in accordance with the rules of arbitration of the German Media Arbitral Tribunal by way of the continued unrestricted permissibility of a legal action before a state court.”

However, this possibility seems inconsistent with the DMS’ intention of providing a faster and more economical alternative to litigation proceedings before domestic courts. This intention serves the broader objective of arbitration, that is, to resolve disputes outside of the courts’ jurisdiction.

Outlook

The 2016 Queen Mary Dispute Resolution Survey “Pre-empting and Resolving Technology, Media and Telecoms Disputes” (which was discussed on this blog by Gustavo Moser) identified the future potential and increased use of arbitration as a viable mechanism for the resolution of technology, media and telecoms (“TMT”) disputes. According to the aforementioned survey, litigation is still the most frequently used dispute resolution mechanism in this area of law. However, this will hopefully change in the future. The survey also reported that, to date, the most popular arbitral institutions for TMT disputes are the ICC, the LCIA, the SIAC, and the WIPO Arbitration and Mediation Center. The DMS was thus established at a time in which arbitration is becoming more and more relevant for the resolution of media law disputes, and as such the DMS is an important step for the further promotion of arbitration in the field of media law.

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The Development of Arbitration Legal Studies In Brazil (or How the Vis Moot Can Change Your Life)

Mon, 2017-03-27 22:57

Thiago Del Pozzo Zanelato and Lucas Moreira Jimenez

With the upcoming 2017 edition of the Willem C. Vis International Commercial Arbitration Moot Court Competition (the “Vis Moot”), the eyes of the international arbitral community are turned – maybe more than ever before – to Brazil. That is because the arbitration rules that will apply as the basis for the competition’s fictional dispute will be, for the first time, that of a Latin American arbitral institution: the Center for Mediation and Arbitration of the Brazil-Canada Chamber of Commerce.

Curiously, law schools in Brazil in general are still taking their first steps in adopting and promoting arbitration and other dispute resolution-related subjects. In fact, the overwhelming majority of courses do not have “arbitration” or “ADR” in their syllabus and the few ones that do offer these disciplines offer them as elective courses.

This situation is also in dire contrast to the current arbitration practice in Brazil. With an effective and up-to-date legal framework and a broad acceptance from the business community (and even for the State entities), who wish to opt-out from the local judiciary, arbitration has firmly established itself in the country over the last years.

Recently, some extension or post-graduate courses have presented themselves as makeshift solutions for the market’s demand for lawyers with an expertise in the field. In this sense, law firms and law associations are increasingly making the case for turning arbitration and ADR mandatory disciplines in law schools across the country.

It is in this context (familiar to several other countries besides Brazil) that the Vis Moot immensely contributes to the formation and development of young legal professionals, filling a gap in the local legal education and getting students acquainted to areas of law traditionally neglected by the universities.

A proof of this statement comes from the fact that, despite the scenario just described, Brazil has almost 30 teams participating in the Vis Moot this year, with universities from virtually all regions of this continental country, placing the country among those with most expressive participation in number of teams.

Particularly in 2016, Brazil had a historical run in the Vis Moot: besides the record number of 21 participating universities (which placed the country 3rd in number of teams), Brazilian universities attained top positions in the overall ranking. Four teams advanced to the eliminatory rounds: PUC-PR (semi-finals), PUC-SP (quarterfinals), Universidade Positivo (round of 32) and UniCuritiba (round of 64). In the Vis East Moot, the “sister” competition taking place in Hong Kong, PUC-SP was the only Latin American university competing, having advanced to the eliminatory rounds (a feat repeated in the three previous editions of the competition).

Commonly held by professionals as one of the most innovative and productive legal educational experiences nowadays, the competition’s relevance as a practical experiment is widely recognized by local Brazilian law firms. In fact, top arbitration lawyers seek to participate in the competition (and in the several pre-moots that precede it), apart from the traditional networking and exposure, to scout for talented young practitioners to fill highly disputed positions in their law firms.

This should come as no surprise. Some of the characteristics the students create or develop over the competition are highly sought after by any law firm: pro-activity, resiliency, being able to work in a group, leadership, advocacy skills etc. (apart from other less obvious but nevertheless useful features, such as a high tolerance to sleep deprivation).

In this sense, it is clear that the Vis Moot is more than an educational tool, serving as a valuable exercise of law practice – arguably one of the closest you could get to the real deal while still an undergraduate student.

Besides, depending on the dedication and the performance of the competitors (known as mooties), the Vis Moot can generate unique opportunities to students. Indeed, there are several cases of students from Brazil and other nationalities that were offered internship positions in major international law firms, arbitration centers and other institutions following their participation in the competition. The social aspect of the Vis Moot experience is also well known – lasting friendships are formed, fruitful partnerships are created, and eventually even couples are put together.

These opportunities of exchange and growth are certainly advantageous to all law students, regardless of their nationalities. However, they are all the more appealing when one considers the standpoint of aspiring lawyers coming from places such as Brazil and others not as integrated to the global economy or the international arbitral community. In these cases, these opportunities become truly unique.

In the end, it is also the intensity of the Vis Moot experience as a whole that defines the kind of results that will be reaped from participating in the competition – a hard working student will make the most of it, and there is plenty to be made. Whether it is on the educational, professional or personal level, the Vis Moot can mean a lot to anyone who wish to be a part of it (and give up some or all weekends from October to April), to a point that it wouldn’t be an exaggeration to say that the Vis Moot can change your life.

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Trust Disputes Non-Arbitrable in India

Mon, 2017-03-27 05:30

Mohit Mahla

Coincidentally, at the same time last year, the world witnessed two historical developments. First, Donald J. Trump was elected as the 45th president of the United States. Second, in an attempt to curb black money (a move, the result of which is still to be evaluated), the Modi-led Government demonetised 500 and 1000 currency notes in India. Even before, interestingly, the Supreme Court of India through its judgment in Shri Vimal Kishor Shah & Ors. v. Mr. Jayesh Dinesh Shah & Ors. (“Vimal Kishor Shah”) [2016 (8) SCALE 116] in effect has demonetised arbitration of trust disputes in India.

From being typically charitable in nature to becoming an effective commercial vehicle for succession and estate planning, trusts in India have evolved with time. With the growing complexity of trust deeds and the constantly evolving nature of trusts, came the inevitable raven – “disputes”. Resolving trust disputes through arbitration – which comes with the usual advantages over litigation, such as confidentiality, party autonomy, limited curial review, costs and time benefits – seemed to be an attractive option. That being said, arbitration of trusts disputes raises issues that make trusts disputes non-arbitrable in many jurisdictions including India.

The question of arbitrability of disputes arising out of trust deeds was considered by the Supreme Court of India in Vimal Kishor Shah. The court was hearing an appeal against an order of the High Court of Bombay appointing an arbitrator to hear disputes arising out of a family trust deed. The arbitration agreement in that deed provided for arbitration of any disputes between trustees; trustees and beneficiaries; and beneficiaries, it held that disputes arising out of trust deeds are non-arbitrable under the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”). The Supreme Court, however, ignored certain important facets of modern-day-arbitrations which are problematic. A few of those problems are the following.

A trust deed is not an Arbitration Agreement

The Supreme Court concluded that a trust deed cannot be construed as an agreement let alone an arbitration agreement within the meaning of Section 7 of the Arbitration Act (which is based on Article 7 of UNCITRAL Model Law on International Commercial Arbitration, 1985). The Supreme Court found that trust deeds are not signed by the beneficiaries and, thus, beneficiaries under a trust deed containing an arbitration clause cannot be regarded as a “party” to the arbitration agreement under the Arbitration Act. In reaching such a conclusion, the Supreme Court has ignored the following points:

First, the signature of the parties to an arbitration agreement cannot be regarded as a decisive factor in determining its validity and enforceability. In the past, however, courts and arbitral tribunals strictly interpreted the writing requirement of arbitration agreements. Now, however, the writing requirement is interpreted more liberally by various jurisdictions. The courts in U.S.A, Singapore and even in India have clarified that the mere absence of a signature will not affect the existence of a valid and binding arbitration agreement. [See Seawright v. Am. Gen. Fin., Inc., 2007 U.S. App. (6th Cir. 2007); Malini Ventura v. Knight Capital Pte. Ltd and others [2015] SGHC 225; Govind Rubber Ltd. v. Louids Dreyfus Commodities Asia Ltd. (2015) 13 SCC 477]. Further, both, Option I (on which Section 7 of the Arbitration Act is based upon) and Option II of the 2006 version of Article 7 of the UNCITRAL Model Law on International Commercial Arbitration do not have a writing requirement. This removes one of the difficulties faced in arbitration of trust disputes–especially in respect of disputes involving beneficiaries.

Second, in reaching the conclusion that a beneficiary of a trust cannot be regarded as a “party” to the arbitration agreement under the Act, the Supreme Court ignored the intention of the legislature behind the recent amendment to Section 8 of the Arbitration Act. As a result of the amendment, Section 8 now provides a reference to arbitration could be sought not only by a party to the arbitration agreement but also by “persons claiming through or under” a party to an arbitration agreement. Thus, the purpose was to bring parties who are not signatories to an arbitration agreement – but whose rights and liabilities are still affected by the underlying agreement – into the ambit of “party” to the arbitration agreement. Beneficiaries of a trust can plausibly be regarded as “persons claiming through or under” the settlor who is a party to an arbitration agreement and, thus, can be bound by an arbitration agreement contained in a trust deed.

Third, the Supreme Court has failed to appreciate the common law doctrine of “Direct Benefits Estoppel or Deemed Acquiescence” the foundation of which is that a party is estopped from avoiding or bound by arbitration if it knowingly seeks the benefits of the agreement containing the arbitration clause. [See McArthur v. McArthur, 224 Cal. App. 4th 651 (Cal. App. 1st Dist. Mar. 11, 2014)], where the court applied the doctrine of direct benefits estoppel and prevented a trust beneficiary who was getting benefits under a trust, from avoiding the arbitration provision of that trust]. Beneficiaries of a trust should not be allowed to cherry-pick from a trust deed, parts which are suitable and avoid the parts which are not suitable and should ideally be bound by the arbitration agreement contained in the trust document if they have derived any benefits from the trust.

Implied bar of exclusion of applicability of the Act under the Indian Trusts Act, 1882

The Indian Trusts Act, 1882 (the “Trusts Act”) is the legislation governing private trusts in India. The Trusts Act encompass provisions about various aspects of trusts, i.e., the creation of trust, duties, and liabilities of trustees, rights and powers of trustees, rights and liabilities of the beneficiary, and so on. The Trusts Act empowers the civil courts in respect of certain legal remedies, but it nowhere provides, however, the civil courts’ exclusive jurisdiction to adjudicate disputes arising between the settlor, trustees and beneficiaries. The Supreme Court, while accepting there is no express bar on arbitration of disputes under the Trusts Act, found that there was an implied bar of exclusion of applicability of the Act for deciding trust disputes. By doing so, the Supreme Court has added yet another category of disputes to the list of six well-recognized examples of disputes considered non-arbitrable as identified by the Supreme Court in the case of Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. & Ors., (2011) 5 SCC 532 (“Booz Allen”). However, the Supreme Court failed to appreciate the general arbitrability test (though not being rigid or inflexible) in Booz Allen. According to that case, “generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration.” Trust disputes concern rights in personam and, therefore, based on the general arbitrability test laid down under Booz Allen should not have been regarded as non-arbitrable.

Further, a blanket ban on arbitration of disputes arising out of trust deeds would also mean that separate arbitration agreements entered into between the beneficiaries to resolve disputes between themselves are now non-arbitrable, a consequence – which was highly undesirable.

Conclusion

Arbitration could be an effective mean to resolve trust disputes, especially due to its private and confidential nature which is an important consideration in disputes arising in the context of family trusts in India. However, unless reconsidered, Vimal Kishor Shah has clearly made all trust disputes (even those between the beneficiaries) non-arbitrable in India. To cure the harm done by Vimal Kishor Shah, legislative amendments to the pre-independence era’s Trusts Act are desirable. As a suggestion, the Trusts Act could be amended to include a provision that where a written trust instrument provides for any dispute arising between any of the parties (including the beneficiaries) to the trust, would be submitted to arbitration. That provision should have effect as between those parties as if it were an arbitration agreement and as if the parties were parties to that arbitration agreement. Guidance in this regard could be taken from the legislative amendments made in the Florida Probate Code (Section 731.401 of Chapter 731) or Guernsey Trust Law (Section 63) to facilitate arbitration of trust disputes. However, until allowed legislatively, trust disputes remains non-arbitrable in India.

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Has Brazil Made a Unilateral Binding Offer to Arbitrate in the 2016 Investment Partnership Program (PPI)?

Thu, 2017-03-23 17:19

Cesar A. Guimarães Pereira and Luísa Quintão

A provision enacted in 2016 seems to have created a revolutionary change in Brazil’s approach to arbitration involving State parties. It is well-known that Brazil is not a party to the Washington Convention of 1965 nor of any ratified BIT (Bilateral Investment Treaty). The country has relied on commercial arbitration to resolve disputes with State parties, mostly based on arbitration clauses included in contracts. Provision Measure (MP) 752, issued by the federal government in November 2016, may dramatically change this scenario. At least with regard to certain existing projects governed by Law 13.334, of 2016 (the federal government’s PPI – Investment Partnership Program).

MP is a form of provisional legislation, issued by the President and subject to confirmation or alteration by Congress in up to 120 days. The sectors comprised by PPI include highways, railways and airports and other fields, under many forms of contractual arrangements. PPI projects may be conducted by the federal government or by local governments based on delegation or association. PPI may include privatizations under Law 9.491, of 1996. These fields give PPI a potential breadth that covers most large-scale infrastructure projects.

MP 752 created additional tools to favor PPI projects. One of them is arbitration under special rules. Articles 1 and 2 of Law 9.307, of 1997, allow governments to include arbitration clauses in contracts or enter into submission agreements. But MP 752 brought about special regulations to govern arbitration in two situations.

The first one deals with termination and re-tendering. If parties wish to terminate and re-tender their current contracts, they shall enter into a submission agreement as part of a specific amendment (Article 15, section III, of MP 752).

The second one comprises disputes arising out of PPI contracts. There are two subcategories. If the conditions set forth in Article 25 are met, the provision functions as a unilateral binding offer to arbitrate from the Federal Government. If those conditions are not met, parties may arbitrate under an existing arbitration clause or one that is added through a contractual amendment (Article 25, paragraph 1). The conditions under Article 25 are as follows:

Article 25. Disputes relating to disposable economic rights arising out of partnership agreements within the sectors governed by this Provisional Measure may be resolved by arbitration or other alternative dispute resolution mechanism after a final decision by the competent authority.

Paragraph 1. The contracts that do not have an arbitration clause, including those in force, may be amended for the purposes of the head of this article.

Paragraph 2. The arbitration costs shall be anticipated by the private partner at the commencement of the proceedings and when applicable they will be reimbursed under the terms of a final decision in arbitration.

Paragraph 3. The arbitration shall be in Brazil and in Portuguese language.

Paragraph 4. For the purposes of this Provisional Measure, disposable economic rights are limited to:

I – issues relating to the reestablishment of the economic and financial balance of the contracts;

II – calculation of compensations resulting from the termination or transfer of concession contracts; and

III – non-compliance with contractual terms by any of the parties.
Paragraph 5. The accreditation of arbitral institutions for the purposes of this Provisional Measure shall be governed by an Act of the Executive Power.1)Free translation by the authors. jQuery("#footnote_plugin_tooltip_9753_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9753_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The main innovation by MP 752 is the introduction in Brazil of a mechanism widely known internationally for the protection of investments. A State may offer its investors the possibility of submitting investment disputes to arbitration. A unilateral offer may be provided for in multilateral investment treaties, BITs or domestic investment laws. Investors may accept the offer and give effect to the consent required for an arbitration agreement by several means, by simply submitting a request for arbitration.2)SALACUSE, Jeswald. The Law of Investment Treaties, 2nd edition. Oxford University Press, 2015. pp. 422-423. jQuery("#footnote_plugin_tooltip_9753_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9753_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

MP 752 is indistinctly applicable to Brazilian national and foreign parties. The head of Article 25 provides that “disputes (…) arising out of partnership agreements within the sectors governed by this Provisional Measure may be resolved by arbitration or other alternative dispute resolution mechanism”. Such sectors are those covered by PPI, usually infrastructure projects under concession or PPP agreements.

Article 25 sets forth two requirements. First, it requires a final decision by the competent administrative authority prior to arbitration. In other words, arbitration under the special conditions of Article 25 is only possible after a decision from an administrative authority. Second, the dispute’s subject matter must deal with disposable economic rights referred to in paragraph 4. For the specific purposes of the unilateral offer to arbitrate, the objective arbitrability is limited to the subject-matters specified in such provision. Paragraph 5 of Article 25 deals with accreditation of arbitral institutions, but this is not a condition for the offer under the head of Article 25 to be effective.

Article 25 must be interpreted as a unilateral and irrevocable expression of consent by the Federal Government to submit the dispute to arbitration provided such conditions are met.

Consent by the private party may arise from an amendment to a contract without an arbitration clause or even by filing the request for arbitration or through a unilateral statement. The private party then enters into an arbitration agreement and is entitled to all its effects. The private party may initiate arbitration, including through the system to compel arbitration through national courts set forth by articles 6 and 7 of Law 9.307.

The head of Article 25 does not require the conclusion of the amendment provided for in paragraph 1 for consent to exist.3)A suggestion to that effect can be found in the reasons (Exposição de Motivos) submitted by the Federal Government when it issued MP 752, but such reasons are not binding nor do they supersede the language of the MP 752 provisions. jQuery("#footnote_plugin_tooltip_9753_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9753_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); It would have been simple for MP 752 to provide otherwise, but it has not done so.

The most important and final confirmation of such interpretation of Article 25 arises from reading Article 25 and its paragraph 1 in their context.

Law prior to MP 752 already provides for arbitration agreements for disputes involving disposable economic rights between the Federal Government and its private partners or concessionaires. There would be no point in MP 752 simply repeating such provisions. It has gone beyond that.

The possibility of conclusion of arbitration agreements has been expressly provided by Law 11.079 (PPPs Act) and Law 8.987 (Public Concessions Act), since 2004 and 2005. Several sectorial laws had provided for arbitration since the mid-1990s. Such possibility was reaffirmed by the 2015 amendments to the Brazilian Arbitration Act (Law 9.307) introduced by Law 13.129. One can assume that MP 752 has not merely repeated what had already been historically built and consolidated through several acts that led to the legislative reform in 2015.

Most importantly, this interpretation gives sense to the provision that arbitration is possible “after a final decision by the competent authority” (Article 25). Such requirement has created perplexity among specialists. The discussion relates to whether the provision causes a restriction to access to jurisdiction.

The interpretation of the Article 25 condition is clear and simple if one understands such administrative decision is one of the conditions for the unilateral offer to arbitrate. Once an administrative decision exists, the dispute shall be submitted to arbitration under Article 25, depending only on the private party’s expression of consent. If such decision does not exist, the special mechanism introduced by Article 25 does not apply.

The notion of “final decision by the competent authority” requires clarification. Article 25 merely requires some administrative decision before any party can resort to arbitration. For the unilateral offer to arbitrate to be effective, the subject matter of the dispute must have been previously resolved by an administrative decision. This is not the general rule. If there is an arbitration agreement, a private party may commence arbitration without having to wait for an administrative decision, provided there is a dispute and the party has standing to arbitrate.

The condition of a “final decision” does not require a decision by the highest possible authority nor exhaustion of all available administrative appeals. An express or implied waiver of the administrative discussions suffices to give the challenged administrative decision a final character.

Article 25 of MP 752 brings an important innovation to the Brazilian legal system concerning arbitration involving State entities. It creates a unilateral and binding offer from the government to arbitrate certain categories of disputes arising from PPI (infrastructure) contracts in which a competent authority has already rendered a final decision. A private party may conclude the arbitration agreement by a formal submission agreement with the government or by submitting the dispute to arbitration after a final administrative decision or a waiver of subsequent administrative appeals.

References   [ + ]

1. ↑ Free translation by the authors. 2. ↑ SALACUSE, Jeswald. The Law of Investment Treaties, 2nd edition. Oxford University Press, 2015. pp. 422-423. 3. ↑ A suggestion to that effect can be found in the reasons (Exposição de Motivos) submitted by the Federal Government when it issued MP 752, but such reasons are not binding nor do they supersede the language of the MP 752 provisions. 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:

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